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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
COMMISSION FILE NUMBER 1-12246
NATIONAL GOLF PROPERTIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 95-4549193
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
2951 28TH STREET, SUITE 3001
SANTA MONICA, CA 90405
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(310) 664-4100
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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<S> <C>
COMMON STOCK NEW YORK STOCK EXCHANGE
$.01 PAR VALUE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of January 5, 1998, the aggregate market value of the voting stock held
by nonaffiliates of the registrant was approximately $373.1 million, based
upon the closing price ($32.6875) on the New York Stock Exchange on that date.
(For this computation, the registrant has excluded the market value of all
shares of its common stock reported as owned by executive officers and
directors of the registrant and certain other stockholders; such exclusion
shall not be deemed to constitute an admission that any such person is an
"affiliate" of the registrant.)
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date:
12,418,195 SHARES OF COMMON STOCK, $.01 PAR VALUE, AS OF JANUARY 5, 1998
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement in connection with its Annual
Meeting of Stockholders to be held May 5, 1998, are incorporated by reference
in Part III.
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PART I
ITEM 1. BUSINESS
a) General Development of Business
National Golf Properties, Inc. (the "Company") was incorporated under the
General Corporation Law of Delaware in April 1993 and commenced operations
effective with the completion of its initial public stock offering (the
"Offering") of common stock, par value $.01 per share (the "Common Stock"), on
August 18, 1993. On August 31, 1995, the Company was reincorporated as a
Maryland corporation. The Company qualifies as a Real Estate Investment Trust
("REIT") under the Internal Revenue Code of 1986, as amended (the "Code").
The Company became the general partner in National Golf Operating
Partnership, L.P. (the "Operating Partnership") when the Operating Partnership
was formed as a Delaware limited partnership in June 1993. On July 8, 1994,
the Operating Partnership acquired an 89% general partner interest in Royal
Golf, L.P. II ("Royal Golf"). Royal Golf owns four golf courses on Hilton Head
Island, South Carolina. Unless the context otherwise requires, all references
to the Company's business and properties include the business and properties
of the Operating Partnership and Royal Golf.
The Company is the sole general partner in the Operating Partnership with a
58.4% interest therein. David G. Price, the Chairman of the Board of Directors
of the Company, and entities controlled by him and approximately seven other
individuals and personal trusts are the only limited partners of the Operating
Partnership (the "OP Limited Partners").
In 1997, the Company purchased nine golf courses for an aggregate initial
investment of approximately $79.2 million, which investment was financed by
$14.5 million of cash from operations, $59.7 million of advances under the
Company's credit facility and $5 million of notes payable. Also in 1997, the
Company acquired a 50% general partnership interest in Pumpkin Ridge Joint
Venture ("Pumpkin Ridge") for approximately $8.1 million, which investment was
financed by advances under the Company's credit facility. Pumpkin Ridge owns
two golf courses in Cornelius, Oregon. The Company accounts for its investment
in Pumpkin Ridge under the equity method of accounting.
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The following diagram depicts the beneficial ownership of the Company, the
Operating Partnership, Royal Golf and Pumpkin Ridge as of January 5, 1998:
[CHART APPEARS HERE]
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* The Company accounts for its investment in Pumpkin Ridge under the equity
method of accounting.
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b) Narrative Description of Business
The Company is a self-administered REIT specializing in the acquisition and
ownership of golf course properties. As of January 5, 1998, the Company's
portfolio consisted of the ownership of 123 golf courses (the "Golf Courses"),
including the two golf courses owned by Pumpkin Ridge, in 112 separate
locations in 26 states.
The Golf Courses include facilities such as clubhouses with restaurants,
banquet space, locker rooms and retail pro shops, driving ranges, pools and
tennis courts. Services provided at such properties include golf cart rentals,
golf and tennis lessons, banquets and tournaments. In order to maintain
qualification as a REIT, the Company's income must be derived from certain
sources, including rents from real property (and generally excluding income
from the operation of a golf course). Accordingly, the Company is generally
precluded from operating golf courses and, as a consequence, leases the Golf
Courses to experienced and creditworthy golf course operators.
BUSINESS OBJECTIVES AND OPERATING STRATEGIES
The Company's primary business objective is to maximize stockholder return
through the aggressive acquisition of quality golf courses and the subsequent
lease of such properties to experienced and creditworthy operators. The
Company focuses on the ownership and acquisition of golf course properties
that have strong cash flow growth potential and expects to hold such
properties for long-term investment and capital appreciation. The Company's
business and operating strategies include:
. Increasing income and portfolio value by continuing the strategic
expansion of its golf course portfolio through the selective acquisition
of golf course properties in urban areas or resort locations that
demonstrate potential for significant revenue and cash flow increases.
For the period August 18, 1993 to December 31, 1997, the Company
purchased 81 Golf Courses, including the two golf courses owned by
Pumpkin Ridge, for an aggregate initial investment of approximately
$444.1 million.
. Working with golf course operators on strategies to increase revenues,
which will result in greater percentage rent to the Company.
. Working with golf course operators on strategies to improve and enhance
golf course holdings through proper maintenance and capital improvements.
. Selecting the best golf course operators for specific locations and
course types and structuring favorable leases for the Company with those
operators under which the operators pay minimum base rent and percentage
rent based on revenues and pay substantially all expenses in connection
with the operation of the property such as real estate taxes, insurance,
utilities and services, maintenance and other operating expenses.
. Investing in participating mortgages or other appropriate equity-linked
financing vehicles in circumstances where the acquisition of ownership is
not otherwise possible.
. Monitoring on an ongoing basis the operating performance of the Golf
Courses, compliance by its operators with their lease obligations and
other market factors that could affect the financial performance of its
courses.
. Maintaining a ratio of debt-to-total market capitalization (i.e., total
debt of the Company as a percentage of the market value of issued and
outstanding shares of Common Stock and interests in the Operating
Partnership that are exchangeable for shares of Common Stock plus total
debt) of 50% or less. At December 31, 1997, the Company's total debt
constituted approximately 30% of its total market capitalization.
SEASONALITY
Although the results of operations of the Company and its predecessors have
not been significantly impacted by seasonality, the Company generally expects
that its results of operations may be adversely affected as a function of
reduced payments of percentage rent in the first and fourth quarters of each
year due to adverse weather conditions and the scheduled closure of the Golf
Courses located in harsh winter climates.
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TENANT AND LEASES
All but five of the Golf Courses in the Company's portfolio are currently
leased to American Golf Corporation ("AGC") pursuant to long-term triple net
leases (the "Leases"). AGC is one of the largest and most experienced
operators of golf courses and related facilities in the world and currently
manages 252 golf courses and related facilities in 30 states. In addition,
AGC, through its subsidiary American Golf (U.K.) Limited, manages 12 golf
courses and related facilities in the United Kingdom. AGC operates a diverse
portfolio of golf courses for a variety of golf course owners including
municipalities, counties and others. AGC was founded in 1973 by David G.
Price, its Chairman and principal shareholder. Including the Golf Courses, AGC
manages 161 daily fee golf courses, 68 private club courses, 28 resort courses
and seven golf practice centers. AGC oversees the management and operations of
championship golf courses throughout the United States and manages municipal
golf courses for such cities as Atlanta, New York and San Diego and for the
County of Los Angeles.
AGC does not own any golf courses, but rather manages and operates golf
courses either as a lessee under leases, generally triple net, or pursuant to
management agreements. AGC derives revenues from the operation of golf courses
principally through the receipt of green fees, membership initiation fees,
membership dues, golf cart rentals, driving range charges and sales of food,
beverages and merchandise.
Each Lease is for an initial term, depending upon the Golf Course, ranging
between 15 and 20 years. The Leases are triple net leases which require AGC to
pay substantially all expenses associated with the operation of the Golf
Courses, such as real estate taxes, insurance, utilities and services,
maintenance and other operating expenses. In addition, AGC has options to
extend the term of each Lease for one to three five-year terms. Each Lease
permits AGC 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.
The minimum base rent for the first year for each Golf Course under the
Leases is initially set at a fixed amount. Thereafter, with respect to the
Leases for the initial portfolio of 44 golf courses at the time of the
Offering (the "Initial Golf Courses"), minimum base rent is increased each
year by 4% or, if lower, 150% of the annual percentage increase in the
Consumer Price Index ("CPI") (the "Base Rent Escalation"). In addition,
percentage rent is paid each year in the amount, if any, by which the sum of
35% of Course Revenue in excess of a baseline amount and 5% of Other Revenue
in excess of a baseline amount exceeds the cumulative Base Rent Escalation
since the commencement date of such Leases. Course Revenue is generally
defined in the Leases to include all revenue received from the operation of
the applicable Golf Course, including revenues from memberships, initiation
fees, dues, green fees, guest fees, driving range charges and golf cart
rentals, but excluding those revenues described as Other Revenue. Other
Revenue is generally defined in the Leases to include all revenue received
from food and beverage and merchandise sales and other revenue not directly
related to golf activities. Generally, the baseline amounts for the Initial
Golf Courses were established based on revenues for each of such Golf Courses
for the twelve months ended February 28, 1993. Payment of percentage rent
based upon the revenues of the Golf Courses will enable the Company to
participate in growth in revenues at the Golf Courses.
Generally, for the Leases entered into subsequent to the Offering, the rent
is based upon the greater of (a) the minimum base rent or (b) a specified
percentage of Course Revenue and Other Revenue. The minimum base rent under
these Leases is increased for specified years during the Lease term based upon
increases in the CPI, provided that each such annual CPI increase shall not
exceed five percent.
Pursuant to the Leases for the Initial Golf Courses, AGC is required to post
and maintain an irrevocable letter of credit in an amount equal to six monthly
installments of the annual minimum rent as of the commencement date of the
Leases (approximately $13.6 million) to collateralize its obligations under
such Leases. AGC's obligation to post and maintain such letter of credit will
be suspended, subject to reinstatement, at such time as AGC achieves: (i) a
Fixed Charge Coverage Ratio, as defined, of not less than 1.5 to 1.0 for two
consecutive fiscal quarters and (ii) a minimum Tangible Net Worth, as defined,
of at least $30,000,000 or, following a change in control, $30,000,000
increased by 4% per annum compounded annually from the commencement date of
the Leases to the date of a change in control of AGC.
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The obligations of AGC under each Lease are cross-defaulted to each of the
other Leases with respect to monetary defaults and all other defaults except
those not within the reasonable control of AGC. The Company has general
recourse to AGC under the Leases, but such Leases are not collateralized by
any assets of AGC. The stockholders of the Company have no recourse to AGC
under the Leases.
The Independent Committee, comprised of all four independent Directors of
the Company, oversees the selection of operators and approves transactions
between the Company and David G. Price and his affiliates.
The Company continues to explore the use of experienced and creditworthy
operators other than AGC for certain of its new acquisitions. Such operators
must have a history of successful operation and meet appropriate financial
standards for creditworthiness. In addition to AGC, the Company has four
leases (with respect to five Golf Courses) with three other operators:
Cobblestone Golf Group, Inc. ("CGG"); The Links Group, Inc. ("TLG"); and
Evergreen Alliance Golf Limited ("EAGL"). Unless the context otherwise
requires, all references to the Leases include the leases with CGG, TLG and
EAGL.
CGG operates Carmel Mountain Ranch Country Club in San Diego, California,
and Sweetwater Country Club (two courses) near Houston, Texas. CGG is a golf
course acquisition and operating company with 29 properties under ownership or
management in six states.
TLG operates Colonial Charters Golf Course near Myrtle Beach, South
Carolina. TLG is a golf course operating company that operates 11 golf courses
in the southeastern United States.
EAGL operates San Geronimo Golf Course near San Francisco, California. EAGL
is a golf course acquisition and operating company with 30 properties under
ownership or management in nine states.
COMPETITIVE CONDITIONS
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,
including golf courses owned by municipalities or third parties that are
operated by the lessees. 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 the availability of other
forms of recreation.
According to its published data (1997 editions), the National Golf
Foundation, an independent industry organization, the number of golfers in the
United States has remained stable at approximately 25 million for the last
several years. In addition, favorable demographic trends offer encouraging
growth prospects for the golf course industry. The National Golf Foundation
reports that the annual average rounds played per golfer increases
significantly as golfers age. Golfers in their fifties generally play twice as
many rounds annually as golfers in their thirties. Golfers age 65 and older
generally play three times as many rounds annually as golfers in their
thirties. Currently, approximately 75% of all golfers are less than 50 years
old and approximately 45% of all golfers are between the ages of 30 and 49.
Accordingly, the Company expects an increase in the demand for golf as this
segment of the golfing population reaches its prime golfing age over the next
20 years. In addition, the children of the baby boom generation are entering
their twenties and thirties, an age range in which they are most likely to
begin playing golf.
The Company is also subject to competition for the acquisition of golf
courses and related facilities with other purchasers of golf course
properties, including other golf course acquisition companies. According to
the National Golf Foundation, there are approximately 15,700 golf courses in
the United States. Of this total, approximately 3,500 satisfy the Company's
investment criteria. Ownership of these courses is extremely fragmented. The
Company believes that the nation's 15 largest golf course owners and operators
collectively own or lease less than five percent of the courses in the United
States. This fragmented ownership provides an excellent opportunity for
aggressive acquisition of quality golf course properties, however, the market
for golf
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course acquisitions is becoming increasingly competitive with the addition of
several new companies pursuing acquisitions. In addition, other REITs have or
are considering entering the market.
In certain markets, construction of new golf courses has increased in the
last several years. Although such construction activity may add excess
capacity to some local markets, the Company's experience indicates that well-
managed and properly located facilities should continue to generate stable
revenue growth. The Company's courses are generally located in communities
with populations sufficient to absorb additional course development or in
areas with significant barriers to new course construction (i.e., limited
supply of suitable land, governmental restrictions, etc.). Consequently, new
course development has not adversely affected the Company's portfolio. In
addition, the Company expects that new course development will provide
numerous acquisition opportunities. Moreover, the new courses offer improved
access for golfers, particularly beginners, women and juniors, which should
ultimately increase the pool of golf customers.
EMPLOYEES
As of January 5, 1998, the Company and the Operating Partnership had 12
full-time employees including two regional vice presidents who are dedicated
on a full-time basis to the identification of golf courses to be acquired or
financed.
The President of the Company is employed and compensated by both the
Operating Partnership and the Company. The Company believes that the
allocation of his compensation as between the Company and the Operating
Partnership reflects the services provided by him with respect to each entity.
The remainder of the employees are employed solely by the Operating
Partnership. Royal Golf has no employees.
The Company and the Operating Partnership have entered into a services
agreement pursuant to which the Operating Partnership provides the Company
with administrative, accounting and other services relating to the operations
and administration of the Company at a rate equal to the cost (including
allocable overhead) to the Operating Partnership of providing such services
plus 15% of such costs.
GOVERNMENT REGULATION
Environmental Matters. 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 substances
released on or in its property. 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 substances. The presence of such substances, or the
failure to remediate such substances properly when released, may adversely
affect the owner's ability to sell such real estate or to borrow using such
real estate as collateral. The Company has not been notified by any
governmental authority of any material non-compliance, liability or other
claim in connection with any of the Golf Courses. The Company is not aware of
any other environmental condition with respect to any of the Golf Courses that
is likely to be material to the Company. All of the Golf Courses have been
subjected to a preliminary environmental investigation. Such investigation
generally involves an examination of public records for ownership, use and
current permitting status, site visits, visual inspections for indications of
contamination or potential contamination and interviews with the on-site
managers. Such investigation generally does not involve invasive procedures,
such as soil sampling or ground water analysis. No assurance can be given that
such investigation would reveal all potential environmental liabilities, that
no prior owner or adjacent landowner created any material environmental
condition not known to the Company or that future uses or conditions
(including, without limitation, changes in applicable environmental laws and
regulations) will not result in imposition of environmental liability. The
Leases provide that the lessees will indemnify the Company for certain
potential environmental liabilities at the Golf Courses.
Americans with Disabilities Act. The Golf Courses are subject to the
Americans with Disabilities Act of 1990 (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
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made accessible to people with disabilities. Noncompliance could result in
imposition of fines or an award of damages to private litigants. Under the
Leases, the lessees are required to make any necessary modifications or
improvements to comply with the ADA. The lessees and the Company have
undertaken, where necessary, a capital improvement program to cause the public
facilities at the Golf Courses to comply with the ADA. The expenditures for
the modifications and improvements have not been material.
ITEM 2. PROPERTIES
As of January 5, 1998, the Golf Courses consisted of 123 golf courses that
are geographically diversified and located in 26 states, with 22 Golf Courses
in California, 19 in Texas, 13 in Arizona, six in each of Florida and South
Carolina, five in each of Ohio and Pennsylvania, four in each of Colorado,
Georgia, Illinois, Kansas and Oregon, three in each of Nevada, Virginia and
Washington, two in each of Maryland, Missouri, New Jersey, New Mexico, North
Carolina, Oklahoma and Tennessee and one in each of Idaho, Indiana, Louisiana
and Minnesota. The distribution of the Golf Courses reflects the Company's
belief that geographic diversification helps insulate the portfolio from
regional economic and climatic influences. Substantially all of the Golf
Courses are located in Standard Metropolitan Statistical Areas with
populations in excess of 250,000 people.
Of the 123 Golf Courses, 58 are daily fee courses, 45 are private club
courses and 20 are resort courses. All of the Golf Courses are owned 100% in
fee by either the Company, the Operating Partnership, Royal Golf or Pumpkin
Ridge except for the three Golf Courses at Bear Creek Golf World, which are
leased by the Company under a ground lease expiring in 2022, and Mesquite Golf
& Country Club, of which approximately 14 acres are under various ground
leases expiring between 2041 and 2043.
Daily Fee Courses. Daily fee courses are open to the public and related
amenities generally include practice facilities, small clubhouses with pro
shops offering limited merchandise and a moderate food and beverage operation.
Daily fee courses generate revenues principally through green fees, golf cart
rentals and food, beverage and merchandise sales. Daily fee courses generated
$29.5 million of rent revenues to the Company in 1997 compared to $24.2
million in 1996.
Private Club Courses. Private club courses are generally closed to the
public and related amenities typically include practice facilities, large
clubhouses with pro shops offering extensive merchandise, locker room
facilities and multiple food and beverage outlets, including grills,
restaurants and banquet facilities. Private club courses generate revenues
principally through initiation fees, membership dues, and food, beverage and
merchandise sales. As of December 31, 1997, the Company's private club courses
had more than 32,000 members. Private club courses generated $26.6 million of
rent revenues to the Company in 1997 compared to $19.8 million in 1996.
Resort Courses. Resort courses are generally higher-quality daily fee
courses that draw a high percentage of players from outside the immediate area
in which the course is located. Resort courses generated $18.2 million of rent
revenues to the Company in 1997 compared to $14.9 million in 1996.
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The following table sets forth certain information regarding the Golf
Courses as of January 5, 1998. As of that date, the Company owned 123 Golf
Courses in 26 states. The number of locations (112) differs from the number of
Golf Courses because in some cases there is more than one Golf Course at a
specific location. The number of courses at each location is indicated for
locations with more than one course.
THE GOLF COURSES--DAILY FEE COURSES
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<CAPTION>
LOCATION NO. OF 1997
COURSE NAME (CITY, STATE) HOLES RENT REVENUES
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(IN THOUSANDS)
<C> <S> <C> <C> <C>
1 Continental Golf
Course................. Scottsdale, Arizona 18 $ 464
2 Desert Lakes Golf Club.. Fort Mojave, Arizona 18 425
3 El Caro Golf Club....... Phoenix, Arizona 18 320
4 Kokopelli Golf Resort... Gilbert, Arizona 18 611
5 Villa De Paz Golf
Course................. Phoenix, Arizona 18 303
6 Camarillo Springs Golf
Course................. Camarillo, California 18 1,193
7 Carmel Mountain Ranch
Country Club........... San Diego, California 18 810
8 Lomas Santa Fe Executive
Golf Course............ Solana Beach, California 18 539
9 Mesquite Golf & Country
Club................... Palm Springs, California 18 693
10 Oakhurst Country Club... Clayton, California 18 195
11 Rancho San Joaquin Golf
Course................. Irvine, California 18 2,315
12 San Geronimo Golf
Course................. San Geronimo, California 18 636
13 Summitpointe Golf Club.. Milpitas, California 18 972
14 Upland Hills Country
Club................... Upland, California 18 819
15 Vista Valencia Golf
Course (2 Courses)..... Valencia, California 27 914
16 Eagle Golf Club......... Broomfield, Colorado 18 386
17 Arrowhead Golf & Sports
Club................... Davie, Florida 18 358
18 Baymeadows Golf Club.... Jacksonville, Florida 18 320
19 Binks Forest Country
Club................... Wellington, Florida 18 455
20 Sabal Palm Golf Course.. Tamarac, Florida 18 524
21 Summerfield Crossing
Golf Club.............. Tampa, Florida 18 263
22 Goshen Plantation
Country Club........... Augusta, Georgia 18 318
23 River's Edge Golf Club.. Fayetteville, Georgia 18 446
24 The Golf Club at
Bradshaw Farm.......... Woodstock, Georgia 18 451
25 Ruffled Feathers Golf
Course................. Lemont, Illinois 18 950
26 Tamarack Golf Club...... Naperville, Illinois 18 514
27 Sugar Ridge Golf
Course................. Lawrenceburg, Indiana 18 304
28 Deer Creek Golf Club.... Overland Park, Kansas 18 798
29 Dub's Dread Golf
Course................. Kansas City, Kansas 18 384
30 WestWinds Country Club.. New Market, Maryland 18 382
31 The Links at Northfork.. Ramsey, Minnesota 18 388
32 Royal Meadows Golf
Course (2 Courses)..... Kansas City, Missouri 27 282
33 Rancocas Golf Club...... Willingboro, New Jersey 18 559
34 Paradise Hills Golf
Course................. Albuquerque, New Mexico 18 555
35 Pawtuckett Golf Club.... Charlotte, North Carolina 18 164
36 Bent Tree Golf Club..... Columbus, Ohio 18 436
37 Fowler's Mill Golf
Course................. Chesterland, Ohio 27 429
38 Country Club of Hershey
South Course........... Hershey, Pennsylvania 18 258
39 Golden Oaks Country
Club................... Fleetwood, Pennsylvania 18 576
40 Hickory Heights Golf
Club................... Bridgeville, Pennsylvania 18 299
41 The Links at Stono
Ferry.................. Charleston, South Carolina 18 164
42 Forrest Crossing Golf
Course................. Nashville, Tennessee 18 304
43 Bear Creek Golf World (3
Courses)............... Houston, Texas 54 1,419
</TABLE>
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<TABLE>
<CAPTION>
LOCATION NO. OF 1997
COURSE NAME (CITY, STATE) HOLES RENT REVENUES
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(IN THOUSANDS)
<C> <S> <C> <C> <C>
44 Lake Houston Golf Club.. Huffman, Texas 18 $ 209
45 Longwood Golf Club...... Houston, Texas 27 410
46 Riverchase Golf Club.... Coppell, Texas 18 1,119
47 Riverside Golf Club..... Grand Prairie, Texas 18 785
48 Southwyck Golf Club..... Pearland, Texas 18 431
49 Chesapeake Golf Club.... Chesapeake, Virginia 18 418
50 Honey Bee Golf Club..... Virginia Beach, Virginia 18 559
51 Reston National Golf
Course................. Reston, Virginia 18 1,124
52 Capitol City Golf Club.. Olympia, Washington 18 305
53 Lake Wilderness Golf
Course................. Maple Valley, Washington 18 281
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Total Daily Fee Courses............................... $29,536
=======
THE GOLF COURSES--PRIVATE CLUB COURSES
<CAPTION>
LOCATION NO. OF 1997
COURSE NAME (CITY, STATE) HOLES RENT REVENUES
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(IN THOUSANDS)
<C> <S> <C> <C> <C>
1 Ancala Country Club..... Scottsdale, Arizona 18 $ 914
2 Arrowhead Country Club.. Glendale, Arizona 18 598
3 Canyon Oaks Country
Club................... Chico, California 18 454
4 Escondido Country Club.. Escondido, California 18 606
5 Monterey Country Club... Palm Desert, California 27 811
6 Palm Valley Country Club
(2 Courses)............ Palm Desert, California 36 1,436
7 SeaCliff Country Club... Huntington Beach, California 18 1,414
8 Spanish Hills Country
Club................... Camarillo, California 18 332
9 Sunset Hills Country
Club................... Thousand Oaks, California 18 1,323
10 Wood Ranch Golf Club.... Simi Valley, California 18 1,084
11 Heather Ridge Country
Club................... Aurora, Colorado 18 331
12 Pinery Country Club..... Denver, Colorado 27 560
13 Crescent Oaks Country
Club................... Clearwater, Florida 18 91
14 Brookstone Golf &
Country Club........... Acworth, Georgia 18 553
15 The Plantation Golf
Club................... Boise, Idaho 18 267
16 Eagle Brook Country
Club................... Geneva, Illinois 18 340
17 Mission Hills Country
Club................... Northbrook, Illinois 18 825
18 Highlands Golf & Supper
Club................... Hutchinson, Kansas 18 63
19 Tallgrass Country Club.. Wichita, Kansas 18 249
20 Shenandoah Country
Club................... Baton Rouge, Louisiana 18 131
21 Stonebridge Country
Club................... New Orleans, Louisiana 27 35*
22 Hunt Valley Golf Club... Phoenix, Maryland 27 1,659
23 Skyline Woods Country
Club................... Elkhorn, Nebraska 18 293*
24 Tanoan Country Club..... Albuquerque, New Mexico 27 1,318
25 Brandywine Country
Club................... Maumee, Ohio 27 689
26 Oakhurst Country Club... Grove City, Ohio 18 386
27 Royal Oak Country Club.. Cincinnati, Ohio 18 365
28 Meadowbrook Country
Club................... Tulsa, Oklahoma 18 335
29 The Trails.............. Norman, Oklahoma 18 242
30 Creekside Golf Club..... Salem, Oregon 18 624
31 The Oregon Golf Club.... West Linn, Oregon 18 1,456
32 Country Club of Hershey
(2 Courses)............ Hershey, Pennsylvania 36 993
</TABLE>
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* Sold in 1997
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<TABLE>
<CAPTION>
LOCATION NO. OF 1997
COURSE NAME (CITY, STATE) HOLES RENT REVENUES
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(IN THOUSANDS)
<C> <S> <C> <C> <C>
33 Gettysvue Polo, Golf &
Country Club........... Knoxville, Tennessee 18 $ 61
34 Berry Creek Country
Club................... Georgetown, Texas 18 528
35 Diamond Oaks Country
Club................... Fort Worth, Texas 18 380
36 Eldorado Country Club... McKinney, Texas 18 657
37 Great Southwest Golf
Club................... Grand Prairie, Texas 18 838
38 Oakridge Country Club... Garland, Texas 18 368
39 Sweetwater Country Club
(2 Courses)............ Sugarland, Texas 36 1,289
40 Walden on Lake Houston
Country Club........... Humble, Texas 18 371
41 Willow Fork Country
Club................... Katy, Texas 18 283
42 Woodhaven Country Club.. Forth Worth, Texas 18 212
43 Bear Creek Country
Club................... Woodinville, Washington 18 850
-------
Total Private Club Courses.................................. $26,614
=======
THE GOLF COURSES--RESORT COURSES
<CAPTION>
LOCATION NO. OF 1997
COURSE NAME (CITY, STATE) HOLES RENT REVENUES
----------- ------------- ------ --------------
(IN THOUSANDS)
<C> <S> <C> <C> <C>
1 London Bridge Golf Club
(2 Courses)............ Lake Havasu City, Arizona 36 $ 542
2 Stonecreek Golf Course.. Phoenix, Arizona 18 989
3 Superstition Springs
Golf Club.............. Mesa, Arizona 18 801
4 Tatum Ranch Golf Club... Cave Creek, Arizona 18 1,088
5 The Legend at
Arrowhead.............. Glendale, Arizona 18 620
6 Aptos Seascape Golf
Course................. Aptos, California 18 1,454
7 BlackLake Golf Course... Nipomo, California 18 1,132
8 Arrowhead Golf Club..... Littleton, Colorado 18 1,075
9 Las Vegas National Golf
Club................... Las Vegas, Nevada 18 2,636
10 Painted Desert Golf
Course................. Las Vegas, Nevada 18 875
11 Wildhorse Country Club.. Henderson, Nevada 18 1,661
12 Brigantine Golf Links... Brigantine, New Jersey 18 384
13 Carolina Shores Golf &
Country Club........... Calabash, North Carolina 18 679
14 Colonial Charters Golf
Course................. Longs, South Carolina 18 494
15 Port Royal Golf &
Racquet Club
(3 Courses)............ Hilton Head Island, South Carolina 54 2,197
16 Shipyard Golf Club...... Hilton Head Island, South Carolina 27 1,043
17 Pecan Valley Golf Club.. San Antonio, Texas 18 496
-------
Total Resort Courses........................................ $18,166
-------
Total All Courses........................................... $74,316
=======
THE GOLF COURSES--OWNED BY JOINT VENTURE
<CAPTION>
LOCATION NO. OF TYPE OF
COURSE NAME (CITY, STATE) HOLES COURSE
----------- ------------- ------ ------------
<C> <S> <C> <C> <C>
1 Pumpkin Ridge Golf Club (Ghost
Creek)............................ Cornelius, Oregon 18 Daily Fee
2 Pumpkin Ridge Golf Club (Witch
Hollow)........................... Cornelius, Oregon 18 Private Club
</TABLE>
11
<PAGE>
CAPITAL IMPROVEMENTS
Under the Leases, the lessees are required to maintain each Golf Course in
good order, repair and appearance. For the Golf Courses acquired through
January 5, 1998, the Company is required under the applicable Leases to pay
for various remaining capital improvements totaling approximately
$10.2 million, which will be paid during the next two years. Any subsequent
capital improvements are the responsibility of the lessees. However, during
1997, AGC requested that the Company provide additional funding of
approximately $16.4 million in capital improvements intended to add value to
the properties and reposition the facilities for enhanced revenue growth. The
Independent Committee of the Company's Board of Directors approved such
additional funding. The $16.4 million will be paid during the next two years.
Upon the Company's funding of such capital improvements, the base rent payable
under the Leases with respect to these Golf Courses will be adjusted to
reflect, over the initial term of the Leases, the Company's investment in such
improvements.
ITEM 3. 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. Although neither the Company nor the
predecessor owners of the Golf Courses are currently parties to any legal
proceedings relating to the Golf Courses that would have a material adverse
effect upon the Company's business or financial position, it is possible that
in the future the Company could become a party to such proceedings. The
lessees are a party to certain litigation relating to the Golf Courses arising
in the ordinary course of operations. The lessees have advised the Company
that they do not believe that such litigation, if resolved against the
lessees, would have a material adverse effect upon their business or financial
position. The Leases provide that the lessees are responsible for claims based
on personal injury and property damage at the Golf Courses and require the
lessees to maintain insurance for such purposes.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
12
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
a) Market Information
The following table sets forth for periods shown the high and low sales
price for the Company's Common Stock on the New York Stock Exchange and
distributions declared.
<TABLE>
<CAPTION>
HIGH LOW DISTRIBUTION
------ ------ ------------
<S> <C> <C> <C>
1997
Fourth quarter.................................. $33.00 $30.3125 $.43
Third quarter................................... 34.75 30.00 .43
Second quarter.................................. 34.75 28.50 .42
First quarter................................... 32.875 29.875 .42
1996
Fourth quarter.................................. $31.625 $27.875 $.42
Third quarter................................... 28.25 24.75 .42
Second quarter.................................. 25.375 23.125 .41
First quarter................................... 26.50 22.25 .41
</TABLE>
b) Holders
The number of record holders of the Company's Common Stock was 743 as of
January 5, 1998. The number of street name stockholders is estimated at
15,500.
c) Distributions
The Company paid distributions to stockholders of $1.69 per share in 1997,
of which $1.49 represents ordinary income, $0.05 represents capital gains (20%
tax rate) and $0.15 represents return of capital on a tax basis. On a book
basis, calculated using basic earnings per share, $0.43 per share represents
return of capital. In 1996, the Company paid distributions to stockholders of
$1.65 per share, of which $1.45 represents ordinary income and $0.20
represents return of capital on a tax basis. On a book basis, calculated using
basic earnings per share $0.46 per share represents return of capital. In
order to maintain its qualification in 1997 and 1996 as a REIT for federal
income tax purposes, the Company was required to make distributions to its
stockholders of at least $1.38 and $1.25 per share, respectively. In addition,
on January 9, 1998, the Company declared a quarterly distribution for the
fourth quarter of 1997 of $0.43 per share to stockholders of record on January
30, 1998, which will be paid on February 13, 1998.
13
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data included in this table by the Company is derived
from the Company's consolidated financial statements and the Company's
predecessors' (Golf Properties Group ("GPG")) combined financial statements
for those years, which have been audited by Coopers & Lybrand L.L.P.
Historical operating results of GPG may not be comparable to future operating
results of the Company because: (i) the Leases with AGC have materially
different terms from the terms of the leases with GPG; (ii) historical
operating revenues and operating expenses include revenues and expenses
relating to five courses that were operated by AGC pursuant to management
agreements (under which GPG received revenues and bore expenses and paid the
operator a fee) rather than leases; and (iii) management fee expense reflects
consulting services provided by AGC to GPG, which were not continued following
the Offering.
<TABLE>
<CAPTION>
GOLF PROPERTIES
NATIONAL GOLF PROPERTIES, INC. GROUP
----------------------------------------------------- ---------------
YEAR ENDED DECEMBER 31, AUG. 18, 1993 JAN. 1, 1993
-------------------------------------- THROUGH THROUGH
1997 1996 1995 1994 DEC. 31, 1993 AUG. 17, 1993
-------- -------- -------- -------- ------------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues
Rent................... $ 74,316 $ 58,898 $ 45,931 $ 36,637 $10,787 $10,678
Equity in income from
joint venture......... 119 -- -- -- -- --
Gain on sale of
properties............ 158 1,199 1,893 -- -- --
Operating.............. -- -- -- -- -- 4,708
Other income........... -- -- -- -- 17 499
-------- -------- -------- -------- ------- -------
Total revenues.......... 74,593 60,097 47,824 36,637 10,804 15,885
-------- -------- -------- -------- ------- -------
Expenses
Operating.............. -- -- -- -- -- 3,950
Management fee......... -- -- -- -- -- 2,193
General &
administrative........ 5,336 4,734 4,258 4,709 1,374 --
Depreciation &
amortization.......... 24,758 19,124 14,027 10,413 3,384 4,661
-------- -------- -------- -------- ------- -------
Total expenses.......... 30,094 23,858 18,285 15,122 4,758 10,804
-------- -------- -------- -------- ------- -------
Interest expense....... (19,810) (14,067) (8,793) (2,212) (335) (4,627)
Interest income........ 364 2,110 4,144 3,459 1,584 24
Gain on insurance
proceeds.............. 2,231 -- -- -- -- --
Other income........... 521 238 114 194 -- --
-------- -------- -------- -------- ------- -------
Income before provision
for taxes and minority
interest............... 27,805 24,520 25,004 22,956 7,295 478
Provision for taxes..... (223) (256) (352) (368) (158) --
-------- -------- -------- -------- ------- -------
Income before minority
interest............... 27,582 24,264 24,652 22,588 7,137 478
Minority interest....... (12,003) (10,852) (11,366) (10,712) (3,317) --
-------- -------- -------- -------- ------- -------
Net income.............. $ 15,579 $ 13,412 $ 13,286 $ 11,876 $ 3,820 $ 478
======== ======== ======== ======== ======= =======
Basic earnings per
share.................. $ 1.26 $ 1.19 $ 1.25 $ 1.12 $ 0.36 --
Weighted average number
of shares.............. 12,368 11,317 10,622 10,612 10,603 --
Diluted earnings per
share.................. $ 1.25 $ 1.17 $ 1.25 $ 1.12 $ 0.36 --
Weighted average number
of shares.............. 12,512 11,420 10,643 10,616 10,603 --
</TABLE>
<TABLE>
<CAPTION>
NATIONAL GOLF PROPERTIES, INC.
--------------------------------------------
DECEMBER 31,
--------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Real estate before accumulated
depreciation.................... $601,882 $515,794 $362,068 $272,034 $166,410
Total assets..................... 535,314 469,945 347,967 275,071 222,739
Total debt....................... 299,032 230,590 144,983 66,441 12,666
Minority interest................ 17,868 20,831 23,000 22,936 19,979
Stockholders' equity............. 213,029 215,390 177,907 183,136 181,997
Cash distributions declared per
share........................... 1.70 1.66 1.61 1.49 0.51
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
GOLF PROPERTIES
NATIONAL GOLF PROPERTIES, INC. GROUP
----------------------------------------------------- ---------------
YEAR ENDED DECEMBER 31, AUG. 18, 1993 JAN. 1, 1993
-------------------------------------- THROUGH THROUGH
1997 1996 1995 1994 DEC. 31, 1993 AUG. 17, 1993
-------- -------- -------- -------- ------------- ---------------
(IN THOUSANDS, EXCEPT PROPERTY DATA)
<S> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Company's funds from
operations(1).......... $ 27,851 $ 23,215 $ 19,641 $ 17,209 $ 5,587 $ 5,129
Cash flows from (used
in):
Operating activities... 55,576 44,217 36,383 34,241 9,282 6,649
Investing activities... (94,408) (68,481) (76,019) (32,003) (106,728) (8,763)
Financing activities... 29,306 28,399 42,639 (52) 99,346 1,188
Number of courses....... 123 114 81 71 51 47
Number of locations..... 112 104 72 63 46 42
</TABLE>
- --------
(1) The Company believes that to facilitate a clear understanding of the
historical consolidated and combined operating results, funds from
operations should be examined in conjunction with net income. Funds from
operations is considered by management as an appropriate measure of the
performance of an equity REIT because it is predicated on cash flow
analyses, which management believes is more reflective of the value of
real estate companies such as the Company rather than a measure predicated
on generally accepted accounting principles which gives effect to non-cash
expenditures such as depreciation. Funds from operations is generally
defined as net income (loss) plus certain non-cash items, primarily
depreciation and amortization. Funds from operations should not be
considered as an alternative to net income as an indication of the
Company's performance or as an alternative to cash flow, as defined by
generally accepted accounting principles, as a measure of liquidity. The
funds from operations presented may not be comparable to funds from
operations for other REITs. The following table summarizes the Company's
funds from operations for the years ended December 31, 1997, 1996, 1995
and 1994, and the period August 18, 1993 through December 31, 1993, and
GPG's funds from operations for the period January 1, 1993 through August
17, 1993.
<TABLE>
<CAPTION>
GOLF PROPERTIES
NATIONAL GOLF PROPERTIES, INC. GROUP
------------------------------------------------- ---------------
FOR THE PERIOD
-----------------------------
FOR THE YEAR ENDED DECEMBER 31, AUG. 18, 1993 JAN. 1, 1993
---------------------------------- THROUGH THROUGH
1997 1996 1995 1994 DEC. 31, 1993 AUG. 17, 1993
------- ------- ------- ------- ------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net income.............. $15,579 $13,412 $13,286 $11,876 $ 3,820 $ 478
Minority interest....... 12,003 10,852 11,366 10,712 3,317 --
Depreciation and
amortization........... 24,883 19,124 14,027 10,413 3,384 4,661
Gain on insurance
proceeds............... (2,231) -- -- -- -- --
Gain on sale of
properties............. (158) (1,199) (1,893) -- -- --
Excess land sales....... (469) -- -- -- -- --
Write off of option
payable................ -- -- (101) -- -- --
Discount on payoff of
note payable........... -- -- -- (175) -- --
Amortization--loan
costs.................. (227) (147) (195) (66) (78) (10)
Depreciation--
corporate.............. (69) (47) (43) (31) (3) --
------- ------- ------- ------- ------- ------
Funds from operations... $49,311 $41,995 $36,447 $32,729 $10,440 $5,129
Company's share of funds
from operations........ 56.48% 55.28% 53.89% 52.58% 53.52% 100%
------- ------- ------- ------- ------- ------
Company's funds from
operations............. $27,851 $23,215 $19,641 $17,209 $ 5,587 $5,129
======= ======= ======= ======= ======= ======
</TABLE>
In order to maintain its qualification as a REIT for federal income tax
purposes, the Company is required to make distributions to its
stockholders. The Company's distributions to stockholders have been less
than the total funds from operations because the Company is obligated to
make certain payments with respect to principal debt and capital
improvements. Management believes that to continue the Company's growth,
funds from operations in excess of distributions, principal reductions and
capital improvement expenditures should be invested in assets expected to
generate returns on investment to the Company commensurate with the
Company's investment objectives and policies.
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
The following discussion should be read in conjunction with the accompanying
Consolidated Financial Statements and Notes thereto. The forward-looking
statements included in Management's Discussion and Analysis of Financial
Condition and Results of Operations ("MD&A") relating to certain matters
involve risks and uncertainties, including anticipated financial performance,
business prospects, anticipated capital expenditures and other similar
matters, which reflect management's best judgement based on factors currently
known. Actual results and experience could differ materially from the
anticipated results or other expectations expressed in the Company's forward-
looking statements as a result of a number of factors, including but not
limited to those discussed in MD&A.
The discussion of the results of operations compares the year ended December
31, 1997 with the year ended December 31, 1996 and the year ended December 31,
1996 with the year ended December 31, 1995.
RESULTS OF OPERATIONS
Comparison of year ended December 31, 1997 to year ended December 31, 1996
Net income increased by $2,167,000 to $15,579,000 for the year ended
December 31, 1997 compared to $13,412,000 for the year ended December 31,
1996. The increase was primarily attributable to (i) an increase in rent
revenues of approximately $15,418,000; (ii) an increase in general and
administrative expenses of approximately $602,000; (iii) an increase in
depreciation and amortization expense of approximately $5,634,000; (iv) a
decrease in interest income from affiliates of approximately $1,683,000; (v)
an increase in gain on insurance proceeds of approximately $2,231,000; and
(vi) an increase in interest expense of approximately $5,743,000.
The increase in rent revenues is due to (i) the acquisition of nine golf
course properties during 1997, which accounted for approximately $3,611,000 of
the increase; (ii) a full year of rent in 1997 on 34 golf course properties
acquired in 1996, which accounted for approximately $9,248,000 of the
increase; (iii) an increase in base rent of approximately $1,212,000; and (iv)
an increase in percentage rent of approximately $1,347,000. The increase in
general and administrative expenses in 1997 was primarily due to (i) an
increase in compensation expense resulting from the issuance of restricted
stock and (ii) payments to be made to a former employee. The increase in
depreciation and amortization expense is due to an increase in depreciation
expense of approximately $5,696,000, which was offset by a decrease in
amortization expense of approximately $62,000. The increase in depreciation
expense is primarily due to (i) the acquisition of nine golf course properties
during 1997, which accounted for approximately $1,810,000 of the increase and
(ii) a full year of depreciation expense in 1997 on 34 golf course properties
acquired in 1996, which accounted for approximately $4,239,000 of the
increase. The decrease in amortization expense is primarily due to certain
covenants and loan costs becoming fully amortized.
The decrease in interest income from affiliates is due to the retirement of
the participating mortgage loans in 1996. The increase in gain on insurance
proceeds is due to a fire completely destroying a clubhouse at one of the Golf
Courses. The Company is applying the insurance proceeds to rebuild the
clubhouse. The increase in interest expense was primarily attributable to (i)
the issuance of $75 million of fixed-rate, unsecured notes in 1996 ($40
million in July and $35 million in December) and (ii) the increase in
outstanding advances under the Company's $100 million credit facility.
Comparison of year ended December 31, 1996 to year ended December 31, 1995
Net income increased by $126,000 to $13,412,000 for the year ended December
31, 1996 compared to $13,286,000 for the year ended December 31, 1995. The
increase was primarily attributable to (i) an increase in rent revenues of
approximately $12,967,000; (ii) an increase in general and administrative
expenses of approximately $476,000; (iii) an increase in depreciation and
amortization expense of approximately $5,097,000; (iv) a decrease in interest
income from affiliates of approximately $1,201,000; (v) a decrease in interest
income of approximately $833,000; and (vi) an increase in interest expense of
approximately $5,274,000.
16
<PAGE>
The increase in rent revenues is due to (i) the acquisition of 35 golf
course properties during 1996, which accounted for approximately $7,248,000 of
the increase; (ii) a full year of rent in 1996 on 11 golf course properties
acquired in 1995, which accounted for approximately $4,854,000 of the
increase; (iii) an increase in base rent of approximately $625,000; and (iv)
an increase in percentage rent of approximately $240,000. The increase in
general and administrative expenses in 1996 was primarily due to (i)
implementation of an investor relations program; (ii) payments made to former
employees; and (iii) relocation of the Company's corporate office. The
increase in depreciation and amortization expense is due to an increase in
depreciation expense of approximately $5,403,000, which was offset by a
decrease in amortization expense of approximately $306,000. The increase in
depreciation expense is primarily due to (i) the acquisition of 35 golf course
properties during 1996, which accounted for approximately $3,237,000 of the
increase and (ii) a full year of depreciation expense in 1996 on 11 golf
course properties acquired in 1995, which accounted for approximately
$2,266,000 of the increase. The decrease in amortization expense is primarily
due to certain covenants and loan costs becoming fully amortized.
The decrease in interest income from affiliates is due to the retirement of
the participating mortgage loans in 1996. The decrease in interest income is
due to less available cash during the year because the Company purchased 35
golf courses for an aggregate initial investment of approximately $155
million. The increase in interest expense was primarily attributable to (i)
the issuance of $50 million of fixed-rate, unsecured notes by the Operating
Partnership in June 1995; (ii) the issuance of $75 million of fixed-rate,
unsecured notes by the Operating Partnership in 1996 ($40 million in July and
$35 million in December); and (iii) the increase in outstanding advances under
the Company's $40 million credit facility.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company had approximately $2.9 million in cash and
investments, mortgage loans of approximately $2.2 million, mortgage
indebtedness of approximately $30.2 million and unsecured indebtedness of
approximately $268.8 million. The $299 million aggregate principal amount of
mortgage and unsecured indebtedness bears interest at a weighted average rate
of 7.81%. Of the $299 million of debt, $208 million is fixed-rate debt and is
payable either quarterly or semi-annually and matures between 1999 and 2008.
In order to maintain its qualification as a REIT for federal income tax
purposes, the Company is required to make substantial distributions to its
stockholders. The following factors, among others, will affect cash flow from
operations and will influence the decisions of the Board of Directors
regarding distributions: (i) reduction in debt service resulting from the
repayment of certain mortgage indebtedness relating to the Golf Courses; (ii)
scheduled increases in base rent under the Leases with respect to the Golf
Courses; (iii) any payment to the Company of percentage rent under the Leases
with respect to the Golf Courses; and (iv) returns from short-term
investments. Although the Company receives most of its rental payments on a
monthly basis, it has and intends to continue to pay distributions quarterly.
Amounts accumulated for distribution will be invested by the Company in short-
term money market instruments and marketable securities.
The Company anticipates that its cash from operations and its bank line of
credit, described below, will provide adequate liquidity to conduct its
operations, fund administrative and operating costs, interest payments,
capital improvements and acquisitions and allow distributions to the Company's
stockholders in accordance with the Code's requirements for qualification as a
REIT and to avoid any corporate level federal income or excise tax. Capital
improvements for which the Company is responsible would be limited to mandated
projects or initial capital improvement projects intended to add value to the
property and reposition the facility for enhanced revenue growth. For the Golf
Courses acquired through January 5, 1998, the Company is required under the
Leases to pay for various remaining capital improvements totaling
approximately $10.2 million, which will be paid during the next two years. The
Company believes these improvements will add value to the Golf Courses and
bring the quality of the Golf Courses up to the Company's expected standards
in order to enhance revenue growth. Any subsequent capital improvements are
the responsibility of the lessees. However, during 1997, AGC requested that
the Company provide additional funding of approximately $16.4 million in
capital improvements intended to add value to the properties and reposition
the facilities for enhanced revenue growth. The
17
<PAGE>
Independent Committee of the Company's Board of Directors approved such
additional funding. The
$16.4 million will be paid during the next two years. Upon the Company's
funding of the capital improvements, the base rent payable under the Leases
with respect to these Golf Courses will be adjusted to reflect, over the
initial term of the Leases, the Company's investment in such improvements.
Future acquisitions will be made subject to the Company's investment
objectives and policies established to maximize both current income and long-
term growth in income. The Company's liquidity requirements with respect to
future acquisitions may be reduced to the extent the Company uses Common Stock
or OP Units as consideration for such purchases. The Company currently has a
$100 million credit facility with a group of four commercial banks, which
terminates in April 2002. The Company has two interest rate options under the
credit facility depending upon the length of time the advances are
outstanding. For advances which will be outstanding for less than a month, the
advances bear interest at prime. At December 31, 1997, such rate was 8.5%. For
advances which will be outstanding for one month or more, the advances bear
maximum interest at a floating rate equal to LIBOR plus a spread of 1.125%.
The spread will be reduced upon the Company's receipt of specified credit
ratings. There were outstanding advances of $86 million and $91 million under
this credit facility as of January 5, 1998 and December 31, 1997,
respectively. The Company may borrow additional funds or increase its credit
facility to finance future acquisitions.
In 1997, the Company purchased nine golf courses for an aggregate initial
investment of approximately $79.2 million, which investment was financed by
$14.5 million of cash from operations, $59.7 million of advances under the
Company's credit facility and $5 million of notes payable. Also in 1997, the
Company acquired a 50% general partner interest in Pumpkin Ridge for
approximately $8.1 million, which investment was financed by advances under
the Company's credit facility.
OP Limited Partners have the right, exercisable once in any twelve-month
period, to sell up to one-third of their OP Units or exchange up to the
greater of 75,000 OP Units or one-third of their OP Units to the Company. If
the OP Units are sold for cash, the Company will have the option to pay for
such OP Units with available cash, borrowed funds or from the proceeds of an
offering of Common Stock. If the OP Units are exchanged for shares of Common
Stock, the OP Limited Partner will receive the number of shares of Common
Stock having a market value at the time of exercise equal to the fair market
value of the OP Units being exchanged.
Comparison of cash flow statement for year ended December 31, 1997 to year
ended December 31, 1996
Net cash provided by operating activities increased by $11,359,000 to
$55,576,000 for the year ended December 31, 1997 compared to $44,217,000 for
the year ended December 31, 1996. The increase was primarily attributable to
an increase in rent revenues of approximately $15,418,000, which was offset by
an increase in interest expense of approximately $5,743,000.
Net cash used by investing activities increased by $25,927,000 to
$94,408,000 for the year ended December 31, 1997 compared to $68,481,000 for
the year ended December 31, 1996. The increase was primarily attributable to
(i) a decrease in proceeds from mortgage loans of approximately $24,740,000;
(ii) a decrease in purchase of property from affiliates of approximately
$4,937,000; (iii) an increase in investment in joint venture of approximately
$8,128,000; and (iv) an increase in proceeds from sale of properties and
related assets of approximately $2,575,000.
Net cash provided by financing activities increased by $907,000 to
$29,306,000 for the year ended December 31, 1997 compared to $28,399,000 for
the year ended December 31, 1996. The increase was primarily attributable to
an increase in proceeds from stock options exercised of approximately
$993,000.
Comparison of cash flow statement for year ended December 31, 1996 to year
ended December 31, 1995
Net cash provided by operating activities increased by $7,834,000 to
$44,217,000 for the year ended December 31, 1996 compared to $36,383,000 for
the year ended December 31, 1995. The increase was primarily attributable to
an increase in rent revenues of approximately $12,967,000, which was offset by
an increase in interest expense of approximately $5,274,000.
18
<PAGE>
Net cash used by investing activities decreased by $7,538,000 to $68,481,000
for the year ended December 31, 1996 compared to $76,019,000 for the year
ended December 31, 1995. The decrease was primarily attributable to (i) an
increase in proceeds from mortgage loans of approximately $25,472,000; (ii) an
increase in purchase of property of approximately $10,140,000; and (iii) a
decrease in net proceeds from sale of investments of approximately $8,628,000.
Net cash provided by financing activities decreased by $14,240,000 to
$28,399,000 for the year ended December 31, 1996 compared to $42,639,000 for
the year ended December 31, 1995. The decrease was primarily attributable to
an increase in principal payments on notes payable of approximately
$97,793,000, which was offset by an increase in proceeds from notes payable of
approximately $84,799,000.
OTHER DATA
The Company believes that to facilitate a clear understanding of the
historical consolidated operating results, funds from operations should be
examined in conjunction with net income as presented in the audited
Consolidated Financial Statements. Funds from operations is considered by
management as an appropriate measure of the performance of an equity REIT
because it is predicated on cash flow analyses, which management believes is
more reflective of the value of real estate companies such as the Company
rather than a measure predicated on generally accepted accounting principles
which gives effect to non-cash expenditures such as depreciation. Funds from
operations is generally defined as net income (loss) plus certain non-cash
items, primarily depreciation and amortization. Funds from operations should
not be considered as an alternative to net income as an indication of the
Company's performance or as an alternative to cash flow, as defined by
generally accepted accounting principles, as a measure of liquidity.
The funds from operations presented may not be comparable to funds from
operations for other REITs. The following table summarizes the Company's funds
from operations for the years ended December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-------------------------
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Net income........................................... $15,579 $13,412 $13,286
Minority interest.................................... 12,003 10,852 11,366
Depreciation and amortization........................ 24,883 19,124 14,027
Gain on insurance proceeds........................... (2,231) -- --
Gain on sale of properties........................... (158) (1,199) (1,893)
Excess land sales.................................... (469) -- --
Write off of option payable.......................... -- -- (101)
Amortization--loan costs............................. (227) (147) (195)
Depreciation--corporate.............................. (69) (47) (43)
------- ------- -------
Funds from operations................................ $49,311 $41,995 $36,447
Company's share of funds from operations............. 56.48% 55.28% 53.89%
------- ------- -------
Company's funds from operations...................... $27,851 $23,215 $19,641
======= ======= =======
</TABLE>
In order to maintain its qualification as a REIT for federal income tax
purposes, the Company is required to make distributions to its stockholders.
The Company's distributions to stockholders have been less than the total
funds from operations because the Company is obligated to make certain
payments with respect to principal debt and capital improvements. Management
believes that to continue the Company's growth, funds from operations in
excess of distributions, principal reductions and capital improvement
expenditures should be invested in assets expected to generate returns on
investment to the Company commensurate with the Company's investment
objectives and policies.
19
<PAGE>
Comparison of funds from operations for year ended December 31, 1997 to year
ended December 31, 1996
Funds from operations increased by $7,316,000 to $49,311,000 for the year
ended December 31, 1997 compared to $41,995,000 for the year ended December
31, 1996. The increase was primarily attributable to an increase in rent
revenues of approximately $15,418,000, which was offset by an increase in
interest expense of approximately $5,743,000.
Comparison of funds from operations for year ended December 31, 1996 to year
ended December 31, 1995
Funds from operations increased by $5,548,000 to $41,995,000 for the year
ended December 31, 1996 compared to $36,447,000 for the year ended December
31, 1995. The increase was primarily attributable to an increase in rent
revenues of approximately $12,967,000, which was offset by an increase in
interest expense of approximately $5,274,000.
INFLATION
All the Leases of the Golf Courses provide for base and participating rent
features. All of such Leases are triple net leases requiring the lessees to
pay for all maintenance and repair, insurance, utilities and services, and,
subject to certain limited exceptions, all real estate taxes, thereby
minimizing the Company's exposure to increases in costs and operating expenses
resulting from inflation.
SEASONALITY
Although the results of operations of the Company and its predecessors have
not been significantly impacted by seasonality, the Company generally expects
that its results of operations may be adversely affected as a function of
reduced payments of percentage rent in the first and fourth quarters of each
year due to adverse weather conditions and the scheduled closure of Golf
Courses located in harsh winter climates.
20
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of National Golf Properties, Inc.
We have audited the consolidated financial statements and financial
statement schedule of National Golf Properties, Inc. (the "Company") as listed
in Item 14(a)(1) and (2) of this Form 10-K. These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of National Golf Properties, Inc. as of December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Los Angeles, California
February 4, 1998
21
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Property
Land..................................................... $ 72,339 $ 63,049
Buildings................................................ 181,571 147,678
Ground improvements...................................... 301,814 263,803
Furniture, fixtures and equipment........................ 35,589 30,531
Construction in progress................................. 10,569 10,733
-------- --------
601,882 515,794
Less: accumulated depreciation........................... (94,872) (73,031)
-------- --------
Net property........................................... 507,010 442,763
Cash and cash equivalents.................................. 1,698 11,224
Investments................................................ 1,215 286
Mortgage notes receivable.................................. 2,200 2,971
Investment in joint venture................................ 8,004 --
Due from affiliate......................................... 4,524 --
Other assets, net.......................................... 10,663 12,701
-------- --------
Total assets........................................... $535,314 $469,945
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable.............................................. $299,032 $229,949
Accounts payable and other liabilities..................... 5,385 3,134
Due to affiliate........................................... -- 641
-------- --------
Total liabilities...................................... 304,417 233,724
-------- --------
Minority interest.......................................... 17,868 20,831
-------- --------
Commitments and contingencies (Note 7)
Stockholders' Equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized--none issued................................. -- --
Common stock, $.01 par value, 40,000,000 shares
authorized, 12,408,195 and 12,303,720 shares issued and
outstanding at December 31, 1997 and 1996,
respectively............................................ 124 123
Additional paid in capital............................... 217,361 219,985
Accumulated deficit...................................... (1,360) (1,360)
Unamortized restricted stock compensation................ (3,096) (3,358)
-------- --------
Total stockholders' equity............................. 213,029 215,390
-------- --------
Total liabilities and stockholders' equity............. $535,314 $469,945
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
----------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Rent from affiliate........................... $ 71,087 $ 57,291 $ 45,339
Rent.......................................... 3,229 1,607 592
Equity in income from joint venture........... 119 -- --
Gain on sale of properties.................... 158 1,199 1,893
-------- -------- --------
Total revenues.............................. 74,593 60,097 47,824
-------- -------- --------
Expenses:
General and administrative.................... 5,336 4,734 4,258
Depreciation and amortization................. 24,758 19,124 14,027
-------- -------- --------
Total expenses.............................. 30,094 23,858 18,285
-------- -------- --------
Operating income.............................. 44,499 36,239 29,539
Other income (expense):
Interest income from affiliates............... -- 1,683 2,884
Interest income............................... 364 427 1,260
Gain on insurance proceeds.................... 2,231 -- --
Other income.................................. 521 238 114
Interest expense.............................. (19,810) (14,067) (8,793)
-------- -------- --------
Income before provision for taxes and minority
interest....................................... 27,805 24,520 25,004
Provision for taxes............................. (223) (256) (352)
-------- -------- --------
Income before minority interest................. 27,582 24,264 24,652
Income applicable to minority interest.......... (12,003) (10,852) (11,366)
-------- -------- --------
Net income...................................... $ 15,579 $ 13,412 $ 13,286
======== ======== ========
Basic earnings per share........................ $ 1.26 $ 1.19 $ 1.25
Weighted average number of shares............... 12,368 11,317 10,622
Diluted earnings per share...................... $ 1.25 $ 1.17 $ 1.25
Weighted average number of shares............... 12,512 11,420 10,643
</TABLE>
The accompanying notes are an integral part of these financial statements.
23
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ADDITIONAL UNAMORTIZED
NUMBER OF COMMON PAID IN ACCUMULATED RESTRICTED
SHARES STOCK CAPITAL DEFICIT STOCK TOTAL
---------- ------ ---------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1994................... 10,621,975 $106 $187,902 $ (1,360) $(3,512) $183,136
Amortization of
restricted stock...... -- -- -- -- 943 943
Reduction for minority
interest.............. -- -- (2,558) -- -- (2,558)
Distributions paid
($1.59 per share)..... -- -- (3,614) (13,286) -- (16,900)
Net income............. -- -- -- 13,286 -- 13,286
---------- ---- -------- -------- ------- --------
Balance at December 31,
1995................... 10,621,975 106 181,730 (1,360) (2,569) 177,907
Amortization of
restricted stock...... -- -- -- -- 1,089 1,089
Issuance of stock
for acquisitions...... 1,577,820 16 40,771 -- -- 40,787
Issuance of restricted
stock................. 82,000 1 1,878 -- (1,878) 1
Exercise of stock
options............... 21,925 -- 446 -- -- 446
Distributions paid
($1.65 per share)..... -- -- (4,840) (13,412) -- (18,252)
Net income............. -- -- -- 13,412 -- 13,412
---------- ---- -------- -------- ------- --------
Balance at December 31,
1996................... 12,303,720 123 219,985 (1,360) (3,358) 215,390
Amortization of
restricted stock...... -- -- -- -- 1,532 1,532
Issuance of restricted
stock................. 52,000 -- 1,840 -- (1,840) --
Forfeiture of
restricted stock...... (20,000) -- (570) -- 570 --
Exercise of stock
options............... 72,475 1 1,438 -- -- 1,439
Distributions paid
($1.69 per share)..... -- -- (5,332) (15,579) -- (20,911)
Net income............. -- -- -- 15,579 -- 15,579
---------- ---- -------- -------- ------- --------
Balance at December 31,
1997................... 12,408,195 $124 $217,361 $ (1,360) $(3,096) $213,029
========== ==== ======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
------------------------------
1997 1996 1995
-------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................... $ 15,579 $ 13,412 $ 13,286
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization................ 24,758 19,124 14,027
Amortization of restricted stock............. 1,532 1,089 943
Minority interest in earnings................ 12,003 10,852 11,366
Distributions from joint venture, net of
equity in income............................ 124 -- --
Gain on insurance proceeds................... (2,231) -- --
Gain on sale of properties................... (158) (1,199) (1,893)
Other adjustments............................ 71 5 (101)
Changes in assets and liabilities:
Other assets................................ 1,863 (591) 122
Accounts payable and other liabilities...... 2,480 866 (478)
Due from/to affiliate....................... (445) 659 (889)
-------- --------- ---------
Net cash provided by operating activities.. 55,576 44,217 36,383
-------- --------- ---------
Cash flows from investing activities:
Purchase of held-to-maturity securities....... -- -- (402,910)
Proceeds from sale of held-to-maturity
securities................................... -- -- 412,870
Purchase of available-for-sale securities..... (7,623) (5,644) (22,620)
Proceeds from sale of available-for-sale
securities................................... 6,694 6,167 21,811
Proceeds from mortgage notes receivable....... 732 25,472 --
Purchase of property and related assets....... (89,487) (90,368) (85,165)
Purchase of property and related assets from
affiliates................................... -- (4,937) --
Investment in joint venture................... (8,128) -- --
Proceeds from sale of properties and related
assets....................................... 3,404 829 --
Payments for covenants not to compete......... -- -- (5)
-------- --------- ---------
Net cash used by investing activities...... (94,408) (68,481) (76,019)
-------- --------- ---------
Cash flows from financing activities:
Principal payments on notes payable........... (83,300) (111,952) (14,159)
Proceeds from notes payable................... 147,150 173,299 88,500
Loan costs.................................... (106) (530) (940)
Repurchase of OP Units........................ -- (116) --
Proceeds from stock options exercised......... 1,439 446 --
Cash distributions............................ (20,911) (18,252) (16,902)
Limited partners' cash distributions.......... (14,966) (14,496) (13,860)
-------- --------- ---------
Net cash provided by financing activities.. 29,306 28,399 42,639
-------- --------- ---------
Net increase (decrease) in cash and cash
equivalents................................... (9,526) 4,135 3,003
Cash and cash equivalents at beginning of
period........................................ 11,224 7,089 4,086
-------- --------- ---------
Cash and cash equivalents at end of period..... $ 1,698 $ 11,224 $ 7,089
======== ========= =========
Supplemental cash flow information:
Interest paid................................. $ 18,729 $ 13,646 $ 8,503
Taxes paid.................................... 261 265 386
</TABLE>
The accompanying notes are an integral part of these financial statements.
25
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Organization
National Golf Properties, Inc. (the "Company") commenced operations
effective with the completion of its initial public stock offering (the
"Offering") of common stock (the "Common Stock"), on August 18, 1993. The
Company acquires and owns golf courses located throughout the United States.
At December 31, 1997, the Company leased all but five of its golf courses to
American Golf Corporation ("AGC") pursuant to long-term triple net leases (the
"Leases"). David G. Price, the Chairman of the Board of Directors of the
Company, owns approximately 5.4% of the Company's outstanding Common Stock and
approximately 38.4% of National Golf Operating Partnership, L.P. (the
"Operating Partnership") and a controlling interest in AGC. The Company owns
substantially all of the golf courses through its 58.4% general partner
interest in the Operating Partnership. On July 8, 1994, the Operating
Partnership acquired an 89% general partner interest in Royal Golf, L.P. II
("Royal Golf"). Royal Golf owns four golf courses on Hilton Head Island, South
Carolina. Unless the context otherwise requires, all references to the
Company's business and properties include the business and properties of the
Operating Partnership and Royal Golf.
In conjunction with the formation of the Company and the Operating
Partnership, the partners of the entities transferring their interest in the
initial portfolio of golf courses (the "Initial Golf Courses") to the
Operating Partnership became limited partners in the Operating Partnership
(the "OP Limited Partners") and received units of limited partnership interest
in the Operating Partnership (the "OP Units"). Their interest in the Initial
Golf Courses were carried over to the Operating Partnership on a historical
cost basis similar to pooling of interest accounting and became part of the
beginning balance of minority interest. Minority interest is adjusted for the
OP Limited Partners' proportionate share of net income of the Company and any
additional contributions or distributions to the OP Limited Partners.
An OP Unit and a share of Common Stock of the Company have the same economic
characteristics inasmuch as they effectively share equally in the net income
or loss and any distributions of the Operating Partnership. OP Limited
Partners have the right, exercisable once in any twelve-month period, to sell
up to one-third of their OP Units or exchange up to the greater of 75,000 OP
Units or one-third of their OP Units to the Company.
In order for the Company to maintain its qualification as a REIT, not more
than 50% in value of its Common Stock may be owned, directly or
constructively, by five or fewer individuals. For the purpose of preserving
the Company's REIT qualification, the Certificate of Incorporation prohibits
direct or constructive ownership of more than 9.8% of the Common Stock by any
person. Thus, although an OP Unit is convertible into a share of Common Stock,
the conversion of the majority of the OP Units owned by David G. Price is
restricted by the Company and the ownership limitations in order to preserve
its REIT status.
The consolidated financial statements include the accounts of the Company,
the Operating Partnership and Royal Golf. All significant intercompany
transactions and balances have been eliminated.
b) Cash Equivalents
The Company considers all money market funds with an original maturity of
three months or less at the date of purchase to be cash equivalents with cost
approximating market.
c) Investments
Debt securities that the Company expects to hold to maturity are classified
as held-to-maturity securities and reported at amortized cost. Debt securities
not classified as either held-to-maturity securities or bought and held
principally for the purpose of selling them in the near term are classified as
available-for-sale securities and reported at fair value with unrealized gains
and losses excluded from earnings and reported as a separate component of
stockholders' equity. Cost of investments sold is determined on the average
cost method.
26
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
d) Concentration of Credit Risk
Concentration of credit risk with respect to the Company's portfolio of 123
golf courses is limited due to the golf courses being geographically
diversified and located in 26 states. The distribution of the golf courses
reflects the Company's belief that geographic diversification helps insulate
the portfolio from regional economic and climatic influences. As of December
31, 1997, the Company had no significant concentration of credit risk.
The Company has cash in financial institutions which is insured by the
Federal Deposit Insurance Corporation ("FDIC") up to $100,000 per institution.
At December 31, 1997 and 1996, the Company had cash accounts in excess of FDIC
insured limits.
e) Property
Property is carried at the lower of cost or net realizable value.
Depreciation is computed on a straight-line basis over the estimated useful
lives of the assets as follows:
<TABLE>
<S> <C>
Buildings...................................................... 30 years
Ground improvements............................................ 20 years
Furniture, fixtures & equipment................................ 3 to 10 years
</TABLE>
The Leases presently provide that at the end or termination of the existing
Leases, all improvements and fixtures placed on the rental property become the
property of the Company.
The Company assesses whether there has been a permanent impairment in the
value of rental property by considering factors such as expected future
operating income, trends and prospects, as well as the effects of demand,
competition and other economic factors. Such factors include a lessee's
ability to perform its duties and pay rent under the terms of the lease. If
the property was leased at a significantly lower rent, the Company may
recognize a permanent impairment loss if the income stream were not sufficient
to recover its investment. Such a loss would be determined as the difference
between the carrying value, including any allocated goodwill, and the fair
value of the property, with the carrying value of the intangible asset reduced
first. Management believes no permanent impairment has occurred in its net
property carrying values.
When assets are sold or retired, the asset and related depreciation
allowance is eliminated from the records and any gain or loss on disposal is
included in operations.
f) Income Taxes
The Company qualifies as a real estate investment trust ("REIT") under the
Internal Revenue Code of 1986, as amended (the "Code"). A REIT will generally
not be subject to federal income taxation to the extent that it distributes at
least 95% of its taxable income to its stockholders and complies with other
requirements. The Company paid distributions to stockholders of $1.69 per
share in 1997, of which $1.49 represents ordinary income, $0.05 represents
capital gains (20% tax rate) and $0.15 represents return of capital on a tax
basis. On a book basis, calculated using basic earnings per share, $0.43 per
share represents return of capital. In addition, on January 9, 1998, the
Company declared a quarterly distribution for the fourth quarter of 1997 of
$0.43 per share to stockholders of record on January 30, 1998, which will be
paid on February 13, 1998. The Company may be subject to federal alternative
minimum tax in 1997. The Company is also subject to state income and franchise
taxes in certain states in which it operates. Therefore, a tax provision has
been reflected for these income, franchise, and alternative minimum taxes.
g) Revenue Recognition
The Company recognizes rental revenue on an accrual basis over the terms of
the Leases.
27
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
h) Intangible Assets
Included in other assets are intangible assets which consist of covenants
not to compete, goodwill and other intangibles. Intangible assets are carried
at cost less accumulated amortization and are amortized on a straight-line
basis. The covenants are amortized over their contractual lives which range
from three to 30 years. Goodwill, arising from golf course acquisitions, is
amortized over the life of the Leases (15 to 20 years). Other intangibles are
amortized over periods from one to ten years. The Company assesses whether
there has been a permanent impairment in the value of intangible assets by
considering factors such as expected future operating income, trends and
prospects, as well as the effects of demand, competition and other economic
factors. Such factors include a lessee's ability to perform its duties and pay
rent under the terms of the lease. If the property was leased at a
significantly lower rent, the Company may recognize a permanent impairment
loss if the income stream is not sufficient to recover its investment. Such a
loss would be determined as the difference between the carrying value,
including any allocated goodwill, and the fair value of the property, with the
carrying value of the intangible asset reduced first. Management believes no
permanent impairment in the carrying value of its intangible assets has
occurred. Accumulated amortization at December 31, 1997 and 1996, was
approximately $4,318,000 and $4,310,000, respectively.
i) 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.
j) Fair Value of Financial Instruments
To meet the reporting requirements of Statement of Financial Accounting
Standards ("SFAS") No. 107, "Disclosures about Fair Value of Financial
Instruments," the Company calculates the fair value of financial instruments
and includes this additional information in the notes to the consolidated
financial statements when the fair value is different than the carrying value
of those financial instruments. When the fair value reasonably approximates
the carrying value, no additional disclosure is made. The estimated fair value
amounts have been determined by the Company, using available market
information and appropriate valuation methodologies. However, considerable
judgment is required in interpreting market data to develop the estimates of
fair value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that the Company could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
k) Earnings Per Share
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings Per Share." SFAS No. 128 supersedes and simplifies the
existing computational guidelines under Accounting Principles Board ("APB")
Opinion No. 15, "Earnings Per Share." It is effective for financial statements
issued for periods ending after December 15, 1997. Among other changes, SFAS
No. 128 eliminates the presentation of primary earnings per share and replaces
it with basic earnings per share for which common stock equivalents are not
considered in the computation. It also revises the computation of diluted
earnings per share. The Company has adopted SFAS No. 128 and there is no
material impact to the Company's earnings per share, financial condition, or
results of operations. The Company's earnings per share have been restated for
all periods presented to be consistent with SFAS No. 128.
28
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
k) Earnings Per Share--(Continued)
The computation of diluted earnings per share is based on the weighted
average number of outstanding common shares during the period and the
incremental shares, using the treasury stock method, from stock options. The
incremental shares for the years ended December 31, 1997, 1996 and 1995 were
143,697, 103,365 and 20,816, respectively.
l) Accounting for Stock--Based Compensation
The Company measures compensation cost for their plans using the accounting
principles prescribed by APB Opinion No. 25, "Accounting for Stock Issued to
Employees." The pro forma disclosures of net income, basic earnings per share
and diluted earnings per share as if the fair value based method of accounting
defined in SFAS No. 123, "Accounting for Stock-Based Compensation" had been
applied, have been disclosed.
m) Year 2000
There is no material impact anticipated to the Company's earnings per share,
financial condition, or results of operations due to upgrading the Company's
computer systems for the year 2000.
(2) PROPERTY ACQUISITIONS AND SALES
In 1997, the Company purchased nine golf courses for an aggregate initial
investment of approximately $79.2 million. The acquisitions have been
accounted for utilizing the purchase method of accounting and, accordingly,
the acquired assets are included in the statement of operations from the date
of acquisition. The initial investment amount includes purchase price, closing
costs and other direct costs associated with the purchase. The aforementioned
golf courses, except for Spanish Hills, are leased to AGC pursuant to long-
term triple net leases. Spanish Hills is leased to Camarillo Golf, LLC
pursuant to a long-term triple net lease. Camarillo Golf, LLC subleases
Spanish Hills to AGC.
<TABLE>
<CAPTION>
ACQUISITION INITIAL
DATE COURSE NAME LOCATION INVESTMENT
----------- ----------- -------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
1/2/97 Stonecreek Golf Course Phoenix, Arizona $ 9,447
1/10/97 Tamarack Golf Club Naperville, Illinois 5,393
4/10/97 Baymeadows Golf Club Jacksonville, Florida 4,563
5/1/97 The Golf Club at Bradshaw Farm Woodstock, Georgia 6,603
7/31/97 Longwood Golf Club Houston, Texas 9,706
8/12/97 Eagle Brook Country Club Geneva, Illinois 10,440
10/10/97 Gettysvue Polo, Golf & Country Club Knoxville, Tennessee 6,303
10/17/97 Oakhurst Country Club Clayton, California 9,665
10/24/97 Spanish Hills Country Club Camarillo, California 17,051
-------
Total Initial Investment................................. $79,171
=======
</TABLE>
On May 23, 1997, the Company sold Stonebridge Country Club in New Orleans,
Louisiana for cash of approximately $1.1 million. The Company recognized a
gain of approximately $156,000.
On September 12, 1997, the Company sold Skyline Woods Country Club in
Elkhorn, Nebraska for cash of $2.5 million. The Company recognized a gain of
$2,000.
The Company recognized a gain on insurance proceeds of approximately
$2,231,000 due to a fire completely destroying a clubhouse at one of the Golf
Courses. The Company is applying the insurance proceeds to rebuild the
clubhouse.
29
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(3) INVESTMENTS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1996
------------- -----------
COST MARKET COST MARKET MATURITY
------ ------ ---- ------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Available-for-sale
securities:
Commercial Paper.......... $ -- $ -- $ 86 $ 86 1/1997
Corporate Note............ -- -- 200 200 3/1997
Commercial Paper.......... 107 107 -- -- 1/1998
Corporate Note............ 200 200 -- -- 1/1998
U.S. Government and Agency
Obligation............... 908 908 -- -- 1/1998
------ ------ ---- ----
Total................... $1,215 $1,215 $286 $286
====== ====== ==== ====
</TABLE>
In 1997 and 1996, available-for-sale securities were sold resulting in
proceeds of $6,694,000 and $6,167,000, respectively. There were no gross
realized gains or losses in 1997 and 1996.
(4) MORTGAGE NOTES RECEIVABLE
The Company had fixed-term options to acquire four golf courses (the "Option
Golf Courses") in exchange for OP Units. The Operating Partnership made
participating mortgage loans of approximately $25.2 million at the time of the
Offering (the "Participating Mortgage Loans") to David G. Price and one of his
affiliates (the other partner in the affiliate is Richard C. Price, the
President of the Company at the time the Participating Mortgage Loans were
made) that owned the Option Golf Courses and were collateralized by first
mortgage liens on such Option Golf Courses. Interest was payable monthly and
the interest rate for 1996 was 9.28%. During 1996, the Participating Mortgage
Loans were paid off and the Company exercised the options on the Option Golf
Courses.
On March 13, 1995, the Company sold Hidden Hills Country Club in Stone
Mountain, Georgia for approximately $3.2 million. The Company provided seller
financing in the form of a mortgage loan in the amount of $2.2 million at an
initial interest rate of 11% per annum and a maturity date of March 2000 (the
"Hidden Hills Mortgage"). Interest income from the Hidden Hills Mortgage for
the years ended December 31, 1997, 1996 and 1995 was $242,000, $242,000 and
approximately $194,000, respectively.
On January 19, 1996, the Company sold Wootton Bassett Golf Club in
Wiltshire, United Kingdom for approximately $2 million. The Company provided
seller financing in the form of a mortgage loan in the amount of approximately
$900,000 at an interest rate of 6% per annum and a maturity date of January
1999 (the "Wootton Bassett Mortgage"). Interest income from the Wootton
Bassett Mortgage for the years ended December 31, 1997 and 1996 was
approximately $8,000 and $47,000, respectively. In April 1997, the Wootton
Bassett Mortgage was paid in full.
The market value of mortgage notes receivable at December 31, 1997 and 1996
is estimated to be approximately $2,409,000 and $3,200,000, respectively,
based on current interest rates for comparable loans.
30
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(5) INVESTMENT IN JOINT VENTURE
On September 8, 1997, the Operating Partnership acquired a 50% general
partner interest in Pumpkin Ridge Joint Venture ("Pumpkin Ridge") for
approximately $8.1 million. Pumpkin Ridge owns two golf courses in Cornelius,
Oregon. The Company accounts for its investment in Pumpkin Ridge under the
equity method of accounting. The aforementioned golf courses are leased to AGC
pursuant to a long-term triple net lease.
(6) NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
INTEREST INTEREST -----------------
TYPE OF COLLATERAL RATE PAYMENT 1997 1996 MATURITY
------------------ -------- ------------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Uncollateralized note..... 7.43% Monthly $ -- $ 5,500 1/1997
Uncollateralized note..... 7.64% Monthly -- 6,240 1/1997
Uncollateralized note..... 7.73% Monthly -- 3,850 1/1997
Uncollateralized note..... 8.25% Monthly -- 9,300 1/1997
Collateralized note....... -- 50 5/1997
Uncollateralized note..... 6.88% Monthly 17,000 -- 1/1998
Uncollateralized note..... 6.92% Monthly 5,000 -- 1/1998
Uncollateralized note..... 6.95% Monthly 33,000 -- 1/1998
Uncollateralized note..... 7.01% Monthly 5,500 -- 1/1998
Uncollateralized note..... 7.12% Monthly 9,500 -- 1/1998
Uncollateralized note..... 7.13% Monthly 10,000 -- 1/1998
Uncollateralized note..... 8.50% Quarterly 7,000 -- 1/1998
Uncollateralized note..... 6.88% 4,000 -- 2/1998
Collateralized note....... 5.50% Quarterly 4,500 4,500 2/1999
Collateralized note....... 1,447 -- 8/2000
Collateralized note....... 5.50% Quarterly 646 809 5/2001
Collateralized note....... 6.60% Quarterly 20,000 20,000 7/2001
Collateralized note....... 3,587 -- 10/2004
Uncollateralized notes.... 8.68% Semi-annually 48,705 50,000 12/2004
Uncollateralized notes.... 8.73% Semi-annually 49,369 50,000 6/2005
Uncollateralized notes.... 7.90% Semi-annually 40,000 40,000 6/2006
Uncollateralized note..... 2,779 2,579 7/2006
Uncollateralized notes.... 8.00% Semi-annually 35,000 35,000 12/2006
Uncollateralized note..... 8.00% Quarterly 1,999 2,121 1/2008
-------- --------
$299,032 $229,949
======== ========
</TABLE>
31
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(6) NOTES PAYABLE--(CONTINUED)
The following is a schedule of maturities on notes payable for the next five
years ending December 31 and in total thereafter:
<TABLE>
<CAPTION>
AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
1998.......................................................... $ 3,059
1999.......................................................... 9,918
2000.......................................................... 8,486
2001.......................................................... 26,013
2002.......................................................... 98,145
Thereafter.................................................... 153,411
--------
$299,032
========
</TABLE>
The note agreements contain, among other things, covenants restricting the
sale of property and certain financial ratios and reporting requirements.
The Company currently has a $100 million credit facility with a group of
four commercial banks, which terminates in April 2002. The Company has two
interest rate options under the credit facility depending upon the length of
time the advances are outstanding. For advances which will be outstanding for
less than a month, the advances bear interest at prime. At December 31, 1997,
such rate was 8.5%. For advances which will be outstanding for one month or
more, the advances bear maximum interest at a floating rate equal to LIBOR
plus a spread of 1.125%. The spread will be reduced upon the Company's receipt
of specified credit ratings. There were outstanding advances of $91 million
under this credit facility as of December 31, 1997. The Company intends to
roll over the advances due in 1998 to a future period.
In connection with the purchase of Eagle Brook Country Club, the Company
entered into a three year collateralized note for $1.5 million with the seller
of the property. During the first year of the note, no interest shall be paid
or accrued on the outstanding principal balance. Thereafter, interest shall
accrue on the outstanding principal balance at the rate of 6% per annum. The
interest rate used to discount the note is 6%. The discount is being amortized
over the first year of the note using the effective interest method. The
discounted note balance at December 31, 1997 was approximately $1,447,000. The
unamortized discount balance at December 31, 1997 was approximately $53,000.
In connection with the purchase of Gettysvue Polo, Golf & Country Club, the
Company entered into a seven-year, interest bearing, collateralized note for
$3,750,000 with the seller of the property. During the first year of the note,
no interest shall be paid or accrued on the outstanding principal balance. For
years two through four, the interest rate is 6% per annum. For years five
through seven, the interest rate is 8% per annum. The interest rate used to
discount the note is 6%. The discount is being amortized over the first year
of the note using the effective interest method. The discounted note balance
at December 31, 1997 was approximately $3,587,000. The unamortized discount
balance at December 31, 1997 was approximately $163,000.
In 1996, the Operating Partnership placed $75 million of fixed-rate,
uncollateralized notes due 2006 with a group of institutional investors. The
notes were issued in two series. The first note series in the amount of
$40 million was issued in July 1996 with a fixed interest rate of 7.9%, and
the second note series in the amount of $35 million was issued in December
1996 with a fixed interest rate of 8%. The Operating Partnership applied the
net proceeds from the $75 million notes to repay bank debt and to partially
finance the acquisition of two golf courses.
32
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(6) NOTES PAYABLE--(CONTINUED)
In 1994, the Operating Partnership placed $100 million of fixed-rate,
uncollateralized notes due 2004 and 2005 with a group of institutional
investors. The notes were issued in two series of $50 million. The first note
series was issued with a fixed interest rate of 8.68%, and the second note
series was issued with a fixed interest rate of 8.73%. With respect to the $50
million first note series, the Operating Partnership received $30 million in
December 1994 and $20 million in January 1995. With respect to the $50 million
second note series, the Operating Partnership received $50 million in June
1995. The Operating Partnership applied the net proceeds from the $100 million
notes to repay bank debt, to finance future acquisitions of golf courses and
related facilities and properties, and for general partnership purposes.
In connection with the combined purchase of Monterey Country Club and Palm
Valley Country Club, the Company entered into an eleven-year, non-interest
bearing, uncollateralized note for $4,000,000 with the seller of the
properties. Based on the borrowing rates available to the Company for debt
with similar terms and average maturities, the interest rate used to discount
the note is 7.75%. The discount is being amortized over the life of the loan
using the effective interest method. The discounted note balance at December
31, 1997 was approximately $2,779,000. The unamortized discount balance at
December 31, 1997 was approximately $1,221,000.
An OP Limited Partner, who owns or controls 75,003 OP Units, is the holder
of a promissory note for approximately $2 million that the Company assumed at
the time of the Offering in connection with the Company's acquisition of four
golf courses from a corporation that previously had been 50% owned by such OP
Limited Partner. The interest rate is 8% per annum with a maturity date in
January 2008. The Company made interest payments in 1997 and 1996 of
approximately $166,000 and $175,000, respectively.
The market value of notes payable at December 31, 1997 and 1996 is estimated
to be approximately $310,830,000 and $235,095,000, respectively, based on
current interest rates for comparable loans. The net book value at December
31, 1997 of the assets collateralizing the notes payable is $59.7 million.
(7) COMMITMENTS AND CONTINGENCIES
The Company is required under the Leases to pay for various remaining
capital improvements totaling approximately $10.2 million, which will be paid
during the next two years. Any subsequent capital improvements to these golf
courses are the responsibility of the Lessees. However, during 1997, AGC
requested that the Company provide additional funding of approximately $16.4
million in capital improvements intended to add value to the properties and
reposition the facilities for enhanced revenue growth. The Independent
Committee of the Company's Board of Directors approved such additional
funding. The $16.4 million will be paid during the next two years.
In addition, the Company leases the land associated with Bear Creek Golf
World from a local municipality pursuant to a ground lease. At December 31,
1997, there was a net book value of approximately $2,954,000 of improvements
at this property included in buildings, ground improvements and furniture,
fixtures and equipment on the balance sheet. At the termination of the lease
in June 2022, all fixed improvements are surrendered to the local
municipality. Under the terms of the ground lease, the Company remits a
percentage of the green fees and net profits from the sale of food and
beverages to the local municipality. For the years ended December 31, 1997,
1996 and 1995, the ground lease expense was approximately $413,000, $351,000,
and $369,000, respectively.
Also, the Company leases approximately 14 acres of land associated with
Mesquite Golf & Country Club from various landowners. The leases for this
property expire between 2041 and 2043. AGC, as the lessee under the Lease, is
required to make all ground lease payments.
33
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(8) LEASE RENTAL AGREEMENTS
Future minimum rents to be received by the Company under the Leases for the
next five years ending December 31 and in total thereafter are as follows:
<TABLE>
<CAPTION>
AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
1998.......................................................... $ 74,690
1999.......................................................... 74,690
2000.......................................................... 74,690
2001.......................................................... 74,690
2002.......................................................... 74,690
Thereafter.................................................... 649,992
----------
$1,023,442
==========
</TABLE>
The minimum rent for the first year for each golf course under the Leases is
initially set at a fixed amount. Thereafter, with respect to the Leases for
the Initial Golf Courses, minimum rent is increased each year by 4% or, if
lower, 150% of the annual percentage increase in the Consumer Price Index
("CPI") (the "Base Rent Escalation"). For these Leases, percentage rent is
paid to the Company each year in the amount, if any, by which the sum of 35%
of Course Revenue in excess of a baseline amount plus 5% of Other Revenue in
excess of a baseline amount exceeds the cumulative Base Rent Escalation since
the commencement date of such Leases. Course Revenue is generally defined in
the Leases to include all revenue received from the operation of the
applicable golf course, including revenues from memberships, initiation fees,
dues, green fees, guest fees, driving range charges and golf cart rentals, but
excluding those revenues described as Other Revenue. Other Revenue is
generally defined in the Leases to include all revenue received from food and
beverage and merchandise sales and other revenue not directly related to golf
activities. AGC has options to extend the term of each lease for one to three
five-year terms. Generally, for the Leases entered into subsequent to the
Offering, the rent is based upon the greater of (a) the minimum base rent or
(b) a specified percentage of Course Revenue and Other Revenue. The minimum
base rent under these Leases is increased for specified years during the Lease
term based upon increases in the CPI, provided that each such annual CPI
increase shall not exceed five percent. Percentage rent income for the years
ended December 31, 1997, 1996 and 1995 was approximately $5,920,000,
$4,289,000, and $3,731,000, respectively.
(9) STOCK OPTIONS AND AWARDS
The Company has established the 1993 Stock Incentive Plan (the "1993 Plan")
and the 1997 Equity Participation Plan (the "1997 Plan"), under which
executive officers and other key employees of the Company and AGC may be
granted stock options or restricted stock. Restricted stock is subject to
restrictions determined by the Company's Compensation Committee. The
Compensation Committee, comprised of Directors who are not officers of the
Company, determines compensation, including awards under the 1993 Plan and
1997 Plan, for the Company's executive officers. The shares of restricted
stock will be sold at a purchase price equal to $.01 and will vest 20% per
year over a five year period. Restricted stock has the same dividend and
voting rights as other common stock and is considered to be currently issued
and outstanding. Compensation expense is determined by reference to the market
value on the date of grant and is being amortized on a straight-line basis
over the five year vesting period. Such expense amounted to approximately
$1,532,000, $1,089,000, and $943,000, for the years ended December 31, 1997,
1996, and 1995, respectively.
34
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(9) STOCK OPTIONS AND AWARDS--(CONTINUED)
Stock options vest at 25% per year over four years and are exercisable at
the market value on the date of grant. The options' maximum term is ten years.
The following table summarizes the restricted stock and stock option
transactions pursuant to the 1993 Plan for the years ended December 31, 1997,
1996 and 1995:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
NUMBER OF SHARES-- SHARES-- OPTION EXERCISE
RESTRICTED STOCK OPTIONS PRICE
------------------ --------- ----------------
<S> <C> <C> <C>
Outstanding at December 31,
1994....................... 189,500 518,400 $20.32
Vested.................... (46,500) -- --
Cancelled................. -- (17,300) 20.38
------- ------- ------
Outstanding at December 31,
1995....................... 143,000 501,100 $20.32
Granted................... 70,000 40,000 25.88
Vested.................... (46,500) -- --
Cancelled................. -- (34,075) 21.70
Exercised................. -- (21,925) 20.38
------- ------- ------
Outstanding at December 31,
1996....................... 166,500 485,100 $20.68
Granted................... 50,000 -- --
Vested.................... (56,500) -- --
Forfeited................. (20,000) (20,000) 25.88
Cancelled................. -- -- --
Exercised................. -- (72,475) 19.86
------- ------- ------
Outstanding at December 31,
1997....................... 140,000 392,625 $20.57
======= ======= ======
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF OPTION EXERCISE
SHARES PRICE
--------- ----------------
<S> <C> <C>
Options exercisable at:
December 31, 1997............................... 371,375 $20.44
December 31, 1996............................... 327,575 $20.23
December 31, 1995............................... 236,800 $20.30
</TABLE>
The range of exercise prices for the options outstanding at December 31,
1997 is $18.50 through $25.875 with a weighted average remaining contractual
life of 5.9 years. The range of exercise prices for options exercisable at
December 31, 1997 is $18.50 through $25.875 with a weighted average remaining
contractual life of 5.7 years.
As of December 31, 1997, a total of 780,475 additional shares remain
unissued under the 1993 Plan. There were 1,600,000 shares originally reserved
for issuance under the 1993 Plan. When the 1997 Plan was established, the 1993
Plan was terminated regarding future grants of restricted stock and stock
options.
35
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(9) STOCK OPTIONS AND AWARDS--(CONTINUED)
The following table summarizes the stock option transactions pursuant to the
1997 Plan for the year ended December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE
OF OPTION
SHARES EXERCISE
OPTIONS PRICE
------- --------
<S> <C> <C>
Granted..................................................... 22,500 $30.06
------ ------
Outstanding at December 31, 1997............................ 22,500 $30.06
====== ======
</TABLE>
The exercise price for the options outstanding at December 31, 1997 is
$30.06 with a remaining contractual life of 9.8 years.
As of December 31, 1997, a total of 777,500 additional shares remain
reserved for issuance under the 1997 Plan. There were 800,000 shares
originally reserved for issuance under the 1997 Plan.
The Company also has adopted the 1995 Independent Director Equity
Participation Plan, pursuant to which directors of the Company may be granted
stock options and restricted stock. The shares of restricted stock will be
sold at a purchase price equal to $.01 and will vest at the earlier of (i) the
fifth anniversary of the date of grant or (ii) the directors' normal
retirement at or after age 65. Restricted stock has the same dividend and
voting rights as other common stock and is considered to be currently issued
and outstanding. Stock options vest on the first anniversary of the date on
which the option was granted and are exercisable at the market value on the
date of grant. The options' maximum term is ten years. The following table
summarizes the restricted stock and stock option transactions pursuant to the
Company's 1995 Independent Director Equity Participation Plan for the years
ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
NUMBER OF SHARES-- SHARES-- OPTION EXERCISE
RESTRICTED STOCK OPTIONS PRICE
------------------ --------- ----------------
<S> <C> <C> <C>
Granted...................... 12,000 24,000 $23.42
------ ------ ------
Outstanding at December 31,
1996........................ 12,000 24,000 $23.42
Granted...................... 2,000 8,000 31.50
------ ------ ------
Outstanding at December 31,
1997........................ 14,000 32,000 $25.44
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF OPTION EXERCISE
SHARES PRICE
--------- ----------------
<S> <C> <C>
Options exercisable at:
December 31, 1997............................... 24,000 $23.42
December 31, 1996............................... 16,000 $20.94
</TABLE>
The range of exercise prices for the options outstanding at December 31,
1997 is $19.75 through $31.50 with a weighted average remaining contractual
life of 8.5 years. The range of exercise prices for options exercisable at
December 31, 1997 is $19.75 through $28.375 with a weighted average remaining
contractual life of 8 years.
As of December 31, 1997, a total of 102,000 shares remain reserved for
issuance under the 1995 Independent Director Equity Participation Plan. There
were 148,000 shares originally reserved for issuance under the 1995
Independent Director Equity Participation Plan.
36
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(9) STOCK OPTIONS AND AWARDS--(CONTINUED)
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation" and will continue to use the
intrinsic value based method of accounting prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees." Accordingly, no compensation cost
has been recognized for the stock option plans. Had compensation cost for the
Company's stock option plans been determined based on the fair value at the
grant date for awards in 1997 and 1996 consistent with the provisions of SFAS
No. 123, the Company's net income, basic earnings per share and diluted
earnings per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
---------------------------------
1997 1996
---------------- ----------------
(IN THOUSANDS, EXCEPT PER SHARE)
<S> <C> <C>
Net income, as reported................... $15,579 $13,412
Net income, pro forma..................... $15,501 $13,387
Basic earnings per share, as reported..... $ 1.26 $ 1.19
Basic earnings per share, pro forma....... $ 1.25 $ 1.18
Diluted earnings per share, as reported... $ 1.25 $ 1.17
Diluted earnings per share, pro forma..... $ 1.24 $ 1.17
</TABLE>
The weighted average fair value of options granted during 1997 and 1996 are
$7.10 and $6.23, respectively. The fair value of each option grant issued in
1997 and 1996 is estimated at the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions: (a)
dividend yield of 1.6% in 1997 and 1.3% in 1996, (b) expected volatility of
the Company's stock of 21.5% in 1997 and 19.6% in 1996, (c) a risk free
interest rate based on U.S. Zero Coupon Bonds with time of maturity
approximately equal to the options' expected time to exercise and (d) expected
option lives of four years for options granted in 1997 and 1996.
(10) 401(k) PLAN
The Company established a qualified retirement plan designed to qualify
under Section 401(k) of the Code (the "401(k) Plan"). The 401(k) Plan allows
participants to defer up to 10% of their eligible compensation on a pre-tax
basis subject to certain maximum amounts. Matching contributions may be made
in amounts and at times determined by the Company. The 401(k) Plan provides
for matching contributions by the Company in an amount equal to fifty-cents
for each one dollar of participant contributions up to a maximum of three
percent of the participant's salary per year. Participants received credit for
employment with the predecessors of the Company and affiliates. Amounts
contributed by the Company for a participant will vest over five years.
Employees of the Company will be eligible to participate in the 401(k) Plan if
they meet certain requirements concerning minimum age and period of credited
service.
For the years ended December 31, 1997, 1996 and 1995 the Company's
contributions to the 401(k) Plan were approximately $21,000, $14,000, and
$13,000, respectively.
(11) DEFERRED COMPENSATION PLAN
During 1997, the Company established a non-qualified deferred compensation
plan under which key executives of the Company may elect to defer receiving up
to 100% of their compensation in any one year until a later year. The
participants' contributions to the deferred compensation plan were invested in
the Company's Common Stock or additional investment options. The assets and
income from the deferred compensation trust are recorded on the Company's
books.
37
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(12) RELATED PARTY TRANSACTIONS
The Company has in the past and will continue to identify golf courses it
seeks to acquire for the purpose of leasing such courses to AGC and other golf
course operators. The Company evaluates potential golf course acquisitions
based on a golf course's ability to generate cash flows sufficient to enable
an operator to operate the course profitably and provide the Company its
desired rate of return on its capital investment. Such evaluation is integral
to the Company's determination of the price it is willing to pay for a
particular course. The Company's acquisition of a course is recorded in the
Company's financial statements at cost and the value of such course then is
evaluated periodically to determine its carrying value based on the cash flow
from the lease of such property. Because AGC may be deemed to be an affiliate
of the Company, the Company's leases with AGC may not reflect arms-length
transactions. As a result, there is a risk that the terms of such leases are
not as favorable to the Company as the terms would have been if the Company
leased its golf courses to unaffiliated operators and, if the Company could
have obtained more favorable terms, that the Company's financial statements
understate the returns that the Company could obtain on leases of such
properties. It is management's belief, however, that the terms and conditions
of its leases with AGC are no less favorable to the Company than the terms and
conditions that the Company could obtain if it leased its golf courses to
operators other than AGC.
(13) STATEMENT OF CASH FLOWS--SUPPLEMENTAL DISCLOSURES
Non-cash transactions for the year ended December 31, 1997 include
approximately $5 million of golf course acquisitions which were financed by
notes payable.
Non-cash transactions for the year ended December 31, 1996 include (i)
approximately $40.8 million of golf course acquisitions which were financed by
the issuance of 1,577,820 shares of Common Stock; (ii) the assumption of
approximately $25.2 million of debt; (iii) approximately $1.3 million in
capital improvements accrued but not paid; (iv) approximately $1.5 million of
golf course acquisitions which were financed by the issuance of 61,339 OP
Units; and (v) approximately $900,000 in seller financing related to the sale
of Wootton Bassett Golf Club by the Company.
Non-cash transactions for the year ended December 31, 1995 include
approximately $2.3 million of golf course acquisitions which were financed by
a note payable and approximately $2.2 million in seller financing related to
the sale of a golf course by the Company.
(14) OTHER DATA
AGC is the lessee of all but five of the golf courses in the Company's
portfolio. AGC is a golf course management company that operates a diverse
portfolio of golf courses for a variety of golf course owners including
municipalities, counties and others. AGC does not own any golf courses, but
rather manages and operates golf courses either as a lessee under leases,
generally triple net, or pursuant to management agreements. AGC derives
revenues from the operation of golf courses principally through receipt of
green fees, membership initiation fees, membership dues, golf cart rentals,
driving range charges and sales of food, beverages and merchandise.
38
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(14) OTHER DATA--(CONTINUED)
The following table sets forth certain condensed financial information
concerning AGC.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Current assets............................................ $ 79,692 $ 57,511
Non-current assets........................................ 147,423 131,654
-------- --------
Total assets.............................................. $227,115 $189,165
-------- --------
Total current liabilities................................. $ 59,670 $ 50,993
Total long-term liabilities............................... 97,766 68,041
Minority interest......................................... 501 466
Total shareholders' equity................................ 69,178 69,665
-------- --------
Total liabilities and shareholders' equity................ $227,115 $189,165
======== ========
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Total revenues.................................... $525,232 $439,567 $359,066
Net income........................................ $ 19,180 $ 14,275 $ 9,682
</TABLE>
(15) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summarized quarterly financial data for the years ended December 31, 1997
and 1996 is as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------
FISCAL 1997 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------- -------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues.......................... $17,449 $18,731 $19,335 $19,078
Operating income.................. $10,317 $11,479 $11,494 $11,209
Net income........................ $ 3,278 $ 4,087 $ 3,752 $ 4,462
Basic earnings per share.......... $ 0.27 $ 0.33 $ 0.30 $ 0.36
Diluted earnings per share........ $ 0.26 $ 0.33 $ 0.30 $ 0.36
<CAPTION>
QUARTER ENDED
-----------------------------------------
FISCAL 1996 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------- -------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues.......................... $13,114 $13,844 $16,034 $17,105
Operating income.................. $ 7,767 $ 8,279 $ 9,818 $10,375
Net income........................ $ 3,034 $ 3,339 $ 3,401 $ 3,638
Basic earnings per share.......... $ 0.29 $ 0.31 $ 0.29 $ 0.30
Diluted earnings per share........ $ 0.28 $ 0.31 $ 0.29 $ 0.29
</TABLE>
39
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(16) PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The pro forma financial information set forth below is presented as if the
1997 acquisitions (Note 2) had been consummated as of January 1, 1996.
The pro forma financial information is not necessarily indicative of what
actual results of operations of the Company would have been assuming the
acquisitions had been consummated as of January 1, 1996, nor does it purport
to represent the results of operations for future periods (in thousands,
except per share amounts).
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-------------------
1997 1996
--------- ---------
<S> <C> <C>
Revenues from rental property........................... $ 78,124 $ 66,288
Net income.............................................. $ 15,142 $ 12,271
Basic earnings per share................................ $ 1.22 $ 1.08
Diluted earnings per share.............................. $ 1.21 $ 1.07
</TABLE>
The pro forma financial information includes the following adjustments: (i)
an increase in depreciation and amortization expense; (ii) an increase in
interest expense; and (iii) a decrease in income applicable to minority
interest.
(17) SUBSEQUENT EVENTS (UNAUDITED)
On January 9, 1998, the Company declared a quarterly distribution for the
fourth quarter of 1997 of $0.43 per share to stockholders of record on January
30, 1998, which will be paid on February 13, 1998.
40
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference to the sections entitled (i) "Nominees for
Election as Director;" (ii) "Directors Continuing in Office;" and (iii)
"Executive Officers" contained in the Company's Proxy Statement to be filed
pursuant to Regulation 14A.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to the section entitled "Executive Compensation"
contained in the Company's Proxy Statement to be filed pursuant to Regulation
14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference to the section entitled "Security Ownership of
Certain Beneficial Owners and Management" contained in the Company's Proxy
Statement to be filed pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to the section entitled "Certain Relationships and
Related Transactions" contained in the Company's Proxy Statement to be filed
pursuant to Regulation 14A.
41
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
(a) 1. FINANCIAL STATEMENTS
Report of Independent Accountants............................... 21
Consolidated Balance Sheets of National Golf Properties, Inc. as
of December 31, 1997 and 1996.................................. 22
Consolidated Statements of Operations of National Golf
Properties, Inc. for the years ended December 31, 1997, 1996
and 1995....................................................... 23
Consolidated Statements of Stockholders' Equity of National Golf
Properties, Inc. for the years ended December 31, 1997, 1996
and 1995....................................................... 24
Consolidated Statements of Cash Flows of National Golf
Properties, Inc. for the years ended December 31, 1997, 1996
and 1995....................................................... 25
Notes to Consolidated Financial Statements...................... 26
2. FINANCIAL STATEMENT SCHEDULES
Schedule III--Real Estate and Accumulated Depreciation.......... 43
</TABLE>
(a)
42
<PAGE>
SCHEDULE III
NATIONAL GOLF PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION(1)
(IN THOUSANDS)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
INITIAL COST GROSS AMOUNT AT WHICH
TO COMPANY CARRIED AT CLOSE OF PERIOD
-------------------- COST -----------------------------
CAPITALIZED TOTAL COST
BUILDINGS & SUBSEQUENT BUILDINGS & ACCUMULATED DATE
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS TO ACQUISITION LAND IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTED
----------- ------------ ------- ------------ -------------- ------- ------------ -------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DAILY FEE
COURSES:
Continental,
Scottsdale,
AZ............. $ -- $ 64 $ 881 $ 12 $ 66 $ 891 $ 957 $ 505 1974
Desert Lakes,
Fort Mojave,
AZ............. -- 163 3,102 53 163 3,155 3,318 613 1990
El Caro,
Phoenix, AZ.... -- 61 553 13 63 564 627 545 1975
Kokopelli,
Gilbert, AZ.... -- 1,177 4,261 170 1,177 4,431 5,608 957 1993
Villa De Paz,
Phoenix, AZ.... -- 186 397 18 188 413 601 363 1974
Camarillo
Springs,
Camarillo, CA.. -- 141 2,880 710 143 3,588 3,731 1,746 1972
Carmel Mountain,
San Diego, CA.. -- 1,669 5,865 -- 1,669 5,865 7,534 745 1986
Lomas Santa Fe
Exec.,
Solana Beach,
CA............. -- 175 575 20 177 593 770 539 1974
Mesquite, Palm
Springs, CA.... -- 1,057 5,140 225 1,061 5,361 6,422 989 1985
Oakhurst,
Clayton, CA.... -- 1,596 8,069 1,596 8,069 9,665 97 1997
Rancho San
Joaquin,
Irvine, CA..... -- 871 8,375 411 873 8,784 9,657 2,853 1962
San Geronimo,
San Geronimo, CA.. -- 846 5,426 203 846 5,629 6,475 307 1964
Summitpointe,
Milpitas, CA... 4,500 2,315 4,813 447 2,315 5,260 7,575 1,075 1977
Upland Hills,
Upland, CA..... -- 1,835 6,312 148 1,835 6,460 8,295 735 1982
Vista Valencia,
Valencia, CA... -- 652 5,369 40 657 5,404 6,061 2,823 1963
Eagle,
Broomfield,
CO............. -- 400 2,425 20 402 2,443 2,845 1,460 1961
Arrowhead,
Davie, FL...... -- 601 2,190 20 604 2,207 2,811 719 1967
Baymeadows,
Jacksonville,
FL............. -- 226 4,337 230 226 4,567 4,793 181 1968
Binks Forest,
Wellington,
FL............. -- 224 4,591 145 224 4,736 4,960 830 1991
Sabal Palm,
Tamarac, FL.... -- 441 3,357 20 443 3,375 3,818 1,668 1967
Summerfield
Crossing,
Tampa, FL...... -- 105 2,508 104 105 2,612 2,717 188 1987
Bradshaw Farm,
Woodstock, GA.. -- 238 6,365 111 238 6,476 6,714 172 1995
Goshen
Plantation,
Augusta, GA.... -- 195 3,042 256 195 3,298 3,493 517 1971
River's Edge,
Fayetteville,
GA............. -- 250 4,069 154 143 4,330 4,473 683 1989
Ruffled
Feathers,
Lemont, IL..... -- 293 9,316 (18) 293 9,298 9,591 1,075 1992
Tamarack,
Naperville,
IL............. -- 326 5,067 123 326 5,190 5,516 277 1989
Sugar Ridge,
Lawrenceburg,
IN............. -- 168 2,602 466 168 3,068 3,236 516 1994
Deer Creek,
Overland Park,
KS............. -- 695 7,147 413 696 7,559 8,255 513 1989
Dub's Dread,
Kansas City,
KS............. -- 135 2,997 355 135 3,352 3,487 646 1963
WestWinds, New
Market, MD..... -- 153 3,614 547 153 4,161 4,314 242 1971
Links at
Northfork,
Ramsey, MN..... -- 280 3,770 75 280 3,845 4,125 676 1992
Royal Meadows,
Kansas City, MO.. -- 176 1,822 40 181 1,857 2,038 1,104 1933
Rancocas,
Willingboro,
NJ............. -- 239 1,816 1,206 241 3,020 3,261 1,043 1963
Paradise Hills,
Albuquerque, NM.. -- 350 5,181 34 363 5,202 5,565 459 1963
Pawtuckett,
Charlotte, NC.. -- 63 1,563 15 63 1,578 1,641 113 1971
<CAPTION>
DATE
DESCRIPTION ACQUIRED
----------- --------
<S> <C>
DAILY FEE
COURSES:
Continental,
Scottsdale,
AZ............. 1986
Desert Lakes,
Fort Mojave,
AZ............. 1993
El Caro,
Phoenix, AZ.... 1983
Kokopelli,
Gilbert, AZ.... 1994
Villa De Paz,
Phoenix, AZ.... 1981
Camarillo
Springs,
Camarillo, CA.. 1984
Carmel Mountain,
San Diego, CA.. 1995
Lomas Santa Fe
Exec.,
Solana Beach,
CA............. 1982
Mesquite, Palm
Springs, CA.... 1993
Oakhurst,
Clayton, CA.... 1997
Rancho San
Joaquin,
Irvine, CA..... 1992
San Geronimo,
San Geronimo, CA.. 1996
Summitpointe,
Milpitas, CA... 1994
Upland Hills,
Upland, CA..... 1995
Vista Valencia,
Valencia, CA... 1987
Eagle,
Broomfield,
CO............. 1988
Arrowhead,
Davie, FL...... 1993
Baymeadows,
Jacksonville,
FL............. 1997
Binks Forest,
Wellington,
FL............. 1994
Sabal Palm,
Tamarac, FL.... 1990
Summerfield
Crossing,
Tampa, FL...... 1996
Bradshaw Farm,
Woodstock, GA.. 1997
Goshen
Plantation,
Augusta, GA.... 1994
River's Edge,
Fayetteville,
GA............. 1994
Ruffled
Feathers,
Lemont, IL..... 1995
Tamarack,
Naperville,
IL............. 1997
Sugar Ridge,
Lawrenceburg,
IN............. 1994
Deer Creek,
Overland Park,
KS............. 1996
Dub's Dread,
Kansas City,
KS............. 1994
WestWinds, New
Market, MD..... 1996
Links at
Northfork,
Ramsey, MN..... 1994
Royal Meadows,
Kansas City, MO.. 1984
Rancocas,
Willingboro,
NJ............. 1989
Paradise Hills,
Albuquerque, NM.. 1996
Pawtuckett,
Charlotte, NC.. 1996
</TABLE>
43
<PAGE>
SCHEDULE III--(CONTINUED)
NATIONAL GOLF PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION(1)
(IN THOUSANDS)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
INITIAL COST GROSS AMOUNT AT WHICH
TO COMPANY CARRIED AT CLOSE OF PERIOD
-------------------- COST -----------------------------
CAPITALIZED TOTAL COST
BUILDINGS & SUBSEQUENT BUILDINGS & ACCUMULATED DATE
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS TO ACQUISITION LAND IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTED
----------- ------------ ------- ------------ -------------- ------- ------------ -------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bent Tree,
Columbus, OH... $ -- $ 123 $ 4,207 $ 221 $ 123 $ 4,428 $ 4,551 $ 308 1988
Fowler's Mill,
Chesterland, OH.. -- 346 1,760 1,000 349 2,757 3,106 1,040 1972
Hershey South,
Hershey, PA.... -- 150 1,995 378 150 2,373 2,523 436 1927
Golden Oaks,
Fleetwood, PA.. -- 989 4,677 331 1,008 4,989 5,997 513 1994
Hickory Heights,
Bridgeville,
PA............. -- 87 2,027 1,018 82 3,050 3,132 371 1990
The Links,
Charleston,
SC............. -- 44 1,582 68 44 1,650 1,694 117 1989
Forrest
Crossing,
Nashville, TN.. -- 140 2,829 299 140 3,128 3,268 213 1988
Bear Creek,
Houston, TX.... -- -- 6,163 757 -- 6,920 6,920 3,966 1966
Lake Houston,
Huffman, TX.... -- 823 1,620 63 829 1,677 2,506 954 1975
Longwood,
Houston, TX.... -- 1,558 8,148 119 1,558 8,267 9,825 207 1995
Riverchase,
Coppell, TX.... -- 250 1,658 1,220 253 2,875 3,128 1,089 1987
Riverside, Grand
Prairie, TX.... -- 574 4,445 105 576 4,548 5,124 1,357 1986
Southwyck,
Pearland, TX... -- 672 3,492 275 673 3,766 4,439 771 1988
Chesapeake,
Chesapeake,
VA............. -- 321 3,490 606 321 4,096 4,417 310 1984
Honey Bee,
Virginia Beach,
VA............. -- 556 5,009 -- 556 5,009 5,565 793 1987
Reston National,
Reston, VA..... -- 996 4,584 20 999 4,601 5,600 1,176 1968
Capitol City,
Olympia, WA.... 646 437 2,572 163 437 2,735 3,172 483 1961
Lake Wilderness,
MapleValley, WA.. -- 110 1,665 332 110 1,997 2,107 359 1974
------ ------- -------- ------- ------- -------- -------- -------
$5,146 $26,542 $201,720 $13,761 $26,516 $215,507 $242,023 $42,437
====== ======= ======== ======= ======= ======== ======== =======
<CAPTION>
DATE
DESCRIPTION ACQUIRED
----------- --------
<S> <C>
Bent Tree,
Columbus, OH... 1996
Fowler's Mill,
Chesterland, OH.. 1986
Hershey South,
Hershey, PA.... 1994
Golden Oaks,
Fleetwood, PA.. 1996
Hickory Heights,
Bridgeville,
PA............. 1994
The Links,
Charleston,
SC............. 1996
Forrest
Crossing,
Nashville, TN.. 1996
Bear Creek,
Houston, TX.... 1985
Lake Houston,
Huffman, TX.... 1985
Longwood,
Houston, TX.... 1997
Riverchase,
Coppell, TX.... 1988
Riverside, Grand
Prairie, TX.... 1990
Southwyck,
Pearland, TX... 1993
Chesapeake,
Chesapeake,
VA............. 1996
Honey Bee,
Virginia Beach,
VA............. 1995
Reston National,
Reston, VA..... 1993
Capitol City,
Olympia, WA.... 1994
Lake Wilderness,
MapleValley, WA.. 1994
</TABLE>
44
<PAGE>
SCHEDULE III--(CONTINUED)
NATIONAL GOLF PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION(1)
(IN THOUSANDS)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
INITIAL COST GROSS AMOUNT AT WHICH
TO COMPANY CARRIED AT CLOSE OF PERIOD
-------------------- COST -----------------------------
CAPITALIZED TOTAL COST
BUILDINGS & SUBSEQUENT BUILDINGS & ACCUMULATED DATE DATE
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS TO ACQUISITION LAND IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTED ACQUIRED
----------- ------------ ------- ------------ -------------- ------- ------------ -------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIVATE COUNTRY
CLUBS:
Ancala,
Scottsdale,
AZ............. $ -- $ 207 $ 8,319 $ -- $ 207 $ 8,319 $ 8,526 $ 510 1990 1996
Arrowhead,
Glendale, AZ... -- 185 5,816 -- 185 5,816 6,001 369 1986 1996
Canyon Oaks,
Chico, CA...... -- 309 2,172 2,350 309 4,522 4,831 468 1987 1994
Escondido,
Escondido, CA.. -- 114 2,382 587 116 2,967 3,083 1,471 1962 1983
Monterey, Palm
Desert, CA..... -- 1,294 6,584 300 1,294 6,884 8,178 934 1978 1995
Palm Valley,
Palm Desert,
CA............. -- 1,750 13,769 391 1,750 14,160 15,910 1,643 1985 1995
SeaCliff,
Huntington
Beach, CA...... -- 2,430 7,602 542 2,451 8,123 10,574 555 1975 1996
Spanish Hills,
Camarillo, CA.. -- 2,975 14,076 250 2,975 14,326 17,301 158 1993 1997
Sunset Hills,
Thousand
Oaks, CA....... -- 302 1,378 18 304 1,394 1,698 1,161 1966 1975
Wood Ranch, Simi
Valley, CA..... -- 481 9,111 1,235 481 10,346 10,827 1,265 1984 1995
Heather Ridge,
Aurora, CO..... -- 992 1,500 715 995 2,212 3,207 1,100 1970 1990
Pinery, Denver,
CO............. -- 174 5,380 155 174 5,535 5,709 415 1972 1996
Crescent Oaks,
Clearwater,
FL............. -- 35 833 134 35 967 1,002 95 1990 1996
Brookstone,
Acworth, GA.... -- 557 2,608 410 559 3,016 3,575 849 1987 1993
The Plantation,
Boise, ID...... -- 87 2,562 86 87 2,648 2,735 190 1920 1996
Eagle Brook,
Geneva, IL..... 1,447 701 9,739 -- 701 9,739 10,440 205 1992 1997
Mission Hills,
Northbrook,
IL............. -- 400 3,600 531 402 4,129 4,531 2,194 1980 1988
Highlands Golf,
Hutchinson,
KS............. -- 40 576 85 40 661 701 50 1972 1996
Tallgrass,
Wichita, KS.... -- 43 2,409 117 43 2,526 2,569 185 1980 1996
Shenandoah,
Baton Rouge,
LA............. -- 38 1,268 69 38 1,337 1,375 125 1972 1996
Hunt Valley,
Phoenix, MD.... -- 515 1,662 1,212 517 2,872 3,389 1,307 1972 1983
Tanoan,
Albuquerque,
NM............. -- 12 3,241 20 15 3,258 3,273 2,555 1978 1982
Brandywine,
Maumee, OH..... -- 814 2,861 82 816 2,941 3,757 985 1967 1991
Oakhurst, Grove
City, OH....... -- 344 1,776 581 346 2,355 2,701 850 1959 1980
Royal Oak,
Cincinnati,
OH............. -- 175 822 12 178 831 1,009 512 1963 1985
Meadowbrook,
Tulsa, OK...... -- 89 3,236 955 89 4,191 4,280 233 mid 1950's 1996
The Trails,
Norman, OK..... -- 42 2,361 111 42 2,472 2,514 201 1982 1996
Creekside,
Salem, OR...... -- 128 3,456 2,411 128 5,867 5,995 682 1993 1995
Oregon Golf,
West Linn, OR.. -- 433 10,230 534 434 10,763 11,197 1,047 1992 1995
Hershey,
Hershey, PA.... -- 1,624 6,400 1,101 1,624 7,501 9,125 1,444 1915 1994
Gettysvue,
Knoxville, TN.. 3,587 753 5,550 -- 753 5,550 6,303 60 1995 1997
Berry Creek,
Georgetown,
TX............. -- 204 4,876 150 204 5,026 5,230 631 1986 1995
Diamond Oaks,
Fort Worth,
TX............. -- 132 3,577 981 132 4,558 4,690 244 1959 1996
Eldorado,
McKinney, TX... -- 221 6,247 162 221 3,697 3,918 251 1981 1996
Great Southwest,
Grand
Prairie, TX.... -- 442 7,825 445 442 8,270 8,712 555 1964 1996
Oakridge,
Garland, TX.... -- 87 3,439 435 87 3,874 3,961 251 1982 1996
Sweetwater,
Sugarland, TX.. -- 207 11,783 1,029 207 12,812 13,019 1,065 1983 1996
Walden, Humble,
TX............. -- 178 3,425 698 180 4,121 4,301 205 1984 1996
Willow Fork,
Katy, TX....... -- 44 2,742 243 44 2,985 3,029 184 1990 1996
Woodhaven, Fort
Worth, TX...... -- 43 2,022 364 43 2,386 2,429 160 1972 1996
Bear Creek,
Woodinville,
WA............. -- 705 4,823 310 711 5,127 5,838 1,716 1983 1993
------ ------- -------- ------- ------- -------- -------- -------
$5,034 $20,306 $194,038 $19,811 $20,359 $211,084 $231,443 $29,080
====== ======= ======== ======= ======= ======== ======== =======
</TABLE>
45
<PAGE>
SCHEDULE III--(CONTINUED)
NATIONAL GOLF PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION(1)
(IN THOUSANDS)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
INITIAL COST GROSS AMOUNT AT WHICH
TO COMPANY CARRIED AT CLOSE OF PERIOD
-------------------- COST -----------------------------
CAPITALIZED TOTAL COST
BUILDINGS & SUBSEQUENT BUILDINGS & ACCUMULATED DATE
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS TO ACQUISITION LAND IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTED
----------- ------------ ------- ------------ -------------- ------- ------------ -------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RESORT COURSES:
London Bridge,
Lake Havasu City, AZ.. $ -- $ 301 $ 1,699 $ 24 $ 305 $ 1,719 $ 2,024 $ 771 1968
Stonecreek,
Phoenix, AZ.... -- 1,197 8,250 237 1,197 8,487 9,684 453 1983
Superstition
Springs, Mesa,
AZ............. -- 698 3,771 32 702 3,799 4,501 1,302 1986
Tatum Ranch,
Cave Creek,
AZ............. -- 1,000 3,972 (5) 1,002 3,965 4,967 1,496 1986
Legend at
Arrowhead,
Glendale, AZ... -- 502 3,408 -- 502 3,408 3,910 1,098 1986
Aptos Seascape,
Aptos, CA...... -- 901 3,491 20 904 3,508 4,412 1,009 1926
BlackLake,
Nipomo, CA..... -- 1,744 9,299 20 1,746 9,317 11,063 674 1965
Arrowhead,
Littleton, CO.. -- 302 3,245 430 304 3,673 3,977 1,195 1972
Las Vegas
National,
Las Vegas, NV.. -- 261 3,727 1,586 264 5,310 5,574 3,150 1961
Painted Desert,
Las Vegas, NV.. -- 1,355 4,741 -- 1,355 4,741 6,096 346 1987
Wildhorse,
Henderson, NV.. -- 4,677 6,557 2,578 4,677 9,135 13,812 1,144 1959
Brigantine,
Brigantine,
NJ............. -- 194 1,768 1,299 196 3,065 3,261 1,161 1926
Carolina Shores,
Calabash, NC... -- 588 5,903 12 590 5,913 6,503 2,674 1974
Colonial
Charters,
Longs, SC...... -- 213 4,579 5 213 4,584 4,797 323 1989
Port Royal,
Hilton Head
Island, SC..... 20,000(2) 6,289 15,190 2,084 6,289 17,274 23,563 2,774 1985
Shipyard, Hilton
Head Island,
SC............. -- (2) 4,773 9,756 446 4,773 10,202 14,975 1,754 1969
Pecan Valley,
San Antonio,
TX............. -- 389 3,989 412 391 4,399 4,790 1,837 1962
------- ------- -------- ------- ------- -------- -------- -------
$20,000 $25,384 $ 93,345 $ 9,180 $25,410 $102,499 $127,909 $23,161
------- ------- -------- ------- ------- -------- -------- -------
Total Courses... $30,180 $72,232 $489,103 $42,752 $72,285 $529,090 $601,375 $94,678
======= ======= ======== ======= ======= ======== ======== =======
<CAPTION>
DATE
DESCRIPTION ACQUIRED
----------- --------
<S> <C>
RESORT COURSES:
London Bridge,
Lake Havasu City, AZ.. 1986
Stonecreek,
Phoenix, AZ.... 1997
Superstition
Springs, Mesa,
AZ............. 1992
Tatum Ranch,
Cave Creek,
AZ............. 1992
Legend at
Arrowhead,
Glendale, AZ... 1992
Aptos Seascape,
Aptos, CA...... 1986
BlackLake,
Nipomo, CA..... 1996
Arrowhead,
Littleton, CO.. 1988
Las Vegas
National,
Las Vegas, NV.. 1982
Painted Desert,
Las Vegas, NV.. 1996
Wildhorse,
Henderson, NV.. 1994
Brigantine,
Brigantine,
NJ............. 1989
Carolina Shores,
Calabash, NC... 1986
Colonial
Charters,
Longs, SC...... 1996
Port Royal,
Hilton Head
Island, SC..... 1994
Shipyard, Hilton
Head Island,
SC............. 1994
Pecan Valley,
San Antonio,
TX............. 1990
Total Courses...
</TABLE>
- -------
(1) Corporate assets are not included within the amounts.
(2) Combined encumbrance for Port Royal and Shipyard golf courses.
46
<PAGE>
SCHEDULE III--(CONTINUED)
NATIONAL GOLF PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
(IN THOUSANDS)
DECEMBER 31, 1997
Depreciation of the Company's investment in Buildings and Improvements
reflected in the statements of operations are calculated over the estimated
useful lives of the assets as follows:
<TABLE>
<S> <C>
Buildings...................................................... 30 years
Ground improvements............................................ 20 years
Furniture, fixtures and equipment.............................. 3 to 10 years
</TABLE>
The changes in total real estate assets and accumulated depreciation
(excluding corporate assets and related accumulated depreciation) for the
three years ended December 31, are as follows:
<TABLE>
<CAPTION>
TOTAL REAL ESTATE ASSETS
----------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Balance, beginning of year..................... $515,557 $361,831 $271,850
Acquisitions................................... 79,171 155,013 83,171
Improvements................................... 14,307 6,346 8,770
Disposals...................................... (7,660) (7,633) (1,960)
-------- -------- --------
Balance, end of year........................... $601,375 $515,557 $361,831
======== ======== ========
<CAPTION>
ACCUMULATED DEPRECIATION
----------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Balance, beginning of year..................... $ 72,906 $ 58,709 $ 46,862
Depreciation for year.......................... 23,652 17,978 12,598
Disposals...................................... (1,880) (3,781) (751)
-------- -------- --------
Balance, end of year........................... $ 94,678 $ 72,906 $ 58,709
======== ======== ========
</TABLE>
47
<PAGE>
3. EXHIBITS
<TABLE>
<C> <S>
2.1 Agreement and Plan of Merger dated as of August 31, 1995, by and between
National Golf Properties, Inc., a Delaware corporation, and National Golf
Properties of Maryland, Inc. (renamed "National Golf Properties, Inc."
immediately upon effectiveness of the merger), a Maryland corporation
(incorporated by reference to Exhibit 2 to the Company's Current Report
on Form 8-K dated September 26, 1995)
2.2 Asset Purchase Agreement and Agreement and Plan of Merger by and among
Golf Enterprises, Inc., National Golf Properties, Inc. and GEI
Acquisition Corporation, dated February 2, 1996 (incorporated by
reference to Exhibit 2 to Golf Enterprises, Inc. (File No. 0-24264)
Current Report on Form 8-K dated February 7, 1996)
2.3 First Amendment to Asset Purchase Agreement and Agreement and Plan of
Merger, dated as of February 16, 1996, by and among National Golf
Properties, Inc., GEI Acquisition Corporation and Golf Enterprises, Inc.
(incorporated by reference to Exhibit 2.3 to the Company's Annual Report
on Form 10-K dated February 29, 1996)
3.1 Articles of Incorporation of National Golf Properties, Inc. (incorporated
by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K
dated September 26, 1995)
3.2 By-Laws of National Golf Properties, Inc. (incorporated by reference to
Exhibit 3.2 to the Company's Current Report on Form 8-K dated September
26, 1995)
3.3 Specimen of certificate representing shares of Common Stock (incorporated
by reference to Exhibit 3.3 to the Company's Report on Form 8-B dated
December 29, 1995)
4.1 The 1995 Independent Director Equity Participation Plan of National Golf
Properties, Inc. (incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-8 dated August 15, 1997)
4.2 The 1997 Equity Participation Plan of National Golf Properties, Inc.,
National Golf Operating Partnership, L.P. and American Golf Corporation
(incorporated by reference to Exhibit 4.2 to the Company's Registration
Statement on Form S-8 dated August 15, 1997)
10.1 Agreement of Limited Partnership of National Golf Operating Partnership,
L.P., dated as of August 18, 1993, by and among National Golf Properties,
Inc. and the Persons named therein as Limited Partners (incorporated by
reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K
dated February 29, 1996)
10.2 Form of Lease Agreement between the Company and AGC with respect to the
Initial Golf Courses and the Mesquite and Desert Lakes golf courses
(incorporated by reference to Exhibit 10.2 to the Company's Registration
Statement on Form S-11 No. 33-63110)
10.3 Form of Lease Agreement between the Company and AGC with respect to the
following golf courses: Southwyck, Dub's Dread, Kokopelli, Summitpointe,
Lake Wilderness, Links at Northfork, Hershey, Hershey South, Canyon Oaks,
Capitol City, Binks Forest, Port Royal, Shipyard, Sugar Ridge, Wildhorse,
Goshen Plantation, Hickory Heights, River's Edge, Berry Creek, Carmel
Mountain, Creekside, Honey Bee, Wood Ranch, Monterey, Palm Valley,
Ruffled Feathers, Upland Hills, Oregon Golf, Golden Oaks, Paradise Hills,
Chesapeake, SeaCliff, Ancala, Arrowhead, BlackLake, Painted Desert,
Pinery, Crescent Oaks, Summerfield Crossing, The Plantation, Highlands,
Tallgrass, Shenandoah, Pawtuckett, Bent Tree, Meadowbrook, The Trails,
The Links, Forrest Crossing, Diamond Oaks, Eldorado, Great Southwest,
Oakridge, Willow Fork, Woodhaven, Walden, Deer Creek, WestWinds,
Stonecreek, Tamarack, Baymeadows, Bradshaw Farm, Longwood, Eagle Brook,
Gettysvue and Oakhurst; and Form of Lease Agreement between the Company
and CGG with respect to the Carmel Mountain golf course and the
Sweetwater golf course (incorporated by reference to Exhibit 10.3 to the
Company's Annual Report on Form 10-K dated February 29, 1996)
10.4 Registration Rights Agreement, made and entered into as of August 18,
1993, by and among National Golf Properties, Inc. and the persons named
therein (incorporated by reference to Exhibit 10.4 to the Company's
Annual Report on Form 10-K dated February 29, 1996)
</TABLE>
48
<PAGE>
<TABLE>
<C> <S>
10.5 Shelf Registration Rights Agreement, made and entered into as of August
18, 1993, by and among National Golf Properties, Inc. and the persons
named therein (incorporated by reference to Exhibit 10.5 to the
Company's Annual Report on Form 10-K dated February 29, 1996)
*10.6 National Golf Properties, Inc. Stock Incentive Plan Key Employees of
National Golf Properties, Inc., National Golf Operating Partnership,
L.P. and American Golf Corporation, effective August 18, 1993
(incorporated by reference to Exhibit 10.6 to the Company's Annual
Report on Form 10-K dated February 29, 1996)
*10.7 Indemnification Agreement, made as of August 18, 1993, by and between
National Golf Properties, Inc. and its directors and officer
(incorporated by reference to Exhibit 10.7 to the Company's Annual
Report on Form 10-K dated February 29, 1996)
10.8 Director Designation Agreement, dated as of August 18, 1993 by and
among David G. Price, National Golf Properties, Inc. and National Golf
Operating Partnership, L.P. (incorporated by reference to Exhibit 10.9
to the Company's Annual Report on Form 10-K dated February 29, 1996)
10.9 Services Agreement, entered into as of August 18, 1993, by and between
National Golf Properties, Inc. and National Golf Operating Partnership,
L.P. (incorporated by reference to Exhibit 10.10 to the Company's
Annual Report on Form 10-K dated February 29, 1996)
10.10 Partnership Interests Exchange Agreement, dated as of August 18, 1993,
by and among National Golf Operating Partnership, L.P. and Partners of
Partnerships Controlling 21 Courses (incorporated by reference to
Exhibit 10.13 to the Company's Annual Report on Form 10-K dated
February 29, 1996)
10.11 Agreement for Transfer of Realty and Assets, dated as of August 18,
1993, by and among The Price Revocable Trust, Myershan, Inc. and
National Golf Operating Partnership, L.P. (incorporated by reference to
Exhibit 10.14 to the Company's Annual Report on Form 10-K dated
February 29, 1996)
10.12 Plan and Agreement of Merger, dated as of August 18, 1993, by and among
Bear Creek Enterprises, Inc., National Golf Properties, Inc., The Price
Revocable Trust and David G. Price (incorporated by reference to
Exhibit 10.15 to the Company's Annual Report on Form 10-K dated
February 29, 1996)
10.13 Partnership Interests Acquisition Agreement, dated as of August 18,
1993, by and among The Price Revocable Trust, American Golf Investment,
Inc., Supermarine Aviation, Limited, David G. Price and National Golf
Properties, Inc. (incorporated by reference to Exhibit 10.16 to the
Company's Annual Report on Form 10-K dated February 29, 1996)
10.14 Contribution Agreement, dated as of August 18, 1993, by and between
National Golf Operating Partnership, L.P. and National Golf Properties,
Inc. (incorporated by reference to Exhibit 10.17 to the Company's
Annual Report on Form 10-K dated February 29, 1996)
10.15 Option Courses Agreement, dated as of August 18, 1993, by and among
David G. Price, The Price Revocable Trust, Black Lake/Penasquitos,
David G. Price, American Golf Corporation and National Golf Operating
Partnership, L.P. (incorporated by reference to Exhibit 10.18 to the
Company's Annual Report on Form 10-K dated February 29, 1996)
10.16 Agreement relating to prohibition on acquisitions of golf courses by
David G. Price and his affiliates, made and entered into as of August
18, 1993, by and among National Golf Properties, Inc., National Golf
Operating Partnership, L.P., American Golf Corporation, David G. Price,
Dallas P. Price and The Price Revocable Trust (incorporated by
reference to Exhibit 10.19 to the Company's Annual Report on Form 10-K
dated February 29, 1996)
10.17 Amendment to agreement relating to prohibition on acquisitions of golf
courses by David G. Price and his affiliates among National Golf
Properties, Inc., National Golf Operating Partnership, L.P., American
Golf Corporation, David G. Price, Dallas P. Price and The Price
Revocable Trust (incorporated by reference to the Company's Quarterly
Report on Form 10-Q/A for the period ended September 30, 1995)
</TABLE>
- --------
* Management contract or compensatory plan or arrangement.
49
<PAGE>
<TABLE>
<C> <S>
10.18 Note Purchase Agreement ("Note Purchase Agreement"), dated as of
December 15, 1994, with respect to National Golf Operating Partnership,
L.P.'s Series A 8.68% Guaranteed Senior Promissory Notes due December
15, 2004 and Series B 8.73% Guaranteed Senior Promissory Notes due June
15, 2005 (incorporated by reference to Exhibit 10.21 to the Company's
Annual Report on Form 10-K dated February 29, 1996)
10.19 Series A 8.68% Guaranteed Senior Promissory Notes and Series B 8.73%
Guaranteed Senior Promissory Notes (incorporated by reference to Exhibit
10.22 to the Company's Annual Report on Form 10-K dated February 29,
1996)
10.20 General Continuing Guaranty of National Golf Properties, Inc. ("General
Continuing Guaranty"), dated as of December 15, 1994, with respect to
National Golf Operating Partnership, L.P.'s Series A 8.68% Guaranteed
Senior Promissory Notes due December 15, 2004 and Series B 8.73%
Guaranteed Senior Promissory Notes due June 15, 2005 (incorporated by
reference to Exhibit 10.15 to the Company's Report on Form 8-B dated
December 29, 1995)
10.21 First Amendment to Note Purchase Agreements, dated as of August 31, 1995
(incorporated by reference to Exhibit 10.17 to the Company's Report on
Form 8-B dated December 29, 1995)
10.22 First Amendment to General Continuing Guarantee, dated as of August 31,
1995 (incorporated by reference to Exhibit 10.18 to the Company's Report
on Form 8-B dated December 29, 1995)
10.23 Agreement of Limited Partnership of Royal Golf, L.P., II, dated as of
July 7, 1994 (incorporated by reference to Exhibit 10.19 to the
Company's Report on Form 8-B dated December 29, 1995)
10.24 Amended and Restated Loan Agreement, dated as of July 7, 1994,
(incorporated by reference to Exhibit 10.19 to the Company's Report on
Form 8-B dated December 29, 1995)
10.25 Agreement to Enter Into Leases, entered into as of February 1, 1996, by
and among National Golf Properties, Inc., National Golf Operating
Partnership and American Golf Corporation (incorporated by reference to
Exhibit 10.29 to the Company's Annual Report on Form 10-K dated February
29, 1996)
10.26 Restated Note Agreement, dated as of July 1, 1996, with respect to
National Golf Operating Partnership, L.P.'s Series A-1, Series A-2 and
Series A-3 7.9% Guaranteed Senior Promissory Notes due June 15, 2006 and
Series B 8% Guaranteed Senior Promissory Notes due December 12, 2006
(incorporated by reference to Exhibit 10.30 to the Company's Annual
Report on Form 10-K dated March 14, 1997)
10.27 Form of Series A 7.9% Guaranteed Senior Promissory Notes and Series B 8%
Guaranteed Senior Promissory Notes (incorporated by reference to Exhibit
10.31 to the Company's Annual Report on Form 10-K dated March 14, 1997)
10.28 Amended and Restated General Continuing Guaranty of National Golf
Properties, Inc., dated as of July 1, 1996, with respect to National
Golf Operating Partnership, L.P.'s Series A-1, Series A-2 and Series A-3
7.9% Guaranteed Senior Promissory Notes due June 15, 2006 and Series B
8% Guaranteed Senior Promissory Notes due December 12, 2006
(incorporated by reference to Exhibit 10.32 to the Company's Annual
Report on Form 10-K dated March 14, 1997)
10.29 Assumption Agreement, dated as of July 1, 1996, by National Golf
Operating Partnership, L.P. and the Purchasers named therein
(incorporated by reference to Exhibit 10.33 to the Company's Annual
Report on Form 10-K dated March 14, 1997)
10.30 Assumption Agreement, dated as of July 1, 1996, by National Golf
Operating Partnership, L.P. and the Purchasers named therein
(incorporated by reference to Exhibit 10.34 to the Company's Annual
Report on Form 10-K dated March 14, 1997)
10.31 Lease Agreement, dated as of July 11, 1996, between the Company and The
Links Group, Inc. with respect to Colonial Charters Golf Course
(incorporated by reference to Exhibit 10.35 to the Company's Annual
Report on Form 10-K dated March 14, 1997)
</TABLE>
50
<PAGE>
<TABLE>
<C> <S>
10.32 Lease Agreement, dated as of December 17, 1996, between the Company and
Evergreen Alliance Golf Limited with respect to San Geronimo Golf
Course (incorporated by reference to Exhibit 10.36 to the Company's
Annual Report on Form 10-K dated March 14, 1997)
10.33 Lease Agreement, dated as of October 22, 1997, between the Company and
Camarillo Golf, LLC with respect to Spanish Hills Country Club
10.34 Assignment Agreement, dated as of July 30, 1996, between National Golf
Properties, Inc. and National Golf Operating Partnership, L.P.
(incorporated by reference to Exhibit 2.3 to the Company's Current
Report on Form 8-K dated August 13, 1996)
10.35 Lease Agreement, dated as of July 30, 1996, between National Golf
Operating Partnership, L.P. and American Golf Corporation (incorporated
by reference to Exhibit 2.4 to the Company's Current Report on Form 8-K
dated August 13, 1996)
10.36 Amendment of Agreement of Limited Partnership of National Golf
Operating Partnership, L.P., dated as of July 25, 1996, by National
Golf Properties, Inc. (incorporated by reference to Exhibit 10.39 to
the Company's Annual Report on Form 10-K dated March 14, 1997)
10.37 Second Amendment of Agreement of Limited Partnership of National Golf
Operating Partnership, L.P., dated as of July 29, 1996, by National
Golf Properties, Inc. (incorporated by reference to Exhibit 10.40 to
the Company's Annual Report on Form 10-K dated March 14, 1997)
10.38 Registration Rights Agreement, dated as of July 30, 1996, by and among
National Golf Properties, Inc., and the parties set forth therein
(incorporated by reference to Exhibit 10.41 to the Company's Annual
Report on Form 10-K dated March 14, 1997)
10.39 $100,000,000 Credit Agreement dated as of April 25, 1997, among
National Golf Operating Partnership, L.P., National Golf Properties,
Inc., the Lender Parties named therein and NationsBank of Texas, N.A.
(incorporated by reference to Exhibit 10.2 to the Company's Quarterly
Report on Form 10-Q dated April 29, 1997)
*10.40 National Golf Properties, Inc. Deferred Compensation Plan, effective
June 1, 1997 (incorporated by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q dated July 29, 1997)
*10.41 National Golf Properties, Inc. Deferred Compensation Plan Trust
Agreement, dated as of June 1, 1997, by and between National Golf
Properties, Inc. and Imperial Trust Company (incorporated by reference
to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q dated
July 29, 1997)
*10.42 Consulting Agreement, entered into as of the 30th day of April, 1997,
between National Golf Properties, Inc. and Edward R. Sause
(incorporated by reference to Exhibit 10.4 to the Company's Quarterly
Report on Form 10-Q dated July 29, 1997)
10.43 Pumpkin Ridge Joint Venture Joint Venture Agreement, dated as of
September 8, 1997, by and among National Golf Operating Partnership,
L.P. and Pumpkin Ridge Partners (incorporated by reference to Exhibit
10.2 to the Company's Quarterly Report on Form 10-Q dated October 30,
1997)
10.44 Lease Agreement, dated as of September 8, 1997, between Pumpkin Ridge
Joint Venture and AGC (incorporated by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q dated October 30, 1997)
10.45 USGA Agreement, made and entered into as of September 8, 1997, by and
between Pumpkin Ridge Joint Venture and AGC (incorporated by reference
to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q dated
October 30, 1997)
21.1 List of Subsidiaries of National Golf Properties, Inc. (incorporated by
reference to Exhibit 22.1 to the Company's Report on Form 8-B dated
December 29,1995)
23.1 Consent of Independent Accountants
27.1 Financial Data Schedule
</TABLE>
- --------
* Management contract or compensatory plan or arrangement.
51
<PAGE>
<TABLE>
<CAPTION>
PAGE NO.
--------
(B)REPORTS ON FORM 8-K FILED DURING THE LAST QUARTER
<S> <C>
None
(D)ADDITIONAL INFORMATION REGARDING AMERICAN GOLF CORPORATION AND SUBSIDIARIES
Analysis of American Golf Corporation's Consolidated Financial In-
formation........................................................ 53
American Golf Corporation's Consolidated Financial Statements
Report of Independent Accountants............................... 55
Consolidated Balance Sheets as of December 31, 1997 and 1996.... 56
Consolidated Statements of Operations for the years ended Decem-
ber 31, 1997, 1996 and 1995.................................... 57
Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1997, 1996 and 1995......................... 58
Consolidated Statements of Cash Flows for the years ended Decem-
ber 31, 1997, 1996 and 1995.................................... 59
Notes to Consolidated Financial Statements...................... 60
</TABLE>
52
<PAGE>
ANALYSIS OF AMERICAN GOLF CORPORATION'S FINANCIAL INFORMATION
Overview
The following discussion should be read in conjunction with the accompanying
Consolidated Financial Statements and Notes thereto. The forward-looking
statements included in Analysis of American Golf Corporation's Financial
Information relating to certain matters involve risks and uncertainties,
including anticipated financial performance, business prospects, anticipated
capital expenditures and other similar matters, which reflect management's
best judgement based on factors currently known. Actual results and experience
could differ materially from the anticipated results or other expectations
expressed in the Company's forward-looking statements as a result of a number
of factors, including but not limited to those discussed in Analysis of
American Golf Corporation's Financial Information.
The discussion of the results of operations compares the year ended December
31, 1997 with the year ended December 31, 1996 and the year ended December 31,
1996 with the year ended December 31, 1995.
Results of Operations
Comparison of the year ended December 31, 1997 to the year ended December
31, 1996.
Total revenues from golf course operations and management agreements for AGC
increased by $85.6 million, or 19.5%, to $525.2 million for the year ended
December 31, 1997 as compared to $439.6 million for the year ended December
31, 1996. The increase in revenues was due, in part, to the net increase of 10
new leased courses and 3 new courses under management agreements in 1997 as
well as a full year of operations related to 48 leased courses and 6
management agreements acquired in July 1996. The increase in revenues was also
attributable to favorable results generated in various regions due to good
weather during 1997 as compared with 1996. Green fees for the year ended
December 31, 1997, $188.7 million, increased by $30.9 million, or 19.6%, as
compared to $157.8 million for the year ended December 31, 1996. Cart rentals
revenues for the year ended December 31, 1997, $60.8 million, increased by
$3.0 million, or 5.2%, from $57.8 million for the year ended December 31,
1996. Member dues and initiation fees for the year ended December 31, 1997,
$91.1 million, increased by $17.0 million, or 22.9%, from $74.1 million for
the year ended December 31, 1996. Food and beverage revenues for the year
ended December 31, 1997, $89.6 million, increased by $19.3 million, or 27.5%,
from $70.3 million for the year ended December 31, 1996. Merchandise sales
were $44.7 million, an increase of $6.9 million, or 18.3%, from $37.8 million
for the year ended December 31, 1996. Other revenue, which includes range
income, increased by $5.8 million, or 15.5%, to $43.2 million for the year
ended December 31, 1997, from $37.4 million for the year ended December 31,
1996. Management fees revenue of $7.1 million increased $2.7 million, or
61.4%, for the year ended December 31, 1997, from $4.4 million for the year
ended December 31, 1996.
Total operating expenses increased by $80.6 million, or 19%, to $504.3
million for the year ended December 31, 1997 as compared to $423.7 million for
the year ended December 31, 1996. Payroll and related expenses increased by
$44.3 million, or 30.5%, to $189.5 million for the year ended December 31,
1997, from $145.2 million for the year ended December 31, 1996. Rent expense
increased by $15.1 million, or 16%, to $109.4 million for the year ended
December 31, 1997, from $94.3 million for the year ended December 31, 1996.
General and administrative expenses for the year ended December 31, 1997,
$42.6 million, increased by $.4 million, or .01%, from $42.2 million for the
year ended December 31, 1996. These expenses increased primarily due to the
addition of new courses.
Net income increased by $4.9 million to $19.2 million for the year ended
December 31, 1997, from $14.3 million for the year ended December 31, 1996.
The increase in net income is primarily due to the items indicated above as
well as the seasonal nature of AGC's business in that the weather during the
year ended December 31, 1997, was less severe than the year ended December 31,
1996.
53
<PAGE>
Comparison of the year ended December 31, 1996 to the year ended December
31, 1995
Total revenues from golf course operations and management agreements for AGC
increased by $80.6 million, or 22.5%, to $439.6 million for the year ended
December 31, 1996 as compared to $359 million for the year ended December 31,
1995. The increase in revenues was primarily attributable to the net increase
of 48 new leased courses and 6 new courses under management agreements. Green
fees for the year ended December 31, 1996, $157.8 million, increased by $23.7
million, or 17.7%, as compared to $134.1 million for the year ended December
31, 1995. Cart rental revenues for the year ended December 1996, $57.8
million, increased by $6 million, or 11.6%, from $51.8 million for the year
ended December 31, 1995. Member dues and initiation fees for the year ended
December 31, 1996, $74.1 million, increased by $24 million, or 47.9%, from
$50.1 million for the year ended December 31, 1995. Food and beverage revenues
for the year ended December 31, 1996, $70.3 million, increased by $15.3
million, or 27.8%, from $55 million for the year ended December 31, 1995.
Merchandise sales were $37.8 million, an increase of $6.9 million or 22.3%
from $30.9 million for the year ended December 31, 1995. Other revenue, which
includes range income, increased by $4.6 million, or 14%, to $37.4 million for
the year ended December 31, 1996, from $32.8 million for the year ended
December 31, 1995. Management fee revenue of $4.4 million was unchanged for
the year ended December 31, 1996 when compared to the year ended December 31,
1995. Each revenue category rose in reasonable proportion to the overall
increase in revenues due to the new acquisitions, with the exception of member
dues and initiation fees. This revenue category increased as a result of the
acquisition of a number of large private clubs.
Total operating expenses increased by $75.2 million or 21.6%, to $423.7
million for the year ended December 31, 1996 as compared to $348.5 million for
the year ended December 31, 1995. Rent expense increased by $16.5 million, or
21.2%, to $94.3 million for the year ended December 31, 1996, from $77.8
million for the year ended December 31, 1995. General and administrative
expenses for the year ended December 31, 1996, $42.2 million, increased by $7
million, or $19.9%, from $35.2 million for the year ended December 31, 1995.
These expenses increased primarily due to additional lease agreements.
Net income increased by $4.6 million to $14.3 million for the year ended
December 31, 1996, from $9.7 million for the year ended December 31, 1995. The
increase in net income is primarily due to the seasonal nature of AGC's
business in that the weather during the year ended December 31, 1996 was less
severe than the year ended December 31, 1995.
Liquidity and Capital Resources
On December 31, 1997, the Company entered into a $40 million credit facility
and a $13.5 million standby letter of credit facility with a commercial bank
that bears interest at prime or a Libor based rate. Letters of credit issued
under these credit facilities are charged a 1.0% annual letter of credit fee.
The $40 million facility is used to finance working capital requirements and
expires on January 1, 2001. At December 31, 1997, there were no amounts
outstanding against this line of credit and the standby letters of credit
outstanding totaled $2.5 million. The $13.5 million standby letter of credit
facility, which expires on January 2, 2001, supports letters of credit issued
in favor of NGP, pursuant to the terms of the leases between NGP and AGC.
AGC had working capital of approximately $20 million as of December 31,
1997. AGC believes it will be able to satisfy its liquidity requirements,
including capital expenditures and rental payments under the leases with cash
flow available from operations and borrowings. AGC has capital expenditure
commitments related to acquiring and renewing leases. These commitments are
typically satisfied over several years. The material capital commitments are
clubhouse renovations, building and course improvements and irrigation
systems. At December 31, 1997, AGC's capital expenditure commitment was
approximately $8,600,000. The improvements will be funded from AGC's operating
cash flow and from borrowings under the bank credit facilities.
54
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
American Golf Corporation
We have audited the accompanying consolidated balance sheets of American
Golf Corporation and Subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1997. 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of American Golf Corporation and Subsidiaries as of December 31, 1997 and
1996, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Los Angeles, California
February 4, 1998
55
<PAGE>
AMERICAN GOLF CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 16,738 $ 2,291
Accounts receivable--members (less allowance for doubtful
accounts of $1,312 and $1,234 in 1997 and 1996, respec-
tively)................................................. 18,854 17,605
Other receivables........................................ 18,314 15,635
Receivables from affiliates, net......................... 9,730 7,985
Inventories.............................................. 12,332 11,462
Prepaid expenses......................................... 3,724 2,533
-------- --------
Total current assets................................... 79,692 57,511
Property, equipment and capital leases, net................ 87,597 80,967
Licenses................................................... 815 775
Leasehold rights........................................... 17,888 13,907
Deposits and other assets.................................. 12,123 7,005
Note receivable from shareholder........................... 29,000 29,000
-------- --------
Total assets........................................... $227,115 $189,165
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................... $ 4,932 $ 7,572
Notes payable--current portion:
Shareholders........................................... 31 29
Capital Leases......................................... 1,587 1,719
Other.................................................. 642 3,627
Accrued expenses......................................... 34,519 26,837
Other liabilities........................................ 17,959 11,209
-------- --------
Total current liabilities............................ 59,670 50,993
Notes payable--long-term portion:
Shareholders............................................. 422 453
Capital leases........................................... 2,856 4,437
Other.................................................... 59,188 53,841
Accrued expenses........................................... 35,300 9,310
-------- --------
Total liabilities.................................... 157,436 119,034
-------- --------
Minority interest.......................................... 501 466
-------- --------
Commitments and contingencies (Note 10)
Shareholders' equity:
Common stock--no par value; 10,000,000 shares authorized;
6,438,525 and 6,354,497 shares outstanding at December
31, 1997 and 1996, respectively......................... 6,594 8,080
Retained earnings........................................ 69,238 65,907
Notes receivable from officers/directors................. (6,591) (4,299)
Cumulative foreign currency translation adjustment....... (63) (23)
-------- --------
Total shareholders' equity........................... 69,178 69,665
-------- --------
Total liabilities and shareholders' equity........... $227,115 $189,165
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
56
<PAGE>
AMERICAN GOLF CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Green fees............................... $ 188,725 $ 157,821 $ 134,100
Cart rentals............................. 60,762 57,753 51,801
Member dues and initiation fees.......... 91,095 74,112 50,134
Food and beverage sales.................. 89,633 70,289 54,956
Merchandise sales........................ 44,695 37,805 30,888
Other revenue............................ 43,203 37,427 32,755
Management fees.......................... 7,119 4,360 4,432
---------- ---------- ----------
Total revenues......................... 525,232 439,567 359,066
Costs and expenses:
Payroll and related expenses............. 189,452 145,245 118,440
Cost of food and beverage sold........... 28,190 22,682 17,514
Cost of merchandise sold................. 28,598 24,660 20,142
General and administrative............... 42,604 42,155 35,204
Repairs and maintenance.................. 11,996 11,639 11,435
Other operating expenses................. 84,819 73,391 60,983
Rents.................................... 109,376 94,335 77,767
Depreciation and amortization............ 9,275 9,546 6,970
---------- ---------- ----------
Total costs and expenses............... 504,310 423,653 348,455
Operating income........................... 20,922 15,914 10,611
Other income (expense):
Interest income.......................... 4,541 2,210 1,583
Interest expense......................... (5,823) (3,841) (2,830)
---------- ---------- ----------
Income before provision for state
income taxes and minority interest in
(income) loss......................... 19,640 14,283 9,364
Provision for state income taxes........... (425) (223) (201)
---------- ---------- ----------
Income before minority interest in
(income) loss......................... 19,215 14,060 9,163
Minority interest in (income) loss......... (35) 215 519
---------- ---------- ----------
Net income............................. $ 19,180 $ 14,275 $ 9,682
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
57
<PAGE>
AMERICAN GOLF CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN
COMMON STOCK NOTES RECEIVABLE CURRENCY TOTAL
-------------- RETAINED FROM TRANSLATION SHAREHOLDERS'
SHARES AMOUNT EARNINGS OFFICERS/DIRECTORS ADJUSTMENT EQUITY
------ ------ -------- ------------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1994................... 6,339 $8,289 $ 55,442 $(4,939) $ -- $ 58,792
Net income............ -- -- 9,682 -- -- 9,682
Dividends............. -- -- (4,359) -- -- (4,359)
Foreign currency
translation
adjustment........... -- -- -- -- 56 56
Issuance of stock for
notes receivable from
officers/directors... 15 393 -- (368) -- 25
Payments on notes
receivable from
officers/directors... -- -- -- 406 -- 406
----- ------ -------- ------- ----- --------
Balance, December 31,
1995................... 6,354 8,682 60,765 (4,901) 56 64,602
Net income............ -- -- 14,275 -- -- 14,275
Dividends............. -- -- (9,133) -- -- (9,133)
Adjustment to notes
receivable from
officers/directors... -- (602) -- 602 -- --
Foreign currency
translation
adjustment........... -- -- -- -- (79) (79)
----- ------ -------- ------- ----- --------
Balance, December 31,
1996................... 6,354 8,080 65,907 (4,299) (23) 69,665
Net income............ -- -- 19,180 -- -- 19,180
Dividends............. -- -- (15,849) -- -- (15,849)
Issuance of stock for
notes receivable from
officers/directors... 149 4,235 -- (4,115) -- 120
Purchase of stock from
officers/directors... (65) (5,721) -- 1,823 -- (3,898)
Foreign currency
translation
adjustment........... -- -- -- -- (40) (40)
----- ------ -------- ------- ----- --------
Balance, December 31,
1997................... 6,438 $6,594 $ 69,238 $(6,591) $ (63) $ 69,178
===== ====== ======== ======= ===== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
58
<PAGE>
AMERICAN GOLF CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................... $ 19,180 $ 14,275 $ 9,682
Adjustments to reconcile net income to
net cash provided by
operating activities:
Depreciation and amortization............ 9,275 9,475 6,970
Minority interest in earnings (loss)..... 35 (215) (519)
Increase (decrease) from changes in:
Accounts receivable.................... (1,253) (6,914) (5,177)
Other receivables...................... (4,243) (4,204) (3,444)
Receivables from affiliates, net....... (1,745) 1,288 (4,691)
Inventories............................ (875) (1,205) (1,869)
Prepaid expenses....................... (1,200) 930 391
Licenses, deposits and other assets.... (5,160) 2,413 (668)
Accounts payable....................... (2,640) 770 1,200
Accrued expenses....................... 33,692 8,882 2,764
Other liabilities...................... 6,766 4,177 (346)
---------- ---------- ----------
Net cash provided by operating
activities.......................... 51,832 29,672 4,293
---------- ---------- ----------
Cash flows from investing activities:
Acquisition of property and equipment.... (13,758) (9,970) (19,703)
Acquisition of leasehold rights.......... (4,730) (3,571) (538)
Issuance of note receivable from
shareholder............................. -- (29,000) --
---------- ---------- ----------
Net cash used in investing
activities.......................... (18,488) (42,541) (20,241)
---------- ---------- ----------
Cash flows from financing activities:
Proceeds from notes payable--other....... 12,053 57,732 28,478
Payments on notes payable:
Shareholders........................... (29) (26) (343)
Other.................................. (12,018) (34,717) (12,619)
Capital leases......................... (1,713) (1,160) (268)
Proceeds from notes receivable from
officers/directors...................... 120 -- 431
Purchase of shares from
officers/directors...................... (1,447) -- --
Capital contribution by minority
interest................................ -- -- 1,200
Dividends paid........................... (15,849) (9,133) (4,359)
---------- ---------- ----------
Net cash (used in) provided by
financing activities.................. (18,883) 12,696 12,520
Effect of exchange rate changes on cash
and cash equivalents.................. (14) 119 56
---------- ---------- ----------
Net increase (decrease) in cash and
cash equivalents...................... 14,447 (54) (3,372)
Cash and cash equivalents, beginning of
period.................................... 2,291 2,345 5,717
---------- ---------- ----------
Cash and cash equivalents, end of period... $ 16,738 $ 2,291 $ 2,345
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
59
<PAGE>
AMERICAN GOLF CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization
The consolidated financial statements include the accounts of American Golf
Corporation ("AGC"), a California subchapter S Corporation, and its
subsidiaries, American Golf of Atlanta ("Atlanta"), a Georgia general
partnership, American Golf of Detroit ("Detroit"), a Michigan general
partnership, American Golf (UK) Limited ("AG(UK)"), a United Kingdom limited
liability company, and CW Golf Partners ("CWP"), a California limited
partnership (collectively, the "Company"). AGC was formed in 1973 for the
purpose of operating public and private golf and tennis facilities on leased
premises. At December 31, 1997 and 1996, 70% and 71%, respectively, of the
Company was owned by David G. Price. The following table lists AGC's
subsidiaries and selected information:
<TABLE>
<CAPTION>
AGC
ENTITY FORMATION DATE OWNERSHIP PURPOSE
------ -------------- --------- ----------------------------------------------
<S> <C> <C> <C>
Atlanta................. June 1986 65% Operate four courses in Atlanta, Georgia.
Detroit................. December 1990 80% Operate four courses in Detroit, Michigan.
AG(UK).................. August 1993 75% Operate courses in the United Kingdom.
CWP..................... September 1993 75% Operate one course in Los Angeles, California.
</TABLE>
The remaining 25% interest in AG(UK) is owned by European Golf Corporation,
an affiliate of AGC.
The term "affiliate", as used in these financial statements, refers to any
entity in which David G. Price has a controlling interest.
At December 31, 1997, the Company leases 118 golf courses from National Golf
Properties, Inc. ("NGP"). David G. Price is the Chairman of the Board of
Directors of NGP and owns 5.4% of NGP's outstanding stock and 38.4% of
National Golf Operating Partnership, L.P. ("NGOP").
On July 30, 1996, NGP purchased 20 golf courses from Golf Enterprises, Inc.
("GEI") for a purchase price of $58 million. All of the courses acquired were
leased to the Company on a triple net basis. NGP receives minimum base rent
for these related golf courses equal to 10% of its investment. The minimum
base rent will be adjusted in specific years based on increases in CPI.
Additionally, a percentage rent feature allows NGP to participate in any
growth in revenues.
Principles of Consolidation
All material intercompany transactions and balances have been eliminated in
consolidation.
Risks and Uncertainties
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.
Inventories
Inventories are stated at the lower of cost (using the first-in, first-out
method) or market. Inventories consist primarily of food, beverage, golf and
tennis equipment, and clothing and accessories.
60
<PAGE>
AMERICAN GOLF CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Revenue Recognition
Revenue from green fees, cart rentals, food and beverage sales, merchandise
sales and range income are generally recognized at the time of sale.
Revenue from membership dues are generally billed monthly and recognized in
the month earned. The monthly dues are structured to cover the club operating
costs and membership services. Initiation fees are generally refundable in 30
years. Accordingly, the difference between the amount of the fees and the net
present value of the future obligation is recognized as revenue at the time of
sale, unless uncertainty surrounding collectability exists.
Property, Equipment, Capital Leases and Leasehold Rights
Property, equipment and leasehold rights are carried at the lower of cost or
net realizable value. Property and equipment under capital leases are stated
at the lower of the present value of the future minimum lease payments at the
beginning of the lease term or the fair value at the inception of the lease.
Depreciation of property and equipment is computed using the straight-line
method over the lesser of the estimated useful life of the asset (3 to 30
years) or the remaining term of the lease. Property and equipment held under
capital leases and leasehold rights are amortized using the straight-line
method over the lesser of the lease term or the estimated useful life of the
asset.
When property and equipment are sold or otherwise disposed of, the asset
account and related accumulated depreciation and amortization account are
relieved, and any gain or loss is included in operations. Expenditures for
maintenance and repairs are charged to operations. Significant expenditures
which extend the useful life of existing assets are capitalized.
Impairment of Long-Lived Assets
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121
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. Certain long-lived assets and certain identifiable intangibles
to be disposed of must be reported at the lower of carrying amount or fair
value less cost to sell. The Company periodically assesses whether there has
been an impairment in the value of long-lived assets and certain identifiable
intangibles by considering factors such as expected future operating income,
trends and prospects, as well as the effects of demand, competition and other
economic factors. Management believes no impairment has occurred.
Stock-Based Employee Compensation Awards
SFAS No. 123, "Accounting for Stock-Based Compensation" encourages, but does
not require companies to record compensation cost for stock-based compensation
plans at fair value. The Company has adopted the disclosure requirements of
SFAS No. 123, which involves proforma disclosure of net income under SFAS
No. 123, detailed descriptions of plan terms and assumptions used in valuing
stock option grants. The Company has chosen to continue to account for stock-
based employee compensation awards in accordance with Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees."
61
<PAGE>
AMERICAN GOLF CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentration
of credit risk consist primarily of cash and cash equivalents and trade
receivables.
The Company has cash in financial institutions which is insured by the
Federal Deposit Insurance Corporation ("FDIC") up to $100,000 per account. At
various times throughout the year and as of December 31, 1997, the Company had
cash in financial institutions which was in excess of the FDIC insurance
limit.
Concentration of credit risk with respect to trade receivables, which
consists primarily of membership dues and charges, is limited due to the large
number of club members comprising the Company's customer base, and their
dispersion across many different geographic areas. The trade receivables are
billed and due monthly, and all probable bad debt losses have been
appropriately considered in establishing an allowance for doubtful accounts.
As of December 31, 1997 the Company had no significant concentration of credit
risk.
Fair Value of Financial Instruments
To meet the reporting requirements of SFAS No. 107, "Disclosures about Fair
Value of Financial Instruments," the Company calculates the fair value of
financial instruments and includes this additional information in the notes to
the consolidated financial statements when the fair value is different than
the carrying value of those financial instruments. When the fair value
reasonably approximates the carrying value, no additional disclosure is made.
The Company uses quoted market prices, when available, or discounted cash
flows to calculate these fair values.
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.
Advertising
The Company expenses advertising costs as incurred. Advertising costs for
the years ended December 31, 1997, 1996 and 1995 were approximately
$5,627,000, $5,531,000 and $4,521,000, respectively.
Foreign Currency Translation
The Company translates foreign currency financial statements by translating
balance sheet accounts at the year-end exchange rate and income statement
accounts at the average exchange rate for the year. Translation gains and
losses are recorded in shareholders' equity, and realized gains and losses are
included in operations. The effect of realized gains and losses is not
material to the consolidated financial statements.
(2) RECEIVABLES FROM AFFILIATES, NET:
The receivables from affiliates are uncollateralized and due within one
year.
62
<PAGE>
AMERICAN GOLF CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(3) PROPERTY, EQUIPMENT AND CAPITAL LEASES:
Property, equipment and capital leases consist of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL DECEMBER 31,
LIVES ----------------
(YEARS) 1997 1996
--------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Golf course improvements........................ 10-20 $58,038 $48,426
Buildings....................................... 15-30 38,411 35,757
Furniture, fixtures, machinery and equipment.... 3-7 27,627 23,801
Equipment under capital leases.................. 3-7 7,515 7,584
------- -------
131,591 115,568
Less: accumulated depreciation.................. (44,378) (36,850)
------- -------
87,213 78,718
Construction-in-progress........................ 384 2,249
------- -------
$87,597 $80,967
======= =======
</TABLE>
Equipment under capital leases includes golf carts, turf and maintenance
equipment, computers, and other office equipment.
Interest capitalized for the years ended December 31, 1997, 1996 and 1995
was approximately $177,000, $347,000 and $416,000, respectively.
(4) NOTE RECEIVABLE FROM SHAREHOLDER:
During 1996, the Company loaned $29 million to David G. Price. The note is
due in 2004 with principal payments beginning in 1999. The note bears interest
at 9.35% and is payable semi-annually.
(5) STATE INCOME TAXES:
The Company has elected to be taxed as an S corporation under the Internal
Revenue Code of 1986, as amended. Accordingly, corporate income is taxed
directly to the shareholders for federal income tax reporting purposes. The
Company therefore has no provision in its consolidated financial statements
for federal income taxes. The following is the provision for state franchise
and income taxes for the years ended December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1997 1996 1995
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Current...................................................... $270 $-- $--
Deferred..................................................... 155 223 201
---- ---- ----
Total provision for state income taxes..................... $425 $223 $201
==== ==== ====
</TABLE>
63
<PAGE>
AMERICAN GOLF CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(6) NOTES PAYABLE--SHAREHOLDERS:
Notes payable to shareholders consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
INTEREST INTEREST CURRENT LONG-TERM CURRENT LONG-TERM
RATE PAYMENTS PORTION PORTION PORTION PORTION MATURITY
-------- -------- ------- --------- ------- --------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
8.0%.............. Monthly $30 $414 $28 $445 12/2007
8.0%.................... Monthly 1 8 1 8 12/2007
--- ---- --- ----
$31 $422 $29 $453
=== ==== === ====
</TABLE>
Interest expense to the shareholders for the years ended December 31, 1997,
1996 and 1995 was approximately $37,000, $40,000 and $75,000, respectively.
Annual maturities on notes payable to shareholders are as follows:
<TABLE>
<CAPTION>
AMOUNT
YEAR ENDED DECEMBER 31, (IN THOUSANDS)
----------------------- --------------
<S> <C>
1998....................................................... $ 31
1999....................................................... 34
2000....................................................... 36
2001....................................................... 39
2002....................................................... 42
Thereafter................................................. 271
----
$453
====
</TABLE>
(7) NOTES PAYABLE--OTHERS:
Notes payable to others consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1997 1996
--------------- ---------------
(IN THOUSANDS)
LONG- LONG-
INTEREST INTEREST CURRENT TERM CURRENT TERM
TYPE OF COLLATERAL RATE PAYMENTS PORTION PORTION PORTION PORTION MATURITY
------------------ --------- ------------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Uncollateralized line of
credit................. Reference Monthly $-- $ -- $3,000 $ -- 1/1998
Uncollateralized note... 9.0% Monthly 7 -- 19 7 4/1998
Collateralized note..... 9%-23% Monthly 133 16 148 148 4/1999
Collateralized note..... 9.5% Quarterly -- 2,380 -- 2,357 12/2001
Uncollateralized note... 6.1% Annually -- 2,451 -- -- 1/2002
Uncollateralized note... 8.3% Quarterly 42 178 39 221 6/2002
Collateralized note..... 9.4% Semi-Annually -- 41,500 -- 41,500 7/2004
Collateralized note..... 8.0% Monthly 237 4,426 219 4,632 9/2009
Collateralized note..... 9.5% Monthly 223 4,808 202 4,976 1/2010
Collateralized note..... 9.2% Monthly -- 3,429 -- -- 11/2012
---- ------- ------ -------
$642 $59,188 $3,627 $53,841
==== ======= ====== =======
</TABLE>
At December 31, 1997 and 1996, the bank prime and reference rate was 8.50%
and 8.25%, respectively.
64
<PAGE>
AMERICAN GOLF CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(7) NOTES PAYABLE--OTHERS (CONTINUED):
Annual maturities on notes payable to others are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, AMOUNT
----------------------- --------------
(IN THOUSANDS)
<S> <C>
1998....................................................... $ 642
1999....................................................... 2,277
2000....................................................... 4,848
2001....................................................... 7,110
2002....................................................... 4,663
Thereafter................................................. 40,290
-------
$59,830
=======
</TABLE>
The note agreements contain, among other covenants, working capital
maintenance, fixed charge and debt to net worth ratios, minimum tangible net
worth amounts, and certain restrictions regarding indebtedness to others.
On December 31, 1997, the Company entered into a $40 million revolving
credit facility and a $13.5 million standby letter of credit facility with a
commercial bank that bears interest at prime or a Libor based rate. Letters of
credit issued under these credit facilities are charged a 1.0% annual letter
of credit fee. The $40 million facility is used to finance working capital
requirements and expires on January 2, 2001. At December 31, 1997, there were
no amounts outstanding and the standby letters of credit outstanding totaled
$2.5 million against the revolving credit facility. The $13.5 million standby
letter of credit facility, which expires on January 2, 2001, supports
outstanding letters of credit issued in favor of NGP, pursuant to the terms of
the leases between NGP and AGC. Under the terms of the credit facilities, the
Company is also required to maintain specified financial ratios and levels of
net worth.
In December 1996, the Company placed $41.5 million of fixed rate senior
collateralized notes due 2004 with a group of institutional investors. The net
proceeds from the private placement were used to repay bank debt and provide a
$29 million loan to David G. Price.
On July 30, 1996, the Company entered into two $15 million credit facilities
with a commercial bank that beared interest at prime or a Libor based rate.
Letters of credit issued under these credit facilities were charged a 1.5%
annual letter of credit fee. The first $15 million facility was used to
finance working capital requirements and expired on August 1, 1997. At
December 31, 1996, there was $3,000,000 outstanding and the standby letters of
credit outstanding totaled $4,181,000. The second $15 million credit facility,
which was due to expire on August 15, 1997, but was extended to December 31,
1997, supported $13,555,000 of letters of credit issued in favor of NGP,
pursuant to the terms of the leases between NGP and AGC. The Company was also
required to maintain specified financial ratios and levels of net worth.
The credit facilities and the private placement loan are collateralized by
the issued and outstanding stock of an affiliate.
65
<PAGE>
AMERICAN GOLF CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(8) NOTES PAYABLE--CAPITAL LEASES:
Future minimum payments, by year and in the aggregate, under noncancelable
capital leases with initial remaining terms of one year or more consist of the
following at December 31, 1997:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, AMOUNT
----------------------- --------------
(IN THOUSANDS)
<S> <C>
1998....................................................... $1,869
1999....................................................... 2,288
2000....................................................... 740
------
Total minimum lease payments................................. 4,897
Amount representing interest................................. 454
------
Present value of net minimum lease payments.................. 4,443
Current portion.............................................. 1,587
------
Long-term portion............................................ $2,856
======
</TABLE>
(9) EMPLOYEE BENEFIT PLANS:
1994 Equity Participation Plan
In 1994, the Company established the 1994 Equity Participation Plan, as
amended (the "1994 Plan"). Under the 1994 Plan, 1,200,000 shares may be
awarded to key employees as either nonqualified stock options, Performance
Awards, as defined, or the right to purchase common stock. There were 280,484
and 475,222 shares available under the 1994 Plan as of December 31, 1997 and
1996, respectively. During 1994, the Company issued 198,677 shares of common
stock at $24.86 per share and received notes receivable totaling $4,533,000.
During 1995, the Company issued 15,820 shares of common stock at $24.86 per
share and received notes receivable totaling $368,000. On December 1, 1996,
the stock grants were amended to adjust the formula for determining the
initial share value, and as a result the price per share was reduced to $22.05
and the notes receivable were reduced to $3,975,000 for the 1994 grants and
$324,000 for the 1995 grant. In 1997, the Company issued 149,264 shares of
common stock at prices ranging from $22.05 to $43.12 per share and received
notes receivable totaling $4,115,000. The Company also repurchased 65,236
shares of common stock issued under the 1994 Plan at prices ranging from
$87.05 to $88.06 per share. As part of the repurchase, notes receivable
totaling $1,823,000 were paid off. In January 1998, the Company repurchased
135,053 shares of common stock from certain officers and senior management of
the Company for $12,830,000. As part of this transaction, notes receivable
totaling $2,709,000 were repaid.
Stock options granted vest over a three to five year period and are subject
to continued employment and the Company achieving certain financial
performance targets. The fair value of stock options granted is estimated
using the minimum value pricing method with the following assumptions: (i)
risk-free interest rate of 7.0%, (ii) expected option life of seven years,
(iii) forfeiture rate of zero, (iv) no expected volatility and (v) dividend
yield of 5%.
66
<PAGE>
AMERICAN GOLF CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(9) EMPLOYEE BENEFIT PLANS (CONTINUED):
The summary of the status of the Company's stock options as of December 31,
1997, 1996 and 1995, and the activity with executives, key employees and
members of the AGC Board of Directors during the years then ended is presented
below:
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
OPTION OPTION OPTION
NUMBER OF EXERCISE NUMBER OF EXERCISE NUMBER OF EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 350,595 $ 22.05 350,595 $22.05 318,954 $22.05
Granted--price equals
fair value............. 15,821 22.05 -- -- 31,641 22.05
Granted--price greater
than fair value 95,127 43.12 -- -- -- --
Exercised............... -- -- -- -- -- --
Canceled................ (21,119) 22.05 -- -- -- --
------- ------- ------- ------ ------- ------
Options outstanding at
year end............... 440,424 $ 26.60 350,595 $22.05 350,595 $22.05
======= ======= ======= ====== ======= ======
Options exercisable at
year end............... 290,314 -- --
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------- ---------------------------
WEIGHTED
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
OUTSTANDING AT REMAINING AVERAGE OUTSTANDING AT AVERAGE
DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
EXERCISE PRICE 1997 LIFE PRICE 1997 PRICE
-------------- -------------- ----------- -------- -------------- --------
<S> <C> <C> <C> <C> <C> <C>
$22.05................. 345,297 4.1 $22.05 265,690 $22.05
$43.12................. 95,127 6.0 43.12 24,624 43.12
------- -------
440,424 290,314
======= =======
</TABLE>
The Company adopted the disclosure only provision of SFAS No. 123 and
accordingly, no compensation expense has been recognized for stock option
grants to executives, key employees and members of the AGC Board of Directors.
Had compensation expense for such grants been determined based on the fair
value of the award, at the grant date, consistent with the provisions of SFAS
No. 123, the Company's net income would have been reduced to the proforma
amounts indicated below:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Net income--as reported..................... $ 19,180 $ 14,275 $ 9,682
========== ========== =========
Net income--pro forma....................... $ 19,158 $ 14,275 $ 9,638
========== ========== =========
</TABLE>
In 1995, Performance Awards were granted to key members of management who
were not awarded the right to purchase common stock or nonqualified stock
options. The 1994 Plan provides that holders of Performance Awards have the
right to receive an amount equal to the appreciation in share value (as
measured by a predetermined formula based on the Company's earnings). All
Performance Awards mature on December 31, 1998 with the appreciation in share
value payable in three equal annual installments, beginning in early 1999.
Performance Awards vest based on achieving certain earnings targets of the
Company and are subject to continued employment. Performance Awards
outstanding totaled 180,567 and 159,686, as of December 31, 1997 and 1996,
respectively. For the year ended December 31, 1997, the Company recorded
compensation
67
<PAGE>
AMERICAN GOLF CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(9) EMPLOYEE BENEFIT PLANS (CONTINUED):
expense with respect to the Performance Awards in the amount of $17,500,000 as
management determined that it is probable the performance targets will be met
by December 31, 1998. For the years ended December 31, 1996 and 1995 no
compensation expense was recorded with respect to the Performance Awards as
the minimum vesting targets had not been achieved.
Share Appreciation Plan
The Company has a long-term share appreciation plan (phantom stock plan) for
key members of management. The plan is administered by the Board of Directors
of AGC and provides that the participants have the right to receive an amount
equal to the appreciation in share value (as measured by a predetermined
formula based on cash flow) at a date five years following the date of grant.
The appreciation in share value is payable 50% after the exercise period, and
the remainder, with interest in three equal installments, on the last day of
the succeeding three years. There were 125,000 and 138,000 outstanding share
appreciation rights as of December 31, 1997 and 1996, respectively. There was
no share appreciation expense for the years ended December 31, 1997 and 1995.
The share appreciation expense for the year ended December 31, 1996 was
approximately $620,000. The Company does not intend to grant any additional
share appreciation rights.
401(k) Employee Savings Plan
The Company has a 401(k) Employee Savings Plan available to all employees
who have earned one year of vesting service and are at least 21 years of age.
Participants may contribute from 1% to 10% of their earnings, in whole
percentages, on a before-tax basis. The Company contributes to participants'
accounts based on the amount the participant elects to defer and a matching
contribution equal to $0.50 on each dollar contributed by a participant up to
3% of the participant's gross pay. The Company's expense for the plan for the
years ended December 31, 1997, 1996 and 1995, was approximately $796,000,
$635,000 and $523,000, respectively.
(10) COMMITMENTS AND CONTINGENCIES:
The Company is the lessee under long-term operating leases for golf courses
and equipment. At December 31, 1997, future minimum rental payments required
pursuant to the terms of all lease obligations are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, RELATED PARTIES UNRELATED PARTIES TOTAL
----------------------- --------------- ----------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
1998......................... $ 71,225 $ 32,007 $ 103,232
1999......................... 71,225 27,303 98,528
2000......................... 71,225 23,733 94,958
2001......................... 71,225 19,550 90,775
2002......................... 71,225 17,126 88,351
Thereafter................... 614,267 213,861 828,128
-------- -------- ----------
$970,392 $333,580 $1,303,972
======== ======== ==========
</TABLE>
In addition to minimum rental payments, certain leases require payment of
the excess of various percentages of gross revenue over the minimum rental
payments. During the years ended December 31, 1997, 1996 and 1995, percentage
rentals paid to unrelated parties were approximately $10,179,000, $9,430,000
and $7,789,000, respectively.
Under the terms of certain leases, the Company is committed to make
improvements at golf courses. At December 31, 1997, approximately $8,600,000
of such improvements remain to be made.
At December 31, 1997, the Company was contingently liable for outstanding
letters of credit in the amount of approximately $16,010,000.
68
<PAGE>
AMERICAN GOLF CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(10) COMMITMENTS AND CONTINGENCIES (CONTINUED):
The Company has continuing litigation matters and other contingencies
incurred in the ordinary course of business and has recorded allowances for
the payment of these contingencies when such amounts can be estimated and are
considered material to the results of operations. Where no allowance has been
recorded, the Company does not consider the contingencies material to its
consolidated financial position, results of operations or cash flows.
(11) RELATED PARTY TRANSACTIONS:
The Company rents golf and tennis facilities from David G. Price and related
entities in which he has a controlling interest. Rent expense paid to David G.
Price and related entities was approximately $71,434,000, $58,643,000 and
$47,600,000 for the years ended December 31, 1997, 1996 and 1995,
respectively.
The Company recorded net management fees from related entities in the amount
of approximately $2,610,000, $1,332,000 and $554,000 for the years ended
December 31, 1997, 1996 and 1995, respectively.
The Company has accumulated costs in other receivables relating to
construction in progress at certain golf and tennis facilities owned by NGP.
Periodically, substantially all of these costs are reimbursed by NGP and
related entities. At December 31, 1997 and 1996, these accumulated costs
amounted to approximately $9,057,000 and $6,456,000, respectively.
The Company earns interest on receivables from affiliates at a prime based
rate. Interest income from affiliates was approximately $587,000, $818,000 and
$873,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
(12) STATEMENT OF CASH FLOWS--SUPPLEMENTAL DISCLOSURES:
Interest paid for the years ended December 31, 1997, 1996 and 1995 was
approximately $5,192,000, $1,950,000 and $2,213,000, respectively.
State income taxes paid for the years ended December 31, 1997, 1996 and 1995
was approximately $38,000, $223,000 and $149,000, respectively.
Capital lease obligations of approximately $2,877,000 and $4,707,000 were
incurred when the Company entered into leases for new equipment in 1996 and
1995, respectively.
(13) SHAREHOLDERS' EQUITY:
As discussed in Note 9 to the consolidated financial statements, the Company
has issued 298,525 shares of common stock to key employees for notes
receivable with a balance at December 31, 1997 and 1996 of $6,591,000 and
$4,299,000, respectively. The notes receivable bear interest ranging from six
to seven percent and the principal is due in 2004. The notes are
collateralized by the common stock issued and are shown on the balance sheets
as a reduction in shareholders' equity. Interest income accrued on the notes
receivable was approximately $491,000 for the year ended December 31, 1997 and
$300,000 for the years ended December 31, 1996 and 1995.
Interest is paid with proceeds from shareholder distributions and, if
necessary, a portion of their annual bonus. To the extent these amounts are
insufficient to cover the current year interest, the unpaid interest may be
added to the principal of the note. No amounts were added to principal for the
years ended December 31, 1997, 1996 and 1995.
69
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
National Golf Properties, Inc.
/s/ James M. Stanich
By: _________________________________
JAMES M. STANICH PRESIDENT
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ David G. Price Chairman of the February 6,
- ------------------------------------- Board 1998
DAVID G. PRICE
/s/ James M. Stanich President and February 6,
- ------------------------------------- Director (Principal 1998
JAMES M. STANICH Executive Officer)
/s/ Neil M. Miller Vice President-- February 6,
- ------------------------------------- Finance 1998
NEIL M. MILLER
/s/ William C. Regan Vice President-- February 6,
- ------------------------------------- Controller and 1998
WILLIAM C. REGAN Treasurer
/s/ Richard A. Archer Director February 6,
- ------------------------------------- 1998
RICHARD A. ARCHER
/s/ John C. Cushman, III Director February 6,
- ------------------------------------- 1998
JOHN C. CUSHMAN, III
/s/ Bruce Karatz Director February 6,
- ------------------------------------- 1998
BRUCE KARATZ
/s/ Charles S. Paul Director February 6,
- ------------------------------------- 1998
CHARLES S. PAUL
/s/ Edward R. Sause Director February 6,
- ------------------------------------- 1998
EDWARD R. SAUSE
70
<PAGE>
EXHIBIT 10.33
================================================================================
Spanish Hills Golf and Country Club
Camarillo
Ventura
California
L E A S E
NATIONAL GOLF OPERATING PARTNERSHIP, L.P.
Landlord
and
CAMARILLO GOLF, LLC
Tenant
Dated as of October 22, 1997
================================================================================
<PAGE>
Spanish Hills Golf and Country Club
Camarillo
Ventura
California
LEASE
-----
THIS LEASE ("Lease"), dated for reference purposes only October 22,
-----
1997, is entered into by and between NATIONAL GOLF OPERATING PARTNERSHIP, L.P.,
a Delaware limited partnership ("Landlord"), and CAMARILLO GOLF, LLC, a Delaware
--------
limited liability company ("Tenant"). This Lease consists of the Basic Lease
------
Provisions, the Detailed Lease Provisions 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. Facility: Means the Leased Property consisting of an 18-hole golf course,
--------
clubhouse and related facilities located on the Land (legally described in
Exhibit B).
2. Commencement Date: Means October 23, 1997.
-----------------
3. Initial Term: twenty (20) years commencing on the Commencement Date.
------------
4. Extended Terms: Two (2) five-year terms (See Section 2.2 of the Detailed
-------------- -----------
Lease Provisions) (each, an "Extended Term").
-------------
5. Initial Base Rent: Means $1,738,000.
-----------------
6. Fiscal Year: Means the 12-month period from January 1 through December 31
-----------
of each year of the Term, or the applicable portions of the first and
last Fiscal Years.
7. Annual Base Rent: Means, with respect to the Fiscal Year commencing on the
----------------
Commencement Date and the Fiscal Year commencing on January 1, 1998, the
Initial Base Rent. On January 1, 1999, and on January 1 of each following
Fiscal Year through and including January 1, 2003, the Annual Base Rent
shall be equal to the Annual Base Rent applicable to the immediately
preceding Fiscal Year multiplied by the annual percentage increase in the
Consumer Price Index ("CPI") from the immediately preceding Fiscal Year;
---
provided, however, the CPI increase in Annual Base Rent for any Fiscal Year
pursuant to the terms of this Section 7 shall not exceed five percent (5%).
---------
After the January 1, 2003 CPI adjustment, the Annual Base Rent shall remain
unchanged, subject to Section 2.2 of the Detailed Lease Provisions.
-----------
(i)
<PAGE>
8. Applicable Percentage:
---------------------
With respect to Course Revenue, means:
For Fiscal Years 1997 and 1998: 27%
For Fiscal Year 1999: 28%
For Fiscal Year 2000: 29%
For Fiscal Year 2001: 32%
For Fiscal Year 2002 and each Fiscal Year thereafter: 33%
With respect to Other Revenue, means: 5% for each Fiscal Year
throughout the Term.
9. Additional Rent: Means the amount, if any, by which (a) the sum of:
---------------
(i) all Course Revenue for any Fiscal Year multiplied by the
Applicable Percentage with respect to Course Revenue; plus
(ii) all Other Revenue for any Fiscal Year multiplied by the
Applicable Percentage with respect to Other Revenue
exceeds (b) the Annual Base Rent for such Fiscal Year. (See Section 3.3 of
-----------
the Detailed Lease Provisions.)
10. Address for Payments:
--------------------
Landlord:
National Golf Operating Partnership, L.P.
c/o National Golf Properties, Inc.
2951 28th Street, Suite 3001
Santa Monica, California 90405
(See Section 3.1 of the Detailed Lease Provisions.)
-----------
11. Address for Notices:
-------------------
Tenant:
Camarillo Golf, LLC
c/o Imperial Capital, LLC
150 South Rodeo Drive
Suite 100
Beverly Hills, CA 90212
Attn: Mr. Jason Reese
(ii)
<PAGE>
Landlord:
National Golf Operating Partnership, L.P.
c/o National Golf Properties, Inc.
2951 28th Street, Suite 3001
Santa Monica, California 90405
Attn: Scott S. Thompson
General Counsel
(See Section 26.8 of the Detailed Lease Provisions.)
------------
12. AGC: shall mean American Golf Corporation, a California corporation.
---
13. Sublease: shall mean that certain Sublease for the Leased Property between
--------
Tenant and AGC dated the date hereof.
14. Title Commitment: Shall mean that certain Title Insurance Commitment
----------------
issued by First American Title Insurance Company in connection with
Landlord's purchase of the Leased Property from Tenant.
15. Capital Improvement Account: On or before March 5, 1998 Tenant shall fund
---------------------------
the Capital Improvement Account in the amount of $20,833, and on or before
March 5 of each subsequent Fiscal Year of the Term, Tenant shall fund the
Capital Improvement Account in the amount of $125,000 for such Fiscal Year.
Tenant hereby grants to Landlord a security interest in the Capital
Improvement Account. Tenant shall keep the Capital Improvement Account and
all funds therein separate from Tenant's other accounts and funds. Tenant,
Landlord and AGC shall enter into a separate agreement among themselves and
the depository bank to effectuate such security interest which agreement
shall specify, among other things, that no withdrawals can be made from
such account without the signatures of one representative of Landlord, one
representative of Tenant and one representative of AGC. Tenant shall upon
Landlord's prior written consent, execute such other documents and
instruments (such as UCC-1) as are necessary or appropriate to reflect or
perfect Landlord's security interest. AGC may submit an annual detailed
budget for capital improvements (collectively, "Capital AGC Expenditures")
------------------------
it proposes to make to the Leased Property, which budget will be subject to
approval by Landlord and Tenant not to be unreasonably withheld or delayed
(the "Approved Cap Ex Budget"). The Approved Cap Ex Budget shall set forth
----------------------
maximum line item allowances for each project category within the Approved
Cap Ex Budget (each, a "Line Item Allowance"). AGC may use funds from the
-------------------
Capital Improvement Account only to fund Capital Expenditures to the
Facility. AGC may withdraw funds from Capital Improvement Account only:
(i) to the extent consistent with the Approved Cap Ex Budget and within
110% of the amount specified in each Line Item Allowance or (ii) as
otherwise approved in writing by Landlord and Tenant, which approval shall
not to be unreasonably withheld or delayed. Tenant may not withhold
approval of any Approved Cap Ex Budget or any proposed expenditure from the
Capital Improvement Account on the sole basis that any amount so budgeted
or proposed to be expended will not improve the financial performance of
the Facility. All amounts in the Capital Improvement
(iii)
<PAGE>
Account shall be expended prior to the expiration of the Term or the
earlier termination of this Lease. Tenant shall pay to Landlord any unused
amounts remaining in the Capital Improvement Account upon the expiration
of the Term or earlier termination of this Lease. Should the Sublease
terminate prior to the expiration of the Term, then NGP will make the
funds in the Capital Improvement Account available to Tenant or any other
qualified operator, subject to Landlord's prior approval as set forth
above.
16. Letter of Credit. Concurrently with the execution hereof, Tenant shall
----------------
deliver to Landlord a Letter of Credit in the amount of Two Million Dollars
(2,000,000) ("Letter of Credit Amount") and which otherwise meets the
specifications as set forth in the definition of Letter of Credit in
Exhibit A. At least thirty (30) days before expiration of any Letter of
---------
Credit, Tenant will deliver to Landlord a replacement Letter of Credit in
the amount of the Letter of Credit Amount which meets the specifications
set forth in Exhibit A and has a term expiration of at least one (1) year
---------
after the Letter of Credit it replaces. As used herein, the term "Letter of
Credit" shall include any such replacement. If Tenant fails timely to
deliver a replacement Letter of Credit, Landlord may at its option, cash
the Letter of Credit in full and hold the proceeds as a cash security
deposit for the performance of Tenant's obligations hereunder. Should
Tenant commit an Event of Default, then in addition to any other rights or
remedies, Landlord may at its option draw on the Letter of Credit in an
amount equal to the delinquent amounts owing by Tenant to Landlord and in
an amount required to compensate Landlord for any resulting damages.
Landlord's drawing on such Letter of Credit in an amount less than its full
amount will not preclude Landlord from subsequently drawing on such Letter
of Credit up to the full amount thereof. Should Tenant commit a monetary
default on two (2) or more separate occasions and should the total of such
defaults equal or exceed $500,000, Landlord may, at its option, cash the
Letter of Credit in full and thereafter hold the proceeds as a cash
security deposit for the performance of Tenant's obligations hereunder.
Landlord's drawing on the Letter of Credit shall not constitute a cure of
such Event of Default (unless Landlord otherwise agrees in writing) and
shall not prevent Landlord from exercising any of its other rights or
remedies in respect of such Event of Default. Provided that there is no
existing Event of Default, the Letter of Credit will be released at any
time after January 1, 2003, if the Net From Operations (as defined in the
Sublease) for the Property exceed $2,500,000 for the immediately preceding
four (4) Fiscal Quarters.
17. Certain Assignments: Notwithstanding the prohibition of Section 22.1 of
------------------- ------------
the Detailed Lease Provisions, provided that there is no Event of Default
hereunder, Tenant may assign this Lease to (i) AGC so long as Landlord and
AGC are Affiliates, or (ii) to any Affiliate of Tenant so long as Tenant is
in compliance with Paragraph 16 above. Any such assignment will be subject
------------
to Section 22.4 of the Detailed Lease Provisions.
------------
18. Right of First Offer: If Tenant elects or proposes to assign this Lease,
--------------------
the same shall be subject to the provisions of Section 12 of the Sublease.
19. Qualified Operator: Tenant shall at all times during the Term engage a
------------------
high-quality professional golf course company reasonably acceptable to
Landlord and qualified to operate, manage and maintain the Facility. Such
company shall have the requisite
(iv)
<PAGE>
experience and financial creditworthiness to operate, manage and maintain
the Leased Property in accordance with the standards and requirements set
forth in this Lease. Landlord hereby acknowledges that AGC is a qualified
operator acceptable to Landlord.
20. Termination of Lease. Landlord acknowledges that Tenant has the right to
--------------------
terminate this Lease upon the occurrence of certain events set forth in the
Detailed Lease Provisions hereto ("Termination Events") and that AGC, under
------------------
the Sublease, has the right to terminate the Sublease upon the occurrence
of the Termination Events. If a Termination Event occurs, except as
otherwise provided in the immediately succeeding sentence, Tenant shall not
be permitted to terminate this Lease unless AGC also elects to terminate
the Sublease as a result of the occurrence of such Termination Event.
Notwithstanding the preceding sentence, if at the time of a Termination
Event Landlord is not entitled to a Letter of Credit pursuant to Paragraph
---------
16 above, then Tenant's right to terminate this Lease shall not be
--
conditioned on AGC's termination of the Sublease.
21. Initial Capital Improvements. Notwithstanding any other provision in this
----------------------------
Lease to the contrary, Tenant shall cause AGC to design, develop and
construct the "NGP Funded Initial Capital Improvements" (as defined in
Exhibit G of this Lease) within one hundred twenty (120) days after the
---------
Commencement Date. Tenant shall cause AGC to submit to Landlord (a) plans
for the design, development and construction of the Initial Capital
Improvements for Landlord's prior approval thereof (the "Plans") and (b) a
-----
budget to fund such design, development and construction for Landlord's
prior approval thereof (the "Budget"); provided, however, the Budget shall
------
not exceed the amounts set forth in Exhibit G and the Budget shall not
---------
include any overhead fees, general and administrative costs, nor any other
similar fees, costs or charges payable to AGC or any of its Affiliates in
connection with the design, development or construction of the Initial
Capital Improvements. Upon AGC submitting to Landlord invoices, receipts or
other documents evidencing costs and expenditures in accordance with the
Budget and accompanied by appropriate waivers or releases of mechanics' and
materialmen's liens, Landlord shall pay to AGC the amount of such costs and
expenditures. To the extent not inconsistent with this Section 21 of the
----------
Basic Lease Provisions, the construction of such Initial Capital
(v)
<PAGE>
Improvements shall be governed by the provisions of Article 10 of the
----------
Detailed Lease Provisions.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of
the date first above written.
NATIONAL GOLF OPERATING CAMARILLO GOLF, LLC,
PARTNERSHIP, L.P., a Delaware limited liability company
a Delaware limited partnership
By: Hanover Spanish Hills
By: NATIONAL GOLF PROPERTIES,INC., Partners, L.L.C., a Delaware
a Maryland corporation limited liability company, its
Its Gereral Partner manager
By: Hanover Capital
/s/ Scott B. Thompson Properties, Inc., a
By: -------------------------- Delaware corporation, its
GENERAL COUNSEL/SECRETARY manager
Its --------------------------
"Landlord"
/s/ Reed Miller
By: ----------------------
Reed Miller, President
"Tenant"
LIST OF ATTACHMENTS AND EXHIBITS:
- ---------------------------------
Detailed Lease Provisions
Exhibit A Defined Terms; Interpretation
Exhibit B Legal Description of the Land
Exhibit C Other Leased Properties
Exhibit D Operating Standards
Exhibit E Landlord's Personal Property
Exhibit F Form of Non-Disturbance and Attornment Agreement for Master
Lease
Exhibit G NGP Funded Initial Capital Improvements
(vi)
<PAGE>
DETAILED LEASE PROVISIONS
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1 - LEASED PROPERTY ............................................... 1
ARTICLE 2 - TERM........................................................... 1
2.1 Term
2.2 Extended Term................................................ 1
ARTICLE 3 - RENT........................................................... 1
3.1 Rent......................................................... 1
3.2 Payment of Base Rent........................................ 2
3.3 Additional Rent.............................................. 2
3.4 Additional Charges........................................... 3
3.5 Late Payment of Rent......................................... 4
3.6 Net Lease.................................................... 4
3.7 Marketing Programs........................................... 4
3.8 Income/Expense Prorations.................................... 4
ARTICLE 4 - IMPOSITIONS.................................................... 5
4.1 Payment of Impositions....................................... 5
4.2 Information and Reporting.................................... 5
4.3 Assessment Challenges........................................ 5
4.4 Prorations................................................... 5
4.5 Refunds...................................................... 5
4.6 Utility Charges.............................................. 5
4.7 Reassessments Upon Transfer.................................. 6
4.8 Assessment Districts......................................... 6
ARTICLE 5 - TENANT WAIVERS................................................. 6
5.1 No Termination, Abatement , Etc.............................. 6
5.2 Condition of the Leased Property............................. 6
5.3 No Effect on Tenant's Representations........................ 7
ARTICLE 6 - OWNERSHIP OF PROPERTY.......................................... 7
6.1 Leased Property.............................................. 7
6.2 Landlord's Personal Property................................. 7
6.3 Tenant's Personal Property................................... 8
6.4 Purchase of Tenant's Personal Property....................... 8
6.5 Removal of Personal Property................................. 9
6.6 Landlord's Waivers........................................... 9
6.7 Water Rights................................................. 9
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 7 - USE OF LEASED PROPERTY............................................ 10
7.1 Use............................................................. 10
7.2 Specific Prohibited Uses........................................ 10
7.3 Membership Matters, Fees and Charges............................ 10
7.4 Landlord to Grant Easements, Etc................................ 11
ARTICLE 8 - HAZARDOUS MATERIALS............................................... 11
8.1 Remediation..................................................... 11
8.2 Tenant's Indemnification of Landlord............................ 11
8.3 Survival of Indemnification Obligations......................... 12
8.4 Environmental Violations at Expiration or Termination of Lease.. 12
ARTICLE 9 - MAINTENANCE AND REPAIR............................................ 12
9.1 Tenant's Sole Obligation........................................ 12
9.2 Waiver of Statutory Obligations................................. 13
9.3 Mechanics' Liens................................................ 13
9.4 Surrender of Leased Property.................................... 13
ARTICLE 10 - TENANT'S IMPROVEMENTS............................................ 14
10.1 Tenant's Right to Construct..................................... 14
10.2 Scope of Right.................................................. 14
10.3 Cooperation of Landlord......................................... 14
10.4 Commencement of Construction.................................... 15
10.5 Rights in Tenant Improvements................................... 15
ARTICLE 11 - LIENS, ENCROACHMENTS AND OTHER TITLE MATTERS..................... 15
11.1 Liens........................................................... 15
11.2 Encroachments and Other Title Matters........................... 16
ARTICLE 12 - PERMITTED CONTESTS............................................... 17
ARTICLE 13 - INSURANCE........................................................ 18
13.1 General Insurance Requirements.................................. 18
13.2 Replacement Cost................................................ 19
13.3 Waiver of Subrogation........................................... 19
13.4 Form Satisfactory, Etc.......................................... 19
13.5 Change in Limits................................................ 20
13.6 Blanket Policy.................................................. 20
ARTICLE 14 - APPLICATION OF INSURANCE PROCEEDS................................ 20
14.2 Reconstruction Covered by Insurance............................. 22
14.3 Reconstruction Not Covered by Insurance........................ 23
14.4 No Abatement of Rent............................................ 24
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
14.5 Waiver...................................................... 24
14.6 Damage Near End of Term..................................... 24
ARTICLE 15 - CONDEMNATION.................................................. 24
15.1 Total Taking................................................ 24
15.2 Partial Taking.............................................. 24
15.3 Restoration................................................. 24
15.4 Award-Distribution.......................................... 24
15.5 Temporary Taking............................................ 25
ARTICLE 16 - EVENTS OF DEFAULT............................................. 25
16.1 Events of Default........................................... 25
16.2 Payment of Costs............................................ 27
16.3 Exceptions.................................................. 27
16.4 Certain Remedies............................................ 27
16.5 Damages..................................................... 27
16.6 Additional Remedies......................................... 28
16.7 Appointment of Receiver..................................... 28
16.8 Waiver...................................................... 29
16.9 Application of Funds........................................ 29
16.10 Impounds.................................................... 29
ARTICLE 17 - LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT..................... 29
ARTICLE 18 - LEGAL REQUIREMENTS............................................ 29
ARTICLE 19 - HOLDING OVER.................................................. 30
ARTICLE 20 - RISK OF LOSS.................................................. 30
20.1 Risk of Loss................................................ 30
20.2 Unavoidable Events.......................................... 30
ARTICLE 21 - INDEMNIFICATION............................................... 31
21.1 Tenant's Indemnification of Landlord........................ 31
21.2 Landlord's Indemnification of Tenant........................ 32
21.3 Mechanics of Indemnification................................ 32
21.4 Survival of Indemnification Obligations..................... 33
ARTICLE 22 - SUBLETTING AND ASSIGNMENT..................................... 33
22.1 Prohibition Against Subletting and Assignment............... 33
22.2 Changes of Control.......................................... 33
22.3 Subleases................................................... 33
22.4 No Impairment............................................... 35
22.5 REIT Limitations............................................ 35
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 23 - OFFICER'S CERTIFICATES AND OTHER STATEMENTS................... 35
23.1 Tenant's Officer's Certificates............................. 35
23.2 Landlord's Officer's Certificates........................... 36
23.3 Environmental Statements.................................... 36
ARTICLE 24 - LANDLORD MORTGAGES............................................ 36
24.1 Landlord May Grant Liens.................................... 36
24.2 Tenant's Non-Disturbance Rights............................. 37
24.3 Breach by Landlord.......................................... 37
24.4 Facility Mortgage Protection................................ 37
ARTICLE 25 - PROVISIONS REGARDING SUBLEASE................................. 37
25.1 Default..................................................... 37
25.2 Non-Disturbance and Attornment.............................. 37
25.3 No Amendment................................................ 38
25.4 Amendments and Termination of this Lease.................... 38
ARTICLE 26 - MISCELLANEOUS................................................. 38
26.1 Landlord's Right to Inspect................................. 38
26.2 No Waiver................................................... 38
26.3 Remedies Cumulative......................................... 38
26.4 Acceptance of Surrender..................................... 38
26.5 No Merger of Title.......................................... 38
26.6 Conveyance by Landlord...................................... 39
26.7 Quiet Enjoyment............................................. 39
26.8 Notices..................................................... 39
26.9 Survival of Claims.......................................... 39
26.10 Invalidity of Terms or Provisions........................... 39
26.11 Prohibition Against Usury................................... 39
26.12 Amendments to Lease......................................... 39
26.13 Successors and Assigns...................................... 39
26.14 Titles...................................................... 39
26.15 Governing Law............................................... 40
26.16 Memorandum of Lease......................................... 40
26.17 Attorneys' Fees............................................. 40
26.18 Non-Recourse as to Landlord................................. 40
26.19 No Relationship............................................. 40
26.20 Signs; Reletting............................................ 40
26.21 Golf Course Name............................................ 40
</TABLE>
iv
<PAGE>
DETAILED LEASE PROVISIONS
ARTICLE 1 - LEASED PROPERTY
---------------------------
Upon and subject to the terms and conditions set forth in this Lease,
Landlord leases to Tenant and Tenant rents from Landlord all of Landlord's
rights and interest in and to the following real property, improvements and
related rights (collectively the "Leased Property"):
---------------
(a) the land described in Exhibit B attached hereto (collectively,
---------
the "Land");
----
(b) all buildings, structures, Fixtures and other improvements of
every kind including, but not limited to, alleyways and connecting
tunnels, sidewalks, utility pipes, conduits and lines (on-site and
off-site), parking areas, roadways, cart paths, bridges, lakes,
irrigation systems, and course markers presently situated upon the
Land, but not including any Tenant Improvements (collectively, the
-----------------
"Leased Improvements");
-------------------
(c) all easements, rights and appurtenances relating to the Land and
the Leased Improvements (collectively, the "Related Rights"); and
--------------
(d) all personal property, if any, owned by Landlord and located on
the Leased Property, which personal property is described in Exhibit E
---------
attached hereto ("Landlord's Personal Property").
----------------------------
ARTICLE 2 - TERM
----------------
2.1 Term. The Term of this Lease shall commence on the Commencement
----
Date.
2.2 Extended Term. Landlord grants to Tenant the right to extend the
-------------
Term of this Lease for the Extended Terms provided for in Section 4 of the Basic
---------
Lease Provisions commencing upon the expiration of the Initial Term or the
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. 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 unless such Event of Default is non-monetary and has
been caused by AGC and Tenant is diligently attempting to cure the same. During
each Extended Term, all of the terms and conditions of this Lease (including
payment of Base Rent in the amount provided herein) 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 Base Rent and Additional Rent during the Term. Payments of
Base Rent and Additional Rent shall be paid at Landlord's address set forth in
the Basic Lease Provisions or
1
<PAGE>
at such other place or to such other Person as Landlord from time to time may
designate in writing. If any payment owing hereunder shall otherwise be due on
a day that is not a Business Day, such payment shall be due on the next
succeeding Business Day.
3.2 Payment of Base Rent.
--------------------
(a) Notwithstanding any provision of Section 3.2(b) or Section
-------------------------
3.2(c) to the contrary, (i) the provisions of Sections 3.2(b) and 3.2(c) shall
- ------
be effective only during the period of time that Landlord is in possession of a
Letter of Credit pursuant to Paragraph 16 of the Basic Lease Provisions; and
------------
(ii) during the period of time that Landlord is not in possession of a Letter of
Credit, Tenant shall pay Base Rent due to Landlord hereunder in advance in equal
monthly installments.
(b) Tenant shall cause AGC to pay to Landlord all installments
of Base Rent and Participation Rent payable under the Sublease. All such
payments shall be applied to Base Rent due hereunder for the Fiscal Year to
which such AGC payments of Base Rent and Participation Rent relate. If the total
amounts paid by AGC for Base Rent and Participation Rent for any Fiscal Year are
more than Base Rent due to Landlord hereunder for such Fiscal Year, the excess
shall be applied to Additional Rent (if any) due to Landlord hereunder and the
balance shall be paid to Tenant. If the total amounts paid by AGC for Base Rent
and Participation Rent for any Fiscal Year are less than the Base Rent due to
Landlord hereunder for such Fiscal Year ("Base Rent Deficit"), Tenant shall pay
the Base Rent Deficit to Landlord in full on or before March 5 of the
immediately ensuing Fiscal Year. The provisions of this Section 3.2(b) are
--------------
subject to the provisions of Section 3.2(c) below.
--------------
(c) If, at the end of any Fiscal Year, either (i) the amount
remaining to be drawn under the Letter of Credit does not exceed the greater of
(I) one hundred fifty percent (150%) of the Base Rent Deficit then in effect;
and (II) one hundred and fifty percent (150%) of the Base Rent Deficit
anticipated to be generated in the immediately succeeding Fiscal Year, as such
deficit is determined in the budget prepared by AGC for such immediately
succeeding Fiscal Year; or (ii) there exists an Event of Default by Tenant under
this Lease, then notwithstanding Section 3.2(b), in the succeeding Fiscal year,
--------------
unless Landlord agrees to the contrary in writing, Tenant shall pay the Base
Rent due to Landlord hereunder in advance in equal monthly installments in
accordance with Section 3.2(a).
--------------
3.3 Additional Rent. In addition to the Base Rent, Tenant shall pay
---------------
to Landlord Additional Rent as provided in Section 3.3.1.
-------------
3.3.1 Quarterly Calculation and Annual Payment of Additional
------------------------------------------------------
Rent. Tenant shall calculate Additional Rent for each Fiscal Quarter.
----
Within thirty (30) days after the end of each Fiscal Quarter, Tenant shall
deliver to Landlord an Officer's Certificate certifying the Additional Rent
for such Fiscal Quarter and setting forth the calculation thereof. 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 an annual
-------------
reconciliation as provided in Section 3.3.2. Tenant shall pay to Landlord
-------------
Additional Rent for each Fiscal Year on or before
2
<PAGE>
February 28 of the immediately ensuing Fiscal Year. Each such payment shall
be accompanied by an Officer's Certificate as described in Section 3.3.2.
3.3.2 Annual Reconciliation. Within 60 days after the end of
---------------------
each Fiscal Year, or after the expiration or termination of the Lease,
Tenant shall deliver to Landlord an Officer's Certificate setting forth (i)
the Course Revenue and the Other Revenue for the Fiscal Year just ended,
and (ii) a comparison of the amount of Additional Rent set forth in
Tenant's quarterly statements for such Fiscal Year versus the amount of
Additional Rent actually owing on the basis of the annual calculation of
the Course Revenue and the Other Revenue.
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 cash basis accounting principles (applied
on a basis consistent with the Other Leased Properties) which will
accurately record all 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). If any such audit discloses a
deficiency in the payment of Additional Rent, Tenant shall forthwith pay to
Landlord the amount of the deficiency, as finally agreed or determined,
together with interest at the Overdue Rate from the date when said payment
should have been made to the date of payment thereof; provided, however,
-----------------
that as to any audit that is commenced more than 12 months after the date
Course Revenue or Other Revenue for any Fiscal Year is reported by Tenant
to Landlord, the deficiency, if any, with respect to such Course Revenue or
Other Revenue shall bear interest as permitted herein only from the date
such determination of deficiency is made unless such deficiency is the
result of gross negligence or willful misconduct on the part of Tenant. If
any such audit discloses that the Additional Rent owing by Tenant for any
Fiscal Year exceeds the Additional Rent paid by Tenant for such Fiscal Year
by more than five percent, Tenant shall pay the reasonable cost of such
audit and examination.
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, all Additional Charges
- -------
shall be due and payable 30 days after either Landlord or the applicable third
party who may be billing Tenant therefor shall deliver
3
<PAGE>
an invoice to Tenant therefor. To the extent that Tenant pays any Additional
Charges to Landlord pursuant to any requirement of this Lease, Tenant shall be
relieved of its obligation to pay such Additional Charges to the entity to which
they would otherwise be due.
3.5 Late Payment of Rent. Tenant hereby acknowledges that late
--------------------
payment by Tenant to Landlord of Base Rent, Additional Rent or Additional
Charges will cause Landlord to incur costs not contemplated under the terms of
this Lease, the exact amount of which is presently anticipated to be extremely
difficult to ascertain. Such costs may include processing and accounting
charges and late charges which may be imposed on Landlord by the terms of any
mortgage or deed of trust covering the Leased Property and other expenses of a
similar or dissimilar nature. Accordingly, if any installment of Base Rent,
Additional Rent or Additional Charges (but only as to those Additional Charges
which are payable directly to Landlord) shall not be paid within five Business
Days after its due date, Tenant will pay Landlord on demand, as Additional
Charges, a late charge equal to the lesser of five percent of such installment
or $1,000. The parties agree that this late charge represents a fair and
reasonable estimate of the costs that Landlord will incur by reason of late
payment by Tenant. In addition, if any installment of Base Rent, Additional
Rent or Additional Charges (but only as to those Additional Charges which are
payable directly to Landlord) shall not be paid on its due date, the amount
unpaid shall bear interest, from the due date of such installment to the date of
payment thereof, computed at the Overdue Rate on the amount of such installment,
and Tenant will pay such interest to Landlord on demand, as Additional Charges.
The payment of said late charge or such interest shall not constitute a waiver,
nor excuse or cure, of any default under this Lease, nor prevent Landlord from
exercising any other rights and remedies available to Landlord.
3.6 Net Lease. The Rent shall be paid absolutely net to Landlord
---------
and, except as expressly provided in Section 4.7, Article 14 and Article 15,
----------- ---------- ----------
without notice or demand and without set-off, counterclaim, recoupment,
abatement, suspension, determent, deduction or defense, so that this Lease shall
yield to Landlord the full amount of the installments of Base Rent, Additional
Rent and Additional Charges throughout the Term, all as more fully set forth in
Article 5.
- ---------
3.7 Marketing Programs. AGC may involve the Leased Property in
------------------
regional or national membership clubs or marketing programs that AGC may sponsor
from time to time. During the term of the Sublease, the provisions of this
Section 3.7 are for the benefit of AGC and not for any other subtenant or
- -----------
occupant of the Leased Property. If the Sublease terminates and there is a new
subtenant, such subtenant may involve the Leased Property in similar programs
subject to Landlord's approval which will not be unreasonably withheld.
3.8 Income/Expense Prorations. Income and expense items (such as
-------------------------
prepaid membership dues, other charges and prepaid amounts) received or paid
with respect to the period in which the Term commences or terminates shall be
adjusted and prorated between Landlord and Tenant as of the Commencement Date
and as of the date the Term terminates.
ARTICLE 4 - IMPOSITIONS
-----------------------
4.1 Payment of Impositions. Subject to Section 4.7 and Section
---------------------- ----------- -------
16.10, Tenant will pay, or cause to be paid, all Impositions before any fine,
- -----
penalty, interest or cost may be
4
<PAGE>
added for non-payment, such payments to be made directly to the taxing
authorities where feasible. All payments of Impositions shall be subject to
Tenant's right of contest pursuant to the provisions of Article 12. Upon
----------
request, Tenant shall promptly furnish to Landlord copies of official receipts,
if available, or other satisfactory proof evidencing such payments, such as
cancelled checks.
4.2 Information and Reporting. Landlord shall give prompt notice to
-------------------------
Tenant of all Impositions payable by Tenant hereunder of which Landlord at any
time has knowledge, but Landlord's failure to give any such notice in no way
diminish Tenant's obligations hereunder to pay such Impositions. Landlord and
Tenant shall, upon request of the other, provide such data as is maintained by
the party to whom the request is made with respect to the Leased Property as may
be necessary to prepare any required returns and reports. In the event any
applicable governmental authorities classify any property covered by this Lease
as personal property, Tenant shall file all personal property tax returns in
such jurisdictions where it must legally so file. Each party, to the extent it
possesses the same, will provide the other party, upon request, with cost and
depreciation records necessary for filing returns for any property so classified
as personal property.
4.3 Assessment Challenges. In addition to Tenant's rights under
---------------------
Article 12, Tenant may, upon notice to Landlord, at Tenant's option and at
- ----------
Tenant's sole cost and expense, protest, appeal, or institute such other
proceedings as Tenant may deem appropriate to effect a reduction of real estate
or personal property assessments and Landlord, at Tenant's expense as aforesaid,
shall fully cooperate with Tenant in such protest, appeal, or other action.
4.4 Prorations. Impositions imposed in respect of the tax-fiscal
----------
period during which the term commences or terminates shall be adjusted and
prorated between Landlord and Tenant, whether or not such Imposition is imposed
before or after such termination, and Tenant's obligation to pay its prorated
share thereof shall survive such termination. If any Imposition may, at the
option of the taxpayer, lawfully be paid in installments (whether or not
interest shall accrue on the unpaid balance of such Imposition), Tenant may
elect to pay in installments, in which event Tenant shall pay all installments
(and any accrued interest on the unpaid balance of the Imposition) that are due
during the Term before any fine, penalty, premium, further interest or cost may
be added thereto.
4.5 Refunds. If any refund shall be due from any taxing authority in
-------
respect of any Imposition paid by Tenant, the same shall be paid over to or
retained by Tenant if no Event of Default shall have occurred hereunder and be
continuing. Any such funds retained by Landlord due to an Event of Default
shall be applied as provided in Article 16.
----------
4.6 Utility Charges. Tenant shall pay or cause to be paid prior to
---------------
delinquency charges for all utilities and services, including, without
limitation, electricity, telephone, trash disposal, gas, oil, water, sewer,
communication and all other utilities used in the Leased Property during the
Term.
4.7 Reassessments Upon Transfer. Notwithstanding any other
---------------------------
provision in this Lease to the contrary, Landlord shall pay all incremental
increases in the Impositions under this Lease arising solely from (a) Landlord's
sale, disposition or other transfer of the Leased
5
<PAGE>
Property after the date of this Lease or (b) a change of control in Landlord
after the date of this Lease.
4.8 Assessment Districts. Neither party shall voluntarily consent to
--------------------
or agree in writing to (i) any special assessment or (ii) the inclusion of any
material portion of the Leased Premises into a special assessment district or
other taxing jurisdiction unless the other party shall have consented thereto,
which consent shall not be reasonably 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
actions, negligence or intentional misconduct of Landlord or any Person (other
than Tenant) whose claim arose under 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 caused by the actions, negligence or intentional
misconduct of Tenant;
(b) the lawful or unlawful prohibition of, or restriction upon,
Tenant's use or occupancy of the Leased Property, or any portion
thereof, caused by the actions, negligence or intentional misconduct
of Tenant, any Subtenant, or any other occupant of the Leased
Property; or
(c) any bankruptcy, insolvency, reorganization, composition,
readjustment, liquidation, dissolution, winding up or other
proceedings affecting Landlord or any assignee or transferee of
Landlord.
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 an Event of
Default.
5.2 Condition of the Leased Property. Inasmuch as Landlord acquired
--------------------------------
fee title to the Leased Property from Tenant immediately prior to the
Commencement Date and Tenant owned and operated the Leased Property prior
thereto, Tenant acknowledges that Tenant has examined or otherwise has knowledge
of the condition of the Leased Property prior to the execution and delivery of
this Lease. Tenant further acknowledges receipt and delivery of the
6
<PAGE>
Leased Property. Regardless, however, of any inspection made by Tenant of the
Leased Property and whether or not any patent or latent defect or condition was
revealed or discovered thereby, Tenant is leasing the Leased Property "as is" in
its present condition. Tenant waives and releases any claim or action against
Landlord in respect of the condition of the Leased Property including any
defects or adverse conditions latent or patent, matured or unmatured, known or
unknown by Tenant or Landlord as of the date hereof. TENANT ACKNOWLEDGES THAT
LANDLORD (WHETHER ACTING AS LANDLORD HEREUNDER OR IN ANY OTHER CAPACITY) HAS NOT
MADE AND WILL NOT MAKE, NOR SHALL LANDLORD BE DEEMED TO HAVE MADE, ANY WARRANTY
OR REPRESENTATION, EXPRESS OR IMPLIED, WITH RESPECT TO THE LEASED PROPERTY,
INCLUDING ANY WARRANTY OR REPRESENTATION AS TO (i) ITS FITNESS, DESIGN OR
CONDITION FOR ANY PARTICULAR USE OR PURPOSE, (ii) THE QUALITY OF THE MATERIAL OR
WORKMANSHIP THEREIN, (iii) THE EXISTENCE OF ANY DEFECT, LATENT OR PATENT, (iv)
VALUE, (v) COMPLIANCE WITH SPECIFICATIONS, (vi) LOCATION, (vii) USE, (viii)
CONDITION, (ix) MERCHANTABILITY, (xii) QUALITY, (xiii) DESCRIPTION, (xiv)
DURABILITY, (XV) OPERATION, (xvi) THE EXISTENCE OF ANY HAZARDOUS MATERIAL OR
(xvii) COMPLIANCE OF THE LEASED PROPERTY WITH ANY LAW (INCLUDING ENVIRONMENTAL
LAWS) OR LEGAL REQUIREMENTS. TENANT ACKNOWLEDGES THAT THE LEASED PROPERTY HAS
BEEN INSPECTED BY TENANT AND IS SATISFACTORY TO IT. IN THE EVENT OF ANY DEFECT
OR DEFICIENCY IN THE LEASED PROPERTY OF ANY NATURE, WHETHER LATENT OR PATENT,
AS BETWEEN LANDLORD AND TENANT, LANDLORD SHALL NOT HAVE ANY RESPONSIBILITY OR
LIABILITY WITH RESPECT THERETO OR FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES
(INCLUDING STRICT LIABILITY IN TORT). THE PROVISIONS OF THIS SECTION 5.2 HAVE
-----------
BEEN NEGOTIATED AND ARE INTENDED TO BE A COMPLETE EXCLUSION AND NEGATION OF ANY
WARRANTIES BY LANDLORD, EXPRESS OR IMPLIED, WITH RESPECT TO THE LEASED PROPERTY,
ARISING PURSUANT TO THE UNIFORM COMMERCIAL CODE OR ANY OTHER LAW NOW OR
HEREAFTER IN EFFECT OR ARISING OTHERWISE.
5.3 No Effect on Tenant's Representations. Nothing contained herein
-------------------------------------
shall be deemed to limit, modify or waive any of Tenant's representations,
warranties, or covenants to Landlord wherever contained in the Purchase
Agreement or otherwise existing.
ARTICLE 6 - OWNERSHIP OF PROPERTY
---------------------------------
6.1 Leased Property. Tenant acknowledges that the Leased Property
---------------
is the property of Landlord and that Tenant has only the right to the exclusive
possession and use of the Leased Property during the Term of and upon the terms
and conditions of this Lease.
6.2 Landlord's Personal Property. If Landlord has provided any
----------------------------
Landlord's Personal Property, Tenant shall maintain such Property in the same
manner as Tenant maintains Tenant's Personal Property. Upon the loss,
destruction, or obsolescence of any of the Landlord's Personal Property, Tenant
shall replace such property with Tenant's Personal Property, which such
property shall be owned by Tenant. Upon the expiration or sooner termination
of this Lease, Tenant shall be obligated to leave at the Facility at no cost to
Landlord
7
<PAGE>
and free of any liens or encumbrances: (i) any Landlord's Personal Property in
good working order and repair; and (ii) any replacements of Landlord's Personal
Property, provided that the condition of the replacements shall be substantially
comparable to the condition, age and quality of the replaced Landlord's Personal
Property as of the Commencement Date.
6.3 Tenant's Personal Property. Tenant may (and shall as provided
--------------------------
below), at its expense, install, affix or assemble or place on any parcels of
the Land or in any of the Leased Improvements, any items of Tenant's Personal
Property, and Tenant may, subject to the conditions set forth below, remove the
same upon the expiration or any prior termination of the Term. Tenant shall
provide and maintain during the entire Lease Term all such Tenant's Personal
Property as shall be necessary in order to operate the Facility in compliance
with all applicable Legal Requirements and Insurance Requirements and otherwise
in accordance with customary practice in the industry for the Primary Intended
Use and in accordance with its past practices.
6.4 Purchase of Tenant's Personal Property. Upon the expiration or
--------------------------------------
sooner termination of this Lease, Landlord shall have the right (but not the
obligation) to purchase from Tenant or any Subtenant all or any portion of
tangible Tenant's Personal Property (which shall not include software):
(i) if owned by Tenant or any Subtenant and not subject to any
secured financing, at the fair market value thereof (subject to
Section 6.2);
-----------
(ii) if owned by Tenant or any 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 (subject to Section
-------
6.2); and
---
(iii) if leased by Tenant or any Subtenant and the applicable lease
provides for termination of the lease as to such Property upon the
payment of a given sum, at the greater of the fair market value
thereof or the amount of the payment so provided; provided, however,
-----------------
that at Landlord's option and if the lessor will permit Landlord to
assume the obligations under the applicable lease with respect to such
Property (separate from the obligations under a master lease if in
effect), Tenant shall, upon the request of Landlord, assign (or cause
the appropriate Subtenant to 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 (or cause the appropriate Subtenant to assign) 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 resulting from any Event of Default, Landlord may make payment by
delivery of a receipt for an offset against such damages.
8
<PAGE>
6.5 Removal of Personal Property. All items of Tenant's Personal
----------------------------
Property not removed within 14 days following the expiration or earlier
termination of this Lease shall be considered abandoned 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
or any Subtenant and without any payment to Tenant or any Subtenant and without
any obligation to account therefor. Tenant shall, at its expense, restore the
Leased Property to the condition required by Section 9.1, including repair of
-----------
all damage to the Leased Property caused by the removal of Tenant's Personal
Property, whether effected by Tenant or Landlord. Landlord shall not be
responsible for any loss or damage to Tenant's Personal Property, or any other
property of Tenant, by virtue of Landlord's removal thereof at any time
subsequent to the 14-day period provided for herein.
6.6 Landlord's Waivers. Any lessor of Tenant's Personal Property may,
------------------
upon notice to Landlord and during reasonable hours, enter the Facility and take
possession of any of Tenant's Personal Property without liability for trespass
or conversion. Landlord shall, upon the request of Tenant, execute and deliver
to Tenant "landlord's waivers" as may be reasonable and customary in connection
with the financing or leasing of personal property. Such "landlord's waiver"
shall limit to 30 days the amount of time the lessor or lender has to enter upon
the Leased Premises after notice from Landlord that the Term has expired or
otherwise terminated. If tenant requests a "landlord's waiver." Tenant shall
attempt to secure from any financing source or lessor the right on the part of
Landlord to cure the defaults of Tenant and to use any such Property upon
providing such cure.
6.7 Water Rights. As a general matter, Landlord owns the Water Rights
------------
associated with the Leased Property. Landlord agrees to make such Water Rights
available to Tenant or any appropriate Subtenant at Landlord's cost to enable
Tenant to fulfill its obligations hereunder. Landlord makes no assurances
whatsoever as to the quantity, priority or price of any Water Rights owned by
Landlord. To the extent as of the Commencement Date, Tenant or any Subtenant
owns any rights for the supply or transportation or water to the Leased Property
(the "Tenant's Original Water Rights"), Tenant or the appropriate Subtenant
------------------------------
shall, through the Term and subject to the provisions of this Section 6.7,
-----------
maintain and hold Tenant's Original Water Rights on a first priority basis for
the benefit of the Leased Property. If and solely to the extent that Tenant's
Original Water Rights provide resources in excess of what is needed to property
serve the Leased Property, Tenant or any Subtenant may use Tenant's Original
Water Rights for other purposes as it determines consistent with any
restrictions under applicable law or the terms of Tenant's Original Water
Rights. During the Term, Tenant or any Subtenant may sell or exchange Tenant's
Original Water Rights if, prior to doing so, Tenant or the appropriate
Subtenant secures Replacement Water Rights. Upon the expiration or sooner
termination of this Lease, Tenant shall, within 10 days after request made by
Landlord, transfer (or cause the appropriate Subtenant to transfer) to Landlord
or its designee for no consideration Tenant's Original Water Rights (to the
extent still owned by Tenant or any Subtenant) and all Replacement Water
Rights. Upon the expiration or sooner termination or this Lease, to the extent
Tenant or any Subtenant had sold or exchanged Tenant's Original Water Rights
during the Term, Tenant or the appropriate Subtenant shall deliver to Landlord
or its designee Replacement Water Rights that are not less favorable in any
material respect to the holder of such Water Rights than the quantity, price and
priority or Tenant's Original Water Rights.
9
<PAGE>
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 (or permit the use of) the Leased
Property or any portion thereof for any other use without the prior written
consent of Landlord, which consent shall not be unreasonably withheld. No use
shall be made or permitted to be made of the Leased Property, and no acts shall
be done, which will cause the cancellation of any insurance policy covering the
Leased Property or any part thereof, nor shall Tenant or any Subtenant 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 (and cause all Subtenants to 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 Lease 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 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 Lease Property, or any
adjacent property, or incorporated in the Facility or any improvements thereon
except in compliance with applicable law (including any Environmental Law).
Tenant shall not allow the Leased Property to be used as a landfill or a waste
disposal site, or a manufacturing, distribution or disposal facility for any
Hazardous Materials. Tenant shall neither suffer nor permit the Leased Property
or any portion thereof, including Tenant's Personal Property, to be used in such
a manner as (i) might reasonably tend to impair Landlord's title thereto or to
any portion thereof, or (ii) may reasonably make possible a claim or claims of
adverse usage or adverse possession by the public, as such, or of implied
dedication of the Leased Property or any portion thereof, or (iii) is in
material violation of any applicable Environmental Law.
7.3 Membership Matters, Fees and Charges. So long as the Sublease is
------------------------------------
in effect, AGC 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, the number of memberships sold, and the rules,
regulations, policies, and procedures pertaining to memberships, provided that
AGC shall not exercise such right in a manner that would be detrimental in any
material respect to Landlord or Landlord's interest herein. AGC shall have the
right to determine all fees, rates and other charges relating to the goods and
services provided by AGC at the Leased Premises and the use of the Leased
Premises by patrons, customers and members, provided the AGC shall not exercise
such right in a manner that would be detrimental in any material respect to
Landlord or Landlord's interest herein. Should the Sublease terminate, then
Tenant will have the rights specified in this Section 7.3 subject to Landlord's
-----------
prior written approval which shall not be unreasonably withheld.
10
<PAGE>
7.4 Landlord to Grant Easements, Etc. Landlord shall, from time to
--------------------------------
time so long as no Event of Default has occurred and is continuing, at the
request of Tenant and at Tenant's cost and expense (but subject to the approval
of Landlord, which approval shall not be unreasonably withheld or delayed): (i)
grant easements and other rights in the nature of easements; (ii) release
existing easements or other rights in the nature of easements which are for the
benefit of the Leased Property; (iii) dedicate or transfer unimproved portions
of the Leased Property for road, highway or other public purposes; (iv) execute
petitions to have the Leased Property annexed to any municipal corporation or
utility district; (v) execute amendments to any covenants and restrictions
affecting the Leased Property; and (vi) execute and deliver to any Person any
instrument appropriate to confirm or effect such grants, releases, dedications
and transfers (to the extent of its interest in the Leased Property), but only
upon delivery to Landlord of an Officer's Certificate (which Certificate, if
contested by Landlord, shall not be binding on Landlord) stating that such
grant, release, dedication, transfer, petition or amendment is not detrimental
to the proper conduct of the business of Tenant on the Leased Property and does
not reduce its value or usefulness for the Primary Intended Use. Landlord shall
not grant, release, dedicate or execute any of the foregoing items in Section
-------
7.4 without obtaining Tenant's approval, which approval shall not be
- ---
unreasonably withheld or delayed.
ARTICLE 8 - HAZARDOUS MATERIALS
-------------------------------
8.1 Remediation. If Tenant becomes aware of the presence of any
-----------
Hazardous Material in a quantity sufficient to require remediation of reporting
under any Environmental Law in, on or under the Leased Property or if Tenant,
any Subtenant, Landlord, or the Leased Property becomes subject to any order of
any federal, state or local agency to investigate, remove, remediate, repair,
close, detoxify, decontaminate or otherwise clean up the Leased Property, Tenant
shall, at its sole expense, carry out and complete any required investigation,
removal, remediation, repair, closure, detoxification, decontamination or other
cleanup of the Leased Property. If Tenant fails to implement and diligently
pursue any such repair, closure, detoxification, decontamination or other
cleanup of the Leased Property in a timely manner, Landlord shall have the
right, but not the obligation, to carry out such action and to recover all of
the reasonable costs and expenses from Tenant as Additional Charges.
8.2 Tenant's Indemnification of Landlord. Except as provided in the
------------------------------------
last sentence of this Section 8.2, Tenant shall pay, protect, indemnify, save,
-----------
hold harmless and defend Landlord and any Facility Mortgagee from and against
all liabilities, obligations, claims, damages (including punitive damages),
penalties, causes of action, demands, judgments, costs and expenses (including
reasonable attorneys' fees and expenses), to the extent permitted by law,
imposed upon or incurred by or asserted against Landlord or the Leased Property
by reason of any Environmental Law (irrespective of whether there has occurred
any violation of any Environmental Law) in respect of the Leased Property
howsoever arising, and whether arising before or after the Commencement Date and
without regard to fault on the part of Tenant or any 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
or any other Person, or damages from injury to or destruction or loss of natural
resources, including the reasonable costs of assessing such injury, destruction
or loss, incurred pursuant to any Environmental Law, (b) liability for costs and
expenses of abatement, investigation, removal, remediation, correction or
clean-up, fines, damages, response costs or penalties which arise from
11
<PAGE>
the provisions of any Environmental Law, or (c) liability for personal injury or
property damage arising under any statutory or common-law tort theory, including
damages assessed for the maintenance of a public or private nuisance or for
carrying on of a dangerous activity. Nothing contained herein shall be deemed to
limit, modify or waive any of Tenant's obligations or warranties to Landlord in
the Purchase Agreement. The foregoing indemnity shall only apply to liabilities,
obligations, claims, damages (including punitive damages), penalties, causes of
action, demands, judgments, costs and expenses in connection with any conditions
or events occurring (i) during the period of time in which Tenant owned or
possessed the Leased Property, other than times during which AGC was in
possession; and (ii) as a result of an act or omission on the part of Tenant or
a breach by Tenant of any of the terms of this Lease. Tenant hereby acknowledges
and agrees that the provisions of this Section 8.2 and the other provisions of
-----------
this Lease shall not limit or otherwise affect in any way of Tenant's
representations and/or warranties under the Purchase Agreement.
8.3 Survival of Indemnification Obligations. Tenant's and Landlord's
---------------------------------------
obligations and/or liability under this Article 8 arising during the Term hereof
---------
shall survive any termination of this Lease.
8.4 Environmental Violations at Expiration or Termination of Lease.
--------------------------------------------------------------
Notwithstanding any other provision of this Lease (except the last sentence of
Section 8.2), if, at a time when the Term would otherwise terminate or expire, a
- -----------
violation of any Environmental Law has been asserted by Landlord and has not
been resolved in a manner reasonably satisfactory to Landlord, or has been
acknowledged by Tenant to exist or has been found to exist at the Leased
Property or has been asserted by any governmental authority and failure to have
completed all action required to correct, abate or remediate such a violation of
any Environmental Law materially impairs the leasability of the Leased Property
upon the expiration of the Term, then, at the option of Landlord, the Term shall
be automatically extended with respect to the Leased Property beyond the date of
termination or expiration and this Lease shall remain in full force and effect
under the same terms and conditions until the earlier to occur of (i) the
completion of all remedial action in accordance with applicable Environmental
Laws or (ii) 12 months beyond such expiration or termination date; provided,
--------
that Tenant may, upon any such extension of the Term, terminate the Term by
paying to the Landlord such amount as is necessary in the reasonable judgment of
Landlord to complete or perform such remedial action in which case Tenant shall
not be liable for any additional costs of remediation.
ARTICLE 9 - MAINTENANCE AND REPAIR
----------------------------------
9.1 Tenant's Sole Obligation. Tenant, at its expense, will keep (and
------------------------
cause all Subtenants to 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 (or any Subtenant'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
12
<PAGE>
(concealed or otherwise). Tenant shall maintain (and cause all Subtenants to
maintain) the Leased Premises in accordance with the Operating Standards set
forth in Exhibit D; provided, however, that Tenant or any Subtenant may make
--------- -------- -------
such modifications to such Operating Standards as Tenant or any Subtenant may
reasonably determine to be appropriate for the prudent management of the Leased
Property, which modifications, to the extent they are material to the operating
results of the Leased Property, shall be subject to the approval of Landlord;
provided further, however, that Tenant and any Subtenant 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
---------
improvements or replacements to the Leased Property if the Leased Property can
be repaired to the standard required by this Section 9.1. Nothing in this
-----------
Article 9 shall be deemed to limit, modify, or waive any of Tenant's obligations
- ---------
or warranties to Landlord in the Purchase Agreement.
9.2 Waiver of Statutory Obligations. Landlord shall not under any
-------------------------------
circumstances be required to build or rebuild any improvements on the Leased
Property, or to make any repairs, replacements, alterations, restorations or
renewals of any nature or description to the Leased Property, whether ordinary
or extraordinary, structural or non-structural, foreseen or unforeseen, or to
make any expenditure whatsoever with respect thereto, in connection with this
Lease, or to maintain the Leased Property in any way. Tenant hereby waives, to
the extent permitted by law, the right to make repairs at the expense of
Landlord pursuant to any law in effect at the time of the execution of this
Lease or hereafter enacted.
9.3 Mechanics' 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 or any 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 Landlord in
respect thereof or to make any agreement that may create, or in any way be the
basis for, any right, title, interest, lien, claim or other encumbrance upon the
estate of Landlord in the Leased Property, or any portion thereof.
9.4 Surrender of Leased Property. Unless the Lease shall have been
----------------------------
terminated pursuant to the provisions of Article 14, Tenant shall, upon the
----------
expiration or prior termination of the Term, vacate and surrender the Leased
Property to Landlord in the condition in which the Leased Property was
originally received from Landlord, except as repaired, rebuilt, restored,
altered or added to as permitted or required by the provisions of this Lease and
except for ordinary wear and tear (subject to the obligation of Tenant to
maintain, and to cause each Subtenant to maintain, the Leased Property in
good order and repair during the entire Term of the Lease).
13
<PAGE>
ARTICLE 10 - TENANT'S IMPROVEMENTS
----------------------------------
10.1 Tenant's Right to Construct. During the Term of this Lease,
---------------------------
Tenant and any Subtenant may make alterations, additions, changes and/or
improvements to the Leased Property (individually, a "Tenant Improvement," and
------------------
collectively, "Tenant Improvements"). Except as otherwise agreed to by Landlord
--------------------
in writing, any such Tenant Improvement shall be made at Tenant's or Subtenant's
sole expense and shall become the property of Landlord upon termination of this
Lease. Unless made on an emergency basis to prevent injury to Person or
property, Tenant will submit plans for any Tenant Improvement with a value of
more than $250,000 in the first Fiscal Year and increased by four percent per
annum for each subsequent Fiscal Year to Landlord for Landlord's prior approval,
such approval not to be unreasonably withheld or delayed.
10.2 Scope of Right. Subject to Section 10.1, at Tenant's or
-------------- ------------
Subtenant's cost and expense, Tenant and Subtenant shall have the right to:
(a) seek any governmental approvals, including building permits,
licenses, conditional use permits and any certificates of need that
Tenant (or any Subtenant) requires to construct any Tenant
Improvement;
(b) demolish, remove or otherwise dispose of any of the Leased
Improvements;
(c) erect upon the Leased Property such Tenant Improvements as Tenant
(or any Subtenant) 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 or any Subtenant
determines are necessary or desirable for the development of the
Leased Property in accordance with its Primary Intended Use;
provided, however, Tenant shall not make, or permit any Subtenant to
-----------------
make, any Tenant Improvement which would, in Landlord's reasonable judgment,
impair the value or Primary Intended Use of the Leased Property without
Landlord's prior written consent.
10.3 Cooperation of Landlord. Landlord shall cooperate with Tenant
-----------------------
and any subtenant 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 to construct any Tenant Improvement
within 10 Business Days following the later of (a) the date Landlord receives
Tenant's request, or (b) the date of delivery of any such application or
document to Landlord, so long as the taking of such action, including the
execution of said applications or documents, shall be without cost to Landlord
(or if there is a
14
<PAGE>
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 (or cause
Subtenant to prosecute) any such construction to completion in
accordance with the 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;
(d) Tenant shall not suffer or permit any mechanics' liens or
any other claims or demands arising from the work of construction
of any Tenant Improvement to be enforced against the Leased
Property or any part thereof, and Tenant agrees to hold Landlord
and said Leased Property free and harmless and 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 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:
15
<PAGE>
(a) this Lease or the Sublease;
(b) the matters, if any, that existed as of the Commencement Date;
(c) restrictions, liens and other encumbrances which are consented to
in writing by Landlord, or any easements granted pursuant to the
provisions of Section 7.4 of this Lease;
-----------
(d) liens for those taxes of Landlord which Tenant is not required to
pay hereunder;
(e) subleases permitted by Article 22;
----------
(f) liens for Impositions or for sums resulting from noncompliance
with Legal Requirements so long as (1) the same are not yet payable or
are payable without the addition of any fine or penalty or (2) such
liens are in the process of being contested as permitted by Article
-------
12;
--
(g) liens of mechanics, laborers, materialmen, suppliers or vendors
for sums either disputed (provided that such liens are in the process
-------------
of being contested as permitted by Article 12) or not yet due; and
----------
(h) any liens which are the responsibility of Landlord pursuant to
the provisions of Article 24.
----------
11.2 Encroachments and Other Title Matters. Excepting any matters
-------------------------------------
granted or created by Landlord or any predecessor-in-interest with respect to
the Leased Property, 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 other 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, as its sole cost and expense (subject to its right to
contest the existence of any such encroachment, violation or impairment), shall
protect, indemnify, save harmless and defend Landlord from and against all
losses, liabilities, obligations, claims, damages, penalties, causes of action,
costs and expenses (including reasonable attorneys' fees and expenses) based on
or arising by reason of any such encroachment, violation or impairment and in
such case, in the event of an adverse final determination, either (i) obtain
valid and effective waivers or settlements of all claims, liabilities and
damages resulting from each such encroachment, violation or impairment, whether
the same shall affect Landlord or Tenant; or (ii) make such changes in the
Leased Improvements, and take such other actions, as Tenant in the good faith
exercise of its judgment deems reasonably practicable, to remove such
encroachment, and to end such violation or impairment, including, if necessary,
the alteration of any of the Leased Improvements, and in any event take all such
actions as may be necessary in order to be able
16
<PAGE>
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.
Notwithstanding any other provision of this Lease, the obligations of Tenant set
forth in this Section 11.2 shall not apply to any such encroachments, violations
------------
or impairments existing as of the Commencement Date,
ARTIClE 12 - PERMITTED CONTESTS
-------------------------------
Tenant, on its own, or on behalf of Subtenant or Landlord (or in
Landlord's name) but at Tenant's expense, way contest, by appropriate legal
proceedings conducted in good faith and with due diligence, the amount or
validity or application, in whole or in part, of any Imposition or any Legal
Requirement or Insurance Requirement or any lien, attachment, levy, encumbrance,
charge or claim not otherwise permitted by Section 11.1, provided that:
------------- -------------
(a) in the case of an unpaid Imposition, lien, attachment, levy,
encumbrance, charge or claim, the commencement and continuation of
such proceedings shall suspend the collection thereof from Landlord
and from the Leased Property, and neither the Leased Property nor any
Rent therefrom nor any part thereof or interest therein would be in
any danger of being sold, forfeited, attached or lost pending the
outcome of such proceedings;
(b) in the case of a Legal Requirement, Landlord would not be subject
to criminal or material civil liability for failure to comply
therewith pending the outcome of such proceedings. Nothing in this
Section 12(b), however, shall permit Tenant to delay compliance with
-------------
any requirement of an Environmental Law to the extent such non-
compliance poses an immediate threat of injury to any Person or to the
public health or safety or of material damage to any real or personal
property;
(c) in the case of a Legal Requirement and/or an Imposition, lien,
encumbrance or charge, Tenant shall give such reasonable security, if
any, as may be demanded by Landlord to insure ultimate payment of the
same and to prevent any sale or forfeiture of the affected Leased
Property or the Rent by reason of such non-payment or noncompliance,
provided, however, the provisions of this Article 12 shall not be
----------------- ----------
construed to permit Tenant to contest the payment of Rent (except as
to contests concerning the method of computation or the basis of levy
of any Imposition or the basis for the assertion of any other claim)
or any other sums payable by Tenant to Landlord hereunder;
(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
----------
17
<PAGE>
(f) if such contest be finally resolved against Landlord or Tenant,
Tenant shall, as Additional Charges due hereunder, promptly pay the
amount required to be paid, together with all interest and penalties
accrued thereon, or comply with the applicable Legal Requirement or
Insurance Requirement.
Landlord, at Tenant's expense, shall execute and deliver to Tenant such
authorizations and other documents as may reasonably be required in any such
contest, and, if reasonably requested by Tenant or if Landlord so desires,
Landlord shall join as a party therein. Tenant shall indemnify and save Landlord
harmless against any liability, cost or expense of any kind that may be imposed
upon Landlord in connection with any such contest and any loss resulting
therefrom.
ARTICLE 13 - INSURANCE
----------------------
13.1 General Insurance Requirements. During the Term of this Lease,
------------------------------
Tenant shall at all times keep the Leased Property, and all property located in
or on the Leased Property, including all Landlord's Personal Property, Tenant's
Personal Property and any Tenant Improvements, insured with the kinds and
amounts of insurance described below. This insurance shall be written by
companies authorized to do insurance business in California. The policies must
name Landlord as an "Additional Insured." Losses shall be payable to Landlord
and/or Tenant as provided in Article 14. In addition, the policies shall name
----------
as an additional insured the holder of any mortgage, deed of trust or other
security agreement securing any indebtedness or any other Landlord's Encumbrance
placed on the Leased Property in accordance with the provisions of Article 24
----------
("Facility Mortgage") by way of a standard form of mortgagee's loss payable
-----------------
endorsement. Any loss adjustment shall require the written consent of Landlord,
Tenant, and each Facility Mortgagee. Evidence of insurance shall be deposited
with Landlord and, if requested, with any Facility Mortgagee(s). The policies on
the Leases Property, including the Leased Improvements, Fixtures, Tenant's
Personal Property and any Tenant Improvements, shall insure against the
following risks:
13.1.1 All Risk. Loss or damage by all risks perils including
--------
but not limited to, fire, vandalism, malicious mischief and extended
coverages, including but not limited to, sprinkler leakage, in an amount
not less than 100% of the then Full Replacement Cost thereof.
13.1.2 Liability. Claims for personal injury or property
---------
damage under a policy of comprehensive general liability insurance with
amounts not less than $10,000,000 per occurrence and in the aggregate.
13.1.3 Flood. Flood (when the Leased Property is located in
-----
whole or in material part in a designated flood plain area) and such other
hazards and in such amounts as may be customary for comparable properties
in the area; provided however, that Tenant shall not be required to
----------------
participate in the National Flood Insurance Program.
13.1.4 Worker's Compensation. Adequate worker's compensation
---------------------
insurance coverage for all Persons employed by Tenant on the Leased
Property in accordance with the requirements of applicable federal, state
and local laws.
18
<PAGE>
13.1.5 Other Insurance. Such other insurance on or in
---------------
connection with any of the Leased Property as Landlord or any Facility
Mortgagee may reasonably require, which at the time is usual and commonly
obtained in connection with properties similar in type of building size and
use to the Leased Property and located in the geographic area where the
Leased Property is located; provided however, that Landlord shall bear the
-------- -------
cost of any such coverage requested under this Section 13.1.5.
--------------
13.2 Replacement Cost. In the event either party believes that the
----------------
Full Replacement Cost of the insured property has increased or decreased at any
time during the Lease Term, it shall have the right to have such Full
Replacement Cost redetermined by the fire insurance company which is then
carrying the largest amount of fire insurance carried on the Leased Property
(the "Impartial Appraiser"). The party desiring to have the Full Replacement
-------------------
Cost so redetermined shall forthwith, on receipt of such determination by such
Impartial Appraiser, give written notice thereof to the other party hereto. The
determination of such Impartial Appraiser shall be final and binding on the
parties hereto, and Tenant shall forthwith increase, or may decrease, the amount
of the insurance carried pursuant to this Section 13.2, as the case may be, to
------------
the amount so determined by the Impartial Appraiser. Each party shall pay
one-half of the fee, if any, of the Impartial Appraiser.
13.3 Waiver of Subrogation. Landlord and Tenant waive their respective
---------------------
right of recovery against the other to the extent damage or liability is insured
against under a policy or policies of insurance. All insurance policies carried
by either party covering the Leased Property including contents, fire and
casualty insurance, shall expressly waive any right of subrogation on the part
of the insurer against the other party (including any Facility Mortgagee). The
parties hereto agree that their policies will include such waiver clause or
endorsement so long as the same are obtainable without extra cost, and in the
event of such an extra charge the other party, at its election, may pay the
same, but shall not be obligated to do so.
13.4 Form Satisfactory, Etc. All of the policies of insurance referred
----------------------
to in Section 13.1 shall be written in a form reasonably satisfactory to
------------
Landlord and by insurance companies rated not less than A-X by A.M. Best's
Insurance Guide. In addition, all insurance carried by Tenant hereunder shall
have deductible amounts which are reasonably acceptable to Landlord. Tenant
shall pay all premiums for the policies of insurance referred to in Section 13.1
------------
and shall deliver certificates thereof to Landlord prior to their effective date
(and with respect to any renewal policy, at least 10 days prior to the
expiration of the existing policy). In the event Tenant fails to satisfy its
obligations under this Section 13.4, Landlord shall be entitled, but shall have
------------
no obligation, to effect such insurance and pay the premiums therefor, which
premiums shall be repayable to Landlord upon written demand as Additional
Charges. Each insurer mentioned in Section 13.1 shall agree, by endorsement on
------------
the policy or policies issued by it, or by independent instrument furnished to
Landlord, that it will give to Landlord 30 days' written notice before the
policy or policies in question shall be altered, allowed to expire or cancelled.
Each such policy shall also provide that any loss otherwise payable thereunder
shall be payable notwithstanding (i) any act or omission of Landlord or Tenant
which might, absent such provision, result in a forfeiture of all or a part of
such insurance payment, (ii) the occupation or use of the Leased Property for
purposes more hazardous than those permitted by the provisions of such policy,
(iii) any foreclosure or other action or proceeding taken by any Facility
Mortgagee pursuant to any provision of a mortgage, note, assignment or other
document
19
<PAGE>
evidencing or securing a loan upon the happening of an event of default therein
or (iv) any change in title to or ownership of the Leased Property.
13.5 Change in Limits. In the event that Landlord shall at any time
----------------
reasonably determine on the basis of prudent industry practice that the
liability insurance carried by Tenant pursuant to Section 13.1.2 is either
--------------
excessive or insufficient (but only if the liability insurance limit is not less
than $3,000,000 per person or per occurrence), the parties shall endeavor to
agree on the proper and reasonable limits for such insurance to be carried; and
such insurance shall thereafter be carried with the limits thus agreed on until
further changed pursuant to the provisions of this Section 13.5. Notwithstanding
------------
the foregoing, the deductibles for such insurance or the amount of such
insurance which is self-retained by Tenant shall be as reasonably determined by
Tenant so long as Tenant can reasonably demonstrate 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 shall be
- ----------
specified either (i) in each such "blanket" or umbrella policy or (ii) in a
written statement, which Tenant shall deliver to Landlord and Facility
Mortgagee, from the insurer thereunder. A certificate of each such "blanket" or
umbrella policy shall promptly be delivered to Landlord and Facility Mortgagee.
If requested by Landlord, Tenant shall provide Landlord with a certified copy of
the "blanket" or umbrella insurance policy.
ARTICLE 14 - APPLICATION OF INSURANCE PROCEEDS
----------------------------------------------
14.1 Insurance Proceeds. All proceeds of insurance payable by reason
------------------
of any loss or damage to the Leased Property, or any portion thereof, and
insured under any policy of insurance required by Article 13 shall (i) if
----------
greater than $500,000, be paid to Landlord and held by Landlord and (ii) if less
than such amount, be paid to Tenant and held by Tenant. All such proceeds shall
be held in trust and shall be made available for reconstruction or repair, as
the case may be, of any damage to or destruction of the Leased Property, or any
portion thereof.
14.1.1 Disbursement of Proceeds. Any proceeds held by Landlord
------------------------
or Tenant shall be paid out by Landlord or Tenant from time to time
for the reasonable costs of such reconstruction or repair; provided,
--------
however, that Landlord shall disburse proceeds subject to the
-------
following requirements:
(i) prior to commencement of restoration, (A) the architects,
contracts, contractors, plans and specifications for the restoration
shall have been approved by Landlord, which approval shall not be
unreasonably withheld or delayed and
20
<PAGE>
(B) appropriate waivers of mechanics' and materialmen's liens shall
have been filed;
(ii) at the time of any disbursement, subject to Article 12, no
----------
mechanics' or materialmen's liens shall have been filed against any of
the Leased Property and remain undischarged, unless a satisfactory
bond shall have been posted in accordance with the laws of the State;
(iii) disbursements shall be made 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;
(iv) each request for disbursement shall be accompanied by a
certificate of Tenant, signed by the president or a vice president of
Tenant, describing the work for which payment is requested, stating
the cost incurred in connection therewith, stating that Tenant has not
previously received payment for such work and, upon completion of the
work, also stating that the work has been fully completed and complies
with the applicable requirements of this Lease;
(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.
14.1.2 Excess Proceeds. Any excess proceeds of insurance
---------------
remaining after the completion of the restoration or reconstruction of the
Leased Property shall be paid to Tenant. However, if neither Landlord nor
Tenant is required or elects to repair and restore, the same shall be paid
to Landlord and Tenant in like proportion to the value of Landlord's and
Tenant's interests in the Leased Property and Tenant's interest in Tenant's
Personal Property and the Tenant Improvements, or any portion thereof, as
determined under Article 13, upon completion of any such repair and
----------
restoration except as otherwise specifically provided below in this Article
-------
14. All salvage resulting from any risk covered by insurance shall, to the
--
extent not used for restoration, belong to Landlord.
21
<PAGE>
14.2 Reconstruction Covered by Insurance.
-----------------------------------
14.2.1 Destruction Rendering Facility Unsuitable for its
-------------------------------------------------
Primary Use. If during the Term the Leased Property is totally or partially
-----------
destroyed from a risk covered by the insurance described in Article 13 and
----------
the Facility thereby is rendered Unsuitable For Its Primary Intended Use,
Tenant shall diligently restore the Facility to substantially the same
condition as existed immediately before the damage or destruction;
provided, however, if the Facility cannot be fully repaired or restored
within a 12-month period from the date of the damage or destruction to
substantially the same condition as existed immediately before the damage
or destruction, then Tenant may terminate this Lease by giving Landlord
written notice of such termination within 60 days after the date of such
damage or destruction, and the effective date of such termination shall be
30 days following such notice of termination; provided, however, if
Landlord notifies Tenant in writing within fifteen (15) days of Landlord's
receipt of Tenant's notice of termination that Landlord intends to restore
the Facility to substantially the same condition as existed immediately
before the damage and destruction and Landlord diligently commences and
prosecutes such restoration and completes such restoration within twelve
(12) months after the date of the damage or destruction, then Tenant's
election to terminate the Lease shall be deemed rescinded and the Lease
shall remain in full force and effect. Notwithstanding Section 14.4 below,
------------
in the event Landlord elects to restore the Facility as provided in the
immediately preceding sentence, during the period from the date of Tenant's
notice of termination through the date the restoration of the Facility is
completed, the Base Rent shall be deemed to be zero and Tenant's payment of
Rent shall consist only of the payment of Additional Rent in accordance
with Section 9 of the Basic Lease Provisions and the Additional Charges as
---------
required by the Detailed Lease Provisions. Upon any such termination of the
Lease by Tenant or upon Landlord's election to restore the Facility as
provided in this section, Landlord shall be entitled to retain all
insurance proceeds, grossed up by Tenant to account for the deductible or
any self-insured retention; provided, further, that Tenant shall be
entitled to retain or receive all insurance proceeds relating to Tenant's
Personal Property and the Tenant Improvements.
14.2.2 Destruction Not Rendering Facility Unsuitable for its Primary
-------------------------------------------------------------
Use. If during the Term, the Leased Property is totally or partially
---
destroyed from a risk covered by the insurance described in Article 13, but
----------
the Facility is not thereby rendered Unsuitable For Its Primary Intended
Use, Tenant shall diligently restore the Facility to substantially the same
condition as existed immediately before the damage or destruction;
provided, however, Tenant shall not be required to restore Tenant's
-----------------
Personal Property and/or any Tenant Improvements if failure to do so does
not adversely affect the amount of Additional Rent payable hereunder. Such
damage or destruction shall not terminate this Lease; provided further,
-----------------
however, if Tenant and Landlord cannot within 12 months after said damage
-------
obtain all necessary governmental approvals, including building permits,
licenses, conditional use permits and any certificates of need, after
diligent efforts to do so in order to be able to perform all required
repair and restoration work and to operate the Facility for its Primary
Intended Use in substantially the same manner as immediately prior to such
damage or destruction, Tenant may terminate this Lease upon 30 days prior
written notice to Landlord; provided further, however, if Landlord
-------------------------
22
<PAGE>
notifies Tenant in writing within fifteen (15) days of Landlord's receipt
of Tenant's notice of termination that Landlord intends to restore the
Facility to substantially the same condition as existed immediately before
the damage and destruction and Landlord diligently commences and prosecutes
such restoration and completes such restoration within ninety (90) days
after the date of Tenant's notice of termination, then Tenant's election to
terminate the Lease shall be deemed rescinded and the Lease shall remain in
full force and effect. Notwithstanding Section 14.4 below, in the event
------------
Landlord elects to restore the Facility as provided in the immediately
preceding sentence, during the period from the date of Tenant's notice of
termination through the date the restoration of the Facility is completed,
the Base Rent shall be deemed to be zero and Tenant's payment of Rent shall
consist only of the payment of Additional Rent in accordance with Section 9
---------
of the Basic Lease Provisions and the Additional Charges as required by the
Detailed Lease Provisions. Upon any such termination of the Lease by Tenant
or upon Landlord's election to restore the Facility as provided in this
section, Landlord shall be entitled to retain all insurance proceeds,
grossed up by Tenant to account for the deductible or any self-insured
retention; provided, further, that Tenant shall be entitled to retain or
receive all insurance proceeds relating to Tenant's Personal Property and
the Tenant Improvements.
14.2.3 Costs of Repair. If Tenant restores the Facility as
---------------
provided in Sections 14.2.1 and 14.2.2 above and the cost of the repair or
--------------- ------
restoration exceeds the amount of proceeds received by Landlord or Tenant
from the insurance required under Article 13, Tenant shall pay for such
----------
excess cost of repair or restoration. If Landlord restores the Facility as
provided in Sections 14.2.1 and 14.2.2 above and the cost of the repair or
--------------- ------
restoration exceeds the amount of proceeds received by Landlord as provided
in those sections, Landlord shall pay for such excess cost of repair or
restoration.
14.3 Reconstruction Not Covered by Insurance. If during the Term, the
---------------------------------------
Facility is totally or materially destroyed from a risk not covered by the
insurance described in Article 13, whether or not such damage or destruction
----------
renders the Facility Unsuitable For Its Primary Intended Use, Tenant shall
either (A) restore the Facility, at Tenant's cost, to substantially the same
condition as existed immediately before the damage or destruction, or (B) elect
to terminate this Lease upon 60 days prior written notice to Landlord; provided,
however, if Landlord notifies Tenant in writing within fifteen (15) days of
Landlord's receipt of Tenant's notice of termination that Landlord intends to
restore the Facility, at Landlord's cost, to substantially the same condition as
existed immediately before the damage and destruction and Landlord diligently
commences and prosecutes such restoration and completes such restoration within
ninety (90) days after the date of Tenant's notice of termination, then Tenant's
election to terminate the Lease shall be deemed rescinded and the Lease shall
remain in full force and effect. In the event Landlord elects to restore the
Facility as provided in the immediately preceding sentence, during the period
from the date of Tenant's notice of termination through the date the restoration
of the Facility is completed, the Base Rent shall be deemed to be zero and
Tenant's payment of Rent shall consist only of the payment of Additional Rent in
accordance with Section 9 of the Basic Lease Provisions and the Additional
---------
Charges as required by the Detailed Lease Provisions.
23
<PAGE>
14.4 No Abatement of Rent. Except as otherwise provided in
---------------------
Sections 14.2 and 14.3 above, 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 Tenant shall be entitled to
-------- -------
retain any proceeds of rental value or business interruption insurance coverage
except to the extent needed to cure any Event of Default.
14.5 Waiver. Tenant hereby waives any statutory rights of
------
termination which may arise by reason of any damage or destruction of the
Facility which Landlord or Tenant is obligated to restore or may restore under
any of the provisions of this Lease.
14.6 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 Tenant shall have the right to terminate the Lease on 30
days' prior notice to Landlord by giving notice thereof to Landlord within 60
days after the date of such damage or destruction. Upon any such termination,
Landlord shall be entitled to retain all insurance proceeds, grossed up by
Tenant to account for the deductible or any self-insured retention; provided
--------
however, that Tenant shall be entitled to retain or receive all insurance
- -------
proceeds relating to Tenant's Personal Property and Tenant Improvements.
ARTICLE 15 - CONDEMNATION
-------------------------
15.1 Total Taking. If at any time during the Term the Leased
------------
Property is totally and permanently taken by Condemnation, this Lease shall
terminate on the Date of Taking and Tenant shall promptly pay all outstanding
Rent and other charges through the date of termination.
15.2 Partial Taking. If a portion of the Leased Property is
--------------
taken by Condemnation, this Lease shall remain in effect if the Facility is not
thereby rendered Unsuitable For Its Primary Intended Use, but if the Facility is
thereby rendered Unsuitable For Its Primary Intended Use, this Lease shall
terminate on the Date of Taking.
15.3 Restoration. If there is a partial taking of the Leased
-----------
Property and this Lease remains in full force and effect pursuant to Section
-------
15.2, Landlord at its cost shall accomplish all necessary restoration up to but
- ----
not exceeding the amount of the Award payable to Landlord, as provided herein.
If Tenant receives 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 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 is less than the Condemnation Threshold, then the
amount of the Award otherwise payable to Tenant for the value of its leasehold
interest under
24
<PAGE>
this Lease (and not any other funds of Tenant) shall instead be paid over to
Landlord up to the amount of the shortfall.
15.5 Temporary Taking. The taking of the Leased Property, or any
----------------
part thereof, by military or other public authority shall constitute a taking by
Condemnation only when the use and occupancy by the taking authority has
continued for longer than six months. During any such six month period, which
shall be a temporary taking, all the provisions of this Lease shall remain in
full force and effect with no abatement of rent payable by Tenant hereunder. In
the event of any such temporary taking, the entire amount of any such Award made
for such temporary taking allocable to the Term of this Lease, whether paid by
way of damages, rent or otherwise, shall be paid to Tenant.
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 or
if Tenant fails timely to make any payment due under Paragraph 15
of the Basic Lease Provisions, and such failure is not cured by
Tenant within a period of five (5) business 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 fails timely to deliver the Letter of Credit or
any replacement Letter of Credit pursuant to Paragraph 16 of
------------
Basic Lease Provisions;
(c) if Tenant shall fail to comply with the provisions of
Article 22 with respect to a Change of Control;
----------
(d) 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
diligently completes the curing thereof; provided, however, that
-----------------
such notice shall be in lieu of and not in addition to any notice
required under applicable law; provided further, however, that
-------------------------
the cure period shall not extend beyond 30 days as otherwise
provided by this Section 16.1(d) 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. If the nature of the failure is such that Tenant
cannot cure the same until it gains possession of the Facility,
25
<PAGE>
Tenant shall not be deemed in default so long as it is diligently
taking steps to enforce its rights to gain possession of the
Facility.
(e) 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) be unable to pay its debts as they mature,
(v) consent to the appointment of a receiver of itself
or of the whole or any substantial part of its property,
or
(vi) file a petition or answer seeking reorganization or
arrangement under the Federal bankruptcy laws or any other
applicable law or statute of the United States of America
or any state thereof;
(f) 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;
(g) if Tenant shall be liquidated or dissolved, or shall begin
proceedings toward such liquidation or dissolution;
(h) 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); provided, however,
---------- -------- -------
that such notice shall be in lieu of and not in addition to any
notice required under applicable law;
(i) 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 forty-five (45) consecutive days;
26
<PAGE>
(j) 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;
THEN, Landlord may terminate this Lease by giving Tenant not less
than 10 days' notice (or no notice for clauses (e), (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. Landlord
shall have all rights at law and in equity available to Landlord as a result of
Tenant's breach of this Lease.
16.2 Payment of Costs. Tenant shall, to the extent permitted by
----------------
law, pay as Additional Charges all costs and expenses incurred by or on behalf
of Landlord, including reasonable attorneys' fees and expenses, as a result of
any Event of Default hereunder,
16.3 Exceptions. No Event of Default (other than a failure to
----------
make payment of money or post a Letter of Credit, if required hereunder) shall
be deemed to exist under clause (d) or clause (j) of Section 16.1 during any
------------
time the curing thereof is prevented by an Unavoidable Delay; provided that,
-------------
upon the cessation of such Unavoidable Delay, Tenant shall remedy such default
without further delay.
16.4 Certain Remedies. If an Event of Default shall have
----------------
occurred (and the event giving rise to such Event of Default has not been cured
within the curative period relating thereto as set forth in Section 16.1) and be
------------
continuing, whether or not this Lease has been terminated pursuant to Section
-------
16.1, Tenant shall, to the extent permitted by law, if required by Landlord so
- ----
to do, immediately surrender to Landlord the Leased Property pursuant to the
provisions of Section 16.1 and quit the same and Landlord may enter upon and
------------
repossess the Leased Property by reasonable 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:
27
<PAGE>
(i) the worth at the time of award of the unpaid Rent which had
been earned at the time of termination,
(ii) the worth at the time of award of the amount by which the
unpaid Rent which would have been earned after termination until
the time of award exceeds the amount of such rental loss that
Tenant proves could have been reasonably avoided,
(iii) the worth at the time of award of the amount by which the
unpaid Rent for the balance of the Term after the time of award
exceeds the amount of such rental loss that Tenant proves could
be reasonably avoided, and
(iv) any other amount necessary to compensate Landlord for all
the detriment proximately caused by Tenant's failure to perform
its obligations under this Lease or which in the ordinary course
of things would be likely to result therefrom.
In making the above determinations, the worth at the time of the award
shall be determined by the court having jurisdiction thereof using the
San Francisco Federal Funds Rate plus one percent and the Additional
Rent shall be deemed to be the same as for the then-current Fiscal
Year or, if not determinable, the immediately preceding Fiscal Year,
for the remainder of the Term, or such other amount as either party
shall prove reasonably could have been earned during the remainder of
the Term or any portion thereof; or
(b) without termination of Tenant's right to possession of the
Leased Property, each installment of said Rent and other sums payable
by Tenant to Landlord under the Lease as the same becomes due and
payable, which Rent and other sums shall bear interest at the Overdue
Rate from the date when due until paid, and Landlord may enforce,
by action or otherwise, any other term or covenant of this Lease.
Notwithstanding the foregoing, so long as the Sublease is in effect,
Landlord's damages shall be based upon the difference between (i) the Base Rent
and Additional Rent payable and anticipated to be payable in the future
hereunder and (ii) the Base Rent and Participation Rent payable and anticipated
to be payable in the future under the Sublease.
16.6 Additional Remedies. Landlord has 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 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.
28
<PAGE>
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 (and such payment is made to Landlord rather than Tenant due to
the existence of an Event of Default) shall be applied to Tenant's obligations
in the order which Landlord may determine or as may be prescribed by the laws of
the State.
16.10 Impounds. Landlord shall have the right during the continuance
--------
of an Event of Default to require Tenant to pay to Landlord an additional
monthly sum (each an "Impound Payment") sufficient to pay the Impound Charges
---------------
(as hereinafter defined) as they become due. As used herein, "Impound Charges"
---------------
shall mean real estate taxes on the Leased Property or payments in lieu thereof
and premiums on any insurance required by this Lease. Landlord shall determine
the amount of the Impound Charges and of each Impound Payment. The Impound
Payments shall be held in a separate account and shall not be commingled with
other funds of Landlord and interest thereon shall be held for the account of
Tenant. Landlord shall apply the Impound Payments to the payment of the Impound
Charges in such order or priority as Landlord shall determine or as 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 17 - LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT
------------------------------------------------------
If Tenant or any Subtenant shall fail to make any payment or to
perform any act required to be made or performed under this Lease, and to cure
the same within the relevant time periods provided in Section 16.1, Landlord,
------------
after notice to and demand upon Tenant, and without waiving or releasing any
obligation or default, may (but shall be under no obligation to) at any time
thereafter make such payment or perform such act for the account and at the
expense of Tenant. Landlord may, to the extent permitted by law, enter upon the
Leased Property for such purpose and take all such action thereon as, in
Landlord's opinion, may be necessary or appropriate therefor. No such entry
shall be deemed an eviction of Tenant. All sums so paid by Landlord and all
costs and expenses (including reasonable attorneys' fees and expenses, to 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 - LEGAL REQUIREMENTS
-------------------------------
Subject to Article 12 regarding permitted contests, Tenant, at its
----------
expense, shall promptly take the following actions (or cause the responsible
Subtenant to do so): (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
29
<PAGE>
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. Nothing
contained in this Article 18 shall be deemed to limit, modify or waive any of
----------
Tenant's obligations or warranties to Landlord in the Purchase Agreement.
ARTICLE 19 - HOLDING OVER
-------------------------
If Tenant shall for any reason remain in possession of the Leased
Property after the expiration of the Term or earlier termination of the Term
hereof, such possession shall be as a month-to-month tenant during which time
Tenant shall pay as rental each month, 125% of the aggregate of (i) one-twelfth
of the aggregate Base Rent and Additional Rent payable with respect to the last
Fiscal Year of the preceding Term; (ii) all Additional Charges accruing during
the month; and (iii) all other sums, if any, payable by Tenant pursuant to the
provisions of this Lease with respect to the Leased Property. During such period
of month-to-month tenancy, Tenant shall be obligated to perform and observe all
of the terms, covenants and conditions of this Lease, but shall have no rights
hereunder other than the right, to the extent given by law to month-to-month
tenancies, to continue its occupancy and use of the Leased Property. Nothing
contained herein shall constitute the consent, express or implied, of Landlord
to the holding over of Tenant after the expiration or earlier termination of
this Lease.
ARTICLE 20 - RISK OF LOSS
-------------------------
20.1 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 24.3, Landlord shall in no event be answerable or accountable therefor
- ------------
nor shall any of the events mentioned in this Article 20 entitle Tenant to any
----------
abatement of Rent (except as provided in Section 20.2).
------------
20.2 Unavoidable Events. If at any time during the Term of this
------------------
Lease, the Facility is rendered Unsuitable For Its Primary Intended Use for a
period in excess of 180 consecutive days by reason of one or more of the
following events (each, an "Unavoidable Event"):
------------------
(a) the lawful or unlawful prohibition of, or restriction upon,
Tenant's use of the Leased Property or any portion thereof, including without
limitation any such prohibition or restriction resulting from Legal Requirements
(excepting any such prohibition or restriction caused by the actions, negligence
or intentional misconduct of Tenant);
(b) the interference with Tenant's use of the Leased Property or any
portion thereof by any Person having a paramount right, title or interest in the
Leased Property
30
<PAGE>
(excepting any such interference caused by the actions, negligence or
intentional misconduct of Tenant);
(c) declared or undeclared war, sabotage, riot or other acts of civil
disobedience, or the acts or omissions by governmental agencies; or
(d) the interference with Tenant's use of the Leased Property or any
portion thereof caused by the actions, negligence or intentional misconduct of
Landlord or caused by the default or breach of any of Landlord's representations
or warranties hereunder;
then Tenant shall have the right to terminate this Lease by giving Landlord
written notice of such termination. The effective date of such termination shall
be 90 days after Landlord's receipt of said written notice of termination;
provided, however, if Landlord elects to remedy or remove the restrictions or
interferences referenced above or otherwise correct or restore the Facility and
within said 90 day period the Facility is made suitable for its Primary Intended
Use, Tenant's election to terminate the Lease shall be deemed rescinded and the
Lease shall remain in full force and effect. During the period in which the
Facility is rendered Unsuitable For Its Primary Intended Use as a result of an
Unavoidable Event, the Base Rent shall be deemed to be zero and Tenant's payment
of Rent shall consist only of the payment of Additional Rent in accordance with
Section 9 of the Basic Lease Provisions and Additional Charges as required by
- ---------
the Detailed Lease Provisions. This Article 20 shall not limit or restrict
----------
Tenant's rights or obligations under Article 14 of this Lease.
----------
ARTICLE 21 - INDEMNIFICATION
----------------------------
21.1 Tenant's Indemnification of Landlord. After such time as the
------------------------------------
Sublease is terminated, except as otherwise provided in Section 21.2 and
------------
notwithstanding the existence of any insurance provided for in Article 13, and
----------
without regard to the policy limits of any such insurance, Tenant will protect,
indemnify, save harmless and defend Landlord from and against all liabilities,
obligations, claims, damages, penalties, causes of action, costs and expenses
(including reasonable attorneys' fees and expenses), to the extent permitted by
law, imposed upon or incurred by or asserted against Landlord by reason of:
(a) any accident, injury to or death of Persons or loss of or damage
to property occurring on or about the Leased Property or adjoining
sidewalks during the Term of this Lease, including, but not limited
to, any accident, injury to or death of Person or loss of or damage to
property resulting from golf balls, golf clubs, golf shoes, lawn
mowers or other gardening devices, golf carts, tractors or other
motorized vehicles present on or adjacent to the Leased Property;
(b) any use, misuse, non-use, condition, maintenance or repair by
Tenant of the Leased Property;
(c) any Impositions (which are the obligations of Tenant to pay
pursuant to the applicable provisions of this Lease);
31
<PAGE>
(d) any failure on the part of Tenant or any Subtenant to perform or
comply with any of the terms of this Lease;
(e) the non-performance of any of the terms and provisions of the
Sublease any and all other future subleases of the Leased Property to
be performed by the landlord (Tenant) thereunder; and
(f) any liability Landlord may incur or suffer as a result of any
permitted contest by Tenant pursuant to Article 12.
----------
Prior to termination of the Sublease, Tenant will indemnify Landlord as provided
above to the extent that Tenant caused the incident or breach in question.
Tenant hereby acknowledges and agrees that the provisions of this Section 21.1
------------
and the other provisions of this Lease shall not limit or otherwise affect in
any way any of Tenant's representations and/or warranties under the Purchase
Agreement.
21.2 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
or its breach of this Lease.
21.3 Mechanics of Indemnification. As soon as reasonably practicable
----------------------------
after receipt by the indemnified party of notice of any liability or claim
incurred by or asserted against the indemnified party that is subject to
indemnification under this Article 21, the indemnified party shall give notice
----------
thereof to the indemnifying party. The indemnified party may at its option
demand indemnity under this Article 21 as soon as a claim has been 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
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.
32
<PAGE>
21.4 Survival of Indemnification Obligations. Tenant's or Landlord's
---------------------------------------
liability for a breach of the provisions of this Article 21 arising during the
----------
Term hereof shall survive any termination of this Lease.
ARTICLE 22 - SUBLETTING AND ASSIGNMENT
--------------------------------------
22.1 Prohibition Against Subletting and Assignment. Except for the
---------------------------------------------
Sublease, assignments permitted under Paragraph 17 of the Basic Lease
------------
Provisions, and permitted subleases under Section 22.3, Tenant shall not,
------------
without the prior written consent of Landlord (which consent Landlord shall not
unreasonably withhold), assign sublease, mortgage, pledge, hypothecate,
encumber or otherwise transfer (except to an Affiliate of Tenant) the Lease or
any interest therein, all or any part of the Leased Property or suffer or permit
the Lease or the leasehold estate created hereby or thereby or any other rights
arising under the Lease to be assigned, transferred, mortgaged, pledged,
hypothecated or encumbered, in whole or in part, whether voluntarily,
involuntarily or by operation of law. If Landlord consents in writing to an
assignment of this Lease by Tenant, then, so long as the assignee assumes in
writing Tenant's obligations under this Lease, Tenant shall be released from all
liability under this Lease relating to any period after the effective date of
the assignment. For purposes of this Section 22.1, an assignment of the Lease
------------
shall be deemed to include any Change of Control of Tenant, as if such Change of
Control were an assignment of the Lease.
22.2 Chances of Control. A Change of Control requiring the consent
------------------
of Landlord shall mean:
(a) the issuance and/or sale by Tenant or the sale by any
stockholder of Tenant of a Controlling interest in Tenant to a Person
other than an Affiliate of Tenant, 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);
(c) any other transaction, or series of transactions, which results
in the Affiliate of Tenant no longer having Control of Tenant (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.
22.3 Subleases.
---------
22.3.1 Permitted Subleases. Tenant shall, without Landlord's
-------------------
prior approval, be permitted to sublease portions of the Leased Property to
concessionaires or licensees to;
33
<PAGE>
(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 Leased
Property customarily associated with or incidental to the operation of
the Golf Course.
22.3.2 Terms of Sublease. Each sublease of any of the Leased
-----------------
Property (including the Sublease) shall be subject and subordinate to the
provisions of this Lease. No sublease made as permitted by Section 22.3.1.
--------------
shall affect or reduce any of the obligations of Tenant hereunder, and all
such obligations shall continue in full force and effect as if no sublease
had been made. No sublease shall impose any additional obligations on
Landlord under this Lease.
22.3.3 Copies. Tenant shall, within 10 days after the
------
execution and delivery of any sublease permitted by Section 22.3.1, deliver
--------------
a duplicate original thereof to Landlord.
22.3.4 Assignment of Rights in Subleases. As security for
---------------------------------
performance of its obligations under this Lease, Tenant hereby grants,
conveys and assigns to Landlord all right, title and interest of Tenant in
and to all subleases now in existence or hereinafter entered into
(including without limitation the Sublease) 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 the Sublease or any other 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) consent to,
cause or allow any material modification or alteration of any of the
terms, conditions or covenants of the Sublease or any other 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
Sublease or any of the other subleases.
22.3.5 Licenses, Etc. For purposes of Sections 22.1. 22.3 and
-------------- -----------------------
22.5, subleases shall be deemed to include any licenses, concession
----
arrangements, management contracts or other arrangements relating to the
possession or use of all or any part of the Leased Property.
34
<PAGE>
22.4 No Impairment. Except as otherwise expressly provided
-------------
in Section 22.1 above, no assignment or subletting shall in any way impair the
------------
continuing primary liability of Tenant hereunder, and no consent to any
assignment or subletting in a particular instance shall be deemed to be a waiver
of the prohibition set forth in Article 22. Any assignment shall be solely of
----------
Tenant's entire interest in this Lease. Any assignment, subletting, or other
transfer of all or any portion of Tenant's interest in the Lease in
contravention of Article 22 shall be voidable at Landlord's option.
----------
22.5 REIT Limitations. Anything contained in this Lease to the
----------------
contrary notwithstanding, Tenant shall not (i) except for the Sublease and any
other subletting permitted hereunder, sublet or assign the Leased Property or
this Lease on any basis such that the rental or other amounts to be paid by the
sublessee or assignee thereunder would be based, in whole or in part, on the
income or profits derived by the business activities of the sublessee or
assignee; (ii) sublet or assign the Leased Property or this Lease to any person
that Landlord owns, directly or indirectly (by applying constructive ownership
rules set forth in Section 856(d)(5) of the Code), a 10% or greater interest in;
or (iii) sublet or assign the Leased Property or this Lease in any other manner
or otherwise derive any income which could cause any portion of the amounts
received by Landlord pursuant to this Lease or any sublease to fail to qualify
as "rents from real property" within the meaning of Section 856(d) of the Code,
or which could cause any other income received by Landlord to fail to qualify as
income described in Section 856(c)(2) of the Code. The requirements of this
Section 22.5 shall likewise apply to any further subleasing by any
- ------------
subtenant.
ARTICLE 23 - OFFICER'S CERTIFICATES AND OTHER STATEMENTS
--------------------------------------------------------
23.1 Tenant's 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 Sublease is unmodified and in full force and effect;
(c) the dates to which the Rent has been paid;
(d) 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;
(e) 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
(f) responding to such other questions or statements of fact as
Landlord shall reasonably request.
35
<PAGE>
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
request1 if any, are true and correct. Any such certificate furnished pursuant
to this Section 23.1 way be relied upon by Landlord.
------------
23.2 Landlord's Officer's Certificates. At any time, and from time
---------------------------------
to time upon Landlord's receipt of not less than ten (10) days' prior written
request by Tenant, Landlord will furnish to Tenant a certificate executed by a
duly authorized officer 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 modifications);
(b) the dates to which the Rent has been paid;
(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;
(d) 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 23.2 may be relied upon by Tenant.
------------
23.3 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 (a) any enforcement, cleanup, removal, or other
governmental or regulatory action instituted, completed or threatened; (b) any
claim made or threatened by any Person against Tenant or the Leased Property
relating to damage, contribution, cost recovery, compensation, loss, or injury
resulting from or claimed to result from any Hazardous Material; and (c) any
reports made to any federal, state or local environmental agency arising out of
or in connection with any Hazardous Material in or removed from the Leased
Property, including any complaints, notices, warnings or asserted violations in
connection therewith.
ARTICLE 24- LANDLORD MORTGAGES
------------------------------
24.1 Landlord May Grant Liens. Subject to Section 24.2, without the
------------------------ ------------
consent of Tenant, Landlord may, from time to time, directly or indirectly,
create or otherwise cause
36
<PAGE>
to exist any lien, encumbrance or title retention agreement ("Landlord's
----------
Encumbrance") upon the Leased Property, or any portion thereof or interest
- -----------
therein, whether to secure any borrowing or other means of financing or
refinancing. This Lease is and at all times shall be subject and subordinate to
any ground or underlying leases, mortgages, trust deeds or like encumbrances,
which may now or hereafter affect the Leased Property and to all renewals,
modifications, consolidations, replacements and extensions of any such lease,
mortgage, trust deed or like encumbrance, except that the provisions in this
Lease governing the apportionment and distribution of condemnation awards and
proceeds of insurance following damage to, or destruction of, the Leased
Property shall remain superior to the foregoing. This clause shall be self-
operative and no further instrument of subordination shall be required by any
ground or underlying lessor or by any mortgagee or beneficiary, affecting any
lease or the Leased Property. In confirmation of such subordination, Tenant
shall execute promptly any certificate that Landlord may request for such
purposes.
24.2 Tenant's Non-Disturbance Rights. So long as Tenant shall pay
-------------------------------
all Rent as the same becomes due and shall fully comply with all of the terms of
this Lease and fully perform its obligations hereunder, none of Tenant's rights
under this Lease shall be disturbed by the holder of any Landlord's Encumbrance
which is created or otherwise comes into existence after the Commencement Date.
24.3 Breach by Landlord. It shall be a breach of this Lease if
------------------
Landlord shall fail to observe or perform any material term, covenant or
condition of this Lease on its part to be performed 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.
24.4 Facility Mortgage Protection. Tenant agrees that the holder of
----------------------------
any Landlord Encumbrance shall have no duty, liability or obligation to perform
any of the obligations of Landlord under this Lease, but that in the event of
Landlord's default with respect to any such obligation, Tenant will give any
such holder whose name and address have been furnished to Tenant in writing for
such purpose notice of Landlord's default and allow such holder thirty (30) days
following receipt of such notice for the cure of said default before invoking
any remedies Tenant may have by reason thereof.
ARTICLE 25 - PROVISIONS REGARDING SUBLEASE
------------------------------------------
25.1 Default. Should Tenant default in the performance of any of its
-------
obligations under the Sublease, Tenant shall promptly notify Landlord of the
same. Landlord may, but shall not be required to, cure any such default. In such
case, Tenant will pay to Landlord on demand any sums expended by Landlord to
cure such default.
25.2 Non-Disturbance and Attornment. Tenant shall obtain from AGC
------------------------------
and deliver to Landlord a non-disturbance and attornment agreement in the form
and substance of Exhibit F hereto.
37
<PAGE>
25.3 No Amendment or Termination of Sublease. Tenant will not
---------------------------------------
modify, amend, or terminate the Sublease or waive any of its right thereunder
without Landlord's prior written consent which will not be unreasonably withheld
except that Tenant may without Landlord's prior written consent enforce and/or
terminate the Sublease in the event of a monetary default by AGC thereunder
after the giving of any required notice and expiration of any applicable cure
period.
25.4 Amendments and Termination of this Lease. This Lease may not be
----------------------------------------
surrendered or terminated without the prior written consent of AGC. Any
amendment to, or modification of, this Lease without the prior written consent
of AGC shall not be binding upon, and shall not have any force or effect with
respect to, AGC.
ARTICLE 26 - MISCELLANEOUS
--------------------------
26.1 Landlord's Right to Inspect. 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.
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 25.1.
- ------------
26.2 No Waiver. No failure by Landlord to insist upon the strict
---------
performance of any term hereof or to exercise any right, power or remedy
consequent upon a breach thereof, and no acceptance of full or partial payment
of Rent during the continuance of any such breach, shall constitute a waiver of
any such breach or of any such term. To the extent permitted by law, no waiver
of any breach shall affect or alter this Lease, which shall continue in full
force and effect with respect to any other then existing or subsequent breach.
26.3 Remedies Cumulative. To the extent permitted by law, each
-------------------
legal, equitable or contractual right, power and remedy of Landlord now or
hereafter provided either in this Lease or by stature 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.
26.4 Acceptance of Surrender. No surrender to Landlord of this Lease
-----------------------
or of the Leased Property or any part thereof, or of any interest therein, shall
be valid or effective unless agreed to and accepted in writing by Landlord and
no act by Landlord or any representative or agent of Landlord, other than such a
written acceptance by Landlord, shall constitute an acceptance of any such
surrender.
26.5 No Merger of Title. There shall be no merger of this Lease or
------------------
of the leasehold estate created hereby by reason of the fact that the same
Person may acquire, own or
38
<PAGE>
hold, directly or indirectly, (a) this Lease or the leasehold estate created
hereby or any interest in this Lease or such leasehold estate and (b) the fee
estate in the Leased Property.
26.6 Conveyance by Landlord. If Landlord shall convey the Leased
----------------------
Property in accordance with the terms hereof other than as security for a debt,
Landlord shall, upon the written assumption by the transferee of the Leased
Property of all liabilities and obligations of the Lease be released from all
future liabilities and obligations under this Lease arising or accruing from and
after the date of such conveyance or other transfer as to the Leased Property.
All such future liabilities and obligations shall thereupon be binding upon the
new owner.
26.7 Quiet Enjoyment. So long as Tenant shall pay all Rent as the
---------------
same becomes due and shall fully comply with all 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 any one claiming by, through or under Landlord,
but subject to all liens and encumbrances of record as of the date hereof or any
Landlord's Encumbrances.
26.8 Notices. All notices, demands, requests, consents, approvals and
-------
other communications hereunder shall be in writing and delivered or mailed (by
registered or certified mail, return receipt requested and postage prepaid),
addressed to the respective parties, as provided in the Basic Lease Provisions.
26.9 Survival of Claims. Anything contained in this Lease to the
------------------
contrary notwithstanding, all claims against, and liabilities of, Tenant or
Landlord arising prior to any date of termination of this Lease shall survive
such termination.
26.10 Invalidity of Terms or Provisions. If any term or provision of
---------------------------------
this Lease or any application thereof shall be invalid or unenforceable, the
remainder of this Lease and any other application of such term or provision
shall not be affected thereby.
26.11 Prohibition Against Usury. If any late charges provided for in
-------------------------
any provision of this Lease are based upon a rate in excess of the maximum rate
permitted by applicable law, the parties agree that such charges shall be fixed
at the maximum permissible rate.
26.12 Amendments to Lease. Neither this Lease nor any provision
--------------------
hereof may be changed, waived, discharged or terminated except by an instrument
in writing and in recordable form signed by Landlord and Tenant, and consented
to by AGC.
26.13 Successors and Assigns. All the terms and provisions of this
----------------------
Lease shall be binding upon and inure to the benefit of the parties hereto. All
permitted assignees or sublessees shall be subject to the terms and provisions
of this Lease.
26.14 Titles. The headings in this Lease are for convenience of
------
reference only and shall not limit or otherwise affect the meaning hereof.
39
<PAGE>
26.15 Governing Law. This Lease shall be governed by and construed
-------------
in accordance with the laws of the State of California (but not including its
conflict of laws rules), except for those certain procedural laws which must be
governed by the laws of the location of the Leased Property.
26.16 Memorandum of Lease. Landlord and Tenant shall, promptly upon
-------------------
the request of either, enter into a short form memorandum of this Lease, in form
and substance satisfactory to Landlord and suitable for recording under the
State, in which reference to this Lease, and all options contained herein, shall
be made. Tenant shall pay all costs and expenses of recording such Memorandum of
Lease.
26.17 Attorneys' Fees. In the event of any dispute between the
---------------
parties hereto involving the covenants or conditions contained in this Lease or
arising out of the subject matter of this Lease, the prevailing party shall be
entitled to recover against the other party reasonable attorneys' fees and court
costs.
26.18 Non-Recourse as to Landlord. Anything contained herein to the
---------------------------
contrary notwithstanding, any claim based on or in respect of any liability of
Landlord under this Lease shall be enforced only against the Leased Property and
not against any other assets, properties or funds of (a) Landlord, (b) any
director, officer, general partner, limited partner, employee or agent of
Landlord, or with respect to any general partner of Landlord, any of their
respective general partners or stockholders (or any legal representative, heir,
estate, successor or assign of any thereof), (c) any predecessor or successor
partnership or corporation (or other entity) of Landlord, or any of their
respective general partners, either directly or through either Landlord or their
respective general partners or any predecessor or successor partnership or
corporation or their stockholders, officers, directors, employees or agents (or
other entity), or (d) any other Person affiliated with any of the foregoing, or
any director, officer, employee or agent of any thereof.
26.19 No Relationship. Landlord shall in no event be construed for
---------------
any purpose to be a partner, joint venturer or associate of Tenant or of any
subtenant, operator, concessionaire or licensee of Tenant with respect to the
Leased Property or otherwise in the conduct of their respective businesses.
26.20 Signs: Reletting. If Tenant exercises its option not 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.
26.21 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. Tenant may identify the Leased Property as a golf course managed and
operated by AGC and may use the name "American Golf Corporation" or the initials
"AGC" or the Tenant's logo alone or in conjunction with other words or names or
designs owned by Tenant or any of its Affiliates. Landlord recognizes that the
name "American Golf Corporation" and the initials "AGC,"
40
<PAGE>
together with any other names, logos or designs owned by Tenant or any of its
Affiliates and used in the management and operation of the Leased Property
(including without limitation any such names, logos or designs used in
connection with the restaurant, banquet rooms and meeting rooms in and about the
Leased Property), together with appurtenant goodwill, are the exclusive property
of Tenant or its Affiliates (collectively, the "Tenant-Owned Names").
------------------
Accordingly, Landlord agrees that no right or remedy of Landlord for any default
on the part of Tenant under this Lease shall, nor shall any provision of this
Lease, confer upon Landlord or its successors or assigns the right to use
Tenant-Owned names in the operation of the Leased Property or otherwise. In the
event of any breach of this covenant by Landlord, Tenant, in addition to any
remedies available to it under this Lease or at law or in equity, shall have the
right to injunctive relief.
41
<PAGE>
EXHIB1T 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, and as applied to Tenant also means (i) Hanover Spanish Hills Partners,
L.L.C., a Delaware limited liability company; (ii) SH Golf Partners, L.P., a
California limited partnership; (iii) Blackacre Camarillo Partners, L.P., a
Delaware limited partnership; and (iv) Blackacre Bridge Capital, L.L.C., a New
York limited liability company.
AGC: As defined in Basic Lease Provisions.
---
AGC Notice: As defined in Basic Lease Provisions.
----------
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.
Base Rent: Means one-twelfth of the Annual Base Rent.
---------
Basic Lease Provisions: The provisions so labelled starting on page
----------------------
(i) of this Lease.
Business Day: Each Monday, Tuesday, Wednesday, Thursday and Friday
------------
which is not a day on which national banks in the City of New York, New York,
are authorized, or obligated, by law or executive order, to close.
Capital Improvement Account: Means a deposit account in the joint
---------------------------
names of Landlord and Tenant maintained in California with a major bank selected
by Tenant, subject to Landlord's prior reasonable approval.
Change of Control: As defined in Section 22.2.
----------------- ------------
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<PAGE>
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 the sum of $17 million plus the amount
----------------------
of the NGP Funded Initial Capital Improvements.
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 Los Angles-Anaheim-Riverside, California
or alternative index such as national index areas.
Control: Means (including, with correlative meanings, the terms
-------
"controlling" and "controlled by"), as applied to any Person, the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of that Person, whether through the ownership of voting
securities, by contract or otherwise.
Course Revenue: Means all revenues received (whether by Tenant or any
--------------
subtenants, concessionaires or licensees) from or by reason of the operation of
the Facility, or any other use of the Leased Property, including collections
of Existing Accounts Receivable (as defined in the Sublease) after the
Commencement Date, revenues from memberships (to the extent the membership was
sold on or after the Commencement Date, or to the extent revenue is received by
Tenant for a membership sold previous to the Commencement Date, initiation fees
(to the extent the membership was sold on or after the Commencement Date or to
the extent such fees are received by Tenant for a membership sold previous to
the Commencement Date) dues, greens fees, fees to reserve a tee time, golf-
related guest fees or golf cart rentals, golf-related surcharges, fees or other
charges paid to Tenant by sponsors of golf tournaments at the Leased Property
(unless the terms under which Tenant is paid by such sponsor do not comply with
Section 22.5, in which event the gross revenues received by such sponsor for
- ------------
the tournament shall be included in Course Revenue); provided, however, that
-------- -------
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; and the amount of any
city, county, state, or federal
A-2
<PAGE>
admission tax or use tax, which is paid to the relevant taxing
authority by Tenant;
(d) The actual uncollectible amount of any check or bank draft
received by Tenant as payment for goods or services and returned
to Tenant from a customer's bank as being uncollectible, but only
after Tenant has made reasonable efforts to collect on the check;
(e) The actual uncollectible amount of any charge or credit
account incurred by Tenant for the sale of merchandise or
services; provided, however, that the credit was extended to the
-------- -------
customer by Tenant, and that reasonable efforts to collect said
account have been made;
(f) The actual uncollectible amount of any sale of merchandise
or services for which Tenant accepted a credit card; provided,
--------
however, that Tenant has made reasonable efforts to collect the
-------
debt after being notified by the issuing bank of the invalidity
or uncollectibility of the charge;
(g) Interest or other charges paid by customers for extension of
credit;
(h) Revenue or proceeds from sales or trade-ins of machinery,
vehicles, trade fixtures or personal property used in connection
with Tenant's operation of the Leased Property;
(i) The value of any merchandise, supplies or equipment
exchanged or transferred from or to other locations or businesses
of Tenant where such exchange or transfer is not made for the
purpose of avoiding a sale which would otherwise be made from or
at the Leased Property;
(j) Revenue, if any, from receipts in the form of refunds from
or the value of merchandise, supplies or equipment returned to
shippers, suppliers or manufacturers;
(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;
A-3
<PAGE>
(o) Receipts from the sale of waste or scrap materials resulting
from Tenant's operations;
(p) Revenue received from any subtenant, concessionaire or
licensee, inasmuch as the gross revenue received by such
subtenant, concessionaire or licensee is otherwise included in
the definition of Course Revenue or Other Revenue;
(q) Gross revenue received by any sponsor of a golf tournament
at the Leased Property, provided that the terms under which
Tenant is paid surcharges, fees or other charges by such sponsor
comply with Section 22.5; and
------------
(r) Receipts from the sales of supplies or inventory by Tenant
to subtenants, concessionaires, or licensees provided that such
sales are at Tenant's cost of such supplies or inventories with
no make-up or premium.
For purpose of this definition of Course Revenue, all references to
Tenant in clauses (a) through (r) above shall also include any subtenants,
concessionaires and licensees.
Date of Taking: Means the date the Condemnor has the right to
--------------
possession of the property being condemned.
Environmental Law: Means all applicable statues, 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, judgements 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, or 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) 6901 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. (SS)
------
6901 et seq.), the Clean Air Act (42 U.S.C.(SS) 7401 et seq.), the Federal Water
------ ------
Pollution Control Act (33 U.S.C. (S) 1251 et seq.), the Safe Drinking Water Act
------
(42 U.S.C. (SS) 300f et seq.), the Toxic Substances Control Act (15 U.S.C. (SS)
------
2601 et seq.), the Endangered Species Act (16 U.S.C. (SS) 1531 et seq.), the
------ ------
Emergency Planning and Community Right-to-Know Act of 1986 (42 U.S.C. (SS)
11001 et seq.), and (y) analogous state and local provisions.
------
Event of Default: As defined in Section 16.1.
---------------- ------------
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<PAGE>
Extended Terms: As defined in the Basic Lease Provisions.
--------------
Facility: As defined in the Basic Lease Provisions.
--------
Facility Mortgage: As defined in Section 13.1.
----------------- ------------
Facility Mortgagee: Means the holder or beneficiary of a Facility
------------------
Mortgage, if any, and only to the extent Landlord gives Tenant notice of the
identity and address of the Person.
Fiscal Quarter: The three-month periods (or applicable portions
--------------
thereof) in any Fiscal Year from January 1 through March 31, April 1 through
June 30, July 1 through September 30 and October 1 through December 31.
Fiscal Year: As defined in the Basic Lease Provisions.
-----------
Fixed Charge Coverage Ratio: Means, if applicable, for any period,
---------------------------
the ratio of (A) the sum of, without duplication (i) consolidated net income of
Tenant excluding any gains or losses in respect of dispositions plus (ii)
provision for taxes plus (iii) consolidated interest expense (including non-cash
interest payments or accruals and the interest component, if any, of lease
obligations of Tenant and its subsidiaries) plus (iv) all lease and rent
obligations (including percentage rent obligations) of Tenant and its
subsidiaries plus (v) other non-cash charges deducted from consolidated revenues
in determining net income for such period including depreciation and
amortization (including amortization of intangibles), over (B) the sum of (i)
consolidated interest expenses of Tenant and its subsidiaries for such period
plus (ii) all lease and rent obligations (including percentage rent obligations)
of Tenant and its subsidiaries for such period.
Fixtures: Means all permanently affixed equipment, machinery,
--------
fixtures, and other items of real and/or personal property, including all
components thereof, now and hereafter located in, on or used in connection with
and permanently affixed to or incorporated into the Leases Improvements,
including all furnaces, boilers, heaters, electrical equipment, heating,
plumbing, lighting, ventilating, refrigerating, air and water pollution control,
waste disposal, air-cooling and air-conditioning systems and apparatus,
sprinkler systems and fire and theft protection equipment, all of which, to the
greatest extent permitted by law, are hereby deemed by the parties hereto to
constitute real estate, together with all replacements, modifications,
alterations and additions thereto, but specifically excluding all items included
within the category of Tenant's Personal Property and any Tenant Improvements.
Full Replacement Cost: Means the actual replacement cost thereof from
---------------------
time to time including increased cost of construction endorsement, less
exclusions provided in the normal fire insurance policy.
Hazardous Material: Means any chemical substance:
------------------
A-5
<PAGE>
(i) the presence of which requires investigation or remediation
under any federal, state or local statute, regulation, ordinance,
order, action or policy, administrative request or civil
complaint under any of the foregoing or under common law;
(ii) which is defined as a "hazardous waste" or "hazardous
substance" under any federal, state or local statute, regulation
or ordinance or amendments thereto as in effect as of the
Commencement Date, or as thereafter amended, including the
Comprehensive Environmental Response, Compensation and Liability
Act (42 U.S.C. (S)(S) 9601 et seq.) and/or the Resource
------
Conservation and Recovery Act (42 U.S.C. (S)(S) 6901 et seq.);
------
(iii) which is toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic, mutagenic or otherwise
hazardous and as of the Commencement Date, or as thereafter
amended, is regulated by any governmental authority, agency,
department, commission, board, or instrumentality 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 be
completed within the Term);
(c) excises;
A-6
<PAGE>
(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;
(cc) any tax imposed solely with respect to the sale,
exchange or other disposition by Landlord of any Leased
Property or the proceeds thereof; or
(dd) any tax imposed with respect to any principal or
interest on any indebtedness on the Leased Property.
Impound Charges: As defined in Section 16.10.
--------------- -------------
Impound Payment: As defined in Section 16.10.
--------------- -------------
Initial Base Rent: As defined in the Basic Lease Provisions.
-----------------
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 24.1.
---------------------- ------------
A-7
<PAGE>
Landlord's Personal Property: As defined in Article 1.
---------------------------- ---------
Lease: As defined in the preamble.
-----
Lease Improvements: As defined in Article 1.
------------------ ---------
Lease 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), at any time in
force affecting the Leased Property; or (iii) require the cleanup or other
treatment of any Hazardous Material.
Letter of Credit Amount: $2,000,000
-----------------------
Letter of Credit: Means a letter of credit which:
----------------
(i) is an irrevocable standby letter of credit from a bank with a
long-term debt rating from each of Standard & Poor's and Moody's of
investment grade naming Landlord (and/or and 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) has a stated amount equal to the Letter of Credit 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) has a term of not less than one year;
(iv) provides 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;
(v) provides that Landlord gives not less than five (5) Business
Day's notice to Tenant prior to submitting the Letter of credit to the
bank for presentation; and
(vi) permits 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
A-8
<PAGE>
Landlord's rights as to the remaining stated amount of the Letter of
Credit will not be extinguished.
NGP Funded Initial Capital Improvements: As defined in Exhibit G.
---------------------------------------
Negotiation Period: As defined in the Basic Lease Provisions.
------------------
Offer Notice: As defined in the Basic Lease Provisions.
------------
Officer's Certificate: A certificate of Tenant signed by an officer
---------------------
authorized to so sign by the board of directors or by-laws.
Other Leased Properties: Mean the properties leased to Tenant or an
-----------------------
Affiliate of Tenant by Landlord or an Affiliate of Landlord, and listed on
Exhibit C attached hereto.
- ---------
Other Property Leases: Mean the other leases entered into between
---------------------
Landlord or an Affiliate of Landlord and Tenant or an Affiliate of Tenant
relating to Tenant's use of the Other Leased Properties.
Other Revenue: Means all revenue received (whether by Tenant or any
-------------
subtenants, concessionaires or licensees) from or by reason of the Leased
Property relating to (i) the operation of snack bars, restaurants, bars and
banquet operations, (ii) golf and tennis professionals' shops on the Leased
Property, (iii) parking, (iv) fitness centers, (v) tennis facilities, (vi)
day care, (vii) nongolf-related guest fees and related surcharges, (viii)
locker rentals, (ix) bag storage, (x) video games, (xi) vending machines and
(xii) fees or other charges paid to Tenant by providers of golf lessons
(unless the terms under which Tenant is paid by such provider do not comply
with Section 22.5, in which event the gross revenue received by such provider
------------
shall be included in Other Revenue); but excluding: (1) the items described in
-------------
clauses (b) through (r) of the definition of Course Revenue (for purposes of
this definition of Other Revenue, all references to Tenant in clauses (a)
through (r) of the definition of Course Revenue shall also include any
subtenants, concessionaires and licensees) and (2) gross revenue received by
any provider of golf lessons, provided that the terms under which Tenant is paid
fees or other charges by such provider comply with Section 22.5.
------------
Overdue Rate: On any date, a rate equal to 2 1/2% above the Prime
------------
Rate, but in no event greater than the maximum rate then permitted under
applicable law.
Person: Means and includes natural persons, corporations, limited
------
partnerships, general partnerships, joint stock companies, joint ventures,
associations, companies, trusts, banks, trust companies, land trusts, business
trusts, Indian tribes or other organizations, whether or not legal entities,
and governments and agencies and political subdivisions thereof.
Primary Intended Use: Means the operation of a golf course, consisting
--------------------
of the Facility, and other activities customarily associated with or incidental
to the operation of a Golf Course, including sale or rental of golf-related
merchandise at a golf professional's shop, sale
A-9
<PAGE>
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 Citibank, N.A. to be its prime rate or base rate for 90-day
unsecured loans to its corporate borrowers of the highest credit standing but in
no event greater than the maximum rate then permitted under applicable law.
Purchase Agreement: Means that certain Purchase and Sale Agreement
------------------
dated as of October 3, 1997, as amended by that certain First Amendment dated
October 23, 1997, whereby Tenant sold the Leased Property to Landlord.
Related Rights: As defined in Article 1.
-------------- ---------
Rent: Collectively, the Base Rent, Additional Rent and Additional
----
Charges, all as defined in Article 3.
---------
Replacement Water Rights: Means Water Rights that provide water supply
------------------------
and transportation at a quantity, price and priority which at the time of their
acquisition are not less favorable in any material respect to the holder of the
Water Rights than the quantity, price and priority of the Water Rights which
will be replaced by such Replacement Water Rights.
State: The State or Commonwealth in which the Leased Property is
-----
located.
Sublease: As defined in Basic Lease Provisions.
--------
Subtenant: AGC or the subtenant under any sublease for any or all of
---------
the Leased property that is in compliance with this Lease.
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.
------------------ ------------
Tenant's Original Water Rights: As defined in Section 6.7.
------------------------------ -----------
Tenant's Owned Names: As defined in Section 25.21.
--------------------- -------------
Tenant's Personal Property: All machinery, equipment, furniture,
--------------------------
furnishings, movable walls or partitions, phone system, computers or trade
fixtures or other personal property, and consumable inventory and supplies,
owned by Tenant or any Subtenant and used or useful in Tenant's (or any
Subtenant's) business on the Leased Property, including all items or furniture,
furnishings, equipment, supplies and inventory, kitchen fixtures, bar equipment,
A-10
<PAGE>
flatware, lawn mowers and other gardening tools, tractors and other motorized
vehicles and golf carts.
Term: Collectively, the Initial Term and the Extended Terms, as the
----
context may require, unless earlier terminated pursuant to the provisions
hereof.
Termination Events: As defined in the Basic Lease Provisions.
------------------
Title Commitment: As defined in the Basic Lease Provisions.
----------------
Unavoidable Delays: Delays due to strikes, lockouts, inability to
------------------
procure materials, power failure, acts of God, governmental restrictions, enemy
action, civil commotion, fire, unavoidable casualty or other causes beyond the
control of the party responsible for performing an obligation hereunder,
provided that lack of funds shall not be deemed a cause beyond the control of
- -------------
either party hereto unless such lack of funds is caused by the failure of the
other party hereto to perform any obligations of such party, under this Lease.
Unsuitable For Its Primary Intended Use: A state or condition of the
---------------------------------------
Facility such that in the good faith judgment of Tenant, reasonably exercised,
the Facility cannot be operated on a commercially practicable basis for its
Primary Intended Use.
Water Rights: Means any rights for the supply or transportation of
------------
water to the Leased Property owned from time to time by Landlord or Tenant,
including Tenant's Original Water Rights and the Replacement Water Rights.
Interpretation. The foregoing defined terms include the plural as well as the
- --------------
singular. "Including" and variants thereof shall be deemed to mean "including
without limitation." All accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles as at the time applicable. All references in this Lease to designated
"Articles," "Sections" and other subdivisions are to the designated Articles,
Sections and other subdivisions of the Detailed Lease Provisions unless
otherwise indicated. The words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Lease as a whole and not to any particular
Article, Section or other subdivision.
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EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
of National Golf Properties, Inc. on Form S-8 (and related prospectus) (File
No. 33-67350) and on Form S-8 (File No. 333-33775), of our report dated
February 4, 1998, on our audits of the consolidated financial statements and
financial statement schedule of National Golf Properties, Inc. as of December
31, 1997 and 1996, and for each of the three years in the period ended
December 31, 1997, which report is included in this Annual Report on Form 10-
K.
COOPERS & LYBRAND L.L.P.
Los Angeles, California
February 4, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NATIONAL
GOLF PROPERTIES, INC. FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,698
<SECURITIES> 1,215
<RECEIVABLES> 6,724
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,437
<PP&E> 601,882
<DEPRECIATION> 94,872
<TOTAL-ASSETS> 535,314
<CURRENT-LIABILITIES> 5,385
<BONDS> 299,032
0
0
<COMMON> 124
<OTHER-SE> 212,905
<TOTAL-LIABILITY-AND-EQUITY> 535,314
<SALES> 0
<TOTAL-REVENUES> 74,593
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 30,094
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,810
<INCOME-PRETAX> 27,805
<INCOME-TAX> 223
<INCOME-CONTINUING> 27,582
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,579
<EPS-PRIMARY> 1.26
<EPS-DILUTED> 1.25
</TABLE>
