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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, 1998
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:
<TABLE>
<S> <C>
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock $.01 par value New York Stock Exchange
</TABLE>
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 March 1, 1999, the aggregate market value of the voting stock held by
nonaffiliates of the registrant was approximately $291.5 million, based upon
the closing price ($25.375) 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:
12,620,145 shares of common stock, $.01 par value, as of March 1, 1999
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement in connection with its Annual
Meeting of Stockholders to be held June 30, 1999, 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") 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. 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.
In 1997, the Company acquired a 50% general partnership interest in Pumpkin
Ridge Joint Venture ("Pumpkin Ridge"). 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 Company is the sole general partner in the Operating Partnership and
currently owns 59% of the common partnership interest in the Operating
Partnership. The limited partners are individuals, partnerships, corporations
and trusts who have contributed their properties in exchange for units of
common partnership interest ("Common Units") or who have contributed cash in
exchange for units of preferred partnership interest ("Preferred Units").
In 1998, the Company purchased seven golf courses for an aggregate initial
investment of approximately $42.8 million and made one participating mortgage
loan of approximately $22.6 million, which investment was financed by
approximately $7.4 million of cash from operations and $58 million of advances
under the Company's credit facility. Subsequent to December 31, 1998, the
Company purchased two golf courses for an aggregate initial investment of
approximately $10.4 million, which investment was financed by approximately
$4.4 million of cash from operations and $6 million of advances under the
Company's credit facility. In addition, there was a pay down of approximately
$9.6 million on the participating mortgage loan.
On March 31, 1999, the Company purchased fee interests in 15 golf courses
and long-term leasehold interests in five golf courses and made a
participating mortgage loan secured by an additional golf course
(collectively, the "Acquired Cobblestone Courses") previously owned by
subsidiaries of Meditrust Corporation and Meditrust Operating Company
(collectively, "Meditrust") comprising the "Cobblestone Golf Group" for an
aggregate initial investment of approximately $184.3 million, which investment
was financed by approximately $178.7 million of cash and approximately
$5.6 million of assumed notes. The Company's acquisition of interests in these
golf courses was part of a larger transaction in which a subsidiary of
American Golf Corporation ("AGC") and a subsidiary of ClubCorp International
("ClubCorp") formed Golf Acquisitions, L.L.C., a new limited liability company
("Golf Acquisitions"), to purchase from Meditrust the subsidiaries comprising
the Cobblestone Golf Group. Golf Acquisitions closed this purchase on
March 31, 1999, and immediately thereafter sold interests in 23 golf courses
to subsidiaries of ClubCorp, sold interests in the Acquired Cobblestone
Courses to the Company and sold to AGC short-term interests in three golf
course facilities and a portion of the personal property assets related to the
Acquired Cobblestone Courses. Three of the Acquired Cobblestone Courses are
leasehold interests in the golf courses at Carmel Mountain Ranch Country Club
and Sweetwater Country Club, in which the Company already owned the fee
interest and had previously leased such properties to a subsidiary of
Meditrust.
Concurrently with closing its purchase of the Acquired Cobblestone Courses,
the Company entered into agreements to lease or sublease 18 of the Acquired
Cobblestone Courses to AGC and two of the Acquired
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Cobblestone Courses to Golf Enterprises, Inc. AGC also entered into a separate
agreement to lease the golf course which secures the Company's participating
mortgage loan to a subsidiary of Golf Acquisitions. The Company financed its
acquisition of the Acquired Cobblestone Courses with borrowings under a new
$300 million credit facility. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
The following diagram depicts the beneficial ownership of the Company, the
Operating Partnership, Royal Golf and Pumpkin Ridge as of March 31, 1999:
<TABLE>
<S> <C> <C>
National Golf Properties, Inc.
. 91% owned by public stockholders
. 2.8% owned by David G. Price
. 6.2% owned by employees of
National Golf Properties and
American Golf Corporation
|
|
|
National Golf Operating Partnership, L.P.
. 59% owned by National Golf
Properties, the managing general
partner of National Golf Operating
Partnership
. 16% owned by David G. Price
. 25% owned by limited partners
|
_______________________________________|___________________________________________________________
| | |
| Royal Golf, L.P. II Pumpkin Ridge Joint Venture*
|
| . 89% owned by National Golf Operating . 50% owned by National Golf
| Partnership, the managing Operating Partnership
| general partner of Royal Golf, L.P. II . 50% owned by two other general
| . 11% owned by a limited partner partners
____________________________________________________________ | |
| | | |
2 Golf Courses 1 Golf Course 1 Golf Course 141 Golf Courses** 4 Golf Courses 2 Golf Courses
. 100% owned by . 100% owned by . 100% owned by . 100% owned by . 100% owned by . 100% owned by
National Golf National Golf National Golf National Golf Royal Golf Pumpkin
Operating Operating Operating Operating Ridge
Partnership Partnership Partnership Partnership
| | | | | |
| | | | | |
| | | _____________________________________________
| | | |
| | | |
Golf The Links Evergreen Alliance American Golf
Enterprises, Inc. Group, Inc. Golf Limited Corporation
(Lessee) (Lessee) (Lessee) (Lessee)
</TABLE>
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* The Company accounts for its investment in Pumpkin Ridge under the equity
method of accounting.
** The Company has participating mortgage loans on two golf courses which it
does not own.
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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 March 31, 1999, the Company's
portfolio consisted of the ownership of 149 golf courses (the "Golf Courses"),
including the two golf courses owned by Pumpkin Ridge, in 135 separate
locations in 26 states and two participating mortgage loans, which are
collateralized by mortgages on the golf courses. As a self-administered REIT,
the Company's own employees perform its administrative and management
functions, rather than the Company relying on an outside manager for these
services.
The Golf Courses include facilities such as clubhouses with restaurants,
banquet space, locker rooms and retail pro shops, driving ranges, pools,
tennis courts and fitness facilities. 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 real-property related 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. In selecting operators, the Company considers factors
such as the number of years that the company has been in operation, the
experience of the management team, the number of golf courses currently owned,
leased or managed by the operator, the operator's net worth or ability to
provide credit support to the Company's satisfaction, and the operator's
ability to maximize the revenues of the golf course and to improve the long-
term value of the golf course.
Business Objectives and Operating Strategies
The Company's primary business objective is to maximize stockholder return
through the 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, 1998, the Company
purchased 88 Golf Courses, including the two golf courses owned by
Pumpkin Ridge, for an aggregate initial investment of approximately
$486.9 million. For the period January 1, 1999 to March 1, 1999, the
Company purchased two Golf Courses for approximately $10.4 million;
. Structuring favorable leases for the Company's properties with
experienced and creditworthy golf course operators under which the
operators pay base rent and percentage rent based on revenues and pay
substantially all expenses in connection with the operation of such
properties, including all real and personal property taxes, utility
costs, insurance costs, irrigation costs, maintenance costs and other
operating expenses;
. Working with golf course operators on strategies to increase revenues,
which in turn would increase 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;
. 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; and
. Maintaining a ratio of debt-to-total market capitalization of 50% or
less. Such ratio is calculated as total debt of the Company as a
percentage of the market value of issued and outstanding shares of
Common Stock, Preferred Units and interests in the Operating Partnership
that are exchangeable for
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shares of Common Stock plus total debt. At December 31, 1998, the
Company's total debt constituted approximately 29% of its total market
capitalization. At March 31, 1999, after giving effect to the
acquisition of the Acquired Cobblestone Courses, the Company's total
debt constituted approximately 46% 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.
Tenant and Leases
All but four of the Golf Courses in the Company's portfolio are currently
leased to 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 and operates 294 golf courses
and related facilities in 31 states. In addition, AGC, through its subsidiary
American Golf (U.K.) Limited, manages 21 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, the Chairman of the Company's Board
of Directors and AGC's Chairman and principal shareholder. Including the Golf
Courses, AGC manages 229 daily fee golf courses and 86 private club courses.
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 all real and personal property taxes, utility costs,
insurance costs, irrigation costs, maintenance costs 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 base rent for the first year for each Golf Course under the Leases is
initially set at a fixed amount. For the Leases entered into by the Company
with respect to its initial portfolio of 44 golf courses at the time of the
Offering (the "Initial Golf Courses"), 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, generally 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.
For the Leases entered into subsequent to the Offering, the rent generally
is based upon the greater of (a) the base rent or (b) a specified percentage
of Course Revenue and Other Revenue. The base rent under these Leases
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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. The Leases for the Acquired Cobblestone Courses specify that the
minimum base rent for such properties will increase by a fixed 0.5% each year
for specified years during the term of each Lease.
The Leases for the Initial Golf Courses require AGC to post and maintain an
irrevocable letter of credit in an amount equal to approximately $13.6
million, which is comprised of six monthly installments of the annual rent, 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.
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 operators other than AGC for
certain of its new acquisitions. In addition to AGC, the Company leases four
of its Golf Courses to three other operators: Golf Enterprises, Inc. ("GE");
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 GE, TLG and EAGL.
GE operates Sweetwater Country Club (two courses) near Houston, Texas. GE is
a golf course operating company with 19 properties under management in eight
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 38 properties under
ownership or management in 12 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 also 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 (1998 editions), the National Golf
Foundation, an independent industry organization, estimates that the number of
golfers in the United States is approximately 26.5 million. In addition,
favorable demographic trends offer encouraging growth prospects for the golf
course industry both in terms of the participation rate and the number of
rounds. 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 the younger segment of the golfing population reaches
its prime golfing age
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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 16,000 golf courses in
the United States. Ownership of these courses is extremely fragmented. The
Company believes that the nation's 15 largest golf course owners and operators
collectively own, lease, or manage approximately five percent of the courses
in the United States. This fragmentation provides an excellent opportunity for
aggressive acquisition of quality golf course properties; however, the market
for golf 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 March 1, 1999, the Company and the Operating Partnership had 14 full-
time employees including two regional vice presidents and two directors of
business development 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 any hazardous substances
released on its property. These laws often impose liability without regard to
whether the owner or operator knew of, or was responsible for, the release of
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 or rent 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
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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. Also, environmental
conditions, liabilities or compliance concerns may have arisen at a Golf
Course after the related review was completed. Although the Leases provide
that the lessees will indemnify the Company for certain potential
environmental liabilities at the Golf Courses, there can be no assurance that
the indemnification provided by such leases would be sufficient to satisfy all
environmental liabilities.
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 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 March 31, 1999, the Golf Courses consisted of 149 golf courses that
are geographically diversified and located in 26 states, with 27 Golf Courses
in Texas, 24 in California, 17 in Arizona, six in each of Florida, Georgia,
Ohio, South Carolina and Virginia, five in each of Minnesota and Pennsylvania,
four in each of Colorado, Illinois, Kansas, Oregon and Washington, three in
each of Nevada and New Jersey, two in each of Maryland, Missouri, New Mexico,
North Carolina, Oklahoma and Tennessee and one in each of Idaho, Indiana and
Louisiana. In addition, the Company holds participating mortgages on two golf
courses, one in each of California and Nevada. The distribution of the Golf
Courses reflects the Company's belief that geographic diversification provides
stability of our income and helps insulate the portfolio from regional
economic and climatic influences. Substantially all of the Golf Courses are
located in areas with populations in excess of 250,000 people.
Of the Company's 149 Golf Courses owned as of March 31, 1999, 94 are daily
fee courses and 55 are private club 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 a portion of the golf course is leased
under various ground leases expiring between 2041 and 2043. The Company also
leases Ridgeview Ranch Country Club and The Vineyard at Escondido under long-
term ground leases.
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
$50.2 million of rent revenues to the Company in 1998 compared to $47.7
million in 1997.
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, 1998, the Company's private club courses
had approximately 33,000 members. Private club courses generated $33.1 million
of rent revenues to the Company in 1998 compared to $26.6 million in 1997.
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The following table sets forth certain information regarding the Golf
Courses as of March 31, 1999. As of that date, the Company owned 149 Golf
Courses in 26 states. The number of locations (135) 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. In addition, the Company has
participating mortgage loans on two golf courses which it does not own.
The Golf Courses--Daily Fee Courses
<TABLE>
<CAPTION>
No. of 1998
Course Name Location (City, State) Holes Rent Revenues
----------- ---------------------- ------ -------------
(In
thousands)
<C> <S> <C> <C> <C>
1 Continental Golf Course.. Scottsdale, Arizona 18 $ 377
2 Desert Lakes Golf Club... Fort Mojave, Arizona 18 380
3 El Caro Golf Club........ Phoenix, Arizona 18 277
4 Foothills Golf Club,
The...................... Phoenix, Arizona 18 *
5 Kokopelli Golf Resort.... Gilbert, Arizona 18 627
6 Lakes at Ahwatukee Golf
Club, The................ Phoenix, Arizona 18 *
7 Legend at Arrowhead,
The...................... Glendale, Arizona 18 554
8 London Bridge Golf Club.. Lake Havasu City, Arizona 36 520
(2 Courses)
9 Stonecreek Golf Course... Phoenix, Arizona 18 1,053
10 Superstition Springs Golf
Club..................... Mesa, Arizona 18 647
11 Villa De Paz Golf
Course................... Phoenix, Arizona 18 311
12 Aptos Seascape Golf
Course................... Aptos, California 18 1,500
13 BlackLake Golf Course.... Nipomo, California 27 1,118
14 Camarillo Springs Golf
Course................... Camarillo, California 18 1,139
15 Carmel Mountain Ranch
Country Club............. San Diego, California 18 787
16 Eagle Crest Golf Club.... Escondido, California 18 *
17 Lomas Santa Fe Executive
Golf Course.............. Solana Beach, California 18 509
18 Mesquite Golf & Country
Club..................... Palm Springs, California 18 686
19 Oakhurst Country Club.... Clayton, California 18 949
20 Rancho San Joaquin Golf
Course................... Irvine, California 18 2,379
21 San Geronimo Golf
Course................... San Geronimo, California 18 655
22 Summitpointe Golf Club... Milpitas, California 18 824
23 Upland Hills Country
Club..................... Upland, California 18 892
24 Vineyard at Escondido
Golf Club, The........... Escondido, California 18 *
25 Vista Valencia Golf
Course................... Valencia, California 27 878
(2 Courses)
26 Arrowhead Golf Club...... Littleton, Colorado 18 1,225
27 Eagle Golf Club.......... Broomfield, Colorado 18 396
28 Arrowhead Golf & Sports
Club..................... Davie, Florida 18 367
29 Baymeadows Golf Club..... Jacksonville, Florida 18 474
30 Binks Forest Country
Club..................... Wellington, Florida 18 464
31 Sabal Palm Golf Course... Tamarac, Florida 18 537
32 Summerfield Crossing Golf
Club..................... Tampa, Florida 18 277
33 Bradshaw Farm, The Golf
Club at.................. Woodstock, Georgia 18 665
34 Goshen Plantation Country
Club..................... Augusta, Georgia 18 326
35 River's Edge Golf Club... Fayetteville, Georgia 18 456
36 Trophy Club of
Appalachee, The.......... Dacula, Georgia 18 *
37 Trophy Club of Atlanta,
The...................... Alpharetta, Georgia 18 *
38 Ruffled Feathers Golf
Course................... Lemont, Illinois 18 969
39 Tamarack Golf Club....... Naperville, Illinois 18 547
40 Sugar Ridge Golf Course.. Lawrenceburg, Indiana 18 310
41 Deer Creek Golf Club..... Overland Park, Kansas 18 841
42 Dub's Dread Golf Course.. Kansas City, Kansas 18 434
</TABLE>
- --------
*Acquired in 1999
9
<PAGE>
<TABLE>
<CAPTION>
No. of 1998
Course Name Location (City, State) Holes Rent Revenues
----------- ---------------------- ------ -------------
(In
thousands)
<C> <S> <C> <C> <C>
43 WestWinds Country Club.. New Market, Maryland 18 439
44 Majestic Oaks Golf
Club.................... Ham Lake, Minnesota 45 650
(3 Courses)
45 Links at Northfork,
The..................... Ramsey, Minnesota 18 390
46 Woodland Creek Golf
Course.................. Andover, Minnesota 9 31
47 Royal Meadows Golf
Course.................. Kansas City, Missouri 27 283
(2 Courses)
48 Las Vegas National Golf
Club.................... Las Vegas, Nevada 18 2,502
49 Painted Desert Golf
Course.................. Las Vegas, Nevada 18 890
50 Wildhorse Country Club.. Henderson, Nevada 18 1,535
51 Beaver Brook Country
Club.................... Clinton, New Jersey 18 *
52 Brigantine Golf Links... Brigantine, New Jersey 18 449
53 Rancocas Golf Club...... Willingboro, New Jersey 18 573
54 Paradise Hills Golf
Course.................. Albuquerque, New Mexico 18 566
55 Carolina Shores Golf &
Country Club............ Calabash, North Carolina 18 696
56 Pawtuckett Golf Club.... Charlotte, North Carolina 18 170
57 Bent Tree Golf Club..... Columbus, Ohio 18 464
58 Fowler's Mill Golf
Course.................. Chesterland, Ohio 27 649
59 Country Club of Hershey,
South Course............ Hershey, Pennsylvania 18 267
60 Golden Oaks Country
Club.................... Fleetwood, Pennsylvania 18 601
61 Hickory Heights Golf
Club.................... Bridgeville, Pennsylvania 18 309
62 Colonial Charters Golf
Course.................. Longs, South Carolina 18 538
63 Port Royal Golf &
Racquet Club............ Hilton Head Island, South Carolina 54 2,575
(3 Courses)
64 Shipyard Golf Club...... Hilton Head Island, South Carolina 27 1,270
65 Stono Ferry, The Links
at...................... Charleston, South Carolina 18 180
66 Forrest Crossing Golf
Course.................. Nashville, Tennessee 18 337
67 Bear Creek Golf World... Houston, Texas 54 1,461
(3 Courses)
68 Blackstone Golf Club.... Frisco, Texas 18 *
69 Lake Houston Golf Club.. Huffman, Texas 18 215
70 Longwood Golf Club...... Houston, Texas 27 1,109
71 Pecan Valley Golf Club.. San Antonio, Texas 18 509
72 Ridgeview Ranch Country
Club.................... Plano, Texas 18 *
73 Riverchase Golf Club.... Coppell, Texas 18 1,160
74 Riverside Golf Club..... Grand Prairie, Texas 18 731
75 Southwyck Golf Club..... Pearland, Texas 18 558
76 Woodlake Country Club... San Antonio, Texas 18 *
77 Chesapeake Golf Club.... Chesapeake, Virginia 18 476
78 Honey Bee Golf Club..... Virginia Beach, Virginia 18 568
79 Kiskiack Golf Club...... Williamsburg, Virginia 18 *
80 Reston National Golf
Course.................. Reston, Virginia 18 1,124
81 Virginia Oaks Golf
Club.................... Gainesville, Virginia 18 *
82 Capitol City Golf Club.. Olympia, Washington 18 318
83 Classic Golf Club, The.. Spanaway, Washington 18 *
84 Lake Wilderness Golf
Course.................. Maple Valley, Washington 18 267
-------
Total Daily Fee
Courses.............. $50,210
=======
</TABLE>
- --------
* Acquired in 1999
10
<PAGE>
The Golf Courses--Private Club Courses
<TABLE>
<CAPTION>
No. of 1998
Course Name Location (City, State) Holes Rent Revenues
----------- ---------------------- ------ -------------
(In
thousands)
<C> <S> <C> <C> <C>
1 Ahwatukee Country Club.. Phoenix, Arizona 18 $ *
2 Ancala Country Club..... Scottsdale, Arizona 18 876
3 Arrowhead Country Club.. Glendale, Arizona 18 609
4 Red Mountain Ranch
Country Club............ Mesa, Arizona 18 *
5 Tatum Ranch Golf Club... Cave Creek, Arizona 18 1,420
6 Canyon Oaks Country
Club.................... Chico, California 18 460
7 Escondido Country Club.. Escondido, California 18 715
8 Monterey Country Club... Palm Desert, California 27 832
9 Palm Valley Country Club
(2 Courses)............. Palm Desert, California 36 1,470
10 SeaCliff Country Club... Huntington Beach, California 18 1,497
11 Spanish Hills Country
Club.................... Camarillo, California 18 1,738
12 Sunset Hills Country
Club.................... Thousand Oaks, California 18 1,370
13 Wood Ranch Golf Club.... Simi Valley, California 18 1,196
14 Heather Ridge Country
Club.................... Aurora, Colorado 18 339
15 Pinery Country Club..... Denver, Colorado 27 601
16 Crescent Oaks Country
Club.................... Clearwater, Florida 18 149
17 Brookstone Golf &
Country Club............ Acworth, Georgia 18 745
18 Plantation Golf Club,
The..................... Boise, Idaho 18 289
19 Eagle Brook Country
Club.................... Geneva, Illinois 18 925
20 Mission Hills Country
Club.................... Northbrook, Illinois 18 863
21 Highlands Golf & Supper
Club.................... Hutchinson, Kansas 18 103
22 Tallgrass Country Club.. Wichita, Kansas 18 286
23 Shenandoah Country
Club.................... Baton Rouge, Louisiana 18 177
24 Hunt Valley Golf Club... Phoenix, Maryland 27 1,759
25 Tanoan Country Club..... Albuquerque, New Mexico 27 1,373
26 Brandywine Country
Club.................... Maumee, Ohio 27 765
27 Ivy Hills Country Club.. Cincinnati, Ohio 18 145
28 Oakhurst Country Club... Grove City, Ohio 18 424
29 Royal Oak Country Club.. Cincinnati, Ohio 18 430
30 Meadowbrook Country
Club.................... Tulsa, Oklahoma 18 444
31 The Trails.............. Norman, Oklahoma 18 267
32 Creekside Golf Club..... Salem, Oregon 18 638
33 Oregon Golf Club, The... West Linn, Oregon 18 1,159
34 Country Club of Hershey
(2 Courses)............. Hershey, Pennsylvania 36 1,094
35 Gettysvue Polo, Golf &
Country Club............ Knoxville, Tennessee 18 280
36 Berry Creek Country
Club.................... Georgetown, Texas 18 538
37 Diamond Oaks Country
Club.................... Fort Worth, Texas 18 513
38 Eldorado Country Club... McKinney, Texas 18 714
39 Great Southwest Golf
Club.................... Grand Prairie, Texas 18 888
40 Los Rios Country Club... Plano, Texas 18 *
41 Oakridge Country Club... Garland, Texas 18 410
42 Pecan Grove Plantation
Country Club............ Richmond,Texas 27 *
43 Sonterra, The Club at (2
Courses)................ San Antonio, Texas 36 932
44 Sweetwater Country Club
(2 Courses)............. Sugarland, Texas 36 1,717
45 Thorntree Country Club.. DeSoto, Texas 18 *
46 Walden on Lake Houston
Country Club............ Humble, Texas 18 423
47 Willow Fork Country
Club.................... Katy, Texas 18 341
48 Woodhaven Country Club.. Forth Worth, Texas 18 294
49 Brandermill Country
Club.................... Midlothian, Virginia 18 *
50 Bear Creek Country
Club.................... Woodinville, Washington 18 932
-------
Total Private Club
Courses.............. $33,140
=======
Total All Courses.... $83,350
=======
</TABLE>
- --------
*Acquired in 1999
11
<PAGE>
The Golf Courses--Owned by Joint Venture
<TABLE>
<CAPTION>
Location (City, No. of Type of
Course Name State) Holes Course
----------- --------------- ------ ------------
<C> <C> <S> <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>
Capital Improvements
Under the Leases, the lessees are required to maintain each Golf Course in
good order, repair and appearance. Capital improvements for which the Company
is responsible would be limited to projects that the Company agreed to fund at
the time a property was acquired or projects subsequently identified by the
Company or its operators that enhance the revenue potential and long-term
value of a property. For the Golf Courses acquired through March 1, 1999, the
Company is required under the Leases to pay for various remaining capital
improvements totaling approximately $23.2 million, $22.3 million of which will
be paid by the end of the year 2000. The Company believes these improvements
will add value to the golf courses and bring the quality of the golf courses
up to our expected standards. Any subsequent capital improvements are the
responsibility of the lessees. 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 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 under the
symbol "TEE" and distributions declared.
<TABLE>
<CAPTION>
High Low Distribution
-------- -------- ------------
<S> <C> <C> <C>
1998
Fourth quarter................................ $29.375 $24.875 $.44
Third quarter................................. 31.1875 23.4375 .44
Second quarter................................ 32.0625 28.50 .43
First quarter................................. 32.9375 28.5625 .43
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
</TABLE>
b) Holders
The number of record holders of the Company's Common Stock was 774 as of
March 1, 1999. The number of street name stockholders is estimated at 16,000.
c) Distributions
The Company paid distributions to stockholders of $1.73 per share in 1998,
of which $1.61 represents ordinary income and $0.12 represents return of
capital on a tax basis. On a book basis, calculated using basic earnings per
share, $0.40 per share represents return of capital. In 1997, the Company paid
distributions to stockholders of $1.69 per share, 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
order to maintain its qualification in 1998 and 1997 as a REIT for federal
income tax purposes, the Company was required to make distributions to its
stockholders of at least $1.46 and $1.38 per share, respectively. In addition,
on January 11, 1999, the Company declared a quarterly distribution for the
fourth quarter of 1998 of $0.44 per share to stockholders of record on January
29, 1999, which was paid on February 15, 1999.
13
<PAGE>
Item 6. SELECTED FINANCIAL DATA
The selected financial data included in this table is derived from the
Company's consolidated financial statements for the years presented, which have
been audited by PricewaterhouseCoopers LLP.
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues
Rent...................... $ 83,350 $ 74,316 $ 58,898 $ 45,931 $ 36,637
Equity in income from
joint venture............ 385 119 -- -- --
Gain on sale of
properties............... -- 158 1,199 1,893 --
-------- -------- -------- -------- --------
Total revenues.......... 83,735 74,593 60,097 47,824 36,637
-------- -------- -------- -------- --------
Expenses
General & administrative.. 5,156 5,336 4,734 4,258 4,709
Depreciation &
amortization............. 27,079 24,758 19,124 14,027 10,413
-------- -------- -------- -------- --------
Total................... 32,235 30,094 23,858 18,285 15,122
-------- -------- -------- -------- --------
Interest expense.......... (20,350) (19,810) (14,067) (8,793) (2,212)
Interest income........... 1,170 364 2,110 4,144 3,459
Gain on property
condemnation............. 1,493 -- -- -- --
Gain on insurance
proceeds................. -- 2,231 -- -- --
Other income.............. 352 521 238 114 194
-------- -------- -------- -------- --------
Income before provision for
taxes and minority
interest................... 34,165 27,805 24,520 25,004 22,956
Provision for taxes......... (231) (223) (256) (352) (368)
-------- -------- -------- -------- --------
Income before minority
interest................... 33,934 27,582 24,264 24,652 22,588
Minority interest........... (17,292) (12,003) (10,852) (11,366) (10,712)
-------- -------- -------- -------- --------
Net income.................. $ 16,642 $ 15,579 $ 13,412 $ 13,286 $ 11,876
======== ======== ======== ======== ========
Basic earnings per share.... $ 1.33 $ 1.26 $ 1.19 $ 1.25 $ 1.12
Weighted average number of
shares..................... 12,497 12,368 11,317 10,622 10,612
Diluted earnings per share.. $ 1.32 $ 1.25 $ 1.17 $ 1.25 $ 1.12
Weighted average number of
shares..................... 12,599 12,512 11,420 10,643 10,616
<CAPTION>
December 31,
------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Real estate before
accumulated depreciation... $663,018 $601,882 $515,794 $362,068 $272,034
Total assets................ 597,295 535,314 469,945 347,967 275,071
Total debt.................. 283,405 299,032 230,590 144,983 66,441
Minority interest(1)........ 166,655 96,007 98,551 90,609 92,938
Stockholders' equity(1)..... 132,224 134,890 137,670 110,298 113,134
Cash distributions declared
per share.................. 1.74 1.70 1.66 1.61 1.49
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(In thousands, except property data)
<S> <C> <C> <C> <C> <C>
Other Data:
Company's funds from
operations(2).............. $ 31,203 $ 27,851 $ 23,215 $ 19,641 $ 17,209
Cash flows from (used in):
Operating activities...... 60,333 55,576 44,217 36,383 34,241
Investing activities...... (77,483) (94,408) (68,481) (76,019) (32,003)
Financing activities...... 17,163 29,306 28,399 42,639 (52)
Number of owned courses..... 130 123 114 81 71
Number of locations......... 116 112 104 72 63
</TABLE>
- --------
(1) Minority interest and stockholders' equity have been restated for the
years ended December 31, 1997, 1996, 1995 and 1994 to reflect an
accounting allocation for reporting purposes from additional paid in
capital to minority interest for the Operating Partnership's limited
partners' interest in the net assets of the Company after giving effect to
their exchange rights of Common Units into Common Stock. Generally
accepted accounting principles require the reporting of such exchange
rights "as if converted." This reallocation had no effect on earnings per
share or results of operations or allocations of net income to the general
partner and limited partners of the Operating Partnership. The
reallocation at December 31, 1998, 1997 1996, 1995 and 1994 was
approximately $78.6 million, $78.1 million, $77.7 million, $67.6 million,
and $70 million, respectively.
(2) 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. Funds from operations is
considered by the Company's management as an appropriate measure of the
performance of an equity REIT because it is predicated on cash flow
analyses, which the Company's 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, 1998, 1997, 1996,
1995 and 1994.
<TABLE>
<CAPTION>
For the year ended December 31,
-------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net income.................... $16,642 $15,579 $13,412 $13,286 $11,876
Distributions--Preferred
Units........................ (4,797) -- -- -- --
Minority interest............. 17,292 12,003 10,852 11,366 10,712
Depreciation and
amortization................. 27,472 24,883 19,124 14,027 10,413
Gain on property
condemnation................. (1,493) -- -- -- --
Gain on insurance proceeds.... -- (2,231) -- -- --
Gain on sale of properties.... -- (158) (1,199) (1,893) --
Excess land sales............. (342) (469) -- -- --
Write off of option payable... -- -- -- (101) --
Discount on payoff of note
payable...................... -- -- -- -- (175)
Amortization--loan costs...... (241) (227) (147) (195) (66)
Depreciation--corporate....... (87) (69) (47) (43) (31)
------- ------- ------- ------- -------
Funds from operations......... $54,446 $49,311 $41,995 $36,447 $32,729
Company's share of funds from
operations................... 57.31% 56.48% 55.28% 53.89% 52.58%
------- ------- ------- ------- -------
Company's funds from
operations................... $31,203 $27,851 $23,215 $19,641 $17,209
======= ======= ======= ======= =======
</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, 1998 with the year ended December 31, 1997 and the year ended December 31,
1997 with the year ended December 31, 1996.
Results of Operations
Comparison of year ended December 31, 1998 to year ended December 31, 1997
Net income increased by $1,063,000 to $16,642,000 for the year ended
December 31, 1998 compared to $15,579,000 for the year ended December 31,
1997. The increase was primarily attributable to an increase in (i) rent
revenues of approximately $9,034,000; (ii) interest income of approximately
$806,000; and (iii) gain on property condemnation of approximately $1,493,000,
which was offset by (i) an increase in depreciation and amortization expense
of approximately $2,321,000; (ii) a decrease in gain on insurance proceeds of
approximately $2,231,000; (iii) an increase in interest expense of
approximately $540,000; and (iv) an increase in income applicable to minority
interest of approximately $5,289,000.
The increase in rent revenues is due to (i) the acquisition of seven golf
course properties during 1998, which accounted for approximately $1,758,000 of
the increase; (ii) a full year of rent in 1998 on nine golf course properties
acquired in 1997, which accounted for approximately $4,129,000 of the
increase; (iii) an increase in base rent of approximately $2,573,000; and (iv)
an increase in percentage rent of approximately $574,000. The increase in
depreciation and amortization expense was due to an increase in depreciation
expense of approximately $2,559,000, which was offset by a decrease in
amortization expense of approximately $238,000. The increase in depreciation
expense was primarily due to (i) the acquisition of seven golf course
properties during 1998, which accounted for approximately $812,000 of the
increase and (ii) a full year of depreciation expense in 1998 on nine golf
course properties acquired in 1997, which accounted for approximately
$2,075,000 of the increase. The decrease in amortization expense was primarily
due to certain covenants becoming fully amortized.
The increase in interest income was primarily due to the participating
mortgage loan of approximately $22.6 million made during the year. The
increase in gain on property condemnation was due to the State of North
Carolina condemning four golf holes at one of the Company's golf courses for a
state highway project. The State has not taken physical possession of the
property because the project has not been started. The Company purchased land
adjacent to the golf course sufficient to replace the condemned holes. The
decrease in gain on insurance proceeds was due to a fire completely destroying
a clubhouse at one of the Golf Courses during 1997. The Company applied the
insurance proceeds to rebuild the clubhouse. The increase in interest expense
was primarily attributable to the increase in outstanding advances under the
Company's $100 million credit facility. The increase in income applicable to
minority interest was primarily due to income allocated to holders of
Preferred Units.
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 an increase in
16
<PAGE>
(i) rent revenues of approximately $15,418,000; and (ii) gain on insurance
proceeds of approximately $2,231,000, which was offset by (i) an increase in
general and administrative expenses of approximately $602,000; (ii) an
increase in depreciation and amortization expense of approximately $5,634,000;
(iii) a decrease in interest income from affiliates of approximately
$1,683,000; and (iv) an increase in interest expense of approximately
$5,743,000.
The increase in rent revenues was 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 the former president of the Company
pursuant to a separation agreement. The increase in depreciation and
amortization expense was 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 was
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 was primarily due to certain
covenants and loan costs becoming fully amortized.
The decrease in interest income from affiliates was due to the retirement of
certain participating mortgage loans in 1996. The increase in gain on
insurance proceeds was due to a fire completely destroying a clubhouse at one
of the Golf Courses. The Company applied 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.
Liquidity and Capital Resources
At December 31, 1998, the Company had approximately $3 million in cash and
investments, mortgage loans of approximately $24.8 million, mortgage
indebtedness of approximately $30.2 million and unsecured indebtedness of
approximately $253.2 million. The $283.4 million aggregate principal amount of
mortgage and unsecured indebtedness bears interest at a weighted average rate
of 7.63%. Of the $283.4 million of debt, $205.4 million is fixed-rate debt and
is payable either quarterly, semi-annually or 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 Company's Board of
Directors regarding distributions: (i) increase in debt service resulting from
additional indebtedness; (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)
increase in preferred distributions resulting from the issuance of Preferred
Units. Although the Company receives most of its rental payments on a monthly
basis, it has and intends to continue to pay distributions quarterly.
The Company anticipates that its cash from operations and its new 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 are limited to projects that
the Company agreed to fund at the time a property was acquired or projects
subsequently identified by the Company or its operators that enhance the
revenue potential and long-term value of a property. For the Golf Courses
acquired through March 1, 1999, the Company is required under the Leases to
pay for various remaining
17
<PAGE>
capital improvements totaling approximately $23.2 million, $22.3 million of
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. 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 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 Common Units as consideration for such purchases.
On March 31, 1999, the Company entered into a new $300 million unsecured
revolving credit facility with a group of lenders led by The First National
Bank of Chicago, as Administrative Agent. Advances under the credit facility
bear interest at the Administrative Agent's alternate base rate plus the then-
applicable base rate margin or, at the option of the Company, LIBOR plus the
then-applicable LIBOR rate margin. The Administrative Agent's alternate base
rate for any day means the greater of (i) a rate per annum equal to the
corporate base rate of interest announced by the Administrative Agent from
time to time, and (ii) the federal funds rate as published by the Federal
Reserve Bank plus one-half percent (0.50%) per annum. The amount of the base
rate margin and LIBOR rate margin vary depending upon the amount of the
Company's outstanding indebtedness compared to its capitalization. The initial
rate of interest for borrowings made under the new facility as of March 31,
1999 will be equal to LIBOR plus a margin of 2.25% or the alternate base rate
plus 1.00%. The credit facility terminates on March 31, 2002, but may be
extended by the Company for an additional year if approved by all of the
lenders under the credit facility. The credit facility replaces the Company's
previous $100 million credit facility, which has been terminated.
The Company borrowed approximately $256.5 million under the new facility on
March 31, 1999, of which $160 million was used to pay the remaining aggregate
initial investment for the Acquired Cobblestone Courses, $93.5 million was
used to repay all outstanding indebtedness under the previous credit facility,
and $3 million was used for general partnership purposes. At December 31, 1998
and March 1, 1999, there were outstanding advances under the previous credit
facility of $78 million and $98.5 million, respectively. The new facility
requires that the Company use its best efforts to obtain certain modifications
of the covenants applicable to its $175 million fixed-rate unsecured senior
notes by June 4, 1999 (which may be advanced to an earlier date under certain
circumstances). The Company is currently exploring various alternatives in the
event it cannot obtain such modifications. The Company has a commitment from
The First National Bank of Chicago, subject to certain conditions, to provide
financing to prepay the senior notes, including a make-whole premium and
certain other fees. If such senior notes were required to be prepaid, the
Company would incur an extraordinary charge. Alternatively, the Company could
attempt to refinance or modify the new credit facility. The Company cannot
predict at this time whether it will obtain such covenant modifications or
make any such alternative arrangements, and, accordingly, cannot predict the
resulting impact on its financial condition or results of operations.
The Company may finance future acquisitions of golf course properties with
additional borrowings under the credit facility or a replacement credit
facility or with issuances of the Company's or the Operating Partnership's
equity or debt securities. In the future, the Company also may refinance a
portion of the credit facility with issuances of such debt or equity
securities. Any such offering which involves the sale of the equity securities
of the Company could adversely affect the market price of shares of the
Company's common stock held by the Company's existing stockholders.
On June 15, 1998, in anticipation of the Operating Partnership issuing $100
million of fixed-rate, ten-year notes or some similar security, the Operating
Partnership entered into a $100 million treasury lock swap transaction with a
financial institution in order to hedge its exposure to interest rate
fluctuations. The treasury
18
<PAGE>
lock matures on May 3, 1999. Under this agreement, the Operating Partnership
pays or receives an amount equal to the difference between the treasury lock
rate and the market rate on the date of settlement, based on the principal of
$100 million. The realized gain or loss on the transaction at the settlement
date will be recorded on the balance sheet and amortized to interest expense
over the period of the related notes if issued. If the notes or similar
securities are not issued, the realized gain or loss on the transaction at the
settlement date will be recorded in the statement of operations. At March 1,
1999 and December 31, 1998, the treasury lock rate was higher than the market
rate. Therefore, at March 1, 1999 and December 31, 1998, the Operating
Partnership had an unrealized loss of approximately $1.9 million and $6.9
million, respectively.
In 1998, the Company purchased seven Golf Courses for an aggregate initial
investment of approximately $42.8 million and made one participating mortgage
loan of approximately $22.6 million, which investment was financed by
approximately $7.4 million of cash from operations and $58 million of advances
under the Company's credit facility. Between December 31, 1998 and March 1,
1999, the Company purchased two Golf Courses for an aggregate initial
investment of approximately $10.4 million, which the Company financed with
approximately $4.4 million of cash from operations and $6 million of advances
under the Company's previous credit facility. In addition, there was a pay
down of approximately $9.6 million on the participating mortgage loan. On
March 31, 1999, the Company purchased the Acquired Cobblestone Courses for an
aggregate initial investment of approximately $184.3 million, which the
Company financed with borrowings of approximately $178.7 million under its new
credit facility and approximately $5.6 million of assumed notes.
On March 4, 1998, the Operating Partnership completed a private placement of
1,200,000 Preferred Units to an institutional investor in exchange for a
contribution to the Operating Partnership of $60 million. The Preferred Units,
which may be called by the Operating Partnership at par on or after March 4,
2003, have no stated maturity or mandatory redemption and pay a cumulative,
quarterly dividend at an annualized rate of 8%. The dividends attributable to
such Preferred Units have been reported as a component of minority interest in
the related financial statements. The Preferred Units are not convertible into
Common Stock, but are convertible into preferred stock of the Company. The
Operating Partnership used $58 million of the approximately $58.5 million of
net proceeds from such private placement to reduce outstanding indebtedness
under the Operating Partnership's revolving credit facility. Also, on April
20, 1998, the Operating Partnership completed a private placement of an
additional 300,000 Preferred Units to the same institutional investor in
exchange for a contribution to the Operating Partnership of $15 million. The
Operating Partnership used $14.5 million of the approximately $14.6 million of
net proceeds from such private placement to reduce outstanding indebtedness
under the Operating Partnership's revolving credit facility.
The limited partners of the Operating Partnership have the right, in each
twelve-month period ending August 18, to sell up to one-third of their Common
Units or exchange up to the greater of 75,000 Common Units or one-third of
their Common Units to the Company. If the Common Units are sold for cash, the
Company will have the option to pay for such Common Units with available cash,
borrowed funds or from the proceeds of an offering of Common Stock. If the
Common Units are exchanged for shares of Common Stock, the limited partners
will receive one share of Common Stock for each Common Unit exchanged.
Comparison of cash flow statement for year ended December 31, 1998 to year
ended December 31, 1997
Net cash provided by operating activities increased by $4,757,000 to
$60,333,000 for the year ended December 31, 1998 compared to $55,576,000 for
the year ended December 31, 1997. The increase was primarily attributable to
an increase in rent revenues of approximately $9,034,000, which was offset by
a decrease in changes in other assets of approximately $4,194,000.
Net cash used by investing activities decreased by $16,925,000 to
$77,483,000 for the year ended December 31, 1998 compared to $94,408,000 for
the year ended December 31, 1997. The decrease was primarily attributable to
(i) an increase in issuance of mortgage loans of approximately $22,649,000;
(ii) a decrease in purchase of property of approximately $32,754,000; and
(iii) a decrease in investment in joint venture of approximately $8,109,000.
19
<PAGE>
Net cash provided by financing activities decreased by $12,143,000 to
$17,163,000 for the year ended December 31, 1998 compared to $29,306,000 for
the year ended December 31, 1997. The decrease was primarily attributable to
(i) an increase in principal payments on notes payable of approximately
$31,259,000; (ii) a decrease in proceeds from notes payable of approximately
$48,650,000; (iii) an increase in net proceeds from Preferred Units of
approximately $73,010,000; and (iv) an increase in limited partners' cash
distributions of approximately $4,391,000.
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.
Year 2000
The Year 2000 issue is the result of computer software and embedded chips
using two digits, instead of four digits, to identify the applicable year. Any
of the Company's computers, computer software and other equipment that have
date-sensitive software may recognize a date using "00" as the year 1900
instead of 2000. If any of the Company's systems or equipment that have date-
sensitive software use only two digits, system failures or miscalculations may
result causing disruptions of operations.
The Company has identified its Year 2000 risk in three categories: (i)
internal computers and equipment; (ii) tenants' compliance; and (iii) external
compliance.
The Company has replaced all of its personal computers and most of its
software with computers and software that are Year 2000 compliant. The Company
plans to install the remaining software by the end of the second quarter in
1999. The Company also has replaced its computer servers and plans to upgrade
its computer software by the end of the second quarter of 1999. The Company
has spent approximately $63,000 to replace such computer equipment through
December 31, 1998 and anticipates spending an additional $37,000 before the
end of 1999 on additional replacement equipment and software upgrades. The
Company has determined that most of the other office equipment that the
Company uses also is Year 2000 compliant. This has been confirmed in writing
with third party vendors. The Company will continue to conduct ongoing testing
of its computers, software and other equipment which has not yet been tested
or replaced to ensure Year 2000 compliance.
The Company has identified key tenants that it believes could have a
material impact on its operations if those tenants are not Year 2000
compliant. The Company is monitoring its largest tenant, AGC, and has had
preliminary discussions with the other tenants about their Year 2000
compliance. AGC has informed the Company that its Year 2000 compliance project
is progressing as planned and is expected to be completed by September 1999.
The Company will send written requests to its tenants to determine their Year
2000 compliance during 1999.
The Company has had preliminary discussions with some of its service
providers. The Company will send written requests to its key service providers
to determine their Year 2000 compliance during 1999.
20
<PAGE>
The Company does not currently have a comprehensive contingency plan with
respect to the Year 2000 problem. However, the Company intends to establish
such a plan during 1999 as part of its ongoing Year 2000 compliance effort.
Despite the Company's efforts to identify and resolve Year 2000 compliance
problems, the Company cannot guarantee that all of the Company's systems will
be Year 2000 compliant or that other companies on which the Company relies
will be timely converted. As a result, the Company's operations could be
interrupted or otherwise adversely affected. The failure to correct a material
Year 2000 problem could result in an interruption in, or a failure of, certain
business operations. Such failures could have a material adverse effect on the
Company's financial condition and results of operations. However, the Company
believes that, at worst, it might cease receiving percentage rents on a
temporary basis. This would result from the Company's tenants having to use a
manual system to prepare their accounting records and, as a consequence, it
would take additional time for the Company's tenants to gather financial
performance information from its golf courses and calculate the percentage
rent amounts. This temporary reduction in rent revenue could cause price
fluctuations in the Common Stock.
The forward-looking statements regarding Year 2000 involve risks and
uncertainties, which reflect the Company's management's best judgment 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 above.
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, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
For the year ended
December 31,
-------------------------
1998 1997 1996
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Net income........................................... $16,642 $15,579 $13,412
Distributions--Preferred Units....................... (4,797) -- --
Minority interest.................................... 17,292 12,003 10,852
Depreciation and amortization........................ 27,472 24,883 19,124
Gain on property condemnation........................ (1,493) -- --
Gain on insurance proceeds........................... -- (2,231) --
Gain on sale of properties........................... -- (158) (1,199)
Excess land sales.................................... (342) (469) --
Amortization--loan costs............................. (241) (227) (147)
Depreciation--corporate.............................. (87) (69) (47)
------- ------- -------
Funds from operations................................ $54,446 $49,311 $41,995
Company's share of funds from operations............. 57.31% 56.48% 55.28%
------- ------- -------
Company's funds from operations...................... $31,203 $27,851 $23,215
======= ======= =======
</TABLE>
21
<PAGE>
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.
Comparison of funds from operations for year ended December 31, 1998 to year
ended December 31, 1997
Funds from operations increased by $5,135,000 to $54,446,000 for the year
ended December 31, 1998 compared to $49,311,000 for the year ended December
31, 1997. The increase was primarily attributable to an increase in rent
revenues of approximately $9,034,000, which was offset by an increase in
distributions on Preferred Units of approximately $4,797,000.
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.
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 and personal property 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.
New Pronouncements Issued But Not Yet Effective
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 will require the Company to
recognize all derivatives on the balance sheet at fair value. The accounting
for the changes in the fair values of such derivatives would depend on the use
of the derivative and whether it qualifies for hedge accounting. SFAS 133 is
effective for the Company's financial statements issued for periods beginning
January 1, 2000. The Company has not determined when it will implement SFAS
133; however, the Company anticipates that implementing SFAS 133 will not
materially impact the Company's financial condition or results of operations.
However, there could be a material impact on comprehensive income.
22
<PAGE>
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk exposure is interest rate risk. The
Company has and will continue to manage interest rate risk by (1) maintaining
a conservative ratio of fixed rate, long-term debt to total debt such that
variable rate exposure is kept at an acceptable level, (2) using treasury rate
locks where appropriate to fix rates on anticipated debt transactions, and (3)
taking advantage of favorable market conditions for long-term debt and/or
equity.
The following table sets forth the Company's long term debt obligations,
principal cash flows by scheduled maturity, weighted average interest rates
and estimated fair value ("FV") at December 31, 1998 (dollars in thousands):
<TABLE>
<CAPTION>
For the Year Ended December 31,
----------------------------------------
1999 2000 2001 2002 2003 Thereafter Total FV
------ ------ ------- ------- ------ ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long term debt:
Fixed rate............ $9,918 $8,539 $26,013 $ 7,145 $7,715 $146,075 $205,405 $214,348
Average interest
rate................. 7.01% 7.72% 7.09% 8.39% 8.39% 8.35% 8.07%
Variable rate......... -- -- -- 78,000 -- -- 78,000 78,000
Average interest
rate................. -- -- -- 6.48% -- -- 6.48%
------ ------ ------- ------- ------ -------- -------- --------
Total debt.......... $9,918 $8,539 $26,013 $85,145 $7,715 $146,075 $283,405 $292,348
====== ====== ======= ======= ====== ======== ======== ========
</TABLE>
In addition, the Company has assessed the market risk for its variable rate
debt and believes that a 1% increase in interest rates would have an
approximate $780,000 increase in interest expense based on $78 million
outstanding at December 31, 1998.
The estimated fair value of the Company's long term debt is estimated based
on discounted cash flows at interest rates that the Company's management
believes reflects the risks associated with long term debt of similar risk and
duration.
23
<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, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, 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.
As described in Note 1(n), the Company changed their method of accounting
for contingent rental income.
As described in Note 1(p), the consolidated financial statements have been
restated for the allocation of minority interest.
Additionally, Note 16 to the accompanying consolidated financial statements
has been restated for American Golf Corporation and Subsidiaries change in
their method of accounting for membership initiation deposits and fees and the
related incremental direct costs.
PricewaterhouseCoopers LLP
Los Angeles, California
February 4, 1999, except for Note 19,
as to which the date is March 31, 1999
24
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31,
-------------------
1998 1997
--------- --------
<S> <C> <C>
ASSETS
------
Property
Land.................................................... $ 77,317 $ 72,339
Buildings............................................... 202,920 181,571
Ground improvements..................................... 332,066 301,814
Furniture, fixtures and equipment....................... 39,341 35,589
Construction in progress................................ 11,374 10,569
--------- --------
663,018 601,882
Less: accumulated depreciation.......................... (121,095) (94,872)
--------- --------
Net property.......................................... 541,923 507,010
Cash and cash equivalents................................. 1,711 1,698
Investments............................................... 1,295 1,215
Mortgage notes receivable................................. 24,849 2,200
Investment in joint venture............................... 7,630 8,004
Due from affiliate........................................ 958 4,524
Other assets, net......................................... 18,929 10,663
--------- --------
Total assets.......................................... $ 597,295 $535,314
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Notes payable............................................. $ 283,405 $299,032
Accounts payable and other liabilities.................... 15,011 5,385
--------- --------
Total liabilities..................................... 298,416 304,417
--------- --------
Minority interest......................................... 166,655 96,007
--------- --------
Commitments and contingencies (Note 8)
Stockholders' Equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized--none issued................................ -- --
Common stock, $.01 par value, 40,000,000 shares
authorized, 12,519,745 and 12,408,195 shares issued and
outstanding at December 31, 1998 and 1997,
respectively........................................... 125 124
Additional paid in capital.............................. 135,205 139,222
Accumulated deficit..................................... -- (1,360)
Unamortized restricted stock compensation............... (3,106) (3,096)
--------- --------
Total stockholders' equity............................ 132,224 134,890
--------- --------
Total liabilities and stockholders' equity............ $ 597,295 $535,314
========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
25
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
For the year ended
December 31,
----------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Rent from affiliate........................... $ 79,652 $ 71,087 $ 57,291
Rent.......................................... 3,698 3,229 1,607
Equity in income from joint venture........... 385 119 --
Gain on sale of properties.................... -- 158 1,199
-------- -------- --------
Total revenues.............................. 83,735 74,593 60,097
-------- -------- --------
Expenses:
General and administrative.................... 5,156 5,336 4,734
Depreciation and amortization................. 27,079 24,758 19,124
-------- -------- --------
Total expenses.............................. 32,235 30,094 23,858
-------- -------- --------
Operating income.............................. 51,500 44,499 36,239
Other income (expense):
Interest income from affiliates............... -- -- 1,683
Interest income............................... 1,170 364 427
Gain on property condemnation................. 1,493 -- --
Gain on insurance proceeds.................... -- 2,231 --
Other income.................................. 352 521 238
Interest expense.............................. (20,350) (19,810) (14,067)
-------- -------- --------
Income before provision for taxes and minority
interest....................................... 34,165 27,805 24,520
Provision for taxes............................. (231) (223) (256)
-------- -------- --------
Income before minority interest................. 33,934 27,582 24,264
Income applicable to minority interest.......... (17,292) (12,003) (10,852)
-------- -------- --------
Net income...................................... $ 16,642 $ 15,579 $ 13,412
======== ======== ========
Basic earnings per share........................ $ 1.33 $ 1.26 $ 1.19
Weighted average number of shares............... 12,497 12,368 11,317
Diluted earnings per share...................... $ 1.32 $ 1.25 $ 1.17
Weighted average number of shares............... 12,599 12,512 11,420
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<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,
1995................... 10,621,975 $106 $114,121 $ (1,360) $(2,569) $110,298
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)
Allocation for minority
interest in the
Operating
Partnership........... -- -- (10,111) -- -- (10,111)
Net income............. -- -- -- 13,412 -- 13,412
---------- ---- -------- -------- ------- --------
Balance at December 31,
1996................... 12,303,720 123 142,265 (1,360) (3,358) 137,670
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)
Allocation for minority
interest in the
Operating
Partnership........... -- -- (419) -- -- (419)
Net income............. -- -- -- 15,579 -- 15,579
---------- ---- -------- -------- ------- --------
Balance at December 31,
1997................... 12,408,195 124 139,222 (1,360) (3,096) 134,890
Amortization of
restricted stock...... -- -- -- -- 1,560 1,560
Issuance of restricted
stock................. 52,000 -- 1,570 -- (1,570) --
Exercise of stock
options............... 59,550 1 1,210 -- -- 1,211
Distributions paid
($1.73 per share)..... -- -- (6,346) (15,282) -- (21,628)
Allocation for minority
interest in the
Operating
Partnership........... -- -- (451) -- -- (451)
Net income............. -- -- -- 16,642 -- 16,642
---------- ---- -------- -------- ------- --------
Balance at December 31,
1998................... 12,519,745 $125 $135,205 $ -- $(3,106) $132,224
========== ==== ======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
27
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
For the year ended December
31,
------------------------------
1998 1997 1996
--------- -------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................... $ 16,642 $ 15,579 $ 13,412
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.............. 27,079 24,758 19,124
Amortization of restricted stock........... 1,560 1,532 1,089
Minority interest in earnings.............. 17,292 12,003 10,852
Distributions from joint venture, net of
equity in income.......................... 393 124 --
Gain on insurance proceeds................. -- (2,231) --
Gain on property condemnation.............. (1,493) -- --
Gain on sale of properties................. -- (158) (1,199)
Other adjustments.......................... 11 71 5
Changes in assets and liabilities:
Other assets............................. (2,331) 1,863 (591)
Accounts payable and other liabilities... 2,378 2,480 866
Due from/to affiliate.................... (1,198) (445) 659
--------- -------- ---------
Net cash provided by operating
activities............................ 60,333 55,576 44,217
--------- -------- ---------
Cash flows from investing activities:
Purchase of available-for-sale securities.... (5,607) (7,623) (5,644)
Proceeds from sale of available-for-sale
securities.................................. 5,526 6,694 6,167
Issuance of mortgage note receivable......... (22,649) -- --
Proceeds from mortgage notes receivable...... -- 732 25,472
Loan costs on mortgage note issued........... (147) -- --
Proceeds from short-term investment.......... 366 -- --
Purchase of property and related assets...... (56,733) (89,487) (90,368)
Purchase of property and related assets from
affiliates.................................. -- -- (4,937)
Investment in joint venture.................. (19) (8,128) --
Proceeds from sale of properties and related
assets...................................... 1,780 3,404 829
--------- -------- ---------
Net cash used by investing activities.. (77,483) (94,408) (68,481)
--------- -------- ---------
Cash flows from financing activities:
Principal payments on notes payable.......... (114,559) (83,300) (111,952)
Proceeds from notes payable.................. 98,500 147,150 173,299
Loan costs................................... (15) (106) (530)
Proceeds from Preferred Units, net of
offering expenses........................... 73,010 -- --
Repurchase of Common Units................... -- -- (116)
Proceeds from stock options exercised........ 1,212 1,439 446
Cash distributions........................... (21,628) (20,911) (18,252)
Limited partners' cash distributions......... (19,357) (14,966) (14,496)
--------- -------- ---------
Net cash provided by financing
activities............................ 17,163 29,306 28,399
--------- -------- ---------
Net increase (decrease) in cash and cash
equivalents................................... 13 (9,526) 4,135
Cash and cash equivalents at beginning of
period........................................ 1,698 11,224 7,089
--------- -------- ---------
Cash and cash equivalents at end of period..... $ 1,711 $ 1,698 $ 11,224
========= ======== =========
Supplemental cash flow information:
Interest paid................................ $ 20,232 $ 18,729 $ 13,646
Taxes paid................................... 38 261 265
</TABLE>
The accompanying notes are an integral part of these financial statements.
28
<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, 1998, 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 2.8% of the Company's outstanding Common Stock and
approximately 17% 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 58.5% 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 and
received units of common limited partnership interest in the Operating
Partnership (the "Common 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 limited
partners' proportionate share of net income of the Company and any additional
contributions or distributions to the limited partners.
A Common 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. The limited
partners of the Operating Partnership have the right, in each twelve-month
period ending August 18, to sell up to one-third of their Common Units or
exchange up to the greater of 75,000 Common Units or one-third of their Common
Units to the Company.
In order for the Company to maintain its qualification as a real estate
investment trust ("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 a Common Unit is convertible
into a share of Common Stock, the conversion of the majority of the Common
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
29
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(1) Organization and Summary of Significant Accounting Policies--(Continued)
c) Investments--(Continued)
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.
d) Concentration of Credit Risk
Concentration of credit risk with respect to the Company's portfolio of 130
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, 1998, 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, 1998 and 1997, the Company had cash accounts in excess of FDIC
insured limits.
e) Property
Property is carried at cost. 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 an 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 an 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. The Company determines
whether there has been impairment by comparing the expected undiscounted
future cash flows from each golf course with the net carrying value for such
golf course, including any related intangible asset. Management believes no
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 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 $1.73 per share in 1998, of which $1.61
represents ordinary income and $0.12 represents return of capital on a tax
basis. On a book basis, calculated using basic earnings per share, $0.40 per
share represents
30
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(1) Organization and Summary of Significant Accounting Policies--(Continued)
f) Income Taxes--(Continued)
return of capital. In addition, on January 11, 1999, the Company declared a
quarterly distribution for the fourth quarter of 1998 of $0.44 per share to
stockholders of record on January 29, 1999, which was paid on February 15,
1999. The Company may be subject to federal alternative minimum tax in 1998.
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.
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 an 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 an 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. The Company determines whether there has been impairment
by comparing the expected undiscounted future cash flow from each golf course
with the net carrying value for such golf course, including any related
intangible asset. Management believes no impairment in the carrying value of
its intangible assets has occurred. Accumulated amortization at December 31,
1998 and 1997, was approximately $5,117,000 and $4,318,000, 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.
31
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(1) Organization and Summary of Significant Accounting Policies--(Continued)
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 was 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. The
Company's earnings per share have been restated for all periods presented to
be consistent with SFAS No. 128.
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, 1998, 1997 and 1996 were
101,790, 143,697 and 103,365, 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) Accounting for Internal Acquisition Costs
In March 1998, the Emerging Issues Task Force of the FASB (the "EITF")
issued Issue No. 97-11, "Accounting for Internal Costs Relating to Real Estate
Property Acquisitions." This statement provides that internal acquisition
costs of identifying and acquiring operating properties should be expensed as
incurred. Prior to this statement, the only internal acquisition costs
capitalized by the Company were acquisition bonuses. This statement applies to
all internal acquisition costs incurred after March 19, 1998. There was no
material impact by the adoption of this statement to the Company's earnings
per share, financial conditions, or results of operations.
n) Accounting for Contingent Rent
In May 1998, the EITF issued Issue No. 98-9, "Accounting for Contingent Rent
in Interim Financial Periods." This statement provides that recognition of
contingent rental income should be deferred until specified targets that
trigger the contingent rent are achieved. This statement applies to all
contingent rental income effective with the second quarter of 1998. On a
quarterly basis, there was a material impact to the Company's earnings per
share, financial condition, and results of operations. Contingent rent not
recorded in the second or third quarters was recognized in the fourth quarter.
Therefore, on an annual basis, there was no impact to the Company's earnings
per share, financial condition, or results of operations. In November 1998,
Issue No. 98-9 was withdrawn by the EITF. However, the Company has continued
to account for contingent rent in accordance with Issue No. 98-9.
32
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(1) Organization and Summary of Significant Accounting Policies--(Continued)
o) Accounting for Derivative Instruments and Hedging Activities
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 will require the Company to
recognize all derivatives on the balance sheet at fair value. The accounting
for the changes in the fair values of such derivatives would depend on the use
of the derivative and whether it qualifies for hedge accounting. SFAS 133 is
effective for the Company's financial statements issued for periods beginning
January 1, 2000. The Company has not determined when it will implement
SFAS 133, however, there is no material impact anticipated to the Company's
financial condition or results of operations. However, there could be a
material impact on comprehensive income.
p) Minority Interest
The accompanying consolidated balance sheets and statements of stockholders'
equity have been restated for the years ended December 31, 1997 and 1996 to
reflect an accounting allocation for reporting purposes from additional paid
in capital to minority interest for the limited partners' interest in the net
assets of the Company after giving effect to their exchange rights of Common
Units into the Company's Common Stock. Generally accepted accounting
principles require the reporting of such exchange rights "as if converted."
This reallocation had no effect on earnings per share or results of operations
or allocations of net income to the general and limited partners of the
Operating Partnership. The reallocation at December 31, 1998, 1997, and 1996
was approximately $78.6 million, $78.1 million, and $77.7 million,
respectively.
q) Segment Reporting
During 1998, the Company adopted SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 131 established standards
for disclosure about operating segments and related disclosures about products
and services, geographic areas, and major customers. The Company currently
operates in one business segment, the acquisition and ownership of golf course
properties. Additionally, the Company operates in one geographic area, the
United States. The revenues from one major lessee, AGC, amounted to
approximately 96%, 96% and 95% of total revenues for the years ended December
31, 1998, 1997 and 1996, respectively.
(2) Property Acquisitions and Sales
In 1998, the Company purchased seven golf courses for an aggregate initial
investment of approximately $42.8 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 are leased to AGC pursuant to long-term triple net leases.
<TABLE>
<CAPTION>
Acquisition Initial
Date Course Name Location Investment
- ----------- ----------- -------- ----------
(In thousands)
<S> <C> <C> <C>
4/13/98 Ivy Hills Country Club Cincinnati, Ohio $ 1,806
Majestic Oaks Golf Club (3
7/8/98 Courses) Ham Lake, Minnesota 11,907
Woodland Creek Golf Course Andover, Minnesota 559
The Club at Sonterra (2
9/1/98 Courses) San Antonio, Texas 28,553
-------
Total Initial Investment................................ $42,825
=======
</TABLE>
33
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(2) Property Acquisitions and Sales--(Continued)
In 1998, the Company recognized a gain on property condemnation of
approximately $1.5 million due to the State of North Carolina condemning four
golf holes at one of the Company's golf courses for a state highway project.
The State has not taken physical possession of the property because the
project has not been started. The Company purchased land, for approximately
$356,000, adjacent to the golf course sufficient to replace the condemned
holes.
In 1997, the Company recognized a gain on insurance proceeds of
approximately $2.2 million due to a fire completely destroying a clubhouse at
one of the Golf Courses. The Company has applied the insurance proceeds to
rebuilding the clubhouse.
(3) Investments
<TABLE>
<CAPTION>
December 31,
---------------------------
1998 1997
------------- -------------
Cost Market Cost Market Maturity
------ ------ ------ ------ --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Available-for-sale securities:
Commercial Paper......................... $ -- $ -- $ 107 $ 107 1/1998
Corporate Note........................... -- -- 200 200 1/1998
U.S. Government and Agency Obligation.... -- -- 908 908 1/1998
Commercial Paper......................... 1,095 1,095 -- -- 1/1999
Corporate Note........................... 200 200 -- -- 3/1999
------ ------ ------ ------
Total.................................. $1,295 $1,295 $1,215 $1,215
====== ====== ====== ======
</TABLE>
In 1998 and 1997, available-for-sale securities were sold resulting in
proceeds of $5,526,000 and $6,694,000, respectively. There were no gross
realized gains or losses in 1998 and 1997.
(4) Mortgage Notes Receivable
On August 20, 1998, the Company made a participating mortgage loan of
approximately $22.6 million to an unrelated entity that owns Badlands Golf
Course in Las Vegas, Nevada (the "Badlands Mortgage"). The borrower may prepay
approximately $9.6 million of the principal amount. As part of the loan
agreement, the Company has agreed to loan an additional $315,000 to the
borrower to be used for capital improvements at the golf course.
Under the terms of the participating mortgage loan, the Company will receive
minimum annual base interest equal to 8.75% of the principal amount. The
minimum interest will increase during each of the first five years of the 15-
year term of the loan. In addition, a participating interest feature will
allow the Company to participate in growth in revenues at the golf course and
a portion of the appreciation in the fair market value of the golf course.
Interest income from the Badlands Mortgage for the year ended December 31,
1998 was approximately $738,000.
The Company had fixed-term options to acquire four golf courses (the "Option
Golf Courses") in exchange for Common 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
34
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(4) Mortgage Notes Receivable--(Continued)
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"). In March 1998, the interest rate was increased to
11.5% per annum, and in March 1999, the interest rate will be increased to 12%
per annum. Interest income from the Hidden Hills Mortgage for the years ended
December 31, 1998, 1997 and 1996 was $251,000, $242,000, and $242,000,
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, 1998 and 1997
is estimated to be approximately $24,871,000 and $2,409,000, respectively,
based on current interest rates for comparable loans.
(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) Treasury Lock Swap Transactions
On June 15, 1998, in anticipation of the Operating Partnership placing $100
million of fixed-rate, ten-year notes or some similar security, the Operating
Partnership entered into a $100 million treasury lock swap transaction with a
financial institution in order to hedge its exposure to interest rate
fluctuations. The treasury lock matures on February 1, 1999. Under this
agreement, the Operating Partnership pays or receives an amount equal to the
difference between the treasury lock rate and the market rate on the date of
settlement, based on the principal of $100 million. The realized gain or loss
on the transaction at the settlement date will be recorded on the balance
sheet and amortized to interest expense over the period of the related notes,
if issued. If the notes or similar securities are not issued, the realized
gain or loss on the transaction at the settlement date will be recorded in the
statement of operations. At December 31, 1998, the treasury lock rate was
higher than the market rate. Therefore, the Operating Partnership has an
unrealized loss of approximately $6.9 million. This amount has been recorded
in the consolidated balance sheet as other assets, with a corresponding amount
recorded as other liabilities.
During 1998, the Operating Partnership entered into two other treasury lock
swap transactions, which resulted in approximately $215,000 and $151,000 being
received by the Operating Partnership. These amounts are being amortized as a
credit to interest expense over a period of ten years.
35
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(7) Notes Payable
Notes payable consist of the following:
<TABLE>
<CAPTION>
December 31,
Interest Interest -----------------
Type of Collateral Rate Payment 1998 1997 Maturity
- ------------------ -------- ------------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
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
Uncollateralized note........ 6.48% Monthly 9,500 -- 1/1999
Uncollateralized note........ 6.55% Monthly 10,500 -- 1/1999
Uncollateralized note........ 6.34% Monthly 5,000 -- 1/1999
Uncollateralized note........ 7.75% Quarterly 4,000 -- 1/1999
Uncollateralized note........ 6.38% Monthly 13,500 -- 2/1999
Collateralized note.......... 5.50% Quarterly 4,500 4,500 2/1999
Uncollateralized note........ 6.41% Monthly 25,500 -- 3/1999
Uncollateralized note........ 6.35% Monthly 10,000 -- 3/1999
Collateralized note.......... 6.00% Monthly 1,500 1,447 8/2000
Collateralized note.......... 5.50% Quarterly 474 646 5/2001
Collateralized note.......... 6.60% Quarterly 20,000 20,000 7/2001
Collateralized note.......... 6.00% Annually 3,750 3,587 10/2004
Uncollateralized notes....... 8.68% Semi-annually 47,295 48,705 12/2004
Uncollateralized notes....... 8.73% Semi-annually 48,024 49,369 6/2005
Uncollateralized notes....... 7.90% Semi-annually 40,000 40,000 6/2006
Uncollateralized notes....... 2,994 2,779 7/2006
Uncollateralized notes....... 8.00% Semi-annually 35,000 35,000 12/2006
Uncollateralized notes....... 8.00% Quarterly 1,868 1,999 1/2008
-------- --------
$283,405 $299,032
======== ========
</TABLE>
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>
1999...................................................... 9,918
2000...................................................... 8,539
2001...................................................... 26,013
2002...................................................... 85,145
2003...................................................... 7,715
Thereafter................................................ 146,075
--------
$283,405
========
</TABLE>
36
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(7) Notes Payable--(Continued)
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, 1998,
such rate was 7.75%. 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 $78 million
under this credit facility as of December 31, 1998. The Company intends to
roll over the advances due in 1999 to a future period.
In connection with the purchase of Eagle Brook Country Club during 1997, 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 was
paid or accrued on the outstanding principal balance. Thereafter, interest
accrues on the outstanding principal balance at the rate of 6% per annum. The
interest rate used to discount the note was 6%. The discount was amortized
over the first year of the note using the effective interest method. The note
balance at December 31, 1998 was $1.5 million.
In connection with the purchase of Gettysvue Polo, Golf & Country Club
during 1997, 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 was paid or accrued on the outstanding
principal balance. For years two through four, the interest rate is six
percent per annum. For years five through seven, the interest rate is 8% per
annum. The interest rate used to discount the note was 6%. The discount was
amortized over the first year of the note using the effective interest method.
The note balance at December 31, 1998 was $3,750,000.
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.
In connection with the combined purchase of Monterey Country Club and Palm
Valley Country Club during 1995, the Company entered into an eleven-year, non-
interest bearing, uncollateralized note for $4,000,000 with the seller of the
properties. The interest rate used to discount the note was 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, 1998 was
approximately $2,994,000. The unamortized discount balance at December 31,
1998 was approximately $1,006,000.
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 acquisitions of golf courses and related
facilities and properties, and for general partnership purposes.
37
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(7) Notes Payable--(Continued)
A limited partner who owns or controls 75,003 Common Units is the holder of
a promissory note for approximately $1.9 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
limited partner. The interest rate is 8% per annum with a maturity date in
January 2008. The Company made interest payments in 1998 and 1997 of
approximately $156,000 and $166,000, respectively.
The market value of notes payable at December 31, 1998 and 1997 is estimated
to be approximately $292,348,000 and $310,830,000, respectively, based on
current interest rates for comparable loans. The net book value at December
31, 1998 of the assets collateralizing the notes payable is $60.1 million.
(8) Commitments and Contingencies
The Company is required under the Leases to pay for various remaining
capital improvements totaling approximately $22.3 million, $21.3 million of
which will be paid during the next two years. Any subsequent capital
improvements to these golf courses are the responsibility of the Lessees.
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,
1998, there was a net book value of approximately $2,666,000 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, 1998,
1997 and 1996, the ground lease expense was approximately $375,000, $413,000
and $351,000, respectively.
Also, the Company leases a portion 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.
(9) Preferred Units
On March 4, 1998, the Operating Partnership completed the private placement
of 1,200,000 8% Series A Cumulative Redeemable Preferred Units ("Preferred
Units"), representing limited partnership interests in the Operating
Partnership, to an institutional investor in exchange for a contribution to
the Operating Partnership of $60 million. The Preferred Units, which may be
called by the Operating Partnership at par on or after March 4, 2003, have no
stated maturity or mandatory redemption and pay a cumulative, quarterly
dividend at an annualized rate of 8%. The dividends attributable to such
Preferred Units have been reported as a component of minority interest in the
related financial statements. The Preferred Units are not convertible into
Common Stock, but are convertible into preferred stock of the Company. The
Operating Partnership used $58 million of the approximately $58.5 million of
net proceeds from such private placement to reduce outstanding indebtedness
under the Operating Partnership's revolving credit facility.
Also, on April 20, 1998, the Operating Partnership completed on the same
terms as above the private placement of an additional 300,000 Preferred Units
to the same institutional investor in exchange for a contribution to the
Operating Partnership of $15 million. The Operating Partnership used $14.5
million of the approximately $14.6 million of net proceeds from such private
placement to reduce outstanding indebtedness under the Operating Partnership's
revolving credit facility.
38
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(10) 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>
1999...................................................... $ 81,285
2000...................................................... 81,285
2001...................................................... 81,285
2002...................................................... 81,285
2003...................................................... 81,285
Thereafter................................................ 619,113
----------
$1,025,538
==========
</TABLE>
The minimum rent for the first year for each golf course under the Leases is
initially set at a fixed amount. Thereafter, generally 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, generally
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, 1998, 1997 and 1996 was approximately
$6,691,000, $5,920,000 and $4,289,000, respectively.
(11) 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
$1,560,000, $1,532,000 and $1,089,000, for the years ended December 31, 1998,
1997, and 1996, respectively.
39
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(11) 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, 1998,
1997 and 1996:
<TABLE>
<CAPTION>
Number of Shares- Number of Weighted Average
Restricted Stock Shares-Options Option Exercise Price
----------------- -------------- ---------------------
<S> <C> <C> <C>
Outstanding at December
31, 1995............... 143,000 503,600 $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............... 166,500 487,600 $20.68
Granted............... 50,000 -- --
Vested................ (56,500) -- --
Forfeited............. (20,000) (20,000) 25.88
Exercised............. -- (72,475) 19.86
------- ------- ------
Outstanding at December
31, 1997............... 140,000 395,125 $20.57
Vested................ (66,500) -- --
Cancelled............. -- (1,600) 20.38
Exercised............. -- (59,550) 20.34
------- ------- ------
Outstanding at December
31, 1998............... 73,500 333,975 $20.61
======= ======= ======
</TABLE>
<TABLE>
<CAPTION>
Number
of Weighted Average
Shares Option Exercise Price
------- ---------------------
<S> <C> <C>
Options exercisable at:
December 31, 1998............................ 323,975 $20.45
December 31, 1997............................ 371,375 $20.44
December 31, 1996............................ 327,575 $20.23
</TABLE>
The range of exercise prices for the options outstanding at December 31,
1998 is $18.50 through $25.875 with a weighted average remaining contractual
life of 4.9 years. The range of exercise prices for options exercisable at
December 31, 1998 is $18.50 through $25.875 with a weighted average remaining
contractual life of 4.8 years.
As of December 31, 1998, a total of 779,575 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.
40
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(11) Stock Options and Awards--(Continued)
The following table summarizes the restricted stock and stock option
transactions pursuant to the 1997 Plan for the years ended December 31, 1998
and 1997.
<TABLE>
<CAPTION>
Number of Shares- Number of Weighted average
Restricted Stock Shares options option exercise price
----------------- -------------- ---------------------
<S> <C> <C> <C>
Granted................. -- 22,500 $30.06
------ ------ ------
Outstanding at
December 31, 1997.... -- 22,500 30.06
Granted............... 50,000 50,000 30.31
------ ------ ------
Outstanding at December
31, 1998............... 50,000 72,500 $30.23
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Number Weighted Average
of Shares Option Exercise Price
--------- ---------------------
<S> <C> <C>
Options exercisable at:
December 31, 1998.......................... 5,625 $30.06
</TABLE>
The range of exercise prices for the options outstanding at December 31,
1998 is $30.0625 through $30.3125 with a weighted average remaining
contractual life of 9 years. The exercise price for the options exercisable at
December 31, 1998 is $30.06 with a remaining contractual life of 8.8 years.
As of December 31, 1998, a total of 677,500 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
1995 Independent Director Equity Participation Plan for the years ended
December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
Number of Shares- Number of Weighted Average
Restricted Stock Share-Options Option Exercise 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
Granted................. 2,000 8,000 27.25
------ ------ ------
Outstanding at December
31, 1998............... 16,000 40,000 $25.80
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Number Weighted Average
of Shares Option Exercise Price
--------- ---------------------
<S> <C> <C>
Options exercisable at:
December 31, 1998.......................... 32,000 $25.44
December 31, 1997.......................... 24,000 $23.42
December 31, 1996.......................... 16,000 $20.94
</TABLE>
41
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(11) Stock Options and Awards--(Continued)
The range of exercise prices for the options outstanding at December 31,
1998 is $19.75 through $31.50 with a weighted average remaining contractual
life of 8 years. The range of exercise prices for options exercisable at
December 31, 1998 is $19.75 through $31.50 with a weighted average remaining
contractual life of 7.5 years.
As of December 31, 1998, a total of 92,000 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.
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 1998 and 1997 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,
---------------------------------
1998 1997
---------------- ----------------
(In thousands, except per share)
<S> <C> <C>
Net income, as reported................... $ 16,642 $ 15,579
Net income, pro forma..................... $16,479 $ 15,501
Basic earnings per share, as reported..... $ 1.33 $ 1.26
Basic earnings per share, pro forma....... $ 1.32 $ 1.25
Diluted earnings per share, as reported... $ 1.32 $ 1.25
Diluted earnings per share, pro forma..... $ 1.31 $ 1.24
</TABLE>
The weighted average fair value of options granted during 1998 and 1997 are
$6.55 and $7.10, respectively. The fair value of each option grant issued in
1998 and 1997 is estimated at the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions: (a)
dividend yield of 1.5% in 1998 and 1.6% in 1997, (b) expected volatility of
the Company's stock of 20.6% in 1998 and 21.5% in 1997, (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 1998 and 1997.
(12) 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, 1998, 1997 and 1996 the Company's
contributions to the 401(k) Plan were approximately $21,000, $21,000 and
$14,000, respectively.
42
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(13) 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.
(14) 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.
(15) 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 Common
Units; and (v) approximately $900,000 in seller financing related to the sale
of Wootton Bassett Golf Club by the Company.
(16) 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.
Based on recent Securities and Exchange Commission pronouncements, AGC
changed its accounting policy for member initiation fees to defer such
revenues and recognize them on a straight-line basis over the expected
43
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(16) Other Data--(Continued)
average life of active membership. Accordingly, AGC's consolidated financial
statements have been retroactively adjusted to reflect this change for all
periods presented.
The following table sets forth certain condensed financial information
concerning AGC.
<TABLE>
<CAPTION>
December 31,
-----------------
1998 1997
-------- --------
(In thousands)
<S> <C> <C>
Current assets............................................ $ 82,809 $ 79,692
Non-current assets........................................ 163,629 147,423
-------- --------
Total assets............................................ $246,438 $227,115
======== ========
Total current liabilities................................. $ 84,893 $ 70,411
Total long-term liabilities............................... 147,667 128,197
Minority interest......................................... 503 501
Total shareholders' equity................................ 13,375 28,006
-------- --------
Total liabilities and shareholders' equity.............. $246,438 $227,115
======== ========
</TABLE>
<TABLE>
<CAPTION>
For the year ended
December 31,
--------------------------
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Total revenues.................................... $575,853 $517,131 $427,743
-------- -------- --------
Net income........................................ $ 4,746 $ 12,323 $ 4,343
======== ======== ========
</TABLE>
This accounting change resulted in a decrease in AGC's retained earnings of
$49,952,000, $41,172,000 and $34,315,000 as of December 31, 1998, 1997 and
1996, respectively. This impact did not have any affect on the Company's
consolidated financial statements.
(17) Quarterly Financial Information (Unaudited)
Summarized quarterly financial data for the years ended December 31, 1998
and 1997 is as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Quarter ended
-----------------------------------------
Fiscal 1998 March 31 June 30 September 30 December 31
----------- -------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues.......................... $19,898 $18,797 $19,671 $25,369
Operating income.................. $11,926 $11,161 $11,658 $16,755
Net income........................ $ 3,711 $ 3,504 $ 3,094 $ 6,333
Basic earnings per share.......... $ 0.30 $ 0.28 $ 0.25 $ 0.51
Diluted earnings per share........ $ 0.29 $ 0.28 $ 0.25 $ 0.50
<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
</TABLE>
44
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(17) Quarterly Financial Information (Unaudited)--(Continued)
As a result of EITF 98-9, no percentage rent and only approximately $231,000
of percentage rent was recognized in the second and third quarters of 1998,
respectively. Otherwise, the Company would have recorded percentage rent in
the second and third quarters of approximately $1,808,000 and $1,981,000,
respectively.
(18) Pro Forma Financial Information (Unaudited)
The pro forma financial information set forth below is presented as if the
1998 acquisitions (Note 2) had been consummated as of January 1, 1997.
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, 1997, 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,
---------------
1998 1997
------- -------
<S> <C> <C>
Revenues from rental property............................... $85,897 $78,509
Net income.................................................. $16,402 $14,952
Basic earnings per share.................................... $ 1.31 $ 1.21
Diluted earnings per share.................................. $ 1.30 $ 1.20
</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.
(19) Subsequent Events (Unaudited)
On January 6, 1999, the Company purchased Beaver Brook Country Club located
in Clinton, New Jersey and The Classic Golf Club located in Spanaway,
Washington for a combined purchase price of approximately $10.4 million.
On January 11, 1999, the Company declared a quarterly distribution for the
fourth quarter of 1998 of $0.44 per share to stockholders of record on January
29, 1999, which was paid on February 15, 1999.
On February 1, 1999, the Company extended the treasury lock until May 3,
1999.
On March 31, 1999, the Company entered into a new $300 million unsecured
revolving credit facility with a group of lenders. Advances under the credit
facility bear interest at the Administrative Agent's alternate base rate plus
the then-applicable base rate margin or, at the option of the Company, LIBOR
plus the then-applicable LIBOR rate margin. The Administrative Agent's
alternate base rate for any day means the greater of (i) a rate per annum
equal to the corporate base rate of interest announced by the Administrative
Agent from time to time, and (ii) the federal funds rate as published by the
Federal Reserve Bank plus one-half percent (0.50%) per annum. The amount of
the base rate margin and LIBOR rate margin vary depending upon the amount of
the Company's outstanding indebtedness compared to its capitalization. The
initial rate of interest for borrowings made under the new facility as of
March 31, 1999 will be equal to LIBOR plus a margin of 2.25% or the alternate
base rate plus 1.00%. The credit facility replaces the Company's previous $100
million credit facility, which has been terminated.
On March 31, 1999, the Company purchased from Golf Acquisitions, L.L.C.
("Golf Acquisitions") fee interests in 15 golf courses and long-term leasehold
interests in five golf courses and made a participating mortgage loan secured
by one additional golf course for an aggregate initial investment of
approximately $184.3 million, which investment was financed by approximately
$178.7 million of cash and approximately $5.6 million of assumed notes. A
subsidiary of AGC and a subsidiary of ClubCorp International formed Golf
Acquisitions.
45
<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.
46
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
Page No.
--------
<C> <S> <C>
(a) 1. Financial Statements
Report of Independent Accountants................................ 24
Consolidated Balance Sheets of National Golf Properties, Inc. as
of December 31, 1998 and 1997................................... 25
Consolidated Statements of Operations of National Golf
Properties, Inc. for the years ended December 31, 1998, 1997 and
1996............................................................ 26
Consolidated Statements of Stockholders' Equity of National Golf
Properties, Inc. for the years ended December 31, 1998, 1997 and
1996............................................................ 27
Consolidated Statements of Cash Flows of National Golf
Properties, Inc. for the years ended December 31, 1998, 1997 and
1996............................................................ 28
Notes to Consolidated Financial Statements....................... 29
2. Financial Statement Schedules
Schedule III--Real Estate and Accumulated Depreciation........... 48
</TABLE>
47
<PAGE>
SCHEDULE III
NATIONAL GOLF PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION(1)
December 31, 1998
(In thousands)
<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>
DAILY FEE
COURSES:
Continental,
Scottsdale, AZ.. $ -- $ 64 $ 881 $ 12 $ 66 $ 891 $ 957 $ 531 1974 1986
Desert Lakes,
Fort Mojave,
AZ.............. -- 163 3,102 53 163 3,155 3,318 758 1990 1993
El Caro,
Phoenix, AZ..... -- 61 553 13 63 564 627 556 1975 1983
Kokopelli,
Gilbert, AZ..... -- 1,177 4,261 170 1,177 4,431 5,608 1,205 1993 1994
Legend at
Arrowhead,
Glendale, AZ.... -- 502 3,408 136 503 3,543 4,046 1,255 1986 1992
London Bridge,
Lake Havasu
City, AZ........ -- 301 1,699 24 305 1,719 2,024 822 1968 1986
Stonecreek,
Phoenix, AZ..... -- 1,197 8,250 500 1,197 8,750 9,947 915 1983 1997
Superstition
Springs, Mesa,
AZ.............. -- 698 3,771 32 702 3,799 4,501 1,455 1986 1992
Villa De Paz,
Phoenix, AZ..... -- 186 397 18 188 413 601 369 1974 1981
Aptos Seascape,
Aptos, CA....... -- 901 3,491 716 904 4,204 5,108 1,144 1926 1986
BlackLake,
Nipomo, CA...... -- 1,744 9,299 20 1,747 9,316 11,063 1,123 1965 1996
Camarillo
Springs,
Camarillo, CA... -- 141 2,880 710 143 3,588 3,731 1,863 1972 1984
Carmel Mountain,
San Diego, CA... -- 1,669 5,865 -- 1,669 5,865 7,534 1,012 1986 1995
Lomas Santa Fe
Exec., Solana
Beach, CA....... -- 175 575 20 177 593 770 543 1974 1982
Mesquite, Palm
Springs, CA..... -- 1,057 5,140 225 1,061 5,361 6,422 1,228 1985 1993
Oakhurst,
Clayton, CA..... -- 1,596 8,069 221 1,596 8,290 9,886 562 1997 1997
Rancho San
Joaquin, Irvine,
CA.............. -- 871 8,375 1,281 873 9,654 10,527 3,197 1962 1992
San Geronimo,
San Geronimo,
CA.............. -- 846 5,426 208 847 5,633 6,480 602 1964 1996
Summitpointe,
Milpitas, CA.... 4,500 2,315 4,813 642 2,315 5,455 7,770 1,361 1977 1994
Upland Hills,
Upland, CA...... -- 1,835 6,312 148 1,836 6,459 8,295 1,093 1982 1995
Vista Valencia,
Valencia, CA.... -- 652 5,369 278 657 5,642 6,299 3,015 1963 1987
Arrowhead,
Littleton, CO... -- 302 3,245 1,927 304 5,170 5,474 1,303 1972 1988
Eagle,
Broomfield, CO.. -- 400 2,425 20 402 2,443 2,845 1,549 1961 1988
Arrowhead,
Davie, FL....... -- 601 2,190 20 604 2,207 2,811 818 1967 1993
Baymeadows,
Jacksonville,
FL.............. -- 226 4,337 315 226 4,652 4,878 423 1968 1997
Binks Forest,
Wellington, FL.. -- 224 4,591 145 224 4,736 4,960 1,068 1991 1994
Sabal Palm,
Tamarac, FL..... -- 441 3,357 20 444 3,374 3,818 1,811 1967 1990
Summerfield
Crossing, Tampa,
FL.............. -- 105 2,508 156 105 2,664 2,769 326 1987 1996
Bradshaw Farm,
Woodstock, GA... -- 238 6,365 118 238 6,483 6,721 516 1995 1997
Goshen
Plantation,
Augusta, GA..... -- 195 3,042 256 196 3,297 3,493 679 1971 1994
River's Edge,
Fayetteville,
GA.............. -- 250 4,069 154 143 4,330 4,473 910 1989 1994
</TABLE>
48
<PAGE>
SCHEDULE III
(Continued)
NATIONAL GOLF PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION(1)
December 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Initial Cost Gross Amount at Which
to Company Carried at Close of Period
------------------- Cost ---------------------------
Capitalized Total Cost
Buildings & Subsequent Buildings & Accumulated
Description Encumbrances Land Improvements To Acquisition Land Improvements Total Depreciation
----------- ------------ ------ ------------ -------------- ------ ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DAILY FEE
COURSES:
Ruffled
Feathers,
Lemont, IL...... $ -- $ 293 $ 9,316 $ (18) $ 293 $ 9,298 $ 9,591 $1,571
Tamarack,
Naperville, IL.. -- 326 5,067 195 326 5,262 5,588 555
Sugar Ridge,
Lawrenceburg,
IN.............. -- 168 2,602 466 168 3,068 3,236 678
Deer Creek,
Overland Park,
KS.............. -- 695 7,147 471 696 7,617 8,313 990
Dub's Dread,
Kansas City,
KS.............. -- 135 2,997 355 135 3,352 3,487 818
WestWinds, New
Market, MD...... -- 153 3,614 610 153 4,224 4,377 470
Majestic Oaks,
Ham Lake, MN.... -- 1,713 10,194 -- 1,713 10,194 11,907 290
Links at
Northfork,
Ramsey, MN...... -- 280 3,770 75 280 3,845 4,125 853
Woodland Creek,
Andover, MN..... -- 86 473 -- 87 472 559 12
Royal Meadows,
Kansas City,
MO.............. -- 176 1,822 40 181 1,857 2,038 1,170
Las Vegas
National, Las
Vegas, NV....... -- 261 3,727 1,586 263 5,311 5,574 3,349
Painted Desert,
Las Vegas, NV... -- 1,355 4,741 -- 1,355 4,741 6,096 576
Wildhorse,
Henderson, NV... -- 4,677 6,557 2,578 4,679 9,133 13,812 1,581
Brigantine,
Brigantine, NJ.. -- 194 1,768 1,299 197 3,064 3,261 1,288
Rancocas,
Willingboro,
NJ.............. -- 239 1,816 1,206 241 3,020 3,261 1,170
Paradise Hills,
Albuquerque,
NM.............. -- 350 5,181 315 363 5,483 5,846 725
Carolina Shores,
Calabash, NC.... -- 588 5,903 12 590 5,913 6,503 2,845
Pawtuckett,
Charlotte, NC... -- 63 1,563 146 405 1,367 1,772 157
Bent Tree,
Columbus, OH.... -- 123 4,207 248 123 4,455 4,578 528
Fowler's Mill,
Chesterland,
OH.............. -- 346 1,760 1,380 349 3,137 3,486 1,129
Hershey South,
Hershey, PA..... -- 150 1,995 396 150 2,391 2,541 557
Golden Oaks,
Fleetwood, PA... -- 989 4,677 331 1,008 4,989 5,997 787
Hickory Heights,
Bridgeville,
PA.............. -- 87 2,027 1,018 82 3,050 3,132 513
Colonial
Charters, Longs,
SC.............. -- 213 4,579 5 213 4,584 4,797 545
Port Royal,
Hilton Head
Island, SC...... 20,000(2) 6,289 15,190 3,647 6,289 18,837 25,126 3,635
Shipyard, Hilton
Head Island,
SC.............. -- (2) 4,773 9,756 1,829 4,773 11,585 16,358 2,276
Stono Ferry, Charleston, SC.. -- 44 1,582 71 44 1,653 1,697 202
Forrest
Crossing,
Nashville, TN... -- 140 2,829 386 140 3,215 3,355 364
Bear Creek,
Houston, TX..... -- -- 6,163 757 -- 6,920 6,920 4,253
Lake Houston,
Huffman, TX..... -- 823 1,620 63 829 1,677 2,506 1,012
<CAPTION>
Date Date
Description Constructed Acquired
----------- ----------- --------
<S> <C> <C>
DAILY FEE
COURSES:
Ruffled
Feathers,
Lemont, IL...... 1992 1995
Tamarack,
Naperville, IL.. 1989 1997
Sugar Ridge,
Lawrenceburg,
IN.............. 1994 1994
Deer Creek,
Overland Park,
KS.............. 1989 1996
Dub's Dread,
Kansas City,
KS.............. 1963 1994
WestWinds, New
Market, MD...... 1971 1996
Majestic Oaks,
Ham Lake, MN.... 1972 1998
Links at
Northfork,
Ramsey, MN...... 1992 1994
Woodland Creek,
Andover, MN..... 1989 1998
Royal Meadows,
Kansas City,
MO.............. 1933 1984
Las Vegas
National, Las
Vegas, NV....... 1961 1982
Painted Desert,
Las Vegas, NV... 1987 1996
Wildhorse,
Henderson, NV... 1959 1994
Brigantine,
Brigantine, NJ.. 1926 1989
Rancocas,
Willingboro,
NJ.............. 1963 1989
Paradise Hills,
Albuquerque,
NM.............. 1963 1996
Carolina Shores,
Calabash, NC.... 1974 1986
Pawtuckett,
Charlotte, NC... 1971 1996
Bent Tree,
Columbus, OH.... 1988 1996
Fowler's Mill,
Chesterland,
OH.............. 1972 1986
Hershey South,
Hershey, PA..... 1927 1994
Golden Oaks,
Fleetwood, PA... 1994 1996
Hickory Heights,
Bridgeville,
PA.............. 1990 1994
Colonial
Charters, Longs,
SC.............. 1989 1996
Port Royal,
Hilton Head
Island, SC...... 1985 1994
Shipyard, Hilton
Head Island,
SC.............. 1969 1994
Stono Ferry, Charleston, SC.. 1989 1996
Forrest
Crossing,
Nashville, TN... 1988 1996
Bear Creek,
Houston, TX..... 1966 1985
Lake Houston,
Huffman, TX..... 1975 1985
</TABLE>
49
<PAGE>
SCHEDULE III
(Continued)
NATIONAL GOLF PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION(1)
December 31, 1998
(In thousands)
<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>
DAILY FEE
COURSES:
Longwood,
Houston, TX..... $ -- $ 1,558 $ 8,148 $ 543 $ 1,558 $ 8,691 $ 10,249 $ 705 1995 1997
Pecan Valley,
San Antonio,
TX.............. -- 389 3,989 412 391 4,399 4,790 1,996 1962 1990
Riverchase,
Coppell, TX..... -- 250 1,658 1,220 252 2,876 3,128 1,254 1987 1988
Riverside, Grand
Prairie, TX..... -- 574 4,445 105 576 4,548 5,124 1,519 1986 1990
Southwyck,
Pearland, TX.... -- 672 3,492 275 673 3,766 4,439 952 1988 1993
Chesapeake,
Chesapeake, VA.. -- 321 3,490 1,086 321 4,576 4,897 538 1984 1996
Honey Bee,
Virginia Beach,
VA.............. -- 556 5,009 -- 556 5,009 5,565 1,081 1987 1995
Reston National,
Reston, VA...... -- 996 4,584 134 999 4,715 5,714 1,402 1968 1993
Capitol City,
Olympia, WA..... 474 437 2,572 163 437 2,735 3,172 620 1961 1994
Lake Wilderness,
Maple Valley,
WA.............. -- 110 1,665 332 110 1,997 2,107 456 1974 1994
------- ------- -------- ------- ------- -------- -------- -------
$24,974 $52,725 $301,760 $32,295 $53,073 $333,707 $386,780 $79,434
======= ======= ======== ======= ======= ======== ======== =======
PRIVATE COUNTRY
CLUBS:
Ancala,
Scottsdale, AZ.. $ -- $ 207 $ 8,319 $ -- $ 207 $ 8,319 $ 8,526 $ 850 1990 1996
Arrowhead,
Glendale, AZ.... -- 185 5,816 7 185 5,823 6,008 616 1986 1996
Tatum Ranch,
Cave Creek, AZ.. -- 1,000 3,972 (5) 1,002 3,965 4,967 1,652 1986 1992
Canyon Oaks,
Chico, CA....... -- 309 2,172 2,350 309 4,522 4,831 671 1987 1994
Escondido,
Escondido, CA... -- 114 2,382 587 116 2,967 3,083 1,556 1962 1983
Monterey, Palm
Desert, CA...... -- 1,294 6,584 290 1,294 6,874 8,168 1,332 1978 1995
Palm Valley,
Palm Desert,
CA.............. -- 1,750 13,769 447 1,750 14,216 15,966 2,337 1985 1995
SeaCliff,
Huntington
Beach, CA....... -- 2,430 7,602 760 2,451 8,341 10,792 900 1975 1996
Spanish Hills,
Camarillo, CA... -- 2,975 14,076 453 3,021 14,483 17,504 917 1993 1997
Sunset Hills,
Thousand Oaks,
CA.............. -- 302 1,378 18 304 1,394 1,698 1,192 1966 1975
Wood Ranch, Simi
Valley, CA...... -- 481 9,111 1,235 481 10,346 10,827 1,789 1984 1995
Heather Ridge,
Aurora, CO...... -- 992 1,500 715 995 2,212 3,207 1,162 1970 1990
Pinery, Denver,
CO.............. -- 174 5,380 430 174 5,810 5,984 711 1972 1996
Crescent Oaks,
Clearwater, FL.. -- 35 833 183 35 1,016 1,051 163 1990 1996
Brookstone,
Acworth, GA..... -- 557 2,608 410 559 3,016 3,575 1,000 1987 1993
The Plantation,
Boise, ID....... -- 87 2,562 201 87 2,763 2,850 324 1920 1996
Eagle Brook,
Geneva, IL...... 1,500 701 9,739 233 701 9,972 10,673 752 1992 1997
Mission Hills,
Northbrook, IL.. -- 400 3,600 531 402 4,129 4,531 2,329 1980 1988
Highlands Golf,
Hutchinson, KS.. -- 40 576 249 40 825 865 90 1972 1996
Tallgrass,
Wichita, KS..... -- 43 2,409 145 43 2,554 2,597 321 1980 1996
Shenandoah,
Baton Rouge,
LA.............. -- 38 1,268 218 38 1,486 1,524 218 1972 1996
</TABLE>
50
<PAGE>
SCHEDULE III
(Continued)
NATIONAL GOLF PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION(1)
December 31, 1998
(In thousands)
<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:
Hunt Valley,
Phoenix, MD..... $ -- $ 515 $ 1,662 $ 1,208 $ 517 $ 2,868 $ 3,385 $ 1,385 1972 1983
Tanoan,
Albuquerque,
NM.............. -- 12 3,241 20 14 3,259 3,273 2,607 1978 1982
Brandywine,
Maumee, OH...... -- 814 2,861 82 816 2,941 3,757 1,109 1967 1991
Ivy Hills,
Cincinnati, OH.. -- 30 1,776 -- 30 1,776 1,806 69 1992 1998
Oakhurst, Grove
City, OH........ -- 344 1,776 1,151 346 2,925 3,271 882 1959 1980
Royal Oak,
Cincinnati, OH.. -- 175 822 12 178 831 1,009 530 1963 1985
Meadowbrook,
Tulsa, OK....... -- 89 3,236 1,095 89 4,331 4,420 413 mid 1950's 1996
The Trails,
Norman, OK...... -- 42 2,361 246 163 2,486 2,649 347 1982 1996
Creekside,
Salem, OR....... -- 128 3,456 2,438 128 5,894 6,022 999 1993 1995
Oregon Golf,
West Linn, OR... -- 433 10,230 534 435 10,762 11,197 1,587 1992 1995
Hershey,
Hershey, PA..... -- 1,624 6,400 1,130 1,624 7,530 9,154 1,871 1915 1994
Gettysvue,
Knoxville, TN... 3,750 753 5,550 184 753 5,734 6,487 349 1995 1997
Berry Creek,
Georgetown, TX.. -- 204 4,876 150 204 5,026 5,230 856 1986 1995
Diamond Oaks,
Fort Worth, TX.. -- 132 3,577 1,537 132 5,114 5,246 453 1959 1996
Eldorado,
McKinney, TX.... -- 221 6,247 2,404 221 8,651 8,872 457 1981 1996
Great Southwest,
Grand Prairie,
TX.............. -- 442 7,825 612 442 8,437 8,879 957 1964 1996
Oakridge,
Garland, TX..... -- 87 3,439 673 87 4,112 4,199 440 1982 1996
Sweetwater,
Sugarland, TX... -- 207 11,783 1,029 207 12,812 13,019 1,816 1983 1996
Sonterra, San
Antonio, TX..... -- 2,686 25,867 -- 2,686 25,867 28,553 442 1978 1998
Walden, Humble,
TX.............. -- 178 3,425 698 180 4,121 4,301 411 1984 1996
Willow Fork,
Katy, TX........ -- 44 2,742 308 44 3,050 3,094 319 1990 1996
Woodhaven, Fort
Worth, TX....... -- 43 2,022 654 43 2,676 2,719 288 1972 1996
Bear Creek,
Woodinville,
WA.............. -- 705 4,823 310 711 5,127 5,838 1,939 1983 1993
------- ------- -------- ------- ------- -------- -------- --------
$ 5,250 $24,022 $225,653 $25,932 $24,244 $251,363 $275,607 $ 41,408
------- ------- -------- ------- ------- -------- -------- --------
Total Courses... $30,224 $76,747 $527,413 $58,227 $77,317 $585,070 $662,387 $120,842
======= ======= ======== ======= ======= ======== ======== ========
</TABLE>
- ----
(1) Corporate assets are not included within the amounts.
(2) Combined encumbrance for Port Royal and Shipyard golf courses.
51
<PAGE>
SCHEDULE III
(Continued)
NATIONAL GOLF PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
(In thousands)
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
----------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Balance, beginning of year................... $601,375 $515,557 $361,831
Acquisitions................................. 43,181 79,171 155,013
Improvements................................. 18,155 14,307 6,346
Disposals.................................... (324) (7,660) (7,633)
-------- -------- --------
Balance, end of year......................... $662,387 $601,375 $515,557
======== ======== ========
<CAPTION>
Accumulated Depreciation
----------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Balance, beginning of year................... $ 94,678 $ 72,906 $ 58,709
Depreciation for year........................ 26,193 23,652 17,978
Disposals.................................... (29) (1,880) (3,781)
-------- -------- --------
Balance, end of year......................... $120,842 $ 94,678 $ 72,906
======== ======== ========
</TABLE>
52
<PAGE>
3. Exhibits
<TABLE>
<C> <S>
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)
3.4 Articles Supplementary of National Golf Properties, Inc.
(incorporated by reference to Exhibit 3.1 to the Company's Current
Report on Form 8-K dated March 4, 1998)
3.5 Articles Supplementary of National Golf Properties, Inc.
(incorporated by reference to Exhibit 3.1 to the Company's Quarterly
Report on Form 10-Q for the period ended March 31, 1998)
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 Second Amended and Restated Agreement of Limited Partnership of
National Golf Operating Partnership, L.P., dated as of April 20,
1998, (incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the period ended March 31, 1998)
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; Oakhurst; Ivy Hills; Majestic
Oaks; Woodland Creek and Sonterra; 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)
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)
</TABLE>
53
<PAGE>
<TABLE>
<C> <S>
*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 Exhibit 10 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.
54
<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% Guarantied Senior Promissory
Notes due December 15, 2004 and Series B 8.73% Guarantied 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% Guarantied Senior Promissory Notes and Series B 8.73%
Guarantied 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% Guarantied Senior Promissory Notes due December 15, 2004
and Series B 8.73% Guarantied 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, by
and between Royal Golf, L.P., II and NationsBank of South Carolina,
N.A. (incorporated by reference to Exhibit 10.19 to the Company's
Report on Form 8-B dated December 29, 1995)
10.25 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% Guarantied Senior Promissory Notes due June 15,
2006 and Series B 8% Guarantied 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)
10.26 Form of Series A 7.9% Guarantied Senior Promissory Notes and Series
B 8% Guarantied Senior Promissory Notes (incorporated by reference
to Exhibit 10.31 to the Company's Annual Report on Form 10-K dated
March 14, 1997)
10.27 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% Guarantied Senior Promissory Notes due June 15,
2006 and Series B 8% Guarantied 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)
10.28 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)
10.29 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 10.34 to the Company's Annual
Report on Form 10-K dated March 14, 1997)
10.30 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>
55
<PAGE>
<TABLE>
<C> <S>
10.31 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)
10.32 Lease Agreement, dated as of October 22, 1997, between the Company
and Camarillo Golf, LLC with respect to Spanish Hills Country Club
(incorporated by reference to Exhibit 10.33 to the Company's
Annual Report on Form 10-K dated February 6, 1998)
10.33 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)
10.34 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)
10.35 $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)
*10.36 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)
*10.37 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)
*10.38 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)
10.39 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)
10.40 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)
10.41 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)
10.42 Amended and Restated Registration Rights Agreement, dated as of
April 20, 1998, by and among National Golf Properties, Inc.,
National Golf Operating Partnership, L.P. and the unit holders
named therein (incorporated by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the period ended March
31, 1998)
10.43 Contribution Agreement, dated as of March 4, 1998, between Belair
Capital Fund LLC, National Golf Operating Partnership, L.P. and
National Golf Properties, Inc. (incorporated by reference to
Exhibit 10.3 to the Company's Current Report on Form 8-K dated
March 4, 1998)
</TABLE>
- --------
*Management contract or compensatory plan or arrangement.
56
<PAGE>
<TABLE>
<C> <S>
10.44 Contribution Agreement, dated as of April 20, 1998, between Belair
Capital Fund LLC, National Golf Operating Partnership, L.P. and
National Golf Properties, Inc. (incorporated by reference to
Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the
period ended March 31, 1998)
10.45 Loan Agreement between The Badlands Golf Club, Inc. and National
Golf Operating Partnership, L.P. dated as of August 18, 1998
10.46 Senior Secured Participating Promissory Note made and entered into
as of August 18, 1998, between National Golf Operating Partnership,
L.P. and The Badlands Golf Club, Inc.
10.47 First Deed of Trust, Assignment of Rents, Security Agreement and
Fixture Filing relating to the Senior Secured Participating
Promissory Note made and entered into as of August 18, 1998, by and
among The Badlands Golf Club, Inc. and National Golf Operating
Partnership, L.P.
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>
57
<PAGE>
<TABLE>
<CAPTION>
Page No.
--------
(b) Reports on Form 8-K filed during the Last Quarter
None.
(d) Additional Information Regarding American Golf Corporation and Subsidiaries
<C> <S> <C>
Analysis of American Golf Corporation's Consolidated Financial
Information..................................................... 59
American Golf Corporation's Consolidated Financial Statements
Report of Independent Accountants................................ 62
Consolidated Balance Sheets as of December 31, 1998 and 1997..... 63
Consolidated Statements of Operations and Comprehensive Income
for the years ended December 31, 1998, 1997 and 1996............ 64
Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1998, 1997 and 1996.......................... 65
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996................................ 66
Notes to Consolidated Financial Statements....................... 67
</TABLE>
58
<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 of American Golf
Corporation and Subsidiaries ("AGC" or "the Company"). 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, 1998 with the year ended December 31, 1997 and the year ended December 31,
1997 with the year ended December 31, 1996.
Results of Operations
Comparison of the year ended December 31, 1998 to the year ended December 31,
1997.
Total revenues from golf course operations and management agreements for AGC
increased by $58.8 million, or 11.4%, to $575.9 million for the year ended
December 31, 1998 as compared to $517.1 million for the year ended December
31, 1997. The increase in revenues was primarily attributable to the net
increase of 14 new leased courses and 3 new courses under management
agreements. Green fees for the year ended December 31, 1998, $204.2 million,
increased by $15.5 million, or 8.2%, as compared to $188.7 million for the
year ended December 31, 1997. Cart rental revenues for the year ended December
31, 1998, $65.6 million, increased by $4.8 million, or 7.9%, from $60.8
million for the year ended December 31, 1997. Member dues and initiation fees
for the year ended December 31, 1998, $100.0 million, increased by $17.0
million, or 20.5%, from $83.0 million for the year ended December 31, 1997.
Food and beverage revenues for the year ended December 31, 1998, $108.7
million, increased by $19.1 million, or 21.3%, from $89.6 million for the year
ended December 31, 1997. Merchandise sales were $50.8 million, an increase of
$6.1 million, or 13.6%, from $44.7 million for the year ended December 31,
1997. Other operating revenue, which includes range income, decreased by $3.1
million, or 7.2%, to $40.1 million for the year ended December 31, 1998, from
$43.2 million for the year ended December 31, 1997. Management fees revenue of
$6.6 million decreased $0.5 million, or 7%, for the year ended December 31,
1998, from $7.1 million for the year ended December 31, 1997.
Total operating expenses increased by $64.6 million or 12.8%, to $567.7
million for the year ended December 31, 1998 as compared to $503.1 million for
the year ended December 31, 1997. Rent expense increased by $17.7 million, or
16.2%, to $126.8 million for the year ended December 31, 1998, from
$109.1 million for the year ended December 31, 1997. General and
administrative expenses for the year ended December 31, 1998, $46.1 million,
increased by $3.5 million, or 8.2%, from $42.6 million for the year ended
December 31, 1997. These expenses increased primarily due to the addition of
new courses.
Net income decreased by $7.6 million to $4.7 million for the year ended
December 31, 1998, from $12.3 million for the year ended December 31, 1997.
The decrease in net income is principally attributable to the reduction in
same course revenue from the harsh weather brought about by the El Nino
phenomenon in the sun belt states, where the Company has more mature
properties with higher operating margins. Additionally, while the new
acquisitions described above contributed favorably to revenue, such properties
historically operate at lower margins in the first year of operation.
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 $89.4 million, or 20.9%, to $517.1 million for the year ended
December 31, 1997 as compared to $427.7 million
59
<PAGE>
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 rental 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, $83 million, increased by $20.7 million, or 33.2%, from
$62.3 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 $81.3 million, or 19.3%, to $503.1
million for the year ended December 31, 1997 as compared to $421.8 million for
the year ended December 31, 1996. Payroll and related expenses increased by
$44 million, or 30.4%, to $188.8 million for the year ended December 31, 1997,
from $144.8 million for the year ended December 31, 1996. Rent expense
increased by $15.6 million, or 16.7%, to $109.1 million for the year ended
December 31, 1997, from $93.5 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 $8 million to $12.3 million for the year ended
December 31, 1997, from $4.3 million for the year ended December 31, 1996. The
increase in net income is primarily due to the net increase in new courses and
a full year of operations related to 48 leased courses and 6 management
agreements acquired in July 1996 as well as the seasonal nature of AGC's
business in that the weather during the year ended December 31, 1997, was more
favorable than the weather during the year ended December 31, 1996.
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 2, 2001. At December 31, 1998, there was $22 million
outstanding under the $40 million credit facility and $2.5 million in standby
letters of credit outstanding. The $13.5 million stand-by letter of credit
facility, which expires on January 2, 2001, supports outstanding letters of
credit issued in favor of National Golf Properties ("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.
Subsequent to December 31, 1998, AGC temporarily increased its revolving
credit facility to $50 million. The additional $10 million available under the
revolving credit facility is to be used solely for specified acquisition and
related costs, and expires on May 31, 1999. AGC believes it will be able to
meet this obligation with cash flow from operations.
AGC has working capital of approximately $11 million as of December 31,
1998, excluding deferred revenue related to initiation fees. AGC believes it
will be able to satisfy its liquidity requirements, including capital
expenditures and rental payments due under its leases, with cash flow
available from operations and borrowings. AGC has capital expenditure
commitments related to acquiring and renewing leases. These
60
<PAGE>
commitments are typically satisfied over several years. The material capital
commitments are clubhouse renovations, building and course improvements and
irrigation systems. At December 31, 1998, AGC's capital expenditure commitment
was approximately $6,700,000. The improvements will be funded from AGC's
operating cash flow and from borrowings under the bank credit facilities.
Year 2000
The Year 2000 issue is the result of computer programs being written using
two digits (rather than four) to define the applicable year. Any of the
Company's computer programs that have date-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000, which could result
in system failures or miscalculations.
The Company utilizes management information systems and software technology
that may be affected by Year 2000 issues throughout its business. During 1998,
the Company completed its assessment of these systems and developed
implementation plans to bring the non-compliant systems into compliance. These
plans includes replacing hardware and upgrading software to Windows 95
compatible versions. The Company's corporate office was completed in 1998 and
all the golf courses will be completed during 1999. The Company also utilizes
a Year 2000 compliant HP3000 to run its financial software. This software will
be upgraded to a Year 2000 compliant version by June 30, 1999. The hardware,
software and installation will cost approximately $3.6 million and will be
leased or paid for with cash from operations. As of December 31, 1998, the
Company has incurred approximately $500,000 in expenses related to year 2000
issues.
The Company has developed questionnaires and has contacted key suppliers
regarding their Year 2000 compliance to determine any impact on its
operations. In general, the suppliers have developed or are developing plans
to address the Year 2000 issue. The Company will continue to monitor and
evaluate the progress of its suppliers on this critical matter. The Company is
also reviewing its non-information technology systems to determine the extent
of any changes that may be necessary and believes that there will be minimal
changes necessary for compliance. None of the Company's other information
technology projects have been delayed due to the implementation of the Year
2000 project.
Based on the progress the Company has made in addressing its Year 2000
issues and the Company's plan and timeline to complete its compliance program,
the Company does not foresee significant risks associated with its Year 2000
compliance at this time. As the Company's plan is to address its significant
Year 2000 issues prior to being affected by them, it has not developed a
comprehensive contingency plan. However, if the Company identifies significant
risks related to its Year 2000 compliance or its progress deviates from the
anticipated timeline, the Company will develop contingency plans as deemed
necessary at that time.
Despite the Company's effort to identify and resolve Year 2000 compliance
problems, the Company cannot guarantee that all of the Company's systems will
be Year 2000 compliant or that other companies on which the Company relies
will be timely converted. As a result, the Company's operations could be
interrupted or otherwise adversely affected. The failure to correct a material
Year 2000 problem could result in an interruption in, or a failure of, certain
business operations. Such failures could have a material adverse effect on the
Company's financial condition and results of operations.
The forward-looking statements regarding the Year 2000 involve risks and
uncertainties, which reflect management's best judgment 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 above.
61
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
American Golf Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheets of American
Golf Corporation and Subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of operations and comprehensive income,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1998. 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, 1998 and
1997, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
As discussed in Note 2 to the accompanying consolidated financial
statements, American Golf Corporation and Subsidiaries changed their method of
accounting for membership initiation deposits and fees and the related
incremental direct costs and has restated the consolidated financial
statements to give retroactive effect to this change.
PricewaterhouseCoopers LLP
Los Angeles, California
January 29, 1999, except for Note 15,
as to which the date is March 31, 1999.
62
<PAGE>
AMERICAN GOLF CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents.......................... $ 1,453 $ 16,738
Accounts receivable--members (less allowance for
doubtful accounts of $1,570 and $1,312 in 1998 and
1997, respectively)............................... 22,627 18,854
Other receivables.................................. 26,603 18,314
Receivables from affiliates, net................... 11,580 9,730
Inventories........................................ 14,670 12,332
Prepaid expenses................................... 5,876 3,724
-------- --------
Total current assets........................... 82,809 79,692
Property, equipment and capital leases, net.......... 105,934 87,597
Licenses............................................. 997 815
Leasehold rights..................................... 18,489 17,888
Deposits and other assets............................ 9,209 12,123
Note receivable from shareholders.................... 29,000 29,000
-------- --------
Total assets................................... $246,438 $227,115
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable................................... $ 10,113 $ 4,932
Notes payable--current portion:
Shareholders..................................... 33 31
Capital leases................................... 2,446 1,587
Other............................................ 2,309 642
Accrued expenses................................... 35,295 34,519
Other liabilities.................................. 21,593 17,959
Deferred revenue................................... 13,104 10,741
-------- --------
Total current liabilities...................... 84,893 70,411
Notes payable--long-term portion:
Shareholders..................................... 389 422
Capital leases................................... 1,733 2,856
Other............................................ 79,108 59,188
Accrued expenses................................... 29,589 35,300
Deferred revenue................................... 36,848 30,431
-------- --------
Total liabilities.............................. 232,560 198,608
-------- --------
Minority interest.................................... 503 501
-------- --------
Shareholders' equity:
Common stock--no par value; 10,000,000 shares
authorized; 6,294,918 and 6,438,525 shares
outstanding at December 31, 1998 and 1997,
respectively...................................... -- 6,594
Retained earnings.................................. 18,995 28,066
Notes receivable from shareholders................. (5,576) (6,591)
Cumulative foreign currency translation
adjustment........................................ (44) (63)
-------- --------
Total shareholders' equity..................... 13,375 28,006
-------- --------
Total liabilities and shareholders' equity..... $246,438 $227,115
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
63
<PAGE>
AMERICAN GOLF CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In thousands)
<TABLE>
<CAPTION>
For the year ended
December 31,
----------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Green fees..................................... $204,189 $188,725 $157,821
Cart rentals................................... 65,594 60,762 57,753
Member dues and initiation fees................ 99,955 82,994 62,288
Food and beverage sales........................ 108,665 89,633 70,289
Merchandise sales.............................. 50,790 44,695 37,805
Other revenue.................................. 40,074 43,203 37,427
Management fees................................ 6,586 7,119 4,360
-------- -------- --------
Total revenues............................... 575,853 517,131 427,743
-------- -------- --------
Costs & expenses:
Payroll and related expenses................... 203,265 188,808 144,779
Cost of food and beverage sold................. 34,240 28,190 22,682
Cost of merchandise sold....................... 31,682 28,598 24,660
General and administrative..................... 46,121 42,604 42,155
Repairs and maintenance........................ 14,748 11,996 11,639
Other operating expenses....................... 99,998 84,454 72,806
Rents.......................................... 126,779 109,141 93,494
Depreciation and amortization.................. 10,914 9,275 9,546
-------- -------- --------
Total costs & expenses....................... 567,747 503,066 421,761
-------- -------- --------
Operating income................................. 8,106 14,065 5,982
-------- -------- --------
Other income (expense):
Interest income................................ 4,506 4,541 2,210
Interest expense............................... (7,594) (5,823) (3,841)
-------- -------- --------
Income before provision for state income
taxes and minority interest in (income)
loss........................................ 5,018 12,783 4,351
Provision for state income taxes................. (270) (425) (223)
-------- -------- --------
Income before minority interest in (income)
loss........................................ 4,748 12,358 4,128
Minority interest in (income) loss............... (2) (35) 215
-------- -------- --------
Net income................................... 4,746 12,323 4,343
-------- -------- --------
Other comprehensive income, net of tax:
Foreign currency translation adjustment...... 19 (40) (79)
-------- -------- --------
Comprehensive income......................... $ 4,765 $ 12,283 $ 4,264
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
64
<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 Shareholder's
Shares Amount Earnings Officers/Directors Adjustment Equity
------ ------- -------- ------------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1995................... 6,354 $ 8,682 $ 36,382 $(4,901) $ 56 $ 40,219
Net income............ -- -- 4,343 -- -- 4,343
Dividends............. -- -- (9,133) -- -- (9,133)
Notes receivable from
shareholders......... -- (602) -- 602 -- --
Foreign currency
translation
adjustment........... -- -- -- -- (79) (79)
----- ------- -------- ------- ---- --------
Balance, December 31,
1996................... 6,354 8,080 31,592 (4,299) (23) 35,350
Net income............ -- -- 12,323 -- -- 12,323
Dividends............. -- -- (15,849) -- -- (15,849)
Issuance of shares for
notes receivable..... 149 4,235 -- (4,115) -- 120
Purchase of shares
from shareholders.... (65) (5,721) -- 1,823 -- (3,898)
Foreign currency
translation
adjustment........... -- -- -- -- (40) (40)
----- ------- -------- ------- ---- --------
Balance, December 31,
1997................... 6,438 6,594 28,066 (6,591) (63) 28,006
Net income............ -- -- 4,746 -- -- 4,746
Dividends............. -- -- (6,314) -- -- (6,314)
Issuance of shares for
notes receivable..... 32 3,012 -- (3,012) -- --
Purchase of shares
from shareholders.... (175) (9,606) (7,503) 4,027 -- (13,082)
Foreign currency
translation
adjustment........... -- -- -- -- 19 19
----- ------- -------- ------- ---- --------
Balance, December 31,
1998................... 6,295 $ -- $ 18,995 $(5,576) $(44) $ 13,375
===== ======= ======== ======= ==== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
65
<PAGE>
AMERICAN GOLF CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
For the year ended
December 31,
----------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income..................................... $ 4,746 $ 12,323 $ 4,343
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................ 10,914 9,275 9,475
Minority interest in income/(loss)........... 2 35 (215)
Increase (decrease) from changes in:
Accounts receivable--members............... (3,775) (1,253) (6,914)
Other receivables.......................... (8,282) (4,243) (4,204)
Receivable from affiliates, net............ (1,858) (1,745) 1,288
Inventories................................ (2,334) (875) (1,205)
Prepaid expenses........................... (2,153) (1,200) 930
Licenses, deposits and other assets........ 2,736 (5,160) 2,413
Accounts payable........................... 5,181 (2,640) 770
Accrued expenses........................... (4,962) 33,692 8,882
Other liabilities.......................... 3,616 6,766 4,177
Deferred revenue........................... 8,780 6,857 9,932
-------- -------- --------
Net cash provided by operating
activities.............................. 12,611 51,832 29,672
-------- -------- --------
Cash flows from investing activities:
Acquisition of property and equipment.......... (26,220) (13,758) (9,970)
Acquisition of leasehold rights................ (1,759) (4,730) (3,571)
Issuance of note receivable from shareholders.. -- -- (29,000)
-------- -------- --------
Net cash used in investing activities.... (27,979) (18,488) (42,541)
-------- -------- --------
Cash flows from financing activities:
Proceeds from notes payable
Other.................................... 65,500 12,053 57,732
Payments on notes payable
Shareholders............................. (31) (29) (26)
Other.................................... (43,910) (12,018) (34,717)
Capital leases........................... (2,070) (1,713) (1,160)
Purchase of common stock....................... (13,082) (1,447) --
Proceeds from issuance of common stock to
shareholders.................................. -- 120 --
Dividends paid................................. (6,314) (15,849) (9,133)
-------- -------- --------
Net cash provided by (used in) financing
activities.................................. 93 (18,883) 12,696
Effect of exchange rate changes on cash and
cash equivalents............................ (10) (14) 119
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents................................. (15,285) 14,447 (54)
Cash and cash equivalents, beginning of period... 16,738 2,291 2,345
-------- -------- --------
Cash and cash equivalents, end of period......... $ 1,453 $ 16,738 $ 2,291
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
66
<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" or "the Company"), a California subchapter S Corporation,
and its majority-owned 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, 1998 and 1997, 71% and 70%, respectively, of the
Company was owned by David G. Price and Dallas P. Price ("The Prices"). The
following table lists AGC's majority-owned subsidiaries and selected
information:
<TABLE>
<CAPTION>
AGC
Entity Formation Date Ownership Purpose
------ -------------- --------- -------
<C> <C> <C> <S>
Operate four courses in
Atlanta............ June 1986 65% Atlanta, Georgia.
Operate four courses in
Detroit............ December 1990 80% Detroit, Michigan.
Operate courses in the United
AG(UK)............. August 1993 75% Kingdom.
Operate one course in Los
CWP................ September 1993 75% 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 The Prices have a controlling interest.
At December 31, 1998, the Company leases 125 golf courses from National Golf
Properties, Inc. ("NGP"). David G. Price, Chairman of the Board of Directors
of NGP, and Dallas P. Price each own 2.8% of NGP's outstanding stock and 17%
of the common units of National Golf Operating Partnership, L.P.
On July 30, 1996, NGP purchased 20 golf courses from Golf Enterprises Inc.
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 annual 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 the 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.
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.
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.
67
<PAGE>
AMERICAN GOLF CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(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 fee deposits are generally
refundable in 30 years. Accordingly, the difference between the amount of the
deposits and the net present value of the future obligation is recognized as
revenue on a straight-line basis over the expected average life of active
membership, unless uncertainty surrounding collectibility exists for
initiation fee deposits paid either on terms or an installment basis. In
addition, related incremental direct costs (primarily commissions and
percentage rent) are recorded in the same manner as the revenues are
recognized.
The initiation fee deposit liability accretes over 30 years using the
interest method. The accretion is recorded to interest expense in the
accompanying consolidated statements of operations and comprehensive income.
As of December 31, 1998, there are no initiation fee deposits that are
contractually due and payable during the next five years.
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 and Intangible 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. The Company determines whether there has been impairment by
comparing the expected undiscounted future cash flow from each golf course
with the net carrying value for such golf course, including any related
intangible asset. Management believes no impairment has occurred.
68
<PAGE>
AMERICAN GOLF CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 and 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."
Comprehensive Income
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income," which establishes new rules for the reporting and
display of comprehensive income and its components; however, the adoption had
no impact on the Company's net income or shareholders' equity. Comprehensive
income includes foreign currency translation adjustments, which prior to
adoption were reported separately in shareholders' equity, to be included in
other comprehensive income. Prior year financial statements have been
reclassified to conform to the requirements of SFAS No. 130.
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, 1998, 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, 1998, 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 materially
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, 1998, 1997 and 1996 were approximately
$7,375,000, $5,627,000 and $5,531,000, respectively.
69
<PAGE>
AMERICAN GOLF CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 as a component of other
comprehensive income. Realized gains and losses are included in operations.
The effect of realized gains and losses is not material to the consolidated
financial statements.
(2) Change in Accounting Policy:
Based on recent Securities and Exchange Commission pronouncements the
Company changed its accounting policy for member initiation fees to defer such
revenues and recognize them on a straight-line basis over the expected average
life of active membership. The Company previously recognized as revenue the
difference between the amount of the fees and the net present value of the
future obligation at the time of sale, unless for initiation fees paid either
on terms or an installment basis uncertainty surrounding collectibility
existed. In addition to the deferral of member initiation fees, the Company
has deferred the related incremental direct costs (primarily commissions and
percentage rent) and is recording such costs in the same manner as the
revenues are recognized. As noted below, this change in accounting policy
resulted in a reduction to previously reported revenues, net income and
retained earnings. The deferred member initiation fees and related incremental
direct costs will be recognized in future periods over the expected average
life of active membership. Accordingly, the accompanying consolidated
financial statements have been retroactively adjusted to reflect this change
for all periods presented. The impact of the restatement is a reduction as
summarized below:
<TABLE>
<CAPTION>
1998 1997 1996
-------- ------- --------
(In thousands)
<S> <C> <C> <C>
Total revenues.................................. ($10,422) ($8,101) ($11,824)
Net income...................................... (8,780) (6,857) (9,932)
</TABLE>
In addition, this change resulted in a decrease in retained earnings of
$49,952,000, $41,172,000 and $34,315,000 as of December 31, 1998, 1997 and
1996, respectively.
(3) Receivables from Affiliates, net:
The receivables from affiliates are uncollateralized and due within one
year.
(4) Property, Equipment and Capital Leases:
Property, equipment and capital leases consist of the following:
<TABLE>
<CAPTION>
Estimated
Useful December 31,
Lives ------------------
(Years) 1998 1997
--------- -------- --------
(In thousands)
<S> <C> <C> <C>
Golf course
improvements........... 10-20 $ 71,848 $ 58,038
Buildings............... 15-30 43,242 38,411
Furniture, fixtures,
machinery and
equipment.............. 3-7 31,108 27,627
Equipment under capital
leases................. 3-7 9,299 7,515
-------- --------
155,497 131,591
Less: Accumulated
depreciation........... (52,687) (44,378)
-------- --------
102,810 87,213
Construction-in-
progress............... 3,124 384
-------- --------
$105,934 $ 87,597
======== ========
</TABLE>
70
<PAGE>
AMERICAN GOLF CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Equipment under capital leases includes golf carts, turf and maintenance
equipment, computers, and other office equipment.
No interest was capitalized for the year ended December 31, 1998. Interest
capitalized for the years ended December 31, 1997 and 1996 was approximately
$177,000 and $347,000, respectively.
(5) Note Receivable from Shareholders:
During 1996, the Company loaned $29 million to The Prices. The note is due
in 2004. The note bears interest at 9.35% and is payable semi-annually.
(6) 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, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
December 31,
--------------
1998 1997 1996
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Current...................................................... $-- $270 $--
Deferred..................................................... 270 155 223
---- ---- ----
Total provision for state income taxes..................... $270 $425 $223
==== ==== ====
</TABLE>
(7) Notes Payable--Shareholders:
The notes are due in 2007 and bear interest at 8%. Interest expense to the
shareholders for the years ended December 31, 1998, 1997 and 1996 was
approximately $35,000, $37,000 and $40,000, respectively.
Annual maturities on the notes payable to shareholders are as follows:
<TABLE>
<CAPTION>
Year ended December 31, Amount
----------------------- --------------
(In thousands)
<S> <C>
1999..................................................... $ 33
2000..................................................... 36
2001..................................................... 39
2002..................................................... 43
2003..................................................... 46
Thereafter............................................... 225
-----
$ 422
=====
</TABLE>
71
<PAGE>
AMERICAN GOLF CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(8) Notes Payable--Others:
Notes payable to others consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------------
1998 1997
--------------- ---------------
(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 note... 9.0% Monthly $ -- $ -- $ 7 $ -- 4/1998
Collateralized note..... 9%-23% Monthly 18 -- 133 16 4/1999
Uncollateralized line of
credit................. Reference Monthly -- 22,000 -- -- 1/2001
Collateralized note..... 9.5% Quarterly 80 2,326 -- 2,380 12/2001
Uncollateralized note... 6.1% Annually 817 1,634 -- 2,451 1/2002
Uncollateralized note... 8.3% Quarterly 46 133 42 178 6/2002
Collateralized note..... 9.4% Semi-Annually 660 40,840 -- 41,500 7/2004
Collateralized note..... 8.0% Monthly 281 4,115 237 4,426 9/2009
Collateralized note..... 9.5% Monthly 262 4,520 223 4,808 1/2010
Collateralized note..... 9.2% Monthly 145 3,540 -- 3,429 11/2012
------ ------- ---- -------
$2,309 $79,108 $642 $59,188
====== ======= ==== =======
</TABLE>
At December 31, 1998 and 1997, the bank prime and reference rate was 7.75% and
8.50%, respectively.
Annual maturities on notes payable to others are as follows:
<TABLE>
<CAPTION>
Year ended December 31, Amount
----------------------- --------------
(In thousands)
<S> <C>
1999..................................................... $ 2,309
2000..................................................... 4,907
2001..................................................... 5,292
2002..................................................... 4,844
2003..................................................... 5,308
Thereafter............................................... 58,757
-------
$81,417
=======
</TABLE>
The note agreements and credit facilities 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 revolving credit facility is used to finance
working capital requirements and expires on January 2, 2001. At December 31,
1998, there was $22 million outstanding and $2.5 million in standby letters of
credit outstanding under the $40 million 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.
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 The Prices.
72
<PAGE>
AMERICAN GOLF CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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. 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.
(9) Notes Payable--Capital Leases:
Future minimum payments, by year and in the aggregate, under capital leases
with initial remaining terms of one year or more consist of the following at
December 31, 1998:
<TABLE>
<CAPTION>
Year ended December 31, Amount
----------------------- -------------
(In thousands)
<S> <C>
1999....................................................... $2,733
2000....................................................... 1,317
2001....................................................... 408
2002....................................................... 124
2003....................................................... 18
Thereafter ................................................ 8
------
Total minimum lease payments................................. 4,608
Amount representing interest................................. 429
------
Present value of net minimum lease payments.................. 4,179
Current portion.............................................. 2,446
------
Long-term portion............................................ $1,733
======
</TABLE>
(10) 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, or the right to purchase common stock. There were 162,928 and 280,484
shares available under the 1994 Plan as of December 31, 1998 and 1997,
respectively. In 1998, the Company issued 31,700 shares of common stock at
$95.00 per share and received a note totaling $3,012,000. The Company also
repurchased 175,307 shares of common stock issued under the 1994 Plan at
prices ranging from $80.55 to $95.00 per share. As part of the repurchase,
notes receivable totaling $4,026,000 were paid off. 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.
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%,
73
<PAGE>
AMERICAN GOLF CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(ii) expected option life of seven years, (iii) forfeiture rate of zero, (iv)
no expected volatility and (v) dividend yield of 5%.
The summary of the status of the Company's stock options as of December 31,
1998, 1997 and 1996, 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>
1998 1997 1996
----------------- ----------------- ----------------
Weighted Weighted Weighted
Average Average Average
Number Option Number Option Number Option
of Exercise of Exercise of Exercise
Shares Price Shares Price Shares Price
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................. 440,424 $26.60 350,595 $22.05 350,595 $22.05
Granted--price equals
fair value.............. 297,111 87.12 15,821 22.05 -- --
Granted--price greater
than fair value......... -- -- 95,127 43.12 -- --
Exercised................ (9,395) 22.05 -- -- -- --
Canceled................. (47,265) 28.77 (21,119) 22.05 -- --
------- ------ ------- ------ ------- ------
Options outstanding at
year end................ 680,875 $53.04 440,424 $26.60 350,595 $22.05
======= ====== ======= ====== ======= ======
Options exercisable at
year end................ 347,516 290,314 --
======= ======= =======
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------- ---------------------
Number Weighted Number
Outstanding Average Weighted Outstanding Weighted
at Remaining Average at Average
Exercise December 31, Contractual Exercise December 31, Exercise
price 1998 Life Price 1998 Price
-------- ------------ ----------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
22.05 303,722 3.1 $22.05 291,065 $22.05
43.12 123,597 4.3 43.12 56,451 43.12
95.00 253,556 6.0 95.00 -- 95.00
------- -------
680,875 347,516
======= =======
</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,
---------------------
1998 1997 1996
------ ------- ------
(In thousands)
<S> <C> <C> <C>
Net income--as reported............................... $4,746 $12,323 $4,343
====== ======= ======
Net income--pro forma................................. $4,746 $12,301 $4,343
====== ======= ======
</TABLE>
74
<PAGE>
AMERICAN GOLF CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 were scheduled to mature on December 31, 1998. In 1998, the
Company granted the holders of performance awards the right to receive, as a
prepayment, a portion of their appreciation in share value based on the 1997
share price, payable in 1999, and extend the maturity date of the performance
shares to December 31, 1999. The appreciation in share value, less the
prepayment, is payable in three equal annual installments, beginning in early
2000. Performance awards vest based on achieving certain earnings targets of
the Company and are subject to continued employment. Performance awards
outstanding totaled 191,884 and 180,567 as of December 31, 1998 and 1997,
respectively. For the year ended December 31, 1998, no compensation expense
was recorded with respect to the performance awards as management determined
that the accrual recorded in 1997 is adequate based on earnings estimates of
the Company for the year ended December 31, 1999. For the year ended December
31, 1997 compensation expense recorded was $17,500,000. For the year ended
December 31, 1996 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 AGC Board of
Directors 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 76,000
and 125,000 outstanding share appreciation rights as of December 31, 1998 and
1997, respectively. There was no share appreciation expense for the years
ended December 31, 1998 and 1997. 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, 1998, 1997 and 1996 was approximately $947,000,
$796,000 and $635,000, respectively.
75
<PAGE>
AMERICAN GOLF CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(11) Commitments and Contingencies:
The Company is the lessee under long-term operating leases for golf courses
and equipment. At December 31, 1998, future minimum rental payments required
pursuant to the terms of all lease obligations are as follows:
<TABLE>
<CAPTION>
Related Unrelated
Year ended December 31, Parties Parties Total
----------------------- -------- --------- ----------
(In thousands)
<S> <C> <C> <C>
1999........................................ $ 77,768 $ 39,464 $ 117,232
2000........................................ 77,768 35,641 113,409
2001........................................ 77,768 31,402 109,170
2002........................................ 77,768 27,721 105,489
2003........................................ 77,768 25,407 103,175
Thereafter.................................. 586,081 330,260 916,341
-------- -------- ----------
$974,921 $489,895 $1,464,816
======== ======== ==========
</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, 1998, 1997 and 1996, percentage
rentals paid to unrelated parties were approximately $9,572,000, $10,179,000
and $9,430,000, respectively.
Under the terms of certain leases, the Company is committed to make
improvements at golf courses. At December 31, 1998, approximately $6,681,000
of such improvements remain to be made.
At December 31, 1998, the Company was contingently liable for outstanding
letters of credit in the amount of approximately $16,010,000.
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.
(12) Related Party Transactions:
The Company rents golf and tennis facilities from The Prices and related
entities in which they have a controlling interest. Rent expense paid to The
Prices and related entities was approximately $80,027,000, $71,434,000 and
$58,643,000 for the years ended December 31, 1998, 1997 and 1996,
respectively.
The Company recorded net management fees from related entities in the amount
of approximately $1,504,000, $2,610,000 and $1,332,000 for the years ended
December 31, 1998, 1997 and 1996, 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. At
December 31, 1998, 1997 and 1996, these accumulated costs amounted to
approximately $8,855,000, $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 $247,000, $587,000 and
$818,000 for the years ended December 31, 1998, 1997, and 1996, respectively.
76
<PAGE>
AMERICAN GOLF CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(13) Statement of Cash Flows--Supplemental Disclosures:
Interest paid for the years ended December 31, 1998, 1997 and 1996 was
approximately $6,815,000, $5,192,000 and $1,950,000, respectively.
State income taxes paid for the years ended December 31, 1998, 1997 and 1996
were approximately $259,000, $38,000 and $223,000, respectively.
(14) Shareholders' Equity:
As discussed in Note 10 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, 1998 and 1997 of $5,576,000 and
$6,591,000, 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 consolidated
balance sheets as a reduction in shareholders' equity. Interest income accrued
on the notes receivable was approximately $425,000, $491,000 and $300,000 for
the years ended December 31, 1998, 1997 and 1996, respectively.
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, 1998, 1997 and 1996.
(15) Subsequent Event (Unaudited)
On March 31, 1999, Golf Acquisitions, LLC ("Golf Acquisitions"), a new
limited liability company formed by a subsidiary of AGC and a subsidiary of
ClubCorp International ("ClubCorp"), purchased the Meditrust Corporation
("Meditrust") subsidiaries comprising the "Cobblestone Golf Group" for
approximately $391.3 million in cash and assumed debt. Upon the closing of the
stock purchase, AGC and ClubCorp divided the Cobblestone portfolio of 48 golf
courses with AGC allocated 24 owned, leased and managed golf courses.
Concurrently with closing its purchase, the Company and Golf Acquisitions sold
to NGP its interest in 20 of the golf courses. The Company has entered into
agreements to lease or sublease 18 of the Cobblestone courses from NGP. In
connection with this transaction, the Company temporarily increased its
revolving credit facility to $50 million. The additional $10 million available
under the revolving credit facility is to be used solely for costs and working
capital requirements related to the Cobblestone Golf Group acquisition, and
expires on May 31, 1999.
77
<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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ David G. Price Chairman of the Board March 31, 1999
____________________________________
David G. Price
/s/ James M. Stanich President and Director March 31, 1999
____________________________________ (Principal Executive
James M. Stanich Officer)
/s/ Neil M. Miller Vice President--Finance March 31, 1999
____________________________________
Neil M. Miller
/s/ William C. Regan Vice President--Controller March 31, 1999
____________________________________ and Treasurer
William C. Regan
/s/ Richard A. Archer Director March 31, 1999
____________________________________
Richard A. Archer
/s/ John C. Cushman, III Director March 31, 1999
____________________________________
John C. Cushman, III
/s/ Bruce Karatz Director March 31, 1999
____________________________________
Bruce Karatz
/s/ Charles S. Paul Director March 31, 1999
____________________________________
Charles S. Paul
/s/ Edward R. Sause Director March 31, 1999
____________________________________
Edward R. Sause
</TABLE>
78
<PAGE>
EXHIBIT 10.45
$22,963,535.49
LOAN AGREEMENT
BETWEEN
THE BADLANDS GOLF CLUB, INC.
AS BORROWER
AND
NATIONAL GOLF OPERATING PARTNERSHIP, L.P.
AS LENDER
DATED AS OF AUGUST 18, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I. DEFINITIONS AND ACCOUNTING TERMS.................................. 2
SECTION 1.01. Certain Defined TERMS...................................... 2
SECTION 1.02. Computation of Time Periods................................10
SECTION 1.03. Accounting Terms...........................................10
SECTION 1.04. Other Definitional Provisions..............................10
ARTICLE II. AMOUNTS AND TERMS OF THE LOANS...................................10
SECTION 2.01 The Loan.....................................................10
(a) The Initial Loan...................................................10
(b) The Capital Improvements Advance...................................11
SECTION 2.02 Repayment....................................................11
(a) Principal..........................................................11
(b) Appreciation.......................................................11
SECTION 2.03. Prepayments.................................................11
(a) Voluntary Prepayments..............................................11
(b) Mandatory Prepayment...............................................11
SECTION 2.04. Interest....................................................11
(a) Interest...........................................................12
(b) Additional Interest................................................12
(c) Overdue Interest...................................................12
SECTION 2.05. Payments And Computations...................................12
(a) Payments by Borrower...............................................12
(b) Computations.......................................................12
(c) Payments on Business Days..........................................12
(d) Certain Terms......................................................13
SECTION 2.06. Taxes.......................................................13
(a) Withholding Taxes..................................................13
(b) Other Taxes........................................................13
(c) Indemnification....................................................13
(d) Evidence of Payment................................................14
(e) Survival...........................................................14
SECTION 2.07. Use of Proceeds.............................................14
ARTICLE III. CONDITIONS OF LENDING...........................................14
SECTION 3.01. Conditions Precedent to Initial Borrowing...................14
SECTION 3.02. Conditions Precedent to Capital Improvements Advance........19
SECTION 3.03. Conditions Precedent to Second Closing......................19
ARTICLE IV. REPRESENTATIONS AND WARRANTIES...................................19
SECTION 4.01. Representations and Warranties of Borrower..................19
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
(a) Incorporation, Qualification, Corporate Power and Authority........19
(b) Authorization; No Conflict or Violation; Compliance with Laws......20
(c) Approvals and Consents.............................................20
(d) Enforceability.....................................................21
(e) Merger Agreement...................................................21
(f) Use of Proceeds....................................................21
(g) Solvency...........................................................21
(h) Real Property......................................................21
(i) Single Purpose Entity..............................................21
(j) Environmental Matters..............................................21
ARTICLE V. COVENANTS OF BORROWER.............................................23
SECTION 5.01. Affirmative Covenants.......................................23
(a) Compliance with Laws, Etc..........................................23
(b) Payment of Taxes, Etc..............................................23
(c) Preservation of Corporate Existence, Etc...........................23
(d) Visitation Rights..................................................23
(e) Keeping of Books...................................................23
(f) Second Closing.....................................................23
(g) Performance of Material Contracts..................................24
(h) Transactions with Affiliates.......................................24
(i) Debt Coverage......................................................24
(j) Refinance Third Party Loan.........................................24
SECTION 5.02. Negative Covenants..........................................24
(a) Liens, Etc.........................................................24
(b) Debt...............................................................25
(c) Lease Obligations..................................................25
(d) Mergers, Etc.......................................................25
(e) Transfer of the Course.............................................25
(f) Subsidiaries, Etc..................................................26
(g) Conduct of Business................................................26
(h) Charter Amendments.................................................26
(i) Amendment, Etc. of Material Contracts..............................26
(j) Negative Pledge....................................................26
SECTION 5.03. Reporting Requirements......................................26
(a) Default Notice.....................................................27
(b) Quarterly Financials...............................................27
(c) Annual Financials..................................................27
(d) ERISA Events.......................................................27
(e) Plan Terminations..................................................27
(f) Plan Annual Reports................................................27
(g) Multiemployer Plan Notices.........................................28
(h) Litigation.........................................................28
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
(i) Creditor Reports...................................................28
(j) Agreement Notices..................................................28
(k) Environmental Conditions...........................................28
(1) Other Information..................................................28
ARTICLE VI. EVENTS OF DEFAULT................................................30
SECTION 6.01. Events of Default...........................................30
ARTICLE VII. TRANSFER OF THE COURSE..........................................32
SECTION 7.01. Transfer Of The Course......................................32
ARTICLE VIII. MISCELLANEOUS..................................................33
SECTION 8.01. Amendments, Etc.............................................33
SECTION 8.02. Notices, Etc................................................34
SECTION 8.03. No Waiver; Remedies.........................................34
SECTION 8.04. Costs and Expenses..........................................34
SECTION 8.05. General Indemnity...........................................35
SECTION 8.06. No Partnership..............................................35
SECTION 8.07. Binding Effect..............................................36
SECTION 8.08. Assignments.................................................36
SECTION 8.09. Governing Law...............................................36
SECTION 8.10. Venue.......................................................36
SECTION 8.11. Waiver of Jury Trial........................................36
SECTION 8.12. Execution In Counterparts...................................36
SECTION 8.13. Severability................................................37
SECTION 8.14. Integration.................................................37
</TABLE>
iii
<PAGE>
SCHEDULES AND EXHIBITS
SCHEDULES
- ---------
Schedule 3.0 1(h) Surviving Debt
EXHIBITS
- --------
Exhibit A Form of Secured Participating Note
Exhibit B Form of Deed of Trust
iv
<PAGE>
LOAN AGREEMENT
THIS LOAN AGREEMENT, dated as of August 18, 1998 (the "Agreement"), is made
and entered into by and between THE BADLANDS GOLF CLUB, INC., a Nevada
corporation ("Borrower"), and NATIONAL GOLF OPERATING PARTNERSHIP, L.P., a
--------
Delaware limited partnership ("Lender").
------
RECITALS
A. Borrower is a wholly owned subsidiary of Senior Tour Players
Development Inc., a Nevada corporation ("Senior Tour"). Borrower owns a twenty-
-----------
seven (27) hole golf course known as Badlands Golf Club, located in Las Vegas,
Nevada (the "Course").
------
B. Borrower is the tenant under two ground leases for the land on which
the Course is located. The first such lease was made and entered into on April
28, 1993, by and between the William Peccole 1982 Trust, a Nevada trust, and
William Peter and Wanda Ruth Peccole Family Ltd. Partnership, a Nevada limited
partnership and Senior Tour Players, Inc., a Massachusetts corporation, as
amended and assigned (the "18-Hole Lease"). The second such lease was entered
-------------
into on June 4, 1996, by and between William Peter and Wanda Lamb Peccole Family
Limited Partnership, a Nevada limited partnership, the Peccole 1982 Trust,
William Peter Peccole and Wanda Lamb Peccole 1971 Trust, William and Wanda
Peccole 1991 Trust, Lisa Peccole Miller 1976 Trust, Laurie Peccole Bayne 1976
Trust, Leanne Peccole Goorjian 1976 Trust, each a Nevada trust, and STPD
(defined below), as assigned (the "9-Hole Lease," and together with the 18-Hole
------------
Lease the "Ground Leases").
-------------
C. Pursuant to that certain Agreement and Plan of Merger (the "Merger
------
Agreement") entered into as of May 6, 1998 among Golf Club Partners L.L.C., an
- ---------
Oklahoma limited liability company ("GCP"), STPD Acquisition Company, an
---
Oklahoma corporation ("STPD"), and Senior Tour, Senior Tour will merge with and
----
into STPD, and STPD shall be the surviving entity, whereupon GCP will own 100%
of the issued and outstanding capital stock of Senior Tour (the "Merger").
------
Following the Merger, Borrower will be a wholly-owned subsidiary of STPD.
D. Consideration for the Merger will consist of (i) $22,648,535.49 to be
funded by Lender pursuant to this Agreement in the form of a participating loan
(the "Initial Loan" and together with the Capital Improvements Advance (defined
------------
below) the "Loan") and (ii) $3,351,464.51 to be provided by GCP in the form of
equity.
E. As a condition to the Loan, Borrower will execute a Deed of Trust,
Assignment of Rents, Security Agreement and Fixture Filing for the benefit of
the Loan to secure Borrower's obligations thereunder (the "Deed of Trust").
-------------
F. Following the Merger, Borrower intends to make certain capital
improvements to the Course (the "Initial Capital Improvements"). Up to the
----------------------------
lesser of (i) 50% of the cost of the Initial Capital Improvements or (ii)
$315,000 will be funded by a loan from Lender (the "Capital
-------
<PAGE>
Improvements Advance"), which loan shall be secured by the Deed of Trust. As
- --------------------
provided below, Borrower will provide funds for the remaining 50% of the funds
needed to complete the Initial Capital Improvements as a condition to the
Capital Improvements Advance, in addition to the funds GCP will contribute
towards the merger consideration.
G. Upon closing of the Loan, Borrower will use $9,648,535.49 of the
proceeds of the Loan to repay all of its outstanding indebtedness owed to
NationsCredit Commercial Corporation ("NationsCredit").
--------------
H. Upon the closing of the Loan, Borrower will lease the Course to
American Golf Corporation, a California corporation, pursuant to a long term
lease relating to the operation of the Course as a golf course and club, the
substance and terms of which must be acceptable to Lender (the "Operating
---------
Lease").
- -----
I. As soon as possible after closing of the Loan, but in no event later
than November 15, 1998, Borrower will obtain a loan in the principal amount of
$10.4 million (the "Third Party Loan") from Debis Financial Services, a
----------------
subsidiary of Mercedes-Benz Credit Corporation ("Debis"), or another third party
lender ("Third Party Lender"). In connection with the closing of the Third Party
------------------
Loan, Borrower (i) will make a payment to Lender in the principal amount of
$9,648,535.49 as a partial prepayment of the Loan; (ii) will enter into a deed
of trust, assignment of rents, security agreement and fixture filing ("Senior
------
Deed of Trust") in favor of a collateral agent (the "Collateral Agent") for the
- ------------- ----------------
benefit of Lender, up to $10.4 million, and Debis, on a 50%-50% pari passu basis
as between Lender and Debis, until Debis has been paid in full, whereafter
Lender can look to the entire value of the collateral; (iii) will enter into a
separate deed of trust, assignment of rents, security agreement and fixture
filing in favor of NGP as beneficiary to secure the remaining $2.6 million of
the Loan, the lien of which will be subordinate to the Senior Deed of Trust (the
"Junior Deed of Trust"); and (iv) may make a payment to GCP in the form of an
--------------------
intercompany loan or dividend in an amount of up to $751,464.51.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, and for other good and valuable
consideration the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
ARTICLE I.
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms. As used in this Agreement, the
---------------------
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"Additional Interest" has the meaning specified in the Note.
-------------------
2
<PAGE>
"Affiliate" means, as to any Person, any other Person, directly or
---------
indirectly, controlling, controlled by or under common control with, that
Person.
"Agreements Regarding Ground Leases" has the meaning specified in Section
----------------------------------
3.01 (n)(viii).
"Agreement Regarding Operating Lease" has the meaning specified in Section
-----------------------------------
3.01(n)(ix).
"Annual Base Interest Rate" has the meaning specified in the Note.
-------------------------
"Appreciation Participation" has the meaning specified in Section 2.02(b).
--------------------------
"Borrower" has the meaning specified in the recital of parties to this
--------
Agreement.
"Business Day" means a day of the year on which banks are not required or
------------
authorized by law to close in Las Vegas, Nevada or Los Angeles, California.
"Capital Improvements Advance" has the meaning specified in the Recitals
----------------------------
hereto.
"Capitalized Leases" has the meaning specified in clause (e) of the
------------------
definition of Debt.
"CERCLA" means the Comprehensive Environmental Response, Compensation and
------
Liability Act of 1980, as amended or supplemented from time to time, and the
regulations promulgated pursuant thereto.
"Closing Date" means the date on which each of the conditions in Section
------------
3.01 is satisfied or waived.
"Collateral" means all "Collateral" referred to in the Deed of Trust and
----------
all other property that is subject to any Lien in favor of Lender.
"Collateral Agent" means such person as may be obligated to distribute
----------------
payments made in satisfaction of the Obligations created by the Loan Documents
pursuant to the terms of the Collateral Trust and Intercreditor Agreement.
"Collateral Trust and Intercreditor Agreement" means a collateral trust and
--------------------------------------------
intercreditor agreement to be executed by Lender, Third Party Lender, Borrower
and Collateral Agent in form and substance satisfactory to Lender in its
Reasonable discretion.
"Course" has the meaning specified in the Recitals hereto.
------
"Debt" of any Person means, without duplication, (a) all indebtedness of
such Person for borrowed money, (b) all Obligations of such Person for the
deferred purchase price of property or services (other than trade payables not
overdue by more than 60 days incurred in the ordinary course of such Person's
business), (c) all Obligations of such Person evidenced by notes, bonds,
3
<PAGE>
debentures or other similar instruments, (d) all Obligations of such Person
created or arising under any conditional sale or other title retention agreement
with respect to property acquired by such Person (even though the rights and
remedies of the seller or lender under such agreement in the event of default
are limited to repossession or sale of such property), (e) all Obligations of
such Person as lessee under leases that are required, in accordance with GAAP,
to be recorded as capital leases ("Capitalized Leases"), (f) all Obligations,
-------------------
contingent or otherwise, of such Person under acceptance, letter of credit or
similar facilities, (g) all Obligations of such Person to purchase, redeem,
retire, defease or otherwise make any payment in respect of any capital stock of
or other ownership or profit interest in such Person or any other Person or any
warrants, rights or options to acquire such capital stock, (h) the notional
amount of all Obligations of such Person in respect of hedge agreements, (i) all
Debt of others referred to in clauses (a) through (h) above guaranteed directly
or indirectly in any manner by such Person, or in effect guaranteed directly or
indirectly by such Person through an agreement (1) to pay or purchase such Debt
or to advance or supply funds for the payment or purchase of such Debt, (2) to
purchase, sell or lease (as lessee or lessor) property, or to purchase or sell
services, primarily for the purpose of enabling the debtor to make payment of
such Debt or to assure the holder of such Debt against loss, (3) to supply funds
to or in any other manner invest in the debtor (including any agreement to pay
for property or services irrespective of whether such property is received or
such services are rendered) or (4) otherwise to assure a creditor against loss,
and (j) all Debt referred to in clauses (a) through (h) above secured by (or for
which the holder of such Debt has an existing right, contingent or otherwise, to
be secured by) any Lien on property (including, without limitation, accounts and
contract rights) owned by such Person, even though such Person has not assumed
or become liable for the payment of such Debt (it being understood that, for
purposes of this clause (j), the principal amount of such Debt attributed to
such Person shall be the fair market value of such property).
"Deed of Trust" has the meaning specified in the Recitals and will be
-------------
substantially the form attached hereto as Exhibit B.
---------
"Default" means any Event of Default or any event that would constitute an
-------
Event of Default but for the requirement that notice be given or time elapse or
both.
"18-Hole Lease" has the meaning set forth in the Recitals.
-------------
"Environmental Action" means any administrative, regulatory or judicial
--------------------
action, suit, demand, demand letter, claim, notice of non-compliance or
violation, investigation, proceeding, consent order or consent agreement
relating in any way to any Environmental Law or any Environmental Permit
including, without limitation, (a) any claim by any governmental or regulatory
authority for enforcement, cleanup, removal, response, remedial or other actions
or damages pursuant to any Environmental Law and (b) any claim by any third
party seeking damages, contribution, indemnification, cost recovery,
compensation or injunctive relief resulting from Hazardous Materials or arising
from alleged injury or threat of injury to health, safety or the environment.
4
<PAGE>
"Environmental Law" means any federal, state or local law, rule,
-----------------
regulation, order, writ, judgment, injunction, decree, determination or award
relating to the environment, health, safety or Hazardous Materials, including,
without limitation, CERCLA, the Resource Conservation and Recovery Act, the
Hazardous Materials Transportation Act, the Clean Water Act, the Toxic
Substances Control Act, the Clean Air Act, the Safe Drinking Water Act, the
Atomic Energy Act, the Federal Insecticide, Fungicide and Rodenticide Act and
the Occupational Safety and Health Act.
"Environmental Permit" means any permit, approval, identification number,
--------------------
license or other authorization required under any Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time, and the regulations promulgated and rulings issued
thereunder.
"ERISA Affiliate" of any Person means any other Person that for purposes of
---------------
Title IV of ERISA is a member of such Person's controlled group, or under common
control with such Person, within the meaning of Section 414 of the Internal
Revenue Code.
"ERISA Event" with respect to any Person means (a) the occurrence of a
-----------
reportable event, within the meaning of Section 4043 of ERISA, with respect to
any Plan of such Person or any of its ERISA Affiliates unless the 30-day notice
requirement with respect to such event has been waived by the PBGC; (b) the
provision by the administrator of any Plan of such Person or any of its ERISA
Affiliates of a notice of intent to terminate such Plan, pursuant to Section
4041 (a)(2) of ERISA (including any such notice with respect to a plan amendment
referred to in Section 4041(e) of ERISA); (c) the cessation of operations at a
facility of such Person or any of its ERISA Affiliates in the circumstances
described in Section 4062(e) of ERISA; (d) the withdrawal by such Person or any
of its ERISA Affiliates from a Multiple Employer Plan during a plan year for
which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA;
(e) the failure by such Person or any of its ERISA Affiliates to make a payment
to a Plan required under Section 302(f)(1) of ERISA; (f) the adoption of an
amendment to a Plan of such Person or any of its ERISA Affiliates requiring the
provision of security to such Plan, pursuant to Section 307 of ERISA; or (g) the
institution by the PBGC of proceedings to terminate a Plan of such Person or any
of its ERISA Affiliates, pursuant to Section 4042 of ERISA, or the occurrence of
any event or condition described in Section 4042 of ERISA that could constitute
grounds for the termination of, or the appointment of a trustee to administer,
such Plan.
"Events of Default" has the meaning specified in Section 6.01.
-----------------
"GAAP" has the meaning specified in Section 1.03.
----
"GCP" has the meaning set forth in the Recitals.
---
"Ground Leases" has the meaning set forth in the Recitals.
-------------
5
<PAGE>
"Hazardous Materials" means (a) petroleum or petroleum products, natural or
-------------------
synthetic gas, asbestos in any form that is or could become friable, urea
formaldehyde foam insulation and radon gas, (b) any substances defined as or
included in the definition of "hazardous substances," "hazardous wastes,"
"hazardous materials," "extremely hazardous wastes," "restricted hazardous
wastes," "toxic substances," "toxic pollutants," "contaminants" or "pollutants,"
or words of similar import, under any Environmental Law and (c) any other
substance exposure to which is regulated under any Environmental Law.
"Indemnified Party" has the meaning specified in Section 8.05.
-----------------
"Initial Capital Improvements" has the meaning set forth in the Recitals.
----------------------------
"Initial Loan" has the meaning set forth in the Recitals.
------------
"Insufficiency" means, with respect to any Plan, the amount, if any, of its
-------------
unfunded benefit liabilities, as defined in Section 4001 (a)(18) of ERISA.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as amended
---------------------
from time to time, and the regulations promulgated and rulings issued
thereunder.
"Lender" has the meaning specified in the preamble to this Agreement.
------
"Lien" means any lien, security interest or other charge or encumbrance of
----
any kind, or any other type of preferential arrangement, including, without
limitation, the lien or retained security title of a conditional vendor and any
easement, right of way or other encumbrance on title to real property.
"Loan" has the meaning specified in the Recitals.
----
"Loan Documents" means this Agreement, the Note, the Deed of Trust, the
--------------
Agreement Regarding Ground Leases, the Agreement Regarding Operating Lease, and
any additional documents executed in connection with the Loan concurrently
herewith or hereafter; and provided that after the Second Closing, the Loan
Documents shall also include the Collateral Trust and Intercreditor Agreement,
the Junior Deed of Trust and the Senior Deed of Trust.
"Material Adverse Effect" means a material adverse effect on (a) the
-----------------------
business, condition (financial or otherwise), operations, performance,
properties or prospects of Borrower, (b) the rights and remedies of Lender under
any Loan Document or (c) the ability of Borrower to perform its Obligations
under any Loan Document to which it is or is to be a party.
"Material Contract" means the 18-Hole Lease, the 9-Hole Lease and the
-----------------
Operating Lease.
"Maturity Date" means the earlier of (i) August 31, 2013 or (ii) the date
-------------
upon which Borrower's obligations hereunder are accelerated in accordance with
Article II hereof.
6
<PAGE>
"Merger" has the meaning specified in the Recitals.
------
"Merger Agreement" has the meaning specified in the Recitals.
----------------
"Multiemployer Plan" of any Person means a multiemployer plan, as defined
----------------------
in Section 4001(a)(3) of ERISA, to which such Person or any of its ERISA
Affiliates is making or accruing an obligation to make contributions, or has
within any of the preceding five plan years made or accrued an obligation to
make contributions.
"Multiple Employer Plan" of any Person means a single employer plan, as
----------------------
defined in Section 400l(a)(l5) of ERISA, that (a) is maintained for employees
of such Person or any of its ERISA Affiliates and at least one Person other than
such Person and its ERISA Affiliates or (b) was so maintained and in respect of
which such Person or any of its ERISA Affiliates could have liability under
Section 4064 or 4069 of ERISA in the event such plan has been or were to be
terminated.
"9-Hole Lease" has the meaning specified in the Recitals.
------------
"Note" means a Secured Participating Note in substantially the form
attached hereto as Exhibit A, evidencing the aggregate indebtedness of Borrower
---------
to Lender resulting from the Loan.
"Obligation" means, with respect to any Person, any obligation of such
----------
Person of any kind, including, without limitation, any liability of such Person
on any claim, whether or not the right of any creditor to payment in respect of
such claim is reduced to judgment, liquidated, unliquidated, fixed, contingent,
matured, disputed, undisputed, legal, equitable, secured or unsecured, and
whether or not such claim is discharged, stayed or otherwise affected by any
proceeding referred to in Section 6.01(h). Without limiting the generality of
the foregoing, the Obligations of Borrower under the Loan Documents include (a)
the obligation to pay principal, interest, charges, expenses, fees, attorneys'
fees and disbursements, indemnities and other amounts payable by Borrower under
any Loan Document and (b) the obligation to reimburse any amount in respect of
any of the foregoing that Lender, in its sole discretion, may elect to pay or
advance on behalf of such Loan Party.
"Offered Interest" has the meaning specified in Section 7.01(a).
----------------
"Operating Lease" has the meaning specified in the Recitals.
---------------
"Other Party" has the meaning specified in Section 7.01(a).
-----------
"Other Taxes" has the meaning specified in Section 2.06(b).
-----------
"Overdue Rate" has the meaning specified in Section 2.04(c).
------------
"PBGC" means the Pension Benefit Guaranty Corporation.
----
7
<PAGE>
"Permitted Liens" means such of the following as to which no enforcement,
---------------
collection, execution, levy or foreclosure proceeding shall have been commenced:
(a) Liens for taxes, assessments and governmental charges or levies to the
extent not required to be paid under Section 5.02(a) hereof; (b) Liens imposed
by law, such as materialmen's, mechanics', carriers', workmen's and repairmen's
Liens and other similar Liens arising in the ordinary course of business
securing obligations that are not overdue for a period of more than 30 days; (c)
pledges or deposits to secure obligations under workers' compensation laws or
similar legislation or to secure public or statutory obligations; and (d)
easements, rights of way and other encumbrances on title to real property that
do not render title to the property encumbered thereby unmarketable or
materially adversely affect the use of such property for its intended purposes.
"Person" means an individual, partnership, limited liability company,
------
corporation (including a business trust), joint stock company, trust,
unincorporated association, joint venture or other entity, or a government or
any political subdivision or agency thereof.
"Plan" means a Single Employer Plan or a Multiple Employer Plan.
----
"Reasonable" means, with respect to the Third Party Loan, a loan in the
----------
principal amount of not more than $10.4 million and for a term of seven years,
and Borrower and Lender acknowledge that a loan on the terms set forth in the
term sheet delivered by Debis to Borrower and dated July 27, 1998 would be
Reasonable, provided, however, that the provisions thereof regarding the "soft"
-------- -------
second, choice of governing law, and lack of third party collateral agent would
not be Reasonable, and, with respect to the Collateral Trust and Intercreditor
Agreement, Borrower acknowledges that the draft of Collateral Trust and
Intercreditor Agreement delivered to it by Lender and dated August 17, 1998
would be Reasonable.
"Right of First Refusal" has the meaning specified in Section 7.01(a).
------------------------
"Right of First Refusal Notice" has the meaning specified in Section
-----------------------------
7.01(a).
"Second Closing" means the (i) completion of the Third Party Loan in the
--------------
principal amount of $10.4 million, for a term of 7 years, and on such other
terms as are satisfactory to Lender, in its Reasonable discretion, (ii) payment
to Lender in the principal amount of $9,648,535.49 in partial prepayment of the
Loan, and (iii) execution and delivery of (A) the Senior Deed of Trust, (B) the
Junior Deed of Trust, (C) the Collateral Trust Agreement, (D) the Intercreditor
Agreement, (E) the consent of lessee under the Operating Lease, and (F) the
consent of lessors under the Ground Lease, as soon as possible following the
closing of the Loan, but in no event later than November l5, 1998.
"Selling Party" has the meaning specified in Section 7.01(a).
-------------
"Senior Tour" has the meaning specified in the Recitals.
-----------
"Single Employer Plan" of any Person means a single employer plan, as
--------------------
defined in Section 4001(a)(15) of ERISA, that (a) is maintained for employees of
such Person or any of its
8
<PAGE>
ERISA Affiliates and no Person other than such Person and its ERISA Affiliates
or (b) was so maintained and in respect of which such Person or any of its ERISA
Affiliates could have liability under Section 4069 of ERISA in the event such
plan has been or were to be terminated.
"Solvent" and "Solvency" mean, with respect to any Person on a
------- --------
particular date, that on such date (a) the fair value of the property of such
Person is greater than the total amount of liabilities, including, without
limitation, contingent liabilities, of such Person, (b) the present fair salable
value of the assets of such Person is not less than the amount that will be
required to pay the probable liability of such Person on its debts as they
become absolute and matured, (c) such Person does not intend to, and does not
believe that it will, incur debts or liabilities beyond such Person's ability to
pay as such debts and liabilities mature and (d) such Person is not engaged in
business or a transaction, and is not about to engage in business or a
transaction, for which such Person's property would constitute an unreasonably
small capital. The amount of contingent liabilities at any time shall be
computed as the amount that, in the light of all the facts and circumstances
existing at such time, represents the amount that can reasonably be expected to
become an actual or matured liability.
"STPD" has the meaning specified in the Recitals.
----
"Subsidiary" of any Person means any corporation, partnership, limited
----------
liability company, joint venture, trust or estate of which (or in which) more
than 50% of (a) the issued and outstanding capital stock having ordinary voting
power to elect a majority of the Board of Directors of such corporation
(irrespective of whether at the time capital stock of any other class or classes
of such corporation shall or might have voting power upon the occurrence of any
contingency), (b) the interest in the capital or profits of such partnership,
limited liability company or joint venture or (c) the beneficial interest in
such trust or estate, is at the time directly or indirectly owned or controlled
by such Person, by such Person and one or more of its other Subsidiaries or by
one or more of such Person's other Subsidiaries.
"Surviving Debt" has the meaning specified in Section 3.01(h).
--------------
"Taxes" has the meaning specified in Section 2.06(a).
-----
"Third Party Loan" has the meaning specified in the Recitals.
----------------
"Third Party Loan Documents" means all documents, agreements or other
--------------------------
writings executed in connection with the Third Party Loan.
"Transfer of the Course" means any sale, transfer, conveyance, long-term
----------------------
lease (not including the Operating Lease) or other disposition, directly or
indirectly, whether by gift, contract for deed or other mechanism, of the
beneficial interest in (i) the Course or any part thereof or interest therein
or (ii) the Borrower, provided, however, that (x) with respect to Section
7.01, Transfer of the Course shall not include the transfer of less than 20%
of the non-voting stock of the Borrower to a third party (including the
affiliates of such party) whether in
9
<PAGE>
one transaction, or a series of transactions in the aggregate, and (y) with
respect to Section 7.01, Transfer of the Course shall not include a transfer to
an Affiliate of Borrower.
"Transfer of the Loan" means any sale, transfer, conveyance or other
--------------------
disposition of Lender's interest, to a third party other than an Affiliate of
Lender, in whole or in part, in the Loan.
"Welfare Plan" means a welfare plan, as defined in Section 3(1) of ERISA.
--------------
"Withdrawal Liability" has the meaning specified in Part I of Subtitle E of
--------------------
Title IV of ERISA.
SECTION 1.02. Computation of Time Periods. In this Agreement in the
---------------------------
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
mean "to but excluding."
SECTION 1.03. Accounting Terms. All accounting terms not specifically
----------------
defined herein shall be construed in accordance with generally accepted
accounting principles consistent with those applied in the preparation of the
financial statements referred to in Section 5.03 ("GAAP").
SECTION 1.04. Other Definitional Provisions. References to Sections
-----------------------------
and subsections shall be to Sections and subsections, respectively, of this
Agreement unless otherwise specified. The term "including" means including
without limitation.
ARTICLE II.
AMOUNTS AND TERMS OF THE LOANS
SECTION 2.01. The Loan.
--------
(a) The Initial Loan. Lender agrees, on the terms and conditions
----------------
hereinafter set forth, to make a single loan to Borrower on the Closing Date in
an amount equal to the Initial Loan, but not to exceed $22,648,535.49 on such
Business Day. Amounts borrowed under this Section 2.01(a) may not be reborrowed.
The borrowing hereunder shall be made on the Closing Date or the Business Day
immediately preceding the Closing Date.
(b) The Capital Improvements Advance. Lender agrees, on the terms and
--------------------------------
conditions hereinafter set forth to make a loan to Borrower on or after the
Closing Date, but in no case after December 31, 1999, equal to the Capital
Improvements Advance, but not to exceed $315,000. Amounts borrowed under this
Section 2.01(b) may not be reborrowed.
SECTION 2.02. Repayment.
---------
10
<PAGE>
(a) Principal. Borrower shall repay to Lender (in accordance with the
---------
provisions of Section 2.05) the aggregate principal amount of the Loan owing to
Lender on the Maturity Date.
(b) Appreciation. Subject to the right of Lender to waive the
------------
requirements set forth in this Section 2.02(b), upon the occurrence of any of
(a) a Transfer of the Course, including a transfer to Lender, or (b) the
Maturity of the Loan, Borrower shall pay to Lender, in addition to, and not in
lieu of, the payments of the interest and principal payable by Borrower
hereunder and all other sums payable by Borrower to Lender in connection with
the Loan, the Appreciation Participation (as defined in the Note).
SECTION 2.03. Prepayments.
-----------
(a) Voluntary Prepayments. Borrower may not, except with the consent
---------------------
of Lender, prepay, in whole or in part, the outstanding principal of the Loan;
provided, however, that in connection with the Second Closing, Borrower may
repay Lender $9,648,535.49 in principal amount with the proceeds of the Third
Party Loan if and only if the Second Closing takes place on or before November
15, 1998. Prepayments shall be subject to a Prepayment Premium (as defined in
the Note) in accordance with Section 2.4 of the Note.
(b) Mandatory Prepayment. If Lender fails to exercise its Right of
--------------------
First Refusal set forth in Section 7.01, and Borrower proceeds with a Transfer
of the Course, Borrower shall immediately repay in full the principal amount of
the Loan and all interest and other expenses accrued thereon; provided, however,
that Lender may elect not to require such repayment, in which case the Loan
shall continue to be outstanding on the same terms as otherwise apply.
SECTION 2.04. Interest. Borrower shall pay interest on the full
--------
principal amount of the Loan from the date hereof until such principal is paid
in full at the applicable rate set forth below.
(a) Interest. Borrower shall pay interest on the principal amount of
--------
the Loan, from the date hereof until such principal amount is paid in full,
payable monthly in arrears and on the last Business Day of each month,
commencing August 31, 1998, in each case at an interest rate per annum equal to
the sum of the applicable percent of the Loan specified in Annual Base Interest
Rate.
(b) Additional Interest. Borrower shall pay Lender interest from the
-------------------
date hereof until the principal amount of the Loan is paid in full in an amount
equal to the Additional Interest in addition to, and not in lieu of, the
interest payable pursuant to Section 2.04(a).
(c) Overdue Interest. Upon the occurrence and during the continuance
----------------
of an Event of Default, Borrower shall, at the dates set forth herein for the
payment of interest and upon demand, pay interest on the Loan and any other
amounts owing hereunder not paid when
11
<PAGE>
due at a rate per annum (the "Overdue Rate") equal at all times to the rate
otherwise applicable plus 2.00% per annum.
----
SECTION 2.05. Payments And Computations.
-------------------------
(a) Payments by Borrower. All payments of principal and interest
--------------------
hereunder shall be made without defense, setoff and counter-claim and in same
day funds and delivered to Bank of America NT&SA, located at 2029 Century Park
East, Third Floor, Los Angeles, California 90067 (telephone number (310) 785-
6084) not later than 1:00 p.m., Pacific time, on the due date for the account of
Lender, such account number to be provided to Borrower by Lender in writing;
funds received by Lender's bank after that time shall be deemed to have been
paid by Borrower on the next succeeding Business Day.
(b) Computations. All computations of interest shall be made by Lender
------------
on the basis of a year of 360 days in each case for the actual number of days
(including the first day but excluding the last day) occurring in the period for
which such interest or fees are payable.
(c) Payments on Business Days. Whenever any payment hereunder or under
-------------------------
any other Loan Document shall be stated to be due on a day other than a Business
Day, such payment shall be made on the next succeeding Business Day, and such
extension of time shall in such case be included in the computation of payment
of interest and commitment and other fees.
(d) Certain Terms. The terms "pay," "paid" or "payment" under this
-------------
Agreement shall include prepay, prepaid or prepayment, respectively, under this
Agreement, and the term "due" under this Agreement shall include due by reason
of a mandatory prepayment (including upon an actual or deemed entry of an order
for relief with respect to Borrower or any Guarantor under the Federal
Bankruptcy Code or upon acceleration).
SECTION 2.06. Taxes.
-----
(a) Withholding Taxes. Any and all payments by Borrower hereunder and
-----------------
under the Note shall be made, in accordance with Section 2.05, free and clear of
and without deduction for any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto,
excluding, net income taxes that are imposed on Lender by the United States
- ---------
and franchise taxes and net income taxes that are imposed on Lender by the state
or foreign jurisdiction under the laws of which Lender is organized or any
political subdivision thereof and franchise taxes and net income taxes that are
imposed on Lender by the state or foreign jurisdiction of Lender's Applicable
Lending Office or any political subdivision thereof (all such non-excluded
taxes, levies, imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to as "Taxes"). If Borrower shall be required by law to
deduct any Taxes from or in respect of any sum payable hereunder or under the
Note, (i) the sum payable shall be increased as may be necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this Section 2.06) Lender receives an amount equal to the sum
it would have received had no such
12
<PAGE>
deductions been made, (ii) Borrower shall make such deductions and (iii)
Borrower shall pay the full amount deducted to the relevant taxation authority
or other authority in accordance with applicable law.
(b) Other Taxes. In addition, Borrower shall pay any present or future
-----------
stamp, documentary, excise, property or similar taxes, charges or levies that
arise from any payment made hereunder or under the Note or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement or the
Note (hereinafter referred to as "Other Taxes").
(c) Indemnification. Borrower shall indemnify Lender for the full
---------------
amount of Taxes and Other Taxes, and for the full amount of taxes imposed by any
jurisdiction on amounts payable under this Section 2.06, paid by Lender and any
liability (including penalties, additions to tax, interest and expenses) arising
therefrom or with respect thereto. This indemnification shall be made within 30
days from the date Lender makes written demand therefor.
(d) Evidence of Payment. Within 30 days after the date of any payment
-------------------
of Taxes, Borrower shall furnish to Lender, at its address referred to in
Section 8.02, the original receipt of payment thereof or a certified copy of
such receipt. In the case of any payment hereunder or under the Note by Borrower
through an account or branch outside the United States or on behalf of Borrower
by a payor that is not a United States person, if Borrower determines that no
Taxes are payable in respect thereof, Borrower shall furnish, or shall cause
such payor to furnish, to Lender, at such address, an opinion of counsel
acceptable to Lender stating that such payment is exempt from Taxes. For
purposes of this subsection (d), the terms "United States" and "United States
person" shall have the meanings specified in Section 7701 of the Internal
Revenue Code.
(e) Survival. Without prejudice to the survival of any other agreement
--------
of Borrower hereunder, the agreements and obligations of Borrower contained in
this Section 2.06 shall survive the payment in full of principal and interest
hereunder and under the Note.
SECTION 2.07. Use of Proceeds. The proceeds of the Loan shall be
---------------
available (and Borrower agrees that it shall use such proceeds) solely to (i)
repay its outstanding indebtedness to NationsCredit and (ii) to make a dividend
or intercompany loan to Senior Tour, provided, however, that Borrower may use
the proceeds of the Capital Improvements Advance to finance up to 50% of the
cost of the Initial Capital Improvements.
ARTICLE III.
CONDITIONS OF LENDING
SECTION 3.01. Conditions Precedent to Initial Borrowing. The
-----------------------------------------
obligation of Lender to make the Initial Loan funds available to Borrower in
accordance with this agreement is subject to the following conditions precedent:
(a) Lender shall have received evidence reasonably satisfactory to it
from Borrower that all conditions under the Merger Agreement have been satisfied
and the Merger
13
<PAGE>
shall be consummated in accordance with the terms of the Merger Agreement,
without any material waiver or amendment not consented to by Lender of any term,
provision or condition set forth therein, and in compliance with all applicable
laws.
(b) Lender shall have received evidence reasonably satisfactory to it
from GCP and Borrower that GCP shall have sufficient funds to complete the
Merger in accordance with the terms of the Merger Agreement, including all
expenses for which GCP or Borrower is responsible.
(c) Lender shall have received from Hartzog Conger & Cason, counsel to
GCP, in form and substance satisfactory to Lender, a reliance letter with
respect to any written opinion given by Hartzog Conger & Cason in connection
with the Merger.
(d) Lender shall have received evidence reasonably satisfactory to it
that Borrower is solvent.
(e) Lender shall be satisfied with the corporate and legal structure
and capitalization of Borrower, including the terms and conditions of the
charter, bylaws and each class of capital stock of Borrower and of each
agreement or instrument relating to such structure or capitalization.
(t) [Intentionally deleted.]
(g) Borrower shall have been provided by GCP with at least
$3,351,464.51 in equity.
(h) Lender shall be satisfied that all existing Debt of Borrower
(including, without limitation, all Debt owed to NationsCredit), other than the
Debt identified on Schedule 3.01(h) (the "Surviving Debt"), has been, or will be
--------------
concurrently with and with the proceeds of the Loan hereunder, prepaid, redeemed
or defeased in full or otherwise satisfied and extinguished, and all liens
securing the same have been released.
(i) Borrower shall demonstrate to Lender that minimum rent payments
under the Operating Lease are sufficient to (i) pay all debt service under the
Third Party Loan during the entire term thereof, (ii) pay all debt service under
the Loan for the entire term thereof and (iii) satisfactorily protect Borrower
from the risks of interest rate increases or refinancings, provided, however,
that Lender recognizes and accepts that the Third Party Loan will be of a term
of only 7 years, and therefore, unless Borrower refinances such loan, minimum
rent payments under the Operating Lease will not be sufficient to repay such
loan in full at its maturity.
(j) There shall have occurred no material adverse change in Borrower's
financial condition or the operation of the Course or any material damage or
destruction to the improvements on the subject land. Borrower shall provide
Lender with a signed affidavit
14
<PAGE>
indicating that there has been no material adverse change in the financial
condition of Borrower or the Course.
(k) There shall exist no action, suit, investigation, litigation or
proceeding affecting Borrower pending or threatened before any court,
governmental agency or arbitrator that (i) could have a material adverse effect
on the business, condition (financial or otherwise), operations, performance,
properties or prospects of Borrower or Senior Tour or (ii) purports to affect
the legality, validity or enforceability of the Merger, this Agreement, the
Note, the Deed of Trust, any other Loan Document or the consummation of the
transactions contemplated hereby. Provided, however, that with respect to the
White/Webber litigation as disclosed to Lender, Borrower shall provide Lender
with evidence that it has either (i) established a reserve fund reasonably
sufficient to make all payments with respect to its potential obligations
arising out of such litigation or (ii) has entered into a valid and binding
settlement agreement with respect thereto.
(l) Lender shall be satisfied Borrower is not a judgment debtor under
any unsatisfied judgment for more than $10,000 or is a defendant in any pending
proceeding to collect secured indebtedness and/or to foreclose a mortgage or
deed of trust lien (or has agreed to grant a deed in lieu of foreclosure).
(m) Lender shall have completed a due diligence investigation of
Borrower in scope, and with results, satisfactory to Lender, and nothing shall
have come to the attention of Lender during the course of such due diligence
investigation to lead it to believe (i) that, following the consummation of the
Merger, Borrower would not have good and marketable title to all material assets
of Borrower reflected in the information previously provided to Lender and (ii)
that the Merger will not have a material adverse effect on the business,
condition (financial or otherwise), operations, performance, properties or
prospects of Borrower without limiting the generality of the foregoing, Lender
shall have been given such access to the management, records, books of account,
contracts and properties of Borrower as they shall have requested.
(n) Lender shall have received on or before the date hereof the
following, each dated such day (unless otherwise specified) and in form and
substance satisfactory to Lender (unless otherwise specified):
(i) The original executed Note to the order of Lender.
(ii) (A) Certified copies of (1) the resolutions of the Board of
Directors of Borrower approving this Agreement, the Note, the Deed of Trust
and each other Loan Document to which it is or is to be a party, and (2)
the resolutions of the Board of Directors of Senior Tour and STPD approving
the Merger, and (B) copies of all documents evidencing other necessary
corporate action and governmental approvals, if any, with respect to the
Merger, the Merger Agreement, this Agreement, the Note and each other Loan
Document from Borrower, Senior Tour, GCP and STPD.
15
<PAGE>
(iii) A copy of the charter documents of Borrower and each
amendment thereto, certified (as of a date reasonably near the date of the
initial Borrowing) by the Secretary of State of the State of Nevada, as
being a true and correct copy thereof.
(iv) With respect to Borrower, a copy of a certificate of the
Secretary of State of the State of Nevada, dated reasonably near the date
of the date hereof, listing the charter of such Person and each amendment
thereto on file in such office and certifying that (A) such amendments are
the only amendments to such Person's charter on file in such office, (B)
such Person has paid all franchise taxes to the date of such certificate
and (C) such Person is duly incorporated and in good standing under the
laws of such State.
(v) A certificate of Borrower, signed on behalf of Borrower
by its President or a Vice President and its Secretary or any Assistant
Secretary, dated the date hereof (the statements made in which certificate
shall be true on and as of the date hereof), certifying as to (A) the
absence of any amendments to the charter of Borrower since the date of the
Secretary of State's certificate referred to in Section 3.0l(o)(iv), (B) a
true and correct copy of the bylaws of Borrower as in effect on the date
hereof, (C) the due incorporation and good standing of Borrower as a
corporation organized under the laws of the State of its jurisdiction of
incorporation, and the absence of any proceeding for the dissolution or
liquidation of Borrower, (D) the truth of the representations and
warranties contained in the Loan Documents as though made on and as of the
date hereof and (E) the absence of any event occurring and continuing, or
resulting from the Loan, that constitutes a Default.
(vi) A certificate of the Secretary or an Assistant Secretary
of Borrower certifying the names and true signatures of the officers of
Borrower authorized to sign this Agreement, the Note and each other Loan
Document to which they are or are to be parties and the other documents to
be delivered hereunder and thereunder.
(vii) A Deed of Trust, Assignment of Rents, Security Agreement
and Fixture Filing, duly executed by Borrower, together with:
(A) executed financing statements, in appropriate form
for filing under the Uniform Commercial Code of all jurisdictions
that Lender may deem necessary or desirable in order to perfect
and protect the Liens created by the Deed of Trust, covering the
Collateral described in the Deed of Trust,
(B) evidence of the completion of all other recordings
and filings of or with respect to the Deed of Trust that Lender
may deem necessary or desirable in order to perfect and protect
the Liens created thereby,
16
<PAGE>
(C) evidence of the insurance required by the terms of
the Deed of Trust, and
(D) evidence that all other action that Lender may deem
necessary or desirable in order to perfect and protect the Liens
created by the Deed of Trust has been taken.
(viii) An acknowledgment and agreement covering such matters
with regard to the assignment of each of the Ground Leases as Lender may
reasonably require (the "Agreements Regarding Ground Leases").
------------------------------------
(ix) An acknowledgment and agreement covering such matters
relating to the assignment of Borrower's interest in the lease payments
under the Operating Lease to Lender as Lender may require (the "Agreement
---------
Regarding Operating Lease").
---------------------------
(x) An ALTA lender's title insurance policy in an amount
greater than or equal to the principal amount of the Loan, issued by a
title company and in form and content satisfactory to Lender.
(xi) Such financial, business and other information regarding
Borrower as Lender shall have requested, including, without limitation,
information as to possible contingent liabilities, tax matters,
environmental matters, obligations under ERISA and Welfare Plans,
collective bargaining agreements and other arrangements with employees,
annual financial statements of the Company dated December 31, 1997, interim
financial statements dated the end of the most recent fiscal quarter for
which financial statements are available and forecasts prepared by
management of Borrower, in form and substance satisfactory to Lender, of
income statements for the five fiscal years following the day of the Loan
and on an annual basis for each year thereafter until the Maturity Date.
(xii) Certified copies of the Merger Agreement, and all
Material Contracts of Borrower, and to the extent not covered above, copies
of all documents delivered in connection with the Merger Agreement.
(xiii) The written opinion of (A) Hartzog Conger & Cason,
Oklahoma counsel to Borrower and GCP regarding Borrower's due organization,
standing, power and authority to execute and perform the terms and
conditions contained in the Loan Documents, status of litigation and claims,
enforceability of the Loan Documents, and addressing such other matters as
Lender may reasonably require, and (B) Nevada counsel to Borrower regarding
Borrower's due organization, standing, power and authority to execute and
perform the terms and conditions contained in the Loan Documents, status of
litigation and claims, enforceability of the Loan Documents, non usurious
nature of the Loan and addressing such other matters as Lender may
reasonably require.
(o) Borrower shall also be reasonably satisfied with regard to the
Course:
17
<PAGE>
(i) that the Course has been developed and is used in a
manner that is consistent with its zoning, and that such current use of the
Course does not violate any governmental ordinances, regulations or
agreements.
(ii) that (A) there are no Hazardous Materials present on or
under the Course or in any groundwater on or under the surface of the
Course, (B) the Course is not threatened by the off-premises presence of
Hazardous Materials and (C) no release or spill of any Hazardous Materials
has occurred onto or into the Course, or from the Course onto adjacent
lands.
SECTION 3.02. Conditions Precedent to Capital Improvements Advance.
----------------------------------------------------
The obligation of Lender to make the Capital Improvements Advance funds
available to Borrower in accordance with this agreement is subject to the
following conditions precedent:
(a) Lender shall have received evidence reasonably satisfactory to it
from Borrower that Borrower shall have access to additional funds to be used to
fund 50% of the cost of the Initial Capital Improvements, up to $315,000.
SECTION 3.03. Conditions Precedent to Second Closing. The obligation
--------------------------------------
of Lender to accept prepayment of $9,648,535.49 of the principal amount of the
Loan in connection with the Second Closing is subject to the following
conditions precedent:
(a) Borrower shall execute or cause to be executed each of the
following: (i) the Senior Deed of Trust, (ii) the Junior Deed of Trust, (iii)
the Collateral Trust and Intercreditor Agreement, (iv) the consent of lessee
under the Operating Lease, (v) the consent of lessors under the Ground Leases,
and (vi) amendments to the Loan Documents as reasonably requested by Lender.
(b) Borrower shall demonstrate to Lender that minimum rent payments
under the Operating Lease are sufficient to (i) pay all debt service under the
Third Party Loan during the entire term thereof, (ii) pay all debt service under
the Loan for the entire term thereof and (iii) satisfactorily protect Borrower
from the risks of interest rate increases or refinancings, provided, however,
that Lender recognizes and accepts that the Third Party Loan will be of a term
of only 7 years, and, therefore, unless Borrower refinances such loan, minimum
rent payments under the Operating Lease will not be sufficient to repay such
loan in full at its maturity.
(c) The funding of the Third Party Loan on such terms as are
satisfactory to Lender, in its Reasonable discretion.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of Borrower. Borrower
------------------------------------------
hereby represents and warrants as follows:
18
<PAGE>
(a) Incorporation, Qualification, Corporate Power and Authority.
-----------------------------------------------------------
Borrower (i) is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, (ii) is duly
qualified and in good standing as a foreign corporation in each other
jurisdiction in which it owns or leases property or in which the conduct of its
business requires it to so qualify or be licensed except where the failure to so
qualify or be licensed would not have a Material Adverse Effect and (iii) has
all requisite corporate power and authority to own or lease and operate its
properties and to carry on its business as now conducted and as proposed to be
conducted.
(b) Authorization; No Conflict or Violation; Compliance with Laws. The
-------------------------------------------------------------
execution, delivery and performance by Borrower of this Agreement, the Note,
each other Loan Document to which it is or is to be a party, and the
consummation of the Merger, the Operating Lease and the other transactions
contemplated hereby, are within Borrower's corporate powers, have been duly
authorized by all necessary corporate action, and do not (i) contravene
Borrower's charter or by-laws, (ii) violate any law (including, without
limitation, the Securities Exchange Act of 1934 and the Racketeer Influenced and
Corrupt Organizations Chapter of the Organized Crime Control Act of 1970), rule,
regulation (including, without limitation, Regulation X of the Board of
Governors of the Federal Reserve System), order, writ, judgment, injunction,
decree, determination or award, (iii) conflict with or result in the breach of,
or constitute a default under, any contract, loan agreement, indenture,
mortgage, deed of trust, lease or other instrument binding on or affecting
Borrower, any of its properties or (iv) except for the Liens created by the
Collateral Documents, result in or require the creation or imposition of any
Lien upon or with respect to any of the properties of Borrower. Borrower is not
in violation of any such law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award or in breach of any such contract,
loan agreement, indenture, mortgage, deed of trust, lease or other instrument,
the violation or breach of which could have a Material Adverse Effect.
(c) Approvals and Consents. No authorization or approval or other
----------------------
action by, and no notice to or filing with, any governmental authority or
regulatory body or any other third party is required for (i) the due execution,
delivery, recordation, filing or performance by Borrower of this Agreement, the
Note, the Deed of Trust, any other Loan Document to which it is or is to be a
party, or for the consummation of the Merger or the other transactions
contemplated hereby, (ii) the grant by Borrower of the Liens granted by it
pursuant to the Deed of Trust, (iii) the perfection or maintenance of the Liens
created by the Deed of Trust (including the first priority nature thereof) or
(iv) the exercise by Lender of its rights under the Loan Documents or the
remedies in respect of the Collateral pursuant to the Deed of Trust, except for
(A) authorizations, approvals, actions, notices and filings which have been duly
obtained, taken, given or made and are in full force and effect, (B) the consent
of lessors which may be required in connection with the Ground Leases, and (C)
the filing of the financing statements referred to in the Deed of Trust and the
recordation thereof with the appropriate recording offices. All applicable
waiting periods in connection with the Merger and the other transactions
contemplated hereby have expired without any action having been taken by any
competent authority restraining, preventing or imposing materially adverse
conditions upon the Merger or the rights
19
<PAGE>
of Borrower freely to transfer or otherwise dispose of, or to create any Lien
on, any properties now owned or hereafter acquired by any of them.
(d) Enforceability. This Agreement has been, and the Note, the Deed of
--------------
Trust and each other Loan Document when delivered hereunder will have been, duly
executed and delivered by each party thereto. This Agreement is, and the Note,
the Deed of Trust and each other Loan Document when delivered hereunder will be,
the legal, valid and binding obligation of Borrower, enforceable against
Borrower in accordance with its terms.
(e) Merger Agreement. The representations and warranties of GCP and
----------------
STPD set forth in the Merger Agreement are true and correct as of the date
hereof, and to the best of Borrower's knowledge the representations of Senior
Tour set forth in the Merger Agreement are true and correct as of the date
hereof.
(f) Use of Proceeds. The proceeds of the Loan will be used to (i)
---------------
repay all of Borrower's outstanding indebtedness to NationsCredit and (ii) make
an intercompany loan to Senior Tour.
(g) Solvency. As of the Closing Date, Borrower is Solvent.
--------
(h) Real Property. As of the Closing Date, Borrower is a party to the
-------------
Ground Leases, each of which is a valid and binding obligation of the parties
thereto.
(i) Single Purpose Entity. As of the Closing Date, Borrower is
---------------------
organized as a single purpose entity. The sole purpose of the corporation is to
own, lease and manage the Course, and to carry out activities directly related
thereto. Borrower has no Subsidiaries.
(j) Environmental Matters. With respect to the Course:
---------------------
(i) Operations. Except as has been disclosed in writing to
Lender prior to the date hereof, and to the best knowledge of Borrower, the
Course is presently operated in compliance in all material respects with
all Environmental Laws by Borrower or lessee under the Operating Lease.
(ii) Remediation. Except as has been disclosed in writing to
Lender prior to the date hereof, and to the best knowledge of Borrower,
there are no Environmental Laws requiring any material remediation,
cleanup, repairs or construction (other than normal maintenance) with
respect to the Course.
(iii) Violations; Orders. Except as has been disclosed in
writing to Lender prior to the date hereof, and to the best knowledge of
Borrower (i) no notices of any violation or alleged violation of any
Environmental Laws relating to the Course or its uses have been received by
Borrower or lessee under the Operating Lease, or, to the best knowledge of
Borrower, by any prior owner, operator or occupant of the Course and (ii)
there are no writs, injunctions, decrees, orders or judgments outstanding,
or any actions,
20
<PAGE>
suits, claims, proceedings or investigations pending or threatened,
relating to the ownership, use, maintenance or operation of the Course.
(iv) Permits. Except as has been disclosed in writing to
Lender prior to the date hereof, and to the best knowledge of Borrower, all
material permits and licenses required under any Environmental Laws in
respect of the operations of the Course have been obtained or are in the
process of being obtained, and Borrower shall be in compliance, in all
material respects, with the terms and conditions of such permits and
licenses.
(v) Reports. All material reports of environmental surveys,
audits, investigations and assessments relating to the Course in the
possession or control of Borrower, lessee under the Operating Lease or
their Affiliates have been disclosed to Lender.
(vi) Remediation. Except as provided in the Operating Lease,
if Borrower becomes aware of the presence of any Hazardous Material in a
quantity sufficient to require remediation or reporting under any
Environmental Law in, on or under the Course or if Borrower, Lender or the
Course 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 Course, Borrower shall at its sole expense, carry
out and complete, or shall cause to be carried out and completed, any
required investigation, removal, remediation, repair, closure,
detoxification, decontamination or otherwise cleanup of the Course. If
Borrower fails to implement and diligently pursue any such repair, closure,
detoxification, decontamination or other cleanup of the Course in a timely
manner, Lender shall have the right, but not the obligation, to carry out
such action and to recover all of the costs and expenses incurred by Lender
in good faith from Borrower.
ARTICLE V.
COVENANTS OF BORROWER
SECTION 5.01. Affirmative Covenants. So long as the Loan or any
---------------------
portion thereof shall remain unpaid, Borrower will, unless Lender shall
otherwise consent in writing:
(a) Compliance with Laws, Etc. Comply, in all material respects,
-------------------------
with all applicable laws, rules, regulations and orders.
(b) Payment of Taxes, Etc. Pay and discharge, before the same shall
---------------------
become delinquent, (i) all taxes, assessments and governmental charges or levies
imposed upon it or upon its property and (ii) all lawful claims that, if unpaid,
might by law become a Lien upon its property; provided, however, that Borrower
--------- -------
shall not be required to pay or discharge any such tax, assessment, charge or
claim that is being contested in good faith and by proper proceedings
21
<PAGE>
and as to which appropriate reserves are being maintained, unless and until any
Lien resulting therefrom attaches to its property and becomes enforceable
against its other creditors.
(c) Preservation of Corporate Existence, Etc. Preserve and maintain
----------------------------------------
its corporate existence, rights (charter and statutory) and franchises.
(d) Visitation Rights. At any reasonable time and from time to time,
-----------------
permit Lender or any agents or representatives thereof, to examine and make
copies of and abstracts from the records and books of account of, and visit the
properties of, Borrower, and to discuss the affairs, finances and accounts of
Borrower with any of its officers or directors and with their independent
certified public accountants.
(e) Keeping of Books. Keep proper books of record and account, in
----------------
which full and correct entries shall be made of all financial transactions and
the assets and business of Borrower in accordance with generally accepted
accounting principles in effect from time to time.
(f) Second Closing. Use its best efforts to cause the Second Closing
--------------
to occur in accordance with the provisions of this Agreement.
(g) Performance of Material Contracts. Perform and observe all the
---------------------------------
terms and provisions of each Material Contract to be performed or observed by
it, maintain each such Material Contract in full force and effect and not allow
any such Material Contract to lapse (except in accordance with its terms) or be
terminated (except in accordance with its terms) or any rights to renew such
Material Contracts to be forfeited or canceled, to exercise in a timely manner
any and all rights to renew or extend such Material Contracts and, in any event,
notify Lender of any default by any party with respect to such Material
Contracts and cooperate with Lender in all respects to cure any such default.
(h) Transactions with Affiliates. Conduct all transactions otherwise
----------------------------
permitted under the Loan Documents with any of its Affiliates on terms that are
fair and reasonable and no less favorable to Borrower than it would obtain in a
comparable arm's-length transaction with a Person not an Affiliate.
(i) Debt Coverage. Demonstrate to Lender in connection with any
-------------
refinance or repayment of the Third Party Loan that minimum rent payments under
the Operating Lease are sufficient to (i) pay all debt service under the Third
Party Loan during the entire term thereof, (ii) pay all debt service under the
Loan for the entire term thereof and (iii) satisfactorily protect Borrower from
the risks of interest rate increases or refinancings, provided, however that
Lender recognizes and accepts that the Third Party Loan will be of a term of
only 7 years, and therefore, unless Borrower refinances such loan, minimum rent
payments under the operating lease will not be sufficient to repay such loan in
full at its maturity.
(j) Refinance Third Party Loan. Refinance the Third Party Loan when
--------------------------
such loan shall be paid in full, provided, however that such refinancing shall
be in accordance
22
<PAGE>
with the terms of this Agreement, shall in no case exceed $10.4 million in
principal amount, and, if secured by a deed of trust, such deed of trust shall
be on a pari passu basis as between Lender and such other lender based upon
their respective principal amounts outstanding, as measured from time to time.
SECTION 5.02. Negative Covenants. So long as the Loan shall remain
------------------
unpaid, Borrower will not, at any time, without the written consent of Lender:
(a) Liens, Etc. Create, incur, assume or suffer to exist any Lien on
-----------
or with respect to any of its properties of any character (including, without
limitation, accounts) whether now owned or hereafter acquired, or sign or file
under the Uniform Commercial Code of any jurisdiction, a financing statement
that names Borrower as debtor, or sign any security agreement authorizing any
secured party thereunder to file such financing statement, or assign any
accounts or other right to receive income, excluding, however, from the
---------
operation of the foregoing restrictions the following:
(i) Liens created by the Loan Documents;
(ii) the Operating Lease;
(iii) Permitted Liens;
(iv) the Liens described on Schedule 5.02(a); and
(v) financing statements with respect to Capital Leases as
permitted in Section 5.02(c).
(b) Debt. Create, incur, assume or suffer to exist any Debt other
----
than:
(i) Debt under the Loan Documents,
(ii) Debt in respect of the Third Party Loan, and
(iii) other Debt in an aggregate principal amount outstanding at
any time outstanding not to exceed $500,000.
(c) Lease Obligations. Create, incur, assume or suffer to exist any
-----------------
obligations as lessee (i) for the rental or hire of real or personal property in
connection with any sale and leaseback transaction, or (ii) for the rental or
hire of other personal property of any kind under leases or agreements to lease
including Capitalized Leases having an original term of one year or more that
would cause the direct and contingent liabilities of Borrower in respect of all
such obligations to exceed $500,000 payable in any period of 12 consecutive
months.
(d) Mergers, Etc. Merge into or consolidate with any Person or
------------
permit any Person to merge into it.
23
<PAGE>
(e) Transfer of the Course. Hold the mortgaged property for the
----------------------
purpose of selling it or any portion thereof in the ordinary course of its
business, cause a transfer of the Course without first giving Lender a right of
first refusal with respect thereto in accordance with the provisions of Section
7.01 hereof, cause a Transfer of the Course to occur unless the amounts, if any,
paid by Borrower to Lender as a result of such Transfer of Course would fall
within the safe-harbor (the "SAFE-HARBOR") from "prohibited transaction"
-----------
treatment set forth in Section 856(b)(6)(C) of the Internal Revenue Code of
1986, as amended, or take no other action with respect to the Collateral which
could cause amounts paid by Borrower to Lender at maturity or otherwise pursuant
to the Loan to fail to qualify for the Safe-Harbor.
(f) Subsidiaries, Etc. Create or sustain a Subsidiary, or to
------------------
otherwise become a general partner of any general or limited partnership or
member of any limited liability company.
(g) Conduct of Business. Make any material change in the nature of its
-------------------
business as carried on at the date hereof or undertake any business other than
the ownership and leasing of the Property and any activities related or
incidental thereto.
(h) Charter Amendments. Amend its certificate of incorporation or
------------------
bylaws in any manner that could be adverse to Lender.
(i) Amendment, Etc. of Material Contracts. Cancel or terminate any
-------------------------------------
Material Contract or consent to or accept any cancellation or termination
thereof, amend or otherwise modify any Material Contract or give any consent,
waiver or approval thereunder, waive any material default under or breach of any
Material Contract, agree in any manner to any other material amendment,
modification or change of any term or condition of any Material Contract or take
any other action in connection with any Material Contract that would impair in
any material respect the value of the interest or rights of Borrower thereunder
or that would impair the interest or rights of Lender.
(j) Negative Pledge. Enter into or suffer to exist any agreement
---------------
prohibiting or conditioning the creation or assumption of any Lien upon any of
its property or assets other than (i) in favor of Lender, (ii) as provided in
the Ground Leases, and (iii) in connection with any Lien permitted by Section
5.02(a) hereof (so long as the applicable prohibition extends only to the
property subject to such Lien).
SECTION 5.03. Reporting Requirements. During the term of the Loan,
----------------------
Borrower will, unless Lender shall otherwise consent in writing, furnish to
Lender:
(a) Default Notice. As soon as possible and in any event within two
--------------
Business Days after the occurrence of each Default continuing on the date of
such statement, a statement of the chief financial officer of Borrower setting
forth details of such Default and the action that Borrower has taken and
proposes to take with respect thereto.
24
<PAGE>
(b) Quarterly Financials. As soon as available and in any event within
--------------------
45 days after the end of each of the first three quarters of each fiscal year of
Borrower, such quarterly reports as Borrower shall be entitled to receive from
Lessee pursuant to the Operating Lease, including all Officers' Certificates and
signed statements required to be attached thereto.
(c) Annual Financials. As soon as available and in any event within 90
-----------------
days after the end of each fiscal year of Borrower, a copy of the unaudited
financial statements for such year for Borrower, including therein balance
sheets of Borrower as of the end of such fiscal year and statements of income
and cash flows of Borrower for such fiscal year, in each case accompanied by the
chief financial officer of Borrower (or its parent entity as the case may be) as
having been prepared in accordance with GAAP, together with (i) a certificate of
said officer stating that no Default has occurred and is continuing or, if a
Default has occurred and is continuing, a statement as to the nature thereof and
the action that Borrower has taken and proposes to take with respect thereto and
(ii) a schedule in form satisfactory to Lender of the computations used by
Borrower in determining compliance with the covenants contained in Sections 5.01
and 5.02.
(d) ERISA Events. Promptly and in any event within 15 Business Days
------------
after Borrower or any of its ERISA Affiliates knows or has reason to know that
any ERISA Event with respect to Borrower or any of its ERISA Affiliates has
occurred, a statement of the chief financial officer of Borrower describing such
ERISA Event and the action, if any, that Borrower or such ERISA Affiliate has
taken and proposes to take with respect thereto.
(e) Plan Terminations. Promptly and in any event within 5 Business
-----------------
Days after receipt thereof by Borrower or any of its ERISA Affiliates, copies of
each notice from the PBGC stating its intention to terminate any Plan of
Borrower or any of its ERISA Affiliates or to have a trustee appointed to
administer any such Plan.
(f) Plan Annual Reports. Promptly and in any event within 15 Business
-------------------
Days after the filing thereof with the Internal Revenue Service, copies of each
Schedule B (Actuarial Information) to the annual report (Form 5500 Series) with
respect to each Plan of Borrower or any of its ERISA Affiliates.
(g) Multiemployer Plan Notices. Promptly and in any event within 15
--------------------------
Business Days after receipt thereof by Borrower or any of its ERISA Affiliates
from the sponsor of a Multiemployer Plan of Borrower or any of its ERISA
Affiliates, copies of each notice concerning (i) the imposition of Withdrawal
Liability on Borrower or any of its ERISA Affiliates by any such Multiemployer
Plan, (ii) the reorganization or termination, within the meaning of Title IV of
ERISA, of any such Multiemployer Plan or (iii) the amount of liability incurred,
or that may be incurred, by such Loan Party or any of its ERISA Affiliates in
connection with any event described in clause (i) or (ii).
(h) Litigation. Promptly after the commencement thereof, notice
----------
of all actions, suits, investigations, litigation and proceedings before any
court or governmental
25
<PAGE>
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, affecting Borrower.
(i) Creditor Reports. Promptly after the furnishing thereof, copies of
----------------
any default notice or other material statement or report furnished to Third
Party Lender pursuant to the terms of any document with respect to the Third
Party Loan and not otherwise required to be furnished to Lender pursuant to any
other clause of this Section 5.03.
(j) Agreement Notices. Promptly upon receipt thereof, copies of all
-----------------
default notices and other material notices, and requests and other material
documents received by Borrower under or pursuant to the Merger Agreement, any
Material Contract or the Third Party Loan and, from time to time upon request by
Lender, such information and reports regarding the Merger Agreement, the
Material Contracts and the Third Party Loan as Lender may reasonably request.
(k) Environmental Conditions. Promptly after the occurrence thereof,
------------------------
notice of any condition or occurrence on any property of Borrower that results
in a material noncompliance by Borrower with any Environmental Law or
Environmental Permit or could (i) form the basis of an Environmental Action
against Borrower or such property that could have a Material Adverse Effect or
(ii) cause any such property to be subject to any restrictions on ownership,
occupancy, use or transferability under any Environmental Law.
(i) Other Information. Such other information respecting the business,
-----------------
condition (financial or otherwise), operations, performance, properties or
prospects of Borrower as Lender may from time to time reasonably request.
26
<PAGE>
ARTICLE VI.
EVENTS OF DEFAULT
SECTION 6.01. Events of Default. If any of the following events
-----------------
("Events of Default") shall occur and be continuing:
-----------------
(a) Borrower shall fail to pay any principal of the Loan when the same
becomes due and payable or Borrower shall fail to pay any interest on the Loan
or Borrower shall fail to make any other payment under any Loan Document within
3 days after the same becomes due and payable; or
(b) any representation or warranty made by Borrower (or any of its
officers) under or in connection with any Loan Document shall prove to have been
incorrect in any material respect when made; or
(c) a defined "Event of Default" shall occur under any other Loan
Document; or
(d) Borrower shall fail to perform or observe any term, covenant or
agreement contained in Section 5.02, and such failure or default is not cured
within 5 days; or
(d) Borrower shall fail to perform any other term, covenant or
agreement contained in any Loan Document on its part to be performed or observed
if such failure shall remain unremedied for 30 days after written notice
thereof shall have been given to Borrower by Lender; or
(e) Borrower shall fail to pay or cause to be paid any sum due and
payable pursuant to the Ground Leases, or shall otherwise default with respect
to its obligations thereunder, and such failure or default is not cured within
10 days after the same becomes due and payable; or
(f) Borrower shall fail to pay any principal of, premium or interest
on or any other amount payable in respect of any Debt that is outstanding in a
principal or notional amount of at least $500,000 in the aggregate (but
excluding Debt outstanding hereunder) of such Borrower (as the case may be),
when the same becomes due and payable (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise), and such failure shall continue
after the applicable grace period, if any, specified in the agreement or
instrument relating to such Debt; or any other event shall occur or condition
shall exist under any agreement or instrument relating to any such Debt and
shall continue after the applicable grace period, if any, specified in such
agreement or instrument, if the effect of such event or condition is to
accelerate, or to permit the acceleration of, the maturity of such Debt or
otherwise to cause, or to permit the holder thereof to cause, such Debt to
mature; or any such Debt shall be declared to be due and payable or required to
be prepaid or redeemed (other than by a regularly scheduled required prepayment
or redemption), purchased or defeased, or an offer to prepay, redeem,
27
<PAGE>
purchase or defease such Debt shall be required to be made, in each case prior
to the stated maturity thereof; or
(g) Borrower shall generally not pay its debts as such debts become
due, or shall admit in writing its inability to pay its debts generally, or
shall make a general assignment for the benefit of creditors; or any proceeding
shall be instituted by or against Borrower seeking to adjudicate it a bankrupt
or insolvent, or seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief, or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of debtors, or
seeking the entry of an order for relief or the appointment of a receiver,
trustee, or other similar official for it or for any substantial part of its
property and, in the case of any such proceeding instituted against it (but not
instituted by it) that is being diligently contested by it in good faith, either
such proceeding shall remain undismissed or unstayed for a period of 30 days or
any of the actions sought in such proceeding (including, without limitation, the
entry of an order for relief against, or the appointment of a receiver, trustee,
custodian or other similar official for, it or any substantial part of its
property) shall occur; or Borrower shall take any corporate action to authorize
any of the actions set forth above in this subsection (g); or
(h) any judgment or order for the payment of money in excess of
$100,000 shall be rendered against Borrower and either (i) enforcement
proceedings shall have been commenced by any creditor upon such judgment or
order or (ii) except with respect to any such judgment or order as to which
insurance coverage for all amounts in excess of $100,000 has been acknowledged
in writing by the applicable third party insurer, there shall be any period of
10 consecutive days during which a stay of enforcement of such judgment or
order, by reason of a pending appeal or otherwise, shall not be in effect; or
(i) any non-monetary judgment or order shall be rendered against
Borrower that could have a Material Adverse Effect, and there shall be any
period of 20 consecutive days during which a stay of enforcement of such
judgment or order, by reason of a pending appeal or otherwise, shall not be in
effect; or
(j) any material provision of any Loan Document after delivery thereof
pursuant to Section 4.01 or otherwise shall for any reason cease to be valid and
binding on or enforceable against Borrower party to it, or any such Loan Party
shall so state in writing; or
(k) any Collateral Document after delivery thereof pursuant to Section
4.01 or 6.01 shall for any reason (other than pursuant to the terms thereof)
cease to create a valid and perfected first priority Lien on the Collateral
purported to be covered thereby; or
(l) any ERISA Event shall have occurred with respect to a Plan of
Borrower or any of its ERISA Affiliates and the sum (determined as of the date
of occurrence of such ERISA Event) of the Insufficiency of such Plan and the
Insufficiency of any and all other Plans of Borrower and their ERISA Affiliates
with respect to which an ERISA Event shall have
28
<PAGE>
occurred and then exist (or the liability of Borrower and their ERISA Affiliates
related to such ERISA Event) exceeds $50,000; or
(m) Borrower or any of its ERISA Affiliates shall have been notified
by the sponsor of a Multiemployer Plan of Borrower or any of its ERISA
Affiliates that it has incurred Withdrawal Liability to such Multiemployer Plan
in an amount that, when aggregated with all other amounts required to be paid to
Multiemployer Plans by Borrower and their ERISA Affiliates as Withdrawal
Liability (determined as of the date of such notification), exceeds $50,000 or
requires payments exceeding $25,000 per annum; or
(n) Borrower or any of its ERISA Affiliates shall have been notified
by the sponsor of a Multiemployer Plan of Borrower or any of its ERISA
Affiliates that such Multiemployer Plan is in reorganization or is being
terminated, within the meaning of Title IV of ERISA, and as a result of such
reorganization or termination the aggregate annual contributions of Borrower and
their ERISA Affiliates to all Multiemployer Plans that are then in
reorganization or being terminated have been or will be increased over the
amounts contributed to such Multiemployer Plans for the plan years of such
Multiemployer Plans immediately preceding the plan year in which such
reorganization or termination occurs by an amount exceeding $50,000;
then, and in any such event, Lender (i) may by notice to Borrower declare the
obligation to make the Loan to be terminated, whereupon the same shall forthwith
terminate, and (ii) may, by notice to Borrower, declare the Note, all interest
thereon and all other amounts payable under this Agreement and the other Loan
Documents to be forthwith due and payable, whereupon the Note and all such
interest and all such amounts shall become and be forthwith due and payable,
without presentment, demand, protest or further notice of any kind, all of which
are hereby expressly waived by Borrower; provided, however, that in the event of
--------- -------
an actual or deemed entry of an order for relief with respect to Borrower under
the Federal Bankruptcy Code, (x) the obligation of Lender to make advances shall
automatically be terminated and (y) the Note, all such interest and all such
amounts shall automatically become and be due and payable, without presentment,
demand, protest or any notice of any kind, all of which are hereby expressly
waived by Borrower.
ARTICLE VII.
TRANSFER OF THE COURSE
SECTION 7.01. Transfer Of The Course. Any proposed Transfer of the
----------------------
Course shall be subject to the following rights of Lender set forth below.
(a) Right of First Refusal. Borrower and Lender shall each have a
----------------------
right of first refusal with respect to a Transfer of the Course in the case of
Lender, or a Transfer of the Loan in the case of Borrower (in either case a
Transfer) (the "Offered Interest"). In the event a party proposes to transfer
----------------
such interest (the "Selling Party"), then that party must first give written
-------------
notice (the "Right of First Refusal Notice"), to the other party (the "Other
----------------------------- -----
Party"), specifying as applicable (i) his or her intention to Transfer such
- -------
Offered Interest to a third party,
29
<PAGE>
(ii) the name and address of the proposed purchaser(s) or recipient(s), (iii)
the nature of Offered Interest, (iv) the proposed price for the Offered
Interest, and (v) all other material terms and conditions of the Transfer.
Within 30 days after receipt of the Right of First Refusal Notice, the
Other Party may elect to purchase all of the Offered Interest at the price and
on the terms and conditions set forth in the Right of First Refusal Notice by
delivery of written notice to the Selling Party (the "Right of First Refusal").
------------------------
Within 60 days after delivery of such notice, the parties shall arrange for the
delivery of payment to the Selling Party at the price as set forth in the Right
of First Refusal Notice, the execution of the appropriate sale documents and the
delivery of the appropriate transfer documents; and shall each use their best
reasonable efforts to consummate the transaction as soon as reasonably possible
thereafter.
The Selling Party shall be entitled to sell or transfer the Offered
Interest not purchased by the Other Party to the purchaser(s) named in the Right
of First Refusal Notice at the price specified in the Right of First Refusal
Notice and on the terms and conditions set forth in the Right of First Refusal
Notice; provided, however that such sale or transfer must be consummated within
90 days after the date of the Right of First Refusal Notice.
(b) Termination of Right of First Refusal. If the Other Party does not
-------------------------------------
exercise its Right of First Refusal and the Offered Interest is not transferred
to the specified third party within the 90 day period set forth above, such
Offered Interest shall not be sold or transferred to any third party unless
first reoffered to the Other Party in accordance herewith. If the offered
interest is sold to the specified third party, the Right of First Refusal with
respect to such Offered Interest will terminate upon transfer thereof provided
that such third party is not an Affiliate of Borrower.
(c) Affiliates Obligated. Any Transfer of the Course or Transfer of
--------------------
the Loan to an Affiliate of the Selling Party as contemplated by this Agreement
shall not be subject to the rights contained in this Section 7.01, but all such
rights under this Section 7.01 shall continue in full force and effect not
withstanding any such Transfer, and be binding on such Affiliate transferee.
ARTICLE VIII.
MISCELLANEOUS
SECTION 8.01. Amendments, Etc. No amendment or waiver of any
----------------
provision of this Agreement or the Note, nor consent to any departure by
Borrower therefrom, shall in any event be effective unless the same shall be in
writing and signed by Lender (and, in the case of any such amendment, Borrower),
and then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.
SECTION 8.02. Notices, Etc. All notices and other communications
-------------
provided for hereunder shall be in writing (including telegraphic, telecopy,
telex or cable
30
<PAGE>
communication) and mailed, telegraphed, telecopied, telexed, cabled or
delivered, if to Lender, at its address at 2951 28th Street, Suite 3001, Santa
Monica, California 90405, Telecopier No. (310) 664-6170, Attn: General Counsel;
if to Borrower, at its address at 6303 Waterford Boulevard, Suite 225, Oklahoma
City, Oklahoma 73118, Telecopier No. (405) 848-5627, Attn: Elby J. Beal and
David K. Hardin, with a copy to Hartzog, Conger & Cason, 1600 Bank of Oklahoma
Plaza, 201 Robert S. Kerr, Oklahoma City, Oklahoma 73102, Telecopier No. (405)
235-7329, Attn: Steven C. Davis, or, as to each party, at such other address as
shall be designated by such party in a written notice to the other parties. All
such notices and communications shall, when mailed, telegraphed, telecopied,
telexed or cabled, be effective when deposited in the mails, delivered to the
telegraph company, transmitted by telecopier, confirmed by telex answerback or
delivered to the cable company, respectively, except that notices and
communications to Lender pursuant to Article II, III or IV shall not be
effective until received by Lender.
SECTION 8.03. No Waiver; Remedies. No failure on the part of Lender to
-------------------
exercise, and no delay in exercising, any right hereunder, under any Note or
under any other Loan Document shall operate as a waiver thereof; nor shall any
single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
SECTION 8.04. Costs and Expenses.
------------------
(a) Borrower agrees to pay (i) all of its reasonable costs and
expenses in connection with the preparation, execution, delivery,
administration, modification and amendment of the Loan Documents and (ii) all
costs and expenses of Lender in connection with the enforcement of the Loan
Documents, whether in any action, suit or litigation, any bankruptcy, insolvency
or other similar proceeding affecting creditors' rights generally or otherwise
(including, without limitation, the reasonable fees and expenses of counsel for
Lender with respect thereto).
(b) If Borrower fails to pay when due any costs, expenses or other
amounts payable by it under any Loan Document, including, without limitation,
fees and expenses of counsel and indemnities, such amount may be paid on behalf
of Borrower by Lender, in its sole discretion and Borrower shall reimburse
Lender on demand for any amounts so paid with interest thereon at the Overdue
Rate from the date of such demand until so reimbursed.
SECTION 8.05. General Indemnity. Borrower agrees to indemnify and hold
-----------------
harmless Lender and its Affiliates and their partners, officers, directors,
employees, agents, attorneys and advisors (each, an "Indemnified Party") from
-----------------
and against any and all claims, damages, losses, liabilities and expenses
(including, without limitation, reasonable fees and expenses of counsel) that
may be incurred by or asserted or awarded against any Indemnified Party, in each
case arising out of or in connection with or by reason of, or in connection with
the preparation for a defense of, any investigation, litigation or proceeding
arising out of, related to or in connection with (i) this Agreement or any other
Loan Document, the actual or proposed use
31
<PAGE>
of the proceeds hereunder or any of the transactions contemplated hereby or by
the other Loan Documents, or (ii) the Merger and any of the other transactions
contemplated hereby, in either case whether or not such investigation,
litigation or proceeding is brought by Borrower, its directors, shareholders or
creditors or an Indemnified Party or any Indemnified Party is otherwise a party
thereto and whether or not the transactions contemplated hereby are consummated,
except to the extent such claim, damage, loss, liability or expense is found in
a final, non-appealable judgment by a court of competent jurisdiction to have
resulted from such Indemnified Party's gross negligence or willful misconduct.
Borrower also agrees not to assert any claim against Lender, any of its
affiliates, or any of their respective directors, officers, employees, attorneys
and agents, on any theory of liability, for special, indirect, consequential or
punitive damages arising out of or otherwise relating to any of the transactions
contemplated herein or in any other Loan Document or the actual or proposed use
of the proceeds of the Loan.
SECTION 8.06. No Partnership. Lender and Borrower intend that the
--------------
relationship between them shall be solely that of creditor and debtor. Nothing
contained in this Agreement or in any other Loan Document, including without
limitation Lender's right to receive Additional Interest and Appreciation
Participation, shall be deemed or construed to create, or to be, a partnership,
tenancy-in-common, joint tenancy, joint venture or by or between Lender and
Borrower. Lender in no way shall be responsible or liable for the debts, losses,
obligations or duties of Borrower with respect to the Course or otherwise. All
obligations to pay real property or other taxes, assessments, insurance premiums
and all other fees and charges arising from the ownership, operation or
occupancy of the Course and to perform the Operating Lease, Ground Lease and
other agreements and contracts relating to the Course shall be the sole
responsibility of Borrower. Borrower, at all times consistent with the terms and
provisions of this Agreement and all other Loan Documents, shall be free to
determine and follow its own policies and practices in the conduct of its
business on the Course. However their relationship may be characterized, Lender
and Borrower waive, to the fullest extent permitted by law, any and all
fiduciary or similar duties to the other. If any court or arbiter shall
determine that, notwithstanding this Section 8.06, the relationship between the
parties is other than a borrower-lender relationship, Borrower and Lender intend
that the terms of this Agreement and the other Loan Documents shall govern the
economic relationship of the parties.
SECTION 8.07. Binding Effect. This Agreement shall become effective
--------------
when it shall have been executed by Borrower and Lender and thereafter shall be
binding upon and inure to the benefit of Borrower, Lender and their respective
successors and assigns, except that Borrower shall not have the right to assign
its rights hereunder or any interest herein without the prior written consent of
Lender.
SECTION 8.08. Assignments. Lender may, from time to time, assign all
-----------
or a portion of its rights and obligations under this Agreement (including all
or a portion of the Note held by it) subject to the rights of Borrower with
respect to a Transfer of the Loan as set forth in Section 7.01.
32
<PAGE>
SECTION 8.09. Governing Law. This Agreement and the Note shall be
-------------
governed by, and construed in accordance with, the laws of the State of Nevada.
SECTION 8.10. Venue. ANY ACTION OR PROCEEDING AGAINST BORROWER OR ANY
-----
OTHER OBLIGATED PARTY UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT MAY BE BROUGHT IN ANY NEVADA STATE COURT LOCATED IN THE COUNTY OF
CLARK OR FEDERAL COURT IN THE CORRESPONDING DISTRICT OF NEVADA. BORROWER
IRREVOCABLY (A) SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURTS, AND (B)
WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH
ACTION OR PROCEEDING BROUGHT IN SUCH COURT OR THAT SUCH COURT IS AN INCONVENIENT
FORUM.
SECTION 8.11. Waiver of Jury Trial. EACH OF BORROWER AND LENDER HEREBY
--------------------
IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO ANY OF THE LOAN DOCUMENTS, OR THE ACTIONS OF EITHER PARTY IN THE
NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF.
SECTION 8.12. Execution In Counterparts. This Agreement may be
-------------------------
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Agreement by telecopier shall be effective as delivery of a manually executed
counterpart of this Agreement.
SECTION 8.13. Severability. Any provision of any Loan Document held by
------------
a court of competent jurisdiction to be invalid or unenforceable shall not
impair or invalidate the remainder of any Loan Document and the effect thereof
shall be confined to the provision held to be invalid or illegal.
SECTION 8.14. Integration. This Agreement, the Note and the Deed of
-----------
Trust and other Loan Documents represent and embody the entire agreement among
the parties hereto and supersede any and all prior commitments, term sheets,
agreements, representations and understandings, whether written or oral,
relating to the subject matter hereof and may not be contradicted or varied by
evidence of prior, contemporaneous, or subsequent oral agreements or discussions
of the parties hereto. There are no unwritten oral agreements among the parties
hereto. There are no unwritten oral agreements among the parties thereto.
SECTION 8.15. Perfection of Water Rights. Within 10 days of the
--------------------------
execution hereof, Borrower shall deliver to the Office of the State Engineer of
the State of
33
<PAGE>
Nevada all forms necessary to perfect the interest of Lender in any and all
water rights associated with the Property.
(signature page follows)
34
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers as of the date first
above written.
BORROWER
THE BADLANDS GOLF CLUB, INC.
a Nevada corporation
By: /s/ Elby J. Beal
--------------------------------
Name: Elby J. Beal
Title: President
LENDER
NATIONAL GOLF OPERATING
PARTNERSHIP, L.P.
a Delaware limited partnership
By: National Golf Properties, Inc.,
a Maryland corporation.
its General Partner
By: /s/ Scott S. Thompson
--------------------------------
Name: Scott S. Thompson
Title: Vice President
S-1
<PAGE>
EXHIBIT 10.46
SECURED PARTICIPATING PROMISSORY NOTE
This Secured Participating Promissory Note (the "Note") is made and
----
entered into as of this 18th day of August, 1998, between National Golf
Operating Partnership, L.P., a Delaware limited partnership ("Lender"), and The
------
Badlands Golf Club, Inc., a Nevada corporation ("Borrower").
--------
RECITALS
--------
A. Lender has agreed to make the loan (the "Loan") to Borrower
----
pursuant to that certain Loan Agreement dated as of August 18, 1998, by and
between Lender and Borrower (the "Loan Agreement").
--------------
B. The Loan will be secured by, among other things, first mortgage
liens on Borrower's leasehold estate in the property known as "Badlands Golf
Club" (the "Property") pursuant to the Deed of Trust (as defined below).
--------
C. The Loan will bear interest at the Annual Base Interest Rate (as
defined below).
D. In further consideration of the Loan to Borrower, Lender shall
participate in certain of the Property's revenues and appreciation in value in
accordance with the terms and conditions set forth herein.
PROMISE TO PAY
--------------
FOR VALUE RECEIVED, Borrower hereby promises to pay to Lender or its
order, at such place as the holder hereof may from time to time direct, the
principal sum of $22,648,535.49, plus principal in an amount up to $315,000
representing the Capital Improvement Advance made concurrently herewith or after
the date hereof (the "Loan Amount"), together with interest from August 20, 1998
-----------
on the outstanding principal amount at the rate set forth herein below.
ARTICLE 1.
DEFINITIONS
-----------
As used in this Note, the following terms shall have the meanings
hereinafter set forth:
1.1. "Additional Interest" for any period shall mean the extent to
-------------------
which the sum of (i) 8% of Other Revenue for such period, plus (ii) the
applicable percentage of Course Revenue for such period, exceed the Annual Base
Interest for such period. The applicable percentage of Course Revenue for any
period shall be as set forth below:
1
<PAGE>
Stub Year (1998): 36.50%
Year 1 (1999): 36.50%
Year 2 (2000): 36.95%
Year 3 (2001): 39.40%
Year 4 (2002): 40.35%
Year 5 (2003) and 42.75%
beyond:
provided, however, that if the Second Closing occurs, then from and after the
Second Closing, the applicable percentages of Course Revenue shall be as
follows:
Stub Year (1998): 19.50%
Year 1 (1999): 19.50%
Year 2 (2000): 19.65%
Year 3 (2001): 21.04%
Year 4 (2002): 21.55%
Year 5 (2003) and 22.90%
beyond:
1.2. "Affiliate" means as to any Person, any other Person directly or
---------
indirectly controlling, controlled by, or under common control with, that
Person.
1.3. "Annual Base Interest" means the amount of interest accruing for
--------------------
any applicable period at the Annual Base Interest Rate.
1.4. "Annual Base Interest Rate" or "Base Interest Rate" means, with
------------------------- ------------------
respect to the Stub Year, 8.75% per annum, and for each following Fiscal Year,
the Annual Base Interest Rate (or Base Interest Rate) shall be at the per annum
rate as set forth below:
Year 1 (1999) 8.75%
Year 2 (2000): 9.00%
Year 3 (2001) 9.20%
Year 4 (2002): 9.40%
Year 5 (2003): 9.70%
Year 6 (2004) and 9.90%
beyond:
1.5. "Appreciation Participation" shall have the meaning ascribed to
--------------------------
such term by Section 3.1 hereof.
1.6. "Business Day" shall mean each Monday, Tuesday, Wednesday,
------------
Thursday or Friday which is not a day on which national banks in the Las Vegas,
Nevada or Los Angeles, California are authorized or obligated, by law or
executive order, to close.
2
<PAGE>
1.7. "Capital Improvements Advance" shall mean a loan in an amount
-----------------------------
not to exceed $315,000 made for the sole purpose of funding 50% of the cost of
Initial Capital Improvements.
1.8. "Course Revenue" shall mean all revenues received (whether by
--------------
Lessee or any subtenants, concessionaires or licensees) from or by reason of the
operation of the Property, or any other use of the Property, including revenues
from memberships (to the extent the membership was sold on or after the date
hereof or to the extent revenue is received by Lessee for a membership sold
previous to the date hereof), initiation fees (to the extent the membership was
sold on or after the date hereof or to the extent such fees are received by
Lessee for a membership sold previous to the date hereof), 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 Lessee by sponsors of golf
tournaments at the Property, 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 Lessee and the amount of any city, county, state, or federal
admission tax or use tax, which is paid to the relevant taxing authority by
Lessee;
(d) The actual uncollectable amount of any check or bank draft
received by Lessee as payment for goods or services and returned to Lessee from
the customer's bank as being uncollectable, but only after Lessee has made
reasonable efforts to collect on the check;
(e) The actual uncollectable amount of any charge or credit account
incurred by Lessee for the sale of merchandise or services; provided, however,
--------- -------
that the credit was extended to the customer by Lessee, and that reasonable
efforts to collect said account have been made;
(f) The actual uncollectable amount of any sale of merchandise or
services for which Lessee accepted a credit card; provided, however, that Lessee
--------- -------
has made reasonable efforts to collect the debt after being notified by the
issuing bank of the invalidity or uncollectability of the charge;
(g) Interest or other charges paid by customers for extension of
credit;
(h) Revenue or proceeds from sales or trade-in on machinery,
vehicles, trade fixtures or personal property used in connection with Lessee's
operation of the Property;
(i) The value of any merchandise, supplies or equipment exchanged or
transferred from or to other locations or businesses of Lessee where such
exchange or transfer is not made for the purpose of avoiding a sale which would
otherwise be made from or at the Property;
3
<PAGE>
(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;
(1) The amount of any gratuities paid or given by customers to or for
employees of Lessee;
(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 Lessee;
(o) Receipts from the sale of waste or scrap materials resulting from
Lessee'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
Property, provided that the terms under which Lessee is paid surcharges, fees or
other charges by such sponsor would not cause the amounts paid by Borrower to
Lender to fail to qualify as "interest" under the Internal Revenue Code Section
856(f), as amended from time to time. All references to Borrower in the
preceding clauses (b) through (p) shall include any tenant, subtenant,
concessionaire or licensee of Borrower. Moreover, Borrower and/or Lessee may
involve the Property in regional or national membership clubs or marketing
programs that they may sponsor from time to time. If any such club or marketing
programs involve courses or activities of Borrower and/or Lessee other than
solely the Property then, unless Lender has approved in writing the club or
marketing program, Borrower shall account for Course Revenue and Other Revenue
resulting from any use of the Property by participants in such club or marketing
program as though such participants had paid full value for the use of the
Property without regard to any discount or complimentary arrangement provided to
such participants. Lender agrees that it will consider proposals made by
Borrower and/or Lessee for membership clubs or marketing programs that involve
the Property and will not unreasonably withhold its consent to such programs if
Borrower and/or Lessee demonstrates to Lender's reasonable satisfaction that
such programs would neither adversely affect the Additional Interest Lender
would be entitled to receive under this Note nor otherwise adversely affect the
Property; and
(r) Receipts from the sales of supplies or inventory by Lessee to
subtenants, concessionaires, or licensees provided that such sales are at
Lessee's cost of such supplies or inventories with no mark-up or premium.
For purposes of this definition of Course Revenue, all references to
Lessee in clauses (a) through (r) above shall also include any subtenants,
concessionaires and licensees.
4
<PAGE>
1.9. "Deed of Trust" shall mean that certain Deed of Trust,
-------------
Assignment of Rents, Security Agreement and Fixture Filing of even date herewith
executed by Borrower, as trustor, for the benefit of Lender, as beneficiary,
securing this Note and covering the Property, and any and all renewals,
modifications or amendments thereof or substitutions therefor.
1.10. "Fair Market Value" shall mean the fair market value of the
-----------------
Property determined in accordance with the appraisal procedures set forth in
Section 3.1.1 or in such other manner as shall be mutually acceptable to Lender
and Borrower. Fair Market Value shall be determined by assuming the Property is
unencumbered by the Operating Lease or by the Deed of Trust. The Property shall
be valued at its highest and best use which shall be presumed to be as a
facility operated in accordance with the provisions of the Operating Lease. The
Property shall be valued solely by reference to the value of the Property and
not with respect to the tax attributes of the Property as held by Borrower.
1.11. "Fiscal Quarter" shall mean 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.
1.12. "Fiscal Year" shall mean the 12-month period from January 1
-----------
through December 31 of each year of the term of this Note, or the applicable
portions of the first and last Fiscal Years.
1.13. "Improvements" shall mean those certain improvements located or
------------
to be located on the Land.
1.14. "Initial Capital Improvements" shall mean capital expenditures
----------------------------
with respect to the Property funded in part with the proceeds of this Note.
1.15. "Lessee" shall be American Golf Corporation, a California
------
corporation.
1.16. "Loan" shall mean the loan evidenced by this Note.
----
1.17. "Loan Documents" shall mean, collectively, this Note, the Deed
--------------
of Trust, the Loan Agreement of even date herewith, and all other documents,
instruments or certificates representing, evidencing, securing or relating to
the Loan.
1.18. "Maturity" shall mean the date upon which the Loan matures,
--------
whether by expiration of its stated term as set forth in this Note or by
acceleration or otherwise.
1.19. "Maturity Date" shall have the meaning ascribed to such term by
-------------
Section 2.1 hereof.
1.20. "Officer's Certificate" shall mean a Certificate of Borrower
---------------------
signed by an officer, representative or trustee of Borrower authorized to so
sign.
5
<PAGE>
1.21. "Operating Lease" shall mean the Lease, dated August, 1998,
---------------
between Borrower and Lessee, and all amendments, extensions and renewals
thereof, covering the Property.
1.22. "Other Revenue" shall mean all revenue received (whether by
-------------
Borrower, tenants, subtenants, concessionaires or licensees) from or by reason
of the Property, relating to (i) the operation of snack bars, restaurants, bars
and banquet operations, (ii) golf professionals' shops on the Property, (iii)
parking, (iv) fitness centers, (v) tennis facilities, (vi) day care, (vii) non
golf-related guest fees, (viii) locker rentals, (ix) bag storage, (x) video
games, (xi) vending machines and (xii) fees or other charges paid to Lessee by
providers of golf lessons (unless the terms under which Lessee is paid by such
provider would cause the amounts paid by Borrower to Lender to fail to qualify
as "interest" under Internal Revenue Code Section 856(f), as amended from time
to time, in which event the gross revenue received by such provider shall be
included in Other Revenue); but excluding (a) the items described in clauses (b)
through (p) of the definition of Course Revenue and (b) gross revenue received
by any provider of golf lessons, provided that the terms under which Borrower or
Lessee is paid fees or other charges by such provider would not cause the
amounts paid by Borrower to Lender to fail to qualify as "interest" under
Internal Revenue Code Section 856(f), as amended from time to time.
1.23. "Overdue Rate" shall mean, on any date, a rate equal to 2.00%
------------
above the Annual Base Interest Rate, but in no event greater than the maximum
rate then permitted under applicable law.
1.24. "Person" shall mean 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.
1.25. "Property" shall mean, collectively, that certain land in the
--------
County of Clark, State of Nevada, more particularly described in the Deed of
Trust.
1.26. "Second Closing" shall mean the execution of loan documents as
--------------
soon as possible following the date hereof, but in no event later than November
15, 1998 by Borrower and a third party lender in an amount of not more than
$10.4 million, and the subsequent repayment of $9,648,535.49 of the principal
amount of the Loan.
1.27. "Stub Year" shall mean that period of time commencing on the
---------
date hereof and ending on December 31, 1998.
1.28. "Transfer of the Course" shall mean any sale, transfer,
----------------------
conveyance, long-term lease (not including the Operating Lease) or other
disposition, directly or indirectly, whether by gift, contract for deed or other
similar instrument or mechanism, of the beneficial interest in (i) the Course or
any part thereof or interest therein or (ii) the Borrower, provided, however,
that (x) with respect to Section 3.1, Transfer of the Course shall not include
the transfer of less than 20% of the non-voting stock of the Borrower to a third
party (including the affiliates of such party) whether in one transaction, or a
series of transactions in the aggregate, and (y) with
6
<PAGE>
respect to the right of first refusal provisions of the Loan Agreement, Transfer
of the Course shall not include a transfer to an Affiliate of Borrower.
ARTICLE 2.
TERMS OF LOAN
-------------
2.1. Maturity. Borrower hereby promises to pay to Lender the
--------
outstanding principal balance of the Loan, together with any unpaid accrued
interest thereon at the applicable per annum rate set forth herein, on the
fifteenth anniversary of the date hereof (the "Maturity Date").
-------------
2.2. Interest. In addition to the Additional Interest (as provided
--------
below), the Note shall bear interest at an annual rate equal to the Annual Base
Interest Rate. Interest shall be cumulative, non-compounding and payable in
arrears on and to the last day of each month, commencing on August 31, 1998.
Interest shall be computed on the basis of a 360-day year and the actual number
of days elapsed in the period during which it accrues.
2.2.1. Quarterly Calculation and Payment of Additional Interest
------------------------------------ -------------------
each Fiscal Year, Borrower shall calculate (or shall cause Lessee to calculate)
and pay to Lender an amount equal to the Additional Interest. The Additional
Interest shall be paid in addition to, and not in lieu of, the interest payable
monthly at the Annual Base Interest Rate. The amount of the Additional Interest
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 Borrower to Lender as provided by this Section 2.2.1, but
subject to a final reconciliation as provided by Section 2.2.2. Such Additional
Interest shall be paid to Lender, together with an Officer's Certificate setting
forth the calculation thereof, within 30 days after the end of each Fiscal
Quarter.
2.2.2. Annual Reconciliation. Within 60 days after the end of
---------------------
each Fiscal Year, or after the Maturity Date, Borrower shall deliver to Lender
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 Interest actually paid, if any, during such Fiscal Year versus the
amount of Additional Interest actually owing, if any, on the basis of the annual
calculation of the Course Revenue and the Other Revenue. If the Additional
Interest for such Fiscal Year exceeds the sum of the quarterly payments
previously paid by Borrower, Borrower shall pay such deficiency to Lender along
with such Officer's Certificate. If the Additional Interest for such Fiscal Year
is less than the amount previously paid by Borrower, Lender shall, at Lender's
option, either (i) remit to Borrower its check in an amount equal to such
difference, or (ii) grant Borrower a credit against the payment of Additional
Interest next coming due. The amount of the reconciliation payment, whether in
favor of Lender or Borrower, shall bear interest at a rate equal to the rate
payable on 90-day U.S. Treasury Bills as of January 1 of the year following the
close of such Fiscal Year until the amount of such difference shall be paid or
otherwise discharged.
7
<PAGE>
2.2.3. Record-keeping. Borrower shall (or shall cause Lessee
--------------
to) utilize an accounting system for the Property in accordance with its usual
and customary practices and in accordance with cash basis accounting principles
which will accurately record all Course Revenue and Other Revenue. Borrower
shall (or shall cause Lessee to) 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 2.2.2 above for such Fiscal Year has been made).
2.2.4. Audits. Lender, at its own expense except as provided
------
herein, 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 2.2.2 and in connection with such audits to examine
Borrower's books and records with respect thereto (including supporting data,
sales tax returns and Borrower's (and Lessee's) work papers). If any such audit
discloses a deficiency in the payment of Additional Interest, Borrower shall,
within 30 days after demand therefor, pay to Lender 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 Borrower to Lender, 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 Borrower (or Lessee). If any such audit discloses that the Course Revenue or
Other Revenue generated at the Property for any Fiscal Year exceeds that
reported by Borrower by more than five percent, Borrower shall pay the
reasonable cost of such audit and examination.
2.3. Late Payments of Interest. If any installment of interest or
-------------------------
other amount payable hereunder shall not be paid on its due date, the amount
unpaid shall bear interest, from the due date of such amount to the date of
payment thereof, computed at the Overdue Rate on such amount. The payment of
said late charge or such interest shall not constitute a waiver, nor excuse or
cure, of any default under this Note, nor prevent Lender from exercising any
other rights and remedies available to Lender.
2.4. Prepayments. Borrower may not prepay the Loan or any portion
-----------
thereof at any time except as specifically set forth in this Section 2.4.
Borrower may prepay the Loan in part in connection with the Second Closing,
provided such prepayment is made on or before November 15, 1998 and only in the
principal amount of $9,648,535.49. Any prepayment of the Loan resulting from a
sale of the Property in foreclosure of the Deed of Trust, shall be accompanied
by a premium (the "Prepayment Premium") equal to the Present Value of the Loan
------------------
less the amount of principal of the Loan being prepaid including accrued
interest, if any, calculated as of the date of prepayment (the "Prepayment
----------
Date"). As a matter of clarification, no Prepayment Premium shall apply in the
- ----
event of a Transfer of the Property in accordance with Section 3.1.
For the purposes of determining the Prepayment Premium, the following
terms shall have the following meanings set forth below:
8
<PAGE>
The "Treasury Rate" is the semi-annual yield on the Treasury Constant
-------------
Maturity Series with maturity equal to the remaining weighted average life of
the Loan, for the week prior to the Prepayment Date, as reported in Federal
Reserve statistical Release H.15 - Selected Interest Rates, conclusively
determined by the Lender on the Prepayment Date. The rate will be determined by
linear interpolation between the yields reported in Release H.15, if necessary.
(In the event Release H.15 is no longer published, Lender shall select a
comparable publication to determine the Treasury Rate, which selection shall be
subject to approval (which shall not be unreasonably withheld or delayed) by
Borrower.)
The "Discount Rate" is the rate which, when compounded monthly, is
-------------
equivalent to the Treasury Rate, when compounded semi-annually.
The "Present Value of the Loan" shall be determined by discounting all
-------------------------
scheduled payments of principal and interest at the Annual Base Interest Rate
(as adjusted each year in accordance with the definition set forth in Section
1.3 of this Note) remaining to Maturity of the Loan, attributed to the amount
being prepaid, at the Discount Rate. If prepayment occurs on a date other than a
regularly scheduled payment date, the actual number of days remaining from the
Prepayment Date to the next regularly scheduled payment date will be used to
discount within this period.
2.5. Manner and Time of Payment. All payments of principal and
--------------------------
interest hereunder shall be made without defense, setoff and counter-claim and
in same day funds and delivered to Bank of America NT&SA, located at 2029
Century Park East, Third Floor, Los Angeles, California 90067 (telephone number
(310) 785-6084) not later than 1:00 p.m., Pacific time, on the due date for the
account of Lender, such account number to be provided to Borrower by Lender in
writing; funds received by Lender's bank after that time shall be deemed to have
been paid by Borrower on the next succeeding Business Day.
2.6. Payments on Non-Business Days. Whenever any payment to be made
-----------------------------
hereunder shall be stated to be due on a date which is not a Business Day, the
payment shall be made on the next succeeding Business Day and such extension of
time shall be included in the computation of the payment of interest hereunder.
2.7. Maximum Interest Rate. No provision of this Note shall require
---------------------
the payment or permit the collection of interest in excess of the maximum rate
permitted by law over the life of the Loan. If any excess of interest in such
respect is herein provided for, or shall be adjudicated to be so provided for
herein, the provisions of this paragraph shall govern, and Borrower shall not be
obligated to pay the amount of such interest to the extent that it is in excess
of the amount permitted by law.
ARTICLE 3.
APPRECIATION PARTICIPATION
--------------------------
3.1. Payment of Appreciation Participation. Subject to the provisions
-------------------------------------
of Article 6 hereof and the right of Lender to waive the requirements set forth
in this Section 3.1 in
-----------
9
<PAGE>
any particular instance without waiver of its right to obtain payment of the
Appreciation Participation at a later date, upon the occurrence of either of (a)
a Transfer of the Course, including a transfer to Lender, or (b) the Maturity of
the Loan, Borrower shall pay in cash to Lender, in addition to, and not in lieu
of, the payments of the Annual Base Interest, Additional Interest and principal
payable by Borrower hereunder and all other sums payable by Borrower to Lender
in connection with the Loan, the Appreciation Participation. "Appreciation
Participation" shall mean an amount equal to 50% of the amount, if any, by which
the Fair Market Value exceeds (x) $26,000,000 plus (y) the cost of Initial
Capital Improvements; provided, however, that should there be no Second Closing
on or before November 15, 1998, "Appreciation Participation" shall mean an
amount equal to 87% of the amount, if any, by which the Fair Market Value
exceeds (i) $26,000,000 plus (ii) the cost of Initial Capital Improvements.
Appreciation Participation shall be due and payable upon the
consummation of one or more of the events described above, and Borrower promptly
shall give notice to Lender of the occurrence of any such event, such notice to
be given not less than thirty (30) days in advance of a Transfer of the
Property.
3.1.1. Determination of Fair Market Value.
(a) Appointment of Appraiser. In the event that it becomes
------------------------
necessary to determine the Fair Market Value of the Property for any
purpose of this Note, the party required or permitted to give notice
of such required determination shall include in the notice the name of
a Person selected to act as appraiser on its behalf. Within 10 days
after receipt of any such notice, Lender or Borrower, as the case may
be, shall by notice to Borrower or Lender, as the case may be, appoint
a second Person as appraiser on its behalf. Each appraiser must be
licensed as an appraiser in the State in which the Property is located
and be a member of the Appraisal Institute (or any successor
organization thereto).
(b) Mechanics of Appraisal. After appointment, the appraisers
----------------------
shall, within 45 days after the date of the notice appointing the
first appraiser, determine the Fair Market Value of the Property as of
the date it becomes necessary to determine the Fair Market Value
(giving effect to the impact, if any, of inflation from that date to
the date the appraisers determine such Fair Market Value); provided
however, that if only one appraiser shall have been so appointed, or
if two appraisers shall have been so appointed but only one such
appraiser shall have made such determination within the required 45
days, then the determination of such appraiser shall be final and
binding upon the parties.
(c) Appraisal Standards. Unless the parties otherwise jointly
-------------------
instruct the appraisers in writing to the contrary, the appraisers
shall value the Property at Fair Market Value pursuant to the Uniform
Standards of Professional Appraisal Practice and, to the extent not
inconsistent therewith, the Appraisal Institute's Standards of
Professional Practice, and in accordance with generally accepted
appraisal methodology.
10
<PAGE>
(d) Reconciliation of Appraisals. Subject to subparagraphs (i)
----------------------------
and (ii) below, if two appraisers shall have been appointed and shall
have made their determinations of the Fair Market Value of the
Property within the required 45-day period, then the Fair Market Value
of that property shall be an amount equal to 50% of the sum of each
appraiser's determination.
(i) Appointment of Third Appraiser. If the difference
------------------------------
between the appraisals made pursuant to paragraph (b) shall
exceed 10% of the lesser of such amounts, then the appraisers
shall have 20 days to appoint a third appraiser. If such
appraisers fail to appoint such third appraiser, then either
party may request the American Arbitration Association (or any
successor organization) or a court (having jurisdiction over such
appointment) to appoint the third appraiser. The third appraiser
shall be licensed as an appraiser in the State in which the
Property is located and be a member of the Appraisal Institute.
If a third appraiser is not appointed under this subparagraph
(i), then the Fair Market Value of the Property shall be
determined as provided for in paragraph (d) notwithstanding this
subparagraph (i).
(ii) Appraisal by Third Appraiser. Any appraiser appointed
----------------------------
by the original appraisers, by the American Arbitration
Association or by an appropriate court shall be instructed to
determine the Fair Market Value within 30 days after appointment
of such appraiser. The determination of the appraiser which
differs most in terms of dollar amount from the determinations of
the other two appraisers shall be excluded, and 50% of the sum of
the remaining two determinations shall be final and binding upon
Lender and Borrower as the Fair Market Value for the Property.
(e) Validity. Etc. This provision for determination by appraisal
-------------
shall be specifically enforceable to the extent such remedy is
available under applicable law, and any determination hereunder shall
be final and binding upon the parties except as otherwise provided by
applicable law. Lender and Borrower shall each pay the fees and
expenses of the appraiser appointed by it and each shall pay one-half
of the fees and expenses of the third appraiser and shall each pay the
fees of its attorneys incurred in connection with each appraisal.
3.2. Cooperation. Borrower shall cooperate with the appraisers by
-----------
providing all information reasonably requested by them in connection with the
appraisal process as soon as possible after such request has been received by
Borrower.
3.3. No Deduction for Negative Appreciation Participation.
---------------- -----------------------------------
Notwithstanding any other provision of this Note, Lender in no event shall be
liable to Borrower for any reduction in the Fair Market Value. If, at any time
it is calculated, Appreciation Participation shall be a negative amount, Lender
in no way shall be liable for such amount nor shall there be any reduction in
the principal amount of the Loan, the Annual Base Interest Rate or the
Additional Interest due hereunder.
11
<PAGE>
3.4. Covenants of Borrower. Borrower covenants that it will not hold
---------------------
the Property for the purposes of selling it or any portion thereof in the
ordinary course of its business, and that it will not cause a Transfer of the
Property unless the amounts, if any, paid by Borrower to Lender as a result of
such Transfer would fall within the safe harbor (the "Safe Harbor") from
-----------
"Prohibited Transaction" treatment set forth in Section 857(b)(6)(C) of the
Internal Revenue Code of 1986, as amended (the "Code"). In addition, Borrower
----
will take no other actions with respect to the Property which could cause
amounts paid by Borrower to Lender at Maturity or otherwise pursuant to the Loan
to fail to qualify for the Safe Harbor.
ARTICLE 4.
NATURE OF LENDER'S INTEREST
---------------------------
IN REVENUES AND APPRECIATION PARTICIPATION
------------------------------------------
Borrower hereby grants, transfers and assigns to Lender an interest in
the revenues from and appreciation of the Property, such interest being
comprised of Additional Interest and Appreciation Participation. Borrower shall
pay to Lender the aggregate of such amounts as each shall become due and payable
under the terms of this Note. Borrower acknowledges and confirms that (i)
Borrower and Lender have conferred specifically concerning the contingent and
uncertain nature of Lender's interest in such amounts, (ii) Borrower and Lender
understand and agree that Lender's interest in such amounts, and each element
thereof, payable as a result of this Note, is highly speculative in nature, and
(iii) both the payment and amount, if any, of each element of Lender's interest
in such amounts are dependent upon a number of contingencies which are not
within Lender's control.
ARTICLE 5.
DEFAULTS
--------
5.1. Remedies. It is agreed that time is of the essence in the
--------
performance of all obligations hereunder. Upon the occurrence of any "Event of
Default" under the Loan Agreement, the Deed of Trust or other Loan Documents,
Lender may exercise any of the remedies available to it under the Loan
Documents, including the option to declare immediately due and payable the
entire unpaid principal sum of this Note, together with all accrued interest
thereon, and Appreciation Participation.
5.2. Waivers. Except as expressly may be provided in the Loan
-------
Documents, Borrower and any sureties, guarantors and endorsers hereby jointly
and severally waive demand, presentment, notice of nonpayment or dishonor,
notice of intent to accelerate, notice of acceleration, diligence in collecting,
grace, notice and protest and hereby consent to all extensions, without notice,
for any period or periods of time and partial payment, before or after maturity,
without prejudice to Lender.
5.3. Attorneys' Fees. Borrower agrees to pay all costs of collection
---------------
when incurred, including but not limited to reasonable attorneys' fees. If any
suit or action is instituted
12
<PAGE>
to enforce this Note, Borrower promises to pay, in addition to the costs and
disbursements otherwise allowed by law, such sum as the court may adjudge to be
reasonable attorneys' fees in such suit or action.
ARTICLE 6.
RELATED INSTRUMENTS: TERMINATION OF PARTICIPATION OBLIGATION
------------------------------------------------------------
This Note is secured by the Deed of Trust and the related Loan
Documents. Further, this Note is secured by all instruments from Borrower in
favor of Lender which secure the Loan or which recite that this Note is to be
secured thereby. This Note shall remain in effect and shall continue to be
secured as described above until payment in full of the Loan, unless there has
earlier occurred any event specified in Section 3.1 of this Note and payment in
full of Lender's interest in Appreciation Participation. Upon the payment in
full of this Note and Borrower's satisfaction of all obligations as provided
herein, Lender shall deliver to Borrower, at Borrower's sole cost and expense, a
release, in recordable form, of the Property and Borrower from the encumbrance
of the Deed of Trust and this Note.
ARTICLE 7.
MAXIMUM PERMISSIBLE INTEREST RATE
----------------------------------
In no event whatsoever, whether by reason of advancement of the
proceeds under this Note, acceleration of maturity of the unpaid principal
balance of this Note, or otherwise, shall the amount paid or agreed to be paid
to the holder thereof for the use, forbearance or detention of the money to be
advanced thereunder, plus such amount payable hereunder as is adjudicated as
constituting interest, exceed the highest lawful rate permissible to be
contracted for under the applicable usury law. If, from any circumstance
whatsoever, fulfillment of any provision of this Note, the Deed of Trust, or any
other Loan Document, at the time performance of such provision shall be due,
shall involve transcending the limit of validity prescribed by law which a court
of competent jurisdiction may deem applicable hereto, then, ipso facto, the
----------
obligation to be fulfilled shall be reduced to the limit of such validity, and
if from any circumstance, Lender ever shall receive as interest an amount which
would exceed the highest lawful rate, such amount which would be excessive
interest shall be immediately returned to Borrower upon such determination.
ARTICLE 8.
MISCELLANEOUS PROVISIONS
------------------------
8.1. Notices. All notices, requests, demands or other communications
-------
hereunder shall be in writing and shall be addressed and mailed in accordance
with the provisions of the Loan Agreement.
13
<PAGE>
8.2. Security. Borrower agrees that Lender, without notice to
--------
Borrower and without affecting the liability of Borrower, may accept additional
or substitute security for this Note or may release any security or any party
liable for this Note.
8.3. Payments. All amounts payable under this Note are payable in
--------
lawful money of the United States.
8.4. No Waiver. No failure to exercise, and no delay in exercising,
---------
any right, power or remedy hereunder or under any document delivered pursuant
hereto or in connection with the Loan shall impair any right, power or remedy
which Lender may have, nor shall any such delay be construed to be a waiver of
any such rights, powers or remedies or an acquiescence in any breach or default
under this Note or any document delivered pursuant hereto or in connection with
the Loan. No waiver of any breach or default of Borrower shall be deemed a
waiver of any default or breach subsequently occurring.
8.5. Successors and Assigns. This Note shall be binding upon and
----------------------
shall inure to the benefit of Borrower, Lender and their respective permitted
successors and assigns.
8.6. Amendments. No provision of this Note may be amended, modified,
----------
supplemented, changed, waived, discharged or terminated, unless Lender consents
thereto in writing.
8.7. Time of the Essence. Time is of the essence in this Note and in
-------------------
the performance of each of the covenants and agreements contained herein.
8.8. Governing Law. This Note shall be governed by, and shall be
-------------
construed and enforced in accordance with, the laws of the State of Nevada (but
not including its conflict of laws rules).
8.9. Disputes. In the event of any conflict, claim, or dispute
--------
between the parties hereto affecting or relating to the purpose or subject
matter of this Note, the prevailing party shall be entitled to receive from the
nonprevailing party all reasonable expenses, including, but not limited to,
attorneys' fees and accounting fees.
8.10. Severability. If any term of this Note, or the application
------------
thereof to any person or circumstances, shall, to any extent, be invalid or
unenforceable, the remainder of this Note, or the application of such term to
persons or circumstances other than those as to which it is invalid or
unenforceable, shall not be affected thereby, and each term of this Note shall
be valid and enforceable to the fullest extent permitted by law.
8.11. Limitations on Recourse. This Note is subject to the
-----------------------
limitations on recourse set forth in Section 6.14 of the Deed of Trust, which
are incorporated herein by reference.
8.12. Venue. In the case of any dispute arising hereunder, venue will
-----
be determined in accordance with the provisions of the Loan Agreement.
14
<PAGE>
8.13. Integration. This Note, the Deed of Trust and the Loan
-----------
Agreement represent the entire agreement among the parties hereto and
supersede any and all prior commitments, term sheets, agreements,
representations and understandings, whether written or oral, relating to the
subject matter hereof and may not be contradicted or varies by evidence of
prior, contemporaneous, or subsequent oral agreements or discussions of the
parties hereto. There are no unwritten oral agreements among the parties hereto.
15
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Note in one or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument, as of the date first
above written.
BORROWER:
THE BADLANDS GOLF CLUB, INC.,
a Nevada corporation
By: /s/ Elby J. Beal
--------------------------------
Name: Elby J. Beal
------------------------------
Its: President
-------------------------------
S-1
<PAGE>
ACKNOWLEDGED AND AGREED:
LENDER:
NATIONAL GOLF OPERATING PARTNERSHIP, L.P.,
a Delaware limited partnership
By: National Golf Properties, Inc.,
a Maryland corporation,
its general partner
By: /s/ Scott S. Thompson
--------------------------------
Name: Scott S. Thompson
------------------------------
Its: General Counsel/Vice President
-------------------------------
S-2
<PAGE>
EXHIBIT A
---------
Legal Description of the Property
A-1
<PAGE>
LEGAL DESCRIPTION
-----------------
OF
--
BADLANDS GOLF CLUB
------------------
A-2
<PAGE>
EXHIBIT 10.47
Recording requested by
and when recorded mail to:
Latham & Watkins [NOTARY STAMP APPEARS HERE]
633 W. 5th Street, Suite 4000
Los Angeles, CA 90071-2007
Attn: Lindsey C. Kozberg, Esq.
- --------------------------------------------------------------------------------
(Space above line for recorder's use)
DEED OF TRUST,
ASSIGNMENT OF RENTS, SECURITY AGREEMENT
AND FIXTURE FILING
THIS DEED OF TRUST SECURES
A SENIOR SECURED PARTICIPATING PROMISSORY NOTE
THIS FIRST DEED OF TRUST, ASSIGNMENT OF RENTS, SECURITY ASSIGNMENT
AND FIXTURE FILING ("Deed of Trust"), is made and entered into as of the 18th
--------------
day of August, 1998, by and among The Badlands Golf Club Inc., a Nevada
corporation (the "Trustor"), whose principal place of business is 6303 Waterford
-------
Blvd., Suite 225, Oklahoma City, Oklahoma 73118, First American Title Company of
Nevada (the "Trustee"), whose principal place of business is 3760 Pecos McLeod
-------
Interconnect, Suite #7, Las Vegas, Nevada 89121-4253, and National Golf
Operating Partnership, L.P., a Delaware limited partnership (the "Beneficiary"),
-----------
whose principal place of business is 2951 28th Street, Santa Monica, CA 90405.
Terms not otherwise defined herein are defined in Exhibit B hereto.
TRUSTOR HEREBY GRANTS, TRANSFERS, CONVEYS AND ASSIGNS TO TRUSTEE, IN
TRUST, WITH POWER OF SALE, for the benefit and security of the Beneficiary,
under and subject to the terms and conditions hereinafter set forth;
<PAGE>
GRANTING CLAUSE ONE
(Land)
The right, title and interest of Trustor under that certain Ground
Lease made and entered into on April 28, 1993, by and between the William
Peccole 1982 Trust, a Nevada trust, and William Peter and Wanda Ruth Peccole
Family Ltd. Partnership, a Nevada limited partnership and Senior Tour Players,
Inc., a Massachusetts corporation, as amended and assigned, and that certain
Ground Lease made and entered into on June 4, 1996, by and between William Peter
and Wanda Lamb Peccole Family Limited Partnership, a Nevada limited
partnership, the Peccole 1982 Trust, William Peter Peccole and Wanda Lamb
Peccole 1971 Trust, William and Wanda Peccole 1991 Trust, Lisa Peccole Miller
1976 Trust, Laurie Peccole Bayne 1976 Trust, Leanne Peccole Goorjian 1976 Trust,
each a Nevada trust, and Senior Tour Players Development Inc., a Nevada
corporation, as assigned (together, the "Ground Leases"), and any other right,
-------------
title and interest of Borrower in real property in the City of Las Vegas, County
of Clark, State of Nevada, described in Exhibit A attached hereto and by this
reference incorporated herein (the "Land").
----
GRANTING CLAUSE TWO
(Improvements)
TOGETHER WITH, any and all buildings and improvements now or hereafter
erected on the Land, including, but not limited to, the fixtures, attachments,
appliances, equipment, machinery, and other articles attached to said buildings
and improvements, but specifically excluding personality of tenants of the
Property (the "Improvements") (the Land and Improvements are referred to
------------
collectively as the "Property").
--------
For purposes of this Deed of Trust, fixtures shall be deemed to
include, to the fullest extent allowed by law (but specifically excluding the
property of tenants of the Property), all equipment and machinery now or at any
time hereafter located or included in or on or appurtenant to the Property and
used in connection therewith and which are or become so related to the real
property encumbered hereby that an interest arises in them under real estate law
including, but not limited to: all machinery, equipment (including without
limitation pipes, furnaces, conveyors, drums, fire sprinklers and alarm-systems,
and air conditioning, heating, refrigerating, electronic monitoring, food
storage, food processing, trash and garbage removal and maintenance equipment),
office equipment, all built-in tables, chairs, planters, desks, sofas, shelves,
lockers and cabinets, all safes, furnishings, appliances (including without
limitation iceboxes, refrigerators, fans, heaters, water heaters and
incinerators), rugs, carpets and other floor coverings, draperies and drapery
rods and brackets, awnings, window shades, venetian blinds, curtains, lamps,
chandeliers and other lighting fixtures.
2
<PAGE>
GRANTING CLAUSE THREE
(Rents)
TOGETHER WITH, all rents, issues, profits, royalties, income and other
benefits derived from the Property (collectively the "Rents"), subject to the
-----
right, power and authority hereinafter given to Trustor to collect and apply
such rents.
GRANTING CLAUSE FOUR
(Leases, Deposits and Advance Rentals)
TOGETHER WITH, all leasehold estate, right, title and interest of
Trustor in and to all leases or subleases covering the Property or any portion
thereof now or hereafter existing or entered into, and all right, title and
interest of Trustor thereunder, including, without limitation, all cash or
security deposits, advance rentals, and deposits or payments of similar nature.
GRANTING CLAUSE FIVE
(Options to Purchase)
TOGETHER WITH, all right, title and interest of Trustor in and to all
options, rights of first refusal or similar rights to purchase or lease the
Property or any portion thereof or interest therein, and any greater estate in
the Property owned or hereafter acquired by Trustor.
GRANTING CLAUSE SIX
(All Additional Interests)
TOGETHER WITH, all interests, estates or other claims, both in law and
in equity, which Trustor now has or may hereafter acquire in the Property.
GRANTING CLAUSE SEVEN
(Easements)
TOGETHER WITH, all easements, rights-of-way and rights used in
connection therewith or as a means of access thereto or which are otherwise of
benefit thereto to the users thereof, and all tenements, hereditaments and
appurtenances thereof and thereto.
GRANTING CLAUSE EIGHT
(Right-of-Way)
TOGETHER WITH, all right, title and interest of Trustor, now owned or
hereafter acquired, in and to any land lying within the right-of-way of any
street, open or proposed, adjoining the Property, and any and all sidewalks,
alleys and strips and gores of land adjacent to or used in connection with the
Property.
3
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GRANTING CLAUSE NINE
(Personal Property)
TOGETHER WITH, all right, title and interest of Trustor in and to all
tangible personal property (the "Personal Property") owned or leased by Trustor
-----------------
and now or at any time hereafter located on or at the Property or used in
connection therewith, including, but not limited to: all goods, machinery,
tools, insurance proceeds, equipment (including without limitation electric golf
carts, maintenance equipment, fire sprinklers and alarm systems, air
conditioning, heating, refrigerating, electronic monitoring, entertainment,
recreational, window or structural cleaning rigs, maintenance, exclusion of
vermin or insects, removal of dust, refuse or garbage and all other equipment
of every kind), lobby and all other indoor and outdoor furniture (including
without limitation tables, chairs, planters, desks, sofas, shelves, lockers and
cabinets), wall beds, wall safes, furnishings, appliances (including without
limitation ice boxes, refrigerators, fans, heaters, stoves, water heaters and
incinerators), rugs, carpets and other floor coverings, draperies and drapery
rods and brackets, awnings, window shades, venetian blinds, curtains/lamps,
chandeliers and other lighting fixtures and office maintenance and other
supplies, and any and all materials, equipment and other items of personal
property which are stored or otherwise placed on the Land or at other locations
and are intended to be incorporated into the Improvements located or to be
located on the Land.
GRANTING CLAUSE TEN
(Condemnation Awards)
TOGETHER WITH, all the estate, interest, right, title, other claim or
demand, which Trustor now has or may hereafter acquire in any and all awards
made for the taking by eminent domain, or by any proceeding or purchase in lieu
thereof, of the whole or any part of the Trust Estate (as defined below),
including without limitation any awards resulting from a change of grade of
streets and awards for severance damages.
GRANTING CLAUSE ELEVEN
(Insurance Proceeds)
TOGETHER WITH, all the estate, interest, right, title and other
claim or demand which Trustor now has or may hereafter acquire against anyone
with respect to any damage to all or any part of the Trust Estate, including
without limitation, damage arising from any defect in or with respect to the
design or construction of all or any part of the Improvements and damage
resulting therefrom.
GRANTING CLAUSE TWELVE
(Claims for Damages)
TOGETHER WITH, all the estate, interest, right, title and other claim
or demand which Trustor now has or may hereafter acquire against anyone with
respect to any damage to all
4
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or any part of the Trust Estate, including without limitation, damage arising
from any defect in or with respect to the design or construction of all or any
part of the Improvements and damage resulting therefrom.
GRANTING CLAUSE THIRTEEN
(Water Rights)
TOGETHER WITH, all water rights and privileges pertaining to the use
and enjoyment of the Property, or otherwise appurtenant to the Land, including,
without limitation, the water rights of Trustor under the following Certificates
of Appropriation of Water issued by the State of Nevada (collectively, the
"Certificates"): Permit 51889, Certificate 12107; Permit 29277, Certificate
------------
10490, Permit 47546, Certificate 12106; and Permit 12065, Certificate 4979
(including any applications, deeds or other filings with the State Engineer of
the State of Nevada any and all rights derived therefrom); all right title and
interest in Mortgagor in and to that certain Conditional Water Commitment
Agreement dated April 4, 1995, by and between Mortgagor and the Las Vegas Valley
Water District (the "Commitment Agreement"); all right, title and interest of
--------------------
Mortgagor in and to that certain Purchase Agreement dated March 24, 1994, by and
between The William Peccole 1971 Trust, The William Peter and Wanda Ruth Peccole
Family Limited Partnership and Senior Tour Players, Inc. (the "Purchase
--------
Agreement"); all rents, revenues, income, issues, profits, other payments,
- ---------
security deposits and other benefits to which Mortgagor may now or hereafter be
entitled in connection with the Water Rights; and all proceeds, judgments,
claims, compensation, awards of damages and settlements with respect to or
hereafter made as a result of or in lieu of any condemnation or taking of the
Land or the Water Rights by eminent domain, all refunds with respect to the
payment of taxes and assessments, and all other proceeds of the conversion,
voluntary or involuntary, of the Land or the Water Rights, or any part thereof,
into cash or liquidated claims.
The water rights pertaining to the Land, including, without
limitation, those described in the Certificates, the Commitment Agreement and
the Purchase Agreement are herein sometimes referred to as the "Water Rights."
GRANTING CLAUSE FOURTEEN
(Deposits and Advance Payments of Insurance and Utilities)
TOGETHER WITH, all deposits or other security or advance payments
including without limitation rental payments made by or on behalf of Trustor to
others with respect to (i) insurance policies relating to all or any part of the
Trust Estate (ii) utility service for all or any part of the Trust Estate.,
(iii) cleaning, maintenance, repair, or similar services for all or any part of
the Trust Estate (iv) refuse removal or sewer service for all or any part of the
Trust Estate, (v) rental of equipment, if any, used in the operation by or on
behalf of Trustor of all or any part of the Trust Estate, and (vi) parking or
similar services or rights afforded to all or any part of the Trust Estate.
The entire estate, property and interest hereby, conveyed to Trustee
may hereafter be referred to as the "Trust Estate."
------------
5
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FOR THE PURPOSE OF SECURING:
a. Payment of indebtedness in the total principal amount of
$22,648,535.49, plus principal in an amount up to $315,000 representing the
Capital Improvement Advance made concurrently herewith or after the date hereof,
evidenced by that certain Secured Participating Promissory Note of even date
herewith (the "Note"), with a maturity date which is 15 years after the date
----
hereof, which has been delivered to and is payable to the order of Beneficiary,
and which by this reference is hereby made a part hereof, and any and all
modifications, extensions and renewals thereof.
b. Payment of the Annual Base Interest, the Additional Interest and
Appreciation Participation (as each such term is defined in the Note).
c. Payment of all sums advanced by the Beneficiary pursuant to this
Deed of Trust to protect the Trust Estate, with interest thereon at the Overdue
Rate (as defined).
d. Payment of the other sums, with interest thereon, which may
hereafter be loaned to Trustor, or its successors or assigns, by the Beneficiary
when evidenced by a promissory note or notes reciting that they are secured by
this Deed of Trust.
e. Payment and performance of all other obligations under this Deed of
Trust, the Loan Agreement, the Note or any other Loan Instrument.
This Deed of Trust, the Note, the Loan Agreement, any guarantee
thereof and any other instrument given to evidence or further secure the
payment and performance of any obligation secured hereby may hereafter be
referred to as the "Loan Instruments." Capitalized terms used herein have the
----------------
meanings ascribed to such terms in Exhibit B hereto.
TO PROTECT THE SECURITY OF THIS DEED OF TRUST, TRUSTOR HEREBY
COVENANTS AND AGREES AS FOLLOWS:
ARTICLE I.
COVENANTS AND AGREEMENTS OF TRUSTOR
Trustor hereby covenants and agrees:
1.1. Payment of Secured Obligations. To pay when due (i) the principal
------------------------------
of, and the interest on, the indebtedness evidenced by the Note, (ii) the
Appreciation Participation under the Note, (iii) charges, fees and all other
sums as provided in the Loan Instruments and (iv) the principal of, and interest
on, any future advances secured by this Deed of Trust.
1.2. Maintenance, Repair, Alterations. To keep or cause to be kept the
-------------------------------
Trust Estate in good order, repair and appearance, and, except as otherwise
provided in Section 1.4, with reasonable promptness, make or cause to be made
-----------
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
6
<PAGE>
prior to the commencement of this Deed of Trust (concealed or otherwise).
Trustor shall maintain or cause to be maintained the Trust Estate in accordance
with industry standards. Trustor will not take or omit to take, or permit to be
taken or omitted to take, any action the taking or omission of which could
reasonably be expected to impair the value or the usefulness of the Property
or any part thereof for its Primary Intended Use. Nothing herein shall obligate
Trustor to make any capital improvements or replacements to the Property if the
Property can be repaired to the standard required by this Section 1.2, except as
may be required pursuant to the Loan Agreement.
1.3. Insurance.
---------
1.3.1. General Insurance Requirements. To at all times keep, or cause
------------------------------
to be kept, the Trust Estate insured with the kinds and amounts of insurance
described below. This insurance shall be written by companies authorized to do
insurance business in the State of Nevada. The policies must name Beneficiary as
an additional insured by way of a standard form of mortgagee's loss payable
endorsement. Losses shall be payable to Beneficiary and/or Trustor (and/or
Trustor's designee) as provided in Section 1.4. Any loss adjustment shall
-----------
require the written consent of Beneficiary and Trustor (and/or Trustor's
designee). Trustor shall furnish Beneficiary with original certificates of
insurance. At least thirty (30) days prior to the expiration of each such
policy, Trustor shall furnish Beneficiary with evidence satisfactory to
Beneficiary of the payment of premium and the reissuance of a policy continuing
insurance in force as required by this Deed of Trust. The policies on the Trust
Estate shall insure against the following risks:
(a) 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.
(b) Liability. Claims for personal injury or property damage under a
---------
policy of comprehensive general public liability insurance with amounts not less
than $10,000,000 per occurrence and in the aggregate.
(c) Flood. Flood (when the 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 Trustor shall not be required to participate in the National Flood
Insurance Program.
(d) Worker's Compensation. Adequate worker's compensation insurance
---------------------
coverage for all Persons employed by or on behalf of Trustor on the Property in
accordance with the requirements of applicable federal, state and local laws.
(e) Other Insurance. Such other insurance on or in connection with any
---------------
of the Property as Beneficiary 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 Property and located in the geographic area where
the Property is located; provided however, that Beneficiary shall bear the cost
of any such coverage requested under this subsection (e).
7
<PAGE>
1.3.2. Replacement Cost. In the event either party believes that the
----------------
Full Replacement Cost of the insured property has increased or decreased at any
time, 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 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 Trustor and Beneficiary, and Trustor shall
forthwith increase, or may decrease, the amount of the insurance carried
pursuant to this Section 1.3.2, 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.
1.3.3. Waiver of Subrogation. All insurance policies covering the
--------- -----------
Property including contents, fire and casualty insurance, shall expressly waive
any right of subrogation on the part of the insurer against Trustor, Beneficiary
and Lessee. Trustor agrees that the policies will include such waiver clause or
endorsement so long as the same are obtainable without extra cost.
1.3.4. Form Satisfactory, Etc., All of the policies of insurance
-----------------------
referred to in Section 1.3.1 shall be written in a form reasonably satisfactory
-------------
to Beneficiary and by insurance companies rated not less than XV by A.M. Best's
Insurance Guide. Trustor shall pay or shall cause to be paid all premiums for
the policies of insurance referred to in Section 1.3.1 and shall deliver
-------------
certificates thereof to Beneficiary prior to their effective date (and with
respect to any renewal policy, at least 10 days prior to the expiration of the
existing policy). En the event Trustor fails to satisfy its obligations under
this Section 1.3, Beneficiary shall be entitled, but shall have no obligation,
to effect such insurance and pay the premiums therefor, which premiums shall be
repayable to Beneficiary upon written demand as Additional Charges. Each insurer
mentioned in Section 1.3.1 shall agree, by endorsement on the policy or policies
-------------
issued by it, or by independent instrument furnished to Beneficiary, that it
will give to Beneficiary 30 days' written notice before the policy or policies
in question shall be altered, allowed to expire or canceled. Each such policy
shall also provide that any loss otherwise payable thereunder shall be payable
notwithstanding (i) any act or omission of Trustor or Lessee 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 Property for purposes more hazardous
than those permitted by the provisions of such policy, (iii) any foreclosure or
other action or proceeding taken by Beneficiary pursuant to the Loan Instruments
or (iv) any change in title to or ownership of the Property.
1.3.5. Change in Limits. In the event that Beneficiary shall at any
----------------
time reasonably determine on the basis of prudent industry practice that the
liability insurance carried by Trustor pursuant to Section 1.3.1(b) is either
----------------
excessive or insufficient, Beneficiary and Trustor 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 1.3.5; provided,
-------------- --------
however, that the deductibles for such insurance or the amount of such
- -------
insurance which is self retained by Trustor (or Lessee) shall be as reasonably
determined by Trustor (or Lessee) so long as Trustor (or Lessee) can reasonably
demonstrate its ability to satisfy such deductible or amount of such self-
retained insurance.
8
<PAGE>
1.3.6. Blanket Policy. Notwithstanding anything to the contrary
--------------
contained in this Section 1.3, Trustor'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 or on behalf of
Trustor; provided, however, that the coverage afforded Beneficiary 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 Deed of Trust by
reason of the use of such blanket policy of insurance, and provided further that
the requirements of this Section 1.3 are otherwise satisfied. The amount of the
-----------
total insurance allocated to the Property, which amount shall be not less than
the amounts required pursuant to Section 1.3.1, shall be specified either (i)
-------------
in each such "blanket" or umbrella policy or (ii) in a written statement, which
Trustor shall deliver, or cause to be delivered, to Beneficiary, from the
insurer thereunder. A certificate of each such "blanket" or umbrella policy
shall promptly be delivered to Beneficiary.
1.3.7. Failure to Maintain Insurance. In the event Trustor fails to
-----------------------------
provide, maintain, keep in force or deliver and furnish to Beneficiary the
policies of insurance required by this Section 1.3, Beneficiary may procure
-----------
such insurance or single-interest insurance for such risks covering
Beneficiary's interest, and Trustor shall pay all premiums thereon promptly upon
demand by Beneficiary, and until such payment is made by Trustor the amount of
all such premiums together with interest thereon at the Overdue Rate shall be
secured by this Deed of Trust. At any time following the occurrence of an Event
of Default by Trustor hereunder and at the request of Beneficiary, Trustor shall
deposit with Beneficiary in monthly installments an amount equal to one-twelfth
(1/12) of the aggregate annual insurance premiums on all policies of insurance
required by this Deed of Trust as reasonably estimated by Beneficiary. Trustor
further agrees, at any time following the occurrence of an event of default by
Trustor hereunder and upon Beneficiary's request, to cause all bills, statements
or other documents relating to the foregoing insurance premiums to be sent or
mailed directly to Beneficiary. Upon receipt of such bills, statements or other
documents' and providing Trustor has deposited sufficient funds with Beneficiary
pursuant to this Section 1.3.7, Beneficiary shall pay such amounts as may be due
-------------
thereunder out of the funds so deposited with Beneficiary. If at any time and
for any reason the funds deposited with Beneficiary are or will be insufficient
to pay such amounts as may then or subsequently be due, Beneficiary shall notify
Trustor and Trustor shall immediately deposit an amount equal to such deficiency
with Beneficiary. Notwithstanding the foregoing, nothing contained herein shall
cause Beneficiary to be deemed a trustee of said funds or to be obligated to pay
any amounts in excess of the amount of funds deposited with Beneficiary pursuant
to this Section 1.3.7. Beneficiary may not commingle said reserve with its own
--------------
funds and Trustor shall be entitled to any interest earned thereon.
1.4. Application of Insurance Proceeds.
---------------------------------
l.4.1. Insurance Proceeds. All proceeds of insurance payable by reason
------------------
of any loss or damage to the Property or any portion thereof, and insured under
any policy of insurance required by Section 1.3 shall (i) if greater than
-----------
$500,000, be paid to Beneficiary and held by Beneficiary and (ii) if less than
such amount, be paid to Trustor or its designee and held by Trustor or such
designee. 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 Property, or any portion thereof.
9
<PAGE>
1.4.2. Disbursement of Proceeds. Any proceeds held by Beneficiary or
------------------------
Trustor shall be paid out by Beneficiary or Trustor (or its designee) from time
to time for the reasonable costs of such reconstruction or repair; provided,
--------
however, that Beneficiary 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 Beneficiary, which approval
shall not be unreasonably withheld or delayed
and (B) appropriate waivers of mechanics' and
materialmen's liens shall have been filed;
(ii) at the time of any disbursement, subject to
Article II, no mechanics' or materialmen's liens
shall have been filed against any of the Property
and remain undischarged, unless a satisfactory
bond shall have been posted in accordance with
the laws of the State of Nevada;
(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 Beneficiary 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 Trustor (or
Trustor's designee), signed by the president or a
vice president of Trustor (or Trustor's
designee), describing the work for which payment
is requested, stating the cost incurred in
connection therewith, stating that Trustor (or
Trustor's designee) 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 Deed of Trust;
10
<PAGE>
(v) to the extent actually held by Beneficiary, (1)
the proceeds shall be held in a separate account
and shall not be commingled with Beneficiary'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;
(vi) such other reasonable conditions as Beneficiary
may impose; and
(vii) any excess proceeds of insurance remaining
after the completion of the restoration or
reconstruction of the Property (or in the event
Trustor is not required to restore or
reconstruct) shall be paid to Trustor. All
salvage resulting from any risk covered by
insurance shall belong to Trustor.
1.4.3. Reconstruction Covered by Insurance.
-----------------------------------
(a) Destruction Rendering Facility Unsuitable for its Primary Use. If
-------------------------------------------------------------
the Property is totally or partially destroyed from a risk covered by the
insurance described in Section 1.3, and the Facility thereby is rendered
-----------
Unsuitable For Its Primary Intended Use, Trustor shall, at its election, either
(A) diligently restore or cause the restoration of the Facility to substantially
the same condition as existed immediately before the damage or destruction.
(b) Destruction Not Rendering Facility Unsuitable for its Primary Use.
-----------------------------------------------------------------
If, the Property is totally or partially destroyed from a risk covered by the
insurance described in Section 1.3, but the Facility is not thereby rendered
-----------
Unsuitable For Its Primary Intended Use, Trustor shall diligently restore or
cause the restoration of the Facility to substantially the same condition as
existed immediately before the damage or destruction; provided however, that
Trustor shall not be required to restore the Personal Property and/or any
Improvements if failure to do so does not adversely affect the amount of
Additional Interest payable under the Note.
(c) Costs of Repair. If the cost of the repair or restoration exceeds
---------------
the amount of proceeds received by Beneficiary or Trustor (or Trustor's
designee) from the insurance required under Section 1.3, Trustor (or Trustor's
-----------
designee) shall pay for such excess cost of repair or restoration.
1.4.4. Reconstruction Not Covered by Insurance. If the Facility is
---------------------------------------
totally or materially destroyed from a risk not covered by the insurance
described in Section 1.3, whether or not such damage or destruction renders the
----------
Facility Unsuitable For Its Primary Intended Use, Trustor shall restore or cause
to be restored the Facility to substantially the same condition as existed
immediately before the damage or destruction.
1.5. Assignment of Policies upon Foreclosure. In the event of foreclosure
---------------------------------------
of this Deed of Trust or other transfer of title or assignment of the Trust
Estate in extinguishment, in whole or in part, of the debt secured hereby, all
right, title and interest of Trustor in and to all
11
<PAGE>
policies of insurance required by this section shall inure to the benefit of and
pass to the successor in interest to Trustor or the purchaser or grantee of the
Trust Estate.
1.6. Indemnification; Subrogation; Waiver of Offset.
----------------------------------------------
(a) If Beneficiary is made a party defendant to any litigation
concerning this Deed of Trust or the Trust Estate or any part thereof or
interest therein, or the occupancy thereof by Trustor, then Trustor shall
indemnify, defend and hold Beneficiary harmless from all liability by reason of
said litigation, including reasonable attorneys' fees and expenses incurred by
Beneficiary in any such litigation, whether or not any such litigation is
prosecuted to judgment; provided however, that this Section 1.6(a) shall not be
--------------
applicable to litigation resulting from the active negligence or willful
misconduct of Beneficiary. If Beneficiary commences an action against Trustor to
enforce any of the terms hereof or because of the breach by Trustor of any of
the terms hereof, or for the recovery of any sum secured hereby, Trustor shall
pay to Beneficiary reasonable attorneys' fees and expenses, and the right to
such attorneys' fees and expenses shall be deemed to have accrued on the
commencement of such action and shall be enforceable whether or not such action
is prosecuted to judgment. if Trustor breaches any term of this Deed of Trust,
Beneficiary may employ an attorney or attorneys to protect its rights hereunder,
and in the event of such employment following any breach by Trustor, Trustor
shall pay Beneficiary reasonable attorneys' fees and expenses incurred by
Beneficiary, whether or not an action is actually commenced against Trustor by
reason of breach.
(b) Trustor waives and all right to claim or recover against
Beneficiary, its officers, employees, agents and representatives, for loss or
damage to Trustor, the Trust Estate, Trustor's property or the property of
others under Trustor's control from any cause insured against or required to be
insured against by the provisions of this Deed of Trust.
(c) All sums payable by Trustor hereunder shall be paid without
notice, demand, counterclaim, setoff, deduction or defense and without
abatement, suspension, deferment, diminution or reduction, and the obligations
and liabilities of Trustor hereunder shall in no way be released, discharged or
otherwise affected (except as expressly herein) by reason of: (i) any damage to
or destruction of or any condemnation or similar taking of the Trust Estate or
any part thereof; (ii) any restriction or prevention of or interference with any
use of the Trust Estate or any part thereof; (iii) any title defect or
encumbrance or any eviction from the Property or the Improvements or any part
thereof by title paramount or otherwise; (iv) any bankruptcy, insolvency,
reorganization, composition, adjustment, dissolution, liquidation or other like
proceeding relating to Beneficiary, or any action taken with respect to this
Deed of Trust by any trustee or receiver of Beneficiary, or by any court, in any
such proceeding; (v) any claim which Trustor has or might have against
Beneficiary; (vi) any Event of Default or failure on the part of Beneficiary to
perform or comply with any of the terms hereof or of any other agreement with
Trustor; or (vii) any other occurrence whatsoever, whether similar or dissimilar
to the foregoing, whether or not Trustor shall have notice or knowledge of any
of the foregoing. Except as expressly provided herein, Trustor waives all rights
now or hereafter conferred by statute or otherwise to any abatement, suspension,
deferment, diminution or reduction of any sum secured hereby and payable by
Trustor.
12
<PAGE>
1.7. Taxes and Impositions.
---------------------
(a) Trustor agrees to pay or cause to be paid, prior to delinquency,
all real property taxes and assessments, general and special, and all other
taxes and assessments of any kind or nature whatsoever, including without
limitation nongovernmental levies or assessments such as maintenance charges,
owner association dues or charges or fees, levies or charges resulting from
covenants, conditions and restrictions affecting the Trust Estate, which are
assessed or imposed upon the Trust Estate, or become due and payable, and which
create, may create or appear to create a lien upon the Trust Estate, or any part
thereof, or upon any Personal Property (all of which taxes, assessments and
other governmental charges of like nature are hereinafter referred to as
"Impositions") provided, however, that if, by law, any such Imposition is
-----------
payable, or may at the option of the taxpayer be paid, in installments, Trustor
may pay the same together with any accrued interest on the unpaid balance of
such Imposition in installments as the same become due and before any fine,
penalty, interest or cost may be added thereto for the nonpayment of any such
installment and interest.
(b) If at any time after the date hereof there shall be assessed or
imposed (i) a tax or assessment on the Trust Estate in lieu of or in addition to
the Impositions payable by Trustor pursuant to subparagraph (a) hereof, or (ii)
a license fee, tax or assessment imposed on Beneficiary, and measured by or
based in whole or in part upon the amount of the outstanding obligations secured
hereby, then all such taxes, assessments or fees shall be deemed to be included
within the term "Impositions" as defined in subparagraph (a) hereof, and Trustor
shall pay and discharge the same as herein provided with respect to the payment
of Impositions. Anything to the contrary herein notwithstanding, Trustor shall
have no obligation to pay any franchise, estate, inheritance, income, excess
profits or similar tax levied on Beneficiary or on the obligations secured
hereby.
(c) Subject to the provisions of subparagraph (d) of this Section 1.7,
-----------
Trustor covenants to promptly furnish Beneficiary official receipts of the
appropriate taxing authority, or other proof satisfactory to Beneficiary,
evidencing the payments thereof, such as canceled checks.
(d) Trustor shall have the right before any delinquency occurs to
contest or object to the amount or validity of any such Imposition in accordance
with Article II.
(e) At any time following an Event of Default by Trustor hereunder and
upon the written request of Beneficiary, Trustor shall deposit with Beneficiary
monthly an amount equal to one-twelfth (1/12) of the annual Impositions
reasonably estimated by Beneficiary to pay the installment of taxes next due on
the Trust Estate. In such event Trustor further agrees to cause all bills,
statements or other documents relating to Impositions to be sent or mailed
directly to Beneficiary or such person as Beneficiary shall designate. Upon
receipt of such bills, statements or other documents, and providing Trustor has
deposited sufficient funds with Beneficiary pursuant to this Section 1.7,
-----------
Beneficiary shall pay such amounts as may be due thereunder out of the funds so
deposited with Beneficiary. If at any time and for any reason the funds
deposited with Beneficiary are or will be insufficient to pay such amounts as
may then or subsequently be due, Beneficiary shall notify Trustor and Trustor
shall immediately deposit an
13
<PAGE>
amount equal to such deficiency with Beneficiary. Notwithstanding the foregoing,
nothing contained herein shall cause Beneficiary to be deemed a trustee of said
funds or to be obligated to pay any amounts in excess of the amount of funds
deposited with Beneficiary pursuant to this Section 1.7. Beneficiary may not
-----------
commingle said reserve with its own funds and Trustor shall be entitled to any
interest earned thereon pending disbursement or application hereunder. To the
extent said reserve is not used to pay said annual Impositions, Beneficiary may
impound or reserve for future payment of Impositions such portion of such
payments as Beneficiary may in its sole and absolute discretion deem proper,
applying the balance, if any, on the principal of or interest on the obligations
secured hereby.
Should Trustor fail to deposit with Beneficiary (exclusive of that
portion of said payments which has been applied by Beneficiary on the principal
of or interest on the obligations secured hereunder) sums sufficient to fully
pay such Impositions at least 30 days before delinquency thereof, Beneficiary
may, at Beneficiary's election, but without any obligation so to do, advance any
amounts required to make up the deficiency. Said advances, if any, shall be
secured hereby and shall be repayable to Beneficiary as herein elsewhere
provided, or at Beneficiary's option, in its sole and absolute discretion, and
without making any advance whatever, Beneficiary may apply any sums held by it
upon any obligation of the Trustor secured hereby.
Should any Event of Default occur or exist under the terms of the Loan
Instruments, Beneficiary may, at any time at Beneficiary's option, in its sole
and absolute discretion, apply any sums or amounts in its hands received
pursuant hereto, or as rents or income of the Trust Estate or otherwise, upon
any indebtedness or obligation of the Trustor secured hereby in such manner and
order as Beneficiary may elect. The receipt, use or application of any such sums
paid by Trustor to Beneficiary hereunder shall not be construed to affect the
maturity of any indebtedness secured by this Deed of Trust or any of the rights
or powers of Beneficiary or Trustee under the terms of the Loan Instruments or
any of the obligations of Trustor under this Loan Instrument.
(f) Trustor covenants and agrees not to suffer, permit or initiate the
joint assessment of the real and personal property, or any other procedure
whereby the lien of the real property taxes and the lien of the personal
property taxes shall be assessed, levied or charged to the Trust Estate as a
single lien.
(g) If requested by Beneficiary, Trustor shall at its expense cause to
be furnished to Beneficiary a tax reporting service covering the Trust Estate of
the type and duration and with a company satisfactory to Beneficiary.
1.8. Utilities. To pay or cause to be paid when due all utility
---------
charges which are incurred for the benefit of the Trust Estate or which may
become a charge or lien against the Trust Estate for gas, electricity, water or
sewer services furnished to the Trust Estate and all other assessments or
charges of a similar nature, whether public or private, affecting the Trust
Estate or any portion thereof, whether or not such taxes, assessments or
charges are liens thereon.
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1.9. Actions Affecting Trust Estate. To appear in and contest any
------------------------------
action or proceeding purporting to affect the security hereof or the rights or
powers of Beneficiary or Trustee; and to pay all costs and expenses, including
cost of evidence of title and reasonable attorneys' fees, in any such action or
proceeding-in which Beneficiary or Trustee may appear.
1.10. Actions by Trustee and/or Beneficiary to Preserve Trust Estate.
--------------------------------------------------------------
That should Trustor fail to make any payment or to do any act as and in the
manner provided in any of the Loan Instruments, Beneficiary and/or Trustee, each
in its own discretion, without obligation to do so, but with private notice to
or demand upon Trustor and without releasing Trustor from any obligation, may
make or do the same in such manner and to such extent as either may deem
necessary to protect the security hereof. In connection therewith (without
limiting their general powers), Beneficiary and/or Trustee shall have and are
hereby given the right, but not the obligation, (i) after the occurrence of an
Event of Default, to enter upon and take possession of the Trust Estate; (ii)
after the occurrence of an Event of Default, to make additions, alterations,
repairs and improvements to the Trust Estate which they or either of them may
consider necessary or proper to keep the Trust Estate in good condition and
repair; (iii) to appear and participate in any action or proceeding affecting or
which may affect the security hereof or the rights or powers of Beneficiary or
Trustee; (iv) to pay, purchase, contest or compromise any encumbrance, claim,
charge, lien or debt which in the judgment of either may affect or appears to
affect the security of this Deed of Trust or be prior or superior hereto; and
(v) in exercising such powers, to pay necessary expenses, including employment
of counsel or other necessary or desirable consultants. Trustor shall,
immediately upon demand therefor by Beneficiary, pay all costs and expenses
incurred by Beneficiary in connection with the exercise by Beneficiary of the
foregoing rights, including without limitation costs of evidence of title, court
costs, appraisals, surveys and reasonable attorneys' fees.
1.11 Ground Leases.
-------------
(a) Trustor agrees to perform, or cause to be performed, in a timely
manner, all of Trustor's obligations pursuant to the Ground Leases.
(b) Trustor agrees to extend, or cause to be extended, to the maximum
number of years permitted thereunder, the term of the Ground Leases, and to
provide evidence of such action to Beneficiary.
(c) Trustor agrees to enforce all of the agreements and
obligations of the landlords under the Ground Leases.
(d) Without the prior written consent of Beneficiary, Trustor will not
(i) modify or amend the Ground Leases or any of the terms thereof, (ii) agree
with landlords to terminate the Ground Leases, or (iii) consent to any
termination of the Ground Leases by landlords.
1.12 Eminent Domain. That should the Trust Estate, or any part thereof
---------------
or interest therein, be taken or damaged by reason of Condemnation, or in any
other manner, or
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should Trustor receive any notice or other information regarding same Trustor
shall give prompt written notice thereof to Beneficiary.
(a) In the event of a total taking of the Trust Estate, Beneficiary
shall be entitled to all Awards (only to the extent of debt secured by the Note)
and shall be entitled at its option to commence, appear in and prosecute in its
own name any action or proceedings. Subject to Trustor's written approval,
which approval shall not be unreasonably withheld, Beneficiary shall also be
entitled to make any compromise or settlement in connection with such taking or
damage. All such Awards (only to the extent of debt secured by the Note) are
hereby assigned to Beneficiary and Trustor agrees to execute such further
assignments of the Awards as Beneficiary or Trustee may require. Any Award in
excess of the debt secured by the Note shall be given to Trustor.
(b) In the event of a partial taking of the Trust Estate, Trustor at
its cost shall accomplish all necessary restoration up to but not exceeding the
amount of the Award payable to Trustor. All Awards payable by reason of a
partial taking shall (i) if greater than $500,000, be paid to Beneficiary and
held by Beneficiary and (ii) if less than such amount, be paid to Trustor or its
designee and held by Trustor or such designee. 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 Trust Estate, or any portion
thereof. All awards held by Beneficiary shall be disbursed pursuant to the
provisions of Section 1.4.2 of this Deed of Trust.
-------------
1.13 Additional Security. That, in the event Beneficiary at any time
--------------------
holds additional security for any of the obligations secured hereby, it may
enforce the sale therefor otherwise realize upon the same, at its option, either
before or concurrently herewith or after a sale is made hereunder.
1.14. Appointment of Successor Trustee. That Beneficiary may, from
--------------------------------
time to time, by a written instrument executed and acknowledged by Beneficiary,
mailed to Trustor and recorded in the County in which the Trust Estate is
located and by otherwise complying with the provisions of the applicable law of
the State of Nevada, substitute a successor or successors to the Trustee named
herein or acting hereunder.
1.15. Successors and Assigns. That this Deed of Trust applies to,
----------------------
inures to the benefit of and binds all parties hereto, their heirs, legatees,
devisees, administrators, executors, successors and assigns. The term
"Beneficiary" shall mean the owner and holder of the Note, whether or not named
- ------------
as Beneficiary herein.
1.16. Inspections. That Beneficiary, or its agents, representatives or
-----------
workmen upon 48 hours' written notice to Trustor, are authorized to enter at any
reasonable time upon or in any part of the Trust Estate for the purpose of
inspecting the same and for the purpose of performing any of the acts it is
authorized to perform under the terms of any of the Loan Instruments.
Beneficiary, its agents, representative and/or workmen shall use all reasonable
efforts to minimize any disturbance to Trustor's operations caused by such
entry. During any such entry, Trustor shall have the right to have a
representative accompany Beneficiary, its agents, representatives and/or
workmen. Beneficiary shall indemnify, defend, protect and hold
16
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harmless Trustor from all damages, liabilities, claims, judgments, actions,
attorneys' fees, consultants' fees, costs and expenses arising from any entry
upon the Trust Estate pursuant to this Section 1.15.
------------
1.17. Liens Encumbrances and Other Title Matters.
------------------------------------------
1.17.1. Liens. Subject to the provisions of Article II hereof,
----- ----------
Trustor will not directly or indirectly create or allow to be created or to
remain, and will promptly discharge, or caused to be discharged at its expense,
any lien, encumbrance, attachment, title retention agreement or claim upon the
Property or any attachment, levy, claim or encumbrance in respect of the Trust
Estate or rents on the Property, not including, however:
(a) this Deed of Trust;
(b) the Lease;
(c) restrictions, liens and other encumbrances which are consented
to in writing by Beneficiary, or any easements granted pursuant to the
provisions of the Lease;
(d) 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 II; and
(e) 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 II) or not yet due.
1.17.2. Encroachments and Other Title Matters. Subject to the
-------------------------------------
provisions of Article II of this Deed of Trust, if any of the Improvements
shall, at any time, encroach upon any property, street or right-of-way
adjacent to the Property, or shall violate the agreements or conditions
contained in any lawful restrictive covenant or other agreement affecting the
Property, or any part thereof, or shall impair the rights of others under any
easement or right-of-way to which the Property is subject, or the use of the
Property is impaired, limited or interfered with by reason of the exercise of
the right of surface entry or any other rights under a Deed of Trust or
reservation of any oil, gas, water or other minerals, then Trustor shall
promptly protect, indemnify, save harmless and defend Beneficiary 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, or cause to be obtained, 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 Trustor or
Lessee; or (ii) make, or cause to be made, such changes in the Improvements, and
take, or cause to be taken, such other actions, as Trustor 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 Improvements, and in any event take all such
actions as may be necessary in order to
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be able to continue the operation of the Improvements for the Primary Intended
Use substantially in the manner and to the extent the Improvements were operated
prior to the assertion of such violation or encroachment. Trustor's obligations
under this Section 1.17.2 shall be in addition to and shall in no way charge or
--------------
diminish any obligation of any insurer under any policy of title or other
insurance.
1.18. Trustee's Powers. At any time, or from time to time, without
----------------
liability therefor and without notice, upon written request of Beneficiary and
presentation of this Deed of Trust and the Note secured hereby for endorsement,
and without affecting the personal liability of any person for payment of the
indebtedness secured hereby or the effect of this Deed of Trust upon the
remainder of said Trust Estate, Trustee may (i) reconvey any part of said Trust
Estate, (ii) consent in writing to the making of any map or plat thereof, (iii)
join with Trustor in granting any easement thereon, or (iv) join with Trustor in
any extension agreement or any agreement subordinating the lien or charge
hereof.
1.19. Beneficiary's Powers. Without affecting the liability of any
--------------------
other person liable for the payment of any obligation herein mentioned, and
without affecting the lien or charge of this Deed of Trust upon any portion of
the Property not then or theretofore released as security for the full amount of
all unpaid obligations, Beneficiary may, from time to time and without notice
(i) release any person so liable, (ii) extend the maturity or alter any of the
terms of any such obligation, (iii) grant other indulgences, (iv) release or
reconvey, or cause to be released or reconveyed at any time at Beneficiary's
option any parcel, portion or all of the Trust Estate, (v) take or release any
other or additional security for any obligation herein mentioned, or (vi) make
compositions or other arrangements with debtors in relation thereto.
1.20. Tradenames. At the request of Beneficiary, Trustor shall execute
----------
a certificate in form satisfactory to Beneficiary listing the tradenames under
which Trustor intends to operate the Trust Estate, and representing and
warranting that Trustor does business under no other tradenames with respect to
the Trust Estate. Trustor shall immediately notify beneficiary in writing of
any change in said tradenames, and shall, upon request of Beneficiary, execute
any additional financing statements and other certificates revised to reflect
the change in tradename.
1.21. Easement and Other Agreements. That Trustor shall faithfully
-----------------------------
perform each and every obligation assumed under any reciprocal agreement,
easement agreement, operating agreement, parking agreement and/or other
agreement affecting the Property or any portion thereof. All such material
agreements shall be satisfactory in form and substance to Beneficiary and, if
Beneficiary so requests, Trustor's rights and interests under any such agreement
shall be assigned to Beneficiary. Failure by Trustor to perform any obligation
under any such agreement and such failure is not cured within 3 days shall
constitute a default hereunder.
1.22. Survival of Warranties. To filly and faithfully satisfy and
----------------------
perform the obligations of Trustor contained in the Loan Instruments, and each
agreement of Trustor incorporated by reference therein or herein, and any
modification or amendment thereof. All representations, warranties and covenants
of Trustor contained therein or incorporated by reference therein or herein
shall survive the finding of the loan evidenced by the Note and shall
18
<PAGE>
remain continuing obligations, warranties and representations of Trustor during
any time when any portion of the obligations secured by this Deed of Trust
remain outstanding.
1.23. Environmental Covenants. That Trustor shall at all times comply
-----------------------
with the following requirements:
(a) Trustor shall not cause, permit or suffer any Hazardous Material
to be brought upon, treated, kept, stored, disposed of, discharged, released,
produced, manufactured, generated, refined or used upon, about or near the
Property or any portion thereof by Trustor, its agents, employees, contractors,
or invitees, or any other person, except in compliance with applicable law.
(b) Trustor shall not cause, permit or suffer the existence or the
commission by Trustor, its agents, employees, contractors, or invitees, or by
any other person of material violation of any Environmental Law upon, about or
beneath the Property or any portion thereof.
(c) Trustor shall not create or suffer to exist with respect to the
Property, or permit any of its agents to create or suffer to exist any lien,
security interest or other charge or encumbrance of any kind in favor any
governmental authority regarding the presence of any Hazardous Material or a
violation of Environmental Law, including without limitation, any lien imposed
pursuant to section 107(f) of the Superfund Amendments and Reauthorization Act
of 1986 (42 U.S.C. Section 9607(1)) or any similar state statute.
(d) Trustor shall promptly take, or cause to be taken, all actions
required by any federal, state or local governmental agency or political
subdivision or reasonably necessary to mitigate Environmental Damages or to
allow full economic use of the Property, which requirements or necessity arise
from the presence upon, about or beneath the Property, of a Hazardous Material
or a violation of Environmental Law for which Trustor is alleged to be liable.
Such actions shall include, but not be limited to, the investigation of the
environmental condition of the Property, the preparation of any feasibility
studies, reports or remedial plans, and the performance of any cleanup,
remediation, containment, operation, maintenance, monitoring or restoration
work, whether on or off of the Property. Trustor shall take, or cause to be
taken, all actions necessary to restore the Property to a condition allowable
under applicable law or governmental policies following the introduction of
Hazardous Material upon, about or beneath the Property. Trustor shall proceed
continuously and diligently with such investigatory and remedial actions,
provided that in all cases such actions shall be in accordance with all
applicable requirements of governmental entities. Any such actions shall be
performed in a good, safe and workmanlike manner and shall minimize any impact
on the business conducted at the Property. Trustor shall pay, or cause to be
paid, all costs in connection with such investigatory and remedial activities,
including but not limited to all power and utility costs, and any and all taxes
or fees that may be applicable to such activities, to the extent that such costs
are not paid or incurred by third parties. Trustor shall promptly provide, or
cause to be provided, to Beneficiary copies of testing results and reports in
Trustor's possession (or that are reasonably available to Trustor) that are
generated in connection with the above activities. Promptly upon completion of
such investigation and remediation, Trustor shall permanently seal or cap all
monitoring wells
19
<PAGE>
and test holes to industrial standards in compliance with applicable federal,
state and local laws and regulations, remove all associated equipment, and
restore the Property to the maximum extent possible, which shall include,
without limitation, the repair of any surface damage, including paving, caused
by such investigation or remediation hereunder.
(e) Immediately upon Trustor's learning, or having reasonable cause to
believe, that any Hazardous Material in a quantity sufficient to require
remediation under applicable law is located in, on or under the Property or any
adjacent property, Trustor shall notify Beneficiary in writing of (a) any
enforcement, cleanup, removal, or other governmental or regulatory action
instituted, completed or threatened; (b) any written claim made or threatened by
any Person against Trustor or the 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 Property, including any complaints, notices,
warnings or asserted violations in connection therewith. Receipt of such notice
shall not be deemed to create any obligation on the part of Beneficiary to
defend or otherwise respond to any such notification.
1.24. Use of Property. That the uses of the Property shall be limited
---------------
as follows:
1.24.1. Use. Trustor shall use the Property and the improvements
---
thereon for its Primary Intended Use and for such other uses as may be necessary
or incidental to such use. Trustor shall not use the Property or any portion
thereof, or permit the Property to be used, for any other use without the prior
written consent of Beneficiary, which consent shall not be unreasonably
withheld. No use shall be made or permitted to be made of the Property, and no
acts shall be done, which will cause the cancellation of any insurance policy
covering the Property or any part thereof, nor shall Trustor sell or otherwise
provide to patrons, or permit to be kept, used or sold in or about the 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. Trustor shall, at its sole cost,
comply with all of the requirements pertaining to the Property or other
improvements of any insurance board, association, organization or company
necessary for the maintenance of insurance, as herein provided, covering the
Property and the Personal Property or Lessee's Personal Property.
1.24.2. Specific Prohibited Uses. Trustor shall not use or occupy or
------------------------
permit the Property to be used or occupied nor do or permit anything to be done
in or on the Property, in a manner which would or might (i) violate any law,
rule or regulation or Legal Requirement, (ii) (except as permitted pursuant to
the Lease), cause structural injury to any of the Improvements or (iii)
constitute a public or private nuisance or waste. Trustor shall not allow any
Hazardous Material to be located in, on or under the Property, or any adjacent
property, or incorporated in the Facility or any improvements thereon except in
compliance with applicable law (including any Environmental Law). Trustor shall
not allow the Property to be used as a landfill or a waste disposal site, or a
manufacturing, distribution or disposal facility for any Hazardous Materials.
Trustor shall neither suffer nor permit the Property or any portion thereof or
the Personal Property to be used in such a manner as (i) might reasonably tend
to impair Trustor's title thereto or to any portion thereof, or (ii) may
reasonably make possible a claim or claims of adverse
20
<PAGE>
usage or adverse possession by the public, as such, or of implied dedication of
the Property or any portion thereof, or (iii) is in material violation of any
applicable Environmental Law.
1.25. Legal Requirements. Subject to Article II regarding permitted
------------------
contests, Trustor shall promptly (a) comply, or cause to be complied, with all
Legal Requirements and Insurance Requirements in respect of the use, operation,
maintenance, repair and restoration of the Property, whether or not compliance
therewith shall require structural changes in any of the Improvements or
interfere with the use and enjoyment of the Property; and (b) procure, maintain
and comply with all licenses and other authorizations required for any use of
the Property then being made, and for the proper erection, installation,
operation and maintenance of the Property or any part thereof.
ARTICLE II.
PERMITTED CONTESTS
Trustor, or Lessee on behalf of Trustor, may contest, by appropriate
legal proceedings conducted in good faith and with due diligence, the amount or
validity or application, in whole or in part, of any Imposition or any Legal
Requirement or Insurance Requirement or any lien, attachment, levy, encumbrance,
charge or claim not otherwise permitted by Section 1.17. 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 Trustor and from the
property, and neither the Property nor any rents 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, Trustor would not be subject
to criminal or material civil liability for failure to comply therewith pending
the outcome of such proceedings. Nothing herein, however, shall permit Trustor
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, Trustor shall give or cause to be given such reasonable
security, if any, as may be demanded by Beneficiary to insure ultimate payment
of the same and to prevent any sale or forfeiture of the affected Property or
the rents by reason of such non-payment or noncompliance;
(d) no such contest shall interfere in any material respect with the
use or occupancy of the Property;
(e) in the case of an Insurance Requirement, the coverage required by
Section 1.3 shall be maintained; and
- -----------
21
<PAGE>
(f) if such contest be finally resolved against Trustor or Lessee, as
applicable, Trustor or Lessee shall, 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.
ARTICLE III.
ASSIGNMENT OF LEASES, RENTS, ISSUES AND PROFITS
(a) Trustor hereby immediately and absolutely grants, transfers and
assigns to Beneficiary Trustor's entire interest in and to the Lease, written or
oral, and all agreements for the use and occupancy of all or any portion of the
premises, together with any and all extensions and renewals thereof and any and
all further leases, including subleases, upon all or any part of the premises,
and rent therein reserved, and any and all guarantees thereof, which may now or
hereinafter exist (all of such leases, agreements, subleases, guarantees and
tenancies being hereafter collectively referred to as the "leases" and
------
individually as a "lease").
-----
(b) Trustor warrants that it is the sole owner of the entire lessor's
interest in the leases; that the leases are valid and enforceable and have not
been altered, modified or amended in any manner whatsoever; that the lessees
named therein are not in default under any of the terms, covenants or
conditions thereof; that no rent reserved in the leases has been assigned or
anticipated and that no rent for any period subsequent to the date hereof has
been collected in advance of the time when the same became due under the terms
of the leases.
(c) Trustor covenants with Beneficiary to observe and perform all the
obligations imposed upon the lessor under the leases and not to do or permit to
be done anything to impair the security thereof; not to collect any of the rent,
income and profits arising or accruing under the leases or from the premises
described in this Deed of Trust in advance of the time when the same shall
become due; not to execute any other assignment of lessor's interest in the
leases or assignment of rents arising or accruing from the leases or from the
premises described in this Deed of Trust.
(d) So long as there shall exist no Event of Default, Trustor shall
have the right to collect at the time of, but not prior to the date provided for
the payment thereof, all rents, income and profits arising under the leases or
from the premises described therein and to retain, use and enjoy the same, and
all other rights of Trustor under the leases.
(e) While an Event of Default exists, Beneficiary without in any way
waiving such default may at its option without notice and without regard to the
adequacy of the security for the principal sum, interest and indebtedness
evidenced by the Note or secured hereby, either in person or by agent, with or
without bringing any action or proceeding, or by a receiver appointed by a
court, take possession of the premises described in the leases and/or this Deed
of Trust and have, hold, and cause to be managed, leased and operated the same
on such terms and for such period of time as Beneficiary may deem proper and
either with or without taking possession of the premises in its own name,
demand, sue for or otherwise collect and receive all rents, income and profits
of the premises, including those past due and unpaid with
22
<PAGE>
full power to make from time to time all alterations, renovations, repairs or
replacements thereto or thereof as may seem proper to Beneficiary and to apply
such rents, income and profits to the payment of: (a) all expenses of managing
the premises, including, without limitation, the salaries' fees and wages of a
managing agent and such other employees as Beneficiary may deem necessary or
desirable and all expenses of operating and maintaining the premises, including,
without limitation, all taxes, charges, claims, assessments, water and sewer
charges, any liens, and premiums for all insurance which Beneficiary may deem
necessary or desirable, and the cost of all alterations, renovations, repairs or
replacements, and all expenses incident to taking and retaining possession of
the premises; and (b) the principal sum, interest and indebtedness evidenced by
the Note or secured hereby, together with all costs and attorneys' fees, in such
order of priority as to any of the items mentioned in this paragraph (d) as
Beneficiary shall determine in its sole discretion, and collection of the rents,
issues, income and profits and the application thereof as herein provided shall
not be considered a waiver of any default by Trustor under the Note or this Deed
of Trust or under the leases.
(f) Beneficiary shall not be liable for any loss sustained by Trustor
resulting from Beneficiary's failure to let the premises after an Event of
Default or from any other act or omission of Beneficiary in causing the premises
to be managed after default unless such loss is caused by the active negligence,
willful misconduct or bad faith of Beneficiary. Nor shall Beneficiary be
obligated to perform or discharge nor does Beneficiary hereby undertake to
perform or discharge any obligation, duty or liability under the leases or under
or by reason of this Article III and Trustor shall, and does hereby agree, to
indemnify Beneficiary for, and to hold Beneficiary harmless from, any and all
liability, expense, loss or damage which may or might be incurred under the
leases or under or by reason of this Article III and from any and all claims
-----------
and demands whatsoever which may be asserted against Beneficiary by reason of
any alleged obligations or undertakings on its part to perform or discharge any
of the terms, covenants or agreements contained in the leases except those
resulting from Beneficiary's active negligence, willful misconduct or bad
faith. Should Beneficiary incur any such liability under the leases or under or
by reason of this Article III or in defense of any such claims or demands, the
-----------
amount thereof, including costs, expenses and reasonable attorneys' fees shall
be secured hereby and Trustor shall reimburse Beneficiary therefor immediately
upon demand and upon the failure of Trustor so to do Beneficiary may, at its
option, declare all sums evidenced by the Note or secured hereby immediately due
and payable. And it is further understood that this Article III shall not
-----------
operate to place responsibility for the control, care, management or repair of
the premises upon Beneficiary, nor for the carrying out of any of the terms and
conditions of the leases; nor shall it operate to make Beneficiary responsible
or liable for any waste committed on the property by the tenants or any other
parties, or for any dangerous or defective condition of the premises, or for any
negligence in the management, upkeep, repair or control of the premises
resulting in loss or injury or death to any tenant, licensee, employee or
stranger.
ARTICLE IV.
SECURITY AGREEMENT
4.1. Creation of a Security Interest. Trustor hereby grants to
-------------------------------
Beneficiary a security interest in the Personal Property, including without
limitation any and all property of
23
<PAGE>
similar type or kind hereafter located on or at the Property for the purpose of
securing all obligations of Trustor contained in any of the Loan Instruments.
4.2. Warranties, Representations and Covenants of Trustor. Trustor
----------------------------------------------------
hereby warrants, represents and covenants as follows:
(a) Except for the security interest granted hereby, Trustor is,
and as to portions of the Personal Property to be acquired after the date hereof
will be, the sole owner of the Personal Property, free from any adverse: lien,
security interest, encumbrance or adverse claim thereon; of any kind whatsoever.
Trustor will notify Beneficiary of, and will defend the Personal Property
against, all claims and demands of all persons at any time claiming the same or
any interest therein.
(b) Trustor will not lease, sell, convey or in any manner
transfer the Personal Property without the prior written consent of Beneficiary,
except for replacements or in the ordinary course of business.
(c) The Personal Property is not used or bought for personal,
family or household purposes.
(d) The Personal Property will be kept on or at the Property and
Trustor will not remove the Personal Property from the Property without the
prior written consent of Beneficiary, except such portions or items of Personal
Property which are consumed or worn out in ordinary usage, all of which shall be
promptly replaced by Trustor; provided, that Trustor may move items of Personal
Property to another golf course facility owned by it, as long as Trustor
promptly notifies Beneficiary in writing that such items of Personal Property
have been moved and discloses the new location of such items.
(e) Trustor maintains a chief executive office in the State of
Oklahoma, and Trustor will immediately notify Beneficiary in writing of any
change in its chief executive office as set forth in the beginning of this Deed
of Trust.
(f) At the request of Beneficiary, Trustor will join Beneficiary
in executing one or more financing statements and all renewals and amendments
thereof pursuant to the Uniform Commercial Code of the State of Nevada in form
satisfactory to Beneficiary and will pay the cost of filing the same in all
public offices wherever filing is deemed by Beneficiary to be necessary or
desirable.
(g) All covenants and obligations of Trustor contained herein
relating to the Trust Estate shall be deemed to apply to the Personal Property
whether or not expressly referred to herein.
(h) This Deed of Trust constitutes a Security Agreement as that
term is used in the Uniform Commercial Code of the State of Nevada.
(i) A portion of the goods encumbered hereby are, or are to
become, fixtures as that term is defined in Section 104.9313(l)(a) of the
Uniform Commercial Code of the
24
<PAGE>
State of Nevada.
ARTICLE V.
REMEDIES UPON DEFAULT
5.1. Events of Default. Any of the following events shall be deemed an
-----------------
event of default hereunder (an "Event of Default"):
----------------
(a) if Trustor shall fail to make payment of any installment of
principal or interest or any other sum secured hereby (including the Note) when
the same becomes due and payable and such failure is not cured within 3 days;
(b) a defined "Event of Default" shall occur under any other
Loan Document; or
(c) if Trustor shall fail to make payment of any sum due and
payable pursuant to the Ground Leases, or shall otherwise default with respect
to its obligations thereunder, and such failure or default is not cured within
10 days after the same becomes due and payable;
(d) if Trustor shall fail to make payment of any sum due and
payable under the terms of the Third Party Loan, or shall otherwise default with
respect thereto and such failure is not cured within 3 days;
(e) if Trustor 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 Trustor 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
25
<PAGE>
appointing without the consent of Trustor, a receiver of Trustor or of the whole
or substantially all of its property, or approving a petition filed against it
seeking reorganization or arrangement of Trustor 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 Trustor shall be liquidated or dissolved, or shall begin
proceedings toward such liquidation or dissolution;
(h) if an "Event of Default" under and as defined in the Lease
occurs and is not cured within any applicable grace or cure period;
(i) a default by Trustor in any payment of principal or interest
on any obligations for borrowed money having a principal balance of $500,000 or
more in the aggregate, or in the performance of any other provision contained in
any instrument under which any such obligation is created or secured (including
the breach of any covenant thereunder), if an effect of such default is that
the holder(s) of such obligation cause such obligation to become due prior to
its stated maturity;
(j) a final, non-appealable judgment or judgments for the
payment of money in excess of $500,000 in the aggregate not fully covered
(excluding deductibles) by insurance shall be rendered against Trustor and the
same shall remain undischarged, unvacated, unbonded or unstayed for a period of
60 consecutive days;
(k) there occurred a breach of or default under any term,
covenant, agreement, condition, provision, representation or warranty contained
in the Note, this Deed of Trust or the Loan Agreement, and such breach or
default continues uncured or unremedied 5 days after written notice to Trustor
by, Beneficiary, provided that if such breach or default cannot with due
diligence be cured within a period of 5 days, such breach or default shall not
be an Event of Default if Trustor proceeds promptly and with due diligence to
cure the failure and diligently completes the curing thereof; provided further,
however, that the cure period shall not extend beyond 5 days as otherwise
provided above if the facts or circumstances giving rise to the default are
creating a further harm to Beneficiary or the Property and Beneficiary makes a
good faith determination that Trustor is not undertaking remedial steps that
Beneficiary would cause to be taken if Beneficiary were in possession of the
Property;
(l) if Trustor shall, without complying with the provisions of
the Loan Documents related thereto, engage in a Transfer of the Property; or
(m) if Trustor shall incur, or permit to be incurred, any Lien
with respect to the Trust Estate or any portion thereof or interest therein,
except as provided in Section 1.17 hereof.
------------
5.2. Acceleration Upon Default: Additional Remedies. In the event of
----------------------------------------------
any Event of Default, Beneficiary may declare all indebtedness secured hereby to
be due and payable and the same shall thereupon become due and payable without
any presentment, demand, protest or notice of any kind. Thereafter, Beneficiary
may:
26
<PAGE>
(a) Either in person or by agent, with or without bringing any
action or proceeding, or by a receiver appointed by a court and without regard
to the adequacy of its security, enter upon and take possession of the Trust
Estate, or any part thereof, in its own name or in the name of Trustee, and do
any acts which it deems necessary or desirable to preserve the value,
marketability or rentability of the Trust Estate, or any part thereof or
interest therein, increase the income therefrom or protect the security hereof
and, with or without taking possession of the Trust Estate, sue for or otherwise
collect the rents, issues and profits thereof, including those past due and
unpaid, and apply the same, less costs and expenses of operation and collection
including reasonable attorneys, fees, upon any indebtedness secured hereby, all
in such order as Beneficiary may determine. The entering upon and taking
possession of the Trust Estate, the collection of such rents, issues and profits
and the application thereof as aforesaid, shall not cure or waive any default or
notice of default hereunder or invalidate any act done in response to such
default or pursuant to such notice of default and, notwithstanding the
continuance in Possession of the Trust Estate or the collection, receipt and
application of rents, issues or profits, Trustee or Beneficiary shall be
entitled to exercise every right provided for in any of the Loan Instruments or
by law upon occurrence of any event of default, including the right to exercise
the power of sale;
(b) Commence an action to foreclose this Deed of Trust as a
mortgage, appoint a receiver, or specifically enforce any of the covenants
hereof;
(c) Exercise any or all of the remedies available to a secured
party under the Uniform Commercial Code of the State, including, but not limited
to:
(1) Either personally or by means of a court appointed
receiver, take possession of all or any of the Personal Property and exclude
therefrom Trustor and all others claiming under Trustor, and thereafter hold,
store, use, operate, manage, maintain and control, make repairs, replacements,
alterations, additions and improvements to and exercise all rights and powers of
Trustor in respect to the Personal Property or any part thereof. In the event
Beneficiary demands or attempts to take possession of the Personal Property in
the exercise of any rights under any of the Loan Instruments, Trustor promises
and agrees to promptly turn over and deliver complete possession thereof to
Beneficiary;
(2) Without notice to or demand upon Trustor, make such
payments and do such acts as Beneficiary may deem necessary to protect its
security interest in the Personal Property, including without limitation,
paying, purchasing, contesting or compromising any encumbrance, charge or lien
which is prior to or superior to the security interest granted hereunder, and in
exercising any such powers or authority to pay all expenses incurred in
connection therewith;
(3) Require Trustor to assemble the Personal Property
or any portion thereof, at a place designated by Beneficiary and reasonably
convenient to both parties, and promptly to deliver such Personal Property to
Beneficiary, or an agent or representative designated by it. Beneficiary and its
agents and representatives shall have the right to enter upon any or all of
Trustor's premises and property to exercise Beneficiary's rights hereunder;
27
<PAGE>
(4) Sell, lease or otherwise dispose of the Personal
Property at public sale, with or without having the Personal Property at the
place of sale, and upon such terms and in such manner as Beneficiary may
determine. Beneficiary may be a purchaser at any such sale; and
(5) Unless the Personal Property is perishable or
threatens to decline speedily in value or is of a type customarily sold on a
recognized market, Beneficiary shall give Trustor at least 10 days prior written
notice of the time and place of any public sale of the Personal Property or
other intended disposition thereof. Such notice may be mailed to Trustor at the
address set forth at the beginning of this Deed of Trust.
(d) Direct the Trustee to proceed to foreclose this Deed of Trust
by exercise of the power of sale herein contained in accordance with the Nevada
Revised Statutes Section 107.080 as the same may be amended from time to time.
(e) Any other remedy permitted to be exercised by the beneficiary
of a deed of trust or a secured party or both under the laws of the State of
Nevada.
5.3. Foreclosure By Power of Sale. If Beneficiary invokes the power of
----------------------------
sale herein contained, Trustee shall advertise and provide notice of sale of the
Trust Estate for the time and in the manner provided by the NRS. Trustee shall
then, without necessity of further demand upon Trustor, sell the Trust Estate at
public auction for the highest total price bid in a form satisfactory to the
Trustee at the time and place and under the terms designated in the notice of
sale. Beneficiary or Beneficiary's designee may purchase the Trust Estate at any
sale. Trustee shall deliver to the purchaser the Trustee's deed conveying all of
the Trustee's right, title and interest in the Trust Estate so sold, but without
any covenant or warranty, express or implied. Trustee shall apply the proceeds
of the sale in accordance with the NRS. Trustee may postpone or cancel any sale
of all or any portion of the Trust Estate in the manner provided by the NRS.
5.4. Appointment of Receiver. If an Event of Default described in
-----------------------
Section 5.1 of this Deed of Trust shall have occurred and be continuing,
- -----------
Beneficiary, as a matter of right and without notice to Trustor or anyone
claiming under Trustor, and without regard to the then value of the Trust Estate
or the interest of Trustor therein, shall have the right to apply to any court
having jurisdiction to appoint a receiver or receivers of the Trust Estate, and
Trustor hereby irrevocably consents to such appointment and waives notice of any
application therefor. Any such receiver or receivers shall have all the usual
powers and duties of receivers in like or similar cases and all the powers and
duties of Beneficiary in case of entry as provided in Section 5.2 and shall
-----------
continue as such and exercise all such powers until the date of confirmation of
sale of the Trust Estate unless such receivership is sooner terminated.
5.5. Remedies Not Exclusive. Trustee and Beneficiary, and each of
----------------------
them, shall be entitled to enforce payment and performance of any indebtedness
or obligations secured hereby and to exercise all rights and powers under this
Deed of Trust or under any Loan Instrument or other agreement or any laws now or
hereafter in force, notwithstanding some or all of the said indebtedness and
obligations secured hereby may now or hereafter be otherwise secured whether by
mortgage, deed of trust, pledge, lien, assignment or otherwise. Neither the
28
<PAGE>
acceptance of this Deed of Trust nor its enforcement whether by court action or
pursuant to the power of sale or other powers herein contained, shall prejudice
or in any manner affect Trustee's or Beneficiary's right to realize upon or
enforce any other security now or hereafter held by Trustee or Beneficiary, it
being agreed that Trustee and Beneficiary, and each of them, shall be entitled
to enforce this Deed of Trust and any other security now or hereafter held by
Beneficiary or Trustee in such order and manner as they or either of them may in
their absolute discretion determine. No remedy herein conferred upon or reserved
to Trustee or Beneficiary is intended to be exclusive of any other remedy herein
or by law provided or permitted, but each shall be cumulative and shall be in
addition to every other remedy given hereunder or now or hereafter existing at
law or in equity or by statute. Every power or remedy given by any of the Loan
Instruments to Trustee or Beneficiary or to which either of them may be
otherwise entitled, may be exercised, concurrently or independently, from time
to time and as often as may be deemed expedient by Trustee or Beneficiary and
either of them may pursue inconsistent remedies.
5.6. Request for Notice. Trustor hereby requests a copy of any
------------------
notice of default and that any notice of sale hereunder be mailed to it at the
address set forth in the first paragraph of this Deed of Trust.
5.7. Charge for Statement. Trustor shall pay to Beneficiary the
--------------------
maximum amount allowed by law for each statement requested by Trustor regarding
the obligations secured by this Deed of Trust.
ARTICLE VI.
MISCELLANEOUS
6.1. Governing Law. This Deed of Trust shall be governed by the
-------------
internal laws of the State of Nevada. In the event that any provision or clause
of any of the Loan Instruments conflicts with applicable laws, such conflicts
shall not affect other provisions of such Loan Instruments which can be given
effect without the conflicting provision, and to this end the provisions of the
Loan Instruments are declared to be severable. This instrument cannot be waived,
changed, discharged or terminated orally, but only by an instrument in writing
signed by the party against whom enforcement of any waiver, change, discharge or
termination is sought.
6.2. Trustor Waiver of Rights. Trustor waives the benefit of all laws
------------------------
now existing or that hereafter may be enacted providing for (i) any appraisal
before sale of any portion of the Trust Estate, and (ii) the benefit of all laws
that hereafter may be enacted in any way extending the time for the enforcement
of the collection of the Note or the debt evidenced thereby or creating or
extending a period of redemption from any sale made in collecting said debt. To
the fullest extent Trustor may do so, Trustor agrees that Trustor will not at
any time insist upon, plead, claim or take the benefit or advantage of any law
now or hereafter in force providing for any appraisement, valuation, stay,
extension or redemption, and Trustor, for Trustor, Trustor's heirs, devisees'
representatives, successors and assigns, and for any and all persons ever
claiming any interest in the Trust Estate, to the extent permitted by law,
hereby waives and releases all rights of redemption, valuation, appraisement,
stay of execution, notice of election to mature or declare due the whole of the
secured indebtedness and marshalling in the
29
<PAGE>
event of foreclosure of the liens hereby created. If any law referred to in this
Section and now in force, of which Trustor, Trustor's heirs, devisees,
representatives, successors and assigns or other person might take advantage
despite this Section, shall hereafter be repealed or cease to be in force, such
law shall not thereafter be deemed to preclude the application of this Section.
Trustor expressly waives and relinquishes any and all rights and remedies which
Trustor may have or be able to assert by reason of the laws of the state
pertaining to the rights and remedies of sureties.
6.3. Limitation of Interest. It is the intent of Trustor and
----------------------
Beneficiary in the execution of this Deed of Trust and the Note and all other
instruments securing the Note to contact in strict compliance with the usury
laws of the State of Nevada governing the loan evidenced by the Note. In
furtherance thereof, Beneficiary and Trustor stipulate and agree that none of
the terms and provisions contained in the Loan Instruments shall ever be
construed to create a contract for the use, forbearance or detention of money
requiring payment of interest at a rate in excess of the maximum interest rate
permitted to be charged by the laws of the State of Nevada governing the loan
evidenced by the Note. Trustor or any guarantor, endorser or other party now or
hereafter becoming liable for the payment of the Note shall never be liable for
unearned interest on the Note and shall never be required to pay interest on the
Note at a rate in excess of the maximum interest that may be lawfully charged
under the laws of the State of Nevada and the provisions of this Section shall
control over all other provisions of the Note and any other instrument executed
in connection herewith which may be in apparent conflict herewith. In the event
any holder of the Note shall collect moneys which are deemed to constitute
interest which would otherwise increase the effective interest rate on the Note
to a rate in excess of that permitted to be charged by the laws of the State of
Nevada, all such sums deemed to constitute interest in excess of the legal rate
shall be immediately returned to the Trustor upon such determination.
6.4. Statements by Trustor. Trustor, within 10 days after being given
---------------------
notice by mail, will furnish to Beneficiary a written statement stating the
unpaid principal of and interest on the Note and any other amounts secured by
this Deed of Trust and stating whether any offset or defense exists against such
principal and interest.
6.5. Reconveyance by Trustee. Upon written request of Beneficiary
-----------------------
stating that all sums secured hereby have been paid, and upon surrender of this
Deed of Trust and the Note to Trustee for cancellation and retention and upon
payment by Trustor of Trustee's fees, Trustee shall reconvey to Trustor, or the
person or persons legally entitled thereto, without warranty, any portion of the
Trust Estate then held hereunder. The recitals in such reconveyance of any
matters or facts shall be conclusive proof of the truthfulness thereof. The
grantee in any reconveyance may be described as "the person or persons legally
entitled thereto."
6.6. Notices. Whenever Beneficiary, Trustor or Trustee shall desire to
-------
give or serve any notice, demand, request or other communication with respect to
this Deed of Trust, each such notice, demand, request or other communication
shall be in writing and shall be addressed and mailed in accordance with the
provisions of the Loan Agreement.
6.7. Acceptance by Trustee. Trustee accepts this Trust when this Deed
---------------------
of Trust, duly executed and acknowledged, is made a public record as provided by
law.
30
<PAGE>
6.8. Captions. The captions or headings at the beginning of each
---------
Section hereof are for the convenience of the parties and are not a part of this
Deed of Trust.
6.9. Invalidity of Certain Provisions. If the lien of this Deed of
--------------------------------
Trust is invalid or unenforceable as to any part of the debt, or if the lien is
invalid or unenforceable as to any part of the Trust Estate, the unsecured or
partially secured portion of the debt shall be completely paid prior to the
payment of the remaining and secured or partially secured portion of the debt,
and all payments made on the debt, whether voluntary or under foreclosure or
other enforcement action or procedure, shall be considered to have been first
paid on and applied to the full payment of that portion of the debt which is not
secured or fully secured by the lien of this Deed of Trust.
6.10. Subrogation. To the extent that proceeds of the Note are owed
-----------
to pay any outstanding lien, charge or prior encumbrance against the Trust
Estate, such proceeds have been or will be advanced by Beneficiary at Trustor's
request and Beneficiary shall be subrogated to any and all rights and liens owed
by any owner or holder of such outstanding liens, charges and prior
encumbrances, irrespective of whether said liens, charges or encumbrances are
released.
6.11. No Merger. If both the lessor's and lessee's estates under any
---------
lease or any portion thereof which constitutes a part of the Trust Estate shall
at any time become vested in one owner, this Deed of Trust and the lien created
hereby shall not be destroyed or terminated by application of the doctrine of
merger and, in such event, Beneficiary shall continue to have and enjoy all of
the rights in and privileges of Beneficiary as to the separate estates. In
addition, upon the foreclosure of the lien created by this Deed of Trust on the
Trust Estate pursuant to the provisions hereof, any leases or subleases then
existing and created by Trustor shall not be destroyed or terminated by
application of the law of merger or as a matter of law or as a result of such
foreclosure unless Beneficiary or any purchaser at any such foreclosure sale
shall so elect. No act by or on behalf of Beneficiary or any such purchaser
shall constitute a termination of any lease or sublease unless Beneficiary or
such purchaser shall give written notice thereof to such tenant or subtenant.
6.12. Due on Sale, Encumbrances etc. That (a) if at any time Trustor
-----------------------------
should, without the prior consent in writing of Beneficiary, hypothecate or
encumber (except as expressly permitted hereby) its interest in the Property or
any part thereof, or if by operation of law the Trustor's interest in the
Property or any part thereof be hypothecated or encumbered, or (b) if a sale of
the Property shall occur, then Beneficiary may, at its option, declare all sums
secured hereby immediately due and payable. Consent to such a transaction shall
not be deemed to be a waiver of Beneficiary's right to require such consent to
further or successive transactions.
6.13. Use of Trust Estate. Trustor represents to Beneficiary that the
-------------------
Trust Estate is not used principally for agricultural or farming purposes.
6.14. Limitations on Recourse. Notwithstanding anything in this Deed
-----------------------
of Trust to the contrary, Beneficiary's recourse for collection of any amounts
due under the Loan Instruments shall be limited to the interest of Trustor
(including any constituent partners of Trustor and, if Trustor is a trust, the
trustees and beneficiaries of such trust, and all of their respective successors
and assigns) in the Trust Estate under this Deed of Trust; provided,
31
<PAGE>
however, the foregoing exculpatory language shall not: (i) constitute a
release, discharge or waiver of any indebtedness evidenced by the Note, this
Deed of Trust or the Loan Agreement, but the same shall continue until satisfied
or paid; (ii) affect any of the rights or liens of Beneficiary in and to the
Trust Estate, or any part thereof, covered by this Deed of Trust, the Note or
the Loan Agreement; (iii) affect any additional remedies and liens which
Beneficiary has for the payment of the principal indebtedness, interest, or any
other amount due under the Note, this Deed of Trust or the Loan Agreement, and
for the enforcement of any rights which Beneficiary has under said instruments;
or (iv) apply where Trustor has committed a fraud in connection with the Loan.
6.15. Partial Release of Collateral. Trustor shall be entitled to a
-----------------------------
release and reconveyance of this Deed of Trust in connection with the Second
Closing or otherwise provided that the following conditions are satisfied:
(a) At the time Trustor seeks a release of the lien of this
Deed of Trust, there shall then be no uncured Event of Default under any of the
Loan Instruments, and no event or circumstance which, with the giving of notice
or passage of time, or both, would constitute an Event of Default under any of
the Loan Instruments; and
(b) If a release is sought in connection with the Second
Closing Trustor shall have paid to Beneficiary, prior to or concurrently with
the release of the lien of this Deed of Trust, $9,648,535.49 of the principal
balance of the Note on or before November 15, 1998; and
(c) If a release is sought other than in connection with the
Second Closing Trustor shall have paid to Beneficiary, prior to or concurrently
with the release of the lien of this Deed of Trust, the sum of (i) the entire
unpaid principal balance of the Note, together with all accrued and unpaid
interest thereon, and (ii) the Appreciation Participation as defined in the
Note.
6.16. Effect of Partial Release. If there is a partial release by
-------------------------
the Trustee of any portion of the Trust Estate, the Trustee and Beneficiary may
look to the remainder of the Trust Estate as security for the full payment of
the Note and all other obligations secured by this Deed of Trust.
6.17. Venue. In the case of any dispute arising hereunder, venue
-----
will be determined in accordance with the provisions of the Loan Agreement.
6.18. Integration. This Deed of Trust, the Note and the Loan
-----------
Agreement represent the entire embody the final, entire agreement among the
parties hereto and supersede any and all prior commitments, term sheets,
agreements, representations and understandings, whether written or oral,
relating to the subject matter hereof and may not be contradicted or varies by
evidence of prior, contemporaneous, or subsequent oral agreements or discussions
of the parties hereto. There are no unwritten oral agreements among the parties
hereto. There are no unwritten oral agreements among the parties thereto.
(signature page follows)
<PAGE>
IN WITNESS WHEREOF, Trustor has executed this Deed of Trust as of the
date and year first above written.
TRUSTOR:
BADLANDS GOLD CLUB, INC.
By: /s/ Elby J. Beal
--------------------------
Name: Elby J. Beal
------------------------
Its: President
-------------------------
33
<PAGE>
ACKNOWLEDGMENT
--------------
STATE OF OKLAHOMA )
) SS:
COUNTY OF OKLAHOMA )
The foregoing instrument was acknowledged before me this 15th day of
August, 1998, by Elby J. Beal as the President of The Badlands Golf Club, Inc.,
a Nevada corporation.
/s/ Carol Carrier
--------------------------------------
Notary Public
My Commission Expires:
Aug. 2, 1999
- --------------------
(SEAL)
<PAGE>
EXHIBIT A
---------
Legal Description of the Land
-----------------------------
A-1
<PAGE>
LV-823615-RD
DESCRIPTION
-----------
ALL THAT REAL PROPERTY SITUATED IN THE COUNTY OF CLARK, STATE OF NEVADA, BOUNDED
AND DESCRIBED AS FOLLOWS:
PARCEL I:
LOT FIVE (5) OF AMENDED PECCOLE WEST, AS SHOWN BY MAP THEREOF ON FILE IN BOOK
83 OF PLATS, PAGE 57, IN THE OFFICE OF THE COUNTY RECORDER, CLARK COUNTY, NEVADA
RECORDS.
PARCEL IA:
AN EASEMENT FOR A CART PATH, PRIVATE ROADWAY AND WALKWAY WITH THE RIGHT OF
INGRESS AND EGREES AS CREATED BY AN INSTRUMENT AND RECORDED DECEMBER 27, 1995 IN
BOOK 951227 OF OFFICIAL RECORDS, CLARK COUNTY, NEVADA, AS DOCUMENT NO. 01654
OVER AND ACROSS THE FOLLOWING:
COMMENCING AT THE SOUTHWEST CORNER OF SAID SECTION 31 AS SHOWN ON A PARCEL MAP
RECORDED IN FILE 76 OF PARCEL MAPS, PAGE 65 IN THE OFFICE OF THE CLARK COUNTY
RECORDER, SAID POINT BEING THE CENTERLINE INTERSECTION OF CHARLESTON BLVD. AND
HUALAPAI WAY; THENCE NORTH 06 DEGREES 05'57" WEST, ALONG THE CENTERLINE OF
HUALAPAI WAY AND THE WEST LINE OF SAID SECTION 31, A DISTANCE OF 893.94 FEET;
THENCE NORTH 83 DEGREES 54'03" EAST, A DISTANCE OF 50.00 FEET TO A POINT ON THE
EAST LINE OF HUALAPAI WAY; THENCE NORTH 64 DEGREES 15'40" EAST, A DISTANCE OF
619.87 FEET; THENCE NORTH 72 DEGREES 29'37" EAST, A DISTANCE OF 496.92 FEET;
THENCE SOUTH 68 DEGREES 25'40" EAST, A DISTANCE OF 319.98 FEET; THENCE SOUTH 87
DEGREES 40'02" EAST, A DISTANCE OF 513.23 FEET; THENCE NORTH 87 DEGREES 55'09"
EAST, A DISTANCE OF 1033.86 FEET TO A POINT ON THE WEST LINE OF THE FUTURE
PALACE COURT (A PRIVATE STREET) SAID POINT BEING THE POINT OF BEGINNING; THENCE
NORTH 59 DEGREES 55'O5" EAST, A DISTANCE OF 90.00 FEET TO A POINT ON THE EAST
LINE OF SAID PALACE COURT HEREINAFTER REFERRED TO AS POINT "A"; THENCE NORTH 30
DEGREES 04'55" WEST, ALONG THE SAID EAST LINE OF PALACE COURT A DISTANCE OF
248.13 FEET TO POINT ON A CURVE CONCAVE EASTERLY, HAVING A RADIUS OF 295.00 FEET
AND SUBTENDING A CENTRAL ANGLE OF 13 DEGREES 16'62"; THENCE NORTHERLY ALONG
SAID TANGENT CURVE, TO THE RIGHT AN ARC DISTANCE OF 68.38 FEET; THENCE SOUTH 81
DEGREES 53'08" WEST, A DISTANCE OF 90.80 FEET TO A POINT ON THE SAID WESTERLY
LINE OF PALACE COURT BEING ON A CURVE CONCAVE EASTERLY, HAVING A RADIUS OF
385.00 FEET AND SUBTENDING A CENTRAL ANGLE OF 15 DEGREES 15'20"; THENCE
SOUTHEASTERLY ALONG SAID CURVE, FROM A RADIAL WHICH BEARS SOUTH 75 DEGREES
14'25" WEST, TO THE RIGHT AN ARC DISTANCE OF 107.96 FEET; THENCE SOUTH 30
DEGREES 04'55" EAST, ALONG SAID WESTERLY LINE OF PALACE COURT A DISTANCE OF
248.13 FEET TO THE POINT OF BEGINNING.
PARCEL IB:
("CONTINUED ON NEXT PAGE")
------------------------
- 17 -
<PAGE>
LV-823615-RD
AN EASEMENT FOR A CART PATH, PRIVATE ROADWAY AND WALKWAY WITH THE RIGHT OF
INGRESS AND EGRESS AS CREATED BY AN INSTRUMENT RECORDED DECEMBER 27, 1995 IN
BOOK 951227 OF OFFICIAL RECORDS, CLARK COUNTY, NEVADA, AS DOCUMENT NO. 01654
OVER AND ACROSS THE FOLLOWING:
COMMENCING AT THE AFORESAID POINT "A"; THENCE SOUTH 30 DEGREES 04'55" EAST,
ALONG THE GOLF COURSE BOUNDARY AND THE EASTERLY LINE OF THE SAID PALACE COURT, A
DISTANCE OF 41.50 FEET; THENCE SOUTH 30 DEGREES 04'58" EAST, A DISTANCE OF
376.81 FEET TO A POINT ON A CURVE CONCAVE WESTERLY HAVING A RADIUS OF 1245.00
FEET AND SUBTENDING A CENTRAL ANGLE OF 23 DEGREES 02'44"; THENCE SOUTHEASTERLY
ALONG SAID CURVE TO THE RIGHT AN ARC DISTANCE OF 500.76 FEET TO A POINT OF
REVERSE CURVATURE WITH A CURVE CONCAVE NORTHEASTERLY HAVING A RADIUS OF 10.00
FEET AND SUBTENDING A CENTRAL ANGLE OF 80 DEGREES 48'41"; THENCE FROM A RADIAL
WHICH BEARS SOUTH 82 DEGREES 57'46" WEST, SOUTHEASTERLY ALONG CURVE TO THE LEFT
AN ARC DISTANCE OF 14.10 FEET; THENCE SOUTH 87 DEGREES 50'55" EAST, TANGENT TO
THE LAST CURVE, A DISTANCE OF 118.78 FEET TO A POINT OF BEGINNING OF A 40.00
FOOT WIDE EASEMENT BEING 20.00 FEET ON EACH SIDE OF THE FOLLOWING DESCRIBED
LINE; THENCE SOUTH 02 DEGREES 09'05" WEST, ACROSS THE PRIVATE ACCESS ROAD TO
PECCOLE WEST LOT 9, A DISTANCE OF 72.00 FEET; THENCE SOUTH 27 DEGREES 15'23"
EAST, A DISTANCE OF 56.89 FEET; THENCE NORTH 66 DEGREES 59'15" EAST, A DISTANCE
OF 113.93 FEET; THENCE SOUTH 54 DEGREES 05'43" EAST, A DISTANCE OF 73.85 FEET TO
A POINT ON THE BOUNDARY LINE OF THE GOLF COURSE BEING THE POINT OF ENDING, THE
POINT OF ENDING IS AT A POINT ON THE BOUNDARY WHICH BEARS SOUTH 64 DEGREES
47'20" WEST, A DISTANCE OF 33.15 FEET FROM THE SOUTHWEST CORNER OF LOT 9 AS
SHOWN ON THE ALTA SURVEY MAP. THE SIDELINES OF THE AFORESAID EASEMENT SHALL BE
LENGTHENED OR SHORTENED TO CREATE A CONTINUOUS STRIP OF LAND AND TERMINATE AT
THE BOUNDARY LINES OF THE GOLF COURSE PROPERTY.
PARCEL II:
LOT 21 OF PECCOLE WEST LOT 10 AS SHOWN BY MAP THEREOF ON FILE IN BOOK 83 OF
PLATS, PAGE 61, IN THE OFFICE OF THE COUNTY RECORDER, CLARK COUNTY, NEVADA.
* * * * * * * * * *
KMI
- 18 -
<PAGE>
EXHIBIT B
---------
Defined Terms: Interpretation
-----------------------------
Defined Terms. For all purposes of this Deed of Trust, except as otherwise
- -------------
expressly provided or unless the context otherwise requires, the terms defined
below have the meanings assigned to them below.
Additional Charges: Means all (1) amounts, liabilities, obligations
------------------
and impositions which Trustor assumes or agrees to pay under the Note or this
Deed of Trust and (2) in the event of any failure on the part of Trustor to pay
any of those items referred to in clause (1) above, fines, penalties, interests
and costs which may be added for nonpayment or late payment of such items.
Affiliate: As applied to any Person, means any other Person directly
---------
or indirectly controlling, controlled by, or under common control with, that
Person.
Appreciation Participation: As defined in Section 3.1 of the Note.
-------------------------- -----------
Award: Means all compensation, sums or anything of value awarded, paid
-----
or received on a total or partial Condemnation.
Capital Improvements Advance: Means a loan in an amount of principal
----------------------------
up to $315,000 made on or prior to July 31, 1999 the proceeds of which will be
used to fund Initial Capital Improvements to the Property (as defined in the
Note).
Code: The Internal Revenue Code of 1986, as amended.
----
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 Trustor to any Condemnor, either under threat of
condemnation or while legal proceedings for condemnation are pending.
Condemnor: Means any public or quasi-public authority, or private
---------
corporation or individual, having the power of condemnation.
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.
Deed of Trust: As defined in the Preamble.
------------- --------
Environmental Damages: Means 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,
B-1
<PAGE>
imposed upon or incurred by or asserted against Beneficiary or the Property by
reason of any Environmental Law (irrespective of whether there has occurred any
violation of any Environmental Law) in respect of the Property howsoever
arising, without regard to fault on the part of Trustor.
Environmental Law: Means all applicable statutes, regulations, rules,
-----------------
ordinances, codes, licenses, permits, orders, demands, approvals, authorizations
and similar items of all governmental agencies, departments, commissions,
boards, bureaus or instrumentalities of the United States, states and political
subdivisions thereof and all applicable judicial, administrative and regulatory
decrees, judgments and orders relating to the protection of human health or the
environment as in effect on the date hereof or as thereafter amended, including
all requirements as of the date hereof, including but not limited to those
pertaining to reporting, licensing, permitting, investigation, removal and
remediation of emissions, discharges, releases or threatened releases of
"Hazardous Materials," substances, pollutants, contaminants or hazardous or
toxic substances, materials or wastes whether solid, liquid or gaseous in
nature, into the air, surface water, ground water or land, or relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of substances, pollutants, contaminants or hazardous or
toxic substances, materials, or wastes, whether solid, liquid or gaseous in
nature, including: (x) the Comprehensive Environmental Response, Compensation
and Liability Act (42 U.S.C. (S)(S) 9601 et seq.), the Resource Conservation
------
and Recovery Act (42 U.S.C. (S)(S) 6901 et seq.), the Clean Air Act (42 U.S.C.
------
(S)(S) 7401 et seq.), the Federal Water Pollution Control Act (33 U.S.C. (S)
------
1251), the Safe Drinking Water Act (42 U.S.C. (S)(S) 300f et seq.), the Toxic
------
Substances Control Act (15 U.S.C. (S)(S) 2601 et seq.), the Endangered Species
------
Act (16 U.S.C. (S)(S) 1531 et seq.), the Emergency Planning and Community
------
Right-to-Know Act of 1986 (42 U.S.C: (S)(S) 11001 et seq.), and (y) analogous
------
state and local provisions.
Event of Default: As defined in Section 5.l.
---------------- -----------
Facility: Means the Property consisting of a 27-hole golf course,
--------
club house and relating facilities located on the Land.
Fair Market Value: As defined in the Note.
-----------------
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.
Ground Leases: As defined in Granting Clause One.
------------- -------------------
Hazardous Material: Means any chemical substance:
------------------
(i) the presence of which requires investigation or remediation
under any federal, state or local statute, regulation, ordinance, order,
action or policy, administrative request or civil complaint under any of
the foregoing or under common law;
B-2
<PAGE>
(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 date hereof, or as
thereafter amended, including the Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C. Section 9601 et seq.) and or the
Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.);
(iii) which is toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic, mutagenic or otherwise hazardous and
as of the date hereof, or as thereafter amended, is regulated by any
governmental authority, agency, department, commission, board, agency or
instrumentality of the United States, or any state or any political
subdivision thereof having or asserting jurisdiction over the Property;
(iv) the presence of which on any of the Property causes a
nuisance upon such Property or to adjacent properties or poses a hazard to
the health or safety of persons on or about any of the Property;
(v) the presence of which on adjacent properties constitutes a
trespass by Trustor, Lessee or the Property; or
(vi) which contains gasoline, diesel fuel or other petroleum
hydrocarbons, polychlorinated biphenyls (PCBs) or asbestos or
asbestos-containing materials or urea formaldehyde foam insulation; or
(vii) radon gas.
Impositions: As defined in Section 1.7(a).
----------- ---------------
Insurance Requirements: All terms of any insurance policy required by
----------------------
this Deed of Trust and all requirements of the issuer of any such policy.
Land: As defined in Granting Clause One.
----
Lease: Means that certain Lease, dated as of August 18, 1998, between
-----
Trustor and Lessee.
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 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
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 Trustor, at any
B-3
<PAGE>
time in force affecting the Property; or (iii) require the cleanup or other
treatment of any Hazardous Material.
Lessee: American Golf Corporation, a California corporation.
------
Lessee'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 Lessee and used or useful in Lessee's business on the Property,
including all items of furniture, furnishings, equipment, supplies and
inventory, kitchen fixtures, bar equipment, flatware, lawn mowers and other
gardening tools, tractors and other motorized vehicles, and golf carts, except
items, if any, that are fixtures, as defined in Granting Clause Two.
-------------------
NGP: Means National Golf Operating Partnership, L.P., a Delaware
---
limited partnership.
Note: Means the Secured Participating Promissory Note of even date
----
herewith of Trustor in favor of Beneficiary in the aggregate principle amount of
$22,648,535.49].
NRS: Means Nevada Revised Statutes.
---
Officer's Certificate: A certificate of Trustor signed by an officer
---------------------
of Trustor.
Overdue Rate: On any date, a rate equal to 2.00% above the Base
------------
Interest Rate (as such term is defined in the Note), 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.
Personal Property: As defined in Granting Clause Nine.
----------------- --------------------
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 of memberships, furnishing of
lessons by a golf professional, of a driving range, and sales of food
and beverages, including liquor sales.
Property: As defined in Granting Clause Two.
-------- -------------------
Rents: As defined in Granting Clause Three.
----- ---------------------
Second Closing: Means execution of loan documents on or before
--------------
November 15, 1998 in connection with the Third Party Loan.
B-4
<PAGE>
State: Means the State of Nevada.
-----
Third Party Loan: As defined in the Note.
----------------
Transfer of the Property: As defined in the Note.
------------------------
Unsuitable For Its Primary Intended Use: A state or condition of the
---------------------------------------
Facility such that in the good faith judgment of Trustor, reasonably exercised,
the Facility cannot be operated on a commercially practicable basis for its
Primary Intended Use.
Water Rights: Means certain water rights pertaining to the Property as
------------
described in Granting Clause Thirteen.
------------------------
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 Deed of
Trust to designated "Articles," "Sections" and other subdivisions are to the
designated Articles, Sections and other subdivisions of this Deed of Trust. The
words "herein," "hereof" and "hereunder" and other words of similar import refer
to this Deed of Trust as a whole and not to any particular Article, Section or
other subdivision.
B-5
<PAGE>
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), Form S-8 (File No. 333-33775) and Form S-3 (File No. 333-
67403), of our reports dated February 4, 1999, except for Note 19, as to which
the date is March 31, 1999 and January 29, 1999, except for Note 15, as to
which the date is March 31, 1999 on our audits of the consolidated financial
statements and financial statement schedule of National Golf Properties, Inc.
and American Golf Corporation and Subsidiaries, respectively, as of December
31, 1998 and 1997, and for each of the three years in the period ended
December 31, 1998, which reports are included in this Annual Report on Form
10-K.
PricewaterhouseCoopers LLP
Los Angeles, California
April 14, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NATIONAL
GOLF PROPERTIES INC., 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,711
<SECURITIES> 1,295
<RECEIVABLES> 25,807
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,964
<PP&E> 663,018
<DEPRECIATION> 121,095
<TOTAL-ASSETS> 597,295
<CURRENT-LIABILITIES> 15,011
<BONDS> 283,405
0
0
<COMMON> 125
<OTHER-SE> 132,099
<TOTAL-LIABILITY-AND-EQUITY> 597,295
<SALES> 0
<TOTAL-REVENUES> 83,735
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 32,235
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,350
<INCOME-PRETAX> 34,165
<INCOME-TAX> 231
<INCOME-CONTINUING> 33,934
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,642
<EPS-PRIMARY> 1.33
<EPS-DILUTED> 1.32
</TABLE>
