<PAGE> 1
As filed with the Securities and Exchange Commission on July 10, 1998
Registration No. 333-52669
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PRESIDIO GOLF TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS GOVERNING INSTRUMENTS)
BUILDING 106, MONTGOMERY STREET
PRESIDIO MAIN POST, P.O. BOX 29355
SAN FRANCISCO, CALIFORNIA 94129
(415) 561-4650
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
GEORGE T. HAWORTH
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
BUILDING 106, MONTGOMERY STREET
PRESIDIO MAIN POST, P.O. BOX 29355
SAN FRANCISCO, CALIFORNIA 94129
(415) 561-4650
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
Copies to:
ERROL R. HALPERIN, ESQ.
HAL M. BROWN, ESQ.
RUDNICK & WOLFE
203 NORTH LASALLE STREET, SUITE 1800
CHICAGO, ILLINOIS 60601
(312) 368-4000
(312) 236-7516 (TELECOPIER)
BRUCE M. MONTGOMERIE, ESQ.
WILLKIE FARR & GALLAGHER
787 SEVENTH AVENUE
NEW YORK, NEW YORK 10019
(212) 728-8000
(212) 728-8111 (TELECOPIER)
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JULY 10, 1998
PROSPECTUS
6,540,000 COMMON SHARES
PRESIDIO GOLF TRUST
COMMON SHARES OF BENEFICIAL INTEREST
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Presidio Golf Trust (the "Company") is a newly organized self-administered
real estate investment trust ("REIT") formed to capitalize on consolidation
opportunities in the ownership of golf courses and golf-related properties in
the United States. The Company's initial portfolio will consist of 15 golf
courses (the "Golf Courses"), including two resorts, at 13 separate locations in
10 states. Of the 15 Golf Courses, eight are located at seven private country
clubs, four are daily fee courses and three are located at two resort
properties. The Golf Courses will be leased to newly-formed affiliates (the
"Initial Lessees") of experienced operators of golf courses. The leases with the
Initial Lessees provide for the payment of fixed base rent and participating
rent based on growth in revenue at the Golf Courses and require the lessee to
pay all taxes, insurance, utilities and services, maintenance and other
operating expenses (commonly referred to as "triple net" leases).
All of the common shares of beneficial interest, par value $.01 per share,
of the Company ("Common Shares") offered hereby are being sold by the Company.
No Common Shares will be sold in the Offering by executive officers or trustees
of the Company. Upon completion of the Offering, 18.8% of the Company's
outstanding common equity, including certain partnership interests exchangeable
for Common Shares, will be beneficially owned by officers and trustees of the
Company and by affiliates of the Initial Lessees.
Prior to the Offering, there has not been a public market for the Common
Shares. It is currently estimated that the initial public offering price will be
between $19.00 and $21.00 per share. See "Underwriting" for information relating
to the factors considered in determining the initial public offering price. The
Company has restricted the ownership of more than 9.8% of the Common Shares by
holders in order to maintain its qualification as a REIT. See "Shares of
Beneficial Interest." The Common Shares have been approved for listing on the
New York Stock Exchange under the symbol "GOF," subject to official notice of
issuance.
SEE "RISK FACTORS" BEGINNING ON PAGE 20 FOR A DISCUSSION OF MATERIAL RISK
FACTORS RELEVANT TO AN INVESTMENT IN THE COMMON SHARES, INCLUDING THE FOLLOWING:
- - Dependence on the ability of the Company's lessees to pay rent under their
leases and the fact that the Company may be unable to make its anticipated
distributions if the Company's lessees (two of which account for substantially
all of the total initial base rent payable to the Company) fail to make such
rent payments.
- - Conflicts of interest in connection with the terms of the Company's formation
and operation, including (i) the terms of transfer of certain golf courses and
the terms of leases with Initial Lessees that are affiliates of executive
officers and trustees of the Company, as well as the enforcement of such
terms; (ii) corporate opportunities presented to certain officers and trustees
of the Company; (iii) the purchase prices of the Golf Courses have not been
based upon independent appraisals; and (iv) other possible conflicts, all of
which could lead to decisions that do not reflect the best interest of the
Company and its shareholders.
- - Risks associated with the Company's lack of control over the operation of the
golf courses due to the tax restrictions that prevent a REIT from operating
golf courses.
- - The Company's lack of rights under, or control over, the license pursuant to
which nine of the golf courses operate under brand affiliations.
- - Risks associated with the Company's growth strategies, which may inhibit the
Company's ability to achieve its investment objectives.
- - The lack of operating history of the Company, which could inhibit the ability
of the Company to generate sufficient revenue from operations to make
anticipated distributions to shareholders.
- - Risks associated with the Company's dependence upon key personnel and the fact
that only one executive officer of the Company has REIT management experience.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
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Per Share $ $ $
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Total(3) $ $ $
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</TABLE>
(1) For information regarding indemnification of the Underwriters, see
"Underwriting".
(2) Before deducting expenses estimated at $1,900,000 payable by the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
981,000 additional Common Shares solely to cover over-allotments, if any.
See "Underwriting". If such option is exercised in full, the total Price to
Public, Underwriting Discounts and Commissions, and Proceeds to Company will
be $ , $ and $ , respectively.
------------------
The Common Shares are being offered by the several Underwriters named
herein, subject to prior sale, when, as and if accepted by them and subject to
certain conditions. It is expected that certificates for the Common Shares
offered hereby will be available for delivery on or about , 1998,
at the office of Smith Barney Inc., 333 West 34th Street, New York, New York
10001.
------------------
SALOMON SMITH BARNEY
NATIONSBANC MONTGOMERY SECURITIES LLC
PAINEWEBBER INCORPORATED
CREDIT LYONNAIS SECURITIES (USA) INC.
, 1998
<PAGE> 3
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES
OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, ENTERING STABILIZING BIDS, EFFECTING
SYNDICATE COVERING TRANSACTIONS, AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF
THESE ACTIVITIES, SEE "UNDERWRITING."
[Presidio Golf Trust Map]
Emerald Valley Country Club Fox Valley Country Club
Corporate Headquarters Oronoque Country Club
Tan Tara Country Club Minebrook Golf Club
Nordic Hills Resort Crofton Country Club
Indian Lakes Resort Penderbrook Country Club
Brierwood Country Club University Club of South Carolina
Memphis National Golf Club Towne Lake Hills Golf Club
DAILY FEES
PRIVATE
RESORT
<PAGE> 4
Presidio Golf Trust
[PHOTO] [PHOTO] [PHOTO]
towne lake hills fox valley brier
woodstock georgia hamburg
[PHOTO] [PHOTO]
[PHOTO] university club minebrook
indian lakes blythewood south carolina hackettstown
bloomingdale illinois
<PAGE> 5
PHOTO
lancaster new york
PHOTO
crofton
crofton maryland+
PHOTO
emerald valley
creswell oregon
PHOTO
penderbrook
fairfax virginia+
PHOTO
nordic hills
itasca illinois
PHOTO
new jersey
PHOTO
+properties operated pursuant to long-term ground lease
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
PROSPECTUS SUMMARY..................... 1
The Company.......................... 1
Summary Risk Factors................. 3
Business Strategy.................... 5
The Golf Industry.................... 7
The Golf Courses..................... 9
The Participating Leases............. 11
The Formation Transactions........... 11
Advantages and Disadvantages to
Unaffiliated Shareholders......... 15
Distributions........................ 16
Tax Status........................... 16
The Offering......................... 17
Summary Selected Financial Data...... 18
RISK FACTORS........................... 20
Dependence on Lessees Generating
Sufficient Revenues From Their
Operations to Permit Payment of
Rent and the Fulfillment of Other
Obligations Under the Leases...... 20
Dependence on Payments Under the
Participating Leases............ 20
Dependence on Two Golf Course
Resort Properties for
Significant Lease Payments;
Vulnerability to Local Economic
Conditions...................... 20
Conflicts of Interest................ 20
Risk That Terms of Contribution
Agreements, Leases and Other
Agreements, and Enforcement
thereof, May Not Reflect the
Best Interests of the Company
and its Shareholders............ 20
Obligations With Respect to
Corporate Opportunities......... 21
Lack of Appraisals and the
Resultant Possibility that the
Market Capitalization of the
Company May Exceed the Fair
Market Value of the Company's
Properties...................... 21
Sale of Properties................ 21
Conflicts Relating to the
Operating Partnership........... 21
Competition from Other Golf
Courses Operated by the
Lessees......................... 22
Competition for the Time of
Management of the Initial
Lessees......................... 22
Other Possible Conflicts.......... 22
Inability of the Company to Exercise
Control Over Day-to-Day Operations
and Management of the Golf
Courses........................... 22
Absence of Rights Under, or Control
Over, Brand License............... 22
No Assurance That the Company Will
Complete Additional Acquisitions
of Properties..................... 23
</TABLE>
<TABLE>
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PAGE
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<S> <C>
Lack of Operating History............ 23
Dependence on Key Personnel.......... 23
Benefits to Officers and Trustees.... 23
Investment in Single Industry........ 24
Golf and Hospitality Industry
Risks............................. 24
Operating Risks................... 24
Supply of Golf Courses............ 24
Seasonality....................... 24
Adverse Weather Conditions........ 24
Factors Affecting Golf
Participation................... 24
Course Conditions................. 25
Environmental Matters................ 25
Compliance with Americans with
Disabilities Act.................. 26
Real Estate Risks.................... 26
General........................... 26
Illiquidity of Real Estate........ 26
Uninsured Losses.................. 26
Ground Leases..................... 26
Adverse Consequences of Failure to
Qualify as a REIT; Other Tax
Liabilities....................... 27
Ownership of Common Shares........... 27
Risks Related to the Company's
Distribution Policy............. 27
No Prior Market for Common Shares;
Adverse Effect of Increase in
Market Interest Rates on Market
Price of Common Shares.......... 27
Distributions to Shareholders..... 28
Adverse Effect of Shares Available
for Future Sale on Market Price
of Common Shares................ 28
Immediate Dilution................ 28
Debt Financing....................... 29
Risks of Leverage................. 29
Risk of Rising Interest Rates and
Variable Rate Debt.............. 29
No Limitations on Indebtedness.... 29
Ability of the Board of Trustees to
Change the Company's Investment
and Financing Policies............ 29
ERISA Risks.......................... 29
Limitations on Changes in Control;
Possible Adverse Consequences of
Ownership Limit................... 30
Possible Adverse Consequences of
Ownership Limit................. 30
Anti-Takeover Effect of Certain
Provisions of Maryland Law and
the Company's Declaration of
Trust and Bylaws................ 30
Possible Limitations on Changes in
Control Pursuant to Maryland
Law............................. 30
</TABLE>
i
<PAGE> 7
<TABLE>
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PAGE
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<S> <C>
THE COMPANY............................ 32
Overview............................. 32
Business Strategy.................... 33
Acquisition Process.................. 36
Due Diligence Process................ 37
Acquisitions Through Lessees......... 38
The Operating Partnership............ 38
USE OF PROCEEDS........................ 40
DILUTION............................... 42
DISTRIBUTION POLICY.................... 43
CAPITALIZATION......................... 45
SELECTED FINANCIAL DATA................ 46
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS........................... 49
Overview............................. 49
Pro Forma Results of Operations of
the Company....................... 49
Results of Operations of the
Company........................... 50
Results of Operations of the
Predecessor to the Operating
Partnership....................... 50
Results of Operations of Paloma Golf
Courses........................... 53
Results of Operations of Olympus
Montclair-Chicago General
Partnership....................... 54
Liquidity and Capital Resources...... 55
Inflation............................ 56
Seasonality.......................... 56
Funds from Operations................ 56
THE GOLF INDUSTRY...................... 57
Market Overview...................... 57
Demographic Trends................... 57
The "Tiger Effect"................... 59
Broader Demographic Representation... 60
Increase in Leisure Spending......... 60
Golf Course Ownership................ 61
Type of Golfers...................... 61
THE GOLF COURSES....................... 62
Descriptions of the Golf Courses..... 67
Brand Affiliations................... 72
Competition.......................... 73
Legal Proceedings.................... 73
Government Regulation................ 73
INITIAL LESSEES........................ 74
Palmer Management.................... 74
Montclair............................ 75
University Clubs..................... 75
HMS.................................. 75
Advisory Committee................... 75
THE PARTICIPATING LEASES............... 76
Lease Term........................... 76
Use of the Golf Courses.............. 76
Base Rent; Participating Rent........ 77
Triple Net Leases.................... 77
Security Deposit..................... 77
Maintenance and Modifications........ 78
Insurance............................ 79
Assignment and Subletting............ 79
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Initial Lessee's Right of First
Offer............................. 79
Damage to a Leased Property.......... 80
Indemnification Generally............ 80
Events of Default.................... 80
Governing Law........................ 81
MANAGEMENT............................. 82
Trustees and Executive Officers...... 82
Committees of the Board of
Trustees.......................... 84
Compensation of the Board of
Trustees.......................... 84
Executive Compensation............... 84
Share Option Plan.................... 85
401(k) Plan.......................... 85
Restricted Share Plan................ 86
Incentive Compensation............... 86
Employment Agreements................ 86
Limitation of Liability and
Indemnification................... 86
CONFLICT OF INTEREST POLICIES.......... 88
Provisions of Maryland Law........... 88
Agreements Between Palmer Management
and the Company................... 89
POLICIES WITH RESPECT TO CERTAIN
ACTIVITIES........................... 89
Investment Policies.................. 89
Dispositions......................... 90
Lending Policies..................... 90
Financing............................ 90
Working Capital Reserves............. 91
Other Policies....................... 91
FORMATION OF THE COMPANY............... 92
Formation Transactions............... 92
Benefits to Related Parties.......... 93
Valuation of Interests............... 94
Transfer Documents................... 95
CERTAIN RELATIONSHIPS AND
TRANSACTIONS......................... 95
Relationships Among Officers and
Trustees.......................... 95
Employment Agreements................ 95
Right of First Refusal/Offer......... 95
Expense Sharing Agreement............ 96
Formation Transactions............... 96
PRINCIPAL SHAREHOLDERS................. 97
SHARES OF BENEFICIAL INTEREST.......... 98
General.............................. 98
Common Shares........................ 98
Preferred Shares..................... 99
Power to Issue Additional Common
Shares and Preferred Shares....... 99
Restrictions on Ownership and
Transfer.......................... 99
Amendments to the Declaration of
Trust............................. 100
Transfer Agent and Registrar......... 101
CERTAIN PROVISIONS OF MARYLAND LAW AND
THE COMPANY'S DECLARATION OF TRUST
AND BYLAWS........................... 101
Classification and Removal of Board
of Trustees; Other Provisions..... 101
Changes in Control Pursuant to
Maryland Law...................... 102
</TABLE>
ii
<PAGE> 8
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Amendments to the Declaration of
Trust............................. 103
Advance Notice of Trustee Nominations
and New Business.................. 103
Anti-Takeover Effect of Certain
Provisions of Maryland Law and of
the Declaration of Trust and
Bylaws............................ 104
Maryland Asset Requirements.......... 104
PARTNERSHIP AGREEMENT.................. 104
Management........................... 104
Sales of Assets...................... 104
Removal of the General Partner;
Transfer of the Company's
Interests......................... 105
Reimbursement of the Company;
Transactions with the Company and
its Affiliates.................... 105
Redemption of OP Units............... 105
Restrictions on Transfer of Units by
Limited Partners.................. 106
Issuance of Additional Units and/or
Preference Units.................. 106
Capital Contributions................ 106
Distributions; Allocations of Income
and Loss.......................... 106
Exculpation and Indemnification of
the Company....................... 106
Amendment of the Partnership
Agreement......................... 107
Term................................. 107
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SHARES AVAILABLE FOR FUTURE SALE....... 107
General.............................. 107
Registration Rights.................. 108
FEDERAL INCOME TAX CONSEQUENCES........ 109
Taxation of the Company.............. 109
Failure to Qualify as a REIT......... 117
Taxation of U.S. Shareholders of the
Company........................... 117
Backup Withholding................... 118
Taxation of Tax-Exempt Shareholders
of the Company.................... 118
Taxation of Non-U.S. Shareholders of
the Company....................... 119
State and Local Taxes................ 122
Tax Aspects of the Operating
Partnership....................... 122
Proposed Legislation................. 125
UNDERWRITING........................... 127
EXPERTS................................ 128
LEGAL MATTERS.......................... 129
ADDITIONAL INFORMATION................. 129
GLOSSARY............................... G-1
INDEX TO FINANCIAL STATEMENTS.......... F-1
</TABLE>
This Prospectus contains forward-looking statements relating to, without
limitation, future economic performance and plans and objectives of management
for future operations, which can be identified by the use of forward-looking
terminology such as "anticipate," "may," "will," "expect," "continue,"
"remains," "intend," "aim," "seek," "should," and "prospects," or the negative
thereof or other variations thereon or comparable terminology. Forward-looking
statements are inherently subject to risks and uncertainties, many of which
cannot be predicted with accuracy and some of which might not even be
anticipated. Future events and actual results, financial and otherwise, may
differ materially from the results discussed in the forward-looking statements.
Factors that might cause such differences include, but are not limited to, those
discussed under the captions "Risk Factors" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" herein.
iii
<PAGE> 9
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial information and statements, and the notes thereto,
appearing elsewhere in this Prospectus. Unless indicated otherwise, the
information contained in this Prospectus assumes: (i) the initial public
offering price is $20.00 per share (the mid-point of the range of public
offering prices set forth on the cover page of this Prospectus); (ii) the
Underwriters' over-allotment option is not exercised; and (iii) the transactions
described under "Formation of the Company" are consummated. Unless the context
otherwise requires, the term "Company," as used herein, includes Presidio Golf
Trust, a Maryland real estate investment trust and the issuer of the Common
Shares offered hereby, and one or more of its subsidiaries (including Presidio
Golf Limited Partnership, a Delaware limited partnership (the "Operating
Partnership")) and the predecessors thereof. The term "Offering" shall mean the
offering of the Company's Common Shares pursuant to this Prospectus. The term
"OP Units" means units of limited partnership interest in the Operating
Partnership, which are redeemable at the election of the holder for cash or, at
the election of the Company, for Common Shares on a one-for-one basis. See
"Glossary" beginning on page G-1 for the definitions of certain terms used in
this Prospectus.
THE COMPANY
Presidio Golf Trust was formed in April 1998 as a self-administered real
estate investment trust ("REIT") to capitalize on the highly fragmented
ownership of golf courses in the United States. The Company believes that it is
a leading consolidator in the golf industry and will benefit from its multiple
lessee structure and its senior management team's substantial industry
knowledge, experience and established relationships within the golf industry.
The Company's initial portfolio will consist of 15 high quality golf courses,
including two resort properties, at 13 separate locations in 10 states. Of the
15 Golf Courses, eight are located at seven private country clubs, four are
daily fee courses and three are located at two resort properties. The Golf
Courses include facilities such as clubhouses, restaurants, lodging facilities,
banquet space, meeting rooms, pro shops, driving ranges, locker rooms, swimming
pools, spas and tennis courts. Services provided at the Golf Courses include
golf cart rentals, golf and tennis lessons, banquets and tournaments. The Golf
Courses are located in markets that are generally characterized by increasing
populations, above-average household income, high barriers to entry and high
population-to-hole ratios. These characteristics generally have resulted in
higher green fees and above-average rounds played at the Golf Courses relative
to national averages.
The Company believes that the domestic golf industry is entering a period
of significant growth and remains fragmented in terms of golf course ownership.
The Company believes that the growth in golf is being fueled by a rise in
popularity, favorable demographic trends, increased participation by junior,
minority and female golfers and an increase in leisure spending. The Company
also believes the fragmented ownership in the golf industry creates significant
consolidation opportunities. According to the National Golf Course Owners
Association, there are approximately 16,000 golf courses in the United States,
approximately 6,000 of which are municipal or member-equity courses, which
generally are not available for acquisition. The remaining 10,000
privately-owned courses are owned by approximately 9,000 entities, with the 15
owners of the greatest number of courses collectively owning and leasing fewer
than 5% of the total number of courses. See "The Golf Industry."
In order to qualify as a REIT, the Company's income must be derived from
certain sources, including rents from real property, which generally exclude
income derived from the operation of golf courses. See "Federal Income Tax
Consequences." Accordingly, the Company is precluded from operating courses and,
as a consequence, intends to lease its properties to experienced golf course
operators or their affiliates ("Lessees") with reputations for quality golf
course management, substantial industry knowledge and relationships within the
golf community. The Company's Initial Lessees are newly-formed special purpose
entities affiliated with Arnold Palmer Golf Management LLC (together with its
affiliated Initial Lessee, "Palmer Management"), University Clubs of America LLC
(together with its affiliated Initial Lessee, "University Clubs"), HMS Golf
Management, Inc. (together with its affiliated Initial Lessee, "HMS"), and
Montclair Hotel Investors, Inc. (together with its affiliated Initial Lessee,
"Montclair"). Certain private
<PAGE> 10
investment funds (collectively, "Olympus"), including Olympus Real Estate Fund,
L.P., which are controlled by HMTF Operating, Inc. ("Hicks Muse") and/or David
B. Deniger, are the principal beneficial owners of the equity interests in each
of Palmer Management and and the Initial Lessee affiliated with Montclair. The
Initial Lessee that is leasing the greatest number of Golf Courses is an entity
affiliated with Palmer Management, which the Company believes is one of the
leading golf course operators in the United States. The successor to a business
founded by golf legend Arnold Palmer in 1984, Palmer Management is a leading
owner-operator of high quality golf courses and golf schools. Olympus became the
principal beneficial owner of equity interests in Palmer Management in 1996.
Palmer Management currently owns, leases, manages or franchises 25 golf courses
throughout the United States and Europe. Palmer Management's golf facilities
generally are operated under the "Arnold Palmer Managed Golf Course" trademark
and its golf schools, which were acquired in March 1998, are operated under the
"Arnold Palmer Golf Academy" trademark. Mr. Palmer is a member of the board and
an equity owner of Palmer Management. He is not a trustee, officer or employee
of the Company. See "Initial Lessees."
The Company will lease each of the Golf Courses to Initial Lessees for an
initial term of 15 years under leases that provide for the payment of base rent
and participating rent based on increases in revenue (the "Participating
Leases"). The Participating Leases are structured as triple net leases under
which each Initial Lessee is required to pay all real estate and personal
property taxes, insurance, utilities and services, golf course maintenance and
other operating expenses. In addition, the Initial Lessees are required to pay
for all capital expenditures. Until certain coverage ratios are met, each
Initial Lessee's financial obligations under each of the Participating Leases
will be secured by a letter of credit, OP Units or other acceptable collateral
having a value equal to 12 months of initial base rent. See "The Participating
Leases."
All of the Golf Courses were developed or acquired and previously operated
by affiliates of the Initial Lessees. The Company believes it will benefit from
the continuity of management provided by the Initial Lessees. Upon completion of
the Offering, the Initial Lessees or their affiliated entities will collectively
own 17.8% of the common equity of the Company, including Common Shares issuable
upon exchange of OP Units, which ownership management believes aligns the
interests of the Initial Lessees with those of the shareholders of the Company.
The Company seeks to increase its Cash Available for Distribution through,
among other factors, (i) increases in base rents on the Golf Courses under the
Participating Leases; (ii) receipt of participating rents, based on revenue
increases, from the Golf Courses under the Participating Leases; and (iii)
receipt of base rent and participating rent on golf courses that the Company
acquires in the future. Cash Available for Distribution means Funds from
Operations (as herein defined) adjusted for certain non-cash items. Because its
structure is designed to accommodate multiple lessees, the Company expects that
independent golf course owners, operators or developers will assist the Company
in identifying opportunities to acquire high quality golf courses (including
golf courses not otherwise marketed for sale), which then may be leased to such
entities. The Company believes that the combination of its multiple lessee
structure and the Operating Partnership's ability to issue OP Units will be
especially attractive to those sellers seeking liquidity and deferral of capital
gains without relinquishing operational control of their courses. See "The
Company."
The Company seeks to acquire high quality golf courses with proven
operating histories located in markets with positive demographic characteristics
and to lease such courses to established, reputable operators or their
affiliates. Management believes that one aspect of the Company's acquisition
strategy that differs from that of its competitors is that the Company seeks to
acquire certain properties that benefit from branding strategies that are common
in other consumer product industries. By applying the disciplines of branding,
and thereby differentiating its courses from competing courses, management
believes that a golf course can achieve a premium to the green fees and an
increase in the level of customer loyalty in comparison to courses that are not
branded. Branding strategies that certain Initial Lessees currently employ in
certain of the Golf Courses include (i) using an easily recognizable trade name,
such as the name "Arnold Palmer Managed Golf Course;" and (ii) operating the
course based on specific unique "themed" concepts, such as the university
affiliation concept employed at courses developed by University Clubs. See "The
Golf Courses -- Descriptions of the Golf Courses" and "-- Brand Affiliations."
2
<PAGE> 11
The Company believes that its acquisition capabilities will be enhanced by
the fact that its initial capital structure provides significant financial
flexibility. Upon completion of the Offering, the Company will have no
outstanding indebtedness. In addition, the Company has an existing $75 million
secured credit facility (the "Credit Facility") with Credit Lyonnais New York
Branch ("Credit Lyonnais"), as agent and co-lender, and Wells Fargo Bank,
National Association, as co-lender, to fund future acquisitions and for general
corporate purposes. The Credit Facility bears interest at the London Interbank
Offered Rate ("LIBOR") plus 1.75% per annum and has an initial term that expires
in January 2001. The Company has reached a non-binding agreement in principle
with Credit Lyonnais to replace the Credit Facility with a $100 million
unsecured facility (the "Replacement Facility"). The Replacement Facility would
have an initial term of three years. The Company intends to continue to maintain
a conservative capital structure and to incur debt only if, upon such
incurrence, the Company's debt to total market capitalization ratio would be
approximately 50% or less. See "The Company -- Overview," "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources" and "Policies With Respect to Certain
Activities -- Financing."
The Company has assembled a management team with diverse talents and
experience in all aspects of the Company's operations. Peter J. Nanula,
President and Chief Executive Officer; Donald E. Rhodes, Executive Vice
President and Chief Operating Officer; and George T. Haworth, Executive Vice
President and Chief Financial Officer, have 11, 19, and 22 years of experience,
respectively, in acquisition, leasing, finance, accounting and information
systems in the golf and real estate industries. Upon completion of the Offering
and the Formation Transactions, executive officers and trustees will
beneficially own an aggregate of 17.7% of the outstanding Common Shares,
including OP Units exchangeable for Common Shares.
The principal executive offices of the Company are located at Building 106,
Montgomery Street, Presidio Main Post, P.O. Box 29355, San Francisco, California
94129, and its telephone number is (415) 561-4650.
SUMMARY RISK FACTORS
Prospective investors should carefully consider the material risks
discussed under "Risk Factors" prior to making an investment decision regarding
the Common Shares offered hereby. Each of these risks could have adverse
consequences to the Company. Such risks include:
- Dependence on the ability of Lessees to pay rent and perform their
obligations under their leases and the fact that the Company may be
unable to make its anticipated distributions if the Company's Lessees
(two of which account for substantially all of the total initial Base
Rent payable to the Company) fail to make such rent payments.
- Conflicts of interest in connection with the terms of the Company's
formation and operation, including: (i) the terms of transfer of certain
golf courses and the terms of leases with Initial Lessees that are
affiliates of executive officers and trustees of the Company, as well as
the enforcement of the terms of such agreements; (ii) corporate
opportunities presented to certain officers and trustees of the Company;
(iii) the purchase prices of the Golf Courses have not been based upon
independent appraisals and as a result the market capitalization of the
Company may exceed the fair market value of the Company's properties if
determined by appraisal; (iv) the sale of certain golf courses by the
Company may cause adverse tax consequences to certain trustees of the
Company or their affiliates; (v) the Company, as sole general partner of
the Operating Partnership, will have fiduciary obligations to the other
limited partners of the Operating Partnership; (vi) competition from
other golf courses operated by Lessees; (vii) competition for the time of
management of the Lessees; and (viii) other possible conflicts, all of
which could lead to decisions that do not reflect the best interest of
the Company and its shareholders.
- Risks associated with the Company's lack of control over the day-to-day
management and operation of the golf courses due to the tax restrictions
that prevent a REIT from operating golf courses, which could prevent the
Company from requiring a Lessee to change its method of operation, even
if the
3
<PAGE> 12
Company believes that the Lessee is not operating a golf course in a manner that
will maximize rent payable to the Company.
- The Company's lack of rights under, or control over, the license pursuant
to which nine of the golf courses operate (or will operate shortly after
completion of the Offering) under the Arnold Palmer Managed Golf
Course(SM), Arnold Palmer Managed Country Club(SM) or Arnold Palmer
Managed Golf Club(SM) brand affiliations.
- Risks associated with the Company's growth strategies, including
competition for acquisitions, possible unavailability of capital and
inability to effectively manage growth, all of which may inhibit the
Company's ability to achieve its investment objectives.
- The lack of operating history of the Company, which could inhibit the
ability of the Company to generate sufficient revenue from operations to
make anticipated distributions to shareholders.
- Risks associated with the Company's dependence upon key personnel: Peter
J. Nanula, the Company's President and Chief Executive Officer; Donald E.
Rhodes, the Company's Executive Vice President and Chief Operating
Officer; and George T. Haworth, the Company's Executive Vice President
and Chief Financial Officer, and the fact that Mr. Haworth is the only
executive officer of the Company who has REIT management experience.
- Receipt by executive officers and trustees of the Company of material
benefits from the Company's formation transactions that will not be
received by purchasers of Common Shares in the Offering.
- The effect on the Company's ability to pay distributions to its
shareholders of a downturn in the golf industry will be more pronounced
than if the Company had diversified its investments.
- Risks affecting golf course and hotel operations generally, including
increases in operating costs, competition, increases in energy costs,
adverse effects of general and local economic conditions, inability to
transfer certain operating licenses, supply of golf courses, investment
in a single industry, seasonality, adverse weather conditions, factors
affecting golf participation, and course conditions.
- Compliance with environmental laws and the Americans With Disabilities
Act could have an adverse effect on the ability of the Company to make
anticipated distributions to shareholders.
- General risks relating to commercial real estate ownership and
investment, including, but not limited to: (i) changes in laws and
government regulations, general or local economic conditions, interest
rates and availability of financing; (ii) illiquidity of real estate;
(iii) uninsured losses; and (iv) the operation of four Golf Courses under
long-term ground leases.
- Taxation of the Company as a regular corporation if it fails to quality
as a REIT, treatment of the Operating Partnership as an association
taxable as a corporation if it fails to quality as a partnership, and the
resulting decrease in Cash Available for Distribution to shareholders as
a result thereof.
- Risks associated with the ownership of Common Shares generally,
including: (i) risks related to the Company's distribution policy; (ii)
there has been no market for the Common Shares and there can be no
assurance that an active trading market will develop or be sustained or
that the Common Shares may be resold at or above the Offering Price;
(iii) the fact that an increase in market interest rates will result in
higher yields on other financial instruments, which could adversely
affect the market price of the Common Shares; and (iv) other risks
relating to the Company's anticipated distributions to shareholders.
- Adverse effect of shares available for future sale on market price of
Common Shares, and the immediate dilution of $6.32 per share in the net
tangible book value of the Common Shares purchased in the Offering from
the assumed initial public offering price (the "Offering Price") of
$20.00 per share.
- Risks normally associated with debt financing, including: (i) the fact
that borrowings may be secured by properties owned by the Company, and
the risk of loss of some or all of the Company's assets, including any
properties securing the Company's debt, to foreclosure, which could
result in a financial
4
<PAGE> 13
loss to the Company; (ii) adverse economic conditions could result in
higher interest rates on variable rate debt, including borrowings under
the Credit Facility, which could decrease Cash Available for Distribution
to the Company's shareholders; and (iii) the fact that the organizational
documents of the Company will not contain any limit on the amount of
indebtedness that may be incurred by the Company.
- The Board of Trustees may change the Company's investment and financing
policies at any time without a vote of the Company's shareholders.
- An investment in Common Shares may not be an appropriate investment for a
plan qualified under the Employee Retirement Income Security Act of 1974
or an individual retirement account.
- The possible anti-takeover effect of the Company's ability to limit, for
purposes of maintaining its REIT status, the actual or constructive
ownership of Common Shares to 9.8% of the outstanding Common Shares, and
of certain other provisions contained in the organizational documents of
the Company and the Operating Partnership, which could have the effect of
delaying, deferring or preventing a transaction or change in control of
the Company that might involve a premium price for the Common Shares or
otherwise would be in the best interests of the Company's shareholders.
BUSINESS STRATEGY
The Company's business objectives are to increase Cash Available for
Distribution per share and maximize shareholder value by consolidating high
quality golf courses throughout the United States. The Company will focus on the
ownership and acquisition of golf course properties that have strong cash flow
growth and capital appreciation potential and that are leased to experienced,
reputable golf course operators. The Company expects to achieve these objectives
by successfully implementing the growth and operating strategies set forth
below.
GROWTH STRATEGIES
The Company's primary growth strategies are to: (i) acquire additional golf
courses that meet the Company's investment criteria; and (ii) increase rent
under the Participating Leases and under the leases for properties acquired in
the future.
Acquisitions
Given the highly fragmented nature of golf course ownership in the United
States, the Company believes there are significant opportunities to make
acquisitions that meet its investment criteria. The Company believes that the
combination of its multiple lessee structure, the strong reputations of the
Company's management team and of the Initial Lessees, the high quality of the
Company's portfolio and its ability to issue OP Units will be especially
attractive to those sellers of golf courses that seek liquidity and deferral of
capital gains without relinquishing operational control of their courses. As a
public company, the Company expects to have access to a wide variety of
financing sources to fund acquisitions, including the ability to issue several
types of public and private debt, equity and hybrid securities, as well as the
ability to issue OP Units as consideration where appropriate for tax or other
reasons. The $75 million available under the Credit Facility will enable the
Company to contract for and complete the acquisition of additional golf courses
without financing contingencies.
The Company intends to concentrate its investment activities on golf
courses that meet one or more of the following investment criteria:
- courses with proven operating histories and future growth potential;
- courses in markets where there are positive demographic trends, a high
demand for golf and significant barriers to new golf course development;
- courses in markets where one of the Company's Lessees has an existing
presence, or are part of a regional portfolio that would allow a Lessee
to establish a meaningful presence in a new market,
5
<PAGE> 14
thereby enabling that Lessee to manage its portfolio of golf courses more
efficiently, improve profitability through the elimination of duplicative
administrative expenses, capitalize on expanded marketing opportunities and
achieve economies of scale;
- high quality golf courses that attract avid golfers who are less price
sensitive to the higher green fees and membership dues associated with
such golf courses;
- resort courses that offer superior facilities and services and attract a
high number of destination golfers;
- courses that are available at prices that will provide the Company with
returns in excess of its cost of capital and therefore enhance
shareholder value; and
- golf courses that are branded, or are capable of being branded, in a
manner that differentiates the courses in a market, thereby generating
customer loyalty and higher green fees and operating margins.
Internal Growth
The Company believes that there are significant opportunities to grow Golf
Course level revenue which, if realized, would translate into increased annual
rental income for the Company through the Participating Leases. The Company
believes that the primary contributing factors to growth in Golf Course level
revenues will be: (i) the operating expertise, experience and reputation of the
Initial Lessees; (ii) the fact that the Golf Courses are well positioned in
strong markets; (iii) the quality of the Golf Courses and their proven operating
histories; (iv) the benefits associated with the branding strategies of certain
Initial Lessees; and (v) the Initial Lessees' programs of regular Golf Course
capital improvements and maintenance.
Experience and Reputation of Initial Lessees. The Company leases its Golf
Courses only to experienced golf course operators (or their controlled entities)
who demonstrate technical expertise and professional management abilities in
yield management, agronomy, instruction and driving range operations, retail
operations, food and beverage operations, marketing and membership, and group
sales. The Company believes that such operators will generate above average rate
and revenue growth through the implementation of their operating strategies.
Positive Market Conditions. The Golf Courses are located in markets that
are generally characterized by increasing populations, above-average household
income, high barriers to entry and high population-to-hole ratios. Based upon
the Company's analysis of United States Census data, from 1990 to 1997, the
populations within a 10-mile radius of each of the Golf Courses increased by a
weighted average of 9.2%. The weighted average household income for such areas
collectively for 1997 was approximately $67,507, or 33.6% higher than the
national average household income. According to the National Golf Foundation
("NGF"), in 1996, the weighted average population-to-hole ratio for such markets
was collectively 1,552:1, which is 17.9% higher than the national average of
1,316:1. As a result of these factors, the Company believes that the Initial
Lessees generally will have the ability to increase revenues by increasing
average green fees at daily fee courses and membership dues at private country
clubs.
Proven Operating Performance of Golf Courses. The Company seeks to acquire
high quality golf courses with proven operating performance. For the 12 Golf
Courses that were open for each of the entire years 1995 through 1997 and for
which data is available, aggregate Total Revenue (as herein defined) increased
by an average of 9.6% per annum. The Company believes it is most relevant to
analyze Total Revenue of a golf course with respect to internal growth potential
because the Participating Leases provide for the payment of participating rent
based on increases in golf course level and other revenue.
Branding Strategy. The Company believes that it can benefit from enhanced
course-level performance as a result of branding strategies employed by certain
Initial Lessees. The Company believes that "branded" golf courses benefit from
higher green fees and operating margins as a result of their differentiation
within a market and by the creation of customer loyalty. Ten of the Golf Courses
are (or shortly after the completion of the Offering will be) operated under
brand affiliations or employ "themed" concepts.
Capital Improvements and Renovation. The Company believes a regular program
of capital improvements at the Golf Courses, as well as the periodic renovation
and redevelopment of certain of the Golf
6
<PAGE> 15
Courses, will maintain the competitiveness of the Golf Courses and maximize
revenue growth. Since January 1, 1994, 12 of the Golf Courses have been, or are
in the process of being, renovated to position them for future growth. See "The
Golf Courses -- Descriptions of the Golf Courses."
OPERATING STRATEGIES
The Company evaluates its portfolio on an ongoing basis to determine which
operating strategies will allow it to maximize cash flow from a particular
course or the portfolio as a whole. The Company continues to review these
strategies and may, from time to time, revise them when necessary in order to
optimize the operation of its portfolio and maintain strong cash flow growth.
The principal elements of the Company's operating strategies include:
- selecting the best golf course operators for specific locations and
course types;
- negotiating triple net leases for golf courses that provide Lessees with
incentives to operate and maintain the courses in a manner that generates
significant revenue growth and, as a result, increased lease payments to
the Company;
- working with Lessees on strategies to improve and enhance golf course
operations through proper maintenance and capital improvement programs;
- monitoring on an ongoing basis the operating performance of the golf
courses in its portfolio, compliance by the Lessees with their lease
obligations and other factors that could affect the financial performance
of the Company's golf courses;
- maintaining an Advisory Committee of the Lessees; and
- limiting the incurrence of indebtedness of the Company to no more than
50% of the Company's total market capitalization. Upon completion of the
Offering, the Company will have no indebtedness outstanding.
THE GOLF INDUSTRY
Unless otherwise noted, references herein to national industry statistics
and averages are based on reports of the NGF, an industry trade association not
affiliated with the Company.
Golf is one of the most popular sports in the United States. Fueled by a
rise in popularity and favorable demographic trends, the number of golfers, the
number of rounds played and the participation rate among the population has
increased significantly over the past quarter century. In 1997 there were
approximately 26.5 million golfers, which represented 12.1% of the total U.S.
population age 12 or older, while in 1970 there were only 11.2 million golfers,
which represented 7.2% of the population age 12 or older. This change represents
a net increase of 136.6% and a compounded annual growth rate of 3.2%.
After several years of relatively flat growth, golf participation reached
record levels in 1997 with 547 million rounds of golf played, surpassing the
previous record of 505 million rounds set in 1992. The 1997 record represents a
14.6% increase over total rounds played in 1996 and a 36.2% increase over total
rounds played in 1986. Furthermore, golf course utilization as represented by
average rounds played per golf course (calculated by dividing total rounds
played by the total number of golf courses) increased 12.9% between 1996 and
1997 from approximately 30,300 to 34,200. This compares with a 2.0% increase in
the total number of golf courses over the same period from 15,703 to 16,010. The
Company believes that the recent increase in golf participation is evidence that
the current trends and conditions in the United States will fuel continued
growth in the golf industry. These trends and conditions are summarized below.
Positive Demographic Trends: The Company believes that the number of
golfers as well as the number of rounds played will increase significantly
between 1997 and 2005 as the average age of the population continues to
increase. The average number of rounds played per golfer on an annual basis
increases significantly as the golfer ages. On average, golfers in their 50s
play nearly twice as many rounds as golfers in their 30s, and golfers age 65 or
older generally play three times as many rounds annually as golfers in their
30s. According to the
7
<PAGE> 16
United States Bureau of the Census, the population age 50 or older will increase
by 20.0% between 1997 and 2005, from 71.1 million to 85.3 million. The effect of
this demographic shift is shown in the following graph, which depicts the
estimated age dispersion in the United States in 1997 and the projected age
dispersion in 2005 according to the United States Bureau of the Census, as well
as 1997 golf participation rates from the NGF for individual age groups based on
the average number of golf rounds played. Assuming golf participation rates for
the individual age groups remain constant, the Company believes that the aging
population (as evidenced by the shaded area) will significantly increase the
overall demand for golf.
DEMOGRAPHICS
COLUMNS REPRESENT AVERAGE ANNUAL ROUNDS PER GOLFER AGE GROUP AS OF 1997
LINES REPRESENT ESTIMATED 1997 AND PROJECTED 2005 POPULATION OF EACH GOLFER AGE
GROUP
CHART
Increased Popularity/"Tiger Effect": The success of professional golfer
Tiger Woods has had a considerable effect on the golf industry. Woods' numerous
victories, including the 1997 Masters, and the media attention that he has
attracted, have done much to increase the popularity of golf. The Company
believes that this increased media attention has helped fuel the public's
interest in golf and contributed to the recent growth in rounds played by those
who are new to the sport. A record high of nearly three million people played
golf for the first time in 1997, a 51.2% increase over the nearly two million
beginners in 1996. The increased popularity of golf is also reflected by the
recent growth in golf merchandise and event sales.
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<PAGE> 17
Broader Participation: As part of the recent increased level of attention
golf has received, the participation levels of junior, minority and female
golfers have increased. A recent survey conducted by Golf Business magazine
indicates that rounds played by junior golfers increased from 6.1% of total play
in 1996 to 7.7% in 1997. Additionally, African-American golfers as a percentage
of total golfer population increased from 4.4% in 1996 to 4.9% in 1997 and
Asian/Pacific Islander golfers as a percentage of total golfer population
increased from 4.5% to 5.6% in 1997. Women also prominently figured into the
increased demand for golf in 1997, as approximately 10% more women played golf
than in 1996.
Increased Leisure Spending: Although the average level of leisure time has
not increased over the past decade, the level of recreational spending has gone
up significantly, increasing by approximately 35% between 1990 and 1995 (after
adjusting for inflation).
THE GOLF COURSES
The 15 Golf Courses are located at 13 separate locations in 10 states, with
three Golf Courses in each of Illinois and New York, two in Tennessee and one in
each of Connecticut, Georgia, Oregon, Maryland, New Jersey, South Carolina and
Virginia. All of the Golf Courses are located in Standard Metropolitan
Statistical Areas with populations in excess of 250,000 people. The Golf Courses
are located in markets that are generally characterized by increasing
populations, above-average household income, high barriers to entry and high
population-to-hole ratios. The Golf Courses include various facilities and
amenities, such as clubhouses, restaurants, pro shops, driving ranges, lodging
facilities, banquet space, meeting rooms, locker rooms, pools, spas and tennis
courts. Services provided at the Golf Courses include golf cart rentals, golf
and tennis lessons, banquets and tournaments.
Of the 15 Golf Courses, eight are located at seven private country clubs,
four are daily fee courses and three are located at two resort properties.
"Private country clubs" are generally closed to the public and derive revenues
principally from membership dues, initiation fees, transfer fees, golf cart
rentals, guest fees, food and beverage operations and merchandise sales. "Daily
fee courses" are open to the public and generate revenues principally through
green fees, golf cart rentals, food and beverage operations, merchandise sales
and driving range fees. "Resort courses" are daily fee golf courses that attract
a significant percentage of players from outside the immediate area in which the
golf course is located and generate a significant amount of revenue from
business conferences or golf vacation packages. Total Revenue for the Company's
private country clubs, daily fee courses, and resort course properties, was
$20,174,935, $7,049,101 and $28,389,312, respectively, for 1997. The
Participating Leases relating to the Company's private country clubs, daily fee
courses and resort course properties provide for aggregate initial Base Rent of
$6,156,000, $2,194,000 and $6,167,000, respectively. Ten of the Golf Courses are
(or shortly after the completion of the Offering will be) operated under brand
affiliations or employ "themed" concepts.
The Company will acquire a 100% fee or ground leasehold interest in each of
the Golf Courses and related properties. Certain information respecting each of
the Golf Courses is set forth on the following page.
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<PAGE> 18
<TABLE>
<CAPTION>
MONTH/YEAR
MGMT.
NO. YEAR INITIAL ASSUMED INITIAL
LOCATION OF OPENED/ LESSEE/ BY INITIAL PURCHASE BASE
NAME (CITY, STATE) HOLES RENOVATED(1) PRIOR OWNER(2) LESSEE(2) PRICE(3) RENT
---- ------------- ----- ------------ -------------- ---------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
PRIVATE COUNTRY CLUBS
Fox Valley Club................. Lancaster, NY 18 1991/1995 Palmer Mgmt. Nov. 1997 $ 11,591,000 $ 1,130,000
Oronoque Country Club........... Stratford, CT 18 1970/1997 Palmer Mgmt. Nov. 1996 10,762,000 1,060,000
Memphis National Golf Club(6)
(Two Golf Courses)............. Collierville, TN 36 1971/1998 Palmer Mgmt. Jun. 1997 11,154,000 1,057,000
Crofton Country Club(6)......... Crofton, MD 18 1964/1996 Palmer Mgmt. Oct. 1996 9,697,000 919,000
Brierwood Country Club.......... Hamburg, NY 18 1957/1996 Palmer Mgmt. Jul. 1995 8,670,000 854,000
University Club of
South Carolina................. Blythewood, SC 27 1995 Univ. Clubs Sep. 1995 6,000,000 600,000
Tan Tara Golf Club.............. N. Tonawanda, NY 18 1972/1994 Palmer Mgmt. Nov. 1997 5,498,000 536,000
------------ -----------
Subtotal.......................................................................................... $ 63,372,000 $ 6,156,000
DAILY FEE COURSES
Towne Lake Hills Golf Club...... Woodstock, GA 18 1994 HMS Jun. 1994 $ 9,000,000 $ 900,000
Emerald Valley Golf Club........ Creswell, OR 18 1963/1994 Palmer Mgmt. Nov. 1997 5,087,000 496,000
Penderbrook Golf Club(6)........ Fairfax, VA 18 1981/1998 Palmer Mgmt. Nov. 1997 4,780,000 453,000
Minebrook Golf Club............. Hackettstown, NJ 18 1919/1996 Palmer Mgmt. Nov. 1997 3,539,000 345,000
------------ -----------
Subtotal.......................................................................................... $ 22,406,000 $ 2,194,000
RESORT PROPERTIES
Indian Lakes Resort
(Two Golf Courses)............. Bloomingdale, IL 36 1980/1996 Montclair Aug. 1995 $ 40,325,000 $ 3,979,000
Nordic Hills Resort............. Itasca, IL 18 1972/1996 Montclair Aug. 1995 22,175,000 2,188,000
------------ -----------
Subtotal.......................................................................................... $ 62,500,000 $ 6,167,000
------------ -----------
Total.............................................................................................. $148,278,000 $14,517,000
============ ===========
<CAPTION>
GROSS GOLF AND ROOMS REVENUE(4) TOTAL REVENUE(5)
------------------------------------ ---------------------------------------
NAME 1995 1996 1997 1995 1996 1997
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
PRIVATE COUNTRY CLUBS
Fox Valley Club................. $1,426,748 $1,762,831 $1,751,744 $ 1,848,804 $ 2,935,684 $ 2,998,731
Oronoque Country Club........... 1,099,302 1,001,372 2,448,103 1,297,945 1,919,737 3,010,282
Memphis National Golf Club(6)
(Two Golf Courses)............. 1,692,137 1,666,266 1,918,615 1,915,377 1,883,583 2,171,078
Crofton Country Club(6)......... 1,764,965 1,558,350 2,240,286 2,794,556 2,825,708 3,174,038
Brierwood Country Club.......... 1,931,429 1,639,219 1,949,795 3,995,626 3,827,599 4,240,491
University Club of
South Carolina................. 804,186 1,881,596 1,937,910 1,064,600 2,033,973 2,415,322
Tan Tara Golf Club.............. 1,016,443 1,157,191 1,306,000 1,704,847 1,875,035 2,164,993
Subtotal......................
DAILY FEE COURSES
Towne Lake Hills Golf Club...... $1,531,861 $1,684,273 $1,989,992 $ 2,020,052 $ 2,449,353 $ 2,946,844
Emerald Valley Golf Club........ 961,975 859,941 969,731 1,396,896 1,268,981 1,430,626
Penderbrook Golf Club(6)........ 1,283,241 1,218,479 966,148(7) 1,689,224 1,561,049 1,183,073(7)
Minebrook Golf Club............. (8) 780,101 1,045,392 (8) 1,090,181 1,488,558
Subtotal......................
RESORT PROPERTIES
Indian Lakes Resort
(Two Golf Courses)............. $7,857,782 $7,958,563 $8,530,791 $17,061,446 $16,451,604 $17,247,665
Nordic Hills Resort............. 4,178,781 4,249,513 5,342,515 8,652,001 8,778,546 11,141,647
Subtotal......................
Total..........................
</TABLE>
----------------------------
(1) See "The Golf Courses -- Descriptions of the Golf Courses" for a
description of certain course renovations.
(2) All Initial Lessees will be newly-formed special purpose entities
affiliated with the indicated golf course operators.
(3) Includes value of OP Units, cash consideration and assumption and
repayment of debt. Excludes value of OP Unit options. See "Formation
Transactions."
(4) Represents Gross Golf Revenue plus, in the case of Indian Lakes Resort
and Nordic Hills Resort, Rooms Revenue. Gross Golf Revenue generally is
defined as all revenues from a golf course, including green fees, golf
cart rentals, range fees, membership dues, member initiation fees and
transfer fees (included on a cash basis); excluding, however, food and
beverage and merchandise revenue. Rooms Revenue generally is defined as
all revenues from the renting of hotel rooms at the Golf Course resort
properties. See "Glossary."
(5) Total Revenue means all revenue from a property, including green fees,
golf cart rentals, range fees, membership dues, member initiation fees
and transfer fees (included on a cash basis), hotel room revenues, food
and beverage and merchandise revenue.
(6) The Company is the 100% fee owner of each Golf Course except Penderbrook
Golf Club, Crofton Country Club and Memphis National Golf Club, which
are subject to long-term ground leases that expire in 2022, 2026 and
2042, respectively. See "The Golf Courses -- Descriptions of the Golf
Courses" and "Risk Factors -- Real Estate Risks."
(7) A portion of Penderbrook Golf Club was closed during 1997 for
renovations. See "The Golf Courses -- Descriptions of the Golf Courses."
(8) Data unavailable from previous owner.
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<PAGE> 19
THE PARTICIPATING LEASES
Each of the Golf Courses is leased for a term of 15 years under the
Participating Leases, which provide for the payment of fixed based rent ("Base
Rent") and participating rent based on operating performance of the Golf Courses
("Participating Rent" and, together with Base Rent, the "Lease Payment").
Generally, the Participating Leases provide that the Company will receive the
greater of (i) Base Rent, which will increase annually by the Base Rent
Escalator (i.e., the lesser of (a) 3%; or (b) 200% of the change in Consumer
Price Index from the prior year); or (ii) an amount equal to Participating Rent
plus the initial Base Rent payable under each Participating Lease. Participating
Rent generally is equal to 30% of any increase in Gross Golf Revenue over a
predetermined Gross Golf Revenue amount for a defined base year, plus 5% of any
increase in "other revenue" over a predetermined "other revenue" amount for a
defined base year. With respect to Indian Lakes Resort and Nordic Hills Resort,
Participating Rent also includes 22% of any increase in Rooms Revenue over a
predetermined Rooms Revenue amount for a defined base year. "Gross Golf Revenue"
is generally defined as all revenues from a Golf Course, including green fees,
golf cart rentals, range fees, membership dues, member initiation fees and
transfer fees, excluding, however, food and beverage and merchandise revenue.
"Rooms Revenue" is generally defined as all revenue from renting hotel rooms at
the Golf Course resort properties. The terms of the Participating Leases have
been developed with consideration to the fixed and variable nature of operating
expenses and changes in operating margins typically associated with increases in
revenue. See "The Participating Leases -- Base Rent; Participating Rent."
THE FORMATION TRANSACTIONS
Upon the completion of the Offering, all of the Company's assets, including
the 15 Golf Courses, will be owned in fee or ground leased by, and its
operations conducted through, the Operating Partnership, 82.2% of the interests
in which will be held by the Company. The Company will be the sole general
partner of the Operating Partnership and will contribute substantially all of
the net proceeds of the Offering to the Operating Partnership in exchange for
the number of OP Units set forth below.
The Operating Partnership currently owns a 100% fee interest in six Golf
Courses (Emerald Valley, Fox Valley, Tan Tara, Minebrook, Brierwood and
Oronoque), and Palmer Management and certain of its affiliates currently own all
of the general partnership and limited partnership interests in the Operating
Partnership. Prior to or simultaneously with the completion of the Offering, the
Company, the Operating Partnership, the prior owners of the Golf Courses (the
"Prior Owners") and the Initial Lessees will engage in a series of transactions
(collectively, the "Formation Transactions") described below.
- The Company will sell 6,540,000 Common Shares in the Offering and will
contribute substantially all of the net proceeds thereof, estimated to be
$119,744,000, to the Operating Partnership in exchange for 6,540,000 OP
Units.
- The Company will acquire long term ground leasehold interests in four
Golf Courses from Palmer Management (Penderbrook, Crofton and Memphis
National (two Golf Courses)) in consideration for the repayment of
approximately $11,778,000 in existing indebtedness encumbering the
foregoing assets. Palmer Management also will receive 692,600 OP Units
(representing a 8.6% interest in the Operating Partnership) in additional
consideration for the contribution of the foregoing leasehold interests.
- The Company will acquire a 100% fee interest in six Golf Courses (Emerald
Valley, Fox Valley, Tan Tara, Minebrook, Brierwood and Oronoque) for the
repayment of approximately $32,000,000 of existing indebtedness and
through the conversion of Palmer Management's general and limited
partnership interests in the Operating Partnership into $5,000,000 in
cash, approximately 407,400 OP Units (representing a 5.1% interest in the
Operating Partnership) and an option to acquire 75,000 OP Units at the
Offering Price. Such options will become exercisable in three equal
annual installments.
11
<PAGE> 20
- The Prior Owners will contribute or sell a total of five Golf Courses and
related assets to the Company in exchange for an aggregate of
approximately 336,000 OP Units, $43,733,000 in cash and the repayment of
$27,047,000 in existing indebtedness at the Golf Courses as follows:
- The Company will acquire two Golf Course resort properties (Indian Lakes
and Nordic Hills), which have a total of three Golf Courses, from an
affiliate of Montclair and Olympus in consideration for approximately
246,700 OP Units (representing a 3.0% interest in the Operating
Partnership), $35,028,000 in cash and the assumption and repayment of
$22,538,000 in existing indebtedness.
- The Company will acquire one Golf Course (Towne Lake Hills) from an
affiliate of HMS for an aggregate of approximately 89,300 OP Units
(representing a 1.1% interest in the Operating Partnership), the
assumption and repayment of $4,509,000 in existing indebtedness, and
$2,705,000 in cash.
- The Company will acquire one Golf Course (University Club of South
Carolina) from an affiliate of University Clubs for $6,000,000 in cash.
- Upon completion of the Offering, after having repaid all outstanding
indebtedness described above (approximately $70,825,000), including all
outstanding indebtedness under the Credit Facility, the Company will have
no outstanding indebtedness and will have access to $75 million available
under the Credit Facility. See "The Company."
- The Company, as lessor, will lease each Golf Course to an Initial Lessee
pursuant to a Participating Lease for an initial term of 15 years, with
each Initial Lessee having the right to extend the term of its
Participating Lease for between two and five renewal terms of five years
each. See "The Participating Leases."
- The Company will enter into employment agreements with its executive
officers, Peter J. Nanula, President and Chief Executive Officer; Donald
E. Rhodes, Executive Vice President and Chief Operating Officer; and
George T. Haworth, Executive Vice President and Chief Financial Officer.
See "Management -- Employment Agreements."
12
<PAGE> 21
OWNERSHIP STRUCTURE
Following completion of the Formation Transactions, the structure and
relationships of the Company, the Operating Partnership, the Prior Owners and
the Initial Lessees will be as follows:
FLOWCHART
BENEFITS TO RELATED PARTIES
As a result of the Formation Transactions, Palmer Management, Olympus,
executive officers and trustees of the Company, and certain of their affiliates
will receive the following benefits:
Benefits to Palmer Management and Olympus
- Palmer Management will receive approximately 1,100,000 OP Units
(representing a 13.7% interest in the Operating Partnership), as
consideration for its interests in the Golf Courses contributed to the
Company in connection with the Formation Transactions and its general
partnership and limited partnership interests in the Operating
Partnership prior to the completion of the Offering. In addition, Palmer
Management will receive $5.0 million in cash, the $43.8 million benefit
derived from the Company's repayment of indebtedness and an option to
acquire 75,000 OP Units at the Offering Price. Palmer Management has
advised the Company that it does not intend to distribute any of such
cash to
13
<PAGE> 22
its owners. The OP Units to be received by Palmer Management (which are
redeemable for cash or, at the Company's option, Common Shares on a
one-for-one basis beginning one year after the completion of the
Offering) will be worth approximately $22.0 million and will be more
liquid than its interests in the Golf Courses once a public trading
market for the Common Shares commences. As of December 31, 1997, the
aggregate net book value of the 10 Golf Courses currently owned by Palmer
Management (including Palmer Management's pre-Offering interest in the
Operating Partnership) was approximately $52.0 million.
- The value of Olympus' indirect interest in the consideration paid to
Palmer Management and the Prior Owner of Indian Lakes Resort and Nordic
Hills Resort, an affiliate of Montclair, in the Formation Transactions,
representing $23.0 million in OP Units, $36.8 million in cash
consideration and the $57.2 million benefit derived from the Company's
assumption of indebtedness, represents a substantial increase over the
aggregate $79.6 million net book value of Olympus' indirect interest in
the 10 Golf Courses to be contributed to the Company by Palmer Management
and the two Golf Course resort properties (three golf courses) to be
acquired by the Company.
- The Company will reimburse Palmer Management approximately $300,000 for
direct out-of-pocket expenses incurred in connection with the Formation
Transactions.
- The Initial Lessees, including those affiliated with Palmer Management
and Olympus, will be entitled to all cash flow from the Golf Courses to
be leased to them after payment of the Lease Payments under the
applicable Participating Leases and other operating expenses.
- Commencing on the first anniversary of the Offering, affiliates of Palmer
Management, Olympus and certain of their affiliates, including Messrs.
Deniger, Nanula and Haworth, will have registration rights with respect
to the Common Shares that may be issued in exchange for OP Units received
in the Formation Transactions and Common Shares issued in connection with
the Formation Transactions.
Benefits to Executive Officers and Trustees
- The value of Peter J. Nanula's indirect interest in the consideration
paid to Palmer Management in the Formation Transactions, representing
$2.4 million in OP Units, $550,000 in cash consideration and the $4.6
million benefit derived from the Company's assumption of indebtedness,
represents a substantial increase over the $4.0 million net book value of
Mr. Nanula's indirect interest in the 10 Golf Courses to be contributed
to the Company by Palmer Management.
- The value of George T. Haworth's indirect interest in the consideration
paid to Palmer Management in the Formation Transactions, representing
$328,000 in OP Units, $75,000 in cash consideration and the $654,000
benefit derived from the Company's assumption of indebtedness, represents
a substantial increase over the $566,000 net book value of Mr. Haworth's
indirect interest in the 10 Golf Courses to be contributed to the Company
by Palmer Management.
- Messrs. Nanula and Haworth will receive an aggregate of 75,000 Common
Shares as part of Palmer Management's consideration for its
contributions, and in connection therewith, Mr. Nanula has agreed that a
portion of his continuing residual interest in Palmer Management will be
received only if Palmer Management has earned the release of its security
deposits under its affiliate's Participating Leases and the Company
achieves specified performance objectives.
- Messrs. Nanula, Rhodes and Haworth will be granted options to acquire
125,000, 65,000 and 65,000 Common Shares, respectively, at the Offering
Price. The options vest in three equal annual installments. In addition,
Messrs. Nanula and Haworth will be issued up to an aggregate of 50,000
and 25,000 restricted Common Shares, respectively, at the rate of 16,666
and 8,333 shares per year beginning in 2000 upon the achievement of
certain performance standards, which shares will then vest equally over
three years after such issuance.
- Each trustee who is not an employee of the Company, including Mr.
Deniger, will receive options to acquire 5,000 Common Shares at the
Offering Price.
- The Company will enter into employment agreements with Messrs. Nanula,
Rhodes and Haworth providing for annual base salaries of $250,000,
$175,000 and $175,000 respectively, and the possibility of performance
bonuses.
14
<PAGE> 23
ADVANTAGES AND DISADVANTAGES TO UNAFFILIATED SHAREHOLDERS
The potential advantages of the Formation Transactions to unaffiliated
shareholders of the Company include the ability to participate in the cash flow
generated by the rent from the Golf Courses through their ownership by the
Company, and in all future acquisitions by the Company. See "The
Company -- Business Strategy." The potential disadvantages of such transactions
to unaffiliated shareholders of the Company include the lack of arm's length
valuations in determining the consideration in most of such transactions and the
fact that (i) Peter J. Nanula, President and Chief Executive Officer of the
Company, and currently the President and Chief Executive Officer and a director
of Palmer Management; (ii) George T. Haworth, Executive Vice President and Chief
Financial Officer of the Company, and currently Chief Financial Officer,
Secretary and Treasurer of Palmer Management; and (iii) David B. Deniger,
Chairman of the Board of Trustees of the Company, Chief Executive Officer of
Olympus and Chairman of the Board of Palmer Management, will have substantial
influence over the management and operations of the Company and the risk that
such influence might be exercised in a manner which may not be in the best
interests of the Company and its shareholders. Upon completion of the Offering,
Messrs. Nanula and Haworth will resign from their positions as executive
officers of Palmer Management, but will retain their equity interests in Palmer
Management. In addition, Mr. Nanula will continue to serve on the Board of
Palmer Management. See the more complete discussion of such matters under "Risk
Factors" and "Conflict of Interest Policies."
Pursuant to Maryland law, transactions between the Company and a trustee
may be void or voidable, unless the contract or transaction (a) is approved
under certain circumstances by the affirmative vote of a majority of
disinterested trustees or by the affirmative vote of a majority of the votes
cast by disinterested shareholders; or (b) it is fair and reasonable to the
Company. The Company has included in its Declaration of Trust provisions to
govern interested trustee transactions, which are substantially similar to these
provisions of Maryland law. Without the approval of a majority of the
disinterested trustees, the Company and its subsidiaries will not (i) acquire
from or sell to any trustee, officer or employee of the Company, or any entity
in which a trustee, officer or employee of the Company owns more than a 1%
interest, or acquire from or sell to any affiliate of any of the foregoing, any
assets or other property of the Company or its subsidiaries; (ii) make any loan
to or borrow from any of the foregoing persons; or (iii) engage in any other
material transaction with any of the foregoing persons. Following the completion
of the Offering, all proposed transactions between the Company and Palmer
Management must also be approved in advance by a majority of the Company's
trustees who are unaffiliated with the Prior Owners and the Initial Trustees and
who are not officers or employees of the Company. Each transaction of the type
described above will be in all respects on such terms as are, at the time of the
transaction and under the circumstances then prevailing, fair and reasonable to
the Company and its subsidiaries.
Under Maryland law, trustees, directors, and officers have a fiduciary
obligation to offer corporate opportunities to all of the entities of which they
are trustees, directors or officers if such corporate opportunities are in the
entity's line of business, within such entity's reasonable expectations or
otherwise required to be offered to such entity. Upon the consummation of the
Offering, in an effort to provide guidance to officers and trustees with respect
to the corporate opportunity doctrine, the Board of Trustees of the Company (the
"Board of Trustees") will adopt resolutions that delineate in general terms the
investment criteria of the Company. Notwithstanding such resolutions, in many
circumstances the application of the corporate opportunity doctrine may not be
clear. Under Maryland law, the officers and trustees of the Company ultimately
have the legal obligation to determine whether any potential corporate
opportunity satisfies the Company's investment criteria. The Company plans to
establish a Corporate Opportunity Committee of Independent Trustees to review
opportunities that may constitute corporate opportunities for the Company. Such
committee will consist of at least two Independent Trustees and have the power
of the Board of Trustees with respect to corporate opportunities and will have
the obligation to determine whether corporate opportunities presented by other
trustees and officers should be pursued by the Company. If it is determined that
the corporate opportunity is one that the Company will not pursue, then the
presenting trustee or officer may pursue the opportunity through another
business entity.
15
<PAGE> 24
DISTRIBUTIONS
The Company intends to pay regular quarterly distributions to its
shareholders of $0.325 per Common Share (which, if annualized, would equal $1.30
per Common Share, or an annual current distribution equal to 6.5% based upon an
assumed Offering Price of $20.00 per share). The initial distribution rate
represents an annualized distribution of approximately 82.9% of Cash Available
for Distribution. The first distribution, for the period commencing on the date
of consummation of the Offering and ending September 30, 1998, is expected to
equal a pro rata share of the anticipated quarterly distribution of $0.325 per
Common Share. The Company established its initial distribution based upon the
information and assumptions described in "Distributions." The Company does not
intend to change its estimated distribution rate if the Underwriters'
over-allotment option is exercised. The Company believes that its estimate of
Cash Available for Distribution constitutes a reasonable basis for setting the
initial distribution, and the Company expects to maintain its initial
distribution rate per share unless actual results of operations, economic
conditions or other factors differ from the assumptions used in calculating the
estimated distribution. However, there is no assurance that such rate will be
maintained. The Board of Trustees, in its sole discretion, will determine the
actual distribution rate based on the Company's actual results of operations,
economic conditions, tax considerations (including those related to REITs) and
other factors. See "Distribution Policy."
TAX STATUS
The Company will elect to be taxed as a REIT under sections 856 through 860
of the Internal Revenue Code of 1986, as amended (the "Code"), commencing with
its taxable year ending December 31, 1998. If the Company qualifies for taxation
as a REIT, with certain exceptions, the Company will not be subject to federal
income tax at the corporate level on its taxable income that is distributed to
its shareholders. A REIT is subject to a number of organizational and
operational requirements, including a requirement that it distribute at least
95% of its annual taxable income. Failure to qualify as a REIT will render the
Company subject to federal income tax (including any applicable alternative
minimum tax) on its taxable income at regular corporate rates and distributions
to the shareholders in any such year will not be deductible by the Company.
Although the Company does not intend to request a ruling from the Internal
Revenue Service (the "Service") as to its REIT status, the Company will receive
at the completion of the Offering the opinion of its legal counsel, Rudnick &
Wolfe, that commencing with such taxable year, the Company will be organized in
conformity with the requirements for qualification as a REIT, and its proposed
method of operation will enable it to meet the requirements for qualification
and taxation as a REIT under the Code. Such opinion will be based on certain
assumptions and representations and will not be binding on the Service or any
court. Even if the Company qualifies for taxation as a REIT, the Company may be
subject to certain state and local taxes on its income and property. In
connection with the Company's election to be taxed as a REIT, the Company's
declaration of trust (the "Declaration of Trust") will impose restrictions on
the transfer of Common Shares. The Company will adopt the calendar year as its
taxable year. See "Risk Factors -- Real Estate Risks," "-- Ownership of Common
Shares" and "-- Limitations on Changes in Control; Possible Adverse Consequences
of Ownership Limit," "Shares of Beneficial Interest," and "Federal Income Tax
Consequences."
16
<PAGE> 25
THE OFFERING
All of the Common Shares offered hereby are being offered by the Company.
Common Shares Offered by the
Company....................... 6,540,000 shares
Common Shares Outstanding
after the Offering(1)......... 8,051,000 shares
Use of Proceeds............... To pay the cash portion of the consideration
for the acquisition of certain Golf Courses, to
repay certain mortgage and other existing
indebtedness in connection with the acquisition
of certain Golf Courses and to establish
working capital reserves.
Proposed New York Stock
Exchange Symbol............... "GOF"
- -------------------------
(1) Includes 1,436,000 shares issuable upon the redemption of OP Units for
Common Shares, on a one-for-one basis, which redemption is subject to
certain limitations, and 75,000 Common Shares issued in the Formation
Transactions. Does not include an aggregate of 355,000 shares that are
reserved for issuance pursuant to options granted under the Company's
employee and trustee benefit plans and the 75,000 shares issuable upon
redemption of OP Units issuable upon exercise of OP Unit options granted to
Palmer Management in connection with the Formation Transactions. See
"Partnership Agreement," "Formation of the Company" and "Management --
Executive Compensation."
17
<PAGE> 26
SUMMARY SELECTED FINANCIAL DATA
The following table sets forth summary selected pro forma financial
information for the Company and historical and pro forma financial information
of the Predecessor to the Operating Partnership (as herein defined). The
unaudited pro forma operating information of the Company is presented as if the
Formation Transactions had occurred on January 1, 1997 and were carried forward
through March 31, 1998 and therefore incorporates certain assumptions that are
included in the Company's unaudited pro forma financial statements. The
unaudited pro forma balance sheet information of the Company is presented as if
the Formation Transactions had occurred on March 31, 1998. The unaudited pro
forma information does not purport to represent what the Company's financial
position or results of operations actually would have been had the Formation
Transactions, in fact, occurred on such date or at the beginning of the period
indicated, or to project the Company's financial position or results of
operations at any future date or for any future period. The historical and
unaudited pro forma financial information set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the historical financial statements of the
Predecessor.
<TABLE>
<CAPTION>
COMPANY PRO FORMA
---------------------------------------
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1998 DECEMBER 31, 1997
------------------ -----------------
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<S> <C> <C>
OPERATING DATA:
Rental income(1)............................................ $ 3,629 $ 14,517
General and administrative expenses(2)...................... 473 1,895
Depreciation and amortization(3)............................ 1,445 5,781
Interest expense(4)......................................... 13 50
Income of the Operating Partnership......................... 1,698 6,791
Minority interest(5)........................................ 303 1,211
Net earnings to Common Shareholders......................... 1,395 5,580
Net earnings per Common Share............................... $ 0.21 $ 0.84
Weighted average Common Shares outstanding(6)............... 6,615,000 6,615,000
CASH FLOW DATA:
Cash flow from operating activities(7).................... $ 3,156 $ 12,622
Cash flow from investing activities(8).................... 0 0
Cash flow used for financing activities(9)................ 2,617 10,466
OTHER DATA:
Funds from Operations of the Operating Partnership(10).... $ 3,106 $ 12,422
Cash Available for Distribution of the Operating
Partnership(10)......................................... 3,156 12,622
Common Shares and OP Units outstanding.................... 8,051,000 8,051,000
BALANCE SHEET DATA:
Golf Courses, at cost....................................... $ 103,175
Total assets................................................ 110,176
Debt outstanding under line of credit....................... 0
Minority interest in the Operating Partnership.............. 19,651
Total shareholders' equity.................................. 90,525
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR PREDECESSOR
PRO FORMA PREDECESSOR
PREDECESSOR HISTORICAL(11)
---------------------------
FISCAL 1997 FISCAL 1996
HISTORICAL ------------ ------------
FOR THE FOR THE PRO FORMA
THREE MONTHS THREE MONTHS FOR THE FISCAL
ENDED(11)(14) ENDED YEAR ENDED YEAR 26-DAY
-------------------- APRIL 1, 1997 DECEMBER 30, ENDED PERIOD ENDED
MARCH 31, APRIL 1, (11)(12)(14) 1997(11)(12) DECEMBER 30, DECEMBER 31,
1998 1997 (UNAUDITED) (UNAUDITED) 1997(13) 1996(13)(14)
--------- -------- ------------- -------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Operating revenues........... $ 2,968 $ 1,255 $2,781 $19,841 $11,012 $576
Operating expenses excluding
depreciation............... 2,839 1,234 2,373 16,509 9,903 539
Depreciation................. 482 178 369 1,596 941 44
Interest expense............. 728 268 744 3,019 1,427 76
Net loss..................... (1,082) (425) (705) (1,282) (1,259) (83)
<CAPTION>
PREDECESSOR HISTORICAL(11)
---------------------------
FISCAL 1996 FISCAL 1995
------------ ------------
337-DAY 187-DAY
PERIOD ENDED PERIOD ENDED
DECEMBER 5, JANUARY 2,
1996(13) 1996(13)(14)
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
OPERATING DATA:
Operating revenues........... $3,668 $2,054
Operating expenses excluding
depreciation............... 3,473 1,848
Depreciation................. 291 158
Interest expense............. 320 150
Net loss..................... (416) (102)
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR HISTORICAL(11)
-------------------------------------------
MARCH 31,
1998(14) DECEMBER 30, DECEMBER 31,
(UNAUDITED) 1997 1996
----------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Golf Courses, net........................................... $45,298 $42,912 $12,483
Mortgages and notes payable................................. 41,019 33,481 11,842
Total equity................................................ 9,254 10,335 5,794
</TABLE>
18
<PAGE> 27
- -------------------------
(1) Represents rental income from the Initial Lessees recorded in accordance
with the terms of the Participating Leases as if all Golf Courses had been
subject to the Participating Leases for the entire period.
(2) Represents management's estimates of general and administrative expenses.
(3) Represents depreciation of the Golf Course buildings and improvements as
allocated from the purchase prices of the Golf Courses over a 30-year
period and depreciation of furniture and fixtures over a 5-year period.
(4) Represents amortization of deferred costs related to the Credit Facility
over its 3-year term.
(5) Represents approximately 17.8% of the Operating Partnership's net earnings.
(6) Represents the number of Common Shares issued in connection with the
Formation Transactions, including 75,000 Common Shares issued to Peter J.
Nanula and George T. Haworth.
(7) Represents the Company's income before minority interest adjusted for
non-cash depreciation and amortization. Estimated pro forma cash flows from
operating activities excludes cash provided by (used in) operating
activities due to changes in working capital resulting from changes in
current assets and current liabilities. The Company does not believe these
excluded items are material to cash flows from operating activities.
(8) The Initial Lessees are required to pay for all capital expenditures.
(9) Represents estimated initial distribution to be paid based on the
anticipated initial annual dividend rate of $1.30 per Common Share and OP
Unit and an aggregate of 8,051,000 Common Shares and OP Units outstanding
and no initial debt.
(10) Estimated pro forma Funds from Operations and Cash Available for
Distribution are calculated as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1998 DECEMBER 31, 1997
------------------ -----------------
(IN THOUSANDS)
<S> <C> <C>
Pro forma income before minority interest............. $1,698 $ 6,791
Pro forma real estate related depreciation............ 1,408 5,631
------ -------
Pro forma Funds from Operations....................... 3,106 12,422
Adjustments:
Deferred mortgage cost amortization and non-real
estate related depreciation....................... 50 200
Estimated capital expenditures...................... -- --
------ -------
Pro forma Cash Available for Distribution....... $3,156 $12,622
====== =======
</TABLE>
In accordance with the resolution adopted by the Board of Governors of the
National Association of Real Estate Investment Trusts, Inc. ("NAREIT"),
Funds from Operations represents net income (loss) (computed in accordance
with generally accepted accounting principles), excluding gains (or losses)
from debt restructuring or sales of property, plus depreciation of real
property, and after adjustments for unconsolidated partnerships and joint
ventures. Funds from Operations should not be considered as an alternative
to net income or other measurements under generally accepted accounting
principles as an indicator of operating performance or to cash flows from
operating, investing or financial activities as a measure of liquidity.
Funds from Operations does not reflect working capital changes, cash
expenditures for capital improvements or principal payments on
indebtedness. The Company believes that Funds from Operations is helpful to
investors as a measure of the performance of an equity REIT, because, along
with cash flows from operating activities, financing activities and
investing activities, it provides investors with an understanding of the
ability of the Company to incur and service debt and make capital
expenditures. Compliance with the NAREIT definition of Funds from
Operations is voluntary. Accordingly, the Company's calculation of Funds
from Operations in accordance with the NAREIT definition may be different
than similarly titled measures used by other REITs. See "Distribution
Policy."
The Participating Leases are structured as triple net leases under which
each Initial Lessee is required to pay all real estate and personal
property taxes, insurance, utilities and services, golf course maintenance
and other operating expenses. In addition, the Initial Lessees are required
to pay for all capital expenditures.
(11) The Predecessor consists of the six Golf Courses owned by the Operating
Partnership prior to the completion of the Formation Transactions and the
ground leasehold interests in four Golf Courses that will be acquired by
the Company from Palmer Management in connection with the Formation
Transactions. See "Formation of the Company."
(12) The unaudited pro forma operating information of the Predecessor is
presented as if the acquisitions of Emerald Valley Golf Club, Fox Valley
Club, Minebrook Golf Club and Tan Tara Country Club and the inception of
the ground leasehold interest at Memphis National Golf Club and Penderbrook
Golf Club had occurred on January 1, 1997 and were carried forward to
December 30, 1997.
(13) The fiscal period ended December 30, 1997 and the 26-day period ended
December 30, 1996 represent the periods under which the Predecessor was
under the control of Palmer Management. The 337-day period ended December
5, 1996 and the 187-day period ended January 2, 1996 represent the periods
under which the Predecessor was under the control of Pacific Golf, Inc. The
26-day period ended December 31, 1996 and the 337-day period ended December
5, 1996 which comprise fiscal 1996 could not be combined as a result of the
change of control that occurred on December 6, 1996.
(14) The golf industry is seasonal in nature based on weather conditions. All
but one of the Predecessor Golf Courses are closed for all or a portion of
the first and fourth quarters of the year and the one course that remains
open experiences reduced play during the first and fourth quarters of the
year. Therefore, the operating results for the first and fourth quarters
are not representative of the operations for the entire year.
19
<PAGE> 28
RISK FACTORS
An investment in the Common Shares involves various risks. Prospective
investors should carefully consider the following material risks in conjunction
with the other information contained in this Prospectus before making a decision
to purchase Common Shares in the Offering.
DEPENDENCE ON LESSEES GENERATING SUFFICIENT REVENUES FROM THEIR OPERATIONS TO
PERMIT PAYMENT OF RENT AND THE FULFILLMENT OF OTHER OBLIGATIONS UNDER THE LEASES
DEPENDENCE ON PAYMENTS UNDER THE PARTICIPATING LEASES. The Company's
ability to make distributions to shareholders will depend solely upon the
ability of the Lessees to make Lease Payments (which will be dependent primarily
on the Lessees' ability to generate sufficient revenues in excess of operating
expenses from the Golf Courses). In addition, most of the Initial Lessees are
newly-formed special purpose entities, without substantial assets other than the
Participating Lease and the applicable security deposit. Thirteen Golf Courses,
which collectively account for substantially all of the initial Base Rent
payments to the Company, are leased to affiliates of Palmer Management or
Montclair, 10 of which will be leased to affiliates of Palmer Management. Palmer
Management has not guaranteed the payment of rents or any other obligations of
its affiliated Initial Lessee under any of the Participating Leases, except with
respect to potential indemnification regarding certain environmental matters.
These 13 Golf Courses will collectively account for approximately 90% of the
total initial Base Rent payments to the Company. There can be no assurance that
the assets and income of the Initial Lessees will be sufficient to enable them
to satisfy their obligations under their Participating Leases. See "-- Conflicts
of Interest -- Risks of Enforcement of Terms of Contribution Agreements, Leases
and Other Agreements." A failure or delay by a Lessee in making Lease Payments
may adversely affect the Company's ability to make anticipated distributions to
shareholders. Such failure or delay may be caused by reductions in revenue from
the Golf Courses or in the net operating income of a Lessee or otherwise.
Although failure on the part of a Lessee materially to comply with the terms of
its Participating Lease would give the Company the right to terminate such
Participating Lease, recover any OP Units or other collateral pledged as a
security deposit, repossess the applicable Golf Course and enforce the Lease
Payment obligations under the Participating Lease, the Company would then be
required to find another Lessee to lease such Golf Course or risk losing its
ability to elect or maintain REIT status, as applicable. It may be difficult for
the Company to find suitable replacement Lessees following a default,
particularly in instances where the prior Lessee was not able to operate
profitably. In such instances the Company would likely be required to reduce the
Base Rent and consequently the Cash Available for Distribution on a per share
basis would be reduced.
DEPENDENCE ON TWO GOLF COURSE RESORT PROPERTIES FOR SIGNIFICANT LEASE
PAYMENTS; VULNERABILITY TO LOCAL ECONOMIC CONDITIONS. Two of the Company's
properties (Nordic Hills Resort and Indian Lakes Resort) collectively account
for initial Base Rent of $6,167,000, which represents 42.5% of the total initial
Base Rent payments to the Company, and are located in the Chicago area within
four miles of each other. Three of the Company's properties (Tan Tara, Fox
Valley and Brierwood) collectively account for initial Base Rent of $2,520,000,
which represents 17.4% of the total initial Base Rent payments to the Company
and are located in the Buffalo, New York area. Due to the Company's dependence
upon these properties for Lease Payments and the geographic concentration of
such properties, events or conditions that affect the Chicago or the Buffalo
area in particular, such as competition, adverse weather conditions,
overbuilding and economic recession, could have a greater negative impact on the
operations of the Company, and ultimately on Cash Available for Distribution to
the Company's shareholders, than if the Company's investments were more diverse.
CONFLICTS OF INTEREST
RISK THAT TERMS OF CONTRIBUTION AGREEMENTS, LEASES AND OTHER AGREEMENTS,
AND ENFORCEMENT THEREOF, MAY NOT REFLECT THE BEST INTERESTS OF THE COMPANY AND
ITS SHAREHOLDERS. Because (i) David B. Deniger, Chairman of the Board of the
Company, serves as Chief Executive Officer of Olympus and Chairman of the Board
of Palmer Management, (ii) Peter J. Nanula, President and Chief Executive
Officer of the Company, serves (and will continue to serve until the closing of
the Offering) as the President and Chief Executive Officer of Palmer Management,
and he also serves as a director of Palmer Management, and (iii) George T.
Haworth, Executive Vice President and Chief Financial Officer of the Company,
serves (and will continue to serve until the closing of the Offering) as Chief
Financial Officer, Secretary and Treasurer of Palmer
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Management, there may be a conflict of interest with respect to: (i) the
enforcement of the agreements relating to the contribution of properties by
Palmer Management and the Prior Owner affiliated with Montclair; (ii) the
enforcement and termination of the Participating Leases respecting the Golf
Courses leased to Palmer Management and Montclair; and (iii) the enforcement of
other agreements between the Company and Palmer Management, all of which could
lead to decisions that do not reflect the best interests of the Company and its
Shareholders. In addition, the agreement pursuant to which the Company will
acquire the two resort properties (the "Montclair Acquisition Agreement")
generally contains representations and warranties that may be more favorable to
such properties' Prior Owner, which is controlled by Olympus, than those
contained in the acquisition agreements relating to the other Golf Courses. The
indemnification relating to these representations and warranties will be limited
to the value of the OP Units received by Montclair in connection with the
Company's acquisition of such properties. Also, due to the Company's dependence
on Lease Payments from Initial Lessees affiliated with Palmer Management as a
significant source of the Company's revenues, the Company may be limited in its
ability to fully enforce its rights under such Participating Leases or to
terminate such leases.
OBLIGATIONS WITH RESPECT TO CORPORATE OPPORTUNITIES. Mr. Deniger is the
Chief Executive Officer and a director of Olympus and Mr. Nanula is a director
of Palmer Management, and in such positions each individual will be obligated to
offer certain corporate opportunities to their respective companies as well as
the Company. The Company plans to establish a committee of at least two trustees
unaffiliated with the Initial Lessees and Prior Owners and who are not officers
or employees of the Company (the "Independent Trustees") to review opportunities
that may constitute a corporate opportunity for the Company. See "Conflict of
Interest Policies."
LACK OF APPRAISALS AND THE RESULTANT POSSIBILITY THAT THE MARKET
CAPITALIZATION OF THE COMPANY MAY EXCEED THE FAIR MARKET VALUE OF THE COMPANY'S
PROPERTIES. No third-party valuations of the Golf Courses were obtained in
connection with the Formation Transactions. The valuation of the Company is
based upon the capitalization of the Company's estimated Cash Available for
Distribution and the factors set forth in this Prospectus in "Formation of the
Company -- Valuation of Interests." There can be no assurance that the price
paid by the Company for the Golf Courses did not exceed the fair market value of
one or more of the Golf Courses. The valuation of the Golf Courses, including
the 10 Golf Courses to be contributed by Palmer Management and the two Golf
Course resort properties to be contributed by the Prior Owner affiliated with
Montclair, was determined by management of the Company, including Peter J.
Nanula, President and Chief Executive Officer of the Company, and currently the
President and Chief Executive Officer and a director of Palmer Management, and
George T. Haworth, Executive Vice President and Chief Financial Officer of the
Company, and currently Chief Financial Officer, Secretary and Treasurer of
Palmer Management. In addition, David B. Deniger, Chairman of the Board of
Trustees of the Company, serves as Chief Executive Officer of Olympus and
Chairman of the Board of Palmer Management, and Olympus is the principal
beneficial owner of equity interests in Palmer Management and the Prior Owner
affiliated with Montclair. Had such agreements between the Company and Palmer
Management and the Prior Owner affiliated with Montclair been negotiated on an
arm's length basis, the price paid for such Golf Courses, as well as the terms
of such agreements, may have been more favorable to the Company.
SALE OF PROPERTIES. Certain trustees of the Company or their affiliates
have unrealized gain in their interests in certain of the Golf Courses
transferred to the Company in connection with the Offering. The sale of such
Golf Courses by the Company may cause adverse tax consequences to such trustees
or their affiliates. Therefore, the interests of the Company, such trustees and
their affiliates could be different in connection with the disposition of such
Golf Courses.
CONFLICTS RELATING TO THE OPERATING PARTNERSHIP. After the Offering, the
Company, as the sole general partner of the Operating Partnership, will have
fiduciary obligations to the other Limited Partners in the Operating
Partnership, the discharge of which may conflict with the interests of the
Company's shareholders. The Limited Partners will be entitled to vote on certain
matters, including the sale of all or substantially all the Company's assets or
the merger or consolidation of the Operating Partnership, which will require the
approval of the holders of a majority of the outstanding OP Units.
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COMPETITION FROM OTHER GOLF COURSES OPERATED BY THE LESSEES. Generally,
affiliates of the Lessees may acquire, develop or manage properties that compete
with the Company's properties. Accordingly, the Lessees' decisions relating to
the operation of the Golf Courses that are in competition with other properties
owned or managed by them may not reflect the interests of the Company. Palmer
Management owns one golf course that does not meet the Company's investment
criteria and is not being contributed to the Company.
COMPETITION FOR THE TIME OF MANAGEMENT OF THE INITIAL LESSEES. Management
of the Initial Lessees will continue to devote a portion of their time to other
business interests, including the operation of golf courses not being
contributed to the Company, which may result in less revenue being generated
from the Golf Courses.
OTHER POSSIBLE CONFLICTS. Other transactions involving the Company and
affiliates of the Lessees may also give rise to possible conflicts of interest,
such as future acquisitions of properties and selection of operators for such
properties.
INABILITY OF THE COMPANY TO EXERCISE CONTROL OVER DAY-TO-DAY OPERATIONS AND
MANAGEMENT OF THE GOLF COURSES
In order to qualify as a REIT for federal income tax purposes, the Company
may not operate the Golf Courses or participate in the decisions affecting the
operations of the Golf Courses. Each Initial Lessee will control the operations
of the Golf Courses it leases under the Participating Leases, which have initial
terms of 15 years and may be extended at the option of each Initial Lessee for
between two and five five-year renewal terms. Leases entered into by the Company
in the future are expected to contain similar terms. The Company will not have
the authority to require any Initial Lessee to operate the Golf Courses in a
particular manner, or to govern any particular aspect of their operation (e.g.,
setting green fees or membership dues), except as set forth in the Participating
Leases. Leases for subsequently acquired properties are expected to contain
similar provisions. Thus, even if the Company believes a Lessee is operating the
Golf Courses it leases inefficiently or in a manner that does not result in a
maximization of Participating Rent to the Company under the Participating Leases
and, therefore, does not increase Cash Available for Distribution to the
shareholders, the Company may not require a Lessee to change its method of
operation. The Company is limited to seeking redress only if a Lessee violates
the terms of the Participating Lease, in which case the Company's primary remedy
is to terminate one or more of the Participating Leases and seek to recover
damages from such Lessee. If a Participating Lease is terminated, the Company
will be required to find another lessee or risk losing its ability to elect or
maintain REIT status, as applicable. See "The Participating Leases."
ABSENCE OF RIGHTS UNDER, OR CONTROL OVER, BRAND LICENSE
Nine of the Golf Courses are (or, will be shortly after the completion of
the Offering) operated under the Arnold Palmer Managed Golf Course(SM), Arnold
Palmer Managed Country Club(SM) or Arnold Palmer Managed Golf Club(SM) brand
affiliations, and one additional course has been approved for such operation.
See "The Golf Courses -- Descriptions of the Golf Courses" and "-- Brand
Affiliations." The license relating to such Golf Courses (the "License
Agreement") is held by Palmer Management and not by the Company. As the Company
is not a party under the License Agreement, the Company will not have any rights
thereunder. In addition, the continued use of such brand is contingent upon the
continuation of the License Agreement, which is subject to certain operating
standards and other terms and conditions. Arnold Palmer Enterprises, Inc.
("Palmer Enterprises"), the licensor under the License Agreement, has the right
to inspect such courses periodically to confirm adherence to operating
standards. Action on the part of Palmer Management could result in a breach of
such standards or other terms and conditions of the License Agreement and could
result in the loss or cancellation of the License Agreement. In addition, Palmer
Management may elect to allow the License Agreement to lapse without the
Company's approval. In any case, if the License Agreement is terminated, the
Company and Palmer Management may seek to obtain a suitable replacement brand
affiliation, or to operate the golf course independent of a brand affiliation.
The loss of a brand affiliation could have a material adverse effect upon the
operations or the underlying value of the Golf Course covered by the brand
affiliation because of the loss of associated name recognition. In addition, the
License Agreement permits Palmer Management to use certain marks and names, but
only in a specified manner in connection with Palmer Management's management of
certain golf facilities expressly approved by Palmer Enterprises, (e.g.,
"Crofton Country Club, an Arnold Palmer Managed Country Club"). Fox Valley,
Oronoque, Memphis
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National (two courses), Crofton, Brierwood, Tan Tara, Emerald Valley,
Penderbrook and Minebrook are the only Golf Courses so approved by Palmer
Enterprises, and there can be no assurance that Palmer Enterprises will so
approve additional golf courses owned by the Company and leased to Palmer
Management in the future.
NO ASSURANCE THAT THE COMPANY WILL COMPLETE ADDITIONAL ACQUISITIONS OF
PROPERTIES
As part of its growth strategy, the Company seeks to acquire additional
properties. The Company will compete for golf course acquisition opportunities,
including those opportunities brought to the Company's attention through the
Initial Lessees' acquisition efforts, with entities organized for purposes
substantially similar to the Company's objectives as well as other purchasers of
golf courses. The Company may be competing for such golf course acquisition
opportunities with entities that have substantially greater financial resources
than the Company and a broader geographic knowledge base. These entities also
may generally be able to accept more risk than the Company prudently chooses to
accept. Thus, competition may generally reduce the number of suitable golf
course acquisition opportunities available to the Company. See "The Company --
Business Strategy" and "-- Acquisition Process." The success of the Company's
growth strategy will, in part, depend upon its access to capital necessary to
acquire additional properties through use of excess cash flow, borrowings or
subsequent issuances of Common Shares, OP Units or other securities. There can
be no assurance that the Company will have access to capital. The Company's
success will depend upon the ability of each Lessee effectively to operate all
of the properties it leases, as well as the ability of the Company to continue
to select an appropriate Lessee for additional properties it acquires. There can
be no assurance that a Lessee will effectively operate the properties it leases.
In the event the Company fails to obtain access to capital or a Lessee fails
effectively to operate the properties it leases, Cash Available for Distribution
to shareholders could be adversely affected.
LACK OF OPERATING HISTORY
The Company has been recently organized and has no operating history. There
can be no assurance that the Company will be able to generate sufficient revenue
from operations to make anticipated distributions. The Company also will be
subject to the risks generally associated with the formation of any new
business.
DEPENDENCE ON KEY PERSONNEL
The loss of the services of Peter J. Nanula, the Company's President and
Chief Executive Officer; Donald E. Rhodes, the Company's Executive Vice
President and Chief Operating Officer; or George T. Haworth, the Company's
Executive Vice President and Chief Financial Officer, could have a material
adverse effect on the Company, its operations and its business prospects. In
addition, Mr. Haworth is the only executive officer of the Company who has
management experience with a REIT. The executive officers will receive
substantial compensation from the Company. See "Management -- Executive
Compensation" and "-- Employment Agreements." The Company's success also depends
upon its ability to attract and maintain qualified personnel.
BENEFITS TO OFFICERS AND TRUSTEES
The Company's officers and directors will receive material benefits from
the Formation Transactions that will not be received by purchasers of Common
Shares in the Offering. Such benefits include: (i) receipt by Palmer Management,
in which equity interests are beneficially owned by Peter J. Nanula, George T.
Haworth and Olympus, of 1,100,000 OP Units, $5,000,000 in cash, $43,778,000 for
the repayment of existing indebtedness and options to purchase 75,000 OP Units
as consideration for its interests in the Golf Courses contributed to the
Company in connection with the Formation Transactions and Palmer Management's
general partnership and limited partnership interests in the Operating
Partnership prior to the completion of the Offering; (ii) receipt by Montclair,
the principal beneficial owner of which is Olympus, whose Chief Executive
Officer is David B. Deniger, of approximately 246,700 OP Units and $35,028,000
in cash and $22,538,000 for the assumption and repayment of debt in connection
with the Formation Transactions; (iii) subject to the achievement by the Company
of certain performance goals, Peter J. Nanula and George T.
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Haworth will be granted an aggregate of 75,000 restricted Common Shares
beginning in the year 2000; (iv) Peter J. Nanula and George T. Haworth will
receive an aggregate of 75,000 Common Shares in the Formation Transactions; (v)
Peter J. Nanula, Donald E. Rhodes and George T. Haworth will be granted options
to acquire 125,000, 65,000 and 65,000 Common Shares, respectively, at the
Offering Price; (vi) each trustee who is not an employee of the Company,
including Mr. Deniger, will receive options to acquire 5,000 Common Shares at
the Offering Price, (vii) the reimbursement by the Company of Palmer Management
for $300,000 in direct out-of-pocket expenses incurred in connection with the
Formation Transactions; and (viii) the entitlement of the Initial Lessees,
including those that are affiliated with Palmer Management and Olympus, to all
cash flow from such Golf Courses after payment of the Lease Payments under the
applicable Participating Leases and other operating expenses.
INVESTMENT IN SINGLE INDUSTRY
The Company's current strategy is to acquire only golf courses and related
facilities. As a result, the Company will be subject to risks inherent in
investments in a single industry. The effects on Cash Available for Distribution
to shareholders resulting from a downturn in the golf industry will be more
pronounced than if the Company had diversified its investments.
GOLF AND HOSPITALITY INDUSTRY RISKS
OPERATING RISKS. The Golf Courses will be subject to all operating risks
common to the golf and hospitality industries. These risks include, among other
things: (i) increases in operating costs due to inflation and other factors,
which increases may not be offset by increased dues, fees and room rates; (ii)
dependence on business meetings and tourism, particularly for the Golf Course
resort properties, which may fluctuate and be seasonal; (iii) increases in
energy costs and other expenses of travel, which may adversely affect travelers;
and (iv) adverse effects of general and local economic conditions. Indian Lakes
Resort and Nordic Hills Resort, which collectively account for 43% of the
Company's total initial Base Rent, are subject to additional risks common to the
hotel industry, including competition for guests from other hotels, business
conference centers and resorts. The Company also is subject to the risk that in
connection with the acquisition of certain properties it may not be possible to
transfer certain operating licenses, such as food, alcohol and beverage
licenses, to the Lessee, or to obtain new licenses in a timely manner in the
event such licenses cannot be transferred. These factors could adversely affect
a Lessee's ability to generate revenues and to make Lease Payments and,
therefore, the Company's ability to make expected distributions to the Company's
shareholders.
SUPPLY OF GOLF COURSES. There have been a substantial number of new golf
courses opened in recent years and a number of new courses currently are under
development or planned for development. These new golf courses could increase
the competition faced by one or more of the Golf Courses and reduce the rounds
played and revenues associated with one or more of the Golf Courses. Any such
decrease in revenues may adversely affect the net operating income of a Lessee
and, therefore, its ability to make its Lease Payments.
SEASONALITY. The golf industry is seasonal. Seasonal variations in revenue
at the Golf Courses may require the Lessees to supplement revenue at the
applicable Golf Course to pay Base Rent. Failure of a Lessee to properly manage
its cash flow may result in a Lessee having insufficient cash to make its Lease
Payments during low seasons and, therefore, adversely affect Cash Available for
Distribution to shareholders.
ADVERSE WEATHER CONDITIONS. Several climatological factors beyond the
control of the Lessees may influence the revenues at the Golf Courses, including
adverse weather, such as hurricanes, heat waves, frosts and floods. In the event
of adverse weather or destruction of the turf grass at a Golf Course, the number
of rounds played at such Golf Course could decrease, which could have a negative
impact on any Participating Rent received from the affected Golf Course and the
ability of the applicable Lessee to make its Lease Payment.
FACTORS AFFECTING GOLF PARTICIPATION. The success of efforts to attract and
retain members at private country clubs and the number of rounds played at
public golf courses historically has been dependent upon discretionary spending
by consumers, which may be adversely affected by regional and economic
conditions. A
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decrease in the number of golfers or their rates of participation or in consumer
spending on golf could have an adverse effect on the Gross Golf Revenue
generated per Golf Course and, therefore, the Lease Payments to be paid under
the Participating Leases.
COURSE CONDITIONS. General turf grass conditions must be satisfactory to
attract play on the Golf Courses. Severe weather or other factors, including
disease and insect infestation, could adversely affect the turf grass conditions
at the Golf Courses. Turf grass conditions at the Golf Courses also depend to a
large extent on the quality and quantity of water available. The availability
and quantity of water available is affected by various factors, many of which
are beyond the control of the Company. There can be no assurance that certain
conditions, including drought, governmental regulation or environmental
concerns, which could adversely affect the supply of water to a particular Golf
Course, may not arise in the future.
ENVIRONMENTAL MATTERS
Operations at the Golf Courses involve the use, storage and disposal of
various hazardous materials such as herbicides, pesticides, fertilizers, motor
and heating oil, gasoline and waste oil. Under various federal, state and local
laws, ordinances and regulations, an owner or operator of real property may
become liable for the costs of removal or remediation of certain hazardous
materials released on or in its property. Environmental laws may also impose
restrictions on the manner in which a property may be used or transferred or in
which businesses may be operated, and these restrictions may require
expenditures. Such laws often impose such liability without regard to whether
the owner or operator knew of, or was responsible for, the release of such
hazardous materials. The presence of such materials, or the failure to remediate
such materials properly, may adversely affect the owner's ability to sell such
real estate or to borrow using such real estate as collateral. Under
environmental laws, persons who arrange for the disposal of hazardous materials
may also be liable for the costs of investigation, removal or remediation of
such materials at the disposal or treatment facility, regardless of whether such
facility is owned or operated by such person.
Environmental laws also govern the presence, maintenance and removal of
asbestos-containing building materials ("ACBM"). These laws require that ACBM be
properly managed and maintained, that those who may come into contact with ACBM
be adequately apprised or trained and that special precautions, including
removal or other abatement, be undertaken in the event ACBM would be disturbed
during renovation or demolition of a building. These laws may impose fines and
penalties on owners and operators for failure to comply with these requirements
and may allow third parties to seek recovery from owners and operators for
personal injury and property damage associated with exposure to asbestos fibers.
Environmental laws also impose requirements with respect to wetlands.
Pursuant to those laws, certain activities in and around wetlands, including,
but not limited to, development and/or improvement of real property, may require
prior governmental approval. Failure to obtain such approval may delay or hinder
development and result in fines and penalties. All of the Golf Courses have been
subjected to a Phase I environmental assessment by an independent environmental
consultant. The Phase I environmental assessments typically include a visual
inspection of the Golf Courses and the surrounding areas, an examination of
current and historical uses of the Golf Courses and the surrounding areas, and a
review of relevant state, federal and historical documents. Where deemed
appropriate by the Company, on a property-by-property basis, additional testing
was conducted where past or present site usages create a potential for site
impact, including soil and groundwater contamination. No assurance can be given,
however, that these reports reveal all potential environmental liabilities, that
no prior or adjacent owner or operator created any material environmental
condition not known to the Company or the independent consultant or that future
uses or conditions (including, without limitation, changes in applicable
environmental laws and regulations) will not result in imposition of
environmental liability to the Company. Ground water monitoring is being
performed at one of the Golf Course sites, in conjunction with a state
environmental agency, to assess potential impact from a release of gasoline from
an underground storage tank that was removed from such Golf Course in April
1996. Recently, such monitoring indicated increases in contaminant levels and
some migration of such contaminants within the property. Additional
investigations are currently being performed to determine the potential source
of the increased levels (which may be from an existing underground storage tank
located on an adjacent property not owned by the Company) and to ascertain an
appropriate remediation alternative. If
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contaminants were to migrate onto an adjacent property, the owners and residents
of such property could seek to hold the Company, and any other potentially
responsible party, liable. Palmer Management has agreed to indemnify the Company
against any third-party liability arising from the presence of such contaminant
and for all costs incurred in remediation. In addition, the Participating Leases
provide that the Initial Lessees will indemnify the Company for certain
potential environmental liabilities at the Golf Courses. However, certain
Initial Lessees are newly-formed entities and may lack sufficient capitalization
in the event indemnification is necessary. Moreover, there can be no assurance
that if recourse to such indemnities becomes necessary, they will not be
contested. See "The Golf Courses -- Government Regulation."
COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT
Under the Americans with Disabilities Act of 1990 (the "ADA"), all public
accommodations are required to meet certain federal requirements related to
access and use by disabled persons. A determination that the Company is not in
compliance with the ADA could result in the imposition of fines or an award of
damages to private litigants. If the Company were required to make modifications
to comply with the ADA, the Company's ability to make expected distributions to
its shareholders could be adversely affected. See "The Golf Courses --
Government Regulation."
REAL ESTATE RISKS
GENERAL. Acquisitions of the Golf Courses and any additional properties in
which the Company may invest in the future are subject to risks typically
associated with investments in real estate. Such risks include the possibility
that the Golf Courses and any additional properties will generate rent and
capital appreciation, if any, at rates lower than those anticipated or will
yield returns lower than those available through other investments. Income from
the Golf Courses may be affected by many factors, including changes in
government regulation, general or local economic conditions, changes in interest
rates and in the availability, cost and terms of financing, changes in real
estate, zoning and tax laws, the available local supply of golf courses, a
decrease in the number of golfers, adverse weather conditions or other factors.
ILLIQUIDITY OF REAL ESTATE. Because real estate investments are relatively
illiquid, the Company's ability to vary its portfolio promptly in response to
economic or other conditions will be limited. In addition, certain significant
expenditures, such as debt service and real estate taxes generally are not
reduced in circumstances resulting in a reduction in income from the investment.
The foregoing and any other factor or event that would impede the ability of the
Company to respond to adverse changes in the performance of its investments
could have an adverse effect on the Company's financial condition and results of
operations, with a consequent adverse effect on the Company's ability to make
expected distributions to shareholders.
UNINSURED LOSSES. The Participating Leases require that each Initial Lessee
maintain insurance with respect to each of the Golf Courses it leases, including
comprehensive liability, fire, flood and extended coverage insurance. Leases for
subsequently acquired properties will contain similar provisions. There are,
however, certain types of losses (such as from hurricanes, floods or
earthquakes) which may be uninsurable or insurable only at rates that are
prohibitively expensive. The Company's Board of Trustees and management will use
their discretion in determining amounts, coverage limits and deductibility
provisions of insurance requirements imposed on Lessees, with a view to
maintaining appropriate insurance coverage on the Company's investments at a
reasonable cost and on suitable terms. Should an uninsured loss occur, the
Company could lose both its invested capital in and anticipated profits from the
applicable property. In addition, inflation, changes in building codes and
ordinances, environmental considerations, and other factors also might make it
infeasible to use insurance proceeds to replace the property after such property
has been damaged or destroyed. Under such circumstances, the insurance proceeds
received by the Company might not be adequate to restore its economic position
with respect to such property.
GROUND LEASES. Four of the Golf Courses, Penderbrook Golf Club, Crofton
Country Club and Memphis National Golf Club (two courses), are operated pursuant
to long-term ground leases that expire in 2022, 2026 and 2042, respectively. In
addition, the Company may acquire additional ground leasehold interests in golf
courses in the future. In the event of a default by the Company under a ground
lease, the ground lessor may
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terminate the ground lease, subject to certain conditions. If a ground lease is
terminated or not renewed, the Company would lose its investment in the golf
course leased thereunder.
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT; OTHER TAX LIABILITIES
The Company intends to operate so as to qualify as a REIT under the Code
commencing with the Company's taxable year ending December 31, 1998. However, no
assurance can be given that the Company will qualify or remain qualified as a
REIT. Qualification as a REIT involves the application of highly technical and
complex Code provisions for which there are only limited judicial or
administrative interpretations. The complexity of these provisions and of the
applicable income tax regulations that have been promulgated under the Code (the
"Treasury Regulations") is greater in the case of a REIT that holds its assets
in partnership form. The determination of various factual matters and
circumstances not entirely within the Company's control may affect its ability
to qualify as a REIT. In addition, no assurance can be given that legislation,
new regulations, administrative interpretations or court decisions will not
significantly change the tax laws with respect to qualification as a REIT or the
federal income tax consequences of such qualification. See "Federal Income Tax
Consequences."
If the Company were to fail to qualify as a REIT in any taxable year, the
Company would not be allowed a deduction for distributions to shareholders in
computing taxable income and would be subject to federal income tax on its
taxable income at regular corporate rates. Unless entitled to relief under
certain statutory provisions, the Company would also be disqualified from
treatment as a REIT for the four taxable years following the year during which
qualification was lost. As a result, Cash Available for Distribution to the
Company's shareholders would be reduced for each of the years involved. Although
the Company currently intends to operate in a manner designed to qualify as a
REIT, it is possible that future economic, market, legal, tax or other
considerations may cause the Company to fail to qualify as a REIT or may cause
the Board of Trustees to revoke the REIT election. See "Federal Income Tax
Consequences."
The Operating Partnership has been structured to be classified as a
partnership for federal income tax purposes. If the Service were to challenge
successfully the tax status of the Operating Partnership as a partnership for
federal income tax purposes, the Operating Partnership would be treated as an
association taxable as a corporation. In such event, the character of the
Company's assets and items of gross income would change and preclude the Company
from satisfying the asset tests and the income tests (imposed by the Code and
applicable to REITs, as discussed below) and, in turn, would prevent the Company
from qualifying as a REIT. See "Federal Income Tax Consequences -- Taxation of
the Company." In addition, the imposition of a corporate tax on the Operating
Partnership would reduce the amount of Cash Available for Distribution to the
Company and its shareholders. See "Federal Income Tax Consequences -- Tax
Aspects of the Operating Partnership."
OWNERSHIP OF COMMON SHARES
RISKS RELATED TO THE COMPANY'S DISTRIBUTION POLICY. The Company initially
plans to distribute 82.9% of estimated Cash Available for Distribution. If
actual Cash Available for Distribution falls short of estimates, the Company may
be unable to maintain its proposed initial distribution rate. In addition, the
Company's success in implementing its growth plan will depend significantly on
the Company's ability to acquire additional golf courses at attractive prices.
If the Company is unable to acquire additional golf courses at attractive
prices, the Company's ability to grow and maintain or increase Cash Available
for Distribution per share may be adversely affected.
NO PRIOR MARKET FOR COMMON SHARES; ADVERSE EFFECT OF INCREASE IN MARKET
INTEREST RATES ON MARKET PRICE OF COMMON SHARES. Prior to the completion of the
Offering, there has been no market for the Common Shares, and there can be no
assurance that an active trading market will develop or be sustained or that the
Common Shares may be resold at or above the Offering Price. The Offering Price
will be determined through negotiations between the Company and the Underwriters
and may not be indicative of the market price for the Common Shares after the
completion of the Offering. See "Formation of the Company -- Valuation of
Interests." In addition, one of the factors that may influence the price of the
Common Shares in public trading markets will be the annual yield from
distributions by the Company on the Common Shares as compared to
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yields on other financial instruments. Thus, an increase in market interest
rates will result in higher yields on other financial instruments, which could
adversely affect the market price of the Common Shares.
DISTRIBUTIONS TO SHAREHOLDERS. The Company's ability to make distributions
to its shareholders will be based principally on rent payments under the
Participating Leases and under leases entered into by the Company in the future.
In the event of a default by a Lessee under its lease, there could be a decrease
or cessation of Lease Payments from such Lessee. In addition, the amount
available to the Company to make distributions to its shareholders may decrease
on a per share basis if golf courses acquired in the future yield lower than
expected revenues. Moreover, if the Company incurs additional indebtedness in
the future, it will require additional funds to service such indebtedness and
Cash Available for Distribution may decrease. Distributions by the Company will
also be dependent on a number of other factors, including the amount of Cash
Available for Distribution, the Company's financial condition, any decision to
reinvest funds rather than to distribute such funds, capital expenditures, the
annual distribution requirements under the REIT provisions of the Code (see
"Federal Income Tax Consequences -- Taxation of the Company") and such other
factors as the Company deems relevant. In order to qualify as a REIT, the
Company generally will be required to distribute to its shareholders at least
95% of its net taxable income each year. In addition, the Company will be
subject to a 4% nondeductible excise tax on the amount, if any, by which certain
distributions paid by it with respect to any calendar year are less than the sum
of 85% of its ordinary income, 95% of its capital gain net income and
undistributed income from prior years. The Company's income and cash flow will
consist primarily of rent payments under the Participating Leases and under
leases entered into by the Company in the future. Differences in timing between
the receipt of income and the payment of expenses in arriving at taxable income
and the effect of required debt amortization payments could require the Company
to borrow funds on a short-term basis to meet the distribution requirements that
are necessary to achieve the tax benefits associated with qualifying as a REIT.
ADVERSE EFFECT OF SHARES AVAILABLE FOR FUTURE SALE ON MARKET PRICE OF
COMMON SHARES. Sales of a substantial number of Common Shares or the perception
that such sales could occur, may adversely affect prevailing market prices for
the Common Shares. In addition to the Common Shares offered by the Company in
the Offering, 75,000 Common Shares will be issued in the Formation Transactions,
an aggregate of 1,436,000 OP Units will be outstanding upon completion of the
Formation Transactions and an additional 75,000 OP Units will be reserved for
issuance upon exercise of OP Unit options granted to Palmer Management in
connection with the Formation Transactions. See "Formation of the Company." The
OP Units may be redeemed by the holders of such OP Units at any time after the
first anniversary of the completion of the Offering for cash, or at the
Company's option, for Common Shares on a one-for-one basis. See "Shares
Available for Future Sale." At the conclusion of such period, the Common Shares
issuable upon redemption of the OP Units may be sold in the public market
pursuant to a shelf registration statement that the Company is obligated to file
with respect to the resale of such shares, or pursuant to any available
exemptions from registration. See "Shares Available for Future Sale --
Registration Rights." In addition, 1,000,000 Common Shares will be issued or
reserved for issuance pursuant to employee and trustee benefit plans, and these
shares will be available for sale in the public market, from time to time
pursuant to exemptions from registration requirements or upon registration. The
Company's acquisition strategy will depend in part on access to additional
capital through sales and issuances of equity securities, including OP Units.
The market price of the Common Shares may be adversely affected by the
availability for future sale and issuance of Common Shares that may be issued
upon redemption of the OP Units as well as any additional OP Units issued in
future acquisitions. See "The Company -- Business Strategy." No predictions can
be made as to the effect, if any, that future sales of shares, or the perception
that such sales could occur will have on the price of the Common Shares.
IMMEDIATE DILUTION. As set forth more fully under "Dilution," the pro forma
net tangible book value per share of the assets of the Company after the
Offering will be less than the Offering Price per share. Accordingly, purchasers
of Common Shares in the Offering will experience immediate dilution of $6.32 per
share (based upon the assumed Offering Price) in the net tangible book value of
the Common Shares from the Offering Price. See "Dilution."
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DEBT FINANCING
RISKS OF LEVERAGE. Upon completion of the Offering, the Company expects to
have $75 million available under the Credit Facility. The Company may borrow
under the Credit Facility or from other lenders in the future, or may issue
corporate debt securities in public or private offerings. Certain of such
additional borrowings may be secured by the properties owned by the Company. In
addition, the Company has reached a non-binding agreement in principle with
Credit Lyonnais to replace the Credit Facility with a $100 million unsecured
Replacement Facility. There can be no assurance, however, that the Credit
Facility will be replaced, or if replaced, the terms under which it will be
replaced. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and "Policies with
Respect to Certain Activities -- Financing."
RISK OF RISING INTEREST RATES AND VARIABLE RATE DEBT. There can be no
assurance that the Company, upon the incurrence of debt, will be able to meet
its debt service obligations and, to the extent that it cannot, the Company
risks the loss of some or all of its assets, including any properties securing
such debt, to foreclosure, which could result in a financial loss to the
Company. Adverse economic conditions could result in higher interest rates on
variable rate debt, including borrowings under the Credit Facility, which could
decrease Cash Available for Distribution and increase the risk of loss upon a
sale or from a foreclosure. Adverse economic conditions could cause the terms on
which borrowings become available to be unfavorable. In such circumstances, if
the Company is in need of capital to repay indebtedness in accordance with its
terms or otherwise, it could be required to liquidate one or more investments in
golf properties at times which may not permit realization of the maximum return
on such investments. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
NO LIMITATIONS ON INDEBTEDNESS. Upon completion of the Offering, the
Company will adopt a policy of incurring debt, either directly or through the
Operating Partnership, only if upon such incurrence the Company's debt to total
market capitalization ratio would be approximately 50% or less. However, the
organizational documents of the Company and the Operating Partnership will not
contain any limitation on the amount of indebtedness that may be incurred.
Accordingly, the Board of Trustees could alter or eliminate this policy and
would do so, for example, if it were necessary for the Company to continue to
qualify as a REIT. If this policy were changed, the Company could become more
highly leveraged, resulting in an increase in debt service that could adversely
affect the Company's Funds from Operations and, consequently, the amount of Cash
Available for Distribution to shareholders and could increase the risk of
default on the Company's indebtedness.
ABILITY OF THE BOARD OF TRUSTEES TO CHANGE THE COMPANY'S INVESTMENT AND
FINANCING POLICIES
The Board of Trustees determines the Company's investment policies and
policies with respect to certain other activities, including its growth,
capitalization, distributions and operating policies. Although the Board of
Trustees has no present intention to amend or revise these policies, the Board
of Trustees may do so at any time without a vote of the Company's shareholders.
See "Policies With Respect to Certain Activities -- Investment Policies."
ERISA RISKS
Depending upon the particular circumstances of the plan, an investment in
Common Shares may not be an appropriate investment for a plan qualified under
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), a
qualified plan or an individual retirement account ("IRA"). In deciding whether
to purchase Common Shares, a fiduciary of an ERISA plan, in consultation with
its advisors, should carefully consider its fiduciary responsibilities under
ERISA, the prohibited transaction rules of ERISA and the Code, and the effect of
the "plan asset" regulations issued by the U.S. Department of Labor.
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LIMITATIONS ON CHANGES IN CONTROL; POSSIBLE ADVERSE CONSEQUENCES OF OWNERSHIP
LIMIT
POSSIBLE ADVERSE CONSEQUENCES OF OWNERSHIP LIMIT. In order for the Company
to qualify and to maintain its qualification as a REIT, not more than 50% in
value of its outstanding shares may be owned, directly or constructively, by
five or fewer individuals (as defined in the Code). In addition, rent from
related party tenants is not qualifying income for purposes of the gross income
tests under the Code. See "Federal Income Tax Considerations -- Taxation of the
Company." Two sets of constructive ownership rules (one to determine whether a
REIT is closely held and one to determine whether rent is from a related party
tenant) apply in determining whether these requirements are met. For the purpose
of preserving the Company's REIT qualification, the Company's Declaration of
Trust prohibits direct or constructive ownership of more than 9.8% of the lesser
of the total number or value of the outstanding Common Shares or more than 9.8%
of the outstanding preferred shares (if any) of the Company (the "Ownership
Limit"). The constructive ownership rules are complex and may cause Common
Shares owned, directly or constructively, by a group of related individuals
and/or entities to be deemed to be constructively owned by one individual or
entity. As a result, the acquisition of less than 9.8% of the Common Shares (or
the acquisition of an interest in an entity which owns Common Shares) by an
individual or entity could cause that individual or entity (or another
individual or entity) to own constructively in excess of 9.8% of the Common
Shares, and thus subject such Common Shares to the Ownership Limit. See "Shares
of Beneficial Interest -- Restrictions on Ownership and Transfer." Direct or
constructive ownership of Common Shares in excess of the Ownership Limit would
cause the violative transfer or ownership to be void, or cause such shares to be
designated as "Shares-in-Trust" (as herein defined). See "Shares of Beneficial
Interest -- Restrictions on Ownership and Transfer."
ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF MARYLAND LAW AND THE
COMPANY'S DECLARATION OF TRUST AND BYLAWS. Certain provisions of the Company's
Declaration of Trust and bylaws (the "Bylaws") may be deemed to have
anti-takeover effects and may delay, defer or prevent a takeover attempt that
might be in the shareholders' best interest. For example, such provisions may
(i) deter tender offers for Common Shares, which offers may be beneficial to
shareholders; or (ii) deter purchases of large blocks of Common Shares, thereby
limiting the opportunity for shareholders to receive a premium for their Common
Shares over then-prevailing market prices. The Board of Trustees of the Company
will consist of five members as of the closing of the Offering and will have
three classes of trustees. The initial terms of the first, second and third
classes will expire in 1999, 2000 and 2001, respectively. Trustees for each
class will be chosen for a three-year term upon the expiration of the initial
term. The staggered terms of the members of the Board of Trustees may adversely
affect the shareholders' ability to effect a change in control of the Company,
even if a change in control were in the best interests of some, or a majority,
of the Company's shareholders. Subject to the rights of holders of one or more
classes or series of preferred shares of the Company (the "Preferred Shares"), a
trustee may be removed only for cause and only at a meeting by the vote of the
holders of two thirds of the outstanding shares entitled to vote for directors.
See "Management -- Trustees and Executive Officers." The Declaration of Trust
authorizes the Board of Trustees to issue additional authorized but unissued
Common Shares and up to 20 million Preferred Shares in one or more classes and
to establish the preferences and rights (including the right to vote and the
right to convert into Common Shares) of any class of Preferred Shares issued,
and to classify or reclassify any unissued Common Shares or Preferred Shares,
and to establish the preferences, rights and other terms of any such classified
or unclassified shares. See "Shares of Beneficial Interest." Although the Board
of Trustees has no such intention at the present time, it could establish a
series of Preferred Shares that could delay, defer or prevent a change in
control of the Company or other transaction that might involve a premium price
for the Common Shares or otherwise be in the best interest of the shareholders.
The Declaration of Trust and Bylaws also contain other provisions that may
delay, defer or prevent a change in control of the Company or other transaction
that might involve a premium price for the Common Shares or otherwise be in the
best interest of the shareholders. See "Certain Provisions of Maryland Law and
the Company's Declaration of Trust and Bylaws."
POSSIBLE LIMITATIONS ON CHANGES IN CONTROL PURSUANT TO MARYLAND LAW. Under
provisions (which are not currently applicable to the Company) of the Maryland
General Corporation Law, as amended ("MGCL"), as applicable to Maryland real
estate investment trusts, certain "business combinations"
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(including certain mergers, consolidations, share exchanges and asset transfers
and certain issuances and reclassifications of equity securities) between a
Maryland real estate investment trust and any person who beneficially owns 10%
or more of the voting power of the trust's then outstanding shares or an
affiliate of the trust who, at any time within the two-year period prior to the
date in question, was the beneficial owner of 10% or more of the voting power of
the then outstanding voting shares of beneficial interest of the trust (an
"Interested Shareholder"), or an affiliate of the Interested Shareholder, are
prohibited for five years after the most recent date on which the Interested
Shareholder becomes an Interested Shareholder. Thereafter, any such business
combination must be recommended by the board of trustees of such trust and
approved by the affirmative vote of at least (a) 80% of the votes entitled to be
cast by holders of outstanding voting shares of beneficial interest of the
trust; and (b) two-thirds of the votes entitled to be cast by holders of voting
shares of the trust other than shares held by the Interested Shareholder with
whom (or with whose affiliate) the business combination is to be effected,
unless, among other conditions, the trust's common shareholders receive a
minimum price (as defined in the MGCL) for their shares and the consideration is
received in cash or in the same form as previously paid by the Interested
Shareholder for its common shares. As permitted by the MGCL, the Board of
Trustees of the Company has opted out of the business combination provisions of
the MGCL. Consequently, the five-year prohibition and the super-majority vote
requirements will not apply to a business combination involving the Company.
However, the Company's Board of Trustees may repeal this opt-out and cause the
Company to become subject to these provisions in the future.
In addition, also under the MGCL, as applicable to real estate investment
trusts, "control shares" acquired in a "control share acquisition" have no
voting rights except to the extent approved by a vote of two-thirds of the votes
entitled to be cast on the matter, excluding shares owned by the acquiror, by
officers or by trustees who are employees of the trust. "Control shares" are
voting shares which, if aggregated with all other such shares previously
acquired by the acquiror or in respect of which the acquiror is able to exercise
or direct the exercise of voting power (except solely by virtue of a revocable
proxy), would entitle the acquiror to exercise voting power in electing trustees
within one of the following ranges of voting power: (i) one-fifth or more but
less than one-third; (ii) one-third or more but less than a majority; or (iii) a
majority or more of all voting power. Control shares do not include shares the
acquiring person is then entitled to vote as a result of having previously
obtained shareholder approval. A "control share acquisition" means the
acquisition of control shares, subject to certain exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of trustees of the trust to call a special meeting of
shareholders to be held within 50 days of demand to consider the voting rights
of the shares. If no request for a meeting is made, the trust may itself present
the question at any shareholders meeting. If voting rights are not approved at
the meeting of shareholders or if the acquiring person does not deliver an
acquiring person statement as required by the statute, then, subject to certain
conditions and limitations, the trust may redeem any or all of the control
shares (except those for which voting rights have previously been approved) for
fair value determined, without regard to the absence of voting rights for the
control shares, as of the date of the last control share acquisition by the
acquiror or of any meeting of shareholders at which the voting rights of such
shares are considered and not approved. If voting rights for control shares are
approved at a shareholders meeting and the acquiror becomes entitled to vote a
majority of the shares entitled to vote, all other shareholders may exercise
appraisal rights. The fair value of the shares as determined for purposes of
such appraisal rights may not be less than the highest price per share paid by
the acquiror in the control share acquisition.
The control share acquisition statute does not apply (a) to shares acquired
in a merger, consolidation, or share exchange if the trust is a party to the
transaction; or (b) to acquisitions approved or exempted by the declaration of
trust or bylaws of the trust. The Company has opted out of the control share
provisions of the MGCL, as applicable to Maryland REITs, in its Bylaws, but the
Board of Trustees may, without shareholder approval, elect for the Company to
become subject to these provisions of the MGCL in the future.
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THE COMPANY
OVERVIEW
Presidio Golf Trust was formed on April 20, 1998 as a real estate
investment under the laws of Maryland. The Company is a self-administered REIT
that was formed to capitalize on the highly fragmented ownership of golf courses
in the United States. The Company believes that it is a leading consolidator in
the golf industry and will benefit from its multiple lessee structure and its
senior management team's substantial industry knowledge, experience and
established relationships within the golf industry. Of the 15 Golf Courses,
eight are located at seven private country clubs, four are daily fee courses and
three are located at two resort properties. The Golf Courses include facilities
such as clubhouses, restaurants, lodging facilities, banquet space, meeting
rooms, pro shops, driving ranges, locker rooms, swimming pools, spas, and tennis
courts. Services provided at the Golf Courses include golf cart rentals, golf
and tennis lessons, banquets and tournaments. The Golf Courses are located in
markets that are generally characterized by increasing populations,
above-average household income, high barriers to entry and high
population-to-hole ratios. These characteristics generally have resulted in
higher green fees and above-average rounds played at the Golf Courses relative
to national averages.
In order to qualify as a REIT, the Company's income must be derived from
certain sources, including rents from real property, which generally excludes
income derived from the operation of golf courses. Accordingly, the Company is
precluded from operating courses and, as a consequence, intends to lease its
properties to experienced golf course operators or their affiliates with
reputations for quality golf course management, substantial industry knowledge
and relationships within the golf community. The Company's Initial Lessees are
newly-formed affiliates of Palmer Management, Montclair, University Clubs and
HMS. The Initial Lessees that are leasing the greatest number of Golf Courses
are entities affiliated with Palmer Management. The Company believes Palmer
Management is one of the leading golf course operators in the United States. All
but one of the Golf Courses were developed or acquired and previously operated
by affiliates of the Initial Lessees. The Company believes it will benefit from
the continuity of management provided by the Initial Lessees. Upon completion of
the Offering, the Initial Lessees or their affiliated entities will collectively
own approximately 1,436,000 OP Units (representing 17.8% of the Company's
outstanding common equity, including shares issuable upon exchange of OP Units),
which management believes aligns the interests of the Initial Lessees with those
of the shareholders of the Company. See "Initial Lessees."
The Company will lease each of the Golf Courses to Initial Lessees for
initial terms of 15 years each under the Participating Leases, which provide for
the payment of Base Rent and Participating Rent based on increases in revenue.
The Participating Leases are structured as triple net leases under which each
Initial Lessee is required to pay all real estate and personal property taxes,
insurance, utilities and services, golf course maintenance and other operating
expenses. In addition, the Initial Lessees generally are required to pay for all
capital expenditures. Until certain coverage ratios are met, the Initial
Lessee's financial obligations under each of the Participating Leases will be
secured by a letter of credit, OP Units or other agreed upon collateral having a
value equal to 12 months of initial Base Rent.
The Company seeks to increase its Cash Available for Distribution through,
among other factors, (i) increases in Base Rents on the Golf Courses under the
Participating Leases and upon their renewal; (ii)receipt of Participating Rents,
based on revenue increases, from the Golf Courses; and (iii) receipt of base
rent and participating rent on golf courses that the Company acquires in the
future. Because its structure is designed to accommodate multiple lessees, the
Company expects that independent golf course owners, operators or developers
will present the Company with opportunities to acquire high quality golf courses
(including golf courses not otherwise marketed for sale) which then may be
leased to such independent golf course owners. The Company believes its
structure offers sellers of golf courses the following benefits: (i) the ability
to retain control over the operations of the golf course by leasing the golf
course from the Company; (ii) the tax deferral and increased liquidity
associated with owning OP Units; and (iii) the ability to diversify a seller's
investment in golf courses by participating as an equity owner in the Company's
portfolio of golf courses. In the event that the golf course seller is not
chosen as the Lessee with respect to such course, the
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Company generally will lease such course to the Lessee, if any, that has
referred such course to the Company, subject to the approval of the Company's
Independent Trustees.
The Company seeks to acquire high quality golf courses with proven
operating histories in markets with positive demographic characteristics.
Management believes that the Company's acquisition strategy differs
significantly from that of its competitors in that the Company specifically
seeks to acquire properties that benefit from branding strategies that are
common in other consumer product industries. By applying the disciplines of
branding and thereby differentiating itself from competing courses, management
believes that a golf course can achieve a premium to the green fees and an
increase in the level of customer loyalty in comparison to courses that are not
branded. Branding strategies that certain Initial Lessees currently employ at
certain of the Golf Courses include (i) using an easily recognizable trade name,
such as the name "Arnold Palmer Managed Golf Course;" and (ii) operating the
course based on specific unique "themed" concepts, such as the university
affiliation concept employed at courses developed by University Clubs. See "The
Golf Courses -- Brand Affiliations."
The Company believes that its acquisition capabilities will be enhanced by
the fact that its initial capital structure provides significant financial
flexibility. Upon completion of the Offering, the Company will have no
outstanding indebtedness. In addition, the Company has $75 million under the
Credit Facility to fund future acquisitions and for general corporate purposes.
The Credit Facility bears interest at LIBOR (5.875% at March 31, 1998) plus
either 1.75% or 2.00% per annum (depending on amounts advanced from time to time
under the Credit Facility and the designated value of the collateral from time
to time pledged under the Credit Facility) and has an initial term of three
years. The Company intends to continue to maintain a conservative capital
structure and incur debt only if, upon such incurrence, the Company's debt to
total market capitalization ratio would be approximately 50% or less. Six of the
Golf Courses are currently encumbered by mortgages or deeds of trust securing
the Credit Facility. The Company has the right from time to time to add or
subtract golf course properties from the collateral pool securing the Credit
Facility, with a resulting upward or downward adjustment to the available
revolving credit borrowing base from which the Company can obtain loan proceeds
under the Credit Facility (with a maximum, in any event, of $75 million
available loan proceeds).
In addition, the Company has reached a non-binding agreement in principle
with Credit Lyonnais to replace the Credit Facility with the $100 million
unsecured Replacement Facility. The Replacement Facility, if consummated, would
bear interest at either (i) LIBOR plus 1.75% per annum or (ii) the short term
commercial rate charged by Credit Lyonnais to domestic borrowers, plus 0.75%.
There can be no assurance, however, that the Credit Facility will be replaced,
and if replaced, the terms under which it will be replaced.
The Company will initially have seven employees providing in-house
expertise in acquisition, leasing, finance, accounting and information systems.
The principal executive offices of the Company are located at Building 106,
Montgomery Street, Presidio Main Post, P.O. Box 29355, San Francisco, California
94129, and its telephone number is (415) 561-4650. Presidio Golf Trust is a
Maryland real estate investment trust that was formed in April 1998.
BUSINESS STRATEGY
The Company's business objectives are to increase Cash Available for
Distribution per share and maximize shareholder value by consolidating high
quality golf courses throughout the United States. The Company will focus on the
ownership and acquisition of golf course properties that have strong cash flow
growth and capital appreciation potential and that are leased to experienced,
reputable golf course operators. The Company expects to achieve these objectives
by successfully implementing the following growth and operating strategies.
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Growth Strategy
Acquisitions
The Company's growth strategy will be primarily driven by its ability to
acquire new golf courses. The Company believes that the domestic golf industry
is entering a period of significant growth. The Company believes that the growth
in golf is being fueled by a rise in popularity, favorable demographic trends,
increased participation by junior, minority and female golfers and an increase
in leisure spending. The Company also believes the fragmented ownership in the
golf industry creates significant consolidation opportunities. According to the
National Golf Course Owners Association, there are approximately 16,000 golf
courses in the United States, approximately 6,000 of which are municipal or
member-equity courses, which generally are not available for acquisition. The
remaining 10,000 courses are owned by approximately 9,000 different entities,
with the 15 owners of the greatest number of courses collectively owning and
leasing fewer than 5% of the total number of courses. See "The Golf Industry."
Given the current conditions in the golf industry, the Company believes
there are significant opportunities to make acquisitions that will increase Cash
Available for Distribution to shareholders and enhance shareholder value. The
Company believes that the combination of its multiple lessee structure, the
strong reputation of the Company's management team and of the Initial Lessees,
the high quality of the Company's portfolio and its ability to issue OP Units
will be especially attractive to those sellers of golf courses that seek
liquidity and deferral of capital gains without relinquishing operational
control of their courses. As a public company, the Company expects to have
access to a wide variety of financing sources to fund acquisitions, including
the ability to issue several types of public and private debt, equity and hybrid
securities, as well as the ability to issue OP Units as consideration where
appropriate for tax or other reasons. Upon completion of the Offering, the
Company will have no outstanding indebtedness.
The Company is continually evaluating potential golf course acquisitions
and at any time may be discussing possible transactions, conducting due
diligence investigations or otherwise pursuing acquisition opportunities. The
Company intends to concentrate its acquisition activities on golf courses that
meet one or more of the following investment criteria:
- courses with proven operating histories and future growth potential;
- courses in markets where there are positive demographic trends, a high
demand for golf and significant barriers to new golf course development;
- courses in markets where one of the Company's Lessees has an existing
presence, or are part of a regional portfolio that would allow a Lessee
to establish a meaningful presence in a new market, thereby enabling that
Lessee to manage its portfolio of golf courses more efficiently, improve
profitability through the elimination of duplicative administrative
expenses, capitalize on expanded marketing opportunities and achieve
economies of scale;
- high quality golf courses that attract avid golfers who are less price
sensitive to the higher green fees and membership dues associated with
such golf courses;
- resort courses that offer superior facilities and services and attract a
high number of destination golfers;
- courses that are available at prices that will provide the Company with
returns in excess of its cost of capital and therefore enhance
shareholder value; and
- golf courses that are branded, or are capable of being branded, in a
manner that differentiates the courses in a market, thereby generating
customer loyalty and higher green fees and operating margins.
Internal Growth
The Company believes that there also are significant opportunities for
growth in Golf Course level revenue, which, if realized, would translate into
increased annual rental income for the Company through the Participating Leases.
The Company believes that the primary factors that will contribute to growth in
Golf
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Course level revenues will be: (i) the operating expertise, experience and
reputation of the Initial Lessees; (ii) the fact that the Golf Courses are
well-positioned in strong markets; (iii) the quality of the Golf Courses and
their proven operating histories; (iv) the benefits associated with the branding
strategies of certain Initial Lessees; and (v) the Initial Lessees' programs of
regular Golf Course capital improvements and maintenance.
Experience and Reputation of Initial Lessees. The Company leases its Golf
Courses only to experienced golf course operators (or their controlled entities)
who demonstrate technical expertise and professional management abilities in
yield management, agronomy, instruction/driving range operations, retail
operations, food and beverage operations, marketing and membership/group sales.
The Company believes that such operators will generate above average rate and
revenue growth through the implementation of operating strategies that include:
- optimizing golf course play through tee time management;
- increasing revenues per player by maximizing green fees and membership
dues;
- maintaining high quality facilities through consistent capital
expenditure investments;
- controlling operating costs through efficient maintenance, purchasing and
administrative functions;
- maximizing profitability of food and beverage and merchandise operations;
and
- implementing aggressive and innovative marketing programs.
Positive Market Conditions. The Golf Courses are located in markets that
are generally characterized by increasing populations, above-average household
income, high barriers to entry and high population-to-hole ratios. Based upon
the Company's analysis of United States Census data, from 1990 to 1997, the
populations within a 10-mile radius of each of the Golf Courses increased by a
weighted average of 9.2%. The weighted average household income for such areas
collectively for 1997 was approximately $67,507, or 33.6% higher than the
national average household income. According to the NGF, in 1996 the weighted
average population-to-hole ratio for such markets was collectively 1,552:1,
which is 17.9% higher than the national average of 1,316:1. As a result of these
factors, the Company believes that the Initial Lessees generally will have the
ability to increase revenues by increasing average green fees at daily fee
courses and membership dues at private country clubs. See "The Golf Courses."
Proven Operating Performance of Golf Courses. The Company seeks to acquire
high quality golf courses with proven operating performance. For the 12 Golf
Courses that were open for each of the entire years 1995 through 1997, and for
which data is available, aggregate Total Revenue increased by an average of 9.6%
per annum. The Company believes it is most relevant to analyze Total Revenue of
a golf course with respect to internal growth potential because the
Participating Leases provide for the payment of Participating Rent based on
increases in golf course level and other revenue.
Branding Strategy. The Company believes that it can benefit from enhanced
performance as a result of branding strategies employed by certain Initial
Lessees. The Company believes that "branded" golf courses benefit from higher
green fees and operating margins as a result of their differentiation within a
market and by the creation of customer loyalty. Ten of the Golf Courses are (or
shortly after that completion of the Offering will be) operated under brand
affiliations or employ "themed" concepts.
Capital Improvements and Renovation. The Company believes a regular program
of capital improvements at the Golf Courses, as well as the periodic renovation
and redevelopment of certain Golf Courses, will maintain the competitiveness of
the Golf Courses and maximize revenue growth. Since January 1, 1994, 12 of the
Golf Courses have been, or are in the process of being, renovated to position
them for future growth. Typical capital improvements include: (i) course
renovation and redesign, such as reconstructed greens, redesigned tee boxes and
resodded fairways; (ii) clubhouse remodeling, such as updated interior design,
expanded food and beverage facilities and improved locker rooms; and (iii)
miscellaneous renovations, such as installation of automated irrigation systems,
reconstructed cart paths, improved parking facilities and upgraded landscaping.
See "The Golf Courses -- Descriptions of the Golf Courses."
35
<PAGE> 44
Operating Strategy
The Company evaluates its portfolio on an ongoing basis to determine which
operating strategies will allow it to maximize cash flow from a particular
course or the portfolio as a whole. The Company continues to review these
strategies and may, from time to time, revise them when necessary in order to
optimize the operation of its portfolio and maintain strong cash flow growth.
The principal elements of the Company's operating strategy include:
- selecting the best golf course operators for specific locations and
course types;
- negotiating triple net leases for golf courses that provide Lessees with
incentives to operate and maintain the courses in a manner that generates
significant revenue growth and, as a result, increased lease payments to
the Company;
- working with Lessees on strategies to improve and enhance golf course
operations through proper maintenance and capital improvement programs;
- monitoring on an ongoing basis the operating performance of the golf
courses in its portfolio, compliance by the Lessees with their lease
obligations and other factors that could affect the financial performance
of the Company's golf courses;
- maintaining an Advisory Committee of Lessees; and
- limiting the incurrence of indebtedness of the Company to no more than
50% of the Company's total market capitalization. Upon completion of the
Offering, the Company will have no indebtedness outstanding.
ACQUISITION PROCESS
The Company's management team has extensive experience in the acquisition
and ownership of golf properties that meet its investment criteria. The Company
believes that it is a leading consolidator of golf courses in the United States.
The Company expects to be able to improve upon its past acquisition track record
due to an enhanced acquisition pipeline supported by its multiple Lessees and
their strategic alliances with golf course operating companies and developers,
as well as the Company's improved access to acquisition capital. These
relationships are expected to allow the Company to leverage its acquisition
efforts and move quickly to acquire properties in markets where a Lessee has
market knowledge and operating expertise.
The Company believes that an efficient market does not exist for the
purchase and sale of golf courses. As a result, it is important to cultivate
continually the flow of information that generates leads on potential purchases.
These leads are generally developed not only by the Lessees, but also from
in-house personnel, golf course operators, product and equipment manufacturers
and suppliers, professional golfers, brokers and other sources known by the
Company. The follow-up on qualified leads and the resulting negotiations
involves (i) the evaluation and analysis of the proposed transaction; and (ii)
the negotiation and execution of a letter of intent that contains the essential
terms of the transaction or the negotiation and execution of a definitive
agreement to purchase the golf course.
The knowledge of the Company's management and Initial Lessees regarding
existing golf courses and markets throughout the United States and their
personal relationships with numerous golf course owners and operators provide
the Company with an extensive information network with respect to acquisition
opportunities. For example, the Company's Chief Operating Officer, Donald
Rhodes, has developed numerous contacts with course owners and operators in the
golf industry while managing the golf lending divisions of NationsCredit
Commercial Corporation ("NationsCredit") and Textron Financial Corporation
("Textron"). Throughout his career at both NationsCredit and Textron, Mr. Rhodes
oversaw the underwriting of over $600 million in financings to over 100 golf
courses managed by approximately 20 independent operators. The Company, with
information collected from a number of sources, including the Lessees, will make
an assessment of the relative strengths, weaknesses and opportunities relating
to each prospective golf course, as well as the economic and demographic
environment within which the golf course operates. The essential element of this
analysis is the comparison of current operating conditions to the expected or
future operating
36
<PAGE> 45
conditions that could be achieved through a change of ownership and management
of operations by experienced operators selected by the Company. The Company
expects that golf courses it acquires in the future will be located primarily in
the United States.
The Company's management team has developed an effective and efficient
acquisition process which enables it to identify qualified opportunities and to
close quickly the purchases that meet the minimum internal rates of return
established by the Company. In order for the Company to pursue an acquisition
opportunity, the cash flow analysis generally must support a stabilized annual
cash return on invested cash of approximately 10% based on Base Rent payments,
although the Company may pursue certain courses with lower rates of return and
no assurance can be given that any particular rate of return will actually be
achieved.
Upon determining that a golf course meets the Company's investment
criteria, the Company will begin to negotiate the terms and conditions of the
acquisition and the Company will identify one or more potential operators for
the golf course. At that time, the Company will generally begin discussions with
such prospective operators regarding proposed lease terms. In appropriate cases,
the Company intends to seek proposals from more than one qualified operator. In
the event that the golf course seller is not chosen as the Lessee with respect
to such course, the Company generally will lease such course to the Lessee, if
any, that has referred such course to the Company. Based on current market
conditions, the Company will generally seek lease terms for future leases that
are similar to the terms of the Participating Leases. The Company may, however,
negotiate lease terms different from such terms.
DUE DILIGENCE PROCESS
The Company conducts extensive due diligence when considering acquisition
opportunities in order to evaluate the potential financial performance of a
given golf course. The Company intends to continue to follow these procedures in
acquiring golf courses in the future and expects to acquire golf course
properties with physical and market characteristics similar to the Golf Courses.
Such procedures include:
Economic and Demographic Analysis. The Company utilizes market information
sources to qualify potential acquisition opportunities, including a mapping
function with a detailed census database to evaluate the primary economic and
demographic indicators for the area immediately surrounding the golf course and
the areas where a majority of a course's player population resides. The analysis
includes an examination of the potential for economic growth. The population
base of the surrounding metropolitan area must be large enough to support both
the potential acquisition as well as its competition. If the acquisition
candidate is a resort course, the Company also evaluates the size of and trends
in the population of tourists and business travelers. The demographics of the
population must be such that a sufficient number and density of golfers are
present. Supplementary research gathered in the initial phase includes the tax
and regulatory environment of the community in which the course is located.
Competitive Market Analysis. The Company thoroughly examines the
competitive environment in which the proposed golf course is located and all
existing or to-be-developed golf courses within each market and submarket.
Barriers to entry for new courses, such as land cost, land assemblage,
environmental restrictions and access infrastructure requirements, are important
for the future competitive environment and are carefully evaluated. The Company
considers carefully the ease of access to the course relative to competing
courses. Information such as competing golf course characteristics and
amenities, clubhouse information, fee schedules and financial information also
is collected, organized and analyzed. The Company incorporates specific analyses
that are dependent upon whether the course is a private country club or daily
fee course. At a private country club, the Company evaluates the type of members
the course targets and the potential to increase dues or offer valuable
additional facilities such as banquet rooms, meeting rooms, tennis facilities,
fitness facilities and child-care in order to expand membership. At a daily fee
course, the Company determines ways to improve operating performance, including,
among others, adjusting green fees to market level, adding amenities such as
golf cart rental facilities, improving the pro shop, implementing marketing
programs or promoting tournament play. In addition, prior to acquiring a given
course, the Company may meet with club members or golf course users through
focus groups or otherwise to discuss the potential acquisition and major
37
<PAGE> 46
anticipated changes in order to ensure a smooth transition in ownership. In all
cases, the Company will evaluate the extent to which renovations may improve
operating performance.
Pro Forma Operating Budget. The Company works closely with the proposed
Lessee to develop a comprehensive pro forma operating budget for the property,
utilizing available financial information in addition to the other information
collected from a variety of sources. The expected terms of the lease are
examined, including the potential for rent increases through Base Rent
Escalators and Participating Rent. An important element of this process is the
ability of the Lessee to make capital improvement enhancements, which is
integral to the Lessee's ability to increase the profitability of the golf
course.
Environmental, Real Estate and Legal Review. In conjunction with each
prospective acquisition, the Company conducts comprehensive environmental, real
estate and legal due diligence on the property. The Company has developed a
standard, detailed due diligence checklist to assure that all potential
transactions are thoroughly analyzed. This due diligence includes an
environmental investigation and Phase I environmental assessment report by a
reputable environmental consulting firm similar to that undertaken and prepared
in connection with the Offering. The Company also obtains a survey of the
property and reports on the condition of the clubhouse and other buildings,
including the mechanical systems. The Company analyzes the water rights
associated with the property to determine the quality and quantity of, and legal
entitlement to, the source of irrigation water for the golf course. In addition,
the Company conducts customary real estate due diligence, including review of
title documents, operating leases and contracts, zoning and governmental permits
and licenses and a determination of whether the property is in compliance with
applicable laws. In the case of private country clubs, the Company will review
the membership application, bylaws and rules and evaluate the rights of the
members and the responsibilities of the golf course owner as to these members.
ACQUISITIONS THROUGH LESSEES
The Company expects its Lessees actively to supply acquisition
opportunities to the Company in order to enter into leases with respect to such
properties. Upon consummation of the Offering, the Company will enter into an
agreement with Palmer Management that grants the Company, for so long as either
Peter J. Nanula, George T. Haworth, David B. Deniger or any principal of Olympus
is an executive officer or trustee of the Company and an executive officer,
director or member of Palmer Management (i) a right of first refusal to purchase
all golf course properties that meet the Company's investment criteria and are
proposed to be acquired by Palmer Management, including courses proposed to be
acquired by joint ventures controlled by Palmer Management, subject to the right
of Palmer Management to lease such courses from the Company under lease terms
similar to those of the Participating Leases; and (ii) a right of first offer
with respect to any golf course owned by Palmer Management, including courses
owned by joint ventures controlled by Palmer Management, that meets the
Company's investment criteria and is proposed to be sold. See "Certain
Relationships and Transactions -- Right of First Refusal/Offer." Upon completion
of the Offering, Messrs. Nanula and Haworth will resign from their positions as
executive officers of Palmer Management, but will retain their equity interests
in Palmer Management. In addition, Mr. Nanula will continue to serve on the
Board of Palmer Management. The Company will seek to enter into similar
strategic alliances with other leading golf management companies that are likely
to supply acquisition opportunities to the Company.
THE OPERATING PARTNERSHIP
The Operating Partnership, a Delaware limited partnership organized in
October 1997, is the entity through which the Company will own or ground lease
the Golf Courses. The ownership and management structure of the Company is
intended to (i) enable the Company to acquire assets in transactions that may
defer some or all of the sellers' tax consequences, including in connection with
the Company's formation; and (ii) enable the Company to comply with certain
technical and complex requirements under the federal tax rules and regulations
relating to the assets and income permitted for a REIT. Upon contribution of the
net proceeds of the Offering to the Operating Partnership and the completion of
the Formation Transactions, the Company will own an 82.2% interest in the
Operating Partnership. See "Formation of the Company." The Operating Partnership
will be the fee simple owner or ground lessee of all of the Golf Courses and
will lease the Golf Courses to the Initial Lessees pursuant to the Participating
Leases. See "The Golf Courses." The
38
<PAGE> 47
Company will be the sole general partner of the Operating Partnership. In
addition to the Company, which will hold 6,615,000 OP Units, the Limited
Partners of the Operating Partnership will include certain Prior Owners or their
respective equity owners. Limited Partners will have no right or authority to
act for or to bind the Operating Partnership. No Limited Partner may take part
in the conduct or control of the business or affairs of the Operating
Partnership by virtue of being a holder of OP Units. The Limited Partners will
be entitled to vote on certain matters, including the sale of all or
substantially all the Company's assets or the merger or consolidation of the
Operating Partnership, which will require the approval of the holders of a
majority of the outstanding OP Units. The Company expects to own, directly or
indirectly, a majority of the OP Units and thus to control the outcome of such a
vote. The OP Units held by the Limited Partners are redeemable beginning one
year after completion of the Offering for cash or, at the election of the
Company, for Common Shares on a one-for-one basis. See "Partnership Agreement."
39
<PAGE> 48
USE OF PROCEEDS
The net proceeds to the Company from the Offering after payment of
underwriting fees and estimated expenses incurred in connection with the
Offering, are estimated to be approximately $119.7 million (approximately $138.0
million if the Underwriters' overallotment option of 981,000 Common Shares is
exercised in full) based on the assumed Offering Price. The Company will
contribute the net proceeds from the Offering to the Operating Partnership in
exchange for interests therein, and following such contribution and completion
of the Formation Transactions will own a 82.2% interest in the Operating
Partnership (an approximately 84.1% interest if the Underwriter's overallotment
option is exercised in full). The Operating Partnership intends to use such net
proceeds as follows: (i) approximately $32.0 million to repay indebtedness
borrowed under the Credit Facility; (ii) approximately $38.8 million to repay
other indebtedness (including mortgage debt), including prepayment penalties;
(iii) approximately $48.7 million to pay the cash components of the purchase
price of the golf courses including estimated acquisition costs; and (iv) the
balance for general corporate and working capital purposes. The Company's
borrowings under the Credit Facility totaled approximately $32.0 million as of
March 31, 1998. The estimated $32.0 million balance at the time of closing of
the Offering was incurred in the past year and was used to fund the acquisition
of four golf courses (Emerald Valley, Minebrook, Tan Tara and Fox Valley) and
the refinancing of two golf courses (Oronoque and Brierwood). Borrowings under
the Credit Facility to be repaid with the net proceeds of the Offering reflect
an average interest rate of 8.1% per annum, as of March 31, 1998, with a life to
maturity of 2.8 years. The remaining indebtedness to be repaid with the net
proceeds of the Offering reflects a weighted average interest rate of
approximately 8.7% per annum, as of March 31, 1998, with a weighted average life
to maturity of 2.2 years.
Pending the uses described above, the net proceeds will be invested in
interest-bearing accounts and short-term, interest-bearing securities, both of
which are consistent with the Company's intention to qualify for taxation as a
REIT. Such investments may include, for example, government and government
agency securities, certificates of deposit, interest-bearing bank deposits and
mortgage loan participations.
The table below summarizes the debt balances as of March 31, 1998 which are
expected to be repaid with the net proceeds from the Offering:
<TABLE>
<CAPTION>
WEIGHTED
DEBT BALANCE INTEREST AVERAGE
AT RATE AT YEARS TO
MARCH 31, 1998(1) MARCH 31, 1998 MATURITY DATE MATURITY
----------------- -------------- ------------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Credit Facility(2).................. $32,000(3) 8.1%(3) January 15, 2001 2.8
Memphis National Golf Club and
Penderbrook Golf Club............. 3,939 8.8%(4) (5) 1.0(5)
Crofton Country Club................ 5,080(6) 9.6%(7) October 1, 2001 3.5
------- ----- ---
Operating Partnership and Palmer
Management........................ $41,019 8.3% 2.7
Indian Lakes Resort and Nordic Hills
Resort............................ 22,538 8.2%(8) August 31, 1999(9) 1.4
Towne Lake Hills Golf Club.......... 4,509(10) 10.0%(10) (10) 5.9(10)
------- ----- ---
Total/Weighted Average.............. $68,066 8.4% 2.5
======= ===== ===
Estimated additional borrowings by
the Operating Partnership prior to
Offering.......................... 2,759
-------
Total............................... $70,825
=======
</TABLE>
- -------------------------
(1) The actual amounts repaid will differ to the extent of additional funds
drawn and any amortization of the principal balance of the loans occurring
subsequent to March 31, 1998.
(2) This debt is secured by Brierwood Country Club, Emerald Valley Golf Club,
Fox Valley Club, Minebrook Golf Club, Oronoque Country Club, and Tan Tara
Golf Club and by the ground leasehold interest in a golf course that is not
being contributed to the Company and that will be released as collateral
under the Credit Facility upon consummation of the Offering.
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<PAGE> 49
(3) This loan, which consists of advances under two tranches of the Credit
Facility ($24 million and $8 million tranches outstanding), bears interest
at a floating rate based on LIBOR plus 200 or 400 basis points depending
upon the tranches. Upon completion of the Offering, one such tranche will
be eliminated or the Replacement Facility will replace the Credit Facility.
See "The Company -- Overview."
(4) This loan bears interest at the prime rate plus 25 basis points.
(5) Amounts are due 12 months from the date of borrowing. Palmer Management has
the option to extend the maturity for three additional months. Balance
outstanding at March 31, 1998 is assumed to be due in 12 months for
purposes of calculating the years to maturity.
(6) Includes prepayment penalty of approximately $200,000.
(7) The interest on this loan bears interest at the commercial paper rate plus
400 basis points.
(8) This loan bears interest at LIBOR plus 250 basis points.
(9) The maturity date may be extended to August 31, 2000 if certain conditions
are met.
(10) Consists of three borrowings of $4,402,000, $62,000 and $45,000 with
interest rates of 10%, 12% and 10%, respectively. The $4,402,000 and
$62,000 mature on April 10, 2004 and June 1, 1999, respectively. The
$45,000 borrowing is due on demand.
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<PAGE> 50
DILUTION
The assumed Offering Price per share of Common Shares offered hereby
exceeds the net tangible book value per share. Therefore, purchasers of Common
Shares in the Offering will realize an immediate dilution of the net tangible
book value of their shares. Pro forma net tangible book value per share is
determined by subtracting total liabilities from total tangible assets and
dividing the remainder by the number of Common Shares and OP Units that will be
outstanding after the Offering. The following table illustrates the dilution to
purchasers of Common Shares sold in the Offering based on the assumed Offering
Price.
<TABLE>
<S> <C> <C>
Assumed Offering Price per share(1)......................... $20.00
Pro forma net tangible book value per share prior to the
Offering(2)............................................... $7.26
Increase in net tangible book value per share attributable
to shares issued in the Offering.......................... $6.42
-----
Pro forma net tangible book value per share after the
Offering(3)............................................... $13.68
------
Dilution per share purchased in the Offering................ $ 6.32
======
</TABLE>
- -------------------------
(1) Before deducting underwriting discount and estimated expenses of the
Offering.
(2) Pro forma net tangible book value per share prior to the Offering is
determined by subtracting total liabilities from total tangible assets of
the Predecessor to the Operating Partnership prior to the Company's
contribution divided by the total number of OP Units to be issued by the
Operating Partnership to the Limited Partners in the Formation Transactions
and the issuance of 75,000 shares to Peter J. Nanula and George T. Haworth
in connection with the Formation Transactions.
(3) Based on the total pro forma net tangible book value per share of the
Company, including minority interest, of $110,176,000, divided by the sum of
the pro forma total Common Shares (6,615,000) and OP Units (1,436,000)
outstanding (total shares and OP Units of 8,051,000). Does not include an
aggregate of 355,000 shares that are reserved for issuance pursuant to
options granted under the Company's employee and trustee benefit plans and
the 75,000 shares issuable upon redemption of OP Units issuable upon
exercise of OP Unit options granted to Palmer Management in connection with
the Formation Transactions.
The following table summarizes, as of March 31, 1998, the difference
between contributions to be made to the Company by purchasers of Common Shares
in the Offering (before deducting expenses of the Offering) and the OP Units and
Common Shares to be issued by the Operating Partnership in the Formation
Transactions:
<TABLE>
<CAPTION>
COMMON SHARES
ISSUED BY THE
COMPANY AND
OP UNITS ISSUED BY BOOK VALUE OF
THE OPERATING TOTAL CONTRIBUTIONS BOOK VALUE OF
PARTNERSHIP TO THE COMPANY AVERAGE PRICE
------------------- ---------------------- PER SHARE/
NUMBER PERCENT AMOUNT PERCENT OP UNIT
------ ------- ------ ------- -------------
<S> <C> <C> <C> <C> <C>
Common Shares sold by the Company in
the Offering......................... 6,540,000 81.2% $130,800,000 92.3% $20.00(1)
Common Shares and OP Units issued in
the Formation Transactions........... 1,511,000 18.8% 10,972,000 7.7% 7.26(2)
--------- ----- ------------ ------
Total.................................. 8,051,000 100.0% $141,772,000 100.00%
========= ===== ============ ======
</TABLE>
- -------------------------
(1) Based on the assumed Offering Price before deducting underwriting discount
and estimated expenses of the Offering.
(2) Based on the book value of assets to be contributed to the Operating
Partnership in the Formation Transactions.
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<PAGE> 51
DISTRIBUTION POLICY
Subsequent to the completion of the Offering, the Company intends to make
regular quarterly distributions to its shareholders. The Company's first
distribution, for the period from the completion of the Offering to September
30, 1998, is expected to equal a pro rata share of the anticipated initial
quarterly distribution of $0.325 per Common Share, which, on an annualized
basis, will represent a distribution rate of $1.30 per share, or 6.5% of the
Offering Price. On a pro forma basis for the twelve months ended March 31, 1998,
the estimated initial distribution represents 82.9% of estimated Cash Available
for Distribution. Holders of OP Units will receive distributions on a per unit
basis equal to the per share distributions to owners of Common Shares. The
Company does not expect to adjust the estimated initial distribution rate if the
Underwriters' over-allotment option is exercised. See "Partnership Agreement."
The Company has established the initial distribution rate based upon the
Company's estimate of Cash Available for Distribution, which has been derived
from the pro forma condensed statement of operations of the Company for the
twelve months ended March 31, 1998. The Company believes the pro forma financial
information for the twelve months ended March 31, 1998 constitutes a reasonable
basis for setting the initial distribution rate. The Board of Trustees, in its
sole discretion, will determine the actual distribution rate based on the
Company's actual results of operations, economic conditions, tax considerations
(including those related to REITs) and other factors.
The following table sets forth certain financial information for twelve
months ended March 31, 1998, which has been used to establish the expected
initial annual distribution per Common Share.
<TABLE>
<CAPTION>
TWELVE
MONTHS ENDED
MARCH 31, 1998
--------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C>
Pro forma income before minority interest(1)................ $ 6,791
Pro forma real estate related depreciation.................. 5,631
-------
Pro forma Funds from Operations(2).......................... $12,422
Adjustments:
Deferred mortgage cost amortization and non-real estate
related depreciation................................... 200
Estimated capital expenditures(3)......................... --
-------
Estimated Cash Available for Distribution................... $12,622
=======
Expected initial annual distribution(4)..................... $10,466
Expected initial annual distribution per OP Unit and per
Common Share.............................................. $ 1.30
Expected payout ratio based on estimated Cash Available for
Distribution.............................................. 82.9%
</TABLE>
- -------------------------
(1) Minority interest in pro forma income for the twelve months ended March 31,
1998 is approximately $1.2 million (approximately 17.8%).
(2) In accordance with the resolution adopted by the Board of Governors of
NAREIT, Funds from Operations represents net income (loss) (computed in
accordance with generally accepted accounting principles), excluding gains
(or losses) from debt restructuring or sales of property, plus depreciation
of real property, and after adjustments for unconsolidated partnerships and
joint ventures. Funds from Operations should not be considered as an
alternative to net income or other measurements under generally accepted
accounting principles as an indicator of operating performance or to cash
flows from operating, investing or financial activities as a measure of
liquidity. Funds from Operations does not reflect working capital changes,
cash expenditures for capital improvements or principal payments on
indebtedness. The Company believes that Funds from Operations is helpful to
investors as a measure of the performance of an equity REIT, because, along
with cash flows from operating activities, financing activities and
investing activities, it provides investors with an understanding of the
ability of the Company to incur and service debt and make capital
expenditures. Compliance with the NAREIT definition of Funds from Operations
is voluntary. Accordingly, the Company's calculation of Funds from
Operations in accordance with the NAREIT definition may be different than
similarly titled measures used by other REITs.
(3) The Initial Lessees are required to pay for all capital expenditures.
(4) Represents expected initial annual distribution per Common Share and OP Unit
multiplied by the 8,051,000 Common Shares and OP Units to be outstanding
upon completion of the Offering and the Formation Transactions.
43
<PAGE> 52
The Company expects to maintain its initial distribution rate unless actual
results of operations, economic conditions or other factors differ from the pro
forma results for the year ended December 31, 1997. The Company's actual Cash
Available for Distribution will be affected by a number of factors, including
Total Revenues generated at the Golf Courses. The Company expects that Cash
Available for Distribution will exceed earnings and profits due to non-cash
expenses, primarily depreciation and amortization, to be incurred by the
Company. Distributions by the Company to the extent of its current or
accumulated earnings and profits for federal income tax purposes, other than
capital gain dividends, will be taxable to shareholders as ordinary dividend
income. Any dividends designated by the Company as capital gain dividends
generally will give rise to capital gain for shareholders. Distributions in
excess of the Company's current or accumulated earnings and profits generally
will be treated as a non-taxable reduction of a shareholder's basis in the
Common Shares to the extent thereof, and thereafter as capital gain.
Distributions treated as non-taxable reduction in basis will have the effect of
deferring taxation until the sale of a shareholder's Common Shares or future
distributions in excess of the shareholder's basis in the Common Shares. Based
upon the total estimated Cash Available for Distribution set forth in the table
above, the Company believes that approximately 5% of the Company's expected
distributions for 1998 will represent a return of capital for federal income tax
purposes. See "Federal Income Tax Consequences -- Taxation of the
Company -- Annual Distribution Requirements." The nontaxable distributions will
reduce the shareholder's tax basis in the Common Shares and, therefore, the gain
(or loss) recognized on the sale of such Common Shares or upon liquidation of
the Company will be increased (or decreased) accordingly. If actual Cash
Available for Distribution or taxable income vary from these amounts, or if the
Company is not treated as the owner of one or more of the Golf Courses, the
percentage of distributions that represents a return of capital may be
materially different. In any event, the percentage of shareholder distributions
that represents a nontaxable return of capital will vary substantially from year
to year.
In order to maintain its qualification as a REIT, the Company must make
annual distributions to its shareholders of at least 95% of its taxable income
(excluding net capital gains). Based on the Company's pro forma results of
operations for the year ended December 31, 1997, the Company would have been
required to distribute approximately $7.8 million, or $1.17 per share, in order
to maintain its status as a REIT. Under certain circumstances, the Company may
be required to make distributions in excess of Cash Available for Distribution
in order to meet such distribution requirements. In such event, the Company
would seek to borrow the amount of the deficiency or sell assets to obtain the
cash necessary to make distributions to retain its qualification as a REIT for
federal income tax purposes.
The Board of Trustees, in its sole discretion, will determine the actual
distribution rate based on a number of factors, including the amount of Cash
Available for Distribution, the Company's financial condition, capital
expenditure requirements for the Company's properties, the annual distribution
requirements under the REIT provisions of the Code and such other factors as the
Board of Trustees deems relevant. For a discussion of the tax treatment of
distributions to holders of Common Shares, see "Federal Income Tax
Consequences -- Taxation of U.S. Shareholders of the Company."
44
<PAGE> 53
CAPITALIZATION
The following table sets forth the combined historical capitalization of
the Predecessor as of March 31, 1998, and pro forma capitalization of the
Company as adjusted to give effect to the Formation Transactions as if they
occurred on March 31, 1998 (assuming no exercise of the Underwriters'
over-allotment option) and the use of the net proceeds from the Offering as set
forth under "Use of Proceeds." The table should be read in conjunction with the
historical and unaudited pro forma financial information of the Company and the
Predecessor included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
-------------------------
COMPANY
PREDECESSOR PRO FORMA,
HISTORICAL AS ADJUSTED
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Debt(1):
Mortgage debt............................................. $41,019 --
Credit Facility........................................... -- --
Minority interest........................................... -- $ 19,651
Shareholders' equity:
Preferred Shares of Beneficial Interest:
Preferred Shares, par value $0.01 per share; 20
million shares authorized; no shares outstanding
historical; no shares outstanding pro forma as
adjusted............................................ -- --
Common Shares of Beneficial Interest:
Common Shares, par value $0.01 per share; 80 million
shares authorized; no shares outstanding historical;
6,615,000 shares outstanding pro forma as
adjusted(2)......................................... -- 66
Additional paid-in capital............................. -- 90,459
Retained earnings...................................... -- --
Partners' equity....................................... $ 9,254 --
------- --------
Total partners' equity/shareholders' equity.......... $ 9,254 $ 90,525
------- --------
Total capitalization................................. $50,273 $110,176
======= ========
</TABLE>
- -------------------------
(1) See "Use of Proceeds" for information relating to indebtedness.
(2) Excludes 981,000 Common Shares reserved for the Underwriters' over-allotment
option, 2,436,000 Common Shares reserved for issuance upon redemption of OP
Units and Common Shares reserved for issuance pursuant to the Company's
employee and trustee benefit plans, and 75,000 shares issuable upon
redemption of OP Units issuable upon exercise of OP Unit options granted in
connection with the Formation Transactions. See "Formation of the Company,"
"Management -- Executive Compensation" and "Certain Relationships and
Transactions."
45
<PAGE> 54
SELECTED FINANCIAL DATA
The following table sets forth selected pro forma financial information for
the Company and historical and pro forma financial information of the
Predecessor. The unaudited pro forma operating information of the Company is
presented as if the Formation Transactions had occurred on January 1, 1997 and
were carried forward through March 31, 1998 and therefore incorporates certain
assumptions that are included in the Company's unaudited pro forma financial
statements. The unaudited pro forma balance sheet information is presented as if
the Formation Transactions had occurred on March 31, 1998. The unaudited pro
forma information does not purport to represent what the Company's financial
position or results of operations actually would have been had the Formation
Transactions, in fact, occurred on such date or at the beginning of the period
indicated, or to project the Company's financial position or results of
operations at any future date or for any future period. The historical and
unaudited pro forma financial information set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the historical financial statements of the
Predecessor and the notes thereto contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
COMPANY PRO FORMA
-------------------------------------------
THREE MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
1998 1997
------------------ ------------
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<S> <C> <C>
OPERATING DATA:
Rental income(1)......................................... $ 3,629 $ 14,517
General and administrative expenses(2)................... 473 1,895
Depreciation and amortization(3)......................... 1,445 5,781
Interest expense(4)...................................... 13 50
Income of the Operating Partnership...................... 1,698 6,791
Minority interest(5)..................................... 303 1,211
Net earnings to Common Shareholders...................... 1,395 5,580
Net earnings per Common Share............................ $ 0.21 $ 0.84
Weighted average Common Shares outstanding(6)............ 6,615,000 6,615,000
CASH FLOW DATA:
Cash flow from operating activities(7)................. $ 3,156 $ 12,622
Cash flow from investing activities(8)................. 0 0
Cash flow used for financing activities(9)............. 2,617 10,466
OTHER DATA:
Funds from Operations of the Operating
Partnership(10)..................................... $ $3,106 $ 12,422
Cash Available for Distribution of the Operating
Partnership(10)..................................... 3,156 12,622
Common Shares and OP Units outstanding................. 8,051,000 8,051,000
BALANCE SHEET DATA:
Golf Courses, at cost.................................... $ 103,175
Total assets............................................. 110,176
Debt outstanding under line of credit.................... 0
Minority interest in the Operating Partnership........... 19,651
Total shareholders' equity............................... 90,525
</TABLE>
46
<PAGE> 55
<TABLE>
<CAPTION>
PREDECESSOR
PREDECESSOR PRO FORMA
FOR THE PREDECESSOR
PREDECESSOR HISTORICAL(11)
---------------------------
FISCAL 1997 FISCAL 1996
HISTORICAL ------------ ------------
FOR THE PRO FORMA
THREE MONTHS THREE FOR THE FISCAL
ENDED(11)(14) MONTHS YEAR ENDED YEAR 26-DAY
--------------------- ENDED DECEMBER 30, ENDED PERIOD ENDED
MARCH 31, APRIL 1, APRIL 1, 1997 1997(12) DECEMBER 30, DECEMBER 31,
1998 1997 (11)(12)(14) (UNAUDITED) 1997(11)(13) 1996(13)(14)
--------- -------- (UNAUDITED)-- -------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Operating revenues.... $ 2,968 $1,255 $2,781 $19,841 $11,012 $576
Operating expenses
before
depreciation........ 2,839 1,234 2,373 16,509 9,903 539
Depreciation.......... 482 178 369 1,596 941 44
Interest expense...... 728 268 744 3,019 1,427 76
Net loss.............. (1,082) (425) (705) (1,282) (1,259) (83)
<CAPTION>
PREDECESSOR HISTORICAL(11)
---------------------------
FISCAL 1996 FISCAL 1995
------------ ------------
337-DAY 187-DAY
PERIOD ENDED PERIOD ENDED
DECEMBER 5, JANUARY 2,
1996(13) 1996(13)(14)
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
OPERATING DATA:
Operating revenues.... $3,668 $2,054
Operating expenses
before
depreciation........ 3,473 1,848
Depreciation.......... 291 158
Interest expense...... 320 150
Net loss.............. (416) (102)
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR HISTORICAL(11)
---------------------------------------------------------
MARCH 31, 1998 DECEMBER 30, DECEMBER 31,
(UNAUDITED)(14) 1997 1996
--------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Golf Courses, net...................................... $45,298 $42,912 $12,483
Mortgages and notes payable............................ 41,019 33,481 11,842
Total equity........................................... 9,254 10,335 5,794
</TABLE>
- -------------------------
(1) Represents rental income from the Initial Lessees recorded in accordance
with the terms of the Participating Leases as if all Golf Courses had been
subject to the Participating Leases for the entire period.
(2) Represents management's estimates of general and administrative expenses.
(3) Represents depreciation of the Golf Course buildings and improvements as
allocated from the purchase prices of the Golf Courses over a 30-year
period and depreciation of furniture and fixtures over a 5-year period.
(4) Represents amortization of deferred costs related to the Credit Facility
over its 3-year term.
(5) Represents approximately 17.8% of the Operating Partnership's net earnings.
(6) Represents the number of Common Shares issued in connection with the
Formation Transactions including 75,000 Common Shares issued to Peter J.
Nanula and George T. Haworth.
(7) Represents the Company's income before minority interest adjusted for
non-cash depreciation and amortization. Estimated pro forma cash flows from
operating activities excludes cash provided by (used in) operating
activities due to changes in working capital resulting from changes in
current assets and current liabilities. The Company does not believe these
excluded items are material to cash flows from operating activities.
(8) The Initial Leases are required to pay for all capital expenditures.
(9) Represents estimated initial distribution to be paid based on the
anticipated initial annual dividend rate of $1.30 per Common Share and OP
Unit and an aggregate of 8,051,000 Common Shares and OP Units outstanding
and no initial debt.
(10) Estimated pro forma Funds from Operations and Cash Available for
Distribution are calculated as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1998 DECEMBER 31, 1997
------------------ -----------------
(IN THOUSANDS)
<S> <C> <C>
Pro forma income before minority interest................... $1,698 $ 6,791
Pro forma real estate related depreciation.................. 1,408 5,631
------ -------
Pro forma Funds from Operations............................. 3,106 12,422
Adjustments:
Deferred mortgage cost amortization and non-real estate
related depreciation.................................... 50 200
Estimated capital expenditures............................ -- --
------ -------
Pro forma Cash Available for Distribution................... $3,156 $12,622
====== =======
</TABLE>
In accordance with the resolution adopted by the Board of Governors of
NAREIT, Funds from Operations represents net income (loss) (computed in
accordance with generally accepted accounting principles), excluding gains
(or losses) from debt restructuring or sales of property, plus depreciation
of real property, and after adjustments for unconsolidated partnerships and
joint ventures. Funds from Operations should not be considered as an
alternative to net income or other measurements under generally accepted
47
<PAGE> 56
accounting principles as an indicator of operating performance or to cash
flows from operating, investing or financial activities as a measure of
liquidity. Funds from Operations does not reflect working capital changes,
cash expenditures for capital improvements or principal payments on
indebtedness. The Company believes that Funds from Operations is helpful to
investors as a measure of the performance of an equity REIT, because, along
with cash flows from operating activities, financing activities and
investing activities, it provides investors with an understanding of the
ability of the Company to incur and service debt and make capital
expenditures. Compliance with the NAREIT definition of Funds from
Operations is voluntary. Accordingly, the Company's calculation of Funds
from Operations in accordance with the NAREIT definition may be different
than similarly titled measures used by other REITs. See "Distribution
Policy."
The Participating Leases are structured as triple net leases under which
each Initial Lessee is required to pay all real estate and personal
property taxes, insurance, utilities and services, golf course maintenance
and other operating expenses. In addition, the Initial Lessees generally
are required to pay for all capital expenditures.
(11) The Predecessor consists of the six Golf Courses owned by the Operating
Partnership prior to the completion of the Formation Transactions and the
ground leasehold interests in four Golf Courses that will be acquired by
the Company from Palmer Management in connection with the Formation
Transactions. See "Formation of the Company."
(12) The unaudited pro forma operating information of the Predecessor is
presented as if the acquisitions of Emerald Valley Golf Club, Fox Valley
Club, Minebrook Golf Club and Tan Tara Golf Club and the inception of the
ground leasehold interest at Memphis National Golf Club and Penderbrook
Golf Club had occurred on January 1, 1997 and were carried forward to
December 30, 1997.
(13) The fiscal period ended December 30, 1997 and the 26-day period ended
December 31, 1996 represent the periods under which the Predecessor was
under the control of Palmer Management. The 337-day period ended December
5, 1996 and the 187-day period ended January 2, 1996 represent the periods
under which the Predecessor was under the control of Pacific Golf, Inc. The
26-day period ended December 31, 1996 and the 337-day period ended December
5, 1996 which comprise fiscal 1996 could not be combined as a result of the
change of control which resulted on December 6, 1996.
(14) The golf industry is seasonal in nature based on weather conditions. All
but one of the Predecessor Golf Courses are closed for all or a part of the
first and fourth quarters of the year and the one course that remains open
experiences reduced play during the first and fourth quarters of the year.
Therefore, the operating results for the first and fourth quarters are not
representative of the operations for the year.
48
<PAGE> 57
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company was organized as a Maryland real estate investment trust on
April 20, 1998, and intends to make an election to qualify under the Code as a
REIT commencing with its taxable year ending December 31, 1998. Substantially
all of the Company's initial revenues are expected to be derived from Lease
Payments under the Participating Leases related to the 15 Golf Courses, pursuant
to which the Company will lease each of the Golf Courses to Initial Lessees for
an initial term of 15 years. The Participating Leases are structured as triple
net leases under which each Initial Lessee is required to pay all real estate
and personal property taxes, insurance, utilities and services, golf course
maintenance and other operating expenses. In addition, the Initial Lessees are
required to pay for all capital expenditures.
The Company will incur operating and administrative expenses including,
principally, compensation expense for its executive officers and other
employees, professional fees and various expenses incurred in the process of
acquiring and leasing additional Golf Courses. The Company will be
self-administered and managed by its executive officers and staff, and will not
engage a separate advisor or pay an advisory fee for services, although the
Company will engage legal, accounting, tax and financial advisors from time to
time.
The primary non-cash expenses of the Company will be the depreciation of
the golf course buildings and improvements, executive office furniture, fixtures
and equipment and amortization of deferred costs associated with the Credit
Facility. The Company expects to depreciate buildings and improvements of the
Golf Courses over a 30-year period for financial reporting purposes and to
depreciate furniture, fixtures and equipment over a 5-year period for financial
reporting purposes. The Company expects to amortize deferred mortgage costs of
the Credit Facility over its three-year term for financial reporting purposes.
The Company also expects to employ leverage, using a combination of debt or
other securities and the Credit Facility, to fund additional investments, and
will incur long and short-term indebtedness, and related interest expense, from
time to time.
The Company intends to make distributions to its shareholders in amounts
not less than the amounts required to maintain REIT status under the Code. The
Company's ability to make distributions will depend on actual results of
operations, including (i) the rent received from the Lessees; (ii) the ability
of the Lessees to meet their obligations under leases; and (iii) the operating
expenses of the Company.
PRO FORMA RESULTS OF OPERATIONS OF THE COMPANY
The net proceeds to the Company from the Offering after estimated expenses
are estimated to be $119,744,000. Upon completion of the Formation Transactions
and contribution of the net proceeds of the Offering to the Operating
Partnership, the Company will own an 82.2% partnership interest therein. The
Company estimates that after giving effect to the Offering and the acquisition
of the Golf Courses, rental income would have been approximately $3,629,000 and
$14,517,000 for the three month period ended March 31, 1998 and for the year
ended December 31, 1997, respectively. The pro forma rental income reflects
initial Base Rent and no Participating Rent. Total expenses, including
depreciation and amortization, general and administrative expense, and interest
expense, would have been approximately $1,931,000 and $7,726,000 for the three
month period ended March 31, 1998 and for the year ended December 31, 1997,
respectively. Income of the Operating Partnership would have been $1,698,000 and
$6,791,000 for the three month period ended March 31, 1998 and for the year
ended December 31, 1997, respectively. Net earnings would have been $1,395,000
and $5,580,000 or $0.21 and $0.84 per Common Share for the three month period
ended March 31, 1998 and for the year ended December 31, 1997, respectively. Pro
forma rental income is recorded in accordance with the terms of the
Participating Leases as if all of the Participating Leases had been in effect
for the entire period. Additional information relating to the adjustments and
assumptions made for pro forma results of operations is reflected in the
Company's Unaudited Pro Forma Financial Statements, located elsewhere in this
Prospectus. See "Selected Financial Information."
49
<PAGE> 58
RESULTS OF OPERATIONS OF THE COMPANY
The Company had no operations prior to April 20, 1998 (the date of its
organization). The Company's future results of operations will depend upon the
Company's receipt of rent payments under the leases relating to the Company's
golf courses.
RESULTS OF OPERATIONS OF THE PREDECESSOR TO THE OPERATING PARTNERSHIP
The Operating Partnership currently owns the following six Golf Courses:
Fox Valley Club, Emerald Valley Golf Club, Tan Tara Golf Club, Minebrook Golf
Club, Brierwood Country Club and Oronoque Country Club. In connection with the
Formation Transactions, the Company, through the Operating Partnership, will
acquire the ground leasehold interests in the following four Golf Courses from
Palmer Management: Memphis National Golf Club (two Golf Courses), Crofton
Country Club and Penderbrook Golf Club. The combined operations of the six Golf
Courses and the four Golf Course ground leasehold interests are considered to be
the Predecessor to the Operating Partnership for financial reporting purposes.
The Predecessor Golf Courses were acquired or ground leasehold interests
were initiated on the following dates:
<TABLE>
<S> <C>
Brierwood Country Club...................................... 07/01/95
Crofton Country Club (ground leasehold interest)............ 10/11/96
Oronoque Country Club....................................... 12/01/96
Memphis National Golf Club (ground leasehold interest) (two
Golf Courses)............................................. 06/18/97
Penderbrook Golf Club (ground leasehold interest)........... 11/01/97
Emerald Valley Golf Club.................................... 11/05/97
Fox Valley Club............................................. 11/05/97
Minebrook Golf Club......................................... 11/05/97
Tan Tara Golf Club.......................................... 11/05/97
</TABLE>
The Predecessor had no operations prior to the acquisition of Brierwood
Country Club on July 1, 1995.
Prior to December 6, 1996, Pacific Golf, Inc. ("Pacific") controlled the
Predecessor. Effective December 6, 1996, Pacific contributed certain assets and
liabilities to Palmer Management in exchange for a non-controlling ownership
interest therein. The purchase method of accounting was used to record the
assets and liabilities contributed by Pacific to Palmer Management. As a result
of the change in control that occurred on December 6, 1996, the fiscal 1996
results of operations of the Predecessor for the 26-day period subsequent to
December 6, 1996 and the 337-day period prior to December 6, 1996 could not be
combined.
All of the Predecessor Golf Courses will be leased to Palmer Management
under separate Participating Leases.
Due to the significance of the acquisition of fee interests and inception
of ground leasehold interests in nine golf courses in 1997 and 1996, the Company
believes that comparing historical results of operations of the Predecessor for
the three month period ended March 31, 1998 against pro forma results for the
three month period ended March 31, 1997 and the pro forma results of operations
for fiscal 1997 against pro forma results for fiscal 1996 is most meaningful for
a complete understanding of the Predecessor's results of operations. The
unaudited pro forma operating results of the Predecessor are presented as if the
acquisitions of Oronoque Country Club, Fox Valley Club, Emerald Valley Golf
Club, Tan Tara Golf Club and Minebrook Golf Club and the inception of the ground
leasehold interests at Crofton Country Club, Memphis National Golf Club and
Penderbrook Golf Club had occurred on January 1, 1996 and were carried forward
to December 30, 1997. The unaudited pro forma information of the Predecessor
presented below includes all adjustments necessary in management's opinion to
present fairly the effects of these transactions and is not necessarily
indicative of what the Predecessor's actual results of operations or financial
condition would have been for the periods nor does it purport to represent the
Predecessor's financial condition or results of operations as of any future date
or for any future period. Aggregate Base Rent under the Participating Leases for
the Predecessor Golf Courses represents approximately 47% of the Company's 1997
pro forma operating revenues.
50
<PAGE> 59
Historical Three Month Period Ended March 31, 1998 Versus Pro Forma Three Month
Period Ended April 1, 1997
Operating revenues increased 7% to $2,968,000 from $2,781,000 for the
historical three month period ended March 31, 1998, as compared to the
corresponding pro forma period in 1997. The increase is primarily the result of
increased membership dues at Crofton Country Club and Oronoque Country Club.
Operating expenses increased 21% to $3,321,000 from $2,742,000 for the
historical three month period ended March 31, 1998, as compared to the
corresponding pro forma period in 1997. The increase is primarily the result of
general and administrative expense increases at Crofton Country Club, Oronoque
Country Club and Tan Tara Golf Club.
Net loss increased to $1,082,000 for the historical three months ended
March 31, 1998, as compared to a loss of $705,000 in the corresponding pro forma
period in 1997 as a result of the reasons discussed above.
Historical Three Month Period Ended March 31, 1998 Versus Historical Three Month
Period Ended April 1, 1997
Operating revenues increased to $2,968,000 from $1,255,000. The increase is
primarily the result of the inception of the ground leasehold interests at
Memphis National Golf Club and Penderbrook Golf Club which commenced on June 18,
1997 and November 1, 1997, respectively, and the acquisitions of Fox Valley
Club, Emerald Valley Golf Club, Tan Tara Golf Club, Minebrook Golf Club on
November 5, 1997.
Operating expenses increased to $3,321,000 from $1,412,000. The increase is
primarily the result of the inception of the ground leasehold interests in
Memphis National Golf Club and Penderbrook Golf Club which commenced on June 18,
1997 and November 1, 1997, respectively, and the acquisitions of Fox Valley
Club, Emerald Valley Golf Club, Tan Tara Golf Club, Minebrook Golf Club on
November 5, 1997.
Depreciation and amortization increased to $482,000 from $178,000. The
increase is primarily the result of the inception of the ground leasehold
interests at Memphis National Golf Club and Penderbrook Club which commenced on
June 18, 1997 and November 1, 1997, respectively, and the acquisitions of Fox
Valley Club, Emerald Valley Golf Club, Tan Tara Golf Club, Minebrook Golf Club
on November 5, 1997.
Interest expense increased to $728,000 from $268,000. The increase is
primarily the result of a full period of borrowings related to leasehold
improvements in 1998 at Memphis National Golf Club and Penderbrook Golf Club
which commenced on June 18, 1997 and November 1, 1997, respectively, and the
acquisitions of Fox Valley Club, Emerald Valley Golf Club, Tan Tara Golf Club,
Minebrook Golf Club on November 5, 1997.
Net loss increased to $1,082,000 for the historical three months ended
March 31, 1998, as compared to a loss of $425,000 in the corresponding period in
1997 as a result of the reasons discussed above.
Pro Forma Fiscal Period Ended December 30, 1997 Versus Pro Forma Fiscal Period
Ended December 31, 1996
Operating revenues increased 7% to $19,841,000 from $18,565,000 for the
fiscal year ended December 30, 1997, as compared to the corresponding period in
1996. The increase is primarily the result of revenue increases of $587,000 at
Oronoque Country Club due to increased membership in 1997 following Palmer
Management's $1,100,000 renovation of the course and facilities, $755,000 at the
Paloma properties (Emerald Valley Golf Club, Minebrook Golf Club, Fox Valley
Club and Tan Tara Golf Club) in 1997 due largely to an overall increase in
rounds played, $225,000 at Crofton Country Club due to increased membership in
1997 following Palmer Management's $2,500,000 renovation of the course and
facilities, and $334,000 at Brierwood Country Club due to increases in
membership. These revenue increases were partially offset by a $378,000 decline
in revenue at Penderbrook Golf Club in 1997 resulting from temporary closure of
the course for renovation.
Operating expenses increased 9% to $18,104,000 from $16,607,000 for the
fiscal year ended December 30, 1997, as compared to the corresponding period in
1996. The increase is primarily the result of expense
51
<PAGE> 60
increases of $799,000 at the Paloma properties (Emerald Valley Golf Club,
Minebrook Golf Club, Fox Valley Club and Tan Tara Golf Club) in 1997 due largely
to higher golf operation costs and increased expenses of $615,000 and $416,000
at Crofton Country Club and Oronoque Country Club, respectively, due to expanded
operations following their respective renovations in 1997. These expense
increases were partially offset by a $456,000 decline in operating expenses at
Penderbrook Golf Club in 1997 resulting from temporary closure of the course for
renovation.
Net loss increased to $(1,282,000) for the twelve months ended December 30,
1997, as compared to a loss of $(1,023,000) in the corresponding period in 1996
as a result of the reasons discussed above.
Historical Fiscal Period Ended December 30, 1997 Versus Historical 337 Day
Period Ended December 5, 1996
Operating revenues increased to $11,012,000 from $3,668,000. The increase
is primarily the result of a full year of operations in 1997 of Oronoque Country
Club versus one month of operations in 1996, operations of ground leasehold
interests at Memphis National Golf Club and Penderbrook Golf Club which
commenced on June 18, 1997 and November 1, 1997, respectively, and the
acquisitions of Fox Valley Club, Emerald Valley Golf Club, Tan Tara Golf Club,
Minebrook Golf Club on November 5, 1997.
Operating expenses increased to $10,845,000 from $3,763,000. The increase
is primarily the result of a full year of operations in 1997 of Oronoque Country
Club versus one month of operation in 1996, operations of ground leasehold
interests in Memphis National Golf Club and Penderbrook Golf Club which
commenced on June 18, 1997 and November 1, 1997, respectively, and the
acquisitions of Fox Valley Club, Emerald Valley Golf Club, Tan Tara Golf Club,
Minebrook Golf Club on November 5, 1997.
Depreciation and amortization increased to $941,000 from $291,000. The
increase is primarily the result of a full year of operations in 1997 of
Oronoque Country Club versus one-month of operation in 1996, operations of
ground leasehold interests at Memphis National Golf Club and Penderbrook Club
which commenced on June 18, 1997 and November 1, 1997, respectively, and the
acquisitions of Fox Valley Club, Emerald Valley Golf Club, Tan Tara Golf Club,
Minebrook Golf Club on November 5, 1997.
Interest expense increased to $1,427,000 from $320,000. The increase is
primarily the result of the full year effect of debt to acquire Oronoque Country
Club in 1997 versus one month of effect in 1996, the full year effect of
borrowings related to leasehold improvements and leasehold deposits at Crofton
Country Club versus approximately two months of effect in 1996, borrowings
related to leasehold improvements in 1997 at Memphis National Golf Club and
Penderbrook Golf Club, which commenced on June 18, 1997 and November 1, 1997,
respectively, and the acquisitions of Fox Valley Club, Emerald Valley Golf Club,
Tan Tara Golf Club, Minebrook Golf Club on November 5, 1997.
Historical 26 Day Period Ended December 31, 1996 Versus Historical 337 Day
Period Ended December 5, 1996
The revenue and operating expenses variances are a result of the 26 days of
operations versus 337 days of operations and the change in basis of the
properties as a result of the change of control which occurred on December 6,
1996.
Historical 337 Day Period Ended December 5, 1996 Versus Historical 187 Day
Period Ended January 2, 1996
Operating revenues increased to $3,668,000 from $2,054,000. The increase is
primarily the result of 337 days of operations of Brierwood Country Club versus
187 days in the prior period, operations of ground leasehold interests at
Crofton Country Club which commenced on October 11, 1996 and the acquisition of
Oronoque Country Club on December 1, 1996.
Operating expenses increased to $3,763,000 from $2,006,000. The increase is
primarily the result of 337 days of operations of Brierwood Country Club versus
187 days in the prior period, operations of ground leasehold interests at
Crofton Country Club which commenced on October 11, 1996 and the acquisition of
Oronoque Country Club on December 1, 1996.
Depreciation and amortization increased to $291,000 from $158,000. The
increase is primarily the result of 337 days of operations of Brierwood Country
Club versus 187 days in the prior period, operations of ground
52
<PAGE> 61
leasehold interests at Crofton Country Club which commenced on October 11, 1996
and the acquisition of Oronoque Country Club on December 1, 1996.
Interest expense increased to $320,000 from $150,000. The increase is
primarily the result of 337 days of borrowings related to the acquisition of
Brierwood Country Club versus 187 days in the prior period, borrowings related
to leasehold improvements and leasehold deposits at Crofton Country Club which
commenced on October 11, 1996 and borrowings related to the acquisition of
Oronoque Country Club on December 1, 1996.
Net loss increased to a loss of $(416,000) from a net loss of $(102,000) as
a result of the reasons discussed above.
RESULTS OF OPERATIONS OF PALOMA GOLF COURSES
In 1992, Paloma Golf Group, Inc. ("PGG") purchased the Tan Tara Golf &
Country Club. During 1993, PGG entered into the Paloma Emerald Valley Limited
Partnership to purchase and manage the Emerald Valley Golf & Country Club.
During 1994, PGG entered into the Paloma Fox Valley Limited Partnership to
purchase and manage the Fox Valley Golf & Country Club. These clubs were
intended to be exclusive clubs to provide their members with golf, country club
and banquet facilities. During 1996, PGG purchased the Minebrook Golf and
Country Club, a public golf course. Currently, all country clubs are fully
operational in all areas as all the clubhouses have been recently renovated to
provide quality banquets and events.
Historical Ten Months ended October 31, 1997 Versus Historical Year Ended
December 31, 1996
Revenues increased 3% to $7,188,000 from $6,850,000. The growth in revenues
was primarily the result of an overall increase in the rounds of golf played by
the active members even though there was a slight decrease in membership dues.
Revenues from golf operations in the month of November and December are
generally minimal as a result of weather conditions. Accordingly, the ten month
period ended October 31, 1997 and the year ended December 31, 1996 are
comparable periods for golf operations.
Operating costs and expenses increased 1% to $5,536,000 from $5,173,000.
This increase was primarily due to the increase in general and administrative
costs associated with increased golf operations activities, offset by a decrease
in the food and beverage cost of sales as the 1997 period only reflects 10
months of restaurant and banquet events while the December 31, 1996 period
includes a full year of restaurant and banquet events.
Interest expense decreased 1% to $1,384,000 from $1,391,000. This
difference was primarily due to the fact that the Company borrowed an additional
$7,000,000 during 1996, $5,300,000 of which was borrowed during March 1996 and
$1,700,000 was borrowed during December 1996. During 1997, the Company did not
borrow any additional funds. The combination of these factors results in a net
decrease in interest expense after considering the difference in the length of
time of the periods being compared.
Net income decreased 42% to $135,000 from $243,000 primarily due to an
increase in general and administrative costs associated with the increased golf
operations activities and minority interest priority returns.
Historical Year Ended December 31, 1996 Versus Historical Year Ended December
31, 1995
Revenues increased 45% to $6,850,000 from $4,665,000. The increase in
revenues is primarily due to the acquisition of the Minebrook Golf Course in
1996. Additionally, membership revenues increased 18% as the result of an
aggressive advertising campaign. As the result of these increases in membership
and golf activity, food and beverage revenues increased 90% to $1,936,000 from
$1,017,000.
Operating costs and expenses increased 62% to $5,173,000 from $3,185,000
due to the acquisition and operations of the new course and the increase in
membership.
Interest expense increased 87% to $1,391,000 from $743,000 primarily due to
the additional borrowings necessary to purchase the Minebrook golf course.
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Net income decreased 59% to $243,000 from $599,000 primarily due to
increases in interest expense, depreciation and amortization, and general and
administrative costs associated with the growth of the Company.
RESULTS OF OPERATIONS OF OLYMPUS MONTCLAIR-CHICAGO GENERAL PARTNERSHIP
Three Months Ended March 31, 1998 versus Three Months Ended March 31, 1997
Room revenue increased to $1,915,000 from $1,546,000, an increase of
$368,000, or 24%. The increase in room revenue was attributable mainly to
increased occupancy and average room rates at both Indian Lakes and Nordic
Hills. The increases in both occupancy and average room rates were primarily
attributable to improved marketing programs. Food and beverage increased to
$1,694,000 from $1,521,000, an increase of $173,000, or 11%. The increase in
food and beverage revenue was primarily attributable to the increase in
occupancy and from improved marketing programs. Golf revenue was $40,000 for the
three months ended March 31, 1998 and 1997. Golf revenue is minimal in the first
quarter, as the golf courses are typically not opened for play until the second
quarter of the year.
Room expenses increased to $508,000 from $450,000, an increase of $57,000,
or 13%. The increase in room expenses was attributable mainly to the increase in
occupancy. Food and beverage expenses increased to $1,342,000 from $1,248,000,
an increase of $95,000, or 8%. The increase in food and beverage expenses was
primarily attributable to increase banquet activity. Golf expenses were $111,000
and $189,000 for the three months ended March 31, 1998 and 1997, respectively.
As discussed above, the golf courses are typically not opened for play until the
second quarter of the year. Administrative and general expenses increased to
$539,000 from $445,000, an increase of $94,000, or 21%. The increase in
administrative and general expenses was mainly attributable to increased
staffing as a result of increased occupancy.
Year Ended December 31, 1997 versus Year Ended December 31, 1996
Room revenue increased to $10,461,000 from $9,348,000, an increase of
$1,113,000, or 12%. The increase in room revenue was attributable mainly to an
increase in occupancy and average room rates at both Indian Lakes and Nordic
Hills. The increases in both occupancy and average room rates were primarily
attributable to the addition of sales staff and more effective marketing
efforts. Food and beverage revenue increased to $12,562,000 from $10,932,000, an
increase of $1,630,000, or 15%. The increase in food and beverage revenue was
primarily attributable to the increase in occupancy and more effective marketing
efforts. Golf revenue increased to $3,894,000 from $3,228,000, an increase of
$666,000 or 21%. The increase in golf course revenues was mainly attributable to
increased rounds as a result of the increase in occupancy.
Room expenses increased to $2,272,000 from $2,192,000, an increase of
$80,000, or 4%. The increase in room expenses was attributable mainly to the
increase in occupancy. Food and beverage expenses increased to $7,475,000 from
$7,037,000, an increase of $438,000, or 6%. The increase in food and beverage
expenses was primarily attributable to increase banquet activity. Golf expenses
increased to $2,203,000 from $1,854,000, an increase of $349,000 or 19%. The
increase in golf expenses was consistent with the increase in rounds.
Administrative and general expenses increased to $2,453,000 from $1,963,000, an
increase of $490,000, or 25%. The increase in administrative and general
expenses was mainly attributable to marketing expenses increasing to $1,799,000
from $1,454,000, an increase of $344,000, or 24%. The increase in marketing
expenses is attributable mainly to the addition of sales staff.
Year Ended December 31, 1996 versus Period from August 23, 1995 to December 31,
1995
The revenue and operating expenses variances between the year ended
December 31, 1996 and the period from August 23, 1995 to December 31, 1995 are
attributable to the number of days of operations. The Olympus Montclair
Chicago-General Partnership acquired the Resort Courses on August 23, 1995.
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LIQUIDITY AND CAPITAL RESOURCES
The Company anticipates that the proceeds of the Offering, together with
its cash from operations, and the Credit Facility will provide adequate
liquidity to acquire additional Golf Courses, conduct its operations, fund
administrative and operating costs, interest payments and allow distributions to
shareholders in accordance with the Code's requirements for qualification as a
REIT and to avoid any corporate level federal income or excise tax.
Upon completion of the Offering, the Company will have $75 million
available under the Credit Facility. The Credit Facility will initially bear
interest at LIBOR plus either 1.75% or 2.00% per annum (depending on amounts
advanced from time to time under the Credit Facility and the designated value of
the collateral from time to time pledged under the Credit Facility) and has an
initial term that expires in January 2001. Six of the Golf Courses are currently
encumbered by mortgages or deeds of trust securing the Credit Facility. The
Company has the right from time to time to add or subtract golf course
properties from the collateral pool securing the Credit Facility, with a
resulting upward or downward adjustment to the available revolving credit
borrowing base from which the Company can obtain loan proceeds under the Credit
Facility (with a maximum, in any event, of $75 million available loan proceeds).
The Company may borrow additional amounts in connection with the acquisition of
additional golf courses, the renovation or expansion of golf courses, or, as
necessary, to meet certain distribution requirements imposed on a REIT under the
Code.
In addition, the Company has reached a non-binding agreement in principle
with Credit Lyonnais to replace the Credit Facility with the $100 million
unsecured Replacement Facility. The Replacement Facility, if consummated, would
bear interest at either (i) LIBOR plus 1.75% per annum or (ii) the short term
commercial rate charged by Credit Lyonnais to domestic borrowers, plus 0.75%.
There can be no assurance, however, that the Credit Facility will be replaced,
and if replaced, the terms under which it will be replaced.
Under the terms of the Participating Leases, each Initial Lessee is
responsible for all expenses associated with the operation of the related Golf
Course, such as property taxes, general and administrative, food and beverage,
insurance, utilities, service, maintenance, any ground lease payments and all
capital expenditures. As a result of these arrangements, the Company does not
believe it will be responsible for any expenses in connection with the Golf
Courses during the terms of the respective Participating Leases. The Company
anticipates entering into leases containing similar terms with respect to golf
courses acquired in the future. After the terms of any Participating Lease
expire, or in the event a Lessee is unable to meet its obligations, the Company
expects that any expenditures for which it might become responsible in
maintaining the related Golf Courses will be funded by cash from operations and,
in the case of major expenditures, possibly by borrowings. To the extent that
unanticipated expenditures or significant borrowings are required, the Company's
Cash Available for Distribution and liquidity may be adversely affected.
In order to qualify as a REIT for federal income tax purposes, the Company
will be required to make substantial distributions to its shareholders. The
following factors, among others, will affect Cash Available for Distribution and
will influence the decisions of the Board of Trustees regarding distributions:
(i) increases in Lease Payments under the Participating Leases and leases
relating to properties acquired in the future; (ii) the ability of the Lessees
to meet their obligations under leases; and (iii) the operating expenses of the
Company. Although the Company will receive most of its rental payments on a
monthly basis, it intends to make distributions quarterly. Amounts accumulated
for distribution will be invested by the Company in short-term investments.
Other than the purchase of the Golf Courses (including the repayment of
debt), the Company has no commitments to make other capital expenditures at the
date of this Prospectus. The Company may raise additional long-term capital by
issuing, in public or private transactions, debt or other equity securities, but
the availability and terms of any such issuance will depend upon the market and
other conditions. The Company expects that as a result of having no debt
outstanding upon completion of the Formation Transactions and its intention to
refrain from incurring debt unless, upon such incurrence, the Company's debt to
total market capitalization ratio would be approximately 50% or less, it will be
able to obtain financing for its long-term capital needs. However, there can be
no assurance that additional financing or capital will be available on terms
acceptable to the Company.
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Acquisitions will be made subject to the investment objectives and policies
to maximize both current income and long-term growth in income described
elsewhere in this Prospectus. The Company's liquidity requirements with respect
to future acquisitions may be reduced to the extent the Company uses Common
Shares or OP Units as consideration for such purchases.
The transition to the year 2000 may have an adverse impact on the
processing of date-sensitive information by certain computerized information
systems due to the fact that many computer programs were written using two
digits, rather than four, to define the applicable year. Based on the Company's
assessment of the use of financial information and operations systems by the
Company and the Initial Lessees, the Company believes that the cost of
addressing year 2000 issues will not have a material adverse effect on the
Company's financial position, results of operations, cash flows, liquidity or
capital resources in future periods.
INFLATION
All of the Participating Leases provide for initial terms of 15 years with
Base Rent and Participating Rent features. Base Rent will increase by the Base
Rent Escalator during the term of each Participating Lease. In addition, all of
such leases are triple net leases requiring the Initial Lessees to pay for all
maintenance and repair, insurance, utilities and services, thereby minimizing
the effect of inflation on the Company. Accordingly, the Company believes the
effect of inflation on the Company is not material.
SEASONALITY
The golf industry is seasonal in nature based on weather conditions and
fewer available tee times in the rainy season and the winter months. Each of the
Initial Lessees operating a daily fee or resort course property may vary green
fees based on changes in demand.
FUNDS FROM OPERATIONS
The Company believes Funds from Operations, as defined by NAREIT, to be an
appropriate measure of performance for an equity REIT. While Funds from
Operations is a relevant and widely used measure of operating performance of
equity REITs, it does not represent cash flow from operations or net income as
defined by generally accepted accounting principles ("GAAP"), and it should not
be considered as an alternative to these indicators in evaluating liquidity or
operating performance of the Company.
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THE GOLF INDUSTRY
Unless otherwise noted, references herein to national industry statistics
and averages are based on reports of the NGF, an industry trade association not
affiliated with the Company.
This section contains forward-looking statements relating to economic and
demographic trends and consumer preferences. There can be no assurance that the
various assumptions and judgments by the Company on which such forward-looking
statements are based will prove to be correct. Future events and actual events
may differ materially from the events discussed in the forward-looking
statements. Factors that might cause such differences include, but are not
limited to, changes in discretionary spending patterns of golfers, a decrease in
the number of golfers or the growth rate of the golfing population, competition
from other forms of leisure activities, and those additional factors discussed
under the caption "Risk Factors."
MARKET OVERVIEW
Golf is one of the most popular sports in the United States. Fueled by a
rise in popularity and favorable demographic trends, the number of golfers, the
number of rounds played and the participation rate among the population has
increased significantly over the past quarter century. In 1997 there were
approximately 26.5 million golfers, which represented 12.1% of the total U.S.
population age 12 or older, while in 1970 there were only 11.2 million golfers,
which represented 7.2% of the population age 12 or older. This change represents
a net increase of 136.6% and a compounded annual growth rate of 3.2%. Current
changes in the demographic composition of the U.S. are again expected to fuel
growth within the golf industry.
After several years of relatively flat growth, golf participation reached
record levels in 1997 with 547 million rounds of golf played, surpassing the
previous record of 505 million rounds set in 1992. The 1997 record represents a
14.6% increase over total rounds played in 1996 and a 36.2% increase over total
rounds played in 1986. Furthermore, golf course utilization, as represented by
average rounds played per golf course (calculated by dividing total rounds
played by the total number of golf courses) increased 12.9% between 1996 and
1997 from approximately 30,300 to 34,200. This compares with a 2.0% increase in
the total number of golf courses over the same period from 15,703 to 16,010. The
Company believes that the recent increase in golf participation is evidence that
the current trends and conditions in the United States will fuel continued
growth in the golf industry. These trends and conditions are summarized below.
DEMOGRAPHIC TRENDS
The Company believes that the number of golfers as well as the number of
rounds played will increase significantly between 1997 and 2005 as the average
age of the population continues to increase. The average number of rounds played
per golfer on an annual basis increases significantly as the golfer ages. On
average, golfers in their 50s play nearly twice as many rounds as golfers in
their 30s, and golfers age 65 or older generally play three times as many rounds
annually as golfers in their 30s. According to the United States Bureau of the
Census, the population age 50 or older will increase by 20.0% between 1997 and
2005, from 71.1 million to 85.3 million. The effect of this demographic shift is
shown in the following graph, which depicts the estimated age dispersion in the
United States in 1997 and the projected age dispersion in 2005 according to the
United States Bureau of the Census, as well as 1997 golf participation rates
from the NGF for individual age groups based on the average annual number of
golf rounds played. Assuming golf participation rates for the individual age
groups remain constant and the population ages in the manner depicted in the
following graph, the Company believes that the aging population (as evidenced by
the shaded area) will significantly increase the overall demand for golf.
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<PAGE> 66
DEMOGRAPHICS
COLUMNS REPRESENT AVERAGE ANNUAL ROUNDS PER GOLFER AGE GROUP AS OF 1997
LINES REPRESENT ESTIMATED 1997 AND PROJECTED 2005 POPULATION OF EACH GOLFER AGE
GROUP
AGE DISPERSION CHART
Currently, there are approximately 78 million members of the baby boom
segment of the U.S. population, many of whom are now entering into their 50s.
The Company believes that over the next few years the demand for golf courses
will increase as the baby boom segment ages. This belief is based upon the fact
that the average number of rounds played per golfer on an annual basis increases
as the golfer ages. The NGF estimates that the average individual in his 40s
plays 32.8% more rounds annually than a golfer in his 30s and that the average
individual in his 50s plays 93.6% more rounds of golf per year than the average
individual in his 30s. In addition, the average individual in his early 60s
plays 217.6% more rounds and the average individual in his late 60s plays 268.0%
more rounds than the average individual in his 30s. This trend suggests that the
total number of rounds played in the U.S. will increase. The increase in
popularity of golf in the 1980's is largely attributed to baby boomers reaching
their 40's. The Company believes that the financial impact of the early stages
of this trend can already be seen. According to a recent survey conducted by
Golf Business magazine, the median weekend green fee in 1997 increased by 12.0%
over 1996, from $25 to $28.
The "echo boomers," or the children of the baby boom generation (currently
estimated at approximately 72 million persons), are expected to amplify their
parents' positive impact on the golf industry. Many members of this age group
are entering into their trial and start-up golf years and, as they continue to
age, they too are expected to play more rounds of golf. Since the mid-1980s,
teenage golf participation has grown
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strongly since the echo boomers reached that age in the early 1990s. The graph
below demonstrates the participation trends for both the baby boomers and the
echo boomers.
[Percent Change in Participation Chart.]
In addition, participation rates are increasing across nearly all age
groups with the largest increases occurring within the group aged 30 to 49.
Assuming participation rates remain the same or improve, the Company expects
this age group to contribute significantly to total rounds played in the future.
The graph below depicts golfer participation (calculated as the number of
golfers as a percent of the total population) for 1986 and 1996.
[Golfer Participation in the US Chart.]
Source: NGF and the United States Bureau of the Census
THE "TIGER EFFECT"
The success of professional golfer Tiger Woods has had a considerable
effect on the golf industry. Woods' numerous victories, including the 1997
Masters, and the media attention that he has attracted, have done much to
increase the popularity of golf. Ratings of the 1997 GTE Byron Nelson Classic,
for example, were up 85% over 1996.
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The Company believes that this increased media attention has helped fuel
the public's interest in golf and contributed to the recent growth in rounds
played by those who are new to the sport. A record high of nearly three million
people played golf for the first time in 1997, a 51.2% increase over the nearly
two million beginners in 1996. The Company believes that this growth will
persist in the future as strong media coverage continues to generate public
interest in the sport.
BROADER DEMOGRAPHIC REPRESENTATION
As the level of attention golf has received has increased in recent years,
the golfing population in the United States has become more diverse, with
increased participation by junior, minority and female golfers -- groups which
have traditionally not been large participants in the sport. A recent survey
conducted by Golf Business magazine reports that in 1997 junior golfers played
approximately 36% more rounds than they did in 1996. Rounds played by these
junior golfers, defined as individuals between 12 and 17 years of age, increased
from 6.1% to 7.7% of total play for the year. It was also reported that the
percentage of non-white golfers in the United States has increased from 12.3% of
the total U.S. golfer population in 1995 to 14.6% in 1997. Participation by
African-American golfers, after remaining stagnant between 1995 and 1996,
increased from 4.4% to 4.9% of the total golfer population from 1996 to 1997.
Asian/Pacific Islanders, who comprised 4.0% of all golfers in 1995, increased to
4.5% in 1996 and to 5.6% in 1997. Women also prominently figured into the
increased demand for golf in 1997, as approximately 10% more women played golf
than in 1996. The increase in female participation was spread across all age
groups, as juniors, seniors and non-seniors increased their rounds in 1997.
While female golfers still comprise only about 21% of the total number of
golfers, they account for approximately 32% of all beginning golfers.
INCREASE IN LEISURE SPENDING
The golf industry has benefited from an increase in disposable income and a
change in spending habits of the American consumer. Although the average level
of leisure time has not increased over the past decade, the level of
recreational spending has gone up significantly, increasing by approximately 35%
from 1990 to 1995 (after adjusting for inflation). In addition, total sales of
golf related merchandise are estimated at over $5 billion for last year,
significantly higher than any previous year. The Company believes that these
golfers are also willing to pay more in golf-related fees, or play at higher fee
courses, than they traditionally have. As shown in the chart below, during the
period between 1986 and 1994, total golf-related purchases (including
golf-related fees) approximately doubled. The Company believes this increased
willingness to spend money on golf and golf related items should allow the
lessees to increase revenues through higher fees without having a negative
impact on the number of rounds played at the Company's courses.
[GOLFER SPENDING GRAPH]
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GOLF COURSE OWNERSHIP
The Company believes that the domestic golf industry remains fragmented in
terms of golf course ownership. According to the National Golf Course Owners
Association, there are approximately 16,000 golf courses in the United States,
approximately 6,000 of which are municipal or member-equity courses, which
generally are not available for acquisition. The remaining 10,000
privately-owned courses are owned by approximately 9,000 entities, with the 15
owners of the greatest number of courses collectively owning and leasing fewer
than 5% of the total number of courses. The Company believes that such
fragmented ownership provides it with an excellent opportunity to consolidate
the ownership of high quality golf courses and provides an excellent opportunity
for the Company to grow through acquisitions.
TYPE OF GOLFERS
The NGF classifies the general golfing population into three distinct
categories by age and frequency of play: (i) core golfers, or those who play at
least eight rounds of golf per year; (ii) occasional golfers, or those who play
between one and seven rounds per year; and (iii) junior golfers, or those aged
12 to 17 years old who play at least one round of golf per year. The table below
is an overview of the characteristics of the different types of golfers and of
their impact on the growth of the industry.
<TABLE>
<CAPTION>
AVERAGE CORE OCCASIONAL JUNIOR
------- ---- ---------- ------
<S> <C> <C> <C> <C>
Number of Golfers (millions)........................... NA 11.4 11.6 1.8
Average Age............................................ 40 45 39 15
Average Household Income............................... $59,970 $61,940 $57,350 $63,530
Experience (years)..................................... 15 19 13 3
Average Rounds Played.................................. 19 37 3 14
</TABLE>
The Company is optimistic about the growth potential for the industry based
upon the anticipated healthy growth in each of these categories.
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THE GOLF COURSES
The 15 Golf Courses are located at 13 separate locations in 10 states, with
three in each of Illinois and New York, two in Tennessee and one in each of
Connecticut, Georgia, Maryland, Oregon, New Jersey, South Carolina and Virginia.
All of the Golf Courses are located in Standard Metropolitan Statistical Areas
with populations in excess of 250,000 people. The Golf Courses are located in
markets that are generally characterized by increasing populations,
above-average household income, high barriers to entry, and high population per
hole ratios. The Company estimates that the average household in the United
States earned $50,540 in 1997, while in the Company's markets the weighted
average household income was 33.6% higher, at $67,507. Within a 10 mile radius
of each of the Golf Courses, the weighted average population was 508,509 in 1997
and had grown 9.2% since 1990, while nationally the population growth rate was
7.5% over the same period. The population-per-hole ratio for the Company's
existing markets, a measure that the Company believes is a reliable indicator of
demand within a given market, equaled 1,552:1 (people-to-available holes) in
1996 on a weighted average basis, a 17.9% premium to the national average of
1,316:1.
All of the Golf Courses and related properties are owned 100% in fee by the
Company except for Penderbrook Golf Club, Crofton Country Club and Memphis
National Golf Club (two courses), which are leased by the Company under long
term ground leases expiring in 2022, 2026 and 2042, respectively. See "--
Descriptions of the Golf Courses" and "Risk Factors -- Real Estate Risks." Eight
Golf Courses are located at seven private country clubs, four are daily fee
courses and three are located at two resort course properties. The Golf Courses
include facilities such as clubhouses, restaurants, lodging facilities, banquet
space, meeting rooms, pro shops, driving ranges, locker rooms, swimming pools,
spas and tennis courts. Services provided at the Golf Courses include golf cart
rentals, and golf and tennis lessons. The Company considers its daily fee and
resort courses to be among the better courses in their markets because of the
quality and maintenance of each golf course and the average green fees, which
are significantly above the averages for golf courses in their respective
geographic markets, and the facilities, amenities and services available at the
Golf Courses, including full service pro shops and state-of-the-art practice
facilities. The Company believes its focus on high quality daily fee golf
courses and private country clubs, which attract golfers with attractive
demographic and economic profiles, will result in stronger and less cyclical
revenue growth in comparison to golf courses with lower green fees and
membership dues.
Private Country Clubs. Private country clubs typically offer
championship-quality golf courses, practice facilities, clubhouses with golf
shops carrying large inventories of golf merchandise, locker and card room
facilities, food and beverage and, frequently, banquet facilities. Private clubs
generate revenue through member initiation fees, monthly membership dues, golf
cart rentals and guest greens fees, as well as the retail sale of golf
merchandise and food and beverage. The operation of a private club focuses
primarily on maximizing the membership base. By achieving appropriate membership
levels, a club increases membership initiation fees, membership dues, driving
range fees, golf cart rentals, pro shop merchandise sales and food and beverage
sales. Methods utilized to increase membership sales include offering a range of
membership programs at a variety of price points, implementing member referral
programs, direct mail marketing targeted at selected demographic areas near the
club and general advertising promotions through newspapers, radio and local
publications.
Daily Fee Courses. Daily fee courses are open to the public and generate
revenues principally from green fees, golf cart rentals, practice facility
charges, golf shop sales and food and beverage operations. Daily fee courses
generally include golf courses, practice facilities, small clubhouses with golf
shops carrying golf merchandise, locker room facilities and a snack bar food and
beverage operation. Daily fee courses generally do not charge initiation or
membership dues. The operation of daily fee courses focuses on maximizing the
number of rounds played and revenue per round. In addition to increasing green
fees, more rounds played results in additional revenues from golf cart rentals,
driving range fees, pro shop merchandise sales, and food and beverage sales.
Marketing methods designed to increase utilization during periods of low demand
include offering discounts on green fees, scheduling tournaments and forming
leagues. Various advertising programs, including promotions through newspapers,
radio, and other local publications are used to generate additional awareness
and demand.
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Resort Courses. Resort courses are daily fee courses that typically offer
amenities similar to a private club and are normally associated with a lodging
component. Resort courses differ from other daily fee courses in that they are
located near, or are themselves, vacation destinations and tend to draw a high
percentage of players from outside the immediate area in which the course is
located. Resort courses also tend to offer more extensive facilities and
amenities than daily fee courses, such as championship-quality courses, expanded
clubhouse services and multiple food and beverage outlets.
The Company will acquire a 100% fee or ground leasehold interest in each of
the Golf Courses. Certain information pertaining to each of the Golf Courses is
set forth on the following pages:
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PRIVATE COUNTRY CLUBS
<TABLE>
<CAPTION>
MONTH/YEAR MEMBERS AT
YEAR MANAGEMENT DECEMBER 31,(2)
OPENED/ ASSUMED BY ---------------------
NAME RENOVATED(1) INITIAL LESSEE INITIAL LESSEE 1995 1996 1997
---- ------------ -------------- -------------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Fox Valley Club........................... 1991/1995 Nov. 1997 Palmer Management 424 433 524
Oronoque Country Club..................... 1970/1997 Nov. 1996 Palmer Management 325 347 432
Memphis National Golf Club(5) (Two Golf
Courses)................................. 1971/1998 Jun. 1998 Palmer Management 719 692 714
Crofton Country Club(5)................... 1964/1996 Oct. 1996 Palmer Management 1,093 786 832
Brierwood Country Club.................... 1957/1996 Jul. 1995 Palmer Management 422 537 605
University Club of South Carolina......... 1995 Sep. 1995 University Clubs 1,754 1,639 1,629
Tan Tara Golf Club........................ 1972/1994 Nov. 1997 Palmer Management 416 419 424
Total...................................................................................................................
<CAPTION>
GROSS GOLF REVENUE(3) TOTAL REVENUE(4)
------------------------------------ ------------------------------------
NAME 1995 1996 1997 1995 1996 1997
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Fox Valley Club........................... $1,426,748 $1,762,831 $1,751,764 $1,848,801 $2,935,684 $2,998,731
Oronoque Country Club..................... 1,099,302 1,001,372 2,448,103 1,297,945 1,919,737 3,010,282
Memphis National Golf Club(5) (Two Golf
Courses)................................. 1,692,137 1,666,266 1,918,615 1,915,377 1,883,583 2,171,078
Crofton Country Club(5)................... 1,764,965 1,558,350 2,240,286 2,794,556 2,825,708 3,174,034
Brierwood Country Club.................... 1,931,429 1,639,219 1,949,795 3,995,626 3,827,599 4,240,491
University Club of South Carolina......... 804,186 1,881,596 1,937,910 1,064,600 2,033,973 2,415,322
Tan Tara Golf Club........................ 1,016,443 1,157,191 1,306,000 1,704,847 1,875,035 2,164,993
Total..................................
<CAPTION>
INITIAL
NAME BASE RENT
---- ---------
<S> <C>
Fox Valley Club........................... $1,130,000
Oronoque Country Club..................... 1,060,000
Memphis National Golf Club(5) (Two Golf
Courses)................................. 1,057,000
Crofton Country Club(5)................... 919,000
Brierwood Country Club.................... 854,000
University Club of South Carolina......... 600,000
Tan Tara Golf Club........................ 536,000
----------
Total.................................. $6,156,000
==========
</TABLE>
- -------------------------
(1) See "-- Descriptions of the Golf Courses" for a description of certain
course renovations.
(2) Generally includes active golf and social members.
(3) Gross Golf Revenue generally is defined as all revenues from a golf course,
including green fees, golf cart rentals, range fees, membership dues, member
initiation fees and transfer fees (included on a cash basis); excluding,
however, food and beverage and merchandise revenue. See "Glossary."
(4) "Total Revenue" means all revenue from a property, including green fees,
golf cart rentals, range fees, membership dues, member initiation fees and
transfer fees (included on a cash basis), hotel room revenues, food and
beverage and merchandise revenue.
(5) The Company is the fee simple owner of each of the private country clubs
except Crofton and Memphis National, which are subject to long-term ground
leases that expire in 2026 and 2042, respectively. See "-- Descriptions of
the Golf Courses" and "Risk Factors -- Real Estate Risks."
64
<PAGE> 73
DAILY FEE COURSES
<TABLE>
<CAPTION>
MONTH/YEAR
YEAR MANAGEMENT ROUNDS
OPENED/ ASSUMED BY INITIAL ------------------------
NAME RENOVATED(1) INITIAL LESSEE LESSEE 1995 1996 1997
---- ------------ -------------- ------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Towne Lake Hills Golf Club........ 1994 Jun. 1994 HMS 37,746 39,018 46,753
Emerald Valley Golf Club.......... 1963/1994 Nov. 1997 Palmer Management 40,117 31,532 33,632
Penderbrook Golf Club(5).......... 1981/1998 Nov. 1997 Palmer Management (4) (4) (4)
Minebrook Golf Club............... 1919/1996 Nov. 1997 Palmer Management (4) 25,047 34,487
Total........................................................................................................
<CAPTION>
GROSS GOLF REVENUE(2) TOTAL REVENUE(3)
------------------------------------ -------------------------------------- INITIAL
NAME 1995 1996 1997 1995 1996 1997 BASE RENT
---- ---- ---- ---- ---- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Towne Lake Hills Golf Club........ $1,531,861 $1,684,273 $1,989,992 $2,020,052 $2,449,353 $ 2,946,844 $ 900,000
Emerald Valley Golf Club.......... 961,975 859,941 969,731 1,396,896 1,268,981 1,430,626 496,000
Penderbrook Golf Club(5).......... 1,283,241 1,218,479 966,148(6) 1,689,224 1,561,049 1,183,073(6) 453,000
Minebrook Golf Club............... (4) 780,101 1,045,392 (4) 1,090,182 1,488,558 345,000
----------
Total.......................... $2,194,000
==========
</TABLE>
- -------------------------
(1) See "-- Descriptions of the Golf Courses" for a description of certain
course renovations.
(2) Gross Golf Revenue generally is defined as all revenues from a golf course,
including green fees, golf cart rentals, range fees, membership dues, member
initiation fees and transfer fees (included on a cash basis); excluding,
however, food and beverage and merchandise revenue. See "Glossary."
(3) "Total Revenue" means all revenue from a property, including green fees,
golf cart rentals, range fees, membership dues, member initiation fees and
transfer fees (included on a cash basis), hotel room revenues, food and
beverage and merchandise revenue.
(4) Data unavailable from previous owner.
(5) The Company is the 100% fee owner of each daily fee Golf Course except
Penderbrook, which is subject to a long-term ground lease that expires in
2022. See "-- Descriptions of the Golf Courses" and "Risk Factors -- Real
Estate Risks."
(6) A portion of Penderbrook was closed during 1997 for renovations. See "--
Descriptions of the Golf Courses."
65
<PAGE> 74
RESORT COURSE PROPERTIES
<TABLE>
<CAPTION>
MONTH/YEAR
YEAR MANAGEMENT ROUNDS
OPENED/ ASSUMED BY INITIAL ----------------------
NAME RENOVATED(1) INITIAL LESSEE LESSEE 1995 1996 1997
---- ------------ -------------- ------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Indian Lakes Resort
(Two Golf Courses)...................... 1980/1996 Aug. 1995 Montclair (4) 47,389 52,067
Nordic Hills Resort...................... 1972/1996 Aug. 1995 Montclair (4) 28,725 32,426
Total.....................................................................................................
<CAPTION>
GROSS GOLF AND ROOMS REVENUE(2) TOTAL REVENUE(3)
------------------------------------ ---------------------------------------
NAME 1995 1996 1997 1995 1996 1997
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Indian Lakes Resort
(Two Golf Courses)...................... $7,857,782 $7,958,563 $8,530,791 $17,061,446 $16,451,604 $17,247,665
Nordic Hills Resort...................... 4,178,781 4,249,513 5,342,515 8,652,001 8,778,546 11,141,647
Total.................................
<CAPTION>
INITIAL
NAME BASE RENT
---- ---------
<S> <C>
Indian Lakes Resort
(Two Golf Courses)...................... $3,979,000
Nordic Hills Resort...................... 2,188,000
----------
Total................................. $6,167,000
==========
</TABLE>
- -------------------------
(1) See "-- Descriptions of the Golf Courses" for a description of certain
course renovations.
(2) Represents Gross Golf Revenue plus Rooms Revenue. Gross Golf Revenue
generally is defined as all revenues from a golf course, including green
fees, golf cart rentals, range fees, membership dues, member initiation fees
and transfer fees (included on a cash basis); excluding, however, food and
beverage and merchandise revenue. Rooms Revenue generally is defined as all
revenues from the renting of hotel rooms. See "Glossary."
(3) "Total Revenue" means all revenue from a property, including green fees,
golf cart rentals, range fees, membership dues, member initiation fees and
transfer fees (included on a cash basis), hotel room revenues, food and
beverage and merchandise revenue.
(4) Data unavailable from previous operator.
66
<PAGE> 75
DESCRIPTIONS OF THE GOLF COURSES
Private Country Clubs
Private country clubs are generally closed to the public and generate
revenue principally through initiation fees and membership dues, golf cart
rentals and guest green fees. Initiation fees and membership dues are determined
according to the particular market segment in which the club operates. Revenue
and cash flows of private country clubs are generally more stable and
predictable than those of public courses because the receipt of membership dues
generally is independent of the level of course utilization.
The following table sets forth certain information concerning the Company's
private country clubs:
<TABLE>
<CAPTION>
FACILITIES AND SERVICES
-------------------------------------------------------
NO. OF DRIVING PRACTICE CART FOOD &
COURSE NAME LOCATION HOLES RANGE FACILITIES(1) RENTAL CLUBHOUSE BEVERAGE
----------- -------- ------ ------- ------------- ------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Fox Valley Club........... Lancaster, NY 18 Y Y Y Y Y
Oronoque Country Club..... Stratford, CT 18 Y Y Y Y Y
Memphis National Golf Club
(two Golf Courses)...... Collierville, TN 36 Y Y Y Y Y
Crofton Country Club...... Crofton, MD 18 Y Y Y Y Y
Brierwood Country
Club.................... Hamburg, NY 18 Y Y Y Y Y
University Club of South
Carolina................ Blythewood, SC 27 Y Y Y Y Y
Tan Tara Golf Club........ North Tonawanda, NY 18 Y Y Y Y Y
<CAPTION>
FACILITIES AND SERVICES
------------------------------
PRO FITNESS
COURSE NAME SHOP TENNIS POOL CENTER
----------- ---- ------ ---- -------
<S> <C> <C> <C> <C>
Fox Valley Club........... Y Y Y N
Oronoque Country Club..... Y Y Y N
Memphis National Golf Club
(two Golf Courses)...... Y N N N
Crofton Country Club...... Y Y Y N
Brierwood Country
Club.................... Y Y Y N
University Club of South
Carolina................ Y Y(2) Y(2) Y(2)
Tan Tara Golf Club........ Y N N N
</TABLE>
- -------------------------
(1) Includes putting green and practice bunkers.
(2)These facilities, which are scheduled to open before fall 1998, are located
adjacent to University Club of South Carolina ("UCSC") and are owned by an
affiliate of the Initial Lessee. The Initial Lessee of UCSC intends to
arrange with such affiliate to make such facilities available to UCSC
members.
The Fox Valley Club -- Lancaster, New York. The Fox Valley Club, which
opened in 1992, is set among rolling wooded hills and a scenic creek in the
greater Buffalo area. In 1995, major on-site improvements were completed,
including the addition of a 14,500 square foot clubhouse, which overlooks
the northern portion of the 18-hole, par 72, 6,603 yard golf course, as
well as a swimming pool complex. Dining facilities in the clubhouse
accommodate 365 persons and include a formal dining room, a main dining
room and a patio. Fox Valley is operated under the Arnold Palmer Managed
Golf Club(SM) brand affiliation. The Initial Lessee of the club is an
affiliate of Palmer Management, which has managed the club since November
1997.
Oronoque Country Club -- Stratford, Connecticut. Oronoque Country
Club, which opened in 1970, features an 18-hole, par 72, 6,575 yard course
designed by Desmond Muirhead. Oronoque recently completed a $1.1 million
renovation, which included substantial course improvements, such as
reconstructed bunker and tee areas, improved drainage as well as
significant upgrades to the banquet facility, club entrance, and pro shop.
Major landscaping and beautification projects around the clubhouse areas
and throughout the golf course were also completed. Oronoque is to be
operated under the Arnold Palmer Managed Golf Club(SM) brand affiliation.
The Initial Lessee of the club is an affiliate of Palmer Management, which
has managed the club since November 1996.
Memphis National Golf Club -- Collierville, Tennessee. Located in the
greater Memphis area, the original 45 hole Memphis National Golf Club
(formerly Houston Levee Golf Club) was designed by George Curtis and opened
in 1971. In 1997, Palmer Management initiated a $6.1 million comprehensive
renovation and improvement program that commenced with the conversion of
the courses from 45 holes to two championship, par 70, 18-hole courses, one
of which is open to the public. The program also includes the complete
renovation of the clubhouse. Planned course improvements include
reconstructed bunkers, an improved irrigation system, and new tee and green
complexes. The new clubhouse will provide banquet facilities, a new
golf-themed restaurant and retail shop. These renovations are scheduled to
be completed in October 1998. The club is operated pursuant to a ground
lease that expires in 2042. Memphis National is operated under the Arnold
Palmer Managed Golf Club(SM) brand affiliation and will be leased to an
affiliate of Palmer Management, which has managed the club since June 1997.
67
<PAGE> 76
Crofton Country Club -- Crofton, Maryland. Crofton Country Club is
located within a 25-minute drive from both downtown Washington, D.C. and
Baltimore, Maryland. Crofton has twice hosted the Maryland Open, as well as
a U.S. Open Qualifier and a U.S. Amateur Qualifier. Crofton's 18-hole, par
72, 7,211 yard championship course was designed by Eddie Ault and opened in
1964. In 1997, Palmer Management completed a $2.5 million renovation and
improvement program that included converting all 18 fairways to bent grass
and significant tee and bunker reconstruction. Additional renovations
completed include a major renovation of the clubhouse, which included the
construction of a new pro shop, the complete renovation and re-equipping of
the main kitchen, renovation of the building exterior and entrances,
banquet rooms and office areas and reconstruction of the pool locker and
bathroom facilities. Crofton is operated pursuant to a long term ground
lease that expires in December 2026. Crofton is operated under the Arnold
Palmer Managed Country Club(SM) brand affiliation. The Initial Lessee of
the club is an affiliate of Palmer Management, which has managed the club
since October 1996.
Brierwood Country Club -- Hamburg, New York. Brierwood County Club,
which was built in 1957 by Bethlehem Steel as a private club for its
executives, is situated on a 450-acre residential development located in
the greater Buffalo area. Brierwood features an 18-hole, par 72, 7,031 yard
championship course and an 84,000-square foot clubhouse. Since 1995, over
$500,000 has been invested in improvements, including a major redesign and
reconstruction of most of the bunkers and tee boxes, significant drainage
improvements throughout the golf course, and construction of a new roof for
the clubhouse. Club amenities include an 80-seat formal dining room,
banquet facilities with a sit-down dining capacity of 600, a complete
practice area, pro shop, indoor bowling alley, four swimming pools and two
tennis courts. In 1996 Brierwood hosted the Nike Buffalo Open tournament.
Membership increased at Brierwood from 422 members in 1995, the year in
which Palmer Management acquired Brierwood, to 605 members in 1997.
Brierwood is operated under the Arnold Palmer Managed Country Club(SM)
brand affiliation. The Initial Lessee of the course is an affiliate of
Palmer Management, which has managed the club since July 1995.
The University Club of South Carolina -- Blythewood, South
Carolina. The University Club of South Carolina features a nine hole and an
18-hole championship golf course set among pine trees and lagoons. The
club, which is located just minutes from Downtown Columbia and the main
campus of the University of South Carolina ("USC"), is the home course for
the nationally-ranked USC golf teams and USC's National Alumni and Athletic
Booster Clubs. The club also hosts the annual "Hootie and the Blowfish
Monday after the Masters Celebrity Pro-Am" golf tournament, which is
televised nationally on ESPN. Amenities include a USC-themed clubhouse with
a full service pro shop, restaurant and 30-acre practice facility. As a
result of its marketing relationship with USC, the club sold over 1,700
memberships prior to opening. See "-- Brand Affiliations." The Initial
Lessee of the club is an affiliate of University Clubs. A nominal interest
in such lessee may be acquired by Palmer Management. University Clubs has
managed the club since its opening.
Tan Tara Golf Club -- North Tonawanda, New York. Situated in the
greater Buffalo area, Tan Tara Golf Club includes an 18-hole, par 72, 7,087
yard course that opened in 1972. In 1994, a major renovation program was
completed. The clubhouse was extensively renovated, including pro shop,
locker rooms, dining room and bar. Golf course improvements include
drainage and bunker repair, in addition to a renewed emphasis on sound
agronomy practices. Subsequent improvements include a redesign of the golf
course to lengthen and improve the quality of play as well as the
installation of a new putting green. Membership at Tan Tara has increased
significantly since 1993 as a result of these improvements. Tan Tara is
operated under the Arnold Palmer Managed Golf Club(SM) brand affiliation.
The Initial Lessee of the club is an affiliate of Palmer Management, which
has managed the club since November 1997.
Daily Fee Courses
The Company considers its daily fee courses to be high-end courses,
reflected in the quality and maintenance standards of the golf courses, and the
green fees, which are generally higher than other golf courses in their market.
68
<PAGE> 77
The following table sets forth certain information concerning the Company's
daily fee Golf Courses:
<TABLE>
<CAPTION>
FACILITIES AND SERVICES
--------------------------------------------
NO. OF DRIVING PRACTICE CART
COURSE NAME LOCATION HOLES RANGE FACILITIES(1) RENTAL CLUBHOUSE
----------- -------- ------ ------- ------------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Towne Lake Hills Golf
Club................... Woodstock, GA 18 Y Y Y Y
Emerald Valley Golf
Club................... Creswell, OR 18 Y Y Y Y
Penderbrook Golf Club.... Fairfax, VA 18 N N Y Y
Minebrook Golf Club...... Hackettstown, NJ 18 Y Y Y Y
<CAPTION>
FACILITIES AND SERVICES
-------------------------------
FOOD & PRO
COURSE NAME BEVERAGE SHOP TENNIS POOL
----------- -------- ---- ------ ----
<S> <C> <C> <C> <C>
Towne Lake Hills Golf
Club................... Y Y N N
Emerald Valley Golf
Club................... Y Y N N
Penderbrook Golf Club.... Y Y N N
Minebrook Golf Club...... Y Y N N
</TABLE>
- -------------------------
(1) Includes putting green and practice bunkers.
Towne Lake Hills Golf Club -- Woodstock, Georgia. Towne Lake Hills
Golf Club, an 18-hole, par 72, 6,757 yard course, was designed by world
renowned golf course architect Arthur Hills and first opened for play in
December 1994. The course is located on 180 acres of Georgia pine forest
and features over 100 feet of elevation change across the course layout.
The club is situated in the center of the 5,000-unit Towne Lake Hills
residential community and is located only minutes from downtown Atlanta.
Amenities include a clubhouse with a full service pro shop, restaurant and
grille, locker rooms and a complete practice facility, including a driving
range, practice bunker and two putting greens. The Initial Lessee of the
course is an affiliate of HMS, which has managed the course since June
1994.
Emerald Valley Golf Club -- Creswell, Oregon. Situated on 170 acres in
the greater Eugene, Oregon area, the Emerald Valley Golf Club is an
18-hole, par 72, 6,873 yard golf course that opened in 1963. Extensive
refurbishment of the clubhouse, with particular emphasis on the pro shop
and restaurant facilities was completed in 1994. Other course amenities
include a driving range and practice green. The Willamette Valley's mild
climate usually allows for year-round play. Emerald Valley was ranked as
the number 3 golf course in Oregon by the Oregon Golf Association. The
course is operated under the Arnold Palmer Managed Golf Course(SM) brand
affiliation. The Initial Lessee of the course is an affiliate of Palmer
Management, which has managed the course since November 1997.
Penderbrook Golf Club -- Fairfax, Virginia. Penderbrook Golf Club, an
18-hole, par 71, 6,152 yard course, is located off of Route 50 in Fairfax,
Virginia, one of Washington's most affluent suburbs. The course opened in
1981 as part of the Penderbrook planned unit development. In 1997, Palmer
Management initiated a $1.8 million renovation program that resulted in
significant remodeling of the clubhouse and an extensive refurbishment of
the golf course. These renovations are expected to be completed by December
1998. Course improvements include the reconstruction of one hole, as well
as extensive tee box and bunker remodeling. The course is operated pursuant
to a long term ground lease that expires in December 2022, with one
five-year extension at the ground lessor's sole option. Penderbrook will be
operated under the Arnold Palmer Managed Golf Club(SM) brand affiliation.
The Initial Lessee of the course is an affiliate of Palmer Management,
which has managed the course since November 1997.
Minebrook Golf Club -- Hackettstown, New Jersey. Minebrook Golf
Course, an 18-hole, par 70, 6,316 yard course, is located approximately 45
miles west of New York City in northern New Jersey. Minebrook is situated
on 148 acres and features a 12,500 square foot clubhouse, which was
recently enlarged and extensively renovated. Clubhouse improvements include
a new pro shop, a bar and new grille, a new kitchen and a banquet room that
has a capacity of more than 200 persons. Recent course improvements include
the complete redesign of two holes, the installation of new cart paths,
fairway improvements, bunker remodeling, tree removal and pruning, and
renovated bridges. To capitalize on the positive trends in the surrounding
market, the course operator is evaluating a $750,000 renovation program
that would include a new cart barn, new cart paths, improved course
drainage and the redesigning of two additional greens. If the Company
finances these improvements, the Base Rent payable to the Company will
increase by $75,000 per year. Upon completion of these improvements, the
course would be operated under the Arnold Palmer Managed Golf Club(SM)
brand affiliation. The Initial Lessee of the course is an affiliate of
Palmer Management, which has managed the course since November 1997.
69
<PAGE> 78
Resort Course Properties
Resort courses are daily fee golf courses that draw a high percentage of
players from outside the immediate area in which the course is located and
generate a significant amount of revenue from golf packages. Some resort courses
are semi-private, in that they offer membership packages that allow members
special privileges at the golf course, but also allow public play.
The following table sets forth certain information concerning the Company's
Golf Course resort properties:
<TABLE>
<CAPTION>
FACILITIES AND SERVICES
---------------------------------------------------------------------
NO. OF PRACTICE CART FOOD & PRO FITNESS
COURSE NAME LOCATION HOLES FACILITIES(1) RENTAL BEVERAGE SHOP TENNIS POOL LODGING CENTER
----------- -------- ------ ------------- ------ -------- ---- ------ ---- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Indian Lakes Club (two Golf
Courses).................. Bloomingdale, IL 36 N Y Y Y Y Y Y Y
Nordic Hills Club........... Itasca, IL 18 Y Y Y Y Y Y Y Y
</TABLE>
- -------------------------
(1) Includes putting green and practice bunkers.
Indian Lakes and Nordic Hills ("The Chicago Resorts") -- Greater
Chicago Area. The Chicago Resorts are two of the few major resort
properties located within a major metropolitan area in the midwestern
United States. The Chicago Resorts are located approximately 12 miles from
O'Hare International Airport, the world's busiest airport. This proximity
to O'Hare and downtown Chicago, coupled with the Chicago Resorts' extensive
conference, golf and recreational facilities makes the Chicago Resorts
extremely attractive to corporate users. Approximately 70% of guests are
drawn by corporate and association group meetings with vacationer, tourist
and recreational hotel users comprising the balance of the Chicago Resorts'
demand. The Initial Lessee of The Chicago Resorts is an affiliate of
Montclair, which has managed the resorts since August 1995.
Indian Lakes is a 308-room mid-market resort consisting of eight
buildings situated on 271 acres of rolling terrain in Bloomingdale,
Illinois. Indian Lakes is traversed by two 18-hole par 72 golf courses
designed by Robert Bruce Harris, six tournament class outdoor plexichrome
tennis courts, one indoor and one outdoor pool, and cross-country ski
trails. The hotel is connected to a clubhouse, three restaurants, three
lounges, a complete health club and approximately 52,000 square feet of
convention and banquet facilities. Indian Lakes was completed in 1980, was
substantially renovated in 1987, and has been awarded the Gold Key and AAA
Four Diamond awards, among others.
Nordic Hills is a 220-room mid-market resort located approximately
four miles northeast of Indian Lakes in Itasca, Illinois. Nordic Hills
contains seven buildings situated on 102 acres including an 18-hole golf
course designed and built in 1927. Nordic Hills contains approximately
26,000 square feet of meeting and convention facilities, two restaurants,
three lounges, three tennis courts, eight racquetball courts, six bowling
lanes, a complete health club and one indoor and one outdoor swimming pool.
The resort was built in phases between 1972 and 1976 and underwent an
extensive guest room renovation in 1985. Nordic Hills has been awarded the
AAA Four Diamond Award, The Mobil Travel Guide Three Star Award, and
Successful Meeting's Pinnacle Award.
As of December 31, 1997, each of the Chicago Resorts had a book value of at
least 10% of the pro forma total assets of the Company and accounted for more
than 10% of the Company's pro forma 1997 aggregate gross revenues. No other Golf
Course had a book value as of December 31, 1997 equal to 10% or more of the pro
forma total assets of the Company as of such date, and no other Golf Course
accounted for 10% or more of the Company's pro forma aggregate gross revenues
for the year ended December 31, 1997.
70
<PAGE> 79
The following tables set forth certain information relating to the Chicago
Resorts for each of the last five years:
<TABLE>
<CAPTION>
INDIAN LAKES (TWO GOLF COURSES)
-------------------------------------------------------------------------------------
AVERAGE AVERAGE GOLF ROOMS TOTAL NET OPERATING
YEAR OCCUPANCY(1) DAILY RATE(2) REVENUE(3) REVENUE(4) REVENUE(5) INCOME
---- ------------ ------------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
1993................. 65.7% $81.84 $1,748,531 $6,028,444 $17,727,830 $3,644,497
1994................. 65.4% 88.34 2,006,717 6,495,297 18,516,726 3,602,258
1995(6).............. 61.3% 88.38 1,777,896 6,079,886 17,061,446 2,513,072
1996................. 57.9% 93.09 1,886,118 6,072,445 16,415,604 3,726,192
1997................. 57.4% 97.93 2,212,266 6,318,525 17,247,665 4,151,173
</TABLE>
<TABLE>
<CAPTION>
NORDIC HILLS
-------------------------------------------------------------------------------------
AVERAGE AVERAGE GOLF ROOMS TOTAL NET OPERATING
YEAR OCCUPANCY(1) DAILY RATE(2) REVENUE(3) REVENUE(4) REVENUE(5) INCOME
---- ------------ ------------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
1993................. 57.3% $70.57 $ 946,285 $3,236,437 $ 9,171,245 $ 508,024
1994................. 60.3% 73.40 1,038,501 3,563,940 9,747,312 610,366
1995(6).............. 54.6% 77.52 785,167 3,393,614 8,652,001 358,973
1996................. 47.3% 86.05 974,372 3,275,141 8,778,546 1,303,119
1997................. 54.6% 93.93 1,199,995 4,142,520 11,141,647 2,549,615
</TABLE>
- -------------------------
(1) Average Occupancy is based upon total number of paid rooms (excluding rooms
for which no charge has been made) divided by total number of available
rooms.
(2) Average Daily Rate is calculated using paid occupied rooms.
(3) Golf Revenue generally is defined as all revenues from a golf course,
including green fees, golf cart rentals, range fees, membership dues, member
initiation fees and transfer fees (included on a cash basis); excluding,
however, food and beverage and merchandise revenue. See "Glossary."
(4) Rooms Revenue generally is defined as all revenues from the renting of hotel
rooms at the Golf Course resort properties. See "Glossary."
(5) Total Revenue means all revenue from a property, including green fees, golf
cart rentals, range fees, membership dues, member initiation fees (included
on a cash basis), hotel room revenues, transfer fees, food and beverage and
merchandise revenue.
(6) Management assumed by Montclair in August 1995.
The Participating Leases relating to the Chicago Resorts are substantially
similar to the other Participating Leases, except that Participating Rent is
equal to 22% of any increase in Rooms Revenue over a designated Rooms Revenue
amount, in addition to 30% of any increase in Gross Golf Revenue over a
designated baseline Gross Golf Revenue amount, plus 5% of any increase in Other
Revenue over a designated baseline Other Revenue amount. In addition, the Base
Rent Escalator with respect to the Chicago Resorts is equal to an annual
compounding increase to the initial Base Rent equal to the lesser of (i) 3% or
(ii) 100% of the change in the Consumer Price Index for the prior year, and the
Capital Replacement Fund (as herein defined) is based upon capital expenditures
of at least 4% of gross revenues. See "The Participating Leases."
At December 31, 1997, the Company had on a pro forma basis an aggregate
cost basis of $40.3 million and $22.2 million in Indian Lakes and Nordic Hills,
respectively. Depreciation is calculated using the straight line method over the
estimated useful lives of the assets, which for the buildings at Indian Lakes
and Nordic Hills is 30 years (resulting in a rate of 3.3% per year) and for the
improvements is 15 years (resulting in a rate of 6.7% per year). The 1997 real
estate tax rate on Indian Lakes is $70.42 per $1,000 of assessed value and for
Nordic Hills is $64.38 per $1,000 of assessed value. Estimated 1997 real estate
taxes are $403,500 for Indian Lakes and $122,000 for Nordic Hills.
Courses Under Contract
The Company has entered into definitive agreements to purchase three golf
courses for an aggregate purchase price of $56 million. However, each of these
agreements is subject to the Company's right, in its sole and absolute
discretion, to terminate the agreements in the event that certain conditions are
not satisfied, including, but not limited to, the satisfactory completion of the
Company's due diligence efforts. As the
71
<PAGE> 80
Company has not yet completed its due diligence efforts with respect to such
courses, the Company believes that such acquisitions are not probable at this
time.
BRAND AFFILIATIONS
The Company believes that by applying branding strategies, and thereby
differentiating its courses from competing courses, a golf course can achieve a
premium to the green fees and an increase in the level of customer loyalty in
comparison to courses that are not branded. Branding strategies that are
currently employed in certain of the Golf Courses include (i) using an easily
recognizable name, such as the name "Arnold Palmer Managed Golf Course" in
conjunction with the course name; and (ii) operating the course based on
specific unique "themed" concepts, such as the university affiliation concept
employed at courses developed by University Clubs.
Palmer Management License Agreement. Fox Valley, Oronoque, Memphis National
(two courses), Crofton, Brierwood, Tan Tara, Emerald Valley, Penderbrook and
Minebrook are (or will be) operated under the Arnold Palmer Managed Golf
Course(SM), Arnold Palmer Managed Country Club(SM) or Arnold Palmer Managed Golf
Club(SM) brand affiliations. Palmer Management has entered into a License
Agreement with Palmer Enterprises, a minority shareholder of Palmer Management
and the owner of the "Arnold Palmer" mark and name and certain variations
thereof, such as "Arnold Palmer Managed Country Club," "Arnold Palmer Managed
Golf Course," "Arnold Palmer Managed Golf Club," "Arnold Palmer Managed Golf
Resort," the umbrella logo and others (collectively, the "Marks"). The License
Agreement permits Palmer Management to use the Marks in a specified manner in
connection with its management of certain golf facilities approved by Palmer
Enterprises (e.g., "Crofton Country Club, an Arnold Palmer Managed Country
Club"). The License Agreement does not permit the use of any of the Marks as a
course name. The License Agreement specifies certain operational quality control
standards and procedures with which Palmer must comply in connection with its
management of a course. Subject to the right of Palmer Enterprises to terminate
the License Agreement at an earlier time, as hereinafter discussed, the License
Agreement currently will terminate in 2010, but is extended by one year on an
annual basis upon Palmer Management's achievement of certain performance
standards. The License Agreement may be terminated at the option of Palmer
Enterprises upon the occurrence of certain events, including (i) Palmer
Management's failure to pay royalties and fees or otherwise perform its
obligations under the License Agreement; (ii) a change in control or bankruptcy
of Palmer Management; and/or (iii) certain other events. In the event of
termination of the License Agreement, a golf course may continue to be operated
under its local course name. As the Company is not a party under the License
Agreement, the Company will have no rights thereunder. See "Risk Factors -- Golf
and Hospitality Industry Risks" and "-- Absence of Rights Under, or Control
Over, Brand License."
University Clubs. The University Club of South Carolina ("UCSC") was
developed by University Clubs, which seeks to create "themed" country clubs
located near, and affiliated with, university campuses. UCSC amenities include a
clubhouse, facilities for outdoor parties, reception and picnic areas and a
welcome center. UCSC is marketed to athletic booster club members, alumni,
faculty, students, coaches and supporters of University of South Carolina
("USC"). USC has (i) provided UCSC with access to mailing lists of the USC
alumni association, athletic booster clubs, corporate donors, and benefactors
for purposes of membership solicitation; (ii) included information concerning
UCSC in official publications of the university; and (iii) otherwise promoted
and encouraged membership in the club. Pursuant to an agreement between
University Clubs and USC, UCSC is the designated golf course of the USC golf
teams and USC will seek to host South East Conference and NCAA golf events at
UCSC. USC also assists UCSC with marketing the club. University Clubs pays
royalties to USC equal to 5% of the initiation fees and 3% of gross membership
dues paid to UCSC and allows the men's and women's golf teams of USC to use the
course facilities at no cost to them. UCSC is the first facility developed by
University Clubs that employs the university affiliation concept. University
Clubs has four additional clubs under various stages of development.
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COMPETITION
The Golf Courses are, and any additional golf courses and related
facilities acquired by the Company will be, subject to competition for players
and members from other golf courses located in the same geographic areas. The
number and quality of golf courses in a particular area could have a material
effect on the revenues of the Golf Courses. In addition, revenues of the Golf
Courses will be affected by a number of factors including the demand for golf
and general economic conditions. In addition, the Company will be subject to
competition for the acquisition of golf courses and related facilities with
other purchasers of golf courses, including other golf course acquisition
companies.
The Company believes that the Chicago Resorts, 70% of the guests of which
are drawn by corporate and association group meetings held at such resorts,
represent two of the few major resort properties located within a major
metropolitan area in the midwestern United States. The Company further believes
that the market in which the Chicago Resorts operate contains barriers to entry,
including high cost of land acquisition and assembly and the difficulty in
obtaining building permits.
LEGAL PROCEEDINGS
Owners and operators of golf courses are subject to a variety of legal
proceedings arising in the ordinary course of operating a golf course, including
proceedings relating to personal injury and property damage. Such proceedings
are generally brought against the operator of a golf course, but may also be
brought against the owner. The Prior Owners have represented to the Company that
each Golf Course contributed by such prior owner currently is not subject to any
material legal proceedings. The Participating Leases provide that each Initial
Lessee is responsible for claims based on personal injury and property damage at
the Golf Courses it leases and require each Initial Lessee to maintain insurance
for such purposes. See "The Participating Leases" and "Risk Factors -- Real
Estate Risks -- Uninsured Losses."
GOVERNMENT REGULATION
Environmental Matters. Operations at the Golf Courses involve the use,
storage and disposal of various hazardous materials such as herbicides,
pesticides, fertilizers, motor and heating oil, gasoline and waste oil. Under
various federal, state and local laws, ordinances and regulations, an owner or
operator of real property may become liable for the costs of removal or
remediation of certain hazardous materials released on or in its property.
Environmental laws may also impose restrictions on the manner in which a
property may be used or transferred or in which businesses may be operated, and
these restrictions may require expenditures. Such laws often impose such
liability without regard to whether the owner or operator knew of, or was
responsible for, the release of such hazardous materials. The presence of such
materials, or the failure to remediate such materials properly, may adversely
affect the owner's ability to sell such real estate or to borrow using such real
estate as collateral. Under environmental laws, persons who arrange for the
disposal of hazardous materials may also be liable for the costs of
investigation, removal or remediation of such materials at the disposal or
treatment facility, regardless of whether such facility is owned or operated by
such person.
Environmental laws also govern the presence, maintenance and removal of
asbestos-containing building materials ("ACBM"). These laws require that ACBM be
properly managed and maintained, that those who may come into contact with ACBM
be adequately apprised or trained and that special precautions, including
removal or other abatement, be undertaken in the event ACBM would be disturbed
during renovation or demolition of a building. These laws may impose fines and
penalties on owners and operators for failure to comply with these requirements
and may allow third parties to seek recovery from owners and operators for
personal injury and property damage associated with exposure to asbestos fibers.
Environmental laws also impose requirements with respect to wetlands.
Pursuant to those laws, certain activities in and around wetlands, including,
but not limited to, development and/or improvement of real property, may require
prior governmental approval. Failure to obtain such approval may delay or hinder
development and result in fines and penalties. All of the Golf Courses have been
subjected to a Phase I environmental assessment by an independent environmental
consultant. The Phase I environmental assessments typically include a visual
inspection of the Golf Courses and the surrounding areas, an examination of
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current and historical uses of the Golf Courses and the surrounding areas, and a
review of relevant state, federal and historical documents. Where deemed
appropriate by the Company, on a property-by-property basis, additional testing
was conducted where past or present site usages create a potential for site
impact, including soil and groundwater contamination. No assurance can be given,
however, that these reports reveal all potential environmental liabilities, that
no prior or adjacent owner or operator created any material environmental
condition not known to the Company or the independent consultant or that future
uses or conditions (including, without limitation, changes in applicable
environmental laws and regulations) will not result in imposition of
environmental liability to the Company. Ground water monitoring is being
performed at one of the Golf Course sites, in conjunction with a state
environmental agency, to assess potential impact from a release of gasoline from
an underground storage tank that was removed from such Golf Course in April
1996. Recently, such monitoring indicated increases in contaminant levels and
some migration of such contaminants within the property. Additional
investigations are currently being performed to determine the potential source
of the increased levels (which may be from an existing underground storage tank
located on an adjacent property not owned by the Company) and to ascertain an
appropriate remediation alternative. If contaminants were to migrate onto an
adjacent property, the owners and residents of such property could seek to hold
the Company, and any other potentially responsible party, liable. Palmer
Management has agreed to indemnify the Company against any third-party liability
arising from the presence of such contaminant and for all costs incurred in
remediation. In addition, the Participating Leases provide that the Initial
Lessees will indemnify the Company for certain potential environmental
liabilities at the Golf Courses. However, certain Initial Lessees are
newly-formed entities and may lack sufficient capitalization in the event
indemnification is necessary. Moreover, there can be no assurance that if
recourse to such indemnities becomes necessary, they will not be contested. See
"The Golf Courses -- Government Regulation."
Americans with Disabilities Act. The Golf Courses are subject to the ADA.
The ADA has separate compliance requirements for "public accommodations" and
"commercial facilities" but generally requires that public facilities such as
clubhouses and recreation areas be made accessible to people with disabilities.
These requirements became effective in 1992. Compliance with the ADA
requirements could require removal of access barriers and other capital
improvements at the Golf Courses. Noncompliance could result in imposition of
fines or an award of damages to private litigants. Under the Participating
Leases, the Initial Lessees will be responsible for any costs associated with
ADA compliance.
INITIAL LESSEES
Prior to the completion of the Offering, the Golf Courses were owned (or
leased pursuant to long-term ground leases) and operated by the Prior Owners,
each of which is an affiliate of an Initial Lessee. The Initial Lessees, each of
which is a newly-formed special purpose entity, will operate the Golf Courses
under the Participating Leases with the Company. See "The Participating Leases."
The Initial Lessees are controlled by or otherwise affiliated with Palmer
Management, Montclair, University Clubs and HMS. The Participating Leases
provide that the Initial Lessees will derive revenues from the operation of golf
courses principally through receipt of green fees, membership dues and
initiation fees, rooms revenue, food and beverage operations, sale of
merchandise, membership dues, golf cart rentals and driving range charges. See
"The Participating Leases." Each Initial Lessee has developed sophisticated
operating systems and procedures in all areas of golf course operations that the
Company believes enable it to provide high quality service and products to its
customers.
PALMER MANAGEMENT
The successor to a business founded by golf legend Arnold Palmer in 1984,
Palmer Management is a leading owner-operator of high quality golf courses and
golf schools. Since its inception, Palmer Management has managed over 40 quality
daily fee, private, resort and municipal courses. Palmer Management provides
significant expertise in all areas of golf club operations, including
accounting, marketing, finance, operations, food and beverage, maintenance, and
human resources. In addition to golf course management, companies owned by Mr.
Palmer, operating under license from Palmer Enterprises or companies on whose
Board Mr. Palmer serves, also are leaders in the businesses of golf course
design, golf licensing and endorsements,
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golf tournament services, golf equipment and apparel, and golf broadcasting.
Palmer Management currently owns, leases, manages or franchises 25 golf courses
throughout the United States and Europe. Palmer Management's golf facilities
generally are operated under the "Arnold Palmer Managed Golf Course" trademark.
Palmer Management also operates golf schools, a business acquired from Arnold
Palmer Academies, Inc. in March 1998, at five facilities under the "Arnold
Palmer Golf Academy" trademark. Upon consummation of the Offering, the executive
officers of Arnold Palmer Golf Management LLC ("APGM") will be Joe Redling,
President; William Hunscher, Vice President; and Bryan Noreen, Secretary and
Treasurer. The members of the board of managers of APGM are Arnold D. Palmer,
John R. Muse, David B. Deniger, Hal R. Hall, Michael G. Medzigian, Kyle Craig
and Peter J. Nanula. Although Mr. Palmer is a member of the board and an equity
owner of APGM, he is not a trustee, officer or employee of the Company. The
Initial Lessees of 10 Golf Courses at nine locations, which collectively account
for 47.2% of the total initial Base Rent payments to the Company, are controlled
by Palmer Management.
MONTCLAIR
Montclair Hotel Investors, Inc. is a hotel and resort investment and
management company based in suburban Chicago. The managing partners of Montclair
are Peter Cyrus and Dennis Langley, who have managed hotel portfolios with
values in excess of $3 billion and have been involved with the management and
ownership of numerous prominent golf and hospitality investments including the
Boca Raton Resort and Club, the Arizona Biltmore, RockResorts, the Four Seasons
Las Colinas (Dallas, Texas), the Lansdowne Conference Resort (Washington, D.C.)
and the Hyatt Grand Champions (Palm Desert, California), as well as mid-market
properties including a portfolio of 24 Holiday Inns. Messrs. Langley and Cyrus
formed Montclair in 1995. The Initial Lessee of Indian Lakes Resort and Nordic
Hills Resort, which collectively account for 42.5% of the total initial Base
Rent payments to the Company, is controlled by Montclair and Olympus.
UNIVERSITY CLUBS
University Clubs of America LLC seeks to develop and operate "themed"
country clubs located near, and affiliated with, universities in order to
capitalize on the golf demand from the schools' alumni, supporters, students and
faculty. UCSC is the first facility developed by University Clubs that employs
the university affiliation concept. University Clubs has four additional clubs
under various stages of development at major universities. University Clubs
seeks access to mailing lists of the alumni associations, athletic booster
clubs, corporate donors, and benefactors for purposes of membership
solicitations. The Initial Lessee of UCSC, which accounts for 4.1% of the total
initial Base Rent payments to the Company, is controlled by University Clubs.
HMS
HMS Golf Management, Inc., an affiliate of which will be the Initial Lessee
of the Towne Lake Hills Golf Club, is a full-service golf management company
that has focused its efforts on the development and operation of residential
golf courses and country clubs in the Southeastern United States. Founded by PGA
professionals Jim Haslam and Brooks Simmons, both of whom have over 20 years of
experience in the golf business, HMS has participated in various aspects of the
development of over 15 golf course projects, including semi-private and private
clubs. The management team of HMS has over 75 years of combined experience
operating over 20 courses. The Initial Lessee of Towne Lake Hills Golf Club,
which accounts for 6.2% of the total initial Base Rent payments to the Company,
is controlled by HMS.
ADVISORY COMMITTEE
The Advisory Committee will serve as a liaison between the Company and the
Lessees. The Advisory Committee will initially consist of three groups of
members: (i) one member representing the Company; (ii) a representative of each
Lessee or group of affiliated Lessees that leases golf courses with a total of
more than $1.5 million in annual Base Rent payments; and (iii) at least two
other members representing, on a rotating basis, all other Lessees.
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The Advisory Committee will participate in the cross-marketing of the Golf
Courses which, at a minimum, will consist of identifying each course as owned by
the Company, thereby increasing the golfing consumer's brand name awareness of
the Company. The Advisory Committee also may advise and assist Lessees with
regard to best practices and information, programs and techniques that can
improve operations at each property, including joint buying programs that will
afford Lessees with greater purchasing power, revenue generating ideas,
agronomic research, pace of play control measures, and joint affinity/card
programs to help increase play frequency and customer loyalty.
THE PARTICIPATING LEASES
The following summary of the Participating Leases between the Company and
the Initial Lessees is qualified in its entirety by reference to the
Participating Leases, a form of which is filed as an exhibit to the Registration
Statement, of which this Prospectus is a part. The following description of the
Participating Leases does not purport to be complete but contains a summary of
the material provisions thereof.
Substantially all of the Participating Leases will contain the same basic
provisions described below. See "The Golf Courses -- Descriptions of the Golf
Courses" for a description of certain provisions contained in the Participating
Leases relating to Indian Lakes Resort and Nordic Hills Resort. The leases for
any golf course properties acquired by the Company in the future will contain
such terms and conditions as may be agreed upon between the lessee and the
Company at the time of such acquisitions, and such terms and conditions may vary
from the terms and conditions described herein with respect to the Participating
Leases. The Company expects that any new leases will be with either existing
Initial Lessees, affiliates of sellers of courses or unaffiliated third parties
experienced in the operation of similar courses.
LEASE TERM
The Participating Leases will be entered into upon completion of the
Offering. The Company's interest in each Golf Course includes the land,
buildings and improvements, related easements and rights, and certain fixtures,
furnishings and equipment (collectively, the "Leased Property"). Each Golf
Course will be leased to the respective Initial Lessee under a Participating
Lease that will have a primary term of 15 years (the "Fixed Term"). In addition,
each Initial Lessee will have options to extend the term of each Participating
Lease (the "Extended Terms") for between two and five terms of five years each,
subject to earlier termination upon the occurrence of certain defaults described
in the Participating Lease.
USE OF THE GOLF COURSES
Each Participating Lease permits the Initial Lessee to operate the Leased
Property as a golf course, along with a clubhouse and other activities
customarily associated with or incidental to the operation of a golf course and
other facilities located at the golf course, including, where applicable,
swimming and tennis operations. Operations may include sale or rental of
golf-related merchandise, sale of memberships, furnishing of lessons, operation
of practice facilities, and sales of food and beverages, including liquor sales.
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BASE RENT; PARTICIPATING RENT
The initial Base Rent for each of the Golf Courses is set forth below:
<TABLE>
<CAPTION>
NAME LOCATION INITIAL BASE RENT(1)
---- -------- --------------------
<S> <C> <C>
Indian Lakes Resort (two Golf Courses)(2)........ Bloomingdale, IL $ 3,979,000
Nordic Hills Resort(2)........................... Itasca, IL 2,188,000
Fox Valley Club.................................. Lancaster, NY 1,130,000
Oronoque Country Club............................ Stratford, CT 1,060,000
Memphis National Golf Club (two Golf Courses).... Collierville, TN 1,057,000
Crofton Country Club............................. Crofton, MD 919,000
Towne Lake Hills Golf Club....................... Woodstock, GA 900,000
Brierwood Country Club........................... Hamburg, NY 854,000
University Club of South Carolina................ Blythewood, SC 600,000
Tan Tara Golf Club............................... North Tonawanda, NY 536,000
Emerald Valley Golf Club......................... Creswell, OR 496,000
Penderbrook Golf Club............................ Fairfax, VA 453,000
Minebrook Golf Club.............................. Hackettstown, NJ 345,000
-----------
TOTAL......................................................................... $14,517,000
===========
</TABLE>
- -------------------------
(1) In addition to Base Rent, beginning in 1999, Participating Rent may be
payable by the Initial Lessees. Participating Rent is calculated based on
increases in the Gross Golf Revenue from a base year of 1998 as adjusted.
Consequently, no calculation of Participating Rent is included above.
(2) The Chicago Resorts are leased pursuant to a single Participating Lease.
The Participating Leases provide for the Company to receive, with respect
to each Golf Course, the greater of (1) the initial Base Rent plus the Base Rent
Escalator or (2) the initial Base Rent plus the Participating Rent.
Participating Rent generally is equal to 30% of any increase in Gross Golf
Revenue over a designated baseline Gross Golf Revenue amount, plus, in the case
of Golf Course resort properties, 5% of any increase in Other Revenue over a
designated baseline Other Revenue amount. With respect to Indian Lakes Resort
and Nordic Hills Resort, Participating Rent also includes 22% of any increase in
Rooms Revenue over a predetermined Rooms Revenue amount for a defined base year.
Base Rent Escalator is equal to an annual compounding increase to the initial
Base Rent equal to the lesser of (i) 3% or (ii) 200% (100% with respect to the
Chicago Resorts) of the change in the Consumer Price Index for the prior year.
"Gross Golf Revenue" is generally defined as all revenues from a Golf Course
including green fees, golf cart rentals, range fees, membership dues, membership
initiation fees and transfer fees, excluding, however, food and beverage and
merchandise revenue. "Rooms Revenue" is generally defined as all revenue from
renting hotel rooms at the Golf Course resort properties. "Other Revenue" is
generally defined as all revenues other than Gross Golf Revenue, and shall
include food and beverage and merchandise revenue. Base Rent and Base Rent
Escalator is required to be paid at varying percentages on a monthly basis, in
arrears, on the first day of each calendar month, and Participating Rent (if
any) is payable quarterly in arrears.
TRIPLE NET LEASES
The Participating Leases are structured as triple net leases under which
each Initial Lessee will be required to pay all real estate and personal
property taxes, insurance, utilities and services and other operating expenses.
The Company also has the right, in certain circumstances, to collect impound
deposits from the Initial Lessees to cover anticipated real estate tax and
insurance charges. See "-- Maintenance and Modifications" and "-- Insurance."
SECURITY DEPOSIT
As security for an Initial Lessee's obligations under the Participating
Leases, each Initial Lessee generally will pledge (or, if applicable, each prior
owner of each Golf Course will pledge, on behalf of its affiliated Initial
Lessee) OP Units, letters of credit, cash or other collateral acceptable to the
Company with a value initially being in an amount equal to 12 months of the
initial Base Rent (with OP Units valued at the Offering Price). Beginning on the
commencement date of each Participating Lease and any time thereafter (based
upon
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trailing 12-month calculations performed at the end of each fiscal quarter), 50%
of pledged OP Units or other collateral will be released if the net operating
income with stated adjustments ("EBITDA") to lease payment coverage ratio (the
"Coverage Ratio") of the Initial Lessee for the prior 12-month period equals or
exceeds 120% and 130%, respectively. With respect to the Participating Leases
relating to the Golf Courses leased to Palmer Management and University Clubs,
one-third of pledged OP Units or other collateral will be released if the
Coverage Ratio of the Initial Lessee for the prior 12-month period equals or
exceeds 120%, 130% and 140%, respectively. If the Coverage Ratio thereafter
falls below the foregoing levels, the respective released security deposit
amount will be reinstated. In addition, the Participating Leases with Palmer
Management will be cross-collateralized and cross-defaulted such that a default
under one Participating Lease is also a default under all Participating Leases
with the same Lessee. Accordingly, either such Lessee's failure to make required
lease payments under any of the Participating Leases which are cross-defaulted
will allow the Company to terminate any or all of the Participating Leases to
which such Lessee is a party. However, Palmer Management is under no obligation
to pay such Lessee's rent or other payments due under the Participating Lease,
except with respect to potential indemnification regarding certain environmental
matters. The Company intends to utilize similar cross-default provisions when
leasing multiple properties to a single Lessee in the future. Indian Lakes
Resort and Nordic Hills Resort will be leased pursuant to a single Participating
Lease.
MAINTENANCE AND MODIFICATIONS
Each Initial Lessee will, at its sole cost and expense, maintain and
operate its respective Leased Property in good order, repair and appearance and
will make structural and non-structural, interior and exterior foreseen and
unforeseen, and ordinary and extraordinary repairs which may be necessary and
appropriate to keep such Leased Property in good order, repair and appearance.
Each Initial Lessee will also maintain each Golf Course it leases in a
first-class condition and otherwise in accordance with reasonable standards
established by the Company from time to time.
Each Initial Lessee is required to pay for all capital expenditures at a
level of no less than 3% of Golf Course Revenue and Other Revenue at the subject
Golf Course. If any Initial Lessee fails to expend such required amount, in any
defined period, such Initial Lessee will establish and maintain with respect to
such Golf Course, on a periodic basis, a capital improvement reserve (a "Capital
Replacement Fund") in an amount equal to the excess of (i) at least 3% of Gross
Golf Revenue and Other Revenue (4% of gross revenue with respect to the Chicago
Resorts) at such Golf Course (i.e., depending on certain factors, including the
condition of the structures and the age and condition of the Golf Course), over
(ii) capital expenditures by the Initial Lessees for capital improvements
approved by the Company during the measuring period. The Company and each
Initial Lessee will agree on the use of funds in these reserves and the Company
has the right to request reasonable modifications to each Initial Lessee's
annual capital expenditure budgets. Funds in the Capital Replacement Fund shall
be paid to an Initial Lessee to reimburse such Initial Lessee for expenditures
made in connection with capital improvements approved by the Company. All
amounts in the Capital Replacement Fund will be pledged to the Company as
additional security during the term of the Participating Lease and any remaining
amounts at the expiration of the applicable Participating Lease will be retained
by the Company.
The Company will not be required to build or rebuild any improvements on
any Leased Property, or to make any repairs, replacements, alterations,
restorations or renewals of any nature or description to any Leased Property,
whether ordinary or extraordinary, structural or non-structural, foreseen or
unforeseen, or to make any expenditure whatsoever with respect thereto, in
connection with any Participating Lease, or to maintain any Leased Property in
any way.
During the Fixed Term and each Extended Term, the Initial Lessee may make
alterations, additions, changes and/or improvements ("Initial Lessee
Improvements") to its Leased Property after first obtaining the Company's prior
written consent, which consent will not be unreasonably withheld. Any such
Initial Lessee Improvements shall be made at the Initial Lessee's sole cost and
expense (subject to use of the Capital Replacement Fund as described above). All
such Initial Lessee Improvements will be subject to all the terms
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and provisions of each applicable Lease and will become the property of the
Company upon termination of such Participating Lease.
INSURANCE
Each Initial Lessee will maintain insurance on each Leased Property it
leases under insurance policies providing for all-risk, liability, flood (in
such amounts as may be customary for comparable golf course facilities in the
area) and worker's compensation, together with any other insurance required by
the Company or its mortgagee. Each insurance policy will name the Company as
additional insured or loss payee, as applicable. The Company may, in certain
instances, have the right to procure certain insurance coverages on the Initial
Lessee's behalf as part of blanket insurance policies maintained by the Company,
in which event the Initial Lessee will pay the Company its allocated share of
the cost thereof.
ASSIGNMENT AND SUBLETTING
Except in limited circumstances, an Initial Lessee may not, without the
prior written consent of the Company (which consent may be withheld by the
Company in its sole discretion, except in limited instances), assign, mortgage,
pledge, hypothecate, encumber or otherwise transfer any Participating Lease or
any interest therein, all or any part of the Leased Property or suffer or permit
any lease or the leasehold estate created thereby or any other rights arising
under any Participating Lease to be assigned, transferred, mortgaged, pledged,
hypothecated or encumbered, in whole or in part, whether voluntarily,
involuntarily or by operation of law. An assignment of a Participating Lease
will be deemed to include any change of control of such Initial Lessee, as if
such change of control were an assignment of the Participating Lease. Each
Initial Lessee shall have the right to assign its Participating Lease to its
affiliates in certain circumstances as described in the respective Participating
Lease. In addition, Initial Lessees controlled by Palmer Management or by
Montclair may, subject to the Company's consent which may not be unreasonably
withheld, transfer their Initial Lessee's interest to a transferee that assumes
the Initial Lessee's obligation under the Lease and acquires the Initial
Lessee's interest of all affiliated Lessees, provided the transferee satisfies
specified financial and operating criteria, which at a minimum are comparable to
those required to be met by the current Lessee. With respect to transferees of
Palmer Management's lease obligations, the transferee (including certain
guarantors and affiliates thereof as specified in the Lease) must have a net
worth of at least $30 million and must manage or operate at least 30 golf
courses at the time of the prospective assignment.
Each Initial Lessee may, with the Company's prior approval, which approval
will not be unreasonably withheld, be permitted to sublease portions of any
Leased Property to sublessees to operate portions of the operations customarily
associated with or incidental to the operation of a golf course (e.g., driving
range, restaurant, etc.).
INITIAL LESSEE'S RIGHT OF FIRST OFFER
If the Company desires to sell a Golf Course, it must first offer the
Initial Lessee of such course the right to purchase the Golf Course. The Company
must give the relevant Initial Lessee written notice of its intent to sell,
which shall indicate the terms and conditions upon which the Company intends to
sell such Golf Course. Such Initial Lessee shall thereafter have a period of
between 21 and 30 days to elect to purchase the Golf Course on the terms and
conditions at which the Company proposes to sell the Golf Course. If such
Initial Lessee elects not to purchase the Golf Course, then the Company shall be
free to sell the Golf Course to a third party, which will acquire the Golf
Course subject to the Participating Lease. However, if the Company does not
close on the sale to a third party within 180 days following the Initial
Lessee's 21 to 30-day election period (as such period may be extended in limited
circumstances), or if the Company decreases the purchase price by more than 10%
from that offered to the Initial Lessee, then the Initial Lessee will again have
a first offer right with respect to the subject Golf Course.
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DAMAGE TO A LEASED PROPERTY
In the event of damage to or destruction of any Leased Property, the
Initial Lessee will be obligated to diligently restore the Leased Property to
substantially the same condition as existed immediately prior to such damage or
destruction and, to the extent the insurance proceeds are insufficient to do so,
such Initial Lessee will be obligated to contribute the excess funds needed to
restore the Leased Property. Any excess insurance proceeds will be paid to the
Company and to the Initial Lessee in like proportions to the value of the
Company's interest in the Leased Property and the Initial Lessee's interest in
personal property. Notwithstanding the foregoing, in the event the damage or
destruction of the Leased Property occurs during the last two years of the lease
term and cannot be repaired or restored by the date which is one year prior to
the end of the lease term, then the Initial Lessee or the Company may terminate
the Participating Lease.
INDEMNIFICATION GENERALLY
Under each Participating Lease, the Initial Lessee will agree to indemnify,
and is obligated to hold harmless, the Company from and against all liabilities,
obligations, claims, damages, penalties, causes of action, costs and expenses
(including reasonable attorneys' fees and expenses) imposed upon or asserted
against the Company as owner of the applicable Leased Property on account of,
among other things, (i) any accident, injury to or death of a person or loss of
or damage to property on or about the Leased Property, (ii) any use, non-use,
condition, maintenance or repair, by such Initial Lessee of the Leased Property,
(iii) any impositions (which are the obligations of the relevant Initial Lessee
to pay pursuant to the applicable provisions of such Participating Lease), (iv)
any failure on the part of the Initial Lessee to perform or comply with any of
the terms of the Participating Lease or any sublease, (v) any taxes levied
against the Leased Property, and (vi) any liability the Company may incur or
suffer as a result of any permitted contest by the Initial Lessee under any
Participating Lease. In addition, Palmer Management has agreed to indemnify the
Company against any third-party liability arising from the presence of any
hazardous materials identified in environmental reports existing at the time of
the closing of the Offering and for all costs incurred in remediation of such
hazardous materials.
EVENTS OF DEFAULT
Events of Default are defined in each Participating Lease to include, among
others, the following:
(i) if an Initial Lessee fails to make a rent payment when such
payment becomes due and payable and such failure is not cured by such
Initial Lessee within a period of 10 days after receipt of written notice
thereof from the Company;
(ii) if an Initial Lessee fails to observe or perform any material
term, covenant or condition of a Participating Lease and such failure is
not cured by such Initial Lessee within a period of 30 days after receipt
by such Initial Lessee of written notice thereof from the Company, unless
such failure cannot with due diligence be cured within a period of 30 days,
in which case such failure will not constitute an Event of Default if such
Initial Lessee proceeds promptly and with due diligence to cure the
failure, and diligently completes the curing thereof within 90 days;
(iii) if an Initial Lessee: (a) admits in writing its inability to pay
its debts generally as they become due, (b) files a petition in bankruptcy
or a petition to take advantage of any insolvency act, (c) makes an
assignment for the benefit of its creditors, (d) consents to the
appointment of a receiver for itself or of the whole or any substantial
part of its property, or (e) files a petition or answer seeking
reorganization or arrangement under the federal bankruptcy laws or any
other applicable law or statute of the United States of America or any
state thereof;
(iv) if the Initial Lessee is liquidated or dissolved;
(v) if the Initial Lessee voluntarily ceases operations on the Leased
Property, except as a result of damage, destruction or a partial or
complete condemnation or other unavoidable delays; or
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(vi) if the Initial Lessee or an affiliate thereof is in default under
any other Participating Lease with the Company.
If an Event of Default occurs and is continuing under a Participating
Lease, then the Company may terminate the Participating Lease by giving the
Initial Lessee not less than 10 days notice (only if required by the
Participating Lease) of such termination and upon the expiration of such time,
the Fixed or Extended Term, as the case may be, will terminate and all rights of
the Initial Lessee under the Participating Lease shall cease.
Each Participating Lease with an Initial Lessee controlled by Palmer
Management will be cross-collateralized and cross-defaulted with all other
Participating Leases with an Initial Lessee controlled by Palmer Management.
Indian Lakes Resort and Nordic Hills Resort will be leased pursuant to a single
Participating Lease.
GOVERNING LAW
The Participating Leases will be governed by and construed in accordance
with the law of the state where the Golf Course is located. Because the Golf
Courses are located in various states, the Participating Leases may be subject
to additional restrictions imposed by applicable local law.
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MANAGEMENT
TRUSTEES AND EXECUTIVE OFFICERS
David B. Deniger and Peter J. Nanula currently are the only trustees of the
Company. The Board of Trustees of the Company will be expanded upon consummation
of the Offering to include the proposed trustees named below, each of whom has
consented to serve as a trustee. Pursuant to the Company's Declaration of Trust,
the Board of Trustees will be divided into three classes of trustees upon
consummation of the Offering. The initial terms of the first, second and third
classes will expire in 1999, 2000 and 2001, respectively. Beginning in 1999,
trustees of each class will be chosen for three-year terms upon the expiration
of their current terms and each year one class of trustees will be elected by
the shareholders. The Company believes that classification of the Board of
Trustees will help to assure the continuity and stability of the Company's
business strategies and policies as determined by the Board of Trustees. Holders
of Common Shares will have no right to cumulative voting in the election of
trustees. Consequently, at each annual meeting of shareholders, the holders of a
majority of the Common Shares will be able to elect all of the successors of the
class of trustees whose terms expire at that meeting. Subject to severance
compensation rights pursuant to any employment agreements, officers of the
Company serve at the pleasure of the Board of Trustees.
The Board of Trustees has control over the management of the Company and
its properties and the disposition thereof and is responsible for the general
policies of the Company and the general supervision of the Company's activities
conducted by its officers, agents, employees, advisors, or independent
contractors as may be necessary in the course of the Company's business.
Set forth below is certain information with respect to trustees, proposed
trustees and executive officers of the Company.
<TABLE>
<CAPTION>
INITIAL TERM
AS TRUSTEE
NAME EXPIRES POSITION
---- ------------ --------
<S> <C> <C>
David B. Deniger..................... 2001 Chairman of the Board of Trustees
Peter J. Nanula...................... 2000 President, Chief Executive Officer and Trustee
Donald E. Rhodes..................... -- Executive Vice President and Chief Operating
Officer
George T. Haworth.................... -- Executive Vice President and Chief Financial
Officer
Robert L. Adair III.................. 2001 Trustee
J. David Hakman...................... 2000 Trustee
J. Otis Winters...................... 1999 Trustee
</TABLE>
Upon consummation of the Offering, Robert A. Adair, III, J. David Hakman
and J. Otis Winters will be elected and will join Messrs. Deniger and Nanula as
trustees of the Company. Messrs. Adair, Hakman and Winters will be the
Independent Trustees.
The following is a summary of the experience of each of the Company's
trustees, proposed trustees and executive officers:
David B. Deniger -- Chairman of the Board of Trustees. Mr. Deniger, age 53,
has served as a Managing Director and Principal of Hicks, Muse, Tate & Furst
Inc., an equity investment firm, since April 1994 and has served as General
Partner, President and Chief Executive Officer of Olympus since its formation in
April 1994. Prior to forming such company with Hicks, Muse, Tate & Furst Inc.,
Mr. Deniger founded and served as President and Chief Executive Officer of GE
Capital Realty Group, Inc., a wholly-owned subsidiary of General Electric
Capital Corporation, which was organized in June 1992 to underwrite, acquire and
manage real estate equity investments made by General Electric Capital
Corporation and its co-investors. Mr. Deniger is a founding partner in Customer
Survey Technologies, a leading customer and employee surveying firm. Mr. Deniger
also is Chairman of the Board of Palmer Management, Park Plaza International,
and a minority owner of the Dallas Stars Hockey Club (NHL Franchise). He is a
member of the Board of ArenaCo., and has
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served as Chairman of the Board of The Real Estate Council. Mr. Deniger holds a
B.B.A. degree from the University of Texas at Austin.
Peter J. Nanula -- Chief Executive Officer, President and Trustee. Prior to
the completion of the Offering, Mr. Nanula, age 35, served as President and
Chief Executive Officer of Palmer Management and its predecessor since 1993.
From 1990 to 1993, Mr. Nanula was principal of Warburg, Pincus Ventures, Inc., a
venture capital firm. He is a member of the Advisory Board of the National Golf
Course Owners Association and a member of the National Golf Foundation, the
United States Golf Association and NAREIT. Mr. Nanula is a director of Palmer
Management. Mr. Nanula holds an A.B. degree from Harvard College and a J.D.
degree from Harvard Law School.
Donald E. Rhodes -- Executive Vice President and Chief Operating
Officer. Prior to the completion of the Offering, Mr. Rhodes, age 52, served as
Managing Director of the Golf and Recreation Finance Division of NationsCredit
Commercial Corporation, a wholly owned subsidiary of the NationsBank
Corporation, which he formed in August 1994. From 1989 to 1994, Mr. Rhodes
served as Vice-President of Textron Financial Corporation, where he organized
the Golf Course Finance Group. During his career at NationsCredit and Textron,
Mr. Rhodes oversaw the underwriting of over $600 million in financings to over
100 golf courses managed by approximately 20 independent operators. Mr. Rhodes
is a member of the National Golf Foundation, the National Golf Course Owners
Association, the Golf Course Superintendents Association and the United States
Golf Association. He serves on the Finance Committee and the Long-Range Planning
Committee of the Georgia State Golf Association. Mr. Rhodes holds B.A. and B.S.
degrees from Yale University.
George T. Haworth -- Executive Vice President and Chief Financial
Officer. Prior to the completion of the Offering, Mr. Haworth, age 45, served as
Chief Financial Officer, Secretary and Treasurer of Palmer Management since
March 1997. From January 1996 to March 1997, he was principal of Haworth Group,
a real estate and financial consulting firm. Mr. Haworth served as Executive
Vice President and Chief Financial Officer of Horizon Group, Inc., an owner,
developer and operator of retail properties, from 1990 to March 1996, and served
as a director of such company from August 1993 to July 1995. Mr. Haworth is a
member of NAREIT and the Urban Land Institute. Mr. Haworth, a Certified Public
Accountant, holds a B.B.A. degree from the University of Texas at San Antonio.
Robert L. Adair III -- Proposed Trustee. Mr. Adair, age 54, has served
since January 1994 as the President and Chief Operating Officer of AMRESCO,
Inc., a Dallas-based specialty financial services company. From 1987 to December
1993, Mr. Adair served as the Chairman and Chief Executive Officer of BEI Real
Estate Services ("BEI"), a real estate consulting and asset management company,
which merged with AMRESCO, Inc. in 1994. Mr. Adair, a Certified Public
Accountant, holds a B.B.A. degree from the University of Texas at Austin and a
M.B.A. degree from The Wharton School of the University of Pennsylvania.
J. David Hakman -- Proposed Trustee. Mr. Hakman, age 56, has been the Chief
Executive Officer of Hakman Capital Corporation, an investment and merchant
banking firm, since 1974. Mr. Hakman also serves as a director of Concord Camera
Corp., which manufactures and distributes cameras, and Hanover Direct, Inc., a
retail and direct mail order consumer goods company. Mr. Hakman holds a B.A.
degree from the University of California at Berkeley.
J. Otis Winters -- Proposed Trustee. Mr. Winters, age 65, has been the
Chairman of the Board of Pate, Winters & Stone, Inc., a corporate consulting
firm, since 1990. Mr. Winters currently serves on the Boards of Directors of AMX
Corporation, Walden Residential Properties, Inc. and NGC Corporation. Mr.
Winters is a former member of the United States Golf Association's Sectional
Affairs Committee. In addition, Mr. Winters is a registered professional
engineer (Oklahoma). Mr. Winters holds B.S. and M.S. degrees from Stanford
University and a M.B.A. degree from Harvard University.
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COMMITTEES OF THE BOARD OF TRUSTEES
Audit Committee. Promptly following the consummation of the Offering, the
Board of Trustees of the Company will establish an Audit Committee that will
consist of at least two Independent Trustees and will not include any members of
management. The Audit Committee will make recommendations concerning the
engagement of independent public accountants, review with the independent public
accountants the plans and results of the audit engagement, approve professional
services provided by the independent public accountants, review the independence
of the independent public accountants, consider the range of audit and non-audit
fees and review the adequacy of the Company's internal accounting controls.
Compensation Committee. Promptly following the consummation of the
Offering, the Board of Trustees of the Company will establish a Compensation
Committee, the majority of the members of which will be Independent Trustees.
The Compensation Committee will review and make recommendations concerning
proposals by management with respect to compensation, bonus, employment
agreements and other benefits and policies respecting such matters for the
executive officers of the Company.
Corporate Opportunity Committee. The Company plans to establish a committee
of Independent Trustees to examine opportunities that may constitute a corporate
opportunity for the Company. Such committee will consist of at least two
Independent Trustees and have the power of the Board of Trustees and will
determine whether corporate opportunities presented by trustees and officers
should be pursued by the Company. See "Policies With Respect to Certain
Activities -- Conflict of Interest Policies."
The Board of Trustees will not have a separate nominating committee, as the
entire Board of Trustees will perform the function of such a committee.
COMPENSATION OF THE BOARD OF TRUSTEES
The Company will pay its trustees who are not employees of the Company an
annual fee of $12,000. In addition, Committee chairs will receive an additional
$6,000 per annum. Trustees who are employees of the Company will not be paid any
trustees' or committee fee. The Company will reimburse the trustees for travel
expenses incurred in connection with their activities on behalf of the Company.
Under the Company's 1998 Share Option Plan (the "Share Option Plan"), each
trustee then in office will receive an annual grant of options to purchase 5,000
Common Shares at the then current market price on the date of the meeting of the
Board of Trustees held immediately after the annual meeting of the Company's
shareholders. In addition, following the consummation of the Offering, each
non-employee trustee will receive a grant of options under the Share Option Plan
to purchase 5,000 Common Shares at the Offering Price. These grants of options
to purchase Common Shares will vest in three equal annual installments. Trustees
are also eligible to receive discretionary option awards under the Share Option
Plan.
EXECUTIVE COMPENSATION
To date, the Company has not paid any compensation to its executive
officers. The following tables set forth the estimated compensation, on an
annualized basis, and options and Common Shares expected to be granted in 1998
to the Company's executive officers.
<TABLE>
<CAPTION>
CAPACITIES IN WHICH 1998 SHARE OPTIONS SHARES TO
NAME EXPECTED TO SERVE BASE SALARY(1) TO BE GRANTED(2) BE GRANTED(3)
---- ------------------- -------------- ---------------- -------------
<S> <C> <C> <C> <C>
Peter J. Nanula...... Chief Executive Officer and
President of the Company $250,000 125,000 50,000
Donald E. Rhodes..... Executive Vice President
and Chief Operating Officer 175,000 65,000 --
George T. Haworth.... Executive Vice President
and Chief Financial Officer 175,000 65,000 25,000
</TABLE>
- -------------------------
(1) Does not include bonuses that may be paid to the above individuals. See "--
Incentive Compensation" below.
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(2) Upon the completion of the Offering, options to purchase Common Shares equal
to approximately 4.3% of the Company's outstanding Common Shares (calculated
on a fully diluted basis) will be granted to officers and employees of the
Company under the Company's Share Option Plan at a price equal to the
Offering Price. See "-- Share Option Plan."
(3) Represents Common Shares issued in the Formation Transactions. Does not
include an aggregate of up to 50,000 and 25,000 restricted Common Shares
issued to Messrs. Nanula and Haworth, respectively, at the rate of 16,666
and 8,333 Common Shares per year beginning in 2000 upon the achievement of
certain performance standards, which shares will then vest equally over
three years after issuance.
OPTION GRANTS IN FISCAL YEAR 1998
<TABLE>
<CAPTION>
PERCENT OF POTENTIAL REALIZABLE VALUE AT
TOTAL OPTIONS ASSUMED ANNUAL RATES OF
NUMBER OF TO BE COMMON SHARE PRICE
SECURITIES GRANTED EXERCISE APPRECIATION FOR OPTION
UNDERLYING TO EMPLOYEES PRICE PER TERM(1)
OPTIONS TO IN FISCAL COMMON EXPIRATION -----------------------------
NAME BE GRANTED(2) YEAR SHARE(3) DATE 5%(4) 10%(5)
---- ------------- ------------- --------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Peter J. Nanula........ 125,000 35.2% $20.00 2008 $1,573,000 $3,984,000
Donald E. Rhodes....... 65,000 18.3% 20.00 2008 818,000 2,072,000
George T. Haworth...... 65,000 18.3% 20.00 2008 818,000 2,072,000
</TABLE>
- -------------------------
(1) In accordance with the rules of the Securities and Exchange Commission,
these amounts are the hypothetical gains or "option spreads" that would
exist for the respective options based on assumed rates of annual compound
share price appreciation of 5% and 10% from the date the options were
granted over the full option term. No gain to the optionee is possible
without an increase in the price of Common Shares, which would benefit all
shareholders.
(2) All options are granted at the fair market value of the Common Shares at the
date of grant. Options granted are for a term of not more than ten years
from the date of grant and vest in three equal annual installments (rounded
to the nearest whole Common Share) over three years.
(3) Based on the assumed Offering Price. The exercise price per share will be
the Offering Price.
(4) An annual compound share price appreciation of 5% from the assumed Offering
Price yields a price of $32.58 per Common Share.
(5) An annual compound share price appreciation of 10% from the assumed Offering
Price yields a price of $51.87 per Common Share.
SHARE OPTION PLAN
Prior to the completion of the Offering, the Company intends to adopt the
1998 Share Option Plan, pursuant to which the Company will reserve 750,000
Common Shares for issuance to officers, trustees, employees and consultants.
Share options may be granted in the form of "incentive stock options" (as
defined in Section 422 of the Code), or non-statutory share options, and are
exercisable for up to 10 years following the date of the grant. The exercise
price of each option will be set by the Compensation Committee; provided,
however, that the price per share is required to be equal to or greater than the
fair market value of the Common Shares on the grant date.
The Option Plan also provides for the issuance of share appreciation rights
which will generally entitle a holder to receive cash or shares, as determined
by the Compensation Committee at the time of exercise, equal to the difference
between the exercise price and the fair market value of the Common Shares.
401(k) PLAN
Effective upon completion of the Offering, the Company intends to establish
the Presidio Golf Trust Section 401(k) Savings/Retirement Plan (the "401(k)
Plan") to cover eligible employees of the Company and any designated affiliate.
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<PAGE> 94
The 401(k) Plan will permit eligible employees of the Company to defer up
to 15% of their annual compensation, subject to certain limitations imposed by
the Code. The employees' elective deferrals are immediately vested and
nonforfeitable upon contribution to the 401(k) Plan.
RESTRICTED SHARE PLAN
The Company has established the 1998 Restricted Share Plan (the "Restricted
Share Plan") pursuant to which the Company may issue up to 250,000 restricted
Common Shares to officers, employees and consultants. The shares will be granted
under the Restricted Share Plan by a committee of non-employee trustees of the
Company. Awards will be subject to vesting based on performance standards set by
such committee over periods of between three and eight years with restrictions
lapsing on the occurrence of certain events such as a change in control or
retirement.
INCENTIVE COMPENSATION
The Company intends to establish an incentive compensation plan for key
officers of the Company and its subsidiaries and affiliates. This plan will
provide for payment of cash bonuses to participating officers after evaluating
the officer's performance and the overall performance of the Company. The Chief
Executive Officer will make recommendations to the Compensation Committee of the
Board of Trustees, which will make the final determination for the award of
bonuses. The Compensation Committee will determine such bonuses, if any, for the
Chief Executive Officer.
EMPLOYMENT AGREEMENTS
The Company will enter into written employment agreements with Peter J.
Nanula, Donald E. Rhodes and George T. Haworth. The employment agreements will
provide for an annual base salary of $250,000 for Mr. Nanula and $175,000 for
each of Messrs. Rhodes and Haworth, with annual performance bonuses determined
by the Compensation Committee in connection with the achievement of performance
criteria to be determined by the Compensation Committee. In addition, each of
Messrs. Nanula, Rhodes and Haworth will receive options to purchase Common
Shares as described above under the heading "-- Executive Compensation."
Messrs. Nanula, Rhodes and Haworth also have agreed to devote substantially
all of their time to the business of the Company and to refrain from engaging in
any competitive business other than as a passive investor. In addition, during
the term of their employment agreements, Messrs. Nanula and Haworth will be
prohibited from serving as an employee of Palmer Management. They have further
agreed not to compete directly with the Company in a business similar to that of
the Company for a period of one year following any termination of employment.
In the event that Messrs. Nanula, Rhodes or Haworth are terminated by the
Company without "cause" or if either of them terminates employment for "good
reason" (each term as defined in the employment agreements), the terminating
executive will be entitled to a severance payment equal to the greater of (i)
his base salary for the remainder of the term of his employment agreement or
(ii) his base salary for one year. The employment agreements also provide for a
gross-up payment to the extent that payments in connection with a change in
control are subject to excise taxes under the Treasury Regulations. The gross-up
payment is intended to compensate such executives for any excise tax they are
required to pay, including the tax on the gross-up payment, such that the
executive receives the full value of change in control payment.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Maryland REIT Law permits a Maryland real estate investment trust to
include in its declaration of trust a provision limiting the liability of its
trustees and officers to the trust and its shareholders for money damages except
for liability resulting from (a) actual receipt of an improper benefit or profit
in money, property or services or (b) active and deliberate dishonesty
established by a final judgment as being material to the cause of action. The
Declaration of Trust of the Company contains such a provision, which eliminates
such liability to the maximum extent permitted by the Maryland REIT Law.
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The Declaration of Trust authorizes the Company to the maximum extent
permitted by Maryland law, to obligate itself to indemnify and to pay or
reimburse reasonable expenses in advance of final disposition of a proceeding to
(a) any present or former trustee or officer or (b) any individual who, while a
trustee of the Company and at the request of the Company, serves or has served
as a trustee, director, officer, partner, employee or agent of another real
estate investment trust, corporation, partnership, joint venture, trust,
employee benefit plan or any other enterprise from and against any claim or
liability to which such person may become subject or which such person may incur
by reason of his or her status as a present or former trustee or officer of the
Company. The Bylaws of the Company obligate it, to the maximum extent permitted
by Maryland law, to indemnify and to pay or reimburse reasonable expenses in
advance of final disposition of a proceeding to (a) any present or former
trustee or officer who is made party to the proceeding by reason of his service
in that capacity or (b) any individual who, while a trustee or officer of the
Company and at the request of the Company, serves or has served another real
estate investment trust, corporation, partnership, joint venture, trust,
employee benefit plan or any other enterprise as a trustee, director, officer or
partner of such real estate investment trust, corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise and who is made a
party to the proceeding by reason of his service in that capacity, against any
claim or liability to which he may become subject by reason of such status. The
Declaration of Trust and Bylaws also permit the Company to indemnify and advance
expenses to any person who served a predecessor of the Company in any of the
capacities described above and to any employee or agent of the Company or a
predecessor of the Company. The Bylaws require the Company to indemnify a
trustee or officer who has been successful, on the merits or otherwise, in the
defense of any proceeding to which he is made a party by reason of his service
in that capacity.
The Operating Partnership Agreement also provides for indemnification of
the Company and its officers and trustees to the same extent that
indemnification is provided to officers and trustees of the Company in its
Declaration of Trust, and limits the liability of the Company and its officers
and trustees to the Operating Partnership and its respective partners to the
same extent that the liability of the officers and trustees of the Company to
the Company and its shareholders is limited under the Company's Declaration of
Trust.
The Maryland REIT Law permits a Maryland real estate investment trust to
indemnify and advance expenses to its trustees, officers, employees and agents
to the same extent as permitted by the MGCL for directors and officers of
Maryland corporations. The MGCL permits a corporation to indemnify its present
and former directors and officers, among others, against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by them in
connection with any proceeding to which they may be made a party by reason of
their service in those or other capacities unless it is established that (a) the
act or omission of the director or officer was material to the matter giving
rise to the proceeding and (i) was committed in bad faith or (ii) was the result
of active and deliberate dishonesty; (b) the trustee or officer actually
received an improper personal benefit in money, property or services; or (c) in
the case of any criminal proceeding, the director or officer had reasonable
cause to believe that the act or omission was unlawful. However, under the MGCL,
a Maryland corporation may not indemnify for an adverse judgment in a suit by or
in the right of the corporation or for a judgment of liability on the basis that
a personal benefit was improperly received, unless, in either case, a court
orders indemnification and then only for expenses. In addition, the MGCL permits
a corporation to advance reasonable expenses to a director or officer upon the
corporation's receipt of (a) a written affirmation by the director or officer of
his good faith belief that he has met the standard of conduct necessary for
indemnification by the corporation; and (b) a written undertaking by him or on
his behalf to repay the amount paid or reimbursed by the corporation if it shall
ultimately be determined that the standard of conduct was not met.
The Company has entered into indemnification agreements with each of its
trustees and executive officers. The indemnification agreements require, among
other things, that the Company indemnify its trustees and executive officers to
the fullest extent permitted by law and advance to the trustees and executive
officers all related expenses, subject to reimbursement if it is subsequently
determined that indemnification is not permitted. Under these agreements, the
Company must also indemnify and advance all expenses incurred by trustees and
executive officers seeking to enforce their rights under the indemnification
agreements and may cover trustees and executive officers under the Company's
trustees and officers' liability insurance. Although
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the form of indemnification agreement offers substantially the same scope of
coverage afforded by law, as a traditional form of contract it may provide
greater assurance to trustees and executive officers that indemnification will
be available.
The Company will have trustees and officers liability insurance. Trustees
and officers liability insurance insures (i) the officers and trustees of the
Company from any claim arising out of an alleged wrongful act by such persons
while acting as trustees and officers of the Company, and (ii) the Company to
the extent that it has indemnified the trustees and officers for such loss.
CONFLICT OF INTEREST POLICIES
The Company will adopt the policies and enter into the agreements described
below in an effort to minimize potential conflicts of interest. The Company's
Board of Trustees is subject to certain provisions of Maryland law, which are
designed to eliminate or minimize certain potential conflicts of interest.
However, there can be no assurance that these policies always will be successful
in eliminating the influence of such conflicts, and if they are not successful,
decisions could be made that might fail to reflect fully the interests of all
shareholders.
PROVISIONS OF MARYLAND LAW
Pursuant to Maryland law (the jurisdiction under which the Company is
organized), contracts or transactions between the Company and a trustee or
officer (or an entity in which a trustee has a material financial interest) may
be void or voidable. However, the MGCL provides that such contract or
transaction will not be void or voidable if (a) it is authorized, approved or
ratified, after disclosure of, or with knowledge of, the common directorship or
interest, by the affirmative vote of a majority of disinterested directors (even
if the disinterested directors constitute less than a quorum) or, by the
affirmative vote of a majority of the votes cast by the disinterested
stockholders; or (b) it is fair and reasonable to the corporation. While the
Maryland REIT Law does not have a comparable provision for trustees, a court may
apply the principles of the MGCL to contracts or transactions between the
Company and its trustees. The Company believes that this procedure will help to
eliminate or minimize certain potential conflicts of interest. Without the
approval of a majority of the disinterested trustees, the Company and its
subsidiaries will not (i) acquire from or sell to any trustee, officer or
employee of the Company, or any entity in which a trustee, officer or employee
of the Company owns more than a 1% interest, or acquire from or sell to any
affiliate of any of the foregoing, any assets or other property of the Company
or its subsidiaries; (ii) make any loan to or borrow from any of the foregoing
persons; or (iii) engage in any other material transaction with any of the
foregoing persons. Following the completion of the Offering, all proposed
transactions between the Company and Palmer Management must also be approved in
advance by a majority of the Independent Trustees. Each transaction of the type
described above will be in all respects on such terms as are, at the time of the
transaction and under the circumstances then prevailing, fair and reasonable to
the Company and its subsidiaries.
Under Maryland law, trustees, directors, and officers have a fiduciary
obligation to offer corporate opportunities to all of the entities of which they
are trustees, directors or officers if such corporate opportunities are in the
entity's line of business, within such entity's reasonable expectations or are
otherwise required to be offered to such entity. David B. Deniger is the Chief
Executive Officer and a director of Olympus and Peter J. Nanula is a director of
Palmer Management. In such positions, each individual will be obligated to offer
certain corporate opportunities to their respective companies as well as to the
Company. Based upon the Company's current business plan, the Company believes
its lines of business differ from that of Olympus (except for the ownership of
resort hotels with a golf course as a principal amenity that meets the Company's
investment criteria), and Palmer Management (except to the extent a specific
golf course meets the Company's investment criteria). Upon the consummation of
the Offering, in an effort to provide guidance to officers and trustees with
respect to the corporate opportunity doctrine, the Board of Trustees will adopt
resolutions that delineate in general terms the investment criteria of the
Company. Such resolutions will also provide that the Company, at the time of
adoption of the resolutions, does not plan to (i) develop or own residential
properties containing a golf course, stand alone development-stage golf courses,
or golf courses or
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resort properties that require substantial investment over their acquisition
price and have no prior earnings performance; or (ii) acquire additional resort
properties that do not meet the Company's investment criteria. Notwithstanding
such resolutions, in many circumstances the application of the corporate
opportunity doctrine may not be clear. Under Maryland law, the officers and
trustees of the Company ultimately have the legal obligation to determine
whether any potential corporate opportunity satisfies the Company's investment
criteria. The Company plans to establish a Corporate Opportunity Committee of
Independent Trustees to review opportunities that may constitute corporate
opportunities for the Company. Such committee will consist of at least two
Independent Trustees and have the power of the Board of Trustees with respect to
corporate opportunities and will have the obligation to determine whether
corporate opportunities presented by other trustees and officers should be
pursued by the Company. If it is determined that the corporate opportunity is
one that the Company will not pursue, then the presenting trustee or officer may
pursue the opportunity through another business entity.
AGREEMENTS BETWEEN PALMER MANAGEMENT AND THE COMPANY
In order to minimize the potential conflicts of interest that may arise as
a result of the relationship among Peter J. Nanula, George T. Haworth, David D.
Deniger and Palmer Management, the Company has entered into an agreement with
Palmer Management that grants the Company, for so long as Mr. Nanula, Mr.
Haworth, Mr. Deniger or any principal of Olympus is an executive officer or
trustee of the Company, and an executive officer, director or member of Palmer
Management, (i) a right of first refusal to purchase all golf course properties
that meet the Company's investment criteria and are proposed to be acquired by
Palmer Management, including courses proposed to be acquired by joint ventures
controlled by Palmer Management, subject to the right of Palmer Management to
lease such courses from the Company under lease terms similar to those of the
Participating Leases; and (ii) a right of first refusal with respect to any golf
course owned by Palmer Management, including courses owned by joint ventures
controlled by Palmer Management, that meets the Company's investment criteria
and is proposed to be sold. See "Certain Relationships and Transactions -- Right
of First Refusal/Offer."
Upon completion of the Offering, the Company and Palmer Management will
enter into an Expense Sharing Agreement (the "Expense Sharing Agreement"), which
will provide for the allocation between the Company and Palmer Management of the
costs of shared office space in San Francisco presently leased by Palmer
Management under a nonassignable lease. The Company expects to utilize
approximately 75% of such office space. Pursuant to such agreement, each of the
Company and Palmer Management will bear their proportionate share of the
operating costs of the shared office space. Independent auditors will review the
appropriateness of the annual allocation of the cost of the shared office space
in connection with the annual audits of the Company and Palmer Management. Any
material change to the terms of the Expense Sharing Agreement must be approved
by a majority of the Company's trustees, including a majority of the Independent
Trustees. See "Certain Relationships and Transactions -- Expense Sharing
Agreement."
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
Set forth below is a discussion of the Company's investment objectives and
policies, financing policies and policies with respect to certain other
activities. These policies are determined by the Board of Trustees and may be
amended or revised from time to time at the discretion of the Board of Trustees
without notice to or a vote of the Company's shareholders, or the limited
partners of the Operating Partnership, except that changes in certain policies
with respect to conflicts of interest must be consistent with legal
requirements.
As the sole general partner of the Operating Partnership, the Company also
will determine the investment policies of the Operating Partnership. See
"Partnership Agreement."
INVESTMENT POLICIES
The Company's investment objective is to maximize both current income and
long-term growth in income. The Company will seek to accomplish its objective
through its ownership of the Golf Courses and selective acquisitions of
additional golf courses and related facilities.
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The Company may purchase or lease properties for long-term investment,
expand and improve the Golf Courses presently owned or sell such properties, in
whole or in part, when circumstances warrant. The Company also may participate
with other entities in property ownership, through joint ventures or other types
of co-ownership. Equity investments may be subject to existing mortgage
financing and other indebtedness that have priority over the equity interest of
the Company.
While the Company intends to emphasize equity real estate investments, it
may, in its discretion, invest in mortgages on properties and other real estate
interests. Such mortgage investments may include participating or convertible
mortgages. The Company does not intend to invest to a significant extent in
mortgages or deeds of trust, but may acquire mortgages as a strategy for
acquiring ownership of a property or the economic equivalent thereof, subject to
the investment restrictions applicable to REITs. See "Federal Income Tax
Consequences -- Taxation of the Company." In addition, the Company may invest in
mortgage-related securities and/or may seek to issue securities representing
interests in such mortgage-related securities as a method of raising additional
funds.
Although the Company has no current intention of making such an investment,
the Company also may legally invest in securities of entities engaged in real
estate activities or securities of other issuers, including for the purpose of
exercising control over such entities, subject to the gross income and asset
tests necessary for REIT qualification. The Company may acquire all or
substantially all of the securities or assets of other REITs or similar entities
where such investments would be consistent with the Company's investment
policies. In any event, the Company does not intend that its investments in
securities will require it or the Operating Partnership to register as an
"investment company" under the Investment Company Act of 1940, as amended.
There are no limitations on the percentage of the Company's assets that may
be invested in any one property or venture. The Board of Trustees may establish
limitations as it deems appropriate from time to time. No limitations have been
set on the number of properties in which the Company will seek to invest or on
the concentration of investments in any one geographic region.
DISPOSITIONS
The Company has no current intention to cause the disposition of any of the
Golf Courses, although, with the exception of Towne Lake Hills Golf Club, it
reserves the right to do so if the Board of Trustees determines that such action
would be in the best interests of the Company. The Contribution Agreement
relating to Towne Lake Hills Golf Club restricts disposition of such course for
a period of three years.
LENDING POLICIES
The Company may consider offering purchase money financing in connection
with the sale of Golf Courses where the provision of such financing will
increase the value received by the Company for the property sold.
FINANCING
Upon completion of the Offering, in addition to the limitations on
indebtedness imposed on the Company under the Credit Facility, the Company will
adopt a policy of incurring debt, either directly or through the Operating
Partnership, only if upon such incurrence the Company's debt to total market
capitalization ratio would be approximately 50% or less. The policy differs from
conventional mortgage debt-to-equity ratios, which are asset-based ratios. The
Company's debt to total market capitalization ratio is equal to the total
consolidated and unconsolidated debt of the Company as a percentage of the
market value of outstanding Common Shares, Preferred Shares and OP Units plus
total consolidated and unconsolidated debt, but excluding (i) all nonrecourse
consolidated debt in excess of the Company's proportionate share of such debt;
and (ii) all nonrecourse unconsolidated debt of partnerships in which the
Company is a limited partner. However, the organizational documents of the
Company and the Operating Partnership will not contain any limitation on the
amount of indebtedness that may be incurred. Accordingly, the Board of Trustees
could alter or eliminate this policy and would do so, for example, if it were
necessary for the Company to continue to
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qualify as a REIT. The Company will limit the incurrence of debt based on total
market capitalization because it believes that the book value of its assets does
not accurately reflect its ability to borrow and to meet debt service
requirements. The market capitalization of the Company, however, is expected to
be more variable than book value and will not necessarily reflect the fair
market value of the underlying assets of the Company.
The Company will determine its financing policies in light of then current
economic conditions, relative costs of debt and equity capital, market values of
properties, growth and acquisition opportunities and other factors. If the Board
of Trustees determines that additional funding is desirable, the Company may
raise such funds through additional equity offerings, debt financing or
retention of cash flow (subject to provisions in the Code concerning taxability
of undistributed REIT income and REIT qualification), or a combination of these
methods.
It is the Company's policy that Presidio Golf Trust shall not incur
indebtedness other than short-term trade, employee compensation, dividends
payable or similar indebtedness that will be paid in the ordinary course of
business, and that indebtedness shall instead be incurred by the Operating
Partnership to the extent necessary to fund the business activities conducted by
the Operating Partnership and its subsidiaries. See "Partnership Agreement."
Indebtedness may be in the form of purchase money obligations to the Prior
Owners, publicly or privately placed debt instruments, or financing from banks,
institutional investors or other lenders, any of which indebtedness may be
unsecured or may be secured by mortgages or other interests in the property
owned by the Company. The Company may also incur indebtedness that may be
re-loaned to the Operating Partnership on the same terms and conditions as are
applicable to the Company's borrowing of such funds. There are no limits on the
number or amount of mortgages or other interests which may be placed on any one
property. In addition, such indebtedness may be recourse to all or any part of
the property of the Company or may be limited to the particular property to
which the indebtedness relates. The proceeds from any borrowings may be used for
the payment of distributions, working capital, to redeem OP Units, to refinance
indebtedness or to finance acquisitions, expansions or development of new
properties.
In the event that the Board of Trustees determines to raise additional
equity capital, the Board has the authority, without shareholder approval, to
issue additional authorized Common Shares or other capital shares (including
securities senior to the Common Shares) of the Company in any manner (and on
such terms and for such consideration) it deems appropriate, including in
exchange for property. Existing shareholders would have no preemptive right to
purchase shares issued in any offering, and any such offering might cause a
dilution of a shareholder's investment in the Company. If the Board of Trustees
determines to raise additional equity capital to fund investments by the
Operating Partnership, the Company will contribute such funds to the Operating
Partnership as a contribution to capital and purchase of additional OP Units. In
addition, the Company may issue additional Common Shares in connection with the
exchange of OP Units for Common Shares pursuant to the exercise of redemption
rights. See "Partnership Agreement."
The Board of Trustees also has the authority to cause the Operating
Partnership to issue additional OP Units in any manner (and on such terms and
for such consideration) as it deems appropriate, including in exchange for
property. See "Partnership Agreement -- Issuance of Additional Units and/or
Preference Units."
WORKING CAPITAL RESERVES
The Company will maintain working capital reserves (and when not
sufficient, access to borrowings) in amounts that the Board of Trustees
determines to be adequate to meet normal contingencies in connection with the
operation of the Company's business and investments.
OTHER POLICIES
The Company intends to operate in a manner that will not subject it to
regulation under the Investment Company Act of 1940, as amended. The Company
does not intend (i) to invest in the securities of other issuers (other than the
Operating Partnership) for the purpose of exercising control over such issuer,
(ii) to underwrite securities of other issuers or (iii) to trade actively in
loans or other investments.
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The Company may make investments other than as previously described,
although it does not currently intend to do so. The Company has authority to
repurchase or otherwise reacquire Common Shares or any other securities it may
issue and may engage in such activities in the future. The Board of Trustees has
no present intention of causing the Company to repurchase any of the Common
Shares, and any such action would be taken only in conformity with applicable
federal and state laws and the requirements for qualifying as a REIT under the
Code and the Treasury Regulations. Although it may do so in the future, except
in connection with the Formation Transactions, the Company has not issued Common
Shares or any other securities in exchange for property, nor has it reacquired
any of its Common Shares or any other securities. See "Formation of the
Company." The Company may make loans to third parties, including, without
limitation, to its officers and to joint ventures in which it decides to
participate. The Company has not engaged in trading, underwriting or agency
distribution or sale of securities of other issuers, nor has the Company
invested in the securities of other issuers other than the Operating Partnership
for the purpose of exercising control.
FORMATION OF THE COMPANY
Upon the completion of the Offering, all of the Company's assets, including
the 15 Golf Courses, will be owned by or ground leased by, and its operations
conducted through, the Operating Partnership, 82.2% of the interests in which
will be held by the Company. The Company will be the sole general partner of the
Operating Partnership and will contribute substantially all of the net proceeds
of the Offering to the Operating Partnership in exchange for the number of OP
Units set forth below.
FORMATION TRANSACTIONS
The Operating Partnership currently owns a 100% fee interest in six Golf
Courses (Emerald Valley, Fox Valley, Tan Tara, Minebrook, Brierwood and
Oronoque), and Palmer Management and certain of its affiliates currently own all
of the general partnership and limited partnership interests in the Operating
Partnership. Prior to or simultaneously with the completion of the Offering, the
Company, the Operating Partnership, the Prior Owners and the Initial Lessees
will engage in a series of transactions described below.
- The Company will sell 6,540,000 Common Shares in the Offering and will
contribute substantially all of the net proceeds thereof, estimated to be
$119,744,000, to the Operating Partnership in exchange for 6,540,000 OP
Units.
- The Company will acquire long-term ground leasehold interests in four
Golf Courses from Palmer Management (Penderbrook, Crofton and Memphis
National (two Golf Courses)) in consideration for the repayment of
approximately $11,778,000 in existing indebtedness encumbering the
foregoing assets. Palmer Management also will receive 692,600 OP Units
(representing a 8.6% interest in the Operating Partnership) in additional
consideration for the contribution of the foregoing leasehold interests.
- The Company will acquire a 100% fee interest in six Golf Courses (Emerald
Valley, Fox Valley, Tan Tara, Minebrook, Brierwood and Oronoque) for the
repayment of approximately $32,000,000 of existing indebtedness and
through the conversion of Palmer Management's general and limited
partnership interests in the Operating Partnership into $5,000,000 in
cash, approximately 407,400 OP Units (representing a 5.1% interest in the
Operating Partnership) and an option to acquire 75,000 OP Units at the
Offering Price. Such options will become exercisable in three equal
annual installments.
- The Prior Owners will contribute and/or sell a total of five Golf Courses
and related assets to the Company in exchange for an aggregate of
approximately 336,000 OP Units, $43,733,000 in cash and the repayment of
$27,047,000 in existing indebtedness at the Golf Courses as follows:
- The Company will acquire two Golf Course resort properties (Indian Lakes
and Nordic Hills), which have a total of three Golf Courses, from an
affiliate of Montclair and Olympus in consideration for approximately
246,700 OP Units (representing a 3.0% interest in the Operating
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Partnership), $35,028,000 in cash and the assumption and repayment of
$22,538,000 in existing indebtedness.
- The Company will acquire one Golf Course (Towne Lake Hills) from an
affiliate of HMS for an aggregate of approximately 89,300 OP Units
(representing a 1.1% interest in the Operating Partnership), the
assumption and repayment of $4,509,000 in existing indebtedness, and
$2,705,000 in cash.
- The Company will acquire one Golf Course (University Club of South
Carolina) from an affiliate of University Clubs for $6,000,000 in cash.
- Upon completion of the Offering, after having repaid all outstanding
indebtedness described above (approximately $70,825,000), including all
outstanding indebtedness under the Credit Facility, the Company will have
no outstanding indebtedness and will have access to $75 million available
under the Credit Facility. See "The Company."
- The Company, as lessor, will lease the Golf Courses to the Initial
Lessees pursuant to a Participating Lease for an initial term of 15
years, with each Initial Lessee having the right to extend the term of
its Participating Lease for between two and five renewal terms of five
years each. See "The Participating Leases."
- The Company will enter into employment agreements with its executive
officers, Peter J. Nanula, President and Chief Executive Officer; Donald
E. Rhodes, Executive Vice President and Chief Operating Officer; and
George T. Haworth, Executive Vice President and Chief Financial Officer.
See "Management -- Employment Agreements."
BENEFITS TO RELATED PARTIES
As a result of the Formation Transactions, executive officers and trustees
of the Company, and certain of their affiliates will receive the following
benefits:
Benefits to Palmer Management and Olympus
- Palmer Management will receive approximately 1,100,000 OP Units
(representing a 13.7% interest in the Operating Partnership), as
consideration for its interests in the Golf Courses contributed to the
Company in connection with the Formation Transactions and its general
partnership and limited partnership interests in the Operating
Partnership prior to the completion of the Offering. In addition, Palmer
Management will receive $5,000,000 in cash, the $43.8 million benefit
derived from the Company's repayment of indebtedness and an option to
acquire 75,000 OP Units at the Offering Price. Palmer Management has
advised the Company that it does not intend to distribute any of such
cash to its owners. The OP Units to be received by Palmer Management
(which are redeemable for cash or, at the Company's option, Common Shares
on a one-for-one basis beginning one year after the completion of the
Offering) will be worth approximately $22.0 million and will be more
liquid than its interests in the Golf Courses once a public trading
market for the Common Shares commences. As of December 31, 1997, the
aggregate net book value of the 10 Golf Courses currently owned by Palmer
Management (including Palmer Management's pre-Offering interest in the
Operating Partnership) was approximately $52.0 million.
- The value of Olympus' indirect interest in the consideration paid to
Palmer Management and the Prior Owner of Indian Lakes Resort and Nordic
Hills Resort, an affiliate of Montclair, in the Formation Transactions,
representing $23.0 million in OP Units, $36.8 million in cash
consideration and the $57.2 million benefit derived from the Company's
assumption of indebtedness, represents a substantial increase over the
aggregate $79.6 million net book value of Olympus' indirect interest in
the 10 Golf Courses to be contributed to the Company by Palmer Management
and two Golf Course resort properties (three golf courses) to be acquired
by the Company.
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- The Company will reimburse Palmer Management approximately $300,000 for
direct out-of-pocket expenses incurred in connection with the Formation
Transactions.
- The Initial Lessees, including those affiliated with Palmer Management
and Olympus, will be entitled to all cash flow from the Golf Courses to
be leased to them after payment of the Lease Payments under the
applicable Participating Leases and other operating expenses.
- Commencing on the first anniversary of the Offering, affiliates of Palmer
Management, Olympus and certain of their affiliates, including Messrs.
Deniger, Nanula, and Haworth, will have registration rights with respect
to the Common Shares received in the Formation Transactions and Common
Shares that may be issued in exchange for OP Units received in the
Formation Transactions.
Benefits to Executive Officers and Trustees
- The value of Peter J. Nanula's indirect interest in the consideration
paid to Palmer Management in the Formation Transactions, representing
$2.4 million in OP Units, $550,000 in cash consideration and the $4.6
million benefit derived from the Company's assumption of indebtedness,
represents a substantial increase over the $4.0 million net book value of
Mr. Nanula's indirect interest in the 10 Golf Courses to be contributed
to the Company by Palmer Management.
- The value of George T. Haworth's indirect interest in the consideration
paid to Palmer Management in the Formation Transactions, representing
$328,000 in OP Units, $75,000 in cash consideration and the $654,000
benefit derived from the Company's assumption of indebtedness, represents
a substantial increase over the $566,000 net book value of Mr. Haworth's
indirect interest in the 10 Golf Courses to be contributed to the Company
by Palmer Management.
- Messrs. Nanula and Haworth will receive an aggregate of 75,000 Common
Shares as part of Mr. Nanula's share of Palmer Management's consideration
for its contributions, and in connection therewith Mr. Nanula has agreed
that a portion of his continuing residual interest in Palmer Management
will be received only if Palmer Management has earned the release of its
security deposits under its affiliate's Participating Leases and the
Company achieves specified performance objectives.
- Messrs. Nanula, Rhodes and Haworth will be granted options to acquire
125,000, 65,000 and 65,000 Common Shares, respectively, at the Offering
Price. The options vest in three equal annual installments. In addition,
Messrs. Nanula and Haworth will be issued up to an aggregate of 50,000
and 25,000 restricted Common Shares, respectively, at the rate of 16,666
and 8,333 shares per year beginning in 2000 upon the achievement of
certain performance standards, which shares will then vest equally over
three years after such issuance.
- Each trustee who is not an employee of the Company, including Mr.
Deniger, will receive options to acquire 5,000 Common Shares at the
Offering Price.
- The Company will enter into employment agreements with Messrs. Nanula,
Rhodes and Haworth providing for annual base salaries of $250,000,
$175,000 and $175,000 respectively, and the possibility of performance
bonuses.
VALUATION OF INTERESTS
The initial valuation of the Company was determined primarily based upon a
capitalization of the Company's estimated Cash Available for Distribution and
other factors, rather than on the basis of the cost or appraised value of the
Golf Courses. The purchase prices for the interests acquired by the Company from
parties unaffiliated with Palmer Management were determined pursuant to
arm's-length negotiations. Upon completion of the Offering, the Company will own
a 82.2% interest in the Operating Partnership. The Company's initial percentage
interest in the Operating Partnership was determined based on the percentage of
estimated adjusted cash flow that was required to pay the Company's shareholders
a specified initial annual distribution rate, which rate was based upon
prevailing market conditions.
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TRANSFER DOCUMENTS
The transfer of the Golf Courses not currently owned by the Operating
Partnership is subject to the completion of the Offering as well as the normal
and customary conditions to the closing of real estate transactions. The Company
will assume certain past obligations and all obligations arising after the
transfer of the Golf Courses to the Company. The agreements to transfer the Golf
Courses will contain representations and warranties to the Company concerning
the Golf Courses customarily found in agreements of such type. Such
representations and warranties will generally survive the closing of the
transfer of title to the Golf Courses for between one and two years. The
Montclair Acquisition Agreement generally contains representations and
warranties that may be more favorable to the Prior Owner (which is controlled by
Olympus) of Indian Lakes Resort and Nordic Hills Resort than those contained in
the acquisition agreements relating to the other Golf Courses. The
indemnification obligations of Montclair relating to these representations and
warranties will be limited to the value of the OP Units received by Montclair in
connection with the Company's acquisition of such properties.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
RELATIONSHIPS AMONG OFFICERS AND TRUSTEES
David B. Deniger, the Chairman of the Board of Trustees of the Company, is
Chairman of the Board of Palmer Management and President and CEO of the general
partner of Olympus. In addition, Peter J. Nanula, President and Chief Executive
Officer of the Company, and George T. Haworth, Executive Vice President and
Chief Financial Officer of the Company are beneficial owners of equity interests
in Palmer Management. Upon completion of the Offering, Messrs. Nanula and
Haworth will resign from all of their respective employment positions with
Palmer Management, but they will continue to own such interests in Palmer
Management.
EMPLOYMENT AGREEMENTS
The Company will enter into written employment agreements with Peter J.
Nanula, Donald E. Rhodes and George T. Haworth. The employment agreements will
provide for an annual base salary of $250,000 for Mr. Nanula and $175,000 for
each of Messrs. Rhodes and Haworth, with annual performance bonuses determined
by the Compensation Committee in connection with the achievement of performance
criteria to be determined by the Compensation Committee. In addition, each of
Messrs. Nanula, Rhodes and Haworth will receive options to purchase Common
Shares as described above under the heading "Management -- Executive
Compensation."
Messrs. Nanula, Rhodes and Haworth also have agreed to devote substantially
all of their time to the business of the Company and to refrain from engaging in
any competitive business other than as a passive investor. They have further
agreed not to compete directly with the Company in a business similar to that of
the Company for a period of one year following any termination of employment.
See "Management -- Employment Agreements."
RIGHT OF FIRST REFUSAL/OFFER
The Company has entered into an agreement with Palmer Management that
grants the Company, for so long as Peter J. Nanula, George T. Haworth, David B.
Deniger or any principal of Olympus is an executive officer or trustee of the
Company, and an executive officer, director or member of Palmer Management, (i)
a right of first refusal to purchase all golf course properties that meet the
Company's investment criteria and are proposed to be acquired by Palmer
Management, including courses proposed to be acquired by joint ventures
controlled by Palmer Management; and (ii) a right of first offer with respect to
any golf course owned by Palmer Management, including courses owned by joint
ventures proposed to be sold by Palmer Management, that meets the Company's
investment criteria and is proposed to be sold. The Company's right of first
refusal to purchase properties that are proposed to be acquired by Palmer
Management is subject to the right of Palmer Management to lease such courses
under lease terms similar to those of the Participating Leases. In
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the event that the Company acquires a course pursuant to such right of first
refusal and the parties are unable to agree on specific lease terms, the Company
will pay Palmer Management a market rate acquisition fee.
EXPENSE SHARING AGREEMENT
Upon completion of the Offering, the Company and Palmer Management will
enter into the Expense Sharing Agreement, which will provide for the allocation
between the Company and Palmer Management of the costs of shared office space in
San Francisco presently leased by Palmer Management under a nonassignable lease.
The Company expects to utilize approximately 75% of such office space. Pursuant
to such agreement, each of the Company and Palmer Management will bear their
proportionate share of the operating costs of the shared office space.
Independent auditors will review the appropriateness of the annual allocation of
the cost of the shared employees and office space in connection with the annual
audits of the Company and Palmer Management. Any material change to the terms of
the Expense Sharing Agreement must be approved by a majority of the Company's
trustees, including a majority of the Independent Trustees. Pursuant to the
Expense Sharing Agreement, it is estimated that the Company will reimburse
Palmer Management approximately $80,000 during 1998.
FORMATION TRANSACTIONS
For information relating to certain relationships and transactions arising
out the Formation Transactions, see "Formation of the Company."
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PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Shares and OP Units by each trustee, proposed trustee, and
executive officer of the Company, by all trustees, proposed trustees and
officers of Company as a group and by each person the Company expects will be
the beneficial owner of more than 5% of all outstanding Common Shares and OP
Units immediately following the completion of the Offering. As of the date of
this Prospectus each person named in the table has sole voting and investment
power with respect to all of the Common Shares or OP Units shown as beneficially
owned by such person, except as otherwise set forth in the notes to the table.
None of such shareholders is selling any Common Shares in the Offering.
<TABLE>
<CAPTION>
NUMBER OF COMMON PERCENTAGE OF ALL
SHARES AND OP COMMON SHARES
UNITS PERCENTAGE OF ALL AND OP
BENEFICIALLY OWNED COMMON SHARES(1) UNITS(2)
------------------ ----------------- -----------------
<S> <C> <C> <C>
David B. Deniger............................. --(3) -- --
Peter J. Nanula.............................. 50,000(4) * *
Donald E. Rhodes............................. -- -- --
George T. Haworth............................ 25,000 * *
Robert L. Adair III.......................... -- -- --
J. David Hakman.............................. -- -- --
J. Otis Winters.............................. -- -- --
Palmer Management(5)......................... 1,175,000(6) * 14.5%
Olympus(7)................................... 1,421,700(8) -- 17.5%
All trustees, proposed trustees and executive
officers as a group (seven persons).......... 75,000(3)(4) 1.1% *
</TABLE>
- -------------------------
* Less than one percent.
(1) Assumes 6,615,000 Common Shares outstanding immediately following completion
of the Offering. Assumes that all OP Units beneficially held by the
identified person (and no other person) are redeemed for Common Shares.
(2) Assumes a total of 8,051,000 Common Shares or OP Units outstanding
immediately following completion of the Offering (6,615,000 Common Shares
and 1,436,000 OP Units).
(3) Excludes OP Units beneficially owned by Olympus, the Chief Executive Officer
of which is Mr. Deniger.
(4) Excludes OP Units beneficially owned by Palmer Management. Mr. Nanula is a
board member and equity owner of Palmer Management.
(5) The business address of Palmer Management is 6751 Forum Drive, Suite 200,
Building 2, Orlando, Florida 32821.
(6) Includes 75,000 OP Units subject to OP Unit options granted to Palmer
Management in the Formation Transactions.
(7) The business address of Olympus is 200 Crescent Court, Suite 1650, Dallas,
Texas, 75201.
(8) Includes all of the 1,175,000 OP Units beneficially owned by Palmer
Management, a controlling interest in which is beneficially owned by
Olympus, including the 75,000 OP Units subject to OP Unit options issued in
the Formation Transactions. Olympus has shared voting and investment power
with respect to such shares.
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SHARES OF BENEFICIAL INTEREST
The summary of the terms of the shares of beneficial interest of the
Company set forth below does not purport to be complete and is subject to and
qualified in its entirety by reference to the Declaration of Trust and Bylaws of
the Company, copies of which are exhibits to the Registration Statement of which
this Prospectus is a part.
GENERAL
The Declaration of Trust of the Company provides that the Company may issue
up to 80 million Common Shares, $.01 par value per share, and up to 20 million
preferred shares of beneficial interest, $.01 par value per share (the
"Preferred Shares"). As of April 30, 1998, 50 Common Shares were issued and
outstanding and no Preferred Shares were issued and outstanding.
Under the Maryland REIT Law, a shareholder is not liable for obligations of
the Company solely as a result of his status as a shareholder. The Declaration
of Trust provides that no shareholder shall be liable for any debt or obligation
of the Company by reason of being a shareholder nor shall any shareholder be
subject to any personal liability in tort, contract or otherwise to any person
in connection with the property or affairs of the Company by reason of being a
shareholder. The Company's Bylaws further provide that the Company shall
indemnify each present or former shareholder against any claim or liability to
which the shareholder may become subject by reason of being or having been a
shareholder and that the Company shall reimburse each shareholder for all
reasonable expenses incurred by him in connection with any such claim or
liability. However, with respect to tort claims, contractual claims where
shareholder liability is not so negated, claims for taxes and certain statutory
liability, the shareholders may, in some jurisdictions, be personally liable to
the extent that such claims are not satisfied by the Company. Inasmuch as the
Company carries public liability insurance which it considers adequate, any risk
of personal liability to shareholders is limited to situations in which the
Company's assets plus its insurance coverage would be insufficient to satisfy
the claims against the Company and its shareholders.
COMMON SHARES
All Common Shares offered hereby will be duly authorized, fully paid and
nonassessable. Subject to the preferential rights of any other class of shares
of beneficial interest and to the provisions of the Declaration of Trust
regarding restrictions on transfers of shares of beneficial interest, holders of
Common Shares are entitled to receive distributions if, as and when authorized
and declared by the Board of Trustees out of assets legally available therefor
and to share ratably in the assets of the Company legally available for
distribution to its shareholders in the event of its liquidation, dissolution or
winding-up after payment of, or adequate provision for, all known debts and
liabilities of the Company. The Company currently intends to pay regular
quarterly distributions.
Subject to the provisions of the Company's Declaration of Trust regarding
restrictions on transfer of shares of beneficial interest, each outstanding
Common Share entitles the holder to one vote on all matters submitted to a vote
of shareholders, including the election of trustees, and, except as provided
with respect to any other class or series of shares of beneficial interest, the
holders of Common Shares will possess the exclusive voting power. There is no
cumulative voting in the election of trustees, which means that the holders of a
majority of the outstanding Common Shares can elect all of the trustees then
standing for election and the holders of the remaining shares of beneficial
interest, if any, will not be able to elect any trustees.
Holders of Common Shares have no preferences, conversion, sinking fund,
redemption rights or preemptive rights to subscribe for any securities of the
Company. Subject to the provisions of the Company's Declaration of Trust
regarding restrictions on ownership and transfer, Common Shares have equal
distribution, liquidation and other rights.
Pursuant to the Maryland REIT Law, a Maryland real estate investment trust
generally cannot dissolve, amend its declaration of trust or merge, unless
approved by the affirmative vote or written consent of shareholders holding at
least two-thirds of the shares entitled to vote on the matter unless a lesser
percentage
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(but not less than a majority of all of the votes entitled to be cast on the
matter) is set forth in the trust's declaration of trust. The Company's
Declaration of Trust contains such a provision providing for a lesser
percentage, a majority of outstanding shares, with respect to transactions
pursuant to which the Company's assets will be combined with those of one or
more other entities (whether by merger, sale or other transfer of assets,
consolidation or share exchange).
Under the Maryland REIT Law, a declaration of trust may permit the trustees
by a two-thirds vote to amend the declaration of trust from time to time to
qualify as a REIT under the Code or the Maryland REIT Law without the
affirmative vote or written consent of the Shareholders. The Company's
Declaration of Trust permits such action by the Board of Trustees. Also under
the Maryland REIT Law, a declaration of trust may permit the board of trustees
to amend the declaration of trust to increase the aggregate number of shares of
beneficial interest or the number of shares of any class without shareholder
approval. Pursuant to this statute, the Declaration of Trust authorizes the
Board of Trustees to increase or decrease the aggregate number of shares of
beneficial interest of the Company or the number of shares of beneficial
interest of any class of beneficial interest of the Company, without shareholder
approval.
The Declaration of Trust authorizes the Board of Trustees to reclassify any
unissued Common Shares into other classes or series of beneficial interest and
to establish the number of shares of each class or series and to set the
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications or terms or
conditions of redemption for each such class or series.
PREFERRED SHARES
The Declaration of Trust authorizes the Board of Trustees to issue up to 20
million Preferred Shares, to classify any unissued Preferred Shares and to
reclassify any previously classified but unissued Preferred Shares of any series
from time to time, in one or more series, as authorized by the Board of
Trustees. Prior to issuance of shares of each series, the Board of Trustees is
required by the Maryland REIT Law and the Declaration of Trust of the Company to
set, subject to the provisions of the Declaration of Trust regarding the
restriction on transfer of shares of beneficial interest, the terms,
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications and terms or
conditions of redemption for each such series. Thus, the Board could authorize
the issuance of Preferred Shares with terms and conditions which could have the
effect of delaying, deferring or preventing a transaction or a change in control
of the Company that might involve a premium price for holders of Common Shares
or otherwise be in their best interest. As of the date hereof, no Preferred
Shares are outstanding and the Company has no present plans to issue any
Preferred Shares.
POWER TO ISSUE ADDITIONAL COMMON SHARES AND PREFERRED SHARES
The Company believes that the power of the Board of Trustees to issue
additional authorized but unissued Common Shares or Preferred Shares and to
classify or reclassify unissued Common Shares or Preferred Shares and thereafter
to cause the Company to issue such classified or reclassified shares of
beneficial interest will provide the Company with increased flexibility in
structuring possible future financings and acquisitions and in meeting other
needs which might arise. The additional classes or series, as well as the Common
Shares, will be available for issuance without further action by the Company's
shareholders, unless such action is required by applicable law or the rules of
any stock exchange or automated quotation system on which the Company's
securities may be listed or traded. Although the Board of Trustees has no
intention at the present time of doing so, it could authorize the Company to
issue a class or series of shares that could, depending upon the terms of such
class or series, delay, defer or prevent a transaction or a change in control of
the Company that might involve a premium price for holders of Common Shares or
otherwise be in their best interest.
RESTRICTIONS ON OWNERSHIP AND TRANSFER
Maryland Business Combination Law. Under the MGCL, as applicable to real
estate investment trusts, certain "business combinations" (including certain
mergers, consolidations, share exchanges and asset
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transfers and certain issuances and reclassifications of equity securities)
between a Maryland real estate investment trust and any Interested Shareholder
or an affiliate of the Interested Shareholder are prohibited for five years
after the most recent date on which the Interested Shareholder becomes an
Interested Shareholder. Thereafter, any such business combination must be
recommended by the Board of Trustees of such Trust and approved by the
affirmative vote of at least (a) 80% of the votes entitled to be cast by holders
of outstanding voting shares of beneficial interest of the trust; and (b)
two-thirds of the votes entitled to be cast by holders of voting shares of the
trust other than shares held by the Interested Shareholder with whom (or with
whose affiliate) the business combination is to be effected, unless, among other
conditions, the trust's common shareholders receive a minimum price (as defined
in the MGCL) for their shares and the consideration is received in cash or in
the same form as previously paid by the Interested Shareholder for its shares.
As permitted by the MGCL, the Board of Trustees of the Company has opted out of
the business combination provisions of the MGCL. Consequently, the five-year
prohibition and the super-majority vote requirements will not apply to a
business combination involving the Company; however, the Company's Board of
Trustees may repeal this opt-out and cause the Company to become subject to
these provisions in the future.
Maryland Control Share Acquisition Law. In addition, also under the MGCL,
as applicable to real estate investments trusts, "control shares" acquired in a
"control share acquisition" have no voting rights except to the extent approved
by a vote of two-thirds of the votes entitled to be cast on the matter,
excluding shares owned by the acquiror, by officers or by trustees who are
employees of the trust. "Control shares" are voting shares which, if aggregated
with all other such shares previously acquired by the acquiror or in respect of
which the acquiror is able to exercise or direct the exercise of voting power
(except solely by virtue of a revocable proxy), would entitle the acquiror to
exercise voting power in electing trustees within one of the following ranges of
voting power: (i) one-fifth or more but less than one-third; (ii) one-third or
more but less than a majority; or (iii) a majority or more of all voting power.
Control shares do not include shares the acquiring person is then entitled to
vote as a result of having previously obtained shareholder approval. A "control
share acquisition" means the acquisition of control shares, subject to certain
exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of trustees of the trust to call a special meeting of
shareholders to be held within 50 days of demand to consider the voting rights
of the shares. If no request for a meeting is made, the trust may itself present
the question at any shareholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then,
subject to certain conditions and limitations, the trust may redeem any or all
of the control shares (except those for which voting rights have previously been
approved) for fair value determined, without regard to the absence of voting
rights for the control shares, as of the date of the last control share
acquisition by the acquiror or of any meeting of shareholders at which the
voting rights of such shares are considered and not approved. If voting rights
for control shares are approved at a shareholders meeting and the acquiror
becomes entitled to vote a majority of the shares entitled to vote, all other
shareholders may exercise appraisal rights. The fair value of the shares as
determined for purposes of such appraisal rights may not be less than the
highest price per share paid by the acquiror in the control share acquisition.
The control share acquisition statute does not apply (a) to shares acquired
in a merger, consolidation or share exchange if the trust is a party to the
transaction; or (b) to acquisitions approved or exempted by the declaration of
trust or bylaws of the trust. As permitted by the MGCL, the Bylaws of the
Company contain a provision opting out of the control share provisions of the
MGCL, but the Board of Trustees may amend the Bylaws so that acquisitions of
shares of the Company are subject to these provisions in the future.
AMENDMENTS TO THE DECLARATION OF TRUST
Under the Maryland REIT Law, a declaration of trust may permit the trustees
by a two-thirds vote to amend the declaration of trust from time to time to
qualify as a REIT under the Code or the Maryland REIT Law without the
affirmative vote or written consent of the shareholders. The Company's
Declaration of Trust permits such action by the Board of Trustees. Also under
the Maryland REIT Law, a declaration of trust may
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permit the board of trustees to amend the declaration of trust to increase the
aggregate number of shares of beneficial interest or the number of shares of any
class without shareholder approval. Pursuant to this statute, the Declaration of
Trust authorizes the Board of Trustees to increase or decrease the aggregate
number of shares of beneficial interest of the Company or the number of shares
of beneficial interest of any class of beneficial interest of the Company.
Amendments of the Declaration of Trust in connection with a transaction pursuant
to which the trust's business and assets will be combined with those of one or
more entities (whether by merger, sale or other transfer of assets,
consolidation or share exchange) require the affirmative vote of not less than a
majority of all the votes entitled to vote on the matter. The Board of Trustees
may amend the Declaration of Trust from time to time, in the manner provided by
the Maryland REIT Law, without any action by the shareholders to qualify as a
REIT under the Code or the Maryland REIT Law and as otherwise permitted under
the Declaration of Trust. All other amendments to the Declaration of Trust
require the affirmative vote of the holders of not less than a majority of all
of the votes entitled to be cast on the matter.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Shares is BankBoston, N.A.
CERTAIN PROVISIONS OF MARYLAND LAW AND THE COMPANY'S
DECLARATION OF TRUST AND BYLAWS
The following summary of certain provisions of Maryland law and of the
Declaration of Trust and Bylaws of the Company does not purport to be complete
and is subject to and qualified in its entirety by reference to Maryland law and
to the Declaration of Trust and Bylaws of the Company, copies of which are
exhibits to the Registration Statement of which this Prospectus is a part.
The Declaration of Trust and Bylaws of the Company contain certain
provisions that could make more difficult an acquisition or change in control of
the Company by means of a tender offer, a proxy contest or otherwise. These
provisions are expected to discourage certain types of coercive takeover
practices and inadequate takeover bids and to encourage persons seeking to
acquire control of the Company to negotiate first with the Board of Trustees.
The Company believes that the benefits of these provisions outweigh the
potential disadvantages of discouraging such proposals because, among other
things, negotiation of such proposals might result in an improvement of their
terms. See also "Shares of Beneficial Interest -- Restrictions on Ownership and
Transfer."
CLASSIFICATION AND REMOVAL OF BOARD OF TRUSTEES; OTHER PROVISIONS
The Company's Declaration of Trust provides for the Board of Trustees to be
divided into three classes of trustees, with each class to consist as nearly as
possible of an equal number of trustees. The term of office of the first class
of trustees will expire at the 1999 annual meeting of shareholders; the term of
the second class of trustees will expire at the 2000 annual meeting of
shareholders; and the term of the third class will expire at the 2001 annual
meeting of shareholders. At each annual meeting of shareholders, the class of
trustees to be elected at such meeting will be elected for a three-year term,
and the trustees in the other two classes will continue in office. The Company
believes that the classification of the Board of Trustees will help to assure
the continuity and stability of the Company's business strategies and policies
as determined by the Board of Trustees. Because shareholders will have no right
to cumulative voting for the election of trustees, at each annual meeting of
shareholders the holders of a majority of the Common Shares will be able to
elect all of the successors to the class of trustees whose term expires at that
meeting.
The classified board provision could have the effect of making the
replacement of incumbent trustees more time-consuming and difficult as at least
two annual meetings of shareholders instead of one, will generally be required
to effect a change in a majority of the Board of Trustees. Thus, the classified
board provision could increase the likelihood that incumbent trustees will
retain their positions. The staggered terms of trustees may delay, defer or
prevent a tender offer or change in control of the Company, even though a tender
offer or change in control might be in the best interest of the shareholders.
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The Company's Declaration of Trust also provides that, except for any
trustees who may be elected by holders of a class or series of shares of
beneficial interest other than the Common Shares, trustees may be removed only
for cause and only at a meeting by the affirmative vote of shareholders holding
at least a two-thirds of all the votes entitled to be cast for the election of
trustees. Prior to the first annual meeting of shareholders, any vacancy on the
Board of Trustees (including a vacancy caused by an increase in the number of
trustees) may be filled by the Board of Trustees. Thereafter, any vacancy on the
Board of Trustees (other than a vacancy created by an increase in the number of
trustees) may be filled by a majority of the remaining trustees, whether or not
sufficient to constitute a quorum. A majority of the entire Board of Trustees
may fill a vacancy which results from an increase in the number of trustees. A
vote of shareholders holding at least a majority of all the votes entitled to be
cast thereon is required to amend, alter, change, repeal or adopt any provisions
inconsistent with the foregoing classified board and trustee removal provisions.
These provisions may make it more difficult and time-consuming to change
majority control of the Board of Trustees of the Company and, thus, may reduce
the vulnerability of the Company to an unsolicited proposal for the takeover of
the Company or the removal of incumbent management.
Because the Board of Trustees will have the power to establish the
preferences and rights of additional series of shares of beneficial interest
without a shareholder vote, the Board of Trustees may afford the holders of any
series of senior shares of beneficial interest preferences, powers and rights,
voting or otherwise, senior to the rights of holders of Common Shares. The
issuance of any such senior shares of beneficial interest could have the effect
of delaying, deferring or preventing a change in control of the Company. The
Board of Trustees, however, currently does not contemplate the issuance of any
shares of beneficial interest other than Common Shares.
See "Management -- Limitation of Liability and Indemnification" for a
description of the limitations on liability of trustees and officers of the
Company and the provisions of indemnification of trustees and officers provided
for under applicable Maryland law, the Declaration of Trust, and the Bylaws.
CHANGES IN CONTROL PURSUANT TO MARYLAND LAW
Maryland Business Combination Law. Under the MGCL, as applicable to real
estate investment trusts, certain "business combinations" (including certain
issuances of equity securities) between a Maryland real estate investment trust
and any Interested Shareholder or an affiliate of the Interested Shareholder are
prohibited for five years after the most recent date on which the Interested
Shareholder becomes an Interested Shareholder. Thereafter, any such business
combination must be recommended by the Board of Trustees of such Trust and
approved by the affirmative vote of at least (a) 80% of the votes entitled to be
cast by holders of outstanding voting shares of beneficial interest of the
trust; and (b) two-thirds of the votes entitled to be cast by holders of voting
shares of the trust other than shares held by the Interested Shareholder with
whom (or with whose affiliate) the business combination is to be effected,
unless, among other conditions, the trust's common shareholders receive a
minimum price (as defined in the MGCL) for their shares and the consideration is
received in cash or in the same form as previously paid by the Interested
Shareholder for its common shares. As permitted by the MGCL, the Board of
Trustees of the Company has opted out of the business combination provisions of
the MGCL. Consequently, the five-year prohibition and the super-majority vote
requirements will not apply to a business combination involving the Company;
however, the Company's Board of Trustees may repeal this opt-out and cause the
Company to become subject to these provisions in the future.
Maryland Control Share Acquisition Law. In addition, also under the MGCL,
as applicable to real estate investments trusts, "control shares" acquired in a
"control share acquisition" have no voting rights except to the extent approved
by a vote of two-thirds of the votes entitled to be cast on the matter,
excluding shares owned by the acquiror, by officers or by trustees who are
employees of the trust. "Control shares" are voting shares which, if aggregated
with all other such shares previously acquired by the acquiror or in respect of
which the acquiror is able to exercise or direct the exercise of voting power
(except solely by virtue of a revocable proxy), would entitle the acquiror to
exercise voting power in electing trustees within one of the following ranges of
voting power: (i) one-fifth or more but less than one-third; (ii) one-third or
more but less than a majority; or (iii) a majority or more of all voting power.
Control shares do not include shares the
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acquiring person is then entitled to vote as a result of having previously
obtained shareholder approval. A "control share acquisition" means the
acquisition of control shares, subject to certain exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of trustees of the trust to call a special meeting of
shareholders to be held within 50 days of demand to consider the voting rights
of the shares. If no request for a meeting is made, the trust may itself present
the question at any shareholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then,
subject to certain conditions and limitations, the trust may redeem any or all
of the control shares (except those for which voting rights have previously been
approved) for fair value determined, without regard to the absence of voting
rights for the control shares, as of the date of the last control share
acquisition by the acquiror or of any meeting of shareholders at which the
voting rights of such shares are considered and not approved. If voting rights
for control shares are approved at a shareholders meeting and the acquiror
becomes entitled to vote a majority of the shares entitled to vote, all other
shareholders may exercise appraisal rights. The fair value of the shares as
determined for purposes of such appraisal rights may not be less than the
highest price per share paid by the acquiror in the control share acquisition.
The control share acquisition statute does not apply (a) to shares acquired
in a merger, consolidation or share exchange if the trust is a party to the
transaction; or (b) to acquisitions approved or exempted by the declaration of
trust or bylaws of the trust. As permitted by the MGCL, the Bylaws of the
Company contain a provision opting out of the control share provisions of the
MGCL, but the Board of Trustees may amend the Bylaws so that acquisitions of
shares of the Company are subject to these provisions in the future.
AMENDMENTS TO THE DECLARATION OF TRUST
Under the Maryland REIT Law, a declaration of trust may permit the trustees
by a two-thirds vote to amend the declaration of trust from time to time to
qualify as a REIT under the Code or the Maryland REIT Law without the
affirmative vote or written consent of the shareholders. The Company's
Declaration of Trust permits such action by the Board of Trustees. Also under
the Maryland REIT Law, a declaration of trust may permit the board of trustees
to amend the declaration of trust to increase the aggregate number of shares of
beneficial interest or the number of shares of any class without shareholder
approval. Pursuant to this statute, the Declaration of Trust authorizes the
Board of Trustees, without shareholder approval, to increase or decrease the
aggregate number of shares of beneficial interest of the Company or the number
of shares of beneficial interest of any class of beneficial interest of the
Company. Amendments of the Declaration of Trust in connection with a transaction
pursuant to which the trust's business and assets will be combined with those of
one or more entities (whether by merger, sale or other transfer of assets,
consolidation or share exchange) require the affirmative vote of not less than a
majority of all the votes entitled to vote on the matter. All other amendments
to the Declaration of Trust also requires the affirmative vote of the holders of
not less than a majority of all of the votes entitled to be cast on the matter.
ADVANCE NOTICE OF TRUSTEE NOMINATIONS AND NEW BUSINESS
The Bylaws of the Company provide that (i) with respect to an annual
meeting of shareholders, nominations of persons for election to the Board of
Trustees and the proposal of business to be considered by shareholders may be
made only (A) pursuant to the Company's notice of the meeting, (B) by or at the
direction of the Board of Trustees or (C) by a shareholder who was a shareholder
of record both at the time of giving notice and at the time of the annual
meeting who is entitled to vote at the meeting and has complied with the advance
notice procedures set forth in the Bylaws and (ii) with respect to special
meetings of the shareholders, only the business specified in the Company's
notice of meeting may be brought before the meeting of shareholders and
nominations of persons for election to the Board of Trustees may be made only
(A) pursuant to the Company's notice of the meeting, (B) by the Board of
Trustees or (C) provided that the Board of Trustees has determined that trustees
shall be elected at such meeting, by a shareholder who was a shareholder of
record both at the time of giving notice and at the time of the annual meeting
who was a
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shareholder of record both at the time of giving notice and at the time of the
annual meeting who is entitled to vote at the meeting and has complied with the
advance notice provisions set forth in the Bylaws.
ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE
DECLARATION OF TRUST AND BYLAWS
The business combination provisions and the control share acquisition
provisions of the MGCL, in each case if they ever became applicable to the
Company, could delay, defer or prevent a transaction or a change in control of
the Company that might involve a premium price for holders of Common Shares or
otherwise be in their best interests. The Declaration of Trust, as in effect,
provides that a merger, consolidation or sale of all or substantially all of the
assets of the Company must be approved by the affirmative vote of not less than
a majority of all votes entitled to be cast on the matter.
MARYLAND ASSET REQUIREMENTS
To maintain its qualification as a Maryland real estate investment trust,
the Maryland REIT Law requires that the Company hold, either directly or
indirectly, at least 75% of the value of its assets in real estate assets,
mortgages or mortgage related securities, government securities, cash and cash
equivalent items, including high-grade short-term securities and receivables.
The Maryland REIT Law also prohibits using or applying land for farming,
agricultural, horticultural or similar purposes.
PARTNERSHIP AGREEMENT
The following summary of the Operating Partnership Agreement, including the
descriptions of certain provisions thereof set forth elsewhere in this
Prospectus, is qualified in its entirety by reference to the Amended and
Restated Agreement of limited partnership of the Operating Partnership (the
"Operating Partnership Agreement"), which is filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
MANAGEMENT
The Operating Partnership was formed on October 17, 1997, as a limited
partnership under the Delaware Revised Uniform Limited Partnership Act (the
"Partnership Act"). The initial general partner and limited partner of the
Operating Partnership were Palmer Management and an affiliate thereof,
respectively. In connection with the Formation Transactions, Palmer Management's
general partnership interest in the Operating Partnership will be converted into
a limited partnership interest, the Partnership Agreement of the Operating
Partnership will be amended and restated in the form of the Operating
Partnership Agreement, and the Company will be admitted as the sole general
partner of the Operating Partnership. The Company expects at all times to own a
majority interest in the Operating Partnership.
The Company, as the sole general partner of the Operating Partnership, has
the exclusive power and authority to conduct the business of the Operating
Partnership, subject to the consent of the limited partners in certain limited
circumstances. Limited Partners will have no right or authority to act for or to
bind the Operating Partnership. No Limited Partner may take part in the conduct
or control of the business or affairs of the Operating Partnership by virtue of
being a holder of OP Units. In particular, the Limited Partners expressly
acknowledge in the Operating Partnership Agreement that the Company, as general
partner, is acting on behalf of the Operating Partnership's Limited Partners and
the Company's shareholders collectively, and subject to any agreements entered
into by the Operating Partnership with any partners of the Operating
Partnership, the Company is under no obligation to consider the tax consequences
to Limited Partners when making decisions for the benefit of the Operating
Partnership.
SALES OF ASSETS
Under the Operating Partnership Agreement, the Company, as general partner,
has the exclusive authority to determine whether, when and on what terms the
assets of the Operating Partnership (including the Golf Courses) will be sold,
although a sale of all or substantially all of the assets of the Operating
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Partnership (or a merger of the Operating Partnership with another entity)
generally requires an affirmative vote of the holders of a majority of the
outstanding OP Units (including OP Units held directly or indirectly by the
Company). The Company expects to own, directly or indirectly, a majority of the
OP Units and thus to control the outcome of such a vote.
REMOVAL OF THE GENERAL PARTNER; TRANSFER OF THE COMPANY'S INTERESTS
The Operating Partnership Agreement provides that the Limited Partners may
not remove the Company as general partner of the Operating Partnership with or
without cause (unless neither the general partner nor its parent is a "public
company," in which case the general partner may be removed for cause). In
addition, the Company may not transfer any of its interests as general or
limited partner in the Operating Partnership, except in connection with a merger
or sale of all or substantially all of the Company's assets (subject to certain
conditions).
Although the Company cannot transfer its partnership interests except in a
transaction in which substantially all of the assets of the surviving entity
consist of OP Units, the Operating Partnership Agreement does not prevent a
transaction in which another entity acquires control (or all of the outstanding
Common Shares) of the Company and that other entity owns assets and conducts
businesses outside of the Operating Partnership.
REIMBURSEMENT OF THE COMPANY; TRANSACTIONS WITH THE COMPANY AND ITS AFFILIATES
The Company will not receive any compensation for its services as general
partner of the Operating Partnership. The Company, however, as a partner in the
Operating Partnership, has the same right to allocations and distributions as
other partners of the Operating Partnership. In addition, the Operating
Partnership will reimburse the Company for all expenses it incurs relating to
its activities as general partner, its continued existence and qualification as
a REIT and all other liabilities incurred by the Company in connection with the
pursuit of its business and affairs (including expenses incurred by the Company
in connection with the issuance of Common Shares or other securities of the
Company). Except as expressly permitted by the Operating Partnership Agreement,
affiliates of the Company will not engage in any transactions with the Operating
Partnership except on terms that are fair and reasonable and no less favorable
to the Operating Partnership than would be obtained from an unaffiliated third
party.
REDEMPTION OF OP UNITS
Subject to certain limitations in the Operating Partnership Agreement,
holders of OP Units generally will have the right ("Redemption Right") to
require the redemption of their OP Units at any time one year after the date of
the closing of the Offering (or on such date prior to the expiration of such
one-year period as the Company, as general partner, designates with respect to
any or all OP Units). Unless the Company elects to assume and perform the
Operating Partnership's obligation with respect to the Redemption Right, as
described below, the limited partner electing to exercise such Redemption Right
will receive cash from the Operating Partnership in an amount equal to the
market value of the OP Units to be redeemed. The market value of an OP Unit for
this purpose will be equal to the average of the closing price of a Common Share
on the New York Stock Exchange for the 10 trading days before the day on which
the redemption notice was given. In lieu of the Operating Partnership acquiring
the OP Units for cash, the Company will have the right to elect to acquire the
OP Units directly from a Limited Partner exercising the Redemption Right, in
exchange for either cash or Common Shares, and, upon such acquisition, the
Company will become the owner of such OP Units. Upon exercise of the Redemption
Right, the Limited Partner's right to receive distributions for the OP Units so
redeemed or exchanged will cease. At least 1,000 OP Units (or all remaining OP
Units owned by the Limited Partner if less than 1,000 OP Units) must be redeemed
each time the Redemption Right is exercised. No redemption or exchange can occur
if delivery of Common Shares would be prohibited either under the provisions of
the Company's Declaration of Trust designed to protect the Company's
qualification as a REIT or under applicable federal or state securities laws.
See "Shares of Beneficial Interest." The Company will at all times reserve and
keep available out of its authorized but unissued Common Shares, solely for the
purpose of effecting the issuance of Common Shares pursuant to the
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Redemption Right, a sufficient number of Common Shares as shall from time to
time be sufficient for the redemption of all outstanding OP Units not owned by
the Company.
RESTRICTIONS ON TRANSFER OF UNITS BY LIMITED PARTNERS
The Operating Partnership Agreement imposes certain restrictions on the
transfer of OP Units. The Operating Partnership Agreement provides that no
Limited Partner shall, without the prior written consent of the Company (which
may be withheld in the sole discretion of the Company), sell, assign, distribute
or otherwise transfer all or any part of his or its interest in the Operating
Partnership except by operation of law, by gift (outright or in trust) or by
sale, in each case to or for the benefit of his spouse or descendants, except
for pledges or other collateral transfers effected by a Limited Partner to
secure the repayment of a loan, and except for the redemption of OP Units in
accordance with the Operating Partnership Agreement. No transfers may be
effected that would adversely affect the Company's REIT status. See "Shares of
Beneficial Interest -- Restrictions on Ownership and Transfer."
ISSUANCE OF ADDITIONAL UNITS AND/OR PREFERENCE UNITS
The Company is authorized at any time, without the consent of the Limited
Partners, to cause the Operating Partnership to issue additional OP Units to the
Company, to the Limited Partners or to other persons for such consideration and
on such terms and conditions as the Company deems appropriate. If OP Units are
issued to the Company, then the Company must issue a corresponding number of
Common Shares and must contribute to the Operating Partnership the proceeds, if
any, received by the Company from such issuance. In addition, the Operating
Partnership Agreement provides that the Operating Partnership may also issue
preferred units and other partnership interests of different classes and series
(collectively, "Preference Units") having such rights, preferences and other
privileges, variations and designations as may be determined by the Company. Any
such Preference Units may have terms, provisions and rights which are
preferential to the terms, provisions and rights of the OP Units. Preference
Units, however, may be issued to the Company only in connection with an offering
of securities of the Company having substantially similar rights and the
contribution of the proceeds therefrom to the Operating Partnership. No Limited
Partner has preemptive, preferential or similar rights with respect to capital
contributions to the Operating Partnership or the issuance or sale of any
partnership interests therein.
CAPITAL CONTRIBUTIONS
No partner of the Operating Partnership will be required to make additional
capital contributions to the Operating Partnership, except that the Company is
generally required to contribute net proceeds of the sale of Common Shares (and
other equity interests) of the Company to the Operating Partnership. No limited
or general partner will be required to pay to the Operating Partnership any
deficit or negative balance which may exist in its account.
DISTRIBUTIONS; ALLOCATIONS OF INCOME AND LOSS
The Operating Partnership Agreement generally provides for the distribution
of "Available Cash" (as defined below) in the discretion of the general partner,
as determined in the manner provided in the Operating Partnership Agreement, to
the partners of the Operating Partnership in proportion to their percentage
interests in the Operating Partnership (which for any partner is determined by
the number of OP Units it owns relative to the total number of OP Units
outstanding). "Available Cash" is generally defined as net cash flow from
operations plus any reduction in reserves and minus interest and principal
payments on debt, capital expenditures, any additions to reserves and other
adjustments. Neither the Company nor the other partners are entitled to any
preferential or disproportionate distributions of Available Cash with respect to
the OP Units.
EXCULPATION AND INDEMNIFICATION OF THE COMPANY
The Operating Partnership Agreement generally provides that the Company, as
general partner of the Operating Partnership, will incur no liability to the
Operating Partnership or any Limited Partner for losses
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sustained, liabilities incurred, or benefits not derived as a result of errors
in judgment or for any mistakes of fact or law or for anything which it may do
or refrain from doing in connection with the business and affairs of the
Operating Partnership if the Company or such other general partner carried out
its duties in good faith. The Company's liability in any event is limited to its
interest in the Operating Partnership. Without limiting the foregoing, the
Company has no liability for the loss of any Limited Partner's capital. In
addition, the Company is not responsible for any misconduct, negligent act or
omission of any consultant, contractor, or agent of the Operating Partnership or
of the Company and has no obligation other than to use good faith in the
selection of all such contractors, consultants, and agents.
The Operating Partnership Agreement also requires the Operating Partnership
to indemnify the Company, the trustees and officers of the Company, and such
other persons as the Company may from time to time designate against any loss or
damage, including reasonable legal fees and court costs incurred by such person
by reason of anything it may do or refrain from doing for or on behalf of the
Operating Partnership or in connection with its business or affairs unless it is
established that: (i) the act or omission of the indemnified person was material
to the matter giving rise to the proceeding and either was committed in bad
faith or was the result of active and deliberate dishonesty; (ii) the
indemnified person actually received an improper personal benefit in money,
property or services; or (iii) in the case of any criminal proceeding, the
indemnified person had reasonable cause to believe that the act or omission was
unlawful. Any such indemnification claims must be satisfied solely out of the
assets of the Operating Partnership.
AMENDMENT OF THE PARTNERSHIP AGREEMENT
Amendments to the Operating Partnership Agreement may be proposed by the
Company or by Limited Partners owning at least 25% of the then outstanding OP
Units. Generally, the Operating Partnership Agreement may be amended with the
approval of the Company, as general partner, and Limited Partners (including the
Company) holding a majority of the OP Units. Certain provisions regarding, among
other things, dissolution of the Operating Partnership, may not be amended
without the approval of a majority of the OP Units not held by the Company.
Certain amendments that would, among other things, (i) convert a Limited
Partner's interest into a general partner's interest, (ii) modify the limited
liability of a Limited Partner, (iii) alter the interest of a partner in profits
or losses, or the right to receive any distributions (except as permitted under
the Operating Partnership Agreement with respect to the admission of new
partners or the issuance of additional OP Units), or (iv) alter the Redemption
Right, must be approved by the Company and each Limited Partner that would be
adversely affected by such amendment.
TERM
The Operating Partnership will be dissolved and its affairs wound up upon
the earliest of (i) December 31, 2097; (ii) the withdrawal of the Company as
general partner without the permitted transfer of the Company's interest to a
successor general partner (except in certain limited circumstances); (iii) the
sale of all or substantially all of the Operating Partnership's assets and
properties; (iv) the entry of a decree of judicial dissolution of the Operating
Partnership pursuant to the provisions of the Partnership Act; (v) the entry of
a final non-appealable judgment ruling that the last remaining general partner
is bankrupt or insolvent (except that, in either such case, in certain
circumstances the Limited Partners (other than the Company) may vote to continue
the Operating Partnership and substitute a new general partner in place of the
Company); or (vi) on election by the Company, in its sole and absolute
discretion.
SHARES AVAILABLE FOR FUTURE SALE
GENERAL
Upon the consummation of the Offering, the Company will have outstanding
(or reserved for issuance upon exchange of OP Units) up to 8,051,000 Common
Shares. The Common Shares issued in the Offering will be freely tradeable by
persons other than "affiliates" of the Company without restriction under the
Securities Act of 1933, as amended (the "Securities Act"), subject to the
limitations on ownership set forth in
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the Declaration of Trust. See "Shares of Beneficial Interest." The Common Shares
owned by the Company's trustees, executive officers and employees and by the
partners of the Operating Partnership and their respective transferees,
including shares issuable upon exchange of OP Units (the "Restricted
Securities"), will be "restricted securities" within the meaning of Rule 144
promulgated under the Securities Act ("Rule 144") and may not be sold in the
absence of registration under the Securities Act or pursuant to an exemption
from registration, including exemptions contained in Rule 144. As described
below under "-- Registration Rights," the Company has granted certain holders
registration rights with respect to their Common Shares.
In general, under Rule 144 as currently in effect, if one year has elapsed
since the later of the date of acquisition of Restricted Securities from the
Company or any "affiliate" of the Company, as that term is defined under the
Securities Act, the acquiror or subsequent holder thereof is entitled to sell
within any three-month period a number of shares that does not exceed the
greater of 1% of the then outstanding Common Shares or the average weekly
trading volume of the Common Shares during the four calendar weeks preceding the
date on which notice of the sale is filed with the United States Securities and
Exchange Commission ("SEC"). Sales under Rule 144 are also subject to certain
manner of sale provisions, public information requirements and notice
requirements. After two years have elapsed since the date of acquisition of
Restricted Securities from the Company or from any "affiliate" of the Company,
and the acquiror or subsequent holder thereof is deemed not to have been an
affiliate of the Company at any time during the 90 days preceding a sale, such
person would be entitled to sell such shares in the public market under Rule
144(k) without regard to the volume limitations, manner of sale provisions,
public information requirements or notice requirements.
Prior to the date of this Prospectus, there has been no public market for
the Common Shares. Trading of the Common Shares on the New York Stock Exchange
is expected to commence following the consummation of the Offering. No
prediction can be made as to the effect, if any, that future sales of Common
Shares, or the availability of Common Shares for future sale, will have on the
market price prevailing from time to time. Sales of substantial amounts of
Common Shares (including shares issued upon the exercise of share options), or
the perception that such sales occur, could adversely affect prevailing market
prices of the Common Shares. See "Risk Factors -- Ownership of Common Shares --
Adverse Effect of Shares Available for Future Sale on Market Price of Common
Shares."
For a description of certain restrictions on transfers of Common Shares
held by certain shareholders of the Company, see "Underwriting."
REGISTRATION RIGHTS
The Company has granted certain Prior Owners and/or their affiliates,
including Messrs. Deniger, Nanula, and Haworth, certain registration rights with
respect to the Common Shares acquired in the Formation Transactions and Common
Shares issuable upon exchange of OP Units acquired in the Formation
Transactions. These registration rights require the Company, subject to certain
limitations, to file a registration statement under the Securities Act relating
to such Common Shares one year after the effective date of the registration
statement relating to the Offering and to keep such registration statement
effective until such shares have been disposed of under the registration
statement or are eligible for resale without limitation under Rule 144. The
Company has agreed to bear all expenses incident to the registration of such
Common Shares other than any underwriting discounts or selling commissions.
Notwithstanding such registration rights, the Company, the Operating Partnership
and Palmer Management, and trustees or directors and officers of each such
entity, have agreed not to sell or otherwise dispose of such Common Shares
without the consent of Smith Barney Inc. for a 12-month period after the date of
this Prospectus.
Subsequent to the consummation of the Offering, the Company intends to
register, under the Securities Act, the sale of the Common Shares issuable in
connection with the employee and trustee share option and bonus plans and
arrangements described under "Management."
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FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
consequences reasonably anticipated to be material to a prospective shareholder
of the Company in connection with the ownership of Common Shares. The following
description is general in nature only, is not exhaustive of all possible tax
considerations and is not intended to be (and should not be construed as) tax
advice. This discussion is not intended to represent a detailed description of
the federal income tax consequences that might be relevant to a specific
shareholder in light of its particular investment or tax circumstances. The
description does not purport to deal with any aspect of state or local taxation
aspects of taxation that may be relevant to shareholders subject to special
treatment under the federal income tax laws, including, without limitation,
insurance companies, financial institutions or broker-dealers, tax-exempt
organizations (except to the extent discussed under the heading "Taxation of
Tax-Exempt Shareholders of the Company") or foreign corporations and persons who
are not citizens or residents of the United States (except to the extent
discussed under the heading "Taxation of Non-U.S. Shareholders of the Company").
The information in this section is based on the Code, current, temporary
and proposed Treasury Regulations thereunder, the legislative history of the
Code, current administrative interpretations and practices of the Service
(including its practices and policies as endorsed in private letter rulings,
which are not binding on the Service except with respect to a taxpayer that
receives such a ruling), and court decisions, all as of the date hereof. No
assurance can be given that future legislation, Treasury Regulations,
administrative interpretations and court decisions will not significantly change
the current law or adversely affect existing interpretations of current law. Any
such change could apply either prospectively or retroactively. The Company has
not requested, and does not plan to request, any rulings from the Service
concerning the tax treatment of the Company or the Operating Partnership. Thus,
no assurance can be provided that the statements set forth herein (which do not
bind the Service or the courts) will not be challenged by the Service or will be
sustained by a court if so challenged.
As used in this section, the term "Company" refers solely to Presidio Golf
Trust.
THIS DISCUSSION IS NOT INTENDED TO BE A SUBSTITUTE FOR CAREFUL TAX
PLANNING. EACH PROSPECTIVE PURCHASER OF SHARES IS URGED TO CONSULT WITH HIS OWN
TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE OWNERSHIP AND
DISPOSITION OF SHARES IN AN ENTITY ELECTING TO BE TAXED AS A REIT IN LIGHT OF
ITS SPECIFIC TAX AND INVESTMENT SITUATIONS AND THE SPECIFIC FEDERAL, STATE,
LOCAL AND FOREIGN TAX LAWS APPLICABLE TO IT.
TAXATION OF THE COMPANY
General. The Company plans to elect to be taxed as a REIT under Sections
856 through 860 of the Code, commencing with its initial taxable year ending
December 31, 1998. The Company believes that, commencing with its initial
taxable year ending December 31, 1998, it will be organized and will operate in
such a manner as to qualify for taxation as a REIT under the Code. The Company
intends to continue to operate in such a manner, but no assurance can be given
that it will operate in a manner so as to qualify or remain qualified as a REIT.
The sections of the Code relating to qualification and operation as a REIT
are highly technical and complex. The following discussion sets forth the
material aspects of the rules that govern the federal income tax treatment of a
REIT and its shareholders. This summary is qualified in its entirety by the
applicable Code provisions, rules and regulations promulgated thereunder, and
administrative and judicial interpretations thereof.
Rudnick & Wolfe has acted as special tax counsel to the Company in
connection with the Offering and the Company's election to be taxed as a REIT.
In the opinion of Rudnick & Wolfe, commencing with the Company's taxable year
ending December 31, 1998, the Company will be organized in conformity with the
requirements for qualification as a REIT, and its proposed method of operation
will enable it to meet the requirements for qualification and taxation as a REIT
under the Code. Unlike a tax ruling, an opinion of
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counsel is not binding upon the Service and no assurance can be given that the
Service will not challenge the status of the Company as a REIT. It must be
emphasized that this opinion is based on various assumptions and is conditioned
upon certain representations made by the Company as to factual matters relating
to the organization and operation of the Company and the Operating Partnership.
In addition, this opinion is based upon the factual representations of the
Company concerning its business and properties as set forth in this Prospectus
and assumes that the actions described in this Prospectus are completed in a
timely fashion. Moreover, such qualification and taxation as a REIT depends upon
the Company's continuing ability to meet, through actual annual operating
results, distribution levels, diversity of share ownership, and the various
other qualification tests imposed under the Code discussed below, the results of
which will not be reviewed by Rudnick & Wolfe. Accordingly, no assurance can be
given that the actual results of the Company's operation for any particular
taxable year will satisfy such requirements. Further, the anticipated income tax
treatment described in this Prospectus may be changed, perhaps retroactively, by
legislative, administrative or judicial action at any time. See "-- Failure to
Qualify as a REIT."
If the Company qualifies for taxation as a REIT, the Company generally will
not be subject to federal corporate income tax on its net income that is
currently distributed to its shareholders. This treatment substantially
eliminates the "double taxation" (at the corporate and shareholder levels) that
generally results from investment in a C corporation. If the Company does not
qualify as a REIT, it would be taxed at rates applicable to corporations on all
of its income, whether or not distributed to its shareholders. Even if the
Company qualifies as a REIT, it will be subject to federal income tax in certain
instances. First, the Company will be taxed at regular corporate rates on any
undistributed real estate investment trust taxable income, including
undistributed net capital gains. Second, under certain circumstances, the
Company may be subject to the "alternative minimum tax" on its undistributed
items of tax preference. Third, if the Company has (i) net income from the sale
or other disposition of "foreclosure property" (generally, property acquired by
reason of a default on indebtedness or a lease) which is held primarily for sale
to customers in the ordinary course of business or (ii) other non-qualifying
income from foreclosure property, it will be subject to tax on such income from
foreclosure property at the highest corporate rate. Fourth, if the Company has
net income from "prohibited transactions" (which are, in general, certain sales
or other dispositions of property, other than foreclosure property, held
primarily for sale to customers in the ordinary course of business), such income
will be subject to a 100% corporate level tax. Fifth, if the Company should fail
to satisfy the 75% gross income test or the 95% gross income test (each
discussed below), but has nonetheless maintained its qualification as a REIT
because certain other requirements have been met, it will be subject to a 100%
tax on an amount equal to (a) the gross income attributable to the greater of
the amount by which the Company fails the 75% or 95% test, multiplied by (b) a
fraction intended to reflect the Company's profitability. Sixth, if the Company
should fail to distribute during each calendar year at least the sum of (i) 85%
of its real estate investment trust ordinary income for such year, (ii) 95% of
its real estate investment trust capital gain net income for such year, and
(iii) any undistributed taxable income from prior periods, the Company will be
subject to a 4% excise tax on the excess of such required distribution over the
amounts actually distributed. Capital gains which are retained by the Company
and upon which the Company pays capital gains tax will not be subject to the
excise tax. Seventh, if the Company acquires any asset from a C corporation in a
transaction in which the basis of the asset in the hands of the Company is
determined by reference to the basis of the asset in the hands of the C
corporation and the Company makes an election pursuant to IRS Notice 88-19 to
defer the recognition of net unrealized Built-In Gain on such assets, if the
Company recognizes gain on the disposition of such assets in any taxable year
during the 10-year period (the "Recognition Period") beginning on the date on
which such assets were acquired by the Company, then gain recognized to the
extent of the excess of the fair market value of the asset as of the date of the
Company's acquisition over the Company's adjusted basis in such asset on such
date, will be subject to tax at the highest regular corporate rate. Notice 88-19
is in effect until legislation is enacted or further guidance is issued.
Requirements for Qualification. The Code defines a REIT as a corporation,
trust or association: (i) which is managed by one or more trustees or directors;
(ii) the beneficial ownership of which is evidenced by transferable shares, or
by transferable certificates of beneficial interest; (iii) which would be
taxable as a domestic corporation, but for Code Sections 856 through 859; (iv)
which is neither a financial institution nor an insurance company subject to
certain provisions of the Code; (v) the beneficial ownerships of which is held
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by 100 or more persons; (vi) during the last half of each taxable year, not more
than 50% in value of the outstanding shares of which are owned, directly,
indirectly or constructively, by five or fewer individuals (as defined in the
Code to include certain entities) (the "Five or Fewer Rule"); and (vii) which
meets certain other tests, described below, regarding the nature of its income
and assets. The Code provides that conditions (i) to (iv), inclusive, must be
met during the entire taxable year and that condition (v) must be met during at
least 335 days of a taxable year of 12 months, or during a proportionate part of
a taxable year of less than 12 months. Conditions (v) and (vi) will not apply
until after the first taxable year for which an election is made to be taxed as
a REIT. Additionally, if for any taxable year the Company complies with the
Treasury Regulations requiring the maintenance of records to ascertain ownership
of its outstanding shares and the Company does not know or have reason to know
that it failed to satisfy the Five or Fewer Rule, it will be treated as having
satisfied that condition for any such taxable year.
The Company has issued sufficient shares pursuant to the Offering to allow
it to satisfy conditions (v) and (vi). In addition, the Company's Declaration of
Trust provides for restrictions regarding the transfer and ownership of shares,
which restrictions are intended to assist the Company in continuing to satisfy
the share ownership requirements described in (v) and (vi) above. Such transfer
and ownership restrictions are described in "Shares of Beneficial Interest --
Restrictions on Ownership and Transfer." The Company intends to comply with such
Treasury Regulations. Although a failure to ascertain the actual ownership of
its shares will not cause a disqualification of REIT status, a monetary fine
will result.
The Company currently has no corporate subsidiaries, but may in the future.
Code Section 856(i) provides that a corporation that is a "qualified REIT
subsidiary" ("QRS") shall not be treated as a separate corporation, and all
assets, liabilities, and items of income, deduction, and credit of a QRS shall
be treated as assets, liabilities, and items of income, deduction, and credit of
the REIT. A QRS is a corporation, all of the capital stock or shares of
beneficial interest of which are owned by the REIT. In the future, the Company
may form subsidiaries that will constitute QRSs. Such QRSs would not be subject
to federal corporate income taxation, although they may be subject to state and
local taxation.
In the case of a REIT which is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the income
of the partnership attributable to such share. In addition, the assets and gross
income of the partnership retain the same character in the hands of the REIT for
purposes of Code Section 856, including satisfying the gross income tests and
the asset tests. Thus, the Company's proportionate share of the assets,
liabilities and items of income of the Operating Partnership will be treated as
assets, liabilities and items of income of the Company for purposes of applying
the requirements described herein. A summary of the rules governing the federal
income taxation of partnerships and their partners is provided below in "-- Tax
Aspects of the Operating Partnership."
Income Tests. In order to maintain qualification as a REIT, the Company
must satisfy two gross income requirements on an annual basis. First, at least
75% of the Company's gross income (excluding gross income from prohibited
transactions) for each taxable year must be derived, directly or indirectly,
from investments relating to real property or mortgages on real property
(including "rents from real property" and, in certain circumstances, interest)
or from certain types of temporary investments. Second, at least 95% of the
Company's gross income (excluding gross income from prohibited transactions) for
each taxable year must be derived from such real property investments,
dividends, interest and gain from the sale or disposition of stock or securities
(or from any combination of the foregoing).
Pursuant to the Participating Leases, the Initial Lessees will lease from
the Company the land, buildings, improvements and equipment comprising the Golf
Courses for Fixed Terms of 15 years, with options for an Extended Term for each
respective Participating Lease for up to five terms of five years each, subject
to earlier termination upon the occurrence of certain defaults described in each
respective Participating Lease. The Participating Leases will be "triple net"
leases which will require the Lessees to pay substantially all expenses
associated with the operation of the Golf Courses, such as real estate taxes,
insurance, utilities, service, maintenance and other operating expenses. During
Fixed Terms and the Extended Terms of the Participating
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Leases the Lessees are obligated to pay to the Company (i) Base Rent and, if
applicable, Participating Rent and (ii) certain other additional charges. See
"The Participating Leases."
In order for the Base Rent, the Participating Rent and the additional
charges to constitute "rents from real property," the Participating Leases must
be respected as true leases for federal income tax purposes and not treated as
service contracts, joint ventures or some other type of arrangement. The
determination of whether the Participating Leases are true leases depends on an
analysis of all the surrounding facts and circumstances. In making such a
determination, courts have considered a variety of factors, including the
following: (i) the intent of the parties, (ii) the form of the agreement, (iii)
the degree of control over the property that is retained by the property owner
(whether the lessee has substantial control over the operation of the property
or whether the lessee was required simply to use its best efforts to perform its
obligations under the agreement), and (iv) the extent to which the property
owner retains the risk of loss with respect to the property (e.g., whether the
lessee bears the risk of increases in operating expenses or the risk of damage
to the property).
In addition, Code Section 7701(e) provides that a contract that purports to
be a service contract (or a partnership agreement) is treated instead as a lease
of property if the contract is properly treated as such, taking into account all
relevant factors, including whether or not: (i) the service recipient is in
physical possession of the property, (ii) the service recipient controls the
property, (iii) the service recipient has a significant economic or possessory
interest in the property (e.g., the property's use is likely to be dedicated to
the service recipient for a substantial portion of the useful life of the
property, the recipient shares the risk that the property will decline in value,
the recipient shares in any appreciation in the value of the property, the
recipient shares in savings in the property's operating costs, or the recipient
bears the risk of damage to or loss of the property), (iv) the service provider
does not bear any risk of substantially diminished receipts or substantially
increased expenditures if there is nonperformance under the contract, (v) the
service provider does not use the property concurrently to provide significant
services to entities unrelated to the service recipient, and (vi) the total
contract price does not substantially exceed the rental value of the property
for the contract period. Since the determination whether a service contract
should be treated as a lease is inherently factual, the presence or absence of
any single factor may not be dispositive in every case.
Rudnick & Wolfe is of the opinion that each Participating Lease will be
treated as a true lease for federal income tax purposes. Such opinion is based,
in part, on the following facts: (i) the Operating Partnership and the Initial
Lessees intend for their relationship to be that of a lessor and lessee and such
relationship is documented by lease agreements, (ii) the Initial Lessees have
the right to exclusive possession and use and quiet enjoyment of the Golf
Courses during the term of the Participating Leases, (iii) the Initial Lessees
bear the cost of, and are responsible for, day to day maintenance and repair of
the Golf Courses other than the cost of certain capital expenditures, and have
the right to dictate how the Golf Courses are operated, maintained, and
improved, (iv) the Initial Lessees bear all of the costs and expenses of
operating the Golf Courses (including the cost of any inventory used in their
operation) during the term of the Participating Leases other than the cost of
certain furniture, fixtures and equipment, and certain capital expenditures, (v)
the Initial Lessees benefit from any savings in the costs of operating the Golf
Courses during the terms of the Participating Leases, (vi) in the event of
damage or destruction to a Golf Course, the Initial Lessees are at economic risk
because they will be obligated either (A) to restore the property to its prior
condition, in which event they will bear all costs of such restoration in excess
of any insurance proceeds or (B) in certain circumstances, terminate the
Participating Lease, (vii) the Initial Lessees have indemnified the Operating
Partnership against all liabilities imposed on the Operating Partnership during
the term of the Participating Leases by reason of (a) injury to persons or
damage to property occurring at the Golf Courses or (b) the Initial Lessees'
use, management, maintenance or repair of the Golf Courses, (viii) the Initial
Lessees are obligated to pay substantial Base Rent for the period of use of the
Golf Courses, (ix) the Initial Lessees stand to incur substantial losses (or
reap substantial gains) depending on how successfully they operate the Golf
Courses, (x) the useful lives of the Golf Courses are significantly longer than
the terms of the Participating Leases, and (xi) the Operating Partnership will
receive the benefit of any increase in value, and will bear the risk of any
decrease in value, of the Golf Courses during the terms of the Participating
Leases.
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Investors should be aware that there are no controlling Treasury
Regulations, published rulings, or judicial decisions involving leases with
terms substantially the same as the Participating Leases that directly address
the issue of whether such leases constitute true leases for federal income tax
purposes. Therefore, the opinion of Rudnick & Wolfe with respect to the
relationship between the Operating Partnership and the Initial Lessees is based
upon all of the facts and circumstances and upon rulings and judicial decisions
involving situations that are considered to be analogous. Opinions of counsel
are not binding upon the Service or any court, and there can be no complete
assurance that the Service will not assert successfully a contrary position. If
the Participating Leases are recharacterized as service contracts or partnership
agreements, rather than true leases, part or all of the payments that the
Operating Partnership receives from the Initial Lessees may not be considered
rent or may not otherwise satisfy the various requirements for qualification as
"rents from real property." In that case, the Company likely would not be able
to satisfy either the 75% or 95% gross income tests and, as a result, would lose
its REIT status.
Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in whole
or in part on the income or profits of any person. However, an amount received
or accrued generally will not be excluded from the term "rents from real
property" solely by reason of being based on a fixed percentage or percentages
of gross receipts or sales. Such percentages must be fixed at the time the
leases are entered into, not renegotiated during the term of the lease in a
manner that has the effect of basing rent on income or profits, and be in
conformance with normal business practices.
Second, the Code provides that rents received from a tenant will not
qualify as "rents from real property" in satisfying the gross income tests if
the REIT, or a direct or indirect owner of 10% or more of the REIT, directly or
constructively owns 10% or more of such tenant (a "Related Party Tenant"). The
constructive ownership rules generally provide that if 10% or more in value of
the shares of the Company are owned, directly or indirectly, by or for any
person, the Company is considered as owning the shares owned, directly or
indirectly, by or for such person. The applicable attribution rules, however,
are highly complex and difficult to apply, and the Company may inadvertently
enter into leases with Initial Lessees who, through application of such rules,
will constitute Related Party Tenants. In such an event, rent paid by the
Related Party Tenant will not qualify as "rents from real property," which may
jeopardize the Company's status as a REIT. The Company will use its best efforts
not to rent any property to a Related Party Tenant (taking into account the
applicable constructive ownership rules), unless the Company determines in its
discretion that the rent received from such Related Party Tenant is not material
and will not jeopardize the Company's status as a REIT. The Declaration of Trust
provides that no shareholder may own, directly or constructively, in excess of
9.8% of the Common Shares.
Certain Initial Lessees and/or their affiliates will own, directly or
indirectly, OP Units. See "Formation of the Company -- Benefits to Related
Parties." Under the attribution rules discussed in the preceding paragraph,
ownership of OP Units by the Lessees, in and of itself, will not cause the
Company to be considered to own directly, indirectly or constructively any
ownership interest in such Lessee. Accordingly, amounts received or accrued from
the Lessees will not be considered as received or accrued from a Related Party
Tenant, and, therefore, disqualified as "rents from real property" under Code
Section 856(d)(2), solely by reason of the ownership of OP Units by a Lessee
and/or its affiliate.
Third, if rent attributable to personal property, leased in connection with
a lease of real property, is greater than 15% of the total rent received under
the lease, then the portion of rent attributable to such personal property will
not qualify as "rents from real property." The rent attributable to the personal
property associated with a property is the amount that bears the same ratio to
total rent for the taxable year as the average of the adjusted bases of the
personal property in the property at the beginning and at the end of the taxable
year bears to the average of the aggregate adjusted bases of both the real and
personal property comprising the property at the beginning and at the end of
such taxable year (the "Adjusted Basis Ratio").
Fourth, for rents received to qualify as "rents from real property," the
REIT generally must not operate or manage the property or furnish or render
services to the tenants of such property, other than through an independent
contractor from whom the REIT derives no revenue, provided, however, the Company
may
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directly perform certain services that are "usually or customarily rendered" in
connection with the rental of space for occupancy only to tenants of properties
of similar class in the same geographic market and are not otherwise considered
"rendered to the occupant" of the property. The Company may operate or manage
the property or furnish or render services to the tenants of such property
without disqualifying any rents received from such property as "rents from real
property," provided that any amounts received or accrued (directly or
indirectly) by the Company for any such activities or services do not exceed 1%
of all amounts received or accrued (directly or indirectly) by the Company with
respect to such property. However, any amounts received or accrued (directly or
indirectly) by the Company for any such activities or services will not qualify
as "rents from real property," even to the extent such amounts do not exceed the
1% threshold.
The Company does not and will not (i) charge rent for any property that is
based in whole or in part on the income or profits of any person (except by
reason of being based on a percentage of receipts or sales, as described above),
(ii) rent any property to a Related Party Tenant, (iii) derive rental income
attributable to personal property (other than personal property leased in
connection with the lease of real property, the amount of which is less than 15%
of the total rent received under the lease), or (iv) perform non-customary
services considered to be rendered to the occupant of the property, other than
through an independent contractor from whom the Company derives no revenue
(subject to the 1% de minimis rule discussed above).
The term "interest," as defined for purposes of the 75% and 95% gross
income tests, generally does not include any amount received or accrued
(directly or indirectly) if the determination of such amount depends in whole or
in part on the income or profits of any person. However, an amount received or
accrued generally will not be excluded from the term "interest" solely by reason
of being based on a fixed percentage or percentages of receipts or sales. In
addition, an amount received or accrued generally will not be excluded from the
term "interest" solely by reason of being based on the income or profits of a
debtor if the debtor derives substantially all of its gross income from the
related property through the leasing of substantially all of its interests in
the property, to the extent the amounts received by the debtor would be
characterized as "rents from real property" if received by a REIT. Furthermore,
to the extent that interest from a loan that is based on the cash proceeds from
the sale of the property securing the loan constitutes a "shared appreciation
provision" (as defined in the Code), income attributable to such participation
feature will be treated as gain from the sale of the secured property, which
generally is qualifying income for purposes of the 75% and 95% gross income
tests.
Interest on obligations secured by mortgages on real property or on
interests in real property generally is qualifying income for purposes of the
75% gross income test. However, if the Company receives interest income with
respect to a loan that is secured by both real property and other property and
the highest principal amount of the loan outstanding during a taxable year
exceeds the fair market value of the real property on the date the Company
acquired the loan, the interest income from the loan will be apportioned between
the real property and the other property, which apportionment may cause the
Company to recognize income that is not qualifying income for purposes of the
75% gross income test.
The Company will be subject to tax at the maximum corporate rate on any
income from foreclosure property (other than income that would be qualifying
income for purposes of the 75% gross income test), less expenses directly
connected with the production of such income. "Foreclosure property" is defined
as any real property (including interests in real property) and any personal
property incident to such real property (i) that is acquired by a REIT as the
result of such REIT having bid in such property at foreclosure, or having
otherwise reduced such property to ownership or possession by agreement or
process of law, after there was a default (or default was imminent) on a lease
of such property or on an indebtedness owed to the REIT that such property
secured, (ii) for which the related loan was acquired by the REIT at a time when
default was not imminent or anticipated, and (iii) for which such REIT makes a
proper election to treat such property as foreclosure property. However, a REIT
will not be considered to have foreclosed on a property where such REIT takes
control of the property as a mortgagee-in-possession and cannot receive any
profit or sustain any loss except as a creditor of the mortgagor. Under the
Code, property generally ceases to be foreclosure property with respect to a
REIT as of the close of the third taxable year following the taxable year in
which the REIT acquired such property (or longer if an extension is granted by
the Secretary of the Treasury). The foregoing grace period is terminated and
foreclosure property ceases to be foreclosure property on the first day
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(i) on which a lease is entered into with respect to such property that, by its
terms, will give rise to income that does not qualify under the 75% gross income
test or any amount is received or accrued, directly or indirectly, pursuant to a
lease entered into on or after such day that will give rise to income that does
not qualify under the 75% gross income test, (ii) on which any construction
takes place on such property (other than completion of a building, or any other
improvement, where more than 10% of the construction of such building or other
improvement was completed before default became imminent) or (iii) that is more
than 90 days after the day on which such property was acquired by the REIT and
the property is used in a trade or business that is conducted by the REIT (other
than through an independent contractor from whom the REIT itself does not derive
or receive any income).
The net income derived from a prohibited transaction is subject to a 100%
tax. The term "prohibited transaction" generally includes a sale or other
disposition of property (other than foreclosure property) that is held primarily
for sale to customers in the ordinary course of a trade or business. The Company
believes that no asset owned by the Company or the Operating Partnership will be
held for sale to customers and that a sale of any asset will not be in the
ordinary course of the Company's or the Operating Partnership's business.
Whether an asset is held "primarily for the sale to customers in the ordinary
course of a trade or business" depends, however, on the facts and circumstances
in effect from time to time, including those related to a particular asset.
Nevertheless, the Company will attempt to comply with the terms of safe-harbor
provisions in the Code prescribing when asset sales will not be characterized as
prohibited transactions. Complete assurance cannot be given, however, that the
Company can comply with the safe-harbor provisions of the Code or avoid owning
property that may be characterized as property held "primarily for sale to
customers in the ordinary course of a trade or business.
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions will be generally available if the Company's failure to meet such
tests was due to reasonable cause and not due to willful neglect, the Company
attaches a schedule of the sources of its income to its return, and any
incorrect information on the schedule was not due to fraud with intent to evade
tax. It is not possible, however, to state whether in all circumstances the
Company would be entitled to the benefit of these relief provisions. As
discussed above in "General," even if these relief provisions apply, a tax would
be imposed with respect to the excess net income.
Asset Tests. The Company, at the close of each quarter of its taxable year,
must also satisfy three tests relating to the nature of its assets. First, at
least 75% of the value of the Company's total assets must be represented by any
combination of interests in real property, interests in mortgages on real
property, shares in other REITs, cash, cash items and certain government
securities. Second, not more than 25% of the Company's total assets may be
represented by securities other than those in the 75% asset class. Third, of the
investments in the 25% asset class, the value of any one issuer's securities
owned by the Company may not exceed either (i) 5% of the value of the Company's
total assets, and (ii) 10% of the outstanding voting securities of any one
issuer (except for its interests in any QRS or shares of another REIT). Where
the Company invests in a partnership, it will be deemed to own a proportionate
share of the partnership's assets. The Company's investment in properties
through its interests in the Operating Partnership will not cause the Company to
fail any of the asset tests described above.
After initially meeting the asset tests, the Company will not lose its
status as a REIT due to its inadvertent failure to satisfy the asset tests
provided that (i) it satisfied all of the asset tests at the close of the
preceding calendar quarter and (ii) the discrepancy between the values of the
Company's assets and the standards imposed by the asset tests did not exist
immediately after the acquisition of securities or other property during a
quarter (including, for example, as a result of the Company increasing its
interest in the Operating Partnership as a result of the exercise of a
Redemption Right or an additional capital contribution of proceeds of an
offering of Common Shares by the Company such as this Offering). If the failure
is caused by the condition described in clause (ii), such failure can be cured
by disposition of sufficient nonqualifying assets within 30 days after the close
of that quarter. The Company intends to maintain adequate records of the value
of its assets to ensure compliance with the asset tests and to take such other
actions within 30 days after the close of any quarter as may be required to cure
any noncompliance.
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Annual Distribution Requirements. The Company, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends) to
its shareholders each year in an amount at least equal to (i) the sum of (a) 95%
of the Company's "REIT taxable income" (computed without regard to the dividends
paid deduction and the Company's net capital gain) and (b) 95% of the net income
(after tax), if any, from foreclosure property, minus (ii) the sum of certain
items of noncash income. In addition, if the Company disposes of any asset
acquired from a C corporation in a carryover basis transaction during its
Recognition Period, because an election pursuant to IRS Notice 88-19 was made,
the Company will be required to distribute at least 95% of the net Built-in Gain
(after tax), if any, recognized on the disposition of such asset. Such
distributions must be paid in the taxable year to which they relate, or in the
following taxable year if declared before the Company timely files its tax
return for such year and if paid on or before the first regular dividend payment
after such declaration. To the extent that the Company does not distribute all
of its net capital gain or distributes at least 95%, but less than 100%, of its
"REIT taxable income," as adjusted, it will be subject to tax thereon at regular
ordinary and capital gain corporate tax rates. See "-- Taxation of the Company
- -- General." The Company may elect to retain and pay taxes on all or a portion
of its net long-term capital gains for such year, in which case, the Company's
shareholders would include in their income as long-term capital gains their
proportionate share of such undistributed capital gains. The shareholders would
be treated as having paid their proportionate share of the capital gains tax
paid by the Company, which amounts would be credited or refunded to the
shareholders. Furthermore, if the Company should fail to distribute during each
calendar year at least the sum of (i) 85% of its REIT ordinary income for such
year, (ii) 95% of its REIT capital gain income for such year, and (iii) any
undistributed taxable income from prior periods, the Company will be subject to
a 4% excise tax on the excess of such required distribution over the amounts
actually distributed.
The Company intends to make timely distributions sufficient to satisfy the
annual distribution requirements. See "-- Taxation of U.S. Shareholders of the
Company." In this regard, the Operating Partnership Agreement authorizes the
Company, as general partner, to take such steps as may be necessary to cause the
Operating Partnership to distribute to its partners an amount sufficient to
permit the Company to meet these distribution requirements. It is possible that
the Company, from time to time, may not have sufficient cash or other liquid
assets to meet the 95% distribution requirement due to the payment of principal
on debt or to timing differences between (i) the actual receipt of income and
actual payment of expenses on the one hand, and (ii) the inclusion of such
income and deduction of such expenses in computing the Company's REIT taxable
income on the other hand. To avoid any problem with the 95% distribution
requirement, the Company will closely monitor the relationship between its REIT
taxable income and cash flow and, if necessary, will borrow funds (or cause the
Operating Partnership to borrow funds) in order to satisfy the distribution
requirement.
The Company intends to calculate its "REIT taxable income" based upon the
assumption that the Operating Partnership is the owner for federal income tax
purposes of each of the Golf Courses other than any Golf Courses it leases from
various parties. As a result, the Company expects that depreciation deductions
with respect to all Golf Courses that it is deemed to own for federal income tax
purposes will reduce its "REIT taxable income." This conclusion is consistent
with the opinion of Rudnick & Wolfe as described above, which in turn is based
upon representations from the Company as to the expected useful life and future
fair market value of each such Golf Course. If the Service were to successfully
challenge this position, the Company might be deemed retroactively to have
failed to meet the distribution requirement and would have to rely on the
payment of a "deficiency dividend" in order to retain its REIT status.
Under certain circumstances, the Company may be able to rectify a failure
to meet the distribution requirement for a year by paying "deficiency dividends"
to shareholders in a later year, which may be included in the Company's
deduction for dividends paid for the earlier year. Thus, the Company may be able
to avoid being taxed on amounts distributed as deficiency dividends; however,
the Company will be required to pay interest based upon the amount of any
deduction taken for deficiency dividends.
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FAILURE TO QUALIFY AS A REIT
If the Company fails to qualify for taxation as a REIT in any taxable year,
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to shareholders in any year in which the
Company fails to qualify will not be deductible by the Company nor will they be
required to be made. In such event, to the extent of current and accumulated
earnings and profits, all distributions to shareholders will be taxable as
ordinary income, and, subject to certain limitations of the Code, corporate
distributees may be eligible for the dividends received deduction. Unless
entitled to relief under specific statutory provisions, the Company will also be
disqualified from taxation as a REIT for the four taxable years following the
year ending which qualification was lost. It is not possible to state whether in
all circumstances the Company would be entitled to such statutory relief.
TAXATION OF U.S. SHAREHOLDERS OF THE COMPANY
As used herein, the term "U.S. Shareholder" means a holder of Common Shares
who (for United States federal income tax purposes) is (i) a citizen or resident
of the United States, (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or of any political
subdivision thereof, (iii) an estate the income of which is subject to United
States federal income taxation, or (iv) a trust with respect to the
administration of which a court within the United States is able to exercise
primary supervision and one or more United States fiduciaries have the authority
to control all substantial decisions of the trust.
As long as the Company qualifies as a REIT, distributions made by the
Company out of its current or accumulated earnings and profits (and not
designated as capital gain dividends) will constitute dividends taxable to its
taxable U.S. Shareholders as ordinary income. Such distributions will not be
eligible for the dividends-received deduction in the case of U.S. Shareholders
that are corporations. Distributions made by the Company that are properly
designated by the Company as capital gain dividends will be taxable to U.S.
Shareholders as gain from the sale and exchange of a capital asset (to the
extent that they do not exceed the Company's actual net capital gain for the
taxable year) without regard to the period for which a U.S. Shareholder has held
his Common Shares. U.S. Shareholders that are corporations, may, however, be
required to treat up to 20% of certain capital gain dividends as ordinary
income.
Upon any sale or other disposition of Common Shares, a U.S. Shareholder
will recognize gain or loss for federal income tax purposes in an amount equal
to the difference between (i) the amount of cash and the fair market value of
any property received on such sale or other disposition, and (ii) the holder's
adjusted basis in the Common Shares for tax purposes. Such gain or loss will be
capital gain or loss if the Common Shares have been held by the U.S. Shareholder
as a capital asset. The maximum rate on long-term capital gains of non-
corporate taxpayers is 20% (10% for taxpayers in the 15% tax bracket). However,
the 20% rate (and 10% rate for taxpayers in the 15% bracket) is only available
for sales or exchanges of capital assets held for more than 18 months. Any
long-term capital gains from the sale or exchange of depreciable real property
that would be subject to ordinary income taxation (i.e., "depreciation
recapture") if it were treated as personal property will be subject to a maximum
tax rate of 25%. In IRS Notice 97-64, released November 10, 1997, the Service
described how regulated investment companies ("RICs"), REITs and their
shareholders must apply the capital gains provisions of the 1997 Act to their
capital gains dividends. RICs, REITs and their shareholders must use the
guidance in IRS Notice 97-64 until further guidance is issued. Under this
Notice, if the Company designates a dividend as a capital gain dividend (or
makes a capital gains designation for an undistributed amount), it may also
designate the dividend (or undistributed amount) as a 20% rate gain
distribution, an unrecaptured Section 1250 gain distribution, or a 28% rate gain
distribution. If no additional designation is made regarding a capital gain
dividend (or undistributed amount), it will be treated as a 28% rate gain
distribution.
To the extent that the Company makes distributions (not designated as
capital gain dividends) in excess of its current and accumulated earnings and
profits, such distribution will be treated first as a tax-free return of capital
to each U.S. Shareholder, reducing the adjusted basis which such U.S.
Shareholder has in his
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Common Shares for tax purposes by the amount of such distribution (but not below
zero), with distributions in excess of a U.S. Shareholder's adjusted basis in
his shares taxable as capital gains (provided that the Common Shares have been
held as a capital asset). Dividends declared by the Company in October, November
or December of any year and payable to a shareholder of record on a specified
date in any such month shall be treated as both paid by the Company and received
by the shareholder on December 31 of such year, provided that the dividend is
actually paid by the Company on or before January 31 of the following calendar
year. Shareholders may not include in their own income tax returns any net
operating losses or capital losses of the Company.
Distributions made by the Company and gain arising from the sale or
exchange by a U.S. Shareholder of Common Shares will not be treated as passive
activity income, and, as a result, U.S. Shareholders generally will not be able
to apply any "passive losses" against such income or gain.
U.S. Shareholders holding Common Shares at the close of the Company's
taxable year will be required to include, in computing their long-term capital
gains for the taxable year in which the last day of the Company's taxable year
falls, such amount of undistributed long-term capital gains as the Company may
designate in a written notice mailed to its shareholders within 60 days after
the end of its taxable year or in its annual report. The Company may not
designate amounts in excess of the Company's undistributed net capital gain for
the taxable year. Each U.S. Shareholder required to include such a designated
amount in determining such shareholder's long-term capital gains will be deemed
to have paid, in the taxable year of the inclusion, its proportionate share of
the tax paid by the Company in respect of such undistributed net capital gains.
U.S. Shareholders subject to these rules will be allowed a credit or a refund,
as the case may be, for the tax deemed to have been paid by such shareholders.
U.S. Shareholders will increase their basis in their Common Shares by the
difference between the amount of such includible gains and the tax deemed paid
by the shareholder in respect of such gains.
BACKUP WITHHOLDING
The Company will report to its U.S. Shareholders and the Service the amount
of dividends paid during each calendar year, and the amount of tax withheld, if
any. Under the backup withholding rules, a shareholder may be subject to backup
withholding at the rate of 31% with respect to dividends paid unless such holder
(a) is a corporation or comes within certain other exempt categories and, when
required, demonstrates this fact, or (b) provides a taxpayer identification
number, certifies as to no loss of exemption from backup withholding, and
otherwise complies with applicable requirements of the backup withholding rules.
A U.S. Shareholder that does not provide the Company with his correct taxpayer
identification number may also be subject to penalties imposed by the Service.
Any amount paid as backup withholding will be creditable against the
shareholder's income tax liability. The United States Department of the Treasury
(the "Treasury") recently issued final regulations regarding the withholding and
information reporting rules discussed above. In general, these final regulations
and Notice 98-16 do not alter the substantive withholding and information
requirements but unify current certification procedures and forms. The final
regulations are generally effective for payments made on or after January 1,
2000, subject to certain transition rules. Prospective investors should consult
their own tax advisors concerning the adoption of the final regulations and the
potential effect on their ownership of Common Shares. In addition, the Company
may be required to withhold a portion of capital gain distributions made to any
shareholders who fail to certify their non-foreign status to the Company.
TAXATION OF TAX-EXEMPT SHAREHOLDERS OF THE COMPANY
The Service has ruled that amounts distributed as dividends by a qualified
REIT do not constitute unrelated business taxable income ("UBTI") when received
by a tax-exempt entity. Based on that ruling, provided that a tax-exempt
shareholder (except certain tax-exempt shareholders described below) has not
held its Common Shares as "debt financed property" within the meaning of the
Code and such Common Shares are not otherwise used in a trade or business, the
dividend income from the Company will not be UBTI to a tax-exempt shareholder.
Similarly, income from the sale of Common Shares will not constitute UBTI
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unless such tax-exempt shareholder has held such Common Shares as "debt financed
property" within the meaning of the Code or has used the Common Shares in a
trade or business.
For tax-exempt shareholders that are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and qualified
group legal services plans exempt from federal income taxation under Code
Sections 501(c)(7), (c)(9), (c)(17) and (c)(20), respectively, income from an
investment in the Company will constitute UBTI unless the organization is able
to properly deduct amounts set aside or placed in reserve for certain purposes
so as to offset the income generated by its investment in the Company. Such
prospective shareholders should consult their own tax advisors concerning these
"set aside" and reserve requirements.
Notwithstanding the above, however, the Omnibus Budget Reconciliation Act
of 1993 (the "1993 Act") provides that, effective for taxable years beginning in
1994, a portion of the dividends paid by a "pension held REIT" shall be treated
as UBTI as to any trust which (i) is described in Section 401(a) of the Code;
(ii) is tax-exempt under Section 501(a) of the Code; and (iii) holds more than
10% (by value) of the interests in the REIT. Tax-exempt pension funds that are
described in Section 401(a) of the Code are referred to below as "qualified
trusts."
A REIT is a "pension held REIT" if (i) it would not have qualified as a
REIT but for the fact that Section 856(h)(3) of the Code (added by the 1993 Act)
provides that stock owned by qualified trusts shall be treated, for purposes of
the "not closely held" requirement, as owned by the beneficiaries of the trust
(rather than by the trust itself), and (ii) either (a) at least one such
qualified trust holds more than 25% (by value) of the interests in the REIT, or
(b) one or more such qualified trusts, each of which owns more than 10% (by
value) of the interests in the REIT, hold in the aggregate more than 50% (by
value) of the interests in the REIT. The percentage of any REIT dividend treated
as UBTI is equal to the ratio of (i) the gross UBTI earned by the REIT (treating
the REIT as if it were a qualified trust and therefore subject to tax on UBTI)
to (ii) the total gross income of the REIT. A de minimis exception applies where
the percentage is less than 5% for any year. The provisions requiring qualified
trusts to treat a portion of REIT distributions as UBTI will not apply if the
REIT is able to satisfy the "not closely held" requirement without relying upon
the "look-through" exception with respect to qualified trusts.
Based on the anticipated ownership of Common Shares immediately following
this Offering, and as a result of certain limitations on transfer and ownership
of Common Shares contained in the Declaration of Trust, the Company does not
expect to be classified as a "pension held REIT."
TAXATION OF NON-U.S. SHAREHOLDERS OF THE COMPANY
The rules governing United States federal income taxation of nonresident
alien individuals, foreign corporations, foreign partnerships and other foreign
stockholders (collectively, "Non-U.S. Shareholders") are complex and no attempt
will be made herein to provide more than a summary of such rules.
PROSPECTIVE NON-U.S. SHAREHOLDERS SHOULD CONSULT WITH THEIR OWN TAX
ADVISORS TO DETERMINE THE IMPACT OF FEDERAL, STATE AND LOCAL INCOME TAX LAWS
WITH REGARD TO AN INVESTMENT IN SHARES, INCLUDING ANY REPORTING REQUIREMENTS.
Ordinary Dividends. Distributions, other than distributions that are
treated as attributable to gain from sales or exchanges by the Company of U.S.
real property interests (discussed below) and other than distributions
designated by the Company as capital gain dividends, will be treated as ordinary
income to the extent that they are made out of current or accumulated earnings
and profits of the Company. Such distributions to Non-U.S. Shareholders will
ordinarily be subject to a withholding tax equal to 30% of the gross amount of
the distribution, unless an applicable tax treaty reduces that tax. However, if
income from the investment in the Common Shares is treated as effectively
connected with the Non-U.S. Shareholder's conduct of a U.S. trade or business,
the Non-U.S. Shareholder generally will be subject to tax at graduated rates in
the same manner as U.S. Shareholders are taxed with respect to such dividends
(and may also be subject to the 30% branch profits tax if the shareholder is a
foreign corporation).
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The Company expects to withhold U.S. tax at the rate of 30% on the gross
amount of any dividends, other than dividends treated as attributable to gain
from sales or exchanges of U.S. real property interests and capital gain
dividends, paid to a Non-U.S. Shareholder, unless (i) a lower treaty rate
applies and the required form evidencing eligibility for that reduced rate is
filed with the Company or the appropriate withholding agent or (ii) the Non-U.S.
Shareholder files an IRS Form 4224 (or a successor form) with the Company or the
appropriate withholding agent claiming that the distributions are "effectively
connected" income.
Pursuant to current Treasury Regulations, dividends paid to an address in a
country outside the United States are generally presumed to be paid to a
resident of such country for purposes of determining the applicability of
withholding discussed above and the applicability of a tax treaty rate.
Under the recent Final Regulations that are proposed to be effective for
distributions made after December 31, 1999 (the "New Withholding Regulations"),
however, a Non-U.S. Shareholder who wishes to claim the benefit of an applicable
treaty rate would be required to satisfy applicable certification requirements.
In addition, under the Final Regulations in the case of Common Shares held by a
foreign partnership, (x) the certification requirement would generally be
applied to the partners in the partnership and (y) the partnership would be
required to provide certain information, including a United States taxpayer
identification number. The New Withholding Regulations provide look-through
rules in the case of tiered partnerships. Shareholders that are partnerships or
entities that are similarly fiscally transparent for federal income tax
purposes, and persons holding Common Shares through such entities, may be
subject to restrictions on their ability to claim benefits under U.S. tax
treaties and should consult a tax advisor.
The New Withholding Regulations also require a corporation that is a REIT
to treat as a dividend the portion of a distribution that is not designated as a
capital gain dividend or return of basis and apply the 30% withholding tax
(subject to any applicable deduction or exemption) to such portion, and to apply
the FIRPTA withholding rules (discussed below) with respect to the portion of
the distribution designated by the REIT as capital gain dividend. The New
Withholding Regulations will generally be effective for payments made after
December 31, 1999, subject to certain transition rules.
THE DISCUSSION SET FORTH IN "TAXATION OF NON-U.S. SHAREHOLDERS" DOES NOT
TAKE THE NEW WITHHOLDING REGULATIONS INTO ACCOUNT. PROSPECTIVE NON-U.S.
SHAREHOLDERS ARE STRONGLY URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT
TO THE NEW WITHHOLDING REGULATIONS.
Distributions to a Non-U.S. Shareholder that are designated by the Company
at the time of distribution as capital gain dividends which are not attributable
or treated as attributable to the disposition by the Company of a U.S. real
property interest generally will not be subject to U.S. federal income taxation,
except as described below.
Return of Capital. Distributions in excess of current accumulated earnings
and profits of the Company, which are not treated as attributable to the gain
from disposition by the company of a U.S. real property interest, will not be
taxable to a Non-U.S. Shareholder to the extent that they do not exceed the
adjusted basis of the Non-U.S. Shareholder's Common Shares, but rather will
reduce the adjusted basis of such Common Shares. To the extent that such
distributions exceed the adjusted basis of a Non-U.S. Shareholder's Common
Shares, they will give rise to tax liability if the Non-U.S. Shareholder
otherwise would be subject to tax on any gain from the sale or disposition of
its Common Shares, as described below. As a result of a legislative change made
by the Small Business Job Protection Act of 1996, it appears that the Company
will be required to withhold 10% of any distribution in excess of the Company's
current and accumulated earnings and profits. Consequently, although the Company
intends to withhold at a rate of 30% or the entire amount of any distribution
(or a lower applicable treaty), to the extent the Company does not do so, any
portion of a distribution not subject to withholding at a rate of 30% (or a
lower applicable treaty rate) will be subject to withholding at a rate of 10%.
However, the Non-U.S. Shareholder may seek a refund of such amounts from the
Service if it is subsequently determined that such distribution was, in fact, in
excess of current and accumulated earnings and profits of the Company, and the
amount withheld exceeded the Non-U.S. Shareholder's United States tax liability,
if any, with respect to such distribution.
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Capital Gains Dividends. For any year in which the Company qualifies as a
REIT, distributions that are attributable to gain from sales or exchanges by the
Company of U.S. real property interests will be taxed to a Non-U.S. Shareholder
under the provisions of the Foreign Investment in Real Property Tax Act of 1980,
as amended ("FIRPTA"). Under FIRPTA, these distributions are taxed to a Non-U.S.
Shareholder as if such gain were effectively connected with a U.S. business.
Thus, Non-U.S. Shareholders will be taxed on such distributions at the normal
capital gain rates applicable to U.S. Shareholders (subject to any applicable
alternative minimum tax and special alternative minimum tax in the case of
nonresident alien individuals). The Company is required by applicable Treasury
regulations under FIRPTA to withhold 35% of any distribution that could be
designated by the Company as a capital gain dividend. However, if the Company
designates as a capital gain dividend a distribution made prior to the day the
Company actually effects such designation, then (although such distribution may
be taxable to a Non-U.S. Shareholder) such distribution is not subject to
withholding under FIRPTA; rather, the Company must effect the 35% FIRPTA
withholding from distributions made on and after the date of such designation,
until the distribution so withheld equal the amount of the prior distributions
designated as a capital gain dividend. The amount withheld is creditable against
the Non-U.S. Shareholder's U.S. tax liability.
Sales of Common Shares. Gain recognized by a Non-U.S. Shareholder upon a
sale or exchange of Common Shares generally will not be taxed under FIRPTA if
the Company is a "domestically controlled REIT," defined generally as a REIT in
respect of which at all times during a specified testing period less than 50% in
value of the stock is and was held directly or indirectly by foreign persons. It
is currently anticipated that the Company will continue to be a "domestically
controlled REIT," and, therefore, that the sale of Common Shares will not be
subject to taxation under FIRPTA. However, gain not subject to FIRPTA will be
taxable to a Non-U.S. Shareholder if (i) investment in the Common Shares is
treated as "effectively connected" with the Non-U.S. Shareholder's U.S. trade or
business, in which case the Non-U.S. Shareholder will be subject to the same
treatment as U.S. Shareholders with respect to such gain, or (ii) the Non-U.S.
Shareholder is a nonresident alien individual who was present in the United
States for 183 days or more during the taxable year and has a "tax home" in the
United States, or maintains an office or a fixed place of business in the United
States to which the gain is attributable, in which case the nonresident alien
individual will be subject to a 30% tax on the individual's capital gains. A
similar rate will apply to capital gain dividends not subject to FIRPTA.
If the Company were not a domestically-controlled REIT, a Non-U.S.
Shareholder's sale of Common Shares would be subject to tax under FIRPTA only if
the selling Non-U.S. Shareholder owned more than 5% of the class of Common
Shares sold at any time during a specified period (generally the shorter of the
period that the Non-U.S. Shareholder owned the Common Shares sold or the
five-year period ending on the date of disposition). If the gain on the sale of
Common Shares were to be subject to tax under FIRPTA, the Non-U.S. Shareholder
would be subject to the same treatment as U.S. Shareholders with respect to such
gain (subject to any applicable alternative minimum tax and a special
alternative minimum tax in the case of nonresident alien individuals) and the
purchaser of such Common Shares would be required to withhold 10% of the gross
purchase price.
Backup Withholding. Backup withholding tax (which generally is withholding
tax imposed at the rate of 31% of certain payments to persons that fail to
furnish certain information under the United States information reporting
requirements) and information reporting will generally not apply to
distributions to Non-U.S. Shareholders at an address outside the United States
that are treated as (i) dividends subject to the 30% (or lower treaty rate)
withholding tax discussed above), (ii) capital gains dividends, or (iii)
distributions attributable to gain from the sale or exchange by the Company of
United States real property interests. As a general matter, backup withholding
and information reporting will not apply to a payment of the proceeds of a sale
of Common Shares by or though a foreign office of a foreign broker. Information
reporting (but not backup withholding) will apply, however, to a payment of the
proceeds of a sale of Common Shares by a foreign office of a broker that (a) is
a United States person, (b) derives 50% or more of its gross income for certain
periods from the conduct of a trade or business in the United States, or (c) is
a "controlled foreign corporation" (generally, a foreign corporation controlled
by United States shareholders) for United States tax purposes, unless the broker
has documentary evidence in its records that the holders is a Non-U.S.
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Shareholder and certain other conditions are met, or the shareholder otherwise
establishes an exemption. Payment to or though a United States office of a
broker of the proceeds of a sale of Common Shares is subject to both backup
withholding and information reporting unless the shareholder certifies under
penalty of perjury that the shareholders is a Non-U.S. Shareholder, or otherwise
establishes an exemption. Backup withholding is not an additional tax. A
Non-U.S. Shareholder may obtain a refund of any amounts withheld under the
backup withholding rules by filing the appropriate claim for refund with the
Service.
STATE AND LOCAL TAXES
The Company, any of its subsidiaries, the Operating Partnership or the
Company's shareholders may be subject to state and local tax in various states
and localities, including those states and localities in which it or they
transact business, own property, or reside. The state tax treatment of the
Company and the shareholders in such jurisdictions may differ from the federal
income tax treatment described above. Consequently, prospective shareholders
should consult their own tax advisors regarding the effect of state and local
tax laws upon an investment in the Common Shares.
TAX ASPECTS OF THE OPERATING PARTNERSHIP
The following discussion summarizes certain federal income tax
considerations applicable to the Company's investment in the Operating
Partnership. The discussion does not cover state or local tax laws or any
federal tax laws other than income tax laws.
Classification as a Partnership. The Company will be entitled to include in
its income its distributive share of the Operating Partnership's losses only if
the Operating Partnership is classified for federal income tax purposes as a
partnership rather than as a corporation or an association taxable as a
corporation. An organization formed as a partnership will be treated as a
partnership, rather than as a corporation, for federal income tax purposes if
(i) it is not expressly classified as a corporation under Section
301.7701-2(b)(1)-(8) of the Treasury Regulations; (ii) it does not elect to be
classified as an association taxable as a corporation; and (iii) it is not
treated as a corporation by virtue of being classified as a "publicly traded
partnership."
The Operating Partnership will not request a ruling from the Service that
it will be classified as a partnership for federal income tax purposes. In the
opinion of Rudnick & Wolfe, based on the provisions of the Operating Partnership
Agreement, certain factual assumptions and certain representations described in
the opinion, the Operating Partnership will be treated for federal income tax
purposes as a partnership and not as an association taxable as a corporation.
The Operating Partnership is not expressly classified as, and will not elect to
be classified as, a corporation for federal income tax purposes. An opinion of
counsel is not binding upon the Service, and no assurance can be given that the
Service will not challenge the status of the Operating Partnership as a
partnership for federal income tax purposes. If such challenge were sustained by
a court, the Operating Partnership would likely be treated as a corporation for
federal income tax purposes, as described below. Further, the federal income tax
treatment described herein may be changed, perhaps retroactively, by
legislative, administrative or judicial action at any time which could change
the conclusions of the opinion.
Under Code Section 7704, a partnership is treated as a corporation for
federal income tax purposes if it is a "publicly traded partnership" (except in
situations in which 90% or more of the partnership's gross income is of a
specified type). A partnership is deemed to be publicly traded if its interests
are either (i) traded on an established securities market, or (ii) readily
tradable on a secondary market (or the substantial equivalent thereof). While
the OP Units will not be traded on an established securities market, they could
possibly be deemed to be traded on a secondary market or its equivalent due to
the Redemption Rights enabling the partners to dispose of their OP Units.
The Treasury Department recently issued regulations (the "PTP Regulations")
governing the classification of partnerships under Code Section 7704. These
regulations provide that the classification of partnerships also provide limited
"safe harbors" which preclude publicly traded partnership status. Pursuant to
one of these safe harbors, interests in a partnership will not be treated as
readily tradable on a secondary market or the substantial equivalent thereof if
(i) all interests in the partnership were issued in a transaction (or
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transactions) that was not required to be registered under the Securities Act,
and (ii) the partnership does not have more than 100 partners at any time during
the partnership's taxable year. In determining the number of partners in a
partnership for this purpose, a person owning an interest in a flow-through
entity (i.e., a partnership, grantor trust, or S corporation) that owns an
interest in the partnership is treated as a partner in such partnership only if
(x) substantially all of the value of the person's interest in the flow-through
entity is attributable to the flow-through entity's interest (direct or
indirect) in the partnership and (y) a principal purpose of the use of the
flow-through entity is to permit the partnership to satisfy the 100-partner
limitation.
The Operating Partnership is expected to have less than 100 partners
(including persons owning interests through flow-through entities). The
Operating Partnership has not issued any OP Units required to be registered
under the Securities Act. Thus, the Operating Partnership presently qualifies
for the safe harbors provided in the PTP Regulations. If the Operating
Partnership were to have more than 100 partners (including, in certain
circumstances, persons owning interests through flow-through entities), it
nevertheless would be treated as a partnership for federal income tax purposes
(rather than an association taxable as a corporation) if at least 90% of its
gross income in each taxable year (commencing with the year in which it is
treated as a publicly traded partnership) consists of "qualifying income" with
the meaning of Code Section 7704(c)(2) (including interest, dividends, "real
property rents" and gains from the disposition of real property) (the "90%
Passive-Type Income Exception"). For purposes of this test, rents received from
10% owners of lessees, which owners also own 5% or more of the interest in the
Operating Partnership would not qualify as rents from real property. Because of
the substantial ownership of the Operating Partnership by the Initial Lessees
(or their affiliates), the Operating Partnership currently would not be eligible
for the 90% Passive-Type Income Exception. Thus, if the Operating Partnership
were to have more than 100 partners (including, in certain circumstances,
persons owning interests through flow-through entities), the Company would be
required to place appropriate restrictions on the ability of the limited
partners to exercise their Redemption Rights as and if deemed necessary to
ensure that the Operating Partnership does not constitute a publicly traded
partnership. However, there is no assurance that the Operating Partnership will
at all times in the future be able to avoid treatment as a publicly traded
partnership. The opinion of Rudnick & Wolfe as to the classification of the
Partnership is based on an assumption that the Operating Partnership will
continue to fall within a safe harbor from publicly traded partnership status.
If for any reason the Operating Partnership were taxable as a corporation,
rather than as a partnership, for federal income tax purposes, the Company would
not be able to satisfy the income and asset requirements for REIT status. See
"-- Taxation of the Company -- Requirements for Qualification -- Income Tests"
and "-- Requirements for Qualification -- Asset Tests." In addition, any change
in the Operating Partnership's status for tax purposes might be treated as a
taxable event, in which case the Company might incur a tax liability without any
related cash distribution. See "-- Taxation of the Company -- Annual
Distribution Requirements." Further, items of income and deduction of the
Operating Partnership would not pass through to its partners, and its partners
would be treated as shareholders of a C corporation for federal income tax
purposes. Consequently, the Operating Partnership would be required to pay
income tax at corporate tax rates on its net income, and distributions to its
partners would constitute dividends that would not be deductible in computing
the Operating Partnership's taxable income.
The following discussion assumes that the Operating Partnership will be
treated as a partnership for federal income tax purposes.
Partnership Allocations. Although a partnership agreement will generally
determine the allocation of income and losses among partners, such allocations
will be disregarded for tax purposes if they do not comply with the provisions
of Code Section 704(b) and the Treasury Regulations promulgated thereunder.
Generally, Code Section 704(b) and the Treasury Regulations promulgated
thereunder require that partnership allocations respect the economic arrangement
of the partners. If an allocation is not recognized for federal income tax
purposes, the item subject to the allocation will be reallocated in accordance
with the partners' interests in the partnership, which will be determined by
taking into account all of the facts and circumstances relating to the economic
arrangement of the partners with respect to such item. The Operating Partnership
allocations of taxable income and loss are intended to comply with the
requirements of Code Section 704(b) and the Treasury Regulations promulgated
thereunder.
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Tax Allocations with Respect to the Contributed Property. Pursuant to Code
Section 704(c), income, gain, loss and deduction attributable to appreciated or
depreciated property (such as the Golf Courses) that is contributed to a
partnership in exchange for an interest in the partnership must be allocated in
a manner such that the contributing partner is charged with, or benefits from,
respectively, the unrealized gain or unrealized loss associated with the
property at the time of the contribution. The amount of such unrealized gain or
unrealized loss is generally equal to the difference between the fair market
value and the adjusted tax basis of the contributed property at the time of the
contribution (a "Book-Tax Difference"). Such allocations are solely for federal
income tax purposes and do not affect the book capital accounts or other
economic or legal arrangements among the partners. The Operating Partnership was
formed by way of contribution of appreciated property (including the Golf
Courses). Consequently, the Operating Partnership Agreement will require such
allocations to be made in a manner consistent with Section 704(c) of the Code.
In general, partners of the Operating Partnership who contribute assets
having an adjusted tax basis less than their fair market value (which includes
the Initial Lessees) will be allocated depreciation deductions for tax purposes
which are lower than such deductions would be if determined on a pro rata basis.
In addition, in the event of the disposition of any of the contributed assets
(including the Golf Courses) which have a Book-Tax Difference, all income
attributable to such Book-Tax Difference generally will be allocated to such
partners. These allocations will tend to eliminate the Book-Tax Difference over
the life of the Operating Partnership. However, the special allocation rules of
Section 704(c) do not always entirely eliminate the Book-Tax Difference on an
annual basis or with respect to a specific taxable transaction such as a sale.
Thus, the carryover basis of the contributed assets in the hands of the
Operating Partnership will cause the Company to be allocated lower depreciation
and other deductions, and possibly an amount of taxable income in the event of a
sale of such contributed assets in excess of the economic or book income
allocated to it as a result of such sale. This may cause the Company to
recognize taxable income in excess of cash proceeds, which might adversely
affect the Company's ability to comply with the REIT distribution requirements.
See "-- Taxation of the Company -- Annual Distribution Requirements." The
foregoing principles also apply in determining the earnings and profits of the
Company for purposes of determining the portion of distributions taxable as
dividend income. The application of these rules over time may result in a higher
portion of distributions being taxed as dividends than would have occurred had
the Company purchased the contributed assets at their agreed values.
The Treasury Regulations under Code Section 704(c) allow partnerships to
use any reasonable method of accounting for Book-Tax Difference so that the
contributing partner receives the tax benefits and burdens of any built-in gain
or loss associated with the contributed property. The Operating Partnership has
determined to use the "traditional method" (which is specifically approved in
the Treasury Regulations) for accounting for Book-Tax Difference with respect to
the properties initially contributed to it by Palmer Management. The Operating
Partnership has not determined which of the alternative methods of accounting
for Book-Tax Differences will be elected with respect to any other properties
contributed to it in connection with the formation or with respect to any
properties contributed to it in the future.
Basis in Operating Partnership Interest. The Company's adjusted tax basis
in its interest in the Operating Partnership generally (i) will be equal to the
amount of cash and the adjusted tax basis of any other property contributed to
the Operating Partnership by the Company, (ii) will be increased by (a) its
allocable share of the Operating Partnership's income and (b) its allocable
share of indebtedness of the Operating Partnership and (iii) will be reduced,
but not below zero, by the Company's allocable share of (a) losses suffered by
the Operating Partnership, (b) the amount of cash distributed by the Operating
Partnership, and (c) by constructive distributions resulting from a reduction in
the Company's share of indebtedness of the Operating Partnership. If the
allocation of the Company's distributive share of the Operating Partnership's
loss exceeds the adjusted tax basis of the Company's partnership interest in the
Operating Partnership, the recognition of such excess loss will be deferred
until such time and to the extent that the Company has adjusted tax basis in its
interest in the Operating Partnership. To the extent that the Operating
Partnership's distributions, or any decrease in the Company's share of
indebtedness of the Operating Partnership (such decreases being considered cash
distribution to the partners), exceeds the Company's adjusted tax basis, such
excess distributions (including such constructive distributions) constitute
taxable income to the Company. Such
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taxable income will normally be characterized as a capital gain, and if the
Company's interest in the Operating Partnership has been held for longer than
the long-term capital gain holding period (currently one year), the
distributions and constructive distributions will constitute long-term capital
gain. Under current law, capital gains and ordinary income of corporations are
generally taxed at the same marginal rates.
The Treasury has issued a final regulation (the "Anti-Abuse Rule") under
the partnership provisions of the Code (the "Partnership Provisions") that
authorize the Service, in certain "abusive" transactions involving partnerships,
to disregard the form of the transaction and recast it for federal tax purposes
as the Service deems appropriate. The Anti-Abuse Rule applies where a
partnership is formed or utilized in connection with a transaction (or series of
related transactions) with a principal purpose of substantially reducing the
present value of the partners' aggregate federal tax liability in a manner
inconsistent with the intent of the Partnership Provisions. The Anti-Abuse rule
states that the Partnership Provisions are intended to permit taxpayers to
conduct joint business (including investment) activities through a flexible
economic arrangement that accurately reflects the partners' economic agreement
and clearly reflects the partners' income without incurring any entity-level
tax. The purposes for structuring a transaction involving a partnership are
determined based on all of the facts and circumstances, including a comparison
of the purported business purpose for a transaction and the claimed tax benefits
resulting from the transaction. A reduction in the present value of the
partners' aggregate federal tax liability through the use of a partnership does
not, by itself, establish inconsistency with the intent of the Partnership
Provisions.
The Anti-Abuse Rule contains an example in which a corporation that elects
to be treated as a REIT contributes substantially all of the proceeds from a
public offering to a partnership in exchange for a general partner interest. The
limited partners of the partnership contribute real property assets to the
partnership, subject to liabilities that exceed their respective aggregate bases
in such property. In addition, the limited partners have the right, beginning
two years after the formation of the partnership, to require the redemption of
their limited partnership interests in exchange for cash or REIT stock (at the
Company's option) equal to the fair market value of their respective interests
in the partnership at the time of the redemption. The example concludes that the
use of the partnership is not inconsistent with the intent of the Partnership
Provisions and, thus, cannot be recast by the Service. Based on the foregoing,
Rudnick & Wolfe is of the opinion that the Anti-Abuse Rule will not have any
adverse impact on the Company's ability to qualify as a REIT. However, the
Anti-Abuse Rule is extraordinarily broad in scope and is applied based on an
analysis of all of the facts and circumstances. As a result, there can be no
assurance that the Service will not attempt to apply the Anti-Abuse Rule to the
Company. If the conditions of the Anti-Abuse Rule are met, the Service is
authorized to take appropriate enforcement action, including disregarding the
Operating Partnership for federal tax purposes or treating one or more of its
partners as nonpartners. Any such action potentially could jeopardize the
Company's status as a REIT.
PROPOSED LEGISLATION
In its budget proposal for fiscal year 1999, the Clinton Administration
proposed certain legislative changes which would effect the organization,
operation, and taxation of REITs. As of the date of this Prospectus, no bill has
been introduced in Congress which incorporates the Clinton Administration's
proposals. The following discussion illustrates the substance of the proposals
which could effect the organization, operation and taxation of the Company and
its shareholders.
Under current law, unless an issuer of securities constitutes a QRS, a REIT
may not own more than 10% of the voting securities of any one issuer. Under the
Clinton Administration's proposal, a REIT could not own more than 10% of the
voting securities or 10% of the value of the securities of any one issuer. If
enacted, the Company would be limited in its ability to utilize ownership
structures whereby the Company, either directly or indirectly, owns less than
10% of the voting power of an issuer of securities and most of the value of such
issuer through nonvoting securities, so called, "preferred stock subsidiaries."
Under existing law, if a C corporation that owns an asset with Built-in
Gain transfers such asset to a REIT in a transaction whereby the REIT's basis in
such asset is determined by reference to the transferring C corporation's basis
in such asset, the C corporation must recognize any Built-in Gain in the assets
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transferred to the REIT as if it sold all the assets in question in a taxable
transaction immediately before the transfer. This gain recognition rule will not
apply, and the C corporation will not recognize any Built-in Gain as a result of
any above described transfer, if the REIT elects to defer gain recognition
pursuant to IRS Notice 88-19. However, if the REIT makes such an election and
transfers any of the assets with Built-in Gain within 10 years of the date such
asset was acquired, the REIT will be taxed on such gain at the highest federal
income tax rate applicable to corporations under Code Section 11. The Clinton
Administration proposes to eliminate the ability of C corporations or REITs
having a value of more than $5 million to elect gain deferral pursuant to IRS
Notice 88-19. This proposal would apply to any of the above described transfers
occurring after December 31, 1998.
The Five or Fewer Rule under current law requires that no more than 50% of
the value of the REIT's outstanding shares can be owned directly, indirectly or
constructively, applying certain ownership attribution rules, by five or fewer
individuals at any time during the last half of a REIT's taxable year. Under
existing law, because of certain ownership attribution rules, a corporation,
partnership or certain trusts could own more than 50% of the total value of a
REIT's outstanding shares without causing the REIT to fail to satisfy the Five
or Fewer Rule. The Clinton Administration proposes amending the Five or Fewer
Rule to treat corporations, partnerships, certain trusts and other entities as
individuals and would add an additional requirement that five or fewer
individuals could not own more than 50% of the total combined voting power of
all classes of voting stock. If the Clinton Administration's proposal is
adopted, it could limit the amount of direct investment that corporations,
partnerships, certain trusts, and other entities could make in the Company's
Common Shares and/or Preferred Shares. Consequently, if these proposed
amendments to the Five or Fewer Rule were enacted, the Company's ability to
raise capital may be adversely effected.
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UNDERWRITING
Upon the terms and subject to the conditions stated in the Underwriting
Agreement between the several Underwriters named below, the Company and the
Operating Partnership, each Underwriter has severally agreed to purchase, and
the Company has agreed to sell to such Underwriter, the number of Common Shares
set forth opposite the name of such Underwriter below:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
Smith Barney Inc............................................
NationsBanc Montgomery Securities LLC.......................
PaineWebber Incorporated....................................
Credit Lyonnais Securities (USA) Inc. ......................
------
Total..................................................... 6,540,000
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Common Shares offered hereby
are subject to the approval of certain legal matters by counsel and to certain
other conditions. The Underwriters are obligated to take and pay for all of the
Common Shares offered hereby (other than those covered by the over-allotment
option described below) if any such shares are taken.
The Underwriters, for whom Smith Barney Inc., NationsBanc Montgomery
Securities LLC, PaineWebber Incorporated and Credit Lyonnais Securities (USA)
Inc. are acting as the representatives (the "Representatives"), propose to offer
part of the shares directly to the public at the public offering price set forth
on the cover page of this Prospectus and part of the shares to certain dealers
at a price which represents a concession not in excess of $ per share under the
public offering price. The Underwriters may allow, and such dealers may reallow,
a concession not in excess of $ per share to certain other dealers. After the
Common Shares are released for sale to the public, the public offering price and
such concessions may be changed by the Representatives.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to 981,000 additional
Common Shares at the price set forth on the cover page of this Prospectus minus
the underwriting discounts and commissions. The Underwriters may exercise such
option solely for the purpose of covering over-allotments, if any, in connection
with the Offering. To the extent such option is exercised, each Underwriter will
be obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number of shares set forth opposite
such Underwriter's name in the preceding table bears to the total number of
shares listed in such table.
The Company will apply to list the Common Shares on the New York Stock
Exchange, subject to official notice of issuance, under the symbol "GOF." In
order to meet one of the requirements for the listing of the Common Shares, the
Underwriters have undertaken to sell lots of 100 or more shares to a minimum of
2,000 beneficial holders. The Underwriters have informed the Company that they
do not intend to confirm sales to any account over which they exercise
discretionary authority.
At the request of the Company, up to 330,000 Common Shares offered in the
Offering have been reserved for sale to employees of the Company and certain
members of their families. The price of such shares to such persons will be
equal to the Offering Price set forth on the cover of this Prospectus. The
number of shares available to the general public will be reduced to the extent
those persons purchase reserved shares. Any shares not so purchased will be
offered in the Offering at the public price set forth on the cover of this
Prospectus.
In connection with the Offering, the Company, the Operating Partnership,
Olympus and Palmer Management, and directors, trustees and officers of each such
entity, have agreed, subject to certain limited exceptions, not to sell, offer
to sell, solicit an offer to buy, pledge, contract to sell, grant any option to
purchase or otherwise transfer or dispose of any Common Shares for a period of
one year from the date of this Prospectus, without the prior written consent of
Smith Barney Inc., except in connection with the 1998 Share Option Plan or the
Restricted Share Plan (as each such plan is described herein) or the acquisition
of any property (in the case of the Operating Partnership), or upon the exercise
of any outstanding options or warrants of the Company.
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From time to time, certain of the Underwriters or their affiliates may
provide investment banking services to the Company. The Company will pay an
advisory fee equal to 0.75% of the gross proceeds of the Offering (including any
exercise of the Underwriters' over-allotment option) to Smith Barney Inc. for
advisory services in connection with the evaluation, analysis and structuring of
the Company's formation and the Offering. In addition, for a period of six
months after the date of the Offering, Smith Barney Inc. has a right of first
refusal to provide investment banking services to the Company in connection with
any public or private offering of securities of the Company on terms and
conditions customary for Smith Barney Inc. on similar transactions.
In connection with this Offering and in compliance with applicable law, the
Underwriters may over-allot (i.e., sell more Common Shares than the total amount
shown on the list of Underwriters that appears above) and may effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Shares at levels above those which might otherwise prevail in the
open market. Such transactions may include placing bids for the Common Shares or
effecting purchases of the Common Shares for the purpose of pegging, fixing or
maintaining the price of the Common Shares or for the purpose of reducing a
syndicate short position created in connection with the Offering. A syndicate
short position may be covered by exercise of the option described above in lieu
of or in addition to open market purchases. In addition, the contractual
arrangements among the Underwriters include a provision whereby, if an
Underwriter purchases Common Shares in the open market for the account of the
underwriting syndicate and the securities purchased can be traced to a
particular Underwriter or member of the selling group, the underwriting
syndicate may require the Underwriter or selling group member in question to
purchase the Common Shares in question at the cost price to the syndicate or may
recover from (or decline to pay to) the Underwriter or selling group member in
question the selling concession applicable to the securities in question. The
Underwriters are not required to engage in any of these activities and any such
activities, if commenced, may be discontinued at any time.
The Company, the Operating Partnership and the Underwriters have agreed to
indemnify each other against certain liabilities that may be incurred in
connection with the Offering, including liabilities under the Securities Act.
Credit Lyonnais Securities (USA) Inc., an Underwriter, is an affiliate of
Credit Lyonnais, the agent and a participant under the Credit Facility.
Approximately $32 million of the proceeds of the Offering (26.7% of the
aggregate net proceeds) will be repaid under the Credit Facility. See "Use of
Proceeds."
NationsBanc Montgomery Securities LLC, an Underwriter, is an affiliate of
NationsCredit Commercial Corp., the mortgage lender of the loan secured by
Crofton Country Club. Approximately $5.1 million of the proceeds of the Offering
(4.3% of the aggregate net proceeds) will be repaid to NationsCredit Commercial
Corp. See "Use of Proceeds."
Prior to the Offering, there has been no public market for the Common
Shares. Therefore, the initial public offering price will be determined through
negotiations among the Company and the Representatives. Among the factors to be
considered in such negotiations will be the prevailing market conditions, the
Golf Courses' financial and operating history and condition, the expected
results of operations of the Company, estimates of the business potential and
earnings prospects of the Company, the current state of the Company's industry
and the economy as a whole.
EXPERTS
The audited financial statements of the Company as of April 20, 1998, the
audited financial statements of the Predecessor Courses as of December 30, 1997
and December 31, 1996, the audited financial statements of Arnold Palmer Golf
Management LLC and Subsidiaries as of December 30, 1997 and December 31, 1996,
the audited financial statements of Pacific Golf, Inc. as of December 5, 1996,
and the audited financial statements of Olympus/Montclair-Chicago General
Partnership as of December 31, 1997 and 1996, included in this Prospectus and
elsewhere in the Registration Statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
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The combined financial statements of the Paloma Golf Courses for the period
January 1, 1997 to October 31, 1997 and the years ended December 30, 1996 and
December 31, 1995 and the financial statements of Olympus/Montclair--Chicago
General Partnership at December 31, 1995 and for the period from inception (July
26, 1995) through December 31, 1995, appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon appearing elsewhere herein, and
are included in reliance upon such reports given upon the authority of such
firms as experts in accounting and auditing.
The consolidated financial statements of Pacific Golf, Inc. at January 2,
1996 and for the year ended January 2, 1996, appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
LEGAL MATTERS
The validity of the Common Shares offered hereby as well as certain legal
matters described under "Federal Income Tax Consequences" will be passed upon
for the Company by Rudnick & Wolfe, Chicago, Illinois, and certain legal matters
will be passed upon for the Underwriters by Willkie Farr & Gallagher, New York,
New York. Rudnick & Wolfe and Willkie Farr & Gallagher will rely as to certain
matters of Maryland law on the opinion of Ballard Spahr Andrews & Ingersoll,
LLP, Baltimore, Maryland.
ADDITIONAL INFORMATION
The Company has filed with the SEC, 450 Fifth Street, N.W., Washington,
D.C. 20549, a Registration Statement on Form S-11 under the Securities Act, and
the rules and regulations promulgated thereunder, with respect to the Common
Shares offered pursuant to this Prospectus. This Prospectus, which is part of
the Registration Statement, does not contain all of the information set forth in
the Registration Statement and the exhibits. For further information concerning
the Company and the Common Shares offered hereby, reference is made to the
Registration Statement and the exhibits and schedules filed therewith. Any
statements contained herein concerning the provisions of any document are not
necessarily complete, and, in each instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement or otherwise
filed with the SEC. Each such statement is qualified in its entirety by such
reference. For further information with respect to the Company and the Common
Shares, reference is made to the Registration Statement and such exhibits and
schedules, copies of which may be examined without charge at, or copies obtained
upon payment of prescribed fees from, the principal office of the SEC at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The SEC also
maintains a web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the SEC,
including the Company. The address of the SEC's website is http://www.sec.gov.
The Company intends to furnish to its shareholders annual reports
containing audited financial statements examined by its independent public
accountants and quarterly reports containing unaudited financial information for
the first three quarters of each fiscal year.
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GLOSSARY
Unless the context otherwise requires, the following capitalized terms
shall have the meanings set forth below for the purposes of this Prospectus:
"ADA" means the Americans with Disabilities Act of 1990, as amended.
"Adjusted Basis Ratio" means the ratio of the average of the adjusted basis
of the personal property associated with a property at the beginning and at the
end of the taxable year to the average of the aggregate adjusted basis of both
the real and personal property comprising such property at the beginning and at
the end of such taxable year.
"Advisory Committee" means the association of Initial Lessees, established
to facilitate the cross-marketing of the Golf Courses and to promote awareness
of the Golf Courses.
"Anti-Abuse Rule" means the Treasury Regulation that authorizes the
Service, in certain "abusive" transactions involving partnerships, to disregard
the form of the transaction and recast it for federal tax purposes as the
Service deems appropriate.
"APGM" means Arnold Palmer Golf Management LLC.
"Audit Committee" means the committee established by the Board of Trustees
to make recommendations concerning the Company's accounting practices, including
the engagement and review of independent public accountants.
"Available Cash" means net cash flow from operations plus any reduction in
reserves, minus interest and principal payments on debt, capital expenditures,
any additions to reserves and other adjustments.
"Average Occupancy" means the total number of paid rooms (excluding rooms
for which no charge has been made) divided by the total number of available
rooms.
"Base Rent" means the fixed base rent payable under the Participating
Leases.
"Base Rent Escalator" means the lesser of (i) 3% or (ii) 200% (100% in the
case of the Chicago Resorts) of the change in the Consumer Price Index for the
prior year.
"Board of Trustees" means the board of trustees of the Company.
"Book-Tax Differences" means the difference between the fair market value
of property contributed to a partnership and the adjusted tax basis of the
contributed property at the time of the contribution.
"Built-In Gain" means the difference between the fair market value of
property contributed to a partnership and the adjusted tax basis of such
property at the time of contribution.
"Business Combinations" means any transaction which requires the approval
by law of an affirmative vote of shareholders and pursuant to which the
Company's business and assets will be combined with those of one or more other
entities (whether by merger, sale or other transfer of assets, consolidation or
share exchange).
"Bylaws" means the bylaws of the Company.
"Capital Replacement Fund" means a capital improvement reserve in an amount
equal to the excess of (i) at least 3% of Gross Golf Revenue and Other Revenue
at such Golf Course (4% of gross revenues in the case of the Chicago Resorts)
over (ii) capital expenditure expenses of the Initial Lessees for capital
improvements approved by the Company during the measuring period.
"Cash Available for Distribution" means Funds from Operations adjusted for
certain non-cash items.
"Chicago Resorts" means the Indian Lakes Resort and the Nordic Hills
Resort.
"Code" means Internal Revenue Code of 1986, as amended.
"Common Shares" means common shares of beneficial interest, par value $.01
per share, of the Company.
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"Company" means Presidio Golf Trust, a Maryland real estate investment
trust, alone as an entity, or, as the context may require, the combined
enterprise consisting of Presidio Golf Trust, the Operating Partnership and
their respective subsidiaries, and assumes that the Formation Transactions have
been consummated. All references to the historical activities of the Company
refer to the activities of the Operating Partnership and the properties that
will be combined into the Company pursuant to the Formation Transactions.
"Compensation Committee" means the committee established by the Board of
Trustees to determine compensation for the Company's executive officers.
"Coverage Ratio" means the ratio of an Initial Lessee's net operating
income with stated adjustments ("EBITDA") to such Initial Lessee's Lease
Payment.
"Consumer Price Index" means the United States Consumer Price Index.
"Credit Facility" means the Company's existing $75 million secured credit
facility with Credit Lyonnais New York Branch as agent and co-lender, and Wells
Fargo Bank, National Association, as co-lender.
"Credit Lyonnais" means Credit Lyonnais New York Branch.
"Daily fee" means those golf courses that are open to the public and
generate revenues principally through green fees, golf cart rentals, merchandise
sales, driving range charges, and food and beverage operations.
"Declaration of Trust" means the amended and restated declaration of trust
of the Company.
"Disqualified Persons" means persons who have specified relationships with
Plans.
"EBITDA" means earnings before interest, taxes, depreciation and
amortization.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Extended Terms" means the two to five consecutive five-year extension
terms after the Fixed Term of each Participating Lease, by which each Initial
Lessee may elect to extend the term of each Participating Lease, subject to
earlier termination upon the occurrence of certain defaults described in each
Participating Lease.
"FIRPTA" means the Foreign Investment in Real Property Tax Act of 1980, as
amended.
"Five or Fewer Rule" means the rule that under current law, no more than
fifty percent of the value of the REIT's outstanding shares can be owned
directly, indirectly or constructively, applying certain ownership attribution
rules in the Code, by five or fewer individuals at any time during the last half
of a REIT's taxable year.
"Fixed Term" means the initial 15 year term of each Participating Lease.
"Formation Transactions" means the series of transactions described in
"Formation of the Company" in this Prospectus.
"Funds from Operations" means net income (loss) (computed in accordance
with generally accepted accounting principles), excluding gains (or losses) from
debt restructuring or sales of property, plus depreciation of real property, and
after adjustments for unconsolidated partnerships and joint ventures. Funds from
Operations should not be considered as an alternative to net income or other
measurements under generally accepted accounting principles as an indicator of
operating performance or to cash flows from operating, investing or financial
activities as a measure of liquidity. Funds from Operations does not reflect
working capital changes, cash expenditures for capital improvements or principal
payments on indebtedness. The Company believes that Funds from Operations is
helpful to investors as a measure of the performance of an equity REIT, because,
along with cash flows from operating activities, financing activities and
investing activities, it provides investors with an understanding of the ability
of the Company to incur and service debt and make capital expenditures.
Compliance with the NAREIT definition of Funds from Operations is voluntary.
Accordingly, the Company's calculation of Funds from Operations in accordance
with the
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NAREIT definition may be different than similarly titled measures used by other
REITs. See "Distribution Policy."
"Golf Courses" means the 15 Golf Courses and related properties and resorts
(including eight courses located at seven private country clubs, four daily fee
courses and three courses located at two resort properties), which at the
completion of the Offering will be owned or ground leased by the Operating
Partnership.
"Golf Revenues Per Round" means Gross Golf Revenue at the applicable Golf
Course divided by the number of rounds played at the applicable Golf Course.
"Gross Golf Revenue" means all revenues received from or by reason of the
operation of a golf course, including revenues from green fees, fees to reserve
a tee time, golf-related guest fees or golf cart rentals, and surcharges,
initiation fees, member dues and transfer fees, fees or other charges paid
relating to golf tournaments or other group outings or group activities at the
golf course; provided, however, that Gross Golf Revenue does not include revenue
relating to food and beverage, and merchandise revenue.
"Hicks Muse" means HMTF Operating, Inc.
"HMS" means HMS Golf Management, Inc.
"Independent Trustees" means the trustees who are unaffiliated with the
Prior Owners and the Initial Lessees and are not officers or employees of the
Company.
"Initial Lessees" means the lessees entering into the Participating Leases.
"Initial Lessee Improvements" means alteration, additions, changes and/or
improvements made by each Initial Lessee at its sole cost and expense, with the
Company's prior written consent.
"Interested Shareholder" means any person who beneficially owns 10% or more
of the voting power of a Maryland real estate trust's then outstanding shares of
beneficial interest or any person who is an affiliate of the trust and who, at
any time within the two-year period prior to the date in question, was the
beneficial owner of 10% or more of the voting power of the then outstanding
voting shares of beneficial interest of the trust.
"IRA" means an individual retirement account.
"Lease Payment" means the rent payable to the Company under the
Participating Leases, consisting of the Base Rent plus any Participating Rent.
"Leased Property" means the Company's interest in each Golf Course,
including land, buildings and improvements, related easements and rights, and
certain fixtures, furnishings and equipment.
"Lessees" means the golf course operators or their affiliates to whom the
Company will lease its golf courses.
"LIBOR" means the London Interbank Offered Rate.
"License Agreement" means the license agreement between Palmer Enterprises
and Palmer Management regarding Golf Courses operated under certain Marks.
"Limited Partners" means the limited partners of the Operating Partnership.
"Marks" means the "Arnold Palmer" mark and name and certain variations
thereof, such as "Arnold Palmer Managed Country Club," " Arnold Palmer Managed
Golf Course," "Arnold Palmer Managed Golf Club," "Arnold Palmer Managed Golf
Resort," the umbrella logo and others.
"Maryland REIT Law" means Title 8 of the Corporations and Associations
Article of the Annotated Code of Maryland, as amended.
"MGCL" means the Maryland General Corporation Law, as amended.
"Montclair" means Montclair Hotel Investors, Inc. and its affiliated
Initial Lessee.
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"NAREIT" means National Association of Real Estate Investment Trusts, Inc.
"New Withholding Regulations" means the Final Treasury Regulations
regarding tax withholding that are proposed to be effective for distributions
made after December 31, 1999.
"NGF" means the National Golf Foundation, an industry trade association.
"Non-U.S. Shareholders" means nonresident alien individuals, foreign
corporations, foreign partnerships and other foreign shareholders.
"Offering" means this offering of Common Shares of Beneficial Interest of
the Company pursuant to and as described in this Prospectus.
"Offering Price" means for purposes of calculations included in this
Prospectus, an assumed initial public offering price of the Common Shares of
$20.00 per share.
"Olympus" means certain private placement funds, including Olympus Real
Estate Fund, L.P., which are controlled by Hicks Muse and/or David B. Deniger.
"OP Units" means units of limited partnership interest in the Operating
Partnership, which are redeemable at the election of holder for cash, or, at the
election of the Company, for Common Shares on a one-for-one basis.
"Operating Partnership" means Presidio Golf Limited Partnership, L.P., a
Delaware limited partnership, alone, or as the context may require, together
with its subsidiaries.
"Operating Partnership Agreement" means the Amended and Restated Agreement
of Limited Partnership of the Operating Partnership.
"Ownership Limit" means the direct or constructive ownership of more than
9.8% of the lesser of the total number or value of the outstanding Common Shares
or more than 9.8% of the outstanding Preferred Shares of the Company.
"Pacific" means Pacific Golf, Inc.
"Palmer Courses" means Emerald Valley Golf Club, Fox Valley Club, Minebrook
Golf Club and Tan Tara Country Club.
"Palmer Enterprises" means Arnold Palmer Enterprises, Inc.
"Palmer Management" means Arnold Palmer Golf Management LLC and its
controlled Initial Lessee.
"Participating Leases" means the leases relating to the Golf Courses
between the Operating Partnership, as lessor, and the Initial Lessees, as
lessees.
"Participating Rent" means the additional rent due annually to the Company
under the Participating Leases, in addition to Base Rent, in the amount of 30%
of any increase in Gross Golf Revenue over a predetermined Gross Golf Revenue
amount for a defined base year, plus 5% of any increase in "other revenues" over
a predetermined "other revenue" amount for a defined base year. With respect to
Indian Lakes Resort and Nordic Hills Resort, Participating Rent also includes
22% of any increase in Rooms Revenue over a predetermined Rooms Revenue for a
defined base year.
"Partnership Act" means the Delaware Revised Uniform Limited Partnership
Act.
"Partnership Provisions" means the provisions of the Code relating to
partnerships.
"PGA" means Professional Golf Association.
"PGG" means Paloma Golf Group, Inc.
"Predecessor" means the six Golf Courses owned by the Operating Partnership
prior to the completion of the Formation Transactions and the ground leasehold
interests in four Golf Courses that will be acquired by the Company from Palmer
Management in connection with the Formation Transactions.
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"Preference Units" means preferred units and other partnership interests of
different classes and series which the Operating Partnership may issue and which
have such rights, preferences and other privileges, variations and designations
as may be determined by the Company.
"Preferred Shares" means preferred shares of the Company, which the Board
of Trustees has the authority to authorize and issue.
"Prior Owners" means (i) Palmer Management; (ii) Olympus Montclair-Chicago
General Partnership; (iii) an affiliate of HMS; and (iv) an affiliate of
University Clubs; each of which is the owner of one or more of the Golf Courses
prior to the consummation of the Formation Transactions and each will contribute
and/or sell their interests in the Golf Courses to the Company.
"Private country clubs" means courses that are generally closed to the
public and derive revenue principally from membership dues, initiation fees,
transfer fees, golf cart rentals, guest fees, food and beverage operations and
merchandise sales.
"PTP Regulations" means regulations issued by the Treasury Department
governing the classification of partnerships under Code Section 7704.
"QRS" means "qualified REIT subsidiary" as defined in Section 856(i) of the
Code.
"Recognition Period" means the recognition period pertaining to the
Built-In Gain as defined pursuant to Treasury Regulations to be issued under
Section 337(d) of the Code.
"Redemption Right" means the right of holders of OP Units to require the
redemption of their OP Units at any time one year after the date of the closing
of the Offering (or on such date prior to the expiration of such one-year period
as the Company, as general partner, designates with respect to any or all OP
Units).
"Registration Rights" means the rights which require the Company, subject
to certain limitations, to file a registration statement under the Securities
Act relating to such Common Shares one year after the effective date of the
registration statement relating to the Offering.
"REIT" means real estate investment trust as defined in Section 856 of the
Code.
"REIT Taxable Income" means "real estate investment trust taxable income"
as determined under Section 857 of the Code.
"Related Party Tenant" under the Code means a tenant of the Company of
which an owner of 10% or more of, directly or constructively owns a 10% or
greater ownership interest.
"Replacement Facility" means the proposed $100 million unsecured credit
facility from Credit Lyonnais.
"Resort courses" means daily fee courses that attract a significant
percentage of players from outside the immediate area in which the golf courses
are located, and generate a significant amount of revenue from business
conferences or golf vacation packages.
"Restricted Securities" means "restricted securities" within the meaning of
Rule 144 promulgated under the Securities Act which may not be sold in the
absence of registration under the Securities Act or pursuant to an exemption
from registration, including exemptions contained in Rule 144.
"Restricted Share Plan" means the 1998 Restricted Share Plan administered
by the Compensation Committee to provide for the granting of restricted Common
Shares to officers, employees and consultants of the Company.
"RIC" means regulated investment company.
"Rooms Revenue" means all revenues received from or by reason of the
leasing or renting of hotel rooms, in the resort Golf Courses, including all
revenue attributable to any packages which include a stay in one of the hotel
rooms; provided, however, that Rooms Revenue shall not include food and beverage
revenue, Gross Golf Revenue or Other Revenue.
"Rule 144" means Rule 144 promulgated under the Securities Act.
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"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Service" means the Internal Revenue Service.
"Share Option Plan" means the 1998 Share Option Plan administered by the
Compensation Committee to provide for the granting of "incentive stock options"
(as defined in Section 422 of the Code), or non-statutory share options, which
are exercisable for up to 10 years following the date of the grant.
"Shares-In-Trust" means the separate class of shares into which Common
Shares directly or constructively owned by an individual in excess of the
Ownership Limit will be automatically exchanged.
"Total Revenue" means all revenue from a property, including green fees,
golf cart rentals, range fees, membership dues, member initiation fees, hotel
room revenues, transfer fees, food and beverage and merchandise revenue.
"Treasury" means the United States Department of Treasury.
"Treasury Regulations" means the income tax regulations that have been
promulgated under the Code.
"UBTI" means "unrelated business taxable income" as defined in Section
512(a) of the Code.
"Underwriters" means the underwriters named in this Prospectus.
"Underwriting Agreement" means the agreement between the Underwriters and
the Company.
"University Clubs" means University Clubs of America LLC.
"UCSC" means the University Club of South Carolina.
"USC" means the University of South Carolina.
"U.S. Shareholder" means the holder of Common Shares who (for United States
federal income tax purposes) is (i) a citizen or resident of the United States,
(ii) a corporation, partnership or other entity created or organized in or under
the laws of the United States or of any political subdivision thereof, (iii) an
estate the income of which is subject to United States federal income taxation,
or (iv) a trust with respect to the administration of which a court in the
United States is able to exercise primary supervision and one or more United
States fiduciaries have the authority to control all substantial decisions of
the trust.
"90% Passive-Type Income Exception" means the exception to treatment as a
"publicly traded partnership" provided in Section 7704(c) of the Code.
"401(k) Plan" means the plan that will permit eligible employees of the
Company to defer up to 15% of their annual compensation, subject to certain
limitations imposed by the Code.
"1993 Act" means the Omnibus Budget Reconciliation Act of 1993.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Introduction to Financial Statements:....................... F-3
Presidio Golf Trust:
Report of Independent Public Accountants -- Arthur Andersen
LLP....................................................... F-4
Balance Sheet as of April 20, 1998.......................... F-5
Notes to Balance Sheet...................................... F-6
Introduction to Pro Forma Financial Statements
(unaudited)............................................... F-10
Pro Forma Condensed Consolidated Balance Sheet as of March
31, 1998 (unaudited)...................................... F-11
Pro Forma Condensed Consolidated Statement of Operations for
the three month period ended March 31, 1998 (unaudited)... F-12
Pro Forma Condensed Consolidated Statement of Operations for
the Year Ended December 31, 1997 (unaudited).............. F-13
Notes and Management's Assumptions to Pro Forma Financial
Statements (unaudited).................................... F-14
Predecessor Courses (the Predecessor to the Operating
Partnership):
Report of Independent Public Accountants -- Arthur Andersen
LLP....................................................... F-17
Combined Balance Sheets as of March 31, 1998 (unaudited) and
December 30, 1997 and December 31, 1996................... F-18
Combined Statements of Operations for the three month
periods ended March 31, 1998 and April 1, 1997 (unaudited)
and for the fiscal period ended December 30, 1997, for the
26-day period ended December 31, 1996, the 337-day period
ended December 5, 1996 and the 187-day period ended
January 2, 1996........................................... F-19
Combined Statements of Parent's Equity for the three month
period ended March 31, 1998 (unaudited) and for the fiscal
period ended December 30, 1997, for the 26-day period
ended December 31, 1996, the 337-day period ended December
5, 1996 and the 187-day period ended January 2, 1996...... F-20
Combined Statements of Cash Flows for the three month
periods ended March 31, 1998 and April 1, 1997 (unaudited)
and for the fiscal period ended December 30, 1997, for the
26-day period ended December 31, 1996, the 337-day period
ended December 5, 1996 and the 187-day period ended
January 2, 1996........................................... F-21
Notes to Combined Financial Statements...................... F-23
Paloma Golf Courses:
Report of Independent Auditors -- Ernst & Young LLP......... F-31
Combined Balance Sheets as of October 31, 1997 and December
31, 1996 and 1995......................................... F-32
Combined Statements of Operations for the ten month period
ended October 31, 1997 and for the years ended December
31, 1996 and 1995......................................... F-33
Combined Statements of Owner's Equity for the ten month
period ended October 31, 1997 and for the years ended
December 31, 1996 and 1995................................ F-34
Combined Statements of Cash Flows for the ten month period
ended October 31, 1997 and for the years ended December
31, 1996 and 1995......................................... F-35
Notes to Combined Financial Statements...................... F-36
Olympus/Montclair-Chicago General Partnership
Report of Independent Public Accountants -- Arthur Andersen
LLP....................................................... F-41
Consolidated Balance Sheets as of December 31, 1997 and
1996...................................................... F-42
Consolidated Statements of Operations for the years ended
December 31, 1997 and 1996................................ F-43
Consolidated Statements of Changes in Partners' Capital for
the years ended December 31, 1997 and 1996................ F-44
Consolidated Statements of Cash Flows for the years ended
December 31, 1997 and 1996................................ F-45
Notes to Consolidated Financial Statements.................. F-46
Consolidated Balance Sheet as of March 31, 1998
(unaudited)............................................... F-52
Consolidated Statements of Operations for the three month
periods ended March 31, 1998 and 1997 (unaudited)......... F-53
Consolidated Statements of Cash Flows for the three month
periods ended March 31, 1998 and 1997 (unaudited)......... F-54
Notes to March 31, 1998 and 1997 Consolidated Financial
Statements (unaudited).................................... F-55
Report of Independent Auditors -- Ernst & Young LLP......... F-57
Balance Sheet as of December 31, 1995....................... F-58
Statement of Operations for period from inception of
operations (July 26, 1995) through December 31, 1995...... F-59
Statement of Changes in Venturers' Capital for the period
from inception (July 26, 1995) through December 31,
1995...................................................... F-60
Statement of Cash Flows for the period from inception (July
26, 1995) through December 31, 1995....................... F-61
Notes to Financial Statements............................... F-62
</TABLE>
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<TABLE>
<S> <C>
Arnold Palmer Golf Management LLC and Subsidiaries
Introduction to Pro Forma Financial Statements.............. F-67
Pro Forma Condensed Consolidated Balance Sheet as of March
31, 1998 (unaudited)...................................... F-68
Pro Forma Condensed Consolidated Statement of Operations for
the three month period ended March 31, 1998 (unaudited)... F-69
Pro Forma Condensed Consolidated Statement of Operations for
the year ended December 31, 1997 (unaudited).............. F-70
Notes and Management's Assumptions to Pro Forma Financial
Statements (unaudited).................................... F-71
Selected Financial Data..................................... F-72
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. F-73
Report of Independent Certified Public Accountants -- Arthur
Andersen LLP.............................................. F-76
Consolidated Balance Sheets -- March 31, 1998 (unaudited),
December 30, 1997 and December 31, 1996................... F-77
Consolidated Statements of Operations for the three month
periods ended March 31, 1998 (unaudited) and April 1, 1997
(unaudited), the fiscal period ended December 30, 1997 and
the 26-day period from Inception (December 6, 1996)
Through December 31, 1996................................. F-78
Consolidated Statements of Members' Equity for the three
month period ended March 31, 1998 (unaudited), the fiscal
period ended December 30, 1997, and the 26-day period from
Inception (December 6, 1996) through December 31, 1996.... F-79
Consolidated Statements of Cash Flows for the three month
periods ended March 31, 1998 (unaudited) and April 1, 1997
(unaudited), the fiscal period ended December 30, 1997 and
the 26-day period from Inception (December 6, 1996)
through December 31, 1996................................. F-80
Notes to Consolidated Financial Statements.................. F-81
Pacific Golf, Inc.
Report of Independent Public Accountants -- Arthur Andersen
LLP....................................................... F-93
Consolidated Balance Sheet as of December 5, 1996........... F-94
Consolidated Statement of Operations for the period from
January 3, 1996 through December 5, 1996.................. F-95
Consolidated Statement of Cash Flows for the period from
January 3, 1996, through December 5, 1996................. F-96
Consolidated Statement of Stockholders' Equity for the
period from January 3, 1996 through December 5, 1996...... F-97
Notes to Consolidated Financial Statements.................. F-98
Report of Independent Auditors -- Ernst & Young LLP......... F-109
Consolidated Balance Sheet as of January 2, 1996............ F-110
Consolidated Statement of Operations -- for the year ended
January 2, 1996........................................... F-111
Consolidated Statement of Stockholders' Equity for the year
ended January 2, 1996..................................... F-112
Consolidated Statement of Cash Flows for the year ended
January 2, 1996........................................... F-113
Notes to Consolidated Financial Statements.................. F-114
</TABLE>
F-2
<PAGE> 146
INTRODUCTION TO FINANCIAL STATEMENTS
The following pages present the audited financial statements of Presidio
Golf Trust, Predecessor Golf Courses (the predecessor to the Operating
Partnership -- the "Predecessor"), Paloma Courses and Olympus/Montclair --
Chicago General Partnership. The Predecessor consists of six Golf Courses
currently owned by the Operating Partnership and the ground leasehold interests
in four Golf Courses owned by Palmer Management, which will be acquired by the
Operating Partnership in connection with the Formation Transactions.
The Predecessor Golf Courses were acquired or ground leasehold interests
were initiated on the following dates:
<TABLE>
<S> <C>
Brierwood Country Club..................................... July 1, 1995
Crofton Country Club (Ground Leasehold Interest)........... October 11, 1996
Oronoque Country Club...................................... December 1, 1996
Memphis National Golf Club (Ground Leasehold Interests in
two Golf Courses)........................................ June 18, 1997
Penderbrook Golf Club (Ground Leasehold Interest).......... November 1, 1997
Emerald Valley Golf Club................................... November 5, 1997
Fox Valley Club............................................ November 5, 1997
Minebrook Golf Club........................................ November 5, 1997
Tan Tara Golf Club......................................... November 5, 1997
</TABLE>
The Predecessor had no operations prior to the acquisition of Brierwood
Country Club on July 1, 1995.
Prior to December 6, 1996, Pacific Golf, Inc. ("Pacific") controlled the
Predecessor. Effective December 6, 1996, Pacific contributed certain assets and
liabilities to Palmer Management in exchange for a non-controlling ownership
interest therein. The purchase method of accounting was used to record the
assets and liabilities contributed by Pacific to Palmer Management. As a result
of the change in control that occurred on December 6, 1996, the fiscal 1996
results of operations of the Predecessor for the 26-day period subsequent to
December 6, 1996 and the 337-day period prior to December 6, 1996 could not be
combined.
The audited financial statements of the Predecessor Golf Courses and
Olympus/Montclair-Chicago General Partnership have been included in this
Prospectus to present the financial condition and historical operations of the
Golf Courses which will be leased to the significant Initial Lessees, in order
to show their ability to make base rental payments under the Participating
Leases. Only the Predecessor Golf Courses and Olympus/Montclair-Chicago General
Partnership have been presented, as they represent the historical operations of
the Golf Courses which will be leased to the Initial Lessees for which the
purchase price of the related Golf Courses under lease represents greater than
20 percent of the aggregate purchase price of all of the Golf Courses, and
therefore are considered significant.
The Predecessor acquired Emerald Valley Golf Club, Fox Valley Club,
Minebrook Golf Club and Tan Tara Golf Club (the "Paloma Courses") on November 5,
1997. The audited financial statements for the Paloma Courses for the ten month
period ended October 31, 1997 and for the years ended December 31, 1996 and 1995
are included herein.
F-3
<PAGE> 147
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited the accompanying balance sheet of Presidio Golf Trust (a
Maryland real estate investment trust, the "Company") as of April 20, 1998. This
financial statement is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Presidio Golf Trust as of April 20,
1998, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California
May 4, 1998
F-4
<PAGE> 148
PRESIDIO GOLF TRUST
BALANCE SHEET
AS OF APRIL 20, 1998
<TABLE>
<S> <C>
ASSETS
Cash........................................................ $1,000
======
LIABILITIES AND SHAREHOLDER'S EQUITY
Total liabilities........................................... $ 0
Common shares, par value $.01 per share, 50 shares issued
and outstanding........................................... 1
Additional paid-in capital.................................. 999
------
Total shareholder's equity................................ 1,000
------
Total liabilities and shareholder's equity............. $1,000
======
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-5
<PAGE> 149
PRESIDIO GOLF TRUST
NOTES TO BALANCE SHEET
APRIL 20, 1998
(IN THOUSANDS EXCEPT SHARE AND UNIT AMOUNTS)
NOTE 1 -- THE COMPANY
Presidio Golf Trust (the "Company") was formed as a Maryland real estate
investment trust on April 20, 1998 and was initially capitalized on such date
through the sale of 50 common shares. The Company's mission is to be a leading
consolidator in the highly fragmented golf industry by acquiring high quality
golf courses through its ownership of Presidio Golf Limited Partnership (the
"Operating Partnership"). The golf courses will be leased under participating
leases (the "Participating Leases") to multiple operators (the "Initial
Lessees"), including newly formed affiliates of the sellers of such courses.
After an initial public offering (see note 6), the Company will acquire and
consolidate the Operating Partnership due to its control as sole general
partner. The accompanying balance sheet includes all accounts of the Company.
The Company's sole activity since formation has consisted of the
organization and start-up of the Company. Accordingly, no statement of
operations is presented.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INCOME TAXES
After the completion of its initial public offering, the Company intends to
make an election to be taxed as a real estate investment trust ("REIT") under
Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the
"Code"). As a REIT, the Company generally will not be subject to federal income
tax if it distributes at least 95% of its REIT taxable income to its
stockholders. REITs are subject to a number of organizational and operational
requirements. If the Company fails to qualify as a REIT in any taxable year, the
Company will be subject to federal income tax (including any applicable
alternative minimum tax) on its taxable income at regular corporate tax rates.
Even if the Company qualifies for taxation as a REIT, the Company may be subject
to state and local taxes on its income and property and to federal income and
excise taxes on its undistributed income.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CONCENTRATION OF RISK
The Company is in the development stage, and therefore is subject to
several risk factors, including the following:
- the lack of operating history of the Company;
- dependence on the ability of the Initial Lessees to pay rent or perform
obligations under the Participating Leases;
- taxation of the Company as a regular corporation if it fails to qualify
as REIT;
- the Company's dependence on key officers and trustees of the Company; and
- the general risks relating to golf course real estate ownership and
investment.
F-6
<PAGE> 150
PRESIDIO GOLF TRUST
NOTES TO BALANCE SHEET -- (CONTINUED)
APRIL 20, 1998
(IN THOUSANDS EXCEPT SHARE AND UNIT AMOUNTS)
NOTE 3 -- RELATED PARTY TRANSACTIONS
After completion of the initial public offering and formation transactions,
Palmer Management will lease 10 golf courses from the Company under the
Participating Leases. Total annual base rents under Participating Leases for the
10 golf courses for 1998 would be $6,850.
NOTE 4 -- SHARE OPTION PLAN RESTRICTED SHARE PLAN AND 401(K) PLAN
SHARE OPTION PLAN
Prior to the completion of the Offering, the Company intends to adopt the
1998 Share Option Plan, pursuant to which the Company will reserve 750,000
Common Shares for issuance to officers, trustees, employees and consultants.
Share options may be granted in the form of incentive stock options, or non-
statutory share options, and are exercisable for up to 10 years following the
date of the grant. The exercise price of each option will be set by the
Compensation Committee of the Company's Board of Trustees; provided, however,
that the price per share is required to be equal to or greater than the fair
market value of the Common Shares on the grant date. Concurrent with the closing
of the Company's initial public offering, the Company will grant 430,000 options
of which 355,000 will be issued under the 1998 Share Option Plan. In addition,
the Company will grant 75,000 options to Palmer Management in connection with
the Formation Transactions. See Note 6.
The 1998 Share Option Plan also provides for the issuance of share
appreciation rights which will generally entitle a holder to receive cash or
shares, as determined by the Compensation Committee of the Company's Board of
Trustees at the time of exercise, equal to the difference between the exercise
price and the fair market value of the Common Shares.
RESTRICTED SHARE PLAN
The Company will establish a Restricted Share Plan (the "Restricted Share
Plan") pursuant to which the Company may issue up to 250,000 restricted Common
Shares to officers, employees and consultants. The shares will be granted under
the Restricted Share Plan by a committee of non-employee trustees of the
Company. Awards will be subject to vesting based on certain performance
standards over periods of between three and eight years with restrictions
lapsing on the occurrence of certain events such as a change in control or
retirement.
401(K) PLAN
Effective upon completion of the Offering, the Company intends to establish
a 401(k) Savings/ Retirement Plan (the "401(k) Plan") to cover eligible
employees of the Company. The 401(k) Plan will permit eligible employees of the
Company to defer up to 15% of their annual compensation, subject to certain
limitations imposed by the Internal Revenue Code. The employees' elective
deferrals are immediately vested and nonforfeitable upon contribution to the
401(k) Plan.
NOTE 5 -- EMPLOYMENT AGREEMENTS
The Company will enter into employment agreements with certain executive
officers. The agreements provide that these individuals agree to devote
substantially all of their time to the operation of the Company (except as the
Company otherwise agrees, including on behalf of the Operating Partnership).
Upon termination of the executive officers other than for cause, the executive
officers will be entitled to receive certain severance benefits.
F-7
<PAGE> 151
PRESIDIO GOLF TRUST
NOTES TO BALANCE SHEET -- (CONTINUED)
APRIL 20, 1998
(IN THOUSANDS EXCEPT SHARE AND UNIT AMOUNTS)
NOTE 6 -- SUBSEQUENT EVENT (UNAUDITED)
The Company is in the process of filing a Registration Statement relating
to an offering (the "Offering") of 6,540,000 common shares of beneficial
interest (the "Common Shares") and completing certain formation transactions
(the "Formation Transactions"). Contingent upon the consummation of the Offering
and the Formation Transactions, the Operating Partnership will be liable for
organizational expenses incurred in connection with the Offering and the
Formation Transactions. Certain executive officers of the Company will receive
75,000 Shares in connection with the Formation Transactions valued at $1,500.
The Company will contribute the net proceeds from the Offering to the Operating
Partnership in exchange for 6,615,000 Operating Partnership units ("Units")
representing approximately an 82.2% interest therein. Palmer Management held the
sole general partner and limited partner interests in the Operating Partnership
prior to the Offering. The Operating Partnership owned six Golf Courses prior to
the Formation Transactions. Palmer Management's general and limited partner
interests in the Operating Partnership will be converted into $5,000 in cash,
407,400 Units and an option to receive 75,000 Units at the Offering price. The
Operating Partnership has a $75,000 secured credit facility (the "Credit
Facility") with a bank that will initially will bear interest at LIBOR plus
1.75%. The Credit Facility has an initial term of three years and is secured by
six golf courses. The Company has commenced discussions with a bank to replace
the Operating Partnership Credit Facility with a $100,000 unsecured facility.
There can be no assurance, however, that the Credit Facility will be replaced,
and if replaced, under what terms. The Operating Partnership will use the net
proceeds of $119,744 from the Offering as follows:
- Palmer Management's general and limited partnership interests in the
Operating Partnership will be converted into $5,000, 407,400 Units and
the repayment of approximately $32,000 of indebtedness related to the
Credit Facility and the six Operating Partnership golf courses.
- The Operating Partnership will acquire the ground leasehold interests in
three golf courses from Palmer Management for 692,600 Units and the
repayment of $11,778 of existing indebtedness related to these golf
courses. Palmer Management will own approximately 13.7% of the Operating
Partnership after the Offering and Formation Transactions.
- Acquire five golf courses from the Prior Owners in exchange for 336,000
Units, $43,733 in cash and the repayment of $27,047 of existing
indebtedness related to these golf courses.
Upon completion of the Offering, the Operating Partnership will own 15 golf
courses (the "Golf Courses") and have no outstanding indebtedness.
Combined unaudited summarized financial information for the 15 Golf Courses
as of December 31, 1997 and for the year ended December 31, 1997 is as follows:
COMBINED BALANCE SHEET OF 15 GOLF COURSES AS OF DECEMBER 31, 1997
<TABLE>
<S> <C>
Real estate, net............................................ $ 91,514
Cash........................................................ 2,817
Other assets................................................ 14,282
--------
Total assets.............................................. $108,613
--------
Mortgage and other indebtedness............................. $ 71,627
Accounts payable, accrued expenses and other liabilities.... 8,199
Equity...................................................... 28,787
--------
Total liabilities and equity.............................. $108,613
========
</TABLE>
F-8
<PAGE> 152
PRESIDIO GOLF TRUST
NOTES TO BALANCE SHEET -- (CONTINUED)
APRIL 20, 1998
(IN THOUSANDS EXCEPT SHARE AND UNIT AMOUNTS)
COMBINED STATEMENT OF OPERATIONS OF THE 15 GOLF COURSES
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Revenue from Resort and Golf Course operations.............. $51,137
Other revenue............................................... 1,885
-------
Total revenue............................................. 53,022
-------
Operating expenses.......................................... 45,846
-------
Net operating income........................................ 7,176
Interest expense............................................ 5,710
-------
Net income................................................ $ 1,466
=======
</TABLE>
As part of the acquisitions described above, the Company will enter into
Participating Leases with the Initial Lessees. The Participating Leases
generally have initial terms of fifteen years, and generally may be extended
upon the same terms and conditions for two to five additional five-year terms,
at the option of the Initial Lessees. The Participating Leases are triple net
leases and require the Initial Lessees to pay substantially all expenses
associated with operations, including taxes, insurance, utilities, service,
maintenance and ground lease payments. The Participating Leases with the Palmer
Management affiliate are cross-collateralized and cross-defaulted. Base rent
will be increased annually over the term of the Participating Leases by a factor
of the lesser of 3%; or 200% of the change in the Consumer Price Index from the
prior year. Future minimum rental payments related to the 15 Golf Courses are as
follows, (in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1997
------------------
<S> <C>
1998..................................................... $ 14,517
1999..................................................... 14,517
2000..................................................... 14,517
2001..................................................... 14,517
2002..................................................... 14,517
Thereafter............................................... 145,170
--------
$217,755
========
</TABLE>
F-9
<PAGE> 153
PRESIDIO GOLF TRUST
PRO FORMA BALANCE SHEET AS OF MARCH 31, 1998 AND
PRO FORMA STATEMENTS OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED
MARCH 31, 1998 AND FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
The unaudited Pro Forma Balance Sheet is presented as if the completion of
the Formation Transactions and the commencement of the Participating Leases had
occurred on March 31, 1998. The acquiror for accounting purposes is the
Operating Partnership. The acquisition of the Golf Courses from Palmer
Management and Montclair Partners has been recorded at historical cost as a
transfer between parties under common control. The acquisition of the Golf
Courses from HMS and University Clubs has been recorded at their respective
purchase price which reflects estimated fair values.
The unaudited pro forma statements of operations of the Company for the
three month period ended March 31, 1998 and for the year ended December 31, 1997
are presented as if the completion of the Formation Transactions and the
commencement of the Participating Leases had occurred on January 1, 1997, and
were carried forward through March 31, 1998.
Preparation of the pro forma financial statements was based on assumptions
deemed appropriate by the management of the Company. The assumptions give effect
to the Formation Transactions, the commencement of the Participating Leases and
the Company qualifying as a REIT, distributing the required amount of taxable
income and, therefore, incurring no federal income tax expense during the period
presented. The following unaudited pro forma data is not necessarily indicative
of what the actual financial position or results of operations would have been
as of the date or for the periods indicated, nor does it purport to represent
the financial position or results of operations for the Company for future
periods.
F-10
<PAGE> 154
PRESIDIO GOLF TRUST
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1998
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS OFFERING AND
PREDECESSOR TO FORMATION PRO FORMA
HISTORICAL PREDECESSOR TRANSACTIONS (H)
----------- ----------- ------------ ---------
<S> <C> <C> <C> <C>
ASSETS
Golf course and lodging buildings,
improvements and fixtures, net............ $32,277 $ 2,759(B) $ 44,531(E) $ 79,567
Golf course and lodging land................ 13,021 -- 10,587(E) 23,608
------- ------- -------- --------
Investment in golf courses and lodging,
net.................................. 45,298 2,759 55,118 103,175
------- ------- -------- --------
Cash........................................ 2,971 (2,971)(A) 120,694(D) 186
(950)(E)
(43,733)(E)
(70,825)(F)
(5,000)(G)
Leasehold deposits and other assets......... 11,430 (4,765)(A) -- 6,815
150(C)
------- ------- -------- --------
Total assets........................... $59,699 $(4,827) $ 55,304 $110,176
======= ======= ======== ========
LIABILITIES & SHAREHOLDERS' EQUITY
Due to affiliates........................... $ 2,824 $(2,824)(A) $ -- $ --
Notes payable............................... 41,019 2,759(B) 27,047(E) --
(70,825)(F) --
Accounts payable, accrued expenses & other
liabilities............................... 6,602 (6,602)(A) -- --
------- ------- -------- --------
Total liabilities...................... 50,445 (6,667) (43,778) --
Minority interest........................... -- -- 19,651(G) 19,651
Shareholders' Equity
Common shares............................... -- -- 66(D) 66
Additional paid-in capital.................. -- -- 120,628(D) 90,459
(30,169)(G) --
Parent's equity............................. 9,254 1,840(A) (11,094)(G) --
------- ------- -------- --------
Total shareholders' equity............. 9,254 1,840 79,431 90,525
------- ------- -------- --------
Total liabilities & shareholders'
equity............................... $59,699 $(4,827) $ 55,304 $110,176
======= ======= ======== ========
</TABLE>
The Accompanying notes and management's assumptions are an integral part of this
statement.
F-11
<PAGE> 155
PRESIDIO GOLF TRUST
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1998
(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ADJUSTMENTS OFFERING AND
PREDECESSOR TO FORMATION PRO FORMA
HISTORICAL PREDECESSOR(I) TRANSACTIONS (H)
----------- -------------- ------------ ---------
<S> <C> <C> <C> <C>
Participating lease revenue................. $ 2,968 $(2,968) $3,629(J) $ 3,629
------- ------- ------ ---------
Depreciation and amortization............... 482 (482) 1,445(K) 1,445
General and administrative.................. 2,839 (2,839) 473(L) 473
Interest expense............................ 728 (728) 13(C) 13
------- ------- ------ ---------
Total expenses.............................. 4,049 (4,049) 1,931 1,931
------- ------- ------ ---------
Income of the Operating Partnership......... (1,081) 1,081 1,698 1,698
Minority interest........................... -- -- 303(M) 303
------- ------- ------ ---------
Net income applicable to common
shareholders.............................. $(1,081) $ 1,081 $1,395 $ 1,395
======= ======= ====== =========
Net income per share of Common Share........ $ 0.21
=========
Common Shares Outstanding................... 6,615,000(N)
=========
</TABLE>
The accompanying notes and management's assumptions are an integral part of this
statement.
F-12
<PAGE> 156
PRESIDIO GOLF TRUST
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ADJUSTMENTS OFFERING AND
PREDECESSOR TO FORMATION PRO FORMA
HISTORICAL PREDECESSOR(I) TRANSACTIONS (H)
----------- -------------- ------------ ---------
<S> <C> <C> <C> <C>
Participating lease revenue.................. $11,012 $(11,012) $14,517(J) $ 14,517
------- -------- ------- ---------
Depreciation and amortization................ 941 (941) 5,781(K) 5,781
General and administrative................... 9,903 (9,903) 1,895(L) 1,895
Interest expense............................. 1,427 (1,427) 50(C) 50
------- -------- ------- ---------
Total expenses............................... 12,271 (12,271) 7,726 7,726
------- -------- ------- ---------
Income of the Operating Partnership.......... (1,259) 1,259 6,791 6,791
Minority interest............................ -- -- 1,211(M) 1,211
------- -------- ------- ---------
Net income applicable to common
shareholders............................... $(1,259) $ 1,259 $ 5,580 $ 5,580
======= ======== ======= =========
Net income per share of Common Share......... $ 0.84
=========
Common Shares outstanding.................... 6,615,000(N)
=========
</TABLE>
The accompanying notes and management's assumptions are an integral part of this
statement.
F-13
<PAGE> 157
PRESIDIO GOLF TRUST
NOTES AND MANAGEMENT'S ASSUMPTIONS TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED, IN THOUSANDS EXCEPT SHARE AND UNIT AMOUNTS)
(A) Represents assets and liabilities of the Predecessor which will not be
acquired by the Company in connection with the Formation Transactions.
(B) Represents estimated additional borrowings on the Credit Facility subsequent
to March 31, 1998 related to renovations at certain of the Predecessor Golf
Courses.
(C) Reflects deferred loan costs related to the Credit Facility. The deferred
loan costs will be amortized over the expected 3-year term. Amortization of
deferred loan costs is estimated to be $13 and $50 for the three month
period ended March 31, 1998 and the year ended December 31, 1997,
respectively.
(D) Represents 6,540,000 common shares issued in connection with the Offering,
at an offering price of $20.00 per share and 75,000 Common Shares issued to
certain executives of the Company in connection with the Formation
Transactions (see note L). The par value of the Common Shares is $.01 per
share. Adjustments consist of the following:
<TABLE>
<S> <C>
Proceeds from the Offering.................................. $130,800
Underwriters discount....................................... (9,156)
Offering expenses........................................... (950)
--------
Net proceeds................................................ $120,694
========
Common Shares............................................... 66
Additional paid-in capital.................................. 120,628
--------
Net proceeds................................................ $120,694
========
</TABLE>
(E) Represents acquisitions of the Golf Courses for cash, Units, assuming a
value of $20.00 per Unit, and the assumption of mortgage debt. In the
opinion of management, the purchase price of the Golf Courses acquired
estimated their fair value as of the date of the Formation Transactions. In
addition, the purchase price of the Golf Courses includes $950 of estimated
acquisition costs to be paid by the Operating Partnership. The acquiror for
accounting purposes is the Operating Partnership. The acquisition of the
Golf Courses from Montclair Partners has been reflected at carryover basis
as a transfer between parties under common control. The acquisition of the
Golf Courses from HMS and University Clubs has been reflected at their
respective purchase prices which reflect estimated fair value. The purchase
price of the Golf Courses from HMS and University Club have been allocated
65%/35% between buildings and land, respectively, for purposes of the
unaudited pro forma financial statements. Final allocations will be
calculated and recorded by the Operating Partnership upon closing.
Adjustments are comprised of the following:
<TABLE>
<CAPTION>
TOTAL LAND BUILDING
----- ---- --------
<S> <C> <C> <C>
Montclair Partners................................ $ 39,168 $ 5,004 $34,164
HMS............................................... 9,000 3,150 5,850
University Club................................... 6,000 2,100 3,900
Estimated acquisition costs....................... 950 333 617
-------- ------- -------
$ 55,118 $10,587 $44,531
======== ======= =======
Cash paid......................................... $ 43,733
Mortgage debt assumed............................. 27,047
Adjustment to record the acquisition of the
Montclair Partners Golf Courses at carryover
basis........................................... (23,332)
Units issued...................................... 6,720
Estimated acquisition costs....................... 950
--------
$ 55,118
========
</TABLE>
F-14
<PAGE> 158
PRESIDIO GOLF TRUST
NOTES AND MANAGEMENT'S ASSUMPTIONS TO PRO FORMA FINANCIAL STATEMENTS --
(CONTINUED)
(UNAUDITED, IN THOUSANDS EXCEPT SHARE AND UNIT AMOUNTS)
(F) Represents the repayment of the Credit Facility and mortgage debt assumed in
connection with the acquisition of the Golf Courses with proceeds from the
Offering. See "Use of Proceeds" elsewhere in this Prospectus.
(G) Minority interest is calculated at approximately 17.8 percent of the
Operating Partnership's capital and net income. The ownership of the
operating partnership is as follows:
<TABLE>
<CAPTION>
COMPANY MINORITY INTEREST TOTAL
---------------- ------------------ ----------------
$ UNITS $ UNITS $ UNITS
- ----- - ----- - -----
<S> <C> <C> <C> <C> <C> <C>
Conversion of OP Interest............. $ -- -- $ 11,094 1,100 $ 11,094 1,100
The Offering.......................... 120,694 6,540 -- -- 120,694 6,540
Cash paid to Palmer Management in
connection with Formation
Transactions........................ -- -- (5,000) -- (5,000) --
Issuance of shares to certain Company
executives in connection with the
Formation Transactions (See Note
L).................................. 1,500 75 -- -- 1,500 75
Compensation expense related to the
issuance of shares to certain
Company executives in connection
with the Formation Transactions (See
Note L)............................. (1,500) -- -- -- (1,500) --
Acquisition of the Golf Courses from
Montclair Partners.................. -- -- 4,934 247 4,934 247
Adjustment to record the acquisition
of the Golf Courses from Montclair
Partners at carryover basis......... -- -- (23,332) -- (23,332) --
Acquisition of the Golf Course from
HMS................................. -- -- 1,786 89 1,786 89
-------- ----- -------- ----- -------- -----
$120,694 6,615 $(10,518) 1,436 $110,176 8,051
Allocation of Limited Partners'
interest............................ (30,169) -- 30,169 -- -- --
-------- ----- -------- ----- -------- -----
$ 90,525 6,615 $ 19,651 1,436 $110,176 8,051
======== ===== ======== ===== ======== =====
Pro forma ownership................... 82.2% 82.2% 17.8% 17.8% 100% 100%
</TABLE>
(H) The Company, as sole general partner of the Operating Partnership, will
have, subject to certain protective rights of the Limited Partners, full,
exclusive and complete responsibility and discretion in the management and
unilateral control of the Operating Partnership. Such responsibilities
permit the Company to enter into certain major transactions, including
acquisitions, dispositions and refinancings, and to cause changes in the
Operating Partnership's line of business and distribution policies. Further,
the Company may not be replaced as general partner by the Limited Partners,
except in certain limited circumstances. Accordingly, for accounting
purposes, the Company is considered to control the Operating Partnership and
the accompanying unaudited pro forma financial statements consolidate the
accounts of the Company and the Operating Partnership.
(I) Represents the elimination of the Predecessor's Golf Course operations. The
Company will enter into Participating Leases with the Initial Lessees. The
Participating Leases generally have initial terms of fifteen years, and
generally may be extended upon the same terms and conditions for two to five
additional five-year terms, at the option of the Initial Lessees. The
Participating Leases are triple-net leases and require the Initial Lessees
to pay substantially all expenses associated with operations, including
taxes, insurance, utilities, service, maintenance and ground lease payments.
The Participating Leases with the Palmer Management affiliate are
cross-collateralized and cross-defaulted.
F-15
<PAGE> 159
PRESIDIO GOLF TRUST
NOTES AND MANAGEMENT'S ASSUMPTIONS TO PRO FORMA FINANCIAL STATEMENTS --
(CONTINUED)
(UNAUDITED, IN THOUSANDS EXCEPT SHARE AND UNIT AMOUNTS)
(J) Represents payments of Base Rent from the Participating Leases calculated on
a pro forma basis as if the beginning of the period presented was the
beginning of the initial lease year.
(K) Represents depreciation on Golf Course buildings and improvements and
furniture, fixtures and equipment. Depreciation is computed using the
straight-line method and is based upon the estimated useful lives of 30
years for buildings and improvements and 5 years for furniture, fixtures and
equipment. Non-real estate related depreciation is estimated to be $50 and
$150 for the three month period ended March 31, 1998 and the year ended
December 31, 1997, respectively.
(L) Represents salaries, legal, audit, office costs, and other general and
administrative expenses to be paid by the Company as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTH
PERIOD ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
1998 1997
------------ -----------------
<S> <C> <C>
Salaries and benefits............................ $296 $1,182
Directors and officers insurance................. 38 150
Legal and accounting............................. 38 150
Directors fees and travel........................ 20 80
SEC reporting and other shareholder costs........ 25 100
Office rent, telephone, supplies and other
administrative costs........................... 56 233
---- ------
$473 $1,895
==== ======
</TABLE>
Salaries and benefits for executive officers are based upon tentative
agreements with the respective officers. Other amounts are based upon
management's estimates of expenses to be incurred given the Company's
estimated level of operations and related administrative requirements.
The Company will issue 75,000 Common Shares, with an estimated fair value
of $1,500, to certain executives in connection with the Formation
Transactions. The compensation expense of $1,500 related to this
transaction has been excluded from the pro forma statements of operations
as it will not have a continuing impact on the Company.
(M) Calculated as 17.8 percent of the Operating Partnership's net income.
(N) Common Shares outstanding represent the number of Common Shares issued in
connection with the Offering and the Formation Transactions.
F-16
<PAGE> 160
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Arnold Palmer Golf Management LLC:
We have audited the accompanying combined balance sheets of Predecessor
Courses as of December 30, 1997 and December 31, 1996, and the related combined
statements of operations, parent's equity and cash flows for the fiscal period
ended December 30, 1997, and the 26 day period ended December 31, 1996 (periods
under control of Arnold Palmer Golf Management LLC), and the 337 day period
ended December 5, 1996, and the 187 day period ended January 2, 1996 (periods
under control of Pacific Golf, Inc.). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Predecessor Courses as of
December 30, 1997, and December 31, 1996, and the results of their operations
and their cash flows for the fiscal period ended December 30, 1997, and the 26
day period ended December 31, 1996 (periods under control of Arnold Palmer Golf
Management LLC), and the 337 day period ended December 5, 1996, and the 187 day
period ended January 2, 1996 (periods under control of Pacific Golf, Inc.), in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Orlando, Florida,
January 23, 1998
F-17
<PAGE> 161
PREDECESSOR GOLF COURSES
COMBINED BALANCE SHEETS --
(NOTE 1)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 30, DECEMBER 31,
1998 1997 1996
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................... $ 2,900,633 $ 414,646 $ 254,384
Restricted cash................................. 70,000 70,000 320,000
Accounts receivable, net of allowance of $57,042
and $44,710 for doubtful accounts as of March
31, 1998 and December 30, 1997,
respectively................................. 1,816,365 1,527,349 457,750
Inventory....................................... 648,476 441,193 87,795
Prepaid expenses................................ 285,958 157,257 273,277
Due from related party (Note 8)................. 501,476 176,451 --
Other........................................... 8,874 12,774 8,706
----------- ----------- -----------
Total current assets......................... 6,231,782 2,799,670 1,401,912
NOTES RECEIVABLE.................................. 65,838 65,838 56,328
LEASEHOLD INTERESTS IN REAL PROPERTY, net of
accumulated amortization of $32,725 and $24,439
as of March 31, 1998 and December 30, 1997,
respectively.................................... 990,058 998,344 68,828
GOLF AND COUNTRY CLUB FACILITIES, net (Note 3).... 45,298,071 42,912,411 12,482,548
LEASEHOLD DEPOSITS (Note 2)....................... 5,674,354 5,674,354 5,600,000
OTHER ASSETS, net (Note 4)........................ 1,438,820 478,570 551,893
----------- ----------- -----------
Total assets................................. $59,698,923 $52,929,187 $20,161,509
=========== =========== ===========
LIABILITIES AND PARENT'S EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities........ $ 1,846,367 $ 2,031,099 $ 657,950
Current portion of long-term debt (Note 5)...... 4,101,380 2,122,745 270,346
Due to Parent (Note 8).......................... 2,824,308 5,012,333 1,402,486
Deferred membership dues........................ 2,158,525 7,355 71,825
Other........................................... 566,157 267,085 92,674
----------- ----------- -----------
Total current liabilities.................... 11,496,737 9,440,617 2,495,281
DEFERRED INITIATION FEES (Note 2)................. 2,030,500 1,795,000 300,000
LONG-TERM DEBT (Note 5)........................... 36,918,110 31,358,106 11,571,946
----------- ----------- -----------
Total liabilities............................ 50,445,347 42,593,723 14,367,227
COMMITMENTS AND CONTINGENCIES (Note 7)
PARENT'S EQUITY................................... 9,253,576 10,335,464 5,794,282
----------- ----------- -----------
Total liabilities and parent's equity........ $59,698,923 $52,929,187 $20,161,509
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined balance sheets.
F-18
<PAGE> 162
PREDECESSOR GOLF COURSES
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL 26 DAY 337 DAY 187 DAY
FOR THE FOR THE PERIOD PERIOD PERIOD PERIOD
THREE MONTH THREE MONTH ENDED ENDED ENDED ENDED
PERIOD ENDED PERIOD DECEMBER 30, DECEMBER 31, DECEMBER 5, JANUARY 2,
MARCH 31, 1998 APRIL 1, 1997 1997 1996 1996 1996
-------------- ------------- ------------ ------------ ----------- ----------
(UNAUDITED, UNDER CONTROL (UNDER CONTROL OF (UNDER CONTROL OF
OF APGM-NOTE 1) APGM -- NOTE 1) PACIFIC -- NOTE 1)
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Green fees and practice
facility fees......... $ 230,309 $ 18,201 $ 938,679 $ 1,463 $ 190,810 $ 121,072
Golf cart rentals........ 118,622 22,609 881,419 4,591 138,512 93,363
Membership dues and
initiation fees....... 1,822,944 785,674 4,838,668 216,449 1,243,709 686,250
Pro-shop and food and
beverage sales........ 368,274 308,606 3,716,172 302,161 1,887,843 1,096,247
Other.................... 427,367 120,176 637,334 51,084 206,686 57,236
-------------- ---------- ----------- -------- ----------- ----------
Total operating
revenues............ 2,967,516 1,255,266 11,012,272 575,748 3,667,560 2,054,168
-------------- ---------- ----------- -------- ----------- ----------
OPERATING EXPENSES:
General and
administrative........ 1,441,935 578,558 4,157,168 220,653 1,307,294 678,916
Supplies, repairs and
maintenance........... 252,068 112,481 701,676 30,596 217,707 114,511
Depreciation and
amortization (Note
2).................... 482,352 178,289 941,392 44,250 290,584 158,366
Rents.................... 272,874 54,851 557,310 11,758 46,380 10,249
Pro-shop operations...... 174,071 54,784 590,180 11,022 156,953 53,350
Cost of merchandise and
food and beverage
sold.................. 203,525 102,247 1,534,339 106,294 669,521 313,292
Food and beverage
operations............ 225,179 204,317 1,612,177 120,776 816,291 543,469
Property and other
taxes................. 137,019 73,852 362,221 20,673 139,896 67,384
Insurance................ 72,511 27,792 152,858 5,729 45,396 25,638
Corporate overhead and
other expenses (Note
8).................... 59,516 25,105 235,224 11,515 73,351 41,083
-------------- ---------- ----------- -------- ----------- ----------
Total operating
expenses............ 3,321,050 1,412,276 10,844,545 583,266 3,763,373 2,006,258
-------------- ---------- ----------- -------- ----------- ----------
Operating (loss)
income.............. (353,534) (157,010) 167,727 (7,518) (95,813) 47,910
-------------- ---------- ----------- -------- ----------- ----------
INTEREST EXPENSE........... 728,354 267,571 1,426,545 75,634 320,153 149,518
-------------- ---------- ----------- -------- ----------- ----------
NET (LOSS)................. $ (1,081,888) $ (424,581) $(1,258,818) $(83,152) $ (415,966) $ (101,608)
============== ========== =========== ======== =========== ==========
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-19
<PAGE> 163
PREDECESSOR GOLF COURSES
COMBINED STATEMENTS OF PARENT'S EQUITY
(NOTE 1)
<TABLE>
<CAPTION>
PARENT'S
EQUITY
-----------
<S> <C>
Balance, June 30, 1995...................................... $ --
Capital contribution...................................... 1,611,907
Net loss.................................................. (101,608)
-----------
Balance, January 2, 1996.................................... 1,510,299
Capital contribution...................................... 2,223,980
Net loss.................................................. (415,966)
-----------
Balance, December 5, 1996................................... 3,318,313
Push-down accounting adjustments -- Note 1................ 2,484,121
Capital contribution...................................... 75,000
Net loss.................................................. (83,152)
-----------
Balance, December 31, 1996.................................. 5,794,282
Capital contribution...................................... 5,800,000
Net loss.................................................. (1,258,818)
-----------
Balance, December 30, 1997.................................. 10,335,464
Net loss (unaudited)...................................... (1,081,888)
-----------
Balance, March 31, 1998 (unaudited)......................... $ 9,253,576
===========
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-20
<PAGE> 164
PREDECESSOR GOLF COURSES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTH THREE MONTH FISCAL PERIOD 26 DAY PERIOD 337 DAY 187 DAY
PERIOD ENDED PERIOD ENDED ENDED ENDED PERIOD ENDED PERIOD ENDED
MARCH 31, APRIL 1, DECEMBER 30, DECEMBER 31, DECEMBER 5, JANUARY 2,
1998 1997 1997 1996 1996 1996
------------- ------------- ------------- ------------- ------------ ------------
(UNAUDITED, UNDER CONTROL OF (UNDER CONTROL OF (UNDER CONTROL OF
APGM -- NOTE 1) APGM -- NOTE 1) PACIFIC -- NOTE 1)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net (loss)....................... $(1,081,888) $ (424,581) $ (1,258,818) $ (83,152) $ (415,966) $ (101,608)
Adjustments to reconcile net
(loss) to net cash (used in)
provided by operating
activities:
Depreciation and
amortization................. 482,352 178,289 941,392 44,250 290,584 158,366
Loss on disposal of property
and equipment................ -- -- 99,675 -- -- --
Change in operating assets and
liabilities:
Restricted cash.............. -- -- 250,000 (70,000) (250,000) --
Accounts receivable, net..... (289,016) (462,990) (1,069,599) (98,961) (47,917) (310,872)
Inventory.................... (207,283) (38,552) (353,398) 19,803 (54,621) (52,977)
Prepaid expenses............. (128,701) (72,757) 116,020 (31,319) (201,202) (40,756)
Due from related party....... (325,025) -- (176,451) -- -- --
Other current assets......... 3,900 (351) (4,068) 1,269 (9,975) --
Notes receivable............. -- (3,500) (9,510) (3,355) (52,973) --
Accounts payable and accrued
liabilities............... (184,732) 36,187 1,373,149 311,620 101,425 244,905
Due to Parent................ (2,188,025) 247,386 3,609,847 223,270 613,284 565,932
Deferred membership dues..... 2,151,170 910,743 (64,470) -- -- --
Other current liabilities.... 299,072 440,884 174,411 (87,318) 251,817 --
Deferred initiation fees..... 235,500 98,764 1,495,000 15,000 150,000 135,000
----------- ---------- ------------ --------- ------------ -----------
Net cash (used in)
provided by operating
activities.............. (1,232,676) 909,522 5,123,180 241,107 374,456 597,990
----------- ---------- ------------ --------- ------------ -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Cash paid for leasehold interests
in real property............... -- (953,955) (68,828) -- --
Cash paid for golf and country
club facilities................ (2,823,553) (684,071) (6,504,228) (112,177) (891,597) (701,005)
Cash paid for golf course
acquisitions................... -- -- (24,811,403) -- (4,326,723) (3,273,781)
Cash paid for leasehold
deposits....................... -- -- (74,354) -- (5,600,000) --
Cash paid for other assets....... (996,423) -- (57,537) -- (394,237) (244,000)
----------- ---------- ------------ --------- ------------ -----------
Net cash used in investing
activities.............. $(3,819,976) $ (684,071) $(32,401,477) $(181,005) $(11,212,557) $(4,218,786)
----------- ---------- ------------ --------- ------------ -----------
</TABLE>
F-21
<PAGE> 165
PREDECESSOR GOLF COURSES
COMBINED STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTH THREE MONTH FISCAL PERIOD 26 DAY PERIOD 337 DAY 187 DAY
PERIOD ENDED PERIOD ENDED ENDED ENDED PERIOD ENDED PERIOD ENDED
MARCH 31, APRIL 1, DECEMBER 30, DECEMBER 31, DECEMBER 5, JANUARY 2,
1998 1997 1997 1996 1996 1996
------------- ------------- ------------- ------------- ------------ ------------
(UNAUDITED, UNDER CONTROL OF (UNDER CONTROL OF (UNDER CONTROL OF
APGM -- NOTE 1) APGM -- NOTE 1) PACIFIC -- NOTE 1)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from long-term debt..... 14,287,752 28,253 21,908,905 -- 8,850,000 2,047,813
Principal payments on long-term
debt........................... (6,749,113) (133,645) (270,346) -- (155,521) --
Capital contributions............ -- -- 5,800,000 75,000 2,223,980 1,611,907
----------- ---------- ------------ --------- ------------ -----------
Net cash provided by (used
in) financing
activities.............. 7,538,639 (105,392) 27,438,559 75,000 10,918,459 3,659,720
=========== ========== ============ ========= ============ ===========
NET INCREASE IN CASH AND CASH
EQUIVALENTS...................... 2,485,987 120,059 160,262 135,102 80,358 38,924
CASH AND CASH EQUIVALENTS,
beginning of period.............. 414,646 254,384 254,384 119,282 38,924 --
CASH AND CASH EQUIVALENTS, end of
period........................... $ 2,900,633 $ 374,443 $ 414,646 $ 254,384 $ 119,282 $ 38,924
=========== ========== ============ ========= ============ ===========
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-22
<PAGE> 166
PREDECESSOR GOLF COURSES
NOTES TO COMBINED FINANCIAL STATEMENTS
(UNAUDITED AS TO INTERIM PERIODS)
1. DESCRIPTION OF BUSINESS, CHANGE OF OWNERSHIP, ORGANIZATION,
BASIS OF PRESENTATION AND UNAUDITED INTERIM STATEMENTS:
DESCRIPTION OF BUSINESS
Predecessor Courses (the "Courses") consist of Brierwood Country Club;
Oronoque Golf, LLC; APGM limited partnership; Crofton Golf, LLC; Penderbrook
Golf Club and Memphis National Golf Club. The Courses are owned or leased by
Arnold Palmer Golf Management LLC ("APGM" or "Parent") and are in the business
of operating golf courses and their related facilities.
CHANGE OF OWNERSHIP
Prior to December 6, 1996, Pacific Golf, Inc. ("Pacific"), a venture
capital-backed investment firm, owned, leased or managed Brierwood Country Club,
Oronoque Golf, LLC and Crofton Golf, LLC, as well as owned, leased and managed
other golf course facilities. Effective December 6, 1996, Pacific contributed
these assets and liabilities to APGM in exchange for a non-controlling ownership
interest in APGM. The purchase method of accounting was used to record the
assets, liabilities and equity on the books of the Courses. The adjustment of
$2,484,121 has been pushed down and recorded in golf and country club
facilities. This accounting results in increased depreciation during the periods
under control of APGM. Accordingly, the financial statements for the periods
under control of APGM and for the periods under control of Pacific are not
comparable in all material respects, since these financial statements report the
results of their operations and cash flows on separate accounting bases.
ORGANIZATION
Brierwood Country Club is a private 18-hole golf course located in Hamburg,
New York. On July 1, 1995, this course was purchased by a wholly owned
subsidiary of Pacific, the predecessor of APGM. The operations have been
included in the combined statements of operations since July 1, 1995.
Oronoque Golf, LLC owns a private, 18-hole golf course located in
Stratford, Connecticut. On December 1, 1996, this course was purchased by a
wholly owned subsidiary of Pacific, the predecessor of APGM. The operations have
been included in the combined statements of operations since December 1, 1996.
APGM limited partnership consists of four golf courses that were acquired
and included in the combined statements of operations on November 5, 1997. APGM
limited partnership consists of: Fox Valley Club, a private facility located in
Lancaster, New York; Emerald Valley Golf Club, a public facility located in
Creswell, Oregon; Tan Tara Golf Club, a private facility located in Pendleton,
New York; and Minebrook Golf Club, a public facility located in Hackettstown,
New Jersey. The operations have been included in the combined statements of
operations since November 5, 1997.
Crofton Golf, LLC leases a private 18-hole golf course located in Crofton,
Maryland. The lease, which was entered into by Pacific, the predecessor of APGM,
is dated October 10, 1996 and expires December 31, 2026. The operations have
been included in the combined statements of operations since October 10, 1996.
Penderbrook Golf Club is a semi-private, 18-hole golf course located in
Fairfax, Virginia, leased by APGM. The lease is dated November 5, 1997 and
expires December 31, 2022. The operations have been included in the combined
statements of operations since November 5, 1997.
Memphis National Golf Club is a semi-private, 36-hole golf course located
in Collierville, Tennessee, leased by APGM. The lease is dated June 18, 1997 and
expires June 17, 2042. The operations have been included in the combined
statements of operations since June 18, 1997.
F-23
<PAGE> 167
PREDECESSOR GOLF COURSES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED AS TO INTERIM PERIODS)
1. DESCRIPTION OF BUSINESS, CHANGE OF OWNERSHIP, ORGANIZATION,
BASIS OF PRESENTATION AND UNAUDITED INTERIM STATEMENTS: -- (CONTINUED)
BASIS OF PRESENTATION
The accompanying financial statements are presented on a combined basis
since all courses were under the common control of APGM or Pacific for the
respective time periods.
UNAUDITED INTERIM STATEMENTS
The combined financial statements as of March 31, 1998, and for the three
month periods ended March 31, 1998, and April 1, 1997, are unaudited; however,
in the opinion of management, all adjustments (consisting solely of normal
recurring adjustments) necessary for a fair presentation of the combined
financial statements for these interim periods have been included. The results
for the interim periods are not necessarily indicative of the results for full
years.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
FISCAL YEAR-END
The Courses' fiscal year-end is based on a 52/53-week period ending on the
Tuesday closest to December 31.
REVENUE RECOGNITION
Revenue from green fees and practice facility fees, golf cart rentals, food
and beverage sales and pro-shop sales are recognized at the time of sale.
Revenue from membership dues is recognized during the period in which the
revenues apply. Initiation fees are recognized over the estimated term of
membership.
RENTS
Rents related to the leased courses are recorded on a systematic basis over
the periods in which the Courses receive benefit.
CASH AND CASH EQUIVALENTS
Management considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
INVENTORY
Inventory is valued at the lower of average cost, which approximates the
first-in, first-out method and consists primarily of food and beverage and golf
equipment and clothing.
GOLF AND COUNTRY CLUB FACILITIES
Depreciation and amortization is provided on a straight-line basis over the
lesser of the lease-term, or the estimated useful lives of the related assets as
follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Golf and country club improvements.......................... 30-40
Furniture, fixtures and equipment........................... 5-10
</TABLE>
F-24
<PAGE> 168
PREDECESSOR GOLF COURSES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED AS TO INTERIM PERIODS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
Depreciation and amortization expense of $437,893, $152,600, $786,093,
$39,056, $233,310 and $134,490 was recognized during the periods ended March 31,
1998, April 1, 1997, December 30, 1997, December 31, 1996, December 5, 1996 and
January 2, 1996, respectively.
LEASEHOLD INTERESTS IN REAL PROPERTY AND OTHER ASSETS
Amortization for leasehold interests in real property and other assets is
provided on a straight-line basis over the lesser of the lease or loan term, or
the following years:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Leasehold interest in real property......................... 25-45
Other assets................................................ 5-30
</TABLE>
Amortization expense of $44,459, $25,689, $155,299, $5,194, $57,274 and
$23,876 was recognized during the periods ended March 31, 1998, April 1, 1997,
December 30, 1997, December 31, 1996, December 5, 1996 and January 2, 1996,
respectively.
LEASEHOLD DEPOSITS
Included in leasehold deposits as of December 30, 1997 and December 31,
1996, is $5,600,000 related to Crofton Golf, LLC's golf course lease.
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The Courses paid $802,496, $267,571, $1,023,643, $112,015, $71,461 and
$50,518 for interest during the periods ended March 31, 1998, April 1, 1997,
December 30, 1997, December 31, 1996, December 5, 1996 and January 2, 1996,
respectively. During the period ended December 31, 1996, $2,484,121 was pushed
down and recorded on the books of the Courses (See Note 1). During the period
ended January 2, 1996, the Courses issued $1,100,000 in notes payable to the
seller of the Brierwood Country Club.
INCOME TAXES
Effective December 6, 1996, the Courses were purchased by APGM and no
provision for income taxes has been recorded in the combined financial
statements since that date, as the owners of APGM are required to report their
share of the Courses' earnings or losses in their respective income tax returns.
APGM's tax returns and the amounts of allocable income or loss are subject to
examination by federal and state taxing authorities. If such examinations result
in changes to income or loss, the tax liability of the owners could be changed
accordingly. Certain transactions of the Courses may be subject to accounting
methods for income tax purposes which differ from the accounting methods used in
preparing these financial statements in accordance with generally accepted
accounting principles. Accordingly, the earnings of the Courses reported for
income tax purposes may differ from the balances reported for those same items
in the accompanying balance sheet. For the periods ended December 30, 1997 and
December 31, 1996, the earnings reported for income tax purposes was lower than
earnings reported on the accompanying balance sheets by approximately $1,220,000
and $60,000, respectively. A majority of the difference is primarily a result of
different corporate overhead allocations for income tax reporting purposes and
financial reporting purposes.
Prior to December 6, 1996, the Courses filed consolidated federal and state
income tax returns with Pacific. Income taxes related to the Courses were
determined by Pacific based on the marginal enacted regular combined federal and
state tax rates. Income taxes were charged to (credited to) the Courses by
Pacific
F-25
<PAGE> 169
PREDECESSOR GOLF COURSES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED AS TO INTERIM PERIODS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
through the due to Parent account. Due to the earnings of the Courses during the
periods ended December 5, 1996 and January 2, 1996 and the valuation allowance
recorded against the net deferred tax assets related to the Courses, there was
no income tax expenses (benefit) included in the accompanying combined financial
statements for those periods.
LONG-LIVED ASSETS
Effective January 1, 1996, the Courses adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets To Be Disposed Of" ("SFAS 121"). This statement
requires that long-lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The implementation of SFAS 121 had no impact on the accompanying
combined financial statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments", requires the Courses to disclose the
estimated fair values of its financial instrument assets and liabilities.
The carrying values of cash and cash equivalents, accounts receivable,
accounts payable and accrued liabilities, approximate fair value due to the
short-term maturities of these assets and liabilities.
The carrying amount of the Courses' long-term debt approximates fair value,
since the debt is at floating rates or fixed rates approximating the current
market rates for debt with similar risks and maturities.
USE OF ESTIMATES
The preparation of combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the combined
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
3. GOLF AND COUNTRY CLUB FACILITIES:
Golf and country club facilities consisted of the following at March 31,
1998, December 30, 1997 and December 31, 1996, respectively:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 30, DECEMBER 31,
1998 1997 1996
----------- ------------ ------------
<S> <C> <C> <C>
Land...................................... $13,021,465 $13,021,465 $ 3,224,428
Golf and country club improvements........ 23,976,925 23,161,236 7,777,156
Furniture, fixtures and equipment......... 5,474,288 5,038,145 1,723,228
Construction-in-progress.................. 4,350,262 2,832,903 153,870
----------- ----------- -----------
46,822,940 44,053,749 12,878,682
Less -- Accumulated depreciation and
amortization............................ (1,524,869) (1,141,338) (396,134)
----------- ----------- -----------
$45,298,071 $42,912,411 $12,482,548
=========== =========== ===========
</TABLE>
F-26
<PAGE> 170
PREDECESSOR GOLF COURSES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED AS TO INTERIM PERIODS)
4. OTHER ASSETS, NET:
Other assets consist of the following at March 31, 1998, December 30, 1997
and December 31, 1996, respectively:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 30, DECEMBER 31,
1998 1997 1996
---------- ------------ ------------
<S> <C> <C> <C>
Option fees................................. $ 150,000 $150,000 $150,000
Deferred loan costs......................... 1,249,051 288,237 288,237
Non-compete agreement....................... 200,000 200,000 200,000
Other....................................... 93,146 57,537 --
---------- -------- --------
1,692,197 695,774 638,237
Less -- Accumulated amortization............ (253,377) (217,204) (86,344)
---------- -------- --------
$1,438,820 $478,570 $551,893
========== ======== ========
</TABLE>
5. LONG-TERM DEBT:
Long-term debt consisted of the following at March 31, 1998, December 30,
1997 and December 31, 1996, respectively:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 30, DECEMBER 31,
1998 1997 1996
----------- ------------ ------------
<S> <C> <C> <C>
Note payable with variable interest rates (8.5% at
December 30, 1997), payable in arrears monthly;
balloon payment equal to the outstanding
principal balance due on May 5, 1999,
collateralized by all of the assets of APGM
limited partnership............................. $ -- $19,800,000 $ --
Note payable with variable interest rates (7.6% at
March 31, 1998), payable in arrears monthly,
balloon payment equal to the outstanding
principal balance due on January 15, 2001,
collateralized by all of the assets of APGM
Limited Partnership and Palm Springs, a leased
course of APGM.................................. 24,000,000 -- --
Note payable with variable interest rates (9.6% at
March 31, 1998), payable in arrears monthly;
balloon payment equal to the outstanding
principal balance due on January 15, 2001,
collateralized by all of the assets of APGM
Limited Partnership and Palm Springs, a leased
course of APGM.................................. 8,000,000 -- --
Mortgage loan payable, interest at prime plus
1.25% (9.75% at December 30, 1997) payable
monthly; annual principal payments of $100,000
due in April with a balloon payment of
$1,600,000 plus interest due January 1, 1999;
collateralized by a first mortgage on the
Brierwood Country Club.......................... -- 1,700,000 1,800,000
</TABLE>
F-27
<PAGE> 171
PREDECESSOR GOLF COURSES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED AS TO INTERIM PERIODS)
5. LONG-TERM DEBT: -- (CONTINUED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 30, DECEMBER 31,
1998 1997 1996
----------- ------------ ------------
<S> <C> <C> <C>
Mortgage loan payable, interest at 8.28% (see Note
6); monthly principal and interest payments are
based on a 25-year amortization with a balloon
payment of the then outstanding principal and
accrued interest due December 3, 2001;
collateralized by assets of Oronoque Golf,
LLC............................................. -- 3,704,746 3,750,000
Mortgage note payable, interest at 9%, semi-annual
interest payments payable in June and December
from December 1997 through June 2000; principal
and interest payments from July 2000 through
June 2003 payable in June and December,
calculated based on a 10-year amortization, with
a balloon payment of any remaining principal and
interest due in June 2003; collateralized by a
second mortgage on the Brierwood Country
Club............................................ -- 1,311,683 1,255,280
Mortgage loan payable, interest at the commercial
paper rate (as published in the Wall Street
Journal) plus 4% (9.64% and 9.57% at December
30, 1997 and March 31, 1998, respectively);
monthly principal and interest payments
calculated based on a 20-year amortization of an
assumed rate of 10%, due October 1, 2001;
collateralized by all of the assets and future
revenues of Crofton Golf, LLC................... 4,880,283 4,902,655 4,986,777
Mortgage loan payable, interest rate at prime plus
0.25% (8.75% at December 30, 1997 and March 31,
1998, respectively) payable monthly; due 12
months from the date of borrowing;
collateralized by Memphis National Golf Club and
Penderbrook Golf Club........................... 3,938,694 1,993,645 --
Capital lease obligations for golf carts, course
equipment and computers, interest ranging from
9.4% to 13% at December 30, 1997 and March 31,
1998, respectively; monthly payments of
approximately $4,000; collateralized by a
security interest in the equipment.............. 200,513 68,122 50,235
----------- ----------- -----------
41,019,490 33,480,851 11,842,292
Less -- Current portion........................... (4,101,380) (2,122,745) (270,346)
----------- ----------- -----------
$36,918,110 $31,358,106 $11,571,946
=========== =========== ===========
</TABLE>
In January 1998, Brierwood Country Club and Oronoque Golf, LLC were
contributed to APGM limited partnership. In addition, APGM limited partnership
entered into a $100 million acquisition revolving line of credit. APGM limited
partnership used this line of credit to refinance certain existing debt and
finance new golf course acquisitions. The refinanced debt bears a variable
interest, payable monthly. A commitment fee of .15% is paid on the unused
portion of the total credit. The $24 million and $8 million outstanding balances
are due in January 2001 and July 2001, respectively, and are collateralized by
the assets of APGM limited
F-28
<PAGE> 172
PREDECESSOR GOLF COURSES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED AS TO INTERIM PERIODS)
5. LONG-TERM DEBT: -- (CONTINUED)
partnership and Palm Springs, a leased golf course of APGM. The agreement
contains covenants which require APGM limited partnership to meet maximum
leverage ratios and a minimum net worth ratio.
Annual future minimum principal payments of long-term debt at December 30,
1997, taking into consideration the line of credit obtained subsequent to
year-end used to refinance certain existing debt, are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- -----------
<S> <C>
1998........................................................ $ 2,122,745
1999........................................................ 133,967
2000........................................................ 113,411
2001........................................................ 31,110,728
-----------
$33,480,851
===========
</TABLE>
6. INTEREST RATE PROTECTION AGREEMENT:
On December 2, 1996, the Company entered into an interest rate swap
agreement (the "Swap") with a third party bank (the "Bank") to reduce the impact
of changes in interest rates on one of its mortgage loans payable (the "Note").
The Swap was effective beginning December 4, 1996, and would terminate on
December 3, 2001. The Swap has an initial notional principal amount of
$3,750,000 and amortizes to an amount of $3,499,741 on November 1, 2001. The
Swap effectively changes the Company's interest rate exposure on the Note to a
fixed rate of 8.28%.
Subsequent to year-end, the Note was refinanced (see Note 5) and the
related Swap was terminated. During the first quarter of 1998, the Company
recognized approximately $100,000 of expenses included in general and
administrative expenses related to the termination of the Swap.
7. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Courses have golf course operating leases for Crofton Golf, LLC,
Penderbrook Golf Club and Memphis National Golf Club. In addition, the Courses
have operating leases that provide for office equipment and equipment used on
and at the golf courses. The required future minimum rent and operating lease
payments are as follows at December 30, 1997:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- -----------
<S> <C>
1998........................................................ $ 1,321,423
1999........................................................ 1,439,597
2000........................................................ 1,437,190
2001........................................................ 1,284,202
2002........................................................ 1,363,339
Thereafter.................................................. 59,727,400
-----------
$66,573,151
===========
</TABLE>
F-29
<PAGE> 173
PREDECESSOR GOLF COURSES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED AS TO INTERIM PERIODS)
8. RELATED PARTY TRANSACTIONS:
APGM charges corporate overhead to the Courses based on approximately 2% of
total revenues. In return, APGM provides the Courses with functions such as
accounting and management. For the periods ended March 31, 1998, April 1, 1997,
December 30, 1997, December 31, 1996, December 5, 1996 and January 2, 1996, APGM
charged the Courses $59,350, $25,105, $220,245, $11,515, $73,351 and $41,083,
respectively.
Due to Parent represents payments made by APGM on behalf of the Courses,
including payroll, operating expenditures and capital improvements, less cash
receipts collected by APGM on behalf of the Courses.
Companies owned by an officer of APGM lease the food and beverage
operations from APGM limited partnership. Due from related party represents
these lease payments due to APGM limited partnership from leasing the food and
beverage operations. Future lease revenues are as follows at December 30, 1997:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- -----------
<S> <C>
1998........................................................ $ 1,300,104
1999........................................................ 1,300,104
2000........................................................ 1,300,104
2001........................................................ 1,300,104
2002........................................................ 1,300,104
Thereafter.................................................. 19,284,876
-----------
$25,785,396
===========
</TABLE>
9. SUBSEQUENT EVENTS (UNAUDITED):
APGM is in negotiations to contribute its interest in the Courses to a
proposed Real Estate Investment Trust, which intends to file a form S-11
registration statement with the Securities and Exchange Commission in connection
with a proposed offering of shares to the public.
10. PRO FORMA DISCLOSURES (UNAUDITED):
The unaudited pro forma operating revenues, amortization and depreciation,
operating income, interest expense and net loss represents estimated results
that would have been reported in the combined statements of operations had
Oronoque Golf, LLC and APGM limited partnership had been acquired January 3,
1996 and the inception of ground leases at Crofton Golf, LLC, Penderbrook Golf
Club and Memphis National Golf Club had occurred on January 3, 1996. The
following summarizes the unaudited operating revenues, depreciation and
amortization, operating income, interest expense and net loss for the three
month period ended April 1, 1997 and for the fiscal periods ended December 30,
1997 and December 31, 1996:
<TABLE>
<CAPTION>
THREE MONTH FISCAL PERIOD FISCAL PERIOD
PERIOD ENDED ENDED ENDED
APRIL 1, 1997 DECEMBER 30, 1997 DECEMBER 31, 1996
------------- ----------------- -----------------
<S> <C> <C> <C>
OPERATING REVENUES.......................... $2,780,849 $19,840,901 $18,564,664
DEPRECIATION AND AMORTIZATION............... $ 369,448 $ 1,596,068 $ 1,339,946
OPERATING INCOME............................ $ 39,052 $ 1,737,204 $ 1,957,702
INTEREST EXPENSE............................ $ 744,245 $ 3,019,425 $ 2,980,363
NET LOSS.................................... $ (705,193) $(1,282,221) $(1,022,601)
</TABLE>
F-30
<PAGE> 174
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Paloma Golf Group, Inc.
We have audited the accompanying combined balance sheets of the Emerald
Valley, Fox Valley, Tan Tara and Mine Brook Golf and Country Clubs (the "Golf
Courses") as of October 31, 1997 and December 31, 1996 and 1995, and the related
combined statements of operations, owner's equity and cash flows for the ten
month period ended October 31, 1997 and the years ended December 31, 1996 and
1995. These financial statements are the responsibility of the Golf Courses'
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the Golf
Courses as of October 31, 1997 and December 31, 1996 and 1995, and the results
of their operations and their cash flows for the ten month period ended October
31, 1997 and the years ended December 31, 1996 and 1995, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Newport Beach, California
January 22, 1998
F-31
<PAGE> 175
PALOMA GOLF COURSES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
OCTOBER 31, -------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash................................................ $ 56,495 $ 75,588 $ 225,049
Accounts receivable................................. 537,867 242,711 565,956
Inventories......................................... 124,380 108,106 89,882
Prepaid expenses.................................... 86,655 141,516 76,204
Amounts due from affiliates (Note 1)................ 3,337,681 3,497,349 1,323,731
----------- ----------- -----------
Total current assets............................. 4,143,078 4,065,270 2,280,822
Golf and country club facilities, net (Note 3)...... 16,867,728 16,435,427 13,308,396
Other assets, net (Note 2).......................... 318,548 398,252 289,131
----------- ----------- -----------
Total Assets................................... $21,329,354 $20,898,949 $15,878,349
=========== =========== ===========
LIABILITIES AND OWNER'S EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses............... $ 807,873 $ 562,110 $ 588,523
Unearned membership dues and initiation fees........ 1,040,499 887,877 1,239,155
Current portion of long-term debt (Note 4).......... 421,248 320,727 86,085
Current portion of capital lease obligations........ 147,290 137,596 94,915
----------- ----------- -----------
Total current liabilities...................... 2,416,910 1,908,310 2,008,678
Long-term debt, less current portion (Note 4)......... 15,293,537 15,570,424 8,618,233
Capital lease obligations, less current portion....... 243,905 314,256 163,356
----------- ----------- -----------
Total liabilities.............................. 17,954,352 17,792,990 10,790,267
Minority interest..................................... 937,776 803,508 3,028,677
Commitments and contingencies (Note 5)................
Owner's equity........................................ 2,437,226 2,302,451 2,059,405
----------- ----------- -----------
Total Liabilities and Owner's Equity........... $21,329,354 $20,898,949 $15,878,349
=========== =========== ===========
</TABLE>
See report of independent auditors and notes to combined financial statements.
F-32
<PAGE> 176
PALOMA GOLF COURSES
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE TEN
MONTH PERIOD FOR THE YEARS ENDED
ENDED DECEMBER 31,
OCTOBER 31, -----------------------
1997 1996 1995
------------ ---------- ----------
<S> <C> <C> <C>
OPERATING REVENUES
Green fees and practice facility fees.................... $1,834,631 $1,609,566 $ 977,192
Golf cart rentals........................................ 640,205 520,540 328,622
Membership dues.......................................... 2,116,305 2,105,962 1,764,682
Food and beverage........................................ 1,893,950 1,936,419 1,016,977
Pro-shop sales........................................... 476,988 544,888 481,719
Other.................................................... 226,295 132,905 95,715
---------- ---------- ----------
Total operating revenues............................ 7,188,374 6,850,280 4,664,907
---------- ---------- ----------
OPERATING EXPENSES
Golf operations.......................................... 1,630,846 1,548,984 1,192,030
Food and beverage........................................ 1,576,357 1,679,985 843,705
General and administrative (Note 1)...................... 1,691,248 1,271,049 830,747
Depreciation and amortization............................ 637,196 672,830 318,576
---------- ---------- ----------
Total operating expenses............................ 5,535,647 5,172,848 3,185,058
---------- ---------- ----------
OPERATING INCOME......................................... 1,652,727 1,677,432 1,479,849
Interest Expense......................................... 1,383,685 1,390,878 742,633
---------- ---------- ----------
Income before minority interest in income................ 269,042 286,554 737,216
Minority interest in income.............................. (134,267) (43,508) (137,927)
---------- ---------- ----------
NET INCOME............................................... $ 134,775 $ 243,046 $ 599,289
========== ========== ==========
</TABLE>
See report of independent auditors and notes to combined financial statements.
F-33
<PAGE> 177
PALOMA GOLF COURSES
COMBINED STATEMENTS OF OWNER'S EQUITY
FOR THE TEN MONTH PERIOD ENDED OCTOBER 31, 1997 AND
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<S> <C>
BALANCE -- December 31, 1994 (Unaudited).................... $1,460,116
Net income -- 1995........................................ 599,289
----------
BALANCE -- December 31, 1995................................ 2,059,405
Net income -- 1996........................................ 243,046
----------
BALANCE -- December 31, 1996................................ 2,302,451
Net income -- 1997........................................ 134,775
----------
BALANCE -- October 31, 1997................................. $2,437,226
==========
</TABLE>
See report of independent auditors and notes to combined financial statements.
F-34
<PAGE> 178
PALOMA GOLF COURSES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE TEN
MONTH PERIOD FOR THE YEARS ENDED
ENDED DECEMBER 31,
OCTOBER 31, -------------------------
1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income........................................... $ 134,775 $ 243,046 $ 599,289
Adjustments to reconcile net income to net cash (used
in) provided by operating activities
Depreciation and amortization..................... 637,196 672,830 318,576
Cost of memberships sold.......................... -- 18,578 628,147
Minority interest................................. 134,268 (89,169) 97,927
Changes in operating assets and liabilities:
Accounts receivable............................. (295,156) 323,245 (412,944)
Inventories..................................... (16,274) (18,224) (30,478)
Prepaid expenses................................ 54,861 (65,312) 89,999
Other assets.................................... (3,215) (165,523) (132,551)
Accounts payable and accrued expenses........... 245,763 (26,413) 229,549
Unearned membership dues and initiation fees.... 152,622 (351,278) 314,510
Amounts due from affiliates..................... 159,668 (2,173,618) (1,168,657)
---------- ----------- -----------
Net cash provided by (used in) operating activities.... 1,204,508 (1,631,838) 533,367
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to golf and country club facilities.......... (986,578) (4,858,037) (3,501,122)
---------- ----------- -----------
Net cash used in investing activities.................. (986,578) (4,858,037) (3,501,122)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt and capital leases........ 120,800 7,824,064 2,725,782
Payments of long-term debt and capital leases.......... (357,823) (443,650) (114,054)
Net distributions to minority interest................. -- (1,040,000) (100,000)
---------- ----------- -----------
Net cash (used in) provided by financing activities.... (237,023) 6,340,414 2,511,728
DECREASE IN CASH....................................... (19,093) (149,461) (456,027)
CASH - beginning of period............................. 75,588 225,049 681,076
---------- ----------- -----------
CASH - end of period................................... $ 56,495 $ 75,588 $ 225,049
========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid.......................................... $1,040,144 $ 1,364,708 $ 802,979
========== =========== ===========
</TABLE>
See report of independent auditors and notes to combined financial statements.
F-35
<PAGE> 179
PALOMA GOLF COURSES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The Emerald Valley, Fox Valley, Tan Tara and Mine Brook Golf and Country
Clubs (the "Golf Courses") are wholly owned by Paloma Golf Group, Inc.
("Paloma"). The courses are engaged in the operation of golf and country club
facilities in Oregon, New Jersey and New York.
BASIS OF PRESENTATION
The Golf Courses included in the accompanying combined financial statements
were under common ownership prior to November 5, 1997 (Note 6) and have been
presented utilizing Paloma's historical cost. In management's opinion, these
financial statements include the combined assets, liabilities, revenues and
certain expenses directly identifiable with the Golf Courses. Paloma is in the
business of acquiring, refurbishing, managing and selling golf courses. In the
course of doing business, Paloma incurs general and administrative expenses
associated with these activities which may include certain costs on behalf of
the Golf Courses. During the ten month period ended October 31, 1997 and the
years ended December 31, 1996 and 1995, Paloma incurred general and
administrative expenses of $1,544,000, $1,452,000 and $822,000, respectively.
These expenses are primarily attributable to the operations of Paloma Golf
Group, Inc., and are not indicative of the operations of the Golf Courses.
Accordingly, such general and administrative expenses have not been reflected in
the accompanying combined financial statements for the Golf Courses.
The combined financial statements are not intended to represent the
financial position of Paloma. The net excess of assets over liabilities related
to the Golf Courses is presented as equity in the combined financial statements.
The transfer of funds between the Golf Courses, Paloma and other affiliated
entities are combined and included in amounts due from affiliates.
PALOMA EMERALD VALLEY LIMITED PARTNERSHIP
Paloma Emerald Valley limited partnership, an Oregon limited partnership
("Emerald Valley Partnership"), was organized on September 30, 1993 for the
purpose of acquiring, developing, owning and operating golf and country club
facilities located in Lane County, Oregon. The general partner was Paloma and
the limited partner was Emerald Valley Development, an Oregon general
partnership.
On March 1, 1996, the Emerald Valley Partnership was dissolved and the
limited partner received $300,000 in full settlement of its interest in the
Emerald Valley Partnership, making the golf and country club facilities
("Emerald Valley") wholly owned by Paloma.
PALOMA FOX VALLEY PARTNERS
Paloma Fox Valley Partners, a New York limited partnership ("Fox Valley
Partnership"), was organized on September 28, 1994 for the purpose of acquiring,
developing, owning and operating the Fox Valley golf and country club facilities
located in Erie County, New York. The general partner was Paloma and the limited
partner was Fox Valley Associates, a joint venture.
On March 4, 1996, the Fox Valley Partnership was dissolved and the limited
partner received $1,500,000 as full settlement of its interest in the Fox Valley
Partnership, making the golf and country club facilities ("Fox Valley") wholly
owned by Paloma.
F-36
<PAGE> 180
PALOMA GOLF COURSES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
MINE BROOK GOLF AND COUNTRY CLUB
On March 4, 1996, Paloma purchased Mine Brook Golf Club ("Mine Brook") in
Hackettstown, New Jersey for $2,800,000. Paloma paid $600,000 in cash and
financed the remaining $2,200,000 with a note payable. Such note payable was
refinanced in December 1996 (Note 4).
MINORITY INTEREST
The outside limited partners' interest in the Emerald Valley and Fox Valley
Partnerships are reflected as minority interest in the accompanying combined
financial statements at December 31, 1995. As noted above, the limited partners'
interests in the Emerald Valley and Fox Valley Partnerships were acquired by
Paloma during 1996.
Minority interest at October 31, 1997 and December 31, 1996 consists of
investment units totaling $760,000 purchased by management, family members of
Paloma's sole stockholder and other individuals (collectively, the "Mine Brook
Investors") to finance the acquisition of Mine Brook. The investment agreements
provide for an 8% annual priority return on the investment balance as well as a
proportionate share of net cash flow, refinancing and sales proceeds, as
defined. Management elected to retroactively increase the annual priority return
to 15% during 1997 due to of the sale of the golf course (Note 6). The 1997
priority return includes the current year 15% return on the original investment
plus the retroactive portion of the prior year priority return. At October 31,
1997 and December 31, 1996, $177,776 and $43,508, respectively, was accrued for
priority returns to the Mine Brook Investors and have been included in minority
interest in the accompanying combined financial statements.
INVENTORIES
Inventories are stated at the lower of cost, as determined on a first-in,
first-out basis, or market.
GOLF AND COUNTRY CLUB FACILITIES
Golf and country club facilities are carried at cost, net of accumulated
depreciation, and consist of land and golf course improvements, buildings and
related improvements, other equipment and facilities, unsold memberships and
refunded initiation fees, as well as applicable carrying costs (principally
interest) which were capitalized to golf and country club facilities when they
were under active development. The Golf Courses provide for depreciation on
buildings and related improvements using the straight-line method over their
estimated useful lives, ranging from 15 to 39 years. The Golf Courses provide
for depreciation on equipment and other facilities using the straight-line
method over the estimated useful life of seven years.
In 1995, the Golf Courses capitalized the cost of refunded membership
initiation fees and the portion of the purchase price allocated to unsold
memberships related to its purchase of golf and country club facilities as an
identifiable intangible asset. Such amounts were carried at the lower of cost or
market (defined as the net amount management expects to receive from the future
sale of these memberships) and were fully amortized at December 31, 1996.
OTHER ASSETS
Included in other assets are costs associated with obtaining financing
(Note 2). The Golf Courses amortize such capitalized financing costs over the
lives of the related loans.
F-37
<PAGE> 181
PALOMA GOLF COURSES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include notes payable bearing interest
at a fixed rate. At October 31, 1997, the carrying balances of the Company's
notes payable approximate their fair value.
MEMBERSHIP DUES
Included in membership dues for the ten month period ended October 31, 1997
and for the years ended December 31, 1996 and 1995 are revenues received from
membership dues, initiation and transfer fees, net of the cost of memberships
sold.
The Golf Courses bill member dues and other country club fees in advance of
the period of use. These amounts are included in unearned membership dues and
initiation fees. Revenues from initiation fees are recognized over the estimated
term of membership. Membership transfer fees are recognized as income in the
year in which the transfer fee is received.
OTHER OPERATING REVENUES
Other operating revenues include golf bag storage fees, member locker fees
and other miscellaneous revenues.
USE OF ESTIMATES
The preparation of the Golf Courses' combined financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities as of October 31, 1997 and December 31, 1996 and 1995, and revenues
and expenses for the ten month period and for the years then ended. Actual
results could materially differ from those estimates in the near term.
INCOME TAXES
At October 31, 1997 and December 31, 1996, the Golf Courses were wholly
owned by Paloma and were not separate legal entities. At December 31, 1995,
Emerald Valley and Fox Valley were owned by limited partnerships. The combined
financial statements do not include a provision for income taxes. The
stockholder of Paloma and the minority interests are responsible for the payment
of income taxes on their pro rata share of the Golf Courses' taxable income.
2. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
OCTOBER 31, --------------------
1997 1996 1995
----------- -------- --------
<S> <C> <C> <C>
Financing costs, net of accumulated amortization...... $282,216 $349,401 $225,053
Deposits.............................................. 20,065 16,851 13,751
Organization costs, net of accumulated amortization... 16,267 32,000 50,327
-------- -------- --------
$318,548 $398,252 $289,131
======== ======== ========
</TABLE>
F-38
<PAGE> 182
PALOMA GOLF COURSES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. GOLF AND COUNTRY CLUB FACILITIES
Golf and country club facilities and related identifiable intangible assets
consist of the following at:
<TABLE>
<CAPTION>
DECEMBER 31,
OCTOBER 31, --------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Land and golf course improvements............. $ 8,493,192 $ 8,154,298 $ 6,291,584
Buildings and improvements.................... 7,343,835 6,809,639 4,404,070
Other equipment and facilities................ 2,620,371 2,506,881 1,915,339
Unsold memberships and refunded initiation
fees........................................ -- -- 1,114,578
----------- ----------- -----------
18,457,398 17,470,818 13,725,571
Less accumulated depreciation and
amortization................................ (1,589,670) (1,035,391) (417,175)
----------- ----------- -----------
$16,867,728 $16,435,427 $13,308,396
=========== =========== ===========
</TABLE>
As a result of the buyout of the limited partners' interests during 1996 in
the Emerald Valley and Fox Valley Partnerships (Note 1), unsold memberships and
refunded initiation fees were reduced in the amount of $1,096,000. The remaining
$18,578 was amortized against membership dues in 1996.
4. LONG-TERM DEBT
In December 1996, the Golf Courses refinanced their notes payable to their
primary lender. The refinancing arrangement modified the existing notes payable
for all golf and country club facilities, provided a rate of interest equal to
10.17%, and was cross-collateralized by all of the golf and country club
facilities. The notes payable were further collateralized by an assignment of
Paloma's interest in certain leases and rents and a guaranty and stock pledge
agreement from Paloma's sole stockholder.
In addition, the refinancing arrangement provided the Golf Courses
additional financing of up to a maximum of $10,609,000, under certain conditions
as defined in the loan agreement.
At December 31, 1996, the Golf Courses were not in compliance with certain
debt covenants, including covenants related to minimum net worth, minimum
working capital, and cash flow to debt service ratio, contained in its note
agreement with its primary lender. The Golf Courses were sold on November 5,
1997 and all the long-term debt was paid off (Note 6).
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
OCTOBER 31, -------------------------
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
Notes payable to financial institution primarily
secured by the golf and country club
facilities, bearing interest at 10.17%, due in
monthly installments of principal and
interest, (Note 6)............................ $15,714,785 $15,891,151 $8,704,318
=========== =========== ==========
</TABLE>
For the ten month period ended October 31, 1997 and the years ended
December 31, 1996 and 1995, the Company incurred and expensed interest costs of
$1,383,685, $1,390,878 and $742,633, respectively.
5. COMMITMENTS AND CONTINGENCIES
The Golf Courses are subject to commitments and contingencies which arise
in the ordinary course of business. As of October 31, 1997, management believes
there are no existing matters which will have a material adverse effect on the
Golf Courses' financial position.
F-39
<PAGE> 183
PALOMA GOLF COURSES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
6. SUBSEQUENT EVENTS
On November 5, 1997, the Golf Courses and all operating facilities and
equipment were sold to Arnold Palmer Golf Management limited partnership for
$23,700,000. At closing, a portion of the proceeds were used to extinguish
long-term debt and obligations under capital leases plus associated late
charges, prepayment penalties and accrued interest (Note 4). The remainder of
the proceeds were utilized to pay closing costs with the net proceeds going to
Paloma and the Mine Brook Investors (Note 1).
F-40
<PAGE> 184
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Olympus/Montclair-Chicago General Partnership:
We have audited the accompanying consolidated balance sheets of
Olympus/Montclair-Chicago General Partnership (an Illinois general partnership)
(the "Partnership") as of December 31, 1997 and 1996, and the related
consolidated statements of operations, changes in partners' capital, and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 provides 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
Olympus/Montclair-Chicago General Partnership as of December 31, 1997 and 1996,
and the results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
Dallas, Texas,
January 23, 1998
ARTHUR ANDERSEN LLP
F-41
<PAGE> 185
OLYMPUS/MONTCLAIR-CHICAGO GENERAL PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 2,117,657 $ 1,647,160
Accounts receivable, net.................................. 2,126,975 2,495,490
Advances to affiliates.................................... -- --
Inventories............................................... 435,452 458,342
Prepaid expenses.......................................... 160,354 47,487
----------- -----------
Total current assets................................... 4,840,438 4,648,479
----------- -----------
PROPERTY AND EQUIPMENT:
Land...................................................... 5,003,819 5,003,819
Buildings................................................. 26,534,638 26,534,638
Furniture, fixtures and equipment......................... 13,712,338 12,342,655
Construction in progress.................................. 412,083 241,399
----------- -----------
45,662,878 44,122,511
Accumulated depreciation.................................. (6,194,967) (3,190,850)
----------- -----------
Total property and equipment........................... 39,467,911 40,931,661
----------- -----------
RESTRICTED CASH............................................. 1,005,417 138,599
DEFERRED COSTS, net of accumulated amortization of $357,142
and $220,811.............................................. 240,408 376,739
----------- -----------
$45,554,174 $46,095,478
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable and accrued liabilities.................. $ 1,933,451 $ 2,365,023
Accrued property taxes.................................... 517,748 808,481
Accrued interest.......................................... 168,995 172,005
Advance deposits and deferred income...................... 605,775 347,343
Due to affiliates......................................... 233,319 162,834
Notes payable -- current maturities....................... 597,707 589,146
----------- -----------
Total current liabilities.............................. 4,056,995 4,444,832
----------- -----------
LONG-TERM LIABILITIES:
Mortgage note payable -- less current maturities.......... 22,323,000 22,839,000
Equipment notes payable -- less current maturities........ 318,697 400,404
----------- -----------
Total long-term liabilities............................ 22,641,697 23,239,404
----------- -----------
Total liabilities...................................... 26,698,692 27,684,236
PARTNERS' CAPITAL........................................... 18,855,482 18,411,242
----------- -----------
$45,554,174 $46,095,478
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-42
<PAGE> 186
OLYMPUS/MONTCLAIR-CHICAGO GENERAL PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
REVENUE:
Rooms..................................................... $10,461,045 $ 9,347,586
Food and beverage......................................... 12,562,233 10,931,755
Golf...................................................... 3,894,038 3,227,764
Telephone................................................. 491,149 329,411
Other departments......................................... 981,133 1,303,483
----------- -----------
28,389,598 25,139,999
----------- -----------
OPERATING COSTS AND EXPENSES:
Departmental costs and expenses --
Rooms.................................................. 2,271,809 2,191,823
Food and beverage...................................... 7,474,511 7,036,529
Golf................................................... 2,202,778 1,853,514
Telephone.............................................. 291,965 266,664
Other departments...................................... 427,942 548,899
Undistributed Operating Expenses --
Administrative and general............................. 2,453,299 1,963,152
Marketing.............................................. 1,798,577 1,454,084
Property operation and maintenance..................... 1,204,548 1,024,953
Utilities.............................................. 1,444,916 1,297,869
Management fees........................................ 724,445 578,610
Property taxes and insurance........................... 363,677 990,638
Depreciation and Amortization.......................... 3,004,529 2,396,584
Partnership expenses................................... 189,395 209,449
Lease costs............................................ 58,696 70,711
----------- -----------
OPERATING INCOME............................................ 4,478,511 3,256,520
INTEREST EXPENSE, net of interest income of $62,045 and
$143,923.................................................. 2,034,271 2,024,521
----------- -----------
NET INCOME.................................................. $ 2,444,240 $ 1,231,999
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-43
<PAGE> 187
OLYMPUS/MONTCLAIR-CHICAGO GENERAL PARTNERSHIP
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
OLYMPUS
CHICAGO M.A. ILLINOIS
HOTELS, L.P. RESORTS, INC. TOTAL
------------ ------------- -----------
<S> <C> <C> <C>
BALANCE, December 31, 1995........................... $16,627,510 $251,733 $16,879,243
Contributions...................................... 2,300,000 -- 2,300,000
Distributions...................................... (1,972,202) (27,798) (2,000,000)
Net Income......................................... 1,214,542 17,457 1,231,999
----------- -------- -----------
BALANCE, December 31, 1996........................... 18,169,850 241,392 18,411,242
Distributions...................................... (1,973,776) (26,224) (2,000,000)
Net income......................................... 2,410,483 33,757 2,444,240
----------- -------- -----------
BALANCE, December 31, 1997........................... $18,606,557 $248,925 $18,855,482
=========== ======== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-44
<PAGE> 188
OLYMPUS/MONTCLAIR-CHICAGO GENERAL PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 2,444,240 $ 1,231,999
Adjustments to reconcile net income to net cash provided
by operating activities --
Depreciation and amortization........................... 3,004,529 2,396,584
Amortization of deferred loan costs..................... 135,919 155,984
Decrease in accounts receivable......................... 368,515 (1,166,702)
Decrease in inventories................................. 22,890 (76,167)
Increase in prepaid expenses............................ (112,867) 95,330
Decrease in accounts payable and accrued liabilities.... (431,572) 978,362
Decrease in accrued property taxes...................... (290,733) 44,377
Decrease in accrued interest............................ (3,010) 34
Increase in advance deposits and deferred income........ 258,432 (83,664)
Increase in due to affiliates........................... 70,485 62,938
----------- -----------
Change in Advance to Affiliates......................... -- --
Net cash provided by operating activities............ 5,466,828 3,639,075
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net Property additions and renovation costs............... (1,540,367) (5,636,640)
Increase in restricted cash............................... (866,818) 506,744
----------- -----------
Net cash used in investing activities................ (2,407,185) (5,129,896)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from mortgage notes payable......................
Proceeds from equipment notes payable..................... -- 498,732
Principal payments on mortgage note payable and equipment
notes payable........................................... (589,146) (541,182)
Payment for deferred loan costs........................... -- (4,438)
Distributions to partners................................. (2,000,000) (2,000,000)
Contribution from partners................................ -- 2,300,000
----------- -----------
Net cash used in financing activities................ (2,589,146) 253,112
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 470,497 (1,237,709)
CASH AND CASH EQUIVALENTS, beginning of period.............. 1,647,160 2,884,869
----------- -----------
CASH AND CASH EQUIVALENTS, end of period.................... $ 2,117,657 $ 1,647,160
=========== ===========
CASH PAID FOR INTEREST...................................... $ 1,963,407 $ 1,956,072
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-45
<PAGE> 189
OLYMPUS/MONTCLAIR-CHICAGO GENERAL PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
1. ORGANIZATION:
Olympus/Montclair-Chicago General Partnership (an Illinois general
partnership) (the "Partnership") was formed on July 26, 1995, by Olympus Chicago
Hotels, L.P. ("Olympus"), as the managing partner, and by M.A. Illinois Resorts,
Inc. ("Montclair"), the general partner (collectively, the "Partners "), to
acquire, own, operate, and realize the value of the Indian Lakes Resort, a
314-room hotel and resort in Bloomingdale, Illinois ("Indian Lakes") and the
Nordic Hills Resort, a 228-room hotel and resort in Itasca, Illinois ("Nordic
Hills") (collectively, the "Hotels"). The Partnership purchased the Hotels on
August 23, 1995.
The Partners and Olympus made cash contributions to fund the acquisition
and initial operations of the Hotels. At the time of the property acquisition in
1995, Montclair contributed cash of $250,000 and Olympus contributed cash of
$15,816,500. In accordance with the partnership agreement, Olympus committed to
fund the initial renovation plan up to $3,000,000. At December 31, 1995,
$700,000 of this commitment had been funded. On February 23, 1996, Olympus
funded the remainder of the required capital contribution in the amount of
$2,300,000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION AND USE OF ESTIMATES
The accompanying consolidated financial statements were prepared in
conformity with generally accepted accounting principles. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes. Actual
results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Partnership considers all highly liquid investments purchased with
original maturity of three months or less to be cash equivalents.
CONCENTRATION OF CREDIT RISK
At December 31, 1997 and 1996, there were cash balances with banks in
excess of the FDIC-insured limits by $2,047,410 and $1,126,646, respectively.
The Partnership has not experienced any losses in its cash accounts and believes
it is not exposed to any significant credit risk on cash and cash equivalents.
RESTRICTED CASH
Pursuant to the loan agreement (Note 3), the Hotels are required to set
aside, in a separate account, funds for a capital expenditure reserve. As of
December 31, 1997 and 1996, $1,005,417 and $138,599, respectively, is set aside
in this account and is included in restricted cash in the accompanying
consolidated balance sheets.
INVENTORIES
Inventories consist primarily of food, beverages, merchandise, linens, and
operating supplies and are stated at cost using the first-in, first-out method,
which approximates market.
F-46
<PAGE> 190
OLYMPUS/MONTCLAIR-CHICAGO GENERAL PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
DEFERRED COSTS
Deferred costs include deferred loan costs incurred by the Partnership in
obtaining the mortgage note payable and related interest rate protection
agreements. Deferred loan costs are being amortized over the respective lives of
the mortgage note payable and interest rate protection agreements using the
straight-line method, which approximates the effective interest method. Also
included in deferred costs are organization costs incurred in forming the
Partnership, which are being amortized over a five-year period using the
straight-line method.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are being depreciated using
the straight-line method over periods of five to 40 years.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
The Partnership accounts for its investments in its long-lived assets under
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
("SFAS No. 121"). This statement requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The Partnership adopted SFAS
No. 121 effective January 1, 1996, and such adoption had no effect on the
consolidated financial statements.
INCOME TAXES
No provision for income taxes has been recorded in the consolidated
financial statements as the partners are required to report their share of the
Partnership's earnings in their respective income tax returns. The Partnership's
tax returns and the amounts of allocable income or loss are subject to
examination by federal and state taxing authorities. If such examinations result
in changes to income or loss, the tax liability of the partners could be changed
accordingly.
REVENUE RECOGNITION
Revenue is recognized as earned. Ongoing credit evaluations are performed
and an allowance for doubtful accounts has been provided for the portion of
accounts receivable which is estimated to be uncollectible.
PARTNERSHIP EXPENSES
Costs incurred by the Partnership related to tax preparation fees, legal
fees, consulting fees, and travel costs to partner meetings are $189,395 and
$209,449 for the year ended December 31, 1997 and the year ended December 31,
1996, respectively.
DISTRIBUTIONS OF CASH FLOW AND ALLOCATION OF NET INCOME (LOSS)
Net income of the Partnership is allocated in accordance with the terms of
the partnership agreement, including any provisions related to preferred
returns.
Distributions of Cash Flow, as defined, of $2,000,000 were made to the
Partners in accordance with the terms of the partnership agreement in 1997 and
1996.
F-47
<PAGE> 191
OLYMPUS/MONTCLAIR-CHICAGO GENERAL PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
INTEREST RATE PROTECTION AGREEMENTS
The differential to be paid or received under interest rate protection
agreements is accrued as interest rates change and is recognized over the life
of the agreements (Note 4).
3. NOTES PAYABLE:
MORTGAGE NOTE PAYABLE
On August 22, 1995, the Partnership executed a loan agreement and related
promissory note (the "Mortgage Note") with Societe Generale (the "Bank") to
finance a portion of the acquisition cost of the Hotels. The Mortgage Note has a
face value of $24,000,000, an initial maturity date of August 31, 1999, and an
extended maturity date of August 31, 2000, if certain conditions are met.
Interest on the Mortgage Note is payable monthly in arrears. The initial
rate of interest pursuant to the loan agreement was the greater of the Bank's
prime rate or the Federal Funds Rate plus 0.5%. Pursuant to the terms of the
loan agreement, the Partnership exercised its option to convert to an interest
rate of LIBOR plus 2.5%. As a condition of the loan agreement, the Partnership
was required to obtain interest rate protection. To meet this requirement, the
Partnership entered into an interest rate swap, cap, and corridor agreement with
the Bank on September 5, 1995 (Note 4).
Pursuant to the Mortgage Note, the Partnership must establish and maintain
a capital expenditure reserve ("CAPEX Reserve") (Note 2). On the funding date of
the loan, the Partnership established the CAPEX Reserve by depositing $500,000
into a separate bank account. Commencing November 1, 1995, and on the 31st day
following each calendar quarter thereafter, the Partnership is required to
deposit 4% of the Gross Revenues of the Hotels, as defined, into the CAPEX
Reserve. The CAPEX Reserve is to be used to complete improvements specified in
the initial renovation plan, as described in the Mortgage Note, make other
capital improvements, and purchase furniture, fixtures and equipment. During
1997 and 1996, $1,136,659 and $979,786, respectively, was funded into the CAPEX
Reserve.
Additionally, within one year of the date of the Mortgage Note, the
Partnership was required to deposit an additional $3,000,000 (the "Additional
Deposit") into the CAPEX Reserve. Pursuant to the partnership agreement, the
Additional Deposit was to be funded by Olympus. Although all of the partners of
Olympus will fund their share of the Additional Deposit, as additional
collateral for the Mortgage Note, a limited partner of Olympus executed a
contribution agreement in favor of the Bank and committed to contribute, by
August 22, 1996, the Additional Deposit to the Partnership through Olympus. As
of February 23, 1996, the entire $3,000,000 capital contribution for the
Additional Deposit had been funded through Olympus.
The Mortgage Note is collateralized by, among other things, the Hotels and
related property, an assignment of leases, assignments of management agreements
for the operations of the Hotels and the related concession services, the cash
collateral agreement, the contribution agreement, the environmental indemnity,
and the stock pledge of the concessions entities.
EQUIPMENT NOTES PAYABLE
On July 28, 1996, the Partnership executed a master loan and security
agreement (the "Equipment Notes") with Prime Leasing, Inc. (the "Lender") to
finance the purchase of equipment used in the everyday operations of the Hotels.
The Equipment Notes have a combined face value of $498,732 with a maturity date
of November 30, 2001, and bear interest at a rate of 11.12% per annum. The
Equipment Notes are collateralized by the related equipment purchased.
F-48
<PAGE> 192
OLYMPUS/MONTCLAIR-CHICAGO GENERAL PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996
3. NOTES PAYABLE: -- (CONTINUED)
Future minimum principal payments under the Mortgage Note and the Equipment
Notes through maturity are as follows:
<TABLE>
<CAPTION>
MORTGAGE EQUIPMENT
NOTE NOTES TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
1998...................................... $ 516,000 $ 81,707 $ 597,707
1999...................................... 22,323,000 91,271 22,414,271
2000...................................... -- 101,954 101,954
2001...................................... -- 125,472 125,472
----------- ----------- -----------
$22,839,000 $ 400,404 $23,239,404
=========== =========== ===========
</TABLE>
REVOLVING NOTE PAYABLE
On January 15, 1996, the Partnership obtained an unsecured revolving note
(the "Line of Credit") for an amount up to $1,500,000 to fund anticipated
working capital needs of the Hotels. The advances under the Line of Credit bear
interest at a rate of prime plus 0.5% per annum, with interest payments due
monthly in arrears. The Line of Credit matured on August 31, 1997, at which time
all principal and accrued interest was paid. No principal balance exists at
December 31, 1996.
4. INTEREST RATE PROTECTION AGREEMENTS:
On September 5, 1995, the Partnership entered into an interest rate swap
agreement (the "Swap") with the Bank to reduce the impact of changes in interest
rates on the Mortgage Note. The Swap has a notional principal amount of $9
million. The Swap effectively changes the Partnership's interest rate exposure
on $9 million of the Mortgage Note to a fixed rate of 5.69% percent. The Swap
became effective beginning October 3, 1995, and was to remain in effect until
the earlier of September 1, 1998, or upon the Bank exercising its one-time right
to terminate the Swap on September 2, 1997. On September 2, 1997, the Bank
exercised its right to terminate the Swap.
On September 5, 1995, the Partnership also entered into an interest rate
cap agreement (the "Cap") with the Bank to ensure interest rate protection for
the approximately $15,000,000 remaining balance of the Mortgage Note not covered
by the Swap (as described above), and for the entire then remaining balance of
the Mortgage Note in the event that the Bank cancels the Swap. The Cap became
effective beginning on October 3, 1995, and remains in effect until August 31,
1999. The Cap had an initial notional amount of $14,957,000 and amortized to an
amount of $14,011,000 as of September 2, 1997, at which time the notional amount
increased to $22,968,000. The Cap amortizes to a final notional amount of
$21,979,000 on August 31, 1999. The Cap provides for the following maximum rates
for LIBOR: (i) 11.5% from October 3, 1995 through September 1, 1997, (ii) 10.5%
from September 2, 1997 through August 31, 1998, and (iii) 9.5% from September 1,
1998 through August 31, 1999.
In addition, on September 5, 1995, the Partnership entered into an interest
rate corridor agreement (the "Corridor") with the Bank with respect to the
Mortgage Note. The Corridor became effective beginning September 2, 1997, and
will remain in effect until September 1, 1998. The Corridor has an initial
notional amount of $22,968,000 and amortizes to an amount of $22,495,000 on
September 1, 1998. The Corridor requires the Bank to pay interest on behalf of
the Partnership during any period that LIBOR is between 8% and 9%.
LIBOR on one year advances was 5.97% and 5.78% at December 31, 1997 and
1996, respectively.
F-49
<PAGE> 193
OLYMPUS/MONTCLAIR-CHICAGO GENERAL PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996
4. INTEREST RATE PROTECTION AGREEMENTS: -- (CONTINUED)
The Partnership is exposed to credit loss in the event of nonperformance by
the Bank in accordance with the Swap, Cap, and Corridor. However, the
Partnership does not anticipate nonperformance by the Bank.
5. RELATED-PARTY TRANSACTIONS:
The Partnership has entered into a management agreement with an affiliate
of Montclair (the "Manager"), to manage the operation of the Hotels through July
30, 2002. In connection with the management agreement, the Partnership pays an
annual management fee to the Manager, which includes a base fee equal to 1% of
Gross Receipts, as defined. Base fees paid to the Manager for the management of
the Hotels for the years ending December 31, 1997 and 1996 totaled $245,563 and
$199,898, respectively. Accrued management fees of $16,709 and $55,426 are
included in due to affiliates on the accompanying balance sheets for December
31, 1997 and 1996, respectively.
In 1996, the Partnership began paying the Manager an incentive fee equal to
10% of Net Operating Income, as defined, in excess of annual thresholds ranging
from $4,500,000 in 1996 to $6,000,000 each year after 1999. The Manager earned
an incentive fee of $199,702, $77,963 for the year ended December 31, 1997 and
1996, respectively, and such amounts are included in due to affiliates in the
accompanying balance sheet.
In connection with the management agreement, the Partnership is required to
pay an annual asset management fee equal to 1% of Gross Receipts, as defined, to
Olympus. Asset management fees paid to Olympus for the year ended December 31,
1997 totaled $245,563 and $220,878, respectively. At December 31, 1997 accrued
asset management fees of $16,708 and $29,446, respectively, are included in due
to affiliates on the accompanying balance sheet.
The Hotels' liquor licenses are held by entities (the "Concession
Entities") whose sole shareholder is a limited partner of Olympus. The
Partnership has leased the food and beverage operations of the Hotels to these
Concession Entities, which have contracted with the Manager to manage the food
and beverage operations.
6. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Hotels lease equipment under operating leases with remaining terms
ranging from one to seven years. All leases are collateralized by the respective
equipment. Future minimum lease payments under noncancelable operating leases as
of December 31, 1997, are as follows:
<TABLE>
<S> <C>
1998........................................................ $381,080
1999........................................................ 177,160
2000........................................................ 158,229
2001........................................................ 125,439
2002........................................................ 42,685
Thereafter.................................................. 38,280
--------
$922,873
========
</TABLE>
LITIGATION AND CLAIMS
The Partnership may be subject to certain litigation and claims in the
ordinary course of business which are generally covered by insurance policies.
In the opinion of the Partnership's management, litigation and
F-50
<PAGE> 194
OLYMPUS/MONTCLAIR-CHICAGO GENERAL PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996
6. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
claims will not have a material adverse effect upon the financial position or
results of operations of the Partnership.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments", requires the Partnership to disclose the
estimated fair values of its financial instrument assets and liabilities.
Disclosure about fair value of financial instruments is based on pertinent
information available to management as of December 31, 1997. Considerable
judgment is necessary to interpret market data and develop estimated fair value.
Accordingly, the estimates presented herein are not necessarily indicative of
the amounts the Partnership could realize on disposition of the financial
instruments. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
As of December 31, 1997, the Partnership's management estimates that the
carrying amounts approximate fair value for cash and cash equivalents and
restricted cash because of the short maturity of those instruments. In addition,
the carrying amounts of accounts receivable, accounts payable and accrued
liabilities and other accrued liabilities approximate fair value. Based on
current rates available to the Partnership for debt with similar terms, there is
not a significant difference between the carrying amounts of the Mortgage Note
and the Equipment Notes and their fair values.
As of December 31, 1997, based upon the terms of the combined value of the
Cap and Corridor agreements relative to current interest rates, the
Partnership's management estimates that the fair value of the Cap is
approximately $1,111, and that the fair value of the Corridor is zero. The Cap
and the Corridor each have a carrying value of zero at December 31, 1997. As of
December 31, 1996, the Partnership's management estimated that the fair value of
the Cap was approximately $45,000, and that the fair value of the Swap was
approximately ($11,000). The Cap and the Swap each had a carrying value of zero
at December 31, 1996.
8. SUBSEQUENT EVENT (UNAUDITED):
The Partnership is in negotiations to sell the Hotels to a proposed Real
Estate Investment Trust, which intends to file a form S-11 registration
statement with the Securities and Exchange Commission in connection with a
proposed offering of shares to the public.
F-51
<PAGE> 195
OLYMPUS/MONTCLAIR-CHICAGO GENERAL PARTNERSHIP
CONSOLIDATED BALANCE SHEETS -- MARCH 31, 1998
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 1,230,565
Accounts receivable, net.................................. 1,861,128
Advances to affiliates.................................... 5,025
Inventories............................................... 445,862
Prepaid expenses.......................................... 153,850
-----------
Total current assets................................... 3,696,430
-----------
PROPERTY AND EQUIPMENT:
Land...................................................... 5,003,819
Buildings................................................. 26,534,638
Furniture, fixtures and equipment......................... 13,795,869
Construction in progress.................................. 747,241
-----------
46,081,567
Accumulated depreciation.................................. (6,913,975)
-----------
Total property and equipment........................... 39,167,592
-----------
DEFERRED COSTS, net of accumulated amortization of
$35,771................................................... 204,637
-----------
$43,068,659
===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable and accrued liabilities.................. $ 1,509,356
Accrued property taxes.................................... 732,140
Advance deposits and deferred income...................... 786,857
Due to affiliates......................................... 33,498
Notes payable -- current maturities....................... 600,000
Required funding to capital expenditure reserve........... 242,742
-----------
Total current liabilities.............................. 3,904,593
-----------
LONG-TERM LIABILITIES:
Mortgage notes payable -- less current maturities......... 22,919,380
Equipment notes payable -- less current maturities........ 638,210
-----------
Total long-term liabilities............................ 23,557,590
-----------
Total liabilities...................................... 27,462,183
PARTNERS' CAPITAL........................................... 15,606,476
-----------
$43,068,659
===========
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheets.
F-52
<PAGE> 196
OLYMPUS/MONTCLAIR-CHICAGO GENERAL PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
REVENUE:
Rooms..................................................... $ 1,914,529 $ 1,546,199
Food and beverage......................................... 1,694,281 1,520,865
Golf...................................................... 40,398 39,894
Telephone................................................. 68,819 76,686
Other departments......................................... 195,407 160,790
----------- -----------
3,913,434 3,344,434
----------- -----------
OPERATING COSTS AND EXPENSES:
Departmental expenses --
Rooms.................................................. 507,558 450,493
Food and beverage...................................... 1,342,154 1,247,650
Golf................................................... 111,222 188,721
Telephone.............................................. 171,229 65,515
Other.................................................. 93,970 102,930
Undistributed operating expenses --
Administrative and general............................. 539,127 445,027
Marketing.............................................. 430,127 438,210
Property operation and maintenance..................... 312,826 256,833
Utilities.............................................. 358,996 350,360
Management fees........................................ 78,269 66,522
Property taxes and insurance........................... 161,522 254,666
Depreciation and amortization.......................... 780,291 890,215
Partnership expenses................................... 30,596 10,140
Lease costs............................................ 28,066 25,282
----------- -----------
OPERATING INCOME............................................ (1,032,519) (1,448,130)
OTHER EXPENSE:
Interest expense, net of interest income of $13,796 and
$7,754................................................. 455,303 348,757
----------- -----------
NET LOSS.................................................... $(1,487,822) $(1,796,887)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-53
<PAGE> 197
OLYMPUS/MONTCLAIR-CHICAGO GENERAL PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(1,487,822) $(1,796,887)
Adjustments to reconcile net loss to net cash provided by
operating activities --
Depreciation and amortization.......................... 780,291 890,215
Decrease in accounts receivable........................ 265,847 1,170,195
Increase in inventories................................ (10,410) (59,139)
(Increase) decrease in prepaid expenses................ 6,504 (161,559)
Decrease increase in accounts payable and accrued
liabilities........................................... (424,095) (398,125)
Increase in accrued property taxes..................... 214,392 47,182
(Decrease) in accrued interest......................... (168,995) (172,005)
Increase in advance deposits and deferred income....... 181,082 176,871
Decrease in due to affiliates.......................... (199,821) (80,687)
Change in advances to affiliates....................... (5,025) (61,549)
----------- -----------
Net cash used in operating activities................ (848,052) (445,488)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net Property additions and renovation costs............... (444,201) (800,750)
Decrease in restricted cash............................... 1,248,159 47,572
----------- -----------
Net cash provided by (used in) investing
activities.......................................... 803,958 (753,178)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from mortgage notes payable...................... 1,000,000 --
Proceeds from equipment notes payable..................... 341,391 500,000
Principal payments on mortgage note payable and equipment
notes payable.......................................... (423,205) (129,001)
Payment for deferred loan costs........................... -- --
Distributions to partners, net of contributions........... (1,761,184) (13,051)
----------- -----------
Net cash (used in) provided by financing
activities.......................................... (842,998) 357,948
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS................... (887,092) (840,718)
CASH AND CASH EQUIVALENTS, beginning of period.............. 2,117,657 1,647,160
----------- -----------
CASH AND CASH EQUIVALENTS, end of period.................... $ 1,230,565 $ 806,442
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-54
<PAGE> 198
OLYMPUS/MONTCLAIR-CHICAGO GENERAL PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
(UNAUDITED)
1. ORGANIZATION:
Olympus/Montclair-Chicago General Partnership (an Illinois general
partnership) (the "Partnership ") was formed on July 26, 1995, by Olympus
Chicago Hotels, L.P. ("Olympus"), as the managing partner, and by M.A. Illinois
Resorts, Inc. ("Montclair"), the general partner (collectively, the "Partners
"), to acquire, own, operate, and realize the value of the Indian Lakes Resort,
a 314-room hotel and resort in Bloomingdale, Illinois ("Indian Lakes") and the
Nordic Hills Resort, a 228-room hotel and resort in Itasca, Illinois ("Nordic
Hills") (collectively, the "Hotels"). The Partnership purchased the Hotels on
August 23, 1995.
2. UNAUDITED INTERIM STATEMENTS:
The consolidated financial statements as of March 31, 1998, and for the
three month periods ended March 31, 1998 and 1997, are unaudited; however, in
the opinion of management, all adjustments (consisting solely of normal
recurring adjustments) necessary for a fair presentation of the consolidated
financial statements for these interim periods have been included. The results
for the interim periods are not necessarily indicative of the results for full
years. These unaudited financial statements should be read in conjunction with
the 1996 and 1997 audited financial statements and footnotes.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION AND USE OF ESTIMATES
The accompanying consolidated financial statements were prepared in
conformity with generally accepted accounting principles. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes. Actual
results could differ from those estimates.
REQUIRED FUNDING FOR CAPITAL EXPENDITURE RESERVE
Pursuant to the loan agreement, the Hotels are required to set aside, in a
separate account, funds for a capital expenditure reserve. As of March 31, 1998,
an amount of $242,742 has been accrued in this account for cash that will be
funded in May 1998, pursuant to the loan agreement.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
The Partnership accounts for its investments in its long-lived assets under
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("SFAS No. 121"). This statement requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The Partnership adopted SFAS
No. 121 effective January 1, 1996, and such adoption had no effect on the
consolidated financial statements.
REVENUE RECOGNITION
Revenue is recognized as earned. Ongoing credit evaluations are performed
and an allowance for doubtful accounts has been provided for the portion of
accounts receivable which is estimated to be uncollectible.
F-55
<PAGE> 199
OLYMPUS/MONTCLAIR-CHICAGO GENERAL PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1998 AND 1997
(UNAUDITED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
PARTNERSHIP EXPENSES
Costs incurred by the Partnership related to tax preparation fees, legal
fees, consulting fees, and travel costs to partner meetings are $30,596 and
$10,140 for the periods ended March 31, 1998 and 1997, respectively.
4. RELATED-PARTY TRANSACTIONS:
The Partnership has entered into a management agreement with an affiliate
of Montclair (the "Manager"), to manage the operation of the Hotels through July
30, 2002. In connection with the management agreement, the Partnership pays an
annual management fee to the Manager, which includes a base fee equal to 1% of
Gross Receipts, as defined. Base fees paid to the Manager for the management of
the Hotels for the three month periods ended March 31, 1998 and 1997, totaled
$39,134 and $33,444, respectively. Accrued management fees of $33,498 are
included in due to affiliates on the accompanying balance sheets for March 31,
1998.
In 1996, the Partnership began paying the Manager an incentive fee equal to
10% of Net Operating Income, as defined, in excess of annual thresholds ranging
from $4,500,000 in 1996 to $6,000,000 each year after 1999. No incentive fee has
been earned for the three month periods ended March 31, 1998 and 1997,
respectively.
In connection with the management agreement, the Partnership is required to
pay an annual asset management fee equal to 1% of Gross Receipts, as defined, to
Olympus. Asset management fees paid to Olympus for the three month period ended
March 31, 1998 and 1997 totaled $39,134 and $33,444, respectively.
The Hotels' liquor licenses are held by entities (the "Concession
Entities") whose sole shareholder is a limited partner of Olympus. The
Partnership has leased the food and beverage operations of the Hotels to these
Concession Entities, which have contracted with the Manager to manage the food
and beverage operations.
5. COMMITMENTS AND CONTINGENCIES:
LITIGATION AND CLAIMS
The Partnership may be subject to certain litigation and claims in the
ordinary course of business which are generally covered by insurance policies.
In the opinion of the Partnership's management, litigation and claims will not
have a material adverse effect upon the financial position or results of
operations of the Partnership.
6. SUBSEQUENT EVENT:
The Partnership is in negotiations to sell the Hotels to a proposed Real
Estate Investment Trust, which intends to file a form S-11 registration
statement with the Securities and Exchange Commission in connection with a
proposed offering of shares to the public.
F-56
<PAGE> 200
REPORT OF INDEPENDENT AUDITORS
The Venturers
Olympus/Montclair-Chicago General Partnership
We have audited the accompanying balance sheet of Olympus/Montclair-Chicago
General Partnership (the "Venture") as of December 31, 1995 and the related
statements of operations, changes in venturers' capital and cash flows for the
period from inception (July 26, 1995) through December 31, 1995. These financial
statements are the responsibility of the Venture's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Olympus/Montclair-Chicago
General Partnership at December 31, 1995 and the results of its operations and
its cash flows for the period from inception (July 26, 1995) through December
31, 1995 in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Dallas, Texas
February 7, 1996 except for
Note 9, as to which the date
is February 23, 1996
F-57
<PAGE> 201
OLYMPUS/MONTCLAIR-CHICAGO GENERAL PARTNERSHIP
BALANCE SHEET
DECEMBER 31, 1995
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 2,884,869
Restricted cash........................................... 645,343
Accounts receivable....................................... 1,328,788
Inventories............................................... 382,175
Prepaid expenses.......................................... 142,817
-----------
Total current assets................................... $ 5,383,992
===========
PROPERTY AND EQUIPMENT:
Land...................................................... $ 5,003,819
Buildings................................................. 25,915,980
Furniture, fixtures and equipment......................... 7,438,229
Construction in progress.................................. 127,843
-----------
38,485,871
Accumulated depreciation.................................. (799,115)
-----------
Total property and equipment........................... 37,686,756
-----------
DEFERRED COSTS less accumulated amortization of $60,062..... 533,134
-----------
$43,603,882
===========
LIABILITIES AND VENTURERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable and accrued liabilities.................. $ 1,386,661
Accrued property taxes.................................... 764,104
Accrued interest.......................................... 171,971
Advance deposits and deferred income...................... 431,007
Due to affiliates......................................... 99,896
Mortgage note payable -- current maturities............... 516,000
-----------
Total current liabilities............................ 3,369,639
-----------
LONG-TERM LIABILITIES:
Mortgage note payable -- less current maturities.......... 23,355,000
TOTAL LIABILITIES........................................... 26,724,639
VENTURERS' CAPITAL.......................................... 16,879,243
-----------
$43,603,882
===========
</TABLE>
See accompanying notes.
F-58
<PAGE> 202
OLYMPUS/MONTCLAIR-CHICAGO GENERAL PARTNERSHIP
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (JULY 26, 1995)
THROUGH DECEMBER 31, 1995
<TABLE>
<S> <C>
REVENUE:
Rooms....................................................... $3,345,481
Food and beverage........................................... 4,166,374
Golf........................................................ 603,722
Telephone................................................... 164,867
Other departments........................................... 336,118
----------
8,616,562
----------
OPERATING COSTS AND EXPENSES:
Departmental costs and expenses --
Rooms..................................................... 753,610
Food and beverage......................................... 2,890,372
Golf...................................................... 509,461
Telephone................................................. 93,462
Other departments......................................... 228,228
Undistributed operating expenses --
Administrative and general................................ 750,473
Marketing................................................. 328,490
Property operation and maintenance........................ 395,027
Utilities................................................. 449,439
Management fees........................................... 172,453
Property taxes and insurance.............................. 340,335
Depreciation and amortization............................. 799,262
Partnership expenses...................................... 20,709
Lease costs............................................... 19,582
----------
OPERATING INCOME............................................ 865,659
INTEREST EXPENSE, net of interest income of $32,990......... 752,916
----------
NET INCOME.................................................. $ 112,743
==========
</TABLE>
See accompanying notes.
F-59
<PAGE> 203
OLYMPUS/MONTCLAIR-CHICAGO GENERAL PARTNERSHIP
STATEMENT OF CHANGES IN VENTURERS' CAPITAL
FOR THE PERIOD FROM INCEPTION (JULY 26, 1995)
THROUGH DECEMBER 31, 1995
<TABLE>
<CAPTION>
OLYMPUS
CHICAGO M.A. ILLINOIS
HOTELS, L.P. RESORT INC. TOTAL
------------ ------------- -----
<S> <C> <C> <C>
Capital Contributions................................... $16,516,500 $250,000 $16,766,500
Net income.............................................. 111,010 1,733 112,743
----------- -------- -----------
BALANCE -- December 31, 1995............................ $16,627,510 $251,733 $16,879,243
=========== ======== ===========
</TABLE>
See accompanying notes.
F-60
<PAGE> 204
OLYMPUS/MONTCLAIR-CHICAGO GENERAL PARTNERSHIP
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (JULY 26, 1995)
THROUGH DECEMBER 31, 1995
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 112,743
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation and amortization.......................... 799,262
Amortization of deferred loan costs.................... 59,915
Increase in accounts receivable........................ (1,328,788)
Increase in inventories................................ (382,175)
Increase in prepaid expenses........................... (93,892)
Increase in accounts payable and accrued liabilities... 1,386,661
Increase in accrued property taxes..................... 273,792
Increase in accrued interest........................... 171,971
Increase in advance deposits and deferred income....... 370,526
Increase in due to affiliate........................... 99,896
------------
Net cash provided by operating activities................... 1,469,911
CASH FLOWS FROM INVESTING ACTIVITIES
Payment for purchase of property and related assets....... (37,984,003)
Increase in restricted cash............................... (645,343)
Payment for organizational costs.......................... (2,200)
------------
Net cash used in investing activities....................... (38,631,546)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from mortgage note payable....................... 24,000,000
Principal payments on mortgage note payable............... (129,000)
Payment for deferred loan costs........................... (590,996)
Contributions from venturers.............................. 16,766,500
------------
Net cash provided by financing activities................... 40,046,504
------------
Cash and cash equivalents at end of period.................. $ 2,884,869
============
Cash paid for interest...................................... $ 554,020
============
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
In connection with the acquisition of the Hotel, the Venture
acquired working capital of $611,750 and assumed
liabilities of $989,520.
</TABLE>
See accompanying notes.
F-61
<PAGE> 205
OLYMPUS/MONTCLAIR-CHICAGO GENERAL PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. ORGANIZATION
Olympus/Montclair-Chicago General Partnership (the "Venture") was formed on
July 26, 1995 to acquire, own, operate and realize the value of the Indian Lakes
Resort, a 308-room hotel and resort in Bloomingdale, Illinois and the Nordic
Hills Resort, a 220-room hotel and resort in Itasca, Illinois (collectively, the
"Hotels"). The Hotels were purchased by the Venture on August 23, 1995.
The Venture is owned by Olympus Chicago Hotels, L.P. ("Olympus"), as the
managing venturer, and by M.A. Illinois Resorts, Inc. ("Montclair"),
(collectively, the "Venturers").
The Hotels' liquor licenses are held by entities whose sole shareholder is
a limited partner of Olympus (the "Concession Entities"). The Venture has leased
the food and beverage operations of the Hotels to these Concession Entities,
which have contracted with the Hotels' manager, an affiliate of Montclair, to
manage the food and beverage operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements include the financial position and
results of operations of the Venture and the Concession Entities.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
INCOME TAX MATTERS
The Venture is not subject to federal or state income taxes since taxable
income or loss of the Venture is to be included in the respective income tax
returns of the venturers.
CASH AND CASH EQUIVALENTS
The Venture considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
RESTRICTED CASH
Restricted cash includes reserves for capital improvements to the Hotels
(Note 4).
INVENTORIES
Inventories include food and beverages, merchandise, linens, and operating
supplies, and are stated at the lower of cost (generally, first-in, first-out)
or market.
DEFERRED COSTS
Deferred costs consist of loan costs and organizational costs paid by the
Venture. Deferred loan costs are being amortized over the lives of the mortgage
note and related interest rate protection agreements using the straight-line
method (Note 4). Organizational costs incurred in forming the Venture are being
amortized over a five-year period using the straight-line method.
F-62
<PAGE> 206
OLYMPUS/MONTCLAIR-CHICAGO GENERAL PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
PROPERTY AND EQUIPMENT
The hotel property is stated at cost and is being depreciated using the
straight-line method over the estimated useful lives of the assets which range
from 40 years for building and improvements and five to seven years for
furniture and equipment.
REVENUE RECOGNITION
Revenue is recognized as earned. Ongoing credit evaluations are performed
and an allowance for doubtful accounts has been provided for the portion of
accounts receivable which is estimated to be uncollectible.
3. CONCENTRATIONS OF CREDIT RISK
At December 31, 1995, there were cash balances with banks in excess of the
FDIC insured limits by $2,553,080. The Venture has not experienced any losses in
its cash accounts, and believes it is not exposed to any significant credit risk
on cash and cash equivalents.
4. MORTGAGE NOTE PAYABLE
On August 22, 1995, the Venture executed a loan agreement and related
promissory note with a French banking corporation (the "Bank") to finance a
portion of the acquisition cost of the Hotels. The mortgage note has a face
value of $24,000,000 with an initial maturity date of August 31, 1999 and an
extended maturity date of August 31, 2000 if certain conditions are met.
Annual future minimum principal payments through the maturity date are as
follows:
<TABLE>
<S> <C>
1996........................................................ $ 516,000
1997........................................................ 516,000
1998........................................................ 516,000
1999........................................................ 22,323,000
-----------
$23,871,000
===========
</TABLE>
Interest on the note is payable monthly in arrears. The initial rate of
interest pursuant to the loan agreement was the greater of Bank prime or the
Federal Funds Rate plus .5%. Pursuant to the terms of the loan agreement, the
Venture exercised its option to convert to an interest rate of LIBOR plus 2.5%.
As a condition to the interest rate conversion, the Venture was required to
obtain interest rate protection. To meet this requirement, the Venture entered
into an interest rate swap and two cap agreements with the Bank on September 5,
1995.
The combined effect of the swap and cap agreements fixes the interest rate
on $9,000,000 of the debt at 8.19% per annum for the period October 3, 1995
through September 1, 1998 (or September 2, 1997 at the Bank's option). The
remaining principal will bear interest at LIBOR plus 2.5%, not to exceed 14%,
from October 3, 1995 through September 1, 1997. For the period September 2, 1997
through August 31, 1998, the interest rate on the remaining principal (or the
entire principal at the Bank's option) will be the lessor of LIBOR plus 2.5% or
10.5%, unless LIBOR plus 2.5% exceeds 11.5% in which case the interest rate will
be LIBOR plus 1.5%. From September 1, 1998 through August 31, 1999 the entire
principal balance outstanding will bear interest at LIBOR plus 2.5%, not to
exceed 12%. At December 31, 1995, LIBOR on one-year advances was 5.44%. The
Venture is exposed to credit loss in the event of nonperformance by the Bank
under
F-63
<PAGE> 207
OLYMPUS/MONTCLAIR-CHICAGO GENERAL PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
4. MORTGAGE NOTE PAYABLE -- (CONTINUED)
the interest rate cap and swap agreements. However, the Venture does not
anticipate nonperformance by the Bank.
Pursuant to the loan agreement, the Venture must establish and maintain a
capital expenditure reserve. On the funding date of the loan, the Venture
established a capital expenditure reserve ("CAPEX Reserve") by depositing
$500,000 into a separate bank account. Commencing November 1, 1995, and on the
31st day following each calendar quarter thereafter, the Venture is required to
deposit 4% of the Gross Revenues of the Property, as defined, into the CAPEX
Reserve. The CAPEX Reserve is to be used to complete improvements specified in
the initial renovation plan as described in the loan agreement, make other
capital improvements and for the purchases of furniture, fixtures and equipment.
As of December 31, 1995, $145,343 has been funded into the CAPEX Reserve for the
partial quarter ended September 30, 1995. Additionally, on January 31, 1996,
$199,563 was funded for the quarter ended December 31, 1995.
Additionally, within one year of the loan agreement, the Venture must
deposit an additional $3,000,000 to the CAPEX Reserve (the "Additional
Deposit"). Pursuant to the joint venture agreement, the Additional Deposit is to
be funded by Olympus. Although all of the partners of Olympus will fund their
share of the Additional Deposit, as additional collateral for the mortgage loan,
a limited partner of Olympus executed a contribution agreement in favor of the
Bank and committed to contribute, by August 22, 1996, the Additional Deposit to
the Venture through Olympus.
The mortgage note is collateralized by, among other things, the Hotels and
related property, an assignment of leases, assignments of management agreements
for the operations of the Hotels and the related concession services, cash
collateral agreement, the contribution agreement, environmental indemnity and
the stock pledge of the concessions entities.
5. VENTURERS' CAPITAL
CAPITAL CONTRIBUTIONS
The Venturers made cash contributions to fund the acquisition and initial
operations of the Hotels. At the time of the property acquisition, Montclair
contributed cash of $250,000 and Olympus contributed cash of $15,816,500. In
accordance with the joint venture agreement, Olympus committed to fund the
initial renovation plan up to $3,000,000. For the partial year ended December
31, 1995, $700,000 of this commitment had been funded.
DISTRIBUTIONS
No distributions were made to the Venturers during 1995.
NET INCOME
Net income is allocated in accordance with the joint venture agreement.
F-64
<PAGE> 208
OLYMPUS/MONTCLAIR-CHICAGO GENERAL PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
6. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Hotels lease equipment under operating leases with remaining terms
ranging from one to four years. Future minimum lease payments under these
operating leases as of December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996........................................................ $245,495
1997........................................................ 233,337
1998........................................................ 228,625
1999........................................................ 69,669
--------
$777,126
========
</TABLE>
All leases are collateralized by the equipment.
7. RELATED PARTY TRANSACTIONS
Concurrent with the execution of the Purchase Agreement, the Venture
entered into a management agreement with an affiliate of Montclair (the
"Manager"), to manage the operation of the Hotels through July 30, 2002. In
connection with the management agreement, the Venture pays an annual management
fee to the Manager which includes a base fee equal to 1% of Gross Receipts, as
defined. Commencing in 1996 the Venture will also pay the Manager an incentive
fee equal to 10% of net operating income, as defined, in excess of annual
thresholds ranging from $4,500,000 in 1996 to $6,000,000 each year after 1999.
Property management fees paid to the Manager for the management of the Hotels
during 1995 totaled $72,768. Accrued management fees of $9,458 are included in
due to affiliates on the accompanying balance sheet.
In connection with the management agreement, the Venture is required to pay
an annual asset management fee equal to 1% of Gross Receipts, as defined, to
Olympus. No fees were paid to Olympus during 1995. At December 31, 1995, accrued
asset management fees of $86,226 are included in due to affiliates on the
accompanying balance sheet.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 requires disclosure
about fair value for all financial instruments, whether or not recognized, for
financial statement purposes. Disclosure about fair value of financial
instruments is based on pertinent information available to management as of
December 31, 1995. Considerable judgment is necessary to interpret market data
and develop estimated fair value. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts the Venture could realize on
disposition of the financial instruments. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.
INTEREST RATE CAP AND SWAP AGREEMENTS
The Venture estimates that the fair value of the interest rate cap and swap
agreements approximates carrying value based upon the terms of the agreements
relative to current interest rates.
NOTES PAYABLE
Based on current rates available to the Venture for debt with similar
terms, there is not a significant difference between the carrying amount of the
mortgage note payable and its fair value.
F-65
<PAGE> 209
OLYMPUS/MONTCLAIR-CHICAGO GENERAL PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
9. SUBSEQUENT EVENTS
On January 15, 1996, the Venture obtained an unsecured revolving note for
an amount up to $1,500,000 to fund planned renovations to the Hotels. The
advances under the note will bear interest at a rate of prime plus 1/2% per
annum, with interest payments due monthly in arrears. Principal matures on
August 31, 1997.
On February 23, 1996, Olympus funded the remainder of the required capital
contribution in the amount of $2,300,000, related to the initial renovation plan
for the Hotels.
F-66
<PAGE> 210
ARNOLD PALMER GOLF MANAGEMENT LLC
PRO FORMA BALANCE SHEET AS OF MARCH 31, 1998 AND
PRO FORMA STATEMENTS OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED
MARCH 31, 1998 AND FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED AND DOLLARS IN THOUSANDS)
The unaudited pro forma balance sheet of Arnold Palmer Golf Management LLC
is presented as if the the sale of 10 of Arnold Palmer Golf Management LLC's
Golf Courses to the Presidio Golf Limited Partnership for $5,000 in cash,
1,100,000 limited partnership units of Presidio Golf Limited Partnership, the
assignment of $43,778 of indebtedness encumbering the 10 Golf Courses and the
commencement of the Participating Leases with Presidio Golf Limited Partnership
(collectively the "Disposition") had occurred on March 31, 1998. The unaudited
pro forma statements of operations of Arnold Palmer Golf Management LLC for the
three month period ended March 31, 1998 and for the year ended December 31, 1997
are presented as if the Disposition had occurred on January 1, 1997, and was
carried forward through March 31, 1998.
Preparation of the pro forma financial statements was based on assumptions,
giving effect to the Disposition, deemed appropriate by the management of Arnold
Palmer Golf Management LLC. The following unaudited pro forma data is not
necessarily indicative of what the actual financial position or results of
operations would have been as of the date or for the periods indicated, nor does
it purport to represent the financial position or results of operations of
Arnold Palmer Golf Management LLC for future periods.
F-67
<PAGE> 211
ARNOLD PALMER GOLF MANAGEMENT LLC
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1998
(UNAUDITED AND IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
APGM
LLC DISPOSITION PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Golf course buildings and improvements, net................. $42,954 $ -- $ 42,954
Golf course land............................................ 13,478 -- 13,478
------- -------- --------
Investment in Golf Courses, net........................ 56,432 -- 56,432
------- -------- --------
Cash........................................................ 6,970 5,000(A) 11,970
Investment in Presidio Golf Limited Partnership............. -- 22,000(B) 22,000
Leasehold deposits and other assets......................... 26,432 -- 26,432
------- -------- --------
Total assets........................................... $89,834 $ 27,000 $116,834
======= ======== ========
Debt........................................................ $57,102 $(43,778)(C) $ 13,324
Leasehold Obligation........................................ -- 70,778(D) 70,778
Accounts payable, accrued expenses and other liabilities.... 12,740 -- 12,740
------- -------- --------
Total liabilities...................................... 69,842 27,000 96,842
------- -------- --------
Members' equity............................................. 19,992 -- 19,992
------- -------- --------
Total liabilities and members' equity.................. $89,834 $ 27,000 $116,834
======= ======== ========
</TABLE>
The accompanying notes and managements assumptions are an integral part of this
statement.
F-68
<PAGE> 212
ARNOLD PALMER GOLF MANAGEMENT LLC
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED AND IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
APGM LLC DISPOSITION PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Revenues.................................................. $ 6,494 $ -- $ 6,494
Operating Expenses........................................ 8,291 -- 8,291
Depreciation and amortization............................. 849 -- 849
------- ----- -------
Total Operating Expenses........................... 9,140 -- 9,140
------- ----- -------
Operating Income (Loss)................................... (2,646) -- (2,646)
Interest income........................................... 263 -- 263
Interest expense.......................................... 834 (618)(E) 216
------- ----- -------
Net Income (Loss)......................................... $(3,217) $(618) $(2,599)
======= ===== =======
</TABLE>
The accompanying notes and managements assumptions are an integral part of this
statement.
F-69
<PAGE> 213
ARNOLD PALMER GOLF MANAGEMENT LLC
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED AND IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL DISPOSITION
APGM LLC AND OTHER PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Revenues.................................................. $29,027 $ 8,829(F) $37,856
Operating expenses........................................ 31,516 6,605(F) 38,121
Depreciation and amortization............................. 3,843 654(F) 4,497
------- ------- -------
Total operating expenses........................... 35,359 7,259 42,618
------- ------- -------
Operating income (loss)................................... (6,332) 1,570 (4,762)
Interest income........................................... 1,114 -- 1,114
Interest expense.......................................... 3,098 (988)(E) 2,110
------- ------- -------
Net income (loss)......................................... $(8,316) $ 2,558 $(5,758)
======= ======= =======
</TABLE>
The accompanying notes and managements assumptions are an integral part of this
statement.
F-70
<PAGE> 214
ARNOLD PALMER GOLF MANAGEMENT LLC
NOTES AND MANAGEMENT'S ASSUMPTIONS TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED AND IN THOUSANDS)
(A) Represents cash received in connection with the Disposition.
(B) Represents the receipt of 1,100,000 limited partnership units of
Presidio Golf Limited Partnership in connection with the Disposition. Arnold
Palmer Golf Management LLC will own approximately 13.7% of Presidio Golf Limited
Partnership upon the completion of the Disposition.
(C) Represents the assignment of debt in connection with the Disposition.
(D) Generally accepted accounting principles require the Disposition to be
recorded using the financing method as a result of Arnold Palmer Golf Management
LLC's ownership interest in Presidio Golf Limited Partnership subsequent to the
transactions. Under the financing method, the sale proceeds from the Disposition
must be recorded as a liability (leasehold obligation on the March 31, 1998 pro
forma balance sheet) and the 10 Golf Courses are continued to be reflected as
assets and depreciated. Lease payments to Presidio Golf Limited Partnership,
exclusive of imputed interest, reduce the leasehold obligation. Dividends
received from the limited partnership units of Presidio Golf Limited Partnership
increase the leasehold obligation.
(E) Represents the following adjustments to interest expense:
<TABLE>
<CAPTION>
THREE
MONTH PERIOD
ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
(1) Eliminate historical interest expense related to the 10
Arnold Palmer Golf Management LLC Golf Courses sold to
Presidio Golf Limited Partnership in connection with the
Disposition............................................. $(728) $(1,427)
(2) Record imputed interest expense related to the lease
payments made to Presidio Golf Limited Partnership...... 110 439
----- -------
$(618) $ (988)
===== =======
</TABLE>
(F) Represents the pro forma adjustments to reflect a full year of
operations related to the acquisition or inception of ground leasehold interest
related to 7 Golf Courses acquired by Arnold Palmer Golf Management LLC during
1997 as if the transactions had occurred on January 1, 1997 and were carried
forward to December 30, 1997. These 7 Golf Courses are a part of the 10 Golf
Courses sold to Presidio Golf Limited Partnership in connection with the
Disposition.
F-71
<PAGE> 215
SELECTED FINANCIAL DATA FOR ARNOLD PALMER GOLF MANAGEMENT LLC
The following table sets forth selected historical and pro forma financial
information of Arnold Palmer Golf Management LLC. The historical and unaudited
pro forma financial information set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" for Arnold Palmer Golf Management LLC and the historical financial
statements of Arnold Palmer Golf Management LLC and the notes thereto contained
elsewhere in this Prospectus.
Effective December 6, 1996, Pacific Golf, Inc. contributed certain assets
and liabilities to Arnold Palmer Golf Management LLC in exchange for a
non-controlling ownership interest therein. The purchase method of accounting
was used to record the assets and liabilities contributed by Pacific Golf, Inc.
to Arnold Palmer Golf Management LLC. As a result of the change in control that
occurred on December 6, 1996, the fiscal 1996 results of operations of Arnold
Palmer Golf Management LLC for the 26 day period subsequent to December 6, 1996
and the results of operations of Pacific Golf, Inc. for the 337 day period prior
to December 6, 1996 could not be combined.
<TABLE>
<CAPTION>
ARNOLD PALMER GOLF MANAGEMENT LLC
------------------------------------------------------------------------------------------
FISCAL 1996
------------
FISCAL 1997
HISTORICAL ------------
PRO FORMA FOR THE
FOR THE THREE THREE MONTHS HISTORICAL
MONTHS ENDED ENDED(1) PRO FORMA FOR THE HISTORICAL 26 DAY
MARCH 31, -------------------- FISCAL YEAR ENDED YEAR ENDED PERIOD ENDED
1998 MARCH 31, APRIL 1, DECEMBER 30, 1997 DECEMBER 30, DECEMBER 31,
(UNAUDITED)(1)(2) 1998 1997 (UNAUDITED)(2) 1997 1996(1)
----------------- --------- -------- ----------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Operating revenues... $ 6,494 $ 6,494 $ 5,217 $37,856 $29,027 $1,318
Operating expenses
before
depreciation....... 8,291 8,291 5,747 38,121 31,516 1,654
Depreciation......... 849 849 630 4,497 3,843 206
Interest expense..... 216 834 553 2,110 3,098 139
Net income (loss).... (2,599) (3,217) (1,448) (5,758) (8,316) (594)
<CAPTION>
PACIFIC GOLF, INC. HISTORICAL
-------------------------------------------------------
FISCAL 1996
----------- FISCAL
1995
---------- PERIOD FROM
SEPTEMBER 1,
337 DAY 1993 (DATE OF
PERIOD YEAR YEAR ENDED INCEPTION) TO
ENDED ENDED DECEMBER 31, DECEMBER 31,
DECEMBER 5, JANUARY 2, 1994 1993
1996 1996 (UNAUDITED) (UNAUDITED)
----------- ---------- ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
OPERATING DATA:
Operating revenues... $17,965 $13,864 $7,924 $903
Operating expenses
before
depreciation....... 17,481 13,032 6,894 946
Depreciation......... 1,188 832 212 34
Interest expense..... 986 512 55 11
Net income (loss).... (1,298) (282) 387 (65)
</TABLE>
<TABLE>
<CAPTION>
ARNOLD PALMER GOLF MANAGEMENT LLC
-----------------------------------------------------------------------
MARCH 31, 1998 MARCH 31,
PRO FORMA 1998 HISTORICAL DECEMBER 30, DECEMBER 31,
(UNAUDITED)(1)(2) (UNAUDITED)(1) 1997 HISTORICAL 1996 HISTORICAL
----------------- --------------- --------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Golf Courses and
leasehold interests,
net.................... $70,655 $70,655 $65,077 $31,627
Mortgages and leasehold
obligations............ 70,778 57,102 49,149 23,137
Total equity............. 19,992 19,992 19,533 18,871
<CAPTION>
PACIFIC GOLF, INC. HISTORICAL
------------------------------------------------
JANUARY 2, DECEMBER 31, DECEMBER 31,
1996 1994 (UNAUDITED) 1993 (UNAUDITED)
---------- ---------------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Golf Courses and
leasehold interests,
net.................... $8,259 $3,374 $1,028
Mortgages and leasehold
obligations............ 8,812 675 507
Total equity............. 4,404(3) 2,707(3) 2,320(3)
</TABLE>
- -------------------------
(1) The golf industry is seasonal in nature based on weather conditions. A
majority of the Arnold Palmer Golf Management LLC Golf Courses are closed
for all of or a part of the first and fourth quarters of the year. The
courses which are not closed, however, experience reduced play during the
first and fourth quarters of the year. Therefore, the operating results for
the first and fourth quarters of the year are not representative of the
operations for the year.
(2) The unaudited pro forma operating information for Arnold Palmer Golf
Management LLC is presented as if the Disposition had occurred on January 1,
1997 and were carried forward to March 31, 1998.
(3) Includes preferred stock redeemable at the option of the holders of said
stock.
F-72
<PAGE> 216
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR ARNOLD PALMER GOLF MANAGEMENT LLC
Historical Three Month Period Ended March 31, 1998 Versus Historical Three Month
Period Ended
April 1, 1997
Operating revenues increased 24% to $6,494,000 for the three month period
ended March 31, 1998, as compared to $5,217,000 for the corresponding period in
1997. The increase is primarily the result of the inception of the ground
leasehold interests at Memphis National Golf Club and Penderbrook Golf Club on
June 18, 1997 and November 1, 1997, respectively, and the acquisitions of Fox
Valley Club, Emerald Valley Golf Club, Tan Tara Golf Club and Minebrook Golf
Club on November 5, 1997 (collectively the "1997 Acquisitions").
Operating expenses, excluding general and administrative and corporate
overhead costs included in payroll and benefits, advertising and promotion,
increased 45% to $7,803,000 for the three month period ended March 31, 1998, as
compared to $5,391,000 for the corresponding period in 1997. The increase is
primarily the result of the 1997 Acquisitions.
General and administrative and corporate overhead costs included in payroll
and benefits, advertising and promotion and other, increased 42% to $1,103,000
for the three month period ended March 31, 1998, as compared to $777,000 for the
corresponding period in 1997. The increase is primarily the result of
nonrecurring charges related to the planned REIT formation.
Depreciation and amortization increased 35% to $849,000 for the three month
period ended March 31, 1998, as compared to $630,000 for the corresponding
period in 1997. The increase is primarily the result of the 1997 Acquisitions.
Interest expense increased 51% to $834,000 for the three month period ended
March 31, 1998, as compared to $553,000 for the corresponding period in 1997.
The increase is primarily the result of borrowings related to the 1997
Acquisitions.
The increase in the net loss to $3,217,000 for the three month period ended
March 31, 1998, as compared to a net loss of $1,448,000 for the comparative
period in 1997 is due mainly to additional depreciation and interest expense
related to the 1997 Acquisitions, nonrecurring charges related to the REIT
formation, and operating losses at Memphis National Golf Club and Penderbrook
Golf Club as these courses were being renovated during 1998.
The golf industry is seasonal in nature based on weather conditions. A
majority of the Arnold Palmer Golf Management LLC Golf Courses are closed for
all of or a part of the first quarter of the year. The courses that are not
closed, however, experience reduced play during the first quarter of the year.
Therefore, the operating results for the first quarter are not representative of
the operations for the year.
Historical Fiscal Period Ended December 30, 1997 Versus Historical 26 Day Period
Ended December 31, 1996
Operating revenues and operating expenses variances are a result of the 26
days of operations versus an entire year of operations and the change in basis
of the properties as a result of the change of control which occurred on
December 6, 1996.
Historical Fiscal Period Ended December 30, 1997 Versus Historical 337 Day
Period Ended December 5, 1996
Operating revenues increased 62% to $29,027,000 for the fiscal period ended
December 30, 1997, as compared to $17,965,000 for the 337 day period ended
December 5, 1996. The increase is primarily the result of the inception of the
ground leasehold interest at Crofton Country Club, and the 1997 Acquisitions.
The revenues from Crofton Country Club, Memphis National Golf Club and
Penderbrook Golf Club in 1997 were significantly below normal levels due to
extensive renovation work at these courses.
F-73
<PAGE> 217
Operating expenses, excluding general and administrative and corporate
overhead costs included in payroll and benefits, advertising and promotion and
other, increased 62% to $30,191,000 for the fiscal period ended December 30,
1997, as compared to $18,669,000 for the 337 day period ended December 5, 1996.
The increase is primarily the result of the inception of the ground leasehold
interest at Crofton Country Club on October 11, 1996, the acquisition of
Oronoque Country Club on December 1, 1996, and the 1997 Acquisitions.
General and administrative and corporate overhead costs included in payroll
and benefits, advertising and promotion and other, increased to $5,168,000 for
the fiscal period ended December 30, 1997, as compared to $1,400,000 for the 337
day period ended December 5, 1996. The increase is primarily the result of
approximately 30 more days of operations during the fiscal period ended December
30, 1997, approximately $990,000 related to nonrecurring charges related to the
planned REIT formation, approximately $867,000 of start-up costs related to an
affinity program and approximately $964,000 related to additional payroll and
overhead to support future growth plans.
Depreciation and amortization increased $2,655,000 to $3,843,000 for the
fiscal period ended December 30, 1997, as compared to $1,188,000 for the 337 day
period ended December 5, 1996. The increase is primarily the result of leasehold
improvements at Crofton Country Club, the 1997 Acquisition, and additional
depreciation related to the increase in the book basis of the assets, in
accordance with purchase accounting, contributed by Pacific Golf, Inc. to Arnold
Palmer Golf Management LLC on December 6, 1996.
Interest expense increased $2,103,000 to $3,098,000 for the fiscal period
ended December 30, 1997, as compared to $986,000 for the 337 day period ended
December 5, 1996. The increase is primarily the result of borrowings related to
leasehold improvements made to Crofton Country Club, the acquisition of Oronoque
Country Club on December 1, 1996, and the 1997 Acquisition.
The increase in the net loss to $8,316,000 for the fiscal period ended
December 30, 1997, as compared to a net loss of $1,298,000 for the 337 day
period ended December 5, 1996 is due mainly to additional depreciation of
$2,655,000 and additional interest expense of approximately $2,103,000 related
to acquisitions discussed above, approximately $2,445,000 of nonrecurring
charges related to the REIT formation, start up costs related to an affinity
program and payroll and overhead to support future growth plans and operating
losses at Crofton Country Club, Memphis National Golf Club and Penderbrook Golf
Club as these courses were being renovated during 1997.
Historical 337 Day Period Ended December 5, 1996 Versus Fiscal Period Ended
January 2, 1996
Operating revenues increased 30% to $17,965,000 for the 337 day period
ended December 5, 1996, as compared to $13,864,000 for the fiscal period ended
January 2, 1996. The increase is primarily due to the acquisition of Brierwood
Country Club on July 1, 1995 and the inception of management of the Presidio
Golf Course on September 1, 1995.
Operating expenses increased 35% to $18,669,000 for the 337 day period
ended December 5, 1996, as compared to $13,864,000 for the fiscal period ended
January 2, 1996. The increase is primarily due to the acquisition of Brierwood
Country Club on July 1, 1995 and the inception of management of the Presidio
Golf Course on September 1, 1995.
Depreciation and amortization increased 43% to $1,188,000 for the 337 day
period ended December 5, 1996, as compared to $832,000 for the fiscal period
ended January 2, 1996. The increase is primarily due to the acquisition of
Brierwood Country Club on July 1, 1995.
Interest expense increase 93% to $986,000 for the 337 day period ended
December 5, 1996, as compared to $512,000 for the fiscal period ended January 2,
1996. The increase is due primarily to borrowings related to the acquisition of
Brierwood Country Club on July 1, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Arnold Palmer Golf Management LLC anticipates that the proceeds from the
Disposition, together with its cash from operations, and borrowing capabilities
will provide adequate liquidity to acquire additional Golf
F-74
<PAGE> 218
Courses, conduct its operations, fund administrative and operating costs,
interest payments and distributions to its members.
The transition to the year 2000 may have an adverse impact on the
processing of date-sensitive information by certain computerized information
systems due to the fact that many computer programs were written using two
digits, rather than four, to define the applicable year. Based on the Arnold
Palmer Golf Management LLC's assessment of the use of financial information and
operations systems, Arnold Palmer Golf Management LLC believes that the cost of
addressing year 2000 issues will not have a material adverse effect on the
Arnold Palmer Golf Management LLC's financial position, results of operations,
cash flows, liquidity or capital resources in future periods.
SEASONALITY
The golf industry is seasonal in nature based on weather conditions and
fewer available tee times in the rainy season and the winter months. Arnold
Palmer Golf Management LLC may vary green fees based on changes in demand at
each of its daily fee golf courses.
F-75
<PAGE> 219
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Members of
Arnold Palmer Golf Management LLC:
We have audited the accompanying consolidated balance sheets of Arnold
Palmer Golf Management LLC (a Delaware limited liability company) and
subsidiaries as of December 30, 1997, and December 31, 1996, and the related
consolidated statements of operations, members' equity, and cash flows for the
fiscal period ended December 30, 1997, and the 26-day period from inception
(December 6, 1996) through December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
30, 1997, and December 31, 1996, and the results of their operations and their
cash flows for the fiscal period ended December 30, 1997, and the 26-day period
from inception (December 6, 1996) through December 31, 1996, in conformity with
generally accepted accounting principles.
As explained in Note 2 to the financial statements, the Company has given
retroactive effect to the change in accounting for initiation fee revenues.
ARTHUR ANDERSEN LLP
Orlando, Florida,
July 6, 1998
F-76
<PAGE> 220
ARNOLD PALMER GOLF MANAGEMENT LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS -- MARCH 31, 1998 (UNAUDITED),
DECEMBER 30, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 31,
MARCH 31, 1998 1997 1996
-------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................... $ 6,335,933 $ 3,345,127 $ 5,672,275
Restricted cash.................................... 634,000 70,000 320,000
Accounts receivable, net of allowance for doubtful
accounts of $288,016, $236,254 and $12,500, as
of March 31, 1998, December 30, 1997 and
December 31, 1996, respectively................. 2,507,955 1,722,425 610,183
Inventory.......................................... 1,500,741 1,269,957 590,441
Prepaid expenses................................... 429,610 243,484 362,490
Due from related party............................. 1,144,378 399,781 --
Other.............................................. 219,067 162,311 154,532
------------ ------------ ------------
Total current assets.......................... 12,771,684 7,213,085 7,709,921
NOTES RECEIVABLE..................................... 86,838 97,338 123,232
GOLF AND COUNTRY CLUB FACILITIES, net
(Note 3)........................................... 56,432,289 50,744,644 17,248,250
LEASEHOLD INTERESTS IN REAL PROPERTY, net of
accumulated amortization of $1,991,198, $1,802,719
and $763,094, as of March 31, 1998, December 30,
1997 and December 31, 1996, respectively........... 8,519,554 8,629,339 8,653,963
LEASEHOLD DEPOSITS................................... 5,702,877 5,702,877 5,724,292
INTANGIBLE ASSETS, net (Note 4)...................... 3,590,625 3,385,318 3,978,953
OTHER ASSETS, net (Note 5)........................... 2,730,081 1,558,176 2,215,046
------------ ------------ ------------
Total assets.................................. $ 89,833,948 $ 77,330,777 $ 45,653,657
============ ============ ============
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities........... $ 6,908,588 $ 6,376,040 $ 2,968,345
Current portion of long-term debt (Note 6)......... 7,539,018 3,089,374 905,638
Deferred membership dues........................... 2,158,525 7,355 71,825
Other.............................................. 1,642,295 470,486 305,310
------------ ------------ ------------
Total current liabilities..................... 18,248,426 9,943,255 4,251,118
DEFERRED INITIATION FEES (Note 2).................... 2,030,500 1,795,000 300,000
LONG-TERM DEBT (Note 6).............................. 49,562,894 46,059,711 22,231,600
------------ ------------ ------------
Total liabilities............................. 69,841,820 57,797,966 26,782,718
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 8
and 9)
MEMBERS' EQUITY:
Note receivable from Member (Note 10).............. (11,694,011) (11,694,011) (11,694,011)
Members' capital (Note 10)......................... 31,686,139 31,226,822 30,564,950
------------ ------------ ------------
Total members' equity......................... 19,992,128 19,532,811 18,870,939
------------ ------------ ------------
Total liabilities and members' equity......... $ 89,833,948 $ 77,330,777 $ 45,653,657
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-77
<PAGE> 221
ARNOLD PALMER GOLF MANAGEMENT LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1998 (UNAUDITED) AND APRIL 1, 1997
(UNAUDITED), THE FISCAL PERIOD ENDED DECEMBER 30, 1997 AND THE 26-DAY PERIOD
FROM INCEPTION (DECEMBER 6, 1996) THROUGH DECEMBER 31, 1996
<TABLE>
<CAPTION>
FOR THE THREE FOR THE THREE
MONTH MONTH 26-DAY
PERIOD PERIOD FISCAL PERIOD PERIOD
ENDED ENDED ENDED ENDED
MARCH 31, APRIL 1 DECEMBER 30, DECEMBER 31,
1998 1997 1997 1996
------------- ------------- ------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Green fees, practice facility fees, dues
and initiation fees.................... 4,012,305 3,179,809 $16,158,974 $ 658,380
Food and beverage and pro-shop sales...... 1,173,230 1,172,648 7,772,826 429,511
Golf cart rentals......................... 525,818 492,753 3,221,682 94,290
Management fees, license fees and
royalties.............................. 180,703 203,788 837,672 49,860
Other..................................... 602,255 168,087 1,035,752 85,485
----------- ----------- ----------- ----------
Total operating revenues............. 6,494,311 5,217,085 29,026,906 1,317,526
----------- ----------- ----------- ----------
OPERATING EXPENSES:
Payroll and benefits...................... 3,497,069 2,316,758 12,238,898 669,675
Rents..................................... 1,315,912 982,777 4,626,350 248,074
Depreciation and amortization............. 849,245 629,610 3,842,575 205,683
General and administrative................ 614,537 421,361 2,722,616 198,799
Cost of food and beverage and merchandise
sold................................... 690,777 596,965 3,769,631 179,793
Utilities................................. 334,824 260,733 1,529,724 87,477
Supplies, repairs and maintenance......... 524,317 371,465 2,417,079 75,276
Advertising and promotion................. 149,933 100,832 1,118,565 48,194
Property and other taxes.................. 198,900 131,599 569,163 37,571
Insurance................................. 118,428 57,795 283,940 20,963
Other..................................... 846,263 507,006 2,240,431 88,745
----------- ----------- ----------- ----------
Total operating expenses............. 9,140,205 6,376,901 35,358,972 1,860,250
----------- ----------- ----------- ----------
Operating loss....................... (2,645,894) (1,159,816) (6,332,066) (542,724)
----------- ----------- ----------- ----------
INTEREST INCOME (EXPENSE):
Interest income........................... 262,909 265,145 1,114,380 87,931
Interest expense.......................... (833,698) (553,440) (3,097,847) (139,171)
----------- ----------- ----------- ----------
Total interest expense, net.......... (570,789) (288,295) (1,983,467) (51,240)
----------- ----------- ----------- ----------
NET LOSS.................................... $(3,216,683) $(1,448,111) $(8,315,533) $ (593,964)
=========== =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-78
<PAGE> 222
ARNOLD PALMER GOLF MANAGEMENT LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1998 (UNAUDITED)
THE FISCAL PERIOD ENDED DECEMBER 30, 1997,
AND THE 26-DAY PERIOD FROM INCEPTION (DECEMBER 6, 1996)
THROUGH DECEMBER 31, 1996
(NOTE 10)
<TABLE>
<CAPTION>
NOTE
RECEIVABLE CLASS A CLASS A1 CLASS A2 TOTAL TOTAL
FROM ---------------------- ----------- -------------------- MEMBERS' MEMBERS'
MEMBER INTERESTS AMOUNT AMOUNT INTERESTS AMOUNT CAPITAL EQUITY
------------ --------- ----------- ----------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE
December 5, 1996....... $ -- -- $ -- $ -- -- $ -- $ -- $ --
Capital
contributions...... (11,694,011) 147,202 18,497,671 11,694,011 7,616 967,232 31,158,914 19,464,903
Net loss............. -- -- (564,875) -- (29,089) (593,964) (593,964)
------------ ------- ----------- ----------- --------- --------- ----------- -----------
BALANCE
December 31, 1996...... (11,694,011) 147,202 17,932,796 11,694,011 7,616 938,143 30,564,950 18,870,939
Capital
contributions...... -- 79,534 9,910,000 -- -- -- 9,910,000 9,910,000
Distributions........ -- -- -- (932,595) -- -- (932,595) (932,595)
Net Loss............. -- -- (8,046,941) -- -- (268,592) (8,315,533) (8,315,533)
------------ ------- ----------- ----------- --------- --------- ----------- -----------
BALANCE
December 30, 1997...... (11,694,011) 226,736 19,795,855 10,761,416 7,616 669,551 31,226,822 19,532,811
Capital contributions
(Unaudited)........ -- 31,388 3,911,000 -- -- -- 3,911,000 3,911,000
Distributions
(Unaudited)........ -- -- -- (235,000) -- -- (235,000) (235,000)
Net loss
(Unaudited)........ -- -- (3,112,784) -- -- (103,899) (3,216,683) (3,216,683)
BALANCE
March 31, 1998
(Unaudited).......... $(11,694,011) 258,124 $20,594,071 $10,526,416 7,616 $ 565,652 $31,686,139 $19,992,128
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-79
<PAGE> 223
ARNOLD PALMER GOLF MANAGEMENT LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1998 (UNAUDITED)
AND APRIL 1, 1997 (UNAUDITED), THE FISCAL PERIOD ENDED DECEMBER 30, 1997
AND THE 26-DAY PERIOD FROM INCEPTION (DECEMBER 6, 1996)
THROUGH DECEMBER 31, 1996
<TABLE>
<CAPTION>
FOR THE THREE FOR THE THREE
MONTH MONTH
PERIOD PERIOD FISCAL PERIOD 26-DAY
ENDED ENDED ENDED PERIOD ENDED
MARCH 31, APRIL 1, DECEMBER 30, DECEMBER 31,
1998 1997 1997 1996
------------- ------------- ------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss............................................. $ (3,216,683) $(1,448,111) $ (8,315,533) $ (593,964)
Adjustments to reconcile net loss to net cash used in
operating activities-
Depreciation and amortization...................... 849,245 629,610 3,842,575 205,683
Loss from sale of furniture, fixtures and
equipment........................................ -- -- 34,777 --
Loss from write-off of other assets................ -- -- 222,333 --
(Increase) decrease in restricted cash............. (564,000) -- 250,000 (320,000)
Increase in accounts receivable, net............... (785,530) (1,042,490) (1,112,242) (59,598)
(Increase) decrease in inventory................... (230,784) (38,114) (679,516) 8,839
(Increase) decrease in prepaid expenses............ (186,126) (172,043) 119,006 (57,781)
Increase in due from related party................. (744,597) (237,542) (399,781) --
(Increase) decrease in other current assets........ (56,756) 73,014 (7,779) 68,510
Decrease (increase) in notes receivable............ 10,500 63,404 25,894 (7,733)
Decrease (increase) in leasehold deposits.......... -- -- 21,415 (11,417)
Increase (decrease) in accounts payable and accrued
liabilities...................................... 532,548 6,956 3,407,695 (87,120)
Increase (decrease) in deferred membership dues.... 2,151,170 910,743 (64,470) --
Increase in other current liabilities.............. 936,809 540,476 165,176 20,337
Increase in initiation fees........................ 235,500 98,764 1,495,000 15,000
------------ ----------- ------------ -----------
Net cash used in operating activities............ (1,068,704) (615,333) (995,450) (819,244)
------------ ----------- ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for golf course acquisitions............... (2,955,992) -- (24,811,403) --
Cash paid for golf and country club facilities....... (3,241,844) (1,689,489) (10,304,762) (378,534)
Cash paid for leasehold interests in real property... (78,694) -- (1,015,001) --
Cash paid for intangible assets...................... (259,018) -- -- --
Cash paid for other assets........................... (246,227) -- (189,784) --
------------ ----------- ------------ -----------
Net cash used in investing activities............ (6,781,775) (1,689,489) (36,320,950) (378,534)
============ =========== ============ ===========
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt (less debt issuance
costs of $1,022,542 for the three month period
ended March 31, 1998).............................. 18,713,570 28,253 26,529,758 2,000,000
Principal payments on long-term debt................. (11,783,285) (248,261) (517,911) (637,783)
Capital contributions................................ 3,911,000 -- 9,910,000 5,507,836
Distributions........................................ -- -- (932,595) --
------------ ----------- ------------ -----------
Net cash provided by (used in) financing
activities..................................... 10,841,285 (220,008) 34,989,252 6,870,053
------------ ----------- ------------ -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS... 2,990,806 (2,524,830) (2,327,148) 5,672,275
CASH AND CASH EQUIVALENTS, beginning of period......... 3,345,127 5,672,275 5,672,275 --
------------ ----------- ------------ -----------
CASH AND CASH EQUIVALENTS, end of period............... $ 6,335,933 $ 3,147,445 $ 3,345,127 $ 5,672,275
============ =========== ============ ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest............................... $ 786,556 $ 491,323 $ 2,706,624 $ 21,407
Initial capital contribution of assets............... $ -- $ -- $ -- $13,957,067
Note receivable from Member.......................... $ -- $ -- $ -- $11,694,011
Accrued distribution to Member....................... $ 235,000 $ -- $ -- $ --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-80
<PAGE> 224
ARNOLD PALMER GOLF MANAGEMENT LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED AS TO INTERIM PERIODS)
MARCH 31, 1998 (UNAUDITED), DECEMBER 30, 1997 AND DECEMBER 31, 1996
1. ORGANIZATION AND DESCRIPTION OF BUSINESS, ACQUISITIONS, BASIS OF PRESENTATION
AND UNAUDITED INTERIM STATEMENTS:
ORGANIZATION AND DESCRIPTION OF BUSINESS
Arnold Palmer Golf Management LLC (a Delaware limited liability company)
(the Company or APGM) was organized effective December 6, 1996, primarily to
own, operate, lease and manage golf courses and golf facilities. The Company
currently owns, operates, leases or manages 24 courses, 23 of which are located
in the United States, and one of which is located in the United Kingdom.
Oly Palmer L.P. (a Texas limited partnership) (Olympus), Pacific Golf LLC
(a Delaware limited liability company) (Pacific), Arnold Palmer Enterprises Inc.
(an Ohio corporation) (Palmer), CoreStates Holdings Inc., (a Delaware
corporation) (CoreStates), ADP Management LLC (Palmer Management), Peter J.
Nanula (Nanula) and Oly Lender Palmer, L.P. (Oly Lender) are the members of the
Company (collectively, the Members, or individually, a Member).
ACQUISITIONS
During 1997, the Company acquired several courses and organized APGM
Limited Partnership. APGM Limited Partnership consists of four golf courses that
were acquired on November 5, 1997. APGM Limited Partnership consists of: Fox
Valley Country Club, a private facility located in Lancaster, New York; Emerald
Valley Golf Club, a public facility located in Creswell, Oregon; Tan Tara
Country Club, a private facility located in Pendleton, New York; and Minebrook
Golf club, a public facility located in Hackettstown, New Jersey. In January
1998, Brierwood Country Club and Oronoque Golf, LLC, wholly owned subsidiaries
of the Company, were contributed to APGM Limited Partnership. Brierwood Country
Club and Oronoque Golf, LLC are both private courses located in Hamburg, New
York and Stratford, Connecticut, respectively.
Additionally during 1997, the Company entered into agreements to lease
Penderbrook Golf Club and Memphis National Golf Club, both semi-private, 18-hole
golf courses. Penderbrook Golf Club and Memphis National Golf Club are located
in Fairfax, Virginia, and Collierville, Tennessee, respectively. The Penderbrook
Golf Club lease is dated November 5, 1997, and expires December 31, 2023. The
Memphis National Golf Club lease is dated June 18, 1997, and expires June 17,
2042.
During March of 1998, the Company acquired Tower Ridge Country Club, a
private facility located in Simsbury, Connecticut.
BASIS OF PRESENTATION
The accompanying financial statements are presented on a consolidated basis
since all courses are under the common control of the Company. The financial
statements include the accounts of the Company and its 99 percent-owned
subsidiaries, Crofton Golf, LLC; Oronoque Golf, LLC; PGC Concession LLC;
Victoria Golf LLC; Whittier Golf LLC; Arnold Palmer Golf Management
International, LLC; Palmer Management LLC; and APGM Limited Partnership
(collectively referred to herein as the Subsidiaries). The remaining 1 percent
of these subsidiaries is owned by Oly Palmer Holder Inc. (a Texas corporation),
a wholly-owned subsidiary of the Company.
UNAUDITED INTERIM STATEMENTS
The combined financial statements as of March 31, 1998, and for the three
month periods ended March 31, 1998, and April 1, 1997, are unaudited; however,
in the opinion of management, all adjustments (consisting solely of normal
recurring adjustments) necessary for a fair presentation of the consolidated
F-81
<PAGE> 225
ARNOLD PALMER GOLF MANAGEMENT LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED AS TO INTERIM PERIODS) -- (CONTINUED)
MARCH 31, 1998 (UNAUDITED), DECEMBER 30, 1997 AND DECEMBER 31, 1996
1. ORGANIZATION AND DESCRIPTION OF BUSINESS, ACQUISITIONS, BASIS OF PRESENTATION
AND UNAUDITED INTERIM STATEMENTS: -- (CONTINUED)
financial statements for these interim periods have been included. The results
for the interim periods are not necessarily indicative of the results for the
full years.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Change in Accounting Method
Since inception, the Company has recognized revenue from initial membership
fees at the time of sale, while recognizing revenue from annual dues ratably
over the year of provided service. The Company has changed it's method of
recognizing initiation fee revenue upon collection to recognizing initiation fee
revenue over the life of the membership for purposes of complying with the
Securities and Exchange Commission's reporting requirements. Under the new
accounting method, revenue from initial membership fees is deferred and
recognized on a straight-line basis over the expected life of the memberships
sold. This new accounting method differs from the revenue recognition method
historically used by the Company. Accordingly, to show comparable results for
the periods presented, this change has been retroactively applied to all periods
presented in the accompanying consolidated financial statements. The deferral of
historical sales revenues resulting from this change in accounting method had no
impact on the Company's liquidity or cash flows.
Fiscal Year-end
The Company's fiscal year-end is based on a 52/53-week period ending on the
Tuesday closest to December 31.
Revenue Recognition
Revenue from green fees and practice facility fees, food and beverage
sales, pro-shop sales and golf-cart rentals are recognized at the time of sale.
Revenue from dues, management fees, license fees and royalties are recognized
during the period in which the revenues apply. Initiation fees are recognized
over the expected life of membership.
Other Revenues
Other revenues consist primarily of leasing income (see Note 8), locker
room rentals and reservation fees.
Rents
Rents related to the leased courses are recorded on a systematic basis over
the periods in which the Company receives the benefit.
Other Expenses
Other expenses consist primarily of consulting fees, credit card fees,
contract labor and bad debt expense.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with original
maturity of three months or less to be cash equivalents.
F-82
<PAGE> 226
ARNOLD PALMER GOLF MANAGEMENT LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED AS TO INTERIM PERIODS) -- (CONTINUED)
MARCH 31, 1998 (UNAUDITED), DECEMBER 30, 1997 AND DECEMBER 31, 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
INVENTORY
Inventory is valued at the lower of average cost, which approximates
first-in, first-out basis and consists primarily of food and beverage and golf
equipment and clothing.
GOLF AND COUNTRY CLUB FACILITIES
Depreciation and amortization is provided on a straight-line basis over the
lesser of the lease term, or the estimated useful lives of the related assets as
follows:
<TABLE>
<CAPTION>
YEARS
-------
<S> <C>
Golf and country club improvements.......................... 30 - 40
Furniture, fixtures and equipment........................... 5 - 10
</TABLE>
Depreciation and amortization expense of $510,191, $317,844, $1,584,994 and
$105,224 was recognized during the three month periods ended March 31, 1998 and
April 1, 1997, the fiscal period ended December 30, 1997 and the 26-day period
from inception to December 31, 1996, respectively.
LEASEHOLD INTEREST IN REAL PROPERTY, INTANGIBLE ASSETS AND OTHER ASSETS
Amortization for leasehold interests in real property, intangible assets
and other assets is provided on a straight-line basis over the lesser of the
lease or loan term, or the following years:
<TABLE>
<CAPTION>
YEARS
-------
<S> <C>
Leasehold interest in real property......................... 10 - 45
Intangible assets........................................... 5 - 30
Other assets................................................ 5 - 30
</TABLE>
Amortization expense of $339,054, $311,766, $2,257,581 and $100,459 was
recognized during the three month periods ended March 31, 1998 and April 1,
1997, the fiscal period ended December 30, 1997 and the 26-day period from
inception to December 31, 1996, respectively.
LEASEHOLD DEPOSITS
Included in leasehold deposits as of March 31, 1998, December 30, 1997 and
December 31, 1997 is $5,600,000 related to Crofton Golf, LLC's golf course
lease.
EXCESS OF PURCHASE PRICE OVER VALUE OF GOLF AND COUNTRY CLUB FACILITIES
Excess of purchase price over value of golf and country club facilities is
being amortized on a straight-line basis over forty years. The Company
continually evaluates whether events and circumstances have occurred that would
indicate the remaining balance may not be recoverable. The Company believes
there has been no impairment of excess of purchase price over value of golf and
country club facilities as of March 31, 1998, December 30, 1997 and December 31,
1996.
ALLOCATION OF NET INCOME (LOSS) AND DISTRIBUTIONS OF CASH FLOW
Net income or loss shall be allocated among the Members in accordance with
the amended and restated operating agreement of the Company. Available cash, as
defined, is to be allocated to the Members quarterly,
F-83
<PAGE> 227
ARNOLD PALMER GOLF MANAGEMENT LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED AS TO INTERIM PERIODS) -- (CONTINUED)
MARCH 31, 1998 (UNAUDITED), DECEMBER 30, 1997 AND DECEMBER 31, 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
as directed by the Company's Board of Directors, provided that such
distributions do not exceed any reserves that the Board of Directors determines
are appropriate to be retained for ordinary obligations of the Company.
Distributions of available cash of the Company are to be made in accordance with
the provisions of the amended and restated operating agreement. For the fiscal
period ended December 30, 1997, $932,595 was distributed to Pacific based on the
operating agreement of the Company (see Note 10).
INCOME TAXES
No provision for income taxes has been recorded in the financial statements
as the Members are required to report their share of the Company's earnings or
losses in their respective income tax returns. The Company's tax returns and the
amounts of allocable income or loss are subject to examination by federal and
state taxing authorities. If such examinations result in changes to income or
loss, the tax liability of the Members could be changed accordingly.
Certain transactions of the Company may be subject to accounting methods
for income tax purposes which differ from the accounting methods used in
preparing these financial statements in accordance with generally accepted
accounting principles. Accordingly, the net income or loss of the Company and
the resulting balances in the Members' capital accounts reported for income tax
purposes may differ from the balances reported for those same items in the
accompanying balance sheet. A majority of the differences arise primarily from
the use of shorter useful lives for the amortization of excess of purchase price
over value of golf and country club facilities for income tax reporting purposes
compared to financial reporting purposes.
LONG-LIVED ASSETS
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets To Be Disposed Of" ("SFAS 121"). This statement
requires that long-lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The implementation of SFAS 121 had no impact on the accompanying
consolidated financial statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments", requires the Company to disclose the
estimated fair values of its financial instrument assets and liabilities.
The carrying values of cash and cash equivalents, accounts receivable,
accounts payable and accrued liabilities, approximate fair value due to the
short-term maturities of these assets and liabilities.
The carrying amount of the Company's long-term debt approximates fair
value, since the debt is at floating rates or fixed rates approximating the
current market rates for debt with similar risks and maturities.
USE OF ESTIMATES
The accompanying financial statements were prepared in conformity with
generally accepted accounting principles. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.
F-84
<PAGE> 228
ARNOLD PALMER GOLF MANAGEMENT LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED AS TO INTERIM PERIODS) -- (CONTINUED)
MARCH 31, 1998 (UNAUDITED), DECEMBER 30, 1997 AND DECEMBER 31, 1996
3. GOLF AND COUNTRY CLUB FACILITIES, NET:
Golf and country club facilities consisted of the following at March 31,
1998, December 30, 1997 and December 31, 1996, respectively:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 30, DECEMBER 31,
1998 1997 1996
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Land............................................ $13,477,631 $13,004,534 $ 3,224,429
Golf and country club improvements.............. 31,098,573 27,077,288 9,538,736
Furniture, fixtures and equipment............... 8,680,658 8,092,095 3,418,694
Construction-in-progress........................ 6,284,006 5,169,115 2,221,738
----------- ----------- -----------
59,540,868 53,343,032 18,403,597
Less-Accumulated depreciation and
amortization.................................. (3,108,579) (2,598,388) (1,155,347)
----------- ----------- -----------
$56,432,289 $50,744,644 $17,248,250
=========== =========== ===========
</TABLE>
4. INTANGIBLE ASSETS, NET:
Intangible assets consisted of the following at March 31, 1998, December
30, 1997 and December 31, 1996, respectively:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 30, DECEMBER 31,
1998 1997 1996
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Purchased assembled workforce..................... $ 864,020 $ 864,020 $ 864,020
Excess of purchase price over value of golf and
country club facilities......................... 2,150,462 2,150,462 2,150,462
Purchased management agreements................... 1,711,178 1,452,160 1,452,160
---------- ---------- ----------
4,725,660 4,466,642 4,466,642
Less -- Accumulated amortization.................. (1,135,035) (1,081,324) (487,689)
---------- ---------- ----------
$3,590,625 $3,385,318 $3,978,953
========== ========== ==========
</TABLE>
5. OTHER ASSETS, NET:
Other assets consisted of the following at March 31, 1998, December 30, 1997 and
December 31, 1996, respectively:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 30, DECEMBER 31,
1998 1997 1996
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Deferred loan costs............................... $1,895,408 $ 872,886 $ 830,998
Option and franchise fees......................... 1,268,521 1,268,521 1,251,201
Non-compete agreement............................. 250,000 200,000 200,000
Other............................................. 405,007 208,760 232,353
---------- ---------- ----------
3,818,936 2,550,167 2,514,552
Less -- Accumulated amortization.................. (1,088,855) (991,991) (299,506)
---------- ---------- ----------
$2,730,081 $1,558,176 $2,215,046
========== ========== ==========
</TABLE>
F-85
<PAGE> 229
ARNOLD PALMER GOLF MANAGEMENT LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED AS TO INTERIM PERIODS) -- (CONTINUED)
MARCH 31, 1998 (UNAUDITED), DECEMBER 30, 1997 AND DECEMBER 31, 1996
6. LONG-TERM DEBT:
Long-term debt consisted of the following at March 31, 1998, December 30,
1997 and December 31, 1996, respectively:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 30, DECEMBER 31,
1998 1997 1996
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Term note payable, maximum amount available of
$5,000,000, interest ranging from prime plus
2% to 3.5% based on the current leverage ratio
(effective rate of 12% at December 30, 1997)
monthly interest payments based on outstanding
balance, quarterly principal payments
beginning April 1, 1998, due January 1, 2001,
secured by a first lien deed of trust on the
Palm Springs property and all proceeds and
products of such property..................... $ -- $ 5,000,000 $ 5,000,000
Mortgage loan payable, interest at the
commercial paper rate (as published in the
Wall Street Journal) plus 4.75% (10.32% and
10.39% at March 31, 1998 and December 30,
1997, respectively), monthly principal and
interest payments calculated based on a
10-year amortization at an assumed rate of
10%, due June 1, 2000, collateralized by all
of the assets and all future revenues of
Victoria Golf, LLC and Whittier Golf, LLC..... 1,841,677 1,887,518 1,759,881
Mortgage loan payable, interest at the
commercial paper rate (as published in the
Wall Street Journal) plus 4% (9.57% and 9.64%
at March 31, 1998 and December 30, 1997,
respectively), monthly principal and interest
payments calculated based on a 20-year
amortization of an assumed rate of 10%, due
October 1, 2001, collateralized by all of the
assets and future revenues of Crofton Golf,
LLC........................................... 4,880,283 4,902,655 4,986,777
Mortgage loan payable, interest at prime plus
1.25% (9.75% at December 30, 1997), payable
monthly, annual principal payments of $100,000
due April 1998, with a balloon payment of
$1,600,000 plus interest due January 1, 1999,
collateralized by a first mortgage on the
Brierwood Country Club........................ -- 1,700,000 1,800,000
</TABLE>
F-86
<PAGE> 230
ARNOLD PALMER GOLF MANAGEMENT LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED AS TO INTERIM PERIODS) -- (CONTINUED)
MARCH 31, 1998 (UNAUDITED), DECEMBER 30, 1997 AND DECEMBER 31, 1996
6. LONG-TERM DEBT: -- (CONTINUED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 30, DECEMBER 31,
1998 1997 1996
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Mortgage loan payable, interest at prime plus
0.375% (8.875% at March 31, 1998 and December
30, 1997), payable monthly, monthly principal
payments equal to the monthly depreciation of
the Improvements, as defined, plus the
outstanding principal and all accrued interest
due August 31, 2005, collateralized by all of
the assets of the PGC Concession LLC with the
net book value of the improvements
reimbursable by the National Park Service upon
expiration or termination of the lease........ 2,554,582 2,265,865 1,432,006
Mortgage loan payable, interest at 8.28%,
monthly principal and interest payments are
based on a 25-year amortization, with a
balloon payment of the then outstanding
principal and accrued interest due December 3,
2001, collateralized by assets of Oronoque
Golf, LLC..................................... -- 3,704,746 3,750,000
Mortgage note payable, interest at 9%,
semi-annual interest payments payable in June
and December from December 1997 through June
2000, principal and interest payments from
July 2000 through June 2003 payable in June
and December, calculated based on a 10-year
amortization, with a balloon payment of any
remaining principal and interest due in June
2003, collateralized by a second mortgage on
the Brierwood Country Club.................... -- 1,311,683 1,255,280
Note payable to former stockholder of Victoria
and Whittier courses, payable in 18 monthly
installments of $16,667, beginning on
September 14, 1995, together with interest
accruing at the prime rate plus 1.5% (8.25% at
December 30, 1996), collateralized by common
stock and property of Victoria Golf, LLC and
Whittier Golf, LLC............................ -- -- 228,886
Note payable to a related party, Oly Lender
Palmer, L.P., maximum amount available of
$12,000,000, subject to certain limitations
under the note agreement, through the end of
the commitment period on May 6, 2000, interest
at 12% per annum, payable at the end of each
calendar quarter, due December 6, 2001, at
which time all outstanding principal advances
and any accrued but unpaid interest are
payable, Company may prepay principal, in
whole or in part, at any time without
penalty....................................... 7,589,000 5,000,000 2,000,000
</TABLE>
F-87
<PAGE> 231
ARNOLD PALMER GOLF MANAGEMENT LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED AS TO INTERIM PERIODS) -- (CONTINUED)
MARCH 31, 1998 (UNAUDITED), DECEMBER 30, 1997 AND DECEMBER 31, 1996
6. LONG-TERM DEBT: -- (CONTINUED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 30, DECEMBER 31,
1998 1997 1996
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Note payable with fluctuating interest rates
(8.5% at December 30, 1997), payable in
arrears monthly, balloon payment equal to the
outstanding principal balance due on May 5,
1999, collateralized by all of the assets of
APGM Limited Partnership...................... -- 19,800,000 --
Note payable with variable interest rates (7.6%
at March 31, 1998), payable in arrears
monthly, balloon payment equal to the
outstanding principal balance due on January
15, 2001, collateralized by all of the assets
of APGM Limited Partnership and Palm Springs,
a leased course of the Company................ 24,000,000 -- --
Note payable with variable interest rates (9.6%
at March 31, 1998), payable in arrears
monthly, balloon payment equal to the
outstanding principal balance due on July 15,
2001, collateralized by all of the assets of
APGM Limited Partnership and Palm Springs, a
leased course of the Company.................. 8,000,000 -- --
Mortgage loan payable, interest rate at prime
plus 0.25% (8.75% at March 31, 1998 and
December 30, 1997, respectively), payable
monthly, monthly principal payments equal to
the amount that has been outstanding for 12
months, collateralized by all of the assets of
the Company................................... 6,491,304 1,993,645 --
Capital lease obligations for golf carts, course
equipment and computers, net of unamortized
discount, interest ranging from 5.4% to 15.6%
at March 31, 1998 and December 30, 1997,
respectively, monthly payments, collateralized
by a security interest in the equipment....... 1,745,066 1,582,973 924,408
----------- ----------- -----------
57,101,912 49,149,085 23,137,238
Less-Current portion............................ (7,539,018) (3,089,374) (905,638)
----------- ----------- -----------
$49,562,894 $46,059,711 $22,231,600
=========== =========== ===========
</TABLE>
In January 1998, APGM Limited Partnership entered into a $100 million
acquisition revolving line of credit. APGM Limited Partnership will use this
line of credit to refinance certain existing debt and finance new golf course
acquisitions. The refinanced debt bears a variable interest payable monthly. A
commitment fee of .15 percent is paid on the unused portion of the total credit.
The $24 million and $8 million outstanding balances are due in January and July
2001, respectively, and are collateralized by assets of APGM Limited Partnership
and Palm Springs, a leased golf course of the Company. The agreement contains
covenants which require APGM Limited Partnership to meet maximum leverage ratios
and a minimum net worth ratio.
F-88
<PAGE> 232
ARNOLD PALMER GOLF MANAGEMENT LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED AS TO INTERIM PERIODS) -- (CONTINUED)
MARCH 31, 1998 (UNAUDITED), DECEMBER 30, 1997 AND DECEMBER 31, 1996
6. LONG-TERM DEBT: -- (CONTINUED)
Annual future minimum principal payments of long-term debt at December 30,
1997, taking in consideration the line of credit obtained subsequent to year-end
used to refinance certain existing debt, are as follows:
<TABLE>
<CAPTION>
AMOUNT
FISCAL YEAR -----------
<S> <C>
1998...................................................... $ 3,089,374
1999...................................................... 855,988
2000...................................................... 1,832,926
2001...................................................... 41,488,932
2002...................................................... 96,000
Thereafter................................................ 1,785,865
-----------
$49,149,085
===========
</TABLE>
The Company incurred a net loss of approximately $8,300,000 for the fiscal
period ended December 30, 1997. The net loss resulted primarily from the
addition of corporate overhead to support the Company's future expansion plans,
nonrecurring charges related to the proposed formation of a real estate
investment trust (see Note 11) and nonrecurring marketing costs. The Company
believes that its cash flow from operations will be sufficient to meet its
liquidity requirements.
7. INTEREST RATE PROTECTION AGREEMENT:
On December 2, 1996, the Company entered into an interest rate swap
agreement (the "Swap") with a third-party bank (the "Bank") to reduce the impact
of changes in interest rates on one of its mortgage loans payable (the "Note").
The Swap was effective beginning December 4, 1996, and would terminate on
December 3, 2001. The Swap has an initial notional principal amount of
$3,750,000 and amortizes to an amount of $3,499,741 on November 1, 2001. The
Swap effectively changes the Company's interest rate exposure on the Note to a
fixed rate of 8.28 percent.
Subsequent to year-end, the Note was refinanced (see Note 11) and the
related Swap was terminated. During the first quarter of 1998, the Company
recognized approximately $100,000 of expenses included in general and
administrative expenses related to the termination of the Swap.
8. RELATED PARTY TRANSACTIONS:
Pacific Golf, Inc., a member of Pacific, entered into a license agreement
with Palmer on September 15, 1993, and amended it on May 16, 1996. Prior to
December 6, 1996, Pacific Golf, Inc. contributed its rights granted under the
license agreement to Pacific in return for membership interest in Pacific. On
December 6, 1996, Pacific transferred those same rights to the Company as part
of its initial contribution. The agreement grants rights to trademarks, logos,
artistic works, and various other licensing and marketing marks with the Arnold
Palmer name for use at golf facilities. Under the terms of the amended
agreement, the Company is required to pay to Palmer: (i) a one-time fee for each
course acquired or leased equal to a percentage of the Deal Gross Revenues, as
defined, but not less than $75,000 to $50,000 for each course acquired or
leased, respectively, and (ii) a semi-annual fee for each managed facility equal
to a percentage of the management fee revenues received from each facility. The
amended agreement calls for required minimum payments to be made to Palmer. The
fees paid for acquired and leased courses are used to decrease the balance of
this required payment.
F-89
<PAGE> 233
ARNOLD PALMER GOLF MANAGEMENT LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED AS TO INTERIM PERIODS) -- (CONTINUED)
MARCH 31, 1998 (UNAUDITED), DECEMBER 30, 1997 AND DECEMBER 31, 1996
8. RELATED PARTY TRANSACTIONS: -- (CONTINUED)
In the event acquired and leased course payments during any calendar year
do not exceed the current-year minimum payment the shortfall must be paid to
Palmer within 45 days of the calendar year-end.
The required future minimum payments under the agreement are as follows at
December 30, 1997:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
----------- ----------
<S> <C>
1998...................................................... $ 400,000
1999...................................................... 400,000
2000...................................................... 400,000
2001...................................................... 450,000
2002...................................................... 450,000
Thereafter................................................ 3,600,000
----------
$5,700,000
==========
</TABLE>
Companies owned by an officer of the Company lease the food and beverage
operations from the Company. The due from related party balance represents these
lease payments due to the Company from leasing the food and beverage operations.
Future lease revenues are as follows at December 30, 1997:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
----------- -----------
<S> <C>
1998...................................................... $ 1,300,104
1999...................................................... 1,300,104
2000...................................................... 1,300,104
2001...................................................... 1,300,104
2002...................................................... 1,300,104
Thereafter................................................ 19,284,876
-----------
$25,785,396
===========
</TABLE>
9. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company has golf course operating leases. In addition, the Company has
additional operating leases that provide for office space and equipment as well
as equipment used on and at the golf courses. The required future minimum rent
and operating lease payments are as follows at December 30, 1997:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
----------- -----------
<S> <C>
1998...................................................... $ 3,845,111
1999...................................................... 4,004,199
2000...................................................... 3,906,775
2001...................................................... 3,695,262
2002...................................................... 3,878,280
Thereafter................................................ 69,564,027
-----------
$88,893,654
===========
</TABLE>
F-90
<PAGE> 234
ARNOLD PALMER GOLF MANAGEMENT LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED AS TO INTERIM PERIODS) -- (CONTINUED)
MARCH 31, 1998 (UNAUDITED), DECEMBER 30, 1997 AND DECEMBER 31, 1996
10. MEMBERS' EQUITY:
Members' capital consists of six classes of membership interest: Class A,
Class A1, Class A2, Class A3, Class B, and Class C. At December 30, 1997, the
members and their respective class(es) of membership interest are as follows:
<TABLE>
<S> <C>
Olympus..................................................... Class A
Pacific..................................................... Class A, A1
Palmer...................................................... Class A
CoreStates.................................................. Class A2
Palmer Management........................................... Class A3
Nanula...................................................... Class B
Oly Lender.................................................. Class C
</TABLE>
A Class A interest entitles the member to one vote in respect to all
matters coming before the Members for consideration. Class A1 and Class A2
members are not entitled to any voting rights. Upon Pacific receiving
distributions in Class A interests, Pacific's Class A voting rights, and the
right to receive future Class A distributions of available cash, as defined, and
net income (less) of the Company, vest to the Class A3 member. The Class B and
Class C members are not required to make any capital contributions to the
Company and have no voting rights.
No Member is obligated to make any additional capital contribution to the
Company other than the initial capital contributions made on December 6, 1996.
Olympus may, at its discretion, make additional capital contributions for
acquisitions and related expenses and/or working capital for use at certain
specified courses, for which it will receive additional Class A interests at a
specified price.
At the discretion of the Board of Directors, the Company is permitted to
grant options to purchase Class A interests to certain officers and employees of
the Company, subject to certain limitations. Any such options granted are not
exercisable until a Calculation Date has occurred. For the fiscal period ended
December 30, 1997, and the 26-day period from inception to December 31, 1996,
the Company granted 14,939 and 4,000 options, respectively, for Class A
interests at a specified price. The options vest in four equal annual
installments of 25 percent each year, and become immediately fully vested upon
the occurrence of certain specified events.
Note receivable from Member is a promissory note receivable from Pacific.
This $11,694,011 note receivable bears interests at 8 percent per annum,
requires payments of interest only on December 6 annually and has a maturity
date of the earlier of (i) the date on which (a) all or substantially all of the
Class A and Class C interests held by Olympus are sold, (b) the Company, or its
successor, consummates an initial public offering with at least $25 million in
gross proceeds, or (c) all or substantially all of the Company's assets are sold
(the Calculation Date) or (ii) December 6, 2006. The Class A and Class A1 member
interests owned by Pacific, as well as the Class A3 member interest, including
all distributions with respect to such membership interest, are pledged as
security for the principal and interest due on the note. During the fiscal
period ended December 30, 1997, the Company recorded $932,595 in interest income
and made an equivalent distribution to Pacific, which Pacific then paid to the
Company for the related interest on the note receivable. During the three month
period ended March 31, 1998, the Company recorded $235,000 in interest income
and accrued an equivalent distribution to Pacific for the related interest on
the note receivable.
F-91
<PAGE> 235
ARNOLD PALMER GOLF MANAGEMENT LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED AS TO INTERIM PERIODS) -- (CONTINUED)
MARCH 31, 1998 (UNAUDITED), DECEMBER 30, 1997 AND DECEMBER 31, 1996
11. SUBSEQUENT EVENTS (UNAUDITED):
The Company is in negotiations to contribute its interest in certain golf
facilities to a proposed Real Estate Investment Trust, which intends to file a
form S-11 registration statement with the Securities and Exchange Commission in
connection with a proposed offering of shares to the public. For the fiscal
period ended December 30, 1997, the Company's interest in these golf facilities
had assets of $52,929,187, liabilities of $42,593,723, operating income of
$167,727 and a net loss of $1,258,818.
F-92
<PAGE> 236
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Pacific Golf, Inc.:
We have audited the accompanying consolidated balance sheet of Pacific
Golf, Inc. (a Delaware corporation) and subsidiaries (the "Company") as of
December 5, 1996, and the related consolidated statements of operations,
stockholders' equity and cash flows for the period from January 3, 1996, through
December 5, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above presents fairly,
in all material respects, the financial position of Pacific Golf, Inc. as of
December 5, 1996, and the results of its operations and its cash flows for the
period from January 3, 1996, through December 5, 1996, in conformity with
generally accepted accounting principles.
As explained in Note 2 to the financial statements, the Company has given
retroactive effect to the change in accounting for initiation fee revenues.
ARTHUR ANDERSEN LLP
Dallas, Texas,
February 14, 1997 (except with respect
to the matter discussed in Note 15,
as to which the date is July 6, 1998)
F-93
<PAGE> 237
PACIFIC GOLF, INC.
CONSOLIDATED BALANCE SHEET -- DECEMBER 5, 1996
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 905,604
Accounts receivable, net of allowance for doubtful
accounts of $12,500.................................... 533,768
Inventory................................................. 599,280
Prepaid expenses.......................................... 304,709
Income tax receivable..................................... 32,104
Other..................................................... 223,042
-----------
Total current assets................................... 2,598,507
NOTES RECEIVABLE............................................ 315,499
LEASEHOLD INTERESTS IN REAL PROPERTY, net of accumulated
amortization of $748,464.................................. 1,410,675
INTANGIBLE ASSETS, net...................................... 1,844,493
LEASEHOLD DEPOSITS AND CASH HELD BY TRUSTEE................. 6,314,076
PROPERTY AND EQUIPMENT, net................................. 13,050,821
DEFERRED INCOME TAXES, net.................................. 352,542
OTHER ASSETS, net........................................... 1,971,745
-----------
Total assets........................................... $27,858,358
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities.................. $ 3,551,468
Deferred income taxes..................................... 36,024
Current portion of long-term debt......................... 905,368
-----------
Total current liabilities.............................. 4,492,860
LONG-TERM DEBT.............................................. 20,259,653
-----------
Total liabilities...................................... 24,752,513
Series A Redeemable Preferred Stock, $.01 par value,
1,000,000 shares authorized, issued and outstanding
(liquidation value of $1,079,569)...................... 891,935
Series B Convertible Redeemable Preferred Stock, $.01 par
value, 17,344 authorized, issued and outstanding
($2,159,139 liquidation value)......................... 1,979,418
COMMITMENTS AND CONTINGENCIES (Note 11)
STOCKHOLDERS' EQUITY:
Series C Redeemable Preferred Stock, $.01 par value,
1,543,880 authorized, issued and outstanding
($1,666,726 liquidation value)......................... 1,543,880
Common Stock, $.01 par value; 125,742 shares authorized,
91,930 issued and outstanding.......................... 919
Retained Deficit.......................................... (1,310,307)
-----------
Total stockholders' equity........................... 234,492
-----------
Total liabilities and stockholders' equity........... $27,858,358
===========
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
F-94
<PAGE> 238
PACIFIC GOLF, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JANUARY 3, 1996, THROUGH DECEMBER 5, 1996
<TABLE>
<S> <C>
OPERATING REVENUES:
Green fees, practice facility fees, dues, and initiation
fees................................................... $ 9,825,421
Food and beverage and pro shop sales...................... 4,774,434
Golf cart rentals......................................... 1,935,358
Management fees, license fees, and royalties.............. 695,311
Other..................................................... 734,863
-----------
Total operating revenues............................... 17,965,387
OPERATING EXPENSES:
Payroll and benefits...................................... 6,106,289
Rent...................................................... 3,356,871
Depreciation and amortization............................. 1,188,358
General and administrative................................ 1,399,561
Cost of food, beverage, and merchandise sold.............. 2,164,894
Utilities................................................. 1,032,504
Supplies, repairs, and maintenance........................ 1,504,196
Advertising and promotion................................. 385,198
Property and other taxes.................................. 437,999
Insurance................................................. 180,479
Other..................................................... 912,616
-----------
Total operating expenses............................... 18,668,965
-----------
Operating loss......................................... (703,578)
-----------
OTHER INCOME (EXPENSE):
Interest income........................................... 110,783
Interest expense.......................................... (986,350)
-----------
NET LOSS BEFORE INCOME TAXES................................ (1,579,145)
INCOME TAX BENEFIT.......................................... 281,000
-----------
NET LOSS............................................. $(1,298,145)
===========
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
F-95
<PAGE> 239
PACIFIC GOLF, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 3, 1996, THROUGH DECEMBER 5, 1996
<TABLE>
<S> <C>
OPERATING ACTIVITIES:
Net loss.................................................. $ (1,298,145)
Adjustments to reconcile net loss to net cash provided by
operating activities --
Depreciation and amortization.......................... 1,188,358
Decrease in accounts receivable........................ 23,269
Increase in inventory.................................. (120,090)
Decrease in prepaid expenses........................... 37,123
Decrease in income tax receivable...................... 166,752
Increase in other current assets....................... (223,042)
Decrease in other assets............................... 104,810
Increase in deferred income taxes...................... (265,713)
Increase in accounts payable and accrued liabilities... 510,382
------------
Net cash provided by operating activities............ 123,704
INVESTING ACTIVITIES:
Increase in notes receivable.............................. (216,853)
Increase in intangible assets............................. (201,374)
Increase in leasehold deposits and cash held by trustee... (5,965,202)
Purchases of property and equipment....................... (2,345,213)
Purchases of golf courses less cash acquired.............. (1,523,981)
------------
Net cash used in investing activities................ (10,252,623)
FINANCING ACTIVITIES:
Proceeds from long-term debt.............................. 9,240,833
Principal payments on long-term debt...................... (637,964)
------------
Net cash provided by financing activities............ 8,602,869
------------
NET DECREASE IN CASH AND CASH EQUIVALENTS................... (1,526,050)
CASH AND CASH EQUIVALENTS, beginning of period.............. 2,431,654
------------
CASH AND CASH EQUIVALENTS, end of period.................... $ 905,604
============
CASH PAID FOR INTEREST...................................... $ 973,243
============
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
F-96
<PAGE> 240
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 3, 1996, THROUGH DECEMBER 5, 1996
<TABLE>
<CAPTION>
SERIES C REDEEMABLE
PREFERRED STOCK COMMON STOCK
- ---------------------- ------------------ RETAINED
NUMBER NUMBER EARNINGS/
OF SHARES AMOUNT OF SHARES AMOUNT (DEFICIT) TOTAL
- --------- ---------- --------- ------ ----------- -----------
<S> <C> <C> <C> <C> <C>
1,543,880 $1,543,880 91,930 $919 $ (12,162) $ 1,532,637
-- -- -- -- (1,298,145) (1,298,145)
- --------- ---------- ------ ---- ----------- -----------
1,543,880 $1,543,880 91,930 $919 $(1,310,307) $ 234,492
========= ========== ====== ==== =========== ===========
</TABLE>
The accompanying notes due are an integral part of this consolidated financial
statement.
F-97
<PAGE> 241
PACIFIC GOLF, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 5, 1996
1. ORGANIZATION:
Pacific Golf, Inc. (the "Company") is a venture capital-backed golf
investment firm which, through its wholly owned subsidiaries, Arnold Palmer Golf
Management Company ("Palmer Golf"), APGMC-LA Acquisition Corp., Victoria Golf
Course, Inc. ("Victoria"), Whittier Narrows Golf Course, Inc. ("Whittier"),
APGMC-BCC Acquisition Corp., APGMC-PGC Concession Corp., Crofton Golf, LLC, and
Oronoque Golf, LLC, through December 5, 1996 (see Note 14), owned, leased, or
contracted to manage golf course facilities. Through December 5, 1996, the
Company operates daily fees, municipal, private, and resort courses and derives
its revenue principally from green fees, practice facility fees, membership
fees, golf cart rentals, retail sale of golf merchandise, food and beverage
sales, management fees, license fees, and royalties.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF ACCOUNTING AND USE OF ESTIMATES
The accompanying consolidated financial statements were prepared in
conformity with generally accepted accounting principles. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with original
maturity of three months or less to be cash equivalents.
CASH HELD BY TRUSTEE
The lease agreements for golf courses with certain lessors provide for a
portion of the required monthly payments and in some cases an initial payment
made by the Company to be set aside for various capital improvement projects at
these courses, as defined in the lease agreements. The funds are used at the
request of the Company and the authorization of the lessor.
CONCENTRATION OF CREDIT RISK
At December 5, 1996, there were cash balances with banks in excess of the
FDIC-insured limits by approximately $765,000. The Company has not experienced
any losses in its cash accounts and believes it is not exposed to any
significant credit risk on cash and cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are being depreciated using
the straight-line method over periods of 5 to 30 years.
F-98
<PAGE> 242
PACIFIC GOLF, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 5, 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
INTANGIBLE ASSETS
Intangible assets consist of goodwill and management agreements. These
intangibles are being amortized using the straight-line method over periods up
to 30 years.
LEASEHOLD INTERESTS IN REAL PROPERTY
Leasehold interests in real property is stated at cost and is amortized
over the remaining life of the golf course leases using the straight-line
method.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS No. 121").
This statement requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. The Company adopted SFAS No. 121 effective January 3,
1996, and such adoption had no effect on the financial statements.
INTEREST RATE PROTECTION AGREEMENT
The differential to be paid or received under interest rate protection
agreements is accrued as interest rates change and is recognized over the life
of the agreements (see Note 9).
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<S> <C>
Land........................................................ $ 2,823,011
Land improvements........................................... 5,726,308
Leasehold improvements...................................... 568,222
Furniture, fixtures, and equipment.......................... 2,998,334
Construction-in-progress.................................... 1,956,407
-----------
14,072,282
Less -- Accumulated depreciation............................ (1,021,461)
-----------
$13,050,821
===========
</TABLE>
4. INTANGIBLE ASSETS:
Intangible assets consist of the following:
<TABLE>
<S> <C>
Goodwill.................................................... $1,351,033
Purchased management agreements............................. 955,493
----------
2,306,526
Less -- Accumulated amortization............................ (462,033)
----------
$1,844,493
==========
</TABLE>
F-99
<PAGE> 243
PACIFIC GOLF, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 5, 1996
5. OTHER ASSETS:
Other assets consist of the following:
<TABLE>
<S> <C>
Deferred loan costs......................................... $ 830,998
Option and franchise fees................................... 650,000
Noncompete agreement........................................ 200,000
Acquisition costs........................................... 417,313
Other....................................................... 184,916
----------
2,283,227
Less -- Accumulated amortization............................ (311,482)
----------
$1,971,745
==========
</TABLE>
6. ACQUISITIONS:
During the period ended December 5, 1996, the Company paid approximately
$1,524,000 to purchase the net assets, leasehold interest, or operating
contracts of several golf courses. The combined fair market values of the assets
acquired and liabilities assumed are reflected in the following classifications
on the consolidated balance sheet:
<TABLE>
<S> <C>
Inventory................................................... $ 12,500
Prepaid expenses............................................ 210,744
Property and equipment...................................... 4,725,898
Other assets................................................ 700,293
Accrued expenses and other liabilities...................... (375,454)
Debt........................................................ (3,750,000)
-----------
Net assets acquired......................................... $ 1,523,981
===========
</TABLE>
Operating results of the acquired companies since their acquisition dates
have been included in the consolidated statement of operations. The acquisitions
have been accounted for by the purchase method of accounting.
7. LONG-TERM DEBT:
<TABLE>
<S> <C>
Term note payable, maximum amount available of $5,000,000;
interest ranging from prime (8.25% at December 5, 1996)
plus 2% to prime plus 3.5% based on the current leverage
ratio (effective rate of 11.75% at December 5, 1996);
monthly interest payments based on outstanding balance;
quarterly principal payments beginning April 1, 1998, due
January 1, 2001; secured by a first lien deed of trust on
the Palm Springs, California property and all proceeds and
products of such property................................. $ 5,000,000
Mortgage loan payable, interest at the commercial paper rate
(as published in the Wall Street Journal) (5.96% at
December 5, 1996) plus 4.75%; monthly principal and
interest payments calculated based on a 10-year
amortization at an assumed rate of 10%, due June 1, 2000;
collateralized by all of the assets of the Victoria and
Whittier courses and all future revenues of such golf
courses................................................... 1,759,881
</TABLE>
F-100
<PAGE> 244
PACIFIC GOLF, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 5, 1996
7. LONG-TERM DEBT: -- (CONTINUED)
<TABLE>
<S> <C>
Mortgage loan payable, interest at the commercial paper rate
(as published in the Wall Street Journal) (5.96% at
December 5, 1996) plus 4%; monthly principal and interest
payments calculated based on a 20-year amortization at an
assumed rate of 10%, due October 1, 2001; collateralized
by all of the assets of the Crofton course and all future
revenues of such golf course.............................. 4,986,777
Mortgage loan payable, interest at prime (8.25% at December
5, 1996) plus 1.25% payable monthly; annual principal
payments of $100,000 due in April with a balloon payment
of $1,600,000 plus interest due January 1, 1999;
collateralized by a first mortgage on the Brierwood
Country Club.............................................. 1,800,000
Mortgage loan payable, interest at prime (8.25% at December
5, 1996) plus 0.375% payable monthly; monthly principal
payments equal to the monthly depreciation of the
Improvements, as defined, plus the outstanding principal
and all accrued interest due August 31, 2005;
collateralized by all of the assets of the Presidio course
with the net book value of the Improvements reimbursable
by the National Park Service upon expiration or
termination of the lease.................................. 1,432,006
Mortgage loan payable, interest at 8.28% (See Note 9);
monthly principal and interest payments are based on a
25-year amortization with a balloon payment of the then
outstanding principal and accrued interest due December 3,
2001; collateralized by all of the assets of the Oronoque
course.................................................... 3,750,000
Mortgage note payable, interest at 9%, semiannual interest
payments payable in June and December from December 1997
through June 2000; principal and interest payments from
July 2000 through June 2003 payable in June and December,
calculated based on a 10-year amortization, with a balloon
payment of any remaining principal and interest due in
June 2003; collateralized by a second mortgage on the
Brierwood Country Club.................................... 1,255,280
Note payable to former stockholder of the Victoria and
Whittier courses, payable in 18 monthly installments of
$16,667 beginning on September 14, 1995, together with
interest accruing at the prime rate (8.25% at December 5,
1996) plus 1.5%; collateralized by common stock and
property of the Victoria and Whittier courses............. 228,886
Capital lease obligations for golf carts, course equipment
and computers, net of unamortized discount of $174,404;
interest ranging from 5.4% to 15.6%; monthly payments of
approximately $33,000; collateralized by a security
interest in the equipment................................. 952,191
-----------
21,165,021
Less -- Portion due within one year......................... (905,368)
-----------
$20,259,653
===========
</TABLE>
Annual future minimum principal payments of long-term debt at December 5,
1996, are as follows:
<TABLE>
<S> <C>
1997........................................................ $ 905,368
1998........................................................ 1,377,032
1999........................................................ 3,220,519
2000........................................................ 2,866,371
2001........................................................ 10,672,519
Thereafter.................................................. 2,123,212
-----------
Total minimum principal payments.......................... $21,165,021
===========
</TABLE>
Effective December 6, 1996, the Company contributed its liabilities to a
new company (see Note 14).
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<PAGE> 245
PACIFIC GOLF, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 5, 1996
8. INCOME TAXES:
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<S> <C>
DEFERRED TAX ASSETS:
Current --
Interest on notes payable.............................. $ 8,828
Accrued vacation....................................... 2,136
Allowance for doubtful accounts........................ 9,127
--------
20,091
Noncurrent --
Amortization of golf course contracts.................. 40,542
Amortization of non-compete............................ 15,053
Minimum tax credit carryforwards....................... 15,198
Net operating loss carryforwards....................... 635,068
--------
705,861
--------
Total deferred tax assets............................ 725,952
DEFERRED TAX LIABILITIES:
Current --
Prepaid insurance...................................... (23,180)
Prepaid property taxes................................. (32,936)
--------
(56,116)
Noncurrent --
Depreciation expense................................... (10,971)
Goodwill amortization.................................. (25,055)
Other.................................................. (776)
--------
(36,802)
--------
Total deferred tax liabilities....................... (92,918)
--------
NET DEFERRED TAX ASSETS BEFORE VALUATION ALLOWANCE.......... 633,034
Less -- Valuation Allowance............................... 316,516
--------
NET DEFERRED TAX ASSETS..................................... $316,518
========
</TABLE>
Components of the benefit for income taxes consists of the following:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
-------- --------- ---------
<S> <C> <C> <C>
Federal............................................. $(15,290) $(503,707) $(518,997)
State............................................... -- (78,519) (78,519)
Increase in Valuation Allowance..................... -- 316,516 316,516
-------- --------- ---------
Total............................................. $(15,290) $(265,710) $(281,000)
======== ========= =========
</TABLE>
F-102
<PAGE> 246
PACIFIC GOLF, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 5, 1996
8. INCOME TAXES: -- (CONTINUED)
Income taxes are different from the amount computed by applying the United
States statutory rate to income before income taxes for the following reasons:
<TABLE>
<S> <C>
Income taxes at the statutory rate.......................... $(485,569)
Permanent differences....................................... 21,829
State taxes, net of federal benefit......................... (112,674)
Valuation allowance......................................... 316,516
Other....................................................... (21,102)
---------
$(281,000)
=========
</TABLE>
State net operating loss carryforwards of approximately $2.1 million are
available to offset future state taxable income through years ranging from 2000
to 2011. Federal net operating loss carryforwards of approximately $1.4 million
are available to offset future federal taxable income through the year 2011.
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," requires that the Company evaluate the realizability of the deferred
income tax asset of approximately $317,000 at December 5, 1996, based on the
criterion that it is more likely than not that some portion or all of the asset
may not be realized. Management believes that it is more likely than not that
the Company will realize the deferred tax asset in full.
9. INTEREST RATE PROTECTION AGREEMENT:
On December 2, 1996, the Company entered into an interest rate swap
agreement (the "Swap") with First Union Bank of Connecticut (the "Bank") to
reduce the impact of changes in interest rates on one of its mortgage loans
payable (the "Note"). The Swap is effective beginning December 4, 1996, and will
terminate on December 3, 2001. The Swap has an initial notional principal amount
of $3,750,000 and amortizes to an amount of 3,499,741 on November 1, 2001. The
Swap effectively changes the Company's interest rate exposure on the Note to a
fixed rate of 8.28%.
The Company is exposed to credit loss in the event of nonperformance by the
Bank to the interest rate swap agreement. However, the Company does not
anticipate nonperformance by the Bank.
10. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
Certain golf course operating leases provide for required minimum payments
monthly and/or monthly payments based on a percentage of certain gross revenues
or receipts. In addition, the Company has additional operating leases that
provide for office space and equipment as well as equipment used on and at the
golf courses and facilities. The required future minimum rent and operating
lease payments are as follows:
<TABLE>
<S> <C>
1997........................................................ $ 2,561,363
1998........................................................ 2,576,568
1999........................................................ 2,372,386
2000........................................................ 2,304,679
2001........................................................ 2,338,282
Thereafter.................................................. 11,695,462
-----------
$23,848,740
===========
</TABLE>
F-103
<PAGE> 247
PACIFIC GOLF, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 5, 1996
10. COMMITMENTS AND CONTINGENCIES: -- (CONTINUED)
The Company entered into a license agreement with Arnold Palmer Enterprise,
Inc. (an Ohio corporation) ("Palmer") on September 15, 1993, which was amended
on May 16, 1996. The agreement grants rights to trademarks, logos, artistic
works, and various other licensing and marketing marks with the Arnold Palmer
name for use at golf facilities. Under the terms of the amended agreement,
Palmer Golf is required to pay to Palmer i) a one time fee for each course
acquired or leased equal to a percentage of the Deal Gross Revenues, as defined,
but not less than $75,000 or $50,000 for each course acquired or leased,
respectively, and ii) a semi-annual fee for each managed facility equal to a
percentage of the management fee revenues received from each facility. The
amended agreement calls for required minimum payments to be made to Palmer. The
fees paid for acquired and leased courses is used to decrease the balance of
this required payment. In the event acquired and leased course payments during
any calendar year do not exceed the current year minimum payment, the shortfall
must be paid to Palmer within 30 days of the calendar year-end.
The required future minimum payments under the agreement are:
<TABLE>
<S> <C>
1997........................................................ $ 350,000
1998........................................................ 400,000
1999........................................................ 400,000
2000........................................................ 400,000
2001........................................................ 450,000
Thereafter.................................................. 4,050,000
</TABLE>
11.SERIES A REDEEMABLE PREFERRED STOCK AND SERIES B CONVERTIBLE
REDEEMABLE PREFERRED STOCK:
The stated preference amounts of the Series A Redeemable Preferred shares
and the Series B Preferred shares are $1.00 per share and $115.32 per share,
respectively.
The Series A Redeemable Preferred and Series B Preferred are entitled to
receive, out of funds legally available for their payment, when and if declared,
accruing and cumulative cash dividends equal to 8 1/2% per share of their
respective stated preference amounts per annum (the "Accruing Dividends"). The
Accruing Dividends accrue daily whether or not earned or declared. No dividends
shall be paid on Series B Preferred shares during any fiscal year until the
total amount of Accruing Dividends on the Series A Redeemable Preferred shares
have been paid. Accruing Dividends on Series A Redeemable Preferred and Series B
Preferred shall be paid upon redemption of these shares.
The Company will redeem all Series A Redeemable Preferred shares, at the
option of the holders of a majority interest of the Series A Redeemable
Preferred, at any time on or after July 1, 2002, or by written notice to the
holders of Series A Redeemable Preferred shares signed by the Company and
delivered to such holders at any time. The Company will redeem Series B
Preferred shares, at the option of each holder of Series B Preferred shares, at
any time on or after July 1, 2002.
Series B Preferred shares may be converted, at the option of the holder,
into fully paid and nonassessable common shares, at any time. The number of
common shares will be determined by dividing the Series B Preferred preference
amount by the conversion price in effect at the time of conversion, which is
initially equal to the Series B Preferred preference amount. No fractional
common shares will be issued upon conversion of Series B Preference shares. The
Company will pay any fractional interest in converted shares in cash. All
outstanding shares of Series B Preferred will be converted to common shares upon
the closing of a qualified public offering of common stock of the Company.
F-104
<PAGE> 248
PACIFIC GOLF, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 5, 1996
11.SERIES A REDEEMABLE PREFERRED STOCK AND SERIES B CONVERTIBLE
REDEEMABLE PREFERRED STOCK: -- (CONTINUED)
The Series A Redeemable Preferred contain restrictions on equity issuance.
As long as holders of the Series A Redeemable Preferred shares hold at least 15%
of the total number of authorized shares of Series A Redeemable Preferred, the
Company shall not, without the consent of the holders of a majority interest of
the then outstanding shares of Series A Redeemable Preferred, (i) authorize,
create, or issue any shares of any class of stock of the Company having any
preference or priority as to dividends or assets, whether in liquidation or
otherwise, superior to, or on a parity with, any such preference or priority of
the series; or (ii) issue any instrument or security exercisable for or
convertible into shares of Series A Redeemable Preferred, or issue shares of
Series A Redeemable Preferred other than the first 2,543,880 shares issued; or
(iii) redeem, purchase or otherwise acquire for value (or pay into or set aside
for a sinking fund for such purpose) any share or shares of Series A Redeemable
Preferred otherwise than by redemption; or (iv) redeem, purchase or otherwise
acquire (or pay into or set aside for a sinking fund for such purpose) any share
or shares of common or Series B Preferred, provided, however, that this
restriction shall not apply to the repurchase by resolution of the Board of
Directors of the Company of common shares from employees, officers, directors,
consultants, or other persons performing services for the Company or any
subsidiary pursuant to which the Company has the option to repurchase such
shares upon the occurrence of certain events, such as termination of employment.
The Series B Preferred shares also contain restrictions on equity issuance.
As long as holders of the Series B Preferred shares hold at least 15% of the
total number of authorized shares of Series B Preferred, the Company shall not,
without the consent of the holders of a majority interest of the then
outstanding shares of Series B Preferred, (i) authorize, create, or issue any
shares of any class of stock of the Company having any preference or priority as
to dividends or assets, whether in liquidation or otherwise, superior to, or on
a parity with, any such preference or priority of the Series B Preferred other
than the Series A Redeemable Preferred; or (ii) issue any instrument or security
exercisable for or convertible into shares of Series B Preferred, or issue
shares of Series B Preferred other than the first 17,344 shares issued; or (iii)
redeem, purchase, or otherwise acquire for value (or pay into or set aside for a
sinking fund for such purpose) any share or shares of Series B Preferred
otherwise than by redemption; or (iv) redeem, purchase, or otherwise acquire (or
pay into or set aside for a sinking fund for such purpose) any share or shares
of common or Series C Preferred, provided, however, that this restriction shall
not apply to (a) the repurchase by resolution of the Board of Directors of the
Company of common shares from employees, officers, directors, consultants, or
other persons performing services for the Company or any subsidiary pursuant to
which the Company has the option to repurchase such shares upon the occurrence
of certain events, such as termination of employment or (b) the redemption of
Series C Preferred shares for $1.00, in accordance with its terms.
No shares of Series A Redeemable Preferred or Series B Preferred acquired
by the Company through redemption, purchase, or otherwise may be reissued, and
all such shares must be canceled, retired, and eliminated from the authorized
shares.
12. STOCKHOLDERS' EQUITY:
The stated preference amount for all Series C Preferred shares is
$1,543,880 plus all unpaid accrued dividends. The Series C Preferred
shareholders are entitled to receive, out of funds legally available for their
payment, when and if declared, accruing and cumulative cash dividends equal to
8 1/2% per share of their respective stated preference amounts per annum (the
"Accruing Dividends"). The Accruing Dividends accrue daily whether or not earned
or declared. No dividends shall be paid on common or Series C Preferred Shares
during any fiscal year until the total amount of Accruing Dividends on the
Series B Preferred shares
F-105
<PAGE> 249
PACIFIC GOLF, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 5, 1996
12. STOCKHOLDERS' EQUITY: -- (CONTINUED)
have been paid. Accruing Dividends on Series C Preferred shares shall be paid
upon redemption of these shares.
Common shareholders are entitled to receive dividends, if and when
declared, out of funds legally available for their payment, at such times and in
such amounts determined by the Board of Directors. No dividends shall be paid on
common shares during any fiscal year until the total amount of Accruing
Dividends on the Series A Redeemable Preferred and Series B Preferred have been
paid.
All of the Series C Preferred shares may be redeemed, at the option of the
Company, in the event of liquidation, a public stock offering or sale of the
Company above certain price thresholds. No shares of Series C Preferred acquired
by the Company through redemption, purchase, or otherwise may be reissued, and
all such shares must be canceled, retired, and eliminated from the authorized
shares.
During the year ended January 2, 1996, the Company entered into a loan
agreement with CoreStates Bank, N.A. (CoreStates). In consideration of
CoreStates making a loan to the Company, the Company granted CoreStates the
right to purchase 6,468 shares of the Company's common stock. The warrant is
exercisable at any time until June 30, 2004, at an exercise price of $1.54 per
share.
13. STOCK OPTION PLAN:
Certain key employees of the Company are awarded options periodically for
the purchase of common stock of the Company through a stock option plan. Under
the plan, options granted carry an exercise price of not less than 110% of the
fair market value per share as of the date the option is issued. The weighted
average exercise price of the options outstanding at December 5, 1996, was
$75.77. The following table summarizes option activity for the period ended
December 5, 1996.
<TABLE>
<CAPTION>
EXERCISE PRICE
SHARES RANGE
------ ---------------
<S> <C> <C>
Outstanding at January 3, 1996............................ 9,506 $41.67 - $120.00
Granted................................................. 1,524 120.00
Forfeited............................................... (2,517) 78.32 - 98.69
Outstanding at December 5, 1996........................... 8,513 $41.67 - $120.00
</TABLE>
The above options expire 10 years after the date of issuance, three months
after the employee's termination, or one year after the employee's death,
whichever event occurs first. Options become exercisable equally over a
four-year vesting period, but not before one year from the date the option is
granted.
The Company has 10,000 shares of authorized unissued common stock reserved
for issuance under the plan. This represents the maximum aggregate number of
shares to be issued upon exercise of options under the plan.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments," requires the Company to disclose the
estimated fair values of its financial instrument assets and liabilities.
Disclosure about fair value of financial instruments is based on pertinent
information available to management as of December 5, 1996. Considerable
judgement is necessary to interpret market data and develop estimated fair
value. Accordingly, the estimates presented herein are not necessarily
indicative of the
F-106
<PAGE> 250
PACIFIC GOLF, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 5, 1996
14. FAIR VALUE OF FINANCIAL INSTRUMENTS: -- (CONTINUED)
amounts the Company could realize on disposition of the financial instruments.
The use of different market assumptions and/or estimation methodologies may have
a material effect on the estimated fair value amounts.
As of December 5, 1996, the Company's management estimates that the
carrying amounts approximate fair value for cash and cash equivalents because of
the short maturity of those instruments. In addition, the carrying amounts of
accounts receivable, accounts payable and accrued liabilities approximate fair
value. Based on current rates available to the Company for debt with similar
terms, there is not a significant difference between the carrying amounts of the
long-term debt and notes receivable and their fair values.
As of December 5, 1996, based upon the terms of the value of the Swap
relative to current interest rates, the Company's management estimates that the
fair value of the Swap is approximately $41,000.
15. CHANGE IN ACCOUNTING METHODS:
Since inception, the Company has recognized revenue from initial membership
fees at the time of sale, while recognizing revenue from annual dues ratably
over the year of provided service. The Company has changed it's method of
recognizing initiation fee revenue upon collection to recognizing initiation fee
revenue over the life of the membership for purposes of complying with the
Securities and Exchange Commission's reporting requirements. Under the new
accounting method, revenue from initial membership fees is deferred and
recognized on a straight-line basis over the expected life of the memberships
sold. This new accounting method differs from the revenue recognition method
historically used by the Company. Accordingly, to show comparable results for
the periods presented, this change has been retroactively applied to all periods
presented in the accompanying consolidated financial statements. The deferral of
historical sales revenues resulting from this change in accounting method had no
impact on the Company's liquidity or cash flows.
Since inception, the Company has classified the Series A Redeemable
Preferred Stock and the Series B Convertible Redeemable Preferred Stock as a
component of Stockholders' Equity. The Company has classified the Series A
Redeemable Preferred Stock and the Series B Convertible Redeemable Preferred
Stock in the accompanying balance sheet outside of Stockholders' Equity for
purposes of complying with the Securities and Exchange Commission's reporting
requirements.
16. SUBSEQUENT EVENT:
Effective December 6, 1996, the Company contributed its rights and
responsibilities to a newly formed company, Arnold Palmer Golf Management LLC (a
Delaware limited liability company) (the "New Company"). The New Company was
organized primarily to own, operate, and manage golf courses and golf
facilities.
Oly Palmer L.P. (a Texas limited partnership), Pacific Golf LLC (a Delaware
limited liability company) ("Pacific"), Palmer and CoreStates are the members of
the New Company. Pacific has the primary responsibility for the management,
control, and direction of the Company's operations, business, and affairs.
On December 6, 1996, Pacific made its initial capital contribution in the
form of a noncash contribution of certain operating assets, management and
consulting contracts, leases, interests in the subsidiaries, and
F-107
<PAGE> 251
PACIFIC GOLF, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 5, 1996
16. SUBSEQUENT EVENT: -- (CONTINUED)
liabilities to the New Company. The following summarizes the noncash assets and
liabilities contributed to the New Company by Pacific:
<TABLE>
<S> <C>
Net working capital......................................... $ (1,734,647)
Notes receivable............................................ 315,499
Property and equipment...................................... 13,050,821
Leasehold deposits & cash held by trustee................... 6,314,076
Intangible assets........................................... 3,255,168
Other long-term assets...................................... 1,971,745
Long-term debt.............................................. (21,165,021)
</TABLE>
F-108
<PAGE> 252
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Pacific Golf, Inc.
We have audited the accompanying consolidated balance sheet of Pacific
Golf, Inc. as of January 2, 1996 and the related consolidated statements of
operations, stockholders' equity and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Pacific Golf, Inc. at January 2, 1996 and the consolidated results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Orlando, Florida
March 1, 1996
F-109
<PAGE> 253
PACIFIC GOLF, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JANUARY 2,
1996
-----------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,431,654
Accounts receivable, less allowance for doubtful accounts
of $57,785............................................. 461,856
Other receivables......................................... 95,181
Inventory................................................. 466,690
Income taxes receivable................................... 198,856
Prepaid expenses.......................................... 131,088
-----------
Total current assets................................... 3,785,325
Property and equipment, net................................. 6,583,095
Notes receivable from officers.............................. 98,646
Cash held by trustee........................................ 278,874
Leasehold interest in real property, less accumulated
amortization of $475,362.................................. 1,675,800
Intangible assets, net...................................... 1,962,967
Deferred income taxes....................................... 62,600
Other assets................................................ 1,446,262
-----------
Total assets......................................... $15,893,569
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,802,257
Accrued liabilities....................................... 670,989
Accrued bonus............................................. 172,386
Deferred income taxes..................................... 11,795
Current portion of long-term debt......................... 731,276
-----------
Total current liabilities............................ 3,408,703
Long-term debt, net of unamortized discount of $3,964....... 8,080,876
Series A Non-Voting Redeemable Preferred Stock, 1,000,000
shares authorized, issued and outstanding (liquidation
value of $1,000,000)...................................... 891,935
Series B Voting Convertible Redeemable Preferred Stock, $.01
par value, 17,344 shares authorized, issued and
outstanding ($2,000,000 liquidation value)................ 1,979,418
Stockholders' equity:
Series C Non-Voting Preferred Stock, $.01 par value,
1,543,880 authorized, issued and outstanding
($1,543,880 liquidation value)......................... 1,543,880
Common stock, $.01 par value; 125,742 shares authorized,
91,930 issued and outstanding.......................... 919
Deficit................................................... (12,162)
-----------
Total stockholders' equity........................... 1,532,637
-----------
Total liabilities and stockholders' equity........... $15,893,569
===========
</TABLE>
See accompanying notes.
F-110
<PAGE> 254
PACIFIC GOLF, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 2,
1996
-----------
<S> <C>
OPERATING REVENUE:
Green fees and practice facility fees....................... $ 7,765,214
Food, beverage and merchandise sales........................ 3,317,495
Golf cart rentals........................................... 1,726,835
Management fees, license fees and royalties................. 705,175
Other....................................................... 349,559
-----------
13,864,278
COSTS AND EXPENSES:
Payroll and benefits........................................ 4,488,187
Cost of food, beverage and merchandise sold................. 1,396,959
Depreciation and amortization............................... 831,913
Supplies, maintenance and repairs........................... 1,055,591
Rent........................................................ 2,479,043
Utilities................................................... 746,870
Insurance................................................... 171,832
Property and other taxes.................................... 315,617
Advertising and promotion................................... 416,253
General and administrative.................................. 1,607,615
Amortization of acquired golf course contracts.............. 79,109
Other....................................................... 274,524
-----------
13,863,513
-----------
OPERATING INCOME............................................ 765
Interest income............................................. 54,645
Interest expense............................................ (512,003)
-----------
(457,358)
-----------
Loss before income taxes.................................... (456,593)
Income tax benefit.......................................... (174,417)
-----------
NET LOSS.................................................... $ (282,176)
===========
</TABLE>
See accompanying notes.
F-111
<PAGE> 255
PACIFIC GOLF, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SERIES C
NON-VOTING
PREFERRED STOCK COMMON STOCK
----------------------- ------------------- RETAINED
NUMBER NUMBER EARNINGS/
OF SHARES AMOUNT OF SHARES AMOUNT (DEFICIT) TOTAL
--------- ---------- --------- ------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1995...................... -- $ -- 91,330 $913 $ 295,514 $ 296,427
Issuance of common stock....................... -- -- 600 6 -- 6
Accretion on Series A Preferred Stock.......... -- -- -- -- (25,500) (25,500)
Recapitalization............................... 1,543,880 1,543,880 -- -- -- 1,543,880
Net loss....................................... -- -- -- -- (282,176) (282,176)
--------- ---------- ------ ---- --------- ----------
Balances at January 2, 1996...................... 1,543,880 $1,543,880 91,930 $919 $ (12,162) $1,532,637
========= ========== ====== ==== ========= ==========
</TABLE>
See accompanying notes.
F-112
<PAGE> 256
PACIFIC GOLF, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 2,
1996
-----------
<S> <C>
OPERATING ACTIVITIES
Net loss.................................................... $ (282,176)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization............................. 911,022
Provision for deferred income taxes....................... 22,286
Loss on disposal of assets................................ 922
Changes in assets and liabilities, net of effects from the
purchase of golf courses:
Increase in accounts receivable and other
receivables........................................... (489,005)
Increase in inventory.................................. (249,220)
Increase in prepaid expenses........................... (71,247)
Increase in accounts payable........................... 1,101,954
Increase in accrued liabilities........................ 146,102
Increase in accrued bonus.............................. 42,272
Decrease in income taxes payable....................... (491,797)
-----------
Net cash provided by operating activities................... 641,113
INVESTING ACTIVITIES
Purchase of property and equipment.......................... (1,420,907)
Increase in notes receivable................................ (13,646)
Purchase of assets of golf courses, less cash acquired...... (4,899,963)
Increase in leasehold interest in real property............. (10,202)
Increase in cash held by trustee............................ (158,674)
Increase in other assets.................................... (428,347)
-----------
Net cash used in investing activities....................... (6,995,189)
FINANCING ACTIVITIES
Principal payments on long-term debt........................ (362,403)
Issuance of Series B Preferred Stock........................ 1,979,418
Issuance of notes payable................................... 6,599,501
-----------
Net cash provided by financing activities................... 8,216,516
-----------
Increase in cash and cash equivalents....................... 1,925,890
Cash and cash equivalents at beginning of the year.......... 505,764
-----------
Cash and cash equivalents at end of the year................ $ 2,431,654
===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during period for:
Interest.................................................. $ 495,351
===========
Income taxes.............................................. $ 302,202
===========
Non-cash investing and financing activities:
Note payable issued to seller of golf courses............. $ 1,100,000
===========
Acquisition of property and equipment through capital
lease obligations...................................... $ 651,163
===========
Acquisition of equipment through note payable to seller... $ 78,000
===========
</TABLE>
See accompanying notes.
F-113
<PAGE> 257
PACIFIC GOLF, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 2, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS AND ORGANIZATION
Pacific Golf, Inc. (the Company) is a venture capital-backed golf
investment firm which, through its wholly-owned subsidiaries Arnold Palmer Golf
Management Company (Palmer Golf), APGMC-LA Acquisition Corp., Victoria Golf
Course, Inc. (Victoria), and Whittier Narrows Golf Course, Inc. (Whittier),
APGMC-BCC Acquisition Corp. and APGMC-PGC Concession Corp., own, lease or
contract to manage golf course facilities. The Company operates daily fee,
municipal, private and resort courses and derives its revenues principally from
greens fees, practice facility fees, golf cart rentals, retail sale of golf
merchandise, food and beverage sales and management fees, license fees and
royalties.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
FISCAL YEAR
The Company's fiscal year consists of 52 or 53 weeks, ending on the Tuesday
nearest December 31.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
CASH HELD BY TRUSTEE
The lease agreements for golf courses with certain lessors provide for a
portion of the required monthly payments and in some cases an initial payment
made by the Company to be set aside for various capital improvement projects at
these courses, as defined in the lease agreements. The funds are used at the
request of the Company and the authorization of the lessor.
LEASEHOLD INTEREST IN REAL PROPERTY
Leasehold interest in real property consists of amounts paid to obtain the
rights to use real property for the life of the golf course leases. Amounts are
stated at cost and are amortized over the remaining life of the golf course
leases using the straight-line method.
INVENTORY
Inventory is valued at the lower of average cost or market and consists
primarily of food, beverage, golf equipment and clothing.
F-114
<PAGE> 258
PACIFIC GOLF, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JANUARY 2, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost; depreciation and amortization
are computed using the straight-line method over the estimated useful lives of
the assets. Estimated useful lives for financial reporting purposes are:
<TABLE>
<S> <C>
Land improvements........................................... 20 years
Leasehold improvements...................................... 2-12 years
Furniture, fixtures and equipment........................... 5-10 years
</TABLE>
When property and equipment are sold or otherwise disposed of, the asset
account and related accumulated depreciation and amortization accounts are
reduced, and any gain or loss is included in operations. Expenditures for
maintenance and repairs are charged to operations. Renewals and betterments that
materially extend the life of an asset are capitalized.
ACQUIRED GOLF COURSE CONTRACTS
A substantial portion of the purchase price for Palmer Golf has been
allocated to golf course contracts based upon the estimated revenues and costs
during the contract period. Amortization is provided using the straight-line
method over the lives of each golf course contract.
GOODWILL
The excess of the purchase price over the fair values of the assets
acquired and liabilities assumed is amortized on a straight-line basis over 30
years.
OTHER ASSETS
Other assets, which consist principally of acquisition and financing costs,
a non-compete agreement and a concession contract contribution, are stated at
cost and are amortized over a period of 5 to 10 years, using the straight-line
method.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of accounts receivable from
and at golf courses under the Company's management. The Company provides an
allowance for accounts receivable when factors surrounding the credit risk of an
account indicates an impairment in value.
STOCK ISSUED TO EMPLOYEES
The Company follows the intrinsic value method of accounting for stock
options and stock-based awards in accordance with Accounting Principles Board
(APB) Opinion No. 25. Under APB 25's intrinsic value method, compensation
expense, if any, is determined on the measurement date and is based on the
excess of the market price of the stock over the exercise price.
ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board issued Statement
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of. This accounting standard requires impairment losses to
be recorded on long-lived assets used in operations when impairment indicators
F-115
<PAGE> 259
PACIFIC GOLF, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JANUARY 2, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the asset's carrying amount. The Company will adopt
Statement No. 121 in fiscal year 1996 and based on current circumstances, does
not believe the effect of adoption will be material.
2. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
CASH AND CASH EQUIVALENTS -- The carrying amount reported in the
balance sheet for cash and cash equivalents approximates its fair value.
LONG-TERM DEBT -- The carrying amounts of the Company's borrowings
under its long-term credit agreements approximate their fair values.
3. ACQUISITIONS
During the year ended January 2, 1996, the Company paid approximately
$6,067,000 to purchase the net assets, leasehold interest, or operating
contracts of several golf courses. The combined fair market values of the assets
acquired and liabilities assumed are reflected in the following classifications
on the balance sheet:
<TABLE>
<S> <C>
Cash........................................................ $ 4,500
Inventory................................................... 50,356
Prepaid expenses............................................ 39,472
Property and equipment...................................... 3,717,388
Leasehold interest in real property......................... 514,342
Goodwill.................................................... 1,349,680
Other assets................................................ 814,620
Accrued expenses and other liabilities...................... (423,358)
----------
Net assets acquired......................................... $6,067,000
==========
</TABLE>
Operating results of the acquired companies since their acquisition dates
have been included in the statements of operations. The acquisitions have been
accounted for by the purchase method of accounting.
The following unaudited pro forma financial information includes the
results of operations of one of the 1996 acquisitions as if the transaction had
been consummated as of the beginning of the year after including the impact of
certain adjustments such as depreciation of property and equipment, amortization
of goodwill and other intangibles and interest expense on debt assumed. Results
of operations of The Presidio of San Francisco (previously operated by the
National Park Service) for the period prior to the transaction are not included
in the pro forma information below as such information is not readily available
to the Company.
<TABLE>
<S> <C>
Net revenues................................................ $15,647,823
Depreciation and amortization............................... 950,297
Operating income............................................ 287,456
Interest expense............................................ 661,521
Loss before income taxes.................................... (381,839)
</TABLE>
F-116
<PAGE> 260
PACIFIC GOLF, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JANUARY 2, 1996
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<S> <C>
Land........................................................ $ 246,081
Land improvements........................................... 3,100,000
Leasehold improvements...................................... 1,580,566
Furniture, fixtures and equipment........................... 1,599,836
Construction in progress.................................... 473,453
----------
6,999,936
Less accumulated depreciation............................... 416,841
----------
$6,583,095
==========
</TABLE>
Furniture, fixtures and equipment include assets under capital leases of
approximately $835,000 less accumulated amortization of approximately $209,000
at January 2, 1996. Amortization of assets recorded under capital leases is
included in depreciation expense.
5. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<S> <C>
Goodwill.................................................... $1,349,680
Purchased management agreements............................. 955,487
----------
2,305,167
Accumulated amortization.................................... (342,200)
----------
$1,962,967
==========
</TABLE>
6. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<S> <C>
Financing costs............................................. $ 529,438
Franchise fee............................................... 500,000
Non-compete agreement....................................... 200,000
Acquisition costs........................................... 173,269
Other....................................................... 167,287
----------
1,569,994
Accumulated amortization.................................... (123,732)
----------
$1,446,262
==========
</TABLE>
F-117
<PAGE> 261
PACIFIC GOLF, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JANUARY 2, 1996
7. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<S> <C>
Term note payable, maximum amount available $5,000,000,
interest ranging from prime plus 2% to prime plus 3.5%
based on current leverage ratio (10.5% at January 2,
1996), monthly interest payments based on outstanding
balance, quarterly principal payments beginning October 1,
1999, due July 1, 2002, secured by a first lien deed of
trust on the Palm Springs, California property, which has
a carrying value of approximately $858,000, and all
proceeds and products of such property. (See Note 8.)..... $2,650,000
Mortgage note payable, interest at the commercial paper rate
(as published in the Wall Street Journal) plus 4.75%
(10.4% at January 2, 1996), monthly principal and interest
payments calculated based on a 10-year amortization at an
assumed rate of 10%, due June 1, 2000, collateralized by
all of the assets of the Victoria and Whittier, which have
a carrying value of approximately $3,773,000, and all
future revenues of such golf courses. .................... 1,915,907
Mortgage note payable, interest at prime plus 1.25% (9.75%
at January 2, 1996) payable monthly, annual principal
payments of $100,000 due in April, with a balloon payment
of $1,600,000 plus interest due January 1, 1999,
collateralized by a first mortgage on the Brierwood
Country Club, which has a carrying value of approximately
$4,057,000. .............................................. 1,900,000
Note payable, interest at 9%, semiannual interest payments
payable in June and December from December 1997 through
June 2000, principal and interest payments from July 2000
through June 2003 payable in June and December, calculated
based on a 10-year amortization, with a balloon payment of
remaining principal and interest due in June 2003,
collateralized by a second mortgage on the Brierwood
Country Club. ............................................ 1,149,500
Note payable to former stockholder of Victoria and Whittier,
payable in 18 monthly installments of $16,667 beginning on
September 14, 1995, with interest accruing at the prime
rate plus 1.5% (10.0% at January 2, 1996), payable in 18
monthly installments over the same term as the principal
payments, with all unpaid and accrued interest payable
concurrently with each scheduled principal payment,
collateralized by the common stock of Victoria and
Whittier and property with a carrying value of
approximately $187,000. .................................. 233,333
Noninterest bearing, unsecured notes payable to former
stockholders of Palmer Golf, with a final payment of
$109,666 due on March 15, 1996, less a discount of $3,964
(at 7.5%) to present value. .............................. 105,702
Note payable, unsecured, interest at 8%, annual payment of
$15,600 plus interest, due each January 2 from 1996
through 2000. ............................................ 78,000
Capital lease obligations for golf carts and turf equipment,
interest ranging from 8.74% to 15.6%, monthly payments of
approximately $27,000, collateralized by equipment with an
approximate carrying value of $681,000. .................. 779,710
----------
8,812,152
Less portion due within one year............................ 731,276
----------
$8,080,876
==========
</TABLE>
F-118
<PAGE> 262
PACIFIC GOLF, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JANUARY 2, 1996
7. LONG-TERM DEBT -- (CONTINUED)
Annual mandatory maturities of long-term debt at January 2, 1996 are as
follows:
<TABLE>
<S> <C>
1996........................................................ $ 731,276
1997........................................................ 541,659
1998........................................................ 2,135,580
1999........................................................ 563,248
2000........................................................ 919,830
Thereafter.................................................. 3,920,559
----------
$8,812,152
==========
</TABLE>
8. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<S> <C>
Deferred tax assets
Current:
Allowance for doubtful accounts........................... $ 2,716
Interest on notes payable................................. 8,824
Accrued vacation.......................................... 2,135
--------
13,675
Noncurrent:
Amortization of golf course contracts..................... 45,149
Amortization of non-compete agreement..................... 5,237
State net operating loss carryforward..................... 44,186
Depreciation expense...................................... --
--------
94,572
--------
Total deferred tax assets.............................. 108,247
Deferred tax liabilities
Current:
Prepaid insurance......................................... (25,470)
--------
Total.................................................. (25,470)
Noncurrent:
Depreciation expense...................................... (22,770)
Goodwill amortization..................................... (8,836)
License amortization...................................... (366)
--------
(31,972)
--------
Total deferred tax liabilities......................... (57,442)
--------
Net deferred tax assets................................ $ 50,805
========
</TABLE>
F-119
<PAGE> 263
PACIFIC GOLF, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JANUARY 2, 1996
8. INCOME TAXES -- (CONTINUED)
Components of the benefit for income taxes consists of the following:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
--------- -------- ---------
<S> <C> <C> <C>
Federal............................................ $(193,249) $ 54,547 $(138,702)
State.............................................. -- (35,715) (35,715)
--------- -------- ---------
$(193,249) $ 18,832 $(174,417)
========= ======== =========
</TABLE>
Income taxes are different from the amount computed by applying the United
States statutory rate to income before income taxes for the following reasons:
<TABLE>
<S> <C>
Income taxes at the statutory rate.......................... $(155,242)
Permanent differences....................................... 21,999
State taxes, net of federal benefit......................... (20,692)
Change in effective rates................................... (5,523)
Other....................................................... (14,959)
---------
$(174,417)
=========
</TABLE>
State net operating loss carryforwards of approximately $552,000 are
available to offset future state taxable income through years ranging from 2000
to 2010.
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," requires that the Company evaluate the realizability of the deferred
income tax asset of approximately $51,000 at January 2, 1996, based on the
criterion that it is more likely than not that some portion or all of the asset
may not be realized. Management believes that it is more likely than not that
the Company will realize the deferred tax asset in full.
9. REDEEMABLE PREFERRED STOCK
On December 29, 1995, the Company adopted an Amended and Restated
Certificate of Incorporation to amend the designation of the Series A voting
redeemable preferred stock (Series A Preferred), which had a liquidation value
of $1.00 per share plus accrued and unpaid dividends, whether or not declared,
and cumulative dividends accruing at 8% per annum. In addition, two new series
of preferred stock were designated. The Amended and Restated Certificate of
Incorporation authorizes the issuance of 1,000,000 shares of Series A non-voting
redeemable preferred stock (Series A Redeemable Preferred) and 17,344 shares of
Series B voting convertible redeemable preferred stock (Series B Preferred).
In addition, on December 29, 1995, the Company entered into an Exchange
Agreement pursuant to which the Company exchanged 1,543,880 shares of issued and
outstanding Series A Preferred for Series C Preferred on a one-for-one basis. In
addition, the Company exchanged the remaining 1,000,000 issued and outstanding
shares of Series A Preferred for 1,000,000 shares of the Series A Redeemable
Preferred, as redesignated pursuant to the Amended and Restated Certificate of
Incorporation. All dividends accrued on the Series A Preferred Shares as of the
date of the Exchange Agreement were cancelled. As part of the Exchange
Agreement, the Company issued 17,344 shares of Series B Preferred for cash of
$1,979,418, net of expenses incurred.
The stated preference amounts of the Series A Redeemable Preferred shares
and the Series B Preferred shares are $1.00 per share and $115.32 per share,
respectively.
The Series A Redeemable Preferred and Series B Preferred shareholders are
entitled to receive, out of funds legally available for their payment, when and
if declared, accruing and cumulative cash dividends equal
F-120
<PAGE> 264
PACIFIC GOLF, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JANUARY 2, 1996
10. REDEEMABLE PREFERRED STOCK -- (CONTINUED)
to 8 1/2% per share of their respective stated preference amounts per annum (the
Accruing Dividends). The Accruing Dividends accrue daily whether or not earned
or declared. No dividends shall be paid on Series B Preferred shares during any
fiscal year until the total amount of Accruing Dividends on the Series A
Redeemable Preferred shares have been paid. Accruing Dividends on Series A
Redeemable Preferred and Series B Preferred shares shall be paid upon redemption
of these shares.
The Company is required to redeem all Series A Redeemable Preferred shares,
at the option of the holders of a majority interest of the Series A Redeemable
Preferred, at any time on or after July 1, 2002 or by written notice to the
holders of Series A Redeemable Preferred shares signed by the Company and
delivered to such holders at any time. The Company is required to redeem Series
B Preferred shares, at the option of each holder of Series B Preferred shares,
at any time on or after July 1, 2002.
The difference (aggregating $133,565 as of December 31, 1994) between the
Series A Preferred's original liquidation value and fair value at issuance was
accreted during the year ended January 2, 1996 through charges to retained
earnings, calculated based on the term during which the shares are subject to
repurchase. The difference (aggregating $108,065 as of January 2, 1996) between
the Series A Redeemable Preferred's original liquidation value and its full
value at issuance will be accreted, beginning in 1996, through periodic charges
to retained earnings over the period between the date of issuance and July 1,
2002.
The difference (aggregating $20,582 as of January 2, 1996) between the
Series B Preferred's original liquidation value and its fair value at issuance
will be accreted, beginning in 1996, through periodic charges to retained
earnings over the period between the date of issuance and July 1, 2002.
Series B Preferred shares may be converted, at the option of the holder,
into fully paid and nonassessable common shares, at any time. The number of
common shares will be determined by dividing the Series B Preferred preference
amount by the conversion price in effect at the time of conversion, which is
initially equal to $115.32, the Series B Preferred preference amount. No
fractional common shares will be issued upon conversion of Series B Preferred
shares. The initial conversion price will be adjusted to give effect to stock
splits, stock dividends, reverse split reclassification and similar events. The
Company will pay any fractional interest in converted shares in cash. All
outstanding shares of Series B Preferred are to be converted into common shares
upon the closing of a qualified public offering of common stock of the Company.
The Series A Redeemable Preferred contains restrictions on equity issuance.
As long as holders of the Series A Redeemable Preferred shares hold at least 15%
of the total number of authorized shares of Series A Redeemable Preferred, the
Company shall not, without the consent of the holders of a majority interest of
the then outstanding shares of Series A Redeemable Preferred, (i) authorize,
create or issue any shares of any class of stock of the Company having any
preference or priority as to dividends or assets, whether in liquidation or
otherwise, superior to, or on a parity with, any such preference or priority of
the series; or (ii) issue any instrument or security exercisable for or
convertible into shares of Series A Redeemable Preferred, or issue shares of
Series A Redeemable Preferred other than the first 2,543,880 shares issued; or
(iii) redeem, purchase or otherwise acquire for value (or pay into or set aside
for a sinking fund for such purpose) any share or shares of Series A Redeemable
Preferred otherwise than by redemption; or (iv) redeem, purchase or otherwise
acquire (or pay into or set aside for a sinking fund for such purpose) any share
or shares of common or Series B Preferred, provided, however, that this
restriction shall not apply to the repurchase by resolution of the Board of
Directors of the Company of common shares from employees, officers, directors,
consultants, or other persons performing services for the Company or any
subsidiary pursuant to which the Company has the option to repurchase such
shares upon the occurrence of certain events, such as termination of employment.
F-121
<PAGE> 265
PACIFIC GOLF, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JANUARY 2, 1996
10. REDEEMABLE PREFERRED STOCK -- (CONTINUED)
The Series B Preferred also contains restrictions on equity issuance. As
long as holders of the Series B Preferred shares hold at least 15% of the total
number of authorized shares of Series B Preferred, the Company shall not,
without the consent of the holders of a majority interest of the then
outstanding shares of Series B Preferred, (i) authorize, create or issue any
shares of any class of stock of the Company having any preference or priority as
to dividends or assets, whether in liquidation or otherwise, superior to, or on
a parity with, any such preference or priority of the Series B Preferred other
than the Series A Redeemable Preferred; or (ii) issue any instrument or security
exercisable for or convertible into shares of Series B Preferred, or issue
shares of Series B Preferred other than the first 17,344 shares issued; or (iii)
redeem, purchase or otherwise acquire for value (or pay into or set aside for a
sinking fund for such purpose) any share or shares of Series B Preferred
otherwise than by redemption; or (iv) redeem, purchase or otherwise acquire (or
pay into or set aside for a sinking fund for such purpose) any share or shares
of common or Series C Preferred, provided, however, that this restriction shall
not apply to (a) the repurchase by resolution of the Board of Directors the
Company of common shares from employees, officers, directors, consultants, or
other persons performing of services for the Company or any subsidiary pursuant
to which the Company has the option to repurchase such shares upon the
occurrence of certain events, such as termination of employment or (b) the
redemption of Series C Preferred shares for $1.00, in accordance with its terms.
No shares of Series A Redeemable Preferred or Series B Preferred acquired
by the Company through redemption, purchase, or otherwise may be reissued, and
all such shares must be canceled, retired, and eliminated from the authorized
shares.
10. STOCKHOLDERS' EQUITY
On December 29, 1995, the Company adopted an Amended and Restated
Certificate of Incorporation. The Amended and Restated Certificate of
Incorporation authorizes the issuance of 1,543,880 shares of Series C non-voting
preferred stock (Series C Preferred), $0.01 par value. The authorized number of
shares of common stock was increased to 125,742.
In addition, on December 29, 1995, the Company entered into an Exchange
Agreement pursuant to which, the Company exchanged 1,543,880 shares of issued
and outstanding Series A Preferred for Series C Preferred on a one-for-one
basis. In addition, the Company exchanged the remaining 1,000,000 issued and
outstanding shares of Series A Preferred for 1,000,000 shares of the Series A
Redeemable Preferred, as redesignated pursuant to the Amended and Restated
Certificate of Incorporation. All dividends accrued on the Series A Preferred
Shares as of the date of the Exchange Agreement were cancelled.
The stated preference amount for all Series C Preferred shares is
$1,543,880 plus all unpaid accrued dividends.
The Series C Preferred shareholders are entitled to receive, out of funds
legally available for their payment, when and if declared, accruing and
cumulative cash dividends equal to 8 1/2% per share of their respective stated
preference amounts per annum (the Accruing Dividends). The Accruing Dividends
accrue daily whether or not earned or declared. No dividends shall be paid on
common or Series C Preferred Shares during any fiscal year until the total
amount of Accruing Dividends on the Series B Preferred Shares have been paid.
Accruing Dividends on Series C Preferred shares shall be paid upon redemption of
these shares.
Common shareholders are entitled to receive dividends, if and when
declared, out of funds legally available for their payment, at such times and in
such amounts determined by the Board of Directors. No dividends shall be paid on
common shares during any fiscal year until the total amount of Accruing
Dividends on the Series A Redeemable Preferred and Series B Preferred have been
paid.
All of the Series C Preferred shares may be redeemed, at the option of the
Company, in the event of liquidation, a public stock offering or sale of the
Company above certain price thresholds. No shares of
F-122
<PAGE> 266
PACIFIC GOLF, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JANUARY 2, 1996
10. STOCKHOLDERS' EQUITY -- (CONTINUED)
Series C Preferred acquired by the Company through redemption, purchase or
otherwise may be reissued and all such shares must be canceled, retired and
eliminated from the authorized shares.
During 1995, the Company issued 600 shares of its common stock to a
stockholder as consideration for the stockholder's guarantee of a short-term
borrowing arrangement which expired in April 1995.
During the year ended January 2, 1996, the Company entered into a loan
agreement with Corestates Bank, N.A. (Corestates). In consideration of
Corestates making a loan to the Company, the Company granted Corestates the
right to purchase 6,468 shares of the Company's common stock. The warrant is
exercisable at any time until June 30, 2004 at an exercise price of $1.54 per
share.
At January 2, 1996, a total of 33,812 shares of the Company's common stock
were reserved for conversion of the Series B Preferred shares and exercise of
stock options and warrants.
11. 1994 STOCK OPTION PLAN
Certain key employees of the Company are awarded options periodically for
the purchase of common stock of the Company through a stock option plan. Under
the plan, options granted carry an exercise price of not less than 110% of the
fair market value per share as of the date the option is issued. The weighted
average exercise price of the options outstanding at January 2, 1996 was $71.53.
The following table summarizes option activity for the year ended January 2,
1996:
<TABLE>
<CAPTION>
EXERCISE PRICE
SHARES RANGE
------ ----------------
<S> <C> <C>
Outstanding at January 1, 1994.............................. -- --
Granted................................................... 5,761 $41.67 - $ 78.32
----- ----------------
Outstanding at December 31, 1994............................ 5,761 41.67 - 78.32
Granted................................................... 3,745 78.32 - 120.00
----- ----------------
Outstanding at January 2, 1996.............................. 9,506 $41.67 - $120.00
===== ================
</TABLE>
The above options expire 10 years after the date of issuance, three months
after the employee's termination, or one year after the employee's death,
whichever event occurs first. Options become exercisable equally over a
four-year vesting period, but not before one year from the date the option is
granted.
12. COMMITMENTS AND CONTINGENCIES
The Company is obligated under various operating leases for its corporate
headquarters, golf course facilities and certain other office equipment. The
minimum future rental payments under noncancellable operating leases at January
2, 1996 are as follows:
<TABLE>
<S> <C>
1996........................................................ $ 2,312,000
1997........................................................ 2,447,000
1998........................................................ 2,462,000
1999........................................................ 2,301,000
2000........................................................ 2,236,000
Thereafter.................................................. 12,389,000
-----------
$24,147,000
===========
</TABLE>
F-123
<PAGE> 267
PACIFIC GOLF, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JANUARY 2, 1996
12. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
The lease of the Company's corporate headquarters expires in November 1997.
The golf course facility leases expire at various dates beginning January 1997
through December 2009. The lease at the golf course facility expiring in January
1997 provides the Company, as long as it is not in default, an option to extend
the term of the lease for an additional 18 years.
Rent for the year ended January 2, 1996 was approximately $2,335,000 and
included contingent rent of approximately $963,000.
The Company is obligated under a license agreement with an affiliate of a
former stockholder of Palmer Golf to pay an annual fee for the exclusive
worldwide license to use and commercially exploit certain trademarks and various
other emblems, logos, trade names, insignias, service marks, designs, phrases,
mascots and other artistic works denoting or identifying "Arnold Palmer." The
license fee is based upon the greater of (i) 2.5% of gross revenue, as defined,
or (ii) a minimum of $50,000 during the first contract half-year, $75,000 during
the second contract half-year, $100,000 during the third contract half-year, and
$125,000 during the remaining seven contract half-years. The agreement expires
in August 1998 and will be automatically renewed for two consecutive additional
five-year periods, subject to the Company maintaining a minimum level of annual
revenues, as defined.
Under the terms of one of its golf course contracts, the Company is
required to complete an improvement and building program. The minimum cost of
the improvement program will be approximately $2,200,000 and includes the
demolition of existing golf course structures and the construction of various
new golf course facilities and improvements.
13. RELATED PARTY TRANSACTIONS
At January 2, 1996, the Company held three notes receivable from officers.
Two of these notes are due on September 23, 1997 and bear interest at 6% payable
annually. The third note bears interest at 8%, payable annually, and matures on
November 1, 1999.
F-124
<PAGE> 268
Presidio Golf Trust
Resort Properties
PHOTO
Crofton
Crofton, Maryland+
PHOTO
Indian Lakes Resort+
Bloomingdale, Illinois
Private Country Clubs
Brierwood Country Club.
Hamburg, New York
Crofton Country Club.
Crofton, Maryland+
FoxValley Club.
Canesster, New York
Memphis National Golf Club.
Collierville, Tennessee+
Oronoque Country Club.
Stratford, Connecticut
TanTara Golf Club.
North Tonawanda, New York
University Club of South Carolina.
Blythewood, South Carolina
PHOTO
University club
Blytehewood, south carolina
PHOTO
Towne Lake Hills
Woodstock, Georgia
Daily Fee Courses
Emerald Valley Golf Club. Creswell, Oregon
Minebrook Golf Club. Hackettstown, New Jersey
Penderbrook Golf Club. Fairfax, Virginia+
Towne Lake Hills Golf Club* Woodstock, Georgia
*Properties Feature two 18-Hole Golf Courses
+Properties Operated Pursuant to Long-Term Ground Lease
<PAGE> 269
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES
OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THOSE TO WHICH IT
RELATES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER
IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT
THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------
SUMMARY TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................... 1
Risk Factors......................... 20
The Company.......................... 32
Use of Proceeds...................... 40
Dilution............................. 42
Distribution Policy.................. 43
Capitalization....................... 45
Selected Financial Data.............. 46
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 49
The Golf Industry.................... 57
The Golf Courses..................... 62
Initial Lessees...................... 74
The Participating Leases............. 76
Management........................... 82
Conflict of Interest Policies........ 88
Policies With Respect to Certain
Activities......................... 89
Formation of the Company............. 92
Certain Relationships and
Transactions....................... 95
Principal Shareholders............... 97
Shares of Beneficial Interest........ 98
Certain Provisions of Maryland Law
and the Company's Declaration of
Trust and Bylaws................... 101
Partnership Agreement................ 104
Shares Available for Future Sale..... 107
Federal Income Tax Consequences...... 109
Underwriting......................... 127
Experts.............................. 128
Legal Matters........................ 129
Additional Information............... 129
Glossary............................. G-1
Index to Financial Statements........ F-1
</TABLE>
------------------
UNTIL , 1998 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON SHARES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
6,540,000 SHARES
PRESIDIO GOLF TRUST
COMMON SHARES OF
BENEFICIAL INTEREST
------------
PROSPECTUS
, 1998
------------
SALOMON SMITH BARNEY
NATIONSBANC MONTGOMERY
SECURITIES LLC
PAINEWEBBER INCORPORATED
CREDIT LYONNAIS
SECURITIES (USA) INC.
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 270
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 31. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table itemizes the expenses incurred by the Company in
connection with the registration, issuance and distribution of the securities
being registered hereby, other than underwriting discounts and commissions. All
the amounts shown are estimates except the Securities and Exchange Commission
registration fee, the NASD fee and the New York Stock Exchange listing fee.
<TABLE>
<CAPTION>
ITEM AMOUNT
---- ------
<S> <C>
Registration Fee -- Securities and Exchange Commission...... $ 48,730
NASD Fee.................................................... 17,019
New York Stock Exchange Listing Fee......................... *
Transfer Agent and Registrar's Fees......................... *
Printing and Engraving Fees and Expenses.................... *
Legal Fees and Expenses (other than Blue Sky)............... *
Accounting Fees and Expenses................................ *
Blue Sky Fees and Expenses (including fees of counsel)...... *
Miscellaneous Expenses...................................... *
----------
Total..................................................... $1,900,000
==========
</TABLE>
- -------------------------
* To be furnished by amendment.
ITEM 36. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS AND SCHEDULES, ALL OF WHICH ARE IN THE PROSPECTUS:
<TABLE>
<S> <C>
Presidio Golf Trust:
Report of Independent Public Accountants -- Arthur Andersen
LLP
Balance Sheet as of April 20, 1998
Notes to Balance Sheet
Introduction to Pro Forma Financial Statements (unaudited)
Pro Forma Balance Sheet as of March 31, 1998 (unaudited)
Pro Forma Statement of Operations for the three month period
ended March 31, 1998 (unaudited)
Pro Forma Statement of Operations for the Year Ended
December 31, 1997 (unaudited)
Notes to Pro Forma Financial Statements (unaudited)
Predecessor Courses (the Predecessor to the Operating
Partnership):
Report of Independent Public Accountants -- Arthur Andersen
LLP
Combined Balance Sheets as of March 31, 1998 (unaudited) and
December 30, 1997 and December 31, 1996
Combined Statements of Operations for the three month
periods ended March 31, 1998 and April 1, 1997 (unaudited)
and for the period ended December 30, 1997, for the 26-day
period ended December 31, 1996, the 337-day period ended
December 5, 1996 and the 187-day period ended January 2,
1996
Combined Statements of Parent's Equity for the three month
period ended March 31, 1998 (unaudited) and for the fiscal
period ended December 30, 1997, for the 26-day period
ended December 31, 1996, the 337-day period ended December
5, 1996 and the 187-day period ended January 2, 1996
Combined Statements of Cash Flows for the three month
periods ended March 31, 1998 and April 1, 1997 (unaudited)
and for the fiscal period ended December 30, 1997, for the
26-day period ended December 31, 1996, the 337-day period
ended December 5, 1996 and the 187-day period ended
January 2, 1996
Notes to Combined Financial Statements
</TABLE>
II-1
<PAGE> 271
<TABLE>
<S> <C>
Paloma Golf Courses:
Report of Independent Auditors -- Ernst & Young LLP
Combined Balance Sheets as of October 31, 1997 and December 31, 1996 and 1995
Combined Statements of Operations for the ten month period ended October 31, 1997 and for the years ended
December 31, 1996 and 1995
Combined Statements of Owner's Equity for the ten month period ended October 31, 1997 and for the years
ended December 31, 1996 and 1995
Combined Statements of Cash Flows for the ten month period ended October 31, 1997 and for the years ended
December 31, 1996 and 1995
Notes to Combined Financial Statements
Olympus/Montclair-Chicago General Partnership
Report of Independent Public Accountants -- Arthur Andersen LLP
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements of Operations for the year ended December 31, 1997 and 1996
Consolidated Statements of Changes in Partners' Capital for the year ended December 31, 1997 and 1996
Consolidated Statements of Cash Flows for the year ended December 31, 1997 and 1996
Notes to Consolidated Financial Statements
Consolidated Balance Sheet as of March 31, 1998 (unaudited)
Consolidated Statements of Operations for the three month periods ended March 31, 1998 and 1997 (unaudited)
Consolidated Statements of Cash Flows for the three month periods ended March 31, 1998 and 1997 (unaudited)
Notes to March 31, 1998 and 1997 Consolidated Financial Statements (unaudited)
Report of Independent Auditors -- Ernst & Young LLP
Balance Sheet as of December 31, 1995
Statement of Operations for period from inception of operations (July 26, 1995) through December 31, 1995
Statement of Changes in Venturers' Capital for the period from inception (July 26, 1995) through December
31, 1995
Statement of Cash Flows for the period from inception (July 26, 1995) through December 31, 1995
Notes to Financial Statements
Arnold Palmer Golf Management LLC and Subsidiaries
Introduction to Pro Forma Financial Statements
Pro Forma Condensed Consolidated Balance Sheet as of March 31, 1998 (unaudited)
Pro Forma Condensed Consolidated Statement of Operations for the three month period ended March 31, 1998
(unaudited)
Pro Forma Condensed Consolidated Statement of Operations for the year ended December 31, 1997 (unaudited)
Notes and Management's Assumptions to Pro Forma Financial Statements (unaudited)
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Report of Independent Certified Public Accountants -- Arthur Andersen LLP
Consolidated Balance Sheets -- March 31, 1998 (unaudited), December 30, 1997 and December 31, 1996
Consolidated Statements of Operations for the three month periods ended March 31, 1998 (unaudited) and
April 1, 1997 (unaudited), the fiscal period ended December 30, 1997 and the 26-day period from Inception
(December 6, 1996) Through December 31, 1996
</TABLE>
II-2
<PAGE> 272
<TABLE>
<S> <C>
Consolidated Statements of Members' Equity for the three month period ended March 31, 1998
(unaudited), the fiscal period ended December 30, 1997, and the 26-day period from Inception
(December 6, 1996) through December 31, 1996
Consolidated Statements of Cash Flows for the three month periods ended March 31, 1998
(unaudited) and April 1, 1997 (unaudited), the fiscal period ended December 30, 1997 and
the 26-day period from Inception (December 6, 1996) through December 31, 1996
Notes to Consolidated Financial Statements
Pacific Golf, Inc.
Report of Independent Public Accountants -- Arthur Andersen LLP
Consolidated Balance Sheet as of December 5, 1996
Consolidated Statement of Operations for the period from January 3, 1996 through December 5,
1996
Consolidated Statement of Cash Flows for the period from January 3, 1996, through December
5, 1996
Consolidated Statement of Stockholders' Equity for the period from January 3, 1996 through
December 5, 1996
Notes to Consolidated Financial Statements
Report of Independent Auditors -- Ernst & Young LLP
Consolidated Balance Sheet as of January 2, 1996
Consolidated Statement of Operations -- for the year ended January 2, 1996
Consolidated Statement of Stockholders' Equity for the year ended January 2, 1996
Consolidated Statement of Cash Flows for the year ended January 2, 1996
Notes to Consolidated Financial Statements
</TABLE>
(b) EXHIBITS.
<TABLE>
<S> <C>
1.1* Form of Underwriting Agreement
3.1 Amended and Restated Declaration of Trust of the Company
3.2 Amended and Restated Bylaws of the Company
4 Specimen Common Share Certificate (reference is also made to
Exhibits 3.1 and 3.2)
5.1** Form of opinion of Rudnick & Wolfe with respect to legality
of the Common Shares being registered
5.2 Form of opinion of Ballard Spahr Andrews & Ingersoll, LLP
with respect to certain matters of Maryland law
8.1 Form of opinion of Rudnick & Wolfe with respect to certain
federal income tax matters
10.1 Form of Amended and Restated Agreement of Limited
Partnership of the Operating Partnership
10.2 Form of Registration Rights Agreement between the Company
and the persons named therein
10.3 1998 Share Option Plan
10.4 1998 Restricted Share Plan
10.5 Form of Expense Sharing Agreement between Arnold Palmer Golf
Management LLC and the Operating Partnership
10.6 Form of Employment Agreement between the Company and Peter
J. Nanula
10.7* Form of Employment Agreement between the Company and Donald
E. Rhodes
10.8 Form of Employment Agreement between the Company and George
T. Haworth
10.9 Form of Indemnification Agreement between the Company and
each trustee and executive officer of the Company
10.10 Partnership Interest Conversion Agreement among the Company,
the Operating Partnership, Oronoque Golf LLC and Arnold
Palmer Golf Management LLC
</TABLE>
II-3
<PAGE> 273
<TABLE>
<S> <C>
10.11 Contribution Agreement between the Company and Arnold Palmer
Golf Management LLC (Penderbrook Golf Club)
10.12 Contribution Agreement between the Company and Arnold Palmer
Golf Management LLC (Memphis National Golf Club)
10.13 Contribution Agreement among the Company, Arnold Palmer Golf
Management LLC and Crofton Golf, LLC
10.14 Contribution/Purchase and Sale Agreement between the
Operating Partnership and Olympus Montclair-Chicago General
Partnership (Indian Lakes Resort and Nordic Hills Resort)
10.15 Form of Participating Lease (Fox Valley, Oronoque,
Brierwood, Tan Tara, Emerald Valley and Minebrook)
10.16 Form of Participating Lease (Crofton, Penderbrook and
Memphis National)
10.17 Form of Participating Lease (Indian Lakes Resort and Nordic
Hills Resort)
10.18* Facility Loan Agreement among the Operating Partnership,
Credit Lyonnais New York Branch and Wells Fargo Bank,
National Association
10.19 Form of Right of First Refusal/Offer Agreement between
Arnold Palmer Golf Management LLC and the Operating
Partnership
21* Subsidiaries of the Company
23.1 Consent of Arthur Andersen LLP
23.2 Consents of Ernst & Young LLP
23.3** Consent of Rudnick & Wolfe (included in Exhibit 5.1 hereof)
23.4 Consent of Ballard Spahr Andrews & Ingersoll LLP (included
in Exhibit 5.2 hereof)
24** Power of Attorney (Peter J. Nanula and George T. Haworth)
24.1 Power of Attorney (David B. Deniger)
27.1** Financial Data Schedule
99.1** Consent of Proposed Trustee (J. David Hakman)
99.2** Consent of Proposed Trustee (Robert L. Adair III)
99.3** Consent of Proposed Trustee (J. Otis Winters)
</TABLE>
- -------------------------
* To be filed by amendment.
** Previously filed.
II-4
<PAGE> 274
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-11 and has duly caused this amendment to
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of San Francisco, State of California, on July 10,
1998.
PRESIDIO GOLF TRUST
By: /s/ PETER J. NANULA
------------------------------------
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
to registration statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S> <C>
/s/ DAVID B. DENIGER* Trustee and Chairman of the Board July 10, 1998
- --------------------------------------------------
/s/ PETER J. NANULA* Trustee, President and Chief July 10, 1998
- -------------------------------------------------- Executive Officer (Principal
Executive Officer)
/s/ GEORGE T. HAWORTH* Executive Vice President and Chief July 10, 1998
- -------------------------------------------------- Financial Officer (Principal
Financial and Accounting Officer)
*By: /s/ PETER J. NANULA July 10, 1998
---------------------------------------------
Individually and as Attorney-in-Fact
</TABLE>
II-5
<PAGE> 275
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1* Form of Underwriting Agreement
3.1 Amended and Restated Declaration of Trust of the Company
3.2 Amended and Restated Bylaws of the Company
4 Specimen Common Share Certificate (reference is also made to
Exhibits 3.1 and 3.2)
5.1** Form of opinion of Rudnick & Wolfe with respect to legality
of the Common Shares being registered
5.2 Form of opinion of Ballard Spahr Andrews & Ingersoll, LLP
with respect to certain matters of Maryland law
8.1 Form of opinion of Rudnick & Wolfe with respect to certain
federal income tax matters
10.1 Form of Amended and Restated Agreement of Limited
Partnership of the Operating Partnership
10.2 Form of Registration Rights Agreement between the Company
and the persons named therein
10.3 1998 Share Option Plan
10.4 1998 Restricted Share Plan
10.5 Form of Expense Sharing Agreement between Arnold Palmer Golf
Management LLC and the Operating Partnership
10.6 Form of Employment Agreement between the Company and Peter
J. Nanula
10.7* Form of Employment Agreement between the Company and Donald
E. Rhodes
10.8 Form of Employment Agreement between the Company and George
T. Haworth
10.9 Form of Indemnification Agreement between the Company and
each trustee and executive officer of the Company
10.10 Partnership Interest Conversion Agreement among the Company,
the Operating Partnership, Oronoque Golf LLC and Arnold
Palmer Golf Management LLC
10.11 Contribution Agreement between the Company and Arnold Palmer
Golf Management LLC (Penderbrook Golf Club)
10.12 Contribution Agreement between the Company and Arnold Palmer
Golf Management LLC (Memphis National Golf Club)
10.13 Contribution Agreement among the Company, Arnold Palmer Golf
Management LLC and Crofton Golf, LLC
10.14 Contribution/Purchase and Sale Agreement between the
Operating Partnership and Olympus Montclair-Chicago General
Partnership (Indian Lakes Resort and Nordic Hills Resort)
10.15 Form of Participating Lease (Fox Valley, Oronoque,
Brierwood, Tan Tara, Emerald Valley and Minebrook)
10.16 Form of Participating Lease (Crofton, Penderbrook and
Memphis National)
10.17 Form of Participating Lease (Indian Lakes Resort and Nordic
Hills Resort)
10.18* Facility Loan Agreement among the Operating Partnership,
Credit Lyonnais New York Branch and Wells Fargo Bank,
National Association
10.19 Form of Right of First Refusal/Offer Agreement between
Arnold Palmer Golf Management LLC and the Operating
Partnership
21* Subsidiaries of the Company
23.1 Consent of Arthur Andersen LLP
23.2 Consents of Ernst & Young LLP
</TABLE>
<PAGE> 276
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
23.3** Consent of Rudnick & Wolfe (included in Exhibit 5.1 hereof)
23.4 Consent of Ballard Spahr Andrews & Ingersoll (included in
Exhibit 5.2 hereof)
24** Power of Attorney (Peter J. Nanula and George T. Haworth)
24.1 Power of Attorney (David B. Deniger)
27.1** Financial Data Schedule
99.1** Consent of Proposed Trustee (J. David Hakman)
99.2** Consent of Proposed Trustee (Robert L. Adair III)
99.3** Consent of Proposed Trustee (J. Otis Winters)
</TABLE>
- -------------------------
* To be filed by amendment.
** Previously filed.
<PAGE> 1
EXHIBIT 3.1
PRESIDIO GOLF TRUST
AMENDED AND RESTATED DECLARATION OF TRUST
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
I FORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
II NAME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
III PURPOSES AND POWERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.1 Purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.2 Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.3 Ultra Vires . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
IV RESIDENT AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
V BOARD OF TRUSTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
5.1 Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
5.2 Number and Classification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
5.3 Resignation, Removal and Death . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.4 Interested Trustee Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.5 Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
VI SHARES OF BENEFICIAL INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.1 Authorized Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.2 Common Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.3 Preferred Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.4 Classified or Reclassified Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.5 Authorization by Board of Share Issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.6 Dividends and Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.7 General Nature of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.8 Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.9 Declaration and Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.10 Divisions and Combinations of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.11 Purchase of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
VII RESTRICTION ON TRANSFER AND OWNERSHIP OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.2 Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.3 Transfer of Shares in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.4 NYSE Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.5 Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.6 Non-Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C> <C>
7.7 Tenant Ownership Limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.8 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
VIII SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
8.1 Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
8.2 Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.3 Preemptive and Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.4 Extraordinary Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.5 Action By Shareholders without a Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
IX LIABILITY LIMITATION, INDEMNIFICATION AND TRANSACTIONS WITH THE TRUST . . . . . . . . . . . . . . . . . . . 27
9.1 Limitation of Shareholder Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.2 Limitation of Trustee and Officer Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.3 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.4 Transactions Between the Trust and its Trustees, Officers, Employees and Agents . . . . . . . . . . 28
9.5 Express Exculpatory Clauses in Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
X AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.2 By Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.3 By Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
XI MERGER, CONSOLIDATION OR SALE OF TRUST PROPERTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
XII DURATION AND TERMINATION OF TRUST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
12.1 Duration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
12.2 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
XIII MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
13.1 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
13.2 Reliance by Third Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
13.3 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
13.4 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
13.5 Recordation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
</TABLE>
ii
<PAGE> 4
PRESIDIO GOLF TRUST
AMENDED AND RESTATED DECLARATION OF TRUST
This Amended and Restated Declaration of Trust (this "Declaration of
Trust") made as of ______________, 1998, by the undersigned Trustees, amends
and restates in its entirety the Declaration of Trust dated April 20, 1998, as
follows:
WHEREAS, the Trustees desire that this Trust qualify as a real estate
investment trust under Title 8 of the Corporations and Associations Article of
the Annotated Code of Maryland, as the same may be amended from time to time
("Title 8") and any successor statute thereto;
WHEREAS, the beneficial interest in the Trust will be divided into
transferable units of one or more classes or series which are referred to
herein as "Shares" and the persons who from time to time are the holders of
Shares may be referred to herein as the "Shareholders"; and
WHEREAS, the Trustees intend to qualify the Trust as a real estate
investment trust under the Internal Revenue Code of 1986, as amended (which
law, as it exists on the date hereof or as it may be amended from time to time
hereafter, may be referred herein as the "Code");
NOW, THEREFORE, the Trustees hereby declare that the following
provisions are all the provisions of the Declaration of Trust, currently in
effect as hereinafter amended.
ARTICLE I
FORMATION
The Trust is a real estate investment trust within the meaning of
Title 8. The Trust shall not be deemed to be a general partnership, limited
partnership, joint venture, joint stock company or a corporation (but nothing
herein shall preclude the Trust from being treated for tax purposes as an
association under the Code).
ARTICLE II
NAME
The name of the Trust is: PRESIDIO GOLF TRUST (the "Trust").
Under circumstances in which the Board of Trustees of the
Trust (the "Board of Trustees" or "Board") determines that the use of the name
of the Trust is not practicable, legal
<PAGE> 5
or convenient, the Trust may use any other designation or name for the Trust.
The Trust shall have the authority to file such assumed name certificates or
other instruments in such places as may be required by applicable law to operate
under such other designation or name.
ARTICLE III
PURPOSES AND POWERS
3.1 PURPOSES. The purposes for which the Trust is formed are to
engage in any activity permitted to real estate investment trusts generally by
Title 8. The Trust shall have all further powers consistent with law and
appropriate to attain its purposes, including, without limitation or
obligation, engaging in business as a real estate investment trust ("REIT")
under Sections 856 through 860 of the Code.
3.2 POWERS. The Trust shall have all of the powers granted to
real estate investment trusts by Title 8 and all other powers set forth in this
Declaration of Trust which are not inconsistent with law and are appropriate to
promote and attain the purposes set forth in the Declaration of Trust.
3.3 ULTRA VIRES. No lack of power by, nor limitation upon the
powers of, the Trust may be asserted in any action, suit or proceeding, except
by a state acting as a regulatory authority or within its police powers, or by
a Shareholder in an action or suit in the right of the Trust against the Trust
and any of its Trustees or officers.
ARTICLE IV
RESIDENT AGENT
The name of the resident agent of the Trust in the State of Maryland
is CSC-Lawyers Incorporating Service Company, whose post office address 11 East
Chase Street, Baltimore, Maryland 21202. The resident agent is a citizen of
and resides in the State of Maryland. The Trust may have such offices or
places of business within or outside the State of Maryland as the Board of
Trustees may from time to time determine.
2
<PAGE> 6
ARTICLE V
BOARD OF TRUSTEES
5.1 POWERS.
(a) Subject to any express limitations contained in this
Declaration of Trust, (i) the business and affairs of the Trust shall be
managed under the direction of the Board of Trustees and (ii) the Board shall
have full, exclusive and absolute power, control and authority over any and all
property of the Trust. The Board may take any action as in its sole judgment
and discretion is necessary or appropriate to conduct the business and affairs
of the Trust. This Declaration of Trust shall be construed with the
presumption in favor of the grant of power and authority to the Board. Any
construction of this Declaration of Trust or determination made in good faith
by the Board concerning its powers and authority hereunder shall be conclusive.
The enumeration and definition of particular powers of the Trustees included in
this Declaration of Trust or in the Bylaws shall in no way be limited or
restricted by reference to or inference from the terms of this or any other
provision of this Declaration of Trust or the Bylaws or construed or deemed by
inference or otherwise in any manner to exclude or limit the powers conferred
upon the Board or the Trustees under the general laws of the State of Maryland
or any other applicable laws.
The Board, without any action by the Shareholders of the Trust, shall
have and may exercise, on behalf of the Trust, without limitation, the power to
determine that compliance with any restriction or limitations on ownership and
transfers of Shares of the Trust's beneficial interest set forth in Article VII
of this Declaration of Trust is no longer required in order for the Trust to
qualify as a REIT; to adopt Bylaws of the Trust, which may thereafter be
amended or repealed as provided therein; to elect officers in the manner
prescribed in the Bylaws; to solicit proxies from holders of Shares of
beneficial interest of the Trust; and to do any other acts and deliver any
other documents necessary or appropriate to the foregoing powers.
(b) The Board of Trustees shall use its reasonable best
efforts to cause the Trust to qualify for U.S. Federal income tax treatment as
a REIT. In furtherance of the foregoing, the Board of Trustees shall use its
reasonable best efforts to take such actions from time to time as are
necessary, and is authorized to take such actions as in its sole judgment and
discretion are desirable, to preserve the status of the Trust as a REIT;
provided, however, that if the Board of Trustees determines that it is no
longer in the best interests of the Trust for the Trust to continue to qualify
as a REIT and such determination is approved by the affirmative vote of a
majority of the Shares of the Trust entitled to vote on such matter at a
meeting of Shareholders, the Board of Trustees may revoke or otherwise
terminate the Trust's election to be taxed as a REIT.
5.2 NUMBER AND CLASSIFICATION. There shall be not less than two
nor more than fifteen Trustees (hereinafter referred to as the "Trustees").
The number of Trustees shall
3
<PAGE> 7
initially be two. Thereafter, the number of Trustees shall be determined from
time to time by resolution of the Board. Except for the initial terms of Class
I and Class II Trustees, as set forth below, the term of office of each Trustee
shall be three years and until the election and qualification of his or her
successor. No Trustee shall be required to give bond, surety or securities to
secure the performance of his duties or obligations hereunder. Whenever a
vacancy in the number of Trustees shall occur, until such vacancy is filled,
the Trustees or Trustee continuing in office, regardless of their number, shall
have all the powers granted to the Trustees and shall discharge all the duties
imposed upon the Trustees by this Declaration of Trust. If for any reason any
or all of the Trustees cease to be Trustees, such event shall not terminate the
Trust or affect the Bylaws of the Trust or the powers of the remaining Trustees
hereunder (even if fewer than two Trustees remain). Any vacancy (other than a
vacancy created by an increase in the number of Trustees) may be filled, at any
regular meeting or at any special meeting called for that purpose, by a
majority of the remaining Trustees, whether or not sufficient to constitute a
quorum. A majority of the entire Board of Trustees may fill a vacancy which
results from an increase in the number of Trustees. Any individual so elected
by the remaining Trustees to serve as Trustee shall hold office until the next
annual meeting of Shareholders. The Trustees shall receive such fees for their
services and expenses as they shall deem reasonable and proper. Immediately
after the closing of the Initial Public Offering (as hereinafter defined), the
Board of Trustees shall include a majority of Trustees who are Disinterested
Trustees (as defined below). As used herein, "Disinterested Trustee" means a
Trustee who is not an Affiliate. As used herein, the term "Affiliate" shall
mean, any Person that (i) is the direct or indirect beneficial owner of five
percent (5%) or more of the outstanding stock or equity interests of the Trust,
or (ii) is an officer of the Trust (provided, however, that an individual
shall not be deemed to be an Affiliate of the Trust solely by virtue of such
individual's status as a Trustee of the Trust). Notwithstanding the foregoing,
no action taken by the Board of Trustees shall be invalid due to a failure of
the Board of Trustees to have at least a majority of Disinterested Trustees.
As used in this Declaration, "Initial Public Offering" means the initial
offering of Shares of beneficial interest of the Trust to the public pursuant
to a registration statement filed with the Securities and Exchange Commission
pursuant to the Securities Act of 1933, as amended.
The Trustees shall be divided into three classes, designated Class I,
Class II and Class III. Each class shall consist, as nearly as may be
possible, of one-third of the total number of Trustees constituting the entire
Board of Trustees. The initial Class I Trustees shall be elected for a
one-year term, the initial Class II Trustees for a two-year term and the
initial Class III Trustees for a three-year term. At each succeeding annual
meeting of Shareholders, beginning with the annual meeting in 1999, successors
to the class of Trustees whose term expires at that annual meeting shall be
elected for a three-year term. If the authorized number of Trustees is
changed, any increase or decrease shall be apportioned among the classes so as
to maintain the number of Trustees in each class as nearly equal as possible,
but in no case will a decrease in the number of Trustees shorten the term of
any incumbent Trustee.
4
<PAGE> 8
On the date this Declaration of Trust was executed the number of
trustees was two (2). The name, address and class of each of the Trustees, who
shall serve until the expiration of the term for such class and until their
successors are duly elected and qualify, are as follows:
NAME ADDRESS CLASS
---- -------- -----
Peter J. Nanula Bldg. 106, Montgomery St. II
Presidio Main Post,
P.O. Box, Suite 29355
San Francisco, CA 94129
David B. Deniger 200 Crescent Ct. III
Suite 1650
Dallas, TX 75201
These Trustees may increase the number of Trustees and fill any vacancy,
whether resulting from an increase in the number of Trustees or otherwise, on
the Board of Trustees prior to the first annual meeting of Shareholders in the
manner provided in the Bylaws. It shall not be necessary to list in the
Declaration of Trust the names and addresses of any Trustees hereafter elected.
5.3 RESIGNATION, REMOVAL AND DEATH. A Trustee may resign at any
time by giving written notice thereof to the other Trustees at the principal
office of the Trust. The acceptance of a resignation shall not be necessary to
make it effective. Subject to the rights of holders of one or more classes or
series of Preferred Shares (as hereinafter defined), a Trustee may be removed
only for cause and only by the vote of the holders of two-thirds of the
outstanding Shares entitled to vote for Trustees generally, which action shall
be taken only by vote at a meeting (including a special meeting called for such
purpose) and not by authorization without a meeting.
5.4 INTERESTED TRUSTEE TRANSACTIONS.
(a) A contract or other transaction between the Trust,
effective upon execution and delivery to the Trust of written
notice or upon any future date specified in the notice, and any of the
Trustees or between the Trust and any other firm or other entity of
which any of the Trustees is a director, trustee or partner or in
which any of the Trustees has a material financial interest is not
void or voidable solely because of any one or more of the following:
(i) The common trusteeship or
directorship or interest;
5
<PAGE> 9
(ii) The presence of the Trustee at the meeting of
the Board or a committee of the Board which authorizes,
approves, or ratifies the contract or transaction; or
(iii) The counting of the vote of the Trustee for
the authorization, approval, or ratification of the contract
or transaction
Provided the following subsection (A) or (B) is complied
with:
(A) the fact of the common trusteeship or interest is
disclosed or known to:
(1) the Board of Trustees or a committee of
Trustees, and the Board or committee authorizes, approves, or
ratifies the contract or transaction by the affirmative vote
of a majority of Disinterested Trustees, even if the
Disinterested Trustees constitute less than a quorum; or
(2) the Shareholders entitled to vote thereon,
and the contract or transaction is authorized, approved, or
ratified by a majority of the votes cast by the Shareholders
who are entitled to vote thereon and who are present, in
person or by proxy, at the meeting where such vote is taken
(excluding, however, both for purposes of determining the
number of Shares entitled to vote and the majority of Shares
as to which any affirmative vote is required, the number and
votes of Shares owned of record or beneficially by the
interested Trustee, firm or other entity); or
(B) the contract or transaction is fair and reasonable to the
Trust.
(1) Common or interested Trustees or the Shares
owned by them or by an interested firm or other entity may be
counted in determining the presence of a quorum at a meeting
of the Board of Trustees or a committee of Trustees or at a
meeting of the Shareholders, as the case may be, at which the
contract or transaction is authorized, approved, or ratified.
(2) Any procedures authorized by the Bylaws or
Title 8 for the indemnification of Trustees shall be deemed to
satisfy paragraph (a) of this Section 5.4.
(3) The Board of Trustees may fix a reasonable
compensation for the services of its members as Trustees.
Such compensation shall not be void or voidable even though
the Board of Trustees did not follow any of the procedures
described in paragraph (a) of this Section 5.4 in fixing such
compensation.
6
<PAGE> 10
5.5 LOANS. The Trust may lend money to, guarantee an obligation
of, or otherwise assist a Trustee or an officer or other employee or agent of
the Trust or of its direct or indirect subsidiary, including an officer or
employee or agent who is a Trustee, if the loan, guarantee or assistance, in
the judgment of the Trustees, reasonably may be expected, whether directly or
indirectly, to benefit the Trust, or is an advance made against indemnification
in accordance with Article 9 of this Declaration of Trust and the Bylaws. The
loan, guarantee, or other assistance may be with or without interest,
unsecured, or secured in any manner that the Board of Trustees approves,
including, without limitation, by a pledge of Shares.
ARTICLE VI
SHARES OF BENEFICIAL INTEREST
6.1 AUTHORIZED SHARES. The beneficial interest in the Trust shall
be divided into transferable units known as Shares evidenced by certificates
which shall specify a person entitled to the rights represented by the Shares
(which person may be referred to herein as the "Registered Owner") and the
transfer of which may be registered upon books maintained for that purpose by
or on behalf of the Trust. Prior to due presentment for registration of the
transfer of a certificate evidencing a Share, the Trust shall treat the
Registered Owner of that Share as the person exclusively entitled to vote, to
receive distributions and notifications and otherwise to exercise all the
rights and powers of the sole and absolute owner of that Share. For so long as
the Trust qualifies as a REIT under Code Sections 856 through 860 and the
Treasury Regulations promulgated thereunder (the "REIT Provisions"), this
Declaration of Trust and the Bylaws shall be construed and acted upon so that
the Shares shall be transferable, subject to the limitations set forth in this
Declaration of Trust, to the maximum extent possible so that the Shares shall
be "transferable shares" or "transferable certificates of beneficial interest"
under Section 856(a)(2) of the Code. The Trust has authority to issue eighty
million common shares of beneficial interest, $.01 par value per share ("Common
Shares"), and twenty million preferred shares of beneficial interest, $.01 par
value per share ("Preferred Shares"). The Board of Trustees may amend this
Declaration of Trust at any time and from time to time without the vote of any
Shareholders to increase or decrease the aggregate number of Shares or the
number of Shares of any class that the Trust has authority to issue.
6.2 COMMON SHARES. Subject to the provisions of Article VII, each
Common Share shall entitle the holder thereof to one vote on each matter upon
which holders of Common Shares are entitled to vote. The Board of Trustees may
reclassify any unissued Common Shares from time to time into one or more
classes or series of Shares (including Preferred Shares). Subject to the
preferences and other rights of any class of Preferred Shares, holders of the
issued and outstanding Common Shares shall be entitled to receive ratably, in
proportion to the number of Common Shares held by them, (a) such dividends and
distributions as may be authorized by the Board of Trustees from time to time,
and (b) upon the liquidation, dissolution or winding up of the Trust, the
assets of the Trust remaining after the payment of creditors.
7
<PAGE> 11
6.3 PREFERRED SHARES. The Board of Trustees may classify any
unissued Preferred Shares and reclassify any previously classified but unissued
Preferred Shares of any series from time to time, by setting or changing the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or distributions, qualifications or terms or
conditions of redemption of the Shares.
6.4 CLASSIFIED OR RECLASSIFIED SHARES. Prior to issuance of
classified or reclassified Shares of any class or series, the Board of Trustees
by resolution shall (a) designate that class or series to distinguish it from
all other classes and series of Shares; (b) specify the number of Shares to be
included in the class or series; (c) set, subject to the provisions of Article
VII and subject to the express terms of any class or series of Shares
outstanding at the time, the preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends or other distributions,
qualifications and terms and conditions of redemption for each class or series;
and (d) cause the Trust to file articles supplementary with the State
Department of Assessments and Taxation of Maryland (the "SDAT"). Any of the
terms of any class or series of Shares set pursuant to clause (c) of this
Section 6.4 may be made dependent upon facts ascertainable outside this
Declaration of Trust (including the occurrence of any event, including a
determination or action by the Trust or any other person or body) and may vary
among holders thereof, provided that the manner in which such facts or
variations shall operate upon the terms of such class or series of Shares is
clearly and expressly set forth in the articles supplementary filed with the
SDAT.
6.5 AUTHORIZATION BY BOARD OF SHARE ISSUANCE. The Board of
Trustees may authorize the issuance from time to time of Shares of any class or
series, whether now or hereafter authorized, or securities or rights
convertible into Shares of any class or series, whether now or hereafter
authorized, for such consideration (whether in cash, property, past or future
services, obligation for future payment or otherwise) as the Board of Trustees
may deem advisable (or without consideration in the case of a Share split or
Share dividend), subject to such restrictions or limitations, if any, as may be
set forth in this Declaration of Trust or the Bylaws of the Trust.
6.6 DIVIDENDS AND DISTRIBUTIONS. The Board of Trustees may from
time to time authorize and declare to Shareholders such dividends or
distributions, in cash or other assets of the Trust or in securities of the
Trust or from any other source as the Board of Trustees in its discretion shall
determine. The Board of Trustees shall endeavor to declare and pay such
dividends and distributions as shall be necessary for the Trust to qualify as a
REIT under the Code; however, Shareholders shall have no right to any dividend
or distribution unless and until authorized and declared by the Board. The
exercise of the powers and rights of the Board of Trustees pursuant to this
Section 6.6 shall be subject to the provisions of any class or series of Shares
at the time outstanding. Notwithstanding any other provision in this
Declaration of Trust, no determination shall be made by the Board of Trustees
nor shall any transaction be entered into by the Trust which would cause any
Shares or other beneficial interest in the Trust not to constitute
"transferable shares" or "transferable certificates of beneficial interest"
under Section
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856(a)(2) of the Code or which would cause any distribution to constitute a
preferential dividend as described in Section 562(c) of the Code.
6.7 GENERAL NATURE OF SHARES. All Shares shall be personal
property entitling the Shareholders only to those rights provided in this
Declaration of Trust. The Shareholders shall have no interest in the property
of the Trust and shall have no right to compel any partition, division,
dividend or distribution of the Trust or of the property of the Trust. The
death of a Shareholder shall not terminate the Trust. The Trust is entitled to
treat as Shareholders only those persons in whose names Shares are registered
as holders of Shares on the beneficial interest ledger of the Trust.
6.8 FRACTIONAL SHARES. The Trust may, without the consent or
approval of any Shareholder, issue fractional Shares, eliminate a fraction of a
Share by rounding up or down to a full Share, arrange for the disposition of a
fraction of a Share by the person entitled to it, or pay cash for the fair
value of a fraction of a Share.
6.9 DECLARATION AND BYLAWS. All Shareholders are subject to the
provisions of this Declaration of Trust and the Bylaws of the Trust.
6.10 DIVISIONS AND COMBINATIONS OF SHARES. Subject to an express
provision to the contrary in the terms of any class or series of beneficial
interest hereafter authorized, the Board of Trustees shall have the power to
divide or combine the outstanding Shares of any class or series of beneficial
interest, without a vote of Shareholders.
6.11 PURCHASE OF SHARES. The Trust may purchase Shares of any
class when authorized by the Board of Trustees. Shares belonging to a
wholly-owned subsidiary of the Trust shall be deemed to be issued, but they
shall not be considered as an asset or liability of the Trust, or as
outstanding for dividend, distribution (other than Share dividends, splits and
combinations), quorum, voting or other purposes.
ARTICLE VII
RESTRICTION ON TRANSFER AND OWNERSHIP OF SHARES
7.1 DEFINITIONS. For the purpose of this Article VII, the
following terms shall have the following meanings:
ADOPTION DATE. The term "Adoption Date" shall mean the
effective date of the Initial Public Offering.
BENEFICIAL OWNERSHIP. The term "Beneficial Ownership" shall
mean ownership of Shares by a Person, whether the interest in Shares
is held directly or indirectly, and
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shall include interests that would be treated as owned through the
application of Section 544 of the Code, as modified by Section
856(h)(1)(B) of the Code, but shall exclude interests that are held
solely by a nominee. The terms "Beneficial Owner," "Beneficially
Owns" and "Beneficially Owned" shall have the correlative meanings.
BUSINESS DAY. The term "Business Day" shall mean any day,
other than a Saturday or Sunday, that is neither a legal holiday nor a
day on which banking institutions in San Francisco, California are
authorized or required by law, regulation or executive order to close.
CHARITABLE BENEFICIARY. The term "Charitable Beneficiary"
shall mean one or more beneficiaries of the Charitable Trust as
determined pursuant to Section 7.3.7, provided that each such
organization must be an organization described in Sections 501(c)(3),
170(b)(1)(A) and 170(c)(2) of the Code.
CHARITABLE TRUST. The term "Charitable Trust" shall mean any
trust provided for in Section 7.2.1(b)(i) and Section 7.3.1.
CHARITABLE TRUSTEE. The term "Charitable Trustee" shall mean
a Person who is unaffiliated with the Trust and a Prohibited Owner and
is appointed by the Trust to serve as trustee of the Charitable Trust.
CODE. The term "Code" shall have the meaning set forth in the
recitals of this Declaration of Trust.
CONSTRUCTIVE OWNERSHIP. The term "Constructive Ownership"
shall mean ownership of Shares by a Person, whether the interest in
Shares is held directly or indirectly (including by a nominee), and
shall include interests that would be treated as owned through the
application of Section 318(a) of the Code, as modified by Section
856(d)(5) of the Code. The terms "Constructive Owner,"
"Constructively Owns" and "Constructively Owned" shall have the
correlative meanings.
DECLARATION OF TRUST. The term "Declaration of Trust" shall
mean this Declaration of Trust as filed for record with the SDAT, and
any amendments thereto.
DISQUALIFIED HOLDER. The term "Disqualified Holder" shall
mean an Excepted Constructive Holder who becomes a Disqualified Holder
pursuant to the provisions of Section 7.7(e).
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EXCEPTED HOLDER. The term "Excepted Holder" shall mean a
Shareholder of the Trust for whom an Excepted Holder Limit is created
by the Board of Trustees pursuant to Section 7.2.7.
EXCEPTED HOLDER LIMIT. The term "Excepted Holder Limit" shall
mean the percentage limit established by the Board of Trustees
pursuant to Section 7.2.7, provided that the affected Excepted Holder
agrees to comply with the requirements established by the Board of
Trustees pursuant to Section 7.2.7, and subject to adjustment pursuant
to Section 7.2.8.
EXCESS SHARES. The term "Excess Shares" shall mean Shares
that would be designated as such pursuant to Section 7.2.1 of this
Declaration of Trust.
INITIAL DATE. The term "Initial Date" shall mean the date
upon which this Declaration of Trust containing this Article VII is
accepted for record by the SDAT.
MARKET PRICE. The term "Market Price" on any date shall mean,
with respect to any class or series of outstanding Shares, the Closing
Price for such Shares on such date. The "Closing Price" on any date
shall mean the last sale price for such Shares, regular way, or, in
case no such sale takes place on such day, the average of the closing
bid and asked prices, regular way, for such Shares, in either case as
reported in the principal consolidated transaction reporting system
with respect to securities listed or admitted to trading on the NYSE
or, if such Shares are not listed or admitted to trading on the NYSE,
as reported on the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities
exchange on which such Shares are listed or admitted to trading or, if
such Shares are not listed or admitted to trading on any national
securities exchange, the last quoted price, or, if not so quoted, the
average of the high bid and low asked prices in the over-the-counter
market, as reported by the NASDAQ Stock Market or, if such system is
no longer in use, the principal other automated quotation system that
may then be in use or, if such Shares are not quoted by any such
organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in such
Shares selected by the Board of Trustees or, in the event that no
trading price is available for such Shares, the fair market value of
Shares, as determined in good faith by the Board of Trustees.
NYSE. The term "NYSE" shall mean the New York Stock Exchange,
Inc.
OWNERSHIP LIMIT. The term "Ownership Limit" shall mean 9.8%
(in value or number of Shares, whichever is more restrictive) of the
total outstanding Shares of the Trust.
PERSON. The term "Person" shall mean an individual,
corporation, partnership, estate, trust (including a trust qualified
under Sections 401(a) or 501(c)(17) of the Code),
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a portion of a trust permanently set aside for or to be used
exclusively for the purposes described in Section 642(c) of the Code,
association, private foundation within the meaning of Section 509(a)
of the Code, joint stock company or other entity and also includes a
group as that term is used for purposes of Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended.
PROHIBITED OWNER. The term "Prohibited Owner" shall mean,
with respect to any purported Transfer, any Person who, but for the
provisions of Section 7.2.1, would Beneficially Own or Constructively
Own Shares, and if appropriate in the context, shall also mean any
Person who would have been the record owner of Shares that the
Prohibited Owner would have so owned.
REAL PROPERTY OR REAL ESTATE. The term "Real Property" or
"Real Estate" shall mean land, rights in land (including leasehold
interests), and any buildings, structures, improvements, furnishings,
fixtures and equipment located on or used in connection with land and
rights or interests in land.
REIT. The term "REIT" shall mean a real estate investment
trust within the meaning of Section 856 of the Code.
RESTRICTION TERMINATION DATE. The term "Restriction
Termination Date" shall mean the first day after the Initial Date on
which the Board of Trustees determines with the approval of the
Shareholders as provided in Section 5.1(b) that it is no longer in the
best interests of the Trust to attempt to, or continue to, qualify as
a REIT or that compliance with the restrictions and limitations on
Beneficial Ownership, Constructive Ownership and Transfers of Shares
set forth herein is no longer required in order for the Trust to
qualify as a REIT.
SDAT. The term "SDAT" shall mean the State Department of
Assessments and Taxation of Maryland.
TENANT. The term "Tenant" shall mean any person that leases
(or subleases) Real Property of the Trust.
TRANSFER. The term "Transfer" shall mean any issuance, sale,
transfer, gift, assignment, devise or other disposition, as well as
any other event that causes any Person to acquire Beneficial Ownership
or Constructive Ownership, or any agreement to take any such actions
or cause any such events, of Shares or the right to vote or receive
dividends on Shares, including (a) a change in the capital structure
of the Trust, (b) a change in the relationship between two or more
Persons which causes a change in ownership of Shares by application of
Section 544 of the Code, as modified by Section 856(h), (c) the
granting or exercise of any option or warrant (or any disposition of
any option or warrant), pledge, security interest, or similar right to
acquire Shares, (d) any
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disposition of any securities or rights convertible into or
exchangeable for Shares or any interest in Shares or any exercise of
any such conversion or exchange right and (e) Transfers of interests
in other entities that result in changes in Beneficial or Constructive
Ownership of Shares; in each case, whether voluntary or involuntary,
whether owned of record, Constructively Owned or Beneficially Owned
and whether by operation of law or otherwise. (For purposes of this
Article VII, the right of a limited partner in Presidio Golf Limited
Partnership, a Delaware limited partnership, to require the
partnership to redeem such limited partner's units of partnership
interest pursuant to Section 8.6 of the Agreement of Limited
Partnership of Presidio Golf Limited Partnership shall not be
considered to be an option or similar right to acquire Shares of the
Trust.) The terms "Transferring" and "Transferred" shall have the
correlative meanings.
7.2 SHARES.
7.2.1 OWNERSHIP LIMITATIONS. During the period commencing
on the Initial Date and prior to the Restriction Termination Date, except as
provided in Section 7.2.7:
(a) BASIC RESTRICTIONS.
(i) (1) No Person, other than an
Excepted Holder, shall Beneficially Own or Constructively Own Shares
in excess of the Ownership Limit and (2) no Excepted Holder shall
Beneficially Own or Constructively Own Shares in excess of the
Excepted Holder Limit for such Excepted Holder.
(ii) No Person shall Beneficially or
Constructively Own Shares to the extent that (1) such Beneficial or
Constructive Ownership of Shares would result in the Trust being
"closely held" within the meaning of Section 856(h) of the Code
(without regard to whether the ownership interest is held during the
last half of a taxable year), or (2) such Beneficial or Constructive
Ownership of Shares would result in the Trust otherwise failing to
qualify as a REIT (including, but not limited to, Constructive
Ownership that would result in the Trust owning (actually or
Constructively) an interest in a tenant that is described in Section
856(d)(2)(B) of the Code if the income derived by the Trust from such
tenant would cause the Trust to fail to satisfy any of the gross
income requirements of Section 856(c) of the Code).
(iii) No Person shall Transfer any Shares
if, as a result of the Transfer, the Shares would be beneficially
owned by less than 100 Persons (determined without reference to the
rules of attribution under the Code).
(iv) Notwithstanding any other provisions
contained in this Declaration of Trust, any Transfer of Shares,
subject to Section 7.4 herein, that, if effective, would result in
Shares being beneficially owned by less than 100 Persons (determined
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under the principles of Section 856(a)(5) of the Code) shall be void
ab initio, and the intended transferee shall acquire no rights in such
Shares.
(v) Any transfer that, if effective,
would result in the failure of the Trust to qualify as a domestically
controlled REIT (as defined in Section 897 (h) (4) of the Code) shall
be void ab initio as to the transfer of such Shares, which would be
otherwise Beneficially Owned by the transferee; and the intended
transferee shall acquire no rights in such Shares.
(vi) Any transfer that, if effective,
would cause the Trust to fail to qualify as a REIT pursuant to the
REIT Provisions shall be void ab initio as to the transfer of such
Shares, which would be otherwise Beneficially Owned by the transferee;
and the intended transferee shall acquire no rights in such Shares.
(b) TRANSFER IN TRUST. (i) If any Transfer of
Shares, subject to Section 7.4 herein, occurs which, if effective,
would result in any Person Beneficially Owning or Constructively
Owning Shares in violation of Section 7.2.1(a)(i), (ii), (iv) or (v).
(A) then that number of Shares the Beneficial or
Constructive Ownership of which otherwise would cause such Person to
violate Section 7.2.1(a)(i) or (ii) (rounded up to the nearest whole
share) shall be automatically and by operation of law transferred to a
Charitable Trust for the benefit of a Charitable Beneficiary, as
described in Section 7.3, effective as of the close of business on the
Business Day prior to the date of such Transfer, and such Person shall
acquire no rights in such Shares; or
(B) if the transfer to the Charitable Trust described in
clause (i) of this sentence would not be effective for any reason to
prevent the violation of Section 7.2.1(a)(i), (ii), (iv) or (v), then
the Transfer of that number of Shares that otherwise would cause any
Person to violate Section 7.2.1(a)(i) or (ii) shall be void ab initio,
and the intended transferee shall acquire no rights in such Shares.
(ii) In addition, if a person (the "nonreporting
Person") who Beneficially Owns more than 5.0% of the outstanding
Shares does not provide all of the information required by Section
7.2.4 hereof and, as a result, five or fewer Persons would, but for
the exchange required by this paragraph, Beneficially Own, in the
aggregate, more than 49.9% of the outstanding Shares, then, as of the
day prior to the date on which such aggregate ownership would have
come to exceed 49.9%, Shares Beneficially Owned by such nonreporting
Person in excess of 5.0% of the outstanding Shares to the extent not
described on the written notice, if any, provided by such nonreporting
Person pursuant to Section 7.2.4 hereof, shall be designated Excess
Shares and, in accordance with Section 7.2.1 of this Article,
transferred automatically and by
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operation of law to the Charitable Trust to the extent necessary to
prevent such aggregate ownership from exceeding 49.9%.
7.2.2 REMEDIES FOR BREACH. If the Board of Trustees or any
duly authorized committee thereof shall at any time determine in good faith
that a Transfer or other event has taken place that results in a violation of
Section 7.2.1 or that a Person intends to acquire or has attempted to acquire
Beneficial or Constructive Ownership of any Shares in violation of Section
7.2.1 (whether or not such violation is intended), the Board of Trustees or a
committee thereof shall take such action as it deems advisable to refuse to
give effect to or to prevent such Transfer or other event, including, without
limitation, causing the Trust to redeem Shares, refusing to give effect to such
Transfer on the books of the Trust or instituting proceedings to enjoin such
Transfer or other event; provided, however, that any Transfer or attempted
Transfer or other event in violation of Section 7.2.1 shall automatically
result in the transfer to the Charitable Trust described above, and, where
applicable, such Transfer (or other event) shall be void ab initio as provided
above irrespective of any action (or non-action) by the Board of Trustees or a
committee thereof.
7.2.3 NOTICE OF RESTRICTED TRANSFER. Any Person who
acquires or attempts or intends to acquire Beneficial Ownership or Constructive
Ownership of Shares that will or may violate Section 7.2.1(a), or any Person
who would have owned Shares that resulted in a transfer to the Charitable Trust
pursuant to the provisions of Section 7.2.1(b), shall immediately give written
notice to the Trust of such event, or in the case of such a proposed or
attempted transaction, give at least 15 days prior written notice, and shall
provide to the Trust such other information as the Trust may request in order
to determine the effect, if any, of such acquisition or ownership on the
Trust's status as a REIT.
7.2.4 OWNERS REQUIRED TO PROVIDE INFORMATION. From the
Initial Date and prior to the Restriction Termination Date:
(a) every owner of more than five percent (or
such lower percentage as required by the Code or the Treasury
Regulations promulgated thereunder) of the outstanding Shares, within
30 days after the end of each taxable year, shall give written notice
to the Trust stating the name and address of such owner, the number of
Shares Beneficially Owned and a description of the manner in which
such Shares are held; provided that a Shareholder of record who holds
outstanding Shares as nominee for another Person, which other Person
is required to include in gross income the dividends received on such
Shares (an "Actual Owner"), shall give written notice to the Trust
stating the name and address of such Actual Owner and the number of
Shares of such Actual Owner with respect to which the Shareholder of
record is nominee. Each owner shall provide to the Trust such
additional information as the Trust may request in order to determine
the effect, if any, of such Beneficial Ownership on the Trust's status
as a REIT and to ensure compliance with the Ownership Limit; and
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(b) each Person who is a Beneficial or
Constructive Owner of Shares and each Person (including the
Shareholder of record) who is holding Shares for a Beneficial or
Constructive Owner shall provide to the Trust such information as the
Trust may request, in good faith, in order to determine the Trust's
status as a REIT and to comply with requirements of any taxing
authority or governmental authority or to determine such compliance.
7.2.5 REMEDIES NOT LIMITED. Subject to Sections 5.1 and
7.4 of this Declaration of Trust, nothing contained in this Section 7.2 shall
limit the authority of the Board of Trustees to take such other action as it
deems necessary or advisable to protect the Trust and the interests of its
Shareholders in preserving the Trust's status as a REIT.
7.2.6 AMBIGUITY. In the case of an ambiguity in the
application of any of the provisions of this Section 7.2, Section 7.3 or any
definition contained in Section 7.1, the Board of Trustees shall have the power
to determine the application of the provisions of this Section 7.2 or Section
7.3 with respect to any situation based on the facts known to it. If Section
7.2 or 7.3 or the meaning of any definitions contained in Section 7.1 requires
an action by the Board of Trustees and this Declaration of Trust fails to
provide specific guidance with respect to such action, the Board of Trustees
shall have the power to determine the action to be taken so long as such action
is not contrary to the provisions of this Article VII.
7.2.7 EXCEPTIONS.
(a) The Board, in its sole and absolute
discretion, may grant to any Person who makes a request therefor an
exception to the Ownership Limit with respect to the ownership of any
Shares, subject to the following conditions and limitations: (A) the
Board shall have determined that (x) assuming such Person would
Beneficially or Constructively Own the maximum amount of Shares
permitted as a result of the exception to be granted and (y) assuming
that all other Persons who would be treated as "individuals" for
purposes of Section 542(a)(2) (determined taking into account Section
856(h)(3)(A) of the Code) would Beneficially or Constructively Own the
maximum amount of Shares permitted under this Article VII (taking into
account any exception, waiver, or exemption granted under this Section
7.2.7 to (or with respect to) such Persons), the Trust would not be
"closely held" within the meaning of Section 856(h) of the Code
(assuming that the ownership of Shares is determined during the second
half of a taxable year) and would not otherwise fail to qualify as a
REIT; (B) the Board shall have determined that the Trust would not be
considered to receive or accrue any amounts directly or indirectly
from any person described in Section 856(d)(2)(B) of the Code, unless
the Board, in its sole and absolute discretion, determines that the
receipt or accrual of any such amounts would not otherwise cause the
Trust to fail to satisfy any of the gross income requirements of
Section 856(c) of the Code or otherwise cause the Trust to fail to
qualify as a REIT; and (C) such Person provides to the Board such
representations and undertakings, if any, as the Board may, in its
sole and absolute
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discretion, determine to be necessary in order for it to make the
determination that the conditions set forth in clauses (A) and (B)
above of this Section 7.2.7(a) have been and/or will continue to be
satisfied (including, without limitation, an agreement as to a reduced
Ownership Limit or Excepted Holder Limit for such Person with respect
to the Beneficial or Constructive Ownership of one or more other
classes of Shares not subject to the exception), and such Person
agrees that any violation of such representations and undertakings or
any attempted violation thereof will result in the application of the
remedies set forth in Section 7.2 with respect to Shares held in
excess of the Ownership Limit or the Excepted Holder Limit (as may be
applicable) with respect to such Person (determined without regard to
the exception granted such Person under this subparagraph (a)). If a
member of the Board requests that the Board grant an exception
pursuant to this subparagraph (a) with respect to such member or with
respect to any other Person if such Board member would be considered
to be the Beneficial or Constructive Owner of Shares owned by such
Person, such member of the Board shall not participate in the decision
of the Board as to whether to grant any such exception.
(b) In addition to exceptions permitted under
subparagraph (a) above, the Board may except a Person from the
Ownership Limit if: (i) such Person submits to the Board information
satisfactory to the Board, in its reasonable discretion, demonstrating
that such Person is not an individual for purposes of Section
542(a)(2) of the Code (determined taking into account Section
856(h)(3)(A) of the Code); (ii) such Person submits to the Board
information satisfactory to the Board, in its reasonable discretion,
demonstrating that no Person who is an individual for purposes of
Section 542(a)(2) of the Code (determined taking into account Section
856(h)(3)(A) of the Code) would be considered to Beneficially Own
Shares in excess of the Ownership Limit by reason of the Excepted
Holder's ownership of Shares in excess of the Ownership Limit pursuant
to the exception granted under this subparagraph (b); (iii) such
Person submits to the Board information satisfactory to the Board, in
its reasonable discretion, demonstrating that clause (2) of
subparagraph (a)(ii) of Section 7.2.1 will not be violated by reason
of the Excepted Holder's ownership of Shares in excess of the
Ownership Limit pursuant to the exception granted under this
subparagraph (b); and (iv) such Person provides to the Board such
representations and undertakings, if any, as the Board may, in its
reasonable discretion, require to ensure that the conditions in
clauses (i), (ii) and (iii) hereof are satisfied and will continue to
be satisfied throughout the period during which such Person owns
Shares in excess of the Ownership Limit pursuant to any exception
thereto granted under this subparagraph (b), and such Person agrees
that any violation of such representations and undertakings or any
attempted violation thereof will result in the application of the
remedies set forth in Section 7.2 with respect to Shares held in
excess of the Ownership Limit with respect to such Person (determined
without regard to the exception granted such Person under this
subparagraph (b)).
(c) Prior to granting any exception or exemption
pursuant to subparagraph (a) or (b), the Board may require a ruling
from the Internal Revenue
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Service or an opinion of counsel, in either case in form and substance
satisfactory to the Board, in its sole and absolute discretion as it
may deem necessary or advisable in order to determine or ensure the
Trust's status as a REIT; provided, however, that the Board shall not
be obligated to require obtaining a favorable ruling or opinion in
order to grant an exception hereunder.
(d) Subject to Section 7.2.1(a)(ii), an
underwriter that participates in a public offering or a private
placement of Shares (or securities convertible into or exchangeable
for Shares) may Beneficially or Constructively Own Shares (or
securities convertible into or exchangeable for Shares) in excess of
the Ownership Limit, but only to the extent necessary to facilitate
such public offering or private placement.
(e) The Excepted Holder Limit for an Excepted
Holder shall be decreased after any transfer permitted in this Article
VII by such Excepted Holder by the percentage of the outstanding
Shares so transferred. The Board of Trustees may also reduce the
Excepted Holder Limit for an Excepted Holder: (1) with the written
consent of such Excepted Holder at any time, or (2) pursuant to the
terms and conditions of the agreements and undertakings entered into
with such Excepted Holder in connection with the establishment of the
Excepted Holder Limit for that Excepted Holder. Except as provided in
Section 7.7, no Excepted Holder Limit shall be reduced to a percentage
that is less than the Ownership Limit.
(f) Notwithstanding anything contained in this
Declaration to the contrary, any exception to the Ownership Limit
granted by the Board pursuant to this Section 7.2.7 shall be valid
only if, and for so long as, such Excepted Holder is not a
Disqualified Holder under Section 7.7(e) below.
7.2.8 MODIFICATIONS IN OWNERSHIP LIMIT. The Board of
Trustees may from time to time modify the Ownership Limit, subject to the
limitations provided in this Section 7.2.8.
(a) The Ownership Limit may not be increased if,
after giving effect to such modification, five Persons who are
considered individuals pursuant to Section 542 of the Code, as
modified by Section 856(h)(3) of the Code (taking into account all of
the Excepted Holders), could Beneficially Own, in the aggregate, more
than 49.5% of the value of the outstanding Shares.
(b) Prior to the modification of the Ownership
Limit pursuant to this Section 7.2.8, the Board may require such
opinions of counsel, affidavits, undertakings or agreements as it may
deem necessary or advisable in order to determine or ensure the
Trust's status as a REIT if the modification in the Ownership Limit
were to be made.
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7.2.9 LEGEND. Each certificate for Shares shall bear
substantially the following legend:
The shares represented by this certificate are subject to
restrictions on Beneficial and Constructive Ownership and
Transfer for the purpose, among others, of the Trust's
maintenance of its status as a Real Estate Investment Trust (a
"REIT") under the Internal Revenue Code of 1986, as amended
(the "Code"). Subject to certain further restrictions and
except as expressly provided in the Trust's Declaration of
Trust, (i) no Person may Beneficially or Constructively Own
Shares of the Trust in excess of 9.8 percent (in value or
number of shares or such other percentage as may be determined
by the Board of Trustees pursuant to this Declaration of
Trust) of the outstanding Common Shares of the Trust unless
such Person is an Excepted Holder (in which case the Excepted
Holder Limit shall be applicable); (ii) no Person may
Beneficially or Constructively Own Shares that would result in
the Trust being "closely held" under Section 856(h) of the
Code or otherwise cause the Trust to fail to qualify as a
REIT; and (iii) no Person may Transfer Shares if such Transfer
would result in Shares of the Trust being owned by fewer than
100 Persons. Any Person who Beneficially or Constructively
Owns or attempts to Beneficially or Constructively Own Shares
which cause or will cause a Person to Beneficially or
Constructively Own Shares in excess or in violation of the
above limitations must immediately notify the Trust. If any
of the restrictions on transfer or ownership are violated, the
Shares represented hereby will automatically and by operation
of law be transferred to a Charitable Trustee of a Charitable
Trust for the benefit of one or more Charitable Beneficiaries.
In addition, upon the occurrence of certain events, attempted
Transfers in violation of the restrictions described above may
be void ab initio. A Person who attempts to Beneficially or
Constructively Own Shares in violation of the ownership
limitations described above shall have no claim, cause of
action, or any recourse whatsoever against a transferor of
such Shares. All capitalized terms in this legend have the
meanings defined in the Trust's Declaration of Trust, as the
same may be amended from time to time, a copy of which,
including the restrictions on transfer and ownership, will be
furnished to each holder of Shares of the Trust on request and
without charge. Such request must be made to the Secretary of
the Trust at its principal office.
Instead of the foregoing legend, the certificate may state that the
Trust will furnish a full statement about certain restrictions on
transferability to a Shareholder on request and without charge.
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7.3 TRANSFER OF SHARES IN TRUST.
7.3.1 OWNERSHIP IN TRUST. Upon any purported Transfer or
other event described in Section 7.2.1(b) that would result in a transfer of
Shares to a Charitable Trust, such Shares shall be deemed to have been
transferred to the Charitable Trustee as trustee of a Charitable Trust for the
exclusive benefit of one or more Charitable Beneficiaries. Such transfer to
the Charitable Trustee shall be deemed to be effective as of the close of
business on the Business Day prior to the purported Transfer or other event
that results in the transfer to the Charitable Trust pursuant to Section
7.2.1(b). Where a transfer or other event results in an automatic designation
of Shares of more than one class or series as Excess Shares, then separate
Charitable Trusts shall be deemed to have been established for the Excess
Shares attributable to the Shares of each such class or series. The Charitable
Trustee shall be appointed by the Trust and shall be a Person unaffiliated with
the Trust and any Prohibited Owner. Each Charitable Beneficiary shall be
designated by the Trust as provided in Section 7.3.7.
7.3.2 STATUS OF SHARES HELD BY THE CHARITABLE TRUSTEE.
Excess Shares held by the Charitable Trustee shall be issued and outstanding
Shares of the Trust. The Prohibited Owner shall have no rights in the Excess
Shares held by the Charitable Trustee. The Prohibited Owner shall not benefit
economically from ownership of any Shares held in trust by the Charitable
Trustee, shall have no rights to dividends or other distributions and shall not
possess any rights to vote or other rights attributable to the Shares held in
the Charitable Trust. The Prohibited Owner shall have no claim, cause of
action, or any other recourse whatsoever against the purported transferor of
such Shares.
7.3.3 DIVIDEND AND VOTING RIGHTS. The Charitable Trustee
shall have all voting rights and rights to dividends or other distributions
with respect to Shares held in the Charitable Trust, which rights shall be
exercised for the exclusive benefit of the Charitable Beneficiary. Any
dividend or other distribution paid prior to the discovery by the Trust that
Shares have been transferred to the Charitable Trustee shall be paid with
respect to such Shares to the Charitable Trustee upon demand and any dividend
or other distribution authorized but unpaid shall be paid when due to the
Charitable Trustee. Any dividends or distributions so paid over to the
Charitable Trustee shall be held in trust for the Charitable Beneficiary. The
Prohibited Owner shall have no voting rights with respect to Shares held in the
Charitable Trust and, subject to Maryland law, effective as of the date that
Shares have been transferred to the Charitable Trustee, the Charitable Trustee
shall have the authority (at the Charitable Trustee's sole discretion) (i) to
rescind as void any vote cast by a Prohibited Owner prior to the discovery by
the Trust that Shares have been transferred to the Charitable Trustee and (ii)
to recast such vote in accordance with the desires of the Charitable Trustee
acting for the benefit of the Charitable Beneficiary; provided, however, that
if the Trust has already taken irreversible action, then the Charitable Trustee
shall not have the power to rescind and recast such vote. Notwithstanding the
provisions of this Article VII, until the Trust has received notification that
Shares have been transferred into a Charitable Trust, the Trust shall be
entitled to rely on its share transfer and other shareholder records for
purposes of preparing lists of Shareholders entitled to vote at
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meetings, determining the validity and authority of proxies and otherwise
conducting votes of Shareholders.
7.3.4 RIGHTS UPON LIQUIDATION. Upon any voluntary or
involuntary liquidation, dissolution or winding up of or any distribution of
the assets of the Trust, the Charitable Trustee shall be entitled to receive,
ratably with each other holder of Shares of the class or series of Shares that
is held in the Charitable Trust, that portion of the assets of the Trust
available for distribution to the holders of such class or series (determined
based upon the ratio that the number of Shares or such class or series of
Shares held by the Charitable Trustee bears to the total number of Shares of
such class or series of Shares then outstanding). The Charitable Trustee shall
distribute any such assets received in respect of the Shares held in the
Charitable Trust in any liquidation, dissolution or winding up of, or
distribution of the assets of the Trust, in accordance with Section 7.3.5.
Notwithstanding the foregoing, the amount to which a Prohibited Owner shall be
entitled upon liquidation shall not exceed the amount determined as if Section
7.3.5 of this Article were applicable and any excess amount shall be
distributed to the Charitable Beneficiary.
7.3.5 SALE OF SHARES BY CHARITABLE TRUSTEE. Within 20 days
of receiving notice from the Trust that Shares have been transferred to the
Charitable Trust, the Charitable Trustee of the Charitable Trust shall sell the
Shares held in the Charitable Trust to a person, designated by the Charitable
Trustee, whose ownership of the Shares will not violate the ownership
limitations set forth in Section 7.2.1(a). Upon such sale, the interest of the
Charitable Beneficiary in the Shares sold shall terminate and the Charitable
Trustee shall distribute the net proceeds of the sale to the Prohibited Owner
and to the Charitable Beneficiary as provided in this Section 7.3.5. The
Prohibited Owner shall receive the lesser of (1) the price paid by the
Prohibited Owner for the Shares or, if the Prohibited Owner did not give value
for the Shares in connection with the event causing the Shares to be held in
the Charitable Trust (e.g., in the case of a gift, devise or other such
transaction), the Market Price of the Shares on the day of the event causing
the Shares to be held in the Charitable Trust and (2) the price per share
received by the Charitable Trustee from the sale or other disposition of the
Shares held in the Charitable Trust. Any net sales proceeds in excess of the
amount payable to the Prohibited Owner shall be immediately paid to the
Charitable Beneficiary. If, prior to the discovery by the Trust that Shares
have been transferred to the Charitable Trustee, such Shares are sold by a
Prohibited Owner, then (i) such Shares shall be deemed to have been sold on
behalf of the Charitable Trust and (ii) to the extent that the Prohibited Owner
received an amount for such Shares that exceeds the amount that such Prohibited
Owner was entitled to receive pursuant to this Section 7.3.5, such excess shall
be paid to the Charitable Trustee upon demand. The Charitable Trustee shall
have the right and power (but not the obligation) to offer any Equity Share
held in trust for sale to the Trust on such terms and conditions as the
Charitable Trustee shall deem appropriate.
7.3.6 PURCHASE RIGHT IN EXCESS SHARES TRANSFERRED TO THE
CHARITABLE TRUSTEE. Excess Shares transferred to the Charitable Trustee shall
be deemed to have been
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offered for sale to the Trust, or its designee, at a price per share equal to
the lesser of (i) the price per share in the transaction that resulted in such
transfer to the Charitable Trust (or, in the case of a devise or gift, the
Market Price at the time of such devise or gift) and (ii) the Market Price on
the date the Trust, or its designee, accepts such offer. The Trust shall have
the right to accept such offer until the Charitable Trustee has sold the Excess
Shares held in the Charitable Trust pursuant to Section 7.3.5. Upon such a
sale to the Trust, the interest of the Charitable Beneficiary in the Excess
Shares sold shall terminate and the Charitable Trustee shall distribute the net
proceeds of the sale to the Prohibited Owner and any dividends or other
distributions held by the Trustee with respect to such Excess Shares shall
thereupon be paid to the Charitable Beneficiary.
7.3.7 DESIGNATION OF CHARITABLE BENEFICIARIES. By written
notice to the Charitable Trustee, the Trust shall designate one or more
nonprofit organizations to be the Charitable Beneficiary of the interest in the
Charitable Trust such that (i) Shares held in the Charitable Trust would not
violate the restrictions set forth in Section 7.2.1(a) in the hands of such
Charitable Beneficiary and (ii) each such organization must be an organization
described in Sections 501(c)(3), 170(b)(1)(A) or 170(c)(2) of the Code.
7.4 NYSE TRANSACTIONS. Nothing in this Article VII shall preclude
the settlement of any transaction entered into through the facilities of the
NYSE or any other national securities exchange or automated inter-dealer
quotation system. The fact that the settlement of any transaction takes place
or occurs shall not negate the effect of any other provision of this Article
VII and any transferee in such a transaction shall be subject to all of the
provisions and limitations set forth in this Declaration of Trust.
7.5 ENFORCEMENT. The Trust is authorized specifically to seek
equitable relief, including injunctive relief, to enforce the provisions of
this Article VII.
7.6 NON-WAIVER. No delay or failure on the part of the Trust or
the Board of Trustees in exercising any right hereunder shall operate as a
waiver of any right of the Trust or the Board of Trustees, as the case may be,
except to the extent specifically waived in writing.
7.7 TENANT OWNERSHIP LIMITATION.
(a) NOTICE REQUIREMENT. An Excepted Holder shall,
immediately upon the occurrence of an event causing such Excepted
Holder to Constructively Own 5.0% or more of (i) in the case of a
Tenant that is a corporation, the outstanding voting power or the
total number of outstanding shares of such Tenant, or (ii) in the case
of a Tenant that is not a corporation, the assets or net profits of
such Tenant, give written notice to the Trust of its Constructive
Ownership of interests in such Tenant. Such notice shall specify, as
a percentage, (A) in the case of a Tenant that is a corporation, such
Excepted Holder's Constructive Ownership of the outstanding voting
power and the total number of outstanding shares of such Tenant, or
(B) in the case of a Tenant that is not a
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corporation, such Excepted Holder's Constructive Ownership of the
assets and net profits of such Tenant. Excepted Holders that
Constructively Own such an interest in a Tenant on the Adoption Date
shall so notify the Trust within 30 days after the Adoption Date.
(b) OWNERSHIP REGISTRATION. Upon receipt of a notice
described in Section 7.7(a) (a "Section 7.7(a) Notice"), the Trust
shall immediately notify the other Excepted Holders of the name of the
Tenant subject to the Section 7.7(a) Notice (the "Designated Tenant").
Each other Excepted Holder shall, within 30 days after receiving such
notice from the Trust, provide the Trust with written notice (a
"Section 7.7(b) Notice") specifying, as a percentage, (i) where the
Designated Tenant is a corporation, such Excepted Holder's
Constructive Ownership of the outstanding voting power and the total
number of outstanding shares of such Designated Tenant, or (ii) where
the Designated Tenant is not a corporation, such Excepted Holder's
Constructive Ownership of the assets and net profits of such
Designated Tenant.
(c) NOTICE OF CHANGES IN OWNERSHIP. While a Tenant is a
Designated Tenant, each Excepted Holder shall, within 20 days of any
event causing a change in the percentage levels of such Excepted
Holder's Constructive Ownership of such Designated Tenant, notify the
Trust of changes in the information contained in such Excepted
Holder's Section 7.7(a) Notice or Section 7.7(b) Notice with respect
to such Designated Tenant (or any update of such information pursuant
to this Section 7.7(c)).
(d) RECORD KEEPING. The secretary of the Trust shall
maintain a record of the aggregate Constructive Ownership of each
Designated Tenant by the Excepted Holders and shall make such record
available to an Excepted Holder upon request. A Designated Tenant
shall remain a Designated Tenant for so long as there is an Excepted
Holder which constructively Owns 5.0% or more of (i) in the case of a
Designated Tenant that is a corporation, the outstanding voting power
or the total number of outstanding shares of such Designated Tenant,
or (ii) in the case of a Designated Tenant that is not a corporation,
the assets or net profits of such Designated Tenant. The secretary of
the Trust shall notify the Excepted Holder when the status of a Tenant
as a Designated Tenant terminates. An Excepted Holder's status as a
Disqualified Holder will terminate when the status of the Tenant with
respect to which such disqualified status arose as a Designated Tenant
terminates.
(e) EXCESS OWNERSHIP. If, at any time from the Adoption
Date to the Restriction Termination Date, the aggregate Constructive
Ownership of a Tenant (the "Related Party Tenant") by one or more
Excepted Holders equals or exceeds 10.0% of (i) in the case of a
Tenant that is a corporation, the outstanding voting power or the
total number of outstanding shares of such Tenant, or (ii) in the case
of a Tenant that is not a corporation, the assets or net profits of
such Tenant, then, one or more of the Excepted Holders shall be a
Disqualified Holder, in accordance with the rules set forth below.
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(A) EXCESS OWNERSHIP OF A NON-DESIGNATED TENANT.
If the Related Party Tenant is not a Designated Tenant, then
each Excepted Holder whose Constructive Ownership of interests
in such Related Party Tenant is such that such Excepted Holder
is required to provide a Section 7.7(a) Notice shall be a
Disqualified Holder as of the first date that the aggregate
Constructive Ownership of a Tenant described in Section 7.7(e)
first came to equal or exceed 10.0%, and to the extent that
each such Disqualified Holder Constructively Owns 10% or more
of the aggregate value of the Shares, such Shares shall be
treated in the same manner as provided in Section 7.2.1(a)(i)
to the extent that such Disqualified Holder's ownership of
Shares equals or exceeds 10% or more of the aggregate value of
the Shares.
(B) EXCESS OWNERSHIP OF A DESIGNATED TENANT.
Subject to the provisions of Section 7.7(e)(C), if the Related
Party Tenant is a Designated Tenant, then each Excepted Holder
that has not complied with the provisions of Section 7.7(c)
hereof shall be a Disqualified Holder as of the first date
that the aggregate Constructive Ownership of a Tenant
described in Section 7.7(e) first came to equal or exceed
10.0%, and to the extent that each such Disqualified Holder
Constructively owns 10% or more of the aggregate value of the
Shares, such Shares shall be treated in the same manner as
provided in Section 7.2.1(a)(i) above to the extent that such
Disqualified Holder's ownership of Shares equals or exceeds
10% of the aggregate value of the Shares.
(C) ACQUISITION DURING NOTICE PERIOD. If the
Related Party Tenant is a Designated Tenant and the aggregate
Constructive Ownership of a Tenant described in Section 7.7(e)
equals or exceeds 10.0% as a result of increases in
Constructive Ownership of such Designated Tenant taking place
during the notice periods described in Section 7.7(a) or
Section 7.7(b), then the Excepted Holder that Constructively
Owns an interest in the Designated Tenant and that was the
last such Excepted Holder to (1) acquire an interest in the
Designated Tenant or (2) have an increase in its Constructive
Ownership of the Designated Tenant shall be treated as a
Disqualified Holder for the period beginning on the first date
that the aggregate ownership described in Section 7.7(e)
first came to equal or exceed 10.0%, and to the extent that
such Disqualified Holder Constructively Owns 10% or more of
the aggregate value of the Shares, such Shares shall be
treated in the same manner as provided in Section 7.2.1(a)(i)
above, to the extent that such Disqualified Holder's ownership
of Shares equals or exceeds 10% of the aggregate value of the
Shares. If the aggregate Constructive Ownership of the
Designated Tenant described in Section 7.7(e) continues to
equal or exceed 10.0%, then this process shall be repeated.
(D) RESIDUAL EXCESS OWNERSHIP. If after
application of Sections 7.7(e)(A) through (C) above, the
aggregate Constructive Ownership described in
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Section 7.7(e) continues to equal or exceed 10.0%, then the
Excepted Holder (x) whose Constructive Ownership interests in
a Related Party Tenant equals or exceeds 5.0% of (1) in the
case a Related Party Tenant that is a corporation, the
outstanding voting power or the total number of outstanding
shares of such Related Party Tenant, or (2) in the case of a
Related Party Tenant that is not a corporation, the assets or
net profits of such Related Party Tenant and (y) which was the
last such Excepted Holder to (a) acquire an interest in the
Related Party Tenant or (b) have an increase in its
Constructive Ownership of the feature of the Related Party
Tenant with respect to which the aggregate ownership described
in Section 7.7(e) equals or exceeds 10%, shall be treated as a
Disqualified Holder for the period beginning on the first date
that the aggregate Constructive Ownership of such Tenant
described in Section 7.7(e) first came to equal or exceed
10.0%, and to the extent that each such Disqualified Holder
Constructively Owns 10% or more of the aggregate value of the
Shares, such Shares shall be treated in the same manner as
provided in Section 7.2.1(a)(i) above, to the extent that each
such Disqualified Holder's ownership of Shares equals or
exceeds 10% or more of the aggregate value of the Shares. If
the aggregate Constructive Ownership of the remaining Excepted
Holders continues to equal or exceed 10% of the Related Party
Tenant, then the process described above shall be repeated (i)
first among the remaining Excepted Holders who Constructively
Own 5% or more of such Related Party Tenant and (ii) next
among Excepted Holders who Constructively Own less than 5% of
such Related Party Tenant in the priority of the highest
Constructive Ownership of such Related Party Tenant by such
Excepted Holders.
(f) MODIFICATIONS. The Board of Trustees may, on a
prospective basis, modify the Constructive Ownership thresholds
described in Section 7.7(a) and Section 7.7(d).
(g) DETERMINATION OF VOTING POWER. The outstanding
voting power of a corporate Tenant shall be determined for purposes of
this Section 7.7 in the manner in which such is determined for
purposes of Section 856(d)(2) of the Code.
7.8 SEVERABILITY. If any provision of this Article VII or any
application of any such provision is determined to be invalid by any federal or
state court having jurisdiction over the issues, the validity of the remaining
provisions shall not be affected and other applications of such provisions
shall be affected only to the extent necessary to comply with the determination
of such court.
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ARTICLE VIII
SHAREHOLDERS
8.1 MEETINGS. There shall be an annual meeting of the
Shareholders, to be held on proper notice at such time (after the delivery of
the annual report) and convenient location as shall be determined by or in the
manner prescribed in the Bylaws, for the election of the Trustees, if required,
and for the transaction of any other business within the powers of the Trust.
Except as otherwise provided in this Declaration of Trust, special meetings of
Shareholders may be called in the manner provided in the Bylaws. If there are
no Trustees, the officers of the Trust shall promptly call a special meeting of
the Shareholders entitled to vote for the election of successor Trustees. Any
meeting may be adjourned and reconvened as the Trustees determine or as
provided in the Bylaws.
8.2 VOTING RIGHTS. Subject to the provisions of any class or
series of Shares then outstanding, the Shareholders shall be entitled to vote
only on the following matters: (a) election of Trustees as provided in Section
12.2 and the removal of Trustees as provided in Section 5.3; (b) amendment of
this Declaration of Trust as provided in Article X; (c) termination of the
Trust as provided in Section 10.3; (d) merger or consolidation of the Trust, or
the sale or disposition of substantially all of the property of the Trust, as
provided in Article XI; (e) such other matters with respect to which the Board
of Trustees has adopted a resolution declaring that a proposed action is
advisable and directing that the matter be submitted to the Shareholders for
approval or ratification; and (f) termination of the Trust's status as a REIT,
as provided in Section 5.1(b). Except with respect to the foregoing matters,
no action taken by the Shareholders at any meeting shall in any way bind the
Board of Trustees.
8.3 PREEMPTIVE AND APPRAISAL RIGHTS. Except as may be provided by
the Board of Trustees in setting the terms of classified or reclassified Shares
pursuant to Section 6.4, no holder of Shares shall, as such holder, (a) have
any preemptive right to purchase or subscribe for any additional Shares of the
Trust or any other security of the Trust which it may issue or sell, or (b)
except as expressly required by Title 8, have any right to require the Trust to
pay to such holder the fair value of such holder's Shares in an appraisal or
similar proceeding.
8.4 Extraordinary Actions. Except as otherwise specifically
provided in this Declaration of Trust (including, without limitation, in those
provisions relating to election and removal of Trustees and changes in the
number of authorized Shares), notwithstanding any provision of law permitting
or requiring any action to be taken or authorized by the affirmative vote of
the holders of a greater number of votes, (a) any transaction the approval of
which requires by law the affirmative vote of Shareholders and pursuant to
which the Trust's business and assets will be combined with those of one or
more other entities (whether by merger, sale or other transfer of assets,
consolidation or share exchange) (a "Business Combination") shall be effective
and valid if
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taken or authorized by the affirmative vote of not less than a majority of all
the votes entitled to be cast on the matter.
8.5 ACTION BY SHAREHOLDERS WITHOUT A MEETING. The Bylaws of the
Trust may provide that any action required or permitted to be taken by the
Shareholders may be taken without a meeting by the written consent of the
Shareholders entitled to cast a sufficient number of votes to approve the
matter as required by statute, this Declaration of Trust or the Bylaws of the
Trust, as the case may be.
ARTICLE IX
LIABILITY LIMITATION, INDEMNIFICATION
AND TRANSACTIONS WITH THE TRUST
9.1 LIMITATION OF SHAREHOLDER LIABILITY. No Shareholder shall be
personally liable for any debt, claim, demand, judgment or obligation of any
kind of, against or with respect to the Trust by reason of being a Shareholder,
nor shall any Shareholder be subject to any personal liability whatsoever, in
tort, contract or otherwise, to any person in connection with the property or
the affairs of the Trust by reason of being a Shareholder. Neither the
amendment nor repeal of this Section 9.1, nor the adoption or amendment of any
other provision of this Declaration of Trust inconsistent with this Section
9.1, shall apply to or affect in any respect the applicability of the preceding
sentence with respect to any debt, claim, demand, judgment or obligation which
arose prior to such amendment, repeal or adoption.
9.2 LIMITATION OF TRUSTEE AND OFFICER LIABILITY. To the maximum
extent that Maryland law in effect from time to time permits limitation of the
liability of trustees and officers of a real estate investment trust, no
Trustee or officer of the Trust shall be liable to the Trust or to any
Shareholder for money damages. Neither the amendment nor repeal of this
Section 9.2, nor the adoption or amendment of any other provision of this
Declaration of Trust inconsistent with this Section 9.2, shall apply to or
affect in any respect the applicability of the preceding sentence with respect
to any act or failure to act which occurred prior to such amendment, repeal or
adoption. In the absence of any Maryland statute limiting the liability of
trustees and officers of a Maryland real estate investment trust for money
damages in a suit by or on behalf of the Trust or by any Shareholder, no
Trustee or officer of the Trust shall be liable to the Trust or to any
Shareholder for money damages except to the extent that (a) the Trustee or
officer actually received an improper benefit or profit in money, property, or
services, for the amount of the benefit or profit in money, property, or
services actually received; or (b) a judgment or other final adjudication
adverse to the Trustee or officer is entered in a proceeding based on a finding
in the proceeding that the Trustee's or officer's action or failure to act was
the result of active and deliberate dishonesty and was material to the cause of
action adjudicated in the proceeding.
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9.3 INDEMNIFICATION. The Trust shall have the power, to the
maximum extent permitted by Maryland law in effect from time to time, to
obligate itself to indemnify, and to pay or reimburse reasonable expenses in
advance of final disposition of a proceeding to, (a) any individual who is a
present or former Shareholder, Trustee or officer of the Trust or (b) any
individual who, while a Trustee of the Trust and at the request of the Trust,
serves or has served as a director, officer, partner, trustee, employee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or any other enterprise from and against any claim or liability to
which such person may become subject or which such person may incur by reason
of his status as a present or former Shareholder, Trustee or officer of the
Trust. The Trust shall have the power, with the approval of its Board of
Trustees, to provide such indemnification and advancement of expenses to a
person who served a predecessor of the Trust in any of the capacities described
in (a) or (b) above and to any employee or agent of the Trust or a predecessor
of the Trust.
9.4 TRANSACTIONS BETWEEN THE TRUST AND ITS TRUSTEES, OFFICERS,
EMPLOYEES AND AGENTS. Subject to Section 5.4 or any other express provisions
in this Declaration of Trust or adopted by the Trustees in the Bylaws or by
resolution, the Trust may enter into any contract or transaction of any kind
with any person, including any Trustee, officer, employee or agent of the Trust
or any person affiliated with a Trustee, officer, employee or agent of the
Trust, whether or not any of them has a financial interest in such transaction.
9.5 EXPRESS EXCULPATORY CLAUSES IN INSTRUMENTS. The Board of
Trustees shall cause to be inserted in every written agreement, undertaking or
obligation made or issued on behalf of the Trust, an appropriate provision to
the effect that neither the Shareholders of the Trust nor the Trustees,
officers, employees or agents of the Trust shall be liable under any written
instrument creating an obligation of the Trust, and all Persons shall look
solely to the property of the Trust for the payment of any claim under or for
the performance of that instrument. The omission of the foregoing exculpatory
language from any instrument shall not affect the validity or enforceability of
such instrument and shall not render any Shareholder, Trustee, officer,
employee or agent liable thereunder to any third party nor shall the Trustees
or any officer, employee or agent of the Trust be liable to anyone for such
omission.
ARTICLE X
AMENDMENTS
10.1 GENERAL. The Trust reserves the right from time to time to
make any amendment to this Declaration of Trust, now or hereafter authorized by
law, including any amendment altering the terms or contract rights, as
expressly set forth in this Declaration of Trust, of any Shares. All rights
and powers conferred by this Declaration of Trust on Shareholders, Trustees and
officers are granted subject to this reservation. Articles of Amendment to
this Declaration of Trust (a) shall be signed and acknowledged by at least a
majority of the Trustees, or an
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officer duly authorized by at least a majority of the Trustees, (b) shall be
filed for record as provided in Section 13.5 and (c) shall become effective as
of the later of the time the SDAT accepts the Articles of Amendment for record
or the time established in the Articles of Amendment, not to exceed 30 days
after the Articles of Amendment are accepted for record. All references to
this Declaration of Trust shall include all amendments thereto made in
compliance with this Article X.
10.2 BY TRUSTEES. The Trustees may amend this Declaration of Trust
from time to time, in the manner provided by Title 8, without any action by the
Shareholders, to qualify as a real estate investment trust under the Code or
under Title 8 and as otherwise provided in this Declaration of Trust.
10.3 BY SHAREHOLDERS. Except as otherwise provided in this
Declaration of Trust, any amendment to this Declaration of Trust shall be valid
only if approved by the affirmative vote of not less than a majority of all the
votes entitled to be cast on the matter except where approval of the
Shareholders is not required by Title 8 or would not be required by the
Maryland General Corporation Law if the Trust were a Maryland corporation.
ARTICLE XI
MERGER, CONSOLIDATION OR SALE OF TRUST PROPERTY
Subject to the provisions of any class or series of Shares at the time
outstanding, the Trust may (a) merge the Trust into another entity, (b)
consolidate the Trust with one or more other entities into a new entity or (c)
sell, lease, exchange or otherwise transfer all or substantially all of the
property of the Trust . Any such action must be approved by the Board of
Trustees and, after notice to all Shareholders entitled to vote on the matter,
by the affirmative vote of not less than a majority of all the votes entitled
to be cast on the matter.
ARTICLE XII
DURATION AND TERMINATION OF TRUST
12.1 DURATION. The Trust shall continue perpetually unless
terminated pursuant to Section 12.2 or pursuant to any applicable provision of
Title 8.
12.2 TERMINATION.
(a) If the Board of Trustees determines that the
dissolution and winding-up of the Trust is advisable and in the best interest
of the Shareholders, it shall adopt a resolution declaring that the dissolution
and winding up the Trust is advisable and in the best interest of the Trust and
call a meeting of Shareholders for the purpose of considering the dissolution
and winding up of the Trust. Subject to the provisions of any class or series
of Shares at the time outstanding, after approval by a majority of the entire
Board of Trustees' the Trust may be
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terminated at such meeting of Shareholders, by the affirmative vote of a
majority of all the votes entitled to be cast on the matter. Upon the
termination of the Trust:
(i) The Trust shall carry on no business except
for the purpose of winding up its affairs.
(ii) The Trustees shall proceed to wind up the
affairs of the Trust and all of the powers of the Trustees under this
Declaration of Trust shall continue, including the powers to fulfill
or discharge the Trust's contracts, collect its assets, sell, convey,
assign, exchange, transfer or otherwise dispose of all or any part of
the remaining property of the Trust to one or more persons at public
or private sale for consideration which may consist in whole or in
part of cash, securities or other property of any kind, discharge or
pay its liabilities and do all other acts appropriate to liquidate its
business.
(iii) After paying or adequately providing for the
payment of all liabilities, and upon receipt of such releases,
indemnities and agreements as they deem necessary for their
protection, the Trust may distribute the remaining property of the
Trust among the Shareholders so that after payment in full or the
setting apart for payment of such preferential amounts, if any, to
which the holders of any Shares at the time outstanding shall be
entitled, the remaining property of the Trust shall, subject to any
participating or similar rights of Shares at the time outstanding, be
distributed ratably among the holders of Common Shares at the time
outstanding.
(b) After termination of the Trust, the liquidation of
its business and the distribution to the Shareholders as herein provided, a
majority of the Trustees shall execute and file with the Trust's records a
document certifying that the Trust has been duly terminated, and the Trustees
shall be discharged from all liabilities and duties hereunder, and the rights
and interests of all Shareholders shall cease.
ARTICLE XIII
MISCELLANEOUS
13.1 GOVERNING LAW. This Declaration of Trust is executed by the
undersigned Trustees and delivered in the State of Maryland with reference to
the laws thereof, and the rights of all parties and the validity, construction
and effect of every provision hereof shall be subject to and construed
according to the laws of the State of Maryland without regard to conflicts of
laws provisions thereof.
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13.2 RELIANCE BY THIRD PARTIES. Any certificate shall be final and
conclusive as to any person dealing with the Trust if executed by the Secretary
or an Assistant Secretary of the Trust or a Trustee, and if certifying to: (a)
the number or identity of Trustees, officers of the Trust or Shareholders; (b)
the due authorization of the execution of any document; (c) the action or vote
taken, and the existence of a quorum, at a meeting of the Board of Trustees or
Shareholders; (d) a copy of this Declaration of Trust or of the Bylaws as a
true and complete copy as then in force; (e) an amendment to this Declaration
of Trust; (f) the termination of the Trust; or (g) the existence of any fact or
relating to the affairs of the Trust. No purchaser, lender, transfer agent or
other person shall be bound to make any inquiry concerning the validity of any
transaction purporting to be made by the Trust on its behalf or by any officer,
employee or agent of the Trust.
13.3 SEVERABILITY.
(a) The provisions of this Declaration of Trust are
severable, and if the Board of Trustees shall determine, with the advice of
counsel, that any one or more of such provisions (the "Conflicting Provisions")
are in conflict with the Code, Title 8 or other applicable federal or state
laws, the Conflicting Provisions, to the extent of the conflict, shall be
deemed never to have constituted a part of this Declaration of Trust, even
without any amendment of this Declaration of Trust pursuant to Article X and
without affecting or impairing any of the remaining provisions of this
Declaration of Trust or rendering invalid or improper any action taken or
omitted prior to such determination. No Trustee shall be liable for making or
failing to make such a determination. In the event of any such determination
by the Board of Trustees, the Board shall amend this Declaration of Trust in
the manner provided in Section 10.2.
(b) If any provision of this Declaration of Trust shall
be held invalid or unenforceable in any jurisdiction, such holding shall apply
only to the extent of any such invalidity or unenforceability and shall not in
any manner affect, impair or render invalid or unenforceable such provision in
any other jurisdiction or any other provision of this Declaration of Trust in
any jurisdiction.
13.4 CONSTRUCTION. In this Declaration of Trust, unless the
context otherwise requires, words used in the singular or in the plural include
both the plural and singular and words denoting any gender include all genders.
The title and headings of different parts are inserted for convenience and
shall not affect the meaning, construction or effect of this Declaration of
Trust. Unless otherwise specified, all references herein to Sections are to
Sections of this Declaration of Trust. In defining or interpreting the powers
and duties of the Trust and its Trustees and officers, reference may be made by
the Trustees or officers, to the extent appropriate and not inconsistent with
the Code or Title 8, to Titles 1 through 3 of the Corporations and Associations
Article of the Annotated Code of Maryland. In furtherance and not in
limitation of the foregoing, in accordance with the provisions of Title 3,
Subtitles 6 and 7, of the Corporations and Associations Article of the
Annotated Code of Maryland, the Trust shall be included within the definition
of "corporation" for purposes of such provisions.
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13.5 RECORDATION. This Declaration of Trust and any articles of
amendment hereto shall be filed for record with the SDAT and may also be filed
or recorded in such other places as the Trustees deem appropriate, but failure
to file for record this Declaration of Trust or any articles of amendment
hereto in any office other than in the State of Maryland shall not affect or
impair the validity or effectiveness of this Declaration of Trust or any
amendment hereto. A restated Declaration of Trust shall, upon filing, be
conclusive evidence of all amendments contained therein and may thereafter be
referred to in lieu of the original Declaration of Trust and the various
articles of amendments thereto.
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The total number of shares of beneficial interest which the Trust had
authority to issue immediately preceding the adoption of the foregoing Amended
and Restated Declaration of Trust was 100 shares, consisting of 100 common
shares of beneficial interest, $0.01 par value per share. The aggregate par
value of all authorized shares of beneficial interest having par value
immediately preceding the adoption of the foregoing Amended and Restated
Declaration of Trust was $1.00. The total number of shares of beneficial
interest which the Trust has authority to issue pursuant to the foregoing
Amended and Restated Declaration of Trust is one hundred million, consisting of
eighty million common shares of beneficial interest, $0.01 par value per share,
and twenty million preferred shares of beneficial interest, $0.01 par value per
share. The aggregate par value of all authorized shares of beneficial interest
having par value is $1,000,000.00.
IN WITNESS WHEREOF, THIS DECLARATION OF TRUST HAS BEEN SIGNED ON THIS
______ DAY OF ____________, 1998 BY EACH OF THE TRUSTEES OF THE TRUST, EACH OF
WHOM ACKNOWLEDGES THAT THIS DOCUMENT IS HIS FREE ACT AND DEED, AND THAT TO THE
BEST OF HIS KNOWLEDGE, INFORMATION, AND BELIEF, THE MATTERS AND FACTS SET FORTH
HEREIN ARE TRUE IN ALL MATERIAL RESPECTS AND THAT THE STATEMENT IS MADE UNDER
THE PENALTIES FOR PERJURY.
-----------------------------------
TRUSTEE
-----------------------------------
TRUSTEE
-----------------------------------
TRUSTEE
33
<PAGE> 1
EXHIBIT 3.2
PRESIDIO GOLF TRUST
AMENDED AND RESTATED BYLAWS
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The principal office of Presidio Golf
Trust (the "Trust") shall be located at such place or places as the Board of
Trustees of the Trust (the "Board" or the "Trustees") may designate.
Section 2. REGISTERED OFFICE. The Trust shall maintain a registered
office in the State of Maryland, as required by law.
Section 3. ADDITIONAL OFFICES. The Trust may have additional offices
at such other places within and without the State of Maryland as the Trustees
may from time to time determine or the business of the Trust may require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. PLACE. All meetings of shareholders shall be held at the
principal office of the Trust or at such other place within the United States
as shall be stated in the notice of the meeting.
Section 2. ANNUAL MEETING. An annual meeting of the shareholders for
the election of Trustees and the transaction of any business within the powers
of the Trust shall be held on proper notice during the month of May of each
year beginning with the year 1999, after the delivery of the annual report
referred to in Section 13 of this Article II, at a convenient location,
date and time set by the Trustees. Failure to hold an annual meeting does
not invalidate the Trust's existence or affect any otherwise valid acts of the
Trust.
Section 3. SPECIAL MEETINGS. The Chairman of the Board of Trustees
or the President or the Board of Trustees may call special meetings of the
shareholders. Special meetings of shareholders shall also be called by the
Secretary upon the written request of the holders of shares entitled to cast
not less than a majority of all the votes entitled to be cast at such meeting.
Such request shall state the purpose of such meeting and the matters proposed
<PAGE> 2
to be acted on at such meeting. Within ten (10) days of the receipt of such a
request of shareholders, the Secretary shall inform such shareholders of the
reasonably estimated cost of preparing and mailing notice of the meeting
(including all proxy materials that may be required in connection therewith)
and, upon payment by such shareholders to the Trust of such costs, the
Secretary shall, within thirty (30) days of receipt of such payment, or such
longer period as may be necessitated by compliance with any applicable
statutory or regulatory requirements, give notice to each shareholder entitled
to notice of the meeting.
Unless requested by shareholders entitled to cast a majority of all
the votes entitled to be cast at such meeting, a special meeting need not be
called to consider any matter which is substantially the same as a matter voted
on at any meeting of the shareholders held during the preceding twelve months.
Section 4. NOTICE. Not less than ten (10) nor more than ninety (90)
days before each meeting of shareholders, the Secretary shall give to each
shareholder entitled to vote at such meeting and to each shareholder not
entitled to vote who is entitled to notice of the meeting written or printed
notice stating the time and place of the meeting and, in the case of a special
meeting or as otherwise may be required by any statute, the purpose for which
the meeting is called, either by mail or by presenting it to such shareholder
personally or by leaving it at his residence or usual place of business. If
mailed, such notice shall be deemed to be given when deposited in the United
States mail addressed to the shareholder at his post office address as it
appears on the records of the Trust, with postage thereon prepaid.
Section 5. SCOPE OF NOTICE. Any business of the Trust may be
transacted at an annual meeting of shareholders without being specifically
designated in the notice, except such business as is required by any statute to
be stated in such notice. No business shall be transacted at a special meeting
of shareholders except as specifically designated in the notice.
Section 6. ORGANIZATION. Meetings of shareholders shall be presided
over by the Chairman of the Board, if any, or, in the case of vacancy in office
or absence of the Chairman of the Board, one of the following officers present
shall conduct the meeting in the order stated: the Vice Chairman of the Board,
the President, the Vice Presidents in their order of rank and seniority, or a
Chairman chosen by the shareholders entitled to cast a majority of the votes
which all shareholders present in person or by proxy are entitled to cast. The
Secretary, or, in his absence, an Assistant Secretary, or in the absence of
both the Secretary and Assistant Secretaries, a person appointed by the
Chairman shall act as Secretary.
Section 7. QUORUM. Unless otherwise provided by law or the
Declaration of Trust of the Trust, as amended from time to time (the
"Declaration of Trust"), at any meeting of shareholders, the presence in person
or by proxy of shareholders entitled to cast a majority of all the votes
entitled to be cast at such meeting shall constitute a quorum. If, however,
such quorum shall not be present at any meeting of the shareholders, the
shareholders entitled to vote at such meeting, present in person or by proxy,
shall have the power to adjourn the meeting
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from time to time to a date not more than 120 days after the original record
date without notice other than announcement at the meeting. At such adjourned
meeting at which a quorum shall be present, any business may be transacted
which might have been transacted at the meeting as originally notified.
Section 8. VOTING. Subject to the provisions of the Declaration of
Trust, a plurality of all the votes cast at a meeting of shareholders duly
called and at which a quorum is present shall be sufficient to elect a Trustee.
Each share may be voted for as many individuals as there are Trustees to be
elected and for whose election the share is entitled to be voted. A majority
of the votes cast at a meeting of shareholders duly called and at which a
quorum is present shall be sufficient to approve any other matter which may
properly come before the meeting, unless more than a majority of the votes cast
is required herein or by statute or by the Declaration of Trust. Unless
otherwise provided in the Declaration of Trust, each outstanding share,
regardless of class, shall be entitled to one vote on each matter submitted to
a vote at a meeting of shareholders. Shareholders will have no right to
cumulative voting for the election of Trustees.
Section 9. PROXIES. A shareholder may cast the votes entitled to be
cast by the shares owned of record by him either in person or by proxy executed
in writing by the shareholder or by his duly authorized attorney in fact. Such
proxy shall be filed with the Secretary of the Trust before or at the time of
the meeting. No proxy shall be valid after eleven months from the date of its
execution, unless otherwise provided in the proxy.
Section 10. FIXING DATE FOR DETERMINATION OF SHAREHOLDERS OF RECORD.
In order that the Trust may determine the shareholders entitled to notice of or
to vote at any meeting of shareholders or any adjournment thereof or entitled
to receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any change, conversion
or exchange of Common Shares or for the purpose of any other lawful action, the
Board of Trustees may fix, in advance, a record date, which shall not be (i)
more than ninety (90) nor less than ten (10) days before the date of such
meeting nor (ii) more than ninety (90) days prior to any other action. If no
record date is fixed: (a) the record date for determining shareholders entitled
to notice of or to vote at a meeting of shareholders shall be at the close of
business on the day next preceding the day on which notice is given or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held; and (b) the record date for determining
shareholders for any other purpose shall be at the close of business on the day
on which the Board of Trustees adopts the resolution relating thereto. A
determination of shareholders of record entitled to notice of or to vote at a
meeting of shareholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Trustees may fix a new record date for the
meeting.
Section 11. VOTING OF SHARES BY CERTAIN HOLDERS. Shares of the Trust
registered in the name of a corporation, partnership, trust or other entity, if
entitled to be voted, may be voted by the President or a Vice President, a
general partner or trustee thereof, as the case may be, or a proxy appointed by
any of the foregoing individuals, unless some other person
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who has been appointed to vote such shares pursuant to a bylaw or a resolution
of the governing board of such corporation or other entity or agreement of the
partners of the partnership presents a certified copy of such bylaw, resolution
or agreement, in which case such person may vote such shares. Any trustee or
other fiduciary may vote shares registered in his name as such trustee or
fiduciary, either in person or by proxy.
Shares of the Trust directly or indirectly owned by it shall not be
voted at any meeting and shall not be counted in determining the total number
of outstanding shares entitled to be voted at any given time, unless they are
held by it in a fiduciary capacity, in which case they may be voted and shall
be counted in determining the total number of outstanding shares at any given
time.
The Trustees may adopt by resolution a procedure by which a
shareholder may certify in writing to the Trust that any shares registered in
the name of the shareholder are held for the account of a specified person
other than the shareholder. The resolution shall set forth the class of
shareholders who may make the certification, the purpose for which the
certification may be made, the form of certification and the information to be
contained in it; if the certification is with respect to a record date or
closing of the share transfer books, the time after the record date or closing
of the share transfer books within which the certification must be received by
the Trust; and any other provisions with respect to the procedure which the
Trustees consider necessary or desirable. On receipt of such certification,
the person specified in the certification shall be regarded as, for the
purposes set forth in the certification, the shareholder of record of the
specified shares in place of the shareholder who makes the certification.
Notwithstanding any other provision contained herein or in the
Declaration of Trust or these Bylaws, Title 3, Subtitle 7 of the Corporations
and Associations Article of the Annotated Code of Maryland (or any successor
statute) shall not apply to any acquisition by any person of shares of
beneficial interest of the Trust. This section may be repealed, in whole or in
part, at any time, whether before or after an acquisition of control shares
and, upon such repeal, may, to the extent provided by any successor bylaw,
apply to any prior or subsequent control share acquisition.
Section 12. INSPECTORS. At any meeting of shareholders, the Chairman
of the meeting may appoint one or more persons as inspectors for such meeting.
Such inspectors shall ascertain and report the number of shares represented at
the meeting based upon their determination of the validity and effect of
proxies, count all votes, report the results and perform such other acts as are
proper to conduct the election and voting with impartiality and fairness to all
the shareholders.
Each report of an inspector shall be in writing and signed by him or
by a majority of them if there is more than one inspector acting at such
meeting. If there is more than one inspector, the report of a majority shall
be the report of the inspectors. The report of the
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inspector or inspectors on the number of shares represented at the meeting and
the results of the voting shall be prima facie evidence thereof.
Section 13. REPORTS TO SHAREHOLDERS. The Trustees shall submit to
the shareholders at or before the annual meeting of shareholders a report of
the business and operations of the Trust during such fiscal year, containing a
balance sheet and a statement of income and surplus of the Trust, accompanied
by the certification of independent certified public accountants of recoginzed
national standing, and such further information as the Trustees may determine
is required pursuant to any law or regulation to which the Trust is subject.
Within the earlier of 20 days after the annual meeting of shareholders or
120 days after the end of the fiscal year of the Trust, the Trustees shall
place the annual report on file at the principal office of the Trust and with
any governmental agencies as may be required by law and as the Trustees may
deem appropriate.
Section 14. LIST OF SHAREHOLDERS ENTITLED TO VOTE. The Secretary
shall make, at least ten (10) days before every meeting of shareholders, a
complete list of the shareholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each shareholder and the number
of Common Shares registered in the name of each shareholder. Such list shall
be open to the examination by any Shareholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten (10) days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting, or, if
not so specified, at the place w here the meeting is to be held. The list
shall also be produced and kept at the time and place of the meeting during the
whole time thereof and may be inspected by any shareholder who is present.
Section 15. NOMINATIONS AND PROPOSALS BY SHAREHOLDERS.
(a) ANNUAL MEETINGS OF SHAREHOLDERS.
(1) Nominations of persons for election to the Board of
Trustees and the proposal of business to be considered by the shareholders may
be made at an annual meeting of shareholders (i) pursuant to the Trust's notice
of meeting, (ii) by or at the direction of the Trustees or (iii) by any
shareholder of the Trust who was a shareholder of record both at the time of
giving of notice provided for in this Section 15 (a) and at the time of the
annual meeting, who is entitled to vote at the meeting and who complied with
the notice procedures set forth in this Section 15(a).
(2) For nominations or other business to be properly
brought before an annual meeting by a shareholder pursuant to clause (iii) of
paragraph (a) (1) of this Section 15, the shareholder must have given timely
notice thereof in writing to the Secretary of the Trust and such other business
must otherwise be a proper matter for action by shareholders. To be timely, a
shareholder's notice shall be delivered to the Secretary at the principal
executive offices of the Trust not later than the close of business on the 60th
day nor earlier than the close of business on the 90th day prior to the first
anniversary of the preceding year's annual meeting; provided,
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<PAGE> 6
however, that in the event that the date of the annual meeting is advanced by
more than 30 days or delayed by more than 60 days from such anniversary date or
if the Trust has not previously held an annual meeting, notice by the
shareholder to be timely must be so delivered not earlier than the close of
business on the 90th day prior to such annual meeting and not later than the
close of business on the later of the 60th day prior to such annual meeting or
the tenth day following the day on which public announcement of the date of
such meeting is first made by the Trust. In no event shall the public
announcement of a postponement or adjournment of an annual meeting to a later
date or time commence a new time period for the giving of a shareholder's
notice as described above. Such shareholder's notice shall set forth as to
each person whom the shareholder proposes to nominate for election or
reelection as a Trustee all information relating to such person that is
required to be disclosed in solicitations of proxies for election of Trustees
in an election contest, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (including such person's written consent to being named in the
proxy statement as a nominee and to serving as a Trustee if elected); (ii) as
to any other business that the shareholder proposes to bring before the
meeting, a brief description of the business desired to be brought before the
meeting, the reasons for conducting such business at the meeting and any
material interest in such business of such shareholder and of the beneficial
owner, if any, on whose behalf the proposal is made; and (iii) as to the
shareholder giving the notice and the beneficial owner, if any, on whose behalf
the nomination or proposal is made, (x) the name and address of such
shareholder, as they appear on the Trust's books, and of such beneficial owner
and (y) the number of each class of shares of the Trust which are owned
beneficially and of record by such shareholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of
paragraph (a) (2) of this Section 15 to the contrary, in the event that the
number of Trustees to be elected to the Board of Trustees is increased and
there is no public announcement by the Trust naming all of the nominees for
Trustee or specifying the size of the increased Board of Trustees at least 70
days prior to the first anniversary of the preceding year's annual meeting, a
shareholder's notice required by this Section 15(a) shall also be considered
timely, but only with respect to nominees for any new positions created by such
increase, if it shall be delivered to the Secretary at the principal executive
offices of the Trust not later than the close of business on the tenth day
following the day on which such public announcement is first made by the Trust.
(b) SPECIAL MEETINGS OF SHAREHOLDERS. Only such business shall be
conducted at a special meeting of shareholders as shall have been brought
before the meeting pursuant to the Trust's notice of meeting. Nominations of
persons for election to the Board of Trustees may be made at a special meeting
of shareholders at which Trustees are to be elected (i) pursuant to the Trust's
notice of meeting, (ii) by or at the direction of the Board of Trustees or
(iii) provided that the Board of Trustees has determined that Trustees shall be
elected at such special meeting, by any shareholder of the Trust who was a
shareholder of record both at the time of giving of notice provided for in this
Section 15(b) and at the time of the special meeting, who is entitled to vote
at the meeting and who complied with the notice procedures set forth in this
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Section 15(b). In the event the Trust calls a special meeting of shareholders
for the purpose of electing one or more Trustees to the Board of Trustees, any
such shareholder may nominate a person or persons (as the case may be) for
election to such position as specified in the Trust's notice of meeting, if the
shareholder's notice containing the information required by paragraph (a) (2)
of this Section 15 shall be delivered to the Secretary at the principal
executive offices of the Trust not earlier than the close of business on the
90th day prior to such special meeting and not later than the close of business
on the later of the 60th day prior to such special meeting or the tenth day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Trustees to be elected at
such meeting. In no event shall the public announcement of a postponement or
adjournment of a special meeting to a later date or time commence a new time
period for the giving of a shareholder's notice as described above.
(c) GENERAL.
(1) Except for the initial Trustees named in the
Declaration of Trust, only such persons who are nominated in accordance with
the procedures set forth in this Section 15 shall be eligible to serve as
Trustees and only such business shall be conducted at a meeting of shareholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 15. The Chairman of the meeting shall have the power
and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made or proposed, as the case may be, in
accordance with the procedures set forth in this Section 15 and, if any
proposed nomination or business is not in compliance with this Section 15, to
declare that such nomination or proposal shall be disregarded.
(2) For purposes of this Section 15, "public
announcement" shall mean disclosure in a press release reported by the Dow
Jones News Service, Associated Press or comparable news service or in a
document publicly filed by the Trust with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this
Section 15, a shareholder shall also comply with all applicable requirements of
state law and of the Exchange Act and the rules and regulations thereunder with
respect to the matters set forth in this Section 15. Nothing in this Section
15 shall be deemed to affect any rights of shareholders to request inclusion of
proposals in, nor any of the rights of the Trust to omit a proposal from, the
Trust's proxy statement pursuant to Rule 14a-8 under the Exchange Act.
Section 16. INFORMAL ACTION BY SHAREHOLDERS. Notwithstanding the
provisions of Section 15 of this Article II, any action required or permitted
to be taken at a meeting of shareholders may be taken without a meeting if a
consent in writing, setting forth such action, is signed by shareholders
entitled to cast a sufficient number of votes to approve the matter, as
required by statute, the Declaration of Trust of the Trust or these Bylaws, and
such consent is filed with the minutes of proceedings of the shareholders.
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Section 17. VOTING BY BALLOT. Voting on any question or in any
election may be viva voce unless the presiding officer shall order or any
shareholder shall demand that voting be by ballot.
ARTICLE III
TRUSTEES
Section 1. GENERAL POWERS; QUALIFICATIONS; TRUSTEES HOLDING OVER.
The business and affairs of the Trust shall be managed under the direction of
its Board of Trustees. A Trustee shall be an individual at least 21 years of
age who is not under legal disability. In case of failure to elect Trustees at
an annual meeting of the shareholders, the Trustees holding over shall continue
to direct the management of the business and affairs of the Trust until their
successors are elected and qualify.
Section 2. NUMBER. The number of Trustees of the Trust shall
initially be two (2). The Trustees shall be classified, with respect to the
terms for which they severally hold office, into separate classes in the manner
prescribed in the Declaration of Trust. At any regular meeting or at any
special meeting called for that purpose, a majority of the entire Board of
Trustees may increase or decrease the number of Trustees; provided, that the
number thereof shall not be fewer than two (2) nor more than fifteen (15); and
provided further that the tenure of office of a Trustee shall not be affected
by any decrease in the number of Trustees. Immediately after the closing of
the Initial Public Offering (as hereinafter defined), the Board of Trustees
shall include a majority of Trustees who are Disinterested Trustees (as defined
below). As used herein, "Disinterested Trustee" means a Trustee who is not an
Affiliate. As used herein, the term "Affiliate" shall mean, with respect to
any corporation, partnership, limited liability company, trust or other
association or entity, any Person that (i) is the direct or indirect beneficial
owner of five percent (5%) or more of the outstanding stock or equity interests
of such corporation, partnership, limited liability company, trust or other
association or entity, or (ii) is an officer, director, member or trustee of
such corporation, partnership, limited liability company, trust or other
association or entity (provided, however, that an individual shall not be
deemed to be an Affiliate of the Trust solely by virtue of such individual's
status as a Trustee of the Trust). Notwithstanding the foregoing, no action
taken by the Board of Trustees shall be invalid due to a failure of the Board
of Trustees to have at least a majority of Disinterested Trustees. As used in
these Bylaws, "Initial Public Offering" means the initial sale of shares of
beneficial interest of the Trust to the public pursuant to a registration
statement filed with the Securities and Exchange Commission pursuant to the
Securities Act of 1933, as amended.
Section 3. ANNUAL AND REGULAR MEETINGS. An annual meeting of the
Trustees shall be held immediately after and at the same place as the annual
meeting of shareholders, no notice other than this Bylaw being necessary. The
Trustees may provide, by
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resolution, the time and place, either within or without the State of
Maryland, for the holding of regular meetings of the Trustees without other
notice than such resolution.
Section 4. SPECIAL MEETINGS. Special meetings of the Trustees may be
called by or at the request of the Chairman of the board or the President or by
a majority of the Trustees then in office. The person or persons authorized to
call special meetings of the Trustees may fix any place, either within or
without the State of Maryland, as the place for holding any special meeting of
the Trustees called by them.
Section 5. NOTICE. Notice of any special meeting shall be given by
written notice delivered personally, telegraphed, facsimile-transmitted or
mailed to each Trustee at his business or residence address. Personally
delivered or telegraphed notices shall be given at least two days prior to the
meeting. Notice by mail shall be given at least five days prior to the
meeting. Telephone or facsimile-transmission notice shall be given at least 24
hours prior to the meeting. If mailed, such notice shall be deemed to be given
when deposited in the United States mail properly addressed, with postage
thereon prepaid. If given by telegram, such notice shall be deemed to be given
when the telegram is delivered to the telegraph company. Telephone notice
shall be deemed given when the Trustee is personally given such notice in a
telephone call to which he is a party. Facsimile-transmission notice shall be
deemed given upon completion of the transmission of the message to the number
given to the Trust by the Trustee and receipt of a completed answer-back
indicating receipt. Neither the business to be transacted at, nor the purpose
of, any annual, regular or special meeting of the Trustees need be stated in
the notice, unless specifically required by statute or these Bylaws.
Section 6. QUORUM. A majority of the Trustees shall constitute a
quorum for transaction of business at any meeting of the Trustees, provided
that, if less than a majority of such Trustees are present at said meeting, a
majority of the Trustees present may adjourn the meeting from time to time
without further notice, and provided further that if, pursuant to the
Declaration of Trust or these Bylaws, the vote of a majority of a particular
group of Trustees is required for action, a quorum must also include a majority
of such group.
The Trustees present at a meeting which has been duly called and
convened may continue to transact business until adjournment, notwithstanding
the withdrawal of enough Trustees to leave less than a quorum.
Section 7. VOTING. The action of the majority of the Trustees
present at a meeting at which a quorum is present shall be the action of the
Trustees, unless the concurrence of a greater proportion is required for such
action by applicable statute.
Section 8. TELEPHONE MEETINGS. Trustees may participate in a meeting
by means of a conference telephone or similar communications equipment if all
persons participating in the meeting can hear each other at the same time.
Participation in a meeting by these means shall constitute presence in person
at the meeting.
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Section 9. INFORMAL ACTION BY TRUSTEES. Any action required or
permitted to be taken at any meeting of the Trustees may be taken without a
meeting, if a consent in writing to such action is signed by each Trustee and
such written consent is filed with the minutes of proceedings of the Trustees.
Section 10. VACANCIES. If for any reason any or all of the Trustees
cease to be Trustees, such event shall not terminate the Trust or affect these
Bylaws or the powers of the remaining Trustees hereunder (even if fewer than
two Trustees remain). Any vacancy (other than a vacancy created by an increase
in the number of Trustees) may be filled, at any regular meeting or at any
special meeting called for that purpose, by a majority of the remaining
Trustees, whether or not sufficient to constitute a quorum. A majority of the
entire Board of Trustees may fill a vacancy which results from an increase in
the number of Trustees. Any individual so elected by the remaining Trustees to
serve as Trustee shall hold office until the next annual meeting of
shareholders.
Section 11. COMPENSATION; FINANCIAL ASSISTANCE.
(a) COMPENSATION. Trustees shall not receive any stated salary
for their services as Trustees but, by resolution of the Trustees, may receive
fixed sums per year and/or per meeting and/or per visit to real property owned
or to be acquired by the Trust and for any service or activity they perform
or engage in as Trustees. Such fixed sums may be paid either in cash or in
shares of the Trust. Trustees may be reimbursed for expenses of attendance, if
any, at each annual, regular or special meeting of the Trustees or of any
committee thereof; and for their expenses, if any, in connection with each
property visit and any other service or activity performed or engaged in as
Trustees; but nothing herein contained shall be construed to preclude any
Trustees from serving the Trust in any other capacity and receiving
compensation therefor.
(b) FINANCIAL ASSISTANCE TO TRUSTEES. The Trust may lend money
to, guarantee an obligation of or otherwise assist a Trustee or a trustee or
director of a direct or indirect subsidiary of the Trust; provided, however,
that such Trustee or other person is also an executive officer of the Trust or
of such subsidiary, or the loan, guarantee or other assistance is in connection
with the purchase of Shares. The loan, guarantee or other assistance may be
with or without interest, unsecured, or secured in any manner that the Board of
Trustees approves, including a pledge of shares.
Section 12. REMOVAL OF TRUSTEES. The shareholders may, at any time,
remove any Trustee in the manner provided in the Declaration of Trust.
Section 13. LOSS OF DEPOSITS. No Trustee shall be liable for any
loss which may occur by reason of the failure of the bank, trust company,
savings and loan association, or other institution with whom moneys or shares
have been deposited.
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Section 14. SURETY BONDS. Unless required by law, no Trustee shall
be obligated to give any bond or surety or other security for the performance
of any of his duties.
Section 15. RELIANCE. Each Trustee, officer, employee and agent of
the Trust shall, in the performance of his duties with respect to the Trust, be
fully justified and protected with regard to any act or failure to act in
reliance in good faith upon the books of account or other records of the Trust,
upon an opinion of counsel or upon reports made to the Trust by any of its
officers or employees or by the adviser, accountants, appraisers or other
experts or consultants selected by the Trustees or officers of the Trust,
regardless of whether such counsel or expert may also be a Trustee.
Section 16. INTERESTED TRUSTEE TRANSACTIONS. Section 2-419 of the
Maryland General Corporation Law (the "MGCL") shall be available for and apply
to any contract or other transaction between the Trust and any of its Trustees
or between the Trust and any other trust, corporation, firm or other entity in
which any of its Trustees is a trustee or director or has a material financial
interest.
Section 17. CERTAIN RIGHTS OF TRUSTEES, OFFICERS, EMPLOYEES AND
AGENTS. The Trustees shall have no responsibility to devote their full time to
the affairs of the Trust. Any Trustee or officer, employee or agent of the
Trust (other than a full-time officer, employee or agent of the Trust), in his
personal capacity or in a capacity as an affiliate, employee, or agent of any
other person, or otherwise, may have business interests and engage in business
activities similar or in addition to those of or relating to the Trust.)
ARTICLE IV
COMMITTEES
Section 1. NUMBER, TENURE AND QUALIFICATION. The Board of Trustees
may, by resolution passed by a majority of the Trustees then in office, appoint
from among its members an Audit Committee, a Compensation Committee and other
committees, each composed of at least two (2) Trustees, to serve at the
pleasure of the Trustees. A majority of the Trustees on the Compensation
Committee and all of the Trustees on the Audit Committee shall be Disinterested
Trustees.
Section 2. POWER OF COMMITTEES. Except as prohibited by law, the
Board of Trustees may delegate to committees appointed under Section 1 of this
Article IV any of the powers and authority of the Board of Trustees.
Section 3. MEETINGS. In the absence of any member of any such
committee, the members thereof present at any meeting, whether or not they
constitute a quorum, may appoint
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another Trustee to act in the place of such absent member. Notice of committee
meetings shall be given in the same manner as notice for special meetings of
the Board of Trustees.
One-third, but not less than two, of the members of any committee
shall be present in person at any meeting of such committee in order to
constitute a quorum for the transaction of business at such meeting, and the
act of a majority present shall be the act of such committee. The Board of
Trustees may designate a Chairman of any committee, and such Chairman or any
two members of any committee may fix the time and place of its meetings
unless the Board shall otherwise provide. In the absence or disqualification
of any member of any such committee, the members thereof present at any meeting
and not disqualified from voting, whether or not they constitute a quorum, may
unanimously appoint another Trustee to act at the meeting in the place of such
absent or disqualified members; provided, however, that in the event of the
absence or disqualification of a Disinterested Trustee, such appointee shall be
a Disinterested Trustee.
Each committee shall keep minutes of its proceedings and shall report
the same to the Board of Trustees at the next succeeding meeting, and any
action by the committee shall be subject to revision and alteration by the
Board of Trustees, provided that no rights of third persons shall be affected
by any such revision or alteration.
Section 4. TELEPHONE MEETINGS. Members of a committee of the
Trustees may participate in a meeting by means of a conference telephone or
similar communications equipment if all persons participating in the meeting
can hear each other at the same time. Participation in a meeting by these
means shall constitute presence in person at the meeting.
Section 5. INFORMAL ACTION BY COMMITTEES. Any action required or
permitted to be taken at any meeting of a committee of the Trustees may be
taken without a meeting, if a consent in writing to such action is signed by
each member of the committee and such written consent is filed with the minutes
of proceedings of such committee.
Section 6. VACANCIES. Subject to the provisions hereof, the Board of
Trustees shall have the power at any time to change the membership of any
committee, to fill all vacancies, to designate alternate members to replace any
absent or disqualified member or to dissolve any such committee.
ARTICLE V
OFFICERS
Section 1. GENERAL PROVISIONS. The officers of the Trust shall
include a President, a Secretary and a Treasurer and may include a Chairman of
the Board, a Vice Chairman of the Board, one or more Vice Presidents, one or
more Assistant Secretaries and one or more
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Assistant Treasurers. In addition, the Trustees may from time to time appoint
such other officers with such powers and duties as they shall deem necessary or
desirable. The officers of the Trust shall be elected annually by the Trustees
at the first meeting of the Trustees held after each annual meeting of
shareholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as may be convenient. Each
officer shall hold office until his successor is elected and qualifies or until
his death, resignation or removal in the manner hereinafter provided. Any two
or more offices except President and Vice President may be held by the same
person. In their discretion, the Trustees may leave unfilled any office except
that of President and Secretary. Election of an officer or agent shall not of
itself create contract rights between the Trust and such officer or agent.
Section 2. REMOVAL AND RESIGNATION. Any officer or agent of the
Trust may be removed by the Trustees if in their judgment the best interests of
the Trust would be served thereby, but such removal shall be without prejudice
to the contract rights, if any, of the person so removed. Any officer of the
Trust may resign at any time by giving written notice of his resignation to the
Trustees, the Chairman of the Board, the President or the Secretary. Any
resignation shall take effect at any time subsequent to the time specified
therein or, if the time when it shall become effective is not specified
therein, immediately upon its receipt. The acceptance of a resignation shall
not be necessary to make it effective unless otherwise stated in the
resignation. Such resignation shall be without prejudice to the contract
rights, if any, of the Trust.
Section 3. VACANCIES. A vacancy in any office may be filled by the
Trustees for the balance of the term.
Section 4. CHIEF EXECUTIVE OFFICER. The Trustees may designate a
Chief Executive Officer from among the elected officers. The Chief Executive
Officer shall have responsibility for implementation of the policies of the
Trust, as determined by the Trustees, and for the administration of the
business affairs of the Trust and shall, in general, oversee all of the
business and the affairs of the Trust. In the absence of both the Chairman and
Vice Chairman of the Board, the Chief Executive Officer shall preside over the
meetings of the Trustees and of the shareholders at which he shall be present.
In the absence of a designation of a Chief Executive Officer by the Trustees,
the President shall be the Chief Executive Officer.
Section 5. CHIEF OPERATING OFFICER. The Trustees may designate a
Chief Operating Officer from among the elected officers. Said officer will
have the responsibilities and duties as determined by the Trustees or the Chief
Executive Officer.
Section 6. CHIEF FINANCIAL OFFICER. The Trustees may designate a
Chief Financial Officer from among the elected officers. Said officer will
have the responsibilities and duties as determined by the Trustees or the Chief
Executive Officer.
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Section 7. CHAIRMAN AND VICE CHAIRMAN OF THE BOARD. The Chairman of
the board shall preside over the meetings of the Trustees and of the
shareholders at which he shall be present. In the absence of the Chairman of
the Board, the Vice Chairman of the Board shall preside at such meetings at
which he shall be present. The Chairman of the Board and the Vice Chairman of
the Board shall perform such other duties as may be assigned to him or them by
the Trustees.
Section 8. PRESIDENT. In the absence of the Chairman of the Board,
the Vice Chairman of the Board and the Chief Executive Officer, the
President shall preside over the meetings of the Trustees and of the
shareholders at which he shall be present. In the absence of a designation of
a Chief Executive Officer by the Trustees, the President shall be the Chief
Executive Officer and shall be ex officio a member of all committees that may,
from time to time, be constituted by the Trustees. The President may execute
any deed, mortgage, bond, contract or other instrument, except in cases where
the execution thereof shall be expressly delegated by the Trustees or by these
Bylaws to some other officer or agent of the Trust or shall be required by law
to be otherwise executed; and in general shall perform all duties incident to
the office of President and such other duties as may be prescribed by the
Trustees from time to time.
Section 9. VICE PRESIDENTS. In the absence of the President or in
the event of a vacancy in such office, the Vice President (or in the event
there be more than one Vice President, the Vice Presidents in the order
designated at the time of their election or, in the absence of any designation,
then in the order of their election) shall perform the duties of the President
and when so acting shall have all the powers of and be subject to all the
restrictions upon the President; and shall perform such other duties as from
time to time may be assigned to him by the President or by the Trustees. The
Trustees may designate one or more Vice Presidents as executive Vice President,
senior Vice President or as Vice President for particular areas of
responsibility.
Section 10. SECRETARY. The Secretary shall (a) keep the minutes of
the proceedings of the shareholders, the Trustees and committees of the
Trustees in one or more books provided for that purpose; (b) see that all
notices are duly given in accordance with the provisions of these Bylaws or as
required by law; (c) be custodian of the trust records and of the seal of the
Trust; (d) keep a register of the post office address of each shareholder which
shall be furnished to the Secretary by such shareholder; (e) have general
charge of the share transfer books of the Trust; and (f) in general perform
such other duties as from time to time may be assigned to him by the Chief
Executive Officer, the President or by the Trustees.
Section 11. TREASURER. The Treasurer shall have the custody of the
funds and securities of the Trust and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Trust and shall deposit
all moneys and other valuable effects in the name and to the credit of the
Trust in such depositories as may be designated by the Trustees.
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He shall disburse the funds of the Trust as may be ordered by the
Trustees, taking proper vouchers for such disbursements, and shall render to
the President and Trustees, at the regular meetings of the Trustees or whenever
they may require it, an account of all his transactions as Treasurer and of the
financial condition of the Trust.
If required by the Trustees, at the expense of the Trust, he shall
give the Trust a bond in such sum and with such surety or sureties as shall be
satisfactory to the Trustees for the faithful performance of the duties of
his office and for the restoration to the Trust, in case of his death,
resignation, retirement or removal from office, of all books, papers, vouchers,
moneys and other property of whatever kind in his possession or under his
control belonging to the Trust.
Section 12. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The
Assistant Secretaries and Assistant Treasurers, in general, shall perform such
duties as shall be assigned to them by the Secretary or Treasurer,
respectively, or by the President or the Trustees. The Assistant Treasurers
shall, if required by the Trustees, at the expense of the Trust, give bonds for
the faithful performance of their duties in such sums and with such surety or
sureties as shall be satisfactory to the Trustees.
Section 13. SALARIES. The salaries and other compensation of the
officers shall be fixed from time to time by the Trustees and no officer shall
be prevented from receiving such salary or other compensation by reason of the
fact that he is also a Trustee.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. CONTRACTS. The Trustees may authorize any officer or
agent to enter into any contract or to execute and deliver any instrument in
the name of and on behalf of the Trust and such authority may be general or
confined to specific instances. Any agreement, deed, mortgage, lease or other
document executed by one or more of the Trustees or by an authorized person
shall be valid and binding upon the Trustees and upon the Trust when authorized
or ratified by action of the Trustees.
Section 2. CHECKS AND DRAFTS. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Trust shall be signed by such officer or agent of the Trust in such
manner as shall from time to time be determined by the Trustees.
Section 3. DEPOSITS. All funds of the Trust not otherwise employed
shall be deposited from time to time to the credit of the Trust in such banks,
trust companies or other depositories as the Trustees may designate.
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ARTICLE VII
SHARES OF BENEFICIAL INTEREST
Section 1. CERTIFICATES. Each shareholder shall be entitled to a
certificate or certificates which shall represent and certify the number of
shares of each class of beneficial interest held by him in the Trust. Each
certificate shall be signed by the Chairman, Vice Chairman, the President or a
Vice President and countersigned by the Secretary or an Assistant Secretary or
the Treasurer or an Assistant Treasurer and may be sealed with the seal, if
any, of the Trust. The signatures may be either manual or facsimile.
Certificates shall be consecutively numbered; and if the Trust shall, from time
to time, issue several classes of shares, each class may have its own number
series. A certificate is valid and may be issued whether or not an officer who
signed it is still an officer when it is issued. Each certificate representing
shares which are restricted as to their transferability or voting powers, which
are preferred or limited as to their dividends or as to their allocable portion
of the assets upon liquidation or which are redeemable at the option of the
Trust, shall have a statement of such restriction, limitation, preference or
redemption provision, or a summary thereof, plainly stated on the certificate.
In lieu of such statement or summary, the Trust may set forth upon the face or
back of the certificate a statement that the Trust will furnish to any
shareholder, upon request and without charge, a full statement of such
information.
Section 2. TRANSFERS. Certificates shall be treated as negotiable
and title thereto and to the shares they represent shall be transferred by
delivery thereof to the same extent as those of a Maryland stock corporation.
Upon surrender to the Trust or the transfer agent of the Trust of a share
certificate duly endorsed or accompanied by proper evidence of succession,
assignment or authority to transfer, the Trust shall issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
The Trust shall be entitled to treat the holder of record of any share
or shares as the holder in fact thereof and, accordingly, shall not be bound to
recognize any equitable or other claim to or interest in such share or shares
on the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of the State of
Maryland.
Notwithstanding the foregoing, transfers of shares of beneficial
interest of the Trust will be subject in all respects to the Declaration of
Trust and all of the terms and conditions contained therein.
Section 3. REPLACEMENT CERTIFICATE. Any officer designated by the
Trustees may direct a new certificate to be issued in place of any certificate
previously issued by the Trust alleged to have been lost, stolen or destroyed
upon the making of an affidavit of that fact by the person claiming the
certificate to be lost, stolen or destroyed. When authorizing the issuance of
a new certificate, an officer designated by the Trustees may, in his discretion
and as a
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condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed certificate or the owner's legal representative to
advertise the same in such manner as he shall require and/or to give bond, with
sufficient surety, to the Trust to indemnify it against any loss or claim which
may arise as a result of the issuance of a new certificate.
Section 4. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. The
Trustees may set, in advance, a record date for the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
determining shareholders entitled to receive payment of any dividend or the
allotment of any other rights, or in order to make a determination of
shareholders for any other proper purpose. Such date, in any case, shall not be
prior to the close of business on the day the record date is fixed and shall be
not more than ninety (90) days and, in the case of a meeting of shareholders
not less than ten (10) days, before the date on which the meeting or particular
action requiring such determination of shareholders of record is to be held or
taken.
In lieu of fixing a record date, the Trustees may provide that the
share transfer books shall be closed for a stated period but not longer than
twenty (20) days. If the share transfer books are closed for the purpose of
determining shareholders entitled to notice of or to vote at a meeting of
shareholders, such books shall be closed for at least ten (10) days before the
date of such meeting.
If no record date is fixed and the share transfer books are not closed
for the determination of shareholders, (a) the record date for the
determination of shareholders entitled to notice of or to vote at a meeting of
shareholders shall be at the close of business on the day on which the notice
of meeting is mailed or the 30th day before the meeting, whichever is the
closer date to the meeting; and (b) the record date for the determination of
shareholders entitled to receive payment of a dividend or an allotment of any
other rights shall be the close of business on the day on which the resolution
of the Trustees, declaring the dividend or allotment of rights, is adopted.
When a determination of shareholders entitled to vote at any meeting
of shareholders has been made as provided in this section, such determination
shall apply to any adjournment thereof, except when (i) the determination has
been made through the closing of the transfer books and the stated period of
closing has expired or (ii) the meeting is adjourned to a date more than 120
days after the record date fixed for the original meeting, in either of which
case a new record date shall be determined as set forth herein.
Section 5. SHARE LEDGER. The Trust shall maintain at its principal
office or at the office of its counsel, accountants or transfer agent, an
original or duplicate share ledger containing the name and address of each
shareholder and the number of shares of each class held by such shareholder.
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Section 6. FRACTIONAL SHARES; ISSUANCE OF UNITS. The Trustees may
issue fractional shares or provide for the issuance of scrip, all on such terms
and under such conditions as they may determine. Notwithstanding any other
provision of the Declaration of Trust or these Bylaws, the Trustees may issue
units consisting of different securities of the Trust. Any security issued in
a unit shall have the same characteristics as any identical securities issued
by the Trust, except that the Trustees may provide that for a specified period
securities of the Trust issued in such unit may be transferred on the books of
the Trust only in such unit.
ARTICLE VIII
ACCOUNTING YEAR
The fiscal and taxable years of the Trust shall begin on January 1 and
end on December 31 of each year, except the first year shall begin on the date
of formation of the Trust and end on December 31 of such year.
ARTICLE IX
DISTRIBUTIONS
Section 1. AUTHORIZATION. Dividends and other distributions upon the
shares of beneficial interest of the Trust may be authorized and declared by
the Trustees, subject to the provisions of law and the Declaration of Trust.
Dividends and other distributions may be paid in cash, property or shares of
the Trust, subject to the provisions of law and the Declaration of Trust.
Section 2. CONTINGENCIES. Before payment of any dividends or other
distributions, there may be set aside out of any funds of the Trust available
for dividends or other distributions such sum or sums as the Trustees may from
time to time, in their absolute discretion, think proper as a reserve fund for
contingencies, for equalizing dividends or other distributions, for repairing
or maintaining any property of the Trust or for such other purpose as the
Trustees shall determine to be in the best interest of the Trust, and the
Trustees may modify or abolish any such reserve in the manner in which it was
created.
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ARTICLE X
PROHIBITED INVESTMENTS AND ACTIVITIES;
INVESTMENT POLICIES
Notwithstanding anything to the contrary in the Declaration of Trust,
the Trust shall not enter into any transaction referred to in (i), (ii) or
(iii) below which it does not believe is in the best interests of the Trust,
and will not, without the approval of a majority of the disinterested Trustees,
(i) acquire from or sell to any Trustee, officer or employee of the Trust, any
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise in which a Trustee, officer or employee of the Trust owns more than
a one percent interest or any affiliate of any of the foregoing, any of the
assets or other property of the Trust, except for the acquisition directly or
indirectly of certain properties or interest therein, directly or indirectly,
through entities in which it owns an interest in connection with the Initial
Public Offering of shares by the Trust or pursuant to agreements entered into
in connection with such offering, which properties shall be described in the
prospectus relating to such Initial Public Offering, (ii) make any loan to or
borrow from any of the foregoing persons or (iii) engage in any other
transaction with any of the foregoing persons. Each such transaction will be in
all respects on such terms as are, at the time of the transaction and under the
circumstances then prevailing, fair and reasonable to the Trust. Subject to
the foregoing and the provisions of the Declaration of Trust, the Board of
Trustees may from time to time adopt, amend, revise or terminate any policy or
policies with respect to investments by the Trust as it shall deem appropriate
in its sole discretion.
ARTICLE XI
SEAL
Section 1. SEAL. The Trustees may authorize the adoption of a seal
by the Trust. The seal shall have inscribed thereon the name of the Trust and
the year of its formation. The Trustees may authorize one or more duplicate
seals and provide for the custody thereof.
Section 2. AFFIXING SEAL. Whenever the Trust is permitted or
required to affix its seal to a document, it shall be sufficient to meet the
requirements of any law, rule or regulation relating to a seal to place the
word "(SEAL)" adjacent to the signature of the person authorized to execute the
document on behalf of the Trust.
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ARTICLE XII
INDEMNIFICATION AND ADVANCE OF EXPENSES
Section 1. INDEMNIFICATION. To the maximum extent permitted by
Maryland law in effect from time to time, the Trust shall indemnify (a) any
Trustee, officer or shareholder or any former Trustee, officer or shareholder
(including among the foregoing, for all purposes of this Article XII and
without limitation, any individual who, while a Trustee, officer or shareholder
and at the express request of the Trust, serves or has served another
corporation, partnership, joint venture, trust, employee benefit plan or any
other enterprise as a director, officer, shareholder, partner or trustee of
such corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise) who has been successful, on the merits or otherwise, in the
defense of a proceeding to which he was made a party by reason of service in
such capacity, against reasonable expenses incurred by him in connection with
the proceeding, (b) any Trustee or officer or any former Trustee or officer
against any claim or liability to which he may become subject by reason of such
status unless it is established that (i) his act or omission was material to
the matter giving rise to the proceeding and was committed in bad faith or was
the result of active and deliberate dishonesty, (ii) he actually received an
improper personal benefit in money, property or services or (iii) in the case
of a criminal proceeding, he had reasonable cause to believe that his act or
omission was unlawful and (c) each shareholder or former shareholder against
any claim or liability to which he may become subject by reason of such status.
In addition, the Trust shall, without requiring a preliminary determination of
the ultimate entitlement to indemnification, pay or reimburse, in advance of
final disposition of a proceeding, reasonable expenses incurred by a Trustee,
officer or shareholder or former Trustee, officer or shareholder made a party
to a proceeding by reason such status, provided that, in the case of a Trustee
or officer, the Trust shall have received (i) a written affirmation by the
Trustee or officer of his good faith belief that he has met the applicable
standard of conduct necessary for indemnification by the Trust as authorized by
these Bylaws and (ii) a written undertaking by him or on his behalf to repay
the amount paid or reimbursed by the Trust if it shall ultimately be determined
that the applicable standard of conduct was not met. The Trust may, with the
approval of its Trustees, provide such indemnification or payment or
reimbursement of expenses to any Trustee, officer or shareholder or any former
Trustee, officer or shareholder who served a predecessor of the Trust and to
any employee or agent of the Trust or a predecessor of the Trust. Neither the
amendment nor repeal of this Article, nor the adoption or amendment of any
other provision of the Declaration of Trust or these Bylaws inconsistent with
this Article, shall apply to or affect in any respect the applicability of this
Article with respect to any act or failure to act which occurred prior to such
amendment, repeal or adoption.
Any indemnification or payment or reimbursement of the expenses
permitted by these Bylaws shall be furnished in accordance with the procedures
provided for indemnification or payment or reimbursement of expenses, as the
case may be, under Section 2-418 of the MGCL for directors of Maryland
corporations. The Trust may provide to Trustees, officers and shareholders
such other and further indemnification or payment or reimbursement of expenses,
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as the case may be, to the fullest extent permitted by the MGCL, as in effect
from time to time, for directors of Maryland corporations.
Section 2. NON-EXCLUSIVITY. The rights to indemnification and to
advancement of expenses conferred in this Article shall not be exclusive of any
other right which any person may have or hereafter acquire under any statute,
provision of the Declaration of Trust, contract, vote of shareholders or
disinterested Trustees or otherwise.
Section 3. INSURANCE. The Trust may, but shall not be required to,
purchase and maintain insurance on its own behalf or on behalf of any person
who is or was a Trustee, officer, employee or agent of the Trust, or is or was
serving at the request of the Trust as a trustee, director, officer, employee
or agent of another trust, partnership, limited liability company, joint
venture or other enterprise against any expense, liability or loss asserted
against him in any such capacity, or arising out of his or her status as such,
whether or not the Trust would have the power to indemnify such person against
such expense, liability or loss under Maryland law.
ARTICLE XIII
WAIVER OF NOTICE
Whenever any notice is required to be given pursuant to the
Declaration of Trust or Bylaws or pursuant to applicable law, a waiver thereof
in writing, signed by the person or persons entitled to such notice, whether
before or after the time stated therein, shall be deemed equivalent to the
giving of such notice. Neither the business to be transacted at nor the
purpose of any meeting need be set forth in the waiver of notice, unless
specifically required by statute. The attendance of any person at any meeting
shall constitute a waiver of notice of such meeting, except where such person
attends a meeting for the express purpose of objecting to the transaction of
any business on the ground that the meeting is not lawfully called or convened.
ARTICLE XIV
AMENDMENT OF BYLAWS
The Trustees shall have the power to adopt, alter or repeal any
provision of these Bylaws and to make new Bylaws; provided, however, that this
Article XIV of these Bylaws shall not be amended without the consent of
shareholders by a vote of a majority of the votes cast at a meeting of
shareholders duly called and at which a quorum is present.
21
<PAGE> 22
ARTICLE XV
MISCELLANEOUS
All references to the Declaration of Trust shall include any
amendments thereto.
22
<PAGE> 1
EXHIBIT 4
COMMON SHARES
NUMBER *0* SHARES *0*
SEE REVERSE FOR CERTAIN
DEFINITIONS, IMPORTANT NOTICE
ON TRANSFER RESTRICTIONS AND
OTHER INFORMATION
CUSIP 74101R 10 3
PRESIDIO GOLF TRUST
A REAL ESTATE INVESTMENT TRUST
FORMED UNDER THE LAWS OF THE STATE OF MARYLAND
THIS CERTIFICATE IS TRANSFERABLE
IN THE CITIES OF
BOSTON, MA OR NEW YORK, NY
THIS CERTIFIES THAT **Specimen**
is the owner of **zero**
FULLY PAID AND NONASSESSABLE COMMON SHARES OF BENEFICIAL
INTEREST, $.01 PAR VALUE PER SHARE, OF
PRESIDIO GOLF TRUST (the "Trust"), transferable on the books of the Trust by
the holder hereof in person or by its duly authorized attorney upon surrender
of this Certificate properly endorsed. This Certificate and the shares
represented hereby are issued and shall be held subject to all of the
provisions of the Declaration of Trust and Bylaws of the Trust and any
amendments thereto. This Certificate is not valid unless countersigned and
registered by the Transfer Agent and Registrar.
IN WITNESS WHEREOF, the Trust has caused this Certificate to be executed
on its behalf by its duly authorized officers.
Dated: _______________
_______________________________ _____________________________________
Secretary President and Chief Executive Officer
<PAGE> 2
[IMPRESSION OF TRUST SEAL]
COUNTERSIGNED AND REGISTERED:
BANKBOSTON, N.A.
TRANSFER AGENT AND REGISTRAR
BY:________________________
AUTHORIZED SIGNATURE
IMPORTANT NOTICE
The Trust will furnish to any shareholder, on request and without charge,
a full statement of the information required by Section 8-203(d) of the
Corporations and Associations Article of the Annotated Code of Maryland with
respect to the designations and any preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends and other
distributions, qualifications, and terms and conditions of redemption of the
shares of each class of beneficial interest which the Trust has authority to
issue and, if the Trust is authorized to issue any preferred or special class
in series, (i) the differences in the relative rights and preferences between
the shares of each series to the extent set and (ii) the authority of the Board
of Trustees to set such rights and preferences of subsequent series. The
foregoing summary does not purport to be complete and is subject to and
qualified in its entirety by reference to the Declaration of Trust of the
Trust, a copy of which will be furnished without charge to each shareholder who
so requests. Such request must be made to the Secretary of the Trust at its
principal office or to the Transfer Agent and Registrar.
The shares represented by this certificate are subject to restrictions
on Beneficial and Constructive Ownership and Transfer for the purpose, among
others, of the Trust's maintenance of its status as a Real Estate Investment
Trust (a "REIT") under the Internal Revenue Code of 1986, as amended (the
"Code"). Subject to certain further restrictions and except as expressly
provided in the Trust's Declaration of Trust, (i) no Person may Beneficially or
Constructively Own Shares of the Trust in excess of 9.8 percent (in value
or number of shares or such other percentage as may be determined by the Board
of Trustees pursuant to this Declaration of Trust) of the outstanding Common
Shares of the Trust unless such Person is an Excepted Holder (in which case the
Excepted Holder Limit shall be applicable); (ii) no Person may Beneficially or
Constructively Own Shares that would result in the Trust being "closely held"
under Section 856(h) of the Code or otherwise cause the Trust to fail to
qualify as a REIT; and
2
<PAGE> 3
(iii) no Person may Transfer Shares if such Transfer would result in Shares of
the Trust being owned by fewer than 100 Persons. Any Person who Beneficially
or Constructively Owns or attempts to Beneficially or Constructively Own Shares
which cause or will cause a Person to Beneficially or Constructively Own Shares
in excess or in violation of the above limitations must immediately notify the
Trust. If any of the restrictions on transfer or ownership are violated, the
Shares represented hereby will automatically and by operation of law be
transferred to a Charitable Trustee of a Charitable Trust for the benefit of
one or more Charitable Beneficiaries. In addition, upon the occurrence of
certain events, attempted Transfers in violation of the restrictions described
above may be void ab initio. A Person who attempts to Beneficially or
Constructively Own Shares in violation of the ownership limitations described
above shall have no claim, cause of action, or any recourse whatsoever against
a transferor of such Shares. All capitalized terms in this legend have the
meanings defined in the Trust's Declaration of Trust, as the same may be
amended from time to time, a copy of which, including the restrictions on
transfer and ownership, will be furnished to each holder of Shares of the Trust
on request and without charge. Such request must be made to the Secretary of
the Trust at its principal office.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN OR
DESTROYED, THE TRUST WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE
ISSUANCE OF A REPLACEMENT CERTIFICATE.
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT -
TEN ENT - as tenants by the entireties _________ Custodian_____________
(Cust) (Minor)
Under Uniform Gifts to Minors Act
JT TEN - as joint tenants with right of _______________
survivorship and not as tenants (State)
in common
Additional abbreviations may also be used though not in the above list.
3
<PAGE> 4
FOR VALUE RECEIVED, hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________ shares
of beneficial interest of the Trust represented by the within Certificate and
do hereby irrevocably constitute and appoint
______________________________________________________________________ Attorney
to transfer the said shares on the books of the Trust, with full power of
substitution in the premises.
Dated ________________________
________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
4
<PAGE> 1
EXHIBIT 5.2
[ LETTERHEAD OF BALLARD SPAHR ANDREWS & INGERSOLL, LLP ]
____________, 1998
Presidio Golf Trust
Building 106, Montgomery Street
Presidio Main Post, P.O. Box 29533
San Francisco, California 94129
Re: Registration Statement on Form S-11
Ladies and Gentlemen:
We have served as Maryland counsel to Presidio Golf Trust, a Maryland real
estate investment trust (the "Company"), in connection with certain matters of
Maryland law arising out of the registration of up to 7,866,000 shares of
beneficial interest, $.01 par value per share, of the Company (the "Common
Shares")(including an option to purchase up to an additional 1,026,000 Common
Shares), covered by the above-referenced Registration Statement, and all
amendments thereto (the "Registration Statement"), under the Securities Act of
1933, as amended (the "1933 Act"). Unless otherwise defined herein,
capitalized terms used herein shall have the meanings assigned to them in the
Registration Statement.
In connection with our representation of the Company, and as a basis for
the opinion hereinafter set forth, we have examined originals, or copies
certified or otherwise identified to our satisfaction, of the following
documents (hereinafter collectively referred to as the "Documents"):
1. The Registration Statement and the related form of prospectus included
therein in the form in which it was transmitted to the Securities and Exchange
Commission under the 1933 Act;
2. The Amended and Restated Declaration of Trust (the "Declaration") of
the Company, certified as of a recent date by the State Department of
Assessments and Taxation of Maryland (the "SDAT");
<PAGE> 2
Presidio Golf Trust
_____________, 1998
Page 2
3. The Bylaws of the Company, certified as of a recent date by an officer
of the Company;
4. Resolutions adopted by the Board of Trustees of the Company relating to
the sale, issuance and registration of the Common Shares (the "Resolutions"),
certified as of a recent date by an officer of the Company;
5. The form of certificate representing a Common Share, certified as of a
recent date by an officer of the Company;
6. A certificate of the SDAT as to the good standing of the Company, dated
as of a recent date;
7. A certificate executed by an officer of the Company, dated as of the
date hereof; and
8. Such other documents and matters as we have deemed necessary or
appropriate to express the opinion set forth in this letter, subject to the
assumptions, limitations and qualifications stated herein.
In expressing the opinion set forth below, we have assumed, and so far as
is known to us there are no facts inconsistent with, the following:
1. Each of the parties (other than the Company) executing any of the
Documents has duly and validly executed and delivered each of the Documents to
which such party is a signatory, and such party's obligations set forth therein
are legal, valid and binding.
2. Each individual executing any of the Documents on behalf of a party
(other than the Company) is duly authorized to do so.
3. Each individual executing any of the Documents, whether on behalf of
such individual or any other person, is legally competent to do so.
4. All Documents submitted to us as originals are authentic. All
Documents submitted to us as certified or photostatic copies conform to the
original documents. All signatures on all such Documents are genuine. All
public records reviewed or relied upon by us or on our behalf are true and
complete. All statements and information contained in the Documents are true
and
<PAGE> 3
Presidio Golf Trust
_____________, 1998
Page 3
complete. There has been no oral or written modification of or amendment to
any of the Documents, and there has been no waiver of any provision of any of
the Documents, by action or conduct of the parties or otherwise.
The phrase "known to us" is limited to the actual knowledge, without
independent inquiry, of the lawyers at our firm who have performed legal
services in connection with the issuance of this opinion.
Based upon the foregoing, and subject to the assumptions, limitations and
qualifications stated herein, it is our opinion that:
1. The Company is a real estate investment trust duly formed and existing
under and by virtue of the laws of the State of Maryland and is in good
standing with the SDAT.
2. The Common Shares have been duly authorized and, when issued, sold and
delivered against payment therefor in the manner described in the Registration
Statement and the Underwriting Agreement to be entered into among the Company
and several Underwriters and in accordance with the Declaration and the
Resolutions authorizing the issuance of the Common Shares, will be validly
issued, fully paid and nonassessable.
The foregoing opinion is limited to the substantive laws of the State of
Maryland and we do not express any opinion herein concerning any other law. We
express no opinion as to compliance with the securities (or "blue sky") laws or
the real estate syndication laws of the State of Maryland.
We assume no obligation to supplement this opinion if any applicable law
changes after the date hereof or if we become aware of any fact that might
change the opinion expressed herein after the date hereof.
This opinion is being furnished to you solely for submission to the
Securities and Exchange Commission as an exhibit to the Registration Statement
and, accordingly, may not be relied upon by, quoted in any manner to, or
delivered to any other person or entity (other than Rudnick & Wolfe, counsel to
the Company) without, in each instance, our prior written consent.
<PAGE> 4
Presidio Golf Trust
_____________, 1998
Page 4
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of the name of our firm therein. In
giving this consent, we do not admit that we are within the category of persons
whose consent is required by Section 7 of the 1933 Act.
Very truly yours,
<PAGE> 1
EXHIBIT 8.1
(LETTERHEAD OF RUDNICK & WOLFE)
Tax Opinion of Rudnick & Wolfe
-----------------------
Presidio Golf Trust
Building 106, Montgomery Street
Presidio Main Post, P.O. Box 29355
San Francisco, California 94129
RE: PRESIDIO GOLF TRUST - TAX OPINIONS
Ladies and Gentlemen:
We have acted as counsel to Presidio Golf Trust, a Maryland real
estate investment trust (the "Company"), in connection with the preparation of
a Form S-11 registration statement (the "Registration Statement") filed with
the Securities and Exchange Commission on ________, 1998 (File No. 333-52669),
as amended through the date hereof, with respect to the offering and sale (the
"Offering") of up to 7,521,000 common shares of beneficial interest, par value
$0.01 per share, of the Company (the "Common Shares"), and the Company's
contribution of (i) a portion of the net proceeds of the Offering to Presidio
Golf Limited Partnership, a Delaware limited partnership (the "Operating
Partnership"), in exchange for a _____% general partnership interest in the
Operating Partnership and (ii) the remainder of the net proceeds of the
Offering to the Operating Partnership in exchange for a limited partnership
interest in the Operating Partnership. You have requested our opinion
regarding certain U.S. federal income tax matters in connection with the
Offering. Unless specifically defined otherwise, all terms used herein have
the meaning set forth in the Registration Statement.
The Operating Partnership will acquire real property and improvements
in properties used by Initial Lessees (the "Golf Courses"), from the current
owners of such Golf Courses (the "Current Owners"). The Operating Partnership
will lease the Golf Courses to the Current Owners or their affiliates (the
"Initial Lessees") pursuant to substantially similar leases (the "Leases").
In giving this opinion letter, we have examined originals (or copies
identified to our satisfaction as true copies of the originals) of the
following (collectively, the "Reviewed Documents"):
1. the Company's Declaration of Trust, as duly filed with the
Department of Assessments and Taxation of the State of Maryland on April 20,
1998;
<PAGE> 2
Presidio Golf Trust
______________, 1998
Page 2
2. the Company's Amended and Restated Declaration of Trust, as
duly filed with the Department of Assessments and Taxation of the State on
Maryland on ________________, 1998;
3. the Amended and Restated Bylaws of the Company dated as of
______________, 1998;
4. the Registration Statement, including the prospectus contained
as part of the Registration Statement (the "Prospectus");
5. the Agreement of Limited Partnership of the Operating
Partnership, dated as of October 17, 1997, as amended.
6. the Amended and Restated Agreement of Limited Partnership of
the Operating Partnership, dated __________ ____, 1998 (the "Operating
Partnership Agreement");
7. the Leases entered into between the Operating Partnership and
each of the Initial Lessees, entered into as of the date of this opinion (the
"Participating Leases");
8. the various agreements between or among the Operating
Partnership and each Current Owner or Current Owners for the purchase or
contribution of each Property or Properties; and
9. such other documents as we have deemed necessary or
appropriate for purposes of this opinion.
In connection with the opinions rendered below, we have assumed, with
your consent, that:
1. each of the Reviewed Documents has been duly authorized,
executed, and delivered; is authentic, if an original, or is accurate, if a
copy; has not been amended; any unexecuted documents have been or will be
properly executed substantially in the form and content reviewed by us; and all
signatures affixed to the Reviewed Documents are genuine;
2. all of the representations and statements of a factual nature
as set forth in the Reviewed Documents are true and correct, all of the
obligations imposed by any such documents on the parties thereto have been and
will be performed or satisfied in accordance with their terms, and that such
documents accurately reflect the material facts of such transactions;
3. during its taxable year ending December 31, 1998 and
subsequent taxable years, the Company will operate in such a manner that will
make the factual representations contained
<PAGE> 3
Presidio Golf Trust
______________, 1998
Page 3
in the certificate, dated ___________, 1998 and executed by a duly appointed
officer of the Company (the "Officer's Certificate"), a copy of which is
attached hereto as Exhibit A, true for such years;
4. the Company will not make any amendments to its organizational
documents, the Operating Partnership Agreement or any other agreements, after
the date of this opinion that would adversely affect its qualification as a
real estate investment trust (a "REIT") for U.S. federal income tax purposes
for any taxable year;
5. each partner of the Operating Partnership (each, a "Partner")
that is a corporation or other entity has a valid legal existence;
6. each Partner has full power, authority, and legal right to
enter into and to perform the terms of the Operating Partnership Agreement and
the transactions contemplated thereby;
7. each Partner has been motivated in acquiring its partnership
interest by such Partner's anticipation of economic rewards apart from tax
considerations; and
8. no action will be taken by the Company, the Operating
Partnership or the Partners after the date hereof that would have the effect of
adversely altering the facts upon which the opinions set forth below are based.
In connection with the opinions rendered below, we also have relied
upon the correctness of the factual representations contained in the Officer's
Certificate. For the purposes of rendering this opinion, we have not made an
independent investigation of the facts set forth in any of the aforementioned
documents, including without limitation the Prospectus and the Officer's
Certificate. We have consequently relied upon your representations that the
information presented in such documents or otherwise furnished to us accurately
and completely describes all material facts relevant to this opinion. After
reasonable inquiry, no facts have come to our attention that would cause us to
question the accuracy and completeness of the facts contained in the documents
and assumptions set forth above, the representations set forth in the Officer's
Certificate, or the Prospectus in a material way. A material change that is
made after the date hereof in any of the foregoing bases for our opinions could
affect our conclusions.
Based on the documents and assumptions set forth above, the factual
representations set forth in the Officer's Certificate, and the discussion in
the Prospectus under the caption "Federal Income Tax Consequences" (which is
incorporated herein by reference), we are of the opinion that:
<PAGE> 4
Presidio Golf Trust
______________, 1998
Page 4
(a) commencing with the Company's taxable year ending December
31, 1998, the Company is organized in conformity with the requirements
for qualification and taxation as a real estate investment trust (a
"REIT") pursuant to sections 856 through 859 of the Internal Revenue
Code of 1986, as amended (the "Code"), and the Company's organization
and proposed method of operation will enable it to meet and continue
to meet the requirements for qualification and taxation as a REIT
under the Code;
(b) the statement of federal income tax matters and
consequences described in the Prospectus under the headings
"Prospectus Summary--Tax Status", "Risk Factors--Adverse Consequences
of Failure to Qualify as a REIT; Other Tax Liabilities", "Risk
Factors--Ownership of Common Shares", "Risk Factors--Certain Tax and
Anti-Takeover Provisions May Inhibit a Change in Control; Possible
Adverse Consequences of Ownership Limit", "Distribution Policy" and
"Federal Income Tax Consequences" and all subheadings thereunder, to
the extent that it constitutes matters of law or legal conclusions is
accurate in all material respects;
(c) the Operating Partnership will be treated for federal
income tax purposes as a partnership and not as a corporation or
association taxable as a corporation or, as of the date hereof, a
publicly traded partnership under Code Section 7704 taxable as a
corporation; and
(d) each Participating Lease will be treated as a true lease
for federal income tax purposes.
In addition, we confirm our opinions contained in the Prospectus under
the heading "Federal Income Tax Consequences."
We will not review on a continuing basis the Company's compliance with
the documents or assumptions set forth above, or the factual representations
set forth in the Officer's Certificate. Accordingly, no assurance can be given
that (i) the actual results of the Company's operations for any given taxable
year will satisfy the requirements for qualification and taxation as a REIT,
(ii) the Operating Partnership will continue to be classified as a partnership
for federal income tax purposes and not classified as a corporation,
association, or publicly traded partnership taxable as an association, and
(iii) each Participating Lease will continue to constitute a true lease for
federal income tax purposes.
In rendering these opinions, we have assumed that there will be no
change in the applicable laws of the State of Delaware or the State of
Maryland, or in the Code, the regulations promulgated thereunder by the
Treasury Department, and the interpretations of the Code and such regulations
by the courts and the Internal Revenue Service, all as they are in
<PAGE> 5
Presidio Golf Trust
______________, 1998
Page 5
effect and exist at the date of this letter. With respect to the last
assumption it should be noted that statutes, regulations, judicial decisions,
and administrative interpretations are subject to change at any time and, in
some circumstances, with retroactive effect. A material change that is made
after the date hereof in any of the foregoing bases for our opinions could
affect our conclusions. Moreover, if the facts vary from those relied upon
(including any representations, warranties, covenants or assumptions upon which
we have relied are inaccurate, incomplete, breached or ineffective), our
opinion herein could be inapplicable.
This opinion letter shall not be construed as or deemed to be a
guaranty or insuring agreement. You should be aware that an opinion of counsel
represents only counsel's best legal judgment, and has no binding effect or
official status of any kind, and that no assurance can be given that contrary
positions may not be taken by the Internal Revenue Service or that a court
considering the issues would not hold otherwise. This opinion letter is solely
for the information and use of the addressees, and it may not be distributed,
relied upon for any purpose by any other person, quoted in whole or in part or
otherwise reproduced in any document, or filed with any governmental agency
without our express written consent.
The foregoing opinions are limited to the United States Federal income
tax matters addressed herein, which are the only matters to which you have
requested our opinion. No other opinions are rendered with respect to any
other matters of federal law, other federal tax matters or to any issues
arising under the tax laws of any other country, or any state or locality. The
foregoing opinions are rendered as of the date hereof based on the law and
facts in existence on the date hereof, and we do not undertake, and hereby
disclaim, any obligation to update the opinions expressed herein or to advise
you of any changes in law or fact, whether or not material, which may be
brought to our attention after the date of this letter.
Notwithstanding the foregoing, we hereby consent to the filing of this
opinion as Exhibit 8.1 to the Registration Statement. We also consent to the
use of our name in the Prospectus under the sections entitled "Prospectus
Summary--Tax Status", "Federal Income Tax Consequences--Taxation of the
Company", and "Federal Income Tax Consequences--Tax Aspects of the Operating
Partnership". In giving this consent, we do not admit that we are included in
the category of persons whose consent is required by Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations promulgated
thereunder by the Securities and Exchange Commission.
Very truly yours,
RUDNICK & WOLFE
<PAGE> 6
EXHIBIT A
OFFICER'S CERTIFICATE
FOR PRESIDIO GOLF TRUST
AND PRESIDIO GOLF LIMITED PARTNERSHIP
REGARDING CERTAIN INCOME TAX MATTERS
I, George T. Haworth, Executive Vice President and Chief Financial
Officer of Presidio Golf Trust (the "Company"), the sole general partner of
Presidio Golf Limited Partnership (the "Operating Partnership"), in connection
with the initial public offering of the Company and other transactions
described in the Prospectus included in the Registration Statement Form S-11
(File No. 333-52669) (the "Registration Statement") filed with the Securities
and Exchange Commission, as amended, hereby certify on behalf of the Company
and the Operating Partnership for the benefit of Rudnick & Wolfe that, to the
best of my knowledge, and after independent investigation, each of the
following statements is true and correct:1
1. The factual statements and representations set forth in the
Prospectus and the Registration Statement were all true at the time they were
made and continue to be true.
2. At all times commencing with the consummation of the initial
public offering of the Company's Common Shares pursuant to the Registration
Statement, one hundred (100) or more persons have held the beneficial ownership
(determined without reference to any rules of attribution) of the outstanding
shares of the Company.
3. At all times commencing with the consummation of the initial
public offering of the Company's Common Shares pursuant to the Registration
Statement, five or fewer Persons have not owned, either actually or
constructively, after applying the Attribution Rules, more than fifty percent
(50%) in value of the Company's outstanding shares.
4. At all times commencing with the consummation of the initial
public offering of the Company's Common Shares pursuant to the Registration
Statement, no Person has owned, either actually or constructively, after
applying the rules on Constructive ownership, more than nine and eight-tenths
percent (9.8%) in value of the Company's outstanding shares.
5. At all times, the Company, in compliance with Section 857(f)
of the Code and Treasury Regulation Section 1.857-8, has used and will continue
to use, its best efforts to monitor ownership of its outstanding shares in
order to ensure compliance with, and has used and will continue to use its best
efforts to enforce the transfer and ownership restrictions on its outstanding
shares as set forth in the Company's Amended and Restated Declaration of Trust.
6. Commencing with its taxable year ended December 31, 1998, the
Company will timely and properly file an election to be taxed as a "real estate
investment trust" and such election has not been previously filed and has not
been and will not be terminated or Revoked.
- ------------------
1 Capitalized terms used herein, but not otherwise defined, shall have the
meanings assigned such terms in Exhibit A attached hereto and incorporated
herein by this reference.
A-1
<PAGE> 7
7. Each of the Initial Leases were prepared by Rudnick & Wolfe
and have not been amended, except to the extent such amendments have been
reviewed by Rudnick & Wolfe.
8. A copy of each of the Initial Leases, as amended, have been
made available to Rudnick & Wolfe for its review. Other than the Initial
Leases, neither the Company nor the Operating Partnership are a party to any
lease as landlord.
9. Each and every Initial Lease is a "triple net" lease whereby
neither the Company nor the Operating Partnership renders or has rendered any
services to any of its tenants nor engages or has engaged in any management or
operations with respect to any of its rental properties.
10. With respect to each and every Lease, the amount of rent
received or accrued by the Company and the Operating Partnership has not been
and will not be based in whole or in part on the income or profits of any
person provided that, in certain cases, rent under a Lease is based in whole or
in part on a fixed percentage or percentages of gross receipts or gross sales
of a tenant.
11. With respect to each and every tenant under a Lease, neither
the Company nor any owner (actual or Constructive) of ten percent (10%) or more
of the value of the outstanding Common Shares, has been the owner (actual or
Constructive) of: (i) in the case of a tenant that is a corporation, shares of
such tenant that would cause the Company to own, actually or Constructively,
ten percent (10%) or more of the total combined voting power of all classes of
shares entitled to vote, or ten percent (10%) or more of the total number of
shares of all classes of shares of such tenant; or (ii) in the case of a tenant
that is not a corporation, an interest in such tenant that would cause the
Company to own, actually or Constructively an interest of ten percent (10%) or
more in the assets or net profits of such tenant.
12. With respect to any Lease from which the Company or the
Operating Partnership receives or accrues, or has received or accrued, rent
attributable to personal property owned by the Company or the Operating
Partnership: (i) such personal property is and has been leased in connection
with a lease of real property, and (ii) the rent attributable to such personal
property is and has been less than 15% of the total rent received or accrued
under such Lease. I understand that the amount of rent attributable to personal
property is determined under the rules set forth in Code Section 856(d)(1),
which provides that the amount of rent attributable to personal property for a
taxable year is the amount that bears the same ratio to the rent for the
taxable year as the average of the adjusted bases of personal property at the
beginning and at the end of the taxable year bears to the average of the
aggregate adjusted bases of both the real property and the personal property at
the beginning and at the end of the taxable year.
13. Neither the Company nor the Operating Partnership has ever
owned, directly or indirectly, shares of stock or rights to acquire stock in any
corporation (including mutual funds), association, or other entity taxable as a
corporation under the Code. Neither the Company nor the Operating Partnership
is or has ever been an owner of less than one-hundred percent (100%) of any
property (for example as joint tenant or tenant-in-common), with the exception
of the Company's interest in the Operating Partnership.
A-2
<PAGE> 8
14. When the assets, liabilities, items of income, deductions, and
credits of the Company are aggregated with its allocable share (determined in
accordance with its proportionate capital interest) of assets, liabilities and
such items of the Operating Partnership:
(a) In each taxable year, commencing with the Company's
taxable year ended December 31, 1998, at least ninety-five percent
(95%) of the gross income of the Company (including the Company's
share of the gross income of the Operating Partnership) (excluding
gross income from Prohibited Transactions) has been and will be
derived from (i) dividends, (ii) interest, (iii) rents from real
property, (iv) gain from the sale or other disposition of shares,
securities and real property (including Interests in Real Property and
interests in mortgages on real property), but excluding gain on real
property which is Section 1221(1) Property, (v) abatements and refunds
of taxes on real property, (vi) income and gain derived from
Foreclosure Property, (vii) amounts (other than amounts, the
determination of which depends in whole or in part on income or
profits of any person) received or accrued as consideration for
entering into agreements (A) to make loans secured by mortgages on
real property or on Interests in Real Property, or (B) to purchase or
lease real property (including Interests in Real Property and
interests in mortgages on real property), and (viii) gain from the
sale or other disposition of a Real Estate Asset which is not a
Prohibited Transaction;
(b) In each taxable year commencing with the Company's
taxable year ended December 31, 1998, at least seventy-five percent
(75%) of the gross income of the Company (including the Company's
share of the gross income of the Operating Partnership) (excluding
gross income from Prohibited Transactions) has been and will be
derived from (i) rents from real property, (ii) interest on
obligations secured by mortgages on real property or on Interests in
Real Property, (iii) gain from the sale or disposition of real
property (including Interests in Real Property and interests in
mortgages on real property), but excluding gain from real property
which is Section 1221(1) Property, (iv) dividends or other
distributions on, and gain (other than gain from Prohibited
Transactions) from the sale or other disposition of, transferable
shares or beneficial certificates in other REITs, (v) abatements and
refunds of taxes on real property, (vi) income and gain derived from
Foreclosure Property, (vii) amounts (other than amounts, the
determination of which depends in whole or in part on the income or
profits of any person) received or accrued as consideration for
entering into agreements (A) to make loans secured by mortgages on
real property or on Interests in Real Property, or (B) to purchase or
lease real property (including Interests in Real Property and
interests in mortgages on real property), (viii) gain from the sale or
other disposition of a Real Estate Asset which is not a Prohibited
Transaction, and (ix) Qualified Temporary Investment Income;
(c) In each taxable year commencing with the Company's
taxable year ended December 31, 1998, the Company will pay dividends
(without regard to capital gains dividends, but taking into account
dividends deemed paid in the taxable year as a result of an election
made under Section 858 of the Code) equal to or in excess of the sum
of (i) ninety-five percent (95%) of the Company's REIT Taxable Income
for the year (determined without regard to the deduction for dividends
paid and by excluding any net capital gain), and (ii) ninety-five
percent (95%) of the net income from Foreclosure
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<PAGE> 9
Property (after the tax imposed thereon by Section 857(b)(4)(A) of the
Code), minus (iii) any Excess Noncash Income; and
(d) In each taxable year commencing with the Company's
taxable year ended December 31, 1998, the dividends paid by the
Company on the Company's Common Shares will be made pro rata, with no
preference to any share of the Company's Common Shares as compared
with other such shares.
15. At the close of each quarter of each taxable year commencing
with the quarter ending June 30, 1998, (i) at least seventy-five percent (75%)
of the value of the combined total assets of the Company will be represented by
Real Estate Assets, cash and cash items (including receivables), and U.S.
Government securities, (ii) not more than twenty-five percent (25%) of the
value of the Company's total assets will be represented by securities described
in clause (i) above and (iii) with respect to those assets described in clause
(ii) above, the value of any one issuer's securities owned by the Company will
not exceed five percent (5%) of the value of the Company's total assets and the
Company will not own more than ten percent (10%) of any one issuer's
outstanding voting securities. For purposes of the above representations, the
assets of the Company include the Company's allocable share (based on the
Company's proportionate capital interest) of the assets owned by any
partnerships in which the Company is a direct or indirect partner, including
the Operating Partnership.
16. Neither the Company nor the Operating Partnership conducts or
have ever actively conducted a business from which they have earned fees for
services they performed or other income (whether or not through a manager),
other than with respect to (i) Foreclosure Property, (ii) reimbursements paid
by the Operating Partnership to the Company pursuant to the terms of the
Partnership Agreement, or (iii) fees earned by the Operating Partnership for
administrative services performed by the Operating Partnership for the Company.
The reimbursements described in item (ii) and the Company's allocable share of
the fees described in item (iii) will constitute less than one-half of one
percent (0.5%) of the gross revenues of the Company in each taxable year of the
Company.
17. As required by Treasury Regulation Section 1.857-8 for each
year commencing with the Company's taxable year ended December 31, 1998, the
Company (i) will maintain the necessary records relating to the actual
ownership of its shares, (ii) will make, no later than January 30 of the
following taxable year, the requisite information requests of its shareholders
regarding share ownership and maintain a list of the persons failing or
refusing to comply in whole or in part with the Company's demand for statements
regarding share ownership and (iii) continue to maintain such records for all
years commencing with the Company's taxable year ended December 31, 1998.
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18. The rent paid by the Tenants to the Company or the Operating
Partnership pursuant to each of the Leases is and has been equal to the fair
rental value for the properties being leased.
19. As of the close of each of its taxable years, the Company has
had no earnings and profits accumulated in a non-REIT year, including any
earnings and profits of a corporation acquired by the Company in such
corporation's merger into the Company.
20. At all times commencing with the Company's initial public
offering of its Common Shares pursuant to the Registration Statement, all
shares of capital stock of the Company have been freely transferable, with the
exception of the Restricted Shares and subject to the limitations imposed by
the transfer and ownership limit provisions in the Company's Amended and
Restated Declaration of Trust.
21. At all times commencing with the consummation of the initial
public offering of the Company's Common Shares pursuant to the Registration
Statement, the Company will be managed by one or more trustees.
22. The Company has adopted a calendar year accounting period and
has not changed nor sought the consent of the Secretary of the Treasury or his
delegate to change the Company's accounting period and has taken all measures
within its control to retain a calendar year accounting period.
23. The Company has operated and will operate in accordance with
the Maryland General Corporation Law and all other laws of the State of
Maryland, the Company's Amended and Restated Articles of Incorporation, its
Bylaws and in the manner described in the Registration Statement.
24. The Operating Partnership has operated and will operate in
accordance with the Delaware Revised Uniform Limited Partnership Act and all
other laws of the State of Delaware, the Partnership Agreement and in the
manner described in the Registration Statement.
25. With respect to the Operating Partnership: (i) the Operating
Partnership has been formed pursuant to the Partnership Agreement which has
been prepared by Rudnick & Wolfe; (ii) all amendments to such agreements were
prepared by Rudnick & Wolfe; (iii) the Operating Partnership has taken no
action which would change the identity of the state the laws of which govern
such Operating Partnership; (iv) the Operating Partnership has been operated in
accordance with the terms of the applicable partnership agreement, as amended;
(v) the Company, with respect to the Operating Partnership has not acted as the
agent for any of the other partners of the Operating Partnership, respectively,
except as expressly provided in the Partnership Agreement; (vi) neither the
Company nor the Operating Partnership with respect to interests (the
"Interests") in the Operating Partnership, (a) has caused or permitted
Interests to be listed or traded on an established securities market or
exchange (including an over-the-counter market), or (b) has participated in or
implicitly or explicitly allowed the facilitation of public trading of
Interests; (vii) neither the Company nor the Operating Partnership has caused
or permitted Interests to be issued in a transaction that is registered under
the Securities Act of 1933, as amended; (viii) neither the Company nor the
Operating Partnership has taken any action which would cause the Operating
Partnership to have more than 100 partners (including as
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<PAGE> 11
partners those persons indirectly owning an interest in the Operating
Partnership through a partnership, limited liability corporation, S
corporation, or grantor trust); (ix) to the best knowledge of the Company, and
the Operating Partnership, no person has stood ready to make a market in the
Interests, Interests have not been regularly quoted by persons such as brokers
or dealers, and holders of Interests have not had a readily available, regular
and ongoing opportunity to buy, sell or exchange such interests in a time frame
and with the regularity and continuity that a secondary market for interests in
the Operating Partnership would provide; and (xi) the Operating Partnership has
not added a new line of business.
26. The Company and the Operating Partnership have at all times
held any properties (and any other assets) for investment purposes and not as
(i) stock in trade or other property of a kind which would properly be included
in inventory if on hand at the close of the taxable year or (ii) property held
primarily for sale to customers in the ordinary course of its trade or
business.
27. The Company has not and will not own any assets or conduct any
business until the consummation of the initial public offering.
28. The Operating Partnership has not, as of the date hereof,
elected to be treated as other than a partnership for federal income tax
purposes.
29. I understand that for purposes of making the above
certification (other than the certification in paragraph 14(c) relating the
dividends paid by the Company) regarding the Company's assets, liabilities,
items of income, deduction, loss and credit, (i) the Company will be deemed to
own its proportionate share of each of the assets and liabilities of any
partnership in which it is a partner and will be deemed to be entitled to the
items of income, deduction or loss of such partnership attributable to such
share, (ii) the Company's proportionate share of a partnership's assets and
liabilities will be determined in accordance with its relative capital interest
in such partnership, (iii) this test will be similarly applied to each
partnership in which the Company is a partner and so on, so, for example, the
assets of any partnership in which the Operating Partnership is a partner will
be viewed as owned proportionately by the Operating Partnership and the assets
of the Operating Partnership (including its proportionate share of the assets
of such other partnership) will be viewed as owned proportionately by the
Company, and (iv) for purposes of the certification in Paragraph 14(c) above,
the Company's proportionate share of the taxable income of the Operating
Partnership will be determined in accordance with general federal income tax
principles regarding the allocation of income of a partnership.
30. As to any relevant future acquisitions, the Company will
elect, pursuant to Notice 88-19, deferral treatment with regard to its
Net Built-In Gains subject to recognition upon subsequent dispositions as
provided therein.
31. Neither the Company nor the Operating Partnership has been or
are being audited with respect to their payment of taxes and neither of such
entities has been notified of any asserted deficiency in their payment of
taxes.
32. The Company and the Operating Partnership intend to operate in
a manner such that the above representations will continue to be true in the
future; provided, however, the Company and the Operating Partnership may
operate in a manner different from such representations if they obtain the
advice of counsel that such difference will not impair the Company's status as
a REIT under the Code.
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33. The undersigned is a duly elected officer of the Company and
will be a duly elected officer of the Company as of the consummation of the
initial public offering. In such capacity, the undersigned has access to
relevant information regarding each of the factual matters set forth above and
has consulted with other employees and officers of the Company and the
Operating Partnership regarding such factual matters, none of whom have
disagreed in any respect with any representations set forth above.
34. The Company has advised the undersigned of any matter of which
it has been advised by independent legal counsel or accounting advisors or of
which the Company or its employees is aware that could, if adversely decided,
adversely affect the Company's ability to satisfy the requirement for continued
taxation as a REIT under the Code.
The foregoing is provided in connection with the preparation of your
opinion. The Company understands that your opinion will be premised on the
basis that all the facts, representations and assumptions on which you are
relying, whether contained herein or elsewhere, are accurate and complete and
will be accurate and complete on the date the Registration Statement is filed.
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<PAGE> 13
IN WITNESS WHEREOF, I have executed this Certificate as of the _____
day of ___________, 1998.
Name:
Title:
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<PAGE> 14
EXHIBIT A
DEFINITIONS
"Amended and Restated Declaration of Trust": the Amended and Restated
Declaration of Trust of the Company.
"Attribution Rules": (i) shares owned actually or constructively by
or for a corporation, partnership, estate, or trust shall be considered as
being owned proportionately by its shareholders, partners, or beneficiaries;
(ii) an individual shall be considered as owning the shares owned, actually or
constructively by or for his family - for purposes of this clause, the family
of an individual includes only his brothers and sisters (whether by the whole
or half blood), spouse, ancestors, and lineal descendants; (iii) if any person
has an option to acquire shares, such shares shall be considered as owned by
such person - for purposes of this clause, an option to acquire such an option,
and each one of a series of such option, shall be considered as an option to
acquire such shares; (iv) shares constructively owned by a person by reason of
the application of clause (i) or (iii) shall, for purposes of applying clause
(i) or (ii), be treated as actually owned by such person; but shares
constructively owned by an individual by reason of the application of clause
(ii) shall not be treated as owned by him for purposes of again applying such
clause in order to make another the constructive owner of any such shares; (v)
if shares may be considered as owned by an individual under either clause (ii)
or (iii) it shall be considered as owned by him under clause (iii); and (vi)
outstanding securities convertible into shares (whether or not convertible
during the taxable year) shall be considered as outstanding shares. Clauses
(ii), (iii) and (vi) shall only be applied if the effect is to cause five or
fewer Persons to own actually or constructively more than fifty percent (50%)
of the Company's outstanding shares during the last half of any of its taxable
years commencing with the Company's taxable year ended December 31, 1998.
"Code": the Internal Revenue Code of 1986, as amended.
"Constructive": refers to constructive shares ownership determined
under the rules of Section 318 of the Code, as modified by Section 856(d)(5) of
the Code. Generally, these rules provide the following:
a. an individual is considered as owning the Ownership Interest
that is owned, actually or constructively, by or for his
spouse, his children, his grandchildren, and his parents;
b. an Ownership Interest that is owned, actually or
constructively, by or for a partnership or estate is
considered as owned proportionately by its partners or
beneficiaries;
c. an Ownership Interest that is owned, actually or
constructively, by or for a trust is considered as owned by
its beneficiaries in proportion tot he actuarial interest of
such beneficiaries (provided, however, that in the case of a
"grantor trust" the Ownership Interest will be considered as
owned by the grantors);
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<PAGE> 15
d. if ten percent (10%) or more in value of the shares in a
corporation is owned, actually or constructively, by or for
any person, such person shall be considered as owning the
Ownership Interest that is owned, actually or constructively,
by or for such corporation in that proportion which the value
of the shares which such person so owns bears to the value of
all the shares in such corporation;
e. an Ownership Interest that is owned, actually or
constructively, by or for a partner of a partnership or a
beneficiary of an estate or trust shall be considered as owned
by the partnership, estate, or trust;
f. if ten percent (10%) or more in value of the shares in a
corporation is owned, actually or constructively, by or for
any person, such corporation shall be considered as owning the
Ownership Interest that is owned, actually or constructively,
by or for such person;
g. if any person has an option to acquire an Ownership Interest
(including an option to acquire an option or any one of a
series of such options), such Ownership Interest shall be
considered as owned by such person;
h. an Ownership Interest that is constructively owned by a person
by reason of the application of the rules described in
paragraphs (a) through (g) above shall, for purposes of
applying paragraphs (a) through (g), be considered as actually
owned by such person provided, however, that (i) an Ownership
Interest constructively owned by an individual by reason of
paragraph (a) shall not be considered as owned by him for
purposes of again applying paragraph (a) in order to make
another the constructive owner of such Ownership Interest,
(ii) an Ownership Interest constructively owned by a
partnership, estate, trust, or corporation by reason of the
application of paragraphs (e) or (f) shall not be considered
as owned by it for purposes of applying paragraphs (b), (c),
or (d) in order to make another the constructive owner of such
Ownership Interest, (iii) if an Ownership Interest may be
considered as owned by an individual under paragraphs (a) or
(g), it shall be considered as owned by him under paragraph
(g), and (iv) for purposes of the above described rules, an S
corporation shall be treated as a partnership and any
shareholder of the S corporation shall be treated as a partner
of such partnership except that this rule shall not apply for
purposes of determining whether shares in the S corporation is
constructively owned by any person.
i. For purposes of the above summary of the constructive
ownership rules, the term "Ownership Interest" means the
ownership of shares with respect to a corporation and, with
respect to any other type of entity, the ownership of an
interest in either its assets or net profits.
"Common Shares": the common shares of beneficial interest of the
Company.
"Excess Noncash Income": the excess (if any) of (i) the sum of (A)
the amounts includible in gross income under Section 467 of the Code (relating
to certain payments for the use of property or services) over amounts which
would have been includible in gross income without regard to such section, (B)
all interest, original issue discount and other items includible
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<PAGE> 16
in income with respect to debt instruments received upon the sale of property
over the money and fair market value of property received with respect to such
instruments and (C) income recognized upon the disposition of real estate if
there is a determination that Section 1031 of the Code (like-kind exchanges)
does not apply to the disposition and the failure to satisfy the requirements
of Section 1031 of the Code was due to reasonable cause and not willful
neglect, over (ii) five percent (5%) of the Company's REIT Taxable Income for
the taxable year determined without regard to the deduction for dividends paid
and by excluding any net capital gain.
"Foreclosure Property": any real property (including Interests in
Real Property), and any personal property incident to such real property,
acquired by the Company or the Operating Partnership as a result of such entity
having bid in such property at foreclosure, or having otherwise reduced such
property to ownership or possession by agreement or process of law, after there
was default (or default was imminent) on a lease of such property or on an
indebtedness which such property secured; provided that an election for
foreclosure property status under Section 856(e)(5) of the Code is in effect
with respect to such property and such election has not been terminated under
Section 856(e)(4) of the Code. Such term does not include property acquired by
the Company or the Operating Partnership as a result of indebtedness arising
from the sale or other disposition of property of such entity which is Section
1221(1) Property which was not originally acquired as foreclosure property.
"Initial Leases": each of the Leases entered into by the Company and
the Operating Partnership concurrently with the consummation of the initial
public offering of the Common Shares of the Company pursuant to the
Registration Statement.
"Interests in Real Property": includes fee ownership and co-ownership
of land or improvements thereon, leaseholds of land or improvements thereon,
options to acquire land or improvements thereon, and options to acquire
leaseholds of land or improvements thereon, but does not include mineral, oil
or gas royalty interests.
"Lease": any lease from which the Company has derived or is deriving
revenue (whether directly or indirectly through an interest in one or more
partnerships, including the Operating Partnership.
"Partnership Agreement": the Agreement of Limited Partnership of
Presidio Golf Limited Partnership, as amended or restated from time to time.
"Person": an individual, private foundation, charitable trust, or
employee pension, profit sharing, shares bonus or supplemental unemployment
benefit trust.
"Prohibited Transaction": the sale or other dispositions of Section
1221(1) Property, other than Foreclosure Property unless (i) the property sold
was a Real Estate Asset; (ii) the Company or the Operating Partnership held the
Real Estate Asset for at least four years; (iii) the aggregate expenditures
made by the Company or the Operating Partnership during the four (4) year
period preceding the date of the sale which are includible in the basis of the
Real Estate Asset do not exceed thirty percent (30%) of the net selling price
of such asset; (iv) (A) during
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the taxable year the Company or the Operating Partnership did not make more
than seven sales of property (other than Foreclosure Property) or (B) the
aggregate adjusted bases (as determined for purposes of computing earnings and
profits) of property (other than Foreclosure Property) sold during the taxable
year does not exceed ten percent (10%) of the aggregate adjusted bases (as so
determined) of all the assets of the Company (including the Company's share of
the aggregate bases of the assets of the Operating Partnership) as of the
beginning of the taxable year; (v) in the case of property, which consists of
land or improvements, not acquired through foreclosure (or deed in lieu of
foreclosure), or lease termination, the Company or the Operating Partnership
has held the property for not less than four (4) years for production of rental
income; and (vi) if the requirement of clause (iv)(A) is not satisfied,
substantially all of the marketing and development expenditures with respect to
the property were made through an independent contractor (as defined in Section
856(d)(3) of the Code) from whom neither of the Company nor the Operating
Partnership receives income.
"Qualified Temporary Investment Income": any income which (i) is
attributable to shares, or a bond, debenture, note, certificate or other
evidence of indebtedness (excluding any annuity contract which depends (in
whole or in substantial part) on the life expectancy of one or more
individuals, or is issued by an insurance company subject to tax under
subchapter L of the Code (1) in a transaction in which there is no
consideration other than case or another annuity contract meeting the
requirements of this definition, (2) pursuant to the exercise of an election
under an insurance contract by a beneficiary thereof on the death of the
insured party under such contract, or (3) in a transaction involving a
qualified pension or employee benefit plan), (ii) is attributable to the
temporary investment of new capital (as defined in Section 856(c)(6)(D)(ii) of
the Code) received by the Company and (iii) is received or accrued during the
one year period beginning on the date the Company received such capital.
"Registration Statement": the registration statement on Form S-11,
filed by the Company with the Securities and Exchange Commission on
________________, 1998 with respect to the initial public offering of its
Common Shares, as amended as of the date it became final.
"REIT": a real estate investment trust which meets the requirements
of Sections 856 through 860 of the Code.
"REIT Taxable Income": "Real estate investment trust taxable income"
as defined in Section 857(b) of the Code, which generally equals the taxable
income of the Company, computed with the dividends-paid deduction as defined in
Section 561 of the Code (except that the portion of such deduction attributable
to net income from Foreclosure Property is excluded), excluding any net income
from Foreclosure Property, and computed with a deduction for any tax imposed
under Section 857(b)(5) of the Code (i.e., tax on the failure to meet the
seventy-five percent (75%) or ninety-five percent (95%) income tests).
"Restricted Shares": Company shares issued to certain officers,
employees or directors of the Company (i) which is subject to a "substantial
risk of forfeiture" as defined in Section 83 of the Code, (ii) for which no
officer, employee or director has made an election under Section 83(b) of the
Code; and (iii) the value of which does not exceed, in the aggregate, one-half
of one percent (0.5%) in value of the Company's outstanding shares.
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"Revoked": the Company's filing of an election with the Internal
Revenue Service revoking its status as a REIT.
"Section 1221(1) Property": shares in trade of the Company or other
property of a kind which would properly be included in inventory of the Company
if on hand at the close of the taxable year, or property held by the Company
primarily for sale to customers in the ordinary course of its trade or
business.
"Tenants": each of the respective lessees under the Leases to which
the Company or the Operating Partnership, respectively, is the lessor.
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EXHIBIT 10.1
-----------------------------------------
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
PRESIDIO GOLF LIMITED PARTNERSHIP
-----------------------------------------
Dated as of _________, 1998
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
ARTICLE PAGE
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<S> <C> <C>
I DEFINED TERMS......................................................................... 1
II ORGANIZATIONAL MATTERS................................................................14
2.1 Withdrawal of Original General Partner/Continuation..............................14
2.2 Name.............................................................................14
2.3 Registered Office and Agent; Principal Office....................................15
2.4 Term.............................................................................15
III
PURPOSE...............................................................................15
3.1 Purpose and Business.............................................................15
3.2 Powers...........................................................................15
IV CAPITAL CONTRIBUTIONS AND ISSUANCES OF PARTNERSHIP
INTERESTS.............................................................................16
4.1 Capital Contributions of the Partners............................................16
4.2 Issuances of Partnership Interests...............................................16
4.3 No Preemptive Rights.............................................................18
4.4 Other Contribution Provisions....................................................18
4.5 No Interest on Capital...........................................................18
V DISTRIBUTIONS.........................................................................18
5.1 Requirement and Characterization of Distributions................................18
5.2 Amounts Withheld.................................................................19
5.3 Distributions Upon Liquidation...................................................19
5.4 Revisions to Reflect Issuance of Partnership Interests...........................19
VI ALLOCATIONS...........................................................................19
6.1 Allocations for Capital Account Purposes.........................................19
6.2 Revisions to Allocations to Reflect Issuance of Partnership Interests............20
VII MANAGEMENT AND OPERATIONS OF BUSINESS.................................................21
7.1 Management.......................................................................21
7.2 Certificate of Limited Partnership...............................................25
7.3 Title to Partnership Assets......................................................26
7.4 Reimbursement of the General Partners............................................26
7.5 Ownership of Limited Partnership Interests by the General Partner;
</TABLE>
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<TABLE>
<S> <C> <C>
Relationship of Shares to Partnership Units; Funding Debt........................27
7.6 Transactions with Affiliates.....................................................29
7.7 Indemnification..................................................................29
7.8 Liability of the General Partner.................................................31
7.9 Other Matters Concerning the General Partner.....................................32
7.10 Reliance by Third Parties.......................................................34
7.11 Restrictions on General Partner's Authority.....................................34
7.12 Loans by Third Parties..........................................................34
VIII RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS............................................35
8.1 Limitation of Liability..........................................................35
8.2 Management of Business...........................................................35
8.3 Return of Capital................................................................35
8.4 Rights of Limited Partners Relating to the Partnership...........................35
8.5 Redemption Right.................................................................37
IX BOOKS, RECORDS, ACCOUNTING AND REPORTS................................................39
9.1 Records and Accounting...........................................................39
9.2 Fiscal Year......................................................................39
9.3 Reports..........................................................................39
X TAX MATTERS...........................................................................40
10.1 Preparation of Tax Returns......................................................40
10.2 Tax Elections...................................................................40
10.3 Tax Matters Partner.............................................................40
10.4 Organizational Expenses.........................................................42
10.5 Withholding.....................................................................42
XI TRANSFERS AND WITHDRAWALS.............................................................43
11.1 Transfer........................................................................43
11.2 Transfers of Partnership Interests of General Partners..........................43
11.3 Limited Partners' Rights to Transfer............................................44
11.4 Substituted Limited Partners....................................................46
11.5 Assignees.......................................................................47
11.6 General Provisions..............................................................47
XII ADMISSION OF PARTNERS.................................................................49
12.1 Admission of a Successor General Partner........................................49
12.2 Admission of Additional Limited Partners........................................49
12.3 Amendment of Agreement and Certificate of Limited Partnership...................50
XIII DISSOLUTION AND LIQUIDATION...........................................................50
</TABLE>
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<TABLE>
<S> <C> <C>
13.1 Dissolution.....................................................................50
13.2 Winding Up......................................................................51
13.3 Compliance with Timing Requirements of Regulations..............................52
13.4 Deemed Distribution and Recontribution..........................................53
13.5 Rights of Limited Partners......................................................53
13.6 Notice of Dissolution...........................................................53
13.7 Cancellation of Certificate of Limited Partnership..............................53
13.8 Reasonable Time for Winding Up..................................................53
13.9 Waiver of Partition.............................................................54
13.10 Liability of Liquidator........................................................54
XIV AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS..........................................54
14.1 Amendments......................................................................54
14.2 Meetings of the Partners........................................................55
XV GENERAL PROVISIONS....................................................................56
15.1 Addresses and Notice............................................................56
15.2 Titles and Captions.............................................................56
15.3 Pronouns and Plurals............................................................56
15.4 Further Action..................................................................57
15.5 Binding Effect..................................................................57
15.6 Creditors.......................................................................57
15.7 Waiver..........................................................................57
15.8 Counterparts....................................................................57
15.9 Applicable Law..................................................................57
15.10 Invalidity of Provisions.......................................................57
15.11 Power of Attorney..............................................................58
15.12 Entire Agreement...............................................................59
15.13 No Rights as Shareholders......................................................59
15.14 Outside Activities of Partners.................................................59
15.15 Limitation to Preserve REIT Status.............................................60
</TABLE>
iii
<PAGE> 5
EXHIBIT A
PARTNERS AND PARTNERSHIP INTERESTS
EXHIBIT B
CAPITAL ACCOUNT MAINTENANCE
EXHIBIT C
SPECIAL ALLOCATION RULES
EXHIBIT D
NOTICE OF REDEMPTION
EXHIBIT E
VALUE OF CONTRIBUTED PROPERTY
iv
<PAGE> 6
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
PRESIDIO GOLF LIMITED PARTNERSHIP
THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP, dated as of
___________, 1998, is entered into by and among Presidio Golf Trust, a Maryland
real estate investment trust, as the General Partner, and the Persons whose
names are set forth on Exhibit A hereto as Limited Partners, together with any
other Persons who become Partners in the Partnership as provided herein.
WHEREAS, the Partnership was formed as a limited partnership under the
laws of the State of Delaware by a Certificate of Limited Partnership filed with
the Secretary of State of Delaware on October 17, 1997, and prior to the date
hereof was governed by that certain Agreement of Limited Partnership of APGM
Limited Partnership (the "Original Agreement"), dated October 17, 1997, as
amended, by and between Arnold Palmer Golf Management, LLC, a Delaware limited
liability company, as the sole general partner (the "Original General Partner"),
and Palmer Management, LLC, a Delaware limited liability company, as the sole
limited partner; and
WHEREAS, the parties hereto now desire to cause: (i) the Original
General Partner to withdraw as the general partner of the Partnership and to be
admitted as a Limited Partner of the Partnership; (ii) the name of the
Partnership to be changed to "Presidio Golf Limited Partnership" and (iii) the
Original Agreement to be restated in its entirety.
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree to
form the Partnership as a limited partnership under the Delaware Revised Uniform
Limited Partnership Act, as amended from time to time, as follows:
ARTICLE I
DEFINED TERMS
The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.
"Act" means the Delaware Revised Uniform Limited Partnership Act, as it
may be amended from time to time, and any successor to such statute.
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<PAGE> 7
"Additional Limited Partner" means a Person admitted to the Partnership
as a Limited Partner pursuant to Section 12.2 hereof and who is shown as such on
the books and records of the Partnership.
"Adjusted Capital Account" means the Capital Account maintained for
each Partner as of the end of each Partnership Year (i) increased by any amounts
which such Partner is obligated to restore pursuant to any provision of this
Agreement or is deemed to be obligated to restore pursuant to the penultimate
sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5) and (ii)
decreased by the items described in Regulations Sections
1.704-1(b)(2)(ii)(d)(4), 1.704- 1(b)(2)(ii)(d)(5) and 1.704-1(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted Capital Account is intended to comply with
the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be
interpreted consistently therewith.
"Adjusted Capital Account Deficit" means, with respect to any Partner,
the deficit balance, if any, in such Partner's Adjusted Capital Account as of
the end of the relevant Partnership Year.
"Adjusted Property" means any property the Carrying Value of which has
been adjusted pursuant to Exhibit B.
"Adjustment Date" has the meaning set forth in Section 4.2.B.
"Affiliate" means, with respect to any Person, (i) any Person directly
or indirectly controlling, controlled by or under common control with such
Person, (ii) any Person owning or controlling ten percent (10%) or more of the
outstanding voting interests of such Person, (iii) any Person of which such
Person owns or controls ten percent (10%) or more of the voting interests or(iv)
any officer, director, general partner or trustee of such Person or any Person
referred to in clauses (i), (ii), and (iii) above. For purposes of this
definition, "control," when used with respect to any Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise,
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Agreed Value" means (i) in the case of any Contributed Property
contributed to the Partnership, the amount set forth on Exhibit E as the Agreed
Value of such Property; (ii) in the case of any other Contributed Property, the
704(c) Value of such property as of the time of its contribution to the
Partnership, reduced by any liabilities either assumed by the Partnership upon
such contribution or to which such property is subject when contributed; and
(iii) in the case of any property distributed to a Partner by the Partnership,
the Partnership's Carrying Value of such property at the time such property is
distributed, reduced by any indebtedness either assumed by such Partner upon
such distribution or to which such property is subject at the time of
distribution as determined under Section 752 of the Code and the regulations
thereunder.
2
<PAGE> 8
"Agreement" means this Agreement of Limited Partnership, as it may be
amended, supplemented or restated from time to time.
"Assignee" means a Person to whom one or more Partnership Units have
been transferred in a manner permitted under this Agreement, but who has not
become a Substituted Limited Partner, and who has the rights set forth in
Section 11.5.
"Available Cash" means, with respect to any period for which such
calculation is being made:
(a) all cash revenues and funds received by the Partnership from
whatever source (excluding the proceeds of any Capital Contribution) plus the
amount of any reduction (including, without limitation, a reduction resulting
because the General Partner determines such amounts are no longer necessary) in
reserves of the Partnership, which reserves are referred to in clause (b)(iv)
below;
(b) less the sum of the following (except to the extent made with the
proceeds of any Capital Contribution):
(i) all interest, principal and other debt payments made
during such period by the Partnership,
(ii) all cash expenditures (including capital expenditures)
made by the Partnership during such period,
(iii) investments in any entity (including loans made thereto)
to the extent that such investments are permitted under this Agreement and are
not otherwise described in clauses (b)(i) or (ii), and
(iv) the amount of any increase in reserves established during
such period which the General Partner determines is necessary or appropriate in
its sole and absolute discretion.
Notwithstanding the foregoing, Available Cash shall not include any
cash received or reductions in reserves, or take into account any disbursements
made or reserves established, after commencement of the dissolution and
liquidation of the Partnership.
"Book-Tax Disparities" means, with respect to any item of Contributed
Property or Adjusted Property, as of the date of any determination, the
difference between the Carrying Value of such Contributed Property or Adjusted
Property and the adjusted basis thereof for federal income tax purposes as of
such date. A Partner's share of the Partnership's Book-Tax Disparities in all of
its Contributed Property and Adjusted Property shall be reflected by the
difference between such Partner's Capital Account balance as maintained pursuant
to Exhibit B and the
3
<PAGE> 9
hypothetical balance of such Partner's Capital Account computed as if it had
been maintained strictly in accordance with federal income tax accounting
principles.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in Chicago, Illinois are authorized or required by law to
close.
"Capital Account" means the Capital Account maintained for a Partner
pursuant to Exhibit B.
"Capital Contribution" means, with respect to any Partner, any cash,
cash equivalents or the Agreed Value of Contributed Property which such Partner
contributes or is deemed to contribute to the Partnership pursuant to Section
4.1 or 4.2.
"Carrying Value" means (i) with respect to a Contributed Property or
Adjusted Property, the 704(c) Value of such property reduced (but not below
zero) by all Depreciation with respect to such Contributed Property or Adjusted
Property, as the case may be, charged to the Partners' Capital Accounts and (ii)
with respect to any other Partnership property, the adjusted basis of such
property for federal income tax purposes, all as of the time of determination.
The Carrying Value of any property shall be adjusted from time to time in
accordance with Exhibit B, and to reflect changes, additions (including capital
improvements thereto) or other adjustments to the Carrying Value for
dispositions and acquisitions of Partnership properties, as deemed appropriate
by the General Partner.
"Cash Amount" means an amount of cash equal to the Value on the
Valuation Date of the Shares Amount.
"Certificate" means the Certificate of Limited Partnership relating to
the Partnership filed in the office of the Delaware Secretary of State, as
amended from time to time in accordance with the terms hereof and the Act.
"Code" means the Internal Revenue Code of 1986, as amended and in
effect from time to time, as interpreted by the applicable regulations
thereunder. Any reference herein to a specific section or sections of the Code
shall be deemed to include a reference to any corresponding provision of future
law.
"Consent" means the consent or approval of a proposed action by a
Partner given in accordance with Section 14.2.
"Consent of the Outside Limited Partners" means the Consent of Limited
Partners holding a majority of the Percentage Interests held by Limited Partners
(excluding for this purpose any Limited Partnership Interests held directly or
indirectly by the General Partner).
4
<PAGE> 10
"Contributed Property" means each property or other asset contributed
to the Partnership, in such form as may be permitted by the Act, but excluding
cash contributed or deemed contributed to the Partnership. Once the Carrying
Value of a Contributed Property is adjusted pursuant to Exhibit B, such property
shall no longer constitute a Contributed Property for purposes of Exhibit B, but
shall be deemed an Adjusted Property for such purposes.
"Conversion Factor" means 1.0; provided that, if the General Partner
Entity (i) declares or pays a dividend on its outstanding Shares in Shares or
makes a distribution to all holders of its outstanding Shares in Shares, (ii)
subdivides its outstanding Shares or (iii) combines its outstanding Shares into
a smaller number of Shares, the Conversion Factor shall be adjusted by
multiplying the Conversion Factor by a fraction, the numerator of which shall be
the number of Shares issued and outstanding on the record date for such
dividend, distribution, subdivision or combination (assuming for such purposes
that such dividend, distribution, subdivision or combination has occurred as of
such time) and the denominator of which shall be the actual number of Shares
(determined without the above assumption) issued and outstanding on the record
date for such dividend, distribution, subdivision or combination; and provided
further that if an entity shall cease to be the General Partner Entity (the
"Predecessor Entity") and another entity shall become the General Partner Entity
(the "Successor Entity"), the Conversion Factor shall be adjusted by multiplying
the conversion factor by a fraction, the numerator of which is the Value of one
Share of the Predecessor Entity, determined as of the date when the Successor
Entity becomes the General Partner Entity, and the denominator of which is the
Value of one Share of the Successor Entity, determined as of that same date.
(For purposes of the second proviso in the preceding sentence, if any
shareholders of the Predecessor Entity will receive consideration in connection
with the transaction in which the Successor Entity becomes the General Partner
Entity, the numerator in the fraction described above for determining the
adjustment to the Conversion Factor (that is, the Value of one Share of the
Predecessor Entity) shall be the sum of the greatest amount of cash and the fair
market value (as determined in good faith by the General Partner) of any
securities and other consideration that the holder of one Share in the
Predecessor Entity could have received in such transaction (determined without
regard to any provisions governing fractional shares.) Any adjustment to the
Conversion Factor shall become effective immediately after the effective date of
the event retroactive to the record date, if any, for the event giving rise
thereto, it being intended that (x) adjustments to the Conversion Factor are to
be made only to the extent necessary to avoid unintended dilution or
anti-dilution as a result of transactions in which Shares are issued, redeemed
or exchanged without a corresponding issuance, redemption or exchange of
Partnership Units and (y) if a Specified Redemption Date shall fall between the
record date and the effective date of any event of the type described above,
that the Conversion Factor applicable to such redemption shall be adjusted to
take into account such event.
"Convertible Funding Debt" has the meaning set forth in Section 7.5.F.
"Debt" means, as to any Person, as of any date of determination, (i)
all indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services, (ii)
5
<PAGE> 11
all amounts owed by such Person to banks or other Persons in respect of
reimbursement obligations under letters of credit, surety bonds and other
similar instruments guaranteeing payment or other performance of obligations by
such Person, (iii) all indebtedness for borrowed money or for the deferred
purchase price of property or services secured by any lien on any property owned
by such Person, to the extent attributable to such Person's interest in such
property, even though such Person has not assumed or become liable for the
payment thereof, and (iv) obligations of such Person incurred in connection with
entering into a lease which, in accordance with generally accepted accounting
principles, should be capitalized.
"Declaration of Trust" means the Declaration of Trust of Presidio Golf
Trust filed in the State of Maryland on April 20, 1998, as amended and/or
amended and restated from time to time.
"Deemed Partnership Interest Value" means, as of any date with respect
to any class of Partnership Interests, the Deemed Value of the Partnership
Interest of such class multiplied by the applicable Partner's Percentage
Interest of such class.
"Deemed Value of the Partnership Interest" means, as of any date with
respect to any class of Partnership Interests, (a) if the common shares of
beneficial interest (or other comparable equity interests) of the General
Partner Entity are Publicly Traded, the quotient of (i) the total number of
shares of beneficial interest (or other comparable equity interest) of the
General Partner Entity corresponding to such class of Partnership Interest (as
provided for in Section 4.2.B) issued and outstanding as of the close of
business on such date (excluding any treasury shares) multiplied by the Value of
a share of such beneficial interest (or other comparable equity interest) on
such date divided by (ii) the Percentage Interest of the General Partner in such
class of Partnership Interests on such date, and (b) otherwise, the aggregate
Value of such class of Partnership Interests determined as set forth in the
fourth and fifth sentences of the definition of Value.
"Depreciation" means, for each fiscal year, an amount equal to the
federal income tax depreciation, amortization, or other cost recovery deduction
allowable with respect to an asset for such year, except that if the Carrying
Value of an asset differs from its adjusted basis for federal income tax
purposes at the beginning of such year or other period, Depreciation shall be an
amount which bears the same ratio to such beginning Carrying Value as the
federal income tax depreciation, amortization, or other cost recovery deduction
for such year bears to such beginning adjusted tax basis; provided, however,
that if the federal income tax depreciation, amortization, or other cost
recovery deduction for such year is zero, Depreciation shall be determined with
reference to such beginning Carrying Value using any reasonable method selected
by the General Partner.
"Effective Date" means the date of this Agreement.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
6
<PAGE> 12
"ERISA Plan" means an "employee benefit plan" as that term is defined
in 29 U.S.C. Section 1002(3), and which is not exempt from regulation under
ERISA by virtue of 29 U.S.C. Section 1003(b).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Funding Debt" means the incurrence of any Debt by or on behalf of the
General Partner Entity for the purpose of providing funds to the Partnership.
"General Partner" means Presidio Golf Trust or its successors as
general partners.
"General Partner Entity" means the General Partner; provided, however,
that if (i) the common shares of beneficial interest (or other comparable equity
interests) of the General Partner are at any time not Publicly Traded and (ii)
the common shares of beneficial interest (or other comparable equity interests)
of an entity that owns, directly or indirectly, fifty percent (50%) or more of
the common shares of beneficial interest (or other comparable equity interests)
of the General Partner are Publicly Traded, the term "General Partner Entity"
shall refer to such entity whose common shares of beneficial interest (or other
comparable equity securities) are Publicly Traded. If both requirements set
forth in clauses (i) and (ii) above are not satisfied, then the term "General
Partner Entity" shall mean the General Partner.
"General Partner Payment" has the meaning set forth in Section 15.15
hereof.
"General Partnership Interest" means a Partnership Interest held by a
General Partner that is a general partnership interest. A General Partnership
Interest may be expressed as a number of Partnership Units.
"IRS" means the Internal Revenue Service, which administers the
internal revenue laws of the United States.
"Immediate Family" means, with respect to any natural Person, such
natural Person's spouse, parents, descendants, nephews, nieces, brothers, and
sisters.
"Incapacity" or "Incapacitated" means, (i) as to any individual
Partner, death, total physical disability or entry by a court of competent
jurisdiction adjudicating such Partner incompetent to manage his or her Person
or estate, (ii) as to any corporation which is a Partner, the filing of a
certificate of dissolution, or its equivalent, for the corporation or the
revocation of its charter, (iii) as to any partnership or limited liability
company which is a Partner, the dissolution and commencement of winding up of
the partnership or limited liability company, (iv) as to any estate which is a
Partner, the distribution by the fiduciary of the estate's entire interest in
the Partnership, (v) as to any trustee of a trust which is a Partner, the
termination of the trust (but not the substitution of a new trustee) or (vi) as
to any Partner, the bankruptcy of such Partner. For
/
7
<PAGE> 13
purposes of this definition, bankruptcy of a Partner shall be deemed to have
occurred when (a) the Partner commences a voluntary proceeding seeking
liquidation, reorganization or other relief under any bankruptcy, insolvency or
other similar law now or hereafter in effect, (b) the Partner is adjudged as
bankrupt or insolvent, or a final and nonappealable order for relief under any
bankruptcy, insolvency or similar law now or hereafter in effect has been
entered against the Partner, (c) the Partner executes and delivers a general
assignment for the benefit of the Partner's creditors, (d) the Partner files an
answer or other pleading admitting or failing to contest the material
allegations of a petition filed against the Partner in any proceeding of the
nature described in clause (b) above, (e) the Partner seeks, consents to or
acquiesces in the appointment of a trustee, receiver or liquidator for the
Partner or for all or any substantial part of the Partner's properties, (f) any
proceeding seeking liquidation, reorganization or other relief under any
bankruptcy, insolvency or other similar law now or hereafter in effect has not
been dismissed within one hundred twenty (120) days after the commencement
thereof, (g) the appointment without the Partner's consent or acquiescence of a
trustee, receiver of liquidator has not been vacated or stayed within ninety
(90) days of such appointment or (h) an appointment referred to in clause (g) is
not vacated within ninety (90) days after the expiration of any such stay.
"Indemnitee" means (i) any Person made a party to a proceeding by
reason of its status as (A) a General Partner, (B) a Limited Partner, or (C) a
trustee, director or officer of the Partnership, or any General Partner and (ii)
such other Persons (including Affiliates of any General Partner, a Limited
Partner or the Partnership) as the General Partner may designate from time to
time (whether before or after the event giving rise to potential liability), in
its sole and absolute discretion.
"Limited Partner" means any Person named as a Limited Partner in
Exhibit A, as such Exhibit may be amended from time to time, or any Substituted
Limited Partner or Additional Limited Partner, in such Person's capacity as a
Limited Partner in the Partnership.
"Limited Partnership Interest" means a Partnership Interest of a
Limited Partner in the Partnership representing a fractional part of the
Partnership Interests of all Limited Partners and includes any and all benefits
to which the holder of such a Partnership Interest may be entitled as provided
in this Agreement, together with all obligations of such Person to comply with
the terms and provisions of this Agreement. A Limited Partnership Interest may
be expressed as a number of Partnership Units.
"Liquidating Event" has the meaning set forth in Section 13.1.
"Liquidator" has the meaning set forth in Section 13.2.A.
"Net Income" means, for any taxable period, the excess, if any, of the
Partnership's items of income and gain for such taxable period over the
Partnership's items of loss and deduction for such taxable period. The items
included in the calculation of Net Income shall be determined in
8
<PAGE> 14
accordance with Exhibit B. If an item of income, gain, loss or deduction that
has been included in the initial computation of Net Income is subjected to the
special allocation rules in Exhibit C, Net Income or the resulting Net Loss,
whichever the case may be, shall be recomputed without regard to such item.
"Net Loss" means, for any taxable period, the excess, if any, of the
Partnership's items of loss and deduction for such taxable period over the
Partnership's items of income and gain for such taxable period. The items
included in the calculation of Net Loss shall be determined in accordance with
Exhibit B. If an item of income, gain, loss or deduction that has been included
in the initial computation of Net Loss is subjected to the special allocation
rules in Exhibit C, Net Loss or the resulting Net Income, whichever the case may
be, shall be recomputed without regard to such item.
"New Securities" means (i) any rights, options, warrants or convertible
or exchangeable securities having the right to subscribe for or purchase shares
of beneficial interest (or other comparable equity interest) of the General
Partner, excluding grants under any Share Option Plan, or (ii) any Debt issued
by the General Partner that provides any of the rights described in clause (i).
"Nonrecourse Built-in Gain" means, with respect to any Contributed
Properties or Adjusted Properties that are subject to a mortgage or negative
pledge securing a Nonrecourse Liability, the amount of any taxable gain that
would be allocated to the Partners pursuant to Section 2.B of Exhibit C if such
properties were disposed of in a taxable transaction in full satisfaction of
such liabilities and for no other consideration.
"Nonrecourse Deductions" has the meaning set forth in Regulations
Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for a
Partnership Year shall be determined in accordance with the rules of Regulations
Section 1.704-2(c).
"Nonrecourse Liability" has the meaning set forth in Regulations
Section 1.752-1(a)(2).
"Notice of Redemption" means a Notice of Redemption substantially in
the form of Exhibit D.
"Partner" means a General Partner or a Limited Partner, and "Partners"
means the General Partners and the Limited Partners.
"Partner Minimum Gain" means an amount, with respect to each Partner
Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if
such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations Section 1.704- 2(i)(3).
9
<PAGE> 15
"Partner Nonrecourse Debt" has the meaning set forth in Regulations
Section 1.704- 2(b)(4).
"Partner Nonrecourse Deductions" has the meaning set forth in
Regulations Section 1.704- 2(i)(2), and the amount of Partner Nonrecourse
Deductions with respect to a Partner Nonrecourse Debt for a Partnership Year
shall be determined in accordance with the rules of Regulations Section
1.704-2(i)(2).
"Partnership" means the limited partnership formed under the Act upon
the terms and conditions set forth in this Agreement, or any successor to such
limited partnership.
"Partnership Interest" means a Limited Partnership Interest or a
General Partnership Interest and includes any and all benefits to which the
holder of such a Partnership Interest may be entitled as provided in this
Agreement, together with all obligations of such Person to comply with the terms
and provisions of this Agreement. A Partnership Interest may be expressed as a
number of Partnership Units.
"Partnership Minimum Gain" has the meaning set forth in Regulations
Section 1.704- 2(b)(2), and the amount of Partnership Minimum Gain, as well as
any net increase or decrease in Partnership Minimum Gain, for a Partnership Year
shall be determined in accordance with the rules of Regulations Section
1.704-2(d).
"Partnership Record Date" means the record date established by the
General Partner either (i) for the distribution of Available Cash pursuant to
Section 5.1 hereof, which record date shall be the same as the record date
established by the General Partner Entity for a distribution to its shareholders
of some or all of its portion of such distribution, or (ii) if applicable, for
determining the Partners entitled to vote on or consent to any proposed action
for which the consent or approval of the Partners is sought pursuant to Section
14.2 hereof.
"Partnership Unit" means a fractional share of the Partnership
Interests of all Partners issued pursuant to Sections 4.1 and 4.2, and includes
any classes or series of Partnership Units established after the date hereof.
The number of Partnership Units outstanding are set forth in Exhibit A, as such
Exhibit may be amended from time to time.
"Partnership Year" means the fiscal year of the Partnership, which
shall be the calendar year.
"Percentage Interest" means, as to a Partner holding a class of
Partnership Interests, its interest in such class, determined by dividing the
Partnership Units of such class owned by such Partner by the total number of
Partnership Units of such class then outstanding as specified in Exhibit A, as
such exhibit may be amended from time to time, multiplied by the aggregate
Percentage Interest allocable to such class of Partnership Interests. If the
Partnership shall at any
10
<PAGE> 16
time have outstanding more than one class of Partnership Interests, the
Percentage Interest attributable to each class of Partnership Interests shall be
determined as set forth in Section 4.2.B.
"Person" means a natural person, partnership (whether general or
limited), trust, estate, association, corporation, limited liability company,
unincorporated organization, custodian, nominee or any other individual or
entity in its own or any representative capacity.
"Predecessor Entity" has the meaning set forth in the definition of
"Conversion Factor" herein.
"Publicly Traded" means listed or admitted to trading on the New York
Stock Exchange, the American Stock Exchange or another national securities
exchange or designated for quotation on the NASDAQ National Market, or any
successor to any of the foregoing.
"Qualified REIT Subsidiary" means any Subsidiary of the General Partner
that is a "qualified REIT subsidiary" within the meaning of Section 856(i) of
the Code.
"Qualified Transferee" means an "Accredited Investor" as defined in
Rule 501 promulgated under the Securities Act.
"Recapture Income" means any gain recognized by the Partnership
(computed without regard to any adjustment required by Section 734 or Section
743 of the Code) upon the disposition of any property or asset of the
Partnership, which gain is characterized as ordinary income because it
represents the recapture of deductions previously taken with respect to such
property or asset.
"Redeeming Partner" has the meaning set forth in Section 8.5.A.
"Redemption Amount" means either the Cash Amount or the Shares Amount,
as determined by the General Partner, in its sole and absolute discretion;
provided that if the Shares are not Publicly Traded at the time a Redeeming
Partner exercises its Redemption Right, the Redemption Amount shall be paid only
in the form of the Cash Amount unless the Redeeming Partner, in its sole and
absolute discretion, consents to payment of the Redemption Amount in the form of
the Shares Amount. A Redeeming Partner shall have no right, without the General
Partner's consent, in its sole and absolute discretion, to receive the
Redemption Amount in the form of the Shares Amount.
"Redemption Right" has the meaning set forth in Section 8.5.A.
"Regulation" or "Regulations" means the Income Tax Regulations
promulgated under the Code, as such regulations may be amended from time to time
(including corresponding provisions of succeeding regulations).
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<PAGE> 17
"REIT" means a real estate investment trust under Section 856 of the
Code.
"REIT Requirements" has the meaning set forth in Section 5.1.A.
"Residual Gain" or "Residual Loss" means any item of gain or loss, as
the case may be, of the Partnership recognized for federal income tax purposes
resulting from a sale, exchange or other disposition of Contributed Property or
Adjusted Property, to the extent such item of gain or loss is not allocated
pursuant to Section 2.B.1(a) or 2.B.2(a) of Exhibit C to eliminate Book- Tax
Disparities.
"Safe Harbor" has the meaning set forth in Section 11.6.F.
"Securities Act" means the Securities Act of 1933, as amended.
"704(c) Value" of any Contributed Property means the fair market value
of such property at the time of contribution as determined by the General
Partner using such reasonable method of valuation as it may adopt; provided,
however, subject to Exhibit B, the General Partner shall, in its sole and
absolute discretion, use such method as they deem reasonable and appropriate to
allocate the aggregate of the 704(c) Value of Contributed Properties in a single
or integrated transaction among each separate property on a basis proportional
to its fair market values.
"Share" means a share of beneficial interest (or other comparable
equity interest) of the General Partner Entity. Shares may be issued in one or
more classes or series in accordance with the terms of the Declaration of Trust
(or, if the General Partner is not the General Partner Entity, the
organizational documents of the General Partner Entity). If there is more than
one class or series of Shares, the term "Shares" shall, as the context requires,
be deemed to refer to the class or series of Shares that correspond to the class
or series of Partnership Interests for which the reference to Shares is made.
"Shares Amount" means a number of Shares equal to the product of the
number of Partnership Units offered for redemption by a Redeeming Partner times
the Conversion Factor; provided that, if the General Partner Entity issues to
all holders of Shares rights, options, warrants or convertible or exchangeable
securities entitling such holders to subscribe for or purchase Shares or any
other securities or property (collectively, the "rights"), then the Shares
Amount shall also include such rights that a holder of that number of Shares
would be entitled to receive.
"Share Option Plan" means any equity incentive plan of the General
Partner, the Partnership and/or any Affiliate of the Partnership.
"Specified Redemption Date" means the tenth Business Day after receipt
by the General Partner of a Notice of Redemption; provided that, if the Shares
are not Publicly Traded, the
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Specified Redemption Date means the thirtieth Business Day after the date of
receipt by the General Partner of a Notice of Redemption.
"Subsidiary" means, with respect to any Person, any corporation,
limited liability company, trust, partnership or joint venture, or other entity
of which a majority of (i) the voting power of the voting equity securities or
(ii) the outstanding equity interests is owned, directly or indirectly, by such
Person.
"Substituted Limited Partner" means a Person who is admitted as a
Limited Partner to the Partnership pursuant to Section 11.4.
"Successor Entity" has the meaning set forth in the definition of
"Conversion Factor" herein.
"Terminating Capital Transaction" means any sale or other disposition
of all or substantially all of the assets of the Partnership for cash or a
related series of transactions that, taken together, result in the sale or other
disposition of all or substantially all of the assets of the Partnership for
cash.
"Termination Transaction" has the meaning set forth in Section 11.2.B.
"Unrealized Gain" attributable to any item of Partnership property
means, as of any date of determination, the excess, if any, of (i) the fair
market value of such property (as determined under Exhibit B) as of such date,
over (ii) the Carrying Value of such property (prior to any adjustment to be
made pursuant to Exhibit B) as of such date.
"Unrealized Loss" attributable to any item of Partnership property
means, as of any date of determination, the excess, if any, of (i) the Carrying
Value of such property (prior to any adjustment to be made pursuant to Exhibit
B) as of such date, over (ii) the fair market value of such property (as
determined under Exhibit B) as of such date.
"Valuation Date" means the date of receipt by the General Partner of a
Notice of Redemption or, if such date is not a Business Day, the first Business
Day thereafter.
"Value" means, with respect to any outstanding Shares of the General
Partner Entity that are Publicly Traded, the average of the daily market price
for the ten consecutive trading days immediately preceding the date with respect
to which value is being determined. The market price for each such trading day
shall be the closing price, regular way, on such day, or if no such sale takes
place on such day, the average of the closing bid and asked prices on such day.
If the outstanding Shares of the General Partner Entity are Publicly Traded and
the Shares Amount includes rights that a holder of Shares would be entitled to
receive, then the Value of such rights shall be determined by the General
Partner acting in good faith on the basis of such quotations and
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other information as it considers, in its reasonable judgment, appropriate. If
the Shares of the General Partner Entity are not Publicly Traded, the Value of
the Shares Amount per Partnership Unit offered for redemption (which will be the
Cash Amount per Partnership Unit offered for redemption payable pursuant to
Section 8.5.A) means the amount that a holder of one Partnership Unit would
receive if each of the assets of the Partnership were to be sold for its fair
market value on the Specified Redemption Date, the Partnership were to pay all
of its outstanding liabilities, and the remaining proceeds were to be
distributed to the Partners in accordance with the terms of this Agreement. Such
Value shall be determined by the General Partner, acting in good faith and based
upon a commercially reasonable estimate of the amount that would be realized by
the Partnership if each asset of the Partnership (and each asset of each
partnership, limited liability company, trust, joint venture or other entity in
which the Partnership owns a direct or indirect interest) were sold to an
unrelated purchaser in an arms' length transaction where neither the purchaser
nor the seller were under economic compulsion to enter into the transaction
(without regard to any discount in value as a result of the Partnership's
minority interest in any property or any illiquidity of the Partnership's
interest in any property). In connection with determining the Deemed Value of
the Partnership Interest for purposes of determining the number of additional
Partnership Units issuable upon a Capital Contribution funded by an underwritten
public offering or an arm's length private placement of shares of beneficial
interest (or other comparable equity interest) of the General Partner, the Value
of such shares shall be the public offering or arm's length private placement
price per share of such class of beneficial interest (or other comparable equity
interest) sold.
ARTICLE II
ORGANIZATIONAL MATTERS
2.1 WITHDRAWAL OF ORIGINAL GENERAL PARTNER/CONTINUATION.
The Original General Partner hereby withdraws as General Partner and is
hereby admitted to the Partnership as a Limited Partner. Presidio Golf Trust, a
Maryland real estate investment trust, is hereby admitted to the Partnership as
General Partner. The Partners hereby agree to continue the Partnership pursuant
to the provisions of the Act and upon the terms and conditions set forth in this
Agreement.
2.2 NAME.
The name of the Partnership is Presidio Golf Limited Partnership. The
Partnership's business may be conducted under any other name or names deemed
advisable by the General Partner, including the name of any of the General
Partners or any Affiliate thereof. The words "Limited Partnership," "L.P.,"
"Ltd." or similar words or letters shall be included in the Partnership's name
where necessary for the purposes of complying with the laws of any jurisdiction
that so requires. The General Partner in its sole and absolute discretion may
change the name of the Partnership at any time and from time to time and shall
notify the Limited Partners of such change in the next regular communication to
the Limited Partners.
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2.3 REGISTERED OFFICE AND AGENT; PRINCIPAL OFFICE.
The address of the registered office of the Partnership in the State of
Delaware shall be located at Corporation Service Company, 1013 Centre Road,
Wilmington, Delaware 19801, and the registered agent for service of process on
the Partnership in the State of Delaware at such registered office shall be
Corporation Service Company. The principal office of the Partnership shall be
Building 106, Montgomery Street, Presidio Main Post, San Francisco, California
94129, or such other place as the General Partner may from time to time
designate by notice to the Limited Partners. The Partnership may maintain
offices at such other place or places within or outside the State of Delaware as
the General Partner deems advisable.
2.4 TERM.
The term of the Partnership commenced on October 17, 1997 and shall
continue until December 31, 2096, unless it is dissolved sooner pursuant to the
provisions of Article XIII or as otherwise provided by law.
ARTICLE III
PURPOSE
3.1 PURPOSE AND BUSINESS.
The purpose and nature of the business to be conducted by the
Partnership is (i) to conduct any business that may be lawfully conducted by a
limited partnership organized pursuant to the Act; provided, however, that such
business shall be limited to and conducted in a manner as to permit the General
Partner Entity at all times to be classified as a REIT, unless the General
Partner Entity ceases to qualify or is not qualified as a REIT for any reason or
reasons not related to the business conducted by the Partnership, (ii) to enter
into any corporation, partnership, joint venture, trust, limited liability
company or other similar arrangement to engage in any of the foregoing or the
ownership of interests in any entity engaged, directly or indirectly, in any of
the foregoing and (iii) to do anything necessary or incidental to the foregoing.
In connection with the foregoing, the Partners acknowledge that the status of
the General Partner Entity as a REIT inures to the benefit of all the Partners
and not solely to the General Partner Entity or its Affiliates.
3.2 POWERS.
The Partnership is empowered to do any and all acts and things
necessary, appropriate, proper, advisable, incidental to or convenient for the
furtherance and accomplishment of the purposes and business described herein and
for the protection and benefit of the Partnership, including, without
limitation, full power and authority, directly or through its ownership interest
in other entities, to enter into, perform and carry out contracts of any kind,
borrow money and issue evidences of indebtedness, whether or not secured by
mortgage, deed of trust, pledge or other lien, acquire, own, manage, improve and
develop real property, and lease, sell, transfer and dispose of real property;
provided, however, that the Partnership shall not take, or refrain from taking,
any action which, in the judgment of the General Partner, in its sole and
absolute
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discretion, (i) could adversely affect the ability of the General Partner Entity
to continue to qualify as a REIT, (ii) could subject the General Partner Entity
to any additional taxes under Section 857 or Section 4981 of the Code or (iii)
could violate any law or regulation of any governmental body or agency having
jurisdiction over any General Partner or its securities, unless such action (or
inaction) shall have been specifically consented to by the General Partner in
writing.
ARTICLE IV
CAPITAL CONTRIBUTIONS AND ISSUANCES OF PARTNERSHIP INTERESTS
4.1 CAPITAL CONTRIBUTIONS OF THE PARTNERS.
On the Effective Date, the Partners shall make or shall have made the
Capital Contributions as set forth in Exhibit A. The Partners shall own
Partnership Units in the amounts set forth in Exhibit A and shall have an
initial Percentage Interest in the Partnership as determined hereunder, which
Percentage Interest shall be adjusted from time to time by the General Partner
to the extent necessary to reflect accurately redemptions, Capital
Contributions, the issuance of additional Partnership Units or similar events
having an effect on a Partner's Percentage Interest. A number of Partnership
Units held by the General Partner equal to one percent (1%) of all outstanding
Partnership Units outstanding from time to time shall be deemed to be the
General Partner Partnership Units and shall be the General Partnership Interest
of such General Partner. All other Partnership Units held by the General Partner
shall be deemed to be Limited Partnership Interests and shall be held by the
General Partner in its capacity as a Limited Partner in the Partnership. Except
as provided in Sections 7.5 and 10.5 hereof, the Partners shall have no
obligation to make any additional capital Contributions or provide any
additional funding to the Partnership (whether in the form of loans, repayments
of loans or otherwise). Except as otherwise agreed to, in writing, by a
particular Partner, no Partner shall have any obligation to restore any deficit
that may exist in its Capital Account, either upon a liquidation of the
Partnership or otherwise.
4.2 ISSUANCES OF PARTNERSHIP INTERESTS.
A. General. The General Partner is hereby authorized to cause the
Partnership from time to time to issue to Partners (including the General
Partner and its Affiliates) or other Persons (including, without limitation, in
connection with the contribution of property to the Partnership) Partnership
Units or other Partnership Interests in one or more classes or options to
acquire such interests, or in one or more series of any of such classes, with
such designations, preferences and relative, participating, optional or other
special rights, powers and duties, including rights, powers and duties senior to
Limited Partnership Interests, all as shall be determined, subject to applicable
Delaware law, by the General Partner in its sole and absolute discretion,
including, without limitation, (i) the allocations of items of Partnership
income, gain, loss, deduction and credit to each such class or series of
Partnership Interests, (ii) the right of each such class or series of
Partnership Interests to share in Partnership distributions and (iii) the rights
of each such class or series of Partnership Interests upon dissolution and
liquidation of the Partnership; provided that, no such Partnership Units or
other Partnership Interests shall be issued to the General Partner unless either
(a) the Partnership Interests are issued in connection with the grant, award or
issuance of Shares or other equity interests in the General Partner having
designations, preferences
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and other rights such that the economic interests attributable to such Shares or
other equity interests are substantially similar to the designations,
preferences and other rights (except voting rights) of the Partnership Interests
issued to the General Partner in accordance with this Section 4.2.A or (b) the
additional Partnership Interests are issued to all Partners holding Partnership
Interests in the same class in proportion to their respective Percentage
Interests in such class. If the Partnership issues Partnership Interests
pursuant to this Section 4.2.A, the General Partner shall make such revisions to
this Agreement (including but not limited to the revisions described in Section
5.4, Section 6.2 and Section 8.5) as it deems necessary to reflect the issuance
of such Partnership Interests.
B. Percentage Interest Adjustments. Upon the acceptance of additional
Capital Contributions in exchange for Partnership Units and if the Partnership
shall have outstanding more than one class of Partnership Interests, the
Percentage Interest related thereto shall be equal to a fraction, the numerator
of which is equal to the amount of cash, if any, plus the Agreed Value of
Contributed Property, if any, contributed with respect to such additional
Partnership Units and the denominator of which is equal to the sum of (i) the
Deemed Value of the Partnership Interests for all outstanding classes (computed
as of the Business Day immediately preceding the date on which the additional
Capital Contributions are made (an "Adjustment Date")) plus (ii) the aggregate
amount of additional Capital Contributions contributed to the Partnership on
such Adjustment Date in respect of such additional Partnership Units. The
Percentage Interest of each other Partner holding Partnership Interests not
making a full pro rata Capital Contribution shall be adjusted to a fraction the
numerator of which is equal to the sum of (i) the Deemed Partnership Interest
Value of such Limited Partner (computed as of the Business Day immediately
preceding the Adjustment Date) plus (ii) the amount of additional Capital
Contributions (such amount being equal to the amount of cash, if any, plus the
Agreed Value of Contributed Property, if any, so contributed), if any, made by
such Partner to the Partnership in respect of such Partnership Interest as of
such Adjustment Date and the denominator of which is equal to the sum of (i) the
Deemed Value of the Partnership Interests of all outstanding classes (computed
as of the Business Day immediately preceding such Adjustment Date) plus (ii) the
aggregate amount of the additional Capital Contributions contributed to the
Partnership on such Adjustment Date in respect of such additional Partnership
Interests. For purposes of calculating a Partner's Percentage Interest pursuant
to this Section 4.2.B, cash Capital Contributions by the General Partner will be
deemed to equal the cash contributed by the General Partner plus (a) in the case
of cash contributions funded by an offering of any equity interests in or other
securities of the General Partner, the offering costs attributable to the cash
contributed to the Partnership, and (b) in the case of Partnership Units issued
pursuant to Section 7.5.E, an amount equal to the difference between the Value
of the Shares sold pursuant to any Share Option Plan and the net proceeds of
such sale.
4.3 NO PREEMPTIVE RIGHTS.
Except to the extent expressly granted by the Partnership pursuant to
another agreement, no Person shall have any preemptive, preferential or other
similar right with respect to (i) additional Capital Contributions or loans to
the Partnership or (ii) issuance or sale of any Partnership Units or other
Partnership Interests.
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4.4 OTHER CONTRIBUTION PROVISIONS.
A. Contribution of Services. If any Partner is admitted to the
Partnership and is given a Capital Account in exchange for services rendered to
the Partnership, such transaction shall be treated by the Partnership and the
affected Partner as if the Partnership had compensated such Partner in cash, and
the Partner had contributed such cash to the capital of the Partnership.
B. Certain Deemed Contributions of Proceeds of Issuance of Shares. If
in connection with any and all issuances of Shares, the proceeds actually
received by and contributed by the General Partner Entity to the Partnership are
less than the gross proceeds of such issuance as a result of any underwriter's
discount or other expenses paid or incurred in connection with such issuance,
then the General Partner Entity shall be deemed to have made a Capital
Contribution to the Partnership in the amount of the gross proceeds of such
issuance, and the Partnership shall be deemed simultaneously to have paid such
offering expenses in connection with the required issuance of additional
Partnership Units to the General Partner Entity for such Capital Contribution.
4.5 NO INTEREST ON CAPITAL.
No Partner shall be entitled to interest on its Capital Contributions
or its Capital Account.
ARTICLE V
DISTRIBUTIONS
5.1 REQUIREMENT AND CHARACTERIZATION OF DISTRIBUTIONS.
A. General. The General Partner shall, in its discretion, distribute
Available Cash generated by the Partnership during each quarter or other period
selected by the General Partner to the Partners who are Partners on the
Partnership Record Date with respect to such quarter or other period, in the
manner provided for in Section 5.1.B. Unless otherwise expressly provided for
herein or in an agreement at the time a new class of Partnership Interests is
created in accordance with Article IV hereof, no Partnership Interest shall be
entitled to a distribution in preference to any other Partnership Interest. The
General Partner shall make such reasonable efforts, as determined by it in its
sole and absolute discretion and consistent with the qualification of the
General Partner Entity as a REIT, to distribute Available Cash (a) to Limited
Partners so as to preclude any such distribution or portion thereof from being
treated as part of a sale of property of the Partnership by a Limited Partner
under Section 707 of the Code or the Regulations thereunder; provided that, the
General Partner and the Partnership shall not have liability to a Limited
Partner under any circumstances as a result of any distribution to a Limited
Partner being so treated, and (b) to the General Partner in an amount sufficient
to enable the General Partner Entity to pay shareholder dividends that will (1)
cause the General Partner Entity to satisfy the requirements for qualification
as a REIT under the Code and the Regulations (the "REIT Requirements"), and (2)
cause the General Partner Entity to avoid any federal income or excise tax
liability for the General Partner Entity.
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B. Method. (i) Each holder of Partnership Interests that is entitled to
any preference in distribution shall be entitled to a distribution in accordance
with the rights of any such class of Partnership Interests (and, within such
class, pro rata in proportion to the respective Percentage Interests on such
Partnership Record Date); and
(ii) To the extent there is Available Cash remaining after the payment
of any preference in distribution in accordance with the foregoing clause (i),
with respect to Partnership Interests that are not entitled to any preference in
distribution, pro rata to each such class in accordance with the terms of such
class (and, within each such class, pro rata in proportion to the respective
Percentage Interests on such Partnership Record Date).
5.2 AMOUNTS WITHHELD.
All amounts withheld pursuant to the Code or any provisions of any
state or local tax law and Section 10.5 with respect to any allocation, payment
or distribution to the General Partner, the Limited Partners or Assignees shall
be treated as amounts distributed to the General Partner, Limited Partners or
Assignees pursuant to Section 5.1 for all purposes under this Agreement.
5.3 DISTRIBUTIONS UPON LIQUIDATION.
Proceeds from a Terminating Capital Transaction shall be distributed to
the Partners in accordance with Section 13.2.
5.4 REVISIONS TO REFLECT ISSUANCE OF PARTNERSHIP INTERESTS.
If the Partnership issues Partnership Interests to the General Partner
or any Additional Limited Partner pursuant to Article IV hereof, the General
Partner shall make such revisions to this Article V and Exhibit A as it deems
necessary to reflect the issuance of such additional Partnership Interests
without the requirements for any other consents or approvals.
ARTICLE VI
ALLOCATIONS
6.1 ALLOCATIONS FOR CAPITAL ACCOUNT PURPOSES.
For purposes of maintaining the Capital Accounts and in determining the
rights of the Partners among themselves, the Partnership's items of income,
gain, loss and deduction (computed in accordance with Exhibit B) shall be
allocated among the Partners in each taxable year (or portion thereof) as
provided herein below.
A. Net Income. After giving effect to the special allocations set forth
in Section 1 of Exhibit C, Net Income shall be allocated: (i) first, to reverse
any prior allocations of Net Losses pursuant to Section 6.1.B below (in reverse
order to the order in which such Net Losses were previously allocated to the
Partners) to the extent not previously reversed pursuant to this clause (i) of
Section 6.1.A; (ii) second, to the holders of any Partnership Interests that are
entitled to any
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preference in distribution in accordance with the rights of any such class of
Partnership Interests until each such Partnership Interest has been allocated,
on a cumulative basis pursuant to this clause (ii), Net Income equal to the
amount of distributions received which are attributable to the preference of
such class of Partnership Interests (and, within such class, pro rata in
proportion to the respective cumulative distributions made with respect to each
Partnership Interest as of the last day of the period for which such allocation
is being made); and (iii) third, with respect to Partnership Interests that are
not entitled to any preference in the allocation of Net Income, pro rata to each
such class in accordance with the terms of such class (and, within such class,
pro rata in proportion to the respective Percentage Interests as of the last day
of the period for which such allocation is being made).
B. Net Losses. After giving effect to the special allocations set forth
in Section 1 of Exhibit C, Net Losses shall be allocated: (i) first, with
respect to classes of Partnership Interests that are not entitled to any
preference in distribution, pro rata to each such class in accordance with the
terms of such class (and, within such class, pro rata in proportion to the
respective Percentage Interests as of the last day of the period for which such
allocation is being made); ; (ii) second, to the holders of Partnership
Interests that are entitled to any preference in distribution, in reverse order
to the order of the preference in distribution of such Partnership Interests
(and, within such classes, pro rata in proportion to the respective Percentage
Interests as of the last day of the period for which such allocation is being
made); and (iii) third, all remaining Net Losses shall be allocated to the
General Partner; provided that Net Losses shall not be allocated to any Partner
pursuant to this Section 6.1.B(i) or (ii) to the extent that such allocation
would cause such Partner to have an Adjusted Capital Account Deficit (excluding
for this purpose any increase to such Adjusted Capital Account Deficit for a
Partner's actual obligation to fund any deficit in such Partner's Capital
Account pursuant to the terms of this Agreement) at the end of such taxable year
(or portion thereof)
C. Allocation of Nonrecourse Debt. For purposes of Regulation Section
1.752-3(a), the Partners agree that Nonrecourse Liabilities of the Partnership
in excess of the sum of (i) the amount of Partnership Minimum Gain and (ii) the
total amount of Nonrecourse Built-in Gain shall be allocated among the Partners
in accordance with their respective Percentage Interests, provided, however,
that to the extent the Partnership is permitted to utilize alternative methods
to allocate such Nonrecourse Liabilities among the Partners, the General Partner
shall have the authority to elect the method to be used by the Partnership, and
such election shall be binding on the Partners.
D. Recapture Income. Any gain allocated to the Partners upon the sale
or other taxable disposition of any Partnership asset shall, to the extent
possible after taking into account other required allocations of gain pursuant
to Exhibit C, be characterized as Recapture Income in the same proportions and
to the same extent as such Partners have been allocated any deductions directly
or indirectly giving rise to the treatment of such gains as Recapture Income.
6.2 REVISIONS TO ALLOCATIONS TO REFLECT ISSUANCE OF PARTNERSHIP INTERESTS.
If the Partnership issues Partnership Interests to the General Partner
or any Additional Limited Partner pursuant to Article IV hereof, the General
Partner shall make such revisions to this Article VI and Exhibit A as it deems
necessary to reflect the terms of the issuance of such
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Partnership Interests, including making preferential allocations to classes of
Partnership Interests that are entitled thereto. Such revisions shall not
require the consent or approval of any other Partner. In addition, if a Partner
shall enter into an agreement to restore any deficit that may exist in its
Capital Account, either upon liquidation or otherwise, or enter into any similar
agreement with the Partnership, the General Partner shall have the authority to
make revisions to this Article VI without the consent or approval of any other
Partner, provided that such revisions do not have an adverse effect on any
Partner who is not a party to such agreement.
ARTICLE VII
MANAGEMENT AND OPERATIONS OF BUSINESS
7.1 MANAGEMENT.
A. Powers of General Partners. Except as otherwise expressly provided
in this Agreement, all management powers over the business and affairs of the
Partnership are and shall be exclusively vested in the General Partner, and no
Limited Partner shall have any right to participate in or exercise control or
management power over the business and affairs of the Partnership. The General
Partner may not be removed by the Limited Partners with or without cause. In
addition to the powers now or hereafter granted a general partner of a limited
partnership under applicable law or which are granted to the General Partner
under any other provision of this Agreement, the General Partner, subject to
Section 7.11, shall have full power and authority to do all things deemed
necessary or desirable by it to conduct the business of the Partnership, to
exercise all powers set forth in Section 3.2 and to effectuate the purposes set
forth in Section 3.1, including, without limitation:
(1) the making of any expenditures, the lending
or borrowing of money (including, without
limitation, making prepayments on loans and
borrowing money to permit the Partnership to
make distributions to its Partners in such
amounts as are required to permit the
General Partner Entity (so long as the
General Partner Entity qualifies as REIT) to
avoid the payment of any federal income tax
(including, for this purpose, any excise tax
pursuant to Section 4981 of the Code) and to
make distributions to its shareholders
sufficient to permit the General Partner
Entity to maintain REIT status), the
assumption or guarantee of, or other
contracting for, indebtedness and other
liabilities, the issuance of evidences of
indebtedness (including the securing of same
by mortgage, deed of trust or other lien or
encumbrance on the Partnership's assets) and
the incurring of any obligations the General
Partner Entity deems necessary for the
conduct of the activities of the
Partnership;
(2) the making of tax, regulatory and other
filings, or rendering of periodic or other
reports to governmental or other agencies
having jurisdiction over the business or
assets of the Partnership;
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(3) the acquisition, disposition, mortgage,
pledge, encumbrance, hypothecation or
exchange of any or all of the assets of the
Partnership (including the exercise or grant
of any conversion, option, privilege or
subscription right or other right available
in connection with any assets at any time
held by the Partnership) or the merger or
other combination of the Partnership with or
into another entity on such terms as the
General Partner deems proper;
(4) the use of the assets of the Partnership
(including, without limitation, cash on
hand) for any purpose consistent with the
terms of this Agreement and on any terms it
sees fit, including, without limitation, the
financing of the conduct of the operations
of the General Partner, the Partnership or
any of the Partnership's Subsidiaries, the
lending of funds to other Persons
(including, without limitation, the General
Partner, its Subsidiaries and the
Partnership's Subsidiaries) and the
repayment of obligations of the Partnership
and its Subsidiaries and any other Person in
which the Partnership has an equity
investment and the making of capital
contributions to its Subsidiaries;
(5) the management, operation, landscaping,
repair, alteration, demolition or
improvement of any real property or
improvements owned by the Partnership or any
Subsidiary of the Partnership or any Person
in which the Partnership has made a direct
or indirect equity investment; and the
leasing of all or any portion of any of the
Partnership's assets, whether or not the
terms of such leases extend beyond the
termination date of the Partnership and
whether or not any portion of the
Partnership's assets so leased are to be
occupied by the lessee, or, in turn,
subleased in whole or in part to others, for
such consideration and on such terms as the
General Partner may determine in its sole
and absolute discretion;
(6) the negotiation, execution, and performance
of any contracts, conveyances or other
instruments that the General Partner
considers useful or necessary to the conduct
of the Partnership's operations or the
implementation of the General Partner's
powers under this Agreement, including
contracting with contractors, developers,
consultants, accountants, legal counsel,
other professional advisors and other agents
and the payment of their expenses and
compensation out of the Partnership's
assets;
(7) the mortgage, pledge, encumbrance or
hypothecation of any assets of the
Partnership, and the use of the assets of
the Partnership (including, without
limitation, cash on hand) for any purpose
consistent with the terms of this Agreement
and on any terms it sees fit, including,
without limitation, the financing of the
conduct or the
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operations of the General Partner or the
Partnership, the lending of funds to other
Persons (including, without limitation, any
Subsidiaries of the Partnership) and the
repayment of obligations of the
Partnership, any of its Subsidiaries and
any other Person in which it has an equity
investment;
(8) the distribution of Partnership cash or
other Partnership assets in accordance with
this Agreement;
(9) the holding, managing, investing and
reinvesting of cash and other assets of the
Partnership;
(10) the collection and receipt of revenues and
income of the Partnership;
(11) the selection, designation of powers,
authority and duties and the dismal of
employees of the Partnership (including,
without limitation, employees having titles
such as "president," "vice president,"
"secretary" and "treasurer") and agents,
outside attorneys, accountants, consultants
and contractors of the Partnership and the
determination of their compensation and
other terms of employment or hiring;
(12) the maintenance of such insurance for the
benefit of the Partnership and the Partners
as it deems necessary or appropriate;
(13) the formation of, or acquisition of an
interest (including non-voting interests in
entities controlled by Affiliates of the
Partnership or third parties) in, and the
contribution of property to, any further
limited or general partnerships, joint
ventures, limited liability companies or
other relationships that it deems desirable
(including, without limitation, the
acquisition of interests in, and the
contributions of funds or property to, or
making of loans to, its Subsidiaries and any
other Person in which it has an equity
investment from time to time, or the
incurrence of indebtedness on behalf of such
Persons or the guarantee of the obligations
of such Persons); provided that, as long as
the General Partner has determined to
continue to qualify as a REIT, the
Partnership may not engage in any such
formation, acquisition or contribution that
would cause the General Partner to fail to
qualify as a REIT;
(14) the control of any matters affecting the
rights and obligations of the Partnership,
including the settlement, compromise,
submission to arbitration or any other form
of dispute resolution or abandonment of any
claim, cause of action, liability, debt or
damages due or owing to or from the
Partnership, the commencement or defense of
suits, legal proceedings, administrative
proceedings, arbitrations or
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other forms of dispute resolution, the
representation of the Partnership in all
suits or legal proceedings, administrative
proceedings, arbitrations or other forms of
dispute resolution, the incurring of legal
expense and the indemnification of any
Person against liabilities and
contingencies to the extent permitted by
law;
(15) the determination of the fair market value
of any Partnership property distributed in
kind, using such reasonable method of
valuation as the General Partner may adopt;
(16) the exercise, directly or indirectly,
through any attorney-in-fact acting under a
general or limited power of attorney, of any
right, including the right to vote,
appurtenant to any assets or investment held
by the Partnership;
(17) the exercise of any of the powers of the
General Partner enumerated in this Agreement
on behalf of or in connection with any
Subsidiary of the Partnership or any other
Person in which the Partnership has a direct
or indirect interest, individually or
jointly with any such Subsidiary or other
Person;
(18) the exercise of any of the powers of the
General Partner enumerated in this Agreement
on behalf of any Person in which the
Partnership does not have any interest
pursuant to contractual or other
arrangements with such Person;
(19) the making, executing and delivering of any
and all deeds, leases, notes, deeds to
secure debt, mortgages, deeds of trust,
security agreements, conveyances, contracts,
guarantees, warranties, indemnities,
waivers, releases or other legal instruments
or agreements in writing necessary or
appropriate in the judgment of the General
Partner for the accomplishment of any of the
powers of the General Partner enumerated in
this Agreement;
(20) the distribution of cash to acquire
Partnership Units held by a Limited Partner
in connection with a Limited Partner's
exercise of its Redemption Right under
Section 8.5; and
(21) the amendment and restatement of
Exhibit A to reflect accurately at all
times the Capital Contributions and
Partnership Units of the Partners as the
same are adjusted from time to time to the
extent necessary to reflect redemptions,
Capital Contributions, the issuance of
Partnership Units, the admission of any
Additional Limited Partner or any
Substituted Limited Partner or otherwise,
which amendment and restatement,
notwithstanding anything in this
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Agreement to the contrary, shall not be
deemed an amendment of this Agreement, as
long as the matter or event being reflected
in Exhibit A otherwise is authorized by
this Agreement.
B. No Approval by Limited Partners. Except as provided in Section 7.11,
each of the Limited Partners agrees that the General Partner is authorized to
execute, deliver and perform the above-mentioned agreements and transactions on
behalf of the Partnership without any further act, approval or vote of the
Partners, notwithstanding any other provision of this Agreement, the Act or any
applicable law, rule or regulation, to the full extent permitted under the Act
or other applicable law. The execution, delivery or performance by the General
Partner or the Partnership of any agreement authorized or permitted under this
Agreement shall not constitute a breach by the General Partner of any duty that
the General Partner may owe the Partnership or the Limited Partners or any other
Persons under this Agreement or of any duty stated or implied by law or equity.
C. Insurance. At all times from and after the date hereof, the General
Partner may cause the Partnership to obtain and maintain (i) casualty, liability
and other insurance on the properties of the Partnership and (ii) liability
insurance for the Indemnitees hereunder and (iii) such other insurance as the
General Partner, in its sole and absolute discretion, determines to be
necessary.
D. Working Capital and Other Reserves. At all times from and after the
date hereof, the General Partner may cause the Partnership to establish and
maintain working capital reserves in such amounts as the General Partner, in its
sole and absolute discretion, deems appropriate and reasonable from time to
time, including upon liquidation of the Partnership under Section 13.
E. No Obligations to Consider Tax Consequences of Limited Partners.
Subject to the terms of any agreement between the Partnership and a Limited
Partner, in exercising its authority under this Agreement, the General Partner
may, but shall be under no obligation to, take into account the tax consequences
to any Partner (including the General Partner) of any action taken (or not
taken) by any of them. The General Partner and the Partnership shall not have
liability to a Limited Partner for monetary damages or otherwise for losses
sustained, liabilities incurred or benefits not derived by such Limited Partner
in connection with such decisions, provided that the General Partner have acted
in good faith and pursuant to their authority under this Agreement.
7.2 CERTIFICATE OF LIMITED PARTNERSHIP.
The General Partner has previously filed the Certificate with the
Secretary of State of Delaware and an amendment to the Certificate. To the
extent that such action is determined by the General Partner to be reasonable
and necessary or appropriate, the General Partner shall file further amendments
to and restatements of the Certificate and do all the things to maintain the
Partnership as a limited partnership (or a partnership in which the limited
partners have limited liability) under the laws of the State of Delaware and
each other state, or other jurisdiction in which the Partnership may elect to do
business or own property. Subject to the terms of Section 8.4.A(4), the General
Partner shall not be required, before or after filing, to deliver or mail a copy
of the Certificate or any amendment thereto to any Limited Partner. The General
Partner shall use all reasonable efforts to cause to be filed such other
certificates or documents as may be
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reasonable and necessary or appropriate for the formation, continuation,
qualification and operation of a limited partnership (or a partnership in which
the limited partners have limited liability) in the State of Delaware and any
other state, the District of Columbia or other jurisdiction in which the
Partnership may elect to do business or own property.
7.3 TITLE TO PARTNERSHIP ASSETS.
Title to Partnership assets, whether real, personal or mixed and
whether tangible or intangible, shall be deemed to be owned by the Partnership
as an entity, and no Partners, individually or collectively, shall have any
ownership interest in such Partnership assets or any portion thereof. Title to
any or all of the Partnership assets may be held in the name of the Partnership,
the General Partner or one or more nominees, as the General Partner may
determine, including Affiliates of the General Partner. The General Partner
hereby declares and warrants that any Partnership assets for which legal title
is held in the name of any General Partner or any nominee or Affiliate of the
General Partner shall be held by that General Partner for the use and benefit of
the Partnership in accordance with the provisions of this Agreement. All
Partnership assets shall be recorded as the property of the Partnership in its
books and records, irrespective of the name in which legal title to such
Partnership assets is held.
7.4 REIMBURSEMENT OF THE GENERAL PARTNERS.
A. No Compensation. Except as provided in this Section 7.4 and
elsewhere in this Agreement (including the provisions of Articles V and VI
regarding distributions, payments and allocations to which it may be entitled),
the General Partner shall not be compensated for its services as a general
partner of the Partnership.
B. Responsibility for Partnership Expenses. The Partnership shall be
responsible for and shall pay all expenses relating to the Partnership's
organization, the ownership of its assets and its operations. The General
Partner shall be reimbursed on a monthly basis, or such other basis as the
General Partner may determine in its sole and absolute discretion, for all
expenses it incurs relating to the ownership and operation of, or for the
benefit of, the Partnership (including, without limitation, expenses related to
the operations of the General Partner and to the management and administration
of any Subsidiaries of the General Partner or the Partnership or Affiliates of
the Partnership, such as auditing expenses and filing fees); provided that, the
amount of any such reimbursement shall be reduced by (i) any interest earned by
the General Partner with respect to bank accounts or other instruments or
accounts held by it on behalf of the Partnership as permitted in Section 7.5.A
(which interest is considered to belong to the Partnership and shall be paid
over to the Partnership to the extent not applied to reimburse the General
Partner for expenses hereunder); and (ii) any amount derived by the General
Partner from any investments permitted in Section 7.5.A. The General Partner
shall determine in good faith the amount of expenses incurred by it related to
the ownership and operation of, or for the benefit of, the Partnership. If
certain expenses are incurred for the benefit of the Partnership and other
entities (including the General Partner), such expenses will be allocated to the
Partnership and such other entities in such a manner as the General Partner in
its sole and absolute discretion deems fair and reasonable. Such reimbursements
shall be in addition to any reimbursement to the General Partner pursuant to
Section 10.3.C and as a result of indemnification pursuant to Section 7.7. All
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payments and reimbursements hereunder shall be characterized for federal income
tax purposes as expenses of the Partnership incurred on its behalf, and not as
expenses of the General Partner.
C. Partnership Interest Issuance Expenses. The General Partner shall
also be reimbursed for all expenses it incurs relating to any issuance of
Partnership Interests, Shares, Debt of the Partnership or the General Partner or
rights, options, warrants or convertible or exchangeable securities pursuant to
Article IV (including, without limitation, all costs, expenses, damages and
other payments resulting from or arising in connection with litigation related
to any of the foregoing), all of which expenses are considered by the Partners
to constitute expenses of, and for the benefit of, the Partnership.
D. Purchases of Shares by the General Partner. If the General Partner
exercises its rights under the Declaration of Trust to purchase Shares or
otherwise elects to purchase from its shareholders Shares in connection with a
share repurchase or similar program or for the purpose of delivering such Shares
to satisfy an obligation under any dividend reinvestment or equity purchase
program adopted by the General Partner, any employee equity purchase plan
adopted by the General Partner or any similar obligation or arrangement
undertaken by the General Partner in the future, the purchase price paid by the
General Partner for those Shares and any other expenses incurred by the General
Partner in connection with such purchase shall be considered expenses of the
Partnership and shall be reimbursable to the General Partner, subject to the
conditions that: (i) if those Shares subsequently are to be sold by the General
Partner, the General Partner shall pay to the Partnership any proceeds received
by the General Partner for those Shares (provided that a transfer of Shares for
Partnership Units pursuant to Section 8.5 would not be considered a sale for
such purposes); and (ii) if such Shares are not retransferred by the General
Partner within thirty (30) days after the purchase thereof, the General Partner
shall cause the Partnership to cancel a number of Partnership Units (rounded to
the nearest whole Partnership Unit) held by the General Partner equal to the
product attained by multiplying the number of those Shares by a fraction, the
numerator of which is one and the denominator of which is the Conversion Factor.
E. Reimbursement not a Distribution. If and to the extent any
reimbursement made pursuant to this Section 7.4 is determined for federal income
tax purposes not to constitute a payment of expenses of the Partnership, the
amount so determined shall constitute a guaranteed payment with respect to
capital within the meaning of Section 707(c) of the Code, shall be treated
consistently therewith by the Partnership and all Partners and shall not be
treated as a distribution for purposes of computing the Partners' Capital
Accounts.
7.5 OWNERSHIP OF LIMITED PARTNERSHIP INTERESTS BY THE GENERAL PARTNER;
RELATIONSHIP OF SHARES TO PARTNERSHIP UNITS; FUNDING DEBT.
A. Ownership of Limited Partnership Interests. Without the Consent of
the Outside Limited Partners, the General Partner shall not, directly or
indirectly, enter into or conduct any business other than in connection with the
ownership, acquisition and disposition of Partnership Interests as a General
Partner or Limited Partner and the management of the business of the Partnership
and such activities as are incidental thereto. The Partners acknowledge and
agree that the General Partner shall be permitted to acquire, directly or
through a "qualified REIT
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subsidiary" (as defined in Section 856(i) of the Code), up to a one percent (1%)
interest in any entity not classified as a corporation under the Code, provided
that at least ninety-nine percent (99%) of the ownership interests in such
entity are owned, directly or indirectly, by the Partnership. Subject to the
foregoing, the General Partner and any of its Affiliates may acquire Limited
Partnership Interests and shall be entitled to exercise all rights of a Limited
Partner relating to such Limited Partnership Interests.
B. Repurchase of Shares. If the General Partner exercises its rights
under the Declaration of Trust to purchase Shares or otherwise elects to
purchase from its shareholders Shares in connection with a share repurchase or
similar program or for the purpose of delivering such Shares to satisfy an
obligation under any dividend reinvestment or share purchase program adopted by
the General Partner, any employee share purchase plan adopted by the General
Partner or any similar obligation or arrangement undertaken by the General
Partner in the future, then the General Partner shall cause the Partnership to
purchase from the General Partner that number of Partnership Units of the
appropriate class equal to the product obtained by multiplying the number of
Shares purchased by the General Partner times a fraction, the numerator of which
is one and the denominator of which is the Conversion Factor, on the same terms
and for the same aggregate price that the General Partner purchased such Shares.
C. Forfeiture of Shares. If the Partnership or the General Partner
acquires Shares as a result of the forfeiture of such Shares under a restricted
or similar share plan, then the General Partner shall cause the Partnership to
cancel that number of Partnership Units equal to the number of Shares so
acquired, and, if the Partnership acquired such Shares, it shall transfer such
Shares to the General Partner for cancellation.
D. Issuances of Shares. After the Effective Date, the General Partner
shall not grant, award, or issue any additional Shares (other than Shares issued
pursuant to Section 8.5 hereof or pursuant to a dividend or distribution
(including any share split) of Shares to all of its shareholders), other equity
securities of the General Partner, New Securities or Convertible Funding Debt
unless (i) the General Partner shall cause, pursuant to Section 4.2.A hereof,
the Partnership to issue to the General Partner Partnership Interests or rights,
options, warrants or convertible or exchangeable securities of the Partnership
having designations, preferences and other rights, all such that the economic
interests are substantially the same as those of such additional Shares, other
equity securities, New Securities or Convertible Funding Debt, as the case may
be, and (ii) the General Partner transfers to the Partnership, as an additional
Capital Contribution, the proceeds from the grant, award, or issuance of such
additional Shares, other equity securities, New Securities or Convertible
Funding Debt, as the case may be, or from the exercise of rights contained in
such additional Shares, other equity securities, New Securities or Convertible
Funding Debt, as the case may be. Without limiting the foregoing, the General
Partner is expressly authorized to issue additional Shares, other equity
securities, New Securities or Convertible Funding Debt, as the case may be, for
less than fair market value, and the General Partner is expressly authorized,
pursuant to Section 4.2.A hereof, to cause the Partnership to issue to the
General Partner corresponding Partnership Interests, as long as (a) the General
Partner concludes in good faith that such issuance is in the interests of the
General Partner and the Partnership (for example, and not by way of limitation,
the issuance of Shares and corresponding Partnership Units pursuant to a share
purchase plan providing for purchases of Shares, either by
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employees or shareholders, at a discount from fair market value or pursuant to
employee share options that have an exercise price that is less than the fair
market value of the Shares, either at the time of issuance or at the time of
exercise) and (b) the General Partner transfers all proceeds from any such
issuance or exercise to the Partnership as an additional Capital Contribution.
E. Share Option Plan. If at any time or from time to time, the General
Partner sells Shares pursuant to any Share Option Plan, the General Partner
shall transfer the net proceeds of the sale of such Shares to the Partnership as
an additional Capital Contribution in exchange for an amount of additional
Partnership Units equal to the number of Shares so sold divided by the
Conversion Factor.
F. Funding Debt. The General Partner may incur a Funding Debt,
including, without limitation, a Funding Debt that is convertible into Shares or
otherwise constitutes a class of New Securities ("Convertible Funding Debt"),
subject to the condition that the General Partner lend to the Partnership the
net proceeds of such Funding Debt; provided, that Convertible Funding Debt shall
be issued pursuant to Section 7.5.D above; and, provided further, that the
General Partner shall not be obligated to lend the net proceeds of any Funding
Debt to the Partnership in a manner that would be inconsistent with the General
Partner's ability to remain qualified as a REIT. If the General Partner enters
into any Funding Debt, the loan to the Partnership shall be on comparable terms
and conditions, including interest rate, repayment schedule and costs and
expenses, as are applicable with respect to or incurred in connection with such
Funding Debt.
7.6 TRANSACTIONS WITH AFFILIATES.
A. Transactions with Certain Affiliates. Except as expressly permitted
by this Agreement, the Partnership shall not, directly or indirectly, sell,
transfer or convey any property to, or purchase any property from, or borrow
funds from, or lend funds to, any Partner or any Affiliate of the Partnership
that is not also a Subsidiary of the Partnership, except pursuant to
transactions that are on terms that are fair and reasonable and no less
favorable to the Partnership than would be obtained from an unaffiliated third
party.
B. Conflict Avoidance. The General Partner is expressly authorized to
enter into, in the name and on behalf of the Partnership, a right of first
opportunity arrangement and other conflict avoidance agreements with various
Affiliates of the Partnership and General Partner on such terms as the General
Partner, in its sole and absolute discretion, believe are advisable.
C. Benefit Plans Sponsored by the Partnership. The General Partner in
its sole and absolute discretion and without the approval of the Limited
Partners, may propose and adopt on behalf of the Partnership employee benefit
plans funded by the Partnership for the benefit of employees of the General
Partner, the Partnership, Subsidiaries of the Partnership or any Affiliate of
any of them.
7.7 INDEMNIFICATION.
A. General. The Partnership shall indemnify each Indemnitee to the
fullest extent provided by the Act from and against any and all losses, claims,
damages, liabilities, joint or
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several, expenses (including, without limitation, attorneys fees and other legal
fees and expenses), judgments, fines, settlements and other amounts arising from
or in connection with any and all claims, demands, actions, suits or
proceedings, civil, criminal, administrative or investigative, incurred by the
Indemnitee and relating to the Partnership or the General Partner or the
operation of, or the ownership of property by, any of them as set forth in this
Agreement in which any such Indemnitee may be involved, or is threatened to be
involved, as a party or otherwise, unless it is established by a final
determination of a court of competent jurisdiction that: (i) the act or omission
of the Indemnitee was material to the matter giving rise to the proceeding and
either was committed in bad faith or was the result of active and deliberate
dishonesty, (ii) the Indemnitee actually received an improper personal benefit
in money, property or services or (iii) in the case of any criminal proceeding,
the Indemnitee had reasonable cause to believe that the act or omission was
unlawful. Without limitation, the foregoing indemnity shall extend to any
liability of any Indemnitee, pursuant to a loan guarantee, contractual
obligation for any indebtedness or other obligation or otherwise, for any
indebtedness of the Partnership or any Subsidiary of the Partnership (including,
without limitation, any indebtedness which the Partnership or any Subsidiary of
the Partnership has assumed or taken subject to), and the General Partner is
hereby authorized and empowered, on behalf of the Partnership, to enter into one
or more indemnity agreements consistent with the provisions of this Section 7.7
in favor of any Indemnitee having or potentially having liability for any such
indebtedness. The termination of any proceeding by judgment, order or settlement
does not create a presumption that the Indemnitee did not meet the requisite
standard of conduct set forth in this Section 7.7.A. The termination of any
proceeding by conviction or upon a plea of nolo contendere or its equivalent, or
an entry of an order of probation prior to judgment, creates a rebuttable
presumption that the Indemnitee acted in a manner contrary to that specified in
this Section 7.7.A with respect to the subject matter of such proceeding. Any
indemnification pursuant to this Section 7.7 shall be made only out of the
assets of the Partnership, and any insurance proceeds from the liability policy
covering the General Partner and any Indemnitee, and neither a General Partner
nor any Limited Partner shall have any obligation to contribute to the capital
of the Partnership or otherwise provide funds to enable the Partnership to fund
its obligations under this Section 7.7.
B. Advancement of Expenses. Reasonable expenses expected to be incurred
by an Indemnitee shall be paid or reimbursed by the Partnership in advance of
the final disposition of any and all claims, demands, actions, suits or
proceedings, civil, criminal, administrative or investigative made or threatened
against an Indemnitee upon receipt by the Partnership of (i) a written
affirmation by the Indemnitee of the Indemnitee's good faith belief that the
standard of conduct necessary for indemnification by the Partnership as
authorized in this Section 7.7.A has been met and (ii) a written undertaking by
or on behalf of the Indemnitee to repay the amount if it shall ultimately be
determined that the standard of conduct has not been met.
C. No Limitation of Rights. The indemnification provided by this
Section 7.7 shall be in addition to any other rights to which an Indemnitee or
any other Person may be entitled under any agreement, pursuant to any vote of
the Partners, as a matter of law or otherwise, and shall continue as to an
Indemnitee who has ceased to serve in such capacity unless otherwise provided in
a written agreement pursuant to which such Indemnitee is indemnified.
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D. Insurance. The Partnership may purchase and maintain insurance on
behalf of the Indemnitees and such other Persons as the General Partner shall
determine against any liability that may be asserted against or expenses that
may be incurred by such Person in connection with the Partnership's activities,
regardless of whether the Partnership would have the power to indemnify such
Person against such liability under the provisions of this Agreement.
E. Benefit Plan Fiduciary. For purposes of this Section 7.7, (i) excise
taxes assessed on an Indemnitee, of for which the Indemnitee is otherwise found
liable, with respect to an ERISA Plan pursuant to applicable law shall
constitute fines within the meaning of this Section 7.7 and (iii) actions taken
or omitted by the Indemnitee with respect to an ERISA Plan in the performance of
its duties for a purpose reasonably believed by it to be in the interest of the
participants and beneficiaries of such ERISA Plan shall be deemed to be for a
purpose which is not opposed to the best interests of the Partnership.
F. No Personal Liability for Limited Partners. In no event may an
Indemnitee subject any of the Partners to personal liability by reason of the
indemnification provisions set forth in this Agreement.
G. Interested Transactions. An Indemnitee shall not be denied
indemnification in whole or in part under this Section 7.7 because the
Indemnitee had an interest in the transaction with respect to which the
indemnification applies if the transaction was otherwise permitted by the terms
of this Agreement.
H. Benefit. The provisions of this Section 7.7 are for the benefit of
the Indemnitees, their employees, officers, directors, trustees, heirs,
successors, assigns and administrators and shall not be deemed to create any
rights for the benefit of any other Persons. Any amendment, modification or
repeal of this Section 7.7, or any provision hereof, shall be prospective only
and shall not in any way affect the limitation on the Partnership's liability to
any Indemnitee under this Section 7.7 as in effect immediately prior to such
amendment, modification or repeal with respect to claims arising from or related
to matters occurring, in whole or in part, prior to such amendment, modification
or repeal, regardless of when such claims may arise or be asserted.
I. Indemnification Payments Not Distributions. If and to the extent any
payments to the General Partner pursuant to this Section 7.7 constitute gross
income to the General Partner (as opposed to the repayment of advances made on
behalf of the Partnership), such amounts shall constitute guaranteed payments
within the meaning of Section 707(c) of the Code, shall be treated consistently
therewith by the Partnership and all Partners, and shall not be treated as
distributions for purposes of computing the Partners' Capital Accounts.
J. Exception to Indemnification. Notwithstanding anything to the
contrary in this Agreement, a General Partner shall not be entitled to
indemnification hereunder for any loss, claim, damage, liability or expense for
which such General Partner is obligated to indemnify the Partnership under any
other agreement between such General Partner and the Partnership.
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7.8 LIABILITY OF THE GENERAL PARTNER.
A. General. Notwithstanding anything to the contrary set forth in this
Agreement, no General Partner shall be liable for monetary damages to the
Partnership, any Partners or any Assignees for losses sustained, liabilities
incurred or benefits not derived as a result of errors in judgment or mistakes
of fact or law or of any act or omission unless that General Partner acted in
bad faith and the act or omission was material to the matter giving rise to the
loss, liability or benefit not derived.
B. No Obligation to Consider Separate Interests of Limited Partners or
Shareholders. The Limited Partners expressly acknowledge that the General
Partner is acting on behalf of the Partnership, that the General Partner is
under no obligation to consider the separate interests of the Limited Partners
(including, without limitation, the tax consequences to Limited Partners or
Assignees) in deciding whether to cause the Partnership to take (or decline to
take) any actions, and that the General Partner shall not be liable for monetary
damages for losses sustained, liabilities incurred or benefits not derived by
Limited Partners in connection with such decisions, provided that the General
Partner has acted in good faith.
C. Actions of Agents. Subject to their obligations and duties as the
General Partner sets forth in Section 7.1.A, the General Partner may exercise
any of the powers granted to them by this Agreement and perform any of the
duties imposed upon them hereunder either directly or by or through their
agents. The General Partner shall not be responsible for any misconduct or
negligence on the part of any such agent appointed by the General Partner in
good faith.
D. Effect of Amendment. Notwithstanding any other provision contained
herein, any amendment, modification or repeal of this Section 7.8 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the General Partner's liability to the Partnership and the
Limited Partners under this Section 7.8 as in effect immediately prior to such
amendment, modification or repeal with respect to claims arising from or
relating to matters occurring, in whole or in part, prior to such amendment,
modification or repeal, regardless of when such claims may arise or be asserted.
7.9 OTHER MATTERS CONCERNING THE GENERAL PARTNER.
A. Reliance on Documents. A General Partner may rely and shall be
protected in acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, consent, order, bond,
debenture or other paper or document believed by it in good faith to be genuine
and to have been signed or presented by the proper party or parties.
B. Reliance on Advisors. The General Partner may consult with legal
counsel, accountants, appraisers, management consultants, investment bankers and
other consultants and advisers selected by them, and any act taken or omitted to
be taken in reliance upon the opinion of such Persons as to matters which the
General Partner reasonably believes to be within such Person's professional or
expert competence shall be conclusively presumed to have been done or omitted in
good faith and in accordance with such opinion.
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C. Action Through Agents. The General Partner shall have the right, in
respect of any of its powers or obligations hereunder, to act through any of its
duly authorized officers and a duly appointed attorney or attorneys-in-fact.
Each such attorney shall, to the extent provided by the General Partner in the
power of attorney, have full power and authority to do and perform all and every
act and duty which is permitted or required to be done by the General Partner
hereunder.
D. Actions to Maintain REIT Status. Notwithstanding any other
provisions of this Agreement or the Act, any action of the General Partner on
behalf of the Partnership or any decision of a General Partner to refrain from
acting on behalf of the Partnership undertaken in the good faith belief that
such action or omission is necessary or advisable in order (i) to protect the
ability of the General Partner Entity to continue to qualify as a REIT or (ii)
to allow the General Partner Entity to avoid incurring any liability for taxes
under Section 857 or 4981 of the Code, is expressly authorized under this
Agreement and is deemed approved by all of the Limited Partners.
E. Actions to Maintain REOC Status. If and so long as the Partnership
Interests of "benefit plan investors" is "significant" (as such terms, or terms
succeeding thereto with the same objective, are used in 29 C.F.R. Section
2510.3-101(f) (such regulation or successor regulation being known as the "Plan
Assets Regulation")), then the General Partner shall use its best efforts to
conduct the affairs of the Partnership in compliance with the exception for a
real estate operating company ("REOC") as provided in the Plan Assets
Regulation, and so that the assets of the Partnership will not be "plan assets"
(as such term is defined in the Plan Assets Regulations) of any ERISA Partner.
(i) If the General Partner, pursuant to this Section 7.9.E,
intends to conduct the affairs of the Partnership as a REOC, the General Partner
shall promptly deliver to each ERISA Partner an opinion of counsel reasonably
acceptable to each such ERISA Partner with respect to the "initial valuation
date" and each "annual valuation period" (as those terms, or terms succeeding
thereto with the same objective, are defined in the Plan Assets Regulation).
Such opinion of counsel shall state, (A) as to the opinion respecting the
"initial valuation date," that the Partnership shall qualify or qualified as a
REOC for the period beginning on such "initial valuation date" and ending on the
last day of the first "annual valuation period," and (B) as to each annual
opinion respecting each "annual valuation period," that the Partnership shall
qualify or qualified as a REOC for the 12-month period following the last day of
such "annual valuation period." Each opinion referred to in the prior two
sentences may rely upon, among other things, a certificate of the General
Partner as to the exercise of management rights with respect to one or more
investments during the appropriate period and as to a description of such
investments, and such counsel opinion also shall state whether the Partnership
has included in a certification to opinion counsel a statement to the effect
that on such "initial valuation date" or during such "annual valuation period"
at least 50 percent of Partnership assets (other than short-term investments
pending long-term commitment or distribution to investors), valued at cost, were
invested in real estate investments as described in the Plan Assets Regulation.
(ii) If the opinion described in this subsection is not
provided in the affirmative, or if any ERISA Partner shall obtain and deliver to
the General Partner an opinion of counsel to such ERISA Partner (which opinion
shall be reasonably satisfactory to the General Partner) that
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there is a reasonable probability that either (A) the Partnership was or will
not be a REOC for any period in which either participation by benefit plan
investors in the Partnership is significant, or (B) the assets of the
Partnership were or will be "plan assets" of ERISA Plan investors, then the
General Partner is hereby authorized and empowered to take such actions as it
deems necessary and appropriate to mitigate, prevent, or cure such adverse
consequences resulting to the ERISA Plan investors or requesting General
Partner, including modifying the manner in which the Partnership conducts its
business, or requiring each ERISA Partner (on a pro rata basis unless otherwise
consented to by all ERISA Partners) to transfer all or a portion of its interest
at a price not less than the fair value of such interest or portion thereof.
Such calculation of fair value of an interest or of any Partnership asset shall
be made by the General Partner.
7.10 RELIANCE BY THIRD PARTIES.
Notwithstanding anything to the contrary in this Agreement, any Person
dealing with the Partnership shall be entitled to assume that the General
Partner has full power and authority, without consent or approval of any other
Partner or Person, to encumber, sell or otherwise use in any manner any and all
assets of the Partnership, to enter into any contracts on behalf of the
Partnership and to take any and all actions on behalf of the Partnership, and
such Person shall be entitled to deal with the General Partner as if the General
Partner were the Partnership's sole party in interest, both legally and
beneficially. Each Limited Partner hereby waives any and all defenses or other
remedies which may be available against such Person to contest, negate or
disaffirm any action of the General Partner in connection with any such dealing.
In no event shall any Person dealing with the General Partner or its
representatives be obligated to ascertain that the terms of this Agreement have
been complied with or to inquire into the necessity or expedience of any act or
action of the General Partner or its representatives. Each and every
certificate, document or other instrument executed on behalf of the Partnership
by the General Partner or its representatives shall be conclusive evidence in
favor of any and every Person relying thereon or claiming thereunder that (i) at
the time of the execution and delivery of such certificate, document or
instrument, this Agreement was in full force and effect, (ii) the Person
executing and delivering such certificate, document or instrument was duly
authorized and empowered to do so for and on behalf of the Partnership, and
(iii) such certificate, document or instrument was duly executed and delivered
in accordance with the terms and provisions of this Agreement and is binding
upon the Partnership.
7.11 RESTRICTIONS ON GENERAL PARTNER'S AUTHORITY.
A. Consent Required. The General Partner may not take any action in
contravention of an express prohibition or limitation of this Agreement without
the written Consent of (i) all Partners adversely affected or (ii) such lower
percentage of the Limited Partnership Interests as may be specifically provided
for under a provision of this Agreement or the Act.
B. Sale of All Assets of the Partnership. Except as provided in Article
XIII, the General Partner may not, directly or indirectly, cause the Partnership
to sell, exchange, transfer or otherwise dispose of all or substantially all of
the Partnership's assets in a single transaction or a series of related
transactions (including by way of merger (including a triangular merger),
consolidation or other combination with any other Persons) if such merger, sale
or other
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transaction is in connection with a Termination Transaction permitted under
Section 11.2.B hereof, without the Consent of the Partners holding at least a
majority of the then outstanding Partnership Units (including any Partnership
Units held by the General Partner).
7.12 LOANS BY THIRD PARTIES.
The Partnership may incur Debt, or enter into similar credit,
guarantee, financing or refinancing arrangements for any purpose (including,
without limitation, in connection with any acquisition of property) with any
Person that is not a General Partner upon such terms as the General Partner
determines appropriate; provided that, the Partnership shall not incur any Debt
that is recourse to a General Partner, except to the extent otherwise agreed to
by such General Partner in its sole discretion.
ARTICLE VIII
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
8.1 LIMITATION OF LIABILITY.
The Limited Partners shall have no liability under this Agreement
except as expressly provided in this Agreement, including Section 10.5, or under
the Act.
8.2 MANAGEMENT OF BUSINESS.
No Limited Partner or Assignee (other than the General Partner, any of
its Affiliates or any officer, director, employee, partner, agent or trustee of
a General Partner, the Partnership or any of their Affiliates, in their capacity
as such) shall take part in the operation, management or control (within the
meaning of the Act) of the Partnership's business, transact any business in the
Partnership's name or have the power to sign documents for or otherwise bind the
Partnership. The transaction of any such business by the General Partner, any of
its Affiliates or any officer, director, employee, partner, agent or trustee of
the General Partner, the Partnership or any of their Affiliates, in their
capacity as such, shall not affect, impair or eliminate the limitations on the
liability of the Limited Partners or Assignees under this Agreement.
8.3 RETURN OF CAPITAL.
Except pursuant to the right of redemption set forth in Section 8.5, no
Limited Partner shall be entitled to the withdrawal or return of its Capital
Contribution, except to the extent of distributions made pursuant to this
Agreement or upon termination of the Partnership as provided herein. No Limited
Partner or Assignee shall have priority over any other Limited Partner or
Assignee either as to the return of Capital Contributions (except as permitted
by Section 4.2.A) or, except to the extent provided by Exhibit C or as permitted
by Sections 4.2.A, 5.1.B(i), 6.1.A(ii) and 6.1.B(i), or otherwise expressly
provided in this Agreement, as to profits, losses, distributions or credits.
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8.4 RIGHTS OF LIMITED PARTNERS RELATING TO THE PARTNERSHIP.
A. General. In addition to other rights provided by this Agreement or
by the Act, and except as limited by Section 8.4.D, each Limited Partner shall
have the right, for a purpose reasonably related to such Limited Partner's
interest as a limited partner in the Partnership, upon written demand with a
statement of the purpose of such demand and at such Limited Partner's own
expense:
(1) to obtain a copy of the most recent annual
and quarterly reports filed with the
Securities and Exchange Commission by the
General Partner Entity pursuant to the
Exchange Act;
(2) to obtain a copy of the Partnership's
federal, state and local income tax returns
for each Partnership Year;
(3) to obtain a current list of the name and
last known business, residence or mailing
address of each Partner;
(4) to obtain a copy of this Agreement and the
Certificate and all amendments thereto,
together with executed copies of all powers
of attorney pursuant to which this
Agreement, the Certificate and all
amendments thereto have been executed; and
(5) to obtain true and full information
regarding the amount of cash and a
description and statement of any other
property or services contributed by each
Partner and which each Partner has agreed to
contribute in the future, and the date on
which each became a Partner.
B. Notice of Conversion Factor. The Partnership shall notify each
Limited Partner upon request of the then current Conversion Factor and any
changes that have been made thereto.
C. Notice of Extraordinary Transaction of the General Partner Entity.
The General Partner Entity shall not make any extraordinary distributions of
property to its shareholders or effect a merger (including, without limitation,
a triangular merger), a sale of all or substantially all of its assets or any
other similar extraordinary transaction without notifying the Limited Partners
of its intention to make such distribution or effect such merger, sale or other
extraordinary transaction at least ten (10) Business Days prior to the record
date to determine shareholders eligible to receive such distribution (or, if no
such record date is applicable, at least twenty (20) business days before
consummation of such merger, sale or other extraordinary transaction). This
provision for such notice shall not be deemed (i) to permit any transaction that
otherwise is prohibited by this Agreement or requires a Consent of the Partners
or (ii) to require a Consent of the Limited Partners to a transaction that does
not otherwise require Consent under this Agreement. Each Limited Partner agrees,
as a condition to the receipt of the notice pursuant hereto, to keep
confidential the information set forth therein until such time as the General
Partner Entity has made public disclosure thereof and to use such information
during such period of
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confidentiality solely for purposes of determining whether to exercise the
Redemption Right; provided, however, that a Limited Partner may disclose such
information to its attorney, accountant and/or financial advisor for purposes of
obtaining advice with respect to such exercise so long as such attorney,
accountant and/or financial advisor agrees to receive and hold such information
subject to this confidentiality requirement.
D. Confidentiality. Notwithstanding any other provision of this Section
8.4, the General Partner may keep confidential from the Limited Partners, for
such period of time as the General Partner determine in its sole and absolute
discretion to be reasonable, any information that (i) the General Partner
reasonably believes to be in the nature of trade secrets or other information
the disclosure of which the General Partner in good faith believes is not in the
best interests of the Partnership or could damage the Partnership or its
business or (ii) the Partnership is required by law or by agreements with
unaffiliated third parties to keep confidential.
8.5 REDEMPTION RIGHT.
A. General. (i) Subject to Section 8.5.C and unless otherwise provided
in an agreement between the Partnership and a Limited Partner entered into upon
the issuance of a Partnership Unit to a Limited Partner, at any time on or after
the first anniversary date of the issuance of a Partnership Unit to a Limited
Partner pursuant to Article IV hereof (which one-year period shall commence upon
the issuance of such Partnership Unit), or on or after such date prior to the
expiration of such one-year period as the General Partner, in its sole and
absolute discretion, designates with respect to any or all Partnership Units
then outstanding, the holder of a Partnership Unit (if other than the General
Partner or the General Partner Entity or any Subsidiary of either the General
Partner or the General Partner Entity) shall have the right (the "Redemption
Right") to require the Partnership to redeem such Partnership Unit, with such
redemption to occur on the Specified Redemption Date and at a redemption price
equal to and in the form of the Cash Amount to be paid by the Partnership. Any
such Redemption Right shall be exercised pursuant to a Notice of Redemption
delivered to the Partnership (with a copy to the General Partner) by the Limited
Partner who is exercising the Redemption Right (the "Redeeming Partner"). A
Limited Partner may exercise the Redemption Right from time to time, without
limitation as to frequency, with respect to part or all of the Units that it
owns, as selected by the Limited Partner, provided that a Limited Partner may
not exercise the Redemption Right for less than one thousand (1,000) Partnership
Units unless such Redeeming Partner then holds less than one thousand (1,000)
Partnership Units, in which event the Redeeming Partner must exercise the
Redemption Right for all of the Partnership Units held by such Redeeming
Partner.
(ii) The Redeeming Partner shall have no right with respect to
any Partnership Units so redeemed to receive any distributions paid with respect
to a Partnership Record Date on or after the Specified Redemption Date with
respect to such Partnership Units.
(iii) The Assignee of any Limited Partner may exercise the
rights of such Limited Partner pursuant to this Section 8.5, and such Limited
Partner shall be deemed to have assigned such rights to such Assignee and shall
be bound by the exercise of such rights by such Limited Partner's Assignee. In
connection with any exercise of such rights by such Assignee on behalf
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of such Limited Partner, the Cash Amount shall be paid by the Partnership
directly to such Assignee and not to such Limited Partner.
(iv) If the General Partner provides notice to the Limited
Partners, pursuant to Section 8.4.C hereof, the Redemption Right shall be
exercisable, without regard to whether the Partnership Units have been
outstanding for any specified period, during the period commencing on the date
on which the General Partner provides such notice and ending on the record date
to determine shareholders eligible to receive such distribution (or, if no such
record date is applicable, at least ten (10) business days before the
consummation of such merger, sale or other extraordinary transaction). If this
subparagraph (iv) applies, the Specified Redemption Date is the date on which
the Partnership and the General Partner receive notice of exercise of the
Redemption Right, rather than ten (10) Business Days after receipt of the notice
of redemption.
B. General Partner Assumption of Right. (i) If a Limited Partner has
delivered a Notice of Redemption, the General Partner may, in its sole and
absolute discretion (subject to the limitations on ownership and transfer of
Shares set forth in the Declaration of Trust), elect to assume directly and
satisfy a Redemption Right by paying to the Redeeming Partner either the Cash
Amount or the Shares Amount, as the General Partner determines in its sole and
absolute discretion (provided that payment of the Redemption Amount in the form
of Shares shall be in Shares of a class which are registered under Section 12 of
the Exchange Act and listed for trading on the exchange or national market on
which the Shares are Publicly Traded, and provided further that, if the Shares
are not Publicly Traded at the time a Redeeming Partner exercises its Redemption
Right, the Redemption Amount shall be paid only in the form of the Cash Amount
unless the Redeeming Partner, in its sole and absolute discretion, consents to
payment of the Redemption Amount in the form of the Shares Amount), on the
Specified Redemption Date, whereupon the General Partner shall acquire the
Partnership Units offered for redemption by the Redeeming Partner and shall be
treated for all purposes of this Agreement as the owner of such Partnership
Units. Unless the General Partner, in its sole and absolute discretion, shall
exercise its right to assume directly and satisfy the Redemption Right, the
General Partner shall not have any obligation to the Redeeming Partner or to the
Partnership with respect to the Redeeming Partner's exercise of the Redemption
Right. If the General Partner shall exercise its right to satisfy the Redemption
Right in the manner described in the first sentence of this Section 8.5B and
shall fully perform its obligations in connection therewith, the Partnership
shall have no right or obligation to pay any amount to the Redeeming Partner
with respect to such Redeeming Partner's exercise of the Redemption Right, and
each of the Redeeming Partner, the Partnership and the General Partner shall,
for federal income tax purposes, treat the transaction between the General
Partner and the Redeeming Partner as a sale of the Redeeming Partner's
Partnership Units to the General Partner. Nothing contained in this Section
8.5.B shall imply any right of the General Partner to require any Limited
Partner to exercise the Redemption Right afforded to such Limited Partner
pursuant to Section 8.5.A.
(ii) If the General Partner determines to pay the Redeeming
Partner the Redemption Amount in the form of Shares, the total number of Shares
to be paid to the Redeeming Partner in exchange for the Redeeming Partner's
Partnership Units shall be the applicable Shares Amount. If this amount is not a
whole number of Shares, the Redeeming Partner shall be paid (i) that number of
Shares which equals the nearest whole number less than such amount plus (ii) an
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amount of cash which the General Partner determines, in its reasonable
discretion, to represent the fair value of the remaining fractional Share which
would otherwise be payable to the Redeeming Partner.
(iii) Each Redeeming Partner agrees to execute such documents
as the General Partner may reasonably require in connection with the issuance of
Shares upon exercise of the Redemption Right, including, but not limited to, any
investment representation required by the General Partner.
C. Exceptions to Exercise of Redemption Right. Notwithstanding the
provisions of Sections 8.5.A and 8.5.B, a Partner shall not be entitled to
exercise the Redemption Right pursuant to Section 8.5.A if (but only as long as)
the delivery of Shares to such Partner on the Specified Redemption Date (i)
would be prohibited under the Declaration of Trust or (ii) would violate
applicable federal or state securities laws or regulations (in each case
regardless of whether the General Partner would in fact assume and satisfy the
Redemption Right).
D. No Liens on Partnership Units Delivered for Redemption. Each Limited
Partner covenants and agrees with the General Partner that all Partnership Units
delivered for redemption shall be delivered to the Partnership or the General
Partner, as the case may be, free and clear of all liens, and, notwithstanding
anything contained herein to the contrary, neither the General Partner nor the
Partnership shall be under any obligation to acquire Partnership Units which are
or may be subject to any liens. Each Limited Partner further agrees that, if any
state or local property transfer tax is payable as a result of the transfer of
its Partnership Units to the Partnership or the General Partner, such Limited
Partner shall assume and pay such transfer tax.
E. Additional Partnership Interests. If the Partnership issues
Partnership Interests to any Additional Limited Partner pursuant to Article IV,
the General Partner shall make such revisions to this Section 8.5 as it
determines are necessary to reflect the issuance of such Partnership Interests
(including setting forth any restrictions on the exercise of the Redemption
Right with respect to such Partnership Interests).
ARTICLE IX
BOOKS, RECORDS, ACCOUNTING AND REPORTS
9.1 RECORDS AND ACCOUNTING.
The General Partner shall keep or cause to be kept at the principal
office of the Partnership appropriate books and records with respect to the
Partnership's business, including, without limitation, all books and records
necessary to provide to the Limited Partners any information, lists and copies
of documents required to be provided pursuant to Section 9.3. Any records
maintained by or on behalf of the Partnership in the regular course of its
business may be kept on, or be in the form of, punch cards, magnetic tape,
photographs, micrographics or any other information storage device, provided
that the records so maintained are convertible into clearly legible written form
within a reasonable period of time. The books of the Partnership shall be
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maintained, for financial and tax reporting purposes, on an accrual basis in
accordance with generally accepted accounting principles.
9.2 FISCAL YEAR.
The fiscal year of the Partnership shall be the calendar year.
9.3 REPORTS.
A. Annual Reports. As soon as practicable, but in no event later than
the date on which the General Partner Entity mails its annual report to its
shareholders, the General Partner Entity shall cause to be mailed to each
Limited Partner an annual report, as of the close of the most recently ended
Partnership Year, containing financial statements of the Partnership, or of the
General Partner Entity if such statements are prepared solely on a consolidated
basis with the Partnership, for such Partnership Year, presented in accordance
with generally accepted accounting principles, such statements to be audited by
a nationally recognized firm of independent public accountants selected by the
General Partner Entity.
B. Quarterly Reports. If and to the extent that the General Partner
Entity mails quarterly reports to its shareholders, as soon as practicable, but
in no event later than the date on such reports are mailed, the General Partner
Entity shall cause to be mailed to each Limited Partner a report containing
unaudited financial statements, as of the last day of such calendar quarter, of
the Partnership, or of the General Partner Entity if such statements are
prepared solely on a consolidated basis with the Partnership, and such other
information as may be required by applicable law or regulation, or as the
General Partner determines to be appropriate.
ARTICLE X
TAX MATTERS
10.1 PREPARATION OF TAX RETURNS.
The General Partner shall arrange for the preparation and timely filing
of all returns of Partnership income, gains, deductions, losses and other items
required of the Partnership for federal and state income tax purposes and shall
use all reasonable efforts to furnish, within ninety (90) days of the close of
each taxable year, the tax information reasonably required by Limited Partners
for federal and state income tax reporting purposes.
10.2 TAX ELECTIONS.
Except as otherwise provided herein, the General Partner shall, in its
sole and absolute discretion, determine whether to make any available election
pursuant to the Code, including, without limitation, the election under Section
754 of the Code in accordance with applicable regulations thereunder. The
General Partner shall have the right to seek to revoke any such election
(including, without limitation, the election under Section 754 of the Code) upon
the
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General Partner's determination in its sole and absolute discretion that such
revocation is in the best interests of the Partners.
10.3 TAX MATTERS PARTNER.
A. General. The General Partner shall be the "tax matters partner" of
the Partnership for federal income tax purposes. Pursuant to Section 6223(c)(3)
of the Code, upon receipt of notice from the IRS of the beginning of an
administrative proceeding with respect to the Partnership, the tax matters
partner shall furnish the IRS with the name, address, tax payer identification
number and profit interest of each of the Limited Partners and any Assignees;
provided, however, that such information is provided to the Partnership by the
Limited Partners.
B. Powers. The tax matters partner is authorized, but not required:
(1) to enter into any settlement with the IRS
with respect to any administrative or
judicial proceedings for the adjustment of
Partnership items required to be taken into
account by a Partner for income tax purposes
(such administrative proceedings being
referred to as a "tax audit" and such
judicial proceedings being referred to as
"judicial review"), and in the settlement
agreement the tax matters partner may
expressly state that such agreement shall
bind all Partners, except that such
settlement agreement shall not bind any
Partner (i) who (within the time prescribed
pursuant to the Code and Regulations) files
a statement with the IRS providing that the
tax matters partner shall not have the
authority to enter into a settlement
agreement on behalf of such Partner or (ii)
who is a "notice partner" (as defined in
Section 6231(a)(8) of the Code) or a member
of a "notice group" (as defined in Section
6223(b)(2) of the Code);
(2) if a notice of a final administrative
adjustment at the Partnership level of any
item required to be taken into account by a
Partner for tax purposes (a "final
adjustment") is mailed to the tax matters
partner, to seek judicial review of such
final adjustment, including the filing of a
petition for readjustment with the Tax Court
or the filing of a complaint for refund with
the United States Claims Court or the
District Court of the United States for the
district in which the Partnership's
principal place of business is located;
(3) to intervene in any action brought by any
other Partner for judicial review of a final
adjustment;
(4) to file a request for an administrative
adjustment with the IRS at any time and, if
any part of such request is not allowed by
the IRS, to file an appropriate pleading
(petition or complaint) for judicial review
with respect to such request;
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(5) to enter into an agreement with the IRS to
extend the period for assessing any tax
which is attributable to any item required
to be taken into account by a Partner for
tax purposes, or an item affected by such
item; and
(6) to take any other action on behalf of the
Partners of the Partnership in connection
with any tax audit or judicial review
proceeding to the extent permitted by
applicable law or regulations.
The taking of any action and the incurring of any expense by the tax
matters partner in connection with any such proceeding, except to the extent
required by law, is a matter in the sole and absolute discretion of the tax
matters partner and the provisions relating to indemnification of the General
Partner set forth in Section 7.7 shall be fully applicable to the tax matters
partner in its capacity as such.
C. Reimbursement. The tax matters partner shall receive no compensation
for its services. All third party costs and expenses incurred by the tax matters
partner in performing its duties as such (including legal and accounting fees
and expenses) shall be borne by the Partnership. Nothing herein shall be
construed to restrict the Partnership from engaging an accounting firm and/or
law firm to assist the tax matters partner in discharging its duties hereunder,
so long as the compensation paid by the Partnership for such services is
reasonable.
10.4 ORGANIZATIONAL EXPENSES.
The Partnership shall elect to deduct expenses, if any, incurred by it
in organizing the Partnership ratably over a sixty (60) month period as provided
in Section 709 of the Code.
10.5 WITHHOLDING.
Each Limited Partner hereby authorizes the Partnership to withhold from
or pay on behalf of or with respect to such Limited Partner any amount of
federal, state, local, or foreign taxes that the General Partner determines that
the Partnership is required to withhold or pay with respect to any amount
distributable or allocable to such Limited Partner pursuant to this Agreement,
including, without limitation, any taxes required to be withheld or paid by the
Partnership pursuant to Section 1441, 1442, 1445, or 1446 of the Code. Any
amount paid on behalf of or with respect to a Limited Partner shall constitute a
loan by the Partnership to such Limited Partner, which loan shall be repaid by
such Limited Partner within fifteen (15) days after notice from the General
Partner that such payment must be made unless (i) the Partnership withholds such
payment from a distribution which would otherwise be made to the Limited Partner
or (ii) the General Partner determines, in its sole and absolute discretion,
that such payment may be satisfied out of the available funds of the Partnership
which would, but for such payment, be distributed to the Limited Partner. Any
amounts withheld pursuant to the foregoing clauses (i) or (ii) shall be treated
as having been distributed to such Limited Partner. Each Limited Partner hereby
unconditionally and irrevocably grants to the Partnership a security interest in
such Limited Partner's Partnership Interest to secure such Limited Partner's
obligation to pay to the Partnership any amounts required to be paid pursuant
to this Section 10.5. If a Limited Partner fails to pay
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any amounts owed to the Partnership pursuant to this Section 10.5 when
due, the General Partner may, in its sole and absolute discretion, elect to
make the payment to the Partnership on behalf of such defaulting Limited
Partner, and in such event shall be deemed to have loaned such amount to such
defaulting Limited Partner and shall succeed to all rights and remedies of the
Partnership as against such defaulting Limited Partner (including, without
limitation, the right to receive distributions). Any amounts payable by a
Limited Partner hereunder shall bear interest at the base rate on corporate
loans at large United States money center commercial banks, as published from
time to time in the Wall Street Journal, plus four (4) percentage points (but
not higher than the maximum lawful rate under the laws of the State of
Delaware) from the date such amount is due (i.e., fifteen (15) days after
demand) until such amount is paid in full. Each Limited Partner shall take such
actions as the Partnership or the General Partner shall request to perfect or
enforce the security interest created hereunder.
ARTICLE XI
TRANSFERS AND WITHDRAWALS
11.1 TRANSFER.
A. Definition. The term "transfer," when used in this Article XI with
respect to a Partnership Interest or a Partnership Unit, shall be deemed to
refer to a transaction by which the General Partner purports to assign all or
any part of its General Partnership Interest to another Person or by which a
Limited Partner purports to assign all or any part of its Limited Partnership
Interest to another Person, and includes a sale, assignment, gift, pledge,
encumbrance, hypothecation, mortgage, exchange or any other disposition by law
or otherwise. The term "transfer" when used in this Article XI does not include
any redemption or repurchase of Partnership Units by the Partnership from a
Partner or acquisition of Partnership Units from a Limited Partner by the
General Partner pursuant to Section 8.5 or otherwise. No part of the interest of
a Limited Partner shall be subject to the claims of any creditor, any spouse for
alimony or support, or to legal process, and may not be voluntarily or
involuntarily alienated or encumbered except as may be specifically provided for
in this Agreement.
B. General. No Partnership Interest shall be transferred, in whole or
in part, except in accordance with the terms and conditions set forth in this
Article XI. Any transfer or purported transfer of a Partnership Interest not
made in accordance with this Article XI shall be null and void.
11.2 TRANSFERS OF PARTNERSHIP INTERESTS OF GENERAL PARTNERS.
A. Restriction on Transfer. Except for transfers of Partnership Units
to the Partnership as provided in Section 7.5 or Section 8.5, the General
Partner may not transfer any of its Partnership Interest (including both its
General Partnership Interest and its Limited Partnership Interest) except in
connection with a transaction described in Section 11.2.B or as otherwise
expressly permitted under this Agreement, nor shall the General Partner withdraw
as a General Partner except in connection with a transaction described in
Section 11.2.B.
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B. Merger or Other Combination. The General Partner shall not engage in
any merger (including a triangular merger), consolidation or other combination
with or into another person, sale of all or substantially all of its assets or
any reclassification, recapitalization or change of outstanding Shares (other
than a change in par value, or from par value to no par value, or as a result of
a subdivision or combination as described in the definition of "Conversion
Factor") ("Termination Transaction"), unless the Termination Transaction has
been approved by the Consent of the Partners holding at least a majority of the
then outstanding Partnership Units (including any Partnership Units held by the
General Partner) and in connection with which all Limited Partners either will
receive, or will have the right to elect to receive, for each Partnership Unit
an amount of cash, securities, or other property equal to the product of the
Conversion Factor multiplied by the greatest amount of cash, securities or other
property paid to a holder of Shares corresponding to such Partnership Unit in
consideration of one such Share at any time during the period from and after the
date on which the Termination Transaction is consummated; provided that, if, in
connection with the Termination Transaction, a purchase, tender or exchange
offer shall have been made to and accepted by the holders of more than fifty
percent (50%) of the outstanding Shares, each holder of Partnership Units shall
receive, or shall have the right to elect to receive without any right of
Consent set forth above in this subsection B, the greatest amount of cash,
securities, or other property which such holder would have received had it
exercised the Redemption Right and received Shares in exchange for its
Partnership Units immediately prior to the expiration of such purchase, tender
or exchange offer and had thereupon accepted such purchase, tender or exchange
offer.
11.3 LIMITED PARTNERS' RIGHTS TO TRANSFER.
A. General. Subject to the provisions of Sections 11.3.C, 11.3.D,
11.3.E, 11.4 and 11.6, a Limited Partner (other than a General Partner) may
transfer with or without the consent of the General Partner, all or any portion
of its Partnership Interest, or any of such Limited Partner's rights as a
Limited Partner, provided that prior written notice of such proposed transfer is
delivered to the General Partner. Notwithstanding the foregoing, any Limited
Partner may, at any time, without the consent of the General Partner, (i)
transfer all or any portion of its Partnership Interest to the General Partner,
(ii) transfer all or any portion of its Partnership Interest to an Affiliate,
another original Limited Partner or to an Immediate Family member, subject to
the provisions of Section 11.6, (iii) transfer all or any portion of its
Partnership Interest to a trust for the benefit of a charitable beneficiary or
to a charitable foundation, subject to the provisions of Section 11.6, and (iv)
subject to the provisions of Section 11.6, pledge (a "Pledge") all or any
portion of its Partnership Interest to a lending institution, which is not an
Affiliate of such Limited Partner, as collateral or security for a bona fide
loan or other extension of credit, and transfer such pledged Partnership
Interest to such lending institution in connection with the exercise of remedies
under such loan or extension or credit. Each Limited Partner or Assignee
(resulting from a transfer made pursuant to clauses (i) - (iv) of the proviso of
the preceding sentence) shall have the right to transfer all or any portion of
its Partnership Interest, subject to the provisions of Section 11.6 and the
satisfaction of each of the following conditions (in addition to the right of
each such Limited Partner or Assignee to continue to make any such transfer
permitted by clauses (i) - (iv) of such proviso without satisfying either of the
following conditions):
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(i) The transferring Partner shall give written notice of
the proposed transfer to the General Partner, which
notice shall state (i) the identity of the proposed
transferee, and (ii) the amount and type of
consideration proposed to be received for the
transferred Partnership Units. The General Partner
shall have ten (10) days upon which to give the
transferring Partner notice of its election to
acquire the Partnership Units on the proposed terms.
If it so elects, it shall purchase the Partnership
Units on such terms within ten (10) days after giving
notice of such election. If it does not so elect, the
transferring Partner may transfer such Partnership
Units to a third party, on economic terms no more
favorable to the transferee than the proposed terms,
subject to the other condition of this Section 11.3.
(ii) Any transfer of a Partnership Interest shall be made
only to Qualified Transferees.
It is a condition to any transfer otherwise permitted
hereunder (excluding Pledges of a Partnership Interest, but including any
transfer of the pledged Partnership Interest, whether to the secured party or
otherwise, pursuant to the secured party's exercise of its remedies under such
Pledge or the related loan or extension of credit) that the transferee assumes
by operation of law or express agreement all of the obligations of the
transferor Limited Partner under this Agreement with respect to such transferred
Partnership Interest and no such transfer (other than pursuant to a statutory
merger or consolidation wherein all obligations and liabilities of the
transferor Partner are assumed by a successor corporation by operation of law)
shall relieve the transferor Partner of its obligations under this Agreement
without the approval of the General Partner, in its reasonable discretion.
Notwithstanding the foregoing, any transferee of any transferred Partnership
Interest shall be subject to any and all ownership limitations contained in the
Declaration of Trust. Any transferee, whether or not admitted as a Substituted
Limited Partner, shall take subject to the obligations of the transferor
hereunder. Unless admitted as a Substitute Limited Partner, no transferee,
whether by a voluntary transfer, by operation of law or otherwise, shall have
rights hereunder, other than the rights of an Assignee as provided in Section
11.5.
B. Incapacitated Limited Partners. If a Limited Partner is subject to
Incapacity, the executor, administrator, trustee, committee, guardian,
conservator or receiver of such Limited Partner's estate shall have all the
rights of a Limited Partner, but not more rights than those enjoyed by other
Limited Partners for the purpose of settling or managing the estate and such
power as the Incapacitated Limited Partner possessed to transfer all or any part
of its interest in the Partnership. The Incapacity of a Limited Partner, in and
of itself, shall not dissolve or terminate the Partnership.
C. No Transfers Violating Securities Laws. The General Partner may
prohibit any transfer of Partnership Units by a Limited Partner unless it
receives a written opinion of legal counsel (which opinion and counsel shall be
reasonably satisfactory to the Partnership) to such Limited Partner that such
transfer would not require filing of a registration statement under the
Securities Act or would not otherwise violate or cause the Partnership to
violate any federal, or
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state securities laws or regulations applicable to the Partnership or the
Partnership Unit or, at the option of the Partnership, an opinion of legal
counsel to the Partnership to the same effect.
D. No Transfers Affecting Tax Status of Partnership. No transfer of
Partnership Units by a Limited Partner (including a redemption or exchange
pursuant to Section 8.5) may be made to any Person if (i) in the opinion of
legal counsel for the Partnership, it would result in the Partnership being
treated as an association taxable as a corporation for federal income tax
purposes or would result in a termination of the Partnership for federal income
tax purposes (except as a result of the redemption or exchange for Shares of all
Partnership Units held by all Limited Partners other than the General Partner or
the General Partner Entity or any Subsidiary of either the General Partner or
the General Partner Entity or pursuant to a transaction expressly permitted
under Section 7.11.B or Section 11.2), (ii) in the opinion of legal counsel for
the Partnership, it would adversely affect the ability of the General Partner
Entity to continue to qualify as a REIT or would subject the General Partner
Entity to any additional taxes under Section 857 or Section 4981 of the Code or
(iii) such transfer is effectuated through an "established securities market" or
a "secondary market (or the substantial equivalent thereof)" within the meaning
of Section 7704 of the Code.
E. No Transfers to Holders of Nonrecourse Liabilities. No Pledge or
transfer of any Partnership Units may be made to a lender to the Partnership or
any Person who is related (within the meaning of Section 1.752-4(b) of the
Regulations) to any lender to the Partnership whose loan constitutes a
Nonrecourse Liability unless (i) the General Partner is provided notice thereof
and (ii) the lender enters into an arrangement with the Partnership and the
General Partner to exchange or redeem for the Redemption Amount any Partnership
Units in which a security interest is held simultaneously with the time at which
such lender would be deemed to be a partner in the Partnership for purposes of
allocating liabilities to such lender under Section 752 of the Code.
11.4 SUBSTITUTED LIMITED PARTNERS.
A. Consent of General Partner. No Limited Partner shall have the right
to substitute a transferee as a Limited Partner in its place. The General
Partner shall, however, have the right to consent to the admission of a
transferee of the interest of a Limited Partner pursuant to this Section 11.4 as
a Substituted Limited Partner, which consent may be, given or withheld by the
General Partner in its sole and absolute discretion. The General Partner's
failure or refusal to permit a transferee of any such interests to become a
Substituted Limited Partner shall not give rise to any cause of action against
the Partnership or any Partner. The General Partner hereby grants its consent to
the admission as a Substituted Limited Partner to any bona fide financial
institution that loans money or otherwise extends credit to a holder of Units
and thereafter becomes the owner of such Units pursuant to the exercise by such
financial institution of its rights under a Pledge of such Units granted in
connection with such loan or extension of credit.
B. Rights of Substituted Limited Partner. A transferee who has been
admitted as a Substituted Limited Partner in accordance with this Article XI
shall have all the rights and powers and be subject to all the restrictions and
liabilities of a Limited Partner under this Agreement. The admission of any
transferee as a Substituted Limited Partner shall be conditioned upon the
transferee executing and delivering to the Partnership an acceptance of all the
terms and conditions
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of this Agreement (including, without limitation, the provisions of Section
15.11) and such other documents or instruments as may be required to effect the
admission.
C. Amendment of Exhibit A. Upon the admission of a Substituted Limited
Partner, the General Partner shall amend Exhibit A to reflect the name, address,
Capital Account, and number of Partnership Units of such Substituted Limited
Partner and to eliminate or adjust, if necessary, the name, address, Capital
Account and Partnership Units of the predecessor of such Substituted Limited
Partner.
11.5 ASSIGNEES.
If the General Partner, in its sole and absolute discretion, does not
consent to the admission of any permitted transferee under Section 11.3 as a
Substituted Limited Partner, as described in Section 11.4, such transferee shall
be considered an Assignee for purposes of this Agreement. An Assignee shall be
entitled to all the rights of an assignee of a limited partnership interest
under the Act, including the right to receive distributions from the Partnership
and the share of Net Income, Net Losses, gain, loss and Recapture Income
attributable to the Partnership Units assigned to such transferee, and shall
have the rights granted to the Limited Partners under Section 8.5, but shall not
be deemed to be a holder of Partnership Units for any other purpose under this
Agreement, and shall not be entitled to vote such Partnership Units in any
matter presented to the Limited Partners for a vote (such Partnership Units
being deemed to have been voted on such matter in the same proportion as all
other Partnership Units held by Limited Partners are voted). If any such
transferee desires to make a further assignment of any such Partnership Units,
such transferee shall be subject to all the provisions of this Article XI to the
same extent and in the same manner as any Limited Partner desiring to make an
assignment of Partnership Units.
11.6 GENERAL PROVISIONS.
A. Withdrawal of Limited Partner. No Limited Partner may withdraw from
the Partnership other than as a result of a permitted transfer of all of such
Limited Partner's Partnership Units in accordance with this Article XI or
pursuant to redemption of all of its Partnership Units under Section 8.5.
B. Termination of Status as Limited Partner. Any Limited Partner who
shall transfer all of its Partnership Units in a transfer permitted pursuant to
this Article XI or pursuant to redemption of all of its Partnership Units under
Section 8.5 shall cease to be a Limited Partner.
C. Timing of Transfers. Transfers pursuant to this Article XI may only
be made upon three business days prior notice, unless the General Partner
otherwise agrees.
D. Allocations. If any Partnership Interest is transferred during any
quarterly segment of the Partnership's fiscal year in compliance with the
provisions of this Article XI or redeemed or transferred pursuant to Section
8.5, Net Income, Net Losses, each item thereof and all other items attributable
to such interest for such fiscal year shall be divided and allocated between the
transferor Partner and the transferee Partner by taking into account their
varying interests during the fiscal year in accordance with Section 706(d) of
the Code, using the interim closing of the
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books method (unless the General Partner, in its sole and absolute discretion,
elects to adopt a daily, weekly, or a monthly proration period, in which event
Net Income, Net Losses, each item thereof and all other items attributable to
such interest for such fiscal year shall be prorated based upon the applicable
method selected by the General Partner). Solely for purposes of making such
allocations, each of such items for the calendar month in which the transfer or
redemption occurs shall be allocated to the Person who is a Partner as of
midnight on the last day of said month. All distributions of Available Cash
attributable to any Partnership Unit with respect to which the Partnership
Record Date is before the date of such transfer, assignment or redemption shall
be made to the transferor Partner or the Redeeming Partner, as the case may be,
and, in the case of a transfer or assignment other than a redemption, all
distributions of Available Cash thereafter attributable to such Partnership Unit
shall be made to the transferee Partner.
E. Additional Restrictions. In addition to any other restrictions on
transfer herein contained, including without limitation the provisions of this
Article XI, in no event may any transfer or assignment of a Partnership Interest
by any Partner (including pursuant to Section 8.5) be made without the express
consent of the General Partner, in its sole and absolute discretion, (i) to any
person or entity who lacks the legal right, power or capacity to own a
Partnership Interest; (ii) in violation of applicable law; (iii) of any
component portion of a Partnership Interest, such as the Capital Account, or
rights to distributions, separate and apart from all other components of a
Partnership Interest; (iv) if in the opinion of legal counsel to the Partnership
such transfer would cause a termination of the Partnership for federal or state
income tax purposes (except as a result of the redemption or exchange for Shares
of all Partnership Units held by all Limited Partners or pursuant to a
transaction expressly permitted under Section 7.11.B or Section 11.2); (v) if in
the opinion of counsel to the Partnership, such transfer would cause the
Partnership to cease to be classified as a partnership for federal income tax
purposes (except as a result of the redemption or exchange for Shares of all
Partnership Units held by all Limited Partners or pursuant to a transaction
expressly permitted under Section 7.11.B or Section 11.2); (vi) if such transfer
would cause the Partnership Interests of "benefit plan investors" to become
"significant," as those terms are used in Section 7.9.E., or would cause the
Partnership to become, with respect to any employee benefit plan subject to
Title I of ERISA, a "party-in-interest" (as defined in Section 3(14) of ERISA)
or a "disqualified person" (as defined in Section 4975(c) of the Code); (vii) if
such transfer would, in the opinion of counsel to the Partnership, cause any
portion of the assets of the Partnership to constitute assets of any employee
benefit plan pursuant to Department of Labor Regulations Section 2510.1-101;
(viii) if such transfer requires the registration of such Partnership Interest
pursuant to any applicable federal or state securities laws; (ix) if such
transfer is effectuated through an "established securities market" or a
"secondary market" (or the substantial equivalent thereof) within the meaning of
Section 7704 of the Code or such transfer causes the Partnership to become a
"publicly traded partnership," as such term is defined in Section 469(k)(2) or
Section 7704(b) of the Code (provided that this clause (ix) shall not be the
basis for limiting or restricting in any manner the exercise of the Redemption
Right under Section 8.5 unless, and only to the extent that, outside tax counsel
provides to the General Partner an opinion to the effect that, in the absence of
such limitation or restriction, there is a significant risk that the Partnership
will be treated as a "publicly traded partnership" and, by reason thereof,
taxable as a corporation); (x) if such transfer subjects the Partnership to
regulation under the Investment Company Act of 1940, the Investment Advisors Act
of 1940 or ERISA, each as amended; (xi) such transfer could adversely affect the
ability of the General Partner Entity to
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remain qualified as a REIT; or (xii) if in the opinion of legal counsel for the
transferring Partner (which opinion and counsel shall be reasonably satisfactory
to the Partnership) or legal counsel for the Partnership, such transfer would
adversely affect the ability of the General Partner Entity to continue to
qualify as a REIT or subject the General Partner Entity to any additional taxes
under Section 857 or Section 4981 of the Code.
F. Avoidance of "Publicly Traded Partnership" Status. The General
Partner shall monitor the transfers of interests in the Partnership to determine
(i) if such interests are being traded on an "established securities market" or
a "secondary market (or the substantial equivalent thereof)" within the meaning
of Section 7704 of the Code and (ii) whether additional transfers of interests
would result in the Partnership being unable to qualify for at least one of the
"safe harbors" set forth in Regulations Section 1.7704-1 (or such other guidance
subsequently published by the IRS setting forth safe harbors under which
interests will not be treated as "readily tradable on a secondary market (or the
substantial equivalent thereof)" within the meaning of Section 7704 of the Code)
(the "Safe Harbors"). The General Partner shall take all steps reasonably
necessary or appropriate to prevent any trading of interests or any recognition
by the Partnership of transfers made on such markets and, except as otherwise
provided herein, to insure that at least one of the Safe Harbors is met;
provided, however, that the foregoing shall not authorize the General Partner to
limit or restrict in any manner the right of any holder of a Partnership Unit to
exercise the Redemption Right in accordance with the terms of Section 8.5
unless, and only to the extent that, outside tax counsel provides to the General
Partner an opinion to the effect that, in the absence of such limitation or
restriction, there is a significant risk that the Partnership will be treated as
a "publicly traded partnership" and, by reason thereof, taxable as a
corporation.
ARTICLE XII
ADMISSION OF PARTNERS
12.1 ADMISSION OF A SUCCESSOR GENERAL PARTNER.
A successor to all of the General Partner's General Partnership
Interest pursuant to Section 11.2 who is proposed to be admitted as a successor
General Partner shall be admitted to the Partnership as a General Partner,
effective upon such transfer. Any such transferee shall carry on the business of
the Partnership without dissolution. In each case, the admission shall be
subject to such successor General Partner executing and delivering to the
Partnership an acceptance of all of the terms and conditions of this Agreement
and such other documents or instruments as may be required to effect the
admission.
12.2 ADMISSION OF ADDITIONAL LIMITED PARTNERS.
A. General. No Person shall be admitted as an Additional Limited
Partner without the consent of the General Partner, which consent shall be given
or withheld in the General Partner's sole and absolute discretion. A Person who
makes a Capital Contribution to the Partnership in accordance with this
Agreement, including without limitation, under Section 4.1.C, or who exercises
an option to receive Partnership Units shall be admitted to the Partnership as
an Additional Limited Partner only with the consent of the General Partner and
only upon furnishing
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to the General Partner (i) evidence of acceptance in form satisfactory to the
General Partner of all of the terms and conditions of this Agreement, including,
without limitation, the power of attorney granted in Section 15.11 and (ii) such
other documents or instruments as may be required in the discretion of the
General Partner to effect such Person's admission as an Additional Limited
Partner. The admission of any Person as an Additional Limited Partner shall
become effective on the date upon which the name of such Person is recorded on
the books and records of the Partnership, following the consent of the General
Partner to such admission.
B. Allocations to Additional Limited Partners. If any Additional
Limited Partner is admitted to the Partnership on any day other than the first
day of a Partnership Year, then Net Income, Net Losses, each item thereof and
all other items allocable among Partners and Assignees for such Partnership Year
shall be allocated among such Additional Limited Partner and all other Partners
and Assignees by taking into account their varying interests during the
Partnership Year in accordance with Section 706(d) of the Code, using the
interim closing of the books method (unless the General Partner, in its sole and
absolute discretion, elects to adopt a daily, weekly or monthly proration
method, in which event Net Income, Net Losses, and each item thereof would be
prorated based upon the applicable period selected by the General Partner).
Solely for purposes of making such allocations, each of such items for the
calendar month in which an admission of any Additional Limited Partner occurs
shall be allocated among all the Partners and Assignees including such
Additional Limited Partner. All distributions of Available Cash with respect to
which the Partnership Record Date is before the date of such admission shall be
made solely to Partners and Assignees other than the Additional Limited Partner,
and all distributions of Available Cash thereafter shall be made to all the
Partners and Assignees including such Additional Limited Partner.
12.3 AMENDMENT OF AGREEMENT AND CERTIFICATE OF LIMITED PARTNERSHIP.
For the admission to the Partnership of any Partner, the General
Partner shall take all steps necessary and appropriate under the Act to amend
the records of the Partnership and, if necessary, to prepare as soon as
practical an amendment of this Agreement (including an amendment of Exhibit A)
and, if required by law, shall prepare and file an amendment to the Certificate
and may for this purpose exercise the power of attorney granted pursuant to
Section 15.11 hereof.
ARTICLE XIII
DISSOLUTION AND LIQUIDATION
13.1 DISSOLUTION.
The Partnership shall not be dissolved by the admission of Substituted
Limited Partners or Additional Limited Partners or by the admission of a
successor General Partner in accordance with the terms of this Agreement. Upon
the withdrawal of a General Partner, the remaining General Partners and any
successor General Partner shall continue the business of the Partnership. The
Partnership shall dissolve, and its affairs shall be wound up, upon the first to
occur of any of the following ("Liquidating Events"):
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(i) the expiration of its term as provided in Section 2.4
hereof;
(ii) an event of withdrawal of a General Partner, as defined
in the Act (other than an event of bankruptcy), unless (1) there is at least one
other General Partner, in which case the remaining General Partners shall
continue the business of the Partnership, or (2) within ninety (90) days after
the withdrawal a "majority in interest" (as defined below) of the remaining
Partners Consent in writing to continue the business of the Partnership and to
the appointment, effective as of the date of withdrawal, of a substitute General
Partner;
(iii) an election to dissolve the Partnership made by the
General Partner, in its sole and absolute discretion;
(iv) entry of a decree of judicial dissolution of the
Partnership pursuant to the provisions of the Act;
(v) the sale of all or substantially all of the assets and
properties of the Partnership for cash or for marketable securities; or
(vi) a final and non-appealable judgment is entered by a court
of competent jurisdiction ruling that the remaining General Partner(s) is
bankrupt or insolvent, or a final and non-appealable order for relief is entered
by a court with appropriate jurisdiction against the remaining General
Partner(s), in each case under any federal or state bankruptcy or insolvency
laws as now or hereafter in effect, unless prior to or at the time of the entry
of such order or judgment a "majority in interest" (as defined below) of the
remaining Partners Consent in writing to continue the business of the
Partnership and to the appointment, effective as of a date prior to the date of
such order or judgment, of a substitute General Partner.
As used herein, a "majority in interest" shall refer to Partners
(excluding the General Partners) who hold more than fifty percent (50%) of the
outstanding Percentage Interests not held by the General Partners.
13.2 WINDING UP.
A. General. Upon the occurrence of a Liquidating Event, the Partnership
shall continue solely for the purposes of winding up its affairs in an orderly
manner, liquidating its assets, and satisfying the claims of its creditors and
Partners. No Partner shall take any action that is inconsistent with, or not
necessary to or appropriate for, the winding up of the Partnership's business
and affairs. The General Partner (or, if there is no remaining General Partner,
any Person elected by a majority in interest of the Limited Partners (the
"Liquidator")) shall be responsible for overseeing the winding up and
dissolution of the Partnership and shall take full account of the Partnership's
liabilities and property and the Partnership property shall be liquidated as
promptly as is consistent with obtaining the fair value thereof, and the
proceeds therefrom (which may, to the extent determined by the General Partner,
include equity or other securities of the General Partner or any other entity)
shall be applied and distributed in the following order:
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(1) First, to the payment and discharge of all
of the Partnership's debts and liabilities
to creditors other than the Partners;
(2) Second, to the payment and discharge of all
of the Partnership's debts and liabilities
to the General Partner;
(3) Third, to the payment and discharge of all
of the Partnership's debts and liabilities
to the Limited Partners; and
(4) The balance, if any, to the Partners in
accordance with their Capital Accounts,
after giving effect to all contributions,
distributions, and allocations for all
periods. In connection therewith, income,
gain and loss of the Partnership (and to the
extent necessary to achieve the purposes
hereof, items of gross income and deduction)
with respect to the sale or other
disposition of all or substantially all of
the Partnership's assets and/or the
Partnership's operations in connection
therewith (whether or not attributable to
the taxable year in which the distribution
pursuant to this Section 13.2.A(4) is to be
made or a preceding taxable year) shall be
allocated among the Partners so that each
Partner's Capital Account shall equal, after
taking into account the prior balance
(positive or negative) in such Partner's
Capital Account and the effect of such
allocation, the amount that such Partner
would be entitled to receive if the
Partnership were to make a distribution to
the Partners pursuant to the provisions of
Section 5.1 hereof in an amount equal to the
remaining liquidation proceeds to be
distributed under this Section 13.2.A(4).
The General Partner shall not receive any additional compensation for
any services performed pursuant to this Article XIII.
B. Deferred Liquidation. Notwithstanding the provisions of Section
13.2.A which require liquidation of the assets of the Partnership, but subject
to the order of priorities set forth therein, if prior to or upon dissolution of
the Partnership the Liquidator determines that an immediate sale of part or all
of the Partnership's assets would be impractical or would cause undue loss to
the Partners, the Liquidator may, in its sole and absolute discretion, defer for
a reasonable time the liquidation of any assets except those necessary to
satisfy liabilities of the Partnership (including to those Partners as
creditors) or distribute to the Partners, in lieu of cash, as tenants in common
and in accordance with the provisions of Section 13.2.A, undivided interests in
such Partnership assets as the Liquidator deems not suitable for liquidation.
Any such distributions in kind shall be made only if, in the good faith judgment
of the Liquidator, such distributions in kind are in the best interest of the
Partners, and shall be subject to such conditions relating to the disposition
and management of such properties as the Liquidator deems reasonable and
equitable and to any agreements governing the operation of such properties at
such time. The Liquidator shall determine the fair market value of any property
distributed in kind using such reasonable method of valuation as it may adopt.
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13.3 COMPLIANCE WITH TIMING REQUIREMENTS OF REGULATIONS.
Subject to Section 13.4, if the Partnership is "liquidated" within the
meaning of Regulations Section 1.704-1(b)(2)(ii)(g), distributions shall be made
under this Article XIII to the General Partner and Limited Partners who have
positive Capital Accounts in compliance with Regulations Section
1.704-1(b)(2)(ii)(b)(2). If any Partner has a deficit balance in its Capital
Account (after giving effect to all contributions, distributions and allocations
for all taxable years, including the year during which such liquidation occurs),
such Partner shall have no obligation to make any contribution to the capital of
the Partnership with respect to such deficit, and such deficit shall not be
considered a debt owed to the Partnership or to any other Person for any purpose
whatsoever. In the discretion of the General Partner, a pro rata portion of the
distributions that would otherwise be made to the General Partner and Limited
Partners pursuant to this Article XIII may be: (A) distributed to a trust
established for the benefit of the General Partner and Limited Partners for the
purposes of liquidating Partnership assets, collecting amounts owed to the
Partnership and paying any contingent or unforeseen liabilities or obligations
of the Partnership or of the General Partner arising out of or in connection
with the Partnership (in which case the assets of any such trust shall be
distributed to the General Partner and Limited Partners from time to time, in
the reasonable discretion of the General Partner, in the same proportions as the
amount distributed to such trust by the Partnership would otherwise have been
distributed to the General Partner and Limited Partners pursuant to this
Agreement); or (B) withheld to provide a reasonable reserve for Partnership
liabilities (contingent or otherwise) and to reflect the unrealized portion of
any installment obligations owed to the Partnership, provided that such withheld
amounts shall be distributed to the General Partner and Limited Partners as soon
as practicable.
13.4 DEEMED DISTRIBUTION AND RECONTRIBUTION.
Notwithstanding any other provision of this Article XIII, if the
Partnership is deemed liquidated within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g) but no Liquidating Event has occurred, the Partnership's
property shall not be liquidated, the Partnership's liabilities shall not be
paid or discharged and the Partnership's affairs shall not be wound up. Instead,
for federal income tax purposes and for purposes of maintaining Capital Accounts
pursuant to Exhibit B, the Partnership shall be deemed to have distributed its
assets in kind to the General Partner and Limited Partners, who shall be deemed
to have assumed and taken such assets subject to all Partnership liabilities,
all in accordance with their respective Capital Accounts. Immediately
thereafter, the General Partner and Limited Partners shall be deemed to have
recontributed the Partnership assets in kind to the Partnership, which shall be
deemed to have assumed and taken such assets subject to all such liabilities.
13.5 RIGHTS OF LIMITED PARTNERS.
Except as otherwise provided in this Agreement, each Limited Partner
shall look solely to the assets of the Partnership for the return of its Capital
Contributions and shall have no right or power to demand or receive property
other than cash from the Partnership. Except as otherwise expressly provided in
this Agreement, no Limited Partner shall have priority over any other Limited
Partner as to the return of its Capital Contributions, distributions, or
allocations.
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13.6 NOTICE OF DISSOLUTION.
If a Liquidating Event occurs or an event occurs that would, but for
provisions of an election or objection by one or more Partners pursuant to
Section 13.1, result in a dissolution of the Partnership, the General Partner
shall, within thirty (30) days thereafter, provide written notice thereof to
each of the Partners and to all other parties with whom the Partnership
regularly conducts business (as determined in the discretion of the General
Partner).
13.7 CANCELLATION OF CERTIFICATE OF LIMITED PARTNERSHIP.
Upon the completion of the liquidation of the Partnership cash and
property as provided in Section 13.2, the Partnership shall be terminated and
the Certificate and all qualifications of the Partnership as a foreign limited
partnership in jurisdictions other than the State of Delaware shall be canceled
and such other actions as may be necessary to terminate the Partnership shall be
taken.
13.8 REASONABLE TIME FOR WINDING UP.
A reasonable time shall be allowed for the orderly winding up of the
business and affairs of the Partnership and the liquidation of its assets
pursuant to Section 13.2, to minimize any losses otherwise attendant upon such
winding-up, and the provisions of this Agreement shall remain in effect among
the Partners during the period of liquidation.
13.9 WAIVER OF PARTITION.
Each Partner hereby waives any right to partition of the Partnership
property.
13.10 LIABILITY OF LIQUIDATOR.
The Liquidator shall be indemnified and held harmless by the
Partnership in the same manner and to the same degree as an Indemnitee may be
indemnified pursuant to Section 7.7.
ARTICLE XIV
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS
14.1 AMENDMENTS.
A. General. Amendments to this Agreement may be proposed by the General
Partner or by any Limited Partners holding twenty-five percent (25%) or more of
the Partnership Interests. Following such proposal (except an amendment pursuant
to Section 14.1.B), the General Partner shall submit any proposed amendment to
the Limited Partners. The General Partner shall seek the written vote of the
Partners on the proposed amendment or shall call a meeting to vote thereon and
to transact any other business that the General Partner may deem appropriate.
For purposes of obtaining a written vote, the General Partner may require a
response within a reasonable specified time, but not less than fifteen (15) days
after notice is given, and failure to respond in such time period shall
constitute a vote which is consistent with the General Partner's recommendation
with
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respect to the proposal. Except as provided in Section 14.1.B, 14.1.C or 14.1.D,
a proposed amendment shall be adopted and be effective as an amendment hereto if
(i) it is approved by the General Partner and (ii) it receives the Consent of
Partners holding a majority of the Percentage Interests of the Limited Partners
(including Limited Partnership Interests held by the General Partner).
B. Amendments Not Requiring Limited Partner Approval. Notwithstanding
Section 14.1.A or 14.1.C, the General Partner shall have the power, without the
consent of the Limited Partners, to amend this Agreement as may be required to
facilitate or implement any of the following purposes:
(1) to add to the obligations of the General
Partner or surrender any right or power
granted to the General Partner or any
Affiliate of the General Partner for the
benefit of the Limited Partners;
(2) to reflect the admission, substitution,
termination, or withdrawal of Partners in
accordance with this Agreement (which may be
effected through the replacement of Exhibit
A with an amended Exhibit A);
(3) to set forth the designations, rights,
powers, duties, and preferences of the
holders of any additional Partnership
Interests issued pursuant to Article IV;
(4) to reflect a change that does not adversely
affect the Limited Partners in any material
respect, or to cure any ambiguity, correct
or supplement any provision in this
Agreement not inconsistent with law or with
other provisions of this Agreement, or make
other changes with respect to matters
arising under this Agreement that will not
be inconsistent with law or with the
provisions of this Agreement; and
(5) to satisfy any requirements, conditions, or
guidelines contained in any order,
directive, opinion, ruling or regulation of
a federal, state or local agency or
contained in federal, state or local law.
The General Partner shall notify the Limited Partners when any action
under this Section 14.1.B is taken in the next regular communication to the
Limited Partners.
C. Amendments Requiring Limited Partner Approval (Excluding General
Partner). Notwithstanding Section 14.1.A, without the Consent of the Outside
Limited Partners, the General Partner shall not amend Section 4.2.A, Section
7.1.A (second sentence only), Section 7.6, Section 7.8, Section 7.11.B, Section
11.2, Section 13.1, the last sentence of Section 11.4.A (provided that no such
amendment shall in any event adversely affect the rights of any lender who made
a loan or who extended credit and received in connection therewith a Pledge of
Partnership Units prior to the date such amendment is adopted unless, and only
to the extent such lender consents thereto), this Section 14.1.C or Section
14.2.
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D. Other Amendments Requiring Certain Limited Partner Approval.
Notwithstanding anything in this Section 14.1 to the contrary, this Agreement
shall not be amended with respect to any Partner adversely affected without the
Consent of such Partner adversely affected if such amendment would (i) convert a
Limited Partner's interest in the Partnership into a general partner's interest,
(ii) modify the limited liability of a Limited Partner, (iii) amend Section
7.11.A, (iv) amend Article V or Article VI (except as permitted pursuant to
Sections 4.2, 5.1.E, 5.4, 6.2 and 14.1(B)(3)), (v) amend Section 8.5 or any
defined terms set forth in Article I that relate to the Redemption Right (except
as permitted in Section 8.5.E), or (vi) amend this Section 14.1.D. This Section
14.1.D does not require unanimous consent of all Partners adversely affected
unless the amendment is to be effective against all Partners adversely affected.
14.2 MEETINGS OF THE PARTNERS.
A. General. Meetings of the Partners may be called by the General
Partner and shall be called upon the receipt by the General Partner of a written
request by Limited Partners holding twenty-five percent (25%) or more of the
Partnership Interests. The call shall state the nature of the business to be
transacted. Notice of any such meeting shall be given to all Partners not less
than seven (7) days nor more than thirty (30) days prior to the date of such
meeting. Partners may vote in person or by proxy at such meeting. Whenever the
vote or Consent of Partners is permitted or required under this Agreement, such
vote or Consent may be given at a meeting of Partners or may be given in
accordance with the procedure prescribed in Section 14.1.A. Except as otherwise
expressly provided in this Agreement, the Consent of holders of a majority of
the Percentage Interests held by Limited Partners (including Limited Partnership
Interests held by the General Partner) shall control.
B. Actions Without a Meeting. Any action required or permitted to be
taken at a meeting of the Partners may be taken without a meeting if a written
consent setting forth the action so taken is signed by a majority of the
Percentage Interests of the Partners (or such other percentage as is expressly
required by this Agreement). Such consent may be in one instrument or in several
instruments, and shall have the same force and effect as a vote of a majority of
the Percentage Interests of the Partners (or such other percentage as is
expressly required by this Agreement). Such consent shall be filed with the
General Partner. An action so taken shall be deemed to have been taken at a
meeting held on the effective date so certified.
C. Proxy. Each Limited Partner may authorize any Person or Persons to
act for him by proxy on all matters in which a Limited Partner is entitled to
participate, including waiving notice of any meeting, or voting or participating
at a meeting. Every proxy must be signed by the Limited Partner or its
attorney-in-fact. No proxy shall be valid after the expiration of eleven (11)
months from the date thereof unless otherwise provided in the proxy. Every proxy
shall be revocable at the pleasure of the Limited Partner executing it, such
revocation to be effective upon the Partnership's receipt of written notice
thereof.
D. Conduct of Meeting. Each meeting of Partners shall be conducted by
the General Partner or such other Person as the General Partner may appoint
pursuant to such rules for the conduct of the meeting as the General Partner or
such other Person deem appropriate.
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ARTICLE XV
GENERAL PROVISIONS
15.1 ADDRESSES AND NOTICE.
Any notice, demand, request or report required or permitted to be given
or made to a Partner or Assignee under this Agreement shall be in writing and
shall be deemed given or made on the date delivered in person or on the date
sent by first class United States mail or by other means of written
communication to the Partner or Assignee at the address set forth in Exhibit A
or such other address as the Partners shall notify the General Partner in
writing. Any notice is received only when actually received.
15.2 TITLES AND CAPTIONS.
All article or section titles or captions in this Agreement are for
convenience only. They shall not be deemed part of this Agreement and in no way
define, limit, extend or describe the scope or intent of any provisions hereof.
Except as specifically provided otherwise, references to "Articles" "Sections"
and "Exhibits" are to Articles, Sections and Exhibits of this Agreement.
15.3 PRONOUNS AND PLURALS.
Whenever the context may require, any pronoun used in this Agreement
shall include the corresponding masculine, feminine or neuter forms, and the
singular form of nouns, pronouns and verbs shall include the plural and vice
versa.
15.4 FURTHER ACTION.
The parties shall execute and deliver all documents, provide all
information and take or refrain from taking action as may be necessary or
appropriate to achieve the purposes of this Agreement.
15.5 BINDING EFFECT.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their heirs, executors, administrators, successors, legal
representatives and permitted assigns.
15.6 CREDITORS.
Other than as expressly set forth herein with regard to any Indemnitee,
none of the provisions of this Agreement shall be for the benefit of, or shall
be enforceable by, any creditor of the Partnership.
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<PAGE> 63
15.7 WAIVER.
No failure by any party to insist upon the strict performance of any
covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof shall constitute waiver of any
such breach or any other covenant, duty, agreement or condition.
15.8 COUNTERPARTS.
This Agreement may be executed in counterparts, all of which together
shall constitute one agreement binding on all the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart. Each party shall become bound by this Agreement immediately
upon affixing its signature hereto.
15.9 APPLICABLE LAW.
This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Delaware, without regard to the principles
of conflicts of law.
15.10 INVALIDITY OF PROVISIONS.
If any provision of this Agreement is or becomes invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not be affected thereby.
15.11 POWER OF ATTORNEY.
A. General. Each Limited Partner and each Assignee who accepts
Partnership Units (or any rights, benefits or privileges associated therewith)
is deemed to irrevocably constitute and appoint the General Partner, any
Liquidator and authorized officers and attorneys-in-fact of each, and each of
those acting singly, in each case with full power of substitution, as its true
and lawful agent and attorney-in-fact, with full power and authority in its
name, place and stead to:
(1) execute, swear to, acknowledge, deliver,
file and record in the appropriate public
offices (a) all certificates, documents and
other instruments (including, without
limitation, this Agreement and the
Certificate and all amendments or
restatements thereof) that the General
Partner or any Liquidator deems appropriate
or necessary to form, qualify or continue
the existence or qualification of the
Partnership as a limited partnership (or a
partnership in which the limited partners
have limited liability) in the State of
Delaware and in all other jurisdictions in
which the Partnership may conduct business
or own property, (b) all instruments that
the General Partner or any Liquidator deem
appropriate or necessary to reflect any
amendment, change, modification or
restatement of this Agreement in accordance
with its terms, (c) all conveyances and
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other instruments or documents that the
General Partner or any Liquidator deems
appropriate or necessary to reflect the
dissolution and liquidation of the
Partnership pursuant to the terms of this
Agreement, including, without limitation, a
certificate of cancellation, (d) all
instruments relating to the admission,
withdrawal, removal or substitution of any
Partner pursuant to, or other events
described in, Article XI, XII or XIII hereof
or the Capital Contribution of any Partner
and (e) all certificates, documents and
other instruments relating to the
determination of the rights, preferences and
privileges of Partnership Interests; and
(2) execute, swear to, acknowledge and file all
ballots, consents, approvals, waivers,
certificates and other instruments
appropriate or necessary, in the sole and
absolute discretion of the General Partner
or any Liquidator, to make, evidence, give,
confirm or ratify any vote, consent,
approval, agreement or other action which is
made or given by the Partners hereunder or
is consistent with the terms of this
Agreement or appropriate or necessary, in
the sole discretion of the General Partner
or any Liquidator, to effectuate the terms
or intent of this Agreement.
Nothing contained in this Section 15.11 shall be construed as
authorizing the General Partner or any Liquidator to amend this Agreement except
in accordance with Article XIV hereof or as may be otherwise expressly provided
for in this Agreement.
B. Irrevocable Nature. The foregoing power of attorney is hereby
declared to be irrevocable and a power coupled with an interest, in recognition
of the fact that each of the Partners will be relying upon the power of the
General Partner or any Liquidator to act as contemplated by this Agreement in
any filing or other action by it on behalf of the Partnership, and it shall
survive and not be affected by the subsequent Incapacity of any Limited Partner
or Assignee and the transfer of all or any portion of such Limited Partner's or
Assignee's Partnership Units and shall extend to such Limited Partner's or
Assignee's heirs, successors, assigns and personal representatives. Each such
Limited Partner or Assignee hereby agrees to be bound by any representation made
by the General Partner or any Liquidator, acting in good faith pursuant to such
power of attorney; and each such Limited Partner or Assignee hereby waives any
and all defenses which may be available to contest, negate or disaffirm the
action of the General Partner or any Liquidator, taken in good faith under such
power of attorney. Each Limited Partner or Assignee shall execute and deliver to
the General Partner or the Liquidator, within fifteen (15) days after receipt of
the General Partner's or Liquidator's request therefor, such further
designation, powers of attorney and other instruments as the General Partner or
the Liquidator, as the case may be, deems necessary to effectuate this Agreement
and the purposes of the Partnership.
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15.12 ENTIRE AGREEMENT.
This Agreement contains the entire understanding and agreement among
the Partners with respect to the subject matter hereof and supersedes any prior
written oral understandings or agreements among them with respect thereto.
15.13 NO RIGHTS AS SHAREHOLDERS.
Nothing contained in this Agreement shall be construed as conferring
upon the holders of the Partnership Units any rights whatsoever as partners or
shareholders of the General Partner, including, without limitation, any right to
receive dividends or other distributions made to shareholders of the General
Partner or to vote or to consent or receive notice as shareholders in respect to
any meeting of shareholders for the election of trustees of the General Partner
or any other matter.
15.14 OUTSIDE ACTIVITIES OF PARTNERS.
Subject to Section 7.5 hereof, and subject to any agreements entered
into pursuant to Section 7.6.B hereof and to any other agreements entered into
by a Partner or its Affiliates with the Partnership or a Subsidiary, any Partner
and any officer, director, employee, agent, trustee, Affiliate or shareholder of
any Partner shall be entitled to and may have business interests and engage in
business activities in addition to those relating to the Partnership, including
business interests and activities in direct or indirect competition with the
Partnership. Neither the Partnership nor any Partners shall have any rights by
virtue of this Agreement or the partnership relationship established hereby in
any such business activities, interests or ventures. Subject to any agreements
entered into by a Partner or its Affiliates with the Partnership or a
Subsidiary, neither the Partners nor any other Person shall have any rights, by
virtue of this Agreement or the partnership relationship established hereby, in
any business ventures of any other Person, and such Person shall have no
obligation pursuant to this Agreement to offer any interest in any such business
ventures to the Partnership, any Partner or any such other Person, even if such
opportunity is of a character which, if presented to the Partnership, any
Partner or such other Person, could be taken by such Person.
15.15 LIMITATION TO PRESERVE REIT STATUS.
To the extent that any amount paid or credited to the General Partner
or any of its officers, directors, trustees, employees or agents pursuant to
Section 7.4 or Section 7.7 would constitute gross income to the General Partner
for purposes of Section 856(c)(2) or 856(c)(3) of the Code (a "General Partner
Payment") then, notwithstanding any other provision of this Agreement, the
amount of such General Partner Payment for any fiscal year shall not exceed the
lesser of:
(i) an amount equal to the excess, if any, of (a) 4.20% of the
General Partner's total gross income (but not including the amount of any
General Partner Payments) for the fiscal year which is described in subsections
(A) though (H) of Section 856(c)(2) of the Code over (b) the amount of gross
income (within the meaning of Section 856(c)(2) of the Code) derived by the
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General Partner from sources other than those described in subsections (A)
through (H) of Section 856(c)(2) of the Code (but not including the amount of
any General Partner Payments); or
(ii) an amount equal to the excess, if any of (a) 25% of the
General Partner's total gross income (but not including the amount of any
General Partner Payments) for the fiscal year which is described in subsections
(A) through (I) of Section 856(c)(3) of the Code over (b) the amount of gross
income (within the meaning of Section 856(c)(3) of the Code) derived by the
General Partner from sources other than those described in subsections (A)
through (I) of Section 856(c)(3) of the Code (but not including the amount of
any General Partner Payments);
Notwithstanding the foregoing, General Partner Payments in
excess of the amounts set forth in subparagraphs (i) and (ii) above may be made
if the General Partner, as a condition precedent, obtains an opinion of tax
counsel that the receipt of such excess amounts would not adversely affect the
General Partner's ability to qualify as a REIT. To the extent General Partner
Payments may not be made in a year due to the foregoing limitations, such
General Partner Payments shall carry over and be treated as arising in the
following year, provided, however, that such amounts shall not carry over for
more than five years, and if not paid within such five year period, shall
expire; provided further, that (i) as General Partner Payments are made, such
payments shall be applied first to carry over amounts outstanding, if any, and
(ii) with respect to carry over amounts for more than one Partnership Year, such
payments shall be applied to the earliest Partnership Year first.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
GENERAL PARTNER:
PRESIDIO GOLF TRUST
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
LIMITED PARTNERS:
By: PRESIDIO GOLF TRUST,
as Attorney-in-Fact for the Limited
Partners
By:
---------------------------
Name:
-------------------------
Title:
------------------------
The Original General Partner hereby withdraws as General Partner of the
Partnership.
ORIGINAL GENERAL PARTNER:
ARNOLD PALMER GOLF MANAGEMENT,
LLC, a Delaware limited liability
company
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
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EXHIBIT A
PARTNERS AND PARTNERSHIP INTERESTS
Partnership Capital Contribution
Name and Address of Partner Units
- --------------------------------------------------------------------------------
GENERAL PARTNER:
Presidio Golf Trust
- -----------------------
- -----------------------
- -----------------------
LIMITED PARTNERS:
TOTAL
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EXHIBIT B
CAPITAL ACCOUNT MAINTENANCE
1. CAPITAL ACCOUNTS OF THE PARTNERS
A. The Partnership shall maintain for each Partner a separate Capital
Account in accordance with the rules of Regulations Section l.704-l(b)(2)(iv).
Such Capital Account shall be increased by (i) the amount of all Capital
Contributions and any other deemed contributions made by such Partner to the
Partnership pursuant to this Agreement and (ii) all items of Partnership income
and gain (including income and gain exempt from tax) computed in accordance with
Section 1.B hereof and allocated to such Partner pursuant to Section 6.1 of the
Agreement and Exhibit C thereof, and decreased by (x) the amount of cash or
Agreed Value of all actual and deemed distributions of cash or property made to
such Partner pursuant to this Agreement and (y) all items of Partnership
deduction and loss computed in accordance with Section 1.B hereof and allocated
to such Partner pursuant to Section 6.1 of the Agreement and Exhibit C thereof.
B. For purposes of computing the amount of any item of income, gain,
deduction or loss to be reflected in the Partners' Capital Accounts, unless
otherwise specified in this Agreement, the determination, recognition and
classification of any such item shall be the same as its determination,
recognition and classification for federal income tax purposes determined in
accordance with Section 703(a) of the Code (for this purpose all items of
income, gain, loss or deduction required to be stated separately pursuant to
Section 703(a) (1) of the Code shall be included in taxable income or loss),
with the following adjustments:
(1) Except as otherwise provided in Regulations Section
1.704-1(b)(2)(iv)(m), the computation of all items of
income, gain, loss and deduction shall be made
without regard to any election under Section 754 of
the Code which may be made by the Partnership,
provided that the amounts of any adjustments to the
adjusted bases of the assets of the Partnership made
pursuant to Section 734 of the Code as a result of
the distribution of property by the Partnership to a
Partner (to the extent that such adjustments have not
previously been reflected in the Partners' Capital
Accounts) shall be reflected in the Capital Accounts
of the Partners in the manner and subject to the
limitations prescribed in Regulations Section
l.704-1(b)(2)(iv) (m)(4).
(2) The computation of all items of income, gain, and
deduction shall be made without regard to the fact
that items described in Sections 705(a)(l)(B) or
705(a)(2)(B) of the Code are not includable in gross
income or are neither currently deductible nor
capitalized for federal income tax purposes.
(3) Any income, gain or loss attributable to the taxable
disposition of any Partnership property shall be
determined as if the adjusted basis of such property
as of such date of disposition were equal in amount
to the Partnership's Carrying Value with respect to
such property as of such date.
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(4) In lieu of the depreciation, amortization, and other
cost recovery deductions taken into account in
computing such taxable income or loss, there shall be
taken into account Depreciation for such fiscal year.
(5) In the event the Carrying Value of any Partnership
Asset is adjusted pursuant to Section 1.D hereof, the
amount of any such adjustment shall be taken into
account as gain or loss from the disposition of such
asset.
(6) Any items specially allocated under Section 2 of
Exhibit C hereof shall not be taken into account.
C. A transferee (including any Assignee) of a Partnership Unit shall
succeed to a pro rata portion of the Capital Account of the transferor. If the
transfer causes a termination of the Partnership under Section 708(b)(l)(B) of
the Code, the Partnership's properties shall be deemed, solely for federal
income tax purposes, to have been contributed to a new partnership in exchange
for an interest in the new partnership, and the interest in such new partnership
shall be deemed to have been distributed to the Partners in proportion to their
respective interest in the Partnership in liquidation of the Partnership. In
such event, pursuant to Regulations Section 1.704- 1(b)(2)(iv)(m)(2), the
Capital Accounts of the Partners in the new partnership will be equal to their
Capital Accounts in the Partnership, and the Carrying Values of the Partnership
properties shall not be adjusted.
D. (1) Consistent with the provisions of Regulations Section
1.704-1(b)(2)(iv)(f), and as provided in Section
1.D(2), the Carrying Values of all Partnership assets
shall be adjusted upward or downward to reflect any
Unrealized Gain or Unrealized Loss attributable to
such Partnership property, as of the times of the
adjustments provided in Section 1.D(2) hereof, as if
such Unrealized Gain or Unrealized Loss had been
recognized on an actual sale of each such property
and allocated pursuant to Section 6.1 of the
Agreement.
(2) Such adjustments shall be made as of the following
times: (a) immediately prior to the acquisition of an
additional interest in the Partnership by any new or
existing Partner in exchange for more than a de
minimis Capital Contribution; (b) immediately prior
to the distribution by the Partnership to a Partner
of more than a de minimis amount of property as
consideration for an interest in the Partnership; and
(c) immediately prior to the liquidation of the
Partnership within the meaning of Regulations Section
1.704-l(b)(2)(ii)(g), provided however that
adjustments pursuant to clauses (a) and (b) above
shall be made only if the General Partner determines
that such adjustments are necessary or appropriate to
reflect the relative economic interests of the
Partners in the Partnership.
(3) In accordance with Regulations Section 1.704-
l(b)(2)(iv)(e), the Carrying Value of Partnership
assets distributed in kind shall be adjusted upward
or
B-2
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downward to reflect any Unrealized Gain or Unrealized
Loss attributable to such Partnership property, as of
the time any such asset is distributed.
(4) In determining Unrealized Gain or Unrealized Loss for
purposes of this Exhibit B, the aggregate cash amount
and fair market value of all Partnership assets
(including cash or cash equivalents) shall be
determined by the General Partner using such
reasonable method of valuation as it may adopt, or in
the case of a liquidating distribution pursuant to
Article XIII of the Agreement, shall be determined
and allocated by the Liquidator using such reasonable
methods of valuation as it may adopt. The General
Partner, or the Liquidator, as the case may be, shall
allocate such aggregate fair market value among the
assets of the Partnership in such manner as it
determines in its sole and absolute discretion to
arrive at a fair market value for individual
properties.
E. The provisions of the Agreement (including this Exhibit B and the
other Exhibits to the Agreement) relating to the maintenance of Capital Accounts
are intended to comply with Regulations Section 1.704-1(b), and shall be
interpreted and applied in a manner consistent with such Regulations. In the
event the General Partner shall determine that it is prudent to modify the
manner in which the Capital Accounts, or any debits or credits thereto
(including, without limitation, debits or credits relating to liabilities which
are secured by contributed or distributed property or which are assumed by the
Partnership, the General Partner, or the Limited Partners) are computed in order
to comply with such Regulations, the General Partner may make such modification
without regard to Article XIV of the Agreement, provided that it is not likely
to have a material effect on the amounts distributable to any Person pursuant to
Article XIII of the Agreement upon the dissolution of the Partnership. The
General Partner also shall (i) make any adjustments that are necessary or
appropriate to maintain equality between the Capital Accounts of the Partners
and the amount of Partnership capital reflected on the Partnership's balance
sheet, as computed for book purposes, in accordance with Regulations Section
l.704-l(b)(2)(iv)(q), and (ii) make any appropriate modifications in the event
unanticipated events might otherwise cause this Agreement not to comply with
Regulations Section l.704-1(b).
2. NO INTEREST
No interest shall be paid by the Partnership on Capital Contributions
or on balances in Partners' Capital Accounts.
3. NO WITHDRAWAL
No Partner shall be entitled to withdraw any part of its Capital
Contribution or Capital Account or to receive any distribution from the
Partnership, except as provided in Articles IV, V, VII and XIII of the
Agreement.
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EXHIBIT C
SPECIAL ALLOCATION RULES
1. SPECIAL ALLOCATION RULES.
Notwithstanding any other provision of the Agreement or this Exhibit C,
the following special allocations shall be made in the following order:
A. Minimum Gain Chargeback. Notwithstanding the provisions of Section
6.1 of the Agreement or any other provisions of this Exhibit C, if there is a
net decrease in Partnership Minimum Gain during any Partnership Year, each
Partner shall be specially allocated items of Partnership income and gain for
such year (and, if necessary, subsequent years) in an amount equal to such
Partner's share of the net decrease in Partnership Minimum Gain, as determined
under Regulations Section 1.704-2(g). Allocations pursuant to the previous
sentence shall be made in proportion to the respective amounts required to be
allocated to each Partner pursuant thereto. The items to be so allocated shall
be determined in accordance with Regulations Section 1.704-2(f)(6). This Section
1.A is intended to comply with the minimum gain chargeback requirements in
Regulations Section 1.704-2(f) and for purposes of this Section 1.A only, each
Partner's Adjusted Capital Account Deficit shall be determined prior to any
other allocations pursuant to Section 6.1 of this Agreement with respect to such
Partnership Year and without regard to any decrease in Partner Minimum Gain
during such Partnership Year.
B. Partner Minimum Gain Chargeback. Notwithstanding any other provision
of Section 6.1 of this Agreement or any other provisions of this Exhibit C
(except Section 1.A hereof), if there is a net decrease in Partner Minimum Gain
attributable to a Partner Nonrecourse Debt during any Partnership Year, each
Partner who has a share of the Partner Minimum Gain attributable to such Partner
Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i)
(5), shall be specially allocated items of Partnership income and gain for such
year (and, if necessary, subsequent years) in an amount equal to such Partner's
share of the net decrease in Partner Minimum Gain attributable to such Partner
Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i)
(5). Allocations pursuant to the previous sentence shall be made in proportion
to the respective amounts required to be allocated to each General Partner and
Limited Partner pursuant thereto. The items to be so allocated shall be
determined in accordance with Regulations Section 1.704-2(i) (4). This Section
1.B is intended to comply with the minimum gain chargeback requirement in such
Section of the Regulations and shall be interpreted consistently therewith.
Solely for purposes of this Section 1.B, each Partner's Adjusted Capital Account
Deficit shall be determined prior to any other allocations pursuant to Section
6.1 of the Agreement or this Exhibit with respect to such Partnership Year,
other than allocations pursuant to Section 1.A hereof.
C. Qualified Income Offset. In the event any Partner unexpectedly
receives any adjustments, allocations or distributions described in Regulations
Sections 1.704-l(b)(2)(ii)(d)(4), l.704-1(b)(2)(ii)(d)(5), or 1.704-
l(b)(2)(ii)(d)(6), and after giving effect to the allocations required under
Sections 1.A and 1.B hereof with respect to such Partnership Year, such Partner
has an Adjusted Capital Account Deficit, items of Partnership income and gain
(consisting of a pro rata
C-1
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portion of each item of Partnership income, including gross income and gain for
the Partnership Year) shall be specifically allocated to such Partner in an
amount and manner sufficient to eliminate, to the extent required by the
Regulations, its Adjusted Capital Account Deficit created by such adjustments,
allocations or distributions as quickly as possible. This Section 1.C is
intended to constitute a "qualified income offset" under Regulations Section
1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
D. Gross Income Allocation. In the event that any Partner has an
Adjusted Capital Account Deficit at the end of any Partnership Year (after
taking into account allocations to be made under the preceding paragraphs hereof
with respect to such Partnership Year), each such Partner shall be specially
allocated items of Partnership income and gain (consisting of a pro rata portion
of each item of Partnership income, including gross income and gain for the
Partnership Year) in an amount and manner sufficient to eliminate, to the extent
required by the Regulations, its Adjusted Capital Account Deficit.
E. Nonrecourse Deductions. Nonrecourse Deductions for any Partnership
Year shall be allocated to the Partners in accordance with their respective
Percentage Interests. If the General Partner determines in its good faith
discretion that the Partnership's Nonrecourse Deductions must be allocated in a
different ratio to satisfy the safe harbor requirements of the Regulations
promulgated under Section 704(b) of the Code, the General Partner is authorized,
upon notice to the Limited Partners, to revise the prescribed ratio for such
Partnership Year to the numerically closest ratio which would satisfy such
requirements.
F. Partner Nonrecourse Deductions. Any Partner Nonrecourse Deductions
for any Partnership Year shall be specially allocated to the Partner who bears
the economic risk of loss with respect to the Partner Nonrecourse Debt to which
such Partner Nonrecourse Deductions are attributable in accordance with
Regulations Sections 1.704-2(b)(4) and 1.704-2(i).
G. Code Section 754 Adjustments. To the extent an adjustment to the
adjusted tax basis of any Partnership asset pursuant to Section 734(b) or 743(b)
of the Code is required, pursuant to Regulations Section 1.704-l(b)(2)(iv)(m),
to be taken into account in determining Capital Accounts, the amount of such
adjustment to the Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis), and such item of gain or loss shall be specially
allocated to the Partners in a manner consistent with the manner in which their
Capital Accounts are required to be adjusted pursuant to such Section of the
Regulations.
2. ALLOCATIONS FOR TAX PURPOSES
A. Except as otherwise provided in this Section 2, for federal income
tax purposes, each item of income, gain, loss and deduction shall be allocated
among the Partners in the same manner as its correlative item of "book" income,
gain, loss or deduction is allocated pursuant to Section 6.1 of the Agreement
and Section 1 of this Exhibit C.
C-2
<PAGE> 74
B. In an attempt to eliminate Book-Tax Disparities attributable to a
Contributed Property or Adjusted Property, items of income, gain, loss, and
deduction shall be allocated for federal income tax purposes among the Partners
as follows:
(1) (a) In the case of a Contributed Property, such items
attributable thereto shall be allocated among the
Partners consistent with the principles of Section
704(c) of the Code to take into account the variation
between the 704(c) Value of such property and its
adjusted basis at the time of contribution (taking
into account Section 2.C of this Exhibit C); and
(b) any item of Residual Gain or Residual Loss
attributable to a Contributed Property shall be
allocated among the Partners in the same manner as
its correlative item of "book" gain or loss is
allocated pursuant to Section 6.1 of the Agreement
and Section 1 of this Exhibit C.
(2) (a) In the case of an Adjusted Property, such items
shall
(i) first, be allocated among the Partners
in a manner consistent with the principles of Section
704(c) of the Code to take into account the
Unrealized Gain or Unrealized Loss attributable to
such property and the allocations thereof pursuant to
Exhibit B;
(ii) second, in the event such property was
originally a Contributed Property, be allocated among
the Partners in a manner consistent with Section
2.B(1) of this Exhibit C; and
(b) any item of Residual Gain or Residual Loss
attributable to an Adjusted Property shall be
allocated among the Partners in the same manner its
correlative item of "book" gain or loss is allocated
pursuant to Section 6.1 of the Agreement and Section
1 of this Exhibit C.
(3) all other items of income, gain, loss and deduction shall
be allocated among the Partners the same manner as their
correlative item of "book" gain or loss is allocated pursuant
to Section 6.1 of the Agreement and Section 1 of this Exhibit
C.
C. To the extent Regulations promulgated pursuant to Section 704(c) of
the Code permit a Partnership to utilize alternative methods to eliminate the
disparities between the Carrying Value of property and its adjusted basis, the
General Partner shall have the authority to elect the method to be used by the
Partnership, and such election shall be binding on all Partners.
C-3
<PAGE> 75
EXHIBIT D
NOTICE OF REDEMPTION
The undersigned hereby irrevocably (i) redeems _________ Partnership
Units in Presidio Golf Limited Partnership (the "Partnership") in accordance
with the terms of the Amended and Restated Agreement of Limited Partnership of
the Partnership, as amended, and the Redemption Right referred to therein, and
(ii) surrenders such Partnership Units and all right, title and interest
therein. The undersigned hereby represents, warrants, and certifies that the
undersigned (a) has marketable and unencumbered title to such Partnership Units,
free and clear of the rights of or interests of any other person or entity, (b)
has the full right, power and authority to redeem and surrender such Partnership
Units as provided herein and (c) has obtained the consent or approval of all
persons or entities, if any, having the right to consult or approve such
redemption and surrender.
Dated: Name of Limited Partner:
------- --------------------
-----------------------------------
(Signature of Limited Partner)
-----------------------------------
(Street Address)
-----------------------------------
(City) (State) (Zip Code)
Please insert social security or identifying number:
----------------------------
D-1
<PAGE> 76
EXHIBIT E
VALUE OF CONTRIBUTED PROPERTY
PROPERTY 704(C) VALUE AGREED VALUE
E-1
<PAGE> 1
EXHIBIT 10.2
================================================================================
FORM OF
REGISTRATION RIGHTS AGREEMENT
DATED AS OF ___ ___, 1998
BY AND AMONG
PRESIDIO GOLF TRUST
AND
THE PERSONS LISTED ON THE SIGNATURE PAGE HERETO
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. Definitions........................................................... 1
2. Shelf Registration Under the Securities Act........................... 3
(a) Filing of Shelf Registration Statement.......................... 3
(b) Expenses........................................................ 3
(c) Inclusion in Shelf Registration Statement....................... 3
3. Holdback Agreements................................................... 4
4. Registration Procedures............................................... 4
5. Indemnification; Contribution......................................... 8
(a) Indemnification by the Company.................................. 8
(b) Indemnification by Holders...................................... 9
(c) Conduct of Indemnification Proceedings.......................... 9
(d) Contribution.................................................... 10
6. Rule 144 Sales........................................................ 11
7. Miscellaneous......................................................... 11
(a) Amendments and Waivers.......................................... 11
(b) Notices......................................................... 11
(c) Successors and Assigns.......................................... 11
(d) Counterparts.................................................... 12
(e) Headings........................................................ 12
(f) Governing Law................................................... 12
(g) Specific Performance............................................ 12
(h) Entire Agreement................................................ 12
(i) Limitation of Liability of Shareholders and
Officers of the Company......................................... 12
</TABLE>
i
<PAGE> 3
SCHEDULE A
The attached form is substantially identical in all material respects
except as to the parties thereto which are as follows:
1. Presidio Golf Trust and Arnold Palmer Golf Management LLC;
2. Presidio Golf Trust and Olympus Chicago Hotels, L.P.; and
3. Presidio Golf Trust and TLG, L.L.C.
The property agreements referenced in the form Registration Rights
Agreement vary according the above-listed parties.
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered
into as of ___ __, 1998, by and among PRESIDIO GOLF TRUST (the "Company") and
the persons listed on the signature page hereto, including their successors,
assigns and transferees (herein referred to collectively as the "Holders" and
individually as a "Holder").
WHEREAS, on the date hereof Holder will become the owner of Units (as
defined herein) which shall be exchangeable for Shares (as defined herein) in
connection with one or more of the transactions (the "Transaction")
contemplated by that certain [INSERT DESCRIPTION OF AGREEMENTS]; and
WHEREAS, as a condition to the Transaction, the parties are willing to
enter into the agreements contained herein;
NOW, THEREFORE, the parties hereto, in consideration of the foregoing, the
mutual covenants and agreements hereinafter set forth, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following capitalized defined terms shall
have the following meanings:
"Common Shares" shall mean the common shares of beneficial interest, par
value $.01 per share, of the Company.
"Company" shall mean Presidio Golf Trust, a Maryland real estate
investment trust, and its successors.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended
from time to time.
"Holder" or "Holders" shall mean the persons listed on the signature page
hereto, including their successors, assigns and transferees.
"Person" shall mean an individual, partnership, corporation, trust,
unincorporated organization or other legal entity or a government or agency or
political subdivision thereof.
"Prospectus" shall mean the prospectus included in the Shelf Registration
Statement,
<PAGE> 4
including any preliminary prospectus, and any amendment or supplement thereto,
including any supplement relating to the terms of the offering of any portion
of the Registrable Securities covered by the Shelf Registration Statement, and
in each case including all material incorporated by reference therein.
"Registrable Securities" shall mean the Shares, excluding (i) Shares that
have been disposed of under the Shelf Registration Statement or any other
effective registration statement, (ii) Shares that have been issued to the
Holder pursuant to an effective registration statement, (iii) Shares sold or
otherwise transferred pursuant to Rule 144 under the Securities Act, (iv)
Shares that are held by Holders who are not affiliates of the Company that are
eligible for sale pursuant to Rule 144 under the Securities Act, and (v) Shares
held by each Holder who is an affiliate of the Company if all of such Shares
are eligible for sale pursuant to Rule 144 under the Securities Act and could
be sold in one transaction in accordance with the volume limitations contained
in Rule 144(e)(1)(i) under the Securities Act.
"Registration Expenses" shall mean any and all expenses incident to
performance of or compliance with this Agreement, including, without
limitation: (i) all applicable registration and filing fees imposed by the
SEC, the New York Stock Exchange or the National Association of Securities
Dealers, Inc. ("NASD"), (ii) all fees and expenses incurred in connection with
compliance with state securities or "blue sky" laws (including reasonable fees
and disbursements of counsel in connection with qualification of any of the
Registrable Securities under any state securities or blue sky laws and the
preparation of a blue sky memorandum) and compliance with the rules of the
NASD, (iii) all expenses of any Persons in preparing or assisting in preparing,
word processing, printing and distributing the Shelf Registration Statement,
any Prospectus, certificates and other documents relating to the performance of
and compliance with this Agreement, (iv) all fees and expenses incurred in
connection with the listing, if any, of any of the Registrable Securities on
any securities exchange or exchanges pursuant to Section 4(l) hereof, and (v)
the fees and disbursements of counsel for the Company and of the independent
public accountants of the Company. Registration Expenses shall specifically
exclude underwriting discounts and commissions, the fees and disbursements of
counsel representing a selling Holder or any underwriter or agent acting on
behalf of a Holder, and transfer taxes, if any, relating to the sale or
disposition of Registrable Securities by a selling Holder pursuant to the Shelf
Registration Statement or Rule 144 under the Securities Act, all of which shall
be borne by such Holder in all cases.
"Registration Notice" shall have the meaning set forth in Section 4(b)
hereof.
"Registration Statement" or the "Shelf Registration Statement" shall mean
a registration statement of the Company (and any other entity required to be a
registrant with respect to such registration statement pursuant to the
requirements of the Securities Act) that covers all of the Registrable
Securities to be offered on a delayed or continuous basis pursuant to Rule 415
under the
2
<PAGE> 5
Securities Act, or any similar rule that may be adopted by the SEC, and all
amendments (including post-effective amendments) to such registration
statement, and all exhibits thereto and materials incorporated by reference
therein.
"S-3 Eligibility Date" shall mean [FIRST ANNIVERSARY OF CLOSING], 1999.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended from
time to time.
"Shares" shall mean any Common Shares exchangeable for Units issued to
Holders on the date hereof in connection with the Transaction.
"Shelf Registration" shall mean a registration required to be effected
pursuant to Section 2 hereof.
"Transaction" shall have the meaning set forth in the first recital
hereof.
"Units" shall mean the limited partnership interests of Presidio Golf
Limited Partnership which are issued to Holder on the date hereof in connection
with the Transaction and which shall be exchangeable for Shares of the Company.
2. SHELF REGISTRATION UNDER THE SECURITIES ACT.
(a) FILING OF SHELF REGISTRATION STATEMENT. The Company shall cause
to be filed within the first thirty business days following the S-3
Eligibility Date, or as soon as practicable thereafter, the Shelf
Registration Statement providing for the sale by the Holders of all of the
Registrable Securities in accordance with the terms hereof and will use
its reasonable efforts to cause such Shelf Registration Statement to be
declared effective by the SEC as soon thereafter as is practicable. The
Company agrees to use its reasonable efforts to keep the Shelf
Registration Statement continuously effective under the Securities Act
until the Shares are no longer Registrable Securities. Subject to
Sections 4(b), 4(i) and 5, the Company further agrees to amend the Shelf
Registration Statement if and as required by the rules, regulations or
instructions applicable to the registration form used by the Company for
such Shelf Registration Statement or by the Securities Act or any rules
and regulations thereunder.
(b) EXPENSES. Except as provided herein, the Company shall pay all
Registration Expenses in connection with the registration pursuant to
Section 2(a).
3
<PAGE> 6
(c) INCLUSION IN SHELF REGISTRATION STATEMENT. Any Holder who does
not provide the information reasonably requested by the Company in
connection with the Shelf Registration Statement as promptly as
practicable after receipt of such request, but in no event later than ten
(10) days thereafter, shall not be entitled to have its Registrable
Securities included in the Shelf Registration Statement.
3. HOLDBACK AGREEMENTS.
Each Holder, in the event the Company is issuing shares of beneficial
interest to the public in an underwritten offering, agrees, if requested by the
managing underwriter or underwriters for such underwritten offering, not to
effect any public sale or distribution of Registrable Securities or any
securities convertible into or exchangeable or exercisable for such Registrable
Securities, including a sale pursuant to Rule 144 (or any similar provision
then in force) under the Securities Act, during the 14 days prior to, and
during the 90-day period beginning on, the effective date of such underwritten
offering.
4. REGISTRATION PROCEDURES.
In connection with the obligations of the Company with respect to the
Shelf Registration Statement contemplated by Section 2 hereof, the Company
shall:
(a) prepare and file with the SEC, within the time period set forth
in Section 2 hereof, the Shelf Registration Statement, which Shelf
Registration Statement shall (i) be available for the sale of the
Registrable Securities in accordance with the intended method or methods
of distribution by the selling Holders thereof and (ii) comply as to form
in all material respects with the requirements of the applicable form and
include all financial statements required by the SEC to be filed
therewith;
(b) subject to the last three sentences of this Section 4(b) and
Section 4(i) hereof, (i) prepare and file with the SEC such amendments to
such Shelf Registration Statement as may be necessary to keep such Shelf
Registration Statement effective for the applicable period; (ii) cause the
Prospectus to be amended or supplemented as required and to be filed as
required by Rule 424 or any similar rule that may be adopted under the
Securities Act; (iii) respond as promptly as practicable to any comments
received from the SEC with respect to the Shelf Registration Statement or
any amendment thereto; and (iv) comply with the provisions of the
Securities Act with respect to the disposition of all securities covered
by such Shelf Registration Statement during the applicable period in
accordance with the intended method or methods of distribution by the
selling Holders thereof. Notwithstanding anything to the contrary
contained herein, the Company shall not be required to take any of the
actions described in clauses (i), (ii) or (iii) in this
4
<PAGE> 7
Section 4(b), Section 4(d) or Section 4(i) with respect to each Holder of
Registrable Securities (x) to the extent that the Company is in
possession of material non-public information that it deems advisable not
to disclose or is engaged in active negotiations or planning for a merger
or acquisition or disposition transaction and it delivers written notice
to each such Holder of Registrable Securities to the effect that such
Holder may not make offers or sales under the Shelf Registration
Statement for a period not to exceed sixty (60) days from the date of
such notice; provided, however, that the Company may deliver only two
such notices within any twelve-month period, (y) unless and until the
Company has received a written notice (a "Registration Notice") from a
Holder that such Holder intends to make offers or sales under the Shelf
Registration Statement; provided, however, that the Company shall have
ten (10) business days to prepare and file any such amendment or
supplement after receipt of the Registration Notice or such longer period
as is reasonably necessary if such preparation and filing are not
commercially practicable within ten (10) business days or (z) to the
extent the Company elects pursuant to Section 5 hereof to purchase the
Shares which are the subject of the Registration Notice. Once a Holder
has delivered a Registration Notice to the Company, such Holder shall
promptly provide to the Company such information as the Company
reasonably requests in order to identify such Holder and the method of
distribution in a post-effective amendment to the Registration Statement
or a supplement to the Prospectus. Such Holder also shall notify the
Company in writing upon completion of such offer or sale or at such time
as such Holder no longer intends to make offers or sales under the
Registration Statement;
(c) furnish to each Holder of Registrable Securities that has
delivered a Registration Notice to the Company, without charge, as many
copies of each Prospectus and any amendment or supplement thereto as such
Holder may reasonably request in order to facilitate the public sale or
other disposition of the Registrable Securities; the Company consents to
the use of the Prospectus and any amendment or supplement thereto by each
such Holder of Registrable Securities in connection with the offering and
sale of the Registrable Securities covered by the Prospectus or amendment
or supplement thereto;
(d) use its reasonable efforts to register or qualify the
Registrable Securities by the time the Shelf Registration Statement is
declared effective by the SEC under all applicable state securities or
blue sky laws of such jurisdictions in the United States and its
territories and possessions as any Holder of Registrable Securities
covered by the Shelf Registration Statement shall reasonably request in
writing, keep each such registration or qualification effective during
the period such Registration Statement is required to be kept effective
or during the period offers or sales are being made by a Holder that has
delivered a Registration Notice to the Company, whichever is shorter;
provided, however, that in connection therewith, the Company shall not be
required to (i) qualify as a foreign corporation to do business or to
register as a broker or dealer in any such jurisdiction where
5
<PAGE> 8
it would not otherwise be required to qualify or register but for this
Section 4(d), (ii) subject itself to taxation in any such jurisdiction,
or (iii) file a general consent to service of process in any such
jurisdiction;
(e) notify each Holder of Registrable Securities that has delivered
a Registration Notice to the Company promptly and, if requested by such
Holder, confirm in writing, (i) when the Registration Statement and any
post-effective amendments thereto have become effective, (ii) when any
amendment or supplement to the Prospectus has been filed with the SEC,
(iii) of the issuance by the SEC or any state securities authority of any
stop order suspending the effectiveness of the Registration Statement or
any part thereof or the initiation of any proceedings for that purpose,
(iv) if the Company receives any notification with respect to the
suspension of the qualification of the Registrable Securities for offer
or sale in any jurisdiction or the initiation of any proceeding for such
purpose, and (v) of the happening of any event during the period the
Registration Statement is effective as a result of which (A) such
Registration Statement contains any untrue statement of a material fact
or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading or (B) the
Prospectus as then amended or supplemented contains any untrue statement
of a material fact or omits to state any material fact necessary in order
to make the statements therein, in light of the circumstances under which
they were made, not misleading;
(f) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of the Shelf Registration Statement or
any part thereof as promptly as possible;
(g) upon request, furnish to each Holder of Registrable Securities
that has delivered a Registration Notice to the Company, without charge,
at least one conformed copy of the Shelf Registration Statement and any
post-effective amendment thereto (without documents incorporated therein
by reference or exhibits thereto, unless requested);
(h) cooperate with the selling Holders of Registrable Securities to
facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be sold; and enable certificates
for such Registrable Securities to be issued for such numbers of shares
and registered in such names as the selling Holders may reasonably
request at least two business days prior to any sale of Registrable
Securities;
(i) subject to the last three sentences of Section 4(b) hereof, upon
the occurrence of any event contemplated by clause (x) of Section 4(b) or
clause (v) of Section 4(e) hereof, use its reasonable efforts promptly to
prepare and file an amendment or a supplement to the Prospectus or any
document incorporated therein by reference or
6
<PAGE> 9
prepare, file and obtain effectiveness of a post-effective amendment to
the Registration Statement, or file any other required document, in any
such case to the extent necessary so that, as thereafter delivered to the
purchasers of the Registrable Securities, such Prospectus as then amended
or supplemented will not contain any untrue statement of a material fact
or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
are made, not misleading;
(j) in its sole discretion register any other Common Shares in the
Shelf Registration Statement;
(k) a reasonable time prior to the filing of any Registration
Statement or any amendment thereto, or any Prospectus or any amendment or
supplement thereto, provide copies of such document (not including any
documents incorporated by reference therein unless requested) to the
Holders of Registrable Securities that have provided a Registration
Notice to the Company;
(l) use its reasonable efforts to cause all Registrable Securities
to be listed on any securities exchange on which similar securities
issued by the Company are then listed;
(m) provide a CUSIP number for all Registrable Securities, not later
than the effective date of the Shelf Registration Statement;
The Company may require each Holder of Registrable Securities to furnish
to the Company in writing such information regarding the proposed distribution
by such Holder of such Registrable Securities as the Company may from time to
time reasonably request in writing.
In connection with and as a condition to the Company's obligations with
respect to the Shelf Registration Statement pursuant to Section 2 hereof and
this Section 4, each Holder covenants and agrees that (i) it will not offer or
sell any Registrable Securities under the Shelf Registration Statement until it
has provided a Registration Notice pursuant to Section 4(b) and has received
copies of the Prospectus as then amended or supplemented as contemplated by
Section 4(c) and notice from the Company that the Registration Statement and
any post-effective amendments thereto have become effective as contemplated by
Section 4(e); (ii) upon receipt of any notice from the Company contemplated by
Section 4(b) (in respect of the occurrence of an event contemplated by clause
(x) of Section 4(b)) or Section 4(e) (in respect of the occurrence of an event
contemplated by clause (v) of Section 4(e)), such Holder shall not offer or
sell any Registrable Securities pursuant to the Shelf Registration Statement
until such Holder receives copies of the supplemented or amended Prospectus
contemplated by Section 4(i) hereof and receives notice that any post-effective
amendment has become effective, and, if so directed by the Company, such Holder
will deliver to the Company (at the expense of the Company) all copies in its
possession, other than permanent file
7
<PAGE> 10
copies then in such Holder's possession, of the Prospectus as amended or
supplemented at the time of receipt of such notice; (iii) all offers and sales
by such Holder under the Registration Statement must be completed within sixty
(60) days after the first date on which offers or sales can be made pursuant to
clause (i) above, and upon expiration of such sixty (60) day period, the Holder
may not offer or sell any Registrable Securities under the Registration
Statement until it has again complied with the provisions of clause (i) above;
(iv) such Holder and any of its officers, directors or affiliates, if any, must
comply with the provisions of Regulation M under the Exchange Act as applicable
to them in connection with sales of Registrable Securities pursuant to the
Shelf Registration Statement; and (v) such Holder and any of its partners,
officers, trustees, directors or affiliates, if any, must enter into such
written agreements as the Company shall reasonably request to ensure compliance
with clause (iv) above.
5. INDEMNIFICATION; CONTRIBUTION.
(a) INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify
and hold harmless each Holder and its officers and directors and each
Person, if any, who controls any Holder within the meaning of Section 15
of the Securities Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to which such Holder, officer,
director or controlling Person may become subject under the
Securities Act or otherwise (A) that arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact
contained in the Shelf Registration Statement or any amendment
thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein not misleading or (B) that arise out of or
are based upon any untrue statement or alleged untrue statement of
a material fact contained in any Prospectus or any amendment or
supplement thereto, or the omission or alleged omission to state
therein a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were
made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate
amount paid in settlement of any litigation, or investigation or
proceeding by any governmental agency or body, commenced or
threatened, or of any claim whatsoever based upon any such untrue
statement or alleged untrue statement or any omission or alleged
omission contained in the Shelf Registration Statement, if such
settlement is effected with the written consent of the Company; and
(iii) subject to the limitations set forth in Section 5(c),
against any and all
8
<PAGE> 11
expense whatsoever, as incurred (including reasonable fees and
disbursements of counsel), reasonably incurred in investigating,
preparing or defending against any litigation, or investigation or
proceeding by any governmental agency or body, commenced or
threatened, in each case whether or not a party, or any claim
whatsoever based upon any such untrue statement or alleged untrue
statement or omission or alleged omission, to the extent that any
such expense is not paid under subparagraph (i) or (ii) above;
provided, however, that the indemnity provided pursuant to this Section
5(a) shall not apply to any Holder with respect to any loss, liability,
claim, damage or expense that arise out of or are based upon any untrue
statement or alleged untrue statement or omission or alleged omission
made in reliance upon and in conformity with written information
furnished to the Company by such Holder expressly for use in the Shelf
Registration Statement or any amendment thereto or the Prospectus or any
amendment or supplement thereto.
(b) INDEMNIFICATION BY HOLDERS. Each Holder severally agrees to
indemnify and hold harmless the Company and the other selling Holders,
and each of their respective directors and officers (including each
director and officer of the Company who signed the Registration
Statement), and each Person, if any, who controls the Company or any
other selling Holder within the meaning of Section 15 of the Securities
Act, to the same extent as the indemnity contained in Section 5(a)
hereof, but only insofar as such loss, liability, claim, damage or
expense arises out of or is based upon any untrue statement or alleged
untrue statement or omission or alleged omission made in the Shelf
Registration Statement or any amendment thereto or the Prospectus or any
amendment or supplement thereto in reliance upon and in conformity with
written information furnished to the Company by such selling Holder for
use therein relating to the Holder's status as a selling security holder.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Each indemnified party
shall give reasonably prompt notice to each indemnifying party of any
action or proceeding commenced against it in respect of which indemnity
may be sought hereunder, but failure to so notify an indemnifying party
(i) shall not relieve it from any liability which it may have under the
indemnity agreement provided in Section 5(a) or (b) above, unless and to
the extent it did not otherwise learn of such action and the lack of
notice by the indemnified party materially prejudices the indemnifying
party or results in the forfeiture by the indemnifying party of
substantial rights and defenses and (ii) shall not, in any event, relieve
the indemnifying party from any obligations to any indemnified party
other than the indemnification obligation provided under Section 5(a) or
(b) above. After receipt of such notice, the indemnifying party shall be
entitled to participate in and, at its option, jointly with any other
indemnifying party so notified, to assume the defense of such action or
proceeding at such indemnifying party's own expense with counsel chosen
by such
9
<PAGE> 12
indemnifying party and approved by the indemnified party, which approval
shall not be unreasonably withheld; provided, however, that, if the
defendants in any such action or proceeding include both the indemnified
party and the indemnifying party and the indemnified party reasonably
determines, upon advice of counsel, that a conflict of interest exists or
that there may be legal defenses available to it or other indemnified
parties that are different from or in addition to those available to the
indemnifying party, then the indemnified party shall be entitled to one
separate counsel, the reasonable fees and expenses of which shall be paid
by the indemnifying party. If the indemnifying party does not assume the
defense of any such action or proceeding, after having received the
notice referred to in the first sentence of this paragraph, the
indemnifying party will pay the reasonable fees and expenses of counsel
(which shall be limited to a single law firm) for the indemnified party.
In such event, however, the indemnifying party will not be liable for any
settlement effected without the written consent of such indemnifying
party. If the indemnifying party assumes the defense of any such action
or proceeding in accordance with this paragraph, such indemnifying party
shall not be liable for any fees and expenses of counsel for the
indemnified party incurred thereafter in connection with such action or
proceeding except as set forth in the proviso in the second sentence of
this Section 5(c).
(d) CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided
for in this Section 5 is for any reason held to be unenforceable although
applicable in accordance with its terms, the Company and the selling
Holders shall contribute to the aggregate losses, liabilities, claims,
damages and expenses of the nature contemplated by such indemnity
agreement incurred by the Company and the selling Holders, in such
proportion as is appropriate to reflect the relative fault of the Company
on the one hand and the selling Holders on the other (in such proportions
that the selling Holders are severally, not jointly, responsible for the
balance), in connection with the statements or omissions which resulted
in such losses, claims, damages, liabilities or expenses, as well as any
other relevant equitable considerations. The relative fault of the
indemnifying party and indemnified parties shall be determined by
reference to, among other things, whether the action in question,
including any untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact, has been made by,
or relates to information supplied by, such indemnifying party or the
indemnified parties, and the parties' relative intent, pledge, access to
information and opportunity to correct or prevent such action. The
parties hereto agree that it would not be just or equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in this paragraph.
Notwithstanding the foregoing, no Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities
Act) shall be entitled to contribution
10
<PAGE> 13
from any Person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 5(d), each Person, if any, who controls a
Holder within the meaning of Section 15 of the Securities Act and
directors and officers of a Holder shall have the same rights to
contribution as such Holder, and each director of the Company, each
officer of the Company who signed the Registration Statement and each
Person, if any, who controls the Company within the meaning of Section 15
of the Securities Act shall have the same rights to contribution as the
Company.
6. RULE 144 SALES.
In connection with any sale, transfer or other disposition by any Holder
of any Registrable Securities pursuant to Rule 144 under the Securities Act,
the Company shall cooperate with such Holder to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be sold, and enable certificates for such Registrable Securities to be for such
number of shares and registered in such names as the selling Holders may
reasonably request at least two business days prior to any sale of Registrable
Securities. The Company's obligation set forth in the previous sentence shall
be subject to the delivery, if reasonably requested by the Company or its
transfer agent, by counsel to such Holder, in form and substance reasonably
satisfactory to the Company and its transfer agent, of an opinion that such
Securities Act legend need not appear on such certificate.
7. MISCELLANEOUS.
(a) AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified,
supplemented or waived, nor may consent to departures therefrom be given,
without the written consent of the Company and the Holders of a majority
of the outstanding Registrable Securities, provided, however, that no
amendment, modification, supplement or waiver of, or consent to the
departure from, the provisions of Sections 2, 5 or 6 hereof shall be
effective as against any Holder of Registrable Securities unless
consented to in writing by such Holder of Registrable Securities. Notice
of any such amendment, modification, supplement, waiver or consent
adopted in accordance with this Section 7(a) shall be provided by the
Company to each Holder of Registrable Securities at least thirty (30)
days prior to the effective date of such amendment, modification,
supplement, waiver or consent.
(b) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telex, telecopier, or any courier guaranteeing
overnight delivery, (i) if to a Holder, at such Holder's registered
address appearing on the Share register of the Company; or (ii) if to the
Company, at San Francisco Executive Offices, Building 106, Montgomery
Street, Presidio
11
<PAGE> 14
Main Post, P.O. Box 29355, San Francisco, California 94129, Attention:
George Haworth.
All such notices and communications shall be deemed to have been
duly given: at the time delivered by hand, if personally delivered; five
business days after being deposited in the mail, postage prepaid, if
mailed; when answered back, if telexed; when receipt is acknowledged, if
telecopied; or at the time delivered if delivered by an air courier
guaranteeing overnight delivery.
(c) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors, assigns and transferees of
each of the parties, including, without limitation, subsequent Holders.
If any successor, assignee or transferee of any Holder shall acquire
Registrable Securities, in any manner, whether by operation of law or
otherwise, such Registrable Securities shall be held subject to all of
the terms of this Agreement, and by taking and holding Registrable
Securities such Person shall be conclusively deemed to have agreed to be
bound by all of the terms and provisions hereof.
(d) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
(e) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning
hereof.
(f) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Maryland without
giving effect to the conflicts of law provisions thereof.
(g) SPECIFIC PERFORMANCE. The parties hereto acknowledge that there
would be no adequate remedy at law if any party fails to perform any of
its obligations hereunder, and accordingly agree that each party, in
addition to any other remedy to which it may be entitled at law or in
equity, shall be entitled to compel specific performance of the
obligations of any other party under this Agreement in accordance with
the terms and conditions of this Agreement in any court of the United
States or any State thereof having jurisdiction.
(h) ENTIRE AGREEMENT. This Agreement is intended by the parties as
a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties
hereto in respect of the subject matter contained
12
<PAGE> 15
herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
(i) LIMITATION OF LIABILITY OF SHAREHOLDERS, TRUSTEES AND OFFICERS
OF THE COMPANY. ANY OBLIGATION OR LIABILITY WHATSOEVER OF THE COMPANY
WHICH MAY ARISE AT ANY TIME UNDER THIS AGREEMENT OR ANY OBLIGATION OR
LIABILITY WHICH MAY BE INCURRED BY IT PURSUANT TO ANY OTHER INSTRUMENT,
TRANSACTION OR UNDERTAKING CONTEMPLATED HEREBY SHALL BE SATISFIED, IF AT
ALL, OUT OF THE COMPANY'S ASSETS ONLY. NO SUCH OBLIGATION OR LIABILITY
SHALL BE PERSONALLY BINDING UPON, NOR SHALL RESORT FOR THE ENFORCEMENT
THEREOF BE HAD TO, THE PROPERTY OF ANY OF ITS SHAREHOLDERS, TRUSTEES,
OFFICERS, EMPLOYEES OR AGENTS (SOLELY AS A RESULT OF THEIR STATUS AS
SHAREHOLDERS, TRUSTEES, OFFICERS, EMPLOYEES OR AGENTS), REGARDLESS OF
WHETHER SUCH OBLIGATION OR LIABILITY IS IN THE NATURE OF CONTRACT, TORT
OR OTHERWISE. NOTWITHSTANDING THE FOREGOING, THIS SECTION 7(I) SHALL NOT
IN ANY WAY AFFECT OR LIMIT ANY OBLIGATION OR LIABILITY OF ANY HOLDER
UNDER THIS AGREEMENT.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
[SIGNATURE PAGE FOLLOWS]
13
<PAGE> 16
PRESIDIO GOLF TRUST,
a Maryland real estate investment trust
By:
-------------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
HOLDERS:
By:
-------------------------------------------
Name:
--------------------------------------
Title: [Attorney in Fact]
14
<PAGE> 1
EXHIBIT 10.3
1998 Share Option Plan
PRESIDIO GOLF TRUST, a Maryland real estate investment trust (the
"Company"), may from time to time on or before June ___, 2008, grant to officers
(whether or not trustees), key employees, consultants and advisors of the
Company and its subsidiaries (including Presidio Golf Limited Partnership)
options to purchase shares of the Company's common shares of beneficial interest
stock, $.01 par value per share (the "Common Shares") (the "Plan"). An Affiliate
of the Company may adopt the Plan only with the Company's advance written
consent, and once adopted, no option may be granted without the Company's
advance written approval. If an option is granted to an employee of an
Affiliate, the Company may, in its discretion, require that as a condition of
granting the option the Affiliate must agree to purchase the number of Common
Shares subject to option at fair market value on the date of exercise. For
purposes of the Plan an Affiliate shall include a subsidiary or any partnership
or limited liability company in which the Company is the general partner or
holds at least a 50% interest in capital or profits. Options granted under this
Plan may be either options which are intended to be incentive stock options
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended ("incentive stock options"), or options which are not intended to be
incentive stock options ("non-statutory options"). The aggregate number of
Common Shares which may be sold to all optionees pursuant to this Plan shall not
exceed seven hundred fifty thousand (750,000) shares. Except as otherwise
provided for herein, selection of optionees and determination of the form of
option and the number of shares allocated to each optionee shall be made by a
committee of disinterested directors of the Company. The purchase price per
share to be specified in any option granted pursuant to this Plan shall be not
less than the fair market value of such stock on the date such option is
granted, and may be paid in cash, in Common Shares or in any combination
thereof. The Board of Trustees of the Company ("Board") may provide
for the exercise of options under this Plan from time to time in installments
or otherwise, and may authorize the granting of such options upon such other
terms and conditions and for such periods up to ten years from the date of
grant as it may in its discretion determine; provided, however, that any option
granted hereunder shall not be transferable by the optionee other than by will
or the laws of descent and distribution and may be exercisable during such
optionee's lifetime only by the optionee or by such optionee's guardian or
legal representative; and further provided, however, that the aggregate fair
market value (determined at the time an option is granted) of shares with
respect to which incentive stock options are exercisable for the first time by
an optionee during any calendar year (under all incentive stock option plans of
the Company and any subsidiary corporations of the Company) shall not exceed
$100,000.
The Company may from time to time grant to the holder of any option
issued hereunder the right to elect to exercise share appreciation rights with
respect to all or any portion of the shares subject to such option in lieu of
such option rights thereunder by surrendering the option rights as to all or
such portion of the shares as to which option rights shall at such time be
exercisable under such option, and receiving, with respect to each share as to
which option rights are so surrendered, an
<PAGE> 2
amount in payment equal to the excess of the fair market value of such share on
the date of surrender over the purchase price specified for such share in the
option. Such payment may be made in cash, in Common Shares or in any combination
thereof, subject, in the case of cash, to the consent of the Company. The number
of Common Shares to be issued and delivered by the Company upon the exercise of
share appreciation rights hereunder shall be determined by dividing the amount
of the payment to be made in the form of Common Shares by the fair market value
of a Common Share as of the date of surrender, and the value of any fractional
share shall be paid by the Company in cash. No share appreciation right shall,
in any event, be exercisable within six months of the date of its grant. For
purposes of determining the aggregate number of Common Shares sold to all
optionees pursuant to this Plan, each share as to which option rights have been
surrendered upon the exercise of share appreciation rights shall be treated as
if it were a share sold under this Plan.
At any time an optionee is required to pay to the optionee's employer
an amount required to be withheld under applicable income tax laws in connection
with the exercise of a non-statutory option, the optionee may satisfy this
obligation in whole or in part by electing (the "Election") to have the Company
withhold Common Shares having a value equal to the amount required to be
withheld. The value of the shares to be withheld shall be based on the fair
market value of such shares on the date that the amount of tax to be withheld
shall be determined ("Tax Date"). Each Election must be made prior to the Tax
Date. The Board may disapprove of any Election or may suspend or terminate the
right to make Elections. An Election is irrevocable.
If the optionee is an officer or director of the Company within the
meaning of Section 16 of the Securities Exchange Act of 1934, as amended, then
the Election is subject to the following additional restrictions:
A. No Election shall be effective for a Tax Date which occurs within
six months of the grant of the option.
B. The Election must be made either six months prior to the Tax Date or
must be made during a period beginning on the third business day following the
date of release for publication of the Company's quarterly or annual summary
statements of sales and earnings and ending on the twelfth business day
following such date.
In the event of a share dividend, share split, combination or other
reduction in the number of issued Common Shares, the Board may make such
adjustments in the number of unpurchased shares subject to this Plan, the
number of shares subject to options outstanding in this Plan, the exercise
price specified in options outstanding under this Plan, and the number of
shares subject to share appreciation rights outstanding under this Plan as it
may determine to be appropriate and equitable. Notwithstanding the foregoing,
upon the occurrence of a change of control, the rights under options and share
appreciation rights outstanding hereunder shall immediately vest and become
exercisable. Under the terms of the Plan a change of control includes a change
of control of the Company of a nature that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Exchange Act as in effect on
2
<PAGE> 3
January 1, 1998, provided that such a change of control shall be deemed to have
occurred at such time as (i) any "Person" (as that term is defined in Sections
13(b) and 14(b)(2) of the Exchange Act), is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities representing 20% or more of the combined voting power for election of
trustees of the then outstanding securities of the Company or any successor of
the Company; (ii) during any period of two (2) consecutive years or less,
individuals who, at the beginning of such period, constitute the Board cease,
for any reason, to constitute at least a majority of the Board, unless the
election or nomination for election of each new trustee was approved by a vote
of at least two-thirds of the directors then still in office who were directors
at the beginning of the period; (iii) shareholders of the Company approve any
merger, consolidation or share exchange as a result of which the Common Shares
of the Company shall be changed, converted or exchanged (other than a merger
with a wholly-owned subsidiary of the Company), or any dissolution or
liquidation of the Company or any sale or the disposition of 50% or more of the
assets or business of; or (iv) the shareholders of the Company approve any
merger or consolidation to which the Company is a party or a share exchange in
which the Company shall exchange its shares for shares of another corporation as
a result of which the persons who were the shareholders of the Company
immediately prior to the effective date of the merger, consolidation or share
exchange, shall have beneficial ownership of less than 50% of the combined
voting power for election of trustees or directors, as applicable, of the
surviving entity following the effective date of such merger, consolidation or
share exchange." In the event of any Company transaction that does not result in
a change of control, all options shall be subject to such adjustments as may be
provided by the Board or by the terms of the plan or agreement of merger,
consolidation, reorganization, or sale or exchange of such assets.
The Board may, in its discretion, prescribe such provisions and
interpretations not inconsistent herewith as it shall deem necessary or
desirable for the implementation of this Plan. The Board may, without
shareholder consent, amend this Plan; provided, however, any amendment that
would (i) materially increase the benefits accruing to participants hereunder,
(ii) materially increase the number of shares which may be issued hereunder, or
(iii) materially modify the requirements as to eligibility for participation
hereunder, must be approved by a vote of the shareholders of the Company.
3
<PAGE> 4
Approved ,
--------------- ---
1998 SHARE OPTION PLAN
FORM OF SHARE OPTION
[LETTERHEAD OF PRESIDIO GOLF TRUST]
, 19
------------ -----
Dear :
-----------------
Pursuant to action taken by the Board of Trustees of Presidio Golf
Trust, a Maryland real estate investment trust (the "Company"), under the 1998
Share Option Plan (the "Plan"), you are hereby granted a (1) to purchase, at the
price of (2) per share, upon and subject to the provisions and conditions
hereafter set forth, a total of ________ shares of the Company's common stock,
$.01 par value per share (the "Common Shares") [in the installments, for the
number of shares and to accrue on the date or dates shown below:
<TABLE>
<CAPTION>
NO. OF SHARES ACCRUAL DATE
------------- ------------
<S> <C>
(3) (4)
(3) (4)
(3) (4)]
</TABLE>
You may purchase all or any of the shares included in any installment
under this option, on or after the date on which such installment accrues and
not later than the expiration date hereinafter set forth, by making payment in
full to the office of the Chief Financial Officer of the Company, Building 106,
Montgomery Street, Presidio Main Post, P.O. Box 29355, San Francisco, California
94129, for the shares which you so elect to purchase, at the price per share
herein prescribed, whereupon you will receive a share certificate representing
the shares for which you have made payment, except that the Company shall not be
obligated to deliver any shares unless and until (i) there has been compliance
with any federal or state laws or regulations or national securities exchange
requirements which the Company may deem applicable; and (ii) all legal matters
in connection with the sale and delivery of the shares have been approved by the
Company's counsel.
A-1
<PAGE> 5
Upon the exercise of an option, with the prior written consent of the
Company which may be given in the sole discretion of the Company, the purchase
price may be paid in cash or in Common Shares or a combination thereof. Each
Common Share received by the Company in payment of all or a portion of the
purchase price specified in this option shall be valued at its fair market value
on the date of exercise.
The Chairman of the Board or President of the Company (or any Vice
President of the Company in the absence or unavailability of the Chairman of the
Board and President) may suspend or postpone the receipt of shares in payment of
the purchase price specified in this share option if at any time (i) he has
knowledge of information concerning the Company which upon disclosure to the
public might, in his opinion, materially affect the market price of the Common
Shares; (ii) outside events of an extraordinary nature occur which, in his
opinion, may not have been effectively reflected in the market price of the
Common Shares; or (iii) such suspension or postponement for any other reason
would, in his opinion, be in the best interests of the Company.
The Board of Trustees hereby reserves and shall have the right, by
written notice to you, to change the provisions of this option in any manner
that it may deem necessary or advisable to carry out the purpose of this grant
as a result of, or to comply with, any change in applicable regulations,
interpretations or statutory enactment, provided that any such change shall be
applicable only to shares for which payment shall not then have been made as
herein provided.
(5)
Except as otherwise provided, if you cease to be an officer of or
employed by the Company, this option shall terminate as to the shares for which
you shall not then have made payment as provided herein; provided, however, that
within three months after the date you cease to be an officer or so employed,
but in no event later than the expiration date of this option, you may pay for
and receive all or any of the shares constituting the installment or
installments under this option that shall have accrued at the date you cease to
be so employed and for which you shall not then have made payment as provided
herein.
Notwithstanding any provision of this option to the contrary, if you
are removed as an officer or your employment is terminated for cause (which,
unless otherwise defined in any employment agreement or manual, shall be defined
as participation in conduct during your employment consisting of fraud, felony
or willful misconduct), this option shall terminate on the date of your removal
or termination of employment as to the shares for which you shall not have
theretofore made payment and you shall have no right thereafter for any reason
to pay for or receive any of the shares constituting any installment or
installments under this option accrued as of the date of your removal or
termination of employment and for which you shall not then have made payment as
provided herein.
If you cease to be an officer of or employed by the Company by reason
of your permanent disability (as defined in Section 22(e)(3) of the Internal
Revenue Code of 1986, as amended) or
A-2
<PAGE> 6
retirement, then, within one year after the date you become permanently disabled
or three months after the date you retire, but in no event later than the
expiration date of this option, you may pay for and receive all or any of the
shares constituting any installment or installments hereunder for which you
shall not then have made payment as provided herein whether or not accrued. In
the event of your death while you are an officer of or employed by the Company
or within three months following termination of your status as an officer or
your employment, the executor or administrator of your estate may, within one
year after the day of your death, but in no event later than the expiration date
of this option, pay for and receive all or any of the shares included in any
installment or installments hereunder for which you shall not then have made
payment as provided herein whether or not accrued. (6)
In the event of a share dividend, share split, combination or reduction
in the number of issued Common Shares, the Board of Trustees may make such
adjustments in the number of unpurchased shares subject to this option and in
the exercise price per share as it may determine to be appropriate and
equitable.
In the event of a change of control of the Company, your rights under
this option shall immediately vest and become exercisable as to shares not
theretofore purchased. In the case of any corporate transaction which does not
result in a change of control adjustment as may be provided by the Board of
Trustees or in the terms of the merger, consolidation, reorganization, plan of
dissolution or sale of the assets.
This option shall be exercisable during your lifetime only by you and
shall not be transferable by you, expressly or by operation of law, except in
the event of your death, and then only to the extent and subject to the
provisions and conditions herein set forth. Any attempted transfer or other
disposition thereof by you shall be void and shall constitute valid grounds
for cancellation of this option by the Company. (7)
The exercise of any rights under this option shall be subject to and
conditioned upon the approval of the Plan by the shareholders of the Company
prior to , 1998, and in the event that the stockholders do not approve
the Plan before such date, this option shall be void and of no further force
and effect. (8)
This option and all your rights hereunder shall, unless sooner
terminated in accordance with the provisions hereof, cease and terminate on
(9) (the "expiration date"), at 5:00 p.m., San Francisco time.
The term "fair market value" with respect to the Common Shares shall
have the meaning herein as defined in resolutions adopted from time to time
under the Plan.
The term "employed by the Company" or other similar terms as used in
this option shall include a person who is an employee of the Company or any
subsidiary of the Company, a consultant or advisor to the Company or a
subsidiary of the Company or a person who is an employee of a
A-3
<PAGE> 7
consultant or advisor to the Company or a subsidiary of the Company; provided,
however, each consultant or advisor must provide bona fide services to the
Company or a subsidiary of the Company; and further provided, if you are an
employee of the Company or a subsidiary of the Company and become a consultant
or advisor providing bona fide services to the Company or a subsidiary of the
Company or an employee of such a consultant or advisor, the Company in its sole
discretion may, by notice given within three months immediately following the
date you cease to be an employee of the Company or subsidiary of the Company,
continue this option in full force and effect pursuant to its terms. In the
event that the Company does not give a notice of continuation as set forth in
the preceding sentence, you shall be deemed to have ceased to be employed by the
Company on the date you cease to be an employee of the Company or a subsidiary
of the Company and this option shall terminate on such date as set forth herein.
In addition, if you are an employee of a consultant or advisor to the Company or
a subsidiary of the Company, termination of employment with the Company shall be
deemed to occur upon the termination of any engagement of such consultant or
advisor by the Company and its subsidiaries; provided, however, the Company in
its sole discretion may, by notice given within three months immediately
following the date the consultant or advisor ceases to provide such services,
continue this option in full force and effect pursuant to its terms as long as
such consultant or advisor continues to provide other bona fide services to the
Company or a subsidiary of the Company. In the event that the Company does not
give a notice of continuation as set forth in the preceding sentence, you shall
be deemed to have ceased to be employed by the Company on the date of
termination of the engagement of the consultant or advisor as aforesaid and this
option shall terminate on such date as set forth herein.
Please acknowledge receipt of this option and insert your social
security number at the bottom of the duplicate copy herewith enclosed and return
the same within thirty (30) days from the date hereof to the office of the Chief
Financial Officer of the Company as set forth above.
I hereby acknowledge receipt of PRESIDIO GOLF TRUST, a Maryland
the foregoing option. real estate investment trust
By:
- --------------------------------------- ------------------------
Signature
------------------------
President
Social Security No.
--------------------
A-4
<PAGE> 8
Footnotes to Form of Option
(1) Insert either "non-statutory option" or "incentive stock option (as
defined in the Internal Revenue Code of 1986, as amended)"
(2) Insert purchase price of not less than 100% of fair market value on
date of grant
(3) Insert installments, if any
(4) Insert Accrual Date or Condition
(5) If share appreciation rights are granted, insert the following
paragraph:
"You may elect to exercise share appreciation rights with respect to
________ of the shares subject to option rights hereunder in lieu of
such option rights by surrendering the option rights as to all or a
portion of said shares as to which option rights shall at the time be
exercisable (including option rights exercisable after your termination
of employment, retirement or death) under the option and receiving,
with respect to each share as to which option rights are surrendered,
an amount in payment equal to the excess of the fair market value of
such share on the date of surrender over the purchase price specified
for such share in the option. Such payment may be either in cash or
Common Shares or a combination thereof, subject, in the case you
request to be paid in cash, to the consent of the Company given after
the exercise of this share appreciation right. The number of Common
Shares to be issued or delivered upon the exercise of share
appreciation rights shall be determined by dividing the amount of the
payment to be allocated to the acquisition of Common Shares by the fair
market value of a Common Share on the date of surrender; the value of
any fractional share to be paid in cash."
(6) This sentence may be revised to permit the optionee or the executor or
administrator of the optionee's estate to exercise this option within a
time period after retirement or death which exceeds three months,
provided such time period does not exceed the expiration date of the
option.
(7) If a non-statutory share option, insert the following sentence:
"Notwithstanding the provisions of this paragraph, if you are an
advisor or consultant to the Company that is an entity, in the sole
discretion of the Company, this option may be transferred to your
successor provided such successor continues as a consultant or advisor
to the Company."
A-5
<PAGE> 9
(8) This sentence should be inserted in options granted prior to
shareholder approval of the Plan.
(9) Date not more than ten (10) years after date of grant, preferably as of
the end of the month.
A-6
<PAGE> 1
EXHIBIT 10.4
1998 Restricted Share Plan
PRESIDIO GOLF TRUST, a Maryland real estate investment trust (the
"Company"), may from time to time on or before June ___, 2008, grant to
(collectively "Participant") officers (whether or not trustees), key employees,
consultants and advisors of the Company and its subsidiaries (including Presidio
Golf Limited Partnership) restricted shares of the Company's common shares of
beneficial interest, $.01 par value per share, (the "Restricted Shares") (the
"Plan"). An Affiliate of the Company may adopt the Plan only with the Company's
advance written consent and, once adopted, no Restricted Shares may be granted
without the Company's advance written approval. If Restricted Shares are granted
to an employee of an Affiliate, the Company may, in its sole discretion, require
that, as a condition of making the grant, the Affiliate shall agree to acquire
all Restricted Shares to be granted to its officers and key employees from the
Company at fair market value on the date of grant. For purposes of the Plan, an
Affiliate shall include a subsidiary or any partnership or limited liability
company in which the Company is the General Partner or in which the Company
holds, directly or indirectly a 50% interest in capital or profits. The
aggregate number of shares of Restricted Shares which may be sold to all
Participant pursuant to this Plan shall not exceed two hundred fifty thousand
(250,000) shares. Except as otherwise provided for herein, selection of
Participant, the determination of the terms and conditions of each grant and the
number of shares allocated to each Participant shall be made by a committee (the
"Committee") of non-employee trustees of the Company. The purchase price per
share, if any, to be specified in any grant pursuant to this Plan shall be
determined by the Committee at the time of grant and may be paid in cash, in
common shares of beneficial interest, $.01 par value per share, of the Company
(the "Common Shares") or in any combination thereof. The Board of Trustees
("Board") or the Committee may establish particular grant programs which specify
the terms and conditions of grants to a specific class of individuals. Each
grant under the Plan shall specify: (1) the number of Restricted Shares granted;
(2) the purchase price, if any, and the applicable payment period for the
Restricted Shares; (3) the restrictions, conditions, vesting criteria or
limitations (collectively the "Restrictions") imposed under a grant which would
cause a forfeiture of some or all of the Restricted Shares, and the period
during which the Restrictions will be applicable (the "Forfeiture Period"); and
(4) the amount payable by the Company, if any, upon the occurrence of a
forfeiture of some or all of the Restricted Shares, and the period over which
the Company will make any such required payments. Absent a contrary directive
from the Board , the Forfeiture Period under any grant shall not expire earlier
than three (3) calendar years from the date of grant or expire later than eight
(8) calendar years from the date of grant.
During the Forfeiture Period, any Restricted Shares granted under the
Plan shall not be transferable by the Participant other than by will or the laws
of descent and distribution, and Restricted Shares may be held only by the
Participant during such Participant's lifetime or by the Participant's guardian
or legal representative.
<PAGE> 2
No Participant shall have the rights of a shareholder of the Company as
to Restricted Shares subject to a grant until issuance of the Restricted Shares
after the Company records such shares in the Company's official records as
having been issued. No adjustment shall be made for distributions, cash
dividends or other rights for any record date which is prior to the date the
Restricted Shares are recorded as issued or transferred in the Company's
official records, except as provided in a particular grant.
At any time a Participant is required to pay to the Participant's
employer an amount required to be withheld under applicable income tax laws in
connection with the receipt of Restricted Shares or the expiration of the
Forfeiture Period the Participant may satisfy this obligation in whole or in
part by electing (the "Election") to have the Company withhold Common Shares
having a value equal to the amount required to be withheld. The value of the
shares to be withheld shall be based on the fair market value of such shares on
the date that the amount of tax to be withheld shall be determined ("Tax Date").
Each Election must be made prior to the Tax Date. The Board may disapprove of
any Election or may suspend or terminate the right to make Elections. An
Election is irrevocable.
If the Participant is an officer or director of the Company within the
meaning of Section 16 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), then the Election is subject to the following additional
restrictions:
A. No Election shall be effective for a Tax Date which occurs within
six months of the grant of the grant.
B. The Election must be made either six months prior to the Tax Date or
must be made during a period beginning on the third business day following the
date of release for publication of the Company's quarterly or annual summary
statements of sales and earnings and ending on the twelfth business day
following such date.
In the event of a share dividend, share split, combination or other
reduction in the number of issued shares of Restricted Shares, the Board may
make such adjustments in the number of Common Shares subject to this Plan, the
number of Restricted Shares subject to grants outstanding in this Plan, and the
purchase price specified in grants outstanding under this Plan as it may
determine to be appropriate and equitable. In the event of a change in control,
all Restrictions under grants outstanding hereunder shall terminate. Under the
terms of this Plan, a change of control includes a change of control of the
Company of a nature that would be required to be reported in response to Item
6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange Act as in
effect on January 1, 1998, provided that such a change of control shall be
deemed to have occurred at such time as (i) any "person" (as that term is
defined in Sections 13(b) and 14(b)(2) of the Exchange Act), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities representing 20% or more of the combined voting
power for election of trustees of the then outstanding securities of the
Company or any successor of the Company; (ii) during any period of two (2)
consecutive years or less, individuals who, at the beginning of such period,
constitute the Board cease, for any reason, to constitute at least
2
<PAGE> 3
a majority of the Board, unless the election or nomination for election of each
new Board member was approved by a vote of at least two-thirds of the Board
members then still in office who were Board members at the beginning of the
period; (iii) shareholders of the Company approve any merger, consolidation or
share exchange as a result of which the Common Shares of the Company shall be
changed, converted or exchanged (other than a merger with a wholly-owned
subsidiary of the Company, or any dissolution or liquidation of the Company or
any sale or the disposition of 50% or more of the assets or business of the
Company; or (iv) the shareholders of the Company approve any merger or
consolidation to which the Company is a party or a share exchange in which the
Company shall exchange its shares for shares of another corporation as a result
of which the persons who were the shareholders of the Company immediately prior
to the effective date of the merger, consolidation or share exchange, shall have
beneficial ownership of less than 50% of the combined voting power for election
of trustees or directors, as applicable, of the surviving entity following the
effective date of such merger, consolidation or share exchange. With respect to
any Company transaction which does not result in a change in control, all grants
will be subject to such adjustments as may be provided by the Board or by the
terms of the plan or agreement of merger, consolidation, reorganization,
dissolution or sale or exchange of Company assets.
The Board may, in its discretion, prescribe such provisions and
interpretations not inconsistent herewith as it shall deem necessary or
desirable for the implementation of this Plan. The Board may, without
shareholder consent, amend this Plan; provided, however, any amendment that
would (i) materially increase the benefits accruing to participants hereunder,
(ii) materially increase the number of shares which may be issued hereunder, or
(iii) materially modify the requirements as to eligibility for participation
hereunder, must be approved by a vote of the shareholders of the Company.
3
<PAGE> 4
Approved ,
----------- -------
1998 RESTRICTED SHARE PLAN
FORM OF RESTRICTED SHARE GRANT
[LETTERHEAD OF PRESIDIO GOLF TRUST]
, 19
------------ --
Dear :
-----------------
Pursuant to action taken by the Board of Trustees of Presidio Golf
Trust, a Maryland real estate investment trust (the "Company"), under the 1998
Restricted Share Plan (the "Plan"), you are hereby granted, upon and subject to
the provisions and conditions hereafter set forth, a total of (1) restricted
shares of the Company's common shares of beneficial interest, $.01 par value per
share (the "Restricted Shares").
Provided you remain employed by the Company on the date or dates shown
below (the "Vesting Date(s)") the corresponding number of shares set forth in
Table 1 no longer be subject to forfeiture.
TABLE 1
<TABLE>
<CAPTION>
No. of Shares VESTING DATE
------------- ------------
<S> <C>
(2) (3)
(2) (3)
(2) (3)
</TABLE>
If you terminate your employment prior to any Vesting Date for reasons
other than (4) , or as a result of a change in control of the Company, all
Restricted Shares will be forfeited as of the date of your termination of
employment, except as otherwise set forth herein. If you incur a termination of
employment due to (5) , or as a result of a change of control of the
Company, then the total number of Restricted Shares set forth in Table 1 which
have not yet become vested shall vest and become nonforfeitable as of the date
of your termination of employment.
A-1
<PAGE> 5
In addition, if you remain continuously employed by the Company as of
December 31, (6) , (6) , and (6) , respectively, and the Company's (7) then
the number of Restricted Shares set forth in Table 2 will no longer be subject
to forfeiture: (8)
Within (9) days you will receive a stock certificate representing the
Restricted Shares, except that the Company shall not be obligated to deliver any
shares unless and until (i) there has been compliance with any federal or state
laws or regulations or national securities exchange requirements which the
Company may deem applicable; and (ii) all legal matters in connection with the
sale and delivery of the Restricted Shares have been approved by the Company's
counsel. The Company may attach any legend to the Restricted Shares it deems
appropriate in order to reference this grant and/or the Plan.
The Chairman of the Board or President of the Company (or any Vice
President of the Company in the absence or unavailability of the Chairman of the
Board and President) may suspend or postpone the receipt of shares in payment of
the purchase price specified in this grant if at any time (i) he has knowledge
of information concerning the Company which upon disclosure to the public might,
in his opinion, materially affect the market price of shares of the Common
Stock; (ii) outside events of an extraordinary nature occur which, in his
opinion, may not have been effectively reflected in the market price of the
Common Stock; or (iii) such suspension or postponement for any other reason
would, in his opinion, be in the best interests of the Company.
The Board hereby reserves and shall have the right, by written notice
to you, to change the provisions of this grant in any manner that it may deem
necessary or advisable to carry out the purpose of this grant as a result of, or
to comply with, any change in applicable regulations, interpretations or
statutory enactment, provided that any such change shall be applicable only to
shares which remain subject to forfeiture as herein provided.
In the event of a stock dividend, stock split, combination or reduction
in the number of issued shares of Common Stock, the Board of Trustees may make
such adjustments in the number of Restricted Shares subject to this grant as it
may determine to be appropriate and equitable.
Prior to vesting, the Restricted Shares which are the subject of this
grant shall be held during your lifetime only by you and shall not be
transferable by you, expressly or by operation of law, except in the event of
your death, and then only to the extent and subject to the provisions and
conditions herein set forth. Prior to vesting, any attempted transfer or other
disposition thereof by you shall be void and shall constitute valid grounds for
cancellation of this grant by the Company.
The term "employed by the Company" or other similar terms as used in
this option shall include a person who is an employee of the Company or any
subsidiary of the Company, a consultant or advisor to the Company or a
subsidiary of the Company or a person who is an employee of a consultant or
advisor to the Company or a subsidiary of the Company; provided, however, each
consultant or advisor must provide bona fide services to the Company or a
subsidiary of the Company; and further provided, if you are an employee of the
Company or a subsidiary of the
A-2
<PAGE> 6
Company and become a consultant or advisor providing bona fide services to the
Company or a subsidiary of the Company or an employee of such a consultant or
advisor, the Company in its sole discretion may, by notice given within three
months immediately following the date you cease to be an employee of the Company
or subsidiary of the Company, continue this grant in full force and effect
pursuant to its terms. In the event that the Company does not give a notice of
continuation as set forth in the preceding sentence, you shall be deemed to have
ceased to be employed by the Company on the date you cease to be an employee of
the Company or a subsidiary of the Company and this grant shall terminate on
such date as set forth herein. In addition, if you are an employee of a
consultant or advisor to the Company or a subsidiary of the Company, termination
of employment with the Company shall be deemed to occur upon the termination of
any engagement of such consultant or advisor by the Company and its
subsidiaries; provided, however, the Company in its sole discretion may, by
notice given within three months immediately following the date the consultant
or advisor ceases to provide such services, continue this grant in full force
and effect pursuant to its terms as long as such consultant or advisor continues
to provide other bona fide services to the Company or a subsidiary of the
Company. In the event that the Company does not give a notice of continuation as
set forth in the preceding sentence, you shall be deemed to have ceased to be
employed by the Company on the date of termination of the engagement of the
consultant or advisor as aforesaid and this grant shall terminate on such date
as set forth herein.
Please acknowledge receipt of this grant and insert your social
security number at the bottom of the duplicate copy herewith enclosed and return
the same within thirty (30) days from the date hereof to the office of the Chief
Financial Officer of the Company, Building 106, Montgomery Street, Presidio Main
Post, P.O. Box 29355, San Francisco, California 94129.
I hereby acknowledge receipt of PRESIDIO GOLF TRUST, a Maryland real
the foregoing ________.. estate investment trust
By:
- ------------------------------------- ---------------------------
----------------------
President
Signature
Social Security No.
------------------
A-3
<PAGE> 7
Footnotes to Form of Restricted Share Grant
(1) Insert number of Restricted Shares.
(2) Insert number of shares that will vest, if any.
(3) Insert Vesting Date(s) that are based on employment.
(4) Insert the following language if Restricted Shares will vest upon
termination of employment due to death or disability: "for reasons
other than death, permanent disability..." This language should be
modified if one or more of these events will not result in immediate
vesting.
(5) If you inserted the language in (4), then insert the following: "death,
permanent disability (as determined by the Committee in its sole
discretion)." If you modified the language in (4), make corresponding
modifications to this section.
(6) Insert the performance measurement dates. For the initial grants insert
1999, 2000, and 2001.
(7) This section should contain the performance criteria which would
accelerate vesting under the grant. For the initial grants insert the
following language: "funds from operations for the preceding fiscal
year, as determined by the Company's auditors, in their sole
discretion, have increased by at least 12.5%."
(8) Insert performance measurements and the date(s) or time(s) of the
acceleration of vesting. For the first grants, Table 2 should be setup
as follows:
TABLE 2
<TABLE>
<CAPTION>
NO. OF SHARES VESTING DATE
------------- ------------
<S> <C>
December 31, 1999
-----
December 31, 2000
-----
December 31, 2001
-----
</TABLE>
(9) Insert number of days before Restricted Share certificates will be
issued.
A-4
<PAGE> 1
EXHIBIT 10.5
EXPENSE SHARING AGREEMENT
THIS EXPENSE SHARING AGREEMENT is dated as of _________________, 1998, by
and among PRESIDIO GOLF TRUST, a Maryland real estate investment trust (the
"Trust"), PRESIDIO GOLF LIMITED PARTNERSHIP, a Delaware limited partnership (the
"Operating Partnership," and together with the Trust, "Presidio"), and ARNOLD
PALMER GOLF MANAGEMENT LLC, a Delaware limited liability company ("Palmer
Management").
W I T N E S S E T H:
WHEREAS, prior to the consummation of Trust's initial public offering of
common shares of beneficial interest, (i) Palmer Management's general partner
and limited partnership interests in the Operating Partnership were converted
into units of limited partnership interests in the Operating Partnership; and
(ii) Palmer Management contributed certain of its properties to the Operating
Partnership; and
WHEREAS, pursuant to that certain Concession Contract (the "Concession
Agreement") dated September 29, 1995 by and between Palmer Management and the
United States of America, Department of the Interior, National Park Service,
Palmer Management leases certain premises located at Building 106, Montgomery
Street, Presidio Main Post, San Francisco, California 94129 (the "Office
Premises"); and
WHEREAS, the parties hereto believe that the mutual rendering of services
by Presidio and Palmer Management to each other will be to the mutual benefit of
each of the parties hereto.
NOW, THEREFORE, for good and valuable consideration, the receipt of which
is hereby acknowledged, Presidio and Palmer Management hereby agree as follows:
1. From and after the date hereof, Palmer Management will provide such
facilities within the Office Premises as reasonably requested by the Trust and
its subsidiaries, including the Operating Partnership. Notwithstanding the
foregoing, in no event shall Palmer Management be required to acquire any
additional facilities to provide facilities pursuant to this Agreement.
2. Palmer Management will be reimbursed by the Trust on the basis of an
allocation of the costs for such facilities based on the cost accounting method
used by the Trust and its subsidiaries and Palmer Management, respectively. For
purposes of determining the costs allocated with respect to Presidio's use of
space within the Office Premises, such costs will be based on the amounts
payable, including all occupancy costs, under the Concession Agreement.
<PAGE> 2
3. Each quarter Palmer Management shall prepare a schedule of the allocated
costs that Palmer Management has incurred on behalf of the Trust and the Trust
shall pay to Palmer Management the amount owed. Once each year after the close
of the year, the parties shall prepare a schedule of all of the costs and
expenses as allocated for such year which schedule, including supporting records
and work papers, shall be subject to review by independent auditors appointed by
the Trust to review the annual schedule. Notwithstanding the foregoing, in the
event that the parties shall disagree as to the appropriate allocation of such
costs and expenses, the decision of the Trust's independent auditors with
respect to the appropriate allocation of costs shall be final. As soon as
practicable after the annual schedule of costs has been determined as aforesaid
for any year, the party, if any, having a debit balance for such year, promptly
shall pay any amounts owed for such year to the other party.
4. This Agreement shall be for an initial term ending on December 31, 1999
and thereafter shall continue on a year to year basis. Notwithstanding the
foregoing, this Agreement may be terminated by either party, without penalty,
upon not less than thirty (30) days prior written notice as of December 31 of
any year.
5. The provisions of this Agreement, including the provisions of this
sentence, may not be amended, modified, supplemented or waived, nor may consent
to departures therefrom be given, without the written consent of Palmer
Management and the Trust, as approved by a majority of the trustees of the Trust
who are not employees, officers or affiliates of a lessee of the Trust.
6. Any obligation or liability whatsoever of the Trust which may arise at
any time under this Agreement or any obligation or liability which may be
incurred by it pursuant to any other instrument, transaction or undertaking
contemplated hereby shall be satisfied, if at all, out of the Trust's assets
only. No such obligation or liability of the Trust shall be personally binding
upon, nor shall resort for the enforcement thereof be had to, the property of
any of its shareholders, trustees, officers, employees or agents (solely as a
result of their status as shareholders, trustees, officers, employees or
agents), regardless of whether such obligation or liability is in the nature of
contract, tort or otherwise.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties have executed this Agreement as the date
first set forth above.
PRESIDIO GOLF TRUST, a Maryland
real estate investment trust
By:
-------------------------------
Its:
---------------------------
PRESIDIO GOLF LIMITED
PARTNERSHIP, a Delaware limited
partnership
By: PRESIDIO GOLF TRUST
Its: General Partner
By:
-------------------------------
Its:
---------------------------
ARNOLD PALMER GOLF
MANAGEMENT LLC, a Delaware limited
liability company
By:
-------------------------------
Its:
---------------------------
3
<PAGE> 1
EXHIBIT 10.6
FORM OF
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of
_____________, 1998 by and between PRESIDIO GOLF TRUST, a Maryland real estate
investment trust (the "Trust"), PRESIDIO GOLF LIMITED PARTNERSHIP, a Delaware
limited partnership (the "Partnership" and, together with the Trust, the
"Company"), and Peter J. Nanula (the "Employee").
RECITALS
A. The Company is the owner of golf courses and golf course resorts.
B. The Trust is effecting an initial public offering ("IPO") of shares
of beneficial interest of the Trust pursuant to a registration statement on Form
S-11 filed with the Securities and Exchange Commission ("Registration
Statement").
C. The Employee has extensive experience in the acquisition, ownership
and financing of golf courses.
D. The Company desires to employ the Employee as its President and
Chief Executive Officer, and the Employee desires to be so employed by the
Company, all on the terms and conditions hereinafter set forth.
AGREEMENTS
In consideration of the premises and the mutual covenants hereinafter
set forth, the parties agree as follows:
1. AGREEMENT OF EMPLOYMENT; EFFECTIVE DATE. The Company agrees to
employ the Employee, and the Employee agrees to be employed by the Company, upon
the terms and conditions hereinafter set forth. None of the provisions of this
Agreement shall become effective until the date on which the IPO is consummated
(the "Effective Date").
2. TERM. The initial term of this Agreement shall be for a period of
three (3) years from and after the Effective Date (the "Initial Term"), unless
terminated sooner as provided in this Agreement. At the end of the Initial Term
or at the end of any Extended Term (as hereinafter defined), the term of this
Agreement shall be extended for an additional one-year period (the "Extended
Term"), unless any party hereto gives a notice not less than 30 days prior to
the end of the Initial Term or the Extended Term, as the case may be. The period
commencing with the Effective
<PAGE> 2
Date and ending on the date this Agreement expires or is terminated is
hereinafter referred to as the "Term."
3. DUTIES.
(a) During the Term, the Employee shall serve as the Trust's
President and Chief Executive Officer and shall have the power and
authority of the President and Chief Executive Officer as set forth in
the bylaws of the Trust as in effect on the Effective Date, subject to
the supervision and direction of the Board of the Trustees of the Trust
("Board of the Trust").
(b) The Employee agrees to devote substantially all of his
business time and his best efforts to the performance of his duties
under this Agreement. Notwithstanding the foregoing provisions of this
Paragraph 3(b), the Employee may devote reasonable time to activities
other than those required under this Agreement, including activities
involving charitable and similar types of activities, to the extent
such activities do not, in the judgment of the Board of the Trust,
inhibit or prohibit the performance of the Employee's duties under this
Agreement or conflict in any material way with the business of the
Company; provided, that except as specified above, the Employee may not
accept employment with any other individual or entity, or engage in any
other venture which is directly or indirectly in conflict or
competition with the then existing business of the Company. The parties
agree that the provisions of this Paragraph 3(b) shall not limit in any
manner the ability of Employee to serve as a member or director of
Arnold Palmer Golf Management LLC.
(c) The Employee's principal base of operation for the
performance of his duties and responsibilities under this Agreement
shall be the offices of the Company in the San Francisco, California
area.
4. COMPENSATION OF EMPLOYEE. For the services rendered by the
Employee to the Company under this Agreement during the Term, the Company shall
compensate the Employee as follows:
(a) BASE SALARY. The Company shall pay the Employee for his
services salary at the rate of $250,000 per annum (the "Base
Salary") payable in installments in accordance with the customary
payroll practices of the Company applicable to all executives. Such
Base Salary shall be subject to annual merit increases at the
discretion of the Compensation Committee of the Board of the Trust (the
"Compensation Committee").
(b) BONUS. The Employee shall be eligible for a discretionary
annual bonus "Annual Bonus") based upon his performance, any increase
in the share price, funds from operations or any other criteria deemed
relevant by the Compensation Committee. The amount of any Annual Bonus
shall be determined by the Compensation Committee in its sole
discretion. The Annual Bonus shall be paid at the same time as annual
bonuses are paid to other executives of the Company generally for each
year, but in no event later than fifteen
2
<PAGE> 3
(15) days after the completion of the audit of the financial statements
of the Company by the Company's outside independent accounts for such
year.
(c) SUPPLEMENTAL BONUS. The Company shall pay the Employee a
supplemental bonus ("Supplemental Bonus") if in the opinion of the
Compensation Committee, Employee has during a year expended extra
effort on acquisitions, financing or other transactions outside of the
Company's ordinary course of business. The amount of any Supplemental
Bonus shall be determined by the Compensation Committee in its sole
discretion. The Supplemental Bonus shall be paid at the same time as
bonuses are paid to other executives of the Company generally for each
year, but in no event later than fifteen (15) days after the completion
of the audit of the financial statements of the Company by the
Company's outside independent accountants for such year.
(d) INITIAL OPTION. The Trust shall grant to the Employee on
the Effective Date an option to purchase 125,000 shares of beneficial
interest of the Trust at an exercise price equal to the price at which
such shares are initially sold to the public pursuant to the IPO, such
options to be exercisable in three equal installments on the first,
second and third anniversaries of the Effective Date. Such option (i)
shall be issued pursuant to the terms and conditions of the Trust's
1998 Employee Share Option and Award Plan (the "Option Plan"); and (ii)
shall not be intended to be an "incentive share option" as such term is
defined in Section 422 of the Internal Revenue Code of 1986.
Further, in the event of a Change of Control (as hereinafter
defined), the Board of Directors shall make every commercially
reasonable effort to have the Company (or any other surviving company
in a transaction or series of transactions designed to effectuate a
change in control) substitute its options or any unexercised portion of
the options granted Employee upon appropriate and equitable terms and
provide for a period of exercise equal to the remaining term of the
option (i.e., the option exercise period will not expire upon a
termination of employment).
Formal documentation of such option shall be delivered to the
Employee on the Effective Date.
(e) ADDITIONAL OPTIONS. The Employee will be eligible for
consideration for the grant of additional options under the Option Plan
and any other employee stock option plan adopted by the Company based
upon the Employee's performance and the performance of the Company.
(f) INITIAL RESTRICTED SHARES. Employee shall receive a
restricted share grant of 50,000 shares upon completion of the first
quarter following the fiscal year 1999 in three (3) equal annual
installments if (1) the Trust has an increase in the funds from
operations per share for the most recent fiscal year of at least 12.5%
compared to the funds from operations per share as set forth in the
Company's published reports for the prior year and (2) the Trust
3
<PAGE> 4
has an increase in the funds from operations per share in the first
quarter following the completion of the most recent fiscal year
compared with the corresponding quarter in the prior year. Upon
completion of the first quarter of 2000 and 2001, grants, with respect
to shares which have not theretofore been made, shall be made, if on a
cumulative basis, the Trust has met the standards for such share
grants. With respect to (1) above, the first calculation year is 1999
compared to pro forma 1998 as set forth in the final prospectus
relating to the IPO. Each award shall (1) be issued under the terms of
the Company's 1998 Restricted Share Award Plan, (2) be made as soon as
practicable after funds from operations for a year or quarter has been
determined, and (3) be subject to vesting by continued employment by
the Company in equal installments over a 3-year period.
Formal documentation of such restricted share award shall be
delivered to Employee on the Effective Date.
(g) ADDITIONAL RESTRICTED SHARE AWARDS. Employee will be
eligible for consideration by the Compensation Committee for the grant
of additional restricted share awards under the Company's 1998
Restricted Share Award Plan based upon Employee's performance and the
performance of the Company.
(h) EMPLOYEE BENEFITS. The Employee shall be entitled to
participate in any "Employee Benefit Plan," as defined in Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended
(each a "Plan") covering employees of the Company generally, upon
meeting the eligibility conditions for Plan participation as
established under the terms of the applicable Plan. The Employee shall
also be entitled to participate in other benefit plans that the Company
provides to other senior executive officers of the Company generally,
subject to the terms and conditions applicable to such benefit.
(i) VACATION. The Employee shall be entitled to three (3)
weeks of paid vacation each fiscal year of the Company.
(j) WITHHOLDING. All compensation payable to the Employee
shall be reduced by Social Security taxes and withholding taxes for
which Employee is obligated and any other taxes that may be lawfully
levied by any governmental authority which the Company may be required
by law from time to time to withhold.
5. REIMBURSEMENT. The Company shall reimburse the Employee for the
normal and reasonable expenses incurred by him during the Term in connection
with the performance of his duties hereunder. The Employee shall furnish the
Company with such records and receipts as are required to substantiate such
expenses in accordance with Company policy.
4
<PAGE> 5
6. DEATH OR DISABILITY.
(a) If the Employee dies, this Agreement shall automatically
terminate. In such event, the Employee's legal representative shall be
entitled to receive from the Company (i) such death benefit payment, if
any, as is provided under the Company's personnel policies in effect at
the time of his death for payment to legal representatives of the
Company's executive employees generally, and (ii) all other employee
benefits earned by the Employee that have fully accrued and vested but
not been paid as of the date of the Employee's death (including any
earned but unpaid vacation pay).
(b) If the Employee suffers a permanent disability (as
hereinafter defined), the Company may terminate this Agreement by
giving written notice to the Employee. For the purposes hereof,
"permanent disability" shall mean a "permanent disability" as defined
in any long-term disability policy maintained by the Company which
covers Employee and, in the event that the Company does not maintain a
long-term disability policy covering Employee, "permanent disability"
shall mean any illness, injury or infirmity which renders or is
reasonably expected to render the Employee unable to perform his duties
hereunder for a period of ninety (90) days in any three hundred and
sixty (360) day period. The Company shall give the Employee thirty (30)
days' advance notice of termination in the event the termination occurs
as a result of an illness, injury or infirmity which is reasonably
expected to render the Employee unable to perform his duties hereunder
for the aforesaid period.
In the event the Company and the Employee do not agree that
the Employee is suffering from an illness, injury or infirmity which is
reasonably expected to render the Employee unable to perform his duties
hereunder for the aforesaid period, then the Chairman of the Board of
Trustees of the Trust and the Employee (or the Employee's legal
representative if the Employee is unable to act) shall together select
a licensed physician who shall, within thirty (30) days from the date
upon which he or she is selected, make a conclusive determination as to
whether or not the Employee is suffering from a permanent disability.
In the event that the parties are unable to agree upon the selection of
a physician, the Employee (or the Employee's legal representative if
the Employee is unable to act) and the Company shall each separately
select, within fifteen (15) days from the date such disagreement
arises, a licensed physician. Together, the physicians so selected
shall designate a third licensed physician who shall, within fifteen
(15) days from the date of his selection, make the conclusive
determination as to whether or not the Employee is suffering from a
permanent disability.
In the event of a termination due to permanent disability, the
Employee shall be entitled to receive from the Company (i) such
disability benefits, if any, as are provided to the Employee under the
Company's personnel policies generally in effect at the time of the
termination of this Agreement, and (ii) all other employee benefits
earned by the Employee that have fully accrued and vested but not been
paid at the time of the termination of this
5
<PAGE> 6
Agreement (including any earned but unpaid vacation pay) at such times
as payments are required under the terms of the applicable Plan.
(c) In addition, notwithstanding the provisions of Paragraphs
6(a) and 6(b) to the contrary, all employee options and restricted
share awards, shall, upon the termination due to death or disability of
Employee, accelerate and vest and shall be exercisable or any
restriction shall lapse in accordance with the terms of the respective
grant.
7. TERMINATION.
(a) TERMINATION FOR CAUSE. The Company may terminate the
employment of the Employee under this Paragraph 7(a) if the Employee
(i) commits an act of fraud with respect to the Company, (ii) is
convicted of a felony, (iii) engages in conduct causing demonstrable
and serious injury to the business of the Company, (iv) continually
fails substantially to perform his duties under Paragraph 3(a) hereof
(other than any such failure resulting from the disability of the
Employee or any such failure occurring after any of the events
constituting "Good Reason" hereunder has occurred) for a period of
thirty (30) days after receipt by the Employee of a written demand for
substantial performance has been delivered by the Company to the
Employee, which written demand specifically identifies in reasonable
detail the manner in which the Company believes that the Employee has
not substantially performed his duties hereunder, or (v) the material
breach by the Employee of any of his obligations under Paragraphs 9 or
10 hereof and the failure of the Employee to remedy such breach within
thirty (30) days after the receipt by the Employee of a written notice
from the Company specifying in reasonable detail the nature of such
breach. Termination pursuant to this Paragraph 7(a) shall be herein
referred to as a "Termination for Cause." Upon a Termination for Cause,
the Company shall have no further obligation hereunder except to pay
Employee Base Salary through the date of termination and other employee
benefits earned by the Employee that have fully accrued and vested but
not been paid at the time of such termination (including any earned but
unpaid vacation pay).
(b) TERMINATION WITHOUT CAUSE. The Company may terminate the
employment of the Employee hereunder without cause pursuant to this
Paragraph 7(b). Such termination shall be effective by providing the
Employee with a written notice of termination. Termination pursuant to
this Paragraph 7(b) is referred to in this Agreement as "Termination
Without Cause." If the Company terminates the Employee's employment
under this Paragraph 7(b), the Company's only obligations hereunder
shall be to (A) pay the Employee any Base Salary and other benefits
that have fully accrued and vested but not been paid as of the
effective date of such termination (including any earned but unpaid
vacation pay), and (B) make the severance payments described in
Paragraph 8 hereof.
(c) TERMINATION BY EMPLOYEE. The Employee may terminate his
employment hereunder by providing the Company with a written notice of
termination at least sixty (60) days prior to the effective date of
such termination unless such termination is due to a Change
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<PAGE> 7
in Control (as hereinafter defined), in which case such notice shall be
effective at the time the Change in Control occurs. If the Employee
terminates his employment under this Paragraph 7(c) other than for Good
Reason, the Company shall have no further obligation to pay hereunder
except to pay the Employee Base Salary and other benefits that have
fully accrued and vested but not been paid as of the effective date of
such termination (including any earned but unpaid vacation pay). If the
Employee terminates his employment under this Paragraph 7(c) for Good
Reason (a "Termination for Good Reason"), such termination shall be
treated as if it were a Termination Without Cause pursuant to Paragraph
7(b).
As used herein, "Good Reason" shall mean (a) the material
breach by the Company of any of its agreements set forth in Paragraphs
3(a), 3(c), 4(a) through 4(i) and 5 hereof which continues unremedied
for a period of thirty (30) days after receipt by the Company of a
written demand for performance from the Employee, which written demand
specifically identifies in reasonable detail the manner in which
Employee believes that the Company has not performed its obligations;
provided, however, that no notice or grace period shall be required
with respect to the failure of the Company to pay the Base Salary when
due, (b) the occurrence of a Change in Control after the Effective
Date; provided the Employee notifies the Company of his desire to
terminate this Agreement prior to the time the Change in Control
occurs, (c) a material change in the significant responsibilities of
the Employee hereunder, or (d) the Company's offices in the San
Francisco, California area no longer constitute the principal base of
operation for the performance of the duties and responsibilities of the
Employee under this Agreement. Notwithstanding the foregoing, in the
event of termination by Employee in the case of a Change of Control,
Employee shall continue in the employ of the Company for up to thirty
(30) days after the Change in Control occurs upon the terms and
conditions set forth herein upon the written request of the Company
made at least thirty (30) days prior to the date the Change in Control
occurs. As used in this Agreement, "Change in Control" shall mean (a)
any "person" (as such term is used in Sections 13(d) and 14(d)(2) of
the Securities Exchange Act of 1934, as amended) becomes the beneficial
owner, directly or indirectly, of securities of the Trust representing
30% or more of the combined voting power of the Trust's outstanding
securities (excluding Arnold Palmer Golf Management LLC, Olympus Real
Estate Corporation, Montclair Hotel Investors, Inc. or any of their
respective Affiliates (as defined in Paragraph 9), (b) during any
period of twenty-four consecutive months, individuals who at the
beginning of such twenty-four month period were trustees of the Trust
cease for any reason to constitute at least a majority of the Board of
Trustees unless replaced by trustees nominated or elected by persons
who were trustees of the Trust at the beginning of such twenty-four
month period, (c) consummation of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all
of the assets of the Company (a "Business Combination"), in each case,
unless, following such Business Combination, (i) all or substantially
all of the individuals and entities who were the beneficial owners,
respectively, of the outstanding company common shares and outstanding
company voting securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 75% of,
respectively, the then outstanding shares of common shares and the
combined voting power of the then outstanding voting
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<PAGE> 8
securities entitled to vote generally n the election of directors, as
the case may be, of the corporation, trust or other entity resulting
from such Business Combination (including, without limitation, a
corporation, trust or other entity which as a result of such
transaction owns the Company or all of substantially all of the
Company's assets either directly or through one or more subsidiaries)
in substantially the same proportions as their ownership, immediately
prior to such Business Combination of the outstanding company common
shares and outstanding company voting securities, as the case may be,
(ii) no Person (excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related trust) of the
Company or such corporation, trust or other entity resulting from such
Business Combination) beneficially owns, directly or indirectly, 20% or
more of, respectively, the then outstanding shares of common stock of
the corporation, trust or other entity resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation, trust or other entity except to the
extent that such ownership existed prior to the Business Combination
and (iii) at least a majority of the members of the board of directors
of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the
initial agreement, or of the action of the Board, providing for such
Business Combination, or (d) approval by the shareholders of the
Company of a complete liquidation or dissolution of the Company.
(d) EFFECTS OF TERMINATION. The termination of this Agreement
shall not affect or impair the obligations of the parties under
Paragraphs 8, 9 or 10 or the obligation of the Company to make the
payments which are due to Employee as a result of such termination.
8. SEVERANCE PAYMENTS. Within thirty (30) days after the
effective date of a Termination Without Cause pursuant to Paragraph 7(b) hereof
or a Termination for Good Reason pursuant to Paragraph 7(c) hereof, the Company
shall pay to the Employee a lump sum amount, without discount, equal to the
greater of (a) the Base Salary which would have been payable to the Employee for
the remainder of the Term of this Agreement, (b) the Base Salary which would
have been payable to the Employee had this Agreement remained in effect for a
period of one year after such termination of employment, assuming the case of
(a) or (b) that Employee's Base Salary remained at the rate in effect prior to
such termination. In addition, all share options and restricted share awards
shall accelerate and vest as of the date of termination.
If in the opinion of tax counsel ("Tax Counsel") selected by the
Employee and reasonably acceptable to the Company, the Employee has or will
receive any compensation or recognize any income (whether or not pursuant to
this Agreement or any plan or other arrangement of the Company and whether or
not the Employee's employment with the Company has terminated) which constitute
an "excess parachute payment" within the meaning of Section 280G(b)(1) of the
Internal Revenue Code of 1986, as amended ("Code") (or for which a tax is
otherwise payable under section 4999 of the Code), then the Company shall pay to
the Employee an additional amount (the "Additional Amount") equal to the sum of
(i) all taxes payable by the Employee under Code section 4999 with respect to
all such excess parachute payments (or payments otherwise subject to tax under
4999 of
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<PAGE> 9
the Code) and the Additional Amount, plus (ii) all federal, state and local
income taxes payable by the Employee with respect to the Additional Amount. Upon
written request for payment by the Employee, detailing in a fashion reasonably
acceptable to the Company the amount payable by the Company as the Additional
Amount, the Company shall have 15 days to verify the calculations presented by
the Employee (the "Verification Period"). After the end of the Verification
Period, the Company shall have 15 days to pay the Employee the Additional
Amount. If the Company disputes the submission materials submitted by the
Employee, written notification of the dispute shall be provided to the Employee
within three days of the end of the Verification Period. Thereafter, a
third-party, acceptable to both the Company and the Employee, shall be selected
to resolve the dispute and shall sign as preparer of the Employee's return.
Notwithstanding the foregoing, all payments under this Paragraph 8 shall be made
prior to or on the date of the Employee's termination.
9. COMPETITION.
(a) In consideration of the Company's agreement to employ the
Employee as provided in Paragraph 3 hereof, the Employee hereby agrees
that during the Noncompete Period (as defined below), without the prior
written approval of the Company, the Employee shall not, except in the
course of his employment hereunder, directly or indirectly:
(i) participate in any manner, whether directly
or indirectly, in any Competing Company (as
hereinafter defined), either individually or
as an officer, director, employee, agent,
consultant, partner, investor (excluding
passive investments not aggregating more
than five percent (5%) of any such entity's
total outstanding voting securities),
principal or otherwise;
(ii) solicit, divert, take away or enter into any
leases or the like with, or attempt to
solicit, divert, take away or enter into any
leases or the like with, any entity or its
Affiliates which during the term of
Employee's employment hereunder leases one
or more golf courses owned by the Company or
Affiliate of the Company in the United
States; or
(iii) solicit, attempt to solicit, hire for
employment or engage, any person who is an
employee of the Company or an Affiliate of
the Company as of the date of the
termination of Employee's employment
hereunder, or who was an employee of the
Company or any Affiliate of the Company
within six (6) months immediately prior to
the date of the termination of Employee's
employment hereunder.
As used herein, "Competing Company" means any entity which
qualifies or intends to qualify for treatment as a real estate
investment trust under the Internal Revenue Code of 1986, as amended,
or any other entity (including a separate division of an entity) which
is engaged primarily in the business of acquiring, owning or leasing
golf courses. As used
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<PAGE> 10
herein, "Affiliate" means, when used with respect to an entity or the
Company, (i) any Person (as hereinafter defined) which directly or
indirectly controls, is controlled by or under common control with such
entity or the Company, and (ii) any Person who directly or indirectly
owns, controls or holds the power to vote ten percent (10%) or more of
the outstanding securities of such entity or the Company. As used
herein, "control" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies
of a Person, whether through the ownership of voting securities, by
contract or otherwise. As used herein, "Person" means any individual,
partnership, corporation, trust or other entity. As used herein,
"Noncompete Period" shall mean the period commencing on the Effective
Date and ending on the first anniversary of the date of the termination
of this Agreement.
(b) The Employee acknowledges that the Employee will be
involved at an executive level in the development, implementation and
management of the Company's national business strategies and plans,
including those which involve the Company's finances, research,
marketing, planning, operations, relations and property acquisitions.
By virtue of the Employee's unique and sensitive position and special
background, employment of the Employee by a Competing Company
represents a serious competitive danger to the Company, and the use of
the Employee's talent and knowledge and information about the Company's
business strategies can and would constitute a valuable competitive
advantage over the Company.
(c) The Employee acknowledges that enforcement of the
covenants set forth in this Paragraph 9 and in Paragraph 10 hereof will
not prevent him from earning a living in the golf industry. The
Employee further acknowledges that the restrictions contained herein
have been specifically negotiated and agreed to by the parties hereto
and are limited only to those restrictions necessary to protect the
Company from unfair competition.
(d) The Employee acknowledges that he has carefully read and
considered all of the terms of this Agreement, including particularly
the terms of this Paragraph 9 and of Paragraph 10 hereof, that the
Company has made a substantial investment in the Company's business and
that the restrictions provided in this Paragraph 9 and the following
Paragraph 10 hereof are reasonable and necessary for the Company's
protection. The Employee further acknowledges that damages at law will
not be a measurable or adequate remedy for breach of the covenants
contained in this Paragraph 9 or in Paragraph 10 hereof and,
accordingly the Employee consents to the entry by any court of
competent jurisdiction of any order enjoining him from violating any
such covenants. The parties hereto further agree that if, in any
judicial proceeding, a court should refuse to enforce any covenants set
forth in this Paragraph 9 or in Paragraph 10 hereof because of their
term or geographical scope, then such covenants shall be deemed to be
modified to permit their enforcement to the maximum extent permitted by
law.
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<PAGE> 11
10. CONFIDENTIALITY. The Employee acknowledges and agrees that the
Company competes in a highly competitive industry and in competitive markets and
that as an executive the Employee will have access to proprietary and
confidential information and trade secrets of the Company and its affiliates and
subsidiaries and their respective predecessors. The Employee agrees that he will
not, without the written consent of the Company, except in the course of
performing his duties hereunder, disclose or knowingly permit any Person under
his control to disclose to anyone not properly entitled to the information or
use for his own benefit or the benefit of anyone else other than the Company or
any affiliate or subsidiary of the Company, any such trade secrets or
proprietary or confidential information relating to the Company and related
entities.
11. WAIVER. A waiver by any party of any of the terms and
conditions of this Agreement in any instance shall not be deemed or construed to
be a waiver of such terms and conditions for the future, or of any subsequent
breach thereof.
12. NOTICES. Any and all notices required or permitted to be given
hereunder shall be in writing and shall be deemed to have been given when
personally delivered or, if mailed, on the third business day after it is
deposited in the United States mails, certified or registered mail, postage
prepaid and addressed as follows:
To the Employee: __________________________________
__________________________________
__________________________________
To the Company: Building 106, Montgomery Street
Presidio Main Post
P. O. Box 29355
San Francisco, California 94129
Attention: Chairman of the Board
Any party may change by notice the address to which notices to it are
to be addressed.
13. REPRESENTATION BY EMPLOYEE. The Employee represents and
warrants that he is not a party to or bound by any covenant or agreement which
in any manner restrains or restricts the activities of the Employee or his
ability to enter into this Agreement.
14. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California without regard
to the principles of conflicts of laws thereof.
15. AMENDMENTS, ETC. The Agreement may not be varied, altered,
modified, changed, or in any way amended except by an instrument in writing,
executed by the parties hereto or their legal representatives.
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<PAGE> 12
16. HEADINGS AND CAPTIONS. Headings and paragraph captions used
in this Agreement are intended for convenience of reference only and shall not
affect the interpretation of this Agreement.
17. EXECUTION IN COUNTERPARTS. This Agreement may be executed in
any number of counterparts, which taken together shall be deemed to constitute
one original.
18. MISCELLANEOUS.
(a) The Employee shall not have any right to commute, encumber
or dispose of the right to receive payment hereunder or of the right to
receive any of the benefits provided for hereunder.
(b) Upon the termination of Employee's employment hereunder,
at the sole option of the Company, the Employee shall be deemed to have
resigned from any office of the Company and its Affiliates which he may
then hold and shall promptly deliver to the Company (without retaining
any copies thereof) all Company files and documents, forms, letterhead,
business cards, charge cards, computer disks and any other written,
magnetic or printed materials relating to the business of the Company,
other than information available generally to the shareholders of the
Trust. Nothing in this Paragraph 18(b) shall in any way eliminate the
obligations of Employee under Paragraph 9.
(c) Each party shall bear its or his own costs in connection
with any controversy or dispute arising out of or relating to this
Agreement.
(d) Except as otherwise specifically noted hereunder, this
Agreement constitutes the entire agreement between the parties
concerning the subject matter hereof and supersedes all prior and
contemporaneous agreements, if any, between the parties relating to the
subject matter hereof. The enforceability of this Agreement shall not
cease or otherwise be adversely affected by the termination of the
Employee's employment with the Company.
(e) THE EMPLOYEE REPRESENTS TO THE COMPANY THAT HE IS
KNOWLEDGEABLE AND SOPHISTICATED AS TO BUSINESS MATTERS, INCLUDING THE
SUBJECT MATTER OF THIS AGREEMENT, THAT HE HAS READ THIS AGREEMENT AND
THAT HE UNDERSTANDS ITS TERMS. THE EMPLOYEE ACKNOWLEDGES THAT THERE IS
A RISK THAT THE IPO MAY NOT OCCUR. THE EMPLOYEE ACKNOWLEDGES THAT,
PRIOR TO ASSENTING TO THE TERMS OF THIS AGREEMENT, HE HAS BEEN GIVEN A
REASONABLE TIME TO REVIEW IT, TO CONSULT WITH COUNSEL OF HIS CHOICE,
AND TO NEGOTIATE AT ARM'S-LENGTH WITH THE COMPANY AS TO ITS CONTENTS.
THE EMPLOYEE AND THE COMPANY AGREE THAT THE LANGUAGE USED IN THIS
AGREEMENT IS THE LANGUAGE CHOSEN BY THE PARTIES TO EXPRESS THEIR MUTUAL
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<PAGE> 13
INTENT, AND THAT NO RULE OF STRICT CONSTRUCTION IS TO BE APPLIED
AGAINST ANY PARTY HERETO.
(f) This Agreement is personal to, and shall be non-assignable
by, the Employee. This Agreement shall be binding upon and inure to the
benefit of the Company and its successors and assigns.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
PRESIDIO GOLF TRUST
By: ____________________________________
Title: _____________________________
PRESIDIO GOLF LIMITED PARTNERSHIP
By: PRESIDIO GOLF TRUST, its general
partner
By: _____________________________
Title: ______________________
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<PAGE> 1
EXHIBIT 10.8
FORM OF
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of
_____________, 1998 by and between PRESIDIO GOLF TRUST, a Maryland real estate
investment trust (the "Trust"), PRESIDIO GOLF LIMITED PARTNERSHIP, a Delaware
limited partnership (the "Partnership" and, together with the Trust, the
"Company"), and George T. Haworth (the "Employee").
RECITALS
A. The Company is the owner of golf courses and golf course resorts.
B. The Trust is effecting an initial public offering ("IPO") of shares
of beneficial interest of the Trust pursuant to a registration statement on Form
S-11 filed with the Securities and Exchange Commission ("Registration
Statement").
C. The Employee has extensive experience in the acquisition, ownership
and financing of golf courses.
D. The Company desires to employ the Employee as its President and
Chief Executive Officer, and the Employee desires to be so employed by the
Company, all on the terms and conditions hereinafter set forth.
AGREEMENTS
In consideration of the premises and the mutual covenants hereinafter
set forth, the parties agree as follows:
1. AGREEMENT OF EMPLOYMENT; EFFECTIVE DATE. The Company agrees to
employ the Employee, and the Employee agrees to be employed by the Company, upon
the terms and conditions hereinafter set forth. None of the provisions of this
Agreement shall become effective until the date on which the IPO is consummated
(the "Effective Date").
2. TERM. The initial term of this Agreement shall be for a period of
three (3) years from and after the Effective Date (the "Initial Term"), unless
terminated sooner as provided in this Agreement. At the end of the Initial Term
or at the end of any Extended Term (as hereinafter defined), the term of this
Agreement shall be extended for an additional one-year period (the "Extended
Term"), unless any party hereto gives a notice not less than 30 days prior to
the end of the Initial Term or the Extended Term, as the case may be. The period
commencing with the Effective
<PAGE> 2
Date and ending on the date this Agreement expires or is terminated is
hereinafter referred to as the "Term."
3. DUTIES.
(a) During the Term, the Employee shall serve as the Trust's
President and Chief Executive Officer and shall have the power and
authority of the President and Chief Executive Officer as set forth in
the bylaws of the Trust as in effect on the Effective Date, subject to
the supervision and direction of the Board of the Trustees of the Trust
("Board of the Trust").
(b) The Employee agrees to devote substantially all of his
business time and his best efforts to the performance of his duties
under this Agreement. Notwithstanding the foregoing provisions of this
Paragraph 3(b), the Employee may devote reasonable time to activities
other than those required under this Agreement, including activities
involving charitable and similar types of activities, to the extent
such activities do not, in the judgment of the Board of the Trust,
inhibit or prohibit the performance of the Employee's duties under this
Agreement or conflict in any material way with the business of the
Company; provided, that except as specified above, the Employee may not
accept employment with any other individual or entity, or engage in any
other venture which is directly or indirectly in conflict or
competition with the then existing business of the Company. The parties
agree that the provisions of this Paragraph 3(b) shall not limit in any
manner the ability of Employee to serve as a member or director of
Arnold Palmer Golf Management LLC.
(c) The Employee's principal base of operation for the
performance of his duties and responsibilities under this Agreement
shall be the offices of the Company in the San Francisco, California
area.
4. COMPENSATION OF EMPLOYEE. For the services rendered by the
Employee to the Company under this Agreement during the Term, the Company shall
compensate the Employee as follows:
(a) BASE SALARY. The Company shall pay the Employee for his
services salary at the rate of $175,000 per annum (the "Base
Salary") payable in installments in accordance with the customary
payroll practices of the Company applicable to all executives. Such
Base Salary shall be subject to annual merit increases at the
discretion of the Compensation Committee of the Board of the Trust (the
"Compensation Committee").
(b) BONUS. The Employee shall be eligible for a discretionary
annual bonus ("Annual Bonus") based upon his performance, any increase
in the share price, funds from operations or any other criteria deemed
relevant by the Compensation Committee. The amount of any Annual Bonus
shall be determined by the Compensation Committee in its sole
discretion. The Annual Bonus shall be paid at the same time as annual
bonuses are paid to other executives of the Company generally for each
year, but in no event later than fifteen
2
<PAGE> 3
(15) days after the completion of the audit of the financial statements
of the Company by the Company's outside independent accounts for such
year.
(c) SUPPLEMENTAL BONUS. The Company shall pay the Employee a
supplemental bonus ("Supplemental Bonus") if in the opinion of the
Compensation Committee, Employee has during a year expended extra
effort on acquisitions, financing or other transactions outside of the
Company's ordinary course of business. The amount of any Supplemental
Bonus shall be determined by the Compensation Committee in its sole
discretion. The Supplemental Bonus shall be paid at the same time as
bonuses are paid to other executives of the Company generally for each
year, but in no event later than fifteen (15) days after the completion
of the audit of the financial statements of the Company by the
Company's outside independent accountants for such year.
(d) INITIAL OPTION. The Trust shall grant to the Employee on
the Effective Date an option to purchase 65,000 shares of beneficial
interest of the Trust at an exercise price equal to the price at which
such shares are initially sold to the public pursuant to the IPO, such
options to be exercisable in three equal installments on the first,
second and third anniversaries of the Effective Date. Such option (i)
shall be issued pursuant to the terms and conditions of the Trust's
1998 Employee Share Option and Award Plan (the "Option Plan"); and (ii)
shall not be intended to be an "incentive share option" as such term is
defined in Section 422 of the Internal Revenue Code of 1986.
Further, in the event of a Change of Control (as hereinafter
defined), the Board of Directors shall make every commercially
reasonable effort to have the Company (or any other surviving company
in a transaction or series of transactions designed to effectuate a
change in control) substitute its options or any unexercised portion of
the options granted Employee upon appropriate and equitable terms and
provide for a period of exercise equal to the remaining term of the
option (i.e., the option exercise period will not expire upon a
termination of employment).
Formal documentation of such option shall be delivered to the
Employee on the Effective Date.
(e) ADDITIONAL OPTIONS. The Employee will be eligible for
consideration for the grant of additional options under the Option Plan
and any other employee stock option plan adopted by the Company based
upon the Employee's performance and the performance of the Company.
(f) INITIAL RESTRICTED SHARES. Employee shall receive a
restricted share grant of 25,000 shares upon completion of the first
quarter following the fiscal year 1999 in three (3) equal annual
installments if (1) the Trust has an increase in the funds from
operations per share for the most recent fiscal year of at least 12.5%
compared to the funds from operations per share as set forth in the
Company's published reports for the prior year and (2) the Trust
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<PAGE> 4
has an increase in the funds from operations per share in the first
quarter following the completion of the most recent fiscal year
compared with the corresponding quarter in the prior year. Upon
completion of the first quarter of 2000 and 2001, grants, with respect
to shares which have not theretofore been made, shall be made, if on a
cumulative basis, the Trust has met the standards for such share
grants. With respect to (1) above, the first calculation year is 1999
compared to pro forma 1998 as set forth in the final prospectus
relating to the IPO. Each award shall (1) be issued under the terms of
the Company's 1998 Restricted Share Award Plan, (2) be made as soon as
practicable after funds from operations for a year or quarter has been
determined, and (3) be subject to vesting by continued employment by
the Company in equal installments over a 3-year period.
Formal documentation of such restricted share award shall be
delivered to Employee on the Effective Date.
(g) ADDITIONAL RESTRICTED SHARE AWARDS. Employee will be
eligible for consideration by the Compensation Committee for the grant
of additional restricted share awards under the Company's 1998
Restricted Share Award Plan based upon Employee's performance and the
performance of the Company.
(h) EMPLOYEE BENEFITS. The Employee shall be entitled to
participate in any "Employee Benefit Plan," as defined in Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended
(each a "Plan") covering employees of the Company generally, upon
meeting the eligibility conditions for Plan participation as
established under the terms of the applicable Plan. The Employee shall
also be entitled to participate in other benefit plans that the Company
provides to other senior executive officers of the Company generally,
subject to the terms and conditions applicable to such benefit.
(i) VACATION. The Employee shall be entitled to three (3)
weeks of paid vacation each fiscal year of the Company.
(j) WITHHOLDING. All compensation payable to the Employee
shall be reduced by Social Security taxes and withholding taxes for
which Employee is obligated and any other taxes that may be lawfully
levied by any governmental authority which the Company may be required
by law from time to time to withhold.
5. REIMBURSEMENT. The Company shall reimburse the Employee for the
normal and reasonable expenses incurred by him during the Term in connection
with the performance of his duties hereunder. The Employee shall furnish the
Company with such records and receipts as are required to substantiate such
expenses in accordance with Company policy.
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<PAGE> 5
6. DEATH OR DISABILITY.
(a) If the Employee dies, this Agreement shall automatically
terminate. In such event, the Employee's legal representative shall be
entitled to receive from the Company (i) such death benefit payment, if
any, as is provided under the Company's personnel policies in effect at
the time of his death for payment to legal representatives of the
Company's executive employees generally, and (ii) all other employee
benefits earned by the Employee that have fully accrued and vested but
not been paid as of the date of the Employee's death (including any
earned but unpaid vacation pay).
(b) If the Employee suffers a permanent disability (as
hereinafter defined), the Company may terminate this Agreement by
giving written notice to the Employee. For the purposes hereof,
"permanent disability" shall mean a "permanent disability" as defined
in any long-term disability policy maintained by the Company which
covers Employee and, in the event that the Company does not maintain a
long-term disability policy covering Employee, "permanent disability"
shall mean any illness, injury or infirmity which renders or is
reasonably expected to render the Employee unable to perform his duties
hereunder for a period of ninety (90) days in any three hundred and
sixty (360) day period. The Company shall give the Employee thirty (30)
days' advance notice of termination in the event the termination occurs
as a result of an illness, injury or infirmity which is reasonably
expected to render the Employee unable to perform his duties hereunder
for the aforesaid period.
In the event the Company and the Employee do not agree that
the Employee is suffering from an illness, injury or infirmity which is
reasonably expected to render the Employee unable to perform his duties
hereunder for the aforesaid period, then the Chairman of the Board of
Trustees of the Trust and the Employee (or the Employee's legal
representative if the Employee is unable to act) shall together select
a licensed physician who shall, within thirty (30) days from the date
upon which he or she is selected, make a conclusive determination as to
whether or not the Employee is suffering from a permanent disability.
In the event that the parties are unable to agree upon the selection of
a physician, the Employee (or the Employee's legal representative if
the Employee is unable to act) and the Company shall each separately
select, within fifteen (15) days from the date such disagreement
arises, a licensed physician. Together, the physicians so selected
shall designate a third licensed physician who shall, within fifteen
(15) days from the date of his selection, make the conclusive
determination as to whether or not the Employee is suffering from a
permanent disability.
In the event of a termination due to permanent disability, the
Employee shall be entitled to receive from the Company (i) such
disability benefits, if any, as are provided to the Employee under the
Company's personnel policies generally in effect at the time of the
termination of this Agreement, and (ii) all other employee benefits
earned by the Employee that have fully accrued and vested but not been
paid at the time of the termination of this
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<PAGE> 6
Agreement (including any earned but unpaid vacation pay) at such times
as payments are required under the terms of the applicable Plan.
(c) In addition, notwithstanding the provisions of Paragraphs
6(a) and 6(b) to the contrary, all employee options and restricted
share awards, shall, upon the termination due to death or disability of
Employee, accelerate and vest and shall be exercisable or any
restriction shall lapse in accordance with the terms of the respective
grant.
7. TERMINATION.
(a) TERMINATION FOR CAUSE. The Company may terminate the
employment of the Employee under this Paragraph 7(a) if the Employee
(i) commits an act of fraud with respect to the Company, (ii) is
convicted of a felony, (iii) engages in conduct causing demonstrable
and serious injury to the business of the Company, (iv) continually
fails substantially to perform his duties under Paragraph 3(a) hereof
(other than any such failure resulting from the disability of the
Employee or any such failure occurring after any of the events
constituting "Good Reason" hereunder has occurred) for a period of
thirty (30) days after receipt by the Employee of a written demand for
substantial performance has been delivered by the Company to the
Employee, which written demand specifically identifies in reasonable
detail the manner in which the Company believes that the Employee has
not substantially performed his duties hereunder, or (v) the material
breach by the Employee of any of his obligations under Paragraphs 9 or
10 hereof and the failure of the Employee to remedy such breach within
thirty (30) days after the receipt by the Employee of a written notice
from the Company specifying in reasonable detail the nature of such
breach. Termination pursuant to this Paragraph 7(a) shall be herein
referred to as a "Termination for Cause." Upon a Termination for Cause,
the Company shall have no further obligation hereunder except to pay
Employee Base Salary through the date of termination and other employee
benefits earned by the Employee that have fully accrued and vested but
not been paid at the time of such termination (including any earned but
unpaid vacation pay).
(b) TERMINATION WITHOUT CAUSE. The Company may terminate the
employment of the Employee hereunder without cause pursuant to this
Paragraph 7(b). Such termination shall be effective by providing the
Employee with a written notice of termination. Termination pursuant to
this Paragraph 7(b) is referred to in this Agreement as "Termination
Without Cause." If the Company terminates the Employee's employment
under this Paragraph 7(b), the Company's only obligations hereunder
shall be to (A) pay the Employee any Base Salary and other benefits
that have fully accrued and vested but not been paid as of the
effective date of such termination (including any earned but unpaid
vacation pay), and (B) make the severance payments described in
Paragraph 8 hereof.
(c) TERMINATION BY EMPLOYEE. The Employee may terminate his
employment hereunder by providing the Company with a written notice of
termination at least sixty (60) days prior to the effective date of
such termination unless such termination is due to a Change
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<PAGE> 7
in Control (as hereinafter defined), in which case such notice shall be
effective at the time the Change in Control occurs. If the Employee
terminates his employment under this Paragraph 7(c) other than for Good
Reason, the Company shall have no further obligation to pay hereunder
except to pay the Employee Base Salary and other benefits that have
fully accrued and vested but not been paid as of the effective date of
such termination (including any earned but unpaid vacation pay). If the
Employee terminates his employment under this Paragraph 7(c) for Good
Reason (a "Termination for Good Reason"), such termination shall be
treated as if it were a Termination Without Cause pursuant to Paragraph
7(b).
As used herein, "Good Reason" shall mean (a) the material
breach by the Company of any of its agreements set forth in Paragraphs
3(a), 3(c), 4(a) through 4(i) and 5 hereof which continues unremedied
for a period of thirty (30) days after receipt by the Company of a
written demand for performance from the Employee, which written demand
specifically identifies in reasonable detail the manner in which
Employee believes that the Company has not performed its obligations;
provided, however, that no notice or grace period shall be required
with respect to the failure of the Company to pay the Base Salary when
due, (b) the occurrence of a Change in Control after the Effective
Date; provided the Employee notifies the Company of his desire to
terminate this Agreement prior to the time the Change in Control
occurs, (c) a material change in the significant responsibilities of
the Employee hereunder, or (d) the Company's offices in the San
Francisco, California area no longer constitute the principal base of
operation for the performance of the duties and responsibilities of the
Employee under this Agreement. Notwithstanding the foregoing, in the
event of termination by Employee in the case of a Change of Control,
Employee shall continue in the employ of the Company for up to thirty
(30) days after the Change in Control occurs upon the terms and
conditions set forth herein upon the written request of the Company
made at least thirty (30) days prior to the date the Change in Control
occurs. As used in this Agreement, "Change in Control" shall mean (a)
any "person" (as such term is used in Sections 13(d) and 14(d)(2) of
the Securities Exchange Act of 1934, as amended) becomes the beneficial
owner, directly or indirectly, of securities of the Trust representing
30% or more of the combined voting power of the Trust's outstanding
securities (excluding Arnold Palmer Golf Management LLC, Olympus Real
Estate Corporation, Montclair Hotel Investors, Inc. or any of their
respective Affiliates (as defined in Paragraph 9), (b) during any
period of twenty-four consecutive months, individuals who at the
beginning of such twenty-four month period were trustees of the Trust
cease for any reason to constitute at least a majority of the Board of
Trustees unless replaced by trustees nominated or elected by persons
who were trustees of the Trust at the beginning of such twenty-four
month period, (c) consummation of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all
of the assets of the Company (a "Business Combination"), in each case,
unless, following such Business Combination, (i) all or substantially
all of the individuals and entities who were the beneficial owners,
respectively, of the outstanding company common shares and outstanding
company voting securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 75% of,
respectively, the then outstanding shares of common shares and the
combined voting power of the then outstanding voting
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<PAGE> 8
securities entitled to vote generally n the election of directors, as
the case may be, of the corporation, trust or other entity resulting
from such Business Combination (including, without limitation, a
corporation, trust or other entity which as a result of such
transaction owns the Company or all of substantially all of the
Company's assets either directly or through one or more subsidiaries)
in substantially the same proportions as their ownership, immediately
prior to such Business Combination of the outstanding company common
shares and outstanding company voting securities, as the case may be,
(ii) no Person (excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related trust) of the
Company or such corporation, trust or other entity resulting from such
Business Combination) beneficially owns, directly or indirectly, 20% or
more of, respectively, the then outstanding shares of common stock of
the corporation, trust or other entity resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation, trust or other entity except to the
extent that such ownership existed prior to the Business Combination
and (iii) at least a majority of the members of the board of directors
of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the
initial agreement, or of the action of the Board, providing for such
Business Combination, or (d) approval by the shareholders of the
Company of a complete liquidation or dissolution of the Company.
(d) EFFECTS OF TERMINATION. The termination of this Agreement
shall not affect or impair the obligations of the parties under
Paragraphs 8, 9 or 10 or the obligation of the Company to make the
payments which are due to Employee as a result of such termination.
8. SEVERANCE PAYMENTS. Within thirty (30) days after the
effective date of a Termination Without Cause pursuant to Paragraph 7(b) hereof
or a Termination for Good Reason pursuant to Paragraph 7(c) hereof, the Company
shall pay to the Employee a lump sum amount, without discount, equal to the
greater of (a) the Base Salary which would have been payable to the Employee for
the remainder of the Term of this Agreement, (b) the Base Salary which would
have been payable to the Employee had this Agreement remained in effect for a
period of one year after such termination of employment, assuming the case of
(a) or (b) that Employee's Base Salary remained at the rate in effect prior to
such termination. In addition, all share options and restricted share awards
shall accelerate and vest as of the date of termination.
If in the opinion of tax counsel ("Tax Counsel") selected by the
Employee and reasonably acceptable to the Company, the Employee has or will
receive any compensation or recognize any income (whether or not pursuant to
this Agreement or any plan or other arrangement of the Company and whether or
not the Employee's employment with the Company has terminated) which constitute
an "excess parachute payment" within the meaning of Section 280G(b)(1) of the
Internal Revenue Code of 1986, as amended ("Code") (or for which a tax is
otherwise payable under section 4999 of the Code), then the Company shall pay to
the Employee an additional amount (the "Additional Amount") equal to the sum of
(i) all taxes payable by the Employee under Code section 4999 with respect to
all such excess parachute payments (or payments otherwise subject to tax under
4999 of
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<PAGE> 9
the Code) and the Additional Amount, plus (ii) all federal, state and local
income taxes payable by the Employee with respect to the Additional Amount. Upon
written request for payment by the Employee, detailing in a fashion reasonably
acceptable to the Company the amount payable by the Company as the Additional
Amount, the Company shall have 15 days to verify the calculations presented by
the Employee (the "Verification Period"). After the end of the Verification
Period, the Company shall have 15 days to pay the Employee the Additional
Amount. If the Company disputes the submission materials submitted by the
Employee, written notification of the dispute shall be provided to the Employee
within three days of the end of the Verification Period. Thereafter, a
third-party, acceptable to both the Company and the Employee, shall be selected
to resolve the dispute and shall sign as preparer of the Employee's return.
Notwithstanding the foregoing, all payments under this Paragraph 8 shall be made
prior to or on the date of the Employee's termination.
9. COMPETITION.
(a) In consideration of the Company's agreement to employ the
Employee as provided in Paragraph 3 hereof, the Employee hereby agrees
that during the Noncompete Period (as defined below), without the prior
written approval of the Company, the Employee shall not, except in the
course of his employment hereunder, directly or indirectly:
(i) participate in any manner, whether directly
or indirectly, in any Competing Company (as
hereinafter defined), either individually or
as an officer, director, employee, agent,
consultant, partner, investor (excluding
passive investments not aggregating more
than five percent (5%) of any such entity's
total outstanding voting securities),
principal or otherwise;
(ii) solicit, divert, take away or enter into any
leases or the like with, or attempt to
solicit, divert, take away or enter into any
leases or the like with, any entity or its
Affiliates which during the term of
Employee's employment hereunder leases one
or more golf courses owned by the Company or
Affiliate of the Company in the United
States; or
(iii) solicit, attempt to solicit, hire for
employment or engage, any person who is an
employee of the Company or an Affiliate of
the Company as of the date of the
termination of Employee's employment
hereunder, or who was an employee of the
Company or any Affiliate of the Company
within six (6) months immediately prior to
the date of the termination of Employee's
employment hereunder.
As used herein, "Competing Company" means any entity which
qualifies or intends to qualify for treatment as a real estate
investment trust under the Internal Revenue Code of 1986, as amended,
or any other entity (including a separate division of an entity) which
is engaged primarily in the business of acquiring, owning or leasing
golf courses. As used
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<PAGE> 10
herein, "Affiliate" means, when used with respect to an entity or the
Company, (i) any Person (as hereinafter defined) which directly or
indirectly controls, is controlled by or under common control with such
entity or the Company, and (ii) any Person who directly or indirectly
owns, controls or holds the power to vote ten percent (10%) or more of
the outstanding securities of such entity or the Company. As used
herein, "control" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies
of a Person, whether through the ownership of voting securities, by
contract or otherwise. As used herein, "Person" means any individual,
partnership, corporation, trust or other entity. As used herein,
"Noncompete Period" shall mean the period commencing on the Effective
Date and ending on the first anniversary of the date of the termination
of this Agreement.
(b) The Employee acknowledges that the Employee will be
involved at an executive level in the development, implementation and
management of the Company's national business strategies and plans,
including those which involve the Company's finances, research,
marketing, planning, operations, relations and property acquisitions.
By virtue of the Employee's unique and sensitive position and special
background, employment of the Employee by a Competing Company
represents a serious competitive danger to the Company, and the use of
the Employee's talent and knowledge and information about the Company's
business strategies can and would constitute a valuable competitive
advantage over the Company.
(c) The Employee acknowledges that enforcement of the
covenants set forth in this Paragraph 9 and in Paragraph 10 hereof will
not prevent him from earning a living in the golf industry. The
Employee further acknowledges that the restrictions contained herein
have been specifically negotiated and agreed to by the parties hereto
and are limited only to those restrictions necessary to protect the
Company from unfair competition.
(d) The Employee acknowledges that he has carefully read and
considered all of the terms of this Agreement, including particularly
the terms of this Paragraph 9 and of Paragraph 10 hereof, that the
Company has made a substantial investment in the Company's business and
that the restrictions provided in this Paragraph 9 and the following
Paragraph 10 hereof are reasonable and necessary for the Company's
protection. The Employee further acknowledges that damages at law will
not be a measurable or adequate remedy for breach of the covenants
contained in this Paragraph 9 or in Paragraph 10 hereof and,
accordingly the Employee consents to the entry by any court of
competent jurisdiction of any order enjoining him from violating any
such covenants. The parties hereto further agree that if, in any
judicial proceeding, a court should refuse to enforce any covenants set
forth in this Paragraph 9 or in Paragraph 10 hereof because of their
term or geographical scope, then such covenants shall be deemed to be
modified to permit their enforcement to the maximum extent permitted by
law.
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<PAGE> 11
10. CONFIDENTIALITY. The Employee acknowledges and agrees that the
Company competes in a highly competitive industry and in competitive markets and
that as an executive the Employee will have access to proprietary and
confidential information and trade secrets of the Company and its affiliates and
subsidiaries and their respective predecessors. The Employee agrees that he will
not, without the written consent of the Company, except in the course of
performing his duties hereunder, disclose or knowingly permit any Person under
his control to disclose to anyone not properly entitled to the information or
use for his own benefit or the benefit of anyone else other than the Company or
any affiliate or subsidiary of the Company, any such trade secrets or
proprietary or confidential information relating to the Company and related
entities.
11. WAIVER. A waiver by any party of any of the terms and
conditions of this Agreement in any instance shall not be deemed or construed to
be a waiver of such terms and conditions for the future, or of any subsequent
breach thereof.
12. NOTICES. Any and all notices required or permitted to be given
hereunder shall be in writing and shall be deemed to have been given when
personally delivered or, if mailed, on the third business day after it is
deposited in the United States mails, certified or registered mail, postage
prepaid and addressed as follows:
To the Employee: __________________________________
__________________________________
__________________________________
To the Company: Building 106, Montgomery Street
Presidio Main Post
P. O. Box 29355
San Francisco, California 94129
Attention: Chairman of the Board
Any party may change by notice the address to which notices to it are
to be addressed.
13. REPRESENTATION BY EMPLOYEE. The Employee represents and
warrants that he is not a party to or bound by any covenant or agreement which
in any manner restrains or restricts the activities of the Employee or his
ability to enter into this Agreement.
14. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California without regard
to the principles of conflicts of laws thereof.
15. AMENDMENTS, ETC. The Agreement may not be varied, altered,
modified, changed, or in any way amended except by an instrument in writing,
executed by the parties hereto or their legal representatives.
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<PAGE> 12
16. HEADINGS AND CAPTIONS. Headings and paragraph captions used
in this Agreement are intended for convenience of reference only and shall not
affect the interpretation of this Agreement.
17. EXECUTION IN COUNTERPARTS. This Agreement may be executed in
any number of counterparts, which taken together shall be deemed to constitute
one original.
18. MISCELLANEOUS.
(a) The Employee shall not have any right to commute, encumber
or dispose of the right to receive payment hereunder or of the right to
receive any of the benefits provided for hereunder.
(b) Upon the termination of Employee's employment hereunder,
at the sole option of the Company, the Employee shall be deemed to have
resigned from any office of the Company and its Affiliates which he may
then hold and shall promptly deliver to the Company (without retaining
any copies thereof) all Company files and documents, forms, letterhead,
business cards, charge cards, computer disks and any other written,
magnetic or printed materials relating to the business of the Company,
other than information available generally to the shareholders of the
Trust. Nothing in this Paragraph 18(b) shall in any way eliminate the
obligations of Employee under Paragraph 9.
(c) Each party shall bear its or his own costs in connection
with any controversy or dispute arising out of or relating to this
Agreement.
(d) Except as otherwise specifically noted hereunder, this
Agreement constitutes the entire agreement between the parties
concerning the subject matter hereof and supersedes all prior and
contemporaneous agreements, if any, between the parties relating to the
subject matter hereof. The enforceability of this Agreement shall not
cease or otherwise be adversely affected by the termination of the
Employee's employment with the Company.
(e) THE EMPLOYEE REPRESENTS TO THE COMPANY THAT HE IS
KNOWLEDGEABLE AND SOPHISTICATED AS TO BUSINESS MATTERS, INCLUDING THE
SUBJECT MATTER OF THIS AGREEMENT, THAT HE HAS READ THIS AGREEMENT AND
THAT HE UNDERSTANDS ITS TERMS. THE EMPLOYEE ACKNOWLEDGES THAT THERE IS
A RISK THAT THE IPO MAY NOT OCCUR. THE EMPLOYEE ACKNOWLEDGES THAT,
PRIOR TO ASSENTING TO THE TERMS OF THIS AGREEMENT, HE HAS BEEN GIVEN A
REASONABLE TIME TO REVIEW IT, TO CONSULT WITH COUNSEL OF HIS CHOICE,
AND TO NEGOTIATE AT ARM'S-LENGTH WITH THE COMPANY AS TO ITS CONTENTS.
THE EMPLOYEE AND THE COMPANY AGREE THAT THE LANGUAGE USED IN THIS
AGREEMENT IS THE LANGUAGE CHOSEN BY THE PARTIES TO EXPRESS THEIR MUTUAL
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<PAGE> 13
INTENT, AND THAT NO RULE OF STRICT CONSTRUCTION IS TO BE APPLIED
AGAINST ANY PARTY HERETO.
(f) This Agreement is personal to, and shall be non-assignable
by, the Employee. This Agreement shall be binding upon and inure to the
benefit of the Company and its successors and assigns.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
PRESIDIO GOLF TRUST
By: ____________________________________
Title: _____________________________
PRESIDIO GOLF LIMITED PARTNERSHIP
By: PRESIDIO GOLF TRUST, its general
partner
By: _____________________________
Title: ______________________
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<PAGE> 1
EXHIBIT 10.9
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the "Agreement") is entered into as of
__________________, 1998, by and between Presidio Golf Trust ("Presidio"), a
Maryland real estate investment trust, and __________________ (the
"Indemnitee").
WHEREAS, the Indemnitee is an officer or a member of the Board of
Trustees of Presidio and in such capacity is performing a valuable service for
Presidio;
WHEREAS, the law of Presidio's state of organization permits Presidio
to enter into contracts with its officers or members of its Board of Trustees
with respect to indemnification of such persons; and
WHEREAS, to induce the Indemnitee to continue to provide services to
Presidio as an officer or a member of the Board of Trustees, and to provide the
Indemnitee with specific contractual assurance that indemnification will be
available to the Indemnitee regardless of, among other things, any amendment to
or revocation of Presidio's Amended and Restated Declaration of Trust
("Declaration of Trust"), or any acquisition transaction relating to Presidio,
Presidio desires to provide the Indemnitee with protection against personal
liability.
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, Presidio and the Indemnitee hereby agree as follows:
1. DEFINITIONS
For purposes of this Agreement:
(A) "Change in Control" shall mean a change in the possession,
directly or indirectly, of the power to direct or cause the
direction of the management and policies of Presidio, or any
successor in interest thereto, whether through the ownership
of voting securities, by contract or otherwise, including but
not limited to, a change which would be required to be
reported under Item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Securities Exchange Act of 1934 as in
effect on the date hereof (the "Exchange Act") or as may
otherwise be determined pursuant to a resolution of the Board
of Trustees. A rebuttable presumption of a Change in Control
shall be created by any of the following which first occur
after the date hereof and Presidio shall have the burden of
proof to overcome such presumption:
i. the ability of any "Person" (as such term is defined
in Section 13(d) of the Exchange Act) together with
an "Affiliate" or "Associate" (as defined in Rule
<PAGE> 2
12b-2 promulgated under the Exchange Act) or "Group"
(within the of 13(d)(3) of the Exchange Act) to
exercise or direct the exercise of 40% or more of the
combined voting power of all outstanding shares of
beneficial interest of Presidio in the election of
its trustees ("Interested Party") (provided, however,
"Interested Party" shall not include an agent,
broker, nominee, custodian or trustee, solely in
their capacity as such, for one or more persons who
do not individually or as a group possess such
power),
ii. during any period of two consecutive years,
individuals who at the beginning of such period
constitute the Board of Trustees of Presidio cease
for any reason to constitute at least a majority
thereof, unless the election of each trustee who was
not a trustee at the beginning of such period has
been approved in advance by the trustees representing
a majority of the trustees then in office who were
the trustees at the beginning of the period,
iii. the approval of the shareholders of Presidio of:
(a) a merger or consolidation of Presidio with
any Interested Party other than a merger or
consolidation which would result in the
shareholders owning voting securities of
Presidio immediately prior thereto
continuing to represent at least two-thirds
of the total voting securities of the
surviving entity,
(b) any sale, lease, exchange, mortgage, pledge,
transfer, or other disposition, to or with
any Interested Party in any transaction or
series of transactions, of Presidio's assets
or the assets of any subsidiary of Presidio
having a market value equal to 20% or more
of the aggregate market value of all assets
of Presidio determined on a consolidated
basis, all outstanding shares of beneficial
interest of Presidio, or the earning power
or net income of Presidio, determined on a
consolidated basis,
(c) the issuance or transfer by Presidio, or any
subsidiary thereof, to any Interested Party
in any transaction or a series of
transactions, of capital securities with a
value equal to 10% or more of the aggregate
market value of the then outstanding voting
shares of beneficial interest of Presidio
other than the issuance or transfer of such
shares of beneficial interest to all
Presidio shareholders on a pro rata basis,
(d) the adoption of any plan or proposal for the
partial or complete liquidation or
dissolution of Presidio proposed by an
Interested Party or pursuant to any
agreement, arrangement or understanding,
whether or not in writing, with any
Interested Party, or
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<PAGE> 3
(e) any reclassification of securities,
including, without limitation, any share
split, share dividend, or other
distributions of shares, or any reverse
share split, recapitalization of Presidio,
or any merger or consolidation of Presidio
with any subsidiary thereof, or any other
transaction proposed by, or pursuant to, any
agreement, arrangement, or understanding,
whether or not in writing, with any
Interested Party which has the effect,
directly or indirectly, of increasing the
proportionate voting shares of beneficial
interest of Presidio directly or indirectly
owned by any such Interested Party, or
iv. any receipt by any Interested Party, directly or
indirectly, of any loans, advances, guarantees,
pledges or other financial assistance, or any tax
credits or other tax advantages provided by or
through Presidio other than the receipt of such
advantages which are provided to all Presidio
shareholders on a pro rata basis.
(B) "Corporate Status" describes the status of a person who is or
was a trustee, officer, employee, agent or fiduciary of
Presidio or of any other corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise
(whether conducted for profit or not for profit) which such
person is or was serving at the request of Presidio.
(C) "Disinterested Trustee" means a trustee of Presidio who is not
and was not a party to the Proceeding (as hereinafter defined)
in respect of which indemnification is sought by the
Indemnitee.
(D) "Effective Date" means the date of this Agreement as set forth
above.
(E) "Expenses" shall include all attorneys and paralegals' fees,
retainers, court costs, transcript costs, fees of experts,
witness fees, travel expenses, duplicating costs, printing and
binding costs, telephone charges, postage, delivery service
fees, and all other disbursements or expenses relating to or
otherwise of the types customarily incurred in connection with
prosecuting, defending, preparing to prosecute or defend,
investigating, or being or preparing to be a witness in a
Proceeding.
(F) "Independent Counsel" means a law firm, or a member of a law
firm, that is experienced in matters of corporation law and
neither presently is, or in the past two (2) years has been,
retained to represent (i) Presidio or the Indemnitee in any
matter material to either such party, or (ii) any other party
to the Proceeding giving rise to a claim for indemnification
hereunder.
(G) "Proceeding" includes any action, suit, arbitration, alternate
dispute resolution mechanism, investigation, administrative
hearing, or any other proceeding, including appeals therefrom,
whether civil, criminal, administrative, or investigative,
except one
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<PAGE> 4
initiated by the Indemnitee pursuant to paragraph 7 of this
Agreement to enforce such Indemnitee's rights under this
Agreement.
2. INDEMNIFICATION - GENERAL
The Indemnitee shall be entitled to the rights of indemnification
provided in this paragraph 2 and to the fullest extent under applicable law, the
Amended and Restated Declaration of Trust, Presidio's Bylaws, any agreement, a
vote of shareholders or resolution of the Board of Trustees or otherwise if, by
reason of such Indemnitee's Corporate Status, such Indemnitee is, or is
threatened to be made, a party to any threatened, pending, or completed
Proceeding, including a Proceeding by or in the right of Presidio. Unless
prohibited by paragraph 13 hereof, the Indemnitee shall be indemnified against
Expenses, judgments, penalties, fines, and settlement amounts actually and
reasonably incurred by or on behalf of such Indemnitee in connection with such
Proceeding or any claim, issue or matter therein.
3. WITNESS EXPENSES
Notwithstanding any other provision of this Agreement, to the extent
that the Indemnitee is, by reason of such Indemnitee's Corporate Status, a
witness for any reason in any Proceeding to which such Indemnitee is not a
party, such Indemnitee shall be indemnified against all Expenses actually and
reasonably incurred by or on behalf of such Indemnitee in connection therewith.
4. ADVANCES
Presidio shall advance all reasonable Expenses incurred by or on behalf
of the Indemnitee in connection with any Proceeding within twenty (20) days
after the receipt by Presidio of a statement from the Indemnitee requesting such
advance from time to time, whether prior to or after final disposition of such
Proceeding. Such statement shall reasonably evidence the Expenses incurred by
the Indemnitee and shall include or be preceded or accompanied by an undertaking
by or on behalf of the Indemnitee to repay any Expenses advanced if it shall
ultimately be determined by a court of competent jurisdiction, after exhaustion
of all appeals therefrom that the Indemnitee is not entitled to be indemnified
pursuant to this Agreement against such Expenses.
5. DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION
(A) To obtain indemnification under this Agreement, the Indemnitee
shall submit to Presidio a written request, including
therewith such documentation and information reasonably
necessary to determine whether and to what extent the
Indemnitee is entitled to indemnification.
(B) Upon such written request pursuant to subparagraph 5(A), a
determination with respect to the Indemnitee's entitlement
thereto shall be made in the specific case: (i) if a Change in
Control shall have occurred, by Independent Counsel in a
written
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<PAGE> 5
opinion to the Board of Trustees, a copy of which shall be
delivered to the Indemnitee (unless the Indemnitee shall
request that such determination be made by the Board of
Trustees or the shareholders of Presidio, in which case by the
person or persons or in the manner provided in clauses (ii) or
(iii) of this paragraph 5(B)); (ii) if a Change in Control
shall not have occurred, (A) by the Board of Trustees by a
majority vote of a quorum consisting of Disinterested
Trustees, or (B) if a quorum of the Board of Trustees
consisting of Disinterested Trustees is not obtainable, or,
even if obtainable, if such quorum of Disinterested Trustees
so directs, by Independent Counsel in a written opinion to the
Board of Trustees, a copy of which shall be delivered to the
Trustee, or (C) by the shareholders of Presidio; or (iii) as
provided in paragraph 6(B) of this Agreement. If it is so
determined that the Indemnitee is entitled to indemnification,
payment to the Indemnitee shall be made within ten (10) days
after such determination.
(C) The Indemnitee shall cooperate with the person or entity
making such determination with respect to the Indemnitee's
entitlement to indemnification, including providing upon
reasonable advance request any documentation or information
which is not privileged or otherwise protected from disclosure
and which is reasonably available to the Indemnitee and
reasonably necessary to such determination. Any costs or
expenses (including attorneys' fees and disbursements)
incurred by the Indemnitee in so cooperating shall be borne by
Presidio (irrespective of the determination as to the
Indemnitee's entitlement to indemnification) and Presidio
hereby indemnifies and agrees to hold the Indemnitee's
harmless therefrom.
(D) In the event the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant
to paragraph 5(B) hereof, the Independent Counsel shall be
selected as provided in this paragraph 5(D). If a Change in
Control shall not have occurred, the Independent Counsel shall
be selected by the Board of Trustees, and Presidio shall give
written notice to the Indemnitee advising such Indemnitee of
the identity of the Independent Counsel so selected. If a
Change in Control shall have occurred, the Independent Counsel
shall be selected by the Indemnitee (unless the Indemnitee
shall request that such selection be made by the Board of
Trustees, in which event the preceding sentence shall apply),
and the Indemnitee shall give written notice to Presidio
advising it of the identity of the Independent Counsel so
selected. In either event, the Indemnitee, or Presidio, as the
case may be, may, within seven (7) days after such written
notice of selection shall have been given, deliver to Presidio
or to the Indemnitee, as the case may be, a written objection
to such selection. Such objection may be asserted only on the
grounds that the Independent Counsel so selected does not meet
the requirements of "Independent Counsel" as defined in
paragraph 1 of this Agreement. If such written objection is
made, the Independent Counsel so selected may not serve as
Independent Counsel until a court has determined that such
objection is without merit. If, within twenty (20) days after
submission by the Indemnitee of a written request for
indemnification pursuant to
5
<PAGE> 6
paragraph 5(A) hereof, no Independent Counsel shall have been
selected or, if selected, shall have been objected to, either
Presidio or the Indemnitee may petition a court for resolution
of any objection which shall have been made by Presidio or the
Indemnitee to the other's selection of Independent Counsel
and/or for the appointment as Independent Counsel of a person
selected by the court or by such other person as the court
shall designate, and the person with respect to whom an
objection is so resolved or the person so appointed shall act
as Independent Counsel under paragraph 5(B) hereof. Presidio
shall pay all reasonable fees and expenses of Independent
Counsel incurred in connection with acting pursuant to
paragraph 5(B) hereof, and all reasonable fees and expenses
incident to the selection of such Independent Counsel pursuant
to this paragraph 5(D). In the event that a determination of
entitlement to indemnification is to be made by Independent
Counsel and such determination shall not have been made and
delivered in a written opinion within ninety (90) days after
the receipt by Presidio of the Indemnitee's request in
accordance with paragraph 5(A), upon the due commencement of
any judicial proceeding in accordance with paragraph 7(A) of
this Agreement, Independent Counsel shall be discharged and
relieved of any further responsibility in such capacity and
the Indemnitee shall be deemed to be entitled to
indemnification hereunder.
6. PRESUMPTIONS
(A) In making a determination with respect to entitlement or
indemnification hereunder, the person or entity making such
determination shall presume that the Indemnitee is entitled to
indemnification under this Agreement and Presidio shall have
the burden of proof to overcome such presumption.
(B) If the person or entity making the determination whether the
Indemnitee is entitled to indemnification shall not have made
a determination within sixty (60) days after receipt by
Presidio of the request therefor, the requisite determination
of entitlement to indemnification shall be deemed to have been
made and the Indemnitee shall be entitled to such
indemnification, absent: (i) a misstatement by the Indemnitee
of a material fact, or an omission of a material fact
necessary to make the Indemnitee's statement not materially
misleading, in connection with the request for
indemnification, or (ii) a prohibition of such indemnification
under applicable law. Such sixty (60)-day period may be
extended for a reasonable time, not to exceed an additional
thirty (30) days, if the person or entity making said
determination in good faith requires additional time for the
obtaining or evaluating of documentation and/or information
relating thereto. The foregoing provisions of this paragraph
6(B) shall not apply: (i) if the determination of entitlement
to indemnification is to be made by the shareholders and if
within fifteen (15) days after receipt by Presidio of the
request for such determination the Board of Trustees resolves
to submit such determination to the shareholders for
consideration at an annual or special meeting thereof to be
held within seventy-five (75) days after such receipt and such
determination is made at
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<PAGE> 7
such meeting, or (ii) if the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant
to paragraph 5(B) of this Agreement.
(C) The termination of any Proceeding or of any claim, issue or
matter therein, by judgment, order, settlement, or conviction,
or upon a plea of nolo contendere or its equivalent, shall not
(except as otherwise expressly provided in this Agreement) of
itself adversely affect the right of the Indemnitee to
indemnification.
7. REMEDIES
(A) In the event that: (i) a determination is made that the
Indemnitee is not entitled to indemnification under this
Agreement, or (ii) advancement of Expenses is not timely made
pursuant to this Agreement, or (iii) payment of
indemnification due the Indemnitee under this Agreement is not
timely made, the Indemnitee shall be entitled to an
adjudication in an appropriate court of competent jurisdiction
of such Indemnitee's entitlement to such indemnification or
advancement of Expenses.
(B) In the event that a determination shall have been made
pursuant to this Agreement that the Indemnitee is not entitled
to indemnification, any judicial proceeding commenced pursuant
to this paragraph 7 shall be conducted in all respects as a de
novo trial, on the merits and the Indemnitee shall not be
prejudiced by reason of that adverse determination. In any
judicial proceeding or arbitration commenced pursuant to this
paragraph 7, Presidio shall have the burden of proving that
the Indemnitee is not entitled to indemnification or
advancement of Expenses, as the case may be.
(C) If a determination shall have been made or deemed to have been
made pursuant to this Agreement that the Indemnitee is
entitled to indemnification, Presidio shall be bound by such
determination in any judicial proceeding commenced pursuant to
this paragraph 7, absent: (i) a misstatement by the Indemnitee
of a material fact, or an omission of a material fact
necessary to make the Indemnitee's statement not materially
misleading, in connection with the request for
indemnification, or (ii) a prohibition of such indemnification
under applicable law.
(D) Presidio shall be precluded from asserting in any judicial
proceeding commenced pursuant to this paragraph 7 that the
procedures and presumptions of this Agreement are not valid,
binding and enforceable and shall stipulate in any such court
that Presidio is bound by all the provisions of this
Agreement.
(E) In the event that the Indemnitee, pursuant to this paragraph
7, seeks a judicial adjudication of such Indemnitee's rights
under, or to recover damages for breach of, this Agreement, if
successful in whole or in part, the Indemnitee shall be
entitled to recover from Presidio, and shall be indemnified by
Presidio against, any and all
7
<PAGE> 8
Expenses actually and reasonably incurred by such Indemnitee
in such judicial adjudication.
8. PARTIAL INDEMNITY
If the Indemnitee is entitled under any provision of this Agreement to
indemnification by Presidio for some or a portion of the expenses, judgments,
fines and amounts paid in settlement but not, however, for all of the total
amount thereof, Presidio shall nevertheless indemnify the Indemnitee for the
portion thereof to which the Indemnitee is entitled.
9. ESTABLISHMENT OF TRUST
In the event of a Change in Control, Presidio shall, upon written
request by the Indemnitee, create a trust for the benefit of the Indemnitee
("Trust") and from time-to-time upon written request by the Indemnitee, shall
fund such Trust in an amount sufficient to satisfy any and all Expenses,
judgments, penalties, fines and settlement amounts actually and reasonably
incurred by or on behalf of such Indemnitee or claimed, reasonably anticipated
or proposed to be paid in accordance with the terms of this Agreement. The
amount to be deposited in the Trust pursuant to the foregoing funding obligation
shall be determined by Independent Counsel. The terms of the Trust shall provide
that: (i) the Trust shall not be revoked or the principal thereof invaded,
without the prior written consent of the Indemnitee, (ii) the trustee of the
Trust ("Trustee") shall advance, within two business days of a request by the
Indemnitee and in accordance with paragraph 4 of this Agreement, any and all
Expenses to the Indemnitee, (iii) the Trust shall continue to be funded by
Presidio in accordance with the funding obligation set forth above, (iv) the
Trustee shall promptly pay to the Indemnitee all amounts for which the
Indemnitee shall be entitled to indemnification pursuant to this Agreement or
otherwise, and (v) all unexpended funds in such Trust shall revert to Presidio
upon a final determination by Independent Counsel that the Indemnitee has been
fully indemnified under the terms of this Agreement. The Trustee shall be chosen
by the Indemnitee and agreed to by Presidio in its reasonable discretion.
Nothing in this paragraph 9 shall relieve Presidio of any of its obligations
under this Agreement.
10. NON-EXCLUSIVITY; SURVIVAL OF RIGHTS; INSURANCE SUBROGATION
(A) The rights of indemnification and to receive advancement of
Expenses as provided by this Agreement shall not be deemed
exclusive of any other rights to which the Indemnitee may at
any time be entitled under applicable law, the Amended and
Restated Declaration of Trust, Presidio's Bylaws, any
agreement, a vote of shareholders or a resolution of the Board
of Trustees, or otherwise. No amendment, alteration or repeal
of this Agreement or any provision hereof shall be effective
as to the Indemnitee with respect to any action taken or
omitted by the Indemnitee as a member of the Board of Trustees
prior to such amendment, alteration or repeal.
8
<PAGE> 9
(B) To the extent that Presidio maintains an insurance policy or
policies providing liability insurance for trustees of
Presidio, the Indemnitee shall be covered by such policy or
policies in accordance with its or their terms to the maximum
extent of the coverage available and upon any "Change in
Control" Presidio shall obtain continuation and/or "tail"
coverage for the Indemnitee to the maximum extent and period
obtainable at such time.
(C) In the event of any payment under this Agreement, Presidio
shall be subrogated to the extent of such payment to all of
the rights of recovery of the Indemnitee, who shall execute
all papers required and take all actions necessary to secure
such rights, including execution of such documents as are
necessary to enable Presidio to bring suit to enforce such
rights.
(D) Presidio shall not be liable under this Agreement to make any
payment of amounts otherwise indemnifiable hereunder if and to
the extent that the Indemnitee has otherwise actually received
such payment under any insurance policy, contract, agreement,
or otherwise.
11. CONTINUATION OF INDEMNITY
All agreements and obligations of Presidio contained herein shall
continue during the period the Indemnitee is an officer or a member of the Board
of Trustees of Presidio and shall continue thereafter so long as the Indemnitee
shall be subject to any threatened, pending or completed Proceeding by reason of
such Indemnitee's Corporate Status and during the period of statute of
limitations for any act or omission occurring during the Indemnitee's term of
Corporate Status. No legal action shall be brought and no cause of action shall
be asserted by or on behalf of Presidio against the Indemnitee, the Indemnitee's
spouse, heirs, executors or personal or legal representatives after the
expiration of two (2) years from the date of accrual of such cause of action,
and any claim or cause of action of Presidio shall be extinguished and deemed
released unless asserted by the timely filing of a legal action within such two
(2) year period; provided, however, that if any shorter period of limitations is
otherwise applicable to any such cause of action such shorter period shall
govern. This Agreement shall be binding upon Presidio and its successors and
assigns and shall inure to the benefit of the Indemnitee and such Indemnitee's
heirs, executors and administrators.
12. SEVERABILITY
If any provision or provisions of this Agreement shall be held to be
invalid, illegal, or unenforceable for any reason whatsoever, (i) the validity,
legality, and enforceability of the remaining provisions of this Agreement
(including, without limitation, each portion of any paragraph of this Agreement
containing any such provision held to be invalid, illegal, or unenforceable,
that is not itself invalid, illegal, or unenforceable) shall not in any way be
affected or impaired thereby, and (ii) to the fullest extent possible, the
provisions of this Agreement (including, without limitation, each portion of any
paragraph of this Agreement containing any such provision held to be invalid,
illegal, or
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<PAGE> 10
unenforceable, that is not itself invalid, illegal, or unenforceable) shall be
construed so as to give effect to the intent manifested by the provisions held
invalid, illegal, or unenforceable.
13. EXCEPTIONS TO RIGHT OF INDEMNIFICATION OR ADVANCEMENT OF EXPENSES
Notwithstanding any other provisions of this Agreement, the Indemnitee
shall not be entitled to indemnification or advancement of Expenses under this
Agreement: (i) with respect to any Proceeding initiated by such Indemnitee
against Presidio other than a proceeding commenced pursuant to paragraph 7, or
(ii) with respect to any Proceeding in which such Indemnitee's act or omission
was material to the cause of action adjudicated and was committed in bad faith
or was the result of active and deliberate dishonesty, or (iii) if the
Indemnitee actually received an improper personal benefit in money, property, or
services.
14. HEADINGS
The headings of the paragraph of this Agreement are inserted for
convenience only and shall not be deemed to constitute part of this Agreement or
to affect the construction thereof.
15. MODIFICATION AND WAIVER
No supplement, modification, or amendment of this Agreement shall be
binding unless executed in writing by both of the parties hereto. No waiver of
any of the provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provisions hereof (whether or not similar) nor shall such
waiver constitute a continuing waiver.
16. NOTICE BY THE INDEMNITEE
The Indemnitee agrees promptly to notify Presidio in writing upon being
served with any summons, citation, subpoena, complaint, indictment, information,
or other document relating to any Proceeding or matter which may be subject to
indemnification or advancement of Expenses covered hereunder.
17. NOTICES
All notices, requests, demands, and other communications hereunder
shall be in writing and shall be deemed to have been duly given if (i) delivered
by hand and receipted for by the party to whom said notice or other
communication shall have been directed, or (ii) mailed by certified or
registered mail with postage prepaid, on the third business day after the date
on which it is so mailed, if so delivered or mailed, as the case may be, to the
following addresses:
If to the Indemnitee, to the address set forth in the records of
Presidio.
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<PAGE> 11
If to Presidio, to: Presidio Golf Trust
Building 106, Montgomery Street
Presidio Main Post, P.O. Box 29355
San Francisco, California 94129
Attention: Secretary
or to such other address as may have been furnished to the Indemnitee by
Presidio or to Presidio by the Indemnitee, as the case may be.
18. GOVERNING LAW
The parties agree that this Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Maryland
without giving effect to the conflicts of law provisions thereof.
19. COUNTERPARTS
This Agreement may be executed in any number of counterparts and by the
parties hereto in separate counterparts, each of which when so executed shall be
deemed to be an original and all of which taken together shall constitute one
and the same agreement.
20. LIMITATION OF LIABILITY OF SHAREHOLDERS, TRUSTEES AND OFFICERS OF
PRESIDIO
Any obligation or liability whatsoever of Presidio which may arise at
any time under this Agreement or any obligation or liability which may be
incurred by it pursuant to any other instrument, transaction or undertaking
contemplated hereby shall be satisfied, if at all, out of Presidio's assets
only. No such obligation or liability of Presidio shall be personally binding
upon, nor shall resort for the enforcement thereof be had to, the property of
any of its shareholders, trustees, officers, employees or agents (solely as a
result of their status as shareholders, trustees, officers, employees or
agents), regardless of whether such obligation or liability is in the nature of
contract, tort or otherwise.
[SIGNATURE PAGE FOLLOWS]
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<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
PRESIDIO:
PRESIDIO GOLF TRUST,
a Maryland real estate investment trust
By:
----------------------------------------
Its:
-----------------------------------
INDEMNITEE:
-------------------------------------------
Name:
--------------------------------------
12
<PAGE> 1
EXHIBIT 10.10
CONVERSION AGREEMENT
by and between
ARNOLD PALMER GOLF MANAGEMENT LLC,
a Delaware limited liability company
and
ORONOQUE GOLF, LLC,
a Delaware limited liability company
as Transferors,
and
APGM LIMITED PARTNERSHIP,
a Delaware limited partnership
as Transferee
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C> <C>
1 DEFINITIONS ........................................................... 2
1.1 Definitions ...................................................... 2
2 CONVERSION; LEASE-BACK ................................................ 6
2.1 Conversion; Other Consideration .................................. 6
2.2 Property Lease ................................................... 7
3 ACCREDITED INVESTOR AND PROSPECTUS .................................... 7
3.1 Accredited Investor .............................................. 7
3.2 Prospectus ....................................................... 8
4 REPRESENTATIONS AND WARRANTIES ........................................ 8
4.1 Representation and Warranties of Transferors ..................... 8
4.2 Representation and Warranties of Transferee ...................... 16
5 COVENANTS ............................................................. 17
5.1 Transferors' Covenants ........................................... 17
5.2 Transferee's Covenants ........................................... 18
6 CONDITIONS PRECEDENT .................................................. 18
6.1 Conditions Precedent to the Obligations of Transferee ............ 18
6.2 Conditions Precedent to the Obligations of Transferors ........... 19
7 CLOSING ............................................................... 19
7.1 Time and Place ................................................... 19
7.2 Transferors' Deliveries .......................................... 19
7.3 Transferee's Deliveries .......................................... 20
7.4 Concurrent Transactions .......................................... 21
8 INDEMNIFICATION ....................................................... 21
8.1 Transferors' Indemnity ........................................... 21
8.2 Transferee's Indemnity ........................................... 21
9 DEFAULT ............................................................... 22
9.1 Transferee Default ............................................... 22
9.2 Transferors' Default ............................................. 22
10 BROKERAGE ............................................................. 23
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C> <C>
10.1 Brokerage ........................................................ 23
11 NOTICES ............................................................... 23
11.1 Notices .......................................................... 23
12 ADDITIONAL COVENANTS .................................................. 24
12.1 Entire Agreement, Amendments and Waivers ........................ 24
12.2 Further Assurances .............................................. 24
12.3 Survival and Benefit ............................................ 24
12.4 No Third Party Benefits ......................................... 24
12.5 Transferee's Investigation and Inspections ...................... 24
12.6 Interpretation .................................................. 24
12.7 Governing Law ................................................... 25
12.8 Attorneys' Fees ................................................. 25
12.9 Assignment ...................................................... 25
12.10 Offer and Acceptance ............................................ 25
Exhibit 1 - Contribution Agreements
Exhibit 2 - Description of the Land
Schedule A(1)
Schedule A(2)
Exhibit 3 - Liabilities
Exhibit 4 - Litigation
Exhibit 5 - Labor Matters
</TABLE>
ii
<PAGE> 4
CONVERSION AGREEMENT
THIS CONVERSION AGREEMENT ("Agreement") is made and entered into as of May
14, 1998, by and among ARNOLD PALMER GOLF MANAGEMENT LLC, a Delaware limited
liability company ("APGM LLC"), ORONOQUE GOLF, LLC, a Delaware limited
liability company ("Oronoque") (collectively "Transferors"), and APGM LIMITED
PARTNERSHIP, a Delaware limited partnership ("Transferee").
RECITALS
A. Transferors are engaged in, among other things, the business of
operating, managing and leasing golf courses (the "Business").
B. Transferors and their principals are in the process of sponsoring a
real estate investment trust ("REIT"), the shares of which will be offered to
the public pursuant to an initial public offering (the "IPO") of common shares
of beneficial interest ("Common Shares"). As part of the IPO, it is
contemplated that (i) the REIT will become the managing general partner of
Transferee, (ii) the limited partnership interests in Transferee shall be
divided into units of limited partnership interest in Transferee ("Units"), and
(iii) the holders of Units will have the right to redeem Units for Common
Shares (on a one Unit for one share of Common Shares basis) or the cash
equivalent, subject to the restrictions and limitations which will be
established by an amended and restated partnership agreement of Transferee and
the organizational documents for the REIT which are in effect as of the
consummation of the date of the IPO.
C. Prior to the date hereof, (i) Transferors have contributed the Property
(as hereinafter defined) to Transferee, commonly known as the Oronoque Country
Club, located in Stratford, Connecticut, and the Brierwood Country Club,
located in Hamburg, New York, in consideration of Transferors' receipt of
partnership interests in Transferee, and (ii) Transferee has acquired fee
interests in and to four (4) other golf course properties (the "Paloma
Properties") from third party seller(s) thereof, commonly known as The Fox
Valley Club, Lancaster, New York, the Tan Tara Golf Club, North Tonawanda, New
York, the Emerald Valley Golf Club, Creswell, Oregon, and the Minebrook Golf
Club, Hackettstown, New Jersey.
D. In connection with the IPO, Transferors shall cause Palmer Management,
LLC, a Delaware limited liability company ("Old GP"), to withdraw as the
general partner of Transferee and shall execute and deliver the Amended and
Restated Agreement of Limited Partnership of Transferee and Transferee shall
(a) convert the then existing limited partnership interests in Transferee held
by the Transferors (the "Interest") into Units as provided hereinbelow, (b)
grant APGM LLC an option to purchase 75,000 Units at the IPO price (the
"Options") and (iii) pay APGM LLC the amount of $5,000,000 (the "Cash
Consideration").
<PAGE> 5
The Options and the Cash Consideration received by APGM LLC will constitute
consideration for APGM LLC's prior capital contribution to the Partnership of
the proceeds used to acquire the Paloma Properties.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Transferors and
Transferee agree as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS. When used herein, the following terms shall have the
respective meanings set forth opposite each such term:
(a) ACCREDITED INVESTOR. As defined in Section 3.1.
(b) AGREEMENT. This Conversion Agreement, including the Exhibits
attached hereto which are by this reference incorporated herein and made
a part hereof.
(c) APGM LLC. As defined in the opening paragraph of this
Agreement.
(d) CASH CONSIDERATION. As defined in the Recitals hereto.
(e) CLOSING. The closing of transactions contemplated by this
Agreement, as described in Article 7 of this Agreement.
(f) CLOSING DATE. The date of closing determined pursuant to
Section 7.1 of this Agreement.
(g) COMMON SHARES. As defined in the Recitals hereto.
(h) CONTRACTS. All written or oral: (i) insurance, management,
leasing, service, maintenance, operating, repair, collective bargaining,
employment, employee benefit, severance, franchise, licensing, supply,
purchase, consulting, professional service, advertising, promotion,
public relations and other contracts and commitments in any way relating
to the Property or any part thereof, together with all supplements,
amendments and modifications thereto; and (ii) equipment leases and all
rights and options of Transferors or Transferee thereunder, including
rights to renew or extend the term or purchase the leased equipment,
entered into by Transferors, Transferee or their affiliates, relating to
equipment located in or upon the Property or used in connection therewith,
together with all supplements, amendments and modifications thereto.
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<PAGE> 6
(i) CONTRACT DATE. The date Transferors deliver to Transferee an
original, fully executed counterpart of this Agreement, which date shall
be set forth in the introductory paragraph of this Agreement.
(j) ENVIRONMENTAL LAWS. All current and future federal, state and
local statutes, regulations, ordinances and rules relating to (i) the
emission, discharge, release or threatened release of a Hazardous
Material into the air, surface water, groundwater or land; (ii) the
manufacturing, processing, use, generation, treatment, storage, disposal,
transportation, handling, removal, remediation or investigation of a
Hazardous Material; or (iii) the protection of human health, safety or
the indoor or outdoor environment, including without limitation, the
Clean Air Act, the Federal Water Pollution Control Act, the Resource
Conservation and Recovery Act, the Comprehensive Environmental Response,
Compensation and Liability Act, the Occupational Safety and Health Act,
all amendments thereto, all regulations promulgated thereunder, and their
state or local statutory and regulatory counterparts.
(k) HAZARDOUS MATERIAL. Any solid, liquid or gaseous substance,
chemical, compound, product, byproduct, waste or material that is or
becomes regulated, defined or designated by any applicable federal, state
or local governmental authority or by any Environmental Law as hazardous,
extremely hazardous, imminently hazardous, dangerous or toxic, or as a
pollutant or contaminant, and shall include, without limitation,
asbestos, polychlorinated biphenyls, and oil, petroleum, petroleum
products and petroleum byproducts.
(l) INTEREST. As defined in The Recitals hereto.
(m) IPO. As defined in the Recitals hereto.
(n) IPO CONDITION. As defined in Section 6.3.
(o) INTEREST CONVERSION. Shall mean the issuance to Transferors
concurrently with the Closing of that number of Units which will result
in Transferors owning a number of Units equal to:
(i) the total number of Units outstanding, as set forth in the
Prospectus, exclusive of any Units issuable in connection with any
over allotment option granted to any underwriter in the IPO;
minus
(ii) the total number of Units owned by the REIT as reflected
in the Prospectus;
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<PAGE> 7
minus
(iii) the total number of Units issued pursuant to those
Contribution Agreements described in Exhibit 1 hereto.
(p) IMPROVEMENTS. Any and all buildings and improvements located on
the Land. Improvements shall include any and all cart paths, tees,
greens, holding ponds, water wells, effluent systems, irrigation lines,
drainage facilities, pump stations, cart barns, entrance signage and
pavilions located on the Land.
(q) INVENTORY. Any and all maintenance facility inventory and all
other inventory of goods owned by Transferors and/or Transferee and held
for resale in connection with the operation of the subject Property
including, without limitation, golf equipment and golf related goods sold
in the pro shops and food and beverage items sold at the clubhouse
facilities and elsewhere throughout each golf course.
(r) LAND. The land legally described on Exhibit 2 attached hereto
and incorporated herein by this reference.
(s) LEGAL REQUIREMENTS. All laws, statutes, codes, acts,
ordinances, orders, judgments, decrees, injunctions, rules, regulations,
permits, licenses, authorizations, orders, directions and requirements of
all governments and governmental authorities having jurisdiction of the
Property (including, for purposes hereof, any local Board of Fire
Underwriters), and the operation thereof, and all deed restrictions or
other covenants, restrictions, or agreements, site plan approvals, zoning
or subdivision regulations and urban redevelopment plans governing or
regulating the use or operation of the Property.
(t) LESSEE. APGM LLC, or any wholly owned affiliate of APGM LLC,
or any other affiliate of APGM LLC as may be designated by APGM LLC, in a
written notice thereof delivered to Transferee no later than thirty (30)
days following the Contract Date (which other affiliate shall, in any
event, be subject to the reasonable approval of Transferee as more
particularly described in Section 2.2 hereof).
(u) LESSEE PROPERTY. Collectively, the Inventory, the Membership
Agreements, the Contracts and the Operating Permits.
(v) LICENSES AND PERMITS. All (i) licenses, permits, franchises,
certifications, authorizations, approvals, certificates of occupancy and
entitlements issued, approved or granted by any governmental authority or
body having jurisdiction over the Property and relating to the operation,
ownership or maintenance of the Property or any part thereof; (ii)
development rights in any way related to or used in connection with
the Property and its operations; and (iii) licenses, certifications,
authorizations, approvals,
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easements and rights of way required from private parties to make use of
utilities and to insure vehicular and pedestrian ingress and egress to
the Property; provided that the term "Licenses and Permits" shall not
include Operating Permits.
(w) LOAN DOCUMENTS. All loan agreements, notes, mortgages, deeds of
trust, assignments, guarantees, indemnitees and other instruments
evidencing, securing, guarantying or otherwise relating to any mortgage
or secured financing currently encumbering the Property.
(x) MEMBERSHIP AGREEMENTS. As defined in Section 4.1(g).
(y) OFFEREES. As defined in Section 3.1.
(z) OPERATING PERMITS. All licenses, permits and other
authorizations or approvals granted by any governmental authority or
other body having jurisdiction over the Property which relate solely to
the business operations currently being conducted at the Property (e.g.
liquor licenses, restaurant permits and licenses and health spa licenses)
and which would remain in full force and effect if held by APGM LLC or
its affiliates as the lessee of the Property pursuant to the Property
Lease.
(aa) OTHER CONTRIBUTION AGREEMENTS. As specifically described in
Exhibit 1.
(ab) PALOMA PROPERTIES. As defined in the Recitals hereto.
(ac) PERMITTED TITLE EXCEPTIONS. Those exceptions to title to the
Property set forth in the title policies heretofore issued in favor of
Transferee relative to the Land and Improvements.
(ad) PERSONAL PROPERTY. All machinery, vehicles, spare parts,
supplies, equipment, fixtures, furnishings and other tangible personal
property of every kind and character (excluding, however, the Inventory)
owned by Transferors and/or Transferee and situated in or upon or used in
connection with the operation or maintenance of the Property or any part
thereof, and all replacements, additions or accessories thereto between
the Contract Date and the Closing Date.
(ae) PROPERTY. Collectively, the Land and Improvements, the
Personal Property, the Licenses and Permits, the Trade Names and
Trademarks, the Warranties, and all tangible and intangible assets
arising out of or relating to the foregoing (excluding, however, the
Lessee Property described herein) all of which has heretofore been
contributed by Transferors to Transferee and being commonly referred to
as the Oronoque Country Club, Stratford, Connecticut, and the Brierwood
Country Club, Hamburg, New York.
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(af) PROPERTY LEASE. As defined in Section 2.2.
(ag) PROSPECTUS. As defined in Section 3.2.
(ah) REIT. As defined in the Recitals hereto.
(ai) SECURITIES ACT. As defined in Section 3.2.
(aj) TRANSFERORS. Shall mean, collectively, Arnold Palmer Golf
Management LLC and its subsidiary Oronoque Golf, LLC.
(ak) TRADE NAMES AND TRADEMARKS. All of Transferee's rights in and
to any and all trade names and trademarks relating to the current
operations at the Property and previously transferred from Transferors to
Transferee, and any and all derivatives and forms thereof, together with
all other service marks and logos, whether or not registered, relating to
the current operations at the Property and previously transferred from
Transferors to Transferee.
(al) UNITS. As defined in the Recitals hereto.
(am) WARRANTIES. All guarantees and warranties in effect with
respect to the Property or any portion thereof, which, by their terms,
shall survive Closing, including, without limitation, all guarantees and
warranties of contractors, materialmen, manufacturers, mechanics or
suppliers who have been engaged by Transferors or any of their agents to
furnish labor, materials, equipment or supplies to all or any portion of
the Property.
ARTICLE 2
CONVERSION; LEASE-BACK
2.1 CONVERSION; OTHER CONSIDERATION. Subject to the conditions and on the
terms contained in this Agreement, Transferors' Interest shall be converted at
Closing, into the number of Units as determined by the Interest Conversion.
The ratio of the number of such Units to be held by APGM LLC and Oronoque shall
be determined by the mutual agreement of APGM LLC and Oronoque. In addition,
subject to the conditions contained herein, at Closing, Transferee shall (i)
grant APGM LLC the Options, and (ii) pay Transferors the Cash Consideration
(which Cash Consideration shall be payable in cash or by cashier's check or
wire transfer of funds and shall be payable to such party or parties as
Transferors shall mutually designate). The Options and the Cash Consideration
received by APGM LLC will constitute consideration for APGM LLC's prior capital
contribution to the Partnership of the proceeds used to acquire the Paloma
Properties.
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2.2 PROPERTY LEASE. Notwithstanding anything herein to the contrary, it
is understood and agreed that Transferee, as lessor, and APGM LLC, as lessee,
shall be entering into one or more leases for the Property and the Paloma
Properties (collectively, the "Property Lease") commencing upon the Closing
Date, in form and substance designated by Transferee (which shall be in
substantially the same form as heretofore agreed upon for the Crofton, Maryland
golf course property). In the event APGM LLC desires an entity other than APGM
LLC or a wholly owned affiliate of APGM LLC to be the "Lessee" under the
Property Lease, APGM LLC shall deliver notice to Transferee, within thirty (30)
days following the Contract Date, identifying the entity which they proposes to
be the lessee under the Property Lease, and APGM LLC shall thereafter deliver
to Transferee such other information concerning such proposed lessee as
Transferee may request. Transferee shall have the right to approve any entity
designated by APGM LLC (other than a wholly owned affiliate of APGM LLC) to be
the lessee under the Property Lease, which approval shall not be unreasonably
withheld. Upon such approval (or, in case of any wholly owned affiliate of
APGM LLC, where no approval of Transferee shall be required), the entity so
designated shall be the "Lessee" under the Property Lease being entered into at
Closing, and, at Closing, Transferors and Transferee shall convey all of their
respective right, title and interest in and to the Lessee Property to said
Lessee by assignment or other conveyance documents acceptable to Lessee and
Transferee. If Transferee does not so approve the proposed entity as lessee
under the Lease, then APGM LLC or a wholly owned affiliate of APGM LLC (as
designated by APGM LLC) shall be the "Lessee" thereunder.
ARTICLE 3
ACCREDITED INVESTOR AND PROSPECTUS
3.1 ACCREDITED INVESTOR. Transferee acknowledges that the issuance of
Units to Transferors pursuant to this Agreement are sales exempt from
registration under the Securities Act (as defined in Section 3.4 below) and
that the issuance of said Units will be based upon the representation and
warranty of Transferors that Transferors and every person that is a member of
Transferors (collectively, all of such persons are referred to herein as
"Offerees") is an "Accredited Investor", as such term is defined in Rule 501(a)
promulgated under the Securities Act. Transferors shall cause each Offeree to
whom Units will be distributed ("Recipient Offeree") to execute and deliver an
Investor Questionnaire in form and substance satisfactory to Transferee to the
effect that the proposed recipient of Units is an Accredited Investor.
Transferors has heretofore delivered to Transferee a written notice identifying
each of the Recipient Offerees. Transferors hereby agree to deliver to each
Offeree an offering letter prepared by Transferee or its general partner and to
cause each Recipient Offeree to provide to Transferee or its general partner
such representations as Transferee may reasonably require with the advice of
counsel in connection with such private placement of the Units meeting the
requirements of Rule 506 under Regulation D.
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3.2 PROSPECTUS. Transferors understand that in connection with the IPO,
Transferee will require certain information in order to comply with the
Securities Act of 1933, as amended, the regulations promulgated thereunder, and
any applicable states' securities laws governing the offering and sales of
securities (collectively, the "Securities Act"), and such information will be
used in the preparation of and/or included in a final prospectus (the
"Prospectus") to be distributed in connection with the sale of the Common
Shares of the REIT. Transferors agree to provide to Transferee, at
Transferee's sole cost and expense (unless otherwise specified in this
Agreement), all information which Transferee, the underwriters of the IPO and
their respective attorneys or accountants deem necessary or desirable to
prepare the Prospectus. Within ten (10) days after request therefore by
Transferee, Transferors shall, from time to time, update and recertify any
information previously provided by Transferors pursuant hereto. Transferors
agree to carefully review the portions of the Prospectus concerning the
Transferors and the Business to verify that such portions of the Prospectus do
not contain any untrue statement of material fact and do not omit to state a
material fact necessary in order to make the statements made in such portions
of the Prospectus, in light of the circumstances under which they were made,
not misleading. If Transferors find any portion of the Prospectus relating to
the Transferors or the Business inaccurate, Transferors shall promptly notify
Transferee in detail in writing as to the reasons it finds such portions of the
Prospectus inaccurate so that the Prospectus may be modified. This Agreement
is not intended to constitute an offering of securities under the Securities
Act or otherwise, and no securities have been offered to Transferors by virtue
hereof.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATION AND WARRANTIES OF TRANSFERORS. In connection with the
Property heretofore contributed by Transferors to Transferee and to induce
Transferee to execute, deliver and perform this Agreement, Transferors hereby
represent and warrant to Transferee on and as of the Contract Date and, by an
updated certificate to be delivered at Closing, on and as of the Closing Date,
as follows:
(a) OTHER REPRESENTATIONS AND WARRANTIES. All representations and
warranties of Transferors appearing in other Sections of this Agreement
are true and correct in all material respects as of the date hereof, and
shall be true and correct in all material respects as of the Closing
Date, except to the extent any such representation or warranty expressly
relates to a specific date, in which case it is and shall be true and
correct in all material respects as of such specific date.
(b) AUTHORITY. Transferors are duly organized and validly existing
limited liability companies in good standing under the laws of the State
of Delaware. Transferors have full capacity, right, power and authority
to execute, deliver and perform this Agreement and all documents to be
executed by Transferors pursuant hereto, and all
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required action and approvals therefor have been duly taken and obtained.
The individuals signing this Agreement and all other documents executed
or to be executed pursuant hereto on behalf of Transferors are and shall
be duly authorized to sign the same on Transferors' behalf and to bind
Transferors thereto. This Agreement and all documents to be executed
pursuant hereto by Transferors are and shall be binding upon and
enforceable against Transferors in accordance with their respective
terms.
(c) CONTRACTS. Transferors have provided to Transferee prior
hereto, true, correct and complete copies of all material Contracts
(i.e., meaning Contracts which have projected or actual payment
obligations in excess of $25,000.00 during any quarterly period or which
are otherwise material to the business operations currently being
conducted at the Property). To Transferors' knowledge, there are no
defaults under any of the Contracts and all of the Contracts are in good
standing and in full force and effect. Transferors and Transferee shall
assign all of their respective rights and obligations under the Contracts
following the Closing to Lessee, as the operator of the business being
conducted at the Property pursuant to the Property Lease.
(d) LICENSES AND PERMITS. Transferors have provided to Transferee
prior hereto a true, correct and complete list of all material Licenses
and Permits. To Transferors' knowledge, Transferee currently possesses
all Licenses and Permits necessary and required for the current
ownership, use and maintenance the Property and each of the Licenses and
Permits is in full force and effect and in good standing, and Transferors
have not received notice of any intention on the part of the issuing
authority to cancel, suspend or modify any of the Licenses and Permits or
to take any action or institute any proceedings to effect such a
cancellation, suspension or modification. To Transferors' knowledge, no
notice to, filing or registration with, or License or Permit from, any
governmental or regulatory body or authority, or any other person or
entity is required to be made or obtained in connection with the
execution, delivery or performance of this Agreement by Transferors. To
Transferors' knowledge, the interests of Transferee in the Licenses and
Permits are free and clear of all encumbrances and have not been assigned
to any other person, other than collateral assignment thereof to the
existing lender under the Loan Documents.
(e) OPERATING PERMITS. Transferors have previously provided to
Transferee, a true, correct and complete list of all material Operating
Permits. To Transferors' knowledge, Transferors and/or Transferee
currently possess all Operating Permits necessary and required for the
lawful operation of the current business at the Property and each of the
Operating Permits is in full force and effect and in good standing, and
Transferors have not received notice of any intention on the part of the
issuing authority to cancel, suspend or modify any of the Operating
Permits or to take any action or institute any proceedings to effect such
a cancellation, suspension or modification. To Transferors' knowledge no
notice to, filing or registration with, or License or Permit from, any
governmental or regulatory body or authority, or any other person or
entity
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is required to be made or obtained in connection with the execution,
delivery or performance of this Agreement by Transferors. To
Transferors' knowledge, the interests of Transferors and/or Transferee in
the Operating Permits are free and clear of all encumbrances and have not
been assigned to any other person, other than collateral assignments
thereof to the existing lender under the Loan Documents.
(f) PERSONAL PROPERTY. Transferors have previously provided to
Transferee a true, correct and complete list of the Personal Property.
To Transferors' knowledge, Transferee has good and marketable title to
the Personal Property and each item thereof free and clear of liens,
security interests, encumbrances, leases and restrictions of every kind
and description, except as previously disclosed and except for liens of
the lender under the Loan Documents. The Personal Property is in good
operating condition and repair, ordinary wear and tear excepted.
(g) MEMBERSHIP. Transferors have previously provided to Transferee
a true, correct and complete list of all of the members of any type of
respective golf courses comprising the Property. The list describes all
classes of memberships and all persons with any membership rights,
including, without limitation, honorary and lifetime members and persons
holding first offer and refusal rights. Except as may be disclosed in
the membership agreements ("Membership Agreements") and other membership
materials previously furnished to Transferee, Transferors have made no
written or oral representations, covenants or agreements (including any
rules, regulations or by-laws relating to membership or any
correspondence delivered to members or prospective members), concerning
(i) the total allowable number of members or classes of membership in the
clubs; (ii) qualifications or approval required for new members, (iii)
the amount of initiation fees, deposits, restrictions or waiver of
monthly dues or other fees to be charged to the membership for their
usage of the clubs, or (iv) rights of members of the clubs.
(h) VIOLATIONS OF LAWS. To Transferors' knowledge, the Improvements
have been constructed and are presently used and operated in material
compliance with all Licenses and Permits and Operating Permits, all Legal
Requirements and all covenants, easements and restrictions affecting the
Property. Transferors have received no written notices of any violations
of any Legal Requirements pertaining to the Property which have not been
entirely corrected in all material respects.
(i) CONDITION OF PROPERTY. Transferors have previously provided to
Transferee a list of all reports, assessments and investigations
commissioned by Transferors or within Transferors' possession or control
relating to the physical condition of the Improvements and the condition
of soils at the Land, and Transferors have delivered to Transferee true,
correct and complete copies thereof. To Transferors' knowledge, the
Improvements are structurally sound, weather tight and in good condition
and repair. To Transferors' knowledge, there are no structural defects
in any of the
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Improvements. To Transferors' knowledge, the soil condition of the Land
is such that it will support all of the Improvements without need for
additional subsurface excavations, fill, footings, caissons or other
installations.
(j) LITIGATION. Except as previously disclosed to Transferee and
incorporated herein by this reference, Transferors have not been served
with notice of any action, order, writ, injunction, judgment or decree
outstanding, or of any claims, causes of action or other litigation or
proceeding pending, nor, to the best of Transferors' knowledge, are any
such matters threatened, with respect to (i) the ownership or operation
of the Property or any part thereof (including, without limitation,
disputes with mortgagees, governmental authorities, utilities,
contractors, adjoining land owners or suppliers of goods or services),
(ii) Transferors' ability to consummate the transactions contemplated
hereby.
(k) CONDEMNATION. There is no pending (i) condemnation of any part
of the Property, or (ii) widening, change of grade or limitation on use
of streets abutting the Property and, to the best of Transferors'
knowledge, there is no existing, contemplated, threatened or anticipated
(i) condemnation of any part of the Property, (ii) widening, change of
grade or limitation on use of streets abutting the Property or (iii)
change in the zoning classification of the Property.
(l) ASSESSMENTS. Transferors have received no notice and have no
knowledge of any pending liens, special taxes or assessments to be made
against the Property by any governmental agency or authority, nor have
Transferors received notice of any planned change in the tax assessment
or assessed valuation of the Property. To the best of Transferors'
knowledge, there are no other special taxes or special assessments levied
against Transferors or the Property arising out of the specific use of
the Property for operation as a golf course (as opposed to general
business operation, for example: a special recreational or entertainment
tax payable to the local municipality for the privilege of operating a
golf course). The representation and warranty contained in this Section
6.1(l) shall not include income, sales, use, liquor, tobacco, real
property, personal property, value added, ad valorem, gross receipts,
license tax, business tax, employment and other similar taxes imposed by
governmental agencies.
(m) WATER. To Transferors' knowledge, the Property has sufficient
water and water rights provided by the municipalities in which the
Property is located, or otherwise, as required or necessary to (i)
satisfy the requirements to operate the subject golf courses, and (ii)
irrigate and maintain the subject golf courses in a first class
condition, and all permits and licenses required to use said water have
heretofore been transferred to Transferee.
(n) UTILITIES. To Transferors' knowledge, all water, sewer, gas,
electric, telephone and drainage facilities and all other utilities and
public or quasi-public
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improvements upon or adjacent to the Property required by law or for the
normal operation of the Property are installed, are connected under valid
permits, are in good working order, are adequate to service the Property
and are fully paid for. Transferors have no knowledge of any fact or
condition which would result in the termination or impairment in the
transmitting of utility services to the Property.
(o) Intentionally Omitted.
(p) NO CONFLICT OR VIOLATION. Neither the execution, delivery or
performance of this Agreement by Transferors, or any related documents or
instruments, nor the consummation of the transactions contemplated
hereby, nor compliance by Transferors with any of the provisions hereof,
will (a) result in a breach of or constitute a default under any
agreement to which Transferors are bound, or (b) violate or conflict with
any provision of the organizational documents of Transferors, or (c)
violate, conflict with, or result in a breach of any provision of, or
constitute a default under, or result in the termination or acceleration
under, or result in the creation of any encumbrance upon the Property
under, any material contract, commitment, agreement or other instrument
or obligation to which Transferors are a party or by which the Property
is bound, or (d) violate any order, judgment, injunction, award or decree
of any court or arbitration body, or any governmental, administrative or
regulatory authority, or any other body, by or to which Transferors or
the Property are or may be bound or subject, or (e) violate, conflict
with or result in a default or breach under, any license, permit or other
governmental authorization (such matter described in this clause (e)
being referred to as a "License Violation"), which License Violation
would reasonably be expected to have a material adverse affect on the
Property or on Transferors' ability to consummate the transactions
contemplated hereby.
(q) LABOR MATTERS. Except as described in Exhibit 5 attached
hereto, Transferors are in material compliance with all applicable laws
respecting employment practices, terms and conditions of employment,
management-labor relations and wages and hours which are in effect as of
the date of this Agreement. With respect to the Property, (i)
Transferors are not a party to any labor agreement with any labor
organization, (ii) there is no unfair labor practice charge or complaint
against Transferors pending or threatened before the National Labor
Relations Board, (iii) there is no labor strike or labor disturbance
pending or, to Transferors' knowledge, threatened against Transferors nor
is any material written grievance currently being asserted, (iv)
Transferors have not experienced a work stoppage or work slowdown at any
time during the three (3) years prior to the Contract Date, and (v) there
is, to Transferors' knowledge no organization campaign being conducted
and no dispute as to representation of any employee of Transferors. All
employment contracts or similar arrangements entered into by Transferors,
whether written or oral, are of a type that can be effectively terminated
by Transferors on or before the expiration or earlier termination of the
Property Lease and, in any event, Transferee shall have no obligations or
liabilities under such
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employment contracts or similar arrangements entered into by Transferors
at any time, whether before or after the expiration or termination of the
Property Lease, unless expressly assumed by Transferee.
(r) ENVIRONMENTAL MATERIALS. Transferors have previously provided
to Transferee a list of all reports, assessments, investigations or
audits commissioned by Transferors or within Transferors' possession or
control relating to the environmental condition of, or environmental
issues concerning, the Property ("Transferors' Environmental Reports").
Transferors have heretofore delivered to Transferee correct and complete
copies of the Transferors' Environmental Reports. Except as may be
disclosed in Transferors' Environmental Reports, and to Transferors'
knowledge, no Hazardous Material is or has been used, generated,
manufactured, processed, treated, stored, transported, incinerated,
released or disposed of in, on, under, to or from the Property, except in
strict compliance with all applicable Environmental Laws. Except as may
be disclosed in Transferors' Environmental Reports, and to Transferors'
knowledge, no underground storage tank currently exists or has ever
existed in, on or under the Property. Except as may be disclosed in
Transferors' Environmental Reports, and to Transferors' knowledge, no
asbestos containing material is present within or on the Property.
Except as may be disclosed in Transferors' Environmental Reports and to
Transferors' knowledge, no part of the Property has been used for
landfill, dumping or other waste disposal activities or operations,
excluding disposal of grass cuttings, landscape clippings, pruning
debris, leaves, vegetation and similar matters. Transferors have not
received notice, and Transferors have no knowledge, of any prior owner or
occupant of the Property receiving, any citation, directive, demand,
pleading, complaint, claim, inquiry, notice of potential responsibility,
notice of violation, order, notice of investigation, or other written
communication, actual or threatened, from any governmental authority, or
any person or entity, regarding (a) the existence of any Hazardous
Material in, on, under, or migrating to or from, the Property in excess
of levels permissible under applicable Environmental Laws; or (b) the
potential liability or responsibility of Transferors, or any past or
present owner or occupant of the Property, under any Environmental Law.
(s) BANKRUPTCY. No attachments, execution proceedings, assignments
for the benefit of creditors, insolvency, bankruptcy, reorganization or
other proceedings are pending or, to Transferors' knowledge, threatened
against Transferors or any members of Transferors, nor are any of such
proceedings contemplated by Transferors or any members of Transferors.
(t) TAXES. Other than as disclosed in the tax bills previously
delivered to Transferee, Transferors have received no notice that any
real property taxes or special assessments or charges have been levied
against the Property or will result from work, activities or improvements
done to the Property by Transferors. Transferors have no knowledge and
Transferors have received no notice of any intended public improvements
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which will result in any new charge being levied against, or in the
creation of any new lien upon, the Property or any portion thereof.
Transferors have no knowledge and have received no notice of any intended
changes in the assessed valuation of the Property.
(u) CERTIFICATES OF OCCUPANCY. Transferors have received a
certificate of occupancy or other similar certificate permitting lawful
occupancy of the Property and, to Transferors' knowledge, Transferors
have received all other approvals of governmental authorities required in
connection with the operation of the Property as golf course facilities.
(v) ENCUMBRANCES. To Transferors' knowledge, the current interest
of Transferee in the Licenses and Permits, Property, Trade Names and
Trademarks and Warranties is free and clear of all encumbrances and has
not been assigned to any other person, except for the security interests
in the Property previously disclosed to Transferee and except for the
Loan Documents.
(w) EASEMENTS AND RIGHTS OF WAY. To Transferors' knowledge,
Transferee has heretofore obtained all easements and rights-of-way,
including proof of dedication, required from all governmental authorities
having jurisdiction over the Property or from private parties for the
current use of the Property, and to make use of all utilities serving the
Property and to insure vehicular and pedestrian ingress and egress to and
from the Property.
(x) BROKERS. Transferors have not entered into any agreement or
arrangement, and have no understanding, with any person or entity to pay,
or to obligate Transferee to pay, any finder's fee, brokerage commission
or similar payment in connection with any of the transactions
contemplated by this Agreement.
(y) WETLANDS AND ENDANGERED SPECIES. Except as previously disclosed
to Transferee, and to Transferors' knowledge, there are no portions of
the Property which constitute (i) "wetlands" under any applicable,
federal, state or local law, ordinance or regulation, or (ii) habitat for
any species which is deemed to be endangered under any applicable
federal, state or local law, ordinance or regulation.
(z) NO MECHANICS' LIENS. Transferors have paid for all material
supplied and services performed with respect to the Property, under
contracts entered into by Transferors and of a type for which a
mechanic's lien may be filed.
(aa) GRAVEYARD. To Transferors' knowledge, no portion of the
Property is or has been used as a graveyard.
(ab) WASTE DISPOSAL ACTIVITIES. Transferors have provided
Transferee, prior hereto, a true, correct and complete list setting forth
(i) all waste management activities
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at the Property initiated or controlled by Transferors, and to
Transferors' knowledge, all waste management activities at the Property
initiated or controlled by any other party, (ii) to Transferors'
knowledge, all sites to which Transferors have directly or indirectly
released, stored, dumped, buried, injected, treated, or otherwise
disposed of, hazardous substances or hazardous waste or other toxic or
hazardous material generated at the Property, and (iii) all parties with
whom Transferors contracted to do the same.
(ac) LIABILITIES. Except as disclosed prior hereto, or as otherwise
set forth in the items listed in Exhibits to this Agreement (including,
without limitation, the obligations and liabilities described in Exhibit
3 attached hereto), there are no material obligations or liabilities
arising based upon Transferors' actions which shall be binding upon
Transferee or the Property after Closing.
(ad) FIRPTA REPRESENTATION. Transferors are not a "foreign person"
within the meaning of Section 1445 of the Code.
(ae) TRADEMARKS AND TRADENAMES; PROPRIETARY RIGHTS. To Transferors'
knowledge, there are no actions or other judicial or administrative
proceedings involving Transferors or the Property pending, or threatened
that concern any copyrights, copyright application, trademarks, trademark
registrations, trade names, service marks, service mark registrations,
trade names and trade name registrations or any trade secrets heretofore
transferred to Transferee (the "Proprietary Rights"). To Transferors'
knowledge, Transferee has the right and authority to use each Proprietary
Right necessary in connection with the operation of the Property in the
manner in which it is currently used. To Transferors' knowledge, the
current use of the Proprietary Rights does not, and did not in the past,
conflict with, infringe upon or violate any copyright, trade secret,
trademark or registration of any other person. There are no outstanding
or, to Transferors' knowledge, threatened disputes or disagreements with
respect to any Proprietary Right or any license, contract, agreement or
other commitment, written or oral, relating to the same.
(af) COMPLIANCE WITH ERISA. To Transferors' knowledge, Transferors
are not in default with respect to any of their obligations under any
plan, agreement or trust, and Transferors have filed or caused to be
filed all reports with respect to the foregoing required by, and is
otherwise in compliance with, the Employees Retirement Income Security
Act of 1974, as amended, and all rules and regulations thereunder with
respect thereto.
(ag) NO OTHER AGREEMENTS TO SELL. Transferors have not made any
agreement with, and has no obligation (absolute or contingent) to, any
person or firm other than Transferee (a) to sell, transfer or in any way
encumber (except for Permitted Title Exceptions) the Property or (b) to
enter into any agreement with respect to a sale, transfer or encumbrance
or put or call or other purchase option right with respect to the
15
<PAGE> 19
Property, except for certain option rights relating to a driving range
parcel located at the Oronoque property granted pursuant to that certain
Option and Right of First Refusal Agreement dated December 3, 1996 by and
between ST. Realty and Oronoque Golf, LLC (a true and correct copy of
which has heretofore been delivered to Transferee).
The representations and warranties of Transferors contained in this
Section 4.1 shall be deemed remade by Transferors as of the Closing with the
same force and effect as if made at that time, except to the extent that any
such representation or warranty expressly relates to a specific date, in which
case it shall be true and correct in all material respects as of such specific
date. Transferors shall give written notice to Transferee of any information
that makes any representation and warranty untrue within five (5) business days
of obtaining such information. The representation and warranty of Transferors
set forth in Section 4.1(b), as well as Transferee's right to enforce and/or
seek damages for any breach of the same, shall survive the Closing and continue
in full force and effect indefinitely. All other representations and
warranties of Transferors set forth in Section 4.1, as well as Transferee's
right to enforce and/or seek damages for any breach of the same, shall survive
the Closing for a period of one (1) year (i.e., meaning that Transferee must
give notice to Transferors of such claim prior to the expiration of said one
(1) year period). Notwithstanding anything to the contrary contained in this
Section 4.1, (i) Transferee shall have no right to enforce or seek damages for
any breach of representations and warranties unless the total damage resulting
from any such breaches, in the aggregate, as estimated by Transferee in good
faith, exceeds Fifty Thousand Dollars ($50,000.00), and (ii) Transferors'
maximum liability for all such breaches shall not exceed the sum of (A) the
total value of the Property, based upon the Units given and cash paid as
consideration, plus (B) the total value of all other Units received by
Transferors and/or their Affiliates pursuant to the Other Contribution
Agreements. As used in this Section 4.1, the phrase "to Transferors'
knowledge" shall mean the actual knowledge of Peter Nanula, George Haworth,
Bryan Noreen, Daryl Jones, Jim Ellison and Tom Ahern, General Manager of
Brierwood Country Club, and Jim Lyman, General Manager of Oronoque Country
Club.
4.2 REPRESENTATION AND WARRANTIES OF TRANSFEREE. Transferee hereby
represents and warrants to Transferors, as of the date hereof and as of the
Closing Date, as follows:
(a) ORGANIZATION, STANDING AND PARTNERSHIP AUTHORITY. Transferee is
a limited partnership duly organized, validly existing and in good
standing under the laws of the State of Delaware, and has full power and
authority to enter into and perform this Agreement and consummate the
transactions contemplated hereby. The execution, delivery and
performance hereof and the consummation of the transactions contemplated
hereby by Transferee have been duly authorized by all necessary
partnership action and this Agreement is a valid and binding agreement of
Transferee, enforceable against Transferee in accordance with its terms,
except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws.
16
<PAGE> 20
(b) NO RESTRICTIONS UPON TRANSFEREE. Transferee is not subject to
any restriction, agreement, law, judgment or decree which would prohibit
or be violated by the execution and delivery hereof or the consummation
of the transactions contemplated hereby, and no consent or approval is
required to be obtained by Transferee from any third party or
governmental agency with respect to this Agreement or the consummation of
the transactions contemplated hereby.
ARTICLE 5
COVENANTS
5.1 TRANSFERORS' COVENANTS. Transferors covenant and agree to the
following, which covenants and agreements shall survive Closing, shall have
been complied with as of the Closing Date, and shall not be deemed merged in
the conveyance contemplated herein:
(a) LITIGATION, CLAIMS, OR PROCEEDINGS. In the event a lien, claim,
or cause of action affecting the Interest should arise prior to Closing,
Transferors shall advise Transferee in writing (or if discovered by
Transferee, Transferee shall advise Transferors in writing), and
Transferors shall use commercially reasonable efforts to satisfy any such
matter prior to Closing and furnish Transferee with evidence thereof.
(b) ASSESSMENTS. If any governmental agency or authority gives
notice prior or subsequent to Closing of any improvements, liens,
supplemental tax bills or special assessments made or to be made against
the Interest which relate to time periods prior to Closing, Transferors
shall satisfy and indemnify Transferee from any such claim and shall
furnish Transferee evidence thereof.
(c) LIENS. From the Contract Date to the Closing Date, Transferors
shall not sell, assign, or create any right, title, or interest
whatsoever in or to any of the Interest, or create or permit to exist any
liens, encumbrance, or charge thereon, without promptly discharging same
prior to the Closing.
(d) CONTRACTS. Transferors agree not to enter into any contracts,
commitments, leases, or agreements after the date hereof to which the
Interest or the Transferee may be or may become subject without the
express written approval of Transferee, which shall not be unreasonably
withheld.
(e) VIOLATION OF REPRESENTATIONS. From the Contract Date to the
Closing Date, Transferors shall not take any action or omit to take any
action which action or omission would have the effect of violating, in
any material respect, any of the representations, warranties, or
covenants of Transferors contained in this Agreement.
17
<PAGE> 21
(f) ACCESS PENDING CLOSING. From the date hereof to and including
the Closing Date, Transferors shall cause Transferee and its accountants
and other representatives to have the right of full and complete access
to the books, records, offices and other facilities of Transferors during
normal business hours, for the purpose of making such investigation of
the financial condition and operations of Transferors as Transferee may
reasonably deem necessary.
(g) CONSENT OF THIRD PARTIES. Prior to the Closing, Transferors
shall obtain or cause to be obtained all consents and other approvals of
all lessors, lenders, governmental authorities and other third parties
which are required to be obtained by Transferors as a result of the
transactions contemplated by this Agreement which consents and approvals
shall continue each applicable lease, loan or other arrangement on
substantially identical terms as exist on the date hereof.
(h) GOOD STANDING CERTIFICATES. On or before the Closing Date,
Transferors, at their expense, shall deliver to Transferee UCC, judgment
and tax lien search reports and Certificates of Good Standing with
respect to Transferors.
(i) FURTHER ACTIONS. After the Closing, Transferors will take all
actions necessary to complete the Interest conversion.
(j) CLOSING CONDITIONS. Transferors shall use their best efforts to
cause the conditions specified in Article 7 hereof which require
satisfaction by Transferors to be satisfied on or before the Closing
Date.
5.2 TRANSFEREE'S COVENANTS. Transferee hereby covenants and agrees with
Transferors as follows:
(a) CLOSING CONDITIONS. Transferee will use its best efforts to
cause the conditions specified in Article 7 hereof which require
satisfaction by Transferee to be satisfied on or before the Closing Date.
ARTICLE 6
CONDITIONS PRECEDENT
6.1 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF TRANSFEREE. Transferee's
obligation to complete the Interest conversion pursuant to this Agreement shall
be subject to the satisfaction, prior to the Closing Date, of all of the
following conditions precedent, each of which is for the benefit of Transferee
and may be waived by Transferee in its sole discretion:
18
<PAGE> 22
(a) all representations and warranties of Transferors set forth in
the Agreement shall be true and correct in all material respects as of
the Closing Date, except to the extent such representations or warranties
relate to a specific date, in which case they shall be true and correct
in all material respects as of such specific date; and
(b) Transferors shall have performed, in all material respects, all
of their covenants and obligations under this Agreement.
6.2 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF TRANSFERORS. Transferors'
obligation to complete the conversion of the Interest to Transferee pursuant to
this Agreement shall be subject to the satisfaction, prior to the Closing Date,
of all of the following conditions precedent, each of which is for the benefit
of Transferors and may be waived by Transferors in their sole discretion:
(a) all of the representations and warranties of Transferee set
forth in this Agreement shall be true and correct in all material
respects as of the Closing Date, except to the extent such
representations or warranties relate to a specific date, in which case
they shall be true and correct in all material respects as of such
specific date; and
(b) Transferee shall have performed, in all material respects, all
of its covenants and obligations under this Agreement.
6.3 IPO CONDITION. The obligation of either Transferors or Transferee to
close the transaction contemplated hereby is, at the option of each party,
subject to the consummation of the IPO (the "IPO Condition").
ARTICLE 7
CLOSING
7.1 TIME AND PLACE. The Closing of the transaction contemplated hereby
("Closing") shall take place at the offices of Transferee's attorney on a date
(the "Closing Date") to be specified by written notice from Transferee to
Transferors. Unless the parties otherwise agree, it is contemplated that the
Closing shall take place concurrently with the consummation of the IPO. In any
event, the Closing shall take place immediately prior to the closing of the
transactions contemplated by those Contribution Agreements described in Exhibit
1 hereto.
7.2 TRANSFERORS' DELIVERIES. On or before the Closing Date, Transferors
shall deliver or cause to be delivered to Transferee the following documents,
each of which shall be in form and substance reasonably acceptable to
Transferee:
(a) Such instruments of transfer as Transferee may reasonably
request to effect the completion of the conversion of the Interest in
accordance herewith;
19
<PAGE> 23
(b) Transferors' certificate dated as of the Closing Date confirming
the representations and warranties of Transferors under Section 4.1
hereof and, if applicable, describing any change in facts or
circumstances which would make any of such representations or warranties
untrue as of the Closing Date;
(c) Such evidence as may be reasonably satisfactory to Transferee
evidencing the due authorization, execution and delivery of this
Agreement and the other documents to be executed in connection herewith
by Transferors;
(d) Transferors shall have delivered all consents to the transaction
contemplated hereby as Transferee may deem necessary or desirable; and
(e) Such other documents, instruments, certifications and
confirmations as may be necessary or appropriate to comply with the
provisions of this Agreement to fully effect and consummate the
transactions contemplated hereby (including, without limitation, the
execution and delivery of the Property Lease by Lessee and the execution
and delivery of the other conveyance documentation pertaining to the
Lessee Property as contemplated by Section 2.2 hereof).
7.3 TRANSFEREE'S DELIVERIES. On or before the Closing Date, Transferee
shall deliver or cause to be delivered to Transferors the following documents
or other deliveries, each of which shall be in form and substance reasonably
acceptable to Transferors:
(a) Transferee shall deliver a certified copy of its Certificate of
Limited Partnership, as amended from time to time and a certified copy of
a resolution of its general partner, authorizing the execution and
delivery of this Agreement and the performance of its obligations
hereunder;
(b) Transferee's certificate dated as of the Closing Date confirming
the representations and warranties of Transferee under Section 4.2 hereof
and, if applicable, describing any change in facts or circumstances which
would make any of such representations or warranties untrue as of the
Closing Date;
(c) The Units;
(d) The Options;
(e) the Cash Consideration; and
(f) Such other documents, instrument, certifications and
confirmations as may be necessary or appropriate to comply with the
provisions of this Agreement to fully effect and consummate the
transactions contemplated hereby (including, without limitation, the
execution and delivery of the Property Lease by Transferee and the
20
<PAGE> 24
execution and delivery of the other conveyance documentation pertaining
to the Lessee Property as contemplated by Section 2.2 hereof).
7.4 CONCURRENT TRANSACTIONS. All documents or other deliveries required
to be made by Transferee or Transferors at Closing, and all transactions
required to be consummated concurrently with Closing, shall be deemed to have
been delivered and to have been consummated simultaneously with all other
transactions and all other deliveries, and no delivery shall be deemed to have
been made, and no transaction shall be deemed to have been consummated, until
all deliveries required by Transferee, or its nominee, and Transferors shall
have been made, and all concurrent or other transactions shall have been
consummated.
ARTICLE 8
INDEMNIFICATION
8.1 TRANSFERORS' INDEMNITY. Transferors hereby agree to indemnify, defend
and hold harmless Transferee, and its partners, members, officers,
shareholders, directors, employees and agents from and against any and all
losses, liabilities, fines and penalties and damages (including, without
limitation, any damages or injury to persons, property or the environment as
provided hereunder), or actions or claims in respect thereof (including,
without limitation, amounts paid in settlement and reasonable cost of
investigation, reasonable attorneys' fees and other legal expenses), resulting
from third party claims (based upon the allegations set forth in such claims
and whether or not ultimately successful) to which Transferee, and its
partners, members, officers, shareholders, directors, employees and agents may
become subject or which Transferee, and its partners, members, officers,
shareholders, directors, employees and agents may suffer or incur, either
directly or indirectly, insofar as such losses, liabilities or damages (or
actions or claims in respect thereof) arise out of, are with respect to, or are
based upon:
(i) Transferors' breach of any representation or warranty set
forth in this Agreement; or
(ii) Transferors' default in the performance of any of
Transferors' covenants set forth in this Agreement.
8.2 TRANSFEREE'S INDEMNITY. Transferee hereby agrees to indemnify, defend
and hold Transferors harmless from and against any and all losses, liabilities,
fines and penalties and damages (including, without limitation, any damages or
injury to persons, property or the environment as provided hereunder), or
actions or claims with respect thereto, except for liabilities specifically
assumed by Transferors pursuant to the terms of this Agreement (including,
without limitation, amounts paid in settlement and reasonable costs of
investigation, reasonable attorneys' fees and other legal expenses) resulting
from third party claims (based upon the allegations set forth in such claims
whether or not ultimately successful) to which Transferors
21
<PAGE> 25
may become subject or which Transferors may suffer or incur, either directly or
indirectly, insofar as such losses, liabilities or damages (or actions or
claims in respect thereof) arise out of, are with respect to, or are based
upon:
(i) Transferee's breach of any representation or warranty set
forth in this Agreement or a breach of any covenant of Transferee
contained herein; or
(ii) Transferee's default in the performance of any of
Transferee's covenants set forth in this Agreement.
ARTICLE 9
DEFAULT
9.1 TRANSFEREE DEFAULT. Notwithstanding anything to the contrary
contained in this Agreement, if (a) the conversion of the Interest is not
consummated due to Transferee's failure to perform any act required of
Transferee hereunder, and (c) all of the conditions precedent to Transferee's
obligation to close have been satisfied or waived by Transferee, then
Transferors shall execute and deliver to Transferee written notice of such
breach, which notice shall set forth complete information above the nature of
the breach. Transferee shall have a period of three (3) business days to cure
such breach. If such breach remains uncured beyond the three (3) business day
period described above, then, as Transferors' sole and exclusive remedy in lieu
of all other legal or equitable remedies shall be either: (i) to cancel this
Agreement, in which event Transferors shall have the right to recover from
Transferee all of Transferors' actual, reasonable out-of-pocket third party
costs, fees and expenses incurred in connection with this transaction, or (ii)
to specifically enforce the provisions of this Agreement. Nothing herein shall
be deemed to limit, in any manner, Transferee's indemnity obligations described
in Section 8.2 hereof.
9.2 TRANSFERORS' DEFAULT. Notwithstanding anything to the contrary
contained in this Agreement, if Transferors fail to perform any act required of
Transferors hereunder, or otherwise are in breach of any of their
representations or warranties hereunder, then Transferee shall execute and
deliver to Transferors written notice of such default or breach, which notice
shall set forth complete information about the nature of the default or breach.
Transferors shall have a period of three (3) business days to cure such
default or breach. If such default or breach remains uncured beyond the three
(3) business day period described above, then Transferee's sole and exclusive
remedy, in lieu of any and all other remedies at law or in equity shall be
either: (i) to cancel this Agreement, in which event Transferee shall have the
right to recover from Transferors all of Transferee's actual, reasonable
out-of-pocket third party costs, fees and expenses incurred in connection with
this transaction, or (ii) to specifically enforce the provisions of this
Agreement. Nothing herein shall be deemed to limit, in any manner,
Transferors' indemnity obligations described in Section 8.1 hereof.
22
<PAGE> 26
ARTICLE 10
BROKERAGE
10.1 BROKERAGE. Transferors hereby represent and warrant to Transferee
that Transferors have not dealt with any broker or finder with respect to the
transaction contemplated hereby and Transferors hereby agree to indemnify,
defend and hold harmless Transferee for any claim for brokerage commission or
finder's fee asserted by any person, firm or corporation claiming to have been
engaged by Transferors. Transferee hereby represents and warrants to
Transferors that Transferee has not dealt with any broker or finder in respect
to the transaction contemplated hereby and Transferee hereby agrees to
indemnify, defend and hold harmless Transferors for any claim for brokerage
commission or finder's fee asserted by a person, firm or corporation claiming
to have been engaged by Transferee.
ARTICLE 11
NOTICES
11.1 NOTICES. Any notice, request, demand, instruction or other document
to be given or served hereunder or under any document or instrument executed
pursuant hereto shall be in writing and shall be delivered personally, or
transmitted by facsimile (provided that the original thereof together with the
facsimile confirmation sheet shall thereafter be promptly sent by regular
United States Mail), or sent by United States registered or certified mail,
return receipt requested, or sent by overnight express courier, postage
prepaid, and shall be addressed to the parties at their respective addresses
set forth below, and the same shall be effective upon receipt if delivered
personally, or two (2) business days after deposit in the mails, if mailed as
aforesaid, or one (1) business day after deposit with an overnight express
courier, or immediately upon being sent by facsimile transmission. A party may
change its address for receipt of notices by service of a notice of such change
in accordance herewith.
If to Transferee: APGM Limited Partnership
Building 106, Montgomery Street
Presidio Main Post, P.O. Box 29355
San Francisco, California 94129
Attn: Mr. George Haworth
Facsimile: 415/561-4680
If to Transferors: Arnold Palmer Golf Management LLC
Building 106, Montgomery Street
Presidio Main Post P.O. Box 29355
San Francisco, California 94129
Attn: Peter Nanula
23
<PAGE> 27
Facsimile: (415) 561-4680
ARTICLE 12
ADDITIONAL COVENANTS
12.1 ENTIRE AGREEMENT, AMENDMENTS AND WAIVERS. This Agreement contains
the entire agreement and understanding of the parties with respect to the
subject matter hereof, and the same may not be amended, modified or discharged
nor may any of its terms be waived except by an instrument in writing signed by
the party to be bound thereby.
12.2 FURTHER ASSURANCES. The parties each agree to do, execute,
acknowledge and deliver all such further acts, instruments and assurances and
to take all such further action before or after the Closing as shall be
necessary or desirable to fully carry out this Agreement and to fully
consummate and effect the transactions contemplated hereby.
12.3 SURVIVAL AND BENEFIT. All agreements, obligations and indemnities of
the parties shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Except as otherwise expressly set forth
herein, all representations, warranties and indemnities shall survive Closing
for a period of one (1) year; provided, however, that if Transferors and
Transferee mutually agree to a different survival period in a given Closing
document, claims for indemnification made pursuant to such Closing document
shall be governed by such document.
12.4 NO THIRD PARTY BENEFITS. This Agreement is for the sole and
exclusive benefit of the parties hereto and their respective successors and
assigns, and no third party is intended to or shall have any rights hereunder.
12.5 TRANSFEREE'S INVESTIGATION AND INSPECTIONS. Any investigation or
inspection conducted by Transferee, or any agent or representative of
Transferee, pursuant to this Agreement, in order to verify independently
Transferors' satisfaction of any conditions precedent to Transferee's
obligations hereunder or to determine whether Transferors' warranties are true
and accurate, shall not affect, or constitute a waiver by Transferee of, any of
Transferors' obligations hereunder or Transferee's reliance thereon.
12.6 INTERPRETATION. The headings and captions herein are inserted for
convenient reference only and the same shall not limit or construe the
paragraphs or Sections to which they apply or otherwise affect the
interpretation hereof. This Agreement and any document or instrument executed
pursuant hereto may be executed in any number of counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument. Whenever under the terms of this Agreement the time for
performance of a covenant or condition falls upon a Saturday, Sunday or
holiday, such time for performance shall
24
<PAGE> 28
be extended to the next business day. Otherwise all references herein to
"days" shall mean calendar days. Time is of the essence of this Agreement.
12.7 GOVERNING LAW. With respect to general issues regarding enforcement
of this Agreement, this Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois. With respect to specific
issues relating to a particular golf course property, the laws of the state
where the subject Improvements are located shall govern and control.
12.8 ATTORNEYS' FEES. In any action or proceeding involving this
Agreement or the contents hereof, the prevailing party shall be entitled to
recover from the other party the prevailing party's reasonable costs and
expenses in such action or proceeding, including reasonable attorneys' fees.
12.9 ASSIGNMENT. Neither party shall have the right to assign this
Agreement, or any interest herein, to any other person or entity, without first
having obtained the prior written consent of the other party (which consent may
be withheld at the other party's sole and exclusive discretion).
12.10 OFFER AND ACCEPTANCE. Delivery by Transferee to Transferors of a
copy of this Agreement executed by Transferee shall constitute an offer to
convert the Interest upon the terms and conditions herein set forth which shall
be effective for a period of seventy-two (72) hours following the time of such
delivery. If Transferors fail to deliver a fully executed counterpart of this
Agreement to Transferee prior to expiration of such seventy-two (72) hour
period, then at Transferee's sole option, said offer may be revoked and
rescinded in its entirety at any time thereafter, and upon such revocation and
rescission, said offer and this Agreement shall have no further force or
effect.
[Signature Page to Follow]
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<PAGE> 29
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
TRANSFEREE:
APGM LIMITED PARTNERSHIP, a Delaware
limited partnership
By: PALMER MANAGEMENT, LLC, a Delaware
limited liability company, its
general partner
By: ARNOLD PALMER GOLF MANAGEMENT LLC,
a Delaware limited liability company,
its managing member
By: /s/ George T. Haworth
---------------------
Name: George T. Haworth
Title: CFO, Secretary & Treasurer
TRANSFERORS:
ARNOLD PALMER GOLF MANAGEMENT LLC, a
Delaware limited liability company
By: /s/ Peter J. Nanula
-------------------
Name: Peter J. Nanula
Title: President
ORONOQUE GOLF, LLC, a Delaware limited
liability company
By: ARNOLD PALMER GOLF MANAGEMENT LLC,
a Delaware limited liability company,
its managing member
By: /s/ Peter J. Nanula
-------------------
Name: Peter J. Nanula
Title: President
26
<PAGE> 1
EXHIBIT 10.11
CONTRIBUTION AGREEMENT
by and between
ARNOLD PALMER GOLF MANAGEMENT LLC,
a Delaware limited liability company
as Seller,
and
APGM LIMITED PARTNERSHIP,
a Delaware limited partnership
as Buyer
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
ARTICLE PAGE
- ------- ----
<S> <C>
1 DEFINITIONS ........................................................... 1
1.1 Definitions ...................................................... 1
2 CONTRIBUTION; LEASE-BACK .............................................. 10
2.1 Contribution ..................................................... 10
2.2 Property Lease ................................................... 11
2.3 Independent Consideration ........................................ 11
3 DEPOSIT AND ACQUISITION PRICE ......................................... 12
3.1 Acquisition Price. ............................................... 12
3.2 Determination of Number of Units ................................. 12
3.3 Accredited Investors ............................................. 13
3.4 Prospectus ....................................................... 13
3.5 Closing Escrow ................................................... 14
3.6 Federal Income Tax Consequences of Transaction ................... 14
4 TITLE, SURVEY AND SEARCHES ............................................ 14
4.1 Title ............................................................ 14
4.2 Survey ........................................................... 15
4.3 Searches ......................................................... 16
5 DUE DILIGENCE ......................................................... 16
5.1 Due Diligence Materials. ......................................... 16
5.2 Inspection ....................................................... 17
5.3 Due Diligence Termination ........................................ 18
6 REPRESENTATIONS AND WARRANTIES ........................................ 18
6.1 Representation and Warranties of Seller .......................... 18
6.2 Representations and Warranties of Buyer .......................... 28
6.3 Change In Circumstance ........................................... 29
7 SELLER'S COVENANTS .................................................... 29
7.1 Covenants ........................................................ 29
8 CONDITIONS PRECEDENT .................................................. 33
8.1 Conditions Precedent to the Obligations of Buyer ................. 33
8.2 Conditions Precedent to the Obligations of Seller ................ 34
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C>
9 DESTRUCTION, DAMAGE OR CONDEMNATION ................................... 35
9.1 Destruction or Damage ............................................ 35
9.2 Condemnation ..................................................... 35
10 POSSESSION, PRORATIONS AND CLOSING COSTS .............................. 36
10.1 Possession ....................................................... 36
10.2 Prorations ....................................................... 36
10.3 Closing Costs .................................................... 37
11 CLOSING ............................................................... 37
11.1 Time and Place ................................................... 37
11.2 Seller's Deliveries .............................................. 38
11.3 Buyer's Deliveries ............................................... 40
11.4 Concurrent Deliveries ............................................ 40
11.5 Concurrent Transactions .......................................... 40
11.6 New York Style Closing ........................................... 41
11.7 Employees and Leasing Commissions ................................ 41
11.8 Loan Payoff ...................................................... 41
12 INDEMNIFICATION ....................................................... 41
12.1 Seller's Indemnity ............................................... 41
12.2 Buyer's Indemnity ................................................ 42
13 DEFAULT ............................................................... 44
13.1 Buyer Default .................................................... 44
13.2 Seller Default ................................................... 44
14 BROKERAGE ............................................................. 45
14.1 Brokerage ........................................................ 45
15 NOTICES ............................................................... 45
15.1 Notices .......................................................... 45
16 ADDITIONAL COVENANTS .................................................. 46
16.1 Entire Agreement, Amendments and Waivers ......................... 46
16.2 Further Assurances ............................................... 46
16.3 Survival and Benefit ............................................. 46
16.4 No Third Party Benefits .......................................... 46
16.5 Buyer's Investigation and Inspections ............................ 46
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C>
16.6 Interpretation .................................................. 47
16.7 Governing Law ................................................... 47
16.8 Attorneys' Fees ................................................. 47
16.9 Assignment ...................................................... 47
16.10 Intentionally Omitted ........................................... 47
16.11 Offer and Acceptance ............................................ 47
17 COMPLIANCE WITH BULK SALES ACTS ....................................... 48
17.1 .................................................................. 48
LIST OF EXHIBITS
EXHIBIT A - Legal Description of Real Property
EXHIBIT B - Due Diligence Materials
EXHIBIT C - Material Contracts
EXHIBIT D-1 - List of Licenses and Permits
EXHIBIT D-2 - Operating Permits
EXHIBIT E - List of Personal Property
EXHIBIT F - List of Members
EXHIBIT G - List of Seller's Environmental Reports and Engineering Reports
EXHIBIT H - Litigation
EXHIBIT I - Assignment of Licenses, Permits and Warranties
EXHIBIT J - Bill of Sale
EXHIBIT K - Trade Names and Trademarks
EXHIBIT L - Waste Disposal Activities
EXHIBIT M - Property Lease
EXHIBIT N - Wetlands Description
EXHIBIT O - Ground Lease
EXHIBIT P - Ground Lessor Consent and Estoppel
EXHIBIT Q - Loan Documents
EXHIBIT R - Construction Budget
EXHIBIT S - Other Contribution/Conversion Agreements
</TABLE>
iii
<PAGE> 5
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT is made and entered into as of May 14, 1998,
by and between ARNOLD PALMER GOLF MANAGEMENT LLC, a Delaware limited liability
company ("SELLER"), and APGM LIMITED PARTNERSHIP, a Delaware limited
partnership ("BUYER").
RECITALS
A. Seller is the sole holder of the Ground Leasehold Estate under the
Ground Lease (as such terms are hereinafter defined), and the fee owner of the
Improvements (as hereinafter defined) comprising an eighteen (18) hole golf
course property commonly known as Penderbrook Golf Club, located in Fairfax,
Virginia; and Seller has certain right, title and interest in and to the
Personal Property, the Inventory, the Permitted Contracts, the Licenses and
Permits, the Trade Names and Trademarks and the Warranties (as such terms are
hereinafter defined).
B. Seller and its principals are in the process of sponsoring a real
estate investment trust ("REIT"), the shares of which will be offered to the
public pursuant to an initial public offering (the "IPO") of shares of common
stock ("COMMON STOCK"). As part of the IPO, it is contemplated that (i)the
REIT will become the managing general partner of Buyer, (ii) the limited
partnership interests in Buyer shall be divided into units ("UNITS"), each of
which Units shall have substantially the same economic attributes as a share of
Common Stock in the REIT, and (iii) the holders of Units will have the right to
exchange Units for Common Stock (on a one Unit for one share of Common Stock
basis), subject to the restrictions and limitations which will be established
by an amended and restated partnership agreement of Buyer and the
organizational documents for the REIT which are in effect as of the
consummation of the date of the IPO.
C. In connection with the IPO, Seller desires to sell, assign, transfer or
otherwise contribute, and Buyer desires to acquire, the Property (as
hereinafter defined) upon and subject to the terms and conditions hereinafter
set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained in this Agreement, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, Seller and Buyer
agree as follows:
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ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS. When used herein, the following terms shall have the
respective meanings set forth opposite each such term:
(a) ACQUISITION PRICE. As defined in Section 3.1.
(b) AGREED COST OF COMPLETION. The amount $1,901,150.00, being the
total estimated Cost of Completion as of the date hereof.
(c) AGREEMENT. This Contribution Agreement, including the Exhibits
attached hereto which are by this reference incorporated herein and made
a part hereof.
(d) ALLOCABLE TRANSACTION EXPENSES. The portion of the Transaction
Expenses allocable to the Property, determined as of the IPO by
multiplying the Transaction Expenses by the Applicable Percentage.
(e) APPLICABLE PERCENTAGE. The percentage derived by dividing (i)
the Gross Lease Revenue by (ii) the total Rental Income, as stated in the
Statement of Operations Data schedule in the Selected Financial Data
section of the Last Red.
(f) ASSIGNMENT. That certain recordable Assignment of Lessee's
interest in Ground Lease to be delivered to Buyer at Closing, assigning
to Buyer or Buyer's designee all of Seller's right, title and interest
in, to and under the Ground Lease and with respect to the Ground
Leasehold Estate, and containing warranties relative to Seller's right,
title and interest in and to the Ground Leasehold Estate, free and clear
of all liens, claims, encumbrances and restrictions of every kind, nature
and description, subject only to the Permitted Title Exceptions.
(g) BULK SALES LAWS. As defined in Section 17.1.
(h) BUYER INDEMNIFIED PARTIES. As defined in Section 12.1.
(i) BUYER'S INDEMNITY. As defined in Section 5.2.
(j) BUYER'S REPRESENTATIVES. As defined in Section 5.2.
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(k) CASH AVAILABLE FOR DISTRIBUTION. As defined in Section 3.2.
(l) CASH ACQUISITION PRICE. As defined in Section 3.1.
(m) CLOSING. The closing of the sale and purchase transaction
contemplated by this Agreement, as described in Article 11 of this
Agreement.
(n) CLOSING DATE. The date of closing determined pursuant to Section
11.1 of this Agreement.
(o) CODE. As defined in Section 3.6.
(p) COMMON STOCK. As defined in the Recitals hereto.
(q) CONSTRUCTION ADVANCES. The amount of all advances made by Seller
and/or its affiliates, as of Closing, toward the Cost of Completion.
(r) CONTINGENCY PERIOD. The period beginning on the Contract Date
and ending at 5:00 p.m., Pacific Time, on the last to occur of (i) the
sixtieth (60th) day following the Contract Date or (ii) the forty-fifth
(45th) day following receipt by Buyer of all Required Due Diligence
Materials. Seller shall certify in writing to Buyer when Seller believes
it has delivered all Required Due Diligence Materials. Within three (3)
business days after receipt of such certification, Buyer shall furnish to
Seller a list of any Required Due Diligence Materials which Buyer has not
received. Seller shall then either deliver such items or certify that
such items are not available. Upon such final delivery or certification,
the forty-five (45) day period shall commence.
(s) CONTRACT DATE. The date Seller delivers to Buyer an original,
fully executed counterpart of this Agreement, which date shall be set
forth in the introductory paragraph of this Agreement.
(t) CONTRACTS. All written or oral: (i) insurance, management,
leasing, service, maintenance, operating, repair, collective bargaining,
employment, employee benefit, severance, franchise, licensing, supply,
purchase, consulting, professional service, advertising, promotion,
public relations and other contracts and commitments in any way relating
to the Property or any part thereof, together with all supplements,
amendments and modifications thereto; and (ii) equipment leases and all
rights and options of Seller thereunder, including rights to renew or
extend the term or purchase the leased equipment, entered into by Seller
or its affiliates, relating to equipment or property located in or upon
the Real Property or used in connection therewith, together with all
supplements, amendments and modifications thereto.
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(u) COST OF COMPLETION. The actual total amount of all hard and soft
construction costs to complete construction of certain improvements
currently being made at the Real Property, as generally described in the
construction budget attached hereto as Exhibit R (which costs may
include, without limitation, landscaping, site work, signage,
furnishings, legal costs, insurance, construction and development,
construction coordination fees, professional fees, development fees,
construction period debt service, and construction contingency).
(v) DEBT SUBJECT TO AMOUNT. The amount which would be required to
pay off the loan evidenced and/or secured by the Loan Documents, in full,
as of the Closing Date and to extinguish the lien of the Loan Documents
at Closing.
(w) DEED. That certain recordable Quit-Claim Deed to be delivered by
Seller to Buyer, or Buyer's nominee, at the closing conveying all of
Seller's right, title and interest in and to the Land and the
Improvements to Buyer subject only to the Permitted Title Exceptions and
the lien or liens created by the Loan Documents.
(x) DUE DILIGENCE APPROVAL DATE. The last day of the Contingency
Period.
(y) DUE DILIGENCE MATERIALS. As defined in Section 5.1.
(z) ENVIRONMENTAL LAWS. All applicable federal, state and local
statutes, regulations, ordinances, judgments, decrees and rules relating
to (i) the emission, discharge, release or threatened release of a
Hazardous Material into the air, surface water, groundwater or land; (ii)
the manufacturing, processing, use, generation, treatment, storage,
disposal, transportation, handling, removal, remediation or investigation
of a Hazardous Material; or (iii) the protection of human health, safety
or the indoor or outdoor environment, including without limitation, the
Clean Air Act, the Federal Water Pollution Control Act, the Resource
Conservation and Recovery Act, the Comprehensive Environmental Response,
Compensation and Liability Act, the Occupational Safety and Health Act,
all amendments thereto, all regulations promulgated thereunder, and their
state or local statutory and regulatory counterparts.
(aa) ESCROWEE. Chicago Title Insurance Company (national office
located at 161 North Clark Street, Chicago, Illinois).
(ab) GROSS LEASE REVENUE. The Initial Base Rent (as defined in the
Property Lease) payable in the first (1st) year of the term of the
Property Lease.
(ac) GROUND LEASE. The ground lease instrument more particularly
described on Exhibit O.
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(ad) GROUND LEASEHOLD ESTATE. All of the ground lessee's right,
title and interest in, to and under the Ground Lease (including all
right, title and interest in and to the Real Property and any other
components comprising the Property inuring to the benefit of the ground
lessee under the Ground Lease).
(ae) GROUND LESSOR. Penderbrook Community Association, Inc., a
Virginia non-stock corporation, being the ground lessor under the Ground
Lease.
(af) GROUND LESSOR CONSENT AND ESTOPPEL. As defined in Section
7.1(o).
(ag) HAZARDOUS MATERIAL. Any solid, liquid or gaseous substance,
chemical, compound, product, byproduct, waste or material that is or
becomes regulated, defined or designated by any applicable federal, state
or local governmental authority or by any Environmental Law as hazardous,
extremely hazardous, imminently hazardous, dangerous or toxic, or as a
pollutant or contaminant, and shall include, without limitation,
asbestos, asbestos-containing materials, polychlorinated biphenyls, and
oil, petroleum, petroleum products and petroleum byproducts.
(ah) IMPROVEMENTS. Any and all buildings and improvements located on
the Land, including the following:
Clubhouse complex, together with paved parking and
access areas, utility improvements and landscaped areas.
Improvements shall include any and all cart paths, tees, greens, holding
ponds, water wells, effluent systems, irrigation lines, drainage
facilities, pump stations, cart barns, entrance signage and pavilions
located on the Land.
(ai) INSPECTIONS. As defined in Section 5.2.
(aj) IPO. As defined in the Recitals hereto.
(ak) IPO CONDITION. As defined in Section 8.3.
(al) IPO PERIOD. As defined in Section 8.3.
(am) INVENTORY. Any and all maintenance facility inventory and all
other inventory of goods owned by Seller and held for resale in
connection with Seller's operation of the subject Property including,
without limitation, golf equipment and golf related goods sold in the pro
shops and food and beverage items sold at the clubhouse facilities and
elsewhere throughout each golf course.
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(an) LAND. The land legally described on Exhibit A attached hereto
and incorporated herein by this reference, and generally described as
follows:
Approximately 137 acres of land located off Route 50
in Fairfax County, Virginia.
(ao) LAST RED. The last preliminary prospectus included as part of
the registration statement filed with the U.S. Securities Exchange
Commission with respect to the IPO which is circulated to investors
generally.
(ap) LEGAL REQUIREMENTS. All laws, statutes, codes, acts,
ordinances, orders, judgments, decrees, injunctions, rules, regulations,
permits, licenses, authorizations, orders, directions and requirements of
all governments and governmental authorities having jurisdiction of the
Property (including, for purposes hereof, any local Board of Fire
Underwriters), and the operation thereof, and all deed restrictions or
other covenants, restrictions, or agreements, site plan approvals, zoning
or subdivision regulations and urban redevelopment plans governing or
regulating the use or operation of the Property.
(aq) LESSEE. Seller, or any wholly owned affiliate of Seller, or
any other affiliate of Seller as may be designated by Seller in a written
notice thereof delivered to Buyer no later than thirty (30) days
following the Contract Date (which other affiliate shall, in any event,
be subject to the reasonable approval of Buyer as more particularly
described in Section 2.2 hereof).
(ar) LESSEE PROPERTY. Collectively, the Inventory, the Membership
Agreements, the Contracts and the Operating Permits.
(as) LICENSE AGREEMENT. That certain License Agreement dated
September 15, 1993 between Arnold Palmer Enterprises, Inc., Pacific Golf,
Inc. and Arnold Palmer Golf Management Company, as amended by an
Amendment dated May 16, 1996, and as further amended and/or assigned from
time to time.
(at) LICENSES AND PERMITS. All (i) licenses, permits, franchises,
certifications, authorizations, approvals, certificates of occupancy and
entitlements issued, approved or granted by any
governmental authority or body having jurisdiction over the Property and
relating to the operation, ownership or maintenance of the Property or
any part thereof; (ii) development rights in any way related to or used
in connection with the Property and its operations; and (iii) licenses,
certifications, authorizations, approvals, easements and rights of way
required from private parties to make use of utilities and to insure
vehicular and pedestrian ingress and egress to the
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Real Property; provided that the term "Licenses and Permits" shall not
include Operating Permits.
(au) LOAN DOCUMENTS. All loan agreements, notes, mortgages, deeds of
trust, assignments, guarantees, indemnitees and other instruments
evidencing, securing, guarantying or otherwise relating to any mortgage
or secured financing encumbering the Ground Leasehold Estate and/or
Seller's right, title and interest in and to the Real Property.
(av) MEMBERSHIP AGREEMENTS. As defined in Section 6.1(h).
(aw) MID-POINT PRICE. The mid-point between the high and low
anticipated initial public gross offering price per share for the Common
Stock, as set for in the Last Red.
(ax) MONETARY LIENS. As defined in Section 4.1.
(ay) OFFERING MULTIPLE. The Mid-Point Price divided by a fraction,
the numerator of which is the Pro Forma Funds From Operations and the
denominator of which is the total number of shares of Common Stock issued
by the REIT and Units issued by Buyer as of the IPO (as shown in the Last
Red under the section entitled "Dilution").
(az) OPERATING PERMITS. All licenses, permits and other
authorizations or approvals granted by any governmental authority or
other body having jurisdiction over the Property which relate solely to
the business operations currently being conducted at the Property (e.g.
liquor licenses, restaurant permits and licenses and health spa licenses)
and which would remain in full force and effect if held by Seller or its
affiliates as the subtenant of the Property pursuant to the Property
Lease.
(ba) OTHER CONTRIBUTION/CONVERSION AGREEMENTS. Those certain
agreements described in Exhibit S hereto.
(bb) PERMITTED TITLE EXCEPTIONS. Those exceptions to title to the
Property approved or deemed approved by Buyer pursuant to Article 4
hereof.
(bc) PERSONAL PROPERTY. All machinery, vehicles, spare parts,
supplies, equipment, fixtures, furnishings and other tangible personal
property of every kind and character (excluding, however, the Inventory)
owned by Seller and situated in or upon or used in connection with the
operation or maintenance of the Real Property or any part thereof, and
all replacements, additions or accessories thereto between the Contract
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Date and the Closing Date, and all trademarks and other intangible
personal property of every kind and character owned by Seller and used in
connection with the operation of the subject golf course (except as
otherwise described in the definition of Trade Names and Trademarks
hereinbelow).
(bd) PHASE I STUDY. As defined in Section 5.2.
(be) PRO FORMA FUNDS FROM OPERATIONS. The Pro Forma Funds from
Operations amount set forth in the "Estimated Cash Available for
Distribution" footnote calculation in the Selected Financial Data section
of the Last Red.
(bf) PROPERTY. Collectively, the Ground Leasehold Estate, the
Personal Property, the Licenses and Permits, the Trade Names and
Trademarks, the Warranties and Seller's interest in and to the balance of
the Real Property and all tangible and intangible assets arising out of
or relating to the foregoing (excluding, however, the Lessee Property
described herein).
(bg) PROPERTY LEASE. As defined in Section 2.2.
(bh) PROSPECTUS. As defined in Section 3.4.
(bi) REAL PROPERTY. The Land and the Improvements, together with
all improvements thereon or therein (including all replacements or
additions thereto between the Contract Date and the Closing Date); all
systems, facilities, fixtures, machinery, equipment and conduits to
provide fire protection, security, heat, exhaust, ventilation,
air-conditioning, electrical power, light, plumbing, refrigeration, gas,
sewer and water to the Land and Improvements (including all replacements
or additions thereto between the Contract Date and the Closing Date); all
privileges, rights (including water rights), easements, hereditaments and
appurtenances thereto belonging; and all right, title and interest of
Seller in and to any streets, alleys, passages and other rights-of-way
included therein or adjacent thereto (before or after any vacation
thereof).
(bj) REIT. As defined in the Recitals hereto.
(bk) REMAINING CONSTRUCTION COST FUNDS. As described in Section 3.2.
(bl) REQUIRED DUE DILIGENCE MATERIALS. The documents and other
materials listed on Exhibit B attached hereto and by this referenced
incorporated herein.
(bm) SEARCHES. As defined in Section 4.3.
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(bn) SECURITIES ACT. As defined in Section 3.4.
(bo) SELLER INDEMNIFIED PARTIES. As defined in Section 5.2.
(bp) SELLER'S ENVIRONMENTAL REPORTS. As defined in Section 6.1(u).
(bq) SELLER'S RECEIVABLES. As defined in Section 10.2(b).
(br) STRUCTURAL REPORT. As defined in Section 5.2.
(bs) SURVEY. A current as-built survey of the Land prepared by a
surveyor licensed by the state in which the Land is located and certified
to Buyer, the Title Company and such other parties as Buyer shall
designate to be prepared in accordance with the current Minimum Standard
Detail Requirements for Land Title Surveys (excluding the requirement for
the placement of monuments) adopted by the American Land Title
Association and American Congress on Surveying and Mapping, setting forth
the legal description and street address of the Land and Improvements and
specifically showing thereon all buildings, and other improvements
(including fences, tees, fairways, greens, traps, cart paths, pumping
facilities, holding ponds and golf course facilities), the number of
stories in such buildings, easements (visible or recorded), building
lines, curb cuts, party walls (if any), parking, sewage, water,
electricity, gas and other utility facilities (together with recording
information concerning the documents creating any such easements and
building lines), roads and means of physical and record ingress and
egress to and from the Real Property by public roads and the gross area
of the land included in the Land, and spotting improvements on adjoining
property which are within five (5) feet of the property lines of the
Land. The Survey shall specify and depict ponds, creeks, streams and
rivers and any areas of the Land which are located in a flood plain,
wetlands or other environmentally controlled, regulated or protected
area.
(bt) TITLE COMMITMENT. A commitment for the Title Policy covering
the Land and Improvements issued by the Title Company in favor of Buyer,
or its nominee, in the full amount of the Acquisition Price, showing
Ground Lessor as fee simple title holder of the Land and showing Seller
as the holder of the Ground Leasehold Estate.
(bu) TITLE COMPANY. Chicago Title Insurance Company (national office,
located in Chicago, Illinois).
(bv) TITLE POLICY. An ALTA Leasehold Title Insurance Policy covering
the Land and Improvements issued by the Title Company pursuant to the
Title
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Commitment, insuring Buyer as the holder of the Ground Leasehold Estate,
specifically containing "extended coverage" insuring over all general
exceptions raised in such form of title policy and containing the
following endorsements (if issued in the jurisdiction of the Real
Property): zoning 3.1, owner's comprehensive, encroachment, contiguity
(if applicable), access, survey, tax parcel, subdivision compliance, and
creditor's rights.
(bw) TRADE NAMES AND TRADEMARKS. All of Seller's rights in and to
the trade names, trademarks, service marks and logos set forth and
described on Exhibit K attached hereto and incorporated herein by
reference, and any and all derivatives and forms thereof, together with
all other service marks and logos, whether or not registered, pertaining
to the current operation of the Real Property, but specifically excluding
any and all trade names, trademarks, service marks and/or logos inuring
to Seller's benefit pursuant to the License Agreement (which intangibles
derived pursuant to the License Agreement shall remain the property of
Seller).
(bx) TRANSACTION EXPENSES. The costs, expenses and fees (exclusive
of underwriters' fees) incurred by Seller, Buyer and/or the REIT directly
or indirectly relating to the planning and formation of the Buyer, the
REIT and other entities required to effect the IPO, as set forth in the
"Proceeds to Company" footnote on the cover page of the Last Red.
Transaction Expenses shall not include any costs, expenses and fees that
are to be borne specifically by Seller or Buyer, as the case may be,
pursuant to express provisions of this Agreement.
(by) UNITS. As defined in the Recitals hereto.
(bz) WARRANTIES. All guarantees and warranties in effect with
respect to the Property or any portion thereof, which, by their terms,
shall survive Closing, including, without limitation, all guarantees and
warranties of contractors, materialmen, manufacturers, mechanics or
suppliers who have been engaged by Seller or any of its agents to furnish
labor, materials, equipment or supplies to all or any portion of the
Property.
ARTICLE 2
CONTRIBUTION; LEASE-BACK
2.1 CONTRIBUTION. Subject to the conditions and on the terms contained in
this Agreement:
(a) Buyer agrees to acquire from Seller, and Seller agrees to sell,
assign, transfer or otherwise contribute to Buyer, all of Seller's right,
title and interest in, to
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and under the Ground Lease and with respect to the Ground Leasehold
Estate, free and clear of all liens, claims, encumbrances and restrictions
of every kind and description, except for Permitted Title Exceptions and
liens created by the Loan Documents, which assignment shall be made by the
Assignment.
(b) Buyer agrees to acquire from Seller, and Seller agrees to sell,
assign, transfer or otherwise contribute to Buyer, (i) all of Seller's
right, title and interest in the Land and Improvements by the Deed, and
(ii) all of Seller's right, title and interest in the balance of the Real
Property.
(c) Buyer agrees to acquire from Seller, and Seller agrees to sell,
assign, convey, transfer or otherwise contribute to Buyer, all of Seller's
right, title and interest in and to the following items, free and clear of
all liens, claims, encumbrances and restrictions of every kind and
description, except for Permitted Title Exceptions and liens created by
the Loan Documents: (i) the Licenses and Permits, and (ii) the Warranties.
(d) Buyer agrees to purchase and acquire from Seller, and Seller
agrees to sell, convey, assign, transfer or otherwise contribute to Buyer,
(i) the Personal Property, (excluding, however, the Inventory, which is
hereby acknowledged not to be part of the Property being conveyed
hereunder), and (ii) the Trade Names and Trademarks, by good and
sufficient bill of sale containing full warranties of title free and
clear of liens, claims, encumbrances and restrictions of every kind and
description, except the Permitted Title Exceptions and liens created by
the Loan Documents.
(e) Nothing herein shall be deemed to be an agreement of Buyer to
engage, or otherwise be responsible for, any employees of Seller, (it being
understood that Buyer's acquisition of the Property hereunder shall not be
deemed an acquisition of any of Seller's business operations currently
being conducted at the Real Property), which business operations shall
continue to be conducted by the Lessee pursuant to the terms of the
Property Lease described in Section 2.2 below. Moreover, except as
specifically provided herein to the contrary, Buyer shall not assume, or
become obligated with respect to, any liability or obligation of Seller.
2.2 PROPERTY LEASE. Notwithstanding anything herein to the contrary, it
is understood and agreed that Buyer (or any affiliate thereof acquiring the
Property hereunder at Closing), as lessor, and Lessee, as lessee, shall be
entering into a sublease for the Property (the "PROPERTY LEASE") commencing
upon the Closing Date, in substantially the form attached hereto as Exhibit M.
In the event Seller desires an entity other than Seller or a wholly owned
affiliate of Seller to be the "Lessee" under the Property Lease, Seller shall
deliver notice to Buyer, within thirty (30) days following the Contract Date,
identifying the entity which it
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proposes to be the lessee under the Property Lease, and Seller shall thereafter
deliver to Buyer such other information concerning such proposed lessee as
Buyer may request. Buyer shall have the right to approve any entity designated
by Seller (other than a wholly owned affiliate of Seller) to be the lessee
under the Property Lease, which approval shall not be unreasonably withheld.
Upon such approval (or, in case of any wholly owned affiliate of Seller, where
no approval of Buyer shall be required), the entity so designated shall be the
"Lessee" under the Property Lease being entered into at Closing, and, at
Closing, Seller shall convey all of its right, title and interest in and to the
Lessee Property to said Lessee by assignment or other conveyance documents
acceptable to Buyer and Buyer's counsel. If Buyer does not so approve the
proposed entity as lessee under the Property Lease, then Seller or a wholly
owned affiliate of Seller (as designated by Seller) shall be the "Lessee"
thereunder.
2.3 INDEPENDENT CONSIDERATION. Concurrently with and in consideration for
the acceptance of this Agreement by Seller, Buyer has paid to Seller a
nonrefundable fee of ONE HUNDRED and NO/100 DOLLARS ($100.00). In the event
that this Agreement is determined to be unenforceable or void as a mutually
binding contract by reason of the existence of any condition, the
indefiniteness of any provision, the lack of mutuality or any approval or
election of Buyer with respect to any contingency or other matter, then such
fee shall be considered adequate consideration for, and this Agreement shall be
construed as, an option to purchase enforceable in accordance with the terms
set forth herein.
ARTICLE 3
DEPOSIT AND ACQUISITION PRICE
3.1 ACQUISITION PRICE. The purchase price to be paid by Buyer in
consideration for the contribution of the Property (the "ACQUISITION PRICE")
shall be $0.00 (payable at Closing in cash, or by cashier's check or wire
transfer of funds) (herein, the "CASH ACQUISITION PRICE"), together with that
number of Units determined as set forth in Section 3.2 below.
3.2 DETERMINATION OF NUMBER OF UNITS. The actual number of Units to be
delivered as the Acquisition Price shall be determined as follows:
(a) First, the Pro Forma Funds from Operation shall be multiplied by
the Applicable Percentage;
(b) Second, the product resulting from (a) above shall be multipled
by the Offering Multiple;
(c) Third, the product resulting from (b) above shall be multiplied
by 0.93;
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(d) Fourth, the amount resulting from (c) above shall be reduced by
the following amounts:
(i) the Allocable Transaction Expenses; and
(ii) the Debt Subject to Amount, calculated as of the date of
the Last Red*; and
(iii) the excess of the Agreed Cost of Completion over the
Construction Advances (the "REMAINING CONSTRUCTION COST
FUNDS"), calculated as of the date of the Last Red*;
[* The difference between the amounts described in (d)(ii)
and (d)(iii) above and the actual Debt Subject to Amount
and Remaining Construction Cost Funds (as the case may
be) existing at Closing shall be adjusted between Seller
and Buyer, in cash, as a proration item at Closing.]
(e) Fifth, the amount resulting from (d) above shall be reduced by
the Cash Acquisition Price which is to be paid to Seller as part of the
Acquisition Price;
(f) Sixth, the amount resulting from (e) above shall be divided by
.93; and
(g) Seventh, the amount resulting from (f) shall be divided by the
Mid-Point Price.
3.3 ACCREDITED INVESTORS. Seller acknowledges that Buyer is paying a
portion of the Acquisition Price by the issuance of Units in a sale exempt from
registration under the Securities Act (as defined in Section 3.4 below) and
that the issuance of said Units is based upon the representations and
warranties of Seller contained herein, and in the Investor Questionnaire and
the Power of Attorney and Acknowledgement heretofore executed by Seller and
delivered to Buyer. Seller acknowledges and confirms that (i) Seller has
consulted with its counsel with respect to Rule 145 and Rule 501 promulgated
under the Securities Act and such other rules and regulations promulgated under
the Securities Act applicable to the transactions contemplated by this
Agreement, including, but not limited to, the issuance of Units for the
Seller, (ii) the members of Seller have not adopted resolutions to and
otherwise do not intend to dissolve Seller or otherwise distribute Units to the
members of Seller, and (iii) there is no preexisting plan, agreement or
understanding for dissolution of Seller or distribution of the Units by Seller.
Seller agrees not to adopt any resolution, agreement or plan within one year
after the date of Seller's receipt of Units under this Agreement which would
result in the distribution of Units to the members of Seller, and Seller
further agrees to take no other action that will cause the sale of the Units by
Buyer to Seller pursuant to this Agreement to be deemed a sale of securities to
any direct or indirect members of Seller. Seller hereby represents and
warrants that (a) Seller is an accredited investor as defined in Rule 501(a)
promulgated under the Securities Act, (b) Seller is a limited liability company
not formed for
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the specific purpose of acquiring the Units within the meaning of Rule
501(a)(3) and (c) Seller has total assets as of the date hereof in excess of
$5,000,000.
3.4 PROSPECTUS. Seller understands that in connection with the IPO, Buyer
will require certain information in order to comply with the Securities Act of
1933, as amended, the regulations promulgated thereunder, and any applicable
states' securities laws governing the offering and sales of securities
(collectively, the "SECURITIES ACT"), and such information will be used in the
preparation of and/or included in a prospectus (the "PROSPECTUS") to be
distributed in connection with the sale of the Common Stock of the REIT.
Seller agrees to provide to Buyer, at Buyer's sole cost and expense (unless
otherwise specified in this Agreement), all information which Buyer, the
underwriters of the IPO and their respective attorneys or accountants deem
necessary or desirable to prepare the Prospectus. Within ten (10) days after
request therefore by Buyer, Seller shall, from time to time, update and
recertify any information previously provided by Seller pursuant hereto.
Seller agrees to carefully review the portions of the Prospectus concerning the
Property to verify that such portions of the Prospectus do not contain any
untrue statement of material fact and do not omit to state a material fact
necessary in order to make the statements made in such portions of the
Prospectus, in light of the circumstances under which they were made, not
misleading. If Seller finds any portion of the Prospectus relating to the
Property inaccurate, Seller shall promptly notify Buyer in detail in writing as
to the reasons it finds such portions of the Prospectus inaccurate so that the
Prospectus may be modified. This Agreement is not intended to constitute an
offering of securities under the Securities Act or otherwise, and no securities
have been offered to Seller by virtue hereof.
3.5 CLOSING ESCROW. On or prior to the Closing Date, the parties shall
establish an escrow trust with the Escrowee through which the transaction
contemplated hereby shall be closed. The escrow instructions shall be in the
form customarily used by the Escrowee with such special provisions added
thereto as may be required to conform to the provisions of this Agreement.
Said escrow shall be auxiliary to this Agreement and this Agreement shall not
be merged into nor in any manner superseded by said escrow. The escrow costs
and fees for each of the escrow accounts described in this Article 3 shall be
equally divided between Buyer and Seller.
3.6 FEDERAL INCOME TAX CONSEQUENCES OF TRANSACTION. Each of Buyer and
Seller hereby acknowledge and agree that, notwithstanding anything contained in
this Agreement to the contrary, the transfer of the Property shall be
treated for federal income tax purposes (i) with respect to that portion of the
Acquisition Price paid in the form of Units under Section 3.2 hereof, as a
partial contribution of the Property to the Buyer under Section 721 of the
Internal Revenue Code of 1986, as amended (the "CODE"), and the Treasury
Regulations promulgated thereunder, and (ii) with respect to that portion of
the Acquisition Price constituting the "Cash Acquisition Price" under Section
3.1 above, as a sale of a portion of the Property to Buyer. As a result, the
transaction will be treated for federal income tax purposes
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as a part contribution/part sale of the Property under Code Section 707 and the
Treasury Regulations promulgated thereunder.
3.7 COSTS OF COMPLETION. Pursuant to the Property Lease, the Lessee shall
be responsible, after Closing, for completion of construction of those
improvements currently in process at the Real Property as generally described
in the construction budget attached hereto as Exhibit R. Buyer shall make
available to Lessee, from time to time, undisbursed portions of the Remaining
Construction Cost Funds, in order to reimburse Lessee for the ongoing Cost of
Completion, all as set forth in the Property Lease. In the event the Cost of
Completion (as determined by Lessee and confirmed by Buyer) is less than the
Agreed Cost of Completion, Buyer shall pay the balance of the undisbursed
Remaining Construction Cost Funds to Lessee within sixty (60) days after the
Lessee's written request therefor and delivery to Buyer of supporting
documentation reasonably satisfactory to Purchaser, all as more fully described
in the Property Lease.
ARTICLE 4
TITLE, SURVEY AND SEARCHES
4.1 TITLE. Following the Contract Date, Buyer shall order and obtain the
Title Commitment, together with a copy of each recorded document raised as an
exception therein. If the Title Commitment raises any exceptions to title to
which Buyer objects, in its sole and absolute discretion, Buyer shall give
Seller notice of such objection prior to the Due Diligence Approval Date, and
Seller shall thereafter have the right to have such unpermitted exceptions so
objected to by Buyer removed from the Title Commitment or insured over by the
Title Company to the reasonable satisfaction of Buyer, and to provide evidence
thereof to Buyer. Notwithstanding the foregoing, any delinquent real property
taxes, deeds of trust, mortgages, unpaid obligations owing to any governmental
agency which, with the passage of time, could give rise to a lien, mechanic's
liens, attachment liens, execution liens, tax liens for delinquent taxes and
judgment liens (collectively, "MONETARY LIENS"), disclosed on the Title
Commitment shall be automatically deemed unpermitted exceptions and objected to
by Buyer without any further action or notice thereof to Seller. For the
purposes of this Agreement, any liens created by the Loan Documents shall be
deemed accepted by Buyer. If Seller fails to have all unpermitted exceptions
removed from the Title Commitment or insured over to the reasonable
satisfaction of Buyer on or before the Due Diligence Approval Date or,
alternatively, confirm in writing to Buyer that Seller will remove or insure
over any such unpermitted exceptions on or prior to the Closing Date, Buyer may
elect, by written notice delivered to Seller on or before the Due Diligence
Approval Date, to (i) terminate this Agreement, in which event all obligations
of the parties hereunder shall terminate (other than Buyer's Indemnity which
shall survive such termination for the period specified in Section 5.2 hereof),
and this Agreement shall otherwise have no further force and effect, or (ii)
accept title to the Property subject to such unpermitted exceptions, all of
which shall thereafter be deemed "Permitted Title Exceptions," with the further
right to deduct from the Acquisition Price amounts secured by or constituting
unpermitted liens or encumbrances of a definite or
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ascertainable amount (including, without limitation, any and all Monetary
Liens), and/or to cause the Title Company to issue endorsement(s) insuring
against damage caused by such exceptions and deduct from the Acquisition Price
the cost of the premiums and security provided for said endorsement, as the
case may be. Buyer's failure to make either election on or before the Due
Diligence Approval Date shall be deemed an election under clause (ii) above.
On the Closing Date, Seller shall cause the Title Company to issue the Title
Policy (or a "marked-up" title commitment unconditionally committing the Title
Company to issue such Title Policy) to Buyer, pursuant to and in accordance
with the Title Commitment, insuring the Ground Leasehold Estate in Buyer as of
the Closing Date, subject only to the Permitted Title Exceptions and such other
exceptions as Buyer may approve pursuant to clause (ii) above.
4.2 SURVEY. No later than twenty-one (21) days following the Contract
Date, Seller shall obtain and deliver the Survey to Buyer. If the Survey
discloses any encroachments onto the Land from any adjacent property,
encroachments by or from the Land onto any adjacent property, violations of or
encroachments upon any recorded building lines, restrictions or easements
affecting the Land, matters including possible rights of third parties, or any
other matter to which Buyer objects, in its sole and absolute discretion, Buyer
shall give Seller notice of such objection prior to the expiration of the
Contingency Period, and Seller shall thereafter have the right to have such
encroachments, violations, restrictions, easements or other matters so objected
to by Buyer removed from the Survey or insured over by the Title Company to the
reasonable satisfaction of Buyer, and to provide evidence thereof to Buyer. If
Seller fails to have same so removed or insured over, on or before the Due
Diligence Approval Date, Buyer may elect, by written notice delivered to Seller
on or before Due Diligence Approval Date, to (i) terminate this Agreement, in
which event all obligations of the parties hereunder shall terminate (other
than Buyer's Indemnity, which shall survive such termination for the period of
time specified in Section 5.2 hereof), and this Agreement shall otherwise have
no further force and effect, or (ii) accept the Property subject to such
encroachments, violations, restrictions, easements and other matters, all of
which shall thereafter be deemed Permitted Title Exceptions for purposes
hereof. Buyer's failure to make such election on or before the Due Diligence
Approval Date shall be deemed an election under clause (ii) above.
4.3 SEARCHES. Following the Contract Date, Buyer may obtain, at
Seller's sole expense (to be paid by Seller upon Buyer's demand therefor),
searches of the records of the county recorders, secretaries of state and
district courts of the jurisdictions in which the Land is located
(collectively, the "SEARCHES") confirming the absence of security interests,
judgments, tax liens for delinquent taxes and bankruptcy proceedings which
affect or could affect the Property or any interest therein to be transferred
to Buyer pursuant to this Agreement (except for the Permitted Title
Exceptions). If said searches disclose the existence of any security
interests, judgments, tax liens for delinquent taxes or bankruptcy proceedings
which, in Buyer's sole judgment, affect or could affect Seller's interest in
the Property, Buyer shall give Seller notice thereof prior to the expiration of
the Contingency Period, and Seller shall thereafter have the right to secure
the release, satisfaction or termination (as appropriate) of same and provide
evidence thereof to Buyer on or before the Closing Date. If Seller fails to
secure such release, satisfaction or termination (as appropriate) on or before
the Closing Date,
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Buyer may elect, by written notice delivered to Seller on or before the Closing
Date, to (i) terminate this Agreement, in which event all obligations of the
parties hereunder shall terminate (other than Buyer's Indemnity which shall
survive such termination for the period specified in Section 5.2 hereof), and
this Agreement shall have no further force and effect, or (ii) accept title to
the Property subject to such unpermitted exceptions, all of which shall
thereafter be deemed Permitted Title Exceptions, with the further right to
deduct from the Acquisition Price amounts secured by or constituting Monetary
Liens. Buyer's failure to make either such election on or before Due Diligence
Approval Date shall be deemed an election under clause (ii) above. Said
searches may be updated, at Buyer's sole cost and expense, as of the Closing
Date confirming the absence (i) of the security interests, judgments, tax liens
for delinquent taxes or bankruptcy proceedings objected to by Buyer hereunder,
and (ii) any additional security interests, judgments, tax liens for delinquent
taxes and bankruptcy proceedings.
ARTICLE 5
DUE DILIGENCE
5.1 DUE DILIGENCE MATERIALS. On or before Closing, and promptly following
Buyer's request therefor, Seller shall use all good faith and commercially
reasonable efforts to secure and furnish to Buyer such due diligence items as
may be required by, and in form and substance satisfactory to, Buyer and
Buyer's counsel. Without limitation of the foregoing, Seller shall use all
good faith and commercially reasonable efforts to secure and furnish to Buyer,
no later than fifteen (15) days after the Contract Date, to the extent not
previously delivered to Buyer, true, correct and complete copies of the
Required Due Diligence Materials described in Exhibit B hereto (the Required
Due Diligence Materials, together with any other items furnished to Buyer under
this Section 5.1, being collectively referred to herein as the "DUE DILIGENCE
MATERIALS").
5.2 INSPECTION. For the period commencing with the date of the Contract
Date and continuing through the Closing Date or earlier termination of
this Agreement, Seller shall permit Buyer and any of its officers, employees,
agents, attorneys, accountants, appraisers, architects, engineers, consultants,
lenders or other representatives as designated by Buyer (collectively, "BUYER'S
REPRESENTATIVES") access to Seller's books and records relating to the
ownership and operation of the Property and access to and entry upon the Real
Property, to examine, inspect, measure and test the Property and to conduct
such financial audits and verifications as they shall deem reasonably necessary
(herein collectively, the "INSPECTIONS"). Seller shall cooperate with Buyer
and Buyer's Representatives in conducting the foregoing activities. Without
limitation of the foregoing, it is acknowledged that Buyer and Buyer's
Representatives shall have the right to conduct financial audits with respect
to Seller's operations at the Property for Seller's most recent three (3) full
fiscal years (if applicable), as well as with regard to Seller's current fiscal
year operations, and Seller shall give customary representations and warranties
to Buyer's accountants with respect to financial matters as may reasonably be
requested by said accountants. Seller hereby consents to Buyer or Buyer's
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Representatives (i) conducting a Phase I environmental site assessment of the
Property (the "PHASE I STUDY"), and (ii) conducting or obtaining an engineer's
structural report respecting the Improvements (the "STRUCTURAL REPORT"). The
costs of conducting and obtaining the Phase I Study and the Structural Report
shall be the responsibility of Buyer. In the event any of Buyer's
Representatives recommends additional environmental review after conducting the
Phase I Study, Seller shall permit Buyer and Buyer's Representatives access to
and entry upon the Real Property for such additional review; provided, however,
that no invasive inspection shall be performed without Seller's prior written
consent (which consent shall not be unreasonably withheld or delayed). Buyer
shall give not less than twenty-four (24) hours' prior written or oral notice
to Seller prior to any entry upon the Land or Improvements for the purpose of
conducting such Inspections and such entry shall be scheduled and coordinated
with Seller. At Seller's election, a representative of Seller shall be present
during any entry by Buyer or Buyer's Representative upon the Property for
conducting said Inspections. Buyer shall not cause or permit any mechanic's
liens, materialmen's liens or other liens to be filed against the Property as a
result of the Inspections. Buyer shall repair and restore any damage to the
Property caused by entry upon the Land or Improvements by Buyer or the other
Buyer's Representatives, except to the extent Seller's negligence or willful
acts contributed to such damage. Buyer shall indemnify, defend and hold
harmless Seller and Seller's officers, directors, shareholders, partners,
tenants, agents and employees (collectively, the "SELLER INDEMNIFIED PARTIES"),
from and against any and all actions, losses, costs, damages, claims,
liabilities, and expenses (including court costs and reasonable attorney's
fees) brought, sought or incurred by or against any of the Seller Indemnified
Parties resulting from, arising out of, or relating to, entry upon the Land or
Improvements by Buyer or any of the other Buyer's Representatives, except to
the extent Seller's negligence or willful acts contributed to same. The
foregoing indemnification and repair and restoration obligations (herein
collectively referred to as "BUYER'S INDEMNITY") shall expressly survive the
termination of this Agreement; provided, however, that any claim by Seller for
recovery under Buyer's Indemnity shall be made in writing within one hundred
eighty (180) days after the termination of this Agreement or shall thereupon be
forever waived.
5.3 DUE DILIGENCE TERMINATION. In addition to Buyer's right to
approve the Title Commitment, the Survey and the Searches, as described in
Article 4 hereof, the obligation of Buyer to close the transaction contemplated
hereby is subject to Buyer's review of, approval of and satisfaction with, at
its sole cost and expense, on or before the Due Diligence Approval Date, the
Due Diligence Materials, the Title Commitment, the Survey, the results of the
Inspections and all other matters respecting the Property. If Buyer, in its
sole and absolute discretion, is not satisfied with any of the foregoing, then
Buyer shall have the right to terminate this Agreement by delivery to Seller of
written notice thereof delivered at any time prior to 5:00 p.m., Pacific Time,
on the Due Diligence Approval Date, in which event this Agreement shall become
null and void and neither party shall have any further rights and obligations
hereunder (subject, however, to survival of Buyer's Indemnity for the period
specified in Section 5.2). Buyer's failure to timely deliver its termination
notice as provided in this Section 5.3 shall be deemed a waiver of Buyer's
contingencies described in this Section
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5.3, whereupon the parties shall proceed to close the transaction contemplated
by this Agreement as provided herein.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES
6.1 REPRESENTATION AND WARRANTIES OF SELLER. To induce Buyer to execute,
deliver and perform this Agreement, Seller hereby represents and warrants to
Buyer on and as of the Contract Date and, by an update certificate to be
delivered at closing, on and as of the Closing Date, as follows:
(a) OTHER REPRESENTATIONS AND WARRANTIES. All representations and
warranties of Seller appearing in other Sections of this Agreement are
true and correct in all material respects as of the date hereof, and
shall be true and correct in all material respects as of the Closing
Date, except to the extent any such representation or warranty expressly
relates to a specific date, in which case it is and shall be true and
correct in all material respects as of such specific date.
(b) DUE DILIGENCE MATERIALS; EXHIBITS. The information included in
the Exhibits hereto and the documents delivered to Buyer pursuant to
Section 5.1 are, to Seller's knowledge, true, correct and complete in all
material respects, and to Seller's knowledge, the same do not omit any
material information required to make the submission thereof fair and
complete.
(c) AUTHORITY. Seller is a duly organized and validly existing
limited liability company in good standing under the laws of the State of
Delaware and under the laws of the State where the Real Property is
located. Seller has full capacity, right, power and authority to execute,
deliver and perform this Agreement and all documents to be executed by
Seller pursuant hereto, and all required action and approvals therefor
have been duly taken and obtained. The individuals signing this
Agreement and all other documents executed or to be executed pursuant
hereto on behalf of Seller are and shall be duly authorized to sign the
same on Seller's behalf and to bind Seller thereto. This Agreement and
all documents to be executed pursuant hereto by Seller are and shall be
binding upon and enforceable against Seller in accordance with their
respective terms.
(d) CONTRACTS. Attached as Exhibit C to this Agreement and
incorporated herein by this reference is a true, correct and complete
schedule of all material Contracts (i.e., meaning Contracts which have
projected or actual payment obligations in excess of $25,000.00 during any
quarterly period or which are otherwise material to the business
operations currently being conducted at the Real Property). To Seller's
knowledge, there are no defaults under any of the Contracts and all of the
Contracts are in good standing and in full force and effect. Seller shall
retain (or assign to any other
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entity which becomes the Lessee under the Property Lease) all rights
and obligations under the Contracts following the Closing, as the
continued operator of the business being conducted at the Property
pursuant to the Property Lease, and there are no Contracts which will be
binding, or impose any obligation, upon Buyer after Closing.
(e) LICENSES AND PERMITS. Attached as Exhibit D-1 to this Agreement
and incorporated herein by this reference is a true, correct and complete
list of all material Licenses and Permits. To Seller's knowledge, Seller
currently possesses all Licenses and Permits necessary and required for
the current ownership, use and maintenance the Real Property and each of
the Licenses and Permits is in full force and effect and in good standing
and Seller has not received notice of any intention on the part of the
issuing authority to cancel, suspend or modify any of the Licenses and
Permits or to take any action or institute any proceedings to effect such
a cancellation, suspension or modification. To Seller's knowledge, no
notice to, filing or registration with, or License or Permit from, any
governmental or regulatory body or authority, or any other person or
entity is required to be made or obtained in connection with the
execution, delivery or performance of this Agreement by Seller. The
interest of Seller in the Licenses and Permits has not been assigned to
any other person and is, to Seller's knowledge, free and clear of all
encumbrances other than liens granted under the Loan Documents.
(f) OPERATING PERMITS. Attached as Exhibit D-2 to this Agreement and
incorporated herein by this reference is a true, correct and complete list
of all material Operating Permits. To Seller's knowledge, Seller
currently possesses all Operating Permits necessary and required for the
lawful operation of Seller's business at the Real Property and each of the
Operating Permits is in full force and effect and in good standing and
Seller has not received notice of any intention on the part of the issuing
authority to cancel, suspend or modify any of the Operating Permits or to
take any action or iodide any proceedings to effect such a cancellation,
suspension or modification. To Seller's knowledge, no notice to, filing
or registration with, or License or Permit from, any governmental or
regulatory body or authority, or any other person or entity is required to
be made or obtained in connection with the execution, delivery or
performance of this Agreement by Seller. The interest of Seller in the
Operating Permits has not been assigned to any other person and is, to
Seller's knowledge, free and clear of all encumbrances other than liens
granted under the Loan Documents.
(g) PERSONAL PROPERTY. Attached as Exhibit E to this Agreement and
incorporated herein by this reference is a true, correct and complete
schedule of the Personal Property. Seller has good and marketable title
to the Personal Property and each item thereof free and clear of liens,
security interests, encumbrances, leases and restrictions of every kind
and description, except as disclosed on Exhibit E. The Personal Property
is in good operating condition and repair, ordinary wear and tear
excepted.
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(h) MEMBERSHIP. Attached as Exhibit F to this Agreement and
incorporated herein by this reference are true, correct and complete
lists of all of the members of any type of respective golf courses
comprising the Property. This exhibit describes all classes of
memberships and all persons with any membership rights, including,
without limitation, honorary and lifetime members and persons holding
first offer and refusal rights. Except as may be disclosed in the
membership agreements ("MEMBERSHIP AGREEMENTS") and other membership
materials furnished to Buyer pursuant to Section 5.1, Seller has made no
written or oral representations, covenants or agreements (including any
rules, regulations or by-laws relating to membership or any
correspondence delivered to members or prospective members), concerning
(i) the total allowable number of members or classes of membership in the
clubs; (ii) qualifications or approval required for new members, (iii)
the amount of initiation fees, deposits, restrictions or waiver of
monthly dues or other fees to be charged to the membership for their
usage of the clubs, or (iv) rights of members of the clubs.
(i) VIOLATIONS OF LAWS. To Seller's knowledge, the Improvements
have been constructed and are presently used and operated in material
compliance with all Licenses and Permits and Operating Permits, all Legal
Requirements and all covenants, easements and restrictions affecting the
Property and Seller has received no written notices of any violations of
any Legal Requirements pertaining to the Property which have not been
corrected in all material respects.
(j) CONDITION OF PROPERTY. Attached as Exhibit G to this Agreement
is a list of all reports, assessments and investigations commissioned by
Seller or within Seller's possession or control relating to the physical
condition of the Improvements and the condition of soils at the Land, and
Seller has delivered to Buyer (or will deliver to Buyer as part of the
Required Due Diligence Materials) true, correct and complete copies
thereof. To Seller's knowledge, the Improvements are structurally sound,
weather tight and in good condition and repair. To Seller's knowledge,
there are no structural defects in any of the Improvements. To Seller's
knowledge, the soil condition of the Land is such that it will support
all of the Improvements without need for additional subsurface
excavations, fill, footings, caissons or other installations.
(k) LITIGATION. Except as set forth on Exhibit H to this Agreement
and incorporated herein by this reference, Seller has not been served
with notice of any action, order, writ, injunction, judgment or
decree outstanding, or of any claims, causes of action or other
litigation or proceeding pending nor, to the best of Seller's knowledge,
are any such matters threatened, with respect to (i) the ownership or
operation of the Property or any part thereof (including, without
limitation, disputes with mortgagees, governmental authorities,
utilities, contractors, adjoining land owners or suppliers of goods or
services) or (ii) Seller's ability to consummate the transactions
contemplated hereby.
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(l) CONDEMNATION. There is no pending (i) condemnation of any part
of the Real Property or, (ii) widening, change of grade or limitation on
use of streets abutting the Real Property, and, to the best of Seller's
knowledge, there is no contemplated, threatened or anticipated (i)
condemnation of any part of the Real Property, (ii) widening, change of
grade or limitation on use of streets abutting the Real Property or (iii)
change in the zoning classification of the Real Property.
(m) ASSESSMENTS. Seller has received no notice and has no knowledge
of any pending liens, special taxes or assessments to be made against the
Property by any governmental agency or authority, nor has Seller received
notice of any planned change in the tax assessment or assessed valuation
of the Real Property. To the best of Seller's knowledge, there are no
other special taxes or special assessments levied against Seller or the
Property arising out of the specific use of the Property for operation as
a golf course (as opposed to general business operation, for example: a
special recreational or entertainment tax payable to the local
municipality for the privilege of operating a golf course). The
representation and warranty contained in this Section 6.1(m) shall not
include income, sales, use, liquor, tobacco, real property, personal
property, value added, ad valorem, gross receipts, license tax, business
tax, employment and other similar taxes imposed by governmental agencies.
(n) WATER. The Real Property has sufficient water and water rights
provided by the municipalities in which the Real Property is located, or
otherwise, as required or necessary to (i) satisfy the requirements to
operate the subject golf courses, and (ii) irrigate and maintain the
subject golf courses in a first class condition, and all permits and
licenses required to use said water have been obtained by Seller and are
transferable to Buyer or Lessee at Closing.
(o) UTILITIES. All water, sewer, gas, electric, telephone and
drainage facilities and all other utilities and public or quasi-public
improvements upon or adjacent to the Real Property required by law or
for the normal operation of the Property are installed, are connected
under valid permits, are in good working order, are adequate to service
the Property and are fully paid for, except with respect to utilities
which are in the process of being installed as part of the on-going
renovation of the clubhouse facility currently in process at the
Property. Seller has no knowledge of any fact or condition which would
result in the termination or impairment in the transmitting of utility
services to the Property.
(p) INTENTIONALLY OMITTED.
(q) NO CONFLICT OR VIOLATION. Neither the execution, delivery or
performance of this Agreement by Seller, or any related documents or
instruments, nor the consummation of the transactions contemplated
hereby, nor compliance by Seller with any of the provisions hereof, will
(a) result in a breach of or constitute a default under any material
agreement which Seller is bound, (b) violate or conflict with any
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provision of the organizational documents of Seller, or (c) violate,
conflict with, or result in a breach of any provision of, or constitute a
default under, or result in the termination or acceleration under, or
result in the creation of any encumbrance upon the Property under, any
material contract, commitment, agreement or other instrument or obligation
to which Seller is a party or by which the Property is bound, or (d)
violate any order, judgment, injunction, award or decree of any court or
arbitration body, or any governmental, administrative or regulatory
authority, or any other body, by or to which Seller or the Property are or
may be bound or subject, or (e) violate, conflict with or result in a
default or breach under, any license, permit or other governmental
authorization (such matter described in this clause (e) being referred to
as a "License Violation"), which License Violation would reasonably be
expected to have a material adverse affect on the Property or on Seller's
ability to consummate the transactions, contemplated hereby.
(r) LABOR MATTERS. Seller is in material compliance with all
applicable laws respecting employment practices, terms and conditions of
employment, management-labor relations and wages and hours which are in
effect as of the date of this Agreement. With respect to the Property,
(i) Seller is not a party to any labor agreement with any labor
organization, (ii) there is no unfair labor practice charge or complaint
against Seller pending or threatened before the National Labor Relations
Board, (iii) there is no labor strike or labor disturbance pending or, to
Seller's knowledge, threatened against Seller nor is any material written
grievance currently being asserted, (iv) Seller has not experienced a work
stoppage or work slowdown at any time during the three (3) years prior to
the Contract Date, and (v) there is, to Seller's knowledge no organization
campaign being conducted and no dispute as to representation of any
employee of Seller. All employment contracts or similar arrangements,
whether written or oral, are of a type that can be effectively terminated
by Seller on or before the expiration or earlier termination of the
Property Lease and, in any event, Buyer shall have no obligations or
liabilities under such employment contracts or similar arrangements at any
time, whether before or after the expiration or termination of the
Property Lease.
(s) ENVIRONMENTAL MATERIALS. Attached as Exhibit G to this Agreement
and incorporated herein by this reference is a list of all reports,
assessments, investigations or audits commissioned by Seller or within
Seller's possession or control relating to the environmental condition of,
or environmental issues concerning, the Real Property ("SELLER'S
ENVIRONMENTAL REPORTS"). Seller has heretofore delivered to Buyer, or
shall hereafter deliver to Buyer as part of the Required Due Diligence
Materials to be furnished hereunder, true, correct and complete copies of
the Seller's Environmental Reports. Except as may be disclosed in
Seller's Environmental Reports, and to Seller's knowledge, no Hazardous
Material is or has been used, generated, manufactured, processed, treated,
stored, transported, incinerated, released or disposed of in, on, under,
to or from the Real Property, except in strict compliance with all
applicable Environmental Laws. Except as may be disclosed in Seller's
Environmental
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Reports, and to Seller's knowledge, no underground storage tank
currently exists or has ever existed in, on or under the Real Property.
Except as may be disclosed in Seller's Environmental Reports, and to
Seller's knowledge, no asbestos containing material is present within or
on the Real Property. Except as may be disclosed in Seller's
Environmental Reports and to Seller's knowledge, no part of the Real
Property has been used for landfill, dumping or other waste disposal
activities or operations, excluding disposal of grass cuttings, landscape
clippings, pruning debris, leaves, vegetation and similar matters. Seller
has not received notice, and, except as described in Seller's
Environmental Reports, Seller has no knowledge, of any prior owner or
occupant of the Real property receiving, any citation, directive, demand,
pleading, complaint, claim, inquiry, notice of potential responsibility,
notice of violation, order, notice of investigation, or other written
communication, actual or threatened, from any governmental authority, or
any person or entity, regarding (a) the existence of any Hazardous
Material in, on, under, or migrating to or from, the Real Property in
excess of levels permissible under Environmental Laws; or (b) the
potential liability or responsibility of Seller, or any past or present
owner or occupant of the Real Property, under any Environmental Law.
Seller has not submitted notice under any Environmental Law reporting a
release of any Hazardous Material into the environment.
(t) BANKRUPTCY. No attachments, execution proceedings, assignments
for the benefit of creditors, insolvency, bankruptcy, reorganization or
other proceedings are pending or, to Seller's knowledge, threatened against
Seller or any members of Seller, nor are any of such proceedings
contemplated by Seller or any members of Seller.
(u) TAXES. Other than as disclosed in the tax bills previously
delivered to Buyer or being delivered to Buyer as part of the Required Due
Diligence Materials, Seller has received no notice that any real property
taxes or special assessments or charges have been levied against the
Property or will result from work, activities or improvements done to the
Property by Seller. Seller has no knowledge and Seller has received no
notice of any intended public improvements which will result in any new
charge being levied against, or in the creation of any new lien upon, the
Property or any portion thereof. Seller has no knowledge and has received
no notice of any intended changes in the assessed valuation of the
Property.
(v) CERTIFICATES OF OCCUPANCY. Seller has not received a certificate
of occupancy for the Real Property due to the fact that the Real Property
is still in the process of being renovated. Subject to the provisions of
the immediately preceding sentence, to Seller's knowledge, Seller has
received all approvals of governmental authorities required in connection
with the operation of the Real Property as golf course facilities.
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(w) ENCUMBRANCES. The interest of Seller in the Ground Lease, the
Licenses and Permits, the Personal Property, the Trade Names and
Trademarks, the Warranties and the Lessee Property has not been assigned
to any other person, and, to Seller's knowledge, is free and clear of all
encumbrances except for the security interests in the Personal Property
which are reflected on Exhibit E and except for the Loan Documents.
(x) INTENTIONALLY OMITTED.
(aa) EASEMENTS AND RIGHTS OF WAY. Seller has obtained all easements
and rights-of-way, including proof of dedication, required from all
governmental authorities having jurisdiction over the Property or from
private parties necessary for the current use of the Property, and to
make use of all utilities serving the Property and to insure vehicular
and pedestrian ingress and egress to and from the Property.
(bb) BROKERS. Seller has not entered into any agreement or
arrangement, and has no understanding, with any person or entity to pay,
or to obligate Buyer to pay, any finder's fee, brokerage commission or
similar payment in connection with any of the transactions contemplated
by this Agreement.
(cc) WETLANDS AND ENDANGERED SPECIES. Except as described in
Exhibit N attached hereto, and to Seller's knowledge, there are no
portions of the Real Property which constitute (i) "wetlands" under any
applicable, federal, state or local law, ordinance or regulation, or (ii)
habitat for any species which is deemed to be endangered under any
applicable federal, state or local law, ordinance or regulation.
(dd) NO MECHANICS' LIENS. Seller has paid for all material supplied
and services performed with respect to the Property of a type for which a
mechanic's lien may be filed, and there are no such mechanic's or
materialmen liens filed against the Property.
(ee) GRAVEYARD. To Seller's knowledge, no portion of the Real
Property is or has been used as a graveyard.
(ff) WASTE DISPOSAL ACTIVITIES. Exhibit L, attached hereto, sets
forth (i) all waste management activities at the Real Property initiated
or controlled by Seller and, to Seller's knowledge, all waste management
activities at the Real Property initiated or controlled by any other
party, (ii) to Seller's knowledge, all sites to which Seller has directly
or indirectly released, stored, dumped, buried, injected, treated, or
otherwise disposed of, hazardous substances or hazardous waste or other
toxic or hazardous material generated at the Real Property, and (iii) all
parties with whom Seller contracted to do the same.
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(gg) SETTLEMENT STATEMENT. The information to be furnished by
Seller in connection with the settlement statement described in Section
11.4 below shall be true, correct and complete in all material respects.
(hh) LOAN DOCUMENTS. Attached as Exhibit Q to this Agreement and
incorporated herein by this reference is a true, correct and complete
schedule of all Loan Documents and all such Loan Documents are in good
standing and in full force and effect.
(ii) LIABILITIES. Except as disclosed in the Due Diligence
Materials delivered by Seller to Buyer, or as otherwise set forth in the
items listed in Exhibits to this Agreement, there are no material
obligations or liabilities which shall be binding upon Buyer or the
Property after Closing.
(jj) GROUND LEASE. Attached hereto as Exhibit O is a true, correct
and complete description of the Ground Lease. A true, correct and
complete copy of the Ground Lease has heretofore been delivered by Seller
to Buyer. The Ground Lease is valid and in full force and effect, and
has not been amended, modified or supplemented, except as described on
Exhibit O. Seller holds the entire Ground Leasehold Estate, free and
clear of any claims, liens, encumbrances and restrictions of any kind,
other than the Permitted Title Exceptions. Neither Seller nor Ground
Lessor are in default of any of their respective obligations under the
Ground Lease, nor, to the best of Seller's knowledge, has any condition
or event occurred which, with the passage of time, the giving of notice,
or both, would result in such a default under the Ground Lease. The
rents and other charges set forth in the Ground Lease are the actual
rents and charges being collected by Ground Lessor. At Closing, the
Ground Lease shall be free and clear of any right or interest of any real
estate broker or any other person and no brokerage or leasing commission
or other compensation will be due or payable to any person, firm,
corporation or other entity with respect to or on account of the Ground
Lease or any extensions or renewals thereof.
(kk) FIRPTA REPRESENTATION. Seller is not a "foreign person" within
the meaning of Section 1445 of the Code.
(ll) TRADE NAMES AND TRADEMARKS. There are no actions or other
judicial or administrative proceedings involving Seller or the Property
pending, or, to Seller's knowledge, threatened, that concern any Trade
Names and Trademarks being transferred to Buyer. To Seller's knowledge,
Seller has the right and authority to use each Trade Name and Trademark
necessary in connection with the operation of the Property in the manner
in which it is currently used, and to convey such right and authority to
Buyer at Closing. To Seller's knowledge, the current use of the Trade
Names and Trademarks does not, and did not in the past, conflict with,
infringe upon or violate any copyright, trade secret, trademark or
registration of any other person. There are no outstanding or, to
Seller's knowledge, threatened disputes or
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disagreements with respect to any Trade Name or Trademark or any license,
contract, agreement or other commitment, written or oral, relating to the
same.
(mm) COMPLIANCE WITH ERISA. To Seller's knowledge, Seller is not in
default with respect to any of its obligations under any plan, agreement
or trust, and Seller has filed or caused to be filed all reports with
respect to the foregoing required by, and is otherwise in compliance
with, the Employees Retirement Income Security Act of 1974, as amended,
and all rules and regulations thereunder with respect thereto.
(nn) INSURANCE. Seller currently has in place the public liability,
casualty and other insurance coverage with respect to the Property as
Seller reasonably deems necessary. Each of the insurance policies with
respect to the Property is, to Seller's knowledge, in full force and
effect and all premiums due and payable under each of the insurance
policies with respect to the Property have been fully paid when due.
Seller has not received from any insurance company any written notices of
cancellation or intent to cancel any insurance in connection with any of
the Property.
(oo) NO OTHER AGREEMENTS TO SELL. Seller has not made any agreement
with, and has no obligation (absolute or contingent) to, any person or
firm other than Buyer (a) to sell, transfer or in any way encumber
(except for Permitted Title Exceptions) the Property or (b) to enter into
any agreement with respect to a sale, transfer or encumbrance or put or
call or other purchase option right with respect to the Property.
(pp) LICENSE AGREEMENT. The License Agreement is valid and in full
force and effect. Seller has not received any written notice of default
from the licensor under the License Agreement with respect to any of
Seller's obligations under the License Agreement, nor, to Seller's
knowledge, does any material default exist under the License Agreement
beyond the expiration of any applicable cure periods thereunder, which if
not cured would give the licensor the right to terminate this License
Agreement.
The representations and warranties of Seller contained in this Section 6.1
shall be deemed remade by Seller as of the Closing with the same force and
effect as if made at that time, except to the extent that any such
representation or warranty expressly relates to a specific date, in which case
it shall be true and correct in all material respects as of such specific date.
Seller shall give Buyer written notice of any information that makes any
representation or warranty untrue within five (5) business days of obtaining
such information. The representation and warranty of Seller set forth in
Section 6.1(c), as well as Buyer's right to enforce and/or seek damages for any
breach of the same, shall survive the Closing and continue in full force and
effect indefinitely. All other representations and warranties of Seller set
forth in Section 6.1, as well as Buyer's right to enforce and/or seek damages
for any breach of the same, shall survive the Closing for a period of one (1)
year [(i.e., meaning that Buyer must give notice to Seller of such claim on or
before the first to occur of (A) sixty (60)
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days after Buyer first becomes aware thereof, and (B) the four hundred
twenty-fifth (425th) day following the Closing Date (being one year plus sixty
(60) days), and if Seller disputes or fails to satisfy its indemnity obligation
therefor, Buyer must commence, and serve Seller in, a legal action on such
claim no later than the five hundred forty-eighth (548th) day following the
Closing Date]. Notwithstanding anything to the contrary contained in this
Section 6.1, (i) Buyer shall have no right to enforce or seek damages for any
breach of representations and warranties unless the total damage resulting from
any such breaches, in the aggregate, exceeds (in Buyer's good faith
determination) Fifty Thousand Dollars ($50,000.00) (provided that once such
threshold amount has been reached, Seller shall be liable from the first dollar
of such damages), and (ii) Seller's maximum liability for all such breaches
shall not exceed the sum of (A) the total value of the Property, based upon the
Units given and cash paid as consideration, plus (B) the total value of all
other Units received by Buyer and/or its affiliates pursuant to the Other
Contribution/Conversion Agreements. As used in this Section 6.1, the phrase
"to Seller's knowledge" shall mean the actual knowledge of Peter Nanula, George
Haworth, Bryan Noreen, Daryl Jones, Jim Ellison and Dani Peplaski, General
Manager of the Penderbrook Golf Club.
6.2 REPRESENTATIONS AND WARRANTIES OF BUYER. To induce Seller to execute,
deliver and perform this Agreement, Buyer hereby represents and warrants to
Seller on and as of the date hereof and on and as of the Closing Date as
follows:
(a) OTHER REPRESENTATIONS AND WARRANTIES. All representations and
warranties of Buyer appearing in other Sections of this Agreement are
true and correct.
(b) AUTHORITY. Buyer is a duly organized and validly existing
limited partnership in good standing under the laws of the State of
Delaware. Buyer has full capacity, right, power and authority to
execute, deliver and perform this Agreement and all documents to be
executed by Buyer pursuant hereto, and all required action and approvals
therefor have been duly taken and obtained. The individuals signing this
Agreement and all other documents executed or to be executed pursuant
hereto on behalf of Buyer are and shall be duly authorized to sign the
same on Buyer's behalf and to bind Buyer thereto. This Agreement and all
documents to be executed pursuant hereto by Buyer are and shall be
binding upon and enforceable against Buyer in accordance with their
respective terms.
(c) NO CONFLICT OR VIOLATION. Neither the execution, delivery
or performance by Buyer of this Agreement, or any related documents or
instruments, and the consummation of the transaction contemplated hereby,
nor compliance by Buyer of any of the provisions hereof, will: (a)
result in a breach of or constitute a default under any agreement to
which Buyer is bound; (b) violate or conflict with any provision of
Buyer's organization documents; (c) violate, conflict with or result in a
breach of any provision or, or constitute a default under, any contract
or agreement to which Buyer is a party or by or to which Buyer is or may
be bound or subject, or (d) violate any order, judgment, injunction,
award or decree of any court or arbitration body, or any
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governmental, administrative or regulatory authority, or any other body,
by or to which Buyer is or may be bound or subject.
(d) APPROVALS. No approval or consent of any foreign or domestic
governmental, administrative or regulatory body or any other person or
entity is required for the execution, delivery or performance by Buyer of
this Agreement, or any related documents or instruments, to which Buyer
is a party.
The representations and warranties of Buyer contained in this Section 6.2
are true, correct and complete in all material respects and shall be deemed
remade by Buyer as of the Closing with the same force and effect as if made at
that time. The representation and warranty of Buyer set forth in Section
6.2(b), as well as Seller's right to enforce and/or seek damages for any breach
of the same, shall survive the Closing indefinitely. All other representations
and warranties of Buyer set forth in Section 6.2 as well as Seller's right to
enforce and/or seek damages for any breach of the same, shall survive the
Closing for a period of one (1) year. Notwithstanding anything to the contrary
contained in this Section 6.1, (i) Seller shall have no right to enforce or
seek damages for any breach of representations and warranties unless the total
damage resulting from any such breaches, in the aggregate, exceeds (in Seller's
good faith determination) Fifty Thousand Dollars ($50,000.00) (provided that
once such threshold amount has been reached, Buyer shall be liable from the
first dollar of such damages), and (ii) Buyer's maximum liability for all such
breaches shall not exceed the total value of the Property, based upon the Units
given and cash paid as consideration.
6.3 CHANGE IN CIRCUMSTANCE. Each party shall notify the other party
promptly if the first party becomes aware of any transaction or occurrence
prior to the Closing Date which would make any of the representations or
warranties of the first party contained in this Agreement not true in any
material respect. Each party shall deliver to the other party at closing a
certificate confirming that its representations and warranties contained in
this Agreement are true and correct in all material respects as of the Closing
Date or, where applicable, describe any change in facts or circumstance that
would make any of the representations or warranties contained in this Agreement
not true in any material respect. It shall be a condition to a party's
obligation to close that no such material change in the other party's
representations and warranties, which would materially and adversely affect
such party, have occurred on or prior to the Closing Date. If any such
material and adverse change has occurred, whether brought to the attention of
such party by the other party's closing certificate or through such party's
due diligence investigation of the Property or otherwise, such party shall have
the right, without limitation on other remedies which may be available to such
party hereunder, to terminate this Agreement by written notice to the other
party; provided, however, that if a material and adverse change has occurred in
a party's representations or warranties as a result of matters outside such
party's reasonable control, the other party's sole remedy, in lieu of any other
legal or equitable remedies, shall be to terminate this Agreement as aforesaid.
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ARTICLE 7
SELLER'S COVENANTS
7.1 COVENANTS. Seller covenants and agrees to the following, which
covenants and agreements shall survive Closing, shall have been complied with
as of the Closing Date, and shall not be deemed merged in the conveyance
contemplated herein:
(a) LITIGATION, CLAIMS, OR PROCEEDINGS. In the event a lien, claim,
or cause of action affecting the Property should arise prior to Closing,
Seller shall advise Buyer in writing (or if discovered by Buyer, Buyer
shall advise Seller in writing), and Seller shall use commercially
reasonable efforts to satisfy or address any such matter prior to Closing
and furnish Buyer with evidence thereof. Notwithstanding the foregoing,
Seller shall have the right to contest any such claims or causes of action
provided that Seller executes and delivers to the Title Company any
undertaking required by the Title Company, together with any funds
required by the Title Company, to cause the Title Company to insure over
such claims or causes of action or to otherwise protect Buyer and the Real
Property from any such claim.
(b) ASSESSMENTS. If any governmental agency or authority gives notice
prior or subsequent to Closing of any improvements, liens, supplemental
tax bills or special assessments made or to be made against the Real
Property or Personal Property which relate to time periods prior to
Closing, Seller shall satisfy and indemnify Buyer from any such claim and
shall furnish Buyer evidence thereof. Notwithstanding the foregoing,
Seller shall have the right to contest any such claims provided that
Seller executes and delivers to the Title Company any undertaking required
by the Title Company, together with any funds required by the Title
Company, to cause the Title Company to insure over such claims or to
otherwise protect Buyer and the Real Property from any such claim.
(c) PERMITS. Seller shall cooperate fully with Buyer as necessary to
enable Buyer, at Buyer's cost, unless otherwise specified herein, to
procure and to maintain all licenses, permits, or authorizations
(including, without limitation, any liquor licenses which are required to
be held in the name of the fee owner or ground lessee of the Real
Property) necessary for the ownership of the Ground Leasehold Estate
and/or other interests in the Real Property or the Improvements
contemplated to be conveyed to Buyer hereunder. Further, Seller shall
fully cooperate with Buyer, at no cost to Seller, in securing all
necessary governmental approvals to transfer to Buyer such licenses,
permits and authorizations.
(d) TAXES. All payroll taxes, sales taxes, license taxes, liquor
taxes, use taxes, and all other obligations arising from and as a result
of the operation of the Real Property and due or to become due to any
governmental or quasi-governmental
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authority, whether municipal, state, county, or federal, accruing and
relating to any time periods prior to Closing shall be paid in full by
Seller prior to the date on which any material penalties would attach
thereto.
(e) LIENS. From the Contract Date to the Closing Date, Seller shall
not sell, assign, or create any right, title, or interest whatsoever in or
to any of the Property, or create or permit to exist any liens,
encumbrance, or charge thereon, without promptly discharging same prior to
the Closing.
(f) MECHANIC'S LIEN. Seller shall satisfy or insure over any and all
claims for mechanic's or materialmen's liens for work performed or
materials supplied prior to Closing; provided, however, Seller shall have
the right to contest any such claim so long as a bond is posted by Seller
and other procedures reasonably acceptable to Buyer are followed in order
to protect the Real Property and Personal Property and so long as no
exception therefor appears in the Title Policy.
(g) CONTRACTS. Seller agrees not to enter into any contracts,
commitments, leases, or agreements after the date hereof to which the
Buyer or the Property may be or may become subject without the express
written approval of Buyer, which shall not be unreasonably withheld.
(h) BUSINESS PRACTICES. From the Contract Date to the Closing Date,
Seller shall cause the business operations at the Real Property to be
conducted in the ordinary course consistent with Seller's historical
practices, and Seller shall diligently attempt to cause its golf course
operations to preserve and maintain their goodwill, including
relationships with suppliers, members, and customers consistent with
Seller's historical practices. In addition, Seller shall maintain
financial records and books of account with respect to the Property
consistent with Seller's historical practices and to maintain all existing
insurance on the Property.
(i) VIOLATION OF REPRESENTATIONS. From the Contract Date to the
Closing Date, Seller shall not take any action or omit to take any action
which action or omission would have the effect of violating, in any
material respect, any of the representations, warranties, or covenants of
Seller contained in this Agreement.
(j) CLUB OPERATION RESTRICTIONS. From the Contract Date to the
Closing Date, Seller shall not, without Buyer's prior written consent,
either (i) adopt a new membership program, (ii) modify, or agree to
modify, (A) the total allowable number of members or classes of
memberships in the clubs, or (B) the amount of initiation fees, deposits,
monthly dues or other fees to be charged to members for using the club,
(iii) modify the membership bylaws of any of the golf clubs, (iv) offer,
transfer, or sell any memberships in the clubs for an amount less than the
initiation fees as of the Contract Date (v) offer memberships through
payment plans which accelerate the amounts which would otherwise be due
prior to the Closing Date or reduce or abate
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amounts which would otherwise be due after the Closing Date (other
than, in the case of clauses (ii), (iv), and (v), in the ordinary course
of business consistent with past practices, or (vi) offer any new
membership sales programs which utilize Buyer's trade names, trademarks or
other identifying symbols or which mentions the sale of the Property
contemplated hereby.
(k) GOVERNMENTAL INQUIRIES. Seller hereby acknowledges and agrees
that from the Contract Date to the Closing Date or earlier termination of
this Agreement, Buyer may contact any and all federal, state and local
governmental entities, agencies and departments in order to inquire about
and investigate any and all matters relating to the Property. Buyer shall
inform Seller of all such contracts, whether oral or written and shall
furnish Seller with copies of all written inquiries.
(l) MAINTENANCE. From the Contract Date to the Closing Date, Seller
shall, at its sole cost and expense, maintain or cause to be maintained
the Property free from waste and neglect and in good order and repair, and
operate and manage the Property in accordance with Seller's historical
practices, and Seller shall keep and perform or cause to be performed in
all material respects all obligations of Seller under the Contracts, the
Licenses and Permits, the Operating Permits, the Warranties and under the
Legal Requirements. On the Closing Date, Seller shall tender possession
of the Property to Buyer in the same condition the Property was in as of
the Contract Date, except for ordinary wear and tear, and subject to
casualty loss and condemnation.
(m) INSURANCE. From the Contract Date to the Closing Date, Seller
shall maintain or cause to be maintained in full force and effect
liability, casualty and other insurance upon and in respect to the
Property as was being maintained by Seller as of the Contract Date.
(n) OPERATION. From the Contract Date to the Closing Date, and except
as otherwise expressly permitted pursuant to the provisions of this
Agreement, Seller shall operate and manage the Property in material
compliance with all applicable Legal Requirements and in accordance with
Seller's historical management and operation practices; provided that
during said period, without the prior written consent of Buyer, which
shall not be unreasonably withheld, Seller shall not do, suffer or permit,
or agree to do, any of the following:
(i) enter into any transaction in respect to or affecting the
Property which shall be binding upon Buyer or the Property, in any
respect, from and after closing; except that Seller shall be entitled
to enter into Contracts in the ordinary course of business and to
sell memberships without Buyer's consent so long as such sales are
consistent with Seller's existing membership structure and marketing
programs, as disclosed to Buyer during the Due Diligence Period;
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(ii) sell (other than Inventory), encumber or grant any
security interest in the Property or any part thereof in any form or
manner whatsoever, or otherwise perform or permit any act which will
materially diminish or otherwise materially affect Buyer's interest
under this Agreement or in or to the Property or which will prevent
Seller's full performance of its material obligations hereunder or
which would have the effect of materially breaching any of Seller's
representations or warranties set forth herein;
(iii) enter into, amend, waive any rights under, terminate or
extend any Warranty;
(iv) amend or waive any rights, or suffer or permit a default
to occur under the Ground Lease, any Licenses and Permits,
Operating Permits, Loan Documents or any other document or
instrument affecting the Property; or
(v) remove from the Property any of the Improvements or
fixtures thereon or any of the Personal Property.
(o) GROUND LESSOR CONSENT AND ESTOPPEL. Seller shall deliver to
Buyer, on or before Closing, a consent and estoppel certificate executed
by Ground Lessor substantially in the form and substance as attached
hereto as Exhibit P (herein, the "GROUND LESSOR CONSENT AND ESTOPPEL").
As required by Section 11.2(p) below, the foregoing Ground Lessor Consent
and Estoppel shall be dated no more than twenty (20) days prior to the
Closing Date. Without limitation on any other rights or obligations set
forth herein, the delivery of the Ground Lessor Consent and Estoppel, in
substantially the same form and substance as attached hereto as Exhibit
P, shall, at Buyer's discretion, be a condition precedent to Buyer's
obligations hereunder.
(p) CONSENTS. Seller shall obtain, on or before the Closing Date,
all consents from governmental agencies and other persons or entities
necessary in connection with Seller's performance of its obligations
hereunder. Without limitation of the foregoing, all consents notices to,
filing or registration with any governmental or regulatory body or
authority, or any other person or entity required to be made or obtained
in connection with the assignment of the Operating Permits to Lessee
shall be made on or before the Closing.
ARTICLE 8
CONDITIONS PRECEDENT
8.1 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER. Buyer's obligation
to acquire the Property pursuant to this Agreement shall be subject to the
satisfaction, prior to the Closing Date, of all of the following conditions
precedent, each of which is for the benefit of Buyer and may be waived by Buyer
in its sole discretion:
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(a) there shall have been no material damage to the Property since
the Contract Date resulting in costs of repair exceeding the sum of One
Hundred Thousand Dollars ($100,000.00);
(b) there shall have been no notice given to Seller or Buyer, nor
shall Seller or Buyer have any knowledge, of any pending or contemplated
condemnation of any material portion of the Real Property, any impairment
of access to any material portion of the Real Property or any material
violation of any portion of the Property with any Legal Requirement;
(c) all representations and warranties of Seller set forth in the
Agreement shall be true and correct in all material respects as of the
Closing Date;
(d) Seller shall have obtained all consents from, given all notices
to, and made all filings and registrations with, any governmental body or
authority, or any other person or entity, which are required to be
obtained, given or made in connection with the assignment of the
Operating Permits to Lessee;
(e) there shall have been no material adverse change in the
financial condition of the Property or the underlying golf courses and
related operations since the Contract Date;
(f) Seller shall have performed, in all material respects, all of
its covenants and obligations under this Agreement;
(g) All Licenses and Permits and all Operating Permits necessary for
the conduct of business at the Property as currently conducted shall have
been assigned or reissued to either Buyer or Lessee, as appropriate; and
(h) Seller shall have timely executed and delivered to Escrowee all
of the items referred to in Section 11.2 hereof.
8.2 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER. Seller's
obligation to sell, convey, assign, transfer and deliver the Property to Buyer
pursuant to this Agreement shall be subject to the satisfaction, prior to the
Closing Date, of all of the following conditions precedent, each of which is
for the benefit of Seller and may be waived by Seller in its sole discretion:
(a) all of the representations and warranties of Buyer set forth in
this Agreement shall be true and correct in all material respects as of
the Closing Date, except to the extent such representations or warranties
relate to a specific date, in which case they shall be true and correct
in all material respects as of such specific date;
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(b) Buyer shall have performed, in all material respects, all of its
covenants and obligations under this Agreement; and
(c) Buyer shall have timely executed and delivered to Escrowee all
of the items referred to in Section 11.3 hereof.
8.3 IPO CONDITION. The obligation of either Seller or Buyer to close the
transaction contemplated hereby is subject to the consummation of the IPO (the
"IPO CONDITION"). Buyer shall have the period beginning on the Contract Date
and ending on September 30, 1998 (the "IPO PERIOD") for satisfaction of the IPO
Condition. Failure of Buyer to consummate the IPO within the IPO Period shall,
without further action of either party, constitute termination of this
Agreement, whereupon neither party shall have any further rights or obligations
hereunder, except for rights and obligations which are expressly provided in
this Agreement to survive such termination.
ARTICLE 9
DESTRUCTION, DAMAGE OR CONDEMNATION
9.1 DESTRUCTION OR DAMAGE. If, subsequent to the Contract Date and on or
before the Closing Date, all or any material portion of the Property shall be
destroyed or damaged by one or more incidents of vandalism, fire, release of
Hazardous Materials or other casualty, whether or not covered by insurance,
Seller shall immediately give Buyer notice of such occurrence, and Buyer,
within fifteen (15) days after receipt of such notice, may elect by written
notice to Seller to (a) terminate this Agreement, in which event this Agreement
shall be deemed null and void and neither party shall have any further rights
and obligations hereunder (subject to Buyer's Indemnity which shall survive
closing for the period specified in Section 5.2), or (b) proceed to close the
transaction contemplated hereby as scheduled (except that if the Closing Date
is less than fifteen (15) days following Buyer's receipt of such notice,
closing shall be delayed until Buyer makes such election), with no adjustment
to the Acquisition Price; provided; however, that Buyer shall have the right to
participate in the adjustment and settlement of any insurance claim relating to
said damage, and Seller shall assign and/or pay to Buyer at closing all
insurance proceeds (and other related choses in action, if any) collected or
claimed with respect to said loss or damage plus any deductible or self-insured
amount. Buyer's failure to give notice within the time period specified above
shall be deemed to be Buyer's election of option (a) above. Notwithstanding
anything to the contrary contained in this Section 9.1, if the cost of
restoring damage to the Property is less than One Hundred Thousand Dollars
($100,000.00), then Buyer shall have no right to terminate this Agreement and
the closing and insurance adjustment procedures described in clause (b) above
shall apply.
9.2 CONDEMNATION. If, subsequent to the Contract Date and on or before
the Closing Date, any proceeding which shall relate to the proposed taking of
any material portion of the Real Property by condemnation or eminent domain or
any action in the nature of eminent domain, or the taking or closing of any
right of access to the Real Property, is
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instituted or commenced, Buyer shall have the right and option to terminate
this Agreement by giving Seller written notice to such effect within fifteen
(15) days after receipt of written notification of any such occurrence or
occurrences. Failure to give such notice within such time shall be conclusive
evidence that Buyer has waived the option to terminate by reason of the
occurrence or occurrences of which it has received notice, the parties shall
proceed to close the transaction contemplated hereby and Buyer shall be
credited with or be assigned all Seller's right to any proceeds therefrom.
Seller agrees to furnish Buyer written notification with respect to any such
proceedings within forty-eight (48) hours of Seller's receipt of any such
notification or learning of the institution of such proceedings. Should Buyer
elect to so terminate this Agreement, this Agreement shall be deemed null and
void and neither party shall have any further rights and obligations hereunder
(subject to Buyer's Indemnity which shall survive closing for the period
specified in Section 5.2). If the Closing Date is less than fifteen (15) days
following the last day on which Buyer is entitled to elect to terminate this
Agreement, then the closing shall be delayed until Buyer makes such election.
A taking of a "material" portion of the Real Property shall be deemed to occur
where such taking (i) results in the closing of access to the Real Property
without alternative access being provided, (ii) requires the relocation of any
utility facility, or (iii) would result in restoration costs in excess of One
Hundred Thousand Dollars ($100,000.00).
ARTICLE 10
POSSESSION, PRORATIONS AND CLOSING COSTS
10.1 POSSESSION. Sole and exclusive possession of the Property shall be
delivered to Buyer on the Closing Date, subject only to the rights of parties
under any Permitted Title Exceptions and subject to the terms and conditions of
the Property Lease being entered into at Closing.
10.2 PRORATIONS. It is acknowledged that the Lessee, as lessee under the
Property Lease, shall continue to operate the Property from and after Closing
and, pursuant to said Property Lease, shall be entitled to all revenues
generated from, and shall be obligated to pay all taxes and expenses (including
all rental due under the Ground Lease) relating to, the Property from and after
Closing and during the entire term of the Property Lease (subject, however, to
payment of the various rentals otherwise described in said Property Lease). As
a result of the foregoing, there shall be no proration, at Closing of any
revenue, tax or expense items hereunder. However, for purposes of determining
"Additional Rent" due and owing under the Property Lease for the year in which
the Closing Date (i.e., the "Commencement Date" under the Property Lease)
occurs, the parties agree as follows:
(a) All revenue received by Seller that relates to time periods
after the Closing Date, including, but not limited to, deposits, advance
registration and other fees previously received by Seller, rents,
membership dues, initiation fees, prepaid greens fees, coupon book
receipts, gift certificates, discount certificates, locker rentals,
tournament fees, tradeouts, function deposits, and bag storage charges,
shall be deemed
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"Golf Course Revenue" or "Other Revenue" (as the case may be) under the
Property Lease, attributable to periods following the Commencement Date of
the Property Lease term on an accrual basis in accordance with generally
accepted accounting principles.
(b) All of Seller's receivables, unreceived revenue and deferred
income relating to the operation of the Property prior to the Closing Date
and not otherwise provided for in this Section 10.2 or elsewhere in this
Agreement, shall remain the property of Seller ("SELLER'S RECEIVABLES")
and shall not be deemed "Golf Course Revenue" or "Other Revenue" under the
Property Lease attributable to any period falling within the term of the
Property Lease. It is acknowledged that the Lessee, as lessee under the
Property Lease, shall continue to attempt to collect Seller's Receivables
following the Closing Date. Regardless of payee designation, all payments
received following the Closing Date by the Lessee, as lessee under the
Property Lease, from any club member who has an outstanding Seller's
Receivables shall be presumed to be payments in respect to the currently
due charges, and thereafter to outstanding Seller's Receivables in the
inverse order of maturity.
10.3 CLOSING COSTS. Seller shall be responsible for all title charges and
premiums attributable to the Title Policy (and "mark-up") required to be
delivered by Seller hereunder (i.e., including any additional charges or
premiums for ALTA extended coverage, and the other endorsements described in
the definition of "Title Policy" under Section 1.1 hereof), all charges and
fees for the Surveys, all state, county, local and municipal transfer taxes,
all state deed fees, all recording fees, all documentary fees and taxes,
one-half of all escrow costs, and all other customary "seller" closing charges.
Buyer shall be responsible for all costs incurred in connection with any
financing obtained by Buyer and all other customary "buyer" expenses,
including, without limitation, all engineers', accountants' and other
professional fees associated with Buyer's pre-closing Inspections and one-half
of all escrow fees. Buyer and Seller shall each pay the fees and expenses of
their respective legal counsel incurred in connection with the transaction
contemplated hereby.
ARTICLE 11
CLOSING
11.1 TIME AND PLACE. The closing of the transaction contemplated hereby
("CLOSING") shall take place at the offices of Buyer's attorney on a date (the
"CLOSING DATE") to be specified by written notice from Buyer to Seller, such
date to be not later than ten (10) business days following the expiration of
the IPO Period. The Closing shall be effected pursuant to the escrow
instructions described in Section 3.5 above. Unless the parties otherwise
agree, it is contemplated that the Closing shall take place concurrently with
or following the consummation of the IPO, as more fully described in Section
8.3 above.
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11.2 SELLER'S DELIVERIES. On or before the Closing Date, Seller shall
deliver or cause to be delivered to Buyer or to Escrowee the following
documents, each of which shall be in form and substance reasonably acceptable
to Buyer:
(a) The Deed and the Assignment (which Assignment shall contain
Seller's indemnification, in favor of Buyer, whereby Seller shall
indemnify, defend and hold Buyer harmless from and against any and all
obligations of Seller arising or accruing under the Ground Lease prior to
Closing);
(b) Two (2) counterpart originals of Seller's assignment of the
Licenses and Permits and Warranties, substantially in the form attached
as Exhibit I hereto (the "ASSIGNMENT OF LICENSES, PERMITS AND
WARRANTIES"), executed by Seller;
(c) Seller's bill of sale assigning and conveying the Personal
Property and the Trade Names and Trademarks substantially in the form
attached as Exhibit J hereto, executed by Seller;
(d) Two (2) counterpart originals of the Property Lease, executed by
Lessee, as sublessee thereunder;
(e) Originals of the Ground Lease and of all Licenses and Permits
and Warranties assigned to Buyer (or where originals are unavailable,
copies duly certified by Seller as being true, correct and complete
copies of the originals);
(f) Copies of all Loan Documents, Membership Agreements, Contracts
and Operating Permits duly certified by Seller as being true, correct and
complete;
(g) Seller's certificate dated as of the Closing Date confirming
that the representations and warranties of Seller under Section 6.1
hereof and, if applicable, describing any change in facts or
circumstances which would make any of such representations or warranties
untrue as of the Closing Date;
(h) Such evidence as may be reasonably satisfactory to Buyer
evidencing the due authorization, execution and delivery of this
Agreement and the other documents to be executed in connection herewith
by Seller;
(i) An ALTA Statement or other affidavit in form required by the
Title Company in order to issue the Title Policy required hereunder;
(j) An executed Affidavit in customary form, or a qualifying
statement from the U.S. Treasury Department that the transaction is
exempt from the withholding tax requirement imposed by Section 1445A of
the Internal Revenue Code and the rules and regulations promulgated
thereunder ("SECTION 1445A");
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(k) All keys and pass-cards to the Improvements and all Personal
Property;
(l) The Title Policy (or a "marked-up" title commitment as described
in Section 4.1 above);
(m) Any required state, county and municipal transfer declarations;
(n) As required under Article 17 of this Agreement, documents
evidencing the indemnification and release of Seller with respect to
liability under any applicable Bulk Sale Law;
(o) A payoff letter from each lender under the Loan Documents
stating the amount necessary to satisfy, in full, the indebtedness
evidenced and/or secured by the Loan Documents as of the Closing Date,
together with full and complete recordable releases of all liens created
by such Loan Documents which are in effect as of the Closing Date (it
being understood and agreed, however, that the conveyance of the Property
contemplated hereby shall be subject to such Loan Documents and the
indebtedness evidenced and/or secured thereby and the Debt Subject to
Amount shall be paid from funds deposited by Buyer which are in addition
to the Acquisition Price);
(p) the original Ground Lessor Consent and Estoppel, executed by
Ground Lessor and dated no more than twenty (20) days prior to the
Closing Date;
(q) Such other documents, instruments, certifications and
confirmations as may be necessary or appropriate to comply with the
provisions of this Agreement or as may be reasonably required and
designated by Title Company to fully effect and consummate the
transactions contemplated hereby;
(r) Such funds as may be required, in addition to funds deposited by
Buyer to (i) discharge all deeds of trusts, mortgages, mechanic's liens,
judgment liens, security interests or encumbrances against the Property
securing any indebtedness or obligations (other than the Permitted Title
Exceptions and the liens created by the Loan Documents), and (b) pay any
amounts required to be paid by Seller in accordance with the provisions
of Article 10; and
(s) Such other documents and instruments as may be reasonably
requested by the underwriters or their counsel to comply with federal and
state securities law requirements with respect to the issuance of the
Units and/or Common Stock as part of the IPO.
11.3 BUYER'S DELIVERIES. On or before the Closing Date, Buyer shall
deliver or cause to be delivered to Seller or to Escrowee the following
documents, each of which shall be in form and substance reasonably acceptable
to Seller:
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(a) Two (2) counterpart originals of the Assignment of Licenses,
Permits and Warranties, executed by Buyer;
(b) Two (2) counterpart originals of the Property Lease, executed by
Buyer as sublessor;
(c) An ALTA statement or other affidavit in form required by the
Title Company in order to issue the Title Policy required hereunder;
(d) Buyer's certificate dated as of the Closing Date confirming that
the representations and warranties of Buyer under Section 6.2 hereof and,
if applicable, describing any change in facts or circumstances which
would make any of such representations or warranties untrue as of the
Closing Date;
(e) The Acquisition Price consideration required hereunder plus
funds sufficient to pay the Debt Subject to Amount;
(f) Any required state, county and municipal transfer declarations;
(g) Such other documents, instrument, certifications and
confirmations as may be necessary or appropriate to comply with the
provisions of this Agreement or as may be reasonably required and
designated by Title Company to fully effect and consummate the
transactions contemplated hereby; and
(h) Funds sufficient to pay all amounts required to be paid by Buyer
in accordance with the provisions of Article 10.
11.4 CONCURRENT DELIVERIES. Seller and Buyer shall jointly deposit in the
escrow or deliver to each other at or before Closing an agreed settlement
statement duly executed by the respective parties.
11.5 CONCURRENT TRANSACTIONS. All documents or other deliveries required
to be made by Buyer or Seller at Closing, and all transactions required to be
consummated concurrently with Closing, shall be deemed to have been delivered
and to have been consummated simultaneously with all other transactions and all
other deliveries, and no delivery shall be deemed to have been made, and no
transaction shall be deemed to have been consummated, until all deliveries
required by Buyer, or its nominee, and Seller shall have been made, and all
concurrent or other transactions shall have been consummated.
11.6 NEW YORK STYLE CLOSING. At the request of either party, the
transaction shall be closed by means of a so-called "New York Style Closing,"
with the concurrent delivery of the documents of title, transfer of interests,
delivery of the Title Policy (or "marked-up" title commitment as described
herein) and the payment of the Acquisition Price. Seller shall
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provide any undertaking (the "GAP UNDERTAKING") to the Title Company
necessary for the New York Style Closing to occur.
11.7 EMPLOYEES AND LEASING COMMISSIONS. Seller's employees shall be the
sole responsibility and expense of Seller. Seller agrees that Buyer shall have
no responsibility for any unpaid leasing fee or commission is due any party in
connection with any Contract and that Seller will not look to Buyer for any
payment for services, commissions or fees in connection with the operation of
the Property performed or incurred prior to the Closing Date. Seller shall
indemnify, defend and hold Buyer harmless from and against any and all damages,
liabilities, costs and expenses (including attorneys' fees and other litigation
expense) arising from any claim by any person for any leasing fee or commission
in connection with any Contract, or any claim by any employee employed by
Seller in the operation of the Property.
11.8 LOAN PAYOFF. Seller and Buyer shall direct Escrowee (i) to pay off
the loan evidenced and/or secured by the Loan Documents, in accordance with the
payoff letter(s) deposited by Seller, with the funds deposited by Buyer
pursuant to Section 11.3(e) above, and (ii) to satisfy or remove from the Title
Policy the lien of the Loan Documents.
ARTICLE 12
INDEMNIFICATION
12.1 SELLER'S INDEMNITY. Seller hereby agrees to indemnify, defend and
hold harmless Buyer, and its partners, members, officers, shareholders,
directors, employees and agents (collectively, the "BUYER INDEMNIFIED PARTIES")
from and against any and all losses, liabilities, fines and penalties and
damages (including, without limitation, any damages or injury to persons,
property or the environment as provided hereunder), or actions or claims in
respect thereof (including, without limitation, amounts paid in settlement and
reasonable cost of investigation, reasonable attorneys' fees and other legal
expenses), resulting from third party claims (based upon the allegations set
forth in such claims and whether or not ultimately successful) to which Buyer
and/or the other Buyer Indemnified Parties may become subject or which Buyer
and/or the other Buyer Indemnified Parties may suffer or incur, either directly
or indirectly, insofar as such losses, liabilities or damages (or actions or
claims in respect thereof) arise out of, are with respect to, or are based
upon:
(i) Seller's breach of any representation or warranty set
forth in this Agreement;
(ii) Seller's default in the performance of any of Seller's
covenants set forth in this Agreement;
(iii) Seller's failure to satisfy and discharge any and all
obligations of Seller under the Ground Lease, the Loan Documents or
any Contracts to which Seller is bound which obligations relate to
any time period prior to the Closing;
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(iv) Seller's failure to fully satisfy and discharge any and
all obligations of Seller regarding any current or former employees
of Seller including, without limitation, any obligations of Seller
for the payment of wages, salaries, benefits and other
compensation;
(v) Any obligations, liabilities or charges of Seller not
expressly assumed by Buyer; or
(vi) The operation and management of the Property (including
any liabilities incurred with respect thereto) at any time on or
prior to the Closing Date.
12.2 BUYER'S INDEMNITY. Buyer hereby agrees to indemnify, defend and hold
Seller and the other Seller Indemnified Parties harmless from and against any
and all losses, liabilities, fines and penalties and damages (including,
without limitation, any damages or injury to persons, property or the
environment as provided hereunder), or actions or claims with respect thereto,
except for liabilities specifically assumed or retained by Seller pursuant to
the terms of this Agreement (including, without limitation, amounts paid in
settlement and reasonable costs of investigation, reasonable attorneys' fees
and other legal expenses) resulting from third party claims (based upon the
allegations set forth in such claims whether or not ultimately successful) to
which Seller and/or the other Seller Indemnified Parties may become subject or
which Seller and/or the other Seller Indemnified Parties may suffer or incur,
either directly or indirectly, insofar as such losses, liabilities or damages
(or actions or claims in respect thereof) arise out of, are with respect to, or
are based upon:
(i) Buyer's breach of any representation or warranty set forth
in this Agreement or a breach of any covenant of Buyer contained
herein;
(ii) any obligations, liabilities or charges of Seller that
are expressly assumed by Buyer and that are not the Lessee's
obligations, liabilities or charges under the Property Lease; or
(iii) the operation and management of the Property (including
any liabilities incurred with respect thereto) at any time after
the Closing Date.
12.3 INDEMNIFICATION CLAIMS.
(a) Any claim for indemnification under this Agreement must be
asserted in writing by the Seller Indemnified Party or the Buyer
Indemnified Party, as the case may be, stating the nature of the losses
and the basis for the indemnification therefor within one (1) year from
the Closing Date [(i.e., meaning that the Seller Indemnified Party or the
Buyer Indemnified Party, as the case may be, must give a detailed notice
to the indemnifying party hereunder of such claim on or before the first
to occur of (A) sixty (60) days after the Seller Indemnified Party or the
Buyer Indemnified Party, as
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the case may be, first becomes aware of the matter giving rise to such
claim for indemnification, and (B) the four hundred twenty-fifth (425th)
day following the Closing Date (being one year plus sixty (60) days) and
if the indemnifying party hereunder disputes or fails to satisfy its
indemnity obligation therefor, the Seller Indemnified Party or the Buyer
Indemnified Party, as the case may be, must commence, and serve the
indemnifying party hereunder in, a legal action on such claim no later
than the five hundred forty-eighth (548th) day following the Closing
Date]; provided, however, that the foregoing shall not limit any survival
period hereunder which expressly exceeds one (1) year.
(b) As soon as reasonably practicable after receipt by the party
seeking indemnification of notice of any liability or claim incurred by or
asserted against such party that is subject to indemnification under this
Agreement, the Seller Indemnified Party or Buyer Indemnified Party, as the
case may be, shall give notice thereof to the applicable indemnifying
party (i.e., Seller or Buyer, as the case may be), including liabilities
or claims to be applied against the indemnification threshold established
pursuant to this Section. The Seller Indemnified Party or the Buyer
Indemnified Party, as the case may be, may at its option demand indemnity
under this Section as soon as a claim has been threatened by a third
party, regardless of whether any actual losses have been suffered, so long
as such indemnified party shall in good faith determine that such claim is
not frivolous and that the indemnified party may be liable for, or
otherwise incur, losses as a result thereof and shall give notice of such
determination to the indemnifying party. The indemnified party shall
permit the indemnifying party, at its option and expense, to assume the
defense of any such claim by counsel selected by the indemnifying party
and reasonably satisfactory to the indemnified party, and to settle or
otherwise dispose of the same; provided, however, that the indemnified
party may at all times participate in such defense at its expense; and
provided further, however, that the indemnifying party shall not, in
defense of any such claim, except with the prior written consent of the
indemnified party in its sole and absolute discretion, consent to the
entry of any judgment or enter into any settlement that does not include
as an unconditional term thereof the giving by the claimant or plaintiff
in question to the indemnified party and its affiliates a release of all
liabilities in respect of such claims, or that does not result only in the
payment of money damages (which money damages shall thereafter be paid by
the indemnifying party hereunder). If the indemnifying party shall fail
to undertake such defense within thirty (30) days after such notice, or
within such shorter time as may be reasonable under the circumstances,
then the indemnified party shall have the right to undertake the defense,
compromise or settlement of such liability or claim on behalf of and for
the account of the indemnifying party.
12.4 LIMITATION. Notwithstanding anything to the contrary contained in
this Article 12, Seller's maximum liability for all indemnification obligations
under Section 12.1 above shall not exceed the sum of (a) the total value of the
Property, based upon the Units
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given as consideration, plus (b) the total value of all other Units received by
Seller and/or its affiliates pursuant to the Other Contribution/Conversion
Agreement.
ARTICLE 13
DEFAULT
13.1 BUYER DEFAULT. Notwithstanding anything to the contrary contained in
this Agreement, if (a) Buyer has not terminated this Agreement in accordance
with its terms prior to the expiration of the Contingency Period; (b) the sale
of the Property to Buyer is not consummated due to Buyer's failure to perform
any act required of Buyer hereunder, and (c) all of the conditions precedent to
Buyer's obligation to close have been satisfied or waived by Buyer, then Seller
shall execute and deliver to Buyer written notice of such breach, which notice
shall set forth complete information above the nature of the breach. Buyer
shall have a period of three (3) business days to cure such breach. If such
breach remains uncured beyond the three (3) business day period described
above, then, as Seller's sole and exclusive remedy in lieu of all other legal
or equitable remedies shall be either: (i) to cancel this Agreement, in which
event Seller shall have the right to recover from Buyer all of Seller's actual,
reasonable out-of-pocket third party costs, fees and expenses incurred in
connection with this transaction, or (ii) to specifically enforce the
provisions of this Agreement. Nothing herein shall be deemed to limit, in any
manner, Buyer's indemnity obligations described in Section 12.2 hereof.
13.2 SELLER DEFAULT. Notwithstanding anything to the contrary contained
in this Agreement, if Seller fails to perform any act required of Seller
hereunder, or otherwise is in breach of any of its representations or
warranties hereunder, then Buyer shall execute and deliver to Seller written
notice of such default or breach, which notice shall set forth complete
information about the nature of the default or breach. Seller shall have a
period of three (3) business days to cure such default or breach. If such
default or breach remains uncured beyond the three (3) business day period
described above, then Buyer's sole and exclusive remedy, in lieu of any and all
other remedies at law or in equity shall be either: (i) to cancel this
Agreement, in which event Buyer shall have the right to recover from Seller all
of Buyer's actual, reasonable out-of-pocket third party costs, fees and
expenses incurred in connection with this transaction, or (ii) to specifically
enforce the provisions of this Agreement. Nothing herein shall be deemed to
limit, in any manner, Seller's indemnity obligations described in Section 12.1
hereof.
ARTICLE 14
BROKERAGE
14.1 BROKERAGE. Seller hereby represents and warrants to Buyer that
Seller has not dealt with any broker or finder with respect to the transaction
contemplated hereby and Seller hereby agrees to indemnify, defend and hold
harmless Buyer for any claim for brokerage
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commission or finder's fee asserted by any person, firm or corporation claiming
to have been engaged by Seller. Buyer hereby represents and warrants to Seller
that Buyer has not dealt with any broker or finder in respect to the
transaction contemplated hereby and Buyer hereby agrees to indemnify, defend
and hold harmless Seller for any claim for brokerage commission or finder's fee
asserted by a person, firm or corporation claiming to have been engaged by
Buyer.
ARTICLE 15
NOTICES
15.1 NOTICES. Any notice, request, demand, instruction or other document
to be given or served hereunder or under any document or instrument executed
pursuant hereto shall be in writing and shall be delivered personally, or
transmitted by facsimile (provided that the original thereof together with the
facsimile confirmation sheet shall thereafter be promptly sent by regular
United States Mail), or sent by United States registered or certified mail,
return receipt requested, or sent by overnight express courier, postage
prepaid, and shall be addressed to the parties at their respective addresses
set forth below, and the same shall be effective upon receipt if delivered
personally, or two (2) business days after deposit in the mails, if mailed as
aforesaid, or one (1) business day after deposit with an overnight express
courier, or immediately upon being sent by facsimile transmission. A party may
change its address for receipt of notices by service of a notice of such change
in accordance herewith.
If to Buyer: APGM Limited Partnership
c/o Arnold Palmer Golf Management LLC
Building 106, Montgomery Street
Presidio Main Post, P.O. Box 29355
San Francisco, California 94129
Attn: Mr. Peter Nanula
Facsimile: 415/561-4680
with a copy to: Rudnick & Wolfe
203 North LaSalle Street, Suite 1800
Chicago, Illinois 60601
Attn: Edward S. Goldman, Esq.
Facsimile: 312/630-5321
If to Seller: Arnold Palmer Golf Management LLC
Building 106, Montgomery Street
Presidio Main Post, P.O. Box 29355
San Francisco, California 94129
Attn: Mr. George Haworth
Facsimile: 415/561-4680
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ARTICLE 16
ADDITIONAL COVENANTS
16.1 ENTIRE AGREEMENT, AMENDMENTS AND WAIVERS. This Agreement, together
with the Property Lease, contains the entire agreement and understanding of the
parties with respect to the subject matter hereof, and the same may not be
amended, modified or discharged nor may any of its terms be waived except by an
instrument in writing signed by the party to be bound thereby.
16.2 FURTHER ASSURANCES. The parties each agree to do, execute,
acknowledge and deliver all such further acts, instruments and assurances and
to take all such further action before or after the closing as shall be
necessary or desirable to fully carry out this Agreement and to fully
consummate and effect the transactions contemplated hereby.
16.3 SURVIVAL AND BENEFIT. All agreements, obligations and indemnities of
the parties shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Except as otherwise expressly set forth
herein, all representations, warranties and indemnities shall survive Closing
for a period of one (1) year.
16.4 NO THIRD PARTY BENEFITS. This Agreement is for the sole and
exclusive benefit of the parties hereto and their respective successors and
assigns, and no third party is intended to or shall have any rights hereunder.
16.5 BUYER'S INVESTIGATION AND INSPECTIONS. Any investigation or
inspection conducted by Buyer, or any agent or representative of Buyer,
pursuant to this Agreement, in order to verify independently Seller's
satisfaction of any conditions precedent to Buyer's obligations hereunder or to
determine whether Seller's warranties are true and accurate, shall not affect,
or constitute a waiver by Buyer of, any of Seller's obligations hereunder or
Buyer's reliance thereon.
16.6 INTERPRETATION. The headings and captions herein are inserted for
convenient reference only and the same shall not limit or construe the
paragraphs or Sections to which they apply or otherwise affect the
interpretation hereof. This Agreement and any document or instrument executed
pursuant hereto may be executed in any number of counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument. Whenever under the terms of this Agreement the time for
performance of a covenant or condition falls upon a Saturday, Sunday or
holiday, such time for performance shall be extended to the next business day.
Otherwise all references herein to "DAYS" shall mean calendar days. Time is of
the essence of this Agreement.
16.7 GOVERNING LAW. With respect to general issues regarding enforcement
of this Agreement, this Agreement shall be governed by and construed in
accordance with the laws of
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the State of Illinois. With respect to specific issues relating to the
particular golf course property, the laws of the State where the Real Property
is located shall govern and control.
16.8 ATTORNEYS' FEES. In any action or proceeding involving this
Agreement or the contents hereof, the prevailing party shall be entitled to
recover from the other party the prevailing party's reasonable costs and
expenses in such action or proceeding, including reasonable attorneys' fees.
16.9 ASSIGNMENT. Seller shall not have the right to assign this
Agreement, or any interest herein, to any other person or entity, without first
having obtained the prior written consent of Buyer (which consent may be
withheld at Buyer's sole and exclusive discretion). Buyer shall have the right
to assign this Agreement, or any interest herein, to any other party, provided
that in such instance the assignee shall assume all of the rights and
obligations of Buyer hereunder, and provided that the original named Buyer
shall continue to be responsible for all of "Buyer's" obligations hereunder.
Buyer shall have the right to designate a nominee, at closing, to which title
to the Property (or any portion thereof) shall be conveyed.
16.10 INTENTIONALLY OMITTED.
16.11 OFFER AND ACCEPTANCE. Delivery by Buyer to Seller of a copy of this
Agreement executed by Buyer shall constitute an offer to purchase the Property
upon the terms and conditions herein set forth which shall be effective for a
period of seventy-two (72) hours following the time of such delivery. If
Seller fails to deliver a fully executed counterpart of this Agreement to Buyer
prior to expiration of such seventy-two (72) hour period, then at Buyer's sole
option, said offer may be revoked and rescinded in its entirety at any time
thereafter, and upon such revocation and rescission, said offer and this
Agreement shall have no further force or effect.
ARTICLE 17
COMPLIANCE WITH BULK SALES ACTS
17.1 Each party hereto waives compliance with the requirements of any and
all bulk sales regulations of any of the applicable jurisdictions in which the
Property is located (the "BULK SALES LAWS"). Notwithstanding the foregoing,
Seller shall indemnify, defend and hold harmless Buyer and Buyer's constituent
partners from and against any and all costs, expenses, damages, fines,
penalties, claims, suits or proceedings arising under any and all applicable
Bulk Sales Laws by reason of the transactions hereunder (which indemnity shall
expressly survive the Closing of this transaction hereunder for the longest
period permitted by applicable law and which indemnity shall not be subject to
any limitations on Buyer's ability to make claims or to seek recovery as may
otherwise be provided hereunder).
47
<PAGE> 52
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
BUYER:
APGM LIMITED PARTNERSHIP, a
Delaware limited partnership
By: PALMER MANAGEMENT, LLC, a
Delaware limited liability company,
its general partner
By: ARNOLD PALMER GOLF MANAGEMENT LLC,
a Delaware limited liability company,
its managing member
By: /s/ George T. Haworth
-------------------------------
Name: George T. Haworth
-----------------------------
Its: CFO, Secretary & Treasurer
------------------------------
SELLER:
ARNOLD PALMER GOLF MANAGEMENT LLC,
a Delaware limited liability company
By: /s/ Peter J. Nanula
-----------------------------------
Name: Peter J. Nanula
--------------------------------
Its: President
----------------------------------
48
<PAGE> 1
EXHIBIT 10.12
CONTRIBUTION AGREEMENT
by and between
ARNOLD PALMER GOLF MANAGEMENT LLC,
a Delaware limited liability company
as Seller,
and
APGM LIMITED PARTNERSHIP,
a Delaware limited partnership
as Buyer
<PAGE> 2
TABLE OF CONTENTS
-----------------
ARTICLE PAGE
------- ----
1 DEFINITIONS................................................ 1
1.1 Definitions............................................ 1
2 CONTRIBUTION; LEASE-BACK................................... 10
2.1 Contribution........................................... 10
2.2 Property Lease......................................... 11
2.3 Independent Consideration.............................. 11
3 DEPOSIT AND ACQUISITION PRICE.............................. 12
3.1 Acquisition Price...................................... 12
3.2 Determination of Number of Units....................... 12
3.3 Accredited Investors................................... 13
3.4 Prospectus............................................. 13
3.5 Closing Escrow......................................... 14
3.6 Federal Income Tax Consequences of Transaction......... 14
4 TITLE, SURVEY AND SEARCHES................................. 14
4.1 Title.................................................. 14
4.2 Survey................................................. 15
4.3 Searches............................................... 16
5 DUE DILIGENCE.............................................. 16
5.1 Due Diligence Materials................................ 16
5.2 Inspection............................................. 17
5.3 Due Diligence Termination.............................. 18
6 REPRESENTATIONS AND WARRANTIES............................. 18
6.1 Representation and Warranties of Seller................ 18
6.2 Representations and Warranties of Buyer................ 28
6.3 Change In Circumstance................................. 29
7 SELLER'S COVENANTS......................................... 29
7.1 Covenants.............................................. 29
8 CONDITIONS PRECEDENT....................................... 33
8.1 Conditions Precedent to the Obligations of Buyer....... 33
8.2 Conditions Precedent to the Obligations of Seller...... 34
i
<PAGE> 3
ARTICLE
-------
9 DESTRUCTION, DAMAGE OR CONDEMNATION........................ 35
9.1 Destruction or Damage.................................. 35
9.2 Condemnation........................................... 36
10 POSSESSION, PRORATIONS AND CLOSING COSTS................... 36
10.1 Possession............................................ 36
10.2 Prorations............................................ 36
10.3 Closing Costs......................................... 37
11 CLOSING.................................................... 37
11.1 Time and Place........................................ 37
11.2 Seller's Deliveries................................... 38
11.3 Buyer's Deliveries.................................... 40
11.4 Concurrent Deliveries................................. 40
11.5 Concurrent Transactions............................... 41
11.6 New York Style Closing................................ 41
11.7 Employees and Leasing Commissions..................... 41
11.8 Loan Payoff........................................... 41
12 INDEMNIFICATION............................................ 41
12.1 Seller's Indemnity.................................... 41
12.2 Buyer's Indemnity..................................... 42
13 DEFAULT.................................................... 44
13.1 Buyer Default......................................... 44
13.2 Seller Default........................................ 44
14 BROKERAGE.................................................. 45
14.1 Brokerage ......................................... 45
15 NOTICES.................................................... 45
15.1 Notices............................................... 45
16 ADDITIONAL COVENANTS....................................... 46
16.1 Entire Agreement, Amendments and Waivers.............. 46
16.2 Further Assurances.................................... 46
16.3 Survival and Benefit.................................. 46
16.4 No Third Party Benefits............................... 47
16.5 Buyer's Investigation and Inspections................. 47
16.6 Interpretation........................................ 47
ii
<PAGE> 4
ARTICLE
-------
16.7 Governing Law....................................... 47
16.8 Attorneys' Fees..................................... 47
16.9 Assignment.......................................... 47
16.10 Intentionally Omitted............................... 47
16.11 Offer and Acceptance................................ 48
17 COMPLIANCE WITH BULK SALES ACTS........................... 48
17.1...................................................... 48
LIST OF EXHIBITS
----------------
<TABLE>
<S> <C> <C>
EXHIBIT A - Legal Description of Real Property
EXHIBIT B - Due Diligence Materials
EXHIBIT C - Material Contracts
EXHIBIT D-1 - List of Licenses and Permits
EXHIBIT D-2 - Operating Permits
EXHIBIT E - List of Personal Property
EXHIBIT F - List of Members
EXHIBIT G - List of Seller's Environmental Reports and Engineering Reports
EXHIBIT H - Litigation
EXHIBIT I - Assignment of Licenses, Permits and Warranties
EXHIBIT J - Bill of Sale
EXHIBIT K - Trade Names and Trademarks
EXHIBIT L - Waste Disposal Activities
EXHIBIT M - Property Lease
EXHIBIT N - Wetlands Description
EXHIBIT O - Ground Lease
EXHIBIT P - Ground Lessor Consent and Estoppel
EXHIBIT Q - Loan Documents
EXHIBIT R - Construction Budget
EXHIBIT S - Other Contribution/Conversion Agreements
EXHIBIT T - Condemnation
</TABLE>
iii
<PAGE> 5
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT is made and entered into as of May 14, 1998,
by and between ARNOLD PALMER GOLF MANAGEMENT LLC, a Delaware limited liability
company ("SELLER"), and APGM LIMITED PARTNERSHIP, a Delaware limited
partnership ("BUYER").
RECITALS
A. Seller is the sole holder of the Ground Leasehold Estate under the
Ground Lease (as such terms are hereinafter defined), and the fee owner of the
Improvements (as hereinafter defined) comprising a thirty-six (36) hole golf
course property commonly known as Memphis National Golf Club, located in
Collierville, Tennessee; and Seller has certain right, title and interest in
and to the Personal Property, the Inventory, the Permitted Contracts, the
Licenses and Permits, the Trade Names and Trademarks and the Warranties (as
such terms are hereinafter defined).
B. Seller and its principals are in the process of sponsoring a real
estate investment trust ("REIT"), the shares of which will be offered to the
public pursuant to an initial public offering (the "IPO") of shares of common
stock ("COMMON STOCK"). As part of the IPO, it is contemplated that (i) the
REIT will become the managing general partner of Buyer, (ii) the limited
partnership interests in Buyer shall be divided into units ("UNITS"), each of
which Units shall have substantially the same economic attributes as a share of
Common Stock in the REIT, and (iii) the holders of Units will have the right to
exchange Units for Common Stock (on a one Unit for one share of Common Stock
basis), subject to the restrictions and limitations which will be established
by an amended and restated partnership agreement of Buyer and the
organizational documents for the REIT which are in effect as of the
consummation of the IPO.
C. In connection with the IPO, Seller desires to sell, assign, transfer or
otherwise contribute, and Buyer desires to acquire, the Property (as
hereinafter defined) upon and subject to the terms and conditions hereinafter
set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Seller and Buyer
agree as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS. When used herein, the following terms shall have the
respective meanings set forth opposite each such term:
<PAGE> 6
(a) ACQUISITION PRICE. As defined in Section 3.1.
(b) AGREED COST OF COMPLETION. The amount $6,439,706.00, being the
total estimated Cost of Completion as of the date hereof.
(c) AGREEMENT. This Contribution Agreement, including the Exhibits
attached hereto which are by this reference incorporated herein and made
a part hereof.
(d) ALLOCABLE TRANSACTION EXPENSES. The portion of the Transaction
Expenses allocable to the Property, determined as of the IPO by
multiplying the Transaction Expenses by the Applicable Percentage.
(e) APPLICABLE PERCENTAGE. The percentage derived by dividing (i)
the Gross Lease Revenue by (ii) the total Rental Income, as stated in the
Statement of Operations Data schedule in the Selected Financial Data
section of the Last Red.
(f) ASSIGNMENT. That certain recordable Assignment of Lessee's
interest in Ground Lease to be delivered to Buyer at Closing, assigning
to Buyer or Buyer's designee all of Seller's right, title and interest
in, to and under the Ground Lease and with respect to the Ground
Leasehold Estate, and containing warranties relative to Seller's right,
title and interest in and to the Ground Leasehold Estate, free and clear
of all liens, claims, encumbrances and restrictions of every kind, nature
and description, subject only to the Permitted Title Exceptions.
(g) BULK SALES LAWS. As defined in Section 17.1.
(h) BUYER INDEMNIFIED PARTIES. As defined in Section 12.1.
(i) BUYER'S INDEMNITY. As defined in Section 5.2.
(j) BUYER'S REPRESENTATIVES. As defined in Section 5.2.
(k) CASH AVAILABLE FOR DISTRIBUTION. As defined in Section 3.2.
(l) CASH ACQUISITION PRICE. As defined in Section 3.1.
(m) CLOSING. The closing of the sale and purchase transaction
contemplated by this Agreement, as described in Article 11 of this
Agreement.
(n) CLOSING DATE. The date of closing determined pursuant to
Section 11.1 of this Agreement.
2
<PAGE> 7
(o) CODE. As defined in Section 3.6.
(p) COMMON STOCK. As defined in the Recitals hereto.
(q) CONSTRUCTION ADVANCES. The amount of all advances made by
Seller and/or its affiliates, as of Closing, toward the Cost of
Completion.
(r) CONTINGENCY PERIOD. The period beginning on the Contract Date
and ending at 5:00 p.m., Pacific Time, on the last to occur of (i) the
sixtieth (60th) day following the Contract Date or (ii) the forty-fifth
(45th) day following receipt by Buyer of all Required Due Diligence
Materials. Seller shall certify in writing to Buyer when Seller believes
it has delivered all Required Due Diligence Materials. Within three (3)
business days after receipt of such certification, Buyer shall furnish to
Seller a list of any Required Due Diligence Materials which Buyer has not
received. Seller shall then either deliver such items or certify that
such items are not available. Upon such final delivery or certification,
the forty-five (45) day period shall commence.
(s) CONTRACT DATE. The date Seller delivers to Buyer an original,
fully executed counterpart of this Agreement, which date shall be set
forth in the introductory paragraph of this Agreement.
(t) CONTRACTS. All written or oral: (i) insurance, management,
leasing, service, maintenance, operating, repair, collective bargaining,
employment, employee benefit, severance, franchise, licensing, supply,
purchase, consulting, professional service, advertising, promotion,
public relations and other contracts and commitments in any way relating
to the Property or any part thereof, together with all supplements,
amendments and modifications thereto; and (ii) equipment leases and all
rights and options of Seller thereunder, including rights to renew or
extend the term or purchase the leased equipment, entered into by Seller
or its affiliates, relating to equipment or property located in or upon
the Real Property or used in connection therewith, together with all
supplements, amendments and modifications thereto.
(u) COST OF COMPLETION. The actual total amount of all hard and
soft construction costs to complete construction of certain improvements
currently being made at the Real Property, as generally described in the
construction budget attached hereto as Exhibit R (which costs may
include, without limitation, landscaping, site work, signage,
furnishings, legal costs, insurance, construction and development,
construction coordination fees, professional fees, development fees,
construction period debt service, and construction contingency).
3
<PAGE> 8
(v) DEBT SUBJECT TO AMOUNT. The amount which would be required to
pay off the loan evidenced and/or secured by the Loan Documents, in full,
as of the Closing Date and to extinguish the lien of the Loan Documents
at Closing.
(w) DEED. That certain recordable Quit-Claim Deed to be delivered
by Seller to Buyer, or Buyer's nominee, at the closing conveying all of
Seller's right, title and interest in and to the Land and the
Improvements to Buyer subject only to the Permitted Title Exceptions and
the lien or liens created by the Loan Documents.
(x) DUE DILIGENCE APPROVAL DATE. The last day of the Contingency
Period.
(y) DUE DILIGENCE MATERIALS. As defined in Section 5.1.
(z) ENVIRONMENTAL LAWS. All applicable federal, state and local
statutes, regulations, ordinances, judgments, decrees and rules relating
to (i) the emission, discharge, release or threatened release of a
Hazardous Material into the air, surface water, groundwater or land; (ii)
the manufacturing, processing, use, generation, treatment, storage,
disposal, transportation, handling, removal, remediation or investigation
of a Hazardous Material; or (iii) the protection of human health, safety
or the indoor or outdoor environment, including without limitation, the
Clean Air Act, the Federal Water Pollution Control Act, the Resource
Conservation and Recovery Act, the Comprehensive Environmental Response,
Compensation and Liability Act, the Occupational Safety and Health Act,
all amendments thereto, all regulations promulgated thereunder, and their
state or local statutory and regulatory counterparts.
(aa) ESCROWEE. Chicago Title Insurance Company (national office
located at 161 North Clark Street, Chicago, Illinois).
(ab) GROSS LEASE REVENUE. The Initial Base Rent (as defined in the
Property Lease) payable in the first (1st) year of the term of the
Property Lease.
(ac) GROUND LEASE. The ground lease instrument more particularly
described on Exhibit O.
(ad) GROUND LEASEHOLD ESTATE. All of the ground lessee's right,
title and interest in, to and under the Ground Lease (including all
right, title and interest in and to the Real Property and any other
components comprising the Property inuring to the benefit of the ground
lessee under the Ground Lease).
(ae) GROUND LESSOR. Billings-Gassaway, L.P., a Tennessee limited
partnership, being the ground lessor under the Ground Lease.
4
<PAGE> 9
(af) GROUND LESSOR CONSENT AND ESTOPPEL. As defined in Section
7.1(o).
(ag) HAZARDOUS MATERIAL. Any solid, liquid or gaseous substance,
chemical, compound, product, byproduct, waste or material that is or
becomes regulated, defined or designated by any applicable federal, state
or local governmental authority or by any Environmental Law as hazardous,
extremely hazardous, imminently hazardous, dangerous or toxic, or as a
pollutant or contaminant, and shall include, without limitation, friable
asbestos, asbestos-containing materials, polychlorinated biphenyls, and
oil, petroleum, petroleum products and petroleum byproducts.
(ah) IMPROVEMENTS. Any and all buildings and improvements located
on the Land, including the following:
Clubhouse complex, together with driving range,
practice facilities, paved parking and access areas,
utility improvements and landscaped areas.
Improvements shall include any and all cart paths, tees, greens, holding
ponds, water wells, effluent systems, irrigation lines, drainage
facilities, pump stations, cart barns, entrance signage and pavilions
located on the Land.
(ai) INSPECTIONS. As defined in Section 5.2.
(aj) IPO. As defined in the Recitals hereto.
(ak) IPO CONDITION. As defined in Section 8.3.
(al) IPO PERIOD. As defined in Section 8.3.
(am) INVENTORY. Any and all maintenance facility inventory and all
other inventory of goods owned by Seller and held for resale in
connection with Seller's operation of the subject Property including,
without limitation, golf equipment and golf related goods sold in the pro
shops and food and beverage items sold at the clubhouse facilities and
elsewhere throughout each golf course.
(an) LAND. The land legally described on Exhibit A attached hereto
and incorporated herein by this reference, and generally described as
follows:
Approximately _____ acres of land located in
Collierville, Shelby County, Tennessee.
5
<PAGE> 10
(ao) LAST RED. The last preliminary prospectus included as part of
the registration statement filed with the U.S. Securities Exchange
Commission with respect to the IPO which is circulated to investors
generally.
(ap) LEGAL REQUIREMENTS. All laws, statutes, codes, acts,
ordinances, orders, judgments, decrees, injunctions, rules, regulations,
permits, licenses, authorizations, orders, directions and requirements of
all governments and governmental authorities having jurisdiction of the
Property (including, for purposes hereof, any local Board of Fire
Underwriters), and the operation thereof, and all deed restrictions or
other covenants, restrictions, or agreements, site plan approvals, zoning
or subdivision regulations and urban redevelopment plans governing or
regulating the use or operation of the Property.
(aq) LESSEE. Seller, or any wholly owned affiliate of Seller, or
any other affiliate of Seller as may be designated by Seller in a written
notice thereof delivered to Buyer no later than thirty (30) days
following the Contract Date (which other affiliate shall, in any event,
be subject to the reasonable approval of Buyer as more particularly
described in Section 2.2 hereof).
(ar) LESSEE PROPERTY. Collectively, the Inventory, the Membership
Agreements, the Contracts and the Operating Permits.
(as) LICENSE AGREEMENT. That certain License Agreement dated
September 15, 1993 between Arnold Palmer Enterprises, Inc., Pacific Golf,
Inc. and Arnold Palmer Golf Management Company, as amended by an
Amendment dated May 16, 1996, and as further amended and/or assigned from
time to time.
(at) LICENSES AND PERMITS. All (i) licenses, permits, franchises,
certifications, authorizations, approvals, certificates of occupancy and
entitlements issued, approved or granted by any governmental authority or
body having jurisdiction over the Property and relating to the operation,
ownership or maintenance of the Property or any part thereof; (ii)
development rights in any way related to or used in connection with the
Property and its operations; and (iii) licenses, certifications,
authorizations, approvals, easements and rights of way required from
private parties to make use of utilities and to insure vehicular and
pedestrian ingress and egress to the Real Property; provided that the
term "Licenses and Permits" shall not include Operating Permits.
(au) LOAN DOCUMENTS. All loan agreements, notes, mortgages, deeds
of trust, assignments, guarantees, indemnitees and other instruments
evidencing, securing, guarantying or otherwise relating to any mortgage
or secured financing encumbering the Ground Leasehold Estate and/or
Seller's right, title and interest in and to the Real Property.
6
<PAGE> 11
(av) MEMBERSHIP AGREEMENTS. As defined in Section 6.1(h).
(aw) MONETARY LIENS. As defined in Section 4.1.
(ax) MID-POINT PRICE. The mid-point between the high and low
anticipated initial public gross offering price per share for the Common
Stock, as set for in the Last Red.
(ay) OFFERING MULTIPLE. The Mid-Point Price divided by a fraction,
the numerator of which is the Pro Forma Funds From Operations and the
denominator of which is the total number of shares of Common Stock issued
by the REIT and Units issued by Buyer as of the IPO (as shown in the Last
Red under the section entitled "Dilution").
(az) OPERATING PERMITS. All licenses, permits and other
authorizations or approvals granted by any governmental authority or
other body having jurisdiction over the Property which relate solely to
the business operations currently being conducted at the Property (e.g.
liquor licenses, restaurant permits and licenses and health spa licenses)
and which would remain in full force and effect if held by Seller or its
affiliates as the subtenant of the Property pursuant to the Property
Lease.
(ba) OTHER CONTRIBUTION/CONVERSION AGREEMENTS. Those certain
agreements described in Exhibit S hereto.
(bb) PERMITTED TITLE EXCEPTIONS. Those exceptions to title to the
Property approved or deemed approved by Buyer pursuant to Article 4
hereof.
(bc) PERSONAL PROPERTY. All machinery, vehicles, spare parts,
supplies, equipment, fixtures, furnishings and other tangible personal
property of every kind and character (excluding, however, the Inventory)
owned by Seller and situated in or upon or used in connection with the
operation or maintenance of the Real Property or any part thereof, and
all replacements, additions or accessories thereto between the Contract
Date and the Closing Date, and all trademarks and other intangible
personal property of every kind and character owned by Seller and used in
connection with the operation of the subject golf course (except as
otherwise described in the definition of Trade Names and Trademarks
hereinbelow).
(bd) PHASE I STUDY. As defined in Section 5.2.
(be) PRO FORMA FUNDS FROM OPERATIONS. The Pro Forma Funds from
Operations amount set forth in the "Estimated Cash Available for
Distribution" footnote calculation in the Selected Financial Data section
of the Last Red.
7
<PAGE> 12
(bf) PROPERTY. Collectively, the Ground Leasehold Estate, the
Personal Property, the Licenses and Permits, the Trade Names and
Trademarks, the Warranties and Seller's interest in and to the balance of
the Real Property and all tangible and intangible assets arising out of or
relating to the foregoing (excluding, however, the Lessee Property
described herein).
(bg) PROPERTY LEASE. As defined in Section 2.2.
(bh) PROSPECTUS. As defined in Section 3.4.
(bi) REAL PROPERTY. The Land and the Improvements, together with
all improvements thereon or therein (including all replacements or
additions thereto between the Contract Date and the Closing Date); all
systems, facilities, fixtures, machinery, equipment and conduits to
provide fire protection, security, heat, exhaust, ventilation,
air-conditioning, electrical power, light, plumbing, refrigeration, gas,
sewer and water to the Land and Improvements (including all replacements
or additions thereto between the Contract Date and the Closing Date); all
privileges, rights (including water rights), easements, hereditaments and
appurtenances thereto belonging; and all right, title and interest of
Seller in and to any streets, alleys, passages and other rights-of-way
included therein or adjacent thereto (before or after any vacation
thereof).
(bj) REIT. As defined in the Recitals hereto.
(bk) REMAINING CONSTRUCTION COST FUNDS. As described in Section
3.2.
(bl) REQUIRED DUE DILIGENCE MATERIALS. The documents and other
materials listed on Exhibit B attached hereto and by this referenced
incorporated herein.
(bm) SEARCHES. As defined in Section 4.3.
(bn) SECURITIES ACT. As defined in Section 3.4.
(bo) SELLER INDEMNIFIED PARTIES. As defined in Section 5.2.
(bp) SELLER'S ENVIRONMENTAL REPORTS. As defined in Section 6.1(s).
(bq) SELLER'S RECEIVABLES. As defined in Section 10.2(b).
(br) STRUCTURAL REPORT. As defined in Section 5.2.
(bs) SURVEY. A current as-built survey of the Land prepared by a
surveyor licensed by the state in which the Land is located and certified
to Buyer, the Title
8
<PAGE> 13
Company and such other parties as Buyer shall designate to be prepared in
accordance with the current Minimum Standard Detail Requirements for Land
Title Surveys (excluding the requirement for the placement of monuments)
adopted by the American Land Title Association and American Congress on
Surveying and Mapping, setting forth the legal description and street
address of the Land and Improvements and specifically showing thereon all
buildings, and other improvements (including fences, tees, fairways,
greens, traps, cart paths, pumping facilities, holding ponds and golf
course facilities), the number of stories in such buildings, easements
(visible or recorded), building lines, curb cuts, party walls (if any),
parking, sewage, water, electricity, gas and other utility facilities
(together with recording information concerning the documents creating
any such easements and building lines), roads and means of physical and
record ingress and egress to and from the Real Property by public roads
and the gross area of the land included in the Land, and spotting
improvements on adjoining property which are within five (5) feet of the
property lines of the Land. The Survey shall specify and depict ponds,
creeks, streams and rivers and any areas of the Land which are located in
a flood plain, wetlands or other environmentally controlled, regulated or
protected area.
(bt) TITLE COMMITMENT. A commitment for the Title Policy covering
the Land and Improvements issued by the Title Company in favor of Buyer,
or its nominee, in the full amount of the Acquisition Price, showing
Ground Lessor as fee simple title holder of the Land and showing Seller
as the holder of the Ground Leasehold Estate.
(bu) TITLE COMPANY. Chicago Title Insurance Company (national
office, located in Chicago, Illinois).
(bv) TITLE POLICY. An ALTA Leasehold Title Insurance Policy
covering the Land and Improvements issued by the Title Company pursuant
to the Title Commitment, insuring Buyer as the holder of the Ground
Leasehold Estate, specifically containing "extended coverage" insuring
over all general exceptions raised in such form of title policy and
containing the following endorsements (if issued in the jurisdiction of
the Real Property): zoning 3.1, owner's comprehensive, encroachment,
contiguity (if applicable), access, survey, tax parcel, subdivision
compliance, and creditor's rights.
(bw) TRADE NAMES AND TRADEMARKS. All of Seller's rights in and to
the trade names, trademarks, service marks and logos set forth and
described on Exhibit K attached hereto and incorporated herein by
reference, and any and all derivatives and forms thereof, together with
all other trade names, trademarks, service marks and logos, whether or
not registered, pertaining to the current operation of the Real Property,
but specifically excluding any and all trade names, trademarks, service
marks and/or logos inuring to Seller's benefit pursuant to the License
Agreement (which intangibles derived pursuant to the License Agreement
shall remain the property of Seller).
9
<PAGE> 14
(bx) TRANSACTION EXPENSES. The costs, expenses and fees (exclusive
of underwriters' fees) incurred by Seller, Buyer and/or the REIT directly
or indirectly relating to the planning and formation of the Buyer, the
REIT and other entities required to effect the IPO, as set forth in the
"Proceeds to Company" footnote on the cover page of the Last Red.
Transaction Expenses shall not include any costs, expenses and fees that
are to be borne specifically by Seller or Buyer, as the case may be,
pursuant to express provisions of this Agreement.
(by) UNITS. As defined in the Recitals hereto.
(bz) WARRANTIES. All guarantees and warranties in effect with
respect to the Property or any portion thereof, which, by their terms,
shall survive Closing, including, without limitation, all guarantees and
warranties of contractors, materialmen, manufacturers, mechanics or
suppliers who have been engaged by Seller or any of its agents to furnish
labor, materials, equipment or supplies to all or any portion of the
Property.
ARTICLE 2
CONTRIBUTION; LEASE-BACK
2.1 CONTRIBUTION. Subject to the conditions and on the terms contained in
this Agreement:
(a) Buyer agrees to acquire from Seller, and Seller agrees to sell,
assign, transfer or otherwise contribute to Buyer, all of Seller's right,
title and interest in, to and under the Ground Lease and with respect to
the Ground Leasehold Estate, free and clear of all liens, claims,
encumbrances and restrictions of every kind and description, except for
Permitted Title Exceptions and liens created by the Loan Documents, which
assignment shall be made by the Assignment.
(b) Buyer agrees to acquire from Seller, and Seller agrees to sell,
assign, transfer or otherwise contribute to Buyer, (i) all of Seller's
right, title and interest in the Land and Improvements by the Deed, and
(ii) all of Seller's right, title and interest in the balance of the Real
Property.
(c) Buyer agrees to acquire from Seller, and Seller agrees to sell,
assign, convey, transfer or otherwise contribute to Buyer, all of
Seller's right, title and interest in and to the following items, free
and clear of all liens, claims, encumbrances and restrictions of every
kind and description, except for Permitted Title Exceptions and liens
created by the Loan Documents: (i) the Licenses and Permits, and (ii) the
Warranties.
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(d) Buyer agrees to purchase and acquire from Seller, and Seller
agrees to sell, convey, assign, transfer or otherwise contribute to Buyer,
(i) the Personal Property, (excluding, however, the Inventory, which is
hereby acknowledged not to be part of the Property being conveyed
hereunder), and (ii) the Trade Names and Trademarks, by good and
sufficient bill of sale containing full warranties of title free and clear
of liens, claims, encumbrances and restrictions of every kind and
description, except the Permitted Title Exceptions and liens created by
the Loan Documents.
(e) Nothing herein shall be deemed to be an agreement of Buyer to
engage, or otherwise be responsible for, any employees of Seller, (it
being understood that Buyer's acquisition of the Property hereunder shall
not be deemed an acquisition of any of Seller's business operations
currently being conducted at the Real Property), which business
operations shall continue to be conducted by the Lessee pursuant to the
terms of the Property Lease described in Section 2.2 below. Moreover,
except as specifically provided herein to the contrary, Buyer shall not
assume, or become obligated with respect to, any liability or obligation
of Seller.
2.2 PROPERTY LEASE. Notwithstanding anything herein to the contrary, it
is understood and agreed that Buyer (or any affiliate thereof acquiring the
Property hereunder at Closing), as lessor, and Lessee, as lessee, shall be
entering into a sublease for the Property (the "PROPERTY LEASE") commencing upon
the Closing Date, in substantially the form attached hereto as Exhibit M. In the
event Seller desires an entity other than Seller or a wholly owned affiliate of
Seller to be the "Lessee" under the Property Lease, Seller shall deliver notice
to Buyer, within thirty (30) days following the Contract Date, identifying the
entity which it proposes to be the lessee under the Property Lease, and Seller
shall thereafter deliver to Buyer such other information concerning such
proposed lessee as Buyer may request. Buyer shall have the right to approve any
entity designated by Seller (other than a wholly owned affiliate of Seller) to
be the lessee under the Property Lease, which approval shall not be unreasonably
withheld. Upon such approval (or, in case of any wholly owned affiliate of
Seller, where no approval of Buyer shall be required), the entity so designated
shall be the "Lessee" under the Property Lease being entered into at Closing,
and, at Closing, Seller shall convey all of its right, title and interest in and
to the Lessee Property to said Lessee by assignment or other conveyance
documents acceptable to Buyer and Buyer's counsel. If Buyer does not so approve
the proposed entity as lessee under the Property Lease, then Seller or a wholly
owned affiliate of Seller (as designated by Seller) shall be the "Lessee"
thereunder.
2.3 INDEPENDENT CONSIDERATION. Concurrently with and in consideration for
the acceptance of this Agreement by Seller, Buyer has paid to Seller a
nonrefundable fee of ONE HUNDRED and NO/100 DOLLARS ($100.00). In the event
that this Agreement is determined to be unenforceable or void as a mutually
binding contract by reason of the existence of any condition, the indefiniteness
of any provision, the lack of mutuality or any approval or election of Buyer
with respect to any contingency or other matter, then such fee shall be
considered
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adequate consideration for, and this Agreement shall be construed as, an option
to purchase enforceable in accordance with the terms set forth herein.
ARTICLE 3
DEPOSIT AND ACQUISITION PRICE
3.1 ACQUISITION PRICE. The purchase price to be paid by Buyer in
consideration for the contribution of the Property (the "ACQUISITION PRICE")
shall be $0.00 (payable at Closing in cash, or by cashier's check or wire
transfer of funds) (herein, the "CASH ACQUISITION PRICE"), together with that
number of Units determined as set forth in Section 3.2 below.
3.2 DETERMINATION OF NUMBER OF UNITS. The actual number of Units to be
delivered as the Acquisition Price shall be determined as follows:
(a) First, the Pro Forma Funds from Operation shall be multiplied by
the Applicable Percentage;
(b) Second, the product resulting from (a) above shall be multiplied
by the Offering Multiple;
(c) Third, the product resulting from (b) above shall be multiplied
by 0.93;
(d) Fourth, the amount resulting from (c) above shall be reduced by
the following amounts:
(i) the Allocable Transaction Expenses; and
(ii) the Debt Subject to Amount, calculated as of the
date of the Last Red*; and
(iii) the excess of the Agreed Cost of Completion over
the Construction Advances (the "REMAINING
CONSTRUCTION COST FUNDS"), calculated as of the
date of the Last Red*;
[* The difference between the amounts described in (d)(ii)
and (d)(iii) above and the actual Debt Subject to Amount
and Remaining Construction Cost Funds (as the case may
be) existing at Closing shall be adjusted between Seller
and Buyer, in cash, as a proration item at Closing.]
(e) Fifth, the amount resulting from (d) above shall be reduced by
the Cash Acquisition Price which is to be paid to Seller as part of the
Acquisition Price;
(f) Sixth, the amount resulting from (e) above shall be divided by
.93; and
(g) Seventh, the amount resulting from (f) shall be divided by the
Mid-Point Price.
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3.3 ACCREDITED INVESTORS. Seller acknowledges that Buyer is paying a
portion of the Acquisition Price by the issuance of Units in a sale exempt from
registration under the Securities Act (as defined in Section 3.4 below) and that
the issuance of said Units is based upon the representations and warranties of
Seller contained herein, and in the Investor Questionnaire and the Power of
Attorney and Acknowledgement heretofore executed by Seller and delivered to
Buyer. Seller acknowledges and confirms that (i) Seller has consulted with its
counsel with respect to Rule 145 and Rule 501 promulgated under the Securities
Act and such other rules and regulations promulgated under the Securities Act
applicable to the transactions contemplated by this Agreement, including, but
not limited to, the issuance of Units for the Seller, (ii) the members of Seller
have not adopted resolutions to and otherwise do not intend to dissolve Seller
or otherwise distribute Units to the members of Seller, and (iii) there is no
preexisting plan, agreement or understanding for dissolution of Seller or
distribution of the Units by Seller. Seller agrees not to adopt any resolution,
agreement or plan within one year after the date of Seller's receipt of Units
under this Agreement which would result in the distribution of Units to the
members of Seller, and Seller further agrees to take no other action that will
cause the sale of the Units by Buyer to Seller pursuant to this Agreement to be
deemed a sale of securities to any direct or indirect members of Seller. Seller
hereby represents and warrants that (a) Seller is an accredited investor as
defined in Rule 501(a) promulgated under the Securities Act, (b) Seller is a
limited liability company not formed for the specific purpose of acquiring the
Units within the meaning of Rule 501(a)(3) and (c) Seller has total assets as of
the date hereof in excess of $5,000,000.
3.4 PROSPECTUS. Seller understands that in connection with the IPO, Buyer
will require certain information in order to comply with the Securities Act of
1933, as amended, the regulations promulgated thereunder, and any applicable
states' securities laws governing the offering and sales of securities
(collectively, the "SECURITIES ACT"), and such information will be used in the
preparation of and/or included in a prospectus (the "PROSPECTUS") to be
distributed in connection with the sale of the Common Stock of the REIT.
Seller agrees to provide to Buyer, at Buyer's sole cost and expense (unless
otherwise specified in this Agreement), all information which Buyer, the
underwriters of the IPO and their respective attorneys or accountants deem
necessary or desirable to prepare the Prospectus. Within ten (10) days after
request therefore by Buyer, Seller shall, from time to time, update and
recertify any information previously provided by Seller pursuant hereto.
Seller agrees to carefully review the portions of the Prospectus concerning the
Property to verify that such portions of the Prospectus do not contain any
untrue statement of material fact and do not omit to state a material fact
necessary in order to make the statements made in such portions of the
Prospectus, in light of the circumstances under which they were made, not
misleading. If Seller finds any portion of the Prospectus relating to the
Property inaccurate, Seller shall promptly notify Buyer in detail in writing as
to the reasons it finds such portions of the Prospectus inaccurate so that the
Prospectus may be modified. This Agreement is not intended to constitute an
offering of securities under the Securities Act or otherwise, and no securities
have been offered to Seller by virtue hereof.
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3.5 CLOSING ESCROW. On or prior to the Closing Date, the parties shall
establish an escrow trust with the Escrowee through which the transaction
contemplated hereby shall be closed. The escrow instructions shall be in the
form customarily used by the Escrowee with such special provisions added
thereto as may be required to conform to the provisions of this Agreement.
Said escrow shall be auxiliary to this Agreement and this Agreement shall not
be merged into nor in any manner superseded by said escrow. The escrow costs
and fees for each of the escrow accounts described in this Article 3 shall be
equally divided between Buyer and Seller.
3.6 FEDERAL INCOME TAX CONSEQUENCES OF TRANSACTION. Each of Buyer and
Seller hereby acknowledge and agree that, notwithstanding anything contained in
this Agreement to the contrary, the transfer of the Property shall be treated
for federal income tax purposes (i) with respect to that portion of the
Acquisition Price paid in the form of Units under Section 3.2 hereof, as a
partial contribution of the Property to the Buyer under Section 721 of the
Internal Revenue Code of 1986, as amended (the "CODE"), and the Treasury
Regulations promulgated thereunder, and (ii) with respect to that portion of
the Acquisition Price constituting the "Cash Acquisition Price" under Section
3.1 above, as a sale of a portion of the Property to Buyer. As a result, the
transaction will be treated for federal income tax purposes as a part
contribution/part sale of the Property under Code Section 707 and the Treasury
Regulations promulgated thereunder.
3.7 COSTS OF COMPLETION. Pursuant to the Property Lease, the Lessee shall
be responsible, after Closing, for completion of construction of those
improvements currently in process at the Real Property as generally described
in the construction budget attached hereto as Exhibit R. Buyer shall make
available to Lessee, from time to time, undisbursed portions of the Remaining
Construction Cost Funds, in order to reimburse Lessee for the ongoing Cost of
Completion, all as set forth in the Property Lease. In the event the Cost of
Completion (as determined by Lessee and confirmed by Buyer) is less than the
Agreed Cost of Completion, Buyer shall pay the balance of the undisbursed
Remaining Construction Cost Funds to Lessee within sixty (60) days after the
Lessee's written request therefor and delivery to Buyer of supporting
documentation reasonably satisfactory to Buyer, all as more fully described in
the Property Lease.
ARTICLE 4
TITLE, SURVEY AND SEARCHES
4.1 TITLE. Following the Contract Date, Buyer shall order and obtain the
Title Commitment, together with a copy of each recorded document raised as an
exception therein. If the Title Commitment raises any exceptions to title to
which Buyer objects, in its sole and absolute discretion, Buyer shall give
Seller notice of such objection prior to the Due Diligence Approval Date, and
Seller shall thereafter have the right to have such unpermitted exceptions
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so objected to by Buyer removed from the Title Commitment or insured over by
the Title Company to the reasonable satisfaction of Buyer, and to provide
evidence thereof to Buyer. Notwithstanding the foregoing, any delinquent real
property taxes, deeds of trust, mortgages, unpaid obligations owing to any
governmental agency which, with the passage of time, could give rise to a lien,
mechanic's liens, attachment liens, execution liens, tax liens for delinquent
taxes and judgment liens (collectively, "MONETARY LIENS"), disclosed on the
Title Commitment shall be automatically deemed unpermitted exceptions and
objected to by Buyer without any further action or notice thereof to Seller.
For the purposes of this Agreement, any liens created by the Loan Documents
shall be deemed accepted by Buyer. If Seller fails to have all unpermitted
exceptions removed from the Title Commitment or insured over to the reasonable
satisfaction of Buyer on or before the Due Diligence Approval Date or,
alternatively, confirm in writing to Buyer that Seller will remove or insure
over any such unpermitted exceptions on or prior to the Closing Date, Buyer may
elect, by written notice delivered to Seller on or before the Due Diligence
Approval Date, to (i) terminate this Agreement, in which event all obligations
of the parties hereunder shall terminate (other than Buyer's Indemnity which
shall survive such termination for the period specified in Section 5.2 hereof),
and this Agreement shall otherwise have no further force and effect, or (ii)
accept title to the Property subject to such unpermitted exceptions, all of
which shall thereafter be deemed "Permitted Title Exceptions," with the further
right to deduct from the Acquisition Price amounts secured by or constituting
unpermitted liens or encumbrances of a definite or ascertainable amount
(including, without limitation, any and all Monetary Liens), and/or to cause
the Title Company to issue endorsement(s) insuring against damage caused by
such exceptions and deduct from the Acquisition Price the cost of the premiums
and security provided for said endorsement, as the case may be. Buyer's
failure to make either election on or before the Due Diligence Approval Date
shall be deemed an election under clause (ii) above. On the Closing Date,
Seller shall cause the Title Company to issue the Title Policy (or a
"marked-up" title commitment unconditionally committing the Title Company to
issue such Title Policy) to Buyer, pursuant to and in accordance with the Title
Commitment, insuring the Ground Leasehold Estate in Buyer as of the Closing
Date, subject only to the Permitted Title Exceptions and such other exceptions
as Buyer may approve pursuant to clause (ii) above.
4.2 SURVEY. No later than twenty-one (21) days following the Contract
Date, Seller shall obtain and deliver the Survey to Buyer. If the Survey
discloses any encroachments onto the Land from any adjacent property,
encroachments by or from the Land onto any adjacent property, violations of or
encroachments upon any recorded building lines, restrictions or easements
affecting the Land, matters including possible rights of third parties, or any
other matter to which Buyer objects, in its sole and absolute discretion, Buyer
shall give Seller notice of such objection prior to the expiration of the
Contingency Period, and Seller shall thereafter have the right to have such
encroachments, violations, restrictions, easements or other matters so objected
to by Buyer removed from the Survey or insured over by the Title Company to the
reasonable satisfaction of Buyer, and to provide evidence thereof to Buyer. If
Seller fails to have same so removed or insured over, on or before the Due
Diligence Approval Date, Buyer
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<PAGE> 20
may elect, by written notice delivered to Seller on or before Due Diligence
Approval Date, to (i) terminate this Agreement, in which event all obligations
of the parties hereunder shall terminate (other than Buyer's Indemnity, which
shall survive such termination for the period of time specified in Section 5.2
hereof), and this Agreement shall otherwise have no further force and effect,
or (ii) accept the Property subject to such encroachments, violations,
restrictions, easements and other matters, all of which shall thereafter be
deemed Permitted Title Exceptions for purposes hereof. Buyer's failure to make
such election on or before the Due Diligence Approval Date shall be deemed an
election under clause (ii) above.
4.3 SEARCHES. Following the Contract Date, Buyer may obtain, at Seller's
sole expense (to be paid by Seller upon Buyer's demand therefor), searches of
the records of the county recorders, secretaries of state and district courts
of the jurisdictions in which the Land is located (collectively, the
"SEARCHES") confirming the absence of security interests, judgments, tax liens
for delinquent taxes and bankruptcy proceedings which affect or could affect
the Property or any interest therein to be transferred to Buyer pursuant to
this Agreement (except for the Permitted Title Exceptions). If said searches
disclose the existence of any security interests, judgments, tax liens for
delinquent taxes or bankruptcy proceedings which, in Buyer's sole judgment,
affect or could affect Seller's interest in the Property, Buyer shall give
Seller notice thereof prior to the expiration of the Contingency Period, and
Seller shall thereafter have the right to secure the release, satisfaction or
termination (as appropriate) of same and provide evidence thereof to Buyer on
or before the Closing Date. If Seller fails to secure such release,
satisfaction or termination (as appropriate) on or before the Closing Date,
Buyer may elect, by written notice delivered to Seller on or before the Closing
Date, to (i) terminate this Agreement, in which event all obligations of the
parties hereunder shall terminate (other than Buyer's Indemnity which shall
survive such termination for the period specified in Section 5.2 hereof), and
this Agreement shall have no further force and effect, or (ii) accept title to
the Property subject to such unpermitted exceptions, all of which shall
thereafter be deemed Permitted Title Exceptions, with the further right to
deduct from the Acquisition Price amounts secured by or constituting Monetary
Liens. Buyer's failure to make either such election on or before Due Diligence
Approval Date shall be deemed an election under clause (ii) above. Said
searches may be updated, at Buyer's sole cost and expense, as of the Closing
Date confirming the absence (i) of the security interests, judgments, tax liens
for delinquent taxes or bankruptcy proceedings objected to by Buyer hereunder,
and (ii) any additional security interests, judgments, tax liens for delinquent
taxes and bankruptcy proceedings.
ARTICLE 5
DUE DILIGENCE
5.1 DUE DILIGENCE MATERIALS. On or before Closing, and promptly following
Buyer's request therefor, Seller shall use all good faith and commercially
reasonable efforts to secure and furnish to Buyer such due diligence items as
may be required by, and in form and substance
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satisfactory to, Buyer and Buyer's counsel. Without limitation of the
foregoing, Seller shall use all good faith and commercially reasonable efforts
to secure and furnish to Buyer, no later than fifteen (15) days after the
Contract Date, to the extent not previously delivered to Buyer, true, correct
and complete copies of the Required Due Diligence Materials described in
Exhibit B hereto (the Required Due Diligence Materials, together with any other
items furnished to Buyer under this Section 5.1, being collectively referred to
herein as the "DUE DILIGENCE MATERIALS").
5.2 INSPECTION. For the period commencing with the date of the Contract
Date and continuing through the Closing Date or earlier termination of this
Agreement, Seller shall permit Buyer and any of its officers, employees, agents,
attorneys, accountants, appraisers, architects, engineers, consultants, lenders
or other representatives as designated by Buyer (collectively, "BUYER'S
REPRESENTATIVES") access to Seller's books and records relating to the ownership
and operation of the Property and access to and entry upon the Real Property, to
examine, inspect, measure and test the Property and to conduct such financial
audits and verifications as they shall deem reasonably necessary (herein
collectively, the "INSPECTIONS"). Seller shall cooperate with Buyer and Buyer's
Representatives in conducting the foregoing activities. Without limitation of
the foregoing, it is acknowledged that Buyer and Buyer's Representatives shall
have the right to conduct financial audits with respect to Seller's operations
at the Property for Seller's most recent three (3) full fiscal years (if
applicable), as well as with regard to Seller's current fiscal year operations,
and Seller shall give customary representations and warranties to Buyer's
accountants with respect to financial matters as may reasonably be requested by
said accountants. Seller hereby consents to Buyer or Buyer's Representatives
(i) conducting a Phase I environmental site assessment of the Property (the
"PHASE I STUDY"), and (ii) conducting or obtaining an engineer's structural
report respecting the Improvements (the "STRUCTURAL REPORT"). The costs of
conducting and obtaining the Phase I Study and the Structural Report shall be
the responsibility of Buyer. In the event any of Buyer's Representatives
recommends additional environmental review after conducting the Phase I Study,
Seller shall permit Buyer and Buyer's Representatives access to and entry upon
the Real Property for such additional review; provided, however, that no
invasive inspection shall be performed without Seller's prior written consent
(which consent shall not be unreasonably withheld or delayed). Buyer shall give
not less than twenty-four (24) hours' prior written or oral notice to Seller
prior to any entry upon the Land or Improvements for the purpose of conducting
such Inspections and such entry shall be scheduled and coordinated with Seller.
At Seller's election, a representative of Seller shall be present during any
entry by Buyer or Buyer's Representative upon the Property for conducting said
Inspections. Buyer shall not cause or permit any mechanic's liens,
materialmen's liens or other liens to be filed against the Property as a result
of the Inspections. Buyer shall repair and restore any damage to the Property
caused by entry upon the Land or Improvements by Buyer or the other Buyer's
Representatives, except to the extent Seller's negligence or willful acts
contributed to such damage. Buyer shall indemnify, defend and hold harmless
Seller and Seller's officers, directors, shareholders, partners, tenants, agents
and employees (collectively, the "SELLER INDEMNIFIED PARTIES"), from and against
any and all actions, losses, costs, damages, claims, liabilities, and expenses
(including court costs and reasonable attorney's fees) brought,
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sought or incurred by or against any of the Seller Indemnified Parties
resulting from, arising out of, or relating to, entry upon the Land or
Improvements by Buyer or any of the other Buyer's Representatives, except to
the extent Seller's negligence or willful acts contributed to same. The
foregoing indemnification and repair and restoration obligations (herein
collectively referred to as "BUYER'S INDEMNITY") shall expressly survive the
termination of this Agreement; provided, however, that any claim by Seller for
recovery under Buyer's Indemnity shall be made in writing within one hundred
eighty (180) days after the termination of this Agreement or shall thereupon be
forever waived.
5.3 DUE DILIGENCE TERMINATION. In addition to Buyer's right to approve
the Title Commitment, the Survey and the Searches, as described in Article 4
hereof, the obligation of Buyer to close the transaction contemplated hereby is
subject to Buyer's review of, approval of and satisfaction with, at its sole
cost and expense, on or before the Due Diligence Approval Date, the Due
Diligence Materials, the Title Commitment, the Survey, the results of the
Inspections and all other matters respecting the Property. If Buyer, in its
sole and absolute discretion, is not satisfied with any of the foregoing, then
Buyer shall have the right to terminate this Agreement by delivery to Seller of
written notice thereof delivered at any time prior to 5:00 p.m., Pacific Time,
on the Due Diligence Approval Date, in which event this Agreement shall become
null and void and neither party shall have any further rights and obligations
hereunder (subject, however, to survival of Buyer's Indemnity for the period
specified in Section 5.2). Buyer's failure to timely deliver its termination
notice as provided in this Section 5.3 shall be deemed a waiver of Buyer's
contingencies described in this Section 5.3, whereupon the parties shall
proceed to close the transaction contemplated by this Agreement as provided
herein.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES
6.1 REPRESENTATION AND WARRANTIES OF SELLER. To induce Buyer to execute,
deliver and perform this Agreement, Seller hereby represents and warrants to
Buyer on and as of the Contract Date and, by an update certificate to be
delivered at closing, on and as of the Closing Date, as follows:
(a) OTHER REPRESENTATIONS AND WARRANTIES. All representations and
warranties of Seller appearing in other Sections of this Agreement are
true and correct in all material respects as of the date hereof, and
shall be true and correct in all material respects as of the Closing
Date, except to the extent any such representation or warranty expressly
relates to a specific date, in which case it is and shall be true and
correct in all material respects as of such specific date.
(b) DUE DILIGENCE MATERIALS; EXHIBITS. The information included in
the Exhibits hereto and the documents delivered to Buyer pursuant to
Section 5.1 are, to
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Seller's knowledge, true, correct and complete in all material respects,
and to Seller's knowledge, the same do not omit any material information
required to make the submission thereof fair and complete.
(c) AUTHORITY. Seller is a duly organized and validly existing
limited liability company in good standing under the laws of the State of
Delaware and under the laws of the State where the Real Property is
located. Seller has full capacity, right, power and authority to
execute, deliver and perform this Agreement and all documents to be
executed by Seller pursuant hereto, and all required action and approvals
therefor have been duly taken and obtained. The individuals signing this
Agreement and all other documents executed or to be executed pursuant
hereto on behalf of Seller are and shall be duly authorized to sign the
same on Seller's behalf and to bind Seller thereto. This Agreement and
all documents to be executed pursuant hereto by Seller are and shall be
binding upon and enforceable against Seller in accordance with their
respective terms.
(d) CONTRACTS. Attached as Exhibit C to this Agreement and
incorporated herein by this reference is a true, correct and complete
schedule of all material Contracts (i.e., meaning Contracts which have
projected or actual payment obligations in excess of $25,000.00 during
any quarterly period or which are otherwise material to the business
operations currently being conducted at the Real Property). To Seller's
knowledge, there are no defaults under any of the Contracts and all of
the Contracts are in good standing and in full force and effect. Seller
shall retain (or assign to any other entity which becomes the Lessee
under the Property Lease) all rights and obligations under the Contracts
following the Closing, as the continued operator of the business being
conducted at the Property pursuant to the Property Lease, and there are
no Contracts which will be binding, or impose any obligation, upon Buyer
after Closing.
(e) LICENSES AND PERMITS. Attached as Exhibit D-1 to this Agreement
and incorporated herein by this reference is a true, correct and complete
list of all material Licenses and Permits. To Seller's knowledge, Seller
currently possesses all Licenses and Permits necessary and required for
the current ownership, use and maintenance the Real Property and each of
the Licenses and Permits is in full force and effect and in good standing
and Seller has not received notice of any intention on the part of the
issuing authority to cancel, suspend or modify any of the Licenses and
Permits or to take any action or institute any proceedings to effect such
a cancellation, suspension or modification. To Seller's knowledge, no
notice to, filing or registration with, or License or Permit from, any
governmental or regulatory body or authority, or any other person or
entity is required to be made or obtained in connection with the
execution, delivery or performance of this Agreement by Seller. The
interest of Seller in the Licenses and Permits has not been assigned to
any other person and is, to Seller's knowledge, free and clear of all
encumbrances other than liens granted under the Loan Documents.
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(f) OPERATING PERMITS. Attached as Exhibit D-2 to this Agreement and
incorporated herein by this reference is a true, correct and complete list
of all material Operating Permits. To Seller's knowledge, Seller
currently possesses all Operating Permits necessary and required for the
lawful operation of Seller's business at the Real Property and each of the
Operating Permits is in full force and effect and in good standing and
Seller has not received notice of any intention on the part of the issuing
authority to cancel, suspend or modify any of the Operating Permits or to
take any action or institute any proceedings to effect such a
cancellation, suspension or modification. To Seller's knowledge, no
notice to, filing or registration with, or License or Permit from, any
governmental or regulatory body or authority, or any other person or
entity is required to be made or obtained in connection with the
execution, delivery or performance of this Agreement by Seller. The
interest of Seller in the Operating Permits has not been assigned to any
other person and is, to Seller's knowledge, free and clear of all
encumbrances other than liens granted under the Loan Documents.
(g) PERSONAL PROPERTY. Attached as Exhibit E to this Agreement and
incorporated herein by this reference is a true, correct and complete
schedule of the Personal Property. Seller has good and marketable title
to the Personal Property and each item thereof free and clear of liens,
security interests, encumbrances, leases and restrictions of every kind
and description, except as disclosed on Exhibit E and except for the Loan
Documents. The Personal Property is in good operating condition and
repair, ordinary wear and tear excepted.
(h) MEMBERSHIP. Attached as Exhibit F to this Agreement and
incorporated herein by this reference are true, correct and complete
lists of all of the members of any type of respective golf courses
comprising the Property. This exhibit describes all classes of
memberships and all persons with any membership rights, including,
without limitation, honorary and lifetime members and persons holding
first offer and refusal rights. Except as may be disclosed in the
membership agreements ("MEMBERSHIP AGREEMENTS") and other membership
materials furnished to Buyer pursuant to Section 5.1, Seller has made no
written or oral representations, covenants or agreements (including any
rules, regulations or by-laws relating to membership or any
correspondence delivered to members or prospective members), concerning
(i) the total allowable number of members or classes of membership in the
clubs; (ii) qualifications or approval required for new members, (iii)
the amount of initiation fees, deposits, restrictions or waiver of
monthly dues or other fees to be charged to the membership for their
usage of the clubs, or (iv) rights of members of the clubs.
(i) VIOLATIONS OF LAWS. To Seller's knowledge, the Improvements
have been constructed and are presently used and operated in material
compliance with all Licenses and Permits and Operating Permits, all Legal
Requirements and all covenants, easements and restrictions affecting the
Property and Seller has received no written notices of any
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violations of any Legal Requirements pertaining to the Property which
have not been corrected in all material respects.
(j) CONDITION OF PROPERTY. Attached as Exhibit G to this Agreement
is a list of all reports, assessments and investigations commissioned by
Seller or within Seller's possession or control relating to the physical
condition of the Improvements and the condition of soils at the Land, and
Seller has delivered to Buyer (or will deliver to Buyer as part of the
Required Due Diligence Materials) true, correct and complete copies
thereof. To Seller's knowledge, the Improvements are structurally sound,
weather tight and in good condition and repair. To Seller's knowledge,
there are no structural defects in any of the Improvements. To Seller's
knowledge, the soil condition of the Land is such that it will support
all of the Improvements without need for additional subsurface
excavations, fill, footings, caissons or other installations.
(k) LITIGATION. Except as set forth on Exhibit H to this Agreement
and incorporated herein by this reference, Seller has not been served
with notice of any action, order, writ, injunction, judgment or decree
outstanding, or of any claims, causes of action or other litigation or
proceeding pending, nor, to the best of Seller's knowledge, are any such
matters threatened, with respect to (i) the ownership or operation of the
Property or any part thereof (including, without limitation, disputes
with mortgagees, governmental authorities, utilities, contractors,
adjoining land owners or suppliers of goods or services) or (ii) Seller's
ability to consummate the transactions contemplated hereby.
(l) CONDEMNATION. Except as described in Exhibit T hereto, there is
no pending (i) condemnation of any part of the Real Property or, (ii)
widening, change of grade or limitation on use of streets abutting the
Real Property, and, to the best of Seller's knowledge, there is no
contemplated, threatened or anticipated (i) condemnation of any part of
the Real Property, (ii) widening, change of grade or limitation on use of
streets abutting the Real Property or (iii) change in the zoning
classification of the Real Property.
(m) ASSESSMENTS. Seller has received no notice and has no knowledge
of any pending liens, special taxes or assessments to be made against the
Property by any governmental agency or authority, nor has Seller received
notice of any planned change in the tax assessment or assessed valuation
of the Real Property. To the best of Seller's knowledge, there are no
other special taxes or special assessments levied against Seller or the
Property arising out of the specific use of the Property for operation as
a golf course (as opposed to general business operation, for example: a
special recreational or entertainment tax payable to the local
municipality for the privilege of operating a golf course). The
representation and warranty contained in this Section 6.1(m) shall not
include income, sales, use, liquor, tobacco, real property, personal
property, value
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added, ad valorem, gross receipts, license tax, business tax, employment
and other similar taxes imposed by governmental agencies.
(n) WATER. To Seller's knowledge, the Real Property has sufficient
water and water rights provided by the municipalities in which the Real
Property is located, or otherwise, as required or necessary to (i)
satisfy the requirements to operate the subject golf courses, and (ii)
irrigate and maintain the subject golf courses in a first class
condition, and all permits and licenses required to use said water have
been obtained by Seller and are transferable to Buyer or Lessee at
Closing.
(o) UTILITIES. To Seller's knowledge, all water, sewer, gas,
electric, telephone and drainage facilities and all other utilities and
public or quasi-public improvements upon or adjacent to the Real
Property required by law or for the normal operation of the Property are
installed, are connected under valid permits, are in good working order,
are adequate to service the Property and are fully paid for, except with
respect to utilities which are in the process of being installed as part
of the ongoing renovation of the clubhouse facility currently in process
at the Real Property. Seller has no knowledge of any fact or condition
which would result in the termination or impairment in the transmitting
of utility services to the Property.
(p) INTENTIONALLY OMITTED.
(q) NO CONFLICT OR VIOLATION. Neither the execution, delivery or
performance of this Agreement by Seller, or any related documents or
instruments, nor the consummation of the transactions contemplated
hereby, nor compliance by Seller with any of the provisions hereof, will
(a) result in a breach of or constitute a default under any material
agreement to which Seller is bound, or (b) violate or conflict with any
provision of the organizational documents of Seller, or (c) violate,
conflict with, or result in a breach of any provision of, or constitute a
default under, or result in the termination or acceleration under, or
result in the creation of any encumbrance upon the Property under, any
material contract, commitment, agreement or other instrument or
obligation to which Seller is a party or by which the Property is bound,
or (d) violate any order, judgment, injunction, award or decree of any
court or arbitration body, or any governmental, administrative or
regulatory authority, or any other body, by or to which Seller or the
Property are or may be bound or subject, or (e) violate, conflict with or
result in a default or breach under, any license, permit or other
governmental authorization (such matter described in this clause (e)
being referred to as a "LICENSE VIOLATION"), which License Violation
would reasonably be expected to have a material adverse affect on the
Property or on Seller's ability to consummate the transactions,
contemplated hereby.
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(r) LABOR MATTERS. Seller is in material compliance with all
applicable laws respecting employment practices, terms and conditions of
employment, management-labor relations and wages and hours which are in
effect as of the date of this Agreement. With respect to the Property,
(i) Seller is not a party to any labor agreement with any labor
organization, (ii) there is no unfair labor practice charge or complaint
against Seller pending or threatened before the National Labor Relations
Board, (iii) there is no labor strike or labor disturbance pending or, to
Seller's knowledge, threatened against Seller nor is any material written
grievance currently being asserted, (iv) Seller has not experienced a work
stoppage or work slowdown at any time during the three (3) years prior to
the Contract Date, and (v) there is, to Seller's knowledge no organization
campaign being conducted and no dispute as to representation of any
employee of Seller. All employment contracts or similar arrangements,
whether written or oral, are of a type that can be effectively terminated
by Seller on or before the expiration or earlier termination of the
Property Lease and, in any event, Buyer shall have no obligations or
liabilities under such employment contracts or similar arrangements at any
time, whether before or after the expiration or termination of the
Property Lease.
(s) ENVIRONMENTAL MATERIALS. Attached as Exhibit G to this
Agreement and incorporated herein by this reference is a list of all
reports, assessments, investigations or audits commissioned by Seller or
within Seller's possession or control relating to the environmental
condition of, or environmental issues concerning, the Real Property
("SELLER'S ENVIRONMENTAL REPORTS"). Seller has heretofore delivered to
Buyer, or shall hereafter deliver to Buyer as part of the Required Due
Diligence Materials to be furnished hereunder, true, correct and complete
copies of the Seller's Environmental Reports. Except as may be disclosed
in Seller's Environmental Reports, and to Seller's knowledge, no
Hazardous Material is or has been used, generated, manufactured,
processed, treated, stored, transported, incinerated, released or
disposed of in, on, under, to or from the Real Property, except in strict
compliance with all applicable Environmental Laws. Except as may be
disclosed in Seller's Environmental Reports, and to Seller's knowledge,
no underground storage tank currently exists or has ever existed in, on
or under the Real Property. Except as may be disclosed in Seller's
Environmental Reports, and to Seller's knowledge, no asbestos containing
material is present within or on the Real Property. Except as may be
disclosed in Seller's Environmental Reports and to Seller's knowledge, no
part of the Real Property has been used for landfill, dumping or other
waste disposal activities or operations, excluding disposal of grass
cuttings, landscape clippings, pruning debris, leaves, vegetation and
similar matters. Seller has not received notice, and, except as
described in Seller's Environmental Reports, Seller has no knowledge, of
any prior owner or occupant of the Real property receiving, any citation,
directive, demand, pleading, complaint, claim, inquiry, notice of
potential responsibility, notice of violation, order, notice of
investigation, or other written communication, actual or threatened, from
any governmental authority, or any person or entity, regarding (a) the
existence of any Hazardous Material in, on, under, or
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migrating to or from, the Real Property in excess of levels permissible
under Environmental Laws; or (b) the potential liability or
responsibility of Seller, or any past or present owner or occupant of the
Real Property, under any Environmental Law. Seller has not submitted
notice under any applicable Environmental Law reporting a release of any
Hazardous Materials into the environment.
(t) BANKRUPTCY. No attachments, execution proceedings, assignments
for the benefit of creditors, insolvency, bankruptcy, reorganization or
other proceedings are pending or, to Seller's knowledge, threatened
against Seller or any members of Seller, nor are any of such proceedings
contemplated by Seller or any members of Seller.
(u) TAXES. Other than as disclosed in the tax bills previously
delivered to Buyer or being delivered to Buyer as part of the Required
Due Diligence Materials, Seller has received no notice that any real
property taxes or special assessments or charges have been levied against
the Property or will result from work, activities or improvements done to
the Property by Seller. Seller has no knowledge and Seller has received
no notice of any intended public improvements which will result in any
new charge being levied against, or in the creation of any new lien upon,
the Property or any portion thereof. Seller has no knowledge and has
received no notice of any intended changes in the assessed valuation of
the Property.
(v) CERTIFICATES OF OCCUPANCY. Seller has received a temporary
certificate of occupancy or other similar certificate permitting lawful
occupancy of the Real Property (i.e., with the permanent certificate of
occupancy expected to be issued following completion of the ongoing
renovation of the clubhouse facility currently in process at the Real
Property) and, to Seller's knowledge, Seller has received all other
approvals of governmental authorities required in connection with the
operation of the Real Property as golf course facilities.
(w) ENCUMBRANCES. The interest of Seller in the Ground Lease, the
Licenses and Permits, the Personal Property, the Trade Names and
Trademarks, the Warranties and the Lessee Property has not been assigned
to any other person, and, to Seller's knowledge, is free and clear of all
encumbrances except for the security interests in the Personal Property
which are reflected on Exhibit E and except for the Loan Documents.
(x) INTENTIONALLY OMITTED.
(aa) EASEMENTS AND RIGHTS OF WAY. Seller has obtained all easements
and rights-of-way, including proof of dedication, required from all
governmental authorities having jurisdiction over the Property or from
private parties necessary for the current use of the Property, to make
use of all utilities serving the Property and to insure vehicular and
pedestrian ingress and egress to and from the Property.
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(bb) BROKERS. Seller has not entered into any agreement or
arrangement, and has no understanding, with any person or entity to pay,
or to obligate Buyer to pay, any finder's fee, brokerage commission or
similar payment in connection with any of the transactions contemplated by
this Agreement.
(cc) WETLANDS AND ENDANGERED SPECIES. Except as described in
Exhibit N attached hereto, and to Seller's knowledge, there are no
portions of the Real Property which constitute (i) "wetlands" under any
applicable, federal, state or local law, ordinance or regulation, or (ii)
habitat for any species which is deemed to be endangered under any
applicable federal, state or local law, ordinance or regulation.
(dd) NO MECHANICS' LIENS. Seller has paid for all material supplied
and services performed with respect to the Property of a type for which a
mechanic's lien may be filed.
(ee) GRAVEYARD. To Seller's knowledge, no portion of the Real
Property is or has been used as a graveyard.
(ff) WASTE DISPOSAL ACTIVITIES. Exhibit L, attached hereto, sets
forth, (i) all waste management activities at the Real Property initiated
or controlled by Seller and, to Seller's knowledge, all waste management
activities at the Real Property initiated or controlled by any other
party, (ii) to Seller's knowledge, all sites to which Seller has directly
or indirectly released, stored, dumped, buried, injected, treated, or
otherwise disposed of, hazardous substances or hazardous waste or other
toxic or hazardous material generated at the Real Property, and (iii) all
parties with whom Seller contracted to do the same.
(gg) SETTLEMENT STATEMENT. The information to be furnished by
Seller in connection with the settlement statement described in Section
11.4 below shall be true, correct and complete in all material respects.
(hh) LOAN DOCUMENTS. Attached as Exhibit Q to this Agreement and
incorporated herein by this reference is a true, correct and complete
schedule of all Loan Documents and all such Loan Documents are in good
standing and in full force and effect.
(ii) LIABILITIES. Except as disclosed in the Due Diligence
Materials delivered by Seller to Buyer, or as otherwise set forth in the
items listed in Exhibits to this Agreement, there are no material
obligations or liabilities which shall be binding upon Buyer or the
Property after Closing.
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(jj) GROUND LEASE. Attached hereto as Exhibit O is a true, correct
and complete description of the Ground Lease. A true, correct and
complete copy of the Ground Lease has heretofore been delivered by Seller
to Buyer. The Ground Lease is valid and in full force and effect, and
has not been amended, modified or supplemented, except as described on
Exhibit O. Seller holds the entire Ground Leasehold Estate, free and
clear of any claims, liens, encumbrances and restrictions of any kind,
other than the Permitted Title Exceptions. Neither Seller nor Ground
Lessor are in default of any of their respective obligations under the
Ground Lease, nor, to the best of Seller's knowledge, has any condition
or event occurred which, with the passage of time, the giving of notice,
or both, would result in such a default under the Ground Lease. The
rents and other charges set forth in the Ground Lease are the actual
rents and charges presently being collected by Ground Lessor. At
Closing, the Ground Lease shall be free and clear of any right or
interest of any real estate broker or any other person and no brokerage
or leasing commission or other compensation will be due or payable to any
person, firm, corporation or other entity with respect to or on account
of the Ground Lease or any extensions or renewals thereof.
(kk) FIRPTA REPRESENTATION. Seller is not a "foreign person" within
the meaning of Section 1445 of the Code.
(ll) TRADE NAMES AND TRADEMARKS. There are no actions or other
judicial or administrative proceedings involving Seller or the Property
pending, or, to Seller's knowledge, threatened, that concern any Trade
Names and Trademarks being transferred to Buyer. To Seller's knowledge,
Seller has the right and authority to use each Trade Name and Trademark
necessary in connection with the operation of the Property in the manner
in which it is currently used, and to convey such right and authority to
Buyer at Closing. To Seller's knowledge, the current use of the Trade
Names and Trademarks does not, and did not in the past, conflict with,
infringe upon or violate any copyright, trade secret, trademark or
registration of any other person. There are no outstanding or, to
Seller's knowledge, threatened disputes or disagreements with respect to
any Trade Name or Trademark or any license, contract, agreement or other
commitment, written or oral, relating to the same.
(mm) COMPLIANCE WITH ERISA. To Seller's knowledge, Seller is not in
default with respect to any of its obligations under any plan, agreement
or trust, and Seller has filed or caused to be filed all reports with
respect to the foregoing required by, and is otherwise in compliance
with, the Employees Retirement Income Security Act of 1974, as amended,
and all rules and regulations thereunder with respect thereto.
(nn) INSURANCE. Seller currently has in place the public liability,
casualty and other insurance coverage with respect to the Property as
Seller reasonably deems necessary. Each of the insurance policies with
respect to the Property is, to Seller's
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knowledge, in full force and effect. All premiums due and payable under
each of the insurance policies with respect to the Property have been
fully paid when due. Seller has not received from any insurance company
any written notices of cancellation or intent to cancel any insurance in
connection with any of the Property.
(oo) NO OTHER AGREEMENTS TO SELL. Seller has not made any agreement
with, and has no obligation (absolute or contingent) to, any person or
firm other than Buyer (a) to sell, transfer or in any way encumber
(except for Permitted Title Exceptions) the Property or (b) to enter into
any agreement with respect to a sale, transfer or encumbrance or put or
call or other purchase option right with respect to the Property.
(pp) LICENSE AGREEMENT. The License Agreement is valid and in full
force and effect. Seller has not received any written notice of default
from the licensor under the License Agreement with respect to any of
Seller's obligations under the License Agreement, nor, to Seller's
knowledge, does any material default exist under the License Agreement
beyond the expiration of any applicable cure periods thereunder, which if
not cured would give the licensor the right to terminate this License
Agreement.
The representations and warranties of Seller contained in this Section 6.1
shall be deemed remade by Seller as of the Closing with the same force and
effect as if made at that time, except to the extent that any such
representation or warranty expressly relates to a specific date, in which case
it shall be true and correct in all material respects as of such specific date.
Seller shall give Buyer written notice of any information that makes any
representation or warranty untrue within five (5) business days of obtaining
such information. The representation and warranty of Seller set forth in
Section 6.1(c), as well as Buyer's right to enforce and/or seek damages for any
breach of the same, shall survive the Closing and continue in full force and
effect indefinitely. All other representations and warranties of Seller set
forth in Section 6.1, as well as Buyer's right to enforce and/or seek damages
for any breach of the same, shall survive the Closing for a period of one (1)
year [(i.e., meaning that Buyer must give notice to Seller of such claim on or
before the first to occur of (A) sixty (60) days after Buyer first becomes
aware thereof, and (B) the four hundred twenty-fifth (425th) day following the
Closing Date (being one year plus sixty (60) days), and if Seller disputes or
fails to satisfy its indemnity obligation therefor, Buyer must commence, and
serve Seller in, a legal action on such claim no later than the five hundred
forty-eighth (548th) day following the Closing Date]. Notwithstanding anything
to the contrary contained in this Section 6.1, (i) Buyer shall have no right to
enforce or seek damages for any breach of representations and warranties unless
the total damage resulting from any such breaches, in the aggregate, exceeds
(in Buyer's good faith determination) Fifty Thousand Dollars ($50,000.00)
(provided that once such threshold amount has been reached, Seller shall be
liable from the first dollar of such damages), and (ii) Seller's maximum
liability for all such breaches shall not exceed the sum of (A) the total value
of the Property, based upon the Units given as consideration, plus (B) the
total value of all other Units received by Seller and/or its affiliates
pursuant to the Other Contribution/Conversion
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Agreements. As used in this Section 6.1, the phrase "to Seller's knowledge"
shall mean the actual knowledge of Peter Nanula, George Haworth, Bryan Noreen,
Daryl Jones, Jim Ellison and Margaret Ryan, the General Manager of Memphis
National Golf Club.
6.2 REPRESENTATIONS AND WARRANTIES OF BUYER. To induce Seller to execute,
deliver and perform this Agreement, Buyer hereby represents and warrants to
Seller on and as of the date hereof and on and as of the Closing Date as
follows:
(a) OTHER REPRESENTATIONS AND WARRANTIES. All representations and
warranties of Buyer appearing in other Sections of this Agreement are
true and correct.
(b) AUTHORITY. Buyer is a duly organized and validly existing
limited partnership in good standing under the laws of the State of
Delaware. Buyer has full capacity, right, power and authority to
execute, deliver and perform this Agreement and all documents to be
executed by Buyer pursuant hereto, and all required action and approvals
therefor have been duly taken and obtained. The individuals signing this
Agreement and all other documents executed or to be executed pursuant
hereto on behalf of Buyer are and shall be duly authorized to sign the
same on Buyer's behalf and to bind Buyer thereto. This Agreement and all
documents to be executed pursuant hereto by Buyer are and shall be
binding upon and enforceable against Buyer in accordance with their
respective terms.
(c) NO CONFLICT OR VIOLATION. Neither the execution, delivery or
performance by Buyer of this Agreement, or any related documents or
instruments, and the consummation of the transaction contemplated hereby,
nor compliance by Buyer of any of the provisions hereof, will: (a)
result in a breach of or constitute a default under any agreement to
which Buyer is bound; (b) violate or conflict with any provision of
Buyer's organization documents; (c) violate, conflict with or result in a
breach of any provision or, or constitute a default under, any contract
or agreement to which Buyer is a party or by or to which Buyer is or may
be bound or subject, or (d) violate any order, judgment, injunction,
award or decree of any court or arbitration body, or any governmental,
administrative or regulatory authority, or any other body, by or to which
Buyer is or may be bound or subject.
(d) APPROVALS. No approval or consent of any foreign or domestic
governmental, administrative or regulatory body or any other person or
entity is required for the execution, delivery or performance by Buyer of
this Agreement, or any related documents or instruments, to which Buyer
is a party.
The representations and warranties of Buyer contained in this Section 6.2
are true, correct and complete in all material respects and shall be deemed
remade by Buyer as of the Closing with the same force and effect as if made at
that time. The representation and warranty
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of Buyer set forth in Section 6.2(b), as well as Seller's right to enforce
and/or seek damages for any breach of the same, shall survive the Closing
indefinitely. All other representations and warranties of Buyer set forth in
Section 6.2 as well as Seller's right to enforce and/or seek damages for any
breach of the same, shall survive the Closing for a period of one (1) year.
Notwithstanding anything to the contrary contained in this Section 6.1, (i)
Seller shall have no right to enforce or seek damages for any breach of
representations and warranties unless the total damage resulting from any such
breaches, in the aggregate, exceeds (in Seller's good faith determination)
Fifty Thousand Dollars ($50,000.00) (provided that once such threshold amount
has been reached, Buyer shall be liable from the first dollar of such damages),
and (ii) Buyer's maximum liability for all such breaches shall not exceed the
total value of the Property, based upon the Units given and cash paid as
consideration.
6.3 CHANGE IN CIRCUMSTANCE. Each party shall notify the other party
promptly if the first party becomes aware of any transaction or occurrence
prior to the Closing Date which would make any of the representations or
warranties of the first party contained in this Agreement not true in any
material respect. Each party shall deliver to the other party at closing a
certificate confirming that its representations and warranties contained in
this Agreement are true and correct in all material respects as of the Closing
Date or, where applicable, describe any change in facts or circumstance that
would make any of the representations or warranties contained in this Agreement
not true in any material respect. It shall be a condition to a party's
obligation to close that no such material change in the other party's
representations and warranties, which would materially and adversely affect
such party, have occurred on or prior to the Closing Date. If any such
material and adverse change has occurred, whether brought to the attention of
such party by the other party's closing certificate or through such party's due
diligence investigation of the Property or otherwise, such party shall have the
right, without limitation on other remedies which may be available to such
party hereunder, to terminate this Agreement by written notice to the other
party; provided, however, that if a material and adverse change has occurred in
a party's representations or warranties as a result of matters outside such
party's reasonable control, the other party's sole remedy, in lieu of any other
legal or equitable remedies, shall be to terminate this Agreement as aforesaid.
ARTICLE 7
SELLER'S COVENANTS
7.1 COVENANTS. Seller covenants and agrees to the following, which
covenants and agreements shall survive Closing, shall have been complied with
as of the Closing Date, and shall not be deemed merged in the conveyance
contemplated herein:
(a) LITIGATION, CLAIMS, OR PROCEEDINGS. In the event a lien, claim,
or cause of action affecting the Property should arise prior to Closing,
Seller shall advise Buyer in writing (or if discovered by Buyer, Buyer
shall advise Seller in writing), and Seller
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shall use commercially reasonable efforts to satisfy or address any such
matter prior to Closing and furnish Buyer with evidence thereof.
Notwithstanding the foregoing, Seller shall have the right to contest any
such claims or causes of action provided that Seller executes and delivers
to the Title Company any undertaking required by the Title Company,
together with any funds required by the Title Company, to cause the Title
Company to insure over such claims or causes of action or to otherwise
protect Buyer and the Real Property from any such claim.
(b) ASSESSMENTS. If any governmental agency or authority gives
notice prior or subsequent to Closing of any improvements, liens,
supplemental tax bills or special assessments made or to be made against
the Real Property or Personal Property which relate to time periods prior
to Closing, Seller shall satisfy and indemnify Buyer from any such claim
and shall furnish Buyer evidence thereof. Notwithstanding the foregoing,
Seller shall have the right to contest any such claims provided that
Seller executes and delivers to the Title Company any undertaking
required by the Title Company, together with any funds required by the
Title Company, to cause the Title Company to insure over such claims or
to otherwise protect Buyer and the Real Property from any such claim.
(c) PERMITS. Seller shall cooperate fully with Buyer as necessary
to enable Buyer, at Buyer's cost, unless otherwise specified herein, to
procure and to maintain all licenses, permits, or authorizations
(including, without limitation, any liquor licenses which are required to
be held in the name of the fee owner or ground lessee of the Real
Property) necessary for the ownership of the Ground Leasehold Estate
and/or other interests in the Real Property or the Improvements
contemplated to be conveyed to Buyer hereunder. Further, Seller shall
fully cooperate with Buyer, at no cost to Seller, in securing all
necessary governmental approvals to transfer to Buyer such licenses,
permits and authorizations.
(d) TAXES. All payroll taxes, sales taxes, license taxes, liquor
taxes, use taxes, and all other obligations arising from and as a result
of the operation of the Real Property and due or to become due to any
governmental or quasi-governmental authority, whether municipal, state,
county, or federal, accruing and relating to any time periods prior to
Closing shall be paid in full by Seller prior to the date on which any
material penalties would attach thereto.
(e) LIENS. From the Contract Date to the Closing Date, Seller shall
not sell, assign, or create any right, title, or interest whatsoever in
or to any of the Property, or create or permit to exist any liens,
encumbrance, or charge thereon, without promptly discharging same prior
to the Closing.
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(f) MECHANIC'S LIEN. Seller shall satisfy or insure over any and
all claims for mechanic's or materialmen's liens for work performed or
materials supplied prior to Closing; provided, however, Seller shall have
the right to contest any such claim so long as a bond is posted by Seller
and other procedures reasonably acceptable to Buyer are followed in order
to protect the Real Property and Personal Property and so long as no
exception therefor appears in the Title Policy.
(g) CONTRACTS. Seller agrees not to enter into any contracts,
commitments, leases, or agreements after the date hereof to which the
Buyer or the Property may be or may become subject without the express
written approval of Buyer, which shall not be unreasonably withheld.
(h) BUSINESS PRACTICES. From the Contract Date to the Closing Date,
Seller shall cause the business operations at the Real Property to be
conducted in the ordinary course consistent with Seller's historical
practices, and Seller shall diligently attempt to cause its golf course
operations to preserve and maintain their goodwill, including
relationships with suppliers, members, and customers consistent with
Seller's historical practices. In addition, Seller shall maintain
financial records and books of account with respect to the Property
consistent with Seller's historical practices and to maintain all
existing insurance on the Property.
(i) VIOLATION OF REPRESENTATIONS. From the Contract Date to the
Closing Date, Seller shall not take any action or omit to take any action
which action or omission would have the effect of violating, in any
material respect, any of the representations, warranties, or covenants of
Seller contained in this Agreement.
(j) CLUB OPERATION RESTRICTIONS. From the Contract Date to the
Closing Date, Seller shall not, without Buyer's prior written consent,
either (i) adopt a new membership program, (ii) modify, or agree to
modify, (A) the total allowable number of members or classes of
memberships in the clubs, or (B) the amount of initiation fees, deposits,
monthly dues or other fees to be charged to members for using the club,
(iii) modify the membership bylaws of any of the golf clubs, (iv) offer,
transfer, or sell any memberships in the clubs for an amount less than
the initiation fees as of the Contract Date, (v) offer memberships
through payment plans which accelerate the amounts which would otherwise
be due prior to the Closing Date or reduce or abate amounts which would
otherwise be due after the Closing Date (other than, in the case of
clauses (ii), (iv), and (v), in the ordinary course of business
consistent with past practices), or (vi) offer any new membership sales
programs which utilize Buyer's trade names, trademarks or other
identifying symbols or which mentions the sale of the Property
contemplated hereby.
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(k) GOVERNMENTAL INQUIRIES. Seller hereby acknowledges and agrees
that from the Contract Date to the Closing Date or earlier termination of
this Agreement, Buyer may contact any and all federal, state and local
governmental entities, agencies and departments in order to inquire about
and investigate any and all matters relating to the Property. Buyer shall
inform Seller of all such contracts, whether oral or written and shall
furnish Seller with copies of all written inquiries.
(l) MAINTENANCE. From the Contract Date to the Closing Date, Seller
shall, at its sole cost and expense, maintain or cause to be maintained
the Property free from waste and neglect and in good order and repair,
and operate and manage the Property in accordance with Seller's
historical practices, and Seller shall keep and perform or cause to be
performed in all material respects all obligations of Seller under the
Contracts, the Licenses and Permits, the Operating Permits, the
Warranties and under the Legal Requirements. On the Closing Date, Seller
shall tender possession of the Property to Buyer in the same condition
the Property was in as of the Contract Date, except for ordinary wear and
tear, and subject to casualty loss and condemnation.
(m) INSURANCE. From the Contract Date to the Closing Date, Seller
shall maintain or cause to be maintained in full force and effect
liability, casualty and other insurance upon and in respect to the
Property as was being maintained by Seller as of the Contract Date.
(n) OPERATION. From the Contract Date to the Closing Date, and
except as otherwise expressly permitted pursuant to the provisions of
this Agreement, Seller shall operate and manage the Property in material
compliance with all applicable Legal Requirements and in accordance with
Seller's historical management and operation practices; provided that
during said period, without the prior written consent of Buyer, which
shall not be unreasonably withheld, Seller shall not do, suffer or
permit, or agree to do, any of the following:
(i) enter into any transaction in respect to or affecting the
Property which shall be binding upon Buyer or the Property, in any
respect, from and after closing; except that Seller shall be
entitled to enter into Contracts in the ordinary course of business
and to sell memberships without Buyer's consent so long as such
sales are consistent with Seller's existing membership structure
and marketing programs, as disclosed to Buyer during the Due
Diligence Period;
(ii) sell (other than Inventory), encumber or grant any
security interest in the Property or any part thereof in any form
or manner whatsoever, or otherwise perform or permit any act which
will materially diminish or otherwise materially affect Buyer's
interest under this Agreement or in or to the Property or which
will prevent Seller's full performance of its material obligations
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hereunder or which would have the effect of materially breaching
any of Seller's representations or warranties set forth herein;
(iii) enter into, amend, waive any rights under, terminate or
extend any Warranty;
(iv) amend or waive any rights, or suffer or permit a default
to occur under the Ground Lease, any Licenses and Permits,
Operating Permits, Loan Documents or any other document or
instrument affecting the Property; or
(v) remove from the Property any of the Improvements or
fixtures thereon or any of the Personal Property.
(o) GROUND LESSOR CONSENT AND ESTOPPEL. Seller shall deliver to
Buyer, on or before Closing, a consent and estoppel certificate executed
by Ground Lessor substantially in the form and substance as attached
hereto as Exhibit P (herein, the "GROUND LESSOR CONSENT AND ESTOPPEL").
As required by Section 11.2(p) below, the foregoing Ground Lessor Consent
and Estoppel shall be dated no more than twenty (20) days prior to the
Closing Date. Without limitation on any other rights or obligations set
forth herein, the delivery of the Ground Lessor Consent and Estoppel, in
substantially the same form and substance as attached hereto as Exhibit
P, shall, at Buyer's discretion, be a condition precedent to Buyer's
obligations hereunder.
(p) CONSENTS. Seller shall obtain, on or before the Closing Date,
all consents from governmental agencies and other persons or entities
necessary in connection with Seller's performance of its obligations
hereunder. Without limitation of the foregoing, all consents, notices
to, filing or registration with any governmental or regulatory body or
authority, or any other person or entity required to be made or obtained
in connection with the assignment of the Operating Permits to Lessee
shall be made on or before the Closing.
ARTICLE 8
CONDITIONS PRECEDENT
8.1 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER. Buyer's obligation
to acquire the Property pursuant to this Agreement shall be subject to the
satisfaction, prior to the Closing Date, of all of the following conditions
precedent, each of which is for the benefit of Buyer and may be waived by Buyer
in its sole discretion:
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(a) there shall have been no material damage to the Property since
the Contract Date resulting in costs of repair exceeding the sum of One
Hundred Thousand Dollars ($100,000.00);
(b) there shall have been no notice given to Seller or Buyer, nor
shall Seller or Buyer have any knowledge, of any pending or contemplated
condemnation of any material portion of the Real Property, any impairment
of access to any material portion of the Real Property or any material
violation of any portion of the Property with any Legal Requirement;
(c) all representations and warranties of Seller set forth in the
Agreement shall be true and correct in all material respects as of the
Closing Date, except to the extent such representations or warranties
relate to a specific date, in which case they shall be true and correct
in all material respects as of such specific date.
(d) Seller shall have obtained all consents from, given all notices
to, and made all filings and registrations with, any governmental body or
authority, or any other person or entity, which are required to be
obtained, given or made in connection with the assignment of the
Operating Permits to Lessee;
(e) there shall have been no material adverse change in the
financial condition of the Property or the underlying golf courses and
related operations since the Contract Date;
(f) Seller shall have performed, in all material respects, all of
its covenants and obligations under this Agreement;
(g) All Licenses and Permits and all Operating Permits necessary for
the conduct of business at the Property as currently conducted shall have
been assigned or reissued to either Buyer or Lessee, as appropriate; and
(h) Seller shall have timely executed and delivered to Escrowee all
of the items referred to in Section 11.2 hereof.
8.2 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER. Seller's
obligation to sell, convey, assign, transfer and deliver the Property to Buyer
pursuant to this Agreement shall be subject to the satisfaction, prior to the
Closing Date, of all of the following conditions precedent, each of which is for
the benefit of Seller and may be waived by Seller in its sole discretion:
(a) all of the representations and warranties of Buyer set forth in
this Agreement shall be true and correct in all material respects as of
the Closing Date,
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except to the extent such representations or warranties relate to a
specific date, in which case they shall be true and correct in all
material respects as of such specific date;
(b) Buyer shall have performed, in all material respects, all of its
covenants and obligations under this Agreement; and
(c) Buyer shall have timely executed and delivered to Escrowee all
of the items referred to in Section 11.3 hereof.
8.3 IPO CONDITION. The obligation of either Seller or Buyer to close the
transaction contemplated hereby is subject to the consummation of the IPO (the
"IPO CONDITION"). Buyer shall have the period beginning on the Contract Date
and ending on September 30, 1998 (the "IPO PERIOD") for satisfaction of the IPO
Condition. Failure of Buyer to consummate the IPO within the IPO Period shall,
without further action of either party, constitute termination of this
Agreement, whereupon neither party shall have any further rights or obligations
hereunder, except for rights and obligations which are expressly provided in
this Agreement to survive such termination.
ARTICLE 9
DESTRUCTION, DAMAGE OR CONDEMNATION
9.1 DESTRUCTION OR DAMAGE. If, subsequent to the Contract Date and on or
before the Closing Date, all or any material portion of the Property shall be
destroyed or damaged by one or more incidents of vandalism, fire, release of
Hazardous Materials or other casualty, whether or not covered by insurance,
Seller shall immediately give Buyer notice of such occurrence, and Buyer,
within fifteen (15) days after receipt of such notice, may elect by written
notice to Seller to (a) terminate this Agreement, in which event this Agreement
shall be deemed null and void and neither party shall have any further rights
and obligations hereunder (subject to Buyer's Indemnity which shall survive
closing for the period specified in Section 5.2), or (b) proceed to close the
transaction contemplated hereby as scheduled (except that if the Closing Date
is less than fifteen (15) days following Buyer's receipt of such notice,
closing shall be delayed until Buyer makes such election), with no adjustment
to the Acquisition Price; provided; however, that Buyer shall have the right to
participate in the adjustment and settlement of any insurance claim relating to
said damage, and Seller shall assign and/or pay to Buyer at closing all
insurance proceeds (and other related choses in action, if any) collected or
claimed with respect to said loss or damage plus any deductible or self-insured
amount. Buyer's failure to give notice within the time period specified above
shall be deemed to be Buyer's election of option (a) above. Notwithstanding
anything to the contrary contained in this Section 9.1, if the cost of
restoring damage to the Property is less than One Hundred Thousand Dollars
($100,000.00), then Buyer shall have no right to terminate this Agreement and
the closing and insurance adjustment procedures described in clause (b) above
shall apply.
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9.2 CONDEMNATION. If, subsequent to the Contract Date and on or before
the Closing Date, any proceeding which shall relate to the proposed taking of
any material portion of the Real Property by condemnation or eminent domain or
any action in the nature of eminent domain, or the taking or closing of any
right of access to the Real Property, is instituted or commenced, Buyer shall
have the right and option to terminate this Agreement by giving Seller written
notice to such effect within fifteen (15) days after receipt of written
notification of any such occurrence or occurrences. Failure to give such notice
within such time shall be conclusive evidence that Buyer has waived the option
to terminate by reason of the occurrence or occurrences of which it has received
notice, the parties shall proceed to close the transaction contemplated hereby
and Buyer shall be credited with or be assigned all Seller's right to any
proceeds therefrom. Seller agrees to furnish Buyer written notification with
respect to any such proceedings within forty-eight (48) hours of Seller's
receipt of any such notification or learning of the institution of such
proceedings. Should Buyer elect to so terminate this Agreement, this Agreement
shall be deemed null and void and neither party shall have any further rights
and obligations hereunder (subject to Buyer's Indemnity which shall survive
closing for the period specified in Section 5.2). If the Closing Date is less
than fifteen (15) days following the last day on which Buyer is entitled to
elect to terminate this Agreement, then the closing shall be delayed until Buyer
makes such election. A taking of a "material" portion of the Real Property
shall be deemed to occur where such taking (i) results in the closing of access
to the Real Property without alternative access being provided, (ii) requires
the relocation of any utility facility, or (iii) would result in restoration
costs in excess of One Hundred Thousand Dollars ($100,000.00).
ARTICLE 10
POSSESSION, PRORATIONS AND CLOSING COSTS
10.1 POSSESSION. Sole and exclusive possession of the Property shall be
delivered to Buyer on the Closing Date, subject only to the rights of parties
under any Permitted Title Exceptions and subject to the terms and conditions of
the Property Lease being entered into at Closing.
10.2 PRORATIONS. It is acknowledged that the Lessee, as lessee under the
Property Lease, shall continue to operate the Property from and after Closing
and, pursuant to said Property Lease, shall be entitled to all revenues
generated from, and shall be obligated to pay all taxes and expenses (including
all rental due under the Ground Lease) relating to, the Property from and after
Closing and during the entire term of the Property Lease (subject, however, to
payment of the various rentals otherwise described in said Property Lease). As
a result of the foregoing, there shall be no proration, at Closing, of any
revenue, tax or expense items hereunder. However, for purposes of determining
"Additional Rent" due and owing under the Property Lease for the year in which
the Closing Date (i.e., the "Commencement Date" under the Property Lease)
occurs, the parties agree as follows:
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(a) All revenue received by Seller that relates to time periods after
the Closing Date, including, but not limited to, deposits, advance
registration and other fees previously received by Seller, rents,
membership dues, initiation fees, prepaid greens fees, coupon book
receipts, gift certificates, discount certificates, locker rentals,
tournament fees, tradeouts, function deposits, and bag storage charges,
shall be deemed "Golf Course Revenue" or "Other Revenue" (as the case may
be) under the Property Lease, attributable to periods following the
Commencement Date of the Property Lease term on an accrual basis in
accordance with generally accepted accounting principles.
(b) All of Seller's receivables, unreceived revenue and deferred
income relating to the operation of the Property prior to the Closing
Date and not otherwise provided for in this Section 10.2 or elsewhere in
this Agreement, shall remain the property of Seller ("SELLER'S
RECEIVABLES") and shall not be deemed "Golf Course Revenue" or "Other
Revenue" under the Property Lease attributable to any period falling
within the term of the Property Lease. It is acknowledged that the
Lessee, as lessee under the Property Lease, shall continue to attempt to
collect Seller's Receivables following the Closing Date. Regardless of
payee designation, all payments received following the Closing Date by
the Lessee, as lessee under the Property Lease, from any club member who
has an outstanding Seller's Receivables shall be presumed to be payments
in respect to the currently due charges, and thereafter to outstanding
Seller's Receivables in the inverse order of maturity.
10.3 CLOSING COSTS. Seller shall be responsible for all title charges and
premiums attributable to the Title Policy (and "mark-up") required to be
delivered by Seller hereunder (i.e., including any additional charges or
premiums for ALTA extended coverage, and the other endorsements described in the
definition of "Title Policy" under Section 1.1 hereof), all charges and fees for
the Surveys, all state, county, local and municipal transfer taxes, all state
deed fees, all recording fees, all documentary fees and taxes, one-half of all
escrow costs, and all other customary "seller" closing charges. Buyer shall be
responsible for all costs incurred in connection with any financing obtained by
Buyer and all other customary "buyer" expenses, including, without limitation,
all engineers', accountants' and other professional fees associated with Buyer's
pre-closing Inspections and one-half of all escrow fees. Buyer and Seller shall
each pay the fees and expenses of their respective legal counsel incurred in
connection with the transaction contemplated hereby.
ARTICLE 11
CLOSING
11.1 TIME AND PLACE. The closing of the transaction contemplated hereby
("CLOSING") shall take place at the offices of Buyer's attorney on a date (the
"CLOSING DATE") to be specified by written notice from Buyer to Seller, such
date to be not later than ten (10) business days
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following the expiration of the IPO Period. The Closing shall be effected
pursuant to the escrow instructions described in Section 3.5 above. Unless the
parties otherwise agree, it is contemplated that the Closing shall take place
concurrently with or following the consummation of the IPO, as more fully
described in Section 8.3 above.
11.2 SELLER'S DELIVERIES. On or before the Closing Date, Seller shall
deliver or cause to be delivered to Buyer or to Escrowee the following
documents, each of which shall be in form and substance reasonably acceptable
to Buyer:
(a) The Deed and the Assignment (which Assignment shall contain
Seller's indemnification, in favor of Buyer, whereby Seller shall
indemnify, defend and hold Buyer harmless from and against any and all
obligations of Seller arising or accruing under the Ground Lease prior to
Closing);
(b) Two (2) counterpart originals of Seller's assignment of the
Licenses and Permits and Warranties, substantially in the form attached
as Exhibit I hereto (the "ASSIGNMENT OF LICENSES, PERMITS AND
WARRANTIES"), executed by Seller;
(c) Seller's bill of sale assigning and conveying the Personal
Property and the Trade Names and Trademarks substantially in the form
attached as Exhibit J hereto, executed by Seller;
(d) Two (2) counterpart originals of the Property Lease, executed by
Lessee, as sublessee thereunder;
(e) Originals of the Ground Lease and of all Licenses and Permits
and Warranties assigned to Buyer (or where originals are unavailable,
copies duly certified by Seller as being true, correct and complete
copies of the originals);
(f) Copies of all Loan Documents, Membership Agreements, Contracts
and Operating Permits duly certified by Seller as being true, correct and
complete;
(g) Seller's certificate dated as of the Closing Date confirming the
representations and warranties of Seller under Section 6.1 hereof and, if
applicable, describing any change in facts or circumstances which would
make any of such representations or warranties untrue as of the Closing
Date;
(h) Such evidence as may be reasonably satisfactory to Buyer
evidencing the due authorization, execution and delivery of this
Agreement and the other documents to be executed in connection herewith
by Seller;
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(i) An ALTA Statement or other affidavit in form required by the
Title Company in order to issue the Title Policy required hereunder;
(j) An executed Affidavit in customary form, or a qualifying
statement from the U.S. Treasury Department that the transaction is
exempt from the withholding tax requirement imposed by Section 1445A of
the Internal Revenue Code and the rules and regulations promulgated
thereunder ("SECTION 1445A");
(k) All keys and pass-cards to the Improvements and all Personal
Property;
(l) The Title Policy (or a "marked-up" title commitment as described
in Section 4.1 above);
(m) Any required state, county and municipal transfer declarations;
(n) As required under Article 17 of this Agreement, documents
evidencing the indemnification and release of Seller with respect to
liability under any applicable Bulk Sales Law;
(o) A payoff letter from each lender under the Loan Documents
stating the amount necessary to satisfy, in full, the indebtedness
evidenced and/or secured by the Loan Documents as of the Closing Date,
together with full and complete recordable releases of all liens created
by such Loan Documents which are in effect as of the Closing Date (it
being understood and agreed, however, that the conveyance of the Property
contemplated hereby shall be subject to such Loan Documents and the
indebtedness evidenced and/or secured thereby and the Debt Subject to
Amount shall be paid from funds deposited by Buyer which are in addition
to the Acquisition Price);
(p) the original Ground Lessor Consent and Estoppel, executed by
Ground Lessor and dated no more than twenty (20) days prior to the
Closing Date;
(q) Such other documents, instruments, certifications and
confirmations as may be necessary or appropriate to comply with the
provisions of this Agreement or as may be reasonably required and
designated by Title Company to fully effect and consummate the
transactions contemplated hereby;
(r) Such funds as may be required, in addition to funds deposited by
Buyer to (i) discharge all deeds of trusts, mortgages, mechanic's liens,
judgment liens, security interests or encumbrances against the Property
securing any indebtedness or obligations (other than the Permitted Title
Exceptions and the liens created by the Loan Documents), and (b) pay any
amounts required to be paid by Seller in accordance with the provisions
of Article 10; and
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(s) Such other documents and instruments as may be reasonably
requested by the underwriters or their counsel to comply with federal and
state securities law requirements with respect to the issuance of the
Units and/or Common Stock as part of the IPO.
11.3 BUYER'S DELIVERIES. On or before the Closing Date, Buyer shall
deliver or cause to be delivered to Seller or to Escrowee the following
documents, each of which shall be in form and substance reasonably acceptable
to Seller:
(a) Two (2) counterpart originals of the Assignment of Licenses,
Permits and Warranties, executed by Buyer;
(b) Two (2) counterpart originals of the Property Lease, executed by
Buyer as sublessor;
(c) An ALTA statement or other affidavit in form required by the
Title Company in order to issue the Title Policy required hereunder;
(d) Buyer's certificate dated as of the Closing Date confirming the
representations and warranties of Buyer under Section 6.2 hereof and, if
applicable, describing any change in facts or circumstances which would
make any of such representations or warranties untrue as of the Closing
Date;
(e) The Acquisition Price consideration required hereunder plus
funds sufficient to pay the Debt Subject to Amount;
(f) Any required state, county and municipal transfer declarations;
(g) Such other documents, instrument, certifications and
confirmations as may be necessary or appropriate to comply with the
provisions of this Agreement or as may be reasonably required and
designated by Title Company to fully effect and consummate the
transactions contemplated hereby; and
(h) Funds sufficient to pay all amounts required to be paid by Buyer
in accordance with the provisions of Article 10.
11.4 CONCURRENT DELIVERIES. Seller and Buyer shall jointly deposit in the
escrow or deliver to each other at or before Closing an agreed settlement
statement duly executed by the respective parties.
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11.5 CONCURRENT TRANSACTIONS. All documents or other deliveries required
to be made by Buyer or Seller at Closing, and all transactions required to be
consummated concurrently with all other transactions and all other deliveries,
and no delivery shall be deemed to have been made, and no transaction shall be
deemed to have been consummated, until all deliveries required by Buyer, or its
nominee, and Seller shall have been made, and all concurrent or other
transactions shall have been consummated.
11.6 NEW YORK STYLE CLOSING. At the request of either party, the
transaction shall be closed by means of a so-called "New York Style Closing,"
with the concurrent delivery of documents of title, transfer of interest,
delivery of the Title Policy (or "marked-up" title commitment as described
herein) and payment of the Acquisition Price. Seller shall provide any
undertaking to the Title Company necessary for the New York Style Closing to
occur.
11.7 EMPLOYEES AND LEASING COMMISSIONS. Seller's employees shall be the
sole responsibility and expense of the Seller. Seller agrees that Buyer shall
have no responsibility for any unpaid leasing fee or commission is due any
party in connection with any Contract and that Seller will not look to Buyer for
any payment for services, commissions or fees in connection with the operation
of the Property performed or incurred prior to the Closing Date. Seller shall
indemnify, defend and hold Buyer harmless from and against any and all damages,
liabilities, costs and expenses (including attorneys' fees and other litigation
expense) arising from any claim by any person for any leasing fee or commission
in connection with any Contract, or any claim by any employee employed by Seller
in the operation of the Property.
11.8 LOAN PAYOFF. Seller and Buyer shall direct Escrowee (i) to pay all
of the loan evidenced and/or secured by the Loan Documents, in accordance with
the payoff letter(s) deposited by Seller, with the funds deposited by Buyer
pursuant to Section 11.3(e) above, and (ii) to satisfy or remove from the Title
Policy the lien of the Loan Documents.
ARTICLE 12
INDEMNIFICATION
12.1 SELLER'S INDEMNITY. Seller hereby agrees to indemnify, defend and
hold harmless Buyer, and its partners, members, officers, shareholders,
directors, employees and agents (collectively, the "BUYER INDEMNIFIED PARTIES")
from and against any and all losses, liabilities, fines and penalties and
damages (including, without limitation, any damages or injury to persons,
property or the environment as provided hereunder), or actions or claims in
respect thereof (including, without limitation, amounts paid in settlement and
reasonable cost of investigation, reasonable attorneys' fees and other legal
expenses), resulting from third party claims (based upon the allegations set
forth in such claims and whether or not ultimately successful) to which Buyer
and/or the other Buyer Indemnified Parties may become subject or which Buyer
and/or
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the other Buyer Indemnified Parties may suffer or incur, either directly or
indirectly, insofar as such losses, liabilities or damages (or actions or
claims in respect thereof) arise out of, are with respect to, or are based
upon:
(i) Seller's breach of any representation or warranty set
forth in this Agreement;
(ii) Seller's default in the performance of any of Seller's
covenants set forth in this Agreement;
(iii) Seller's failure to satisfy and discharge any and all
obligations of Seller under the Ground Lease, the Loan Documents or
any Contracts to which Seller is bound which obligations relate to
any time period prior to the Closing;
(iv) Seller's failure to fully satisfy and discharge any and
all obligations of Seller regarding any current or former employees
of Seller including, without limitation, any obligations of Seller
for the payment of wages, salaries, benefits and other
compensation;
(v) Any obligations, liabilities or charges of Seller not
expressly assumed by Buyer; or
(vi) The operation and management of the Property (including
any liabilities incurred with respect thereto) at any time on or
prior to the Closing Date.
12.2 BUYER'S INDEMNITY. Buyer hereby agrees to indemnify, defend and hold
Seller and the other Seller Indemnified Parties harmless from and against any
and all losses, liabilities, fines and penalties and damages (including,
without limitation, any damages or injury to persons, property or the
environment as provided hereunder), or actions or claims with respect thereto,
except for liabilities specifically assumed or retained by Seller pursuant to
the terms of this Agreement (including, without limitation, amounts paid in
settlement and reasonable costs of investigation, reasonable attorneys' fees
and other legal expenses) resulting from third party claims (based upon the
allegations set forth in such claims whether or not ultimately successful) to
which Seller and/or the other Seller Indemnified Parties may become subject or
which Seller and/or the other Seller Indemnified Parties may suffer or incur,
either directly or indirectly, insofar as such losses, liabilities or damages
(or actions or claims in respect thereof) arise out of, are with respect to, or
are based upon:
(i) Buyer's breach of any representation or warranty set forth
in this Agreement or a breach of any covenant of Buyer contained
herein;
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(ii) any obligations, liabilities or charges of Seller that
are expressly assumed by Buyer and that are not the Lessee's
obligations, liabilities or charges under the Property Lease; or
(iii) the operation and management of the Property (including
any liabilities incurred with respect thereto) at any time after
the Closing Date.
12.3 INDEMNIFICATION CLAIMS.
(a) Any claim for indemnification under this Agreement must be
asserted in writing by the Seller Indemnified Party or the Buyer
Indemnified Party, as the case may be, stating the nature of the losses
and the basis for the indemnification therefor within one (1) year from
the Closing Date [(i.e., meaning that the Seller Indemnified Party or the
Buyer Indemnified Party, as the case may be, must give a detailed notice
to the indemnifying party hereunder of such claim on or before the first
to occur of (A) sixty (60) days after the Seller Indemnified Party or the
Buyer Indemnified Party, as the case may be, first becomes aware of the
matter giving rise to such claim for indemnification, and (B) the four
hundred twenty-fifth (425th) day following the Closing Date (being one
year plus sixty (60) days) and if the indemnifying party hereunder
disputes or fails to satisfy its indemnity obligation therefor, the
Seller Indemnified Party or the Buyer Indemnified Party, as the case may
be, must commence, and serve the indemnifying party hereunder in, a legal
action on such claim no later than the five hundred forty-eighth (548th)
day following the Closing Date]; provided, however, that the foregoing
shall not limit any survival period hereunder which expressly exceeds one
(1) year.
(b) As soon as reasonably practicable after receipt by the party
seeking indemnification of notice of any liability or claim incurred by
or asserted against such party that is subject to indemnification under
this Agreement, the Seller Indemnified Party or Buyer Indemnified Party,
as the case may be, shall give notice thereof to the applicable
indemnifying party (i.e., Seller or Buyer, as the case may be), including
liabilities or claims to be applied against the indemnification threshold
established pursuant to this Section. The Seller Indemnified Party or
the Buyer Indemnified Party, as the case may be, may at its option demand
indemnity under this Section as soon as a claim has been threatened by a
third party, regardless of whether any actual losses have been suffered,
so long as such indemnified party shall in good faith determine that such
claim is not frivolous and that the indemnified party may be liable for,
or otherwise incur, losses as a result thereof and shall give notice of
such determination to the indemnifying party. The indemnified party
shall permit the indemnifying party, at its option and expense, to assume
the defense of any such claim by counsel selected by the indemnifying
party and reasonably satisfactory to the indemnified party, and to settle
or otherwise dispose of the same; provided, however, that the indemnified
party may at all times participate in such defense at its expense; and
provided further, however, that the
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indemnifying party shall not, in defense of any such claim, except with
the prior written consent of the indemnified party in its sole and
absolute discretion, consent to the entry of any judgment or enter into
any settlement that does not include as an unconditional term thereof the
giving by the claimant or plaintiff in question to the indemnified party
and its affiliates a release of all liabilities in respect of such
claims, or that does not result only in the payment of money damages
(which money damages shall thereafter be paid by the indemnifying party
hereunder). If the indemnifying party shall fail to undertake such
defense within thirty (30) days after such notice, or within such shorter
time as may be reasonable under the circumstances, then the indemnified
party shall have the right to undertake the defense, compromise or
settlement of such liability or claim on behalf of and for the account of
the indemnifying party.
12.4 LIMITATION. Notwithstanding anything to the contrary contained in
this Article 12, Seller's maximum liability for all indemnification obligations
under Section 12.1 above shall not exceed the sum of (a) the total value of the
Property, based upon the Units given as consideration, plus (b) the total value
of all other Units received by Seller and/or its affiliates pursuant to the
Other Contribution/Conversion Agreements.
ARTICLE 13
DEFAULT
13.1 BUYER DEFAULT. Notwithstanding anything to the contrary contained in
this Agreement, if (a) Buyer has not terminated this Agreement in accordance
with its terms prior to the expiration of the Contingency Period; (b) the sale
of the Property to Buyer is not consummated due to Buyer's failure to perform
any act required of Buyer hereunder, and (c) all of the conditions precedent to
Buyer's obligation to close have been satisfied or waived by Buyer, then Seller
shall execute and deliver to Buyer written notice of such breach, which notice
shall set forth complete information above the nature of the breach. Buyer
shall have a period of three (3) business days to cure such breach. If such
breach remains uncured beyond the three (3) business day period described
above, then, as Seller's sole and exclusive remedy in lieu of all other legal
or equitable remedies shall be either: (i) to cancel this Agreement, in which
event Seller shall have the right to recover from Buyer all of Seller's actual,
reasonable out-of-pocket third party costs, fees and expenses incurred in
connection with this transaction, or (ii) to specifically enforce the
provisions of this Agreement. Nothing herein shall be deemed to limit, in any
manner, Buyer's indemnity obligations described in Section 12.2 hereof.
13.2 SELLER DEFAULT. Notwithstanding anything to the contrary contained
in this Agreement, if Seller fails to perform any act required of Seller
hereunder, or otherwise is in breach of any of its representations or
warranties hereunder, then Buyer shall execute and deliver to Seller written
notice of such default or breach, which notice shall set forth complete
information about the nature of the default or breach. Seller shall have a
period of three (3)
44
<PAGE> 49
business days to cure such default or breach. If such default or breach
remains uncured beyond the three (3) business day period described above, then
Buyer's sole and exclusive remedy, in lieu of any and all other remedies at law
or in equity shall be either: (i) to cancel this Agreement, in which event
Buyer shall have the right to recover from Seller all of Buyer's actual,
reasonable out-of-pocket third party costs, fees and expenses incurred in
connection with this transaction, or (ii) to specifically enforce the
provisions of this Agreement. Nothing herein shall be deemed to limit, in any
manner, Seller's indemnity obligations described in Section 12.1 hereof.
ARTICLE 14
BROKERAGE
14.1 BROKERAGE. Seller hereby represents and warrants to Buyer that
Seller has not dealt with any broker or finder with respect to the transaction
contemplated hereby and Seller hereby agrees to indemnify, defend and hold
harmless Buyer for any claim for brokerage commission or finder's fee asserted
by any person, firm or corporation claiming to have been engaged by Seller.
Buyer hereby represents and warrants to Seller that Buyer has not dealt with
any broker or finder in respect to the transaction contemplated hereby and
Buyer hereby agrees to indemnify, defend and hold harmless Seller for any claim
for brokerage commission or finder's fee asserted by a person, firm or
corporation claiming to have been engaged by Buyer.
ARTICLE 15
NOTICES
15.1 NOTICES. Any notice, request, demand, instruction or other document
to be given or served hereunder or under any document or instrument executed
pursuant hereto shall be in writing and shall be delivered personally, or
transmitted by facsimile (provided that the original thereof together with the
facsimile confirmation sheet shall thereafter be promptly sent by regular
United States Mail), or sent by United States registered or certified mail,
return receipt requested, or sent by overnight express courier, postage
prepaid, and shall be addressed to the parties at their respective addresses
set forth below, and the same shall be effective upon receipt if delivered
personally, or two (2) business days after deposit in the mails, if mailed as
aforesaid, or one (1) business day after deposit with an overnight express
courier, or immediately upon being sent by facsimile transmission. A party may
change its address for receipt of notices by service of a notice of such change
in accordance herewith.
45
<PAGE> 50
If to Buyer: APGM Limited Partnership
c/o Arnold Palmer Golf Management LLC
Building 106, Montgomery Street
Presidio Main Post, P.O. Box 29355
San Francisco, California 94129
Attn: Mr. Peter Nanula
Facsimile: 415/561-4680
with a copy to: Rudnick & Wolfe
203 North LaSalle Street, Suite 1800
Chicago, Illinois 60601
Attn: Edward S. Goldman, Esq.
Facsimile: 312/630-5321
If to Seller: Arnold Palmer Golf Management LLC
Building 106, Montgomery Street
Presidio Main Post, P.O. Box 29355
San Francisco, California 94129
Attn: Mr. George Haworth
Facsimile: 415/561-4680
ARTICLE 16
ADDITIONAL COVENANTS
16.1 ENTIRE AGREEMENT, AMENDMENTS AND WAIVERS. This Agreement, together
with the Property Lease, contains the entire agreement and understanding of the
parties with respect to the subject matter hereof, and the same may not be
amended, modified or discharged nor may any of its terms be waived except by an
instrument in writing signed by the party to be bound thereby.
16.2 FURTHER ASSURANCES. The parties each agree to do, execute,
acknowledge and deliver all such further acts, instruments and assurances and
to take all such further action before or after the closing as shall be
necessary or desirable to fully carry out this Agreement and to fully
consummate and effect the transactions contemplated hereby.
16.3 SURVIVAL AND BENEFIT. All agreements, obligations and indemnities of
the parties shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Except as otherwise expressly set forth
herein, all representations, warranties and indemnities shall survive Closing
for a period of one (1) year.
46
<PAGE> 51
16.4 NO THIRD PARTY BENEFITS. This Agreement is for the sole and
exclusive benefit of the parties hereto and their respective successors and
assigns, and no third party is intended to or shall have any rights hereunder.
16.5 BUYER'S INVESTIGATION AND INSPECTIONS. Any investigation or
inspection conducted by Buyer, or any agent or representative of Buyer,
pursuant to this Agreement, in order to verify independently Seller's
satisfaction of any conditions precedent to Buyer's obligations hereunder or to
determine whether Seller's warranties are true and accurate, shall not affect,
or constitute a waiver by Buyer of, any of Seller's obligations hereunder or
Buyer's reliance thereon.
16.6 INTERPRETATION. The headings and captions herein are inserted for
convenient reference only and the same shall not limit or construe the
paragraphs or Sections to which they apply or otherwise affect the
interpretation hereof. This Agreement and any document or instrument executed
pursuant hereto may be executed in any number of counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument. Whenever under the terms of this Agreement the time for
performance of a covenant or condition falls upon a Saturday, Sunday or holiday,
such time for performance shall be extended to the next business day. Otherwise
all references herein to "DAYS" shall mean calendar days. Time is of the
essence of this Agreement.
16.7 GOVERNING LAW. With respect to general issues regarding enforcement
of this Agreement, this Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois. With respect to specific
issues relating to the particular golf course property, the laws of the State
where the Real Property is located shall govern and control.
16.8 ATTORNEYS' FEES. In any action or proceeding involving this
Agreement or the contents hereof, the prevailing party shall be entitled to
recover from the other party the prevailing party's reasonable costs and
expenses in such action or proceeding, including reasonable attorneys' fees.
16.9 ASSIGNMENT. Seller shall not have the right to assign this
Agreement, or any interest herein, to any other person or entity, without first
having obtained the prior written consent of Buyer (which consent may be
withheld at Buyer's sole and exclusive discretion). Buyer shall have the right
to assign this Agreement, or any interest herein, to any other party, provided
that in such instance the assignee shall assume all of the rights and
obligations of Buyer hereunder, and provided that the original named Buyer
shall continue to be responsible for all of "Buyer's" obligations hereunder.
Buyer shall have the right to designate a nominee, at closing, to which title
to the Property (or any portion thereof) shall be conveyed, marked as attached.
16.10 INTENTIONALLY OMITTED.
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<PAGE> 52
16.11 OFFER AND ACCEPTANCE. Delivery by Buyer to Seller of a copy of this
Agreement executed by Buyer shall constitute an offer to purchase the Property
upon the terms and conditions herein set forth which shall be effective for a
period of seventy-two (72) hours following the time of such delivery. If
Seller fails to deliver a fully executed counterpart of this Agreement to Buyer
prior to expiration of such seventy-two (72) hour period, then at Buyer's sole
option, said offer may be revoked and rescinded in its entirety at any time
thereafter, and upon such revocation and rescission, said offer and this
Agreement shall have no further force or effect.
ARTICLE 17
COMPLIANCE WITH BULK SALES ACTS
17.1 Each party hereto waives compliance with the requirements of any and
all bulk sales regulations of any of the applicable jurisdictions in which the
Property is located (the "BULK SALES LAWS"). Notwithstanding the foregoing,
Seller shall indemnify, defend and hold harmless Buyer and Buyer's constituent
partners from and against any and all costs, expenses, damages, fines,
penalties, claims, suits or proceedings arising under any and all applicable
Bulk Sales Laws by reason of the transactions hereunder (which indemnity shall
expressly survive the Closing of this transaction hereunder for the longest
period permitted by applicable law and which indemnity shall not be subject to
any limitations on Buyer's ability to make claims or to seek recovery as may
otherwise be provided hereunder).
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<PAGE> 53
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
BUYER:
APGM LIMITED PARTNERSHIP, a
Delaware limited partnership
By: PALMER MANAGEMENT, LLC, a
Delaware limited liability company,
its general partner
By: ARNOLD PALMER GOLF MANAGEMENT LLC,
a Delaware limited liability company,
its managing member
By: /s/ George T. Haworth
--------------------------------
Name: George T. Haworth
Its: CFO, Secretary & Treasurer
SELLER:
ARNOLD PALMER GOLF MANAGEMENT LLC,
a Delaware limited liability company
By: /s/ Peter J. Nanula
----------------------------------------------
Name: Peter J. Nanula
--------------------------------------------
Its: President
--------------------------------------------
49
<PAGE> 1
EXHIBIT 10.13
CONTRIBUTION AGREEMENT
by and between
CROFTON GOLF, LLC
a Delaware limited liability company
as Seller,
and
APGM LIMITED PARTNERSHIP,
a Delaware limited partnership
as Buyer
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
ARTICLE PAGE
- ------- ----
<S> <C> <C>
1 DEFINITIONS ........................................................... 1
1.1 Definitions ...................................................... 1
2 CONTRIBUTION; LEASE-BACK .............................................. 9
2.1 Contribution ..................................................... 9
2.2 Property Lease ................................................... 10
2.3 Independent Consideration ........................................ 11
3 DEPOSIT AND ACQUISITION PRICE ......................................... 11
3.1 Acquisition Price. ............................................... 11
3.2 Determination of Number of Units ................................. 11
3.3 Accredited Investors ............................................. 12
3.4 Prospectus ....................................................... 12
3.5 Closing Escrow ................................................... 13
3.6 Federal Income Tax Consequences of Transaction ................... 13
4 TITLE, SURVEY AND SEARCHES ............................................ 13
4.1 Title ............................................................ 13
4.2 Survey ........................................................... 14
4.3 Searches ......................................................... 15
5 DUE DILIGENCE ......................................................... 15
5.1 Due Diligence Materials........................................... 15
5.2 Inspection ....................................................... 16
5.3 Due Diligence Termination ........................................ 17
6 REPRESENTATIONS AND WARRANTIES ........................................ 17
6.1 Representation and Warranties of Seller .......................... 17
6.2 Representations and Warranties of Buyer .......................... 26
6.3 Change In Circumstance ........................................... 27
7 SELLER'S COVENANTS .................................................... 28
7.1 Covenants ........................................................ 28
8 CONDITIONS PRECEDENT .................................................. 32
8.1 Conditions Precedent to the Obligations of Buyer ................. 32
8.2 Conditions Precedent to the Obligations of Seller ................ 33
9 DESTRUCTION, DAMAGE OR CONDEMNATION ................................... 33
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C> <C>
9.1 Destruction or Damage ............................................ 33
9.2 Condemnation ..................................................... 34
10 POSSESSION, PRORATIONS AND CLOSING COSTS .............................. 34
10.1 Possession ....................................................... 34
10.2 Prorations ....................................................... 34
10.3 Closing Costs .................................................... 35
11 CLOSING ............................................................... 36
11.1 Time and Place ................................................... 36
11.2 Seller's Deliveries .............................................. 36
11.3 Buyer's Deliveries ............................................... 38
11.4 Concurrent Deliveries ............................................ 38
11.5 Concurrent Transactions .......................................... 39
11.6 New York Style Closing ........................................... 39
11.7 Employees and Leasing Commissions ................................ 39
12 INDEMNIFICATION ....................................................... 39
12.1 Seller's Indemnity ............................................... 39
12.2 Buyer's Indemnity ................................................ 40
12.3 Indemnification Claims ........................................... 41
12.4 Limitation ....................................................... 42
13 DEFAULT ............................................................... 42
13.1 Buyer Default .................................................... 42
13.2 Seller Default ................................................... 42
14 BROKERAGE ............................................................. 43
14.1 Brokerage ........................................................ 43
15 NOTICES ............................................................... 43
15.1 Notices .......................................................... 43
16 ADDITIONAL COVENANTS .................................................. 44
16.1 Entire Agreement, Amendments and Waivers ......................... 44
16.2 Further Assurances ............................................... 44
16.3 Survival and Benefit ............................................. 44
16.4 No Third Party Benefits .......................................... 45
16.5 Buyer's Investigation and Inspections ............................ 45
16.6 Interpretation ................................................... 45
16.7 Governing Law .................................................... 45
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C> <C>
16.8 Attorneys' Fees ................................................. 45
16.9 Assignment ...................................................... 45
16.10 Intentionally Omitted ........................................... 45
16.11 Offer and Acceptance ............................................ 46
17 COMPLIANCE WITH BULK SALES ACTS ....................................... 46
LIST OF EXHIBITS
EXHIBIT A - Legal Description of Real Property
EXHIBIT B - Due Diligence Materials
EXHIBIT C - Material Contracts
EXHIBIT D-1 - List of Licenses and Permits
EXHIBIT D-2 - Operating Permits
EXHIBIT E - List of Personal Property
EXHIBIT F - List of Members
EXHIBIT G - List of Seller's Environmental Reports and Engineering Reports
EXHIBIT H - Litigation
EXHIBIT I - Assignment of Licenses, Permits and Warranties
EXHIBIT J - Bill of Sale
EXHIBIT K - Trade Names and Trademarks
EXHIBIT L - Waste Disposal Activities
EXHIBIT M - Property Lease
EXHIBIT N - Wetlands Description
EXHIBIT O - Ground Lease
EXHIBIT P - Ground Lessor Consent and Estoppel
EXHIBIT Q - Loan Documents
EXHIBIT R - Other Contribution/Conversion Agreements
</TABLE>
iii
<PAGE> 5
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT is made and entered into as of May 14, 1998,
by and between CROFTON GOLF, LLC, a Delaware limited liability company
("SELLER"), and APGM LIMITED PARTNERSHIP, a Delaware limited partnership
("BUYER").
RECITALS
A. Seller is the sole holder of the Ground Leasehold Estate under the
Ground Lease (as such terms are hereinafter defined), and the fee owner of the
Improvements (as hereinafter defined) comprising an eighteen (18) hole golf
course property commonly known as Crofton Country Club, located in Crofton,
Maryland; and Seller has certain right, title and interest in and to the
Personal Property, the Inventory, the Permitted Contracts, the Licenses and
Permits, the Trade Names and Trademarks and the Warranties (as such terms are
hereinafter defined).
B. Seller and its principals are in the process of sponsoring a real
estate investment trust ("REIT"), the shares of which will be offered to the
public pursuant to an initial public offering (the "IPO") of shares of common
stock ("COMMON STOCK"). As part of the IPO, it is contemplated that (i)the
REIT will become the managing general partner of Buyer, (ii) the limited
partnership interests in Buyer shall be divided into units ("UNITS"), each of
which Units shall have substantially the same economic attributes as a share of
Common Stock in the REIT, and (iii) the holders of Units will have the right to
exchange Units for Common Stock (on a one Unit for one share of Common Stock
basis), subject to the restrictions and limitations which will be established
by an amended and restated partnership agreement of Buyer and the
organizational documents for the REIT which are in effect as of the
consummation of the date of the IPO.
C. In connection with the IPO, Seller desires to sell, assign, transfer or
otherwise contribute, and Buyer desires to acquire, the Property (as
hereinafter defined) upon and subject to the terms and conditions hereinafter
set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Seller and Buyer
agree as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS. When used herein, the following terms shall have the
respective meanings set forth opposite each such term:
(a) ACQUISITION PRICE. As defined in Section 3.1.
<PAGE> 6
(b) AGREEMENT. This Contribution Agreement, including the Exhibits
attached hereto which are by this reference incorporated herein and made
a part hereof.
(c) ALLOCABLE TRANSACTION EXPENSES. The portion of the Transaction
Expenses allocable to the Property, determined as of the IPO by
multiplying the Transaction Expenses by the Applicable Percentage.
(d) APPLICABLE PERCENTAGE. The percentage derived by dividing (i)
the Gross Lease Revenue by (ii) the total Rental Income, as stated in the
Statement of Operations Data schedule in the Selected Financial Data
section of the Last Red.
(e) ASSIGNMENT. That certain recordable Assignment of Lessee's
interest in Ground Lease to be delivered to Buyer at Closing, assigning
to Buyer or Buyer's designee all of Seller's right, title and interest
in, to and under the Ground Lease and with respect to the Ground
Leasehold Estate, and containing warranties relative to Seller's right,
title and interest in and to the Ground Leasehold Estate, free and clear
of all liens, claims, encumbrances and restrictions of every kind, nature
and description, subject only to the Permitted Title Exceptions.
(f) BULK SALES LAWS. As defined in Section 17.1.
(g) BUYER INDEMNIFIED PARTIES. As defined in Section 12.1.
(h) BUYER'S INDEMNITY. As defined in Section 12.1.
(i) BUYER'S REPRESENTATIVES. As defined in Section 5.2.
(j) CASH AVAILABLE FOR DISTRIBUTION. As defined in Section 3.2.
(k) CASH ACQUISITION PRICE. As defined in Section 3.1.
(l) CLOSING. The closing of the sale and purchase transaction
contemplated by this Agreement, as described in Article 11 of this
Agreement.
(m) CLOSING DATE. The date of closing determined pursuant to
Section 11.1 of this Agreement.
(n) CODE. As defined in Section 3.6.
(o) COMMON STOCK. As defined in the Recitals hereto.
(p) CONTINGENCY PERIOD. The period beginning on the Contract Date
and ending at 5:00 p.m., Pacific Time, on the last to occur of (i) the
sixtieth (60th) day following the Contract Date or (ii) the forty-fifth
(45th) day following receipt by Buyer
2
<PAGE> 7
of all Required Due Diligence Materials. Seller shall certify in
writing to Buyer when Seller believes it has delivered all Required Due
Diligence Materials. Within three (3) business days after receipt of such
certification, Buyer shall furnish to Seller a list of any Required Due
Diligence Materials which Buyer has not received. Seller shall then
either deliver such items or certify that such items are not available.
Upon such final delivery or certification, the forty-five (45) day period
shall commence.
(q) CONTRACT DATE. The date Seller delivers to Buyer an original,
fully executed counterpart of this Agreement, which date shall be set
forth in the introductory paragraph of this Agreement.
(r) CONTRACTS. All written or oral: (i) insurance, management,
leasing, service, maintenance, operating, repair, collective bargaining,
employment, employee benefit, severance, franchise, licensing, supply,
purchase, consulting, professional service, advertising, promotion, public
relations and other contracts and commitments in any way relating to the
Property or any part thereof, together with all supplements, amendments
and modifications thereto; and (ii) equipment leases and all rights and
options of Seller thereunder, including rights to renew or extend the term
or purchase the leased equipment, entered into by Seller or its
affiliates, relating to equipment or property located in or upon the Real
Property or used in connection therewith, together with all supplements,
amendments and modifications thereto.
(s) DEBT SUBJECT TO AMOUNT. The amount which would be required to
pay off the loan evidenced and/or secured by the Loan Documents, in full,
as of the Closing Date and to extinguish the lien of the Loan Documents at
Closing.
(t) DEED. That certain recordable Quit-Claim Deed to be delivered
by Seller to Buyer, or Buyer's nominee, at the closing conveying all of
Seller's right, title and interest in and to the Land and the
Improvements to Buyer subject only to the Permitted Title Exceptions and
the lien or liens created by the Loan Documents.
(u) DUE DILIGENCE APPROVAL DATE. The last day of the Contingency
Period.
(v) DUE DILIGENCE MATERIALS. As defined in Section 5.1.
(w) ENVIRONMENTAL LAWS. All applicable federal, state and local
statutes, regulations, ordinances, judgments, decrees and rules relating
to (i) the emission, discharge, release or threatened release of a
Hazardous Material into the air, surface water, groundwater or land; (ii)
the manufacturing, processing, use, generation, treatment, storage,
disposal, transportation, handling, removal, remediation or investigation
of a Hazardous Material; or (iii) the protection of human health, safety
or the indoor or outdoor environment, including without limitation, the
Clean Air Act, the Federal Water Pollution Control Act, the Resource
Conservation and Recovery Act, the
3
<PAGE> 8
Comprehensive Environmental Response, Compensation and Liability Act,
the Occupational Safety and Health Act, all amendments thereto, all
regulations promulgated thereunder, and their state or local statutory and
regulatory counterparts.
(x) ESCROWEE. Chicago Title Insurance Company (national office
located at 161 North Clark Street, Chicago, Illinois).
(y) GROSS LEASE REVENUE. The Initial Base Rent (as defined in the
Property Lease) payable in the first (1st) year of the term of the
Property Lease.
(z) GROUND LEASE. The ground lease instrument more particularly
described on Exhibit O.
(aa) GROUND LEASEHOLD ESTATE. All of the ground lessee's right,
title and interest in, to and under the Ground Lease (including all
right, title and interest in and to the Real Property and any other
components comprising the Property inuring to the benefit of the ground
lessee under the Ground Lease).
(ab) GROUND LESSOR. 1691 Limited Partnership, a Maryland limited
partnership, being the ground lessor under the Ground Lease.
(ac) GROUND LESSOR CONSENT AND ESTOPPEL. As defined in Section
7.1(o).
(ad) HAZARDOUS MATERIAL. Any solid, liquid or gaseous substance,
chemical, compound, product, byproduct, waste or material that is or
becomes regulated, defined or designated by any applicable federal, state
or local governmental authority or by any Environmental Law as hazardous,
extremely hazardous, imminently hazardous, dangerous or toxic, or as a
pollutant or contaminant, and shall include, without limitation, asbestos,
asbestos-containing materials, polychlorinated biphenyls, and oil,
petroleum, petroleum products and petroleum byproducts.
(ae) IMPROVEMENTS. Any and all buildings and improvements located
on the Land, including the following:
Clubhouse complex, together with driving range, tennis
courts, a swimming pool, paved parking and access
areas, utility improvements and landscaped areas.
Improvements shall include any and all cart paths, tees, greens, holding
ponds, water wells, effluent systems, irrigation lines, drainage
facilities, pump stations, cart barns, entrance signage and pavilions
located on the Land.
(af) INSPECTIONS. As defined in Section 5.2.
4
<PAGE> 9
(ag) IPO. As defined in the Recitals hereto.
(ah) IPO CONDITION. As defined in Section 8.3.
(ai) IPO PERIOD. As defined in Section 8.3.
(aj) INVENTORY. Any and all maintenance facility inventory and all
other inventory of goods owned by Seller and held for resale in connection
with Seller's operation of the subject Property including, without
limitation, golf equipment and golf related goods sold in the pro shops
and food and beverage items sold at the clubhouse facilities and elsewhere
throughout each golf course.
(ak) LAND. The land legally described on Exhibit A attached hereto
and incorporated herein by this reference, and generally described as
follows:
Approximately _____ acres of land located in Crofton, Anne Arundel
County, Maryland.
(al) LAST RED. The last preliminary prospectus included as part of
the registration statement filed with the U.S. Securities Exchange
Commission with respect to the IPO which is circulated to investors
generally.
(am) LEGAL REQUIREMENTS. All laws, statutes, codes, acts,
ordinances, orders, judgments, decrees, injunctions, rules, regulations,
permits, licenses, authorizations, orders, directions and requirements of
all governments and governmental authorities having jurisdiction of the
Property (including, for purposes hereof, any local Board of Fire
Underwriters), and the operation thereof, and all deed restrictions or
other covenants, restrictions, or agreements, site plan approvals, zoning
or subdivision regulations and urban redevelopment plans governing or
regulating the use or operation of the Property.
(an) LESSEE. Seller, Arnold Palmer Golf Management, LLC, any
wholly owned affiliate of either such party, or any other affiliate of
Seller as may be designated by Seller in a written notice thereof
delivered to Buyer no later than thirty (30) days following the Contract
Date (which other affiliate shall, in any event, be subject to the
reasonable approval of Buyer as more particularly described in Section
2.2 hereof).
(ao) LESSEE PROPERTY. Collectively, the Inventory, the Membership
Agreements, the Contracts and the Operating Permits.
(ap) LICENSE AGREEMENT. That certain License Agreement dated
September 15, 1993 between Arnold Palmer Enterprises, Inc., Pacific Golf,
Inc. and Arnold Palmer
5
<PAGE> 10
Golf Management Company, as amended by an Amendment dated May 16, 1996,
and as further amended and/or assigned from time to time.
(aq) LICENSES AND PERMITS. All (i) licenses, permits, franchises,
certifications, authorizations, approvals, certificates of occupancy and
entitlements issued, approved or granted by any governmental authority or
body having jurisdiction over the Property and relating to the operation,
ownership or maintenance of the Property or any part thereof; (ii)
development rights in any way related to or used in connection with the
Property and its operations; and (iii) licenses, certifications,
authorizations, approvals, easements and rights of way required from
private parties to make use of utilities and to insure vehicular and
pedestrian ingress and egress to the Real Property; provided that the term
"Licenses and Permits" shall not include Operating Permits.
(ar) LOAN DOCUMENTS. All loan agreements, notes, mortgages,
deeds of trust, assignments, guarantees, indemnitees and other instruments
evidencing, securing, guarantying or otherwise relating to any mortgage or
secured financing encumbering the Ground Leasehold Estate and/or Seller's
right, title and interest in and to the Real Property.
(as) MEMBERSHIP AGREEMENTS. As defined in Section 6.1(h).
(at) MID-POINT PRICE. The mid-point between the high and low
anticipated initial public gross offering price per share for the Common
Stock, as set forth in the Last Red.
(au) MONETARY LIENS. As defined in Section 4.1.
(av) OFFERING MULTIPLE. Mid-Point Price divided by a fraction, the
numerator of which is the Pro Forma Funds From Operations and the
denominator of which is the total number of shares of Common Stock issued
by the REIT and Units issued by Buyer as of the IPO (as shown in the Last
Red under the section entitled "Dilution").
(aw) OPERATING PERMITS. All licenses, permits and other
authorizations or approvals granted by any governmental authority or
other body having jurisdiction over the Property which relate solely to
the business operations currently being conducted at the Property (e.g.
liquor licenses, restaurant permits and licenses and health spa licenses)
and which would remain in full force and effect if held by Seller or its
affiliates as the subtenant of the Property pursuant to the Property
Lease.
(ax) OTHER CONTRIBUTION/CONVERSION AGREEMENTS. Those certain
agreements described in Exhibit R hereto.
6
<PAGE> 11
(ay) PERMITTED TITLE EXCEPTIONS. Those exceptions to title to the
Property approved or deemed approved by Buyer pursuant to Article 4
hereof.
(az) PERSONAL PROPERTY. All machinery, vehicles, spare parts,
supplies, equipment, fixtures, furnishings and other tangible personal
property of every kind and character (excluding, however, the Inventory)
owned by Seller and situated in or upon or used in connection with the
operation or maintenance of the Real Property or any part thereof, and
all replacements, additions or accessories thereto between the Contract
Date and the Closing Date, and all trademarks and other intangible
personal property of every kind and character owned by Seller and used in
connection with the operation of the subject golf course (except as
otherwise described in the definition of Trade Names and Trademarks
hereinbelow).
(ba) PHASE I STUDY. As defined in Section 5.2.
(bb) PRO FORMA FUNDS FROM OPERATIONS. The Pro Forma Funds from
Operations amount set forth in the "Estimated Cash Available for
Distribution" footnote calculation in the Selected Financial Data section
of the Last Red.
(bc) PROPERTY. Collectively, the Ground Leasehold Estate, the
Personal Property, the Licenses and Permits, the Trade Names and
Trademarks, the Warranties and Seller's interest in and to the balance of
the Real Property and all tangible and intangible assets arising out of
or relating to the foregoing (excluding, however, the Lessee Property
described herein).
(bd) PROPERTY LEASE. As defined in Section 2.2.
(be) PROSPECTUS. As defined in Section 3.4.
(bf) REAL PROPERTY. The Land and the Improvements, together with
all improvements thereon or therein (including all replacements or
additions thereto between the Contract Date and the Closing Date); all
systems, facilities, fixtures, machinery, equipment and conduits to
provide fire protection, security, heat, exhaust, ventilation,
air-conditioning, electrical power, light, plumbing, refrigeration, gas,
sewer and water to the Land and Improvements (including all replacements
or additions thereto between the Contract Date and the Closing Date); all
privileges, rights (including water rights), easements, hereditaments and
appurtenances thereto belonging; and all right, title and interest of
Seller in and to any streets, alleys, passages and other rights-of-way
included therein or adjacent thereto (before or after any vacation
thereof).
(bg) REIT. As defined in the Recitals hereto.
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(bh) REQUIRED DUE DILIGENCE MATERIALS. The documents and other
materials listed on Exhibit B attached hereto and by this referenced
incorporated herein.
(bi) SEARCHES. As defined in Section 4.3.
(bj) SECURITIES ACT. As defined in Section 3.4.
(bk) SELLER INDEMNIFIED PARTIES. As defined in Section 5.2.
(bl) SELLER'S ENVIRONMENTAL REPORTS. As defined in Section 6.1(u).
(bm) SELLER'S RECEIVABLES. As defined in Section 10.2(b).
(bn) STRUCTURAL REPORT. As defined in Section 5.2.
(bo) SURVEY. A current as-built survey of the Land prepared by a
surveyor licensed by the state in which the Land is located and certified
to Buyer, the Title Company and such other parties as Buyer shall
designate to be prepared in accordance with the current Minimum Standard
Detail Requirements for Land Title Surveys (excluding the requirement for
the placement of monuments) adopted by the American Land Title
Association and American Congress on Surveying and Mapping, setting forth
the legal description and street address of the Land and Improvements and
specifically showing thereon all buildings, and other improvements
(including fences, tees, fairways, greens, traps, cart paths, pumping
facilities, holding ponds and golf course facilities), the number of
stories in such buildings, easements (visible or recorded), building
lines, curb cuts, party walls (if any), parking, sewage, water,
electricity, gas and other utility facilities (together with recording
information concerning the documents creating any such easements and
building lines), roads and means of physical and record ingress and
egress to and from the Real Property by public roads and the gross area
of the land included in the Land, and spotting improvements on adjoining
property which are within five (5) feet of the property lines of the
Land. The Survey shall specify and depict ponds, creeks, streams and
rivers and any areas of the Land which are located in a flood plain,
wetlands or other environmentally controlled, regulated or protected
area.
(bp) TITLE COMMITMENT. A commitment for the Title Policy covering
the Land and Improvements issued by the Title Company in favor of Buyer,
or its nominee, in the full amount of the Acquisition Price, showing
Ground Lessor as fee simple title holder of the Land and showing Seller
as the holder of the Ground Leasehold Estate.
(bq) TITLE COMPANY. Chicago Title Insurance Company (national
office, located in Chicago, Illinois).
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(br) TITLE POLICY. An ALTA Leasehold Title Insurance Policy covering
the Land and Improvements issued by the Title Company pursuant to the
Title Commitment, insuring Buyer as the holder of the Ground Leasehold
Estate, specifically containing "extended coverage" insuring over all
general exceptions raised in such form of title policy and containing the
following endorsements (if issued in the jurisdiction of the Real
Property): zoning 3.1, owner's comprehensive, encroachment, contiguity (if
applicable), access, survey, tax parcel, subdivision compliance, and
creditor's rights.
(bs) TRADE NAMES AND TRADEMARKS. All of Seller's rights in and to the
trade names, trademarks, service marks and logos set forth and described
on Exhibit K attached hereto and incorporated herein by reference, and any
and all derivatives and forms thereof, together with all other trade
names, trademarks, service marks and logos, whether or not registered,
pertaining to the current operation of the Real Property, but specifically
excluding any and all trade names, trademarks, service marks and/or logos
inuring to Seller's benefit pursuant to the License Agreement (which
intangibles derived pursuant to the License Agreement shall remain the
property of Seller).
(bt) TRANSACTION EXPENSES. The costs, expenses and fees (exclusive of
underwriters' fees) incurred by Seller, Buyer and/or the REIT directly or
indirectly relating to the planning and formation of the Buyer, the REIT
and other entities required to effect the IPO, as set forth in the
"Proceeds to Company" footnote on cover page of the Last Red. Transaction
Expenses shall not include any costs, expenses and fees that are to be
borne specifically by Seller or Buyer, as the case may be, pursuant to
express provisions of this Agreement.
(bu) UNITS. As defined in the Recitals hereto.
(bv) WARRANTIES. All guarantees and warranties in effect with
respect to the Property or any portion thereof, which, by their terms,
shall survive Closing, including, without limitation, all guarantees and
warranties of contractors, materialmen, manufacturers, mechanics or
suppliers who have been engaged by Seller or any of its agents to furnish
labor, materials, equipment or supplies to all or any portion of the
Property.
ARTICLE 2
CONTRIBUTION; LEASE-BACK
2.1 CONTRIBUTION. Subject to the conditions and on the terms contained in
this Agreement:
(a) Buyer agrees to acquire from Seller, and Seller agrees to sell,
assign, transfer or otherwise contribute to Buyer, all of Seller's right,
title and interest in, to and under the Ground Lease and with respect to
the Ground Leasehold Estate, free and clear
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of all liens, claims, encumbrances and restrictions of every kind and
description, except for Permitted Title Exceptions and liens created by
the Loan Documents, which assignment shall be made by the Assignment.
(b) Buyer agrees to acquire from Seller, and Seller agrees to sell,
assign, transfer or otherwise contribute to Buyer, (i) all of Seller's
right, title and interest in the Land and Improvements by the Deed, and
(ii) all of Seller's right, title and interest in the balance of the Real
Property.
(c) Buyer agrees to acquire from Seller, and Seller agrees to sell,
assign, convey, transfer or otherwise contribute to Buyer, all of Seller's
right, title and interest in and to the following items, free and clear of
all liens, claims, encumbrances and restrictions of every kind and
description, except for Permitted Title Exceptions and liens created by
the Loan Documents: (i) the Licenses and Permits, and (ii) the Warranties.
(d) Buyer agrees to purchase and acquire from Seller, and Seller
agrees to sell, convey, assign, transfer or otherwise contribute to Buyer,
(i) the Personal Property, (excluding, however, the Inventory, which is
hereby acknowledged not to be part of the Property being conveyed
hereunder), and (ii) the Trade Names and Trademarks, by good and
sufficient bill of sale containing full warranties of title free and
clear of liens, claims, encumbrances and restrictions of every kind
and description, except the Permitted Title Exceptions and liens created
by the Loan Documents.
(e) Nothing herein shall be deemed to be an agreement of Buyer to
engage, or otherwise be responsible for, any employees of Seller, (it
being understood that Buyer's acquisition of the Property hereunder shall
not be deemed an acquisition of any of Seller's business operations
currently being conducted at the Real Property), which business operations
shall continue to be conducted by the Lessee pursuant to the terms of the
Property Lease described in Section 2.2 below. Moreover, except as
specifically provided herein to the contrary, Buyer shall not assume, or
become obligated with respect to, any liability or obligation of Seller.
2.2 PROPERTY LEASE. Notwithstanding anything herein to the contrary, it
is understood and agreed that Buyer (or any affiliate thereof acquiring the
Property hereunder at Closing), as lessor, and Lessee, as lessee, shall be
entering into a sublease for the Property (the "PROPERTY LEASE") commencing
upon the Closing Date, in substantially the form attached hereto as Exhibit M.
In the event Seller desires an entity other than Seller or a wholly owned
affiliate of Seller to be the "Lessee" under the Property Lease, Seller shall
deliver notice to Buyer, within thirty (30) days following the Contract Date,
identifying the entity which it proposes to be the lessee under the Property
Lease, and Seller shall thereafter deliver to Buyer such other information
concerning such proposed lessee as Buyer may request. Buyer shall have the
right to approve any entity designated by Seller (other than a wholly owned
affiliate of Seller) to be the lessee under the Property Lease, which approval
shall not be unreasonably withheld. Upon
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such approval (or, in case of any wholly owned affiliate of Seller, where no
approval of Buyer shall be required), the entity so designated shall be the
"Lessee" under the Property Lease being entered into at Closing, and, at
Closing, Seller shall convey all of its right, title and interest in and to the
Lessee Property to said Lessee by assignment or other conveyance documents
acceptable to Buyer and Buyer's counsel. If Buyer does not so approve the
proposed entity as lessee under the Property Lease, then Seller or a wholly
owned affiliate of Seller (as designated by Seller) shall be the "Lessee"
thereunder.
2.3 INDEPENDENT CONSIDERATION. Concurrently with and in consideration for
the acceptance of this Agreement by Seller, Buyer has paid to Seller a
nonrefundable fee of ONE HUNDRED and NO/100 DOLLARS ($100.00). In the event
that this Agreement is determined to be unenforceable or void as a mutually
binding contract by reason of the existence of any condition, the
indefiniteness of any provision, the lack of mutuality or any approval or
election of Buyer with respect to any contingency or other matter, then such
fee shall be considered adequate consideration for, and this Agreement shall be
construed as, an option to purchase enforceable in accordance with the terms
set forth herein.
ARTICLE 3
DEPOSIT AND ACQUISITION PRICE
3.1 ACQUISITION PRICE. The purchase price to be paid by Buyer in
consideration for the contribution of the Property (the "ACQUISITION PRICE")
shall be $0.00 (payable at Closing in cash, or by cashier's check or wire
transfer of funds) (herein, the "CASH ACQUISITION PRICE"), together with that
number of Units determined as set forth in Section 3.2 below.
3.2 DETERMINATION OF NUMBER OF UNITS. The actual number of Units to be
delivered as the Acquisition Price shall be determined as follows:
(a) First, the Pro Forma Funds from Operation shall be multiplied by
the Applicable Percentage;
(b) Second, the product resulting from (a) above shall be multiplied
by the Offering Multiple;
(c) Third, the product resulting from (b) above shall be multiplied
by 0.93;
(d) Fourth, the amount resulting from (c) above shall be reduced by
the following amounts:
(i) the Allocable Transaction Expenses; and
*(ii) the Debt Subject to Amount, calculated as of the date of
the Last Red; and
[* The difference between the amounts described in (d)(ii)
above and the actual Debt Subject to Amount existing at
Closing shall be adjusted between Seller and Buyer, in
cash, as a proration item at Closing.]
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(e) Fifth, the amount resulting from (d) above shall be reduced by
the Cash Acquisition Price which is to be paid to Seller as part of the
Acquisition Price;
(f) Sixth, the amount resulting from (e) above shall be divided by
.93; and
(g) Seventh, the amount resulting from (f) shall be divided by the
Mid-Point Price.
3.3 ACCREDITED INVESTORS. Seller acknowledges that Buyer is paying a
portion of the Acquisition Price by the issuance of Units in a sale exempt from
registration under the Securities Act (as defined in Section 3.4 below) and
that the issuance of said Units is based upon the representations and
warranties of Seller contained herein, and in the Investor Questionnaire and
the Power of Attorney and Acknowledgement heretofore executed by Seller and
delivered to Buyer. Seller acknowledges and confirms that (i) Seller has
consulted with its counsel with respect to Rule 145 and Rule 501 promulgated
under the Securities Act and such other rules and regulations promulgated under
the Securities Act applicable to the transactions contemplated by this
Agreement, including, but not limited to, the issuance of Units for the Seller,
(ii) the members of Seller have not adopted resolutions to and otherwise do not
intend to dissolve Seller or otherwise distribute Units to the members of
Seller, and (iii) there is no preexisting plan, agreement or understanding for
dissolution of Seller or distribution of the Units by Seller. Seller agrees
not to adopt any resolution, agreement or plan within one year after the date
of Seller's receipt of Units under this Agreement which would result in the
distribution of Units to the members of Seller, and Seller further agrees to
take no other action that will cause the sale of the Units by Buyer to Seller
pursuant to this Agreement to be deemed a sale of securities to any direct or
indirect members of Seller. Seller hereby represents and warrants that (a)
Seller is an accredited investor as defined in Rule 501(a) promulgated under
the Securities Act, (b) Seller is a limited liability company not formed for
the specific purpose of acquiring the Units within the meaning of Rule
501(a)(3) and (c) Seller has total assets as of the date hereof in excess of
$5,000,000.
3.4 PROSPECTUS. Seller understands that in connection with the IPO, Buyer
will require certain information in order to comply with the Securities Act of
1933, as amended, the regulations promulgated thereunder, and any applicable
states' securities laws governing the offering and sales of securities
(collectively, the "SECURITIES ACT"), and such information will be used in the
preparation of and/or included in a prospectus (the "PROSPECTUS") to be
distributed in connection with the sale of the Common Stock of the REIT.
Seller agrees to provide to Buyer, at Buyer's sole cost and expense (unless
otherwise specified in this Agreement), all information which Buyer, the
underwriters of the IPO and their respective attorneys or accountants deem
necessary or desirable to prepare the Prospectus. Within ten (10) days after
request therefore by Buyer, Seller shall, from time to time, update and
recertify any information previously provided by Seller pursuant hereto.
Seller agrees to carefully review the portions of the Prospectus concerning the
Property to verify that such portions of the Prospectus do not contain any
untrue statement of material fact and do not omit to state a material fact
necessary
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in order to make the statements made in such portions of the Prospectus, in
light of the circumstances under which they were made, not misleading. If
Seller finds any portion of the Prospectus relating to the Property inaccurate,
Seller shall promptly notify Buyer in detail in writing as to the reasons it
finds such portions of the Prospectus inaccurate so that the Prospectus may be
modified. This Agreement is not intended to constitute an offering of
securities under the Securities Act or otherwise, and no securities have been
offered to Seller by virtue hereof.
3.5 CLOSING ESCROW. On or prior to the Closing Date, the parties shall
establish an escrow trust with the Escrowee through which the transaction
contemplated hereby shall be closed. The escrow instructions shall be in the
form customarily used by the Escrowee with such special provisions added
thereto as may be required to conform to the provisions of this Agreement.
Said escrow shall be auxiliary to this Agreement and this Agreement shall not
be merged into nor in any manner superseded by said escrow. The escrow costs
and fees for each of the escrow accounts described in this Article 3 shall be
equally divided between Buyer and Seller.
3.6 FEDERAL INCOME TAX CONSEQUENCES OF TRANSACTION. Each of Buyer and
Seller hereby acknowledge and agree that, notwithstanding anything contained in
this Agreement to the contrary, the transfer of the Property shall be treated
for federal income tax purposes (i) with respect to that portion of the
Acquisition Price paid in the form of Units under Section 3.2 hereof, as a
partial contribution of the Property to the Buyer under Section 721 of the
Internal Revenue Code of 1986, as amended (the "CODE"), and the Treasury
Regulations promulgated thereunder, and (ii) with respect to that portion of
the Acquisition Price constituting the "Cash Acquisition Price" under Section
3.1 above, as a sale of a portion of the Property to Buyer. As a result, the
transaction will be treated for federal income tax purposes as a part
contribution/part sale of the Property under Code Section 707 and the Treasury
Regulations promulgated thereunder.
ARTICLE 4
TITLE, SURVEY AND SEARCHES
4.1 TITLE. Following the Contract Date, Buyer shall order and obtain the
Title Commitment, together with a copy of each recorded document raised as an
exception therein. If the Title Commitment raises any exceptions to title to
which Buyer objects, in its sole and absolute discretion, Buyer shall give
Seller notice of such objection prior to the Due Diligence Approval Date, and
Seller shall thereafter have the right to have such unpermitted exceptions so
objected to by Buyer removed from the Title Commitment or insured over by the
Title Company to the reasonable satisfaction of Buyer, and to provide evidence
thereof to Buyer. Notwithstanding the foregoing, any delinquent real property
taxes, deeds of trust, mortgages, unpaid obligations owing to any governmental
agency which, with the passage of time, could give rise to a lien, mechanic's
liens, attachment liens, execution liens, tax liens for delinquent taxes and
judgment liens (collectively, "MONETARY LIENS"), disclosed on the Title
Commitment
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shall be automatically deemed unpermitted exceptions and objected to by Buyer
without any further action or notice thereof to Seller. For the purposes of
this Agreement, any liens created by the Loan Documents shall be deemed
accepted by Buyer. If Seller fails to have all unpermitted exceptions removed
from the Title Commitment or insured over to the reasonable satisfaction of
Buyer on or before the Due Diligence Approval Date or, alternatively, confirm
in writing to Buyer that Seller will remove or insure over any such unpermitted
exceptions on or prior to the Closing Date, Buyer may elect, by written notice
delivered to Seller on or before the Due Diligence Approval Date, to (i)
terminate this Agreement, in which event all obligations of the parties
hereunder shall terminate (other than Buyer's Indemnity which shall survive
such termination for the period specified in Section 5.2 hereof), and this
Agreement shall otherwise have no further force and effect, or (ii) accept
title to the Property subject to such unpermitted exceptions, all of which
shall thereafter be deemed "Permitted Title Exceptions," with the further right
to deduct from the Acquisition Price amounts secured by or constituting
unpermitted liens or encumbrances of a definite or ascertainable amount
(including, without limitation, any and all Monetary Liens), and/or to cause
the Title Company to issue endorsement(s) insuring against damage caused by
such exceptions and deduct from the Acquisition Price the cost of the premiums
and security provided for said endorsement, as the case may be. Buyer's
failure to make either election on or before the Due Diligence Approval Date
shall be deemed an election under clause (ii) above. On the Closing Date,
Seller shall cause the Title Company to issue the Title Policy (or a
"marked-up" title commitment unconditionally committing the Title Company to
issue such Title Policy) to Buyer, pursuant to and in accordance with the Title
Commitment, insuring the Ground Leasehold Estate in Buyer as of the Closing
Date, subject only to the Permitted Title Exceptions and such other exceptions
as Buyer may approve pursuant to clause (ii) above.
4.2 SURVEY. No later than twenty-one (21) days following the Contract
Date, Seller shall obtain and deliver the Survey to Buyer. If the Survey
discloses any encroachments onto the Land from any adjacent property,
encroachments by or from the Land onto any adjacent property, violations of or
encroachments upon any recorded building lines, restrictions or easements
affecting the Land, matters including possible rights of third parties, or any
other matter to which Buyer objects, in its sole and absolute discretion, Buyer
shall give Seller notice of such objection prior to the expiration of the
Contingency Period, and Seller shall thereafter have the right to have such
encroachments, violations, restrictions, easements or other matters so objected
to by Buyer removed from the Survey or insured over by the Title Company to the
reasonable satisfaction of Buyer, and to provide evidence thereof to Buyer. If
Seller fails to have same so removed or insured over, on or before the Due
Diligence Approval Date, Buyer may elect, by written notice delivered to Seller
on or before Due Diligence Approval Date, to (i) terminate this Agreement, in
which event all obligations of the parties hereunder shall terminate (other
than Buyer's Indemnity, which shall survive such termination for the period of
time specified in Section 5.2 hereof), and this Agreement shall otherwise have
no further force and effect, or (ii) accept the Property subject to such
encroachments, violations, restrictions, easements and other matters, all of
which shall thereafter be deemed Permitted Title Exceptions
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for purposes hereof. Buyer's failure to make such election on or before the
Due Diligence Approval Date shall be deemed an election under clause (ii)
above.
4.3 SEARCHES. Following the Contract Date, Buyer may obtain, at Seller's
sole expense (to be paid by Seller upon Buyer's demand therefor), searches of
the records of the county recorders, secretaries of state and district courts
of the jurisdictions in which the Land is located (collectively, the
"SEARCHES") confirming the absence of security interests, judgments, tax liens
for delinquent taxes and bankruptcy proceedings which affect or could affect
the Property or any interest therein to be transferred to Buyer pursuant to
this Agreement (except for the Permitted Title Exceptions). If said searches
disclose the existence of any security interests, judgments, tax liens for
delinquent taxes or bankruptcy proceedings which, in Buyer's sole judgment,
affect or could affect Seller's interest in the Property, Buyer shall give
Seller notice thereof prior to the expiration of the Contingency Period, and
Seller shall thereafter have the right to secure the release, satisfaction or
termination (as appropriate) of same and provide evidence thereof to Buyer on
or before the Closing Date. If Seller fails to secure such release,
satisfaction or termination (as appropriate) on or before the Closing Date,
Buyer may elect, by written notice delivered to Seller on or before the Closing
Date, to (i) terminate this Agreement, in which event all obligations of the
parties hereunder shall terminate (other than Buyer's Indemnity which shall
survive such termination for the period specified in Section 5.2 hereof), and
this Agreement shall have no further force and effect, or (ii) accept title to
the Property subject to such unpermitted exceptions, all of which shall
thereafter be deemed Permitted Title Exceptions, with the further right to
deduct from the Acquisition Price amounts secured by or constituting Monetary
Liens. Buyer's failure to make either such election on or before Due Diligence
Approval Date shall be deemed an election under clause (ii) above. Said
searches may be updated, at Buyer's sole cost and expense, as of the Closing
Date confirming the absence (i) of the security interests, judgments, tax liens
for delinquent taxes or bankruptcy proceedings objected to by Buyer hereunder,
and (ii) any additional security interests, judgments, tax liens for delinquent
taxes and bankruptcy proceedings.
ARTICLE 5
DUE DILIGENCE
5.1 DUE DILIGENCE MATERIALS. On or before Closing, and promptly following
Buyer's request therefor, Seller shall use all good faith and commercially
reasonable efforts to secure and furnish to Buyer such due diligence items as
may be required by, and in form and substance satisfactory to, Buyer and
Buyer's counsel. Without limitation of the foregoing, Seller shall use all
good faith and commercially reasonable efforts to secure and furnish to Buyer,
no later than fifteen (15) days after the Contract Date, to the extent not
previously delivered to Buyer, true, correct and complete copies of the
Required Due Diligence Materials described in Exhibit B hereto (the Required
Due Diligence Materials, together with any other items furnished to Buyer under
this Section 5.1, being collectively referred to herein as the "DUE DILIGENCE
MATERIALS").
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5.2 INSPECTION. For the period commencing with the date of the Contract
Date and continuing through the Closing Date or earlier termination of this
Agreement, Seller shall permit Buyer and any of its officers, employees,
agents, attorneys, accountants, appraisers, architects, engineers, consultants,
lenders or other representatives as designated by Buyer (collectively, "BUYER'S
REPRESENTATIVES") access to Seller's books and records relating to the
ownership and operation of the Property and access to and entry upon the Real
Property, to examine, inspect, measure and test the Property and to conduct
such financial audits and verifications as they shall deem reasonably necessary
(herein collectively, the "INSPECTIONS"). Seller shall cooperate with Buyer
and Buyer's Representatives in conducting the foregoing activities. Without
limitation of the foregoing, it is acknowledged that Buyer and Buyer's
Representatives shall have the right to conduct financial audits with respect
to Seller's operations at the Property for Seller's most recent three (3) full
fiscal years (if applicable), as well as with regard to Seller's current fiscal
year operations, and Seller shall give customary representations and warranties
to Buyer's accountants with respect to financial matters as may reasonably be
requested by said accountants. Seller hereby consents to Buyer or Buyer's
Representatives (i) conducting a Phase I environmental site assessment of the
Property (the "PHASE I STUDY"), and (ii) conducting or obtaining an engineer's
structural report respecting the Improvements (the "STRUCTURAL REPORT"). The
costs of conducting and obtaining the Phase I Study and the Structural Report
shall be the responsibility of Buyer. In the event any of Buyer's
Representatives recommends additional environmental review after conducting the
Phase I Study, Seller shall permit Buyer and Buyer's Representatives access to
and entry upon the Real Property for such additional review; provided, however,
that no invasive inspection shall be performed without Seller's prior written
consent (which consent shall not be unreasonably withheld or delayed). Buyer
shall give not less than twenty-four (24) hours' prior written or oral notice
to Seller prior to any entry upon the Land or Improvements for the purpose of
conducting such Inspections and such entry shall be scheduled and coordinated
with Seller. At Seller's election, a representative of Seller shall be present
during any entry by Buyer or Buyer's Representative upon the Property for
conducting said Inspections. Buyer shall not cause or permit any mechanic's
liens, materialmen's liens or other liens to be filed against the Property as a
result of the Inspections. Buyer shall repair and restore any damage to the
Property caused by entry upon the Land or Improvements by Buyer or the other
Buyer's Representatives, except to the extent Seller's negligence or willful
acts contributed to such damage. Buyer shall indemnify, defend and hold
harmless Seller and Seller's officers, directors, shareholders, partners,
tenants, agents and employees (collectively, the "SELLER INDEMNIFIED PARTIES"),
from and against any and all actions, losses, costs, damages, claims,
liabilities, and expenses (including court costs and reasonable attorney's
fees) brought, sought or incurred by or against any of the Seller Indemnified
Parties resulting from, arising out of, or relating to, entry upon the Land or
Improvements by Buyer or any of the other Buyer's Representatives, except to
the extent Seller's negligence or willful acts contributed to same. The
foregoing indemnification and repair and restoration obligations (herein
collectively referred to as "BUYER'S INDEMNITY") shall expressly survive the
termination of this Agreement; provided, however, that any claim by Seller for
recovery under Buyer's Indemnity shall be made in writing within one hundred
eighty (180) days after the termination of this Agreement or shall thereupon
be forever waived.
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5.3 DUE DILIGENCE TERMINATION. In addition to Buyer's right to approve
the Title Commitment, the Survey and the Searches, as described in Article 4
hereof, the obligation of Buyer to close the transaction contemplated hereby is
subject to Buyer's review of, approval of and satisfaction with, at its sole
cost and expense, on or before the Due Diligence Approval Date, the Due
Diligence Materials, the Title Commitment, the Survey, the results of the
Inspections and all other matters respecting the Property. If Buyer, in its
sole and absolute discretion, is not satisfied with any of the foregoing, then
Buyer shall have the right to terminate this Agreement by delivery to Seller of
written notice thereof delivered at any time prior to 5:00 p.m., Pacific Time,
on the Due Diligence Approval Date, in which event this Agreement shall become
null and void and neither party shall have any further rights and obligations
hereunder (subject, however, to survival of Buyer's Indemnity for the period
specified in Section 5.2). Buyer's failure to timely deliver its termination
notice as provided in this Section 5.3 shall be deemed a waiver of Buyer's
contingencies described in this Section 5.3, whereupon the parties shall
proceed to close the transaction contemplated by this Agreement as provided
herein.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES
6.1 REPRESENTATION AND WARRANTIES OF SELLER. To induce Buyer to execute,
deliver and perform this Agreement, Seller hereby represents and warrants to
Buyer on and as of the Contract Date and, by an update certificate to be
delivered at closing, on and as of the Closing Date, as follows:
(a) OTHER REPRESENTATIONS AND WARRANTIES. All representations and
warranties of Seller appearing in other Sections of this Agreement are
true and correct in all material respects as of the date hereof, and shall
be true and correct in all material respects as of the Closing Date,
except to the extent any such representation or warranty expressly relates
to a specific date, in which case it is and shall be true and correct in
all material respects as of such specific date.
(b) DUE DILIGENCE MATERIALS; EXHIBITS. The information included in
the Exhibits hereto and the documents delivered to Buyer pursuant to
Section 5.1 are, to Seller's knowledge, true, correct and complete in all
material respects, and to Seller's Knowledge, the same do not omit any
material information required to make the submission thereof fair and
complete.
(c) AUTHORITY. Seller is a duly organized and validly existing
limited liability company in good standing under the laws of the State of
Delaware and under the laws of the State where the Real Property is
located. Seller has full capacity, right, power and authority
to execute, deliver and perform this Agreement and all documents to be
executed by Seller pursuant hereto, and all required action and approvals
therefor have been duly taken and obtained. The individuals signing this
Agreement and all other
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documents executed or to be executed pursuant hereto on behalf of
Seller are and shall be duly authorized to sign the same on Seller's
behalf and to bind Seller thereto. This Agreement and all documents to be
executed pursuant hereto by Seller are and shall be binding upon and
enforceable against Seller in accordance with their respective terms.
(d) CONTRACTS. Attached as Exhibit C to this Agreement and
incorporated herein by this reference is a true, correct and complete
schedule of all material Contracts (i.e., meaning Contracts which have
projected or actual payment obligations in excess of $25,000.00 during any
quarterly period or which are otherwise material to the business
operations currently being conducted at the Real Property). To Seller's
knowledge, there are no defaults under any of the Contracts and all of the
Contracts are in good standing and in full force and effect. Seller shall
retain (or assign to any other entity which becomes the Lessee under the
Property Lease) all rights and obligations under the Contracts following
the Closing, as the continued operator of the business being conducted at
the Property pursuant to the Property Lease, and there are no Contracts
which will be binding, or impose any obligation, upon Buyer after Closing.
(e) LICENSES AND PERMITS. Attached as Exhibit D-1 to this Agreement
and incorporated herein by this reference is a true, correct and complete
list of all material Licenses and Permits. To Seller's knowledge, Seller
currently possesses all Licenses and Permits necessary and required for
the current ownership, use and maintenance the Real Property and each of
the Licenses and Permits is in full force and effect and in good standing,
and Seller has not received notice of any intention on the part of the
issuing authority to cancel, suspend or modify any of the Licenses and
Permits or to take any action or institute any proceedings to effect such
a cancellation, suspension or modification. To Seller's knowledge, no
notice to, filing or registration with, or License or Permit from, any
governmental or regulatory body or authority, or any other person or
entity is required to be made or obtained in connection with the
execution, delivery or performance of this Agreement by Seller. The
interest of Seller in the Licenses and Permits has not been assigned to
any other person and is, to Seller's knowledge, free and clear of all
encumbrances other than liens granted under the Loan Documents.
(f) OPERATING PERMITS. Attached as Exhibit D-2 to this Agreement and
incorporated herein by this reference is a true, correct and complete list
of all material Operating Permits. To Seller's Knowledge, Seller
currently possesses all Operating Permits necessary and required for the
lawful operation of Seller's business at the Real Property and each of the
Operating Permits is in full force and effect and in good standing, and
Seller has not received notice of any intention on the part of the issuing
authority to cancel, suspend or modify any of the Operating Permits or to
take any action or institute any proceedings to effect such a
cancellation, suspension or modification. To Seller's knowledge, no
notice to, filing or registration with, or License or Permit from, any
governmental or regulatory body or authority, or any other person or
entity is required to be made or obtained in connection with the
execution, delivery or
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performance of this Agreement by Seller. The interest of Seller in the
Operating Permits has not been assigned to any other person and is, to
Seller's knowledge, free and clear of all encumbrances other than liens
granted under the Loan Documents.
(g) PERSONAL PROPERTY. Attached as Exhibit E to this Agreement and
incorporated herein by this reference is a true, correct and complete
schedule of the Personal Property. Seller has good and marketable title
to the Personal Property and each item thereof free and clear of liens,
security interests, encumbrances, leases and restrictions of every kind
and description, except as disclosed on Exhibit E and except for the Loan
Documents. The Personal Property is in good operating condition and
repair, ordinary wear and tear excepted.
(h) MEMBERSHIP. Attached as Exhibit F to this Agreement and
incorporated herein by this reference are true, correct and complete lists
of all of the members of any type of respective golf courses comprising
the Property. This exhibit describes all classes of memberships and all
persons with any membership rights, including, without limitation,
honorary and lifetime members and persons holding first offer and refusal
rights. Except as may be disclosed in the membership agreements
("MEMBERSHIP AGREEMENTS") and other membership materials furnished to
Buyer pursuant to Section 5.1, Seller has made no written or oral
representations, covenants or agreements (including any rules, regulations
or by-laws relating to membership or any correspondence delivered to
members or prospective members), concerning (i) the total allowable number
of members or classes of membership in the clubs; (ii) qualifications or
approval required for new members, (iii) the amount of initiation fees,
deposits, restrictions or waiver of monthly dues or other fees to be
charged to the membership for their usage of the clubs, or (iv) rights of
members of the clubs.
(i) VIOLATIONS OF LAWS. To Seller's knowledge, the Improvements have
been constructed and are presently used and operated in material
compliance with all Licenses and Permits and Operating Permits, all Legal
Requirements and all covenants, easements and restrictions affecting the
Property, and Seller has received no written notices of any violations of
any Legal Requirements pertaining to the Property which have not been
corrected in all material respects.
(j) CONDITION OF PROPERTY. Attached as Exhibit G to this Agreement
is a list of all reports, assessments and investigations commissioned by
Seller or within Seller's possession or control relating to the physical
condition of the Improvements and the condition of soils at the Land, and
Seller has delivered to Buyer (or will deliver to Buyer as part of the
Required Due Diligence Materials) true, correct and complete copies
thereof. To Seller's knowledge, the Improvements are structurally sound,
weather tight and in good condition and repair. To Seller's knowledge,
there are no structural defects in any of the Improvements. To Seller's
knowledge, the soil condition of the Land is
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such that it will support all of the Improvements without need for
additional subsurface excavations, fill, footings, caissons or other
installations.
(k) LITIGATION. Except as set forth on Exhibit H to this Agreement
and incorporated herein by this reference, Seller has not been served with
notice of any action, order, writ, injunction, judgment or decree
outstanding, or of any claims, causes of action or other litigation or
proceeding pending nor, to the best of Seller's knowledge, are any such
matters threatened, with respect to (i) the ownership or operation of the
Property or any part thereof (including, without limitation, disputes with
mortgagees, governmental authorities, utilities, contractors, adjoining
land owners or suppliers of goods or services) or (ii) Seller's ability to
consummate the transactions contemplated hereby.
(l) CONDEMNATION. There is no pending (i) condemnation of any part
of the Real Property or, (ii) widening, change of grade or limitation on
use of streets abutting the Real Property, and, to the best of Seller's
knowledge, there is no contemplated, threatened or anticipated (i)
condemnation of any part of the Real Property, (ii) widening, change of
grade or limitation on use of streets abutting the Real Property or (iii)
change in the zoning classification of the Real Property.
(m) ASSESSMENTS. Seller has received no notice and has no knowledge
of any pending liens, special taxes or assessments to be made against the
Property by any governmental agency or authority, nor has Seller received
notice of any planned change in the tax assessment or assessed valuation
of the Real Property. To the best of Seller's knowledge, there are no
other special taxes or special assessments levied against Seller or the
Property arising out of the specific use of the Property for operation as
a golf course (as opposed to general business operation, for example: a
special recreational or entertainment tax payable to the local
municipality for the privilege of operating a golf course). The
representation and warranty contained in this Section 6.1(m) shall not
include income, sales, use, liquor, tobacco, real property, personal
property, value added, ad valorem, gross receipts, license tax, business
tax, employment and other similar taxes imposed by governmental agencies.
(n) WATER. To Seller's knowledge, Real Property has sufficient
water and water rights provided by the municipalities in which the Real
Property is located, or otherwise, as required or necessary to (i)
satisfy the requirements to operate the subject golf courses, and (ii)
irrigate and maintain the subject golf courses in a first class
condition, and all permits and licenses required to use said water have
been obtained by Seller and are transferable to Buyer or Lessee at
Closing.
(o) UTILITIES. To Seller's knowledge, all water, sewer, gas,
electric, telephone and drainage facilities and all other utilities and
public or quasi-public improvements upon or adjacent to the Real Property
required by law or for the normal operation of the
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Property are installed, are connected under valid permits, are in good
working order, are adequate to service the Property and are fully paid
for. Seller has no knowledge of any fact or condition which would result
in the termination or impairment in the transmitting of utility services
to the Property.
(p) NO CONFLICT OR VIOLATION. Neither the execution, delivery or
performance of this Agreement by Seller, or any related documents or
instruments, nor the consummation of the transactions contemplated hereby,
nor compliance by Seller with any of the provisions hereof, will (a)
result in a breach of or constitute a default under any material agreement
to which Seller is bound, or (b) violate or conflict with any provision of
the organizational documents of Seller, or (c) violate, conflict with, or
result in a breach of any provision of, or constitute a default under, or
result in the termination or acceleration under, or result in the creation
of any encumbrance upon the Property under, any material contract,
commitment, agreement or other instrument or obligation to which Seller is
a party or by which the Property is bound, or (d) violate any order,
judgment, injunction, award or decree of any court or arbitration body, or
any governmental, administrative or regulatory authority, or any other
body, by or to which Seller or the Property are or may be bound or
subject, or (e) violate, conflict with or result in a default or breach
under, any license, permit or other governmental authorization(such matter
described in this clause (e) being referred to as a "License Violation"),
which License Violation would reasonably be expected to have a material
adverse affect on the Property or on Seller's ability to consummate the
transactions, contemplated hereby.
(q) LABOR MATTERS. Seller is in material compliance with all
applicable laws respecting employment practices, terms and conditions of
employment, management-labor relations and wages and hours which are in
effect as of the date of this Agreement. With respect to the Property,
(i) Seller is not a party to any labor agreement with any labor
organization, (ii) there is no unfair labor practice charge or complaint
against Seller pending or threatened before the National Labor Relations
Board, (iii) there is no labor strike or labor disturbance pending or, to
Seller's knowledge, threatened against Seller nor is any material written
grievance currently being asserted, (iv) Seller has not experienced a work
stoppage or work slowdown at any time during the three (3) years prior to
the Contract Date, and (v) there is, to Seller's knowledge no organization
campaign being conducted and no dispute as to representation of any
employee of Seller. All employment contracts or similar arrangements,
whether written or oral, are of a type that can be effectively terminated
by Seller on or before the expiration or earlier termination of the
Property Lease and, in any event, Buyer shall have no obligations or
liabilities under such employment contracts or similar arrangements at any
time, whether before or after the expiration or termination of the
Property Lease.
(r) ENVIRONMENTAL MATERIALS. Attached as Exhibit G to this Agreement
and incorporated herein by this reference is a list of all reports,
assessments, investigations
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or audits commissioned by Seller or within Seller's possession or
control relating to the environmental condition of, or environmental
issues concerning, the Real Property ("SELLER'S ENVIRONMENTAL REPORTS").
Seller has heretofore delivered to Buyer, or shall hereafter deliver to
Buyer as part of the Required Due Diligence Materials to be furnished
hereunder, true, correct and complete copies of the Seller's Environmental
Reports. Except as may be disclosed in Seller's Environmental Reports, and
to Seller's knowledge, no Hazardous Material is or has been used,
generated, manufactured, processed, treated, stored, transported,
incinerated, released or disposed of in, on, under, to or from the Real
Property, except in strict compliance with all applicable Environmental
Laws. Except as may be disclosed in Seller's Environmental Reports, and to
Seller's knowledge, no underground storage tank currently exists or has
ever existed in, on or under the Real Property. Except as may be
disclosed in Seller's Environmental Reports, and to Seller's knowledge, no
asbestos containing material is present within or on the Real Property.
Except as may be disclosed in Seller's Environmental Reports and to
Seller's knowledge, no part of the Real Property has been used for
landfill, dumping or other waste disposal activities or operations,
excluding disposal of grass cuttings, landscape clippings, pruning debris,
leaves, vegetation and similar matters. Seller has not received notice,
and, except as described in Seller's Environmental Reports, Seller has no
knowledge, of any prior owner or occupant of the Real property receiving,
any citation, directive, demand, pleading, complaint, claim, inquiry,
notice of potential responsibility, notice of violation, order, notice of
investigation, or other written communication, actual or threatened, from
any governmental authority, or any person or entity, regarding (a) the
existence of any Hazardous Material in, on, under, or migrating to or
from, the Real Property in excess of levels permissible under
Environmental Laws; or (b) the potential liability or responsibility of
Seller, or any past or present owner or occupant of the Real Property,
under any Environmental Law. Seller has not submitted notice under any
applicable Environmental Law reporting a release of any Hazardous
Materials into the environment.
(s) BANKRUPTCY. No attachments, execution proceedings, assignments
for the benefit of creditors, insolvency, bankruptcy, reorganization or
other proceedings are pending or, to Seller's knowledge, threatened against
Seller or any members of Seller, nor are any of such proceedings
contemplated by Seller or any members of Seller.
(t) TAXES. Other than as disclosed in the tax bills previously
delivered to Buyer or being delivered to Buyer as part of the Required Due
Diligence Materials, Seller has received no notice that any real property
taxes or special assessments or charges have been levied against the
Property or will result from work, activities or improvements done to the
Property by Seller. Seller has no knowledge and Seller has received no
notice of any intended public improvements which will result in any new
charge being levied against, or in the creation of any new lien upon, the
Property or any portion thereof. Seller has no knowledge and has received
no notice of any intended changes in the assessed valuation of the
Property.
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(u) CERTIFICATES OF OCCUPANCY. Seller has received a certificate of
occupancy or other similar certificate permitting lawful occupancy of the
Real Property and, to Seller's knowledge, Seller has received all other
approvals of governmental authorities required in connection with the
operation of the Real Property as golf course facilities.
(v) ENCUMBRANCES. The interest of Seller in the Ground Lease, the
Licenses and Permits, the Personal Property, the Trade Names and
Trademarks, the Warranties and the Lessee Property has not been assigned
to any other person, and, to Seller's knowledge, is free and clear of all
encumbrances except for the security interests in the Personal Property
which are reflected on Exhibit E and except for the Loan Documents.
(w) INTENTIONALLY OMITTED.
(aa) EASEMENTS AND RIGHTS OF WAY. Seller has obtained all easements
and rights-of-way, including proof of dedication, required from all
governmental authorities having jurisdiction over the Property or from
private parties necessary for the current use of the Property, to make
use of all utilities serving the Property and to insure vehicular and
pedestrian ingress and egress to and from the Property.
(bb) BROKERS. Seller has not entered into any agreement or
arrangement, and has no understanding, with any person or entity to pay,
or to obligate Buyer to pay, any finder's fee, brokerage commission or
similar payment in connection with any of the transactions contemplated
by this Agreement.
(cc) WETLANDS AND ENDANGERED SPECIES. Except as described in
Exhibit N attached hereto, and to Seller's knowledge, there are no
portions of the Real Property which constitute (i) "wetlands" under any
applicable, federal, state or local law, ordinance or regulation, or (ii)
habitat for any species which is deemed to be endangered under any
applicable federal, state or local law, ordinance or regulation.
(dd) NO MECHANICS' LIENS. Seller has paid for all material supplied
and services performed with respect to the Property of a type for which a
mechanic's lien may be filed.
(ee) GRAVEYARD. To Seller's knowledge, no portion of the Real
Property is or has been used as a graveyard.
(ff) WASTE DISPOSAL ACTIVITIES. Exhibit L, attached hereto, sets
forth (i) all waste management activities at the Real Property initiated
or controlled by Seller and, to Seller's knowledge, all waste management
activities at the Real Property initiated or controlled by any other
party, (ii) to Seller's knowledge, all sites to which Seller has directly
or indirectly released, stored, dumped, buried, injected, treated, or
otherwise disposed of, hazardous substances or hazardous waste or other
toxic or hazardous
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material generated at the Real Property, and (iii) all parties with
whom Seller contracted to do the same.
(gg) SETTLEMENT STATEMENT. The information to be furnished by
Seller in connection with the settlement statement described in Section
11.4 below shall be true, correct and complete in all material respects.
(hh) LOAN DOCUMENTS. Attached as Exhibit Q to this Agreement and
incorporated herein by this reference is a true, correct and complete
schedule of all Loan Documents and all such Loan Documents are in good
standing and in full force and effect.
(ii) LIABILITIES. Except as disclosed in the Due Diligence
Materials delivered by Seller to Buyer, or as otherwise set forth in the
items listed in Exhibits to this Agreement, there are no material
obligations or liabilities which shall be binding upon Buyer or the
Property after Closing.
(jj) GROUND LEASE. Attached hereto as Exhibit O is a true, correct
and complete description of the Ground Lease. A true, correct and complete
copy of the Ground Lease has heretofore been delivered by Seller to Buyer.
The Ground Lease is valid and in full force and effect, and has not been
amended, modified or supplemented, except as described on Exhibit O.
Seller holds the entire Ground Leasehold Estate, free and clear of any
claims, liens, encumbrances and restrictions of any kind, other than the
Permitted Title Exceptions. Neither Seller nor Ground Lessor are in
default of any of their respective obligations under the Ground Lease,
nor, to the best of Seller's knowledge, has any condition or event
occurred which, with the passage of time, the giving of notice, or both,
would result in such a default under the Ground Lease. The rents and
other charges set forth in the Ground Lease are the actual rents and
charges presently being collected by Ground Lessor. At Closing, the
Ground Lease shall be free and clear of any right or interest of any real
estate broker or any other person and no brokerage or leasing commission
or other compensation will be due or payable to any person, firm,
corporation or other entity with respect to or on account of the Ground
Lease or any extensions or renewals thereof.
(kk) FIRPTA REPRESENTATION. Seller is not a "foreign person" within
the meaning of Section 1445 of the Code.
(ll) TRADE NAMES AND TRADEMARKS. There are no actions or other
judicial or administrative proceedings involving Seller or the Property
pending, or, to Seller's knowledge, threatened, that concern any Trade
Names and Trademarks being transferred to Buyer. To Seller's knowledge,
Seller has the right and authority to use each Trade Name and Trademark
necessary in connection with the operation of the Property in the manner
in which it is currently used, and to convey such right and authority to
Buyer at
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Closing. To Seller's knowledge, the current use of the Trade Names and
Trademarks does not, and did not in the past, conflict with, infringe upon
or violate any copyright, trade secret, trademark or registration of any
other person. There are no outstanding or, to Seller's knowledge,
threatened disputes or disagreements with respect to any Trade Name or
Trademark or any license, contract, agreement or other commitment, written
or oral, relating to the same.
(mm) COMPLIANCE WITH ERISA. To Seller's knowledge, Seller is not in
default with respect to any of its obligations under any plan, agreement
or trust, and Seller has filed or caused to be filed all reports with
respect to the foregoing required by, and is otherwise in compliance with,
the Employees Retirement Income Security Act of 1974, as amended, and all
rules and regulations thereunder with respect thereto.
(nn) INSURANCE. Seller currently has in place the public liability,
casualty and other insurance coverage with respect to the Property as
Seller reasonably deems necessary. Each of the insurance policies with
respect to the Property is, to Seller's knowledge, in full force and
effect. All premiums due and payable under each of the insurance policies
with respect to the Property have been fully paid when due. Seller has not
received from any insurance company any written notices of cancellation or
intent to cancel any insurance in connection with any of the Property.
(oo) NO OTHER AGREEMENTS TO SELL. Seller has not made any agreement
with, and has no obligation (absolute or contingent) to, any person or
firm other than Buyer (a) to sell, transfer or in any way encumber (except
for Permitted Title Exceptions) the Property or (b) to enter into any
agreement with respect to a sale, transfer or encumbrance or put or call
or other purchase option right with respect to the Property.
(pp) LICENSE AGREEMENT. The License Agreement is valid and in full
force and effect. Seller has not received any written notice of default
from the licensor under the License Agreement with respect to any of
Seller's obligations under the License Agreement, nor, to Seller's
knowledge, does any material default exist under the License Agreement
beyond the expiration of any applicable cure periods thereunder, which if
not cured would give the licensor the right to terminate this License
Agreement.
The representations and warranties of Seller contained in this Section
6.1 shall be deemed remade by Seller as of the Closing with the same force and
effect as if made at that time, except to the extent that any such
representation or warranty expressly relates to a specific date, in which case
it shall be true and correct in all material respects as of such specific date.
Seller shall give Buyer written notice of any information that makes any
representation or warranty untrue within five (5) business days of obtaining
such information. The representation and warranty of Seller set forth in
Section 6.1(c), as well as Buyer's right to enforce and/or seek damages for any
breach of the same, shall survive the Closing and continue in full force and
effect indefinitely. All other representations and warranties of Seller set
forth in Section 6.1,
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as well as Buyer's right to enforce and/or seek damages for any breach of the
same, shall survive the Closing for a period of one (1) year [(i.e., meaning
that Buyer must give notice to Seller of such claim on or before the first to
occur of (A) sixty (60) days after Buyer first becomes aware thereof, and (B)
the four hundred twenty-fifth (425th) day following the Closing Date (being one
year plus sixty (60) days), and if Seller disputes or fails to satisfy its
indemnity obligation therefor, Buyer must commence, and serve Seller in, a
legal action on such claim no later than the five hundred forty-eighth (548th)
day following the Closing Date]. Notwithstanding anything to the contrary
contained in this Section 6.1, (i) Buyer shall have no right to enforce or seek
damages for any breach of representations and warranties unless the total
damage resulting from any such breaches, in the aggregate, exceeds (in Buyer's
good faith determination) Fifty Thousand Dollars ($50,000.00) (provided that
once such threshold amount has been reached, Seller shall be liable from the
first dollar of such damages), and (ii) Seller's maximum liability for all such
breaches shall not exceed the sum of (A) the total value of the Property, based
upon the Units given as consideration, plus (B) the total value of all other
Units received by Seller and/or its affiliates pursuant to the Other
Contribution/Conversion Agreements. As used in this Section 6.1, the phrase
"to Seller's knowledge" shall mean the actual knowledge of Peter Nanula, George
Haworth, Bryan Noreen, Daryl Jones, Jim Ellison and Gary Morrow, General
Manager of Crofton Country Club.
6.2 REPRESENTATIONS AND WARRANTIES OF BUYER. To induce Seller to execute,
deliver and perform this Agreement, Buyer hereby represents and warrants to
Seller on and as of the date hereof and on and as of the Closing Date as
follows:
(a) OTHER REPRESENTATIONS AND WARRANTIES. All representations and
warranties of Buyer appearing in other Sections of this Agreement are true
and correct.
(b) AUTHORITY. Buyer is a duly organized and validly existing
limited partnership in good standing under the laws of the State of
Delaware. Buyer has full capacity, right, power and authority to execute,
deliver and perform this Agreement and all documents to be executed by
Buyer pursuant hereto, and all required action and approvals therefor have
been duly taken and obtained. The individuals signing this Agreement and
all other documents executed or to be executed pursuant hereto on behalf of
Buyer are and shall be duly authorized to sign the same on Buyer's behalf
and to bind Buyer thereto. This Agreement and all documents to be
executed pursuant hereto by Buyer are and shall be binding upon and
enforceable against Buyer in accordance with their respective terms.
(c) NO CONFLICT OR VIOLATION. Neither the execution, delivery or
performance by Buyer of this Agreement, or any related documents or
instruments, and the consummation of the transaction contemplated hereby,
nor compliance by Buyer of any of the provisions hereof, will: (a)
result in a breach of or constitute a default under any agreement to
which Buyer is bound; (b) violate or conflict with any provision of
Buyer's organization documents; (c) violate, conflict with or result in a
breach of any provision
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or, or constitute a default under, any contract or agreement to which
Buyer is a party or by or to which Buyer is or may be bound or subject, or
(d) violate any order, judgment, injunction, award or decree of any court
or arbitration body, or any governmental, administrative or regulatory
authority, or any other body, by or to which Buyer is or may be bound or
subject.
(d) APPROVALS. No approval or consent of any foreign or domestic
governmental, administrative or regulatory body or any other person or
entity is required for the execution, delivery or performance by Buyer of
this Agreement, or any related documents or instruments, to which Buyer
is a party.
The representations and warranties of Buyer contained in this Section 6.2
are true, correct and complete in all material respects and shall be deemed
remade by Buyer as of the Closing with the same force and effect as if made at
that time. The representation and warranty of Buyer set forth in Section
6.2(b), as well as Seller's right to enforce and/or seek damages for any breach
of the same, shall survive the Closing indefinitely. All other representations
and warranties of Buyer set forth in Section 6.2 as well as Seller's right to
enforce and/or seek damages for any breach of the same, shall survive the
Closing for a period of one (1) year. Notwithstanding anything to the contrary
contained in this Section 6.1, (i) Seller shall have no right to enforce or
seek damages for any breach of representations and warranties unless the total
damage resulting from any such breaches, in the aggregate, exceeds (in Seller's
good faith determination) Fifty Thousand Dollars ($50,000.00) (provided that
once such threshold amount has been reached, Buyer shall be liable from the
first dollar of such damages), and (ii) Buyer's maximum liability for all such
breaches shall not exceed the total value of the Property, based upon the Units
given and cash paid as consideration.
6.3 CHANGE IN CIRCUMSTANCE. Each party shall notify the other party
promptly if the first party becomes aware of any transaction or occurrence
prior to the Closing Date which would make any of the representations or
warranties of the first party contained in this Agreement not true in any
material respect. Each party shall deliver to the other party at closing a
certificate confirming that its representations and warranties contained in
this Agreement are true and correct in all material respects as of the Closing
Date or, where applicable, describe any change in facts or circumstance that
would make any of the representations or warranties contained in this Agreement
not true in any material respect. It shall be a condition to a party's
obligation to close that no such material change in the other party's
representations and warranties, which would materially and adversely affect
such party, have occurred on or prior to the Closing Date. If any such
material and adverse change has occurred, whether brought to the attention of
such party by the other party's closing certificate or through such party's due
diligence investigation of the Property or otherwise, such party shall have the
right, without limitation on other remedies which may be available to such
party hereunder, to terminate this Agreement by written notice to the other
party; provided, however, that if a material and adverse change has occurred in
a party's representations or warranties as a result of matters
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outside such party's reasonable control, the other party's sole remedy, in lieu
of any other legal or equitable remedies, shall be to terminate this Agreement
as aforesaid.
ARTICLE 7
SELLER'S COVENANTS
7.1 COVENANTS. Seller covenants and agrees to the following, which
covenants and agreements shall survive Closing, shall have been complied with
as of the Closing Date, and shall not be deemed merged in the conveyance
contemplated herein:
(a) LITIGATION, CLAIMS, OR PROCEEDINGS. In the event a lien, claim,
or cause of action affecting the Property should arise prior to Closing,
Seller shall advise Buyer in writing (or if discovered by Buyer, Buyer
shall advise Seller in writing), and Seller shall use commercially
reasonable efforts to satisfy or address any such matter prior to Closing
and furnish Buyer with evidence thereof. Notwithstanding the foregoing,
Seller shall have the right to contest any such claims or causes of action
provided that Seller executes and delivers to the Title Company any
undertaking required by the Title Company, together with any funds
required by the Title Company, to cause the Title Company to insure over
such claims or causes of action or to otherwise protect Buyer and the Real
Property from any such claim.
(b) ASSESSMENTS. If any governmental agency or authority gives
notice prior or subsequent to Closing of any improvements, liens,
supplemental tax bills or special assessments made or to be made against
the Real Property or Personal Property which relate to time periods prior
to Closing, Seller shall satisfy and indemnify Buyer from any such claim
and shall furnish Buyer evidence thereof. Notwithstanding the foregoing,
Seller shall have the right to contest any such claims provided that
Seller executes and delivers to the Title Company any undertaking
required by the Title Company, together with any funds required by the
Title Company, to cause the Title Company to insure over such claims or
to otherwise protect Buyer and the Real Property from any such claim.
(c) PERMITS. Seller shall cooperate fully with Buyer as necessary
to enable Buyer, at Buyer's cost, unless otherwise specified herein, to
procure and to maintain all licenses, permits, or authorizations
(including, without limitation, any liquor licenses which are required to
be held in the name of the fee owner or ground lessee of the Real
Property) necessary for the ownership of the Ground Leasehold Estate
and/or other interests in the Real Property or the Improvements
contemplated to be conveyed to Buyer hereunder. Further, Seller shall
fully cooperate with Buyer, at no cost to Seller, in securing all
necessary governmental approvals to transfer to Buyer such licenses,
permits and authorizations.
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(d) TAXES. All payroll taxes, sales taxes, license taxes, liquor
taxes, use taxes, and all other obligations arising from and as a result
of the operation of the Real Property and due or to become due to any
governmental or quasi-governmental authority, whether municipal, state,
county, or federal, accruing and relating to any time periods prior to
Closing shall be paid in full by Seller prior to the date on which any
material penalties would attach thereto.
(e) LIENS. From the Contract Date to the Closing Date, Seller shall
not sell, assign, or create any right, title, or interest whatsoever in or
to any of the Property, or create or permit to exist any liens,
encumbrance, or charge thereon, without promptly discharging same prior to
the Closing.
(f) MECHANIC'S LIEN. Seller shall satisfy or insure over any and all
claims for mechanic's or materialmen's liens for work performed or
materials supplied prior to Closing; provided, however, Seller shall have
the right to contest any such claim so long as a bond is posted by Seller
and other procedures reasonably acceptable to Buyer are followed in order
to protect the Real Property and Personal Property and so long as no
exception therefor appears in the Title Policy.
(g) CONTRACTS. Seller agrees not to enter into any contracts,
commitments, leases, or agreements after the date hereof to which the
Buyer or the Property may be or may become subject without the express
written approval of Buyer, which shall not be unreasonably withheld.
(h) BUSINESS PRACTICES. From the Contract Date to the Closing Date,
Seller shall cause the business operations at the Real Property to be
conducted in the ordinary course consistent with Seller's historical
practices, and Seller shall diligently attempt to cause its golf course
operations to preserve and maintain their goodwill, including
relationships with suppliers, members, and customers consistent with
Seller's historical practices. In addition, Seller shall maintain
financial records and books of account with respect to the Property
consistent with Seller's historical practices and to maintain all existing
insurance on the Property.
(i) VIOLATION OF REPRESENTATIONS. From the Contract Date to the
Closing Date, Seller shall not take any action or omit to take any action
which action or omission would have the effect of violating, in any
material respect, any of the representations, warranties, or covenants of
Seller contained in this Agreement.
(j) CLUB OPERATION RESTRICTIONS. From the Contract Date to the
Closing Date, Seller shall not, without Buyer's prior written consent,
either (i) adopt a new membership program, (ii) modify, or agree to
modify, (A) the total allowable number of members or classes of
memberships in the clubs, or (B) the amount of initiation fees, deposits,
monthly dues or other fees to be charged to members for using the club,
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(iii) modify the membership bylaws of any of the golf clubs, (iv)
offer, transfer, or sell any memberships in the clubs for an amount less
than the initiation fees as of the Contract Date, (v) offer memberships
through payment plans which accelerate the amounts which would otherwise
be due prior to the Closing Date or reduce or abate amounts which would
otherwise be due after the Closing Date (other than, in the case of
clauses (ii), (iv), and (v), in the ordinary course of business consistent
with past practices), or (vi) offer any new membership sales programs
which utilize Buyer's trade names, trademarks or other identifying symbols
or which mentions the sale of the Property contemplated hereby.
(k) GOVERNMENTAL INQUIRIES. Seller hereby acknowledges and agrees
that from the Contract Date to the Closing Date or earlier termination of
this Agreement, Buyer may contact any and all federal, state and local
governmental entities, agencies and departments in order to inquire about
and investigate any and all matters relating to the Property. Buyer shall
inform Seller of all such contracts, whether oral or written and shall
furnish Seller with copies of all written inquiries.
(l) MAINTENANCE. From the Contract Date to the Closing Date, Seller
shall, at its sole cost and expense, maintain or cause to be maintained
the Property free from waste and neglect and in good order and repair, and
operate and manage the Property in accordance with Seller's historical
practices, and Seller shall keep and perform or cause to be performed in
all material respects all obligations of Seller under the Contracts, the
Licenses and Permits, the Operating Permits, the Warranties and under the
Legal Requirements. On the Closing Date, Seller shall tender possession
of the Property to Buyer in the same condition the Property was in as of
the Contract Date, except for ordinary wear and tear, and subject to
casualty loss and condemnation.
(m) INSURANCE. From the Contract Date to the Closing Date, Seller
shall maintain or cause to be maintained in full force and effect
liability, casualty and other insurance upon and in respect to the
Property as was being maintained by Seller as of the Contract Date.
(n) OPERATION. From the Contract Date to the Closing Date, and
except as otherwise expressly permitted pursuant to the provisions of this
Agreement, Seller shall operate and manage the Property in material
compliance with all applicable Legal Requirements and in accordance with
Seller's historical management and operation practices; provided that
during said period, without the prior written consent of Buyer, which
shall not be unreasonably withheld, Seller shall not do, suffer or permit,
or agree to do, any of the following:
(i) enter into any transaction in respect to or affecting the
Property which shall be binding upon Buyer or the Property, in any
respect, from and after closing; except that Seller shall be entitled
to enter into Contracts in the ordinary
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course of business and to sell memberships without Buyer's
consent so long as such sales are consistent with Seller's existing
membership structure and marketing programs, as disclosed to Buyer
during the Due Diligence Period;
(ii) sell (other than Inventory), encumber or grant any
security interest in the Property or any part thereof in any form or
manner whatsoever, or otherwise perform or permit any act which will
materially diminish or otherwise materially affect Buyer's interest
under this Agreement or in or to the Property or which will prevent
Seller's full performance of its material obligations hereunder or
which would have the effect of materially breaching any of Seller's
representations or warranties set forth herein;
(iii) enter into, amend, waive any rights under, terminate or
extend any Warranty;
(iv) amend or waive any rights, or suffer or permit a default
to occur under the Ground Lease, any Licenses and Permits, Operating
Permits, Loan Documents or any other document or instrument affecting
the Property; or
(v) remove from the Property any of the Improvements or
fixtures thereon or any of the Personal Property.
(o) GROUND LESSOR CONSENT AND ESTOPPEL. Seller shall deliver to
Buyer, on or before Closing, a consent and estoppel certificate executed
by Ground Lessor substantially in the form and substance as attached hereto
as Exhibit P (herein, the "GROUND LESSOR CONSENT AND ESTOPPEL"). As
required by Section 11.2(p) below, the foregoing Ground Lessor Consent and
Estoppel shall be dated no more than twenty (20) days prior to the Closing
Date. Without limitation on any other rights or obligations set forth
herein, the delivery of the Ground Lessor Consent and Estoppel, in
substantially the same form and substance as attached hereto as Exhibit P,
shall, at Buyer's discretion, be a condition precedent to Buyer's
obligations hereunder.
(p) CONSENTS. Seller shall obtain, on or before the Closing Date,
all consents from governmental agencies and other persons or entities
necessary in connection with Seller's performance of its obligations
hereunder. Without limitation of the foregoing, all consents, notices to,
filing or registration with any governmental or regulatory body or
authority, or any other person or entity required to be made or obtained
in connection with the assignment of the Operating Permits to Lessee shall
be made on or before the Closing.
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ARTICLE 8
CONDITIONS PRECEDENT
8.1 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER. Buyer's obligation
to acquire the Property pursuant to this Agreement shall be subject to the
satisfaction, prior to the Closing Date, of all of the following conditions
precedent, each of which is for the benefit of Buyer and may be waived by Buyer
in its sole discretion:
(a) there shall have been no material damage to the Property since the
Contract Date resulting in costs of repair exceeding the sum of One
Hundred Thousand Dollars ($100,000.00);
(b) there shall have been no notice given to Seller or Buyer, nor
shall Seller or Buyer have any knowledge, of any pending or contemplated
condemnation of any material portion of the Real Property, any impairment
of access to any material portion of the Real Property or any material
violation of any portion of the Property with any Legal Requirement;
(c) all representations and warranties of Seller set forth in the
Agreement shall be true and correct in all material respects as of the
Closing Date, except to the extent such representations or warranties
relate to a specific date, in which case they shall be true and correct in
all material respects as of such specific date;
(d) Seller shall have obtained all consents from, given all notices
to, and made all filings and registrations with, any governmental body or
authority, or any other person or entity, which are required to be
obtained, given or made in connection with the assignment of the Operating
Permits to Lessee;
(e) there shall have been no material adverse change in the financial
condition of the Property or the underlying golf courses and related
operations since the Contract Date;
(f) Seller shall have performed, in all material respects, all of its
covenants and obligations under this Agreement;
(g) All Licenses and Permits and all Operating Permits necessary for
the conduct of business at the property as currently conducted shall have
been assigned or reissued to either Buyer or Lessee, as appropriate, to
conduct the business at the Property as currently conducted; and
(h) Seller shall have timely executed and delivered to Escrowee all of
the items referred to in Section 11.2 hereof.
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8.2 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER. Seller's
obligation to sell, convey, assign, transfer and deliver the Property to Buyer
pursuant to this Agreement shall be subject to the satisfaction, prior to the
Closing Date, of all of the following conditions precedent, each of which is
for the benefit of Seller and may be waived by Seller in its sole discretion:
(a) all of the representations and warranties of Buyer set
forth in this Agreement shall be true and correct in all material
respects as of the Closing Date, except to the extent such
representations or warranties relate to a specific date, in which
case they shall be true and correct in all material respects as of
such specific date;
(b) Buyer shall have performed, in all material respects, all
of its covenants and obligations under this Agreement; and
(c) Buyer shall have timely executed and delivered to Escrowee
all of the items referred to in Section 11.3 hereof.
8.3 IPO CONDITION. The obligation of either Seller or Buyer to close the
transaction contemplated hereby is subject to the consummation of the IPO (the
"IPO CONDITION"). Buyer shall have the period beginning on the Contract Date
and ending on September 30, 1998 (the "IPO PERIOD") for satisfaction of the IPO
Condition. Failure of Buyer to consummate the IPO within the IPO Period shall,
without further action of either party, constitute termination of this
Agreement, whereupon neither party shall have any further rights or obligations
hereunder, except for rights and obligations which are expressly provided in
this Agreement to survive such termination.
ARTICLE 9
DESTRUCTION, DAMAGE OR CONDEMNATION
9.1 DESTRUCTION OR DAMAGE. If, subsequent to the Contract Date and on or
before the Closing Date, all or any portion of the Property shall be destroyed
or damaged by one or more incidents of vandalism, fire, release of Hazardous
Materials or other casualty, whether or not covered by insurance, Seller shall
immediately give Buyer notice of such occurrence, and Buyer, within fifteen
(15) days after receipt of such notice, may elect by written notice to Seller
to (a) terminate this Agreement, in which event this Agreement shall be deemed
null and void and neither party shall have any further rights and obligations
hereunder (subject to Buyer's Indemnity which shall survive closing for the
period specified in Section 5.2), or (b) proceed to close the transaction
contemplated hereby as scheduled (except that if the Closing Date is less than
fifteen (15) days following Buyer's receipt of such notice, closing shall be
delayed until Buyer makes such election), with no adjustment to the Acquisition
Price; provided; however, that Buyer shall have the right to participate in the
adjustment and settlement of any insurance claim relating to said damage,
and Seller shall assign and/or pay to Buyer at closing all insurance proceeds
(and other related choses in action, if any) collected or claimed with respect
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to said loss or damage plus any deductible or self-insured amount. Buyer's
failure to give notice within the time period specified above shall be deemed
to be Buyer's election of option (a) above. Notwithstanding anything to the
contrary contained in this Section 9.1, if the cost of restoring damage to the
Property is less than One Hundred Thousand Dollars ($100,000.00), then Buyer
shall have no right to terminate this Agreement and the closing and insurance
adjustment procedures described in clause (b) above shall apply.
9.2 CONDEMNATION. If, subsequent to the Contract Date and on or before
the Closing Date, any proceeding which shall relate to the proposed taking of
any material portion of the Real Property by condemnation or eminent domain or
any action in the nature of eminent domain, or the taking or closing of any
right of access to the Real Property, is instituted or commenced, Buyer shall
have the right and option to terminate this Agreement by giving Seller written
notice to such effect within fifteen (15) days after receipt of written
notification of any such occurrence or occurrences. Failure to give such
notice within such time shall be conclusive evidence that Buyer has waived the
option to terminate by reason of the occurrence or occurrences of which it has
received notice, the parties shall proceed to close the transaction
contemplated hereby and Buyer shall be credited with or be assigned all
Seller's right to any proceeds therefrom. Seller agrees to furnish Buyer
written notification with respect to any such proceedings within forty-eight
(48) hours of Seller's receipt of any such notification or learning of the
institution of such proceedings. Should Buyer elect to so terminate this
Agreement, this Agreement shall be deemed null and void and neither party shall
have any further rights and obligations hereunder (subject to Buyer's Indemnity
which shall survive closing for the period specified in Section 5.2). If the
Closing Date is less than fifteen (15) days following the last day on which
Buyer is entitled to elect to terminate this Agreement, then the closing shall
be delayed until Buyer makes such election. A taking of a "material" portion
of the Real Property shall be deemed to occur where such taking (i) results in
the closing of access to the Real Property without alternative access being
provided, (ii) requires the relocation of any utility facility, or (iii) would
result in restoration costs in excess of One Hundred Thousand Dollars
($100,000.00).
ARTICLE 10
POSSESSION, PRORATIONS AND CLOSING COSTS
10.1 POSSESSION. Sole and exclusive possession of the Property shall be
delivered to Buyer on the Closing Date, subject only to the rights of parties
under any Permitted Title Exceptions and subject to the terms and conditions of
the Property Lease being entered into at Closing.
10.2 PRORATIONS. It is acknowledged that the Lessee, as lessee under
the Property Lease, shall continue to operate the Property from and after
Closing and, pursuant to said Property Lease, shall be entitled to all revenues
generated from, and shall be obligated to pay all taxes and expenses
(including all rental due under the Ground Lease) relating to, the Property
from and after Closing and during the entire term of the Property Lease
(subject, however, to
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payment of the various rentals otherwise described in said Property Lease). As
a result of the foregoing, there shall be no proration, at Closing of any
revenue, tax or expense items hereunder. However, for purposes of determining
"Additional Rent" due and owing under the Property Lease for the year in which
the Closing Date (i.e., the "Commencement Date" under the Property Lease)
occurs, the parties agree as follows:
(a) All revenue received by Seller that relates to time periods
after the Closing Date, including, but not limited to, deposits,
advance registration and other fees previously received by Seller,
rents, membership dues, initiation fees, prepaid greens fees, coupon
book receipts, gift certificates, discount certificates, locker
rentals, tournament fees, tradeouts, function deposits, and bag
storage charges, shall be deemed "Golf Course Revenue" or "Other
Revenue" (as the case may be) under the Property Lease, attributable
to periods following the Commencement Date of the Property Lease term
on an accrual basis in accordance with generally accepted accounting
principles.
(b) All of Seller's receivables, unreceived revenue and
deferred income relating to the operation of the Property prior to
the Closing Date and not otherwise provided for in this Section 10.2
or elsewhere in this Agreement, shall remain the property of Seller
("SELLER'S RECEIVABLES") and shall not be deemed "Golf Course
Revenue" or "Other Revenue" under the Property Lease attributable to
any period falling within the term of the Property Lease. It is
acknowledged that the Lessee, as lessee under the Property Lease,
shall continue to attempt to collect Seller's Receivables following
the Closing Date. Regardless of payee designation, all payments
received following the Closing Date by the Lessee, as lessee under
the Property Lease, from any club member who has an outstanding
Seller's Receivables shall be presumed to be payments in respect to
the currently due charges, and thereafter to outstanding Seller's
Receivables in the inverse order of maturity.
10.3 CLOSING COSTS. Seller shall be responsible for all title charges and
premiums attributable to the Title Policy (and "mark-up") required to be
delivered by Seller hereunder (i.e., including any additional charges or
premiums for ALTA extended coverage, and the other endorsements described in
the definition of "Title Policy" under Section 1.1 hereof), all charges and
fees for the Surveys, all state, county, local and municipal transfer taxes,
all state deed fees, all recording fees, all documentary fees and taxes,
one-half of all escrow costs, and all other customary "seller" closing charges.
Buyer shall be responsible for all costs incurred in connection with any
financing obtained by Buyer and all other customary "buyer" expenses,
including, without limitation, all engineers', accountants' and other
professional fees associated with Buyer's pre-closing Inspections and one-half
of all escrow fees. Buyer and Seller shall each pay the fees and expenses of
their respective legal counsel incurred in connection with the transaction
contemplated hereby.
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ARTICLE 11
CLOSING
11.1 TIME AND PLACE. The closing of the transaction contemplated hereby
("CLOSING") shall take place at the offices of Buyer's attorney on a date (the
"CLOSING DATE") to be specified by written notice from Buyer to Seller, such
date to be not later than ten (10) business days following the expiration of
the IPO Period. The Closing shall be effected pursuant to the escrow
instructions described in Section 3.5 above. Unless the parties otherwise
agree, it is contemplated that the Closing shall take place concurrently with
or following the consummation of the IPO, as more fully described in Section
8.3 above.
11.2 SELLER'S DELIVERIES. On or before the Closing Date, Seller shall
deliver or cause to be delivered to Buyer or to Escrowee the following
documents, each of which shall be in form and substance reasonably acceptable
to Buyer:
(a) The Deed and the Assignment (which Assignment shall contain
Seller's indemnification, in favor of Buyer, whereby Seller shall
indemnify, defend and hold Buyer harmless from and against any and all
obligations of Seller arising or accruing under the Ground Lease prior to
Closing);
(b) Two (2) counterpart originals of Seller's assignment of the
Licenses and Permits and Warranties, substantially in the form attached as
Exhibit I hereto (the "ASSIGNMENT OF LICENSES, PERMITS AND WARRANTIES"),
executed by Seller;
(c) Seller's bill of sale assigning and conveying the Personal
Property and the Trade Names and Trademarks substantially in the form
attached as Exhibit J hereto, executed by Seller;
(d) Two (2) counterpart originals of the Property Lease, executed by
Lessee, as sublessee thereunder;
(e) Originals of the Ground Lease and of all Licenses and Permits and
Warranties assigned to Buyer (or where originals are unavailable, copies
duly certified by Seller as being true, correct and complete copies of the
originals);
(f) Copies of all Loan Documents, Membership Agreements, Contracts and
Operating Permits duly certified by Seller as being true, correct and
complete;
(g) Seller's certificate dated as of the Closing Date confirming that
the representations and warranties of Seller under Section 6.1 hereof and,
if applicable, describing any change in facts or circumstances which would
make any of such representations or warranties untrue as of the Closing
Date;
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(h) Such evidence as may be reasonably satisfactory to Buyer
evidencing the due authorization, execution and delivery of this
Agreement and the other documents to be executed in connection herewith
by Seller;
(i) An ALTA Statement or other affidavit in form required by the
Title Company in order to issue the Title Policy required hereunder;
(j) An executed Affidavit in customary form, or a qualifying statement
from the U.S. Treasury Department that the transaction is exempt from the
withholding tax requirement imposed by Section 1445A of the Internal
Revenue Code and the rules and regulations promulgated thereunder
("SECTION 1445A");
(k) All keys and pass-cards to the Improvements and all Personal
Property;
(l) The Title Policy (or a "marked-up" title commitment as described
in Section 4.1 above);
(m) Any required state, county and municipal transfer declarations;
(n) As required under Article 17 of this Agreement, documents
evidencing the indemnification and release of Seller with respect to
liability under any applicable Bulk Sales Law;
(o) A payoff letter from each lender under the Loan Documents stating
the amount necessary to satisfy, in full, the indebtedness evidenced
and/or secured by the Loan Documents as of the Closing Date, together with
full and complete recordable releases of all liens created by such Loan
Documents which are in effect as of the Closing Date (it being understood
and agreed, however, that the conveyance of the Property contemplated
hereby shall be subject to such Loan Documents and the indebtedness
evidenced and/or secured thereby and the Debt Subject to Amount shall be
paid from funds deposited by Buyer which are in addition to the
Acquisition Price);
(p) the original Ground Lessor Consent and Estoppel, executed by
Ground Lessor and dated no more than twenty (20) days prior to the
Closing Date;
(q) Such other documents, instruments, certifications and
confirmations as may be necessary or appropriate to comply with the
provisions of this Agreement or as may be reasonably required and
designated by Title Company to fully effect and consummate the
transactions contemplated hereby;
(r) Such funds as may be required, in addition to funds deposited by
Buyer to (i) discharge all deeds of trusts, mortgages, mechanic's liens,
judgment liens, security interests or encumbrances against the Property
securing any indebtedness or obligations
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(other than the Permitted Title Exceptions and the liens created by the
Loan Documents), and (b) pay any amounts required to be paid by Seller in
accordance with the provisions of Article 10; and
(s) Such other documents and instruments as may be reasonably
requested by the underwriters or their counsel to comply with federal and
state securities law requirements with respect to the issuance of the
Units and/or Common Stock as part of the IPO.
11.3 BUYER'S DELIVERIES. On or before the Closing Date, Buyer shall
deliver or cause to be delivered to Seller or to Escrowee the following
documents, each of which shall be in form and substance reasonably acceptable
to Seller:
(a) Two (2) counterpart originals of the Assignment of Licenses,
Permits and Warranties, executed by Buyer;
(b) Two (2) counterpart originals of the Property Lease, executed by
Buyer as sublessor;
(c) An ALTA statement or other affidavit in form required by the
Title Company in order to issue the Title Policy required hereunder;
(d) Buyer's certificate dated as of the Closing Date confirming that
the representations and warranties of Buyer under Section 6.2 hereof and,
if applicable, describing any change in facts or circumstances which
would make any of such representations or warranties untrue as of the
Closing Date;
(e) The Acquisition Price consideration required hereunder plus
funds sufficient to pay the Debt Subject to Amount;
(f) Any required state, county and municipal transfer declarations;
(g) Such other documents, instrument, certifications and
confirmations as may be necessary or appropriate to comply with the
provisions of this Agreement or as may be reasonably required and
designated by Title Company to fully effect and consummate the
transactions contemplated hereby; and
(h) Funds sufficient to pay all amounts required to be paid by Buyer
in accordance with the provisions of Article 10.
11.4 CONCURRENT DELIVERIES. Seller and Buyer shall jointly deposit in the
escrow or deliver to each other at or before Closing an agreed settlement
statement duly executed by the respective parties.
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11.5 CONCURRENT TRANSACTIONS. All documents or other deliveries required
to be made by Buyer or Seller at Closing, and all transactions required to be
consummated concurrently with Closing, shall be deemed to have been delivered
and to have been consummated simultaneously with all other transactions and all
other deliveries, and no delivery shall be deemed to have been made, and no
transaction shall be deemed to have been consummated, until all deliveries
required by Buyer, or its nominee, and Seller shall have been made, and all
concurrent or other transactions shall have been consummated.
11.6 NEW YORK STYLE CLOSING. At the request of either party, the
transaction shall be closed by means of a so-called "New York Style Closing,"
with the concurrent delivery of the documents of title, transfer of interests,
delivery of the Title Policy (or "marked-up" title commitment as described
herein) and the payment of the Acquisition Price. Seller shall provide any
undertaking to the Title Company necessary for the New York Style Closing to
occur.
11.7 EMPLOYEES AND LEASING COMMISSIONS. Seller's employees shall be the
sole responsibility and expense of Seller. Seller agrees that Buyer shall have
no responsibility for any unpaid leasing fee or commission is due any party in
connection with any Contract and that Seller will not look to Buyer for any
payment for services, commissions or fees in connection with the operation of
the Property performed or incurred prior to the Closing Date. Seller shall
indemnify, defend and hold Buyer harmless from and against any and all damages,
liabilities, costs and expenses (including attorneys' fees and other litigation
expense) arising from any claim by any person for any leasing fee or commission
in connection with any Contract, or any claim by any employee employed by
Seller in the operation of the Property.
11.8 LOAN PAYOFF. Seller and Buyer shall direct Escrowee (i) to pay off
the loan evidenced and/or secured by the Loan Documents, in accordance with the
payoff letter(s) deposited by Seller, with the funds deposited by Buyer
pursuant to Section 11.3(e) above, and (ii) to satisfy or remove from the Title
Policy the lien of the Loan Documents.
ARTICLE 12
INDEMNIFICATION
12.1 SELLER'S INDEMNITY. Seller hereby agrees to indemnify, defend and
hold harmless Buyer, and its partners, members, officers, shareholders,
directors, employees and agents (collectively, the "BUYER INDEMNIFIED PARTIES")
from and against any and all losses, liabilities, fines and penalties and
damages (including, without limitation, any damages or injury to persons,
property or the environment as provided hereunder), or actions or claims in
respect thereof (including, without limitation, amounts paid in settlement and
reasonable cost of investigation, reasonable attorneys' fees and other legal
expenses), resulting from third party claims (based upon the allegations set
forth in such claims and whether or not ultimately successful) to which Buyer
and/or the other Buyer Indemnified Parties may become subject or which Buyer
and/or the other Buyer Indemnified Parties may suffer or incur, either directly
or indirectly, insofar as
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such losses, liabilities or damages (or actions or claims in respect thereof)
arise out of, are with respect to, or are based upon:
(i) Seller's breach of any representation or warranty set
forth in this Agreement;
(ii) Seller's default in the performance of any of Seller's
covenants set forth in this Agreement;
(iii) Seller's failure to satisfy and discharge any and all
obligations of Seller under the Ground Lease, the Loan Documents or
any Contracts to which Seller is bound which obligations relate to
any time period prior to the Closing;
(iv) Seller's failure to fully satisfy and discharge any and
all obligations of Seller regarding any current or former employees
of Seller including, without limitation, any obligations of Seller
for the payment of wages, salaries, benefits and other
compensation;
(v) Any obligations, liabilities or charges of Seller not
expressly assumed by Buyer; or
(vi) The operation and management of the Property (including
any liabilities incurred with respect thereto) at any time on or
prior to the Closing Date.
12.2 BUYER'S INDEMNITY. Buyer hereby agrees to indemnify, defend and hold
Seller and the other Seller Indemnified Parties harmless from and against any
and all losses, liabilities, fines and penalties and damages (including,
without limitation, any damages or injury to persons, property or the
environment as provided hereunder), or actions or claims with respect thereto,
except for liabilities specifically assumed or retained by Seller pursuant to
the terms of this Agreement (including, without limitation, amounts paid in
settlement and reasonable costs of investigation, reasonable attorneys' fees
and other legal expenses) resulting from third party claims (based upon the
allegations set forth in such claims whether or not ultimately successful) to
which Seller and/or the other Seller Indemnified Parties may become subject or
which Seller and/or the other Seller Indemnified Parties may suffer or incur,
either directly or indirectly, insofar as such losses, liabilities or damages
(or actions or claims in respect thereof) arise out of, are with respect to, or
are based upon:
(i) Buyer's breach of any representation or warranty set forth
in this Agreement or a breach of any covenant of Buyer contained
herein;
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<PAGE> 45
(ii) any obligations, liabilities or charges of Seller that
are expressly assumed by Buyer and that are not the Lessee's
obligations, liabilities or charges under the Property Lease; or
(iii) the operation and management of the Property (including
any liabilities incurred with respect thereto) at any time after
the Closing Date.
12.3 INDEMNIFICATION CLAIMS.
(a) Any claim for indemnification under this Agreement must be
asserted in writing by the Seller Indemnified Party or the Buyer
Indemnified Party, as the case may be, stating the nature of the losses
and the basis for the indemnification therefor within one (1) year from
the Closing Date [(i.e., meaning that the Seller Indemnified Party or the
Buyer Indemnified Party, as the case may be, must give a detailed notice
to the indemnifying party hereunder of such claim on or before the first
to occur of (A) sixty (60) days after the Seller Indemnified Party or the
Buyer Indemnified Party, as the case may be, first becomes aware of the
matter giving rise to such claim for indemnification, and (B) the four
hundred twenty-fifth (425th) day following the Closing Date (being one
year plus sixty (60) days) and if the indemnifying party hereunder
disputes or fails to satisfy its indemnity obligation therefor, the
Seller Indemnified Party or the Buyer Indemnified Party, as the case may
be, must commence, and serve the indemnifying party hereunder in, a legal
action on such claim no later than the five hundred forty-eighth (548th)
day following the Closing Date]; provided, however, that the foregoing
shall not limit any survival period hereunder which expressly exceeds one
(1) year.
(b) As soon as reasonably practicable after receipt by the party
seeking indemnification of notice of any liability or claim incurred by
or asserted against such party that is subject to indemnification under
this Agreement, the Seller Indemnified Party or Buyer Indemnified Party,
as the case may be, shall give notice thereof to the applicable
indemnifying party (i.e., Seller or Buyer, as the case may be), including
liabilities or claims to be applied against the indemnification threshold
established pursuant to this Section. The Seller Indemnified Party or
the Buyer Indemnified Party, as the case may be, may at its option demand
indemnity under this Section as soon as a claim has been threatened by a
third party, regardless of whether any actual losses have been suffered,
so long as such indemnified party shall in good faith determine that such
claim is not frivolous and that the indemnified party may be liable for,
or otherwise incur, losses as a result thereof and shall give notice of
such determination to the indemnifying party. The indemnified party
shall permit the indemnifying party, at its option and expense, to assume
the defense of any such claim by counsel selected by the indemnifying
party and reasonably satisfactory to the
indemnified party, and to settle or otherwise dispose of the same;
provided, however, that the indemnified party may at all times
participate in such defense at its expense; and provided further,
however, that the indemnifying party shall not, in defense of any such
claim, except with the prior written
41
<PAGE> 46
consent of the indemnified party in its sole and absolute discretion,
consent to the entry of any judgment or enter into any settlement that
does not include as an unconditional term thereof the giving by the
claimant or plaintiff in question to the indemnified party and its
affiliates a release of all liabilities in respect of such claims, or that
does not result only in the payment of money damages (which money damages
shall thereafter be paid by the indemnifying party hereunder). If the
indemnifying party shall fail to undertake such defense within thirty (30)
days after such notice, or within such shorter time as may be reasonable
under the circumstances, then the indemnified party shall have the right
to undertake the defense, compromise or settlement of such liability or
claim on behalf of and for the account of the indemnifying party.
12.4 LIMITATION. Notwithstanding anything to the contrary contained in
this Article 12, Seller's maximum liability for all indemnification obligations
under Section 12.1 above shall not exceed the sum of (a) the total value of the
Property, based upon the Units given as consideration, plus (b) the total value
of all other Units received by Seller and/or its affiliates pursuant to the
Other Contribution/Conversion Agreements.
ARTICLE 13
DEFAULT
13.1 BUYER DEFAULT. Notwithstanding anything to the contrary contained in
this Agreement, if (a) Buyer has not terminated this Agreement in accordance
with its terms prior to the expiration of the Contingency Period; (b) the sale
of the Property to Buyer is not consummated due to Buyer's failure to perform
any act required of Buyer hereunder, and (c) all of the conditions precedent to
Buyer's obligation to close have been satisfied or waived by Buyer, then Seller
shall execute and deliver to Buyer written notice of such breach, which notice
shall set forth complete information above the nature of the breach. Buyer
shall have a period of three (3) business days to cure such breach. If such
breach remains uncured beyond the three (3) business day period described
above, then, as Seller's sole and exclusive remedy in lieu of all other legal
or equitable remedies shall be either: (i) to cancel this Agreement, in which
event Seller shall have the right to recover from Buyer all of Seller's actual,
reasonable out-of-pocket third party costs, fees and expenses incurred in
connection with this transaction, or (ii) to specifically enforce the
provisions of this Agreement. Nothing herein shall be deemed to limit, in any
manner, Buyer's indemnity obligations described in Section 12.2 hereof.
13.2 SELLER DEFAULT. Notwithstanding anything to the contrary contained
in this Agreement, if Seller fails to perform any act required of Seller
hereunder, or otherwise is in breach of any of its representations or
warranties hereunder, then Buyer shall execute and deliver to Seller written
notice of such default or breach, which notice shall set forth complete
information about the nature of the default or breach. Seller shall have a
period of three (3) business days to cure such default or breach. If such
default or breach remains uncured beyond the three (3) business day period
described above, then Buyer's sole and exclusive remedy, in
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<PAGE> 47
lieu of any and all other remedies at law or in equity shall be either: (i) to
cancel this Agreement, in which event Buyer shall have the right to recover
from Seller all of Buyer's actual, reasonable out-of-pocket third party costs,
fees and expenses incurred in connection with this transaction, or (ii) to
specifically enforce the provisions of this Agreement. Nothing herein shall be
deemed to limit, in any manner, Seller's indemnity obligations described in
Section 12.1 hereof.
ARTICLE 14
BROKERAGE
14.1 BROKERAGE. Seller hereby represents and warrants to Buyer that
Seller has not dealt with any broker or finder with respect to the transaction
contemplated hereby and Seller hereby agrees to indemnify, defend and hold
harmless Buyer for any claim for brokerage commission or finder's fee asserted
by any person, firm or corporation claiming to have been engaged by Seller.
Buyer hereby represents and warrants to Seller that Buyer has not dealt with
any broker or finder in respect to the transaction contemplated hereby and
Buyer hereby agrees to indemnify, defend and hold harmless Seller for any claim
for brokerage commission or finder's fee asserted by a person, firm or
corporation claiming to have been engaged by Buyer.
ARTICLE 15
NOTICES
15.1 NOTICES. Any notice, request, demand, instruction or other document
to be given or served hereunder or under any document or instrument executed
pursuant hereto shall be in writing and shall be delivered personally, or
transmitted by facsimile (provided that the original thereof together with the
facsimile confirmation sheet shall thereafter be promptly sent by regular
United States Mail), or sent by United States registered or certified mail,
return receipt requested, or sent by overnight express courier, postage
prepaid, and shall be addressed to the parties at their respective addresses
set forth below, and the same shall be effective upon receipt if delivered
personally, or two (2) business days after deposit in the mails, if mailed as
aforesaid, or one (1) business day after deposit with an overnight express
courier, or immediately upon being sent by facsimile transmission. A party may
change its address for receipt of notices by service of a notice of such change
in accordance herewith.
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<PAGE> 48
If to Buyer: APGM Limited Partnership
c/o Arnold Palmer Golf Management LLC
Building 106, Montgomery Street
Presidio Main Post, P.O. Box 29355
San Francisco, California 94129
Attn: Mr. Peter Nanula
Facsimile: 415/561-4680
with a copy to: Rudnick & Wolfe
203 North LaSalle Street, Suite 1800
Chicago, Illinois 60601
Attn: Edward S. Goldman, Esq.
Facsimile: 312/630-5321
If to Seller: c/o Arnold Palmer Golf Management LLC
Building 106, Montgomery Street
Presidio Main Post, P.O. Box 29355
San Francisco, California 94129
Attn: Mr. George Haworth
Facsimile: 415/561-4680
ARTICLE 16
ADDITIONAL COVENANTS
16.1 ENTIRE AGREEMENT, AMENDMENTS AND WAIVERS. This Agreement, together
with the Property Lease, contains the entire agreement and understanding of the
parties with respect to the subject matter hereof, and the same may not be
amended, modified or discharged nor may any of its terms be waived except by an
instrument in writing signed by the party to be bound thereby.
16.2 FURTHER ASSURANCES. The parties each agree to do, execute,
acknowledge and deliver all such further acts, instruments and assurances and
to take all such further action before or after the closing as shall be
necessary or desirable to fully carry out this Agreement and to fully
consummate and effect the transactions contemplated hereby.
16.3 SURVIVAL AND BENEFIT. All agreements, obligations and indemnities of
the parties shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Except as otherwise expressly set forth
herein, all representations, warranties and indemnities shall survive Closing
for a period of one (1) year.
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<PAGE> 49
16.4 NO THIRD PARTY BENEFITS. This Agreement is for the sole and
exclusive benefit of the parties hereto and their respective successors and
assigns, and no third party is intended to or shall have any rights hereunder.
16.5 BUYER'S INVESTIGATION AND INSPECTIONS. Any investigation or
inspection conducted by Buyer, or any agent or representative of Buyer,
pursuant to this Agreement, in order to verify independently Seller's
satisfaction of any conditions precedent to Buyer's obligations hereunder or to
determine whether Seller's warranties are true and accurate, shall not affect,
or constitute a waiver by Buyer of, any of Seller's obligations hereunder or
Buyer's reliance thereon.
16.6 INTERPRETATION. The headings and captions herein are inserted for
convenient reference only and the same shall not limit or construe the
paragraphs or Sections to which they apply or otherwise affect the
interpretation hereof. This Agreement and any document or instrument executed
pursuant hereto may be executed in any number of counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument. Whenever under the terms of this Agreement the time for
performance of a covenant or condition falls upon a Saturday, Sunday or
holiday, such time for performance shall be extended to the next business day.
Otherwise all references herein to "DAYS" shall mean calendar days. Time is of
the essence of this Agreement.
16.7 GOVERNING LAW. With respect to general issues regarding enforcement
of this Agreement, this Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois. With respect to specific
issues relating to the particular golf course property, the laws of the State
where the Real Property is located shall govern and control.
16.8 ATTORNEYS' FEES. In any action or proceeding involving this
Agreement or the contents hereof, the prevailing party shall be entitled to
recover from the other party the prevailing party's reasonable costs and
expenses in such action or proceeding, including reasonable attorneys' fees.
16.9 ASSIGNMENT. Seller shall not have the right to assign this
Agreement, or any interest herein, to any other person or entity, without first
having obtained the prior written consent of Buyer (which consent may be
withheld at Buyer's sole and exclusive discretion). Buyer shall have the right
to assign this Agreement, or any interest herein, to any other party, provided
that in such instance the assignee shall assume all of the rights and
obligations of Buyer hereunder, and provided that the original named Buyer
shall continue to be responsible for all of "Buyer's" obligations hereunder.
Buyer shall have the right to designate a nominee, at closing, to which title
to the Property (or any portion thereof) shall be conveyed.
16.10 Intentionally Omitted.
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<PAGE> 50
16.11 OFFER AND ACCEPTANCE. Delivery by Buyer to Seller of a copy of this
Agreement executed by Buyer shall constitute an offer to purchase the Property
upon the terms and conditions herein set forth which shall be effective for a
period of seventy-two (72) hours following the time of such delivery. If
Seller fails to deliver a fully executed counterpart of this Agreement to Buyer
prior to expiration of such seventy-two (72) hour period, then at Buyer's sole
option, said offer may be revoked and rescinded in its entirety at any time
thereafter, and upon such revocation and rescission, said offer and this
Agreement shall have no further force or effect.
ARTICLE 17
COMPLIANCE WITH BULK SALES ACTS
17.1 Each party hereto waives compliance with the requirements of any and
all bulk sales regulations of any of the applicable jurisdictions in which the
Property is located (the "BULK SALES LAWS"). Notwithstanding the foregoing,
Seller shall indemnify, defend and hold harmless Buyer and Buyer's constituent
partners from and against any and all costs, expenses, damages, fines,
penalties, claims, suits or proceedings arising under any and all applicable
Bulk Sales Laws by reason of the transactions hereunder (which indemnity shall
expressly survive the Closing of this transaction hereunder for the longest
period permitted by applicable law and which indemnity shall not be subject to
any limitations on Buyer's ability to make claims or to seek recovery as may
otherwise be provided hereunder).
[Signature Page to Follow]
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<PAGE> 51
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
BUYER:
APGM LIMITED PARTNERSHIP, a
Delaware limited partnership
By: PALMER MANAGEMENT, LLC, a
Delaware limited liability company,
its general partner
By: ARNOLD PALMER GOLF MANAGEMENT LLC,
a Delaware limited liability company,
its managing member
By: /s/ George T. Haworth
---------------------------------
Name: George T. Haworth
-------------------------------
Its: CFO, Secretary & Treasurer
--------------------------------
SELLER:
CROFTON GOLF, LLC,
a Delaware limited liability company
By: ARNOLD PALMER GOLF MANAGEMENT LLC,
a Delaware limited liability company,
its managing member
By: /s/ Peter J. Nanula
---------------------------------
Name: Peter J. Nanula
-------------------------------
Title: President
------------------------------
47
<PAGE> 1
EXHIBIT 10.14
CONTRIBUTION/PURCHASE AND SALE AGREEMENT
by and between
OLYMPUS MONTCLAIR-CHICAGO GENERAL PARTNERSHIP
an Illinois general partnership
as Seller,
and
APGM LIMITED PARTNERSHIP,
a Delaware limited partnership
as Buyer
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C> <C>
1 DEFINITIONS ........................................................ 2
1.1 Definitions .................................................. 2
2 CONTRIBUTION/PURCHASE AND SALE; LEASE-BACK ......................... 11
2.1 Contribution/Purchase and Sale ............................... 11
2.2 Property Lease ............................................... 11
3 DEPOSIT AND PURCHASE PRICE ......................................... 12
3.1 Earnest Money Deposit in Escrow .............................. 12
3.2 Purchase Price and Handling of Earnest Money Deposit.......... 12
3.3 Closing Escrow ............................................... 13
4 TITLE, SURVEY AND SEARCHES ......................................... 13
4.1 Title ........................................................ 13
4.2 Survey ....................................................... 14
4.3 Searches ..................................................... 15
5 DUE DILIGENCE ...................................................... 16
5.1 Due Diligence Materials....................................... 16
5.2 Inspection ................................................... 17
5.3 Due Diligence Termination .................................... 18
6 REPRESENTATIONS AND WARRANTIES ..................................... 18
6.1 Representation and Warranties of Seller ...................... 18
6.2 Representations and Warranties of Buyer ...................... 24
6.3 Change In Circumstance ....................................... 25
6.4 Other Representations and Warranties ......................... 26
7 SELLER'S COVENANTS ................................................. 26
7.1 Covenants .................................................... 26
7.2 No Assumption of Seller's Obligations ........................ 28
8 CONDITIONS PRECEDENT ............................................... 29
8.1 Conditions Precedent to the Obligations of Buyer ............. 29
8.2 Conditions Precedent to the Obligations of Seller ............ 30
8.3 IPO Condition ................................................ 30
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C> <C>
9 DESTRUCTION, DAMAGE OR CONDEMNATION ............................... 31
9.1 Destruction or Damage ....................................... 31
9.2 Condemnation ................................................ 32
10 POSSESSION, PRORATIONS AND CLOSING COSTS .......................... 32
10.1 Possession .................................................. 32
10.2 Prorations .................................................. 33
10.3 Closing Costs ............................................... 33
11 CLOSING ........................................................... 34
11.1 Time and Place .............................................. 34
11.2 Seller's Deliveries ......................................... 34
11.3 Buyer's Deliveries .......................................... 36
11.4 Concurrent Deliveries ....................................... 36
11.5 Concurrent Transactions ..................................... 37
11.6 New York Style Closing ...................................... 37
11.7 Employees and Leasing Commissions ........................... 37
12 INDEMNIFICATION ................................................... 37
12.1 Seller's Indemnity .......................................... 37
12.2 Buyer's Indemnity ........................................... 38
12.3 Indemnification Procedures .................................. 39
13 DEFAULT ........................................................... 40
13.1 Buyer Default ............................................... 40
13.2 Seller Default .............................................. 41
14 INTENTIONALLY OMITTED ............................................. 42
15 NOTICES ........................................................... 42
15.1 Notices ..................................................... 42
16 ADDITIONAL COVENANTS .............................................. 44
16.1 Entire Agreement, Amendments and Waivers .................... 44
16.2 Further Assurances .......................................... 44
16.3 Survival and Benefit ........................................ 44
16.4 No Third Party Benefits ..................................... 44
16.5 Buyer's Investigation and Inspections ....................... 44
16.6 Interpretation .............................................. 44
16.7 Governing Law ............................................... 45
16.8 Attorneys' Fees ............................................. 45
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C> <C>
16.9 Assignment ................................................. 45
16.10 Palmer Name ................................................ 45
16.11 [Intentionally Omitted] .................................... 45
16.12 Offer and Acceptance ....................................... 45
17 UNITS .............................................................. 46
17.1 Accredited Investors ....................................... 46
17.2 Required Information ....................................... 46
17.3 No Offering ................................................ 46
17.4 Federal Income Tax Consequences of Transaction ............. 46
17.5 Debt Subject to Amount ..................................... 47
</TABLE>
LIST OF EXHIBITS
<TABLE>
<S> <C>
EXHIBIT A - Legal Description of the Land, the Indian Lakes Excluded
Property and the Nordic Hills Excluded Property
EXHIBIT B - Required Due Diligence Materials
EXHIBIT C - Contracts
EXHIBIT D-1 - List of Licenses and Permits
EXHIBIT D-2 - List of Operating Permits
EXHIBIT E - Unit Formula
EXHIBIT F - Intentionally Omitted
EXHIBIT G - List of Bookings
EXHIBIT H - Leases
EXHIBIT I - Commissions
EXHIBIT J - List of Reports, Assessments and Investigations
EXHIBIT K - Litigation
EXHIBIT L - List of Seller's Environmental Reports and Engineering Reports
EXHIBIT M - Intentionally Omitted
EXHIBIT N - Assignment of Licenses and Permits, Trade Names and Trademarks, and
Warranties
EXHIBIT O - Bill of Sale
EXHIBIT P - Property Lease
EXHIBIT Q - Trade Names and Trademarks
EXHIBIT R - List of Loan Documents
EXHIBIT S - Form of Deed
EXHIBIT T - List of Violations
EXHIBIT U - List of Equity Owners
</TABLE>
iii
<PAGE> 5
CONTRIBUTION/PURCHASE AND SALE AGREEMENT
THIS CONTRIBUTION/PURCHASE AND SALE AGREEMENT is made and entered into as
of May 14, 1998, by and between OLYMPUS MONTCLAIR-CHICAGO GENERAL PARTNERSHIP,
an Illinois general partnership ("SELLER"), and APGM LIMITED PARTNERSHIP, a
Delaware limited partnership ("BUYER").
R E C I T A L S:
A. Seller is the fee owner of the Land and the Improvements (as such terms
are hereinafter defined) comprising a resort, golf course and
convention/banquet facility commonly known as Indian Lakes Resort located in
Bloomingdale, Illinois [which excludes an approximately eleven (11) acre vacant
parcel owned by Seller, located adjacent to the Indian Lakes Resort and
generally described on Exhibit A attached hereto (the "INDIAN LAKES EXCLUDED
PROPERTY")]; and a resort, golf course and convention/banquet facility commonly
known as Nordic Hills Resort in Itasca, Illinois [which excludes two (2) vacant
parcels of approximately four (4) and five (5) acres and one (1) improved
parcel owned by Seller, each located adjacent to the Nordic Hills Resort and
each generally described on Exhibit A attached hereto (hereinafter collectively
called the "NORDIC HILLS EXCLUDED PROPERTY")]; and Seller has certain right,
title and interest in and to the Licenses and Permits, the Trade Names and
Trademarks, the Warranties and the FF&E (as such terms are hereinafter
defined).
B. Arnold Palmer Golf Management LLC ("PALMER LLC") and its principals are
in the process of sponsoring a real estate investment trust ("REIT"), the
shares of which will be offered to the public pursuant to an initial public
offering (the "IPO") of shares of common stock ("COMMON STOCK"). As part of
the IPO, it is contemplated that (i) the REIT will become the managing general
partner of Buyer, (ii) the limited partnership interests in Buyer shall be
divided into units ("UNITS"), each of which Units shall have substantially the
same economic attributes as a share of Common Stock in the REIT, and (iii) the
holders of Units will have the right to exchange Units for Common Stock (on a
one Unit for one share of Common Stock basis), subject to the restrictions and
limitations which will be established by an amended and restated partnership
agreement of Buyer and the organizational documents for the REIT which are in
effect as of the consummation of the date of the IPO.
C. In connection with the establishment of the REIT and the IPO, Seller
desires to sell, assign, transfer or otherwise convey and Buyer desires to
purchase and acquire, the Property (as hereinafter defined) upon and subject to
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Seller and Buyer
agree as follows:
<PAGE> 6
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS. When used herein, the following terms shall have the
respective meanings set forth opposite each such term:
ACT. As defined in Section 7.1(i).
AGREEMENT. This Contribution/Purchase and Sale Agreement, including
the Exhibits attached hereto which are by this reference incorporated
herein and made a part hereof.
ASSIGNMENT OF LICENSES AND PERMITS, TRADE NAMES AND TRADEMARKS, AND
WARRANTIES. As defined in Section 11.2(b).
BOOKINGS. Contracts for the use or occupancy of guest rooms, golf
facilities, or meeting and banquet facilities at either of the resorts,
or any combination thereof, as the case may be.
BREAK-UP FEE. As defined in Section 8.3.
BUYER INDEMNIFIED PARTIES. As defined in Section 12.1.
BUYER'S INDEMNITY. As defined in Section 5.2.
BUYER'S LOAN DOCUMENTS INDEMNITY. As defined in Section 12.2.
BUYER'S REPRESENTATIVES. As defined in Section 5.2.
CLOSING. The closing of the sale and purchase transaction
contemplated by this Agreement, as described in Article 11 of this
Agreement.
CLOSING DATE. The date of closing determined pursuant to Section
11.1 of this Agreement.
CODE. As defined in Section 17.4.
COMMON STOCK. As defined in the Recitals hereto.
CONSUMABLES. All operating supplies and inventories necessary for
the operation or maintenance of the Resort, including collateral services
and facilities, such as
2
<PAGE> 7
restaurants, bars, pools and meeting rooms, in accordance with the usual
and customary standards for the Resort and the resort hotel industry in
general, including all food and beverages (alcoholic, to the extent
transferable under applicable law, and non-alcoholic); chinaware;
glassware; linens; bedding; silverware; uniforms; towels; utensils;
tools; engineering, maintenance and housekeeping, cleaning and office
supplies, including soap, cleaning materials and matches; stationery
business forms, printed hotel and/or golf forms, scorecards and printing;
and other supplies of all kinds, in each case whether partially used,
unused or held in reserve storage for future use in connection with the
maintenance and operation of the Improvements, which are on hand on the
date hereof, subject to such depletion and restocking as shall occur and
shall be made in the normal course of business of the Resort but in
accordance with present operating standards for the Resort, excluding,
however, all items of personal property owned by tenants, guests,
employees or persons (other than Seller or any affiliate of Seller)
furnishing food or services to the Improvements.
CONTINGENCY PERIOD. The period beginning on the Contract Date and
ending at 5:00 p.m., Pacific Time, on the sixtieth (60th) day following
the Contract Date.
CONTRACT DATE. The date Seller delivers to Buyer an original, fully
executed counterpart of this Agreement, which date shall be set forth in
the introductory paragraph of this Agreement.
CONTRACT LIABILITY LIMITATION. As defined in Section 12.3(c).
CONTRACTS. All written or oral: (i) insurance, management,
leasing, service, maintenance, operating, repair, collective bargaining,
employment, employee benefit, severance, franchise, licensing, supply,
purchase, consulting, professional service, advertising, promotion,
public relations and other contracts and commitments in any way relating
to the Property or any part thereof, together with all supplements,
amendments and modifications thereto; and (ii) equipment leases and all
rights and options of Seller thereunder, including rights to renew or
extend the term or purchase the leased equipment, entered into by Seller
or its affiliates, relating to equipment or property located in or upon
the Real Property or used in connection therewith, together with all
supplements, amendments and modifications thereto.
DAYS OR DAYS. As defined in Section 16.6.
DEBT SUBJECT TO AMOUNT. The amount (including principal, accrued
interest and other costs) which would be required to pay off the loan
evidenced and/or secured by the Loan Documents, in full, as of the
Closing Date, and to extinguish the lien of the Loan Documents.
3
<PAGE> 8
DEED(S). That or those certain recordable Special Warranty Deed(s)
to be delivered by Seller to Buyer at the closing conveying fee simple
title to the Land and the Improvements to Buyer subject only to the liens
created by the Loan Documents and the Permitted Title Exceptions, which
Deeds shall be in the form of Exhibit S attached hereto and made a part
hereof.
DEPARTMENT. As defined in Section 7.1(i).
DUE DILIGENCE APPROVAL DATE. The last day of the Contingency
Period.
DUE DILIGENCE MATERIALS. As defined in Section 5.1.
EARNEST MONEY DEPOSIT. The sum of Three Hundred Fifty Thousand and
no/100 Dollars ($350,000.00), half of which shall be deposited by Buyer
with Escrowee, as escrowee, within three (3) business days after the
Contract Date and the other half of which shall be deposited on or before
the Due Diligence Approval Date to the extent so required under Section
3.1 hereof. The Earnest Money Deposit shall be held as earnest money
pursuant to the terms of this Agreement.
ENVIRONMENTAL LAWS. All federal, state and local statutes,
regulations, ordinances and rules relating to (i) the emission,
discharge, release or threatened release of a Hazardous Material into the
air, surface water, groundwater or land; (ii) the manufacturing,
processing, use, generation, treatment, storage, disposal,
transportation, handling, removal, remediation or investigation of a
Hazardous Material; or (iii) the protection of human health, safety or
the indoor or outdoor environment, including without limitation, the
Clean Air Act, the Federal Water Pollution Control Act, the Resource
Conservation and Recovery Act, the Comprehensive Environmental Response,
Compensation and Liability Act, the Occupational Safety and Health Act,
all amendments thereto, all regulations promulgated thereunder, and their
state or local statutory and regulatory counterparts.
EQUITY OWNERS. As defined in Section 17.1.
ESCROWEE. Chicago Title Insurance Company (national office located
at 161 North Clark Street, Chicago, Illinois).
EXISTING ENVIRONMENTAL MATTERS. As defined in Section 7.1(j).
FF&E. All fixtures, furnishings, equipment, vehicles, machinery,
signage, appliances, window coverings, carpeting and other tangible
personal property of every kind and character (excluding, however, the
Consumables and the Inventory) owned by Seller and situated in or upon
the Real Property, and all replacements, additions or accessories thereto
between the Contract Date and the Closing Date, as well as all such
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items required to maintain the Resort in conformance with the Resort's
usual and customary standards.
HAZARDOUS MATERIAL. Any solid, liquid or gaseous substance,
chemical, compound, product, byproduct, waste or material that is or
becomes regulated, defined or designated by any applicable federal, state
or local governmental authority or by any Environmental Law as hazardous,
extremely hazardous, imminently hazardous, dangerous or toxic, or as a
pollutant or contaminant, and shall include, without limitation,
asbestos, polychlorinated biphenyls, and oil, petroleum, petroleum
products and petroleum byproducts.
IMPROVEMENTS. Any and all buildings and improvements located on the
Land, including the following:
INDIAN LAKES
314-room hotel, with two 18-hole golf courses, indoor and
outdoor swimming pools, clubhouse, three restaurants, three
lounges, health club, three tennis courts, game room, pro
shop and convention and banquet facilities.
NORDIC HILLS
228-room hotel, with 18-hole golf course, indoor and heated
outdoor swimming pools, two restaurants, three lounges, three
tennis courts, eight racquetball courts, six bowling lanes,
health club, weight room and convention and banquet
facilities.
Improvements shall include any and all cart and walking paths, tees,
greens, holding ponds, water wells, effluent systems, irrigation lines,
drainage facilities, pump stations, cart barns, entrance and interior
(directional) signage, parking lots, drives and roads, and pavilions
located on the Land and serving either the golf courses, the building(s)
and structures containing the hotel rooms, restaurant(s), bars and other
facilities, or both.
INDEMNIFICATION NOTICE. As defined in Section 12.3(a).
INDEMNITEE. As defined in Section 12.3(a).
INDEMNITOR. As defined in Section 12.3(a).
INDIAN LAKES EXCLUDED PROPERTY. As defined in the Recitals hereto.
INSPECTIONS. As defined in Section 5.2.
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IPO. As defined in the Recitals hereto.
IPO CONDITION. As defined in Section 8.3.
IPO PERIOD. As defined in Section 8.3.
INVENTORY. All inventory of goods and merchandise owned by Seller
and held for resale in connection with Seller's retail operations on the
Land including, without limitation, golf equipment and golf related goods
sold in the pro shops.
LAND. The land legally described on Exhibit A attached hereto and
incorporated herein by this reference, and generally described as
follows:
INDIAN LAKES
Approximately 271 acres of land located in Bloomingdale,
Illinois (which specifically excludes the Indian Lakes
Excluded Property).
NORDIC HILLS
Approximately 102 acres of land located in Itasca, Illinois
(which specifically excludes the Nordic Hills Excluded
Property).
LEASES. All leases and occupancy agreement for the use or occupancy
of any portion of the Real Property, excluding, however, the Bookings.
LEGAL REQUIREMENTS. All laws, statutes, codes, acts, ordinances,
orders, judgments, decrees, injunctions, rules, regulations, permits,
licenses, authorizations, orders, directions and requirements of all
governments and governmental authorities having jurisdiction of the
Property (including, for purposes hereof, any local Board of Fire
Underwriters), and the operation thereof, and all deed restrictions or
other covenants, restrictions, or agreements, site plan approvals, zoning
or subdivision regulations and urban redevelopment plans governing or
regulating the use or operation of the Property.
LESSEE. Seller or such other affiliate of Seller as may be
designated by Seller in a written notice thereof delivered to Buyer no
later than thirty (30) days following the Contract Date, which lessee
shall, in any event, be subject to the reasonable approval of Buyer as
more particularly described in Section 2.2 hereof.
LESSEE PROPERTY. Collectively, the Inventory, the Consumables, the
Leases, the Contracts, the Bookings, and the Operating Permits.
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LICENSES AND PERMITS. All (i) licenses, permits, franchises,
certifications, authorizations, approvals, certificates of occupancy and
entitlements issued, approved or granted by any governmental authority or
body having jurisdiction over the Property and relating to the operation,
ownership or maintenance of the Property or any part thereof; (ii)
development rights in any way related to or used in connection with the
Property and its operations; and (iii) licenses, certifications,
authorizations, approvals, easements and rights of way required from
private parties to make use of utilities and to insure vehicular and
pedestrian ingress and egress to the Real Property; provided that the
term "Licenses and Permits" shall not include the Operating Permits as
defined below in this Section 1.1, except that the phrase "Licenses and
Permits" shall include, and the phrase "Operating Permits" shall not
include, those permits, licenses, etc. which would fall within the
definition of "Operating Permits" set forth below, but which may not
lawfully and effectively be held by Seller, as lessee under the Property
Lease, from and after the Closing Date.
LOAN DOCUMENTS. All loan agreements, notes, mortgages, deeds of
trust, assignments, guarantees, indemnities, and other instruments
evidencing, securing, guarantying or otherwise relating to any mortgage
or secured financing encumbering the Real Property or any portion
thereof.
MONETARY LIENS. As defined in Section 4.1.
NORDIC HILLS EXCLUDED PROPERTY. As defined in the Recitals hereto.
OFFEREES. As defined in Section 17.1.
OPERATING PERMITS. All licenses, authorizations or approvals
granted by any governmental authority or body having jurisdiction over
the Property and relating solely to the business operations currently
being conducted at the Property (e.g., liquor licenses, food and beverage
operating permits, gift shop operating permits, golf pro shop operating
permits, etc.).
PALMER IDENTIFICATION. As defined in Section 16.10.
PALMER LLC. As defined in Recital B hereof.
PERMITTED CHANGE. As defined in Section 6.3.
PERMITTED TITLE EXCEPTIONS. Those exceptions to title to the
Property approved or deemed approved by Buyer pursuant to Article 4
hereof.
PHASE I STUDY. As defined in Section 5.2.
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PROPERTY. Collectively, the Real Property, the Trade Names and
Trademarks, the Warranties, the Licenses and Permits, and the FF&E.
PROPERTY LEASE. As defined in Section 2.2.
PROSPECTUS. As defined in Section 17.2.
PURCHASE PRICE. Sixty-Two Million Five Hundred Thousand and no/100
Dollars ($62,500,000.00), less the Debt Subject to Amount, plus or minus
prorations as described in this Agreement, which shall be allocated as
follows:
INDIAN LAKES:
Golf Course $28,000,000.00
Personal Property $5,800,000.00
Hotel $6,100,000.00
NORDIC HILLS:
Golf Course $14,000,000.00
Personal Property $4,200,000.00
Hotel $4,400,000.00
Buyer and Seller agree that, for purposes of tax reporting, each party
shall utilize the amounts set forth in the above allocations.
REAL PROPERTY. The Land and the Improvements, together with all
improvements thereon or therein (including all replacements or additions
thereto between the Contract Date and the Closing Date); all systems,
facilities, fixtures, machinery, equipment and conduits to provide fire
protection, security, heat, exhaust, ventilation, air-conditioning,
electrical power, light, plumbing, refrigeration, gas, sewer and water to
the Land and Improvements (including all replacements or additions
thereto between the Contract Date and the Closing Date); all privileges,
rights (including water rights), easements, hereditaments and
appurtenances thereunto belonging; and all right, title and interest of
Seller in and to any streets, alleys, passages and other rights-of-way
included therein or adjacent thereto (before or after any vacation
thereof).
REIT. As defined in the Recitals hereto.
REQUIRED DUE DILIGENCE MATERIALS. The documents and other materials
listed on Exhibit B attached hereto and by this referenced incorporated
herein.
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RESORT. The Land, Improvements, Trade Names and Trademarks,
Warranties, Licenses and Permits and FF&E consisting of the properties
commonly known as Indian Lakes Resort and Nordic Hills Resort and the
operation thereof as hotel, golf course and convention/banquet
facilities.
SEARCH DEFECTS. As defined in Section 4.3.
SEARCHES. As defined in Section 4.3.
SECTION 9.02(d). As defined in Section 7.1(i).
SECTION 1445A. As defined in Section 11.2(j).
SECURITIES ACT. As defined in Section 17.2.
SELLER CAUSED MONETARY LIENS. As defined in Section 4.1.
SELLER INDEMNIFIED PARTIES. As defined in Section 5.2.
SELLER'S ENVIRONMENTAL REPORTS. As defined in Section 6.1(u).
SELLER'S RECEIVABLES. As defined in Section 10.2(b).
STRUCTURAL REPORT. As defined in Section 5.2.
SURVEY. A current as-built survey of the Land prepared by a
surveyor licensed by the state in which the subject land is located and
certified to Buyer, the Title Company and such other parties as Buyer
shall designate to be prepared in accordance with the current Minimum
Standard Detail Requirements for Land Title Surveys (excluding the
requirement for the placement of monuments) adopted by the American Land
Title Association and American Congress on Surveying and Mapping, setting
forth the legal description and street address of the Land and
Improvements and specifically showing thereon all buildings, and other
improvements (including fences, tees, greens, traps, cart and improved
walking paths, pumping facilities, holding ponds and golf course
facilities), the number of stories in such buildings, easements (visible
or recorded), building lines, curb cuts, party walls (if any), parking,
sewage, water, electricity, gas and other utility facilities (together
with recording information concerning the documents creating any such
easements and building lines), roads and means of physical and record
ingress and egress to and from the Real Property by public roads and the
gross area of the land included in the Land, and spotting improvements on
adjoining property which are within five (5) feet of the property lines
of the Land. The Survey shall specify and depict ponds, creeks, streams
and rivers and any areas of the Land which are located in a flood plain,
wetlands or other environmentally controlled, regulated or protected
area.
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SURVEY DEFECTS. As defined in Section 4.2.
TITLE COMMITMENT. A commitment for the Title Policy covering the
Land and Improvements issued by the Title Company in favor of Buyer, or
its nominee, in the full amount of the Purchase Price, showing Seller as
fee simple title holder of the Land and Improvements.
TITLE COMPANY. Chicago Title Insurance Company (national office,
located in Chicago, Illinois).
TITLE POLICY. An ALTA Owner's Title Insurance Policy covering the
Land and Improvements issued by the Title Company pursuant to the Title
Commitment, specifically containing "extended coverage" insuring over all
general exceptions raised in such form of title policy and containing the
following endorsements: zoning 3.1, owner's comprehensive, encroachment,
contiguity (if applicable), access, survey, tax parcel, subdivision
compliance, and creditor's rights.
TRADE NAMES AND TRADEMARKS. All of Seller's rights in and to the
trade names and trademarks set forth and described on Exhibit Q attached
hereto and incorporated herein by reference, and any and all derivatives
and forms thereof, together with all other service marks and logos,
whether or not registered; specifically excluding, however, the trade
names and trademarks relating to the name "Montclair Chop House".
UNINTENTIONAL LIEN AMOUNT LIMITATION. As defined in Section 4.1.
UNINTENTIONAL MONETARY LIENS. As defined in Section 4.1.
UNIT AMOUNT. As defined in Section 3.2.
UNITS. As defined in the Recitals hereto.
WARRANTIES. All guarantees and warranties in effect with respect to
the Property or any portion thereof, which, by their terms, shall survive
Closing, including, without limitation, all guarantees and warranties of
contractors, materialmen, manufacturers, mechanics or suppliers who have
been engaged by Seller or any of its agents to furnish labor, materials,
equipment or supplies to all or any portion of the Property.
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ARTICLE 2
CONTRIBUTION/PURCHASE AND SALE; LEASE-BACK
2.1 CONTRIBUTION/PURCHASE AND SALE. Subject to the conditions and on the
terms contained in this Agreement:
(a) Buyer agrees to acquire from Seller, and Seller agrees to sell,
assign, transfer or otherwise contribute to Buyer (i) the Land and
Improvements by the Deed, and (ii) all of Seller's right, title and
interest in the balance of the Real Property.
(b) Buyer agrees to acquire from Seller, and Seller agrees to sell,
assign, convey or otherwise contribute to Buyer all of Seller's right,
title and interest in and to the following items, free and clear of all
liens, claims, encumbrances and restrictions of every kind and
description, except for liens created by the Loan Documents and the
Permitted Title Exceptions: (i) the Licenses and Permits, (ii) the
Warranties and (iii) the Trade Names and Trademarks.
(c) Buyer agrees to acquire from Seller, and Seller agrees to sell,
convey, assign or otherwise contribute to Buyer, the FF&E (excluding
specifically, however, the Consumables and the Inventory, which are
hereby acknowledged not to be part of the Property being conveyed
hereunder), by good and sufficient bill of sale containing full
warranties of title free and clear of all liens, claims, encumbrances and
restrictions of every kind and description, except for the liens created
by the Loan Documents and the Permitted Title Exceptions.
(d) Nothing herein shall be deemed to be an agreement of Buyer to
engage, or otherwise be responsible for, any employees of Seller, (it
being understood that Buyer's acquisition of the Property hereunder shall
not be deemed an acquisition of any of Seller's business operations
currently being conducted at the Real Property, which business operations
shall continue to be conducted by the "lessee" pursuant to the terms of
the Property Lease described in Section 2.2 below). Moreover, except as
specifically provided herein to the contrary, Buyer shall not assume, or
become obligated with respect to, any liability or obligation of Seller.
As a further consequence of the foregoing, none of the Consumables or
Inventory is being sold or transferred to Buyer or being prorated between
Seller and Buyer, nor are any of the Contracts, Leases, Bookings or
Operating Permits being transferred to Buyer, but rather the "lessee"
under the Property Lease will continue to operate each Resort pursuant
thereto and shall, if the "Lessee" is Seller, retain its interest therein
or if the "Lessee" is a different entity, then such entity shall succeed
directly to Seller's interest therein or thereto.
2.2 PROPERTY LEASE. Notwithstanding anything herein to the contrary, it
is understood and agreed that Buyer (or any affiliate thereof taking title to
the Real Property at Closing), as
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lessor, and Seller, as lessee, shall be entering into one (1) lease for both
Resorts; such lease to be in substantially the form attached hereto as Exhibit
P (hereinafter referred to as the "PROPERTY LEASE") and to commence on the
Closing Date. In the event that Seller desires an entity other than Seller
itself to be the "Lessee" under the Property Lease, Seller shall deliver notice
thereof to Buyer, within thirty (30) days following the Contract Date,
identifying the proposed entity which it proposes to be the lessee under the
Property Lease, and Seller shall thereafter deliver to Buyer such other
information concerning such proposed lessee as Buyer may request. Buyer shall
have the right to approve the entity requested by Seller to be the lessee under
the Property Lease, which approval shall not be unreasonably withheld. Upon
such approval, the entity so requested shall be the "Lessee" under the Property
Lease being entered into at Closing and, at the Closing, Seller shall convey
all of its right, title and interest in and to the Lessee Property to said
approved entity by assignment or other conveyance documents acceptable to Buyer
and Buyer's counsel. If Buyer does not so approve the proposed entity as the
"lessee" under the Property Lease, Seller shall be the "lessee" thereunder.
Seller currently contemplates establishing a limited liability company, which
would be under common control with Seller or with one or both of its general
partners to be such "lessee" and if such is the case, Buyer hereby approves of
such entity being the "lessee".
ARTICLE 3
DEPOSIT AND PURCHASE PRICE
3.1 EARNEST MONEY DEPOSIT IN ESCROW. On or before the date which is three
(3) business days after the Contract Date, the parties shall establish a strict
joint order escrow with the Escrowee. Upon opening of said escrow, Buyer shall
cause one-half (1/2) of the Earnest Money Deposit to be deposited therein. In
the event this Agreement is in full force and effect as of the Due Diligence
Approval Date and has not otherwise been terminated by Buyer pursuant to
Article 4, Article 5 or Article 9 hereof, then, on or before the Due Diligence
Approval Date, Buyer shall cause the remaining balance of the Earnest Money
Deposit to be deposited in said strict joint order escrow. From and after the
Due Diligence Approval Date, the Earnest Money Deposit shall be non-refundable
except as otherwise provided herein. The Earnest Money Deposit (and interest
thereon net of any investment charges) shall be applied against the Purchase
Price at the Closing, as more specifically provided in Section 3.2 below.
Escrowee shall be directed by the parties to invest the entire Earnest Money
Deposit in money market accounts designated by Buyer, with interest thereon
being applied on account of the Purchase Price at the Closing, or if the
Closing does not occur for any reason, then such interest shall be paid to the
party entitled to the Earnest Money Deposit hereunder. The parties shall
direct Escrowee to disburse the Earnest Money Deposit with interest earned
thereon, to the party entitled to the same as set forth in this Agreement, or
as otherwise provided in Section 3.3 below.
3.2 PURCHASE PRICE AND HANDLING OF EARNEST MONEY DEPOSIT. At the Closing,
upon the terms and conditions set forth in this Agreement, Buyer shall pay the
Purchase Price (i.e., after reduction thereto on account of the Debt Subject to
Amount), subject to adjustment for any
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prorations and for the Earnest Money Deposit as described in Section 3.1 above.
Subject to applicable securities laws and regulations pertaining to a
securities offering exempt from registration under federal and state securities
laws, and subject to the terms and conditions described in Article 17 hereof,
the amount of $4,933,920.00 of the net Purchase Price (i.e., net of the Debt
Subject to Amount and net of the Earnest Money Deposit being applied against
the Purchase Price at Closing) shall be payable in the form of Units (the "UNIT
AMOUNT"), the number of Units being determined in accordance with the formula
described in Exhibit E attached hereto. The balance of the Purchase Price
shall be paid either by cash, cashier's or certified check or wire transfer of
funds. The Earnest Money Deposit (and interest thereon net of any investment
charges) shall be (i) paid to Seller and applied against the Purchase Price at
the Closing, or (ii) disbursed in accordance with the terms of this Agreement
if the Closing does not occur as contemplated hereby.
3.3 CLOSING ESCROW. On or prior to the Closing Date, the parties shall
establish a deed and money escrow with the Escrowee through which the
transaction contemplated hereby shall be closed. Upon opening of said escrow,
the Earnest Money Deposit (plus interest thereon net of any investment charges)
shall be disbursed from the above-described strict joint order escrow with
Escrowee and deposited in the deed and money escrow. The escrow instructions
for the deed and money escrow shall be in the form customarily used by the
Escrowee with such special provisions added thereto as may be required to
conform to the provisions of this Agreement. Said escrow shall be auxiliary to
this Agreement and this Agreement shall not be merged into nor in any manner
superseded by said escrow. The escrow costs and fees for each of the escrow
accounts described in this Article 3 shall be equally divided between Buyer and
Seller.
ARTICLE 4
TITLE, SURVEY AND SEARCHES
4.1 TITLE. Following the Contract Date, Buyer shall order and obtain the
Title Commitment, together with a copy of each recorded document raised as an
exception therein. If the Title Commitment raises any exceptions to title to
which Buyer objects, in its sole and absolute discretion, Buyer shall give
Seller written notice of such objection within fifteen (15) days of Buyer's
receipt of the Survey, of the Title Commitment and of copies of all of said
documents of record, but in no event shall such notice of objection be given
later than forty-five (45) days after the Contract Date, and Seller shall
thereafter have ten (10) days within which to advise Buyer as to Seller's
intention with respect to said objections [that is, whether Seller will, at or
prior to Closing, with respect to each such unpermitted exception (a) cause it
to be removed from the Title Commitment, (b) cause it to be insured over by the
Title Company to the reasonable satisfaction of Buyer, or (c) take no action
with respect thereto]; provided, however, that Seller shall be obligated to
cause (A) all Monetary Liens (as defined below) which are the result of the
acts or omissions of Seller or of any party claiming by, through or under
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Seller (hereinafter called "SELLER CAUSED MONETARY LIENS") to be removed and
(B) all other Monetary Liens which are not Seller Caused Monetary Liens
("UNINTENTIONAL MONETARY LIENS") to be removed up to a maximum amount, when
aggregated with Search Defects constituting Unintentional Monetary Liens, of
One Million and no/100 Dollars ($1,000,000.00) (the "UNINTENTIONAL LIEN AMOUNT
LIMITATION"). Notwithstanding the foregoing, (A) any delinquent real property
taxes, deeds of trust or mortgages (other than those which are part of the Loan
Documents), unpaid obligations owing to any governmental agency which, with the
passage of time, could give rise to a lien, mechanic's liens, attachment liens,
execution liens, tax liens for delinquent taxes and judgment liens,
(collectively, "MONETARY LIENS"), disclosed on the Title Commitment shall be
automatically deemed unpermitted exceptions and objected to by Buyer without
any further action or notice thereof to Seller and (B) any liens created by the
Loan Documents shall be deemed accepted by Buyer for purposes of this
Agreement. If Seller fails within its aforesaid ten (10) day period to give
any notice or to commit to have all unpermitted exceptions (other than Monetary
Liens for which no response from Seller shall be required) removed from the
Title Commitment or insured over to the reasonable satisfaction of Buyer or if
the amount of Unintentional Monetary Liens exceeds the Unintentional Lien
Amount Limitation (and Seller in its response does not commit to remove or
insure over the same), Buyer may elect, by written notice thereof delivered to
Seller within five (5) days of the expiration of Seller's aforesaid ten (10)
day period, either (i) to terminate this Agreement, in which event the Earnest
Money Deposit and any interest thereon, shall be forthwith returned to Buyer,
all obligations of the parties hereunder shall terminate (other than Buyer's
Indemnity which shall survive such termination for the period specified in
Section 5.2 hereof), and this Agreement shall otherwise have no further force
and effect, or (ii) to accept title to the Property subject to such unpermitted
exceptions (other than Monetary Liens, except for those Unintentional Monetary
Liens in excess of the Unintentional Lien Amount Limitation which Seller does
not commit to satisfy) as Seller has advised, or is deemed to have advised,
Buyer that Seller will not take any action, all of which unpermitted exceptions
shall thereafter be deemed "Permitted Title Exceptions," but with the express
understanding that Seller will be obligated, on or prior to Closing, to remove
or insure over all other exceptions in accordance with Seller's response notice
and to satisfy all Seller Caused Monetary Liens and all Unintentional Monetary
Liens up to the Unintentional Lien Amount Limitation (or such higher amount as
Seller commits in its response notice to Buyer). Buyer's failure to make
either election within five (5) days of the expiration of Seller's aforesaid
ten (10) day period shall be deemed an election under clause (ii) above.
Notwithstanding anything herein to the contrary, Seller shall be obligated to
cause to be removed or insured over at Closing, or, if Seller fails to do so,
Buyer shall be entitled to reduce the amount of the Purchase Price due at
Closing by the amount of, all Seller Caused Monetary Liens arising after the
date of the Title Commitment and all Unintentional Monetary Liens arising after
the date of the Title Commitment to the extent that there is then any
"available" Unintentional Lien Amount Limitation.
4.2 SURVEY. No later than thirty (30) days following the Contract Date,
Buyer shall obtain the Survey and deliver a copy thereof to Seller within ten
(10) days of its receipt thereof. If the Survey discloses any encroachments
onto the Land from any adjacent property,
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encroachments by or from the Land onto any adjacent property, violations of or
encroachments upon any recorded building lines, restrictions or easements
affecting the Land, matters including possible rights of third parties, or any
other matter to which Buyer objects, in its sole and absolute discretion (all
of which are hereinafter collectively called "SURVEY DEFECTS"), Buyer shall
give Seller notice of such objection within fifteen (15) days of Buyer's
receipt of the Survey, of the Title Commitment and of copies of all said
documents of record, but in no event shall such notice of objection be given
later than forty-five (45) days after the Contract Date, and Seller shall
thereafter have ten (10) days within which to advise Buyer whether Seller will,
on or before the Closing, with respect to each such Survey Defect (a) cause it
to be removed from the Survey, (b) cause it to be insured over by the Title
Company to the reasonable satisfaction of Buyer, or (c) take no action with
respect thereto. If Seller fails within its aforesaid ten (10) day period to
give Buyer any notice or to agree to have all of the Survey Defects removed or
insured over, Buyer may elect, by written notice thereof delivered to Seller
within five (5) days of the expiration of Seller's aforesaid ten (10) day
period, either (i) to terminate this Agreement, in which event the Earnest
Money Deposit and any interest thereon shall forthwith be returned to Buyer,
all obligations of the parties hereunder shall terminate (other than Buyer's
Indemnity, which shall survive such termination for the period of time
specified in Section 5.2 hereof), and this Agreement shall otherwise have no
further force and effect, or (ii) to accept the Property subject to such Survey
Defects as Seller has advised or is deemed to have advised Buyer that it will
take no action, all of which un-addressed Survey Defects shall thereafter be
deemed Permitted Title Exceptions for purposes hereof, but with the express
understanding that Seller will be obligated, on or prior to the Closing, to
cure all other Survey Defects in accordance with Seller's response notice.
Buyer's failure to make such election within five (5) days of the expiration of
Seller's aforesaid ten (10) day period shall be deemed an election under clause
(ii) above.
4.3 SEARCHES. Following the Contract Date, Buyer may obtain, at Buyer's
sole expense, searches of the records of the county recorders, secretaries of
state and district courts of the jurisdictions in which the Land is located
(collectively, the "SEARCHES") confirming the absence of security interests,
judgments, tax liens for delinquent taxes and bankruptcy proceedings which
affect or could affect the Property or any interest therein to be transferred
to Buyer pursuant to this Agreement (except for the Permitted Title Exceptions
and for equipment leases listed on Exhibit C attached hereto). If any of said
Searches disclose the existence of any security interests, judgments, tax liens
for delinquent taxes or bankruptcy proceedings which, in Buyer's sole judgment,
affect or could affect Seller's interest in the Property (all of which are
hereinafter collectively called "SEARCH DEFECTS"), Buyer shall give Seller
notice thereof within fifteen (15) days of its receipt of the Searches but in
no event later than fifteen (15) days prior to the expiration of the
Contingency Period, and Seller shall thereafter have ten (10) days within which
to advise Buyer as to each such Search Defect whether Seller will (a) on or
prior to Closing, secure the release, satisfaction or termination (as
appropriate) of same or (b) take no action with respect thereto; provided,
however, that Seller shall be obligated to satisfy all Search Defects which
constitute Seller Caused Monetary Liens and Unintentional Monetary Liens, but
only to the extent that when aggregated with the
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Unintentional Monetary Liens under Section 4.1 above, the total is less than
the Unintentional Lien Amount Limitation. If Seller fails within its aforesaid
ten (10) day period to give Buyer any notice or advises Buyer that with respect
to any one or more of the Search Defects, Seller will not agree to secure, on
or before the Closing, such release, satisfaction or termination (as
appropriate) (other than those Search Defects which constitute Monetary Liens
and which Seller is obligated to satisfy pursuant to the preceding sentence),
Buyer may elect, by written notice thereof delivered to Seller within five (5)
days of the expiration of Seller's aforesaid ten (10) day period, either (i) to
terminate this Agreement, in which event the Earnest Money Deposit and any
interest thereon shall forthwith be returned to Buyer, all obligations of the
parties hereunder shall terminate (other than Buyer's Indemnity which shall
survive such termination for the period specified in Section 5.2 hereof), and
this Agreement shall have no further force and effect, or (ii) to accept title
to the Property subject to such uncured Search Defects as Seller has advised,
or is deemed to have advised, Buyer that it will take no action with respect
thereto, all of which Search Defects shall thereafter be deemed Permitted Title
Exceptions, but with the express understanding that Seller will be obligated,
at or prior to Closing, to cure all of the other Search Defects in accordance
with Seller's response notice and to satisfy all Monetary Liens which Seller is
obligated to satisfy pursuant to the preceding sentence. Buyer's failure to
make either such election within five (5) days of the expiration of Seller's
aforesaid ten (10) day period shall be deemed an election under clause (ii)
above. Said Searches may be updated, at Buyer's sole cost and expense, as of
the Closing Date confirming the absence of any new or additional Search Defects
and should any new or additional Search Defects arise, Seller shall be
obligated to remove at or prior to Closing all such new Search Defects which
constitute Seller Caused Monetary Liens and to the extent of any then available
Unintentional Lien Amount Limitation, all such new Search Defects which
constitute Unintentional Monetary Liens.
ARTICLE 5
DUE DILIGENCE
5.1 DUE DILIGENCE MATERIALS. Seller shall use commercially reasonable
good faith efforts to secure and furnish to Buyer or make available to Buyer at
a reasonably convenient location, no later than fifteen (15) days after the
Contract Date, to the extent not previously delivered to Buyer, the Required
Due Diligence Materials described in Exhibit B hereto and any other materials
as Buyer may reasonably require and Seller shall, within said fifteen (15) day
period, advise Buyer which Required Due Diligence Materials are not available
or do not exist (such Required Due Diligence Materials as are delivered or made
so available, together with any other items furnished to Buyer under this
Section 5.1, being collectively referred to herein as the "DUE DILIGENCE
MATERIALS"). Any delay in the delivery of any of the Due Diligence Materials
will not extend the Contingency Period.
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5.2 INSPECTION. For the period commencing with the Contract Date and
continuing through the Closing Date or earlier termination of this Agreement
and subject to the other provisions of this Article 5, Seller shall permit
Buyer and any of its officers, employees, agents, attorneys, accountants,
appraisers, architects, engineers, consultants, lenders or other
representatives as designated by Buyer (collectively, "BUYER'S
REPRESENTATIVES") reasonable access to Seller's books and records relating to
the ownership and operation of the Property and access to and entry upon the
Real Property, to examine, inspect, measure and test the Property and to
conduct such financial audits and verifications as they shall deem reasonably
necessary (herein collectively, the "INSPECTIONS"). Seller shall cooperate
with Buyer and Buyer's Representatives in conducting the foregoing activities.
Without limitation of the foregoing, it is acknowledged that Buyer and Buyer's
Representatives shall have the right to conduct financial audits with respect
to Seller's operations at the Property for Seller's most recent three (3) full
fiscal years (if applicable), as well as with regard to Seller's current fiscal
year operations and Seller shall give customary representations and warranties
to Buyer's accountants with respect to financial matters as may be reasonably
requested by said accountants. Seller hereby consents to Buyer or Buyer's
Representatives (i) conducting a Phase I environmental site assessment of the
Property (the "PHASE I STUDY"), and (ii) conducting or obtaining an engineer's
structural report respecting the Improvements (the "STRUCTURAL REPORT"). The
costs of conducting and obtaining the Phase I Study and the Structural Report
shall be the responsibility of Buyer. In the event any of Buyer's
Representatives recommends additional environmental review after conducting the
Phase I Study, Seller shall permit Buyer and Buyer's Representatives access to
and entry upon the Real Property for such additional review; provided, however,
that no invasive inspection shall be performed without Seller's prior written
consent, which consent may be withheld in Seller's sole and absolute
discretion. Buyer shall give not less than forty-eight (48) hours' prior
written or oral notice to Peter Cyrus or Dennis Langley of Seller prior to any
entry upon the Land or Improvements for the purpose of conducting such
Inspections and such entry shall be scheduled and coordinated with Seller. At
Seller's election, a representative of Seller shall be present during any entry
by Buyer or Buyer's Representative upon the Property for conducting said
Inspections. Buyer shall not cause or permit any mechanic's liens,
materialmen's liens or other liens to be filed against the Property as a result
of the Inspections. Buyer shall repair and restore any damage to the Property
caused by entry upon the Land or Improvements by Buyer or the other Buyer's
Representatives, except to the extent Seller's negligence or willful acts
contributed to such damage. Prior to any entry upon the Land or Improvements
by Buyer or any of Buyer's Representatives, Buyer shall procure and maintain
commercial general liability insurance (and shall provide Seller with a
certificate evidencing the same) naming Seller and the manager at each Resort
as additional insureds, provide coverage on an occurrence basis, in amount
equal to $2,000,000.00 per occurrence and $3,000,000.00 in the aggregate.
Buyer shall indemnify, defend and hold harmless Seller and Seller's officers,
directors, shareholders, partners, tenants, agents and employees (collectively,
the "SELLER INDEMNIFIED PARTIES"), from and against any and all actions,
losses, costs, damages, claims, liabilities, and expenses (including court
costs and reasonable attorney's fees) brought, sought or incurred by or against
any of the Indemnified Parties resulting from, arising out of, or relating to,
entry upon the Land or Improvements by Buyer or any of the other Buyer's
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Representatives, except to the extent Seller's negligence or willful acts
contributed to same. The foregoing indemnification and repair and restoration
obligations (herein collectively referred to as "BUYER'S INDEMNITY") shall,
except to the extent covered by insurance, expressly survive the termination of
this Agreement for a period of one (1) year after the termination of this
Agreement and the indemnification obligation shall be subject to Buyer's
Contract Liability Limitation (as defined in Section 12.3(c) below).
5.3 DUE DILIGENCE TERMINATION. In addition to Buyer's right to approve
the Title Commitment, the Survey and the Searches, as described in Article 4
hereof, the obligation of Buyer to close the transaction contemplated hereby is
subject to Buyer's review of, approval of and satisfaction with, at its sole
cost and expense, on or before the Due Diligence Approval Date, the Due
Diligence Materials, the results of the Inspections and all other matters
respecting the Property. If Buyer, in its sole and absolute discretion, is not
satisfied with any of the foregoing, then Buyer shall have the right to
terminate this Agreement by delivery to Seller of written notice thereof
delivered at any time prior to 5:00 p.m., Pacific Time, on the Due Diligence
Approval Date, in which event the Earnest Money Deposit and all interest earned
thereon (net of investment charges) shall promptly be returned to Buyer, Buyer
shall reimburse Seller (or Seller shall reimburse Buyer, as the case may be, to
the end that Buyer bears one-half of the cost of the Survey), for one-half of
the cost of the Survey, this Agreement shall become null and void and neither
party shall have any further rights and obligations hereunder (subject,
however, to survival of Buyer's Indemnity for the period specified in Section
5.2). Buyer's failure to timely deliver its termination notice as provided in
this Section 5.3 shall be deemed a waiver of Buyer's contingencies as set forth
in this Article 5, whereupon the parties shall proceed to close the transaction
contemplated by this Agreement as provided herein.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES
6.1 REPRESENTATION AND WARRANTIES OF SELLER. To induce Buyer to execute,
deliver and perform this Agreement, Seller hereby represents and warrants to
Buyer on and as of the Contract Date and, by an update certificate to be
delivered at closing, on and as of the Closing Date, as follows:
(a) [Intentionally Omitted]
(b) [Intentionally Omitted]
(c) AUTHORITY. Seller is a duly organized and validly existing
general partnership, in good standing under the laws of the State of
Illinois. Seller has full capacity, right, power and authority to
execute, deliver and perform this Agreement and all documents to be
executed by Seller pursuant hereto, and all required action and
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approvals therefor have been duly taken and obtained. The individuals
signing this Agreement and all other documents executed or to be executed
pursuant hereto on behalf of Seller are and shall be duly authorized to
sign the same on Seller's behalf and to bind Seller thereto. This
Agreement and all documents to be executed pursuant hereto by Seller are
and shall be binding upon and enforceable against Seller in accordance
with their respective terms.
(d) CONTRACTS. To the best of Seller's knowledge, (i) attached as
Exhibit C to this Agreement and incorporated herein by this reference is
a complete schedule of all material Contracts (i.e., meaning Contracts
which have projected or actual payment obligations in excess of
$25,000.00 during any quarterly period or which are otherwise material to
the business operations currently being conducted at the Real Property)
and (ii) there are no defaults under any of the Contracts and all of the
Contracts are in good standing and in full force and effect. Seller (or
Seller's approved designated "lessee") shall retain all rights and
obligations under the Contracts following the Closing, as the continued
operator of the business being conducted at each Resort pursuant to the
Property Lease, and there are no Contracts which will be binding, or
impose any obligation, upon Buyer after Closing.
(e) LICENSES AND PERMITS. To the best of Seller's knowledge, (i)
attached as Exhibit D-1 to this Agreement and incorporated herein by this
reference is a complete list of all Licenses and Permits; (ii) Seller
currently possesses all Licenses and Permits necessary and required for
the current ownership, use and maintenance of the Real Property; (iii)
each of the Licenses and Permits is in full force and effect and in good
standing; (iv) Seller has not received written notice of any intention on
the part of the issuing authority to cancel, suspend or modify any of the
Licenses and Permits or to take any action or institute any proceedings
to effect such a cancellation, suspension or modification; and (v) no
notice to, filing or registration with, or License or Permit from, any
governmental or regulatory body or authority, or any other person or
entity is required to be made or obtained in connection with the
execution, delivery or performance of this Agreement by Seller.
(f) OPERATING PERMITS. To the best of Seller's knowledge, (i)
attached as Exhibit D-2 to this Agreement and incorporated herein by this
reference is a complete list of all Operating Permits; (ii) Seller
currently possesses all Operating Permits necessary and required for the
lawful operation of Seller's business at the Real Property; (iii) each of
the Operating Permits is in full force and effect and in good standing;
(iv) Seller has not received written notice of any intention on the part
of the issuing authority to cancel, suspend or modify any of the
Operating Permits or to take any action or institute any proceedings to
effect such a cancellation, suspension or modification; and (v) no notice
to, filing or registration with, or Operating Permit from, any
governmental or regulatory body or authority, or any other person or
entity is required to be made or
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obtained in connection with the execution, delivery or performance of
this Agreement by Seller.
(g) FF&E. Seller has title to all of the furniture, fixtures and
equipment located on the Property and used by Seller in the operation of
the Resort free and clear of liens, security interests, encumbrances and
leases (other than for the Permitted Title Exceptions and the Loan
Documents), except that Seller does not have such title (i) to the
furniture, fixtures and equipment owned by tenants, licensees and
concessionaires, utility companies and guests and other customers or to
the office equipment and furniture located in the Montclair Hotel
Investors, Inc.'s office in the executive house located on the Indian
Lakes Resort; or (ii) to the furniture, fixtures and equipment listed on
Exhibit C, which is leased by Seller from third parties.
(h) BOOKINGS. To the best of Seller's knowledge, attached as
Exhibit G to this Agreement and incorporated herein by this reference is
a list of all material Bookings (Bookings where the amount due is at
least $20,000.00 for an individual Booking) for periods from and after
the day which is thirty (30) days after the date of this Agreement. This
representation and warranty shall not be deemed to be, in any manner, a
guarantee of any Bookings, or of the income potential represented
thereby.
(i) LEASES. Attached as Exhibit H to this Agreement and
incorporated herein by this reference is a complete list of all Leases.
Except as disclosed in Exhibit H, to the best of Seller's knowledge,
there is no default under any Lease and all of the Leases are in good
standing and in full force and effect. Seller owns all right, title and
interest of the lessor under each Lease.
(j) COMMISSIONS. To the best of Seller's knowledge, attached as
Exhibit I to this Agreement and incorporated herein by this reference is
a list of all outstanding commissions relating to the Leases.
(k) VIOLATIONS OF LAWS. Except as disclosed on Exhibit T, (i) to
the best of Seller's knowledge, the Improvements are presently used and
operated in compliance, in all material respects, with all Licenses and
Permits, all Legal Requirements and all covenants, easements and
restrictions affecting the Property and (ii) Seller has not received any
written notice from any governmental authority having jurisdiction of
violations of any Legal Requirements pertaining to the Property which
have not been heretofore entirely corrected.
(l) CONDITION OF PROPERTY. To the best of Seller's knowledge,
attached as Exhibit J to this Agreement is a list of all reports,
assessments and investigations of third parties commissioned by Seller or
within Seller's possession or control respecting the physical condition
of the Improvements and the condition of soils at the Land, and Seller
has delivered to Buyer (or will deliver to Buyer as part of the Required
Due Diligence
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Materials) complete copies thereof. To the best of Seller's knowledge
and except as disclosed in the reports, assessments, investigations and
other materials delivered by Seller to Buyer or disclosed in Buyer's own
investigations and reports, there are not any material and adverse latent
structural defects in the Improvements. For purposes of the foregoing,
latent structural defects are such matters which could not be discovered
by those inspections and investigations which would be undertaken prior
to closing by a reasonably prudent purchaser of real property similar to
the Property.
(m) LITIGATION. Except as set forth on Exhibit K to this Agreement
and incorporated herein by this reference, Seller has not been served
with any action, order, writ, injunction, judgment or decree outstanding,
causes of action or other litigation or proceeding pending nor, to the
best of Seller's knowledge, are any such matters threatened, with respect
to the ownership or operation of the Property or any part thereof
(including, without limitation, disputes with mortgagees, governmental
authorities, utilities, contractors, adjoining land owners or suppliers
of goods or services).
(n) CONDEMNATION. To the best of Seller's knowledge, Seller has not
received written notice from any governmental authority having
jurisdiction regarding any existing or pending (i) condemnation of any
part of the Real Property, (ii) widening, change of grade or limitation
on use of streets abutting the Real Property or (iii) change in the
zoning classification of the Real Property.
(o) ASSESSMENTS. To the best of Seller's knowledge, Seller has
received no written notice from any governmental authority having
jurisdiction (i) of any pending liens, special taxes or assessments to be
made against the Property by any governmental agency or authority or (ii)
of any planned change in the tax assessment or assessed valuation of the
Real Property.
(p) WATER. To the best of Seller's knowledge, the Real Property has
sufficient water and water rights provided by the municipalities in which
the Real Property is located as required or necessary to operate each
Resort, including without limitation, the subject golf courses, in the
manner in which they have historically been operated by Seller.
(q) UTILITIES. To the best of Seller's knowledge, all water, sewer,
gas, electric, telephone and drainage facilities and all other utilities
and public or quasi-public improvements upon or adjacent to the Real
Property required by law or for the normal operation of the Property are
installed, are connected under valid permits, are in good working order,
are adequate to service the Property and are fully paid for. Seller has
no knowledge of any fact or condition which would result in the permanent
termination or impairment in the transmitting of utility services to the
Property.
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(r) CONTRACTS FOR SALE. Seller has not entered into any other
contracts for sale of the Property or any portion thereof or interest
therein which have not been terminated, nor do there exist any rights of
first refusal, options to purchase or offers by Seller to sell the
Property or any portion thereof.
(s) NO CONFLICT OR VIOLATION. Neither the execution, delivery or
performance of this Agreement by Seller, or any related documents or
instruments, nor the consummation of the transactions contemplated
hereby, nor compliance by Seller with any of the provisions hereof, will
(a) result in a breach of or constitute a default under any agreement to
which Seller is bound, (b) violate or conflict with any provision of the
organizational documents of Seller, or (c) violate, conflict with, or
result in a breach of any provision of, or constitute a default under, or
result in the termination or acceleration under, or result in the
creation of any encumbrance upon the Property under, any contract,
commitment, license, permit, agreement or other instrument or obligation
to which Seller is a party or by which the Property is bound, or (d)
violate any order, judgment, injunction, award or decree of any court or
arbitration body, or any governmental, administrative or regulatory
authority, or any other body, by or to which Seller or the Property are
or may be bound or subject.
(t) LABOR MATTERS. Seller does not have any employees at the
Property.
(u) ENVIRONMENTAL MATERIALS. Attached as Exhibit L to this
Agreement and incorporated herein by this reference is a list of all
reports, assessments, investigations or audits commissioned from third
parties by Seller or within Seller's possession or control respecting the
environmental condition of, or environmental issues concerning, the Real
Property ("SELLER'S ENVIRONMENTAL REPORTS"). Seller has heretofore
delivered to Buyer, or shall hereafter deliver to Buyer as part of the
Required Due Diligence Materials to be furnished hereunder, true, correct
and complete copies of the Seller's Environmental Reports. Except as may
be disclosed in Seller's Environmental Reports, to the best of Seller's
knowledge, Seller has not caused or permitted any Hazardous Material to
be released or disposed of in violation of any applicable Environmental
Law in, on, under, to or from the Real Property, the discovery or
remediation of which release or disposal would have a material adverse
effect on the business conducted on the Property or which would expose
Buyer to a material liability following the Closing.
(v) BANKRUPTCY. No attachments, execution proceedings, assignments
for the benefit of creditors, insolvency, bankruptcy, reorganization or
other proceedings are pending or, to the best of Seller's knowledge,
threatened against Seller or any general partners of Seller, nor are any
of such proceedings contemplated by Seller or any general partners of
Seller.
(w) [Intentionally Omitted]
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(x) ENCUMBRANCES. The interest of Seller in the Licenses and
Permits, the Trade Names and Trademarks and the Warranties is or will as
of the Closing be free and clear of all encumbrances and has not been
assigned to any other person, except to the Lessee for use in the
operation of the Property pursuant to the Property Lease.
(y) [INTENTIONALLY OMITTED]
(z) [INTENTIONALLY OMITTED]
(aa) LIABILITIES. Except as disclosed in the Due Diligence
Materials delivered by Seller to Buyer, or as otherwise set forth in the
items listed in Exhibits to this Agreement or in the Title Commitment, to
the best of Seller's knowledge, there are no material obligations or
liabilities of Seller relating to the Property which shall be binding
upon Buyer or the Property after Closing.
(bb) OPERATING STATEMENTS. TO THE BEST OF SELLER'S KNOWLEDGE, THE
OPERATING STATEMENTS FOR THE PROPERTY FOR THE PERIODS AUGUST 23, 1995
THROUGH DECEMBER 31, 1995, THE 1996 AND 1997 CALENDAR YEARS AND JANUARY
1, 1998 THROUGH MARCH 31, 1998, DELIVERED BY SELLER TO BUYER FAIRLY
PRESENT THE FINANCIAL RESULTS OF OPERATION OF SELLER'S BUSINESS AT THE
PROPERTY FOR THE PERIODS THEREOF IN ALL MATERIAL RESPECTS.
(cc) BROKERS. Seller has not dealt with any broker or finder with
respect to the transactions contemplated by this Agreement.
(dd) LOAN DOCUMENTS. Attached as Exhibit R to this Agreement and
incorporated herein by this reference is a complete list of all Loan
Documents and Seller has received no written notice from the lender(s)
thereunder asserting Seller's defaults under any of the Loan Documents.
The phrase "to Seller's knowledge," or "to the best of Seller's
knowledge," as used in this Agreement, refers to the actual current knowledge
of Peter Cyrus and Dennis Langley, without duty of inquiry or investigation,
except as follows. Prior to the date of this Agreement, a copy of this Article
6 has been presented to the on-site general manager of each Resort for review
and comment on the accuracy thereof, and the information provided by such
general managers in their written response which shall reflect their actual
knowledge after due inquiry shall be deemed to be included in Seller's
knowledge and has been taken into account by Seller in making the warranties
and representations contained in this Article 6. The naming of the individuals
set forth in this Section shall in no way be deemed to impose any personal
liability upon such individuals. The representations and warranties of Seller
contained in this Section 6.1 are true, correct and complete and, except as set
forth in the update certificate, shall be deemed remade by Seller as of the
Closing with the same force and effect as if made at that time. The
representation and warranty of Seller set forth in Section 6.1(c), as well as
Buyer's right to enforce and/or seek damages for any breach of the same, shall
survive the Closing indefinitely.
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All other representations and warranties of Seller set forth in Section 6.1, as
well as Buyer's right to enforce and/or seek damages for any breach of the
same, shall survive the Closing for a period of one (1) year [(i.e., meaning
that Buyer must give a detailed notice to Seller of such claim on or before the
first to occur of (A) sixty (60) days after Buyer first becomes aware thereof
and (B) the four hundred twenty-fifth (425th) day following the Closing Date
(being one year plus sixty (60) days, all as more particularly described in
Section 12.3 below) and if Seller disputes or fails to satisfy its indemnity
obligation therefor, Buyer must commence, and serve Seller in, a legal action
on such claim no later than the five hundred forty-eighth (548th) day following
the Closing Date]. Seller's total liability under this Section 6.1 shall be
subject to Seller's Contract Liability Limitation (as defined in Section
12.3(c) below).
6.2 REPRESENTATIONS AND WARRANTIES OF BUYER. To induce Seller to execute,
deliver and perform this Agreement, Buyer hereby represents and warrants to
Seller on and as of the date hereof and on and as of the Closing Date as
follows:
(a) [INTENTIONALLY OMITTED]
(b) AUTHORITY. Buyer is a duly organized and validly existing
limited partnership in good standing under the laws of the State of
Delaware. Buyer has full capacity, right, power and authority to
execute, deliver and perform this Agreement and all documents to be
executed by Buyer pursuant hereto, and all required action and approvals
therefor have been duly taken and obtained. The individuals signing this
Agreement and all other documents executed or to be executed pursuant
hereto on behalf of Buyer are and shall be duly authorized to sign the
same on Buyer's behalf and to bind Buyer thereto. This Agreement and all
documents to be executed pursuant hereto by Buyer are and shall be
binding upon and enforceable against Buyer in accordance with their
respective terms.
(c) NO CONFLICT OR VIOLATION. Neither the execution, delivery or
performance by Buyer of this Agreement, or any related documents or
instruments, or the consummation of the transaction contemplated hereby,
nor compliance by Buyer of any of the provisions hereof, will: (a)
result in a breach of or constitute a default under any agreement to
which Buyer is bound; (b) violate or conflict with any provision of
Buyer's organization documents; (c) violate, conflict with or result in a
breach of any provision of, or constitute a default under, any contract
or agreement to which Buyer is a party or by or to which Buyer is or may
be bound or subject, or (d) violate any order, judgment, injunction,
award or decree of any court or arbitration body, or any governmental,
administrative or regulatory authority, or any other body, by or to which
Buyer is or may be bound or subject.
(d) APPROVALS. No approval or consent of any foreign or domestic
governmental, administrative or regulatory body or any other person or
entity is required
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for the execution, delivery or performance by Buyer of this Agreement, or
any related documents or instruments, to which Buyer is a party.
(e) BROKERS. Buyer has not dealt with any broker or finder with
respect to the transactions contemplated by this Agreement.
The representations and warranties of Buyer contained in this Section 6.2
are true, correct and complete and except as set forth in the update
certificate, shall be deemed remade by Buyer as of the Closing with the same
force and effect as if made at that time. The representation and warranty of
Buyer set forth in Section 6.2(b), as well as Seller's right to enforce and/or
seek damages for any breach of the same, shall survive the Closing
indefinitely. All other representations and warranties of Buyer set forth in
Section 6.2, as well as Seller's right to enforce and/or seek damages for any
breach of the same, shall survive the Closing for a period of one (1) year
[(i.e., meaning that Seller must give a detailed notice to Buyer of such claim
on or before the first to occur of (A) sixty (60) days after Seller first
becomes aware thereof and (B) the four hundred twenty fifth (425th) day
following the Closing Date (being one year plus sixty (60) days, all as more
particularly described in Section 12.3 below), and if Buyer disputes or fails
to satisfy its indemnity obligation therefor, Seller must commence, and serve
Buyer in, a legal action on such claim not later than the five hundred
forty-eighth (548th) day following the Closing Date]. Buyer's total liability
under this Section 6.2 shall be subject to Buyer's Contract Liability
Limitation (as defined in Section 12.3(c) below).
6.3 CHANGE IN CIRCUMSTANCE. Seller shall notify Buyer promptly if Seller
becomes aware of any transaction or occurrence prior to the Closing Date which
would make any of the representations or warranties of Seller contained in this
Agreement not true in any material respect, except that any transaction or
occurrence which Seller is permitted to take or takes with Buyer's consent
under Section 7.1 below (hereinafter called a "PERMITTED CHANGE") shall not
require notice to Buyer under this Section 6.3. Seller shall deliver to Buyer
at closing a certificate confirming that the representations and warranties
contained in this Agreement are true and correct as of the Closing Date or,
where applicable, describe any change in facts or circumstance other than
Permitted Changes that would make any of the representations or warranties
contained in this Agreement not true in any material respect. It shall be a
condition to Buyer's obligation to close that no such material change, which
would materially and adversely affect Buyer, has occurred on or prior to the
Closing Date; it being expressly understood and agreed that in no event shall
any Permitted Change be deemed to constitute a material or material and adverse
change under this Agreement. If any such material and adverse change has
occurred, whether brought to the attention of Buyer by Seller's closing
certificate or through Buyer's due diligence investigation of the Property or
otherwise, Buyer shall have the right, without limitation on other remedies
which may be available to Buyer hereunder, to terminate this Agreement by
written notice to Seller, in which event the Earnest Money Deposit and any
interest thereon shall be forthwith returned to Buyer; provided, however, that
if such material and adverse change is not the result of a wilful or
intentional act or omission of Seller, then Buyer's sole remedies shall be
either such termination or closing subject thereto, without
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any adjustment in the Purchase Price and without a right to damages as a
consequence of such non-wilful or unintentional act or omission of Seller.
6.4 OTHER REPRESENTATIONS AND WARRANTIES. Each party hereby acknowledges
and agrees that except for the representations and warranties expressly set
forth in this Agreement, neither the other party nor any employee, agent,
officer, director, attorney or affiliate of said other party has made any other
representation or warranty and no other representation or warranty is to be
implied or to be relied upon in connection with the transactions contemplated
by this Agreement (unless set forth in a separate instrument executed by the
party to be charged therewith).
BUYER HEREBY ACKNOWLEDGES AND AGREES THAT, EXCEPT AS EXPRESSLY SET FORTH
IN THIS AGREEMENT, THE PROPERTY SHALL BE CONVEYED TO BUYER ON AN "AS-IS,
WHERE-IS" WITH ALL FAULTS BASIS WITHOUT ANY REPRESENTATIONS OR WARRANTIES OF
ANY KIND, EXPRESS OR IMPLIED, EITHER ORAL OR WRITTEN, MADE BY SELLER OR ANY
AGENT OR REPRESENTATIVE OF SELLER WITH RESPECT TO THE PROPERTY, INCLUDING
WITHOUT LIMITATION, WITH RESPECT TO THE PHYSICAL CONDITION OF THE PROPERTY OR
WITH RESPECT TO THE EXISTENCE OR ABSENCE OF HAZARDOUS MATERIALS IN, ON, UNDER,
ABOUT OR AFFECTING THE PROPERTY. EXCEPT AS EXPRESSLY SET FORTH IN THIS
AGREEMENT, SELLER HAS NOT MADE AND DOES NOT HEREBY MAKE ANY WARRANTY OR
REPRESENTATION WHATSOEVER AND HEREBY DISCLAIMS ANY IMPLIED WARRANTY REGARDING
THE FITNESS FOR A PARTICULAR PURPOSE, QUALITY OR MERCHANTABILITY OF THE
PROPERTY OR ANY PORTION THEREOF AND BUYER WILL BE RELYING UPON ITS OWN
INVESTIGATIONS IN ACQUIRING THE PROPERTY.
ARTICLE 7
SELLER'S COVENANTS
7.1 COVENANTS. Seller covenants and agrees to the following, which
covenants and agreements shall survive Closing, shall have been complied with
as of the Closing Date, and shall not be deemed merged in the conveyance
contemplated herein:
(a) NOTICES OF LITIGATION, CLAIMS, PROCEEDINGS AND OTHER MATTERS.
Subject to Seller's rights under Section 7.1(b) below, in the event that
Seller, prior to the Closing, should receive written notice of any lien,
claim, cause of action or other matter affecting the ownership, use,
occupancy or operation of the Property, Seller shall advise Buyer in
writing (providing Buyer with a copy thereof).
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(b) FURTHER LIENS AND ENCUMBRANCES. Except for liens, encumbrances,
covenants, conditions, rights of way and other similar matters of title
which can be removed by Seller prior to or at Closing and which Seller
does so remove prior to or at Closing, Seller will not voluntarily
subject the Property to any additional liens, encumbrances, covenants,
conditions, rights of way or other similar matters of title. Without the
prior written consent of Buyer which shall not be unreasonably withheld
or delayed, Seller will not hereafter materially change any of the terms,
covenants or conditions of any of the existing liens, encumbrances,
covenants, conditions, easements, rights of way or other similar
instruments affecting title or enter into any new material agreement
affecting title to the Property which, in either case, cannot be
terminated prior to or at Closing without cost or penalty.
(c) LEASES; CONTRACTS. Seller will not hereafter materially amend
any of the Leases or the Contracts or enter into new Leases or Contracts
affecting the Property, except (i) in the ordinary course of business or
(ii) with the prior written consent of Buyer, which consent shall not be
unreasonably withheld or delayed.
(d) PROPERTY MANAGEMENT AND OPERATION. Seller shall cause the
Property to be operated and maintained in a manner substantially
consistent with Seller's historical practices. Seller shall promptly
notify Buyer of any casualty to the Property costing in excess of
$50,000.00 to repair or reconstruct or of any condemnation of the
Property or any portion thereof of which Seller receives written notice
and in either event, occurring after the Contract Date.
(e) COOPERATION WITH BUYER'S REPRESENTATIVES. Subject to the
provisions of Article 5, Seller shall cooperate with Buyer and Buyer's
Representatives in providing information and materials pertaining to the
ownership, operation, or marketing of the Property, including access to
the Property; provided, however, that Seller shall not be obligated to
provide any information which is subject to the attorney-client privilege
or which is proprietary in nature and, in either event, is not directly
and materially related to the ownership, operation or marketing of the
Property.
(f) VIOLATION OF REPRESENTATIONS. From the Contract Date to the
Closing Date, with the exception of those matters which constitute
Permitted Changes hereunder, Seller shall not take any action or omit to
take any action which action or omission would have the effect of
violating any of the representations, warranties, or covenants of Seller
contained in this Agreement in any material respect.
(g) GOVERNMENTAL INQUIRIES. Seller hereby acknowledges and agrees
that from the Contract Date to the Closing Date or earlier termination of
this Agreement, Buyer may contact any and all federal, state and local
governmental entities, agencies and departments in order to inquire about
and investigate any and all matters relating to the Property.
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(h) INSURANCE. From the Contract Date to the Closing Date, Seller
shall maintain or cause to be maintained in full force and effect
liability, casualty and other insurance upon and in respect to the
Property as was being maintained by Seller as of the Contract Date.
(i) SECTION 9.02(d). At least ten (10) days prior to the Closing,
Seller shall cause to be delivered to Buyer a "clearance" statement from
the Illinois Department of Revenue (the "DEPARTMENT") which may be issued
at any time after May 7, 1998, or other evidence satisfactory to Buyer,
that the sale to Buyer hereunder is not subject to, and does not subject
Buyer to liability under, Section 9.02(d) ("SECTION 9.02(d)") of the
Illinois Income Tax Act (the "ACT"). If said clearance or other evidence
is not so delivered to Buyer, as aforesaid, then Seller shall, or Buyer
may, notify the Department of the intended sale and request the
Department to make a determination as to whether the Seller has an
assessed, but unpaid, amount of tax, penalties, or interest due under the
Act. Seller agrees that Buyer may, at the Closing, deduct and withhold
from the proceeds that are due Seller the amount necessary to comply with
the withholding requirements imposed by Section 9.02(d) based upon the
best information available at that time as to Seller's liability under
the Act. Buyer shall deposit the amount so withheld in escrow with the
closing escrowee pursuant to the terms and conditions acceptable to
Seller and Buyer, but in any event, complying with Section 9.02(d).
(j) ENVIRONMENTAL REMEDIATION. Seller shall (i) complete the
remediation contemplated by the reports listed at Items 10, 11 and 12 of
Exhibit L to the extent necessary so that no further remediation letters
are issued by the Illinois Environmental Protection Agency with respect
thereto and (ii) shall test and, to the extent necessary, remediate to a
residential standard the area surrounding the underground storage tank
disclosed in a letter from Dennis Langley to George Haworth dated May 6,
1998 (the foregoing are hereinafter collectively called the "EXISTING
ENVIRONMENTAL MATTERS"). Notwithstanding the introductory paragraph of
this Section 7.1, Seller shall not be in default nor shall Buyer not be
obligated to close if it is not reasonable or practicable to complete
remediation of the Existing Environmental Matters by the Closing Date,
but Seller's obligation to complete such remediation and Seller's
indemnity of Buyer with respect thereto shall survive the Closing without
a time or dollar limitation.
7.2 NO ASSUMPTION OF SELLER'S OBLIGATIONS. Buyer shall not assume, or
become obligated with respect to, any obligation of Seller, including, but not
limited to, the following:
(a) Obligations of Seller now existing or which may arise prior to
the Closing Date with respect to any accounts payable or other payables,
except to the extent that Buyer receives a credit with respect thereto on
the Closing Statements;
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(b) Obligations prior to the Closing Date of any term, covenant or
provision of any employee benefit plan, employment contract, Booking,
Contract or Lease, except to the extent that Buyer receives a credit with
respect thereto on the Closing Statements;
(c) Obligations of Seller now existing or which may hereafter exist
by reason of or in connection with any alleged misfeasance or malfeasance
by Seller in the conduct of its business, or with respect to any tort
liability; and
(d) Obligations of employees with respect to any compensation (or
pursuant to any employment contract or employee benefit plan) except to
the extent that Buyer receives a credit with respect thereto on the
Closing Statements.
ARTICLE 8
CONDITIONS PRECEDENT
8.1 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER. Buyer's obligation
to acquire the Property pursuant to this Agreement shall be subject to the
satisfaction, prior to the Closing Date, of all of the following conditions
precedent, each of which is for the benefit of Buyer and may be waived by Buyer
in its sole discretion [provided that if Buyer terminates this Agreement
because the condition precedent set forth in clause (b) below is not satisfied,
then, in consideration of Seller having entered into this Agreement,
$100,000.00 of the Earnest Money Deposit shall be paid to Seller (and to the
extent necessary therefor, Buyer will give such written instructions to
Escrowee as will enable it to pay said $100,000.00 to Seller within three (3)
business days of Buyer's election to terminate under said clause (b) below,
failing which Seller shall be entitled to receive all interest accruing on the
entire Earnest Money Deposit from and after said three (3) business day
period), with the balance refunded to Buyer, whereas upon the failure of any
other conditions precedent set forth below which Buyer does not elect to waive,
but, rather, Buyer terminates this Agreement as a consequence thereof, then
without limitation of any of Buyer's other rights hereunder, all of the Earnest
Money Deposit shall be refunded to Buyer]:
(a) except for Permitted Changes, all representations and warranties
of Seller set forth in the Agreement shall be true and correct in all
material respects as of the Closing Date;
(b) there shall have been no material adverse change in the
condition, financial or otherwise, of the Property or the underlying
hotels, banquet/convention facilities or golf courses and related
operations since the Contract Date, excluding normal seasonal variations
in the operation or condition of the Property, an insured casualty
covered by Section 9.1 below, or a condemnation covered by Section 9.2
below;
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(c) Seller shall have performed, in all material respects, all of
its covenants and obligations under this Agreement;
(d) the Title Company shall be prepared to issue the Title Policy
(or a "marked-up" title commitment as described in Section 4.1 above);
(e) Seller shall have obtained those consents from, given those
notices to, and made those filings and registrations with, any
governmental body or authority, or any other person or entity, which are
required to be obtained, given or made in connection with the assignment
of the Operating Permits to Lessee, with respect to which the failure to
obtain, to give or to make would materially and adversely affect Lessee's
ability to conduct business at each Resort on substantially the same
basis as business is currently being conducted thereat;
(f) those Licenses and Permits and those Operating Permits shall
have been assigned or reissued to either Buyer or Lessee, as appropriate,
with respect to which the failure to assign or reissue would have a
material and adverse affect on Lessee's ability to conduct the business
at the Property as currently conducted; and
(g) Seller shall have timely executed and delivered to Escrowee all
of the items referred to in Section 11.2 hereof.
8.2 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER. Seller's
obligation to sell, convey, assign, transfer and deliver the Property to Buyer
pursuant to this Agreement shall be subject to the satisfaction, prior to the
Closing Date, of all of the following conditions precedent, each of which is
for the benefit of Seller and may be waived by Seller in its sole discretion:
(a) all of the representations and warranties of Buyer set forth in
this Agreement shall be true and correct in all material respects as of
the Closing Date;
(b) Buyer shall have performed, in all material respects, all of its
covenants and obligations under this Agreement; and
(c) Buyer shall have timely executed and delivered to Escrowee all
of the items referred to in Section 11.3 hereof.
8.3 IPO CONDITION. The transaction contemplated by this Agreement is
subject to the consummation of the IPO (the "IPO CONDITION"). Buyer shall have
a period from the Contract Date until August 31, 1998 (the "IPO PERIOD") for
satisfaction of the IPO Condition. Further, Buyer shall have the right to
extend the IPO Period for up to two (2) additional 30-day extension periods, by
delivering to Seller, in each instance, an additional $50,000.00 extension fee,
which shall be made on up to two (2) occasions, each prior to the end of the
then current IPO Period, for each 30-day extension so elected by Buyer. The
aforesaid extension fee(s) shall
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be paid directly to Seller, shall be in addition to and not part of the
Purchase Price and shall, upon payment, become immediately non-refundable to
Buyer. Failure of Buyer to consummate the IPO within the IPO Period (as the
same may be extended as hereinabove provided) for any reason shall result in
the following: (a) this Agreement shall automatically terminate and become
null and void and of no further force or effect and neither party shall have
any further rights or obligations hereunder (except for such obligations which
are expressly provided to survive the termination hereof, including without
limitation, Buyer's indemnity obligations under Section 5.2 above); and (b)
Buyer shall pay to Seller an amount equal to Two Hundred Thousand and no/100
Dollars ($200,000.00), plus Seller's actual out-of-pocket substantiated
third-party costs, incurred in connection with the negotiation and drafting of
this Agreement and the transactions contemplated hereby, the sum of which shall
not exceed Three Hundred Fifty Thousand and no/100 Dollars ($350,000.00) (the
"BREAK-UP FEE"). Upon written demand from Seller, Escrowee shall pay the
Break-Up Fee from the Earnest Money Deposit and shall return the remaining
balance of the Earnest Money Deposit, if any, to Buyer. Buyer agrees to give
such written instructions to the Escrowee as will enable it to so pay out to
Seller the Break-Up Fee within three (3) business days from the date Seller
makes written demand therefor upon Buyer and Escrowee, which written demand is
accompanied by Seller's substantiation of its third party costs. Buyer's
failure to so instruct Escrowee within said three (3) business day period shall
entitle Seller to receive all interest accruing on the Earnest Money Deposit
from and after said three (3) business day period.
ARTICLE 9
DESTRUCTION, DAMAGE OR CONDEMNATION
9.1 DESTRUCTION OR DAMAGE. If, subsequent to the Contract Date and on or
before the Closing Date, all or any portion of the Property shall be destroyed
or damaged by one or more incidents of vandalism, fire, release of Hazardous
Materials or other casualty, whether or not covered by insurance, Seller shall
immediately give Buyer notice of such occurrence, and if either (a) the cost to
repair or reconstruct said portion of the Property exceeds ten percent (10%) of
the portion of the Purchase Price allocated to the Hotel on that portion of the
Property or (b) the casualty is not fully covered by insurance and Seller
advises Buyer, in its notice of such casualty to Buyer, that Seller will not
either repair and reconstruct fully or give Buyer a full credit at Closing for
the cost to complete any repair or reconstruction not completed as of the
Closing (less the amount of insurance proceeds available therefor), then Buyer,
within fifteen (15) days after receipt of such notice, may elect by written
notice to Seller either (i) to terminate this Agreement, in which event the
Earnest Money Deposit and any interest thereon net of any investment charges
shall be returned forthwith to Buyer, this Agreement shall be deemed null and
void and neither party shall have any further rights and obligations hereunder
(subject to Buyer's Indemnity which shall survive closing for the period
specified in Section 5.2), or (ii) to proceed to close the transaction
contemplated hereby as scheduled (except that if the Closing
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Date is less than fifteen (15) days following Buyer's receipt of such notice,
Closing shall be delayed until Buyer makes such election), with the right to
reduce the Purchase Price by the lesser of (A) the amount of the deficiency in
insurance proceeds and (B) Five Hundred Thousand and no/100 Dollars
($500,000.00) and Buyer shall have the right to participate in the adjustment
and settlement of any insurance claim relating to said damage, and Seller shall
assign and/or pay to Buyer at Closing all insurance proceeds (and other related
choses in action, if any) collected or claimed with respect to said loss or
damage (other than the proceeds of Seller's business interruption insurance),
less any third party documented costs spent by Seller prior to Closing with
respect to said casualty, but plus any deductible or self-insured amount.
Buyer's failure to give notice within the time period specified above shall be
deemed to be Buyer's election of option (i) above.
9.2 CONDEMNATION. If, subsequent to the Contract Date and on or before
the Closing Date, any proceeding which shall relate to the proposed taking of
any material portion of the Real Property by condemnation or eminent domain or
any action in the nature of eminent domain [materiality being defined as having
a value in excess of ten percent (10%) of the portion of the Purchase Price
allocated to that Resort or as being such that, in the reasonable business
judgment of Buyer, the subject Resort can no longer be operated in a fashion so
as to generate the same amount of revenues as it had generated in the past], or
the taking or closing of any right of access to the Real Property, is
instituted or commenced, Buyer shall have the right and option to terminate
this Agreement by giving Seller written notice to such effect within fifteen
(15) days after receipt of written notification of any such occurrence or
occurrences. Failure of Buyer to give such notice within such time shall be
conclusive evidence that Buyer has waived the option to terminate by reason of
the occurrence or occurrences of which it has received notice, the parties
shall proceed to close the transaction contemplated hereby and Buyer shall be
credited with or be assigned all Seller's right to any proceeds therefrom.
Seller agrees to furnish Buyer written notification with respect to any such
proceedings within forty-eight (48) hours of Seller's receipt of any such
notification or learning of the institution of such proceedings. Should Buyer
elect to so terminate this Agreement, the Earnest Money Deposit plus any
interest thereon shall be returned forthwith to Buyer, this Agreement shall be
deemed null and void and neither party shall have any further rights and
obligations hereunder (subject to Buyer's Indemnity which shall survive closing
for the period specified in Section 5.2). If the Closing Date is less than
fifteen (15) days following the last day on which Buyer is entitled to elect to
terminate this Agreement, then the Closing shall be delayed until Buyer makes
such election.
ARTICLE 10
POSSESSION, PRORATIONS AND CLOSING COSTS
10.1 POSSESSION. Sole and exclusive possession of the Property shall be
delivered to Buyer on the Closing Date, subject only to the rights of parties
under any Permitted Title
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Exceptions, and subject to the terms and conditions of the Property Lease being
entered into at Closing.
10.2 PRORATIONS. It is acknowledged that Seller (or its approved
designated entity), as lessee under the Property Lease, shall continue to
operate the Property from and after Closing and, pursuant to said Property
Lease, shall be entitled to all revenues generated from, and shall be obligated
to pay all taxes and expenses relating to, the Property from and after Closing
and during the entire term of the Property Lease (subject, however, to payment
of the various rentals otherwise described in said Property Lease). As a
result of the foregoing, there shall be no proration, at Closing of any
revenue, tax or expense items hereunder. However, for purposes of determining
"Additional Rent" due and owing under the Property Lease for the year in which
the Closing Date (i.e., the "Commencement Date" under the Property Lease)
occurs, the parties agree as follows:
(a) All revenue received by Seller that relates to time periods
after the Closing Date shall be deemed "Rooms Revenue," "Golf Course
Revenue" or "FB&M Revenue" (as the case may be) under the Property Lease,
attributable to periods following the Commencement Date of the term of
the Property Lease on an accrual basis in accordance with generally
accepted accounting principles.
(b) All of Seller's receivables, unreceived revenue and deferred
income relating to the operation of the Property prior to the Closing
Date and not otherwise provided for in this Section 10.2 or elsewhere in
this Agreement, as well as all refunds and rebates for real estate taxes
levied against the Property for time periods prior to the date of
Closing, shall remain the property of Seller ("SELLER'S RECEIVABLES"),
Buyer shall have no rights under this Agreement with respect thereto
regardless of when received, and Seller's Receivables shall not be deemed
"Rooms Revenue," "Golf Course Revenue" or "FB&M Revenue" under the
Property Lease attributable to any period falling within the term of the
Property Lease. To the extent Buyer should receive any refunds or
rebates relating to real estate or other ad valorem taxes levied against
the Property or any portion thereof for periods prior to the Closing
Date, Buyer shall cause said refunds and rebates to be paid over to
Seller. It is acknowledged that Seller (or its approved designated
entity), as lessee under the Property Lease, shall continue to attempt to
collect Seller's Receivables following the Closing Date.
10.3 CLOSING COSTS. Seller shall be responsible for all title charges and
premiums attributable to the Title Policy (and "mark-up") required to be
delivered by Seller hereunder (i.e., including any additional charges or
premiums for ALTA extended coverage, and the other endorsements described in
the definition of "Title Policy" under Section 1.1 hereof) up to a maximum of
Thirty Five Thousand and no/100 Dollars ($35,000.00), all charges and fees for
the Surveys up to a maximum of Twenty Two Thousand and no/100 Dollars
($22,000.00), all state, county, local and municipal transfer taxes, all state
deed fees, all recording fees, all documentary fees and taxes, one-half of all
escrow costs, and all other customary "seller"
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closing charges. Buyer shall be responsible for all costs incurred in
connection with any financing obtained by Buyer, all title and Survey costs in
excess of Seller's maximums set forth in the preceding sentence, and all other
customary "buyer" expenses, including, without limitation, all engineers',
accountants' and other professional fees associated with Buyer's pre-closing
Inspections and one-half of all escrow fees. Buyer and Seller shall each pay
the fees and expenses of their respective legal counsel incurred in connection
with the transaction contemplated hereby.
ARTICLE 11
CLOSING
11.1 TIME AND PLACE. The closing of the transaction contemplated hereby
("CLOSING") shall take place at the offices of Buyer's attorney on a date (the
"CLOSING DATE") to be specified by written notice from Buyer to Seller, such
date to be not earlier than ten (10) days after the date of such notice and not
later than ten (10) business days following the expiration of the IPO Period.
The Closing shall be effected pursuant to the escrow instructions described in
Section 3.3 above. Unless the parties otherwise agree, the Closing shall take
place concurrently with or following the consummation of the IPO, as more fully
described in Section 8.3 above and Article 17 below.
11.2 SELLER'S DELIVERIES. On or before the Closing Date, Seller shall
deliver or cause to be delivered to Buyer or to Escrowee the following
documents, each of which shall be in form and substance reasonably acceptable
to Buyer and funds:
(a) The Deed(s);
(b) Two (2) counterpart originals of Seller's assignment of the
Licenses and Permits, Trade Names and Trademarks, and Warranties,
substantially in the form attached as Exhibit N hereto (the "ASSIGNMENT
OF LICENSES AND PERMITS, TRADE NAMES AND TRADEMARKS, AND WARRANTIES"),
executed by Seller;
(c) Seller's bill of sale assigning and conveying the FF&E,
substantially in the form attached as Exhibit O hereto;
(d) Two (2) counterpart originals of the Property Lease, executed by
Seller (or the approved Seller designated entity), as lessee;
(e) Originals of all Licenses and Permits and Warranties assigned to
Buyer (or in Buyer's sole discretion where originals are unavailable,
copies duly certified by Seller as being true, correct and complete
copies of the originals);
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(f) Copies of all Loan Documents, Contracts and Operating Permits,
duly certified by Seller as being true, correct and complete;
(g) Seller's certificate dated as of the Closing Date confirming
that the representations and warranties of Seller herein are true and
correct as of the Closing Date and, if applicable, describing any change
in facts or circumstances which would make any of such representations or
warranties untrue as of the Closing Date;
(h) Such evidence as may be reasonably satisfactory to Buyer
evidencing the due authorization, execution and delivery of this
Agreement and the other documents to be executed in connection herewith
by Seller;
(i) An ALTA Statement or other affidavit in form required by the
Title Company in order to issue the Title Policy required hereunder;
(j) An executed Affidavit in customary form, or a qualifying
statement from the U.S. Treasury Department that the transaction is
exempt from the withholding tax requirement imposed by Section 1445A of
the Internal Revenue Code and the rules and regulations promulgated
thereunder ("SECTION 1445A");
(k) The "clearance" statement from the Department relating to
Seller's liability under Section 9.02(d), as provided in Section 7.1(i)
above;
(l) a payoff letter from each lender under the Loan Documents
stating the amount necessary to satisfy, in full, the indebtedness
evidenced and/or secured by the respective Loan Documents as of the
Closing Date, together with full recordable releases of all liens created
by such Loan Documents effective as of the Closing Date (it being
understood and agreed, however, that the conveyance of the Real Property
contemplated hereby shall be subject to all such Loan Documents and the
indebtedness evidenced and/or secured thereby, and the Debt Subject to
Amount shall be paid from funds deposited by Buyer which are in addition
to the Purchase Price);
(m) Any required state, county and municipal transfer declarations;
(n) Such other documents, instruments, certifications and
confirmations as may be necessary or appropriate to comply with the
provisions of this Agreement or as may be reasonably required or
designated by Title Company to effect and consummate fully the
transactions contemplated hereby;
(o) Such funds as may be required, in addition to funds deposited by
Buyer, to discharge (i) all deeds of trusts, mortgages, mechanic's liens,
judgment liens, security interests or encumbrances against the property
securing any indebtedness or obligations
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(other than the Permitted Title Exceptions) and (ii) to pay any amounts
required to be paid by Seller in accordance with the provisions of
Article 10; and
(p) Such other documents and instruments as may be reasonably
requested by the underwriters or their counsel to comply with federal or
state securities law requirements with respect to the issuance of the
Units or Common Stock as of the IPO.
11.3 BUYER'S DELIVERIES. On or before the Closing Date, Buyer shall
deliver or cause to be delivered to Seller or to Escrowee the following
documents, each of which shall be in form and substance reasonably acceptable
to Seller and funds:
(a) Two (2) counterpart originals of the Assignment of Licenses and
Permits, Trade Names and Trademarks, and Warranties, executed by Buyer;
(b) Two (2) counterpart originals of the Property Lease, executed by
Buyer, as lessor;
(c) An ALTA statement or other affidavit in form required by the
Title Company in order to issue the Title Policy required hereunder;
(d) Buyer's certificate dated as of the Closing Date confirming that
the representations and warranties of Buyer herein are true and correct
as of the Closing Date and, if applicable, describing any change in facts
or circumstances which would make any of such representations or
warranties untrue as of the Closing Date;
(e) The balance of the Purchase Price plus funds sufficient to pay
the Debt Subject to Amount and subject to adjustment for any prorations;
(f) Any required state, county and municipal transfer declarations;
(g) Such other documents, instrument, certifications and
confirmations as may be necessary or appropriate to comply with the
provisions of this Agreement or as may be reasonably required and
designated by Title Company to fully effect and consummate the
transactions contemplated hereby; and
(h) Funds sufficient to pay all amounts required to be paid by Buyer
in accordance with the provisions of Article 10.
11.4 CONCURRENT DELIVERIES. Seller and Buyer shall jointly deposit in the
escrow or deliver to each other at or before Closing an agreed proration
statement duly executed by the respective parties.
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11.5 CONCURRENT TRANSACTIONS. All documents or other deliveries required
to be made by Buyer or Seller at Closing, and all transactions required to be
consummated concurrently with Closing, shall be deemed to have been delivered
and to have been consummated simultaneously with all other transactions and all
other deliveries, and no delivery shall be deemed to have been made, and no
transaction shall be deemed to have been consummated, until all deliveries
required by Buyer, or its nominee, and Seller shall have been made, and all
concurrent or other transactions shall have been consummated.
11.6 NEW YORK STYLE CLOSING. At the request of either party, the
transaction shall be closed by means of a so-called "New York Style Closing,"
with the concurrent delivery of the documents of title, transfer of interests,
delivery of the Title Policy (or "marked-up" title commitment as described
herein) and the payment of the Purchase Price. Seller shall provide any
undertaking to the Title Company necessary for the New York Style Closing to
occur.
11.7 EMPLOYEES AND LEASING COMMISSIONS. Seller agrees that any and all
obligations with respect to the employees of the Resorts shall, as between
Buyer and Seller, be the sole responsibility and expense of Seller. Seller
further agrees that Buyer shall have no responsibility for any unpaid leasing
fee or commission due any party in connection with any Contract or Lease and
that Seller will not look to Buyer for any payment for services, commissions or
fees in connection with the operation of the Property performed or incurred
prior to or after the Closing Date. Seller shall indemnify, defend and hold
Buyer harmless from and against any and all damages, liabilities, costs and
expenses (including attorneys' fees and other litigation expense) arising from
any claim by any person for any leasing fee or commission in connection with
any Contract or Lease arising prior to the Closing.
ARTICLE 12
INDEMNIFICATION
12.1 SELLER'S INDEMNITY. Seller hereby agrees to indemnify, defend and
hold harmless Buyer, and its partners, members, officers, shareholders,
directors, employees and agents (collectively, the "BUYER INDEMNIFIED PARTIES")
from and against any and all losses, liabilities, fines and penalties and
damages (including, without limitation, any damages or injury to persons,
property or the environment as provided hereunder), or actions or claims in
respect thereof (including, without limitation, amounts paid in settlement and
reasonable cost of investigation, reasonable attorneys' fees and other legal
expenses), resulting from third party claims (based upon the allegations set
forth in such claims and whether or not ultimately successful) to which Buyer,
and its partners, members, officers, shareholders, directors, employees and
agents may become subject or which Buyer, and its partners, members, officers,
shareholders, directors, employees and agents may suffer or incur, either
directly or indirectly, insofar as such losses, liabilities or damages (or
actions or claims in respect thereof) arise out of, are with respect to, or are
based upon:
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<PAGE> 42
(i) Seller's breach of any representation or warranty set
forth in this Agreement as it relates to claims of third parties
made against Buyer;
(ii) Seller's default in the performance of any of Seller's
covenants set forth in this Agreement as it relates to claims of
third parties made against Buyer;
(iii) Seller's failure to satisfy and discharge any and all
obligations of Seller under any Contracts or Leases to which Seller
is bound, which obligations relate to any time period prior to the
Closing;
(iv) Seller's failure to satisfy and discharge fully any and
all obligations of Seller regarding any current or former employees
of Seller including, without limitation, any obligations of Seller
for the payment of wages, salaries, benefits and other
compensation;
(v) Any obligations, liabilities or charges of Seller not
expressly assumed by Buyer, including, without limitation, Seller's
obligations with respect to the Existing Environmental Matters; or
(vi) The operation and management of the Property (including
any liabilities incurred with respect thereto) at any time on or
prior to the Closing Date.
12.2 BUYER'S INDEMNITY. Buyer hereby agrees to indemnify, defend and hold
the Seller Indemnified Parties harmless from and against any and all losses,
liabilities, fines and penalties and damages (including, without limitation,
any damages or injury to persons, property or the environment as provided
hereunder), or actions or claims with respect thereto, except for liabilities
specifically assumed by Seller pursuant to the terms of this Agreement
(including, without limitation, amounts paid in settlement and reasonable costs
of investigation, reasonable attorneys' fees and other legal expenses)
resulting from third party claims (based upon the allegations set forth in such
claims whether or not ultimately successful) to which Seller may become subject
or which Seller may suffer or incur, either directly or indirectly, insofar as
such losses, liabilities or damages (or actions or claims in respect thereof)
arise out of, are with respect to, or are based upon:
(i) Buyer's breach of any representation or warranty set forth
in this Agreement or a breach of any covenant of Buyer contained
herein, as it relates in either case to claims of third parties
made against Seller;
(ii) any obligations, liabilities or charges of Seller that
are expressly assumed by Buyer and that are not the "lessee's"
obligation pursuant to the Property Lease; or
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<PAGE> 43
(iii) any liability arising under the Loan Documents as a
result of any failure to make any payment due, or perform any
obligation thereunder arising, on or after the Closing Date
("BUYER'S LOAN DOCUMENTS INDEMNITY").
12.3 INDEMNIFICATION PROCEDURES. Any claim for indemnification made by
either party pursuant to the terms and provisions of this Agreement shall
follow the procedures set forth in, and be subject to the terms and provisions
of, this Section 12.3.
(a) NOTICE OF CLAIMS. The party claiming to be indemnified
(hereinafter in this Section 12.3 called the "INDEMNITEE") shall deliver
a detailed notice (the "INDEMNIFICATION NOTICE") to the other party
(hereinafter in this Section 12.3 called the "INDEMNITOR") of the
assertion of any claim or the commencement of any suit, action or
proceeding against the Indemnitee for which Indemnitee is entitled to be
indemnified hereunder as soon as reasonably possible after the Indemnitee
receives notice thereof, but in no event later than (A) with respect to
indemnification based upon a suit, action or proceeding, the first to
occur of (i) thirty (30) days after Indemnitee is first served with
notice of such suit, action or proceeding and (ii) the three hundred
ninety fifth (395th) day following the Closing Date and (B) with respect
to all other matters, the first to occur of (i) sixty (60) days after the
date Indemnitee first becomes aware thereof and (ii) the four hundred
twenty fifth (425th) day following the Closing Date. In the
Indemnification Notice, the Indemnitee shall (1) specify with reasonable
particularity the basis for seeking indemnification and (2) provide the
Indemnitor with such information with respect to the claim, suit, action
or proceeding as may be known to the Indemnitee at the time (and shall
continue to provide the Indemnitor with any additional information as and
when the same becomes known to the Indemnitee). The Indemnitee's failure
to deliver timely the Indemnification Notice pursuant to this Section
12.3 shall relieve the Indemnitor of its indemnification obligation with
respect to such claim, suit, action or proceeding.
(b) ASSUMPTION OF DEFENSE. Indemnitor shall have the right, in its
sole and absolute discretion, to elect, upon written notice given to the
Indemnitee within thirty (30) days after Indemnitor's receipt of the
Indemnification Notice, to investigate and/or defend such claim, suit,
action or proceeding with counsel selected by Indemnitor and reasonably
acceptable to Indemnitee and if the Indemnitor-designated counsel is
acceptable to Indemnitee, then Indemnitor shall thereafter consult with
Indemnitee and keep Indemnitee informed with respect to such claim, suit,
action or proceeding. If the Indemnitor-designated counsel is not
reasonably acceptable to Indemnitee, or if Indemnitor elects to undertake
the defense and thereafter fails to do so, then in either of such cases,
Indemnitee shall be entitled to designate its own counsel and the costs
and expenses of Indemnitee in defending the claim, suit, action or
proceeding shall be included in the obligation to be indemnified
hereunder. If Indemnitor assumes the defense and the
Indemnitor-designated counsel is reasonably acceptable to Indemnitee,
then Indemnitee shall have the right (but not the duty) to participate in
the defense
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<PAGE> 44
thereof and to employ (at Indemnitee's sole cost and expense) counsel
separate from the Indemnitor-designated counsel, but Indemnitor shall
nevertheless have control of the defense. If Indemnitor elects not to
undertake the investigation or defense of such claim, suit, action or
proceeding, Indemnitee shall defend such claim, suit, action or
proceeding with counsel selected by Indemnitee and reasonably acceptable
to Indemnitor. If Indemnitor elects to cause Indemnitee to assume the
defense, Indemnitor shall have the right (but not the duty) to
participate in the defense thereof and to employ (at Indemnitor's sole
cost and expense) counsel separate from the counsel employed by
Indemnitee. Whether or not Indemnitor elects to defend any such claim,
suit, action or proceeding, Indemnitor and Indemnitee (i) shall cooperate
in the defense thereof; (ii) shall each take commercially reasonable
efforts to mitigate the damages and expenses to be indemnified hereunder;
and (iii) to the extent that both of Indemnitor and Indemnitee deem it
commercially reasonable, shall enter into any compromise or settlement of
any such claim, suit, action or proceeding which the party controlling
the defense thereof pursuant to the foregoing is able to negotiate.
Where, pursuant to the foregoing, either Indemnitor or Indemnitee elects
to use "additional" counsel at its sole cost and expense, said cost and
expense shall not, in any event, reduce that party's Indemnity Obligation
Limitation (as defined below) hereunder.
(c) CONTRACT LIABILITY LIMITATION. With the exception of (i) a
breach of a party's representation or warranty concerning brokerage with
respect to the transactions contemplated hereby; (ii) a breach resulting
from fraud or gross negligence; (iii) Seller's sale of the Property to a
third party in breach of this Agreement; (iv) Seller's obligations and
indemnity with respect to the Existing Environmental Matters; and (v)
Buyer's liability under Buyer's Loan Documents Indemnity, each party's
total aggregate maximum liability ("CONTRACT LIABILITY LIMITATION") for
all indemnification obligations and for all breaches of its
representations and warranties and for all other defaults under this
Agreement which are asserted after the Closing hereunder or under any of
the closing documents (other than the Property Lease) shall not exceed an
amount equal to the Unit Amount; provided, however, that the foregoing
limitation shall not apply to the extent the matter is covered by
insurance. In addition, notwithstanding anything in this Agreement to
the contrary, neither party shall be entitled to assert a claim for such
indemnification, breach or other default if such party's maximum exposure
therefor is less than Twenty Five Thousand and no/100 Dollars
($25,000.00).
ARTICLE 13
DEFAULT
13.1 BUYER DEFAULT. Notwithstanding anything to the contrary contained in
this Agreement, if (a) Buyer has not terminated this Agreement prior to the
expiration of the
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<PAGE> 45
Contingency Period; (b) the sale of the Property to Buyer is not consummated
due to Buyer's failure to perform any act required of Buyer hereunder, and (c)
all of the conditions precedent to Buyer's obligation to close have been
satisfied or waived by Buyer, then Seller shall execute and deliver to Buyer
written notice of such breach, which notice shall set forth complete
information about the nature of the breach. Buyer shall have a period of three
(3) business days to cure such breach. If such breach remains uncured beyond
the three (3) business day period described above, then, as Seller's sole and
exclusive remedy, in lieu of all other legal or equitable remedies, Seller
shall not be obligated to sell and convey the Property to Buyer and Seller
shall be entitled to retain the Earnest Money Deposit and interest earned
thereon (net of investment charges) as Seller's liquidated damages. THE
PARTIES AGREE THAT IT WOULD BE IMPRACTICABLE AND EXTREMELY DIFFICULT TO
ASCERTAIN THE ACTUAL DAMAGES SUFFERED BY SELLER AS A RESULT OF BUYER'S FAILURE
TO COMPLETE THE PURCHASE OF THE PROPERTY PURSUANT TO THIS AGREEMENT, AND THAT
UNDER THE CIRCUMSTANCES EXISTING AS OF THE DATE OF THIS AGREEMENT, THE
LIQUIDATED DAMAGES PROVIDED FOR IN THIS SECTION REPRESENT A REASONABLE ESTIMATE
OF THE DAMAGES WHICH SELLER WILL INCUR AS A RESULT OF SUCH FAILURE, PROVIDED,
HOWEVER, THAT THIS PROVISION SHALL NOT AFFECT SELLER'S RIGHTS AND BUYER'S
INDEMNITY OBLIGATIONS UNDER SECTION 5.2 OR SECTION 12.2 OF THIS AGREEMENT OR
SELLER'S RIGHTS UNDER SECTION 16.8 OF THIS AGREEMENT. THE PARTIES ACKNOWLEDGE
THAT THE PAYMENT OF SUCH LIQUIDATED DAMAGES IS NOT INTENDED AS A FORFEITURE OR
PENALTY, BUT IS INTENDED TO CONSTITUTE LIQUIDATED DAMAGES TO SELLER. EACH
PARTY HEREBY AGREES TO WAIVE ANY AND ALL RIGHTS WHATSOEVER TO CONTEST THE
VALIDITY OF THE LIQUIDATED DAMAGE PROVISIONS FOR ANY REASON WHATSOEVER,
INCLUDING, BUT NOT LIMITED TO, THAT SUCH PROVISION WAS UNREASONABLE UNDER
CIRCUMSTANCES EXISTING AT THE TIME THIS AGREEMENT WAS MADE.
13.2 SELLER DEFAULT. Notwithstanding anything to the contrary contained
in this Agreement, if Seller fails to perform any act required of Seller
hereunder, or otherwise is in breach of any of its representations or
warranties hereunder, then Buyer shall execute and deliver to Seller written
notice of such default or breach, which notice shall set forth complete
information about the nature of the default or breach. Seller shall have a
period of three (3) business days to cure such default or breach. If such
default or breach remains uncured beyond the three (3) business day period
described above, then Buyer's sole and exclusive remedy, in lieu of any and all
other remedies at law or in equity, shall be either: (i) to cancel this
Agreement, in which event the Earnest Money Deposit and interest earned thereon
(net of investment charges) shall be returned to Buyer, or (ii) to enforce
specifically the provisions of this Agreement. Buyer shall exercise its
election pursuant to the foregoing sentence by serving written notice thereof
upon Seller and Escrowee within thirty (30) days of the date of Buyer's
aforesaid three (3) day notice of default and, to the extent necessary, Buyer
shall institute appropriate legal proceedings against Seller to enforce its
elected remedy within ninety (90) days of the date of Buyer's notice of
election of remedies; provided, however, that neither such
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<PAGE> 46
election nor the institution of legal proceedings for specific performance
shall be deemed to preclude Buyer from exercising its right to dismiss its
action for specific performance, to terminate this Agreement (and receive a
return of the Earnest Money Deposit and interest earned thereon) and to proceed
against Seller for damages under this Section 13.2 should the remedy of
specific performance not be an available remedy. Notwithstanding the
foregoing, if Seller fails to close the sale of the Property as contemplated by
this Agreement, despite Buyer being ready, willing and able to close and having
performed its obligations under this Agreement, or if the nature of the breach
by Seller is such that specific performance is not an available remedy, then,
in addition to the remedy of termination of this Agreement and return of the
Earnest Money Deposit discussed above, Buyer shall be entitled, upon giving
Seller written notice of demand therefor within thirty (30) days of Buyer's
aforesaid three (3) day notice of default, to receive from Seller all costs,
expenses and damages incurred by Buyer, including, without limitation, all fees
and costs of attorneys, consultants and other third parties in connection with
the negotiation and execution of this Agreement and Buyer's due diligence
investigation of the Property; provided, however, that so long as Seller's
breach is not the sale of the Property to another party, Seller's total
liability for costs, expenses and damages hereunder shall not exceed an amount
equal to the Earnest Money Deposit. Should Seller fail to reimburse Buyer as
provided in the preceding sentence within sixty (60) days of Buyer's demand,
Buyer shall within thirty (30) days thereafter institute legal proceedings to
collect the same, the cost and expense of which shall not be subject to
Seller's liability limitation set forth in the preceding sentence or to
Seller's Contract Liability Limitation. Nothing herein shall be deemed to
limit, in any manner, Seller's indemnity obligations described in Section 12.1
hereof.
ARTICLE 14
INTENTIONALLY OMITTED
ARTICLE 15
NOTICES
15.1 NOTICES. Any notice, request, demand, instruction or other document
to be given or served hereunder or under any document or instrument executed
pursuant hereto shall be in writing and shall be delivered personally, or
transmitted by facsimile (provided that the original thereof together with the
facsimile confirmation sheet shall thereafter be promptly sent by regular
United States Mail), or sent by United States registered or certified mail,
return receipt requested, or sent by overnight express courier, postage
prepaid, and shall be addressed to the parties at their respective addresses
set forth below, and the same shall be effective (a) upon receipt if delivered
personally, (b) two (2) business days after deposit in the mails, if mailed as
aforesaid, (c) one (1) business day after deposit with an overnight express
courier, or
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<PAGE> 47
(d) immediately upon being sent by facsimile transmission if received during
the recipient's normal business hours; otherwise, on the next business day
following receipt. A party may change its address for receipt of notices by
service of a notice of such change in accordance herewith.
If to Buyer: APGM Limited Partnership
c/oArnold Palmer Golf Management, LLC
Building 106, Montgomery Street
Presidio Main Post, P.O. Box 29355
San Francisco, California 94129
Attn: Mr. George Haworth
Facsimile: 415/561-4680
with a copy to: Rudnick & Wolfe
203 North LaSalle Street, Suite 1800
Chicago, Illinois 60601
Attn: Peter A. Levy, Esq.
Facsimile: 312/630-5342
If to Seller: Olympus Montclair-Chicago General
Partnership
c/o Olympus Real Estate Corporation
200 Crescent Court, Suite 1650
Dallas, Texas 75201
Attn: Michael Medzigian and Legal
Department
Facsimile: 214/749-7340
- and -
c/o Montclair Hotel Investors, inc.
250 West Schick Road
Bloomingdale, Illinois 60108
Attn: Peter Cyrus and Dennis Langley
Facsimile: 630/529-3248
with a copy to: Jeffer, Mangels, Butler & Marmaro LLP
2121 Avenue of the Stars
10th Floor
Los Angeles, California 90067
Attn: Jeffrey E. Steiner, Esq.
Facsimile: 310/203-0567
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<PAGE> 48
ARTICLE 16
ADDITIONAL COVENANTS
16.1 ENTIRE AGREEMENT, AMENDMENTS AND WAIVERS. This Agreement, together
with the Property Lease, contains the entire agreement and understanding of the
parties with respect to the subject matter hereof, and the same may not be
amended, modified or discharged nor may any of its terms be waived except by an
instrument in writing signed by the party to be bound thereby.
16.2 FURTHER ASSURANCES. The parties each agree to do, execute,
acknowledge and deliver all such further acts, instruments and assurances and
to take all such further action before or after the Closing as shall be
necessary or desirable to carry out fully this Agreement and to consummate and
effect fully the transactions contemplated hereby.
16.3 SURVIVAL AND BENEFIT. All agreements, obligations and indemnities of
the parties shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Except as otherwise expressly set forth
herein, all representations, warranties and indemnities shall survive Closing
for a period of one (1) year; provided that any claims for indemnification made
pursuant to any closing document (e.g., the Assignment of Licenses and Permits
and Warranties) shall be governed by such document and not limited by the
foregoing survival period.
16.4 NO THIRD PARTY BENEFITS. This Agreement is for the sole and
exclusive benefit of the parties hereto and their respective successors and
assigns, and no third party is intended to or shall have any rights hereunder.
16.5 BUYER'S INVESTIGATION AND INSPECTIONS. Any investigation or
inspection conducted by Buyer, or any agent or representative of Buyer,
pursuant to this Agreement, in order to verify independently Seller's
satisfaction of any conditions precedent to Buyer's obligations hereunder or to
determine whether Seller's warranties are true and accurate, shall not affect,
or constitute a waiver by Buyer of, any of Seller's obligations hereunder or
Buyer's reliance thereon.
16.6 INTERPRETATION. The headings and captions herein are inserted for
convenient reference only and the same shall not limit or construe the
paragraphs or Sections to which they apply or otherwise affect the
interpretation hereof. This Agreement and any document or instrument executed
pursuant hereto may be executed in any number of counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument. Whenever under the terms of this Agreement the time for
performance of a covenant or condition falls upon a Saturday, Sunday or
holiday, such time for performance shall
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<PAGE> 49
be extended to the next business day. Otherwise all references herein to "DAYS"
shall mean calendar days.
16.7 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State where the Real Property is located.
16.8 ATTORNEYS' FEES. In any action or proceeding involving this
Agreement or the contents hereof, the prevailing party shall be entitled to
recover from the other party the prevailing party's reasonable costs and
expenses in such action or proceeding, including reasonable attorneys' fees.
16.9 ASSIGNMENT. Seller shall not have the right to assign this
Agreement, or any interest herein, to any other person or entity, without first
having obtained the prior written consent of Buyer (which consent may be
withheld in Buyer's sole and exclusive discretion). Buyer shall not have the
right to assign this Agreement, or any interest herein, to any other party
without first having obtained the prior written consent of Seller (which
consent may be withheld in Seller's sole and exclusive discretion).
16.10 PALMER NAME. For the purpose of this Agreement, the term "PALMER
IDENTIFICATION" shall mean the name "Arnold Palmer" and the name of Buyer,
Arnold Palmer Golf Management, LLC, or any part thereof, and shall include any
reference to Arnold Palmer and the likeness of Arnold Palmer. Seller agrees
that neither it, nor its affiliates, subsidiaries, assigns or successors, shall
in any manner use, print, copy, or market the Palmer Identification including,
but not limited to, any marketing or sales collateral materials, any
advertising, or any communication to the public without the written consent of
Buyer (at its sole discretion); provided, however, that the foregoing shall not
be deemed to preclude any affiliate of Seller from using the Palmer
Identification pursuant to a separate direct agreement between said affiliate
and the owner/licensor of the Palmer Identification.
16.11 [INTENTIONALLY OMITTED]
16.12 OFFER AND ACCEPTANCE. Delivery by Buyer to Seller of a copy of this
Agreement executed by Buyer shall constitute an offer to purchase the Property
upon the terms and conditions herein set forth which shall be effective for a
period of seventy-two (72) hours following the time of such delivery. If
Seller fails to deliver a fully executed counterpart of this Agreement to Buyer
prior to expiration of such seventy-two (72) hour period, then at Buyer's sole
option, said offer may be revoked and rescinded in its entirety at any time
thereafter, and upon such revocation and rescission, said offer and this
Agreement shall have no further force or effect.
ARTICLE 17
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<PAGE> 50
UNITS
17.1 ACCREDITED INVESTORS. Seller acknowledges that Buyer is paying a
portion of the Purchase Price by the issuance of Units in a sale exempt from
registration under the Securities Act (as defined in Section 17.2 below) and
that the issuance of said Units is based upon the representations and
warranties of Seller contained herein and the representations of each equity
owner of Seller (collectively the "EQUITY OWNERS"). The persons listed on
Exhibit U hereto constitute all of the Equity Owners of Seller (all of the
Equity Owners are referred to hereinafter as the "OFFEREES"). Seller
represents that each of the Offerees is an "Accredited Investor" (as such term
is defined herein in Rule 501(a) promulgated under the Securities Act).
Notwithstanding any provision of this Agreement or of the partnership agreement
of Buyer (as such partnership agreement may be amended from time to time) to
the contrary, Seller shall have the right to distribute Units to any Offeree
without the consent of Buyer, and upon the execution of an amended and restated
partnership agreement of Buyer by an Offeree, such Offeree shall become a
limited partner of the Buyer.
17.2 REQUIRED INFORMATION. Seller understands that in connection with the
IPO, Buyer will require certain information in order to comply with the
Securities Act of 1933, as amended, the regulations promulgated thereunder, and
any applicable states' securities laws governing the offering and sales of
securities (collectively, the "SECURITIES ACT"), and such information will be
used in the preparation of and/or included in a prospectus (the "PROSPECTUS")
to be distributed in connection with the sale of the Common Stock of the REIT.
Seller agrees to provide to Buyer, at Buyer's sole cost and expense (unless
otherwise specified in this Agreement), all information which Buyer, the
underwriters of the IPO and their respective attorneys or accountants deem
necessary or desirable to prepare the Prospectus. Seller agrees to review
carefully the portions of the Prospectus concerning the Property to verify that
such portions of the Prospectus do not contain any untrue statement of material
fact and do not omit to state a material fact necessary in order to make the
statements made in such portions of the Prospectus, in light of the
circumstances under which they were made, not misleading. If Seller finds any
portion of the Prospectus relating to the Property inaccurate, Seller shall
promptly notify Buyer in detail in writing as to the reasons it finds such
portions of the Prospectus inaccurate so that the Prospectus may be modified.
It is acknowledged that Seller has heretofore received a preliminary draft of
the Prospectus, and that Buyer intends to initiate a name change to become
"Presidio Golf Limited Partnership," being the operating partnership described
in such draft of Prospectus.
17.3 NO OFFERING. This Agreement is not intended to constitute an
offering of securities under the Securities Act (as defined in Section 17.2
above) or otherwise, and no securities have been offered to Seller by virtue
hereof.
17.4 FEDERAL INCOME TAX CONSEQUENCES OF TRANSACTION. Each of Buyer and
Seller hereby acknowledges and agrees that, notwithstanding anything contained
in this Agreement to
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<PAGE> 51
the contrary, the transfer of the Property shall be treated for federal income
tax purposes (i) with respect to that portion of the Purchase Price paid in the
form of Units under Section 3.2 hereof, as a partial contribution of the
Property to Buyer under Section 721 of the Internal Revenue Code of 1986, as
amended (the "CODE"), and (ii) with respect to that portion of the Purchase
Price paid in the form of cash or by cashier's or certified check or wire
transfer of funds as set forth in Section 3.2 hereof, as a sale of a portion of
the Property to Buyer. As a result, the transaction will be treated for
federal income tax purposes as a part contribution/part sale of the Property
under Code Section 707 and the Treasury Regulations promulgated thereunder.
17.5 DEBT SUBJECT TO AMOUNT. Notwithstanding anything herein to the
contrary, in the event that the entire Purchase Price is paid in the form of
cash or by cashier's or certified check or wire transfer of funds (i.e., as
opposed to Units), for any reason, then the Property shall be conveyed to Buyer
at Closing, free and clear of any liens created by the Loan Documents (all of
which liens shall thereafter be deemed unpermitted exceptions for all purposes
hereof), and the Purchase Price shall no longer be reduced or offset by the
Debt Subject to Amount as contemplated by this Agreement. In such event, at
either party's request, the parties shall enter into a supplement hereto,
confirming the terms of this Section 17.5 and modifying this Agreement, as
appropriate, to reflect the intent of this provision and the other provisions
hereof which may be contrary hereto.
[Signature Page to Follow]
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<PAGE> 52
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
BUYER:
APGM LIMITED PARTNERSHIP, a Delaware limited partnership
By: PALMER MANAGEMENT, LLC, a Delaware limited liability
company, its general partner
By: ARNOLD PALMER GOLF MANAGEMENT, LLC, a Delaware
limited liability company, its managing member
By: /s/ Peter J. Nanula
--------------------------------------------------
Name: Peter J. Nanula
------------------------------------------
Its: President
-------------------------------------------
SELLER:
OLYMPUS/MONTCLAIR-CHICAGO GENERAL PARTNERSHIP, an Illinois
general partnership
By: OLYMPUS CHICAGO HOTELS, L.P., a Delaware limited
partnership, its managing general partner
By: OLY GP INVESTMENTS, L.P., a Texas limited
partnership, its general partner
By: OLYMPUS REAL ESTATE FUND GP PARTNERS, a Texas
general partnership, its general partner
By: HMTFD FUND I PARTNERS, L.P., a Texas
limited partnership, its managing partner
By: HMTF/OLYMPUS GP, INC., a Texas
corporation, its general partner
By: /s/ Timothy B. Smith
---------------------------------
Name: Timothy B. Smith
------------------------
Title: Vice President
-----------------------
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<PAGE> 53
EXHIBIT E
UNIT FORMULA
Subject to Buyer and/or REIT making an appropriate securities law offering
and satisfaction of the terms of Section 8.3 and Article 17 of this Agreement,
that portion of the Purchase Price to be payable in Units ("NON-CASH
ACQUISITION PRICE") shall be payable by delivery of the number of Units equal
to the Non-Cash Acquisition Price divided by the mid-point between the high and
low anticipated initial public gross offering price for the Common Stock (as
set forth in the last preliminary prospectus included as part of the
registration statement filed with the U.S. Securities Exchange Commission with
respect to the IPO which is circulated to investors generally).
E-1
<PAGE> 1
EXHIBIT 10.15
FORM OF
L E A S E
PRESIDIO GOLF LIMITED PARTNERSHIP
LANDLORD
AND
_________________________________________________
TENANT
DATED AS OF ______________________ , 1998
<PAGE> 2
TABLE OF CONTENTS
ARTICLE PAGE
1 LEASED PROPERTY.......................................................4
2 TERM..................................................................4
2.1 Initial Term................................................4
2.2 Extended Terms..............................................4
3 RENT..................................................................5
3.1 Rent........................................................5
3.2 Base Rent...................................................5
3.3 Additional Rent.............................................5
3.3.1 Quarterly Calculation and Payment of
Additional Rent......................................5
3.3.2 Annual Reconciliation................................6
3.3.3 Record-keeping.......................................6
3.3.4 Audits...............................................6
3.4 Additional Charges..........................................7
3.5 Late Payment of Rent........................................7
3.6 Net Lease...................................................8
4 IMPOSITIONS...........................................................8
4.1 Payment of Impositions......................................8
4.2 Information and Reporting...................................9
4.3 Assessment Challenges.......................................9
4.4 Prorations..................................................9
4.5 Refunds.....................................................9
4.6 Utility Charges.............................................9
4.7 Assessment Districts........................................9
5 TENANT WAIVERS.......................................................10
5.1 No Termination, Abatement, Etc.............................10
5.2 Condition of the Leased Property...........................11
6 OWNERSHIP OF PROPERTY................................................11
6.1 Leased Property............................................11
6.2 Landlord's Personal Property...............................12
6.3 Tenant's Personal Property.................................12
6.4 Purchase of Tenant's Personal Property.....................12
6.5 Removal of Personal Property...............................13
6.6 Landlord's Waivers.........................................13
6.7 Collateral Agreements......................................13
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7 USE OF LEASED PROPERTY...............................................14
7.1 Use........................................................14
7.2 Specific Prohibited Uses...................................15
7.3 Landlord to Grant Easements, Etc...........................15
8 HAZARDOUS MATERIALS..................................................16
8.1 Tenant Representations.....................................16
8.1.1 Reports.............................................16
8.2 Remediation................................................16
8.3 Tenant's Indemnification of Landlord and Others............17
8.4 Survival of Indemnification Obligations....................17
9 MAINTENANCE AND REPAIR...............................................17
9.1 Tenant's Sole Obligation - General.........................17
9.2 Clubhouse Facility Maintenance.............................18
9.3 Golf Course Maintenance....................................18
9.4 Waiver of Statutory Obligations............................18
9.5 Mechanic's Liens...........................................18
9.6 Surrender of Leased Property...............................19
9.7 Transfer of Operating Permits..............................19
10 TENANT'S IMPROVEMENTS................................................19
10.1 Tenant's Right to Construct................................19
10.2 Scope of Right.............................................20
10.3 Cooperation of Landlord....................................20
10.4 Commencement of Construction...............................21
10.5 Rights in Tenant Improvements..............................21
11 LIENS, ENCROACHMENTS AND OTHER TITLE MATTERS.........................21
11.1 Liens......................................................21
11.2 Encroachments and Other Title Matters......................22
12 PERMITTED CONTESTS...................................................23
13 INSURANCE............................................................24
13.1 General Insurance Requirements.............................24
13.1.1 All Risk...........................................24
13.1.2 Liability..........................................25
13.1.3 Flood..............................................25
13.1.4 Worker's Compensation..............................25
13.1.5 Rent Loss..........................................25
13.1.6 Other Insurance....................................25
13.2 Replacement Cost...........................................25
13.3 Waiver of Subrogation......................................25
13.4 Form Satisfactory, Etc.....................................26
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13.5 Change in Limits...........................................26
13.6 Blanket Policy.............................................26
14 APPLICATION OF INSURANCE PROCEEDS....................................27
14.1 Insurance Proceeds.........................................27
14.1.1 Disbursement of Proceeds...........................27
14.1.2 Excess Proceeds....................................28
14.2 Reconstruction Covered by Insurance........................28
14.2.1 Destruction Rendering Facility
Unsuitable for its Primary Use.....................28
14.2.2 Destruction Not Rendering Facility
Unsuitable for its Primary Use.....................29
14.2.3 Costs of Repair....................................29
14.3 Reconstruction Not Covered by Insurance....................29
14.4 No Abatement of Rent.......................................29
14.5 Waiver.....................................................29
14.6 Damage Near End of Term....................................29
15 CONDEMNATION.........................................................30
15.1 Total Taking...............................................30
15.2 Partial Taking.............................................30
15.3 Restoration................................................30
15.4 Award Distribution.........................................30
15.5 Temporary Taking...........................................30
16 EVENTS OF DEFAULT....................................................31
16.1 Events of Default..........................................31
16.2 Payment of Costs...........................................33
16.3 Exceptions.................................................33
16.4 Certain Remedies...........................................33
16.5 Damages....................................................34
16.6 Additional Remedies........................................35
16.7 Appointment of Receiver....................................35
16.8 Waiver.....................................................35
16.9 Application of Funds.......................................35
17 LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT............................35
18 OPERATIONS/CAPITAL EXPENDITURES......................................36
18.1 Annual Plan................................................36
18.2 Funding of Capital Expenditure Reserve Account.............36
19 LEGAL REQUIREMENTS...................................................37
20 HOLDING OVER.........................................................38
21 UPREIT UNITS/REIT SHARES/LETTER OF CREDIT/SECURITY DEPOSIT...........38
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21.1 Security Deposit...........................................38
21.2 Officer's Certificate/Audit................................38
21.3 Terms of Letter of Credit..................................39
21.4 Draws Against Letter of Credit/Alternative
Security; Application of Proceeds .......................39
21.5 Renewal of Letter of Credit................................40
21.6 Other Security.............................................40
22 IMPOUNDS.............................................................40
23 INDEMNIFICATION; RISK OF LOSS........................................41
23.1 Tenant's Indemnification...................................41
23.2 Landlord's Indemnification of Tenant.......................42
23.3 Mechanics of Indemnification...............................42
23.4 Survival of Indemnification Obligations....................42
23.5 Risk of Loss...............................................42
24 SUBLETTING AND ASSIGNMENT............................................43
24.1 Prohibition Against Subletting and Assignment..............43
24.2 Changes in Control.........................................43
24.2.1 Financial Covenants................................44
24.2.2 Operating Standards................................44
24.2.3 Commitment to the Golf Industry....................44
24.3 Subleases..................................................44
24.3.1 Permitted Subleases................................44
24.3.2 Terms of Sublease..................................45
24.3.3 Copies.............................................45
24.3.4 Assignment of Rights in Subleases..................45
24.3.5 Licenses, Etc......................................46
24.4 Assignment.................................................46
24.5 REIT Limitations...........................................46
25 OFFICER'S CERTIFICATES AND OTHER STATEMENTS..........................46
25.1 Officer's Certificates.....................................46
25.2 Financial Reporting........................................48
25.2.1 Monthly Financial Information.....................48
25.2.2 Quarter Financial Information.....................48
25.2.3 Annual Financial Statements.......................48
25.2.4 Other Information.................................49
25.2.5 Standard Reporting Format.........................49
25.3 Environmental Statements...................................49
26 LANDLORD MORTGAGES...................................................50
26.1 Landlord May Grant Liens...................................50
26.2 Tenant's Non-Disturbance Rights............................50
26.3 Breach by Landlord.........................................50
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26.4 Facility Mortgage Protection...............................50
26.5 Attornment.................................................51
26.6 Facility Mortgagee or Successor Owner as Landlord..........51
26.7 Prepayments and Modifications of the Lease.................52
27 MISCELLANEOUS........................................................52
27.1 Landlord's Right to Inspect................................52
27.2 No Waiver..................................................52
27.3 Remedies Cumulative........................................53
27.4 Acceptance of Surrender....................................53
27.5 No Merger of Title.........................................53
27.6 Conveyance by Landlord.....................................53
27.7 Quiet Enjoyment............................................53
27.8 Notices....................................................53
27.9 Survival of Claims.........................................54
27.10 Invalidity of Terms or Provisions..........................54
27.11 Prohibition Against Usury..................................54
27.12 Amendments to Lease........................................54
27.13 Successors and Assigns.....................................54
27.14 Titles.....................................................54
27.15 Governing Law..............................................54
27.16 Memorandum of Lease........................................54
27.17 Attorneys' Fees............................................54
27.18 Non-Recourse as to Landlord................................54
27.19 No Relationship............................................55
27.20 Signs; Reletting...........................................55
27.21 Golf Course Name...........................................55
28 TENANT MORTGAGES.....................................................55
29 INTENTIONALLY OMITTED................................................55
30 TENANT'S STRUCTURE...................................................56
31 RIGHT OF FIRST OFFER.......................................57
31.1 Exercise of First Offer Right..............................57
31.2 Further Documentation......................................57
31.3 Purchase Price.............................................58
31.4 Mechanics of Purchase......................................58
31.5 REIT Qualification Limitation..............................59
31.6 Effectiveness of First Offer Right.........................59
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<PAGE> 7
EXHIBITS:
EXHIBIT A - Defined Terms: Interpretation
EXHIBIT B - Legal Description of the Land
EXHIBIT C - Other Leased Property
EXHIBIT D - Operating Standards
EXHIBIT E - Standard Reporting Format
EXHIBIT F - Base Rent Schedule
EXHIBIT G - Baseline Revenue Schedule
vi
<PAGE> 8
LEASE
THIS LEASE ("Lease"), dated ______________________, 1998, is entered
into by and between PRESIDIO GOLF LIMITED PARTNERSHIP, a Delaware limited
partnership ("Landlord"), and ___________________________________, a Delaware
limited liability company ("Tenant"). This Lease consists of the Basic Lease
Provisions, the Detailed Lease Provisions, the Joinder and Exhibits A through G,
all of which are incorporated herein by this reference. Capitalized terms used
herein have the meanings assigned to such terms in Exhibit A.
BASIC LEASE PROVISIONS
1. ADDITIONAL RENT: Means the amount, if any, by which (a) the
sum of:
(i) the Applicable Percentage of the amount by which Golf
Course Revenue for any Fiscal Year exceeds the Baseline Golf Course
Revenue; and
(ii) the Applicable Percentage of the amount by which Other
Revenue for any Fiscal Year exceeds the Baseline Other Revenue
exceeds (b) the Base Rent Escalation for such Fiscal Year.
(See Section 3.3 of the Detailed Lease Provisions.)
2. ADDRESS FOR PAYMENTS:
Landlord:
Presidio Golf Limited Partnership
_Arnold Palmer Golf Management
Building 106, Montgomery Street
Presidio Main Post, P.O. Box 29355
San Francisco, California 94129
(See Section 3.1 of the Detailed Lease Provisions.)
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3. ADDRESSES FOR NOTICES:
Tenant:
_Arnold Palmer Golf Management LLC
Building 106, Montgomery Street
Presidio Main Post, P.O. Box 29355
San Francisco, California 94129
Attn:__________________________________
Fax: (415) 561-4680
Landlord:
Presidio Golf Limited Partnership
_Arnold Palmer Golf Management
Building 106, Montgomery Street
Presidio Main Post, P.O. Box 29355
San Francisco, California 94129
Attn: Mr. George Haworth
FAX: (415)561-4680
(See Section 27.8 of the Detailed Lease Provisions.)
4. ANNUAL BASE RENT: Means, with respect to the Fiscal Year
commencing on the Commencement Date and ending on December 31st of such calendar
year (the "First Fiscal Year"), the Initial Base Rent. On January 1 of the
Fiscal Year following the First Fiscal Year, and on January 1 of each successive
Fiscal Year during the Term, the Annual Base Rent shall be equal to the lower of
(a) the Annual Base Rent applicable to the immediately preceding Fiscal Year
multiplied by 103% or (b) the sum of (i) the Annual Base Rent applicable to the
immediately preceding Fiscal Year plus (ii) the product of the Annual Base Rent
applicable to the immediately preceding Fiscal Year multiplied by 200% of the
annual percentage increase in the Consumer Price Index from January 1 of the
immediately preceding Fiscal Year.
5. APPLICABLE PERCENTAGE: Means 30% with respect to Golf
Course Revenue and 5% with respect to Other Revenue.
6. BASE RENT ESCALATION: Means, for any Fiscal Year, the
amount by which the Annual Base Rent for such Fiscal Year exceeds the Initial
Base Rent.
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7. BASELINE GOLF COURSE REVENUE: Means, for any Fiscal Year
during the Term, $____________.
8. BASELINE OTHER REVENUE: Means, for any Fiscal Year during the
Term, $____________.
9. COMMENCEMENT DATE: Means ____________________, 1998.
10. EXTENDED TERMS: Five (5) five-year terms (each, an "Extended
Term" and collectively, the "Extended Terms").
11. FACILITY: Means the Leased Property consisting of an 18-hole
golf course, clubhouse and related facilities located on the Land.
12. FISCAL YEAR: Means the 12-month period from January 1 through
December 31 of each year of the Term, or the applicable portions of the first
and last Fiscal Years.
13. INITIAL BASE RENT: Means $________________.
14. INITIAL TERM: 15 years commencing on the Commencement Date.
LIST OF EXHIBITS:
Exhibit A Defined Terms; Interpretation
Exhibit B Legal Description of the Land
Exhibit C Other Leased Property
Exhibit D Operating Standards
Exhibit E Standard Reporting Format
Exhibit F Base Rent Schedule
Exhibit G Baseline Revenue Schedule
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<PAGE> 11
DETAILED LEASE PROVISIONS
ARTICLE 1
LEASED PROPERTY
Upon and subject to the terms and conditions set forth in this Lease,
Landlord leases to Tenant and Tenant rents from Landlord all of Landlord's
rights and interest in and to the following real property, improvements and
related rights (collectively the "Leased Property"):
(a the land described in Exhibit B attached hereto
(collectively, the "Land");
(b all buildings, structures, Fixtures and other
impovements of every kind including, but not limited to, alleyways and
connecting tunnels, sidewalks, utility pipes, conduits and lines
(on-site and off-site), parking areas, roadways, cart paths, bridges,
lakes, irrigation systems, and course markers presently situated upon
the Land, but not including any Tenant Improvements (collectively, the
"Leased Improvements");
(c all easements, rights and appurtenances (including,
without limitation, all water rights) relating to the Land and the
Leased Improvements (collectively, the "Related Rights"); and
(d all personal property owned by Landlord and located on
the Land or in the Leased Improvements ("Landlord's Personal
Property").
ARTICLE 2
TERM
2.1 INITIAL TERM. The initial Term of this Lease shall commence on
the Commence ment Date.
2.2 EXTENDED TERMS. Landlord grants Tenant the right to extend the
Term of this Lease for the Extended Terms provided for in the Basic Lease
Provisions commencing upon the expiration of the Initial Term or the applicable
Extended Term. Tenant may exercise such right solely by giving written notice to
Landlord of such extension at least 270 days prior to the termination of the
then-current Term (time being of the essence). The exercise of such right shall
be valid only if at the time of the giving of such notice and at the time of the
commencement of the applicable Extended Term no Event of Default shall have
occurred and be continuing. During the Extended Term, all of the terms and
conditions of this Lease shall continue in full force and effect, as the same
may be amended, supplemented or modified.
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<PAGE> 12
ARTICLE 3
RENT
3.1 RENT. Tenant will pay to Landlord in lawful money of the
United States of America the Base Rent and Additional Rent during the Term.
Payment of Base Rent and Additional Rent shall be paid at Landlord's address set
forth in the Basic Lease Provisions or at such other place or to such other
Person as Landlord from time to time may designate in writing. If any payment
owing hereunder shall otherwise be due on a day that is not a Business Day, such
payment shall be due on the next succeeding Business Day. Tenant's covenant to
pay Base Rent, Additional Rent and any other sums due under this Lease shall be
independent of all other covenants contained in this Lease.
3.2 BASE RENT. Tenant shall pay Base Rent to Landlord in advance
on the first day of each calendar month (which Base Rent shall, for accounting
purposes, consist of Annual Base Rent accruing during the respective Fiscal Year
in equal monthly installments, but which Base Rent shall be payable for each
month in the respective proportions described in Exhibit F); provided, however,
that the first monthly installment shall be payable on the Commencement Date and
the first and last month's payments shall be prorated as to any partial month.
3.3 ADDITIONAL RENT. In addition to the Base Rent, Tenant shall
pay to Landlord Additional Rent in quarterly installments as provided in Section
3.3.1.
3.3.1 QUARTERLY CALCULATION AND PAYMENT OF ADDITIONAL RENT.
Tenant shall calculate and pay Additional Rent for each Fiscal Quarter.
The amount of the Additional Rent for the Second, Third and Fourth
Fiscal Quarters shall account for any interim reconciliations made with
respect to prior Fiscal Quarters in such Fiscal Year as certified by
Tenant to Landlord as provided by this Section 3.3.1, but subject to a
final reconciliation as provided by Section 3.3.2. Within thirty (30)
days after the end of each Fiscal Quarter, Tenant shall deliver to
Landlord an Officer's Certificate setting forth the calculation of
Additional Rent for such Fiscal Quarter. If the Additional Rent for the
period beginning on the first day
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<PAGE> 13
of the current Fiscal Year and ending on the last day of the Fiscal
Quarter just ended exceeds the sum of quarterly payments on account
thereof previously made by Tenant, Tenant shall pay such deficiency to
Landlord along with the Officer's Certificate. If the Additional Rent
for the period beginning on the first day of the current Fiscal Year
and ending on the last day of the Fiscal Quarter just ended is less
than the sum of quarterly payments on account thereof previously made
by Tenant, Tenant shall be entitled to deduct from its next Additional
Rent payment(s) an amount equal to such difference. In calculating
Additional Rent for any Fiscal Quarter, the Golf Course Revenue or
Other Revenue, as the case may be, for the period beginning on the
first day of the current Fiscal Year and ending on the last day of such
Fiscal Quarter shall be compared to the Baseline Golf Course Revenue or
Baseline Other Revenue for the same period as scheduled on Exhibit G
attached hereto (which Exhibit G baseline period calculation shall be
prorated based upon the actual number of days in any partial Fiscal
Quarter occurring at the beginning or end of the Term).
3.3.2 ANNUAL RECONCILIATION. Within 60 days after the end
of each Fiscal Year, or after the expiration or termination of this
Lease, Tenant shall deliver to Landlord an Officer's Certificate
setting forth (i) the Golf Course Revenue and the Other Revenue for the
Fiscal Year just ended, and (ii) a comparison of the amount of
Additional Rent actually paid during such Fiscal Year versus the amount
of Additional Rent actually owing on the basis of the annual
calculation of the Golf Course Revenue and the Other Revenue. If the
Additional Rent for such Fiscal Year exceeds the sum of the quarterly
payments previously paid by Tenant on account thereof, Tenant shall pay
such deficiency to Landlord along with such Officer's Certificate. If
the Additional Rent for such Fiscal Year is less than the amount
previously paid by Tenant on account thereof, Landlord shall, at
Landlord's option, either (i) remit to Tenant its check in an amount
equal to such difference, or (ii) grant Tenant a credit against the
payment of Additional Rent next coming due; provided, however, that if
the amount of Additional Rent due for the next Fiscal Quarter is
insufficient to exhaust such credit, Landlord shall remit to Tenant its
check in the amount of any remaining excess. The amount of the
reconciliation payment, whether in favor of Landlord or Tenant, shall
bear interest at a rate equal to the rate payable on 90- day U.S.
Treasury Bills as of January 1 of the year following the close of such
Fiscal Year until the amount of such difference shall be paid or
otherwise discharged.
3.3.3 RECORD-KEEPING. Tenant shall utilize an accounting
system for the Leased Property in accordance with its usual and
customary practices and in accordance with accrual basis accounting
principles applied on a basis consistent with the Other Leased Property
which will accurately record all Golf Course Revenue and Other Revenue.
Tenant shall retain reasonably adequate records for each Fiscal Year
conforming to such accounting system until at least five years after
the expiration of such Fiscal Year (and in any event until the
reconciliation described in Section 3.3.2 above for such Fiscal Year
has been made).
3.3.4 AUDITS. Landlord, at its own expense except as
provided hereinbelow, shall have the right from time to time directly
or through its accountants to audit the information set forth in the
Officer's Certificate referred to in Section 3.3.2 and in connection
with such audits to examine Tenant's books and records with respect
thereto (including supporting data, sales tax returns and Tenant's work
papers); provided, however, that any audit of the information contained
in an Officer's Certificate referred to in Section 3.3.2 must be
conducted, and the results thereof delivered to Tenant, on or before
one (1) year
6
<PAGE> 14
after delivery to Landlord of such Officer's Certificate. At the end of
such one (1) year period, the information contained in the Officer's
Certificate shall be final and binding upon Landlord and Tenant, except
with respect to any amount therein which Landlord has challenged in
writing delivered to Tenant on or before expiration of such one (1)
year period and except that in the event that any audit by Landlord
discloses that Tenant has understated any revenue item by more than
Fifty Thousand and no/100 Dollars ($50,000.00) and such understatement
results in Golf Course Revenue and Other Revenue, collectively, being
understated by more than five percent (5%) of the actual amount
thereof, then Landlord shall have the right to audit all prior years'
information which has not theretofore been audited by Landlord. If any
such audit discloses a deficiency in the payment of Additional Rent,
Tenant shall forthwith pay to Landlord the amount of the deficiency, as
finally agreed or determined, together with interest at the Overdue
Rate from the date when said payment should have been made to the date
of payment thereof; provided, however, that as to any audit that is
commenced more than 12 months after the date Golf Course Revenue or
Other Revenue for any Fiscal Year is reported by Tenant to Landlord
(i.e., to the extent permitted above), the deficiency, if any, with
respect to such Golf Course Revenue or Other Revenue shall bear
interest as permitted herein only from the date such determination of
deficiency is made unless such deficiency is the result of gross
negligence or willful misconduct on the part of Tenant. If any such
audit discloses that the Golf Course Revenue or Other Revenue for any
Fiscal Year exceeds the Golf Course Revenue or Other Revenue reported
by Tenant by more than five percent (5%), Tenant shall pay the
reasonable cost of such audit and examination. Tenant shall maintain,
throughout the term of this Lease, all books and records relating to
Golf Course Revenue and Other Revenue received during such term.
3.4 ADDITIONAL CHARGES. In addition to the Base Rent and
Additional Rent (1) Tenant shall also pay and discharge when due and payable all
other amounts, liabilities, obligations and Impositions which Tenant assumes or
agrees to pay under this Lease, and (2) in the event of any failure on the part
of Tenant to pay any of those items referred to in clause (1) above, Tenant
shall also pay and discharge every fine, penalty, interest and cost which may be
added for non-payment or late payment of such items (the items referred to in
clauses (1) and (2) above being referred to herein collectively as the
"Additional Charges"). Except as otherwise provided in this Lease or as
otherwise required by any third party entitled to receipt of Additional Charges,
all Additional Charges shall be due and payable thirty (30) days after either
Landlord or the applicable third party who may be billing Tenant therefor shall
deliver an invoice to Tenant therefor. To the extent that Tenant pays any
Additional Charges to Landlord pursuant to any requirements of this Lease, which
charges are due and payable to a third party, Landlord shall pay such charges to
such third party and, in any event, Tenant shall be relieved of its obligation
to pay such Additional Charges to the entity to which they would otherwise be
due. Alternatively, with respect to Additional Charges payable to a third party,
Tenant may pay such charges directly to such third party and thereby be relieved
of any obligation to pay such charges to Landlord.
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<PAGE> 15
3.5 LATE PAYMENT OF RENT. Tenant hereby acknowledges that late
payment by Tenant to Landlord of Base Rent, Additional Rent or Additional
Charges will cause Landlord to incur costs not contemplated under the terms of
this Lease, the exact amount of which is presently anticipated to be extremely
difficult to ascertain. Such costs may include processing and accounting charges
and late charges which may be imposed on Landlord by the terms of any mortgage
or deed of trust covering the Leased Property and other expenses of a similar or
dissimilar nature. Accordingly, if any installment or payment of Base Rent,
Additional Rent or Additional Charges (but only as to those Additional Charges
which are payable directly to Landlord) shall not be paid or made within five
(5) Business Days after its due date, Tenant will pay Landlord on demand, as
Additional Charges, a late charge equal to three percent (3%) of such
installment or payment; provided, however, that if such payment or installment
is not paid or made within ten (10) Business Days after its due date, the late
charge shall be five percent (5%) of such installment or payment. The parties
agree that this late charge represents a fair and reasonable estimate of the
costs that Landlord will incur by reason of late payment by Tenant. In addition
to said late charge, if any installment or payment of Base Rent, Additional Rent
or Additional Charges (but only as to those Additional Charges which are payable
directly to Landlord) shall not be paid on, or made by, its due date, the amount
unpaid shall bear interest, from the date such installment or payment was due
until the date of payment thereof, computed at the Overdue Rate on the amount of
such delinquent installment or payment , and Tenant will pay such interest to
Landlord on demand, as Additional Charges. The payment of such late charge or
such interest, or both (as the case may be), shall not constitute a waiver, nor
excuse or cure, of any default under this Lease, nor prevent Landlord from
exercising any other rights and remedies available to Landlord.
3.6 NET LEASE. The Base Rent, Additional Rent and Additional
Charges shall be paid absolutely net to Landlord and without notice or demand
and without set-off, counterclaim, recoupment, abatement, suspension, determent,
deduction or defense, so that this Lease shall yield to Landlord the full amount
of the installments of Base Rent, Additional Rent and, subject to Section 3.4
above, Additional Charges throughout the Term.
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<PAGE> 16
ARTICLE 4
IMPOSITIONS
4.1 PAYMENT OF IMPOSITIONS. Subject to the terms of Article 22
hereof, Tenant will pay, or cause to be paid, all Impositions before any fine,
penalty, interest or cost may be added for non-payment, such payments to be made
directly to the taxing authorities where feasible. All payments of Impositions
shall be subject to Tenant's right of contest pursuant to the provisions of
Article 12. Without limitation of the foregoing, no later than fifteen (15) days
prior to the due date of any Impositions, Tenant shall furnish to Landlord
copies of the bill(s) or invoices(s) for such Impositions and copies of Tenant's
check or other evidence of payment, and as soon as reasonably available after
the payment of said Impositions, Tenant shall promptly furnish to Landlord
copies of official receipts, if available, or other satisfactory third party
evidence of such payments, such as canceled checks.
4.2 INFORMATION AND REPORTING. Landlord shall give prompt notice
to Tenant of all Impositions payable by Tenant hereunder of which Landlord at
any time has knowledge, but Landlord's failure to give any such notice shall in
no way diminish Tenant's obligations hereunder to pay such Impositions. Landlord
and Tenant shall, upon request of the other, provide such data as is maintained
by the party to whom the request is made with respect to the Leased Property as
may be necessary to prepare any required returns and reports. In the event any
applicable governmental authorities classify any property covered by this Lease
as personal property, Tenant shall file all personal property tax returns in
such jurisdictions where it must legally so file. Each party, to the extent it
possesses the same, will provide the other party, upon request, with cost and
depreciation records necessary for filing returns for any property so classified
as personal property.
4.3 ASSESSMENT CHALLENGES. In addition to Tenant's rights under
Article 12, Tenant may, upon notice to Landlord and otherwise in compliance
with Article 12, at Tenant's option and at Tenant's sole cost and expense,
protest, appeal, or institute such other proceedings as Tenant may deem
appropriate to effect a reduction of real estate or personal property
assessments and Landlord, at Tenant's expense as aforesaid, shall reasonably
cooperate with Tenant in such protest, appeal, or other action.
4.4 PRORATIONS. Impositions imposed in respect of the tax-fiscal
period during which the Term terminates shall be adjusted and prorated between
Landlord and Tenant, whether or not such Imposition is imposed before or after
such termination, and Tenant's obligation to pay its prorated share thereof
shall survive such termination. If any Imposition may, at the option of the
taxpayer, lawfully be paid in installments (whether or not interest shall accrue
on the unpaid balance of such Imposition), Tenant may elect to pay in
installments, in which event Tenant shall pay all installments (and any accrued
interest on the unpaid balance of the Imposition) that are due
9
<PAGE> 17
during the Term hereof before any fine, penalty, premium, further interest or
cost may be added thereto.
4.5 REFUNDS. If any refund shall be due from any taxing authority
in respect of any Imposition paid by Tenant, the same shall be paid over to or
retained by Tenant if no Event of Default shall have occurred hereunder and be
continuing. Any such funds retained by Landlord due to an Event of Default shall
be applied as provided in Article 16.
4.6 UTILITY CHARGES. Tenant shall pay or cause to be paid prior to
delinquency charges for all utilities and services, including, without
limitation, electricity, telephone, trash disposal, gas, oil, water, sewer,
communication and all other utilities used in the Leased Property during the
Term.
4.7 ASSESSMENT DISTRICTS. Landlord shall not voluntarily consent
to or agree in writing to (i) any special assessment or (ii) the inclusion of
any material portion of the Leased Property into a special assessment district
or other taxing jurisdiction unless Tenant shall have consented thereto, which
consent shall not be unreasonably withheld.
ARTICLE 5
TENANT WAIVERS
5.1 NO TERMINATION, ABATEMENT, ETC.. Except as otherwise
specifically provided in this Lease, and except for those causes resulting
solely from the gross negligence or willful misconduct of Landlord, (i) Tenant,
to the extent permitted by law, shall remain bound by this Lease in accordance
with its terms and shall neither take any action without the consent of Landlord
to modify, surrender or terminate the same, nor be entitled to any abatement,
deduction, deferment or reduction of Rent, or set-off against the Rent by reason
of, and (ii) the respective obligations of Landlord and Tenant shall not be
otherwise affected by reason of:
(a) any damage to, or destruction of, any Leased Property
or any portion thereof from whatever cause or any taking of the Leased
Property or any portion thereof;
(b) the lawful or unlawful prohibition of, or restriction
upon, Tenant's use of the Leased Property, or any portion thereof, the
interference with such use by any Person, or by reason of eviction by
paramount title;
(c) any claim which Tenant has or might have against
Landlord or by reason of any default or breach of any warranty by
Landlord under this Lease or any other agreement between Landlord and
Tenant, or to which Landlord and Tenant are parties;
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(d) any bankruptcy, insolvency, reorganization,
composition, readjustment, liquidation, dissolution, winding up or
other proceedings affecting Landlord or any assignee or transferee of
Landlord; or
(e) for any other cause whether similar or dissimilar to
any of the foregoing other than a discharge of Tenant from any such
obligation as a matter of law.
Tenant hereby specifically waives all rights, arising from any occurrence
whatsoever, which may now or hereafter be conferred upon it by law (i) to
modify, surrender or terminate this Lease or quit or surrender the Leased
Property or any portion thereof, or (ii) to entitle Tenant to any abatement,
reduction, suspension or deferment of the Rent or other sums payable by Tenant
hereunder, except as otherwise specifically provided in this Lease. The
obligations of Landlord and Tenant hereunder shall be separate and independent
covenants and agreements and the Rent and all other sums payable by Tenant
hereunder shall continue to be payable in all events unless the obligations to
pay the same shall be terminated pursuant to the express provisions of this
Lease or by termination of this Lease other than by reason of any Event of
Default.
5.2 CONDITION OF THE LEASED PROPERTY. Tenant acknowledges receipt
and delivery of possession of the Leased Property and that Tenant has examined
and otherwise has knowledge of the condition of the Leased Property prior to the
execution and delivery of this Lease and has found the same to be in good order
and repair and satisfactory for its purposes hereunder. Regardless of any
inspection made by Tenant of the Leased Property and whether or not any patent
or latent defect or condition was revealed or discovered thereby, Tenant is
leasing the Leased Property "as is" in its present condition. Tenant waives and
releases any claim or action against Landlord in respect of the condition of the
Leased Property including any defects or adverse conditions, latent or patent,
matured or unmatured, known or unknown by Tenant or Landlord as of the date
hereof. TENANT ACKNOWLEDGES THAT LANDLORD (WHETHER ACTING AS LANDLORD HEREUNDER
OR IN ANY OTHER CAPACITY) HAS NOT MADE AND WILL NOT MAKE, NOR SHALL LANDLORD BE
DEEMED TO HAVE MADE, ANY WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, WITH
RESPECT TO THE LEASED PROPERTY, INCLUDING ANY WARRANTY OR REPRESENTATION AS TO
(i) ITS FITNESS, DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE, (ii) THE
QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, (iii) THE EXISTENCE OF ANY
DEFECT, LATENT OR PATENT, (iv) LANDLORD'S TITLE THERETO, (v) VALUE, (vi)
COMPLIANCE WITH SPECIFICATIONS, (vii) LOCATION, (viii) USE, (ix) CONDITION, (x)
MERCHANTABILITY, (xi) QUALITY, (xii) DESCRIPTION, (xiii) DURABILITY, (xiv)
OPERATION, (xv) THE EXISTENCE OF ANY HAZARDOUS MATERIAL OR (xvi) COMPLIANCE OF
THE LEASED PROPERTY WITH ANY LAW (INCLUDING ENVIRONMENTAL LAWS) OR LEGAL
REQUIREMENTS. TENANT ACKNOWLEDGES THAT THE LEASED PROPERTY IS OF ITS SELECTION
AND TO ITS SPECIFICATIONS AND THAT THE LEASED PROPERTY HAS BEEN INSPECTED BY
TENANT AND IS SATISFACTORY TO IT. IN THE EVENT OF ANY DEFECT OR
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DEFICIENCY IN THE LEASED PROPERTY OF ANY NATURE, WHETHER LATENT OR PATENT, AS
BETWEEN LANDLORD AND TENANT, LANDLORD SHALL NOT HAVE ANY RESPONSIBILITY OR
LIABILITY WITH RESPECT THERETO OR FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES
(INCLUDING STRICT LIABILITY IN TORT). THE PROVISIONS OF THIS SECTION 5.2 HAVE
BEEN NEGOTIATED, AND ARE INTENDED TO BE A COMPLETE EXCLUSION AND NEGATION OF ANY
WARRANTIES BY LANDLORD, EXPRESS OR IMPLIED, WITH RESPECT TO THE LEASED PROPERTY,
ARISING PURSUANT TO THE UNIFORM COMMERCIAL CODE OR ANY OTHER LAW NOW OR
HEREAFTER IN EFFECT OR ARISING OTHERWISE.
ARTICLE 6
OWNERSHIP OF PROPERTY
6.1 LEASED PROPERTY. Tenant acknowledges that the Leased Property
is the property of Landlord, that Landlord is the paramount owner of the Leased
Property and that Tenant has only the right to the possession and use of the
Leased Property during the Term of and upon the terms and conditions of this
Lease.
6.2 LANDLORD'S PERSONAL PROPERTY. Tenant shall maintain Landlord's
Personal Property in the same manner as Tenant maintains Tenant's Personal
Property. Upon the loss, destruction, or obsolescence of any of the Landlord's
Personal Property, Tenant shall replace such property with Tenant's Personal
Property, which Personal Property shall be owned by Tenant; provided, however,
that in the case of loss or destruction to any of Landlord's Personal Property,
if insurance proceeds are available, Tenant shall use such proceeds to replace
such Personal Property, and the replacement Personal Property shall be owned by
Landlord and shall constitute Landlord's Personal Property hereunder.
6.3 TENANT'S PERSONAL PROPERTY. Tenant may (and shall as provided
below), at its expense, install, affix or assemble or place on any parcel of the
Land or in any of the Leased Improvements, any items of Tenant's Personal
Property. Tenant shall provide and maintain during the entire Term all such
Tenant's Personal Property as shall be necessary in order to operate the
Facility in compliance with all applicable Legal Requirements and Insurance
Requirements and otherwise in accordance with customary practice in the industry
for the Primary Intended Use and in accordance with its past practices.
6.4 PURCHASE OF TENANT'S PERSONAL PROPERTY. Upon the expiration or
sooner termination of this Lease, Landlord shall have the right (but not the
obligation) to purchase from Tenant all or any portion of the tangible Tenant's
Personal Property (which shall not include software):
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(i) if owned by Tenant and not subject to any secured
financing, at the fair market value thereof;
(ii) if owned by Tenant, but subject to a secured
financing, at the greater of the fair market value thereof or the
amount of the debt owing under such financing; and
(iii) if leased by Tenant and the applicable lease provides
for termination of the lease as to such Tenant's Personal Property upon
the payment of a given sum, at the greater of the fair market value
thereof or the amount of the payment so provided; provided, however,
that at Tenant's option and if the lessor of Tenant's Personal Property
will permit Landlord to assume the obligations under the applicable
lease with respect to such Tenant's Personal Property (separate from
the obligations under a master lease if in effect), Tenant shall, upon
the request of Landlord, assign the applicable lease (or portion
thereof) to Landlord;
provided, further, however, that if Landlord's purchase right arises because of
a termination of this Lease as a result of an Event of Default, the fair market
value under clauses (i) through (iii) above shall be deemed to be the
depreciated net book value of Tenant's Personal Property. Landlord may elect to
purchase Tenant's Personal Property by giving notice to Tenant not later than,
as the case may be, 60 days prior to the expiration of this Lease or 60 days
after the termination of this Lease upon any Event of Default. Tenant shall
transfer title to such Property by a bill of sale without warranty (except as to
ownership) upon concurrent payment in cash by Landlord; provided, however, if
Landlord has any unpaid damages in an ascertainable amount resulting from any
Event of Default, Landlord may make payment by delivery of an offset against
such damages.
6.5 REMOVAL OF PERSONAL PROPERTY. All items of Tenant's Personal
Property not removed by Tenant within 14 days following the expiration or
earlier termination of this Lease shall be considered abandoned by Tenant and
may, at Landlord's discretion and without any obligation, be appropriated, sold,
destroyed or otherwise disposed of by Landlord without first giving notice
thereof to Tenant and without any payment to Tenant and without any obligation
to account therefor. Tenant shall, at its expense, restore the Leased Property
to the condition required by Section 9.1, including repair of all damage to the
Leased Property caused by the removal of Tenant's Personal Property, whether
affected by Tenant or Landlord. Landlord shall not be responsible for any loss
or damage to Tenant's Personal Property, or any other property of Tenant, by
virtue of Landlord's removal thereof at any time subsequent to the 14-day period
provided for herein.
6.6 LANDLORD'S WAIVERS. Any lessor of Tenant's Personal Property
or other party with a security interest therein may, upon notice to Landlord and
during reasonable hours, enter the Facility and take possession of any of
Tenant's Personal Property without liability for trespass
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or conversion. Landlord shall, upon the request of Tenant, execute and deliver
to Tenant "landlord's waivers" as may be reasonable and customary in connection
with the financing or leasing of personal property. Such "landlord's waiver"
shall limit to 30 days the amount of time the lessor or lender of Tenant's
Personal Property has to enter upon the Leased Property after notice from
Landlord that the Term has expired or otherwise terminated. If Tenant requests a
"landlord's waiver," Tenant shall attempt to secure from any financing source or
lessor the right on the part of Landlord to cure the defaults of Tenant and to
use any such Tenant's Personal Property upon providing such cure.
6.7 COLLATERAL AGREEMENTS. During the Term, Tenant shall have the
right and obligation to enter into agreements and service contracts on behalf of
the Facility which are necessary or reasonably required in connection with the
operation of the Leased Property for its Primary Intended Use including, without
limitation, membership agreements. Tenant (or its affiliate) has also entered
into various agreements and service contacts in connection with its operation of
the Facility prior to the Commencement Date. All such agreements and service
contracts, whether entered into prior to or during the Term and whether entered
into by Tenant or by Palmer Management (as defined in Article 30 below), are
hereinafter collectively referred to as the "Collateral Agreements." For good
and valuable consideration, the receipt of which is hereby acknowledged, and
subject to the terms and conditions hereinafter set forth, Tenant and Palmer
Management hereby assign to Landlord all of Tenant's and Palmer Management's
right, title and interest in the Collateral Agreements; provided, however, that
Tenant and Palmer Management shall continue to have all rights under said
Collateral Agreements at all times during the Term hereof when an Event of
Default is not then existing hereunder (subject, however, to the terms set forth
below relative to restrictions with respect to membership agreements). Upon the
occurrence and during the continuance of an Event of Default (and in addition to
any other rights and remedies available to Landlord), and upon the expiration or
earlier termination of this Lease, Landlord shall have the right, but not the
obligation, by itself or by a designee, to take the place of Tenant or Palmer
Management, as the case may be, under any or all of the Collateral Agreements,
to proceed to perform any and all obligations of the owner or operator contained
in any such Collateral Agreements and exercise any and all rights of the owner
or operator therein contained as fully as the Tenant or Palmer Management itself
could, and to take possession of all documents reasonably required by Landlord
to exercise its rights and perform its obligations under the Collateral
Agreements. Tenant and Palmer Management each hereby appoints Landlord its
attorney-in-fact to take such action and execute such documents as are necessary
or deemed appropriate by Landlord to effectuate the transfer of Tenant's or
Palmer Management's, as the case may be, right, title and interest in those
Collateral Agreements which Landlord designates for such transfer. This power of
attorney granted hereby shall be irrevocable and coupled with an interest.
Tenant and Palmer Management each acknowledges that the foregoing assignment of
Collateral Agreements described above is an integral part of Landlord's
consideration for entering into this Lease and that neither Tenant nor Palmer
Management shall be entitled to any additional consideration relative to such
assignment. Tenant and Palmer Management hereby each
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represents that, with the exception of consents of equipment lessors, it has the
full right and authority to assign the Collateral Agreements as described in
this Section 6.7, and no consent to such assignment is required from any other
party which has not been obtained prior to the date hereof.
With respect to membership agreements included as part of the foregoing
Collateral Agreements, Tenant shall have the right to determine all matters
relating to the sale and classification of memberships, including the right to
set initiation fees, dues and other charges, and the number of memberships sold;
provided that Tenant agrees not to exercise such right in a manner which would
be detrimental to Landlord in any material respect upon the expiration of the
Lease.
ARTICLE 7
USE OF LEASED PROPERTY
7.1 USE. After the Commencement Date and during the Term, Tenant
shall use or cause to be used the Leased Property and the improvements thereon
for its Primary Intended Use and for such other uses as may be necessary or
incidental to such use. Tenant shall not use the Leased Property or any portion
thereof for any other use without the prior written consent of Landlord, which
consent may be withheld in Landlord's sole discretion. No use shall be made or
permitted to be made of the Leased Property, and no acts shall be done, which
will cause the cancellation of any insurance policy covering the Leased Property
or any part thereof, nor shall Tenant sell or otherwise provide to patrons, or
permit to be kept, used or sold in or about the Leased Property any article
which may be prohibited by law or by the standard form of fire insurance
policies, or any other insurance policies required to be carried hereunder, or
fire underwriters regulations. Tenant shall, at its sole cost, comply with all
of the requirements pertaining to the Leased Property or other improvements of
any insurance board, association, organization or company necessary for the
maintenance of insurance, as herein provided, covering the Leased Property and
Tenant's Personal Property.
7.2 SPECIFIC PROHIBITED USES. Tenant shall not use or occupy or
permit the Leased Property to be used or occupied, nor do or permit anything to
be done in or on the Leased Property, in a manner which would (i) violate or
fail to comply with any law, rule or regulation or Legal Requirement, (ii) cause
structural injury to any of the Leased Improvements, or (iii) constitute a
public or private nuisance or waste. Tenant shall not allow any Hazardous
Material to be located in, on or under the Leased Property, to migrate from the
Leased Property to any adjacent property, or to be incorporated in the Facility
or any improvements thereon, except in compliance with applicable law (including
any Environmental Law). Tenant shall not allow the Leased Property to be used as
a landfill or a waste disposal site, or a manufacturing, distribution or
disposal facility for any Hazardous Materials. Tenant shall neither suffer nor
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permit the Leased Property or any portion thereof, including Tenant's Personal
Property, to be used in such a manner as (i) might reasonably tend to impair
Landlord's title thereto or to any portion thereof, or (ii) may reasonably make
possible a claim or claims of adverse usage or adverse possession by the public,
as such, or of implied dedication of the Leased Property or any portion thereof,
or (iii) is in violation of any applicable Environmental Law. Tenant shall own
and use Tenant's Personal Property in material compliance with all Legal
Requirements.
7.3 LANDLORD TO GRANT EASEMENTS, ETC.. Landlord shall, from time
to time so long as no Event of Default has occurred and is continuing, at the
request of Tenant and at Tenant's cost and expense (but subject to the approval
of Landlord, which approval shall not be unreasonably withheld or delayed and
which approval shall not be deemed unreasonably withheld or delayed if Landlord
must obtain a Facility Mortgagee's consent and if such Facility Mortgagee elects
not to consent): (i) grant easements and other rights in the nature of
easements; (ii) release existing easements or other rights in the nature of
easements which are for the benefit of the Leased Property; (iii) dedicate or
transfer unimproved portions of the Leased Property for road, highway or other
public purposes; (iv) execute petitions to have the Leased Property annexed to
any municipal corporation or utility district; (v) execute amendments to any
covenants and restrictions affecting the Leased Property; and (vi) execute and
deliver to any Person any instrument appropriate to confirm or effect such
grants, releases, dedications and transfers (to the extent of its interest in
the Leased Property), but only upon delivery to Landlord of an Officer's
Certificate (which Certificate, if contested by Landlord, shall not be binding
on Landlord) stating that such grant, release, dedication, transfer, petition or
amendment is not detrimental to the proper conduct of the business of Tenant on
the Leased Property and does not reduce its value or usefulness for the Primary
Intended Use and describing in reasonable detail the nature of such proposed
grant, release, dedication, transfer, petition or amendment. Landlord shall not
grant, release, dedicate or execute any of the foregoing items in this Section
7.3 without obtaining Tenant's approval, which approval shall not be
unreasonably withheld or delayed.
ARTICLE 8
HAZARDOUS MATERIALS
8.1 TENANT REPRESENTATIONS. Tenant hereby represents and warrants
to Landlord as follows:
8.1.1 REPORTS. All material reports of environmental
surveys, audits, investigations and assessments relating to the Leased
Property in the possession or control of Tenant or its Affiliates
(herein, the "Existing Environmental Reports") have been disclosed to
Landlord.
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8.2 REMEDIATION. If any Hazardous Material in a quantity
sufficient to require remediation or reporting under any Environmental Law is
released, or disposed of, in, on or under the Leased Property at any time during
the Term hereof or was released, or disposed of, in, on or under the Leased
Property at any time prior to the Commencement Date (i.e., irrespective of
whether the same occurred during Tenant's or Tenant's affiliate's ownership or
possession of the Leased Property), or if Tenant, Landlord, or the Leased
Property becomes subject to any order of any federal, state or local agency to
investigate, remove, remediate, repair, close, detoxify, decontaminate or
otherwise clean up the Leased Property as a result of any release or disposal
in, on or under the Leased Property occurring at any time during the Term hereof
or prior to the Commencement Date (i.e., irrespective of whether the same
occurred during Tenant's or Tenant's affiliate's ownership or possession of the
Leased Property), Tenant shall, at its sole expense, carry out and complete any
required investigation, removal, remediation, repair, closure, detoxification,
decontamination or other cleanup of the Leased Property in material compliance
with all applicable Environmental Laws; provided, however, that Tenant shall
have no responsibility for any investigation, removal, remediation, repair,
closure, detoxification, decontamination or other cleanup of the Leased Property
necessitated by actions of Landlord. Subject to Tenant's rights to contest
pursuant to Article 12 hereof, if Tenant fails to implement and diligently
pursue any such repair, closure, detoxification, decontamination or other
cleanup of the Leased Property in a timely manner and in material compliance
with all applicable Environmental Laws, Landlord shall have the right, but not
the obligation, to carry out such action and to recover all of the reasonable
costs and expenses from Tenant as Additional Charges.
8.3 TENANT'S INDEMNIFICATION OF LANDLORD AND OTHERS. Except for
matters arising out of the actions of Landlord, Tenant shall pay, protect,
indemnify, save, hold harmless and defend Landlord and any Facility Mortgagee
from and against all liabilities, obligations, claims, damages (including
consequential and punitive damages), penalties, causes of action, demands,
judgments, costs and expenses (including reasonable attorneys' fees and
expenses), to the extent permitted by law, imposed upon or incurred by or
asserted against Landlord, any Facility Mortgagee or the Leased Property by
reason of any Hazardous Material released or disposed of at, in or by the Leased
Property either during the Term or prior to the Commencement Date in violation
of any Environmental Law, howsoever arising, without regard to fault on the part
of Tenant, including (a) liability for response costs and for costs of removal
and remedial action incurred by the United States Government, any state or local
governmental unit to any other Person, or damages from injury to or destruction
or loss of natural resources, including the reasonable costs of assessing such
injury, destruction or loss, incurred pursuant to any Environmental Law, (b)
liability for costs and expenses of abatement, investigation, removal,
remediation, correction or clean-up, fines, damages, response costs or penalties
which arise from the provisions of any Environmental Law, (c) liability for
personal injury or property damage arising under any statutory or common-law
tort theory, including damages assessed for the maintenance of a public or
private nuisance or for carrying on of a dangerous activity, or (d) by reason of
a breach of a representation or warranty in Section 8.1.
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8.4 SURVIVAL OF INDEMNIFICATION OBLIGATIONS. Tenant's remediation
and indemnification obligations and liabilities under this Article 8 arising
during the Term hereof shall survive any termination of this Lease for a period
of one (1) year (i.e., meaning that Landlord must give notice to Tenant of such
claim prior to the expiration of said 1-year period).
ARTICLE 9
MAINTENANCE AND REPAIR
9.1 TENANT'S SOLE OBLIGATION - GENERAL. Tenant, at its expense,
will keep the Leased Property and Tenant's Personal Property in good order,
repair and appearance (whether or not the need for such repairs occurs as a
result of Tenant's use, any prior use, the elements or the age of the Leased
Property, or any portion thereof) and maintain the Leased Property in accordance
with any applicable Legal Requirements, and, except as otherwise provided in
Article 14, with reasonable promptness, make all necessary and appropriate
repairs thereto of every kind and nature, whether interior or exterior,
structural or non-structural, ordinary or extraordinary, foreseen or unforeseen
or arising by reason of a condition existing prior to the commencement of the
Term of this Lease (concealed or otherwise). Tenant shall operate and maintain
the Leased Property in accordance with the Operating Standards set forth in
Exhibit D; provided, however, that Tenant may make such modifications to such
Operating Standards as Tenant may reasonably determine to be appropriate for the
prudent management of the Leased Property so long as the maintenance and
operation of the Leased Property shall be in a first class condition, which
modifications, to the extent they are material to the operating results of the
Leased Property, shall be subject to the approval of Landlord (not to be
unreasonably withheld or delayed); provided further, however, that Tenant shall
make such changes to the Operating Standards as may be appropriate to comply
with Legal Requirements. Tenant will not take or omit to take any action the
taking or omission of which could reasonably be expected to impair the value or
the usefulness of the Leased Property or any part thereof for its Primary
Intended Use. Nothing in this Article 9 shall obligate Tenant to make any
capital improvement or replacements to the Leased Property if the Leased
Property can be repaired to the standard required by this Section 9.1.
9.2 CLUBHOUSE FACILITY MAINTENANCE. Tenant, at its expense, will
repair, paint and keep in a clean and sanitary condition the interior and
exterior of all clubhouse facilities at the Leased Improvements, including all
landscaping and parking areas located adjacent thereto, all in a first-class
condition and in accordance with such other reasonable standards as may be
established by Landlord from time to time. Without limitation of the foregoing,
Tenant, at its expense, will replace or refurbish all floor covering, tile,
carpeting, wall coverings, light fixtures, curtains, blinds, shades, furniture,
room furnishings, wall paper, wall hangings, signs, fixtures and other decor
items when they become worn-out, soiled or in disrepair. All security systems,
ventilation, heating, air-conditioning, electrical, plumbing, refrigeration and
mechanical
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equipment shall be kept in good working order by Tenant at all times
during the Term hereof, and shall meet all reasonable quality standards
established from time to time by Landlord.
9.3 GOLF COURSE MAINTENANCE. Tenant, at its expense, will replace,
repair and maintain the golf course portion of the Leased Property in a
first-class condition and otherwise in accordance with reasonable standards
established from time to time by Landlord. Without limitation of the foregoing,
Tenant will, at its expense, replace or refurbish all tee box signs, pins,
flags, markers, benches and related golf course equipment as the same becomes
worn-out, soiled or in disrepair. All grounds-keeping and landscaping for the
golf course will be maintained in a first-class condition by Tenant and
otherwise in accordance with reasonable standards established by Landlord from
time to time during the Term hereof.
9.4 WAIVER OF STATUTORY OBLIGATIONS. Landlord shall not under any
circumstances be required to build or rebuild any improvements on the Leased
Property, or to make any repairs, replacements, alterations, restorations or
renewals of any nature or description to the Leased Property, whether ordinary
or extraordinary, structural or non-structural, foreseen or unforeseen, or to
make any expenditure whatsoever with respect thereto, in connection with this
Lease, or to maintain the Leased Property in any way. Tenant hereby waives, to
the extent permitted by law, the right to make repairs at the expense of
Landlord pursuant to any law in effect at the time of the execution of this
Lease or hereafter enacted.
9.5 MECHANIC'S LIENS. Nothing contained in this Lease and no
action or inaction by Landlord shall be construed as (i) constituting the
consent or request of Landlord, expressed or implied, to any contractor,
subcontractor, laborer, materialman or vendor to or for the performance of any
labor or services or the furnishing of any materials or other property for the
construction, alteration, addition, repair or demolition of or to the Leased
Property or any part thereof; or (ii) giving Tenant any right, power or
permission to contract for or permit the performance of any labor or services or
the furnishing of any materials or other property, in either case, in such
fashion as would permit the making of any claim against Landlord in respect
thereof or to make any agreement that may create, or in any way be the basis
for, any right, title, interest, lien, claim or other encumbrance upon the
estate of Landlord in the Leased Property, or any portion thereof (it being
acknowledged and agreed that Tenant has no authority or power to cause any lien
or encumbrance of any kind whatsoever to attach or be placed upon Landlord's
interest in the Leased Property, and any and all liens and encumbrances created
or permitted by Tenant shall attach to Tenant's leasehold interest only).
9.6 SURRENDER OF LEASED PROPERTY. Unless this Lease shall have
been terminated pursuant to the provisions of Article 14, Tenant shall, upon the
expiration or prior termination of the Term, vacate and surrender the Leased
Property to Landlord in the condition in which the Leased Property was
originally received from Landlord, except as repaired, rebuilt, restored,
altered or added to as permitted or required by the provisions of this Lease and
except for ordinary
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wear and tear (subject to the obligation of Tenant to maintain the Leased
Property in good order and repair during the entire Term of this Lease).
9.7 TRANSFER OF OPERATING PERMITS. Upon the expiration or earlier
termination of the Term, Tenant and Palmer Management shall each assign to
Landlord all of each such respective party's right, title and interest in and to
any and all licenses, permits and other authorizations or approvals which then
exist relative to the operation of the Leased Property, and Tenant and Palmer
Management shall cooperate with Landlord to effectuate such transfers,
including, without limitation, executing and delivering any petitions,
applications or other documentation required by applicable governmental
authorities in connection with such transfers.
ARTICLE 10
TENANT'S IMPROVEMENTS
10.1 TENANT'S RIGHT TO CONSTRUCT. During the Term of this Lease,
Tenant may not make any material alterations, additions, changes and/or other
capital improvements to the Leased Property (individually, a "Tenant
Improvement," and collectively, "Tenant Improvements") without the prior written
consent of Landlord, which consent shall not be unreasonably withheld or delayed
and which consent shall not be deemed unreasonably withheld or delayed if
Landlord must obtain any Facility Mortgagee's consent and if such Facility
Mortgagee elects not to consent. As used in this Section 10.1, "material" shall
mean a Tenant Improvement the cost of which is estimated to exceed Fifty
Thousand Dollars ($50,000.00) in any one instance. Except as otherwise agreed to
by Landlord in writing, any such Tenant Improvement shall be made at Tenant's
sole expense and shall become the property of Landlord upon termination of this
Lease. Unless made on an emergency basis to prevent injury to Person or
property, Tenant will submit plans for any Tenant Improvement with a cost of
more than $50,000 to Landlord for Landlord's prior approval, such approval not
to be unreasonably withheld or delayed.
10.2 SCOPE OF RIGHT. To the extent Landlord has consented to any
Tenant Improve ment, and subject to Section 10.1 above, Tenant shall have the
right, at Tenant's cost and expense, to:
(a) seek any governmental approvals, including building
permits, licenses, conditional use permits and any certificate of need
that Tenant requires to construct any Tenant Improvement;
(b) demolish, remove or otherwise dispose of any of the
Tenant Improvements;
(c) erect upon the Leased Property such Tenant
Improvement as Tenant deems desirable;
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(d) make additions, alterations, changes and improvements
in any Tenant Im provement so erected;
(e) raze and demolish any Tenant Improvement together
with the right to salvage therefrom; and
(f) engage in any other lawful activities that Tenant
determines are necessary or desirable for the development of the Leased
Property in accordance with its Primary Intended Use;
it being understood and agreed, however, that Tenant shall not, in any event,
make any Tenant Improvement which would, in Landlord's reasonable judgment,
impair the value or Primary Intended Use of the Leased Property.
10.3 COOPERATION OF LANDLORD. To the extent Landlord has consented
to any Tenant Improvement, Landlord shall cooperate with Tenant and take such
actions, including the execution and delivery to Tenant of any applications or
other documents, reasonably requested by Tenant in order to obtain any
governmental approvals sought by Tenant to construct such Tenant Improvement
within ten (10) Business Days following the later of (a) the date Landlord
receives Tenant's request, or (b) the date of delivery of any such application
or document to Landlord, so long as the taking of such action, including the
execution of said applications or documents, shall be without cost to Landlord
(or if there are costs to Landlord, such reasonable out-of-pocket costs shall be
reimbursed by Tenant), and will not cause Landlord to be in violation of any
law, ordinance or regulation.
10.4 COMMENCEMENT OF CONSTRUCTION. Tenant agrees that:
(a) Tenant shall diligently seek all governmental
approvals relating to the construction of any Tenant Improvement;
(b) Once Tenant begins the construction of any Tenant
Improvement, Tenant shall diligently prosecute any such construction to
completion in accordance with applicable insurance requirements and the
laws, rules and regulations of all governmental bodies or agencies
having jurisdiction over the Leased Property;
(c) Landlord shall have the right at any time and from
time to time to post and maintain upon the Leased Property such notices
as may be necessary to protect Landlord's interest from mechanics'
liens, materialmen's liens or liens of a similar nature;
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(d) Tenant shall not suffer or permit any mechanics'
liens or any other claims or demands arising from the work or
construction of any Tenant Improvement to be enforced against the
Leased Property or any part thereof, and Tenant agrees to hold Landlord
and said Leased Property free and harmless from all liability from any
such liens, claims or demands, together with all costs and expenses in
connection therewith; and
(e) All work shall be performed in a good and workmanlike
manner.
10.5 RIGHTS IN TENANT IMPROVEMENTS. Notwithstanding anything to the
contrary in this Lease, all Tenant Improvements constructed pursuant to Section
10.1, and any and all subsequent additions thereto and alterations and
replacements thereof, shall be the sole and absolute property of Tenant during
the Term of this Lease. Upon the expiration or early termination of this Lease,
all such Tenant Improvements shall become the property of Landlord. Without
limiting the generality of the foregoing, Tenant shall be entitled to all
federal and state income tax benefits associated with any Tenant Improvement
during the Term of this Lease.
ARTICLE 11
LIENS, ENCROACHMENTS AND OTHER TITLE MATTERS
11.1 LIENS. Subject to the provisions of Article 12 relating to
permitted contests, Tenant will not directly or indirectly create or allow to
remain, and will promptly discharge at its expense any lien, encumbrance,
attachment, title retention agreement or claim upon the Leased Property or any
attachment, levy, claim or encumbrance in respect of the rent, not including,
however:
(a) the matters, if any, that existed as of the
Commencement Date and that were disclosed on the Landlord's title
policy issued as of such date;
(b) restrictions, liens and other encumbrances which are
consented to in writing by Landlord, or any easements granted pursuant
to the provisions of Section 7.3 of this Lease;
(c) liens for franchise, income or other taxes of
Landlord which Tenant is not required to pay hereunder;
(d) subleases permitted by Article 24;
(e) liens for Impositions or for sums resulting from
noncompliance with Legal Requirements so long as (1) the same are not
yet payable or are payable without the addition of any fine or penalty
or (2) such liens are in the process of being contested as permitted by
Article 12;
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(f) liens of mechanics, laborers, materialmen, suppliers
or vendors for sums either disputed (provided that such liens are in
the process of being contested as permitted by Article 12) or not yet
due; and
(g) any liens which are the responsibility of Landlord
pursuant to the provisions of Article 26.
11.2 ENCROACHMENTS AND OTHER TITLE MATTERS. Except for any matters
disclosed on Landlord's title policy covering the Land issued as of the
Commencement Date and any matters granted or created by Landlord after the
Commencement Date, if any of the Leased Improvements shall, at any time,
encroach upon any property, street or right-of-way adjacent to the Leased
Property, or shall violate the agreements or conditions contained in any lawful
restrictive covenant or other agreement affecting the Leased Property, or any
part thereof, or shall impair the rights of others under any easement or
right-of-way to which the Leased Property is subject, or the use of the Leased
Property is impaired, limited or interfered with by reason of the exercise of
the right of surface entry or any other rights under a lease or reservation of
any oil, gas, water or other minerals, then promptly upon the request of
Landlord or at the behest of any Person affected by any such encroachment,
violation or impairment, Tenant, at its sole cost and expense (subject to its
right to contest the existence of any such encroachment, violation or
impairment), shall protect, indemnify, save harmless and defend Landlord and
each Facility Mortgagee from and against all losses, liabilities, obligations,
claims, damages, penalties, causes of action, costs and expenses (including
reasonable attorneys' fees and expenses) based on or arising by reason of any
such encroachment, violation or impairment and in such case, in the event of an
adverse final determination, either (i) obtain valid and effective waivers or
settlements of all claims, liabilities and damages resulting from each such
encroachment, violation or impairment, whether the same shall affect Landlord or
Tenant; or (ii) make such changes in the Leased Improvements, and take such
other actions, as Tenant in the good faith exercise of its judgment deems
reasonably practicable, to remove such encroachment, and to end such violation
or impairment, including, if necessary, the alteration of any of the Leased
Improvements, and in any event take all such actions as may be necessary in
order to be able to continue the operation of the Leased Improvements for the
Primary Intended Use substantially in the manner and to the extent the Leased
Improvements were operated prior to the assertion of such violation or
encroachment. Tenant's obligations under this Section 11.2 shall be in addition
to and shall in no way discharge or diminish any obligation of any insurer under
any policy of title or other insurance and Tenant shall be entitled to a credit
for any sums recovered by Landlord under any such policy of title or other
insurance.
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ARTICLE 12
PERMITTED CONTESTS
Tenant, on its own or on Landlord's behalf (or in Landlord's name) but
at Tenant's expense, may contest, by appropriate legal proceedings conducted in
good faith and with due diligence, the amount or validity or application, in
whole or in part, of any Imposition or any Legal Requirement or any lien,
attachment, levy, encumbrance, charge or claim not otherwise permitted by
Section 11.1, provided that:
(a) in the case of an unpaid Imposition, lien,
attachment, levy, encumbrance, charge or claim, the commencement and
continuation of such proceedings shall suspend the collection thereof
from Landlord and from the Leased Property, and neither the Leased
Property nor any Rent therefrom nor any part thereof or interest
therein would be in any danger of being sold, forfeited, attached or
lost pending the outcome of such proceedings;
(b) in the case of a Legal Requirement, neither Landlord
nor any Facility Mortgagee would be subject to criminal or civil
liability for failure to comply therewith pending the outcome of such
proceedings. Nothing in this Article 12(b), however, shall permit
Tenant to delay compliance with any requirement of any Environmental
Law to the extent such non-compliance poses an immediate threat of
injury to any Person or to the public health or safety or of material
damage to any real or personal property;
(c) in the case of a Legal Requirement and/or an
Imposition, lien, encumbrance or charge, Tenant shall give such
reasonable security, if any, as may be demanded by Landlord to insure
ultimate payment of the same and to prevent any sale or forfeiture of
the affected Leased Property or the Rent by reason of such non-payment
or noncompliance, provided, however, the provisions of this Article 12
shall not be construed to permit Tenant to contest the payment of Rent
(except as to contests concerning the method of computation or the
basis of levy of any Imposition or the basis for the assertion of any
other claim) or any other sums payable by Tenant to Landlord hereunder,
and provided further that any such security remaining after the final
resolution of such matter shall be returned to Tenant;
(d) no such contest shall interfere in any material
respect with the use or occupancy of the Leased Property;
(e) in the case of an Insurance Requirement, the
coverage required by Article 13 shall be maintained; and
(f) if such contest be finally resolved against Landlord
or Tenant, Tenant shall, as Additional Charges due hereunder, promptly
pay the amount required to be paid,
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together with all interest and penalties accrued thereon, or comply
with the applicable Legal Requirement or Insurance Requirement, and
Landlord, at Tenant's expense, shall execute and deliver to Tenant such
authorization and other documents as may reasonably be required in any
such contest, and, if reasonably requested by Tenant or if Landlord so
desires, Landlord shall join as a party therein. Tenant shall indemnify
and save Landlord and each Facility Mortgagee harmless against any
liability, cost or expense of any kind that may be imposed upon
Landlord or any Facility Mortgagee in connection with any such contest
and any loss resulting therefrom.
ARTICLE 13
INSURANCE
13.1 GENERAL INSURANCE REQUIREMENTS. Subject to the terms of
Article 22 hereof, during the Term of this Lease, Tenant shall at all times keep
the Leased Property, and all property located in or on the Leased Property,
including all Tenant's Personal Property and any Tenant Improvements, insured
with the kinds and amounts of insurance described below and any other or
additional insurance required by any Facility Mortgagee. This insurance shall be
written by companies authorized to do insurance business in the State in which
the Leased Property is located. The policies must name Landlord as an additional
insured. Losses shall be payable to Landlord and/or Tenant as provided in
Article 14. In addition, the policies shall name as an additional insured the
holder of any mortgage, deed of trust or other security agreement securing any
indebtedness or any other Landlord's Encumbrance placed on the Leased Property
in accordance with the provisions of Article 26 ("Facility Mortgage") by way of
a standard New York Mortgage clause or other applicable form of mortgagee's loss
payable endorsement. Any loss adjustment shall require the written consent of
Landlord, Tenant, and each Facility Mortgagee. Evidence of insurance shall be
deposited with Landlord and, if requested, with any Facility Mortgagee(s). The
policies on the Leased Property, including the Leased Improvements, Fixtures,
Tenant's Personal Property and any Tenant Improvements, shall insure against the
following risks:
13.1.1 ALL RISK. Loss or damage by all risks perils
including, but not limited to, fire, vandalism, malicious mischief and
extended coverages, including sprinkler leakage, in an amount not less
than 100% of the then Full Replacement Cost thereof.
13.1.2 LIABILITY. Claims for personal injury or property
damage under a policy of comprehensive general public liability
insurance with amounts not less than $10,000,000 per occurrence and in
the aggregate.
13.1.3 FLOOD. Flood (when the Leased Property is located in
whole or in material part in a designated flood plain area) and such
other hazards and in such amounts as may
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be customary for comparable properties in the area; provided, however,
that Tenant shall not be required to participate in the National Flood
Insurance Program.
13.1.4 WORKER'S COMPENSATION. Adequate worker's compensation
insurance coverage for all Persons employed by Tenant on the Leased
Property in accordance with the requirements of applicable federal,
state and local laws.
13.1.5 RENT LOSS. Rent loss Insurance payable to Landlord
covering payment of the then applicable Annual Base Rent for a twelve
(12) month period.
13.1.6 OTHER INSURANCE. Such other kinds and amounts of
insurance on or in connection with any of the Leased Property,
including all Tenant's Personal Property and any Tenant Improvements,
as Landlord or any Facility Mortgagee may reasonably require, which at
the time is usual and commonly obtained in connection with properties
similar in type of building size and use to the Leased Property and
located in the geographic area where the Leased Property is located.
13.2 REPLACEMENT COST. In the event either party believes that the
Full Replacement Cost of the insured property has increased or decreased at any
time during the Term, it shall have the right to have such Full Replacement Cost
redetermined by the fire insurance company which is then carrying the largest
amount of fire insurance carried on the Leased Property (the "Impartial
Appraiser"). The party desiring to have the Full Replacement Cost so
redetermined shall forthwith, on receipt of such determination by such Impartial
Appraiser, give written notice thereof to the other party hereto. The
determination of such Impartial Appraiser shall be final and binding on the
parties hereto, and Tenant shall forthwith increase, or may decrease, the amount
of the insurance carried pursuant to this Section 13.2, as the case may be, to
the amount so determined by the Impartial Appraiser. Each party shall pay
one-half of the fee, if any, of the Impartial Appraiser.
13.3 WAIVER OF SUBROGATION. All insurance policies carried by
either party covering the Leased Property including contents, fire and casualty
insurance, shall expressly waive any right of subrogation on the part of the
insurer against the other party (including any Facility Mortgagee). The parties
hereto agree that their policies will include such waiver clause or endorsement
so long as the same are obtainable without extra cost, and in the event of such
an extra charge the other party, at its election, may pay the same, but shall
not be obligated to do so.
13.4 FORM SATISFACTORY, ETC. All of the policies of insurance
referred to in Section 13.1 shall be written in a form reasonably satisfactory
to Landlord and by insurance companies rated not less than AVIII by A.M. Best's
Insurance Guide. Tenant shall pay all premiums for the policies of insurance
referred to in Section 13.1 and shall deliver certificates thereof and copies of
said policies to Landlord prior to their effective date (and with respect to any
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renewal policy, at least 10 days prior to the expiration of the existing
policy). In the event Tenant fails to satisfy its obligations under this Section
13.4, Landlord shall be entitled, but shall have no obligation, to effect such
insurance and pay the premiums therefor, which premiums (together with interest
thereon accruing at the Overdue Rate until repaid) shall be repayable to
Landlord upon written demand as Additional Charges. Each policy of insurance
required by Section 13.1 shall, by endorsement on the policy or policies, or by
independent instrument furnished to Landlord, provide that the insurer
thereunder will give to Landlord not less than 30 days' written notice before
the policy or policies in question shall be altered, allowed to expire or
canceled. Each such policy shall also provide that any loss otherwise payable
thereunder shall be payable notwithstanding (i) any act or omission of Landlord
or Tenant which might, absent such provision, result in a forfeiture of all or a
part of such insurance payment, (ii) the occupation or use of the Leased
Property for purposes more hazardous than those permitted by the provisions of
such policy, (iii) any foreclosure or other action or proceeding taken by any
Facility Mortgage pursuant to any provision of a mortgage, note, assignment or
other document evidencing or securing a loan upon the happening of an event of
default therein or (iv) any change in title to or ownership of the Leased
Property.
13.5 CHANGE IN LIMITS. In the event that Landlord shall at any time
reasonably determine on the basis of prudent industry practice that the
liability insurance carried by Tenant pursuant to Section 13.1.2 is either
excessive or insufficient, the parties shall endeavor to agree on the proper and
reasonable limits for such insurance to be carried; and such insurance shall
thereafter be carried with the limits thus agreed on until further changed
pursuant to the provisions of this Section 13.5; provided, however, that the
deductibles for such insurance or the amount of such insurance which is
self-retained by Tenant shall be as reasonably determined by Tenant so long as
Tenant can reasonably demonstrate its ability to satisfy such deductible or
amount of such self-retained insurance.
13.6 BLANKET POLICY. Notwithstanding anything to the contrary
contained in this Article 13, Tenant's obligations to carry the insurance
provided for herein may be brought within the coverage of a so-called blanket
policy or policies of insurance carried and maintained by Tenant; provided,
however, that the coverage afforded Landlord and each Facility Mortgagee will
not be reduced or diminished or otherwise be different from that which would
exist under a separate policy meeting all other requirements of this Lease by
reason of the use of such blanket policy of insurance, and provided further that
the requirements of this Article 13 are otherwise satisfied. The amount of the
total insurance allocated to the Leased Property, which amount shall be not less
than the amounts required pursuant to Section 13.1, shall be specified either
(i) in each such "blanket" policy or (ii) in a written statement, which Tenant
shall deliver to Landlord and Facility Mortgagee, from the insurer thereunder. A
certificate and copy of each such "blanket" policy shall promptly be delivered
to Landlord and Facility Mortgagee.
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ARTICLE 14
APPLICATION OF INSURANCE PROCEEDS
14.1 INSURANCE PROCEEDS. All proceeds of insurance payable by
reason of any loss or damage to the Leased Property, or any portion thereof, and
insured under any policy of insurance required by Article 13 shall (i) if
greater than or equal to $250,000, be paid to and held by Landlord and (ii) if
less than such amount, be paid to Tenant and held by Tenant. All such proceeds
shall be held in trust and shall be made available for reconstruction or repair,
as the case may be, of any damage to or destruction of the Leased Property, or
any portion thereof.
14.1.1 DISBURSEMENT OF PROCEEDS. Any proceeds held by
Landlord or Tenant shall be paid out by Landlord or Tenant from time to
time for the reasonable costs of such reconstruction or repair;
provided, however, that Landlord shall disburse proceeds subject to the
following requirements:
(i) prior to commencement of restoration, (A)
the architects, contracts, contractors, plans and
specifications for the restoration shall have been approved by
Landlord, which approval shall not be unreasonably withheld or
delayed, (B) if legally permitted (and, if waivers can be
obtained at such time without payment of additional funds to
the contractors at such time), appropriate waivers of
mechanics' and materialmen's liens shall have been filed and
(C) Tenant shall have obtained and delivered to Landlord all
required governmental and private approvals necessary to
complete the reconstruction or repair (including building
permits, licenses and other necessary approvals);
(ii) at the time of any disbursement, subject to
Article 12, no mechanics' or materialmen's liens shall have
been filed against any of the Leased Property and remain
undischarged, unless a satisfactory bond shall have been
posted in accordance with the laws of the State;
(iii) disbursements shall be made from time to
time in an amount not exceeding the cost of the work completed
since the last disbursement, upon receipt of (A) satisfactory
evidence of the stage of completion, the estimated total cost
of completion and performance of the work to date in a good
and workmanlike manner in accordance with the contracts, plans
and specifications, (B) waivers of liens, (C) a satisfactory
bringdown of title insurance and (D) other evidence of cost
and payment so that Landlord and Facility Mortgagee can verify
that the amounts disbursed from time to time are represented
by work that is completed, in place and free and clear of
mechanics' and materialmen's lien claims;
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(iv) each request for disbursement shall be
accompanied by a certificate of Tenant, signed by a duly
authorized representative of Tenant, describing the work for
which payment is requested, stating the cost incurred in
connection therewith, stating that Tenant has not previously
received payment for such work and, upon completion of the
work, also stating that the work has been fully completed and
complies with the applicable requirements of this Lease;
(v) to the extent actually held by Landlord and
not by a Facility Mortgagee, (1) the proceeds shall be held in
a separate account and shall not be commingled with Landlord's
other funds, and (2) interest shall accrue on funds so held at
the money market rate of interest and such interest shall
constitute part of the proceeds; and
(vi) such other reasonable conditions as Landlord
or Facility Mortgagee may reasonably impose, including,
without limitation, payment by Tenant of reasonable costs of
administration imposed by or on behalf of Facility Mortgagee
should the proceeds be held by Facility Mortgagee and
including a deposit of funds by Tenant if reasonably
determined by Landlord or Facility Mortgagee that the
insurance proceeds are insufficient to complete the
restoration.
14.1.2 EXCESS PROCEEDS. Any excess proceeds of insurance
remaining after the completion of the restoration or reconstruction of
the Leased Property (or in the event neither Landlord nor Tenant is
required or elects to repair and restore) shall be paid to Landlord and
Tenant in like proportions to the value of Landlord's interests in the
Leased Property and Tenant's interest in Tenant's Personal Property and
the Tenant Improvements, or any portion thereof upon completion of any
such repair and restoration except as otherwise specifically provided
below in this Article 14. All salvage resulting from any risk covered
by insurance shall belong to Landlord.
14.2 RECONSTRUCTION COVERED BY INSURANCE.
14.2.1 DESTRUCTION RENDERING FACILITY UNSUITABLE FOR ITS
PRIMARY USE. If during the Term the Leased Property is totally or
partially destroyed from a risk covered by the insurance described in
Article 13 and the Facility thereby is rendered Unsuitable For Its
Primary Intended Use, Tenant shall diligently restore the Facility to
substantially the same condition as existed immediately before the
damage or destruction. Such damage or destruction shall not terminate
this Lease.
14.2.2 DESTRUCTION NOT RENDERING FACILITY UNSUITABLE FOR ITS
PRIMARY USE. If during the Term, the Leased Property is totally or
partially destroyed from a risk covered by the insurance described in
Article 13, but the Facility is not thereby rendered
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Unsuitable For Its Primary Intended Use, Tenant shall diligently
restore the Facility to substantially the same condition as existed
immediately before the damage or destruction; provided, however, Tenant
shall not be required to restore Tenant's Personal Property and/or any
Tenant Improvements if failure to do so does not adversely affect the
amount of Additional Rent payable hereunder. Such damage or destruction
shall not terminate this Lease.
14.2.3 COSTS OF REPAIR. If the cost of the repair or
restoration exceeds the amount of proceeds received by Landlord or
Tenant from the insurance required under Article 13, Tenant shall pay
for such excess cost of repair or restoration.
14.3 RECONSTRUCTION NOT COVERED BY INSURANCE. If during the Term,
the Facility is totally or materially destroyed from a risk not covered by the
insurance described in Article 13, whether or not such damage or destruction
renders the Facility Unsuitable For Its Primary Intended Use, Tenant shall
diligently restore the Facility to substantially the same condition as existed
immediately before the damage or destruction.
14.4 NO ABATEMENT OF RENT. This Lease shall remain in full force
and effect and Tenant's obligation to make rental payments and to pay all other
charges required by this Lease shall remain unabated during the period required
for repair and restoration; provided, however, that if there is no Event of
Default, Tenant shall be entitled to retain any proceeds of rental value or
business interruption insurance coverage maintained by Tenant (which amounts
shall be deemed Golf Course Revenue for purposes hereof).
14.5 WAIVER. Tenant hereby waives any statutory or other rights of
termination which may arise by reason of any damage or destruction of the
Facility which Landlord or Tenant is obligated to restore or may restore under
any of the provisions of this Lease.
14.6 DAMAGE NEAR END OF TERM. Notwithstanding any other provision
to the contrary in this Article 14, if damage to or destruction of the Leased
Property occurs during the last 24 months of the Term of this Lease, and if such
damage or destruction cannot reasonably be expected to be fully repaired or
restored prior to the date that is 12 months prior to the end of the
then-applicable Term, then either Landlord or Tenant shall have the right to
terminate this Lease on not less than 30 days' prior notice to the other party
by giving notice thereof to the other party within 60 days after the date of
such damage or destruction. Upon any such termination, Landlord shall be
entitled to retain all insurance proceeds, grossed up by Tenant to account for
the deductible or any self-insured retention; provided, however, that Tenant
shall be entitled to retain or receive all insurance proceeds relating to
Tenant's Personal Property. If Landlord shall give Tenant a notice under this
Section 14.6 that it seeks to terminate this Lease at a time when Tenant has a
remaining Extended Term, then such termination notice shall be of no effect if
Tenant shall
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exercise its rights to extend the Term not later than the earlier of the time
required by Section 2.2 or within 30 days after Landlord's notice of termination
given under this Section 14.6.
ARTICLE 15
CONDEMNATION
15.1 TOTAL TAKING. If at any time during the Term the Leased
Property is totally and permanently taken by Condemnation, this Lease shall
terminate on the Date of Taking and Tenant shall promptly pay all outstanding
Rent and other charges through the date of termination.
15.2 PARTIAL TAKING. If a portion of the Leased Property is taken
by Condemnation, this Lease shall remain in effect if the Facility is not
thereby rendered Unsuitable For Its Primary Intended Use, but if the Facility is
thereby rendered Unsuitable For Its Primary Intended Use, this Lease shall
terminate on the Date of Taking.
15.3 RESTORATION. If there is a partial taking of the Leased
Property and this Lease remains in full force and effect pursuant to Section
15.2, Landlord at its cost shall accomplish all necessary restoration up to but
not exceeding the amount of the Award payable to Landlord, as provided herein;
provided, however, that at Landlord's option, Landlord may require Tenant to
perform such restoration, in which event Landlord shall make Landlord's Award
available for such purpose, subject to disbursement requirements substantially
similar to those set forth in Section 14.1.1 (it being understood that Tenant
shall be responsible for completion of such restoration, at its cost,
irrespective of whether the condemnation proceeds are sufficient to pay all of
the costs of such restoration work). If Tenant receives an Award under Section
15.4, Tenant shall repair or restore any Tenant Improvements up to but not
exceeding the amount of the Award payable to Tenant therefor.
15.4 AWARD DISTRIBUTION. The entire Award shall belong to and be
paid to Landlord, except that, subject to the rights of the Facility Mortgagee,
Tenant shall be entitled to receive from the Award, if and to the extent such
Award specifically includes such items, or to otherwise pursue a separate Award
(but only to the extent such separate Award does not reduce the amount of the
Award to which Landlord would otherwise be entitled hereunder) for, a sum
attributable to the value, if any, of: (i) any Tenant's Personal Property and
(ii) the leasehold interest of Tenant under this Lease; provided, however, that
if the amount received by Landlord and the Facility Mortgagee is less than the
Condemnation Threshold, then the amount of the Award otherwise payable to Tenant
for the value of its leasehold interest under this Lease (and not any other
funds of Tenant) shall instead be paid over to Landlord up to the amount of the
shortfall.
15.5 TEMPORARY TAKING. The taking of the Leased Property, or any
part thereof, by military or other public authority shall constitute a taking by
Condemnation only when the use and
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occupancy by the taking authority has continued for longer than six months.
During any such six month period or less, which shall be deemed a temporary
taking, all the provisions of this Lease shall remain in full force and effect
with no abatement of Rent payable by Tenant hereunder. In the event of any such
temporary taking, the entire amount of any such Award made for such temporary
taking allocable to the Term of this Lease, whether paid by way of damage, rent
or otherwise, shall be paid to Tenant.
ARTICLE 16
EVENTS OF DEFAULT
16.1 EVENTS OF DEFAULT. If any one or more of the following events
(individually, an "Event of Default") shall occur:
(a) if Tenant shall fail to make payment of the Rent
payable by Tenant under this Lease when the same becomes due and
payable and such failure is not cured by Tenant within a period of 10
days after receipt by Tenant of notice thereof from Landlord; provided,
however, that such notice shall be in lieu of and not in addition to
any notice required under applicable law;
(b) if Tenant shall fail to obtain, maintain or replace
the security deposit as required by Article 21 or the capital
expenditure reserve deposits required by Section 18.2;
(c) if, other than as a result of Unavoidable Delays,
Tenant shall fail to observe or perform any material term, covenant or
condition of this Lease and such failure is not cured by Tenant within
a period of 30 days after receipt by Tenant of notice thereof from
Landlord, unless such failure cannot with due diligence be cured within
a period of 30 days, in which case such failure shall not be deemed to
continue if Tenant proceeds promptly and with due diligence to cure the
failure and diligently completes the curing thereof, and in any event
cures such failure within an additional ninety (90) day period
following the foregoing 30-day cure period; provided, however, that
such notice shall be in lieu of and not in addition to any notice
required under applicable law; provided further, however, that the cure
period shall not extend beyond 30 days as otherwise provided by this
Section 16.1(c) if the facts or circumstances giving rise to the
default are creating a further harm to Landlord or the Leased Property
and Landlord makes a good faith determination that Tenant is not
undertaking remedial steps that Landlord would cause to be taken if
this Lease were then to terminate.
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(d) if Tenant shall:
(i) admit in writing its inability to pay its
debts generally as they become due;
(ii) file a petition in bankruptcy or a petition
to take advantage of any insolvency act;
(iii) make an assignment for the benefit of its
creditors;
(iv) consent to the appointment of a receiver of
itself or of the whole or any substantial part of its
property;
(v) file a petition or answer seeking
reorganization or arrangement under the Federal bankruptcy
laws or any other applicable law or statute of the United
States of America or any state thereof; or
(vi) be unable to pay its debts as they mature.
(e) if Tenant shall, on a petition in bankruptcy filed
against it, be adjudicated as bankrupt or a court of competent
jurisdiction shall enter an order or decree appointing, without the
consent of Tenant, a receiver of Tenant or of the whole or
substantially all of its property, or approving a petition filed
against it seeking reorganization or arrangement of Tenant under the
federal bankruptcy laws or any other applicable law or statute of the
United States of America or any state thereof, and such judgment, order
or decree shall not be vacated or set aside or stayed within 60 days
from the date of the entry thereof;
(f) if Tenant shall be liquidated or dissolved, or shall
begin proceedings toward such liquidation or dissolution;
(g) if the estate or interest of Tenant in the Leased
Property or any part thereof shall be levied upon or attached in any
proceeding and the same shall not be vacated or discharged within the
later of 90 days after commencement thereof or 30 days after receipt by
Tenant of notice thereof from Landlord (unless Tenant shall be
contesting such lien or attachment in accordance with Article 12);
provided, however, that such notice shall be in lieu of and not in
addition to any notice required under applicable law;
(h) if, except as a result of damage, destruction or a
partial or complete Condemnation or other Unavoidable Delays, Tenant
voluntarily ceases operations on the Leased Property for a period in
excess of 45 consecutive days;
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(i) any representation or warranty made by Tenant herein
or in any certificate, demand or request made pursuant hereto proves to
have been incorrect when made in any material respect and any adverse
effect on Landlord of any such misrepresentation or breach of warranty
has not been corrected to Landlord's satisfaction within 20 days after
Tenant becomes aware of, or is notified by Landlord of the fact of,
such misrepresentation or breach of warranty;
(j) if an Event of Default under any of the Other
Property Leases occurs, provided, however, that if such Event of
Default (other than for the failure to pay money or post the requisite
security) arose from occurrences beyond the reasonable control of
Tenant, such Event of Default shall not constitute an Event of Default
under this Section 16.1(j);
(k) with respect to two (2) or more of the Other Property
Leases, either an Event of Default has occurred and is continuing or
such leases have been terminated by reason of an Event of Default;
(l) a default by Tenant in any payment of principal or
interest on any obligations for borrowed money having a principal
balance of $5,000,000 or more in the aggregate (excluding obligations
which are limited in recourse to specific property of Tenant provided
that such property is not a substantial portion of the assets of
Tenant), or in the performance of any other provision contained in any
instrument under which any such obligation is created or secured
(including the breach of any covenant thereunder), if an effect of such
default is that the holder(s) of such obligation cause such obligation
to become due prior to its stated maturity; or
(m) a final, non-appealable judgment or judgments for the
payment of money in excess of $3,000,000 in the aggregate not fully
covered (excluding deductibles) by insurance shall be rendered against
Tenant and the same shall remain undischarged, unvacated, unbonded, or
unstayed for a period of 60 consecutive days;
THEN, Landlord may terminate this Lease by giving Tenant not less than 10 days'
notice (or no notice for clauses (d), (f) and (g)) of such termination and upon
the expiration of the time fixed in such notice, the Term shall terminate and
all rights of Tenant under this Lease shall cease. Without limitation of the
foregoing, Landlord shall have all other rights at law and in equity available
to Landlord as a result of any Event of Default under this Lease.
16.2 PAYMENT OF COSTS. Tenant shall, to the extent permitted by
law, pay as Additional Charges all costs and expenses incurred by or on behalf
of Landlord, including reasonable attorneys' fees and expenses, as a result of
any Event of Default hereunder.
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16.3 EXCEPTIONS. No Event of Default (other than a failure to make
payment of money or post a required letter of credit) shall be deemed to exist
under clause 16.1(c) or clause 16.1(j) during any time the curing thereof is
prevented by an Unavoidable Delay; provided that, upon the cessation of such
Unavoidable Delay, Tenant shall remedy such default without further delay.
16.4 CERTAIN REMEDIES. If an Event of Default shall have occurred
(and the event giving rise to such Event of Default has not been cured within
the curative period relating thereto as set forth in Section 16.1) and be
continuing, whether or not this Lease has been terminated pursuant to Section
16.1, Tenant shall, to the extent permitted by law, if required by Landlord so
to do, immediately surrender to Landlord the Leased Property pursuant to the
provisions of Section 16.1 and quit the same and Landlord may enter upon and
repossess the Leased Property by reasonable force, summary proceedings,
ejectment or otherwise, and may remove Tenant and all other Persons and any and
all Tenant's Personal Property from the Leased Property subject to any
requirement of law.
16.5 DAMAGES. None of (a) the termination of this Lease pursuant to
Section 16.1, (b) the repossession of the Leased Property, (c) the failure of
Landlord, notwithstanding reasonable good faith efforts, to relet the Leased
Property, (d) the reletting of all or any portion thereof, nor (e) the failure
of Landlord to collect or receive any rentals due upon any such reletting, shall
relieve Tenant of its liability and obligations hereunder, all of which shall
survive any such termination, repossession or reletting. In the event of any
such termination, Tenant shall forthwith pay to Landlord all Rent due and
payable with respect to the Leased Property to, and including, the date of such
termination. Thereafter, Tenant shall forthwith pay to Landlord, at Landlord's
option, as and for liquidated and agreed current damages for Tenant's default,
either:
(a) the sum of:
(i) the worth at the time of award of the
amount by which the unpaid Rent which would have been earned
after termination until the time of award exceeds the amount
of such rental loss that Tenant proves could have been
reasonably avoided,
(ii) the worth at the time of award of the
amount by which the unpaid Rent for the balance of the Term
after the time of award exceeds the amount of such rental
loss that Tenant proves could be reasonably avoided, and
(iii) any other amount necessary to compensate
Landlord for all the detriment proximately caused by Tenant's
failure to perform its obligations under this Lease or which
in the ordinary course of things would be likely to result
therefrom.
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In making the above determinations, the worth at the time of the award
shall be determined by the court having jurisdiction thereof using, as
a discount factor for determining present value, a rate equal to the
Prime Rate at the time of the Event of Default, and the Additional Rent
shall be deemed to be the same as for the then-current Fiscal Year or,
if not determinable, the immediately preceding Fiscal Year, for the
remainder of the Term, or such other amount as either party shall prove
reasonably could have been earned during the remainder of the Term or
any portion thereof; or
(b) without termination of Tenant's right to possession
of the Leased Property, each installment of said Rent and other sums
payable by Tenant to Landlord under the Lease as the same becomes due
and payable, which Rent and other sums shall bear interest at the
maximum annual rate permitted by the law of the State from the date
when due until paid, and Landlord may enforce, by action or otherwise,
any other term or covenant of this Lease.
16.6 ADDITIONAL REMEDIES. In addition to and without limitation of
the foregoing, Landlord shall have all other remedies that may be available
under applicable law.
16.7 APPOINTMENT OF RECEIVER. Upon the occurrence of an Event of
Default, and upon filing of a suit or other commencement of judicial proceedings
to enforce the rights of Landlord hereunder, Landlord shall be entitled, as a
matter of right, to the appointment of a receiver or receivers acceptable to
Landlord (i) of the Leased Property and the Facility and (ii) of the revenues,
earnings, income, products and profits thereof, pending such proceedings, with
such powers as the court making such appointment shall confer.
16.8 WAIVER. If this Lease is terminated pursuant to Section 16.1,
Tenant waives, to the extent permitted by applicable law (a) any right of
redemption, re-entry or repossession and (b) any right to a trial by jury in the
event of summary proceedings to enforce the remedies set forth in this Article
16.
16.9 APPLICATION OF FUNDS. Any payments received by Landlord under
any of the provisions of this Lease during the existence or continuance of any
Event of Default shall be applied to Tenant's obligations in such order as
Landlord may determine or as may be prescribed by the laws of the State.
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ARTICLE 17
LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT
If Tenant shall fail to make any payment or to perform any act required
to be made or performed under this Lease, and to cure the same within the
relevant time periods in Section 16.1, Landlord, after notice to and demand upon
Tenant, and without waiving or releasing any obligation or default, may (but
shall be under no obligation to) at any time thereafter make such payment or
perform such act for the account and at the expense of Tenant. Landlord may, to
the extent permitted by law, enter upon the Leased Property for such purpose and
take all such action thereon as, in Landlord's good faith judgment, may be
necessary or appropriate therefor. No such entry shall be deemed an eviction of
Tenant. All sums so paid by Landlord and all costs and expenses (including
reasonable attorneys' fees and expenses, to the extent permitted by law) so
incurred, together with a late charge thereon at the Overdue Rate from the date
on which such sums or expenses are paid or incurred by Landlord, shall be paid
by Tenant to Landlord on demand. The obligations of Tenant and rights of
Landlord contained in this Article 17 shall survive the expiration or earlier
termination of this Lease.
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ARTICLE 18
OPERATIONS/CAPITAL EXPENDITURES
18.1 ANNUAL PLAN. On or before the Commencement Date (i.e., with
respect to the calendar year in which the Commencement Date occurs), and
thereafter on or before November 30th of each year during the Term hereof,
Tenant shall deliver to Landlord a report with respect to the next succeeding
calendar year (herein, an "Annual Plan"), setting forth the plans and prospects
for Tenant's business operations at the Leased Property, which shall include (i)
a forecast or budget of revenues (including, without limitation, Golf Course
Revenues and Other Revenues) and expenses for such period, (ii) a projection on
a month-by-month basis of cash in-flow and working capital, (iii) proposed plans
for marketing, sales, promotion, membership development and advertising, (iv) a
proposed schedule of all fees and charges to be imposed at the Leased Property,
including, but not limited to, membership fees, greens fees and cart rental
charges, charges for the use of practice range facilities, food and beverages
charges, and fees and charges for other services, amenities and products that
Tenant intends to offer at the Leased Property, (v) a forecast or budget of
Capital Expenditures for such period, together with a plan for the improvement
of the golf course and related facilities and a plan for the improvement of the
clubhouse and other buildings at the Leased Property, and (vi) description of
any other material action concerning the management, operation or marketing of
the Leased Property contemplated for the period at issue. Landlord shall have
the right to request reasonable modifications to the components of the Annual
Plan described in subclause (v) above with respect to additions or improvements
made or to be made to the Leased Property, by notice thereof to Tenant, and
Tenant shall thereafter so modify such items as reasonably requested by
Landlord, and shall submit the revised components of the Annual Plan to Landlord
within thirty (30) days following Landlord's request for such modifications.
Tenant shall utilize good faith efforts to implement the Annual Plan for the
respective period or periods covered thereby and shall promptly notify Landlord
of any action taken by Tenant which materially deviates from the matters set
forth in the current Annual Plan. Without limitation of the foregoing, it is
agreed by Tenant that the Annual Plan shall provide for an annual budget for
Capital Expenditures of not less than three percent (3%) of the Golf Course
Revenues and Other Revenues budgeted for such annual period.
18.2 FUNDING OF CAPITAL EXPENDITURE RESERVE ACCOUNT. Within twenty
(20) days after the end of each Fiscal Quarter during the Term hereof, Tenant
shall deposit into an account at an institution designated by Landlord (herein,
the "Capital Expenditure Reserve Account"), the aggregate "Capital Expenditure
Reserve Amounts" (as defined below) required for the immediately preceding
Fiscal Quarter. Such amounts shall be invested as directed by Tenant, subject to
Landlord's reasonable approval. As further security for the payment and
performance of all obligations of Tenant hereunder, Tenant hereby grants to
Landlord and, if so requested by Landlord, to any Facility Mortgagee designated
by Landlord, a security interest in and to the
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Capital Expenditure Reserve Account and all sums on deposit therein. All such
sums, together with any interest thereon, shall belong to Tenant and will be
held in the Capital Expenditure Reserve Account and released and applied in
accordance with the terms of this Lease. Tenant may make withdrawals from the
Capital Expenditure Reserve Account with respect to Capital Expenditures that
are reflected in the Annual Plan and which pertain to Tenant Improvements
approved by Landlord pursuant to Article 10 hereof, to the extent such
withdrawals are made to reimburse Tenant for sums paid or incurred with respect
to such Tenant Improvements. Notwithstanding the foregoing, upon the occurrence
of an Event of Default hereunder, Tenant shall have no further rights with
respect to any amounts on deposit in the Capital Expenditure Reserve Account,
and such amounts shall be deemed to be held by Landlord as further security for
Tenant's obligations hereunder, to be disbursed or applied in accordance with
the same terms and conditions as set forth in Article 21 hereof with respect to
the balance of the security then on deposit with Landlord. For purposes hereof,
the term "Capital Expenditure Reserve Amount" shall mean, for any Fiscal
Quarter, an amount equal to the excess (if any) of (A) three percent (3%) of the
Golf Course Revenues and Other Revenues accruing from the beginning of the
"Capital Expenditure Period" (as defined below) in which such Fiscal Quarter
occurs through and including the end of such Fiscal Quarter (herein, the
"Calculation Period") over (B) the Capital Expenditures expended during such
Calculation Period with respect to the Leased Property, which Capital
Expenditures were made pursuant to an Annual Plan and otherwise pursuant to the
terms of Article 10 hereof. For purposes hereof, the term ""Capital Expenditure
Period" shall mean (a) the period from and the Commencement Date and through the
fourth (4th) full Fiscal Quarter thereafter and (b) each successive period of
four (4) full Fiscal Quarters thereafter occurring during the Term thereof. Any
amounts remaining in the Capital Expenditure Reserve Account at the expiration
or prior termination of the Term shall become the sole property of Landlord,
without further action by either party.
ARTICLE 19
LEGAL REQUIREMENTS
Subject to Article 12 regarding permitted contests, Tenant, at its
expense, shall promptly (a) comply with all Legal Requirements and Insurance
Requirements in respect of the use, operation, maintenance, repair and
restoration of the Leased Property, whether or not compliance therewith shall
require structural changes in any of the Leased Improvements or interfere with
the use and enjoyment of the Leased Property; and (b) procure, maintain and
comply with all licenses, permits, approvals and authorizations required for any
use of the Leased Property then being made, and for the proper erection,
installation, operation and maintenance of the Leased Property or any part
thereof.
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ARTICLE 20
HOLDING OVER
If Tenant shall for any reason remain in possession of the Leased
Property after the expiration of the Term or earlier termination of the Term
hereof, such possession shall be as a tenancy at sufferance during which time
Tenant shall pay as rental each month or partial month, 125% of the aggregate of
(i) one-twelfth of the aggregate Annual Base Rent and Additional Rent payable
with respect to the last Fiscal Year of the preceding Term; (ii) all Additional
Charges accruing during the month; and (iii) all other sums, if any, payable by
Tenant pursuant to the provisions of this Lease with respect to the Leased
Property. In addition to and without limiting any other rights or remedies which
Landlord may have on account of such holding over, Tenant shall indemnify
Landlord from and against all damages suffered by Landlord on account of such
holding over, including any damages and claims by tenants entitled to future
possession. During such period of tenancy at sufferance, Tenant shall be
obligated to perform and observe all of the terms, covenants and conditions of
this Lease, but shall have no rights hereunder other than the right, to the
extent given by law to such tenancies at sufferance, to continue its occupancy
and use of the Leased Property. Nothing contained herein shall constitute the
consent, express or implied, of Landlord to the holding over of Tenant after the
expiration or earlier termination of this Lease.
ARTICLE 21
UPREIT UNITS/REIT SHARES/LETTER OF CREDIT/SECURITY DEPOSIT
21.1 SECURITY DEPOSIT. On or before the Commencement Date, Tenant
shall post a Letter of Credit with Landlord (or shall pledge or otherwise
deliver limited partnership units in Landlord, shares of common stock in
Landlord's general partner, or other security acceptable to Landlord and
described in Section 21.6 below), to be held as a security deposit in accordance
with the term, of this Article 21. The security deposit shall, at all times, be
in an amount equal to the then Required Security Deposit Amount (as defined in
Exhibit A hereto).
21.2 OFFICER'S CERTIFICATE/AUDIT. Tenant shall provide an Officer's
Certificate to Landlord not later than forty-five (45) days after the end of
each Fiscal Quarter, as to the Required Security Deposit Amount then in effect,
which Certificate shall include a calculation and reasonable detail of such
item. Without limitation of the foregoing, Landlord shall have the right, at any
time and from time to time, to audit, whether directly or through its
accountants, the information set forth in any Officer's Certificate to be
delivered under this Article 21, and in connection with such audit, to examine
Tenant's books and records with respect thereto (including supporting data,
sales tax returns and Tenant's workpapers). Any determination made by Landlord
pursuant to said audit shall be binding upon Tenant. If any such audit discloses
that the EBITDA (as defined in Exhibit A hereto) was overstated by such amount
so as to result in a
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purported reduction in the Required Security Deposit Amount for which Tenant was
not otherwise entitled based upon the audited EBITDA calculations, then, in such
case, Tenant shall be responsible for all costs incurred by Landlord in
connection with such audit and examination. If the determination of the then
Required Security Deposit Amount indicates that Landlord is then holding either
less than or greater than the then required security deposit hereunder, the
parties shall promptly cooperate with one another in either increasing or
decreasing the security deposit so that Landlord, within thirty (30) days after
delivery of said Officer's Certificate (or, if Landlord disputes such
determination, then within 30 days following any audit conducted by Landlord as
provide above in this Section 21.2), is then holding the appropriate security
deposit hereunder.
21.3 TERMS OF LETTER OF CREDIT. In the event that the security
under this Article 21 is in the form of a Letter of Credit, such Letter of
Credit shall:
(i) be an irrevocable standby letter of credit from a
bank with a long-term debt rating from Standard & Poor's Corporation or
Moody's Investors Service Inc. of "A" or better naming Landlord (and/or
any Facility Mortgagee if requested by Landlord) as beneficiary to
secure Tenant's obligations hereunder and Tenant's or an Affiliate of
Tenant's obligations under the Other Property Leases;
(ii) have a stated amount equal to the Required Security
Deposit Amount plus, if the Letter of Credit is intended to satisfy
Tenant's obligations under the Other Property Leases with Landlord, the
amounts required under such other leases;
(iii) have a term of not less than one year;
(iv) provide that it will be honored upon a signed
statement by Landlord that Landlord is entitled to draw upon the letter
of credit under this Lease, and shall require no signature or statement
from any party other than Landlord; and
(v) permit multiple draws by providing that following the
honor of any drafts in an amount less than the aggregate stated amount
of the Letter of Credit, the issuing bank shall return the original
letter of credit to Landlord and that Landlord's rights as to the
remaining stated amount of the Letter of Credit will not be
extinguished.
21.4 DRAWS AGAINST LETTER OF CREDIT/ALTERNATIVE SECURITY;
APPLICATION OF PROCEEDS. Landlord may draw against the Letter of Credit (or,
in the case of alternative security under Section 21.6 below, Landlord may
apply or otherwise proceed against such security) upon any monetary default
under this Lease or any other Event of Default under the terms of Section 16.1.
Landlord may apply any amounts drawn or received under the Letter of Credit (or
alternative security) to the satisfaction of any obligations owed to Landlord
under this Lease or the Other
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Property Leases. Any proceeds from the Letter of Credit (or alternative
security) drawn or received but not so applied shall be held by Landlord as a
security deposit.
21.5 RENEWAL OF LETTER OF CREDIT. If the Letter of Credit shall
expire at a time when the Letter of Credit is still required under Section 21.1
or Section 21.2, Tenant shall renew the Letter of Credit at least 30 days prior
to its expiration. If Tenant shall fail to renew the Letter of Credit prior to
such time, Landlord may draw against the same and hold the proceeds thereof as a
security deposit until such time as Tenant shall renew the Letter of Credit.
Landlord shall hold such security deposit in a separate account in trust for
Tenant and shall account to Tenant for any interest earned thereon.
21.6 OTHER SECURITY. In the event Landlord, at its discretion (and
without obligation to do so), permits the security under this Article 21 to be
in a form other than a Letter of Credit, then the alternative security shall be
in the same amount as the "Required Security Deposit Amount" and shall otherwise
be in such form and substance as may be acceptable to Landlord, in its
discretion. In such event, Tenant agrees to enter into a supplement to this
Lease, at Landlord's request, in order to set forth the terms and conditions
governing the alternative security. Without limitation of the foregoing,
Landlord hereby agrees that limited partnership units in Landlord or shares of
common stock in Landlord's general partner shall be deemed to be an acceptable
form of alternative security hereunder. The value of each such limited
partnership unit or share of common stock, for purposes of this Article 21,
shall be (A) with respect to any partnership unit or share delivered or pledged
to Landlord as security as of the Commencement Date of the Term, the "Price to
Public (Per Share)", as shown on the cover page of the final prospectus
distributed in connection with the initial public offering of shares of common
stock of Landlord's general partner, and (B) with respect to any partnership
unit or share delivered or pledged to Landlord as security at any time following
the Commencement Date of the Term, the average of the New York Stock Exchange
closing prices per share of common stock of Landlord's general partner for the
twenty (20) consecutive "Trading Days" (as hereinafter defined) immediately
preceding the date of delivery or pledge of said partnership unit or share as
security hereunder. For purposes of the foregoing, "Trading Day" shall mean a
day on which the New York Stock Exchange is open for the transaction of
business.
ARTICLE 22
IMPOUNDS
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Without limitation on any obligations of Tenant set forth herein,
Landlord shall have the right, at any time following and during the continuance
of an Event of Default hereunder, to require Tenant to pay to Landlord an
additional monthly sum (each an "Impound Payment") sufficient to pay the Impound
Charges (as hereinafter defined) as they become due. As used herein, "Impound
Charges" shall mean real estate taxes on the Leased Property or payments in lieu
thereof, and premiums on any insurance required by this Lease. Landlord shall
determine the amount of the Impound Charges and of each Impound Payment. The
Impound Payments shall be held in a separate account and shall not be commingled
with other funds of Landlord and interest thereon shall be held for the account
of Tenant. Upon Tenant's tendering to Landlord of invoices therefor no later
than thirty (30) days prior to the respective due dates thereof, Landlord shall
apply the Impound Payments to the payment of the Impound Charges in such order
or priority as Landlord shall reasonably determine or as otherwise required by
law. If at any time the Impound Payments theretofore paid to Landlord shall be
insufficient for the payment of the Impound Charges, Tenant, within 10 days
after Landlord's written demand therefor, shall pay the amount of the deficiency
to Landlord.
ARTICLE 23
INDEMNIFICATION; RISK OF LOSS
23.1 TENANT'S INDEMNIFICATION. Notwithstanding the existence of any
insurance provided for in Article 13, and without regard to the policy limits of
any such insurance, Tenant will protect, indemnify, save harmless and defend
Landlord and each Facility Mortgagee from and against all liabilities,
obligations, claims, damages, penalties, causes of action, costs and expenses
(including reasonable attorneys' fees and expenses), to the extent permitted by
law, imposed upon or incurred by or asserted against such parties by reason of:
(a) any accident, injury to or death of Persons or loss
of or damage to property occurring on or about the Leased Property or
adjoining sidewalks, including, but not limited to, any accident,
injury to or death of Person or loss of or damage to property resulting
from golf balls, golf clubs, golf shoes, lawn mowers or other gardening
devices, golf carts, tractors or other motorized vehicles present on or
adjacent to the Leased Property;
(b) any use, misuse, non-use, condition, maintenance or
repair by Tenant of the Leased Property;
(c) any Impositions (which are the obligations of Tenant
to pay pursuant to the applicable provisions of this Lease);
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(d) any failure on the part of Tenant to perform or
comply with any of the terms of this Lease;
(e) the non-performance of any of the terms and
provisions of any and all existing and future subleases of the Leased
Property to be performed by the sublandlord (i.e., Tenant) thereunder;
(f) any "dram shop" liability associated with the sale
and/or consumption of alcohol at the Leased Property; and
(g) any liability Landlord or any Facility Mortgagee may
incur or suffer as a result of any permitted contest by Tenant pursuant
to Article 12.
23.2 LANDLORD'S INDEMNIFICATION OF TENANT. Landlord shall protect,
indemnify, save harmless and defend Tenant from and against all liabilities,
obligations, claims, damages, penalties, causes of action, costs and expenses
(including reasonable attorneys' fees) imposed upon or incurred by or asserted
against Tenant as a result of Landlord's active negligence or willful
misconduct.
23.3 MECHANICS OF INDEMNIFICATION. As soon as reasonably
practicable after receipt by the indemnified party of notice of any liability or
claim incurred by or asserted against the indemnified party that is subject to
indemnification under this Article 23, the indemnified party shall give notice
thereof to the indemnifying party. The indemnified party may at its option
demand indemnity under this Article 23 as soon as a claim has been threatened by
a third party regardless of whether an actual loss has been suffered, so long as
the indemnified party shall in good faith determine that such claim is not
otherwise frivolous and that the indemnified party may be liable for, or
otherwise incur, a loss as a result thereof and shall give notice of such
determination to the indemnifying party. The indemnified party shall permit the
indemnifying party, at its option and expense, to assume the defense of any such
claim by counsel selected by the indemnifying party and reasonably satisfactory
to the indemnified party, and to settle or otherwise dispose of the same;
provided, however, that the indemnified party may at all times participate in
such defense at its expense; and provided further, however, that the
indemnifying party shall not, in defense of any such claim, except with the
prior written consent of the indemnified party, consent to the entry of any
judgment or to enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff in question
to the indemnified party and its affiliates a release of all liabilities in
respect of such claims, or that does not result only in the payment of money
damages by the indemnifying party. If the indemnifying party shall fail to
undertake such defense within 30 days after such notice, or within such shorter
time as may be reasonable under the circumstances, then the indemnified party
shall have the right to undertake the defense, compromise or settlement of such
liability or claim on behalf of and for the account of the indemnifying party.
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23.4 SURVIVAL OF INDEMNIFICATION OBLIGATIONS. Tenant's or
Landlord's liability for a breach of the provision of this Article 23 arising
during the Term hereof shall survive any termination of this Lease for a period
of one (1) year (i.e., meaning that Landlord or Tenant, as the case may be, must
give notice to the other of such claim prior to the expiration of said 1-year
period).
23.5 RISK OF LOSS. During the Term of this Lease, the risk of loss
or of decrease in the enjoyment and beneficial use of the Leased Property as a
consequence of the damage or destruction thereof by fire, the elements,
casualties, thefts, riots, wars or otherwise, or in consequence of foreclosures,
attachments, levies or executions (other than by Landlord and those claiming
from, through or under Landlord) is assumed by Tenant. In the absence of gross
negligence, willful misconduct or breach of this Lease by Landlord pursuant to
Section 26.3, Landlord shall in no event be answerable or accountable therefor
nor shall any of the events mentioned in this Section 23.5 entitle Tenant to any
abatement of Rent.
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ARTICLE 24
SUBLETTING AND ASSIGNMENT
24.1 PROHIBITION AGAINST SUBLETTING AND ASSIGNMENT. Subject to
Section 24.3, Tenant shall not, without the prior written consent of Landlord
(which consent Landlord may grant or withhold in its sole and absolute
discretion, except as hereinafter expressly provided), assign, mortgage,
pledge, hypothecate, encumber or otherwise transfer (except to an Affiliate of
Tenant) this Lease or any interest herein, all or any part of the Leased
Property or suffer or permit this Lease or the leasehold estate created hereby
or any other rights arising under this Lease to be assigned, transferred,
mortgaged, pledged, hypothecated or encumbered, in whole or in part, whether
voluntarily, involuntarily or by operation of law; provided, however, that
Landlord's consent to a proposed assignment of this Lease shall not be withheld
if, as of the date of such assignment (a) the proposed assignee shall also be
the assignee of all Other Property Leases, in accordance with the terms and
conditions for assignment set forth therein, (b) the proposed assignee
(together with any proposed guarantor(s) of the proposed assignee's
obligations under the Lease) has a net worth, as evidenced by audited financial
statements, of at least Thirty Million Dollars ($30,000,000.00) and (c) the
proposed assignee, together with its Affiliates, manages or operates at least
thirty (30) golf courses (hereinafter collectively called the "Minimum
Assignee Qualifications"). Landlord shall have a period of thirty (30) days
after delivery to it of a request for assignment together with the financial
and other information on the proposed assignee (and any proposed guarantors)
necessary for Landlord to evaluate whether the proposed assignee satisfies the
Minimum Assignee Qualifications and Landlord's failure to respond within thirty
(30) days of Landlord's receipt of a request for assignment and all required
information (as evidenced by a receipt signed and dated by Landlord) shall be
deemed Landlord's approval of said assignee and said assignment. Any notice
withholding consent must specify in detail the reasonable grounds for Landlord
so withholding its consent. For purposes of this Section 24.1, an assignment of
this Lease shall be deemed to include any Change of Control of Tenant, as if
such Change of Control were an assignment of this Lease.
24.2 CHANGES IN CONTROL. A Change of Control requiring the
consent of Landlord shall mean:
(a) the issuance and/or sale by Tenant or the sale by any
stockholder of Tenant of a Controlling interest in Tenant to a Person
other than an Affiliate of Tenant, other than in either case a
distribution to the public pursuant to an effective registration
statement under the Securities Act of 1933, as amended (a "Registered
Offering");
(b) the sale, conveyance or other transfer of all or
substantially all of the assets of Tenant (whether by operation of law
or otherwise);
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(c) any other transaction, or series of transactions,
which results in (i) Palmer Management no longer being the sole
managing member of Tenant or (ii) Palmer Management no longer owning,
directly or indirectly, beneficially at least fifty-one percent (51%)
of the voting and economic membership or ownership interests in Tenant,
or (iii) Affiliates of Tenant no longer having Control of Tenant (in
each such case, other than through a Registered Offering); or
(d) any transaction pursuant to which Tenant is merged
with or consolidated into another entity (other than an entity owned
and Controlled by an Affiliate of Tenant), and Tenant is not the
surviving entity;
provided, however, that Landlord shall not withhold its consent to a
proposed assignment of this Lease resulting from any proposed Change
of Control of Tenant, so long as (i) for a Change of Control under
Sections 24.2(b) or (d) above, the Person formed by or surviving such
transaction as the assignee of Tenant's interest hereunder satisfies
the "Minimum Assignee Qualifications" described in Section 24.1 above,
and (ii) for a Change of Control under Sections 24.2(a) or (c) above,
the Person obtaining control of Subtenant as a result of such
transaction, together with such Person's Affiliates, satisfies the
"Minimum Assignee Qualifications" described in Section 24.1 above.
24.3 SUBLEASES.
24.3.1 PERMITTED SUBLEASES. Tenant shall not assign this
Lease or sublet all or any part of the Leased Property without first
having obtained Landlord's prior written consent, at Landlord's sole
discretion. Notwithstanding the foregoing, Landlord agrees that it
shall not unreasonably withhold its consent to any requested sublease
of portions of the Leased Property to concessionaires or licensees to:
(a) operate golf professionals' shops;
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(b) operate golf driving ranges;
(c) provide golf lessons;
(d) operate restaurants;
(e) operate bars; and
(f) operate any other portions (but not the
entirety) of the Leased Property customarily associated with
or incidental to the operation of the Golf Course.
24.3.2 TERMS OF SUBLEASE. Each sublease of any of the Leased
Property shall be subject and subordinate to the provisions of this
Lease. No sublease made as permitted by Section 24.3.1 shall affect or
reduce any of the obligations of Tenant hereunder, and all such
obligations shall continue in full force and effect as if no sublease
had been made. No sublease shall impose any additional obligations on
Landlord under this Lease.
24.3.3 COPIES. Tenant shall, within 10 days after the
execution and delivery of any sublease permitted by Section 24.3.1,
deliver a duplicate original thereof to Landlord.
24.3.4 ASSIGNMENT OF RIGHTS IN SUBLEASES. As security for
performance of its obligations under this Lease, Tenant hereby grants,
conveys and assigns to Landlord all right, title and interest of Tenant
in and to all subleases now in existence or hereinafter entered into
for any or all of the Leased Property, and all extensions,
modifications and renewals thereof and all rents, issues and profits
therefrom. Landlord hereby grants to Tenant a license to collect and
enjoy all rents and other sums of money payable under any sublease of
any of the Leased Property; provided, however, that Landlord shall have
the absolute right at any time after the occurrence and during the
continuance of an Event of Default upon notice to Tenant and any
subtenants to revoke said license and to collect such rents and sums of
money and to retain the same. Tenant shall not (i) after the occurrence
and continuance of an Event of Default, consent to, cause or allow any
material modification or alteration of any of the terms, conditions or
covenants of any of the subleases or the termination thereof, without
the prior written approval of Landlord nor (ii) accept any rents (other
than customary security deposits) more than 90 days in advance of the
accrual thereof nor permit anything to be done, the doing of which, nor
omit or refrain from doing anything, the omission of which, will or
could be a breach of or default in the terms of any of the subleases.
24.3.5 LICENSES, ETC. For purposes of Sections 24.1, 24.3
and 24.5, subleases shall be deemed to include any licenses, concession
arrangements, management contracts
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or other arrangements relating to the possession or use of all or any
part of the Leased Property.
24.4 ASSIGNMENT. Upon any assignment permitted under this Lease
(either as a matter of right or with Landlord's consent), the assignee shall
expressly assume, for the benefit of Landlord, all obligations and liabilities
of Tenant hereunder arising from and after the effective date of such
assignment, whereupon the assignor shall, from and after the effective date of
such assignment, be relieved of all liability for any obligations arising from
and after said effective date. No consent to any assignment in a particular
instance shall be deemed to be a waiver of the prohibition set forth in Article
24. Any assignment or other transfer of all or any portion of Tenant's interest
in the Lease in contravention of Article 24 shall be voidable at Landlord's
option. All terms and conditions of this Lease shall continue to apply from and
after the effective date of such assignment (including, without limitation, the
terms of Sections 16.1(j) and 16.1(k) hereof).
24.5 REIT LIMITATIONS. Anything contained in this Lease to the
contrary notwith standing, Tenant shall not (i) sublet or assign the Leased
Property or this Lease on any basis such that the rental or other amounts to be
paid by the subtenant or assignee thereunder would be based, in whole or in
part, on the income or profits derived by the business activities of the
subtenant or assignee; (ii) sublet or assign the Leased Property or this Lease
to any Person in which Landlord owns, directly or indirectly (by applying
constructive ownership rules set forth in Section 856(d)(5) of the Code), a 10%
or greater interest; or (iii) sublet or assign the Leased Property or this Lease
in any other manner or otherwise derive any income which could cause any portion
of the amounts received by Landlord pursuant to this Lease or any sublease to
fail to qualify as "rents from real property" within the meaning of Section
856(d) of the Code, or which could cause any other income received by Landlord
to fail to qualify as income described in Section 856(c)(2) of the Code. The
requirements of this Section 24.5 shall likewise apply to any further subleasing
by any subtenant.
ARTICLE 25
OFFICER'S CERTIFICATES AND OTHER STATEMENTS
25.1 OFFICER'S CERTIFICATES. At any time, and from time to time
upon Tenant's receipt of not less than 10 days' prior written request by
Landlord, Tenant will furnish to Landlord an Officer's Certificate certifying
that:
(a) this Lease is unmodified and in full force and
effect (or that this Lease is in full force and effect as modified and
setting forth the modifications);
(b) the dates to which the Rent has been paid;
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(c) whether or not, to the best knowledge of Tenant,
Landlord is in default in the performance of any covenant, agreement or
condition contained in this Lease and, if so, specifying each such
default of which Tenant may have knowledge;
(d) that, except as otherwise specified, there are no
proceedings pending or, to the knowledge of the signatory, threatened,
against Tenant before or by any court or administrative agency which,
if adversely decided, would materially and adversely affect the
financial condition and operations of Tenant; and
(e) responding to such other questions or statements of
fact as Landlord or any Facility Mortgagee shall reasonably request.
Tenant's failure to deliver such statement within such time shall constitute an
acknowledgment by Tenant that this Lease is unmodified and in full force and
effect (except as may be represented to the contrary by Landlord), Landlord is
not in default in the performance of any covenant, agreement or condition
contained in this Lease and the other matters set forth in such request, if any,
are true and correct. Any such certificate furnished pursuant to this Section
25.1 may be relied upon by Landlord.
At any time, and from time to time upon Landlord's receipt of not less
than 30 days' prior written request by Tenant, Landlord will furnish to Tenant a
certificate, signed by a duly authorized representative of Landlord, certifying
that:
(a) This Lease is unmodified and in full force and
effect (or that this Lease is in full force and effect as modified and
setting forth the modification);
(b) the dates to which the Rent has been paid; and
(c) whether or not, to the best knowledge of Landlord,
Tenant is in default in the performance of any covenant, agreement or
condition contained in this Lease and, if so, specifying each such
default of which Landlord may have knowledge.
Landlord's failure to deliver such statement within such time shall constitute
an acknowledgement by Landlord that this Lease is unmodified and in full force
and effect (except as may be represented to the contrary by Tenant) and that
Tenant is not in default in the performance of any covenant, agreement or
condition contained in this Lease. Any such certificate furnished pursuant to
this Section 25.1 may be relied upon by Tenant.
25.2 FINANCIAL REPORTING. Tenant shall deliver to Landlord the
following items at the time or times hereinafter set forth:
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25.2.1 MONTHLY FINANCIAL INFORMATION. As soon as
practicable, and in any event on or before the thirtieth (30th) day
following the end of each calendar month during the Term, Tenant shall
furnish to Landlord unaudited balance sheets relative to Tenant and
relative to the Leased Property as of the end of such calendar month,
and income (including information on Capital Expenditures) and cash
flow statements for Tenant and the Leased Property for such calendar
month and on a year-to-date and trailing twelve (12) month basis,
certified as being true and correct in all material respects by Tenant.
25.2.2 QUARTER FINANCIAL INFORMATION. As soon as
practicable, and in any event within thirty (30) days after the end of
each Fiscal Quarter during the Term, Tenant shall furnish to Landlord
unaudited balance sheets of Tenant and of the Leased Property as of the
close of such Fiscal Quarter, together with income statements and
statements of cash flow for Tenant and for the Leased Property for such
Fiscal Quarter and on a year-to-date and trailing twelve (12) month
basis, in all cases setting forth in comparative form the figures for
the preceding corresponding periods, together with a statement of all
Capital Expenditures made during such Fiscal Quarter and a
reconciliation thereof with amounts deposited (or required to be
deposited) into the Capital Expenditure Reserve Account for such Fiscal
Quarter, all in detail and presentation reasonably acceptable to
Landlord. The foregoing quarterly financial information shall be
accompanied by a certificate of a duly authorized representative of
Tenant, dated within five (5) days of the delivery of such statement,
stating that (i) the authorized representative knows of no Event of
Default or event which, upon notice or the passage of time or both,
would become an Event of Default, or if any such event has occurred and
is continuing, specifying the nature and period of existence thereof
and what action Tenant has taken or proposes to take with respect
thereto, and (ii) except as otherwise specified in such certificate, to
the best of such representative's knowledge, Tenant and Landlord have
each fulfilled, in all material respects, all of their respective
obligations under this Lease which are required to be fulfilled on or
prior to the date of such certificate.
25.2.3 ANNUAL FINANCIAL STATEMENTS. As soon as practicable,
and in any event within ninety (90) days after the close of each Fiscal
Year during the Term, Tenant shall furnish to Landlord a copy of its
audited consolidated balance sheet and related audited consolidated
statement of income and audited statement of cash flow, in each case
with respect to Tenant and with respect to the Leased Property,
prepared in accordance with generally accepted accounting principles
consistently applied. The foregoing financial statements shall be
certified by a nationally recognized certified public accountants, or
such other accountants as may be reasonably acceptable to Landlord. All
such financial statements shall set forth, in comparative form, the
figures for the preceding Fiscal Year. The foregoing annual financial
statements shall be accompanied by an opinion of the foregoing
accountants to the effect that (a) there are no qualifications as to
the scope of the
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audit and (b) the audit was performed in accordance with generally
accepted accounting principles, consistently applied. The annual
financial statements required hereunder shall be accompanied by a
certificate of a duly authorized representative of Tenant, dated within
five (5) days of the delivery of such statement, stating that (i) the
representative knows of no Event of Default, or event which, upon
notice or the passage of time or both, would become an Event of
Default, or, if any such event has occurred and is continuing,
specifying the nature and period of existence therein and what action
Tenant has taken or proposes to take with respect thereto, and (ii)
except as otherwise specified in such certificate, to the best of such
representative's knowledge, Tenant and Landlord have each fulfilled, in
all material respects, all of their respective obligations under this
Lease which are required to be fulfilled on or prior to the date of
such certificate. The foregoing financial statements shall include a
statement of all Capital Expenditures made during such Fiscal Year and
a reconciliation thereof with amounts deposited (or required to be
deposited) into the Capital Expenditure Reserve Account for such Fiscal
Year.
25.2.4 OTHER INFORMATION. Tenant shall promptly furnish
Landlord such other information concerning the business being conducted
at the Leased Property and/or the financial condition of Tenant, as
Landlord may reasonably request from time to time during the Term.
25.2.5 STANDARD REPORTING FORMAT. Without limitation of the
reporting requirements described above in this Article 25, it is
understood and agreed that the monthly, quarterly and annual financial
delivery requirements shall include such information with respect to
the operations of the Leased Property as set forth on, and in
accordance with the reporting format provided in, Exhibit E attached
hereto.
25.3 ENVIRONMENTAL STATEMENTS. Immediately upon Tenant's learning,
or having reasonable cause to believe, that any Hazardous Material in a quantity
sufficient to require remediation or reporting under applicable law is located
in, on or under the Leased Property or any adjacent property, Tenant shall
notify Landlord in writing of the same, which notice shall include, to the
extent actually known to Tenant, (a) a statement, in reasonable detail, of any
enforcement, cleanup, removal, or other governmental or regulatory action
instituted, completed or threatened; (b) a statement, in reasonable detail, of
any claim made or threatened by any Person against Tenant or the Leased Property
relating to damage, contribution, cost recovery, compensation, loss, or injury
resulting from or claim to result from any Hazardous Material; and (c) any
reports made to any federal, state or local environmental agency arising out of
or in connection with any Hazardous Material in or removed from the Leased
Property, including any complaints, notices, warnings or asserted violations in
connection therewith.
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ARTICLE 26
LANDLORD MORTGAGES
26.1 LANDLORD MAY GRANT LIENS. Subject to Section 26.2, without the
consent of Tenant, Landlord may, from time to time, directly or indirectly,
create or otherwise cause to exist any lien, encumbrance or title retention
agreement ("Landlord's Encumbrance") upon the Leased Property, or any portion
thereof or interest therein, whether to secure any borrowing or other means of
financing or refinancing. Subject to Tenant's non-disturbance rights described
in Section 26.2 and to the other terms of this Article 26, this Lease is and at
all times shall be subject and subordinate to any ground or underlying leases
and the lien, terms, conditions and provisions of, and to each and every advance
heretofore or hereafter made under, any Facility Mortgages or other mortgages,
trust deeds or like encumbrances, which may now or hereafter affect the Leased
Property and to all renewals, modifications, consolidations, replacements and
extensions of any such lease, Facility Mortgage, other mortgage, trust deed or
like encumbrance. This clause shall be self-operative and no further instrument
of subordination shall be required by any ground or underlying lessor or by any
mortgagee or beneficiary, affecting any lease or the Leased Property. In
confirmation of such subordination, Tenant shall execute promptly any
certificate that Landlord may request for such purposes.
26.2 TENANT'S NON-DISTURBANCE RIGHTS. So long as Tenant shall pay
all Rent as the same becomes due and shall fully comply with all of the terms of
this Lease and fully perform its obligations hereunder, none of Tenant's rights
under this Lease shall be disturbed by the holder of any Facility Mortgage
(whether created before or after the Commencement Date) and any other Landlord's
Encumbrance which is created or otherwise comes into existence after the
Commencement Date.
26.3 BREACH BY LANDLORD. It shall be a breach of this Lease if
Landlord shall fail to observe or perform any material term, covenant or
condition of this Lease on its part to be performed and such failure shall
continue for a period of 30 days after notice thereof from Tenant, unless such
failure cannot with due diligence be cured within a period of 30 days, in which
case such failure shall not be deemed to continue if Landlord, within said
30-day period, proceeds promptly and with due diligence to cure the failure and
diligently completes the curing thereof. The time within which Landlord shall be
obligated to cure any such failure shall also be subject to extension of time
due to the occurrence of any Unavoidable Delay.
26.4 FACILITY MORTGAGE PROTECTION. Tenant agrees that the holder
of any Facility Mortgage or other Landlord Encumbrance shall have no duty,
liability or obligation to perform any of the obligations of Landlord under this
Lease (except for such obligations first occurring after such holder takes title
to the Leased Property), but that in the event of Landlord's default with
respect to any such obligation, Tenant will give any such holder whose name and
address
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have been furnished to Tenant in writing for such purpose notice of Landlord's
default and allow such holder thirty (30) days following receipt of such notice
for the cure of said default before invoking any remedies Tenant may have by
reason thereof. Such 30-day cure period shall be extended (including without
limitation such extensions as are necessary for such holder to take possession
of and/or foreclose upon the Leased Property) if the failure cannot be cured by
said holder within the foregoing 30-day period, so long as said holder proceeds
with due diligence to cure the failure. Nothing herein contained shall be
construed however, to obligate Facility Mortgagee to cure any default by
Landlord occurring prior to any date on which Facility Mortgagee shall succeed
to the rights of Landlord, it being expressly agreed that under no
circumstances shall Facility Mortgagee be obligated to remedy any such default.
26.5 ATTORNMENT. In the event that the interest of Landlord is
transferred by reason of or assigned in lieu of foreclosure, the exercise of a
power of sale or by any other proceedings or method for the enforcement of a
Facility Mortgage, then this Lease shall nevertheless continue in full force and
effect and, upon the request of Facility Mortgagee or Successor Owner (as
hereinafter defined), Tenant shall attorn to Facility Mortgagee or Successor
Owner and shall recognize such person as its landlord. Although the foregoing
provision shall be self-operative, in order to confirm such attornment, upon the
request of Facility Mortgagee or Successor Owner, Tenant shall execute and
deliver to Facility Mortgagee or Successor Owner (i) an agreement of attornment
in form and content reasonably satisfactory to Facility Mortgagee or Successor
Owner, confirming the foregoing attornment and agreeing to perform all the
terms, covenants and conditions of the Lease on Tenant's part to be performed
for the benefit of Facility Mortgagee or Successor Owner with the same force and
effect as if Facility Mortgagee or Successor Owner was the landlord originally
named in this Lease or (ii) a new lease with Facility Mortgagee or Successor
Owner, as landlord, for the remaining term of the Lease and otherwise on the
same terms and conditions and with the same options, if any, then remaining. For
purposes hereof, "Successor Owner" shall mean any Person who obtains the
interest of Landlord in the Leased Property pursuant to a foreclosure or
deed-in-lieu of foreclosure or power of sale (collectively, a "Facility Mortgage
Foreclosure") of a Facility Mortgage.
26.6 FACILITY MORTGAGEE OR SUCCESSOR OWNER AS LANDLORD. If Facility
Mortgagee or Successor Owner shall succeed to the interest of Landlord, neither
Facility Mortgagee nor Successor Owner nor any successor thereto (herein, in
each case, a "Successor Landlord") shall have any personal liability as
successor to Landlord, and Tenant shall look only to the estate and property of
said Successor Landlord in the Leased Property or the proceeds thereof for the
satisfaction of Tenant's remedies for the collection of a judgment (or other
judicial process) requiring the payment of money in the event of any default by
such Successor Landlord as landlord under the Lease. In addition, Facility
Mortgagee, as holder of the Facility Mortgage, and each Successor Landlord, as
landlord under the Lease when it succeeds to that position, shall in no event
(i) be liable to Tenant for any act or omission of the "Landlord" existing
immediately prior to the Facility Mortgage Foreclosure (the "Foreclosure
Landlord") or any landlord prior to such Foreclosure Landlord, (ii) be subject
to any offset or defense which Tenant might have against the Foreclosure
Landlord or any landlord prior to
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such Foreclosure Landlord, (iii) be liable to Tenant for any liability
or obligation of the Foreclosure Landlord or any landlord prior to such
Foreclosure Landlord, occurring prior to the date that the Successor Landlord
acquires title to the Leased Property, or (iv) be liable to Tenant for any
security or other deposits given to secure the performance of Tenant's
obligation under the Lease, except to that extent that Facility Mortgagee or
Successor Owner shall have acknowledged actual receipt of such security or other
deposits in writing. No other property or assets of a Successor Landlord shall
be subject to levy, execution or other enforcement procedure for the
satisfaction of Tenant's remedies under or with respect to this Lease, the
relationship of the landlord and the tenant thereunder or Tenant's use or
occupancy of the Leased Property.
26.7 PREPAYMENTS AND MODIFICATIONS OF THE LEASE. No prepayment of
Rent due under this Lease of more than one month in advance shall be binding
upon Successor Owner or Facility Mortgagee, as holder of the Facility Mortgage
or as landlord under this Lease if Facility Mortgagee succeeds to that position,
unless consented to by Facility Mortgagee, and from and after the date hereof,
no amendment, modification, surrender or cancellation of the Lease shall be
binding upon Successor Owner or Facility Mortgagee, as holder of the Facility
Mortgage or as landlord under this Lease if Facility Mortgagee succeeds to that
position, unless such amendment, modification, surrender or cancellation is done
in compliance with the terms of the Facility Mortgage.
ARTICLE 27
MISCELLANEOUS
27.1 LANDLORD'S RIGHT TO INSPECT. Tenant shall permit Landlord and
its authorized representatives to inspect the Leased Property upon reasonable
written or oral notice during usual business hours subject to any security,
health, safety or confidentiality requirements of Tenant or any governmental
agency or insurance requirement relating to the Leased Property, or imposed by
law or applicable regulations. Landlord shall indemnify, defend and hold Tenant
harmless from and against all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever which may be imposed on, incurred by, or asserted
against Tenant by reason of Landlord's inspection pursuant to this Section 27.1.
27.2 NO WAIVER. No failure by Landlord to insist upon the strict
performance of any term hereof or to exercise any right, power or remedy
consequent upon a breach thereof, and no acceptance of full or partial payment
of Rent during the continuance of any such breach, shall constitute a waiver of
any such breach or of any such term. To the extent permitted by law, no
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waiver of any breach shall affect or alter this Lease, which shall continue in
full force and effect with respect to any other then existing or subsequent
breach.
27.3 REMEDIES CUMULATIVE. To the extent permitted by law, each
legal, equitable or contractual right, power and remedy of Landlord now or
hereafter provided either in this Lease or by statute or otherwise shall be
cumulative and concurrent and shall be in addition to every other right, power
and remedy. The exercise or beginning of the exercise by Landlord of any one or
more of such rights, powers and remedies shall not preclude the simultaneous or
subsequent exercise by Landlord of any or all of such other rights, powers and
remedies.
27.4 ACCEPTANCE OF SURRENDER. No surrender to Landlord of this
Lease or of the Leased Property or any part thereof, or of any interest therein,
shall be valid or effective unless agreed to and accepted in writing by Landlord
and no act by Landlord or any representative or agent of Landlord, other than
such a written acceptance by Landlord, shall constitute an acceptance of any
such surrender.
27.5 NO MERGER OF TITLE. There shall be no merger of this Lease or
of the leasehold estate created hereby by reason of the fact that the same
Person may acquire, own or hold, directly or indirectly, (a) this Lease or the
leasehold estate created hereby or any interest in this Lease or such leasehold
estate and (b) the fee estate in the Leased Property.
27.6 CONVEYANCE BY LANDLORD. If Landlord shall convey the Leased
Property in accordance with the terms hereof other than as security for a debt,
Landlord shall, upon the written assumption by the transferee of the Leased
Property of all liabilities and obligations of Landlord under this Lease arising
after the transfer, be released from all future liabilities and obligations
under this Lease arising or accruing from and after the date of such conveyance
or other transfer as to the Leased Property. All such future liabilities and
obligations shall thereupon be binding upon the new owner.
27.7 QUIET ENJOYMENT. So long as Tenant shall pay all Rent as the
same becomes due and shall fully comply with all of the terms of this Lease and
fully perform its obligations hereunder, Tenant shall peaceably and quietly
have, hold and enjoy the Leased Property for the Term hereof, free of any claim
or other action by Landlord or anyone claiming by, through or under Landlord,
but subject to all liens and encumbrances of record as of the date hereof or
otherwise permitted hereunder, and subject to any Landlord's Encumbrances.
27.8 NOTICES. All notices, demands, requests, consents, approvals
and other communi cations hereunder shall be in writing and personally
delivered, or mailed (by registered or certified mail, return receipt requested
and postage prepaid), or sent by nationally recognized overnight courier, in
each case addressed to the respective parties, as provided in the Basic Lease
Provisions. Notices shall be deemed to have been given (i) upon delivery, if
personally delivered, or (ii) upon the
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third (3rd) Business Day after mailing by registered or certified mail, or
(iii) upon the first (1st) Business Day after delivery to an overnight courier.
27.9 SURVIVAL OF CLAIMS. Anything contained in this Lease to the
contrary notwithstanding, all claims against, and liabilities of, Tenant or
Landlord arising prior to any date of termination of this Lease shall survive
such termination.
27.10 INVALIDITY OF TERMS OR PROVISIONS. If any term or provision of
this Lease or any application thereof shall be invalid or unenforceable, the
remainder of this Lease and any other application of such term or provision
shall not be affected thereby.
27.11 PROHIBITION AGAINST USURY. If any late charges provided for in
any provision of this Lease are based upon a rate in excess of the maximum rate
permitted by applicable law, the parties agree that such charges shall be fixed
at the maximum permissible rate.
27.12 AMENDMENTS TO LEASE. Neither this Lease nor any provision
hereof may be changed, waived, discharged or terminated except by an instrument
in writing signed by Landlord or Tenant.
27.13 SUCCESSORS AND ASSIGNS. All the terms and provisions of this
Lease shall be binding upon and inure to the benefit of the parties hereto. All
permitted assignees or sublessees shall be subject to the terms and provisions
of this Lease.
27.14 TITLES. The headings in this Lease are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
27.15 GOVERNING LAW. This Lease shall be governed by and construed
in accordance with the laws of the State of Commonwealth of Virginia.
27.16 MEMORANDUM OF LEASE. This Lease shall not be recorded by
either Landlord or Tenant. Notwithstanding the foregoing, Landlord and Tenant
shall, promptly upon the request of either, enter into a short form memorandum
of this Lease, in form and substance satisfactory to Landlord and suitable for
recording under the State, in which reference to this Lease, and all options
contained herein, shall be made. Tenant shall pay all costs and expenses of
recording such Memorandum of Lease.
27.17 ATTORNEYS' FEES. In the event of any dispute between the
parties hereto involving the covenants or conditions contained in this Lease or
arising out of the subject matter of this Lease, the prevailing party shall be
entitled to recover against the other party reasonable attorneys' fees and court
costs.
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27.18 NON-RECOURSE AS TO LANDLORD. Anything contained herein to the
contrary notwithstanding, any claim based on or in respect of any liability of
Landlord under this Lease shall be enforced only against Landlord's interest in
the Leased Property and not against any other assets, properties or funds of (a)
Landlord, (b) any director, officer, general partner, limited partner, employee
or agent of Landlord, or any general partner of Landlord, any of their
respective general partners or stockholders (or any legal representative, heir,
estate, successor or assign of any thereof), (c) any predecessor or successor
partnership or corporation (or other entity) of Landlord, or any of their
respective general partners, either directly or through either Landlord or their
respective general partners of any predecessor or successor partnership or
corporation or their stockholders, officers, directors, employees or agents (or
other entity), or (d) any other Person affiliated with any of the foregoing, or
any director, officer, employee or agent of any thereof.
27.19 NO RELATIONSHIP. Landlord shall in no event be construed for
any purpose to be a partner, joint venturer or associate of Tenant or of any
subtenant, operator, concessionaire or licensee of Tenant with respect to the
Leased Property or any of the Other Leased Property or otherwise in the conduct
of their respective businesses.
27.20 SIGNS; RELETTING. If Tenant fails to timely exercise its
option to extend or further extend the Term under Section 2.2 or if an Event of
Default occurs and is continuing, then Landlord shall have the right during the
remainder of the Term then in effect (i) to advertise the availability of the
Leased Property for sale or reletting and to erect upon the Leased Property
signs indicating such availability and (ii) to show the Leased Property to
prospective purchasers or tenants or their agents at such reasonable times as
Landlord may elect.
27.21 GOLF COURSE NAME. The Leased Property shall be known by such
trade name and/or trademark or logo as may from time to time be determined by
Landlord.
ARTICLE 28
TENANT MORTGAGES
Tenant shall not, directly or indirectly, mortgage, pledge,
hypothecate, create a security interest in or lien on, or otherwise encumber its
interest in the Lease without the prior written consent of Landlord and each
Facility Mortgagee, which consent may be withheld in the sole and absolute
discretion of each such party.
ARTICLE 29
INTENTIONALLY OMITTED
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ARTICLE 30
TENANT'S STRUCTURE
The parties hereto acknowledge and agree that Arnold Palmer Golf
Management LLC, a Delaware limited liability company ("Palmer Management"), is
currently, and so long as the original name of Tenant remains the "Tenant"
hereunder shall continue to be, the managing member of the original named Tenant
hereunder.
ARTICLE 31
RIGHT OF FIRST OFFER
If Landlord desires to sell the Leased Property to a third party
purchaser at any time during the Term (other than in connection with a
foreclosure or deed in lieu of foreclosure of, or power of sale under, any
Facility Mortgage), then, prior to selling, or entering into a binding agreement
to sell the Leased Property to such third party purchaser, Landlord shall
deliver written notice to Tenant (herein, "Landlord's Notice") setting forth (i)
the proposed closing date (which date shall be no less than sixty (60) days and
no more than one hundred eighty (180) days following the date of said Landlord's
Notice), and (ii) the proposed purchase price at which Landlord desires to sell
the Leased Property, and Tenant shall thereupon have a right of first offer
(herein, the "First Offer Right") to purchase the Leased Property in accordance
with the following terms and conditions.
31.1 EXERCISE OF FIRST OFFER RIGHT. Upon Tenant's receipt of any
such Landlord's Notice, Tenant shall have a period of twenty-one (21) days
following receipt of such Landlord's Notice (herein, "Tenant's Election Period")
to exercise Tenant's First Offer Right hereunder. If Tenant so exercises its
First Offer Right, then the Leased Property shall be sold to Tenant upon the
terms hereinafter set forth. In the event Tenant fails to notify Landlord, in
writing, within Tenant's Election Period, that Tenant has exercised its First
Offer Right hereunder, then Tenant's rights under this Article 31, shall
terminate and be null and void, and Landlord shall have no further obligation
under this Article 31; provided, however, that in the event Landlord thereafter
fails to close on any sale of the Leased Property within a period of one hundred
eighty (180) days following the expiration of Tenant's Election Period (as such
period may be extended, if Landlord is then under contract to sell the Leased
Property to a third party purchaser, which extension shall continue until the
termination of such contract or the closing of the sale thereunder, whichever
first occurs), then Tenant shall thereafter again have a First Offer Right with
respect to the Leased Property as provided in this Article 31. Additionally, if
the purchase price at which Landlord subsequently elects to sell the Leased
Property to a third party is less than ninety percent (90%) of the purchase
price set forth in Landlord's Notice, then Tenant's First Offer Right shall be
reinstated, and, prior to Landlord selling or entering into a binding agreement
to sell, the Leased
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Property at such lower price, Landlord shall deliver a new Landlord's Notice
to Tenant reflecting the new offered purchase price, all in accordance with the
terms of this Article 31.
31.2 FURTHER DOCUMENTATION. If Tenant has validly exercised its
First Offer Right, then within fifteen (15) Business Days after the request by
either party and determination of the purchase price as described below,
Landlord and Tenant shall enter into a written agreement confirming the terms,
conditions and provisions applicable to the sale of the Leased Property,
including the proposed closing date and purchase price with respect to such
transaction and the other terms set forth in Landlord's Notice or otherwise
provided for in this Article 31. Each party further agrees to execute such
documents and to take such actions as may be reasonably requested by the other
party in order to effectuate the sale transaction contemplated by any such
Landlord's Notice.
31.3 PURCHASE PRICE. The purchase price of the Leased Property
under this Article 31 shall be the price set forth in Landlord's Notice, subject
to modification as described in the last sentence of Section 31.1.
31.4 MECHANICS OF PURCHASE. If Tenant's First Offer Right hereunder
is exercised, the following closing procedure shall apply:
(a) The closing date ("Closing Date") for the sale of the
Leased Property to Tenant shall be on the date set forth in Landlord's
Notice. Payment of the purchase price and the delivery of the deed (the
"Closing") shall be made at the office of Landlord or its attorneys or
at such other place as the parties may agree. At the request of either
party, the Closing shall be effected through a deed and money escrow,
the cost of which escrow shall be borne equally by Landlord and Tenant.
The purchase price shall be payable to Landlord on the Closing Date in
immediately available funds or by certified or cashier's check upon
delivery of the applicable assignment document(s) to Tenant and
performance of Landlord's other obligations as set forth herein.
(b) The sale of the Leased Property shall be made by
recordable deed to Tenant (or its designee) and other documentation
necessary to transfer the Leased Property to Tenant, provided that
Tenant shall accept the Leased Property subject only to (A) the lien of
current general real estate taxes and special assessments not then due
and payable; (B) any acts or doings caused or suffered by Tenant; (C)
private, public and utility easements and roads and highways, if any;
(D) covenants, conditions and restrictions of record; (E) existing
leases and tenancies; and (F) such other liens and encumbrances which
were in effect on the date that Landlord obtained the Leased Property
or which are otherwise permitted to be imposed on the Leased Property
pursuant to the terms hereof (collectively, the "Permitted Title
Exceptions").
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(c) Landlord shall deliver or cause to be delivered to
Tenant, not later than twenty (20) days prior to the Closing, as
evidence of Landlord's interest in the Leased Property, a commitment
for a standard owner's title insurance policy in the aggregate amount
of the purchase price as provided hereunder. Such title commitment
shall name Tenant or its designee as the proposed insured and show
Landlord as holding a fee interest in the Leased Property, subject only
to (a) the Permitted Title Exceptions, and (b) other title exceptions
pertaining to mortgage liens of a definite or ascertainable amount
which may be removed at Closing by the payment of money, and which
Landlord shall so remove or cause to be removed concurrently with the
Closing.
(d) The payment of all prorations, transfer taxes, title
insurance charges, escrow fees, recording fees and other expenses, fees
and charges shall be made by the party from whom such payment is due in
accordance with statutory requirements or in accordance with the custom
at the time of the Closing for sales of properties similar to the
Leased Property located in the geographical area where the Leased
Property is located; provided, however, that there shall be no
proration of Impositions inasmuch as Tenant is fully responsible
therefor under this Lease.
(e) Landlord's interest in the Leased Property shall be
transferred to Tenant under this Article 31 in its as-is condition, it
being acknowledged that Landlord has made and shall make no
representations whatsoever as to the condition of said Leased Property
or any other matters pertaining thereto.
31.5 REIT QUALIFICATION LIMITATION. Notwithstanding any other
provision of this Lease, Landlord shall not be required to sell or transfer the
Leased Property, or any portion thereof, which is a real estate asset as defined
in Section 856(c)(6)(B), or functionally equivalent successor provision, of the
Code, to Tenant if Landlord's counsel advises Landlord that such sale or
transfer may not be a sale of property described in Section 857(b)(6)(C), or
functionally equivalent successor provision, of the Code. If Landlord determines
not to sell such property pursuant to the above sentence, Tenant's First Offer
Right under this Article 31 shall continue in full force and effect.
31.6 EFFECTIVENESS OF FIRST OFFER RIGHT. The First Offer Right
described in this Article 31 is for the personal benefit of the original named
Tenant hereunder, and such right is non-assignable and may not be exercised by
any other party. Without limitation of the foregoing, in the event Tenant
assigns this Lease or subleases all or greater than fifty percent (50%) of the
area of the Leased Property, then Tenant's First Offer Right under this Article
31 shall thereupon terminate and be deemed null and void. Tenant shall have no
right to exercise its First Offer Right under this Article 31, and any such
exercise shall (at Landlord's election) be null and void, if, at the time of
such exercise or as of the Closing Date, Tenant shall be in default of any of
its obligations hereunder.
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[Signature Page to Follow]
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IN WITNESS WHEREOF, the parties hereto have executed this Lease as of
the date and year first above written.
LANDLORD:
PRESIDIO GOLF LIMITED PARTNERSHIP, a
Delaware limited partnership
By:_______________________________________________
Name:_____________________________________________
Its:______________________________________________
TENANT:
__________________________________________________
a ________________________________________________
By:_______________________________________________
Name:_____________________________________________
Its:______________________________________________
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JOINDER
The undersigned, being the managing member of Tenant, hereby joins in
the execution of the foregoing Lease, for the purposes of (A) agreeing to the
terms of the Lease with respect to (i) any and all provisions in the Lease
relating to Tenant's Personal Property (some or all of which may be owned by the
undersigned), and (ii) any and all provisions in the Lease relating to the
Collateral Agreements (some or all of which may be entered into by the
undersigned), and (B) agreeing to be liable under the Lease, on a joint and
several basis with Tenant, for all remediation and indemnification obligations
under Section 8.2 and Section 8.3 of the Lease, to the extent relating to any
Hazardous Material located at the Leased Property and expressly identified in
any of the Existing Environmental Reports.
IN WITNESS WHEREOF, this Joinder is executed as of the ____ day of
________, 199__.
ARNOLD PALMER GOLF
MANAGEMENT LLC, a Delaware limited
liability company
By: ______________________________________
Name:_________________________________
Its:__________________________________
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EXHIBIT A
DEFINED TERMS; INTERPRETATION
DEFINED TERMS. For all purposes of this Lease, except as otherwise
expressly provided or unless the context otherwise requires, the terms defined
below have the meanings assigned to them below.
ADDITIONAL CHARGES: As defined in Section 3.4.
ADDITIONAL RENT: As defined in Basic Lease Provisions.
AFFILIATE: As applied to any Person, means any other Person directly
or indirectly controlling, controlled by, or under common control with, that
Person.
ANNUAL BASE RENT: As defined in the Basic Lease Provisions.
APPLICABLE PERCENTAGE: As defined in the Basic Lease Provisions.
AWARD: Means all compensation, sums or anything of value awarded,
paid or received on a total or partial Condemnation.
BASELINE GOLF COURSE REVENUE: As defined in the Basic Lease
Provisions.
BASELINE OTHER REVENUE: As defined in the Basic Lease Provisions.
BASE RENT: Means the proportion of the Annual Base Rent payable with
respect to each respective calendar month as described in Exhibit F attached
hereto.
BASE RENT ESCALATION: As defined in the Basic Lease Provisions.
BASIC LEASE PROVISIONS: The provisions so labelled starting on page
(1) of this Lease.
BUSINESS DAY: Each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which national banks in the City of Fairfax, Virginia, are
authorized, or obligated, by law or executive order, to close.
CALCULATION PERIOD: As defined in Section 18.2.
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CAPITAL EXPENDITURES: Means all expenditures for capital investment
items at the Leased Property, to the extent such expenditures are to be
"capitalized" under general accepted accounting principles.
CAPITAL EXPENDITURES RESERVE ACCOUNT: As defined in Section 18.2.
CAPITAL EXPENDITURES RESERVE AMOUNT: As defined in Section 18.2.
CHANGE OF CONTROL: As defined in Section 24.2.
CLOSING: As defined in Section 31.4.
CLOSING DATE: As defined in Section 31.4.
CODE: The Internal Revenue Code of 1986, as amended.
COMMENCEMENT DATE: As defined in the Basic Lease Provisions.
CONDEMNATION: Means (a) the exercise of any governmental power, whether
by legal proceedings or otherwise, by a Condemnor, and (b) a voluntary sale or
transfer by Landlord to any Condemnor, either under threat of condemnation or
while legal proceedings for condemnation are pending.
CONDEMNATION THRESHOLD: Means, as of any given date, an amount
determined by dividing (i) the aggregate Base Rent and Additional Rent under
this Lease for the most recent 12 full calendar months by (ii) the average
dividend yield for such 12 month period on the common stock then issued and
outstanding of Landlord's general partner.
CONDEMNOR: Means any public or quasi-public authority, or private
corporation or individual, having the power of condemnation.
CONSUMER PRICE INDEX: Means the Consumer Price Index for Urban Wage
Earners and Clerical Workers for the Fairfax, Virginia area, as reported by the
United States Bureau of Labor Statistics or any successor agency.
CONTROL: Means (including, with correlative meanings, the terms
"controlling" and "controlled by"), as applied to any Person, the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of that Person, whether through the ownership of voting
securities, by contract or otherwise.
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DATE OF TAKING: Means the date the Condemnor has the right to
possession of the property being condemned.
EBITDA: The net income from the Leased Property for the period at
issue, as determined in accordance with generally accepted accounting principles
consistently applied, excluding gains (or losses) from debt restructuring and
sales of property and other ordinary items, and without any reductions for (i)
depreciation or amortization, (ii) interest expense, (iii) federal or state
income taxes, or (iv) non-property specific entity-level overhead and
administrative expenses. Notwithstanding the foregoing, it is understood that,
in computing net income, (i) Golf Course Revenue and (ii) Other Revenue shall be
included as part of total revenue.
ENVIRONMENTAL LAW: Means all applicable statutes, regulations, rules,
ordinances, codes, licenses, permits, orders, demands, approvals, authorizations
and similar items of all governmental agencies, departments, commissions,
boards, bureaus or instrumentalities of the United States, states and political
subdivisions thereof and all applicable judicial, administrative and regulatory
decrees, judgments and orders relating to the protection of human health or the
environment as in effect on the Commencement Date or as thereafter amended,
including but not limited to those pertaining to reporting, licensing,
permitting, investigation, removal and remediation of emissions, discharges,
releases or threatened releases of "Hazardous Materials," substances,
pollutants, contaminants or hazardous or toxic substances, materials or wastes
whether solid, liquid or gaseous in nature, into the air, surface water, ground
water or land, or relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of substances, pollutants,
contaminants or hazardous or toxic substances, materials, or wastes, whether
solid, liquid or gaseous in nature, including: (x) the Comprehensive
Environmental Response, Compensation and Liability Act (42 U.S.C. ss.ss. 9601 et
seq.), the Resource Conservation and Recovery Act (42 U.S.C. ss.ss. 6901 et
seq.), the Clean Air Act (42 U.S.C. ss.ss. 7401 et seq.), the Federal Water
Pollution Control Act (33 U.S.C. ss. 1251 et seq.), the Safe Drinking Water Act
(42 U.S.C. ss.ss. 300f et seq.), the Toxic Substances Control Act (15 U.S.C.
ss.ss. 2601 et seq.), the Endangered Species Act (16 U.S.C. ss.ss. 1531 et
seq.), the Emergency Planning and Community Right-to-Know Act of 1986 (42 U.S.C.
ss.ss. 11001 et seq.), and (y) analogous state and local provisions.
EVENT OF DEFAULT: As defined in Section 16.1.
EXISTING ENVIRONMENTAL REPORTS: As defined in Section 8.1.1.
EXTENDED TERMS: As defined in the Basic Lease Provisions.
FACILITY: As defined in the Basic Lease Provisions.
FACILITY MORTGAGE: As defined in Section 13.1.
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FACILITY MORTGAGE FORECLOSURE: Ad defined in Section 26.5.
FACILITY MORTGAGEE: Means the holder or beneficiary of a Facility
Mortgage, if any, and only to the extent Landlord gives Tenant notice of the
identity and address of such holder or beneficiary.
FIRST OFFER RIGHT: As defined in Article 31.
FISCAL QUARTER: The three-month periods (or applicable portions
thereof) in any Fiscal Year from January 1 through March 31, April 1 through
June 30, July 1 through September 30 and October 1 through December 31.
FISCAL YEAR: As defined in the Basic Lease Provisions.
FIXTURES: Means all permanently affixed equipment, machinery, fixtures,
and other items of real and/or personal property, including all components
thereof, now and hereafter located in, on or used in connection with and
permanently affixed to or incorporated into the Leased Improvements, including
all furnaces, boilers, heaters, electrical equipment, heating, plumbing,
lighting, ventilating, refrigeration, air and water pollution control, waste
disposal, air-cooling and air-conditioning systems and apparatus, sprinkler
systems and fire and theft protection equipment, all of which, to the greatest
extent permitted by law, are hereby deemed by the parties hereto to constitute
real estate, together with all replacements, modifications, alterations and
additions thereto, but specifically excluding all items included within the
category of Tenant's Personal Property and any Tenant Improvements.
FORECLOSURE LANDLORD: As defined in Section 26.6.
FULL REPLACEMENT COST: Means the actual replacement cost thereof from
time to time including increased cost of construction endorsement, less
exclusions provided in the normal fire insurance policy.
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GOLF COURSE REVENUE: Means all revenues received (whether by Tenant or
any subtenants, concessionaires, licensees, assignees or other party) from or by
reason of the operation of the Facility, or any other use of the Leased
Property, including revenues from the initial sale of memberships (to the extent
that membership was sold after the Commencement Date), initiation fees (to the
extent that membership was sold after the Commencement Date) membership or other
dues, greens fees, fees to reserve a tee time, golf-related guest fees or golf
cart rentals, and surcharges, fees or other charges paid to Tenant relating to
golf tournaments or other group outings or group activities at the Leased
Property (unless the terms under which Tenant is paid by such sponsor do not
comply with Section 24.5, in which event the gross revenues received by such
sponsor for the tournament shall be included in Golf Course Revenue); provided,
however, that Golf Course Revenue shall not include:
(a) Other Revenue;
(b) Cash refunds or credits allowed on returns by
customers;
(c) The amount of any city, county, state or federal
sales or excise tax on sales, which is both added to the selling price
and paid to the taxing authority by Tenant.
(d) The actual uncollectible amount of any check or bank
draft received by Tenant as payment for goods or services and returned
to Tenant from a customer's bank as being uncollectible, but only after
Tenant has made reasonable efforts to collect on the check;
(e) The actual uncollectible amount of any charge or
credit account incurred by Tenant for the sale of merchandise or
services; provided, however, that the credit was extended to the
customer by Tenant, and that reasonable efforts to collect said account
have been made;
(f) The actual uncollectible amount of any sale of
merchandise or services for which Tenant accepted a credit card;
provided, however, that Tenant has made reasonable efforts to collect
the debt after being notified by the issuing bank of the invalidity or
uncollectability of the charge;
(g) Interest or other charges paid by customers for
extension of credit;
(h) Revenue or proceeds from sales or trade-in of
machinery, vehicles, trade fixtures or personal property used in
connection with Tenant's operation of the Leased Property;
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(i) The value of any merchandise, supplies or equipment
exchanged or transferred from or to other locations or businesses of
Tenant where such exchange or transfer is not made for the purpose of
avoiding a sale which would otherwise be made from or at the Leased
Property;
(j) Revenue, if any, from receipts in the form of
refunds from or the value of merchandise, supplies or equipment
returned to shippers, suppliers or manufacturers;
(k) Revenue, if any, from the amount of any cash or
quantity discounts received from sellers, suppliers or manufacturers;
(l) The amount of any gratuities paid or given by
customers to or for employees of Tenant;
(m) Receipts from the sales of uniforms or clothing
required to be worn by employees;
(n) Revenues from charging employees for meals served or
provided to employees of Tenant;
(o) Receipts from the sale of waste or scrap materials
resulting from Tenant's operations; and
(p) Revenue received from any subtenant, concessionaire
or licensee, inasmuch as the gross revenue received by such subtenant,
concessionaire or licensee is otherwise included in the definition of
Golf Course Revenue or Other Revenue.
HAZARDOUS MATERIAL: Means any chemical substance:
(i) the presence of which requires investigation or
remediation under any federal, state or local statute, regulation,
ordinance, order, action or policy, administrative request or civil
complaint under any of the foregoing or under common law;
(ii) which is defined as a "hazardous waste" or "hazardous
substance" under any federal, state or local statute, regulation or
ordinance or amendments thereto as in effect as of the Commencement
Date, or as thereafter amended, including the Comprehensive
Environmental Response, Compensation and Liability Act (42 U.S.C.
ss.ss. 6901 et seq.);
(iii) which is toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic, mutagenic or otherwise hazardous
and as of the Commencement Date, or
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as thereafter amended, is regulated by any governmental authority,
agency, department, commission, board, agency or instrumentality of
the United States, or any state or any political subdivision thereof
having or asserting jurisdiction over the Leased Property;
(iv) the presence of which on any of the Leased Property
causes a nuisance upon such Leased Property or to adjacent properties
or poses a hazard to the health or safety of persons on or about any of
the Leased Property;
(v) which, except as contained in building materials,
contains gasoline, diesel fuel or other petroleum hydrocarbons,
polychlorinated biphenyls (PCBs) or friable asbestos or friable
asbestos-containing materials or urea formaldehyde foam insulation; or
(vi) radon gas.
IMPARTIAL APPRAISER: As defined in Section 13.2.
IMPOSITIONS: Means collectively:
(a) all taxes (including all real and personal property,
ad valorem, sales and use, single business, gross receipts, transaction
privilege, rent or similar taxes);
(b) assessments and levies (including all assessments for
public improvements or benefits, whether or not commenced or completed
prior to the date hereof and whether or not to be completed within the
Term);
(c) excises;
(d) fees (including license, permit, inspection,
authorization and similar fees); and
(e) all other governmental charges;
in each case whether general or special, ordinary or extraordinary, or foreseen
or unforeseen, of every character in respect of the Leased Property and/or the
Rent (including all interest and penalties thereon due to any failure in payment
by Tenant), which at any time during or in respect of the term hereof may be
assessed or imposed on or in respect of or be a lien upon (i) Landlord or
Landlord's interest in the Leased Property; (ii) the Leased Property or any part
thereof or any rent therefrom or any estate, right, title or interest therein;
or (iii) any operation, use or possession of, or sales from or activity
conducted on or in connection with the Leased Property or the leasing or use of
the Leased Property or any part thereof; provided, however, that Impositions
shall not include:
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(aa) any tax based on net income (whether denominated as
an income, franchise, capital stock or other tax) imposed on Landlord
or any other Person other than Tenant;
(bb) any transfer, or net revenue tax of Landlord or any
other Person other than Tenant;
(cc) any tax imposed with respect to the sale, exchange
or other disposition by Landlord of any Leased Property or the proceeds
thereof; or
(dd) any tax imposed with respect to any principal or
interest on any indebtedness on the Leased Property.
IMPOUND CHARGES: As defined in Article 22.
IMPOUND PAYMENT: As defined in Article 22.
INITIAL BASE RENT: As defined in the Basic Lease Provisions.
INITIAL TERM: As defined in the Basic Lease Provisions.
INSURANCE REQUIREMENTS: All terms of any insurance policy required by
this Lease and all requirements of the issuer of any such policy.
LAND: As defined in Article 1.
LANDLORD: As defined in the preamble.
LANDLORD'S ENCUMBRANCE: As defined in Section 26.1.
LANDLORD'S NOTICE: As defined in Article 31.
LANDLORD'S PERSONAL PROPERTY: As defined in Article 1.
LANDLORD'S NOTICE. As defined in Section 28.1.
LEASE: As defined in the preamble.
LEASED IMPROVEMENTS: As defined in Article 1.
LEASED PROPERTY: As defined in Article 1.
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LEGAL REQUIREMENTS: All federal, state, county, municipal and other
governmental statutes, laws (including the Americans with Disabilities Act and
any Environmental Laws), rules, orders, regulations, ordinances, judgments,
decrees and injunctions affecting either the Leased Property or the
construction, use or alteration thereof, whether now or hereafter enacted and in
force, including any which may (i) require repairs, modifications or alterations
in or to the Leased Property; (ii) in any way adversely affect the use and
enjoyment thereof, and all permits, licenses and authorizations and regulations
relating thereto, and all covenants, agreements, restrictions and encumbrances
contained in any instruments, either of record or known to Tenant (other than
encumbrances created by Landlord without the consent of Tenant and which are not
otherwise permitted under the Lease), at any time in force affecting the Leased
Property; or (iii) require the cleanup or other treatment of any Hazardous
Material.
LETTER OF CREDIT: Means a letter of credit satisfying the
requirements of Section 21.3.
OFFICER'S CERTIFICATE: A certificate of Tenant signed by a duly
authorized representative of Tenant.
OTHER LEASED PROPERTY: Means the properties leased or subleased to
Tenant or an Affiliate of Tenant by Landlord or an Affiliate of Landlord, and
listed on Exhibit C attached hereto.
OTHER PROPERTY LEASES: Means the other leases or subleases entered into
between Landlord or an Affiliate of Landlord and Tenant or an Affiliate of
Tenant relating to Tenant's use of the Other Leased Property.
OTHER REVENUE: Means all revenue received (whether by Tenant or any
subtenants, concessionaires, licensees or other party) from or by reason of the
Leased Property relating to (i) the operation of snack bars, restaurants, bars
and banquet operations, (ii) merchandise sold on the Leased Property, (iii)
parking, (iv) fitness centers, (v) tennis facilities, (vi) day care, (vii)
nongolf-related guest fees (provided that if any fees or charges assessed by
Tenant relate to packages including golf and nongolf-related activities, the
entire package price shall be included as "Golf Course Revenue"), (viii) locker
rentals, (ix) bag storage, (x) video games, (xi) vending machines and (xii) fees
or other charges paid to Tenant by providers of golf lessons (unless the terms
under which Tenant is paid by such provider do not comply with Section 24.5, in
which event the gross revenue received by such provider shall be included in
Other Revenue); provided, however, that the items described in clauses (b)
through (p) of the definition of Golf Course Revenue shall be excluded from the
definition of Other Revenue.
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OVERDUE RATE: On any date, a rate equal to 3% above the Prime Rate, but
in no event greater than the maximum rate then permitted under applicable law.
PALMER MANAGEMENT: As defined in Article 30.
PERSON: Means and includes natural persons, corporations, limited
partnerships, general partnerships, limited liability companies, joint stock
companies, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts, Indian tribes or other organizations,
whether or not legal entities, and governments and agencies and political
subdivisions thereof.
PRIMARY INTENDED USE: Means the operation of a golf course (including
clubhouse facilities), consisting of the Facility, and other activities
customarily associated with or incidental to the operation of a golf course,
including sale or rental of golf-related merchandise at a golf professional's
shop, sale of memberships, furnishing of lessons by a golf professional,
operation of a driving range, and sales of food and beverages, including liquor
sales.
PRIME RATE: On any date, a rate equal to the annual rate on such date
announced by Wells Fargo Bank, National Association to be its prime rate or base
rate for 90-day unsecured loans to its corporate borrowers of the highest credit
standing (or, if Wells Fargo Bank, National Association no longer announces such
prime rate or base rate, then the prime or base rate announced by such other
financial institution as selected by Landlord) but in no event greater than the
maximum rate then permitted under applicable law.
QUARTERLY BASE RENT : Means, with respect to any Fiscal Quarter,
one-fourth of the Annual Base Rent for the Fiscal Year in which such Fiscal
Quarter falls.
REGISTERED OFFERING: As defined in Section 24.2.
RELATED RIGHTS: As defined in Article 1.
RENT: Collectively, the Base Rent, Additional Rent and Additional
Charges.
RENT COVERAGE RATIO: Means, for any period, the ratio of (a) EBITDA for
the Leased Property for such period, to (b) the Initial Base Rent obligations
payable hereunder for such period.
REQUIRED SECURITY DEPOSIT AMOUNT: Means, (A) the amount of $453,000.00,
for the period commencing on the Commencement Date and continuing through the
end of the fourth (4th) full Fiscal Quarter occurring during the Term, and (B)
thereafter, the following applicable amounts, determined as of the last day of
each subsequent Fiscal Quarter during the Term: (a)
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<PAGE> 82
the amount of $453,000.00, in the event that the Rent Coverage Ratio for the
twelve (12) month period ending as of such date of determination is less than
1.2:1; (b) the amount of $302,000.00, in the event that the Rent Coverage Ratio
for the twelve (12) month period ending as of such date of determination is
equal to or greater than 1.2:1, but less than 1.3:1; (c) the amount of
$151,000.00, in the event that the Rent Coverage Ratio for the twelve (12) month
period ending as of such date of determination is equal to or greater than
1.3:1, but less than 1.4:1; and (d) zero amount, in the event that the Rent
Coverage Ratio for the twelve (12) month period ending as of such date of
determination is equal to or greater than 1.4:1.
STATE: The State or Commonwealth in which the Leased Property is
located.
TENANT'S ELECTION PERIOD: As defined in Section 28.1.
SUCCESSOR LANDLORD: As defined in Section 26.6.
SUCCESSOR OWNER: As defined in Section 26.5.
TENANT: As defined in the preamble.
TENANT IMPROVEMENT: As defined in Section 10.1.
TENANT'S ELECTION PERIOD: As defined in Section 28.1.
TENANT'S PERSONAL PROPERTY: All machinery, equipment, furniture,
furnishings, movable walls or partitions, phone system, computers or trade
fixtures or other personal property, and consumable inventory and supplies,
owned by Tenant or Palmer Management and used or useful in Tenant's business on
the Leased Property, including all items of furniture, furnishings, equipment,
supplies and inventory, kitchen fixtures, bar equipment, flatware, lawn mowers
and other gardening tools, tractors and other motorized vehicles and golf carts.
TERM: Collectively, the Initial Term and any Extended Terms, as the
context may require, unless earlier terminated pursuant to the provisions
hereof.
UNAVOIDABLE DELAYS: Delays due to strikes, lockouts, inability to
procure materials, power failure, acts of God, governmental restrictions, enemy
action, civil commotion, fire, unavoidable casualty or other causes beyond the
control of the party responsible for performing an obligation hereunder,
provided that lack of funds shall not be deemed a cause beyond the control of
either party hereto unless such lack of funds is caused by the failure of the
other party hereto to perform any obligations of such party, under this Lease.
A-11
<PAGE> 83
UNSUITABLE FOR ITS PRIMARY INTENDED USE. A state or condition of the
Facility such that in the good faith judgment of Tenant, reasonably exercised,
the Facility cannot be operated on a commercially practicable basis for its
Primary Intended Use.
INTERPRETATION. The foregoing defined terms include the plural as well
as the singular. "Including" and variants thereof shall be deemed to mean
"including without limitation." All accounting terms not otherwise defined
herein have the meanings assigned to them in accordance with generally accepted
accounting principles as at the time applicable. All references in this Lease to
designated "Articles," "Sections" and other subdivisions are to the designated
Articles, Sections and other subdivisions of this Lease. The words "herein,"
"hereof" and "hereunder" and other words of similar import refer to this Lease
as a whole and not to any particular Article, Section or other subdivision.
A-12
<PAGE> 84
EXHIBIT B
LEGAL DESCRIPTION OF THE LAND
B-1
<PAGE> 85
EXHIBIT C
OTHER LEASED PROPERTY
The following golf course properties: Fox Valley Club, Lancaster, New York;
Oronoque Country Club, Stratford, Connecticut; Memphis National Golf Club,
Collierville, Tennessee; Crofton Country Club, Crofton, Maryland; Brierwood
Country Club, Hamburg, New York; Tan Tarra Golf Club, North Tonawanda, New York;
Emerald Valley Golf Club, Creswell, Oregon; Penderbrook Golf Club, Fairfax,
Virginia; and Minebrook Golf Club, Hackettstown, New Jersey.
C-1
<PAGE> 86
EXHIBIT D
OPERATING STANDARDS
1. Greens, Practice Putting Greens & Nurseries.
A. Mowing - At least five days per week at a height
between 3/16" - 5/16"during the growing season; as needed during the
off season.
B. Change cup locations on all greens and practice
putting greens daily during the active season and at least three times
weekly in the off-season. Cup location on all greens will be moved at
least twenty feet from the previous placement.
C. Repair ball marks, divots, or any other damaged turf
areas on all greens and practice greens daily.
D. Aerify all greens, practice putting greens and
nurseries at least three times per year during the growing season.
Aerify problem areas as often as necessary to produce superior turf
quality.
E. Topdress all greens, practice putting greens and
nurseries;
(1) After any aerification performed with 1/2"
or larger tines;
(2) As needed to maintain a smooth putting
surface.
(3) Topdressing will be sand or a mix similar to that
used to construct the greens.
F. Light vertical mowing of all greens, practice putting
greens and nurseries shall be performed as appropriate to smooth and
true the putting surfaces. Heavy dethatching shall be performed only
prior to any winter overseeding.
Note: Where bermudagrass greens are maintained, they
shall be overseeded annually, approximately 2 to 3 weeks
before the first annual frost, using perennial rye or a blend
of perennial rye, Poa trivialis and/or fine fescues - at a
rate between 20 and 30 lbs. per 1,000 square feet.
D-1
<PAGE> 87
The putting surface shall be prepared for overseeding
by aerifying not later than 30 days prior to overseeding and
verticutting weekly starting three to four weeks prior.
Overseeding shall be topdressed 1/8" with material
similar to green construction materials or an approved
sand/organic mixture. A complete fertilizer shall be applied
immediately prior to seeding. Greens shall be irrigated
sufficient to remain moist but not soaked until all seed has
germinated.
During germination period, cup shall be changed
frequently. First mowing shall be at 5/16" reducing to normal
cutting heights gradually.
A preventive program of fungicide applications shall
be maintained starting two days after overseeding.
G. Spiking of all greens and practice greens shall be
performed as needed between aerifications to maintain water
infiltration.
H. Fertilization - All greens, practice greens, and
nurseries shall be fertilized with nitrogen, phosphorous, potash, and
other elements as needed to maintain color, growth, health and
turgidity of the turf, without allowing excessive or succulent growth.
The goal of the greens fertilization program is to
provide the best possible putting surface, not to produce the
maximum amount of growth.
I. Fungicides - All greens, practice greens and
nurseries shall receive appropriate fungicide applications to prevent
and/or control fungal disease activity.
J. Weed Control - All greens, practice greens and
nurseries shall be maintained free of undesirable grasses and weeds.
Pre-emergent herbicides shall be used as necessary to prevent intrusion
into the greens of weeds difficult to eradicate such as goosegrass,
crabgrass, etc.
K. Insecticides - All greens, practice greens and
nurseries shall be treated as necessary to prevent or halt insect
damage.
2. TEES - ALL AREAS USED FOR TEE SURFACE.
A. Mowing - All tees shall be mowed at a height between
3/8" - 5/8" three times per week during growing season and as necessary
during off-season.
D-2
<PAGE> 88
B. Topdressing - All worn areas on tees shall be
topdressed at least weekly to fill divots and level tee surface.
Topdressing material shall contain seed of annual or perennial
ryegrasses, or other species as appropriate.
C. Overseeding - All tees shall be overseeded at a rate
of not less than 10 lbs./ 1,000 square feet, approximately two to three
weeks before the first expected annual frost. Seed used shall be a
suitable species or blend.
D. Set up - Tee markers and all tee equipment shall be
moved daily for proper play and control of turf wear.
E. Weed Control - Tees shall be kept weed free to an
extent of at least 90% of the area by the proper and timely application
of pre- and/or post-emergent herbicides.
F. Vertical Mowing - All tees shall be verticut as
necessary to control mat or thatch build-up.
G. Aerification - All tees shall be aerified at least
every two months from March through October and as necessary during the
remainder of the year.
H. Fertilization - All tees shall be fertilized with
nitrogen, phosphorous, potash, and other elements as needed to maintain
color, growth, health and turgidity of the turf, without showing
excessive or succulent growth.
3. FAIRWAYS - ALL AREAS OF PLAY EXCEPT GREENS, TEES, ROUGHS AND
NATURAL GROWTH AREAS.
A. Mowing - All fairways shall be mowed at least three
times per week at a height between 1/2" - 7/8" during the growing
season and as needed for the balance of the year.
B. Aerification - All fairways shall be aerified a
minimum of three times per year during the growing season. Aerification
holes shall not exceed a spacing of eight inches on center or be of a
diameter of less than 1/2".
C. Fertilization - All fairways shall be fertilized with
nitrogen, phosphorous, potash, or other elements as needed to maintain
color, growth, health and turgidity of the turf, without allowing
excessive or succulent growth.
D. Vertical mowing - All fairways shall be verticut as
necessary to control mat or thatch build-up.
D-3
<PAGE> 89
E. Weed control - Fairways shall be kept weed free to an
extent of at least 90% of the area by the proper and timely application
of pre- and/or post-emergent herbicides.
4. ROUGHS. All turfed areas of play except greens, tees,
fairways and natural growth areas.
A. Mowing - All roughs shall be mowed weekly during the
growing season and as necessary during the balance of the year, at
heights between 3/4" and 1-1/2". Rough height shall not exceed 2"
without the direct approval of the regional superintendent, and rough
mowing shall not be suspended for any tournament without such approval.
B. Aerification -
(1) Fairway-to-tree-line play areas shall be
aerified at least two times per year.
(2) Within wooded play areas - as necessary to
establish and/or maintain turf.
C. Fertilization - Roughs shall be fertilized as
necessary to maintain turf.
D. Weed Control - Shall be performed as necessary to
prevent seed formation and to allow proper play.
5. NATURAL GROWTH AREAS. All areas in which native or introduced
vegetation is allowed to survive without routine mowing, cultivating, irrigation
or other routine maintenance procedures. May be out of play areas, steep slopes,
barriers, windbreaks, nature trails, etc. Such areas are to be maintained free
of excessive trash, noxious weeds and vertebrate pests, and in such manner as to
comply fully with fire department regulations or other such regulations as may
apply. Such natural growth areas may be improved and may from time to time be
subjected to irrigation, cultivation, pruning, or other such practices as may be
necessary or desirable to establish or maintain them.
6. PLANTERS - ALL AREAS PLANTED WITH ORNAMENTAL PLANTS, NOT
INTENDED FOR GOLF PLAY AND HAVING A DEFINABLE BORDER.
A. Clean-up - All planters shall be maintained free of
trash and debris.
D-4
<PAGE> 90
B. Weed Control - All planters shall be maintained free
of weeds by mechanical and/or chemical means.
C. Trimming - The plant material (trees, shrubbery and
ground covers) in planters shall be trimmed for protection from wind,
insect damage, and for appearance.
7. TREES - ALL TREES WITHIN THE PROPERTY LINES OF THE GOLF
COURSE.
A. Stakes - Trees shall be staked as necessary until of
sufficient size to stand unassisted. Stakes shall be removed as soon as
possible.
B. Pruning - All trees shall be properly pruned for
protection from wind and pests as well as for appearance and safety.
C. Irrigation - All trees shall be irrigated to provide
adequate moisture for normal growth.
D. Mowing - Large area mowers shall not be used within
one foot of the trunk of any tree.
E. Removal and Replacement - When appropriate, all dead
trees, for whatever cause, shall be removed. Any necessary replacement
shall be with a tree of appropriate type and size.
8. IRRIGATION - ALL EQUIPMENT REQUIRED TO IRRIGATE ALL AREAS OF
THE PROPERTY.
A. Repair or replace all heads, valves, controllers,
wiring, and pipe as needed to maintain the proper operation of the
entire golf course irrigation system (including greens, tees, fairways,
planters, flower beds, etc.) on an on-going basis
B. The golf course shall be irrigated as necessary to
support the proper growth of golf turf and associated landscaping.
9. FENCES - ALL FENCES AND WALLS, BLOCK, CHAIN LINK, OR BARBED
WIRE, ETC. ON OR WITHIN BOUNDARIES OF THE PROPERTY.
A. Repair all broken or damaged fencing as necessary.
B. Repair or replace as necessary all fences, gates and
locking devices needed for the protection of the golf course or
equipment.
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10. CLUBHOUSE AND STRUCTURES - ALL STRUCTURES WITHIN THE
BOUNDARIES OF THE GOLF COURSE.
A. Course Restrooms - All course restrooms shall be
maintained daily to provide clean and sanitary facilities for the users
and employees of the course. Soap, towels, toilet paper, etc. shall be
provided in adequate quantity at all times. Portable facilities shall
be maintained similarly.
B. All buildings and structures shall be maintained in
good repair at all times. Surrounding areas shall be maintained free of
weeds, brush, disorganized junk or broken- down equipment, trash piles,
etc. Interior areas shall be clean and neatly organized, safe and
sanitary for customers and employees. Painting, rodent and insect
control, and landscaping shall be performed as necessary.
"Housekeeping" duties shall be assigned to all maintenance crew members
and shall be performed daily.
C. Cart Paths - Maintain all cart paths in a safe and
clean condition and repair promptly as needed.
D. The golf course superintendent is responsible for all
facilities and structures maintenance not within the clubhouse area
proper.
11. EDGING. All sidewalks, patios and concrete cart paths must be
kept edged. Edging around valve boxes, meter boxes, backflow preventers, etc.
shall be done as needed to insure that there is no obstruction of play or
maintenance from growth around these items.
12. SAND TRAPS. All sand traps shall be edged as necessary to
maintain an appropriate lip, raked daily and filled with fresh sand as needed to
maintain a minimum 1 1/2" depth on slopes and 4" in the bottom. Replacement sand
will be of a dust-free type, suitable for trap use.
13. LANDSCAPED AREAS. The various planting areas throughout the
course shall be cultivated, weeded, and pruned on a regular basis, with at least
two replanting programs for annuals scheduled each year, depending on the length
of the season.
14. TRASH AND REFUSE. Shall be collected daily and removed from
the property in a safe, sanitary and lawful manner as necessary to minimize or
eliminate problems from refuse odors, insects, etc. Approved trash receptacles
shall be conveniently stationed on tees and other appropriate areas and emptied
daily.
15. VERTEBRATE PEST CONTROL. Shall be routinely performed
throughout the property on an on-going basis, in such a manner that vertebrate
pest populations are steadily reduced and eventually eliminated.
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16. AQUATIC. All lakes, ponds and streams shall be maintained in a
safe and sanitary manner and in good appearance.
17. SOIL AND WATER. Analysis will be performed yearly by an
approved professional laboratory.
D-7
<PAGE> 93
EXHIBIT E
STANDARD REPORTING FORMAT
[Attached]
E-1
<PAGE> 94
EXHIBIT F
BASE RENT SCHEDULE
MONTH PROPORTION
January 1%
February 1%
March 9%
April 15%
May 16%
June 13%
July 12%
August 10%
September 9%
October 7%
November 3%
December 4%
F-1
<PAGE> 95
EXHIBIT G
BASELINE REVENUE SCHEDULE
Baseline Golf Baseline
PERIOD Course Revenue Other Revenue
January 1 through
March 31
April 1 through
June 30
July 1 through
September 30
October 1 through
December 31
G-1
<PAGE> 1
EXHIBIT 10.16
S U B L E A S E
PRESIDIO GOLF LIMITED PARTNERSHIP
SUBLANDLORD
AND
_________________________________________________
SUBTENANT
DATED AS OF __________________________, 199__
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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<S> <C> <C>
1 SUBLEASED PROPERTY .................................................... 5
2 TERM .................................................................. 5
2.1 Initial Term ................................................... 5
2.2 Extended Terms ................................................. 5
3 RENT .................................................................. 6
3.1 Rent ........................................................... 6
3.2 Base Rent ...................................................... 6
3.3 Additional Rent ................................................ 6
3.3.1 Quarterly Calculation and Payment of Additional Rent .... 6
3.3.2 Annual Reconciliation ................................... 7
3.3.3 Record-keeping .......................................... 7
3.3.4 Audits .................................................. 8
3.4 Additional Charges ............................................. 8
3.5 Late Payment of Rent ........................................... 9
3.6 Net Sublease ................................................... 9
4 IMPOSITIONS ........................................................... 10
4.1 Payment of Impositions ......................................... 10
4.2 Information and Reporting ...................................... 10
4.3 Assessment Challenges .......................................... 10
4.4 Prorations ..................................................... 10
4.5 Refunds ........................................................ 11
4.6 Utility Charges ................................................ 11
4.7 Assessment Districts ........................................... 11
5 SUBTENANT WAIVERS ..................................................... 11
5.1 No Termination, Abatement, Etc ................................. 11
5.2 Condition of the Subleased Property ............................ 12
6 OWNERSHIP OF PROPERTY ................................................. 13
6.1 Subleased Property ............................................. 13
6.2 Sublandlord's Personal Property ................................ 13
6.3 Subtenant's Personal Property .................................. 13
6.4 Purchase of Subtenant's Personal Property ...................... 14
6.5 Removal of Personal Property ................................... 14
6.6 Sublandlord's Waivers .......................................... 15
</TABLE>
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<TABLE>
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6.7 Collateral Agreements ........................................ 15
7 USE OF SUBLEASED PROPERTY ........................................... 16
7.1 Use .......................................................... 16
7.2 Specific Prohibited Uses ..................................... 16
7.3 Sublandlord to Grant Easements, Etc........................... 17
8 HAZARDOUS MATERIALS ................................................. 17
8.1 Subtenant Representations .................................... 17
8.1.1 Reports ............................................... 17
8.2 Remediation .................................................. 18
8.3 Subtenant's Indemnification of Sublandlord and Others ........ 18
8.4 Survival of Indemnification Obligations ...................... 19
9 MAINTENANCE AND REPAIR .............................................. 19
9.1 Subtenant's Sole Obligation - General ........................ 19
9.2 Clubhouse Facility Maintenance ............................... 19
9.3 Golf Course Maintenance ...................................... 20
9.4 Waiver of Statutory Obligations .............................. 20
9.5 Mechanic's Liens ............................................. 20
9.6 Surrender of Subleased Property .............................. 21
9.7 Transfer of Operating Permits ................................ 21
10 SUBTENANT'S IMPROVEMENTS ............................................ 21
10.1 Subtenant's Right to Construct ............................... 21
10.2 Scope of Right ............................................... 21
10.3 Cooperation of Sublandlord ................................... 22
10.4 Commencement of Construction ................................. 22
10.5 Rights in Subtenant Improvements ............................. 23
11 LIENS, ENCROACHMENTS AND OTHER TITLE MATTERS ........................ 24
11.1 Liens ........................................................ 24
11.2 Encroachments and Other Title Matters ........................ 25
12 PERMITTED CONTESTS .................................................. 26
13 INSURANCE ........................................................... 27
13.1 General Insurance Requirements ............................... 27
13.1.1 All Risk ............................................. 27
13.1.2 Liability ............................................ 27
13.1.3 Flood ................................................ 28
</TABLE>
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13.1.4 Worker's Compensation ................................. 28
13.1.5 Rent Loss ............................................. 28
13.1.6 Other Insurance ....................................... 28
13.2 Replacement Cost .............................................. 28
13.3 Waiver of Subrogation ......................................... 28
13.4 Form Satisfactory, Etc ........................................ 28
13.5 Change in Limits .............................................. 29
13.6 Blanket Policy ................................................ 29
14 APPLICATION OF INSURANCE PROCEEDS ..................................... 30
14.1 Insurance Proceeds ............................................ 30
14.1.1 Disbursement of Proceeds .............................. 30
14.1.2 Excess Proceeds ....................................... 31
14.2 Reconstruction Covered by Insurance ........................... 31
14.2.1 Destruction Rendering Facility Unsuitable for its
Primary Use ........................................... 31
14.2.2 Destruction Not Rendering Facility Unsuitable for
its Primary Use ....................................... 31
14.2.3 Costs of Repair ....................................... 32
14.3 Reconstruction Not Covered by Insurance ....................... 32
14.4 No Abatement of Rent .......................................... 32
14.5 Waiver ........................................................ 32
14.6 Damage Near End of Term ....................................... 32
15 CONDEMNATION .......................................................... 33
15.1 Total Taking .................................................. 33
15.2 Partial Taking ................................................ 33
15.3 Restoration ................................................... 33
15.4 Award Distribution ............................................ 33
15.5 Temporary Taking .............................................. 33
16 EVENTS OF DEFAULT ..................................................... 34
16.1 Events of Default ............................................. 34
16.2 Payment of Costs .............................................. 36
16.3 Exceptions .................................................... 37
16.4 Certain Remedies .............................................. 37
16.5 Damages ....................................................... 37
16.6 Additional Remedies ........................................... 38
16.7 Appointment of Receiver ....................................... 38
16.8 Waiver ........................................................ 38
16.9 Application of Funds .......................................... 38
17 SUBLANDLORD'S RIGHT TO CURE SUBTENANT'S DEFAULT ....................... 38
</TABLE>
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18 OPERATIONS/CAPITAL EXPENDITURES........................................ 39
18.1 Annual Plan..................................................... 39
18.2 Funding of Capital Expenditure Reserve Account.................. 40
19 LEGAL REQUIREMENTS..................................................... 41
20 HOLDING OVER........................................................... 41
21 UPREIT UNITS/REIT SHARES/LETTER OF CREDIT/SECURITY DEPOSIT............. 41
21.1 Security Deposit................................................ 41
21.2 Officer's Certificate/Audit..................................... 42
21.3 Terms of Letter of Credit....................................... 42
21.4 Draws Against Letter of Credit/Alternative Security;
Application of Proceeds......................................... 43
21.5 Renewal of Letter of Credit..................................... 43
21.6 Other Security.................................................. 43
22 IMPOUNDS............................................................... 44
23 INDEMNIFICATION; RISK OF LOSS.......................................... 44
23.1 Subtenant's Indemnification..................................... 44
23.2 Sublandlord's Indemnification of Subtenant...................... 45
23.3 Mechanics of Indemnification.................................... 45
23.4 Survival of Indemnification Obligations......................... 46
23.5 Risk of Loss.................................................... 46
24 SUBSUBLETTING AND ASSIGNMENT........................................... 46
24.1 Prohibition Against Subsubletting and Assignment................ 46
24.2 Changes in Control.............................................. 47
24.2.1 Financial Covenants..................................... 47
24.2.2 Operating Standards..................................... 47
24.2.3 Commitment to the Golf Industry......................... 48
24.3 Subsubleases.................................................... 48
24.3.1 Permitted Subsubleases.................................. 48
24.3.2 Terms of Subsublease.................................... 48
24.3.3 Copies.................................................. 48
24.3.4 Assignment of Rights in Subsubleases.................... 49
24.3.5 Licenses, Etc........................................... 49
24.4 Assignment...................................................... 49
24.5 REIT Limitations................................................ 49
</TABLE>
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25 OFFICER'S CERTIFICATES AND OTHER STATEMENTS......................... 50
25.1 Officer's Certificates....................................... 50
25.2 Financial Reporting.......................................... 51
25.2.1 Monthly Financial Information........................ 51
25.2.2 Quarter Financial Information........................ 51
25.2.3 Annual Financial Statements.......................... 52
25.2.4 Other Information.................................... 52
25.2.5 Standard Reporting Format............................ 53
25.3 Environmental Statements..................................... 53
26 SUBLANDLORD MORTGAGES............................................... 53
26.1 Sublandlord May Grant Liens.................................. 53
26.2 Subtenant's Non-Disturbance Rights........................... 53
26.3 Breach by Sublandlord........................................ 54
26.4 Facility Mortgage Protection................................. 54
26.5 Attornment................................................... 54
26.6 Facility Mortgagee or Successor Owner as Sublandlord......... 55
26.7 Prepayments and Modifications of the Sublease................ 55
27 MISCELLANEOUS....................................................... 56
27.1 Sublandlord's Right to Inspect............................... 56
27.2 No Waiver.................................................... 56
27.3 Remedies Cumulative.......................................... 56
27.4 Acceptance of Surrender...................................... 56
27.5 No Merger of Title........................................... 56
27.6 Conveyance by Sublandlord.................................... 56
27.7 Quiet Enjoyment.............................................. 57
27.8 Notices...................................................... 57
27.9 Survival of Claims........................................... 57
27.10 Invalidity of Terms or Provisions............................ 57
27.11 Prohibition Against Usury.................................... 57
27.12 Amendments to Sublease....................................... 57
27.13 Successors and Assigns....................................... 57
27.14 Titles....................................................... 57
27.15 Governing Law................................................ 58
27.16 Memorandum of Sublease....................................... 58
27.17 Attorneys' Fees.............................................. 58
27.18 Non-Recourse as to Sublandlord............................... 58
27.19 No Relationship.............................................. 58
27.20 Signs; Reletting............................................. 58
27.21 Golf Course Name............................................. 58
</TABLE>
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28 SUBTENANT MORTGAGES ................................................. 59
29 MASTER LEASE ........................................................ 59
29.1 Subtenant's Obligation to Comply with Master Lease ........... 59
29.2 Subordination and Estoppel ................................... 59
29.3 Lessor's Rights under Master Lease ........................... 59
30 TENANT'S STRUCTURE .................................................. 60
31 RIGHT OF FIRST OFFER ................................................ 60
31.1 Exercise of First Offer Right ................................ 60
31.2 Further Documentation ........................................ 61
31.3 Purchase Price ............................................... 61
31.4 Mechanics of Purchase ........................................ 61
31.5 REIT Qualification Limitation ................................ 62
31.6 Effectiveness of First Offer Right ........................... 62
</TABLE>
EXHIBITS:
EXHIBIT A - Defined Terms: Interpretation
EXHIBIT B - Legal Description of the Land
EXHIBIT C - Other Leased Property
EXHIBIT D - Operating Standards
EXHIBIT E - Standard Reporting Format
EXHIBIT F - Base Rent Schedule
EXHIBIT G - Baseline Revenue Schedule
EXHIBIT H - Master Lease
EXHIBIT I - Construction Budget - Preapproved Subtenant Improvements
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<PAGE> 8
SUBLEASE
THIS SUBLEASE ("Sublease"), dated ______________________, 199__ , is
entered into by and between PRESIDIO GOLF LIMITED PARTNERSHIP, a Delaware
limited partnership ("Sublandlord"), and ___________________________________, a
Delaware limited liability company ("Subtenant"). This Sublease consists of
the recitals below, the Basic Sublease Provisions, the Detailed Sublease
Provisions, the Joinder and Exhibits A through I, all of which are incorporated
herein by this reference. Capitalized terms used herein have the meanings
assigned to such terms in Exhibit A.
W I T N E S S E T H:
WHEREAS, Sublandlord, as tenant, and Billings-Gassaway, L.P., a Tennessee
limited partnership, as landlord (Billings-Gassaway, L.P. and its successors
and assigns from time to time being defined as the "Lessor"), have heretofore
entered into that certain Agreement of Lease and Option to Purchase dated May
23, 1997 (as amended from time to time, the "Master Lease"), providing for the
leasing of (i) that certain 36-hole golf course commonly known as Memphis
National Golf Club located in Collierville, Tennessee and comprising the Land
(as hereinafter defined), and (ii) certain improvements and other personal
property located thereon, all as more particularly described in the Master
Lease for a lease term ending June 30, 2042 (a copy of the Master Lease is
attached hereto as Exhibit H);
WHEREAS, Sublandlord desires to sublease the Land together with the
balance of the Subleased Property (as hereinafter defined) to Subtenant, and
Subtenant desires to sublease same from Sublandlord, upon the terms and subject
to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the covenants and agreements
hereinafter set forth and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereby covenant
and agree as follows:
BASIC SUBLEASE PROVISIONS
1. ADDITIONAL RENT: Means the amount, if any, by which (a) the sum of:
(i) the Applicable Percentage of the amount by which Golf Course
Revenue for any Fiscal Year exceeds the Baseline Golf Course Revenue; and
(ii) the Applicable Percentage of the amount by which Other Revenue
for any Fiscal Year exceeds the Baseline Other Revenue
exceeds (b) the Base Rent Escalation for such Fiscal Year. (See Section
3.3 of the Detailed Sublease Provisions.)
<PAGE> 9
2. ADDRESS FOR PAYMENTS:
Sublandlord:
Presidio Golf Limited Partnership
c/o Arnold Palmer Golf Management
Building 106, Montgomery Street
Presidio Main Post, P.O. Box 29355
San Francisco, California 94129
(See Section 3.1 of the Detailed Sublease Provisions.)
3. ADDRESSES FOR NOTICES:
Subtenant:
c/o Arnold Palmer Golf Management LLC
Building 106, Montgomery Street
Presidio Main Post, P.O. Box 29355
San Francisco, California 94129
Attn:
---------------------------------
Fax: (415) 561-4680
Sublandlord:
Presidio Golf Limited Partnership
c/o Arnold Palmer Golf Management
Building 106, Montgomery Street
Presidio Main Post, P.O. Box 29355
San Francisco, California 94129
Attn: Mr. George Haworth
FAX: (415)561-4680
(See Section 27.8 of the Detailed Sublease Provisions.)
4. ANNUAL BASE RENT: Means, with respect to the Fiscal Year commencing on
the Commencement Date and ending on December 31st of such calendar year (the
"First Fiscal Year"), the Initial Base Rent. On January 1 of the Fiscal Year
following the First Fiscal Year, and on January 1 of each successive Fiscal
Year during the Term, the Annual Base Rent shall be equal to the lower of (a)
the Annual Base Rent applicable to the immediately preceding Fiscal Year
multiplied by 103% or (b) the sum of (i) the Annual Base Rent applicable to the
immediately preceding Fiscal Year plus (ii) the product of the Annual Base Rent
applicable to
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<PAGE> 10
the immediately preceding Fiscal Year multiplied by 200% of the annual
percentage increase in the Consumer Price Index from January 1 of the
immediately preceding Fiscal Year.
5. APPLICABLE PERCENTAGE: Means 30% with respect to Golf Course Revenue
and 5% with respect to Other Revenue.
6. BASE RENT ESCALATION: Means, for any Fiscal Year, the amount by which
the Annual Base Rent for such Fiscal Year exceeds the Initial Base Rent.
7. BASELINE GOLF COURSE REVENUE: Means, for any Fiscal Year during the
Term, $3,161,861.00.
8. BASELINE OTHER REVENUE: Means, for any Fiscal Year during the Term,
$1,405,786.00.
9. COMMENCEMENT DATE: Means ____________________, 199__.
10. EXTENDED TERMS: Five (5) five-year terms (each, an "Extended Term"
and collectively, the "Extended Terms").
11. FACILITY: Means the Subleased Property consisting of a 36-hole golf
course, clubhouse and related facilities located on the Land.
12. FISCAL YEAR: Means the 12-month period from January 1 through
December 31 of each year of the Term, or the applicable portions of the first
and last Fiscal Years.
13. INITIAL BASE RENT: Means $1,057,000.00.
14. INITIAL TERM: 15 years commencing on the Commencement Date.
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<PAGE> 11
LIST OF EXHIBITS:
Exhibit A Defined Terms; Interpretation
Exhibit B Legal Description of the Land
Exhibit C Other Leased Property
Exhibit D Operating Standards
Exhibit E Standard Reporting Format
Exhibit F Base Rent Schedule
Exhibit G Baseline Revenue Schedule
Exhibit H Master Lease
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<PAGE> 12
DETAILED SUBLEASE PROVISIONS
ARTICLE 1
SUBLEASED PROPERTY
Upon and subject to the terms and conditions set forth in this Sublease,
Sublandlord subleases to Subtenant and Subtenant rents from Sublandlord all of
Sublandlord's rights and interest in and to the following real property,
improvements and related rights (collectively the "Subleased Property"):
(a) the land described in Exhibit B attached hereto (collectively,
the "Land");
(b) all buildings, structures, Fixtures and other improvements of
every kind including, but not limited to, alleyways and connecting
tunnels, sidewalks, utility pipes, conduits and lines (on-site and
off-site), parking areas, roadways, cart paths, bridges, lakes,
irrigation systems, and course markers presently situated upon the Land,
but not including any Subtenant Improvements (collectively, the
"Subleased Improvements");
(c) all easements, rights and appurtenances (including, without
limitation, all water rights) relating to the Land and the Subleased
Improvements (collectively, the "Related Rights"); and
(d) all personal property owned by Sublandlord and located on the
Land or in the Subleased Improvements ("Sublandlord's Personal
Property").
ARTICLE 2
TERM
2.1 INITIAL TERM. The initial Term of this Sublease shall commence on the
Commencement Date.
2.2 EXTENDED TERMS. Sublandlord grants Subtenant the right to extend the
Term of this Sublease for the Extended Terms provided for in the Basic Sublease
Provisions commencing upon the expiration of the Initial Term or the applicable
Extended Term. Subtenant may exercise such right solely by giving written
notice to Sublandlord of such extension at least 270 days prior to the
termination of the then-current Term (time being of the essence). The exercise
of such right shall be valid only if at the time of the giving of such notice
and at the time of the commencement of the applicable Extended Term no Event of
Default shall have occurred and be continuing. During the Extended Term, all
of the terms and conditions of this Sublease shall continue in full force and
effect, as the same may be amended, supplemented or modified.
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<PAGE> 13
ARTICLE 3
RENT
3.1 RENT.
3.1.1 RENT GENERALLY. Subtenant will pay to Sublandlord in lawful
money of the United States of America the Base Rent and Additional Rent
during the Term. Payment of Base Rent and Additional Rent shall be paid
at Sublandlord's address set forth in the Basic Sublease Provisions or at
such other place or to such other Person as Sublandlord from time to time
may designate in writing. If any payment owing hereunder shall otherwise
be due on a day that is not a Business Day, such payment shall be due on
the next succeeding Business Day. Subtenant's covenant to pay Base Rent,
Additional Rent and any other sums due under this Sublease shall be
independent of all other covenants contained in this Sublease.
3.1.2 MASTER LEASE RENT. Without limiting any other provisions of
this Article 3 or Article 29 below, Subtenant hereby agrees to pay, on or
before the date which is five (5) Business Days prior to the due date
under the Master Lease, any and all amounts due under the Master Lease
(including, without, limitation, "Base Term Rent", as defined in the
Master Lease) (collectively, the "Master Lease Rent") and to
simultaneously mail evidence thereof to Sublandlord. The date which is
five (5) Business Days prior to the due date of any amounts due under the
Master Lease is hereinafter defined as the "Master Lease Rent Due Date".
3.2 BASE RENT. Subtenant shall pay Base Rent to Sublandlord in advance
on the first day of each calendar month (which Base Rent shall, for accounting
purposes, consist of Annual Base Rent accruing during the respective Fiscal
Year in equal monthly installments, but which Base Rent shall be payable for
each month in the respective proportions described in Exhibit F); provided,
however, that the first monthly installment shall be payable on the
Commencement Date and the first and last month's payments shall be prorated as
to any partial month.
3.3 ADDITIONAL RENT. In addition to the Base Rent, Subtenant shall pay
to Sublandlord Additional Rent in quarterly installments as provided in Section
3.3.1.
3.3.1 QUARTERLY CALCULATION AND PAYMENT OF ADDITIONAL RENT.
Subtenant shall calculate and pay Additional Rent for each Fiscal
Quarter. The amount of the Additional Rent for the Second, Third and
Fourth Fiscal Quarters shall account for any interim reconciliations made
with respect to prior Fiscal Quarters in such Fiscal Year as certified by
Subtenant to Sublandlord as provided by this Section 3.3.1, but subject
to a final reconciliation as provided by Section 3.3.2. Within thirty
(30) days after the end of each Fiscal Quarter, Subtenant shall deliver
to Sublandlord an Officer's Certificate setting forth the calculation of
Additional Rent for such Fiscal Quarter. If the Additional Rent for the
period beginning on the first day of the current Fiscal Year and ending
on the last day of the Fiscal Quarter just ended exceeds the sum of
quarterly payments on account thereof previously made by Subtenant,
Subtenant shall pay such deficiency to Sublandlord along with the
Officer's Certificate. If the Additional Rent
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<PAGE> 14
for the period beginning on the first day of the current Fiscal Year and
ending on the last day of the Fiscal Quarter just ended is less than the
sum of quarterly payments on account thereof previously made by
Subtenant, Subtenant shall be entitled to deduct from its next Additional
Rent payment(s) an amount equal to such difference. In calculating
Additional Rent for any Fiscal Quarter, the Golf Course Revenue or Other
Revenue, as the case may be, for the period beginning on the first day of
the current Fiscal Year and ending on the last day of such Fiscal Quarter
shall be compared to the Baseline Golf Course Revenue or Baseline Other
Revenue for the same period as scheduled on Exhibit G attached hereto
(which Exhibit G baseline period calculation shall be prorated based upon
the actual number of days in any partial Fiscal Quarter occurring at the
beginning or end of the Term).
3.3.2 ANNUAL RECONCILIATION. Within 60 days after the end of each
Fiscal Year, or after the expiration or termination of this Sublease,
Subtenant shall deliver to Sublandlord an Officer's Certificate setting
forth (i) the Golf Course Revenue and the Other Revenue for the Fiscal
Year just ended, and (ii) a comparison of the amount of Additional Rent
actually paid during such Fiscal Year versus the amount of Additional
Rent actually owing on the basis of the annual calculation of the Golf
Course Revenue and the Other Revenue. If the Additional Rent for such
Fiscal Year exceeds the sum of the quarterly payments previously paid by
Subtenant on account thereof, Subtenant shall pay such deficiency to
Sublandlord along with such Officer's Certificate. If the Additional
Rent for such Fiscal Year is less than the amount previously paid by
Subtenant on account thereof, Sublandlord shall, at Sublandlord's option,
either (i) remit to Subtenant its check in an amount equal to such
difference, or (ii) grant Subtenant a credit against the payment of
Additional Rent next coming due; provided, however, that if the amount of
Additional Rent due for the next Fiscal Quarter is insufficient to
exhaust such credit, Sublandlord shall remit to Subtenant its check in
the amount of any remaining excess. The amount of the reconciliation
payment, whether in favor of Sublandlord or Subtenant, shall bear
interest at a rate equal to the rate payable on 90-day U.S. Treasury
Bills as of January 1 of the year following the close of such Fiscal Year
until the amount of such difference shall be paid or otherwise
discharged.
3.3.3 RECORD-KEEPING. Subtenant shall utilize an accounting system
for the Subleased Property in accordance with its usual and customary
practices and in accordance with accrual basis accounting principles
applied on a basis consistent with the Other Leased Property which will
accurately record all Golf Course Revenue and Other Revenue. Subtenant
shall retain reasonably adequate records for each Fiscal Year conforming
to such accounting system until at least five years after the expiration
of such
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<PAGE> 15
Fiscal Year (and in any event until the reconciliation described in
Section 3.3.2 above for such Fiscal Year has been made).
3.3.4 AUDITS. Sublandlord, at its own expense except as provided
hereinbelow, shall have the right from time to time directly or through
its accountants to audit the information set forth in the Officer's
Certificate referred to in Section 3.3.2 and in connection with such
audits to examine Subtenant's books and records with respect thereto
(including supporting data, sales tax returns and Subtenant's work
papers); provided, however, that any audit of the information contained
in an Officer's Certificate referred to in Section 3.3.2 must be
conducted, and the results thereof delivered to Subtenant, on or before
one (1) year after delivery to Sublandlord of such Officer's Certificate.
At the end of such one (1) year period, the information contained in the
Officer's Certificate shall be final and binding upon Sublandlord and
Subtenant, except with respect to any amount therein which Sublandlord
has challenged in writing delivered to Subtenant on or before expiration
of such one (1) year period and except that in the event that any audit
by Sublandlord discloses that Subtenant has understated any revenue item
by more than Fifty Thousand and no/100 Dollars ($50,000.00) and such
understatement results in Golf Course Revenue and Other Revenue,
collectively, being understated by more than five percent (5%) of the
actual amount thereof, then Sublandlord shall have the right to audit all
prior years' information which has not theretofore been audited by
Sublandlord. If any such audit discloses a deficiency in the payment of
Additional Rent, Subtenant shall forthwith pay to Sublandlord the amount
of the deficiency, as finally agreed or determined, together with
interest at the Overdue Rate from the date when said payment should have
been made to the date of payment thereof; provided, however, that as to
any audit that is commenced more than 12 months after the date Golf
Course Revenue or Other Revenue for any Fiscal Year is reported by
Subtenant to Sublandlord (i.e., to the extent permitted above), the
deficiency, if any, with respect to such Golf Course Revenue or Other
Revenue shall bear interest as permitted herein only from the date such
determination of deficiency is made unless such deficiency is the result
of gross negligence or willful misconduct on the part of Subtenant. If
any such audit discloses that the Golf Course Revenue or Other Revenue
for any Fiscal Year exceeds the Golf Course Revenue or Other Revenue
reported by Subtenant by more than five percent (5%), Subtenant shall pay
the reasonable cost of such audit and examination. Subtenant shall
maintain, throughout the term of this Sublease, all books and records
relating to Golf Course Revenue and Other Revenue received during such
term.
3.4 ADDITIONAL CHARGES. In addition to the Base Rent, Additional Rent
and Master Lease Rent, (1) Subtenant shall also pay and discharge when due and
payable all other amounts, liabilities, obligations and Impositions which
Subtenant assumes or agrees to pay under this Sublease, and (2) in the event of
any failure on the part of Subtenant to pay any of those items referred to in
clause (1) above, Subtenant shall also pay and discharge every fine, penalty,
interest and cost which may be added for non-payment or late payment of such
items (the items referred to in clauses (1) and (2) above being referred to
herein collectively as the "Additional
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<PAGE> 16
Charges"). Except as otherwise provided in this Sublease or as otherwise
required by any third party entitled to receipt of Additional Charges, all
Additional Charges shall be due and payable thirty (30) days after either
Sublandlord or the applicable third party who may be billing Subtenant therefor
shall deliver an invoice to Subtenant therefor. To the extent that Subtenant
pays any Additional Charges to Sublandlord pursuant to any requirements of this
Sublease, which charges are due and payable to a third party, Sublandlord shall
pay such charges to such third party and, in any event, Subtenant shall be
relieved of its obligation to pay such Additional Charges to the entity to
which they would otherwise be due. Alternatively, with respect to Additional
Charges payable to a third party, Subtenant may pay such charges directly to
such third party and thereby be relieved of any obligation to pay such charges
to Sublandlord.
3.5 LATE PAYMENT OF RENT. Subtenant hereby acknowledges that late payment
by Subtenant to Sublandlord of Base Rent, Additional Rent or Additional Charges
will cause Sublandlord to incur costs not contemplated under the terms of this
Sublease, the exact amount of which is presently anticipated to be extremely
difficult to ascertain. Such costs may include processing and accounting
charges and late charges which may be imposed on Sublandlord by the terms of
any mortgage, deed of trust or lease covering the Subleased Property and other
expenses of a similar or dissimilar nature. Accordingly, if any installment or
payment of Base Rent, Additional Rent or Additional Charges (but only as to
those Additional Charges which are payable directly to Sublandlord) shall not
be paid or made within five (5) Business Days after its due date, Subtenant
will pay Sublandlord on demand, as Additional Charges, a late charge equal to
three percent (3%) of such installment or payment; provided, however, that if
such payment or installment is not paid or made within ten (10) Business Days
after its due date, the late charge shall be five percent (5%) of such
installment or payment. The parties agree that this late charge represents a
fair and reasonable estimate of the costs that Sublandlord will incur by reason
of late payment by Subtenant. In addition to said late charge, if any
installment or payment of Base Rent, Additional Rent or Additional Charges (but
only as to those Additional Charges which are payable directly to Sublandlord)
shall not be paid on, or made by, its due date, the amount unpaid shall bear
interest, from the date such installment or payment was due until the date of
payment thereof, computed at the Overdue Rate on the amount of such delinquent
installment or payment, and Subtenant will pay such interest to Sublandlord on
demand, as Additional Charges. The payment of such late charge or such
interest, or both (as the case may be), shall not constitute a waiver, nor
excuse or cure, of any default under this Sublease, nor prevent Sublandlord
from exercising any other rights and remedies available to Sublandlord.
3.6 NET SUBLEASE. The Base Rent, Additional Rent and Additional Charges
shall be paid absolutely net to Sublandlord and without notice or demand and
without set-off, counterclaim, recoupment, abatement, suspension, determent,
deduction or defense, so that this Sublease shall yield to Sublandlord the full
amount of the installments of Base Rent, Additional Rent and, subject to
Section 3.4 above, Additional Charges throughout the Term. The Master Lease
Rent shall be paid to Lessor without notice or demand and without set-off,
counterclaim,
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<PAGE> 17
recoupment, abatement, suspension, determent, deduction or defense, except as
otherwise expressly permitted in the Master Lease.
ARTICLE 4
IMPOSITIONS
4.1 PAYMENT OF IMPOSITIONS. Subject to the terms of Article 22 hereof,
Subtenant will pay, or cause to be paid, all Impositions before any fine,
penalty, interest or cost may be added for non-payment, such payments to be
made directly to the taxing authorities where feasible. All payments of
Impositions shall be subject to Subtenant's right of contest pursuant to the
provisions of Article 12. Without limitation of the foregoing, no later than
fifteen (15) days prior to the due date of any Impositions, Subtenant shall
furnish to Sublandlord copies of the bill(s) or invoices(s) for such
Impositions and copies of Subtenant's check or other evidence of payment, and
as soon as reasonably available after the payment of said Impositions,
Subtenant shall promptly furnish to Sublandlord copies of official receipts, if
available, or other satisfactory third party evidence of such payments, such as
canceled checks.
4.2 INFORMATION AND REPORTING. Sublandlord shall give prompt notice to
Subtenant of all Impositions payable by Subtenant hereunder of which
Sublandlord at any time has knowledge, but Sublandlord's failure to give any
such notice shall in no way diminish Subtenant's obligations hereunder to pay
such Impositions. Sublandlord and Subtenant shall, upon request of the other,
provide such data as is maintained by the party to whom the request is made
with respect to the Subleased Property as may be necessary to prepare any
required returns and reports. In the event any applicable governmental
authorities classify any property covered by this Sublease as personal
property, Subtenant shall file all personal property tax returns in such
jurisdictions where it must legally so file. Each party, to the extent it
possesses the same, will provide the other party, upon request, with cost and
depreciation records necessary for filing returns for any property so
classified as personal property.
4.3 ASSESSMENT CHALLENGES. In addition to Subtenant's rights under
Article 12, Subtenant may, upon notice to Sublandlord and otherwise in
compliance with Article 12, at Subtenant's option and at Subtenant's sole cost
and expense, protest, appeal, or institute such other proceedings as Subtenant
may deem appropriate to effect a reduction of real estate or personal property
assessments and Sublandlord, at Subtenant's expense as aforesaid, shall
reasonably cooperate with Subtenant in such protest, appeal, or other action.
4.4 PRORATIONS. Impositions imposed in respect of the tax-fiscal period
during which the Term terminates shall be adjusted and prorated between
Sublandlord and Subtenant, whether or not such Imposition is imposed before or
after such termination, and Subtenant's obligation to pay its prorated share
thereof shall survive such termination. If any Imposition may, at the option
of the taxpayer, lawfully be paid in installments (whether or not interest
shall accrue on the unpaid balance of such Imposition), Subtenant may elect to
pay in installments, in which
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<PAGE> 18
event Subtenant shall pay all installments (and any accrued interest on the
unpaid balance of the Imposition) that are due during the Term hereof before
any fine, penalty, premium, further interest or cost may be added thereto.
4.5 REFUNDS. If any refund shall be due from any taxing authority in
respect of any Imposition paid by Subtenant, the same shall be paid over to or
retained by Subtenant if no Event of Default shall have occurred hereunder and
be continuing. Any such funds retained by Sublandlord due to an Event of
Default shall be applied as provided in Article 16.
4.6 UTILITY CHARGES. Subtenant shall pay or cause to be paid prior to
delinquency charges for all utilities and services, including, without
limitation, electricity, telephone, trash disposal, gas, oil, water, sewer,
communication and all other utilities used in the Subleased Property during the
Term.
4.7 ASSESSMENT DISTRICTS. Sublandlord shall not voluntarily consent to or
agree in writing to (i) any special assessment or (ii) the inclusion of any
material portion of the Subleased Property into a special assessment district
or other taxing jurisdiction unless Subtenant shall have consented thereto,
which consent shall not be unreasonably withheld.
ARTICLE 5
SUBTENANT WAIVERS
5.1 NO TERMINATION, ABATEMENT, ETC.. Except as otherwise specifically
provided in this Sublease, and except for those causes resulting solely from
the gross negligence or willful misconduct of Sublandlord, (i) Subtenant, to
the extent permitted by law, shall remain bound by this Sublease in accordance
with its terms and shall neither take any action without the consent of
Sublandlord to modify, surrender or terminate the same, nor be entitled to any
abatement, deduction, deferment or reduction of Rent, or set-off against the
Rent by reason of, and (ii) the respective obligations of Sublandlord and
Subtenant shall not be otherwise affected by reason of:
(a) any damage to, or destruction of, any Subleased Property or any
portion thereof from whatever cause or any taking of the Subleased
Property or any portion thereof;
(b) the lawful or unlawful prohibition of, or restriction upon,
Subtenant's use of the Subleased Property, or any portion thereof, the
interference with such use by any Person, or by reason of eviction by
paramount title;
(c) any claim which Subtenant has or might have against Sublandlord
or by reason of any default or breach of any warranty by Sublandlord
under this Sublease or
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any other agreement between Sublandlord and Subtenant, or to which
Sublandlord and Subtenant are parties;
(d) any bankruptcy, insolvency, reorganization, composition,
readjustment, liquidation, dissolution, winding up or other proceedings
affecting Sublandlord or any assignee or transferee of Sublandlord; or
(e) for any other cause whether similar or dissimilar to any of the
foregoing other than a discharge of Subtenant from any such obligation as
a matter of law.
Subtenant hereby specifically waives all rights, arising from any occurrence
whatsoever, which may now or hereafter be conferred upon it by law (i) to
modify, surrender or terminate this Sublease or quit or surrender the Subleased
Property or any portion thereof, or (ii) to entitle Subtenant to any abatement,
reduction, suspension or deferment of the Rent or other sums payable by
Subtenant hereunder, except as otherwise specifically provided in this
Sublease. The obligations of Sublandlord and Subtenant hereunder shall be
separate and independent covenants and agreements and the Rent and all other
sums payable by Subtenant hereunder shall continue to be payable in all events
unless the obligations to pay the same shall be terminated pursuant to the
express provisions of this Sublease or by termination of this Sublease other
than by reason of any Event of Default.
5.2 CONDITION OF THE SUBLEASED PROPERTY. Subtenant acknowledges receipt
and delivery of possession of the Subleased Property and that Subtenant has
examined and otherwise has knowledge of the condition of the Subleased Property
prior to the execution and delivery of this Sublease and has found the same to
be in good order and repair and satisfactory for its purposes hereunder.
Regardless of any inspection made by Subtenant of the Subleased Property and
whether or not any patent or latent defect or condition was revealed or
discovered thereby, Subtenant is leasing the Subleased Property "as is" in its
present condition. Subtenant waives and releases any claim or action against
Sublandlord in respect of the condition of the Subleased Property including any
defects or adverse conditions, latent or patent, matured or unmatured, known or
unknown by Subtenant or Sublandlord as of the date hereof. SUBTENANT
ACKNOWLEDGES THAT SUBLANDLORD (WHETHER ACTING AS SUBLANDLORD HEREUNDER OR IN
ANY OTHER CAPACITY) HAS NOT MADE AND WILL NOT MAKE, NOR SHALL SUBLANDLORD BE
DEEMED TO HAVE MADE, ANY WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, WITH
RESPECT TO THE SUBLEASED PROPERTY, INCLUDING ANY WARRANTY OR REPRESENTATION AS
TO (i) ITS FITNESS, DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE, (ii)
THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, (iii) THE EXISTENCE OF ANY
DEFECT, LATENT OR PATENT, (iv) SUBLANDLORD'S TITLE THERETO, (v) VALUE, (vi)
COMPLIANCE WITH SPECIFICATIONS, (vii) LOCATION, (viii) USE, (ix) CONDITION, (x)
MERCHANTABILITY, (xi) QUALITY, (xii) DESCRIPTION, (xiii) DURABILITY, (xiv)
OPERATION, (xv) THE EXISTENCE OF ANY HAZARDOUS MATERIAL OR (xvi) COMPLIANCE OF
THE SUBLEASED
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PROPERTY WITH ANY LAW (INCLUDING ENVIRONMENTAL LAWS) OR LEGAL REQUIREMENTS.
SUBTENANT ACKNOWLEDGES THAT THE SUBLEASED PROPERTY IS OF ITS SELECTION AND TO
ITS SPECIFICATIONS AND THAT THE SUBLEASED PROPERTY HAS BEEN INSPECTED BY
SUBTENANT AND IS SATISFACTORY TO IT. IN THE EVENT OF ANY DEFECT OR DEFICIENCY
IN THE SUBLEASED PROPERTY OF ANY NATURE, WHETHER LATENT OR PATENT, AS BETWEEN
SUBLANDLORD AND SUBTENANT, SUBLANDLORD SHALL NOT HAVE ANY RESPONSIBILITY OR
LIABILITY WITH RESPECT THERETO OR FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES
(INCLUDING STRICT LIABILITY IN TORT). THE PROVISIONS OF THIS SECTION 5.2 HAVE
BEEN NEGOTIATED, AND ARE INTENDED TO BE A COMPLETE EXCLUSION AND NEGATION OF
ANY WARRANTIES BY SUBLANDLORD, EXPRESS OR IMPLIED, WITH RESPECT TO THE
SUBLEASED PROPERTY, ARISING PURSUANT TO THE UNIFORM COMMERCIAL CODE OR ANY
OTHER LAW NOW OR HEREAFTER IN EFFECT OR ARISING OTHERWISE.
ARTICLE 6
OWNERSHIP OF PROPERTY
6.1 SUBLEASED PROPERTY. Subtenant acknowledges that the Subleased
Property is the property of Sublandlord, that Sublandlord is the paramount
owner of the Subleased Property and that Subtenant has only the right to the
possession and use of the Subleased Property during the Term of and upon the
terms and conditions of this Sublease.
6.2 SUBLANDLORD'S PERSONAL PROPERTY. Subtenant shall maintain
Sublandlord's Personal Property in the same manner as Subtenant maintains
Subtenant's Personal Property. Upon the loss, destruction, or obsolescence of
any of the Sublandlord's Personal Property, Subtenant shall replace such
property with Subtenant's Personal Property, which Personal Property shall be
owned by Subtenant; provided, however, that in the case of loss or destruction
to any of Sublandlord's Personal Property, if insurance proceeds are available,
Subtenant shall use such proceeds to replace such Personal Property, and the
replacement Personal Property shall be owned by Sublandlord and shall
constitute Sublandlord's Personal Property hereunder.
6.3 SUBTENANT'S PERSONAL PROPERTY. Subtenant may (and shall as provided
below), at its expense, install, affix or assemble or place on any parcel of
the Land or in any of the Subleased Improvements, any items of Subtenant's
Personal Property. Subtenant shall provide and maintain during the entire Term
all such Subtenant's Personal Property as shall be necessary in order to
operate the Facility in compliance with all applicable Legal Requirements and
Insurance Requirements and otherwise in accordance with customary practice in
the industry for the Primary Intended Use and in accordance with its past
practices.
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6.4 PURCHASE OF SUBTENANT'S PERSONAL PROPERTY. Upon the expiration or
sooner termination of this Sublease, Sublandlord shall have the right (but not
the obligation) to purchase from Subtenant all or any portion of the tangible
Subtenant's Personal Property (which shall not include software):
(i) if owned by Subtenant and not subject to any secured financing,
at the fair market value thereof;
(ii) if owned by Subtenant, but subject to a secured financing, at
the greater of the fair market value thereof or the amount of the debt
owing under such financing; and
(iii) if leased by Subtenant and the applicable lease provides for
termination of the lease as to such Subtenant's Personal Property upon
the payment of a given sum, at the greater of the fair market value
thereof or the amount of the payment so provided; provided, however, that
at Subtenant's option and if the lessor of Subtenant's Personal Property
will permit Sublandlord to assume the obligations under the applicable
lease with respect to such Subtenant's Personal Property (separate from
the obligations under a master lease if in effect), Subtenant shall, upon
the request of Sublandlord, assign the applicable lease (or portion
thereof) to Sublandlord;
provided, further, however, that if Sublandlord's purchase right arises because
of a termination of this Sublease as a result of an Event of Default, the fair
market value under clauses (i) through (iii) above shall be deemed to be the
depreciated net book value of Subtenant's Personal Property. Sublandlord may
elect to purchase Subtenant's Personal Property by giving notice to Subtenant
not later than, as the case may be, 60 days prior to the expiration of this
Sublease or 60 days after the termination of this Sublease upon any Event of
Default. Subtenant shall transfer title to such Property by a bill of sale
without warranty (except as to ownership) upon concurrent payment in cash by
Sublandlord; provided, however, if Sublandlord has any unpaid damages in an
ascertainable amount resulting from any Event of Default, Sublandlord may make
payment by delivery of an offset against such damages.
6.5 REMOVAL OF PERSONAL PROPERTY. All items of Subtenant's Personal
Property not removed by Subtenant within 14 days following the expiration or
earlier termination of this Sublease shall be considered abandoned by Subtenant
and may, at Sublandlord's discretion and without any obligation, be
appropriated, sold, destroyed or otherwise disposed of by Sublandlord without
first giving notice thereof to Subtenant and without any payment to Subtenant
and without any obligation to account therefor. Subtenant shall, at its
expense, restore the Subleased Property to the condition required by Section
9.1, including repair of all damage to the Subleased Property caused by the
removal of Subtenant's Personal Property, whether affected by Subtenant or
Sublandlord. Sublandlord shall not be responsible for any loss or damage to
Subtenant's Personal Property, or any other property of Subtenant, by virtue of
Sublandlord's removal thereof at any time subsequent to the 14-day period
provided for herein.
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6.6 SUBLANDLORD'S WAIVERS. Any lessor of Subtenant's Personal Property or
other party with a security interest therein may, upon notice to Sublandlord
and during reasonable hours, enter the Facility and take possession of any of
Subtenant's Personal Property without liability for trespass or conversion.
Sublandlord shall, upon the request of Subtenant, execute and deliver to
Subtenant "landlord's waivers" as may be reasonable and customary in connection
with the financing or leasing of personal property. Such "landlord's waiver"
shall limit to 30 days the amount of time the lessor or lender of Subtenant's
Personal Property has to enter upon the Subleased Property after notice from
Sublandlord that the Term has expired or otherwise terminated. If Subtenant
requests a "landlord's waiver," Subtenant shall attempt to secure from any
financing source or lessor the right on the part of Sublandlord to cure the
defaults of Subtenant and to use any such Subtenant's Personal Property upon
providing such cure.
6.7 COLLATERAL AGREEMENTS. During the Term, Subtenant shall have the
right and obligation to enter into agreements and service contracts on behalf
of the Facility which are necessary or reasonably required in connection with
the operation of the Subleased Property for its Primary Intended Use including,
without limitation, membership agreements. Subtenant (or its affiliate) has
also entered into various agreements and service contacts in connection with
its operation of the Facility prior to the Commencement Date. All such
agreements and service contracts, whether entered into prior to or during the
Term and whether entered into by Subtenant or by Palmer Management (as defined
in Article 30 below), are hereinafter collectively referred to as the
"Collateral Agreements." For good and valuable consideration, the receipt of
which is hereby acknowledged, and subject to the terms and conditions
hereinafter set forth, Subtenant and Palmer Management hereby assign to
Sublandlord all of Subtenant's and Palmer Management's right, title and
interest in the Collateral Agreements; provided, however, that Subtenant and
Palmer Management shall continue to have all rights under said Collateral
Agreements at all times during the Term hereof when an Event of Default is not
then existing hereunder (subject, however, to the terms set forth below
relative to restrictions with respect to membership agreements). Upon the
occurrence and during the continuance of an Event of Default (and in addition
to any other rights and remedies available to Sublandlord), and upon the
expiration or earlier termination of this Sublease, Sublandlord shall have the
right, but not the obligation, by itself or by a designee, to take the place of
Subtenant or Palmer Management, as the case may be, under any or all of the
Collateral Agreements, to proceed to perform any and all obligations of the
owner or operator contained in any such Collateral Agreements and exercise any
and all rights of the owner or operator therein contained as fully as the
Subtenant or Palmer Management itself could, and to take possession of all
documents reasonably required by Sublandlord to exercise its rights and perform
its obligations under the Collateral Agreements. Subtenant and Palmer
Management each hereby appoints Sublandlord its attorney-in-fact to take such
action and execute such documents as are necessary or deemed appropriate by
Sublandlord to effectuate the transfer of Subtenant's or Palmer Management's,
as the case may be, right, title and interest in those Collateral Agreements
which Sublandlord designates for such transfer. This power of attorney granted
hereby shall be irrevocable and coupled with an interest. Subtenant and Palmer
Management each acknowledges that the foregoing assignment of Collateral
Agreements described above is an integral part of Sublandlord's consideration
for
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entering into this Sublease and that neither Subtenant nor Palmer Management
shall be entitled to any additional consideration relative to such assignment.
Subtenant and Palmer Management hereby each represents that, with the exception
of consents of equipment lessors, it has the full right and authority to assign
the Collateral Agreements as described in this Section 6.7, and no consent to
such assignment is required from any other party which has not been obtained
prior to the date hereof.
With respect to membership agreements included as part of the foregoing
Collateral Agreements, Subtenant shall have the right to determine all matters
relating to the sale and classification of memberships, including the right to
set initiation fees, dues and other charges, and the number of memberships
sold; provided that Subtenant agrees not to exercise such right in a manner
which would be detrimental to Sublandlord in any material respect upon the
expiration of the Sublease.
ARTICLE 7
USE OF SUBLEASED PROPERTY
7.1 USE. After the Commencement Date and during the Term, Subtenant shall
use or cause to be used the Subleased Property and the improvements thereon for
its Primary Intended Use and for such other uses as may be necessary or
incidental to such use. Subtenant shall not use the Subleased Property or any
portion thereof for any other use without the prior written consent of
Sublandlord, which consent may be withheld in Sublandlord's sole discretion.
No use shall be made or permitted to be made of the Subleased Property, and no
acts shall be done, which will cause the cancellation of any insurance policy
covering the Subleased Property or any part thereof, nor shall Subtenant sell
or otherwise provide to patrons, or permit to be kept, used or sold in or about
the Subleased Property any article which may be prohibited by law or by the
standard form of fire insurance policies, or any other insurance policies
required to be carried hereunder, or fire underwriters regulations. Subtenant
shall, at its sole cost, comply with all of the requirements pertaining to the
Subleased Property or other improvements of any insurance board, association,
organization or company necessary for the maintenance of insurance, as herein
provided, covering the Subleased Property and Subtenant's Personal Property.
7.2 SPECIFIC PROHIBITED USES. Subtenant shall not use or occupy or permit
the Subleased Property to be used or occupied, nor do or permit anything to be
done in or on the Subleased Property, in a manner which would (i) violate or
fail to comply with any law, rule or regulation or Legal Requirement, (ii)
cause structural injury to any of the Subleased Improvements, or (iii)
constitute a public or private nuisance or waste. Subtenant shall not allow
any Hazardous Material to be located in, on or under the Subleased Property, to
migrate from the Subleased Property to any adjacent property, or to be
incorporated in the Facility or any improvements thereon, except in compliance
with applicable law (including any Environmental Law). Subtenant shall not
allow the Subleased Property to be used as a landfill or a waste
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disposal site, or a manufacturing, distribution or disposal facility for any
Hazardous Materials. Subtenant shall neither suffer nor permit the Subleased
Property or any portion thereof, including Subtenant's Personal Property, to be
used in such a manner as (i) might reasonably tend to impair Sublandlord's
title thereto or to any portion thereof, or (ii) may reasonably make possible a
claim or claims of adverse usage or adverse possession by the public, as such,
or of implied dedication of the Subleased Property or any portion thereof, or
(iii) is in violation of any applicable Environmental Law. Subtenant shall own
and use Subtenant's Personal Property in material compliance with all Legal
Requirements.
7.3 SUBLANDLORD TO GRANT EASEMENTS, ETC. Sublandlord shall, from time to
time so long as no Event of Default has occurred and is continuing, at the
request of Subtenant and at Subtenant's cost and expense (but subject to the
approval of Sublandlord, which approval shall not be unreasonably withheld or
delayed and which approval shall not be deemed unreasonably withheld or delayed
if Sublandlord must obtain either a Facility Mortgagee's consent and if such
Facility Mortgagee elects not to consent or a consent from Lessor or a
mortgagee of Lessor and such Lessor or mortgagee elects not to consent): (i)
grant easements and other rights in the nature of easements; (ii) release
existing easements or other rights in the nature of easements which are for the
benefit of the Subleased Property; (iii) dedicate or transfer unimproved
portions of the Subleased Property for road, highway or other public purposes;
(iv) execute petitions to have the Subleased Property annexed to any municipal
corporation or utility district; (v) execute amendments to any covenants and
restrictions affecting the Subleased Property; and (vi) execute and deliver to
any Person any instrument appropriate to confirm or effect such grants,
releases, dedications and transfers (to the extent of its interest in the
Subleased Property), but only upon delivery to Sublandlord of an Officer's
Certificate (which Certificate, if contested by Sublandlord, shall not be
binding on Sublandlord) stating that such grant, release, dedication, transfer,
petition or amendment is not detrimental to the proper conduct of the business
of Subtenant on the Subleased Property and does not reduce its value or
usefulness for the Primary Intended Use and describing in reasonable detail the
nature of such proposed grant, release, dedication, transfer, petition or
amendment. Sublandlord shall not grant, release, dedicate or execute any of
the foregoing items in this Section 7.3 without obtaining Subtenant's approval,
which approval shall not be unreasonably withheld or delayed.
ARTICLE 8
HAZARDOUS MATERIALS
8.1 SUBTENANT REPRESENTATIONS. Subtenant hereby represents and warrants
to Sublandlord as follows:
8.1.1 REPORTS. All material reports of environmental surveys,
audits, investigations and assessments relating to the Subleased Property
in the possession or
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control of Subtenant or its Affiliates (herein, the "Existing
Environmental Reports") have been disclosed to Sublandlord.
8.2 REMEDIATION. If any Hazardous Material in a quantity sufficient to
require remediation or reporting under any Environmental Law is released, or
disposed of, in, on or under the Subleased Property at any time during the Term
hereof or was released, or disposed of, in, on or under the Subleased Property
at any time prior to the Commencement Date (i.e., irrespective of whether the
same occurred during Subtenant's or Subtenant's affiliate's ownership or
possession of the Subleased Property), or if Subtenant, Sublandlord, or the
Subleased Property becomes subject to any order of any federal, state or local
agency to investigate, remove, remediate, repair, close, detoxify,
decontaminate or otherwise clean up the Subleased Property as a result of any
release or disposal in, on or under the Subleased Property occurring at any
time prior to the Commencement Date (i.e., irrespective of whether the same
occurred during the Term hereof or during Subtenant's or Subtenant's
affiliate's ownership or possession of the Subleased Property), Subtenant
shall, at its sole expense, carry out and complete any required investigation,
removal, remediation, repair, closure, detoxification, decontamination or other
cleanup of the Subleased Property in material compliance with all applicable
Environmental Laws; provided, however, that Subtenant shall have no
responsibility for any investigation, removal, remediation, repair, closure,
detoxification, decontamination or other cleanup of the Subleased Property
necessitated by actions of Sublandlord. Subject to Subtenant's rights to
contest pursuant to Article 12 hereof, if Subtenant fails to implement and
diligently pursue any such repair, closure, detoxification, decontamination or
other cleanup of the Subleased Property in a timely manner and in material
compliance with all applicable Environmental Laws, Sublandlord shall have the
right, but not the obligation, to carry out such action and to recover all of
the reasonable costs and expenses from Subtenant as Additional Charges.
8.3 SUBTENANT'S INDEMNIFICATION OF SUBLANDLORD AND OTHERS. Except for
matters arising out of the actions of Sublandlord, Subtenant shall pay,
protect, indemnify, save, hold harmless and defend Sublandlord, Lessor and any
Facility Mortgagee from and against all liabilities, obligations, claims,
damages (including consequential and punitive damages), penalties, causes of
action, demands, judgments, costs and expenses (including reasonable attorneys'
fees and expenses), to the extent permitted by law, imposed upon or incurred by
or asserted against Sublandlord, Lessor, any Facility Mortgagee or the
Subleased Property by reason of any Hazardous Material released or disposed of
at, in or by the Subleased Property either during the Term or prior to the
Commencement Date in violation of any Environmental Law, howsoever arising,
without regard to fault on the part of Subtenant, including (a) liability for
response costs and for costs of removal and remedial action incurred by the
United States Government, any state or local governmental unit to any other
Person, or damages from injury to or destruction or loss of natural resources,
including the reasonable costs of assessing such injury, destruction or loss,
incurred pursuant to any Environmental Law, (b) liability for costs and
expenses of abatement, investigation, removal, remediation, correction or
clean-up, fines, damages, response costs or penalties which arise from the
provisions of any Environmental Law,
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(c) liability for personal injury or property damage arising under any
statutory or common-law tort theory, including damages assessed for the
maintenance of a public or private nuisance or for carrying on of a dangerous
activity, or (d) by reason of a breach of a representation or warranty in
Section 8.1.
8.4 SURVIVAL OF INDEMNIFICATION OBLIGATIONS. Subtenant's remediation and
indemnification obligations and liabilities under this Article 8 arising during
the Term hereof shall survive any termination of this Sublease for a period of
one (1) year (i.e., meaning that Sublandlord must give notice to Subtenant of
such claim prior to the expiration of said 1-year period).
ARTICLE 9
MAINTENANCE AND REPAIR
9.1 SUBTENANT'S SOLE OBLIGATION - GENERAL. Subtenant, at its expense,
will keep the Subleased Property and Subtenant's Personal Property in good
order, repair and appearance (whether or not the need for such repairs occurs
as a result of Subtenant's use, any prior use, the elements or the age of the
Subleased Property, or any portion thereof) and maintain the Subleased Property
in accordance with any applicable Legal Requirements, and, except as otherwise
provided in Article 14, with reasonable promptness, make all necessary and
appropriate repairs thereto of every kind and nature, whether interior or
exterior, structural or non-structural, ordinary or extraordinary, foreseen or
unforeseen or arising by reason of a condition existing prior to the
commencement of the Term of this Sublease (concealed or otherwise). Subtenant
shall operate and maintain the Subleased Property in accordance with the
Operating Standards set forth in Exhibit D; provided, however, that Subtenant
may make such modifications to such Operating Standards as Subtenant may
reasonably determine to be appropriate for the prudent management of the
Subleased Property so long as the maintenance and operation of the Subleased
Property shall be in a first class condition, which modifications, to the
extent they are material to the operating results of the Subleased Property,
shall be subject to the approval of Sublandlord (not to be unreasonably
withheld or delayed); provided further, however, that Subtenant shall make such
changes to the Operating Standards as may be appropriate to comply with Legal
Requirements. Subtenant will not take or omit to take any action the taking or
omission of which could reasonably be expected to impair the value or the
usefulness of the Subleased Property or any part thereof for its Primary
Intended Use. Nothing in this Article 9 shall obligate Subtenant to make any
capital improvement or replacements to the Subleased Property if the Subleased
Property can be repaired to the standard required by this Section 9.1.
9.2 CLUBHOUSE FACILITY MAINTENANCE. Subtenant, at its expense, will
repair, paint and keep in a clean and sanitary condition the interior and
exterior of all clubhouse facilities at the Subleased Improvements, including
all landscaping and parking areas located adjacent thereto, all in a
first-class condition and in accordance with such other reasonable standards as
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may be established by Sublandlord from time to time. Without limitation of the
foregoing, Subtenant, at its expense, will replace or refurbish all floor
covering, tile, carpeting, wall coverings, light fixtures, curtains, blinds,
shades, furniture, room furnishings, wall paper, wall hangings, signs, fixtures
and other decor items when they become worn-out, soiled or in disrepair. All
security systems, ventilation, heating, air-conditioning, electrical, plumbing,
refrigeration and mechanical equipment shall be kept in good working order by
Subtenant at all times during the Term hereof, and shall meet all reasonable
quality standards established from time to time by Sublandlord.
9.3 GOLF COURSE MAINTENANCE. Subtenant, at its expense, will replace,
repair and maintain the golf course portion of the Subleased Property in a
first-class condition and otherwise in accordance with reasonable standards
established from time to time by Sublandlord. Without limitation of the
foregoing, Subtenant will, at its expense, replace or refurbish all tee box
signs, pins, flags, markers, benches and related golf course equipment as the
same becomes worn-out, soiled or in disrepair. All grounds-keeping and
landscaping for the golf course will be maintained in a first-class condition
by Subtenant and otherwise in accordance with reasonable standards established
by Sublandlord from time to time during the Term hereof.
9.4 WAIVER OF STATUTORY OBLIGATIONS. Sublandlord shall not under any
circumstances be required to build or rebuild any improvements on the Subleased
Property, or to make any repairs, replacements, alterations, restorations or
renewals of any nature or description to the Subleased Property, whether
ordinary or extraordinary, structural or non-structural, foreseen or
unforeseen, or to make any expenditure whatsoever with respect thereto, in
connection with this Sublease, or to maintain the Subleased Property in any
way. Subtenant hereby waives, to the extent permitted by law, the right to
make repairs at the expense of Sublandlord pursuant to any law in effect at the
time of the execution of this Sublease or hereafter enacted.
9.5 MECHANIC'S LIENS. Nothing contained in this Sublease and no action or
inaction by Sublandlord shall be construed as (i) constituting the consent or
request of Sublandlord, expressed or implied, to any contractor, subcontractor,
laborer, materialman or vendor to or for the performance of any labor or
services or the furnishing of any materials or other property for the
construction, alteration, addition, repair or demolition of or to the Subleased
Property or any part thereof; or (ii) giving Subtenant any right, power or
permission to contract for or permit the performance of any labor or services
or the furnishing of any materials or other property, in either case, in such
fashion as would permit the making of any claim against Sublandlord in respect
thereof or to make any agreement that may create, or in any way be the basis
for, any right, title, interest, lien, claim or other encumbrance upon the
estate of Sublandlord in the Subleased Property, or any portion thereof (it
being acknowledged and agreed that Subtenant has no authority or power to cause
any lien or encumbrance of any kind whatsoever to attach or be placed upon
Sublandlord's interest in the Subleased Property, and any and all liens and
encumbrances created or permitted by Subtenant shall attach to Subtenant's
subleasehold interest only).
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9.6 SURRENDER OF SUBLEASED PROPERTY. Unless this Sublease shall have been
terminated pursuant to the provisions of Article 14, Subtenant shall, upon the
expiration or prior termination of the Term, vacate and surrender the Subleased
Property to Sublandlord in the condition in which the Subleased Property was
originally received from Sublandlord, except as repaired, rebuilt, restored,
altered or added to as permitted or required by the provisions of this Sublease
and except for ordinary wear and tear (subject to the obligation of Subtenant
to maintain the Subleased Property in good order and repair during the entire
Term of this Sublease).
9.7 TRANSFER OF OPERATING PERMITS. Upon the expiration or earlier
termination of the Term, Subtenant and Palmer Management shall each assign to
Sublandlord all of each such respective party's right, title and interest in
and to any and all licenses, permits and other authorizations or approvals
which then exist relative to the operation of the Subleased Property, and
Subtenant and Palmer Management shall cooperate with Sublandlord to effectuate
such transfers, including, without limitation, executing and delivering any
petitions, applications or other documentation required by applicable
governmental authorities in connection with such transfers.
ARTICLE 10
SUBTENANT'S IMPROVEMENTS
10.1 SUBTENANT'S RIGHT TO CONSTRUCT. During the Term of this Sublease,
Subtenant may not make any material alterations, additions, changes and/or
other capital improvements to the Subleased Property (individually, a
"Subtenant Improvement," and collectively, "Subtenant Improvements") without
the prior written consent of Sublandlord, which consent shall not be
unreasonably withheld or delayed and which consent shall not be deemed
unreasonably withheld or delayed if Sublandlord must obtain Lessor's or any
Facility Mortgagee's consent and if such Lessor or Facility Mortgagee elects
not to consent. As used in this Section 10.1, "material" shall mean a
Subtenant Improvement the cost of which is estimated to exceed Fifty Thousand
Dollars ($50,000.00) in any one instance. Except as otherwise agreed to by
Sublandlord in writing, any such Subtenant Improvement shall be made at
Subtenant's sole expense and shall become the property of Sublandlord upon
termination of this Sublease. Unless made on an emergency basis to prevent
injury to Person or property, Subtenant will submit plans for any Subtenant
Improvement with a cost of more than $50,000 to Sublandlord for Sublandlord's
prior approval, such approval not to be unreasonably withheld or delayed.
10.2 SCOPE OF RIGHT. To the extent Sublandlord has consented to any
Subtenant Improvement, and subject to Section 10.1 above, Subtenant shall have
the right, at Subtenant's cost and expense, to:
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(a) seek any governmental approvals, including building permits,
licenses, conditional use permits and any certificate of need that
Subtenant requires to construct any Subtenant Improvement;
(b) demolish, remove or otherwise dispose of any of the Subtenant
Improvements;
(c) erect upon the Subleased Property such Subtenant Improvement as
Subtenant deems desirable;
(d) make additions, alterations, changes and improvements in any
Subtenant Improvement so erected;
(e) raze and demolish any Subtenant Improvement together with the
right to salvage therefrom; and
(f) engage in any other lawful activities that Subtenant determines
are necessary or desirable for the development of the Subleased Property
in accordance with its Primary Intended Use;
it being understood and agreed, however, that Subtenant shall not, in any
event, make any Subtenant Improvement which would, in Sublandlord's reasonable
judgment, impair the value or Primary Intended Use of the Subleased Property or
otherwise violate the terms of the Master Lease.
10.3 COOPERATION OF SUBLANDLORD. To the extent Sublandlord has consented
to any Subtenant Improvement, Sublandlord shall cooperate with Subtenant and
take such actions, including the execution and delivery to Subtenant of any
applications or other documents, reasonably requested by Subtenant in order to
obtain any governmental approvals sought by Subtenant to construct such
Subtenant Improvement within ten (10) Business Days following the later of (a)
the date Sublandlord receives Subtenant's request, or (b) the date of delivery
of any such application or document to Sublandlord, so long as the taking of
such action, including the execution of said applications or documents, shall
be without cost to Sublandlord (or if there are costs to Sublandlord, such
reasonable out-of-pocket costs shall be reimbursed by Subtenant), and will not
cause Sublandlord to be in violation of any law, ordinance or regulation.
10.4 COMMENCEMENT OF CONSTRUCTION. Subtenant agrees that:
(a) Subtenant shall diligently seek all governmental approvals
relating to the construction of any Subtenant Improvement;
(b) Once Subtenant begins the construction of any Subtenant
Improvement, Subtenant shall diligently prosecute any such construction
to completion in accordance
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with applicable insurance requirements and the laws, rules and
regulations of all governmental bodies or agencies having jurisdiction
over the Subleased Property;
(c) Sublandlord shall have the right at any time and from time to
time to post and maintain upon the Subleased Property such notices as may
be necessary to protect Sublandlord's interest from mechanics' liens,
materialmen's liens or liens of a similar nature;
(d) Subtenant shall not suffer or permit any mechanics' liens or any
other claims or demands arising from the work or construction of any
Subtenant Improvement to be enforced against the Subleased Property or
any part thereof, and Subtenant agrees to hold Sublandlord, Lessor and
said Subleased Property free and harmless from all liability from any
such liens, claims or demands, together with all costs and expenses in
connection therewith; and
(e) All work shall be performed in a good and workmanlike manner.
10.5 RIGHTS IN SUBTENANT IMPROVEMENTS. Notwithstanding anything to the
contrary in this Sublease, all Subtenant Improvements constructed pursuant to
Section 10.1, and any and all subsequent additions thereto and alterations and
replacements thereof, shall be the sole and absolute property of Subtenant
during the Term of this Sublease. Upon the expiration or early termination of
this Sublease, all such Subtenant Improvements shall become the property of
Sublandlord. Without limiting the generality of the foregoing, Subtenant shall
be entitled to all federal and state income tax benefits associated with any
Subtenant Improvement during the Term of this Sublease.
10.6 PRE-APPROVED SUBTENANT IMPROVEMENTS. Without limitation of the terms
set forth above in this Article 10, it is hereby acknowledged that Subtenant
shall diligently perform, from and after the Commencement Date, those certain
improvements to the Subleased Property generally described in the construction
budget attached hereto as Exhibit I (herein, the "Pre-Approved Subtenant
Improvements"). Such Pre-Approved Subtenant Improvements will be performed in
accordance with the terms and the conditions and other requirements set forth
above in this Article 10. Without limitation of the foregoing, it is
acknowledged that Sublandlord has retained the sum of $____________ (herein,
the "Retained Funds") from sums otherwise due and owing from Sublandlord to
Subtenant (or Subtenant's affiliates) at the time of Sublandlord's acceptance
of its leasehold interest in the Subleased Property. The foregoing Retained
Funds shall be held in trust and shall be made available for costs incurred by
Subtenant in connection with performance of the Pre-Approved Subtenant
Improvements, and shall be disbursed in accordance with the following
requirements: (i) at the time of any disbursement, subject to Article 12, no
mechanics' or materialmen's liens shall have been filed against any of the
Subleased Property and remain undischarged, unless a satisfactory bond shall
have been posted in accordance with the laws of the State; (ii) disbursement
shall be made from time to time in an amount not exceeding the cost of the work
completed since the last disbursement,
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upon receipt of (A) satisfactory evidence of the stage of completion, the
estimated total cost of completion, and performance of the work to date in a
good and workmanlike manner in accordance with contracts, plans and
specifications heretofore delivered to Sublandlord, (B) waiver of liens
covering the amount to be disbursed, (C) satisfactory bringdown of title
insurance, and (D) other evidence of costs and payments so that Sublandlord can
verify that the amounts disbursed from time to time are represented by work
that is completed, in place and free and clear of mechanics' and materialmen's
lien claims; (iii) each request for disbursement shall be accompanied by a
certificate of Subtenant, signed by a duly authorized representative of
Subtenant, describing the work for which payment is requested, stating the cost
incurred in connection therewith, stating that Subtenant has not previously
received payment for such work, and upon completion of the work, also stating
that the work has been fully completed and complies with the applicable
requirements of this Sublease; and (iv) such other reasonable conditions as
Sublandlord may reasonably impose.
Any excess Retained Funds remaining after completion of the Pre-Approved
Subtenant Improvements shall, within sixty (60) days following Subtenant's
written request therefor delivered to Sublandlord (which request shall include
reasonably supporting documentation regarding the final cost and completion of
the Pre-Approved Subtenant Improvements, and payment of all sums due and owing
in connection therewith) be paid, from Sublandlord to Subtenant.
ARTICLE 11
LIENS, ENCROACHMENTS AND OTHER TITLE MATTERS
11.1 LIENS. Subject to the provisions of Article 12 relating to permitted
contests, Subtenant will not directly or indirectly create or allow to remain,
and will promptly discharge at its expense any lien, encumbrance, attachment,
title retention agreement or claim upon the Subleased Property or any
attachment, levy, claim or encumbrance in respect of the rent, not including,
however:
(a) the matters, if any, that existed as of the Commencement Date
and that were disclosed on the Sublandlord's title policy issued as of
such date;
(b) restrictions, liens and other encumbrances which are consented
to in writing by Sublandlord, or any easements granted pursuant to the
provisions of Section 7.3 of this Sublease;
(c) liens for franchise, income or other taxes of Sublandlord which
Subtenant is not required to pay hereunder;
(d) subsubleases permitted by Article 24;
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(e) liens for Impositions or for sums resulting from noncompliance
with Legal Requirements so long as (1) the same are not yet payable or
are payable without the addition of any fine or penalty or (2) such liens
are in the process of being contested as permitted by Article 12;
(f) liens of mechanics, laborers, materialmen, suppliers or vendors
for sums either disputed (provided that such liens are in the process of
being contested as permitted by Article 12) or not yet due; and
(g) any liens which are the responsibility of Sublandlord pursuant
to the provisions of Article 26.
11.2 ENCROACHMENTS AND OTHER TITLE MATTERS. Except for any matters deemed
to be "Permitted Title Exceptions" when Sublandlord accepted its leasehold
interest in the Subleased Property and any matters granted or created by
Sublandlord after the Commencement Date, if any of the Subleased Improvements
shall, at any time, encroach upon any property, street or right-of-way adjacent
to the Subleased Property, or shall violate the agreements or conditions
contained in any lawful restrictive covenant or other agreement affecting the
Subleased Property, or any part thereof, or shall impair the rights of others
under any easement or right-of-way to which the Subleased Property is subject,
or the use of the Subleased Property is impaired, limited or interfered with by
reason of the exercise of the right of surface entry or any other rights under
a lease or reservation of any oil, gas, water or other minerals, then promptly
upon the request of Sublandlord or at the behest of any Person affected by any
such encroachment, violation or impairment, Subtenant, at its sole cost and
expense (subject to its right to contest the existence of any such
encroachment, violation or impairment), shall protect, indemnify, save harmless
and defend Sublandlord, Lessor, each Facility Mortgagee and any mortgagee of
Lessor from and against all losses, liabilities, obligations, claims, damages,
penalties, causes of action, costs and expenses (including reasonable
attorneys' fees and expenses) based on or arising by reason of any such
encroachment, violation or impairment and in such case, in the event of an
adverse final determination, either (i) obtain valid and effective waivers or
settlements of all claims, liabilities and damages resulting from each such
encroachment, violation or impairment, whether the same shall affect
Sublandlord or Subtenant; or (ii) make such changes in the Subleased
Improvements, and take such other actions, as Subtenant in the good faith
exercise of its judgment deems reasonably practicable, to remove such
encroachment, and to end such violation or impairment, including, if necessary,
the alteration of any of the Subleased Improvements, and in any event take all
such actions as may be necessary in order to be able to continue the operation
of the Subleased Improvements for the Primary Intended Use substantially in the
manner and to the extent the Subleased Improvements were operated prior to the
assertion of such violation or encroachment. Subtenant's obligations under
this Section 11.2 shall be in addition to and shall in no way discharge or
diminish any obligation of any insurer under any policy of title or other
insurance and Subtenant shall be entitled to a credit for any sums recovered by
Sublandlord under any such policy of title or other insurance.
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ARTICLE 12
PERMITTED CONTESTS
Subtenant, on its own or on Sublandlord's behalf (or in Sublandlord's
name) but at Subtenant's expense, may contest, by appropriate legal proceedings
conducted in good faith and with due diligence, the amount or validity or
application, in whole or in part, of any Imposition or any Legal Requirement or
any lien, attachment, levy, encumbrance, charge or claim not otherwise
permitted by Section 11.1, provided that:
(a) in the case of an unpaid Imposition, lien, attachment, levy,
encumbrance, charge or claim, the commencement and continuation of such
proceedings shall suspend the collection thereof from Sublandlord and
from the Subleased Property, and neither the Subleased Property nor any
Rent therefrom nor any part thereof or interest therein would be in any
danger of being sold, forfeited, attached or lost pending the outcome of
such proceedings;
(b) in the case of a Legal Requirement, neither Sublandlord, Lessor,
any Facility Mortgagee nor any mortgagee of Lessor would be subject to
criminal or civil liability for failure to comply therewith pending the
outcome of such proceedings. Nothing in this Article 12(b), however,
shall permit Subtenant to delay compliance with any requirement of any
Environmental Law to the extent such non-compliance poses an immediate
threat of injury to any Person or to the public health or safety or of
material damage to any real or personal property;
(c) in the case of a Legal Requirement and/or an Imposition, lien,
encumbrance or charge, Subtenant shall give such reasonable security, if
any, as may be demanded by Sublandlord to insure ultimate payment of the
same and to prevent any sale or forfeiture of the affected Subleased
Property or the Rent by reason of such non-payment or noncompliance,
provided, however, the provisions of this Article 12 shall not be
construed to permit Subtenant to contest the payment of Rent (except as
to contests concerning the method of computation or the basis of levy of
any Imposition or the basis for the assertion of any other claim) or any
other sums payable by Subtenant to Sublandlord hereunder, and provided
further that any such security remaining after the final resolution of
such matter shall be returned to Subtenant;
(d) no such contest shall interfere in any material respect with the
use or occupancy of the Subleased Property;
(e) in the case of an Insurance Requirement, the coverage required
by Article 13 shall be maintained; and
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(f) if such contest be finally resolved against Sublandlord or
Subtenant, Subtenant shall, as Additional Charges due hereunder, promptly
pay the amount required to be paid, together with all interest and
penalties accrued thereon, or comply with the applicable Legal
Requirement or Insurance Requirement, and Sublandlord, at Subtenant's
expense, shall execute and deliver to Subtenant such authorization and
other documents as may reasonably be required in any such contest, and,
if reasonably requested by Subtenant or if Sublandlord so desires,
Sublandlord shall join as a party therein. Subtenant shall indemnify and
save Sublandlord, Lessor, each Facility Mortgagee and any mortgagee of
Lessor harmless against any liability, cost or expense of any kind that
may be imposed upon Sublandlord, Lessor, any Facility Mortgagee or any
mortgagee of Lessor in connection with any such contest and any loss
resulting therefrom.
ARTICLE 13
INSURANCE
13.1 GENERAL INSURANCE REQUIREMENTS. Subject to the terms of Article 22
hereof, during the Term of this Sublease, Subtenant shall at all times keep the
Subleased Property, and all property located in or on the Subleased Property,
including all Subtenant's Personal Property and any Subtenant Improvements,
insured with the kinds and amounts of insurance described below and any other
or additional insurance required by Lessor or by any Facility Mortgagee or
mortgagee of Lessor. This insurance shall be written by companies authorized
to do insurance business in the State in which the Subleased Property is
located. The policies must name Sublandlord and Lessor as an additional
insured. Losses shall be payable to Sublandlord and/or Subtenant as provided
in Article 14. In addition, the policies shall name as an additional insured
(i) the holder of any mortgage, deed of trust or other security agreement
securing any indebtedness or any other Sublandlord's Encumbrance placed on the
Subleased Property in accordance with the provisions of Article 26 ("Facility
Mortgage"), and (ii) any mortgagee of Lessor, by way of a standard New York
Mortgage clause or other applicable form of mortgagee's loss payable
endorsement. Any loss adjustment shall require the written consent of
Sublandlord, Subtenant, and each Facility Mortgagee. Evidence of insurance
shall be deposited with Sublandlord and, if requested, with any Facility
Mortgagee(s) or mortgagee(s) of Lessor. The policies on the Subleased
Property, including the Subleased Improvements, Fixtures, Subtenant's Personal
Property and any Subtenant Improvements, shall insure against the following
risks:
13.1.1 ALL RISK. Loss or damage by all risks perils including, but
not limited to, fire, vandalism, malicious mischief and extended
coverages, including sprinkler leakage, in an amount not less than 100%
of the then Full Replacement Cost thereof.
13.1.2 LIABILITY. Claims for personal injury or property damage
under a policy of comprehensive general public liability insurance with
amounts not less than $10,000,000 per occurrence and in the aggregate.
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13.1.3 FLOOD. Flood (when the Subleased Property is located in
whole or in material part in a designated flood plain area) and such
other hazards and in such amounts as may be customary for comparable
properties in the area; provided, however, that Subtenant shall not be
required to participate in the National Flood Insurance Program.
13.1.4 WORKER'S COMPENSATION. Adequate worker's compensation
insurance coverage for all Persons employed by Subtenant on the Subleased
Property in accordance with the requirements of applicable federal, state
and local laws.
13.1.5 RENT LOSS. Rent loss Insurance payable to Sublandlord
covering payment of the then applicable Annual Base Rent for a twelve
(12) month period.
13.1.6 OTHER INSURANCE. Such other kinds and amounts of insurance
on or in connection with any of the Subleased Property, including all
Subtenant's Personal Property and any Subtenant Improvements, as
Sublandlord or any Facility Mortgagee may reasonably require, which at
the time is usual and commonly obtained in connection with properties
similar in type of building size and use to the Subleased Property and
located in the geographic area where the Subleased Property is located.
13.2 REPLACEMENT COST. In the event either party believes that the Full
Replacement Cost of the insured property has increased or decreased at any time
during the Term, it shall have the right to have such Full Replacement Cost
redetermined by the fire insurance company which is then carrying the largest
amount of fire insurance carried on the Subleased Property (the "Impartial
Appraiser"). The party desiring to have the Full Replacement Cost so
redetermined shall forthwith, on receipt of such determination by such
Impartial Appraiser, give written notice thereof to the other party hereto.
The determination of such Impartial Appraiser shall be final and binding on the
parties hereto, and Subtenant shall forthwith increase, or may decrease, the
amount of the insurance carried pursuant to this Section 13.2, as the case may
be, to the amount so determined by the Impartial Appraiser. Each party shall
pay one-half of the fee, if any, of the Impartial Appraiser.
13.3 WAIVER OF SUBROGATION. All insurance policies carried by either
party covering the Subleased Property including contents, fire and casualty
insurance, shall expressly waive any right of subrogation on the part of the
insurer against the other party (including any Facility Mortgagee and mortgagee
of Lessor). The parties hereto agree that their policies will include such
waiver clause or endorsement so long as the same are obtainable without extra
cost, and in the event of such an extra charge the other party, at its
election, may pay the same, but shall not be obligated to do so.
13.4 FORM SATISFACTORY, ETC. All of the policies of insurance referred to
in Section 13.1 shall be written in a form reasonably satisfactory to
Sublandlord and by insurance companies rated not less than AVIII by A.M. Best's
Insurance Guide. Subtenant shall pay all
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premiums for the policies of insurance referred to in Section 13.1 and shall
deliver certificates thereof and copies of said policies to Sublandlord prior
to their effective date (and with respect to any renewal policy, at least 10
days prior to the expiration of the existing policy). In the event Subtenant
fails to satisfy its obligations under this Section 13.4, Sublandlord shall be
entitled, but shall have no obligation, to effect such insurance and pay the
premiums therefor, which premiums (together with interest thereon accruing at
the Overdue Rate until repaid) shall be repayable to Sublandlord upon written
demand as Additional Charges. Each policy of insurance required by Section
13.1 shall, by endorsement on the policy or policies, or by independent
instrument furnished to Sublandlord, provide that the insurer thereunder will
give to Sublandlord not less than 30 days' written notice before the policy or
policies in question shall be altered, allowed to expire or canceled. Each
such policy shall also provide that any loss otherwise payable thereunder shall
be payable notwithstanding (i) any act or omission of Sublandlord, Subtenant or
Lessor which might, absent such provision, result in a forfeiture of all or a
part of such insurance payment, (ii) the occupation or use of the Subleased
Property for purposes more hazardous than those permitted by the provisions of
such policy, (iii) any foreclosure or other action or proceeding taken by any
Facility Mortgage or any mortgagee of Lessor pursuant to any provision of a
mortgage, note, assignment or other document evidencing or securing a loan upon
the happening of an event of default therein or (iv) any change in title to or
ownership of the Subleased Property.
13.5 CHANGE IN LIMITS. In the event that Sublandlord shall at any time
reasonably determine on the basis of prudent industry practice that the
liability insurance carried by Subtenant pursuant to Section 13.1.2 is either
excessive or insufficient, the parties shall endeavor to agree on the proper
and reasonable limits for such insurance to be carried; and such insurance
shall thereafter be carried with the limits thus agreed on until further
changed pursuant to the provisions of this Section 13.5; provided, however,
that the deductibles for such insurance or the amount of such insurance which
is self-retained by Subtenant shall be as reasonably determined by Subtenant so
long as Subtenant can reasonably demonstrate its ability to satisfy such
deductible or amount of such self-retained insurance.
13.6 BLANKET POLICY. Notwithstanding anything to the contrary contained
in this Article 13, Subtenant's obligations to carry the insurance provided for
herein may be brought within the coverage of a so-called blanket policy or
policies of insurance carried and maintained by Subtenant; provided, however,
that the coverage afforded Sublandlord, Lessor, each Facility Mortgagee and any
mortgagee of Lessor will not be reduced or diminished or otherwise be different
from that which would exist under a separate policy meeting all other
requirements of this Sublease by reason of the use of such blanket policy of
insurance, and provided further that the requirements of this Article 13 are
otherwise satisfied. The amount of the total insurance allocated to the
Subleased Property, which amount shall be not less than the amounts required
pursuant to Section 13.1, shall be specified either (i) in each such "blanket"
policy or (ii) in a written statement, which Subtenant shall deliver to
Sublandlord and Facility Mortgagee, from the insurer thereunder. A certificate
and copy of each such "blanket" policy shall promptly be delivered to
Sublandlord and Facility Mortgagee.
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ARTICLE 14
APPLICATION OF INSURANCE PROCEEDS
14.1 INSURANCE PROCEEDS. All proceeds of insurance payable by reason of
any loss or damage to the Subleased Property, or any portion thereof, and
insured under any policy of insurance required by Article 13 shall (i) if
greater than or equal to $250,000, be paid to and held by Sublandlord and (ii)
if less than such amount, be paid to Subtenant and held by Subtenant. All such
proceeds shall be held in trust and shall be made available for reconstruction
or repair, as the case may be, of any damage to or destruction of the Subleased
Property, or any portion thereof.
14.1.1 DISBURSEMENT OF PROCEEDS. Any proceeds held by Sublandlord
or Subtenant shall be paid out by Sublandlord or Subtenant from time to
time for the reasonable costs of such reconstruction or repair; provided,
however, that Sublandlord shall disburse proceeds subject to the
following requirements:
(i) prior to commencement of restoration, (A) the architects,
contracts, contractors, plans and specifications for the
restoration shall have been approved by Sublandlord, which approval
shall not be unreasonably withheld or delayed, (B) if legally
permitted (and, if waivers can be obtained at such time without
payment of additional funds to the contractors at such time),
appropriate waivers of mechanics' and materialmen's liens shall
have been filed and (C) Subtenant shall have obtained and delivered
to Sublandlord all required governmental and private approvals
necessary to complete the reconstruction or repair (including
building permits, licenses and other necessary approvals);
(ii) at the time of any disbursement, subject to Article 12,
no mechanics' or materialmen's liens shall have been filed against
any of the Subleased Property and remain undischarged, unless a
satisfactory bond shall have been posted in accordance with the
laws of the State;
(iii) disbursements shall be made from time to time in an
amount not exceeding the cost of the work completed since the last
disbursement, upon receipt of (A) satisfactory evidence of the
stage of completion, the estimated total cost of completion and
performance of the work to date in a good and workmanlike manner in
accordance with the contracts, plans and specifications, (B)
waivers of liens, (C) a satisfactory bringdown of title insurance
and (D) other evidence of cost and payment so that Sublandlord and
Facility Mortgagee can verify that the amounts disbursed from time
to time are represented by work that is completed, in place and
free and clear of mechanics' and materialmen's lien claims;
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(iv) each request for disbursement shall be accompanied by a
certificate of Subtenant, signed by a duly authorized
representative of Subtenant, describing the work for which payment
is requested, stating the cost incurred in connection therewith,
stating that Subtenant has not previously received payment for such
work and, upon completion of the work, also stating that the work
has been fully completed and complies with the applicable
requirements of this Sublease;
(v) to the extent actually held by Sublandlord and not by a
Facility Mortgagee or mortgagee of Lessor, (1) the proceeds shall
be held in a separate account and shall not be commingled with
Sublandlord's other funds, and (2) interest shall accrue on funds
so held at the money market rate of interest and such interest
shall constitute part of the proceeds; and
(vi) such other reasonable conditions as Sublandlord or
Facility Mortgagee may reasonably impose, including, without
limitation, payment by Subtenant of reasonable costs of
administration imposed by or on behalf of Facility Mortgagee should
the proceeds be held by Facility Mortgagee and including a deposit
of funds by Subtenant if reasonably determined by Sublandlord or
Facility Mortgagee that the insurance proceeds are insufficient to
complete the restoration.
14.1.2 EXCESS PROCEEDS. Any excess proceeds of insurance remaining
after the completion of the restoration or reconstruction of the
Subleased Property (or in the event neither Sublandlord nor Subtenant is
required or elects to repair and restore) shall be paid to Sublandlord
and Subtenant in like proportions to the value of Sublandlord's interests
in the Subleased Property and Subtenant's interest in Subtenant's
Personal Property and the Subtenant Improvements, or any portion thereof
upon completion of any such repair and restoration except as otherwise
specifically provided below in this Article 14. All salvage resulting
from any risk covered by insurance shall belong to Sublandlord.
14.2 RECONSTRUCTION COVERED BY INSURANCE.
14.2.1 DESTRUCTION RENDERING FACILITY UNSUITABLE FOR ITS PRIMARY
USE. If during the Term the Subleased Property is totally or partially
destroyed from a risk covered by the insurance described in Article 13
and the Facility thereby is rendered Unsuitable For Its Primary Intended
Use, Subtenant shall diligently restore the Facility to substantially the
same condition as existed immediately before the damage or destruction.
Such damage or destruction shall not terminate this Sublease.
14.2.2 DESTRUCTION NOT RENDERING FACILITY UNSUITABLE FOR ITS
PRIMARY USE. If during the Term, the Subleased Property is totally or
partially destroyed from a risk covered by the insurance described in
Article 13, but the Facility is not thereby rendered Unsuitable For Its
Primary Intended Use, Subtenant shall diligently restore the Facility
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to substantially the same condition as existed immediately before the
damage or destruction; provided, however, Subtenant shall not be required
to restore Subtenant's Personal Property and/or any Subtenant
Improvements if failure to do so does not adversely affect the amount of
Additional Rent payable hereunder. Such damage or destruction shall not
terminate this Sublease.
14.2.3 COSTS OF REPAIR. If the cost of the repair or restoration
exceeds the amount of proceeds received by Sublandlord or Subtenant from
the insurance required under Article 13, Subtenant shall pay for such
excess cost of repair or restoration.
14.3 RECONSTRUCTION NOT COVERED BY INSURANCE. If during the Term, the
Facility is totally or materially destroyed from a risk not covered by the
insurance described in Article 13, whether or not such damage or destruction
renders the Facility Unsuitable For Its Primary Intended Use, Subtenant shall
diligently restore the Facility to substantially the same condition as existed
immediately before the damage or destruction.
14.4 NO ABATEMENT OF RENT. This Sublease shall remain in full force and
effect and Subtenant's obligation to make rental payments and to pay all other
charges required by this Sublease shall remain unabated during the period
required for repair and restoration; provided, however, that if there is no
Event of Default, Subtenant shall be entitled to retain any proceeds of rental
value or business interruption insurance coverage maintained by Subtenant
(which amounts shall be deemed Golf Course Revenue for purposes hereof).
14.5 WAIVER. Subtenant hereby waives any statutory or other rights of
termination which may arise by reason of any damage or destruction of the
Facility which Sublandlord or Subtenant is obligated to restore or may restore
under any of the provisions of this Sublease.
14.6 DAMAGE NEAR END OF TERM. Notwithstanding any other provision to the
contrary in this Article 14, if damage to or destruction of the Subleased
Property occurs during the last 24 months of the Term of this Sublease, and if
such damage or destruction cannot reasonably be expected to be fully repaired
or restored prior to the date that is 12 months prior to the end of the
then-applicable Term, then either Sublandlord or Subtenant shall have the right
to terminate this Sublease on not less than 30 days' prior notice to the other
party by giving notice thereof to the other party within 60 days after the date
of such damage or destruction. Upon any such termination, Sublandlord shall be
entitled to retain all insurance proceeds, grossed up by Subtenant to account
for the deductible or any self-insured retention; provided, however, that
Subtenant shall be entitled to retain or receive all insurance proceeds
relating to Subtenant's Personal Property. If Sublandlord shall give Subtenant
a notice under this Section 14.6 that it seeks to terminate this Sublease at a
time when Subtenant has a remaining Extended Term, then such termination notice
shall be of no effect if Subtenant shall exercise its rights to extend the Term
not later than the earlier of the time required by Section 2.2 or within 30
days after Sublandlord's notice of termination given under this Section 14.6.
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ARTICLE 15
CONDEMNATION
15.1 TOTAL TAKING. If at any time during the Term the Subleased Property
is totally and permanently taken by Condemnation, this Sublease shall terminate
on the Date of Taking and Subtenant shall promptly pay all outstanding Rent and
other charges through the date of termination.
15.2 PARTIAL TAKING. If a portion of the Subleased Property is taken by
Condemnation, this Sublease shall remain in effect if the Facility is not
thereby rendered Unsuitable For Its Primary Intended Use, but if the Facility
is thereby rendered Unsuitable For Its Primary Intended Use, this Sublease
shall terminate on the Date of Taking.
15.3 RESTORATION. If there is a partial taking of the Subleased Property
and this Sublease remains in full force and effect pursuant to Section 15.2,
Sublandlord at its cost shall accomplish all necessary restoration up to but
not exceeding the amount of the Award payable to Sublandlord, as provided
herein; provided, however, that at Sublandlord's option, Sublandlord may
require Subtenant to perform such restoration, in which event Sublandlord shall
make Sublandlord's Award available for such purpose, subject to disbursement
requirements substantially similar to those set forth in Section 14.1.1 (it
being understood that Subtenant shall be responsible for completion of such
restoration, at its cost, irrespective of whether the condemnation proceeds are
sufficient to pay all of the costs of such restoration work). If Subtenant
receives an Award under Section 15.4, Subtenant shall repair or restore any
Subtenant Improvements up to but not exceeding the amount of the Award payable
to Subtenant therefor.
15.4 AWARD DISTRIBUTION. The entire Award shall belong to and be paid to
Sublandlord, except that, subject to the rights of the Facility Mortgagee and
any mortgagee of Lessor, Subtenant shall be entitled to receive from the Award,
if and to the extent such Award specifically includes such items, or to
otherwise pursue a separate Award (but only to the extent such separate Award
does not reduce the amount of the Award to which Sublandlord would otherwise be
entitled hereunder) for, a sum attributable to the value, if any, of: (i) any
Subtenant's Personal Property and (ii) the leasehold interest of Subtenant
under this Sublease; provided, however, that if the amount received by
Sublandlord, Lessor, the Facility Mortgagee and any mortgagee of Lessor is less
than the Condemnation Threshold, then the amount of the Award otherwise payable
to Subtenant for the value of its leasehold interest under this Sublease (and
not any other funds of Subtenant) shall instead be paid over to Sublandlord up
to the amount of the shortfall.
15.5 TEMPORARY TAKING. The taking of the Subleased Property, or any part
thereof, by military or other public authority shall constitute a taking by
Condemnation only when the use and occupancy by the taking authority has
continued for longer than six months. During any such six month period or
less, which shall be deemed a temporary taking, all the provisions of
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this Sublease shall remain in full force and effect with no abatement of Rent
payable by Subtenant hereunder. In the event of any such temporary taking, the
entire amount of any such Award made for such temporary taking allocable to the
Term of this Sublease, whether paid by way of damage, rent or otherwise, shall
be paid to Subtenant.
ARTICLE 16
EVENTS OF DEFAULT
16.1 EVENTS OF DEFAULT. If any one or more of the following events
(individually, an "Event of Default") shall occur:
(a) if Subtenant shall fail to make payment of the Rent payable by
Subtenant under this Sublease when the same becomes due and payable and
such failure is not cured by Subtenant within a period of 10 days after
receipt by Subtenant of notice thereof from Sublandlord; provided,
however, that such notice shall be in lieu of and not in addition to any
notice required under applicable law;
(b) if Subtenant shall fail to obtain, maintain or replace the
security deposit as required by Article 21 or the capital expenditure
reserve deposits required by Section 18.2;
(c) if, other than as a result of Unavoidable Delays, Subtenant
shall fail to observe or perform any material term, covenant or condition
of this Sublease and such failure is not cured by Subtenant within a
period of 30 days after receipt by Subtenant of notice thereof from
Sublandlord, unless such failure cannot with due diligence be cured
within a period of 30 days, in which case such failure shall not be
deemed to continue if Subtenant proceeds promptly and with due diligence
to cure the failure and diligently completes the curing thereof, and in
any event cures such failure within an additional ninety (90) day period
following the foregoing 30-day cure period; provided, however, that such
notice shall be in lieu of and not in addition to any notice required
under applicable law; provided further, however, that the cure period
shall not extend beyond 30 days as otherwise provided by this Section
16.1(c) if the facts or circumstances giving rise to the default are
creating a further harm to Sublandlord or the Subleased Property and
Sublandlord makes a good faith determination that Subtenant is not
undertaking remedial steps that Sublandlord would cause to be taken if
this Sublease were then to terminate.
(d) if Subtenant shall:
(i) admit in writing its inability to pay its debts generally
as they become due;
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(ii) file a petition in bankruptcy or a petition to take
advantage of any insolvency act;
(iii) make an assignment for the benefit of its creditors;
(iv) consent to the appointment of a receiver of itself or of
the whole or any substantial part of its property;
(v) file a petition or answer seeking reorganization or
arrangement under the Federal bankruptcy laws or any other
applicable law or statute of the United States of America or any
state thereof; or
(vi) be unable to pay its debts as they mature.
(e) if Subtenant shall, on a petition in bankruptcy filed against
it, be adjudicated as bankrupt or a court of competent jurisdiction shall
enter an order or decree appointing, without the consent of Subtenant, a
receiver of Subtenant or of the whole or substantially all of its
property, or approving a petition filed against it seeking reorganization
or arrangement of Subtenant under the federal bankruptcy laws or any
other applicable law or statute of the United States of America or any
state thereof, and such judgment, order or decree shall not be vacated or
set aside or stayed within 60 days from the date of the entry thereof;
(f) if Subtenant shall be liquidated or dissolved, or shall begin
proceedings toward such liquidation or dissolution;
(g) if the estate or interest of Subtenant in the Subleased Property
or any part thereof shall be levied upon or attached in any proceeding
and the same shall not be vacated or discharged within the later of 90
days after commencement thereof or 30 days after receipt by Subtenant of
notice thereof from Sublandlord (unless Subtenant shall be contesting
such lien or attachment in accordance with Article 12); provided,
however, that such notice shall be in lieu of and not in addition to any
notice required under applicable law;
(h) if, except as a result of damage, destruction or a partial or
complete Condemnation or other Unavoidable Delays, Subtenant voluntarily
ceases operations on the Subleased Property for a period in excess of 45
consecutive days;
(i) any representation or warranty made by Subtenant herein or in
any certificate, demand or request made pursuant hereto proves to have
been incorrect when made in any material respect, and any adverse effect
on Sublandlord of any such misrepresentation or breach of warranty has
not been corrected to Sublandlord's
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satisfaction within 20 days after Subtenant becomes aware of, or is
notified by Sublandlord of the fact of, such misrepresentation or breach
of warranty;
(j) if an Event of Default under any of the Other Property Leases
occurs, provided, however, that if such Event of Default (other than for
the failure to pay money or post the requisite security) arose from
occurrences beyond the reasonable control of Subtenant, such Event of
Default shall not constitute an Event of Default under this Section
16.1(j);
(k) with respect to two (2) or more of the Other Property Leases,
either an Event of Default has occurred and is continuing or such leases
have been terminated by reason of an Event of Default;
(l) a default by Subtenant in any payment of principal or interest
on any obligations for borrowed money having a principal balance of
$5,000,000 or more in the aggregate (excluding obligations which are
limited in recourse to specific property of Subtenant provided that such
property is not a substantial portion of the assets of Subtenant), or in
the performance of any other provision contained in any instrument under
which any such obligation is created or secured (including the breach of
any covenant thereunder), if an effect of such default is that the
holder(s) of such obligation cause such obligation to become due prior to
its stated maturity;
(m) a final, non-appealable judgment or judgments for the payment of
money in excess of $3,000,000 in the aggregate not fully covered
(excluding deductibles) by insurance shall be rendered against Subtenant
and the same shall remain undischarged, unvacated, unbonded, or unstayed
for a period of 60 consecutive days; or
(n) if Subtenant shall default with respect to any of the provisions
of the Master Lease that Subtenant is obligated to comply with pursuant
to Section 29.1 below and Subtenant fails to cure such default within the
applicable cure period (if any) under the Master Lease;
THEN, Sublandlord may terminate this Sublease by giving Subtenant not less than
10 days' notice (or no notice for clauses (d), (f) and (g)) of such termination
and upon the expiration of the time fixed in such notice, the Term shall
terminate and all rights of Subtenant under this Sublease shall cease. Without
limitation of the foregoing, Sublandlord shall have all other rights at law and
in equity available to Sublandlord as a result of any Event of Default under
this Sublease.
16.2 PAYMENT OF COSTS. Subtenant shall, to the extent permitted by law,
pay as Additional Charges all costs and expenses incurred by or on behalf of
Sublandlord, including reasonable attorneys' fees and expenses, as a result of
any Event of Default hereunder.
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16.3 EXCEPTIONS. No Event of Default (other than a failure to make
payment of money or post a required letter of credit) shall be deemed to exist
under clause 16.1(c) or clause 16.1(j) during any time the curing thereof is
prevented by an Unavoidable Delay; provided that, upon the cessation of such
Unavoidable Delay, Subtenant shall remedy such default without further delay.
16.4 CERTAIN REMEDIES. If an Event of Default shall have occurred (and
the event giving rise to such Event of Default has not been cured within the
curative period relating thereto as set forth in Section 16.1) and be
continuing, whether or not this Sublease has been terminated pursuant to
Section 16.1, Subtenant shall, to the extent permitted by law, if required by
Sublandlord so to do, immediately surrender to Sublandlord the Subleased
Property pursuant to the provisions of Section 16.1 and quit the same and
Sublandlord may enter upon and repossess the Subleased Property by reasonable
force, summary proceedings, ejectment or otherwise, and may remove Subtenant
and all other Persons and any and all Subtenant's Personal Property from the
Subleased Property subject to any requirement of law.
16.5 DAMAGES. None of (a) the termination of this Sublease pursuant to
Section 16.1, (b) the repossession of the Subleased Property, (c) the failure
of Sublandlord, notwithstanding reasonable good faith efforts, to relet the
Subleased Property, (d) the reletting of all or any portion thereof, nor (e)
the failure of Sublandlord to collect or receive any rentals due upon any such
reletting, shall relieve Subtenant of its liability and obligations hereunder,
all of which shall survive any such termination, repossession or reletting. In
the event of any such termination, Subtenant shall forthwith pay to Sublandlord
all Rent due and payable with respect to the Subleased Property to, and
including, the date of such termination. Thereafter, Subtenant shall forthwith
pay to Sublandlord, at Sublandlord's option, as and for liquidated and agreed
current damages for Subtenant's default, either:
(a) the sum of:
(i) the worth at the time of award of the amount by which the
unpaid Rent which would have been earned after termination until
the time of award exceeds the amount of such rental loss that
Subtenant proves could have been reasonably avoided,
(ii) the worth at the time of award of the amount by which the
unpaid Rent for the balance of the Term after the time of award
exceeds the amount of such rental loss that Subtenant proves could
be reasonably avoided, and
(iii) any other amount necessary to compensate Sublandlord for
all the detriment proximately caused by Subtenant's failure to
perform its obligations under this Sublease or which in the
ordinary course of things would be likely to result therefrom.
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In making the above determinations, the worth at the time of the award
shall be determined by the court having jurisdiction thereof using, as a
discount factor for determining present value, a rate equal to the Prime
Rate at the time of the Event of Default, and the Additional Rent shall
be deemed to be the same as for the then-current Fiscal Year or, if not
determinable, the immediately preceding Fiscal Year, for the remainder of
the Term, or such other amount as either party shall prove reasonably
could have been earned during the remainder of the Term or any portion
thereof; or
(b) without termination of Subtenant's right to possession of the
Subleased Property, each installment of said Rent and other sums payable
by Subtenant to Sublandlord under the Sublease as the same becomes due
and payable, which Rent and other sums shall bear interest at the maximum
annual rate permitted by the law of the State from the date when due
until paid, and Sublandlord may enforce, by action or otherwise, any
other term or covenant of this Sublease.
16.6 ADDITIONAL REMEDIES. In addition to and without limitation of the
foregoing, Sublandlord shall have all other remedies that may be available
under applicable law.
16.7 APPOINTMENT OF RECEIVER. Upon the occurrence of an Event of Default,
and upon filing of a suit or other commencement of judicial proceedings to
enforce the rights of Sublandlord hereunder, Sublandlord shall be entitled, as
a matter of right, to the appointment of a receiver or receivers acceptable to
Sublandlord (i) of the Subleased Property and the Facility and (ii) of the
revenues, earnings, income, products and profits thereof, pending such
proceedings, with such powers as the court making such appointment shall
confer.
16.8 WAIVER. If this Sublease is terminated pursuant to Section 16.1,
Subtenant waives, to the extent permitted by applicable law (a) any right of
redemption, re-entry or repossession and (b) any right to a trial by jury in
the event of summary proceedings to enforce the remedies set forth in this
Article 16.
16.9 APPLICATION OF FUNDS. Any payments received by Sublandlord under any
of the provisions of this Sublease during the existence or continuance of any
Event of Default shall be applied to Subtenant's obligations in such order as
Sublandlord may determine or as may be prescribed by the laws of the State.
ARTICLE 17
SUBLANDLORD'S RIGHT TO CURE SUBTENANT'S DEFAULT
If Subtenant shall fail to make any payment or to perform any act required
to be made or performed under this Sublease, and to cure the same within the
relevant time periods in Section 16.1, Sublandlord, after notice to and demand
upon Subtenant, and without waiving or releasing any obligation or default, may
(but shall be under no obligation to) at any time
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thereafter make such payment or perform such act for the account and at the
expense of Subtenant. Sublandlord may, to the extent permitted by law, enter
upon the Subleased Property for such purpose and take all such action thereon
as, in Sublandlord's good faith judgment, may be necessary or appropriate
therefor. No such entry shall be deemed an eviction of Subtenant. All sums so
paid by Sublandlord and all costs and expenses (including reasonable attorneys'
fees and expenses, to the extent permitted by law) so incurred, together with a
late charge thereon at the Overdue Rate from the date on which such sums or
expenses are paid or incurred by Sublandlord, shall be paid by Subtenant to
Sublandlord on demand. The obligations of Subtenant and rights of Sublandlord
contained in this Article 17 shall survive the expiration or earlier
termination of this Sublease.
ARTICLE 18
OPERATIONS/CAPITAL EXPENDITURES
18.1 ANNUAL PLAN. On or before the Commencement Date (i.e., with respect
to the calendar year in which the Commencement Date occurs), and thereafter on
or before November 30th of each year during the Term hereof, Subtenant shall
deliver to Sublandlord a report with respect to the next succeeding calendar
year (herein, an "Annual Plan"), setting forth the plans and prospects for
Subtenant's business operations at the Subleased Property, which shall include
(i) a forecast or budget of revenues (including, without limitation, Golf
Course Revenues and Other Revenues) and expenses for such period, (ii) a
projection on a month-by-month basis of cash in-flow and working capital, (iii)
proposed plans for marketing, sales, promotion, membership development and
advertising, (iv) a proposed schedule of all fees and charges to be imposed at
the Subleased Property, including, but not limited to, membership fees, greens
fees and cart rental charges, charges for the use of practice range facilities,
food and beverages charges, and fees and charges for other services, amenities
and products that Subtenant intends to offer at the Subleased Property, (v) a
forecast or budget of Capital Expenditures for such period, together with a
plan for the improvement of the golf course and related facilities and a plan
for the improvement of the clubhouse and other buildings at the Subleased
Property, and (vi) description of any other material action concerning the
management, operation or marketing of the Subleased Property contemplated for
the period at issue. Sublandlord shall have the right to request reasonable
modifications to the components of the Annual Plan described in subclause (v)
above with respect to additions or improvements made or to be made to the
Subleased Property, by notice thereof to Subtenant, and Subtenant shall
thereafter so modify such items as reasonably requested by Sublandlord, and
shall submit the revised components of the Annual Plan to Sublandlord within
thirty (30) days following Sublandlord's request for such modifications.
Subtenant shall utilize good faith efforts to implement the Annual Plan for the
respective period or periods covered thereby and shall promptly notify
Sublandlord of any action taken by Subtenant which materially deviates from the
matters set forth in the current Annual Plan. Without limitation of the
foregoing, it is agreed by Subtenant that the Annual Plan shall provide for an
annual budget for Capital Expenditures
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of not less than three percent (3%) of the Golf Course Revenues and Other
Revenues budgeted for such annual period.
18.2 FUNDING OF CAPITAL EXPENDITURE RESERVE ACCOUNT. Within twenty (20)
days after the end of each Fiscal Quarter during the Term hereof, Subtenant
shall deposit into an account at an institution designated by Sublandlord
(herein, the "Capital Expenditure Reserve Account"), the aggregate "Capital
Expenditure Reserve Amounts" (as defined below) required for the immediately
preceding Fiscal Quarter. Such amounts shall be invested as directed by
Subtenant, subject to Sublandlord's reasonable approval. As further security
for the payment and performance of all obligations of Subtenant hereunder,
Subtenant hereby grants to Sublandlord and, if so requested by Sublandlord, to
any Facility Mortgagee designated by Sublandlord, a security interest in and to
the Capital Expenditure Reserve Account and all sums on deposit therein. All
such sums, together with any interest thereon, shall belong to Subtenant and
will be held in the Capital Expenditure Reserve Account and released and
applied in accordance with the terms of this Sublease. Subtenant may make
withdrawals from the Capital Expenditure Reserve Account with respect to
Capital Expenditures that are reflected in the Annual Plan and which pertain to
Subtenant Improvements approved by Sublandlord pursuant to Article 10 hereof,
to the extent such withdrawals are made to reimburse Subtenant for sums paid or
incurred with respect to such Subtenant Improvements. Notwithstanding the
foregoing, upon the occurrence of an Event of Default hereunder, Subtenant
shall have no further rights with respect to any amounts on deposit in the
Capital Expenditure Reserve Account, and such amounts shall be deemed to be
held by Sublandlord as further security for Subtenant's obligations hereunder,
to be disbursed or applied in accordance with the same terms and conditions as
set forth in Article 21 hereof with respect to the balance of the security then
on deposit with Sublandlord. For purposes hereof, the term "Capital
Expenditure Reserve Amount" shall mean, for any Fiscal Quarter, an amount equal
to the excess (if any) of (i) three percent (3%) of the Golf Course Revenues
and Other Revenues accruing from the beginning of the "Capital Expenditure
Period" (as defined below) in which such Fiscal Quarter occurs through and
including the end of such Fiscal Quarter (herein, the "Calculation Period")
over (ii) the sum of all Capital Expenditures expended during such Calculation
Period with respect to the Subleased Property, which Capital Expenditures were
made pursuant to an Annual Plan and otherwise pursuant to the terms of Article
10 hereof. For purposes hereof, the term ""Capital Expenditure Period" shall
mean (a) the period from and the Commencement Date and through the fourth (4th)
full Fiscal Quarter thereafter and (b) each successive period of four (4) full
Fiscal Quarters thereafter occurring during the Term thereof. Any amounts
remaining in the Capital Expenditure Reserve Account at the expiration or prior
termination of the Term shall become the sole property of Sublandlord, without
further action by either party.
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ARTICLE 19
LEGAL REQUIREMENTS
Subject to Article 12 regarding permitted contests, Subtenant, at its
expense, shall promptly (a) comply with all Legal Requirements and Insurance
Requirements in respect of the use, operation, maintenance, repair and
restoration of the Subleased Property, whether or not compliance therewith
shall require structural changes in any of the Subleased Improvements or
interfere with the use and enjoyment of the Subleased Property; and (b)
procure, maintain and comply with all licenses, permits, approvals and
authorizations required for any use of the Subleased Property then being made,
and for the proper erection, installation, operation and maintenance of the
Subleased Property or any part thereof.
ARTICLE 20
HOLDING OVER
If Subtenant shall for any reason remain in possession of the Subleased
Property after the expiration of the Term or earlier termination of the Term
hereof, such possession shall be as a tenancy at sufferance during which time
Subtenant shall pay as rental each month or partial month, 125% of the
aggregate of (i) one-twelfth of the aggregate Annual Base Rent and Additional
Rent payable with respect to the last Fiscal Year of the preceding Term; (ii)
all Additional Charges accruing during the month; and (iii) all other sums, if
any, payable by Subtenant pursuant to the provisions of this Sublease with
respect to the Subleased Property. In addition to and without limiting any
other rights or remedies which Sublandlord may have on account of such holding
over, Subtenant shall indemnify Sublandlord and Lessor from and against all
damages suffered by Sublandlord or Lessor, as the case may be, on account of
such holding over, including any damages and claims by tenants or subtenants
entitled to future possession. During such period of tenancy at sufferance,
Subtenant shall be obligated to perform and observe all of the terms, covenants
and conditions of this Sublease, but shall have no rights hereunder other than
the right, to the extent given by law to such tenancies at sufferance, to
continue its occupancy and use of the Subleased Property. Nothing contained
herein shall constitute the consent, express or implied, of Sublandlord to the
holding over of Subtenant after the expiration or earlier termination of this
Sublease.
ARTICLE 21
UPREIT UNITS/REIT SHARES/LETTER OF CREDIT/SECURITY DEPOSIT
21.1 SECURITY DEPOSIT. On or before the Commencement Date, Subtenant
shall post a Letter of Credit with Sublandlord (or shall pledge or otherwise
deliver limited partnership units in Sublandlord, shares of common stock in
Sublandlord's general partner, or other security acceptable to Sublandlord and
described in Section 21.6 below), to be held as a security deposit
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in accordance with the term, of this Article 21. The security deposit shall, at
all times, be in an amount equal to the then Required Security Deposit Amount
(as defined in Exhibit A hereto).
21.2 OFFICER'S CERTIFICATE/AUDIT. Subtenant shall provide an Officer's
Certificate to Sublandlord not later than forty-five (45) days after the end of
each Fiscal Quarter, as to the Required Security Deposit Amount then in effect,
which Certificate shall include a calculation and reasonable detail of such
item. Without limitation of the foregoing, Sublandlord shall have the right,
at any time and from time to time, to audit, whether directly or through its
accountants, the information set forth in any Officer's Certificate to be
delivered under this Article 21, and in connection with such audit, to examine
Subtenant's books and records with respect thereto (including supporting data,
sales tax returns and Subtenant's workpapers). Any determination made by
Sublandlord pursuant to said audit shall be binding upon Subtenant. If any
such audit discloses that the EBITDA (as defined in Exhibit A hereto) was
overstated by such amount so as to result in a purported reduction in the
Required Security Deposit Amount for which Subtenant was not otherwise entitled
based upon the audited EBITDA calculations, then, in such case, Subtenant shall
be responsible for all costs incurred by Sublandlord in connection with such
audit and examination. If the determination of the then Required Security
Deposit Amount indicates that Sublandlord is then holding either less than or
greater than the then required security deposit hereunder, the parties shall
promptly cooperate with one another in either increasing or decreasing the
security deposit so that Sublandlord, within thirty (30) days after delivery of
said Officer's Certificate (or, if Sublandlord disputes such determination,
then within 30 days following any audit conducted by Sublandlord as provide
above in this Section 21.2), is then holding the appropriate security deposit
hereunder.
21.3 TERMS OF LETTER OF CREDIT. In the event that the security under this
Article 21 is in the form of a Letter of Credit, such Letter of Credit shall:
(i) be an irrevocable standby letter of credit from a bank with a
long-term debt rating from Standard & Poor's Corporation or Moody's
Investors Services Inc. of "A" or better naming Sublandlord (and/or any
Facility Mortgagee if requested by Sublandlord) as beneficiary to secure
Subtenant's obligations hereunder and Subtenant's or an Affiliate of
Subtenant's obligations under the Other Property Leases;
(ii) have a stated amount equal to the Required Security Deposit
Amount plus, if the Letter of Credit is intended to satisfy Subtenant's
obligations under the Other Property Leases with Sublandlord, the amounts
required under such other leases;
(iii) have a term of not less than one year;
(iv) provide that it will be honored upon a signed statement by
Sublandlord that Sublandlord is entitled to draw upon the letter of
credit under this Sublease, and shall require no signature or statement
from any party other than Sublandlord; and
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(v) permit multiple draws by providing that following the honor of
any drafts in an amount less than the aggregate stated amount of the
Letter of Credit, the issuing bank shall return the original letter of
credit to Sublandlord and that Sublandlord's rights as to the remaining
stated amount of the Letter of Credit will not be extinguished.
21.4 DRAWS AGAINST LETTER OF CREDIT/ALTERNATIVE SECURITY; APPLICATION OF
PROCEEDS. Sublandlord may draw against the Letter of Credit (or, in the case
of alternative security under Section 21.6 below, Sublandlord may apply or
otherwise proceed against such security) upon any monetary default under this
Sublease or any other Event of Default under the terms of Section 16.1.
Sublandlord may apply any amounts drawn or received under the Letter of Credit
(or alternative security) to the satisfaction of any obligations owed to
Sublandlord under this Sublease or the Other Property Leases. Any proceeds
from the Letter of Credit (or alternative security) drawn or received but not
so applied shall be held by Sublandlord as a security deposit.
21.5 RENEWAL OF LETTER OF CREDIT. If the Letter of Credit shall expire at
a time when the Letter of Credit is still required under Section 21.1 or
Section 21.2, Subtenant shall renew the Letter of Credit at least 30 days prior
to its expiration. If Subtenant shall fail to renew the Letter of Credit prior
to such time, Sublandlord may draw against the same and hold the proceeds
thereof as a security deposit until such time as Subtenant shall renew the
Letter of Credit. Sublandlord shall hold such security deposit in a separate
account in trust for Subtenant and shall account to Subtenant for any interest
earned thereon.
21.6 OTHER SECURITY. In the event Sublandlord, at its discretion (and
without obligation to do so), permits the security under this Article 21 to be
in a form other than a Letter of Credit, then the alternative security shall be
in the same amount as the "Required Security Deposit Amount" and shall
otherwise be in such form and substance as may be acceptable to Sublandlord, in
its discretion. In such event, Subtenant agrees to enter into a supplement to
this Sublease, at Sublandlord's request, in order to set forth the terms and
conditions governing the alternative security. Without limitation of the
foregoing, Sublandlord hereby agrees that limited partnership units in
Sublandlord or shares of common stock in Sublandlord's general partner shall be
deemed to be an acceptable form of alternative security hereunder. The value
of each such limited partnership unit or share of common stock, for purposes of
this Article 21, shall be (A) with respect to any partnership unit or share
delivered or pledged to Sublandlord as security as of the Commencement Date of
the Term, the "Price to Public (Per Share)", as shown on the cover page of the
final prospectus distributed in connection with the initial public offering of
shares of common stock of Sublandlord's general partner, and (B) with respect
to any partnership unit or share delivered or pledged to Sublandlord as
security at any time following the Commencement Date of the Term, the average
of the New York Stock Exchange closing prices per share of common stock of
Sublandlord's general partner for the twenty (20) consecutive "Trading Days"
(as hereinafter defined) immediately preceding the date of delivery or pledge
of said partnership unit or share as security hereunder. For purposes of the
foregoing, "Trading Day" shall mean a day on which the New York Stock Exchange
is open for the transaction of business.
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ARTICLE 22
IMPOUNDS
Without limitation on any obligations of Subtenant set forth herein,
Sublandlord shall have the right, at any time following and during the
continuance of an Event of Default hereunder, to require Subtenant to pay to
Sublandlord an additional monthly sum (each an "Impound Payment") sufficient to
pay the Impound Charges (as hereinafter defined) as they become due. As used
herein, "Impound Charges" shall mean real estate taxes on the Subleased
Property or payments in lieu thereof, rental or other payments due to Lessor
under the Master Lease and premiums on any insurance required by this Sublease.
Sublandlord shall determine the amount of the Impound Charges and of each
Impound Payment. The Impound Payments shall be held in a separate account and
shall not be commingled with other funds of Sublandlord and interest thereon
shall be held for the account of Subtenant. Upon Subtenant's tendering to
Sublandlord of invoices therefor no later than thirty (30) days prior to the
respective due dates thereof, Sublandlord shall apply the Impound Payments to
the payment of the Impound Charges in such order or priority as Sublandlord
shall reasonably determine or as otherwise required by law. If at any time the
Impound Payments theretofore paid to Sublandlord shall be insufficient for the
payment of the Impound Charges, Subtenant, within 10 days after Sublandlord's
written demand therefor, shall pay the amount of the deficiency to Sublandlord.
ARTICLE 23
INDEMNIFICATION; RISK OF LOSS
23.1 SUBTENANT'S INDEMNIFICATION. Notwithstanding the existence of any
insurance provided for in Article 13, and without regard to the policy limits
of any such insurance, Subtenant will protect, indemnify, save harmless and
defend Sublandlord, Lessor, each Facility Mortgagee and any mortgagee of Lessor
from and against all liabilities, obligations, claims, damages, penalties,
causes of action, costs and expenses (including reasonable attorneys' fees and
expenses), to the extent permitted by law, imposed upon or incurred by or
asserted against such parties by reason of:
(a) any accident, injury to or death of Persons or loss of or damage
to property occurring on or about the Subleased Property or adjoining
sidewalks, including, but not limited to, any accident, injury to or
death of Person or loss of or damage to property resulting from golf
balls, golf clubs, golf shoes, lawn mowers or other gardening devices,
golf carts, tractors or other motorized vehicles present on or adjacent
to the Subleased Property;
(b) any use, misuse, non-use, condition, maintenance or repair by
Subtenant of the Subleased Property;
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(c) any Impositions (which are the obligations of Subtenant to pay
pursuant to the applicable provisions of this Sublease);
(d) any failure on the part of Subtenant to perform or comply with
any of the terms of this Sublease;
(e) the non-performance of any of the terms and provisions of any
and all existing and future subsubleases of the Subleased Property to be
performed by the subsublandlord (i.e., Subtenant) thereunder;
(f) any "dram shop" liability associated with the sale and/or
consumption of alcohol at the Subleased Property; and
(g) any liability Sublandlord, Lessor, any Facility Mortgagee or any
mortgagee of Lessor may incur or suffer as a result of any permitted
contest by Subtenant pursuant to Article 12.
23.2 SUBLANDLORD'S INDEMNIFICATION OF SUBTENANT. Sublandlord shall
protect, indemnify, save harmless and defend Subtenant from and against all
liabilities, obligations, claims, damages, penalties, causes of action, costs
and expenses (including reasonable attorneys' fees) imposed upon or incurred by
or asserted against Subtenant as a result of Sublandlord's active negligence or
willful misconduct.
23.3 MECHANICS OF INDEMNIFICATION. As soon as reasonably practicable
after receipt by the indemnified party of notice of any liability or claim
incurred by or asserted against the indemnified party that is subject to
indemnification under this Article 23, the indemnified party shall give notice
thereof to the indemnifying party. The indemnified party may at its option
demand indemnity under this Article 23 as soon as a claim has been threatened
by a third party regardless of whether an actual loss has been suffered, so
long as the indemnified party shall in good faith determine that such claim is
not otherwise frivolous and that the indemnified party may be liable for, or
otherwise incur, a loss as a result thereof and shall give notice of such
determination to the indemnifying party. The indemnified party shall permit
the indemnifying party, at its option and expense, to assume the defense of any
such claim by counsel selected by the indemnifying party and reasonably
satisfactory to the indemnified party, and to settle or otherwise dispose of
the same; provided, however, that the indemnified party may at all times
participate in such defense at its expense; and provided further, however, that
the indemnifying party shall not, in defense of any such claim, except with the
prior written consent of the indemnified party, consent to the entry of any
judgment or to enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff in question
to the indemnified party and its affiliates a release of all liabilities in
respect of such claims, or that does not result only in the payment of money
damages by the indemnifying party. If the indemnifying party shall fail to
undertake such defense within 30 days after such notice, or within such shorter
time as may be reasonable under the circumstances, then the indemnified
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party shall have the right to undertake the defense, compromise or settlement
of such liability or claim on behalf of and for the account of the indemnifying
party.
23.4 SURVIVAL OF INDEMNIFICATION OBLIGATIONS. Subtenant's or
Sublandlord's liability for a breach of the provision of this Article 23
arising during the Term hereof shall survive any termination of this Sublease
for a period of one (1) year (i.e., meaning that Sublandlord or Subtenant, as
the case may be, must give notice to the other of such claim prior to the
expiration of said 1-year period).
23.5 RISK OF LOSS. During the Term of this Sublease, the risk of loss or
of decrease in the enjoyment and beneficial use of the Subleased Property as a
consequence of the damage or destruction thereof by fire, the elements,
casualties, thefts, riots, wars or otherwise, or in consequence of
foreclosures, attachments, levies or executions (other than by Sublandlord and
those claiming from, through or under Sublandlord) is assumed by Subtenant. In
the absence of gross negligence, willful misconduct or breach of this Sublease
by Sublandlord pursuant to Section 26.3, Sublandlord shall in no event be
answerable or accountable therefor nor shall any of the events mentioned in
this Section 23.5 entitle Subtenant to any abatement of Rent.
ARTICLE 24
SUBSUBLETTING AND ASSIGNMENT
24.1 PROHIBITION AGAINST SUBSUBLETTING AND ASSIGNMENT. Subject to Section
24.3, Subtenant shall not, without the prior written consent of Sublandlord
(which consent Sublandlord may grant or withhold in its sole and absolute
discretion, except as hereinafter expressly provided), assign, mortgage,
pledge, hypothecate, encumber or otherwise transfer (except to an Affiliate of
Subtenant) this Sublease or any interest herein, all or any part of the
Subleased Property or suffer or permit this Sublease or the leasehold estate
created hereby or any other rights arising under this Sublease to be assigned,
transferred, mortgaged, pledged, hypothecated or encumbered, in whole or in
part, whether voluntarily, involuntarily or by operation of law; provided,
however, that Sublandlord's consent to a proposed assignment of this Sublease
shall not be withheld if, as of the date of such assignment (a) the proposed
assignee shall also be the assignee of all Other Property Leases, in accordance
with the terms and conditions for assignment set forth therein, (b) the
proposed assignee (together with any proposed guarantor(s) of the proposed
assignee's obligations under this Sublease) has a net worth, as evidenced by
audited financial statements, of at least Thirty Million Dollars
($30,000,000.00), and (c) the proposed assignee, together with its Affiliates,
manages or operates not less than thirty (30) golf courses (hereinafter
collectively called the "Minimum Assignee Qualifications"). Sublandlord shall
have a period of thirty (30) days after delivery to it of a request for
assignment together with the financial and other information on the proposed
assignee (and any proposed guarantors) necessary for Sublandlord to evaluate
whether the proposed assignee satisfies the Minimum Assignee Qualifications
and Sublandlord's failure to respond within thirty (30) days of
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Sublandlord's receipt of a request for assignment and all required information
(as evidenced by a receipt signed and dated by Sublandlord) shall be deemed
Sublandlord's approval of said assignee and said assignment. Any notice
withholding consent must specify in detail the reasonable grounds for
Sublandlord so withholding its consent. For purposes of this Section 24.1, an
assignment of this Sublease shall be deemed to include any Change of Control of
Subtenant, as if such Change of Control were an assignment of this Sublease.
24.2 CHANGES IN CONTROL. A Change of Control requiring the consent of
Sublandlord shall mean:
(a) the issuance and/or sale by Subtenant or the sale by any
stockholder of Subtenant of a Controlling interest in Subtenant to a
Person other than an Affiliate of Subtenant, other than in either case a
distribution to the public pursuant to an effective registration
statement under the Securities Act of 1933, as amended (a "Registered
Offering");
(b) the sale, conveyance or other transfer of all or substantially
all of the assets of Subtenant (whether by operation of law or
otherwise);
(c) any other transaction, or series of transactions, which results
in (i) Palmer Management no longer being the sole managing member of
Subtenant or (ii) Palmer Management no longer owning, directly or
indirectly, beneficially at least fifty-one percent (51%) of the voting
and economic membership or ownership interests in Subtenant, or (iii)
Affiliates of Subtenant no longer having Control of Subtenant (in each
such case, other than through a Registered Offering); or
(d) any transaction pursuant to which Subtenant is merged with or
consolidated into another entity (other than an entity owned and
Controlled by an Affiliate of Subtenant), and Subtenant is not the
surviving entity;
provided, however, that Sublandlord shall not withold its
consent to a proposed assignment of this Sublease resulting from any
proposed Change of Control of Subtenant, so long as (i) for a Change of
Control under Sections 24.2(b) or (d) above, the Person formed by or
surviving such transaction as the assignee of Subtenant's interest
hereunder satisfies the "Minimum Assignee Qualifications" described in
Section 24.1 above, and (ii) for a Change of Control under Sections
24.1(a) or (c) above, the Person obtaining control of Subtenant as a
result of such transaction, together, together with Person's Affiliates,
of such transaction, together with such Person's Affiliates, satisfies
the "Minimum Assignee Qualifications" described in Section 24.1 above.
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24.3 SUBSUBLEASES.
24.3.1 PERMITTED SUBSUBLEASES. Subtenant shall not assign this
Sublease or subsublet all or any part of the Subleased Property without
first having obtained Sublandlord's prior written consent, at
Sublandlord's sole discretion. Notwithstanding the foregoing,
Sublandlord agrees that it shall not unreasonably withhold its consent to
any requested subsublease of portions of the Subleased Property to
concessionaires or licensees to:
(a) operate golf professionals' shops;
(b) operate golf driving ranges;
(c) provide golf lessons;
(d) operate restaurants;
(e) operate bars; and
(f) operate any other portions (but not the entirety) of the
Subleased Property customarily associated with or incidental to the
operation of the Golf Course.
24.3.2 TERMS OF SUBSUBLEASE. Each subsublease of any of the
Subleased Property shall be subject and subordinate to the provisions of
this Sublease. No subsublease made as permitted by Section 24.3.1 shall
affect or reduce any of the obligations of Subtenant hereunder, and all
such obligations shall continue in full force and effect as if no
subsublease had been made. No subsublease shall impose any additional
obligations on Sublandlord under this Sublease.
24.3.3 COPIES. Subtenant shall, within 10 days after the execution
and delivery of any subsublease permitted by Section 24.3.1, deliver a
duplicate original thereof to Sublandlord.
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24.3.4 ASSIGNMENT OF RIGHTS IN SUBSUBLEASES. As security for
performance of its obligations under this Sublease, Subtenant hereby
grants, conveys and assigns to Sublandlord all right, title and interest
of Subtenant in and to all subsubleases now in existence or hereinafter
entered into for any or all of the Subleased Property, and all
extensions, modifications and renewals thereof and all rents, issues and
profits therefrom. Sublandlord hereby grants to Subtenant a license to
collect and enjoy all rents and other sums of money payable under any
subsublease of any of the Subleased Property; provided, however, that
Sublandlord shall have the absolute right at any time after the
occurrence and during the continuance of an Event of Default upon notice
to Subtenant and any subsubtenants to revoke said license and to collect
such rents and sums of money and to retain the same. Subtenant shall not
(i) after the occurrence and during the continuance of an Event of
Default, consent to, cause or allow any material modification or
alteration of any of the terms, conditions or covenants of any of the
subsubleases or the termination thereof, without the prior written
approval of Sublandlord nor (ii) accept any rents (other than customary
security deposits) more than 90 days in advance of the accrual thereof
nor permit anything to be done, the doing of which, nor omit or refrain
from doing anything, the omission of which, will or could be a breach of
or default in the terms of any of the subsubleases.
24.3.5 LICENSES, ETC. For purposes of Sections 24.1, 24.3 and
24.5, subsubleases shall be deemed to include any licenses, concession
arrangements, management contracts or other arrangements relating to the
possession or use of all or any part of the Subleased Property.
24.4 ASSIGNMENT. Upon any assignment permitted under this Sublease
(either as a matter of right or with Sublandlord's consent), the assignee shall
expressly assume, for the benefit of Sublandlord, all obligations and
liabilities of Subtenant hereunder arising from and after the effective date of
such assignment, whereupon the assignor shall, from and after the effective
date of such assignment, be relieved of all liability for any obligations
arising from and after said effective date. No consent to any assignment in a
particular instance shall be deemed to be a waiver of the prohibition set forth
in Article 24. Any assignment or other transfer of all or any portion of
Subtenant's interest in the Sublease in contravention of Article 24 shall be
voidable at Sublandlord's option. All terms and conditions of this Sublease
shall continue to apply from and after the effective date of such assignment
(including, without limitation, the terms of Sections 16.1(j) and 16.1(k)
hereof).
24.5 REIT LIMITATIONS. Anything contained in this Sublease to the
contrary notwithstanding, Subtenant shall not (i) subsublet or assign the
Subleased Property or this Sublease on any basis such that the rental or other
amounts to be paid by the subsubtenant or assignee thereunder would be based,
in whole or in part, on the income or profits derived by the business
activities of the subsubtenant or assignee; (ii) subsublet or assign the
Subleased Property or this Sublease to any Person in which Sublandlord owns,
directly or indirectly (by applying constructive ownership rules set forth in
Section 856(d)(5) of the Code), a 10% or greater
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interest; or (iii) subsublet or assign the Subleased Property or this Sublease
in any other manner or otherwise derive any income which could cause any
portion of the amounts received by Sublandlord pursuant to this Sublease or any
subsublease to fail to qualify as "rents from real property" within the meaning
of Section 856(d) of the Code, or which could cause any other income received
by Sublandlord to fail to qualify as income described in Section 856(c)(2) of
the Code. The requirements of this Section 24.5 shall likewise apply to any
further subleasing by any subsubtenant.
ARTICLE 25
OFFICER'S CERTIFICATES AND OTHER STATEMENTS
25.1 OFFICER'S CERTIFICATES. At any time, and from time to time upon
Subtenant's receipt of not less than 10 days' prior written request by
Sublandlord, Subtenant will furnish to Sublandlord an Officer's Certificate
certifying that:
(a) this Sublease is unmodified and in full force and effect (or
that this Sublease is in full force and effect as modified and setting
forth the modifications);
(b) the dates to which the Rent has been paid;
(c) whether or not, to the best knowledge of Subtenant, Sublandlord
is in default in the performance of any covenant, agreement or condition
contained in this Sublease and, if so, specifying each such default of
which Subtenant may have knowledge;
(d) that, except as otherwise specified, there are no proceedings
pending or, to the knowledge of the signatory, threatened, against
Subtenant before or by any court or administrative agency which, if
adversely decided, would materially and adversely affect the financial
condition and operations of Subtenant; and
(e) responding to such other questions or statements of fact as
Sublandlord, Lessor or any Facility Mortgagee shall reasonably request.
Subtenant's failure to deliver such statement within such time shall constitute
an acknowledgment by Subtenant that this Sublease is unmodified and in full
force and effect (except as may be represented to the contrary by Sublandlord),
Sublandlord is not in default in the performance of any covenant, agreement or
condition contained in this Sublease and the other matters set forth in such
request, if any, are true and correct. Any such certificate furnished pursuant
to this Section 25.1 may be relied upon by Sublandlord.
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At any time, and from time to time upon Sublandlord's receipt of not less
than 30 days' prior written request by Subtenant, Sublandlord will furnish to
Subtenant a certificate, signed by a duly authorized representative of
Sublandlord, certifying that:
(a) This Sublease is unmodified and in full force and effect (or
that this Sublease is in full force and effect as modified and setting
forth the modification);
(b) the dates to which the Rent has been paid; and
(c) whether or not, to the best knowledge of Sublandlord, Subtenant
is in default in the performance of any covenant, agreement or condition
contained in this Sublease and, if so, specifying each such default of
which Sublandlord may have knowledge.
Sublandlord's failure to deliver such statement within such time shall
constitute an acknowledgement by Sublandlord that this Sublease is unmodified
and in full force and effect (except as may be represented to the contrary by
Subtenant) and that Subtenant is not in default in the performance of any
covenant, agreement or condition contained in this Sublease. Any such
certificate furnished pursuant to this Section 25.1 may be relied upon by
Subtenant.
25.2 FINANCIAL REPORTING. Subtenant shall deliver to Sublandlord the
following items at the time or times hereinafter set forth:
25.2.1 MONTHLY FINANCIAL INFORMATION. As soon as practicable, and
in any event on or before the thirtieth (30th) day following the end of
each calendar month during the Term, Subtenant shall furnish to
Sublandlord unaudited balance sheets relative to Subtenant and relative
to the Subleased Property as of the end of such calendar month, and
income (including information on Capital Expenditures) and cash flow
statements for Subtenant and the Subleased Property for such calendar
month and on a year-to-date and trailing twelve (12) month basis,
certified as being true and correct in all material respects by
Subtenant.
25.2.2 QUARTER FINANCIAL INFORMATION. As soon as practicable, and
in any event within thirty (30) days after the end of each Fiscal Quarter
during the Term, Subtenant shall furnish to Sublandlord unaudited balance
sheets of Subtenant and of the Subleased Property as of the close of such
Fiscal Quarter, together with income statements and statements of cash
flow for Subtenant and for the Subleased Property for such Fiscal Quarter
and on a year-to-date and trailing twelve (12) month basis, in all cases
setting forth in comparative form the figures for the preceding
corresponding periods, together with a statement of all Capital
Expenditures made during such Fiscal Quarter and a reconciliation thereof
with amounts deposited (or required to be deposited) into the Capital
Expenditure Reserve Account for such Fiscal Quarter, all in detail and
presentation reasonably acceptable to Sublandlord. The foregoing
quarterly financial
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information shall be accompanied by a certificate of a duly authorized
representative of Subtenant, dated within five (5) days of the delivery
of such statement, stating that (i) the authorized representative knows
of no Event of Default or event which, upon notice or the passage of time
or both, would become an Event of Default, or if any such event has
occurred and is continuing, specifying the nature and period of existence
thereof and what action Subtenant has taken or proposes to take with
respect thereto, and (ii) except as otherwise specified in such
certificate, to the best of such representative's knowledge, Subtenant
and Sublandlord have each fulfilled, in all material respects, all of
their respective obligations under this Sublease which are required to be
fulfilled on or prior to the date of such certificate.
25.2.3 ANNUAL FINANCIAL STATEMENTS. As soon as practicable, and in
any event within ninety (90) days after the close of each Fiscal Year
during the Term, Subtenant shall furnish to Sublandlord a copy of its
audited consolidated balance sheet and related audited consolidated
statement of income and audited statement of cash flow, in each case with
respect to Subtenant and with respect to the Subleased Property, prepared
in accordance with generally accepted accounting principles consistently
applied. The foregoing financial statements shall be certified by a
nationally recognized certified public accountants, or such other
accountants as may be reasonably acceptable to Sublandlord. All such
financial statements shall set forth, in comparative form, the figures
for the preceding Fiscal Year. The foregoing annual financial statements
shall be accompanied by an opinion of the foregoing accountants to the
effect that (a) there are no qualifications as to the scope of the audit
and (b) the audit was performed in accordance with generally accepted
accounting principles, consistently applied. The annual financial
statements required hereunder shall be accompanied by a certificate of a
duly authorized representative of Subtenant, dated within five (5) days
of the delivery of such statement, stating that (i) the representative
knows of no Event of Default, or event which, upon notice or the passage
of time or both, would become an Event of Default, or, if any such event
has occurred and is continuing, specifying the nature and period of
existence therein and what action Subtenant has taken or proposes to take
with respect thereto, and (ii) except as otherwise specified in such
certificate, to the best of such representative's knowledge, Subtenant
and Sublandlord have each fulfilled, in all material respects, all of
their respective obligations under this Sublease which are required to be
fulfilled on or prior to the date of such certificate. The foregoing
financial statements shall include a statement of all Capital
Expenditures made during such Fiscal Year and a reconciliation thereof
with amounts deposited (or required to be deposited) into the Capital
Expenditure Reserve Account for such Fiscal Year.
25.2.4 OTHER INFORMATION. Subtenant shall promptly furnish
Sublandlord such other information concerning the business being
conducted at the Subleased Property and/or the financial condition of
Subtenant, as Sublandlord may reasonably request from time to time during
the Term.
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25.2.5 STANDARD REPORTING FORMAT. Without limitation of the
reporting requirements described above in this Article 25, it is
understood and agreed that the monthly, quarterly and annual financial
delivery requirements shall include such information with respect to the
operations of the Subleased Property as set forth on, and in accordance
with the reporting format provided in, Exhibit E attached hereto.
25.3 ENVIRONMENTAL STATEMENTS. Immediately upon Subtenant's learning, or
having reasonable cause to believe, that any Hazardous Material in a quantity
sufficient to require remediation or reporting under applicable law is located
in, on or under the Subleased Property or any adjacent property, Subtenant
shall notify Sublandlord in writing of the same, which notice shall include, to
the extent actually known to Subtenant, (a) a statement, in reasonable detail,
of any enforcement, cleanup, removal, or other governmental or regulatory
action instituted, completed or threatened; (b) a statement, in reasonable
detail, of any claim made or threatened by any Person against Subtenant or the
Subleased Property relating to damage, contribution, cost recovery,
compensation, loss, or injury resulting from or claim to result from any
Hazardous Material; and (c) any reports made to any federal, state or local
environmental agency arising out of or in connection with any Hazardous
Material in or removed from the Subleased Property, including any complaints,
notices, warnings or asserted violations in connection therewith.
ARTICLE 26
SUBLANDLORD MORTGAGES
26.1 SUBLANDLORD MAY GRANT LIENS. Subject to Section 26.2, without the
consent of Subtenant, Sublandlord may, from time to time, directly or
indirectly, create or otherwise cause to exist any lien, encumbrance or title
retention agreement ("Sublandlord's Encumbrance") upon the Subleased Property,
or any portion thereof or interest therein, whether to secure any borrowing or
other means of financing or refinancing. Subject to Subtenant's
non-disturbance rights described in Section 26.2 and to the other terms of this
Article 26, this Sublease is and at all times shall be subject and subordinate
to any ground or underlying leases (including, without limitation, the Master
Lease), and the lien, terms, conditions and provisions of, and to each and
every advance heretofore or hereafter made under, any Facility Mortgages or
other mortgages, trust deeds or like encumbrances, which may now or hereafter
affect the Subleased Property and to all renewals, modifications,
consolidations, replacements and extensions of any such lease (including,
without limitation, the Master Lease), Facility Mortgage, other mortgage, trust
deed or like encumbrance. This clause shall be self-operative and no further
instrument of subordination shall be required by any ground or underlying
lessor or by any mortgagee or beneficiary, affecting any lease or the Subleased
Property. In confirmation of such subordination, Subtenant shall execute
promptly any certificate that Sublandlord may request for such purposes.
26.2 SUBTENANT'S NON-DISTURBANCE RIGHTS. So long as Subtenant shall pay
all Rent as the same becomes due and shall fully comply with all of the terms
of this Sublease and fully
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perform its obligations hereunder, none of Subtenant's rights under this
Sublease shall be disturbed by the holder of any Facility Mortgage (whether
created before or after the Commencement Date) and any other Sublandlord's
Encumbrance which is created or otherwise comes into existence after the
Commencement Date.
26.3 BREACH BY SUBLANDLORD. It shall be a breach of this Sublease if
Sublandlord shall fail to observe or perform any material term, covenant or
condition of this Sublease on its part to be performed and such failure shall
continue for a period of 30 days after notice thereof from Subtenant, unless
such failure cannot with due diligence be cured within a period of 30 days, in
which case such failure shall not be deemed to continue if Sublandlord, within
said 30-day period, proceeds promptly and with due diligence to cure the
failure and diligently completes the curing thereof. The time within which
Sublandlord shall be obligated to cure any such failure shall also be subject
to extension of time due to the occurrence of any Unavoidable Delay.
26.4 FACILITY MORTGAGE PROTECTION. Subtenant agrees that the holder of
any Facility Mortgage or other Sublandlord Encumbrance shall have no duty,
liability or obligation to perform any of the obligations of Sublandlord under
this Sublease (except for such obligations first occurring after such holder
takes title to the Subleased Property), but that in the event of Sublandlord's
default with respect to any such obligation, Subtenant will give any such
holder whose name and address have been furnished to Subtenant in writing for
such purpose notice of Sublandlord's default and allow such holder thirty (30)
days following receipt of such notice for the cure of said default before
invoking any remedies Subtenant may have by reason thereof. Such 30-day cure
period shall be extended (including without limitation such extensions as are
necessary for such holder to take possession of and/or foreclose upon the
Subleased Property) if the failure cannot be cured by said holder within the
foregoing 30-day period, so long as said holder proceeds with due diligence to
cure the failure. Nothing herein contained shall be construed however, to
obligate Facility Mortgagee to cure any default by Sublandlord occurring prior
to any date on which Facility Mortgagee shall succeed to the rights of
Sublandlord, it being expressly agreed that under no circumstances shall
Facility Mortgagee be obligated to remedy any such default.
26.5 ATTORNMENT. In the event that the interest of Sublandlord is
transferred by reason of or assigned in lieu of foreclosure, the exercise of a
power of sale or by any other proceedings or method for the enforcement of a
Facility Mortgage, then this Sublease shall nevertheless continue in full force
and effect and, upon the request of Facility Mortgagee or Successor Owner (as
hereinafter defined), Subtenant shall attorn to Facility Mortgagee or Successor
Owner and shall recognize such person as its landlord. Although the foregoing
provision shall be self-operative, in order to confirm such attornment, upon
the request of Facility Mortgagee or Successor Owner, Subtenant shall execute
and deliver to Facility Mortgagee or Successor Owner (i) an agreement of
attornment in form and content reasonably satisfactory to Facility Mortgagee or
Successor Owner, confirming the foregoing attornment and agreeing to perform
all the terms, covenants and conditions of the Sublease on Subtenant's part to
be performed for the benefit of
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Facility Mortgagee or Successor Owner with the same force and effect as if
Facility Mortgagee or Successor Owner was the sublandlord originally named in
this Sublease or (ii) a new lease with Facility Mortgagee or Successor Owner,
as sublandlord, for the remaining term of the Sublease and otherwise on the
same terms and conditions and with the same options, if any, then remaining.
For purposes hereof, "Successor Owner" shall mean any Person who obtains the
interest of Sublandlord in the Subleased Property pursuant to a foreclosure or
deed-in-lieu of foreclosure or power of sale (collectively, a "Facility
Mortgage Foreclosure") of a Facility Mortgage.
26.6 FACILITY MORTGAGEE OR SUCCESSOR OWNER AS SUBLANDLORD. If Facility
Mortgagee or Successor Owner shall succeed to the interest of Sublandlord,
neither Facility Mortgagee nor Successor Owner nor any successor thereto
(herein, in each case, a "Successor Sublandlord") shall have any personal
liability as successor to Sublandlord, and Subtenant shall look only to the
estate and property of said Successor Sublandlord in the Subleased Property or
the proceeds thereof for the satisfaction of Subtenant's remedies for the
collection of a judgment (or other judicial process) requiring the payment of
money in the event of any default by such Successor Sublandlord as landlord
under the Sublease. In addition, Facility Mortgagee, as holder of the Facility
Mortgage, and each Successor Sublandlord, as landlord under the Sublease when
it succeeds to that position, shall in no event (i) be liable to Subtenant for
any act or omission of the "Sublandlord" existing immediately prior to the
Facility Mortgage Foreclosure (the "Foreclosure Sublandlord") or any landlord
prior to such Foreclosure Sublandlord, (ii) be subject to any offset or defense
which Subtenant might have against the Foreclosure Sublandlord or any landlord
prior to such Foreclosure Sublandlord, (iii) be liable to Subtenant for any
liability or obligation of the Foreclosure Sublandlord or any landlord prior to
such Foreclosure Sublandlord, occurring prior to the date that the Successor
Sublandlord acquires title to the Subleased Property, or (iv) be liable to
Subtenant for any security or other deposits given to secure the performance of
Subtenant's obligation under the Sublease, except to that extent that Facility
Mortgagee or Successor Owner shall have acknowledged actual receipt of such
security or other deposits in writing. No other property or assets of a
Successor Sublandlord shall be subject to levy, execution or other enforcement
procedure for the satisfaction of Subtenant's remedies under or with respect to
this Sublease, the relationship of the landlord and the tenant thereunder or
Subtenant's use or occupancy of the Subleased Property.
26.7 PREPAYMENTS AND MODIFICATIONS OF THE SUBLEASE. No prepayment of Rent
due under this Sublease of more than one month in advance shall be binding upon
Successor Owner or Facility Mortgagee, as holder of the Facility Mortgage or as
landlord under this Sublease if Facility Mortgagee succeeds to that position,
unless consented to by Facility Mortgagee, and from and after the date hereof,
no amendment, modification, surrender or cancellation of the Sublease shall be
binding upon Successor Owner or Facility Mortgagee, as holder of the Facility
Mortgage or as landlord under this Sublease if Facility Mortgagee succeeds to
that position, unless such amendment, modification, surrender or cancellation
is done in compliance with the terms of the Facility Mortgage.
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ARTICLE 27
MISCELLANEOUS
27.1 SUBLANDLORD'S RIGHT TO INSPECT. Subtenant shall permit Sublandlord
and its authorized representatives to inspect the Subleased Property upon
reasonable written or oral notice during usual business hours subject to any
security, health, safety or confidentiality requirements of Subtenant or any
governmental agency or insurance requirement relating to the Subleased
Property, or imposed by law or applicable regulations. Sublandlord shall
indemnify, defend and hold Subtenant harmless from and against all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by, or asserted against Subtenant by reason of Sublandlord's
inspection pursuant to this Section 27.1.
27.2 NO WAIVER. No failure by Sublandlord to insist upon the strict
performance of any term hereof or to exercise any right, power or remedy
consequent upon a breach thereof, and no acceptance of full or partial payment
of Rent during the continuance of any such breach, shall constitute a waiver of
any such breach or of any such term. To the extent permitted by law, no
waiver of any breach shall affect or alter this Sublease, which shall continue
in full force and effect with respect to any other then existing or subsequent
breach.
27.3 REMEDIES CUMULATIVE. To the extent permitted by law, each legal,
equitable or contractual right, power and remedy of Sublandlord now or
hereafter provided either in this Sublease or by statute or otherwise shall be
cumulative and concurrent and shall be in addition to every other right, power
and remedy. The exercise or beginning of the exercise by Sublandlord of any
one or more of such rights, powers and remedies shall not preclude the
simultaneous or subsequent exercise by Sublandlord of any or all of such other
rights, powers and remedies.
27.4 ACCEPTANCE OF SURRENDER. No surrender to Sublandlord of this
Sublease or of the Subleased Property or any part thereof, or of any interest
therein, shall be valid or effective unless agreed to and accepted in writing
by Sublandlord and no act by Sublandlord or any representative or agent of
Sublandlord, other than such a written acceptance by Sublandlord, shall
constitute an acceptance of any such surrender.
27.5 NO MERGER OF TITLE. There shall be no merger of this Sublease or of
the leasehold estate created hereby by reason of the fact that the same Person
may acquire, own or hold, directly or indirectly, (a) this Sublease or the
leasehold estate created hereby or any interest in this Sublease or such
leasehold estate and (b) any other superior leasehold estate or the fee estate
in the Subleased Property.
27.6 CONVEYANCE BY SUBLANDLORD. If Sublandlord shall convey an interest
in the Subleased Property in accordance with the terms hereof other than as
security for a debt,
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Sublandlord shall, upon the written assumption by the transferee of the
Subleased Property of all liabilities and obligations of Sublandlord under this
Sublease arising after the transfer, be released from all future liabilities
and obligations under this Sublease arising or accruing from and after the date
of such conveyance or other transfer as to the Subleased Property. All such
future liabilities and obligations shall thereupon be binding upon the new
owner.
27.7 QUIET ENJOYMENT. So long as Subtenant shall pay all Rent as the same
becomes due and shall fully comply with all of the terms of this Sublease and
fully perform its obligations hereunder, Subtenant shall peaceably and quietly
have, hold and enjoy the Subleased Property for the Term hereof, free of any
claim or other action by Sublandlord or anyone claiming by, through or under
Sublandlord, but subject to all liens and encumbrances of record as of the date
hereof or otherwise permitted hereunder, and subject to any Sublandlord's
Encumbrances.
27.8 NOTICES. All notices, demands, requests, consents, approvals and
other communications hereunder shall be in writing and personally delivered, or
mailed (by registered or certified mail, return receipt requested and postage
prepaid), or sent by nationally recognized overnight courier, in each case
addressed to the respective parties, as provided in the Basic Sublease
Provisions. Notices shall be deemed to have been given (i) upon delivery, if
personally delivered, or (ii) upon the third (3rd) Business Day after mailing
by registered or certified mail, or (iii) upon the first (1st) Business Day
after delivery to an overnight courier.
27.9 SURVIVAL OF CLAIMS. Anything contained in this Sublease to the
contrary notwithstanding, all claims against, and liabilities of, Subtenant or
Sublandlord arising prior to any date of termination of this Sublease shall
survive such termination.
27.10 INVALIDITY OF TERMS OR PROVISIONS. If any term or provision of this
Sublease or any application thereof shall be invalid or unenforceable, the
remainder of this Sublease and any other application of such term or provision
shall not be affected thereby.
27.11 PROHIBITION AGAINST USURY. If any late charges provided for in any
provision of this Sublease are based upon a rate in excess of the maximum rate
permitted by applicable law, the parties agree that such charges shall be fixed
at the maximum permissible rate.
27.12 AMENDMENTS TO SUBLEASE. Neither this Sublease nor any provision
hereof may be changed, waived, discharged or terminated except by an instrument
in writing signed by Sublandlord or Subtenant.
27.13 SUCCESSORS AND ASSIGNS. All the terms and provisions of this
Sublease shall be binding upon and inure to the benefit of the parties hereto.
All permitted assignees or sublessees shall be subject to the terms and
provisions of this Sublease.
27.14 TITLES. The headings in this Sublease are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
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27.15 GOVERNING LAW. This Sublease shall be governed by and construed in
accordance with the laws of the State of Tennessee.
27.16 MEMORANDUM OF SUBLEASE. This Sublease shall not be recorded be
either Sublandlord or Subtenant. Notwithstanding the foregoing, Sublandlord
and Subtenant shall, promptly upon the request of either, enter into a short
form memorandum of this Sublease, in form and substance satisfactory to
Sublandlord and suitable for recording under the State, in which reference to
this Sublease, and all options contained herein, shall be made. Subtenant
shall pay all costs and expenses of recording such Memorandum of Sublease.
27.17 ATTORNEYS' FEES. In the event of any dispute between the parties
hereto involving the covenants or conditions contained in this Sublease or
arising out of the subject matter of this Sublease, the prevailing party shall
be entitled to recover against the other party reasonable attorneys' fees and
court costs.
27.18 NON-RECOURSE AS TO SUBLANDLORD. Anything contained herein to the
contrary notwithstanding, any claim based on or in respect of any liability of
Sublandlord under this Sublease shall be enforced only against Sublessor's
interest in the Subleased Property and not against any other assets, properties
or funds of (a) Sublandlord, (b) any director, officer, general partner,
limited partner, employee or agent of Sublandlord, or any general partner of
Sublandlord, any of their respective general partners or stockholders (or any
legal representative, heir, estate, successor or assign of any thereof), (c)
any predecessor or successor partnership or corporation (or other entity) of
Sublandlord, or any of their respective general partners, either directly or
through either Sublandlord or their respective general partners of any
predecessor or successor partnership or corporation or their stockholders,
officers, directors, employees or agents (or other entity), or (d) any other
Person affiliated with any of the foregoing, or any director, officer, employee
or agent of any thereof.
27.19 NO RELATIONSHIP. Sublandlord shall in no event be construed for any
purpose to be a partner, joint venturer or associate of Subtenant or of any
subtenant, operator, concessionaire or licensee of Subtenant with respect to
the Subleased Property or any of the Other Leased Property or otherwise in the
conduct of their respective businesses.
27.20 SIGNS; RELETTING. If Subtenant fails to timely exercise its option
to extend or further extend the Term under Section 2.2 or if an Event of
Default occurs and is continuing, then Sublandlord shall have the right during
the remainder of the Term then in effect (i) to advertise the availability of
the Subleased Property for sale or reletting and to erect upon the Subleased
Property signs indicating such availability and (ii) to show the Subleased
Property to prospective purchasers or tenants or their agents at such
reasonable times as Sublandlord may elect.
27.21 GOLF COURSE NAME. The Subleased Property shall be known by such
trade name and/or trademark or logo as may from time to time be determined by
Sublandlord.
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ARTICLE 28
SUBTENANT MORTGAGES
Subtenant shall not, directly or indirectly, mortgage, pledge,
hypothecate, create a security interest in or lien on, or otherwise encumber
its interest in the Sublease without the prior written consent of Sublandlord
and each Facility Mortgagee, which consent may be withheld in the sole and
absolute discretion of each such party.
ARTICLE 29
MASTER LEASE
29.1 SUBTENANT'S OBLIGATION TO COMPLY WITH MASTER LEASE. Subtenant hereby
assumes and agrees to fully adhere to, perform and comply with any and all
covenants, agreements, terms, provisions, conditions, duties and obligations
contained in the Master Lease and imposed upon the tenant named therein
(including, without limitation, all obligations to pay rent and other amounts
required thereunder and all obligations pertaining to indemnities granted by
the tenant thereunder) as fully and completely as though it were the tenant
named therein. Subtenant hereby agrees to indemnify, protect, defend and save
harmless Sublandlord from and against any and all liabilities, obligations,
claims, damages, penalties, causes of action, costs and expenses (including
reasonable attorneys' fees and expenses) suffered by Sublandlord as a result of
Subtenant's failure to so comply with the Master Lease.
29.2 SUBORDINATION AND ESTOPPEL. Subtenant acknowledges and agrees that
the lien of this Sublease is, and at all times shall be, expressly subject and
subordinate to the Master Lease, and all present or future (i) ground and
underlying leases of all or any portion of the Subleased Property, (ii)
mortgages or trust deeds permitted under the terms of this Sublease and/or the
Master Lease and which affect all or any portion of the Subleased Property,
(iii) advances under such mortgages or trust deeds, and (iv) renewals,
modifications, replacements and extensions of any such leases, mortgages or
trust deeds. Upon the request of Sublandlord, Subtenant shall execute and
deliver, within ten (10) days after receipt of the request, such certificates
of subordination and estoppel as reasonably may be requested by Sublandlord
and/or Lessor, to evidence the subordination set forth above and provide
information concerning the status of this Sublease.
29.3 LESSOR'S RIGHTS UNDER MASTER LEASE. Subtenant hereby acknowledges
and agrees that (a) Lessor shall have the right to avail itself of any and all
of the rights and remedies available to it under the Master Lease, and (b)
nothing contained in this Sublease shall limit, in any way, Lessor's rights
under the Master Lease with respect to the Subleased Property.
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ARTICLE 30
TENANT'S STRUCTURE
The parties hereto acknowledge and agree that Arnold Palmer Golf
Management LLC, a Delaware limited liability company ("Palmer Management"), is
currently, and throughout the term of this Sublease shall continue to be, the
managing member of Subtenant.
ARTICLE 31
RIGHT OF FIRST OFFER
If Sublandlord desires to sell its interest in the Subleased Property to a
third party purchaser at any time during the Term (other than in connection
with a foreclosure or deed in lieu of foreclosure of, or power of sale under,
any Facility Mortgage), then, prior to selling, or entering into a binding
agreement to sell its interest in the Subleased Property to such third party
purchaser, Sublandlord shall deliver written notice to Subtenant (herein,
"Sublandlord's Notice") setting forth (i) the proposed closing date (which date
shall be no less than sixty (60) days and no more than one hundred eighty (180)
days following the date of said Sublandlord's Notice), and (ii) the proposed
purchase price at which Sublandlord desires to sell its interest in the
Subleased Property, and Subtenant shall thereupon have a right of first offer
(herein, the "First Offer Right") to purchase Sublandlord's interest in the
Subleased Property in accordance with the following terms and conditions.
31.1 EXERCISE OF FIRST OFFER RIGHT. Upon Subtenant's receipt of any such
Sublandlord's Notice, Subtenant shall have a period of twenty-one (21) days
following receipt of such Sublandlord's Notice (herein, "Subtenant's Election
Period") to exercise Subtenant's First Offer Right hereunder. If Subtenant so
exercises its First Offer Right, then Sublandlord's interest in the Subleased
Property shall be sold to Subtenant upon the terms hereinafter set forth. In
the event Subtenant fails to notify Sublandlord, in writing, within Subtenant's
Election Period, that Subtenant has exercised its First Offer Right hereunder,
then Subtenant's rights under this Article 31, shall terminate and be null and
void, and Sublandlord shall have no further obligation under this Article 31;
provided, however, that in the event Sublandlord thereafter fails to close on
any sale of its interest in the Subleased Property within a period of one
hundred eighty (180) days following the expiration of Subtenant's Election
Period (as such period may be extended, if Sublandlord is then under contract
to sell its interest in the Subleased Property to a third party purchaser,
which extension shall continue until the termination of such contract or the
closing of the sale thereunder, whichever first occurs), then Subtenant shall
thereafter again have a First Offer Right with respect to Sublandlord's
interest in the Subleased Property as provided in this Article 31.
Additionally, if the purchase price at which Sublandlord subsequently elects to
sell the Subleased Property to a third party is less than ninety percent (90%)
of the purchase price set forth in Sublandlord's Notice, then Subtenant's First
Offer Right shall be reinstated, and, prior to Sublandlord selling or entering
into a binding agreement to sell, its interest in the
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Subleased Property at such lower price, Sublandlord shall deliver a new
Sublandlord's Notice to Subtenant reflecting the new offered purchase price,
all in accordance with the terms of this Article 31.
31.2 FURTHER DOCUMENTATION. If Subtenant has validly exercised its First
Offer Right, then within fifteen (15) Business Days after the request by either
party and determination of the purchase price as described below, Sublandlord
and Subtenant shall enter into a written agreement confirming the terms,
conditions and provisions applicable to the sale of Sublandlord's interest in
the Subleased Property, including the proposed closing date and purchase price
with respect to such transaction and the other terms set forth in Sublandlord's
Notice or otherwise provided for in this Article 31. Each party further agrees
to execute such documents and to take such actions as may be reasonably
requested by the other party in order to effectuate the sale transaction
contemplated by any such Sublandlord's Notice.
31.3 PURCHASE PRICE. The purchase price of Sublandlord's interest in the
Subleased Property under this Article 31 shall be the price set forth in
Sublandlord's Notice, subject to modification as described in the last sentence
of Section 31.1.
31.4 MECHANICS OF PURCHASE. If Subtenant's First Offer Right hereunder is
exercised, the following closing procedure shall apply:
(a) The closing date ("Closing Date") for the sale of Sublandlord's
interest in the Subleased Property to Subtenant shall be on the date set
forth in Sublandlord's Notice. Payment of the purchase price and the
delivery of the deed (the "Closing") shall be made at the office of
Sublandlord or its attorneys or at such other place as the parties may
agree. At the request of either party, the Closing shall be effected
through a deed and money escrow, the cost of which escrow shall be borne
equally by Sublandlord and Subtenant. The purchase price shall be
payable to Sublandlord on the Closing Date in immediately available funds
or by certified or cashier's check upon delivery of the applicable
assignment document(s) to Subtenant and performance of Sublandlord's
other obligations as set forth herein.
(b) The sale of Sublandlord's interest in the Subleased Property
shall be made by an assignment and assumption document (which, at the
option of Subtenant, may be in recordable form and the form of which
assignment and assumption document shall be attached as an exhibit to the
final contract between the parties) assigning all of Sublandlord's
interest in the Subleased Property to Subtenant (or its designee) and
other documentation necessary to transfer Sublandlord's interest in the
Subleased Property to Subtenant, provided that Subtenant shall accept
Sublandlord's interest in the Subleased Property subject only to (A) the
lien of current general real estate taxes and special assessments not
then due and payable; (B) any acts or doings caused or suffered by
Subtenant; (C) private, public and utility easements and roads and
highways, if any; (D) covenants, conditions and restrictions of record;
(E) existing leases and tenancies
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(including, without limitation, the Master Lease); and (F) such other
liens and encumbrances which were in effect on the date that Sublandlord
obtained its interest in the Subleased Property or which are otherwise
permitted to be imposed on the Subleased Property pursuant to the terms
hereof (collectively, the "Permitted Title Exceptions").
(c) Sublandlord shall deliver or cause to be delivered to Subtenant,
not later than twenty (20) days prior to the Closing, as evidence of
Sublandlord's interest in the Subleased Property, a commitment for a
standard owner's leasehold title insurance policy in the aggregate amount
of the purchase price as provided hereunder. Such title commitment shall
name Subtenant or its designee as the proposed insured and show Subtenant
as holding a leasehold interest in the Subleased Property, subject only
to (a) the Permitted Title Exceptions, and (b) other title exceptions
pertaining to mortgage liens of a definite or ascertainable amount which
may be removed at Closing by the payment of money, and which Sublandlord
shall so remove or cause to be removed concurrently with the Closing.
(d) The payment of all prorations, transfer taxes, title insurance
charges, escrow fees, recording fees and other expenses, fees and charges
shall be made by the party from whom such payment is due in accordance
with statutory requirements or in accordance with the custom at the time
of the Closing for sales of properties (or interests therein) similar to
the Subleased Property located in the geographical area where the
Subleased Property is located; provided, however, that there shall be no
proration of Impositions inasmuch as Subtenant is fully responsible
therefor under this Lease.
(e) Sublandlord's interest in the Subleased Property shall be
transferred to Subtenant under this Article 31 in its as-is condition, it
being acknowledged that Sublandlord has made and shall make no
representations whatsoever as to the condition of said Subleased Property
or any other matters pertaining thereto.
31.5 REIT QUALIFICATION LIMITATION. Notwithstanding any other provision
of this Sublease, Sublandlord shall not be required to sell or transfer its
interest in the Subleased Property, or any portion thereof, which is a real
estate asset as defined in Section 856(c)(6)(B), or functionally equivalent
successor provision, of the Code, to Subtenant if Sublandlord's counsel advises
Sublandlord that such sale or transfer may not be a sale of property described
in Section 857(b)(6)(C), or functionally equivalent successor provision, of the
Code. If Sublandlord determines not to sell such property pursuant to the
above sentence, Subtenant's First Offer Right under this Article 31 shall
continue in full force and effect.
31.6 EFFECTIVENESS OF FIRST OFFER RIGHT. The First Offer Right described
in this Article 28 is for the personal benefit of the original named Subtenant
hereunder, and such right is non-assignable and may not be exercised by any
other party. Without limitation of the foregoing, in the event Subtenant
assigns this Sublease or subsubleases all or greater than fifty percent (50%)
of the area of the Subleased Property, then Subtenant's First Offer Right under
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this Article 31 shall thereupon terminate and be deemed null and void.
Subtenant shall have no right to exercise its First Offer Right under this
Article 31, and any such exercise shall (at Sublandlord's election) be null and
void, if, at the time of such exercise or as of the Closing Date, Subtenant
shall be in default of any of its obligations hereunder.
[Signature Page to Follow]
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IN WITNESS WHEREOF, the parties hereto have executed this Sublease as of
the date and year first above written.
SUBLANDLORD:
PRESIDIO GOLF LIMITED PARTNERSHIP, a
Delaware limited partnership
By:
--------------------------------------
Name:
---------------------------------
Its:
----------------------------------
SUBTENANT:
----------------------------------------,
a
---------------------------------------
By:
--------------------------------------
Name:
---------------------------------
Its:
----------------------------------
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JOINDER
The undersigned, being the managing member of Subtenant, hereby joins in
the execution of the foregoing Sublease, for the purposes of (A) agreeing to
the terms of the Sublease with respect to (i) any and all provisions in the
Sublease relating to Subtenant's Personal Property (some or all of which may be
owned by the undersigned), and (ii) any and all provisions in the Sublease
relating to the Collateral Agreements (some or all of which may be entered into
by the undersigned), and (B) agreeing to be liable under the Sublease, on a
joint and several basis with Subtenant, for all remediation and indemnification
obligations under Section 8.2 and Section 8.3 of the Sublease, to the extent
relating to any Hazardous Material located at the Subleased Property and
expressly identified in any of the Existing Environmental Reports.
IN WITNESS WHEREOF, this Joinder is executed as of the ____ day of
________, 199__.
ARNOLD PALMER GOLF MANAGEMENT LLC, a
Delaware limited liability company
By:
--------------------------------------
Name:
---------------------------------
Its:
----------------------------------
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EXHIBIT A
DEFINED TERMS; INTERPRETATION
DEFINED TERMS. For all purposes of this Sublease, except as otherwise
expressly provided or unless the context otherwise requires, the terms defined
below have the meanings assigned to them below.
ADDITIONAL CHARGES: As defined in Section 3.4.
ADDITIONAL RENT: As defined in Basic Sublease Provisions.
AFFILIATE: As applied to any Person, means any other Person directly or
indirectly controlling, controlled by, or under common control with, that
Person.
ANNUAL BASE RENT: As defined in the Basic Sublease Provisions.
APPLICABLE PERCENTAGE: As defined in the Basic Sublease Provisions.
AWARD: Means all compensation, sums or anything of value awarded, paid or
received on a total or partial Condemnation.
BASELINE GOLF COURSE REVENUE: As defined in the Basic Sublease
Provisions.
BASELINE OTHER REVENUE: As defined in the Basic Sublease Provisions.
BASE RENT: Means the proportion of the Annual Base Rent payable with
respect to each respective calendar month as described in Exhibit F attached
hereto.
BASE RENT ESCALATION: As defined in the Basic Sublease Provisions.
BASIC SUBLEASE PROVISIONS: The provisions so labelled starting on page
(1) of this Sublease.
BUSINESS DAY: Each Monday, Tuesday, Wednesday, Thursday and Friday which
is not a day on which national banks in the City of Collierville, Tennessee,
are authorized, or obligated, by law or executive order, to close.
CALCULATION PERIOD: As defined in Section 18.2.
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CAPITAL EXPENDITURES: Means all expenditures for capital investment items
at the Subleased Property, to the extent such expenditures are to be
"capitalized" under general accepted accounting principles.
CAPITAL EXPENDITURES RESERVE ACCOUNT: As defined in Section 18.2.
CAPITAL EXPENDITURES RESERVE AMOUNT: As defined in Section 18.2.
CHANGE OF CONTROL: As defined in Section 24.2.
CLOSING: As defined in Section 31.4.
CLOSING DATE: As defined in Section 31.4.
CODE: The Internal Revenue Code of 1986, as amended.
COMMENCEMENT DATE: As defined in the Basic Sublease Provisions.
CONDEMNATION: Means (a) the exercise of any governmental power, whether
by legal proceedings or otherwise, by a Condemnor, and (b) a voluntary sale or
transfer by Sublandlord or Lessor to any Condemnor, either under threat of
condemnation or while legal proceedings for condemnation are pending.
CONDEMNATION THRESHOLD: Means, as of any given date, an amount determined
by dividing (i) the aggregate Base Rent and Additional Rent under this Sublease
for the most recent 12 full calendar months by (ii) the average dividend yield
for such 12 month period on the common stock then issued and outstanding of
Sublandlord's general partner.
CONDEMNOR: Means any public or quasi-public authority, or private
corporation or individual, having the power of condemnation.
CONSUMER PRICE INDEX: Means the Consumer Price Index for Urban Wage
Earners and Clerical Workers for the Collierville, Tennessee area, as reported
by the United States Bureau of Labor Statistics or any successor agency.
CONTROL: Means (including, with correlative meanings, the terms
"controlling" and "controlled by"), as applied to any Person, the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of that Person, whether through the ownership of voting
securities, by contract or otherwise.
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DATE OF TAKING: Means the date the Condemnor has the right to possession
of the property being condemned.
EBITDA: The net income from the Subleased Property for the period at
issue, as determined in accordance with generally accepted accounting
principles consistently applied, excluding gains (or losses) from debt
restructuring and sales of property and other ordinary items, and without any
reductions for (i) depreciation or amortization, (ii) interest expense [or
Master Lease Rent], (iii) federal or state income taxes, or (iv) non-property
specific entity-level overhead and administrative expenses. Notwithstanding
the foregoing, it is understood that, in computing net income, (i) Golf Course
Revenue and (ii) Other Revenue shall be included as part of total revenue.
ENVIRONMENTAL LAW: Means all applicable statutes, regulations, rules,
ordinances, codes, licenses, permits, orders, demands, approvals,
authorizations and similar items of all governmental agencies, departments,
commissions, boards, bureaus or instrumentalities of the United States, states
and political subdivisions thereof and all applicable judicial, administrative
and regulatory decrees, judgments and orders relating to the protection of
human health or the environment as in effect on the Commencement Date or as
thereafter amended, including but not limited to those pertaining to reporting,
licensing, permitting, investigation, removal and remediation of emissions,
discharges, releases or threatened releases of "Hazardous Materials,"
substances, pollutants, contaminants or hazardous or toxic substances,
materials or wastes whether solid, liquid or gaseous in nature, into the air,
surface water, ground water or land, or relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of substances, pollutants, contaminants or hazardous or toxic
substances, materials, or wastes, whether solid, liquid or gaseous in nature,
including: (x) the Comprehensive Environmental Response, Compensation and
Liability Act (42 U.S.C. Sections 9601 et seq.), the Resource Conservation and
Recovery Act (42 U.S.C. Sections 6901 et seq.), the Clean Air Act (42 U.S.C.
Sections 7401 et seq.), the Federal Water Pollution Control Act (33 U.S.C.
Section 1251 et seq.), the Safe Drinking Water Act (42 U.S.C. Sections 300f et
seq.), the Toxic Substances Control Act (15 U.S.C. Sections 2601 et seq.), the
Endangered Species Act (16 U.S.C. Sections 1531 et seq.), the Emergency
Planning and Community Right-to-Know Act of 1986 (42 U.S.C. Sections 11001 et
seq.), and (y) analogous state and local provisions.
EVENT OF DEFAULT: As defined in Section 16.1.
EXISTING ENVIRONMENTAL REPORTS: As defined in Section 8.1.1.
EXTENDED TERMS: As defined in the Basic Sublease Provisions.
FACILITY: As defined in the Basic Sublease Provisions.
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FACILITY MORTGAGE: As defined in Section 13.1.
FACILITY MORTGAGE FORECLOSURE: Ad defined in Section 26.5.
FACILITY MORTGAGEE: Means the holder or beneficiary of a Facility
Mortgage, if any, and only to the extent Sublandlord gives Subtenant notice of
the identity and address of such holder or beneficiary.
FIRST OFFER RIGHT: As defined in Article 31.
FISCAL QUARTER: The three-month periods (or applicable portions thereof)
in any Fiscal Year from January 1 through March 31, April 1 through June 30,
July 1 through September 30 and October 1 through December 31.
FISCAL YEAR: As defined in the Basic Sublease Provisions.
FIXTURES: Means all permanently affixed equipment, machinery, fixtures,
and other items of real and/or personal property, including all components
thereof, now and hereafter located in, on or used in connection with and
permanently affixed to or incorporated into the Subleased Improvements,
including all furnaces, boilers, heaters, electrical equipment, heating,
plumbing, lighting, ventilating, refrigeration, air and water pollution
control, waste disposal, air-cooling and air-conditioning systems and
apparatus, sprinkler systems and fire and theft protection equipment, all of
which, to the greatest extent permitted by law, are hereby deemed by the
parties hereto to constitute real estate, together with all replacements,
modifications, alterations and additions thereto, but specifically excluding
all items included within the category of Subtenant's Personal Property and any
Subtenant Improvements.
FORECLOSURE SUBLANDLORD: As defined in Section 26.6.
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FULL REPLACEMENT COST: Means the actual replacement cost thereof from
time to time including increased cost of construction endorsement, less
exclusions provided in the normal fire insurance policy.
GOLF COURSE REVENUE: Means all revenues received (whether by Subtenant or
any subsubtenants, concessionaires, licensees, assignees or other party) from
or by reason of the operation of the Facility, or any other use of the
Subleased Property, including revenues from the initial sale of memberships (to
the extent that membership was sold after the Commencement Date), initiation
fees (to the extent that membership was sold after the Commencement Date)
membership or other dues, greens fees, fees to reserve a tee time, golf-related
guest fees or golf cart rentals, and surcharges, fees or other charges paid to
Subtenant relating to golf tournaments or other group outings or group
activities at the Subleased Property (unless the terms under which Subtenant is
paid by such sponsor do not comply with Section 24.5, in which event the gross
revenues received by such sponsor for the tournament shall be included in Golf
Course Revenue); provided, however, that Golf Course Revenue shall not include:
(a) Other Revenue;
(b) Cash refunds or credits allowed on returns by customers;
(c) The amount of any city, county, state or federal sales or excise
tax on sales, which is both added to the selling price and paid to the
taxing authority by Subtenant.
(d) The actual uncollectible amount of any check or bank draft
received by Subtenant as payment for goods or services and returned to
Subtenant from a customer's bank as being uncollectible, but only after
Subtenant has made reasonable efforts to collect on the check;
(e) The actual uncollectible amount of any charge or credit account
incurred by Subtenant for the sale of merchandise or services; provided,
however, that the credit was extended to the customer by Subtenant, and
that reasonable efforts to collect said account have been made;
(f) The actual uncollectible amount of any sale of merchandise or
services for which Subtenant accepted a credit card; provided, however,
that Subtenant has made reasonable efforts to collect the debt after
being notified by the issuing bank of the invalidity or uncollectability
of the charge;
(g) Interest or other charges paid by customers for extension of
credit;
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(h) Revenue or proceeds from sales or trade-in of machinery,
vehicles, trade fixtures or personal property used in connection with
Subtenant's operation of the Subleased Property;
(i) The value of any merchandise, supplies or equipment exchanged or
transferred from or to other locations or businesses of Subtenant where
such exchange or transfer is not made for the purpose of avoiding a sale
which would otherwise be made from or at the Subleased Property;
(j) Revenue, if any, from receipts in the form of refunds from or
the value of merchandise, supplies or equipment returned to shippers,
suppliers or manufacturers;
(k) Revenue, if any, from the amount of any cash or quantity
discounts received from sellers, suppliers or manufacturers;
(l) The amount of any gratuities paid or given by customers to or
for employees of Subtenant;
(m) Receipts from the sales of uniforms or clothing required to be
worn by employees;
(n) Revenues from charging employees for meals served or provided to
employees of Subtenant;
(o) Receipts from the sale of waste or scrap materials resulting
from Subtenant's operations; and
(p) Revenue received from any subsubtenant, concessionaire or
licensee, inasmuch as the gross revenue received by such subsubtenant,
concessionaire or licensee is otherwise included in the definition of
Golf Course Revenue or Other Revenue.
HAZARDOUS MATERIAL: Means any chemical substance:
(i) the presence of which requires investigation or remediation
under any federal, state or local statute, regulation, ordinance, order,
action or policy, administrative request or civil complaint under any of
the foregoing or under common law;
(ii) which is defined as a "hazardous waste" or "hazardous
substance" under any federal, state or local statute, regulation or
ordinance or amendments thereto as in effect as of the Commencement Date,
or as thereafter amended, including the
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Comprehensive Environmental Response, Compensation and Liability Act (42
U.S.C. Sections 6901 et seq.);
(iii) which is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic, mutagenic or otherwise hazardous and as of the
Commencement Date, or as thereafter amended, is regulated by any
governmental authority, agency, department, commission, board, agency or
instrumentality of the United States, or any state or any political
subdivision thereof having or asserting jurisdiction over the Subleased
Property;
(iv) the presence of which on any of the Subleased Property causes a
nuisance upon such Subleased Property or to adjacent properties or poses
a hazard to the health or safety of persons on or about any of the
Subleased Property;
(v) which, except as contained in building materials, contains
gasoline, diesel fuel or other petroleum hydrocarbons, polychlorinated
biphenyls (PCBs) or friable asbestos or friable asbestos-containing
materials or urea formaldehyde foam insulation; or
(vi) radon gas.
IMPARTIAL APPRAISER: As defined in Section 13.2.
IMPOSITIONS: Means collectively:
(a) all taxes (including all real and personal property, ad valorem,
sales and use, single business, gross receipts, transaction privilege,
rent or similar taxes);
(b) assessments and levies (including all assessments for public
improvements or benefits, whether or not commenced or completed prior to
the date hereof and whether or not to be completed within the Term);
(c) excises;
(d) fees (including license, permit, inspection, authorization and
similar fees); and
(e) all other governmental charges;
in each case whether general or special, ordinary or extraordinary, or foreseen
or unforeseen, of every character in respect of the Subleased Property and/or
the Rent (including all interest and penalties thereon due to any failure in
payment by Subtenant), which at any time during or
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in respect of the term hereof may be assessed or imposed on or in respect of
or be a lien upon (i) Sublandlord or Sublandlord's interest in the Subleased
Property; (ii) the Subleased Property or any part thereof or any rent therefrom
or any estate, right, title or interest therein; or (iii) any operation, use or
possession of, or sales from or activity conducted on or in connection with the
Subleased Property or the leasing or use of the Subleased Property or any part
thereof; provided, however, that Impositions shall not include:
(aa) any tax based on net income (whether denominated as an income,
franchise, capital stock or other tax) imposed on Sublandlord or any
other Person other than Subtenant;
(bb) any transfer, or net revenue tax of Sublandlord or any other
Person other than Subtenant;
(cc) any tax imposed with respect to the sale, exchange or other
disposition by Sublandlord of any Subleased Property or the proceeds
thereof; or
(dd) any tax imposed with respect to any principal or interest on
any indebtedness on the Subleased Property.
IMPOUND CHARGES: As defined in Article 22.
IMPOUND PAYMENT: As defined in Article 22.
INITIAL BASE RENT: As defined in the Basic Sublease Provisions.
INITIAL TERM: As defined in the Basic Sublease Provisions.
INSURANCE REQUIREMENTS: All terms of any insurance policy required by
this Sublease and all requirements of the issuer of any such policy.
LAND: As defined in Article 1.
LEGAL REQUIREMENTS: All federal, state, county, municipal and other
governmental statutes, laws (including the Americans with Disabilities Act and
any Environmental Laws), rules, orders, regulations, ordinances, judgments,
decrees and injunctions affecting either the Subleased Property or the
construction, use or alteration thereof, whether now or hereafter enacted and
in force, including any which may (i) require repairs, modifications or
alterations in or to the Subleased Property; (ii) in any way adversely affect
the use and enjoyment thereof, and all permits, licenses and authorizations and
regulations relating thereto, and all covenants, agreements, restrictions and
encumbrances contained in any instruments, either of record or
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known to Subtenant (other than encumbrances created by Sublandlord without the
consent of Subtenant and which are not otherwise permitted under the Sublease),
at any time in force affecting the Subleased Property; or (iii) require the
cleanup or other treatment of any Hazardous Material.
LESSOR: As defined in the recitals to this Sublease.
LETTER OF CREDIT: Means a letter of credit satisfying the requirements of
Section 21.3.
MASTER LEASE: As defined in the recitals to this Sublease.
MASTER LEASE RENT: As defined in Section 3.1.2.
MASTER LEASE RENT DUE DATE: As defined in Section 3.1.2.
OFFICER'S CERTIFICATE: A certificate of Subtenant signed by a duly
authorized representative of Subtenant.
OTHER LEASED PROPERTY: Means the properties leased or subleased to
Subtenant or an Affiliate of Subtenant by Sublandlord or an Affiliate of
Sublandlord, and listed on Exhibit C attached hereto.
OTHER PROPERTY LEASES: Means the other leases or subleases entered into
between Sublandlord or an Affiliate of Sublandlord and Subtenant or an
Affiliate of Subtenant relating to Subtenant's use of the Other Leased
Property.
OTHER REVENUE: Means all revenue received (whether by Subtenant or any
subsubtenants, concessionaires, licensees or other party) from or by reason of
the Subleased Property relating to (i) the operation of snack bars,
restaurants, bars and banquet operations, (ii) merchandise sold on the
Subleased Property, (iii) parking, (iv) fitness centers, (v) tennis facilities,
(vi) day care, (vii) nongolf-related guest fees (provided that if any fees or
charges assessed by Subtenant relate to packages including golf and
nongolf-related activities, the entire package price shall be included as "Golf
Course Revenue"), (viii) locker rentals, (ix) bag storage, (x) video games,
(xi) vending machines and (xii) fees or other charges paid to Subtenant by
providers of golf lessons (unless the terms under which Subtenant is paid by
such provider do not comply with Section 24.5, in which event the gross revenue
received by such provider shall be included in Other Revenue); provided,
however, that the items described in clauses (b) through (p) of the definition
of Golf Course Revenue shall be excluded from the definition of Other Revenue.
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OVERDUE RATE: On any date, a rate equal to 3% above the Prime Rate, but
in no event greater than the maximum rate then permitted under applicable law.
PALMER MANAGEMENT: As defined in Article 30.
PERSON: Means and includes natural persons, corporations, limited
partnerships, general partnerships, limited liability companies, joint stock
companies, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts, Indian tribes or other organizations,
whether or not legal entities, and governments and agencies and political
subdivisions thereof.
PRIMARY INTENDED USE: Means the operation of a golf course (including
clubhouse facilities), consisting of the Facility, and other activities
customarily associated with or incidental to the operation of a golf course,
including sale or rental of golf-related merchandise at a golf professional's
shop, sale of memberships, furnishing of lessons by a golf professional,
operation of a driving range, and sales of food and beverages, including liquor
sales.
PRIME RATE: On any date, a rate equal to the annual rate on such date
announced by Wells Fargo Bank, National Association to be its prime rate or
base rate for 90-day unsecured loans to its corporate borrowers of the highest
credit standing (or, if Wells Fargo Bank, National Association no longer
announces such prime rate or base rate, then the prime or base rate announced
by such other financial institution as selected by Sublandlord) but in no event
greater than the maximum rate then permitted under applicable law.
QUARTERLY BASE RENT : Means, with respect to any Fiscal Quarter,
one-fourth of the Annual Base Rent for the Fiscal Year in which such Fiscal
Quarter falls.
REGISTERED OFFERING: As defined in Section 24.2.
RELATED RIGHTS: As defined in Article 1.
RENT: Collectively, the Base Rent, Additional Rent, Additional Charges
and Master Lease Rent.
RENT COVERAGE RATIO: Means, for any period, the ratio of (a) EBITDA for
the Subleased Property for such period, to (b) the Initial Base Rent
obligations payable hereunder for such period.
REQUIRED SECURITY DEPOSIT AMOUNT: Means, (A) the amount of $1,057,000.00
for the period commencing on the Commencement Date and continuing through the
end of the fourth (4th) full Fiscal Quarter occurring during the Term, and (B)
thereafter, the following applicable
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amounts, determined as of the last day of each subsequent Fiscal Quarter during
the Term: (a) the amount of $1,057,00.00, in the event that the Rent Coverage
Ratio for the twelve (12) month period ending as of such date of determination
is less than 1.2:1; (b) the amount of $704,667.00, in the event that the Rent
Coverage Ratio for the twelve (12) month period ending as of such date of
determination is equal to or greater than 1.2:1, but less than 1.3:1; (c) the
amount of $352,334.00, in the event that the Rent Coverage Ratio for the twelve
(12) month period ending as of such date of determination is equal to or
greater than 1.3:1, but less than 1.4:1; and (d) zero amount, in the event that
the Rent Coverage Ratio for the twelve (12) month period ending as of such date
of determination is equal to or greater than 1.4:1.
STATE: The State or Commonwealth in which the Subleased Property is
located.
SUBLANDLORD: As defined in the preamble.
SUBTENANT'S ELECTION PERIOD: As defined in Section 28.1.
SUBLANDLORD'S ENCUMBRANCE: As defined in Section 26.1.
SUBLANDLORD'S NOTICE: As defined in Article 31.
SUBLANDLORD'S PERSONAL PROPERTY: As defined in Article 1.
SUBLANDLORD'S NOTICE. As defined in Section 28.1.
SUBLEASE: As defined in the preamble.
SUBLEASED IMPROVEMENTS: As defined in Article 1.
SUBLEASED PROPERTY: As defined in Article 1.
SUCCESSOR SUBLANDLORD: As defined in Section 26.6.
SUCCESSOR OWNER: As defined in Section 26.5.
SUBTENANT: As defined in the preamble.
SUBTENANT IMPROVEMENT: As defined in Section 10.1.
SUBTENANT'S ELECTION PERIOD: As defined in Section 28.1.
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SUBTENANT'S PERSONAL PROPERTY: All machinery, equipment, furniture,
furnishings, movable walls or partitions, phone system, computers or trade
fixtures or other personal property, and consumable inventory and supplies,
owned by Subtenant or Palmer Management and used or useful in Subtenant's
business on the Subleased Property, including all items of furniture,
furnishings, equipment, supplies and inventory, kitchen fixtures, bar
equipment, flatware, lawn mowers and other gardening tools, tractors and other
motorized vehicles and golf carts.
TERM: Collectively, the Initial Term and any Extended Terms, as the
context may require, unless earlier terminated pursuant to the provisions
hereof.
UNAVOIDABLE DELAYS: Delays due to strikes, lockouts, inability to procure
materials, power failure, acts of God, governmental restrictions, enemy action,
civil commotion, fire, unavoidable casualty or other causes beyond the control
of the party responsible for performing an obligation hereunder, provided that
lack of funds shall not be deemed a cause beyond the control of either party
hereto unless such lack of funds is caused by the failure of the other party
hereto to perform any obligations of such party, under this Sublease.
UNSUITABLE FOR ITS PRIMARY INTENDED USE. A state or condition of the
Facility such that in the good faith judgment of Subtenant, reasonably
exercised, the Facility cannot be operated on a commercially practicable basis
for its Primary Intended Use.
INTERPRETATION. The foregoing defined terms include the plural as well as
the singular. "Including" and variants thereof shall be deemed to mean
"including without limitation." All accounting terms not otherwise defined
herein have the meanings assigned to them in accordance with generally accepted
accounting principles as at the time applicable. All references in this
Sublease to designated "Articles," "Sections" and other subdivisions are to the
designated Articles, Sections and other subdivisions of this Sublease. The
words "herein," "hereof" and "hereunder" and other words of similar import
refer to this Sublease as a whole and not to any particular Article, Section or
other subdivision.
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EXHIBIT D
OPERATING STANDARDS
1. Greens, Practice Putting Greens & Nurseries.
A. Mowing - At least five days per week at a height between 3/16" -
5/16"during the growing season; as needed during the off season.
B. Change cup locations on all greens and practice putting greens daily
during the active season and at least three times weekly in the off-season.
Cup location on all greens will be moved at least twenty feet from the previous
placement.
C. Repair ball marks, divots, or any other damaged turf areas on all
greens and practice greens daily.
D. Aerify all greens, practice putting greens and nurseries at least
three times per year during the growing season. Aerify problem areas as often
as necessary to produce superior turf quality.
E. Topdress all greens, practice putting greens and nurseries;
(1) After any aerification performed with 1/2" or larger tines;
(2) As needed to maintain a smooth putting surface.
(3) Topdressing will be sand or a mix similar to that used to
construct the greens.
F. Light vertical mowing of all greens, practice putting greens and
nurseries shall be performed as appropriate to smooth and true the putting
surfaces. Heavy dethatching shall be performed only prior to any winter
overseeding.
Note: Where bermudagrass greens are maintained, they shall be
overseeded annually, approximately 2 to 3 weeks before the first annual
frost, using perennial rye or a blend of perennial rye, Poa trivialis
and/or fine fescues - at a rate between 20 and 30 lbs. per 1,000 square
feet.
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The putting surface shall be prepared for overseeding by aerifying
not later than 30 days prior to overseeding and verticutting weekly
starting three to four weeks prior.
Overseeding shall be topdressed 1/8" with material similar to green
construction materials or an approved sand/organic mixture. A complete
fertilizer shall be applied immediately prior to seeding. Greens shall be
irrigated sufficient to remain moist but not soaked until all seed has
germinated.
During germination period, cup shall be changed frequently. First
mowing shall be at 5/16" reducing to normal cutting heights gradually.
A preventive program of fungicide applications shall be maintained
starting two days after overseeding.
G. Spiking of all greens and practice greens shall be performed as
needed between aerifications to maintain water infiltration.
H. Fertilization - All greens, practice greens, and nurseries shall be
fertilized with nitrogen, phosphorous, potash, and other elements as needed to
maintain color, growth, health and turgidity of the turf, without allowing
excessive or succulent growth.
The goal of the greens fertilization program is to provide the best
possible putting surface, not to produce the maximum amount of growth.
I. Fungicides - All greens, practice greens and nurseries shall receive
appropriate fungicide applications to prevent and/or control fungal disease
activity.
J. Weed Control - All greens, practice greens and nurseries shall be
maintained free of undesirable grasses and weeds. Pre-emergent herbicides
shall be used as necessary to prevent intrusion into the greens of weeds
difficult to eradicate such as goosegrass, crabgrass, etc.
K. Insecticides - All greens, practice greens and nurseries shall be
treated as necessary to prevent or halt insect damage.
2. TEES - ALL AREAS USED FOR TEE SURFACE.
A. Mowing - All tees shall be mowed at a height between 3/8" - 5/8"
three times per week during growing season and as necessary during off-season.
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B. Topdressing - All worn areas on tees shall be topdressed at least
weekly to fill divots and level tee surface. Topdressing material shall
contain seed of annual or perennial ryegrasses, or other species as
appropriate.
C. Overseeding - All tees shall be overseeded at a rate of not less
than 10 lbs./1,000 square feet, approximately two to three weeks before the
first expected annual frost. Seed used shall be a suitable species or
blend.
D. Set up - Tee markers and all tee equipment shall be moved daily for
proper play and control of turf wear.
E. Weed Control - Tees shall be kept weed free to an extent of at
least 90% of the area by the proper and timely application of pre- and/or
post-emergent herbicides.
F. Vertical Mowing - All tees shall be verticut as necessary to
control mat or thatch build-up.
G. Aerification - All tees shall be aerified at least every two months
from March through October and as necessary during the remainder of the
year.
H. Fertilization - All tees shall be fertilized with nitrogen,
phosphorous, potash, and other elements as needed to maintain color,
growth, health and turgidity of the turf, without showing excessive or
succulent growth.
3. FAIRWAYS - ALL AREAS OF PLAY EXCEPT GREENS, TEES, ROUGHS AND NATURAL
GROWTH AREAS.
A. Mowing - All fairways shall be mowed at least three times per week
at a height between 1/2" - 7/8" during the growing season and as needed for
the balance of the year.
B. Aerification - All fairways shall be aerified a minimum of three
times per year during the growing season. Aerification holes shall not
exceed a spacing of eight inches on center or be of a diameter of less than
1/2".
C. Fertilization - All fairways shall be fertilized with nitrogen,
phosphorous, potash, or other elements as needed to maintain color, growth,
health and turgidity of the turf, without allowing excessive or succulent
growth.
D. Vertical mowing - All fairways shall be verticut as necessary to
control mat or thatch build-up.
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E. Weed control - Fairways shall be kept weed free to an extent of at
least 90% of the area by the proper and timely application of pre- and/or
post-emergent herbicides.
4. ROUGHS. All turfed areas of play except greens, tees, fairways and
natural growth areas.
A. Mowing - All roughs shall be mowed weekly during the growing
season and as necessary during the balance of the year, at heights between
3/4" and 1-1/2". Rough height shall not exceed 2" without the direct
approval of the regional superintendent, and rough mowing shall not be
suspended for any tournament without such approval.
B. Aerification -
(1) Fairway-to-tree-line play areas shall be aerified at least two
times per year.
(2) Within wooded play areas - as necessary to establish and/or
maintain turf.
C. Fertilization - Roughs shall be fertilized as necessary to
maintain turf.
D. Weed Control - Shall be performed as necessary to prevent seed
formation and to allow proper play.
5. NATURAL GROWTH AREAS. All areas in which native or introduced
vegetation is allowed to survive without routine mowing, cultivating, irrigation
or other routine maintenance procedures. May be out of play areas, steep
slopes, barriers, windbreaks, nature trails, etc. Such areas are to be
maintained free of excessive trash, noxious weeds and vertebrate pests, and in
such manner as to comply fully with fire department regulations or other such
regulations as may apply. Such natural growth areas may be improved and may
from time to time be subjected to irrigation, cultivation, pruning, or other
such practices as may be necessary or desirable to establish or maintain them.
6. PLANTERS - ALL AREAS PLANTED WITH ORNAMENTAL PLANTS, NOT INTENDED FOR
GOLF PLAY AND HAVING A DEFINABLE BORDER.
A. Clean-up - All planters shall be maintained free of trash and
debris.
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B. Weed Control - All planters shall be maintained free of weeds by
mechanical and/or chemical means.
C. Trimming - The plant material (trees, shrubbery and ground
covers) in planters shall be trimmed for protection from wind, insect
damage, and for appearance.
7. TREES - ALL TREES WITHIN THE PROPERTY LINES OF THE GOLF COURSE.
A. Stakes - Trees shall be staked as necessary until of sufficient
size to stand unassisted. Stakes shall be removed as soon as possible.
B. Pruning - All trees shall be properly pruned for protection from
wind and pests as well as for appearance and safety.
C. Irrigation - All trees shall be irrigated to provide adequate
moisture for normal growth.
D. Mowing - Large area mowers shall not be used within one foot of
the trunk of any tree.
E. Removal and Replacement - When appropriate, all dead trees, for
whatever cause, shall be removed. Any necessary replacement shall be with
a tree of appropriate type and size.
8. IRRIGATION - ALL EQUIPMENT REQUIRED TO IRRIGATE ALL AREAS OF THE
PROPERTY.
A. Repair or replace all heads, valves, controllers, wiring, and
pipe as needed to maintain the proper operation of the entire golf course
irrigation system (including greens, tees, fairways, planters, flower beds,
etc.) on an on-going basis
B. The golf course shall be irrigated as necessary to support the
proper growth of golf turf and associated landscaping.
9. FENCES - ALL FENCES AND WALLS, BLOCK, CHAIN LINK, OR BARBED WIRE, ETC.
ON OR WITHIN BOUNDARIES OF THE PROPERTY.
A. Repair all broken or damaged fencing as necessary.
B. Repair or replace as necessary all fences, gates and locking
devices needed for the protection of the golf course or equipment.
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10. CLUBHOUSE AND STRUCTURES - ALL STRUCTURES WITHIN THE BOUNDARIES OF THE
GOLF COURSE.
A. Course Restrooms - All course restrooms shall be maintained
daily to provide clean and sanitary facilities for the users and employees
of the course. Soap, towels, toilet paper, etc. shall be provided in
adequate quantity at all times. Portable facilities shall be maintained
similarly.
B. All buildings and structures shall be maintained in good repair
at all times. Surrounding areas shall be maintained free of weeds, brush,
disorganized junk or broken-down equipment, trash piles, etc. Interior
areas shall be clean and neatly organized, safe and sanitary for customers
and employees. Painting, rodent and insect control, and landscaping shall
be performed as necessary. "Housekeeping" duties shall be assigned to all
maintenance crew members and shall be performed daily.
C. Cart Paths - Maintain all cart paths in a safe and clean
condition and repair promptly as needed.
D. The golf course superintendent is responsible for all facilities
and structures maintenance not within the clubhouse area proper.
11. EDGING. All sidewalks, patios and concrete cart paths must be kept
edged. Edging around valve boxes, meter boxes, backflow preventers, etc. shall
be done as needed to insure that there is no obstruction of play or maintenance
from growth around these items.
12. SAND TRAPS. All sand traps shall be edged as necessary to maintain an
appropriate lip, raked daily and filled with fresh sand as needed to maintain a
minimum 1 1/2" depth on slopes and 4" in the bottom. Replacement sand will be
of a dust-free type, suitable for trap use.
13. LANDSCAPED AREAS. The various planting areas throughout the course
shall be cultivated, weeded, and pruned on a regular basis, with at least two
replanting programs for annuals scheduled each year, depending on the length of
the season.
14. TRASH AND REFUSE. Shall be collected daily and removed from the
property in a safe, sanitary and lawful manner as necessary to minimize or
eliminate problems from refuse odors, insects, etc. Approved trash receptacles
shall be conveniently stationed on tees and other appropriate areas and emptied
daily.
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15. VERTEBRATE PEST CONTROL. Shall be routinely performed throughout the
property on an on-going basis, in such a manner that vertebrate pest
populations are steadily reduced and eventually eliminated.
16. AQUATIC. All lakes, ponds and streams shall be maintained in a safe
and sanitary manner and in good appearance.
17. SOIL AND WATER. Analysis will be performed yearly by an approved
professional laboratory.
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EXHIBIT 10.17
L E A S E
APGM LIMITED PARTNERSHIP
LANDLORD
AND
[NEW LLC ENTITY]
TENANT
DATED AS OF __________________________, 199__
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE PAGE
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<S> <C> <C>
1 LEASED PROPERTY..................................................... 5
2 TERM................................................................ 6
2.1 Initial Term.................................................. 6
2.2 Extended Terms................................................ 6
3 RENT................................................................ 6
3.1 Rent.......................................................... 6
3.2 Annual Base Rent.............................................. 6
3.3 Additional Rent............................................... 7
3.3.1 Quarterly Calculation and Payment of Additional Rent... 7
3.3.2 Annual Reconciliation.................................. 7
3.3.3 Record-keeping......................................... 7
3.3.4 Audits................................................. 8
3.4 Additional Charges............................................ 9
3.5 Late Payment of Rent.......................................... 9
3.6 Net Lease..................................................... 10
4 IMPOSITIONS......................................................... 10
4.1 Payment of Impositions........................................ 10
4.2 Information and Reporting..................................... 10
4.3 Assessment Challenges......................................... 11
4.4 Prorations.................................................... 11
4.5 Refunds....................................................... 11
4.6 Utility Charges............................................... 11
4.7 Assessment Districts.......................................... 11
5 TENANT WAIVERS...................................................... 11
5.1 No Termination, Abatement, Etc................................ 11
5.2 Condition of the Leased Property.............................. 12
6 OWNERSHIP OF PROPERTY............................................... 13
6.1 Leased Property............................................... 13
6.2 Landlord's Personal Property.................................. 13
6.3 Tenant's Personal Property.................................... 13
6.4 Purchase of Tenant's Personal Property........................ 14
6.5 Removal of Personal Property.................................. 15
6.6 Landlord's Waivers............................................ 15
6.7 Collateral.................................................... 15
</TABLE>
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<TABLE>
<CAPTION>
ARTICLE PAGE
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<S> <C> <C>
7 USE OF LEASED PROPERTY............................................... 16
7.1 Use........................................................... 16
7.2 Specific Prohibited Uses...................................... 17
7.3 Landlord to Grant Easements, Etc.............................. 17
8 HAZARDOUS MATERIALS.................................................. 18
8.1 Tenant Covenant - Operation of the Leased Property............ 18
8.2 Remediation................................................... 18
8.3 Environmental Indemnification................................. 18
8.4 Survival of Indemnification Obligations....................... 19
8.5 Environmental Violations at Expiration or
Termination of Lease.......................................... 19
9 MAINTENANCE AND REPAIR............................................... 20
9.1 Tenant's Sole Obligation - General............................ 20
9.2 Leased Improvements Maintenance............................... 20
9.3 Golf Course Maintenance....................................... 21
9.4 Waiver of Statutory Obligations............................... 21
9.5 Mechanic's Liens.............................................. 21
9.6 Surrender of Leased Property.................................. 21
9.7 Transfer of Operating Permits................................. 21
10 TENANT'S IMPROVEMENTS................................................ 22
10.1 Tenant's Right to Construct................................... 22
10.2 Scope of Right................................................ 22
10.3 Cooperation of Landlord....................................... 23
10.4 Commencement of Construction.................................. 23
10.5 Rights in Tenant Improvements................................. 24
11 LIENS, ENCROACHMENTS AND OTHER TITLE MATTERS......................... 24
11.1 Liens......................................................... 24
11.2 Encroachments and Other Title Matters......................... 25
12 PERMITTED CONTESTS................................................... 26
13 INSURANCE............................................................ 27
13.1 General Insurance Requirements................................ 27
13.2 Replacement Cost.............................................. 30
13.3 Waiver of Subrogation......................................... 30
13.4 Form Satisfactory, Etc........................................ 30
13.5 Change in Limits.............................................. 31
13.6 Blanket Policy................................................ 31
</TABLE>
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<TABLE>
<CAPTION>
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<S> <C> <C>
14 APPLICATION OF INSURANCE PROCEEDS.................................... 31
14.1 Insurance Proceeds............................................ 31
14.1.1 Disbursement of Property Insurance Proceeds........... 32
14.1.2 Excess Property Insurance Proceeds.................... 33
14.1.3 Delivery of Insurance Proceeds........................ 33
14.2 Reconstruction Covered by Insurance........................... 34
14.2.1 Destruction Rendering Facility Unsuitable
for its Primary Use................................... 34
14.2.2 Destruction Not Rendering Facility Unsuitable
for its Primary Use................................... 34
14.2.3 Costs of Repair....................................... 34
14.3 Reconstruction Not Covered by Insurance....................... 34
14.4 No Abatement of Rent.......................................... 34
14.5 Waiver........................................................ 35
14.6 Damage Near End of Term....................................... 35
15 CONDEMNATION......................................................... 35
15.1 Total Taking.................................................. 35
15.2 Partial Taking................................................ 35
15.3 Restoration................................................... 35
15.4 Award Distribution............................................ 36
15.5 Temporary Taking.............................................. 36
16 EVENTS OF DEFAULT.................................................... 36
16.1 Events of Default............................................. 36
16.2 Payment of Costs.............................................. 39
16.3 Exceptions.................................................... 39
16.4 Certain Remedies.............................................. 39
16.5 Damages....................................................... 39
16.6 Additional Remedies........................................... 40
16.7 Appointment of Receiver....................................... 40
16.8 Waiver........................................................ 40
16.9 Application of Funds.......................................... 40
17 LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT............................ 41
18 OPERATIONS/CAPITAL EXPENDITURES...................................... 41
18.1 Annual Plan................................................... 41
18.2 Funding of Capital Expenditure Reserve Account................ 42
19 LEGAL REQUIREMENTS................................................... 43
20 HOLDING OVER......................................................... 43
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C> <C>
21 UPREIT UNITS/REIT SHARES/LETTER OF CREDIT/SECURITY DEPOSIT............ 44
21.1 Security Deposit............................................... 44
21.2 Officer's Certificate/Audit.................................... 44
21.3 Terms of Letter of Credit...................................... 45
21.4 Draws Against Letter of Credit/Alternative Security;
Application of Proceeds........................................ 45
21.5 Renewal of Letter of Credit.................................... 46
21.6 Other Security................................................. 46
22 IMPOUNDS.............................................................. 46
23 INDEMNIFICATION; RISK OF LOSS......................................... 47
23.1 Tenant's Indemnification of Landlord........................... 47
23.2 Landlord's Indemnification of Tenant........................... 48
23.3 Mechanics of Indemnification................................... 48
23.4 Survival of Indemnification Obligations........................ 48
24 SUBLETTING AND ASSIGNMENT............................................. 49
24.1 Prohibition Against Subletting and Assignment.................. 49
24.2 Changes in Control............................................. 49
24.2.1 Financial Covenants.................................... 50
24.2.2 Operating Standards.................................... 50
24.3 Subleases...................................................... 50
24.3.1 Permitted Subleases.................................... 50
24.3.2 Terms of Sublease...................................... 51
24.3.3 Copies................................................. 51
24.3.4 Assignment of Rights in Subleases...................... 51
24.3.5 Licenses, Etc.......................................... 52
24.4 Assignment..................................................... 52
24.5 REIT Limitations............................................... 52
24.6 Existing Leases and Licenses................................... 53
25 OFFICER'S CERTIFICATES AND OTHER STATEMENTS........................... 53
25.1 Officer's Certificates......................................... 53
25.2 Financial Reporting............................................ 54
25.2.1 Monthly Financial Information......................... 54
25.2.2 Quarter Financial Information......................... 54
25.2.3 Annual Financial Statements........................... 55
25.2.4 Other Information..................................... 55
25.2.5 Standard Reporting Format............................. 55
25.3 Environmental Statements....................................... 55
</TABLE>
iv
<PAGE> 6
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C> <C>
26 LANDLORD MORTGAGES.................................................. 56
26.1 Landlord May Grant Liens.................................... 56
26.2 Tenant's Non-Disturbance Rights............................. 56
26.3 Breach by Landlord.......................................... 56
26.4 Facility Mortgage Protection................................ 57
27 MISCELLANEOUS....................................................... 57
27.1 Landlord's Right to Inspect................................. 57
27.2 No Waiver................................................... 57
27.3 Remedies Cumulative......................................... 57
27.4 Acceptance of Surrender..................................... 58
27.5 No Merger of Title.......................................... 58
27.6 Conveyance by Landlord...................................... 58
27.7 Quiet Enjoyment............................................. 58
27.8 Notices..................................................... 58
27.9 Survival of Claims.......................................... 58
27.10 Invalidity of Terms or Provisions........................... 58
27.11 Prohibition Against Usury................................... 59
27.12 Amendments to Lease......................................... 59
27.13 Successors and Assigns...................................... 59
27.14 Titles...................................................... 59
27.15 Governing Law............................................... 59
27.16 Memorandum of Lease......................................... 59
27.17 Attorneys' Fees............................................. 59
27.18 Non-Recourse as to Landlord................................. 59
27.19 No Relationship............................................. 60
27.20 Signs; Reletting............................................ 60
27.21 Resort and Golf Course Names................................ 60
27.22 Audit Dispute Resolution.................................... 60
27.23 Standard of Consent/Approval................................ 60
27.24 Interest on Payments Due Tenant............................. 61
28 RIGHT OF FIRST OFFER................................................ 61
28.1 Exercise of First Offer Right............................... 61
28.2 Further Documentation....................................... 62
28.3 Purchase Price.............................................. 62
28.4 Mechanics of Purchase....................................... 62
28.5 REIT Qualification Limitation............................... 63
28.6 Effectiveness of First Offer Right.......................... 63
</TABLE>
v
<PAGE> 7
EXHIBITS:
EXHIBIT A - Defined Terms: Interpretation
EXHIBIT B - Legal Description of the Land
EXHIBIT C - Intentionally Omitted
EXHIBIT D - Operating Standards
EXHIBIT E - Intentionally Omitted
EXHIBIT F - Annual Base Rent Schedule
EXHIBIT G - Baseline Year Revenue Schedule
EXHIBIT H - Standard Reporting Format
vi
<PAGE> 8
LEASE
THIS LEASE ("Lease"), dated ______________________, 199__ , is entered
into by and between APGM LIMITED PARTNERSHIP, a Delaware limited partnership
("Landlord"), and __________________________________________________________ ,
a(n) __________________ limited liability company ("Tenant"). This Lease
consists of the Basic Lease Provisions, the Detailed Lease Provisions and
Exhibits A through H, all of which are incorporated herein by this reference.
Capitalized terms used herein have the meanings assigned to such terms in
Exhibit A.
BASIC LEASE PROVISIONS
1. ADDITIONAL RENT: Means the amount, if any, by which (a) the sum of:
(i) the Applicable Percentage of the amount by which Room Revenue
for any Fiscal Year exceeds Baseline Rooms Revenue;
(ii) the Applicable Percentage of the amount by which Golf Course
Revenue for any Fiscal Year exceeds the Baseline Golf Course Revenue; and
(iii) the Applicable Percentage of the amount by which FB&M Revenue
for any Fiscal Year exceeds the Baseline FB&M Revenue,
exceeds (b) the Base Rent Escalation for such Fiscal Year. (See Section
3.3 of the Detailed Lease Provisions.)
2. ADDRESS FOR PAYMENTS:
Landlord:
APGM Limited Partnership
c/o Arnold Palmer Golf
Building 106, Montgomery Street
Presidio Main Post, P.O. Box 29355
San Francisco, California 94129
(See Section 3.1 of the Detailed Lease Provisions.)
<PAGE> 9
3. ADDRESSES FOR NOTICES:
Tenant:
c/o Olympus Real Estate Corporation
200 Crescent Court, Suite 1650
Dallas, Texas 75201
Attn: Michael Medzigian and Legal Department
Fax: 214/740-7340
-and-
c/o Montclair Hotel Investors
250 West Schick Road
Bloomingdale, Illinois 60108
Attn: Peter Cyrus and Dennis Langley
Fax: 630/529-3248
Landlord:
APGM Limited Partnership
c/o Arnold Palmer Golf Management
Building 106, Montgomery Street
Presidio Main Post, P.O. Box 29355
San Francisco, California 94129
Attn: Mr. George Haworth
FAX: (415)561-4680
(See Section 27.8 of the Detailed Lease Provisions.)
4. ANNUAL BASE RENT: Means the Initial Base Rent with respect to that
Fiscal Year (the "First Fiscal Year") commencing on the Commencement Date and
ending on the last day of that calendar month which is either the last calendar
month of the third (3rd) full Fiscal Quarter occurring after the Commencement
Date if the Commencement Date occurs less than halfway through the then current
Fiscal Quarter or the last calendar month of the fourth (4th) full Fiscal
Quarter if the Commencement Date occurs halfway or more than halfway through
the then current Fiscal Quarter, as the case may be [therefore, if the
Commencement Date occurred between May 16 and August 15, 1998, both dates
inclusive, the First Fiscal Year would end June 30, 1999 or if the Commencement
Date occurred between August 16, 1998 and November 15, 1998, both dates
inclusive, the First Fiscal Year would end September 30, 1999]. On the first
day of the Fiscal Year following the First Fiscal Year, and on the first day of
each successive Fiscal Year during the Term, the Annual Base Rent shall be
equal to the lesser of (a) the Annual Base Rent applicable to the immediately
preceding Fiscal Year multiplied by 103%
2
<PAGE> 10
and (b) the sum of (i) the Annual Base Rent applicable to the immediately
preceding Fiscal Year and (ii) the product of the Annual Base Rent applicable
to the immediately preceding Fiscal Year multiplied by the annual percentage
increase in the Consumer Price Index for the immediately preceding Fiscal Year
(the percentage increase in Consumer Price Index for the immediately preceding
Fiscal Year being defined as the comparison of the Consumer Price Index for the
last calendar month of the immediately preceding Fiscal Year to the Consumer
Price Index for the calendar month immediately preceding said immediately
preceding Fiscal Year).
5. APPLICABLE PERCENTAGE: Means 22% with respect to Rooms Revenue; 30%
with respect to Golf Course Revenue and 5% with respect to FB&M Revenue.
6. BASE RENT ESCALATION: Means, for any Fiscal Year, the amount by which
the Annual Base Rent for such Fiscal Year exceeds the Initial Base Rent.
7. BASELINE FB&M REVENUE: Means, for any Fiscal Year during the Term,
$13,566,829.00.
8. BASELINE GOLF COURSE REVENUE: Means, for any Fiscal Year during the
Term, $3,832,535.00.
9. BASELINE ROOMS REVENUE: Means, for any Fiscal Year during the Term,
$11,774,332.00.
10. COMMENCEMENT DATE: Means ____________________, 1998.
11. EXTENDED TERMS: Five (5) five-year terms (each, an "Extended Term"
and collectively, the "Extended Terms").
12. FACILITY: Means the Leased Property consisting of two resorts; one
commonly known as Indian Lakes Resort, containing 271 acres (approximately) on
which there is located a 314-room hotel, two 18-hole golf courses, indoor and
outdoor swimming pools, clubhouse, three restaurants, three lounges, health
club, three tennis courts, game room, pro shop, and convention and banquet
facilities; and the other commonly known as Nordic Hills, containing 102 acres
(approximately) on which there is located a 228-room hotel, an 18-hole golf
course, indoor and outdoor heated swimming pools, two restaurants, three
lounges, three tennis courts, eight racquetball courts, six bowling lanes,
health club, weight room and convention and banquet facilities.
13. FISCAL YEAR: Means the First Fiscal Year (as defined in the
definition of Annual Base Rent above) and the 12 full calendar month period
commencing on the first day of the first calendar month following the end of
the First Fiscal Year and on each anniversary thereof during the Term. Unless
the Commencement Date is the first day of a Fiscal Quarter, neither the First
nor the last Fiscal Year would be twelve (12) full calendar months.
3
<PAGE> 11
14. INITIAL BASE RENT: Means $6,167,400.00.
15. INITIAL TERM: 15 years commencing on the Commencement Date.
Certain other terms used in this Lease have the meanings ascribed to them
in Exhibit A attached hereto and made a part hereof.
LIST OF EXHIBITS:
Exhibit A Defined Terms; Interpretation
Exhibit B Legal Description of the Land
Exhibit C Intentionally Omitted
Exhibit D Operating Standards
Exhibit E Intentionally Omitted
Exhibit F Annual Base Rent Schedule
Exhibit G Baseline Year Revenue Schedule
Exhibit H Standard Reporting Format
4
<PAGE> 12
DETAILED LEASE PROVISIONS
ARTICLE 1
LEASED PROPERTY
Upon and subject to the terms and conditions set forth in this Lease,
Landlord leases to Tenant and Tenant rents from Landlord all of Landlord's
rights and interest in and to the following real property, improvements and
related rights (collectively the "Leased Property"):
(a) the land described in Exhibit B attached hereto (collectively,
the "Land");
(b) all buildings, structures, Fixtures and other improvements of
every kind including, but not limited to, alleyways and connecting
tunnels, sidewalks, utility pipes, conduits and lines (on-site and
off-site), parking areas, roadways, cart paths, bridges, lakes,
irrigation systems, and course markers presently situated upon the Land,
but not including any Tenant Improvements (collectively, the "Leased
Improvements");
(c) all easements, rights and appurtenances (including, without
limitation, all water rights) relating to the Land and the Leased
Improvements (collectively, the "Related Rights"); and
(d) all personal property owned by Landlord and located on the Land
or in the Leased Improvements, including but not limited to all fixtures,
furnishings, equipment, vehicles, machinery, signage, appliances, window
coverings, carpeting and other tangible personal property of every kind
and character which as of the date of this Lease are owned by Landlord
and situated in or upon the Land and/or the Leased Improvements
("Landlord's Personal Property").
In addition, upon and subject to the terms and conditions of this
Lease, Landlord hereby grants to Tenant the following rights:
(i) a license to use the Trade Names and Trademarks (as
defined in Exhibit A) in connection with the operation
of the Facility, including but not limited to marketing
and merchandising; and
(ii) the right to assert claims in Tenant's name or
Landlord's name on the Warranties (as defined in
Exhibit A) with respect to the Facility and Landlord's
Personal Property. Landlord agrees to cooperate with
Tenant in connection with asserting any such claims on
the Warranties.
5
<PAGE> 13
Upon any termination of this Lease or of Tenant's right to possession of the
Leased Property, Tenant's rights under this paragraph shall be deemed
automatically revoked and terminated, whether or not such rights are expressly
addressed in any notice to Tenant or in any legal proceedings with respect to
this Lease.
ARTICLE 2
TERM
2.1 INITIAL TERM. The initial Term of this Lease shall commence on the
Commencement Date.
2.2 EXTENDED TERMS. Landlord grants Tenant the right to extend the Term
of this Lease for the Extended Terms provided for in the Basic Lease Provisions
commencing upon the expiration of the Initial Term or the applicable Extended
Term. Tenant may exercise such right solely by giving written notice to
Landlord of such extension at least 270 days prior to the termination of the
then-current Term (time being of the essence). The exercise of such right
shall be valid only if, at the time of the giving of such notice and at the
time of the commencement of the applicable Extended Term, no Event of Default
shall have occurred and be continuing. During the Extended Term, all of the
terms and conditions of this Lease shall continue in full force and effect, as
the same may be amended, supplemented or modified.
ARTICLE 3
RENT
3.1 RENT. Tenant will pay to Landlord in lawful money of the United
States of America the Annual Base Rent and Additional Rent during the Term.
Payment of Annual Base Rent and Additional Rent shall be paid at Landlord's
address set forth in the Basic Lease Provisions or at such other place or to
such other Person as Landlord from time to time may designate in writing. If
any payment owing hereunder shall otherwise be due on a day that is not a
Business Day, such payment shall be due on the next succeeding Business Day.
Tenant's covenant to pay Annual Base Rent, Additional Rent and any other sums
due under this Lease shall be independent of all other covenants contained in
this Lease.
3.2 ANNUAL BASE RENT. Tenant shall pay Annual Base Rent to Landlord in
advance on the first day of each calendar month (which Base Rent shall, for
accounting purposes, consist of Annual Base Rent accruing during the respective
Fiscal Year in equal monthly installments, but which Base Rent shall be payable
for each month in the respective proportions described in Exhibit F); provided,
however, that the first monthly installment shall be payable on the
Commencement Date and the first and last month's payments shall be prorated as
to any partial month.
6
<PAGE> 14
3.3 ADDITIONAL RENT. In addition to the Annual Base Rent, Tenant shall
pay to Landlord Additional Rent in quarterly installments as provided in
Section 3.3.1.
3.3.1 QUARTERLY CALCULATION AND PAYMENT OF ADDITIONAL RENT. Tenant
shall calculate and pay Additional Rent for each Fiscal Quarter. The
amount of the Additional Rent for the Second, Third and Fourth Fiscal
Quarters shall account for any interim reconciliations made with respect
to prior Fiscal Quarters in such Fiscal Year as certified by Tenant to
Landlord as provided by this Section 3.3.1, but subject to a final
reconciliation as provided by Section 3.3.2. Within forty-five (45) days
after the end of each Fiscal Quarter, Tenant shall deliver to Landlord an
Officer's Certificate setting forth the calculation of Additional Rent
for such Fiscal Quarter. If the Additional Rent for the period beginning
on the first day of the current Fiscal Year and ending on the last day of
the Fiscal Quarter just ended exceeds the sum of quarterly payments on
account thereof previously made by Tenant, Tenant shall pay such
deficiency to Landlord along with the Officer's Certificate. If the
Additional Rent for the period beginning on the first day of the current
Fiscal Year and ending on the last day of the Fiscal Quarter just ended
is less than the sum of quarterly payments on account thereof previously
made by Tenant, Landlord shall, within thirty (30) days of its receipt of
such Officer's Certificate, pay to Tenant an amount equal to such
difference. In calculating Additional Rent for any Fiscal Quarter, the
Rooms Revenue, Golf Course Revenue or FB&M Revenue, as the case may be,
for the period beginning on the first day of the current Fiscal Year and
ending on the last day of such Fiscal Quarter shall be compared to the
Baseline Rooms Revenue, the Baseline Golf Course Revenue or the Baseline
FB&M Revenue for the same period during the Baseline Year, as scheduled
on Exhibit G attached hereto.
3.3.2 ANNUAL RECONCILIATION. Within ninety (90) days after the end
of each Fiscal Year, or after the expiration or termination of this
Lease, Tenant shall deliver to Landlord an Officer's Certificate setting
forth (i) the Rooms Revenue, the Golf Course Revenue and the FB&M Revenue
for the Fiscal Year just ended, and (ii) a comparison of the amount of
Additional Rent actually paid during such Fiscal Year versus the amount
of Additional Rent actually owing on the basis of the annual calculation
of the Rooms Revenue, the Golf Course Revenue and the FB&M Revenue. If
the Additional Rent for such Fiscal Year exceeds the sum of the quarterly
payments previously paid by Tenant on account thereof, Tenant shall pay
such deficiency to Landlord along with such Officer's Certificate. If
the Additional Rent for such Fiscal Year is less than the amount
previously paid by Tenant on account thereof, Landlord shall, within
thirty (30) days of its receipt of such Officer's Certificate, remit to
Tenant its check in an amount equal to such difference. The amount of
the reconciliation payment, whether in favor of Landlord or Tenant, shall
bear interest at a rate equal to the rate payable on ninety (90) day U.S.
Treasury Bills as of January 1 of the year following the close of such
Fiscal Year until the amount of such difference shall be paid or
otherwise discharged.
3.3.3 RECORD-KEEPING. Tenant shall utilize an accounting system
for the Leased Property in accordance with its usual and customary
practices and in accordance with
7
<PAGE> 15
accrual basis accounting principles applied on a consistent basis, which
will accurately record all Rooms Revenue, Golf Course Revenue and FB&M
Revenue. Tenant shall retain reasonably adequate records for each Fiscal
Year conforming to such accounting system until at least five years after
the expiration of such Fiscal Year (and in any event until the
reconciliation described in Section 3.3.2 above for such Fiscal Year has
been made). Tenant may use the then current edition of the Uniform
System for the Lodging Industry as part of its accounting system.
3.3.4 AUDITS. Landlord, at its own expense except as provided
hereinbelow, shall have the right from time to time directly or through
its accountants (who shall be from a nationally recognized accounting
firm) to audit the information set forth in the Officer's Certificate
referred to in Section 3.3.2 (it being expressly understood and agreed
that Landlord shall not have the right to conduct an audit with respect
to the quarterly information provided under Section 3.3.1) and in
connection with such audits to examine Tenant's books and records with
respect thereto (including supporting data, sales tax returns and
Tenant's work papers) at Tenant's office during normal business hours
upon reasonable advance notice to Tenant; provided, however, that any
audit of the information contained in an Officer's Certificate referred
to in Section 3.3.2 must be conducted, and the results thereof delivered
to Tenant, on or before one (1) year after delivery to Landlord of such
Officer's Certificate. At the end of such one (1) year period, the
information contained in the Officer's Certificate shall be final and
binding upon Landlord and Tenant, except with respect to any amount
therein which Landlord has challenged in writing delivered to Tenant on
or before expiration of such one (1) year period and except that in the
event that any subsequent audit by Landlord discloses that Tenant has
understated any revenue item by Fifty Thousand and no/100 Dollars
($50,000.00) and such understatement results in Gross Revenue being
understated by more than five percent (5%) of the actual amount thereof,
then Landlord shall have the right to audit all prior years' (falling
within the then current term of this Lease) information which has not
theretofore been audited by Landlord [the reference to $50,000.00 in the
foregoing sentence shall be deemed to mean said amount as increased based
upon changes in the Consumer Price Index from the date of this Lease].
Any such challenge must be based upon the results of Landlord's audit.
If any such audit discloses a deficiency in the payment of Additional
Rent, Tenant shall, within thirty (30) days of its receipt of the results
of such audit and notice of deficiency, either pay to Landlord the amount
of the deficiency, as finally agreed or determined, or notify Landlord
that Tenant contests the results of Landlord's audit. The amount of the
deficiency shall bear interest at the Overdue Rate from the thirtieth
(30th) day after Tenant's receipt of the results of such audit and notice
of deficiency until the date of payment thereof. If any such audit
discloses that the Rooms Revenue, the Golf Course Revenue or FB&M Revenue
actually received by Tenant for any Fiscal Year exceeds the amount
thereof reported by Tenant by more than five percent (5%), Tenant shall
pay the reasonable cost of such audit and examination. Any proprietary
information obtained by Landlord pursuant to the provisions of this
Section shall be treated as confidential, except that such information
may be used, subject to appropriate confidentiality safeguards, in any
litigation between
8
<PAGE> 16
the parties and except further that Landlord may disclose such
information to lenders and prospective lenders to Landlord, purchasers
and prospective purchasers and investors in Landlord or the Leased
Property who agree to be bound by this confidentiality provision and to
any other persons to whom disclosure is necessary to comply with
applicable laws, regulations and government requirements. Any dispute as
to the existence or amount of any deficiency in the payment of Additional
Rent as disclosed by Landlord's audit shall, if not otherwise settled by
the parties, be resolved by the audit dispute resolution mechanism set
forth in Section 27.22.
3.4 ADDITIONAL CHARGES. In addition to the Annual Base Rent and
Additional Rent, (1) Tenant shall also pay and discharge when due and payable
all other amounts, liabilities, obligations and Impositions which Tenant
assumes or agrees to pay under this Lease, and (2) in the event of any failure
on the part of Tenant to pay any of those items referred to in clause (1)
above, Tenant shall also pay and discharge every fine, penalty, interest and
cost which may be added for non-payment or late payment of such items (the
items referred to in clauses (1) and (2) above being referred to herein
collectively as the "Additional Charges"). Except as otherwise provided in
this Lease or as otherwise required by any third party entitled to receipt of
Additional Charges, all Additional Charges shall be due and payable (a) ten
(10) Business Days after Landlord shall deliver an invoice to Tenant therefor
for Additional Charges to be paid to Landlord or (b) for each Additional Charge
due directly to a third party, on or before the date after which a fine,
penalty or interest will accrue if such Additional Charge is not paid. To the
extent that Tenant pays any Additional Charges to Landlord pursuant to any
requirements of this Lease, Tenant shall be relieved of its obligation to pay
such Additional Charges to the entity to which they would otherwise be due.
3.5 LATE PAYMENT OF RENT. Tenant hereby acknowledges that late payment by
Tenant to Landlord of Annual Base Rent, Additional Rent or Additional Charges
will cause Landlord to incur costs not contemplated under the terms of this
Lease, the exact amount of which is presently anticipated to be extremely
difficult to ascertain. Such costs may include processing and accounting
charges and late charges which may be imposed on Landlord by the terms of any
mortgage or deed of trust covering the Leased Property and other expenses of a
similar or dissimilar nature. Accordingly, if any installment or payment of
Annual Base Rent, Additional Rent or Additional Charges (but only as to those
Additional Charges which are payable directly to Landlord) shall not be paid or
made within five (5) Business Days after its due date (which, in the case of
Additional Charges due to Landlord, would be five (5) Business Days after the
ten (10) Business Day period Tenant has to pay such Additional Charge, as set
forth above), Tenant will pay Landlord on demand, as Additional Charges, a late
charge equal to three percent (3%) of such installment or payment; provided,
however, that if such payment or installment is not paid or made within ten
(10) Business Days after its due date, the late charge shall be five percent
(5%) of such installment or payment. The parties agree that this late charge
represents a fair and reasonable estimate of the costs that Landlord will incur
by reason of late payment by Tenant. In addition to said late charge, if any
installment or payment of Annual Base Rent, Additional Rent or Additional
Charges (but only as to those Additional Charges which are payable directly to
Landlord) shall not be paid on, or made by, its due date, the amount unpaid
9
<PAGE> 17
shall bear interest, from the date such installment or payment was due until
the date of payment thereof, computed at the Overdue Rate on the amount of such
delinquent installment or payment, and Tenant will pay such interest to
Landlord on demand, as Additional Charges. The payment of said late charge or
such interest, or both, as the case may be, shall not constitute a waiver, nor
excuse or cure, of any default under this Lease, nor prevent Landlord from
exercising any other rights and remedies available to Landlord.
3.6 NET LEASE. The Rent shall be paid absolutely net to Landlord and,
except as expressly provided in Article 14, Article 15 or elsewhere in this
Lease, without notice or demand and without set-off, counterclaim, recoupment,
abatement, suspension, determent, deduction or defense, so that this Lease
shall yield to Landlord the full amount of the installments of Annual Base
Rent, Additional Rent and Additional Charges throughout the Term.
ARTICLE 4
IMPOSITIONS
4.1 PAYMENT OF IMPOSITIONS. Subject to the terms of Article 22 hereof,
Tenant will pay, or cause to be paid, all Impositions before any fine, penalty,
interest or cost may be added for non-payment, such payments to be made
directly to the taxing authorities where feasible. All payments of Impositions
shall be subject to Tenant's right of contest pursuant to the provisions of
Article 12. As soon as reasonably available after payment of said Impositions
(for all Impositions where the failure to pay the same can result in a lien or
encumbrance against the Leased Property or any portion thereof), Tenant shall
furnish to Landlord copies of official receipts, if available, or other
satisfactory third-party evidence of such payments, such as canceled checks.
If any Imposition may, at the option of the taxpayer, lawfully be paid in
installments (whether or not interest shall accrue on the unpaid balance of
such Imposition), Tenant may elect to pay such Imposition in installments, in
which event Tenant shall pay all installments (and any accrued interest on the
unpaid balance of the Imposition) that are due during the Term before any fine,
penalty, premium, further interest or cost may be added thereto.
4.2 INFORMATION AND REPORTING. Landlord shall give prompt notice to
Tenant of all Impositions payable by Tenant hereunder of which Landlord at any
time has knowledge, but Landlord's failure to give any such notice shall in no
way diminish Tenant's obligations hereunder to pay such Impositions. Landlord
and Tenant shall, upon request of the other, provide such data as is maintained
by the party to whom the request is made with respect to the Leased Property as
may be necessary to prepare any required returns and reports. In the event any
applicable governmental authorities classify any property covered by this Lease
as personal property, Tenant shall file all personal property tax returns in
such jurisdictions where it must legally so file. Each party, to the extent it
possesses the same, will provide the other party, upon request, with cost and
depreciation records necessary for filing returns for any property so
classified as personal property.
10
<PAGE> 18
4.3 ASSESSMENT CHALLENGES. In addition to Tenant's rights under Article
12, Tenant may, upon notice to Landlord, at Tenant's option and at Tenant's
sole cost and expense, protest, appeal, or institute such other proceedings as
Tenant may deem appropriate to effect a reduction of real estate or personal
property assessments and Landlord, at Tenant's expense as aforesaid, shall
fully cooperate with Tenant in such protest, appeal, or other action.
4.4 PRORATIONS. Inasmuch as Tenant (or an affiliate of Tenant) was the
seller of the Leased Property to Landlord which sale was consummated
concurrently with the commencement of this Lease, there was no proration of
Impositions at such closing, but rather seller/Tenant was to remain fully
responsible therefor. Consequently, Impositions imposed in respect of the
tax-fiscal period during which the Term commences shall not be adjusted between
Landlord and Tenant and Tenant shall be obligated to pay the same. Impositions
imposed in respect of the tax-fiscal period during which the Term terminates
shall be adjusted and prorated between Landlord and Tenant, whether or not such
Imposition is imposed before or after such termination, and Tenant's obligation
to pay its prorated share thereof shall survive such termination.
4.5 REFUNDS. If Landlord shall receive any refund from any taxing
authority in respect of any Imposition paid by Tenant, the same shall be paid
over to Tenant if no Event of Default shall have occurred hereunder and be
continuing. Any such funds retained by Landlord due to an Event of Default
shall be applied as provided in Article 16, with the amount in excess of the
amount due Landlord as a consequence of said Event of Default to be paid by
Landlord to Tenant in any event.
4.6 UTILITY CHARGES. Tenant shall pay or cause to be paid prior to
delinquency charges for all utilities and services, including, without
limitation, electricity, telephone, trash disposal, gas, oil, water, sewer,
communication and all other utilities used in the Leased Property during the
Term.
4.7 ASSESSMENT DISTRICTS. Landlord shall not voluntarily consent to or
agree in writing to (i) any special assessment or (ii) the inclusion of any
material portion of the Leased Property into a special assessment district or
other taxing jurisdiction unless Tenant shall have consented thereto, which
consent shall not be unreasonably withheld.
ARTICLE 5
TENANT WAIVERS
5.1 NO TERMINATION, ABATEMENT, ETC. Except as otherwise specifically
provided in this Lease, and except for those causes resulting solely from the
negligence or willful misconduct of Landlord, (i) Tenant, to the extent
permitted by law, shall remain bound by this Lease in accordance with its terms
and shall neither take any action without the consent of Landlord to
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modify, surrender or terminate the same, nor be entitled to any abatement,
deduction, deferment or reduction of Rent, or set-off against the Rent by
reason of, and (ii) the respective obligations of Landlord and Tenant shall not
be otherwise affected by reason of:
(a) any damage to, or destruction of, any Leased Property or any
portion thereof from whatever cause or any taking of the Leased Property
or any portion thereof;
(b) the lawful or unlawful prohibition of, or restriction upon,
Tenant's use of the Leased Property, or any portion thereof, the
interference with such use by any Person, or by reason of eviction by
paramount title;
(c) any claim which Tenant has or might have against Landlord or by
reason of any default or breach of any warranty by Landlord under this
Lease or any other agreement between Landlord and Tenant, or to which
Landlord and Tenant are parties;
(d) any bankruptcy, insolvency, reorganization, composition,
readjustment, liquidation, dissolution, winding up or other proceedings
affecting Landlord or any assignee or transferee of Landlord; or
(e) for any other cause whether similar or dissimilar to any of the
foregoing other than a discharge of Tenant from any such obligation as a
matter of law.
Tenant hereby specifically waives all rights arising from any occurrence
whatsoever, which may now or hereafter be conferred upon it by law (i) to
modify, surrender or terminate this Lease or quit or surrender the Leased
Property or any portion thereof, or (ii) to entitle Tenant to any abatement,
reduction, suspension or deferment of the Rent or other sums payable by Tenant
hereunder, except as otherwise specifically provided in this Lease. The
obligations of Landlord and Tenant hereunder shall be separate and independent
covenants and agreements and the Rent and all other sums payable by Tenant
hereunder shall continue to be payable in all events unless the obligations to
pay the same shall be terminated pursuant to the express provisions of this
Lease or by termination of this Lease other than by reason of any Event of
Default.
5.2 CONDITION OF THE LEASED PROPERTY. Tenant acknowledges receipt and
delivery of possession of the Leased Property and that Tenant has examined and
otherwise has knowledge of the condition of the Leased Property prior to the
execution and delivery of this Lease and has found the same to be in good order
and repair and satisfactory for its purposes hereunder. Regardless of any
inspection made by Tenant of the Leased Property and whether or not any patent
or latent defect or condition was revealed or discovered thereby, Tenant is
leasing the Leased Property "as is" in its present condition. Tenant waives
and releases any claim or action against Landlord in respect of the condition
of the Leased Property including any defects or adverse conditions, latent or
patent, matured or unmatured, known or unknown by Tenant or Landlord as of the
date hereof. TENANT ACKNOWLEDGES THAT LANDLORD (WHETHER ACTING AS LANDLORD
HEREUNDER OR IN ANY OTHER CAPACITY) HAS NOT MADE AND WILL NOT MAKE, NOR SHALL
LANDLORD BE DEEMED TO
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HAVE MADE, ANY WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, WITH RESPECT TO
THE LEASED PROPERTY, INCLUDING ANY WARRANTY OR REPRESENTATION AS TO (i) ITS
FITNESS, DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE, (ii) THE
QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, (iii) THE EXISTENCE OF ANY
DEFECT, LATENT OR PATENT, (iv) LANDLORD'S TITLE THERETO, (v) VALUE, (vi)
COMPLIANCE WITH SPECIFICATION, (vii) LOCATION, (viii) USE, (ix) CONDITION, (x)
MERCHANTABILITY, (xi) QUALITY, (xii) DESCRIPTION, (xiii) DURABILITY, (xiv)
OPERATION, (xv) THE EXISTENCE OF ANY HAZARDOUS MATERIAL OR (xvi) COMPLIANCE OF
THE LEASED PROPERTY WITH ANY LAW (INCLUDING ENVIRONMENTAL LAWS) OR LEGAL
REQUIREMENTS. TENANT ACKNOWLEDGES THAT THE LEASED PROPERTY IS OF ITS SELECTION
AND TO ITS SPECIFICATIONS AND THAT THE LEASED PROPERTY HAS BEEN INSPECTED BY
TENANT AND IS SATISFACTORY TO IT. IN THE EVENT OF ANY DEFECT OR DEFICIENCY IN
THE LEASED PROPERTY OF ANY NATURE, WHETHER LATENT OR PATENT, AS BETWEEN
LANDLORD AND TENANT, LANDLORD SHALL NOT HAVE ANY RESPONSIBILITY OR LIABILITY
WITH RESPECT THERETO OR FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING
STRICT LIABILITY IN TORT). THE PROVISIONS OF THIS Section 5.2 HAVE BEEN
NEGOTIATED, AND ARE INTENDED TO BE A COMPLETE EXCLUSION AND NEGATION OF ANY
WARRANTIES BY LANDLORD, EXPRESS OR IMPLIED, WITH RESPECT TO THE LEASED
PROPERTY, ARISING PURSUANT TO THE UNIFORM COMMERCIAL CODE OR ANY OTHER LAW NOW
OR HEREAFTER IN EFFECT OR ARISING OTHERWISE.
ARTICLE 6
OWNERSHIP OF PROPERTY
6.1 LEASED PROPERTY. Tenant acknowledges that the Leased Property is the
property of Landlord, that Landlord is the paramount owner of the Leased
Property and that Tenant has only the right to the exclusive possession and use
of the Leased Property during the Term of, and upon the terms and conditions
of, this Lease.
6.2 LANDLORD'S PERSONAL PROPERTY. Tenant shall maintain Landlord's
Personal Property in the same manner as Tenant maintains Tenant's Personal
Property. Upon the loss, destruction, or obsolescence of any of the Landlord's
Personal Property, Tenant shall, to the extent such replacement is necessary to
operate the Facility in compliance with all applicable Legal Requirements or
Insurance Requirements or otherwise in accordance with the standards set forth
in this Lease, replace such property with Tenant's Personal Property, which
Personal Property shall be owned by Tenant.
6.3 TENANT'S PERSONAL PROPERTY. Tenant may (and shall, as provided
below), at its expenses, install, affix or assemble or place on any parcel of
the Land or in any of the Leased
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Improvements, any items of Tenant's Personal Property. Tenant shall provide
and maintain during the entire Term all such Tenant's Personal Property as
shall be necessary in order to operate the Facility in compliance with all
applicable Legal Requirements and Insurance Requirements and otherwise in
accordance with the standards set forth in this Lease.
6.4 PURCHASE OF TENANT'S PERSONAL PROPERTY. Upon the termination of this
Lease or of Tenant's right to possession of the Leased Property in either event
as a consequence of the occurrence of an Event of Default on the part of
Tenant, Landlord shall have the right (but not the obligation) to purchase from
Tenant all or any portion of tangible Tenant's Personal Property (which shall
not include software) and upon the expiration of the Term of this Lease,
Landlord shall be obligated to purchase all of Tenant's tangible Tenant's
Personal Property which is of a type, quantity and quality reasonably necessary
for the operation of the Leased Property consistent with the nature of the
Leased Property and the manner in which it has been operated during the Term
(but which shall not include software) and the right (but not the obligation)
to purchase all such "non-consistent" tangible Tenant's Personal Property. The
purchase price for any Tenant's Personal Property to be so purchased shall be
calculated as follows:
(i) if owned by Tenant and not subject to any secured financing, at
the fair market value thereof;
(ii) if owned by Tenant, but subject to a secured financing, at the
greater of the fair market value thereof or the amount of the debt owing
under such financing; and
(iii) if leased by Tenant and the applicable lease provides for
termination of the lease as to such Personal Property upon the payment of
a given sum, at the greater of the fair market value thereof or the
amount of the payment so provided; provided, however, that at Tenant's
option and if the lessor will permit Landlord to assume the obligations
under the applicable lease with respect to such Personal Property
(separate from the obligations under a master lease if in effect), Tenant
shall, upon the request of Landlord, assign the applicable lease (or
portion thereof) to Landlord;
provided, however, that if Landlord's purchase right arises as a result of an
Event of Default on the part of Tenant, then in lieu of utilizing the fair
market value under clauses (i), (ii) and (iii) above for purposes of
calculating the purchase price for the Tenant's Personal Property to be so
purchased, the parties shall utilize the depreciated net book value of Tenant's
Personal Property for that purpose. Landlord shall exercise any of its
foregoing options to purchase Tenant's Personal Property or any portion thereof
(1) arising as a result of an Event of Default by Tenant by giving notice to
Tenant not later than, sixty (60) days after the termination of this Lease or
of Tenant's right to possession under this Lease, as the case may be, or (2)
arising at the expiration of the Term, by giving Tenant notice on or before the
expiration of the Term. Landlord shall pay Tenant for Tenant's Personal
Property within five (5) Business Days of the later to occur of (a) Tenant
vacating the Leased Property and (b) the parties liquidating the amount due
Tenant for Tenant's Personal Property. Tenant shall transfer title to such
Personal Property by a bill of sale without warranty (except as to ownership)
upon concurrent payment
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in cash by Landlord; provided, however, if Landlord has a judgment for unpaid
damages resulting from any Event of Default, Landlord may make payment by an
offset against such unpaid damages or if Landlord has then commenced an action
against Tenant for damages, Landlord may make payment to the court or other
escrowee pending resolution of such legal proceedings, but in either event,
Landlord shall remit to Tenant the balance of the amount due for Tenant's
Personal Property in excess of the amount of the judgment for damages or the
amount of damages claimed by Landlord in the commenced action, as the case may
be.
6.5 REMOVAL OF PERSONAL PROPERTY. Unless being purchased by Landlord, all
items of Tenant's Personal Property not removed by Tenant by the later to occur
of (a) fourteen (14) days following the exercise by Landlord of its option
under Section 6.4 above or fourteen (14) days following the date by which
Landlord must exercise its option under Section 6.4 above but fails to do so,
as the case may be, and (b) five (5) days after the expiration of the Term of
this Lease, shall be considered abandoned by Tenant and may, at Landlord's
discretion and without any obligation, be appropriated, sold, destroyed or
otherwise disposed of by Landlord without first giving notice thereof to Tenant
and without any payment to Tenant and without any obligation to account
therefor. Tenant shall, at its expense, restore the Leased Property to the
condition required by Section 9.1, including repair of all damage to the Leased
Property caused by the removal of Tenant's Personal Property, whether effected
by Tenant or Landlord. Landlord shall not be responsible for any loss or
damage to Tenant's Personal Property, or any other property of Tenant, by
virtue of Landlord's removal thereof at any time subsequent to the 14-day
period provided for herein.
6.6 LANDLORD'S WAIVERS. Any lessor of Tenant's Personal Property may,
upon notice to Landlord and during reasonable hours, enter the Facility and
take possession of any of Tenant's Personal Property without liability for
trespass or conversion. Landlord shall, upon the request of Tenant, execute
and deliver to Tenant, within fifteen (15) days of receipt thereof, such
"landlord's waivers" as may be reasonable and customary in connection with the
financing or leasing of personal property. Such "landlord's waiver" shall
limit to thirty (30) days the amount of time the lessor or lender has to enter
upon the Leased Property after notice from Landlord that the Term has expired
or otherwise terminated. If Tenant requests a "landlord's waiver," Tenant
shall attempt to secure from any financing source or lessor the right on the
part of Landlord to cure the defaults of Tenant and to use any such Personal
Property upon providing such cure.
6.7 COLLATERAL. During the Term, Tenant shall have the right and
obligation to enter into agreements and service contracts on behalf of the
Facility which are necessary or reasonably required in connection with the
operation of the Leased Property for its Primary Intended Use. In connection
with its operation of the Facility prior to the Commencement Date, Tenant (or
an affiliate of Tenant) (a) has entered into various leases, subleases,
contracts, bookings, concession agreements, service contracts and other
agreements and (b) has obtained certain permits and licenses relating to the
operation of the various businesses and activities at or on the Leased
Property, all of which have remained in the name of Tenant or have been
transferred to Tenant notwithstanding the sale of the Leased Property to
Landlord. All such leases, contracts,
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bookings, other agreements, service contracts, licenses and permits, whether
entered into, or obtained or renewed, prior to or during the Term, are
hereinafter collectively referred to as the "Collateral Agreements and
Permits." For good and valuable consideration, the receipt of which is hereby
acknowledged, and subject to the terms and conditions hereinafter set forth,
Tenant hereby assigns to Landlord all of Tenant's right, title and interest in
the Collateral Agreements and Permits; provided, however, that Tenant shall
continue to have all rights under said Collateral Agreements and Permits at all
times during the Term hereof and prior to an Event of Default hereunder. Upon
the occurrence of an Event of Default (and in addition to any other rights and
remedies available to Landlord), and upon the expiration or earlier termination
of this Lease, Landlord shall have the right, but not the obligation, by itself
or by a designee, to take the place of Tenant under any or all of the
Collateral Agreements and Permits, to proceed to perform any and all
obligations of the owner or operator contained in, or of the owner or holder
of, any such Collateral Agreements or Permits and exercise any and all rights
of the owner or operator therein or of the owner or holder thereof as fully as
Tenant itself could, and to take possession of all documents reasonably
required by Landlord to exercise its rights and perform its obligations under
the Collateral Agreements and Permits. Tenant hereby appoints Landlord its
attorney-in-fact to take such action and execute such documents as are
necessary or deemed appropriate by Landlord to effectuate the transfer of
Tenant's right, title and interest in those Collateral Agreements and Permits
which Landlord designates for such transfer. This power of attorney granted
hereby shall be irrevocable and coupled with an interest. Tenant acknowledges
that the foregoing assignment of Collateral Agreements and Permits described
above is an integral part of Landlord's consideration for entering into this
Lease and that Tenant shall be entitled to no additional consideration relative
to such assignment. Upon the termination of this Lease or termination of
Tenant's right to possession without termination of this Lease after the
occurrence of an Event of Default on the part of Tenant, Tenant shall assign to
Landlord or Landlord's nominee simultaneously with such termination, all
leases, subleases, contracts, bookings, concession agreements and other
agreements, including service contracts, in effect with respect to the Facility
then in Tenant's name which have been entered into in the ordinary course of
operation of the Facility in accordance with the standards set forth in this
Lease on prevailing market terms with persons unaffiliated with Tenant and if
such termination is not the result of an Event of Default by Tenant, then
Landlord shall assume and cause to be performed all such assigned agreements.
ARTICLE 7
USE OF LEASED PROPERTY
7.1 USE. After the Commencement Date and during the Term, Tenant shall
use or cause to be used the Leased Property and the improvements thereon for
its Primary Intended Use and for such other uses as may be necessary or
incidental to such use, except to the extent that Tenant shall be prevented
from using or unable to use all or any part of the Leased Property due to
damage or destruction, renovation expressly permitted hereunder or any of the
causes of Unavoidable Delay. Tenant shall not use the Leased Property or any
portion thereof for any other use without the prior written consent of
Landlord, which consent may be withheld in
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Landlord's sole discretion. No use shall be made or permitted to be made of
the Leased Property, and no acts shall be done, which will cause the
cancellation of any insurance policy covering the Leased Property or any part
thereof, nor shall Tenant sell or otherwise provide to patrons, or permit to be
kept, used or sold in or about the Leased Property any article which may be
prohibited by law or by the standard form of fire insurance policies, or any
other insurance policies required to be carried hereunder, or fire underwriters
regulations. Tenant shall, at its sole cost, comply with all of the
requirements pertaining to the Leased Property or other improvements of any
insurance board, association, organization or company necessary for the
maintenance of insurance, as herein provided, covering the Leased Property and
Tenant's Personal Property.
7.2 SPECIFIC PROHIBITED USES. Tenant shall not use or occupy or permit
the Leased Property to be used or occupied, nor do or permit anything to be
done in or on the Leased Property, in a manner which would (i) violate or fail
to comply with any law, rule or regulation or Legal Requirement, (ii) subject
to Article 10, cause structural injury to any of the Leased Improvements, or
(iii) constitute a public or private nuisance or waste. Tenant shall not allow
any Hazardous Material to be located in, on or under the Leased Property, or
any adjacent property, or incorporated in the Facility or any improvements
thereon, except in compliance with applicable law (including any Environmental
Law). Tenant shall not allow the Leased Property to be used as a landfill or a
waste disposal site, or as a manufacturing, distribution or disposal facility
for any Hazardous Materials. Tenant shall neither suffer nor permit the Leased
Property or any portion thereof, including Tenant's Personal Property, to be
used in such a manner as (i) might reasonably tend to impair Landlord's title
thereto or to any portion thereof, or (ii) may reasonably make possible a claim
or claims of adverse usage or adverse possession by the public, as such, or of
implied dedication of the Leased Property or any portion thereof, or (iii) is
in violation of any applicable Environmental Law.
7.3 LANDLORD TO GRANT EASEMENTS, ETC.. Landlord shall, from time to time
so long as no Event of Default has occurred and is continuing, at the request
of Tenant and at Tenant's cost and expense (but subject to the approval of
Landlord, which approval shall not be unreasonably withheld or delayed): (i)
grant easements and other rights in the nature of easements; (ii) release
existing easements or other rights in the nature of easements which are for the
benefit of the Leased Property; (iii) dedicate or transfer unimproved portions
of the Leased Property for road, highway or other public purposes; (iv) execute
petitions to have the Leased Property annexed to any municipal corporation or
utility district; (v) execute amendments to any covenants and restrictions
affecting the Leased Property; and (vi) execute and deliver to any Person any
instrument appropriate to confirm or effect such grants, releases, dedications
and transfers (to the extent of its interest in the Leased Property), but only
upon delivery to Landlord of an Officer's Certificate (which Certificate, if
contested by Landlord, shall not be binding on Landlord) stating that such
grant, release, dedication, transfer, petition or amendment is not detrimental
to the proper conduct of the business of Tenant on the Leased Property and does
not reduce its value or usefulness for the Primary Intended Use. If Landlord
fails to deliver to Tenant notice of its approval or disapproval of any of the
foregoing items within thirty (30) days after the delivery of same to Landlord
for approval, Landlord shall be deemed to have approved
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the same. Landlord shall not grant, release, dedicate or execute any of the
foregoing items in this Section 7.3 without obtaining Tenant's approval, which
approval shall not be unreasonably withheld or delayed.
ARTICLE 8
HAZARDOUS MATERIALS
8.1 TENANT COVENANT - OPERATION OF THE LEASED PROPERTY. Tenant hereby
covenants with Landlord that, during the term of this Lease, Tenant shall
operate the Leased Property substantially in compliance with all Environmental
Laws. Notwithstanding the foregoing, to the extent not already done so, Tenant
hereby agrees to remediate/abate asbestos and implement an operation and
maintenance plan for each Resort as contemplated by Law Engineering and
Environmental Services ("LEES") Report of Confirmatory Asbestos Survey - Indian
Lakes Report dated July 14, 1995, LAW Project No. 274-5216-002, and LEES Report
of Confirmatory Asbestos Survey - Nordic Hills Resort dated July 14, 1995, LAW
Project No. 274-5216-001 (the "ASBESTOS ITEMS").
8.2 REMEDIATION. If any Hazardous Material in a quantity sufficient to
require remediation or reporting under any Environmental Law was released, or
disposed of, in, on or under the Leased Property at any time during the Term
hereof or during Tenant's affiliate's ownership of the Leased Property, or if
Tenant, Landlord, or the Leased Property becomes subject to any order of any
federal, state or local agency to investigate, remove, remediate, repair,
close, detoxify, decontaminate or otherwise clean up the Leased Property as a
result of any release or disposal in, on or under the Leased Property at any
time during the Term hereof or during Tenant's affiliate's ownership of the
Leased Property, excluding any release or disposal which is the result of any
act of Landlord, Tenant shall, at its sole expense, carry out and complete any
required investigation, removal, remediation, repair, closure, detoxification,
decontamination or other cleanup of the Leased Property in compliance with all
applicable Environmental Laws. If Tenant fails to implement and diligently
pursue any such repair, closure, detoxification, decontamination or other
cleanup of the Leased Property in a timely manner and in compliance with all
applicable Environmental Laws, Landlord shall have the right, but not the
obligation, to carry out such action and to recover all of the costs and
expenses from Tenant as Additional Charges.
8.3 ENVIRONMENTAL INDEMNIFICATION.
(a) TENANT'S INDEMNIFICATION OF LANDLORD. Except for matters
arising out of the actions of Landlord, Tenant shall pay, protect,
indemnify, save, hold harmless and defend Landlord and any Facility
Mortgagee from and against all liabilities, obligations, claims, damages
(including punitive damages), penalties, causes of action, demands,
judgments, costs and expenses (including reasonable attorneys' fees and
expenses), to the extent permitted by law, imposed upon, incurred by or
asserted against, Landlord or the
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Leased Property by reason of the Asbestos Items or by reason of any
Hazardous Material released, or disposed of, at, in or by the Leased
Property either during the Term or during the period of time when
Tenant's affiliate owned the Leased Property in violation of any
Environmental Law, howsoever arising, without regard to fault on the part
of Tenant, including (i) liability for response costs and for costs of
removal and remedial action incurred by the United States Government, any
state or local governmental unit to any other Person, or damages from
injury to or destruction or loss of natural resources, including the
reasonable costs of assessing such injury, destruction or loss, incurred
pursuant to any Environmental Law, (ii) liability for costs and expenses
of abatement, investigation, removal, remediation, correction or
clean-up, fines, damages, response costs or penalties which arise from
the provisions of any Environmental Law, (iii) liability for personal
injury or property damage arising under any statutory or common-law tort
theory, including damages assessed for the maintenance of a public or
private nuisance or for carrying on of a dangerous activity, or (iv) by
reason of a breach of its covenants in Section 8.1.
(b) LANDLORD'S INDEMNIFICATION OF TENANT. Landlord shall pay,
protect, indemnify, save, hold harmless and defend Tenant and its
"property manager" from and against all liabilities, obligations, claims,
damages (including punitive damages), penalties, causes of action,
demands, judgments, costs and expenses (including reasonable attorneys'
fees and expenses), to the extent permitted by law, imposed upon,
incurred by or asserted against, Tenant or its "property manager" by
reason of any Hazardous Material released, or disposed of, at, in, on or
by, the Leased Property in violation of any Environmental law and
resulting solely from Landlord's acts or omissions. Landlord's
indemnification obligation under the foregoing sentence shall include all
of the liability covered by Sections 8.3(a)(i), (ii) and (iii) above.
8.4 SURVIVAL OF INDEMNIFICATION OBLIGATIONS. Each party's obligations
and/or liability under this Article 8 arising during the Term hereof shall, to
the extent not covered by insurance maintained by said party, only survive any
termination of this Lease for a period of one (1) year.
8.5 ENVIRONMENTAL VIOLATIONS AT EXPIRATION OR TERMINATION OF LEASE.
Notwithstanding any other provision of this Lease, if, at a time when the Term
would otherwise terminate or expire, a violation of any Environmental Law has
been asserted by Landlord resulting from an act or omission on the part of
Tenant during the Term of this Lease or of Tenant's affiliate during its
ownership of the Leased Property prior to the Term and such violation has not
been resolved in a manner reasonably satisfactory to Landlord, or has been
acknowledged by Tenant to exist or has been found to exist at the Leased
Property, or has been asserted by any governmental authority, and Tenant's
failure to have completed all action required to correct, abate or remediate
such a violation of any Environmental Law materially impairs the leaseability
of the Leased Property upon the expiration of the Term, then, at the option of
Landlord, the Term shall be automatically extended with respect to the Leased
Property beyond the date of termination or expiration and this Lease shall
remain in full force
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and effect under the same terms and conditions beyond such date with respect to
the Leased Property until the earlier to occur of (i) the completion of all
remedial action in accordance with applicable Environmental Laws or (ii) 12
months beyond such expiration or termination date; provided, that Tenant may,
upon any such extension of the Term, terminate the Term by paying to Landlord
such amount as is necessary in the reasonable judgment of Landlord to complete
or perform such remedial action.
ARTICLE 9
MAINTENANCE AND REPAIR
9.1 TENANT'S SOLE OBLIGATION - GENERAL. Tenant, at its expense, will keep
the Leased Property and Tenant's Personal Property in good order, repair and
appearance (whether or not the need for such repairs occurs as a result of
Tenant's use, any prior use, the elements or the age of the Leased Property, or
any portion thereof) and maintain the Leased Property in accordance with any
applicable Legal Requirements, and, except as otherwise provided in Article 14,
with reasonable promptness, make all necessary and appropriate repairs thereto
of every kind and nature, whether interior or exterior, structural or
non-structural, ordinary or extraordinary, foreseen or unforeseen or arising by
reason of a condition existing prior to the commencement of the Term of this
Lease (concealed or otherwise). Tenant shall maintain the Leased Property in
accordance with the Operating Standards set forth in Exhibit D; provided,
however, that Tenant may make such modifications to such Operating Standards as
Tenant may reasonably determine to be appropriate for the prudent management of
the Leased Property, which modifications, to the extent they are material and
adverse to the operating results of the Leased Property, shall be subject to
the approval of Landlord (which approval shall not be unreasonably withheld or
delayed); provided further, however, that Tenant shall make such changes to the
Operating Standards as may be appropriate to comply with Legal Requirements.
Tenant will not take or omit to take any action the taking or omission of which
could reasonably be expected to impair the value or the usefulness of the
Leased Property or any part thereof for its Primary Intended Use. Nothing in
this Article 9 shall obligate Tenant to make any capital improvement or
replacements to the Leased Property if the Leased Property can be repaired to
the standard required by this Section 9.1.
9.2 LEASED IMPROVEMENTS MAINTENANCE. Tenant, at its expense, will repair,
paint and keep in a clean and sanitary condition the interior and exterior of
all buildings, structures, and facilities comprising the Leased Improvements,
including all landscaping and parking areas located adjacent thereto, all in a
condition which is consistent with the prior practices of Tenant or its
affiliates with respect to the Leased Property. Without limitation of the
foregoing, Tenant, at its expense, will replace or refurbish in accordance with
prior practices all floor coverings; tile; carpeting; wall coverings; light
fixtures; curtains; blinds; shades; furniture; restaurant, lounge, lobby,
convention/banquet, room and other furnishings; wall paper; wall hangings;
signs; fixtures and other decor items when they become worn-out or in
disrepair. All security
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systems, ventilation, heating, air-conditioning, refrigeration, mechanical and
other equipment shall be kept in good working order by Tenant at all times
during the Term hereof.
9.3 GOLF COURSE MAINTENANCE. Tenant, at its expense, will replace, repair
and maintain the golf course portion of the Leased Property in a condition
which is consistent with the prior practices of Tenant or its affiliates with
respect to the Leased Property. Without limitation of the foregoing, Tenant
will, at its expense, replace or refurbish all tee box signs, pins, flags,
markers, benches and related golf course equipment as the same becomes worn-out
or in disrepair in accordance with prior practices. All grounds-keeping and
landscaping for the golf course will be maintained by Tenant in the condition
contemplated by Exhibit D attached hereto and made a part hereof.
9.4 WAIVER OF STATUTORY OBLIGATIONS. Landlord shall not under any
circumstances be required to build or rebuild any improvements on the Leased
Property, or to make any repairs, replacements, alterations, restorations or
renewals of any nature or description to the Leased Property, whether ordinary
or extraordinary, structural or non-structural, foreseen or unforeseen, or to
make any expenditure whatsoever with respect thereto, in connection with this
Lease, or to maintain the Leased Property in any way. Tenant hereby waives, to
the extent permitted by law, the right to make repairs at the expense of
Landlord pursuant to any law in effect at the time of the execution of this
Lease or hereafter enacted.
9.5 MECHANIC'S LIENS. Nothing contained in this Lease and no action or
inaction by Landlord shall be construed as (i) constituting the consent or
request of Landlord, expressed or implied, to any contractor, subcontractor,
laborer, materialman or vendor to or for the performance of any labor or
services or the furnishing of any materials or other property for the
construction, alteration, addition, repair or demolition of or to the Leased
Property or any part thereof; or (ii) giving Tenant any right, power or
permission to contract for or permit the performance of any labor or services
or the furnishing of any materials or other property, in either case, in such
fashion as would permit the making of any claim against Landlord in respect
thereof or to make any agreement that may create, or in any way be the basis
for, any right, title, interest, lien, claim or other encumbrance upon the
estate of Landlord in the Leased Property, or any portion thereof.
9.6 SURRENDER OF LEASED PROPERTY. Unless this Lease shall have been
terminated pursuant to the provisions of Article 14, Tenant shall, upon the
expiration or prior termination of the Term, vacate and surrender the Leased
Property to Landlord in the condition in which the Leased Property was
originally received from Landlord, except as repaired, rebuilt, restored,
altered or added to as permitted or required by the provisions of this Lease
and except for ordinary wear and tear (subject to the obligation of Tenant to
maintain the Leased Property in good order and repair during the entire Term of
this Lease) and damage due to a casualty or condemnation.
9.7 TRANSFER OF OPERATING PERMITS. Upon the expiration or earlier
termination of the Term, Tenant shall assign to Landlord all of its right,
title and interest in and to any and all
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licenses, permits and other authorizations or approvals which then exist
relative to the operation of the Leased Property (without any representation or
warranty by Tenant as to their assignability or Tenant's ownership thereof),
and to the extent they are assignable, Tenant shall, at no expense to Tenant,
cooperate with Landlord to effectuate such transfers, including, without
limitation, executing and delivering any petitions, applications or other
documentation required by applicable governmental authorities in connection
with such transfers.
ARTICLE 10
TENANT'S IMPROVEMENTS
10.1 TENANT'S RIGHT TO CONSTRUCT. During the Term of this Lease, Tenant
may not make any alterations, additions, changes and/or other capital
improvements to the Leased Property (individually, a "Tenant Improvement," and
collectively, "Tenant Improvements") without the prior written consent of
Landlord, which consent shall not be unreasonably withheld or delayed and which
consent shall not be deemed unreasonably withheld or delayed if Landlord must
obtain any Facility Mortgagee's consent and if such Facility Mortgagee elects
not to consent. Notwithstanding the foregoing, Tenant shall be entitled,
without Landlord's consent, to make any alterations, additions, changes and
other capital improvements (all of which shall be included within the phrase
"Tenant Improvements" hereunder), which (1) fall in any one or more of the
following categories: (a) are replacements or capital repairs of existing
improvements, fixtures and equipment performed to a standard and in a quality
equal to or better than what had previously existed and the cost of which, in
each instance, does not exceed $500,000.00; (b) are cosmetic in nature,
including but not limited to repainting, recarpeting, redecorating and
relandscaping and do not cost, in each instance, more than $500,000.00, (c) are
nonstructural, including but not limited to guest room renovations and interior
improvements in restaurants, bars, retail shops and lobbies and do not cost, in
each instance, more than $500,000.00; or (d) cost $500,000.00 or less and (2)
do not significantly alter the character or purposes or reduce the value,
operating efficiency or revenue producing capability of the Leased Property
[all references to $500,000.00 in the foregoing sentence shall be deemed to
mean said amount as increased based upon changes in the Consumer Price Index
from the date of this Lease]. In any case where Landlord's consent to a Tenant
Improvement is required, Tenant shall submit plans or another description of
the proposed Tenant Improvements sufficient for Landlord to evaluate such
proposed Tenant Improvements to Landlord, and Landlord shall have a period of
fifteen (15) Business Days after receipt of Tenant's submission to deliver
notice to Tenant either granting or withholding its consent, and any failure to
deliver such notice within such fifteen (15) Business Day period shall be
deemed to be the granting of consent. Except as otherwise agreed to by
Landlord in writing, any such Tenant Improvement shall be made at Tenant's sole
expense and shall become the property of Landlord upon termination of this
Lease.
10.2 SCOPE OF RIGHT. With respect to any permitted Tenant Improvements
and subject to Section 10.1 above, Tenant shall have the right, at Tenant's
cost and expense, to:
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(a) seek any governmental approvals, including building permits,
licenses, conditional use permits and any certificate of need that Tenant
requires to construct any Tenant Improvement;
(b) demolish, remove or otherwise dispose of any of the Tenant
Improvements;
(c) erect upon the Leased Property such Tenant Improvement as Tenant
deems desirable;
(d) make additions, alterations, changes and improvements in any
Tenant Improvement so erected;
(e) raze and demolish any Tenant Improvement together with the right
to salvage therefrom; and
(f) engage in any other lawful activities that Tenant determines are
necessary or desirable for the development of the Leased Property in
accordance with its Primary Intended Use.
10.3 COOPERATION OF LANDLORD. With respect to any permitted Tenant
Improvement, Landlord shall cooperate with Tenant and take such actions,
including the execution and delivery to Tenant of any applications or other
documents, reasonably requested by Tenant in order to obtain any governmental
approvals sought by Tenant to construct such Tenant Improvement within ten (10)
Business Days following the later of (a) the date Landlord receives Tenant's
request, or (b) the date of delivery of any such application or document to
Landlord, so long as the taking of such action, including the execution of said
applications or documents, shall be without cost to Landlord (or if there is a
cost to Landlord, such cost shall be reimbursed by Tenant), and will not cause
Landlord to be in violation of any law, ordinance or regulation.
10.4 COMMENCEMENT OF CONSTRUCTION. Tenant agrees that:
(a) Tenant shall diligently seek all governmental approvals relating
to the construction of any Tenant Improvement;
(b) Once Tenant begins the construction of any Tenant Improvement,
Tenant shall diligently prosecute any such construction to completion in
accordance with applicable insurance requirements and the laws, rules and
regulations of all governmental bodies or agencies having jurisdiction
over the Leased Property;
(c) Landlord shall have the right at any time and from time to time
to post and maintain upon the Leased Property such notices as may be
necessary to protect Landlord's interest from mechanics' liens,
materialmen's liens or liens of a similar nature;
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(d) Except as provided in Article 12, Tenant shall not suffer or
permit any mechanics' liens or any other claims or demands arising from
the work or construction of any Tenant Improvement to be enforced against
the Leased Property or any part thereof, and Tenant agrees to hold
Landlord and said Leased Property free and harmless from all liability
from any such liens, claims or demands, together with all costs and
expenses in connection therewith; and
(e) All work shall be performed in a good and workmanlike manner.
10.5 RIGHTS IN TENANT IMPROVEMENTS. Notwithstanding anything to the
contrary in this Lease, all Tenant Improvements constructed pursuant to Section
10.1, and any and all subsequent additions thereto and alterations and
replacements thereof, shall be the sole and absolute property of Tenant during
the Term of this Lease. Upon the expiration or early termination of this
Lease, all such Tenant Improvements shall become the property of Landlord.
Without limiting the generality of the foregoing, Tenant shall be entitled to
all federal and state income tax benefits associated with any Tenant
Improvement during the Term of this Lease.
ARTICLE 11
LIENS, ENCROACHMENTS AND OTHER TITLE MATTERS
11.1 LIENS. Subject to the provisions of ARTICLE 12 relating to permitted
contests, Tenant will not directly or indirectly create or allow to remain, and
will promptly discharge at its expense any lien, encumbrance, attachment, title
retention agreement or claim upon the Leased Property or any attachment, levy,
claim or encumbrance in respect of the Rent, not including, however:
(a) the matters, if any, that existed, as of the Commencement Date;
(b) restrictions, liens and other encumbrances which are consented
to in writing by Landlord, or any easements granted pursuant to the
provisions of Section 7.3 of this Lease;
(c) liens for those taxes of Landlord which Tenant is not required
to pay hereunder;
(d) subleases permitted by Article 24;
(e) liens for Impositions or for sums resulting from noncompliance
with legal requirements so long as (1) the same are not yet payable or
are payable without the addition of any fine or penalty or (2) such liens
are in the process of being contested as permitted by Article 12;
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(f) liens of mechanics, laborers, materialmen, suppliers or vendors
for sums either disputed (provided that such liens are in the process of
being contested as permitted by Article 12) or not yet due; and
(g) any liens which are the responsibility of Landlord pursuant to
the provisions of Article 26.
11.2 ENCROACHMENTS AND OTHER TITLE MATTERS.
(a) Subject to Section 18.1 and excepting any matters granted or
created by Landlord after the Commencement Date, if (i) any of the Leased
Improvements shall, at any time, encroach upon any property, street or
right-of-way adjacent to the Leased Property, or shall violate the
agreements or conditions contained in any lawful restrictive covenant or
other agreement affecting the Leased Property, or any part thereof, or
shall impair the rights of others under any easement or right-of-way to
which the Leased Property is subject and (ii) such encroachment,
violation or impairment is the result of any act or omission of Tenant
occurring during the Term or of Tenant's affiliate during its ownership
of the Leased Property prior to the Term, then promptly upon the request
of Landlord or at the behest of any Person affected by any such
encroachment, violation or impairment, Tenant, at its sole cost and
expense (subject to its right to contest the existence of any such
encroachment, violation or impairment), shall protect, indemnify, save
harmless and defend Landlord from and against all losses, liabilities,
obligations, claims, damages, penalties, causes of action, costs and
expenses (including reasonable attorneys' fees and expenses) based on, or
arising by reason of, any such encroachment, violation or impairment and
in such case, in the event of an adverse final determination, either (A)
obtain valid and effective waivers or settlements of all claims,
liabilities and damages resulting from each such encroachment, violation
or impairment, whether the same shall affect Landlord or Tenant; or (B)
make such changes in the Leased Improvements, and take such other
actions, as Tenant in the good faith exercise of its judgment deems
reasonably practicable, to remove such encroachment, and to end such
violation or impairment, including, if necessary, the alteration of any
of the Leased Improvements, and in any event take all such actions as may
be necessary in order to be able to continue the operation of the Leased
Improvements for the Primary Intended Use substantially in the manner and
to the extent the Leased Improvements were operated prior to the
assertion of such violation or encroachment. Tenant's obligations under
this Section 11.2(a) shall survive any termination of this Lease for a
period of one (1) year and shall be in addition to and shall in no way
discharge or diminish any obligation of any insurer under any policy of
title or other insurance and Tenant shall be entitled to a credit for any
sums recovered by Landlord under any such policy of title or other
insurance.
(b) Subject to Section 18.1, if, as a result of any matters granted
or created by Landlord after the Commencement Date, any of the Leased
Improvements shall, at any time, encroach upon any property, street or
right-of-way adjacent to the Leased
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Property, or shall violate the agreements or conditions contained in any
lawful restrictive covenant or other agreement affecting the Leased
Property, or any part thereof, or shall impair the rights of others under
any easement or right-of-way to which the Leased Property is subject, or
the use of the Leased Property is impaired, limited or interfered with by
reason of the exercise of the right of surface entry or any other rights
under a lease or reservation of any oil, gas, water or other minerals,
then promptly upon the request of Tenant or at the behest of any Person
affected by any such encroachment, violation or impairment, Landlord, at
its sole cost and expense (subject to its right to contest the existence
of any such encroachment, violation or impairment), shall protect,
indemnify, save harmless and defend Tenant from and against all losses,
liabilities, obligations, claims, damages, penalties, causes of action,
costs and expenses (including reasonable attorneys' fees and expenses)
based on, or arising by reason of, any such encroachment, violation or
impairment and in such case, in the event of an adverse final
determination, either (i) obtain valid and effective waivers or
settlements of all claims, liabilities and damages resulting from each
such encroachment, violation or impairment, whether the same shall affect
Landlord or Tenant; or (ii) make such changes in the Leased Improvements,
and take such other actions, as Landlord in the good faith exercise of
its judgment deems reasonably practicable, to remove such encroachment,
and to end such violation or impairment, including, if necessary, the
alteration of any of the Leased Improvements, and in any event take all
such actions as may be necessary in order to enable Tenant to be able to
continue the operation of the Leased Improvements for the Primary
Intended Use substantially in the manner and to the extent the Leased
Improvements were operated prior to the assertion of such violation or
encroachment. Landlord's obligations under this Section 11.2(b) shall be
in addition to and shall in no way discharge or diminish any obligation
of any insurer under any policy of title or other insurance and Landlord
shall be entitled to a credit for any sums recovered by Tenant under any
such policy of title or other insurance.
ARTICLE 12
PERMITTED CONTESTS
Tenant, on its own or on Landlord's behalf (or in Landlord's name) but at
Tenant's expense, may contest, by appropriate legal proceedings conducted in
good faith and with due diligence, the amount or validity or application, in
whole or in part, of any Imposition or any Legal Requirement or any lien,
attachment, levy, encumbrance, charge or claim not otherwise permitted by
Section 11.1, provided that:
(a) in the case of an unpaid Imposition, lien, attachment, levy,
encumbrance, charge or claim, the commencement and continuation of such
proceedings shall suspend the collection thereof from Landlord and from
the Leased Property, and neither the Leased Property nor any Rent
therefrom nor any part thereof or interest therein would
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be in any danger of being sold, forfeited, attached or lost pending the
outcome of such proceedings;
(b) in the case of a Legal Requirement, Landlord would not be
subject to criminal or civil liability for failure to comply therewith
pending the outcome of such proceedings. Nothing in this Article 12(b),
however, shall permit Tenant to delay compliance with any requirement of
any Environmental Law to the extent such non-compliance poses an
immediate threat of injury to any Person or to the public health or
safety or of material damage to any real or personal property;
(c) in the case of a Legal Requirement and/or an Imposition, lien,
encumbrance or charge, Tenant shall give such reasonable security, if
any, as may be demanded by Landlord to insure ultimate payment of the
same and to prevent any sale or forfeiture of the affected Leased
Property or the Rent by reason of such non-payment or noncompliance,
provided, however, the provisions of this Article 12 shall not be
construed to permit Tenant to contest the payment of Rent (except as to
contests concerning the method of computation or the basis of levy of any
Imposition or the basis for the assertion of any other claim) or any
other sums payable by Tenant to Landlord hereunder;
(d) no such contest shall interfere in any material respect with the
use or occupancy of the Leased Property;
(e) in the case of an Insurance Requirement, the coverage required
by Article 13 shall be maintained; and
(f) if such contest be finally resolved against Landlord or Tenant,
Tenant shall, as Additional Charges due hereunder, promptly pay the
amount required to be paid, together with all interest and penalties
accrued thereon, or comply with the applicable Legal Requirement or
Insurance Requirement, and Landlord, at Tenant's expense, shall execute
and deliver to Tenant such authorization and other documents as may
reasonably be required in any such contest, and, if reasonably requested
by Tenant or if Landlord so desires, Landlord shall join as a party
therein. Tenant shall indemnify and save Landlord harmless against any
liability, cost or expense of any kind that may be imposed upon Landlord
in connection with any such contest and any loss resulting therefrom.
ARTICLE 13
INSURANCE
13.1 GENERAL INSURANCE REQUIREMENTS. Subject to the terms of Section 13.7
and Article 22 hereof, during the Term of this Lease, Tenant shall at all times
obtain and maintain,
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at Tenant's sole cost and expense, the kinds and amounts of insurance described
below. This insurance shall be written by companies authorized to do insurance
business in the State in which the Leased Property is located. The policies
must name Landlord as an additional insured, except on the business
interruption insurance, worker's compensation insurance and employer's
liability insurance. Losses shall be payable to Landlord and/or Tenant as
provided in Article 14 with respect to the property insurance proceeds governed
thereby. In addition, the policies described in Sections 13.1(a) and 13.1(b)
below (other than with respect to Tenant's Personal Property) shall contain a
standard form of mortgagee's loss payable endorsement in favor of the holder of
any mortgage, deed of trust or other security agreement securing any
indebtedness or any other Landlord's Encumbrance placed on the Leased Property
in accordance with the provisions of Article 26 ("Facility Mortgage"). Any
loss adjustment with respect to the coverages described in Sections 13.1(a) and
13.1(b) below (other than with respect to Tenant's Personal Property) shall
require the written consent of Landlord, Tenant, and each Facility Mortgagee.
Evidence of insurance shall be deposited with Landlord and, if requested, with
any Facility Mortgagee(s). The policies on the Leased Property, including the
Leased Improvements, Fixtures, Tenant's Personal Property and any Tenant
Improvements, shall insure against the following risks:
(a) Property damage insurance in an amount not less than the Full
Replacement Cost thereof covering all real and personal property, which
insurance shall be written on an "all risks" and replacement cost form;
(b) Boiler and machinery coverage insuring against damage to, and
against loss or damage caused by an accident or occurrence arising from
or related to, boilers, heating apparatus, pressure vessels and pipes,
air conditioning apparatus and electrical equipment, which insurance
coverage shall be written on a standard, broad form boiler and machinery
policy (on a blanket or comprehensive basis) and shall include "repair
and replacement" coverage;
(c) Commercial general liability insurance in an amount not less
than $1,000,000.00 per occurrence/$2,000,000.00 aggregate, insuring
against liability for bodily injury and property damage and, including
without limitation, the following coverage:
(i) premises and operations liability;
(ii) independent contractors liability;
(iii) product/completed operations liability;
(iv) broad form property damage liability;
(v) blanket contractual liability with respect to all
contracts, written and oral;
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(vi) personal injury liability;
(vii) liquor liability;
(viii) incidental malpractice liability; and
(ix) garagekeepers legal liability.
(d) Comprehensive automobile liability insurance in an amount not
less than $1,000,000.00 per occurrence covering liability for bodily
injury and property damage arising out of the ownership, maintenance or
use of all private passenger and commercial vehicles and other equipment
required to be licensed for road use;
(e) Innkeeper's legal liability insurance covering the property of
guests of the Facility in an amount not less than $10,000.00 per guest
and $250,000.00 per occurrence;
(f) Safe depository insurance in an amount not less than $250,000.00
per occurrence;
(g) Business interruption insurance written on an "all risks" form
either as endorsements to the policies satisfying (a) and (b) above or on
a separate policy, such insurance to include specific coverage for the
Rent;
(h) Broad form umbrella/excess liability insurance, which shall
cover defense costs on a "first dollar" basis and shall provide coverage
not less than "following form" in respect of all underlying coverages, in
an amount not less than $75,000,000.00 covering against excess liability
over coverages provided by all primary general liability, automobile
liability and employers' liability insurance policies.
(i) Workers' compensation insurance complying with the statutory
workers' compensation law for the State;
(j) Employer's liability insurance in an amount not less than
$500,000.00 covering against liability in respect of employees, agents
and servants not covered by workers' compensation insurance and against
occupational disease benefits;
(k) Employee fidelity insurance in an amount not less than
$500,000.00;
(l) Employment practices coverage in an amount not less than
$1,000,000 per claim/aggregate; and
(m) Such other insurance on or in connection with any of the Leased
Property as Landlord or any Facility Mortgagee may reasonably require,
which at the time is usual
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and commonly obtained in connection with properties similar in type of
building size and use to the Leased Property and located in the
geographic area where the Leased Property is located; provided, however,
that to the extent that the imposition of the requirement to obtain such
other insurance causes the cost to Tenant of obtaining and maintaining
all of the insurance then required under this Lease to exceed Tenant's
cost for the insurance required under this Lease during the first Fiscal
Year of the Term, as such cost is increased based upon changes in the
Consumer Price Index since the date of this Lease, Landlord shall be
responsible to pay the amount in excess of said Consumer Price Index
increased cost.
13.2 REPLACEMENT COST. In the event either party believes that the Full
Replacement Cost of the insured property has increased or decreased at any time
during the Term, such party shall have the right to have such Full Replacement
Cost redetermined by the fire insurance company which is then carrying the
largest amount of fire insurance carried on the Leased Property (the "Impartial
Appraiser"). The party desiring to have the Full Replacement Cost so
redetermined shall forthwith, on receipt of such determination by such
Impartial Appraiser, give written notice thereof to the other party hereto.
The determination of such Impartial Appraiser shall be final and binding on the
parties hereto, and Tenant shall forthwith increase, or may decrease, the
amount of the insurance carried pursuant to Section 13.1 above, as the case may
be, to the amount so determined by the Impartial Appraiser. Each party shall
pay one-half of the fee, if any, of the Impartial Appraiser.
13.3 WAIVER OF SUBROGATION. Landlord and Tenant each hereby waives any
and all rights of recovery against the other (and against the officers,
employees and agents of the other party) for loss of, or damage to, such
waiving party or its property or the property of others under its control, to
the extent such loss or damage is covered by any property insurance, including
but not limited to rental loss and business interruption coverages, required to
be maintained under Section 13.1. All insurance policies carried by either
party covering the Leased Property including contents, fire and casualty
insurance, shall expressly waive any right of subrogation on the part of the
insurer against the other party (including any Facility Mortgagee). The
parties hereto agree that their policies will include such waiver clause or
endorsement so long as the same are obtainable without extra cost, and in the
event of such an extra charge, the other party, at its election, may pay the
same, but shall not be obligated to do so.
13.4 FORM SATISFACTORY, ETC. All of the policies of insurance referred to
in Section 13.1 shall be written in a form reasonably satisfactory to Landlord
and by insurance companies rated not less than AVIII by A.M. Best's Insurance
Guide. Except as otherwise expressly provided in this Article 13, Tenant shall
pay all premiums for the policies of insurance referred to in Section 13.1 and
shall deliver certificates thereof to Landlord prior to their effective date
(and with respect to any renewal policy, at least 10 days prior to the
expiration of the existing policy). In the event Tenant fails to satisfy its
obligations under this Section 13.4 after notice thereof being given to Tenant,
Landlord shall be entitled, but shall have no obligation, to effect such
insurance and pay the premiums therefor, which premiums (together with interest
thereon accruing at the Overdue Rate until repaid) shall be repayable to
Landlord
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upon written demand as Additional Charges. Each policy of insurance required
by Section 13.1 shall, by endorsement on the policy or policies, or by
independent instrument furnished to Landlord, provide that the insurer
thereunder will give to Landlord not less than thirty (30) days' written notice
before the policy or policies in question shall be altered, allowed to expire
or canceled. Each such policy shall also provide that any loss otherwise
payable thereunder shall be payable notwithstanding (i) any act or omission of
Landlord or Tenant which might, absent such provision, result in a forfeiture
of all or a part of such insurance payment, (ii) the occupation or use of the
Leased Property for purposes more hazardous than those permitted by the
provisions of such policy, (iii) any foreclosure or other action or proceeding
taken by any Facility Mortgage pursuant to any provision of a mortgage, note,
assignment or other document evidencing or securing a loan upon the happening
of an event of default therein or (iv) any change in title to or ownership of
the Leased Property.
13.5 CHANGE IN LIMITS. In the event that Landlord shall at any time
reasonably determine on the basis of prudent industry practice that the
liability insurance carried by Tenant pursuant to Section 13.1(c) is either
excessive or insufficient, the parties shall endeavor to agree on the proper
and reasonable limits for such insurance to be carried; and such insurance
shall thereafter be carried with the limits thus agreed on until further
changed pursuant to the provisions of this Section 13.5; provided, however,
that the deductibles for such insurance or the amount of such insurance which
is self-retained by Tenant shall be as reasonably determined by Tenant so long
as Tenant can reasonably demonstrate its ability to satisfy such deductible or
amount of such self-retained insurance.
13.6 BLANKET POLICY. Notwithstanding anything to the contrary contained
in this Article 13, Tenant's obligations to carry the insurance provided for
herein may be brought within the coverage of a so-called blanket policy or
policies of insurance carried and maintained by Tenant; provided, however, that
the coverage afforded Landlord will not be reduced or diminished or otherwise
be different from that which would exist under a separate policy meeting all
other requirements of this Lease by reason of the use of such blanket policy of
insurance, and provided further that the requirements of this Article 13 are
otherwise satisfied. The amount of the total insurance allocated to the Leased
Property, which amount shall be not less than the amounts required pursuant to
Section 13.1, shall be specified either (i) in each such "blanket" policy or
(ii) in a written statement, which Tenant shall deliver to Landlord and
Facility Mortgagee, from the insurer thereunder. A certificate of each such
"blanket" policy shall promptly be delivered to Landlord and Facility
Mortgagee.
ARTICLE 14
APPLICATION OF INSURANCE PROCEEDS
14.1 INSURANCE PROCEEDS. All proceeds ("Property Insurance Proceeds") of
insurance payable by reason of any loss or damage to the Leased Property or any
portion thereof, or to any portion of Tenant's Personal Property which has been
purchased in replacement of
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Landlord's Personal Property ("Tenant's Replacement Personal Property") and
insured under any policy of insurance required by Article 13 shall (i) if
greater than $500,000, be paid to an insurance trustee mutually approved by
Landlord, Tenant and any Facility Mortgagee (the cost of which, if not covered
by insurance proceeds or if the insurance proceeds are insufficient, shall be
borne entirely by Tenant) and held by said insurance trustee in accordance with
this Article 14 and (ii) if less than such amount, be paid to and held by
Tenant. All such Property Insurance Proceeds shall be held in trust and shall
be made available for reconstruction or repair, as the case may be, of any
damage to or destruction of the Leased Property, or any portion thereof. It is
expressly understood that "Property Insurance Proceeds" shall not include (a)
the proceeds of Tenant's business interruption insurance (the "BI Proceeds"),
which shall, subject to Section 14.4 below, belong to Tenant, (b) the proceeds
("Tenant's PP Proceeds") of insurance on that portion of Tenant's Personal
Property which does not constitute Tenant's Replacement Personal Property,
which shall, subject to Section 14.4 below, belong to Tenant, or (c) the
proceeds of Landlord's loss of rents insurance (the "Rental Loss Proceeds"),
which shall belong to Landlord, subject to any rights of any Facility
Mortgagee.
14.1.1 DISBURSEMENT OF PROPERTY INSURANCE PROCEEDS. Any Property
Insurance Proceeds held by the insurance trustee or Tenant shall be paid
out by said insurance trustee or Tenant from time to time for the
reasonable costs of such reconstruction or repair (which, to the extent
covered by the Property Insurance Proceeds, may also include supervision
costs and/or technical service fees); provided, however, that the
Property Insurance Proceeds shall be disbursed subject to the following
requirements:
(i) prior to commencement of restoration, (A) the architects,
contracts, contractors, plans and specifications for the
restoration shall have been approved by Landlord, which approval
shall not be unreasonably withheld or delayed (and Landlord's
failure to respond within fifteen (15) Business Days shall be
deemed Landlord's approval thereof) and (B) if legally permitted,
appropriate waivers of mechanics' and materialmen's liens shall
have been filed;
(ii) at the time of any disbursement, subject to Article 12,
no mechanics' or materialmen's liens shall have been filed against
any of the Leased Property and remain undischarged, unless a
satisfactory bond shall have been posted in accordance with the
laws of the State;
(iii) disbursements shall be made from time to time in an
amount not exceeding the cost of the work completed since the last
disbursement, upon receipt of (A) satisfactory evidence of the
stage of completion, the estimated total cost of completion and
performance of the work to date in a good and workmanlike manner in
accordance with the contracts, plans and specifications, (B)
waivers of liens, (C) a satisfactory bringdown of title insurance
and (D) other evidence of cost and payment so that said insurance
trustee, Landlord and Facility Mortgagee can verify that the
amounts disbursed from time to time are
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represented by work that is completed, in place and free and clear
of mechanics' and materialmen's lien claims;
(iv) each request for disbursement shall be accompanied by a
certificate of Tenant, signed by a duly authorized representative
of Tenant, describing the work for which payment is requested,
stating the cost incurred in connection therewith, stating that
Tenant has not previously received payment for such work and, upon
completion of the work, also stating that the work has been fully
completed and complies with the applicable requirements of this
Lease;
(v) to the extent actually held by Landlord and not by a
Facility Mortgagee or said insurance trustee, (1) the proceeds
shall be held in a separate account and shall not be commingled
with Landlord's other funds, and (2) interest shall accrue on funds
so held at the money market rate of interest and such interest
shall constitute part of the proceeds; and
(vi) such other reasonable conditions as Landlord or Facility
Mortgagee may reasonably impose, including, without limitation,
payment by Tenant of reasonable costs of administration imposed by
or on behalf of Facility Mortgagee should the proceeds be held by
Facility Mortgagee.
14.1.2 EXCESS PROPERTY INSURANCE PROCEEDS. Any excess Property
Insurance Proceeds remaining after the completion of the restoration or
reconstruction of the Leased Property (or in the event neither Landlord
nor Tenant is required or elects to repair and restore) shall be paid to
Landlord and Tenant in like proportions to the value of Landlord's
interests in the Leased Property and Tenant's interest in Tenant's
Replacement Personal Property and the Tenant Improvements, or any portion
thereof, as determined under Article 13, upon completion of any such
repair and restoration except as otherwise specifically provided below in
this Article 14. All salvage resulting from any risk covered by
insurance shall belong to Landlord.
14.1.3 DELIVERY OF INSURANCE PROCEEDS. If any BI Proceeds or
Tenant's PP Proceeds are paid to Landlord or by check jointly made
payable to Tenant and Landlord, then, so long as there is not then
existing an uncured Event of Default on the part of Tenant, Landlord
shall not have the right to any such proceeds or to offset any amount
hereof against sums due or to become due from Tenant to Landlord under
this Lease, and Landlord shall pay to Tenant or endorse and deliver to
Tenant any check for BI Proceeds or Tenant's PP Proceeds on or before
three (3) Business Days after receipt thereof by Landlord (and if there
is such an Event of Default, then Landlord shall only be entitled to hold
or retain therefrom that amount which is then subject to such Event of
Default and the balance shall be paid over to Tenant). If any Rental
Loss Proceeds are paid to Tenant or by check jointly made payable to
Tenant and Landlord, Tenant shall not have the right to any such proceeds
or to offset any amount thereof against sums due or to become due from
Landlord under this Lease, and Tenant shall pay to Landlord
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or endorse and deliver to Landlord any check for Rental Loss Proceeds on
or before three (3) Business Days after receipt thereof by Tenant. If
any Property Insurance Proceeds are paid to Tenant or by check jointly
made payable to Tenant and Landlord, Tenant shall not have the right to
any such proceeds or to offset any amount thereof against sums due or to
become due from Landlord under this Lease, and Tenant shall pay to
Landlord or endorse and deliver to Landlord any check for Property
Insurance Proceeds on or before three (3) Business Days after receipt
thereof by Tenant.
14.2 RECONSTRUCTION COVERED BY INSURANCE.
14.2.1 DESTRUCTION RENDERING FACILITY UNSUITABLE FOR ITS PRIMARY
USE. If during the Term the Leased Property is totally or partially
destroyed from a risk covered by the insurance described in Article 13
and the Facility thereby is rendered Unsuitable For Its Primary Intended
Use, Tenant shall diligently restore the Facility to substantially the
same condition as existed immediately before the damage or destruction.
14.2.2 DESTRUCTION NOT RENDERING FACILITY UNSUITABLE FOR ITS
PRIMARY USE. If during the Term, the Leased Property is totally or
partially destroyed from a risk covered by the insurance described in
Article 13, but the Facility is not thereby rendered Unsuitable For Its
Primary Intended Use, Tenant shall diligently restore the Facility to
substantially the same condition as existed immediately before the damage
or reconstruction; provided, however, Tenant shall not be required to
restore that portion of Tenant's Personal Property which is not Tenant's
Replacement Personal Property and/or any Tenant Improvements if failure
to do so does not adversely affect the amount of Additional Rent payable
hereunder. Such damage or destruction shall not terminate this Lease.
14.2.3 COSTS OF REPAIR. If the cost of the repair or restoration
exceeds the amount of proceeds received by Landlord or Tenant from the
insurance required under Article 13, Tenant shall pay for such excess
cost of repair or restoration.
14.3 RECONSTRUCTION NOT COVERED BY INSURANCE. If during the Term, the
Facility is totally or materially destroyed from a risk not covered by the
insurance described in Article 13, whether or not such damage or destruction
renders the Facility Unsuitable For Its Primary Intended Use, Tenant shall
restore the Facility to substantially the same condition as existed immediately
before the damage or destruction.
14.4 NO ABATEMENT OF RENT. This Lease shall remain in full force and
effect and Tenant's obligation to make rental payments and to pay all other
charges required by this Lease shall remain unabated during the period required
for repair and restoration; provided, however, that if there is then no uncured
Event of Default on the part of Tenant, Tenant shall be entitled to retain any
BI Proceeds (which amounts shall be deemed Rooms Revenue and Golf Course
Revenue for purposes hereof and allocated between the two components on the
same basis as
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the relationship of said two components on the then most recent full Fiscal
Year financial statements for the Leased Property).
14.5 WAIVER. Tenant hereby waives any statutory or other rights of
termination which may arise by reason of any damage or destruction of the
Facility which Landlord or Tenant is obligated to restore or may restore under
any of the provisions of this Lease.
14.6 DAMAGE NEAR END OF TERM. Notwithstanding any other provision to the
contrary in this Article 14, if damage to or destruction of the Leased Property
occurs during the last 24 months of the Term of this Lease, and if such damage
or destruction cannot reasonably be expected to be fully repaired or restored
prior to the date that is 12 months prior to the end of the then-applicable
Term, then either Landlord or Tenant shall have the right to terminate this
Lease on not less than thirty (30) days' prior notice to the other party by
giving notice thereof to said other party within 60 days after the date of such
damage or destruction. Upon any such termination, Landlord shall be entitled
to retain all Property Insurance Proceeds, grossed up by Tenant to account for
the deductible or any self-insured retention; provided, however, that Tenant
shall be entitled to retain or receive all Property Insurance Proceeds relating
to Tenant Improvements. If Landlord shall give Tenant a notice under this
Section 14.6 that it seeks to terminate this Lease at a time when Tenant has a
remaining Extended Term, then such termination notice shall be of no effect if
Tenant shall exercise its rights to extend the Term not later than the earlier
of the time required by Section 2.2 or within thirty (30) days after Landlord's
notice of termination given under this Section 14.6.
ARTICLE 15
CONDEMNATION
15.1 TOTAL TAKING. If, at any time during the Term, the Leased Property
is totally and permanently taken by Condemnation, this Lease shall terminate on
the Date of Taking and Tenant shall promptly pay all outstanding Rent and other
charges through such date of termination.
15.2 PARTIAL TAKING. If a portion of the Leased Property is taken by
Condemnation, this Lease shall remain in effect if the Facility is not thereby
rendered Unsuitable For Its Primary Intended Use, but if the Facility is
thereby rendered Unsuitable For Its Primary Intended Use, this Lease shall
terminate on the Date of Taking.
15.3 RESTORATION. If there is a partial taking of the Leased Property and
this Lease remains in full force and effect pursuant to Section 15.2, Landlord
at its cost shall accomplish all necessary restoration up to but not exceeding
the amount of the Award payable to Landlord, as provided herein. Landlord
shall cause such restoration to be performed with due diligence and in a good
and workmanlike manner, keeping the Leased Property at all times free from
mechanic's liens. If Tenant receives an Award under Section 15.4, Tenant shall
repair or
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restore any Tenant Improvements up to but not exceeding the amount of the Award
payable to Tenant therefor.
15.4 AWARD DISTRIBUTION. The entire Award shall belong to and be paid to
Landlord, except that, subject to the rights of the Facility Mortgagee, Tenant
shall be entitled to receive from the Award, if and to the extent such Award
specifically includes such items, a sum attributable to the value, if any, of:
(i) any Tenant Improvements and (ii) the leasehold interest of Tenant under
this Lease; provided, however, that if the amount received by Landlord and the
Facility Mortgagee is less than the Condemnation Threshold, then the amount of
the Award otherwise payable to Tenant for the value of its leasehold interest
under this Lease (and not any other funds of Tenant) shall instead be paid over
to Landlord up to the amount of the shortfall.
15.5 TEMPORARY TAKING. The taking of the Leased Property, or any part
thereof, by military or other public authority shall constitute a taking by
Condemnation only when the use and occupancy by the taking authority has
continued for longer than six months. During any such six month or less
period, which shall be deemed a temporary taking, all the provisions of this
Lease shall remain in full force and effect with no abatement of Rent payable
by Tenant hereunder. In the event of any such temporary taking, the entire
amount of any such Award made for such temporary taking allocable to the Term
of this Lease, whether paid by way of damage, rent or otherwise, shall be paid
to Tenant.
ARTICLE 16
EVENTS OF DEFAULT
16.1 EVENTS OF DEFAULT. If any one or more of the following events
(individually, an "Event of Default") shall occur:
(a) if Tenant shall fail to make payment of the Rent payable by
Tenant under this Lease when the same becomes due and payable and such
failure is not cured by Tenant within a period of 10 days after receipt
by Tenant of notice thereof from Landlord;
(b) if Tenant shall fail to obtain, maintain or replace the security
deposit as required by Article 21 and such failure is not cured within
ten (10) days after Landlord gives Tenant written notice thereof;
(c) if, other than as a result of Unavoidable Delays, Tenant shall
fail to observe or perform any material term, covenant or condition of
this Lease and such failure is not cured by Tenant within a period of
thirty (30) days after receipt by Tenant of notice thereof from Landlord,
unless such failure cannot with due diligence be cured within a period of
thirty (30) days, in which case such failure shall not be deemed to
continue if Tenant proceeds promptly and with due diligence to cure the
failure and
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diligently completes the curing thereof, and in any event cures such
failure within an additional ninety (90) day period following the
foregoing thirty (30) day cure period; provided, however, that the cure
period shall not extend beyond thirty (30) days as otherwise provided by
this Section 16.1(c) if the facts or circumstances giving rise to the
default are creating a further harm to Landlord or the Leased Property
and Landlord makes a good faith determination that Tenant is not
undertaking remedial steps that Landlord would cause to be taken if this
Lease were then to terminate.
(d) if Tenant shall:
(i) admit in writing its inability to pay its debts generally
as they become due;
(ii) file a petition in bankruptcy or a petition to take
advantage of any insolvency act;
(iii) make an assignment for the benefit of its creditors;
(iv) consent to the appointment of a receiver of itself or of
the whole or any substantial part of its property; or
(v) file a petition or answer seeking reorganization or
arrangement under the Federal bankruptcy laws or any other
applicable law or statute of the United States of America or any
state thereof;
(e) if Tenant shall, on a petition in bankruptcy filed against it,
be adjudicated as bankrupt or a court of competent jurisdiction shall
enter an order or decree appointing, without the consent of Tenant, a
receiver of Tenant or of the whole or substantially all of its property,
or approving a petition filed against it seeking reorganization or
arrangement of Tenant under the federal bankruptcy laws or any other
applicable law or statute of the United States of America or any state
thereof, and such judgment, order or decree shall not be vacated or set
aside or stayed within ninety (90) days from the date of the entry
thereof;
(f) if Tenant shall be liquidated or dissolved and is not
reconstituted within ninety (90) days thereafter, or shall begin
proceedings toward such liquidation or dissolution;
(g) if the estate or interest of Tenant in the Leased Property or
any part thereof shall be levied upon or attached in any proceeding and
the same shall not be vacated or discharged within the later of ninety
(90) days after commencement thereof or thirty (30) days after receipt by
Tenant of notice thereof from Landlord (unless Tenant shall be contesting
such lien or attachment in accordance with Article 12);
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(h) if, except as a result of damage, destruction or a partial or
complete Condemnation or other Unavoidable Delays, or, as a result of any
renovation, repair, or replacement expressly required or permitted under
this Lease, Tenant voluntarily ceases operations on the Leased Property
for a period in excess of forty-five (45) consecutive days;
(i) any representation or warranty made by Tenant herein or in any
certificate, demand or request made pursuant hereto proves to be
incorrect, now or hereafter, in any material respect and any adverse
effect on Landlord of any such misrepresentation or breach of warranty
has not been corrected to Landlord's satisfaction within twenty (20) days
after Tenant becomes aware of, or is notified by Landlord of the fact of,
such misrepresentation or breach of warranty;
(j) Intentionally Omitted
(k) a default by Tenant in any payment of principal or interest on
any obligations for borrowed money having a principal balance of
$5,000,000 or more in the aggregate (excluding obligations which are
limited in recourse to specific property of Tenant provided that such
property is not a substantial portion of the assets of Tenant), or in the
performance of any other provision contained in any instrument under
which any such obligation is created or secured (including the breach of
any covenant thereunder), if an effect of such default is that the
holder(s) of such obligation cause such obligation to become due prior to
its stated maturity; or
(l) a final, non-appealable judgment or judgments for the payment of
money in excess of $3,000,000 in the aggregate not fully covered
(excluding deductibles) by insurance shall be rendered against Tenant and
the same shall remain undischarged, unvacated, unbonded, or unstayed for
a period of sixty (60) consecutive days;
THEN, Landlord may terminate this Lease by giving Tenant not less than ten (10)
days' notice (or no notice for clauses (d), (f) and (g)) of such termination
and upon the expiration of the time fixed in such notice, the Term shall
terminate and all rights of Tenant under this Lease shall cease. Without
limitation of the foregoing, Landlord shall have all other rights at law and in
equity available to Landlord as a result of any Event of Default under this
Lease.
Landlord shall not be required to serve Tenant with any notices or demands
as a prerequisite to its exercise of any of its rights or remedies under this
Lease, other than those notices and demands specifically required under this
Lease. Tenant expressly waives the service of any statutory demand or notice
which is a prerequisite to Landlord's commencement of eviction proceedings
against Tenant, including the demands and notices specified in 735 ILCS Section
Section 5/9-209 and 5/9-210.
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16.2 PAYMENT OF COSTS. Tenant shall, to the extent permitted by law, pay
as Additional Charges all costs and expenses incurred by or on behalf of
Landlord, including reasonable attorneys' fees and expenses, as a result of any
Event of Default hereunder.
16.3 EXCEPTIONS. No Event of Default (other than a failure to make
payment of money or post a required letter of credit) shall be deemed to exist
under clause (c) or clause (j) during any time the curing thereof is prevented
by an Unavoidable Delay; provided that, upon the cessation of such Unavoidable
Delay, Tenant shall remedy such default without further delay.
16.4 CERTAIN REMEDIES. If an Event of Default shall have occurred (and
the event giving rise to such Event of Default has not been cured within the
curative period relating thereto as set forth in Section 16.1) and be
continuing, whether or not this Lease has been terminated pursuant to Section
16.1, Tenant shall, to the extent permitted by law, if required by Landlord so
to do, immediately surrender to Landlord the Leased Property pursuant to the
provisions of Section 16.1 and quit the same and Landlord may enter upon and
repossess the Leased Property by reasonable force, summary proceedings,
ejectment or otherwise, and may remove Tenant and all other Persons and any and
all Tenant's Personal Property from the Leased Property subject to any
requirement of law.
16.5 DAMAGES. None of (a) the termination of this Lease pursuant to
Section 16.1, (b) the repossession of the Leased Property, (c) the failure of
Landlord, notwithstanding reasonable good faith efforts, to relet the Leased
Property, (d) the reletting of all or any portion thereof, nor (e) the failure
of Landlord to collect or receive any rentals due upon any such reletting,
shall relieve Tenant of its liability and obligations hereunder, all of which
shall survive any such termination, repossession or reletting. In the event of
any such termination, Tenant shall forthwith pay to Landlord all Rent due and
payable with respect to the Leased Property to, and including, the date of such
termination. Thereafter, Tenant shall forthwith pay to Landlord, at Landlord's
option, as and for liquidated and agreed current damages for Tenant's default,
either:
(A) the sum of:
(1) the worth at the time of award of the unpaid Rent which
had been earned at the time of termination,
(2) the worth at the time of award of the amount by which the
unpaid Rent which would have been earned after termination until
the time of award exceeds the amount of such rental loss that
Tenant proves could have been reasonably avoided,
(3) the worth at the time of award of the amount by which the
unpaid Rent for the balance of the Term after the time of award
exceeds the amount of such rental loss that Tenant proves could be
reasonably avoided, and
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(4) any other amount necessary to compensate Landlord for all
the detriment proximately caused by Tenant's failure to perform its
obligations under this Lease or which in the ordinary course of
things would be likely to result therefrom; provided, however, that
Landlord shall not be entitled to punitive or speculative damages
as a consequence of such Event of Default on the part of Tenant
hereunder.
In making the above determinations, the worth at the time of the award
shall be determined by the court having jurisdiction thereof using, as a
discount factor for present value, a rate equal to the Prime Rate at the
time of the Event of Default, and the Additional Rent shall be deemed to
be the same as for the then-current Fiscal Year or, if not determinable,
the immediately preceding Fiscal Year, for the remainder of the Term, or
such other amount as either party shall prove reasonably could have been
earned during the remainder of the Term or any portion thereof; or
(B) without termination of Tenant's right to possession of the
Leased Property, each installment of said Rent and other sums payable by
Tenant to Landlord under the Lease as the same becomes due and payable,
which Rent and other sums shall bear interest at the maximum annual rate
permitted by the law of the State from the date when due until paid, and
Landlord may enforce, by action or otherwise, any other term or covenant
of this Lease.
16.6 ADDITIONAL REMEDIES. In addition to and without limitation of the
foregoing, Landlord shall have all other remedies that may be available under
applicable law.
16.7 APPOINTMENT OF RECEIVER. Upon the occurrence of an Event of Default,
and upon filing of a suit or other commencement of judicial proceedings to
enforce the rights of Landlord hereunder, Landlord shall be entitled to seek in
accordance with applicable laws the appointment of a receiver or receivers
acceptable to Landlord of the Leased Property and the Facility and of the
revenues, earnings, income, products and profits thereof, pending such
proceedings, with such powers as the court making such appointment shall
confer.
16.8 WAIVER. If this Lease is terminated pursuant to Section 16.1, Tenant
waives, to the extent permitted by applicable law (a) any right of redemption,
re-entry or repossession and (b) any right to a trial by jury in the event of
summary proceedings to enforce the remedies set forth in this Article 16.
16.9 APPLICATION OF FUNDS. Any payments received by Landlord under any of
the provisions of this Lease during the existence or continuance of any Event
of Default shall be applied to Tenant's obligations in such order as Landlord
may determine or as may be prescribed by the laws of the State.
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ARTICLE 17
LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT
If Tenant shall fail to make any payment or to perform any act required to
be made or performed under this Lease, and to cure the same within the relevant
time periods in Section 16.1, Landlord, after notice to and demand upon Tenant,
and without waiving or releasing any obligation or default, may (but shall be
under no obligation to) at any time thereafter make such payment or perform
such act for the account and at the expense of Tenant. Landlord may, to the
extent permitted by law, enter upon the Leased Property for such purpose and
take all such action thereon as, in Landlord's opinion, may be necessary or
appropriate therefor. No such entry shall be deemed an eviction of Tenant.
All sums so paid by Landlord and all costs and expenses (including reasonable
attorneys' fees and expenses, to the extent permitted by law) so incurred,
together with a late charge thereon at the Overdue Rate from the date on which
such sums or expenses are paid or incurred by Landlord, shall be paid by Tenant
to Landlord on demand. The obligations of Tenant and rights of Landlord
contained in this Article 17 shall survive the expiration or earlier
termination of this Lease.
ARTICLE 18
OPERATIONS/CAPITAL EXPENDITURES
18.1 ANNUAL PLAN. On or before the Commencement Date (i.e., with respect
to the calendar year in which the Commencement Date occurs), and thereafter on
or before November 30th of each year during the Term hereof, Tenant shall
deliver to Landlord a report with respect to the next succeeding calendar year
(herein, an "Annual Plan"), setting forth the plans and prospects for Tenant's
business operations at the Leased Property, which shall include (i) a forecast
or budget of revenues (including, without limitation, Rooms Revenue, Golf
Course Revenue and FB&M Revenue) and expenses for such period, (ii) a
projection on a month-by-month basis of cash in-flow and working capital, (iii)
proposed plans for marketing, sales, promotion, and advertising, (iv) a
schedule of all fees and charges to be imposed at the Leased Property,
including, but not limited to, room rates, greens fees and cart rental charges,
charges for the use of practice range facilities, food and beverages charges,
and fees and charges for other services, amenities and products that Tenant
intends to offer at the Leased Property, (v) a forecast or budget of Capital
Expenditures for such period, together with the plan for any improvements to be
made by Tenant during such period to the hotel, clubhouse and other buildings
at the Leased Property, and of the golf course, landscaping and related
physical facilities on the Leased Property, and (vi) description of any other
material action concerning the management, operation or marketing of the Leased
Property contemplated for the period at issue. Tenant shall utilize good faith
efforts to implement the Annual Plan for the respective period or periods
covered thereby and shall promptly notify Landlord of any action taken by
Tenant which materially deviates from the matters set forth in the current
Annual Plan. Without limitation of the foregoing, it is agreed by Tenant that
the Annual Plan shall provide for not less
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than four percent (4%) of Gross Revenues budgeted for such annual period either
to be spent on Capital Expenditures or to be deposited into the Capital
Expenditure Reserve Account (as defined below), but the actual amount to be so
expended or deposited shall be determined in accordance with Section 18.2
below.
18.2 FUNDING OF CAPITAL EXPENDITURE RESERVE ACCOUNT. Within twenty (20)
days after the end of each Fiscal Quarter during the Term hereof, Tenant shall
deposit into an account at LaSalle National Bank or another institution
designated by Tenant and approved by Landlord (herein, the "Capital Expenditure
Reserve Account"), the aggregate "Capital Expenditure Reserve Amounts" required
for the immediately preceding Fiscal Quarter. As further security for the
payment and performance of all obligations of Tenant hereunder, Tenant hereby
grants to Landlord and, if so requested by Landlord, to any Facility Mortgagee
designated by Landlord, a security interest in and to the Capital Expenditure
Reserve Account and all sums on deposit therein (which security interest shall
be acknowledged by the institution with which said account is established).
All such sums will be held in the Capital Expenditure Reserve Account and
released and applied in accordance with the terms of this Lease. Tenant may
make withdrawals from the Capital Expenditure Reserve Account for (a) Capital
Expenditures that are reflected in the Annual Plan and (b) those expenditures
for repairs, replacements, upgrades and other items which, under generally
accepted accounting principles as applied in the hotel/resort industry,
constitute capital expenditures (the expenditures described in the foregoing
clauses (a) and (b) are hereinafter collectively called "Eligible
Expenditures"). Notwithstanding the foregoing, upon the occurrence and during
the continuance of an Event of Default hereunder, Tenant shall have no further
right to withdraw any amounts on deposit in the Capital Expenditure Reserve
Account, Landlord shall be entitled to become the sole signatory on the Capital
Expenditure Reserve Account, and such amounts shall be deemed to be held by
Landlord as further security for Tenant's obligations hereunder, to be
disbursed or applied in accordance with the same terms and conditions as set
forth in Article 21 hereof with respect to the balance of the security then on
deposit with Landlord; provided, however, that until this Lease is terminated
or Tenant's right to possession of the Leased Property is terminated without
this Lease being terminated, Landlord shall only cause amounts in the Capital
Expenditure Reserve Account to be disbursed for Eligible Expenditures and
Landlord shall cause the amounts in the Capital Expenditure Reserve Account to
be disbursed for those Eligible Expenditures necessary to operate the Leased
Property in accordance with the standards set forth in this Lease. For
purposes hereof, the term "Capital Expenditure Reserve Amount" shall mean, for
any Fiscal Quarter, an amount equal to the excess (if any) of (i) four percent
(4%) of Gross Revenues accruing from the beginning of the "Capital Expenditure
Period" (as defined below) in which such Fiscal Quarter occurs through and
including the end of such Fiscal Quarter (herein, the "Calculation Period")
over (ii) the sum of all Eligible Expenditures incurred during such Calculation
Period with respect to the Leased Property, which Eligible Expenditures were
made pursuant to an Annual Plan and otherwise pursuant to the terms of Article
10 hereof or in accordance with the other terms and provisions of this Lease.
For purposes hereof, the term "Capital Expenditure Period" shall mean (a) the
period from and the Commencement Date and through the fourth (4th) full Fiscal
Quarter thereafter and (b) each successive period of four (4) full Fiscal
Quarters thereafter occurring during the Term thereof. If Eligible
Expenditures for a Capital Expenditure Period exceed the
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sum of the maximum possible amount of Capital Expenditure Reserve Amount due
for that Fiscal Quarter plus the then balance in the Capital Expenditure
Reserve Account at that time, Tenant shall be entitled to recoup such excess
out of the balance remaining in the Capital Expenditure Reserve Account as of
the end of each succeeding Fiscal Quarter until Tenant has fully recouped said
excess. Subject to the foregoing, the Capital Expenditure Reserve Account and
the funds therein shall be and remain the property of Tenant, and so long as no
Event of Default on the part of Tenant then exists and is continuing, the
interest earned thereon may be withdrawn by Tenant from time to time.
ARTICLE 19
LEGAL REQUIREMENTS
Subject to Article 12 regarding permitted contests, Tenant, at its
expense, shall promptly (a) comply with all Legal Requirements and Insurance
Requirements in respect of the use, operation, maintenance, repair and
restoration of the Leased Property, whether or not compliance therewith shall
require structural changes in any of the Leased Improvements or interfere with
the use and enjoyment of the Leased Property; and (b) procure, maintain and
comply with all licenses and other authorizations required for any use of the
Leased Property then being made, and for the proper erection, installation,
operation and maintenance of the Leased Property or any part thereof. In the
event that as a result of any new or amended Legal Requirement imposed after
the date of this Lease Capital Expenditures are required, Landlord shall
advance the funds therefor and in consideration thereof, Tenant shall pay to
Landlord "additional" Base Rent on a monthly basis equal to the amount advanced
by Landlord amortized over the useful life of the Capital Expenditure item,
together with interest on the unamortized balance at the rate of ten percent
(10%) per annum.
ARTICLE 20
HOLDING OVER
If Tenant shall for any reason remain in possession of the Leased Property
after the expiration of the Term or earlier termination of the Term hereof
other than with the consent or at the request of, Landlord, such possession
shall be as a month-to-month tenant during which time Tenant shall pay as
rental each month, 125% of the aggregate of (i) one-twelfth of the aggregate
Annual Base Rent and Additional Rent payable with respect to the last Fiscal
Year of the preceding Term; (ii) all Additional Charges accruing during the
month; and (iii) all other sums, if any, payable by Tenant pursuant to the
provisions of this Lease with respect to the Leased Property. During such
period of month-to-month tenancy, Tenant shall be obligated to perform and
observe all of the terms, covenants and conditions of this Lease, but shall
have no rights hereunder other than the right, to the extent given by law to
month-to-month tenancies, to continue its occupancy and use of the Leased
Property. Nothing contained herein shall
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constitute the consent, express or implied, of Landlord to the holding over of
Tenant after the expiration or earlier termination of this Lease.
ARTICLE 21
UPREIT UNITS/REIT SHARES/LETTER OF CREDIT/SECURITY DEPOSIT
21.1 SECURITY DEPOSIT. On or before the Commencement Date, Tenant shall
post with Landlord a security deposit consisting of one or some combination of
cash, a Letter of Credit, limited partnership units in Landlord, shares of
common stock in Landlord's general partner, or other security acceptable to
Landlord and described in Section 21.6 below, to be held as a security deposit
in accordance with the terms of this Article 21. Tenant shall have the right,
at any time and from time to time, to substitute for all or any portion of
existing security deposit one or some combination of cash, a Letter of Credit,
limited partnership units in Landlord, shares of common stock in Landlord's
general partner or other security acceptable to Landlord and described in
Section 21.6 below. The security deposit shall, at all times, be in an amount
equal to the then Required Security Deposit Amount (as defined in Exhibit A
hereto). If Units are pledged as all or part of the security deposit, the
parties will use the value (the "Initial Value") of these Units as of the
Commencement Date and said Initial Value will, for purposes of valuing the
Units for credit against Tenant's security deposit requirements hereunder, be
utilized at all times throughout the Term regardless of actual market
fluctuations.
21.2 OFFICER'S CERTIFICATE/AUDIT. Tenant shall provide an Officer's
Certificate to Landlord not later than forty-five (45) days after the end of
each Fiscal Quarter, as to the Required Security Deposit Amount then in effect,
which Certificate shall include a calculation and reasonable detail of such
item. Without limitation of the foregoing, Landlord shall have the right, at
any time and from time to time, to audit, whether directly or through its
accountants (which shall be a nationally recognized accounting firm), the
information set forth in any Officer's Certificate to be delivered under this
Article 21, and in connection with such audit, to examine Tenant's books and
records with respect thereto (including supporting data, sales tax returns and
Tenant's workpapers) at Tenant's office during normal business hours upon
reasonable advance notice to Tenant; provided, however, that Landlord must
deliver to Tenant, within thirty (30) days after receipt of the Officer's
Certificate, notice that Landlord will conduct an audit and any audit of the
information contained in an Officer's Certificate referred to in this Section
21.2 must be conducted, and the results thereof delivered to Tenant, on or
before ninety (90) days after delivery to Landlord of such Officer's
Certificate. At the end of such ninety (90) day period, the information
contained in the Officer's Certificate shall be final and binding upon Landlord
and Tenant, unless Landlord has challenged the amount shown in the Officer's
Certificate in writing delivered to Tenant on or before expiration of such
ninety (90) day period. Any such challenge must be based upon the results of
Landlord's audit. Any determination made by Landlord pursuant to said audit
shall be binding upon Tenant. If any such audit discloses that the Adjusted
EBITDA (as defined in Exhibit A hereto) was overstated by such amount so as to
result in a reduction in the Required Security Deposit Amount for which
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Tenant was not otherwise entitled based upon the audited Adjusted EBITDA
calculations, then, in such case, Tenant shall be responsible for all costs
incurred by Landlord in connection with such audit and examination. If the
determination of the then Required Security Deposit Amount indicates that
Landlord is then holding either less than or greater than the then required
security deposit hereunder, the parties shall promptly cooperate with one
another in either increasing or decreasing the security deposit so that
Landlord, within fifteen (15) Business Days after delivery of said Officer's
Certificate (or, if Landlord disputes such determination, then within thirty
(30) days following any audit conducted by Landlord as provided above in this
Section 21.2), is then holding the appropriate security deposit hereunder;
provided, however, that if Tenant objects to the results of Landlord's audit,
the dispute shall be resolved by arbitration pursuant to Section 27.22 below.
At such time or times as said security deposit is no longer required pursuant
hereto, Landlord shall, within fifteen (15) Business Days, return the then
security deposit to Tenant.
21.3 TERMS OF LETTER OF CREDIT. In the event that all or any part of the
security under this Article 21 is in the form of a Letter of Credit, such
Letter of Credit shall:
(i) be an irrevocable standby letter of credit from LaSalle National
Bank or another bank selected by Tenant with a long-term debt rating from
Standard & Poor's or Moody's of "A" or better at the time of original
issuance of the Letter of Credit naming Landlord (and/or any Facility
Mortgagee if requested by Landlord) as beneficiary to secure Tenant's
obligations hereunder;
(ii) have a stated amount equal to the portion of the Required
Security Deposit Amount to be provided by the Letter of Credit;
(iii) have a term of not less than one year;
(iv) provide that it will be honored upon a signed statement by
Landlord that Landlord is entitled to draw upon the letter of credit
under this Lease, and shall require no signature or statement from any
party other than Landlord; and
(v) permit multiple draws by providing that following the honor of
any drafts in an amount less than the aggregate stated amount of the
Letter of Credit, the issuing bank shall return the original Letter of
Credit to Landlord and that Landlord's rights as to the remaining stated
amount of the Letter of Credit will not be extinguished.
21.4 DRAWS AGAINST LETTER OF CREDIT/ALTERNATIVE SECURITY; APPLICATION OF
PROCEEDS. Landlord may draw against the Letter of Credit (or, in the case of
alternative security under Section 21.6 below, Landlord may apply or otherwise
proceed against such security) upon the occurrence of any Event of Default on
the part of Tenant under the terms of this Lease. Landlord may apply any
amounts drawn or received under the Letter of Credit (or alternative security)
to the satisfaction of any obligations owed to Landlord under this Lease. Any
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proceeds from the Letter of Credit (or alternative security) drawn or received
but not so applied shall be held by Landlord as a cash security deposit.
21.5 RENEWAL OF LETTER OF CREDIT. If the Letter of Credit shall expire at
a time when the Letter of Credit is still required under Section 21.1 or
Section 21.2, Tenant shall renew the Letter of Credit at least thirty (30) days
prior to its expiration. If Tenant shall fail to renew the Letter of Credit
prior to such time, Landlord may draw against the same and hold the proceeds
thereof as a security deposit until such time as Tenant shall renew the Letter
of Credit. Landlord shall hold such security deposit in a separate account in
trust for Tenant and shall account to Tenant for any interest earned thereon.
21.6 OTHER SECURITY. In the event Landlord, at its discretion (and
without obligation to do so), permits the security under this Article 21 to be
in a form other than cash or a Letter of Credit, then the alternative security
shall be in the same amount as the "Required Security Deposit Amount" and shall
otherwise be in such form and substance as may be acceptable to Landlord, in
its discretion. In such event, Tenant agrees to enter into a supplement to
this Lease, at Landlord's request, in order to set forth the terms and
conditions governing the alternative security. Without limitation of the
foregoing, Landlord hereby agrees that limited partnership units in Landlord or
shares of common stock in Landlord's general partner, valued as of the date of
this Lease and as of the end of each Fiscal Quarter (such valuation to be part
of each Officer's Certificate), shall be deemed to be an acceptable form of
alternative security hereunder.
21.7 CASH SECURITY DEPOSIT. Any cash security deposit or any cash which
Landlord is holding pursuant to the other provisions of this Article 21 shall
be held by Landlord in an interest bearing account with interest accruing to
the benefit of Tenant and Tenant shall be entitled to receive from time to time
(but not more often than once per Fiscal Quarter) on demand the accrued and
undisbursed interest earned thereon, provided that an Event of Default on the
part if Tenant has not then occurred and is then continuing to exist.
ARTICLE 22
IMPOUNDS
Without limitation on any obligations of Tenant set forth herein, Landlord
shall have the right, at any time and from time to time during the Term hereof
after the occurrence of an Event of Default on the part of Tenant hereunder, to
require Tenant to pay to Landlord an additional monthly sum (each an "Impound
Payment") sufficient to pay the Impound Charges (as hereinafter defined) as
they become due. As used herein, "Impound Charges" shall mean real estate
taxes on the Leased Property or payments in lieu thereof and premiums on any
insurance required by this Lease. Landlord shall determine the amount of the
Impound Charges and of each Impound Payment. The Impound Payments shall be
held in a separate account and shall not be commingled with other funds of
Landlord and interest thereon shall be held for the
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account of Tenant and provided that no Event of Default on the part of Tenant
has then occurred and is continuing hereunder, Tenant may, once per Fiscal
Year, request and receive payment of said interest. Upon Tenant's tendering to
Landlord of invoices therefor no later than thirty (30) days prior to the
respective due dates thereof, Landlord shall apply the Impound Payments to the
payment of the Impound Charges in such order or priority as Landlord shall
reasonably determine or as otherwise required by law. If at any time the
Impound Payments theretofore paid to Landlord shall be insufficient for the
payment of the Impound Charges, Tenant, within 10 days after Landlord's demand
therefor, shall pay the amount of the deficiency to Landlord.
ARTICLE 23
INDEMNIFICATION; RISK OF LOSS
23.1 TENANT'S INDEMNIFICATION OF LANDLORD. Notwithstanding the existence
of any insurance provided for in Article 13, and without regard to the policy
limits of any such insurance, Tenant will protect, indemnify, save harmless and
defend Landlord from and against all liabilities, obligations, claims, damages,
penalties, causes of action, costs and expenses (including reasonable
attorneys' fees and expenses), to the extent permitted by law, imposed upon or
incurred by or asserted against Landlord by reason of:
(a) any accident, injury to or death of Persons or loss of or damage
to property occurring on or about the Leased Property or adjoining
sidewalks, including, but not limited to, any accident, injury to or
death of Person or loss of or damage to property resulting from any
business activity or operation conducted on, at or with respect to the
Leased Property;
(b) any use, misuse, non-use, condition, maintenance or repair by
Tenant of the Leased Property;
(c) any Impositions (which are the obligations of Tenant to pay
pursuant to the applicable provisions of this Lease);
(d) any failure on the part of Tenant to perform or comply with any
of the terms of this Lease;
(e) the non-performance of any of the terms and provisions of any
and all existing and future subleases of the Leased Property to be
performed by the landlord (Tenant) thereunder;
(f) any "dram shop" liability associated with the sale and/or
consumption of alcohol at the Leased Property; and
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(g) any liability Landlord may incur or suffer as a result of any
permitted contest by Tenant pursuant to Article 12.
23.2 LANDLORD'S INDEMNIFICATION OF TENANT. Landlord shall protect,
indemnify, save harmless and defend Tenant from and against all liabilities,
obligations, claims, damages, penalties, causes of action, costs and expenses
(including reasonable attorneys' fees) imposed upon or incurred by or asserted
against Tenant as a result of Landlord's active or passive negligence or
willful misconduct.
23.3 MECHANICS OF INDEMNIFICATION. As soon as reasonably practicable
after receipt by the indemnified party of notice of any liability or claim
incurred by or asserted against the indemnified party that is subject to
indemnification under this Article 23, the indemnified party shall give notice
thereof to the indemnifying party. The indemnified party may at its option
demand indemnity under this Article 23 as soon as a claim has been threatened
by a third party regardless of whether an actual loss has been suffered, so
long as the indemnified party shall in good faith determine that such claim is
not otherwise frivolous and that the indemnified party may be liable for, or
otherwise incur, a loss as a result thereof and shall give notice of such
determination to the indemnifying party. The indemnified party shall permit
the indemnifying party, at its option and expense, to assume the defense of any
such claim by counsel selected by the indemnifying party and reasonably
satisfactory to the indemnified party, and to settle or otherwise dispose of
the same; provided, however, that the indemnified party may at all times
participate in such defense at its expense; and provided further, however, that
the indemnifying party shall not, in defense of any such claim, except with the
prior written consent of the indemnified party, consent to the entry of any
judgment or to enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff in question
to the indemnified party and its affiliates a release of all liabilities in
respect of such claims, or that does not result only in the payment of money
damages by the indemnifying party. If the indemnifying party shall fail to
undertake such defense within thirty (30) days after such notice, or within
such shorter time as may be reasonable under the circumstances, then the
indemnified party shall have the right to undertake the defense, compromise or
settlement of such liability or claim on behalf of and for the account of the
indemnifying party.
23.4 SURVIVAL OF INDEMNIFICATION OBLIGATIONS. Tenant's or Landlord's
liability for indemnification under the provisions of this Article 23 arising
during the Term hereof shall only survive any termination of this Lease for a
period of one (1) year (that is, notice of the claim or liability for which
indemnification is sought must be given by the party seeking such
indemnification not later than the first anniversary of said termination date).
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ARTICLE 24
SUBLETTING AND ASSIGNMENT
24.1 PROHIBITION AGAINST SUBLETTING AND ASSIGNMENT. Subject to Section
24.3, Tenant shall not, without the prior written consent of Landlord (which
consent Landlord may except as hereinafter expressly provided, grant or
withhold in its sole and absolute discretion), assign, mortgage, pledge,
hypothecate, encumber or otherwise transfer (except to an Affiliate of Tenant)
this Lease or any interest herein, all or any part of the Leased Property or
suffer or permit this Lease or the leasehold estate created hereby or any other
rights arising under this Lease to be assigned, transferred, mortgaged,
pledged, hypothecated or encumbered, in whole or in part, whether voluntarily,
involuntarily or by operation of law; provided, however, that Landlord's
consent to a proposed assignment of this Lease shall not be unreasonably
withheld if the proposed assignee (together with any proposed guarantor(s) of
the proposed assignee's obligations under this Lease) has a net worth and
liquidity at least equal to the greater of Tenant's net worth and liquidity as
of the Commencement Date and Tenant's net worth and liquidity as of the time of
the assignment and is qualified (or agrees to engage qualified management) to
operate the Leased Property in the manner operated by Tenant prior to the
assignment (hereinafter collectively called the "Minimum Assignee
Qualifications"). Landlord shall have a period of thirty (30) days after
delivery to it of a request for assignment together with the financial and
other information on the proposed assignee (and any proposed guarantors)
necessary for Landlord to evaluate whether the proposed assignee satisfies the
Minimum Assignee Qualifications and Landlord's failure to respond within thirty
(30) days of Landlord's receipt of a request for assignment and all required
information (as evidenced by a receipt signed and dated by Landlord) shall be
deemed Landlord's approval of said assignee and said assignment. Any notice
withholding consent must specify in detail the reasonable grounds for Landlord
so withholding its consent. For purposes of this Section 24.1, an assignment
of this Lease shall be deemed to include any Change of Control of Tenant, as if
such Change of Control were an assignment of this Lease.
24.2 CHANGES IN CONTROL. A Change of Control requiring the consent of
Landlord shall mean:
(a) the issuance and/or sale by Tenant or the sale by any
stockholder, partner or stockholder/member of a member or partner of
Tenant of a Controlling interest in Tenant or one of its members or
partners to a Person, excepting, however, (i) a transfer or sale to a
Person who is (A) another member or partner of Tenant, (B) an Affiliate
of Tenant, or (C) an Affiliate of a member or partner of Tenant; (ii)
public trading of stock in a publicly traded company where Tenant or any
of its members or partners is such publicly traded company; and (iii) a
distribution to the public pursuant to an effective registration
statement under the Securities Act of 1933, as amended (a "Registered
Offering");
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(b) at any time when Tenant is not a publicly traded company, any
other transaction, or series of transactions, which results in the
Affiliates of Tenant or Affiliates of any member or partner of Tenant no
longer having Control of Tenant (other than through a Registered
Offering); or
(c) at any time when Tenant is not a publicly traded company, any
transaction pursuant to which Tenant is merged with or consolidated into
another entity (other than an entity owned and Controlled by (i) a member
or partner of Tenant, (ii) an Affiliate of Tenant, or (iii) an Affiliate
of a member or partner of Tenant), and Tenant is not the surviving
entity;
provided, however, that notwithstanding the foregoing, any such
transaction described in any of (a) through (c) above which otherwise
constitutes a Change of Control shall not be deemed a Change of Control
if each of the following conditions are met:
24.2.1 FINANCIAL COVENANTS. Unless a Letter of Credit (or other
security acceptable to Landlord under Article 21 hereof) in an amount
equal to 200% of the then Required Security Deposit Amount is posted by
Tenant concurrently with any such consolidation, merger, sale or
conveyance, the Person formed by or surviving such transaction shall have
(i) a Tangible Net Worth not less than twice the Initial Annual Base Rent
hereunder increased by four percent per annum compounded annually from
the Commencement Date to the date of the Change of Control and (ii) a
Fixed Charge Coverage Ratio of 1.5 to 1.0.
24.2.2 OPERATING STANDARDS. The surviving entity after such
transaction shall be qualified to operate the Leased Property at a
standard at least as high in the reasonable judgment of Landlord as that
operated by Tenant prior to the Change of Control or shall agree to
engage management with such qualifications.
24.3 SUBLEASES.
24.3.1 PERMITTED SUBLEASES. Tenant shall not sublet all or any
part of the Leased Property without first having obtained Landlord's
prior written consent, at Landlord's sole discretion. Landlord shall
have a period of thirty (30) days after delivery to it of a request for a
sublease, together with such financial and other information as is
customary or appropriate, to evaluate the request for sublease, and
Landlord's failure to respond within thirty (30) days of Landlord's
receipt of a request for a sublease and all required information (as
evidenced by a receipt signed and dated by Landlord) shall be deemed
Landlord's approval of said sublessee and said sublease. Notwithstanding
the foregoing, (A) Landlord's consent shall not be required for bookings
in the ordinary course of business or for leases/subleases to an
independent, unaffiliated third party where the annual rent is less than
Fifty Thousand and no/100 Dollars ($50,000.00), but Tenant shall be
obligated to give Landlord written notice of each such less than
$50,000.00 lease/sublease (said $50,000.00 to be adjusted for changes in
the Consumer
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Price Index from the date of this Lease) and (B) Landlord agrees that it
shall not unreasonably withhold its consent to any requested sublease of
portions of the Leased Property not falling within the foregoing clause
(A) to concessionnaires or licensees who are not (i) members or partners
of Tenant, (ii) Affiliates of Tenant, or (iii) Affiliates of Tenant's
members or partners to:
(a) operate gift and/or sundries shop;
(b) one or more small retail/commercial shops within the
Facility;
(c) operate other small concessions or businesses at the
Facility;
(d) operate golf professionals' shops;
(e) operate golf driving ranges;
(f) provide golf lessons;
(g) operate restaurants;
(h) operate bars;
(i) audio/visual service concessions; and
(j) operate any other portions (but not the entirety) of the
Leased Property customarily associated with or incidental to the
operation of the resort, the convention/banquet facilities and/or
the golf course.
24.3.2 TERMS OF SUBLEASE. Each sublease of any of the Leased
Property shall be subject and subordinate to the provisions of this
Lease. No sublease made as permitted by Section 24.3.1 shall affect or
reduce any of the obligations of Tenant hereunder, and all such
obligations shall continue in full force and effect as if no sublease had
been made. No sublease shall impose any additional obligations on
Landlord under this Lease.
24.3.3 COPIES. Tenant shall, within 10 Business Days after the
execution and delivery of any sublease permitted by Section 24.3.1,
deliver a duplicate original thereof to Landlord.
24.3.4 ASSIGNMENT OF RIGHTS IN SUBLEASES. As security for
performance of its obligations under this Lease, Tenant hereby grants,
conveys and assigns to Landlord all right, title and interest of Tenant
in and to all subleases now in existence or hereinafter entered into for
any or all of the Leased Property, and all extensions, modifications and
renewals thereof and all rents, issues and profits therefrom. Landlord
hereby grants to
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Tenant a license to collect and enjoy all rents and other sums of money
payable under any sublease of any of the Leased Property; provided,
however, that Landlord shall have the absolute right at any time after
the occurrence and continuance of an Event of Default upon notice to
Tenant and any subtenants to revoke said license and to collect such
rents and sums of money and to retain the same. Tenant shall not (i)
after the occurrence and continuance of an Event of Default, consent to,
cause or allow any material modification or alteration of any of the
terms, conditions or covenants of any of the subleases or the termination
thereof, without the prior written approval of Landlord nor (ii) accept
any rents (other than customary security deposits) more than ninety (90)
days in advance of the accrual thereof nor permit anything to be done,
the doing of which, nor omit or refrain from doing anything, the omission
of which, will or could be a breach of or default in the terms of any of
the subleases.
24.3.5 LICENSES, ETC. For purposes of Sections 24.1, 24.3 and
24.5, subleases shall be deemed to include any licenses, concession
arrangements, management contracts or other arrangements relating to the
possession or use of all or any part of the Leased Property; provided,
however, that a management contract with Montclair Hotel Investors, Inc.
or between an entity approved as Tenant pursuant to the other terms of
this Lease and its affiliate shall not be subject to this Article 24 or
to Landlord's consent and, consequently, shall be deemed to be an
approved arrangement under this Article 24.
24.4 ASSIGNMENT. Upon any assignment permitted under this Lease (either
as a matter of right or with Landlord's consent), the assignor shall, from and
after the effective date of such assignment, be relieved of all liability for
any obligation arising from and after said effective date. No consent to any
assignment in a particular instance shall be deemed to be a waiver of the
prohibition set forth in Article 24. Any assignment or other transfer of all
or any portion of Tenant's interest in the Lease in contravention of Article 24
shall be voidable at Landlord's option.
24.5 REIT LIMITATIONS. Anything contained in this Lease to the contrary
notwithstanding, Tenant shall not (i) sublet or assign the Leased Property or
this Lease on any basis such that the rental or other amounts to be paid by the
sublessee or assignee thereunder would be based, in whole or in part, on the
income or profits derived by the business activities of the sublessee or
assignee; (ii) sublet or assign the Leased Property or this Lease to any person
that Landlord owns, directly or indirectly (by applying constructive ownership
rules set forth in Section 856(d)(5) of the Code), a 10% or greater interest
(provided that Landlord shall, when requested by Tenant from time to time,
deliver to Tenant a schedule of all persons in which Landlord owns a 10% or
greater interest); or (iii) sublet or assign the Leased Property or this Lease
in any other manner or otherwise derive any income which could cause any
portion of the amounts received by Landlord pursuant to this Lease or any
sublease to fail to qualify as "rents from real property" within the meaning of
Section 856(d) of the Code, or which could cause any other income received by
Landlord to fail to qualify as income described in Section 856(c)(2) of the
Code. The requirements of this Section 24.5 shall likewise apply to any
further subleasing by any subtenant.
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24.6 EXISTING LEASES AND LICENSES. Landlord acknowledges that the leases,
licenses and concessions set forth on Schedule 24.6 attached to and made a part
of this Lease are in effect as of the Commencement Date, and Landlord consents
thereto.
ARTICLE 25
OFFICER'S CERTIFICATES AND OTHER STATEMENTS
25.1 OFFICER'S CERTIFICATES.
(a) TENANT'S STATEMENT. At any time, and from time to time in
connection with any proposed sale or financing of the Leased Property by
Landlord or in connection with the preparation of Landlord's annual
audit, upon Tenant's receipt of not less than 10 days' prior written
request by Landlord, Tenant will furnish to Landlord an Officer's
Certificate certifying that:
(i) this Lease is unmodified and in full force and effect (or
that this Lease is in full force and effect as modified and setting
forth the modifications);
(ii) the dates to which the Rent has been paid;
(iii) whether or not to the best knowledge of Tenant, Landlord
is in default in the performance of any covenant, agreement or
condition contained in this Lease and, if so, specify each such
default of which Tenant may have knowledge;
(iv) that, except as otherwise specified, there are no
proceedings pending or, to the knowledge of the signatory,
threatened, against Tenant before or by any court or administrative
agency which, if adversely decided, would materially and adversely
affect the financial condition and operations of Tenant; and
(v) responding to such other questions or statements of fact
as Landlord shall reasonably request.
Tenant's failure to deliver such statement within such time shall constitute an
acknowledgment by Tenant that this Lease is unmodified and in full force and
effect (except as may be represented to the contrary by Landlord), Landlord is
not in default in the performance of any covenant, agreement or condition
contained in this Lease and the other matters set forth in such request, if
any, are true and correct. Any such certificate furnished pursuant to this
Section 25.1(a) may be relied upon by Landlord.
(b) LANDLORD'S STATEMENT. At any time, and from time to time in
connection with any proposed sale or financing by Tenant or in connection
with the preparation of
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Tenant's annual audit, upon Landlord's receipt of not less than 10 days'
prior written request by Tenant, Landlord will furnish to Tenant an
Officer's Certificate certifying that:
(i) this Lease is unmodified and in full force and effect (or
that this Lease is in full force and effect as modified and setting
forth the modifications);
(ii) the dates to which the Rent has been paid;
(iii) whether or not to the best knowledge of Landlord,
Tenant, is in default in the performance of any covenant, agreement
or condition contained in this Lease and, if so, specify each such
default of which Landlord may have knowledge;
(iv) that, except as otherwise specified, there are no
proceedings pending or, to the knowledge of the signatory,
threatened, against Landlord before or by any court or
administrative agency which, if adversely decided, would materially
and adversely affect the financial condition and operations of
Landlord; and
(v) responding to such other questions or statements of fact
as Tenant shall reasonably request.
Landlord's failure to deliver such statement within such time shall constitute
an acknowledgment by Landlord that this Lease is unmodified and in full force
and effect (except as may be represented to the contrary by Tenant), Tenant is
not in default in the performance of any covenant, agreement or condition
contained in this Lease and the other matters set forth in such request, if
any, are true and correct. Any such certificate furnished pursuant to this
Section 25.1(b) may be relied upon by Tenant.
25.2 FINANCIAL REPORTING. Tenant shall deliver to Landlord the following
items at the time or times hereinafter set forth:
25.2.1 MONTHLY FINANCIAL INFORMATION. As soon as practicable, and
in any event on or before the thirtieth (30th) day following the end of
each calendar month during the Term, Tenant shall furnish to Landlord
unaudited balance sheets relative to the Leased Property as of the end of
such calendar month, and income (including information on Eligible
Expenditures) and cash flow statements for the Leased Property for such
calendar month and on a year-to-date and trailing twelve (12) month
basis, certified as being true and correct by Tenant.
25.2.2 QUARTER FINANCIAL INFORMATION. As soon as practicable, and
in any event within forty-five (45) days after the end of each Fiscal
Quarter during the Term, Tenant shall furnish to Landlord unaudited
balance sheets of the Leased Property
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as of the close of such Fiscal Quarter, together with income statements
and statements of cash flow for the Leased Property for such Fiscal
Quarter and on a year-to-date and trailing twelve (12) month basis, in
all cases setting forth in comparative form the figures for the preceding
corresponding periods, together with a statement of all Eligible
Expenditures made during such Fiscal Quarter, all in detail and
presentation reasonably acceptable to Landlord.
25.2.3 ANNUAL FINANCIAL STATEMENTS. As soon as practicable, and in
any event within ninety (90) days after the close of each Fiscal Year
during the Term, Tenant shall furnish to Landlord a copy of its audited
(combined for the two resorts constituting the Leased Property) balance
sheet and related audited (combined for the two resorts constituting the
Leased Property) statement of income and audited statement of cash flow,
in each case with respect to the Leased Property, prepared in accordance
with generally accepted accounting principles consistently applied. The
foregoing financial statements shall be certified by a nationally
recognized certified public accountants, or such other accountants as may
be reasonably acceptable to Landlord. All such financial statements
shall set forth, in comparative form, the figures for the preceding
Fiscal Year. The foregoing annual financial statements shall be
accompanied by an opinion of the foregoing accountants to the effect that
(a) there are no qualifications as to the scope of the audit and (b) the
audit was performed in accordance with generally accepted accounting
principles, consistently applied.
25.2.4 OTHER INFORMATION. Tenant shall promptly furnish Landlord
such other information concerning the business being conducted at the
Leased Property and/or the financial condition of Tenant as Landlord may
reasonably request from time to time during the Term. Unless such
information is normally prepared by Tenant or is customarily prepared by
entities engaged in the same business as Tenant, Landlord shall bear the
expense of preparation of such other information.
25.2.5 STANDARD REPORTING FORMAT. Without limitation of the
reporting requirements described above in this Article 25, it is
understood and agreed that the monthly, quarterly and annual financial
delivery requirements shall include such information with respect to the
operations of the Leased Property as set forth on, and in accordance with
the reporting format provided in, Exhibit H attached hereto.
25.3 ENVIRONMENTAL STATEMENTS. Promptly upon Tenant's learning, or having
reasonable cause to believe, that any Hazardous Material in a quantity
sufficient to require remediation or reporting under applicable law has been
released, or disposed of, in, on or under the Leased Property or any adjacent
property in violation of Environmental Laws, Tenant shall notify Landlord in
writing of the same, which notice shall include (a) a statement, in reasonable
detail, of any enforcement, cleanup, removal, or other governmental or
regulatory action instituted, completed or threatened; (b) a statement, in
reasonable detail, of any claim made or threatened by any Person against Tenant
or the Leased Property relating to damage, contribution, cost recovery,
compensation, loss, or injury resulting from or claim to result from any
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Hazardous Material; and (c) any reports made to any federal, state or local
environmental agency arising out of or in connection with any Hazardous
Material in or removed from the Leased Property, including any complaints,
notices, warnings or asserted violations in connection therewith.
ARTICLE 26
LANDLORD MORTGAGES
26.1 LANDLORD MAY GRANT LIENS. Subject to Section 26.2, (a) without the
consent of Tenant, Landlord may, from time to time, directly or indirectly,
create or otherwise cause to exist any lien, encumbrance or title retention
agreement ("Landlord's Encumbrance") upon the Leased Property, or any portion
thereof or interest therein, whether to secure any borrowing or other means of
financing or refinancing; and (b) this Lease is and at all times shall be
subject and subordinate to any ground or underlying leases, mortgages, trust
deeds or like encumbrances, which may now or hereafter affect the Leased
Property and to all renewals, modifications, consolidations, replacements and
extensions of any such lease, mortgage, trust deed or like encumbrance.
26.2 TENANT'S NON-DISTURBANCE RIGHTS. So long as Tenant shall pay all
Rent as the same becomes due and shall fully comply with all of the terms of
this Lease and fully perform its obligations hereunder, none of Tenant's rights
under this Lease shall be disturbed by the holder of any Landlord's Encumbrance
which is created or otherwise comes into existence after the Commencement Date.
As a condition to the effectiveness of any subordination of this Lease,
Landlord shall provide to Tenant a non-disturbance agreement in a form
reasonably approved by Tenant which provides, among other things, that (a) the
holder of such Landlord's Encumbrance agrees to such non-disturbance and will,
upon a foreclosure in the case of a mortgage or lease termination in the case
of a ground lease, recognize this Lease and Tenant hereunder, and will assume
and perform all of Landlord's obligations set forth in this Lease and Tenant
shall be entitled to all defenses, rights and remedies of Tenant under this
Lease which accrue after the date of such foreclosure or termination and (b)
such holder will make available insurance proceeds for repair or restoration of
the Leased Property in accordance with Article 14 and agrees to the allocation
of condemnation awards set forth in Article 15.
26.3 BREACH BY LANDLORD. It shall be a breach of this Lease if Landlord
shall fail to observe or perform any material term, covenant or condition of
this Lease on its part to be performed and such failure shall continue for a
period of thirty (30) days after notice thereof from Tenant, unless such
failure cannot with due diligence be cured within a period of thirty (30) days,
in which case such failure shall not be deemed to continue if Landlord, within
said thirty (30) day period, proceeds promptly and with due diligence to cure
the failure and diligently completes the curing thereof. The time within which
Landlord shall be obligated to cure any such failure shall also be subject to
extension of time due to the occurrence of any Unavoidable Delay.
Notwithstanding the foregoing, the cure period for Landlord to deliver an
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Officer's Certificate under Section 25.1(b) shall be ten (10) days after
Tenant's notice to Landlord of Landlord's failure to deliver timely the
previously requested Officer's Certificate.
26.4 FACILITY MORTGAGE PROTECTION. Tenant agrees that the holder of any
Landlord Encumbrance shall have no duty, liability or obligation to perform any
of the obligations of Landlord under this Lease (except for such obligations
first occurring after such holder takes title to the Leased Property), but that
in the event of Landlord's default with respect to any such obligation, Tenant
will give any such holder whose name and address have been furnished Tenant in
writing for such purpose notice of Landlord's default and allow such holder
thirty (30) days following receipt of such notice for the cure of said default
before invoking any remedies Tenant may have by reason thereof. Such thirty
(30) day cure period shall be extended if the failure cannot be cured by said
holder within the foregoing thirty (30) day period, so long as said holder
proceeds with due diligence to cure the failure.
ARTICLE 27
MISCELLANEOUS
27.1 LANDLORD'S RIGHT TO INSPECT. Provided that Landlord has given Tenant
not less than five (5) Business Day's prior notice thereof, Tenant shall permit
Landlord and its authorized representatives to inspect the Leased Property
during usual business hours subject to any security, health, safety or
confidentiality requirements of Tenant or any governmental agency or insurance
requirement relating to the Leased Property, or imposed by law or applicable
regulations. At the option of Tenant, Landlord and its authorized
representative shall be accompanied on such inspections by a representative of
Tenant. Landlord agrees to conduct such inspections in a manner designed to
minimize interference with the operations of the Leased Property. Landlord
shall indemnify Tenant for all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever which may be imposed on, incurred by, or asserted
against Tenant by reason of Landlord's inspection pursuant to this Section
27.1.
27.2 NO WAIVER. No failure by Landlord or Tenant to insist upon the
strict performance of any term hereof or to exercise any right, power or remedy
consequent upon a breach thereof, and no acceptance of full or partial payment
of Rent during the continuance of any such breach, shall constitute a waiver of
any such breach or of any such term. To the extent permitted by law, no
waiver of any breach shall affect or alter this Lease, which shall continue in
full force and effect with respect to any other then existing or subsequent
breach.
27.3 REMEDIES CUMULATIVE. To the extent permitted by law, each legal,
equitable or contractual right, power and remedy of Landlord or Tenant now or
hereafter provided either in this Lease or by statute or otherwise shall be
cumulative and concurrent and shall be in addition to every other right, power
and remedy. The exercise or beginning of the exercise by Landlord or Tenant of
any one or more of such rights, powers and remedies shall not preclude the
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simultaneous or subsequent exercise by Landlord or Tenant, as the case may be,
of any or all of such other rights, powers and remedies.
27.4 ACCEPTANCE OF SURRENDER. No surrender to Landlord of this Lease or
of the Leased Property or any part thereof, or of any interest therein, shall
be valid or effective unless agreed to and accepted in writing by Landlord and
no act by Landlord or any representative or agent of Landlord, other than such
a written acceptance by Landlord, shall constitute an acceptance of any such
surrender.
27.5 NO MERGER OF TITLE. There shall be no merger of this Lease or of the
leasehold estate created hereby by reason of the fact that the same Person may
acquire, own or hold, directly or indirectly, (a) this Lease or the leasehold
estate created hereby or any interest in this Lease or such leasehold estate
and (b) the fee estate in the Leased Property.
27.6 CONVEYANCE BY LANDLORD. If Landlord shall convey the Leased Property
in accordance with the terms hereof other than as security for a debt, Landlord
shall, upon the written assumption by the transferee of the Leased Property of
all liabilities and obligations of this Lease arising after the transfer, be
released from all future liabilities and obligations under this Lease arising
or accruing from and after the date of such conveyance or other transfer as to
the Leased Property. All such future liabilities and obligations shall
thereupon be binding upon the new owner.
27.7 QUIET ENJOYMENT. So long as Tenant shall pay all Rent as the same
becomes due and shall fully comply with all of the terms of this Lease and
fully perform its obligations hereunder, Tenant shall peaceably and quietly
have, hold and enjoy the Leased Property for the Term hereof, free of any
claim or other action by Landlord or anyone claiming by, through or under
Landlord, but subject to all liens and encumbrances of record as of the date
hereof or otherwise permitted hereunder, and subject to any Landlord's
Encumbrances.
27.8 NOTICES. All notices, demands, requests, consents, approvals and
other communications hereunder shall be in writing and personally delivered, or
mailed (by registered or certified mail, return receipt requested and postage
prepaid), or sent by nationally recognized overnight courier, in each case
addressed to the respective parties, as provided in the Basic Lease Provisions.
Notices shall be deemed to have been given (i) upon delivery, if personally
delivered, or (ii) upon the third (3rd) Business Day after mailing by
registered or certified mail, or (iii) upon the first (1st) Business Day after
delivery to an overnight courier.
27.9 SURVIVAL OF CLAIMS. Anything contained in this Lease to the contrary
notwithstanding, all claims against, and liabilities of, Tenant or Landlord
arising prior to any date of termination of this Lease shall survive such
termination.
27.10 INVALIDITY OF TERMS OR PROVISIONS. If any term or provision of this
Lease or any application thereof shall be invalid or unenforceable, the
remainder of this Lease and any other application of such term or provision
shall not be affected thereby.
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27.11 PROHIBITION AGAINST USURY. If any late charges provided for in any
provision of this Lease are based upon a rate in excess of the maximum rate
permitted by applicable law, the parties agree that such charges shall be fixed
at the maximum permissible rate.
27.12 AMENDMENTS TO LEASE. Neither this Lease nor any provision hereof
may be changed, waived, discharged or terminated except by an instrument in
writing signed by Landlord or Tenant.
27.13 SUCCESSORS AND ASSIGNS. All the terms and provisions of this Lease
shall be binding upon and inure to the benefit of the parties hereto. All
permitted assignees or subleasees shall be subject to the terms and provisions
of this Lease.
27.14 TITLES. The headings in this Lease are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
27.15 GOVERNING LAW. This Lease shall be governed by and construed in
accordance with the laws of the State.
27.16 MEMORANDUM OF LEASE. Landlord and Tenant shall, concurrently with
the execution and delivery of this Lease, enter into a short form memorandum of
this Lease, in form and substance satisfactory to Landlord and suitable for
recording under the State, in which reference to this Lease, and all options
contained herein, shall be made. Tenant shall pay all costs and expenses of
recording such Memorandum of Lease.
27.17 ATTORNEYS' FEES. In the event of any dispute between the parties
hereto involving the covenants or conditions contained in this Lease or arising
out of the subject matter of this Lease, the prevailing party shall be entitled
to recover against the other party reasonable attorneys' fees and court costs.
27.18 NON-RECOURSE AS TO LANDLORD. Anything contained herein to the
contrary notwithstanding, any claim based on or in respect of any liability of
Landlord under this Lease shall be enforced only against the Leased Property
and Landlord's interest in Property Insurance Proceeds under Article 13 and not
against any other assets, properties or funds of (a) Landlord, (b) any
director, officer, general partner, limited partner, employee or agent of
Landlord, or of any general partner of Landlord, any of their respective
general partners or stockholders (or any legal representative, heir, estate,
successor or assign of any thereof), (c) any predecessor or successor
partnership or corporation (or other entity) of Landlord, or any of their
respective general partners, either directly or through either Landlord or
their respective general partners of any predecessor or successor partnership
or corporation or their stockholders, officers, directors, employees or agents
(or other entity), or (d) any other Person affiliated with any of the
foregoing, or any director, officer, employee or agent of any thereof.
Additionally, Tenant shall have the right to offset against Rent due or
becoming due hereunder the amount of any final judgment for damages obtained by
Tenant against Landlord. The foregoing is not intended to limit the payment of
claims under any liability insurance maintained by Landlord.
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27.19 NO RELATIONSHIP. Landlord shall in no event be construed for any
purpose to be a partner, joint venturer or associate of Tenant or of any
subtenant, operator, concessionaire or licensee of Tenant with respect to the
Leased Property or otherwise in the conduct of their respective businesses.
27.20 SIGNS; RELETTING. If Tenant fails to timely exercise its option to
extend or further extend the Term under Section 2.2 or if an Event of Default
occurs, then Landlord shall have the right during the remainder of the Term
then in effect (i) to advertise the availability of the Leased Property for
sale or reletting and to erect upon the Leased Property signs indicating such
availability and (ii) to show the Leased Property to prospective purchasers or
tenants or their agents at such reasonable times as Landlord may elect.
27.21 RESORT AND GOLF COURSE NAMES. Each of the resort portion and golf
course portion of the Leased Property shall continue to be known by their
current respective trade name(s) and/or trademark(s) or logo(s) which may not
be changed or altered without the prior written consent of Landlord.
27.22 AUDIT DISPUTE RESOLUTION. In the event that Tenant disputes the
result of any Landlord's audit of Tenant's books and records with respect to
the Leased Property or any portion thereof, Tenant shall so notify Landlord in
writing ("Tenant's Dispute Notice") within twenty (20) days of Tenant's receipt
of said audit. During the thirty (30) day period thereafter, the parties shall
endeavor to negotiate a settlement of such dispute, failing which either party
may give written notice (the "Resolution Notice") to the other of its election
to have the dispute settled by an independent third party and shall designate
in its Resolution Notice an accountant from one of the nationally recognized
accounting firms. If no Resolution Notice is given and the parties have not
agreed upon a settlement of the issues raised in Tenant's Dispute Notice within
thirty (30) days of the date Tenant's Dispute Notice is given, then Landlord's
audit shall be deemed final, conclusive and binding on the parties. If the
Resolution Notice is given, the recipient thereof shall, within fifteen (15)
days of the date of the Resolution Notice, designate an accountant from a
different nationally recognized accounting firm. The two designated
accountants shall then designate a third accountant (the "Arbitrator") who
shall review Landlord's audit and the dispute and issue, within forty-five (45)
days of his designation, a decision which shall be conclusive and binding upon
the parties. If the recipient of the Resolution Notice fails to designate an
accountant within said fifteen (15) day period, then the accountant designated
in the Resolution Notice shall be the Arbitrator. If the two designated
accountants fail to select the Arbitrator within thirty (30) days of the date
the second accountant is designated, then either party may petition the head of
the Illinois Association for Certified Public Accountants to designate the
Arbitrator. The cost of the Arbitrator shall be split evenly between the
parties unless the Arbitrator agrees with the conclusion of Landlord's audit,
in which event the cost of the Arbitrator shall be borne exclusively by Tenant.
27.23 STANDARD OF CONSENT/APPROVAL. Unless another standard is expressly
set forth with respect to any particular approval, consent or the like of a
party necessary or required under this Lease, such approval, consent or the
like shall not be unreasonably withheld or
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delayed (being defined as not more than thirty (30) days after request
therefor unless a shorter or longer time is expressly provided in this Lease).
27.24 INTEREST ON PAYMENTS DUE TENANT. If Landlord fails to pay Tenant
any amount due Tenant hereunder, then such amount shall bear interest at the
Overdue Rate from the date such amount is due Tenant until the date paid by
Landlord to Tenant.
ARTICLE 28
RIGHT OF FIRST OFFER
If Landlord desires to sell its interest in the Leased Property or any
portion thereof (the "Sale Parcel") to a third party purchaser at any time
during the Term (other than in connection with a foreclosure or deed in lieu of
foreclosure of, or power of sale under, any Facility Mortgage), then, prior to
selling, or entering into a binding agreement to sell its interest in each Sale
Parcel to such third party purchaser, Landlord shall deliver written notice to
Tenant (herein, "Landlord's Notice") setting forth (i) the Sale Parcel, (ii)
the proposed closing date (which date shall be no less than one hundred twenty
(120) days and no more than one hundred eighty (180) days following the date of
said Landlord's Notice), and (iii) the proposed cash purchase price at which
Landlord desires to sell its interest in the Sale Parcel, and Tenant shall
thereupon have a right of first offer (herein, the "First Offer Right") to
purchase Landlord's interest in the Sale Parcel in accordance with the
following terms and conditions.
28.1 EXERCISE OF FIRST OFFER RIGHT. Upon Tenant's receipt of each such
Landlord's Notice, Tenant shall have a period of thirty (30) days following
receipt of such Landlord's Notice (herein, "Tenant's Election Period") to
exercise Tenant's First Offer Right hereunder. If Tenant so exercises its
First Offer Right, then Landlord's interest in the Sale Parcel shall be sold to
Tenant upon the terms hereinafter set forth. In the event Tenant fails to
notify Landlord, in writing, within Tenant's Election Period, that Tenant has
exercised its First Offer Right hereunder, then Tenant's rights in or to the
Sale Parcel under this Article 28 shall terminate and be null and void, and
Landlord shall have no further obligation under this Article 28 with respect to
that Sale Parcel (and if the Sale Parcel is the entire Leased Property, then
Landlord shall have no further obligations under this Article 28); provided,
however, that in the event Landlord thereafter fails to close on any sale of
its interest in the Sale Parcel within a period of one hundred eighty (180)
days following the expiration of Tenant's Election Period (which 180 day period
may be extended, if Landlord is then under contract to sell its interest in the
Sale Parcel to a third party purchaser, which extension shall continue until
the first to occur of (a) ninety (90) days after the expiration of said one
hundred eighty (180) day period, (b) the termination of such contract and (c)
the closing of the sale thereunder), then Tenant shall thereafter again have a
First Offer Right with respect to Landlord's interest in that Sale Parcel as
provided in this Article 28. Additionally, if the purchase price at which
Landlord subsequently elects to sell said Sale Parcel to a third party is less
than ninety five percent (95%) of the purchase price set forth in Landlord's
Notice, then Tenant's First Offer Right shall be
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reinstated, and, prior to Landlord selling or entering into a binding
agreement to sell, its interest in the Sale Parcel at such lower price,
Landlord shall deliver a new Landlord's Notice to Tenant reflecting the new
offered purchase price, all in accordance with the terms of this Article 28.
28.2 FURTHER DOCUMENTATION. If Tenant has validly exercised its First
Offer Right, then within fifteen (15) Business Days after the request by either
party and determination of the purchase price as described below, Landlord and
Tenant shall enter into a written agreement confirming the terms, conditions
and provisions applicable to the sale of Landlord's interest in the Sale
Parcel, including the proposed closing date and purchase price with respect to
such transaction and the other terms set forth in Landlord's Notice or
otherwise provided for in this Article 28. Each party further agrees to
execute such documents and to take such actions as may be reasonably requested
by the other party in order to effectuate the sale transaction contemplated by
any such Landlord's Notice. If the Sale Parcel does not constitute the entire
Leased Property, then the parties shall also enter into an amendment to this
Lease modifying the Rent in a manner consistent with the allocation of purchase
price under the agreement whereby Landlord acquired the Leased Property from an
Affiliate of Tenant.
28.3 PURCHASE PRICE. The purchase price of Landlord's interest in the
Sale Parcel under this Article 28 shall be the price set forth in Landlord's
Notice, subject to modification as described in the last sentence of Section
28.1.
28.4 MECHANICS OF PURCHASE. If Tenant's First Offer Right hereunder is
exercised, the following closing procedure shall apply:
(a) The closing date for the sale of Landlord's interest in the Sale
Parcel to Tenant shall be on the date set forth in Landlord's Notice.
Payment of the purchase price and the delivery of the deed (the
"Closing") shall be made at the office of Landlord or its attorneys or at
such other place as the parties may agree. At the request of either
party, the Closing shall be effected through a deed and money escrow, the
cost of which escrow shall be borne equally by Landlord and Tenant. The
purchase price shall be payable to Landlord on the Closing Date in cash
or by certified or cashier's check upon delivery of the applicable
conveyance and assignment document(s) to Tenant and performance of
Landlord's other obligations as set forth herein.
(b) The sale of Landlord's interest in the Sale Parcel shall be made
by a deed for the real property, a Bill of Sale for the tangible personal
property, and one or more assignment and assumption document(s)
conveying, transferring and assigning, as the case may be, all of
Landlord's interest in the Sale Parcel to Tenant (or its designee) and
other documentation necessary to transfer Landlord's interest in the Sale
Parcel to Tenant, provided that Tenant shall accept Landlord's interest
in the Sale Parcel subject only to (A) the lien of current general real
estate taxes and special assessments not then due and payable; (B) any
acts or doings caused or suffered by Tenant; and (C) such other liens and
encumbrances which were in effect on the date that Landlord obtained its
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interest in the Sale Parcel or which are otherwise permitted to be
imposed on the Sale Parcel pursuant to the terms hereof (collectively,
the "Permitted Title Exceptions").
(c) Landlord shall deliver or cause to be delivered to Tenant, not
later than twenty (20) days prior to the Closing, as evidence of
Landlord's interest in the Sale Parcel, a commitment for a standard
owner's title insurance policy in the aggregate amount of the purchase
price as provided hereunder. Such title commitment shall name Tenant or
its designee as the proposed insured and show Tenant as holding a
leasehold interest in the Sale Parcel, subject only to (a) the Permitted
Title Exceptions, and (b) other title exceptions pertaining to mortgage
liens of a definite or ascertainable amount which may be removed at
Closing by the payment of money, and which Landlord shall so remove or
cause to be removed concurrently with the Closing.
(d) The payment of all prorations, transfer taxes, title insurance
charges, escrow fees, recording fees and other expenses, fees and charges
shall be made by the party from whom such payment is due in accordance
with statutory requirements or in accordance with the custom at the time
of the Closing for sales of properties (or interests therein) similar to
the Sale Parcel located in the geographical area where the Sale Parcel is
located; provided, however, that there shall be no proration of
Impositions inasmuch as Tenant is fully responsible therefor under this
Lease.
(e) Landlord's interest in the Sale Parcel shall be transferred to
Tenant under this Article 28 in its as-is condition, it being
acknowledged that Landlord has made and shall make no representations
whatsoever as to the condition of said Sale Parcel or any other matters
pertaining thereto.
28.5 REIT QUALIFICATION LIMITATION. Notwithstanding any other provision
of this Lease, Landlord shall not be required to sell or transfer its interest
in the Sale Parcel, or any portion thereof, which is a real estate asset as
defined in Section 856(c)(6)(B), or functionally equivalent successor
provision, of the Code, to Tenant if Landlord's counsel advises Landlord that
such sale or transfer may not be a sale of property described in Section
857(b)(6)(C), or functionally equivalent successor provision, of the Code. If
Landlord determines not to sell such property pursuant to the above sentence,
Tenant's First Offer Right under this Article 28 shall continue in full force
and effect.
28.6 EFFECTIVENESS OF FIRST OFFER RIGHT. The First Offer Right described
in this Article 28 is for the personal benefit of the original named Tenant
hereunder, and such right is non-assignable and may not be exercised by any
other party without the prior written specific consent of Landlord (which
consent may be granted or withheld in Landlord's sole and absolute discretion).
Without limitation of the foregoing, in the event Tenant assigns this Lease or
subleases all or greater than fifty percent (50%) of the area of the Leased
Property, then Tenant's First Offer Right under this Article 28 shall thereupon
terminate and be deemed null and void. Tenant shall have no right to exercise
its First Offer Right under this Article 28, and any such exercise shall (at
Landlord's election) be null and void, if, at the time of such exercise
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or as of the Closing Date, an Event of Default on the part of Tenant shall have
occurred and then be continuing.
[SIGNATURE PAGE TO FOLLOW]
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the
date and year first above written.
LANDLORD:
APGM LIMITED PARTNERSHIP, a Delaware
limited partnership
By: PALMER MANAGEMENT, LLC, a Delaware
limited liability company, its general partner
By: ARNOLD PALMER GOLF MANAGEMENT,
LLC, a Delaware limited liability
company, its managing member
By:
----------------------------------------
Name:
--------------------------------------
Its:
---------------------------------------
TENANT:
[NEW ENTITY], a(n) _________________________________
limited liability company
By:
-------------------------------------------------
Name:
-----------------------------------------------
Its:
------------------------------------------------
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EXHIBIT A
DEFINED TERMS; INTERPRETATION
DEFINED TERMS. For all purposes of this Lease, except as otherwise
expressly provided or unless the context otherwise requires, the terms defined
below have the meanings assigned to them below.
ADDITIONAL CHARGES: As defined in Section 3.4.
ADDITIONAL RENT: As defined in Basic Lease Provisions.
ADJUSTED EBITDA: Subject to the adjustments hereinafter described, the
net income from the Leased Property for the period at issue, as determined in
accordance with generally accepted accounting principles consistently applied,
excluding gains (or losses) from debt restructuring and sales of property and
other ordinary items (other than sales of items of inventory), and without any
reductions for (i) depreciation or amortization, (ii) interest expense, (iii)
federal, state or local income taxes, or (iv) non-property specific
entity-level overhead and administrative expenses. Notwithstanding the
foregoing, it is understood that, in computing net income, (i) Rooms Revenue,
(ii) Golf Course Revenue, and (iii) FB&M Revenue shall be included as part of
total revenue. Further, it is understood that, in computing net income, (a)
Leased Property operating expenses (including maintenance and repair expenses,
real estate taxes and/or insurance expenses), and (b) management fees in an
amount equal to two percent (2%) of the Gross Revenues, shall be treated as an
expense. Neither Capital Expenditures nor payments into the Capital
Expenditure Reserves Account shall be included in calculating Adjusted EBITDA.
For any period that Tenant is unable to operate all of the revenue generating
sources at the Leased Property due to damage or destruction, renovation or
Unavoidable Delays, for purposes of determining Adjusted EBITDA for the period
or periods affected thereby, the revenues and expenses attributable to the
affected portions of the Leased Property shall be deemed to be equal to the
revenues and expenses attributable to such affected portions of the Leased
Property during the same period of the last preceding calendar year for which
such portion of the Leased Property was unaffected by damage or destruction,
renovation or Unavoidable Delays for the entire period in question. Attached
as Schedule 1 to this Exhibit A is an example of the calculation of Adjusted
EBITDA for purposes of this Lease.
AFFILIATE: As applied to any Person, means any other Person directly or
indirectly controlling, controlled by, or under common control with, that
Person.
ANNUAL BASE RENT: As defined in the Basic Lease Provisions.
APPLICABLE PERCENTAGE: As defined in the Basic Lease Provisions.
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AWARD: Means all compensation, sums or anything of value awarded, paid or
received on a total or partial Condemnation.
BASELINE FB&M REVENUE: As defined in the Basic Lease Provisions.
BASELINE GOLF COURSE REVENUE: As defined in the Basic Lease Provisions.
BASELINE ROOMS REVENUE: As defined in the Basic Lease Provisions.
BASELINE YEAR: Means calendar year 199__.
BASE RENT: Means the proportion of the Annual Base Rent payable with
respect to each respective calendar month as described in Exhibit F attached
hereto.
BASE RENT ESCALATION: As defined in the Basic Lease Provisions.
BASIC LEASE PROVISIONS: The provisions so labelled starting on page (1)
of this Lease.
BUSINESS DAY: Each Monday, Tuesday, Wednesday, Thursday and Friday which
is not a day on which national banks in the City of Chicago, are authorized, or
obligated, by law or executive order, to close.
CAPITAL EXPENDITURES: Means all expenditures for capital investment items
at the Leased Property and other items and matters, to the extent such
expenditures are to be "capitalized" under general accepted accounting
principles.
CHANGE OF CONTROL: As defined in Section 24.2.
CODE: The Internal Revenue Code of 1986, as amended.
COMMENCEMENT DATE: As defined in the Basic Lease Provisions.
CONDEMNATION: Means (a) the exercise of any governmental power or eminent
domain, whether by legal proceedings or otherwise, by a Condemnor, and (b) a
voluntary sale or transfer by Landlord to any Condemnor, either under threat of
condemnation or while legal proceedings for condemnation are pending.
CONDEMNATION THRESHOLD: Means, as of any given date, an amount determined
by dividing (i) the aggregate Base Rent and Additional Rent under this Lease
for the most recent 12 full calendar months by (ii) the average dividend yield
for such 12 month period on the common stock then issued and outstanding of
Landlord's general partner.
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CONDEMNOR: Means any public or quasi-public authority, or private
corporation or individual, having the power of condemnation.
CONSUMER PRICE INDEX: Means the Consumer Price Index for Urban Wage
Earners and Clerical Workers, all items, Chicago-Gary-Lake County (IL-IN-WI)
(1982-1984 equals 100) of the United States Department of Labor, Bureau of
Labor Statistics. If the Consumer Price Index is no longer published or
issued, Landlord and Tenant shall mutually agree on a substitute index for
measurement of changes in the cost of living.
CONTROL: Means (including, with correlative meanings, the terms
"controlling" and "controlled by"), as applied to any Person, the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of that Person, whether through the ownership of voting
securities, by contract or otherwise.
DATE OF TAKING: Means the date the Condemnor has the right to possession
of the property being condemned.
ENVIRONMENTAL LAW: Means all applicable statutes, regulations, rules,
ordinances, codes, licenses, permits, orders, demands, approvals,
authorizations and similar items of all governmental agencies, departments,
commissions, boards, bureaus or instrumentalities of the United States, states
and political subdivisions thereof and all applicable judicial, administrative
and regulatory decrees, judgments and orders relating to the protection of
human health or the environment as in effect on the Commencement Date or as
thereafter amended, including but not limited to those pertaining to reporting,
licensing, permitting, investigation, removal and remediation of emissions,
discharges, releases or threatened releases of "Hazardous Materials,"
substances, pollutants, contaminants or hazardous or toxic substances,
materials or wastes whether solid, liquid or gaseous in nature, into the air,
surface water, ground water or land, or relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of substances, pollutants, contaminants or hazardous or toxic
substances, materials, or wastes, whether solid, liquid or gaseous in nature,
including: (x) the Comprehensive Environmental Response, Compensation and
Liability Act (42 U.S.C. Section Section 9601 et seq.), the Resource
Conservation and Recovery Act (42 U.S.C. Section Section 6901 et seq.), the
Clean Air Act (42 U.S.C. Section Section 7401 et seq.), the Federal Water
Pollution Control Act (33 U.S.C. Section 1251 et seq.), the Safe Drinking
Water Act (42 U.S.C. Section Section 300f et seq.), the Toxic Substances
Control Act (15 U.S.C. Section Section 2601 et seq.), the Endangered Species
Act (16 U.S.C. Section Section 1531 et seq.), the Emergency Planning and
Community Right-to-Know Act of 1986 (42 U.S.C. Section Section 11001 et seq.),
and (y) analogous state and local provisions.
EVENT OF DEFAULT: As defined in Section 16.1.
EXISTING SUBTENANT PREMISES: Those portions of the Leased Property which
are currently subject to leases/subleases with each of American Gifts, Inc.,
Fun in the Sun, CPS Hotel Management Services (Shelly's Hair Room) and
Kaliedoscope of Floral Design, Inc., as
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tenant/subtenant, on the date of this Lease and which may in the future be
subject to leases/subleases, concessions, licenses or similar arrangements with
other parties.
EXTENDED TERMS: As defined in the Basic Lease Provisions.
FACILITY: As defined in the Basic Lease Provisions.
FACILITY MORTGAGEE: Means the holder or beneficiary of a Facility
Mortgage, if any, and only to the extent Landlord gives Tenant notice of the
identity and address of such holders or beneficiary.
FB&M REVENUE: The amount by which Gross Revenue exceeds the sum of Room
Revenue, Golf Course Revenue and five percent (5%) of Gross Revenue.
FISCAL QUARTER: The three-month periods (or applicable portions thereof)
in any Fiscal Year from January 1 through March 31, April 1 through June 30,
July 1 through September 30 and October 1 through December 31.
FISCAL YEAR: As defined in the Basic Lease Provisions.
FIXED CHARGE COVERAGE RATIO: Means, for any period, the ratio of (A) the
sum of, without duplication (i) consolidated net income of Tenant excluding any
gains or losses in respect of dispositions plus (ii) provision for taxes plus
(iii) consolidated interest expense (including non-cash interest payments or
accruals and the interest component, if any, of lease obligations of Tenant and
its subsidiaries) plus (iv) all lease and rent obligations (including
percentage rent obligations) of Tenant and its subsidiaries plus (iv) other
non-cash charges deducted from consolidated revenues in determining net income
for such period including depreciation and amortization (including amortization
of intangibles), over (B) the sum of (i) consolidated interest expenses of
Tenant and its subsidiaries for such period plus (ii) all lease and rent
obligations (excluding percentage rent obligations) of Tenant and its
subsidiaries for such period.
FIXTURES: Means all permanently affixed equipment, machinery, fixtures,
and other items of real and/or personal property, including all components
thereof, now and hereafter located in, on or used in connection with, and
permanently affixed to, or incorporated into, the Leased Improvements,
including all furnaces, boilers, heaters, electrical equipment, heating,
plumbing, lighting, ventilating, refrigeration, air and water pollution
control, waste disposal, air-cooling and air-conditioning systems and
apparatus, sprinkler systems and fire and theft protection equipment, all of
which, to the greatest extent permitted by law, are hereby deemed by the
parties hereto to constitute real estate, together with all replacements,
modifications, alterations and additions thereto, but specifically excluding
all items included within the category of Tenant's Personal Property and any
Tenant Improvements.
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FULL REPLACEMENT COST: Means the actual replacement cost thereof from
time to time including increased cost of construction endorsement, less
exclusions provided in the normal fire insurance policy.
GOLF COURSE REVENUE: Means all revenues received (whether by Tenant or
any subtenants, concessionaires, licensees or other party) from or by reason of
the operation of the golf course portion of the Facility, including revenues
from greens fees, fees to reserve a tee time, golf-related guest fees or golf
cart rentals, and surcharges, fees or other charges paid to Tenant relating to
golf tournaments or other group outings or group activities at the Leased
Property (unless the terms under which Tenant is paid by such sponsor do not
comply with Section 24.5, in which event the gross revenues received by such
sponsor for the tournament shall be included in Golf Course Revenue); provided,
however, that Golf Course Revenue shall not include:
(a) Rooms Revenue or Other Items Revenue;
(b) Cash refunds or credits allowed on returns by customers;
(c) The amount of any city, county, state or federal sales or excise
tax on sales, which is both added to the selling price and paid to the
taxing authority by Tenant.
(d) The actual uncollectible amount of any check or bank draft
received by Tenant as payment for services and returned to Tenant from a
customer's bank as being uncollectible, but only after Tenant has made
reasonable efforts to collect on the check;
(e) The actual uncollectible amount of any charge or credit account
incurred by Tenant for the sale of services; provided, however, that the
credit was extended to the customer by Tenant, and that reasonable
efforts to collect said account have been made;
(f) The actual uncollectible amount of any sale of services for
which Tenant accepted a credit card; provided, however, that Tenant has
made reasonable efforts to collect the debt after being notified by the
issuing bank of the invalidity or uncollectability of the charge;
(g) Interest or other charges paid by customers for extension of
credit;
(h) [Intentionally Omitted]
(i) Revenue or proceeds from sales or trade-in of machinery,
vehicles, trade fixtures or personal property used in connection with
Tenant's operation of the Leased Property;
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(j) All revenue received by the tenant/subtenant of the Existing
Subtenant Premises;
(k) Revenue, if any, from receipts in the form of refunds from or
the value of merchandise, supplies or equipment returned to shippers,
suppliers or manufacturers;
(l) Revenue, if any, from the amount of any cash or quantity
discounts received from sellers, suppliers or manufacturers;
(m) The amount of any gratuities paid or given by customers to or
for employees of Tenant;
(n) Receipts from the sales of uniforms or clothing required to be
worn by employees;
(o) Revenues from charging employees for meals served or provided to
employees of Tenant;
(p) Receipts from the sale of waste or scrap materials resulting
from Tenant's operations;
(q) Revenue received from any subtenant, concessionaire or licensee,
to the extent the gross revenue received by such subtenant,
concessionaire or licensee is otherwise included in the definition of
Rooms Revenue or Gross Revenue;
(r) Judgments and awards and insurance and condemnation proceeds;
and
(s) Allowances expressly permitted under the Uniform System of
Accounts for the Lodging Industry.
GROSS REVENUE OR REVENUES: Means all revenues received (whether by Tenant
or any subtenants, concessionnaires, licensees or other party) from or by
reason of the operation of the Leased Property, including, without limitation,
(i) Rooms Revenue, (ii) Golf Course Revenue, and (iii) each of the following
items (herein called "OTHER ITEMS REVENUE"): (1) all revenue generated from
the operation of all restaurants, lounges, bars, snack bars, banquet facilities
and other food and beverage activities located on or at the Facility, including
room service, (2) all revenue generated from the sale of all merchandise, food
and beverages sold on the Leased Property, (3) meeting room rental, (4)
audio/visual commissions, (5) banquet service charges received by Tenant, (6)
banquet sundry revenue, (7) shop rentals; (8) guest laundry/valet, (9) movies,
(10) fax charges, (11) marketing fees, (12) cancellation fees, (13) vending
machine revenue, (14) health club membership fees, pool fees, masseuse
commissions, miniature golf fees and other charges for, and revenue from, the
use of the other amenities on the Leased Property (i.e., tennis courts, bowling
lanes, etc.), (15) telephone charges (including local and
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long distance), and (16) miscellaneous taxable and non-taxable items; provided,
however, that Gross Revenue shall not include the following:
(a) Cash refunds or credits allowed on returns by customers;
(b) The amount of any city, county, state or federal sales or excise
tax on sales, which is both added to the selling price and paid to the
taxing authority by Tenant.
(c) The actual uncollectible amount of any check or bank draft
received by Tenant as payment for goods or services and returned to
Tenant from a customer's bank as being uncollectible, but only after
Tenant has made reasonable efforts to collect on the check;
(d) The actual uncollectible amount of any charge or credit account
incurred by Tenant for the sale of merchandise or services; provided,
however, that the credit was extended to the customer by Tenant, and that
reasonable efforts to collect said account have been made;
(e) The actual uncollectible amount of any sale of merchandise or
services for which Tenant accepted a credit card; provided, however, that
Tenant has made reasonable efforts to collect the debt after being
notified by the issuing bank of the invalidity or uncollectability of the
charge;
(f) Interest or other charges paid by customers for extension of
credit;
(g) All revenue received by the tenant/subtenant of the Existing
Subtenant Premises (so long as all rental paid by said tenant/subtenant
is included in Gross Revenue);
(h) Revenue or proceeds from sales or trade-in of machinery,
vehicles, trade fixtures or personal property used in connection with
Tenant's operation of the Leased Property;
(i) The value of any merchandise, supplies or equipment exchanged or
transferred from or to other locations or businesses of Tenant where such
exchange or transfer is not made for the purpose of avoiding a sale which
would otherwise be made from or at the Leased Property;
(j) Revenue, if any, from receipts in the form of refunds from or
the value of merchandise, supplies or equipment returned to shippers,
suppliers or manufacturers;
(k) Revenue, if any, from the amount of any cash or quantity
discounts received from sellers, suppliers or manufacturers;
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(l) The amount of any gratuities paid or given by customers to or
for employees of Tenant;
(m) Receipts from the sales of uniforms or clothing required to be
worn by employees;
(n) Revenues from charging employees for meals served or provided to
employees of Tenant;
(o) Receipts from the sale of waste or scrap materials resulting
from Tenant's operations;
(p) Revenue received from any subtenant, concessionaire or licensee,
to the extent the gross revenue received by such subtenant,
concessionaire or licensee is otherwise included in the definition of
Rooms Revenue or Golf Course Revenue;
(q) Judgments and awards and insurance and condemnation proceeds;
and
(r) Allowances expressly permitted under the Uniform System of
Accounts for the Lodging Industry.
HAZARDOUS MATERIAL: Means any chemical substance:
(i) the presence of which requires investigation or remediation
under any federal, state or local statute, regulation, ordinance, order,
action or policy, administrative request or civil complaint under any of
the foregoing or under common law;
(ii) which is defined as a "hazardous waste" or "hazardous
substance" under any federal, state or local statute, regulation or
ordinance or amendments thereto as in effect as of the Commencement Date,
or as thereafter amended, including the Comprehensive Environmental
Response, Compensation and Liability Act (42 U.S.C. Section Section 6901
et seq.);
(iii) which is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic, mutagenic or otherwise hazardous and as of the
Commencement Date, or as thereafter amended, is regulated by any
governmental authority, agency, department, commission, board, agency or
instrumentality of the United States, or any state or any political
subdivision thereof having or asserting jurisdiction over the Leased
Property;
(iv) the presence of which on any of the Leased Property causes a
nuisance upon such Leased Property or to adjacent properties or poses a
hazard to the health or safety of persons on or about any of the Leased
Property;
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(v) which, except as contained in building materials, contains
gasoline, diesel fuel or other petroleum hydrocarbons, polychlorinated
biphenyls (PCBs) or friable asbestos or friable asbestos-containing
materials or urea formaldehyde foam insulation; or
(vi) radon gas.
IMPARTIAL APPRAISER: As defined in Section 13.2.
IMPOSITIONS: Means collectively:
(a) all taxes (including all real and personal property, ad valorem,
sales and use, single business, gross receipts, transaction privilege,
rent or similar taxes);
(b) assessments and levies (including all assessments for public
improvements or benefits, whether or not commenced or completed prior to
the date hereof and whether or not to be completed within the Term);
(c) excises;
(d) fees (including license, permit, inspection, authorization and
similar fees); and
(e) all other governmental charges;
in each case whether general or special, ordinary or extraordinary, or foreseen
or unforeseen, of every character in respect of the Leased Property and/or the
Rent (including all interest and penalties thereon due to any failure in
payment by Tenant), which at any time during or in respect of the term hereof
may be assessed or imposed on or in respect of or be a lien upon (i) Landlord
or Landlord's interest in the Leased Property; (ii) the Leased Property or any
part thereof or any rent therefrom or any estate, right, title or interest
therein; or (iii) any operation, use or possession of, or sales from or
activity conducted on or in connection with the Leased Property or the leasing
or use of the Leased Property or any part thereof; provided, however, that
Impositions shall not include:
(aa) any tax based on net income (whether denominated as an income,
franchise, capital stock or other tax) imposed on Landlord or any other
Person other than Tenant;
(bb) any transfer, or net revenue tax of Landlord or any other
Person other than Tenant;
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(cc) any tax imposed with respect to the sale, exchange or other
disposition by Landlord of any Leased Property or the proceeds thereof;
or
(dd) any tax imposed with respect to any principal or interest on
any indebtedness on the Leased Property.
IMPOUND CHARGES: As defined in Article 22.
IMPOUND PAYMENT: As defined in Article 22.
INITIAL BASE RENT: As defined in the Basic Lease Provisions.
INITIAL TERM: As defined in the Basic Lease Provisions.
INSURANCE REQUIREMENTS: All terms of any insurance policy required by
this Lease and all requirements of the issuer of any such policy.
LAND: As defined in Article 1.
LANDLORD: As defined in the preamble.
LANDLORD'S ENCUMBRANCE: As defined in Section 26.1.
LANDLORD'S PERSONAL PROPERTY: As defined in Article 1.
LEASE: As defined in the preamble.
LEASED IMPROVEMENTS: As defined in Article 1.
LEASED PROPERTY: As defined in Article 1.
LEGAL REQUIREMENTS: All federal, state, county, municipal and other
governmental statutes, laws (including the Americans with Disabilities Act and
any Environmental Laws), rules, orders, regulations, ordinances, judgments,
decrees and injunctions affecting either the Leased Property or the
construction, use or alteration thereof, whether now or hereafter enacted and
in force, including any which may (i) require repairs, modifications or
alterations in or to the Leased Property; (ii) in any way adversely affect the
use and enjoyment thereof, and all permits, licenses and authorizations and
regulations relating thereto, and all covenants, agreements, restrictions and
encumbrances contained in any instruments, either of record or known to Tenant
(other than encumbrances created by Landlord without the consent of Tenant and
which are not otherwise permitted under the Lease), at any time in force
affecting the Leased Property; or (iii) require the cleanup or other treatment
of any Hazardous Material.
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LETTER OF CREDIT: Means a letter of credit satisfying the requirements of
Section 21.3.
OFFICER'S CERTIFICATE: A certificate of Tenant signed by a duly
authorized representative of Tenant.
OVERDUE RATE: On any date, a rate equal to 3% above the Prime Rate, but
in no event greater than the maximum rate then permitted under applicable law.
PERSON: Means and includes natural persons, corporations, limited
partnerships, general partnerships, limited liability companies, joint stock
companies, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts, Indian tribes or other organizations,
whether or not legal entities, and governments and agencies and political
subdivisions thereof.
PRIMARY INTENDED USE: Means the operation of a resort, golf course and
convention/banquet complex (including restaurant, lounges, and clubhouse
facilities), consisting of the Facility, and other activities customarily
associated with or incidental to the operation of a resort, golf course and
convention/banquet complex, including operation of a gift/merchandise store,
operation of restaurants and lounges, including liquor sales, sale or rental of
golf-related merchandise at a golf professional's shop, furnishing of lessons
by a golf professional and operation of a driving range.
PRIME RATE: On any date, a rate equal to the annual rate on such date
announced by Citibank, N.A. to be its prime rate or base rate for ninety (90)
day unsecured loans to its corporate borrowers of the highest credit standing
(or, if Citibank, N.A. no longer announces such prime rate or base rate, then
the prime or base rate announced by such other financial institution as
selected by Landlord) but in no event greater than the maximum rate then
permitted under applicable law.
QUARTERLY BASE RENT : Means, with respect to any Fiscal Quarter,
one-fourth of the Annual Base Rent for the Fiscal Year in which such Fiscal
Quarter falls.
REGISTERED OFFERING: As defined in Section 24.2.
RELATED RIGHTS: As defined in Article 1.
RENT: Collectively, the Annual Base Rent, Additional Rent and Additional
Charges.
RENT COVERAGE RATIO: Means, for any period, the ratio of (a) Adjusted
EBITDA for such period to (b) all rental obligations of Tenant (excluding
percentage rent obligations) under this Lease for such period.
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REQUIRED SECURITY DEPOSIT AMOUNT: Means, (A) the amount of $6,167,400.00
for the period commencing on the Commencement Date and continuing through the
end of the first (1st) full Fiscal Quarter occurring during the Term, and (B)
thereafter, the following applicable amounts, determined as of the last day of
each subsequent Fiscal Quarter during the Term: (a) the amount of
$6,167,400.00, in the event that the Rent Coverage Ratio for the twelve (12)
month period ending as of such date of determination is less than 1.2:1; (b)
the amount of $3,083,700.00, in the event that the Rent Coverage Ratio for the
twelve (12) month period ending as of such date of determination is equal to or
greater than 1.2:1, but less than 1.3:1; and (c) zero amount, in the event that
the Rent Coverage Ratio for the twelve (12) month period ending as of such date
of determination is equal to or greater than 1.3:1.
ROOM OR ROOMS REVENUE: Means all revenues received (whether by Tenant or
any subtenants, concessionaires, licensees, or other party) from or by reason
of the leasing or renting of hotel rooms in the resort portion of the Facility,
including all revenue attributable to any packages which include a stay in one
of the hotel rooms; provided, however, that Rooms Revenue shall not include:
(a) Golf Course Revenue or Other Items Revenue;
(b) Cash refunds or credits allowed on returns by customers;
(c) The amount of any city, county, state or federal sales or excise
tax on sales, which is both added to the selling price and paid to the
taxing authority by Tenant.
(d) The actual uncollectible amount of any check or bank draft
received by Tenant as payment for services or room usage and returned to
Tenant from a customer's bank as being uncollectible, but only after
Tenant has made reasonable efforts to collect on the check;
(e) The actual uncollectible amount of any charge or credit account
incurred by Tenant for the sale of services or rooms usage; provided,
however, that the credit was extended to the customer by Tenant, and that
reasonable efforts to collect said account have been made;
(f) The actual uncollectible amount of any sale of services or
charge for room usage for which Tenant accepted a credit card; provided,
however, that Tenant has made reasonable efforts to collect the debt
after being notified by the issuing bank of the invalidity or
uncollectability of the charge;
(g) Interest or other charges paid by customers for extension of
credit;
(h) [Intentionally Omitted]
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(i) Revenue or proceeds from sales or trade-in of machinery,
vehicles, trade fixtures or personal property used in connection with
Tenant's operation of the Leased Property;
(j) All revenue received by the tenant/subtenant of the Existing
Subtenant Premises;
(k) Revenue, if any, from receipts in the form of refunds from or
the value of merchandise, supplies or equipment returned to shippers,
suppliers or manufacturers;
(l) Revenue, if any, from the amount of any cash or quantity
discounts received from sellers, suppliers or manufacturers;
(m) The amount of any gratuities paid or given by customers to or
for employees of Tenant;
(n) Receipts from the sales of uniforms or clothing required to be
worn by employees;
(o) Revenues from charging employees for meals served or provided to
employees of Tenant;
(p) Receipts from the sale of waste or scrap materials resulting
from Tenant's operations;
(q) Revenue received from any subtenant, concessionaire or licensee,
to the extent the gross revenue received by such subtenant,
concessionaire or licensee is otherwise included in the definition of
Golf Course Revenue or Gross Revenue;
(r) Judgments and awards and insurance and condemnation proceeds;
and
(s) Allowances expressly permitted under the Uniform System of
Accounts for the Lodging Industry.
STATE: The State or Commonwealth in which the Leased Property is located.
TANGIBLE NET WORTH: Means the total book value of the assets of Tenant
(excluding goodwill, patents, trademarks, trade names, and organizational
expense) less all liabilities.
TENANT: As defined in the preamble.
TENANT IMPROVEMENT: As defined in Section 10.1.
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TENANT'S PERSONAL PROPERTY: All machinery, equipment, furniture,
furnishings, movable walls or partitions, phone system, computers or trade
fixtures or other personal property, and consumable inventory and supplies,
owned by Tenant and used or useful in Tenant's business on the Leased Property,
including all items of furniture, furnishings, equipment, supplies and
inventory, kitchen fixtures, bar equipment, flatware, lawn mowers and other
gardening tools, tractors and other motorized vehicles and golf carts.
TERM: Collectively, the Initial Term and any Extended Terms, as the
context may require, unless earlier terminated pursuant to the provisions
hereof.
TRADE NAMES AND TRADEMARKS. All of Landlord's rights in and to the trade
names and trademarks currently used in connection with the operation of the
Facility, and any and all derivatives and forms thereof, together with all
other service marks and logos, whether or not registered; specifically
excluding, however, the trade names and trademarks relating to the name
"Montclair Chop House".
UNAVOIDABLE DELAYS: Delays due to strikes, lockouts, inability to procure
materials, power failure, acts of God, governmental restrictions, enemy action,
civil commotion, fire, unavoidable casualty or other causes beyond the control
of the party responsible for performing an obligation hereunder, provided that
lack of funds shall not be deemed a cause beyond the control of either party
hereto unless such lack of funds is caused by the failure of the other party
hereto to perform any obligations of such party, under this Lease.
UNSUITABLE FOR ITS PRIMARY INTENDED USE. A state or condition of the
Facility such that in the good faith judgment of Tenant, reasonably exercised,
the Facility cannot be operated on a commercially practicable basis for its
Primary Intended Use.
WARRANTIES. All guarantees and warranties in effect as of the
Commencement Date with respect to the Leased Property or any portion thereof,
including, without limitation, all guarantees and warranties of contractors,
materialmen, manufacturers, mechanics or suppliers who have been engaged prior
to the date of this Lease to furnish labor, materials, equipment or supplies to
all or any portion of the Leased Property.
INTERPRETATION. The foregoing defined terms include the plural as well as
the singular. "Including" and variants thereof shall be deemed to mean
"including without limitation." All accounting terms not otherwise defined
herein have the meanings assigned to them in accordance with generally accepted
accounting principles as at the time applicable and in accordance with the
Uniform System of Accounts for the Lodging Industry. All references in this
Lease to designated "Articles," "Sections" and other subdivisions are to the
designated Articles, Sections and other subdivisions of this Lease. The words
"herein," "hereof" and "hereunder" and other words of similar import refer to
this Lease as a whole and not to any particular Article, Section or other
subdivision.
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EXHIBIT C
[INTENTIONALLY OMITTED]
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EXHIBIT D
OPERATING STANDARDS
I. HOTEL OPERATING STANDARDS. The resort and convention/banquet
facilities portion of the Leased Property shall be operated in a manner
consistent with (i) the condition thereof as of the Commencement Date and the
condition and level of operation of projects of comparable class and standing
to the Leased Property; (ii) then current market conditions regarding rental
rates and lease terms and conditions with respect to projects of comparable
class and standing to the Leased Property, and (iii) then current prudent
business and management practices applicable to the leasing, operation, repair,
maintenance and management of a project comparable in size, character and
location to the Leased Property, including those concerning compliance with
applicable Legal Requirements.
II. GOLF COURSE OPERATING STANDARDS.
A. Greens, Practice Putting Greens & Nurseries.
1. Mowing - At least five days per week at a height between
3/16" - 5/16" during the growing season; as needed during the off
season.
2. Change cup locations on all greens and practice putting
greens daily during the active season and at least three times
weekly in the off-season. Cup location on all greens will be moved
at least twenty feet from the previous placement. Since the course
is closed from November 15 to March 15 (approximately), there will
be no cup changing during that time period.
3. Repair ball marks, divots, or any other damaged turf areas
on all greens and practice greens daily.
4. Aerify all greens, practice putting greens and nurseries at
least two times per year during the growing season. Aerify problem
areas as often as necessary to produce superior turf quality.
5. Topdress all greens, practice putting greens and nurseries;
a. After any aerification performed with 1/2" or larger
tines;
b. As needed to maintain a smooth putting surface.
D-1
<PAGE> 88
c. Topdressing will be sand or a mix similar to that used
to construct the greens.
6. Light vertical mowing of all greens, practice putting
greens and nurseries shall be performed as appropriate to smooth
and true the putting surfaces. Heavy dethatching shall be
performed only prior to any winter overseeding.
7. Spiking of all greens and practice greens shall be
performed as needed between aerifications to maintain water
infiltration.
8. Fertilization - All greens, practice greens, and nurseries
shall be fertilized with nitrogen, phosphorous, potash, and other
elements as needed to maintain color, growth, health and turgidity
of the turf, without allowing excessive or succulent growth.
The goal of the greens fertilization program is to provide the
best possible putting surface, not to produce the maximum amount of
growth.
9. Fungicides - All greens, practice greens and nurseries
shall receive appropriate fungicide applications to prevent and/or
control fungal disease activity.
10. Weed Control - All greens, practice greens and nurseries
shall be maintained free of undesirable grasses and weeds.
Pre-emergent herbicides shall be used as necessary to prevent
intrusion into the greens of weeds difficult to eradicate such as
goosegrass, crabgrass, etc.
11. Insecticides - All greens, practice greens and nurseries
shall be treated as necessary to prevent or halt insect damage.
B. Tees - All Areas Used for Tee Surface.
1. Mowing - All tees shall be mowed at a height between 3/8" -
5/8" three times per week during growing season and as necessary
during off-season.
2. Topdressing - All worn areas on tees shall be topdressed at
least weekly to fill divots and level tee surface. Topdressing
material shall contain seed of annual or perennial ryegrasses, or
other species as appropriate.
3. [Intentionally Omitted]
D-2
<PAGE> 89
4. Set up - Tee markers and all tee equipment shall be moved
daily for proper play and control of turf wear.
5. Weed Control - Tees shall be kept weed free to an extent of
at least ninety percent (90%) of the area by the proper and timely
application of pre- and/or post-emergent herbicides.
6. [Intentionally Omitted]
7. Aerification - All tees shall be aerified at least every
two months from March through October and as necessary during the
remainder of the year.
8. Fertilization - All tees shall be fertilized with nitrogen,
phosphorous, potash, and other elements as needed to maintain
color, growth, health and turgidity of the turf, without showing
excessive or succulent growth.
C. Fairways - All Areas of Play Except Greens, Tees, Roughs and
Natural Growth Areas.
1. Mowing - All fairways shall be mowed at least three times
per week at a height between 1/2" - 7/8" during the growing season
and as needed for the balance of the year.
2. Aerification - All fairways shall be aerified a minimum of
two times per year during the growing season. Aerification holes
shall not exceed a spacing of eight inches on center or be of a
diameter of less than 1/2".
3. Fertilization - All fairways shall be fertilized with
nitrogen, phosphorous, potash, or other elements as needed to
maintain color, growth, health and turgidity of the turf, without
allowing excessive or succulent growth.
4. [Intentionally Omitted]
5. Weed control - Fairways shall be kept weed free to an
extent of at least ninety percent (90%) of the area by the proper
and timely application of pre- and/or post-emergent herbicides.
D. Roughs. All turfed areas of play except greens, tees, fairways
and natural growth areas.
1. Mowing - All roughs shall be mowed weekly during the
growing season and as necessary during the balance of the year.
D-3
<PAGE> 90
2. Aerification -
a. [Intentionally Omitted]
b. Within wooded play areas - as necessary to establish and/or
maintain turf.
c. Fertilization - Roughs shall be fertilized as necessary to
maintain turf.
d. Weed Control - Shall be performed as necessary to prevent
seed formation and to allow proper play.
E. Natural Growth Areas. All areas in which native or introduced
vegetation is allowed to survive without routine mowing, cultivating,
irrigation or other routine maintenance procedures. May be out of play areas,
steep slopes, barriers, windbreaks, nature trails, etc. Such areas are to be
maintained free of excessive trash, noxious weeds and vertebrate pests, and in
such manner as to comply fully with fire department regulations or other such
regulations as may apply. Such natural growth areas may be improved and may
from time to time be subjected to irrigation, cultivation, pruning, or other
such practices as may be necessary or desirable to establish or maintain them.
F. Planters - All Areas Planted with Ornamental Plants, Not Intended
for Golf Play and Having a Definable Border.
1. Clean-up - All planters shall be maintained free of trash and
debris.
2. Weed Control - All planters shall be maintained free of weeds by
mechanical and/or chemical means.
3. Trimming - The plant material (trees, shrubbery and ground
covers) in planters shall be trimmed for protection from wind, insect
damage, and for appearance.
G. Trees - All Trees Within the Property Lines of the Golf Course.
1. Stakes - Trees shall be staked as necessary until of sufficient
size to stand unassisted. Stakes shall be removed as soon as possible.
2. Pruning - All trees shall be properly pruned for protection from
wind and pests as well as for appearance and safety.
D-4
<PAGE> 91
3. Irrigation - All trees shall be irrigated to provide adequate
moisture for normal growth.
4. Mowing - Large area mowers shall not be used within one foot of the
trunk of any tree.
5. Removal and Replacement - When appropriate, all dead trees, for
whatever cause, shall be removed. Any necessary replacement shall be with
a tree of appropriate type and size.
H. Irrigation - All Equipment Required to Irrigate all Areas of the
Property.
1. Repair or replace all heads, valves, controllers, wiring, and pipe
as needed to maintain the proper operation of the entire golf course
irrigation system (including greens, tees, fairways, planters, flower
beds, etc.) on an on-going basis
2. The golf course shall be irrigated as necessary to support the
proper growth of golf turf and associated landscaping.
I. Fences - All Fences and Walls, Block, Chain Link, or Barbed Wire, etc.
on or Within Boundaries of the Property.
1. Repair all broken or damaged fencing as necessary.
2. Repair or replace as necessary all fences, gates and locking
devices needed for the protection of the golf course or equipment.
J. Clubhouse and Structures - All Structures Within the Boundaries of the
Golf Course.
1. Course Restrooms - All course restrooms shall be maintained daily
to provide clean and sanitary facilities for the users and employees of
the course. Soap, towels, toilet paper, etc. shall be provided in
adequate quantity at all times. Portable facilities shall be maintained
similarly.
2. All buildings and structures shall be maintained in good repair at
all times. Surrounding areas shall be maintained free of weeds, brush,
disorganized junk or broken-down equipment, trash piles, etc. Interior
areas shall be clean and neatly organized, safe and sanitary for customers
and employees. Painting, rodent and insect control, and landscaping shall
be performed as necessary. "Housekeeping" duties shall be assigned to all
maintenance crew members and shall be performed daily.
D-5
<PAGE> 92
3. Cart Paths - Maintain all cart paths in a safe and clean
condition and repair promptly as needed.
4. The golf course superintendent is responsible for all facilities
and structures maintenance not within the clubhouse area proper.
K. Edging. All sidewalks, patios and concrete cart paths must be kept
edged. Edging around valve boxes, meter boxes, backflow preventers, etc. shall
be done as needed to insure that there is no obstruction of play or maintenance
from growth around these items.
L. Sand Traps. All sand traps shall be edged as necessary to maintain an
appropriate lip, raked daily and filled with fresh sand as needed to maintain
a minimum 1 1/2" depth on slopes and 4" in the bottom. Replacement sand will be
of a dust-free type, suitable for trap use.
M. Landscaped Areas. The various planting areas throughout the course
shall be cultivated and weeded on a regular basis.
N. Trash and Refuse. Shall be collected daily and removed from the
property in a safe, sanitary and lawful manner as necessary to minimize or
eliminate problems from refuse odors, insects, etc. Approved trash receptacles
shall be conveniently stationed on tees and other appropriate areas and emptied
daily.
O. Vertebrate Pest Control. Shall be routinely performed throughout the
property on an on-going basis, in such a manner that vertebrate pest
populations are steadily reduced and eventually eliminated.
P. Aquatic. All lakes, ponds and streams shall be maintained in a safe
and sanitary manner and in good appearance.
Q. Soil and Water. Analysis will be performed yearly by an approved
professional laboratory.
D-6
<PAGE> 93
EXHIBIT E
[INTENTIONALLY OMITTED]
E-1
<PAGE> 94
EXHIBIT F
ANNUAL BASE RENT SCHEDULE
<TABLE>
<CAPTION>
MONTH PROPORTION
----- ----------
<S> <C>
January 1.62%
February 1.62%
March 2.43%
April 9.74%
May 11.80%
June 11.80%
July 11.80%
August 11.80%
September 11.80%
October 11.80%
November 8.11%
December 5.68%
</TABLE>
F-1
<PAGE> 95
EXHIBIT G
BASELINE YEAR REVENUE SCHEDULE
<TABLE>
<CAPTION>
========================================================================================================
PERIOD DURING BASELINE BASELINE ROOMS REVENUE BASELINE GOLF COURSE BASELINE FB&M
YEAR REVENUE REVENUE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
January 1 through March
31 $1,763,763.00 $28,139.00 $1,688,204.00
- --------------------------------------------------------------------------------------------------------
April 1 through June 30 $3,490,539.00 $1,420,589.00 $4,002,768.00
- --------------------------------------------------------------------------------------------------------
July 1 through September
30 $3,795,094.00 $2,177,206.00 $4,850,686.00
- --------------------------------------------------------------------------------------------------------
October 1 through
December 31 $2,724,936.00 $206,601.00 $3,025,171.00
========================================================================================================
</TABLE>
G-1
<PAGE> 1
EXHIBIT 10.19
RIGHT OF FIRST REFUSAL/OFFER AGREEMENT
THIS RIGHT OF FIRST REFUSAL/OFFER AGREEMENT ("AGREEMENT") is made
this _____ day of , 1998, by and among PRESIDIO GOLF TRUST, a Maryland real
estate investment trust (the "REIT"), PRESIDIO GOLF LIMITED PARTNERSHIP, a
Delaware limited partnership (the "OPERATING PARTNERSHIP") (either or both of
the REIT and the Operating Partnership are sometimes defined herein as the
"COMPANY"), and ARNOLD PALMER GOLF MANAGEMENT LLC, a Delaware limited liability
company ("PALMER MANAGEMENT").
R E C I T A L S:
A. The Operating Partnership owns and develops golf courses throughout
the United States.
B. The REIT is a self-administered real estate investment trust and the
general partner of the Operating Partnership.
C. Palmer Management is one of the limited partners of the Operating
Partnership.
D. Palmer Management desires to sell and grant to the Company, and the
Company desires to purchase and acquire from Palmer Management, the rights of
first refusal and rights of first offer more specifically set forth below, upon
and subject to the terms and conditions hereinafter set forth.
A G R E E M E N T S:
NOW, THEREFORE, in consideration of the foregoing premises, and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Company and Palmer Management hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS. As used herein, the following terms shall have the
respective meanings indicated below:
(a) ACQUISITION NOTICE. As defined in Section 2.1(a) of this
Agreement.
<PAGE> 2
(b) AGREEMENT. This Right of First Refusal/Offer Agreement,
including the Exhibits attached hereto which are incorporated herein
and made a part hereof.
(c) APPROVED LESSEE. As defined in Section 2.1(e).
(d) COMPANY. As defined in the introductory paragraph of this
Agreement.
(e) CONTROLLED VENTURE. Any partnership, corporation, limited
liability company or other entity hereafter established by Palmer
Management (i) in which Palmer Management has a majority equity
ownership interest, and (ii) which is under the management control of
Palmer Management. For purposes of this definition, "management
control" of a venture means the power, directly or indirectly, to
direct or cause the direction of management and policies of such
venture, whether through ownership of voting securities, by contract or
otherwise.
(f) DENIGER. David B. Deniger, an individual.
(g) GOLF COURSE ACQUISITION PROPERTY. As defined in Section
2.1(a) of this Agreement.
(h) GOLF COURSE LEASE (ACQUISITIONS). As defined in Section
2.1(e) of this Agreement.
(i) GOLF COURSE LEASE (SALE). As defined in Section 3.1(d) of
this Agreement.
(j) GOLF COURSE SALE PROPERTY. As defined in Section 3.1(a) of
this Agreement.
(k) GROUND LEASE. Either (i) a lease with a term in excess of
twenty-five (25) years in length, inclusive of extension option
periods, (ii) a lease which is characterized as a "capital" lease
under generally accepted accounting principles, or (iii) a lease which
contains an option to purchase in favor of the lessee thereunder.
(l) HAWORTH. George T. Haworth, an individual.
(m) NANULA. Peter J. Nanula, an individual.
(n) OFFER PERIOD. Any period during the Term of this Agreement
when any one of Nanula, Haworth, Deniger or any Principal of
Olympus holds the position of both (1) an executive officer or trustee
of the REIT and (2) an executive officer, director, member or
management board member of Palmer Management.
(o) OLYMPUS. Olympus Real Estate Corporation.
2
<PAGE> 3
(p) OPERATING PARTNERSHIP. As defined in the introductory
paragraph of this Agreement.
(q) OTHER OWNERS. As defined in Section 2.1(a) of this
Agreement.
(r) PALMER MANAGEMENT. As defined in the introductory
paragraph of this Agreement.
(s) PRINCIPAL. Any person holding the position of (i)
chairman, (ii) trustee, (iii) general partner, (iv) director, (v)
president, (vi) vice president in charge of a principal business unit,
division or function, or (vii) any other officer who performs a policy
making function.
(t) REIT. As defined in the introductory paragraph of this
Agreement.
(u) RIGHT OF FIRST REFUSAL (ACQUISITIONS). As defined in
Article 2 of this Agreement.
(v) RIGHT OF FIRST OFFER (SALES). As defined in Article 3 of
this Agreement.
(w) TERM. The period commencing with the date hereof and
continuing until the fifteenth (15th) anniversary of the date hereof.
(x) SALE NOTICE. As defined in Section 3.1(a) of this
Agreement.
ARTICLE 2
RIGHT OF FIRST REFUSAL WITH
RESPECT TO PROSPECTIVE ACQUISITIONS
Palmer Management hereby irrevocably grants to the Company the
exclusive right of first refusal ("RIGHT OF FIRST REFUSAL (ACQUISITIONS)") to
purchase or participate in the purchase of any completed or substantially
completed golf course property that Palmer Management or any Controlled Venture
proposes to acquire, upon the terms and conditions hereinafter set forth in this
Article 2.
2.1 RIGHT OF FIRST REFUSAL (ACQUISITIONS).
(a) During the Offer Period, at any and each time that Palmer
Management reaches substantial agreement with a prospective seller
respecting the basic business terms of a prospective acquisition
(whether by Palmer Management individually or by a Controlled Venture)
of a completed or substantially completed golf course ("GOLF COURSE
ACQUISITION PROPERTY"), then Palmer Management shall promptly notify
the Company of the same in
3
<PAGE> 4
writing ("ACQUISITION NOTICE"). The Acquisition Notice shall set forth
(i) the identity and location of the Golf Course Acquisition Property,
(ii) the proposed closing date, (iii) the purchase price, (iv) if the
proposed acquisition is to be made through a Controlled Venture, all of
the material terms of said Controlled Venture governing the
relationship between Palmer Management and all other non-affiliated
equity owners (herein, the "OTHER OWNERS") in said venture, and (v) all
other economic terms upon which Palmer Management (or the Controlled
Venture, as applicable) is prepared to acquire such Golf Course
Acquisition Property from the prospective seller. For purposes hereof,
a transaction structured as a newly created Ground Lease of a Golf
Course Acquisition Property, or a transaction structured as an
acquisition of an existing Ground Lease of a Golf Course Acquisition
Property, shall in each case be deemed an "acquisition" under this
Article 2.
(b) Palmer Management agrees that during its negotiation of
the basic business terms of a prospective acquisition of a Golf Course
Acquisition Property, whether on its own behalf or on behalf of a
Controlled Venture, if Palmer Management reasonably believes that such
Golf Course Acquisition Property meets the then investment criteria of
the Company, Palmer Management shall disclose to the prospective seller
the existence of the Right of First Refusal (Acquisitions) described in
this Article 2 and shall utilize good faith efforts to have the
prospective seller agree that the Company may negotiate and/or acquire
the Golf Course Acquisition Property in lieu of Palmer Management (or,
in the case of a Controlled Venture, that the Company may be
substituted, in lieu of Palmer Management, as the controlling equity
owner in a comparable venture arrangement with the Other Owners, and
that said venture may thereafter negotiate and/or acquire the Golf
Course Acquisition Property in lieu of the Controlled Venture).
(c) The Company's Right of First Refusal (Acquisitions) shall
be exercisable by written notice from the Company to Palmer Management
given not more than ten (10) business days after its receipt of the
Acquisition Notice, time being of the essence. If the Company so
exercises its Right of First Refusal (Acquisitions) with respect to the
Golf Course Acquisition Property specified in an Acquisition Notice,
then (i) if the proposed acquisition was directly by Palmer Management,
the Company shall thereafter have the right to negotiate the final
terms of the acquisition directly with the prospective seller thereof
and acquire the Golf Course Acquisition Property directly from same,
and (ii) if the proposed acquisition was through a Controlled Venture,
(A) Palmer Management shall cause the Other Owners to cooperate with
the Company in forming a new joint venture between the Company and the
Other Owners, upon the same terms as those governing the Controlled
Venture (as identified in the Acquisition Notice delivered to the
Company), and (B) the Company shall have the right to negotiate, on
behalf of the newly formed venture, the final terms of the acquisition
directly with the prospective seller and have the new venture acquire
the Golf Course Acquisition Property directly from same, all pursuant
to terms which are substantially similar to those contemplated by the
Acquisition Notice, and in each case subject to the terms of Section
2.1(e) below. Subject to the provisions of the immediately following
sentence, if the Company fails to notify Palmer Management, in
writing, within
4
<PAGE> 5
the prescribed ten (10) business day period that it has exercised its
Right of First Refusal (Acquisitions) relative to the Golf Course
Acquisition Property specified in an Acquisition Notice, the Company's
rights under this Article 2 as to such Golf Course Acquisition Property
shall terminate, and Palmer Management (or the Controlled Venture, as
applicable) shall have no further obligations under this Article 2 with
respect to such Golf Course Acquisition Property. If the Company fails
to exercise its option rights under this Section 2.1 within the
prescribed 10-business day period, and if thereafter during the Offer
Period, Palmer Management substantially modifies the basic business
terms of the prospective acquisition of a Golf Course Acquisition
Property from those business terms which were theretofore set forth in
the applicable Acquisition Notice, then Palmer Management shall
thereafter deliver a new Acquisition Notice to the Company, and the
Company shall thereafter again have a Right of First Refusal
(Acquisitions) with respect to the acquisition of the Golf Course
Acquisition Property specified in the new Acquisition Notice, all in
accordance with the terms hereof. For purposes of the foregoing, it is
understood that a purchase price which is less than ninety percent
(90%) of the purchase price set forth in an Acquisition Notice shall be
deemed a "substantial modification" of the basic terms of such
Acquisition Notice.
(d) If the Company has validly exercised its right to
negotiate for and acquire a Golf Course Acquisition Property specified
in an Acquisition Notice and thereafter either (i) does not, either
directly or through a new venture as described above, consummate the
acquisition of such Golf Course Acquisition Property within one hundred
twenty (120) days of the date of the applicable Acquisition Notice, (or
such longer period for closing as was set forth in the applicable
Acquisition Notice), or (ii) notifies Palmer Management of its intent
not to acquire, either directly or through a new venture as described
above, such Golf Course Acquisition Property, then Palmer Management
(or the Controlled Venture, as applicable) shall thereafter have the
right to acquire such Golf Course Acquisition Property free and clear
of any rights of the Company in same.
(e) The Company hereby agrees that upon consummation of its
acquisition of a Golf Course Acquisition Property specified in an
Acquisition Notice, either directly or through a new venture as
described above, it shall lease or sublease, as applicable ("GOLF
COURSE LEASE (ACQUISITION)"), such Golf Course Acquisition Property to
Palmer Management, or any wholly owned affiliate thereof or any other
affiliate of Palmer Management as may be designated by Palmer
Management and as may be reasonably acceptable to the Company
(collectively, an "APPROVED LESSEE"), upon the following terms and
conditions.
(i) The economic terms of such Golf Course Lease
(Acquisition) shall conform with the terms listed on
Exhibit A attached hereto and made a part hereof,
and the balance of the Golf Course Lease
(Acquisition) provisions shall be substantially
similar to the provisions of that certain Lease dated
concurrently
5
<PAGE> 6
herewith by and between the Operating Partnership, as
lessor, and APGM Lessee LLC, as lessee, a copy of
which is attached hereto as Exhibit B.
(ii) If the Company exercises its option under this
Article 2 with respect to a Golf Course Acquisition
Property and if, within ten (10) business days
following delivery of the date of such exercise, the
Company and Palmer Management have failed to agree
upon the economic terms of the applicable Golf Course
Lease (Acquisition) within the parameters described
in Exhibit A, then the Company shall continue to have
the right to pursue the acquisition of said Golf
Course Acquisition Property as provided in this
Article 2, either directly or through a new venture
as described above, provided that the Company shall
thereafter pay Palmer Management, at the closing of
said acquisition, a finder's fee equal to the "Market
Brokerage Fee Rate" (as defined in Section
2.1(e)(iii) below) multiplied by the gross
acquisition price payable at closing for such Golf
Course Acquisition Property.
(iii) As used in this Agreement, the term "Market Brokerage
Fee Rate" shall mean the then market brokerage
commission rate reasonably determined by Palmer
Management to be the rate which, when multiplied by
the gross acquisition price, establishes the market
brokerage commissions for third party brokers in
connection with the sale/purchase of golf course
properties comparable to the Golf Course Acquisition
Property (taking into consideration the quality and
location of the applicable golf course and other
comparable factors). Bona fide written proposals for
brokerage services received by Palmer Management from
third party brokers relative to the sale of
comparable golf course properties may be used by
Palmer Management as an indication of the Market
Brokerage Fee Rate. If the Company disagrees with
Palmer Management's determination of the Market
Brokerage Fee Rate (which the Company must do, if at
all, in writing setting forth the Company's
determination of the Market Brokerage Fee Rate within
five (5) business days after notice of Palmer
Management's determination thereof) and if the
parties cannot agree on the Market Brokerage Fee Rate
within ten (10) business days thereafter, then such
dispute shall be determined by arbitration as
hereinafter provided. Palmer Management and the
Company will each select an unaffiliated arbitrator
who shall be a person that has been actively engaged
in the brokerage industry relative to the sale of
golf course properties for a period of not less than
two (2) years immediately preceding his or her
appointment. Palmer Management and the Company shall
each simultaneously submit to the arbitrators a
determination of Market Brokerage Fee Rate (if no
submittal is made, the parties shall be deemed to
have submitted their original determinations). The
arbitrators shall be directed as promptly as possible
to select from the two determinations submitted by
Palmer Management and the Company the one that is
closer to the Market
6
<PAGE> 7
Brokerage Fee Rate as determined by the arbitrators,
and said selection shall thereafter be deemed the
Market Brokerage Fee Rate. If the two arbitrators so
appointed fail to agree as to which of the two
determinations submitted by Palmer Management and the
Company is closest to the actual Market Brokerage Fee
Rate, the two arbitrators shall appoint a third
arbitrator, using the criteria described above, to
decide upon which of the two determinations submitted
is closest to the actual Market Brokerage Fee Rate.
The out-of-pocket costs of the foregoing arbitration
process shall be borne by the party whose Market
Brokerage Fee Rate submittal was not selected. If no
determination is made prior to the date of closing
for the acquisition of said Golf Course Acquisition
Property, then Palmer Management's determination
shall be used until the arbitration is completed. If
the Company's determination is later selected, Palmer
Management shall refund any overpayments to the
Company.
ARTICLE 3
RIGHT OF FIRST OFFER WITH RESPECT TO PROSPECTIVE SALES
Palmer Management hereby irrevocably grants to the Company the
exclusive right of first offer ("RIGHT OF FIRST OFFER (SALES)") to purchase any
completed or substantially completed Golf Course Acquisition Property which is
then owned by Palmer Management or any Controlled Venture, upon the terms and
conditions hereinafter set forth in this Article 3.
3.1 RIGHT OF FIRST OFFER (SALES).
(a) During the Offer Period, at any and each time that Palmer
Management (including any Controlled Venture) desires to sell a
completed or substantially completed golf course ("GOLF COURSE SALE
PROPERTY") to a prospective third party purchaser thereof, then, prior
to selling, or entering into a binding agreement to sell, such Golf
Course Sale Property, Palmer Management shall notify the Company of the
same in writing ("SALE NOTICE"). The Sale Notice shall set forth (i)
the identity and location of the Golf Course Sale Property, (ii) the
proposed closing date, (iii) the sale price, (iv) the lease-back terms
(if applicable) and (v) all other economic terms upon which Palmer
Management (or the applicable Controlled Venture) is prepared to sell
such Golf Course Sale Property to the prospective purchaser. For
purposes hereof, a newly created Ground Lease of a Golf Course Sale
Property, or a transfer of an existing Ground Lease of a Golf Course
Sale Property, shall in each case be deemed a "sale" under this Article
3.
(b) The Company's Right of First Offer (Sales) shall be
exercisable by written notice from the Company to Palmer Management
given not more than ten (10) business days after its receipt of the
Sale Notice, time being of the essence. If the Company so exercises its
Right of First Offer (Sales) with respect to the Golf Course Sale
Property specified in a
7
<PAGE> 8
Sale Notice, such Golf Course Sale Property shall be sold to the
Company substantially as contemplated by the Sale Notice, with such
additional terms relating to such sale transaction as are described in
Section 3.1(c) below. Subject to the provisions of the immediately
following two sentences, if the Company fails to notify Palmer
Management, in writing, within the prescribed ten (10) business day
period that it intends to acquire the Golf Course Sale Property
specified in a Sale Notice, the Company's rights under this Article 3
as to such Golf Course Sale Property shall terminate, and Palmer
Management (or the Controlled Venture, as applicable) shall have no
further obligations under this Article 3 with respect to such Golf
Course Sale Property. In the event Palmer Management (or the applicable
Controlled Venture) fails to close on the sale of the Golf Course Sale
Property specified in a Sale Notice to any third party purchaser
thereof within one hundred fifty (150) days of the date of the
applicable Sale Notice (as such period may be extended, if Palmer
Management is then under contract to sell such Golf Course Sale
Property to a third party purchaser, which extension shall continue
until the termination of such contract or the closing of the sale
thereunder, whichever first occurs), then the Company shall thereafter
again have a Right of First Offer (Sales) with respect to the Golf
Course Sale Property specified in the Sale Notice, all in accordance
with the terms hereof. Further, if during the Offer Period, Palmer
Management (or the applicable Controlled Venture) substantially
modifies the basic business terms of a prospective sale of a Golf
Course Sale Property from those business terms which were theretofore
set forth in a Sale Notice, then in such case, prior to Palmer
Management (or the applicable Controlled Venture) selling or entering
into a binding agreement to sell the Golf Course Sale Property upon
such modified terms, Palmer Management shall deliver a new Sale Notice
to the Company reflecting the modified business terms, and the Company
shall thereafter again have a Right of First Offer (Sales) with respect
to the sale of the Golf Course Sale Property specified in the new Sale
Notice, all in accordance with the terms hereof. For purposes of the
foregoing, it is understood that (1) a purchase price which is less
than ninety percent (90%) of the purchase price set forth in a Sale
Notice, or (2) if applicable, fixed rentals which when discounted to
present value at a seven percent (7%) discount factor, are greater than
one hundred ten percent (110%) of the fixed rentals set forth in any
lease-back provisions of a Sale Notice (as likewise discounted to
present value) shall, in each case, be deemed a "substantial
modification" of the basic business terms set forth in the Sale Notice.
(c) If the Company has validly exercised its right to acquire
a Golf Course Sale Property specified in a Sale Notice, then within
fifteen (15) business days after the request by either party, Palmer
Management (or the applicable Controlled Venture) and the Company shall
enter into a written agreement confirming the terms, conditions and
provisions applicable to the sale of the Golf Course Sale Property
specified in the Sale Notice. Such written agreement shall contain
substantially identical terms as those specified in the applicable Sale
Notice and shall be otherwise substantially similar to that certain
Contribution Agreement heretofore entered into by and between Palmer
Management, as seller, and the Operating Partnership (formerly known as
APGM Limited Partnership), as buyer, a copy of which is attached hereto
as Exhibit C.
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(d) If lease-back provisions are included as part of the terms
set forth in a Sale Notice, and if the Company has exercised its option
under this Section 3.1, then the Company hereby agrees that upon
consummation of its acquisition of a Golf Course Sale Property
specified in a Sale Notice, it shall lease or sublease, as applicable
("GOLF COURSE LEASE (SALE)"), such Golf Course Sale Property to Palmer
Management or any other Approved Lessee designated by Palmer
Management. The economic terms of such Golf Course Lease (Sale) shall
conform with the terms set forth in the Sale Notice and the balance of
the Golf Course Lease (Sale) provisions shall be substantially similar
to the provisions set forth in the Lease attached hereto as Exhibit B.
ARTICLE 4
MISCELLANEOUS PROVISIONS
4.1 FURTHER ASSURANCES. Each party to this Agreement agrees that at any
time and from time to time after the date hereof it will, at its own sole cost
and expense, immediately following the reasonable request of any other party
hereto, promptly execute, acknowledge (if necessary) and deliver or cause to be
promptly executed, acknowledged (if necessary) and delivered, such agreements,
certificates, statements, instruments, documents and directions, and promptly
take, or promptly cause to be taken, such other and further steps and actions,
in either case as may be required by law or as reasonably shall be deemed
necessary by such other party in order to more fully effect, evidence or carry
out the intent and purpose of this Agreement or as shall be essential to satisfy
the requirements of governmental agencies in order to carry out the intent of
this Agreement.
4.2 WAIVER. Except as otherwise may be expressly provided to the
contrary herein: (a) no failure to exercise or delay in exercising by any party
hereto of any right or remedy consequent upon a breach, and no failure to insist
upon or delay in insisting upon the strict performance, of any provision of this
Agreement shall constitute or operate as a waiver thereof or of any other right
or remedy or of any other provision hereof or of any subsequent breach of the
same or any other provision hereof, and such party shall retain all rights and
remedies provided for herein or now or hereafter existing at law or in equity
with respect to the same or any subsequent act or omission which constitutes
such breach or nonperformance; and (b) no partial exercise of any right or
remedy shall preclude any other or further exercise thereof or the exercise of
any other right or remedy provided for herein or now or hereafter existing at
law, in equity or otherwise. A waiver in one or more instances of any provision
hereof or breach thereof shall apply to the particular instance and
at the particular time only, and no such waiver shall be deemed a continuing
waiver. No provision of this Agreement to be performed or complied with by any
party, and no breach thereof, shall be waived, altered or terminated except by a
written instrument executed by the other parties hereto. No course of dealing
between the parties shall operate as a waiver of any of their respective rights,
powers or privileges under this Agreement.
4.3 TIME PERIODS. All time periods provided for herein shall refer to
calendar days; provided, however, that if the time of the performance of any
obligation under this Agreement expires
9
<PAGE> 10
on a Saturday, Sunday or legal holiday, the time for performance shall be
extended to the next succeeding day which is not a Saturday, Sunday or legal
holiday. As used herein, "business day" shall mean any day (other than a day
which is a Saturday, Sunday or legal holiday in the State of California or the
State of Texas) on which banks are open for business in San Francisco,
California and Dallas, Texas.
4.4 CAPTIONS. The captions of sections herein are inserted only for
convenience and are in no way to be construed as a part of this Agreement or as
a limitation of the scope of the particular sections to which they refer.
4.5 TIME. Time shall be of the essence in all things pertaining to the
performance of this Agreement.
4.6 ATTORNEYS' FEES. In the event any party hereto finds it necessary
to employ legal counsel or to commence litigation or other proceedings against
any other party hereto with respect to or on account of this Agreement, the
prevailing party shall be entitled to recover from the non-pre vailing party all
fees, charges, out-of-pocket costs and expenses (including, without limitation,
reasonable attorneys' fees and disbursements) incurred by the prevailing party
in connection with actual or contemplated enforcement of its rights and remedies
hereunder (which costs, expenses, fees and charges shall be included in the
amount of any judgment rendered).
4.7 AUTHORITY. The parties hereto each warrant and represent that they
have the power and authority to enter into this Agreement in the names, titles,
and capacities herein stated and on behalf of any entities, persons, estates or
firms represented or purported to be represented by such parties, and that all
formal requirements necessary or required by any municipal, state and federal
rules, regulations, orders, decrees, ordinances and laws in order for them to
enter into this Agreement have been fully satisfied.
4.8 SUCCESSORS AND ASSIGNS. Subject to the provisions of Section 4.12
hereof, the terms and provisions of this Agreement shall be binding upon and
inure to, extend to, and be for the benefit of the assigns, successors and legal
representatives of the parties hereto.
4.9 ENTIRE AGREEMENT. This instrument shall represent the entire
agreement between the parties with respect to the rights of first refusal
referenced herein and it may not be changed except by written amendment duly
executed by all of the parties hereto.
4.10 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original as against any party
whose signature appears thereon, and all of which together shall constitute one
and the same instrument. This Agreement shall become binding upon the parties
hereto when one or more counterparts hereof, individually or taken together,
shall bear the signatures of all parties hereto.
10
<PAGE> 11
4.11 NOTICES. Any notice, demand or other communication which any party
may desire or may be required to give to any other party shall be in writing and
shall be deemed given (i) if and when personally delivered, (ii) on the first
(1st) business day after being sent by a nationally recognized overnight courier
addressed to a party at its address set forth below, or (iii) on the second
(2nd) business day after being deposited in United States registered or
certified mail, postage prepaid, addressed to a party at its address set forth
below, or to such other address as the party to receive such notice may have
designated to all other parties by notice in accordance herewith:
If to the REIT and/or the Operating Presidio Golf Trust
Partnership, to: Building106, Montgomery Street
Presidio Main Post, P.O. Box 29355
San Francisco, California 94128
Attention: President
Facsimile: 415/561-4680
If to Palmer Management, to: Arnold Palmer Golf Management LLC
Building106, Montgomery Street
Presidio Main Post, P.O. Box 29355
San Francisco, California 94128
Attention: President
Facsimile: 415/561-4680
4.12 ASSIGNMENT. No party hereto shall have the right to assign this
Agreement, or any interest herein, to any other person or entity, without first
having obtained the prior written consent of each of the other parties hereto
(which consent may be withheld at such other parties' sole and exclusive
discretion).
4.13 GOVERNING LAW. This Agreement shall be governed by the laws of the
State of ______________.
4.14 EXCULPATION.
(A) COMPANY. ANY OBLIGATION OR LIABILITY WHATSOEVER OF THE
COMPANY WHICH MAY ARISE AT ANY TIME UNDER THIS AGREEMENT OR ANY
OBLIGATION OR LIABILITY WHICH MAY BE INCURRED BY IT PURSUANT TO ANY
OTHER INSTRUMENT, TRANSACTION OR UNDERTAKING CONTEMPLATED HEREBY SHALL
BE SATISFIED, IF AT ALL, OUT OF THE COMPANY'S ASSETS ONLY. NO SUCH
OBLIGATION OR LIABILITY SHALL BE PERSONALLY BINDING UPON, NOR SHALL
RESORT FOR THE ENFORCEMENT THEREOF BE HAD TO, THE PROPERTY OF ANY OF
ITS LIMITED PARTNERS, SHAREHOLDERS, TRUSTEES, OFFICERS, EMPLOYEES OR
AGENTS (SOLELY AS A RESULT OF THEIR STATUS AS
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<PAGE> 12
LIMITED PARTNERS, SHAREHOLDERS, TRUSTEES, OFFICERS, EMPLOYEES OR
AGENTS), REGARDLESS OF WHETHER SUCH OBLIGATION OR LIABILITY IS IN THE
NATURE OF CONTRACT, TORT OR OTHERWISE.
(B) PALMER MANAGEMENT. ANY OBLIGATION OR LIABILITY WHATSOEVER
OF PALMER MANAGEMENT WHICH MAY ARISE AT ANY TIME UNDER THIS AGREEMENT
OR ANY OBLIGATION OR LIABILITY WHICH MAY BE INCURRED BY IT PURSUANT TO
ANY OTHER INSTRUMENT, TRANSACTION OR UNDERTAKING CONTEMPLATED HEREBY
SHALL BE SATISFIED, IF AT ALL, OUT OF PALMER MANAGEMENT'S ASSETS ONLY.
NO SUCH OBLIGATION OR LIABILITY SHALL BE PERSONALLY BINDING UPON, NOR
SHALL RESORT FOR THE ENFORCEMENT THEREOF BE HAD TO, THE PROPERTY OF ANY
OF ITS MEMBERS, MANAGERS, OFFICERS, EMPLOYEES OR AGENTS (SOLELY AS A
RESULT OF THEIR STATUS AS MEMBERS, MANAGERS, OFFICERS, EMPLOYEES OR
AGENTS), REGARDLESS OF WHETHER SUCH OBLIGATION OR LIABILITY IS IN THE
NATURE OF CONTRACT, TORT OR OTHERWISE.
[SIGNATURES ON FOLLOWING PAGE]
12
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
REIT:
PRESIDIO GOLF TRUST, a Maryland Real Estate
Investment Trust
By: ____________________________________
Name:_______________________________
Its:________________________________
OPERATING PARTNERSHIP:
PRESIDIO GOLF LIMITED PARTNERSHIP, a
Delaware limited partnership
By: PRESIDIO GOLF TRUST, a Maryland Real
Estate Investment Trust, as
general partner
By:____________________________________
Name:_______________________________
Its:________________________________
PALMER MANAGEMENT:
ARNOLD PALMER GOLF MANAGEMENT
LLC, a Delaware limited liability company
By:____________________________________
Name:_______________________________
Its:________________________________
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<PAGE> 14
EXHIBIT A
ECONOMIC TERMS OF GOLF COURSE LEASE (ACQUISITION)
1. Term: 15 years plus five 5-year renewal option periods.
2. Initial Base Rent: Between 9% and 10% of acquisition price.
3. Baseline Golf Course and Other Revenues: To be mutually agreed upon
4. Security Deposit: 12 months initial base rent.
A-1
<PAGE> 15
EXHIBIT B
GOLF COURSE LEASE (ACQUISITION)
AND GOLF COURSE LEASE (SALE)
[Attached]
B-2
<PAGE> 16
EXHIBIT C
CONTRIBUTION AGREEMENT
[Attached]
C-1
<PAGE> 1
EXHIBIT 23.1
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the use of our report
dated May 4, 1998 with respect to Presidio Golf Trust, our report dated
January 23, 1998 with respect to the Predecessor Courses, our report dated
January 23, 1998 with respect to Olympus/Montclair - Chicago General
Partnership, our report dated July 6, 1998 with respect to Arnold Palmer Golf
Management LLC and subsidiaries, our report dated February 14, 1997 with
respect to Pacific Golf, Inc., and to all references to our Firm included in
or made a part of this registration statement.
San Francisco, California /s/ ARTHUR ANDERSEN LLP
July 7, 1998
<PAGE> 1
EXHIBIT 23.2
Consent of Independent Accountants
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated January 22, 1998, with respect to the financial
statements of the Paloma Golf Courses included in the Amendment No. 1 to
Registration Statement (Form S-11, No. 333-52669) and related Prospectus of
Presidio Golf Trust for the registration of 6,540,000 shares of the common
stock.
Newport Beach, California /s/ ERNST & YOUNG LLP
July 8, 1998
<PAGE> 2
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 7, 1996 (except for Note 9, as to which the
date is February 23, 1996) with respect to the financial statements of
Olympus/Montclair - Chicago General Partnership included in Amendment No. 1 to
the Registration Statement (Form S-11, No. 333-52669) and related Prospectus of
Presidio Golf Trust for the registration of 6,540,000 shares of its common
stock.
Dallas, Texas /s/ ERNST & YOUNG LLP
July 6, 1998
<PAGE> 3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 1, 1996, with respect to the financial statements
of Pacific Golf Inc., included in Amendment No. 1 to the Registration Statement
(Form S-11) and related Prospectus of Presidio Golf Trust for the registration
of 6,540,000 shares of its common stock.
July 8, 1998 /s/ ERNST & YOUNG LLP
Orlando, Florida
<PAGE> 1
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, being a trustee or
officer, or both, of PRESIDIO GOLF TRUST, a Maryland real estate investment
trust (the "Company"), does hereby constitute and appoint Peter J. Nanula and
George T. Haworth, with full power to each of them to act alone, as the true
and lawful attorneys and agents of the undersigned, with full power of
substitution and resubstitution to each of said attorneys, to execute, file or
deliver any and all instruments and to do any and all acts and things which
said attorneys and agents, or any of them, deem advisable to enable the Company
to comply with the Securities Act of 1933, as amended (the "Securities Act")
and any requirements of the Securities and Exchange Commission in respect
thereto, relating to the Company's Registration Statement on Form S-11,
including specifically, but without limitation of the general authority hereby
granted, the power and authority to sign his name as trustee or officer, or
both, of the Company, as indicated below his signature, to the Registration
Statement on Form S-11 or any amendments or papers supplemental thereto, or any
Registration Statement for the same offering that is to be effective upon
filing pursuant to Rule 462(b) under the Securities Act or any amendments or
paper supplemental thereto, and the undersigned does hereby fully ratify and
confirm all that said attorneys and agents, or any of them, or the substitute
of any of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents, this
9th day of July, 1998.
/s/ David B. Deniger
- ---------------------------------------
David B. Deniger, Chairman of the Board
of Trustees and Trustee
