UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
__________________
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 29, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to _________
Commission file numbers 33-89818, 33-96568, 333-08041 and 333-57107
CLUBCORP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2626719
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
3030 LBJ FREEWAY, SUITE 700 DALLAS, TEXAS 75234
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 243-6191
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of the Registrant's voting stock held by
non-affiliates of the Registrant at December 29, 1998 (the most recent date on
which an appraisal was performed), based on the most recent appraised price of
the Registrant's Common Stock, was $75,920,117.
The number of shares of the Registrant's Common Stock outstanding as of
February 28, 1999 was 84,629,809.
<PAGE>
TABLE OF CONTENTS
PART I
Item 1 Business
Item 2 Properties
Item 3 Legal Proceedings
Item 4 Submission of Matters to a Vote of Security Holders
PART II
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters
Item 6 Selected Financial Data
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 7a Quantitative and Qualitative Disclosures about Market Risk
Item 8 Financial Statements and Supplementary Data
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures
PART III
Item 10 Directors and Executive Officers of the Registrant
Item 11 Executive Compensation
Item 12 Security Ownership of Certain Beneficial Owners and Management
Item 13 Certain Relationships and Related Transactions
PART IV
Item 14 Exhibits, Financial Statement Schedule, and Reports on Form 8-K
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
ClubCorp, Inc. ("ClubCorp" (RM) or the "Company"), formerly ClubCorp
International, Inc., is a holding company incorporated under the laws of the
State of Delaware that, through its subsidiaries, owns, operates or manages
country clubs, golf clubs, public golf courses, city clubs, city/athletic clubs,
athletic clubs, resorts and certain related real estate through sole ownership,
partial ownership (including joint venture interests) and management agreements.
The Company's operations are organized into three principal business segments
according to the type of facility or service: resorts, country club and golf
facilities and city clubs. The Company's primary sources of revenue include
membership dues, membership fees and deposits, food and beverage sales, revenues
from golf operations and lodging.
ClubCorp is the world's largest owner and operator of golf courses,
golf-related private clubs and resorts and city clubs. As of December 29, 1998,
the Company's operations and ventures spanned 32 states and 13 countries. The
Company's portfolio of 225 facilities included (i) 127 private golf clubs,
public golf facilities and destination resorts, with a total of 176 golf courses
and (ii) 98 city, athletic and city/athletic clubs, and its membership base
exceeded 200,000 memberships. Notable resorts and clubs in the Company's
portfolio include Pinehurst (RM) Resort and Country Club in North Carolina
("Pinehurst"), The Homestead (RM) Resort in Virginia ("The Homestead"), Barton
Creek Resort and Country Club in Austin, Texas ("Barton Creek"), Firestone (RM)
Country Club in Akron, Ohio ("Firestone"), Mission Hills Country Club near Palm
Springs, California ("Mission Hills"), The Metropolitan Club in Chicago and the
Tower Club in Singapore. Golf Digest, Golf Travel and other golf industry
publications consistently rank golf courses at Pinehurst, Barton Creek and The
Homestead among the best in the United States.
The predecessor corporation to ClubCorp was organized in 1957 under the
name Country Clubs, Inc. All references herein to ClubCorp shall also include
Country Clubs, Inc. and its successor corporations. For purposes of this
document, references to the "Company" include ClubCorp's various subsidiaries.
However, each of ClubCorp and its subsidiaries is careful to maintain its
separate legal existence, and general references to the Company should not be
interpreted in any way to reduce the legal distinctions between subsidiaries or
between ClubCorp and its subsidiaries.
STOCK INVESTMENT PLAN AND EMPLOYEE STOCK OWNERSHIP PLAN
The Company is subject to the periodic reporting requirements of the
Securities Exchange Act of 1934, pursuant to Section 15(d) thereof, because the
Company has filed a registration statement on Form S-1, which became effective
October 24, 1994 pursuant to the Securities Act of 1933 (the "Registration
Statement"). The Registration Statement registered participation interests in
the ClubCorp Stock Investment Plan (the "Plan") and the Company's common stock,
$.01 par value per share (the "Common Stock"), to be sold to the Plan. Employees
eligible to participate in the Plan were able to invest in participation
interests in the Common Stock through payroll deductions of 1% to 6% of their
pretax compensation, subject to certain limitations. The Company contributes an
amount on such employee's behalf of at least 20% and up to an additional 30%,
for a maximum potential total of 50%, of the eligible employee's contributions
to the Plan with the Company contributions vesting over time. Any contributions
by the Company over the 20% minimum are within the discretion of the Board of
Directors.
The Plan was amended and restated into an employee stock ownership plan
effective generally as of January 1, 1999, known as the ClubCorp Employee Stock
Ownership Plan (the "Amended Plan"). Eligible employees continue to have the
opportunity to invest 1% to 6% of their pretax compensation in the Amended Plan,
subject to the same certain limitations. The participating subsidiaries'
matching contributions and vesting schedule remained the same.
Funds that were in the Plan before January 1, 1999, remain in the Amended
Plan. Generally, contributions to the Amended Plan will be invested in Common
Stock. A participant may elect to diversify a portion of their account assets
into other investments upon meeting certain age and participation requirements.
The Amended Plan allows for the transfer of these assets to a Company sponsored
individual investment plan. In addition, upon termination, retirement or
permanent disability, a participant or beneficiary may demand distribution of
Common Stock in his account in lieu of cash. Pass-through voting rights for
Common Stock held on behalf of participants is only permitted for certain
events, not including annual Board of Director elections, but is required for
certain corporate transactions.
All contributions to the Plan were invested, and a substantial portion of
the contributions to the Amended Plan likely will be invested, in Common Stock
(except for contributions temporarily invested pending investment in Common
Stock). The Plan purchased, and the Amended Plan likely will purchase, Common
Stock from ClubCorp and certain of its stockholders at fair market value, which
is determined quarterly by the Company using a formula based on certain
financial measures (the "Formula Price") and confirmed as within the range of
fair market value by Houlihan, Lokey, Howard and Zukin Financial Advisors, Inc.,
an independent financial advisory firm (the "Financial Advisor"). See Item 5,
"Market for Registrant's Common Equity and Related Stockholder Matters". Because
the Amended Plan invests primarily in Common Stock, the value of each eligible
employee's participation interests in the Amended Plan depends on the value of
the Common Stock from time to time, which in turn is dependent on the financial
success of the Company. However, in general, no employee participating in the
Plan or Amended Plan, however, has any right to vote the Common Stock or to
receive a distribution of Common Stock from the Plan or Amended Plan.
OPERATIONS
Background and Philosophy
- ---------------------------
ClubCorp was founded in 1957 to develop Brookhaven Country Club in the
north Dallas area. In the mid-1960s, the Company established its first city club
on the belief that it could profitably expand its operations by applying its
club management skills and member-oriented philosophy to a related line of
business. The Company commenced international operations in 1980 and recently
extended its international presence by acquiring a 29.9% interest in the PGA
European Tour Courses, PLC ("ETC") and opening the Tower Club in Singapore. In
the mid-1980s, the Company entered the resort industry when it capitalized on a
turn-around opportunity by acquiring Pinehurst and further diversified its
participation in the golf industry when it began developing, owning and
operating public golf facilities in 1986.
Mr. Dedman established ClubCorp on the belief that private clubs
represented a significant business opportunity for a company that could combine
professional development and management skills with the dedication to personal
service necessary to attract and retain members. This commitment to
professionalism and personal service is reflected in the Company's
member-oriented philosophy: create lasting value for members, guests, employees
and financial partners by providing facilities and services that exceed
expectations and engender pride in belonging. ClubCorp's management and
employees recognize that the Company is in a relationship business where member
and guest satisfaction are essential to long-term growth and profitability. The
Company is committed to maintaining its leadership position in the golf-related
and city club segments by creating an environment where members, guests and
employees are treated with respect, trust and honesty. ClubCorp's policy is not
to restrict membership in its facilities on the basis of race, religion, gender
or other immutable characteristics.
In directing the Company's growth since its formation, Mr. Dedman has
emphasized quality service and facilities, endeavoring to exceed the
expectations of the Company's members and guests. Senior management believes
that the Company's success depends greatly upon the motivation, training and
experience of its employees. See "-Employees".
From the beginning of the Company, Mr. Dedman focused on assembling an
experienced management team to lead the Company. ClubCorp's nine executive
officers possess an average of 21 years of experience with the Company. The
Company has also attempted to attract and retain qualified, dedicated managers
for its resorts, country club and golf facilities and city clubs, and these
managers possess an average of nine years of experience with the Company. The
Company provides an extensive, proprietary system of in-house training and
education for all of its employees that is designed to improve the quality of
services provided to members and guests.
The Company believes that a factor in its attaining a leadership position
in the industry is the Company's member-oriented philosophy. Underlying this
philosophy are progressive human resource values and goals which the Company
believes have resulted in superior customer service. The Company's managers and
employees participate in extensive, internally developed and administered
training and educational programs. The Company is committed to creating an
environment where members, guests and employees are treated with respect, trust
and honesty. Management believes that the Company's member-oriented philosophy
and culture set it apart from many of its competitors that focus on short-term
returns which may jeopardize member satisfaction and long-term profitability.
Nature of Operations
- ----------------------
The Company operates resorts, country club and golf facilities and city
clubs through sole ownership, partial ownership and management agreements. In
addition, the Company performs various corporate services internally and for
third parties and develops and sells real estate. See "-International
Operations, Real Estate and Other Services". With respect to its wholly-owned
operations, in some cases the Company owns the real property where the resort,
country club and golf facility and city facility is operated, and in other cases
the Company leases the real property from third parties.
The Company operated 225 resort, country club and golf facilities and city
clubs at December 29, 1998, serving approximately 200,000 memberships.
Management believes that the Company's existing club, resort and other property
locations, and its base of club members, represent a significant value to the
Company. For example, certain of the Company's country clubs that were developed
many years ago are now located in highly populated areas where development of a
new facility would be prohibitively expensive.
The success of the Company's private club and golf club business is
dependent on the Company's ability to attract new members, retain existing
members and maintain or increase levels of club usage. The success of the
Company's resort, golf club and public golf operations is also dependent on
levels of usage by the Company's guests. Although the Company devotes a large
amount of resources to promote its facilities and services, many of the factors
affecting club membership and usage are beyond the control of the Company. Local
and federal government laws, including income tax regulations applicable to the
Company and its club members and guests, can adversely influence membership
activity. See "-Government Regulation". Changes in consumer tastes and
preferences, local, regional and national economic conditions, including levels
of disposable income, weather and demographic trends can also have an adverse
impact on club membership and usage. See Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations-Seasonality of Demand;
Fluctuations in Quarterly Results".
The Company's operations are organized into three principal business
segments according to the type of facility or service: resorts, country club and
golf facilities and city clubs. Lines of business not assigned to a principal
business segment include international operations and real estate.
Resorts
- -------
The Company's five destination resorts typically offer lodging and
conference facilities, dining and lounge areas, golf, tennis and recreational
facilities and other resort amenities. Golf Digest, Golf Travel and other golf
industry publications consistently rank golf courses at Pinehurst, Barton Creek
and The Homestead among the best in the United States. Pinehurst, the largest
golf resort in the world, with eight golf courses, will host the 1999 United
States Golf Association Open Championship (the "U.S. Open"). In 1998, the
Company's resort segment had operating revenues of $172.6 million and segment
operating income of $16.8 million. See Note 10 to the Consolidated Financial
statements of the Company included in Item 8.
Country Club and Golf Facilities
- ------------------------------------
The Company's portfolio includes 109 private country clubs, golf clubs or
public golf facilities. The Company's private country clubs generally provide at
least one golf course and a combination of one or more of the following: dining
rooms, lounge areas, meeting rooms, grills and ballrooms, tennis courts,
swimming pools and pro shops. The Company's private country clubs include
Firestone, home of the NEC World Series of Golf, one of the three tournaments in
the new World Golf Championship, Mission Hills, home of the Nabisco Dinah Shore
Classic, Indian Wells Country Club near Palm Springs, California, home of the
Bob Hope Chrysler Classic, Gleneagles Country Club near Dallas and Kingwood
Country Club near Houston. The Company's golf clubs generally offer both private
and public play, a driving range and food and beverage concessions. Golf clubs
include Timarron Country Club near Dallas and Golden Bear Club at Indigo Run in
South Carolina. ClubCorp's public golf facilities are daily fee facilities that
offer a "member for the day" experience and generally provide the same
facilities and services as golf clubs. The Company's public golf facilities
include Kingwood Cove Golf Club near Houston and Teal Bend Golf Club in
Sacramento. In 1998, the Company's country club and golf facilities segment had
operating revenues of $375.1 million and segment operating income of $57.3
million. See Note 10 to the Consolidated Financial Statements of the Company
included in Item 8.
City Clubs
- -----------
The Company's 93 city clubs consist of city clubs, athletic clubs and
city/athletic clubs. City clubs provide private and sophisticated settings in
metropolitan locations for dining, business or social entertainment. Athletic
clubs provide an array of facilities, which generally include racquetball and
squash courts, jogging tracks, exercise areas, weight machines, aerobic studios,
swimming pools and, occasionally, tennis and basketball courts. City/athletic
clubs combine the ambiance and amenities of a city club with the facilities of
premier athletic clubs. The Company's city clubs include The Metropolitan Club
in Chicago, The Columbia Tower Club in Seattle, The City Club of San Francisco,
The Athletic and Swim Club at Equitable Center in New York City and The
University Club in Houston. In 1998, the Company's city clubs segment had
operating revenues of $255.5 million and segment operating income of $24.2
million. See Note 10 to the Consolidated Financial Statements of the Company
included in Item 8.
International Operations, Real Estate and Other Services
- --------------------------------------------------------------
International Operations and Real Estate
- --------------------------------------------
ClubCorp International, Inc. operates seven golf facilities and five city
clubs outside the United States. The Company's international operations include
the Tower Club in Singapore, the Drift Golf Club in Surrey, England and the
Capital Club in Beijing. In addition, the Company acquired a 29.9% interest in
ETC in March 1998. ETC owns and manages six golf facilities, with courses in
England, Sweden, Spain and Portugal, many of which have hosted premier golf
tournaments, including the British Masters.
ClubCorp develops and sells residential real estate adjacent to its golf
facilities, and sells ownership shares at destination golf clubs through its
Owner's Club program.
In 1998, the Company's international operations and real estate business
had combined operating revenues of $29.7 million and an operating loss of ($6.7)
million.
Other Services
- ---------------
ClubCorp performs a number of services on a company-wide basis, including
certain centralized marketing and purchasing functions and publishing Private
Clubs (RM), an award winning bi-monthly magazine directed at club members and
resort guests which showcases ClubCorp's facilities.
Expansion and Development
- ---------------------------
The Company continually evaluates opportunities to increase the number of
resorts, golf facilities and city clubs that it owns and operates both
domestically and internationally, through acquisitions, joint ventures and
development. In particular, management believes that there is significant demand
in many international markets for upscale, non-exclusionary clubs that embody
the Company's member-oriented philosophy. ClubCorp's executive officers
routinely participate in the evaluation of strategic opportunities. An example
of the Company's implementation of its external growth strategy is its 1998
joint venture agreement with Jack Nicklaus' Golden Bear International, Inc. The
joint venture was formed to build and operate a variety of private and public
golf facilities, including "The Bear's Best", a series of courses that will
feature replicas of the best Nicklaus-designed golf holes.
On January 26, 1999, as part of the Company's external growth strategy,
ClubCorp entered into a definitive agreement to acquire approximately 3.3
million shares or 16% of the outstanding common stock of ClubLink Corporation of
Ontario, Canada, for approximately $22.2 million. This acquisition, combined
with the approximately 4.5% of ClubLink stock previously held, and expected
participation in a planned rights offering by ClubLink, is expected to bring
ClubCorp's total investment to approximately 25%. In addition, in a stock
purchase agreement, ClubCorp intends to acquire a 50% interest in ClubLink's
U.S. golf holdings, which include loans to or investments in, GolfSouth LLC and
the Links Group Inc. encompassing 33 golf courses located primarily in the
eastern United States.
In addition, ClubCorp joined with American Golf Corporation ("AGC"), a
national golf course management company, on February 11, 1999 to acquire the
Cobblestone Golf Group ("Cobblestone") from The Meditrust Companies, in a stock
purchase agreement, for a total purchase price of approximately $393.0 million.
The transaction is expected to close in the second quarter of 1999. Upon
closing of the transaction, ClubCorp and AGC will divide Cobblestone's portfolio
of 45 premier golf facilities. Through this transaction, ClubCorp will acquire
22 country club and golf facilities located in Texas, Florida, Georgia,
California and North Carolina.
The success of the Company's external growth strategy will depend upon the
availability of suitable properties on acceptable terms, the availability of
adequate financing, and other factors beyond the Company's control. The Company
has a committed staff to constantly evaluate development and acquisition
opportunities. The success of the Company's external growth strategy also will
depend on the Company's ability to effectively integrate acquired facilities and
development projects into existing operations, including achieving synergies
between new and existing operations and instilling its member-oriented
philosophy.
Management believes that many of its facilities have unused capacity and
that the Company has the experience and management skills necessary to increase
the utilization of these facilities while maintaining member satisfaction. Some
of the Company's facilities are at, or near, capacity. For some of these
facilities, management believes it can grow revenues by adding additional
amenities, such as additional golf courses.
Sales and Marketing
- ---------------------
The Company advertises and markets its resorts, country club and golf
facilities and city clubs through diverse media. Among other things, the Company
sponsors the Associate Clubs (RM) Program, which provides members of clubs
owned, leased or managed by the Company with access to other clubs. In addition,
the Company publishes Private Clubs magazine, which reaches the majority of the
members at the Company's clubs and resorts plus the Company's affiliate clubs
and resorts, and which advertises the Company's facilities. Regular features
include unusual destinations and travel tips, profiles of members who are
business leaders, investment advice, club profiles, wine reviews, recipes from
club chefs, golf and tennis tips, solutions to health and fitness concerns and
humor. Private Clubs magazine has won numerous awards including several 1997
Maggie Awards.
The Company hosts a number of professional golf tournaments, which are
intended to provide community and charitable involvement and publicity for the
Company's facilities. Some of the most notable tournaments the Company hosted
during 1998 were the National Equipment Corporation ("NEC") World Series of Golf
at Firestone Country Club, the Bob Hope Chrysler Classic at Indian Wells Country
Club, the Nabisco Dinah Shore Classic at Mission Hills Country Club and the J.C.
Penney's Ladies Professional Golf Association Skins Game at Stonebriar Country
Club. In addition, Pinehurst will host the 1999 U. S. Open and Pinehurst
Championship Management, the sports marketing division of ClubCorp, was selected
to manage the 2001 United States Women's Open Championship at the Pine Needles
Golf Resort in Southern Pines, North Carolina.
The Company believes it has established a strong rapport with numerous
professional organizations including the following:
- - United States Golf Association;
- - Professional Golf Association and Ladies Professional Golf Association
Tours;
- - American Junior Golf Association;
- - Golf Course Owners Association;
- - Club Managers Association of America;
- - National Club Association;
- - International Health, Racquet & Sports Club Association; and
- - National Restaurant Association.
These special relationships have enabled the Company to bring distinctive
tournaments and events, such as the U. S. Open and the PGA Tour Championship, as
well as numerous other prestigious events, to the Company's clubs and resorts
throughout the world. The Company hosts many United States Tennis Association
events, including the Rolex Indoor Collegiate Tennis Tournament and the American
Junior Golf Association Tennis Tournament at Daufuskie Island Club & Resort,
along with other athletic activities such as swimming, diving, lawn bowling and
croquet. In addition, the Company's clubs have been recognized for their
culinary artistry. Many have earned distinctive awards from the American
Culinary Federation.
Government Regulation
- ----------------------
The Company's operations are subject to numerous laws and government
regulations, including environmental, occupational health and safety, labor and
alcoholic beverage control laws and laws relating to access for disabled
persons. Changes to these laws or regulations could adversely affect the
Company. The Company has in place policies designed to bring or keep its
properties in compliance with all current federal, state and local environmental
laws.
Operations at the Company's golf courses involve the use and storage of
various hazardous materials such as herbicides, pesticides, fertilizers, motor
oil and gasoline. Under various federal, state and local laws, ordinances and
regulations, an owner or operator of real property may become liable for the
costs of removing such hazardous substances that are released on, or in, its
property and for remediation of its property. Such laws often impose liability
regardless of whether a property owner or operator knew of, or was responsible
for, the release of hazardous materials. In addition, the presence of such
hazardous substances, or the failure to remediate the surrounding soil when such
substances are released, may adversely affect the ability of a property owner to
sell such real estate or to pledge such property as collateral for a loan. The
Company has not been informed by the Environmental Protection Agency or any
state or local governmental authority of any non-compliance or violation of any
environmental laws, ordinances or regulations likely to be material to the
Company, and the Company believes that it is in substantial compliance with all
such laws, ordinances and regulations applicable to its properties and
operations. See Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Factors That May Affect Future Operating
Results".
The Company is also subject to the Fair Labor Standards Act and various
state laws governing such matters as minimum wage requirements, overtime and
other working conditions and citizenship requirements. A significant number of
the Company's personnel receive the federal minimum wage, and recently adopted
increases in the minimum wage have increased the Company's labor costs. In
addition, the Company is subject to certain state "dram-shop" laws, which
provide a person injured by an intoxicated individual the right to recover
damages from an establishment that wrongfully served alcoholic beverages to the
intoxicated individual. The Company is also subject to the Americans with
Disabilities Act of 1990, which, among other things, may require certain minor
renovations to various of the Company's properties to meet federally mandated
access and use requirements. The Company believes it is operating in
substantial compliance with applicable laws and regulations governing its
operations.
The Company has operations in a number of states which regulate the
licensing of resorts and restaurants, including liquor license grants, by
requiring registration, disclosure statements and compliance with specific
standards of conduct. While the Company believes that it is, and will continue
to be, in substantial compliance with these requirements, there can be no
assurance that these requirements will not change or that any such change will
not adversely affect the Company.
Competition
- -----------
The Company operates in a highly competitive industry. The Company's
resorts and clubs compete primarily on the basis of price, management expertise,
featured facilities, quality and breadth of services. With respect to resorts,
the Company competes on a national and international level with numerous hotel
and resort companies. Competition in this part of the industry is intense and
there can be no assurance that such competition will not adversely affect
revenues, costs or operating income of the Company's resorts. The Company's city
clubs compete on a local and regional level with fine dining establishments and
other clubs and the Company's country club and golf facilities compete on a
local and regional level with other country club and golf facilities. The level
of competition in these lines of business varies from region to region and is
subject to change as existing facilities are renovated or new facilities are
developed. An increase in the number or quality of similar clubs and other
facilities in a particular region could significantly increase competition,
which could have a material adverse effect on the Company's results from that
region. The Company's results of operations also could be affected by a number
of additional competitive factors, including the availability of, and demand
for, alternative forms of recreation. In addition, many of the Company's
destination resort and public golf facility competitors have substantially
greater financial and other resources than the Company.
The Company also competes for the purchase, lease and management of golf
courses with national and regional golf course management companies, including
AGC, real estate investment trusts and, less frequently, with individuals and
small ventures that typically own one or more golf courses. In the acquisition
of golf courses, companies compete primarily on the basis of price and their
reputation for operating golf courses.
In the operation of its facilities, the Company competes on the basis of
its reputation to deliver value through the quality of the facility and quality
of services provided to its members and guests. The Company believes it competes
favorably with respect to these factors. The Company has a program, known as
"Associate Clubs", that allows members of a club in one market to utilize
Company clubs in different markets, thus enhancing the value of club membership.
Because of the large number of facilities maintained by the Company, a member is
provided access to a wide number of facilities. The Company believes this
program affords it a competitive advantage over competitors that do not maintain
similar programs and over other competitors that have similar programs, but
fewer facilities.
EMPLOYEES
As of December 29, 1998, the Company employed approximately 14,000
full-time, 6,000 part-time and 1,000 seasonal employees in its operations.
The success of the Company's business is dependent in part on the Company's
ability to attract and retain experienced management and other employees on
economical terms. Management believes that the Company's employees represent an
important asset; however, the Company is not dependent upon any single employee,
or a few employees, whose loss would have a material adverse effect on the
Company. Although the Company believes that its labor relations are good,
increased labor and benefit costs or a deterioration in the Company's labor
relations could adversely affect the Company's operating results. As of December
29, 1998, approximately 740 of the employees engaged in the Company's operations
were covered by three collective bargaining agreements, which will expire March
31, 1999, December 31, 1999 and June 1, 2002.
CUSTOMERS
The Company is not dependent upon a single customer, or a few customers,
whose loss would have a material adverse effect on the Company. In addition, as
of December 29, 1998, there is no customer to which the Company has sales equal
to 10.0% or more of the Company's consolidated revenues and whose loss would
have a material adverse effect on the Company as a whole.
INTELLECTUAL PROPERTY
The Company has registered various service marks, including the names
CLUBCORP, CCA, CLUB RESORTS, ASSOCIATE CLUBS and PINEHURST with the United
States Patent and Trademark Office, and has applied with the United States
Patent and Trademark Office for the registration of various other service marks.
In addition, the Company has registered certain of its service marks in a number
of foreign countries. The Company regards its service marks as valuable assets
and intends to protect such service marks vigorously against infringement.
ITEM 2. PROPERTIES
The Company operated 225 resort, country club and golf facilities, and city
clubs as of December 29, 1998. The following table provides a profile of the
composition of the Company's portfolio of facilities from December 27, 1995 to
December 29, 1998.
ADDITIONS, DIVESTITURES AND RECLASSIFICATIONS OF FACILITIES (1)
<TABLE>
<CAPTION>
CITY/
COUNTRY GOLF PUBLIC CITY ATHLETIC ATHLETIC
RESORTS CLUBS CLUBS GOLF CLUBS CLUBS CLUBS INTERNATIONAL TOTAL
-------- -------- ------ ------- ------ --------- --------- -------------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AT DECEMBER 27, 1995 9 75 10 30 76 20 7 9 236
Facilities added during 1996 1 4 2 1 1 - - 4 13
Facilities divested during 1996 - (6) - (3) (5) (1) (2) (5) (22)
Reclassifications during 1996 - (1) 1 - (1) 1 - -
-------- -------- ------ ------- ------ --------- --------- -------------- ------
AT DECEMBER 25, 1996 10 72 13 28 71 20 5 8 227
Facilities added during 1997 - 1 - - 1 - - 3 5
Facilities divested during 1997 (3) (3) (1) (2) (2) - (1) - (12)
Reclassifications during 1997 - - - - - - - - -
-------- -------- ------ ------- ------ --------- --------- -------------- ------
AT DECEMBER 31, 1997 7 70 12 26 70 20 4 11 220
Facilities added during 1998 1 2 - 1 3 - - 8 15
Facilities divested during 1998 (1) (2) - (2) (3) - (1) (1) (10)
Reclassifications during 1998 (2) 5 (4) 1 (1) 1 - - -
-------- -------- ------ ------- ------ --------- --------- -------------- ------
AT DECEMBER 29, 1998 5 75 8 26 69 21 3 18 225
======== ======== ====== ======= ====== ========= ========= ============== ======
</TABLE>
____________________________
(1) Facilities added includes acquisitions of owned, leased, partially owned
or managed facilities, joint ventures and other investments, such as ETC.
Facilities divested includes sales of owned or partially owned facilities and
other investments and terminated leases and management agreements that are not
renewed or replaced.
Facilities divested include expired or terminated lease arrangements or
management agreements which generally have shorter terms than leases, joint
venture agreements or other forms of ownership. The Company generally includes a
termination clause in its management agreements which imposes a financial
penalty, paid to the Company by the managed owner, to discourage early
termination of management agreements.
The Company owns, leases or manages the facilities in its portfolio. The
following table summarizes the number and reclassifications in the type of the
Company's facilities operated for the periods indicated:
<TABLE>
<CAPTION>
WHOLLY OWNED
------------------------
PARTIALLY FACILITIES
OWNED LEASED OWNED MANAGED UNDER
FACILITIES FACILITIES FACILITIES FACILITIES CONSTRUCTION TOTAL
----------- ----------- ----------- ----------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
AT DECEMBER 27, 1995 79 108 6 43 - 236
Facilities added during 1996 4 - - 1 8 13
Facilities divested during 1996 (1) (7) - (14) - (22)
Reclassifications during 1996 2 (1) 1 (2) - -
----------- ----------- ----------- ----------- ------------- ------
AT DECEMBER 25, 1996 84 100 7 28 8 227
Facilities added during 1997 1 - 1 1 2 5
Facilities divested during 1997 (4) (4) (1) (3) - (12)
Reclassifications during 1997 1 1 4 - (6) -
----------- ----------- ----------- ----------- ------------- ------
AT DECEMBER 31, 1997 82 97 11 26 4 220
Facilities added through 1998 1 2 6 1 5 15
Facilities divested through 1998 (1) (4) - (4) (1) (10)
Reclassifications through 1998 3 1 (1) - (3) -
----------- ----------- ----------- ----------- ------------- ------
AT DECEMBER 29, 1998 85 96 16 23 5 225
=========== =========== =========== =========== ============= ======
</TABLE>
The Company leases its executive offices in Dallas, Texas, an office in
Singapore in connection with its operations in Southeast Asia and an office in
England in connection with its operations in England.
With respect to leased facilities, the Company generally pays a monthly
base rent, as well as charges for real estate taxes, common area maintenance and
various other items. In some cases, the Company must also pay a percentage of
gross receipts or positive net cash flow. In most instances, the Company has
full authority over the operation of the leased facilities, operating on a fully
net basis, except in some cases where the owner remains responsible for major
structural repairs or for property insurance or real estate taxes.
Certain real and personal property and equipment of ClubCorp's subsidiaries
are pledged as collateral on their long-term debt. See Note 8 of the Notes to
Consolidated Financial Statements included under Item 8.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to certain pending or threatened litigation and
other claims. Management, after review and consultation with legal counsel,
believes the Company has meritorious defenses to these legal matters and that
any potential liability from these matters would not materially affect the
Company's financial condition and results of operations. See Note 13 of the
Notes to Consolidated Financial Statements included under Item 8.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1998, no matter was submitted to a vote of
security holders through the solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is currently no public market for the Common Stock. In connection
with certain employee benefit plans (including the Plan and the Amended Plan),
the Board of Directors of ClubCorp has periodically established a formula price
for the Common Stock (the "Formula Price"). The Formula Price is based upon a
multiple of the Company's recurring cash flows from operations, with certain
exceptions for specific assets, including certain long-term investments valued
at the lower of cost or market. See Item 1, "Business - Stock Investment Plan
and Employee Stock Ownership Plan".
The table below sets forth the quarterly Formula Price for the Common Stock
during the years ended December 31, 1997 and December 29, 1998.
<TABLE>
<CAPTION>
FORMULA
1997 PRICE
- ---- --------
<S> <C>
First Quarter $ 11.94
Second Quarter 13.27
Third Quarter 13.64
Fourth Quarter 14.21
1998
- ----
First Quarter $ 14.44
Second Quarter 15.04
Third Quarter 15.56
Fourth Quarter 16.60
</TABLE>
The Financial Advisor has been engaged by the trustees of the Plan and the
Amended Plan to confirm the fairness of the Formula Price for purposes of the
Plan and the Amended Plan. The Financial Advisor performs an independent
appraisal of the Company four times each year, following delivery of the
Company's financial statements after the end of each quarter. Based upon such
appraisals, the Financial Advisor confirms whether or not the Formula Price
falls within the range of fair market value of the Common Stock on the date of
each appraisal and at each fiscal year end. If there is any discrepancy between
the Formula Price and the range of fair market value of the Common Stock as
determined by the Financial Advisor, the Company expects that it would adjust
the Formula Price so that it falls within the range of fair market value as
determined by the Financial Advisor. All purchases of Common Stock by the Plan
were made, and it is expected that all purchases of Common Stock by the Amended
Plan will be made, on or shortly after an appraisal date at the Formula Price as
confirmed by the Financial Advisor. See Item 1, "Business - Stock Investment
Plan and Employee Stock Ownership Plan".
As of February 28, 1999, there were approximately 330 holders of record of the
Common Stock.
ClubCorp has never paid cash dividends on the Common Stock. Management expects
to continue its policy of retaining earnings for use in the Company's business,
and, accordingly, does not expect to pay cash dividends in the foreseeable
future.
ITEM 6. SELECTED FINANCIAL DATA
Set forth below are the selected consolidated income statement and
balance sheet data for each of the years in the five-year period ended
December 29, 1998. The table presented below should be read in conjunction with
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations", as well as Item 8, "Financial Statements and Supplementary Data"
(dollars in thousands, except per share data).
<TABLE>
<CAPTION>
December 31, December 31, December 31, December 31, December 29,
1994 (1) 1995 (1) (2) 1996 (1) (2) 1997 (1) (3) 1998 (1) (3)
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Continuing operations (4):
Operating revenues $ 698,984 $ 752,479 $ 771,177 $ 827,597 $ 851,336
Operating income $ 43,143 $ 10,310 $ 47,141 $ 65,444 $ 66,821
Income (loss) from continuing operations
before extraordinary item $ 23,933 ($17,623) $ 16,867 $ 87,864 $ 39,512
Income (loss) from continuing
operations before extraordinary
item per share (diluted) $ 0.28 ($0.20) $ 0.20 $ 1.02 $ 0.45
BALANCE SHEET DATA:
Continuing operations (4):
Total assets $ 2,043,406 $ 1,830,449 $ 1,554,597 $ 1,028,674 $ 1,110,158
Long-term debt (including current portion) $ 285,128 $ 313,461 $ 343,917 $ 255,857 $ 274,550
Membership deposits $ 56,971 $ 68,729 $ 74,202 $ 83,066 $ 95,460
Stockholders' equity $ 313,482 $ 284,095 $ 290,552 $ 388,615 $ 409,036
</TABLE>
______________
(1) The Company reports its financial results on a 52/53 week basis, with
the first three quarters consisting of 12 weeks each and the fourth quarter
consisting of either 16 weeks (1994, 1995, 1996, and 1998) or 17 weeks (1997).
Prior to 1997, the Company reported its year-end results at and as of December
31, with acquisitions, divestitures and other material transactions that
occurred between the last day of the 52/53 week period and December 31 being
recorded in that year. Effective January 1, 1997, the Company changed its
reporting year from December 31 to the last day of the 52/53 week period.
(2) The Company adopted Statement of Financial Accounting Standards No. 121
for the year ended December 31, 1995. In accordance with SFAS 121, the Company
recorded impairment losses of $23.0 million in 1995 and $2.8 million in 1996 on
long-lived assets.
(3) The Company has substantial net operating loss carryforwards ("NOLs")
for federal income tax purposes. The Company has experienced a trend of
increasing taxable income from its continuing operations, which has increased
the Company's estimate of future taxable income. Based on these new estimates,
the Company decreased its valuation allowance on its deferred tax assets by
approximately $14.2 million and $66.6 million at December 29, 1998 and December
31, 1997. The Company's estimated valuation allowance is based on a number of
assumptions, one or more of which may prove to be incorrect. There can be no
assurance that the actual value the Company realizes from its NOLs will not
differ materially from the Company's estimate. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and Note 15 to
the Consolidated Financial Statements of the Company.
(4) Continuing operations includes the Company's three principal business
segments (resorts, country club and golf facilities and city clubs). From 1988
through 1996, the Company operated in the financial services industry through
Franklin Federal Bancorp, a Federal Savings Bank ("Franklin"). The Company sold
Franklin for $90.0 million in a transaction that was consummated on January 2,
1997. The Company's gain on the sale, net of taxes and minority interest, was
$25.1 million. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Acquisition and Sale of Franklin Federal Bancorp".
Because the Company has disposed of its financial services operations, this
segment is classified as discontinued operations. See Note 2 to the Consolidated
Financial Statements of the Company.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
Item 6, "Selected Financial Data" as well as Item 8, "Financial Statements and
Supplementary Data".
General
The Consolidated Financial Statements of the Company are presented on a
52/53 week fiscal year, with the first three quarters consisting of 12 weeks
each and the fourth quarter consisting of 16 or 17 weeks. The financial
statements included in Item 8 for the year ended December 29, 1998 are comprised
of 52 weeks, with the first three quarters consisting of 12 weeks each and the
fourth quarter consisting of 16 weeks.
The Company operates its business activities through sole ownership
(including lease arrangements), partial ownership (including joint venture
arrangements) and management agreements. The Company seeks to achieve growth in
revenues, earnings, and cash flows through effective management of existing
facilities and through the acquisition of new facilities via purchases, joint
ventures, leases and management agreements.
The Company continually evaluates opportunities to increase the number of
resorts, country club and golf facilities and city clubs that it owns and
operates both domestically and internationally, through acquisitions, joint
ventures and development. ClubCorp's executive officers routinely participate in
the evaluation of strategic opportunities.
The Company continually seeks to improve financial performance of existing
facilities by determining an optimum business plan. Management attempts to
create operating efficiencies and maximize operating revenues and cash inflows
through member enhancement and utilization programs. If efforts to improve the
facility performance to financial partners' and Company standards are not
successful or financial partners' and Company goals are not being achieved, then
restructuring its ownership position, leasing agreements, and borrowing
arrangements are considered. Facilities generally are divested when management
determines they will be unable to provide a positive contribution to
profitability, when they no longer represent a strategic facility in the
Company's network of affiliated clubs and resorts, when members and financial
partners no longer support the facility or, in the case of leases, joint
ventures and management agreements, when their contractual terms expire without
being renewed or are terminated.
The Company employs "same store" analysis techniques for a variety of
management purposes. Each of the Company's facilities is classified in one of
two categories: developing or mature. Facilities are initially classified as
developing, except for management agreements which are considered mature. At the
beginning of each year, the Company reviews its developing facilities and
determines which facilities, if any, should be reclassified as mature.
Facilities are generally moved from developing to mature after they have been
operated for a full year by ClubCorp. Facilities divested during a period are
removed from the mature classification for all periods presented. The Company
does not reclassify mature facilities as developing facilities.
The distinction between developing and mature facilities allows ClubCorp to
separately analyze the operating results of its established and new facilities.
Management believes this ability provides an important analysis tool because it
allows the Company to assess the results of its organic growth strategies by
tracking the performance of its mature facilities without the distortions that
would be caused by the inclusion of developing properties, including any
distortion caused by initial operating losses at turn-around facilities.
Other Operating Information
The Company operated thirteen facilities in ten foreign countries,
including Canada, at December 29, 1998. One facility is located in the
Philippines, two are in Mexico, two are in South Africa, one is in Panama, one
is in England, one is in Ecuador, two are in Singapore, one is in China, one is
in Germany and one is in Canada. In addition, the Company acquired a 29.9%
interest in ETC in March 1998. ETC owns and manages six golf facilities, with
courses in England, Sweden, Spain and Portugal. The Company does not include
its Canadian facility in international operations.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 29, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Consolidated Operations
Operating revenues increased 2.9% to $851.3 million in 1998 from $827.6
million in 1997 primarily due to increased usage at mature resorts and country
club and golf facilities, acquisitions and increases at developing facilities.
Operating revenues at mature facilities increased 2.6% to $765.1 million in 1998
from $745.4 million in 1997.
Operating costs and expenses, representing direct operating costs, facility
rentals, maintenance, and depreciation and amortization, increased 2.7% to
$713.1 million in 1998 from $694.2 million in 1997, reflecting an increase in
operating costs and expenses at mature and developing facilities. Operating
costs and expenses at mature facilities increased to $659.4 million in 1998 from
$653.4 million in 1997 or 0.9% due primarily to increased costs of sales for
food and beverage and golf operations offset by a decrease in cash flow based
rent at city clubs and the Company's success in controlling expenses.
Interest expense decreased to $28.9 million in 1998 from $34.0 million in
1997, or 15.0%, primarily due to the refinancing of approximately $174.9 million
in existing debt and to a lesser extent, 1997 and 1998 divestitures, which
resulted in a decrease in the Company's weighted average interest rate from 8.5%
to 6.6%.
Other income of $1.0 million in 1998 was due to the partial reversal of an
accrual for pending litigation in the ordinary course of business.
Income tax (provision) benefit increased to $(5.2) million in 1998 from
$41.3 million in 1997 mainly due to decrease of $14.2 million and $66.6 million
in 1998 and 1997, respectively, in the Company's valuation allowance on its
deferred tax assets, primarily related to net operating loss carryforwards. See
"- Factors That May Affect Future Operating Results" and Note 15 to the
Company's Consolidated Financial Statements.
Income from continuing operations before extraordinary item decreased to
$39.5 million in 1998 from $87.9 million in 1997 due primarily to decreases of
$14.2 million and $66.6 million in the Company's valuation allowance on its
deferred tax assets. If the Company had not made these adjustments to the
valuation allowance of its deferred tax assets, income from continuing
operations before extraordinary item would have been $25.3 million in 1998 and
$21.3 million in 1997.
SEGMENT AND OTHER INFORMATION
Resorts
The following tables present certain summary financial data and lodging
data for the Company's resorts segment for 1997 and 1998 (dollars in thousands,
except facility and lodging data):
<TABLE>
<CAPTION>
Mature Resorts Total Resorts
-------------------- ------------------
1997 1998 1997 1998
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Number of facilities 4 4 7 5
Operating revenues $156,217 $163,607 $168,099 $172,624
Operating costs and expenses 136,757 140,575 156,615 155,835
-------- -------- -------- --------
Segment operating income $ 19,460 $ 23,032 $ 11,484 $ 16,789
========= ========= ======== ========
Lodging data (3 resorts) (1)
Room nights available 407,011 396,217
Occupancy rate 52.3% 54.3%
Average daily room rate per occupied room $ 173 $ 184
Average daily revenue per occupied room $ 643 $ 712
</TABLE>
____________________
(1) Lodging data is comprised of data from Pinehurst, The Homestead and
Barton Creek.
Resorts' operating revenues increased 2.7% primarily due to increases at
mature properties offset by the effect of divestitures. Mature resorts'
operating revenues increased 4.7%, reflecting increases of 2.0 percentage points
in the occupancy rate, 10.7% in the average daily revenue per occupied room, and
6.4% in the average daily room rate per occupied room. Pinehurst, which will
host the 1999 U. S. Open, experienced significant increases in operating
revenues in anticipation of this event. Total resorts' operating costs and
expenses decreased slightly due to the effect of divestitures.
The difference in resorts' operating revenues, operating costs and
expenses, and segment operating income between mature resorts and total resorts
is primarily attributable to the Company's operations at Daufuskie Island Club &
Resort ("Daufuskie"). ClubCorp purchased Daufuskie at the end of 1996 for
nominal consideration as a turn-around opportunity. Daufuskie had operating
losses of approximately $6.3 and $6.8 million for 1998 and 1997, respectively.
Country Club and Golf Facilities
The following tables present certain summary financial and membership
information for the Company's country club and golf facilities segment for 1997
and 1998 (dollars in thousands, except facility and membership data):
<TABLE>
<CAPTION>
Mature Country Total Country
Club and Club and
Golf Facilities Golf Facilities
--------------------- ---------------------
1997 1998 1997 1998
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Number of facilities 98 98 108 109
Operating revenues $342,124 $ 354,415 $355,381 $ 375,100
Operating costs and expenses 289,420 297,127 302,212 317,785
-------- ----------- -------- -----------
Segment operating income $ 52,704 $ 57,288 $ 53,169 $ 57,315
======== =========== ======== ===========
Membership information (66 clubs) (1):
Memberships at beginning of period 67,657 69,526
Memberships added during period 12,532 12,916
Memberships lost during period 10,663 11,113
-------- -----------
Memberships at end of period 69,526 71,329
======== ===========
</TABLE>
____________________
(1) Number of facilities includes all types of country club and golf
facilities (country clubs, golf clubs and public facilities) and all types of
Company ownership. Membership information is comprised of the mature clubs where
the Company received membership initiation deposits or fees and membership dues.
Total country club and golf facilities' operating revenues increased 5.5%
in 1998 compared to 1997 primarily due to increased usage at mature facilities,
acquisitions, and increases at developing facilities. Mature country club and
golf facilities' operating revenues increased 3.6% due to the reopening of
several courses at existing facilities which were closed for renovation during
the prior year and the acquisition of golf pro shops previously owned by golf
professionals.
Total country club and golf facilities' operating costs and expenses
increased 5.2% due to increased costs and expenses at mature facilities,
acquisitions, and increases at developing facilities. Total mature country and
golf facilities' operating costs and expenses increased 2.7% primarily due to
increased costs of sales for food and beverage and golf operations and payroll
increases.
City Clubs
The following tables present certain summary financial and membership
information for the Company's city clubs segment for 1997 and 1998 (dollars in
thousands, except facility and membership data):
<TABLE>
<CAPTION>
Mature City Clubs Total City Clubs
------------------------ ------------------------
1997 1998 1997 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Number of facilities 89 89 94 93
Operating revenues $247,052 $247,092 $249,470 $255,524
Operating costs and expenses 227,221 221,733 229,920 231,351
-------- -------- -------- --------
Segment operating income $ 19,831 $ 25,359 $ 19,550 $ 24,173
======== ======== ======== ========
Membership information (78 clubs) (1):
Memberships at beginning of period 108,753 110,729
Memberships added during period 23,660 25,186
Memberships lost during period 21,684 22,219
-------- --------
Memberships at end of period 110,729 113,696
======== ========
</TABLE>
____________________
(1) Number of facilities includes all types of city clubs (city clubs,
athletic clubs and city/athletic clubs) and all types of Company ownership.
Membership information is comprised of the mature clubs where the Company
received membership initiation deposits or fees and membership dues.
Total city clubs' operating revenues increased 2.4% from 1997 to 1998 due
primarily to acquisitions and increases at facilities in development as mature
city clubs' operating revenues remained constant. Mature city clubs' operating
costs and expenses decreased 2.4% from 1997 to 1998 due to a reduction in cash
flow based rent.
International Operations and Real Estate
Operating revenues for international operations increased to $7.4 million
in 1998 from $4.9 million in 1997 primarily due to acquisitions and increased
equity earnings from an investment in Singapore. Operating costs and expenses
for international operations increased to $13.0 million in 1998 from $8.2
million in 1997 primarily due to increased start up and pre-opening expenses at
developing facilities.
Real estate operating revenues decreased to $22.3 million in 1998 from
$33.7 million in 1997, or 33.8%, primarily due to decreased sales of real estate
in Colorado, Texas, and California, the timing of certain sales at Owner's Clubs
and a divestiture.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 25, 1996
Consolidated Operations
Operating revenues increased 7.3% to $827.6 million in 1997 from $771.2
million during 1996 due primarily to increases at mature resorts, improvement in
net enrollment at mature country club and golf facilities and city clubs, and an
additional week of operations. The subsidiaries of the Company operate primarily
on a 52/53 week fiscal year. 1997 included 53 weeks. Operating revenues of
mature facilities increased to $728.3 million from $676.9 million, an increase
of 7.6%, due to improving membership trends, an additional week of operations
and inflationary price increases.
Operating costs and expenses, representing direct operating costs, facility
rentals, maintenance, and depreciation and amortization, increased to $694.2
million in 1997 from $662.7 million in 1996 or 4.8%. Operating costs and
expenses at mature facilities increased 4.9% to $636.9 million in 1997 from
$607.2 million in 1996, mainly due to increases in costs of sales for food and
beverage and golf operations, payroll cost increases, and bonus accruals for
facility level management.
Selling, general and administrative expenses increased to $68.0 million
from $61.3 million or 10.9% due primarily to increased costs for international
new business and development.
Other income of $1.1 million in 1997 is due to the partial reversal of an
accrual for pending litigation in the ordinary course of business.
Income tax benefit (provision) increased to $41.3 million in 1997 from
$(2.6) million in 1996 due to a decrease in the valuation allowance of $66.6
million on its deferred tax assets in 1997, primarily related to net operating
loss carryforwards. See "- Factors That May Affect Future Operating Results".
Income from continuing operations before extraordinary item increased to
$87.9 million in 1997 from $16.9 million in 1996 due to the Company's success in
controlling costs and growing revenues and a $66.6 million decrease in the
valuation allowance on the Company's deferred tax assets. If the Company had
not made this adjustment to the valuation allowance on its deferred tax assets,
income from continuing operations before extraordinary item would have been
$21.3 million in 1997. See "- Factors That May Affect Future Operating
Results".
SEGMENT AND OTHER INFORMATION
Resorts
The following tables present certain summary financial data and lodging
data for the Company's resorts segment for 1996 and 1997 (dollars in thousands,
except facility and lodging data):
<TABLE>
<CAPTION>
Mature Resorts Total Resorts
-------------------- ------------------
1996 1997 1996 1997
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Number of facilities 6 6 10 7
Operating revenues $136,950 $155,984 $148,393 $168,099
Operating costs and expenses 123,877 136,890 135,707 156,615
-------- -------- -------- --------
Segment operating income $ 13,073 $ 19,094 $ 12,686 $ 11,484
========= ========= ======== ========
Lodging data (4 resorts) (1)
Room nights available 472,074 467,822
Occupancy rate 49.7% 53.7%
Average daily room rate per occupied room $ 140 $ 149
Average daily revenue per occupied room $ 546 $ 584
</TABLE>
_____________________
(1) Lodging data is comprised of data from Pinehurst, The Homestead, Barton
Creek and Quail Hollow.
Resorts' operating revenues increased 13.3% primarily due to the
acquisition of one resort late in 1996 and increases at mature properties.
Mature resorts' operating revenues increased 13.9%, reflecting increases of 4.0
percentage points in the occupancy rate, 7.0% in the average daily revenue per
occupied room, and 6.4% in the average daily room rate per occupied room.
Pinehurst, which will host the 1999 U. S. Open, experienced significant
increases in operating revenues in anticipation of this event.
The difference in 1997 operating revenues, operating costs and expenses,
and segment operating income between mature resorts and total resorts is
primarily attributable to the Company's operations at Daufuskie. ClubCorp
purchased Daufuskie at the end of 1996 for nominal consideration as a
turn-around opportunity. Daufuskie had an operating loss of approximately $6.8
million in 1997.
Country Club and Golf Facilities
The following tables present certain summary financial and membership
information for the Company's country club and golf facilities segment for 1996
and 1997 (dollars in thousands, except facility and membership data):
<TABLE>
<CAPTION>
Mature Country Total Country
Club and Club and
Golf Facilities Golf Facilities
------------------- --------------------
1996 1997 1996 1997
-------- ----------- -------- ----------
<S> <C> <C> <C> <C>
Number of facilities 96 96 113 108
Operating revenues $301,359 $ 325,216 $326,586 $ 355,381
Operating costs and expenses 261,599 272,838 289,846 302,212
-------- ----------- -------- ----------
Segment operating income $ 39,760 $ 52,378 $ 36,740 $ 53,169
======== =========== ======== ==========
Membership information (62 clubs) (1):
Memberships at beginning of period 63,368 63,777
Memberships added during period 9,695 12,684
Memberships lost during period 9,286 10,027
-------- -----------
Memberships at end of period 63,777 66,434
======== ===========
</TABLE>
____________________
(1) Number of facilities includes all types of country club and golf
facilities (country clubs, golf clubs and public facilities) and all types of
Company ownership. Membership information is comprised of the mature clubs where
the Company received membership initiation deposits or fees and membership dues.
Total country club and golf facilities' operating revenues increased 8.8%
in 1997 compared to 1996 primarily due to acquisitions, the opening of new golf
courses or other amenities at certain facilities, improving membership trends at
mature facilities and an additional week of operations. Mature country club
and golf facilities' operating revenues increased 7.9%.
Total country club and golf facilities' operating costs and expenses
increased 4.3% in 1997 compared to 1996 primarily due to acquisitions and
increases at mature facilities. Mature facilities' operating costs and expenses
increased 4.3% due to increases in costs of sales for food and beverage and golf
operations, payroll increases and incentive bonus accruals.
City Clubs
The following tables present certain summary financial and membership
information for the Company's city clubs segment for 1996 and 1997 (dollars in
thousands, except facility and membership data):
<TABLE>
<CAPTION>
Mature City Clubs Total City Clubs
------------------------ ------------------------
1996 1997 1996 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Number of facilities 93 93 96 94
Operating revenues $238,618 $247,100 $249,689 $249,470
Operating costs and expenses 221,694 227,221 233,066 229,920
-------- -------- -------- --------
Segment operating income $ 16,924 $ 19,879 $ 16,623 $ 19,550
======== ======== ======== ========
Membership information (81 clubs) (1):
Memberships at beginning of period 113,185 112,361
Memberships added during period 21,547 26,262
Memberships lost during period 22,371 23,578
-------- --------
Memberships at end of period 112,361 115,045
======== ========
</TABLE>
____________________
(1) Number of facilities includes all types of city clubs (city clubs,
athletic clubs and city/athletic clubs) and all types of Company ownership.
Membership information is comprised of the mature clubs where the Company
received membership initiation deposits or fees and membership dues.
Total city clubs' operating revenues increased remained constant in 1997
compared to 1996 primarily due to improving membership trends at mature
facilities and an additional week of operations offset by the effect of
divestitures. Total city clubs' operating costs and expenses decreased 1.4% due
to a reduction in cash flow based rent at mature properties and the effect of
divestitures.
International Operations and Real Estate
Operating revenues for international operations increased to $4.9 million
in 1997 from $0.8 million in 1996 primarily due to an increase in initiation
fees from membership sales. Operating costs and expenses for international
operations increased to $8.2 million in 1997 from $3.4 million in 1996 due
primarily to increased start up and pre-opening expenses at developing
facilities.
Real estate operating revenues increased to $33.7 million in 1997 from
$30.8 million in 1996 or 9.4% primarily due to increased sales of real estate in
Texas.
SEASONALITY OF DEMAND; FLUCTUATIONS IN QUARTERLY RESULTS
The Consolidated Financial Statements of the Company are presented on a
52/53 week fiscal year. The first three quarters consist of 12 weeks each and
the fourth quarter includes 16 or 17 weeks. The financial statements included in
Item 8 for the year ended December 29, 1998 are comprised of 52 weeks, with the
first three quarters consisting of 12 weeks each and the fourth quarter
consisting of 16 weeks. The timing of fiscal quarter ends, seasonal weather
conditions and other short-term variations cause financial performance to vary
by quarter. The Company has historically generated a disproportionate share of
its operating revenue in the second, third and fourth quarters of each year. The
timing of purchases or leases of new operating properties and investment gains
and losses also cause the Company's results of operations to vary significantly
from quarter to quarter.
The Company's results can also be affected by non-seasonal and severe
weather patterns. Extended periods of extremely hot, cold or rainy weather in a
given region can be expected to reduce the Company's golf-related revenue for
that region. Similarly, extended periods of low rainfall can affect the cost
and availability of water needed to irrigate the Company's golf courses and can
adversely affect results for facilities in the region affected.
INFLATION
Inflation has not had a significant impact on the Company. As operating
expenses increase, the Company, to the extent the value of services rendered to
members is not adversely impacted and as industry standards dictate, attempts to
offset the adverse effects of increased costs by increasing prices.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has financed its operations and capital
expenditures primarily through cash flows from operations and long-term debt.
The Company distinguishes capital expenditures to refurbish and replace existing
property and equipment (i.e., capital replacements) from discretionary capital
expenditures such as the expansion of existing facilities (i.e., capital
expansions) and acquisition or development of new facilities and investments in
joint ventures. Most capital expenditures other than capital replacements are
considered discretionary and could be curtailed in periods of low liquidity.
Capital replacements are planned expenditures made each year to maintain high
quality standards of facilities for the purpose of meeting existing members'
expectations and to attract new members. Capital replacements have ranged from
3.8% to 7.1% of operating revenues during the last three years. Capital
expansions are discretionary expenditures which create new amenities or enhance
existing amenities at facilities. Development of the Company's new facilities
and planned expansions at existing properties are expected to require capital
expenditures of approximately $73.1 and $60.7 million, respectively, over the
next two years to be financed with external financing of ClubCorp, Inc. and cash
flows from operations.
On May 27, 1998, the Company entered into an agreement with a group of
banks for a five-year $300.0 million unsecured senior revolving credit facility.
The Company's obligations under this facility are guaranteed by certain of its
subsidiaries. The interest rate is determined using a LIBOR-based pricing
matrix as defined in the agreement. The Company used the facility to refinance
approximately $174.9 million in existing debt and related accrued interest of
certain of its subsidiaries. In conjunction with this refinancing, unamortized
loan costs and discounts on long-term debt totaling $1.8 million are shown in
the accompanying Consolidated Statement of Operations as an extraordinary item -
loss on extinguishment of debt. The Company is also using the facility for
working capital, capital expenditures, and acquisitions. The amount outstanding
under this agreement, including letters of credit of $14.7 million, as of
December 29, 1998, and March 22, 1999, was $204.9 and $233.9 million,
respectively, at an interest rate of LIBOR plus 0.625%.
The Company has committed to provide updated technology to all of its
facilities. This technology will include installation of point-of-sale hardware
and software, replacement of computer hardware and software to provide network
capabilities, the purchase of new accounting software and hardware, and the
installation of electronic time management systems which will interface with
accounting software. In January of 1998, the Company signed an agreement with
Oracle Corporation to purchase new software for its accounting, purchasing, and
human resources applications. The decision to upgrade technology was made
primarily to better enable management to improve operating efficiencies and
profits and to exceed member expectations by re-engineering processes using
enterprise resource planning software. Executive management has pledged to
allocate the necessary resources to develop additional technology applications
and tools that will allow the properties to operate more effectively and
efficiently and to increase the value of membership in conjunction with service
excellence. Completion of the technology upgrade, including conversion of the
existing software, is expected to require approximately $12.0 to $18.0 million
in additional expenditures, of which $9.0 to $15.0 million will be capitalized.
The Company expects to fund these additional expenditures through capital leases
with a bank over a four to five year period and cash flows from operations.
Net cash flows from continuing operations decreased $29.0 million for the
year ended December 29, 1998 due primarily to capital expenditures made during
1998, including investments in joint ventures (i.e., ETC), acquisitions, capital
replacements, capital expansions, and development of real estate ventures and
facilities.
As of March 22, 1999, the Company was in the final stages of negotiations
to acquire three properties and to build one property. The Company is
considering several ownership structures for the properties including lease
arrangements, sole ownership, and partial ownership (including joint venture
interests). The consummation of the acquisition of these properties is expected
to require approximately $15.0 to $20.0 million in capital expenditures, to be
funded primarily by cash flows from operations and external financing of
ClubCorp, Inc. The eventual outcome of the negotiations cannot be accurately
predicted at this time.
On January 26, 1999, ClubCorp entered into a definitive agreement to
acquire approximately 3.3 million shares or 16% of the outstanding common stock
of ClubLink Corporation of Ontario, Canada, for approximately $22.2 million.
This acquisition, combined with approximately 4.5% of ClubLink stock previously
held, and expected participation in a planned rights offering by ClubLink, will
bring ClubCorp's total investment to approximately 25%. ClubCorp's
participation in the planned rights offering is expected to require an
additional investment of approximately $8.0 to $9.0 million. In addition, in a
stock purchase agreement, ClubCorp intends to acquire a 50% interest in
ClubLink's U.S. golf holdings, which include loans to or investments in,
GolfSouth LLC and the Links Group Inc. encompassing 33 golf courses located
primarily in the eastern United States. This purchase is expected to require
approximately $15.0 million to be funded through cash flows from operations and
external financing of ClubCorp, Inc.
On February 11, 1999, ClubCorp joined with American Golf Corporation
("AGC"), a national golf course management company, to acquire the Cobblestone
Golf Group ("Cobblestone") from The Meditrust Companies, in a stock purchase
agreement, for a purchase price of approximately $393.0 million. The
transaction is expected to close in the second quarter of 1999. Upon closing of
the transaction, ClubCorp and AGC will divide Cobblestone's portfolio of 45
premier golf facilities. Through this transaction, ClubCorp will acquire 22
golf facilities located in Texas, Florida, Georgia, California, and North
Carolina. The purchase is expected to require approximately $210.0 million to
be funded with external financing of ClubCorp, Inc.
Membership dues, which are generally billed monthly, are expected to cover
the costs of providing future membership services. Membership deposits
represent advance initiation deposits for the right to become a member and
generally are refundable a fixed number of years (generally 30 years) from the
date of acceptance as a member. Management does not consider maturities of
membership deposits over the next five years to be significant. The difference
between the amount of the membership deposit and the present value of the
obligation is deferred and recognized as revenue on a straight-line basis over
the expected average life of an active membership. The membership deposit
liability accretes to interest expense over the refundable term using the
interest method.
The provisions of certain subsidiary lending and other agreements limit the
amount of dividends that may be paid to ClubCorp. Under the most restrictive of
these limitations, at December 29, 1998, approximately $110.0 million of
retained earnings was available for the declaration of dividends.
As a means of providing liquidity to the trustees of the Amended Plan to
meet their fiduciary obligations to distribute cash to participants requesting
withdrawals, ClubCorp has provided the trustees the right (the "Redemption
Right") to cause the Company to redeem Common Stock, held in trust on behalf of
the Amended Plan, at the most recent appraised price as necessary to meet
certain requirements. Withdrawals by participants and terminations by and/or
resignations from the Company of participants in excess of anticipated levels
could give rise to the exercise of withdrawal rights in substantial amounts and
place significant demands on the liquidity of the Company. In such an event, the
resources available to meet business expansion or other working capital needs
could be adversely affected. As of December 29, 1998, the value of the
Redemption Right was $65.3 million. The most recent appraised price of the
Common Stock was $16.60 as of December 29, 1998. The Redemption Right has never
been exercised by the Plan, although the Company has repurchased Common Stock
into treasury from certain stockholders. The Company does not expect that the
Redemption Right will be exercised to a significant extent in 1999.
The Company maintains a first right of refusal with the majority of its
stockholders and, accordingly, it has historically purchased shares from
stockholders when offered for sale back to the Company. During fiscal years
1996, 1997 and 1998, treasury stock purchases of ClubCorp from stockholders,
sales of stock (which were primarily to the Plan), and other shares issued were
as follows (dollars in millions):
<TABLE>
<CAPTION>
December 31, December 31, December 29,
1996 1997 1998
-------------- --------------- ---------------
<S> <C> <C> <C>
Purchase of treasury stock $ (4.4) $ (5.6) $ (7.6)
Stock issued in connection with purchases
by benefit plan 0.3 - 0.2
Stock issued in connection with bonus plans 1.1 0.7 1.0
Stock issued in connection with exercise of
stock options - - 0.5
-------------- -------------- --------------
$ (3.0) $ (4.9) $ (5.9)
============== ============== ==============
</TABLE>
See the Consolidated Statement of Stockholders' Equity included in Item 8 for a
summary of stockholder equity transactions.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
This Annual Report on Form 10-K contains "forward-looking statements"
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended. All statements other than statements of historical fact should be
considered "forward-looking statements" for purposes of these provisions,
including statements that include projections of, or expectations about,
earnings, revenues or other financial items, statements about the plans and
objectives of management for future operations, statements concerning proposed
new products or services, statements regarding future economic conditions or
performance, statements regarding Year 2000 issues, and statements of
assumptions underlying any of the foregoing. In some cases, forward-looking
statements can be identified by the use of terminology such as "may," "will,"
"expects," "plans," "anticipates," "estimates," "potential" or "continue," or
the negative thereof or other comparable terminology. Although the Company
believes that the expectations reflected in its forward-looking statements are
reasonable, it can give no assurance that such expectations or any of its
forward-looking statements will prove to be correct. Actual results and
developments are likely to be different from, and may be materially different
from, those expressed or implied by the Company's forward-looking statements.
Forward-looking statements are subject to inherent risks and uncertainties, some
of which are summarized in this section.
Enhanced enrollment and retention of members and increased utilization of
existing facilities by members and guests are core components of the Company's
organic growth strategy. Management believes that providing its members and
guests with high quality, personalized service will increase demand for
ClubCorp's services. The Company seeks to achieve a high level of member
satisfaction by creating and executing business plans for each facility. The
Company provides incentives to club and resort managers to exceed business plan
goals by linking their compensation to member and guest satisfaction as well as
the financial performance of the facility. The Company's success depends on its
ability to attract and retain members at its clubs and maintain or increase
usage of its facilities. The Company has experienced varying levels of
membership enrollment and attrition rates and, in certain areas, decreased
levels of usage of its facilities during its operating history. Although
management devotes substantial efforts to ensuring that members and guests are
satisfied, many of the factors affecting club membership and facility usage are
beyond the Company's control and there can be no assurance that the Company will
be able to maintain or increase membership or facility usage. Significant
periods where attrition rates exceed enrollment rates, or where facilities'
usage is below historical levels would have a material adverse effect on the
Company's business, operating results, and financial condition.
Changes in membership levels and facilities' usage can be caused by a
number of factors. In the past, federal tax law changes in the treatment of
business entertainment expenses and real estate expenses have adversely affected
general industry demand and membership and facilities usage. There can be no
assurance that similar changes that would have an adverse effect on revenues
will not occur in the future. A substantial portion of the Company's revenue is
derived from discretionary or leisure spending by the Company's members and
guests and such spending can be particularly sensitive to changes in general
economic conditions. A significant adverse shift in general economic
conditions, whether regional or national, would likely have a material adverse
effect on the Company's business, operating results, and financial condition.
Changes in consumer tastes and preferences, particularly those affecting the
popularity of golf and private dining, and other social and demographic trends,
could also have an adverse effect on the Company.
The Company has policies in place designed to bring its properties in
substantial compliance with current federal, state and local environmental laws
and laws relating to access for disabled persons. The Company is not subject to
any recurring costs associated with managing hazardous materials or pollution.
In addition, management does not believe that the Company will incur expenses
for infrequent or non-recurring cleanup, based upon the Company's due diligence
inspection, employee training, standards of operations and on-site assessments
performed and maintained for each facility. However, the Company is in the
process of replacing approximately 11 underground storage tanks with aboveground
contained storage systems. It is unlikely that any remediation will be required.
The Company is permitted under various state laws to recover a portion of its
costs of remediation through various state superfunds created to address
environmental cleanups. The Company is not subject to any remediation mandates
related to previously contaminated sites. See Item 1,
"Business-Operations-Government Regulation".
ClubCorp files a consolidated federal income tax return. See Note 15 of the
Notes to the Consolidated Financial Statements. ClubCorp's federal and state
income taxes are as follows (dollars in millions):
<TABLE>
<CAPTION>
December 31, December 31, December 29,
1996 1997 1998
-------------- -------------- --------------
<S> <C> <C> <C>
Income tax (provision) benefit:
Federal
Current $ 0.1 $ (0.7) $ (0.2)
Deferred (1.2) 44.1 (2.9)
-------------- -------------- --------------
(1.1) 43.4 (3.1)
State (1.5) (2.1) (2.1)
-------------- -------------- --------------
$ (2.6) $ 41.3 $ (5.2)
============== ============== ==============
</TABLE>
The Company operates in 32 states and, as a result, its operations are
subject to tax by many state and local taxing authorities. The Company generates
substantial taxable income in various states including Ohio, North Carolina and
Florida. As state and local taxing authorities raise tax rates and change tax
codes to increase tax revenues, the Company has experienced increased exposure
to state and local income taxes over the past few years.
Since the acquisition of Franklin in 1988, ClubCorp has reduced or
eliminated its current federal tax liability (to 2% of alternative minimum
taxable income) by using net operating loss carryforwards that resulted from
Franklin's operations. ClubCorp has estimated net operating loss carryforwards
at the end of 1998 of $485.9 million and $70.9 million for regular and
alternative minimum taxes, respectively. As a result, the Company will be able
to continue to reduce its estimated tax liability to 2% of alternative minimum
taxable income until such alternative minimum tax net operating losses are fully
utilized or expire. These net regular and alternative minimum tax operating
losses expire from 2004 to 2010 and 2007 to 2010, respectively. These estimates
are based upon certain assumptions concerning the Company's 1998 operations from
an alternative minimum tax perspective and may be revised at the time the
Company prepares its federal income tax return.
The Company has substantial regular net operating loss carryforwards
available. Based on the Company's historical pretax earnings, adjusted for
significant nonrecurring items such as gains (losses) on divestitures,
management believes it is more likely than not the Company will realize the
benefit of the deferred tax assets, net of the valuation allowance, existing at
December 29, 1998. The Company has experienced a trend of increasing taxable
income from its continuing operations which in turn has increased estimates of
future taxable income. Based on these new estimates, the Company decreased its
valuation allowance by $14.2 million for the year ended December 29, 1998. The
Company's federal income tax returns for 1991 and 1992 were examined by the
Internal Revenue Service. In connection with the closing of this audit, in
1998, the Company reduced its regular net operating losses and valuation
allowance by $45.0 million, 8.1% of year end 1997 net operating losses. The
assumptions used to estimate the realizability of the deferred tax assets are
subjective in nature and involve uncertainties and matters with significant
judgment. There can be no assurance that the Company will generate any specific
level of continuing earnings. The Company will receive benefits in the form of
tax credits in the future to the extent of alternative minimum taxes paid.
In addition to the regular and alternative minimum tax NOLs, the Company
has approximately $166.4 million regular and $150.3 million alternative minimum
tax Separate Return Limitation Year ("SRLY") NOLs which expire in 2003. The
Company's December 29, 1998 deferred tax asset does not include any value for
its SRLY NOLs.
The Company's federal income tax returns for 1993 and 1994 are under
examination by the Internal Revenue Service. Because many types of transactions
are susceptible to varying interpretations under federal income tax laws and
regulations, the net operating loss carryforwards and net deferred tax asset
reported in the Consolidated Financial Statements could change at a later date
upon final determination by the taxing authorities. Management believes the
Company will prevail on any significant interpretation issues.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-Up
Activities". SOP 98-5 requires that the costs of start-up activities, including
organizational costs, be expensed as incurred. SOP 98-5 will be effective for
the Company in its fiscal year ending in 1999. Due to the nature of the
operations of the Company, the effect of the implementation of SOP 98-5 will not
have a significant impact on the financial position or results of operations of
the Company.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which establishes accounting and reporting
standards for derivative instruments and for hedging activities. It requires
that all derivatives be recognized as either assets or liabilities and such
instruments be measured at their fair value. The Statement is effective for
years beginning after June 15, 1999. Based on the Company's current operations,
the effect of implementation of this new statement is not expected to have a
significant effect on the Company's financial position or results of operations.
YEAR 2000 READINESS DISCLOSURE
A. State of Readiness
Assessment
The Year 2000 issue affects computers, software and other equipment the
Company uses, operates or maintains for use in its operations. While ClubCorp
has commenced a company-wide upgrade of its computer systems that is designed to
address internal Year 2000 issues, this upgrade is not expected to be completed
by December 31, 1999. IT Systems (defined below) that will not be upgraded in
time are being reprogrammed to accommodate the century date change. MCI
Systemhouse is leading the initiative to remediate and then to test the
reprogrammed systems to validate that they are Year 2000 ready. It is expected
that the testing of reprogrammed systems will be completed during the third
quarter of 1999.
The Company has undertaken various initiatives intended to ensure that
prior to the completion of its company-wide upgrades, its IT Systems will
function properly with respect to dates in the Year 2000 and thereafter. The
term "IT Systems" includes information technology systems that the Company uses
in its business including accounting, data processing, time management, and
point-of-sale systems that use computer equipment and software. Non-information
technology ("Non-IT") equipment the Company uses, operates or maintains may also
be affected by embedded chip technology, such as microprocessors. An assessment
is currently underway to determine what Non-IT equipment may be impacted by Year
2000 issues. Although the upgrade of ClubCorp's computer systems is not
expected to be completed until the end of Year 2000, it is expected that
approximately 50% of the initiatives which management believes will be necessary
to fully address potential Year 2000 issues relating to IT and Non-IT exposures
should be materially completed on or about June 30, 1999. The Company's target
is to have the balance of the work completed no later than December 31, 1999.
IT System Remedial Initiative
As noted above, the Company is currently upgrading or replacing hardware
that is not Year 2000 ready, upgrading purchased software to compliant releases,
and remediating internally developed software. The Company expects this IT
Systems remediation effort to be completed during the third quarter of 1999. The
existing accounting systems that are not going to be replaced by December 31,
1999 are being reprogrammed to be Year 2000 ready since the company wide upgrade
is not expected to be completed until the end of Year 2000. Much of the work to
make the existing systems Year 2000 ready has been completed. The effort to
finish the remediation of the existing hardware and software is being led by MCI
Systemhouse with significant involvement by ClubCorp employees. The principal
effort involves recompiling programs using a Year 2000 compliant compiler.
ClubCorp expects the necessary modifications to the software and unit testing to
be completed during the second quarter of 1999 and system testing to be
completed during the third quarter of 1999. If the remediation of existing
hardware and software systems is not completed in a timely manner, Year 2000
issues could have a material adverse effect on the Company's operations and
results.
Non-IT Remedial Initiative
ClubCorp has undertaken an initiative to assess the impact of its
significant vendors, suppliers, landlords and other third-party relationships on
its business. As of December 29, 1998, the Company has compiled a list of
critical relationships. Letters are expected to be mailed by March 31, 1999 to
these critical third parties to assess the risk of a disruption in service and
the extent to which such a disruption would affect ClubCorp's operations. While
management does not believe it directly depends, to a significant extent, on any
third party's computer systems or ability to operate in general, there can be no
assurance that Year 2000 problems encountered by companies with whom the Company
does business will be resolved in a timely manner or that such other companies'
failure to resolve such problems would not have a material adverse effect on
ClubCorp.
The Company has evaluated its critical Non-IT Systems and believes that
certain systems and functions are mission critical including, but not limited to
the following: fire/life safety systems, electrical systems, communication
systems, air-conditioning/heating systems, security controls, vertical
transportation systems, voice grade communication systems, facility management
systems, hotel management systems and restaurant equipment.
Vendors or providers of these systems are included on ClubCorp's list of
critical relationships and will be assessed as described above. The Company has
set July 31, 1999 as the target date to complete the assessment of these third
party relationships.
Company Wide IT System Upgrade
ClubCorp has commenced a company wide upgrade of its computer systems and
accounting systems. ClubCorp is replacing its accounting systems with Oracle.
A combined team from ClubCorp and KPMG LLP is managing the Oracle installation.
Part of the IT System remedial process will include end to end testing of the
new systems to validate that these systems are Year 2000 ready as warranted.
The scope of this work will be initiated by MCI Systemhouse in conjunction with
the project installation team.
B. Cost
ClubCorp has begun, but has not yet completed, an analysis of problems and
costs (including loss of revenue) that would be reasonably likely to result from
the failure by the Company and certain third parties to complete efforts
necessary to achieve Year 2000 readiness on a timely basis.
In addition to the remaining cost of the company wide upgrade, the Company
estimates that the cost of upgrading current systems, upgrading purchased
software and remediating internally developed software will be approximately
$2.5 million. Management estimates that an additional $0.6 million will be
spent in hiring resources to assess and address the Year 2000 risk on the
Company's operations (additional personnel, attorneys and consultants).
C. Risk
In a reasonably likely worst case scenario, the Company's remediation of
existing IT Systems and Non-IT equipment may not be completed in a timely
manner, or Year 2000 problems of material third parties may not be resolved in a
timely manner. Such worst case scenarios could involve loss of revenues relating
to the loss of business as a result of the Company's inability to operate its
facilities through hardware, software or equipment failures due to Year 2000
problems. While management believes the Company does not directly depend to a
significant extent on any third party's computer systems, it does rely on
certain vendors and landlords to supply uninterrupted goods and services. The
estimated loss of revenue, if any, has not and may not be able to be identified
until after the Year 2000. As described above, active efforts have been and are
underway to assess and minimize any disruption in operations. The Company
relies extensively on computer systems to monitor and coordinate its operations.
If ClubCorp's computer systems cease to function, function improperly, or if its
vendors or customers cannot perform as agreed for a significant time period, it
is likely that the Company's operations and results will be adversely affected.
D. Contingency Plans
Management will develop contingency plans to be implemented as a part of
its efforts to identify and correct Year 2000 problems. The scheduled target
date for completion of the contingency plans is September 30, 1999. Many of the
Company's operations have contingency plans in place for natural disasters such
as earthquakes, floods, hurricanes and the like, which provide a basis for its
Year 2000 contingency plans. These plans may also include short term use of
backup equipment and software, increased work hours for Company personnel and/or
use of contract personnel and/or orderly shut down of the buildings and/or clubs
on December 31, 1999 and January 1, 2000 in order to perform tests of critical
systems.
E. Disclaimer
The discussion of ClubCorp's efforts and expectations relating to Year 2000
compliance are forward looking statements and the dates on which the Company
believes it will complete such efforts are based on its best estimates, which
were derived using numerous assumptions regarding future events, including the
continued availability of certain resources and other factors. There can be no
assurance that these estimates will prove to be accurate and the actual results
could differ materially from those currently anticipated. Specific factors that
could cause such material differences include, but are not limited to, the
availability and cost of personnel trained in Year 2000 issues, the ability to
identify, assess, remediate and test all relevant computer codes, and embedded
technology and similar uncertainties. In addition, the variability of
definitions of "compliance with Year 2000" relating to products and services
sold to or relied on by management may lead to claims whose impact on the
Company is currently not as estimable. In addition, the Company does not have
any control over external infrastructures, for example, failure of power grids
or economic perturbations that might overall impact its operations or revenues.
No assurance can be given that the aggregate cost of defending and resolving
such claims, if any, will not materially adversely affect the Company's results
of operations.
ACQUISITION AND SALE OF FRANKLIN FEDERAL BANCORP
From 1988 to 1996, the Company operated in the financial services segment
through Franklin Federal Bancorp, a Federal Savings Bank ("Franklin"). The
Company purchased Franklin with the intent to utilize certain of its real estate
holdings in its golf-related line of businesses. The Company sold Franklin for
$90.0 million in a transaction that was consummated on January 2, 1997. The
Company's gain on the sale, net of taxes and minority interest, was $25.1
million. Because the Company has disposed of its financial services operations,
this segment is presented as discontinued operations in the Consolidated
Financial Statements. See Note 2 of the Notes to Consolidated Financial
Statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to interest rate changes and foreign currency
fluctuations. The Company is exposed to interest rate changes primarily as a
result of its senior revolving credit facility and long-term debt used to
maintain liquidity and fund capital replacements and discretionary capital
expenditures. The Company's interest rate risk management objective is to limit
the impact of interest rate changes on earnings and cash flows and to lower its
overall borrowing costs. To achieve its objectives, the Company borrows
primarily at variable rates and may enter into derivative financial instruments
such as interest rate swaps in order to mitigate its interest rate risk on a
related financial instrument. The Company does not enter into derivative or
interest rate transactions for speculative or trading purposes.
The Company's objective in managing the exposure to foreign currency
fluctuations is to reduce earnings and cash flow volatility associated with
foreign exchange rate changes to allow management to focus its attention on its
core business. The Company has historically managed this risk through the
diversity of the foreign economies in which it operates and the relatively
limited amount of its investments in these foreign economies. The Company's
international operations represent less than 10% of the total assets of the
Company as of December 29, 1998.
The Company's interest rate risk is monitored using a variety of
techniques. The table below presents the principal and interest (for capital
leases only) amounts, weighted average interest rates and fair values required
by year of expected maturity to evaluate the expected cash flows and sensitivity
to interest rate changes (dollars in thousands).
<TABLE>
<CAPTION>
Fair
1999 2000 2001 2002 2003 Thereafter Total Value
------- ------- ------- ------- -------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed rate debt $13,480 $32,935 $12,882 $10,897 $ 2,947 $ 10,708 $ 83,849 $ 79,930
Weighted average interest rate 8.27 %
Variable rate debt (primarily LIBOR) 5,153 -- -- -- 190,000 -- 195,153 195,153
Weighted average interest rate 5.93 %
Totals $18,633 $32,935 $12,882 $10,897 $192,947 $ 10,708 $ 279,002 $275,083
======= ======= ======= ======= ======== =========== ========= ========
</TABLE>
The table below presents the notional amounts, pay rates, receive rates,
mark-to-market value, and maturity dates of the Company's interest rate swap
agreements (dollars in thousands).
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Notional Amount $ 10,000 $ 4,539 $ 100,000 $ 5,000 $ 5,000 $ 10,000
Pay Rate 7.865% 5.98% 5.79% 5.63% 5.53% 5.25%
Receive Rate 90 day LIBOR 30 day LIBOR 30 day LIBOR 30 day LIBOR 30 day LIBOR 30 day LIBOR
Mark-to-Market Value $ (334) $ (90) $ (2,284) $ (81) $ (60) --
Maturity Date 01/18/00 08/01/01 06/30/03 09/02/03 09/02/03 09/02/03
<S> <C>
Notional Amount $ 5,000
Pay Rate 5.43%
Receive Rate 30 day LIBOR
Mark-to-Market Value $ (39)
Maturity Date 09/02/03
</TABLE>
As the tables incorporate only those exposures that exist as of December
29, 1998, they do not consider those exposures or positions which could arise
after that date. Moreover, because firm commitments are not presented in the
tables above, the information presented herein has limited predictive value. As
a result, the Company's ultimate realized gain or loss with respect to interest
rate fluctuations will depend on the exposures that arise during the period, the
Company's hedging strategies at that time, and interest rates.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's Consolidated Financial Statements and related notes begin on
Page F-1 of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the directors
and executive officers of the Company as of December 29, 1998:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------- --- -----------------------------------------------------------
<S> <C> <C>
Robert H. Dedman 72 Chairman of the Board
Robert H. Dedman, Jr. (1) (2) 41 Chief Executive Officer, President and Director
James M. Hinckley (1) (2) 42 Chief Operating Officer and Director
Patricia Dedman Dietz 42 Director
Robert H. Johnson 51 Chief Operating Officer, International
James P. McCoy, Jr. (1) 52 Chief Financial Officer and Executive Vice President
Terry A. Taylor (1) 42 Chief Legal Officer, Executive Vice President and Secretary
James E. Maser (1) 60 Executive Vice President
Mark W. Dietz 44 Executive Vice President
Albert E. Chew, III 44 Executive Vice President
</TABLE>
____________________
(1) Member of the Executive Committee
(2) Member of the Audit Committee
The Company Board is currently comprised of the Chairman of the Board and
three directors. Each of the current directors was initially elected as a
director on July 16, 1998 and each such person was a director of ClubCorp's
predecessor. All directors of the Company hold office until the next annual
meeting of stockholders and until their successors have been duly elected and
qualified. Executive officers of the Company are elected by the Company Board
and serve until their successors are duly elected and qualified.
The Executive Committee (formerly referred to as the "Investment
Committee") is comprised of two members of the Company Board and three of the
Company's executive officers. The Executive Committee has been delegated the
authority by the Company Board for a variety of matters, including the authority
to approve certain acquisitions and dispositions. Where the Company Board
desires to delegate certain authority to the Executive Committee and applicable
law prevents the delegation of such authority to a committee that includes
persons in addition to directors, the authority is exclusively delegated to the
directors who are members of the Executive Committee. The Audit Committee is
comprised of two members of the Company Board and one officer.
Robert H. Dedman, Jr. and Patricia Dedman Dietz are siblings and are the
children of Robert H. Dedman. Mark W. Dietz is the spouse of Patricia Dedman
Dietz and the son-in-law and brother-in-law of Robert H. Dedman and Robert H.
Dedman, Jr. respectively.
Robert H. Dedman has been Chairman of the Board of the Company since its
inception in 1957 and Chief Executive Officer from 1957 through 1997. Mr. Dedman
is a director of United Meridian Corporation and an advisory director of Stewart
Information Services Corporation.
Robert H. Dedman, Jr. joined the Company in 1980 and served as Director of
Corporate Planning from 1980 until 1984. From 1984 until 1987, Mr. Dedman was an
Associate at Salomon Brothers Inc., specializing in mergers and acquisitions.
Mr. Dedman returned to the Company in 1987 as Chief Financial Officer of
ClubCorp. Since 1989, Mr. Dedman has served as President and director of
ClubCorp. Mr. Dedman served as Chief Operating Officer of ClubCorp from 1987
through 1997. Effective January 1, 1998, Mr. Dedman became Chief Executive
Officer of ClubCorp.
James M. Hinckley joined the Company in 1970, and since that time he has
held various positions and offices with the Company. Mr. Hinckley has been a
director of ClubCorp since 1989. Mr. Hinckley has also been the Chief Operating
Officer of the Company since February 1992. Mr. Hinckley is President of
ClubCorp USA, Inc. and ClubCorp Resorts, Inc.
Patricia Dedman Dietz has been a director of ClubCorp since 1982. Ms. Dietz
has been a psychotherapist in private practice for the last 14 years.
Robert H. Johnson joined the Company in 1975 and has served the Company in
various positions. Mr. Johnson was a director of ClubCorp from 1988 to July 16,
1998. Effective January 1, 1998, Mr. Johnson became Chief Operating Officer of
International Operations. Mr. Johnson is President of ClubCorp International,
Inc.
James P. McCoy, Jr. joined the Company in 1973, and served as Vice
President and Treasurer during 1983. He was a director of ClubCorp from 1994 to
July 16, 1998. From 1983 to 1986, Mr. McCoy was the Manager of Corporate
Financial Services for Merrill Lynch. Mr. McCoy returned to the Company in 1986
as the Treasurer of ClubCorp and has been the Chief Financial Officer of
ClubCorp since 1988. Effective January 1, 1998, Mr. McCoy became Executive Vice
President of ClubCorp.
Terry A. Taylor has been Secretary and Chief Legal Officer of ClubCorp
since 1990. Effective August 12, 1998, Mr. Taylor became an Executive Vice
President of the Company. Mr. Taylor was a director of ClubCorp from January
1994 to July 16, 1998.
James E. Maser has been associated with the Company since 1965 and was a
director from 1971 to July 16, 1998.
Mark W. Dietz has been an Executive Vice President of ClubCorp since
January 1995. Mr. Dietz was a director of the Company from 1986 to July 16,
1998.
Albert E. Chew, III joined the Company in 1988 as Director of Human
Resources for resorts. In 1992, Mr. Chew was elected as a Vice President of
ClubCorp. Mr. Chew served as a director of ClubCorp from 1994 to July 16, 1998.
In 1997, Mr. Chew became Executive Vice President of ClubCorp.
ITEM 11. EXECUTIVE COMPENSATION
- ----------------------------------
Summary Compensation Table
The following table sets forth the compensation paid by ClubCorp to its
chief executive officer and its four other most highly compensated executive
officers (collectively, the "Named Executive Officers") during the years ended
December 31, 1996, December 31, 1997 and December 29, 1998:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
----------------------------- ----------------- --------------
Awards Payouts
----------------- --------------
Other Annual Restricted LTIP All Other
Name and Principal Position Year Salary (1) Bonus Compensation (2) Stock Awards (3) Payouts (4) Compensation
- --------------------------- ------ ----------- -------- ----------------- ----------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert H. Dedman, Jr. 1996 $ 288,400 $118,441 $ -- $ -- $ 75,015 $ 8,946 (6)
Chief Executive Officer, 1997 349,297 108,800 -- -- -- 705 (6)
President and Director 1998 498,077 352,088 -- -- -- 4,800 (6)
James M. Hinckley 1996 283,250 100,044 -- -- 66,246 2,662 (7)
Chief Operating Officer 1997 297,359 112,686 -- -- -- 4,750 (7)
and Director 1998 330,574 248,866 -- -- -- 4,513 (7)
Robert H. Dedman 1996 302,820 -- -- -- 94,244 7,000 (5)
Chairman of the Board 1997 347,831 -- -- -- -- --
and Founder 1998 341,371 1,318 -- -- -- --
Douglas T. Howe 1996 160,000 48,432 -- -- -- 7,947 (8)
Executive Vice President, 1997 167,969 63,043 -- -- -- 4,003 (8)
ClubCorp USA, Inc. 1998 199,231 126,569 -- -- -- 4,000 (8)
Beryl E. Artz 1996 160,000 65,840 -- -- 22,332 4,112 (7)
Executive Vice President, 1997 167,969 72,694 -- -- -- 4,072 (7)
ClubCorp USA, Inc. 1998 199,231 126,568 -- -- -- 4,363 (7)
</TABLE>
_____________________
(1) The Company operates on a 52/53 week year. Salaries for 1996, 1997 and
1998 include 52, 53 and 52 weeks, respectively.
(2) There was no other annual compensation equal to the lesser of $50,000 or
10% of the total annual salary and bonus reported for each Named Executive
Officer in 1996, 1997 or 1998.
(3) No restricted stock was awarded for 1996, 1997 or 1998 and there were no
unvested restricted stock awards as of December 29, 1998.
(4) Reflects the dollar value of payouts in 1996 (based upon the Formula
Price at the date of the payout) relating to restricted stock awarded for
periods prior to 1995, as follows: Robert H. Dedman - 9,415 shares; Robert H.
Dedman, Jr. - 7,494 shares; James M. Hinckley - 6,618 shares; and Beryl E. Artz
- - 2,231 shares.
(5) Represents amounts paid to Mr. Dedman for services rendered as a
director of Franklin. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Acquisition and Sale of Franklin Federal
Bancorp".
(6) The Company's Stock Investment Plan (the "SIP"), which became effective
on January 1, 1993, permits eligible employees to purchase SIP participation
interests through payroll deductions. In addition, ClubCorp contributes an
amount that vests over time on each participant's behalf equal to 20% (the
"Basic Matching Contribution") and up to an additional 30% (the "Discretionary
Matching Contribution") of the participant's contribution. All contributions to
the SIP are invested in Common Stock (except for contributions temporarily
invested in cash pending investment in Common Stock). Consists of $646 in 1996,
$705 in 1997, and $4,800 in 1998 in Basic Matching Contributions and
Discretionary Matching Contributions made by ClubCorp on Mr. Dedman's behalf
pursuant to the SIP. In addition, $8,300 was paid to Mr. Dedman in 1996 for
services rendered as a director of Franklin.
(7) Represents Basic Matching Contributions and Discretionary Matching
Contributions made by ClubCorp on Mr. Hinckley's and Mr. Artz's behalf,
respectively, pursuant to the SIP.
(8) Represents Basic Matching Contributions and Discretionary Matching
Contributions of $4,107 in 1996, $4,003 in 1997, and $4,000 in 1998 made by
ClubCorp on Mr. Howe's behalf pursuant to the SIP. In addition, Mr. Howe
received $3,840 for relocation expenses in 1996.
SAR Exercise and Value Table
The following table summarizes for each Named Executive Officer the
aggregated SAR exercises during the fiscal year ended December 29, 1998 and the
value of all SARs for each Named Executive Officer as of December 29, 1998:
AGGREGATED SAR EXERCISES AND YEAR-END SAR VALUES
<TABLE>
<CAPTION>
Number of Shares Value of
Of Common Stock Unexercised
Underlying Exercised In-the-Money SARs
SARs at Year-End At Year-End (1)
------------------------------- ----------------------------
Shares
Acquired Value
Name On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- -------------------------- ----------- --------- ---------------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Robert H. Dedman, Jr. -- $ -- -- -- $ -- $ --
James M. Hinckley (2)
Grant of January 1, 1988 6,000 48,240 -- -- -- --
Grant of January 1, 1989 -- -- -- 6,000 -- 60,600
Grant of January 1, 1990 -- -- -- 6,000 -- 56,160
Robert H. Dedman -- -- -- -- -- --
Douglas T. Howe -- -- -- -- -- --
Beryl E. Artz -- -- -- -- -- --
</TABLE>
___________________________
(1) Based upon the difference between the fair market value of the Common
Stock on the date of grant and on December 29, 1998. The Formula Price as of
December 29, 1998 was $16.60 per share. The fair market value per share of the
Common Stock as of January 1, 1989 and 1990 was $6.50 and $7.24, respectively.
(2) These SARs were awarded under the Club Corporation of America (renamed
ClubCorp USA, Inc.) Stock Appreciation Rights Program. They vest over a 10-year
period with 10% of each SAR vesting on each anniversary of the date of grant.
Except under certain circumstances, such as termination of the executive's
employment, no payout may be made until a SAR is fully vested (i.e., ten years
after the date of grant). At the time of payout, the Company may pay the value
of the SAR in the form of cash or an equivalent number of shares of Common Stock
(based upon the fair market value of the Common Stock on the date of payment).
Option Grants in Last Fiscal Year
The following table summarizes for each Named Executive Officer, each grant
of stock options during the fiscal year ended December 29, 1998:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
- -------------------------------------------------------------
Percent of
Number of Total
Securities Options
Underlying Granted to Exercise
Options Employees in or Base Grant Date
Name Granted (1) Fiscal Year (1) Price Expiration Date Fair Value (2)
- --------------------- ----------- --------------- --------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Robert H. Dedman, Jr. 240,000 12.90% $ 14.21 02/01/08 $ 1,725,600
James M. Hinckley 110,000 5.91 14.21 02/01/08 790,900
Robert H. Dedman -- -- -- -- --
Douglas T. Howe 40,000 2.15 14.21 02/01/08 287,600
Beryl E. Artz 40,000 2.15 14.21 02/01/08 287,600
</TABLE>
_____________________
(1) The ClubCorp Omnibus Stock Plan (the "Omnibus Stock Plan") was adopted
to be effective February 1998. The Omnibus Stock Plan provides for granting to
key employee partners options to purchase shares of common stock at a price not
less than fair market value at the date of grant. The vesting will be
determined at the time of grant and will generally be three to five years. The
initial grant was 1,739,000 options with a five year vesting and a ten year
expiration date. A total of 1,860,000 options were granted in 1998. None of
these options are currently exercisable.
(2) Fair value was calculated using the Black-Scholes option pricing model.
Use of this model should not be viewed in any way as a forecast of the future
performance of the Company's Common Stock, which will be determined by future
events and unknown factors. The estimated values under the Black-Scholes model
are based upon certain assumptions as to variables such as interest rate, stock
price volatility, dividend yield and term.
Aggregated Option Exercises and Fiscal Year-End Option Value Table
The following table summarizes for each Named Executive Officer, each
exercise of stock options during the fiscal year ended December 29, 1998 and the
fiscal year-end value of unexercised options:
AGGREGATED OPTION EXERCISES AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Shares Value of
Of Common Stock Unexercised
Underlying Exercised In-the-Money Options
Options at Year-End At Year-End (1) (2)
-------------------------------- ------------------------------
Shares
Acquired Value
Name On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- --------------------- ----------- --------- ------------- ----------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Robert H. Dedman, Jr. -- $ -- 114,000 506,000 $ 736,440 $ 2,291,960
James M. Hinckley -- -- 114,000 376,000 736,440 1,981,260
Robert H. Dedman -- -- -- -- -- --
Douglas T. Howe -- -- 27,500 112,500 178,300 566,550
Beryl E. Artz -- -- 27,500 112,500 178,300 566,550
</TABLE>
____________________
(1) The ClubCorp Executive Stock Option Plan (the "Executive Option Plan")
was adopted on August 31, 1995. The Executive Option Plan provides for granting
options to purchase shares of common stock to key management personnel at a
price not less than the fair market value at the date of grant. The options
fully vest the end of ten years from the date the option is granted. The
Executive Option Plan provides for accelerated vesting, not to exceed 10% per
year, if the employee maintains a certain performance level as defined in the
Executive Option Plan. Each of the Named Executive Officers met the required
performance level defined in the Executive Option Plan for 1996, 1997, and 1998.
Thus, approximately 30% of the shares granted are vested and exercisable.
(2) The ClubCorp Omnibus Stock Plan (the "Omnibus Stock Plan") was adopted
to be effective February 1998. The Omnibus Stock Plan provides for granting to
key employee partners options to purchase shares of common stock at a price not
less than fair market value at the date of grant. The vesting is determined at
the time of grant and is five years with a ten year expiration date. None of
these options are currently exercisable.
COMPENSATION OF DIRECTORS
Directors who are not officers of the Company receive $200 for each
ClubCorp board meeting attended.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In 1998, ClubCorp had no Compensation Committee or other committee of the
Board of Directors performing similar functions. Decisions concerning
compensation of executive officers were made by the Chairman of the Board and
the President of ClubCorp.
EMPLOYMENT AGREEMENTS; KEY-MAN LIFE INSURANCE
The Company does not have any material employment agreements with its
officers or employees. The Company does have non-disclosure and non-competition
agreements with the majority of its salaried employees, excluding the Chairman
of the Board and Chief Operating Officer and certain other executive officers.
In addition, the Company does not maintain key-man life insurance policies on
any of its officers or employees.
INDEMNIFICATION
ClubCorp and many of its subsidiaries, including ClubCorp USA, Inc. and
ClubCorp Resorts, Inc., have adopted charter and/or bylaw provisions that
require such corporations to indemnify, to the maximum extent permissible under
applicable law, each of their directors, officers, employees and agents against
any liability that they may incur in connection with or resulting from any
threatened, pending or completed legal proceeding inquiry or investigation by
reason of the fact that any such person is or was a director, officer, employee
or agent of the corporation.
ClubCorp maintains an executive liability and indemnification insurance
policy with an annual limit of liability of $5,000,000. The insurance policy
generally covers the wrongful acts of the directors and officers of ClubCorp and
its subsidiaries (excluding First Federal Financial Corporation). The policy
coverage is subject to a number of exclusions, which include: (1) violations of
federal or state securities laws; (2) violations of federal or state antitrust
laws; (3) violations of federal or state environmental laws; (4) violations of
the Employee Retirement Income Security Act; (5) libel or slander; and (6)
stockholder derivative actions. The Company purchases such insurance policy on
an annual basis, with the current policy period expiring on October 19, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the
beneficial ownership of ClubCorp's Common Stock, as of December 29, 1998, by (i)
each Named Executive Officer, (ii) each person or group known by ClubCorp to be
the beneficial owner of more than 5.0% of the outstanding Common Stock, (iii)
each director of ClubCorp and (iv) all directors and executive officers of
ClubCorp as a group:
<TABLE>
<CAPTION>
Shares of Common Stock
Beneficially Owned (1)
-----------------------
Name Number Percentage
- ------------------------------------- ----------------------- -----------
<S> <C> <C>
Robert H. Dedman (2) 45,335,269 53.6 %
Patricia Dedman Dietz (7) 15,264,487 18.0
Mark W. Dietz (6) 15,264,487 18.0
Robert H. Dedman, Jr. (5) 15,229,676 18.0
James E. Maser (3) (4) 176,000 *
Robert H. Johnson 54,107 *
James M. Hinckley 29,444 *
Terry A. Taylor 23,932 *
Beryl E. Artz 18,251 *
Douglas T. Howe 12,133 *
James P. McCoy, Jr. 8,590 *
Albert E. Chew, III (4) 2,344 *
All directors and executive officers 76,123,849 89.9
as a group (10 persons)
</TABLE>
____________________
* less than 1.0%
(1) Except as otherwise indicated, the persons named in the table have sole
voting and investment power with respect to all shares of Common Stock shown as
beneficially owned by them, subject to community property laws where applicable.
All beneficial owners of more than 5.0% of the Common Stock can be contacted at
3030 LBJ Freeway, Suite 700, Dallas, Texas 75234. Percentages are based on
84,629,809 shares of Common Stock outstanding as of December 29, 1998.
(2) Includes 122,421 shares pledged to a not-for-profit institution.
(3) Excludes 14,478,733 shares owned by trusts for the benefit of Robert
H. Dedman, Jr. and 14,573,033 shares owned by trusts for the benefit of Patricia
Dedman Dietz, for which James E. Maser, among others, serves as trustee and
shares voting and investment power.
(4) Excludes 3,932,459 shares owned by the Plan for the benefit of the
participants in the Plan, for which James E. Maser and Albert E. Chew, III
serve as trustees and share voting and investment power.
(5) Includes 14,478,733 shares owned by trusts for the benefit of Robert
H. Dedman, Jr. (see note (3) above), and 9,246 shares owned by Robert H.
Dedman, Jr.'s wife, Rachael Dedman. Excludes 14,573,033 shares owned by trusts
for the benefit of Patricia Dedman Dietz and 60,410 shares owned by trusts for
the benefit of the Dietz's minor children, Christina Dedman, Jonathan Dedman,
and Jeffrey Patrick Dedman, for which Robert H. Dedman, Jr. serves as a trustee
and shares voting and investment power.
(6) Includes 619,533 shares owned by Mark W. Dietz's wife, Patricia Dedman
Dietz, 14,573,033 shares owned by trusts for the benefit of Mrs. Dietz (see note
(3) above) and 60,410 shares owned by trusts for the benefit of the Dietz's
minor children, Christina Dedman, Jonathan Dedman, and Jeffrey Patrick Dedman,
for which Mrs. Dietz is a trustee and shares voting and investment power.
(7) Includes 11,511 shares owned by Patricia Dedman Dietz's husband, Mark
W. Dietz, 14,573,033 shares owned by trusts for Mrs. Dietz's benefit (see note
(3) above), and 60,410 shares owned by trusts for the benefit of the Dietz's
minor children, Christina Dedman, Jonathan Dedman, and Jeffrey Patrick Dedman,
for which Mrs. Dietz is a trustee and shares voting and investment power.
Excludes 14,478,733 shares owned by trusts for the benefit of Robert H. Dedman,
Jr., for which Mrs. Dietz is a trustee and shares voting and investment power.
Robert H. Dedman and his family currently own approximately 90% of the
Common Stock. The holders of a majority of the Common Stock can elect all of
ClubCorp's directors and approve or disapprove certain fundamental corporate
transactions, including a merger or sale of all of the Company's assets. The
transfer of a substantial portion of Mr. Dedman's common stock, including a
transfer upon his death, could result in a change in control of the Company and
could affect the management or direction of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the period from January 1, 1998 to March 22, 1999, a trust for the
benefit of Robert H. Dedman, Jr., the President, Chief Executive Officer and a
director of ClubCorp, sold 89,363 shares of Common Stock, for consideration of
approximately $1,312,000. A trust for the benefit of Patricia Dedman Dietz, a
director of ClubCorp, sold 89,363 shares of Common Stock for consideration of
approximately $1,312,000. A trust for the benefit of James E. Maser, Executive
Vice President, sold 112,825 shares of Common Stock for consideration of
approximately $1,787,000. All of such sales were made at the then-current
Formula Price and were purchased by either the Plan or the Company. See Item 5,
"Market for Registrant's Common Equity and Related Stockholder Matters".
On June 15, 1995, Robert H. Dedman, Chairman of the Board, made loans
of $3.0 million and $5.0 million, respectively, to two subsidiaries. The notes
were repaid in 1998.
On July 28, 1997, Robert H. Dedman, Chairman of the Board, made an
additional loan of approximately $2.6 million to one of the above subsidiaries.
The note was repaid in 1998.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
(a)(1) The following audited Consolidated Financial Statements of ClubCorp
and its subsidiaries as of December 31, 1997 and December 29, 1998, and for the
years ended December 31, 1996, December 31, 1997 and December 29, 1998 are
included in this Annual Report on Form 10-K, beginning on Page F-1:
Independent auditors' report
Consolidated balance sheet
Consolidated statement of operations
Consolidated statement of stockholders' equity and comprehensive
income
Consolidated statement of cash flows
Notes to consolidated financial statements
(a)(2) The following financial statement schedule is included in this Annual
Report on Form 10-K, beginning on Page S-1:
Independent auditors' report on financial statement schedule
Schedule II Valuation and qualifying accounts
All other schedules are omitted as the required information is inapplicable
or the information is presented in the Consolidated Financial Statements or the
notes thereto.
(a)(3) See Index to Exhibits on page 39. Exhibits 10.4 through 10.6, 10.9
through 10.12, and 10.15 through 10.17 are compensatory plans.
(b) Reports on Form 8-K
Form 8-K was filed on May 8, 1998 relating to a change in accounting
periods.
(c) Exhibits
See Index to Exhibits on page 39.
(d) Financial Statement Schedule
The financial statement schedule required by paragraph (d) of Item 14
is presented on page S-2.
SUPPLEMENTAL INFORMATION
The Registrant has not furnished to its security holders an annual report
covering the Registrant's last fiscal year or any proxy statement, form of proxy
or other proxy soliciting material with respect to any annual or other meeting
of security holders other than a proxy for the election of officers and
directors at the annual shareholders meeting if the security holder did not plan
to attend.
<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.
CLUBCORP, INC.
By: **
-----------------------------
Robert H. Dedman, Jr.
Chief Executive Officer
and President
By: **
-----------------------------
James P. McCoy, Jr.
Chief Financial Officer/
Chief Accounting Officer
Date: March 25, 1999
----------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed 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>
*
- ---------------------------
Robert H. Dedman, Sr. Chairman of the Board March 25, 1999
*
- ---------------------------
Robert H. Dedman, Jr. Chief Executive Officer, President and Director March 25, 1999
*
- ---------------------------
James M. Hinckley Chief Operating Officer and Director March 25, 1999
*
- ---------------------------
Patricia Dedman Dietz Director March 25, 1999
/s/ James P. McCoy, Jr.
- ---------------------------
James P. McCoy, Jr. Executive Vice President, Chief Financial Officer March 25, 1999
(Principal Executive Officer)
By: /s/James P. McCoy, Jr.
- ---------------------------
James P. McCoy, Jr.
Attorney-in-Fact
</TABLE>
___________________
* Power of Attorney authorizing James P. McCoy, Jr. to sign this annual
report on Form 10-K on behalf of the directors and certain officers of the
Company is being filed with the Securities and Exchange Commission.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- -------- -------
<C> <S>
3.1* Articles of Incorporation, as amended, of ClubCorp, Inc.
3.2* Bylaws, as amended, of Club Corporation International
4.1* Specimen Certificate evidencing Common Stock of Club Corporation International
4.3 Certificate of Incorporation of ClubCorp, Inc.
4.4** Bylaws of ClubCorp, Inc.
10.1 ClubCorp Employee Stock Ownership Plan
10.2~ Agreement among Club Corporation International, First Federal Financial Corporation, Franklin Federal
Bancorp, a Federal Savings Bank, and Norwest Corporation regarding the sale of certain assets and
assumption of certain liabilities of Franklin Federal Bancorp
10.3 Executive Liability and Indemnification Policy, effective October 19, 1998
10.4* Club Corporation International Executive Bonus Plan for 1992 - 1994
10.5^^ ClubCorp Comprehensive Compensation Plan
10.6* Club Corporation of America Stock Appreciation Rights Program
10.7* Form of Stockholder Agreement for Club Corporation International
10.8 ClubCorp Employee Stock Ownership Trust
10.9^ Club Corporation International Executive Stock Option Plan
10.10++ First Amendment to the Club Corporation International Executive Stock Option Plan
10.11# Second Amendment to the Club Corporation International Executive Stock Option Plan
10.12 Third Amendment to the Club Corporation International Executive Stock Option Plan
10.13# $300,000,000 Credit Agreement Among Club Corporation International and Certain Lenders and
Co-Agents dated May 27, 1998
10.14 First Amendment to $300,000,000 Credit Agreement
10.15^^^ Club Corporation International Omnibus Stock Plan
10.16 First Amendment to the Club Corporation International Omnibus Stock Plan
10.17 First Amendment to the ClubCorp Employee Stock Ownership Plan
and ClubCorp Employee Stock Ownership Trust
10.18 Commitment Letter for $200,000,000 Senior Credit Facility between ClubCorp, Inc. and Certain Lenders
dated March 3, 1999
10.19 Form of Stock Purchase Agreement dated February 10, 1999 between Meditrust Corporation,
Meditrust Operating Company and Golf Acquisitions, L.L.C.
21.1 Subsidiaries of ClubCorp, Inc.
23.1 Consent of KPMG LLP
23.3 Consent of Houlihan, Lokey, Howard and Zukin Financial Advisors, Inc.
24.1 Power of Attorney
99.1 Opinion of Houlihan, Lokey, Howard and Zukin Financial Advisors, Inc. related to December 29, 1998 valuation of the
Common Stock
</TABLE>
_____________________
* Incorporated by reference to the Company's Registration Statement on Form
S-1 (Registration No. 33-83496)
** Incorporated by reference to the Company's Post-Effective Amendment No. 1
to Form S-8 (Registration Nos. 33-89818,
33-965568, 333-08041 and 333-57107)
++ Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995
^ Incorporated by reference to the Company's Registration Statement on Form
S-8 (Registration No. 33-96568)
^^ Incorporated by reference to the Company's Registration Statement on Form
S-8 (Registration No. 333-08041)
^^^ Incorporated by reference to the Company's Registration Statement on
Form S-8 (Registration No. 333-57107)
~ Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the fiscal period ended June 30, 1996
# Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the fiscal period ended June 17, 1998
INDEPENDENT AUDITORS' REPORT
- ------------------------------
The Board of Directors
ClubCorp, Inc.
We have audited the accompanying consolidated balance sheet of ClubCorp, Inc.
and subsidiaries (ClubCorp), formerly Club Corporation International, as of
December 31, 1997 and December 29, 1998, and the related consolidated statements
of operations, stockholders' equity and comprehensive income and cash flows for
each of the years in the three-year period ended December 29, 1998. These
consolidated financial statements are the responsibility of ClubCorp's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of ClubCorp as of
December 31, 1997 and December 29, 1998, and the results of their operations and
their cash flows for each of the years in the three-year period ended December
29, 1998 in conformity with generally accepted accounting principles.
KPMG LLP
Dallas, Texas
February 26, 1999
<PAGE>
CLUBCORP, INC.
CONSOLIDATED BALANCE SHEET
December 31, 1997 and December 29, 1998
(Dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
Assets 1997 1998
------ ----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 101,419 $ 72,423
Membership and other receivables, net 76,522 84,915
Inventories 14,954 18,082
Other assets 14,968 17,587
----------- -----------
Total current assets 207,863 193,007
Property and equipment, net 677,227 751,070
Other assets 143,584 166,081
----------- -----------
$1,028,674 $1,110,158
=========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable and accrued liabilities $ 57,996 $ 58,826
Long-term debt - current portion 74,621 18,633
Other liabilities 79,995 97,127
----------- -----------
Total current liabilities 212,612 174,586
Long-term debt 181,236 255,917
Other liabilities 109,493 109,880
Membership deposits 83,066 95,460
Redemption value of common stock held by benefit plan 53,652 65,279
Stockholders' equity:
Common stock, $.01 par value, 100,000,000 shares
authorized, 90,219,408 issued in 1997 and 1998,
85,003,839 and 84,629,809 outstanding
in 1997 and 1998, respectively 902 902
Additional paid-in capital 10,607 11,205
Accumulated other comprehensive income 260 (119)
Retained earnings 419,061 445,770
Treasury stock (42,215) (48,722)
----------- -----------
Total stockholders' equity 388,615 409,036
----------- -----------
$1,028,674 $1,110,158
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CLUBCORP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
Years Ended December 31, 1996 and 1997 and December 29, 1998
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Operating revenues $771,177 $827,597 $851,336
Operating costs and expenses 662,692 694,165 713,093
Selling, general and administrative expenses 61,344 67,988 71,422
--------- --------- ---------
Operating income 47,141 65,444 66,821
Gain (loss) on divestitures (2,392) 4,729 (5,718)
Interest and investment income 11,092 9,643 12,092
Interest expense (34,044) (34,044) (28,901)
Other income (expense) (2,974) 1,118 1,025
--------- --------- ---------
Income from continuing operations before income taxes,
minority interest and extraordinary item 18,823 46,890 45,319
Income tax (provision) benefit (2,498) 41,264 (5,807)
Minority interest 542 (290) -
--------- --------- ---------
Income from continuing operations before extraordinary item 16,867 87,864 39,512
Discontinued operations:
Operating income of discontinued financial services
segment, net of income tax benefit of $95 1,446 - -
Income (loss) on disposal of financial services segment, net of
income taxes of $8,425 and $(15,221) in 1996 and 1997, respectively (13,083) 25,146 -
--------- --------- ---------
(11,637) 25,146 -
--------- --------- ---------
Income before extraordinary item 5,230 113,010 39,512
Extraordinary item - gain (loss) on extinguishment of debt, net of
income taxes of $(83) and $634 in 1996 and 1998, respectively 335 - (1,176)
--------- --------- ---------
Net income $ 5,565 $113,010 $ 38,336
========= ========= =========
Basic earnings per share:
Income from continuing operations before extraordinary item $ .20 $ 1.03 $ .46
Discontinued operations (.13) .29 -
Extraordinary item - gain (loss) on extinguishment of debt - - (.01)
--------- --------- ---------
Net income $ .07 $ 1.32 $ .45
========= ========= =========
Diluted earnings per share:
Income from continuing operations before extraordinary item $ .20 $ 1.02 $ .45
Discontinued operations (.14) .29 -
Extraordinary item - gain (loss) on extinguishment of debt - - (.01)
--------- --------- ---------
Net income $ .06 $ 1.31 $ .44
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CLUBCORP, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
Years Ended December 31, 1996 and 1997 and December 29, 1998
(Dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
Common stock (100,000,000 shares
authorized, par value $.01 per share)
--------------------------------------------
Accumulated
Treasury Additional Other
Shares Stock Shares Par Paid-in Comprehensive
Issued Shares Outstanding Value Capital Income
---------- ---------- ------------ ------ ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995 90,219,408 4,552,376 85,667,032 $ 902 $ 10,075 $ (11,863)
Purchase of treasury stock - 408,487 (408,487) - - -
Stock issued in connection with:
Purchases by benefit plan - (24,258) 24,258 - 71 -
Bonus plans - (110,438) 110,438 - 234 -
Comprehensive income:
Net income - - - - - -
Foreign currency translation adjustment - - - - - (3)
Market adjustment - - - - - 11,766
Total comprehensive income
Change in redemption value of common
stock held by benefit plan - - - - - -
---------- ---------- ------------ ------ ----------- ---------------
Balances at December 31, 1996 90,219,408 4,826,167 85,393,241 $ 902 $ 10,380 $ (100)
Purchase of treasury stock - 447,850 (447,850) - - -
Stock issued in connection with bonus plans - (58,448) 58,448 - 227 -
Comprehensive income:
Net income - - - - - -
Foreign currency translation adjustment - - - - - 314
Market adjustment - - - - - 46
Total comprehensive income
Change in redemption value of common
stock held by benefit plan - - - - - -
---------- ---------- ------------ ------ ----------- ---------------
Balances at December 31, 1997 90,219,408 5,215,569 85,003,839 $ 902 $ 10,607 $ 260
PURCHASE OF TREASURY STOCK - 506,549 (506,549) - - -
STOCK ISSUED IN CONNECTION WITH:
PURCHASES BY BENEFIT PLAN - (11,084) 11,084 - 78 -
BONUS PLANS - (71,935) 71,935 - 436 -
EXERCISE OF STOCK OPTIONS - (49,500) 49,500 - 84 -
COMPREHENSIVE INCOME:
NET INCOME - - - - - -
FOREIGN CURRENCY TRANSLATION ADJUSTMENT - - - - - (379)
TOTAL COMPREHENSIVE INCOME
CHANGE IN REDEMPTION VALUE OF COMMON
STOCK HELD BY BENEFIT PLAN - - - - - -
---------- ---------- ------------ ------ ----------- ---------------
BALANCES AT DECEMBER 29, 1998 90,219,408 5,589,599 84,629,809 $ 902 $ 11,205 $ (119)
========== ========== ============ ====== =========== ===============
Total
Retained Treasury Stockholders'
Earnings Stock Equity
---------- ---------- ---------------
<S> <C> <C> <C>
Balances at December 31, 1995 $ 318,724 $ (33,743) $ 284,095
Purchase of treasury stock - (4,356) (4,356)
Stock issued in connection with:
Purchases by benefit plan - 183 254
Bonus plans - 816 1,050
Comprehensive income:
Net income 5,565 - 5,565
Foreign currency translation adjustment - - (3)
Market adjustment - - 11,766
---------------
Total comprehensive income 17,328
Change in redemption value of common
stock held by benefit plan (7,819) - (7,819)
---------- ---------- ---------------
Balances at December 31, 1996 $ 316,470 $ (37,100) $ 290,552
Purchase of treasury stock - (5,568) (5,568)
Stock issued in connection with bonus plans - 453 680
Comprehensive income:
Net income 113,010 - 113,010
Foreign currency translation adjustment - - 314
Market adjustment - - 46
---------------
Total comprehensive income 113,370
Change in redemption value of common
stock held by benefit plan (10,419) - (10,419)
---------- ---------- ---------------
Balances at December 31, 1997 $ 419,061 $ (42,215) $ 388,615
PURCHASE OF TREASURY STOCK - (7,606) (7,606)
STOCK ISSUED IN CONNECTION WITH:
PURCHASES BY BENEFIT PLAN - 94 172
BONUS PLANS - 584 1,020
EXERCISE OF STOCK OPTIONS - 421 505
COMPREHENSIVE INCOME:
NET INCOME 38,336 - 38,336
FOREIGN CURRENCY TRANSLATION ADJUSTMENT - - (379)
---------------
TOTAL COMPREHENSIVE INCOME 37,957
CHANGE IN REDEMPTION VALUE OF COMMON
STOCK HELD BY BENEFIT PLAN (11,627) - (11,627)
---------- ---------- ---------------
BALANCES AT DECEMBER 29, 1998 $ 445,770 $ (48,722) $ 409,036
========== ========== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CLUBCORP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Years Ended December 31, 1996 and 1997 and December 29, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operations:
Net income $ 5,565 $ 113,010 $ 38,336
Adjustments to reconcile net income to cash flows provided from operations:
Depreciation and amortization 48,948 47,314 54,161
Loss (gain) on divestitures 2,392 (4,729) 5,718
Minority interest in net loss (income) of subsidiaries (542) 290 -
Gain on disposal of financial services segment - (25,146) -
Extraordinary item - loss (gain) on extinguishment of debt (418) - 1,810
Equity in losses (earnings) of joint ventures 2,084 (852) (1,007)
Amortization of discount on membership deposits 5,029 5,777 6,559
Deferred income taxes 1,207 (44,045) 2,898
Decrease in real estate held for sale 16,919 14,828 9,265
Increase in membership and other receivables, net (7,986) (3,033) (9,271)
Increase in accounts payable and accrued liabilities 6,055 2,017 2,000
Increase in deferred membership revenues 4,641 2,823 8,057
Other 4,643 (1,223) (5,012)
Net change in operating assets of discontinued operations 17,067 - -
---------- ---------- ----------
Cash flows provided from operations 105,604 107,031 113,514
Cash flows from investing activities:
Additions to property and equipment (47,982) (58,768) (100,035)
Development of new facilities (4,306) (5,775) (19,120)
Development of real estate ventures (17,329) (9,563) (8,575)
Acquisition of facilities (39,685) (6,436) (9,038)
Investment in affiliates (747) (6,123) (21,930)
Proceeds from disposition of subsidiaries and assets, net 1,216 13,026 10,768
Proceeds from disposal of financial services segment, net - 89,968 -
Other 6,685 7,371 6,429
Investing activities of discontinued operations 305,772 - -
---------- ---------- ----------
Cash flows provided from (used by) investing activities 203,624 23,700 (141,501)
Cash flows from financing activities:
Borrowings of long-term debt 57,606 19,441 238,959
Repayments of long-term debt (33,336) (103,730) (232,709)
Membership deposits received, net 350 1,744 3,820
Treasury stock transactions, net (4,102) (5,568) (6,929)
Repayment of Federal Home Loan bank advances - (3,153) -
Dividend paid to minority shareholder of financial services segment - (12,500) (4,150)
Financing activities of discontinued operations (324,834) - -
---------- ---------- ----------
Cash flows used by financing activities (304,316) (103,766) (1,009)
---------- ---------- ----------
Total net cash flows 4,912 26,965 (28,996)
---------- ---------- ----------
Net cash flows from discontinued operations (13,632) - -
---------- ---------- ----------
Net cash flows from continuing operations 18,544 26,965 (28,996)
Cash and cash equivalents at beginning of period 55,910 74,454 101,419
---------- ---------- ----------
Cash and cash equivalents at end of period $ 74,454 $ 101,419 $ 72,423
========== ========== ==========
</TABLE>
See accompanying Notes 2, 3, 4, and 8 for supplemental disclosure of non-cash
activities.
See accompanying notes to consolidated financial statements.
<PAGE>
CLUBCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------
Consolidation
- -------------
The Consolidated Financial Statements include the accounts of ClubCorp, Inc.
(Parent) and its subsidiaries (collectively ClubCorp) except for certain
subsidiaries of Franklin Federal Bancorp, a Federal Savings Bank (Franklin). On
January 2, 1997, Franklin sold certain assets and transferred certain
liabilities to Norwest Corporation. Thus, Franklin is classified as a
discontinued operation (Note 2) and Franklin's loss from operations and cash
flow activity are segregated in the accompanying financial statements. Unless
otherwise indicated, all financial information in the Notes to the Consolidated
Financial Statements excludes the discontinued operation.
Investments in affiliates are accounted for on the equity method. Under the
equity method, original investments are recorded at cost and adjusted by
ClubCorp's share of the undistributed earnings or losses of these affiliates
(Note 4).
All material intercompany balances and transactions have been eliminated.
No minority interest is recorded for minority stockholders of two city clubs,
one golf club in development, one resort subsidiary and one real estate
development subsidiary because of deficit capital positions and a joint venture
partner's deficit capital position. The deficit capital position of the joint
venture partner is included as a reduction of other liabilities. Minority
stockholders' share of these entities' cumulative and 1998 losses which
approximate $4,208,000 and $766,000, respectively, have been recognized by
ClubCorp. Future earnings of these subsidiaries will be recognized by ClubCorp
to the extent of minority interest losses previously absorbed.
Nature of operations
- ----------------------
ClubCorp, Inc. is a holding company incorporated under the laws of the State of
Delaware that, through its subsidiaries, has historically operated in two
distinct business industries; hospitality and financial services. The financial
services operations are presented as discontinued operations for financial
reporting purposes (Note 2). ClubCorp's operations in the hospitality industry
involve the operation of resorts, country club and golf facilities and city
club through sole ownership, partial ownership (including joint venture
interests) and management agreements.
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of
an Enterprise and Related Information". SFAS 131 establishes standards for
reporting information about operating segments in interim and annual financial
statements. It also establishes standards for related disclosures about products
and services, geographic areas, and major customers. Effective fiscal year-end
1998, ClubCorp adopted SFAS 131 (Note 10).
Fiscal year
- ------------
Effective January 1, 1997, ClubCorp changed its fiscal year from a calendar year
ending December 31 to a 52/53 week fiscal year ending on the last Wednesday
of December. The hospitality subsidiaries were previously reported on a
52/53 week fiscal year with acquisitions, divestitures and other material
transactions of the hospitality operations during the period from December 25,
1996 to December 31, 1996 recorded in these statements. The accounts of Franklin
are included for all of the calendar year in 1996. Fiscal year 1997 is
comprised of the 53 weeks ended December 31, 1997.
ClubCorp decided to modify its accounting periods effective in fiscal year 1998
from the fiscal year ending on the last Wednesday to the fiscal year ending on
the last Tuesday of December. ClubCorp's 1998 fiscal year is comprised of the
52 weeks ended December 29, 1998.
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 amount of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Cash and cash equivalents
- ----------------------------
ClubCorp's policy is to invest cash in excess of operating requirements in
income producing investments. For purposes of the Consolidated Statement of Cash
Flows, cash and cash equivalents include cash on hand and interest-bearing
deposits in financial institutions, substantially all of which have maturities
of 180 days or less. Cash equivalents at December 31, 1997 and December 29,
1998 were approximately $53,041,000 and $30,488,000, respectively.
Impairment of long-lived assets and intangible assets
- -----------------------------------------------------------
Long-lived assets and certain identifiable intangibles to be held and used by an
entity are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
ClubCorp assesses the recoverability of long-lived assets by determining whether
the fixed asset balance plus any intangibles for each property can be recovered
over its remaining life through undiscounted future operating cash flows. Fair
value, for purposes of calculating impairment, is measured based on discounted
future operating cash flows using a risk-adjusted discount rate.
Intangible assets
- ------------------
Identifiable intangible assets represent primarily the excess cost over fair
value of net assets of businesses acquired and public golf leasehold interests
which are amortized using the straight-line method over 5 to 40 years.
Property and equipment
- ------------------------
Property and equipment is stated at cost. Land and land improvements include
nondepreciable golf course improvements including fairways, roughs and trees.
ClubCorp capitalizes costs which both materially add value and appreciably
extend the useful life of an asset. With respect to golf course improvements,
only costs associated with original construction, complete replacements, or the
addition of new trees, sandtraps, fairways or greens are capitalized. All other
related costs are expensed as incurred.
Depreciation is provided primarily using the straight line method based on the
following estimated useful lives:
<TABLE>
<CAPTION>
<S> <C>
Depreciable land improvements 20 years
Building and recreational facilities 40 years
Furniture and fixtures 3 - 10 years
Machinery and equipment 3 - 10 years
</TABLE>
Leasehold improvements and assets under capital leases are amortized over the
period of the respective leases using the straight line method.
Inventories
- -----------
Inventories, which consist primarily of food and beverage and merchandise held
for resale, are stated at the lower of cost (first-in, first-out method) or
market value.
Real estate held for sale
- -----------------------------
Real estate held for sale consists primarily of land, land development costs and
related amenities if they are to be left with the project upon completion. Costs
are allocated to project components based on the specific identification method
whenever possible. Otherwise, costs are allocated based on their relative sales
value. At December 31, 1997 and December 29, 1998, real estate held for sale was
$28,180,000 and $26,591,000, respectively, and is included in other non-current
assets in the Consolidated Balance Sheet
Sales of real estate generally are accounted for under the full accrual method.
Under that method, a gain is not recognized until the collectibility of the
sales price is reasonably assured and the earnings process is virtually
complete. One real estate subsidiary has a project that is accounted for under
the percentage-of-completion method since the subsidiary has obligations under
sales contracts to provide improvements after the property is sold. Under the
percentage-of-completion method, the gain on the sale is recognized as the
related obligations are fulfilled.
Income taxes
- -------------
Income taxes are accounted for using the asset and liability method. Under this
method deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using tax rates expected
to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled.
Deferred membership dues
- --------------------------
Deferred membership dues represent lifetime membership dues and prepaid dues.
Lifetime membership dues are recognized as income using the straight-line method
over 20 years, the estimated average life of a lifetime membership. Prepaid dues
are recognized as income over the prepayment period.
Foreign currency translation
- ------------------------------
Assets and liabilities denominated in foreign currencies are translated into
U.S. dollars at the current exchange rate in effect at year-end. All foreign
income and expenses are translated at the weighted average exchange rates during
the year.
Translation gains and losses are reported separately as a component of
comprehensive income. Realized foreign currency transaction gains and losses
are reflected in the statement of operations.
Treasury stock
- ---------------
Purchases of treasury stock are recorded at the cost of the shares acquired.
When treasury stock is subsequently issued, the difference between the cost of
shares issued, using the average cost method, and the sales price is charged or
credited to additional paid-in capital.
Stock-based compensation
- -------------------------
Stock-based compensation is accounted for using Accounting Principles Board
Opinion (APB) No. 25, "Accounting for Stock Issued to Employees". Under APB 25
if the exercise price of the options is greater than or equal to the market
price at the date of grant, no compensation expense is recorded. Effective
fiscal year-end 1996, ClubCorp adopted the disclosure-only provisions of SFAS
123, "Accounting for Stock-based Compensation" (Note 12).
Revenue recognition
- --------------------
Revenue from green fees, lodging, cart rentals, food and beverage sales and
merchandise sales are generally recognized at the time of sale or when the
service is provided.
Revenues from membership dues are generally billed monthly and recognized in the
period earned. The monthly dues are expected to cover the cost of providing
future membership services. Membership deposits represent advance initiation
deposits paid by members and are refundable a fixed number of years (generally
30 years) after the date of acceptance as a member. The difference between the
amount of the membership deposit and the present value of the obligation is
deferred and recognized as revenue on a straight line basis over the average
expected life of an active membership. Nonrefundable initiation fees and related
incremental direct selling costs of membership initiation deposits and fees
(primarily commissions) are recorded in the same manner. The membership deposit
liability accretes over the refundable term using the interest method. The
accretion is recorded to interest expense in the accompanying Consolidated
Statement of Operations.
At December 29, 1998, the amount of membership deposits contractually due
and payable during the next 5 years is not significant.
Divestiture of subsidiaries
- -----------------------------
Gain (loss) on divestitures includes gains and losses from the disposition of
assets and subsidiaries. Subsidiaries are divested when management determines
they will be unable to provide a positive contribution to cash flows from
operations in future periods. Gains from divestitures are generally
recognized in the period in which operations cease and losses are recognized
when they become apparent.
Interest rate swap agreements
- --------------------------------
ClubCorp enters into interest rate swap agreements to limit exposure to
fluctuations in interest rates related to long-term debt. ClubCorp accounts
for these swap agreements by recording the net interest paid or received as an
increase or reduction in interest expense.
Earnings per share
- -------------------
Earnings per share is computed using the weighted average number of common
shares outstanding of 85,601,163, 85,283,231 and 84,935,699 for basic and
85,854,088, 85,946,231 and 86,649,991 for diluted for 1996, 1997 and 1998,
respectively. The weighted average shares outstanding used in the calculation
of diluted earnings per share includes options to purchase common stock (Note
12).
Reclassifications
- -----------------
Certain amounts previously reported have been reclassified to conform with the
current year presentation.
Recent pronouncements
- ----------------------
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-Up
Activities". SOP 98-5 requires that the costs of start-up activities, including
organizational costs, be expensed as incurred. SOP 98-5 will be effective for
ClubCorp in fiscal year 1999. Due to the nature of the operations, the effect
of the implementation of SOP 98-5 will not have a significant impact on
ClubCorp's Consolidated Statement of Operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which establishes accounting and reporting
standards for derivative instruments and hedging activities. It requires that
all derivatives be recognized as either assets or liabilities on the balance
sheet and such instruments be measured at their fair value. The Statement is
effective for all quarters of years beginning after June 15, 1999. Based on
ClubCorp's current operations, the effect of implementation of this new
statement is not expected to have a significant effect on ClubCorp's balance
sheet or statement of operations. SFAS 133 will be reflected in ClubCorp's
first quarter 2000 Consolidated Financial Statements.
NOTE 2. DISCONTINUED OPERATIONS
- ----------------------------------
On August 7, 1996, Franklin entered into an agreement to sell certain assets
and transfer certain liabilities of Franklin to Norwest Corporation pending
regulatory approval. The sale was consummated on January 2, 1997 for
$89,968,000. ClubCorp's total cash investment in Franklin was $25,000,000. For
the year ended December 31, 1997, ClubCorp's gain on the sale, net of income
taxes and minority interest, was $25,146,000.
In January 1997, Franklin paid $62,500,000 in dividends to its shareholders.
ClubCorp used a majority of its dividend to repay long-term debt.
The financial loss from discontinued operations is segregated in the
accompanying financial statements, net of minority interest. The condensed
statement of operations of the discontinued segment is as follows (dollars in
thousands):
<TABLE>
<CAPTION>
Statement of Operations
- -----------------------
1996
---------
<S> <C>
Net interest income $ 20,308
Other expenses 43,374
Income tax benefit 8,520
---------
Net loss (14,546)
Minority interest (2,909)
---------
ClubCorp's interest $(11,637)
=========
</TABLE>
In 1996, in conjunction with the sale, Franklin's Board of Directors made a
decision to sell fixed-rate mortgage-backed securities and use the funds to
prepay the Federal Home Loan Bank (FHLB) advances. A write down of the portfolio
was recognized due to the decision to sell the fixed-rate mortgage-backed
securities and the decline in their value deemed other than temporary. Losses
recognized as of December 31, 1996 on the sale of fixed-rate mortgage-backed
securities and write down on the remaining securities to be sold totaled
$21,500,000. The proceeds on the sale of these investments allowed Franklin to
prepay a majority of the FHLB advances.
NOTE 3. ACQUISITIONS
- ----------------------
During 1996, ClubCorp purchased substantially all the assets of three golf
clubs, two country clubs and two resorts.
During 1997, ClubCorp purchased the stock of a golf club and substantially all
the assets of a country club and a hotel. The hotel is an addition to an
existing resort subsidiary of the Parent.
During 1998, ClubCorp purchased substantially all the assets of two country
clubs.
These acquisitions were accounted for using the purchase method and,
accordingly, the acquired assets and liabilities were recorded based on their
estimated fair values at the dates of acquisition. A summary of the combined
assets and liabilities on the acquisition dates is as follows (dollars in
thousands):
<TABLE>
<CAPTION>
1996 1997 1998
-------- ------- ------
<S> <C> <C> <C>
Inventories and other assets $ 1,227 $ 39 $ 72
Property and equipment 46,439 9,587 7,627
Excess of cost over net assets
acquired, net 7,754 732 1,530
Deposit on purchase (5,000) - -
-------- ------- ------
Total assets acquired $50,420 $10,358 $9,229
======== ======= ======
Accounts payable and
accrued liabilities $ 591 $ 1,003 $ 80
Long-term debt 8,310 2,919 111
Other liabilities 1,834 - -
-------- ------- ------
Total liabilities assumed $10,735 $ 3,922 $ 191
======== ======= ======
Cash paid $39,685 $ 6,436 $9,038
======== ======= ======
</TABLE>
The deposit on purchase is an advance payment made in 1995 on the purchase of a
golf club. The purchase was finalized during 1996.
The following unaudited proforma financial information for ClubCorp assumes the
acquisitions in 1997 and 1998 occurred at the beginning of their respective
acquisition year and the preceding year. This proforma summary does not
necessarily reflect the results of operations as they would have occurred or the
results which may occur in the future (dollars in thousands, except per share
data):
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Operating revenues $829,390 $852,501
======== ========
Net income $112,860 $ 38,379
======== ========
Diluted earnings per share $ 1.31 $ .44
======== ========
</TABLE>
NOTE 4. INVESTMENTS IN AFFILIATES
- -------------------------------------
During 1998, ClubCorp entered into a joint venture agreement to build and
operate a country club. In addition, ClubCorp acquired common stock interests in
two golf operating companies, ClubLink Corporation and PGA European Tour
Courses, PLC.
ClubCorp's other investments in affiliates include joint ventures for the
operation of four real estate developments, four country clubs, two golf clubs
and two city clubs.
ClubCorp does not have operational or financial control over these
entities; therefore, the entities are accounted for using the equity method and
the investment balances are included in other non-current assets in the
accompanying financial statements.
A summary of the significant financial information of affiliated companies
accounted for on the equity method is as follows (dollars in thousands):
<TABLE>
<CAPTION>
1997 1998
------- --------
<S> <C> <C>
Cash $13,259 7,664
Property and equipment, net 47,287 281,712
Land held for resale 3,877 494
Other assets 15,909 93,151
------- --------
Total assets $80,332 $383,021
======= ========
Long-term debt $19,879 57,102
Membership deposits 5,063 6,313
Other liabilities 30,551 102,117
Venturers' capital 24,839 217,489
------- --------
Total liabilities and
venturers' capital $80,332 $383,021
======= ========
Operating revenues $37,650 $ 95,867
Operating income $ 4,067 $ 20,184
Net income $ 2,285 $ 11,596
ClubCorp's equity in:
Venturers' capital $14,117 $ 31,598
Net income $ 852 $ 1,007
</TABLE>
NOTE 5. FAIR VALUE OF FINANCIAL INSTRUMENTS
- -------------------------------------------------
Fair value estimates are made at a specific point in time, based on relevant
information about the financial instrument. These estimates do not reflect any
premium or discount that could result from offering for sale at one time
ClubCorp's entire holdings of a particular financial instrument. Because no
market exists for certain financial instruments, fair value estimates are based
on management's judgment regarding future expected loss experience, current
economic conditions, risk characteristics of various financial instruments, and
other factors. These fair value estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be
determined with precision. Changes in assumptions could significantly affect
estimates.
At December 31, 1997 and December 29, 1998, ClubCorp's estimate of fair value
approximates the carrying value of its financial instruments except as noted
below.
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument for which it is practicable to estimate that
value:
Cash and cash equivalents
- ----------------------------
The carrying amount of cash and cash equivalents approximates fair value due to
the short maturity of these instruments.
Long-term debt
- ---------------
Fair values for fixed rate and other obligations are based on the discounted
value of contractual cash flows using ClubCorp's incremental borrowing rates for
similar types of debt arrangements. The fair value calculated at December 31,
1997 and December 29, 1998 approximates the carrying value. ClubCorp's
fluctuating rate and capital lease obligations' carrying amounts approximate
fair value.
Membership deposits
- --------------------
The estimated fair value of membership deposits was $137,294,000 and
$169,656,000 at December 31, 1997 and December 29, 1998, respectively. The
carrying value at December 31, 1997 and December 29, 1998 of membership deposits
was $83,066,000 and $95,460,000, respectively. The fair value of membership
deposits is estimated at the assumed purchase price for essentially risk free
U.S. Treasury securities that would be required to extinguish future maturities
of membership deposits in a manner similar to an in-substance defeasance. These
assumptions are only used to estimate fair value; management has no intention to
defease these obligations.
Interest rate swaps
- ---------------------
The estimated fair value of interest rate swaps was $(503,000) and $(2,888,000)
at December 31, 1997 and December 29, 1998, respectively. The notional amounts
were $14,747,000 and $139,539,000 at December 31, 1997 and December 29, 1998,
respectively. Fair value was based on quotes from a broker. The Company's
interest rate swaps are not recorded in the accompanying Consolidated Balance
Sheet.
NOTE 6. PROPERTY AND EQUIPMENT
- ----------------------------------
Property and equipment consists of the following at year-end (dollars in
thousands):
<TABLE>
<CAPTION>
1997 1998
---------- -----------
<S> <C> <C>
Land and land improvements $ 298,571 $ 318,865
Buildings and recreational facilities 280,692 295,081
Leasehold improvements 102,866 96,781
Furniture and fixtures 99,483 96,257
Machinery and equipment 169,279 175,342
Construction in progress 24,110 52,263
---------- -----------
975,001 1,034,589
Accumulated depreciation
and amortization (297,774) (283,519)
---------- -----------
$ 677,227 $ 751,070
========== ===========
</TABLE>
NOTE 7. CURRENT LIABILITIES
- ------------------------------
Current liabilities consist of the following at year-end (dollars in thousands):
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Accounts payable $ 27,527 $ 24,139
Accrued compensation
and employee benefits 18,689 22,546
Other accrued liabilities 11,780 12,141
-------- --------
Accounts payable
and accrued liabilities 57,996 58,826
Long-term debt - current portion 74,621 18,633
Deferred membership revenue 31,440 39,746
Other deferred revenue 20,772 33,993
Property taxes payable 11,070 11,561
Other current liabilities 16,713 11,827
-------- --------
Other liabilities 79,995 97,127
-------- --------
Total current liabilities $212,612 $174,586
======== ========
</TABLE>
NOTE 8. LONG-TERM DEBT AND LEASES
- --------------------------------------
Long-term borrowings are summarized below with weighted average interest rates
of 8.4% and 6.6% at year-end 1997 and 1998, respectively, and the range of
maturity dates for debt outstanding at December 29, 1998 in parentheses (dollars
in thousands):
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Notes payable to
financial institutions:
Fixed rate (2000-2017) $ 64,077 $ 26,736
Fluctuating rate (1999-2010) 128,501 195,153
Notes payable to
developers and landlords:
Fixed rate (1999-2013) 8,857 2,818
Capital lease obligations (1999-2043) 15,972 24,431
Other obligations (1999-2010) 38,450 25,412
-------- --------
255,857 274,550
Less current portion 74,621 18,633
-------- --------
$181,236 $255,917
======== ========
</TABLE>
Certain real and personal property and equipment of Parent's subsidiaries
are pledged as collateral on their long-term debt.
On May 27, 1998, Parent finalized a five-year $300,000,000 unsecured revolving
credit facility agreement with a group of banks. The obligations under this
facility are guaranteed by certain of its subsidiaries. The interest rate is
determined using a LIBOR-based pricing matrix as defined in the agreement. As
of December 29, 1998, Parent has used this facility to refinance approximately
$174,944,000 in existing debt and related accrued interest of its subsidiaries.
In conjunction with this refinancing, unamortized loan costs and discounts on
long-term debt totaling $1,810,000 are shown in the accompanying Consolidated
Statement of Operations as an extraordinary item - loss on extinguishment of
debt. As of December 29, 1998, the amount outstanding under this agreement,
including letters of credit of $14,681,000, is $204,910,000 at an interest rate
of LIBOR plus 0.625%.
The amounts of long-term debt maturing in each of the four years subsequent to
1999 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
Year
- ----
<S> <C>
2000 $ 32,935
2001 12,882
2002 10,897
2003 192,947
</TABLE>
The provisions of certain subsidiary lending and lease agreements limit the
amount of dividends that may be paid to Parent. Under the most restrictive of
these limitations, at December 29, 1998, approximately $110,000,000 of retained
earnings was available for the declaration of dividends to Parent.
The amount of cash paid for interest in 1996, 1997 and 1998 was approximately
$26,000,000, $24,700,000 and $21,400,000, respectively.
ClubCorp has entered into interest rate swap agreements with a total notional
amount of approximately $140,000,000. Under these agreements which mature from
2000 to 2003, ClubCorp will receive interest at the 30 to 90 day LIBOR rate and
pay interest at rates ranging from 5.25% to 7.865%.
ClubCorp leases operating facilities under agreements ranging from 1 to 44
years. These agreements normally provide for minimum rentals plus executory
costs. In some cases, ClubCorp must pay contingent rent generally based on a
percentage of gross receipts or positive cash flow as defined in the lease
agreements. Future minimum lease payments required at December 29, 1998 under
operating leases for buildings and recreational facilities with initial
noncancelable lease terms in excess of one year are as follows (dollars in
thousands):
<TABLE>
<CAPTION>
Year
- ----
<S> <C>
1999 $ 23,618
2000 22,750
2001 22,445
2002 20,876
2003 19,903
Thereafter 100,856
--------
Total future minimum
payments required $210,448
========
</TABLE>
Total facility rental expense (including contingent rent) during 1996, 1997 and
1998 was $35,816,000, $32,018,000 and $30,868,000, respectively. Contingent rent
during 1996, 1997 and 1998 was $7,565,000, $6,750,000 and $5,931,000,
respectively.
NOTE 9. OTHER LIABILITIES
- ----------------------------
Other liabilities consist of the following at year-end (dollars in thousands):
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Deferred membership revenue $ 82,672 $ 89,902
Insurance reserves 15,867 14,160
Other 10,954 5,818
-------- --------
Total other liabilities $109,493 $109,880
======== ========
</TABLE>
NOTE 10. SEGMENT REPORTING
- -----------------------------
ClubCorp operations are organized into three principal business segments
according to the type of facility or service provided: Country club and golf
facilities, City clubs and Resorts.
Management has determined that the operations of these three segments have
similar economic characteristics and meet the criteria which permit the
operations to be aggregated into these reportable segments. Management of
ClubCorp relies primarily on operating income generated from its properties
within the three reportable segments for purposes of making decisions about
allocating resources and assessing segment performance.
The primary sources of revenue for all segments are membership revenue and food
and beverage sales. Additionally, country club and golf facilities and resorts
have significant golf operations revenue and resorts have significant lodging
revenue.
Country club and golf facilities operations consist of domestic private country
clubs, semi-private golf clubs and public golf facilities. Private country
clubs provide at least one 18-hole golf course and various other recreational
amenities that are open only to members and their guests. Semi-private golf
clubs provide both private and public golf play and usually offer fewer other
recreational amenities. Public golf facilities are open to the public and
generally provide the same services as semi-private golf clubs.
City club operations consist of domestic city clubs, city/athletic clubs and
athletic clubs. City clubs provide a setting for dining, business or social
entertainment that is available only to members and their guests. Athletic
clubs provide a variety of recreational facilities available only to members and
their guests. City/athletic clubs provide a combination of the amenities
available at city clubs and athletic clubs and are available only to members and
their guests.
Resorts offer a wide variety of amenities including golf courses, lodging and
conference facilities, dining areas and other recreational facilities. Resorts
are open to the public and offer optional membership.
Other operations consist of international and real estate businesses.
International operations include golf and city clubs located outside the United
States. The primary sources of operating revenues are consistent with those of
domestic golf and city clubs. Real estate operations are comprised of
residential real estate development and sales, primarily in areas adjacent to
golf facilities. Operating revenues are provided almost entirely from real
estate sales.
Acquisitions and development of new facilities consist of the fair value of
property and equipment for acquisitions at the date of purchase (Note 3) and
cash paid for property and equipment related to the development of new
facilities.
Additions to property and equipment consist of capital replacements and
improvements at existing clubs.
Total assets of Corporate services and eliminations for 1996 include the assets
of Franklin.
Financial information for the segments is as follows (dollars in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Operating revenues:
Country club and golf facilities $ 326,586 $ 355,381 $ 375,100
City clubs 249,689 249,470 255,524
Resorts 148,393 168,099 172,624
Other operations 31,535 38,610 29,707
----------- ----------- -----------
Total operating revenues for reportable segments 756,203 811,560 832,955
Corporate services and eliminations 14,974 16,037 18,381
----------- ----------- -----------
Consolidated operating revenues 771,177 827,597 851,336
=========== =========== ===========
Depreciation and amortization:
Country club and golf facilities 28,649 26,838 29,152
City clubs 8,417 7,992 10,966
Resorts 8,192 9,628 9,675
Other operations 1,135 1,219 1,552
----------- ----------- -----------
Total depreciation and amortization for reportable segments 46,393 45,677 51,345
Corporate services and eliminations 2,555 1,637 2,816
----------- ----------- -----------
Consolidated depreciation and amortization 48,948 47,314 54,161
=========== =========== ===========
Operating income:
Country club and golf facilities 36,740 53,169 57,315
City clubs 16,623 19,550 24,173
Resorts 12,686 11,484 16,789
Other operations (1,664) 3,080 (6,704)
----------- ----------- -----------
Total operating income for reportable segments 64,385 87,283 91,573
Corporate services and eliminations (17,244) (21,839) (24,752)
----------- ----------- -----------
Consolidated operating income 47,141 65,444 66,821
=========== =========== ===========
Acquisitions and development of new facilities:
Country club and golf facilities 22,099 4,096 19,688
City clubs - 172 2,552
Resorts 21,824 3,529 -
Other operations 6,822 7,565 4,507
----------- ----------- -----------
Acquisitions and development of new facilities for reportable segments 50,745 15,362 26,747
=========== =========== ===========
Additions to property and equipment:
Country club and golf facilities 26,003 36,860 36,767
City clubs 8,602 10,585 13,515
Resorts 15,448 16,210 38,338
Other operations 604 1,879 78
----------- ----------- -----------
Additions to property and equipment for reportable segments 50,657 65,534 88,698
Corporate services and eliminations 2,005 3,602 27,656
----------- ----------- -----------
Consolidated additions to property and equipment 52,662 69,136 116,354
=========== =========== ===========
Total assets:
Country club and golf facilities 554,528 591,148 647,435
City clubs 182,434 183,942 187,589
Resorts 187,297 168,353 203,424
Other operations 101,294 125,427 152,399
----------- ----------- -----------
Total assets for reportable segments 1,025,553 1,068,870 1,190,847
Corporate services and eliminations 529,044 (40,196) (80,689)
----------- ----------- -----------
Consolidated total assets $1,554,597 $1,028,674 $1,110,158
=========== =========== ===========
</TABLE>
NOTE 11. INTERNATIONAL OPERATIONS
- ------------------------------------
ClubCorp's international operations consist of the following (dollars in
thousands):
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Identifiable assets $24,743 $35,668 $59,251
======== ======== ========
Operating revenues $ 8,987 $13,017 $15,977
======== ======== ========
Loss from continuing
operations before
income taxes $(3,965) $(5,580) $(6,783)
======== ======== ========
Net loss $(3,735) $(5,878) $(6,845)
======== ======== ========
</TABLE>
International operations are included in the other category for segment
reporting (Note 10) except for one resort property which is included in the
Resorts segment.
NOTE 12. BENEFIT PLANS
- -------------------------
ClubCorp maintains a qualified contributory profit sharing plan (the "Plan")
covering substantially all eligible employees of its various domestic
subsidiaries that elect to participate. The profit sharing plan allows
participants to contribute a maximum of 6% of their annual compensation.
Participant contributions are matched by the participating subsidiary ranging
from 20% of the participant's contributions to 50% based on improvements in the
value of ClubCorp's common stock. The matching contribution vests over time.
All of the assets of the Plan are invested in ClubCorp common stock, except for
temporary investments of cash. Since ClubCorp's common stock is not publicly
traded, ClubCorp has granted the trustees of the Plan the right to require
ClubCorp to purchase ClubCorp common stock held by the Plan (3,775,673 and
3,932,459 shares at December 31, 1997 and December 29, 1998, respectively) at
the current appraised value ($14.21 and $16.60 at December 31, 1997 and December
29, 1998, respectively) as necessary in order to meet the requirements of the
Employee Retirement Income Security Act and the Plan. Accordingly, the
redemption value of ClubCorp's common stock held by the Plan has been
reclassified out of stockholders' equity in the accompanying Consolidated
Balance Sheet and changes in the redemption value are charged to retained
earnings. This redemption right has never been exercised by the trustees, and
management does not believe that the trustees have any intention to exercise the
redemption right in the foreseeable future.
The Plan was amended and restated into an employee stock ownership plan
effective as of January 1, 1999, known as the ClubCorp Employee Stock Ownership
Plan (the "Amended Plan"). Eligible employees continue to have the opportunity
to invest 1% to 6% of their pretax compensation, subject to certain limitations.
The participating subsidiaries' matching contributions and vesting schedule
remained the same.
Funds that were in the Plan before January 1, 1999, remain in the Amended Plan.
Generally, contributions to the Amended Plan will be invested in ClubCorp stock.
Participants may elect to diversify a portion of their account assets upon
meeting certain age and participation requirements. In addition, upon
termination, retirement or permanent disability, a participant or beneficiary
may demand distribution of ClubCorp common stock in lieu of cash.
ClubCorp maintains a second qualified contributory profit sharing plan for all
eligible employees of certain domestic subsidiaries. Assets in the Amended Plan
may be transferred to this plan which allows participants to invest their
contributions among five investment fund options.
The ClubCorp, Inc. Executive Stock Option Plan was adopted August 31, 1995.
Under the plan, 4,000,000 options to purchase shares of common stock may be
granted to key management personnel at a price not less than fair market value
at the date of grant. The options fully vest 120 days prior to their expiration
date. The plan provides for accelerated vesting, not to exceed 10% per year, if
the employee maintains a certain performance level as defined in the plan.
Employees are required to maintain a minimum ownership level of company stock
holdings, as set forth in the plan, to sell stock acquired from exercised
options. In January 1996, 190,000 options were granted at $10.01 per share with
an expiration date of December 31, 2006. In January 1997, 150,000 options were
granted at $12.04 per share with an expiration date of December 31, 2007. No
options were granted under this plan in 1998.
The ClubCorp, Inc. Omnibus Stock Plan was adopted to be effective February 1998.
The Omnibus Stock Plan provides for granting to key employee partners options to
purchase shares of common stock at a price not less than fair market value at
the date of grant. The vesting will be determined at the time of the grant and
will generally be three to five years. In fiscal year 1998, 1,860,000 options
were granted at a weighted average of $14.30 per share with a five year vesting
and a ten year expiration date. None of these options are currently
exercisable.
ClubCorp applies APB 25 in accounting for the option plans; therefore, no
compensation expense has been recognized for the options. In accordance with the
requirements of SFAS 123, the fair value of the options granted was estimated
using the Black-Scholes option-pricing model with the following assumptions for
the 1996, 1997 and 1998 grants: risk-free interest rates of 5.6%, 5.8% and
5.5%, respectively, an expected volatility of 25%, an expected life of 10 years
and zero dividend yield. A summary of the status of the options outstanding as
of fiscal year-end 1996, 1997 and 1998 and changes during the fiscal years are
as follows:
<TABLE>
<CAPTION>
Average
Exercise
Shares Price
---------- ---------
<S> <C> <C>
Outstanding at December 31, 1995 2,945,000 $ 10.14
Granted 190,000 10.01
Forfeited (125,000) 10.14
----------
Outstanding at December 31, 1996 3,010,000 10.13
Granted 150,000 12.04
Forfeited (50,000) 10.14
----------
Outstanding at December 31, 1997 3,110,000 10.22
GRANTED 1,860,000 14.30
FORFEITED (406,500) 10.14
EXERCISED (49,500) 10.14
----------
OUTSTANDING AT DECEMBER 29, 1998 4,514,000 11.87
==========
</TABLE>
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Options exercisable
at year end:
Number of options 282,000 573,000 761,000
Weighted average
exercise price $ 10.14 $ 10.14 $ 10.17
Fair value of options
granted during the year $ 5.05 $ 6.14 $ 7.21
</TABLE>
If compensation cost for the option plans had been determined based on the fair
value at the grant dates for the options consistent with the method of SFAS 123,
ClubCorp's net income and net income per share would have been reduced to the
following pro forma amounts (dollars in thousands, except per share amounts):
<TABLE>
<CAPTION>
1996 1997 1998
------ -------- -------
<S> <C> <C> <C>
Net income $4,033 $111,399 $36,805
Net income per share
assuming dilution $ .05 $ 1.30 $ .42
</TABLE>
NOTE 13. COMMITMENTS AND CONTINGENCIES
- ------------------------------------------
ClubCorp is subject to certain pending or threatened litigation and other
claims. Management, after review and consultation with legal counsel, believes
ClubCorp has meritorious defenses to these matters and that any potential
liability arising from resolution of these matters will not materially affect
ClubCorp's Consolidated Financial Statements.
NOTE 14. INTEREST AND INVESTMENT INCOME
- --------------------------------------------
Interest and investment income consists of the following (dollars in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- --------
<S> <C> <C> <C>
Interest income $ 6,815 $9,663 $ 8,118
Investment income 3,392 - 4,101
Other 885 (20) (127)
------- ------- --------
$11,092 $9,643 $12,092
======= ======= ========
</TABLE>
NOTE 15. INCOME TAXES
- ------------------------
Income from continuing operations before income taxes, minority interest and
extraordinary item consists of the following (dollars in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Domestic $20,500 $50,710 $53,493
Foreign (1,677) (3,820) (8,174)
-------- -------- --------
$18,823 $46,890 $45,319
======== ======== ========
</TABLE>
The income tax (provision) benefit consists of the following (dollars in
thousands):
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Federal
Current $ 95 $ (674) $ (228)
Deferred (1,207) 44,045 (2,898)
-------- -------- --------
(1,112) 43,371 (3,126)
State (1,469) (2,107) (2,047)
-------- -------- --------
$(2,581) $41,264 $(5,173)
======== ======== ========
</TABLE>
The differences between income taxes computed using the U.S. statutory Federal
income tax rate of 35% and actual income tax provision as reflected in the
accompanying Consolidated Statement of Operations are as follows (dollars in
thousands):
<TABLE>
<CAPTION>
1996 1997 1998
-------- --------- ---------
<S> <C> <C> <C>
Expected Federal income
tax provision $(6,588) $(16,412) $(15,862)
Effect of consolidated
operations and income
taxes of foreign and
other entities not
consolidated for
Federal tax purposes (2,544) (3,508) (2,664)
State taxes, net
of Federal benefit (955) (1,370) (1,331)
Change in valuation
allowance allocated to
income tax expense 10,725 66,566 14,233
Other, net (3,219) (4,012) 451
-------- --------- ---------
$(2,581) $ 41,264 $ (5,173)
======== ========= =========
</TABLE>
Based on ClubCorp's historical pretax earnings, adjusted for significant
nonrecurring items such as gains (losses) on divestitures, management believes
it is more likely than not ClubCorp will realize the benefit of the deferred tax
assets, net of the valuation allowance, existing at December 29, 1998. ClubCorp
has experienced a trend of increasing taxable income from its continuing
operations and, accordingly, has increased estimates of future taxable income.
Based on these estimates, ClubCorp decreased its valuation allowance by
$14,233,000 for the year ended December 29, 1998. ClubCorp's Federal income tax
returns for 1991 and 1992 were examined by the Internal Revenue Service. In
connection with this audit, ClubCorp reduced its regular tax operating losses
and valuation allowance by $45,013,000, 8.1% of year-end 1997 regular tax
operating losses. The assumptions used to estimate the realizability of the
deferred tax assets are subjective in nature and involve uncertainties and
matters with significant judgment. There can be no assurance that ClubCorp will
generate any specific level of continuing earnings.
ClubCorp has approximately $4,000,000 of tax credits available to offset regular
taxes payable which expire in varying amounts from 1999 to 2003.
ClubCorp's net operating loss carryforwards at December 29, 1998, after current
year utilization of net operating loss carryforwards, were approximately
$485,898,000 and $70,915,000 for regular tax and alternative minimum tax,
respectively. These regular tax and alternative minimum tax net operating loss
carryforwards are available to offset future taxable income and will expire from
2004 to 2010 and 2007 to 2010, respectively.
ClubCorp's Federal income tax returns for 1993 and 1994 are under examination by
the Internal Revenue Service. Because many types of transactions are susceptible
to varying interpretations under Federal income tax laws and regulations, the
net operating loss carryforwards and net deferred tax asset reported in the
Consolidated Financial Statements could change at a later date upon final
determination by the taxing authorities. Management believes ClubCorp will
prevail on any significant interpretation issues.
The components of the deferred tax assets and deferred tax liabilities at
December 31, 1997 and December 29, 1998 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Regular tax operating
loss carryforwards $194,632 $170,064
Other 15,129 14,058
-------- --------
Total gross deferred tax assets 209,761 184,122
Valuation allowance 48,880 18,892
-------- --------
160,881 165,230
Deferred tax liabilities:
Property and equipment 15,634 20,244
Discounts on membership
deposits and acquired notes 104,140 106,592
Other 17,406 17,591
-------- --------
Total gross deferred
tax liabilities 137,180 144,427
-------- --------
Net deferred tax asset $ 23,701 $ 20,803
======== ========
</TABLE>
NOTE 16. SELECTED QUARTERLY FINANCIAL DATA, (UNAUDITED)
- -------------------------------------------------------------
Operations for the first three quarters consist of 12 weeks each and the fourth
quarter includes 17 weeks in 1997 and 16 weeks in 1998.
Interim results are not necessarily indicative of fiscal year performance
because of the impact of seasonal and short-term variations. Selected quarterly
financial data are summarized is follows (dollars in thousands, except per share
data):
<TABLE>
<CAPTION>
QUARTERS
----------------------------------------
FIRST SECOND THIRD FOURTH
---------- -------- -------- --------
<S> <C> <C> <C> <C>
Fiscal Year 1997
- ----------------
Operating revenues $ 157,086 $197,572 $192,084 $280,855
Income (loss) from continuing operations (4,693) 23,052 2,144 67,361
Income from discontinued operations,
net of income taxes 25,146 - - -
---------- -------- -------- --------
Net income $ 20,453 $ 23,052 $ 2,144 $ 67,361
========== ======== ======== ========
Basic earnings per share:
Income (loss) from continuing operations $ (.05) $ .27 $ .03 $ .78
Discontinued operations .29 - - -
---------- -------- -------- --------
Net income $ .24 $ .27 $ .03 $ .78
========== ======== ======== ========
Diluted earnings per share:
Income (loss) from continuing operations $ (.05) $ .27 $ .03 $ .77
Discontinued operations .29 - - -
---------- -------- -------- --------
Net income $ .24 $ .27 $ .03 $ .77
========== ======== ======== ========
FISCAL YEAR 1998
- ----------------
OPERATING REVENUES $ 171,848 $211,496 $196,831 $271,161
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE EXTRAORDINARY ITEM (662) 12,980 2,128 25,066
---------- -------- -------- --------
NET INCOME (LOSS) $ (662) $ 11,804 $ 2,128 $ 25,066
========== ======== ======== ========
BASIC EARNINGS PER SHARE:
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE EXTRAORDINARY ITEM $ (.01) $ .15 $ .03 $ .29
---------- -------- -------- --------
NET INCOME (LOSS) $ (.01) $ .14 $ .03 $ .29
========== ======== ======== ========
DILUTED EARNINGS PER SHARE:
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE EXTRAORDINARY ITEM $ (.01) $ .15 $ .03 $ .28
---------- -------- -------- --------
NET INCOME (LOSS) $ (.01) $ .14 $ .03 $ .28
========== ======== ======== ========
</TABLE>
ClubCorp recorded significant tax adjustments in the fourth quarter of 1997 and
1998 (Note 15).
NOTE 17. SUBSEQUENT EVENTS
- -----------------------------
On January 26, 1999, ClubCorp entered into a definitive agreement to acquire
approximately 16% of the outstanding common stock of ClubLink Corporation of
Ontario, Canada, for approximately $22,200,000. This acquisition and expected
participation in a planned rights offering by ClubLink will bring ClubCorp's
total investment to approximately 25%. In addition, in a stock purchase
agreement, ClubCorp intends to acquire, for approximately $15,000,000, a 50%
interest in ClubLink's U.S. golf holdings, which include GolfSouth LLC and the
Links Group Inc.
On February 11, 1999, ClubCorp joined with American Golf Corporation (AGC) to
acquire the Cobblestone Golf Group from The Meditrust Companies, in a stock
purchase agreement, for a total purchase price of approximately $393,000,000.
The transaction is expected to close in the second quarter of 1999. Upon
closing of the transaction, ClubCorp and AGC will divide the Cobblestone
portfolio of 45 premier golf facilities. Through this transaction, ClubCorp
will acquire 22 golf facilities for approximately $210,000,000.
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
ClubCorp, Inc.:
Under date of February 26, 1999, we reported on the consolidated balance sheet
of ClubCorp, Inc. and subsidiaries, formerly Club Corporation International, as
of December 31, 1997 and December 29, 1998, and the related consolidated
statements of operations, stockholders' equity and comprehensive income and cash
flows for each of the years in the three-year period ended December 29, 1998,
which are included in the annual report on Form 10-K for the fiscal year ended
December 29, 1998. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related consolidated
financial statement schedule included in the annual report on Form 10-K. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement schedule
based on our audit.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG LLP
Dallas, Texas
February 26, 1999
<PAGE>
CLUBCORP, INC.
Schedule II - Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
ADDITIONS
-------------
BALANCE AT CHARGED CHARGED BALANCE AT
BEGINNING OF TO COSTS TO OTHER END OF
DESCRIPTION PERIOD AND EXPENSES ACCOUNTS DEDUCTIONS PERIOD
------------- ------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1996:
Allowance for Doubtful Accounts $ 3,648,816 $ 2,985,125 $ 0 $ 2,734,278 (A) $ 3,899,663
Tax Valuation Allowance 126,171,000 0 0 10,725,000 (B) 115,446,000
Year Ended December 31, 1997:
Allowance for Doubtful Accounts $ 3,899,663 $ 3,602,747 $ 0 $ 999,175 (A) $ 6,503,235
Tax Valuation Allowance 115,446,000 0 66,566,000 (B) 0 48,880,000
Year Ended December 29, 1998:
Allowance for Doubtful Accounts $ 6,503,235 $ 3,459,832 $ 0 $ 6,030,162 (A) $ 3,932,905
Tax Valuation Allowance 48,880,000 0 14,233,000 (B) 15,755,000 (B) 18,892,000
</TABLE>
(A) Accounts receivable charged off.
(B) Utilization and disallowance of net operating loss carryforwards or
decrease in tax valuation allowance due to change in estimates of future taxable
income.
EXHIBIT 4.3
CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION
OF
CLUBCORP INTERNATIONAL, INC.
----------------------------
It is hereby certified that:
1. The name of the corporation (hereinafter called the "corporation")
is ClubCorp International, Inc.
2. The certificate of incorporation of the corporation is hereby
amended by striking out Article 1 thereof and by substituting in lieu of said
Article the following new Article:
"THE NAME OF THE CORPORATION IS CLUBCORP, INC.".
3. The amendment of the certificate of incorporation herein certified
has been duly adopted and written consent has been given in accordance with the
provisions of Sections 228 and 242 of the General Corporation Law of the State
of Delaware.
The effective time and date of the amendment herein certified shall be
upon filing.
Signed on this 11th day January, 1999.
By: /s/Robert H. Dedman, Jr.
---------------------------
Robert H. Dedman, Jr., President
By: /s/Terry A. Taylor
---------------------------
Terry A. Taylor, Secretary
EXHIBIT 10.1
CLUBCORP EMPLOYEE STOCK OWNERSHIP PLAN
("ESOP")
GENERALLY EFFECTIVE AS OF JANUARY 1, 1999
TABLE OF CONTENTS
ARTICLE 1 PURPOSE AND AMENDMENT OF THE PLAN
1.01 Amendment of the Plan
1.02 Purpose
1.03 Trust Agreement
ARTICLE 2 DEFINITIONS
ARTICLE 3 REQUIREMENTS FOR ELIGIBILITY AND PARTICIPATION
3.01 Eligibility
3.02 Employment with a Predecessor Employer
3.03 Change in Status of Eligible Employee
3.04 Participation in the Plan
3.05 Military Service
ARTICLE 4 CONTRIBUTIONS
4.01 Employer Contributions
4.02 Matching Contributions
4.03 Date of Payment of Matching Contributions, Discretionary
Contributions and Pre-Tax Contributions
4.04 Pre-Tax Contributions; Change of Election
4.05 Limitation on Pre-Tax Contributions for Highly Compensated
Employees
4.06 Distribution of Excess Deferrals
4.07 Limitation on Pre-Tax Contributions
4.08 General Withdrawal from After-Tax Contribution Account
4.09 General Withdrawal of Pre-Tax Contributions and Distributions
Restrictions
4.10 Hardship Withdrawals from After-Tax Contribution Account
and Pre-Tax Contribution Account
4.11 Procedure for Withdrawal
4.12 Discretionary Contributions
4.13 Securities Law Limitations on Contributions
ARTICLE 5 ALLOCATION TO PARTICIPANTS' ACCOUNTS
5.01 Trust Accounts
5.02 Contribution Allocations to Accounts
5.03 Time of Allocating Contributions
5.04 Accounts of Participants Transferred to an Affiliated Company
Which has Not Adopted the Plan
5.05 Treatment of Company Stock Purchased under an Exempt Loan
5.06 Limitation on Annual Additions Under Code Section 415
5.07 Limitations on Annual Additions for Employers or Affiliated
Companies Maintaining other Defined Contribution Plans
5.08 Limitations on Annual Additions for Employers or Affliliated
Companies Maintaining Defined Benefit Plans
5.09 Definitions for Purposes of Determining the Annual Addition
Limitations
5.10 Cessation of Eligible Employee Status
5.11 Inclusion of Ineligible Employee and Erroneous Allocations
ARTICLE 6 VALUATION OF TRUST FUND
6.01 Valuation of the Trust Fund and Account Statements
6.02 Forfeitures
6.03 Trust Fund
6.04 Voting of Shares; Exercise of Other Rights
6.05 Put Option with Respect to Company Stock
6.06 Exempt Loan to Purchase Company Stock; Certain Conditions
Applicable to Such Company Stock
6.07 Diversification of Participant's Account
6.08 Emergency Valuation
ARTICLE 7 RETIREMENT BENEFITS
ARTICLE 8 DISABILITY BENEFITS
8.01 Disability Retirement
8.02 Determination of Disability
ARTICLE 9 DEATH BENEFITS
9.01 Death Benefits
9.02 Designation of Beneficiaries
ARTICLE 10 EMPLOYMENT TERMINATION BENEFITS
10.01 Vesting upon Termination of Employment
10.02 Determination of Vesting Years of Service
10.03 Vesting on Divestiture of an Employer
10.04 Forfeiture of Employer Contributions Account
10.05 Restoration of Forfeited Accounts
ARTICLE 11 PAYMENT OF BENEFITS
11.01 Method of Payment
11.02 Time for Distribution of Benefits
11.03 Limitations on Timing
11.04 Restrictions on Distribution
11.05 Payments on Personal Receipt Except in Case of Legal Disability
11.06 Benefits Payable Pursuant to a Qualified Domestic Relations Order
11.07 Direct Rollovers
ARTICLE 12 MISCELLANEOUS PROVISIONS RESPECTING PARTICIPANTS
12.01 Participants to Furnish Required Information
12.02 Participants' Rights in Trust Fund
12.03 Inalienability of Benefits
12.04 Conditions of Employment Not Affected by Plan
12.05 Address for Mailing of Benefits
12.06 Unclaimed Account Procedure
12.07 No Rollovers
ARTICLE 13 ADMINISTRATION OF THE PLAN
13.01 Plan Administrator
13.02 Compensated Expenses of the Plan Administrator
13.03 Agents of the Plan Administrator
13.04 Reliance on Directions of Plan Administrator
13.05 Authority of Plan Administrator
13.06 Authorization of Loan Transactions
13.07 General Administrative Powers
13.08 Additional Powers
13.09 Duties of Administrative Personnel
13.10 Designation of named Fiduciaries and Allocation of Responsibility
13.11 Action by Fiduciaries
13.12 Appointment of Professional Assistants and the Investment Manager
13.13 Bond
13.14 Indemnification
13.15 Payment of Expenses
ARTICLE 14 PARTICIPATION BY EMPLOYERS
14.01 Adoption of Plan by Affiliated Company
14.02 Rights and Obligations of the Company and the Employers
14.03 Withdrawal from Plan
ARTICLE 15 AMENDMENT OF THE PLAN
ARTICLE 16 PERMANENCY OF THE PLAN
16.01 Right to Terminate Plan
16.02 Merger of Consolidation of Plan and Trust
16.03 Continuance be Successor Company
ARTICLE 17 DISCONTINUANCE OF CONTRIBUTIONS AND TERMINATION
17.01 Suspension of Contributions
17.02 Discontinuance of Contributions
17.03 Termination of Plan and Trust
17.04 Participant's Rights to Benefits upon Termination or Partial
Termination of Plan or Complete Discontinuance of Contributions
ARTICLE 18 EXCLUSIVE BENEFIT OF THE PLAN
18.01 Limitation on Reversions
18.02 Unallocated Amounts upon Termination of Plan and Trust
18.03 Mistake of Fact or Disallowance of Deduction
ARTICLE 19 TOP HEAVY PLAN RULES
19.01 Definitions
19.02 Determination of Top Heaviness
19.05 Minimum Requirements
19.04 Minimum Benefits for Employers or Affiliated Companies
Maintaining Defined Benefits Plan
19.5 Super Top Heavy Plans
ARTICLE 20 MISCELLANEOUS
20.01 Effect of Bankruptcy and Other Contingencies Affecting an Employer
20.02 Benefits Payable by Trust
20.03 Withholding
20.04 Provisions Hereof for Sole Benefit of Parties
20.05 Article and Section Headings
Hereto and Participants
20.06 Formal Action by Employer
20.07 APPLICABLE LAW
CLUBCORP EMPLOYEE STOCK OWNERSHIP PLAN
ARTICLE 1- PURPOSE AND AMENDMENT OF THE PLAN
1.01 Amendment of the Plan. Brookhaven Country Club, Inc. adopted and
established a profit sharing plan known as the Profit Sharing Plan and Trust of
Brookhaven Club, Inc. effective as of January 1, 1968, which was thereafter,
amended, restated, and renamed into the CCA Associate Clubs Profit Sharing Plan
effective January 1, 1976 (the "Prior Plan"). Subsequent thereto, the Prior
Plan was amended from time to time. Sponsorship of the Prior Plan was
transferred to Club Corporation International (now known as ClubCorp
International, Inc.) (the "Company") effective February 1, 1992. Effective as
of January 1, 1993, the Company amended and restated the Prior Plan in its
entirety as the "ClubCorp Stock Investment Plan (the "SIP")." The SIP was last
amended and restated effective generally as of January 1, 1997. The SIP is
hereby again amended and restated into an employee stock ownership plan
effective generally as of January 1, 1999, to be known as the ClubCorp Employee
Stock Ownership Plan ("Plan").
Except as otherwise provided herein, and subject to the following sentence, the
provisions of this Plan as contained herein are applicable to Employees and
Participants who receive a distribution of their benefits under this Plan on or
after January 1, 1999. Except as otherwise provided herein, any Employee or
Participant who died, retired, suffered Disability or Termination of Employment
prior to January 1, 1999 and received a distribution of their benefits prior to
January 1, 1999, shall receive any benefits to which he or she is entitled based
upon the provisions of the SIP as in effect prior to January 1, 1999.
1.02 Purpose. The purposes of the Plan are: to provide retirement benefits to
Participants and their Beneficiaries; to encourage Eligible Employees to save
for retirement; to provide Participants the opportunity to share in the value of
the Company, and to enhance employee ownership of the Company.
It is the intention of the Employers that the Plan as amended and restated
herein shall meet all of the requirements necessary or appropriate to qualify it
as an employee stock ownership plan under Code Sections 401(a) and 4975(e) and
that the Trust made a part hereof shall continue to be exempt from tax under
Code Section 501(a) and that the Plan satisfy applicable requirements of ERISA,
and all provisions hereof shall be interpreted accordingly.
1.03 Trust Agreement. In furtherance of this Plan, the Company has entered
into the ClubCorp Employee Stock Ownership Trust Agreement effective as of
January 1, 1999, which is made a part hereof, for the purpose of maintaining the
Trust to fund the benefits of this Plan as hereinafter set forth.
ARTICLE 2 - DEFINITIONS
As used in the Plan:
2.01 "Account" or "Accounts" means all or any of the Company Stock Account, the
Other Investments Account, the Employer Divestiture Account, the QDRO Account
and any other account maintained by the Plan Administrator under the provisions
of the Plan to record a Participant's interest (or the undistributed interest of
a Beneficiary or Alternate Payee) in the Trust Fund, as adjusted in accordance
with ARTICLE 6.
2.02 "Affiliated Company" means any of the following: the Company and (i) a
member of a controlled group of corporations of which the Company is a member,
(ii) an unincorporated trade or business which is under common control with the
Company as determined in accordance with Code Section 414(c) and regulations
issued thereunder, (iii) a member of an "affiliated service group" as determined
in accordance with Code Section 414(m) and regulations issued thereunder, of
which the Company or an Employer is a member, or (iv) any other entity which is
required to be aggregated with the Company or an Employer in accordance with
Code Section 414(o) and the regulations issued thereunder. Subject to Code
Section 415(h), a "controlled group of corporations" shall mean a controlled
group of corporations as defined in Code Section 414(b).
2.03 "After-Tax Contribution Account" means the separate account maintained for
each Participant reflecting the After-Tax Contributions made by such Participant
to this Plan, as adjusted in accordance with the provisions of ARTICLE 6 of the
Plan.
2.04 "After-Tax Contributions" means the amount prior to July 1, 1995 each
Participant elected to contribute to the SIP pursuant to SECTION 4.08 thereof.
2.05 "Allocation Date" means the last day of each calendar quarter.
2.06 "Alternate Payee" means an individual or trust entitled to benefits under
the Plan pursuant to a Qualified Domestic Relations Order.
2.07 "Beneficiary" means any person or entity entitled to receive benefits
which are payable upon or after a Participant's death pursuant to ARTICLE 9.
2.08 "Board" means the Board of Directors of the Company, as from time to time
constituted, acting pursuant to delegated authority.
2.09 "Code" means the Internal Revenue Code of 1986, as amended from time to
time. References to any Section of the Internal Revenue Code shall include any
successor provision thereto.
2.10 "Company" means ClubCorp International, Inc., or its successor.
2.11 "Company Stock Account" means the separate accounts maintained for each
Participant under his Pre-Tax Contribution Account and Employer Contribution
Account, which are invested in Company Stock.
2.12 "Company Stock" means the common stock of the Company, par value $.01.
2.13 "Compensation" means with respect to all Participants except for those
Participants employed by ClubCorp International Resource Company who are
nonresident aliens who receive no earned income (within the meaning of Code
Section 911(d)(2)) which is U.S. source income (within the meaning of Code
Section 861(a)(3)), a Participant's total compensation for services rendered to
an Employer during a Plan Year, as reported on Form W-2 or other federal wage
statement as taxable for federal income tax purposes; provided, however, that
Compensation shall not include any Compensation paid for any period prior to
participation in the Plan or any of the following forms of Compensation:
relocation allowances, geographic differentials, car allowances, income imputed
for use of a car, noncash compensation, and stock appreciation rights.
Notwithstanding anything in this SECTION 2.13 to the contrary, Compensation with
respect to only those employees of ClubCorp International Resource Company who
are nonresident aliens who receive no earned income (within the meaning of Code
Section 911(d)(2)) which is U.S. source income (within the meaning of Code
Section 861(a)(3)) shall mean (i) such Participant's wages, salaries, earned
income (only if an employee within the meaning of Code Section 401(c)(1)) which
includes foreign earned income (as defined in Code Section 911(b)) whether or
not excludable from gross income under Code Section 911, foreign earned income
(as defined in Code Section 911(b)) whether or not excludable from gross income
under Code Section 911, fees for professional services, and other amounts
received from an Employer for personal services actually rendered in the course
of employment with an Employer as an Employee to the extent that the amounts are
includible in gross income (including, but not limited to, commissions paid
salesmen, overtime pay, compensation for services on the basis of a percentage
of profits, commissions on insurance premiums, tips, bonuses, fringe benefits,
and reimbursements or other expense allowances under a nonaccountable plan, as
described in Treasury Regulations Section 1.62-2(c)), but determined without
regard to the exclusions found in Code Sections 931 and 933, (ii)amounts
received by such Participant described in Code Sections 104(a)(3), 105(a) and
105(h), but only to the extent that these amounts are includable in the gross
income of the Employee, (iii)amounts paid or reimbursed by the Employer to such
Participant for moving expenses incurred by such Participant, but only to the
extent that at the time of payment it is reasonable to believe that these
amounts are not deductible by such Participant under Code Section 217, (iv) the
value of nonqualified stock options granted to such Participant, but only to the
extent that the value of the option is includable in the gross income of such
Participant for the taxable year in which granted, and (v) the amount includable
in the gross income of such Participant upon making the election described in
Code Section 83(b), but excluding the following:
2.13(1) Employer contributions to a plan of deferred compensation to the extent
contributions are not included in gross income of the Participant for the
taxable year in which contributed, and any distributions from a plan of deferred
compensation whether or not includable in the gross income of the Participant
when distributed;
2.13(2) Employer contributions made on behalf of the Participant to a
simplified employee pension described in Code Section 408(k);
2.13(3) amounts realized from the exercise of a nonqualified stock option, or
when restricted stock (or property) held by the Participant becomes freely
transferable or is no longer subject to a substantial risk of forfeiture;
2.13(4) amounts realized from the sale, exchange or other disposition of stock
acquired under a qualified stock option; and
2.13(5) amounts that receive special tax benefits, or contributions made by the
Employer (whether or not under a salary reduction agreement) towards the
purchase of an annuity contract described in Code Section 403(b) (whether or not
the contributions are excludable from the gross income of the Participant);
provided, however, that Compensation shall not include any Compensation paid for
any period prior to participation in the Plan or any of the following forms of
Compensation: relocation allowances, geographic differentials, car allowances,
income imputed for use of a car, noncash compensation and stock appreciation
rights. Notwithstanding the foregoing, Compensation shall include the amount of
a Participant's elective salary reductions or salary deferrals under any
Employer's cafeteria plan established pursuant to Code Section 125 or an
Employer's plan established pursuant to Code Section 401(k).
2.14 Date of Employment" or "Date of Reemployment" means the day on which an
Employee first commences employment or reemployment following a Termination of
Employment, as the case may be, with any Affiliated Company by performing an
Hour of Service.
2.15 "Disability" means a physical or mental condition which, in the opinion of
the Plan Administrator, pursuant to consistently applied guidelines, medical
reports, and other evidence satisfactory to the Plan Administrator, causes a
Participant to be unable to engage in any substantial gainful employment with
the Employer for an indefinite period; provided, however, the Participant shall
not be deemed to have incurred a Disability if the Participant's Disability
arises under any of the following circumstances:
2.15(1) Injury or disease sustained as a result of excessive and habitual use
of drugs, intoxicating liquors, or narcotics.
2.15(2) Injury or disease sustained while willfully participating in any acts
of violence, riots, civil insurrection, or while committing a felony.
2.15(3) Injury or disease sustained while serving in the Armed Forces or as a
result of warfare.
2.15(4) Injury or disease sustained while rendering services as an employee to
an employer other than the Employer or an Affiliated Company.
2.15(5) Any intentional or self-inflicted injury.
2.16 "Discretionary Contribution" means the amount contributed by the Employer
to the Plan on behalf of a Participant pursuant to SECTION 4.12.
2.17 "Effective Date" means January 1, 1999, except as specifically provided
otherwise in the Plan.
2.18 "Election Period" means two (2) enrollment periods, each approximately one
month in duration, to be held during the Plan Year as determined annually and
announced by the Plan Administrator.
2.19 "Eligibility Year of Service" means an Employment Period during which such
Employee performs one thousand (1,000) or more Hours of Service. For purposes
of determining an Employee's Eligibility Year of Service, the initial
"Employment Period" to be used shall be the twelve (12) consecutive month period
beginning on an Employee's Date of Employment and thereafter the Plan Year,
beginning with the Plan Year within which occurs the Employee's first
anniversary of his Date of Employment. Any Employee who is credited with one
thousand (1,000) or more Hours of Service with any Affiliated Company in either
the initial twelve (12) month period beginning on such Employee's Date of
Employment or the Plan Year within which such initial twelve (12) month period
ends, shall be credited with an Eligibility Year of Service. For purposes of
determining an Employee's Eligibility Year of Service, an Employee, upon
completion of an Hour of Service for an Employer, shall receive credit for
service with any club which is not an Affiliated Company but which is a club
managed by the Company or a club which the Company manages or owns pursuant to a
joint venture with another entity, but only for service while such club is
managed or partially owned.
2.20 "Eligible Employee" means any Employee except the following individuals:
(i) any Employee who is included in a unit of employees covered by a collective
bargaining agreement between employee representatives and one (1) or more
Employers if retirement benefits were the subject of good faith bargaining
between such representatives and employees, unless the collective bargaining
agreement expressly provided for the inclusion of such Employees as Eligible
Employees under this Plan, (ii) except as provided in this SECTION 2.20, a
nonresident alien who receives no earned income within the meaning of Code
Section 911(d)(2)) which is U.S. source income (within the meaning of Code
Section 861(a)(3)), and (iii) except as provided in SECTION 3.02, any person who
is not treated as an employee on the payroll of an Employer, regardless of
whether such person is considered a leased employee within the meaning of Code
Sections 414(n) and 414(o). Notwithstanding anything in the Plan to the
contrary, all employees of ClubCorp International Resource Company shall be
classified and treated as Eligible Employees regardless of whether such
Employees are nonresident aliens who receive no earned income (within the
meaning of Code Section 911(d)(2)) which is U.S. source income (within the
meaning of Code Section 861(a)(3)).
2.21 "Employee" means any person who is employed by one or more Affiliated
Companies, and whose remuneration from an Affiliated Company is subject to FICA
withholding; provided, however, that a person employed by ClubCorp International
Resource Company who is a nonresident alien who receives no earned income
(within the meaning of Code Section 911(d)(2)) which is U.S. source income
(within the meaning of Code Section 861(a)(3)) shall be deemed to be an Employee
regardless of whether such person's remuneration is subject to FICA withholding.
Any leased employee shall be considered an "Employee" under the Plan to the
extent required by Code Sections 414(n) or 414(o), but shall not be eligible to
participate in the Plan unless and until he actually becomes employed on the
payroll of an Employer and otherwise meets the eligibility criteria of ARTICLE
3.
2.22 "Employer" means the Company or any corporation that is an Affiliated
Company which adopts the Plan pursuant to ARTICLE 14.
2.23 "Employer Contribution Account" means the separate account maintained for
each Participant comprised of his Company Stock Account and Other Investment
Account reflecting the Matching Contributions and/or Discretionary Contributions
made on behalf of such Participant. The Employer Contribution Account shall be
credited with all Matching Contributions allocated to such Participant,
Discretionary Contributions allocated to such Participant, profit sharing
contributions allocated to the Participant prior to January 1, 1993, if any, and
employer matching contributions made to the Club Corporation of America
Employees Savings and CCA Investment Plan prior to January 1, 1993, if any,
which were transferred to the Plan, as adjusted in accordance with the
provisions of ARTICLE 6.
2.24 "Employer Contribution" means the amount contributed by the Employer as a
Matching and/or Discretionary Contribution and allocated to either the Company
Stock Account or the Other Investment Account of each Participant, as
appropriate.
2.25 "Employer Divestiture Account" means a separate, fully vested account
which is maintained for a Participant who transfers from one Employer to another
Employer as a result of the divestiture of the original Employer, as provided in
SECTION 10.03.
2.26 "Entry Date" means each January 1 and July 1.
2.27 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time. References to any Section of ERISA shall include any
successor provision thereto.
2.28 "Exempt Loan" means a loan which is used to purchase Company Stock and
which meets all of the requirements of SECTION 6.06.
2.29 "Hour of Service" means the following:
2.29(1) Performance of Duties. Each hour for which an Employee is directly or
indirectly paid, or entitled to payment by an Affiliated Company for the
performance of duties. Each such Hour of Service shall be credited to the
Employment Period (as defined in SECTION 2.19) or the Plan Year, as the case may
be, in which the duties were performed. For purposes of this Section, the
applicable Employment Period or Plan Year, as the context requires, shall be
referred to as the "Computation Period."
2.29(2) Back Pay. Each hour for which back pay (irrespective of mitigation of
damages) has been either awarded or agreed to by an Affiliated Company. Each
such Hour of Service shall be credited to the Computation Period to which the
agreement or award for back pay pertains, rather than to the Computation Period
in which the award, agreement, or payment is made. If back pay is either
awarded or agreed to for a period of time during which no duties are performed,
the provisions of SUBSECTIONS 2.29(3)(A) through (C) shall apply to the
calculation and crediting of Hours of Service for such period of time.
2.29(3) Non-Working Time. Each hour for which an Employee is directly or
indirectly paid, or entitled to payment, by an Affiliated Company for reasons
other than the performance of duties (irrespective of whether the employment
relationship with such Affiliated Company has terminated) (such as vacations,
holidays, illness, disability, layoff, jury duty, military duty, compensated
Leave of Absence, or similar periods). Each such Hour of Service shall be
calculated and credited on the following basis:
(a) Units of Time. If payments for reasons other than the performance of
duties are calculated on the basis of units of time, such as hours, days, weeks,
or months, the number of Hours of Service to be credited shall be the number of
regularly scheduled working hours included in the units of time on the basis of
which the payments are calculated. In the case of an Employee without a regular
work schedule, such Employee shall be credited with Hours of Service on the
basis of the equivalency schedule set forth in SUBSECTION 2.29(8). Each such
Hour of Service shall be credited to the Computation Period in which the period
during which no duties are performed occurs, beginning with the first unit of
time to which the payment relates.
(b) No Units of Time. If payments for reasons other than the performance of
duties are not calculated on the basis of units of time (such as lump sum
disability payments for an injury), the number of Hours of Service to be
credited shall be equal to the amount of the payment divided by the Employee's
most recent hourly rate of compensation before the period during which no duties
are performed.
(i) In the case of an Employee whose compensation is determined on the basis of
a fixed rate for specified periods of time (other than hours), such as days,
weeks, or months, such Employee's hourly rate of compensation shall be such
Employee's most recent rate of compensation for a specified period of time
(other than hours), divided by the number of hours regularly scheduled for the
performance of duties during such period. In the case of an Employee without a
regular work schedule, such Employee's rate of compensation shall be calculated
on the basis of the schedule of equivalent hours set forth in SUBSECTION
2.29(8).
(ii) In the case of an Employee whose compensation is not determined on the
basis of an hourly rate or on the basis of a fixed rate for specified periods of
time, such Employee's hourly rate of compensation shall be the lowest hourly
wage paid to employees in the same job classification as that of such Employee
or, if no employees in the same classification have an hourly rate of
compensation, the minimum wage as established from time to time under Section
6(a)(1) of the Fair Labor Standards Act of 1938, as amended.
Each such Hour of Service shall be credited to the Computation Period in which
the period during which no duties are performed occurs, except that if such
period extends beyond one of such Computation Periods, such Hours of Service
shall be allocated by the Plan Administrator, in its sole discretion, between
not more than the first two of such Computation Periods on a reasonable basis
which is consistently applied with respect to all Employees within the same job
classification, reasonably defined.
(c) Exclusions. Notwithstanding the foregoing:
(i) An Employee shall not be credited on account of a period during which no
duties are performed with a number of Hours of Service which is greater than the
number of hours regularly scheduled for the performance of duties during such
period.
(ii) In no event shall the number of Hours of Service attributable to a single
continuous period (whether or not such period involves more than one Computation
Period) for which no duties are performed exceed five hundred one (501) Hours of
Service.
(iii) Hours of Service shall not be credited to a period for which payments are
made to an Employee where those payments solely reimburse such Employee for
medical or medically related expenses incurred by such Employee.
(iv) Hours of Service shall not be credited for a period to which payments
pertain if such payments are made or due under a plan maintained solely for the
purpose of complying with applicable worker's compensation, unemployment
compensation, or disability insurance laws.
2.29(4) No Duplication of Credit. An Employee shall not be credited with Hours
of Service under both (i) SUBSECTION 2.29(1) or 2.29(3), as the case may be, and
(ii) SUBSECTION 2.29(2).
2.29(5) Overlapping Payroll Periods. In the case of Hours of Service to be
credited to an Employee for a period of no more than thirty-one (31) days which
overlaps two (2) Computation Periods, all such Hours of Service shall be
credited to either the first or the second of such Computation Periods as the
Plan Administrator, in its sole discretion, may determine on a consistent basis
with respect to all Employees within the same job classification, reasonably
defined.
2.29(6) Maternity or Paternity Absences. Notwithstanding any other provision
of this SECTION to the contrary, solely for purposes of determining whether an
Employee has a One-Year Break in Service, Hours of Service shall include hours
during which an Employee is absent from work for any period: (i) by reason of
(a) the Employee's pregnancy, (b) the birth of the Employee's child, (c) the
placement of a child with the Employee in connection with the adoption of such
child by the Employee, or (ii) for the purpose of caring for such child for a
period beginning immediately following such birth or placement. Hours of
Service shall be credited for purposes of this SUBSECTION to the Plan Year in
which the absence from work begins, provided crediting of such Hours of Service
in such Plan Year would prevent the Participant from incurring a One-Year Break
in Service in such Plan Year solely because of the crediting of such Hours in
such Plan Year. In any other case, Hours of Service shall be credited for
purposes of this SUBSECTION to the immediately following Plan Year. The Hours
of Service credited for purposes of this SUBSECTION shall be those hours which
otherwise normally would have been credited but for such absence or, in any case
in which the Plan Administrator is unable to determine the hours normally
credited, Hours of Service shall be calculated on the basis of the schedule of
equivalent hours set forth in SUBSECTION 2.29(8). The total number of Hours of
Service required to be credited for any absence described in this SUBSECTION
shall not exceed five hundred one (501). Notwithstanding the provisions of this
SUBSECTION, no Hours of Service credit shall be given pursuant to this
SUBSECTION unless the Employee furnishes the Plan Administrator with such
information as the Plan Administrator shall require to establish: (i) that the
absence from work was for the reasons referred to herein, and (ii) the number of
days for which there was such an absence.
2.29(7) Uncompensated Leaves of Absence. Solely for purposes of determining
whether an Employee has a One-Year Break in Service, Hour of Service shall
include each hour (credited on the basis of the schedule of equivalent hours set
forth in SUBSECTION 2.29(8)) for which an Employee is not paid but is on a Leave
of Absence.
2.29(8) Determination of Hours of Service to be Credited to Salaried Employees.
With respect to salaried employees whose hours are not required to be counted
and recorded by the Fair Labor Standards Act of 1938, the determination of the
Hours of Service which must be credited to an Employee in accordance with the
provisions of this SECTION shall be based upon an equivalency schedule of ten
(10) Hours of Service for each day on which the Employee performs an Hour of
Service.
2.30 "Leave of Absence" means an absence from the active employment of an
Employer by reason of an approved absence granted by such Employer on the basis
of a uniform policy applied by such Employer without discrimination. Such a
Leave of Absence will not constitute a Termination of Employment provided the
Employee returns to the active employment of the Employer at or prior to the
expiration of his leave or, if not specified therein, within the period of time
which accords with such Employer's policy with respect to permitted absences.
If the Employee does not return to the active employment of such Employer at or
prior to the expiration of his Leave of Absence, his employment will be
considered terminated as of the date on which his leave expires.
Notwithstanding the foregoing provisions of this SECTION, absence from the
active service of the Employer because of military service will be considered a
Leave of Absence granted by an Employer and will not terminate the employment of
an Employee if he returns to the active employment of an Employer within the
period of time during which he has reemployment rights under any applicable
federal law or within sixty (60) days from and after discharge or separation
from such military service if no federal law is applicable. However, no
provision of this SECTION or of the remainder of the Plan shall require
reemployment of any Employee whose active service with an Employer was
terminated by reason of military service.
2.31 "Matching Contributions" means the amount the Employer contributes on
behalf of each Participant pursuant to SECTION 4.02.
2.32 "Normal Retirement Date" means the date on which occurs the sixty-fifth
(65th) birthday of a Participant.
2.33 "One-Year Break in Service" means a Plan Year during which a Participant
has no Hours of Service.
2.34 "Other Investments Account" means the separate accounts maintained for
each Participant under his Pre-Tax Contributions Account and Employer
Contributions Account which are not invested in Company Stock.
2.35 "Participant" means an Eligible Employee who participates in the Plan as
provided in ARTICLE 3.
2.36 "Plan" means the ClubCorp Employee Stock Ownership Plan, as set forth in
this document, and as hereafter amended.
2.37 "Plan Year" means the twelve (12) consecutive month period ending on
December 31.
2.38 "Pre-Tax Contribution Account" means the separate account maintained for
each Participant comprised of his Company Stock Account and Other Investment
Account consisting of the Pre-Tax Contributions made by the Employer in
accordance with SUBSECTION 4.04(1), and including as applicable, a separate
subaccount for Qualified Nonelective Contributions, as adjusted in accordance
with the provision of ARTICLE 6 of the Plan.
2.39 "Pre-Tax Contributions" means the amount each Participant has elected to
contribute to the Plan pursuant to SUBSECTION 4.04.
2.40 "QDRO Account" means that part of any other Account which has been
segregated from such Account for the benefit of an Alternate Payee pursuant to a
Qualified Domestic Relations Order.
2.41 "Qualified Domestic Relations Order" means an order or decree which:
2.41(1) Relates to the provision of child support, alimony payments, or marital
property rights to a spouse, child, or other dependent of a Participant; and
2.41(2) Is made pursuant to a state domestic relations law (including a
community property law); and
2.41(3) Creates or recognizes the existence of an Alternate Payee's right to,
or assigns to an Alternate Payee the right to, receive all or a portion of the
benefits payable with respect to a Participant under the Plan; and
2.41(4) Is determined by the Plan Administrator to meet all applicable
requirements pursuant to the procedure established by the Plan Administrator for
determining whether an order is a Qualified Domestic Relations Order.
2.42 "Qualified Nonelective Contribution" or "QNEC(s)" shall mean a
contribution (other than Pre-Tax Contributions, Matching Contributions,
Discretionary Contributions, or any contribution required pursuant to SUBSECTION
10.05(2)), if any, (i) made by the Employer in its sole and absolute discretion
for the benefit of Non-Highly Compensated Employees (and thus, satisfies the
requirements of Code Section 401(a)(4)), (ii) which are allocable in accordance
with SUBSECTION 4.05(3)(C), and (iii) which shall be nonforfeitable and treated
for all purposes as Pre-Tax Contributions (including for purposes of SECTION
4.09 but not for purposes of hardship withdrawals as provided in SUBSECTION
4.10).
QNECs shall, in accordance with SUBSECTION 4.05(3)(C) and Treasury Regulations
Sections 1.401(k)-1(b)(5) and 1.401(m)-1(b)(5): (i) be allocated to the
Employee's Pre-Tax Contribution Account as of the last day of the Plan Year,
(ii) not be contingent upon the Employee's participation in the Plan or
performance of services on any date subsequent to the date as of which QNECs are
allocated and (iii) shall be actually paid to the Plan no later than the end of
the twelve (12) month period immediately following the Plan Year to which such
contribution relates; provided however, that if several plans are aggregated in
accordance with Code Section 410(b) and if the Plan Year of the Plan is changed
to satisfy the requirement that plans have the same plan year, the QNECs for the
short Plan Year created must also (iv) be treated as if they were Pre-Tax
Contributions and, (v) be related to the Total Compensation that would have been
received by such Employee during that short Plan Year but for such Employee's
election under SECTION 4.04, or (vi) be attributable to services performed by
the Employee in that short Plan Year, and but for the Employee's election to
defer under SECTION 4.04, would have been received by the Employee within two
and one-half months after the close of that short Plan Year.
2.43 "Quarterly Stock Valuation Date" means December 31 and such other dates as
of which Company Stock is valued, as specified by the Plan Administrator.
2.44 "Required Beginning Date" means, in the case of the Participant who
attains age seventy and one-half (70 1/2) prior to January 1, 1999: (i) April 1
of the calendar year following the calendar year in which the Participant
attains age seventy and one half or (ii) April 1 of the calendar year following
the calendar year in which the Participant retires, as the Participant so
elects. With respect to all other Participants Required Beginning Date means
the calendar April 1 of year following the calendar year in which the
Participant retires.
2.45 "Termination of Employment" shall mean the termination of employment with
all Employers, whether voluntarily or involuntarily, other than by reason of a
Participant's retirement after attaining his Normal Retirement Date or after
sustaining Disability, or death, or transfer to a non-adopting Affiliated
Company.
2.46 "Trust" means the legal entity resulting from the Trust Agreement between
the Company and the Trustee who receives contributions, and holds, invests, and
disburses funds to or for the benefit of Participants and their Beneficiaries.
Unless the context specifically indicates otherwise, the terms "Trust," "Trust
Agreement," "Trust Fund," and "Trustee" refer to all such trusts, trustees,
trust agreements, and trust funds in the aggregate.
2.47 "Trust Agreement" means the instrument establishing the Trust, as amended
from time to time.
2.48 "Trust Fund" means all assets of whatsoever kind or nature from time to
time held by the Trustee pursuant to the Trust Agreement without distinction as
to income and principal.
2.49 "Trustee" means the party or parties, individual or corporate, named in
the Trust Agreement and any duly appointed additional or successor Trustee or
Trustees acting thereunder.
2.50 "Vesting Year of Service" means a Plan Year, beginning with the Plan Year
in which the Employee commenced employment or reemployment with any Affiliated
Company, during which a Participant has completed at least one (1) Hour of
Service with an Affiliated Company. For purposes of determining an Employee's
Vesting Years of Service, an Employee, upon completion of an Hour of Service for
an Employer, shall receive credit for service with any club which is not an
Affiliated Company but which is a club managed by the Company or a club which
the Company manages or owns pursuant to a joint venture with another entity, but
only for service while such club is managed or partially owned.
2.51 Wherever appropriate, words used in the Plan in the singular may mean the
plural, the plural may mean the singular, and the masculine may mean the
feminine.
2.52 The words "herein," "hereof," and "hereunder" refer to the Plan.
2.53 The expressions listed below have the meanings stated in the SECTIONS or
SUBSECTIONS hereof respectively indicated:
"Actual Contribution Percentage" or "ACP" Subsection 4.07(4)(a)
"Actual Deferral Percentage" or "ADP" Subsection 4.05(4)(a)
"Aggregate Limit" Subsection 4.05(2)
"Annual Additions" Section 5.06(1)
"Computation Period" Section 2.29(1)
"Current Value" Subsection 6.01(1)
Defined Benefit Plan" Subsection 5.09(2)
Defined Benefit Plan Fraction" Subsection 5.09(3)
Defined Contribution Plan" Subsection 5.09(4)
Defined Contribution Plan Fraction" Subsection 5.09(5)
Determination Date" Subsection 19.01(3)
Direct Rollover" Subsection 11.07(2)(d)
Distributee" Subsection 11.07(2)(c)
Eligible Employee" Section 2.20;
Subsection 4.05(4)(e);
Subsection 4.07(4)(d)
Eligible Participants" Section 5.03
Eligible Retirement Plan" Subsection 11.07(2)(b)
Eligible Rollover Distribution" Subsection 11.07(2)(a)
Employment Period" Section 2.19; 4.12
Excess Aggregate Contributions" Subsection 4.07(2)
Excess Contributions" Subsection 4.05(4)(b)
Excess Deferrals" Section 4.06
Forfeiture" Subsection 10.04(6)
Highly Compensated Employee" Subsection 4.05(4)(c);
Subsection 4.07(4)(b)
"Key Employee" Subsection 19.01(4)
"Key Employee Participant" Subsection 19.01(5)
"Limitation Year" Subsection 5.09(6)
"Limitation Year Compensation" Subsection 5.09(7);
Subsection 19.01(6)
"Named Fiduciaries" Section 13.10
"Non-Key Employee" Subsection 19.01(7)
"Permissive Aggregation Group" Subsection 19.01(8)
"Permitted Purpose" Subsection 4.10(6)
"Plan Administrator" Section 13.01
"Prior Plan" Section 1.01
"Qualified Consent" Subsection 9.02(2)
"Required Aggregation Group" Subsection 19.01(9)
"Retirement Plan" Subsection 5.09(1)
"Securities Act" Section 4.13
"Super Top Heavy Plan" Subsection 19.02(2)
"Top Heavy Plan" Subsection 19.02(1)
"Top Heavy Ratio" Subsection 19.02(3)
"Total Compensation" Subsection 4.05(4)(f);
Subsection 4.07(4)(e)
"Valuation Date" Subsection 19.01(10)
ARTICLE 3 - REQUIREMENTS FOR ELIGIBILITY AND PARTICIPATION
3.01 Eligibility. Any Employee who met the eligibility requirements under the
Plan, as it existed prior to this amendment and restatement, shall be eligible
to participate in the Plan as of January 1, 1999. Each other Eligible Employee
shall be eligible to participate as of the Entry Date coinciding with or next
following the date upon which such Eligible Employee completes an Eligibility
Year of Service, provided he is an Eligible Employee on such Entry Date. In the
event an Eligible Employee has a Termination of Employment prior to completing
an Eligibility Year of Service, the Eligible Employee may participate as of the
first Entry Date following completion of an Eligibility Year of Service. In the
event an Eligible Employee has a Termination of Employment after completing an
Eligibility Year of Service but prior to the Entry Date upon which such Eligible
Employee would have been eligible to participate in the Plan, and such Eligible
Employee is reemployed by an Employer after the Entry Date upon which the
Eligible Employee would have participated in the Plan, such Eligible Employee
will be eligible to participate as of the Entry Date which next follows his Date
of Reemployment, provided he is an Eligible Employee on such date. In the event
a Participant has a Termination of Employment and is reemployed by an Employer,
he will automatically be reinstated as a Participant as of the Entry Date which
next follows his Date of Reemployment, provided he is an Eligible Employee on
such date.
3.02 Employment with a Predecessor Employer. If the Plan had previously been
maintained by a predecessor of an Employer, whether a corporation, partnership,
sole proprietorship, or other business entity, any period of employment with
such predecessor shall be treated as a period of employment with an Employer.
If the Plan had not been previously maintained by a predecessor of an Employer,
employment with such predecessor shall not be taken into account, except to the
extent required pursuant to regulations prescribed by the Secretary of the
Treasury or his delegate.
3.03 Change in Status of Eligible Employee.
3.03(1) In the event an Employee who is not an Eligible Employee becomes an
Eligible Employee, such individual shall be eligible to participate in the Plan
as of the next following Entry Date, provided he is an Eligible Employee on such
date and he has met the other requirements for eligibility set forth in SECTION
3.01.
3.03(2) In the event a Participant, who ceased to be an Eligible Employee but
who did not terminate his employment with any Affiliated Company, subsequently
becomes an Eligible Employee again, such Eligible Employee will be reinstated as
a Participant as of the date he again becomes an Eligible Employee as of the
next following Entry Date, provided he is an Eligible Employee on such date.
3.04 Participation in the Plan. Each Eligible Employee must, in order to elect
Pre-Tax Contributions and become a Participant, file an election pursuant to
SECTION 4.04, with the Plan Administrator within the Election Period prior to
the Entry Date as of which such Eligible Employee is to become a Participant.
If an Eligible Employee fails to file such an election for the first Entry Date
on which he is eligible to participate, he may elect to begin participation in
the Plan as of any subsequent January 1 or July 1 by filing such an election
during the applicable Election Period, subject to the eligibility requirements
of SECTIONS 3.01, 3.02, and 3.03. Each Eligible Employee shall be provided with
such information as is required by ERISA within the time prescribed for
providing such information. In addition, each Participant shall be provided
with a designation of Beneficiary form which shall provide for a designation of
one or more Beneficiaries to receive benefits in the event of the Participant's
death.
3.05 Military Service. Notwithstanding any provision of this Plan to the
contrary, contributions, benefits and service credit with respect to qualified
military service will be provided in accordance with Code Section 414(u).
ARTICLE 4 - CONTRIBUTIONS
4.01 Employer Contributions. Subject to SECTIONS 4.07 and 5.06 through 5.09,
each Employer's Contribution shall consist of (i) a Matching Contribution
attributable to its Employees, (ii) a Discretionary Contribution in such amount
as the Board in its sole discretion may authorize for those Participants who are
employed by an Employer on the last day of the Plan Year, (iii)any contribution
required pursuant to SUBSECTION 10.05(2), and (iv) any Qualified Nonelective
Contribution made to satisfy the ACP test. In no event, however, shall total
Employer Contributions exceed the maximum deductible contribution under Code
Section 404(a), including any amount which may be deductible by the Employer
under the carryover provisions of the Code. All Employer Contributions shall be
made in the form of cash or shares of Company Stock, as determined in the sole
discretion of the Board. Notwithstanding the preceding, the Employees of
Operations Company for Homestead, Inc. shall not be eligible to receive a
Matching Contribution or a Discretionary Contribution under this Plan.
4.02 Matching Contributions. Subject to SECTION 4.07 and 5.06 through 5.09,
the Employer shall contribute to the Trust Fund an amount equal to twenty
percent (20%) of each Participant's Pre-Tax Contributions (to the extent not
previously withdrawn) made during the calendar quarter which shall be allocated
(i) if in cash, to the Other Investments Account of the Employer Contribution
Account; and (ii) if in Company Stock, to the Company Stock Account of the
Employer Contribution Account of the Participant whose Pre-Tax Contributions
were so matched.
4.03 Date of Payment of Matching Contributions, Discretionary Contributions and
Pre-Tax Contributions. Matching Contributions shall be paid to the Trust on a
quarterly basis. Discretionary Contributions, if any, shall be paid to the
Trust for a Plan Year on or before the last date, including any extensions
thereof, for filing its federal income tax return for its fiscal year ending
with, or after the last day of such Plan Year and shall be deemed made as of the
last day of the Plan Year for which they are made. An Employer shall make all
Pre-Tax Contributions as provided in SECTION 4.04 hereof to the Trust Fund as
soon as administratively practical following the close of the payroll period for
which the Participant's elections are applicable.
4.04 Pre-Tax Contributions; Change of Election.
4.04(1) Subject to the provisions of SECTION 4.05, a Participant may elect:
(a) To receive his entire Compensation in cash; or
(b) To defer a portion of his Compensation, as a Pre-Tax Contribution, in
specified whole percentages, that is not less than one percent (1%) or more than
six percent (6%) of his Compensation for each payroll period. The Pre-Tax
Contributions shall not exceed $10,000 (ten thousand dollars) (or such greater
amount allowed pursuant to cost of living adjustments prescribed by the
Secretary of the Treasury) during a calendar year. The amount deferred as
Pre-Tax Contributions shall be allocated: (i) if in cash, to the Other
Investments Account of the Pre-Tax Contribution Account; and (ii) if in Company
Stock, to the Company Stock Account of the Pre-Tax Contribution Account. A
Participant's Pre-Tax Contributions shall, at all times and for all purposes be
fully vested and nonforfeitable.
Any amount a Participant elects to defer under this SUBSECTION 4.04(1) shall be
contributed by his Employer to the Trust as a Pre-Tax Contribution and allocated
to the Pre-Tax Contribution Account. The dollar limitation in this SECTION
shall be decreased by any salary deferrals under Code Section 401(k) made by a
Participant under any related plan, to the extent that any Excess Deferrals are
allocated to this Plan pursuant to SECTION 4.06.
4.04(2) Each Employee who becomes eligible or who at a given time is about to
become eligible to participate in the Plan shall elect at such time and in such
form as the Plan Administrator shall in its sole and absolute discretion
determine, to defer the receipt of a portion of his Compensation or to receive
his entire Compensation in cash, in accordance with SUBSECTION 4.04(1). The
Plan Administrator shall establish and communicate to Employees uniform and
nondiscriminatory procedures for the election of percentage rates of Pre-Tax
Contributions, including procedures regarding the effective date of such
election, and may change said procedures at such times and in such manner as the
Plan Administrator may determine to be necessary or desirable. Any such change
in procedures shall be communicated to Employees.
A Participant who has previously elected to defer the receipt of a portion of
his Compensation pursuant to this SECTION 4.04 may elect to change the amount of
the deferral of his Compensation effective on the first day of the July 1 or
January 1 next following the date notice is received by the Plan Administrator;
provided, however, that a notice of the change in election must be delivered to
the Plan Administrator in the form prescribed by the Plan Administrator within
the applicable Election Period.
4.05 Limitation on Pre-Tax Contributions for Highly Compensated Employees.
Each Plan Year, the Plan shall satisfy the nondiscrimination tests in Code
Section 401(k)(3).
4.05(1) Notwithstanding the provisions of SECTION 4.04, the Actual Deferral
Percentage (or "ADP") for the Highly Compensated Employees with respect to any
Plan Year shall not exceed the greater of (a) or (b):
(a) The Actual Deferral Percentage for the Non-Highly Compensated Employees
multiplied by 1.25, or
(b) The Actual Deferral Percentage for the Non-Highly Compensated Employees
multiplied by 2.0; provided, however, that the Actual Deferral Percentage for
the Highly Compensated Employees may not exceed the Actual Deferral Percentage
for the Non-Highly Compensated Employees by more than two (2) percentage points,
but subject to the aggregate limitation rules of SUBSECTION 4.05(2).
4.05(2) If one or more Highly Compensated Employees are eligible to make
Pre-Tax Contributions and are also eligible for contributions that are tested
under Code Section 401(m), multiple use of the Actual Deferral Percentage
alternative limit set forth in SUBSECTION 4.05(1)(B) shall be limited so that
the sum of Actual Deferral Percentage of all such Highly Compensated Employees
and the Actual Contribution Percentage of such Highly Compensated Employees does
not exceed the aggregate limit. For purposes of this SECTION, the "aggregate
limit" shall be the greater of:
(a) The sum of
(i) 1.25 multiplied by the greater of the Actual Deferral Percentage or Actual
Contribution Percentage of the Non-Highly Compensated Employees for the Plan
Year, and
(ii) Two plus the lesser of the Actual Deferral Percentage or the Actual
Contribution Percentage of the Non-Highly Compensated Employees for the Plan
Year; provided, however, that this amount shall not exceed 2.0 multiplied by the
lesser of the Actual Deferral Percentage or the Actual Contribution Percentage
of the Non-Highly Compensated Employees for the Plan Year; or
(b) The sum of
(i) 1.25 multiplied by the lesser of the Actual Deferral Percentage or Actual
Contribution Percentage of the Non-Highly Compensated Employees for the Plan
Year; and
(ii) Two plus the greater of the Actual Deferral Percentage or Actual
Contribution Percentage of the Non-Highly Compensated Employees for the Plan
Year; provided, however, that this amount shall not exceed 2.0 multiplied by the
greater of the Actual Deferral Percentage or Actual Contribution Percentage of
the Non-Highly Compensated Employees for the Plan Year.
(iii) Amounts in excess of the aggregate limit shall be treated as Excess
Contributions or Excess Aggregate Contributions (or a combination of both) as
determined in the sole discretion of the Plan Administrator and adjusted as
provided in SUBSECTION 4.05(3) or 4.07(3), whichever may be applicable. For
purposes of applying this multiple use limit, the Actual Contribution Percentage
and the Actual Deferral Percentage shall be determined after any required
distributions of Excess Contributions, Excess Aggregate Contributions and Excess
Deferrals under SUBSECTIONS 4.05(3) and 4.07(3) and SECTION 4.06.
4.05(3) If at any time during a Plan Year, the Actual Deferral Percentage for
the Highly Compensated Employees exceeds or is reasonably expected by the Plan
Administrator to exceed the amounts allowed under SUBSECTIONS 4.05(1) or
4.05(2), the Plan Administrator, in its sole and absolute discretion, shall, as
often as it elects, do one or more of the following, provided, however, that if
this Plan is aggregated with one or more plans in accordance with Code Sections
401(a)(4), 410(b) or 401(k), such Highly Compensated Employee shall have the
right (in accordance with procedures established by the Plan Administrator) to
direct the Plan Administrator with respect to whether correction of such excess
(or expected excess) will occur under this SUBSECTION 4.05(3) or under the
applicable provisions of the other aggregated plans:
(a) Prospectively and in the same proportion reduce the amount of Compensation
to be deferred pursuant to SUBSECTIONS 4.04(1) or 4.04(2) by each Highly
Compensated Employee who has elected pursuant to SUBSECTIONS 4.04(1) or 4.04(2)
to defer a portion of his Compensation until the Actual Deferral Percentage for
Highly Compensated Employees equals (by rounding up) for the Plan Year the
greater of (a) or (b) of SUBSECTION 4.05(1), as limited by SUBSECTION 4.05(2).
(b) (i) Refund the portion of each Highly Compensated Employee's Pre-Tax
Contribution that constitutes a portion of the Excess Contribution for the Plan
Year, plus earnings (or less losses) on such amount for the Plan Year until the
Actual Deferral Percentage for the Highly Compensated Employees equals (by
rounding up) the greater of (a) or (b) of SUBSECTION 4.05(1), as limited by
SUBSECTION 4.05(2), with all refunds to be charged: (i) first against the Other
Investments Account of the Participant's Pre-Tax Contribution Account for the
calendar year that includes the first day of the Plan Year; (ii) secondly
against the Company Stock Account of the Participant's Pre-Tax Contribution
Account for the calendar year that includes the first day of the Plan Year, and
then, to the extent necessary; (iii) thirdly against the Other Investment
Account of the Participant's Pre-Tax Contribution Account for the calendar year
that includes the last day of the Plan Year; and (iv) then finally against the
Company Stock Account of the Participant's Pre-Tax Contribution Account for the
calendar year that includes the last day of the Plan Year. All such refunds
shall be distributed by the Trustee to the Employee within two and one-half
months after the close of the Plan Year in which the Excess Contribution arose,
if administratively possible, and within twelve (12) months after the close of
such Plan Year at the latest.
The amount of Excess Contributions for each Highly Compensated Employee is to be
determined by the following leveling method, under which the Actual Deferral
Percentage of the Highly Compensated Employee with the highest Actual Deferral
Percentage is reduced to the extent required to: (i) enable the Plan to satisfy
the limitations of SUBSECTIONS 4.05(1) and 4.05(2); or (ii) cause such Highly
Compensated Employee's Actual Deferral Percentage to equal the Actual Deferral
Percentage of the Highly Compensated Employee with the next highest Actual
Deferral Percentage, whichever occurs first. This process must be repeated
until the Plan satisfies the limitations of SUBSECTIONS 4.05(1) and 4.05(2).
The provisions of this SECTION shall be applied after the provisions of SECTION
4.06 are applied and the amount of any Excess Contributions refunded under this
SECTION shall be reduced by Excess Deferrals, if any, attributable to such Plan
Year previously distributed to the Employee. Any distribution made pursuant to
this SUBSECTION 4.05(3)(B)(I) may be made notwithstanding any other provision of
this Plan.
Notwithstanding any Plan provision to the contrary, in no event shall Matching
Contributions remain allocated to a Highly Compensated Employee's account and
such amounts shall be treated as forfeitures (in the same manner as provided in
SUBSECTION 4.07(2)(C)(II)) if the Pre-Tax Contributions which were matched by
such Matching Contributions are refunded as Excess Contributions under this
SUBSECTION 4.05(3)(B)(I).
(ii) The earnings or losses allocable to Excess Contributions for the
applicable Plan Year shall be determined by multiplying the total income (or
loss) allocable the Pre-Tax Contribution Account for the applicable Plan Year by
a fraction, the numerator of which is the Excess Contribution on behalf of the
Participant for the applicable Plan Year and the denominator of which is the
balance of the Participant's Pre-Tax Contribution Account on the last day of the
applicable Plan Year (prior to any refund or redistribution of Excess
Contributions), reduced by the income or gain (or increased by the loss)
allocable to such total amount for the Plan Year.
(iii) The income allocable to Excess Contributions, for purposes of
SUBSECTIONS 4.05(3)(B)(I) and 4.05(3)(B)(II), shall include all earnings and
appreciation, including such items as interest, dividends, rent, royalties,
gains from the sale of property, appreciation in the value of stock, bonds,
annuity and life insurance contracts, and other property, without regard to
whether such appreciation has been realized.
(c) In addition to or in lieu of the above procedures to conform Pre-Tax
Contributions to the limitations of SUBSECTION 4.05(1), the Employer may make a
QNEC on behalf of any Non-Highly Compensated Employee. In the event a QNEC is
to be allocated to a Participant under either this SUBSECTION 4.05(3)(C) or
SUBSECTION 4.07(2)(D) such allocation shall equal the maximum amount which can
be allocated to that Participant without causing the total amount allocated to
the Participant under the Plan to exceed the limitation of SECTION 5.06,
provided that QNECs shall be allocated first to the account of Non-Highly
Compensated Employees who have the lowest Compensation for the Plan Year, then
as the Actual Deferral Percentages (or, if applicable, the Actual Contribution
Percentages) of those Participants increase, allocations shall be made to the
accounts of Non-Highly Compensated Employees with the next lowest Compensation
and so on until the entire QNEC has been allocated.
4.05(4) For purposes of this SECTION 4.05:
(a) "Actual Deferral Percentage" (or "ADP") shall mean for Eligible Employees
the average (arithmetic mean) of the ratio (calculated separately for each
Eligible Employee to the nearest one-hundredth of one percent) of:
(i) the sum of the Pre-Tax Contributions actually contributed to the Trust on
behalf of such Employee and allocated to his Pre-Tax Contribution Account for
such Plan Year, plus
(A) the Qualified Nonelective Contributions, if any, actually contributed to
the Trust on behalf of such Employee and allocated to his Pre-Tax Contribution
Account for such Plan Year, and
(B) the Matching Contributions (other than Qualified Nonelective
Contributions), if any, actually contributed to the Trust on behalf of such
Employee and allocated to his Pre-Tax Contribution Account for such Plan Year
that qualify for aggregation under Code Section 401(k)(3)(D)(ii) and are
designated by the Plan Administrator as includable in this computation for this
Plan Year, to
(ii) the Total Compensation received by the Employee during the Plan Year,
such average of ratios being multiplied by one hundred (100).
Any Pre-Tax Contributions taken into account for purposes of the Actual Deferral
Percentage shall: (i) (but for the election which such Employee made in
accordance with SECTION 3.04) relate to Total Compensation that would have been
received by such Employee during the Plan Year; or (ii) be attributable to
services performed by the Employee in the Plan Year and (but for the election
which such Employee made in accordance with SECTION 3.04) would have been
received by the Employee within two and one-half months after the end of the
Plan Year; and (iii) be allocated to the Employee's Pre-Tax Contribution Account
as of a date within the Plan Year; and (iv) not be contingent upon the
Employee's participation in the Plan or performance of services on any date
subsequent to the date as of which such contributions are allocated; and (v)
shall be actually paid to the Plan no later than the end of the twelve (12)
month period immediately following the Plan Year to which such contribution
relates.
To the extent that the Plan Administrator elects, pursuant to the above
paragraph, to take Matching Contributions (other than Qualified Nonelective
Contributions) for such Plan Year, that meet the requirements of the applicable
Regulations, into account in computing the Actual Deferral Percentage, the
Actual Contribution Percentage tests under SECTION 4.07 must still be completed
and satisfied separately, and in doing so the Employer shall disregard the
Matching Contributions used in computing the Actual Deferral Percentage for such
Plan Year. Any Matching Contributions taken into account for purposes of
determining the Actual Deferral Percentage shall be: (i) allocated only to the
accounts of Participants who are not Non-Highly Compensated Employees; (ii)
allocated to such Employees' Pre-Tax Contribution Account (and at the discretion
of the Plan Administrator to the subaccount for Qualified Nonelective
Contributions); and (iii) shall be nonforfeitable and treated for all purposes
as Pre-Tax Contributions, including for purposes of the directly preceding
paragraph of this SUBSECTION 4.05(4)(A) and SECTION 4.09 but such amounts will
be prohibited from being withdrawn as hardship withdrawals as provided in
SUBSECTION 4.10.
For purposes of this SECTION, the ratio calculated for any Eligible Employee who
is a Highly Compensated Employee for the Plan Year and who is eligible to have
Pre-Tax Contributions allocated to his account under two or more plans or
arrangements described in Code Section 401(k) that are maintained by the
Employer shall be determined as if all such contributions were made under a
single arrangement. Further, in the event that this Plan satisfies the
requirements of Code Sections 401(a)(4) and 410(b) only if aggregated with one
or more other plans, or if one or more other plans satisfy the requirements of
Code Sections 401(a)(4) and 410(b) only if aggregated with this Plan, the Actual
Deferral Percentage shall be determined by calculating the ratio for each
Eligible Employee as if all such plans were a single plan. If the Plan is
permissively aggregated with another plan in order to comply with the
limitations of SUBSECTION 4.05(1), such aggregated plans must also meet the
requirements of Code Sections 401(a)(4) and 410(b) as a single plan.
(b) "Excess Contributions" shall mean, with respect to any Plan Year, the
excess of (i) the aggregate amount of Contributions, if any, included under
SUBSECTION 4.05(4)(A) in the Actual Deferral Percentage computation for the Plan
Year that were actually paid over to the Trust on behalf of Highly Compensated
Employees for such Plan Year, over (ii) the maximum amount of such Pre-Tax
Contributions permitted under the limitations of SUBSECTIONS 4.05(1) and
4.05(2).
(c) "Highly Compensated Employee" shall mean any Eligible Employee who is a
highly compensated employee as defined in Code Section 414(q) and the
regulations thereunder using the calendar year election of Treasury Regulation
Section 1.414(q)-1T, Q&A 14(b). Generally, a Highly Compensated Employee is any
Employee who:
(i) was at any time a 'five percent owner,' as defined in Section 416(i)(1) of
the Code, during the Plan Year for which the definition is being applied or
during the preceding Plan Year with respect to an Employer;
(ii) for the preceding Plan Year -
(A) received Compensation from the Employer in excess of Eighty Thousand
Dollars ($80,000.00) as indexed at the same time and in the same manner as under
Code Section 415(d), and;
(B) if the Employer elects, was in the group of Employees of an Employer and
all Participating Companies consisting of the top twenty percent (20%) of the
Employees when ranked on the basis of Compensation paid during the Plan Year.
For purposes of determining the number of Employees in the top-paid group,
Employees who have not completed six (6) months of Service, normally work less
than seventeen and one-half (17 1/2) hours per week, normally work during six
(6) or less months per year, have not attained the age of twenty-one (21), are
nonresident aliens with no earned income from sources within the United States
(within the meaning of Section 861(a)(3) of the Code), or are included in a unit
of employees covered by a collective bargaining agreement (except to the extent
provided in regulations), shall not be included.
(d) "Non-Highly Compensated Employee" means any Eligible Employee who is not a
Highly Compensated Employee.
(e) "Eligible Employee" shall mean for or during a Plan Year each Employee who
is eligible to become a Participant, including those Employees who are eligible
to but fail to file the election required by SECTION 3.04; provided, however,
that those Employees of ClubCorp International Resource Company who are
nonresident aliens who receive no earned income (within the meaning of Code
Section 911(d)(2)) which is U.S. source income (within the meaning of Code
Section 861(a)(3)) shall not be treated as Eligible Employees for purposes of
this SECTION 4.05.
(f) "Total Compensation" means any payments received by an Eligible Employee
for the Plan Year in question from an Affiliated Company which meet the
definition of Total Compensation chosen by the Plan Administrator for that Plan
Year. Any such definition chosen by the Plan Administrator shall satisfy the
requirements of Code Section 414(s) and all related Treasury Regulations. In
the event an Employee begins, resumes, or ceases to be an Eligible Employee
during a Plan Year, the amount of the Employee's Total Compensation for the
entire Plan Year shall be taken into account for purposes of this SECTION
4.05(4)(F). Notwithstanding the foregoing, Total Compensation shall be limited
to One Hundred Sixty Thousand Dollars ($160,000.00) or such amount to which such
amount shall be adjusted by the Secretary of the Treasury or his delegate
pursuant to Code Section 401(a)(17).
4.06 Distribution of Excess Deferrals. If a Participant is required to include
in his gross income for a calendar year elective deferrals (as defined in Code
Section 402(g)(3)) which exceeded $10,000 (or such greater amount as determined
by the Secretary of the Treasury pursuant to cost-of-living increases) for such
year, such amounts shall be referred to as "Excess Deferrals" and shall be
distributed to the Participant. The Plan Administrator shall distribute such
Excess Deferral, adjusted for any income or losses allocable to such amount
(determined in accordance with the principles of SUBSECTION 4.05(3)(B)), for the
Plan Year in question not later than the time determined under SUBSECTION
4.05(3)(B), provided, however, that the amount of Excess Deferrals to be
distributed shall be reduced by Excess Contributions previously distributed in
accordance with SUBSECTION 4.05(3)(B) to the Employee from the Plan which are
attributable to such Plan Year. Any distribution made pursuant to this SECTION
may be made notwithstanding any other provision of this Plan.
4.07 Limitation on Matching Contributions. Each Plan Year, the Plan shall
satisfy the nondiscrimination tests in Code Section 401(m).
4.07(1) Notwithstanding any other provision of this Plan, the "Actual
Contribution Percentage" (or "ACP") of Matching Contributions made to the Plan
for Highly Compensated Employees during the Plan Year shall not exceed the
greater of the limitations indicated below:
(a) One hundred twenty-five percent (125%) of the ACP for all Non-Highly
Compensated Employees; or
(b) The lesser of: (i) the sum of the ACP for all Non-Highly Compensated
Employees plus two percent (2%); or (ii) two hundred percent (200%) of the ACP
for all Non-Highly Compensated Employees.
If one or more Highly Compensated Employees are eligible for contributions that
are tested under both this SECTION and SECTION 4.05, multiple use of the Actual
Contribution Percentage alternative limit set forth in SUBSECTION 4.05(2) shall
apply.
4.07(2) In the event that following the end of the Plan Year, it is determined
by the Plan Administrator that the Matching Contributions allocated to Highly
Compensated Employees exceed the limitations of SUBSECTION 4.07(1), then the
amount in excess of such limitation ("Excess Aggregate Contributions") (and
income thereon) shall be corrected in accordance with the following rules.
(a) The Excess Aggregate Contributions shall first be applied to reduce by one
percent (1%) the percentage rate or by One Dollar ($l) the amount of those
Highly Compensated Employees who have the highest ACP, shall then be applied to
reduce by one percent (1%) the percentage rate or by One Dollar ($l.00) the ACP
of all those Highly Compensated Employees (including those employees whose
percentage rate or dollar amount was previously reduced) with the next highest
ACP, and shall thereafter continue to be applied to the extent necessary in like
manner in descending order on the basis of ACP until the reductions enable the
Matching Contributions to conform to the limitations of SUBSECTION 4.07(1).
(b) The amount of Excess Aggregate Contributions to be distributed or forfeited
with respect to each affected Highly Compensated Employee shall be equal to the
Matching Contributions made on behalf of such Employee (prior to reduction of
the Excess Aggregate Contributions), less the product of such Employee's ACP
(after reduction of the Excess Aggregate Contributions) times such Participant's
Total Compensation, rounded to the nearest one cent ($.01).
(c) Matching Contributions which constitute Excess Aggregate Contributions (i)
with respect to those Highly Compensated Employees who are vested in such
amounts, shall be distributed to such Employees within two and one-half months
after the close of the Plan Year in which such Excess Aggregate Contributions
occurred, if administratively possible, and within the twelve (12) month period
following the close of the Plan Year in which such Excess Aggregate
Contributions occurred at the latest and (ii) with respect to those Highly
Compensated Employees who are not vested in such amounts, excess Matching
Contributions shall be treated as Forfeitures and forfeited not later than the
last day of the Plan Year following the Plan Year in which such Excess Aggregate
Contributions occurred.
(d) In addition to or in lieu of the above procedures to conform Matching
Contributions to the limitations of SUBSECTION 4.07(1), the Employer may make a
QNEC on behalf of any Non-Highly Compensated Employee to the extent necessary to
insure the limitations of SUBSECTION 4.07(1) are met. Such QNECs shall be
included in the calculations under SUBSECTION 4.07(1) only if the requirements
of Treasury Regulation Section 1.401(m)-l(b)(5) (or any successor thereto) are
met. In addition, the Plan Administrator may designate that all or part of the
Pre-Tax Contributions shall be included in the calculations under SUBSECTION
4.07(1) (any such amounts shall not be included in the calculations under
SUBSECTION 4.05(1)) provided such use complies with the requirements of Treasury
Regulation Section 1.401(m)-l(b)(2) (or any successor thereto).
4.07(3) In determining the amount of income allocable to Excess Aggregate
Contributions which are being distributed or forfeited, the following rules
shall apply:
(a) The income allocable to Excess Aggregate Contributions for the Plan Year in
which the contributions are made is the income for the Plan Year with respect to
the Highly Compensated Employee's Matching Contributions multiplied by a
fraction, the numerator of which is the amount of Excess Aggregate Contributions
made on behalf of the Highly Compensated Employee for the Plan Year and the
denominator of which is the balance of the Participant's Matching Contributions
as of the end of the Plan Year before adjustment of his Employer Contribution
Account in accordance with the provisions of ARTICLE 6. For purposes of this
SUBSECTION 4.07(3), the income of the Plan shall mean all earnings, gains and
losses computed in accordance with the provisions of ARTICLE 6.
(b) No income allocable to Excess Aggregate Contributions for the period
between the end of the Plan Year and the date of the distribution shall be
refunded.
4.07(4) For purposes of this SECTION 4.07:
(a) "Actual Contribution Percentage" (or "ACP") shall mean for Eligible
Employees the average (arithmetic mean) of the ratio (calculated separately for
each Eligible Employee to the nearest one-hundredth of one percent) of:
(i) the sum of Matching Contributions actually contributed to the Trust on
behalf of such Employee and allocated to his Employer Contribution Account for
the Plan Year, plus
(ii) the Qualified Nonelective Contributions actually contributed to the Trust
on behalf of such Employee and allocated to his Pre-Tax Contribution Account for
the Plan Year, plus
(iii) the Pre-Tax Contributions actually contributed to the Trust on behalf of
such Employee and allocated to his Pre-Tax Contribution Account for the Plan
Year,
that qualify for aggregation under Code Section 401(m)(3) and are designated by
the Plan Administrator as includable in this computation for this Plan Year, to
(iv) the Total Compensation, as defined in SUBSECTION 4.05(4)(F), received by
the Employee during the Plan Year,
such average of ratios being multiplied by one hundred (100).
To the extent that the Plan Administrator elects, pursuant to the above
paragraph, to take Pre-Tax Contributions (and other contributions) listed in
SUBSECTION 4.05(4)(A) into account in computing the Actual Contribution
Percentage for such Plan Year, the Actual Deferral Percentage test under SECTION
4.05 must be satisfied separately, disregarding Pre-Tax Contributions (and other
contributions) listed in SUBSECTION 4.05(4)(A) but used in computing the Actual
Contribution Percentage for such Plan Year.
In calculating ACP, all Pre-Tax Contributions taken into account for purposes of
determining the Actual Contribution Percentage shall: (i) (but for the election
which such Employee made in accordance with SECTION 3.04) relate to Total
Compensation that would have been received by such Employee during the Plan
Year; or (ii) be attributable to services performed by the Employee in the Plan
Year (but for the election which such Employee made in accordance with SECTION
3.04) and would have been received by the Employee within two and one-half
months after the end of the Plan Year; and (iii) be allocated to the Employee's
Pre-Tax Contribution Account (and at the discretion of the Plan Administrator to
the subaccount for Qualified Nonelective Contributions) as of a date within the
Plan Year; and (iv) not be contingent upon the Employee's participation in the
Plan or performance of services on any date subsequent to the date as of which
such contributions are allocated; and (v) shall be actually paid to the Plan no
later than the end of the twelve (12) month period immediately following the
Plan Year to which such contribution relates; and (vi) shall be considered for
purposes of the ACP with respect to amounts allocated only to the Pre-Tax
Contribution Accounts of Non-Highly Compensated Employees.
In calculating ACP, a Matching Contribution shall be taken into account for a
Plan Year only if such Matching Contribution: (i) is made on account of the
Employee's Pre-Tax Contribution for the Plan Year; (ii) is allocated to the
Employee as of a date during such Plan Year; and (iii) is paid to the Trust not
later than the last day of the twelfth (12th) month following the close of such
Plan Year.
In calculating ACP, all employee contributions and employer matching
contributions (as defined in Code Section 401(m)(4)) of any Highly Compensated
Employee who participates in more than one plan maintained by an Affiliated
Company shall be aggregated for purposes of determining such percentage.
In calculating ACP, all employee contributions and employer matching
contributions (as defined in Code Section 401(m)(4)) to any plan required to be
aggregated with the Plan for purposes of Code Section 401(a)(4) or 410(b) shall
be treated as if made under the Plan. If the Plan is permissively aggregated
with another plan in order to comply with the limitations of SUBSECTION 4.07(1),
such aggregated plans must also meet the requirements of Code Sections 401(a)(4)
and 410(b) as a single plan.
(b) "Highly Compensated Employee" shall mean a Highly Compensated Employee as
defined in SUBSECTION 4.05(4)(C).
(c) "Non-Highly Compensated Employee" shall mean a Non-Highly Compensated
Employee as defined in SUBSECTION 4.05(4)(D).
(d) "Eligible Employee" shall mean an Eligible Employee as defined in
SUBSECTION 4.05(4)(E).
(e) "Total Compensation" shall mean compensation as defined in SUBSECTION
4.05(4)(F).
4.08 General Withdrawal from After-Tax Contribution Account. Upon application
by the Participant received by the Plan Administrator, a Participant may, in
accordance with SECTION 4.11, withdraw all or a portion of the value of such
Participant's After-Tax Contribution Account; provided, however, that: (i) all
partial withdrawals must be for a minimum of Five Hundred Dollars ($500); and
(ii) all partial withdrawals over Five Hundred Dollars ($500) must be made in
Two Hundred Fifty Dollar ($250) increments. Withdrawals under this SECTION 4.08
shall be paid as soon as practicable following receipt by the Plan Administrator
of the application for withdrawal. A Participant shall be limited to two (2)
withdrawals under this SECTION 4.08, per year. General withdrawals shall be
valued and the amounts of the withdrawal shall be subtracted from the
Participant's After-Tax Contribution Account as of the Allocation Date
immediately preceding the date the withdrawal request is received by the Plan
Administrator, after allocation of earnings, losses, appreciation and
depreciation since the last Allocation Date.
4.09 General Withdrawal of Pre-Tax Contributions and Distribution Restrictions.
4.09(1) Notwithstanding any Plan provisions to the contrary, and except as
provided in SECTION 4.10 amounts held in a Participant's Pre-Tax Contribution
Account are not distributable prior to the earliest of:
(i) his separation from service (as defined in Code Section 401(k) and the
Treasury Regulations thereunder) pursuant to ARTICLE 10;
(ii) his Disability pursuant to ARTICLE 8;
(iii) his Death pursuant to ARTICLE 9;
(iv) his attainment of age 59 pursuant to SUBSECTION 4.09(2);
(v) the termination of the Plan; provided, however, that a distribution is
allowable under this provision only if neither the Employer nor another company
in an Affiliated Group with the Employer maintains a successor plan (as defined
in Treasury Regulations Section 1.401(k)-1(d)(3)) other than an employee stock
ownership plan on the date of distribution;
(vi) the disposition, to a corporation that is not in an Affiliated Group with
the Employer, of substantially all (at least eighty-five percent (85%)) of the
assets (within the meaning of Code Section 409(d)(2)) used by the Employer in a
trade or business of the Employer, but only if the Participant continues
employment with the transferee corporation, the Employer continues to maintain
the Plan, and the distribution is in connection with the disposition that causes
the Participant's employment transfer; or
(vii) the disposition, to an entity or individual that is not in an Affiliated
Group with the Employer, of the Employer's interest in a subsidiary (within the
meaning of Code Section 409(d)(3)) in which the Participant is employed, but
only if the Participant continues employment with the subsidiary, the Employer
continues to maintain the Plan, and the distribution is in connection with the
disposition that causes the Participant's employment transfer.
A distribution may be made under (v), (vi), or (vii) of SUBSECTION 4.09(1) only
if it constitutes a total distribution of the sum of (i) the Participant's
balances in all of his Accounts and (ii) his account balances under any other
profit sharing plan of the Employer or of a company in an Affiliated Group with
the Employer.
4.09(2) A Participant who has attained age 59-1/2 may withdraw all or any
portion of the balance of his previously unwithdrawn Pre-Tax Contributions as of
the Allocation Date coincident with or next following the date such request for
withdrawal is received by the Plan Administrator. The actual payment of the
amount to be so withdrawn shall occur as soon as administratively feasible on or
after such date. Notwithstanding that the Participant has elected to receive an
in-service withdrawal under this paragraph, the Participant shall continue to be
eligible to participate in the Plan on the same basis as prior to the
withdrawal.
If, at any time, a Participant withdraws less than the entire amount which is
available for his withdrawal under this SUBSECTION 4.09(2) at such time from his
Pre-Tax Contribution Account, then such Participant must withdraw a minimum
amount equal to Five Hundred Dollars ($500.00).
4.10 Hardship Withdrawals from After-Tax Contribution Account and Pre-Tax
Contribution Account.
4.10(1) Upon application by a Participant, the Plan Administrator may, in
accordance with the provisions of this SECTION and SECTION 4.11 permit such
Participant to withdraw a portion of the value of such Participant's After-Tax
Contribution Account or Pre-Tax Contribution Account, pursuant to the following
provision. Of the following provisions, all but SUBSECTIONS 4.10(2) AND 4.10(6)
shall apply to withdrawals of After-Tax Contributions and all but SUBSECTION
4.10(7) shall apply to withdrawals of Pre-Tax Contributions. Notwithstanding
the preceding, a Participant shall in any case be precluded from making a
hardship withdrawal of any amount in his Pre-Tax Contribution Account
attributable to Qualified Nonelective Contributions, Matching Contributions, or
Discretionary Contributions.
4.10(2) No withdrawal may be made for any purpose other than a Permitted
Purpose, as defined in SUBSECTION 4.10(6).
4.10(3) Application for withdrawal must be made in such form as prescribed by
the Plan Administrator, and must set out in detail the circumstances
establishing that the proposed withdrawal is for a Permitted Purpose.
4.10(4) Before the Plan Administrator will permit a Participant to make a
hardship withdrawal pursuant to this SECTION, the Participant must submit
representation that his financial need cannot be relieved: (i) through
reimbursement or compensation by insurance or otherwise; (ii) by reasonable
liquidation of the Participant's assets, to the extent such liquidation would
not itself cause an immediate and heavy financial need; (iii) by cessation of
Pre-Tax Contributions under the Plan; (iv) by other distributions or nontaxable
(at the time of the loan) loans from plans maintained by the Employer or by any
other employer; or (v) by borrowing from commercial sources on reasonable
commercial terms.
4.10(5) The Plan Administrator's determination of whether the application meets
the requirements of this SECTION shall be final and conclusive, and in making
such determination, the Plan Administrator shall follow uniform and
nondiscriminatory rules.
4.10(6) The expression "Permitted Purpose," as used in this SECTION, means a
withdrawal which is necessary in light of immediate and heavy financial need of
the Participant which is: (i) for payment of medical expenses described in Code
Section 213 of the Participant, the Participant's spouse, dependents (as defined
in Code Section 152) or parents as necessary for such persons to obtain medical
care described in Code Section 213; (ii) for purchase of a principal residence
of the Participant; (iii) for payment of tuition and related educational fees
for the next twelve (12) months of post-secondary education for the Participant
or such Participant's spouse, children or dependents; (iv) needed to prevent
eviction of the Participant from his principal residence or foreclosure on the
mortgage of the Participant's principal residence; (v) for payment of funeral
expenses for the Participant's spouse, dependents or parents; or (vi) needed to
prevent the enforcement of state or federal tax liens. Such withdrawal shall
not be permitted unless the Plan Administrator determines the Participant has
obtained all distributions (other than hardship distributions) and all
nontaxable loans currently available under all plans maintained by any
Affiliated Company, and in no event will such payment exceed the amount required
to meet such financial need.
4.10(7) Hardship withdrawal payments under SUBSECTION 4.10(1) shall not exceed
eighty percent (80%) of the balance in the Participant's After-Tax Contribution
Account as of the most currently available Allocation Date and shall be paid as
soon as practicable following receipt by the Plan Administrator of the
application for withdrawal and shall be subtracted from the Participant's
After-Tax Contribution Account as of the date on which the distribution occurs,
prior to allocation of earnings, losses, appreciation and depreciation since the
last Allocation Date.
4.10(8) Hardship withdrawal payments under SUBSECTION 4.10(1) shall not exceed
the excess of: (i) the Participant's actual Pre-Tax Contributions; over (ii)
his prior withdrawals under SUBSECTION 4.10(1) as of the most currently
available Allocation Date and shall be paid as soon as practicable following
receipt by the Plan Administrator of the application for withdrawal and shall be
subtracted from the Participant's Pre-Tax Contributions as of the first day of
the calendar quarter in which the distribution occurs, prior to allocation of
earnings, losses, appreciation and depreciation since the last Allocation Date.
4.11 Procedure for Withdrawal.
4.11(1) All withdrawals shall be subject to the Plan Administrator's
determination that the requirements for withdrawal are satisfied after receipt
of a request for withdrawal on such forms as the Plan Administrator shall
prescribe. If the Plan Administrator is satisfied that the application meets
the requirements of SECTIONS 4.08, 4.09 or 4.10, the application shall be
granted.
4.11(2) When an application for withdrawal is granted under the provisions of
this SECTION, the Plan Administrator shall give such directions to the Trustee
as appropriate to effectuate the distribution in accordance with the terms
hereof of the interest being withdrawn.
4.12 Discretionary Contributions. The Discretionary Contributions, if any, for
each Plan Year shall be in such form (i.e. cash, or Company Stock) and such
amount as the Board, in its sole discretion, may direct; provided however, that
the Discretionary Contributions shall not be less than the amount equal to the
product of: (a) the amount required to fully amortize any outstanding Exempt
Loan; minus (b) the amount already contributed by the Employer as Matching
Contributions pursuant to SECTION 4.02. However, in no event will the total of
Matching Contributions and Discretionary Contributions exceed the maximum amount
deductible from the Employer's income for such taxable year under Sections
404(a)(3)(A) and 404(a)(9) of the Code, including any amounts carried over under
Section 404 of the Code. Discretionary Contributions shall: (i) if made in
cash, be allocated to the Other Investments Accounts of Participants' Employer
Contribution Account; and (ii) if made in Company Stock, be allocated to the
Company Stock Accounts of Participants' Employer Contribution Accounts.
Discretionary Contributions shall be allocated as of the last day of the Plan
Year among all Participants who are employed by an Employer on the last day of
such Plan Year.
If a Participant who is an Eligible Employee ceases to be an Eligible Employee
or is transferred from an Employer to a non-adopting Affiliated Company, he
shall not participate in the allocation of Discretionary Contributions for the
Plan Year in which the cessation or transfer took place. If an Employee
transfers to an adopting Employer, such Employee shall become an Eligible
Employee and eligible to receive an allocation pursuant to the terms of this
SECTION 4.12.
4.13 Securities Law Limitations on Contributions. The Plan Administrator may,
in a nondiscriminatory manner determined in its sole discretion, reduce,
suspend, or refund contributions, as necessary to ensure that the offer and sale
of interests in the Plan and the offer and sale of Company Stock in connection
with the Plan comply with all requirements under the Securities Act of 1933, as
amended (the "Securities Act"), and any other applicable federal or state
securities laws.
ARTICLLE 5 - ALLOCATION TO PARTICIPANTS' ACCOUNTS
5.01 Trust Accounts. The Plan Administrator shall create and maintain adequate
records to reflect all transactions of the Trust and to disclose the interest in
the Trust of each Participant, former Participant, Beneficiary, or Alternate
Payee who has an undistributed interest in the Fund.
5.01(1) Individual Accounts. Where appropriate, the Plan Administrator shall
establish and maintain for each Participant a Pre-Tax Contribution Stock
Account, an Employer Contribution Account, an After-Tax Contribution Account and
an Employer Divestiture Account which Accounts are collectively referred to
herein as an Account.
(a) Pre-Tax Contribution Account. Each Participant's Pre-Tax Contribution
Account shall be further subdivided into the following two Accounts:
(i) Company Stock Account. A Company Stock Account shall be established under
each Participant's Pre-Tax Contribution Account and shall be credited with all
Pre-Tax Contributions made by the Participant which are invested in Company
Stock.
(ii) Other Investments Account. An Other Investments Account shall be
established under each Participant's Pre-Tax Contribution Account and shall be
credited with all Pre-Tax Contributions made by the Participant which are not
invested in Company Stock and if applicable, Qualified Nonelective Contributions
made on the Participant's behalf.
(b) Employer Contribution Accounts. Each Participant's Employer Contribution
Account shall be further subdivided into the following two Accounts:
(i) Company Stock Account. A Company Stock Account shall be established under
each Participant's Employer Contribution Account and shall be credited with all
Matching Contributions and Discretionary Contributions made on behalf of a
Participant which are invested in Company Stock.
(ii) Other Investments Account. An Other Investments Account shall be
established under each Participant's Employer Contribution Account and shall be
credited with all Matching Contributions and Discretionary Contributions made on
behalf of a Participant which are not invested in Company Stock.
5.01(2) General Account. The Plan Administrator shall also establish and
maintain for the Trust suspense accounts to be known as an Unallocated Company
Stock Account and an Unallocated Other Investments Account, in the event Company
Stock is acquired with the proceeds of an Exempt Loan.
5.01(3) Rights in Trust. The maintenance of individual Accounts is only for
accounting purposes, and a segregation of the assets of the Trust to each
Account shall not be required.
5.02 Contribution Allocations to Accounts.
5.02(1) Pre-Tax Contribution Account.
(a) Company Stock Account. The Company Stock Account of the Pre-Tax
Contribution Account of each Participant shall be increased (or decreased) by
his: (1) Pre-Tax Contributions invested in Company Stock; and (2) stock (in
kind) dividends on Company Stock held in the Company Stock Account of his
Pre-Tax Contribution Account. Such increase shall be recorded in whole and
fractional shares of Company Stock in order that such Account shall share in any
appreciation in the market value of the shares of Company Stock in the Company
Stock Account, or in any decreases in such market value.
(b) Other Investments Account. The Other Investments Account of the Pre-Tax
Contribution Account of each Participant will be increased (or decreased) by the
dollar value of his: (1) Pre-Tax Contributions not invested in Company Stock;
(2) Qualified Nonelective Contributions made on his behalf, if any; (3) his
allocable share (determined under SUBSECTION 5.02(4) below) of the net income or
loss attributable to this Account; (4) appreciation (or depreciation) in the
fair market value of the assets of the Trust (other than Company Stock)
attributable to this Account; and (5) cash dividends and other rights or
warrants allocable to Company Stock held in the Company Stock Account of his
Pre-Tax Contribution Account.
5.02(2) Employer Contribution Account.
(a) Company Stock Account. The Company Stock Account of the Employer
Contribution Account of each Participant shall be increased (or decreased) by
his allocable share (determined under SUBSECTION 5.02(4) below) of: (1)
Matching Contributions contributed in kind by the Employer or invested in
Company Stock by the Trust; (2) Discretionary Contributions contributed in kind
by the Employer or invested in Company Stock by the Trust; (3) stock (in kind)
dividends on Company Stock held in the Company Stock Account of his Employer
Contribution Account; and (4) Company Stock released from the Unallocated
Company Stock Account. Such increase shall be recorded in whole and fractional
shares of Company Stock in order that such Account shall share in any
appreciation in the market value of the shares of Company Stock in the Company
Stock Account, or in any decreases in such market value.
(b) Other Investments Account. The Other Investments of the Employer
Contribution Account of each Participant shall be increased (or decreased) by
the dollar value of his: (1) Matching Contributions in other than Company
Stock; (2) Discretionary Contributions in other than Company Stock; (3) his
allocable share (determined under SUBSECTION 5.02(4) below) of the net income or
loss attributable to this Account; (4) appreciation (or depreciation) in the
fair market value of the assets of the Trust (other than Company Stock)
attributable to this Account; (5) proceeds from the disposition of Company Stock
previously held in the Company Stock Account of his Employer Contribution
Account; and (6) his allocable share of cash and other rights or warrants with
respect to fractional shares of Employer Contributions in Company Stock that
cannot be allocated to the Company Stock Account of his Employer Contribution
Account. It will be decreased for: (1) any payments on purchases of Company
Stock or repayment of debt (including principal and interest) incurred for the
purchase of Company Stock which are attributable to such Account; (2) any
distributions or withdrawals; and (3) any expenses or Trustee's compensation
paid or reimbursed out of the Trust pursuant to SECTION 13.15 hereof or pursuant
to the Trust Agreement.
(c) Employer Contributions. Notwithstanding SUBSECTIONS 5.02(2)(A) and (B)
above, if in any Plan Year the foregoing allocation would result in more than
one-third (1/3) of total Employer Contributions for such Plan Year being
allocated to the Prohibited Group, no Employer Contributions in excess of
one-third (1/3) of total Employer Contributions shall be allocated to members of
such group, but such excess shall be reallocated to all other eligible
Participants according to the ratio that each such other eligible Participant's
Compensation bears to the total Compensation of all such other eligible
Participants. For purposes of this Subsection, the "Prohibited Group" means a
group of Participants consisting of highly compensated employees, as described
in section 414(q) of the Code.
5.02(3) Unallocated Company Stock Account and Unallocated Other Investments
Account.
(a) Unallocated Company Stock Account. The Unallocated Company Stock Account
shall be increased as of each Valuation Date with the number of shares of
Company Stock purchased with the proceeds of an Exempt Loan. The Unallocated
Company Stock Account shall also be increased as of each Valuation Date with the
stock (in kind) dividends received with respect to Company Stock held in such
Account. The Unallocated Company Stock Account shall be decreased by the number
of shares of Company Stock that are to be released from such Account in
accordance with the provisions of SUBSECTION 5.05(2) hereof.
(b) Unallocated Other Investments Account. The Unallocated Other Investments
Account will be increased (or decreased) by: (1) the dollar value of such
Account's allocable share of the net income (or loss) of the Trust attributable
to such Account; (2) cash dividends and other rights or warrants received with
respect to Company Stock in the Unallocated Company Stock Account; and (3)
amounts attributable to such Account that are used to pay an Exempt Loan in
accordance with SUBSECTION 5.05(4) hereof.
5.02(4) Earnings Allocation Procedures. Subject to SECTION 5.06 below,
Accounts shall be adjusted in accordance with the following:
(a) Income and Appreciation in Value of Other Investments Accounts in the
Trust. The income of the Other Investments Accounts, the Unallocated Other
Investments Account, the Employer Divestiture Accounts and the After-Tax
Contribution Accounts in the Trust (including the appreciation or depreciation
in value of the assets in the Other Investments Accounts, the Employer
Divestiture Accounts and the After-Tax Contribution Accounts in the Trust) shall
be allocated to such Accounts in proportion to the balances in such Accounts as
of the next preceding Valuation Date, but after first reducing each Account
balance by any distributions or charges from such Account since the next
preceding Valuation Date.
Any dividends allocated to the Unallocated Other Investments Account, to the
extent not used to pay principal and interest on an Exempt Loan, shall: (i)
first be allocated as a Matching Contribution pursuant to SECTION 5.05(3)(A);
and (ii) to the extent such amounts exceed the Employer's Matching Contribution
obligations for the Plan Year shall be allocated as a Discretionary Contribution
pursuant to SECTION 5.05(3)(B).
(b) Income and Appreciation in Value of Company Stock Accounts in the Trust.
The income (except stock (in kind) dividends with respect to Company Stock and
except the unrealized appreciation or depreciation in value of the assets in the
Company Stock Accounts in the Trust) of both the Company Stock Accounts and the
Unallocated Company Stock Account of the Trust shall be allocated to the Other
Investments Accounts and Unallocated Other Investments Account, as is
appropriate, in proportion to the balances, as of the last Valuation Date, in
the respective Company Stock Accounts or Unallocated Company Stock Account to
which the income is attributable but after first reducing each such Account
balance by any distributions or charges from such Accounts since the last
Valuation Date. Cash or stock (in kind) dividends with respect to Company Stock
shall be allocated to the Account which held the Company Stock that generated
the cash or stock (in kind) dividend; provided, however, that cash or stock (in
kind) dividends with respect to Company Stock then allocated to the Unallocated
Company Stock Account or the Unallocated Other Investments Account may first be
used to pay principal and interest on an Exempt Loan.
5.03 Time of Allocating Contributions. Subject to SECTIONS 4.07, 5.06 through
5.09 and SUBSECTION 19.03(2), Pre-Tax Contributions and Matching Contributions
shall be allocated as of the Allocation Date among all Participants (the
"Eligible Participants") who have made Pre-Tax Contributions, respectively,
since the last Allocation Date. Each Participant's allocable share of Matching
Contributions shall equal twenty percent (20%) of such Participant's Pre-Tax
Contributions since the last Allocation Date. Discretionary Contributions, if
any, for each Plan Year shall be allocated as of the last day of the Plan Year.
QNECs shall be allocated in accordance with SUBSECTION 4.05(3)(C).
5.04 Accounts of Participants Transferred to an Affiliated Company Which Has
Not Adopted the Plan. If a Participant is transferred to an Affiliated Company
which has not adopted the Plan, the amount in the Trust which is credited to his
Accounts shall continue to share in the earnings, losses, appreciation, or
depreciation of the Trust Fund, and such Participant's rights and obligations
with respect to such Accounts shall be governed by the provisions of the Plan
and Trust.
5.05 Treatment of Company Stock Purchased under an Exempt Loan.
5.05(1) Debt Purchase of Company Stock. Any Company Stock purchased by the
Trust under an Exempt Loan shall be allocated initially to the Unallocated
Company Stock Account.
5.05(2) Release from Unallocated Company Stock Account. On the Allocation
Date, there shall be released from the Unallocated Company Stock Account a
portion of the Company Stock purchased under an Exempt Loan by the Trust equal
to the number of shares determined by taking the shares so purchased which have
not theretofore been released from the Unallocated Company Stock Account
multiplied by the ratio of (1) the amount of principal and interest paid under
the Exempt Loan subsequent to the last Allocation Date, to (2) the total of all
principal and interest to be paid for the current and all future years.
Notwithstanding the preceding, the number of shares released pursuant to this
SECTION 5.05(2) for any Plan Year shall equal the number of shares purchased
under an Exempt Loan which have not theretofore been released from the
Unallocated Company Stock Account and multiplied by the ratio of (1) the amount
of principal and interest paid under the Exempt Loan for the Plan Year to (2)
the total of all principal and interest to be paid for the current and future
years.
5.05(3) Allocation to Company Stock Accounts. The number of shares of Company
Stock released pursuant to SUBSECTION 5.05(2) shall be allocated to the Company
Stock Accounts of Participants pursuant to the following provisions.
(a) Matching Contributions. The total number of shares released and allocable
as a Matching Contribution shall be determined by multiplying the total shares
released by a fraction the numerator of which is the amount of the cash
contribution needed to fund the Employer's Matching Contribution obligation for
the Plan Year (after allocation of dividends pursuant to SUBSECTION 5.02(4)(B)),
and the denominator of which is the total amount of cash contributed to the Plan
as Matching Contributions for such Plan Year. Each Participant's allocable
share of the Company Stock released which is attributable to the Matching
Contribution shall be determined by multiplying the number of shares released
pursuant to the Matching Contribution by a fraction the numerator of which is
the Participant's Matching Contribution funds for the Plan Year used to repay
principal and interest on an Exempt Loan and the denominator of which is the
aggregate of all Matching Contribution funds for the Plan Year used to repay
principal and interest on an Exempt Loan.
(b) Discretionary Contributions. The total number of shares released and
allocable as a Discretionary Contribution shall equal all remaining shares
released after application of SUBSECTION 5.05(3)(A). Each Participant's
allocable share of the Company Stock released which is attributable to the
Discretionary Contribution for the Plan Year shall be determined by multiplying
the number of shares released pursuant to the Discretionary Contribution for the
Plan Year by a fraction the numerator of which is the Participant's Compensation
for the Plan Year and the denominator of which is the Compensation of all
Participants.
5.04(4) Payments on an Exempt Loan. As of each Allocation Date, installment
payments, including principal and interest, made by the Trust out of Matching
Contributions or Discretionary Contributions since the last preceding
Allocation Date under an Exempt Loan, will decrease the Other Investments
Accounts in the same proportion that Matching Contributions and Discretionary
Contributions are allocated under the provisions of SUBSECTION 5.05(3) hereof.
Dividends from the Unallocated Other Investments Account that are used to pay
principal and interest of any installment payments shall also decrease the
Unallocated Other Investments Account. For purposes of determining payments on
an Exempt Loan, to the extent Matching Contributions are not sufficient to
satisfy all amounts currently due, Discretionary Contributions shall be made in
an amount sufficient to fully satisfy all amounts currently due. Each Exempt
Loan shall provide for payment of principal and interest substantially in
accordance with the following: all income ("specified income") allocable to the
Unallocated Company Stock Account and Unallocated Other Investments Account that
is attributable to collateral for the obligation shall be used, before any
Matching Contributions or Discretionary Contributions are so used, to pay
principal amounts due under such Exempt Loan; Matching Contributions and
Discretionary Contributions shall be first applied to repay interest under an
Exempt Loan with any excess used to fund current principal requirements not
otherwise funded by the specified income; if the specified income of the
Unallocated Company Stock Account and Unallocated Other Investments Account is
not sufficient to pay principal due under an Exempt Loan, then Matching
Contributions and Discretionary Contributions shall be used to fund the
difference; if the specified income exceeds the amount necessary to pay
principal due on Exempt Loans for the Plan Year, then such excess amount shall
be first used to pay interest currently due, if any, with respect to the Exempt
Loan and any remaining amount of income may, at the direction and in the
discretion of the Plan Administrator, be used to prepay principal due on an
Exempt Loan in succeeding Plan Years. Any remaining amount of income not so
used shall be allocated to Participants' Accounts in accordance with SUBSECTIONS
5.02(4)(A) and 5.02(4)(B).
5.06 Limitation on Annual Additions Under Code Section 415. The provisions of
Code Section 415 are incorporated by reference, to the extent not expressly
stated below.
5.06(1) Notwithstanding any other provision of the Plan, the sum of the Annual
Additions to a Participant's Account for any Limitation Year shall not exceed
the lesser of: (i) Thirty Thousand Dollars ($30,000) or, if greater, one-fourth
(1/4) of the defined benefit dollar limitation set forth in Code Section
415(b)(1)(A) as in effect for the Limitation Year; or (ii) twenty-five percent
(25%) of such Participant's Limitation Year Compensation for the entire
Limitation Year (even though such Participant may not have been a Participant
for the entire Limitation Year). The term "Annual Additions" to a Participant's
Account for any Limitation Year shall mean the sum of:
(a) such Participant's allocable share of the Matching Contributions and
Discretionary Contributions credited to such Participant within such Limitation
Year provided, however, that any such contributions applied to the payment of
the interest portion of any Exempt Loan shall not be counted as an Annual
Addition;
(b) the amount of such Participant's Pre-Tax Contributions under the Plan, put
in if any, for such Limitation Year;
(c) any amount allocated to an "individual medical account," as defined in Code
Section 415(l)(2), which is part of a pension or annuity plan maintained by an
Employer; and
(d) any amounts derived from contributions paid or accrued after December 31,
1985, in the first taxable year for which a reserve is established pursuant to
Code Section 419A and each subsequent year, which are attributable to
post-retirement medical benefits allocated to the separate account of a key
employee (as defined in Code Section 419A(d)(3)) under a welfare benefit fund
(as defined in Code Section 419(e)) maintained by an Employer.
Provided, however, that the twenty-five percent (25%) limitation set forth in
this SUBSECTION 5.06(1)(II) shall not apply to amounts described in SUBSECTION
5.06(1)(II)(D).
Solely for purposes of this SECTION, the determination of a Participant's
Pre-Tax Contributions for a Limitation Year shall exclude the items set forth in
Treasury Regulations Sections 1.415-6(b)(3)(i)-(iv), and the determination of a
Participant's allocable share of Matching Contributions for a Limitation Year
shall exclude any Matching Contributions allocated to such Participant for any
of the reasons set forth in Treasury Regulations Sections 1.415-6(b)(2)(ii)-(vi)
(except as otherwise provided in such Sections).
5.06(2) In the event that as a result of: (i) a reasonable error in estimating a
Participant's Limitation Year Compensation or (ii) other facts and circumstances
which the Internal Revenue Service finds justify the availability of the
provisions of this Subsection and Subsection 5.02(3), it is determined that the
Annual Additions to a Participant's Account for any Limitation Year will exceed
the limitations contained herein, such Annual Additions shall be reduced to the
extent necessary to meet the limitations contained in Subsection 5.02(1) by
first reducing, to the extent necessary, such Participant's After-Tax
Contributions, then by reducing, to the extent necessary, such amounts allocated
to the Participant's Pre-Tax Contribution Account, then by reducing to the
extent necessary, his allocable share of Matching Contributions for the Plan
Year ending within such Limitation Year. If such prospective reductions are not
sufficient to cure the excess Annual Additions, the Participant's Pre-Tax
Contributions and/or After-Tax Contributions shall be refunded as necessary to
meet the limitations.
5.06(3) If the amount of any Participant's allocable share of Matching
Contributions is reduced in accordance with SUBSECTION 5.06(2), the amount of
such reduction shall be maintained in a suspense account under the Trust to be
used to reduce Matching Contributions for all Participants for the next
Limitation Year (and succeeding Limitation Years, if applicable). Any suspense
account established pursuant to this SUBSECTION shall not be adjusted to reflect
net income, loss, appreciation or depreciation in the value of the Trust Fund as
provided for a Participant's regular Accounts pursuant to ARTICLE 6.
5.06(4) If the amount of any Participant's Pre-Tax Contributions are refunded
in accordance with SUBSECTION 5.06(2), the amount of such refund (adjusted for
earnings, losses, appreciation, or depreciation) shall be disregarded for
purposes of the $10,000 limitation set forth in SUBSECTION 4.04(1)(B) and
SECTION 4.06.
5.06(5) In the event of termination of the Plan, the suspense account described
in SUBSECTION 5.06(3) shall revert to the Company to the extent it may not then
be allocated to any Participant's Account.
5.07 Limitations on Annual Additions for Employers or Affiliated Companies
Maintaining other Defined Contribution Plans. In the event that any Participant
in this Plan is also a participant under any other Defined Contribution Plan
maintained by an Affiliated Company, the total amount of Annual Additions to
such Participant's accounts under all such Defined Contribution Plans shall not
exceed the limitations set forth in SUBSECTION 5.06(1). If such total amount of
Annual Additions to each Participant's Accounts under all such Defined
Contribution Plans does exceed the limitations set forth in SUBSECTION 5.06(1),
then the Annual Additions to a Participant's Account in the Plan shall be
reduced after contributions to all other qualified plans of the Company are
reduced.
5.08 Limitations on Annual Additions for Employers or Affiliated Companies
Maintaining Defined Benefit Plans. In the event that any Participant under this
Plan is a participant under one or more Defined Benefit Plans maintained by an
Affiliated Company (whether or not terminated), then the sum of the Defined
Benefit Plan Fraction for such Limitation Year and the Defined Contribution Plan
Fraction for such Limitation Year shall not exceed one (1.0). If the sum of the
Defined Benefit Plan Fraction for any Limitation Year and the Defined
Contribution Plan Fraction for such Limitation Year does exceed one (1.0), then
the Annual Additions to a Participant's Accounts in this Plan shall be reduced,
and such reduction shall be accomplished in accordance with SECTION 5.06.
5.09 Definitions for Purposes of Determining the Annual Addition Limitations.
For purposes of SECTIONS 5.06, 5.07, 5.08 and this SECTION 5.09, the following
definitions shall apply:
"5.09(1) Retirement Plan" means: (a) any profit sharing, pension, or stock
bonus plan described in Code Sections 401(a) and 501(a); (b) any annuity plan or
annuity contract described in Code Section 403(a) or 403(b); and (c) any
simplified employee pension plan described in Code Section 408(k).
5.09(2) "Defined Benefit Plan" means any Retirement Plan which is not a Defined
Contribution Plan.
5.09(3) "Defined Benefit Plan Fraction" means a fraction calculated in
accordance with Code Section 415(e)(2).
5.09(4) "Defined Contribution Plan" means a Retirement Plan which provides for
an individual account for each participant and for benefits based solely on the
amount contributed to the participant's account, and any income, expenses,
gains, or losses, and any forfeitures of accounts of other participants which
may be allocated to such participant's account.
5.09(5) "Defined Contribution Plan Fraction" means a fraction, the numerator of
which is the sum of the Annual Additions to the participant's accounts under all
the Defined Contribution Plans (whether or not terminated) maintained by any
Affiliated Company for the current and all prior Limitation Years (including the
Annual Additions attributable to the participant's nondeductible employee
contributions to this and all other Defined Contribution Plans, whether or not
terminated, maintained by any Affiliated Company), and the denominator of which
is the sum of the Maximum Aggregate Amounts for the current and all prior
Limitation Years of employment with any Affiliated Company (regardless of
whether a Defined Contribution Plan was maintained by any Affiliated Company).
The "Maximum Aggregate Amount" in any Limitation Year is the lesser of one
hundred twenty-five percent (125%) of the dollar limitation in effect under Code
Section 415(c)(1)(A) or one hundred forty percent (140%) of the amount which may
be taken into account under Code Section 415(c)(1)(B).
5.05(6) "Limitation Year" means the Plan Year.
5.09(7) "Limitation Year Compensation" means a Participant's total compensation
for services rendered to an Employer during a Plan Year, as reported on Form W-2
or other federal wage statement as taxable for federal income tax purposes,
except that for only those Employees of ClubCorp International Resource Company
who are nonresident aliens who receive no earned income (within the meaning of
Code Section 911(d)(2)) which is U.S. source income (within the meaning of Code
Section 861(a)(3), Limitation Year Compensation shall mean: (i) such
Participant's wages, salaries, earned income (only if an employee within the
meaning of Code Section 401(c)(1)) which includes foreign earned income (as
defined in Code Section 911(b)) whether or not excludable from gross income
under Code Section 911, foreign earned income (as defined in Code Section
911(b)) whether or not excludable from gross income under Code Section 911, fees
for professional services, and other amounts received from an Employer for
personal services actually rendered in the course of employment with an Employer
as an Employee to the extent that the amounts are includable in gross income
(including, but not limited to, commissions paid salesmen, overtime pay,
compensation for services on the basis of a percentage of profits, commissions
on insurance premiums, tips, bonuses, fringe benefits and reimbursements or
other expense allowances under a nonaccountable plan, as described in Treasury
Regulations Section 1.62-2(c)), but determined without regard to the exclusions
found in Code Sections 931 and 933; (ii) amounts received by such Participant
described in Code Sections 104(a)(3), 105(a) and 105(h), but only to the extent
that these amounts are includable in the gross income of the Employee; (iii)
amounts paid or reimbursed by the Employer to such Participant for moving
expenses incurred by such Participant, but only to the extent that at the time
of payment it is reasonable to believe that these amounts are not deductible by
such Participant under Code Section 217; (iv) the value of nonqualified stock
options granted to such Participant, but only to the extent that the value of
the option is includable in the gross income of such Participant for the taxable
year in which granted; and (v) the amount includable in the gross income of such
Participant upon making the election described in Code Section 83(b), but
excluding the following:
(a) Employer contributions to a plan of deferred compensation to the extent
contributions are not included in gross income of the Participant for the
taxable year in which contributed, and any distributions from a plan of deferred
compensation whether or not includable in the gross income of the Participant
when distributed;
(b) Employer contributions made on behalf of the Participant to a simplified
employee pension described in Code Section 408(k);
(c) amounts realized from the exercise of a nonqualified stock option, or when
restricted stock (or property) held by the Participant becomes freely
transferable or is no longer subject to a substantial risk of forfeiture;
(d) amounts realized from the sale, exchange or other disposition of stock
acquired under a qualified stock option; and
amounts that receive special tax benefits, or contributions made by the Employer
(whether or not under a salary reduction agreement) towards the purchase of an
annuity contract described in Code Section 403(b) (whether or not the
contributions are excludable from the gross income of the Participant).
5.10 Cessation of Eligible Employee Status. If any Participant does not incur
a Termination of Employment but ceases to be an Eligible Employee as defined in
SECTION 2.20, then, during the period that such Participant is not an Eligible
Employee as defined in such SECTION 2.20: (i) such Participant's Accounts shall
continue to share in the earnings, losses, appreciation, or depreciation of the
Trust Fund; and (ii) such Participant shall receive credit for vesting purposes
pursuant to SECTION 10.01 for any Vesting Years of Service completed during such
period.
5.11 Inclusion of Ineligible Employee and Erroneous Allocations. If in any
Plan Year any person who should not have been included as a Participant in the
Plan is erroneously included and Pre-Tax Contributions, Matching Contributions
or Discretionary Contributions are mistakenly made on such Participant's behalf,
the Plan records shall be corrected and such Pre-Tax, Matching and Discretionary
Contributions shall be treated as Forfeitures for the Plan Year in which the
discovery is made.
ARTICLE 6 - VALUATION OF TRUST FUND
6.01 Valuation of the Trust Fund and Account Statements.
6.01(1) Within a reasonable time after the Allocation Date, the Plan
Administrator shall have the Trustee prepare a statement of the condition of the
Trust Fund as of the close of business on such Allocation Date setting forth:
(i) the assets of the Trust Fund as of such Allocation Date, and the cost and
current value thereof as defined in ERISA Section 3(26) (the "Current Value")
and (ii) all investments, receipts, disbursements and other transactions
effected by it. This statement shall be delivered to the Plan Administrator.
As soon as practicable following each June 30 and December 31 Allocation Date,
the Plan Administrator shall cause to be prepared, and shall cause to be
delivered to each Participant, Beneficiary, or Alternate Payee, a report
disclosing the status of each such individual's Accounts in the Trust Fund.
6.01(2) Notwithstanding anything to the contrary contained herein, Company
Stock shall be valued by the Company in its discretion and confirmed by an
independent appraiser selected and retained by the Trustee; provided, however,
that in the event Company Stock becomes publicly traded, the foregoing sentence
shall not apply.
6.01(3) The Trustee's (or, in the case of Company Stock, the Company's)
determination of the Current Value of the assets in the Trust Fund and the Plan
Administrator's charges or credits to the individual Accounts with respect to
Participants, Beneficiaries, or Alternate Payees, as provided in SECTION 6.02,
shall be final and conclusive on all persons ever interested hereunder.
6.02 Forfeitures.
6.02(1) Application of Forfeitures. Forfeitures under this Plan shall be
applied pursuant to SECTION 10.04(6).
6.02(2) Computations. All of the computations required to be made under the
provisions of this ARTICLE 6, when made, shall be conclusive with respect
thereto and shall be binding upon all the Participants, Beneficiaries, Alternate
Payees, and all other persons ever having an interest in the Trust Fund.
6.03 Trust Fund. The Trust shall be invested in Company Stock (which is a
qualifying employer security within the meaning of ERISA), provided that to the
extent the Trustee determines it is required under ERISA to do so, or cash is
needed for administrative expenses or distributions, assets of the Trust Fund
shall be invested in short-term investments in the Trustee's discretion. All
purchases of qualifying employer securities, including Company Stock, shall be
for no more than the fair market value as determined in good faith by the
Company and confirmed by an appraisal submitted by an independent appraiser
selected and retained by the Trustee and no commission shall be charged with
respect to any purchase from a party in interest.
6.04 Voting of Shares; Exercise of Other Rights. Shares of Company Stock in
the Trust shall be voted by the Trustee as shall be directed by the Plan
Administrator. With respect to any corporate matter which involves the voting
of such shares at a shareholder meeting and which constitutes a merger,
consolidation, recapitalization, reclassification, liquidation, dissolution,
sale of substantially all assets of a trade or business or a similar transaction
specified in regulations under Section 409(e)(3) of the Code, however, each
Participant (or Beneficiary) will be entitled to give confidential instructions
to the Trustee as to the voting of shares of Company Stock then allocated to his
Company Stock Account. In that event, any allocated Company Stock with respect
to which voting directions are not given shall be voted, and shares of Company
Stock held by the Trust which are not then allocated to Participants' Company
Stock Accounts shall be voted in the manner determined by the Plan
Administrator. In the event the Company becomes publicly traded, i.e. the
Company Stock is required to be registered under Section 12 of the Securities
Exchange Act of 1934, each Participant will be entitled to give confidential
instructions to the Trustee as to the voting of all shares of Company Stock then
allocated to his Company Stock Account (as outlined above) as to all corporate
matters requiring a shareholder vote.
6.05 Put Option with Respect to Company Stock. Any Company Stock, if it is not
publicly traded, when distributed or is subject to a trading limitation when
distributed, must be subject to a put option. The put option is to be
exercisable only by the Participant, the Participant's donees, an Alternate
Payee, or by a person (including an estate or its distribute) to whom the
Company Stock passes by reason of a Participant's death. The put option must
permit the Participant to put the Company Stock to the Employer. The put option
must be exercisable during the sixty (60) consecutive days beginning on the date
that the Company Stock subject to the put option is distributed by the Plan, and
for another sixty (60) consecutive days during the Plan Year next following the
Plan Year in which the shares were distributed. The put option may be exercised
by the holder by notifying the Employer in writing that the put option is being
exercised. The period during which a put option is exercisable does not include
any period when a distributee is unable to exercise it because the party bound
by the put option is prohibited from honoring it by applicable federal or state
law. The price at which the put option is exercisable is the fair market value
of the Company Stock on the date of the transaction determined in good faith
based on all relevant factors.
Payment pursuant to the put option shall be made: (1) in the case of
distribution of the Participant's entire Account within one taxable year of the
recipient, no less rapidly than in substantially equal installments at least
annually over a period beginning no later than thirty (30) days after the
exercise of the put option and not exceeding five (5) years in all; adequate
security shall be provided and reasonable interest shall be paid on any
installments outstanding after thirty (30) days after exercise of the put
option; and (2) in the case of any other form of distribution not described in
the directly preceding clause (1) of this paragraph in this SECTION 6.05, within
thirty (30) days of the exercise of the put option. Notwithstanding the
preceding, payment pursuant to the put option may be extended to a date no later
than ten (10) years after the earlier of the date the put option is exercised or
the date of final repayment of any debt incurred in connection with the
acquisition of the Company Stock. The provisions described in this SECTION 6.05
are nonterminable even if the Exempt Loan is repaid or the Plan ceases to be an
employee stock ownership plan, or the custodian or trustee of an individual
retirement account described in Code Section 408(a) established by the
Participant or his surviving spouse.
6.06 Exempt Loan to Purchase Company Stock; Certain Conditions Applicable to
Such Company Stock. It is the express purpose of this Plan and its related
Trust Agreement to invest substantial sums in Company Stock for the benefit of
Participants in the Plan. Pursuant to this purpose, it is contemplated that the
Trustee will from time to time, upon the direction of the Plan Administrator,
borrow funds either through installment purchase contract, loan agreement or
other instrument of indebtedness (Exempt Loan) in order to purchase Company
Stock with such indebtedness either guaranteed by the Employer or one or more
Affiliated Companies or made directly from the Employer or one or more
Affiliated Companies to the Trust.
6.06(1) Use of Proceeds. All proceeds of such an Exempt Loan shall be used
within a reasonable time after receipt by the Trustee only for any or all of the
following purposes: to purchase Company Stock, to repay obligations incurred
under the Exempt Loan or to repay a prior Exempt Loan.
6.06(2) Non-Recourse Loans Only. Any Exempt Loan must be without recourse as
against the Plan and the Trust.
6.06(3) Collateral. The only assets of the Plan and Trust which may be given
as collateral for an Exempt Loan are shares of Company Stock acquired with the
proceeds of the Exempt Loan and those shares of Company Stock that were used as
collateral on a prior Exempt Loan repaid with the proceeds of the current Exempt
Loan.
6.06(4) Creditor's Rights to Assets. No person entitled to payment under the
Exempt Loan shall have any right to assets of the Plan or Trust other than
collateral given for the Exempt Loan, contributions (other than contributions of
Company Stock) that are made under the Plan to meet the Plan's obligations under
the Exempt Loan, and earnings attributable to such collateral and the investment
of such contributions.
6.06(5) Transfers Upon Default. In the event of default upon an Exempt Loan,
the value of Plan assets transferred in satisfaction of the Exempt Loan must not
exceed the amount of default. If the lender is a "disqualified person," the
Exempt Loan must provide for a transfer of Plan assets upon default only upon
and to the extent of the failure of the Plan to meet the repayment schedule of
the Exempt Loan.
6.06(6) Interest. The interest rate of any Exempt Loan described herein must
not be in excess of a reasonable rate of interest. In determining what is a
reasonable rate of interest, all relevant factors will be considered, including
the amount and duration of the loan, the security and guarantee (if any)
involved, the credit standing of the Plan and Trust and the guarantor (if any),
and the interest rate prevailing for comparable loans. A variable interest rate
is permissible if determined to be reasonable.
6.06(7) Release from Collateral or Suspense. The instrument evidencing the
indebtedness shall provide for release from collateral or suspense in accordance
with the provisions of SUBSECTION 5.05(2) of the Plan.
6.06(8) Limitation or Restrictions on Company Stock; Right of First Refusal.
Except as provided herein or in SECTION 6.05, no Company Stock acquired with
the proceeds of an Exempt Loan may be subject to a put, call, or other option,
or buy-sell or similar arrangement while held by and when distributed from the
Plan or its related Trust, whether or not the Plan is then an "Plan" within the
ambit of Section 54.4975-7(b)(1)(i) of the Treasury Regulations, unless
specifically required or permitted by such regulations. A holder
("Shareholder") of shares of Company Stock which have been distributed by the
Trustee, may not, for valuable consideration, sell, assign, pledge, convey in
trust, or otherwise transfer or encumber in any manner or by any means whatever
("Transfer") any interest in all or any part of Company Stock held by him except
in accordance with the terms and conditions of this SUBSECTION 6.06(8), if at
the time of such Transfer the Company Stock is not publicly traded. Provided,
however, "Transfer" shall not include any transfer of such shares by reason of a
Participant's death, any transfer to an Alternate Payee, or the transfer by a
Participant or his surviving spouse of the shares to an individual retirement
account, described in Code Section 408(a), in a transaction described in Code
Section 402(c). Upon the receipt of the Notice described below, the Company
shall have the first option to purchase the shares to be Transferred by the
Shareholder, and, if that option is not exercised in full by the Company, then
Trustee shall have the option to purchase shares not purchased by the Company.
Prior to any proposed Transfer, the Shareholder must first give written notice
("Notice") to the Plan Administrator that he intends to Transfer his shares of
Company Stock or any interest therein, which Notice shall state the number of
shares to be transferred, the name of the proposed transferee, the consideration
for the proposed Transfer, and the terms and conditions of the Transfer. The
Shareholder shall also submit with the Notice copies of all papers and other
documents to be used in connection with the proposed Transfer. Any deviation in
the terms of such Transfer, however slight, shall require a new Notice thereby
effecting a new option under this SUBSECTION 6.06(8).
The Company must exercise its option to purchase, as to all or a portion of the
shares offered, within fourteen (14) days of receipt of the Notice. If the
Company fails to exercise its option as to any or all of the shares, then the
Trustee (as directed by the Plan Administrator) shall be entitled to act upon
its option to purchase within that same fourteen (14) day period. Options shall
be exercised in the form of written notice of exercise to the Shareholder or his
legal representative within the designated period.
If the option is not exercised in full by the Company, the Trustee, or both,
within fourteen (14) days after Notice, the unexercised part of the option shall
lapse, and then the proposed Transfer (if to a transferee other than the Company
or Trustee) must be completed within ninety (90) days following the end of the
period for exercise, but only upon the same terms and at a price which is no
less than that set forth in the Notice. Any such permitted Transfer, however,
shall be conditioned upon the proposed transferee executing such documents as
counsel for the Company may reasonably request which evidences the transferee's
agreement to abide by the terms and provisions of this SUBSECTION 6.06(8)
concerning the shares, or any interest therein proposed to be acquired, and to
agree to any legending of certificates and to any restrictions on
transferability as the Company may reasonably require to ensure compliance with
federal or state securities laws.
In exercising an option to purchase, the Company, Trustee, or both, as the case
may be, must purchase pursuant to the terms of the Notice and at the greater of
the fair market value such shares of Company Stock or the price specified in the
Notice. The terms of the payment of the purchase price shall in no event be
less favorable than the terms of an independent third-party offer.
6.06(9) Limitations on Payments. The payments made during any Plan Year with
respect to an Exempt Loan described herein may not exceed an amount equal to the
sum of (1) the Matching Contributions, plus (2) the Discretionary Contributions,
plus (3) earnings received during or previous to the current Plan Year less
payments previously made with respect to such loan, plus (4) any dividends
received by the Trust on Company Stock purchased with the proceeds of an Exempt
Loan. The Employer Contributions and earnings described herein must be
accounted for separately on the books of account of the Plan and Trust until any
Exempt Loan is repaid, as is provided in the other provisions of ARTICLE 5 of
this Plan.
6.06(10) Term of Exempt Loans. Any Exempt Loan made by the Plan or Trust for
the purpose of purchasing Company Stock must be for a specific term and may not
be payable on the demand of any person, except in the case of default.
6.07 Diversification of Participant's Account. This SECTION 6.07 shall apply
to the extent a Participant's Account is credited with Company Stock ("Eligible
Assets"). A Participant who has attained age fifty-five (55) and who has
completed ten (10) or more years of participation in the Plan ("Eligible Age 55
Participant") may elect to have twenty-five percent (25%) of the Eligible Assets
then in his Account, after taking into account all assets as to which a prior
election is made at the fair market value of such assets at the time a prior
election is made, (and if in Company Stock, after converting such Company Stock
into cash at the Company Stock's current fair market value) transferred to the
ClubCorp Individual Investment Plan ("IIP"). Such an election shall be
permitted each year during the period of ninety (90) days after the close of
each Plan Year in a period of six (6) consecutive Plan Years beginning with the
Plan Year during which the Participant first becomes an Eligible Age 55
Participant. Participation for this purpose does not include any Years of
Service prior to establishment of the Plan or participation in any other plan.
During the last such election period, an Eligible Age 55 Participant may elect
to convert and transfer fifty percent (50%) of the Eligible Assets in his
Account, taking into account all assets as to which he has previously made an
election at the fair market value of such assets at the time a prior election is
made. To the extent a Participant makes an election under this SECTION 6.07,
the portion of the Eligible Assets in the Participant's Account that is subject
to the election shall, subject to SECTION 6.06 hereof, be converted and
transferred to the IIP no later than ninety (90) days after the end of the
election period.
6.08 Emergency Valuation. It is contemplated that the Trust will be valued by
the Trustee as of the Valuation Date and allocations made as of each Allocation
Date. However, should the Plan Administrator in good faith determine that,
because of an extraordinary change in general economic conditions or the
occurrence of an event radically affecting the value of all or a substantial
part of the Trust, an abnormal fluctuation in the value of the Trust has
occurred since the end of the preceding Plan Year, and that it has become
necessary to make a distribution to one (1) or more Participants, Beneficiaries,
or Alternate Payees under the provisions hereof, the Plan Administrator may, in
its sole discretion, to prevent any such person from receiving a substantially
greater or lesser amount than what he would be entitled to, based on the current
value of the Trust (as defined in ERISA Section 3(26)), cause a revaluation of
the Trust to be made and a reallocation of the interests therein as of the date
such person's right of distribution becomes fixed. The Plan Administrator's
determination to make such emergency valuation and the valuation of the Trust as
determined by the Trustee shall be conclusive and binding on all persons ever
interested hereunder.
ARTICL 7 - RETIREMENT BENEFITS
A Participant's Employer Contribution Account shall fully vest on his Normal
Retirement Date, provided such Participant is employed by an Affiliated Company
on such date. A Participant who continues in the Employer's employment after
his Normal Retirement Date shall continue to be a Participant in the Plan until
his actual retirement. Upon actual retirement on or after his Normal Retirement
Date, a Participant shall be entitled to receive distribution of the balance of
his entire Account as of the Allocation Date coinciding with or immediately
following the date on which such Participant retires. Payment upon retirement
shall be made by the Trustee at the direction of the Plan Administrator at the
time and manner provided in ARTICLE 11.
ARTICLE 8 - DISABILITY BENEFITS
8.01 Disability Retirement. If a Participant retires by reason of Disability
while in the employ of an Affiliated Company or on Leave of Absence, his
Employer Contribution Account shall fully vest and he shall be entitled to
receive distribution of the balance of his entire Account as of the Allocation
Date coinciding with or immediately following the date on which such Participant
retires. Payments resulting from a Participant's retirement on account of
Disability shall be made by the Trustee at the direction of the Plan
Administrator at the time and in the manner provided in ARTICLE 11.
8.02 Determination of Disability. The Plan Administrator shall determine
whether a Participant has suffered a Disability, and its determination in that
respect is binding upon the Participant, provided that the Plan Administrator
may rely upon professional medical advice in making such determination. In
making its determination, the Plan Administrator may require the Participant to
submit to medical examinations by doctors selected by the Plan Administrator.
The provisions of this ARTICLE 8 shall be uniformly and consistently applied to
all Participants.
ARTICLE 9 - DEATH BENEFITS
9.01 Death Benefits. Upon the death of a Participant while in the employ of an
Affiliated Company or on Leave of Absence, his Employer Contribution Account
shall fully vest and his Beneficiary, determined in accordance with SECTION
9.02, shall be entitled to receive distribution of the balance of his entire
Account as of the Allocation Date coinciding with or immediately following such
Participant's date of death, provided proper proof of death is filed with the
Plan Administrator.
Upon the death of a Participant who is no longer employed by an Affiliated
Company prior to receipt by such Participant of all amounts to which such
Participant is entitled under the provisions of the Plan, his Beneficiary,
determined in accordance with SECTION 9.02, shall be entitled to receive
distribution of the undistributed balance of such Participant's Account, to the
extent otherwise vested, as of the Allocation Date coinciding with or
immediately following such Participant's date of death, provided proper proof of
death is filed with the Plan Administrator.
Payments resulting from the death of a Participant shall be made by the Trustee
at the direction of the Plan Administrator at the time and in the manner
provided in ARTICLE 11.
9.02 Designation of Beneficiaries
9.02(1) Subject to the provisions of SUBSECTIONS 9.02(2) and 12.03(2), each
Participant may designate a Beneficiary or Beneficiaries, and contingent
Beneficiary or Beneficiaries, if desired, including the executor or
administrator of his estate, to receive his interest in the Trust Fund in the
event of his death, but the designation of a Beneficiary shall not be effective
for any purpose unless and until it has been filed with the Plan Administrator
on the form provided therefor. If the Participant has a surviving spouse, the
amount, if any, which is payable hereunder in respect of such deceased
Participant shall be paid to the surviving spouse unless the Participant is
survived by a Beneficiary designated in accordance with SUBSECTION 9.02(2). If
the Participant does not have a surviving spouse and the deceased Participant
failed to name a Beneficiary in the manner herein prescribed, or the Beneficiary
or all Beneficiaries so named predecease the Participant, the amount, if any,
which is payable hereunder in respect of such deceased Participant shall be paid
to the estate of such deceased Participant, in the form of a lump sum payment as
soon as practicable following the Participant's death. Any payment made to any
person pursuant to the power and discretion conferred upon the Plan
Administrator by the preceding sentence shall operate as a complete discharge of
all obligations under the Plan in respect of such deceased Participant and shall
not be subject to review by anyone, but shall be final, binding, and conclusive
on all persons ever interested hereunder.
Subject to the provisions of SUBSECTION 9.02(2), a Participant may from time to
time change any Beneficiary designated by him without notice to such
Beneficiary, under such rules and regulations as the Plan Administrator may from
time to time promulgate, but the last Beneficiary designation filed with the
Plan Administrator shall control.
9.02(2) With respect to a Participant who has been credited with an Hour of
Service on or after August 23, 1984, notwithstanding any other provision herein
to the contrary, but subject to the provisions of SUBSECTION 12.03(2), if, as of
such Participant's death, such Participant is married, the vested portion of
such Participant's Accounts shall, on his death, be paid to the surviving spouse
to whom he was married at the date of his death unless the surviving spouse has
made a Qualified Consent to the payment of any or all of said Accounts to a
designated Beneficiary other than the surviving spouse. "Qualified Consent"
means an irrevocable written consent executed by the Participant's spouse which
acknowledges the effect of the consent and is witnessed by a Plan representative
or a notary public. A Participant may, after obtaining a Qualified Consent,
change his Beneficiary designation as permitted by SUBSECTION 9.02(1), but any
such change is subject to the requirements of this SUBSECTION 9.02(2) and will
require another Qualified Consent should the spouse, if surviving, not be the
sole Beneficiary of all amounts in the Account, unless a Qualified Consent
previously executed by such spouse expressly authorizes changes in the
Beneficiary without further consent of the spouse. A Qualified Consent is
effective only with respect to the spouse who executes it. If the Plan
Administrator is satisfied that there is no spouse, or that the spouse cannot
reasonably be located, or in such other circumstances as permitted by Treasury
Regulations, no Qualified Consent shall be required as a condition to payment,
under SECTION 9.01, to a Beneficiary who is not the surviving spouse.
ARTICLE 10 - EMPLOYMENT TERMINATION BENEFITS
10.01 Vesting upon Termination of Employment. Subject to the provisions of
SECTIONS 4.08 and 10.04 and SUBSECTION 12.03(2), in the event of the Termination
of Employment of a Participant, such Participant shall be entitled to receive
distribution of the following percentage of his Employer Contribution Account,
as of the Allocation Date coinciding with or immediately following the date on
which such Participant terminates employment:
<TABLE>
<CAPTION>
<S> <C>
Vesting Years of Service . Nonforfeitable Percentage of Account
Less than 3 years . . . . . . 0%
3 years but less than 4 years 30%
4 years but less than 5 years 40%
5 years but less than 6 years 60%
6 years but less than 7 years 80%
7 years or more . . . . . . . 100%
</TABLE>
Notwithstanding the foregoing, for Participants hired before January 1, 1989,
their vested percentage shall be one percent (1%) rather than zero percent (0%)
prior to being credited with three (3) Vesting Years of Service.
The Participant shall also be entitled to receive distribution of his entire
After-Tax Contribution Account, Pre-Tax Contribution Account, and Employer
Divestiture Account, if any, as of the Allocation Date coinciding with or
immediately following the date on which such Participant terminates employment.
Payment pursuant to this ARTICLE 10 shall be made by the Trustee, at the
direction of the Plan Administrator, at the time and manner provided in ARTICLE
11.
10.02 Determination of Vesting Years of Service. All Vesting Years of Service
(whether or not continuous) shall be taken into account.
10.03 Vesting on Divestiture of an Employer. If an Employer ceases to be an
Affiliated Company as a result of a divestiture by the Company, the Accounts of
Participants who are Employees of the divested Employer as of the date of the
divestiture shall become one hundred percent (100%) vested as of that date. If
a Participant who is an Employee of a divested Employer transfers to employment
with another Employer, an Employer Divestiture Account shall be established for
the Participant and the fully vested balance in the Participant's Account shall
be transferred to the Employer Divestiture Account. Full vesting pursuant to
this SECTION shall not affect the vesting of any Matching Contributions made for
such Participant subsequent to the divestiture. Following such Participant's
transfer, all subsequent Matching Contributions allocated to the Participant
shall be allocated to the Participant's Company Stock Account and shall be
subject to the provisions of this Plan otherwise applicable to the Participant.
Any adjustments provided for in ARTICLE 6 shall be made separately with respect
to such Participant's Employer Divestiture Account and his Employer Contribution
Account, and distribution of a Participant's Employer Divestiture Account shall
be made at the same time and in the same manner as provided in the Plan for the
distribution of a Participant's other Accounts in the Plan.
10.04 Forfeiture of Employer Contribution Account.
10.04(1) If a Participant has a Termination of Employment at a time when he has
no vested interest in his Employer Contribution Account, the non-vested amount
in his Employer Contribution Account shall be forfeited as of the date on which
such Participant incurs such Termination of Employment.
10.04(2) If a partially vested Participant has a Termination of Employment and
has received a distribution of the vested portion of his Employer Contribution
Account and his entire After-Tax Contribution Account, Pre-Tax Contribution
Account and Employer Divestiture Account, if any, the non-vested amounts in his
Employer Contribution Account shall be forfeited as of the date on which such
Participant receives such cash-out distribution.
10.04(3) If a partially vested Participant has a Termination of Employment and
has not received a distribution of the vested portion of his Employer
Contribution Account and his entire After-Tax Contribution Account, Pre-Tax
Contribution Account and Employer Divestiture Account, if any, the non-vested
amounts in his Employer Contribution Account shall be forfeited as of the last
day of the Plan Year in which such Participant has incurred five (5) consecutive
One-Year Breaks in Service.
10.04(4) If a partially vested Participant who has a Termination of Employment
and has not received a distribution of the vested portion of his Employer
Contribution Account, and his entire After-Tax Contribution Account and Pre-Tax
Contribution, is reemployed prior to incurring five (5) consecutive One-Year
Breaks in Service, such Participant shall not forfeit the non-vested amounts in
his Employer Contribution Account, and the vested amount in his Employer
Contribution Account shall be determined in accordance with the provisions of
this ARTICLE 10 without regard to such Participant's Termination of Employment.
10.04(5) In the case of any Participant who receives a refund of Excess
Contributions pursuant to SUBSECTION 4.05(3)(B) for the Plan Year, such
Participant shall forfeit for such Plan Year all Matching Contributions (whether
or not vested pursuant to SECTION 10.01) which relate to and were made on
account of amounts refunded under SUBSECTION 4.05(3)(B).
10.04(6) All amounts forfeited as provided in this SECTION 10.04 and SECTIONS
4.05 and 4.07 are herein referred to as "Forfeitures." Forfeitures shall first
be applied to fund any restorations of Forfeitures pursuant to SECTION 10.05 or
12.06, then shall be applied to pay administrative expenses, and then shall be
applied to reduce each Employer's Contributions in the proportion that each such
Employer's Contribution for such Plan Year bears to the total of all Employers'
Contributions for such Plan Year.
10.05 Restoration of Forfeited Accounts.
10.05(1) In the event a Participant who has forfeited all or part of his
Employer Contribution Account as described in SECTION 10.04, is reemployed by an
Employer prior to the date on which such Participant has incurred five (5)
consecutive One-Year Breaks in Service, an amount equal to the value of the
forfeited portion of his Employer Contribution Account without adjustment for
any gains or losses in the Trust Fund subsequent to the date of such Forfeiture)
plus any amount repaid by the Participant (as hereinafter provided) shall be
restored to such Participant's Employer Contribution Account, as appropriate;
provided, however, that if such Participant received a distribution, such
restoration shall not occur unless and until: (i) such Participant repays to the
Plan the full amount of his distribution and (ii) such Participant's repayment
is made before the end of the five (5) year period beginning with the
Participant's Reemployment Date. Upon the restoration of an Employer
Contribution Account as provided for hereinabove, the vested amount in such
Employer Contribution Account (whether attributable to amounts restored or
additional amounts added to such accounts after such reemployment) shall
thereafter be determined in accordance with the provisions of this ARTICLE 10
without regard to such Participant's original Termination of Employment.
10.05(2) The restoration of a Participant's Employer Contribution Account as
provided for in SUBSECTION 10.05(1), shall be made from the Forfeitures which
occurred during the Plan Year of such restoration before any use of such
Forfeitures as otherwise provided in SUBSECTION 10.04(5). Should such
Forfeitures be insufficient to restore the aggregate non-vested amounts owing to
any Participant under SUBSECTION 10.05(1), the additional amount necessary for
restoration shall be contributed by the Employer employing such Participant as a
special contribution to be specially allocated to the Participant's Employer
Contribution Account, as appropriate.
ARTICLE 11 - PAYMENT OF BENEFITS
11.01 Method of Payment
11.01(1) Upon a Participant's: (i) retirement on or after his Normal Retirement
Date; (ii) retirement due to Disability; (iii) death; or (iv) Termination of
Employment (subject to SECTION 4.09), he or his Beneficiary shall be entitled to
payment in an amount determined in accordance with the provisions of ARTICLE 7,
8, 9 or 10. All distributions shall be in either cash or in whole shares of
Company Stock to the extent such Participant's Account is invested in Company
Stock, as elected by the Participant or his Beneficiary. The amount to which a
Participant is entitled shall be paid to him or his Beneficiary or to an
Alternate Payee in: (i) a single lump sum distribution; or (ii) installments
subject to the limitations set forth in SUBSECTION 11.01(2).
11.01(2) Restrictions on Installment Payments.
(a) Permissible Periods. If a Participant's interest is to be distributed in
installments, it shall be paid in substantially equal monthly, quarterly, or
annual payments over one of the following periods. Notwithstanding any
provision in this Plan to the contrary, if an installment option is elected, the
Participant shall not be allowed to elect receipt of any of his Accounts in
Company Stock.
(i) Over a fixed, reasonable period of time, not exceeding the life expectancy
of the Participant, or the joint life expectancy of the Participant and his
designated Beneficiary.
(ii) Over a reasonable period of time, not exceeding fifteen (15) years;
provided, however, such period shall not exceed the life expectancy of the
Participant or the joint life expectancy of the Participant and his designated
Beneficiary. In the event a Participant elects a period of time of five (5)
years or less and the distribution exceeds five hundred thousand dollars
($500,000), as indexed under Code Section 415, the term of the distribution
shall be five (5) years, plus one (1) year (but not more than five (5)
additional years) for each one hundred thousand dollars ($100,000), as indexed
under Code Section 415, (or fraction thereof) by which the distribution exceeds
five hundred thousand dollars ($500,000), as indexed under Code Section 415.
The amount to be distributed each year must be at least equal to the quotient
obtained by dividing the Participant's entire interest by the life expectancy of
the Participant or the joint life expectancy of the Participant and his
designated Beneficiary, as the case may be.
(b) Computation of Life Expectancy. The minimum distribution shall be computed
by reference to the life expectancy multiples under Treasury Regulations Section
1.72-9. For purposes of this computation, the life expectancy of a Participant
and his spouse may be redetermined annually, but the life expectancy of a
non-spouse Beneficiary may not be recalculated. Such recalculation shall be
determined in accordance with Code Section 401(a)(9) and the regulations
thereunder.
(c) Incidental Benefit Restriction. If the Participant's spouse is not the
designated Beneficiary, the method of distributions selected must assure that
the incidental benefit restrictions of the regulations under Code Section
401(a)(9) are met.
(d) Prohibition Against Life Annuity. Nothing contained herein shall be
construed to allow a Participant to have his interest paid in the form of a life
annuity or to receive the distribution of an insurance contract providing for an
annuity.
11.02 Time for Distribution of Benefits. Distribution shall occur in
accordance with the following provisions:
11.02(1) Subject to the provisions of this SECTION 11.02 and SECTIONS 11.01 and
11.03, if a Participant or his Beneficiary is entitled to a distribution
pursuant to ARTICLE 7, 8, 9, or 10, unless the Participant elects to defer
distribution to a later time permitted by SECTION 11.03, such amounts shall be
distributed in a single cash lump sum as soon as administratively possible after
the Allocation Date coinciding with or immediately following the date of such
Participant's retirement on or after his Normal Retirement Date, retirement due
to total and permanent Disability, death or Termination of Employment, but in no
event later than the sixtieth (60th) day after the close of the Plan Year in
which occurs the latest of:
(a) The date on which the Participant attains or would have attained sixty-five
(65) years of age;
(b) The tenth (10th) anniversary of the year in which the Participant commenced
participation in the Plan; or
(c) The date the Participant suffers a Termination of Employment or death.
11.02(2) Notwithstanding any other provision of this Plan to the contrary, if
actual distribution pursuant to SUBSECTION 11.02(1) is delayed for any reason to
or beyond the Allocation Date next following the Allocation Date upon which the
amount of such distribution was to be based, the distribution shall be based on
the balance of the Participant's Accounts as of the Allocation Date coinciding
with or immediately preceding the date on which such distribution is made.
11.02(3) Notwithstanding the provisions of SUBSECTION 11.02(1), and subject to
SECTION 11.03, if a Participant has a Termination of Employment or retires due
to Disability and his vested Account at such time exceeds Five Thousand
($5,000), the amounts owing to such Participant shall be distributed in a single
lump sum as soon as administratively possible after such Participant attains age
sixty-five (65) or dies, unless such Participant has delivered to the Plan
Administrator his consent, in such form as prescribed by the Plan Administrator,
to a distribution at an earlier time.
11.02(4) If, upon Termination of Employment for any reason, or, when
distributions are required to commence to a Participant pursuant to SUBSECTION
11.03(1), the value of the vested portion of a Participant's Account is Five
Thousand Dollars ($5,000) or less and has never at any time prior exceeded Five
Thousand Dollars ($5,000), then his Account shall be paid to or for the benefit
of the Participant, or in the case of his death, to or for the benefit of his
Beneficiary or Beneficiaries, as a lump sum payment as soon as administratively
feasible.
11.03 Limitations on Timing. Notwithstanding any other provision of the Plan
to the contrary, distributions must occur at least as rapidly as required under
this SECTION 11.03.
11.03(1) Distribution of a Participant's entire interest in the Plan shall
commence to be distributed to him no later than the Required Beginning Date, and
at the Participant's election shall be fully distributed in a lump sum, based on
the balance in his Account as of the Allocation Date coinciding with or
immediately preceding the Required Beginning Date.
11.03(2) In the event of the death of a Participant prior to distribution of
his benefits under the Plan, distribution of such deceased Participant's entire
interest under the Plan shall be made within five (5) years after the death of
such Participant.
11.03(3) All distributions shall comply with the provisions of Code Sections
401(a)(9).
11.04 Restrictions on Distribution. Notwithstanding the foregoing provisions
of ARTICLE 11, the Plan shall not distribute any Company Stock acquired with the
proceeds of an Exempt Loan until the close of the Plan Year in which such Exempt
Loan has been repaid in full.
11.05 Payments on Personal Receipt Except in Case of Legal Disability. All
payments to any Participant, Beneficiary or Alternate Payee from the Trust Fund
shall be made to the recipient entitled thereto in person or upon his personal
receipt, in a form satisfactory to the Plan Administrator, except when the
recipient entitled thereto shall be under a legal disability, or, in the sole
judgment of the Plan Administrator, shall otherwise be unable to apply such
payments in furtherance of his own interests and advantage. The Plan
Administrator may, in such event, in its sole discretion, direct all or any
portion of such payments to be made in any one or more of the following ways:
(i) directly to such person, (ii) to the guardian of his person or of his
estate, even though appointed by a court other than a Texas state court, (iii)
to his spouse or to any other person, to be expended for his benefit, or (iv) to
a custodian under any applicable Uniform Gifts to Minors Act or Uniform
Transfers to Minors Act. The decision of the Plan Administrator, in each case,
will be final, binding and conclusive upon all persons ever interested
hereunder, and the Plan Administrator shall not be obliged to see to the proper
application or expenditure of any payments so made. Any payment made pursuant
to the power herein conferred upon the Plan Administrator shall operate as a
complete discharge of all obligations of the Trustee and the Plan Administrator,
to the extent of the amounts so paid.
11.06 Benefits Payable Pursuant to a Qualified Domestic Relations Order.
Notwithstanding any other provision of the Plan to the contrary, immediate
distribution of benefits payable to an Alternate Payee pursuant to a Qualified
Domestic Relations Order shall be permitted even though the Participant whose
benefits have been assigned to the Alternate Payee would not be entitled to
receive a distribution at such time, if all of the following requirements are
met: (i) the Participant's Account is one hundred percent (100%) vested; (ii)
the entire amount payable to the Alternate Payee does not exceed Five Thousand
Dollars ($5,000), or the Alternate Payee has requested immediate distribution in
such form as prescribed by the Plan Administrator; (iii) allocation pursuant to
SECTION 6.04 of all amounts required to be paid to the Alternate Payee has been
completed; (iv) the Qualified Domestic Relations Order requires or permits
immediate distribution; and (v) the conditions of SUBSECTION 11.01(1) as to form
of payment are met.
In the event an Alternate Payee dies prior to distribution of the amounts
payable to the Alternate Payee pursuant to the Qualified Domestic Relations
Order, the amount payable shall be distributed as provided in the Qualified
Domestic Relations Order. If the Qualified Domestic Relations Order does not
specify how such amounts are to be distributed in the event of the Alternate
Payee's death, the Plan Administrator shall cause such amounts to be distributed
to a Beneficiary designated by the Alternate Payee or if no Beneficiary has been
designated, in accordance with SUBSECTION 9.02(1) (by substituting Alternate
Payee for Participant whenever such term appears in that SECTION).
11.07 Direct Rollovers.
11.07(1) This SECTION 11.07 applies to distributions made on or after January
1, 1993. Notwithstanding any provision of the Plan to the contrary that would
otherwise limit a Distributee from making an election under this SECTION, a
Distributee may elect, at the time and in the manner prescribed by the Plan
Administrator, to have any portion of an Eligible Rollover Distribution paid
directly to an Eligible Retirement Plan specified by the Distributee in a Direct
Rollover to the extent that such Eligible Rollover Distribution is at least $200
(or is reasonably expected to total at least $200 when aggregated with other
distributions during the Plan Year from this Plan). The procedures prescribed
by the Plan Administrator may include a deadline for making such an election and
may require the Distributee to furnish adequate information regarding the
Eligible Retirement Plan specified by the Participant in a Direct Rollover.
Such procedures may also require the Direct Rollover of at least $500 as a
condition of permitting Direct Rollover of less than the total distribution and
may limit Participants to a single Direct Rollover.
11.07(2) Definitions.
(a) Eligible Rollover Distribution. An "Eligible Rollover Distribution" is any
distribution of all or any portion of the balance to the credit of the
Distributee, except that an Eligible Rollover Distribution does not include:
any distribution that is one of a series of substantially equal periodic
payments (not less frequently than annually) made for the life (or life
expectancy) of the Distributee or the joint lives (or joint life expectancies)
of the Participant and the Distributee's designated beneficiary, or for a
specified period of ten years or more; any distribution to the extent such
distribution is required under Code Section 401(a)(9); and the portion of any
distribution that is not includable in gross income (determined without regard
to the exclusion for net unrealized appreciation with respect to employer
securities).
(b) Eligible Retirement Plan. An "Eligible Retirement Plan" is an individual
retirement account described in Code Section 408(a), an individual retirement
annuity described in Code Section 408(b), an annuity plan described in Code
Section 403(a), or a qualified trust described in Code Section 401(a) that
accepts the distributees Eligible Rollover Distribution. However, in the case
of an Eligible Rollover Distribution to the surviving spouse, an Eligible
Retirement Plan is an individual retirement account or individual retirement
annuity.
(c) Distributee. A "Distributee" includes an Employee or former Employee. In
addition, the Employee's or former Employee's surviving spouse and the
Employee's or former Employee's spouse or former spouse who is the alternate
payee under a qualified domestic relations order, as defined in Code Section
414(p), are Distributees with regard to the interest of the spouse of former
spouse.
(d) Direct Rollover. A "Direct Rollover" is a payment by the Plan to the
Eligible Retirement Plan specified by the Distributee.
11.07(3) Such distribution may commence less than thirty (30) days after the
notice required under Treasury Regulations Sections 1.411(a)-11(c) is given,
provided that:
(a) the Plan Administrator clearly informs the participant that the participant
has a right to a period of at least thirty (30) days after receiving the notice
to consider the decision of whether or not to elect a distribution (and, if
applicable, a particular distribution option), and
(b) the Participant, after receiving the notice, affirmatively elects a
distribution.
ARTICLE 12 - MISCELLANEOUS PROVISIONS RESPECTING PARTICIPANTS
12.01 Participants to Furnish Required Information.
12.01(1) Each Participant shall furnish to the Plan Administrator such
information as the Plan Administrator considers necessary or desirable for
purposes of administering the Plan, and the provisions of the Plan respecting
any payments hereunder are conditional upon the Participant's furnishing
promptly such true, full, and complete information as the Plan Administrator may
reasonably request.
12.01(2) Each Participant shall submit proof of such Participant's age to the
Plan Administrator. The Plan Administrator shall, if such proof of age is not
submitted as required, use as conclusive evidence thereof, such information as
is deemed by it to be reliable, regardless of the source of such information.
Any adjustment required by reason of lack of proof or the misstatement of the
age of persons entitled to benefits hereunder, by the Participant or otherwise,
shall be in such manner as the Plan Administrator deems equitable.
12.01(3) Any election, notice, or information which according to the terms of
the Plan or the rules of the Plan Administrator must be filed with the Plan
Administrator, shall be deemed so filed if addressed and either delivered in
person, delivered by electronic transmission, or mailed, postage fully prepaid,
to the Plan Administrator. Whenever a provision herein requires that a
Participant (or the Participant's Beneficiary) give notice to the Plan
Administrator or make an election within a specified number of days or by a
certain date, and the last day of such period, or such date, falls on a
Saturday, Sunday or Employer holiday, the Participant (or the Participant's
Beneficiary) will be deemed in compliance with such provision if notice is
delivered in person to the Plan Administrator, delivered by electronic
transmission, or is mailed, properly addressed, postage prepaid, and postmarked
on or before the business day next following such Saturday, Sunday or Employer
holiday. The Plan Administrator may, in its sole discretion, modify or waive
any specified notice requirement; provided, however, that such modification or
waiver must be administratively feasible, must be in the best interest of the
Participant, and must be made on the basis of the rules of the Plan
Administrator which are applied uniformly to all Participants.
12.02 Participants' Rights in Trust Fund. No Participant or other person shall
have any right, title or interest in, to or under the Trust Fund, or any part of
the assets thereof, except and to the extent expressly provided in the Plan.
12.03 Inalienability of Benefits.
12.03(1) Restrictions on Assignment. The benefits provided hereunder are
intended for the personal security of persons entitled to payment under the
Plan, and are not subject in any manner to the debts or other obligations of the
persons to whom they are payable. The interest of a Participant or such
Participant's Beneficiary or Beneficiaries may not be sold, transferred,
assigned, or encumbered in any manner, either voluntarily or involuntarily, and
any attempt so to anticipate, alienate, sell, transfer, assign, pledge,
encumber, or charge the same shall be null and void; neither shall the Trust
Fund nor any benefits thereunder or hereunder be liable for or subject to the
debts, contracts, liabilities, engagements, or torts of any person to whom such
benefits or funds are payable, nor shall they be subject to garnishment,
attachment, or other legal or equitable process nor shall they be an asset in
bankruptcy. All of the provisions of this SECTION 12.03, however, are subject
to SECTION 11.03, to withholding of any applicable taxes and to assignments
permitted by Code Section 401(a)(13).
12.03(2) Exception for Benefit Payable pursuant to a Qualified Domestic
Relations Order.
(a) The prohibitions contained in SUBSECTION 12.03(1) shall not apply to the
creation, assignment, or recognition of a right to any benefit payable with
respect to a Participant pursuant to a Qualified Domestic Relations Order.
(b) The Plan Administrator shall establish written procedures for the
determination of the qualified status of a domestic relations order.
(c) Upon receiving a domestic relations order, the Plan Administrator shall
notify the Participant and Alternate Payee named in the order, in writing, of
the receipt of the order and the Plan's procedures for determining the qualified
status of the order. Within a reasonable period of time after receiving the
domestic relations order, the Plan Administrator shall determine the qualified
status of the order and shall notify the Participant and the Alternate Payee, in
writing, of its determination. The Plan Administrator shall provide notice
under this paragraph by mailing such notice to the individual's address
specified in the domestic relations order, or in a manner consistent with
Department of Labor regulations.
(d) During any period in which the issue of whether a domestic relations order
is a Qualified Domestic Relations Order is being determined, notwithstanding any
other provision of the Plan to the contrary, the Plan Administrator shall
segregate in a separate account the amounts which would have been payable during
such period to an Alternate Payee pursuant to a Qualified Domestic Relations
Order, if such order had been determined to be a Qualified Domestic Relations
Order. During the period such amounts are segregated in a separate account
under the Plan, such amounts shall remain subject to the general investment
provisions of the Plan. If within the eighteen (18) month period beginning with
the date on which the first payment would be required to be made under such
domestic relations order, the domestic relations order is determined to be a
Qualified Domestic Relations Order, the Plan Administrator shall direct the
Trustee to distribute to the Alternate Payee the segregated amounts including
any earnings and appreciation (or losses and depreciation) thereon in accordance
with SECTION 11.05 and such domestic relations order. However, if within such
eighteen (18) month period, it is determined that such order is not qualified,
or the issue of qualification is not resolved, then the Plan Administrator shall
pay the segregated amounts, including any earnings and appreciation (or losses
and depreciation) thereon, to the person or persons who would have been entitled
to such amounts if there had been no such order.
(e) Notwithstanding any other provision of the Plan to the contrary, all rights
and benefits, including rights to make elections or to give directions, provided
to a Participant under this Plan shall be subject to the rights, benefits and
elections or directions afforded to an Alternate Payee, pursuant to a Qualified
Domestic Relations Order, and this Plan shall be interpreted and administered by
the Plan Administrator in such manner as to effectuate the provisions of any
such Qualified Domestic Relations Order as it relates to the rights, benefits,
and elections or directions afforded to such Alternate Payee under such
Qualified Domestic Relations Order. Furthermore, to the extent provided in any
such Qualified Domestic Relations Order, a former spouse of a Participant shall
be treated as a spouse or surviving spouse for all applicable purposes under the
Plan.
The Trustee shall make any payments or distributions required under this
SUBSECTION 12.03(2) by separate benefit checks or other separate distribution to
the Alternate Payee(s).
12.04 Conditions of Employment Not Affected by Plan. Neither the Plan nor the
Trust nor the Trust Agreement shall confer on any Employee, including any
Participant, any right to be retained in the service of any Employer, and
nothing contained herein or in the Trust Agreement shall be construed in any way
to limit or restrict the right of any Employer to discharge any Employee,
regardless of whether such Employee is a Participant, or to change such
Employee's position or the basis or amount of such Employee's compensation.
12.05 Address for Mailing of Benefits.
12.05(1) Each Participant and each other person entitled to benefits hereunder
shall file with the Plan Administrator from time to time in such form as
prescribed by the Plan Administrator such Participant's post office address and
each change of address. Any check representing payment hereunder and any
communication addressed to a Participant, an Employee, or Beneficiary, at such
person's last address filed with the Plan Administrator, or if no such address
has been filed, then at such person's last address as indicated on the records
of an Employer, shall be deemed to have been delivered to such person on the
date on which such check or communication is deposited, postage prepaid, in the
United States mail.
12.05(2) If the Plan Administrator is in doubt as to whether payments are being
received by the person entitled thereto, it shall, by registered mail addressed
to the person concerned, at his address last known to the Plan Administrator,
notify such person that all unmailed and future payments shall be withheld until
he provides the Plan Administrator with a sworn statement, properly notarized,
evidencing his continued life and his proper mailing address.
12.06 Unclaimed Account Procedure.
12.06(1) Neither the Trustee nor the Plan Administrator shall be obliged to
search for, or ascertain the whereabouts of any Participant, Beneficiary, or
Alternate Payee. Upon the return of a distribution check, the Plan
Administrator, by certified or registered mail addressed to such Participant's,
Beneficiary's, or Alternate Payee's last known address, shall notify the
Participant, Beneficiary, or Alternate Payee that such Participant, Beneficiary,
or Alternate Payee is entitled to a distribution under this Plan.
1206(2) Any distribution or payment which is not claimed by the person entitled
thereto within six (6) months from the date the certified or registered letter
is sent to the individual shall be forfeited. Any distribution check which is
not cashed within six (6) months from its date of issuance shall be void and the
amount thereof forfeited. Such forfeited amounts shall be added to Forfeitures.
Should such person make a claim for such forfeited benefit, at any time prior to
termination of the Plan and final distribution thereunder, which is approved by
the Plan Administrator, such benefit shall be restored as follows: An amount
equal to the amount previously forfeited (but without interest on such amount
for the period from the date of such forfeiture to the date of such restoration)
shall be specially allocated from Forfeitures in the current Plan Year for the
benefit of such Participant or Beneficiary. Immediately upon allocation to such
Participant or Beneficiary, the Plan Administrator shall instruct the Trustee to
distribute in a lump sum, directly to such Participant or Beneficiary, the
amount specially allocated to such Participant or Beneficiary.
12.06(3) In the event of Plan termination, amounts that were forfeited pursuant
to the provisions of SUBSECTION 12.06(2) which exceeded Five Thousand Dollars
($5,000) or were otherwise distributable without Participant consent, shall be
considered lost. If the period of time since forfeiture for such lost benefits
exceeds the applicable state escheat period, the forfeiture shall become
permanent upon Plan termination. All other amounts forfeited pursuant to
SUBSECTION 12.06(2) shall be reinstated as of the Plan's termination date.
12.07 No Rollovers. No rollovers shall be accepted.
ARTICLLE 13 - ADMINISTRATION OF THE PLAN
13.01 Plan Administrator. The administration of the Plan will be the
responsibility of the Plan Administrator which shall be the Company.
13.02 Compensated Expenses of the Plan Administrator. The Plan Administrator
shall serve without compensation for its services as such, but the reasonable
and necessary expenses of the Plan Administrator shall be paid by the Trust Fund
unless paid by the Employers as provided in SECTION 13.15. When, in its
discretion, the Plan Administrator, or any Employer, deems it advisable, the
Plan Administrator shall be authorized to have the records of the Plan
Administrator and the Trustee audited by an independent auditor, and reasonable
and necessary expenses thereby incurred shall be paid by the Trust Fund unless
paid by the Employers, as provided in SECTION 13.15.
13.03 Agents of the Plan Administrator. The Plan Administrator may employ such
agents and such clerical and other administrative personnel as reasonably may be
required for the purpose of administering the Plan. Such administrative
personnel shall carry out the duties and responsibilities assigned to them by
the Plan Administrator. Reasonable expenses necessarily incurred for such
purpose shall be paid by the Trust Fund unless paid by the Employers, as
provided in SECTION 13.15.
13.04 Reliance on Directions of Plan Administrator. The Plan Administrator
shall give to the Trustee any order, direction, consent, certificate, or advice
required or permitted under the terms of the Plan or Trust Agreement, and the
Trustee shall be entitled to rely on, as evidencing the action of the Plan
Administrator, any instrument delivered to the Trustee when: (i) if a
resolution, it is certified by the Secretary of the Board; or (ii) if a
memorandum, it is signed by a person who shall have been authorized to act for
the Plan Administrator in respect of the subject matter thereof.
13.05 Authority of Plan Administrator. The Plan Administrator is authorized to
take such actions as may be necessary to carry out the provisions and purposes
of the Plan and shall have the authority to control and manage the operation and
administration of the Plan. In order to effectuate the purposes of the Plan,
the Plan Administrator shall have the discretionary power to construe and
interpret the Plan, to supply any omissions therein, to reconcile and correct
any errors or inconsistencies, to decide any questions in the administration and
application of the Plan, to recover in any manner authorized by law any payments
erroneously or wrongfully made from the Plan to Participants or any other person
or entity, and to make equitable adjustments for any mistakes or errors made in
the administration of the Plan. All such actions or determinations made by the
Plan Administrator, and the application of rules and regulations to a particular
case or issue by the Plan Administrator, in good faith, shall not be subject to
review by anyone, but shall be final, binding, and conclusive on all persons
ever interested hereunder. In construing the Plan and in exercising its power
under provisions requiring Plan Administrator approval, the Plan Administrator
shall attempt to ascertain the purpose of the provisions in question and when
such purpose is known or reasonably ascertainable, such purpose shall be given
effect to the extent feasible. Likewise, the Plan Administrator is authorized
to determine all questions with respect to the individual rights of all
Participants and their Beneficiaries and Alternate Payees under this Plan,
including, but not limited to, all issues with respect to eligibility,
Compensation, service, valuation of Accounts, allocation of consolidated
contributions and Trust Fund earnings, and retirement or Termination of
Employment, and shall direct the Trustee concerning the allocation, payment and
distribution of all funds held in trust for purposes of the Plan. The Plan
Administrator, in the exercise of any discretionary powers hereunder, shall not
exercise that discretion so as to discriminate in favor of Highly Compensated
Employees. The Plan Administrator shall establish investment objectives and
monitor, or cause to be monitored, the investment performance of the Trustee or
any Investment Manager which may be appointed with respect to any assets of the
Plan.
13.06 Authorization of Loan Transactions. Upon directions from the Board, the
Plan Administrator shall have the authority to direct the Trustee to borrow
funds to purchase Company Stock. Upon directions from the Board, the Plan
Administrator shall consult with the Trustee concerning the source of the
borrowed funds, the terms of the loan agreement, and the provision of
collateral. The Board may empower the Plan Administrator to authorize the
guarantee or making by the Company of any such loan. Any loan made by or
guaranteed by the Company or which involves a disqualified person (as defined in
Section 4975(e)(2) of the Code) shall comply with all applicable requirements of
Section 4975(d)(3) of the Code and regulations issued thereunder in order that
the extension of credit shall be exempt from excise taxes imposed with respect
to prohibited transactions under Section 4975 of the Code and any liability
imposed by Section 406 of ERISA. From time to time at the Board's direction,
the Plan Administrator may direct the Trustee to enter into loan arrangements
and purchase additional Company Stock and may direct the Trustee to refinance
previous loans.
13.07 General Administrative Powers. The Plan Administrator shall have
authority to make, and from time to time, revise, rules and regulations for the
administration of the Plan.
13.08 Additional Powers. The Plan Administrator shall exercise such authority
and responsibility as it deems appropriate to comply with the provisions of
federal law and governmental regulations issued thereunder, including, but not
limited to, records of Participants' service, accrued benefits and the
percentage of such benefits which are nonforfeitable under the Plan,
notification to Participants, annual registration with the Internal Revenue
Service, annual reports to the Department of Labor, and furnishing the Trustee
with any directions or information regarding income tax withholding required by
law. The Plan Administrator is hereby designated as the agent for service of
process unless the Plan Administrator designates another person or entity.
13.09 Duties of Administrative Personnel. Administrative personnel appointed
pursuant to SECTION 13.03, shall be responsible for such matters as the Plan
Administrator shall delegate to them by written instrument, including, but not
limited to communications to Employees at the direction of the Plan
Administrator, reports to the Plan Administrator involving questions of
eligibility and the amount of Compensation of Participants, assisting
Participants, Beneficiaries and Alternate Payees in the completion of forms
prescribed by the Plan Administrator, and maintenance of records concerning
terminated vested Participants, Participants who have retired and Beneficiaries.
Administrative personnel may not make any decision as to Plan policy,
interpretations, practices or procedures unless the authority to make such
decisions has been delegated to them in writing by the Plan Administrator and
they accept fiduciary responsibilities in accordance with the provisions of
SECTION 13.10. All administrative personnel shall perform their allocated
function within the policies, interpretations, rules, practices and procedures
established by the Plan Administrator, except that administrative personnel
shall coordinate matters related to the Plan with the appropriate departments of
each Employer as the Plan Administrator directs.
13.10 Designation of Named Fiduciaries and Allocation of Responsibility. ERISA
requires that certain persons, who are deemed to be "fiduciaries," as defined in
ERISA Section 3(21)(A), be designated as "Named Fiduciaries" in the Plan. The
Board, the Plan Administrator, and the Trustees are hereby designated Named
Fiduciaries. Each Named Fiduciary shall have only the powers, duties and
responsibilities specifically allocated to such fiduciary pursuant to the terms
of this Plan and the Trust. Each Named Fiduciary may, by written instrument,
allocate some or all of its responsibilities to another fiduciary or designate
another person to carry out some or all of its fiduciary responsibilities. Each
fiduciary under the Plan (including fiduciaries to whom responsibilities are
allocated by a Named Fiduciary) will be furnished a copy of the Plan, and their
acceptance of such responsibility will be made by agreeing in writing to act in
the capacity designated. No Named Fiduciary shall be liable for an act or
omission of any person who is allocated a fiduciary responsibility or who is
designated to carry out such responsibility by a Named Fiduciary, except to the
extent that the Named Fiduciary did not act in accordance with the standards
contained in SUBSECTION 13.11(2) with respect to the allocation or designation
of a fiduciary duty. Any person or group of persons may serve in more than one
(1) fiduciary capacity with respect to the Plan.
13.11 Action by Fiduciaries.
13.11(1) Any action herein permitted or required to be taken by an Employer
shall, subject to the provisions of SECTION 20.07, be by resolution of its Board
or by written instrument signed by a person or group of persons who has been
authorized by resolution of such Board as having authority to take such action.
13.11(2) Each fiduciary with respect to the Plan shall perform all of his
duties and responsibilities and exercise his powers hereunder with the care,
skill, prudence, and diligence under the circumstances then prevailing that a
prudent man acting in like capacity and familiar with such matters would use in
the conduct of an enterprise of like character and with like aims, and no
fiduciary shall be liable for any act or failure to act on his part (including
reliance on the advice of counsel) which conforms to that standard, unless: (i)
he knowingly participates in or knowingly undertakes to conceal an act or
omission of another fiduciary of the Plan, with the knowledge that such act or
omission is a breach of fiduciary responsibility; (ii) knowing of a breach of
fiduciary responsibility, he fails to make reasonable efforts under the
circumstances to remedy the breach; or (iii) by failing to carry out his
specific responsibilities, in accordance with such standard, he has enabled
another fiduciary of the Plan to commit a breach.
13.11(3) Each fiduciary shall furnish or cause to be furnished to each other
fiduciary all information needed for the proper performance of its duties. Each
fiduciary warrants that any directions given, information furnished or action
taken by it shall be in accordance with the provisions of the Plan or the Trust
Agreement, as the case may be, authorizing or providing for such direction,
information or action.
13.12 Appointment of Professional Assistants and the Investment Manager. A
Named Fiduciary may appoint such accountants, counsel, and actuaries and other
advisers as it deems necessary or desirable in connection with the
administration of the Plan. A Named Fiduciary shall be entitled to rely upon
and shall not be liable for any act or failure to act in reliance, on any
opinion or reports, which shall be furnished to such Named Fiduciary by any such
accountant with respect to accounting matters, counsel in respect to legal
matters, or actuary in respect of actuarial matters as long as the Named
Fiduciary's reliance is in accordance with the standard set forth in SUBSECTION
13.11(2). The fees and costs of such services are an administrative expense to
the Plan to be paid out of the Trust Fund except to the extent that Employers
elect to pay such fees and costs.
13.13 Bond. The Plan Administrator shall see that the appropriate fiduciaries
are bonded as required by federal law or regulation. Except as required by the
Board or by state or federal statute, irrespective of this provision, no bond or
other security shall be required of any fiduciary.
13.14 Indemnification. In the event and to the extent not insured against
under any contract of insurance with an insurance company, the Employers shall
indemnify and hold harmless each "Indemnified Person" as defined below, against
any and all claims, demands, suits, proceedings, losses, damages, interest,
penalties, expenses, (specifically including, but not limited to reasonable
counsel fees, court costs and other reasonable expenses of litigation), and
liability of every kind, including amounts paid in settlement, with the approval
of the Board, arising from any action or cause of action related to the
Indemnified Person's act or acts or failure to act. Such indemnity shall apply
regardless of whether such claims, demands, suits, proceedings, losses, damaged,
interest, penalties, expenses, and liability arise in whole or in part from:
(i) the negligence or other fault of the Indemnified Person, except when the
same is judicially determined to be due to gross negligence, fraud, or willful
or intentional misconduct of such Indemnified Person; or (ii) from the
imposition on such Indemnified Person of any penalties imposed by the Secretary
of Labor, pursuant to ERISA Section 502(1), relating to any breaches of
fiduciary responsibility under Part 4 of Title I of ERISA.
"Indemnified Person" shall mean each member of the Board, the Plan
Administrator, each individual Trustee, and each other Employee who is allocated
fiduciary responsibility hereunder. Upon request by the Indemnified Person, and
at such other times as may be determined by the Plan Administrator, any
indemnification due under this SECTION shall be made as the loss or expense as
incurred. Payments under this SECTION may be made directly to a third party at
the direction of the Board or the Indemnified Person. In the event the Plan
Administrator subsequently determines that a payment based upon an initial
determination of the applicability of this SECTION was inadvertently made, the
Indemnified Person on whose behalf such payment was made shall reimburse the
Employers to the extent required to satisfy the terms of this SECTION. The
indemnification provisions of this SECTION shall not relieve any person from any
liability he may have under ERISA for breach of fiduciary duty.
13.15 Payment of Expenses. The expenses of agents or advisers, and any other
reasonable expenses of the Plan Administrator, shall be paid or reimbursed by
the Trustee out of the Trust Fund unless paid by the Employers. Such expenses
shall be paid first from Forfeitures. To the extent permitted by ERISA, the
Trustee may also reimburse an Employer for reasonable and necessary direct
expenses incurred for administration of the Plan.
ARTICLE 14 - PARTICIPATION BY EMPLOYERS
14.01 Adoption of Plan by Affiliated Company. Any Affiliated Company, whether
or not presently existing, may adopt this Plan with the consent of the Company.
Adoption by an Affiliated Company shall be accomplished in such manner as is
specified by the Company from time to time. With the approval of the Company,
an Affiliated Company may adopt the Plan with such modifications as it specifies
in its instrument of adoption.
14.02 Rights and Obligations of the Company and the Employers. Throughout this
instrument, a distinction is purposely drawn between rights and obligations of
the Company and rights and obligations of each other Employer. The rights and
obligations specified as belonging to the Company shall belong only to the
Company. Each Employer (other than Operations Company for Homestead, Inc.)
shall have the obligation, as herein provided, to make Matching Contributions
and Discretionary Contributions for its own Participants, and no Employer shall
have the obligation to make Matching Contributions or Discretionary
Contributions for the Participants of any other Employer. Any failure by an
Employer to fulfill its own obligations under this Plan shall have no effect
upon any other Employer. An Employer may withdraw from this Plan without
affecting any other Employer.
14.03 Withdrawal from Plan. Any Employer may withdraw from the Plan upon
giving the Company and the Trustee at least sixty (60) days' notice in writing
of its intention to withdraw. Such withdrawal shall terminate all obligations
of the withdrawn Employer under the Plan, but, except as otherwise provided by
the Company in its sole discretion, the Accounts of such Employers' Employees
shall remain in the Trust until otherwise payable to the Participants.
ARTICLLE 15 - AMENDMENT OF THE PLAN
The Company reserves the right to amend the Plan with respect to all Employers
at any time and from time to time. Unless otherwise permitted by law, no
amendment shall permit any part of the Trust Fund to revert to or be recoverable
by an Employer or be used for or diverted to purposes other than the exclusive
benefit of the Participants or their Beneficiaries, or deprive any Participant
of any interest he might have in the Trust Fund at the time of the amendment to
the extent that such interest would be available to the Participant under
ARTICLE 10 were he to voluntarily resign as of the effective date of the
amendment.
(a) Under no condition, shall such amendment, amendments, or restatements
increase the duties or responsibilities, or decrease the compensation,
privileges, and immunities of the Trustee without the Trustee's written consent.
(b) Under no condition, shall such amendment change the vesting schedule to one
which would result in the nonforfeitable percentage of the accrued benefit
derived from Matching Contributions or Discretionary Contributions (determined
as of the later of the date of the adoption of the amendment or of the effective
date of the amendment) of any Participant being less than such nonforfeitable
percentage computed under the Plan without regard to such amendment; provided,
however, that no amendment shall change the vesting schedule unless each
Participant with three (3) or more Vesting Years of Service, is permitted to
elect, within the election period described below, to have his nonforfeitable
percentage computed under the Plan without regard to the amendment. The
election period described herein shall begin no later than the date upon which
the amendment is adopted and shall end no later than the latest of the following
dates: (i) the date which is sixty (60) days after the day the amendment is
adopted; (ii) the date which is sixty (60) days after the day the amendment
becomes effective; or (iii) the date which is sixty (60) days after the day the
Participant is issued a written notice of the amendment by the Company.
(c) Subject to the above stated limitations and the requirement that no
amendment shall eliminate (except with respect to any future contributions or
future accrual of benefits and except as otherwise permitted by Treasury
Regulations or rulings) any nondiscretionary optional form of payment as
provided in Treasury Regulations Section 1.411(d)-4 and Code Section 411(d)(6),
with respect to any Participant who is a Participant immediately prior to the
amendment, the Company shall have the power to amend the Plan and Trust
Agreement, retroactively or otherwise, in any manner in which it deems
desirable, including, but not by way of limitation, the power to change any
provisions relating to the administration of the Plan and Trust Fund, and to
change any provisions relating to the benefits or payment of any of the assets
of the Trust Fund. Each such amendment shall become effective when executed by
the Company unless a different effective date is specified in the amendment.
(d) Notwithstanding anything herein to the contrary, this Plan may be amended
at any time by the Company if necessary or desirable in order to have it conform
to the provisions and requirements of the Code or any other applicable law, and
no such amendment shall be considered prejudicial to the rights of any
Participant hereunder or of any Beneficiary, Alternate Payee, or Employee.
Further, it is understood that any provisions of this Plan as herein contained
which are contrary to the requirements of the Code for a qualified tax exempt
employees' stock bonus plan and trust shall be deemed void and of no effect,
without affecting the validity of other provisions hereof.
ARTICLE 16 - PERMANENCY OF THE PLAN
16.01 Right to Terminate Plan. The Company contemplates that the Plan shall be
permanent and that the Employers shall be able to make contributions to the
Plan. Nevertheless, in recognition of the fact that future conditions and
circumstances cannot now be entirely foreseen, the Company reserves the right to
terminate the Plan.
16.02 Merger or Consolidation of Plan and Trust. Neither the Plan nor the
Trust may be merged or consolidated with, nor may its assets or liabilities be
transferred to, any other plan or trust, unless each Participant would (if the
Plan then terminated) receive a benefit immediately after the merger,
consolidation, or transfer which is equal to or greater than the benefit he
would have been entitled to receive immediately before the merger,
consolidation, or transfer (if the Plan had then terminated). The Plan
Administrator is empowered to direct the Trustee to transfer assets and
liabilities from the Plan relating to such Participant Accounts as the Plan
Administrator designates to another plan, such transfer must meet the
requirements of Code Section 414, and trust-to-trust transfer under this SECTION
16.02 shall only be made in cash.
16.03 Continuance by Successor Company. Subject to approval of the Board, in
the event of the liquidation, dissolution, merger, consolidation, or
reorganization of an Employer, the successor company may, with the approval of
the Company, adopt the Plan and Trust for the benefit of the Employees of such
Employer. If such successor company does adopt the Plan and Trust, it shall, in
all respects, be substituted for such Employer under the Plan and Trust. Any
such substitution of such successor company shall constitute an assumption of
Plan liabilities by such successor company, and such successor company shall
have all of the powers, duties and responsibilities of such Employer under the
Plan and Trust. If such successor company does not adopt the Plan and Trust,
participation in the Plan and Trust shall cease with respect to such Employer in
accordance with the provisions of the Plan and Trust Agreement and the assets of
the successor company's employees shall be held or distributed as directed by
the Board.
ARTICLE 17 - DISCONTINUANCE OF CONTRIBUTIONS AND TERMINATION
17.01 Suspension of Contributions. Should an Employer fail to make Matching
Contributions in any one (1) or more years, such failure shall not, of itself,
terminate or discontinue this Plan and Trust as to the Employer and its
Participants, nor shall the Employer incur any obligation to resume its Matching
Contributions in whole or in part.
17.02 Discontinuance of Contributions. Whenever an Employer determines that it
is impossible or inadvisable for it to make further Matching Contributions, such
Employer may without terminating the Trust, permanently discontinue all further
Matching Contributions by such Employer. A certified copy of such Employer's
resolution or other formal written instrument pursuant to SECTION 20.06, shall
be delivered to the Plan Administrator and the Trustee. Thereafter, the Plan
Administrator and the Trustee shall continue to administer all the provisions of
the Plan which are necessary and remain in force, other than the provisions
relating to Matching Contributions by such Employer. Unless otherwise provided
by the Company, the Trust shall remain in existence with respect to such
Employer and all of the provisions of the Trust Agreement shall remain in force.
17.03 Termination of Plan and Trust. If the Company determines to terminate
the Plan and Trust completely, it shall be terminated as of the date specified
in certified copies of resolutions or other formal written instrument pursuant
to SECTION 20.06, delivered to the Trustee. The Company shall direct the
Trustee whether to continue to hold assets of the Plan pending distribution to
Participants and Beneficiaries at the times provided in ARTICLE 11, or to
liquidate and distribute assets of the Plan as hereinafter provided. Upon such
termination of the Plan and Trust and before liquidation of the Trust, the
Trustee shall do a special valuation of the Trust, if the liquidation is not to
occur as of an Allocation Date. After payment of all expenses and proportional
adjustment of Accounts of Participants to reflect such expenses, Trust Fund
profits or losses, and subject to the limitations contained in SECTION 5.04,
allocations of any previously unallocated funds to the date of termination,
Participants shall be entitled to receive the amount then credited to their
respective Accounts in the Trust Fund in accordance with ARTICLE 11. If, in the
opinion of the Plan Administrator, assets in the Trust Fund or certain of them
may possibly not be readily salable (i) because of federal or state securities
laws, or the rules and regulations thereunder or (ii) at a fair value, the Plan
Administrator shall direct and the Trustee shall effect, a distribution of such
assets in kind. Upon completion of liquidation and distribution of the assets
of the Trust to the Participants, the Trustee shall thereby complete the
Trustee's duties, and the Trust shall terminate.
17.04 Participant's Rights to Benefits upon Termination or Partial Termination
of Plan or Complete Discontinuance of Contributions. Upon the termination or
partial termination (as determined by the Internal Revenue Service) of the Plan
or the complete discontinuance of Matching Contributions, the rights of affected
Participants with respect to the amounts credited to their Accounts at such time
shall be nonforfeitable without reference to any formal action on the part of
such Employer, the Plan Administrator, or the Trustee.
ARTICLE 18 - EXCLUSIVE BENEFIT OF THE PLAN
18.01 Limitation on Reversions. Except as otherwise provided in this ARTICLE
18, it shall be impossible, at any time, for any part of the Trust Fund, other
than such part as is required to pay taxes and administration expenses or such
part as may otherwise be permitted by law to be returned to the Employer, to be
recoverable by an Employer, or to be used for, or diverted to, purposes other
than for the exclusive benefit of the Participants, Beneficiaries, and Alternate
Payees.
18.02 Unallocated Amounts upon Termination of Plan and Trust. In the event the
Plan and Trust are terminated, any previously unallocated amounts maintained in
the suspense account in accordance with the provisions of SUBSECTION 5.06(3)
which cannot be allocated to Participants upon the termination of the Plan and
Trust pursuant to SECTION 17.03 because of the limitations contained in SECTIONS
5.07 through 5.09, shall revert to the Employer or Employers employing the
Participant at the time of such termination.
18.03 Mistake of Fact or Disallowance of Deduction. If the Plan Administrator
in good faith determines that (a) a Discretionary Contribution, a Matching
Contribution or Pre-Tax Contribution was made by reason of a mistake of fact or
(b) a Discretionary Contribution, a Matching Contribution or Pre-Tax
Contribution is conditioned on its being deductible under Code Section 404, but
the Internal Revenue Service disallows such deduction, the amount of the excess
Discretionary Contribution, Matching Contribution or Pre-Tax Contribution less
losses attributable thereto may, upon direction of the Plan Administrator, be
returned to the contributing Employer. All payments of returned Discretionary
Contribution, Matching Contributions or Pre-Tax Contributions under this SECTION
shall be made within one (1) year from the date of the payment of such mistaken
Discretionary Contribution, Matching Contribution or Pre-Tax Contribution or the
disallowance by the Internal Revenue Service of the deduction, whichever is
applicable. The amount of the excess Discretionary Contribution, Matching
Contribution or Pre-Tax Contribution shall be the excess of (1) the amount
contributed over (2) the amount that would have been contributed had there not
occurred a mistake of fact or had the deduction not been disallowed. Earnings
attributable to the excess Discretionary Contribution, Matching Contribution or
Pre-Tax Contribution shall not be returned to the contributing Employer, but
losses attributable thereto shall reduce the amount of such Discretionary
Contribution, Matching Contribution or Pre-Tax Contribution to be so returned.
Furthermore, if the withdrawal of the amount attributable to the mistaken
Discretionary Contribution, Matching Contribution or Pre-Tax Contribution would
cause the balance of a Participant's Account to be reduced to an amount which is
less than the balance which would have been in said Account had the mistaken
Discretionary Contribution, amount not been contributed, then the amount to be
returned to the Employer under this SECTION will be reduced so as to avoid any
such reduction.
ARTICLE 19 - TOP HEAVY PLAN RULES
19.01 Definitions. As used in this ARTICLE 19:
19.01(1) "Defined Benefit Plan" shall have the meaning set forth in SUBSECTION
5.09(2).
19.01(2) "Defined Contribution Plan" shall have the meaning set forth in
SUBSECTION 5.09(4).
19.01(3) "Determination Date" means with respect to any Plan Year, the last day
of the preceding Plan Year, except that in the case of the first Plan Year of
any plan, the last day of such first Plan Year.
19.01(4) "Key Employee" means any person employed or formerly employed by any
Affiliated Company (and the beneficiaries of any such person) who is, at any
time during the Plan Year containing the Determination Date, or who was, during
any one or more of the four (4) preceding Plan Years, any one or more of the
following:
(a) An officer of an Affiliated Company having Limitation Year Compensation for
the applicable Plan Year greater than fifty percent (50%) of the maximum dollar
limitation under Code Section 415(b)(1)(A) (as in effect for the calendar year
in which the Determination Date for such Plan Year falls). For purposes of this
SUBSECTION, not more than fifty (50) employees shall be treated as officers.
(b) A person employed by an Affiliated Company having Limitation Year
Compensation for the applicable Plan Year greater than the maximum dollar
limitation under Code Section 415(c)(1)(A) as in effect for the calendar year in
which the Determination Date for such Plan Year falls, and owning (or considered
as owning within the meaning of Code Section 318) both more than one-half of one
percent (1/2 of 1%) interest and one of the ten (10) largest interests in an
Affiliated Company. For purposes of this SUBSECTION: (i) a person who has some
ownership interest is considered to be one of the top ten (10) owners unless at
least ten (10) other persons own a larger interest than that person and (ii) if
two (2) or more persons have the same ownership interest in an Affiliated
Company, the person having greater annual Limitation Year Compensation from all
Employers and Affiliated Companies shall be treated as having the larger
interest.
(c) Any person owning (or considered as owning within the meaning of Code
Section 318) more than five percent (5%) of the outstanding stock of an
Affiliated Company or stock possessing more than five percent (5%) of the total
combined voting power of such stock or more than five percent (5%) of the
capital or profits interest of an Affiliated Company which is not a corporation.
(d) A person who would be described in SUBSECTION (C) if "one percent (1%)"
were substituted for "five percent (5%)" each place it appears in said
SUBSECTION, and whose aggregate annual Limitation Year Compensation from all
Employers and Affiliated Companies is more than One Hundred Sixty Thousand
Dollars ($160,000).
(e) Notwithstanding any other provision in this Plan to the contrary, for
purposes of determining ownership under SUBSECTIONS 19.01(4)(C) and (D), the
rules of Code Sections 414(b), (c), and (m) shall not apply in defining who is
an Employer.
The determination of who is a Key Employee hereunder shall be made in accordance
with the provisions of Code Section 416(i)(1) and the regulations thereunder.
19.01(5)"Key Employee Participant" means a Participant in this Plan who is a Key
Employee.
19.01(6) "Limitation Year Compensation" shall have the meaning set forth in
SUBSECTION 5.09(7), except that if the Limitation Year and the Plan Year under
the applicable plan are not the same, then for purposes of this ARTICLE 19,
"Plan Year" shall be substituted for "Limitation Year" every place it occurs in
SUBSECTION 5.09(7).
19.01(7) "Non-Key Employee" means any person employed or formerly employed by
any Affiliated Company, including the Beneficiaries of any such person, who is
not a Key Employee.
19.01(8) "Permissive Aggregation Group" means the Required Aggregation Group,
plus any other plan or plans of any Affiliated Company selected by the Company,
provided that such selected plans, when considered as a group with the Required
Aggregation Group, would continue to satisfy the requirements of Code Sections
401(a)(4) and 410.
19.01(9) "Required Aggregation Group" means the group of plans consisting of:
(i) all tax qualified plans maintained by the Employers or Affiliated Companies
in which at least one Key Employee participates in the Plan Year containing the
Determination Date, or any of the four (4) preceding Plan Years, and (ii) any
other tax qualified plan maintained by the Employers or Affiliated Companies
which enables a plan described in clause (i) to meet the requirements of Code
Section 401(a)(4) or 410.
19.01(10) "Valuation Date" means: (i) in the case of a Defined Contribution
Plan, the last day of the Plan Year for the appropriate plan and (ii) in the
case of a Defined Benefit Plan, the date used for computing plan costs for
minimum funding, regardless of whether a valuation is performed that year.
19.01(11) All of the definitions set forth in ARTICLE 2 and not set forth
herein shall have the same meaning in this ARTICLE.
19.02 Determination of Top Heaviness.
19.02(1) This Plan shall be a "Top Heavy Plan" with respect to any Plan Year
if, as of the Determination Date for said Plan Year, any of the following
conditions exists:
(a) The Top Heavy Ratio for this Plan exceeds sixty percent (60%), and this
Plan is part of a Required Aggregation Group or a Permissive Aggregation Group.
(b) This Plan is part of a Required Aggregation Group, but not part of a
Permissive Aggregation Group, and the Top Heavy Ratio for the Required
Aggregation Group exceeds sixty percent (60%).
(c) This Plan is part of a Required Aggregation Group and part of a Permissive
Aggregation Group, and the Top Heavy Ratio for the Permissive Aggregation Group
exceeds sixty percent (60%).
19.02(2) This Plan shall be a "Super Top Heavy Plan" if it would be a Top Heavy
Plan under the provisions of SUBSECTION 19.02(1) if "ninety percent (90%)" were
substituted for "sixty percent (60%)" everywhere sixty percent (60%) appears in
said SUBSECTION 19.02(1).
19.02(3) The "Top Heavy Ratio" referred to in SUBSECTION 19.02(1) shall be
determined as follows:
(a) If the Employers or Affiliated Companies maintain or have maintained one or
more Defined Contribution Plans but have never maintained a Defined Benefit Plan
which has covered or could cover a Participant in this Plan, the Top Heavy Ratio
is a fraction, the numerator of which is the sum of the account balances under
the Defined Contribution Plans for all Key Employees as of the Determination
Date (including any part of any such account balance distributed in the five (5)
year period ending on the Determination Date), and the denominator of which is
the sum of all account balances under the Defined Contribution Plans for all
participants as of the Determination Date (including any part of any such
account balance distributed in the five (5) year period ending on the
Determination Date). Both the numerator and the denominator of the Top Heavy
Ratio shall be adjusted to reflect any contribution which is due but unpaid as
of the appropriate Determination Date. In determining the account balances
which have been distributed in the five (5) year period ending on the
Determination Date, distributions under a terminated plan shall be included,
provided such terminated plan, if it had not been terminated, would have been
included in a Required Aggregation Group.
(b) If the Employers or Affiliated Companies maintain one or more Defined
Contribution Plans and maintain or have maintained one or more Defined Benefit
Plans which have covered or could cover a Participant in this Plan, the Top
Heavy Ratio is a fraction, the numerator of which is the sum of account balances
under the Defined Contribution Plans for all Key Employees and the present value
of accrued benefits under the Defined Benefit Plans for all Key Employees, both
calculated as of the Determination Date, and the denominator of which is the sum
of the account balances under the Defined Contribution Plans for all
participants and the present value of accrued benefits under the Defined Benefit
Plans for all participants, both calculated as of the Determination Date. Both
the numerator and denominator of the Top Heavy Ratio are adjusted for any
distribution of an account balance or an accrued benefit made in the five (5)
year period ending on the appropriate Determination Date and any contribution
due but unpaid as of the appropriate Determination Date. In determining the
account balances or accrued benefits which have been distributed in the five (5)
year period ending on the Determination Date, distributions under a terminated
plan shall be included provided such terminated plan, if it had not been
terminated, would have been included in a Required Aggregation Group.
(c) For purposes of SUBSECTIONS 19.02(3)(A) and (B), the value of account
balances and the present value of accrued benefits shall be determined as of the
most recent Valuation Date that falls within or ends with the twelve (12) month
period ending on the Determination Date. The present value of accrued benefits
under Defined Benefit Plans shall be determined using the single accrual method
used for all plans of the Employers and Affiliated Companies, or if no such
single method exists, using a method which results in benefits accruing not more
rapidly than the slowest accrual rate permitted under Code Section 411(b)(1)(C)
as of said Valuation Date as if the person voluntarily terminated employment as
of such Valuation Date. For Plan Years beginning prior to January 1, 1987, the
present value of accrued benefits shall be determined under the provisions of
the applicable Defined Benefit Plan without regard to the preceding sentence.
If any Participant was a Key Employee as set forth in SUBSECTION 19.01(4) for
any prior Plan Year, but such Participant ceases to be a Key Employee for any
Plan Year, such Participant's account balances and accrued benefits shall not be
taken into account for purposes of determining whether or not this Plan is a Top
Heavy Plan or a Super Top Heavy Plan as of the Determination Date of said Plan
Year. Accounts and accrued benefits shall be calculated to include all amounts
attributable to both contributions by an Affiliated Company and contributions by
persons employed by an Affiliated Company, but shall exclude amounts
attributable to voluntary deductible contributions by said persons. The
calculation of the Top Heavy Ratios, and the extent to which distributions,
rollovers and transfers are taken into account shall be made in accordance with
Code Section 416 and the regulations thereunder. When aggregating plans for
purposes of an Aggregation Group, the value of account balances and accrued
benefits will be calculated with reference to the Determination Dates that fall
within the same calendar year. Notwithstanding the provisions of SUBSECTIONS
19.02(3)(A) and (B), in determining the fractions referred to therein, there
shall not be taken into account the accrued benefits or account balances of any
person who has not performed services for any Affiliated Company maintaining any
Defined Contribution Plan or Defined Benefit Plan referred to in such
SUBSECTIONS at any time during the five (5) year period ending on the
Determination Date.
19.03 Minimum Requirements. Notwithstanding any other provision of this Plan
to the contrary, if the Plan is a Top Heavy Plan for any Plan Year, then the
following provisions shall apply:
19.03(1) Vesting. Any Participant who is credited with an Hour of Service in
the first Plan Year in which the Plan is a Top Heavy Plan, or in any subsequent
Plan Year after such first Plan Year (whether or not the Plan is a Top Heavy
Plan in such subsequent Plan Year) shall have his percentage of vested benefits
owing upon a Termination of Employment determined pursuant to the following
schedule, in lieu of the schedule set forth in SECTION 10.01:
<TABLE>
<CAPTION>
<S> <C>
Vesting Years of Service . Percentage
Less than 2 years . . . . . . 0%
2 years but less than 3 years 20%
3 years but less than 4 years 40%
4 years but less than 5 years 60%
5 years but less than 6 years 80%
6 years or more . . . . . . . 100%
</TABLE>
Notwithstanding the foregoing, for Participants hired before January 1, 1989,
their vested percentage shall be one percent (1%) rather than zero percent (0%)
prior to being credited with two (2) Vesting Years of Service.
19.03(2) Required Minimum Allocation of Contributions. Except as otherwise
provided in this ARTICLE 19 and notwithstanding any other provision of this Plan
to the contrary, for any Plan Year in which the Plan is a Top Heavy Plan, the
Matching Contributions allocated on behalf of each Participant who is a Non-Key
Employee shall not be less than the lesser of: (i) three percent (3%) of such
Participant's Limitation Year Compensation or (ii) the largest percentage of
Matching Contributions as a percentage of the Key Employee Participant's
Compensation, allocated on behalf of any Key Employee Participant for that Plan
Year; provided, however, that the provisions of clause (ii) shall not apply to
any plan included in a Required Aggregation Group if such plan enables a Defined
Benefit Plan included in such Required Aggregation Group to meet the
requirements of Code Section 401(a)(4) or 410. The minimum allocation provided
for herein shall be determined without taking into account contributions or
benefits under Code Chapter 21 (relating to the Federal Insurance Contributions
Act), Title II of the Social Security Act or any other federal or state law, and
shall be made without regard to any contrary provisions of the Plan regarding
the allocation of Matching Contributions to affected Participants which might
otherwise result in such Participant being entitled to no allocation or a lesser
allocation due to the Participant's failure to complete one thousand (1,000)
Hours of Service (or the equivalent) during the Plan Year, the Participant's
failure to make mandatory employee contributions or the Participant's failure to
earn a stated amount of Compensation; provided, however, that such minimum
allocation shall not be required to be made on behalf of any Participant who is
not actively employed by an Employer on the last day of the applicable Plan
Year. For purposes of this SECTION 19.03, all Defined Contribution Plans
required to be included in an Aggregation Group shall be treated as one plan.
Pre-Tax Contributions on behalf of Key Employee Participants are taken into
account in determining the minimum contribution under this SUBSECTION. On the
other hand, Pre-Tax Contributions on behalf of Non-Key Employees may not be
treated as a Matching Contribution for purposes of the minimum contribution or
benefit requirement of Code Section 416.
19.04 Minimum Benefits for Employers or Affiliated Companies Maintaining
Defined Benefit Plans. If any Participant who is a Non-Key Employee is also a
participant under a Defined Benefit Plan maintained by an Affiliated Company
which is also a Top Heavy Plan, then SUBSECTION 19.03(2) shall not apply, and
such Participant shall receive an allocation of Matching Contributions in an
amount no less than five percent (5%) of such Participant's Compensation under
the Plan for the applicable Plan Year. Such allocation shall be made without
regard to the amount allocated under the Plan on behalf of any Key Employee
Participant for such Plan Year. For purposes of this SECTION 19.04, all Defined
Contribution Plans required to be included in a Required Aggregation Group shall
be treated as one plan.
19.05 Super Top Heavy Plans. If in any Plan Year in which the Plan is a Top
Heavy Plan: (i) it is also a Super Top Heavy Plan or (ii) it does not provide
minimum benefits under SUBSECTION 19.03(2) after substituting "four percent
(4%)" for "three percent (3%)" contained in clause (i) of the first sentence of
said SUBSECTION or (iii) if SECTION 19.04 applies, it does not provide minimum
benefits under SECTION 19.04 after substituting "seven and one-half percent (7
%)" for "five percent (5%)" contained in the first sentence of said SECTION,
then, in any such event, for purposes of the definitions set forth in
SUBSECTIONS 5.09(3) and 5.09(5), the dollar limitations contained in Code
Sections 415(e)(2)(B) and 415(e)(3)(B) shall be multiplied by 1.0 rather than
1.25. Notwithstanding the foregoing provisions of this SECTION 19.05, if the
application of said provisions would cause any individual to exceed the combined
limits of SECTION 5.06, if applicable, then the requirements of this SECTION
19.05 shall be suspended as to such individual until such time as he no longer
exceeds the limitations of SECTION 5.06 as modified by this SECTION 19.05, and
during the period of such suspension, said individual shall receive no
allocation of Matching Contributions and shall not be entitled to make Pre-Tax
Contributions under this Plan or any other Defined Contribution Plan maintained
by an Affiliated Company, and there shall be no accruals of benefits for such
individual under any Defined Benefit Plan maintained by an Affiliated Company.
ARTICLE 20 - MISCELLANEOUS
20.01 Effect of Bankruptcy and Other Contingencies Affecting an Employer.
Neither the bankruptcy, receivership, insolvency, liquidation, dissolution,
merger, consolidation or reorganization of an Employer, or any other eventuality
affecting the Employer, shall terminate the Trust or render ineffectual this
Plan or discharge any Employer from any liabilities to the Trust for which it
shall already have become obligated, but the same shall continue in full force
and effect as though such eventuality had not occurred; however, the Plan
Administrator shall in such event be authorized hereby to make any and all rules
and regulations not inconsistent with the purposes of the Plan as shall be
necessary to deal with such change in the situation of the Plan and Trust.
20.02 Benefits Payable by Trust. All benefits payable under the Plan shall be
paid or provided for solely from the Trust Fund. No Employer assumes any
liability or responsibility therefor.
20.03 Withholding. The Plan Administrator shall determine whether or not
federal income tax withholding is required with respect to any distribution or
withdrawal hereunder, shall direct the Trustee to withhold any amounts required
by law to be withheld, and shall furnish the Trustee with any information
required by Treasury Regulations regarding withholding. Notwithstanding any
other provision of this Plan to the contrary, all rights and benefits of a
Participant, Beneficiary, or Alternate Payee are subject to withholding of any
tax required by law to be withheld.
20.04 Provisions Hereof for Sole Benefit of Parties Hereto and Participants.
All of the covenants, stipulations, and agreements contained in this Plan are
and shall be for the sole and exclusive benefit of and binding upon the parties
hereto, their successors and assigns, and the Participants and their
Beneficiaries.
20.5 Article and Section Headings. The titles or headings of the respective
Articles and Sections in this Plan are inserted merely for convenience and shall
be given no legal effect.
20.06 Formal Action by Employer. Any formal action herein permitted or
required to be taken by an Employer shall be:
20.06(1) if and when a partnership, by written instrument executed by one or
more of its general partners or by written instrument executed by a person or
group of persons who has been authorized by written instrument executed by one
or more general partners as having authority to take such action;
20.06(2) if and when a proprietorship, by written instrument executed by the
proprietor or by written instrument executed by a person or group of persons who
has been authorized by written instrument executed by the proprietor as having
authority to take such action;
20.06(3) if and when a corporation, by resolution of its board of directors or
other governing board, or by written instrument executed by a person or group of
persons who has been authorized by resolution of its board of directors or other
governing board as having authority to take such action; or
20.06(4) if and when a joint venture, by written instrument executed by one of
the joint venturers or by written instrument executed by a person or group of
persons who has been authorized by written instrument executed by one of the
joint venturers as having authority to take such action.
20.07 APPLICABLE LAW. THIS PLAN SHALL BE GOVERNED BY THE LAWS OF THE STATE OF
TEXAS TO THE EXTENT NOT PREEMPTED BY APPLICABLE FEDERAL LAW.
IN WITNESS WHEREOF, CLUBCORP INTERNATIONAL, INC. has caused this Plan to be
executed by its duly authorized representative this 30th day of December, 1998.
CLUBCORP INTERNATIONAL, INC.
By: /s/Albert E. Chew, III
Title: Executive Vice President
EXHIBIT 10.3
EXECUTIVE PROTECTION POLICY
DECLARATIONS
EXECUTIVE LIABILITY AND INDEMNIFICATION POLICY
Policy Number 8091-25-91JDAW
Texas Pacific Indemnity Company, a stock insurance company, incorporated under
the laws of Texas, herein called the Company.
Item 1. Parent Organization:
CLUB CORPORATION INTERNATIONAL
PO BOX 819012
DALLAS, TEXAS
75381
Item 2. Policy Period:
From 12:01 A.M. on OCTOBER 19, 1998
To 12:01 A.M., OCTOBER 19, 1999
Local time at the address shown in Item 1.
Item 3. Limits of Liability:
(A) Each Loss $5,000,000.
(B) Each Policy Period $5,000,000.
Note that the limits of liability and any deductible or retention are reduced or
exhausted by Defense Costs.
Item 4. Coinsurance Percent: NONE
Item 5. Deductible Amount: Insuring Clause 2 $ 250,000.
Item 6. Insured Organization: CLUB CORPORATION INTERNATIONAL AND ITS
SUBSIDIARIES
Item 7. Insured Persons: Any person who has been, now is, or shall, become a
duly elected director or a duly elected or appointed officer of the Insured
Organization.
Item 8. Extended Reporting Period:
(A) Additional Premium: 50% of the Annual Premium
(B) Additional Period: One Year
Policyholder Information Notice
<TABLE>
<CAPTION>
IMPORTANT NOTICE AVISO IMPORTANTE
<S> <C>
To obtain information or make a complaint: Para obtener informacion o para someter una queja:
You may call Chubb's toll-free telephone number for Usted puede Ilamar al numero de telefono gratis. de
information or to make a complaint at Chubb's para informacion o para someter una queja al
1-800-36-CHUBB 1-800-36-CHUBB
You may contact the Texas Department of Insurance Puede comunicarse con el Departamento de Seguros
to obtain the information on companies, coverages, de Texas para obtener informacion acerca de compaflias
rights or complaints at coberturas, derechos o quejas al
1-800-252-3439 1-800-252-3439
You may write the Texas Department of Insurance Puede escribir al Departamento de Seguros de Texas
P.O. Box 149104 P.O. Box 149104
Austin, TX 78714-9104 Austin, TX 78714-9104
FAX # (512) 475-1771 FAX # (512) 475-1771
PREMIUM OR CLAIM DISPUTES: DISPUTAS SOBRE PRIMAS 0 RECLAMOS:
Should you have a dispute concerning your premium Si tiene una disputa concerniente a su prima o a un
or about a claim you should contact the agent first. reclamo, debe comunicarse con el agente primero. Si
If the dispute is not resolved, you may contact the no se resueve la disputa, puede entonces comunicarse-
Texas Department of Insurance. con el departamento (TDI).
ATTACH THIS NOTICE TO YOUR POLICY. UNA ESTE AVISO A SU POLIZA:
This notice is for information only and does not Este aviso es solo para proposito de informacion y no
become a part or condition of the attached document. se convierte en parte o condicion del documento adjunto.
</TABLE>
EXECUTIVE PROTECTION POLICY
EXECUTIVE LIABILITY AND INDEMNIFICATION POLICY
In consideration of payment of the premium and subject to the Declarations, and
the limitations, conditions, provisions and other terms of this policy, the
Company agrees as follows:
INSURING CLAUSES
Insuring Clause 1
- -------------------
1. The Company shall pay on behalf of each of the Insured Persons all Loss for
which the Insured Person is not indemnified by the Insured Organization and
which the Insured Person becomes legally obligated to pay on account of any
Claim first made against him, individually or otherwise, during the Policy
Period or, if exercised, during the Extended Reporting Period, for a Wrongful
Act committed, attempted, or allegedly committed or attempted by such Insured
Person before or during the Policy Period.
Insuring Clause 2
- -------------------
2. The Company shall pay on behalf of the Insured Organization all Loss for
which the Insured ORGANIZATION grants indemnification to each Insured Person, as
permitted or required by law, which the Insured Person has become legally
obligated to pay on account of any Claim first made against him, individually or
otherwise, during the Policy Period or, if exercised, during the Extended
Reporting Period, for a Wrongful Act committed, attempted, or allegedly
committed or attempted by such Insured Person before or during the Policy
Period.
Estates and Legal Representatives
- ------------------------------------
3. Subject to the limitations, conditions, provisions and other terms of this
policy, coverage shall extend to Claims for the Wrongful Acts of Insured Persons
made against the estates, heirs, legal representatives or assigns of Insured
Persons who are deceased or against the legal representatives or assigns of
Insured Persons who are incompetent, insolvent or bankrupt.
Extended Reporting Period
- ---------------------------
4. If the Company terminates or refuses to renew this policy other than for
nonpayment of premium, the Parent Organization and the Insured Persons. shall
have the right, upon payment of the additional premium set forth in Item 8(A) of
the Declarations for this policy, to an extension of the coverage granted by
this policy for the period set forth in Item 8(B) of the Declarations for this
policy (Extended Reporting Period) following the effective date of termination
or non-renewal, but only for any WRONGFUL ACT committed, attempted, or allegedly
committed or attempted, prior to the effective date of termination or
non-renewal. This right of extension shall lapse unless written notice of such
election, together with payment of the additional premium due, is received by
the Company within 30 days following the effective date of termination or
non-renewal. Any Claim made during the Extended Reporting Period shall be deemed
to have been made during the immediately preceding POLICY PERIOD. If the PARENT
ORGANIZATION terminates or declines to accept renewal, the Company may, if
requested, at its sole option, grant an Extended Reporting Period. The offer of
renewal terms and conditions or premiums different from those in effect prior to
renewal shall not constitute refusal to renew.
EXCLUSIONS
Exclusions Applicable to Insuring
- ------------------------------------
5. The Company shall not be liable for Loss on account of any Claim made
against any Insured Person:
Clauses 1 and 2
(a) based upon, arising from, or in consequence of any circumstance if written
notice of such circumstance has been given under any policy of which this policy
is a renewal or replacement and if such prior policy affords coverage (or would
afford such coverage except for the exhaustion of its limits of liability) for
such Loss, in whole or in part, as a result of such notice;
(b) based upon, arising from, or in consequence of any demand, suit or other
proceeding pending, or order, decree or judgement entered against any Insured on
or prior to the Pending or Prior Date set forth in Item 9 of the Declarations
for this policy, or the same or any substantially similar fact, circumstance or
situation underlying or alleged therein;
(c) brought or maintained by or on behalf of any Insured except:
(i) a Claim that is a derivative action brought or maintained on behalf of
an INSURED ORGANIZATION by one or more persons who are not Insured Persons and
who bring and maintain the Claim without the solicitation, assistance or
participation of any Insured,
(ii) a Claim brought or maintained by an Insured Person for the actual or
alleged wrongful termination of the Insured Person, or
(iii) a Claim brought or maintained by an Insured Person for contribution or
indemnity, if the Claim directly results from another Claim covered under this
policy;
(d) for an actual or alleged violation of the responsibilities, obligations or
duties imposed by the Employee Retirement Income Security Act of 1974 and
amendments thereto or similar provisions of any federal, state or local
statutory law or common law upon fiduciaries of any pension, profit sharing,
health and welfare or other employee benefit plan or trust established or
maintained for the purpose of providing benefits to employees of an Insured
Organization;
(e) for bodily injury, mental or emotional distress, sickness, disease or death
of any person or damage to or destruction of any tangible property including
loss of use thereof; or
(f) based upon, arising from, or in consequence of (i) the actual, alleged or
threatened discharge, release, escape or disposal of POLLUTANTS into or on real
or personal property, water or the atmosphere; or (ii) any direction or request
that the INSURED test for, monitor, clean up, remove, contain, treat, detoxify
or neutralize POLLUTANTS, or any voluntary decision to do so; including but not
limited to any Claim for financial loss to the INSURED ORGANIZATION, its
security holders or its creditors based upon, arising from, or in consequence of
the matters described in (i) or (ii) of this exclusion.
Exclusions Applicable to Insuring
- ------------------------------------
6. The Company shall not be liable under Insuring Clause 1 for Loss on account
of any Claim made against any Insured Person:
Clause 1 Only
(a) for an accounting of profits made from the purchase or sale by such Insured
Person of securities of the Insured Organization within the meaning of Section
16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar
provisions of any federal, state or local statutory law or common law;
(b) based upon, arising from, or in consequence of any deliberately fraudulent
act or omission or any willful violation of any statute or regulation by such
Insured Person, if a judgement or other final adjudication adverse to the
Insured Person establishes such a deliberately fraudulent act or omission or
willful violation; or
c) based upon, arising from, or in consequence of such Insured Person having
gained in fact any personal profit, remuneration or advantage to which such
Insured Person was not legally entitled.
Severability of Exclusions
- ----------------------------
7. With respect to the Exclusions in sections 5 and 6 of this policy, no fact
pertaining to or knowledge possessed by any Insured Person shall be imputed to
any other Insured Person to determine if coverage is available.
Limit of Liability, Deductible and Coinsurance
- ---------------------------------------------------
8. For the purposes of this policy, all Loss arising out of the same Wrongful
Act and all Interrelated Wrongful Acts of any Insured Person shall be deemed one
Loss, and such Loss shall be deemed to have originated in the earliest POLICY
PERIOD in which a Claim is first made against any INSURED PERSON alleging any
such Wrongful Act or Interrelated Wrongful Acts. The Company's maximum
liability for each Loss, whether covered under Insuring Clause 1 or Insuring
Clause 2 or both, shall be the Limit of Liability for each Loss set forth in
Item 3(A) of the Declarations for this policy. The Company's maximum aggregate
liability for all Loss on account of all CLAIMS first made during the same
Policy Period, whether covered under Insuring Clause 1 or Insuring Clause 2 or
both, shall be the Limit of Liability for each Policy Period set forth in Item
3(B) of the Declarations for this policy. The Company's liability under
Insuring Clause 2 shall apply only to that part of each LOSS which is excess of
the Deductible Amount set forth in Item 5 of the Declarations for this policy
and such Deductible Amount shall be borne by the Insureds uninsured and at their
own risk. If a single LOSS is covered in part under Insuring Clause 1 and in
part under Insuring Clause 2, the Deductible Amount applicable to the LOSS shall
be the Insuring Clause 2 deductible set forth in Item 5 of the Declarations for
this policy.
With respect to all Loss (excess of the applicable Deductible Amount)
originating in any one Policy Period, the Insureds shall bear uninsured and at
their own risk that percent of all such Loss specified as the Coinsurance
Percent in Item 4 of the Declarations for this policy, and the Company's
liability hereunder shall apply only to the remaining percent of all such Loss.
Any Loss covered in whole or in part by this policy and a Company Employment
Practices Liability policy (if purchased) shall be subject to the limits of
liability, deductible and coinsurance percent applicable to such other policy;
provided, however, if any limit of liability applicable to such other policy is
exhausted with respect to such Loss, any remaining portion of such Loss
otherwise covered by this policy shall be subject to the Limits of Liability and
Coinsurance Percent applicable to this policy, as reduced by the amount of such
Loss otherwise covered by this policy which is paid by the Company pursuant to
such other policy. For purposes of this section 8 only, the Extended Reporting
Period, if exercised, shall be part of and not in addition to the immediately
preceding Policy Period.
Presumptive Indemnification
- ----------------------------
9. If the Insured Organization:
(a) fails or refuses, other than for reason of FINANCIAL IMPAIRMENT, to
indemnify the Insured Person for Loss; and
(b) is permitted or required to indemnify the Insured Person for such Loss
pursuant to:
(i) the by-laws or certificate of incorporation of the Insured Organization in
effect at the inception of this policy, or
(ii) any subsequently amended or superseding by-laws or certificate of
incorporation of the Insured ORGANIZATION provided, however, that such amended
or superseding by-laws or certificate of incorporation expand or broaden, and do
not restrict or in any way limit, the INSURED ORGANIZATION'S ability to
indemnify the INSURED PERSON;
then, notwithstanding any other conditions, provisions or terms of this policy
to the contrary, any payment by the Company of such LOSS shall be subject to (i)
the Insuring Clause 2 Deductible Amount set forth in Item 5 of the Declarations
for this policy, and (ii) all of the Exclusions set forth in sections 5 and 6 of
this policy.
For purposes of this section 9, the shareholder and board of director
resolutions of the Insured Organization shall be deemed to provide
indemnification for such Loss to the fullest extent permitted by such by-laws or
certificate of incorporation.
Reporting and Notice
- ----------------------
10. The Insureds shall, as a condition precedent to exercising their rights
under this policy, give to the Company written notice as soon as practicable of
any Claim made against any of them for a WRONGFUL ACT. If during the Policy
Period or Extended Reporting Period (if exercised) an INSURED becomes aware of
circumstances which could give rise to a Claim and gives written notice of such
circumstance(s) to the Company, then any Claims subsequently arising from such
circumstances shall be considered to have been made during the Policy Period or
the Extended Reporting Period in which the circumstances were first reported to
the Company. The Insureds shall, as a condition precedent to exercising their
rights under this policy, give to the Company such information and cooperation
as it may reasonably require, including but not limited to a description of the
Claim or circumstances, the nature of the alleged Wrongful Act, the nature of
the alleged or potential damage, the names of actual or potential claimants, and
the manner in which the Insured first became aware of the Claim or
circumstances.
Defense and Settlement
- ------------------------
11. Subject to this section, it shall be the duty of the Insured Persons and
not the duty of the Company to defend Claims made against the Insured Persons.
The Insureds agree not to settle any Claim, incur any DEFENSE COSTS or otherwise
assume any contractual obligation or admit any liability with respect to any
Claim without the Company's written consent, which shall not be unreasonably
withheld. The Company shall not be liable for any settlement, Defense Costs,
assumed obligation or admission to which it has not consented.
The Company shall have the right and shall be given the opportunity to
effectively associate with the Insureds in the investigation, defense and
settlement, including but not limited to the negotiation of a settlement, of any
Claim that appears reasonably likely to be covered in whole or in part by this
policy.
The Insureds agree to provide the Company with all information, assistance and.
cooperation which the Company reasonably requests and agree that in the event of
a Claim the Insureds will do nothing that may prejudice the Company's position
or its potential or actual rights of recovery.
Defense Costs are part of and not in addition to the Limits of Liability set
forth in Item 3 of the Declarations for this policy, and the payment by the
Company of Defense Costs reduces such Limits of Liability.
Allocation
- ----------
12. If both Loss covered by this policy and loss not covered by this policy are
incurred, either because a Claim against the INSURED PERSONS includes both
covered and uncovered matters or because a Claim is made against both an Insured
Person and others, including the INSURED ORGANIZATION, THE INSUREDS and the
Company shall use their best efforts to agree upon a fair and proper allocation
of such amount between covered LOSS and uncovered loss.
If the Insureds and the Company agree on an allocation of DEFENSE COSTS, the
Company shall advance on a current basis Defense Costs allocated to the covered
Loss. If the Insureds and the Company cannot agree on an allocation:
(a) no presumption as to allocation shall exist in any arbitration, suit or
other proceeding;
(b) the Company shall advance on a current basis Defense Costs which the Company
believes to be covered under this policy until a different allocation is
negotiated, arbitrated or judicially determined; and
(c) the Company, if requested by the Insureds, shall submit the dispute to
binding arbitration. The rules of the American Arbitration Association shall
apply except with respect to the selection of the arbitration panel, which shall
consist of one arbitrator selected by the Insureds, one arbitrator selected by
the Company, and a third independent arbitrator selected by the first two
arbitrators. Any negotiated, arbitrated or judicially determined allocation of
Defense Costs on account of a Claim shall be applied retroactively to all
Defense Costs on account of such Claim, notwithstanding any prior advancement to
the contrary. Any allocation or advancement of Defense Costs on account of a
Claim shall not apply to or create any presumption with respect to the
allocation of other Loss on account of such Claim.
Other Insurance
- ----------------
13. If any Loss arising from any Claim made against any INSURED PERSONS is
insured under any other valid policy(ies), prior or current, then this policy
shall cover such Loss, subject to its limitations, conditions, provisions and
other terms, only to the extent that the amount of such Loss is in excess of the
amount of payment from such other insurance whether such other insurance is
stated to be primary, contributory, excess, contingent or otherwise, unless such
other insurance is written only as specific excess insurance over the Limits of
Liability in this policy.
Changes in Exposure Acquisition or Creation of Another Organization
- ---------------------------------------------------------------------------
14. If the Insured Organization (i) acquires securities or voting rights in
another organization or creates another organization, which as a result of such
acquisition or creation becomes a Subsidiary, or (ii) acquires any organization
by merger into or consolidation with an INSURED ORGANIZATION, such organization
and its Insured Persons shall be Insureds under this policy but only with
respect to Wrongful Acts committed, attempted, or allegedly committed or
attempted, after such acquisition or creation unless the Company agrees, after
presentation of a complete application and all appropriate information, to
provide coverage by endorsement for WRONGFUL ACTS committed, attempted, or
allegedly committed or attempted, by such INSURED PERSONS prior to such
acquisition or creation.
If the fair value of all cash, securities, assumed indebtedness and other
consideration paid by the INSURED ORGANIZATION for any such acquisition or
creation exceeds 10% of the total assets of the Parent Organization as reflected
in the Parent Organization's most recent audited consolidated financial
statements, the Parent Organization shall give written notice of such
acquisition or creation to the Company as soon as practicable together with such
information as the Company may require and shall pay any reasonable additional
premium required by the Company.
Acquisition of Parent Organization by Another Organization
- ----------------------------------------------------------------
15. If (i) the Parent Organization merges into or consolidates with another
organization, or (ii) another organization or person or group of organizations
and/or persons acting in concert acquires securities or voting rights which
result in ownership or voting control by the other organization(s) or person(s)
of more than 50% of the outstanding securities representing the present right to
vote for the election of directors of the Parent Organization, coverage under
this policy shall continue until termination of this policy, but only with
respect to Claims for Wrongful Acts committed, attempted, or allegedly committed
or attempted, by Insured Persons prior to such merger, consolidation or
acquisition. The Parent Organization shall give written notice of such merger,
consolidation or acquisition to the Company as soon as practicable together with
such information as the Company may require.
Cessation of Subsidiaries
- ---------------------------
16. In the event an organization ceases to be a SUBSIDIARY before or after the
Inception Date of this policy, coverage with respect to such Subsidiary and its
Insured Persons shall continue until termination of this policy but only with
respect to Claims for Wrongful Acts committed, attempted or allegedly committed
or attempted prior to the date such organization ceased to be a Subsidiary.
Representations and Severability
- ----------------------------------
17. In granting coverage to any one of the Insureds, the Company has relied
upon the declarations and statements in the written application for this policy
and upon any declarations and statements in the original written application
submitted to another insurer in respect of the prior coverage incepting as of
the Continuity Date set forth in Item 10 of the Declarations for this policy.
All such declarations and statements are the basis of such coverage and shall be
considered as incorporated in and constituting part of this policy. Such
written application(s) for coverage shall be construed as a separate application
for coverage by each of the INSURED PERSONS. With respect to the declarations
and statements contained in such written application(s) for coverage, no
statement in the application or knowledge possessed by any INSURED PERSON shall
be imputed to any other INSURED PERSONS for the purpose of determining if
coverage is available.
Territory
- ---------
18. Coverage shall extend anywhere in the world.
Notice
- ------
19. Notice to the Company under this policy shall be given in writing addressed
to:
Notice of Claim:
National Claims Department
Chubb Group of Insurance Companies
15 Mountain View Road
Warren, New Jersey 07059
All Other Notices:
Executive Protection Department
Chubb Group of Insurance Companies
15 Mountain View Road
Warren, New Jersey 07059
Such notice shall be effective on the date of receipt by the Company at such
address.
Investigation and Settlement
- ------------------------------
20. The Company may make any investigation it deems necessary and may, with the
written consent of the INSURED, make any settlement of a claim it deems
expedient. If the Insured withholds consent to such settlement, the Company's
liability for all loss on account of such claim shall not exceed the amount for
which the Company could have settled such claim plus costs, charges and expenses
accrued as of the date such settlement was proposed in writing by the Company to
the Insured.
Valuation and Foreign Currency
- ---------------------------------
21. All premiums, limits, retentions, loss and other amounts under this policy
are expressed and payable in the currency of the United States of America. If
judgement is rendered, settlement is denominated or another element of loss
under this policy is stated in a currency other than United States of America
dollars, payment under this policy shall be made in United States dollars at the
rate of exchange published in the Wall Street Journal on the date the final
judgement is reached, the amount of the settlement is agreed upon or the other
element of loss is due, respectively.
Subrogation
- -----------
22. In the event of any payment under this policy, the Company shall be
subrogated to the extent of such payment to all the INSURED'S RIGHTS of
recovery, and the INSURED shall execute all papers required and shall do
everything necessary to secure and preserve such rights, including the execution
of such documents necessary to enable the Company effectively to bring suit in
the name of the Insured.
Action Against the Company
- -----------------------------
23. No action shall lie against the Company unless, as a condition precedent
thereto, there shall have been full compliance with all the terms of this
policy. No person or organization shall have any right under this policy to join
the Company as a party to any action against the INSURED TO determine the
INSURED'S liability nor shall the Company be impleaded BY THE INSURED or his
legal representatives. Bankruptcy or insolvency of an INSURED or of the estate
of an INSURED shall not relieve the Company of its obligations nor deprive the
Company of its rights under this policy.
Authorization Clause
- ---------------------
24. By acceptance of this policy, the Parent Organization agrees to act on
behalf of all Insureds with respect to the giving and receiving of notice of
claim or termination, the payment of premiums and the receiving of any return
premiums that may become due under this policy, the negotiation, agreement to
and acceptance of endorsements, and the giving or receiving of any notice
provided for in this policy (except the giving of notice to apply for the
Extended Reporting Period), and the Insureds agree that the PARENT ORGANIZATION
shall act on their behalf.
Alteration and Assignment
- ---------------------------
25.No change in, modification of, or assignment of interest under this policy
shall be effective except when made by a written endorsement to this policy
which is signed by an authorized representative of the Company.
Termination of Policy
- ---------------------
26. This policy shall terminate at the earliest of the following times:
(A) sixty days after the receipt by the Parent Organization of a written notice
of termination from the Company,
(B) upon the receipt by the Company of written notice of termination from the
Parent Organization,
(C) upon expiration of the Policy Period as set forth in Item 2 of the
Declarations of this policy, or
(D) at such other time as may be agreed upon by the Company and the Parent
Organization.
The Company shall refund the unearned premium computed at customary short rates
if the policy is terminated by the Parent Organization. Under any other
circumstances the refund shall be computed pro rata.
Termination of Prior Policies
- --------------------------------
27. Any policies issued by the Company or its affiliates and specified in Item
11 of the Declarations of this policy shall terminate, if not already
terminated, as of the inception date of this policy.
Definitions
- -----------
28. When used in this policy:
Claim means: (i) a written demand for monetary damages, (ii) a civil proceeding
commenced by the service of a complaint or similar pleading, (iii) a criminal
proceeding commenced by a return of an indictment, or (iv) a formal
administrative or regulatory proceeding commenced by the filing of a notice of
charges, formal investigative order or similar document, against any INSURED
PERSON FOR A WRONGFUL ACT, including any appeal therefrom.
Defense Costs means that part of Loss consisting of reasonable costs, charges,
fees (including but not limited to attorneys' fees and experts' fees) and
expenses (other than regular or overtime wages, salaries or fees of the
directors, officers or employees of the Insured Organization) incurred in
defending or investigating Claims and the premium for appeal, attachment or
similar bonds.
Financial Impairment means the status of the Insured Organization resulting from
(i) the appointment by any state or federal official, agency or court of any
receiver, conservator, liquidator, trustee, rehabilitator or similar official to
take control of, supervise, manage or liquidate the Insured Organization, or
(ii) the Insured Organization becoming a debtor in possession.
Insured, either in the singular or plural, means the Insured Organization and
any INSURED PERSON.
Insured Capacity means the position or capacity designated in Item 7 of the
Declarations for this policy held by any Insured Person but shall not include
any position or capacity in any organization other than the Insured
Organization, even if the Insured Organization directed or requested the Insured
Person to serve in such other position or capacity.
Insured Organization means, collectively, those organizations designated in Item
6 of the Declarations for this policy. Insured Person, either in the singular or
plural, means any one or more of those persons designated in Item 7 of the
Declarations for this policy.
Interrelated Wrongful Acts means all causally connected Wrongful Acts.
Loss means the total amount which any Insured Person becomes legally obligated
to pay on account of each Claim and for all Claims in each Policy Period and the
Extended Reporting Period, if exercised, made against them for Wrongful Acts for
which coverage applies, including, but not limited to, damages, judgements,
settlements, costs and Defense Costs. Loss does not include (i) any amount not
indemnified by the Insured Organization for which the Insured Person is absolved
from payment by reason of any covenant, agreement or court order, (ii) any
amount incurred by the Insured Organization (including its board of directors or
any committee of the board of directors) in connection with the investigation or
evaluation of any Claim or potential Claim by or on behalf of the INSURED
ORGANIZATION, (iii) fines or penalties imposed by law or the multiple portion of
any multiplied damage award, or (iv) matters uninsurable under the law pursuant
to which this policy is construed.
PARENT ORGANIZATION means the organization designated in Item 1 of the
Declarations of this policy.
Policy Period means the period of time specified in Item 2 of the Declarations
of this policy, subject to prior termination in accordance with section 26
above. If this period is less than or greater than one year, then the Limits of
Liability specified in the Declarations shall be the Company's maximum limit of
liability for the entire period.
Pollutants means any substance located anywhere in the world exhibiting any
hazardous characteristics as defined by, or identified on a list of hazardous
substances issued by the United States Environmental Protection Agency or a
state, county, municipality or locality counterpart thereof. Such substances
shall include, without limitation, solids, liquids, gaseous or thermal
irritants, contaminants or smoke, vapor, soot, fumes, acids, alkalis, chemicals
or waste materials. POLLUTANTS shall also mean any other air emission, odor,
waste water, oil or oil products, infectious or medical waste, asbestos or
asbestos products and any noise.
SUBSIDIARY, either in the singular or plural, means any organization in which
more than 50% of the outstanding securities or voting rights representing the
present right to vote for election of directors is owned or controlled, directly
or indirectly, in any combination, by one or more INSURED ORGANIZATIONS.
WRONGFUL ACT means any error, misstatement, misleading statement, act, omission,
neglect, or breach of duty committed, attempted, or allegedly committed or
attempted, by any INSURED PERSON, individually or otherwise, in his INSURED
CAPACITY, or any matter claimed against him solely by reason of his serving in
such INSURED CAPACITY.
<PAGE>
Executive Protection Policy
ENDORSEMENT
Effective date of this endorsement: OCTOBER 19, 1998
Endorsement No. 1
Company: TEXAS PACIFIC INDEMNITY COMPANY
To be attached to and form part of Policy No. 8091-25-911JHOU
Issued to: CLUB CORPORATION INTERNATIONAL
TEXAS AMENDATORY ENDORSEMENT
It is agreed that section 26, Termination of Policy, is deleted in its entirety
and replaced by the following:
(A) Cancellation by the INSURED
The INSURED may cancel the policy at any time by sending the Company a written
request or by returning the policy and stating when thereafter cancellation is
to take effect.
(B) Cancellation by the Company
The Company may cancel the policy as follows:
(1) Policies in effect for 60 days or less may be cancelled by mailing or
delivering to the PARENT ORGANIZATION written notice or cancellation, stating
the reason for cancellation, at least:
(a) 20 days before the effective date of cancellation if the Company cancels
for nonpayment of premium; or
(b) 60 days before the effective date of cancellation if the Company cancels
for any other reason.
(2) If this policy is in its initial policy period and has been in effect for
60 days or less, we may cancel for any reason except, that under the provisions
of the Texas Insurance Code, we may not cancel this policy solely because the
first named insured is an elected official.
Renewal or continuation policies, or policies in their initial policy period
which have been in effect for more than 60 days:
We may cancel only for one or more of the following reasons:
(a) fraud in obtaining coverage;
(b) failure to pay premiums when due;
(c) an increase in hazard within the control of the Insured which would produce
an increase in rate;
(d) loss of reinsurance for the Company covering all or part of the risk
covered by the policy; or
(e) if the Company has been placed in suspension, conservatorship or
receivership and the cancellation is approved or directed by the supervisor,
conservator or receiver.
If the Company cancels, it shall mail or deliver to the PARENT ORGANIZATION
written notice of cancellation, stating the reason for cancellation, at least:
(a) 20 days before the effective date of cancellation if the Company cancels
for nonpayment of premium;
(b) 60 days before the effective date of cancellation if the Company cancels
for any other reason, other than nonpayment of premium, as listed above.
The Company's notice of cancellation will be mailed to the PARENT ORGANIZATION'S
last mailing address known to the Company and will indicate the date on which
coverage is terminated. If notice is mailed, proof of mailing will be sufficient
proof of notice.
The earned premium will be computed on a pro rate basis. Any unearned premium
will be returned as soon as practicable.
(C) Non-renewal
If the Company decides not to renew this policy, it will mail or deliver to the
PARENT ORGANIZATION written notice of non-renewal, stating the reason for
non-renewal, at least 60 days before the expiration date. We may not non-renew
this policy solely because the first named insured is an elected official. If
notice is mailed or delivered less than 60 days before the expiration date, this
policy will remain in effect until the 61st day after the date on which the
notice is mailed or delivered.
Earned premium for any period of coverage that extends beyond the expiration
date will be computed pro rate based on the previous year's premium.
The Company will mail or deliver its notice to the PARENT ORGANIZATION'S last
mailing address known to the Company. If the notice is mailed, proof of mailing
will be sufficient proof of notice.
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
/s/John S. Bain
- --------------------------
Authorized Representative
December 15, 1998
- -------------------
Date
<PAGE>
Executive Protection Policy
ENDORSEMENT
Effective date of this endorsement: OCTOBER 19, 1998
Endorsement No. 2
Company: TEXAS PACIFIC INDEMNITY COMPANY
To be attached to and form part of Policy No. 8091-25-911JHOU
Issued to: CLUB CORPORATION INTERNATIONAL
It is agreed that Subsection 4, Extended Reporting Period, is deleted in its
entirety and replaced with the following:
4. If the Company or the Parent Organization terminates, fails, or refuses
to renew this coverage section other than for non-payment of premium, the
Insureds shall have the right, upon payment of the additional premium set forth
in Item 7(A) of the Declarations for this coverage section, to an extension of
the coverage granted by this coverage section for the period set forth in Item
7(B) of the Declarations for this coverage section (Extended Reporting Period)
following the effective date of termination or non-renewal, but only for any
Wrongful Act committed, attempted, or allegedly committed or attempted, prior to
the effective date of termination or non-renewal. This right of extension shall
lapse unless written notice of such election together with payment of the
additional premium due is received by the Company within 30 days following the
effective date of termination or non-renewal. Any Claim made during the Extended
Reporting Period shall be deemed to have been made during the immediately
preceding Policy Period.
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
/s/John S. Bain
- --------------------------
Authorized Representative
December 15, 1998
- -------------------
Date
<PAGE>
Executive Protection Policy
ENDORSEMENT
Effective date of this endorsement: OCTOBER 19, 1998
Endorsement No. 3
Company: TEXAS PACIFIC INDEMNITY COMPANY
To be attached to and form part of Policy No. 8091-25-911JHOU
Issued to: CLUB CORPORATION INTERNATIONAL
It is agreed that subsection 5, "Exclusions: Exclusions Applicable to Insuring
Clauses 1 and 2", is amended by adding the following:
(g) based upon, arising from, or in consequence of ownership, management,
maintenance and/or control of any captive insurance company.
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
/s/John S. Bain
- --------------------------
Authorized Representative
December 15, 1998
- -------------------
Date
<PAGE>
Executive Protection Policy
ENDORSEMENT
Effective date of this endorsement: OCTOBER 19, 1998
Endorsement No. 4
Company: TEXAS PACIFIC INDEMNITY COMPANY
To be attached to and form part of Policy No. 8091-25-911JHOU
Issued to: CLUB CORPORATION INTERNATIONAL
It is agreed that Item 6 of the Declarations, INSURED ORGANIZATION, is deleted
in its entirety and replaced as follows:
Item 5. INSURED ORGANIZATION: Club Corporation International and its
SUBSIDIARIES, except First Federal Financial Corporation and Franklin Federal
Bancorp.
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
/s/John S. Bain
- --------------------------
Authorized Representative
December 15, 1998
- -------------------
Date
<PAGE>
Executive Protection Policy
ENDORSEMENT
Effective date of this endorsement: OCTOBER 19, 1998
Endorsement No. 5
Company: TEXAS PACIFIC INDEMNITY COMPANY
To be attached to and form part of Policy No. 8091-25-911JHOU
Issued to: CLUB CORPORATION INTERNATIONAL
It is agreed that subsection 5, "Exclusions: Exclusions Applicable to Insuring
Clauses 1 and 2", is amended by adding the following:
(h) based upon, arising from or in consequence of a public offering,
solicitation, sale, distribution, or issuance of stock, whether or not a
prospectus has been issued.
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
/s/John S. Bain
- --------------------------
Authorized Representative
December 15, 1998
- -------------------
Date
<PAGE>
Executive Protection Policy
ENDORSEMENT
Effective date of this endorsement: OCTOBER 19, 1998
Endorsement No. 6
Company: TEXAS PACIFIC INDEMNITY COMPANY
To be attached to and form part of Policy No. 8091-25-911JHOU
Issued to: CLUB CORPORATION INTERNATIONAL
It is agreed that Item 7 of the Declarations, INSURED PERSONS, shall be amended
as follows:
Any person who has been, now is, or shall become a duly elected director or a
duly elected or appointed officer of the Insured Organization and any duly
appointed Club Manager, House Manager, General Manager, Property Manager and or
member of the Board of Governors or member of the Grievance Committee of any
owned, operated or leased club of the Insured Organization.
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
/s/John S. Bain
- --------------------------
Authorized Representative
December 15, 1998
- -------------------
Date
<PAGE>
Executive Protection Policy
ENDORSEMENT
Effective date of this endorsement: OCTOBER 19, 1998
Endorsement No. 7
Company: TEXAS PACIFIC INDEMNITY COMPANY
To be attached to and form part of Policy No. 8091-25-911JHOU
Issued to: CLUB CORPORATION INTERNATIONAL
In consideration of the premium paid, it is agreed that if both Loss covered by
this policy and loss not covered by this policy re incurred, either because a
claim against an Insured Person includes both covered and uncovered matters or
because a claim is made against both an Insured Person and others, including the
Insured Organization, the Insureds and the Company shall allocate such amount as
follows:
(a) with respect to Defense Costs, to create certainty in determining a fair
and proper allocation of Defense Costs, 80% of all Defense Costs which must
otherwise be allocated as described above shall be allocated to covered Loss and
shall be advanced by the Company on a current basis; provided, however, that no
Defense Costs shall be allocated to the Insured Organization to the extent the
Insured Organization is unable to pay by reason of Financial Impairment.
This Defense Costs allocation shall be the final and binding allocation of such
Defense Costs and shall not apply to or create any presumption with respect to
the allocation of any other Loss;
(b) with respect to Loss other than Defense Costs:
(i) the Insureds and the Company shall use their best efforts to agree upon a
fair and proper allocation of such amount between covered Loss and uncovered
Loss; and
(ii) if the Insureds and the Company cannot agree on any allocation, no
presumption as to allocation shall exist in any arbitration, suit or other
proceeding. The Company, if requested by the Insureds, shall submit the
allocation dispute to binding arbitration. The rules of the American Arbitration
Association shall apply except with respect to the selection of the arbitration
panel, which shall consist of one arbitrator selected by the Insureds, one
arbitrator selected by the Company, and a third independent arbitrator selected
by the first two arbitrators.
It is agreed that Section 9.1 "Definitions" is amended by adding the following:
Financial Impairment means the status of the Insured Organization resulting from
(i) the appointment by any state or federal official, agency or court of any
receiver, conservator, liquidator, trustee, rehabilitator or similar official to
take control of, supervise, manage or liquidate the Insured Organization, or
(ii) the Insured Organization becoming a debtor in possession.
Provided, however, that this endorsement shall not apply to Loss on account of
any Employment Claim.
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
/s/John S. Bain
- --------------------------
Authorized Representative
December 15, 1998
- -------------------
Date
<PAGE>
Executive Protection Policy
ENDORSEMENT
Effective date of this endorsement: OCTOBER 19, 1998
Endorsement No. 8
Company: TEXAS PACIFIC INDEMNITY COMPANY
To be attached to and form part of Policy No. 8091-25-911JHOU
Issued to: CLUB CORPORATION INTERNATIONAL
It is agreed that Item 6 of the Declarations, Insured Organization, is amended
by adding the following:
Silver Lake Management Corporation
Silver Lake Country Club
Akron City Management Corporation
Akron City Club
Stonebriar Country Club
Diamante Country Club
Monarch Country Club
provided, however, that coverage afforded by this endorsement shall not apply to
that portion of WRONGFUL ACTS AND INTERRELATED WRONGFUL ACTS committed,
attempted or allegedly committed or attempted, prior to the date Club
Corporation International or its subsidiaries owned, operated, leased or managed
the Insured Organizations listed above.
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
/s/John S. Bain
- --------------------------
Authorized Representative
December 15, 1998
- -------------------
Date
<PAGE>
Executive Protection Policy
ENDORSEMENT
Effective date of this endorsement: OCTOBER 19, 1998
Endorsement No. 9
Company: TEXAS PACIFIC INDEMNITY COMPANY
To be attached to and form part of Policy No. 8091-25-911JHOU
Issued to: CLUB CORPORATION INTERNATIONAL
It is agreed that Item 7 of the Declarations, Insured Persons, shall by amended
as follows:
Any person who has been, now is, or shall become a duly elected director or a
duly elected or appointed officer of the Insured Organization and any duly
appointed Club Manager, House Manager, General Manager, Property Manager of any
managed by contract club of the Insured Organization. However, this endorsement
shall only apply to those individuals who are employed by the parent company or
any of its subsidiaries.
THIS ENDORSEMENT SUPERSEDES any prior endorsement.
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
/s/John S. Bain
- --------------------------
Authorized Representative
December 15, 1998
- -------------------
Date
<PAGE>
Executive Protection Policy
ENDORSEMENT
Effective date of this endorsement: OCTOBER 19, 1998
Endorsement No. 10
Company: TEXAS PACIFIC INDEMNITY COMPANY
To be attached to and form part of Policy No. 8091-25-911JHOU
Issued to: CLUB CORPORATION INTERNATIONAL
It is agreed that Item 7 of the Declarations, Insured Persons, shall be amended
as follows:
Any person who has been, now is, or shall become a duly elected director or a
duly elected or appointed officer of the Insured Organization and any duly
appointed Club Manager, House Manager, General Manager, Property Manager and/or
member of the Board of Governors or member of the Grievance Committee of any
owned or leased club of the Insured Organization. However, this endorsement
shall not include coverage for the following country clubs:
Coto de Caza
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
/s/John S. Bain
- --------------------------
Authorized Representative
December 15, 1998
- -------------------
Date
<PAGE>
Executive Protection Policy
ENDORSEMENT
Effective date of this endorsement: OCTOBER 19, 1998
Endorsement No. 11
Company: TEXAS PACIFIC INDEMNITY COMPANY
To be attached to and form part of Policy No. 8091-25-911JHOU
Issued to: CLUB CORPORATION INTERNATIONAL
It is agreed that Item 6 of the Declarations, Insured Organization, is AMENDED
BY ADDING following:
Silver Lake Management Corporation
Silver Lake Country Club
Akron City Management Corporation
Akron Country Club
Stonebriar Country Club Joint Venture
Stonebriar Country Club
Diamante, a Private Membership Golf Club LLC
Diamante Country Club
Monarch Country Club, Inc.
Monarch Country Club
Glen Oaks Country Club Joint Venture
Glen Oaks Country Club
Aspen Glen Gold Company Limited Partnership
Aspen Country Club
Capital Club Company Ltd.
Capital City Club/Beijing
Republic Plaza City Club(Singapore)Pte Ltd.
Tower Club
provided, however, that coverage afforded by this endorsement shall not apply to
that portion of Wrongful Acts and Interrelated Wrongful Acts committed,
attempted or allegedly committed or attempted, prior, to the date Club
Corporation International or its subsidiaries owned, operated, leased or managed
the Insured Organizations listed above.
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
/s/John S. Bain
- --------------------------
Authorized Representative
December 15, 1998
- -------------------
Date
<PAGE>
Executive Protection Policy
ENDORSEMENT
Effective date of this endorsement: OCTOBER 19, 1998
Endorsement No. 12
Company: TEXAS PACIFIC INDEMNITY COMPANY
To be attached to and form part of Policy No. 8091-25-911JHOU
Issued to: CLUB CORPORATION INTERNATIONAL
It is agreed that, section 5, "Exclusions: Exclusions Applicable to Insuring
Clauses 1 and 2", is amended by deleting paragraph (e) in its entirety and
replacing it with the following:
(e) for bodily injury, libel, slander, defamation, emotional distress, mental
anguish, sickness, disease or death of any person, or for damage to or
destruction of any tangible property including loss of use thereof;
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
/s/John S. Bain
- --------------------------
Authorized Representative
December 15, 1998
- -------------------
Date
<PAGE>
Executive Protection Policy
ENDORSEMENT
Effective date of this endorsement: OCTOBER 19, 1998
Endorsement No. 13
Company: TEXAS PACIFIC INDEMNITY COMPANY
To be attached to and form part of Policy No. 8091-25-911JHOU
Issued to: CLUB CORPORATION INTERNATIONAL
It is understood and agreed that the policy is amended by adding the following
section:
CHOICE OF LAW AND ARBITRATION
29. This policy shall be construed and enforced according to the laws of New
Jersey.
Any dispute between the INSUREDS and the Company relating to the policy shall be
submitted to binding arbitration, including, but not limited to, claims sounding
in contract or tort. The Insureds and the Company submit to the jurisdiction of
New Jersey.
The commercial arbitration rules of the American Arbitration Association shall
apply except with respect to the selection of the arbitration panel. The panel
shall consist of one independent arbiter selected by the Insureds, one
independent arbiter selected by the Company and a third independent arbiter
selected by the first two arbiters. Each party shall bear equally the expenses
of the arbitration.
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
/s/John S. Bain
- --------------------------
Authorized Representative
December 15, 1998
- -------------------
Date
<PAGE>
Executive Protection Policy
ENDORSEMENT
Effective date of this endorsement: OCTOBER 19, 1998
Endorsement No. 14
Company: TEXAS PACIFIC INDEMNITY COMPANY
To be attached to and form part of Policy No. 8091-25-911JHOU
Issued to: CLUB CORPORATION INTERNATIONAL
It is agreed that:
1. Item 7 of the Declarations, INSURED PERSONS, is amended by adding the
following:
Past, present and future employees of the INSURED ORGANIZATION;
Provided, however, that coverage provided to employees pursuant to this
paragraph shall apply only to EMPLOYMENT CLAIMS.
2. Section 5, Exclusions: Exclusions Applicable to Insuring Clauses 1 and 2, is
amended by deleting paragraphs (c), (d) and (e) in their entirety and inserting
the following:
(c) brought or maintained by or on behalf of any INSURED except:
(i) a CLAIM that is a derivative action brought or maintained on behalf of an
INSURED ORGANIZATION by one or more persons who are not INSURED PERSONS and who
bring and maintain the CLAIM without the solicitation, assistance, or
participation of any INSURED;
(II) AN EMPLOYMENT CLAIM;
(iii) a Claim brought or maintained by or on behalf of an INSURED PERSON for
contribution or indemnity, if the CLAIM directly results from another CLAIM
covered under this policy;
(d) for an actual or alleged violation of the responsibilities, obligations, or
duties imposed by the Employee Retirement Income Security Act of 1974, the Fair
Labor Standards Act (except the Equal Pay Act), the National Labor Relations
Act, the Worker Adjustment and Retraining Notification Act, the Consolidated
Omnibus Budget Reconciliation Act of 1985, the Occupational Safety and Health
Act, rules or regulations promulgated thereunder and amendments thereto or
similar provisions of any federal, state, or local statutory law or common law;
(e) for mental or emotional distress (except with respect to EMPLOYMENT
CLAIMS), bodily injury, sickness, disease or death of any person, or damage to
or destruction of any tangible property including loss of use thereof; or
3. Where all or any part of a CLAIM IS AN EMPLOYMENT CLAIM, the Company shall
not be liable for LOSS on account of that part of a CLAIM against an INSURED
PERSON which is based upon, arising from, or in consequence of any demand, suit
or other proceeding pending, or order, decree or judgment entered against any
INSURED on or prior to 10/19/97 or the same or any substantially similar
fact, circumstance or situation underlying or alleged therein;
4. Section 5, Exclusions: Exclusion Applicable to Insuring Clauses 1 and 2, is
amended by adding the following:
(i) based upon, arising from or in consequence of any facts or circumstances of
which any officer of the INSURED ORGANIZATION had knowledge, as of the date
referenced in section 3 of this endorsement, which he or she had reason to
suppose might give rise to a future EMPLOYMENT CLAIM.
5. Section 9, Presumptive Indemnification, is amended as follows, but only with
respect to EMPLOYMENT CLAIMS:
a. Paragraphs (i) and (ii) are deleted in their entirety and the following is
inserted: the broadest application of law;
b. The final paragraph of section 9 is deleted in its entirety.
6. Section 28, Definitions, is amended by adding the following:
EMPLOYMENT CLAIM means a CLAIM which is brought and maintained by or on behalf
of any past, present or prospective employees of the INSURED ORGANIZATION
against any INSURED PERSON for any WRONGFUL ACT in connection with any actual or
alleged wrongful dismissal, discharge or termination of employment, breach of
any oral or written employment contract or quasi-employment contract,
employment-related misrepresentation, violation of employment discrimination
laws (including workplace harassment), wrongful failure to employ or promote,
wrongful discipline, wrongful deprivation of a career opportunity, failure to
grant tenure, negligent evaluation, invasion of privacy, employment-related
defamation or employment-related wrongful infliction of emotional distress.
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
/s/John S. Bain
- --------------------------
Authorized Representative
December 15, 1998
- -------------------
Date
<PAGE>
EXHIBIT 10.8
CLUBCORP EMPLOYEE STOCK OWNERSHIP TRUST
EFFECTIVE AS OF JANUARY 1, 1999
TABLE OF CONTENTS
ARTICLE I
PURPOSE OF TRUST
1.1 Designation
1.2 Purpose.
1.3 Exclusive Benefit of Participants.
1.4 No Reversion to Employer.
ARTICLE II
DEFINITIONS
ARTICLE III
ACCEPTANCE OF, CONTRIBUTIONS TO, DISTRIBUTIONS FROM TRUST
3.1 Acceptance of Trust.
3.2 Receipt of Contributions
3.3 Distribution to Participants.
3.4 Distributions Pursuant to Plan Administrator Directions.
ARTICLE IV
MANAGEMENT AND CONTROL OF TRUST FUND ASSETS
4.1 Standard of Conduct and Liabilities of Trustee
4.2 Trustee's Powers of Investment and Management.
4.3 Investment in Company Stock
4.4 Commingled Trust Funds.
4.5 Authority of Trustee
4.6 Power to Do All Necessary Acts.
4.7 Voting of Company Stock, Proxies, etc.
4.8 Appointment of Investment Manager and Power to Direct Trustee.
ARTICLE V
THE PLAN ADMINISTRATOR AND EMPLOYERS
5.1 Action by the Plan Administrator
5.2 Action by an Employer
5.3 Formal Action by Employer
5.4 Each Employer to Supply Information
ARTICLE VI
THE TRUSTEE
6.1 Reliance on Written Instrument
6.2 Action by the Trustee
6.3 Consultation with Counsel and Accountant
6.4 Bond Not Required
6.5 Purchase of Liability Insurance
6.6 Court Procedures
6.7 Indemnity by Employers
6.8 Duties of Co-Trustees
ARTICLE VII
ACCOUNTS AND RECORDS
ARTICLE VIII
FEES AND EXPENSES
8.1 Expenses of Administration
8.2 Authorization with Respect to Taxes
8.3 Payments without Plan Administrator Approval
ARTICLE IX
RESIGNATION OR REMOVAL OF TRUSTEE: SUCCESSOR TRUSTEE
9.1 Resignation; Removal of Trustee
9.2 Appointment of Successor Trustee
9.3 Merger, Consolidation, or Other Changes in Trustee
9.4 Transfer of Assets to Successor Trustee
9.5 Ancillary Trust
ARTICLE X
AMENDMENT OF TRUST
ARTICLE XI
ADDITIONAL EMPLOYERS
11.1 Adoption of Trust
11.2 No Separate Trusts
11.3 Withdrawal from Trust
ARTICLE XII
TERMINATION OF TRUST
12.1 Termination of Trust
12.2 Continuation by an Employer's Successor
12.3 Liquidation of Trust
<PAGE>
ARTICLE XIII
MISCELLANEOUS
13.1 Applicable Law
13.2 Severability of Provisions
13.3 Construction of Trust Agreement
13.4 Spendthrift Provisions
13.5 Title of Trust Assets
13.6 Benefits Supported Only by Trust
13.7 Rights Determined from Entire Instrument
13.8 Execution in Counterparts
CLUBCORP EMPLOYEE STOCK OWNERSHIP TRUST
EFFECTIVE AS OF JANUARY 1, 1999
THIS TRUST AGREEMENT is made and entered into in Dallas, Texas, by and
between ClubCorp, Inc. (hereinafter referred to as the "Company") and Albert
Chew, James E. Maser, and Douglas T. Howe (hereinafter collectively referred to
as "Trustee").
WHEREAS, the Company has adopted the ClubCorp Employee Stock Ownership Plan
for its eligible employees which is a restatement of the ClubCorp Stock
Investment Plan (hereinafter referred to as the "Plan");
WHEREAS, the Company desires to restate the trust document for the Plan;
and
WHEREAS, the Company desires the Trustee to hold, invest, reinvest and otherwise
to administer the Trust Fund, and the Trustee has indicated its willingness to
do so, all pursuant to the terms of this Trust Agreement.
NOW, THEREFORE, in consideration of the premises and other mutual covenants
herein contained, this document supersedes all prior trust documents
implementing the Plan and the parties hereto do agree effective as of January 1,
1999 as follows:
ARTICLE I
PURPOSE OF TRUST
1.1 Designation. This Trust is designated as the "ClubCorp Employee Stock
Ownership Trust." This Trust adopts for accounting purposes the fiscal year
ending on December 31.
1.2 Purpose. This Trust is part of the Plan. The purpose of this
Trust is to implement the Plan, which provides certain benefits for the
Employer's Eligible Employees who become Participants.
1.3 Exclusive Benefit of Participants. This Trust shall be maintained
for the exclusive benefit of Participants and their Beneficiaries. Except as
otherwise provided in SECTION 1.4 below, no part of the Trust Fund shall be used
for, or diverted to, purposes other than for the exclusive benefit of such
Participants and Beneficiaries.
1.4 No Reversion to Employer. Except as otherwise provided in this
SECTION 1.4 or in the Plan, it shall be impossible, at any time, for any part of
the Trust Fund, other than such part as is required to pay taxes and
administration expenses or such part as may otherwise be permitted by law to be
returned to the Employer, to be recoverable by an Employer, or to be used for,
or diverted to, purposes other than for the exclusive benefit of the
Participants and their Beneficiaries. An Employer may recover its initial
contribution, or any investments into which it has been converted, plus any gain
and minus any loss thereon if the Plan Administrator directs the Trustee to
return such amounts, and if the adoption of the Plan or the contribution is
conditioned on the initial qualification of the Plan under Code Section 401(a)
and the Plan does not so qualify. Such contribution shall be returned, if at
all, within the one year period after such adverse determination, provided that
the application for determination is not made later than the Employer's tax
return due date for the taxable year in which the Plan was adopted (or such
other time as the Secretary may prescribe). If the Plan Administrator in good
faith determines that (a) an Employer Contribution was made by reason of a
mistake of fact or (b) an Employer Contribution is conditioned on its being
deductible under Code Section 404, but the Internal Revenue Service disallows
such deduction, the amount of the excess Employer Contribution, less losses
attributable thereto may, upon direction of the Plan Administrator, be returned
to the contributing Employer. All payments of returned Employer Contributions
under this SECTION shall be made within one (1) year from the date of the
payment of such mistaken Employer Contribution or the disallowance by the
Internal Revenue Service of the deduction, whichever is applicable. The amount
of the excess Employer Contribution shall be the excess of (1) the amount
contributed over (2) the amount that would have been contributed had there not
occurred a mistake of fact or had the deduction not been disallowed. Earnings
attributable to the excess Employer Contributions shall not be returned to the
contributing Employer, but losses attributable thereto shall reduce the amount
returned to the contributing Employer. Subject only to the conditions set out
in this SECTION, none of the funds contributed to the Trust shall ever revert to
any Employer, but the entire Trust Fund, net of expenses, including
administrative expenses and taxes, and losses, if any, shall be used for the
exclusive benefit of the Participants, as herein provided.
ARTICLE II
DEFINITIONS
For purposes of the Trust Agreement, the following expressions shall have
the meanings respectively indicated unless the context clearly required
otherwise:
2.1 "Affiliated Company" means any of the following which is itself not
an Employer: (i) a member of a controlled group of corporations, determined in
accordance with the provisions of Code Section 414(b) of which an Employer is
also a member; (ii) an unincorporated trade or business which is under common
control with an Employer as determined in accordance with Code Section 414(c)
and regulations issued thereunder; or (iii) a member of an "affiliated service
group" as determined in accordance with Code Section 414(m) and regulations
issued thereunder; or (iv) any other entity which is not an Employer and which
is required to be aggregated with an Employer in accordance with Code Section
414(o) and the regulations issued thereunder.
2.2 "Beneficiary" means any person or entity entitled to receive
benefits which are payable upon or after a Participant's death pursuant to
Article IX of the Plan.
2.3 "Board" means the Board of Directors of the Company, as from time
to time constituted, or such other persons or group of persons referred to in
SECTION 5.3 hereof in the case of a Company which is not a corporation.
2.4 "Code" means the Internal Revenue Code of 1986, as amended from
time to time. References to any section of the Internal Revenue Code shall
include any successor provision thereto.
2.5 "Company" means ClubCorp, Inc., a Delaware corporation.
2.6 "Company Stock" means the common stock of the Company, par value
$.01, which is a qualifying employer security within the meaning of Section 407
of ERISA.
2.7 "Eligible Employee" means an Eligible Employee as defined in
Article II of the Plan.
2.8 "Employer" means the Company or any Affiliated Company which adopts
the Plan pursuant to Article XIV of the Plan.
2.9 "Employer Contribution" means the contribution made by an Employer
under SECTION 4.01 of the Plan.
2.10 "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time. References to any section of ERISA shall include
any successor provision thereto.
2.11 "Investment Manager" means any fiduciary that is granted the power
to manage, acquire or dispose of any asset of the Plan pursuant to SECTION 4.9
hereof.
2.12 "Participant" means an Eligible Employee who participates in the
Plan as provided in Article III of the Plan.
2.13 "Plan" means the ClubCorp Employee Stock Ownership Plan as
hereafter amended from time to time.
2.14 "Plan Administrator" means the Company.
2.15 "Securities or Other Property" means any properties, real or
personal or mixed, including but not limited to, common or preferred stocks
(including Company Stock), securities, or any other interest in any corporation,
interests in investment trusts and mutual funds, bonds, notes or other evidences
of indebtedness or ownership, first mortgages, real property, leases on real
property, contracts to sell real property, contracts of sale of real property,
short-term cash equivalents having ready marketability, including but not
limited to U. S. Treasury bills, commercial paper, certificates of deposit,
savings shares or savings share accounts of savings and loan associations, and
similar type securities, and any other property of any kind or nature
- -whatsoever.
2.16 "Trust" means the legal entity resulting from the Trust Agreement
between the Employers and the Trustee who receives the Employer Contributions,
and holds, invests and disburses funds to and for the benefit of Participants
and their Beneficiaries, and each separate trust, if any, existing hereunder at
the time in question.
2.17 "Trust Agreement" means this instrument, provided that if this
instrument, pursuant to its terms, be amended, "Trust Agreement" as at a
particular date, shall mean this instrument, as amended and in force on such
date.
2.18 "Trust Fund" means all assets of whatsoever kind or nature from
time to time held by the Trustee pursuant to this Trust Agreement without
distinction as to income and principal, including all assets received from any
predecessor trust fund.
2.19 "Trustee" means the party or parties, individual or corporate,
named in the Trust Agreement and any duly appointed additional or successor
Trustee or Trustees acting thereunder.
2.20 Whenever appropriate, words used in this Trust Agreement in the
singular may mean the plural, the plural may mean the singular, and the
masculine may mean the feminine. The words "herein," "hereof," "hereto," and
"hereunder" shall refer to this Trust Agreement.
ARTICLE III
ACCEPTANCE OF, CONTRIBUTIONS TO, DISTRIBUTIONS FROM TRUST
3.1 Acceptance of Trust. The Trustee by affixing its signature,
hereunto duly authorized, to this Trust Agreement accepts this Trust and agrees
to act as Trustee of the Trust according to the terms and conditions of this
Trust Agreement to all of which the parties hereto agree, and the Employers and
the Participants from time to time hereunder, and all those persons claiming
through or under any of them, shall be deemed to have agreed. Nothing contained
in the Plan, either expressly or by implication, shall be deemed to impose any
additional powers, duties or responsibilities on the Trustee.
3.2 Receipt of Contributions. The Trustee shall receive any
contributions under the Plan paid to it in cash or to the extent permitted under
ERISA without violation of ERISA Section 406, in kind. All contributions so
received, together with the income therefrom, any other increment thereon, and
all assets acquired by investment or reinvestment, shall be held, managed and
administered by the Trustee pursuant to the terms of this Trust Agreement
without distinction between principal and income and without liability for the
payment of interest thereon. The Trustee shall not be responsible for the
collection of any contributions under or required by the Plan but shall be
responsible only for contributions actually received by it hereunder. Trustee
shall have power or duty to inquire whether the amount of contributions
delivered to it by an Employer is correct or complies with the powers of the
Plan.
3.3 Distribution to Participants. Upon written directions from the
Plan Administrator, the Trustee shall make payments out of the Trust Fund to or
for the benefit of Participants, or for the payment of expenses pursuant to
SECTION 8.1, in such manner, amounts and at such times and for such purposes,
including the purchase of annuity contracts, as may be specified in the
directions of the Plan Administrator.
3.4 Distributions Pursuant to Plan Administrator Directions. The
Trustee shall not be liable for any distribution made by it pursuant to written
directions of the Plan Administrator as herein provided, and shall be under no
duty to make inquiry as to whether any distribution directed by the Plan
Administrator is made pursuant to the provisions of the Plan. Likewise, the
Trustee need not see to the application of any payment made to or for the
benefit of a Participant pursuant to written directions of the Plan
Administrator.
ARTICLE IV
MANAGEMENT AND CONTROL OF TRUST FUND ASSETS
4.1 Standard of Conduct and Liabilities of Trustee.
(a) The Trustee shall discharge its duties hereunder solely in the
interest of the Participants and for the exclusive purpose of providing benefits
to Participants and for paying reasonable expenses of administering the Plan.
The Trustee shall perform all of its duties with the care, skill, prudence, and
diligence under the circumstances then prevailing that a prudent man acting in a
like capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims, or in accordance with such
other standard as may, from time to time, be required by law. The Trustee shall
not cause the Trust to engage in a transaction if it knows or should know that
such transaction directly or indirectly constitutes a prohibited transaction
under ERISA Section 406 or Section 407 which is not exempt under ERISA Section
408.
(b) The Trustee shall not be liable for its acts and conduct in the
administration of the assets of the Trust Fund and for any losses incurred in
the administration of the Plan or upon the investment of the Trust Fund which
conform to the standards set forth in SECTION 4.1(A), unless it knowingly
participates in or knowingly undertakes to conceal an act or omission of another
fiduciary of the Plan, with the knowledge that such act or omission is a breach
of fiduciary responsibility, or knowing of a breach of fiduciary responsibility,
the Trustee fails to make reasonable efforts under the circumstances to remedy
the breach, or by failure to carry out its specific responsibilities, in
accordance with such standard, it has enabled another fiduciary of the Plan to
commit a breach.
4.2 Trustee's Powers of Investment and Management. Pending investment
in Company Stock or pending disbursement of cash retained for distributions or
expenditures, the Trustee shall have the power to invest and reinvest any
Securities or Other Property so that, in accordance with ERISA Section 404(a),
the Plan assets, other than Company Stock, over which the Trustee exercises
investment discretion are diversified so as to minimize the risk of large
losses, unless under the circumstances it is clearly prudent not to do so. The
Trustee shall not, in any manner, be limited by the Texas Trust Code with
respect to the types of investments to be made with trust funds or the kinds of
businesses into which any trust existing hereunder may enter. When acting
hereunder, whether in its discretion or at the direction of an Investment
Manager, the Trustee shall have the following powers with respect to any and all
moneys and Securities or Other Property at any time held by it and constituting
part of the Trust Fund:
(a) Subject to the restrictions of SECTION 4.3 hereof pertaining to
Company Stock, to purchase or subscribe for Securities or Other Property and to
retain them in trust; to sell any Securities or Other Property at any time held
by it at either public or private sale for cash or other consideration or on
credit at such time or times and on such terms and conditions as may be deemed
appropriate; to exchange such Securities or Other Property and to grant options
for the purchase or exchange thereof; and to convey, partition or otherwise
dispose of, with or without covenants, including covenants of warranty of title,
any Securities or Other Property free of all trusts;
(b) To oppose, or consent to and participate in, any plan of
reorganization, consolidation, merger, combination or other similar plan; to
oppose or to consent to any contract, lease, mortgage, purchase, sale, or other
action by any corporation pursuant to such plan, and to accept and retain any
Securities or Other Property issued under any such plan;
(c) To assign, renew, extend, or discharge or participate in the
assignment, renewal, extension, or discharge of any debt, mortgage, or other
lien, upon such terms, including a partial release, as may be deemed advisable
by the Trustee, and to agree to a reduction in the rate of interest thereon or
to any other modification or change in the terms thereof or of any guarantee
pertaining thereto, in any manner and to any extent that may be deemed in the
best interest of the Trust Fund; to waive any default, whether in the
performance of any covenant or condition of any note, bond, or mortgage or in
the performance of any guarantee, or to enforce any such default in such manner
and to such extent as may be deemed advisable; to exercise and enforce any and
all rights of foreclosure and to exercise and enforce, in any action, suit or
proceeding at law or in equity, any rights or remedies in respect of any debt,
mortgage, lien, or guarantee;
(d) To acquire any real estate by purchase or lease, or as a result of
any foreclosure, liquidation, or other salvage of any investment previously
made, or otherwise; and to manage, operate, sell, lease for any term or terms of
years, even though such lease term extends beyond the term of the trust and
regardless of any restrictions on leases made by fiduciaries, develop, improve,
alter, demolish any building in whole or in part, and to erect buildings,
partition, mortgage, grant options with respect to, or otherwise deal with any
real property or interest therein at any time held by the Trust, upon such terms
and conditions as it may deem proper;
(e) To exercise all conversion and subscription rights pertaining to
any Securities or Other Property;
(f) Except as limited in SECTION 3.2 hereof, to collect and receive any
and all moneys, Securities or Other Property of whatsoever kind or nature due or
owing or belonging to the Trust Fund and to give full discharge and acquittance
therefor;
(g) Except where delegated to an Investment Manager, to exercise,
personally or by general or limited power of attorney, any right, including the
right to vote or grant proxies, discretionary or otherwise, appurtenant to any
assets held by the Trust, and the right to participate in voting trusts with
other stockholders;
(h) To register any Securities or Other Property held by it hereunder
in the name of the Trustee or in the names of nominees with or without the
addition of words indicating that such Securities or Other Property are held in
a fiduciary capacity, to take and hold the same unregistered or in form
permitting transferability by delivery, to deposit or arrange for the deposit of
securities in a qualified central depository even though, when so deposited,
such Securities or Other Property may be held in the name of the nominee of such
depository with other securities deposited therein by other persons, or to
deposit or to arrange for the deposit of any Securities or Other Property issued
by the United States government, or any agency or instrumentality thereof, with
a Federal Reserve bank, provided that the books and records of the Trustee shall
at all times disclose that all such Securities or Other Property are part of the
Trust Fund;
(i) To settle, compromise, or submit to arbitration, any claims, debts
or damages due or owing to or from the Trust Fund; to commence or defend suits
or legal proceedings whenever, in its judgment, any interest of the Trust Fund
so requires, and to represent the Trust Fund in all suits or legal proceedings
in any court of law or equity or before any other body or tribunal;
(j) To borrow money from others, excluding the Trustee in its
individual capacity or any party in interest, for the purposes of the Trust
Fund, and upon such terms and conditions as the Trustee may deem proper, and for
the sum so borrowed or advanced, the Trustee may issue its promissory note as
Trustee and secure the repayment thereof by creating a lien upon any assets of
the Trust Fund;
(k) To organize and incorporate under the laws of any state one or more
corporations (and to acquire an interest in any such corporation that it may
have organized and incorporated) for the purpose of acquiring and holding title
to any property, interest or rights that the Trustee is authorized to acquire;
(l) To invest all or part of the Trust Fund in interest-bearing
deposits with the Trustee, or with a bank or similar financial institution
related to the Trustee if such bank or other institution is a fiduciary with
respect to the Plan as defined in ERISA, including but not limited to
investments in time deposits, savings deposits, certificates of deposit, or time
accounts which bear a reasonable interest rate;
(m) Generally to do all such acts, to make, execute, acknowledge and
deliver any and all deeds, leases, assignments, oil and gas leases, documents of
transfer, and conveyances, receipts, releases, agreements, and without
limitation by the foregoing, to execute any and all other instruments, take all
such proceedings and exercise all such rights and powers with relation to any
Securities or Other Property constituting a part of the Trust Fund to the same
extent as an individual might do with respect to his own property; and
(n) To deposit all or any portion of the Trust Fund with a custodian,
subject to the direction and control of the Trustee.
4.3 Investment in Company Stock. In addition, the Trustee shall invest
all Trust Fund assets attributable to the Plan (including, but not limited to
cash dividends with respect to Company Stock held in the Trust Fund) in Company
Stock and the Trustee shall retain, until distributed, all contributions made in
Company Stock (so long as such Company Stock is a qualifying employer security
within the meaning of Section 407 of ERISA); provided, however, that the Trustee
may retain sufficient cash to discharge cash or as otherwise directed by the
Plan Administrator. Notwithstanding the preceding sentence, Trustee may
temporarily invest all or a substantial portion of the Trust Fund other than in
direct ownership of Company Stock, subject to reinvestment in Company Stock
within a reasonable period. The Trustee shall not be required to diversify the
Trust Fund with respect to Company Stock held under this SECTION 4.3. To the
extent that retained cash is not needed for current expenditures or to the
extent that Company Stock is not available, the Trustee, pending the use of such
retained cash for current expenditures or pending the availability of Company
Stock, shall invest the Trust Fund in Securities or Other Property as defined in
SECTION 2.15 hereof. In furtherance hereof, the Trustee may, notwithstanding
Section 4.2(j) borrow money from others, including, as directed by the
Committee, loans from or guaranteed by the Company or any shareholder of the
Company to finance the acquisition of Company Stock, provided that the proceeds
of any such loan shall be used, within a reasonable time after such loan is
made, only to purchase Company Stock or repay the loan or any prior loan, the
proceeds of which were used to purchase Company Stock; and provided, further,
that notwithstanding any amendment to or termination of the Plan which causes it
to cease to qualify as an employee stock ownership plan within the meaning of
Section 4975(e)(7) of the Code, no shares of Company Stock acquired with the
proceeds of a loan pursuant to Section 8.16 of the Plan may be subject to a put,
call or other option, or buy-sell or similar arrangement (other than as
described in Subsections 5.9(h) or 5.9(j) of the Plan) while such shares are
held by or when distributed from this Trust Fund; and provided, further, that
any such loan shall bear a reasonable rate of interest and may be secured by a
collateral pledge of the Company Stock so acquired; and provided, further, that
no other Trust Fund assets may be pledged as collateral by the Trustee, and no
lender shall have recourse against any Trust Fund asset other than any Company
Stock remaining subject to pledge; and provided, further, that any pledge of
Company Stock must provide for the release of shares so pledged on a pro rata
basis as principal and interest on such loan is repaid by the Trustee; and
provided, further, that repayments of principal and interest on any loans shall
be repaid by the Trustee (as directed by the Committee) only from (i) Employer
Contributions in cash to the Trust, (ii) cash dividends, if any, received on any
Company Stock unallocated to the Accounts of Participants, (iii) earnings
attributable to such Company Stock, and (iv) Company Stock, given as collateral
for a prior loan which is repaid with the proceeds of the current loan, or
acquired with the proceeds of the current loan; and for the sum so borrowed or
advanced, the Trustee may issue its promissory note as Trustee and secure the
repayment thereof by creating a lien upon any assets of the Trust Fund.
4.4 Commingled Trust Funds. Subject to SECTION 4.3, any part or all of
the Trust Fund may be invested or reinvested by the Trustee in or through the
medium of any one or more collective investment funds or commingled trust funds
maintained by the Trustee or another fiduciary with respect to the Plan, as the
same may have heretofore been or may hereof be established or amended, which is
invested principally in Securities or Other Property specified for the Trust
Fund, and which collective investment fund or commingled trust fund is qualified
under the provisions of Code Section 401(a) and exempt from tax under the
provisions of Code Section 501(a), and during the period of time as an
investment in or through any such medium shall exist the declaration of trust of
such collective investment fund or commingled trust fund shall constitute a part
of this Trust Agreement.
4.5 Authority of Trustee. A third party dealing with the Trustee shall
not make, or be required by any person to make, any inquiry concerning the
authority of the Trustee to take or. omit any action but shall be fully
protected in relying upon the certificates of the Trustee that it has authority
to take such proposed action. No person dealing with the Trustee shall be
required to follow the application by the Trustee of any moneys, Securities or
Other Property paid or delivered to the Trustee.
4.6 Power to Do All Necessary Acts. To the extent not inconsistent
with the express provisions hereof, enumeration of any power herein shall not be
by way of limitation but shall be cumulative and construed as full and complete
power in favor of the Trustee. In addition to the authority specifically herein
granted, the Trustee shall have such power to do all acts as may be deemed
necessary for full and complete management of the Trust Fund and appropriate to
carry out the purposes of this Trust Fund, and shall further have all powers and
authorities conferred on trustees by the laws of the State of Texas.
4.7 Voting of Company Stock, Proxies, etc. The Trustee shall maintain
a complete record of the manner in which shares of stock (including Company
Stock) held as part of the Trust Fund are voted, unless the instrument
appointing an Investment Manager with respect to such shares delegates to the
Investment Manager the responsibility for so recording such voting, whether such
shares are voted by the Trustee in the exercise of its investment direction with
respect to such shares or upon the direction of an Investment Manager. If the
Trustee votes such shares of stock (including Company Stock) in its discretion,
it shall also maintain a record of the reasons for such vote.
4.8 Appointment of Investment Manager and Power to Direct Trustee.
(a) Appointment. The Board in its sole discretion may appoint one or
more Investment Managers with respect to some or all of the assets of the Trust
Fund as contemplated by ERISA Section 402(c)(3). Any such Investment Manager
shall: (i) be registered as an investment adviser under the Investment Advisers
Act of 1940 and registered under the laws of Texas; (ii) be a bank, as defined
in the Investment Advisers Act of 1940; or (iii) be an insurance company
qualified to manage, acquire or dispose of Plan assets under the laws of more
than one state. The authority of the Investment Manager shall not begin until
the Trustee receives from the Board a copy of fully executed instruments
appointing the Investment Manager, a copy of the Investment Manager's acceptance
of appointment, a certificate showing that the Investment Manager meets the
requirements of this SECTION 4.8, and receives from the Investment Manager an
acknowledgment in writing by the Investment Manager that with respect to the
relevant assets of the Trust Fund, it is a fiduciary with respect to the Plan
within the meaning of ERISA Section 3(21)(A). The Investment Manager's
authority shall continue and the Trustee shall be fully protected in relying on
the notice of appointment until the Trustee receives similar notice that the
appointment has been rescinded. By notifying the Trustee of the appointment of
an Investment Manager, the Board shall be deemed to certify that such Investment
Manager meets the requirements of this SECTION 4.8.
(b) Power to Direct Trustee. The assets with respect to which a
particular Investment Manager has been appointed shall be specified by the
Board, and shall be segregated by the Trustee from all other trust assets, and
the Investment Manager shall, in accordance with the standard of conduct
contained in SECTION 4.1 hereof, have the duty and power to direct the Trustee
in every aspect of its investment specifically including the power to direct
Trustee to invest and reinvest any Securities or Other Property under its
management and control so that such investments are diversified so as to
minimize the risk of large losses unless under the circumstances it is prudent
not to do so. The Trustee shall follow the directions of the Investment Manager
regarding the investment and reinvestment of the Trust Fund or such portion
thereof as shall be under management by the Investment Manager. The Trustee
shall be under no duty or obligation to review any investment to be acquired,
held, or disposed of pursuant to such directions nor to make any recommendations
with respect to the disposition or continued retention of any such investment.
The Investment Manager shall, notwithstanding the provisions of SECTION 3.2
hereof, have the sole duty and responsibility of determining the acceptability
of any contributions made under this Trust if such contributed property is to be
part of its investment responsibility.
(c) Reliance upon Directions. The Trustee may rely upon any order,
certificate, notice, direction, or other documentary confirmation purporting to
have been issued or given by an Investment Manager which the Trustee believes to
be genuine and to have been issued or given by such Investment Manager. The
Trustee shall not be liable for the acts or omissions of an Investment Manager
and shall have no liability or responsibility for acting or not acting pursuant
to the direction of, or failing to act in the absence of, any direction from the
Investment manager (except with respect to short-term investments under SECTION
4.8(E) hereof), unless the Trustee knows that by such action or failure to act,
it would be itself committing a breach of fiduciary duty or participating in a
breach of fiduciary duty by the Investment Manager, it being the intention of
the parties that, except with respect to investments under SECTION 4.8(E)
hereof, the Trustee shall have the full protection of ERISA Section 405(d). The
Company hereby agrees to indemnify the Trustee and hold it harmless from and
against any claim, liability, or excise tax which may be asserted against the
Trustee by reason of its acting or not acting pursuant to any direction from the
Investment Manager or failing to act in the absence of any such direction unless
the liability or excise tax arises out of an act or omission in which Trustee
knowingly participates or knowingly undertakes to conceal, knowing that such act
or omission to be a breach of fiduciary responsibility.
(d) Resignation of Investment Manager. In the event the Investment
Manager should resign or be removed by the Company, the Trustee shall be
notified by the Company of such resignation or removal and shall manage the
investment of the Trust Fund unless and until it shall be notified of the
appointment of another Investment Manager with respect thereto.
(e) Short-Term Investments. The Trustee may, in its discretion, invest
cash balances held by the Trustee, pending or in the absence of investment
instructions regarding the same from any Investment Manager, from time to time,
in short-term cash equivalents having ready marketability, including but not
limited to U.S. Treasury bills, commercial paper, certificates of deposit,
savings shares or savings share accounts of savings and loan associations, and
similar type securities.
ARTICLE V
THE PLAN ADMINISTRATOR AND EMPLOYERS
5.1 Action by the Plan Administrator. The Trustee shall be fully
protected in relying upon written instructions by the Plan Administrator or its
duly authorized agents.
5.2 Action by an Employer. Any action by an Employer hereunder, or
pursuant to the Plan, shall be evidenced by a certified copy of a written
instrument executed in accordance with SECTION 5.3 hereof. The Trustee shall be
fully protected in acting in accordance with such written instrument delivered
to it.
5.3 Formal Action by Employer. Any formal action herein permitted or
required to be taken by an Employer shall be:
(a) if and when a partnership, by written instrument executed by one or
more of its general partners or by written instrument executed by a person or
group of persons who has been authorized by written instrument executed by one
or more general partners as having authority to take such action;
(b) if and when a proprietorship, by written instrument executed by the
proprietor or by written instrument executed by a person or group of persons who
has been authorized by written instrument executed by the proprietor as having
authority to take such action;
(c) if and when a corporation, by resolution of its board of directors
or other governing board, or by written instrument executed by a person or group
of persons who has been authorized by resolution of its board of directors or
other governing board as having authority to take such action; or
(d) if and when a joint venture, by written instrument executed by one
of the joint venturers or by written instrument executed by a person or group of
persons who has been authorized by written instrument executed by one of the
joint venturers as having authority to take such action.
5.4 Each Employer to Supply Information. Each Employer shall furnish
to the Trustee the names of all parties who are or become fiduciaries under the
Plan and shall provide the Trustee all information necessary to fulfill its
obligations under the law, including, but not limited to such information as is
necessary to enable the Trustee to determine whether any person is a
party-in-interest as defined in ERISA Section 3(14).
ARTICLE VI
THE TRUSTEE
6.1 Reliance on Written Instrument. The Trustee shall be fully
protected in acting upon any instrument, certificate, or paper believed by it to
be genuine and to be signed or presented by the proper person or persons, and
the Trustee shall be under no duty to make any investigation or inquiry as to
any statement contained in any such writing but may accept the same as
conclusive evidence of the truth and accuracy of the statements therein
contained.
6.2 Action by the Trustee. Subject to the provisions of this Trust
Agreement relating to the appointment of an Investment Manager, investment of
the Trust Fund and other action by the Trustee hereunder shall be pursuant to
the decision of a majority of the persons then acting as the Trustee, but the
Trustee may delegate ministerial acts, specifically including, but not limited
to, the signing of checks, endorsement of stock certificates, execution of
transfer instruments and any other document, and the signing of tax returns and
governmental reports to be done by any agent of the Trustee.
6.3 Consultation with Counsel and Accountant. The Trustee may from
time to time consult with counsel or accountant who may also be counsel or
accountant for an Employer, and as long as the Trustee acts in conformity with
the standards of SECTION 4.1 hereof, the opinion of such counsel or accountant
with respect to legal matters or accounting matters, respectively, shall have
full and complete authorization and protection in respect of any action taken or
suffered by the Trustee in good faith and in accordance with such opinion.
6.4 Bond Not Required. Except as specifically required by an Employer
or as required under ERISA Section 412, the Trustee shall not be required to
furnish any bond or security for the performance of its powers and duties
hereunder. The cost of any bond required by applicable law shall be paid as an
expense of the Trust Fund, unless paid by the appropriate Employer or Employers.
6.5 Purchase of Liability Insurance. Notwithstanding any other
provision of this Trust, the Trustee, if authorized by the Company in writing,
may acquire, retain, dispose of, and pay premiums on, one or more insurance
contracts for the benefit of the Trust and the Trustee or other fiduciaries,
within the meaning of ERISA Section 3(21), covering liability or losses
occurring by reason of any act or omission of such Trustee or fiduciaries, and
charge the premiums to the Trust Fund, and such contract shall permit recourse
by the insurer against such Trustee or fiduciaries in the case of a breach of
their fiduciary duty.
6.6 Court Procedures-. The Trustee may at any time initiate an action
or proceeding for the settlement of the accounts of the Trustee or for the
determination of any question, including questions of construction which may
arise, or for instruction, and the only necessary parties defendant to such
action shall be all the Employers and the Plan Administrator, except that any
other person or persons may be included as parties defendant at the election of
the Trustee.
6.7 Indemnity by Employers. In the event and to the extent not insured
against by any insurance company pursuant to the provisions of any applicable
insurance policy, each Employer shall indemnify and hold the Trustee other than
a corporate trustee harmless from any and all claims, losses, damages, expenses,
including counsel fees approved by the Board, and liability, including amounts
paid in settlement, with the approval of such Board, arising from any action or
failure to act, except where same is judicially determined to be due to fraud,
recklessness, or willful or intentional misconduct of such individual. The
indemnification contained in this SECTION shall apply regardless of whether the
claim, loss, damage, expense, or cost arises in whole or in part from the
negligence or gross negligence or other fault on the part of the individual,
specifically including breaches of fiduciary responsibility under ERISA.
6.8 Duties of Co-Trustees. Whenever two or more persons are serving as
Trustee hereunder, each shall use reasonable care to prevent the other from
breaching his fiduciary responsibility hereunder, and all shall jointly manage
and control the Trust Fund. Provided, however, that all such co-trustees may
enter into a written agreement allocating specific responsibilities, obligations
and duties among themselves, in which case any trustee to whom certain
responsibilities, obligations and duties have not been allocated shall be
protected from liability to the extent provided in Section 405(b)(1)(B) of
ERISA.
ARTICLE VII
ACCOUNTS AND RECORDS
The Trustee shall maintain true, accurate and detailed accounts of all
investments, receipts, disbursements and other transactions hereunder. All
accounts, books, and records relating thereto shall be open to inspection at all
reasonable times and may be audited from time to time by any person designated
by the Plan Administrator. Within ninety (90) days after the close of the
fiscal year of the Trust Fund, within ninety (90) days after the removal or
resignation of the Trustee, and from time to time as the Plan Administrator may
direct, the Trustee shall file a written account with the Plan Administrator
which shall show: (i) the assets of the Trust Fund, as of the end of such
period, and the cost and current value thereof as defined in ERISA Section
3(26); and (ii) all investments, receipts, disbursements, and other transactions
effected by it during such fiscal year or other period for which such accounting
is filed. Notwithstanding anything to the contrary contained herein, Company
Stock shall be valued by the Company in its discretion and confirmed by an
independent appraiser selected and retained by the Trustee. In the event
Company Stock becomes publicly traded, the foregoing sentence shall not apply.
If, however, at the time such written account is to be filed, the Trust Fund
contains assets which have no fair market value, the Trustee shall be
responsible for valuing only such of those assets as were acquired by the
Trustee in its discretion. Any such assets not acquired by the Trustee in its
discretion shall be valued by the Plan Administrator. The Plan Administrator
may approve such accounting by written notice of approval delivered to the
Trustee or by failure to express objection to such accounting in writing
delivered to the Trustee within ninety (90) days from the date upon which the
accounting is delivered to the Plan Administrator. Upon the expiration of
ninety (90) days from the date of filing such account with the Plan
Administrator or upon earlier specific approval thereof by the Plan
Administrator, the Trustee, as between each Employer, the Plan Administrator,
and the Trustee, shall be forever released and discharged from all liability as
to all items and matters included in such accounting as if settled by the decree
of a court of competent jurisdiction, except with respect to any such action or
transaction to which the Plan Administrator shall within such ninety (90) day
period, file written objections with the Trustee. The liability of Trustee to
persons other than an Employer or the Plan Administrator shall be limited to
actions under ERISA brought within the period permitted by law for the bringing
of such action. Nothing herein contained, however, shall be deemed to preclude
the Trustee of its right to have its accounts judicially settled by a court of
competent jurisdiction.
ARTICLE VIII
FEES AND EXPENSES
8.1 Expenses of Administration. The Trustee (other than individuals
who are employees of an Employer) shall be paid such reasonable compensation as
shall from time to time be agreed upon by the Company and the Trustee. The
Trustee may pay outside counsel, independent accountants, actuaries, and other
outside parties engaged by it, such compensation and expenses as it deems
reasonable and proper as expenses of administration of the Trust Fund. To the
extent permitted by ERISA, the Trustee may also reimburse an Employer for
reasonable and necessary direct expenses incurred for administration of the
Plan. All such compensation and all expenses of administration of the Trust,
and the Plan of which it is a part, including fees of outside counsel,
independent accountants, and actuaries, may be withdrawn by the Trustee out of
the Trust Fund, but if the Trust Fund is insufficient, it shall be paid by the
Employers. However, nothing herein shall prohibit the Company from paying such
amounts if the Trust Fund is sufficient and the Company so elects.
8.2 Authorization with Respect to Taxes. The Trustee may pay out of
the Trust Fund all real and personal property taxes, income taxes and other
taxes of any and all kinds levied or assessed under existing or future laws
against the Trust Fund, or against the Trustee by reason of its office other
than excise taxes or penalties assessed against the Trustee on account of its
engaging in a prohibited transaction or fiduciary breach. In the event the
Trustee at any time in good faith believes that the tax exemption of the Trust
is uncertain or that it, as Trustee, may be liable for federal or state taxes
which are, or may be, assessed with respect to payments, the Trustee may, but is
not required to, take such steps and withhold from any payments out of the Trust
Fund, such amounts as it may deem necessary to protect itself from such
liabilities for taxes and, in its discretion, may contest the validity or amount
of any such tax assessment, claim or demand respecting the Trust Fund or any
part thereof. Upon the discharge or settlement of such tax controversy, the
balance of the amount so withheld shall be paid as directed by the Plan
Administrator. Prior to the making of any payment hereunder, the Trustee may
require such release or other documents from any federal or state taxing
authority and the indemnity of any payee, or either of them, as the Trustee
shall deem necessary for its protection.
8.3 Payments without Plan Administrator Approval. Notwithstanding the
provisions of SECTION 3.3 hereof, all payments under this ARTICLE VIII may be
made without the approval or direction of the Plan Administrator.
ARTICLE IX
RESIGNATION OR REMOVAL OF TRUSTEE: SUCCESSOR TRUSTEE
9.1 Resignation; Removal of Trustee. The Trustee may resign at any
time by giving at least thirty (30) days' prior written notice of such
resignation to the Company. The Company may remove any Trustee, with or without
cause, upon giving at least thirty (30) days, prior written notice to the
Trustee.
9.2 Appointment of Successor Trustee. The Company shall appoint a
successor trustee or additional trustees to fill the vacancy occurring as the
result of the resignation or removal of the Trustee. The successor trustee
shall be designated by an instrument in writing, delivered to the Trustee so
removed and to the successor trustee. The successor trustee shall have all of
the rights, powers, privileges, liabilities, and duties of a Trustee as set
forth in this Trust Agreement.
9.3 Merger, Consolidation, or Other Changes in Trustee. Any
corporation, bank association, or trust company into which a corporate Trustee
may be merged, converted, or with which it may be consolidated, or any
corporation, bank association, or trust company, resulting from any merger,
reorganization, or consolidation to which a corporate Trustee may be a party, or
any corporation, bank association, or trust company to which all or
substantially all of the trust business of a corporate Trustee may be
transferred shall be the successor of the corporate Trustee hereunder without
the execution or filing of any instrument or the performance of any act other
than providing written notification of such transfer to the Company and with the
same powers and duties as conferred upon the Trustee hereunder. Except as
provided above, it shall not be necessary for the Trustee or any successor
trustee to give notice of any such event to any person, and any requirements,
statutory or otherwise, that notice shall be given is hereby waived.
9.4 Transfer of Assets to Successor Trustee. Upon acceptance of such
appointment by a successor trustee, the Trustee shall assign, transfer, pay
over, and deliver the assets then constituting the Trust Fund to the successor
trustee. The Trustee is authorized, however, to reserve such reasonable sum of
money, as to it may seem advisable, to provide for any sums chargeable against
the Trust Fund for which it may be liable, or for its fees and expenses in
connection with the settlement of its account or otherwise, and any balance of
such reserve remaining after payment of such fees and expenses shall be paid
over to the successor trustee. Any balance of such reserve remaining after
payment of such fees and expenses shall be paid over to the successor trustee.
No successor trustee shall be liable for the acts or omissions of any prior
trustee or be obligated to examine the accounts, records, or acts of any prior
trustee or trustees. Each successor trustee shall succeed to the title of all
Securities and Other Property then held in the Trust Fund vested in its
predecessor without the signing or filing of any further instrument, but any
resigning or removed Trustee shall execute all documents and do all acts
necessary to vest such title of record in any successor trustee.
9.5 Ancillary Trust. Whenever and as often as the Trustee deems such
action desirable, it may, by written instrument, appoint any person or
corporation in any state of the United States to act as ancillary Trustee with
respect to any portion of the Trust assets then held or about to be acquired by
or on behalf of the Trustee. Each such ancillary Trustee shall have such
rights, powers, duties, and discretions that are delegated to it by the Trustee,
but shall exercise the same subject to limitations or further directions of the
Trustee as shall be specified in an instrument evidencing its appointment. The
ancillary Trustee may resign or be removed by the Trustee as to all or any
portion of the assets so held at any time or from time to time, by written
instrument delivered one to the other, and the Trustee may thereupon appoint
another ancillary Trustee or successor to whom the assets shall be transferred,
or may itself receive such assets in termination of the ancillary trusteeship to
that extent. Such ancillary Trustee shall be accountable solely to the Trustee
and shall be entitled to reasonable compensation. It shall serve without bond
unless otherwise required by the Trustee or by ERISA.
ARTICLE X
AMENDMENT OF TRUST
The Company reserves the right to amend this Trust Agreement with respect
to all Employers at any time or from time to time. This Trust Agreement may be
amended by an instrument executed by the Company and the Trustee, and the
provisions of any such amendment may be made applicable to the Trust Fund as
constituted at the time of the amendment as well as to any part of the Trust
Fund subsequently acquired. Any amendment shall, unless otherwise provided
therein, become effective upon execution by the Company and the Trustee. No
amendment shall, however, alter the duties, liabilities or compensation of the
Trustee without its written consent, and, except as otherwise expressly provided
in this Trust Agreement or in the Plan, revert any part of the principal or
income of the Trust to any Employer.
ARTICLE XI
ADDITIONAL EMPLOYERS
11.1 Adoption of Trust. Any Affiliated Company may, with the approval
of the Plan Administrator and the Trustee, adopt this Trust by written
instrument executed in accordance with SECTION 5.3 hereof, duly acknowledged and
delivered to the Trustee, the Plan Administrator and the Board, provided such
Affiliated Company adopts a plan substantially identical to the Plan. Upon such
approval by the Plan Administrator and the Trustee, the Trustee shall execute
the necessary documents to make such Affiliated Company a party to the Trust
Agreement as an Employer and such Affiliated Company shall notify the other
fiduciaries identified pursuant to SECTION 5.4 hereof.
11.2 No Separate Trusts. There shall be no separate accounting within
the Trust for each Employer, and all assets held by it and contributions
received by it, and all such contributions and accruals thereto from time to
time, shall be held by the Trustee hereunder in the Trust Fund and shall be
invested and applied by it as herein provided, and all of the assets in the
Trust Fund shall be available to pay benefits that become payable with respect
to any Employer hereunder.
11.3 Withdrawal from Trust. Any Employer may withdraw from the Trust
upon giving the Company and the Trustee at least sixty (60) days, notice in
writing of its intention to withdraw. Such withdrawal shall terminate all
obligations of the withdrawn Employer under the Plan, but, unless otherwise
provided by the Board in its sole discretion, the accounts of such Employers'
Employees shall remain in the Trust until otherwise payable to the Participants.
ARTICLE XII
TERMINATION OF TRUST
12.1 Termination of Trust. This Trust Agreement and the Trust created
hereby may be terminated at any time by the Board.
12.2 Continuation by an Employer's Successor. Any corporation or other
business entity succeeding to the interest of an Employer by sale, transfer,
consolidation, merger, or bankruptcy, may elect to continue this Trust or any
separate trust then existing hereunder, subject to the approval of the Board, by
adopting this Trust Agreement and assuming the duties and responsibilities of
the Plan and Trust, or such corporation or other business entity may establish a
separate plan and trust for the continuation of benefits for its employees, in
which event, subject to the approval of the Board, the Trust assets held on
behalf of the employees of the prior employer shall be transferred to the
trustee of the new trust.
12.3 Liquidation of Trust. Upon any termination of this Trust or any
separate trust then existing hereunder, the Trustee shall, as directed by the
Board, liquidate the proportionate share of the assets of the Trust Fund
attributable to the terminating Employer or hold certain assets in kind. After
deducting estimated expenses for such liquidation and the distribution thereof,
the Trustee shall, if directed by the Board, disburse the proceeds thereof or
the assets held in kind to or for the benefit of such terminating Employer's
Participants. Except as otherwise provided in SECTION 1.4 hereof, in no event
shall any part of the principal or income of the Trust Fund be paid to or for
the benefit of the terminating Employer. Unless sooner terminated, this Trust
shall terminate when there are no funds remaining in the hands of the Trustee
hereunder.
ARTICLE XIII
MISCELLANEOUS
13.1 Applicable Law. EXCEPT WHERE INCONSISTENT WITH THE EXPRESS
PROVISIONS HEREOF, OR WHERE PREEMPTED BY ERISA, THE POWERS AND DUTIES OF THE
TRUSTEE AND ALL QUESTIONS OF INTERPRETATION, CONSTRUCTION, OPERATION AND EFFECT
OF THIS TRUST AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS.
ALL CONTRIBUTIONS TO THE TRUSTEE SHALL BE DEEMED TO TAKE PLACE IN THE STATE OF
TEXAS; AND, EXCEPT FOR SUCH MATTERS AS MAY ARISE UNDER ERISA, THE TRUSTEE SHALL
BE LIABLE TO ACCOUNT IN THE COURTS OF THAT STATE.
13.2 Severability of Provisions. Should any provision of this Trust
Agreement be held invalid or illegal for any reason, such illegality or
invalidity shall not affect the remaining provisions of this Trust Agreement,
but shall be fully severable, and the Trust Agreement shall be construed and
enforced as if such illegal or invalid provision had never been inserted herein.
13.3 Construction of Trust Agreement. This Trust is intended to
qualify as a tax-exempt trust under Code Sections 401(a) and 501(a), and the
provisions hereof shall be interpreted consistent with such intention. If and
whenever the Trustee be, in good faith, in doubt as to the proper construction
or interpretation of this Trust Agreement, or any other question that may arise
during the administration of the Trust herein created, the Trustee is authorized
to resolve all such doubts and questions in such manner as it may deem proper,
without the necessity of resorting to a court for construction or instructions,
and all decisions so made shall be binding and conclusive on all persons ever
interested hereunder. In addition, the Trustee may apply to the Plan
Administrator for instructions, directions, authorizations, or information, and
the Trustee may demand assurances satisfactory to it that any action that it is
directed to take will not adversely affect the tax exemption of the Trust;
provided, however, that no such assurances shall be required if, in the opinion
of counsel (which counsel may also be counsel for the Company), such action does
not adversely affect the tax exemption of the Trust. This Trust Agreement shall
be binding upon all persons who are ever entitled to such benefits hereunder,
their heirs, executors, administrators, and legal representatives, and upon all
Employers and their successors, and upon the Trustee and its successors.
13.4 Spendthrift Provisions. No Participant shall have any right to
assign, transfer, appropriate, encumber, commute or anticipate his interest in
the Trust Fund, or any payments to be made hereunder, and no benefits or
payments, rights, or interests of any such person of any kind or nature, shall
be in any way subject to any legal or equitable process or writ by way of levy,
garnishment, execution or attachment for payment of any claim against any such
person, nor shall any such person have any right of any kind whatsoever with
respect to the Trust Fund, or any estate or interest therein, or with respect to
any other property or rights, other than the right to receive such distributions
as are lawfully made out of the Trust Fund, as and when the same, respectively,
are due and payable, under the terms of this Trust Agreement. The Trustee shall
not recognize any attempted alienation or encumbrance of the right or interest
hereunder of any Participant. The foregoing provisions shall not, however,
apply to a "qualified domestic relations order" as defined in Code Section
414(p), to withholding of any applicable taxes and to assignments permitted by
Code Section 401(a)(13). Neither the Trust Fund nor any benefits hereunder
shall be liable for or subject to the debts, contracts, liabilities,
engagements, or torts of any person to whom such benefits or funds are payable,
nor shall the Trust Fund or any benefits hereunder be considered an asset of
such person in the event of his bankruptcy.
13.5 Title of Trust Assets. The legal and equitable title and
ownership of all assets at any time constituting a part of the Trust Fund shall
be and remain with the Trustee, and neither any Employer nor any Participant in
the Plan (or any person who may be entitled to benefits under the Plan) shall
ever have any legal or equitable estate therein, save and except that a
Participant shall be entitled to receive distribution as and when lawfully made
under the terms hereof.
13.6 Benefits Supported Only by Trust. Any person having any claim
under the Plan will look solely to the assets of the Trust Fund for
satisfaction. In no event will the Employers or any of their officers,
employees, agents, members of their boards of directors, the original Trustee,
any successor Trustees, or the Plan Administrator be liable in their individual
capacities to any person whomsoever for benefits provided for under the
provisions of the Plan and Trust nor do any of them guarantee in any manner the
payment of benefits hereunder.
13.7 Rights Determined from Entire Instrument. This Trust Agreement,
for convenience only, has been divided into Articles and Sections, but the
rights, powers, duties, privileges, and other legal relationships shall be
determined from this Trust Agreement as an entirety and without regard to the
division into Articles and Sections or to the headings prefixing such Sections.
13.8 Execution in Counterparts. This Trust Agreement may be executed
in any number of counterparts, each of which shall be deemed an original and no
other counterpart need be produced.
IN WITNESS WHEREOF, the parties have caused this Trust Agreement to be
executed as of this 11 day of February, 1999, effective as of January 1, 1999.
CLUBCORP, INC.
(SEAL)
By: /s/Kim S. Besse
Title: Sr. Vice President
TRUSTEES
/s/Albert E. Chew
Albert Chew, Trustee
/s/James E. Maser
James E. Maser, Trustee
/s/Douglas T. Howe
Douglas T. Howe, Trustee
STATE OF TEXAS
COUNTY OF DALLAS
BEFORE ME, the undersigned authority, on this day personally appeared
Albert E. Chew, Trustee of ClubCorp, Inc., known to me to be the person
whose name is subscribed to the foregoing instrument, and acknowledged to me
that he executed the same for the purposes and consideration therein expressed,
in the capacity therein stated, and as the act and deed of said corporation.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this 11 day of February, 1999.
/s/Julie H. Green
Notary Public in and for the State of Texas
My Commission Expires:
11/24/00
STATE OF TEXAS
COUNTY OF DALLAS
BEFORE ME, the undersigned authority, on this day personally appeared James
E Maser, known to me to be the person whose name is subscribed to the foregoing
instrument, and acknowledged to me that he executed the same for the purposes
and consideration therein expressed, in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this 11 day of February, 1999.
/s/Julie H. Green
Notary Public in and for the State of Texas
My Commission Expires:
11/24/00
STATE OF TEXAS
COUNTY OF DALLAS
BEFORE ME, the undersigned authority, on this day personally appeared
Douglas T. Howe, known to me to be the person whose name is subscribed to the
foregoing instrument, and acknowledged to me that he executed the same for the
purposes and consideration therein expressed, in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this 11 day of February, 1999.
/s/Julie H. Green
Notary Public in and for the State of Texas
My Commission Expires:
11/24/00
STATE OF TEXAS
COUNTY OF DALLAS
BEFORE ME, the undersigned authority, on this day personally appeared Kim
S. Besse, known to me to be the person whose name is subscribed to the foregoing
instrument, and acknowledged to me that he executed the same for the purposes
and consideration therein expressed, in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this 11 day of February, 1999.
/s/Julie H. Green
Notary Public in and for the State of Texas
My Commission Expires:
11/24/00
EXHIBIT 10.12
THIRD AMENDMENT TO THE
CLUB CORPORATION INTERNATIONAL EXECUTIVE STOCK OPTION PLAN
Amendment made effective January 27, 1999, by ClubCorp, Inc., a Delaware
corporation, formerly ClubCorp International, Inc. (the "Company").
W I T N E S S E T H:
-------------------
WHEREAS, Club Corporation International established the Club Corporation
International Executive Stock Option Plan (the "Plan"); and
WHEREAS, effective July 21, 1998, the Company changed its name from Club
Corporation International to ClubCorp International, Inc.; and
WHEREAS, effective January 27, 1999, the Company changed its name from
ClubCorp International, Inc. to ClubCorp, Inc.; and
WHEREAS, effective January 27, 1999, the Company now desires to amend the
Plan to (i) change the name of the Company, from Club Corporation International
to ClubCorp, Inc.; (ii) to change the name of the Plan, as defined therein, from
Club Corporation International Executive Stock Option Plan to ClubCorp, Inc.
Executive Stock Option Plan; (iii) to add a second Committee, composed of
individuals who are not participants in the Plan, for the purpose of determining
awards and options under the Plan for Directors of the Company; and (iv) to make
changes to the powers of the original Committee required by the formation of the
second Committee; and
WHEREAS, the Plan may be amended by the Company pursuant to the provisions
of Section 9 of the Plan, and the Company desires to amend the Plan.
NOW, THEREFORE, the Plan is amended as follows, effective as set forth
above:
1. All references to the Plan as the "Club Corporation International
Executive Stock Option Plan" including the top of page 1 of the Plan, and each
and every other place it may appear in the Plan are deleted, and the Plan is
amended to read "ClubCorp, Inc. Executive Stock Option Plan" in each place where
"Club Corporation International Executive Stock Option Plan" is deleted.
2. All references to the name of the Corporation and its state of
incorporation as "Club Corporation International, a Nevada corporation" in each
and every place it may appear in the Plan are deleted, and "ClubCorp, Inc., a
Delaware corporation" is substituted in each place where "Club Corporation
International, a Nevada corporation" is deleted.
3. Existing Section 1 is amended to add a new Section 1.7A immediately
following Section 1.7 as follows:
"1.7A 'DISINTERESTED COMMITTEE' means the committee appointed pursuant
to SECTION 3 of the Plan by the Board of Directors to administer the Plan."
4. Existing Section 1.9 is deleted in its entirety, and the following is
substituted in its place:
"1.9 'COMPANY' means ClubCorp, Inc. or its successor."
5. Existing Section 1.13 is deleted in its entirety, and the following is
substituted in its place:
"1.13 'PLAN' shall mean the ClubCorp, Inc. Executive Stock Option Plan."
6. Existing Section 3.1 is deleted in its entirety, and the following is
substituted in its place:
"3.1 COMMITTEES. The Committee shall be appointed by the Board of
Directors and shall administer the Plan with respect to all Eligible Individuals
other than members of the Board of Directors. A Disinterested Committee shall
be appointed by the Board of Directors and shall be composed of persons who are
not participants in the Plan. The Disinterested Committee shall administer the
Plan with respect to all members of the Board of Directors who participate in
the Plan, if any. Unless the context otherwise requires, references herein to
the Committee shall also refer to the Disinterested Committee as administrator
of the Plan for members of the Board of Directors who are Eligible Individuals,
if any."
7. Existing Section 10.16 is amended to delete the first sentence in its
entirety, and the following is substituted in its place:
"All questions arising with the respect to the provisions of the Plan shall
be determined by application of the laws of the State of Texas except to the
extent Texas law is preempted by federal law."
IN WITNESS WHEREOF, ClubCorp, Inc., acting by and through its duly
authorized officer, has executed this document on this the 11th day of March,
1999.
CLUBCORP, INC., a Delaware corporation
By: /s/Albert E. Chew, III
Its: Executive Vice President
EXHIBIT 10.14
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "First Amendment"), dated as
of December 23, 1998 (but effective as of May 27, 1998), is entered into among
CLUBCORP INTERNATIONAL, INC., a Delaware corporation (the "Borrower"),
successor by merger to Club Corporation International, a Nevada corporation
("Old ClubCorp"), the banks listed on the signature page hereof (the "Lenders"),
and NATIONSBANK N.A., in its capacity as administrative agent for the Lender
(the "Administrative Agent").
A. The Borrower, the Lender, certain co-agents, and the Administrative
Agent are parties to that certain Credit Agreement, dated as of May 27, 1998
(the "Credit Agreement"; the terms defined in the Credit Agreement and not
otherwise defined herein shall be used herein as defined in the Credit
Agreement).
B. As a result of a mandate by the Securities and Exchange Commission with
respect to the accounting of Membership Deposits, the parties hereto agree to
amend the Credit Agreement to provide certain revisions thereto to reflect the
change in accounting for Membership Deposits as a result of such mandate, which
revisions were contemplated by the parties in the last sentence of Section 1.3
of the Credit Agreement.
C. Old ClubCorp has merged into the Borrower pursuant to the Agreement and
Plan of Merger and Reincorporation effective as of August 12, 1998, with the
Borrower being the surviving corporation (the "Merger"). By operation of Law,
upon the Merger the Borrower assumed all of the obligations and liabilities of
Old ClubCorp under the Loan Documents. Upon the express assumption by the
Borrower of all obligations and liabilities of Old ClubCorp as provided herein,
the Lenders shall consent to and approve the Merger.
NOW, THEREFORE, in consideration of the covenants, conditions and
agreements hereafter set forth, and for other good and valuable consideration,
the receipt and adequacy of which are all hereby acknowledged, the parties
hereto covenant and agree as follows:
1. AMENDMENTS TO CREDIT AGREEMENT.
(a) The definition of "EBITDA" set forth in Section 1.1 of the Credit
Agreement is hereby amended to read as follows:
"EBITDA" means, for any period, determined in accordance with GAAP on
a consolidated basis for the Borrower and its Subsidiaries, the sum of (a)
Pretax Net Income (excluding therefrom, to the extent included in determining
Pretax Net Income, any items of extraordinary gain, including net gains on the
sale of assets other than asset sales in the ordinary course of business, and
adding thereto, to the extent included in determining Pretax Net Income, any
items of extraordinary loss, including net losses on the sale of assets other
than asset sales in the ordinary course of business), plus (b) depreciation and
amortization, plus (c) interest expense (including but not limited to interest
expense pursuant to Capitalized Lease Obligations), plus (d) to the extent
included in determining Pretax Net Income, non-recurring, non-cash charges,
minus (e) to the extent included in determining Pretax Net Income, Non-recurring
credits, plus (f) to the extent included in determining Pretax Net Income, Net
Change in Deferred Membership Revenue."
(b) Section 1.1 of the Credit Agreement is hereby amended by adding the
defined term "Net Change in Deferred Membership Revenue" thereto in proper
alphabetical order to read as follows:
"Net Change in Deferred Membership Revenue" means, for any period, the
net change during such period in current and non-current deferred membership
revenue and related expenses in respect of Membership Deposits."
(c) Section 7.4(f) of the Credit Agreement is hereby amended to read as
follows:
"(f) Investments in Non-Guarantors (calculated on the initial
investment amount but adjusted to take into account any proceeds received by the
Borrower or any other Obligor on a liquidation or repayment of any such
Investments) not to exceed, together with other Investments pursuant to Section
7.4(g) hereof (calculated as provided in Section 7.4(g) hereof) and Acquisitions
of Non-Guarantors pursuant to Section 7.8 hereof (calculated using the aggregate
Acquisition Consideration therefor), an amount equal to the sum of (i)
$7,000,000 plus (ii) 10% of Net Worth at any time; and"
(d) Section 7.4(g) of the Credit Agreement is hereby amended to read as
follows:
"(g) Investments not otherwise permitted pursuant to clauses (a)
through (e) above (calculated on the initial investment amount but adjusted to
take into account any proceeds received by the Borrower or any other Obligor on
a liquidation or repayment of any such Investments) not to exceed, together with
Investments in (calculated as provided in Section 7.4(f) hereof) and
Acquisitions of Non-Guarantors pursuant to Section 7.8 hereof (calculated using
the aggregate Acquisition Consideration therefor), an amount equal to the sum of
(i) $7,000,000 plus (ii) 10% of Net Worth at any time;"
(e) Clause (e) of Section 7.8 of the Credit Agreement is hereby amended to
read as follows:
"and (e) the aggregate Acquisition Consideration for all Non-Guarantors,
together with Investments in Non-Guarantors (calculated as provided in Section
7.4(f) hereof) and other Investments (calculated as provided in Section 7.4(g)
hereof) pursuant to Section 7.4(g) hereof, shall not exceed an amount equal to
the sum of (i) $7,000,000 plus (ii) 10% of Net Worth at any time."
(f) Section 7.14 of the Credit Agreement is hereby amended to read as
follows:
"Section 7.14 Minimum Tangible Net Worth. The Borrower shall not
permit the Tangible Net Worth at any time to be less than the sum of (a)
$305,060,000, plus (b) 50% of cumulative Net Income for the period from, but not
including, December 31, 1997 through the date of calculation (but excluding from
the calculation of such cumulative Net Income the effect, if any, of any Fiscal
Quarter (or portion of a Fiscal Quarter not then ended) of the Borrower for
which Net Income was a negative number), plus (c) an amount equal to 100% of the
tangible net worth of any Person that becomes a Subsidiary of the Borrower or is
merged into or consolidated with the Borrower or any subsidiary of the Borrower
or substantially all of the assets of which are acquired by the Borrower or any
Subsidiary of the Borrower to the extent the purchase price paid therefor is
paid in equity securities of the Borrower or any Subsidiary of the Borrower,
plus (d) 75% of the Net Cash Proceeds (but without duplication) of any offerings
of capital stock or other equity interests of the Borrower or any of its
Subsidiaries."
(g) The Compliance Certificate is hereby amended to be in the form of
Exhibit B to this First Amendment.
2. ASSUMPTION. The Borrower hereby irrevocably and unconditionally (a)
accepts and assumes each and all obligations and liabilities of Old ClubCorp
pursuant to the Credit Agreement, the Notes and all other Loan Documents and (b)
agrees that it will perform in accordance with their respective terms all
the obligations, agreements and covenants which by the terms of the Credit
Agreement, the Notes and each other Loan Document are required to be performed
by Old ClubCorp, as though it were a signatory to each such Loan Document. The
parties agree that all references to the Borrower in the Loan Documents refer to
ClubCorp International, Inc., a Delaware corporation.
3. CONSENT AND APPROVAL. Subject to the conditions of effectiveness set
forth in Section 5 of this First Amendment, the Lenders hereby consent to and
approve the Merger.
4. REPRESENTATIONS AND WARRANTIES TRUE; NO EVENT OF DEFAULT. By its
execution and delivery hereof, the Borrower represents and warrants that, as of
the date hereof and after giving effect to the amendments provided in the
foregoing Section 1 and the consent and approval provided in the foregoing
Section 3:
(a) the representations and warranties contained in the Credit
Agreement are true and correct on and as of the date hereof as if made on and as
of such date;
(b) no event has occurred and is continuing which constitutes a
Default or an Event of Default;
(c) the Borrower has full power and authority to execute, deliver
and perform this First Amendment, and the Credit Agreement, as amended by this
First Amendment, the execution, delivery and performance of this First
Amendment, and the Credit Agreement as amended by this First Amendment, have
been duly authorized by all corporate action of the Borrower, and this First,
Amendment and the Credit Agreement, as amended hereby, constitute the legal,
valid and binding obligations of the Borrower, enforceable in accordance
with their respective terms, except as enforceability may be limited by
applicable Debtor Relief Laws and by general principles of equity ( regardless
of whether enforcement is sought in a proceeding in equity or at law) and
except as rights to indemnity may be limited by federal or state securities
laws;
(d) neither the execution, delivery and performance of the First,
Amendment or the Credit Agreement, as amended by this First Amendment, nor the
consummation of any transactions herein or therein, will contravene or conflict
with any Law to which the Borrower is subject or any indenture, agreement or
other instrument to which the Borrower or any of its property is subject; and
(e) no authorization, approval, consent or other action by, notice to,
or filing with, any governmental authority or other Person, including the Board
of Directors of the Borrower, is required for the (i) execution, delivery or
performance by the Borrower of this First Amendment, and the Credit Agreement,
as amended by this First Amendment, or (ii) acknowledgement of this First
Amendment by any Guarantor.
5. CONDTIONS OF EFFECTIVENESS. This First Amendment shall be effective
as of May 27, 1998, subject to the following:
(a) the representations and warranties set forth in Section 4 of this
First Amendment shall be true and correct;
(b) the Administrative Agent shall have received counterparts of this
First Amendment executed by the Determining Lenders;
(c) the Administrative Agent shall have received counterparts of this
First Amendment executed by the Borrower and acknowledged by each
Guarantor;
(d) the Administrative Agent shall have received certified resolutions
of the Board of Directors of the Borrower authorizing (i) the execution,
delivery and performance of this First Amendment, and (ii) the performance of
the Credit Agreement, as amended by this First Amendment, and the other Loan
Documents; and
(e) the Administrative Agent shall have received in form and substance
satisfactory to Administrative Agent, such other documents, certificates and
instruments as Lender shall require.
6. GUARANTOR'S ACKNOWLEDGEMENT. By signing below, each Guarantor (i)
acknowledges, consents and agrees to the execution, delivery and performance by
the Borrower of this First Amendment, (ii) acknowledges and agrees that its
obligations in respect of its Subsidiary Guaranty are not released, diminished,
waived, modified, impaired or affected in any manner by this First Amendment,
any of the provisions contemplated herein or the Merger, (iii) ratifies and
confirms its obligations under its Subsidiary Guaranty, and (iv) acknowledges
and agrees that it has no claim or offsets against, or defenses or counterclaims
to, its Subsidiary Guaranty.
7. REFERENCE TO THE CREDIT AGREEMENT.
(a) Upon the effectiveness of the First Amendment, each reference in
the Credit Agreement to "this Agreement", "hereunder", or words of like import
shall mean and be a reference to the Credit Agreement, as amended by this
First Amendment.
(b) The Credit Agreement, as amended by this First Amendment, and all
other Loan Documents shall remain in full force and effect and are hereby
ratified and confirmed.
8. COSTS, EXPENSES AND TAXES. The Borrower shall be obligated to pay the
costs and expenses of the Administrative Agent in connection with the
preparation, reproduction, execution and delivery of this First Amendment and
the other instruments and documents to be delivered hereunder.
9. EXECUTION IN COUNTERPARTS. This First Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an
original and all of which when taken together shall constitute but one and the
same instrument.
10. GOVERNING LAW; BINDING EFFECT. This First Amendment shall be
governed by and construed in accordance with the laws of the State of Texas
(without giving effect to conflict of laws) and the United States of America,
and shall be binding upon the Borrower and each Lender and their respective
successors and assigns.
11. HEADINGS. Section headings in this First Amendment are included herein
for convenience of reference only and shall not constitute a part of this First
Amendment for any other purpose.
12. ENTIRE AGREEMENT. THE CREDIT AGREEMENT, AS AMENDED BY THIS FIRST
AMENDMENT, AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AS TO THE SUBJECT MATTER THEREIN AND HEREIN AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
as of the date first above written.
CLUBCORP INTERNATIONAL, INC.
By: /s/John M. Massey III
Name: John M. Massey III
Title: Treasurer
NATIONSBANK, N.A., as Administrative Agent and
as a Lender, Swing Line Bank and Issuing Bank
By: /s/Dan Killian
Name: Dan Killian
Title: Vice President
CREDIT LYONNAIS NEW YORK BRANCH, as
Co-Agent and as a Lender
By: /s/Robert Ivosevich
Name: Robert Ivosevich
Title: Senior Vice President
FIRST UNION NATIONAL BANK, as Co-Agent
and as a Lender
By: /s/Paul L. Menconi
Name: Paul L. Menconi
Title: Vice President
BANK ONE, TEXAS N.A.
By: /s/Alan L. Miller
Name: Alan L. Miller
Title: Vice President
SOUTHTRUST BANK, N.A.
By: /s/Daniel J. Gorman
Name: Daniel J. Gorman, Jr.
Title: Vice President
WELLS FARGO BANK (TEXAS), N.A.
By: /s/Brent Bertino
Name: Brent Bertino
Title: Assistant Vice President
BRANCH BANKING AND TRUST COMPANY
By: /s/Cory Boyte
Name: Cory Boyte
Title: Vice President
COMERICA BANK
By: /s/Reginald M. Goldsmith, III
Name: Reginald M. Goldsmith, III
Title: Vice President
DEPOSIT GUARANTY NATIONAL BANK
By: /s/Mark D. Evans
Name: Mark D. Evans
Title: Senior Vice President
HIBERNIA NATIONAL BANK
By: /s/Christopher Pitre
Name: Christopher Pitre
Title: Vice President
MELLON BANK, N.A.
By: /s/Martin J. Randal
Name: Martin J. Randal
Title: Assistant Vice President
LTCB TRUST COMPANY
By: /s/Sadao Muraoka
Name: Sadao Muraoka
Title: Head of Southwest Region
EXHIBIT 10.16
FIRST AMENDMENT TO THE
CLUB CORPORATION INTERNATIONAL OMNIBUS STOCK PLAN
Amendment made effective January 27, 1999, by ClubCorp, Inc., a Delaware
Corporation, formerly ClubCorp International, Inc., (the "Company").
W I T N E S S E T H:
-------------------
WHEREAS, Club Corporation International established the Club Corporation
International Omnibus Stock Plan (the "Plan"); and
WHEREAS, effective July 21, 1998, the Company changed its name from Club
Corporation International to ClubCorp International, Inc.; and
WHEREAS, effective January 27, 1999, the Company changed its name from
ClubCorp International, Inc. to ClubCorp, Inc.; and
WHEREAS, the Company now desires to amend the Plan to (i) change the name
of the Company, as defined therein, from Club Corporation International to
ClubCorp, Inc., effective January 27, 1999; (ii) to change the name of the Plan,
as defined therein, from Club Corporation International Omnibus Stock Plan to
ClubCorp, Inc. Omnibus Stock Plan; (iii) to add a second Committee, composed of
individuals who are not participants in the Plan, for the purpose of determining
awards and options under the Plan for Directors of the Company; and (iv) to make
any changes to the powers of the original Committee as may be required by the
formation of the second Committee; and
WHEREAS, the Plan may be amended by the Company pursuant to the provisions
of Section 7.2 of the Plan, and the Company desires to amend the Plan.
NOW, THEREFORE, the Plan is amended as follows, effective as set forth
above:
1. All references to the Plan as the "Club Corporation International
Omnibus Stock Plan," including the top of page 1 of the Plan, and each and every
other place it may appear in the Plan are deleted, and the Plan is amended to
read "ClubCorp, Inc. Omnibus Stock Plan" in each place where "Club Corporation
International Omnibus Stock Plan" is deleted.
2. All references to the name of the Corporation and its state of
incorporation as "Club Corporation International, a Nevada corporation" in each
and every place it may appear in the Plan are deleted, and "ClubCorp, Inc., a
Delaware corporation" is substituted in each place where "Club Corporation
International, a Nevada corporation" is deleted.
3. Existing Section 1 is amended to add a new Section 1.9A immediately
following Section 1.9 as follows:
"1.9A 'DISINTERESTED COMMITTEE' means the committee appointed pursuant to
SECTION 3 of the Plan by the Board of Directors to administer the Plan."
4. Existing Section 1.10 is deleted in its entirety, and the following is
substituted in its place:
"1.10 'CORPORATION' means ClubCorp, Inc. and any successor corporation."
5. Existing Section 1.13 is deleted in its entirety, and the following is
substituted in its place:
"1.13 'ELIGIBLE INDIVIDUALS' means those employees designated by the
Committee as key employees of the Corporation or any of its Affiliates and those
members of the Board of Directors designated by the Disinterested Committee."
6. Existing Section 1.21 is deleted in its entirety, and the following is
substituted in its place:
"1.21 'PLAN' means the ClubCorp, Inc. Omnibus Stock Plan, as amended from
time to time."
7. Existing Section 3.1 is deleted in its entirety, and the following is
substituted in its place:
"3.1 COMMITTEES. The Committee shall be appointed by the Board of
Directors and shall administer the Plan with respect to all Eligible Individuals
other than those who are members of the Board of Directors. The Disinterested
Committee shall be appointed by the Board of Directors and shall be composed of
persons who shall not be Eligible Individuals. The Disinterested Committee
shall administer the Plan with respect to all members of the Board of Directors
who participate in the Plan, if any. Neither Committee shall have the power to
appoint members of either committees or to terminate or amend the Plan. Except
for references in SECTIONS 3 AND 4, and unless the context otherwise requires,
references herein to the Committee shall refer to the Disinterested Committee as
administrator of the Plan for members of the Board of Directors who are Eligible
Individuals, if any. In the event that the Stock is registered under Section 12
of the Act, all members of the Committee shall be Outside Directors. The number
of persons that shall constitute the Committee and the Disinterested Committee
shall be determined from time to time by a majority of all the members of the
Board of Directors and, unless that majority of the Board of Directors
determines otherwise or Rule 16b-3 is amended to require otherwise, shall be no
less than two persons. To the extent that Rule 16b-3 promulgated under the Act
requires a system of administration that is different from this SECTION 3.1,
this SECTION 3.1 shall automatically be deemed amended to the extent necessary
to cause it to be in compliance with Rule 16b-3."
8. Existing Section 3.2 is deleted in its entirety, and the following is
substituted in its place:
"3.2 DURATION, REMOVAL, ETC. The members of the Committee and the
Disinterested Committee shall serve at the discretion of the Board of Directors,
which shall have the power, at any time and from time to time, to remove members
from or add members to the Committee or the Disinterested Committee. Removal
from the Committee or the Disinterested Committee may be with or without cause.
Any individual serving as a member of the Committee or the Disinterested
Committee shall have the right to resign from membership in the Committee or the
Disinterested Committee by at least three days' written notice to the Board of
Directors. The Board of Directors, and not the remaining members of the
Committee or the Disinterested Committee, shall have the power and authority to
fill all vacancies on the Committee or the Disinterested Committee. The Board
of Directors shall, within sixty (60) days, fill any vacancy that causes the
number of members of the Committee or the Disinterested Committee to be below
two or any other number that Rule 16b-3 or Code Section 162(m) may require from
time to time."
9. Existing Section 3.3 is deleted in its entirety, and the following is
substituted in its place:
"3.3 MEETINGS AND ACTIONS OF COMMITTEES. The Board of Directors shall
designate which of the Committee and Disinterested Committee members shall be
the chairman of the respective Committees. If the Board of Directors fails to
designate a chairman for each of the Committees, the members of the Committee
and the members of the Disinterested Committee shall elect one of its members as
chairman of the respective Committees, who shall act as chairman until he ceases
to be a member of the Committee or Disinterested Committee or until the Board of
Directors elects a new chairman. The Committee and the Disinterested Committee
shall hold their meetings at those times and places as the chairman of the
respective Committees may determine. At all meetings of the Committee or the
Disinterested Committee, a quorum for the transaction of business shall be
required and a quorum shall be deemed present if at least a majority of the
members of the Committee or the Disinterested Committee are present. At any
meeting of the Committee or the Disinterested Committee, each member shall have
one vote. All decisions and determinations of the Committee and the
Disinterested Committee shall be made by the majority vote or majority decision
of all of its members present at a meeting at which a quorum is present;
provided, however, that any decision or determination reduced to writing and
signed by all of the members of the Committee and the Disinterested Committee
shall be as fully effective as if it had been made at a meeting that was duly
called and held. The Committee and the Disinterested Committee may make any
rules and regulations for the conduct of their business that are not
inconsistent with the provisions of the Plan, the Articles or Certificate of
Incorporation of the Corporation, the by-laws of the Corporation, and Rule 16b-3
so long as it is applicable, as the Committee or the Disinterested Committee may
deem advisable."
10. Existing Section 3.4 is deleted in its entirety, and the following is
substituted in its place:
"3.4 COMMITTEE POWERS. Subject to the express provisions of the Plan and
Rule 16b-3, the Committee, with respect to all Eligible Individuals and Holders
who are not Board of Director members, shall have the authority, in its sole and
absolute discretion, to: (a) adopt and rescind administrative and interpretive
rules and regulations relating to the Plan; (b) determine the Eligible
Individuals to whom, and the time or times at which, Awards shall be granted;
(c) determine the amount of cash and the number of shares of Stock, Stock
Appreciation Rights, Phantom Shares or shares of Restricted Stock, or any
combination thereof, that shall be the subject of each Award; (d) determine the
terms and provisions of each Award (which need not be identical), including
provisions defining or otherwise relating to (i) the term and the period or
periods and extent of exercisability of the Awards, (ii) the extent to which the
transferability of shares of Stock issued or transferred pursuant to any Award
is restricted, (iii) the effect of Holder's Termination on the Agreement, and
(iv) the effect of approved leaves of absence (consistent with applicable law);
(e) accelerate the exercisability of any Award that has been granted; (f)
construe the respective Awards and the Plan; (g) make determinations of the Fair
Market Value of the Stock pursuant to the Plan; (h) delegate its duties under
the Plan to such agents as it may appoint from time to time, provided that the
Committee may not delegate its duties with respect to making Awards to, or
otherwise with respect to Awards granted to Eligible Individuals who are subject
to Section 16(b) of the Act or Section 162(m) of the Code; and (i) make all
other determinations, perform all other acts, and exercise all other powers and
authority necessary or advisable for administering the Plan, including the
delegation of those ministerial acts and responsibilities as the Committee deems
appropriate. Subject to Rule 16b-3 and Code Section 162(m), the Committee may
correct any defect, supply any omission, or reconcile any inconsistency in the
Plan or in any Award in the manner and to the extent it deems necessary or
desirable to carry the Plan into effect, and the Committee shall be the sole and
final judge of that necessity or desirability. The determinations of the
Committee on the matters referred to in this SECTION 3.4 shall be final and
conclusive."
11. A new Section 3.5 is added to the end of Section 3 as follows:
"3.5 DISINTERESTED COMMITTEE POWERS. Subject to the express provisions of
the Plan and Rule 16b-3, the Disinterested Committee, with respect to all
Eligible Individuals and Holders who are Board of Director members, shall have
the authority, in its sole and absolute discretion, to: (a) adopt and rescind
administrative and interpretive rules and regulations relating to the Plan; (b)
determine the Eligible Individuals to whom, and the time or times at which,
Awards shall be granted; (c) determine the amount of cash and the number of
shares of Stock, Stock Appreciation Rights, Phantom Shares or shares of
Restricted Stock, or any combination thereof, that shall be the subject of each
Award; (d) determine the terms and provisions of each Award (which need not be
identical), including provisions defining or otherwise relating to (i) the term
and the period or periods and extent of exercisability of the Awards, (ii) the
extent to which the transferability of shares of Stock issued or transferred
pursuant to any Award is restricted, (iii) the effect of Holder's Termination on
the Agreement, and (iv) the effect of approved leaves of absence (consistent
with applicable law) (e) accelerate the exercisability of any Award that has
been granted; (f) construe the respective Awards and the Plan; (g) make
determinations of the Fair Market Value of the Stock pursuant to the Plan; (h)
delegate its duties under the Plan to such agents as it may appoint from time to
time, provided that the Disinterested Committee may not delegate its duties with
respect to making Awards to, or otherwise with respect to Awards granted to
Eligible Individuals who are subject to Section 16(b) of the Act or Section
162(m) of the Code; and (i) make all other determinations, perform all other
acts, and exercise all other powers and authority necessary or advisable for
administering the Plan, including the delegation of those ministerial acts and
responsibilities as the Disinterested Committee deems appropriate. Subject to
Rule 16b-3 and Code Section 162(m), the Disinterested Committee may correct any
defect, supply any omission, or reconcile any inconsistency in the Plan or in
any Award in the manner and to the extent it deems necessary or desirable to
carry the Plan into effect, and the Disinterested Committee shall be the sole
and final judge of that necessity or desirability. The determinations of the
Disinterested Committee on the matters referred to in this SECTION 3.5 shall be
final and conclusive."
12. Existing Section 4.1 is deleted in its entirety, and the following is
substituted in its place:
"4.1 ELIGIBLE INDIVIDUALS.Awards may be granted pursuant to this Plan only
to persons who are Eligible Individuals at the time of the grant thereof and
shall be made in whatever form the Committee, or the Disinterested Committee, as
applicable, in its sole discretion may determine including Options, Phantom
Shares, Stock Appreciation Rights and Restricted Stock."
13. Existing Section 4.2 is deleted in its entirety, and the following is
substituted in its place:
"4.2 GRANT OF AWARDS. Subject to the express provisions of the Plan, the
Chief Executive Officer (CEO) and the Chief Operations Officer of Domestic
Operations (COO-DO) shall determine which Eligible Individuals shall be granted
Awards during the period from the effective date of the Plan through June 30,
1998. After June 30, 1998, the Committee shall determine which Eligible
Individuals, other than Board of Director members, shall be granted Awards from
time to time. The Disinterested Committee shall determine which members of the
Board of Directors shall be Eligible Individuals and granted Awards from time to
time. The Board of Directors shall also have the power to grant Awards, subject
to the requirements of Rule 16b-3. References to the Committee throughout the
remainder of this SECTION 4.2 and SECTION 4.3 shall mean the CEO, COO-DO, Board
of Directors, the Committee or the Disinterested Committee, as appropriate. In
making grants, the Committee and Disinterested Committee shall take into
consideration the contribution the potential Holder has made or may make to the
success of the Corporation or its Affiliates and such other considerations as
the Board of Directors may from time to time specify. The Committee and
Disinterested Committee shall also determine the number of shares subject to
each of the Awards and shall authorize and cause the Corporation to grant Awards
in accordance with those determinations. All grants to Eligible Individuals who
are 'covered employees' under Code Section 162(m) shall be subject to
shareholder approval sufficient to satisfy the requirements of Code Section
162(m). Notwithstanding any provision to the contrary, an Award shall be void
if the Holder is not an Eligible Individual."
IN WITNESS WHEREOF, ClubCorp, Inc., acting by and through its duly authorized
officer, has executed this document on this the 11th day of March, 1999.
CLUBCORP, INC., A DELAWARE CORPORATION
By: /s/Albert E. Chew, III
Its: Executive Vice President
EXHIBIT 10.17
FIRST AMENDMENT TO THE
CLUBCORP EMPLOYEE STOCK OWNERSHIP PLAN
AND
CLUBCORP EMPLOYEE STOCK OWNERSHIP TRUST AGREEMENT
Amendment made effective January 27, 1999, by ClubCorp, Inc., a Delaware
corporation, formerly ClubCorp International, Inc., (the Company").
W I T N E S S E T H:
- - - - - - - - - -
Whereas, the Company established the ClubCorp Stock Investment Plan (the
"Prior Plan") and the ClubCorp Stock Investment Trust (the "Prior Trust"); and
WHEREAS, the Company amended and restated the Prior Plan and Prior Trust,
effective January 1, 1999, as the ClubCorp Employee Stock Ownership Plan
("ESOP") and the ClubCorp Employee Stock Ownership Trust Agreement,
respectively; and
WHEREAS, effective January 27, 1999, the Company changed its name from
ClubCorp International, Inc. to ClubCorp, Inc.; and
WHEREAS, the Company now desires to amend the ESOP to change the name of
the Company, as defined therein, from ClubCorp International, Inc. to ClubCorp,
Inc. effective as of the date the Company changed its name; and
WHEREAS, the ESOP may be amended by the Company pursuant to the provisions
of Article 15 of the ESOP, and the company desires to amend the ESOP.
NOW, THEREFORE, the ESOP is amended as follows, effective as set forth
above:
1. All references to the name of the Corporation and its state of
incorporation, as "Club Corporation International, a Nevada corporation" in each
and every place it may appear in the Plan are deleted, and "ClubCorp, Inc.,
a Delaware corporation" is substituted in each place where "Club Corporation
International, a Nevada corporation" is deleted.
2. Existing Section 2.10 is deleted in its entirety, and the following is
substituted in its place:
"2.10" "Company" means ClubCorp, Inc., or its successor."
IN WITNESS WHEREOF, ClubCorp, Inc., acting by and through its duly
authorized officer, has executed this document on this 26th day of February,
1999.
CLUBCORP, INC., a Delaware corporation
By: /s/Kim S. Besse
Its:
EXHIBIT 10.18
NationsBanc Montgomery Securities
[Letterhead]
March 3, 1999
ClubCorp, Inc.
3030 LBJ Freeway, Suite 700
Dallas, Texas 75234
Attention: John M. Massey III, Treasurer
Re: $200 million Senior Credit Facility
Ladies and Gentlemen:
ClubCorp, Inc. (the "Borrower") has advised NationsBank, N.A. ("NationsBank")
and NationsBanc Montgomery Securities LLC ("NMS") that the Borrower intends to
acquire (the "Transaction") indirectly certain properties being sold by
Meditrust Corporation and Meditrust Operating Company, such properties being
owned by Meditrust Golf Corp, Inc., Meditrust Golf Group II, Inc., and The
Cobblestone Golf Companies, Inc. (collectively, the "Acquired Companies") for
approximately $210 million. You have advised us that up to $200 million in
senior debt will be required in order to effect the Transaction and to pay the
related costs and expenses, and that no external financing will be required
other than the financing described herein. References herein to the
"Transaction" shall include the financing described herein, the refinancing of
existing debt and all other transactions related to the Transaction.
In connection with the foregoing, NationsBank is pleased to offer to be the sole
and exclusive administrative agent (in such capacity, the "Administrative
Agent") for a $200 million Senior Credit Facility (the "Senior Credit Facility")
to the Borrower, and NationsBank is pleased to offer its commitment to lend up
to $200 million of the Senior Credit Facility, upon and subject to the terms and
conditions of this letter and the Summary of Terms and Conditions attached
hereto (the "Summary of Terms"). NMS is pleased to advise you of its
willingness, as sole and exclusive Lead Arranger and Book Manager for the Senior
Credit Facility, to form a syndicate of financial institutions (the "Lenders")
reasonably acceptable to you for the Senior Credit Facility.
NationsBank will act as sole and exclusive Administrative Agent for the Senior
Credit Facility and NMS will act as sole and exclusive Lead Arranger, Book
Manager and Syndication Agent for the Senior Credit Facility. No additional
agents, co-agents or arrangers will be appointed and no other titles will be
awarded without our prior written approval.
NMS intends to commence syndication efforts no sooner than 60 days from Closing
and no later than 90 days from Closing, and you agree to actively assist, and to
cause the Acquired Companies to assist NMS in achieving a syndication of the
Senior Credit Facility that is satisfactory to it. Such assistance by you and
the Acquired Companies shall include (a) your providing and causing your
advisors to provide us and the other Lenders upon request with all information
reasonably deemed necessary by us to complete syndication, including, but not
limited to, information and evaluations prepared and the Borrower and the
Acquired Companies and their advisors, or on their behalf, relating to the
Transaction; (b) assistance in the preparation of an Offering Memorandum to be
used in connection with the syndication; (c) your using commercially reasonable
efforts to ensure that the syndication efforts benefit materially from your
existing lending relationships; and (d) otherwise assisting us in our
syndication efforts, including by making senior management and advisors of the
Borrower and the Acquired Companies and their subsidiaries available from time
to time to attend and make presentations regarding the business and prospects of
the Borrower and the Acquired Companies and their subsidiaries, as appropriate,
at one or more meetings of prospective Lenders.
It is understood and agreed that NationsBank and NMS will manage and control all
aspects of the syndication, including decisions as to the selection of proposed
Lenders and any titles offered to proposed Lenders, when commitments will be
accepted and the final allocations of the commitments among the Lenders. It is
understood that no Lender participating in the Senior Credit Facility will
receive compensation from you in order to obtain its commitment, except on the
terms contained herein and in the Summary of Terms. It is also understood and
agreed that the amount and distribution of the fees among the Lenders will be at
our sole discretion and that any syndication prior to execution of the
definitive documentation for the Senior Credit Facility will reduce the
commitment of NationsBank.
In the event that such syndication cannot be achieved in a manner satisfactory
to and NMS under the structure outlined in the Summary of Terms, you agree that
NationsBank and NMS shall be entitled, to change the pricing, structure or other
terms of the Senior Credit Facility if NationsBank and NMS determine that such
changes are advisable to ensure a successful syndication or an optimal credit
structure, provided that the total amount of the Senior Credit Facility remains
unchanged. The Borrower acknowledges that such changes may require an amendment
to or refinancing of the Borrower's existing $300 million Revolving Credit
Facility. A successful syndication would be one in which NationsBank is able to
achieve its targeted hold level of $25 million for the Senior Credit Facility.
The agreement in this paragraph shall survive Closing of the Senior Credit
Facility, and shall supersede definitive documentation for the Senior Credit
Facility.
The commitment of NationsBank hereunder and the agreement of NMS to provide the
services described herein are subject to the agreement in the preceding
paragraph and the satisfaction of each of the following conditions precedent in
a manner acceptable to us in our sole discretion: (a) each of the terms and
conditions set forth herein and in the Summary of Terms; (b) the absence of a
material breach of any representation, warranty or agreement of the Borrower or
the Acquired Companies set forth herein; (c) execution by the Borrower, the
Acquired Companies and/or other appropriate parties of a definite purchase
agreement and other related documentation for the Transaction (collectively, the
"Transaction Documents"), which Transaction Documents shall be in form and
substance satisfactory to us: (d) our satisfaction that prior to and during the
syndication of the Senior Credit Facility there shall be no competing offering,
placement or arrangement of any debt securities or bank financing by or on
behalf of the Borrower or the Acquired Companies (except for anticipated $300
million public debt issuance); (e) the negotiation, execution and delivery of
definitive documentation for the Senior Credit Facility consistent with the
Summary of Terms and otherwise satisfactory to us; (f) since the date hereof, no
material adverse change in or material disruption of conditions in the
financial, banking or capital markets which we, in our sole discretion, deem
material in connection with the syndication of the Senior Credit Facility shall
have occurred and be continuing; (g) no change, occurrence or development that
could, in our opinion, have a material adverse effect on the business, assets,
liabilities (actual or contingent), operations, condition (financial or
otherwise) or prospects of the Borrower of the Acquired Companies, in each case
together with its subsidiaries taken as a whole, shall have occurred or become
known to us; and (h) our not becoming aware after the date hereof of any
information or other matter which in our judgment is inconsistent in a material
and adverse manner with any information or other matter disclosed to us prior to
the date hereof (in which case we may, in our sole discretion, suggest
alternative financing amounts or structures that ensure adequate protection for
the lenders or terminate this letter and any commitment or undertaking
hereunder).
You hereby represent, warrant and covenant that (a) all information, other than
the Projections (defined below), which has been or is hereafter made available
to us or the Lenders by you or any of your representatives in connection with
the transactions contemplated hereby (the "Information") is and will be complete
and correct in all material respects and does not and will not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements contained therein not misleading, and (b) all financial
projections concerning the Borrower and the Acquired Companies and their
respective subsidiaries that have been or are hereafter made available to us or
the Lenders by you or any or your representatives (the "Projections") have been
or will be prepared in good faith based upon assumptions you believe to be
reasonable. You agree to furnish us with such Information and Projections as we
may reasonably request and to supplement the Information and the Projections
from time to time until the Closing for the Senior Credit Facility so that the
representation, warranty and covenant in the preceding sentence is correct on
such Closing. You understand that in arranging and syndicating the Senior
Credit Facility NationsBank and NMS will be using and relying on the Information
and the Projections without independent verification thereof.
By acceptance of this offer, you agree to pay all reasonable out-of-pocket fees
and expenses (including reasonable attorneys' fees and expenses, the allocated
cost of internal counsel and due diligence expenses) incurred before or after
the date hereof by us in connection with the Senior Credit Facility, the
syndication thereof and the other transactions contemplated hereby.
You agree to indemnify and hold harmless NationsBank, NMS, each Lender and each
of their affiliates and their directors, officers, employees, advisors and
agents (each, an "Indemnified Party") from and against (and will reimburse each
Indemnified Party as the same are incurred) any and all losses, claims, damages,
liabilities, and expenses (including, without limitation, the reasonable fees
and expenses of counsel and the allocated cost of internal 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 (including, without
limitation, in connection with any investigation, litigation or proceeding or
preparation of a defense in connection therewith) (a) the Transaction or any
similar transaction and any of the other transactions contemplated thereby, or
(b) the Senior Credit Facility or any other financings, or any use made or
proposed to be made with the proceeds thereof (including any arising out of the
ordinary or mere negligence of any Indemnified Party), unless and only to the
extent that, as to any Indemnified Party, it shall be determined in a final,
nonappealable judgment by a court of competent jurisdiction that such losses,
claims, damages, liabilities or expenses resulted primarily from the gross
negligence or willful misconduct of such Indemnified Party. In the case of any
investigation, litigation or proceeding to which the indemnity in this paragraph
applies, such indemnity shall be effective whether or not such investigation,
litigation or proceeding is brought by you, your shareholders or creditors or an
Indemnified Party and whether or not the Transaction is consummated. You agree
that no Indemnified Party shall have any liability to you or your subsidiaries
or affiliates or to your or their respective security holders or creditors for
any indirect or consequential damages arising out of, related to or in
connection with the Transaction or any of the financings.
The terms of this letter, the Summary of Terms and the fee letter among you and
us (the "Fee Letter") are confidential and, except for disclosure on a
confidential basis to your accountants, attorneys and other professional
advisors retained by you in connection with the Senior Credit Facility or as may
be required by law, may not be disclosed in whole or in part to any other person
or entity (including the Acquired Companies or any of their affiliates) without
our prior written consent; provided that, after you acceptance of this letter
and the Fee Letter, you may disclose the terms of this letter (but not the Fee
Letter) to the Acquired Companies and any of their affiliates and their
respective attorneys, financial advisors and accountants in connection with the
Transaction. Without limiting the foregoing, in the event that you disclose the
contents of this letter or the Fee Letter in contravention of the preceding
sentence, you shall be deemed to have accepted the terms of this letter and the
Fee Letter.
The provisions of the immediately preceding three paragraphs shall remain in
full force and effect regardless of whether any definitive documentation for the
Senior Credit Facility shall be executed and notwithstanding the termination of
this letter or any commitment or undertaking hereunder.
This letter and the Fee Letter shall be governed by laws of the State of Texas.
Each of us 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 this letter, the Summary of Terms, the
transactions contemplated hereby and thereby or the actions of NationsBank and
NMS in the negotiation, performance or enforcement hereof.
This letter, together with the Summary of Terms and the Fee Letter, are the only
agreements that have been entered into among us with respect to the Senior
Credit Facility and set forth the entire understanding of the parties with
respect thereto. This letter may be modified or amended only by the written
agreement of all of us. This letter is not assignable by you without our prior
written consent and is intended to be solely for the benefit of the parties
hereto and the Indemnified Parties.
This offer will expire at 5:00 p.m. Dallas time on March 12, 1999 unless you
execute this letter and the Fee Letter and return them to us prior to that time
(which may be by facsimile transmission), whereupon this letter and the Fee
Letter (each of which may be signed in one or more counterparts) shall become
binding agreements. Thereafter, this undertaking and commitment will expire on
the earliest to occur of (a) the closing of the Transaction without the use of
the Senior Credit Facility, (b) the acceptance by the Acquired Companies or any
of its affiliates of an offer for all or any substantial part of the membership
interests or assets of the Acquired Companies other than the offer contemplated
hereby, and (c) March 31, 1999, unless definitive documentation for the Senior
Credit Facility is executed and delivered prior to such date.
THIS WRITTEN AGREEMENT (WHICH INCLUDES THE SUMMARY OF TERMS AND CONDITIONS) AND
THE FEE LETTER REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
We are pleased to have the opportunity to work with you in connection with this
important financing.
Very truly yours,
NATIONSBANK, N.A.
By: /s/Dan Killian
Title: Vice President
NATIONSBANC MONTGOMERY SECURITIES LLC
By: /s/Grant Moyer
Title: Vice President
Accepted and Agreed to as of March 11, 1999
CLUBCORP, INC.
By: /s/John M. Massey, III
Title: Treasurer
EXHIBIT 10.19
STOCK PURCHASE AGREEMENT
dated as of February 10, 1999
by and among
Meditrust Corporation,
a Delaware corporation,
and
Meditrust Operating Company,
a Delaware corporation
and
Golf Acquisitions, L.L.C.,
a Delaware limited liability company
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
ARTICLE I PURCHASE OF SHARES;CLOSING
Section 1.1 Purchased Shares
Section 1.2 Deposit; Liquidated Damages
Section 1.3 Purchase Price
Section 1.4 Closing
Section 1.5 Transactions at Closing
Section 1.6 Allocation of Purchase Price
Section 1.7 Time of the Essence
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE SELLERS
Section 2.1 Organization of the Sellers and the Acquired Companies; Authority
Section 2.2 Capitalization; Subsidiaries
Section 2.3 No Conflict
Section 2.4 Financial Statements; Undisclosed Liabilities; Financial Condition
Section 2.5 Absence of Certain Changes
Section 2.6 Consents and Approvals
Section 2.7 Litigation
Section 2.8 Taxes
Section 2.9 Employee Benefit Plans
Section 2.10 Assets; Properties
Section 2.11 Labor and Employment Matters
Section 2.12 Contracts and Commitments
Section 2.13 Intellectual Property
Section 2.14 Environmental Matters
Section 2.15 Compliance with Laws; Permits
Section 2.16 Insurance
Section 2.17 Brokers
Section 2.18 Disclaimer; Knowledge; Disclosure; Material Adverse Effect
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE BUYER
Section 3.1 Organization of the Buyer; Authority
Section 3.2 No Conflict
Section 3.3 Consents and Approvals
Section 3.4 Litigation
Section 3.5 Financing
Section 3.6 Brokers
Section 3.7 Investment Intent
Section 3.8 Buyer's Knowledge
ARTICLE IV CERTAIN COVENANTS AND AGREEMENTS OF THE BUYER
AND SELLER
Section 4.1 Conduct of Business Prior to Closing
Section 4.2 Investigation
Section 4.3 Access to Information
Section 4.4 Confidentiality
Section 4.5 Regulatory and Other Authorizations; Consents
Section 4.6 Further Action
Section 4.7 Press Releases
Section 4.8 No Solicitation
Section 4.9 Tax Cooperation; Structuring Matters
Section 4.10 Repair of Damage; Condemnation
Section 4.11 Liquor Licenses
Section 4.12 Environmental Assessments
Section 4.13 Property Holdback Rights
Section 4.14 Observation Rights; Certain Communications
ARTICLE V EMPLOYEE MATTERS
Section 5.1 Employees
Section 5.2 Employee Benefits
Section 5.3 Other Employee Benefits
Section 5.4 Indemnity
Section 5.5 No Third Party Beneficiaries
ARTICLE VI TAX MATTERS
Section 6.1 Conveyance Taxes; Costs
Section 6.2 Treatment of Indemnity Payments
Section 6.3 Employee Withholding
ARTICLE VII CONDITIONS TO CLOSING
Section 7.1 Conditions to the Obligations of Each Party
Section 7.2 Conditions to Obligations of the Sellers
Section 7.3 Conditions to Obligations of the Buyer
ARTICLE VIII INDEMNIFICATION
Section 8.1 Survival
Section 8.2 Indemnification by the Sellers
Section 8.3 Indemnification by the Buyer
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER
Section 9.1 Termination
Section 9.2 Effect of Termination
Section 9.3 Waiver
ARTICLE X GENERAL PROVISIONS
Section 10.1 Notices
Section 10.2 Certain Definitions
Section 10.3 Interpretation
Section 10.4 Counterparts
Section 10.5 Entire Agreement; No Third Party Beneficiaries; Severability
Section 10.6 Amendment
Section 10.7 Governing Law
Section 10.8 Assignment
Section 10.9 Expenses
EXHIBITS LIST
Exhibit A Companies and Acquired Shares
Exhibit B Subsidiaries Owned by the Companies
Exhibit C Form of Escrow Agreement
Exhibit D Form of Transferor's Certificate of Non-Foreign Status
SCHEDULES LIST
Schedule 1.6(a) Purchase Price Allocation
Schedule 1.6(b) Fair Market Value of MGG and MGG II Assets
Schedule 2.2(a) Company Capitalization
Schedule 2.2(b) Company Subsidiaries
Schedule 2.3 Conflicts of Sellers
Schedule 2.4 October Financial Statements
Schedule 2.5 Absence of Certain Changes
Schedule 2.6(a) Governmental Consents
Schedule 2.6(b) Third-Party Consents
Schedule 2.7 Litigation
Schedule 2.8 Taxes
Schedule 2.9 Employee Benefit Matters
Schedule 2.10(a) Owned Properties
Schedule 2.10(b) Leased Properties
Schedule 2.10(c) Property Restrictions
Schedule 2.10(d) Property Taxes
Schedule 2.11(a) Employment Matters
Schedule 2.11(b) Labor Matters
Schedule 2.12(a) Certain Contracts
Schedule 2.12(b) Certain Contract Exceptions
Schedule 2.13 Intellectual Property
Schedule 2.14 Environmental Matter
Schedule 2.15 Compliance with Laws; Permits
Schedule 2.16 Insurance
Schedule 2.18(b) Qualifying Materials
Schedule 3.2 Conflicts of Buyer
Schedule 3.3(a) Government Consents
Schedule 3.3(b) Third- Party Consents
Schedule 4.1(a)(I) Conduct of Business
Schedule 4.1(c) Exceptions to Restrictions on Conduct of Business
Schedule 4.7 Form of Press Release
Schedule 4.12 Environmental Assessments
Schedule 4.13 Property Holdback Rights
Schedule 6.4 Allocation for Cobblestone Assets
Schedule 7.3(b) Required Consents
</TABLE>
DEFINED TERMS
Agreement
REITCO
OPCO
Sellers
Buyers
MGG
Cobblestone
MGG II
Companies
Subsidiaries
Acquired Companies
Acquired Shares
Transfer
Escrow Agent
Deposit
Escrow Fund
Escrow Agreement
Liquidated Damages
Code
Qualifying Income
IRS
Purchase Price
Closing Balance Sheet
GAAP
Closing Adjustment
Review Period
Disputed Items
Arbitrating Accountant
Closing
Closing Date
Allocation Schedule
October Balance Sheet
October Financial Statements
Severance Arrangements
Retention Bonuses
Governmental Authority
HSR Act
IRS
Taxes
Tax Return
Benefit Plans
ERISA
ERISA Affiliate
Owned Properties
Land
Improvements
Leasehold
Lease
Leased Properties
Leased Improvements
Properties
Property Restrictions
Existing Debt
Intellectual Property Rights
Environmental Reports
Environmental Laws
Environmental Condition
Environmental Liabilities and Costs
Law
Governmental Order
Confidential Memorandum
Review Room
Qualifying Materials
Sellers' Knowledge
Material Adverse Effect
Buyer's Knowledge
Club
Representatives
Confidentiality Agreement
Notification Form
Acquisition Proposal
Proposal
Superior Proposal
Phase II Investigations
Holdback Designation Date
Holdback Property
Holdback Letter
Allocated Value
Holdback Property Closing Date
Sellers' Designees
Acquired Companies Employees
WARN
Required Consents
Buyer Indemnified Party
Organizational Reps
Tax Reps
Benefit Plan Reps
Broker's Fee Reps
Indemnified Disputes
Excluded Claims
Indemnification Cut-Off Date
Threshold Amount
Maximum Amount
Seller Indemnified Party
Significant Environmental Liabilities
Baseline Condition
Affiliate
Business Day
Encumbrance
Losses
Person
Subsidiary
Significant Subsidiary
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is dated as of this 10th
day of February, 1999, by and among MEDITRUST CORPORATION, a Delaware
corporation ("REITCO"), MEDITRUST OPERATING COMPANY, a Delaware corporation
("OPCO" and, together with REITCO, the "Sellers" and, each individually, a
"Seller") and GOLF ACQUISITIONS, L.L.C., a Delaware limited liability company
(the "Buyer").
WHEREAS, as set forth on Exhibit A hereto, REITCO owns all of the issued and
outstanding capital stock of Meditrust Golf Group, Inc., a Delaware corporation
("MGG");
WHEREAS, as set forth on Exhibit A hereto, OPCO owns all of the issued and
outstanding capital stock of The Cobblestone Golf Companies, Inc., a Delaware
corporation ("Cobblestone");
WHEREAS, as set forth on Exhibit A hereto, REITCO owns, or will own as of the
Closing Date (as hereinafter defined), all of the issued and outstanding capital
stock of Meditrust Golf Group II, Inc., a Delaware corporation ("MGG II" and,
together with MGG and Cobblestone, the "Companies"; and each individually, a
"Company");
WHEREAS, the Companies directly or indirectly own all (except as disclosed on
Schedule 2.2(b) hereto) of the issued and outstanding capital stock of those
entities set forth on Exhibit B hereto (collectively, the "Subsidiaries" and,
each individually, a "Subsidiary" and, together with the Companies, the
"Acquired Companies" and, each individually, an "Acquired Company");
WHEREAS, the Acquired Companies are engaged in the ownership, leasing, and
operation of golf course properties; and
WHEREAS, the Sellers desire to sell and the Buyer desires to purchase all of the
issued and outstanding capital stock (the "Acquired Shares") of the Companies.
NOW THEREFORE, in consideration of the mutual agreements and covenants herein
contained, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties, intending to be legally
bound, hereby agree as follows:
ARTICLE I
PURCHASE OF SHARES; CLOSING
Section 1.1 Purchased Shares. Subject to the terms and conditions set forth
in this Agreement, at the Closing (as hereinafter defined), each Seller shall
sell, assign, transfer, convey and deliver (the "Transfer") to the Buyer, from
each such Seller, and the Buyer shall buy and receive from each such Seller all,
and not less than all, of such Seller's right, title and interest as of the
Closing Date, in and to the Acquired Shares as set forth on Exhibit A hereto.
Section 1.2 Deposit; Liquidated Damages.
(a) No later than the first Business Day (as hereinafter defined) after
the date this Agreement is executed and delivered by all parties hereto, the
Buyer shall deliver to Stewart Title Guaranty Company, as escrow agent (the
"Escrow Agent"),
(the "Deposit"). The Deposit shall be held in escrow by
the Escrow Agent in an interest-bearing account (the "Escrow Fund") subject to
the Escrow Agreement substantially in the form of Exhibit C attached hereto (the
"Escrow Agreement"), and, subject to the terms and conditions set forth below
with respect to the termination of this Agreement, shall be delivered, together
with interest earned thereon, to the Sellers at Closing (as hereinafter defined)
as a credit against the Purchase Price (as hereinafter defined):
(i) In the event of the termination of this Agreement pursuant to Section
9.1(a), 9.1(d), 9.1(e) or 9.1(f), following expiration of the five (5) business
day time period provided for in Section 3(b) of the Escrow Agreement, Buyer
shall receive (in addition to those rights (if any) that it may have under
Section 9.2(b) hereof in connection with a termination pursuant to Section
9.1(f) only), as its sole and exclusive remedy (subject to this Section
1.2(a)(i) with respect to any impediment by the Sellers to delivery of the
Escrow Fund to the Buyer), the Deposit, together with all interest (if any)
actually earned thereon, and each party shall be relieved and released from any
further liability and obligation hereunder subject to any continuing obligations
pursuant to Section 4.4. In the event Buyer is entitled to receive the return
of the Deposit pursuant to this Section 1.2(a)(i), if the Sellers directly or
indirectly impede the prompt payment by the Escrow Agent from the Escrow Fund as
described in Section 1.2(a) above, the Sellers shall be obligated to pay all
costs and expenses (including legal fees and expenses) in connection with any
action, including the filing of any lawsuit or other legal action, taken to
collect such payment, together with interest on the amount of any unpaid amount
from the date such amount was required to be paid at an interest rate equal to
the prime rate published by The Wall Street Journal from time to time; and
(ii) In the event of the termination of this Agreement pursuant to Section
9.1(b) or Section 9.1(c), following expiration of the five (5) business day time
period set forth in Section 3(a) of the Escrow Agreement, the Buyer's sole right
to receive payment from the Escrow Fund shall be as set forth in Section 1.2(c)
hereof and the Sellers shall be entitled to payments from the Escrow Fund when,
as and if permitted by Section 1.2(b) hereof. Such entitlement to receive
payments from the Escrow Fund shall represent Sellers' sole and exclusive remedy
in connection with such termination (subject to this Section 1.2(a)(ii) with
respect to any Buyer impediment to payments from the Escrow Fund) and shall
constitute liquidated damages (the "Liquidated Damages"), and each party shall
be relieved and released from any further liability and obligation hereunder
subject to any continuing obligations pursuant to Section 4.4. Sellers and the
Buyer agree that actual damages accruing from such a termination of this
Agreement are incapable of precise estimation and would be difficult to prove,
that the rights stipulated in this Section 1.2 bear a reasonable relationship to
the potential injury likely to be sustained in the event of such a breach and
that the stipulated rights are intended by the parties to provide just
compensation in the event of such a breach and are not intended to compel
performance or to constitute a penalty for nonperformance. In the event Sellers
are entitled to receive the Deposit (or the Escrow Fund, as applicable) pursuant
to this Agreement or the Escrow Agreement, as applicable, if the Buyer directly
or indirectly impedes the prompt payment by the Escrow Agent from the Escrow
Fund as described in Section 1.2(b) below, the Buyer shall be obligated to pay
all costs and expenses (including legal fees and expenses) in connection with
any action, including the filing of any lawsuit or other legal action, taken to
collect such payment, together with interest on the amount of any unpaid amount
from the date such amount was required to be paid at an interest rate equal to
the prime rate published by The Wall Street Journal from time to time. The
parties hereby acknowledge that the agreements contained in this Section 1.2 are
an integral part of the transactions contemplated by this Agreement.
(b) In the event of a termination described in Section 1.2(a)(ii) hereof,
following the expiration of the five (5) business day time period set forth in
Section 3(a) of the Escrow Agreement (if applicable), the Buyer and the Sellers
agree that the Escrow Agent may not make payments from the Escrow Fund to Buyer
or the Sellers except as provided in Section 1.2(c), with respect to the Buyer,
and this Section 1.2(b), with respect to the Sellers. The Escrow Fund or any
portion thereof shall not be released to the Sellers unless the Escrow Agent
receives any one or combination of the following: (x) a letter from REITCO's
certified public accountants indicating the maximum amount that can be paid by
the Escrow Agent to the Sellers without causing REITCO to fail to meet the
requirements of Sections 856(c)(2) and (3) of the Internal Revenue Code of 1986,
as amended (the "Code") determined as if the payment of such amount did not
constitute income described in Sections 856(c)(2)(A)-(H) or 856(c)(3)(A)-(I) of
the Code ("Qualifying Income"), as determined by REITCO's certified public
accountant, or a subsequent letter from REITCO's accountants revising such
amount, in which case the Escrow Agent will release to the Sellers the amount(s)
so specified in said accountants' letters, or (y) a letter from REITCO's counsel
indicating that REITCO received a ruling from the Internal Revenue Service (the
"IRS") holding that the receipt by REITCO of the amounts from the Escrow Fund
would either constitute Qualifying Income or would be excluded from gross income
within the meaning of Section 856(c)(2) and (3) of the Code (or alternatively,
REITCO's legal counsel has rendered a legal opinion to REITCO to the effect that
the receipt by the Sellers of the amounts from the Escrow Fund would either
constitute Qualifying Income or would be excluded from gross income within the
meaning of Sections 856(c)(2) and (3) of the Code), in which case the Escrow
Agent will release to the Sellers the amount of the Escrow Fund so specified in
said accountants' letters. The Buyer agrees to amend this Section 1.2 at the
request of REITCO as may reasonably be necessary (and without additional cost,
burden or liability to the Buyer, in excess of de minimis amounts) in order to
(i) maximize the portion of the Escrow Fund that may be distributed to the
Sellers hereunder without causing REITCO to fail to meet the requirements of
Sections 856(c)(2) and (3) of the Code, (ii) improve REITCO's chances of
securing a favorable ruling described in this Section 1.2(b), or (iii) assist
REITCO in obtaining a favorable legal opinion from its counsel as described in
this Section 1.2(b); provided that REITCO's legal counsel has rendered a legal
opinion to REITCO to the effect that such amendment would not cause REITCO to
fail to meet the requirements of Section 856(c)(2) or (3) of the Code.
(c) Any portion of the foregoing Escrow Fund remaining on the fifteenth
anniversary of the date of its establishment will be released by the Escrow
Agent to the Buyer.
Section 1.3 Purchase Price; Closing Adjustment.
(a) Subject to the terms and conditions set forth in this Agreement, at the
Closing, the Buyer shall pay, or cause to be paid, to REITCO and OPCO, in
accordance with the terms of this Agreement,
At the Closing, the Buyer shall pay, or cause to be
paid, the Purchase Price (A) by the Escrow Agent delivering to the Sellers the
Deposit, together with interest earned thereon, and (B) by wire transfer of
immediately available funds to a bank account or accounts jointly designated by
the Sellers in an amount equal to the Purchase Price, less the Deposit and
interest earned thereon delivered by the Escrow Agent to the Sellers.
(b) Within forty-five (45) days after the Closing Date, Sellers shall
prepare and Pricewaterhouse Coopers LLP shall deliver to the Buyer an audited
combined consolidated balance sheet of the Acquired Companies as of the Closing
Date (the "Closing Balance Sheet"), prepared in accordance with generally
accepted accounting principles in the United States, as in effect from time to
time, applied on a consistent basis ("GAAP"), which sets forth the book values
of the assets and the liabilities of the Acquired Companies as of the Closing
Date, and a calculation of the Closing Adjustment to the Purchase Price.
Notwithstanding the actual date of the Closing, in the event the Closing occurs
after March 31, 1999, the Closing Adjustment shall be calculated as of March 31,
1999.
(c) The Buyer and their independent public accountants, KPMG Peat Marwick,
LLP, shall be entitled to make an independent review of the Closing Balance
Sheet and related calculation of the Closing Adjustment and shall, during the
fifteen (15) day period after delivery of the Closing Balance Sheet and related
calculation of the Closing Adjustment (the "Review Period"), have access to all
relevant work papers of Pricewaterhouse Coopers LLP used to audit the Closing
Balance Sheet and the Closing Adjustment.
(d) Before expiration of the Review Period, the Buyer shall deliver to the
Sellers its objection, if any, in writing to the calculation of the Closing
Adjustment, together with details of the disputed items (the "Disputed Items")
set forth in the Closing Balance Sheet and the proposed adjustments to such
items. If the Buyer fails to provide notice of objection prior to the end of
the Review Period, then the Closing Balance Sheet and the calculation of the
Closing Adjustment by Pricewaterhouse Coopers LLP shall be final and binding on
all the parties. If the Buyer so notifies the Sellers prior to the end of the
Review Period of the Buyer's disapproval of the calculation of the Closing
Adjustment or the Closing Balance Sheet audited by Pricewaterhouse Coopers
LLP, then the Buyer and the Sellers shall attempt to reach agreement with
respect to the Disputed Items. In the event that the Buyer and the
Sellers are unable to reach agreement on the Disputed Items, then either
shall be entitled to refer the matter to a nationally recognized accounting
firm, independent of the Sellers and the Buyer, mutually agreed upon by the
Buyer and the Sellers, provided, that if the Buyer and the Sellers are
unable to agree upon such accounting firm within a period of fifteen (15)
days from the receipt by the Sellers of the Buyer's objection, such accounting
firm shall be chosen at random by the Buyer and the Sellers from among the "Big
Five" accounting firms which are independent of the Buyer and the Sellers
(the "Arbitrating Accountant"). The Arbitrating Accountant shall determine
the Disputed Items and calculate the Closing Adjustment within twenty
(20) days after the Disputed Items are submitted to them, and such
determination shall be final and binding upon all the parties. The fees and
expenses of the Arbitrating Accountants shall be paid 50% by the Buyer and 50%
by the Sellers.
(e) The amount of the Closing Adjustment as finally determined shall be paid
in cash, within five (5) business days after final determination of the Closing
Adjustment. If the Closing Adjustment is a positive number, then the Buyer
shall promptly pay to the Sellers by wire transfer of immediately available
funds to a bank account or accounts jointly designated by the Sellers the
dollar amount of the Closing Adjustment. If the Closing Adjustment is a
negative number, then the Sellers shall promptly pay to the Buyer by wire
transfer of immediately available funds to a bank account or accounts designated
by the Buyer the amount of such deficit.
Section 1.4 Closing. The closing of the Transfer and delivery of all
documents and instruments necessary to consummate the transactions contemplated
by this Agreement (the "Closing") shall be held at the offices of Goodwin,
Procter & Hoar LLP, 599 Lexington Avenue, New York, New York, on March 31, 1999
(with a complete pre-closing on or about March 24, 1999 or, if the Closing
occurs after March 31, 1999, such pre-closing shall occur approximately one (1)
week prior to such extended Closing Date) or at such other time or such other
place as the Buyer and the Sellers may agree, but in no event later than March
31, 1999 except as expressly permitted pursuant to this Agreement. The Sellers
shall have the right to postpone the Closing for an additional period of time
not exceeding (i) forty-five (45) days by giving written notice to the Buyer if
the Sellers' failure to close is not as a result of a breach of Sellers'
covenants or other agreements contained in this Agreement or (ii) ninety (90)
days by giving written notice to the Buyer in order to permit the satisfaction
of the conditions precedent to the obligations of the Buyer set forth in Section
7.1 or Section 7.3 hereof. The date on which the Closing is actually held
hereunder is sometimes referred to herein as the "Closing Date." The Closing
will be deemed to be effective for purposes of this Agreement as of the opening
of business on the Closing Date. The Sellers agree (i) to provide notice of an
extension of the Closing Date beyond March 31, 1999 on or before March 16, 1999,
and (ii) in the event the Closing Date is extended, to provide notice of the
proposed Closing Date at least fifteen (15) days prior to such proposed Closing
Date.
Section 1.5 Transactions at Closing.
(a) At the Closing, the Sellers will deliver or cause to be delivered to the
Buyer the following:
(i) stock certificates, evidencing all, and not less than all, of the
Acquired Shares, in each case duly endorsed in blank or accompanied by stock
powers duly executed in blank, and with all required stock transfer tax stamps
affixed, or if such stock certificates are not then available, affidavits of
loss and indemnity agreements in lieu thereof in form and substance reasonably
acceptable to the Buyer;
(ii) all minute books and stock transfer books of each of the Acquired
Companies;
(iii) one or more receipts acknowledging receipt of the aggregate Purchase
Price;
(iv) a legal opinion addressed to the Buyer, in form reasonably acceptable
to the Buyer, that each of the Sellers is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware
and has all the requisite corporate power and authority to enter into this
Agreement, to carry out its obligations hereunder and to consummate the
transactions contemplated hereby;
(v) REITCO shall contribute the Note dated as of August 7, 1998 in the
principal amount of $6,215,720, together with an assignment, in recordable form,
the related Leasehold Deed of Trust dated as of August 7, 1998 to either MGG or
MGG II (or their designee); and
(vi) each of the certificates and other documents required to be delivered
at the Closing pursuant to Section 7.3 hereof.
(b) At the Closing, the Buyer will deliver or cause to be delivered to the
Sellers the following:
(i) the Purchase Price, by wire transfer in cash of immediately available
funds pursuant to, and in the manner set forth in, Section 1.3 hereof; and
(ii) each of the certificates and other documents required to be delivered
at the Closing pursuant to Section 7.2 hereof.
Section 1.6 Allocation of Purchase Price; Other Matters.
(a)
(b) Buyer and REITCO agree that, the sale of the capital stock of MGG and
MGG II shall be structured such that immediately prior to the Closing of Buyer's
purchase of MGG's and MGG II's capital stock, each of MGG and MGG II shall be
deemed, for federal income tax purposes, to have been incorporated in a taxable
transaction resulting in (i) the recognition of gain or loss to REITCO on such
deemed incorporation under Section 1001 of the Code and (ii) the tax basis of
the assets of MGG and MGG II being determined under Section 1012 of the Code.
Buyer and REITCO further agree that the fair market value of the stock deemed
issued by MGG and MGG II to REITCO in the deemed incorporation transactions
shall be equal to the portion of the Purchase Price allocated to the Acquired
Shares of such entity in Schedule 1.6(a); REITCO will prepare an allocation of
the purchase price among the assets deemed acquired by MGG and MGG II in the
deemed incorporation transactions within 60 days after the Closing (the
"Allocation Schedule"), based upon the rules in Section 1060 of the Code and the
fair market values of the MGG and MGG II assets set forth in Schedule 1.6(b)
hereto, which schedule has been prepared by Sellers and approved by Buyer in
connection herewith; and REITCO shall file, and Buyer shall cause MGG and MGG II
to file, all relevant tax returns (including Form 8594) in accordance with such
Allocation Schedule.
Section 1.7 Time of the Essence. The parties hereto acknowledge and agree
that, subject only to the express adjournment rights contained herein, time is
of the essence in consummating the purchase and sale of the Acquired Shares and
the delivery of the Purchase Price.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
Except as disclosed in the schedules attached hereto, the Sellers jointly and
severally represent and warrant to the Buyer as follows:
Section 2.1 Organization of the Sellers and the Acquired Companies;
Authority.
(a) Each of the Sellers is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware and has all the
requisite corporate power and authority to enter into this Agreement, to carry
out its obligations hereunder and to consummate the transactions contemplated
hereby. Each Acquired Company is a corporation duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of organization
and has all the requisite corporate power and authority to carry on its business
as now being conducted and to own, operate and lease the properties and assets
owned, operated and leased by it. Each of the Acquired Companies is qualified
to do business and is in good standing in each jurisdiction in which the nature
of its business requires it to be so qualified, except to the extent the failure
to so qualify would not, either individually or in the aggregate, have a
Material Adverse Effect (as hereinafter defined).
(b) The execution and delivery of this Agreement, the performance by the
Sellers of their obligations hereunder and the consummation of the transactions
contemplated hereby have been duly authorized by all requisite corporate action
on the part of the Sellers. This Agreement has been duly executed and delivered
by the Sellers and assuming the due authorization, execution and delivery of
this Agreement by the Buyer, this Agreement constitutes a legal, valid and
binding obligation of the Sellers, enforceable against the Sellers in accordance
with its terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors'
rights generally or by general equitable principles.
Section 2.2 Capitalization; Subsidiaries.
(a) The authorized, issued and outstanding capital stock of each of the
Companies is set forth on Schedule 2.2(a). All of the issued and outstanding
shares of capital stock of each of the Companies are duly authorized, validly
issued, fully paid and nonassessable. None of the issued and outstanding shares
of capital stock of the Companies were issued in violation of any preemptive
rights. Except as set forth on Schedule 2.2(a) hereto, there are no outstanding
options, warrants or other rights of any kind to acquire any additional shares
of capital stock of any of the Companies or securities convertible into or
exchangeable for, or which otherwise confer on the holder thereof any right to
acquire, any such additional shares, nor are any of the Companies committed to
issue any such option, warrant, right or security. Except as set forth on
Schedule 2.2(a) hereto, there are no outstanding oral or written contractual
obligations of the Companies to repurchase, redeem or otherwise acquire any of
the Acquired Shares, or to provide funds to, or to make any investment (in the
form of a loan, capital contribution or otherwise) in, any other Person (as
hereinafter defined) in each case except in connection with the making of loans
and the entering into of leases in the ordinary course of business consistent
with past practice. Except as set forth on Schedule 2.2(a), (i) the Sellers
own, or will own as of the Closing Date, the Acquired Shares, free and clear of
any and all liens, claims, security interests or options, except for (A)
Encumbrances (as hereinafter defined) arising out of, under or in connection
with this Agreement, and (B) Encumbrances that will be released at or prior to
the Closing, and the Sellers have full legal right, power and authority to sell,
transfer and convey the Acquired Shares to the Buyer in the manner contemplated
by this Agreement, except for restrictions on transfer under applicable federal
and state securities laws, and (ii) except as set forth on Schedule 2.2(b), the
Companies do not have, directly or indirectly, any equity interest in any other
corporation, joint venture, partnership, limited liability company or other
entity. Upon consummation of the transactions contemplated by this Agreement
and registration of the Acquired Shares in the name of the Buyer in the stock
records of each respective Company, the Buyer will own all of the issued and
outstanding capital stock of the Companies free and clear of all Encumbrances,
other than any Encumbrances resulting from any facts or circumstances relating
solely to the Buyer (including, without limitation, its sources of financing).
(b) Schedule 2.2(b) sets forth a true and complete list of all Subsidiaries
(as hereinafter defined) and their name, jurisdiction and date of incorporation
or formation, their authorized capital stock, partnership capital or equivalent,
the number and type of their issued and outstanding shares of capital stock,
partnership interests or similar ownership interests and the current ownership
of such shares, partnership interests or similar ownership interests. None of
the issued and outstanding shares of capital stock of the Subsidiaries were
issued in violation of any preemptive rights. All of the issued and outstanding
shares of capital stock of each of the Subsidiaries are duly authorized, validly
issued, fully paid and nonassessable. Except as set forth on Schedule 2.2(b)
hereto, there are no outstanding options, warrants or other rights of any kind
to acquire any additional shares of capital stock of any of the Subsidiaries or
securities convertible into or exchangeable for, or which otherwise confer on
the holder thereof any right to acquire, any such additional shares, nor are any
of the Subsidiaries committed to issue any such option, warrant, right or
security. Except as set forth on Schedule 2.2(b) hereto, there are no
outstanding oral or written contractual obligations of the Subsidiaries to
repurchase, redeem or otherwise acquire any shares of common stock or other
ownership interest in the Subsidiaries, or to provide funds to, or to make any
investment (in the form of a loan, capital contribution or otherwise) in, any
other Person in each case except in connection with the making of loans and the
entering into of leases in the ordinary course of business consistent with past
practice. Except as set forth on Schedule 2.2(b), the Acquired Companies own
all of the outstanding capital stock of their respective Subsidiaries free and
clear of any and all liens, claims, security interests or options, except for
(i) Encumbrances arising out of, under or in connection with this Agreement, and
(ii) Encumbrances that will be released at or prior to the Closing.
(c) Since May 29, 1998, all material corporate actions taken by each
Subsidiary have been duly authorized and the Subsidiary has not taken any action
that in any material respect conflicts with, constitutes a default under or
results in a violation of any provision of its charter or by-laws (or similar
organizational documents). True and complete copies of the charter and by-laws
(or similar organizational documents), in each case as in effect on the date
hereof, of each Subsidiary have been made available by the Sellers to the Buyer.
Seciton 2.3 No Conflict. Except as provided in Schedule 2.3, and except as
may result from any facts or circumstances relating solely to the Buyer
(including, without limitation, its sources of financing), and assuming that all
consents, approvals, authorizations and other actions set forth in Section 2.6
have been obtained and all filings and notifications set forth on Schedule
2.6(a) have been made, neither the Sellers nor the Acquired Companies are
subject to or bound:
(a) (i) by any provision of any law, statute, rule, regulation or judicial
or administrative decision (with respect to the Sellers and the Acquired
Companies, but not with respect to their respective assets or properties), and
(ii) to Sellers' knowledge (as hereinafter defined) by any provision of any law,
statue, rule, regulation or judicial or administrative decision (with respect to
the assets and properties of the Sellers and the Acquired Companies),
(b) by any provisions of the articles or certificate of incorporation or
by-laws (or similar organizational, constitutive or governing document) of the
Sellers' or any Acquired Company,
(c) to Sellers' Knowledge (as hereinafter defined), by any provision of any
mortgage, deed of trust, lease, note, bond, indenture, license, permit, trust,
contract, agreement, sublease, franchise or other instrument or arrangement
described on Schedule 2.12(a) to which the Sellers or the Acquired Companies are
a party as it relates to the business of the Acquired Companies or by which any
of the Acquired Shares or any shares of the Subsidiaries or any of such assets
or properties is bound or affected,
(d) by any provision of any mortgage, deed of trust, lease, note, bond,
indenture, license, permit, trust, contract, agreement, sublease, franchise or
other instrument or arrangement which is not required to be disclosed on
Schedule 2.12(a) to which the Sellers or the Acquired Companies are a party as
it relates to the business of the Acquired Companies or by which any of the
Acquired Shares or any shares of the Subsidiaries or any of such assets or
properties is bound or affected,
(e) by any provisions of any shareholders' agreement or partnership
agreement, or
(f) by any provision of any judgment, order, writ, injunction or decree of
any court, governmental body, administrative agency or arbitrator,
that would prevent, violate or conflict with or under which there would be a
default as a result of the execution, delivery or performance of this Agreement,
nor, is the consent of any person or entity under any material contract or
agreement, which material contract or agreement is not identified in any
Schedule attached to this Agreement, or under federal or state law, which has
not been obtained prior to the Closing, required for the execution, delivery,
and performance by the Sellers of this Agreement and the transactions
contemplated thereby, except for violations, defaults, conflicts or failures to
obtain consents or to make filings or provide notices which would not have (i) a
Material Adverse Effect or (ii) a material adverse effect on the ability of the
Sellers to perform their obligations under this Agreement.
Section 2.4 Financial Statements; Undisclosed Liabilities; Financial
Condition.
(a) Attached hereto as Schedule 2.4 is the audited (i) Combined Consolidated
Balance Sheet (the "October Balance Sheet"), (ii) Combined Consolidated
Statement of Operations, (iii) Combined Consolidated Statement of The Meditrust
Companies' Investment, and (iv) Combined Consolidated Statement of Cash Flows,
together with Notes to Combined Consolidated Financial Statements for the
Companies together with their subsidiaries as of October 31, 1998 (collectively,
the "October Financial Statements") which (i) includes all adjustments,
consisting of normal recurring adjustments necessary for the fair presentation
of financial position (none of which are material) in accordance with GAAP
consistently applied, except as noted on Schedule 2.4 hereto, and (ii) present
fairly, in all material respects, the financial position and the results of
operations of the Acquired Companies, on a combined consolidated basis with
their subsidiaries as of October 31, 1998 and for the periods covered by such
statements.
(b) Sellers have made available to Buyer copies of each management letter or
other letter delivered to any of the Acquired Companies by their independent
auditors since May 29, 1998 in connection with their audited financial
statements or relating to any review by such independent auditors of the
internal controls of the Acquired Companies during the period ended October 31,
1998 or thereafter, and has made, or will make, available for inspection all
material reports and working papers produced or developed by their independent
auditors (subject to the Buyer's execution and delivery of customary indemnity
agreements for the benefit of such independent auditors) or management in
connection with their examination of such financial statements.
(c) Since May 29, 1998, each of the Acquired Companies have maintained
records relating to their businesses that accurately and validly reflect their
respective transactions in all material respects, and accounting controls
sufficient to insure that such transactions are (i) executed in accordance with
management's general or specific authorization and (ii) recorded in conformity
with GAAP (subject to customary end of period adjustments).
(d) As of the date hereof, none of the Acquired Companies have liabilities,
except for (i) liabilities stated or adequately reserved against on the October
Balance Sheet, (ii) liabilities which arose in the ordinary course of business
after October 31, 1998 consistent with past practice that in the aggregate do
not exceed (excluding any liabilities which are included in the Closing
Adjustment), (iii) liabilities which will not have a Material Adverse Effect,
(iv) liabilities set forth on Schedules 2.4 or 2.7 and (v) liabilities under the
Acquired Companies' (A) existing contracts and agreements disclosed pursuant to
Section 2.12(a) hereof or (B) not required to be disclosed pursuant to Section
2.12(a) hereof. For purposes of this paragraph, "liabilities" means, all
liabilities of the Acquired Companies of any nature, whether accrued, absolute,
contingent or otherwise, asserted or unasserted, (including, without limitation,
liabilities as guarantor or otherwise with respect to obligations of others, or
liabilities for taxes due or then accrued or to become due or contingent or
potential liabilities relating to activities of the Acquired Companies or the
conduct of their business prior to the date hereof regardless of whether claims
in respect thereof had been asserted as of such date).
Section 2.5 Absence of Certain Changes. Except as set forth on Schedule
2.5, from October 31, 1998 to the date of this Agreement, the Acquired Companies
have operated only in the ordinary course of business consistent with past
practice and there has not been any of the following:
(a) change in, or effect on, the Acquired Companies resulting in a Material
Adverse Effect;
(b) change in any Acquired Company's authorized or issued capital stock;
grant of any option, right to purchase or similar right regarding the capital
stock of any Acquired Company; grant of any registration rights by any Acquired
Company; purchase, redemption, retirement, or other acquisition by any Acquired
Company of any such capital stock; or declaration or payment of any dividend or
other distribution or payment in respect of the capital stock of any Acquired
Company, except that cash balances of the Subsidiaries are concentrated daily in
the Companies' accounts, no material cash balances are held by any of the
Acquired Companies and no intercompany payable or receivable is shown on the
October Balance Sheet in connection therewith;
(c) amendment to the certificate or articles of incorporation or bylaws of
any Acquired Company, or any action with respect to the certificate of
incorporation or bylaws of any Acquired Company;
(d)
(e) adoption of, or increase in the schedule of payments or benefits under,
any Benefit Plan (as hereinafter defined), for or with any officer, director or
employee of the Acquired Companies (except for any officer, director or key
employee newly employed or promoted since such date, which officers, directors
or key employees so newly employed or promoted are identified on Schedule 2.5
(excluding officers, directors or employees who are not compensated directly by
the Acquired Companies));
(f) damage to or destruction or loss of any asset or property of an Acquired
Company, whether or not covered by insurance, which has had a Material Adverse
Effect;
(g) sale, purchase, lease, license or other transfer of any share of capital
stock of any Acquired Company or mortgage, pledge, or imposition of any
Encumbrance on any of the shares of capital stock of any Acquired Company;
(h) incurrence of indebtedness or guarantee of debt or other liability of
any third party by any Acquired Company;
(i) material change in the accounting methods or principles used by the
Sellers (with respect to the assets, liabilities, financial condition or results
of operations of any Acquired Company) or any Acquired Company except for (A)
write-downs or write-offs in the value of assets as required or permitted by
GAAP and as set forth on Schedule 2.5, or (B) such adjustments as required by
GAAP as a result of the transactions contemplated by this Agreement;
(j) purchases, leases, sales or dispositions of any asset or property with a
purchase price in excess of individually and in the aggregate,
purchases or leases of any capital asset for an amount of more than
individually and in the aggregate except in each case as provided in
the Acquired Companies' capital budget attached as Schedule 2.5 and Schedule
4.1(c) or the voluntary grant of mortgages, pledges or liens of any of its
properties or assets, except for any such mortgage, pledge or lien which, by its
terms, will be terminated or otherwise be extinguished at or prior to the
Closing;
(k) any capital expenditures or commitment for any capital expenditure in
excess of individually or in the aggregate, except in
compliance with the capital budgets attached as Schedule 2.5 and Schedule
4.1(c); or
(l) entering into an agreement, whether oral or written, by the applicable
party bound by clauses (a) through (k), as the case may be, to do any of the
actions described in clauses (a) through (k).
Section 2.6 Consents and Approvals.
(a) Except as set forth on Schedule 2.6(a), the execution, delivery and
performance of this Agreement by the Sellers will not, as of the Closing Date,
require any consent, approval, authorization or other action by, or filing with
or notification to, any federal, state, local, or any foreign government,
governmental, regulatory or administrative authority, agency or commission or
any court, tribunal, or judicial or arbitral body, excluding those
municipalities or other governmental entities that are parties to those ground
leases disclosed in Schedule 2.12(a), in their capacity as lessors thereunder,
and the City of Escondido, in its capacity as a lender and/or creditor under
those agreements disclosed in Schedule 2.12(a) (a "Governmental Authority"),
except (i) the notification requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), if applicable, (ii) where
failure to obtain such consent, approval, authorization or action, or to make
such filing or notification, would not (A) have a Material Adverse Effect, (B)
delay or prevent the consummation of the transactions contemplated by this
Agreement, or (C) have a material adverse effect on the ability of the Sellers
to perform their obligations under this Agreement, and (iii) as may be necessary
as a result of any facts or circumstances relating solely to the Buyer
(including, without limitation, its sources of financing).
(b) Except as set forth on Schedule 2.6(b), the execution, delivery and
performance of this Agreement by the Sellers will not, as of the Closing Date,
require any third-party consents, approvals, authorizations or actions, except
where failure to obtain such consents, approvals, authorizations or actions
would not (i) have a Material Adverse Effect, (ii) delay or prevent the
consummation of the transactions contemplated by this Agreement, or (iii) have a
material adverse effect on the ability of the Sellers to perform their
obligations under this Agreement.
Section 2.7 Litigation. Except as set forth in Schedule 2.7, there is no
action, suit or proceeding, claim, arbitration or investigation against an
Acquired Company pending or, to the Sellers' Knowledge, threatened, which, if
adversely determined, (a) would have a Material Adverse Effect, (b) would delay
or prevent the consummation of the transactions contemplated by this Agreement,
or (c) would have a material adverse effect on the ability of the Sellers to
perform their obligations under this Agreement.
Section 2.8 Taxes.
(a) Except as set forth on Schedule 2.8 or as would not have a Material
Adverse Effect:
(i) The Acquired Companies have paid or caused to be paid and will as of the
Closing Date pay or cause to be paid all Taxes (as defined in Section 2.8(b))
required to be so paid prior to the date of this Agreement and prior to the
Closing Date and have made provision, in accordance with GAAP, for all Taxes
owed or accrued through the date of this Agreement.
(ii) The Acquired Companies have timely filed or been included in, or will
timely file or be included in, all material Tax Returns (as defined in Section
2.8(b)) required to be filed by them or in which they are required to be
included with respect to Taxes for any period ending on or before the date of
this Agreement and on or before the Closing Date, taking into account any
extension of time to file granted to or obtained on behalf of the Sellers or the
Acquired Companies. All such filed Tax Returns are complete and accurate in all
material respects.
(iii) Neither the Internal Revenue Service (the "IRS") nor any other
Governmental Authority is asserting as of the date of this Agreement by written
notice to Sellers or the Acquired Companies or, to the Sellers' Knowledge,
threatening as of the date of this Agreement to assert against the Sellers or
the Acquired Companies, any deficiency or claim for any material amount of
additional Taxes.
(iv) No federal, state, local or foreign audits or other administrative
proceedings or court proceedings are pending as of the date of this Agreement
with regard to any Taxes or Tax Returns of any of the Sellers or the Acquired
Companies and none of Sellers or the Acquired Companies has received a written
notice prior to the date of this Agreement of any actual or threatened audits or
proceedings or is otherwise aware of any such audits or proceedings.
(v) There are no agreements, waivers or arrangements currently in effect
which extend the statutory period of limitation applicable to any claim for, or
the period for the collection or assessment of, Taxes due from or with respect
to the Acquired Companies for any taxable period, and no powers of attorney have
been granted by or with respect to the Acquired Companies with respect to Taxes
which are currently in force. No closing agreement pursuant to Section 7121 of
the Code (or any predecessor provision) or any similar provision of any state,
local, or foreign law has been entered into by or with respect to the Acquired
Companies which is currently in force or effect.
(vi) As of the Closing Date, MGG, MGG II and their respective Subsidiaries
will be "Qualified REIT Subsidiaries" within the meaning of Section 856(i) of
the Code.
(b) "Taxes" shall mean any and all taxes, charges, fees, levies or other
assessments, including, without limitation, income, gross receipts, excise, real
or personal property, sales, withholding, social security, retirement,
unemployment, occupation, service, use, license, net worth, payroll, franchise,
transfer and recording bites, fees and charges, imposed by the IRS or any taxing
authority (whether domestic or foreign including, without limitation, any state,
county, local or foreign government or any subdivision or taxing agency thereof
(including a United States possession)), whether computed on a separate,
consolidated, unitary, combined or other basis; and such term shall include any
interest whether paid or received, fines, penalties or additional amounts
attributable to, or imposed upon, or with respect to, any such taxes, charges,
fees, levies or other assessments.
"Tax Return" shall mean any report, return, document, declaration or other
information or filing required to be supplied to any taxing authority or
jurisdiction (foreign or domestic) with respect to Taxes, including, without
limitation, information returns, any document, with respect to or accompanying
payments of estimated taxes, or with respect to or accompanying requests for the
extension of time in which to file any such, report, return, document,
declaration or other information.
Section 2.9 Employee Benefit Plans. All of the employee benefit plans,
programs and arrangements maintained for the benefit of any current or former
employee, officer or director or any dependents or beneficiaries of such
individuals of any of the Acquired Companies (the "Benefit Plans") are listed on
Schedule 2.9. With respect to such Benefit Plans, except for such matters as,
individually or in the aggregate, would not have a Material Adverse Effect or as
set forth in Schedule 2.9, (a) each Benefit Plan and any related trust intended
to be qualified under Sections 401(a), 501(a) or 501(c) of the Code has received
a favorable determination letter from the IRS that it is so qualified and
nothing has occurred since the date of such letter that could reasonably be
expected to adversely affect the qualified status of such Benefit Plan or
related trust, (b) each Benefit Plan has been operated in all material respects
in accordance with the terms and requirements of applicable law including
requirements under ERISA and the Code (including COBRA requirements under
Section 4980B of the Code), (c) none of the Acquired Companies has incurred any
direct or indirect liability under, arising out of or by operation of Title I or
Title IV of the Employee Retirement and Income Security Act of 1974, as amended
("ERISA"), in connection with any Benefit Plan or other retirement plan or
arrangement, and to Sellers' Knowledge no fact or event exists that could
reasonably be expected to give rise to any such liability, (d) all contributions
due and payable on or before the date of this Agreement in respect of each
Benefit Plan have been made in full and in proper form and as of the Closing,
neither the Acquired Companies nor Buyer shall have or assume any liability that
is unfunded or unaccrued related to any Benefit Plan, (e) none of the Acquired
Companies have ever sponsored or been obligated to contribute to any
"multiemployer plan" (as defined in Section 3(37) of ERISA), "multiple employer
plan" (as defined in Section 413 of the Code) or "defined benefit plan" (as
defined in Section 3(35) of ERISA) and/or Section 412 of the Code, or "excess
benefit plan" or "top-hat plan" as described under ERISA Sections 3(36) and
201(2), (f) except as set forth on Schedule 2.9 and, except as otherwise
required under ERISA, the Code and applicable state laws, no Benefit Plan
currently or previously maintained by the Acquired Companies provides any
post-retirement health or life insurance benefits, and none of the Acquired
Companies maintains any obligations to provide post-retirement health or life
insurance benefits in the future, (g) all reporting and disclosure obligations
imposed under ERISA and the Code have been satisfied with respect to each
Benefit Plan, (h) each Benefit Plan maintained for the benefit of any current or
former employee, officer or director of any of the Acquired Companies is listed
on Schedule 2.9 and true and complete copies of the current plan documents for
each such Benefit Plan have been provided to Buyer, and (i) except as set forth
on Schedule 2.9, no benefit or amount payable or which may become payable by the
Acquired Companies pursuant to any Benefit Plan, agreement or contract with any
employee, shall constitute an "excess parachute payment," within the meaning of
Section 280G of the Code, which is or may be subject to the imposition of any
excise tax under Section 4999 of the Code or which could not reasonably be
expected to be deductible by reason of Section 280G of the Code. "ERISA
Affiliate" means any corporation, trade or business the employees of which,
together with the employees of the Acquired Companies, are required to be
treated as employed by a single employer under the provisions of ERISA or Code
Section 414. Neither the Acquired Companies nor Buyer shall have any liability
on or after the Closing with respect to any employee benefit plan, arrangement,
program or policy maintained or sponsored by any ERISA Affiliate, except for the
Benefit Plans listed on Schedule 2.9.
Section 2.10 Assets; Properties. Except as disclosed herein or as would
individually or in the aggregate not have a Material Adverse Effect, the Sellers
represent as follows:
(a) Marketable Title. To the Sellers' Knowledge, except for Property
Restrictions (as defined in Section 2.10(c) hereof) and except as disclosed on
Schedule 2.10(a), the Acquired Companies own good and marketable fee simple
title to all of the Owned Properties, free and clear of any liens or security
interests. For purposes of this Agreement "Owned Properties" shall mean: (i)
the real property set forth on Schedule 2.10(a) hereto or purchased since the
date of this Agreement (collectively, the "Land"); (ii) all existing buildings,
structures and other improvements, located upon the Land owned by the Acquired
Companies, including without limitation all clubhouse buildings, maintenance
facilities, golf courses, driving ranges, practice areas, landscaping
improvements, man-made lakes, irrigation systems (including sprinklers, pipe,
and fittings), lakeliners, pumps, flood control works, paving, walkways, road
improvements, parking facilities and all other improvements of whatever kind
owned by the Acquired Companies which have previously been made, installed or
erected and are now located on the Land (collectively, the "Improvements"); and
(iii) all appurtenances, hereditaments, easements, reversionary rights, and all
other rights, privileges, and entitlements belonging to or running with the Land
owned by the Acquired Companies.
(b) Improvements in Operable Condition. To the Sellers' Knowledge, except
for Property Restrictions and except as set forth on Schedule 2.10(b), (i) the
Acquired Company identified therein holds a good and marketable leasehold
interest (each, a "Leasehold") in the Leased Property pursuant to a valid ground
lease (each, a "Lease"), each of the Leases at present and immediately prior to
the Closing shall be in full force and effect, the Acquired Company which is the
lessee thereunder is not, nor will it be at Closing, in default under any Lease
in respect of any monetary obligation or otherwise in any material respect,
subject however to obtaining the consents identified on Schedule 2.6(b) as it
relates to the Leases, and each of the Leases represents the complete agreement
between such Acquired Company and the lessor thereunder and all material (ii)
(A) Improvements and (B) Leased Improvements are in operable condition and the
Sellers have the right to possess, occupy and operate same, free and clear of
any liens or security interests. "Leased Improvements" include all existing
buildings, structures and other improvements located upon each of the parcels of
real property comprising a golf facility leased by the Acquired Companies (the
"Leased Properties") as set forth on Schedule 2.10(b) hereto or leased since the
date of this Agreement, which buildings, structures and other improvements
include without limitation all clubhouse buildings, maintenance facilities, golf
courses, driving ranges, practice areas, landscaping improvements, man-made
lakes, irrigation systems (including sprinklers, pipes and fittings),
lakeliners, pumps, flood control works, paving, walkways, road improvements,
parking facilities, and all other improvements of whatever kind owned by the
Acquired Companies which have previously been made, installed or erected and are
now located on such Leased Properties (collectively, the "Leased Improvements,"
and together with the Leaseholds, the Improvements, the Owned Properties and the
Leased Properties, the "Properties").
(c) Property Restrictions. To the Sellers' Knowledge, except as set forth
below and as set forth on Schedule 2.10(c) hereto, the Properties are not
subject to any easements, rights of way, covenants, conditions, restrictions,
reservations, leases or other rights of occupancy, laws, ordinances and
regulations affecting building use or occupancy or reservations of an interest
in, or exception to or defect in title (collectively, "Property Restrictions"),
except for (i) Property Restrictions imposed or promulgated by law or any
Governmental Authority with respect to real property, including zoning
regulations that do not and as a consequence of the transactions contemplated
herein will not adversely affect the current use of the property, materially
detract from the value of or materially interfere with the present use of the
property, (ii) Encumbrances and Property Restrictions disclosed on existing
title policies, commitments (and the documents listed as exceptions, therein),
reports certificates of title, title opinions or current surveys (in each case
limited to only those title policies, commitments (and the documents listed as
exceptions therein), reports and surveys that were delivered or made available
to the Buyer for review prior to the date of this Agreement, but excluding any
monetary liens, vendors' liens, mechanic's and materialmen's liens, judgment
liens and other third party monetary liens except as set forth on, or securing
the debt listed on, Schedule 2.12(a)(ii)), (iii) any other item currently of
record in the applicable land or comparable real property records that does not
materially detract from the value of or materially interfere with the present
use of the applicable Property, but excluding matters currently of record which
are monetary liens, vendors' liens, mechanic's and materialmen's liens, judgment
liens and other third-party monetary liens except as set forth on Schedule
2.12(a)(ii) but only if and to the extent identified in writing by the Buyer and
received by the Sellers prior to 6:00 p.m. (local Boston, Massachusetts time) on
Wednesday, February 17, 1999, and (iv) all obligations under the existing
contracts and agreements entered into by the Acquired Companies and listed on
Schedule 2.12(a) or not required to be disclosed on such schedule, including
those mechanics', carriers', suppliers', workmen's or repairmen's liens and
other Encumbrances, Property Restrictions and other limitations of any kind, if
any, which, individually or in the aggregate, are not material in amount, do not
and as a consequence of the transactions contemplated herein will not materially
detract from the value of or materially interfere with the present use of any of
the Properties subject thereto or affected thereby, do not and as a consequence
of the transactions contemplated herein will not otherwise materially impair
business operations conducted by the Acquired Companies and which have been
incurred only in the ordinary course of business.
(d) Taxes. Except as set forth on Schedule 2.10(d) and for any proceeding
or appeal which, if determined adversely to the respective Acquired Company,
individually or in the aggregate, would not have a Material Adverse Effect,
there are no outstanding abatement proceedings or appeals to which the Acquired
Companies are a party with respect to the assessment of any of the Properties
for the purpose of real property taxes, and there are no agreements with any
Governmental Authority to which the Acquired Companies are a party with respect
to such assessments or tax rates on any of the Properties.
Section 2.11 Labor and Employment Matters.
(a) Except as set forth on Schedule 2.11(a) and as would not have a Material
Adverse Effect, the Acquired Companies are, as of the date hereof, in compliance
in all material respects with all federal, state and municipal laws respecting
employment and employment practices, terms and conditions of employment, and
wages and hours, including but not limited to ERISA, the Code, Title VII of the
Civil Rights Act of 1964, as amended, the Equal Pay Act of 1967, as amended, the
Age Discrimination in Employment Act of 1967, as amended, the Americans with
Disabilities Act and the related rules and regulations adopted by those federal
agencies responsible for the administration of such laws, and there are no
arrearages in the payment of wages, social security tax or any other employment
related levy or tax.
(b) Except as set forth on Schedule 2.11(b) and as would not have a Material
Adverse Effect, none of the Acquired Companies is a party to or otherwise bound
by any collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization. Except as set forth on
Schedule 2.11(b) and as would not have a Material Adverse Effect, as of the date
of this Agreement, none of the Acquired Companies is subject to any charge,
demand, petition or representation proceeding seeking to compel, require or
demand it to bargain with any labor union or labor organization nor, as of the
date of this Agreement, is there pending or, to the Sellers' Knowledge,
threatened, any material labor strike, dispute, walkout, work stoppage,
slow-down or lockout involving the Acquired Companies.
Section 2.12 Contracts and Commitments.
(a) Schedule 2.12(a) lists each of the following contracts or agreements (if
any) of each of the Acquired Companies:
(i) management contracts with respect to the Properties, and management
contracts with respect to golf course properties or facilities owned by third
parties;
(ii) all material documents evidencing or creating indebtedness for borrowed
money of the Acquired Companies with a remaining principal balance in excess of
individually or in the aggregate or secured by the Properties
and outstanding on the date of this Agreement which will not be retired or
repaid on or prior to the Closing Date ("Existing Debt");
(iii) partnership agreements and joint venture agreements to which any
Acquired Company is a party (and having as another party any person who is not
an Acquired Company) which requires a payment, or delivery of assets or
services;
(iv) all Leases of Leased Properties and other real property leased by the
Companies;
(v) except as set forth on Schedule 2.5, employment, severance or consulting
agreements with any director, officer or Acquired Companies Employee (as
hereinafter defined) requiring an annual payment of cash compensation in excess
of individually;
(vi) agreements granting to any third party a first-refusal, first-offer or
other right to purchase or acquire any of the Properties or any of the Acquired
Shares;
(vii) agreements materially limiting or restricting the ability of any
Acquired Company to enter into or engage in any geographic area or line of
business; and
(viii) agreements that will not be terminated on or before the Closing
between (1) any Acquired Company and any Seller or its Affiliates (as
hereinafter defined), or (2) any Seller or its Affiliates (except for any
Acquired Company) and a third party that commit any one or more of the Acquired
Companies to pay, in the aggregate, more than .
(b) True and complete copies of the contracts and agreements disclosed
pursuant to Section 2.12(a) hereof have been made available to the Buyer.
Except as disclosed on Schedule 2.12(b) or as would not have a Material Adverse
Effect (i) each contract and agreement disclosed pursuant to Section 2.12(a)
hereof is valid and binding on the Acquired Company party thereto and, to the
Sellers' Knowledge, on the other party or other parties thereto, and is in full
force and effect in accordance with its respective terms, (ii) upon consummation
of the transactions contemplated by this Agreement, each such contract and
agreement shall continue in full force and effect in accordance with its
respective terms without penalty, acceleration of payment or other adverse
consequence, (iii) none of the Acquired Companies is in breach of, or default
under, any such contract or agreement, and no event exists that, but for the
giving of notice or passage of time, would result in such a breach or default by
the Acquired Company party thereto, and (iv) to the Sellers' Knowledge, no other
party to any such contract or agreement is in breach thereof or default
thereunder, and no event exists that, but for the giving of notice or passage or
time, would result in such a breach or default by the other party thereto.
Certain other contracts and agreements concerning the Properties and the
Acquired Companies have been provided to the Buyer in the Review Room (as
hereinafter defined).
Section 2.13 Intellectual Property. Except as set forth on Schedule 2.13,
to Sellers' Knowledge, the Sellers own or have the right to use all trademarks,
trade names, service marks, trade secrets, copyrights and other intellectual
property rights (collectively, the "Intellectual Property Rights"), as are used
or necessary in connection with the business of the Acquired Companies taken as
a whole, except where the failure to own or have the right to use such
Intellectual Property Rights would not have a Material Adverse Effect. Except
as disclosed on Schedule 2.13 or as would not have, either individually or in
the aggregate, a Material Adverse Effect, to the Sellers' Knowledge, the rights
of any Acquired Company in or to the Intellectual Property Rights do not
conflict with or infringe on the rights of any other Person, and none of the
Sellers, nor the Acquired Companies has received any claim or written notice
from any Person, to such effect.
Section 2.14 Environmental Matters. Except as disclosed on Schedule 2.14
and except for any matter which would not result in a Material Adverse Effect,
to Sellers' Knowledge, (a) the Acquired Companies are in compliance in all
material respects with all applicable Environmental Laws (as hereinafter
defined), (b) there are no material Environmental Liabilities and Costs (as
hereinafter defined) of the Acquired Companies, (c) there are no material
Environmental Conditions (as hereinafter defined) on or related to the
Properties, (d) none of the Acquired Companies has received any written notice
prior to the date of this Agreement from any governmental agency or other third
party alleging any violation of, or noncompliance with, any Environmental Law,
or requiring the removal, clean-up, or remediation of any Environmental
Condition, whether or not on any of the Properties relating to the Acquired
Companies, which such matter has not been resolved as of the date of this
Agreement, and (e) the Acquired Companies have not received written notice prior
to the date of this Agreement that they are subject to any enforcement or
investigatory action by any governmental agency regarding an Environmental
Condition with respect to any Property, which such matter has not been resolved
as of the date of this Agreement. As used herein, the terms "toxic" or
"hazardous" wastes, substances or materials shall include, without limitation,
all those so designated in and in any way regulated by any current Environmental
Laws. The Acquired Companies have previously made available to the Buyer copies
of all of the following written materials in their possession or control: copies
of any environmental audits, site assessments, documentation regarding off-site
disposal of hazardous materials, and material correspondence with any federal,
state or local government, administrative agency, or other Governmental
Authority, regarding the foregoing (the "Environmental Reports").
For purposes of this Agreement, the following definitions shall apply:
"Environmental Laws" means all applicable federal, state and local statutes or
laws, judgments, orders, regulations, licenses, permits, rules and ordinances
relating to pollution or protection of health, safety or the environment,
including, but not limited to the Federal Water Pollution Control Act (33 U.S.C.
1251 et seq.), Resources Conservation and Recovery Act (42 U.S.C. 6901 et.
seq.), Safe Drinking Water Act (42 U.S.C. 3000(f) et. seq.), Toxic Substances
Control Act (15 U.S.C. 2601 et seq.), Clean Air Act (42 U.S.C. 7401 et. seq.),
Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C.
9601 et seq.), and other similar state and local statutes.
"Environmental Condition" means the introduction into the environment of any
contaminant, pollutant, hazardous or toxic waste, substance or material (whether
or not upon the Owned Properties or the Leased Properties) at levels or in
amounts in excess of applicable legal or regulatory permits, limits or
standards, as a result of which the Acquired Companies, with respect to this
Section 2.14, (1) have or may become liable to any Person or Governmental
Authority, (2) are in violation of any Environmental Law, or (3) by reason of
which any of the properties or other assets of the Acquired Companies, with
respect to this Section 2.14, may suffer or be subject to any lien.
"Environmental Liabilities and Costs" means all liabilities, obligations,
responsibilities, obligations to conduct cleanup, losses, damages, deficiencies,
punitive damages, costs and expenses (including, without limitation, all
reasonable fees, disbursements and expenses of counsel, expert and consulting
fees and costs of any necessary investigations and feasibility studies and
responding to government requests for information or documents), fines,
penalties, monetary sanctions, known or unknown, absolute or contingent, past,
present or future, resulting from any claim or demand, by any Person or
Governmental Authority, whether based in contract, tort, implied or express
warranty, strict liability, joint and several liability, criminal or civil
statute, under any Environmental Law, or arising from Environmental Conditions,
as a result of past or present ownership, leasing or operation of any
properties, owned, leased or operated by the Acquired Companies with respect to
Section 2.14.
Section 2.15 Compliance with Laws; Permits. Except as set forth on
Schedule 2.15, (i) none of the Acquired Companies (excluding for such purpose
all of their respective properties or assets) are in violation of any federal,
state, local or foreign judgement, order, decree, statute, law, ordinance, rule,
regulation, code and any judicial or administrative interpretation thereof, or
any other government or rule of law ("Law") or order of any Governmental
Authority ("Governmental Order") applicable to any of the Acquired Companies
except such violations as would not have a Material Adverse Effect and (ii) to
the Sellers' Knowledge, none of the Acquired Companies (including for such
purpose only all of their respective properties or assets) are in violation of
any Law or Governmental Order applicable to any such properties or assets,
except such violations as would not have a Material Adverse Effect. The
Acquired Companies have obtained all licenses, permits and other authorizations
and have taken all actions required by applicable law or governmental
regulations in connection with their business as now or as previously conducted
where the failure to obtain any such license, permit or authorization or to take
any such action, individually or in the aggregate, would have a Material Adverse
Effect.
Section 2.16 Insurance. Schedule 2.16 sets forth a true and correct
summary of the insurance policies held by, or for the benefit of, the Acquired
Companies including the underwriter of such policies and the amount of coverage
thereunder. To the Sellers' Knowledge, such insurance policies are valid and
currently in effect. The Sellers or the Acquired Companies have paid, or caused
to be paid, all premiums due under such policies and are not in default with
respect to any monetary obligations under such policies in any material respect.
Section 2.17 Brokers. No broker, investment banker, financial advisor or
other Person, other than Goldman Sachs & Co., the fees and expenses of which
will be paid by the Sellers, is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the transactions
contemplated by this Agreement.
Section 2.18 Disclaimer; Knowledge; Disclosure; Material Adverse Effect.
(a) The Sellers do not make, and have not made, any representations or
warranties relating to the Sellers, the Acquired Companies, the Properties, or
the operations or businesses of the Sellers or the Acquired Companies, or the
businesses or operations conducted on, at or with respect to the Properties, or
otherwise in connection with the transactions contemplated hereby, other than
those expressly made by Sellers in this Agreement. Without limiting the
generality of the foregoing, except only as expressly set forth in those
representations and warranties made in Section 2.1 through 2.17 hereof (but
subject to the limitations set forth in Section 2.18(b) below), the Sellers have
not made, and shall not be deemed to have made, any representations or
warranties in any presentation of the businesses of the Acquired Companies
(including without limitation any management presentation or property or
facility tour) in connection with the transactions contemplated hereby, and no
statement made in any such presentation (including without limitation any
management presentation or property or facility tour) shall be deemed a
representation or warranty hereunder or otherwise. It is understood that any
cost estimates, projections or other predictions, any data, any financial
information, document, reports, sales brochure or other literature, maps or
sketches, financial information, or statements, or presentations (including
without limitation any management presentation or property or facility tour), or
any memoranda or offering materials including, without limitation, that certain
"Confidential Information Memorandum" dated November 1998 and any materials or
information contained therein and any amendments or supplements thereto (the
"Confidential Memorandum"), are not and shall not be deemed to be or to include
representations or warranties of the Sellers or the Acquired Companies, except
only as expressly set forth in those representations and warranties made in
Section 2.1 through 2.17 hereof (but subject to the limitations set forth in
Section 2.18(b) below), and the Buyer acknowledges that it has not relied and is
not relying on any such estimates, projections, predictions, data, financial
information, memoranda, offering materials or presentations (including without
limitation any management presentation or property or facility tour), including
without limitation, the Confidential Memorandum. No Person has been authorized
by the Sellers or the Acquired Companies to make any representation or warranty
relating to the Sellers, the Acquired Companies, the Properties, the businesses
of the Sellers or the Acquired Companies, or the businesses or operations
conducted on, at or with respect to the Properties, or otherwise in connection
with the transactions contemplated hereby and, if made, such representation or
warranty must not be relied upon as having been authorized by the Sellers or the
Acquired Companies.
(b) Prior to the Closing Date, the Buyer will have had the opportunity to
make all inspections and investigations, including a review of the materials
located in the due diligence review room (the "Review Room") at the offices of
Goodwin, Procter & Hoar LLP, concerning the Acquired Companies and the
Properties, which the Buyer deems necessary or desirable to protect its interest
in acquiring the Acquired Companies and their respective assets, including
without limitation, the Properties. The representations and warranties herein
are fully qualified by any matters disclosed in the items described or otherwise
listed in Schedule 2.18(b) hereto (but subject to the limitations contained in
such Schedule 2.18(b)) (the "Qualifying Materials"). By way of explanation and
not in supplementation of the preceding sentence, it is specifically
acknowledged and agreed by the parties hereto, as a material inducement to the
Sellers entering into this Agreement in the form hereof, without which agreement
Sellers would be unwilling to enter into this Agreement in the form hereof, that
any and all representations and warranties contained in this Agreement, the
accuracy of which could be confirmed or denied based upon any material present
in the Qualifying Materials, shall be null and void and deemed deleted from this
Agreement for all purposes. Except as otherwise expressly set forth in this
Agreement, neither the Sellers nor anyone acting for or on behalf of the Sellers
has made any representation, warranty, promise or statement (including without
limitation in the cover memorandum delivered with the form Stock Purchase
Agreement to each prospective buyer on or about December 23, 1998), express or
implied, to the Buyer on which the Buyer has relied concerning the Acquired
Companies and the Properties or the condition or use thereof. As a material
inducement to the execution and delivery of this Agreement by the Sellers, the
Buyer agrees that, except as otherwise expressly provided herein (but subject to
the limitations contained in this Section 2.18), at the Closing Date, the Buyer
will acquire the Properties in an "as-is" physical condition and in an "as-is"
state with all faults, subject only to the expressed representations and
warranties set forth in this Agreement. Notwithstanding anything herein to the
contrary, the Buyer waives and the Sellers disclaim all implied warranties of
any type or kind with respect to the Properties.
(c) Whenever a representation or warranty made by the Sellers herein refers
to the knowledge of the Sellers, or to the "Sellers' Knowledge," it shall be
deemed to refer only to the actual knowledge (and not constructive, imputed or
implied knowledge) on the date hereof and on the Closing Date, as applicable, of
James A. Husband, Stefan C. Karnavas, Andrew Crosson, Gary L. Dee, Terri
Colachis, William D. Keogh, Bobby West, John G. Hungerford, Norm Goodmanson,
James B. Kelly, Jim Bergmark, Dan Tilley, Tighue Shields, Ray Dznowski, Jr.,
Alan Wieme, Bill Mungia, John Williams, Larry Hayes, David F. Benson, Michael S.
Benjamin and Laurie T. Gerber, none of whom shall have any personal liability or
obligations regarding such knowledge. The Sellers have not undertaken, nor
shall they have any duty to undertake, any investigation concerning any matter
as to which a representation or warranty is made as to its "Knowledge."
(d) Notwithstanding anything to the contrary contained in this Agreement or
in any of the schedules attached hereto, any information disclosed in one
schedule shall be deemed to be disclosed in all schedules provided that the
information so disclosed is disclosed with the requisite degree of specificity
in order to qualify, or disclose for the purposes of, such other schedule.
Certain information set forth in the schedules is included solely for
informational purposes and may not be required to be disclosed pursuant to this
Agreement. The disclosure of any information shall not be deemed to constitute
an acknowledgment that such information is required to be disclosed in
connection with the representations and warranties made by the Sellers in this
Agreement or that it is material, nor shall such information be deemed to
establish a standard of materiality. The Sellers have prepared the schedules to
this Agreement in good faith and without regard to any applicable "Material
Adverse Effect" or other "materiality" qualifier, provided, however, that
notwithstanding such standard of preparation, nothing contained herein shall
limit or otherwise qualify the standard of the representations and warranties
contained in Sections 2.1 through 2.17 hereof for the purposes of determining
the existence of a breach of any such representation or warranty.
(e) "Material Adverse Effect" means any change in, or effect on, the
Acquired Companies, taken as a whole, that is (individually or in the aggregate
with any other changes therein or effects thereon that would be specifically
addressed by a representation or warranty contained in this Agreement but for a
"Material Adverse Effect" exception or qualification) materially adverse to the
business, operations, assets, liabilities, financial condition or results of
operations or prospective business and earnings (assuming such prospective
business is conducted in a manner consistent with prior business operations) of
the Acquired Companies, taken as a whole, other than any such changes or effects
resulting from any of the following, the change in or effect of which shall not
constitute or result in (i) a Material Adverse Effect or (ii) a breach of a
representation or warranty under this Article II: (A) changes in general
(national, regional or local) economic, regulatory or political conditions or
changes in the golf course industry generally, or (B) this Agreement, the
transactions contemplated hereby, or any announcement or indication thereof, or
any actions taken by the Buyer hereunder or in contemplation hereof, or any
actions which a Seller was required to take, hereunder, or any direct contact of
the Buyer or any of its representatives with any of the customers or suppliers,
or potential customers or suppliers, or any of the employees of, the Acquired
Companies (including any departure of any such employee).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER
Section 3.1 Organization of the Buyer; Authority.
(a) The Buyer is a duly formed, validly existing and in good standing under
the laws of the State of Delaware and has all the requisite corporate power and
authority to enter into this Agreement, to carry out its obligations hereunder
and to consummate the transactions contemplated hereby. The Buyer is qualified
to do business in each jurisdiction in which the nature of its business requires
it to be so qualified except to the extent the failure to so qualify would not,
either individually or in the aggregate, have a material adverse effect on the
ability of the Buyer to perform its obligations under this Agreement.
(b) The execution and delivery of this Agreement, the performance by the
Buyer of its obligations hereunder and the consummation of the transactions
contemplated hereby have been duly authorized by all requisite corporate action
on the part of the Buyer. This Agreement has been duly executed and delivered
by the Buyer and assuming the due authorization, execution and delivery of this
Agreement by the Sellers, this Agreement constitutes a legal, valid and binding
obligation of the Buyer, enforceable against the Buyer in accordance with its
terms, except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights generally
or by general equitable principles.
Section 3.2 No Conflict. Except as provided in Schedule 3.2, and
except as may result from any facts or circumstances related solely to the
Sellers, and assuming that all consents, approvals, authorizations and other
actions described in Section 3.3 have been obtained and all filings and
notifications listed in Schedule 3.3(a) have been made, neither the Buyer nor
any of its subsidiaries is subject to or bound:
(a) to Buyer's Knowledge (as hereinafter defined), by any provision of any
law, statute, rule, regulation or judicial or administrative decision,
(b) by the provisions of any articles or certificate of incorporation or
by-laws, (or similar organizational, constitutive or governing document) of the
Buyer,
(c) to Buyer's Knowledge, by any provision of any mortgage, deed of trust,
lease, note, shareholders' agreement, partnership agreement, bond, indenture,
license, permit, trust, contract, agreement, sublease, franchise or other
instrument or arrangement to which the Buyer is a party as it relates to the
business of the Buyer or by which any of such assets or properties are bound or
affected, or
(d) by any provision of any judgment, order, writ, injunction or decree of
any court, governmental body, administrative agency or arbitrator, that would
prevent, violate or conflict with or under which there would be a default as a
result of the execution, delivery or performance of this Agreement, nor, is the
consent of any person or entity under any material contract or agreement or
under federal or state law, which has not been obtained prior to the Closing,
required for the execution, delivery, and performance by the Buyer of this
Agreement and the transactions contemplated thereby, except for violations,
defaults, conflicts or failures to obtain consents or to make filings or provide
notices which would not have a material adverse effect on the Buyer or a
material adverse effect on the ability of the Buyer to perform its obligations
under this Agreement.
Section 3.3 Consents and Approvals.
(a) To the Buyer's Knowledge, except as set forth on Schedule 3.3(a), the
execution, delivery and performance of this Agreement by the Buyer will not, as
of the Closing Date, require any consent, approval, authorization or other
action by, or filing with or notification to, any Governmental Authority, except
(i) the notification requirements of the HSR Act, if applicable, (ii) where
failure to obtain such consent, approval, authorization or action, or to make
such filing or notification, would not have a material adverse effect on the
ability of the Buyer to perform its obligations under this Agreement, and (iii)
as may be necessary as a result of any facts or circumstances relating solely to
the Sellers.
(b) Except as set forth on Schedule 3.3(b), the execution, delivery and
performance of this Agreement by the Buyer will not, as of the Closing Date,
require any third-party consents, approvals, authorizations or actions, except
where failure to obtain such consents, approvals, authorizations or actions
would not have a material adverse effect on the ability of the Buyer to perform
its obligations under this Agreement.
Section 3.4 Litigation. There is no action, suit or proceeding, claim,
arbitration or investigation against the Buyer or, to the Buyer's Knowledge,
threatened, which, if adversely determined, (a) would delay or prevent the
consummation of the transactions contemplated by this Agreement, or (b) would
have a material adverse effect on the ability of the Buyer to perform its
obligations under this Agreement. To the Buyer's Knowledge, the Buyer is not
subject to any Governmental Order (nor, to the Buyer's Knowledge, are there any
such Governmental Orders threatened to be imposed by any Governmental Authority)
which (x) would delay or prevent the consummation of the transactions
contemplated by this Agreement, or (y) would have any material adverse effect on
the ability of the Buyer to perform its obligations under this Agreement.
Section 3.5 Financing. The Buyer has, or has available to it, all funds
necessary to consummate the transactions contemplated by this Agreement.
Section 3.6 Brokers. No broker, investment banker, financial advisor or
other Person, other than NationsBanc Montgomery Securities, the fees and
expenses of which will be paid by the Buyer, is entitled to any broker's,
finder's, financial advisor's or other similar fee, commission or expense in
connection with the transactions contemplated by this Agreement.
Section 3.7 Investment Intent. The Buyer is acquiring the Acquired Shares
solely for the purpose of investment and not with a view to, or for offer or
sale in connection with, any distribution thereof.
Section 3.8 Buyer's Knowledge. Whenever a representation or warranty made
by Buyer herein refers to the knowledge of Buyer, or to the "Buyer's Knowledge"
it shall be deemed to refer only to the actual knowledge (and not constructive,
imputed or implied knowledge) on the date hereof and on the Closing Date, as
applicable, of Robert H. Dedman, Jr., and Terry A. Taylor, none of whom shall
have any personal liability or obligations regarding such knowledge. The Buyer
has not undertaken, nor shall it have any duty to undertake, any investigation
concerning any matters as to which a representation or warranty is made as to
its "Knowledge."
ARTICLE IV
CERTAIN COVENANTS AND AGREEMENTS OF THE BUYER AND SELLER
Section 4.1 Conduct of Business Prior to Closing.
(a) The Sellers covenant and agree that, between the date hereof and the
Closing Date, they shall cause the Acquired Companies to operate in the ordinary
course of business, consistent with past practice, except as otherwise provided
in this Agreement and except: (i) as otherwise contemplated by this Agreement;
(ii) except as permitted by Section 4.1(b), that the Acquired Companies may not
distribute cash and cash equivalents to one or more of the Sellers on or prior
to the Closing Date; and (iii) that the rights (if any) of REITCO in and to, and
the obligations under or arising from, (x) the tradename "Cobblestone" and (y)
that certain license agreement by and among REITCO, as successor by merger to
Cobblestone Holdings, Inc., MGG and Cobblestone, pursuant to which REITCO and
MGG currently license certain rights in and to the tradename "Cobblestone" will
be assigned by REITCO to MGG prior to the Closing and (iv) that the Sellers or
their Affiliates (including the Acquired Companies) may transfer shares of
capital stock of the Acquired Companies so long as (A) the Sellers transfer to
the Buyer pursuant to Article I hereof, all of the issued and outstanding
Acquired Shares, and (B) the Companies own all of the issued and outstanding
capital stock of their Subsidiaries, except as disclosed on the Schedules
hereto.
Without limiting the generality of the foregoing, from the date hereof until the
Closing, except as required by this Agreement and except for transactions
expressly approved in writing by Buyer, which approval shall not be unreasonably
withheld, Sellers shall use commercially reasonable efforts to:
(A) Maintain inventories and pre-paid expenses at current levels, except for
purchases and/or sales in the ordinary course of business, and maintain the
properties and assets of the Acquired Companies in good repair, order and
condition, reasonable wear and tear and involuntary casualty and condemnation
excepted;
(B) Maintain and keep in full force and effect (I) all insurance on the
Acquired Companies' assets and property, (II) the insurance for the benefit of
employees of the Acquired Companies, (III) all liability and other casualty
insurance, and (IV) all bonds on personnel, which, in each case, are currently
in effect, or commercially reasonable substitutions therefor;
(C) Maintain and operate the Acquired Companies and the properties and
assets of the Acquired Companies in compliance in all material respects with all
applicable Laws, including, without limitation and subject to the rights set
forth in Section 4.12 hereunder, all applicable Environmental Laws;
(D) Manage and administer all pending and threatened litigation matters in a
manner consistent with commercially reasonable business practice, giving due
regard to recommendations of legal counsel;
(E) Maintain all liquor (or beer and wine, as applicable) licenses, permits
and authorizations required by Law for the continued sale of alcohol by the
Acquired Companies at those Properties at which alcohol is presently served;
(F) Maintain all current insurance or reinsurance policies the absence of
which would have a Material Adverse Effect, unless simultaneously with any
cancellation, termination, or lapse, replacement policies providing coverage
equal to or greater than the coverage so canceled, terminated, or lapsed are in
full force and effect and written copies thereof have been provided to Buyer;
and
(G) Continue all capital projects, including without limitation, the
construction and development of the Blackstone Golf Club in Frisco, Texas and
the Whitestone Golf Club in Benbro, Texas as set forth in the capital
expenditure budget attached as Schedule 4.1(c).
(b) The Sellers and the Buyer agree that all intercompany accounts (if any)
between the Sellers or any affiliate of the Sellers (other than an Acquired
Company) on the one hand and any of the Acquired Companies on the other hand
shall be settled by the Sellers and the Acquired Companies, at or prior to the
Closing.
(c) In furtherance and not in limitation of the foregoing, the Sellers
covenant and agree that, except as described in Schedule 4.1(c), the Acquired
Companies will not, prior to the Closing, without the consent of the Buyer,
which consent shall not be unreasonably withheld (except as set forth in
subsections (iv) and (vii) below):
(i) Make any purchase, sale or disposition of any asset or property with a
purchase price in excess of individually or in the aggregate,
except as provided in the Acquired Companies existing capital budget, or
mortgage, pledge, subject to a voluntary lien or otherwise voluntarily encumber
(except for mechanics', carriers', suppliers' workmen's or repairmen's liens)
any of its properties or assets, except for any such mortgage, pledge, lien or
encumbrance which, by its terms, will be terminated or otherwise be extinguished
at or prior to the Closing;
(ii) Incur any material contingent liability as a guarantor or otherwise
with respect to the obligations of others, or incur any other material
contingent or fixed obligations or liabilities in excess of individually
or in the aggregate;
(iii) Make any change or incur any obligation to make a change in its
articles or certificate of incorporation, by-laws or authorized or issued
capital stock, except for the release of any pledge of the Acquired Shares made
by or on behalf of the Sellers to REITCO's senior lenders;
(iv) Declare, set aside or pay any dividend, make any other distribution in
respect of its capital stock or make any direct or indirect redemption, purchase
or other acquisition of its capital stock, except for any transfer of the
Acquired Shares by and between the Sellers and/or their respective Subsidiaries
on or prior to the Closing Date and provided, however, that, from and after
March 31, 1999 (provided that Sellers shall have extended the Closing Date in
accordance with Section 1.4 hereof) in no event shall the Acquired Companies pay
any dividend, make any distribution in respect of its capital stock, issue any
capital stock or make any direct or indirect redemption, purchase or other
acquisition of its capital stock, make payments to any Affiliates (other than
any other Acquired Company and its Subsidiaries) except only for payments
permitted under Sections 4.1(b) and 4.1(c)(vi) hereof except (x) for any
transfer of the Acquired Shares by and between the Sellers and/or their
respective Subsidiaries on or prior to the Closing Date, as extended, and (y)
the Acquired Companies shall be entitled to distribute or otherwise pay to the
Sellers amounts contributed, loaned or otherwise paid by Sellers after March 31,
1999 in connection with capital projects;
(v) Make any change in the compensation payable or to become payable (A) to
any of the officers, employees, agents or independent contractors who receive
total annual compensation of or less other than in the ordinary course
of business consistent with past practice; or (B) to any of its officers,
employees, agents or independent contractors who receive total annual
compensation in excess of ;
(vi) Prepay any loans (if any) from its shareholders, officers or directors,
other than as required by their respective terms and as required by Section
4.1(b) hereof, or make any change in its borrowing arrangements;
(vii) Amend, modify or terminate any contract or agreement disclosed
pursuant to Section 2.12(a) hereof or execute or otherwise enter into or amend
or modify any contract or agreement with the Sellers or their Affiliates (except
for the Acquired Companies) except as otherwise contemplated by this Agreement;
(viii) Change any material accounting principles, policies or practices used
by its relating to the Acquired Companies, except for (A) the write-off (if any)
of goodwill, and (B) any change required by reason of a concurrent change in
generally accepted accounting principals and notice of which is given in writing
by Sellers to Buyer;
(ix) Amend the membership by-laws for any club (each a "Club", and
collectively, the "Clubs") owned or operated by any of the Acquired Companies;
(x) Sell, assign or create any life or equivalent membership in any Club;
(xi) Sell, create or assign memberships (a) which include a change of more
than in the pricing of any goods or services, including but not limited to
initiation fees, joining fees, dues, greens fees, cart fees, food, beverage or
merchandise, either individually or in the aggregate, or (b) in excess of
of the pro rated monthly revenue budget for memberships and initiation fees;
(xii) sell more than five memberships to any one party;
(xiii) Create or issue any honorary membership at any Club;
(xiv) Collect any monthly or quarterly dues (in excess of de minimis
amounts) more than 1 collection period in advance;
(xv) Merge or consolidate with or agree to merge or consolidate with, nor
purchase or agree to purchase all or substantially all of the assets of, or
otherwise acquire, any other party (subject to the terms of Section 4.8 hereof);
(xvi) Authorize for issuance, issue, sell or deliver any additional stock of
any class of any Acquired Company or any securities or obligations convertible
into stock of any class of any Acquired Company or issue or grant any option,
warrant or other right to purchase any stock of any class of any Acquired
Company;
(xvii) Except for the transfer of capital stock of MGG II from OPCO to
REITCO, assign, transfer, convey, pledge or transfer any shares of any Acquired
Company's capital stock;
(xviii) Modify, amend or alter any existing credit facilities, the
obligations with respect to which will remain with the Acquired Company after
the Closing Date;
(xix) Cause a default by an Acquired Company under any existing material
agreement or contract of such Acquired Company, which default, if not willful,
could have a Material Adverse Effect;
(xx) Execute or otherwise enter into any construction or development
agreement requiring a payment in excess of except as otherwise provided
in the Acquired Companies' capital budget attached as Schedule 4.1(c) hereto;
(xxi) Cause or suffer any act or omission from and after the date of this
Agreement which would cause or result in the breach of the representations and
warranties contained in Section 2.14, which breach would have a Material Adverse
Effect; provided, however, that the disclosure of items by the Buyer pursuant to
Section 4.12 hereof shall not be deemed to be an act or omission resulting in a
breach of the representations and warranties contained in Section 2.14;
(xxii) Take any affirmative action, or affirmatively fail to take any
action, necessary to maintain all permits, licenses and authorizations (except
as they relate to alcohol) required by Law for the operation of the Acquired
Companies and the Properties the absence of which would have a Material Adverse
Effect; and
(xxiii) Agree or make any commitment to take any of the actions prohibited
by this Section 4.1.
Section 4.2 Investigation. The Buyer acknowledges and agrees that it (a)
has made its own inquiry and investigation into, and, based thereon, has formed
an independent judgment concerning, the Acquired Companies, and (b) will not
assert any claim against the Sellers or the Acquired Companies or any of their
respective directors, officers, employees, agents, shareholders, Affiliates,
consultants, investment bankers, advisors or representatives, or hold the
Sellers or any such Persons liable, for any inaccuracies, misstatements or
omissions with respect to such information furnished by the Sellers or such
Persons concerning the Acquired Companies, other than any inaccuracies or
misstatements in the representations and warranties contained in this Agreement
or as otherwise expressly provided herein (subject to the limitations set forth
in Section 2.18) or in the case of fraud. Sellers acknowledge and agree that
Buyer will make its own investigations and inquiries with respect to the
Acquired Companies and Properties; provided that information obtained through
such investigations that is not included in the Review Room will not limit,
qualify or in any manner affect Sellers' representations or warranties contained
in this Agreement or limit Buyer's rights to assert claims based upon such
representations or warranties.
Section 4.3 Access to Information.
(a) From the date hereof until the Closing Date, upon reasonable notice, the
Sellers shall, and shall cause each Acquired Company and each of their
respective officers, directors, employees, representatives, attorneys, auditors
and authorized agents to, (i) afford the officers, directors, employees,
authorized agents, auditors, attorneys and representatives of the Buyer
reasonable access, during normal business hours, to the offices, properties,
other facilities, books and records of the Acquired Companies and to those
officers, directors, employees, representatives, counsel, auditors and agents of
the Acquired Companies who have material knowledge pertaining to the Properties
or the Acquired Companies including, without limitation, access to enter upon
and investigate the Properties or the Acquired Companies, and (ii) furnish to
the officers, directors, employees and authorized agents, auditors, attorneys
and representatives of the Buyer such additional financial and operating data
and other information regarding the Acquired Companies as the Buyer may from
time to time reasonably request; provided, however, that (A) such investigation
shall not unreasonably interfere with any of the businesses or operations of the
Acquired Companies, (B) the Buyer shall not, prior to the Closing Date, have any
contact whatsoever with respect to the Acquired Companies or with respect to the
transactions contemplated by this Agreement with any partner, lender, ground
lessor, vendor or supplier of the Acquired Companies, except in consultation
with the Sellers and then only with the express prior approval of the Sellers,
which approval shall not be unreasonably withheld or delayed, and (C) all
requests by the Buyer for access or information pursuant to this Section 4.3(a)
shall be submitted or directed exclusively to an individual or individuals to be
designated by the Sellers. The Buyer shall not be permitted to conduct any
invasive tests on any Property without the Sellers' and the applicable Acquired
Company's prior written consent, which consent shall not be unreasonably
withheld or delayed. The Buyer agrees to indemnify the Sellers from and against
any and all Losses (as hereinafter defined) suffered by the Sellers as a result
of any actions taken by the Buyer with respect to the investigations and
inspections contemplated hereby (excluding any Losses associated with any
pre-existing Environmental Conditions discovered or identified as a result of
the exercise of Buyer's rights under Section 4.12 below).
(b) During the preparation, review and dispute resolution time periods
contemplated by Section 1.3, upon reasonable notice, the Buyer shall, and shall
cause each Acquired Company (or any successor thereto) and each of their
respective officers, directors, employees, representatives, attorneys, auditors
and authorized agents to, (i) afford the officers, directors, employees,
auditors, attorneys, authorized agents and representatives of the Sellers
reasonable access, during normal business hours, to the offices, properties,
books and records of the Acquired Companies (or any successor or successors
thereto), (ii) furnish to the officers, directors, employees, auditors,
attorneys, authorized agents and representatives of the Sellers such additional
financial and operating data and other information regarding the Acquired
Companies (or any successor or successors thereto) as the Sellers may from time
to time reasonably request to perform its obligations, or avail itself of its
rights, contained, in each case, in Section 1.3 hereof; provided, however, that
such investigation shall not unreasonably interfere with any of the businesses
or operations of the Acquired Companies (or any successor or successors
thereto).
(c) In order to facilitate the resolution of any claims made by or against
or incurred by the Buyer of the Acquired Companies after the Closing or for any
other reasonable purpose, for a period of seven (7) years following the Closing,
the Sellers shall (i) retain the books and records of the Sellers which relate
to the Acquired Companies and their operations for periods prior to the Closing
and which shall not otherwise have been delivered to the Buyer or the Acquired
Companies and (ii) upon reasonable notice, afford the officers, directors,
employees, authorized agents, auditors, attorneys and representatives of the
Buyer and Acquired Companies reasonable access (including the right to make
photocopies, at the expense of the Buyer or the Acquired Companies), during
normal business hours, following reasonable notice thereof, to such books and
records.
(d) In order to facilitate the resolution of any claims made by or against
or incurred by the Sellers after the Closing in respect of their ownership of
the Acquired Companies or for any other reasonable purpose, for a period of
seven (7) years following the Closing, the Buyer shall, and shall cause the
Acquired Companies to, (i) retain the books and records of the Buyer or the
Acquired Companies, as the case may be, and their operations for periods prior
to the Closing and which shall not otherwise have been retained by the Sellers
and (ii) upon reasonable notice, afford the officers, directors, employees,
authorized agents, auditors, attorneys and representatives of the Sellers
reasonable access (including the right to make photocopies, at the expense of
the Sellers), during normal business hours, following reasonable notice thereof,
to such books and records.
Section 4.4 Confidentiality. Subject to the requirements of applicable Law
until the Closing, the parties will, and will instruct each of their respective
Affiliates, associates, partners, employees, directors, officers, agents,
attorneys, auditors, investment bankers, representatives and advisors (the
"Representatives") to, hold in confidence all such information as is
confidential or proprietary, will use such information only in connection with
the consummation of the transactions contemplated by this Agreement and, if this
Agreement is terminated in accordance with its terms, will deliver promptly to
the others (or destroy and certify to the other the destruction of) all copies
of such information (and any copies, compilations or extracts thereof or based
thereon) then in their possession or under their control. Each party hereto
agrees that money damages would not be a sufficient remedy for any breach of
this Section 4.4 by the other party hereto or any of its Representatives, and
that, in addition to all other remedies, such non-breaching party shall be
entitled to specific performance and injunctive or other equitable relief as a
remedy for any such breach, and each such party further agrees to waive and to
use its best efforts to cause its Representatives to waive, any requirement for
the securing or posting of any bond in connection with any such remedy. Each
party agrees to be responsible for any breach of this Section 4.4 by any of its
Representatives. Nothing contained in this Section 4.4 shall effect, modify or
otherwise limit the respective agreements and other obligations of Club
Corporation of America (now known as ClubCorp USA, Inc.), on the one hand, and
Sellers, on the other, contained in that certain Confidentiality Agreement dated
as of November 15, 1998, (the "Confidentiality Agreement"), which
Confidentiality Agreement shall remain in full force and effect.
Section 4.5 Regulatory and Other Authorizations; Consents.
(a) The Sellers shall use their good faith commercially reasonable efforts
to obtain (or cause the Acquired Companies to obtain) the authorizations,
consents, orders and approvals that are or become necessary for their execution
and delivery of, and the performance of their obligations pursuant to, this
Agreement, including, without limitation, the consent of (i) Governmental
Authorities, (ii) landlords under the ground leases, and (iii) lenders, and the
Buyer shall cooperate fully with the Sellers in promptly seeking to obtain all
such authorizations, consents, orders and approvals. If required by the HSR
Act, each party hereto agrees to make an appropriate filing of a Notification
and Report Form pursuant to the HSR Act with respect to the transactions
contemplated by this Agreement (the "Notification Form") within ten (10)
business days after the date hereof and to supply promptly any additional
information and documentary material that may be requested pursuant to the HSR
Act. The parties hereto will not take any action that will have the effect of
delaying, impairing or impeding the receipt of any required approvals.
(b) The Sellers shall give promptly, or shall cause the Acquired Companies
to give promptly, such notices to third parties and use its or their
commercially reasonable efforts (without, however, any obligation to incur any
costs, liability or other obligation, in excess of de minimis amounts, except
that the Sellers shall pay any consent or other transfer fee or similar payment
required to be paid to the lessor in connection with the granting of a Required
Consent (as defined in Section 7.3(b) hereof)) under any ground lease identified
on Schedule 4.13, to obtain such third party consents as the Buyer may in its
sole and absolute discretion deem necessary or desirable in connection with the
transactions contemplated by this Agreement; provided, however, that the forms
of such notice and/or consent shall be reasonably acceptable to Sellers and
Buyer; and provided, further, however, that any failure to obtain such third
party consents shall not constitute a breach of this Agreement or a failure of
any condition to Closing nor shall it give rise to any right of termination on
the part of the Buyer or impose any independent obligation or liability on the
Sellers except as otherwise set forth in this Agreement.
(c) The Buyer shall use its good faith commercially reasonable efforts to
assist the Sellers in obtaining the consents of third parties listed in Schedule
2.6(b), including (i) providing to such third parties such financial statements
and other financial information as such third parties may reasonably request,
(ii) agreeing to commercially reasonable adjustments to the terms of the
agreements with such third parties (provided that neither party hereto shall be
required to agree to any increase in the amount payable with respect thereto so
long as there shall be no increase in Buyer's obligations or decrease in its
rights other than to a de minimis extent) and (iii) executing agreements to
effect the assumption of such agreements on or before the Closing Date effective
from and after the Closing Date.
(d) The Buyer assumes as of the Closing Date, and will continue to honor in
accordance with the respective provision, any and all obligations of the Sellers
arising from and after such date relating to and arising from Section 6.9(a) (to
the extent the Buyer is acquiring any entity covered thereby or a successor
thereto) of that certain Agreement and Plan of Merger dated as of January 11,
1998 among REITCO, OPCO and Cobblestone Holdings, Inc., as amended. The Buyer
agrees to indemnify the Sellers for any and all Losses incurred by the Sellers
arising out of the breach of any such obligations.
Section 4.6 Further Action. Each of the parties hereto shall use its
respective best efforts to take or cause to be taken all appropriate action, do
or cause to be done all things necessary, proper or advisable, and execute and
deliver such documents and other papers, as may be required to carry out the
provisions of this Agreement and consummate and make effective the transactions
contemplated by this Agreement.
Section 4.7 Press Releases. The parties hereto will, and will cause each
of their Affiliates to, maintain this Agreement confidential and will not, and
will cause each of their Affiliates not to, issue or cause the publication of
any press release or other public announcement with respect to this Agreement or
the transactions contemplated hereby without the prior written consent of the
other party hereto which consent shall not be unreasonably withheld; provided,
however, that nothing herein will prohibit the Sellers or the Buyer from issuing
or causing publication of any such press release or public announcement to the
extent that such party reasonably determines, after consultation with outside
legal counsel, such action to be required by Law or the rules of any applicable
self-regulatory organization, in which event such party will use its
commercially reasonable efforts to allow the other party reasonable time to
comment on such release or announcement in advance of its issuance. The parties
acknowledge that a press release in the form of Schedule 4.7 shall be made
immediately following the execution of this Agreement.
Section 4.8 No Solicitation.
(a) Except as otherwise provided herein, unless and until this Agreement
shall have been terminated in accordance with its terms, the Sellers agree and
covenant that (i) neither Seller nor any of their respective subsidiaries shall,
and each of them shall direct and use their best efforts to cause their
respective officers, directors, employees, agents and representatives
(including, without limitation, any investment banker, attorney or accountant
retained by it or any of its subsidiaries) not to, directly or indirectly,
initiate, solicit or encourage any inquiries or the making or implementation of
any proposal or offer with respect to a merger, acquisition, or similar
transaction involving the purchase of the Acquired Companies or the Acquired
Shares (any such proposal or offer being hereinafter referred to as an
"Acquisition Proposal") or engage in any negotiations with, or provide any
confidential information or data to, or have any discussions with, any person
relating to, an Acquisition Proposal, or otherwise facilitate any effort or
attempt to make or implement an Acquisition Proposal.
(b) Notwithstanding anything set forth in this Agreement to the contrary,
the Boards of Directors of the Sellers may furnish information to or enter into
discussions or negotiations with any person that makes an unsolicited bona fide
proposal to purchase the Acquired Companies, whether by merger, purchase of
capital stock or all or substantially all of their assets or otherwise (a
"Proposal"), if the Boards of Directors of the Sellers determine in good faith
that the Proposal, if consummated as proposed, would result in a transaction
more favorable to the Sellers' stockholders from a financial point of view than
the transactions contemplated by this Agreement (any such Proposal being
referred to herein as a "Superior Proposal").
Section 4.9 Tax Cooperation; Structuring Matters.
(a) After the Closing, Sellers shall, and shall cause their Affiliates to,
cooperate fully with Buyer in the preparation of all Tax Returns (other than Tax
Returns with respect to the period of ownership of an Acquired Company by REITCO
as a qualified REIT subsidiary, which shall be prepared and filed or caused to
be filed in a manner consistent with past practice and in the ordinary course of
business (subject to any departure required to comply with any applicable law)
relating to periods ending on or prior to the Closing Date and shall provide to
Buyer, or cause to be provided, at Sellers' sole cost and expense, any records
and other information reasonably requested by such parties in connection
therewith as well as access to, and the cooperation of, the auditors of Sellers
and their Affiliates. After the Closing, Sellers shall, and shall cause their
Affiliates to, cooperate fully with Buyer in connection with any tax
investigation, audit or other proceeding relating to the Acquired Companies.
After the Closing, Buyer shall, and shall cause its Affiliates to, cooperate
fully with Sellers in the preparation of all tax returns required to be filed by
Sellers relating to the golf business and to periods ending on or prior to the
Closing Date and shall provide to Sellers, or cause to be provided at Buyer's
sole cost and expense, any records and other information requested by such
parties in connection therewith as well as access to, and the cooperation of,
Buyer's auditors. Any information obtained pursuant to this Section 4.9 or
pursuant to any other Section hereof providing for the sharing of information or
the review of any tax return or other Schedule relating to taxes shall be
subject to Section 4.4 hereof.
(b) If and to the extent so requested by the Sellers, and subject to the
Buyer's reasonable judgment that all other conditions precedent of the Sellers
to the Closing have been, or will be, satisfied or waived, the Sellers may
revise the method of effecting Buyer's acquisition of MGG, MGG II and/or
Cobblestone, including without limitation an acquisition of all of the assets of
such entity or entities; provided, however, that (i) any breach of this
Agreement by Buyer and any inability of the Buyer to satisfy any condition to
the Closing arising, in each case, solely as a result of such revised method of
effecting such acquisition shall not be deemed a breach or a failure of such
condition to the Closing, and (ii) the Buyer receives substantially the same
economic benefit as a result of such revised transaction as it would have
received as a result of acquiring the Acquired Shares. Notwithstanding the
foregoing, the Sellers shall have the right, in their sole discretion, to
convert MGG, MGG II and/or Cobblestone into a limited liability company which is
treated as a "disregarded" entity for Federal income tax purposes, or to
transfer the "Cobblestone" trade name and any similar intangibles held by MGG to
a corporation all of the capital stock of which would be owned by MGG and/or
Cobblestone. The parties hereto agree that they will execute, and will cause
their respective direct and indirect subsidiaries to execute, such agreements
and documents and such amendments to this Agreement and any related documents as
shall be appropriate in order to reflect such revised structure.
Section 4.10 Repair of Damage; Condemnation.
(a) In the event that prior to the Closing there is any damage to the
Properties, or any part thereof, which has not been restored prior to Closing to
substantially similar condition as immediately prior to the date such damage
occurred, Buyer shall accept such Properties in their then-current condition,
and Sellers shall remit to the Buyer the net amount of insurance proceeds
actually received by Sellers with respect to such damage, and Buyer and Sellers
shall proceed with the Closing.
(b) In the event that prior to the Closing, any portion of the Properties is
subject to a taking, Buyer shall accept the Properties in their then-current
condition and proceed with the Closing, in which case Sellers shall remit the
net amount of any award actually received by Sellers in connection with such
taking. In the event of any such taking that will have a Material Adverse
Effect, Sellers shall not compromise, settle, or adjust any claims to such award
without Buyer's prior written consent, which consent shall not be unreasonably
withheld or delayed.
(c) Sellers agree to give Buyer prompt notice of any taking of, or damage
to, any material part of the Properties.
Section 4.11 Liquor Licenses.
(a) The parties hereto agree to use commercially reasonable efforts to
preserve or to otherwise obtain those authorizations, consents or approvals
necessary to assure that each Property currently operating with a liquor (beer)
license, or that is in the process of applying for such license, either retains
such liquor (beer) license immediately prior to the Closing or receives a new
liquor (beer) license no later than the Closing Date provided, however, that in
the event the Sellers use their commercially reasonable efforts as provided
herein, neither Sellers nor any of their Affiliates or subsidiaries shall have
any liability or obligation to Buyer or any person claiming through Buyer in the
event that any or all such liquor (beer) licenses, authorizations, consents or
approvals are not retained or received, as applicable.
(b) The Sellers and the Buyer agree that, in the event any consent, approval
or authorization necessary or desirable to preserve or otherwise obtain a liquor
(beer) license for any Property is not obtained prior to the Closing, the
Sellers will, subsequent to the Closing, cooperate with the Buyer and the
Acquired Companies (at Buyer's sole cost and expense) in attempting to obtain
such consent, approval or authorization as promptly thereafter as practicable.
Until such consent, approval or authorization can be obtained, but (I) with
respect to those liquor (beer) licenses which have been issued and are in place
immediately prior to Closing only and (II) for a period not to exceed six (6)
months after Closing, the Sellers, will enter into such customary arrangements
(including, without limitation, reasonable compensation to the Sellers (but
without a profit component), the assumption of all loss, cost, obligation and
liability of any kind or nature, the full indemnification of Sellers in
connection therewith and the maintenance of all applicable insurance by Buyer)
as the Buyer may reasonably request and the Sellers' shall reasonably agree to,
subject in all events to applicable Law and at Buyer's sole cost and expense, to
provide the Buyer or the Acquired Companies with the rights and benefits of the
existing liquor (beer) license for such period. Notwithstanding the forgoing,
Buyer and Sellers acknowledge and agree that (i) certain of the liquor (beer)
licenses may not be under the direct control of the Sellers, and as a result,
provided that Sellers undertake, in a commercially reasonable manner, to require
that the holder(s) of the liquor (beer) license enters into the arrangement
contemplated in the preceding sentence, Sellers' obligations set forth therein
shall be deemed satisfied, (ii) certain governmental and quasi-governmental
agencies and authorities (including without limitation, applicable alcohol
beverage commissions and comparable entities) may prohibit or materially
restrict the use by Buyer of the rights and benefits of the existing liquor
(beer) licenses, in which event (provided that Sellers cooperate in good faith
with the Buyer in order to structure a customary arrangement which will provide
the Buyer with the rights and benefits of the existing liquor (beer) licenses)
Sellers' obligations under the preceding sentence shall be waived as to each
applicable liquor (beer) license (it being further acknowledged that the
customary arrangements contemplated above may differ in various jurisdictions),
(iii) REITCO is a publicly traded company and has a material and on-going
interest in maintaining strict controls over the public's perception of REITCO
and its affiliates, which interest shall be a material concern to both Buyer and
Sellers in establishing any contemplated customary arrangements.
(c) It is the intention of the Buyer pursuant to this Section 4.11 (which
intention is acknowledged by the Sellers in agreeing to (i) use their
commercially reasonable efforts to preserve or obtain the necessary licenses and
consents as provided in (a) above, and (ii) make available, on customary terms
reasonably acceptable to Sellers, the rights and benefits of Sellers' existing
liquor licenses as provided in (b) above), that to the maximum extent reasonable
and provided that the terms of this Section 4.11 are satisfied, there shall be
little or no interruption in the sale of alcohol at any Property.
Section 4.12 Environmental Assessments. Prior to the Closing Date, Buyer
and Buyer's environmental consultant, which consultant shall be reasonably
satisfactory to Sellers (it being agreed that ATC is reasonably satisfactory),
shall be permitted reasonable access to the Properties (or any one or more of
them), for the sole purpose of conducting Phase I environmental site assessments
of such Properties which conform to the ASTM Standard Practice for Environmental
Site Assessments: Phase I Process E 1527-97, modified to include a limited
asbestos survey. Such access shall be under reasonable terms and conditions so
as not to materially interfere with the operations of the Sellers. In the event
that Buyer's environmental consultant, upon the conclusion of the Phase I site
assessment, reasonably recommends any Phase II assessment or subsurface
investigation of the Properties, including but not limited to soil, sediment or
groundwater testing or sampling, borings, installation or sampling of monitoring
wells (generally, "Phase II Investigations"), permission for access to perform
such Phase II Investigations must be obtained in writing from the Sellers in
advance of any such activity, such permission not to be unreasonably withheld or
delayed (and to be granted provided that such Phase II Investigations are of a
usual and customary nature in consideration of the issue which is the subject
matter of such Phase II Investigation). If Buyer conducts any Phase II
Investigations on the Properties, Buyer agrees to indemnify and hold Sellers
harmless from any and all damages, losses, liabilities, expenses, costs, claims,
actions, suits, proceedings, assessments, orders, judgments, fines and penalties
(including without limitation, reasonable legal, accounting, consulting,
engineering and other expenses), which may be incurred, arise out of or result
from any acts and omissions of Buyer, its employees, agents and representatives
taken in connection with such Phase II Investigations. This provision, and any
rights with respect to pre-closing environmental investigations, testing and/or
site assessments, applies only to the Properties. Any and all testing,
investigations and/or site assessments shall be at the sole cost and expense of
the Buyer.
Section 4.13 Property Holdback Rights. On or prior to the date which is
fifteen (15) days prior to the Closing Date (as the same may have been extended
by Sellers in accordance with Section 1.4 above, the "Holdback Designation
Date"), Sellers shall have the right to deliver to the Buyer a property holdback
designation letter for any Property (a "Holdback Property") for which a Required
Consent under a ground lease or other agreement identified on Schedule 4.13 has
not been obtained by such date (a "Holdback Letter") in accordance with the
terms, conditions and limitations set forth in this Section 4.13. Sellers'
failure to deliver to the Buyer, on or prior to the Holdback Designation Date,
an executed Holdback Letter shall be conclusively deemed as Sellers'
confirmation of the absence of any Holdback Properties. Sellers specifically
waive any right to deliver a Holdback Letter after the Holdback Designation Date
unless the Sellers incur all costs incurred in connection with the exercise of
the rights hereunder, including any incremental costs resulting from such
failure to timely deliver a Holdback Letter. Notwithstanding the delivery of a
Holdback Letter by the Sellers with respect to any one or more Holdback
Properties, the Buyer shall have the right, by written notice delivered to the
Sellers on or before the date which is ten (10) days prior to the Closing Date
(or such later date if accepted by the Sellers), to waive the Required Consent
requirement with respect to any or all such Holdback Properties and to
thereafter proceed to Closing with respect to such Holdback Properties as if
such Required Consent had been obtained.
Notwithstanding anything to the contrary contained in this Agreement, and for
the purposes of this Section 4.13 only, the Buyer and the Sellers irrevocably
agree that the allocated purchase price (individually and collectively, the
"Allocated Value") with respect to each Property that could become a Holdback
Property (i.e., the Properties identified on Schedule 4.13), in the event such
Property becomes a Holdback Property hereunder, is as set forth on Schedule
4.13, it being further acknowledged that such allocation does not have any
bearing or relationship to, and has been derived independently from, the
allocation of the Purchase Price set forth elsewhere in this Agreement.
With respect to each Holdback Property, the Closing Date with respect to such
Holdback Property shall be deferred to the earlier of (x) the day which is six
(6) months after the Closing Date, or (y) the day that is fifteen (15) days
following receipt of the applicable Required Consent (the "Holdback Property
Closing Date").
With respect to each Holdback Property, Buyer and Sellers, respectively, shall
remain fully obligated to purchase and sell (i) such Holdback Properties (or the
Acquired Shares of the entity which owns such Holdback Property) and (ii) all
other Acquired Shares (and the Properties related thereto) on the terms and
conditions set forth in this Agreement, provided that (i) the aggregate Purchase
Price payable on the Closing Date, pursuant to Section 1.3(a) above applicable
to all other Acquired Shares (and the Properties related thereto) shall be (x)
reduced by the Allocated Value of the Holdback Property or Holdback Properties.
Any costs incurred with respect to the holdback of a Holdback Property (which
may include a real property transfer) shall be for the account of the Sellers.
With respect to the Holdback Properties, (i) an amount equal to
of the Allocated Value of each Holdback Property shall be retained by the
Escrow Agent as a continuing deposit subject to disposition, as liquidated
damages, in accordance with Article IX as to such Holdback Property; and (ii)
the Closing Date with respect to the Holdback Properties shall be the Holdback
Property Closing Date. It is the intention of the parties hereunder that: the
Holdback Property Closing Date shall be deemed to be the Closing Date with
respect to the Holdback Properties under this Agreement; that on the Holdback
Property Closing Date the Holdback Properties (or the Acquired Shares related
thereto) shall be conveyed to the Buyer in exchange for the Allocated Value for
each Holdback Property, and that; with respect to the Holdback Properties, the
date of March 31, 1999 as set forth in Section 9.1(b) shall be deemed to be
time being of the essence with respect to such dates.
The Sellers and the Buyer agree that, with respect to each Holdback Property,
the applicable Acquired Company and the Buyer shall, with respect to the period
ending on the Holdback Property Closing Date with respect to each applicable
Holdback Property, enter into such management or other arrangements, each in
form and substance reasonably acceptable to the Buyers and Sellers, but only if
such arrangements can be entered into and performed without violating the
provisions of any law or any agreement or other contracts relating to the
applicable Holdback Property so as to provide Buyer, to the maximum extent
reasonably possible, with the net economic benefits as if such Holdback Property
had been acquired by Buyer on the initial Closing Date.
Section 4.14 Observation Rights; Certain Communications.
(a) Commencing on the date which is one (1) Business Day after the date of
this Agreement, Buyer's representatives shall have the right, from time to time,
to visit and observe all of the Properties and Cobblestone corporate and
regional headquarters during normal business hours, provided, however, that such
visits and observations shall not unreasonably interfere with the normal
business operations of the Acquired Companies. Such visitation and observation
rights shall include the right to attend all meetings relating to the
operations, management, financial and accounting matters of the Acquired
Companies, including, but not limited to, all meetings attended by persons
identified in Section 2.18(c) excluding meetings relating to the conveyance of
the Acquired Companies to Buyer. Sellers shall use their good faith and
commercially reasonable efforts to provide timely notice to Buyer's
representatives of each of such meetings and to accommodate Buyer's
representatives' reasonable requests for access to office space, services and
equipment. Buyer's rights hereunder shall be subject, in all events, to the
Confidentiality Agreement (as defined in Section 4.4).
(b) The Buyer and Sellers agree that, in the event Buyer identifies issues
with respect to the operation or management of the Acquired Companies in
connection with the exercise of its rights under Section 4.14(a) hereof that
Buyer believes in good faith and in its commercially reasonable business
judgment to be detrimental to, or to have an adverse impact on, the Acquired
Companies or their respective operations, representatives of the Buyer may
engage in discussions about such issues with the Sellers' Designees. The Buyer
and the Sellers, through the Sellers' Designees, agree to communicate and to
work together in good faith with respect to such issues in order to correct such
issues, if appropriate, or to develop a plan or process to address any such
issues in order to preserve the Acquired Companies operations and reputation
[goodwill]. For purposes, hereof, the term "Sellers' Designees" shall initially
mean Michael S. Benjamin and David F. Benson or such other officer or key
employee of a Seller as may subsequently be identified to Buyer in writing.
(c) The Sellers shall endeavor, in good faith, to notify Buyer promptly
after the Sellers obtain Sellers' Knowledge (as defined in Section 2.18(a)
hereof) of any breach of any of Sellers' covenants under Section 4.1, provided,
however, that (i) Sellers shall have no obligation to notify Buyer of any breach
of which Buyer has Buyer's Knowledge (as defined in Section 3.8, but including
for such purposes the knowledge of those individuals who may from time to time
perform those actions permitted by Section 4.14(a) and (b) hereof), and (ii)
Sellers agreement hereunder shall not impose any additional liability or
obligation under this Agreement.
ARTICLE V
EMPLOYEE MATTERS
Section 5.1 Employees.
(a) The Buyer shall ensure that all persons who were employed by the
Acquired Companies immediately preceding the Closing Date, including those on
vacation, leave of absence or disability (the "Acquired Companies Employees"),
will remain employed in a comparable position on and immediately after the
Closing Date for such period of time as determined by the Buyer, at not less
than the same base rate of pay, except as otherwise provided in this Section
5.1. Notwithstanding the foregoing, the Buyer shall not, at any time prior to
60 days after the Closing Date, effectuate a "plant closing" or "mass layoff" as
those terms are defined in the Worker Adjustment and Retraining Notification Act
of 1988 ("WARN"), or comparable conduct under any applicable state law,
affecting in whole or in part any facility, site of employment, operating unit
or employee of any of the Acquired Companies without complying fully with the
requirements of WARN.
(b) To the extent permissible under applicable law and to the extent that
service is relevant for purposes of eligibility and vesting under any employee
benefit plan, program or arrangement established or maintained by the Buyer
(other than any defined benefit pension plan) following the Closing Date for the
benefit of Acquired Companies Employees at such time as any employee benefit
plan, program or arrangement is made available to Acquired Companies Employees,
such plan, program or arrangement shall credit such employees for service on or
prior to the Closing Date that was recognized by the Sellers or the Acquired
Companies, as the case may be, for purposes of employee benefit plans, programs
or arrangements (including vacation policies) maintained by any of them. In
addition, with respect to any welfare benefit plan (as defined in Section 3(1)
of ERISA) established or maintained by the Buyer following the Closing Date for
the benefit of Acquired Companies Employees, to the extent permissible under
applicable law, such plan shall waive any pre-existing condition exclusions and
provide that any covered expenses incurred during the 1999 plan year on or
before the Closing Date by an Acquired Company Employee or by a covered
dependent shall be taken into account for purposes of satisfying applicable
deductible coinsurance and maximum out-of-pocket provisions after the Closing
Date.
(c) Buyer agrees that either Buyer or the Acquired Companies will make COBRA
continuation coverage available to individuals who are COBRA qualified
beneficiaries under the Benefit Plans immediately prior to the Closing Date.
Section 5.2 Employee Benefits. For a period of one year following the
Closing Date, the Buyer shall provide the Acquired Companies Employees with
benefits that either are (i) substantially comparable, in the aggregate, to the
benefits provided under the Benefit Plans as in effect immediately prior to the
Closing Date or (ii) the same as the benefits generally made available to a
majority of the Buyer's similarly situated employees.
Section 5.3 Other Employee Benefits. From and after the Closing Date, Buyer
will, or will cause the Acquired Companies to, honor in accordance with their
terms all of the severance payments pursuant to Severance Arrangements between
any of the Acquired Companies and the Acquired Companies Employees in effect as
of the date hereof and listed on Schedule 2.12(a). Seller shall honor and be
liable for all payments related to the Retention Bonuses.
Section 5.4 Indemnity. Anything in this Agreement to the contrary
notwithstanding, (i) the Buyer hereby agrees to indemnify the Sellers and their
respective Affiliates against and hold the Sellers and their respective
Affiliates harmless from any and all Losses arising out of or otherwise in
respect of (a) any claim made by any Acquired Company Employee against the
Sellers or any of their Affiliates for any severance or termination benefits
pursuant to the provisions of the Severance Arrangements or any applicable
federal or state law arising after the Closing, (b) any action taken after the
Closing by the Buyer with respect to any plan (including any Benefit Plan), (c)
any claim for payments or benefits by Acquired Companies Employees or their
beneficiaries under any Benefit Plan, and (d) any failure of the Buyer to
discharge their obligations under this Article V, and (ii) the Sellers hereby
jointly and severally agree to indemnify the Buyer and its Affiliates against
and hold the Buyer and its Affiliates harmless from any and all Losses arising
out of or otherwise in respect of any claim made by any Acquired Company
Employee against the Buyer or any of its Affiliates for any Retention Bonuses,
in the case of clauses (i) and (ii), without regard to the Threshold Amount or
the Maximum Amount (as defined in Article VIII hereof); provided, however, that
the procedural requirements of Sections 8.2 and 8.3 shall apply to Sellers' and
the Buyer's indemnification obligations under this Section 5.4.
Section 5.5 No Third Party Beneficiaries. Notwithstanding anything else
contained herein to the contrary, nothing in this Article V shall be construed
to create any third party beneficiary rights in any person who is not a party to
this Agreement.
ARTICLE VI
TAX MATTERS
Section 6.1 Conveyance Taxes; Costs. The Buyer shall be liable for and
shall hold the Sellers harmless against any real property transfer, sales, use,
transfer, value added, excise, stock transfer, stamp, recording, registration
and any similar Taxes that become payable in connection with the acquisition by
the Buyer contemplated hereby, and the applicable parties shall file such
applications and documents as shall permit any such Tax to be assessed and paid
on or prior to the Closing Date in accordance with any available pre-sale filing
procedure. The Sellers agree to cooperate with the Buyer and, subject to the
other terms of this Agreement, to take any action reasonably requested by the
Buyer, at no cost to the Sellers, in order to minimize the amount of such Taxes.
The parties shall execute and deliver all instruments and certificates necessary
to permit compliance with the foregoing. The Buyer shall pay the entire cost of
any title insurance (for itself or any lender, including lenders of indebtedness
assumed by the Buyer hereunder), surveys, title inspections, and appraisals that
the Buyer elects to obtain in connection with the transactions contemplated
hereby. The Buyer shall pay any and all attorneys' fees of its lenders and
lenders of indebtedness assumed by the Buyer hereunder.
Section 6.2 Treatment of Indemnity Payments. All payments made by the
Sellers or the Buyer, as the case may be, to or for the benefit of the other
party pursuant to any indemnification obligations under this Agreement shall be
treated as adjustments to the consideration for Tax purposes, and such agreed
treatment shall govern for purposes of this Agreement.
Section 6.3 Employee Withholding. The Sellers and the Buyer agree that,
pursuant to and to the extent permitted by the "Alternative Procedure" provided
in Section 5 of Revenue Procedure 84-77, 1984-2 C.B. 753, with respect to filing
and furnishing IRS Forms W-2, W-3 and 941, (a) the Sellers and the Buyer shall
each report on a "predecessor-successor" basis, as set forth therein, (b) the
Sellers shall be relieved from furnishing Forms W-2 for the 1999 calendar year
to any of the Sellers' employees that become employees of the Buyer and (c) the
Buyer shall assume the obligations of the Sellers to furnish such Forms W-2 to
such employees for the full 1999 calendar year.
ARTICLE VII
CONDITIONS TO CLOSING
Section 7.1 Conditions to the Obligations of Each Party. The respective
obligations of each party to consummate the transactions contemplated by this
Agreement shall be subject to the satisfaction or waiver, at or prior to the
Closing, of each of the following conditions, any or all of which may be waived,
in whole or in part by the parties hereto (but only to the extent that such
matter is a precondition to the obligations of such waiving party), to the
extent permitted by applicable law:
(a) HSR Act. Any waiting period (and any extension thereof) under the HSR
Act applicable to the transactions to be consummated at the Closing shall have
expired or been terminated; and
(b) No Order. No Governmental Authority or court of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, injunction or other order (whether temporary, preliminary or
permanent) that is in effect and has the effect of making the transactions
contemplated by this Agreement for the Closing illegal or otherwise restraining
or prohibiting consummation of such transactions; provided, however, that the
provisions of this Section 7.1(b) shall not apply to a party unless such party
has used its best efforts to have any such order or injunction vacated.
Section 7.2 Conditions to Obligations of the Sellers. The obligations of
the Sellers to consummate the transactions contemplated by this Agreement shall
be subject to the satisfaction or waiver, at or prior to the Closing, of each of
the following conditions:
(a) Covenants. All covenants contained in this Agreement to be complied
with by the Buyer on or before the Closing shall have been complied with in all
respects except where the failure to so comply would not have a material adverse
effect on the Buyer's ability to perform its obligations under this Agreement,
and the Sellers shall have received a certificate of the Buyer to such effect
signed by a duly authorized officer of the Buyer; and
(b) Consents. The Buyer shall have received the authorizations, orders,
approvals and consents of Governmental Authorities and third parties described
in Schedules 3.3(a) and 3.3(b), in form and substance reasonably satisfactory to
the Sellers, except where the failure to so receive would not have a material
adverse effect on the Buyer's ability to perform its obligations under this
Agreement.
Section 7.3 Conditions to Obligations of the Buyer. The obligations of
the Buyer to consummate the transactions contemplated by this Agreement shall be
subject to the satisfaction or waiver by the Buyer, at or prior to the Closing,
of each of the following conditions:
(a) Covenants. All covenants contained in this Agreement (except for those
contained in Sections 4.1(a)(A) through 4.1(a)(G) and in Section 4.1(c) hereof)
to be complied with by the Sellers on or before the Closing shall have been
complied with in all respects, except where the failure to so comply would not
have (A) a Material Adverse Effect or (B) a material adverse effect on the
Sellers' ability to perform their obligations under this Agreement, and the
Buyer shall have received a certificate of the Sellers to such effect signed by
a duly authorized officer thereof;
(b) Consents. The Buyer, Sellers, and the Acquired Companies, as
applicable, shall have received (A) those consents to the transactions
contemplated hereby listed on Schedule 7.3(b) hereto (the "Required Consents"),
subject in all circumstances to Section 4.13, and (B) the authorizations,
orders, approvals and consents of Governmental Authorities and third parties
described in Schedules 2.6(a) and 2.6(b) in form and substance reasonably
satisfactory to the Buyer, except where the failure to so receive would not have
(A) a Material Adverse Effect or (B) a material adverse effect on the Sellers'
ability to perform their obligations under this Agreement;
(c) FIRPTA Withholding. At or prior to the Closing, the Buyer shall have
received from each Seller a "transferor's certificate of non-foreign status" as
provided in the Treasury Regulations under Section 1445 of the Code in the form
attached hereto as Exhibit D;
(d) Absence of Certain Breaches. There shall not then exist a breach or
multiple breaches of (i) any representation or warranty of the Sellers which
would give rise to aggregate Losses in excess of an amount equal to the
Threshold Amount plus the Maximum Amount (as each is hereinafter defined); or
(ii) any of the covenants of the Sellers contained in Sections 4.1(a)(A) through
4.1(a)(G) or Section 4.1(c) which has given rise to, or will give rise to,
aggregate Losses (including for such purpose only, the impairment of the fair
market value of the Properties and assets of the Acquired Companies) in excess
of , which breach or multiple breaches, in the case of subclause (i) and
subclause (ii) of this Section 7.3(d), remains uncured as of the Closing (as the
same may be extended pursuant to Section 1.4 hereof); provided, however, that,
in the event the Sellers elect to cure any such breach contemplated hereby, the
Sellers shall fully cure such breach;
(e) Legal Opinion. The Buyer shall have received from counsel to the
Sellers an opinion in form reasonably acceptable to the Buyer, that each of the
Sellers is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware and has all the requisite
corporate power and authority to enter into this Agreement, to carry out its
obligations hereunder and to consummate the transactions contemplated hereby;
and
(f) Absence of Significant Environmental Liabilities. The investigations,
tests and site assessments permitted to be conducted pursuant to Section 4.12
hereof shall not have revealed Significant Environmental Liabilities (as defined
in Section 9.1(e) hereof).
ARTICLE VIII
INDEMNIFICATION
Section 8.1 Survival.
(a) Subject to the limitations and other provisions of this Agreement, the
representations and warranties of the parties hereto contained herein, as the
case may be, shall survive the Closing and shall remain in full force and
effect, for a period of one (1) year after the Closing Date; provided, however,
that the representations and warranties of the parties contained in Sections
2.1, 2.2, 2.17, 3.1 and 3.6 shall survive the Closing in perpetuity and the
representations and warranties of the Sellers contained in Sections 2.8 and 2.9
shall survive until the seven (7) year anniversary of the Closing Date.
(b) Subject to the limitations and other provisions of this Agreement,
including Section 8.1(a) above, each covenant and agreement of the parties
hereto contained herein shall survive the Closing and shall remain in full force
and effect for: (i) one (1) year or (ii) until the end of the applicable period
specified elsewhere in this Agreement with respect to such covenant or
agreement.
Section 8.2 Indemnification by the Sellers
(a) The Sellers jointly and severally agree, subject to the other terms and
conditions of this Agreement, to indemnify the Buyer and its Affiliates,
officers, directors, employees, agents, successors and assigns (each a "Buyer
Indemnified Party") against and hold them harmless from all Losses arising out
of (i)
Anything in Section 8.1 to the contrary notwithstanding, no claim may
be asserted nor any action commenced against the Sellers for breach of any
representation or warranty contained herein, unless written notice of such claim
or action is received by the Sellers describing in detail the facts and
circumstances with respect to the subject matter of such claim or action on or
prior to the thirtieth (30th) day after the date on which the representation or
warranty on which such claim or action is based ceases to survive as set forth
in Section 8.1 (the "Indemnification Cut-Off Date"), and such claim or action
arose on or prior to the date such representation or warranty ceased to survive,
in which case such representation or warranty, and the Buyer's right to
indemnification hereunder will survive as to such claim until such claim has
been finally resolved in accordance with the terms of this Article VIII.
(b) The indemnification obligations of the Sellers pursuant to Section
8.2(a) (excluding the indemnification obligations of the Sellers for Excluded
Claims; the amount paid with respect to Excluded Claims shall not be counted in
any calculation of the Threshold Amount or the Maximum Amount) shall not be
effective until the aggregate dollar amount of all Losses (including without
limitation Sellers' expenses of defending and/or settling any claim or dispute
giving rise to such indemnification obligation) that would otherwise be
indemnifiable pursuant to Section 8.2(a) exceeds of the
aggregate Purchase Price (the "Threshold Amount"), and then only to the extent
such aggregate amount exceeds the Threshold Amount. The indemnification
obligations of the Sellers pursuant to Section 8.2(a) (excluding the
indemnification obligations of the Sellers related to Excluded Claims) shall be
effective only until the dollar amount paid in respect of the Losses (including
without limitation Sellers' expenses of defending and/or settling any claim or
dispute giving rise to such indemnification obligation) indemnified against
under Section 8.2(a) (excluding the indemnification obligations of the Sellers
related to Excluded Claims) equals of the aggregate Purchase
Price (the "Maximum Amount") for all Losses. For purposes of determining the
Threshold Amount and the Maximum Amount hereunder, the Purchase Price shall be
the sum calculated in accordance with Section 1.3(a) hereof, using the
For purposes of this Section 8.2(b), in computing such individual or aggregate
amounts of claims, the amount of any insurance proceeds and any indemnity,
contribution or other similar payment actually received by the Buyer Indemnified
Parties from any third party with respect thereto shall be deducted from each
such claim.
(c) [Not applicable]
(d) A Buyer Indemnified Party shall give the Sellers written notice of any
claim, assertion, event or proceeding by or in respect of a third party as to
which such Buyer Indemnified Party may request indemnification hereunder or as
to which the Threshold Amount may be applied as soon as is practicable and in
any event within thirty (30) days of the time that such Buyer Indemnified Party
learns of such claim, assertion, event or proceeding; provided, however, that
the failure to so notify the Sellers shall not affect rights to indemnification
hereunder except to the extent that the Sellers are actually prejudiced by such
failure. The Sellers shall have the right to direct, through counsel of their
own choosing, the defense or settlement of any such claim or proceeding at their
own expense. If the Sellers elect to assume the defense of any such claim or
proceeding, the Sellers shall consult with the Buyer Indemnified Party and the
Buyer Indemnified Party may participate in such defense, but in such case the
expenses of the Buyer Indemnified Party shall be paid by the Buyer Indemnified
Party. The Buyer Indemnified Party shall provide the Sellers with access to its
records and personnel relating to any such claim, assertion, event or proceeding
during normal business hours and shall otherwise cooperate with the Sellers in
the defense or settlement thereof, and the Sellers shall reimburse the Buyer
Indemnified Party for all its reasonable out-of-pocket expenses in connection
therewith. If the Sellers elect to direct the defense of any such claim or
proceeding, the Buyer Indemnified Party shall not pay, or permit to be paid, any
part of any claim or demand arising from such asserted liability unless the
Sellers consent in writing to such payment or unless the Sellers, subject to the
last sentence of this Section 8.2(d), withdraw from the defense of such asserted
liability or unless a final judgment from which no appeal may be taken by or on
behalf of the Sellers is entered against the Buyer Indemnified Party for such
liability. If the Sellers fail to defend or if, after commencing or undertaking
any such defense, the Sellers fail to prosecute or withdraw from such defense,
the Buyer Indemnified Party shall have the right to undertake the defense or
settlement thereof, at the Sellers' expense. If the Buyer Indemnified Party
assumes the defense of any such claim or proceeding pursuant to this Section
8.2(d) and proposes to settle such claim or proceeding prior to a final judgment
thereon or to forego any appeal with respect thereto, then the Buyer Indemnified
Party shall give the Sellers prompt written notice thereof, and the Sellers
shall have the right to participate in the settlement or assume or reassume the
defense of such claim or proceeding.
(e) The Buyer hereby acknowledges and agrees that from and after the
Closing, its sole and exclusive remedy with respect to any and all claims
relating to this Agreement, including the Acquired Shares, shall be pursuant to
the indemnification provisions set forth in this Article VIII. In furtherance
of the foregoing and except as specified herein, the Buyer hereby waives, to the
fullest extent permitted under applicable Law, any and all rights, claims and
causes of action relating to the subject matter of this Agreement that they may
have against the Sellers arising under or based upon any Law (including, without
limitation, any such rights, claims or causes of action arising under or based
upon common law or otherwise).
(f) Except as set forth in this Agreement, the Sellers are not making any
representation, warranty, covenant or agreement with respect to the matters
contained herein. Anything herein to the contrary notwithstanding, no breach of
any representation, warranty, covenant or agreement contained herein shall give
rise to any right on the part of the Buyer, after the consummation of the
transactions contemplated hereby, to rescind this Agreement or any of the
transactions contemplated hereby.
(g) The Sellers shall have no liability under any provision of this
Agreement for and in no event shall the Threshold Amount be applied to any
consequential damages. The Buyer shall take all reasonable steps to mitigate
Losses for which indemnification may be claimed pursuant to this Agreement upon
and after becoming aware of any event that could reasonably be expected to give
rise to any such Losses.
Section 8.3 Indemnification by the Buyer.
(a) The Buyer agrees, subject to the other terms and conditions of this
Agreement to indemnify the Sellers and its Affiliates, officers, directors,
employees, agents, successors and assigns (each a "Seller Indemnified Party")
against and hold them harmless from all Losses arising out of (i) the breach of
any representation or warranty of the Buyer contained herein, and (ii) any
breach of any covenant or agreement of the Buyer contained herein. Anything in
Section 8.1 to the contrary notwithstanding, no claim may be asserted nor may
any action be commenced against the Buyer for breach of any representation or
warranty contained herein, unless written notice of such claim or action is
received by the Buyer describing in detail the facts and circumstances with
respect to the subject matter of such claim or action on or prior to the
thirtieth (30th) day after the date on which the representation or warranty on
which such claim or action is based ceases to survive as set forth in Section
8.1, and such claim or action arose on or prior to the date such representation
or warranty ceased to survive, in which case such representation or warranty
will survive as to such claim until such claim has been finally resolved.
(b) The indemnification obligations of the Buyer pursuant to Section 8.3(a)
shall not be effective until the aggregate dollar amount of all Losses
(including without limitation the Buyer's expenses of defending and/or settling
any claim or dispute giving rise to such indemnification obligation) that would
otherwise be indemnifiable pursuant to Section 8.3(a) exceeds the Threshold
Amount, and then only to the extent such aggregate amount exceeds the Threshold
Amount. The indemnification obligations of the Buyer pursuant to Section 8.3(a)
shall be effective only until the dollar amount paid in respect of the Losses
(including without limitation the Buyer's expenses of defending and/or settling
any claim or dispute giving rise to such indemnification obligation) indemnified
against under Section 8.3(a) aggregates to equal the Maximum Amount. For
purposes of this Section 8.3(b), in computing such individual or aggregate
amounts of claims, the amount of any insurance proceeds and any indemnity,
contribution or other similar payment actually recovered by the Seller
Indemnified Parties from any third party with respect thereto shall be deducted
from each such claim.
(c) [Not applicable]
(d) A Seller Indemnified Party shall give the Buyer written notice of any
claim, assertion, event or proceeding by or in respect of a third party as to
which such Seller Indemnified Party may request indemnification hereunder or as
to which the Threshold Amount may be applied as soon as is practicable and in
any event within thirty (30) days of the time that such Seller Indemnified Party
learns of such claim, assertion, event or proceeding; provided, however, that
the failure to so notify the Buyer shall not affect rights to indemnification
hereunder except to the extent that the Buyer is actually prejudiced by such
failure. The Buyer shall have the right to direct, through counsel of its own
choosing, the defense or settlement of any such claim or proceeding at its own
expense. If the Buyer elects to assume the defense of any such claim or
proceeding, the Buyer shall consult with the Seller Indemnified Party, the
Seller Indemnified Party may participate in such defense, but in such case the
expenses of the Seller Indemnified Party shall be paid by the Seller Indemnified
Party. The Seller Indemnified Party shall provide the Buyer with access to its
records and personnel relating to any such claim, assertion, event or proceeding
during normal business hours and shall otherwise cooperate with the Buyer in the
defense or settlement thereof, and the Buyer shall reimburse the Seller
Indemnified Party for all the reasonable out-of-pocket expenses of such Seller
Indemnified Party in connection therewith. If the Buyer elects to direct the
defense of any such claim or proceeding, the Seller Indemnified Party shall not
pay, or permit to be paid, any part of any claim or demand arising from such
asserted liability, unless the Buyer consents in writing to such payment or
unless the Buyer, subject to the last sentence of this Section 8.3(d), withdraws
from the defense of such asserted liability, or unless a final judgment from
which no appeal may be taken by or on behalf of the Buyer is entered against the
Seller Indemnified Party for such liability. If the Buyer fails to defend or
if, after commencing or undertaking any such defense, the Buyer fails to
prosecute or withdraws from such defense, the Seller Indemnified Party shall
have the right to undertake the defense or settlement thereof, at the Buyer's
expense. If the Seller Indemnified Party assumes the defense of any such claim
or proceeding pursuant to this Section 8.3(d) and proposes to settle such claim
or proceeding prior to a final judgment thereon or to forego appeal with respect
thereto, then such Seller Indemnified Party shall give the Buyer prompt written
notice thereof and the Buyer shall have the right to participate in the
settlement or assume or reassume the defense of such claim or proceeding.
(e) The Sellers hereby acknowledge and agree that from and after the
Closing, their sole and exclusive remedy with respect to any and all claims
relating to this Agreement shall be pursuant to the indemnification provisions
set forth in this Article VIII. In furtherance of the foregoing and except as
specified herein, the Sellers hereby waive to the fullest extent permitted under
applicable Law, any and all rights, claims and causes of action relating to the
subject matter of this Agreement that they may have against the Buyer arising
under or based upon any Law (including, without limitation, any such rights,
claims or causes of action arising under or based upon common law or otherwise).
(f) Except as set forth in this Agreement, the Buyer is not making any
representation, warranty, covenant or agreement with respect to the matters
contained herein. Anything herein to the contrary notwithstanding, no breach of
any representation, warranty, covenant or agreement contained herein shall give
rise to any right on the part of the Sellers, after the consummation of the
transactions contemplated by this Agreement, to rescind this Agreement or any of
the transactions contemplated hereby.
(g) The Buyer shall have no liability under any provision of this Agreement
for and in no event shall the Threshold Amount be applied to any consequential
damages. The Sellers shall take all reasonable steps to mitigate Losses for
which indemnification may be claimed pursuant to this Agreement upon and after
becoming aware of any event that could reasonably be expected to give rise to
any such Losses.
(h) No indemnification shall be payable to a Seller Indemnified Party with
respect to claims asserted by such Seller Indemnified Party pursuant to Section
8.3(a) after the Indemnification Cut-Off Date.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
Section 9.1 Termination. This Agreement may be terminated:
(a) at any time, by the mutual written consent of the Sellers and the Buyer;
(b) by the Sellers if the Closing shall not have occurred on or prior to
March 31, 1999; provided, however, such date may be extended by the Sellers for
additional time as provided in Section 1.4 hereof; provided further, however,
that the right to terminate this Agreement pursuant to this Section 9.1(b) will
not be available to Sellers if, at the time of such termination by Sellers,
their failure to perform any of their obligations under this Agreement has
resulted in the failure of the Closing to occur at the time of such termination,
excluding, however, any such failure of the Sellers to so perform any of their
obligations hereunder that is caused by or is the result of a Buyer's breach of
its obligations hereunder or a failure of the Buyer to satisfy a condition to
the Sellers' performance or obligation under this Agreement, as set forth in
Section 7.2 hereof;
(c) by the Sellers (provided that the Sellers are not then in breach of any
representation, warranty, covenant or other agreement contained herein which
would cause the Sellers to be unable to satisfy the conditions to the Buyer's
performance set forth in Section 7.3 hereof, excluding however, any Sellers'
breach which is caused by or is the result of a Buyer's breach of its
obligations hereunder or a failure of the Buyer to satisfy a condition to
Sellers' performance or obligation under this Agreement, as set forth in Section
7.2 hereof), upon written notice to Buyer, upon a material breach of any
representation, warranty or covenant of the Buyer contained in this Agreement,
provided that such breach is not capable of being cured prior to March 31, 1999
(or, if later, the Closing Date as extended by the Sellers) or, if earlier, has
not been cured within thirty (30) days after the giving of notice thereof by the
Sellers to the Buyer;
(d) by the Buyer, if the Closing shall not have occurred on or prior to the
latest date to which the Sellers may extend the Closing Date pursuant to Section
1.4 hereof (including by reason of the Sellers' inability to satisfy the
precondition to Buyer's obligation under this Agreement set forth in 7.3(d),
Absence of Certain Breaches; provided, however, that Buyer shall have satisfied
all conditions to the Sellers' performance or obligation under this Agreement,
as set forth in Section 7.2 hereof (except only those conditions to Sellers'
performance which cannot be satisfied by Buyer as a result of a Sellers' breach
of its obligations hereunder or a failure or inability of the Sellers to satisfy
a condition to Buyer's performance or obligation, as set forth in Section 7.3)
and Buyer is prepared, as of the date of such termination, to satisfy in all
material respects its obligations under this Agreement, including without
limitation, Article I hereof;
(e) by the Buyer, if the environmental assessments conducted by Buyer
pursuant to Section 4.12 reveal Significant Environmental Liabilities. For
purposes of this subparagraph, "Significant Environmental Liabilities" shall
mean (i) costs and expenses associated with an obligation or responsibility to
conduct cleanup, remedial or response actions at the Properties, as required by
Environmental Law, (ii) costs and expenses associated with actions that are
necessary to come into material compliance with Environmental Laws, or (iii)
fines or penalties incurred pursuant to Environmental Laws, provided that all
liabilities described in subsections (i) - (iii) above are, in the aggregate,
reasonably expected to exceed over and above any and all
Environmental Liabilities and Costs (as defined in Section 2.14 herein) that may
be associated with the Baseline Condition. The term "Significant Environmental
Liability" shall not include (i) any actual or potential threats of liability
under any Environmental Law with respect to an actual or potential liability
identified solely due to the nature of the present or former use of any property
surrounding the specific Property, so long as the contamination is not on such
Property (or, if such contamination has migrated onto such Property, if the
associated liability is acknowledged to be the obligation of a third-party
unaffiliated with the Sellers, which third-party is capable of satisfying such
liability to the reasonable satisfaction of the Buyer), (ii) any liability for
cleanup, remedial or response actions not required to be performed pursuant to
any Environmental Law, or (iii) any liability for which the responsible party is
reasonably likely to be a party other than an Acquired Company. For purposes of
this subparagraph, "Baseline Condition" shall mean any and all environmental
conditions, including levels of hazardous materials, of, at or related to the
Properties as established by the reports listed in, or the items disclosed on,
Schedule 2.14 hereof; or
(f) by the Sellers if the Sellers decide to enter into a binding definitive
agreement to effect a Superior Proposal; provided, however, that the Sellers
shall first (i) notify Buyer in writing at least five (5) business days prior to
Sellers entering into any binding agreement to effect a Superior Proposal, and
(ii) include in such notice to the Buyer detailed disclosure of all of the terms
and conditions of any Superior Proposal and the Sellers shall be jointly and
severally liable for any payment required under Section 9.2(b) hereof.
Time shall be of the essence for the purposes of this Section 9.1.
Section 9.2 Effect of Termination.
(a) In the event of termination of this Agreement as provided in Section
9.1, this Agreement shall forthwith become void and there shall be no liability
on the part of any party hereto except (a) as set forth in Sections 1.2, 2.17,
3.6, 4.4, and Articles 8, 9 and 10, provided, however, that nothing herein shall
relieve either party from liability for any willful breach hereof.
(b) In the event that on or after the date hereof (provided, however, that
Sellers shall have no such right to terminate this Agreement pursuant to Section
9.1(f) hereof at any time after March 31, 1999), any Seller terminates this
Agreement pursuant to the provisions of Section 9.1(f) hereof, Sellers shall
jointly or severally pay, or cause to be paid to Buyer at the time of
termination of this Agreement, and Buyer shall receive (in addition to the
return of the Deposit (together with interest (if any) actually earned thereon)
contemplated by Section 9.2(c) hereof), as liquidated damages and its sole and
exclusive remedy therefor, the greater of (i)
and each party shall be
relieved and released from any further liability and obligation hereunder.
Sellers and the Buyer agree that actual damages accruing from such a termination
of this Agreement are incapable of precise estimation and would be difficult to
prove, that the payments stipulated in this Section 9.2(b) bear a reasonable
relationship to the potential injury likely to be sustained in the event of such
a breach and that the stipulated payments are intended by the parties to provide
just compensation in the event of such a breach and are not intended to compel
performance or to constitute a penalty for nonperformance. If the Sellers fail
to pay promptly to the Buyer any amounts due under this Section 9.2(b), the
Sellers shall be jointly and severally obligated to pay all costs and expenses
(including legal fees and expenses) in connection with any action, including the
filing of any lawsuit or other legal action, taken to collect payment, together
with interest on the amount of any unpaid amount from the date such amount was
required to be paid at an interest rate equal to the prime rate published by The
Wall Street Journal from time to time. The parties hereby acknowledge that the
agreements contained in this Section 9.2(b) are an integral part of the
transactions contemplated by this Agreement.
(c) Upon termination of this Agreement by the parties hereto pursuant to
Section 9.1(a), by the Sellers pursuant to Section 9.1(f) or by Buyer pursuant
to Section 9.1(d) or 9.1(e), Buyer shall be entitled, pursuant to Section
1.2(a)(i) hereof, to the return of the Deposit and all interest (if any)
actually earned thereon and such return, except as provided in Section 9.2(b),
shall constitute Buyer's sole and exclusive remedy for any such termination.
(d) Upon termination by the Sellers pursuant to Section 9.1(b) or 9.1(c)
hereof, the Deposit and all interest (if any) actually earned thereon shall be
delivered when, as and if permitted by Sections 1.2(a)(ii), 1.2(b) and 1.2(c)
hereof.
Section 9.3 Waiver. At any time prior to the Closing, the Buyer and the
Sellers hereto may (a) extend the time for the performance of any of the
obligations or other acts of the other party hereto, (b) waive any inaccuracies
in the representations and warranties of the other party contained herein or in
any document delivered by the other party pursuant hereto or (c) waive
compliance with any of the agreements of the other party or conditions to its
own obligations contained herein. Any such extension or waiver shall be valid
only if set forth in an instrument in writing signed by the party to be bound
thereby. Waiver of any term or condition of this Agreement by a party shall not
be construed as a waiver of any subsequent breach or waiver of the same term or
condition by such party, or a waiver of any other term or condition of this
Agreement by such party. The failure of any party to assert any of its rights
hereunder shall not constitute a waiver of any such rights.
ARTICLE X
GENERAL PROVISIONS
Section 10.1 Notices. All notices, requests, claims, demands and other
communications under this Agreement will be in writing and will be deemed given
if delivered personally, sent by overnight courier (providing proof of
delivery), or via facsimile to the parties at the following addresses (or at
such other address for a party as specified by like notice):
(a) if to REITCO, to:
Meditrust Corporation
197 First Avenue
Suite 300
Needham, MA 02194
Attn: President
Facsimile (781) 433-1235
with copies to:
Meditrust Corporation
197 First Avenue
Suite 100
Needham, MA 02194
Attn: General Counsel
Facsimile (781) 433-1224
and
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Attn: Gilbert G. Menna, P.C.
Facsimile (617) 523-1231
and
Goodwin, Procter & Hoar LLP
599 Lexington Avenue
New York, NY 10022
Attn: Ross D. Gillman, Esq.
Facsimile (212) 355-3333
(b) if to Operating Company, to:
Meditrust Operating Company
197 First Avenue
Suite 100
Needham, MA 02194
Attn: President
Facsimile: (781) 433-1235
with copies to:
Meditrust Corporation
197 First Avenue
Suite 300
Needham, MA 02194
Attn: General Counsel
Facsimile (781) 433-1224
and
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Attn: Gilbert G. Menna, P.C.
Facsimile (617) 523-1231
and
Goodwin, Procter & Hoar LLP
599 Lexington Avenue
New York, NY 10022
Attn: Ross D. Gillman, Esq.
Facsimile (212) 355-3333
(c) if to the Buyer, to:
Golf Acquisitions, L.L.C.
3030 LBJ Freeway, Suite 700
Dallas, Texas 75234-7703
Attn: Chief Executive Officer
Facsimile: (972) 888-7788
with a copy to:
ClubCorp, Inc.
3030 LBJ Freeway, Suite 700
Dallas, Texas 75234-7703
Attn: General Counsel
Facsimile: (972) 888-7717
and a copy to:
Munsch, Hardt, Kopf & Harr
1445 Ross Avenue
4000 Fountain Place
Dallas, Texas 75202
Attn: John Rutherford, Esq.
Facsimile: (214) 855-7584
Section 10.2 Certain Definitions. For purposes of this Agreement:
(a) An "Affiliate" of any Person means another Person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first Person;
(b) "Business Day" means any day that is not a Saturday, a Sunday or other
day on which banks are required by law to be closed in New York City or Boston,
Massachusetts;
(c) "Encumbrance" means any security interest, pledge, mortgage, lien
(including without limitation, environmental and tax liens), charge, encumbrance
adverse claim, preferential arrangement or restriction of any kind;
(d) "Losses" of a Person means any and all losses, liabilities (including
liabilities for Taxes), damages, claims, awards, judgments, costs and expenses
(including, without limitation, reasonable attorneys' fees) actually suffered or
incurred by such Person;
(e) "Person" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity; and
(f) a "Subsidiary" of any Person means another Person, an amount of the
voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its Board of Directors or
other governing body (or, if there are no such voting interests, 50% or more of
the equity interests of which) is owned directly or indirectly by such first
Person. A "Significant Subsidiary" means any subsidiary of the Buyer or
Sellers, as the case may be, that would constitute a "significant subsidiary" of
such party within the meaning of Rule 1-02 of Regulation S-X of the SEC.
Section 10.3 Interpretation. When a reference is made in this Agreement to
an Article, Section, Annex or Exhibit, such reference will be to an Article or
Section of, or an Annex or Exhibit to, this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and will not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include", "includes" or
"including" are used in this Agreement, they will be deemed to be followed by
the words "without limitation". The words "hereof", "herein" and "hereunder"
and words of similar import when used in this Agreement will refer to this
Agreement as a whole and not to any particular provision of this Agreement. All
terms used herein with initial capital letters have the meanings ascribed to
them herein and all terms defined in this Agreement will have such defined
meanings when used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein. The definitions contained in
this Agreement are applicable to the singular as well as the plural forms of
such terms and to the masculine as well as to the feminine and neuter genders of
such term. Any agreement, instrument or statute defined or referred to herein
or in any agreement or instrument that is referred to herein means such
agreement, instrument or statute as from time to time amended, modified or
supplemented, including (in the case of agreements or instruments) by waiver or
consent and (in the case of statutes) by succession of comparable successor
statutes and references to all attachments thereto and instruments incorporated
therein. References to a Person are also to its permitted successors and
assigns.
Section 10.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which will be considered one and the same agreement and
will become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
Section 10.5 Entire Agreement; No Third-Party Beneficiaries; Severability.
This Agreement (including the documents and instruments referred to herein),
together with the Confidentiality Agreement, constitutes the entire agreement,
and supersedes all prior agreements and understandings (except for the
Confidentiality Agreement), both written and oral, among the parties with
respect to the subject matter of this Agreement. If any term, condition or
other provision of this Agreement is found to be invalid, illegal or incapable
of being enforced by virtue of any rule of law, public policy or court
determination, all other terms, conditions and provisions of this Agreement
shall nevertheless remain in full force and effect.
Section 10.6 Amendment. This Agreement may not be amended or modified except
(a) by an instrument in writing signed by, or on behalf of, the Sellers and the
Buyer or (b) by a waiver in accordance with Section 9.3.
Section 10.7 Governing Law. This Agreement will be governed by, and
construed in accordance with, the internal laws of The Commonwealth of
Massachusetts regardless of the laws that might otherwise govern under
applicable principles of conflict of laws.
Section 10.8 Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement may be assigned, in whole or in
part, by operation of law or otherwise by either of the parties hereto without
the prior written consent of the other party. Any assignment in violation of
the preceding sentence will be void. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns. The parties hereto
acknowledge and agree that the rights, interests and obligations under this
Agreement shall remain, in the case of REITCO, exclusively with REITCO in the
event REITCO spins-off its health care financing business as disclosed by the
Sellers in a press release issued November 12, 1998.
Section 10.9 Expenses. Except as otherwise specified in this Agreement, all
costs and expenses, including, without limitation, fees and disbursements of
counsel, financial advisors and accountants, incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the Buyer or
the Sellers, as applicable, incurring such costs and expenses, whether or not
the Closing shall have occurred; provided, however, that, in the event a filing
or filings of a Notification Form pursuant to the HSR Act is required, any
filing fee or fees due in connection therewith shall be shared equally by the
parties hereto.
[Remainder of page intentionally left blank]
IN WITNESS WHEREOF, Meditrust Corporation, Meditrust Operating Company and the
Buyer have caused this Agreement to be signed by their respective officers
thereunto duly authorized, all as of the date first written above.
MEDITRUST CORPORATION
By:
Name: Michael S. Benjamin
Title: Senior Vice President
MEDITRUST OPERATING COMPANY
By:
Name: William C. Baker
Title: President
GOLF ACQUISITIONS, L.L.C.
By:
Name: Robert H. Dedman, Jr.
Title: Chief Executive Officer
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
1. ClubCorp, Inc.
(a) Operating in the hospitality line of business
(b) Names of:
(i) 314 consolidated subsidiaries operating in the
United States have been omitted; and
(ii) 47 consolidated subsidiaries operating in foreign
countries have been omitted.
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
ClubCorp, Inc.:
We consent to incorporation by reference in the registration statements (Nos.
33-96568, 33-89818, 333-08041 and 333-57107) on Form S-8 of ClubCorp, Inc.,
formerly Club Corporation International, of our report dated February 26, 1999,
relating to the consolidated balance sheet of ClubCorp, Inc. and subsidiaries as
of December 31, 1997 and December 29, 1998, and the related consolidated
statements of operations, stockholders' equity and comprehensive income and cash
flows for each of the years in the three-year period ended December 29, 1998.
KPMG LLP
Dallas, Texas
March 25, 1999
Exhibit 23.3
Houlihan Lokey Howard & Zukin
FINANCIAL ADVISORS
[Letterhead]
March 24, 1999
Mr. Jim McCoy
Executive Vice President
ClubCorp, Inc.
3030 LBJ Freeway, Suite 500
Dallas, TX 75234-7703
Dear Mr. McCoy:
We hereby consent to the references to our firm that appear in the Form 10-K for
ClubCorp, Inc. for the fiscal year ended December 29, 1998, relating to our
independent confirmation of the fair market value of the common stock, and to
the incorporation by reference in the registration statement (Nos. 33-96568,
33-89818, 333-08041 and 333-57107) on Form S-8 of ClubCorp, Inc.
/s/HOULIHAN LOKEY HOWARD & ZUKIN FINANCIAL ADVISORS, INC.
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears
below constitutes and appoints James P. McCoy, Jr. and Charles A. Little, and
each of them, his true and lawful attorneys-in-fact and agents with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign the Annual Report on Form 10-K of ClubCorp, Inc.
for the year ended December 29, 1998, together with any amendments thereto, and
to file the same with all exhibits thereto, and all documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or either of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1934, as amended, this
Power of Attorney has been signed by the following persons in the capacities and
on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------- ------------------------------------------------ --------------
<S> <C> <C>
/s/ Robert H. Dedman, Sr.
- -------------------------
Robert H. Dedman, Sr. Chairman of the Board March 19, 1999
/s/ Robert H. Dedman, Jr.
- -------------------------
Robert H. Dedman, Jr. Chief Executive Officer, President and Director
(Principal Executive Officer) March 19, 1999
/s/ James M. Hinckley
- -------------------------
James M. Hinckley Chief Operating Officer and Director March 19, 1999
/s/ Patricia Dedman Dietz
- -------------------------
Patricia Dedman Dietz Director March 19, 1999
</TABLE>
Exhibit 99.1
[Letterhead]
Houlihan Lokey Howard & Zukin
FINANCIAL ADVISORS
March 24, 1999
To The Trustees of the
ClubCorp, Inc.
Employee Stock Investment Plan
On behalf of The Employee Stock Investment Plan of ClubCorp, Inc. (hereinafter
sometimes referred to as "ClubCorp" or the "Company"), you have retained
Houlihan, Lokey, Howard & Zukin Financial Advisors, Inc. (hereinafter referred
to as "Houlihan Lokey"), as financial advisor, to determine whether ClubCorp's
stock price as outlined in a letter dated March 23, 1999, is a proper reflection
of the fair market value of the Company's common stock as of March 24, 1999.
The term "fair market value," as used herein, is defined as the amount at which
the capital stock would change hands between a willing buyer and willing seller,
each having reasonable knowledge of all relevant facts, neither being under any
compulsion to act, with equity to both. Furthermore, the fair market value of a
share of stock may be viewed as a specific value within a reasonable range of
values and, accordingly, any specific value within such a reasonable range may
be viewed as reflecting the fair market value of a share of stock. It is
Houlihan Lokey's understanding, upon which it is relying, that the ClubCorp,
Inc. Employee Stock Investment Plan Committee and any other recipient of the
Opinion will consult with and rely solely upon their own legal counsel with
respect to this definition of fair market value. No representation is made
herein, or directly or indirectly by the Opinion, as to any legal matter or as
to the sufficiency of this definition for any purpose other than setting forth
the scope of Houlihan Lokey's engagement hereunder.
Our investigation included discussions with management, a review of financial
data bearing upon recent and proposed operations, and other factors that we
considered necessary under the circumstances. These data have been accepted,
without further verification, as correctly reflecting the results of the
operations and financial condition of the Company, in accordance with generally
accepted accounting principles.
Based on the above analysis, and subject to the foregoing and to the attached
"LIMITING FACTORS AND OTHER ASSUMPTIONS," it is our opinion that, as of March
24, 1999, the value of ClubCorp's common stock of SIXTEEN DOLLARS AND SIXTY
CENTS ($16.60) per share, calculated using the formula approved by its Board of
Directors, appears to fall within a reasonable range of fair market value.
/s/HOULIHAN, LOKEY, HOWARD & ZUKIN FINANCIAL ADVISORS, INC.
Attachment
<PAGE>
LIMITING FACTORS AND OTHER ASSUMPTIONS
- ------------------------------------------
In accordance with recognized professional ethics, the professional fee for this
service is not contingent upon Houlihan Lokey Howard & Zukin Financial Advisors,
Inc.'s ("Houlihan Lokey") conclusion of value, and neither Houlihan Lokey nor
any of its employees has a present or intended financial interest in the
Company.
The opinion of value expressed herein is valid only for the stated purpose and
date of the letter.
The conclusions are based upon the assumption that present management would
continue to maintain the character and integrity of the enterprise through any
sale, reorganization, or diminution of the owners' participation.
This letter and the conclusions arrived at herein are for the exclusive use of
the Company. Furthermore, the letter and conclusions are not intended by the
author, and should not be construed by the reader, to be investment advice in
any manner whatsoever. The conclusions reached herein represent the considered
opinion of Houlihan Lokey based upon information furnished to it by the Company
and other sources. The extent to which the conclusions and valuations arrived at
herein should be relied upon, should be governed and weighted accordingly.
No opinion, counsel or interpretation is intended in matters that require legal
or other appropriate professional advice. It is assumed that such opinions,
counsel or interpretations have been or will be obtained from the appropriate
professional sources.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM
10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-29-1998
<PERIOD-END> DEC-29-1998
<CASH> 72,423
<SECURITIES> 0
<RECEIVABLES> 111,333
<ALLOWANCES> 3,933
<INVENTORY> 18,082
<CURRENT-ASSETS> 193,007
<PP&E> 1,034,590
<DEPRECIATION> 283,520
<TOTAL-ASSETS> 1,110,158
<CURRENT-LIABILITIES> 174,586
<BONDS> 0
0
0
<COMMON> 902
<OTHER-SE> 408,134
<TOTAL-LIABILITY-AND-EQUITY> 1,110,158
<SALES> 249,104
<TOTAL-REVENUES> 851,336
<CGS> 211,303
<TOTAL-COSTS> 784,515
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,460
<INTEREST-EXPENSE> 28,901
<INCOME-PRETAX> 45,319
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<INCOME-CONTINUING> 39,512
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<EXTRAORDINARY> (1,176)
<CHANGES> 0
<NET-INCOME> 38,336
<EPS-PRIMARY> .45
<EPS-DILUTED> .44
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