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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER: 0-25098
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FAMILY GOLF CENTERS, INC.
(Name of Registrant as specified in its Charter)
DELAWARE 11-3223246
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
225 BROADHOLLOW ROAD
MELVILLE, NEW YORK 11747
(Address of principal executive offices)
(516) 694-1666
(Registrant's telephone number)
Securities registered pursuant to 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value Nasdaq Stock Market
$.01 per share
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Exchange Act during the past
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 the 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. / /
The aggregate market value of the Registrant's voting stock (based upon the
closing sales price of such stock) held by nonaffiliates of the Registrant was
$391,812,961 on March 26, 1998. (For purposes of this report, the number of
shares of Common Stock of the Registrant held by non-affiliates was determined
by aggregating the number of shares beneficially held by officers and directors
of the Registrant and by others who, to the Registrant's knowledge, own 10% or
more of the Common Stock, and subtracting such shares from the total number of
shares outstanding).
The Registrant had 12,997,846 shares of Common Stock outstanding as of March
26, 1998.
Documents incorporated by reference: the Registrant's definitive Proxy
Statement to be filed pursuant to Regulation 14A promulgated under the
Securities Exchange Act of 1934 in connection with the Registrant's 1998 Annual
Meeting of Stockholders.
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THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD LOOKING STATEMENTS THAT
INVOLVE CERTAIN RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN THE FORWARD LOOKING STATEMENTS.
PART I
ITEM 1. BUSINESS
GENERAL
Family Golf Centers, Inc. (together with its subsidiaries, unless the
context requires otherwise, the "Company") is a leading consolidator and
operator of golf centers in the United States. The Company's golf centers are
designed to provide a wide variety of practice opportunities, including
facilities for driving, chipping, putting, pitching and sand play. In addition,
the Company's golf centers typically offer full-line pro shops, golf lessons
instructed by PGA-certified golf professionals and other amenities such as
miniature golf and snack bars to encourage family participation. The Company has
a proven track record of successfully identifying, acquiring and integrating
golf centers, having grown from one golf facility in 1992 to 60 as of December
31, 1997. As a result, the Company has increased revenues from $2.6 million in
1993 to $64.8 million for the twelve months ended December 31, 1997, and
increased earnings per share from a loss of $0.23 in 1993 to a profit of $0.84
for the twelve months ended December 31, 1997.
In July 1997, the Company acquired Leisure Complexes, Inc. ("LCI"), the
operator of a family sports and entertainment supercenter, located in Lake
Grove, New York, which includes a golf center, an 18-hole executive golf course,
an ice rink and additional family amusements, such as video and virtual reality
games, a Lasertag arena, children's rides, batting cages, an I-werks Motion
Master Theatre, a 48-lane bowling center, restaurants and an 18,000 square foot
conference center. LCI also owned and operated seven stand-alone bowling
centers, six of which were subsequently sold by the Company. In addition, in
September 1997, the Company acquired an ice rink facility which includes a
National Hockey League regulation-size ice rink and an additional half rink. In
December 1997, the Company acquired another indoor family sports and
entertainment supercenter, located in Cincinnati, Ohio, which includes two
National Hockey League regulation-size ice rinks, two soccer fields and
additional family amusements.
BUSINESS STRATEGY
The Company's strategy is to continue to build upon its leadership position
in the golf center industry and expand its concept of family-oriented sports
entertainment as follows:
- CONSOLIDATION OF GOLF CENTERS. The Company will continue to consolidate
the golf center industry by increasing the number of golf centers it owns,
leases or manages by (i) identifying and acquiring well-located, under
performing ranges that have the potential for improvement through better
management and facility enhancements and (ii) building new centers in
locations where suitable acquisition opportunities are not available. The
Company's principal acquisition strategy is to target stand-alone ranges
or golf centers in stable communities with favorable demographics,
generally in close proximity to upscale urban and suburban areas, which
generally contain the highest concentration of golfers. In determining
which facilities may be suitable acquisition candidates, management
conducts demographic and competitive analyses and considers such factors
as ease of access, visibility from major thoroughfares and potential for
improvement in revenues and operating cash flow through capital
improvements.
- FACILITY AND SERVICE ENHANCEMENT. The Company typically initiates a
capital improvement plan after each acquisition to broaden the scope of
services and products offered. Such improvements have
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historically increased revenues and improved operating performance at the
golf centers. Improvements may include enclosing, heating or lighting play
areas to lengthen the season and hours of operation, adding tiers of
hitting tees, offering lessons from PGA-certified golf professionals and
adding amenities, such as batting cages, miniature golf, restaurants,
snack bars and video games, designed to appeal to the whole family,
generate additional revenues and increase the frequency and duration of
facility visitation. In addition, employees undergo a comprehensive
training program emphasizing customer service. The Company believes that
the quality of its facilities and its emphasis on customer service
differentiates the Company from its competitors.
- LEVERAGE CENTRALIZED OPERATIONS. All purchasing, accounting, insurance,
cash management, finance and human resource functions are managed
centrally at the Company's headquarters. Centralization improves facility
performance by reducing expenses and administrative burdens, allowing
management to focus on customer service and facility operations. In
addition, each facility receives the benefits of the Company's purchasing
power, enabling it to take advantage of quantity discounts on merchandise
sold through its pro shops and equipment used at its facilities.
- DEVELOPMENT OF COMPLEMENTARY SPORTS AND FAMILY ENTERTAINMENT FACILITIES.
The Company has identified the ice rink industry as having a number of
industry and operational dynamics similar to those of the golf center
industry. The Company intends to apply the skills and resources it has
used in the golf center industry to capitalize on such similarities by
selectively constructing, or acquiring and enhancing, ice rinks over the
next twelve months. In addition, the Company expects to selectively
augment certain of its existing golf centers with sports and entertainment
amenities including ice rinks, video and virtual reality games, children's
rides, batting cages and other entertainment activities to create family
sports supercenters (the "Family Sports Supercenters"). The Company
believes that the addition of these facilities expands on the Company's
concept of family-oriented sports entertainment, improves utilization by
adding additional sources of revenues, attracts a more diversified base of
customers, increases visitation and per capita spending and has the added
benefit of being counter-seasonal to the Company's core golf business.
RECENT DEVELOPMENTS
In January 1998, the Township of Woodbridge selected the Company's proposal
to lease, construct and operate an ice arena with two ice rinks and a family
entertainment center in Woodbridge, New Jersey. There can be no assurance,
however, that a lease with the Township of Woodbridge will be executed.
In February 1998, the Company acquired: (i) MetroGolf Incorporated
("Metro"), the operator of eight golf facilities, through the successful
completion of a tender offer and subsequent merger of Family Golf Acquisition,
Inc., a wholly-owned subsidiary of the Company, with and into Metro; (ii) Blue
Eagle Golf Centers, Inc. ("Blue Eagle") the operator of three golf facilities;
(iii) an ice rink facility in Raleigh, North Carolina; and (iv) a golf facility
in Holbrook, Massachusetts. In March 1998, the Company signed a long-term lease
to construct and operate two National Hockey League regulation-size ice rinks
and a family entertainment center in a shopping mall in New Rochelle, New York.
The Company expects to commence operating this facility by the end of 1999.
In March 1998, the Company entered into a loan agreement with Chinatrust
Bank providing for a $10.0 million term loan secured by a mortgage on five of
the Company's existing properties. During the drawdown period, loan proceeds are
advanced to the Company upon its request. The loan matures in April 2003 and
bears interest at the prime rate less 1% during the drawdown period and at the
prime rate during the paydown period. To date, no funds have been drawn under
this loan. The Company also obtained, in March 1998, a commitment from ORIX USA
Corporation to provide a $10.0 million term loan secured by a mortgage on five
of the Company's existing properties. To date, the Company has not entered into
a definitive loan agreement with respect to such commitment.
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GOLF INDUSTRY OVERVIEW
According to a 1996 study by the NGF, there were approximately 25 million
golfers in the United States. The average age of the golf driving range user was
37.1 years old, with an average household income of $55,700 per year. Those with
household income in excess of $75,000 (approximately 35% of all stand-alone
range users), were the most likely to visit a stand-alone range, visiting 3.7
times more frequently than those with household income of less than $30,000 (19%
of all stand-alone range users) and 1.5 times more frequently than those with
household incomes between $40,000 and $75,000 (46% of all stand-alone range
users).
Based on the most recently published information from the Golf Range and
Recreational Foundation, there were between 1,900 and 2,300 stand-alone driving
ranges in the United States in 1993. The average number of tee stations per
range in the industry in 1993, as estimated by the NGF was 40, with 50% of all
stand-alone ranges offering 35 or fewer tee stations. Large stand-alone ranges,
defined as ranges with more than 50 tee stations, accounted for approximately
21% of all facilities. In addition, the NGF estimates that, in 1993, 92% of all
stand-alone driving ranges were managed by owner-operators. The Company believes
that as a result of the highly fragmented nature of the industry and the lack of
experience, expertise and financial resources of the existing owner-operators,
the industry presents significant opportunities for the Company to acquire,
upgrade and renovate golf centers and driving ranges.
THE GOLF CENTERS
The Company's golf centers are typically larger, more attractive and offer
more amenities than the average golf centers in the industry. The Company
believes that it attracts customers to its golf centers due to the quality,
convenience and comfort of its facilities and their appeal to the whole family.
The golf centers are designed to provide a wide variety of practice
opportunities, including facilities for driving, chipping, putting, pitching and
sand play, and typically offer full-line pro shops, golf lessons instructed by
PGA-certified golf professionals and other amenities to encourage family
participation. They are designed around a driving range with target greens,
bunkers and sand traps to simulate golf course conditions. Generally, the
Company's ranges are lighted to permit night play and the hitting tees are
enclosed or sheltered from above and from the rear in a climate-controlled
environment. In four cases, all or a portion of the range is enclosed under an
air inflated dome to permit all-weather play. There are approximately 80 to 100
hitting tees in facilities with the two-tier design and approximately 30 to 60
hitting tees at smaller golf centers. In addition, to a driving range, the
Company's golf centers typically include a number of amenities designed to
appeal to golfers and their families, such as a 4,000-6,000 square foot
clubhouse (including a full-line pro shop, locker facilities, a restaurant or
snack bar and video games), PGA-certified golf instructors, landscaped 18-hole
miniature golf courses and a short game practice area (including putting green
and sand traps). The Company's instructional facilities also include the
Colbert-Ballard Golf School and the Golf Academy of Hilton Head, Inc., which
operates a golf school and designs and manages corporate golf events. The
Company's pro shops are stocked with clubs, bags, shoes, apparel and videos and
related accessories from a number of suppliers, including brand name
manufacturers such as Karsten Manufacturing Corporation (Ping), Callaway Golf
Company, Tommy Armour Golf, Wilson Golf Company, Mizuno Golf Company, Spalding
Sports Worldwide, Titleist and Footjoy Worldwide (Divisions of Fortune Brand,
Inc.), Ashworth Clothing Company and Nicklaus Golf Equipment Company. The
Company also sells private label products at its pro shops, including balls,
gloves and other merchandise bearing the Company's logo. In some limited
instances, as with certain plastic golf shoe spikes, the Company acts as a
distributor of golf merchandise both to its facilities and to non-affiliated
third parties.
Many of the Company's recently acquired centers are undergoing or are
expected to undergo capital improvement programs to add certain amenities. Golf
center design is affected by the size, shape and other characteristics of
available site locations, weather patterns, zoning requirements and market
conditions.
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THE GOLF COURSES
As of March 31, 1998, the Company has three regulation 18-hole golf courses
(Queensbury, New York, Olney, Maryland and Leesburg, Virginia), one 27-hole golf
course (Fountain Inn, South Carolina) and 14 18-hole or 9-hole par-3 or
executive golf courses (Mesa, Arizona, Virginia Beach, Virginia, El Segundo and
Gilroy, California, St. Louis, Missouri, Duluth, Georgia, West Palm Beach,
Florida, Rio Salado, Arizona, Palm Royale, California, Lake Grove, New York,
Seattle, Washington, Greenville, South Carolina, Stuart, Florida and Chicago,
Illinois). The Company is also constructing a 9-hole executive golf course at
each of its Milwaukee, Wisconsin, Englewood, Colorado and Freemont, California
facilities. The 200-acre, 18-hole golf course at Queensbury, New York, known as
the Hiland Golf Club, has a restaurant and catering facility to accommodate
large parties and weddings, a clubhouse, a pro-shop, a driving range and
PGA-certified golf instructors on site. The 150-acre, 18-hole golf course at
Olney, Maryland is a public golf course with a pro shop, driving range, snack
bar, putting green and PGA-certified golf instructors on site. The 283-acre
Carolina Springs Golf Club at Fountain Inn, South Carolina is a 27-hole,
semi-private golf course with a driving range, putting green and a clubhouse
with banquet facilities and pro shop. The 150 acre course in Leesburg, Virginia,
known as Goose Creek, has a pro shop, driving range, small restaurant, putting
green and PGA-certified golf instructors. Each of the par-3 courses has a
clubhouse, a pro-shop, a driving range and PGA-certified golf instructors on
site.
Part of the Company's operating strategy is to acquire golf courses in areas
where it owns or operates, or intends to own or operate, golf centers so that it
has available a golf course on which to: (i) train its golf instructors so that
they may become PGA-certified and (ii) provide full golf packages and complete
instructions to driving range customers. In addition, the Company believes that
it can attract customers of the golf courses to use its golf centers.
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GOLF FACILITIES
As of March 31, 1998, the Company owned, leased or managed 73 golf
facilities in 19 states, eight of which are under construction. Set forth below
is information concerning each of the Company's 65 locations in operation:
<TABLE>
<CAPTION>
NO. OF SIZE OF PROPERTY PGA- CERTIFIED GOLF MINIATURE GOLF
LOCATION OF FACILITY HITTING TEES (APPROXIMATE ACRES) INSTRUCTORS PRO SHOP COURSE COURSES
- -------------------------- ------------- --------------------- --------------- --------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Farmingdale, NY(2)........ 80 13 X X -- one
Wayne, NJ(2).............. 80 16 X X -- two
Douglaston, NY(2)......... 70 12 X X -- two
Elmsford, NY(2)........... 80 27 X X -- two
Utica, NY................. 60 18 X X -- one
Clay, NY(2)............... 132 23 X X -- one
Queensbury, NY............ 40 200 X X 18-hole --
Greenville, SC............ 100 24 X X -- one
Glen Allen, VA............ 50 10 X X -- one
Duluth, GA................ 60 56 X X 18-hole one
par-3
Alpharetta GA............. 60 26 X X -- two
El Segundo, CA(2)......... 58 28 X X 9-hole --
par-3
Gilroy, CA................ 20 36 X X 9-hole --
par-3
Valley View, OH........... 130 19 X X -- one
Henrietta, NY(2).......... 132 28 X X -- one
Mesa, AZ.................. 80 39 X X 9-hole --
par-3
Virginia Beach, VA........ 36 81 X X 18-hole --
Executive
Flemington, NJ............ 67 17 X X -- two
Yorktown Heights, NY...... 54 14 X X -- one
Indian River, VA.......... 60 14 X X -- one
Tucson, AZ................ 50 18 X X -- one
Fairfield, OH............. 68 24 X X -- one
St. Louis, MO............. 100 42 X X 9-hole one
par-3
West Palm Beach, FL....... 40 32 X X 9-hole one
par-3
Alviso, CA................ 100 25 X X -- one
Westminster, CA........... 71 17 X X -- one
Denver, CO................ 65 20 X X -- three
Englewood, CO............. 100 36 X X 9-hole two
Fountain Inn, SC.......... 20 283 X X 27-hole --
Flanders, NJ.............. 80 25 X X -- two
Glen Burnie, MD........... 50 38 X X -- two
South Easton, MA.......... 50 70 X X -- one
Margate, FL............... 80 14 X X -- one
Milwaukee, WI............. 114 65 X X 9-hole(4) one
Mainville, OH............. 140 32 X X -- two
Palm Desert, CA........... 100 17 X X -- --
Raleigh, NC............... 86 20 X X -- one
Mahwah, NJ................ 35 14 X X -- --
Randall's Island, NY...... 106 20 X X -- one
Olney, MD................. 20 150 X X 18-hole --
Green Oaks, TX............ 45 29 X X -- one
Rio Salado, AZ............ 50 70 X X 9-hole --
Executive
<CAPTION>
OWNED,
LEASED OR DATE OPENED OR
LOCATION OF FACILITY MANAGED ACQUIRED(1)
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<S> <C> <C>
Farmingdale, NY(2)........ Leased March 1992
Wayne, NJ(2).............. Leased July 1993
Douglaston, NY(2)......... Managed (3) Dec. 1993
Elmsford, NY(2)........... Leased July 1994
Utica, NY................. Leased Dec. 1994
Clay, NY(2)............... Leased Jan. 1995
Queensbury, NY............ Owned May 1995
Greenville, SC............ Owned May 1995
Glen Allen, VA............ Owned Aug. 1995
Duluth, GA................ Owned Aug. 1995
Alpharetta GA............. Owned Aug. 1995
El Segundo, CA(2)......... Managed (5) Nov. 1995
Gilroy, CA................ Leased Nov. 1995
Valley View, OH........... Owned/ Nov. 1995
Leased
Henrietta, NY(2).......... Owned/ Jan. 1996
Leased
Mesa, AZ.................. Owned Feb. 1996
Virginia Beach, VA........ Leased March 1996
Flemington, NJ............ Owned March 1996
Yorktown Heights, NY...... Owned April 1996
Indian River, VA.......... Leased May 1996
Tucson, AZ................ Owned June 1996
Fairfield, OH............. Leased June 1996
St. Louis, MO............. Leased June 1996
West Palm Beach, FL....... Owned June 1996
Alviso, CA................ Leased July 1996
Westminster, CA........... Leased July 1996
Denver, CO................ Managed (6) July 1996
Englewood, CO............. Leased Aug. 1996
Fountain Inn, SC.......... Owned Aug. 1996
Flanders, NJ.............. Owned Aug. 1996
Glen Burnie, MD........... Leased Sept. 1996
South Easton, MA.......... Owned Sept. 1996
Margate, FL............... Owned Oct. 1996
Milwaukee, WI............. Owned Nov. 1996
Mainville, OH............. Owned Dec. 1996
Palm Desert, CA........... Leased Feb. 1997
Raleigh, NC............... Leased March 1997
Mahwah, NJ................ Managed (7) March 1997
Randall's Island, NY...... Managed (8) March 1997
Olney, MD................. Leased March 1997
Green Oaks, TX............ Leased March 1997
Rio Salado, AZ............ Leased April 1997
</TABLE>
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<TABLE>
<CAPTION>
NO. OF SIZE OF PROPERTY PGA- CERTIFIED GOLF MINIATURE GOLF
LOCATION OF FACILITY HITTING TEES (APPROXIMATE ACRES) INSTRUCTORS PRO SHOP COURSE COURSES
- -------------------------- ------------- --------------------- --------------- --------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
San Bruno, CA............. 74 15 X X -- --
Southampton, PA........... 50 12 X X -- one
Milpitas, CA.............. 46 16 X X -- one
Carver, MA................ 36 19 X X -- one
Palm Royale, CA........... -- 25 X X 18-hole --
par-3
Lake Grove, NY............ 40 54 X X 18-hole --
Executive
Commack, NY............... 120 18 X X -- one (4)
Seattle, Wa............... 80 40 X X 9-hole one
par-3
Greenville, SC............ -- 29 X X 18-hole --
par-3
Warrenville, IL........... 140 59 X X -- --
Elk Grove, CA............. 46 20 X X -- --
Kansas City, KA........... 80 25 X X -- two
Wichita, KA............... 80 25 X X -- one
Stuart, FL................ 50 26 X X 9-hole one
par-3
Colorado Springs, CO...... 70 24 X -- -- one
Chicago, IL............... 92 23 X -- 9-hole --
par-3
Fremont, CA............... 36 50 X X 9-hole (4) --
executive
Palms, CA................. 42 13 X X -- --
Leesburg, VA.............. -- 150 X X 18-hole --
Rocky Point, NY........... 70 17 X X -- --
San Diego, CA............. 80 5 X X -- --
Suisun, CA................ 40 20 X X -- --
Holbrook, MA.............. 80 77 -- -- -- --
<CAPTION>
OWNED,
LEASED OR DATE OPENED OR
LOCATION OF FACILITY MANAGED ACQUIRED(1)
- -------------------------- ------------ --------------
<S> <C> <C>
San Bruno, CA............. Leased April 1997
Southampton, PA........... Owned June 1997
Milpitas, CA.............. Leased June 1997
Carver, MA................ Leased June 1997
Palm Royale, CA........... Owned June 1997
Lake Grove, NY............ Leased July 1997
Commack, NY............... Leased Sept. 1997
Seattle, Wa............... Managed (9) Oct. 1997
Greenville, SC............ Leased Oct. 1997
Warrenville, IL........... Leased Dec. 1997
Elk Grove, CA............. Leased Dec. 1997
Kansas City, KA........... Owned Feb. 1998
Wichita, KA............... Owned Feb. 1998
Stuart, FL................ Leased Feb. 1998
Colorado Springs, CO...... Owned Feb. 1998
Chicago, IL............... Leased Feb. 1998
Fremont, CA............... Leased Feb. 1998
Palms, CA................. Leased Feb. 1998
Leesburg, VA.............. Owned Feb. 1998
Rocky Point, NY........... Leased Feb. 1998
San Diego, CA............. Leased Feb. 1998
Suisun, CA................ Owned Feb. 1998
Holbrook, MA.............. Owned Feb. 1998
</TABLE>
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(1) Represents the first month that the facility generated revenue for the
Company.
(2) Facility is operated under the name "Golden Bear" pursuant to a
non-exclusive license agreement with Gold Bear Golf Centers, Inc.
(3) The Company operates the facility pursuant to a concession license with the
City of New York. The concession license terminates on December 31, 2006,
but is terminable by the City of New York at will.
(4) Under development.
(5) The Company manages the facility pursuant to a management agreement with the
City of El Segundo, California. This management agreement terminates on
February 14, 1999.
(6) The Company operates the facility pursuant to a concession license with the
City and County of Denver. This concession license terminates December 31,
2009.
(7) The Company operates the facility pursuant to a concession license with the
County of Bergen. This concession license terminates November 21, 2009.
(8) The Company operates the facility pursuant to a concession license with the
City of New York. This concession license terminates March 1, 2007, but is
terminable by the City of New York at will.
(9) The Company operates the facility pursuant to an Operation Agreement with
the City of Seattle. This Operation Agreement terminates on December 31,
2021 with a five-year option to extend exercisable by either party.
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Seven of the facilities referred to above are operated under the name
"Golden Bear" pursuant to a non-exclusive license agreement (the "License
Agreement") with Golden Bear Centers, Inc. (the "Licensor"). Under the License
Agreement, the Company is licensed to use the trademark "Golden Bear" and
related trademarks and trade names in the operation of certain of its golf
facilities. The License Agreement is non-exclusive and the Company does not have
the right to open additional Golden Bear golf centers. The License Agreement
expires in August 2002, subject to earlier termination under certain
circumstances. Unless terminated by written notice 90 days prior to the end of
its initial term or renewal term, as the case may be, it will be automatically
extended for additional five-year periods. The License Agreement is also
terminable if the current directors of the Company, at any time, constitute less
than 50% of the Company's directors. The Company paid the Licensor a one-time
facility development fee of up to $25,000 for each Golden Bear golf center and,
in most cases, pays the Licensor an ongoing royalty fee ranging between 3% and
5% of Adjusted Gross Revenues, as defined in the License Agreement, subject to a
minimum guaranteed royalty of at least $50,000 per year per site. For two of the
sites, the Company pays a fixed annual fee ranging between $35,000 and $45,000,
however, at one of such sites this amount is subject to increase for increases
in the consumer price index.
The Company currently has eight golf centers under development. These
facilities are located in Bronx, New York, Brooklyn, New York, New York City,
New York, Federal Way, Washington, Columbus, Ohio, Cerritos, California, County
Line, Colorado and Broward County, Florida. The Company expects to have the
first of these facilities operational by June, 1998.
The Company has entered into a lease agreement with the Port Authority of
New York and New Jersey to develop a driving range and learning center on top of
the Port Authority Bus Terminal in New York City. The Company expects this
facility to be operational by June 1999.
The Company continually seeks new facilities and has had discussions with a
number of parties as to the acquisition, management or lease of facilities or
land. As of March 26, 1998, the Company had issued non-binding letters of intent
to acquire seven additional golf centers. Such acquisitions are subject to a
number of conditions, including the execution of definitive agreements and there
can be no assurance that any of such acquisitions will be consummated. Such
contemplated acquisitions, individually and in the aggregate, are not expected
to be material to the Company's financial condition or results of operations and
accordingly no pro forma information concerning such potential acquisitions is
presented herein.
ICE RINK INDUSTRY OVERVIEW
According to the NHL, there are approximately 2,200 ice facilities in the
United States and approximately 5,500 in Canada. The Company believes that the
relatively small number of ice rinks in the United States and increasing
interest in ice-related sports will create a need for additional facilities.
According to the National Sporting Goods Association, there are 7.4 million ice
skaters in the United States. In addition, USA Hockey registered 363,259 hockey
players in the 1995-96 season, an 86.2% increase over the 1990-1991 season. The
Company believes that interest in hockey is increasing as a result of recent NHL
expansion.
THE ICE RINK FACILITIES
The Company believes that an opportunity for consolidation exists in the ice
rink industry similar to the opportunity in the golf center industry.
Accordingly, the Company has begun to apply the skills and resources it has
utilized in the golf center industry and has followed a strategy with respect to
such industry substantially similar to the strategy it has followed with respect
to golf centers.
The Company's ice rink facilities will typically be designed with the rinks
as the main attraction, but with amenities at the facility to provide family
entertainment and generate additional revenues. Such amenities include a pro
shop, video games, a supervised play area for young children, restaurants and
snack bars. The pro shops are stocked with skates, hockey sticks, jerseys,
protective equipment such as
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helmets and pads and other skating, hockey and figure skating-related items. The
Company generates revenues at its ice rink facilities by renting the rinks to
hockey leagues, teams and figure skaters, charging admission to its skating
facilities for public skating, providing lessons through USFSA-certified
instructors, skate and equipment rentals and pro shop sales. The Company also
generates revenues from food and beverage sales, video games and birthday and
private party rentals.
In addition to making capital improvement designed to add revenue-generating
amenities, the Company may also make capital expenditures to improve overall
attractiveness of its ice rink facilities and upgrade equipment to improve
efficiency and reduce operating expenses, such as utility costs.
As of March 31, 1998, the Company owned, leased or managed four ice
rink/family entertainment facilities in three states. Set forth below is
information concerning each of them:
<TABLE>
<CAPTION>
SIZE OF
PROPERTY NO. OF FAMILY
(APPROXIMATE SHEETS ENTERTAINMENT CERTIFIED
LOCATION OF FACILITY ACRES) OF ICE CENTER INSTRUCTORS PRO-SHOP
- ------------------------------------- ----------------- ------ ------------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Lake Grove, NY....................... 7 1 VX VX VX
Syosset, NY.......................... 3 2 -- VX VX
Evendale, OH......................... 15 2 VX VX VX
Raleigh, NC.......................... 6 1 VX VX VX
<CAPTION>
OWNED, DATE
LEASED OR OPENED OR
LOCATION OF FACILITY MANAGED ACQUIRED(1)
- ------------------------------------- ----------- -------------
<S> <C> <C>
Lake Grove, NY....................... Leased 7/97
Syosset, NY.......................... Leased 9/97
Evendale, OH......................... Owned 11/97
Raleigh, NC.......................... Leased 2/98
</TABLE>
- ------------------------
(1) Represents the first month that the facility generated revenue for the
Company.
The Company's first ice rink is located at the LCI Family Sports Supercenter
in Lake Grove, New York. In September 1997, the Company acquired a 47,000 square
foot skating facility in Syosset, New York, which has a NHL regulation-size ice
rink and an additional half rink, as well as a pro shop and snack bar. It is
used as a practice facility by the NHL's New York Islanders. In December 1997
the Company acquired an indoor family sports and entertainment center, located
in Cincinnati, Ohio, which includes two regulation-sized ice rinks, two soccer
fields and additional family amusements. In February 1998, the Company acquired
an ice rink facility and family entertainment center in Raleigh, North Carolina.
The Company currently has two ice rink/family entertainment center
facilities under development. In March 1998, the Company signed a lease to
construct and operate a facility consisting of two National Hockey league
regulation size ice rinks and a family entertainment center in New Rochelle, New
York. The Company expects to commence operating this facility by the end of
1999. The Company is also constructing two ice rinks adjacent to its golf center
in Denver, Colorado and may consider doing the same at other sites with
available land and favorable demographics. In addition, the Company plans to
construct or acquire additional ice rink facilities and has had discussions with
a number of parties as to the potential acquisition of ice rink facilities.
THE FAMILY SPORTS SUPERCENTERS
The Family Sports Supercenters provide a variety of sports-related and other
entertainment. Such Family Sports Supercenters will typically have two or more
sports-related attractions, such as golf centers, skating rinks, bowling centers
and batting cages, as well as a variety of family entertainment activities such
as video and virtual reality games, Lasertag, rides and other amenities such as
restaurants, sports bars, snack bars, vending machines, gift shops, meeting
rooms and conference facilities.
In those instances where the land available to the Company permits and the
demographics are favorable, the Company may add ice rinks and other amenities to
existing golf centers (or vice versa) and make additional improvements to
convert such facilities to Family Sports Supercenters. The Company is currently
converting its golf center in Denver, Colorado to a Family Sports Supercenter
and plans to construct one additional Family Sports Supercenter in 1998.
8
<PAGE>
As with all of its facilities the Company intends to design and operate its
Family Sports Supercenters so that they will be well maintained, efficiently
managed and attractive to the whole family.
OPERATIONS
The Company has facilities in six regions (the New York City region, the
Mid-Atlantic region, the Northern region, the Southeast region, the Midwest
region and the Western region), each of which is managed by a Regional Manager.
Each golf facility has a general manager who reports to a Regional or Area
Manager, one to two assistant managers, a head golf professional, up to four
PGA-certified professionals who instruct golfers, approximately five full-time
staff members and approximately 13 to 20 part-time employees, depending on the
season. Each ice rink facility has a general manager, one assistant manager, a
hockey director, a figure skating director, approximately four to six other
full-time employees and approximately 30 to 40 part-time employees, depending on
the season. The Company's Family Sports Supercenters have approximately 280 to
350 employees, depending on the season, of which approximately 75 employees are
full-time and the balance of which are part-time or seasonal.
Day-to-day responsibility for operation of the Company's facilities resides
with the general managers. General managers have overall administrative
responsibility for facility operations, including, as the case may be, the
driving range, miniature golf course, short game practice area, ice rink,
arcade, pro shop and snack bar concession, as well as the condition of the
facilities. In addition, general managers work with the Regional Managers to
prepare monthly and annual budgets and marketing plans.
The Company places great importance on recruiting and training skilled
personnel. A majority of the golf instructors are PGA-certified and the skating
instructors are USFSA-certified. In addition, a majority of the general managers
have managed or were assistant managers at other golf centers, golf courses, ice
rinks or Family Sports Supercenters, as the case may be, prior to being hired by
the Company. Regional Managers and general managers, as well as other management
personnel, are provided performance incentives such as stock options and
bonuses.
The Company believes that its emphasis on customer service helps
differentiate the Company from its competitors. Employees undergo a
comprehensive training program where they are instructed, among other things, to
be courteous, wear standardized clothing and display a professional attitude.
By virtue of operating a number of facilities, the Company believes it
achieves economies of scale not available to smaller operators. Typically, the
Company can acquire artificial turf, range balls, pro shop merchandise and other
facility supplies and equipment at lower prices than could an individual
operator. Although the suppliers of many of the items sold at the ice rink pro
shops are different from the golf pro shop suppliers, the Company believes that
it will achieve similar economies of scale as it expands in this area. The
Company can also purchase insurance coverage at a lower premium rate than would
be charged for an individual facility. The Company's corporate policies relating
to personnel, labor, cash management and budgets are formulated at the Company's
headquarters and provided to each of the Company's facilities.
All purchasing, accounting, insurance, cash management, finance and human
resource functions are managed centrally at the Company's headquarters.
Centralization improves facility performance by reducing administrative burdens
allowing management to focus on customer service and facility operations, and
also reducing expenses. In addition, each facility receives the benefits of the
Company's purchasing power, allowing it to take advantage of quantity discounts
on merchandise sold through its pro shops and equipment used at its facilities.
9
<PAGE>
GOLF CLUB MANUFACTURING
In December 1997 the Company acquired Confidence Golf, Inc., a designer and
assembler of premium grade golf clubs. Confidence Golf clubs are sold to large
volume free standing golf shop retailers as well as to the 65 Company owned pro
shops.
MARKETING AND ADVERTISING
The Company has a focused marketing and advertising strategy designed to
increase consumer awareness of its differentiated, family-oriented facilities.
The Company utilizes traditional media, including newspaper, radio, television
and direct mailings as well as targeted special promotions throughout the year,
such as charitable events, contests, free clinics, and equipment demonstrations.
The Company believes advertising plays an important role in attracting consumers
to its facilities.
The Company has also undertaken marketing studies to better understand its
target market. Before entering into new markets, the Company conducts
demographic surveys on the area, reviews industry publications and attends trade
shows.
Pursuant to the License Agreement, the Licensor retains the right to approve
advertising and other material using the "Golden Bear" name and logo.
LICENSING AND FRANCHISING
The Company has granted, for $250,000, a non-exclusive license to open up to
ten golf centers under the name "Family Golf" in China to Asia Golf Centers
International, Inc., a non-affiliated entity. The Company will receive royalties
equal to the greater of $15,000 or 3% of the gross revenues of each such golf
center. The Company believes that the growing recognition of the Family Golf
name and the economies of scale it realizes in purchasing may make it attractive
to license or franchise the Family Golf concept domestically in the future.
COMPETITION
The golf center, ice rink and family entertainment industries are each
highly competitive and include competition from other golf centers, traditional
golf ranges, golf courses, other ice rinks and family entertainment outlets and
other recreational pursuits. The Company may face imitation and other forms of
competition and the Company cannot prevent or restrain others from utilizing a
similar operational strategy. Many of the Company's competitors and potential
competitors have considerably greater financial and other resources, experience
and customer recognition than does the Company. Until September 1995, the
Company had the exclusive right to open Golden Bear Golf Centers in certain
territories. However, the Licensor now is permitted to establish, or license
others to establish, Golden Bear Golf Centers that compete with the Company's
golf centers, including the Company's Golden Bear Golf Centers. In addition, the
Company's pro shop business faces competition from pro shops at golf courses and
other golf centers or ice rinks, as the case may be, specialty retailers devoted
to golf or skating equipment and apparel, sporting goods stores and department
stores. One advantage that the Company's golf pro shops have over certain of its
competitors is that the customer may try golf clubs on the driving ranges before
purchasing them.
10
<PAGE>
EMPLOYEES
The Company had, as of December 31, 1997, 1,496 employees, of which 581 were
full-time employees and 915 were part-time employees. None of the employees are
represented by a collective bargaining agreement. The Company has never
experienced a strike or work stoppage. The Company believes that its
relationship with its employees is good.
GOVERNMENTAL REGULATION
Operations at the Company's golf facilities involve the use and limited
storage of various hazardous materials such as pesticides, herbicides, motor
oil, gasoline, heating oil and paint as well as various chemicals used to
create, refrigerate and maintain the ice at its ice rinks. Under various
federal, state and local laws, ordinances and regulations (which are
administered, in the case of federal laws and regulations, primarily by the
United States Environmental Protection Agency), an owner or operator of real
property is generally liable for the costs of removal or remediation of
hazardous substances that are released on or in its property regardless of
whether the property owner or operator knew of, or was responsible for, the
release of hazardous materials. The Company has not been informed by any
governmental authority or instrumentality of any non-compliance of any
environmental laws, ordinances or regulations. However, the Company is aware of
one notice of violation issued by the New York State Department of Environmental
Conservation (the "DEC") against the owner of the land leased by the Company in
Elmsford, New York alleging that certain hazardous materials were placed on the
site. The owner has taken remedial action and the Company does not believe it
will be affected by the alleged violation. Although the Company usually hires
environmental consultants to conduct environmental studies, including invasive
procedures such as soil sampling or ground water analysis, on golf facilities it
owns, operates or intends to acquire, in some cases only limited invasive
procedures are conducted on such properties and in a limited number of instances
no environmental studies are conducted. Even when invasive procedures are used,
environmental studies may fail to discover all potential environmental problems.
Accordingly, there may be potential liabilities or conditions of which the
Company is not aware.
The Company is subject to the Fair Labor Standards Act and various state
laws governing such matters as minimum wage requirements, overtime and other
working conditions and citizenship requirements. Restaurants at certain of the
Company's facilities serve alcoholic beverages and are 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 such
beverages to the intoxicated individual.
RISK FACTORS
GROWTH AND EXPANSION STRATEGY
The Company's ability to significantly increase revenues, operating cash
flow and net income over time depends in large part upon its success in
acquiring and improving or leasing or constructing additional facilities at
suitable locations upon satisfactory terms. There can be no assurance that
suitable facility acquisition or lease opportunities will be available or that
the Company will be able to consummate acquisition or leasing transactions on
satisfactory terms. The acquisition of facilities may become more expensive in
the future to the extent that demand and competition increase. The likelihood of
the success of the Company must be considered in light of the problems,
expenses, difficulties, complications and delays frequently encountered in
connection with the construction and opening of new facilities and improvements
to existing facilities, including delays in obtaining required permits.
To successfully implement its expansion strategy, the Company must integrate
acquired or newly opened facilities into its existing operations, which may
necessitate the implementation of enhanced operational and financial systems and
may require additional employees and management, operational, financial and
other resources. As part of its strategy, the Company has recently entered the
ice rink and
11
<PAGE>
Family Sports Supercenter industries, in which the Company has only limited
experience and which involve all the risks commonly associated with the
establishment of new lines of business. As the Company grows, there can be no
assurance that additional facilities can be readily assimilated into the
Company's operating structure. The Company's inability to efficiently integrate
facilities or to successfully enter the ice rink and Family Sports Supercenter
industries could have a material adverse effect on the Company's financial
condition and results of operations. In addition, a number of the facilities
which the Company has acquired have, and facilities it may acquire in the future
may have, experienced losses. On a pro forma basis, giving effect to the
acquisitions consummated after January 1, 1997 as if they had occurred as of
January 1, 1997, the Company had net income of $10.5 million (as compared to net
income of $10.6 million on a historical basis) for the year ended December 31,
1997. As a result of the timing of the Company's acquisitions, the seasonality
of the acquired businesses, the expansion of the Company's business to include
ice rinks and Family Sports Supercenters and other factors, the Company's
historical, pro forma and trailing twelve month results of operations referred
to herein are not necessarily indicative of future results. There can be no
assurance that facilities recently acquired by the Company or those that the
Company may acquire in the future will operate profitably and will not adversely
affect the Company's results of operations.
LEVERAGE, DEBT SERVICE AND COVENANTS
As of December 31, 1997, the Company had approximately $141.9 million
aggregate principal amount of indebtedness outstanding, including $115 million
aggregate principal amount of 5 3/4% convertible subordinated notes (the
"Notes") issued by the Company during the fourth quarter of 1997. The Company's
level of indebtedness requires that a significant amount of its cash flow from
operations be applied to debt service, and there can be no assurance that the
Company's operations will generate sufficient cash flow to service this
indebtedness. Approximately $16.6 million of Term Debt (as defined herein)
incurred in connection with the Company's acquisition of LCI, is at a variable
rate of interest, which subjects the Company to fluctuations in interest rates.
The Credit Facility (as defined herein) and the Term Debt include covenants
that restrict the operational and financial flexibility of the Company,
including a limit on the number of facilities that the Company may construct in
any rolling twelve month period and restrictions on indebtedness, liens,
acquisitions and other significant actions. Failure to comply with certain
covenants would, among other things, permit the Company's lenders to accelerate
the maturity of the obligations thereunder and could result in cross-defaults
permitting the acceleration of debt under other Company agreements. In addition,
the Company is required to maintain certain financial ratios.
DEPENDENCE ON THE GOLF INDUSTRY
Although the Company has begun expanding its business outside the golf
industry, the Company is highly dependent on the golf industry, and the public's
interest in utilizing golf practice centers, for the generation of its revenues
and earnings. Activities such as golf have, in the past, been susceptible to
increases and decreases in popularity that have materially affected the
financial condition and results of operations of companies dependent on such
activities, and there can be no assurance that the golf industry will not suffer
a material decrease in popularity, which would result in a material adverse
effect on the Company's business and operations. In addition, customer spending
on activities such as golf is generally considered to be discretionary spending,
which may be significantly decreased as a result of regional or national
economic downturns.
VULNERABILITY TO WEATHER CONDITIONS AND SEASONAL RESULTS
Historically, the second and third quarters of the year have accounted for a
greater portion of the Company's revenues than have the first and fourth
quarters of the year. This is primarily due to an outdoor playing season limited
by weather. Although most of the Company's driving ranges are designed to be
all-weather facilities, portions of the Company's facilities, including the
miniature golf courses, are outdoors
12
<PAGE>
and vulnerable to weather conditions. In addition, golfers are less inclined to
practice when weather conditions limit their ability to play golf on outdoor
courses. The Company expects its expansion into ice rink facilities and Family
Sports Supercenters to partially offset such seasonality. The timing of new
center openings and acquisitions may also cause the Company's results of
operations to vary significantly from quarter to quarter. Accordingly,
period-to-period comparisons are not necessarily meaningful and should not be
relied on as indicative of future results. In addition, variability in the
Company's results of operations could cause the price of the Company's
securities to fluctuate following the release of interim results of operations
or other information and may have a material adverse effect on the price of the
Company's securities.
COMPETITION
The golf center, ice rink and family entertainment industries are each
highly competitive and include competition from other golf centers, traditional
golf ranges, golf courses, other ice rinks and family entertainment outlets and
other recreational pursuits. The Company may face imitation and other forms of
competition and the Company cannot prevent or restrain others from utilizing a
similar operational strategy. Many of the Company's competitors and potential
competitors have considerably greater financial and other resources, experience
and customer recognition than does the Company. The Company operates seven of
its golf centers under the name "Golden Bear" pursuant to the License Agreement
with the Licensor. Golden Bear Golf, Inc., an affiliate of the Licensor, is a
competitor of the Company. The Licensor is permitted to establish, or license
others to establish, "Golden Bear" golf centers that compete with the Company's
golf centers, including the Company's Golden Bear Golf Centers. There can be no
assurance that competition will not adversely affect the Company's business or
ability to acquire additional properties. In addition, the Company's pro shop
business faces competition from pro shops at golf courses and other golf centers
or ice rinks, as the case may be, specialty retailers devoted to golf or skating
equipment and apparel, sporting goods and department stores.
DEPENDENCE ON CERTAIN AGREEMENTS
The future success of the business and operations of the Company is
dependent, in part, upon certain key operating agreements, including its real
property leases, management agreements with respect to certain municipal
facilities and the License Agreement. The termination of any of these agreements
may have a material adverse effect on the Company.
After giving effect to renewal options none of the Company's leases, as of
December 31, 1997, is expected to expire until December 31, 2002. However, the
leases may be terminated prior to their scheduled expiration should the Company
default in its obligations thereunder. The termination of any of the Company's
leases could have an adverse effect on the Company. If any of the Company's
leases were to be terminated, there can be no assurance that the Company would
be able to enter into leases for comparable properties on favorable terms, or at
all.
The Company manages several facilities for municipalities pursuant to
concession licenses, three of which are terminable at will by the licensor. The
Company's concession license with the City of New York (the "City") for the
Douglaston, New York golf center, which was entered into in 1994 and which
expires on December 31, 2006, the concession license with the City for the
Randall's Island, New York golf center, which was entered into in 1992 and which
expires on March 1, 2007 and the concession license with the Metropolitan
Transportation Authority for the Bronx, New York golf center, currently under
construction, which was entered into in 1997 and which expires on December 31,
2009 (respectively, the "Douglaston License," "Randall's Island License" and
"Bronx License"), are terminable at will. Pursuant to the Douglaston License and
the Randall's Island License, the Company has made approximately $3.1 million
and $774,000, respectively, of capital improvements. Pursuant to the Bronx
License, the Company is obligated to make a minimum of $3.0 million of capital
improvements. If any of these concession licenses are terminated other than a
termination of the Bronx license during the first eight years of such license,
the
13
<PAGE>
licensor may retain, and is not obligated to pay the Company for the value of,
such capital improvements. Unless reimbursed, for accounting purposes the
Company would immediately have to write off the undepreciated value of these
capital improvements and the goodwill related to its purchase of the limited
partners' minority interest in the partnership which was party to the Douglaston
License, both of which are currently being depreciated and amortized over the
life of the relevant concession license. In addition, the Company's management
agreement with the City of El Segundo for the El Segundo golf facility
terminates on February 14, 1999. The Company intends to seek a renewal of this
agreement.
As of December 31, 1997, the Company operated seven of its 60 golf centers
under the name "Golden Bear" pursuant to the License Agreement, expiring August
2002, with the Licensor. The License Agreement is terminable by the Licensor
prior to August 2002 under certain circumstances, including if the current
directors of the Company at any time constitute less than 50% of the Company's
directors. Termination of the License Agreement could adversely affect the
Company's Golden Bear Golf Centers and, possibly, the Company. In addition, the
value of the "Golden Bear" name is dependent, in part, upon the continued
popularity of Jack Nicklaus. Accordingly, the occurrence of any event which
diminishes the reputation of Mr. Nicklaus and the related "Golden Bear" symbol
could adversely affect the Company's Golden Bear Golf Centers.
ADDITIONAL FINANCING REQUIREMENTS
The Company anticipates that it will need to raise additional capital in the
future to continue its long term expansion plans. There can be no assurance that
the Company will be able to obtain additional financing on favorable terms or at
all.
ENVIRONMENTAL REGULATION
Operations at the Company's facilities involve the use and limited storage
of various hazardous materials such as pesticides, herbicides, motor oil,
gasoline, heating oil and paint, as well as various chemicals used to create,
refrigerate and maintain the ice at its ice rinks. Under various federal, state
and local laws, ordinances and regulations, an owner or operator of real
property is generally liable for the costs of removal or remediation of
hazardous substances that are released on or in its property regardless of
whether the property owner or operator knew of, or was responsible for, the
release of hazardous materials. The Company has not been informed by any
governmental authority of any non-compliance or violation of any environmental
laws, ordinances or regulations and the Company believes that it is in
substantial compliance with all such laws, ordinances and regulations applicable
to its properties or operations. However, the Company is aware of one notice of
violation issued by the New York State DEC against the owner of the land leased
by the Company in Elmsford, New York alleging that certain hazardous materials
were placed on the site. The owner has taken remedial action and the Company
does not believe it will be affected by the alleged violation. As of December
31, 1997, the Company had not incurred material costs of remediation and the
Company knows of no material environmental liability to which it may become
subject. Although the Company usually hires environmental consultants to conduct
environmental studies, including invasive procedures such as soil sampling or
ground water analysis on facilities it owns, operates or intends to acquire, in
some cases only limited invasive procedures are conducted on such properties and
in a limited number of instances no environmental studies are conducted.
Accordingly, there may be potential environmental liabilities or conditions of
which the Company is not aware.
DEPENDENCE UPON KEY EMPLOYEE; RECRUITMENT OF ADDITIONAL PERSONNEL
The Company is heavily dependent on the services of Dominic Chang, its
Chairman of the Board and Chief Executive Officer. The loss of the services of
Mr. Chang could materially adversely affect the Company. Mr. Chang has entered
into an employment agreement with the Company which terminates on December 31,
1999. The Company owns, and is the sole beneficiary of, key person life
insurance in the
14
<PAGE>
amount of $1.5 million on the life of Mr. Chang. In addition, it is an event of
default under the Company's Credit Facility and Term Debt if Mr. Chang is not
the Chairman of the Board and Chief Executive Officer of the Company and if he
does not own at least 5% of the Company's outstanding Common Stock. The Company
will also be required to hire additional personnel and professionals to staff
the additional facilities it intends to acquire, lease or construct. There can
be no assurance that the Company will be able to attract and retain qualified
personnel.
CONTROL BY CURRENT STOCKHOLDER
As of March 26, 1998, Dominic Chang beneficially owned 2,499,334 shares of
Common Stock, constituting approximately 19.2% of such outstanding shares. Mr.
Chang is, therefore, able to exercise significant influence with respect to the
election of the directors of the Company and all matters submitted to a vote of
the stockholders of the Company.
ITEM 2. PROPERTIES.
The Company maintains its executive offices in approximately 5,292 square
feet of space in Melville, New York pursuant to a lease expiring in October
1999. As of December 31, 1997 the Company owns land, subject to mortgages, on
which 21 of its facilities, are located. Information concerning such properties
is set forth below.
<TABLE>
<CAPTION>
APPROXIMATE DATE OPENED
FACILITY LOCATION ACRES OWNED OR ACQUIRED
- ------------------------------------------------------------ --------------- ---------------
<S> <C> <C>
Queensbury, NY.............................................. 200 May 1995
Greenville, SC.............................................. 24 May 1995
Glen Allen, VA.............................................. 10 Aug. 1995
Duluth, GA.................................................. 56 Aug. 1995
Alpharetta, GA.............................................. 26 Aug. 1995
Valley View, OH............................................. 5 Nov. 1995
Mesa, AZ.................................................... 39 Feb. 1996
Flemington, NJ.............................................. 17 March 1996
Yorktown Heights, NY........................................ 14 April 1996
Tucson, AZ.................................................. 18 June 1996
West Palm Beach, FL......................................... 32 June 1996
Fountain Inn, SC............................................ 283 Aug. 1996
Flanders, NJ................................................ 25 Aug. 1996
South Easton, MA............................................ 70 Sept. 1996
Margate, FL................................................. 14 Oct. 1996
Milwaukee, WI............................................... 65 Nov. 1996
Mainville, OH............................................... 32 Dec. 1996
Southampton, PA............................................. 12 June 1997
Palm Royale, CA............................................. 25 June 1997
Federal Way, WA............................................. 22 Oct. 1997
Evendale, OH................................................ 15 Nov. 1997
</TABLE>
15
<PAGE>
As of December 31, 1997, the Company leases the land on which 33 of its
facilities are located. None of such leases are with affiliates of the Company.
Information concerning such leases is set forth below.
<TABLE>
<CAPTION>
ACRES LEASED DATE OPENED
FACILITY LOCATION APPROXIMATE LEASE EXPIRATION DATE OR ACQUIRED
- --------------------------------------------- ---------------- -------------------------------- ---------------
<S> <C> <C> <C>
Farmingdale, NJ.............................. 13 February 28, 2002(2) March 1992
Wayne, NJ.................................... 16 February 28, 2003 July 1993
Elmsford, NY................................. 27 February 27, 2019 (1) July 1994
Utica, NY.................................... 18 December 31, 2019 (2) Dec. 1994
Clay, NY..................................... 23 June 30, 2005 (3) Jan. 1995
Gilroy, CA................................... 36 October 31, 2002(9) Nov. 1995
Valley View, OH.............................. 14 November 8, 2010 (1) Nov. 1995
Henrietta, NY................................ 28 October 10, 2020 (2) Jan. 1996
Virginia Beach, VA........................... 81 March 20, 2027 (4) March 1996
Indian River, VA............................. 14 December 2002 (5) May 1996
Fairfield, OH................................ 24 October 17, 2002(1) June 1996
St. Louis, MO................................ 42 February 28, 2002(2) June 1996
Alviso, CA................................... 25 March 31, 2013 (1) July 1996
Westminster, CA.............................. 17 February 28, 2008 (1) July 1996
Englewood, CO................................ 36 June 30, 2017(12) Aug. 1996
Glen Burnie, MD.............................. 38 December 31, 2012 Sept. 1996
Palm Desert, CA.............................. 17 July 31, 2000(11) Feb. 1997
Raleigh, NC.................................. 20 March 11, 2022(9) March 1997
Olney, MD.................................... 150 March 25, 2007 March 1997
Green Oaks, TX............................... 29 October 31, 2001(10) March 1997
Rio Salado, AZ............................... 70 December 8, 2015(1) April 1997
San Bruno, CA................................ 15 December 31, 2003(7) April 1997
Milpitas, CA................................. 16 August 5, 2009 June 1997
Carver, MA................................... 19 December 31, 2002 June 1997
Lake Grove, NY............................... 54 May 31, 2042 July 1997
Columbus, OH................................. 37 March 31, 2005(2) Sept. 1997
Commack, NY.................................. 18 February 28, 2010(7) Sept. 1997
Greenville, SC............................... 29 May 31, 2007(8) Sept. 1997
Warrenville, IL.............................. 59 October 31, 2015(6) Dec. 1997
Elks Grove, CA............................... 20 December 31, 2017 Dec. 1997
Lake Grove, NY............................... 7 May 13, 2042 July 1997
Syosset, NY.................................. 3 March 31, 2010(14) Sept. 1997
Norwalk, CA.................................. 20 August 1, 2017(13) Apr. 1997
</TABLE>
- ------------------------
(1) The Company has the option to extend the lease term for two additional
five-year periods.
(2) The Company has the option to extend the lease term for three additional
five-year periods.
(3) The Company has the option to extend the lease term for one ten-year period
plus four additional five-year periods.
(4) This lease is for land on which part of the Virginia Beach, Virginia golf
center is located.
(5) The Company has the option to extend the lease term of six additional
ten-year periods and one three year, six-month period.
(6) The Company has the option to extend the lease term for one one-year period.
(7) The Company has the option to extend the lease term for four five-year
periods.
(8) The Company has the option to extend the lease term for three ten-year
periods.
(9) The Company has the option to extend the lease term for one five-year
period.
16
<PAGE>
(10) The Company has the option to purchase sublandlords right to the leased
premises. The original lease expires on March 31, 2012 with one fifteen-year
renewal option.
(11) The Company has the option to purchase sublandlords right to the leased
premises. The original lease expires on July 31, 2000 with three five-year
renewal options.
(12) The Company has the option to extend the lease term for two ten-year
periods.
(13) The Company has the option to extend the lease term for one ten-year
period.
(14) The Company has the option to extend the lease term for one twelve-year
six-month period.
After giving effect to renewal options, none of the Company's current leases
is scheduled to expire until 2002. However, the leases may be terminated prior
to their scheduled expiration should the Company default in its obligations
thereunder. The termination of any of the Company's leases could have an adverse
effect on the Company. If any of the Company's leases were to be terminated,
there can be no assurance that the Company would be able to enter into leases
for comparable properties on favorable terms, or at all. For additional
information concerning the leases, see Notes F and I to the Financial Statements
included elsewhere herein.
The Company operates six facilities for municipalities pursuant to
concession licenses. These facilities are located at Douglaston, New York, El
Segundo, California, Denver, Colorado, Mahwah, New Jersey, Seattle, Washington
and Randall's Island, New York. The Company's concession license for the
Douglaston, New York golf center, the concession license for the Randall's
Island, New York golf center, and the concession license for the Bronx, New York
golf center, which is to be constructed, are terminable at will. In addition,
the Company's management agreement with the City of El Segundo for the El
Segundo golf facility terminates on February 4, 1999. The Company intends to
seek renewal of this agreement.
ITEM 3. LEGAL PROCEEDINGS
The Company knows of no material litigation or proceeding pending,
threatened or contemplated to which the Company is or may become a party other
than routine litigation incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
There were no matters submitted to a vote of stockholders during the fourth
quarter of the fiscal year ended December 31, 1997.
17
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON STOCK OF THE REGISTRANT AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock, par value $.01 per share (the "Common Stock"),
commenced trading on the Nasdaq National Market on November 17, 1994 under the
symbol "FGCI". The following table sets forth, for the periods indicated, the
high and low last sales prices for the Company's Common Stock as reported by the
Nasdaq National Market.
<TABLE>
<CAPTION>
STOCK PRICE
------------------------
<S> <C> <C>
HIGH LOW
----------- -----
Calendar Year 1996:
First Quarter................................................................ $ 273/4 $ 171/8
Second Quarter............................................................... 301/4 227/8
Third Quarter................................................................ 361/2 213/4
Fourth Quarter............................................................... 341/4 221/2
Calendar Year 1997:
First Quarter................................................................ $ 321/8 $ 171/4
Second Quarter............................................................... 293/8 163/4
Third Quarter................................................................ 283/4 22
Fourth Quarter............................................................... 331/4 243/4
</TABLE>
As of March 23, 1998, there were approximately 186 holders of record of the
Common Stock. The Company believes there were in excess of 400 beneficial owners
of the Common Stock. As of March 23, 1998, the last sales price for the
Company's Common Stock as reported by the Nasdaq National Market was $38.00.
The Company has neither declared nor paid dividends on its Common Stock and
does not intend to declare or pay any dividends in the foreseeable future. The
Company currently intends to retain earnings, if any, for the development and
expansion of its business. The declaration of dividends in the future will be at
the election of the Board of Directors and will depend upon the earnings,
capital requirements and financial position of the Company, general economic
conditions and other pertinent factors. In addition, the Company's current $20.0
million Credit Facility and approximately $16.6 million of Term Debt with The
Chase Manhattan Bank prohibit the payments of any dividends, unless the Company
would be in compliance with the Credit Facility and the Term Debt, including
certain financial ratios, after giving effect to such dividends.
During the year ended December 31, 1997, the Company issued an aggregate of
888,532 shares of Common Stock and warrants to purchase up to 55,537 shares of
common stock at $27.50 per share as part of the consideration for twelve
separate acquisitions consisting of the acquisition of Green Oak golf center,
the Southampton golf center, the Carver Family Sports Park, certain assets of
Active Sports Marketing, L.L.C., Leisure Complexes, Inc., the Commack golf
center, the Crosswinds Golf Club, The Golf Academy of Hilton Head Island, Inc.,
the lease of property from First Tee, Inc., the lease of property from Gyan
Kalwani, the Icelands Entertainment Center and Confidence Golf, Inc. from the
owners or lessees of such properties or entities. Such shares were issued in the
amounts, on the dates and for the securities or assets listed below; (i) April
2, 1997, 7,500 shares, the Green Oak golf center located in Arlington, Texas;
(ii) June 5, 1997, 20,000 shares, the Southampton golf center located in
Southampton, Pennsylvania; (iii) June 30, 1997, 114,000 shares, the Carver
Family Sports Park located in Carver, Massachusetts; (iv) July 29, 1997, 16,500
shares, certain assets of Active Sports Marketing, L.L.C.; (v) July 25, 1997,
509,090 shares and warrants to purchase up to 55,537 shares at $27.50 per share,
all of the outstanding securities of Leisure Complexes, Inc.; (vi) September 26,
1997, 75,000 shares, the Commack golf center located in Commack, New York; (vii)
September 30, 1997, 71,000 shares, all of the outstanding securities of The Golf
Academy of Hilton Head Island, Inc.; (viii) September 30, 1997, 37,000 shares,
the Crosswinds
18
<PAGE>
Golf Club located in Greenville, South Carolina; (ix) November 1, 1997, 6,000
shares, lease of property owned by First Tee, Inc. located in County Line,
Colorado; (x) December 29, 1997, 3,666 shares, lease of property from Gyan
Kalwani located in Sacramento, California; (xi) December 31, 1997, 8,350 shares,
the Icelands Entertainment Center located in Evendale, Ohio; and (xii) December
31, 1997, 20,426 shares, all of the outstanding shares of Confidence Golf, Inc.
Such golf centers, ice rink facilities and other assets are discussed in Item
1--"Business." Such issuances were not registered under the Securities Act of
1933 (the "Act") in reliance on the exemption provided by Section 4(2) of the
Act. None of such issuances involved any general solicitation and each of the
recipients of the Common Stock has represented that such recipient understands
that the Common Stock may not be sold or otherwise transferred absent
registration under the Act or an exemption therefrom and each certificate
representing shares of such Common Stock bears a legend to such effect.
On October 16, 1997 the Company issued $100,000,000 aggregate principal
amount of the Notes to Jefferies & Company, Inc., Oppenheimer & Co., Inc.,
Prudential Securities Incorporated and BancAmerica Robertson Stephens (the
"Initial Purchasers"). On November 14, 1997 the Company issued an additional
$15,000,000 aggregate principal amount of Notes to the Initial Purchasers in
connection with the exercise of an over-allotment option. The Initial Purchasers
purchased the Notes at a discount of 3.0%. The Notes are convertible at the
option of the holders thereof into shares of Common Stock at any time prior to
maturity, unless previously redeemed, at a conversion price of $37.250 per
share, subject to adjustment upon the occurrence of certain events.
The Notes mature on October 15, 2004 and bear interest at the rate of 5 3/4%
per annum, payable semi-annually on April 15 and October 15 of each year
commencing April 15, 1998. The Notes are unsecured and subordinate to all
present and future Senior Indebtedness (as defined in the Indenture dated
October 16, 1997 by and between the Company and the United States Trust Company
of New York, as Trustee (the "Indenture")) of the Company. The Notes are
redeemable at the option of the Company, in whole or in part, initially at
102.875% of the principal amount thereof and thereafter at prices declining to
100% at October 15, 2003, together with accrued and unpaid interest, except that
no redemption may be made prior to October 15, 2000. Upon a Change of Control
(as defined in the Indenture), each holder of Notes shall have the right, at the
holder's option, to require the Company to repurchase such holder's Notes at a
purchase price equal to 101% of the principal amount thereof plus accrued and
unpaid interest to the Repurchase Date (as defined in the Indenture), if any.
Pursuant to a registration rights agreement, the Company filed a
registration statement as to the Notes and the underlying Common Stock and is
obligated to maintain the effectiveness of such registration statement for at
least two years from the latest date of original issuance of the Notes.
The Notes were sold to the Initial Purchasers pursuant to section 4(2) of
the Securities Act of 1933 and the Notes were offered and sold by the Initial
Purchasers within the United States only to "qualified institutional buyers" (as
defined in Rule 144A under the Securities Act of 1933) in compliance with Rule
144A and to a limited number of institutional "accredited investors" (as defined
in Rule 501(A)(1), (2), (3) or (7) under the Securities Act of 1933).
The net proceeds of the offering are being used (i) to repay existing
indebtedness of the Company, (ii) to fund certain capital expenditures and (iii)
for general corporate purposes, including future acquisitions and working
capital.
19
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data for the five years ended December 31,
1997, 1996, 1995, 1994 and 1993 were derived from audited financial statements
of the Company.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Total revenue.............................. $ 64,825 $ 27,904 $ 12,432 $ 6,362 $ 2,632
Operating expense.......................... 31,563 13,268 6,614 4,215 2,247
Cost of merchandise sold................... 10,467 4,458 1,779 750 459
Selling, general and administrative
expenses................................. 5,132 3,580 1,242 548 615
----------- ----------- ----------- ----------- -----------
Operating income (loss).................... 17,663 6,598 2,797 849 (689)
Interest expense........................... (2,261) (370) (939) (313) (192)
Other income............................... 1,659 2,172 66 16 106
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes minority
interest and extraordinary item............ 17,061 8,400 1,924 552 (775)
Income tax expenses (benefit)................ 6,537 3,192 669 (65)
----------- ----------- ----------- ----------- -----------
Income (loss) before minority interest and
extraordinary item......................... 10,524 5,208 1,255 617 (775)
Minority interest in (income) loss........... (129) 12
Extraordinary item (net of tax effect)....... (181)
----------- ----------- ----------- ----------- -----------
Net income (loss)............................ $ 10,524 $ 5,208 $ 1,074 $ 488 $ (763)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Basic earnings per share:
Income before extraordinary item........... $ .86 $ .52 $ .25 .14 (.24)
Extraordinary item......................... -- -- (.04)
----------- ----------- ----------- ----------- -----------
Net income................................. .86 .52 .21 .14 (.24)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Diluted earnings per share:
Income before extraordinary item........... .84 .51 .24 .13 (.23)
Extraordinary item......................... -- -- (.04) -- --
----------- ----------- ----------- ----------- -----------
Net income................................. $ .84 $ .51 $ .20 $ .13 $ (.23)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Weighted average shares outstanding--
Basic...................................... 12,245 10,002 5,117 3,586 3,220
Effect of dilutive securities................ 287 288 154 50 54
----------- ----------- ----------- ----------- -----------
Weighted average shares outstanding--
Diluted.................................... 12,532 10,290 5,271 3,636 3,274
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
---------- ---------- --------- --------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents and short term
investments......................................... $ 61,848 $ 38,394 $ 23,121 $ 2,296 $ 403
Working capital....................................... 65,894 36,675 20,598 (204) (1,798)
Total assets.......................................... 325,507 158,293 61,582 16,077 7,693
Short-term borrowings................................. 5,000
Total long-term debt, including current maturity...... 141,819 17,056 8,193 6,328 4,034
Total stockholders' equity.............................. $ 168,412 $ 136,944 $ 49,388 $ 7,234 $ 1,866
</TABLE>
20
<PAGE>
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 the
Company's Financial Statements and the notes thereto appearing elsewhere in this
document.
GENERAL
The Company is a leading consolidator and operator of golf centers in the
United States. The Company's strategy is to continue to build upon its
leadership position in the golf center industry and expand its concept of
family-oriented sports entertainment through: (i) consolidation within the golf
center industry, (ii) enhancement of facilities and customer service, (iii)
leveraging centralized operations and (iv) developing complementary sports and
family entertainment facilities. The Company's golf centers are designed to
provide a wide variety of practice opportunities, including facilities for
driving, chipping, putting, pitching and sand play. In addition, the Company's
golf centers typically offer full-line pro shops, golf lessons instructed by
PGA-certified golf professionals and other amenities such as miniature golf and
snack-bars to encourage family participation. The Company has a proven track
record of successfully identifying, acquiring and integrating golf centers,
having grown from one golf facility in 1992 to 60 in operation or under
construction as of December 31, 1997. As a result, the Company has increased
revenues from $2.6 million in 1993 to $64.8 million for the twelve months ended
December 31, 1997, and increased earnings per share from a loss of $0.23 in 1993
to a profit of $0.84 for the twelve months ended December 31, 1997.
The Company's golf facilities have opened at varying times over the past
several years. As a result of changes in the number of golf centers open from
period to period, the seasonality of operations, the timing of acquisitions, the
completion of the Company's initial public offering in November 1994 (the
"IPO"), the public offering in December 1995 (the "1995 Public Offering"), the
public offering in July 1996 (the "1996 Offering"), the private placement of
$115,000,000 aggregate principal amount of 5 3/4% convertible subordinated notes
in October and November of 1997 (the "1997 Note Offering") and the expansion of
the Company's business to include ice rinks and Family Sports Supercenters,
results of operations for any particular period may not be indicative of the
results of operations in the future.
Most of the Company's revenues from its golf centers are derived from
selling tokens and debit cards for use in automated range-ball dispensing
machines, pro shop merchandise sales, charging for rounds of miniature golf,
golf lessons and management fees. The Company also derives revenues at its golf
centers from food and beverage sales, video games and batting cages. The Company
derives revenues from its golf courses from golf club membership fees, fees for
rounds of golf and golf lessons, pro-shop merchandise sales and from food and
beverage sales at the clubhouse. The Company derives revenues from its ice rinks
by renting the rinks to hockey leagues and teams and figure skaters, charging
admission to its skating facilities for public skating, providing lessons
through USFSA-certified instructors, skate equipment rentals and pro shop
merchandise sales, as well as from food and beverage sales and video games. The
Company derives revenues from its Family Sports Supercenters from substantially
the same sources as described above. The Company currently operates one Family
Sports Supercenter. See "Business--The Golf Center, --The Ice Rink Facilities,
- --The Family Sports Supercenters."
21
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth selected operations data of the Company
expressed as a percentage of total revenue (except for operating expenses which
is expressed as a percentage of operating revenue and cost of merchandise sold
which is expressed as a percentage of merchandise sales) for the periods
indicated below:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
Operating revenues....................................................................... 75.8% 76.6% 78.8%
Merchandise sales........................................................................ 24.2 23.4 21.2
Total revenue............................................................................ 100.0 100.0 100.0
Operating expenses....................................................................... 64.3 62.1 67.5
Cost of merchandise sold................................................................. 66.6 68.2 67.5
Selling, general and administrative expenses............................................. 7.9 12.8 10.0
Income from operations................................................................... 27.3 23.6 22.5
Interest expense......................................................................... (3.5) (1.3) (7.6)
Other income............................................................................. 2.6 7.8 0.5
Income before income taxes and minority interest......................................... 26.3 30.1 15.5
Income tax expense....................................................................... 10.1 11.4 5.4
Income before extraordinary item and minority interest................................... 16.2 18.7 10.1
Extraordinary item (net of tax effect)................................................... -- -- 1.5
Net income............................................................................... 16.2% 18.7% 8.6%
</TABLE>
TWELVE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO TWELVE MONTHS
ENDED DECEMBER 31, 1996
Results for the twelve months ended December 31, 1997 reflect the operations
of 27 golf centers for the full period. Eight additional golf centers underwent
significant renovation during 1997. The December 31, 1997 results also reflect
the operation of 18 golf centers built or acquired during the course of 1997.
Results for the year ended December 31, 1996 reflect the operations of 11 golf
centers for the full period. Two golf centers underwent renovation for
approximately one month and one golf center underwent renovation for
approximately two months of 1996. The December 31, 1996 results also reflect the
operation of 21 golf centers built or acquired during the course of 1996. As a
result of the change in number of golf centers open from period to period, the
comparison between 1997 and 1996 may not necessarily be meaningful.
Total revenue for the twelve months ended December 31, 1997 was $64.8
million as compared to $27.9 million for the same period in 1996, an increase of
$36.9 million (132%). Total revenue for the 11 golf centers operating for the
full December 31, 1997 and 1996 periods increased to $20.7 million from $15.8
million, an increase of $4.9 million (31%). Operating revenues, consisting of
all sales except merchandise sales, amounted to $49.1 million as compared to
$21.4 million, an increase of $27.7 million (129%) for this period. The overall
increase in revenue was primarily attributable to having additional golf centers
in operation during the 1997 period as well as revenues from non-golf operations
(supercenters and ice skating facilities). Revenues from non-golf operations
amounted to $8.3 million during 1997.
Merchandise sales, consisting of golf clubs, balls, bags, gloves, videos,
apparel and related accessories amounted to $15.7 million for 1997 as compared
to $6.5 million for 1996. The increase in merchandise sales of $9.2 million
(141%) was due to the contribution of new locations to the 1997 period and the
continuing emphasis placed by the Company on improving pro-shop sales, improved
purchasing procedures and increased promotion.
Operating expenses, consisting of operating wages and employee costs, land
rent, depreciation of golf driving range facilities and equipment, utilities and
all other facility operating costs, increased to $31.6 million in 1997 from
$13.3 million in 1996. The overall increase of $18.3 million (138%) was
primarily due to the operating costs of locations that were not open for all or
part of 1996. The increase as a percentage
22
<PAGE>
of sales was due to there being a higher percentage of leased, as compared to
owned, facilities during the 1997 period.
The cost of merchandise sold increased to $10.5 million (67 % of merchandise
sales) in 1997 from $4.5 million (68% of merchandise sales) in 1996. The overall
increase in this cost of $6.0 million (133%) was primarily due to the higher
level of merchandise sales.
Selling, general and administrative expense in 1997 amounted to $5.1 million
(8% of total revenue) as compared to $3.6 million (13% of total revenue) in
1996, an increase of $1.5 million (42%) was primarily due to an increase in
corporate staff, advertising and other expenses resulting from the increased
number of golf centers operating during 1997. Selling, general and
administrative expenses declined to 8% of total revenues in the 1997 period from
13% of total revenues in the 1996 period primarily due to the substantial
increase in revenues and relatively low corresponding incremental increase in
certain selling, general and administrative costs.
Interest expense increased to $2.3 million in 1997 from $0.4 million in 1996
primarily due to the debt associated with the Leisure Complexes acquisition in
July and the Note offering in October and November, 1997. Other income,
primarily interest income, decreased to $1.7 million in 1997 from $2.2 million
in 1996. The decrease in other income is attributable to lower investable
balances in 1997 as compared with 1996.
The Company had income, before income taxes of $17.1 million for 1997 as
compared to $8.4 million in 1996. Net income after income taxes increased to
$10.5 million in 1997 as compared to $5.2 million in 1996.
TWELVE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO TWELVE MONTHS
ENDED DECEMBER 31, 1995
Results for the twelve months ended December 31, 1996 reflect the operation
of 11 golf centers for the full period. Two golf centers underwent renovation
for approximately one month and one golf center underwent renovation for
approximately two months of 1996. The December 31, 1996 results also reflect the
operation of 21 golf centers built or acquired during the course of 1996.
Results for the year ended December 31, 1995 reflect the operations of four golf
centers for the full period, although one such golf center was undergoing
renovation for approximately four months. The December 31, 1995 results also
reflect the operations of 10 additional centers built or acquired during the
year. As a result of the change in the number of golf centers open from period
to period, the comparison between 1996 and 1995 may not necessarily be
meaningful.
Total revenue for the twelve months ended December 31, 1996 was $27.9
million as compared to $12.4 million for the same period in 1995, an increase of
$15.5 million (125%). Total revenue for the four golf centers operating for the
full December 31, 1996 and 1995 periods increased to $9.1 million from $8.0
million an increase of 14%. Operating revenues, consisting of all sales except
merchandise sales, amounted to $21.4 million as compared to $9.8 million, an
increase of $11.6 million (118%) for this period. The overall increase in
revenue was primarily attributable to having additional golf centers in
operation during the 1996 period.
Merchandise sales, consisting of golf clubs, balls, bags, gloves, videos,
apparel and related accessories, amounted to $6.5 million for 1996 as compared
to $2.6 million for 1995. The increase in merchandise sales of $3.9 million
(150%) was due to the contribution of new locations to the 1996 period and the
increased emphasis placed by the Company on improving pro-shop sales in the 1996
period, improved purchasing procedures and increased promotion.
Operating expenses, consisting of operating wages and employee costs, land
rent, depreciation of golf driving range facilities and equipment, utilities and
all other facility operating costs, increased to $13.3 million in 1996 from $6.6
million in 1995. The overall increase of $6.7 million (102%) was primarily due
to the operating costs of locations that were not open for all or part of 1995.
The cost of merchandise sold increased to $4.5 million (68% of merchandise
sales) in 1996 from $1.8 million (67% of merchandise sales) in 1995. The overall
increase in this cost of $2.7 million (150%) was primarily due to the higher
level of merchandise sales.
23
<PAGE>
Selling, general and administrative expenses in 1996 amounted to $3.6
million (13% of total revenue) as compared to $1.2 million (10% of total
revenue) in 1995, an increase of $2.4 million (200%), primarily due to an
increase in corporate staff, advertising and other expenses resulting from the
increase in the number of golf centers operating during 1996.
Interest expense decreased to $0.4 million in 1996 from $0.9 million in
1995. Other income, primarily interest income, increased to $2.2 million in 1996
from $0.1 million in 1995. The increase in interest income is attributable to
the investment of proceeds from the public offerings in December 1995 and July
1996. Also reflected in other income in 1996 is the sale of approximately 43
acres of land in Queensbury, New York for a net gain of $374,000.
The Company had income, before income taxes and extraordinary items of $8.4
million for 1996 as compared to $1.9 million in 1995. The Company recognized an
extraordinary charge of $181,000 (net of taxes) in the fourth quarter of 1995.
This extraordinary item reflects the write-off of debt acquisition costs, net of
income taxes, arising from the repayment of certain bank debt using the proceeds
of the 1995 Offering. Net income, after income taxes and, the extraordinary
items rose to $5.2 million in 1996 as compared to $1.1 million in 1995.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company had working capital of $65.9 million
compared to $36.7 million at December 31, 1996 due principally to the proceeds
from the issuance of $115 million of Notes in October 1997.
The cash requirements of funding the Company's expansion have historically
exceeded cash flow from operations. Accordingly, the Company has satisfied its
capital needs primarily through debt and equity financings.
The Company's outstanding indebtedness as of December 31, 1997 of $141.9
million bears interest at fixed and variable rates currently ranging from 5.25%
to 9.875%. During the year ended December 31, 1997, the Company issued
$115,000,000 aggregate principal amount of Notes. The Notes mature on October
15, 2004 and bear interest at the rate of 5 3/4% per annum, payable
semi-annually on April 15 and October 15 of each year commencing April 15, 1998.
The Notes are unsecured and subordinate to all present and future Senior
Indebtedness (as defined in the Indenture) of the Company. The Notes are
redeemable at the option of the Company, in whole or in part, initially at
102.875% of the principal amount thereof and thereafter at prices declining to
100% at October 15, 2003, together with accrued and unpaid interest, except that
no redemption may be made prior to October 15, 2000. Upon a Change of Control
(as defined in the Indenture), each holder of Notes shall have the right, at the
holder's option, to require the Company to repurchase such holder's Notes at a
purchase price equal to 101% of the principal amount thereof plus accrued and
unpaid interest to the Repurchase Date (as defined in the Indenture), if any.
The net proceeds of the offering are being used (i) to repay existing
indebtedness of the Company, (ii) to fund certain capital expenditures and (iii)
for general corporate purposes, including future acquisitions and working
capital.
As of December 31, 1997 the Company had no borrowings under its line of
credit (the "Credit Facility") with The Chase Manhattan Bank ("Chase"). On June
30, 1997 the Company entered into a two-year $20.0 million secured revolving
credit facility, converting to a four-year term loan at the end of the first two
years. After conversion to the term loan, the loan is to be paid off in 16
substantially equal quarterly installments. The Company's obligations under the
Credit Facility are secured by the pledge of the stock of most of the Company's
subsidiaries and such subsidiaries have also guaranteed such obligations. At the
time of each loan under the Credit Facility, the Company may choose between an
interest rate based on (i) the greater of Chase's prime rate or the federal
funds rate plus 0.5% per annum (the "Base Rate") plus 0.25% per annum or (ii)
the London Interbank Offered Rate ("LIBOR"), plus between 1.0% and 2.0% per
annum (depending on the Company's ratio of Consolidated Funded Debt to
Consolidated EBITDA (as such terms are defined in the Credit Facility)). During
the term loan, the interest rate will be increased by 0.5% per annum in the case
of Base Rate loans and 0.25% per annum in
24
<PAGE>
the case of LIBOR loans. The Credit Facility contains certain restrictive
covenants, including, among others, covenants limiting liens, indebtedness,
acquisitions, asset sales and investments and covenants requiring continued
compliance with certain financial tests, including, among others, a net worth
test and several financial ratios. The Company may pay dividends as long as no
event of default has occurred and is continuing. Included among the events of
default are any change of control of the Company or if Dominic Chang should
cease to be the Company's Chairman of the Board and Chief Executive Officer or
cease to own at least 5.0% of the Company's Common Stock.
In connection with the acquisition of LCI, the Company incurred term debt
(the "Term Debt") to refinance LCI's existing indebtedness. The principal amount
of the Term Debt ($16.6 million) is being paid in monthly installments through
August 2002. The Company has the same interest rate choices as it does with
respect to the Term Debt under the Credit Facility and is subject to the same
operational financial requirements. The indebtedness is secured by a mortgage
lien upon the three parcels of real property leased by LCI.
The balance of the Company's outstanding debt of $10.3 million aggregate
principal amount as of December 31, 1997 is represented by a variety of
different debt instruments bearing interest at fixed and variable rates ranging
from 5.25% to 9.3% and includes a loan in the principal amount of $2.9 million
made by ORIX USA Corporation ("Orix") in May 1995, which matures in May 2000 and
bears interest at LIBOR plus 3.5% per annum, a mortgage payable in the principal
amount of $1.7 million, bearing interest at 5.25% and matures in March 2001, a
Small Business term loan in the principal amount of $.7 million, bearing
interest at 7.317% per annum and payable in monthly installments through August
2016, a promissory note in the principal amount of $1.3 million, bearing
interest at 5.5% per annum and which was subsequently paid on January 2, 1998
and a mortgage payable in the principal amount of $3.7 million, bearing interest
at 9.875% payable in monthly installments through November 2009.
The Company anticipates making substantial additional expenditures in
connection with the acquisition and operation of new facilities and capital
improvements to existing facilities. Facility opening expenditures primarily
relate to projected facility construction and opening costs, associated
marketing activities and the addition of personnel. In many cases, the Company
acquires, rather than leases, the land on which its facilities are located,
which entails additional expenditures. Based on the Company's experience with
its existing golf centers, the Company believes that the cost of opening or
acquiring a golf center generally ranges from approximately $1.0 million to $4.0
million (exclusive of land costs). The Company also intends to acquire or
construct additional ice rink facilities and Family Sports Supercenters which,
on a per facility basis, are expected to cost more than the Company's golf
centers. The Company believes that the cost of opening or acquiring ice rink
facilities will range from approximately $2.0 million to $4.0 million. The
Company currently plans to spend an aggregate $20.0 million over the next eight
months to convert one of its existing golf centers to a Family Sports
Supercenter and to construct one additional Family Sports Supercenter. However,
there can be no assurance that facility opening or acquisition costs will not
exceed the amounts estimated above. Facility opening and acquisition costs vary
substantially depending on the location and status of the acquired property
(i.e. whether significant improvements are necessary) and whether the Company
acquires or leases the related land. Land acquisition costs vary substantially
depending on a number of factors, including principally location. To the extent
that the Company acquires any golf courses, the Company may be required to make
capital improvements to these courses, depending upon the location and status of
the acquired property. The cost of facility acquisition depends, to a large
extent, upon the price of the land and may substantially exceed the anticipated
cost of facility acquisitions.
EFFECT OF RECENTLY ACQUIRED FACILITIES
On a pro forma basis, after giving effect to material acquisitions
consummated after January 1, 1997 as if they had occurred as of January 1, 1997,
the Company had net income of $10.5 million (as compared to net income of $10.6
million on a historical basis), for the twelve months ended December 31, 1997,
and net income of $4.3 million (as compared to net income of $5.2 million on a
historical basis), for the year ended December 31, 1996. Although newly acquired
facilities have adversely affected income on a pro forma
25
<PAGE>
basis in the past and may adversely affect income on a pro forma basis in the
future, the Company believes that it will be able to enhance the performance of
such facilities by adding amenities and other improvements and centralizing key
functions as described in "Business -- Business Strategy." There can be no
assurance, however, that the Company will be able to improve the performance of
newly-acquired facilities.
SEASONALITY
Historically, the second and third quarters have accounted for a greater
portion of the Company's operating income than have the first and fourth
quarters of the year. This is primarily due to an outdoor playing season limited
by inclement weather. Although most of the Company's facilities are designed to
be all-weather, portions of the facilities, such as miniature golf courses which
are outdoors, tend to be vulnerable to weather conditions. One of the Company's
golf centers and one golf course are closed during a portion of the winter.
Also, golfers are less inclined to practice when weather conditions limit their
ability to play golf on outdoor courses. Since August 1995, the Company has
acquired golf centers in various locations (Arizona, California, Virginia,
Georgia, South Carolina and Florida) where inclement weather may not limit the
outdoor playing season as much as such weather limits the outdoor playing season
at the Company's golf facilities in Northern states. In addition, the ice rink
facilities and the Family Sports Supercenters are expected to generate a
substantial portion of the revenues in the first and fourth quarters of the year
and accordingly, may partially offset such seasonality. The timing of new
facility acquisitions and openings may cause the Company's results of operations
to vary significantly from quarter to quarter. Accordingly, period-to-period
comparisons are not necessarily meaningful and should not be relied on as
indicative of future results.
INFLATION
There was no significant impact on the Company's operations as a result of
inflation during 1995, 1996 or 1997.
YEAR 2000 ISSUES
Certain of the Company's computer systems and software interpret the year
2000 as the year 1980 or some other date. The operating system generally
employed by the Company is Windows 95, which is year 2000 compliant. The
networking, general ledger and accounts payable and facility point-of-sale and
pro shop software programs require software updates or modifications to address
the year 2000 problem. DMS, Inc., which provides certain of the Company's
software and systems under contract, particularly the general ledger and
accounts payable software programs, will be installing modifications to address
the year 2000 issue at no charge to the Company. The Company is further
addressing the matter by replacing certain older computers and installing
off-the-shelf and other third-party software that is year 2000 compliant, at an
estimated cost of less than $50,000. The Company anticipates that installation
of year 2000 compliant software and hardware will be completed by the end of
1998. The Company does not believe that the year 2000 problem will have a
material affect on the Company's operations, however, no assurance can be given
that the software updates and new computers will resolve the problem as
scheduled or at all.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company invested in short-term debt instruments which are subject to
minimal interest rate risk due to their short-term nature.
ITEM 8. FINANCIAL STATEMENTS
The financial statements of the Company are included herein commencing on
page F-1 hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
26
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS; COMPLIANCE WITH SECTION 16(A) OF THE
EXCHANGE ACT
The following table sets forth certain information concerning the executive
officers and directors of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Dominic Chang........................................ 47 Chairman of the Board and Chief Executive Officer
James Ganley......................................... 61 Director
Jimmy C.M. Hsu....................................... 48 Director
Krishnan P. Thampi................................... 49 President, Chief Operating Officer, Assistant
Secretary, Treasurer and Director
Yupin Wang........................................... 65 Director
Jeffrey C. Key....................................... 32 Chief Financial Officer
Richard W. Hasslinger................................ 47 Senior Vice President -- Regional Manager
Robert J. Krause..................................... 52 Senior Vice President -- Strategic Planning and
Development
William A. Schickler, III............................ 49 Senior Vice President -- Regional Manager
Pamela S. Charles.................................... 35 Vice President, Secretary and General Counsel
Garrett J. Kelleher.................................. 61 Vice President -- Finance
Rodger P. Potocki.................................... 54 Vice President -- Regional Manager
Margaret M. Santorufo................................ 32 Controller
</TABLE>
DOMINIC CHANG has been the Chairman of the Board and Chief Executive officer
of the Company and its predecessors since 1991. Prior to March 1998, Mr. Chang
also held the title of President. From 1989 to 1992, Mr. Chang was a Senior Vice
President and Sector Executive for Corporate Real Estate and General Services
for The Bank of New York. He was responsible for the acquisition, management and
disposition of the Bank of New York's properties worldwide, facilities design
and construction, security and centralized administrative services. Mr. Chang
previously had over 15 years banking experience with Bankers Trust and Irving
Trust Company. He has a Masters Degree in Industrial Engineering from New York
University and a Bachelors Degree from the State University of New York at
Stonybrook.
JAMES GANLEY has been a director of the Company since 1994. From October
1988 until his retirement in 1990, Mr. Ganley was a Senior Executive Vice
President of The Bank of New York. Mr. Ganley was a member of the Senior
Management Steering Committee at The Bank of New York and was directly
responsible for the mergers of the systems, products and operations of The Bank
of New York with Irving Trust Company. Prior to 1988, Mr. Ganley had held
various executive positions at Irving Trust Company and was Group Executive
responsible for Banking Operations activities, which comprised 13 divisions. He
was also a member of Irving Trust Company's Senior Executive Management
Committee. Mr. Ganley received a Bachelors Degree in Economics from New York
University and was a participant in Harvard University's program for management
development.
JIMMY C.M. HSU has been a director of the Company since 1994. From 1995
until 1996, Mr. Hsu was the Vice Chairman of Russ Berrie and Company, Inc.
("Russ Berrie"), a New York Stock Exchange listed company which manufactures and
distributes toys and gifts to retail stores. Mr. Hsu joined Russ Berrie in 1979
as Vice President, Far East Operations. In 1987, he was appointed Senior Vice
President and Director of World-Wide Marketing of Russ Berrie. In 1991, he was
elected to the board of Russ Berrie and was appointed the position of Executive
Vice President. In 1995, Mr. Hsu became Vice Chairman of Russ Berrie. Mr. Hsu is
currently an independent investor.
27
<PAGE>
KRISHNAN P. THAMPI has been the President, Chief Operating Officer,
Assistant Secretary, and Treasurer of the Company since March 1998 and from 1992
through February 1998, Mr. Thampi was the Chief Financial Officer, Chief
Operating Officer, Executive Vice President, Assistant Secretary and Treasurer
of the Company and its predecessors. He became a director of the Company in
1994. From 1989 to 1992, he was a Senior Vice President for Administrative
Services at The Bank of New York. From 1988 to 1989, he was a Senior Vice
President for Systems Services at Irving Trust Company. He also performed
controller and personnel management functions while at Irving Trust Company. Mr.
Thampi has a Masters Degree in Business Administration from Columbia University
and a Bachelors Degree in Engineering from McGill University.
YUPIN WANG has been a director of the Company since 1994. Mr. Wang is
currently the President of W W International, a worldwide management consulting
firm. Prior to establishing W W International in 1992, Mr. Wang was a member of
the executive management team of International Business Machines Corp. ("IBM")
from 1962 to 1992. He had held various positions at IBM, including Director of
Marketing Operations, Director of Marketing Strategy and Director of Customer
Satisfaction. As Director of Customer Satisfaction, he established IBM's
Customer Satisfaction Management System, which contributed to IBM Rochester
winning the Malcolm Baldrige Award. Mr. Wang received a Bachelors Degree in
Economics from National Taiwan University and Masters Degrees from Oklahoma
State University and New York University.
JEFFREY C. KEY joined the Company as Chief Financial Officer in March 1998.
From July 1995 to March 1998, Mr. Key worked in the investment banking
department of Jefferies & Company, Inc., most recently as senior vice president,
corporate finance. Prior to joining Jefferies & Company, Inc., Mr. Key was with
Fahnestock & Co. Inc. between January 1993 and July 1995 in investment banking
and with Security Pacific National Bank between June 1989 and January 1993 in
its credit analysis department. During his employment as an investment banker,
Mr. Key concentrated on working with rapidly growing middle market companies.
Mr. Key holds a Bachelors Degree in Business Administration from the University
of Colorado, where he concentrated in finance and accounting.
RICHARD W. HASSLINGER joined the Company's predecessor in November 1992 as a
Site Manager and has been Senior Vice President -- Regional Manager of the
Company since January 1995. From May 1992 to November 1992, he served as a
consultant to the Company. From May 1988 until May 1992, he was Vice President
and Division Head for Facilities Management at The Bank of New York. His
responsibilities there included leasing and acquisitions, design and
construction, and property management. From 1973 to 1988, he managed several
operational activities at Irving Trust Company. Mr. Hasslinger has a Bachelors
Degree in Business Administration from Hope College.
ROBERT J. KRAUSE joined the Company's predecessor in June 1993 and served as
a Site Manager until January 1995, when he became a Senior Vice President --
Strategic Planning and Development of the Company. From 1983 to 1993, Mr. Krause
was Vice President of Administrative Services for The Bank of New York. From
1978 to 1983, he held product development, marketing and strategic planning
responsibilities at Irving Trust Company. Mr. Krause has a Bachelors Degree in
Electrical Engineering from the University of Oklahoma.
WILLIAM A. SCHICKLER, III is a Senior Vice President of the Company and
President of The Practice Tee, Inc. ("TPT"), a subsidiary of the Company. Mr.
Schickler is responsible for the Company's operations in the West Coast Region.
Prior to joining TPT in 1992, Mr. Schickler was a founding general partner with
The Waterford Group, a partnership involved in the development and marketing of
golf course related real estate projects. Mr. Schickler is a certified public
accountant and holds a Bachelors Degree in Business Administration.
PAMELA S. CHARLES joined the Company as Vice President, Secretary and
General Counsel in January 1997. From February 1994 until January 1997, she was
an associate at the law firm of Squadron, Ellenoff, Plesent & Sheinfeld, LLP
where she specialized in federal securities law and mergers and
28
<PAGE>
acquisitions. From 1987 to 1994, Ms. Charles was an associate at the law firm of
Schulte, Roth & Zabel. Ms. Charles has a law degree from Hofstra University
School of Law and has a B.A. from the State University of New York at
Binghamton.
GARRETT J. KELLEHER, a certified public accountant, joined the Company's
predecessor in July 1993 as a Site Manager and served as Controller from January
1994 to June 1995. He has been the Vice President -- Finance since July 1995.
From 1980 to September 1990, Mr. Kelleher was Group Controller for Bank
Operations at The Bank of New York. He has held a variety of accounting and
financial management positions at The Bank of New York, and previously in public
accounting. Mr. Kelleher acted as an independent consultant from September 1990
to July 1993. Mr. Kelleher has a Masters Degree in Finance from St. John's
University and a Bachelors Degree in Business Administration from Manhattan
College.
RODGER P. POTOCKI was the Northern District Director for the Company from
September 1994 until he was appointed Vice President -- Regional Manager,
Northern Region, in February 1995. From October 1979 to September 1994, he was
Executive Vice President of Oneida County Industrial Development Corporation, a
non-profit development corporation ("Oneida Industrial"). At Oneida Industrial,
Mr. Potocki was responsible for new investment and job creation projects in
Oneida County, New York, and implemented New York State's first direct loan fund
for new businesses. Previously, he served as Director of Planning and
Development for the City of Rome, New York. Mr. Potocki has a Masters Degree in
Political Science from the Graduate School of Public Affairs in Albany, New York
and a Bachelors Degree from Syracuse University.
MARGARET M. SANTORUFO joined the Company as Controller in June 1995. From
January 1990, until she joined the Company in 1995, she was an audit supervisor
with Richard A. Eisner & Company, LLP. Ms. Santorufo received a Bachelors Degree
in Accounting from St. John's University.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term compensation for
services in all capacities paid to Dominic Chang, the Company's Chairman of the
Board and Chief Executive Officer, and Krishnan P. Thampi, the Company's
President, Chief Operating Officer, Assistant Secretary, Treasurer and Director
(the "Named Executives") during 1995, 1996 and 1997. Other than Named
Executives, no other executive officer received compensation exceeding $100,000
during 1995, 1996 or 1997. The chart below reflects the positions held by
Messrs. Chang and Thampi during the relevant periods.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------------------------------------- -----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
LONG-TERM
NAME AND OTHER RESTRICTED SECURITIES INCENTIVE
PRINCIPAL ANNUAL STOCK UNDERLYING PLAN
POSITION YEAR YEAR SALARY BONUS COMPENSATION AWARD(S) OPTIONS LAYOUTS
- ------------------------ --------- --------- ----------- --------------- --------------- ------------- ---------------
Dominic Chang,
Chairman of the Board,
President and 1997 $ 140,000 -- -- -- -- --
Chief Executive 1996 $ 120,000 -- $ 9,000(1)(2) -- -- --
Officer 1995 $ 65,000 -- $ 9,000(1) -- 10,000(3) --
Krishnan P. Thampi,
Chief Financial
Officer, Chief
Operating Officer, 1997 $ 120,000 -- 60,088(7 (8)
Assistant Secretary, 1996 $ 100,000 -- $ 7,200(1) -- 85,000(4 (5) --
Treasurer and Director 1995 $ 60,000 -- $ 7,200(1) -- 30,000(3 (6) --
<CAPTION>
<S> <C>
NAME AND ALL OTHER
PRINCIPAL COMPENSATION
POSITION YEAR YEAR
- ------------------------ -------------------
Dominic Chang,
Chairman of the Board,
President and --
Chief Executive --
Officer --
Krishnan P. Thampi,
Chief Financial
Officer, Chief
Operating Officer,
Assistant Secretary, --
Treasurer and Director --
</TABLE>
- ------------------------
(1) Includes amounts paid to lease a car.
29
<PAGE>
(2) Does not include $650,000 earned by Mr. Chang as a contingent purchase price
relating to the purchase by the Company in November 1995 of the Practice
Tee, Inc.
(3) Stock options to purchase 10,000 shares of Common Stock were granted in
March 1995 at $6.75 per share (the fair market value of the Common Stock on
the date of such grant); these options became exercisable in March 1996.
(4) Stock options to purchase 35,000 shares of Common Stock were granted in July
1996 at $22.75 per share (the fair market value of the Common Stock on the
date of such grant); 11,667 of these options are currently exercisable.
(5) Stock options to purchase 50,000 shares of Common Stock were granted in
December 1996 at $22.75 per share (the fair market value of the Common Stock
on the date of such grant); 16,667 of these options are currently
exercisable.
(6) Stock options to purchase 20,000 shares of Common Stock were granted in
November 1995 at $14.88 per share (the fair market value of the Common Stock
on the date of such grant); 13,333 of these options are currently
exercisable.
(7) Stock options to purchase 25,088 shares of Common Stock were granted in
March 1997 at $17.375 per share (the fair market value of the Common Stock
on the date of such grant); 8,363 of these options are currently
exercisable.
(8) Stock options to purchase 35.000 shares of Common Stock were granted in
November 1997 at $26.563 per share (the fair market value of the Common
Stock on the date of such grant); these options are not currently
exercisable.
The following table sets forth certain information concerning options
granted to Mr. Thampi during the fiscal year ended December 31, 1997. No options
were granted to Mr. Chang during the fiscal year ended December 31, 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATED
INDIVIDUAL GRANTS FOR OPTION TERM
------------------------------------------------------------------- --------------------
NUMBER OF
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS GRANTED EXERCISE OR
OPTIONS TO EMPLOYEES IN BASE PRICE
NAME GRANTED (1) FISCAL YEAR ($/SHARE) EXPIRATION DATE 5%($) 10%($)
- ------------------ ----------------- ----------------- ----------- ---------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Krishnan P. Thampi 25,088 7.6% 17.375 March 20, 2007 274,138 694,719
35,000 10.5% 26.563 November 3, 2007 584,686 1,481,710
</TABLE>
- ------------------------
(1) All options were granted pursuant to the 1997 Stock Incentive Plan.
AGGREGATED OPTION EXERCISES DURING THE FISCAL YEAR ENDED DECEMBER 31, 1997 AND
FISCAL YEAR END OPTION VALUES.
The following table sets forth certain information concerning the number and
value of securities underlying exercisable and unexercisable stock options as of
December 31, 1997 by the Named Executives. No options were exercised by the
Named Executives during the fiscal year ended December 31, 1997.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE- MONEY OPTIONS
AT FISCAL YEAR END AT FISCAL YEAR END
-------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------------------------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Dominic Chang............................................ 10,000 -- 246,250 --
Krishnan P. Thampi....................................... 86,667 123,421 1,686,250 1,118,402
</TABLE>
30
<PAGE>
STOCK OPTION PLANS
On March 6, 1996, the Board of Directors of the Company adopted, and on June
7, 1996, the stockholders approved, the Company's 1996 Stock Incentive Plan (the
"1996 Plan"). The 1996 Plan provides (i) for the grant of options to purchase up
to 500,000 shares of Common Stock to employees, officers, directors and
consultants of the Company and (ii) an automatic grant of non-qualified stock
options to purchase 10,000 shares to each non-employee director upon his
election or appointment to the Board of Directors and annual grants (commencing
on the date the 1996 Plan was approved by stockholders) to each non-employee
director of non-qualified stock options to purchase 10,000 shares of Common
Stock at the fair market value of the Common Stock on the date of the grant. On
April 25, 1997, the Board of Directors of the Company adopted, and, on June 24,
1997, the stockholders approved the Company's 1997 Stock Incentive Plan (the
"1997 Plan"). The 1997 Plan is identical to the 1996 Plan.
The 1996 Plan and the 1997 Plan (collectively the "Plans") are administered
by the Stock Option Committee, which determines, among other things, those
individuals who receive options, the time period during which the options may be
partially or fully exercised, the number of shares of Common Stock issuable upon
the exercise of each option and the option exercise price. Effective upon the
exhaustion of all options authorized under the 1996 Plan, automatic grants under
the 1996 Plan will cease and be replaced by the automatic grants under the 1997
Plan.
The exercise price per share of Common Stock subject to an incentive option
may not be less than the fair market value per share of Common Stock on the date
the option is granted. The per share exercise price of the Common Stock subject
to a non-qualified option may be established by the Board of Directors. The
aggregate fair market value (determined as of the date the option is granted) of
Common Stock for which any person may be granted incentive stock options which
first become exercisable in any calendar year may not exceed $100,000. No person
who owns, directly or indirectly, at the time of the granting of an incentive
stock option to such person, 10% or more of the total combined voting power of
all classes of stock of the Company (a "10% Stockholder") shall be eligible to
receive any incentive stock options under the Plans, unless the exercise price
is at least 110% of the fair market value of the shares of Common Stock subject
to the option, determined on the date of grant. Non-qualified options are not
subject to such limitation.
No stock option may be transferred by an optionee other than by will or the
by-laws of descent and distribution, and, during the lifetime of an optionee,
the option will be exercised only by the optionee. In the event of termination
of employment other than by death or disability, the optionee will have no more
than three months after such termination during which the optionee shall be
entitled to exercise the option, unless otherwise determined by the Stock Option
Committee. Upon termination of employment of an optionee by reason of death or
permanent disability, such optionee's options remain exercisable for one year
thereafter to the extent such options were exercisable on the date of such
termination.
Options under the Plans, must be issued within ten years from their
respective effective dates which is June 7, 1996 in the case of the 1996 Plan
and April 25, 1997 in the case of the 1997 Plan. Incentive stock options granted
under the Plans, cannot be exercised more than 10 years from the date of grant.
Incentive stock options issued to a 10% Stockholder are limited to five-year
terms. All options granted under the Plans provide for the payment of the
exercise price in cash or by delivery to the Company of shares of Common Stock
already owned by the optionee having a fair market value equal to the exercise
price of the options being exercised, or by a combination of such methods.
Therefore, an optionee may be able to tender shares of Common Stock to purchase
additional shares of Common Stock and may theoretically exercise all of such
optionee's stock options with no additional investment other than the purchase
of the original shares.
Any unexercised options that expire or that terminate upon an employee's
ceasing to be employed by the Company become available again for issuance under
the Plans.
31
<PAGE>
As of March 23, 1998, options to purchase 999,375 shares of Common Stock
have been granted under the Plans of which options to purchase 317,214 shares
have been exercised. In addition, on March 8, 1995, Messrs. Chang and Thampi
were each granted options outside of the Plans to purchase 10,000 shares of
Common Stock at $6.75 per share (the fair market value of the Common Stock on
the date of such grant) in connection with an amendment to their respective
employment agreements. These options became exercisable in March 1996 and are
still outstanding. In addition, on March 7, 1996, various employees of the
Company were granted options outside of the Plans to purchase an aggregate of
53,500 shares of Common Stock at $19.875 (the fair market value of the Common
Stock on the date of such grant), which options vest ratably over three years.
On September 22, 1997, 12,500 options were granted outside of the plan to a
consultant at an exercise price of $27.625.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements, each expiring on
December 31, 1999, with each of Mr. Chang and Mr. Thampi, pursuant to which each
will devote at least 95% of his business time to the affairs of the Company.
Pursuant to his employment agreement, Mr. Chang received a base salary of
$120,000 in 1996, a base salary of $140,000 in 1997 and will receive a base
salary of $140,000 and $160,000 in 1998 and 1999, respectively. Such base
salaries are subject to additional increase within the discretion of the Board
of Directors which will take into account, among other things, the performance
of the Company and the performance, duties and responsibilities of Mr. Chang.
Mr. Chang also receives use of a Company-leased automobile and will receive such
bonuses as may be determined by the Board of Directors throughout the term of
his employment agreement. The employment agreement also provides that Mr. Chang
will not compete with the Company for two years after the termination of his
employment.
Pursuant to his employment Mr. Thampi received a base salary of $100,000 in
1996, a base salary of $120,000 in 1997 and will receive a base salary of
$120,000 and $140,000 in 1998 and 1999, respectively. Such base salaries are
subject to additional increases within the discretion of the Board of Directors
which will take into account, among other things, the performance of the Company
and the performance, duties and responsibilities of Mr. Thampi. Mr. Thampi also
receives use of a Company-leased automobile and will receive such bonuses as may
be determined by the Board of Directors throughout the term of his employment
agreement. The employment agreement also provides that Mr. Thampi will not
compete with the Company for two years after the termination of his employment.
In March 1998, the Company entered into a three year employment agreement
with Jeffery C. Key pursuant to which Mr. Key will serve as Chief Financial
Officer of the Company and will receive an annual base salary of $130,000,
$140,000 and $150,000 during each year of the three year term, respectively.
Such base salary is subject to additional increase within the discretion of the
Board of Directors which will take into account, among other things, the
performance of the Company and the performance, duties and responsibilities of
Mr. Key. Mr. Key also received 60,000 stock options under the Company's 1997
Plan and 15,000 restricted shares of the Company's Common Stock, all of which
are subject to a three-year vesting schedule. Such restricted shares are
forfeited if Mr. Key is not employed by the Company on the date such shares are
scheduled to vest. The employment agreement also provides that Mr. Key will not
compete with the Company for one year after the termination of his employment.
In addition, the employment agreement provides that if following a change in
control of the Company (as defined in the employment agreement), Mr. Key
terminates his employment for good reason, he will be entitled to receive a lump
sum payment equal to his base salary for the remaining term of the employment
agreement, all previously earned and accrued benefits, continued full benefit
coverage under all of the Company's benefit plans and fully vested benefits
under all plans, including stock option plans.
The Company does not have written employment agreements with Messrs.
Hasslinger, Kelleher, Krause, Schickler, or Potocki or with Ms. Charles or Ms.
Santorufo
32
<PAGE>
DIRECTOR'S COMPENSATION
The Company's employee directors do not receive any additional compensation
for their services as directors. Non-employee directors do not receive a fee for
serving as such, but are reimbursed for expenses. In addition, non-employee
directors participate in the Company's Plans. The 1996 Plan and the 1997 Plan
provides for an automatic grant of non-qualified stock options to purchase
10,000 shares of Common Stock to each non-employee director upon his or her
election or appointment to the Board of Directors and annual grants of
non-qualified stock options to purchase 10,000 shares of Common Stock at the
fair market value on the date of such grant. Following the grants made
immediately after the Company's annual meeting of stockholders in June 1997,
grants under the 1996 Plan ceased and were replaced by the automatic grants
under the 1997 Plan.
REPORT ON REPRICING OF STOCK OPTIONS
The Company did not adjust or amend the exercise price of stock options
previously awarded to Mr. Chang or Mr. Thampi during the last fiscal year.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee consists of Dominic Chang, James Ganley
and Yupin Wang, each of whom is a non-employee member of the Company's Board of
Directors, with the exception of Mr. Chang, who is also the Company's Chief
Executive Officer and Chairman of the Board.
COMPENSATION COMMITTEE REPORT TO STOCKHOLDERS
The Compensation Committee of the Board of Directors is responsible for
determining the compensation of executive officers of the Company, other than
compensation awarded pursuant to the Company's Plans which are administered by
the Stock Option Committee of the Board of Directors. Mr. Chang abstains from
any vote regarding his compensation.
The Stock Option Committee is responsible for granting and setting the terms
of stock options under the Plans. Messrs. Ganley and Wang serve on the Stock
Option Committee.
GENERAL POLICIES REGARDING COMPENSATION OF EXECUTIVE OFFICERS
The Company's executive compensation policies are intended (1) to attract
and retain high quality managerial and executive talent and to motivate these
individuals to maximize stockholder returns, (2) to afford appropriate
incentives for executives to produce sustained superior performance, and (3) to
reward executives for superior individual contributions to the achievement of
the Company's business objectives. The Company's compensation structure
typically consists of base salary and stock options. Together, these components
link each executive's compensation directly to individual and Company
performance.
SALARY. Base salary levels reflect individual positions, responsibilities,
experience, leadership and potential contribution to the success of the Company.
Actual salaries vary based on the Compensation Committee's assessment of the
individual executive's performance and the Company's performance.
STOCK OPTIONS. Stock options, which are granted at the fair market value of
the Common Stock on the date of grant, are currently the Company's sole
long-term compensation vehicle. The stock options are intended to provide
employees with sufficient incentive to manage from the perspective of an owner
with an equity stake in the business.
In determining the size of individual options grants, the Stock Option
Committee considers the aggregate number of shares available for grant, the
number of individuals to be considered for an award of stock options, and the
range of potential compensation levels that the option awards may yield. The
number and timing of stock option grants to executive officers are decided by
the Stock Option Committee
33
<PAGE>
based on its subjective assessment of the performance of each grantee. In
determining the size and timing of option grants, the Stock Option Committee
weighs any factors it considers relevant and gives such factors the relative
weight it considers appropriate under the circumstances then prevailing. While
an ancillary goal of the Stock Option Committee in awarding stock options is to
increase the stock ownership of the Company's management, the Stock Option
Committee does not, when determining the amount of stock options to award,
consider the amount of stock already owned by an officer. The Stock Option
Committee believes that to do so could have the effect of inappropriately or
inequitably penalizing or rewarding executives based upon their personal
decisions as to stock ownership and option exercises.
In 1993, the Internal Revenue Code was amended to limit the deductibility of
compensation paid to certain executives in excess of $1 million. Compensation
not subject to the limitation includes certain compensation payable solely
because an executive attains performance goals ("performance-based
compensation"). Stock options granted under the Plans will not qualify as
performance-based compensation. The Company's compensation deduction for a
particular executive's total compensation, including compensation realized from
the exercise of stock options, will be limited to $1 million. The Compensation
Committee believes that the compensation paid by the Company in fiscal 1997 will
not result in any material loss of tax deductions for the Company.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
Mr. Chang's base salary for the fiscal year ended December 31, 1997 was
determined by the terms of his employment agreement with the Company which is
described elsewhere herein. Additionally, Mr. Chang was granted certain stock
options in fiscal 1995 which are described elsewhere herein. The members of the
Compensation and Stock Option Committees of the Company believe that Mr. Chang's
base salary level and stock option grants are modest in comparison to the
outstanding contributions Mr. Chang has made to the Company's growth and
financial position during the last fiscal year.
<TABLE>
<S> <C>
COMPENSATION COMMITTEE STOCK OPTION COMMITTEE
Dominic Chang James Ganley
James Ganley Yupin Wang
Yupin Wang
</TABLE>
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and executive officers, and
persons who beneficially own more than ten percent of a registered class of the
Company's equity securities, to file with the Securities and Exchange Commission
initial reports of ownership and reports of changes in ownership of Common Stock
and the other equity securities of the Company. Officers, directors, and persons
who beneficially own more than ten percent of a registered class of the
Company's equities are required by the regulations of the Securities and
Exchange Commission to furnish the Company with copies of all Section 16(a)
forms they file. To the Company's knowledge, based solely on review of the
copies of such reports furnished to the Company and written representations that
no other reports were required, during the fiscal year ended December 31, 1997,
all Section 16(a) filing requirements applicable to its officers, directors, and
greater than ten percent beneficial owners were complied with; except one report
was filed late by Mr. Hasslinger.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of March 26, 1998
regarding the beneficial ownership of the Company's Common Stock by (i) each
person known by the Company to own beneficially more than 5% of the Company's
Common Stock, (ii) each director of the Company, including the Named Executives,
and (iii) all directors and executive officers of the Company as a group. Except
as otherwise indicated and subject to community property laws where applicable,
the persons named in the table above have sole voting and dispositive power with
respect to the shares of Common Stock shown as beneficially
34
<PAGE>
owned by them. Information as to The TCW Group, Inc., Scudder Kemper
Investments, Inc., Wells Fargo Bank, N.A., and ICM Asset Management, Inc. was
derived from the Schedule 13G filed by each such stockholder, and, except for
the percentage ownership, reflects the information contained in the Schedule 13G
as of the date such Schedule 13G was filed.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND ADDRESS BENEFICIALLY PERCENT OF
OF BENEFICIAL OWNER OWNED OUTSTANDING SHARES
- -------------------------------------------------------- ----------------- ---------------------
<S> <C> <C>
Dominic Chang(1)........................................ 2,499,334(2)(3) 19.2%
The TCW Group, Inc(4)................................... 1,211,800 9.3%
Scudder Kemper Investments, Inc.(9)..................... 1,037,080 7.9%
Wells Fargo Bank, N.A.(10).............................. 863,220 6.6%
ICM Asset Management, Inc.(11).......................... 771,100 5.9%
Krishnan P. Thampi(1)................................... 186,977(7) 1.4%
Jimmy C.M. Hsu(1)....................................... 114,583(5)(6) *
James Ganley(1)......................................... 28,833(13) *
Yupin Wang (1).......................................... 3,333(12) *
All directors and executive officers of the
Company as a group (13 persons)....................... 2,919,056(2) (8) 22.4%
</TABLE>
- ------------------------
* Less than 1%
(1) The address of the stockholder is: c/o Family Golf Centers, Inc., 225
Broadhollow Road, Melville, New York 11747.
(2) Includes 1,000 shares of Common Stock owned by Mr. Chang's children.
Includes 10,000 shares of Common Stock issuable upon exercise of options
which are currently exercisable.
(3) Includes an aggregate of 738,334 shares pledged to banks to secure personal
loans to Mr. Chang.
(4) The address of The TCW Group, Inc. is: 865 Figueroa Street, Los Angeles,
California 90017.
(5) Does not include 66,250 shares of Common Stock beneficially owned by Mr.
Hsu's brother. Mr. Hsu disclaims beneficial ownership of his brother's
shares.
(6) Includes 10,333 shares of Common Stock issuable upon exercise of options
which are currently exercisable.
(7) Includes 95,027 shares of Common Stock issuable upon exercise of options
which are currently exercisable.
(8) Includes 84,796 shares of Common Stock in addition to those referred to in
notes (2) (3), (6), (7) above, issuable upon exercise of options which are
currently exercisable.
(9) The address of Scudder Kemper Investments ("SKI") is: 345 Park Avenue, New
York, NY 10154. SKI is an Investment Advisor registered under Section 208
of the Investment Advisors Act of 1940. SKI provides investment advice to
individuals, institutional clients and investment companies registered
under Section 8 of the Investment Company Act of 1940 ("Managed
Portfolios"). As a result of its role of advisor to such entities, SKI may
be deemed to be the beneficial owner of the 1,037,080 shares of Common
Stock in the Company, and has neither the right to receive dividends from
nor the proceeds from the sale of any such shares by the Managed
Portfolios. SKI Managed Portfolios have
35
<PAGE>
the right to receive all dividends and proceeds from the sale of such
shares of Common Stock. SKI disclaims beneficial ownership of such shares.
(10) The address of the Wells Fargo Bank, NA is: 343 Sansome Street, 3rd Fl.,
San Francisco, CA 94163.
(11) The address of the ICM Asset Management, Inc. is: 601 W. Main Avenue, Suite
600, Spokane, WA 99201.
(12) Includes 3,333 shares of Common Stock issuable upon exercise of options
which are currently exercisable.
(13) Includes 10,333 shares of Common Stock issuable upon exercise of options
which are currently exercisable.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Chang is a guarantor of $3.0 million principal amount loaned to the
Company by Orix in May 1995. Such loan matures in May 2000.
In addition, Mr. Hsu served as a consultant to the Company's retail area and
ice rink operation during the period from October 1, 1997 to December 31, 1997.
In November of 1997, Mr. Hasslinger incurred indebtedness to the Company in
the amount of $10,000. Such indebtedness has since been repaid.
36
<PAGE>
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ----------- ----------------------------------------------------------------------------------- -----------
<C> <S> <C>
3.1* Certificate of Incorporation.
3.2* By-laws.
10.1* Agreement to Exchange, dated as of September 11, 1994, by and among Family Golf
Centers, Inc. and Dominic Chang, Jimmy C.M. Hsu, Krishnan Thampi, Tommy Hsu, and
John Chen.
10.2* Purchase Agreement, dated as of September 11, 1994, by and among Family Golf
Centers, Inc. and Golf Range, Inc. and Abbington Holdings, Inc.
10.3* Option Agreement by and among Ken Simonds, William Schickler III, Dominic Chang,
Krishnan Thampi, The Practice Tee, Inc. and Family Golf Centers, Inc.
10.4* Employment Agreement, dated as of September 11, 1994, between Family Golf Centers,
Inc. and Dominic Chang.
10.4.1* *** Amendment No. 1, dated March 8, 1995, to the Employment Agreement, dated as of
September 11, 1994, between Family Golf Centers, Inc. and Dominic Chang, filed as
Exhibit 10.5.
10.5* Employment Agreement, dated as of September 11, 1994, between Family Golf Centers,
Inc. and Krishnan Thampi.
10.5.1* *** Amendment No. 1, dated March 8, 1995, to the Employment Agreement, dated as of
September 11, 1994, between Family Golf Centers, Inc. and Krishnan P. Thampi, filed
as Exhibit 10.5.
10.6* Agreement, dated as of August 12, 1992, by and between Golden Bear International,
Inc. and Orient Associates International, Inc., as amended by an Assignment and
amendment entered into February 16, 1994, by and among Golden Bear International,
Inc., Golden Bear Golf Centers, Inc. and Orient Associates International, Inc., as
further amended by an Assignment and Assumption by and among Golden Bear Golf
Centers, Inc., Orient Associates International, Inc. and The Practice Tee, Inc.
10.6.1** Amendment entered into November 9, 1994 to Agreement dated as of August 12, 1992,
by and between Golden Bear International, Inc. and Orient Associates International,
Inc.
10.6.2* *** Amendment entered into December 2, 1994 to Agreement dated as of August 12, 1992,
by and between Golden Bear International, Inc. and Orient Associates International,
Inc., filed as Exhibit 10.6.
10.7* License Agreement, dated September 14, 1994, between Orient Associates
International, Inc. and City of New York Parks & Recreation Department.
10.8* Form of Common Stock Purchase Warrant, for an aggregate of 24,950 shares of Common
Stock, expiring on August 15, 1999.
10.9* Family Golf Centers, Inc. 1994 Stock Incentive Plan.
10.10++++ Family Golf Centers, Inc. 1996 Stock Incentive Plan.
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ----------- ----------------------------------------------------------------------------------- -----------
<C> <S> <C>
10.11* Loan Agreement, dated March 1, 1994, between Grand Pacific Finance Corp. as Lender,
and Orient Associates International, Inc. as Borrower.
10.12* Loan Leasehold Mortgage and Security Agreement, dated April 23, 1993, between
Orient Associates International, Inc. as Mortgagor and The Development Bank of
Singapore, Ltd., as Mortgagee.
10.13* Revolving Credit Line Agreement, dated April 2, 1993, between TaipeiBank, New York
Agency, as Lender, and Orient Associates International, Inc. and Dominic Chang, as
Borrower.
10.14* Mortgage, dated December 17, 1993, between Orient Associates International, Inc.
and Hsing Lung Farm Corp., as Mortgagor and TaipeiBank, New York Agency, as
Mortgagee.
10.15* Authorization and Debenture Guaranty, dated December 31, 1991, between the United
States Small Business Administration, as Lender and Long Island Development
Corporation, as Borrower, to assist Orient Associates International, Inc.
10.16* Building Loan Contract and Building Loan Mortgage, dated October 20, 1994, between
Orient Associates International, Inc., as Borrower, and Grand Pacific Finance
Corp., as Lender.
10.17** Building Loan Agreement and Mortgage, dated November 26, 1991, between Grand
Pacific Finance Corp., as Lender and Orient Associates International, Inc., as
Borrower.
10.18** Collateral Note and Security Agreements, dated September 28, 1994 and September 30,
1994, between Bank of New York, as Lender, and Skydrive Co., Inc., as Borrower.
10.19+ Purchase and Sale Contract, dated May 1, 1995, between Evergreen Bank, N.A. f/k/a
The First National Bank of Glens Falls and Family Golf Centers, Inc.
10.20+ Mortgage and Security Agreement, dated May 15, 1995, between Family Golf Centers,
Inc., as Mortgagor and Orix USA Corporation, as Mortgagee.
10.21+ Purchase Money Note, dated May 15, 1995, made by Family Golf Centers, Inc. in favor
of Orix USA Corporation in the principal amount of $3,000,000.
10.22+ Statement of Purpose for an Extension of Credit Secured by Margin Stock, dated
April 28, 1995, between Family Golf Centers, Inc. and Chemical Bank.
10.23+ Promissory Note, dated May 4, 1995, made by Family Golf Centers, Inc. in favor of
Chemical Bank in the principal amount of $850,000.
10.24* *** Registration Rights Agreement, dated April 28, 1995, between Kenneth Gurley and
Family Golf Centers, Inc.
10.25* *** Commitment letter, dated September 28, 1995, issued by Chemical Bank, N.A. to
Family Golf Centers, Inc.
10.26* *** Mortgage, dated March 25, 1994 granted by Pelham Enterprises, Inc. in favor of
United Carolina Bank of South Carolina.
10.27* *** Warrant to purchase 80,000 shares of Common Stock, dated November 23, 1994, issued
to Hampshire Securities Corporation by Family Golf Centers, Inc.
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ----------- ----------------------------------------------------------------------------------- -----------
<C> <S> <C>
10.28* *** Warrant to purchase 40,000 shares of Common Stock, dated November 23, 1994 issued
to Brenner Securities Corporation by Family Golf Centers, Inc.
10.29* *** Form of Representatives' Warrants.
10.30* *** TPT/FGC Purchase Agreement, dated as of September 28, 1995, between Family Golf
Centers, Inc., Dominic Chang, Krishnan Thampi, Ken Simonds and William Schickler
III.
10.31* *** Registration Rights Agreement, dated August 24, 1995, between Thomas Matthews, J.L.
Matthews, Jr. and Family Golf Centers, Inc.
10.32**** Purchase Contract dated September 28, 1995, between Upper Hembree Partners, L.P.,
each of the general partners of Upper Hembree Partners, L.P. and Alpharetta Family
Golf Centers, Inc., a wholly owned subsidiary of Family Golf Inc.
10.33**** Escrow Agreement, dated September 28, 1995, between Family Golf Centers, Inc.,
Upper Hembree Partners, L.P. and Continental Stock Transfer & Trust Company.
10.34**** Stock Option Agreement, dated September 28, 1995, between Family Golf Centers, Inc.
and Upper Hembree Partners, L.P.
10.35**** Registration Rights Agreement, dated September 28, 1995, between Family Golf
Centers, Inc. and Upper Hembree Partners, L.P.
10.36**** Form of Promissory Note, dated September 28, 1995, in the principal amount of
$35,000 made by Upper Hembree Partners, L.P. in favor of Family Golf Centers, Inc.
10.37**** Assignment & Assumption Agreement, dated October 16, 1995, between Upper Hembree
Partners, L.P., Alpharetta Family Golf Centers, Inc. and Bank South.
10.38**** Renewal Promissory Note, dated November 14, 1994, in the principal amount of
$1,860,770.07 made by Upper Hembree Partners, L.P. in favor of Bank South, N.A.
10.39**** Form of Guaranty Agreement from Dominic Chang in favor of Bank South.
10.40**** Form of Guaranty Agreement from Family Golf Centers, Inc. in favor of Bank South.
10.41* *** Promissory Note, dated November 8, 1995, in the principal amount of $4,000,000 made
by Family Golf Centers, Inc. in favor of Dominic Chang, as the representative of
the shareholders of The Practice Tee, Inc.
10.42* *** Purchase Agreement, dated as of November 8, 1995, by and between Golf Masters
Limited Partnership and Air Dome Limited Partnership, as Sellers, each of the
general partners of Sellers and Valley View Family Golf Centers, Inc., a wholly
owned subsidiary of Family Golf Centers, Inc.
10.43* *** Escrow Agreement, dated as of November 8, 1995, among Family Golf Centers, Inc.,
Golf Masters Limited Partnership, Air Dome Limited Partnership and Continental
Stock Transfer & Trust Company.
10.44* *** Registration Rights Agreement, dated as of November 8, 1995, between Golf Masters
Limited Partnership, Air Dome Limited Partnership and Family Golf Centers, Inc.
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ----------- ----------------------------------------------------------------------------------- -----------
<C> <S> <C>
10.45* *** Stock Option Agreement, dated as of November 8, 1995, among Family Golf Centers,
Inc., Golf Masters Limited Partnership and Air Dome Limited Partnership.
10.46* *** Note, dated September 1992, in the principal amount of $350,000 made by Golf
Masters Limited Partnership in favor of JSN Holdings and related Mortgage Deed.
10.47+++ Deed of Assignment, dated February 27, 1996, between Owl's Creek Golf Center, Inc.,
Virginia Beach Family Golf Centers, Inc. and the City of Virginia Beach, Virginia.
10.48+++ Deed of Assignment, dated March 1, 1996, between Owl's Creek Golf Center, Inc. and
Virginia Beach Family Golf Centers, Inc.
10.49+++ Purchase Agreement, dated March 6, 1996, between Owl's Creek Golf Center, Inc. and
Virginia Beach Family Golf Centers, Inc., a wholly owned subsidiary of Family Golf
Centers, Inc
10.50+++ Escrow Agreement, dated March 6, 1996, among Family Golf Centers, Inc., Owl's Creek
Golf Center, Inc. and Continental Stock Transfer & Trust Company.
10.51+++ Registration Rights Agreement, dated March 6, 1996, between Family Golf Centers,
Inc. and certain stockholders of Owl's Creek Golf Center, Inc. listed on Schedule 1
thereto.
10.52+++ Deed for Improvements, dated as of March 1, 1996, between Owl's Creek Golf Center,
Inc. and Virginia Beach Family Golf Centers, Inc.
10.53+++ Bill of Sale, dated as of March 6, 1996, between Owl's Creek Golf Center, Inc. and
Virginia Beach Family Golf Centers, Inc.
10.54+++ Purchase Agreement, dated March 7, 1996, between Flemington Equities VII and
Flemington Family Golf Centers, Inc., a wholly owned subsidiary of Family Golf
Centers, Inc.
10.55+++ Guaranty, dated March 7, 1996, by Family Golf Centers, Inc., in favor of Flemington
Equities VII.
10.56+++ Purchase Agreement, dated March 7, 1996, between Flemington Golf and Sports Center,
LLC and Flemington Family Golf Centers, Inc., a wholly-owned subsidiary of Family
Golf Centers, Inc.
10.57+++ Mortgage Note, dated March 7, 1996, in the principal amount of $1,700,000 made by
Flemington Family Golf Centers, Inc. in favor of Flemington Equities VII and
related Mortgage Deed.
10.58+++ Cash Escrow Agreement, dated March 7, 1996, among Flemington Family Golf Centers,
Inc., Flemington Golf and Sports Center, LLC and Continental Stock Transfer and
Trust Company.
10.59++++ Form of Warrants to purchase an aggregate of 70,000 shares of Common Stock, dated
as of March 7, 1996, issued to Monness, Crespi & Hardt & Co. by Family Golf
Centers, Inc.
10.60+++ Purchase Agreement, dated April 8, 1996, among 202 Golf Associates, Inc., Family
Golf Centers, Inc. and Yorktown Family Golf Centers, Inc., a wholly owned
subsidiary of Family Golf Centers, Inc.
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ----------- ----------------------------------------------------------------------------------- -----------
<C> <S> <C>
10.61+++ Escrow Agreement, dated April 8, 1996, among Family Golf Centers, Inc., 202 Golf
Associates, Inc., Yorktown Family Golf Centers, Inc. and Continental Stock Transfer
& Trust Company.
10.62+++ Registration Rights Agreement, dated April 8, 1996, between Family Golf Centers,
Inc. and 202 Golf Associates, Inc.
10.63+++ Assignment and Assumption Agreement, dated April 8, 1996, between 202 Golf
Associates, Inc. and Yorktown Family Golf Centers, Inc.
10.64+++ Bill of Sale, dated April 8, 1996, by 202 Golf Associates, Inc.
10.65+++ Indenture, dated April 8, 1996, between 202 Golf Associates, Inc. and Yorktown
Family Golf Centers, Inc.
10.66+ +++ Purchase Agreement, dated May 20, 1996, among Indian River Golf-O-Rama, Inc.,
Indian River Family Golf Centers, Inc. and Lenrich Associates, L.L.C.
10.67+ +++ Purchase Agreement, dated June 7, 1996, among Ruth Perillo, Lynn Perillo, Glen
Perillo and Oscar Ramirez, as sellers, and Tucson Family Golf Centers, Inc., a
wholly-owned subsidiary of Family Golf Centers, Inc.
10.68+ +++ Stock Purchase Agreement, dated June 7, 1996, among Joseph E. Wolf, Kenneth R.
Gibbons and Richard Johnson, as sellers, K.G. Golf, Inc. and Family Golf Centers,
Inc.
10.69+ +++ Assignment and Assumption of Lease, dated June 7, 1996, by and between Tree Court
Golf & Recreational Complex, Inc. and St. Louis Family Golf Centers, Inc., a wholly
owned subsidiary of Family Golf Centers, Inc.
10.70+ +++ Purchase Agreement, dated June 10, 1996, by and between W.A.G.N. Partners and West
Palm Beach Family Golf Centers, Inc., a wholly owned subsidiary of Family Golf
Centers, Inc.
10.71! Stock Purchase Agreement, dated as of July 5, 1996, among Michael J. Santin, Donald
G. Rumpf, Pin High Golf Center and Family Golf Centers, Inc.
10.72!! Stock Purchase Agreement, dated September 25, 1996, between Raymond R. Sears,
Ronald L. Sears, Henry Bachman, Privatization Plus, Inc. and Family Golf Centers,
Inc.
10.73!! Cash Escrow Agreement, dated September 25, 1996, between Raymond R. Sears, Ronald
L. Sears, Henry Bachman, Privatization Plus, Inc., Family Golf Centers, Inc. and
Continental Stock Transfer & Trust Company.
10.74!! Purchase Agreement, dated September 26, 1996, between Tri-Town Sports, Inc. and
Easton Family Golf Centers, Inc., a wholly owned subsidiary of Family Golf Centers,
Inc.
10.75!! Promissory Note, dated September 26, 1996, in the principal amount of $350,000 made
by Easton Family Golf Centers, Inc., a wholly owned subsidiary of Family Golf
Centers, Inc., in favor of Tri-Town Sports, Inc.
10.76!! Promissory Note, dated September 26, 1996, in the principal amount of $140,000 made
by Easton Family Golf Centers, Inc., a wholly owned subsidiary of Family Golf
Centers, Inc., in favor of Tri-Town Sports, Inc.
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ----------- ----------------------------------------------------------------------------------- -----------
<C> <S> <C>
10.77!! Promissory Note, dated September 26, 1996, in the principal amount of $122,500 made
by Easton Family Golf Centers, Inc., a wholly owned subsidiary of Family Golf
Centers, Inc., in favor of Tri-Town Sports, Inc.
10.78!! Promissory Note, dated September 26, 1996, in the principal amount of $87,500 made
by Easton Family Golf Centers, Inc., a wholly owned subsidiary of Family Golf
Centers, Inc., in favor of Tri-Town Sports, Inc.
10.79!! Guaranty of Promissory Notes made by Family Golf Centers, Inc. in favor of Tri-Town
Sports, Inc.
10.80!! Mortgage Note, dated September 24, 1996, in the principal amount of $350,000 made
by Easton Family Golf Centers, Inc. in favor of Tri-Town Sports, Inc. and related
Mortgage Deed.
10.81!! Mortgage Note, dated September 24, 1996, in the principal amount of $140,000 made
by Easton Family Golf Centers, Inc. in favor of Tri-Town Sports, Inc. and related
Mortgage Deed.
10.82!! Mortgage Note, dated September 24, 1996, in the principal amount of $122,500 made
by Easton Family Golf Centers, Inc. in favor of Tri-Town Sports, Inc. and related
Mortgage Deed.
10.83!! Mortgage Note, dated September 24, 1996, in the principal amount of $87,500 made by
Easton Family Golf Centers, Inc. in favor of Tri-Town Sports, Inc. and related
Mortgage Deed.
10.84!! Assignment and Assumption of License Agreement, dated September 30, 1996, between
Colbert-Ballard Golf Learning Centers, Inc. and C.B. Family Golf Centers, Inc., a
wholly owned subsidiary of Family Golf Centers, Inc.
10.85!! Promissory Note, dated September 30, 1996, in the principal amount of $446,720 made
by Colbert-Ballard Golf Learning Centers, Inc. in favor of C.B. Family Golf
Centers, Inc., a wholly owned subsidiary of Family Golf Centers, Inc.
10.86!! Guaranty of Promissory Note made by Harry J. Moorhouse and Dorothy Moorhouse in
favor of C.B. Family Golf Centers, Inc., a wholly owned subsidiary of Family Golf
Centers, Inc.
10.87!! Escrow Agreement, dated September 30, 1996, between Family Golf Centers, Inc.,
Colbert-Ballard Family Golf Centers, Inc. and Continental Stock Transfer & Trust
Company.
10.88!! Purchase Agreement, dated September 30, 1996, between KKL Golf Partnership and
Carolina Springs Family Golf Centers, Inc., a wholly owned subsidiary of Family
Golf Centers, Inc.
10.89!! Cash Escrow Agreement, dated September 30, 1996, between KKL Golf Partnership,
Carolina Springs Family Golf Centers, Inc. and Continental Stock Transfer & Trust
Company.
10.90!! Stock Option Agreement, dated September 30, 1996, between Family Golf Centers, Inc.
and KKL Golf Partnership.
10.91!! Purchase Agreement, dated September 30, 1996, between USA Golf Centers, Ltd. #2 and
Westminster Family Golf Centers, Inc., a wholly owned subsidiary of Family Golf
Centers, Inc.
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ----------- ----------------------------------------------------------------------------------- -----------
<C> <S> <C>
10.92!! Cash Escrow Agreement, dated September 30, 1996, between USA Golf Centers, Ltd. #2,
Westminster Family Golf Centers, Inc. and Continental Stock Transfer & Trust
Company.
10.93!! Ground Lease, dated August 1, 1992, as amended by Ground Lease Extension and
Modification, dated November 20, 1995, between SCI California Funeral Services,
Inc. (successor in interest to Westminster Memorial Park) and USA Golf Centers,
Ltd. #2.
10.94!! Purchase Agreement, dated August 29, 1996, between Swingmaster Golf at Centennial,
L.P. and Denver Family Golf Centers, Inc., a wholly owned subsidiary of Family Golf
Centers, Inc.
10.95!! Registration Rights Agreement, dated August 29, 1996, between Swingmaster Golf at
Centennial, L.P. and Family Golf Centers, Inc.
10.96!! Registration Rights Agreement, dated August 29, 1996, between Joseph J. Graham and
Family Golf Centers, Inc.
10.97!! Registration Rights Agreement, dated August 29, 1996, between Andrew Price and
Family Golf Centers, Inc.
10.98!! Escrow Agreement, dated August 29, 1996, between Family Golf Centers, Inc., Denver
Family Golf Centers, Inc., Swingmaster Golf at Centennial, L.P., Joseph J. Graham,
Andrew Price and Continental Stock Transfer & Trust Company.
10.99!! Ground Lease and Agreement, dated November 1, 1994, as amended by First Amendment
to Ground Lease and Agreement dated March 9, 1995 and Second Amendment to Ground
Lease Agreement, dated June 8, 1995, by and between the Arapahoe County Public
Airport Authority and Pinecrest Enterprises, Ltd. (predecessor-in-interest to
Swingmaster Golf at Centennial, L.P.).
10.100!! Option to Lease Agreement, dated August 8, 1996, by and between the Arapahoe County
Public Airport Authority and Swingmaster Golf at Centennial, L.P.
10.101!!! Purchase Agreement, dated October 21, 1996, between Mt. Olive Golf Center, Inc. and
Mt. Olive Family Golf Centers, Inc., a wholly owned subsidiary of Family Golf
Centers, Inc.
10.102!!! Stock Option Agreement, dated October 21, 1996, between Family Golf Centers, Inc.
and Mt. Olive Golf Center, Inc.
10.103!!! Purchase Agreement, dated October 21, 1996, between Margate Partners Limited
Partnership and Margate Family Golf Centers, Inc., a wholly owned subsidiary of
Family Golf Centers, Inc.
10.104!!!! Stock Purchase Agreement, dated October 30, 1996, between Stacey Hart, The Seven
Iron, Inc. and Family Golf Centers, Inc.
10.105!!!! Escrow Agreement, dated October 30, 1996, between Stacey Hart, Family Golf Centers,
Inc. and Continental Stock Transfer & Trust Company.
10.106! !!! Credit Agreement, dated as of June 30, 1997 between The Chase Manhattan Bank and
Family Golf Centers, Inc.
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ----------- ----------------------------------------------------------------------------------- -----------
<C> <S> <C>
10.107! !!! Agreement and Plan of Merger, dated as of July 25, 1997, among Family Golf Centers,
Inc., Lake Grove Family Golf Centers, Inc. and Leisure Complexes, Inc.
10.108! !!! Escrow Agreement, dated as of July 25, 1997, among Family Golf Centers, Inc.,
Leisure Complexes, Inc. and Continental Stock Transfer and Trust Company.
10.109! !!! Registration Rights Agreement, dated as of July 25, 1997, by and among Family Golf
Centers, Inc., Arthur J. Calace, Jr., as stockholder representative and the Selling
Stockholders.
10.110! !!! Asset Purchase Agreement, dated as of June 1, 1997, by and between Three Grove
Partners and Lake Grove Family Golf Centers, Inc.
10.111! !!! Ground Lease Agreement, dated as of June 1, 1997, by and between Three Grove
Partners and Lake Grove Family Golf Centers, Inc.
10.112! !!! Escrow Agreement, dated as of July 25, 1997, by and among Three Grove Partners,
Family Golf Centers, Inc. and Continental Stock Transfer and Trust Company.
10.113! !!! Asset Purchase Agreement, dated as of July 29, 1997, by and between Active Sports
Marketing, LLC and Golden Spikes, Inc., a wholly-owned subsidiary of Family Golf
Centers, Inc.
10.114! !!! Indemnity Escrow Agreement, dated as of July 29, 1997, among Active Sports
Marketing, LLC, Family Golf Centers, Inc. and Continental Stock Transfer and Trust
Company.
10.115! !!! Escrow Agreement, dated as of July 29, 1997, among Active Sports Marketing LLC,
Family Golf Centers, Inc. and Continental Stock Transfer and Trust Company.
10.116! !!! Registration Rights Agreement, dated as of July 29, 1997, by and between Family
Golf Centers, Inc. and Active Sports Marketing, LLC.
10.117! !!! Purchase Agreement, dated as of June 30, 1997, by and between Palm Lake Partners,
Ltd. and Palm Family Golf Centers, Inc.
10.118! !!! Cash Escrow Agreement, dated as of June 10, 1997, by and between Palm Lake
Partners, Ltd., Palm Family Golf Centers Inc. and Continental Stock Transfer &
Trust Company.
10.119! !!! Assignment and Assumption Agreement, dated as of June 30, 1997, between Carver Golf
Enterprises, Inc., Carver Family Golf Centers, Inc. and Family Golf Centers, Inc.
10.120! !!! Escrow Agreement, dated as of June 30, 1997, among Carver Family Golf Centers,
Inc., Family Golf Centers, Inc., Carver Golf Enterprises, Inc. and Continental
Stock Transfer and Trust Company.
10.121! !!! Registration Rights Agreement, dated as of June 30, 1997, by and between Family
Golf Centers, Inc. and Carver Golf Enterprises, Inc.
10.122! !!! Assignment and Assumption of Lease, dated as of June 10, 1997, by and among Divot
City, D.C. Management, Inc. and Milpitas Family Golf Centers, Inc.
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ----------- ----------------------------------------------------------------------------------- -----------
<C> <S> <C>
10.123! !!! Cash Escrow Agreement, dated as of June 26, 1997, by and among Divot City, Milpitas
Family Golf Centers, Inc. and Santa Clara Land Title Company.
10.124! !!! Agreement and Plan of Merger, dated as of June 5, 1997, among Family Golf Centers,
Inc., Philadelphia Family Golf Centers, Inc., Finley Enterprises, Ltd. and each of
the Stockholders of Finley Enterprises, Ltd.
10.125! !!! Escrow Agreement, dated as of June 5, 1997, among Family Golf Centers, Inc., Robert
Finlay, Daniel Pinciotti and Continental Stock Transfer and Trust Company.
10.126! !!! Asset Purchase Agreement, dated as of June 5, 1997, by and between Southampton
Family Golf Center, Inc. and Philadelphia Family Golf Centers, Inc.
10.127! !!! Purchase Agreement and Escrow Instruction dated as of March 21, 1997, by and
between LaSalle National Bank, as trustee and Tempe Family Golf Centers, Inc.
10.128! !!! Assignment and Assumption of Lease, dated as of April 23, 1997, by and between
American Golf Corporation and San Bruno Family Golf Centers, Inc.
10.129! !!! Guaranty, made by Family Golf Centers, Inc., in favor of American Golf Corporation.
10.130! !!! Purchase and Sale Agreement, dated as of February 17, 1997, between Clifford E.
Clay, as trustee and Englewood Family Golf Centers, Inc.
10.131! !!! Stock Purchase Agreement, dated as of April 2, 1997, by and between Margo Massahos,
Green Oak Golf Practice Center, Inc. and Family Golf Centers, Inc.
10.132! !!! Cash Escrow Agreement, dated as of April 2, 1997, by and among Margo Massahos,
Family Golf Centers, Inc. and Continental Stock Transfer and Trust Company.
10.133! !!! Assignment and Assumption of Concession Licenses, dated as of March 21, 1997, by
and between American Golf Corporation, Randall's Island Family Golf Centers, Inc.
and Darlington Family Golf Centers, Inc.
10.134! !!! Guaranty, made by Family Golf Centers, Inc. in favor of American Golf Corporation.
10.135! !!! Asset Purchase Agreement, dated as of March 12, 1997, by and between Carolina
Capital Ventures, Ltd. and Raleigh Family Golf Centers, Inc.
10.136! !!! Ground Lease Agreement, dated as of March 12, 1997, by and between Carolina Capital
Ventures, Ltd. and Raleigh Family Golf Centers, Inc.
10.137! !!! Guaranty, made by Family Golf Centers, Inc. in favor of Carolina Capital Ventures,
Ltd.
10.138! !!! Cash Escrow Agreement, dated as of March 12, 1997, by and among Carolina Capital
Ventures, Ltd., Raleigh Family Golf Centers, Inc. and Continental Stock Transfer
and Trust Company.
10.139! !!! Asset Purchase Agreement, dated as of February 26, 1997, by and between College
Golf Center Partnership and Palm Desert Family Golf Centers, Inc.
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ----------- ----------------------------------------------------------------------------------- -----------
<C> <S> <C>
10.140! !!! Suboccupancy Agreement, dated as of February 26, 1997, by and between College Golf
Center Partnership and Palm Desert Family Golf Centers, Inc.
10.141# Form of 5 3/4% Convertible Promissory Note due 2004 of Family Golf Centers, Inc.
10.142# Registration Rights Agreement, dated October 16, 1997, among certain investors and
Family Golf Centers, Inc.
10.143# Registration Rights Agreement, dated October 16, 1987, between The Bank of New York
and Family Golf Centers, Inc.
10.144## Family Golf Centers, Inc. 1997 Stock Incentive Plan
</TABLE>
<TABLE>
<C> <S> <C>
10.145 Employment Agreement, dated as of March 16, 1998, between Family
Golf Centers, Inc. and Jeffrey C. Key.
11.1 Statement re: Computation of Earnings Per Share.
21.1 Subsidiaries of Family Golf Centers, Inc.
23.1 Consent of Richard A. Eisner & Company, LLP.
27.1 Financial Data Schedule--Year-ended 1997.
27.2 Financial Data Schedule--Restated for the Years ended December 31,
1995 and December 31, 1996, and for the Quarters ended March 31,
1996, June 30, 1996 and September 30, 1996.
27.3 Financial Data Schedule--Restated for the Quarters ended March 31,
1997, June 30, 1997 and September 30, 1997.
</TABLE>
- ------------------------
* Incorporated by reference to the Company's Registration Statement on
Form SB-2 dated September 12, 1994 (Registration No. 33-83910)
** Incorporated by reference to the Company's Pre-Effective Amendment No.
1 to the Registration Statement on Form SB-2 filed October 26, 1994
(Registration No. 33-83910)
*** Incorporated by reference to the Company's Registration Statement on
Form SB-2 dated November 10, 1994 (Registration No. 33-83910)
**** Incorporated by reference to the Company's Current Report on Form 8-K,
dated October 11, 1995.
***** Incorporated by reference to the Company's Registration Statement on
Form SB-2 dated October 3, 1995 (Registration No. 33-97686).
****** Incorporated by reference to the Pre-Effective Amendment No. 1 to the
Company's Registration Statement on Form SB-2 dated November 9, 1995
(Registration No. 33-97686).
+ Incorporated by reference to the Pre-Effective Amendment No. 2 to the
Company's Current Report on Form 8-K/A (Amendment No. 1), dated June
6, 1995.
++ Incorporated by reference to the Pre-Effective Amendment No. 2 to the
Company's Registration Statement on Form SB-2 dated November 29, 1995
(Registration No. 33-97686).
+++ Incorporated by reference to the Company's Current Report on Form 8-K/A
(Amendment No. 1), dated May 20, 1996 amending Reports on Form 8-K dated
March 6, 1996 and April 8, 1996.
46
<PAGE>
++++ Incorporated by reference to the Company's Registration Statement on
Form SB-2 dated May 24, 1996. (Registration No. 333-4541).
+++++ Incorporated by reference to the Company's Current Report on Form 8-K,
dated June 4, 1996.
++++++ Incorporated by reference to Amendment No. 1 to the Company's
Registration Statement dated June 12, 1996.
! Incorporated by reference to the Company's Current Report on Form
8-K, dated July 25, 1996.
!! Incorporated by reference to the Company's Current Report on Form
8-K, dated October 9, 1996.
!!! Incorporated by reference to the Company's Current Report on Form
8-K, dated October 30, 1996.
!!!! Incorporated by reference to the Company's Current Report on Form
8-K, dated November 13, 1996.
!!!!! Incorporated by reference to the Company's Current Report on Form
8-K, dated June 30, 1997.
!!!!!! Incorporated by reference to the Company's Current Report on Form
8-K, dated July 25, 1997.
# Incorporated by reference to the Company's Registration Statement on
Form S-3 dated February 6, 1998 (Registration No. 333-44165).
## Incorporated by reference to the Company's Proxy Statement on Schedule
14A dated May 20, 1997.
(b) REPORTS ON FORM 8-K.
The Company's Current Report on Form 8-K, dated June 30, 1997, reporting an
Item 5 event.
The Company's Current Report on Form 8-K, dated July 25, 1997, reporting an
Item 2 event.
The Company's Current Report on Form 8-K, dated October 6, 1997, reporting
an Item 5 event.
The Company's Current Report on Form 8-K, dated October 16, 1997, reporting
an Item 5 event.
The Company's Current Report on Form 8-K, dated November 14, 1997, reporting
an Item 5 event.
The Company's Current Report on Form 8-K, dated January 30, 1998, reporting
an Item 2 event.
47
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FAMILY GOLF CENTERS, INC.
By: /s/ DOMINIC CHANG
-----------------------------------------
Name: Dominic Chang
TITLE: Chairman of the Board and Chief
Dated: March 31, 1998 Executive Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
NAME TITLE DATE
- ------------------------------ --------------------------- -------------------
Chairman of the Board and
/s/ DOMINIC CHANG Chief Executive Officer
- ------------------------------ (Principal Executive March 31, 1998
Dominic Chang Officer)
President, Chief Operating
/s/ KRISHNAN P. THAMPI Officer, Assistant
- ------------------------------ Secretary, Treasurer and March 31, 1998
Krishnan P. Thampi Director
/s/ JAMES GANLEY Director
- ------------------------------ March 31, 1998
James Ganley
/s/ JIMMY C.M. HSU Director
- ------------------------------ March 31, 1998
Jimmy C.m. Hsu
/s/ YUPIN WANG Director
- ------------------------------ March 31, 1998
Yupin Wang
/s/ JEFFREY C. KEY Chief Financial Officer
- ------------------------------ (Principal Financial March 31, 1998
Jeffrey C. Key Officer)
48
<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent auditors........................................................................... F-1
Consolidated Balance Sheets as of December 31, 1997 and 1996............................................. F-2
Consolidated Statements of Income for the Years Ended December 31, 1997, 1996 and 1995................... F-3
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 1997, 1996
and 1995............................................................................................... F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996, and 1995.............. F-5
Notes to financial statements............................................................................ F-6
</TABLE>
49
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Family Golf Centers, Inc.
Melville, New York
We have audited the accompanying consolidated balance sheets of Family Golf
Centers, Inc. and subsidiaries as at December 31, 1997 and 1996 and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly, in
all material respects, the consolidated financial position of Family Golf
Centers, Inc. and subsidiaries at December 31, 1997 and 1996 and the
consolidated results of their operations and their consolidated cash flows for
each of the years in the three-year period ended December 31, 1997 in conformity
with generally accepted accounting principles.
Richard A. Eisner & Company, LLP
New York, New York
March 26, 1998
F-1
<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
<S> <C> <C>
1997 1996
-------------- --------------
ASSETS
Current assets:
Cash and cash equivalents...................................................... $ 6,002,000 $ 4,556,000
Short-term investments......................................................... 55,846,000 33,838,000
Inventories.................................................................... 12,688,000 6,258,000
Prepaid expenses and other current assets...................................... 8,744,000 3,642,000
Prepaid income taxes........................................................... 600,000
-------------- --------------
Total current assets....................................................... 83,280,000 48,894,000
Property, plant and equipment (net of accumulated depreciation of $6,160,000 and
$2,823,000 for 1997 and 1996, respectively).................................... 208,884,000 103,889,000
Loan acquisition costs (net of accumulated amortization of $243,000 and $61,000
for 1997 and 1996, respectively)............................................... 4,814,000 185,000
Other assets..................................................................... 7,725,000 2,646,000
Excess of cost over fair value of assets acquired (net of accumulated
amortization of $451,000 and $108,000 for 1997 and 1996, respectively)......... 20,804,000 2,679,000
-------------- --------------
$ 325,507,000 $ 158,293,000
-------------- --------------
-------------- --------------
LIABILITIES
Current liabilities:
Accounts payable, accrued expenses and other current liabilities............... $ 7,596,000 $ 3,659,000
Income taxes payable........................................................... 2,626,000
Short-term loan payable--bank.................................................. 5,000,000
Current portion of long-term obligations....................................... 7,164,000 3,560,000
-------------- --------------
Total current liabilities.................................................. 17,386,000 12,219,000
Convertible subordinated notes................................................... 115,000,000
Long-term obligations (less current portion)..................................... 19,655,000 8,496,000
Deferred rent.................................................................... 650,000 233,000
Deferred tax liability........................................................... 4,196,000 254,000
Other liabilities................................................................ 208,000 147,000
-------------- --------------
Total liabilities.......................................................... 157,095,000 21,349,000
-------------- --------------
Commitments, contingencies and other matters
STOCKHOLDERS' EQUITY
Preferred stock--authorized 1,000,000 shares, none outstanding
Common stock--authorized 50,000,000 shares, $.01 par value; 12,898,000 and
11,850,000 shares outstanding at December 31, 1997 and 1996, respectively...... 129,000 118,000
Additional paid-in capital....................................................... 153,640,000 131,707,000
Retained earnings................................................................ 14,690,000 5,166,000
Treasury shares.................................................................. (47,000) (47,000)
-------------- --------------
Total stockholders' equity................................................. 168,412,000 136,944,000
-------------- --------------
$ 325,507,000 $ 158,293,000
-------------- --------------
-------------- --------------
</TABLE>
See notes to consolidated financial statements
F-2
<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
<S> <C> <C> <C>
1997 1996 1995
------------- ------------- ------------
Operating revenues................................................... $ 49,108,000 $ 21,368,000 $ 9,795,000
Merchandise sales.................................................... 15,717,000 6,536,000 2,637,000
------------- ------------- ------------
Total revenues................................................. 64,825,000 27,904,000 12,432,000
------------- ------------- ------------
Operating expenses................................................... 31,563,000 13,268,000 6,614,000
Cost of merchandise sold............................................. 10,467,000 4,458,000 1,779,000
Selling, general and administrative expenses......................... 5,132,000 3,580,000 1,242,000
------------- ------------- ------------
Total expenses................................................. 47,162,000 21,306,000 9,635,000
------------- ------------- ------------
Operating income..................................................... 17,663,000 6,598,000 2,797,000
Interest expense..................................................... (2,261,000) (370,000) (939,000)
Other income--net (includes interest income of $1,570,000 and
$1,755,000 in 1997 and 1996, respectively)......................... 1,659,000 2,172,000 66,000
------------- ------------- ------------
Income before income taxes and extraordinary items................... 17,061,000 8,400,000 1,924,000
Income tax expense................................................... 6,537,000 3,192,000 669,000
------------- ------------- ------------
Income before extraordinary item..................................... 10,524,000 5,208,000 1,255,000
Extraordinary item--early extinguishment of debt (net of tax benefit
of $121,000)....................................................... (181,000)
------------- ------------- ------------
Net income........................................................... $ 10,524,000 $ 5,208,000 $ 1,074,000
------------- ------------- ------------
------------- ------------- ------------
Basic earnings per share:
Income before extraordinary item................................... $ .86 $ .52 $ .25
Extraordinary item................................................. -- -- (.04)
------------- ------------- ------------
Net income......................................................... .86 .52 .21
------------- ------------- ------------
------------- ------------- ------------
Diluted earnings per share:
Income before extraordinary item................................... .84 .51 .24
Extraordinary item................................................. -- -- (.04)
------------- ------------- ------------
Net income......................................................... $ .84 $ .51 $ .20
------------- ------------- ------------
------------- ------------- ------------
Weighted average shares outstanding-- Basic 12,245,000 10,002,000 5,117,000
Effect of dilutive securities........................................ 287,000 288,000 154,000
------------- ------------- ------------
Weighted average shares outstanding-- Diluted........................ 12,532,000 10,290,000 5,271,000
------------- ------------- ------------
------------- ------------- ------------
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NUMBER OF ADDITIONAL RETAINED
SHARES PAID-IN TREASURY EARNINGS
ISSUED AMOUNT CAPITAL STOCK (DEFICIT) TOTAL
----------- --------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance--December 31, 1994.......................... 4,830,000 $ 48,000 $ 7,302,000 $ $ (116,000) 7,234,000
Issuance of stock................................... 284,300 3,000 2,732,000 2,735,000
Net proceeds from public offering................... 3,135,000 31,000 43,702,000 43,733,000
Public offering expenses............................ (1,317,000) (1,317,000)
Exercise of warrants................................ 64,950 1,000 307,000 308,000
Exercise of options................................. 3,795 13,000 13,000
Preferential distribution to stockholders of The
Practice Tee, Inc................................. (4,392,000) (4,392,000)
Net income for the year............................. 1,074,000 1,074,000
----------- --------- ----------- ----------- ---------- -----------
Balance--December 31, 1995.......................... 8,318,045 83,000 48,347,000 958,000 49,388,000
Issuance of stock................................... 342,900 3,000 6,512,000 6,515,000
Issuance of warrants................................ 69,000 69,000
Net proceeds from public offering................... 3,000,000 30,000 75,300,000 75,330,000
Public offering expenses............................ (1,064,000) (1,064,000)
Exercise of warrants................................ 150,000 2,000 1,830,000 1,832,000
Exercise of employee options........................ 38,757 213,000 213,000
Preferential distribution to stockholders of The
Practice Tee, Inc................................. (1,000,000) (1,000,000)
Treasury stock received in exchange for note
receivables (2,700 shares)........................ $ (47,000) (47,000)
Income tax benefit upon exercise of stock options... 500,000 500,000
Net income for the year............................. 5,208,000 5,208,000
----------- --------- ----------- ----------- ---------- -----------
Balance--December 31, 1996.......................... 11,849,702 118,000 131,707,000 (47,000) 5,166,000 136,944,000
Issuance of stock and warrants...................... 888,532 9,000 18,690,000 18,699,000
Exercise of warrants................................ 2,216 127,000 127,000
Exercise of employee options........................ 58,159 1,000 482,000 483,000
Issuance of stock in connection with repayment of
debt.............................................. 89,176 1,000 2,029,000 2,030,000
Exercise of options issued in connection with
acquisitions...................................... 10,000 250,000 250,000
Preferential distribution to stockholders of The
Practice Tee, Inc................................. (1,000,000) (1,000,000)
Income tax benefit upon exercise of stock options... 355,000 355,000
Net income for the year............................. 10,524,000 10,524,000
----------- --------- ----------- ----------- ---------- -----------
Balance--December 31, 1997.......................... 12,897,785 $ 129,000 $153,640,000 $ (47,000) $14,690,000 $168,412,000
----------- --------- ----------- ----------- ---------- -----------
----------- --------- ----------- ----------- ---------- -----------
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................................ $10,524,000 $5,208,000 $1,074,000
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization......................................... 5,736,000 2,187,000 739,000
Deferred tax expense (benefit)........................................ 1,242,000 370,000 (51,000)
Issuance of warrants for consulting services.......................... 80,000 69,000
Extraordinary charge--early extinguishment of debt--loan acquisition
cost write-off...................................................... 302,000
Changes in:
Inventories......................................................... (6,430,000) (4,317,000) (1,478,000)
Prepaid expenses and other current assets........................... (6,595,000) (3,248,000) (778,000)
Prepaid income taxes................................................ 600,000
Other assets........................................................ (5,460,000) (1,211,000) (749,000)
Accounts payable, accrued expenses and other current liabilities.... 2,682,000 (491,000) 655,000
Deferred rent....................................................... 417,000 117,000 (71,000)
Other liabilities................................................... 61,000 (125,000) 119,000
Income taxes payable................................................ 2,626,000 (669,000) 569,000
---------- ---------- ----------
Net cash provided by (used in) operating activities............... 5,483,000 (2,110,000) 331,000
---------- ---------- ----------
Cash flows from investing activities:
Acquisitions of property and equipment.................................... (66,583,000) (58,840,000) (15,213,000)
Increase in security deposits............................................. (230,000)
Acquisition of goodwill................................................... (15,768,000) (2,117,000) (259,000)
Net purchase of short-term investments.................................... (22,008,000) (33,838,000)
---------- ---------- ----------
Net cash used in investing activities............................. (104,359,000) (95,025,000) (15,472,000)
---------- ---------- ----------
Cash flows from financing activities:
Loan acquisition costs.................................................... (361,000) (246,000)
Decrease in due to officers............................................... (455,000)
Proceeds from convertible subordinated notes net of expenses.............. 110,550,000
Proceeds from loans--bank and others...................................... 29,895,000 6,843,000 17,916,000
Repayment of loans--bank and others....................................... (40,542,000) (4,584,000) (19,594,000)
Net proceeds from issuance of common stock................................ 74,266,000 42,416,000
Preferential distribution to stockholders of The Practice Tee, Inc........ (4,392,000)
Proceeds from the exercise of warrants and options........................ 780,000 2,045,000 321,000
---------- ---------- ----------
Net cash provided by financing activities......................... 100,322,000 78,570,000 35,966,000
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents........................ 1,446,000 (18,565,000) 20,825,000
Cash and cash equivalents--beginning of period.............................. 4,556,000 23,121,000 2,296,000
---------- ---------- ----------
Cash and cash equivalents--end of period.................................... $6,002,000 $4,556,000 $23,121,000
---------- ---------- ----------
---------- ---------- ----------
Supplemental and noncash disclosures:
Acquisition of property in exchange for common stock and warrants......... $18,699,000 $6,515,000 $2,734,000
Acquisition of property subject to loans payable.......................... $20,645,000 $6,602,000
Issuance of stock in connection with repayment of debt.................... $2,030,000
Acquisition of treasury stock in exchange for payment of a note
receivable.............................................................. $ 47,000
Acquisition of property in exchange for loans from selling stockholder.... $2,053,000 $3,102,000
Income tax benefit for exercise of stock options.......................... $ 355,000 $ 500,000
Accrued for preferential distribution to stockholders of The Practice Tee,
Inc..................................................................... $1,000,000 $1,000,000
Property additions accrued but not paid................................... $ 254,000 $ 89,000 $ 669,000
Interest paid............................................................. $1,695,000 $ 958,000 $1,296,000
Taxes paid................................................................ $6,774,000 $3,609,000 $ 53,000
</TABLE>
See notes to consolidatd financial statements
F-5
<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE A--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[1] THE COMPANY:
Family Golf Centers, Inc. operates golf centers designed to provide a wide
variety of practice opportunities, including facilities for driving, chipping,
putting, pitching and sand play. In addition, the Company's golf centers
typically offer golf lessons instructed by PGA-certified golf professionals,
full-line pro shops and other amenities to encourage family participation. As of
December 31, 1997, the Company owned, leased or managed 60 golf facilities
comprised of 46 golf centers and 14 combination golf center and golf course
facilities located in 17 states. Of the golf centers, seven are currently
operated under the name "Golden Bear Golf Centers" pursuant to a nonexclusive
license agreement, expiring August 2002, with Golden Bear Golf Centers, Inc.
("GBGC"). The license agreement is terminable by GBGC under certain conditions.
Of the 14 combination golf center and golf course facilities, 12 include par-3
or 9-hole golf courses, generally designed to facilitate the practice of golf,
and two include regulation 18-hole golf courses.
In July 1997, the Company acquired Leisure Complexes, Inc. ("LCI"), the
operator of a family sports and entertainment supercenter which includes a golf
center, an 18 hole executive golf course, an ice rink, additional family
amusements and an 18,000 square foot conference center. Also in 1997, the
Company acquired an ice rink facility and another indoor family sports and
entertainment supercenter which includes two ice rinks, two soccer fields and
additional family amusements.
[2] PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of Family Golf
Centers, Inc. and its wholly owned subsidiaries (collectively the "Company").
All significant intercompany transactions and accounts have been eliminated.
[3] CASH EQUIVALENTS:
The Company considers all highly liquid investments with a maturity of three
months or less to be cash equivalents.
[4] SHORT-TERM INVESTMENTS:
Short-term investments are classified as "held to maturity" and are reported
at cost plus accrued income which approximates market value.
[5] INVENTORIES:
Inventory consists of merchandise for sale in the pro shop at each facility
and food and beverage in the restaurants and are valued at the lower of cost on
a first-in, first-out basis or market.
[6] PROPERTY, EQUIPMENT AND OTHER LONG LIVED ASSETS:
Property, equipment and other long lived assets are stated at cost.
Depreciation and amortization of the respective assets is computed using the
straight-line method over their estimated lives or the term of the lease,
including expected renewal options, if shorter. Leasehold improvements are
amortized using the straight-line method over the remaining life of the lease,
including expected renewal options.
The carrying amount of all long lived assets is evaluated periodically to
determine if adjustment to the useful life or to the unamortized balance is
warranted. Such evaluation is based principally on the expected
F-6
<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
NOTE A--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
utilization of the long lived assets and the projected undiscounted cash flows
of the operations in which the long lived assets are used.
Capitalized costs of long term improvements to existing sites, newly
acquired sites and newly constructed sites, includes certain internally
generated costs.
[7] PRE-OPENING COSTS:
Costs associated with the opening of a new location are deferred and
amortized over one year following the opening of a site. Pre-opening costs
consists of primarily employee recruitment and training costs as well as
pre-opening marketing expenditures.
[8] LOAN ACQUISITION COSTS:
Loan acquisition costs incurred in connection with debt financing are
amortized over the life of the applicable loan weighted in accordance with the
amount of debt outstanding.
[9] INCOME TAXES:
The Company accounts for income taxes utilizing the asset and liability
approach requiring the recognition of deferred tax assets and liabilities for
the expected future tax consequences of temporary differences between the basis
of assets and liabilities for financial reporting purposes and tax purposes. The
Company files a consolidated federal income tax return.
[10] NET INCOME PER SHARE:
During 1997, the Company adopted Statement of Financial Accounting Standards
No. 128, "Earnings Per Share" ("SFAS No. 128"). SFAS No. 128 requires the
reporting of earnings per basic share and earnings per diluted share. Earnings
per basic share are calculated by dividing net income by the weighted average
outstanding shares during the period. Earnings per diluted share are calculated
by dividing net income by the basic shares and all dilutive securities including
options. Earnings per diluted share does not include the impact of potential
common shares which would be antidilutive based on market prices.
[11] USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
[12] CONCENTRATION OF CREDIT RISK:
Financial instruments which potentially subject the Company to significant
concentrations of credit risk consist principally of cash equivalents and
short-term investments. The Company places its temporary cash investments in
short-term, investment grade, interest bearing securities and, by policy, limits
the amount of credit exposure in any one investment.
F-7
<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE A--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[13] STOCK BASED COMPENSATION:
During 1996, the Company implemented Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123").
The provisions of SFAS No. 123 allow companies to either expense the estimated
fair value of stock options or to continue to follow the intrinsic value method
set forth in APB Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25") but disclose the pro forma effects on net income (loss) had the fair
value of the options been expensed. The Company has elected to continue to apply
APB 25 in accounting for its stock option incentive plans.
[14] RECENTLY ISSUED ACCOUNTING STANDARDS:
In June 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 129, "Disclosure of Information about Capital
Structure", No. 130, "Reporting Comprehensive Income", and No. 131, "Disclosure
about Segments of an Enterprise and Related Information". The Company believes
that the above pronouncements will not have a significant effect on the
information presented in the financial statements.
[15] RECLASSIFICATIONS:
Certain items have been reclassified to conform with the current year
presentation.
NOTE B--ACQUISITION OF GOLF FACILITIES
In 1996, the Company acquired (i) golf recreational facilities, in
Flemington, New Jersey; Mohegan Lake, New York; Fairfield, Ohio; Tucson,
Arizona; Easton, Massachusetts; Flanders, New Jersey; Margate, Florida;
Maineville, Ohio; Milwaukee, Wisconsin; (ii) two combination golf center and
9-hole golf courses in Mesa, Arizona and Virginia Beach, Virginia; (iii) a golf
recreational facility on which there is a 27-hole golf course in Fountain Inn,
South Carolina; and (iv) a par-3 golf course in West Palm Beach, Florida. The
Company also acquired in 1996, leasehold interests and the related existing golf
recreational facilities in Indian River, Virginia; San Jose, California; Denver,
Colorado; Westminster, California; Glen Burnie, Maryland; and St. Louis,
Missouri which includes a par-3 golf course. In 1996 the Company also acquired a
concession license with the City of Denver to manage an existing golf
recreational facility and restaurant.
In 1997, the Company acquired a golf recreational facility in Philadelphia,
Pennsylvania and a combination golf center and 18-hole golf course in Palm
Royale, California. The Company also acquired in 1997, leasehold interests and
(i) the related existing golf recreational facilities in Palm Desert,
California; Carver, Massachusetts; Raleigh, North Carolina; Arlington, Texas;
San Bruno, California; Milpitas, California; Warrenville, Illinois; Elk Grove,
California; Columbus, Ohio; Commack, New York; Lake Grove, New York; (ii) an
existing 18-hole golf courses in Olney, Maryland and Greenville, South Carolina;
and (iii) an existing golf recreational facility on which there is a 9-hole
executive course in Rio Salado, Arizona. The Company also acquired a concession
license with the City of New York to operate an existing golf recreational
facility in Randalls Island, New York and a management contract from Bergen
County, New Jersey to operate an existing golf-recreational facility.
In addition to the golf facilities, the Company acquired Leisure Complexes,
Inc., ("LCI") a New York corporation that owns and operates a new 170,000
square-foot family sports super center including a golf
F-8
<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
NOTE B--ACQUISITION OF GOLF FACILITIES (CONTINUED)
center, an 18-hole executive golf course, an ice rink, additional family
amusements such as video and virtual reality games and conference center, in
Lake Grove, New York; the Golf Academy of Hilton Head, Inc. which operates a
golf school and designs and manages corporate golf events located in Hilton
Head, South Carolina; Long Island Skating Academy located in Syosset, New York;
a family sports and entertainment supercenter with two ice rinks, two-soccer
fields and additional family amusements located in Cincinnati, Ohio; and a golf
club manufacturer located in Palm Desert, California.
LCI also owned and operated seven stand alone bowling centers, six of which
were sold shortly thereafter by the company at its cost.
These acquisitions were accounted for using the purchase method of
accounting. The purchase prices paid for the various facilities consisted of
cash, common stock of the Company, notes or assumption of liabilities or a
combination thereof.
<TABLE>
<CAPTION>
FACILITIES ACQUIRED
YEAR ENDED DECEMBER 31,
----------------------------
<S> <C> <C>
1997 1996
------------- -------------
Property, plant, equipment and leasehold interests............. $ 54,761,000 $ 47,905,000
Other current assets........................................... 3,274,000 201,000
Excess of cost over fair value................................. 18,468,000 50,000
------------- -------------
Total assets................................................... 76,503,000 48,156,000
Assumption of mortgages payable................................ (20,645,000) (1,700,000)
Assumption of other liabilities................................ (7,688,000)
------------- -------------
Net assets acquired............................................ 48,170,000 46,456,000
------------- -------------
------------- -------------
Cash........................................................... 27,418,000 35,337,000
Fair value of common stock and warrants issued................. 18,699,000 6,363,000
Loans from selling stockholder................................. 2,053,000 3,102,000
Mortgage....................................................... 1,654,000
------------- -------------
$ 48,170,000 $ 46,456,000
------------- -------------
------------- -------------
</TABLE>
In November 1995, the Company acquired The Practice Tee, Inc. ("TPT"). TPT
operates a combination Golden Bear Golf Center and golf course facility in El
Segundo, California and a combination golf center and par-3 golf course facility
in Gilroy, California. The purchase price consisted of $4,000,000 and up to
$2,000,000 payable upon the achievement of certain operating targets.
The operating results of companies acquired are included in the Company's
results of operations from dates of acquisition.
F-9
<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
NOTE B--ACQUISITION OF GOLF FACILITIES (CONTINUED)
The following unaudited pro forma information assumes that the acquisitions
in 1997 had taken place at the beginning of 1996 and that the acquisitions in
1996 and 1995 had taken place at the beginning of 1995.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Total revenue......................... $79,992,000 $56,222,000 $25,855,000
Net income (loss)..................... 10,568,000 2,302,000 (490,000)
Net income (loss) per share--basic.... $.81 $.21 $(.09)
--diluted..... .79 .20 (.09)
</TABLE>
Subsequent to December 31, 1997 ("1998 Acquisitions") the Company acquired
Metrogolf Incorporated (Metro), the operator of eight golf facilities, through
the successful completion of a tender offer; Blue Eagle Golf Centers, Inc., the
operator of three golf facilities; an ice rink facility in Raleigh, North
Carolina; and a golf facility in Holbrook, Massachusetts. In addition, in March
1998, the Company signed a long-term lease to construct and operate an ice rink
and family entertainment center in New Rochelle, New York.
The aggregate purchase price of the 1998 Acquisitions was approximately
$43.1 million, consisting of cash, common stock of the Company and notes. The
purchase price included excess of cost over fair value of $10.7 million.
The following unaudited pro forma information for the year ended December
31, 1997 assumes that, in addition to the acquisitions in 1997 noted above, the
1998 Acquisitions had taken place at the beginning of 1997 and that the excess
of cost over the fair value of assets acquired is being amortized over 20 years.
<TABLE>
<S> <C>
Total revenue.................................................. $84,170,000
Net income..................................................... 6,441,000
Net income per share--basic.................................... $.49
--diluted.................................... .48
</TABLE>
Unaudited pro forma results do not include acquisitions which were not
material to the operations of the company.
In addition, the Company purchased land and in certain locations was awarded
municipal contracts, to construct and operate golf facilities in Norwalk,
California; Bronx, New York; Brooklyn, New York; Broward County, Florida;
Seattle, Washington and Denver, Colorado.
F-10
<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
NOTE C--SHORT-TERM INVESTMENTS
Short-term investments including accrued interest, were as follows:
<TABLE>
<CAPTION>
AT
COST PLUS
ACCRUED UNREALIZED
HELD TO MATURITY INTEREST FAIR VALUE GAIN
- --------------------------------------------------------------- --------------- ------------- -----------
<S> <C> <C> <C>
December 31, 1997:
Commercial paper and corporate bonds........................... $ 55,846,000 $ 55,846,000 --
--------------- ------------- -----------
--------------- ------------- -----------
December 31, 1996:
U.S. Treasury and agencies..................................... $ 33,838,000 $ 34,008,000 $ 170,000
--------------- ------------- -----------
--------------- ------------- -----------
</TABLE>
NOTE D--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
Golf driving range facilities................................ $ 118,608,000 $ 59,596,000
Leasehold interest and improvements.......................... 58,869,000 29,216,000
Machinery and equipment...................................... 13,114,000 3,718,000
Furniture and fixtures....................................... 5,061,000 2,291,000
Construction in progress..................................... 19,392,000 11,891,000
-------------- --------------
215,044,000 106,712,000
Accumulated depreciation and amortization.................... 6,160,000 2,823,000
-------------- --------------
$ 208,884,000 $ 103,889,000
-------------- --------------
-------------- --------------
</TABLE>
Net book value of the Company's property, plant and equipment pledged as
collateral for various loans aggregated $41,406,000 at December 31, 1997.
Interest of $942,000 and $778,000 has been capitalized during the years ended
December 31, 1997 and 1996, respectively, which amounts are included in
property, plant and equipment. Included in property, plant and equipment at
December 31, 1997 is $2,107,000 of accumulated capitalized interest.
NOTE E--PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following:
<TABLE>
<CAPTION>
1997 1996
------------- ------------
<S> <C> <C>
Prepaid insurance................................................ $ 566,000 $ 290,000
Prepaid taxes.................................................... 251,000 90,000
Preopening expenses.............................................. 2,752,000 1,036,000
Accounts receivable and interest receivable...................... 2,617,000 500,000
Accounts receivable--employees................................... 297,000 114,000
Other receivable and prepaids.................................... 2,261,000 1,612,000
------------- ------------
$ 8,744,000 $ 3,642,000
------------- ------------
------------- ------------
</TABLE>
F-11
<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
NOTE F--LEASING ARRANGEMENTS
Operating leases, which expire at various dates through 2038, are for land
at the facilities and for office space and, in some cases provide for the
payment of real estate taxes and other operating costs and are subject to annual
increases based on changes in the Consumer Price Index. Certain leases require
contingent rent payments based on a percentage of revenues.
Future minimum lease payments, including expected renewal options, under
operating lease agreements that have initial or remaining noncancellable lease
terms in excess of one year are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------------------------------------------------------------------------
<S> <C>
1998.......................................................................... $ 5,910,000
1999.......................................................................... 6,696,000
2000.......................................................................... 7,004,000
2001.......................................................................... 7,146,000
2002.......................................................................... 7,195,000
Thereafter.................................................................... 154,488,000
--------------
Total minimum lease payments.................................................. $ 188,439,000
--------------
--------------
</TABLE>
Operating lease rent expense for the years ended December 31, 1997, 1996 and
1995 was $4,001,000, $2,597,000 and $1,527,000, respectively.
Pursuant to certain of the Company's land leases, rent expense charged to
operations differs from rent paid because of the effect of free rent periods and
scheduled rent increases. Accordingly, the Company has recorded deferred rent
payable of $650,000 and $233,000 at December 31, 1997 and 1996, respectively.
Rent expense is calculated by allocating total rental payments, including those
attributable to scheduled rent increases, on a straight-line basis, over the
lease term.
F-12
<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
NOTE G--DEBT
[1] SHORT-TERM BORROWINGS:
At December 31, 1996, the Company had borrowing under a revolving line of
credit of $5,000,000, providing for interest at the bank's prime rate.
On June 30, 1997, the Company entered into a two-year collateralized
revolving credit facility of up to $20.0 million with a bank convertible into a
four year term loan at the end of the first two years. After conversion to a
term loan, the loan is payable in 16 substantially equal quarterly installments.
Borrowings are at variable rates of interest. The loan is collateralized by the
pledge of the stock of most of the Company's subsidiaries and such subsidiaries
have also guaranteed the obligations. The agreement includes certain convenants
covering operational and financial requirements. At December 31, 1997, there
were no amounts outstanding under this facility.
In March 1998, the Company entered into a loan agreement with a bank
providing for a $10.0 million term loan collateralized by a mortgage on certain
properties. Borrowings under the loan mature in April 2003 and bear interest at
the prime rate less 1% during the drawdown period and at the prime rate during
the paydown period. The Company also obtained, in March 1998, a commitment from
a financial institution to provide a $10.0 million term loan collateralized by a
mortgage on certain properties.
F-13
<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
NOTE G--DEBT (CONTINUED)
[2] LONG-TERM OBLIGATIONS:
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1997 1996
-------------- -------------
<S> <C> <C>
Mortgage payable bearing interest at LIBOR plus 3.5% (capped at 10.5%), payable in
monthly installments through May 2000 (the loan is personally guaranteed by the
Chairman of the Board).......................................................... $ 2,874,000 $ 2,946,000
Promissory note due August 1997 bearing interest payable monthly at 8%............ 998,000
Mortgage payable bearing interest payable monthly at bank's prime rate (8.5% at
December 31, 1996).............................................................. 1,600,000
Mortgage payable due March 7, 2001 bearing interest at 5.25%...................... 1,700,000 1,700,000
Promissory notes (four notes of $480,000, $480,000, $250,000 and $250,000) payable
on or after January 1, 1997 and not later than July 1, 1997 bearing interest
payable monthly at 8%. The payee has an option to require payment with common
stock of the Company at $27.00 a share.......................................... 1,460,000
Mortgage payable due July 15, 1997 bearing interest at 8%. Convertible into shares
of Company's common stock at $25.00 a share..................................... 700,000
Small business term loan bearing interest at 7.317%, payable in monthly
installments through August 2016................................................ 725,000 742,000
Promissory note payable December 31, 1997 bearing interest at 8%. Convertible into
shares of the Company's common stock at $29.00 a share.......................... 200,000
Promissory note bearing interest at prime with interest only for the first year,
and thereafter, payable in monthly installments................................. 1,710,000
Mortgage note payable due August 1, 2002 bearing interest at LIBOR as adjusted,
payable in monthly installments and an additional payment of $5,000,000 due on
or before May 1, 1998 (6.97% at December 31, 1997) The loan includes certain
covenants covering operational and financial requirements....................... 16,625,000
Promissory note payable due January 2, 1998 bearing interest at 5.5% per annum.... 1,150,000
Mortgage note payable due November 1, 2009 bearing interest at 9.875%, payable in
monthly installments. The mortgage is based upon a ten year amortization payout
with a balloon payment that calls for the entire principal balance to be due and
payable on November 1, 2009..................................................... 3,745,000
-------------- -------------
26,819,000 12,056,000
Less current portion.............................................................. 7,164,000 3,560,000
-------------- -------------
NONCURRENT PORTION................................................................ $ 19,655,000 $ 8,496,000
-------------- -------------
-------------- -------------
</TABLE>
F-14
<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
NOTE G--DEBT (CONTINUED)
The long-term portion of the Company's debt at December 31, 1997 is payable
as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------------------------------------------------------------------------
<S> <C>
1999.......................................................................... $ 1,113,000
2000.......................................................................... 1,216,000
2001.......................................................................... 3,030,000
2002.......................................................................... 7,721,000
2003.......................................................................... 180,000
Thereafter.................................................................... 6,395,000
--------------
$ 19,655,000
--------------
--------------
</TABLE>
[3]--CONVERTIBLE SUBORDINATED NOTES:
In October 1997, the Company issued 5 3/4% Convertible Subordinated Notes
(the "Notes") due October 2004 in the aggregate principal amount of
$115,000,000. Interest on the Notes is payable semi-annually on April 15 and
October 15 of each year. The Notes are convertible at the option of the holder
into shares of common stock of the Company at any time after 60 days of original
issuance and prior to maturity, unless previously redeemed, at a conversion
price of $37.250 per share subject to adjustment in certain events as defined.
The Notes are subordinated in right of payment to certain other obligations of
the Company including all existing and future Senior Indebtedness as defined in
the indenture. Net proceeds of the offering, after discount to the underwriters
and offering costs were approximately $110,550,000.
NOTE H--COMMITMENTS AND CONTINGENCIES
[1] EMPLOYMENT AGREEMENTS:
The Company has employment agreements, as amended, expiring on December 31,
1999 with two of its officers, who are also stockholders of the Company, which
provide for aggregate annual base salaries of $260,000 in 1997, $260,000 in 1998
and $300,000 in 1999.
[2] CONCESSION LICENSES
The Company manages several facilities for municipalities pursuant to
concession licenses, three of which are terminable at will by the licensor. The
Company's concession license with the City of New York (the "City") for the
Douglaston, New York golf center, which was entered into in 1994 and which
expires on December 31, 2006, the concession license with the City for the
Randall's Island, New York golf center, which was assumed in 1997 and which
expires on March 1, 2007 and the concession license with the Metropolitan
Transportation authority for the Bronx, New York golf center, currently under
construction, which was entered into in 1997 and which expires on December 31,
2009 (respectively, the "Douglaston License," "Randall's Island License" and
"Bronx License"), are terminable at will. Pursuant to the Douglaston License and
the Randall's Island License, the Company has made approximately $3.1 million
F-15
<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
NOTE H--COMMITMENTS AND CONTINGENCIES (CONTINUED)
and $774,000, respectively, of capital improvements. Pursuant to the Bronx
License, the Company is obligated to make a minimum of $3.0 million of capital
improvements. If any of these concession licenses are terminated, the licensor
may retain, except within the first eight years of the Bronx License, and is not
obligated to pay the Company, for the value of such capital improvements.
The Douglaston License provides for payment of fees to New York City of the
greater of $900,000 or up to 50% of gross revenues (as defined) on an annual
basis. The Randall's Island license requires a fee of the greater of $500,000 or
a percentage of revenue as defined in the agreement on an annual basis. The
Bronx License provides for annual minimum payments ranging from $500,000 in 1999
to $990,000 in 2009, or a percentage of gross revenue (as defined) whichever is
greater.
[3] LICENSE AGREEMENT:
Pursuant to its license agreement with GBGC, the Company paid a one-time
facility development fee for each Golden Bear golf center. In addition, the
Company is required to pay annual royalty fees for each Golden Bear golf center
it operates based on Adjusted Gross Revenues ("AGR") as defined, equal to 3% of
AGR less than $2,000,000 plus 4% of AGR between $2,000,000 and $3,000,000, plus
5% of AGR over $3,000,000. The minimum royalty fee for each Golden Bear golf
center ranges up to $50,000 per year.
On September 13, 1995 the Company's exclusive rights to open Golden Bear
Golf Centers in defined territories were terminated and the restrictions on the
Company's right to develop golf centers under its own name in such territories
were removed.
Royalty fees incurred for the years ended December 31, 1997, December 31,
1996 and December 31, 1995 amounted to $301,000, $299,000 and $184,000,
respectively. All of such fees have been charged to operations.
[4] PURCHASE OF TPT AND RELATED PARTY TRANSACTIONS:
In November 1995, the Company acquired TPT. Prior to the acquisition, two of
the officers of the Company individually owned, in aggregate, 70% of the shares
of TPT. The excess of cost over fair value of assets acquired of $4,392,000 was
considered a preferential distribution to certain stockholders. The purchase
price included a contingent payment up to $2.0 million, payable upon the
achievement of certain operating income targets which were achieved in 1997 and
1996. The contingent purchase price in respect of the years ended December 31,
1997 and December 31, 1996 of $1,000,000 for each of the year payable to the
former TPT shareholders has been reflected as an additional preferential
dividend.
Under an existing agreement with TPT, the Company had an option to acquire
TPT (the "TPT Option") for a price equal to 12.5 times the net after tax income
of TPT during the full 12 months immediately preceding the exercise of such
option. Such price was payable in shares of the Company's common stock. The TPT
Option may have been exercised at any time commencing on the earlier of (i)
January 1, 1998 or (ii) the date on which TPT has after-tax income of at least
$1,000,000 over a twelve-month period until the expiration date of such option
on December 31, 2003.
F-16
<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
NOTE H--COMMITMENTS AND CONTINGENCIES (CONTINUED)
[5] OTHER COMMITMENTS:
At December 31, 1997, the Company had commitments for various construction
projects to be completed within 12 to 24 months aggregating $46.50 million.
NOTE I--BUSINESS SEGMENT INFORMATION
Information concerning operations by industry segment is as follows:
<TABLE>
<CAPTION>
GOLF OPERATIONS NON-GOLF OPERATIONS CONSOLIDATED
--------------- ------------------- --------------
<S> <C> <C> <C>
Year ended December 31, 1997:
Total revenue............................................ $ 56,516,000 $ 8,309,000 $ 64,825,000
Operating earnings....................................... 15,261,000 2,402,000 17,663,000
Depreciation and amortization............................ 5,204,000 532,000 5,736,000
Identifiable assets...................................... 300,027,000 25,480,000 325,507,000
Capital expenditures..................................... 20,007,000 580,000 20,587,000
</TABLE>
There were no non-golf operations for the years ended December 31, 1996 and
1995.
F-17
<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
NOTE J--STOCKHOLDERS' EQUITY
STOCK OPTION PLANS:
The Company applies APB 25 and related interpretations in accounting for its
employee stock options. Under APB 25, where the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation is recognized.
If compensation expense for the Company's stock-based compensation plans had
been determined consistent with SFAS No. 123, the Company's net income and net
income per share including pro forma results would have been the amounts
indicated below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
<S> <C> <C> <C>
1997 1996 1995
------------- ------------ ------------
Net income
As reported..................................... $ 10,524,000 $ 5,208,000 $ 1,074,000
Pro forma....................................... 6,820,000 4,546,000 960,000
Net income per share
As reported--basic.............................. .86 .52 .21
--diluted............................. .84 .51 .20
Pro forma--basic................................ .56 .45 .19
--diluted............................... .54 .44 .18
</TABLE>
The pro forma effect on net income for 1997, 1996 and 1995 may not be
representative of the pro forma effect on net income of future years due to,
among other things: (i) the vesting period of the stock options and the (ii)
fair value of additional stock options in future years.
For the purpose of the above table, the fair value of each option grant is
estimated as of the date of grant using the Black-Scholes option-pricing model
with the following assumptions:
<TABLE>
<CAPTION>
1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Dividend yield........................... 0% 0% 0%
Expected volatility...................... 0.76-0.82 0.73 0.69
Risk-free interest rate.................. 5.81%-6.58% 6% 6%
Expected life in years................... 5 5 5
</TABLE>
The weighted average fair value at date of grant for options granted during
the years 1997, 1996 and 1995 were $15.49, $14.77 and $5.32, respectively, using
the above assumptions.
The Company's 1994 Stock Option Plan (the "Plan") provides for the grant of
options to purchase up to 300,000 shares of common stock to employees, officers,
directors and consultants of the Company. Options may be either "incentive stock
options" within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), or nonqualified options. Incentive stock options may be
granted only to employees of the Company, while nonqualified options may be
issued to nonemployee directors, consultants and others, as well as to employees
of the Company. The Company's 1996 Stock Incentive Plan (the "New Plan") is
identical to the Plan, except that the New Plan provides (i) for the grant of
options to purchase up to 500,000 shares of common stock and (ii) an automatic
grant of nonqualified
F-18
<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
NOTE J--STOCKHOLDERS' EQUITY (CONTINUED)
stock options to purchase 10,000 shares to each nonemployee director upon his
election or appointment to the Board of Directors and annual grants (commencing
on the date the New Plan was approved by stockholders) to each nonemployee
director of nonqualified stock options to purchase 10,000 shares of common stock
at the fair market value of the common stock on the date of the grant.
The Company's 1997 Stock Incentive Plan (the "1997 Plan") is identical to
the New Plan. The Company will grant options under the 1997 Plan, once no more
options are available under the New Plan.
The exercise price per share of common stock subject to an incentive option
may not be less than the fair market value per share of common stock on the date
the option is granted. The per share exercise price of common stock subject to a
nonqualified option may be established by the Board of Directors.
Incentive stock options granted under the Plan cannot be exercised more than
10 years from the date of grant.
Additional information with respect to 1997 and 1996 and 1995 stock option
activity is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997 1996 1995
-------------------- -------------------- --------------------
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year................ 678,860 $ 17.606 290,205 $ 8.530 154,000 $ 3.500
Options granted................................. 332,123 23.098 427,412 22.697 140,000 13.927
Options exercised............................... (58,159) (8.313) (38,757) (5.580) (3,795) 3.500
--------- --------- ---------
Outstanding at end of year...................... 952,824 20.087 678,860 17.606 290,205 8.530
--------- --------- ---------
--------- --------- ---------
Options exercisable at end of year.............. 293,060 14.947 115,265 7.539 47,538 3.500
--------- --------- ---------
--------- --------- ---------
</TABLE>
At December 31, 1997, there were 6,000, 0 and 337,500 options available for
grants under the Plan, the New Plan and the 1997 Plan, respectively.
F-19
<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
NOTE J--STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE WEIGHTED
NUMBER CONTRACTUAL AVERAGE NUMBER
EXERCISE OF OPTIONS REMAINING EXERCISE OF OPTIONS
PRICE OUTSTANDING LIFE (IN YEARS) PRICE EXERCISABLE
- --------- ----------- ------------------- --------- -----------
<S> <C> <C> <C> <C>
$ 3.50 88,857 6.50 $ 3.50 88,857
6.00 1,280 7.67 6.00 1,280
8.875 6,000 7.50 8.875 4,000
14.875 102,820 7.80 14.875 62,457
19.875 53,500 8.25 19.875 17,833
27.125 30,000 8.50 27.125 10,000
22.75 122,503 8.58 22.75 38,340
22.75 215,901 8.96 22.75 70,293
17.375 96,588 9.25 17.375
22.250 30,000 9.50 22.25
22.250 35,000 9.58 22.25
26.563 170,375 9.83 26.563
----------- -----------
952,824 293,060
----------- -----------
----------- -----------
</TABLE>
In connection with the purchase of certain golf facilities, the Company
granted the sellers, options to acquire up to an aggregate of 54,000 shares of
common stock at prices ranging from $0.01 to $40.00 per share, with a weighted
average price per share of $31.16. As at December 31, 1997, options to purchase
43,280 shares of common stock were outstanding.
WARRANTS:
In connection with the initial public offering in November 1994, the Company
issued warrants to the representatives of the underwriters to purchase 120,000
shares of common stock at $5.50 per share exercisable through November 1999, of
which warrants to purchase 40,000 shares were exercised in connection with a
public offering in December 1995 and the remaining warrants to purchase 80,000
shares were exercised in 1996.
In connection with the public offering in December 1995, the Company has
granted warrants to the representatives of the underwriters to purchase from the
Company up to 300,000 shares of common stock at $20.25 per share exercisable
through December 2000, of which warrants to purchase 2,216 shares were exercised
in December 1997. As of December 31, 1997, warrants to purchase 297,784 shares
of common stock were outstanding.
In connection with consulting services to be rendered over a three year
period, the Company in 1996 issued warrants to a consultant to purchase 70,000
shares of common stock at $19.875 per share. Such warrants were exercised in
1996.
In connection with the purchase of LCI in July 1997, the Company issued
warrants to the sellers to purchase an aggregate of 55,537 shares of common
stock at $27.50 per share exercisable through July 2002.
F-20
<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
NOTE K--INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------------
<S> <C> <C> <C>
1997 1996 1995
------------ ------------ ----------
Current............................................... $ 5,295,000 $ 2,822,000 $ 785,000
Deferred.............................................. 1,242,000 370,000 (51,000)
------------ ------------ ----------
6,537,000 3,192,000 734,000
Change in valuation allowance......................... 65,000
------------ ------------ ----------
Total provision (benefit)............................. $ 6,537,000 $ 3,192,000 $ 669,000
------------ ------------ ----------
------------ ------------ ----------
</TABLE>
At December 31, 1994, the Company had available net operating loss
carryforwards of approximately $180,000 for federal income tax purposes, which
were utilized in 1995. Temporary differences arise due to differences between
reporting for financial statement purposes and for federal income tax purposes
relating primarily to deferred rent expense and depreciation and amortization
methods.
Expected tax expense based on the statutory rate is reconciled with the
actual expense as follows:
<TABLE>
<CAPTION>
PERCENT OF PRE-TAX
EARNINGS (LOSS)
DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
Expected tax expense................................................ 35.0% 34.0% 34.0%
State income tax (benefit), net of federal tax effect............... 5.6 3.7 7.6
Decrease in valuation allowance in use
of net operating loss............................................. (7.7)
Other............................................................... (2.3) 0.3 1.1
--- --------- ---
38.3% 38.0% 35.0%
--- --------- ---
--- --------- ---
</TABLE>
The deferred tax assets (liabilities) are recorded as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------------
<S> <C> <C>
1997 1996
------------- -----------
Deferred rent..................................................... $ 247,000 $ 93,000
Book basis of assets over tax basis............................... (4,443,000) (347,000)
------------- -----------
Net deferred tax (liability)...................................... $ (4,196,000) $ (254,000)
------------- -----------
------------- -----------
</TABLE>
F-21
<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
NOTE L--FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial statements:
Cash and cash equivalents approximate fair value. The cost and fair
value of short-term investments are disclosed in Note C.
Short-term loan payable--the carrying amount approximates fair value due
to the short-term maturities of these instruments.
Long-term debt and convertible subordinated notes--fair value is
estimated based on borrowing rates offered to the Company.
The carrying amounts and fair value of the Company's financial instruments
as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
CARRYING
AMOUNT FAIR VALUE
-------------- --------------
<S> <C> <C>
Cash and cash equivalents.................................... $ 6,002,000 $ 6,002,000
Long-term debt............................................... 26,819,000 26,819,000
Convertible subordinated notes............................... 115,000,000 115,000,000
</TABLE>
F-22
<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
SELECTED QUARTERLY FINANCIAL DATA
(UNAUDITED)
<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997 1996 1997 1996 1997 1996 1997 1996
--------- --------- --------- --------- --------- --------- --------- ---------
<CAPTION>
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Revenue............................. $ 9,015 $ 3,362 $ 17,542 $ 6,852 $ 21,867 $ 10,654 $ 16,401 $ 7,036
Income from Operations.................... 632 10 6,461 2,404 7,321 4,153 3,249 31
Net Income................................ 562 69 4,068 1,574 4,232 3,115 1,662 450
Net income per share
--Basic................................. $ 0.05 $ 0.01 $ 0.34 $ 0.18 $ 0.34 $ 0.27 $ 0.13 $ 0.04
--Diluted............................... $ 0.05 $ 0.01 $ 0.34 $ 0.18 $ 0.33 $ 0.27 $ 0.13 $ 0.04
</TABLE>
F-23
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------
<C> <S>
3.1* Certificate of Incorporation.
3.2* By-laws.
10.1* Agreement to Exchange, dated as September 11, 1994, by and among Family Golf Centers, Inc.
and Dominic Chang, Jimmy C.M. Hsu, Krishnan Thampi, Tommy Hsu, and John Chen.
10.2* Purchase Agreement, dated as of September 11, 1994, by and among Family Golf Centers, Inc.
and Golf Range, Inc. and Abbington Holdings, Inc.
10.3* Option Agreement by and among Ken Simonds, William Schickler III, Dominic Chang, Krishnan
Thampi, The Practice Tee, Inc. and Family Golf Centers, Inc.
10.4* Employment Agreement, dated as of September 11, 1994, between Family Golf Centers, Inc. and
Dominic Chang.
10.4.1* *** Amendment No. 1, dated March 8, 1995, to the Employment agreement, dated as of September
11, 1994, between Family Golf Centers, Inc. and Dominic Chang, filed as Exhibit 10.5.
10.5* Employment Agreement, dated as of September 11, 1994, between Family Golf Centers, Inc. and
Krishnan Thampi.
10.5.1* *** Amendment No. 1, dated March 8, 1995, to the Employment Agreement, dated as of September
11, 1994, between Family Golf Centers, Inc. and Krishnan P. Thampi, filed as Exhibit 10.5.
10.6* Agreement, dated as of August 12, 1992, by and between Golden Bear International, Inc. and
Orient Associates International, Inc., as amended by an Assignment and amendment entered
into February 16, 1994, by and among Golden Bear International, Inc., Golden Bear Golf
Centers, Inc. and Orient Associates International, Inc., as further amended by an
Assignment and Assumption by and among Golden Bear Golf Centers, Inc., Orient Associates
International, Inc. and The Practice Tee, Inc.
10.6.1** Amendment entered into November 9, 1994 to Agreement dated as of August 12, 1992, by and
between Golden Bear International, Inc. and Orient Associates International, Inc.
10.6.2* *** Amendment entered into December 2, 1994 to Agreement dated as of August 12, 1929, by and
between Golden Bear International, inc. and Orient Associates International, Inc., filed as
Exhibit 10.6.
10.7* License Agreement, dated September 14, 1994, between Orient Associates International, Inc.
and City of New York Parks & Recreation Department.
10.8* Form of Common Stock Purchase Warrant, for an aggregate of 24,950 shares of Common Stock,
expiring on August 15, 1999.
10.9* Family Golf Centers, Inc. 1994 Stock Incentive Plan.
10.10++++ Family Golf Centers, Inc. 1996 Stock Incentive Plan.
10.11* Loan Agreement, dated March 1, 1994, between Grand Pacific Finance Corp. as Lender, and
Orient Associates International, Inc. as Borrower.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------
<C> <S>
10.12* Loan Leasehold Mortgage and Security Agreement, dated April 23, 1993, between Orient
Associates International, Inc. as Mortgagor and The Development Bank of Singapore, Ltd., as
Mortgagee.
10.13* Revolving Credit Line Agreement, dated April 2, 1993, between TaipeiBank, New York Agency,
as Lender, and Orient Associates International, Inc. and Dominic Chang, as Borrower.
10.14* Mortgage, dated December 17, 1993, between Orient Associates International, Inc. and Hsing
Lung Farm Corp., as Mortgagor and TaipeiBank, New York Agency, as Mortgagee.
10.15* Authorization and Debenture Guaranty, dated December 31, 1991, between the United States
Small Business Administration, as Lender and Long Island Development Corporation, as
Borrower, to assist Orient Associates International, Inc.
10.16* Building Loan Contract and Building Loan Mortgage, dated October 20, 1994, between Orient
Associates International, Inc., as Borrower, and Grand Pacific Finance Corp., as Lender.
10.17** Building Loan Agreement and Mortgage, dated November 26, 1991, between Grand Pacific
Finance Corp., as Lender and Orient Associates International, Inc., as Borrower.
10.18** Collateral Note and Security Agreements, dated September 28, 1994 and September 30, 1994,
between Bank of New York, as Lender, and Skydrive Co., Inc., as Borrower.
10.19+ Purchase and Sale Contract, dated May 1, 1995, between Evergreen Bank, N.A. f/k/a The First
National Bank of Glens Falls and Family Golf Centers, Inc.
10.20+ Mortgage and Security Agreement, dated May 15, 1995, between Family Golf Centers, Inc., as
Mortgagor and Orix USA Corporation, as Mortgagee.
10.21+ Purchase Money Note, dated May 15, 1995, made by Family Golf Centers, Inc. in favor of Orix
USA Corporation in the principal amount of $3,000,000.
10.22+ Statement of Purpose for an Extension of Credit Secured by Margin Stock, dated April 28,
1995, between Family Golf Centers, Inc. and Chemical Bank.
10.23+ Promissory Note, dated May 4, 1995, made by Family Golf Centers, Inc. in favor of Chemical
Bank in the principal amount of $850,000.
10.24* *** Registration Rights Agreement, dated April 28, 1995, between Kenneth Gurley and Family Golf
Centers, Inc.
10.25* *** Commitment letter, dated September 28, 1995, issued by Chemical Bank, N.A. to Family Golf
Centers, Inc.
10.26* *** Mortgage, dated March 25, 1994 granted by Pelham Enterprises, Inc. in favor of United
Carolina Bank of South Carolina.
10.27* *** Warrant to purchase 80,000 shares of Common Stock, dated November 23, 1994, issued to
Hampshire Securities Corporation by Family Golf Centers, Inc.
10.28* *** Warrant to purchase 40,000 shares of Common Stock, dated November 23, 1994 issued to
Brenner Securities Corporation by Family Golf Centers, Inc.
10.29* *** Form of Representatives' Warrants.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------
<C> <S>
10.30* *** TPT/FGC Purchase Agreement, dated as of September 28, 1995, between Family Golf Centers,
Inc., Dominic Chang, Krishnan Thampi, Ken Simonds and William Schickler III.
10.31* *** Registration Rights Agreement, dated August 24, 1995, between Thomas Matthews, J.L.
Matthews, Jr. and Family Golf Centers, Inc.
10.32**** Purchase Contract dated September 28, 1995, between Upper Hembree Partners, L.P., each of
the general partners of Upper Hembree Partners, L.P. and Alpharetta Family Golf Centers,
Inc., a wholly owned subsidiary of Family Golf Inc.
10.33**** Escrow Agreement, dated September 28, 1995, between Family Golf Centers, Inc., Upper
Hembree Partners, L.P. and Continental Stock Transfer & Trust Company.
10.34**** Stock Option Agreement, dated September 28, 1995, between Family Golf Centers, Inc. and
Upper Hembree Partners, L.P
10.35**** Registration Rights Agreement, dated September 28, 1995, between Family Golf Centers, Inc.
and Upper Hembree Partners, L.P.
10.36**** Form of Promissory Note, dated September 28, 1995, in the principal amount of $35,000 made
by Upper Hembree Partners, L.P in favor of Family Golf Centers, Inc.
10.37**** Assignment & Assumption Agreement, dated October 16, 1995, between Upper Hembree Partners,
L.P., Alpharetta Family Golf Centers, Inc. and Bank South.
10.38**** Renewal Promissory Note, dated November 14, 1994, in the principal amount of $1,860,770.07
made by Upper Hembree Partners, L.P. in favor of Bank South, N.A.
10.39**** Form of Guaranty Agreement from Dominic Chang in favor of Bank South.
10.40**** Form of Guaranty Agreement from Family Golf Centers, Inc. in favor of Bank South.
10.41* *** Promissory Note, dated November 8, 1995, in the principal amount of $4,000,000 made by
Family Golf Centers, Inc. in favor of Dominic Chang, as the representative of the
shareholders of The Practice Tee, Inc.
10.42* *** Purchase Agreement, dated as of November 8, 1995, by and between Golf Masters Limited
Partnership and Air Dome Limited Partnership, as Sellers, each of the general partners of
Sellers and Valley View Family Golf Centers, Inc., a wholly owned subsidiary of Family Golf
Centers, Inc.
10.43* *** Escrow Agreement, dated as of November 8, 1995, among Family Golf Centers, Inc., Golf
Masters Limited Partnership, Air Dome Limited Partnership and Continental Stock Transfer &
Trust Company.
10.44* *** Registration Rights Agreement, dated as of November 8, 1995, between Golf Masters Limited
Partnership, Air Dome Limited Partnership and Family Golf Centers, Inc.
10.45* *** Stock Option Agreement, dated as of November 8, 1995, among Family Golf Centers, Inc., Golf
Masters Limited Partnership and Air Dome Limited Partnership.
10.46* *** Note, dated September 1992, in the principal amount of $350,000 made by Golf Masters
Limited Partnership in favor of JSN Holdings and related Mortgage Deed.
10.47+++ Deed of Assignment, dated February 27, 1996, between Owl's Creek Golf Center, Inc.,
Virginia Beach Family Golf Centers, Inc. and the City of Virginia Beach, Virginia.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------
<C> <S>
10.48+++ Deed of Assignment, dated March 1, 1996, between Owl's Creek Golf Center, Inc. and Virginia
Beach Family Golf Centers, Inc.
10.49+++ Purchase Agreement, dated March 6, 1996, between Owl's Creek Golf Center, Inc. and Virginia
Beach Family Golf Centers, Inc., a wholly owned subsidiary of Family Golf Centers, Inc
10.50+++ Escrow Agreement, dated March 6, 1996, among Family Golf Centers, Inc., Owl's Creek Golf
Center, Inc. and Continental Stock Transfer & Trust Company.
10.51+++ Registration Rights Agreement, dated March 6, 1996, between Family Golf Centers, Inc. and
certain stockholders of Owl's Creek Golf Center, Inc. listed on Schedule 1 thereto.
10.52+++ Deed for Improvements, dated as of March 1, 1996, between Owl's Creek Golf Center, Inc. and
Virginia Beach Family Golf Centers, Inc.
10.53+++ Bill of Sale, dated as of March 6, 1996, between Owl's Creek Golf Center, Inc. and Virginia
Beach Family Golf Centers, Inc.
10.54+++ Purchase Agreement, dated March 7, 1996, between Flemington Equities VII and Flemington
Family Golf Centers, Inc., a wholly owned subsidiary of Family Golf Centers, Inc.
10.55+++ Guaranty, dated March 7, 1996, by Family Golf Centers, Inc., in favor of Flemington
Equities VII.
10.56+++ Purchase Agreement, dated March 7, 1996, between Flemington Golf and Sports Center, LLC and
Flemington Family Golf Centers, Inc., a wholly-owned subsidiary of Family Golf Centers,
Inc.
10.57+++ Mortgage Note, dated March 7, 1996, in the principal amount of $1,700,000 made by
Flemington Family Golf Centers, Inc. in favor of Flemington Equities VII and related
Mortgage Deed.
10.58+++ Cash Escrow Agreement, dated March 7, 1996, among Flemington Family Golf Centers, Inc.,
Flemington Golf and Sports Center, LLC and Continental Stock Transfer and Trust Company.
10.59++++ Form of Warrants to purchase an aggregate of 70,000 shares of Common Stock, dated as of
March 7, 1996, issued to Monness, Crespi & Hardt & Co. by Family Golf Centers, Inc.
10.60+++ Purchase Agreement, dated April 8, 1996, among 202 Golf Associates, Inc., Family Golf
Centers, Inc. and Yorktown Family Golf Centers, Inc., a wholly owned subsidiary of Family
Golf Centers, Inc.
10.61+++ Escrow Agreement, dated April 8, 1996, among Family Golf Centers, Inc., 202 Golf
Associates, Inc., Yorktown Family Golf Centers, Inc. and Continental Stock Transfer & Trust
Company.
10.62+++ Registration Rights Agreement, dated April 8, 1996, between Family Golf Centers, Inc. and
202 Golf Associates, Inc.
10.63+++ Assignment and Assumption Agreement, dated April 8, 1996, between 202 Golf Associates, Inc.
and Yorktown Family Golf Centers, Inc.
10.64+++ Bill of Sale, dated April 8, 1996, by 202 Golf Associates, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------
<C> <S>
10.65+++ Indenture, dated April 8, 1996, between 202 Golf Associates, Inc. and Yorktown Family Golf
Centers, Inc.
10.66+ +++ Purchase Agreement, dated May 20, 1996, among Indian River Golf-O-Rama, Inc., Indian River
Family Golf Centers, Inc. and Lenrich Associates, L.L.C.
10.67+ +++ Purchase Agreement, dated June 7, 1996, among Ruth Perillo, Lynn Perillo, Glen Perillo and
Oscar Ramirez, as sellers, and Tucson Family Golf Centers, Inc., a wholly-owned subsidiary
of Family Golf Centers, Inc.
10.68+ +++ Stock Purchase Agreement, dated June 7, 1996, among Joseph E. Wolf, Kenneth R. Gibbons and
Richard Johnson, as sellers, K.G. Golf, Inc. and Family Golf Centers, Inc.
10.69+ +++ Assignment and Assumption of Lease, dated June 7, 1996, by and between Tree Court Golf &
Recreational Complex, Inc. and St. Louis Family Golf Centers, Inc., a wholly owned
subsidiary of Family Golf Centers, Inc.
10.70+ +++ Purchase Agreement, dated June 10, 1996, by and between W.A.G.N. Partners and West Palm
Beach Family Golf Centers, Inc., a wholly owned subsidiary of Family Golf Centers, Inc.
10.71! Stock Purchase Agreement, dated as of July 5, 1996, among Michael J. Santin, Donald G.
Rumpf, Pin High Golf Center and Family Golf Centers, Inc.
10.72!! Stock Purchase Agreement, dated September 25, 1996, between Raymond R. Sears, Ronald L.
Sears, Henry Bachman, Privatization Plus, Inc. and Family Golf Centers, Inc.
10.73!! Cash Escrow Agreement, dated September 25, 1996, between Raymond R. Sears, Ronald L. Sears,
Henry Bachman, Privatization Plus, Inc., Family Golf Centers, Inc. and Continental Stock
Transfer & Trust Company.
10.74!! Purchase Agreement, dated September 26, 1996, between Tri-Town Sports, Inc. and Easton
Family Golf Centers, Inc., a wholly owned subsidiary of Family Golf Centers, Inc.
10.75!! Promissory Note, dated September 26, 1996, in the principal amount of $350,000 made by
Easton Family Golf Centers, Inc., a wholly owned subsidiary of Family Golf Centers, Inc.,
in favor of Tri-Town Sports, Inc.
10.76!! Promissory Note, dated September 26, 1996, in the principal amount of $140,000 made by
Easton Family Golf Centers, Inc., a wholly owned subsidiary of Family Golf Centers, Inc.,
in favor of Tri-Town Sports, Inc.
10.77!! Promissory Note, dated September 26, 1996, in the principal amount of $122,500 made by
Easton Family Golf Centers, Inc., a wholly owned subsidiary of Family Golf Centers, Inc.,
in favor of Tri-Town Sports, Inc.
10.78!! Promissory Note, dated September 26, 1996, in the principal amount of $87,500 made by
Easton Family Golf Centers, Inc., a wholly owned subsidiary of Family Golf Centers, Inc.,
in favor of Tri-Town Sports, Inc.
10.79!! Guaranty of Promissory Notes made by Family Golf Centers, Inc. in favor of Tri-Town Sports,
Inc.
10.80!! Mortgage Note, dated September 24, 1996, in the principal amount of $350,000 made by Easton
Family Golf Centers, Inc. in favor of Tri-Town Sports, Inc. and related Mortgage Deed.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------
<C> <S>
10.81!! Mortgage Note, dated September 24, 1996, in the principal amount of $140,000 made by Easton
Family Golf Centers, Inc. in favor of Tri-Town Sports, Inc. and related Mortgage Deed.
10.82!! Mortgage Note, dated September 24, 1996, in the principal amount of $122,500 made by Easton
Family Golf Centers, Inc. in favor of Tri-Town Sports, Inc. and related Mortgage Deed.
10.83!! Mortgage Note, dated September 24, 1996, in the principal amount of $87,500 made by Easton
Family Golf Centers, Inc. in favor of Tri-Town Sports, Inc. and related Mortgage Deed.
10.84!! Assignment and Assumption of License Agreement, dated September 30, 1996, between
Colbert-Ballard Golf Learning Centers, Inc. and C.B. Family Golf Centers, Inc., a wholly
owned subsidiary of Family Golf Centers, Inc.
10.85!! Promissory Note, dated September 30, 1996, in the principal amount of $446,720 made by
Colbert-Ballard Golf Learning Centers, Inc. in favor of C.B. Family Golf Centers, Inc., a
wholly owned subsidiary of Family Golf Centers, Inc.
10.86!! Guaranty of Promissory Note made by Harry J. Moorhouse and Dorothy Moorhouse in favor of
C.B. Family Golf Centers, Inc., a wholly owned subsidiary of Family Golf Centers, Inc.
10.87!! Escrow Agreement, dated September 30, 1996, between Family Golf Centers, Inc.,
Colbert-Ballard Family Golf Centers, Inc. and Continental Stock Transfer & Trust Company.
10.88!! Purchase Agreement, dated September 30, 1996, between KKL Golf Partnership and Carolina
Springs Family Golf Centers, Inc., a wholly owned subsidiary of Family Golf Centers, Inc.
10.89!! Cash Escrow Agreement, dated September 30, 1996, between KKL Golf Partnership, Carolina
Springs Family Golf Centers, Inc. and Continental Stock Transfer & Trust Company.
10.90!! Stock Option Agreement, dated September 30, 1996, between Family Golf Centers, Inc. and KKL
Golf Partnership.
10.91!! Purchase Agreement, dated September 30, 1996, between USA Golf Centers, Ltd. #2 and
Westminster Family Golf Centers, Inc., a wholly owned subsidiary of Family Golf Centers,
Inc.
10.92!! Cash Escrow Agreement, dated September 30, 1996, between USA Golf Centers, Ltd. #2,
Westminster Family Golf Centers, Inc. and Continental Stock Transfer & Trust Company.
10.93!! Ground Lease, dated August 1, 1992, as amended by Ground Lease Extension and Modification,
dated November 20, 1995, between SCI California Funeral Services, Inc. (successor in
interest to Westminster Memorial Park) and USA Golf Centers, Ltd. #2.
10.94!! Purchase Agreement, dated August 29, 1996, between Swingmaster Golf at Centennial, L.P. and
Denver Family Golf Centers, Inc., a wholly owned subsidiary of Family Centers, Inc.
10.95!! Registration Rights Agreement, dated August 29, 1996, between Swingmaster Golf at
Centennial, L.P. and Family Golf Centers, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------
<C> <S>
10.96!! Registration Rights Agreement, dated August 29, 1996, between Joseph J. Graham and Family
Golf Centers, Inc.
10.97!! Registration Rights Agreement, dated August 29, 1996, between Andrew Price and Family Golf
Centers, Inc.
10.98!! Escrow Agreement, dated August 29, 1996, between Family Golf Centers, Inc., Denver Family
Golf Centers, Inc., Swingmaster Golf at Centennial, L.P., Joseph J. Graham, Andrew Price
and Continental Stock Transfer & Trust Company.
10.99!! Ground Lease and Agreement, dated November 1, 1994, as amended by First Amendment to Ground
Lease and Agreement dated March 9, 1995 and Second Amendment to Ground Lease Agreement,
dated June 8, 1995, by and between the Arapahoe County Public Airport Authority and
Pinecrest Enterprises, Ltd. (predecessor-in-interest to Swingmaster Golf at Centennial,
L.P.).
10.100!! Option to Lease Agreement, dated August 8, 1996, by and between the Arapahoe County Public
Airport Authority and Swingmaster Golf at Centennial, L.P.
10.101!!! Purchase Agreement, dated October 21, 1996, between Mt. Olive Golf Center, Inc. and Mt.
Olive Family Golf Centers, Inc., a wholly owned subsidiary of Family Golf Centers, Inc.
10.102!!! Stock Option Agreement, dated October 21, 1996, between Family Golf Centers, Inc. and Mt.
Olive Golf Center, Inc.
10.103!!! Purchase Agreement, dated October 21, 1996, between Margate Partners Limited Partnership
and Margate Family Golf Centers, Inc., a wholly owned subsidiary of Family Golf Centers,
Inc.
10.104!!!! Stock Purchase Agreement, dated October 30, 1996, between Stacey Hart, The Seven Iron, Inc.
and Family Golf Centers, Inc.
10.105!!!! Escrow Agreement, dated October 30, 1996, between Stacey Hart, Family Golf Centers, Inc.
and Continental Stock Transfer & Trust Company.
10.106! !!! Credit Agreement, dated as of June 30, 1997 between The Chase Manhattan Bank and Family
Golf Centers, Inc.
10.107! !!! Agreement and Plan of Merger, dated as of July 25, 1997, among Family Golf Centers, Inc.,
Lake Grove Family Golf Centers, Inc. and Leisure Complexes, Inc.
10.108! !!! Escrow Agreement, dated as of July 25, 1997, among Family Golf Centers, Inc., Leisure
Complexes, Inc. and Continental Stock Transfer and Trust Company.
10.109! !!! Registration Rights Agreement, dated as of July 25, 1997, by and among Family Golf Centers,
Inc., Arthur J. Calace, Jr., as stockholder representative and the Selling Stockholders.
10.110! !!! Asset Purchase Agreement, dated as of June 1, 1997, by and between Three Grove Partners and
Lake Grove Family Golf Centers, Inc.
10.111! !!! Ground Lease Agreement, dated as of June 1, 1997, by and between Three Grove Partners and
Lake Grove Family Golf Centers, Inc.
10.112! !!! Escrow Agreement, dated as of July 25, 1997, by and among Three Grove Partners, Family Golf
Centers, Inc. and Continental Stock Transfer and Trust Company.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------
<C> <S>
10.113! !!! Asset Purchase Agreement, dated as of July 29, 1997, by and between Active Sports
Marketing, LLC and Golden Spikes, Inc., a wholly-owned subsidiary of Family Golf Centers,
Inc.
10.114! !!! Indemnity Escrow Agreement, dated as of July 29, 1997, among Active Sports Marketing, LLC,
Family Golf Centers, Inc. and Continental Stock Transfer and Trust Company.
10.115! !!! Escrow Agreement, dated as of July 29, 1997, among Active Sports Marketing LLC, Family Golf
Centers, Inc. and Continental Stock Transfer and Trust Company.
10.116! !!! Registration Rights Agreement, dated as of July 29, 1997, by and between Family Golf
Centers, Inc. and Active Sports Marketing, LLC.
10.117! !!! Purchase Agreement, dated as of June 30, 1997, by and between Palm Lake Partners, Ltd. and
Palm Family Golf Centers, Inc.
10.118! !!! Cash Escrow Agreement, dated as of June 10, 1997, by and between Palm Lake Partners, Ltd.,
Palm Family Golf Centers Inc. and Continental Stock Transfer & Trust Company.
10.119! !!! Assignment and Assumption Agreement, dated as of June 30, 1997, between Carver Golf
Enterprises, Inc., Carver Family Golf Centers, Inc. and Family Golf Centers, Inc.
10.120! !!! Escrow Agreement, dated as of June 30, 1997, among Carver Family Golf Centers, Inc., Family
Golf Centers, Inc., Carver Golf Enterprises, Inc. and Continental Stock Transfer and Trust
Company.
10.121! !!! Registration Rights Agreement, dated as of June 30, 1997, by and between Family Golf
Centers, Inc. and Carver Golf Enterprises, Inc.
10.122! !!! Assignment and Assumption of Lease, dated as of June 10, 1997, by and among Divot City,
D.C. Management, Inc. and Milpitas Family Golf Centers, Inc.
10.123! !!! Cash Escrow Agreement, dated as of June 26, 1997, by and among Divot City, Milpitas Family
Golf Centers, Inc. and Santa Clara Land Title Company.
10.124! !!! Agreement and Plan of Merger, dated as of June 5, 1997, among Family Golf Centers, Inc.,
Philadelphia Family Golf Centers, Inc., Finley Enterprises, Ltd. and each of the
Stockholders of Finley Enterprises, Ltd.
10.125! !!! Escrow Agreement, dated as of June 5, 1997, among Family Golf Centers, Inc., Robert Finlay,
Daniel Pinciotti and Continental Stock Transfer and Trust Company.
10.126! !!! Asset Purchase Agreement, dated as of June 5, 1997, by and between Southampton Family Golf
Center, Inc. and Philadelphia Family Golf Centers, Inc.
10.127! !!! Purchase Agreement and Escrow Instruction dated as of March 21, 1997, by and between
LaSalle National Bank, as trustee and Tempe Family Golf Centers, Inc.
10.128! !!! Assignment and Assumption of Lease, dated as of April 23, 1997, by and between American
Golf Corporation and San Bruno Family Golf Centers, Inc.
10.129! !!! Guaranty, made by Family Golf Centers, Inc., in favor of American Golf Corporation.
10.130! !!! Purchase and Sale Agreement, dated as of February 17, 1997, between Clifford E. Clay, as
trustee and Englewood Family Golf Centers, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------
<C> <S>
10.131! !!! Stock Purchase Agreement, dated as of April 2, 1997, by and between Margo Massahos, Green
Oak Golf Practice Center, Inc. and Family Golf Centers, Inc.
10.132! !!! Cash Escrow Agreement, dated as of April 2, 1997, by and among Margo Massahos, Family Golf
Centers, Inc. and Continental Stock Transfer and Trust Company.
10.133! !!! Assignment and Assumption of Concession Licenses, dated as of March 21, 1997, by and
between American Golf Corporation, Randall's Island Family Golf Centers, Inc. and
Darlington Family Golf Centers, Inc.
10.134! !!! Guaranty, made by Family Golf Centers, Inc. in favor of American Golf Corporation.
10.135! !!! Asset Purchase Agreement, dated as of March 12, 1997, by and between Carolina Capital
Ventures, Ltd. and Raleigh Family Golf Centers, Inc.
10.136! !!! Ground Lease Agreement, dated as of March 12, 1997, by and between Carolina Capital
Ventures, Ltd. and Raleigh Family Golf Centers, Inc.
10.137! !!! Guaranty, made by Family Golf Centers, Inc. in favor of Carolina Capital Ventures, Ltd.
10.138! !!! Cash Escrow Agreement, dated as of March 12, 1997, by and among Carolina Capital Ventures,
Ltd., Raleigh Family Golf Centers, Inc. and Continental Stock Transfer and Trust Company.
10.139! !!! Asset Purchase Agreement, dated as of February 26, 1997, by and between College Golf Center
Partnership and Palm Desert Family Golf Centers, Inc.
10.140! !!! Suboccupancy Agreement, dated as of February 26, 1997, by and between College Golf Center
Partnership and Palm Desert Family Golf Centers, Inc.
10.141# Form of 5 3/4 Convertible Promissory Note due 2004 of Family Golf Centers, Inc.
10.142# Registration Rights Agreement, dated October 16, 1997, among certain investors and Family
Golf Centers, Inc.
10.143# Registration Rights Agreement, dated October 16, 1997, between The Bank of New York and
Family Golf Centers, Inc.
10.144## Family Golf Centers, Inc. 1997 Stock Incentive Plan
10.145 Employment Agreement, dated as of March 16, 1998, between Family Golf Centers, Inc. and
Jeffrey C. Key.
11.1 Statement re: Computation of Earnings Per Share.
21.1 Subsidiaries of Family Golf Centers, Inc.
23.1 Consent of Richard A. Eisner & Company, LLP.
27.1 Financial Data Schedule--Year-ended 1997.
27.2 Financial Data Schedule--Restated for the Years ended December 31, 1995 and December 31,
1996, and for the Quarters ended March 31, 1996, June 30, 1996 and September 30, 1996.
27.3 Financial Data Schedule--Restated for the Quarters ended March 31, 1997, June 30, 1997 and
September 30, 1997.
</TABLE>
- ------------------------
* Incorporated by reference to the Company's Registration Statement on
Form SB-2 dated September 12, 1994 (Registration No. 33-83910)
<PAGE>
** Incorporated by reference to the Company's Pre-Effective Amendment No.
1 to the Registration Statement on Form SB-2 filed October 26, 1994
(Registration No. 33-83910)
*** Incorporated by reference to the Company's Registration Statement on
Form SB-2 dated November 10, 1994 (Registration No. 33-83910)
**** Incorporated by reference to the Company's Current Report on Form 8-K,
dated October 11, 1995.
***** Incorporated by reference to the Company's Registration Statement on
Form SB-2 dated October 3, 1995 (Registration No. 33-97686).
****** Incorporated by reference to the Pre-Effective Amendment No. 1 to the
Company's Registration Statement on Form SB-2 dated November 9, 1995.
(Registration No. 33-97686).
+ Incorporated by reference to the Pre-Effective Amendment No. 2 to
Company's Current Report on Form 8-K/A (Amendment No. 1), dated June
6, 1995.
++ Incorporated by reference to the Pre-Effective Amendment No. 2 to the
Company's Registration Statement on Form SB-2 dated November 29, 1995.
(Registration No. 33-97686).
+++ Incorporated by reference to the Company's Current Report on Form 8-K/A
(Amendment No. 1), dated May 20, 1996 amending Reports on Form 8-K dated
March 6, 1996 and April 8, 1996.
++++ Incorporated by reference to the Company's Registration Statement on
Form SB-2 dated May 24, 1996. (Registration No. 333-4541).
+++++ Incorporated by reference to the Company's Current Report on Form 8-K,
dated June 4, 1996.
++++++ Incorporated by reference to Amendment No. 1 to the Company's
Registration Statement dated June 12, 1996.
! Incorporated by reference to the Company's Current Report on Form
8-K, dated July 25, 1996.
!! Incorporated by reference to the Company's Current Report on Form
8-K, dated October 9, 1996.
!!! Incorporated by reference to the Company's Current Report on Form
8-K, dated October 30, 1996.
!!!! Incorporated by reference to the Company's Current Report on Form
8-K, dated November 13, 1996.
!!!!! Incorporated by reference to the Company's Current Report on Form
8-K, dated June 30, 1997.
!!!!!! Incorporated by reference to the Company's Current Report on Form
8-K, dated July 25, 1997.
# Incorporated by reference to the Company's Registration Statement on
Form S-3 dated February 6, 1998 (Registration No. 333-44165).
## Incorporated by reference to the Company's Proxy Statement on Schedule
14A dated May 20, 1997.
<PAGE>
Exhibit 10.145
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of March 16, 1998 between Family Golf
Centers, Inc., a Delaware corporation with offices at 225 Broadhollow Road,
Melville, New York 11747 (the "Company"), and Jeffrey C. Key, having an address
at 463 West 21st Street, New York, NY 10011 ("Employee").
The Company desires to engage Employee to perform services for the
Company, any present or future parent, subsidiary, or affiliate of the Company,
and (subject to Section 10) any successor or assign of any of them (the
"Corporations") and Employee desires to perform such services, on the terms and
conditions hereinafter set forth.
1. TERM
The Company desires to engage Employee, and Employee agrees to serve,
on the terms and conditions of this Agreement for a period commencing on the
date hereof, and ending February 28, 2001 or such shorter period as may be
provided for herein. The period during which Employee is employed hereunder is
hereafter referred to as the "Employment Period."
2. DUTIES AND SERVICES
During the Employment Period, Employee shall be employed in the
business of the Company and shall serve as a Senior Vice President and Chief
Financial Officer and shall also perform services in a responsible executive or
managerial capacity for any of the other Corporations when and as requested by
the Company. Employee shall report directly to the Chairman of the Board and the
President of the Company. Employee agrees to his employment as described in this
Section 2 and agrees to devote all of his working time and efforts to the
performance of his duties under this Agreement, excepting illness and vacation
time as provided
<PAGE>
by Section 4. In performing his duties hereunder, Employee shall be available
for reasonable travel as the needs of the business require.
3. COMPENSATION; HEALTH BENEFITS; OTHER BENEFITS
(a) As compensation for his services hereunder, the Company shall pay
Employee, in equal monthly installments, during the Employment
Period, a salary equal to (on a per annum basis):
(i) $130,000.00 from the date hereof through February 28,
1999;
(ii) $140,000 from March 1, 1999 through February 29,
2000; and
(iii) $150,000.00 from March 1, 2000 through
February 28, 2001;
(b) Employee's compensation shall be reviewed annually by the Board of
Directors. Upon such review, Employee's compensation may be
adjusted upwards to such rate as shall be considered appropriate
and fixed by the Board of Directors, taking into account economic
conditions, competitive conditions within the industry and
Employee's performance and salary.
(c) Employee shall also be granted options under the Company's 1997
Stock Incentive Plan (the "Plan") to purchase 60,000 shares of the
Company's common stock, $.01 par value per share (the "Common
Stock"), at an exercise price equal to the fair market value on
the date hereof, subject to a three year vesting schedule, all in
accordance with the Plan and the Stock Option Letter Agreement
attached hereto.
(d) Employee shall also be granted 15,000 restricted shares of the
Company's common stock, subject to a three year vesting schedule
by which one-third of the shares are vested each year on the
Employee's employment anniversary date, commencing on March 1,
1999 through 2001.
2
<PAGE>
(e) Employee shall be entitled to participate in all group health and
insurance programs and all other fringe benefit or retirement
plans or other compensatory plans which the Company may hereafter,
in its sole and absolute discretion, elect to make available to
its senior management generally, provided Employee meets the
qualifications therefor, but the Company shall not be required to
establish any such program or plan or otherwise to pay any such
additional compensation, except as provided in this Section 3.
4. EXPENSES
Employee shall be entitled to reimbursement for reasonable travel and
other out-of-pocket expenses necessarily incurred in the performance of his
duties hereunder, upon submission and approval of written statements and bills
in accordance with the then regular procedures of the Company. Employee shall be
entitled to reasonable vacations in accordance with the then regular procedures
of the Company governing executives.
5. REPRESENTATIONS AND WARRANTIES OF EMPLOYEE
Employee represents and warrants to the Company that Employee is under
no contractual or other restriction or obligation which is inconsistent with the
execution of this Agreement, the performance of his duties hereunder, or the
other rights of the Company hereunder.
6. NON-COMPETITION
In view of the unique and valuable services it is expected Employee
will render to the Corporations, Employee's knowledge of the customers, trade
secrets, and other proprietary information relating to the business of the
Corporations and its customers and suppliers and similar knowledge regarding the
Corporations it is expected Employee will obtain, and in
3
<PAGE>
consideration of the compensation to be received hereunder, Employee agrees:
(a) that he will not during the period he is employed by the Company
under this Agreement or otherwise participate in (hereinafter
defined in this Section 6) any other business or organization,
whether or not such business or organization now is or shall then
be competing with or of a nature similar to the business of the
Corporations, and
(b) for one (1) year after he ceases to be employed by the Company
under this Agreement or otherwise, he will not compete with or be
engaged in the Same Business (as hereinafter defined) as or
participate in, any other business or organization which during
such one (1) year period competes with or is engaged in the Same
Business as the Corporations, with respect to any product or
service sold or activity engaged in up to the time of such
cessation in any geographic area in which, at the time of such
cessation, such product or service is sold or activity engaged in
(the "Territory"); provided, however, that the provisions of this
Section 6 will not be deemed breached because: (A) Employee owns
not more than 1% of the outstanding common stock of a corporation,
if, at the time of its acquisition by Employee, such stock is
listed on a national securities exchange, is reported on NASDAQ,
or is regularly traded in the over-the-counter market by a member
of a national securities exchange. The term "Same Business" shall
mean: the business of owning, operating, leasing or managing: (i)
golf recreational facilities, (ii) ice-skating facilities, (iii)
family entertainment centers (iv) golf or skating instructional
schools, and (v) golf club manufacturers. The term "participate
in" shall mean: "directly or indirectly, for his own benefit or
for, with or through any other person (including
4
<PAGE>
Employee's immediate family), firm, or corporation, own, manage,
operate, control, loan money to or participate in the ownership,
management, operation, or control of or be connected as a
director, officer, employee, partner, consultant, agent,
independent contractor or otherwise with, or acquiesce in the use
of his name", and
(c) he will not directly or indirectly reveal the name of, solicit or
interfere with, or endeavor to entice away from the Corporations
any of its suppliers, customers, or employees. Employee will not
directly or indirectly employ any person who was an employee of
the Corporations within a period of one (1) year after such person
leaves the employ of the Corporations.
Since a breach of the provisions of this Section 6 could not adequately be
compensated by money damages, the Company shall be entitled, in addition to any
other right and remedy available to it, to an injunction restraining such breach
or a threatened breach, and in either case no bond or other security shall be
required in connection herewith. Employee agrees that the provisions of this
Section 6 are necessary and reasonable to protect the Company in the conduct of
its business. If any restriction contained in this Section 6 shall be deemed to
be invalid, illegal or unenforceable by reason of the extent, duration or
geographical scope thereof, or otherwise, then the court making such termination
shall have the right to reduce such extent, duration, geographical scope or
other provisions hereof, and in its reduced form such restriction shall then be
enforceable in the manner contemplated hereby.
7. CONFIDENTIAL INFORMATION
All confidential information which Employee may now possess, may obtain
during or after the Employment Period, or may create prior to the end of the
period he is employed by the Company under this Agreement or otherwise relating
to the business of the Company or of any
5
<PAGE>
customer or supplier of the Company shall not be published, disclosed, or made
accessible by him to any other person, firm, or corporation either during or
after the termination of his employment or used by him except during the
Employment Period in the business and for the benefit of the Company, in each
case without prior written permission of the Company. Employee shall return all
physical evidence of such confidential information to the Company prior to or at
the termination of his employment. As used in this Section 7, "confidential
information" shall mean any information except that information which is
generally known by the Company's principal competitors or which is generally
available to the public.
8. LIFE INSURANCE
If requested by the Company, Employee shall submit to such physical
examinations and otherwise take such actions and execute and deliver such
documents as may be reasonably necessary to enable the Company, at its expense
and for its own benefit, to obtain life insurance on the life of Employee.
Employee has no reason to believe that his life is not insurable with a
reputable insurance company at rates now prevailing in the City of New York for
healthy men of his age.
9. TERMINATION
Notwithstanding anything contained herein, if on or after the date
hereof and prior to the end of the Employment Period,
(a) either:
(1) Employee shall be physically or mentally
incapacitated or disabled or otherwise unable fully
to discharge his duties hereunder for a period of six
(6) months, as determined by the Board of Directors
of the Company;
(2) Employee shall be charged by a grand jury with of a
crime of moral
6
<PAGE>
turpitude or a felony;
(3) Employee shall breach any fiduciary duty to the
Corporations; or
(4) Employee shall breach any material term of this
Agreement and fail to correct such breach within ten
(10) days after written notice by the Company to
Employee of his commission of the same,
then, in each such case, the Company shall have the right to give
notice of termination of Employee's services hereunder as of a
date (not earlier than ten (10) days from such notice) to be
specified in such notice and this Agreement and the Company's
obligations under Section 3 shall terminate on the date so
specified; or
(b) Employee shall die or the Company shall terminate Employee for any
reason other than those reasons enumerated in Section 9 (a) (1)
through (4) above (a "Termination Without Cause"), then this
Agreement shall terminate on the date of Employee's death or the
date on which notice of Termination Without Cause is effected,
whereupon Employee's estate, shall be entitled to receive his
compensation at the rate then provided pursuant to Section 3(a) to
the date on which termination shall take effect or in the case of
Termination Without Cause, the Employee will continue to receive
all compensation in effect on the date of termination through
February 28, 2001. Nothing contained in this Section 9 shall be
deemed to limit any other right the Company may have to terminate
Employee's employment hereunder upon any ground permitted by law.
10. CHANGE OF CONTROL
(a) If following a Change of Control the Employee shall
terminate his
7
<PAGE>
employment on or before February 28, 2001 for Good Reason (as defined in Section
10(c) below), the Employee will be entitled to receive:
(1) A lump sum payment (the "Lump Sum Amount") in an amount
equal to the remainder of his base salary (as described in Section
3(a)) from the date of termination until February 28, 2001;
(2) All previously earned and accrued entitlements and
benefits from the Company and its employee benefit plans, policies and
practices as set forth in Section 3 hereof, to the extent not
previously paid by the Company to or for the benefit of the Employee;
and
(3) Full benefit coverage as if the Employee had retired with
the Company's consent (whether at early or normal retirement age) under
all of the Company's employee benefit plans, policies and practices
(other than under any qualified plans under Section 401 (a) of the
Internal Revenue code of 1986, as amended), and fully vested benefits
under all of the Company's life insurance, health, disability, dental,
accidental death and dismemberment and other employee welfare benefit
plans, policies and practices including, without limitation, under any
stock option plans in which the Employee is a participant. If the
Employee's participation in any such plan, policy or practice is
barred, by law or otherwise, the Company shall at its election (x)
arrange to provide the Employee with benefits substantially similar to
those which the Employee is entitled to receive under such plan, policy
or practice or (y) pay the Employee the after-tax economic equivalent
thereof. For purposes of the preceding sentence, the after-tax economic
equivalent shall be deemed to be the cost that would be incurred by the
Employee in obtaining such benefit at the lowest available individual
basis. The
8
<PAGE>
Company's obligation to provide benefit coverage under such employee
benefit plans, policies and practices shall cease in the event that the
Employee receives comparable coverage from any subsequent employer.
The Lump Sum Amount shall be paid by the Company to the
Employee not later than five days after the termination of the Employee's
employment hereunder. All amounts and benefits to be provided pursuant to clause
(3) above shall be provided without duplication of the amounts and benefits to
be provided pursuant to clause (2) above.
(b) For purposes of this Agreement:
(1) A Change of Control shall be deemed to have taken
place if: (A) any "person" or "group" (as such terms are used
in Sections 13(d) and 14 (d) (2) of the Securities Exchange
Act of 1934, as amended) is or becomes the beneficial owner,
directly or indirectly of securities of the Company
representing 20% or more of the combined voting power of the
Company's then outstanding securities; and (B) as the result
of the transaction or series of transactions in which a
"person" or "group" acquired 20% or more of the combined
voting power of the Company's then outstanding securities (a
"Transaction"), the persons who were directors of the Company
immediately before the Transaction shall cease to constitute a
majority of the Board of Directors of the Company or of any
parent of or successor to the Company immediately after the
Transaction; provided that, for purposes of determining
whether a Change of Control has occurred by virtue of any
event described in clause (A) above, the ownership by any
person who is a stockholder of the Company on the date hereof
of securities representing 20% or more of the combined voting
power of the Company's then outstanding securities
9
<PAGE>
shall not be deemed to constitute a Change of Control so long
as (I) the voting power of the securities owned by such
stockholder does not exceed the voting power of the securities
owned by such stockholder on the date hereof by more than five
percent (5%) and (II) such stockholder does not form or become
a member of any "group" within the meaning of the Securities
Exchange Act of 1934, as amended;
(c) For purposes of this Agreement, "Good Reason"
means:
(1) the assignment to the Employee of any duties
inconsistent in any material respect with his position
(including status, offices, titles and reporting
requirements), authority, duties or responsibilities,
excluding for this purpose an action not taken in bad faith
and which is remedied by the Company promptly after receipt of
notice by the Employee;
(2) any reduction of the Employee's base salary or
the failure by the Company to provide the Employee with
incentive compensation, welfare benefits, retirement benefits
and other benefits which in the aggregate are less favorable
than the benefits to which the Employee was entitled before
the Change of Control; and
(3) the Company's requiring the Employee to be based
at any office or location other than the office and location
at which the Employee is employed on the date of the Change of
Control, except for travel reasonably required in the
performance of the Employee's responsibilities and consistent
with such travel requirements before the Change of Control.
For purpose of this Agreement, any good faith determination "Good Reason" made
by the
10
<PAGE>
Employee shall be entitled to a rebuttable presumption that such determination
is correct.
(d) The Company and the Employee have agreed that the payments
and provision of benefits provided in Sections 10 (a) above shall constitute ,
as liquidated damages, the sole compensation that the Executive shall be
entitled to receive from the Company under this Agreement in the event of the
termination of the Employee's employment pursuant to such Section.
11. SURVIVAL
The covenants, agreements, representations and warranties contained in
or made pursuant to this Agreement shall survive Employee's termination of
employment as provided herein.
12. ENTIRE AGREEMENT: MODIFICATION
This Agreement sets forth the entire understanding of the parties with
respect to the subject matter hereof, supersedes all existing agreements between
them concerning such subject matter and may be modified only by a written
instrument duly executed by each party.
13. NOTICES
Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be mailed by certified mail, return
receipt requested, or delivered against receipt to the party to whom it is to be
given at the address of such party set forth in the preamble to this Agreement
(or to such other address as the party shall have furnished in writing in
accordance with the provisions of this Section 13). Notice to the estate of
Employee shall be sufficient if addressed to Employee as provided in this
Section 13. Any notice or other communication given by certified mail shall be
deemed given three days after the time of certification thereof, except for a
notice changing a party's address which shall be deemed given at the time of
receipt thereof.
11
<PAGE>
14. WAIVER
Any waiver by either party of a breach of any provision of this
Agreement shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Agreement. The failure of a party to insist upon strict adherence to any term of
this Agreement on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. Any waiver must be in writing,
signed by the party giving such waiver.
15. BINDING EFFECT
Employee's rights and obligations under this Agreement shall not be
transferable by assignment or otherwise, such rights shall not be subject to
commutation, encumbrance or the claims of Employee's creditors, and any attempt
to do any of the foregoing shall be void. The provisions of this Agreement shall
be binding upon the inure to the benefit of Employee and his heirs and personal
representatives, and shall be binding upon and inure to the benefit of the
Company and its successors and those who are its assigns under Section 10.
16. NO THIRD PARTY BENEFICIARIES
This Agreement does not create, and shall not be construed as creating,
any rights enforceable by any person not a party to this Agreement (except as
provided in Section 15).
17. HEADINGS
The headings in this Agreement are solely for the convenience of
reference and shall be given no effect in the construction or interpretation of
this Agreement.
18. REMEDY
In the event that any term or provision of this Agreement shall be
deemed by a court of
12
<PAGE>
competent jurisdiction, arbitrator or mediator, as the case may be, to be overly
broad in scope, duration or area of applicability, the court, arbitrator or
mediator, as the case may be, considering the same shall have the power and
hereby is authorized and directed to modify such term or provision to limit such
scope, duration or area, or all of them, so that such term or provision is no
longer overly broad and to enforce the same as so limited.
19. COUNTERPARTS; GOVERNING LAW
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, but all of which together shall constitute on
and the same instrument. It shall be governed by and construed in accordance
with the laws of the State of New York, without giving effect to the conflict of
laws.
13
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
FAMILY GOLF CENTERS, INC.
By:
-----------------------------
Name:
Title:
---------------------------------
JEFFREY C. KEY
14
<PAGE>
EXHIBIT 11.1
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net income......................... $10,524,000 $ 5,208,000 $ 1,074,000
----------- ----------- -----------
----------- ----------- -----------
Weighted average number of common
shares outstanding
-Basic......................... 12,245,000 10,002,000 5,117,000
Shares issuable upon exercise of
dilutive options and warrants.... 1,239,000 958,000 267,000
Less shares assumed repurchased.... (963,000) (670,000) (113,000)
----------- ----------- -----------
Weighted average number of common
shares outstanding
-Diluted....................... 12,532,000 10,290,000 5,271,000
----------- ----------- -----------
----------- ----------- -----------
Income per common share
-Basic......................... $ .86 $ .52 $ .21
----------- ----------- -----------
----------- ----------- -----------
-Diluted....................... .84 .51 .20
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES
<TABLE>
<C> <S>
1. Orient Associates
International, Inc.
2. Skydrive Alley Pond
Company, Inc.
3. Skydrive Greenburgh Co.,
Inc.
4. Skycon Construction Co.,
Inc.
5. Skydrive Willowbrook NJ,
Inc.
6. Skydrive Co., Inc.
7. Pelham Family Golf
Centers, Inc.
8. Richmond Family Golf
Centers, Inc.
9. Peachtree Family Golf
Centers, Inc.
10. Alpharetta Family Golf
Centers, Inc.
11. Valley View Family Golf
Centers, Inc.
12. Mesa Family Golf
Centers, Inc.
13. Virginia Beach Family
Golf Centers, Inc.
14. Flemington Family Golf
Centers, Inc.
15. Yorktown Family Golf
Centers, Inc.
16. The Practice Tee, Inc.
17. TPT El Segundo, Inc.
18. Global/Golf Gavilan
19. Indian River Family Golf
Centers, Inc.
20. Tucson Family Golf
Centers, Inc.
21. Cincinnati Family Golf
Centers, Inc.
22. St. Louis Family Golf
Centers, Inc.
</TABLE>
<PAGE>
<TABLE>
<C> <S>
23. West Palm Beach Family
Golf Centers, Inc.
24. San Jose Family Golf
Centers, Inc.
25. Easton Family Golf
Centers, Inc.
26. Randall's Island Family
Golf Centers, Inc.
27. Privatization Plus, Inc.
28. Westminster Family Golf
Centers, Inc.
29. Carolina Springs Family
Golf Centers, Inc.
30. Denver Family Golf
Centers, Inc.
31. Flanders Family Golf
Centers, Inc.
32. Margate Family Golf
Centers, Inc.
33. The Seven Iron, Inc.
34. C.B. Family Golf
Centers, Inc.
35. Darlington Family Golf
Centers, Inc.
36. Maineville Family Golf
Centers, Inc.
37. Milwaukee Family Golf
Centers, Inc.
38. Olney Family Golf
Centers, Inc.
39. Palm Desert Family Golf
Centers, Inc.
40. Broward Family Golf
Centers, Inc.
41. Englewood Family Golf
Centers, Inc.
42. Raleigh Family Golf
Centers, Inc.
43. Tempe Family Golf
Centers, Inc.
44. Green Oak Golf Practice
Center, Inc.
45. Bronx Family Golf
Centers, Inc.
</TABLE>
<PAGE>
<TABLE>
<C> <S>
46. Milpitas Family Golf
Centers, Inc.
47. San Bruno Family Golf
Centers, Inc.
48. Interbay Family Golf
Centers, Inc.,
49. Carver Family Golf
Centers, Inc.
50. Palm Family Golf
Centers, Inc.
51. Cerritos Family Golf
Centers, Inc.
52. Philadelphia Family Golf
Centers, Inc.
53. Encino/Balboa Family
Golf Centers, Inc.
54. Brooklyn Family Golf
Centers, Inc.
55. Lake Grove Family Golf
Centers, Inc.
56. Golden Spikes, Inc.
57. Whitehall Family Golf
Centers, Inc.
58. Sports Plus Properties,
Inc.
59. Sports Plus Properties
LLC
60. Genprop, LLC
61. Iceworks of America,
Inc.
62. Commack Family Golf
Centers, Inc.
63. Greenville Family Golf
Centers, Inc.
64. The Golf Academy of
Hilton Head Island, Inc.
65. Chicago Family Golf
Centers, Inc.
66. Federal Way Family Golf
Centers, Inc.
67. County Line Family Golf Centers, Inc.
68. Fairfield Family Golf
Centers, Inc.
</TABLE>
<PAGE>
<TABLE>
<C> <S>
69. Kansas Family Golf
Centers, Inc.
70. Elk Grove Family Golf
Centers, Inc.
71. Sports Plus
Cincinnati, Inc.
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference into the Registration
Statements on Form S-8 (Nos. 333-17275 and 33-38192) and on Form S-3 (Nos.
333-15753, 333-2716, 333-40693 and 333-44165) of Family Golf Centers, Inc.
(the "Company") of our report dated March 26, 1998 relating to the
consolidated financial statements of the Company appearing in the 1997
Annual Report on Form 10-K of the Company.
RICHARD A. EISNER & COMPANY, LLP
New York, New York
March 31, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE
YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 6,002,000
<SECURITIES> 55,846,000
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 12,688,000
<CURRENT-ASSETS> 83,280,000
<PP&E> 215,044,000
<DEPRECIATION> 6,160,000
<TOTAL-ASSETS> 325,507,000
<CURRENT-LIABILITIES> 17,386,000
<BONDS> 0
0
0
<COMMON> 129,000
<OTHER-SE> 168,283,000
<TOTAL-LIABILITY-AND-EQUITY> 325,507,000
<SALES> 64,825,000
<TOTAL-REVENUES> 64,825,000
<CGS> 10,467,000
<TOTAL-COSTS> 47,162,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,261,000
<INCOME-PRETAX> 17,061,000
<INCOME-TAX> 6,537,000
<INCOME-CONTINUING> 10,524,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,524,000
<EPS-PRIMARY> 0.86
<EPS-DILUTED> 0.84
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<S> <C> <C> <C> <C>
<C>
<PERIOD-TYPE> YEAR YEAR 3-MOS 6-MOS
9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996 DEC-31-1996 DEC-31-1996
DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996 JAN-01-1996 APR-01-1996
JUL-01-1996
<PERIOD-END> DEC-31-1995 DEC-31-1996 MAR-31-1996 JUN-30-1996
SEP-30-1996
<CASH> 23,121,000 4,556,000 11,147,000 7,214,000
60,872,000
<SECURITIES> 0 33,838,000 0 0
0
<RECEIVABLES> 0 0 0 0
0
<ALLOWANCES> 0 0 0 0
0
<INVENTORY> 1,941,000 6,258,000 3,019,000 4,075,000
4,618,000
<CURRENT-ASSETS> 26,061,000 48,894,000 16,524,000 12,679,000
67,030,000
<PP&E> 33,330,000 103,889,000 44,027,000 61,797,000
91,630,000
<DEPRECIATION> 1,336,000 2,823,000 1,587,000 1,925,000
2,415,000
<TOTAL-ASSETS> 61,582,000 158,293,000 63,130,000 78,479,000
164,221,000
<CURRENT-LIABILITIES> 5,463,000 12,219,000 3,574,000 14,860,000
18,405,000
<BONDS> 0 0 0 0
0
0 0 0 0
0
0 0 0 0
0
<COMMON> 83,000 118,000 85,000 86,000
117,000
<OTHER-SE> 49,305,000 136,826,000 51,901,000 54,515,000
134,931,000
<TOTAL-LIABILITY-AND-EQUITY> 61,582,000 158,293,000 51,986,000 78,479,000
164,221,000
<SALES> 12,432,000 27,904,000 3,362,000 6,852,000
10,654,000
<TOTAL-REVENUES> 12,432,000 27,904,000 3,362,000 6,852,000
10,654,000
<CGS> 1,779,000 4,458,000 457,000 1,196,000
1,390,000
<TOTAL-COSTS> 9,635,000 21,306,000 3,352,000 4,448,000
6,501,000
<OTHER-EXPENSES> 0 0 0 0
0
<LOSS-PROVISION> 0 0 0 0
0
<INTEREST-EXPENSE> 939,000 370,000 100,000 37,000
151,000
<INCOME-PRETAX> 1,924,000 8,400,000 107,000 2,460,000
4,867,000
<INCOME-TAX> 1,255,000 5,208,000 69,000 1,574,000
3,115,000
<INCOME-CONTINUING> 1,074,000 5,208,000 69,000 1,574,000
3,115,000
<DISCONTINUED> 0 0 0 0
0
<EXTRAORDINARY> (181,000) 0 0 0
0
<CHANGES> 0 0 0 0
0
<NET-INCOME> 1,074,000 5,208,000 69,000 1,574,000
3,115,000
<EPS-PRIMARY> .21 .52 0.01 0.18
0.27
<EPS-DILUTED> .20 .51 0.01 0.18
0.27
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 APR-01-1997 JUL-01-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 12,603,000 4,538,000 3,792,000
<SECURITIES> 11,937,000 4,668,000 0
<RECEIVABLES> 0 0 0
<ALLOWANCES> 0 0 0
<INVENTORY> 8,976,000 10,676,000 11,125,000
<CURRENT-ASSETS> 38,946,000 25,807,000 23,179,000
<PP&E> 114,265,000 134,876,000 201,261,000
<DEPRECIATION> 3,851,000 4,967,000 6,442,000
<TOTAL-ASSETS> 160,561,000 170,882,000 246,571,000
<CURRENT-LIABILITIES> 13,548,000 12,486,000 16,883,000
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 119,000 120,000 128,000
<OTHER-SE> 137,585,000 144,201,000 165,599,000
<TOTAL-LIABILITY-AND-EQUITY> 160,561,000 170,882,000 246,571,000
<SALES> 9,015,000 17,542,000 21,867,000
<TOTAL-REVENUES> 9,015,000 17,542,000 21,867,000
<CGS> 1,679,000 3,225,000 3,095,000
<TOTAL-COSTS> 8,383,000 11,081,000 14,546,000
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 191,000 195,000 457,000
<INCOME-PRETAX> 907,000 6,560,000 6,901,000
<INCOME-TAX> 562,000 4,068,000 4,232,000
<INCOME-CONTINUING> 562,000 4,068,000 4,232,000
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 562,000 4,068,000 4,232,000
<EPS-PRIMARY> 0.05 0.34 0.34
<EPS-DILUTED> 0.05 0.34 0.33
</TABLE>
