-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ddkh7dgSsa6+U0bqT6MwS84e5dWBO34r2ZzwH/+qQXZ57Ch3cruF5t0o3fy+dPwo z1++3DxzTH4ODlLB8P8TZw== 0000948830-99-000189.txt : 19990428 0000948830-99-000189.hdr.sgml : 19990428 ACCESSION NUMBER: 0000948830-99-000189 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990427 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALL AMERICAN SPORTPARK INC CENTRAL INDEX KEY: 0000930245 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-AMUSEMENT & RECREATION SERVICES [7900] IRS NUMBER: 880203976 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-24970 FILM NUMBER: 99601819 BUSINESS ADDRESS: STREET 1: 5325 SOUTH VALLEY VIEW BLVD STREET 2: STE 4 CITY: LAS VEGAS STATE: NV ZIP: 89118 BUSINESS PHONE: 7027987777 MAIL ADDRESS: STREET 1: 5325 S VALLEY VIEW BLVD STE 4 CITY: LAS VEGAS STATE: NV ZIP: 89118 FORMER COMPANY: FORMER CONFORMED NAME: SAINT ANDREWS GOLF CORP DATE OF NAME CHANGE: 19940916 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the Fiscal Year ended: December 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from: _____ to _____ Commission File No. 0-024970 ALL-AMERICAN SPORTPARK, INC. ---------------------------------------------------------------- (Exact Name of Small Business Issuer as Specified in its Charter) NEVADA 88-0203976 - ------------------------------- ------------------------ (State or Other Jurisdiction of (I.R.S. Employer Identi- Incorporation or Organization) fication Number) 5325 South Valley View Boulevard, Suite 4, Las Vegas, NV 89118 -------------------------------------------------------------------- (Address of Principal Executive Offices, Including Zip Code) Issuer's Telephone Number, Including Area Code: (702) 798-7777 Securities Registered Pursuant to Section 12(b) of the Act: None. Securities Registered Pursuant to Section 12(g) of the Act: COMMON STOCK, $.001 PAR VALUE CLASS A COMMON STOCK PURCHASE WARRANTS - ----------------------------- -------------------------------------- (Title of Class) (Title of Class) Check whether the Issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not contained in this Form, and no disclosure will be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ] State Issuer's revenues for its most recent fiscal year: $1,583,800 As of March 1, 1999, 3,000,000 shares of common stock were outstanding, and the aggregate market value of the common stock of the Registrant held by non-affiliates was approximately $3,750,000. Transitional Small Business Disclosure Format (check one): Yes __ No X PART I ITEM 1. DESCRIPTION OF BUSINESS. THE COMPANY The Company has developed a concept for family-oriented sports theme parks named "All-American SportPark". The first SportPark was completed on October 9, 1998. Included in this 65 acre SportPark located on the south end of the Las Vegas "Strip" are major attractions which are; the Callaway Golf Center[TM] including a 110 tee driving range, Divine Nine[R] golf course and 20,000 square foot club house; All-American SportPark Pavilion, Major League Baseball Slugger Stadium, NASCAR SpeedPark and All-Sport Arena. Prior to February 26, 1997, the Company was engaged in the business of franchising retail stores which use the name "Las Vegas Discount Golf & Tennis" and which sell a variety of golf and tennis equipment, including apparel and accessories. The Company's business began in 1974 when Vaso Boreta, the President and Chairman of the Board of the Company, opened a "Las Vegas Discount Golf & Tennis" retail store in Las Vegas, Nevada. This store, which is still owned by Mr. Boreta, subsequently began distributing catalogs and developing a mail order business for the sale, principally of golf, and, to a lesser extent, tennis products. In 1984, the Company began to franchise the "Las Vegas Discount Golf & Tennis" retail store concept and commenced the sale of franchises. As of February 26, 1997, when the franchise business was sold, the Company had 43 franchised stores in operation in 17 states and 2 foreign countries. The Company is a Nevada corporation which was incorporated on March 6, 1984, under the name "Sporting Life, Inc." The Company's name was changed to "St. Andrews Golf Corporation" on December 27, 1988, to "Saint Andrews Golf Corporation" on August 12, 1994, and to All-American SportPark, Inc. on December 14, 1998. Saint Andrews Golf Corporation changed its name to All-American SportPark, Inc. to more accurately reflect the Company's main line of business activity. The Company was acquired by Las Vegas Discount Golf & Tennis, Inc. ("LVDG"), a publicly-held company, in February 1988, from Vaso Boreta, who was its sole shareholder. Vaso Boreta presently owns 22.6% of the outstanding stock of LVDG, and serves as its Chairman of the Board, President and CEO. He also serves as the Chairman of the Board of the Company. LVDG presently owns 2,000,000 shares of the Company's common stock, which represents approximately 66.7% of the Company's common stock outstanding. In October 1998, LVDG purchased 250,000 shares of Series B Convertible Preferred Stock of the Company which represents 33% of the Company's preferred stock outstanding. On August 12, 1994, the Company effected a 4,000 for 1 stock split of its Common Stock. All financial information and share data in this Report gives the retroactive effect to the stock split. In December 1994, the Company completed an initial public offering of 1,000,000 Units, each Unit consisting of one share of Common Stock and one Class A Warrant. Two Class A Warrants entitle the holder to purchase one share of Common Stock at an exercise price of $6.50 per share. The net proceeds to the Company from this public offering were approximately $3,684,000. The Class A Warrants expired on March 15, 1999. 2 On July 29, 1996, the Company sold 200,000 shares of its newly designated Series A Convertible Preferred Stock to Three Oceans Inc. ("TOI"), an affiliate of SANYO North America Corporation, for $2,000,000 in cash pursuant to an Investment Agreement between the Company and TOI (the "Agreement"). TOI purchased 300,000 additional shares of Series A Convertible Preferred Stock for an additional $3,000,000 in September and October 1996, pursuant to the Agreement. The Company used the proceeds of these sales to develop its first All-American SportPark in Las Vegas. On December 16, 1996, the Company and its majority shareholder, LVDG, entered into negotiations pursuant to an "Agreement for the Purchase and Sale of Assets" to sell all but one of the four retail stores owned by LVDG, all of LVDG's wholesale operations and the entire franchising business of the Company to Las Vegas Golf & Tennis, Inc., an unaffiliated company. On February 26, 1997, the Company and LVDG completed this transaction, and as a result the Company's operations, assets and liabilities now relate solely to the development and operation of "All-American SportParks". The total price for the sale of the golf distribution system was $5,354,287 of which $4,600,000 was paid in cash, $264,176 was paid with a short-term unsecured receivable, $200,000 was placed in escrow pending the accounting of inventory and trade payables, $200,000 was placed in escrow for two years to cover potential indemnification obligations, $60,475 was withheld for sales taxes, and $29,635 was withheld for accrued vacation liabilities. Of the total purchase price, $2,603,787 was allocated to LVDG and $2,750,500 was allocated to the Company. In connection with the sale of the above-described assets, LVDG and the Company agreed not to compete with the Buyer in the golf equipment business except that the Company is permitted to sell golf equipment at SportPark Las Vegas and driving range facilities which it may operate. In addition, the Buyer granted Boreta Enterprises, Ltd., a limited partnership owned by Vaso Boreta, the President of LVDG, Ron Boreta, the President of the Company, and John Boreta, a principal shareholder of LVDG, the right to operate "Las Vegas Discount Golf & Tennis" stores in southern Nevada, except for the Summerlin area of Las Vegas, Nevada. During June 1997 the Company and Callaway Golf Company formed All- American Golf LLC, a California limited liability company which was owned 80% by the Company and 20% by Callaway Golf Company, and which owns and operates the Callaway Golf Center[TM] at the Las Vegas All American SportPark. In May 1998, the Company sold its 80% interest in All-American Golf LLC to Callaway Golf Company. (See "BUSINESS -- Feature Attractions.") On December 31, 1998 the Company purchased substantially all the assets of All-American Golf, LLC and is currently 100% owner of the Callaway Golf Center[TM] located on 42 acres of the Las Vegas All-American SportPark. On October 19, 1998 the Company sold 250,000 shares of the Series B Convertible Preferred Stock to LVDG for $2,500,000. LVDG had earlier issued 2,303,290 shares of its Common Stock for $2,500,000 in a private transaction to ASI Group, L.L.C. ("ASI"). ASI also received 347,975 stock options for Common Stock at an exercise price of $1.8392 per share through October 19, 2008. ASI is a Nevada limited liability investment company whose members include Andre Agassi, a professional tennis player and Sunbelt Communications Company which is engaged in the broadcasting business including the NBC affiliate in Las Vegas. The Company's offices are located at 5325 South Valley View Boulevard, Suite 4, Las Vegas, Nevada 89118. In the first half of 1999, the Company 3 anticipates moving to 6730 Las Vegas Boulevard South, Las Vegas, Nevada 89119. Its telephone number is (702) 798-7777. On January 20, 1998, the officers of the Company and LVDG executed a merger agreement pursuant to which the Company would merge with and into LVDG. As a result, the separate corporate existence of the Company would cease and LVDG would continue as the surviving corporation of the merger. In November 1998 the proposed merger was cancelled by the Board of Directors of both companies. Significant changes in capital structure which occurred at both companies would require a new independent valuation report and shareholder approval process which time and expense was deemed not to outweigh the anticipated benefits of the merger at that time. On July 12, 1996, the Company entered into a lease agreement covering approximately 65 acres of land in Las Vegas, Nevada, on which the Company developed its first All-American SportPark. The property is located south of the Mandalay Bay Hotel on "The Strip" and borders the new I-215 Loop around the City of Las Vegas. On June 20, 1997, the lessor of the 65 acre tract agreed with the Company to cancel the original lease and replace it with two separate leases: one lease with All American Golf, LLC, which covers the 42 acres where the Callaway Golf Center[TM] is located; and the second lease with the Company which covers the 23 acres where the Sports Entertainment Complex is located. Both leases are very similar in structure. They are both fifteen-year leases with options to extend for two additional five-year terms. The lease for the Callaway Golf Center[TM] commenced on October 1, 1997 when the golf center opened. The other lease commenced on February 1, 1998. BUSINESS OF THE COMPANY ALL-AMERICAN SPORTPARK, INC. In 1998 the Company completed major financing to enable it to complete construction and open the full All-American SportPark. It borrowed $13.5 million from Nevada State Bank in September 1998, concurrent with a $2.5 million purchase of Series B Preferred Stock by its parent, LVDG, in October 1998. In December 31, 1998, the Company reacquired the Callaway Golf Center[TM] through the issuance of a 10 year $1 million promissory note. In April 1997, the Company broke ground on the Callaway Golf Center[TM], and opened it to the public on October 1, 1997. The remainder of the All- American SportPark opened on a limited basis on October 9, 1998. FEATURE ATTRACTIONS CALLAWAY GOLF CENTER[TM]. In June 1997, the Company completed a final agreement with Callaway Golf Company ("Callaway Golf") to form a limited liability company named All American Golf LLC (the "LLC") for the purpose of operating a golf facility, to be called the "Callaway Golf Center[TM]," on approximately forty-two (42) acres of land which is inside the All-American SportPark located on approximately sixty-five (65) acres adjacent to Las Vegas Boulevard in Las Vegas. The Callaway Golf Center[TM] opened to the public on October 1, 1997. The Callaway Golf Center[TM] includes a 110-tee driving range in a two-tiered format. The driving range is designed to have the appearance of an actual golf course with ten impact greens and a 1-1/2 acre lake with cascading 4 waterfalls and an island green. Pro-line equipment and popular brand name golf balls are utilized. In addition, the golf center includes a lighted nine hole, par three golf course named the "Divine Nine". The golf course has been designed to be challenging, and has several water features including lakes, creeks, water rapids and waterfalls, golf cart paths and designated practice putting and chipping areas. At the entrance to the golf center is a 20,000 square foot clubhouse which includes an advanced state of the art golf swing analyzing system, a retail store, a restaurant and bar, and an outdoor patio overlooking the golf course and driving range with the Las Vegas "Strip" in the background. The LLC was originally owned 80% by the Company and 20% by Callaway Golf. Callaway Golf agreed to contribute $750,000 of equity capital and loan the LLC $5,250,000. The Company contributed the value of expenses incurred by the Company relating to the design and construction of the golf center and cash in the combined amount of $3,000,000. Callaway Golf's loan to the LLC had a ten year term and bore interest at ten percent. The principal was due in 60 equal monthly payments commencing five years after the golf center opened. Additional payments of principal were required under certain conditions if the LLC was making cash distributions to its owners before the loan had been repaid. The loan would also be repaid without penalty at any time. The LLC had executed a license agreement with Callaway Golf pursuant to which the LLC licenses the right to use the mark "Callaway Golf Center[TM]" from Callaway Golf for an annual royalty not to exceed $50,000. Pursuant to this agreement, Callaway Golf had the right to terminate the agreement at any time without cause on ninety days prior written notice and with payment of $500,000. As a result of the sale of its interest in the LLC, on May 5, 1998, the Company had no ownership of the Callaway Golf Center[TM] until the end of 1998 (as described in the following paragraph), and the Callaway Golf Center[TM] was operated separately from the Sport Park Las Vegas. However, the Company had the option to repurchase the 80% membership interest for a period of two years on essentially the same financial terms that it sold its interest. This transaction was completed in order to improve the Company's financial condition which in turn improved the Company's ability to complete the financing needed for the final construction stage of the SportPark Las Vegas and for the business activities going forward. On December 31, 1998 AASP acquired substantially all the assets subject to certain liabilities of All-American LLC which managed and operated the Callaway Golf Center[TM], a premier golf facility adjacent to the Company's All-American SportPark in Las Vegas, Nevada. Under terms of the asset purchase agreement, the consideration paid by the Company consisted of payment to Active Media Services $1,000,000 in the form of a $1,000,000 promissory note payable in quarterly installments of $25,000 over a 10-year period without interest. In turn, Active Media delivered a trade credit of $4,000,000 to Callaway Golf. MAJOR LEAGUE BASEBALL SLUGGER STADIUM. The Slugger Stadium is a full size replica of a major league ballpark for batting and baseball training. The Company has been granted a license from Major League Baseball Properties to own and operate Major League Baseball Slugger Stadiums. Under the license agreement, the Company also has the right to utilize certain Major League Baseball trademarks including those of the All Star Game, Division Series, League Championship Series and World Series. Slugger Stadium is a nostalgic formatted batting stadium which attempts to duplicate a major league experience for its patrons. Unlike batting cages which are the normal 5 industry standard, the Company's design is a full size stadium that replicates many of the features of a modern baseball stadium. There are 16 batter boxes and 16 on-deck circles. Batters have the option of hitting hard or softballs delivered at three different speeds. Outfield wall replicas of Fenway Park's "Green Monster" Wall, Baltimore's Camden Yards, Chicago's Wrigley Field, Yankee Stadium, and The Ball Park in Arlington, Texas are designed to challenge batters to hit the balls out of the park. Completing the Major League experience is authentic turnstiles, classic ballpark food and beverage concessions, and baseball memorabilia. In the advanced planning stage are a planned electronic scoreboard and specially designed sound systems that provide typical baseball sounds including proprietary designed umpire calls of balls and strikes. See "Agreement with Major League Baseball" below. NASCAR SPEEDPARK. The Company has a license agreement with The National Association of Stock Car Auto Racing, Inc. ("NASCAR") for the operation of SpeedParks as a part of the All-American SportPark or as a stand-alone NASCAR SpeedPark. The agreement, as amended, provides that the Company has an exclusive license to use certain trademarks and service marks in the development, design and operation of go-kart racing facilities having a NASCAR racing theme in the territories of Las Vegas, Nevada and Southern California. The agreement provides that the exclusive rights to Las Vegas are subject to the condition that the Las Vegas SpeedPark is opened by March 1, 1998, and that the exclusive rights to Southern California are subject to the condition that the Southern California SpeedPark is opened by March 1, 1999. Under the terms of the agreement, if the Company opened the Las Vegas site by March 1, 1998, the license for that site would continue until December 31, 2003, and if the Company opened the Southern California site by March 1, 1999, the license for that site would continue until December 31, 2003. NASCAR has verbally agreed to extend both deadlines for the Las Vegas SportPark. The Company is planning to meet with NASCAR in early 1999 to renegotiate its entire agreement with NASCAR. As consideration for the license, the Company has agreed to pay a fee of $25,000 plus $25,000 for each new SpeedPark opened after the first SpeedPark. In addition, the Company has agreed to pay NASCAR a royalty of each SpeedPark's revenue from racing activities plus a royalty on revenues received from sponsors and promoters of SpeedPark activities. The SpeedPark includes three tracks to accommodate three styles of racing: family, adult and junior tracks. The family go-kart track is a 1,200 linear foot road course for five horsepower go-karts designed for families and children 10 and up, and the other track is a 2,200-foot road course track for eighteen horsepower NASCAR-style go-karts designed for youths and adults 16 years and older. The SpeedParks are comprised generally of the NASCAR Go-Kart SpeedPark, the Garage Experience, the Winner's Circle, the Infield RV Park, Victory Lane, the NASCAR Jr. Track, the Tailgater's Dining Circle and the NASCAR Retail Trackside Trailer Merchandising Experience. Scale model, near emissions-free, gas-powered, stock cars complete with sponsorship graphics and signage, will compete on the three tracks. The cars are various scale versions of NASCAR replicas, and replicas of Track Stock Cars that fit each of the three tracks. In May 1996, the Company entered into an agreement with Jeff Gordon, the 1997 and 1998 NASCAR Winston Cup Champion, 1998 and 1999 Daytona 500 Champion, 1997 Coca-Cola 600 Champion, 1995 Winston Cup Champion and former NASCAR Winston Cup Rookie of the year, to serve as spokesperson of the NASCAR SpeedPark through April 30, 2000. According to the original agreement, Mr. Gordon was paid $25,000 for his services during 1996, and is to be paid $25,000 per SpeedPark opening per year with a minimum guarantee over the life 6 of the agreement. Mr. Gordon was also granted options under the Company's stock option plan. On November 20, 1997, the agreement with Mr. Gordon was amended to, among other things, reduce the amount of services to be provided by him, to make his services non-exclusive to the Company, to limit his services to the Las Vegas SportPark and to set his base fee at $25,000 per year. ALL-AMERICAN SPORTPARK PAVILION. The 100,000 square foot Pavilion includes a multi-purpose sports arena (the "Allsport Arena"), speciality retail areas, food courts, meeting rooms, special events space and leased tenant facilities for food and beverage service and other Company and tenant operated sports activities including the "Boston Garden Experience" Restaurant & Bar, Putting Experience, Time Out Arcade[TM], Rockreation[TM] Sport Climbing Wall, Field of Dreams[TM] Gift Shop and All-American SportPark Logo Shop[TM]. Other attractions are planned. ALLSPORT ARENA. This space can be used to accommodate indoor professional beach volleyball tournaments, professional roller hockey exhibition games, basketball tournaments, tennis matches, cultural and civic special events, and annual super bowl parties which coincide with internationally broadcasted major sporting events, music and entertainment events. It includes a giant video display and movable seating which is adaptable for 1,500 to 3,000 people to view an event. When the arena is not in use for a scheduled event, it accommodates the core business use for in-line skaters who are able to skate to an entertaining multimedia light and sound performance. AGREEMENT WITH MAJOR LEAGUE BASEBALL In December 1994, the Company entered into an agreement with Major League Baseball ("MLB") concerning a license for the use of MLB logos, marks and mascots in the decor, advertising and promotions of the Company's Slugger Stadium concept. This agreement was amended during August 1997. Pursuant to the amended agreement, the Company holds the exclusive right to identify its indoor and outdoor baseball batting stadiums as Major League Baseball Slugger Stadiums. The license covers the United States and expires on November 30, 2000, subject to the right to extend for three additional years provided certain conditions are met. As consideration for the license, the Company agreed to pay $50,000 for each Stadium opened provided that in any year of the term of the agreement a stadium is not opened, the Company must pay $50,000 during such year. The Company has made the payments required for 1995, 1996 and 1997 and expects to make the 1998 payment in 1999. In addition to and as an offset against the minimum payments set out above, the Company is required to pay to MLB a royalty based on the revenue from the batting cages. The Company is meeting with "MLB" in early 1999 to renegotiate its licensing agreement. The Company's right to exclusively use MLB logos and other marks at its baseball batting stadiums is dependent upon certain conditions set forth in the agreement. SPONSORSHIP AGREEMENT WITH PEPSI-COLA COMPANY In December 1997, the Company entered into a sponsorship agreement with the Pepsi-Cola Company ("Pepsi") under which Pepsi received certain exclusive rights related to all non-alcoholic beverage products, except for certain specialty tenants which may use their products such as Starbucks Coffee Shop, and a few other minor exceptions, in exchange for an annual fee and advertising support expenditures. In addition, the agreement provides that 7 Pepsi will have specified signage rights and the multipurpose arena will be named the AllSport Arena after Pepsi's AllSport drink product. In addition, the agreement provides that Pepsi will provide, without charge, all equipment needed to dispense its products at the SporkPark. The agreement with Pepsi provides that the Company and Pepsi will participate in joint marketing programs such as promotions on Pepsi's products and the SportPark. In addition, Pepsi will have the right to provide three marketing events per year. These events are to be used to promote the business of the Company and Pepsi. In consideration for the above rights, Pepsi agreed to pay the Company a fixed payment when any portion of the SportPark was officially opened; an additional payment when the SportPark is 100% completed and all attractions are accessible by the public; and make additional comparable payments on an annual basis for the remaining term of the agreement. The sponsorship agreement will terminate five years after the SportPark is 100% completed, unless earlier terminated as provided in the agreement. Pepsi is current in its payments per the terms of the agreement. AGREEMENT WITH SPORTSERVICE CORPORATION In September 1997, the Company entered into a lease and concession agreement with Sportservice Corporation ("Sportservice") which provides that Sportservice has the exclusive right to prepare and sell all food, beverages (alcoholic and non-alcoholic), candy and other refreshments throughout the All American SportPark, including the Callaway Golf Center[TM], during the ten year term of the agreement. Sportservice has agreed to pay rent based on a percentage of gross sales depending upon the level of sales, whether the receipts are from concession sales, the Arena restaurant, the Clubhouse, vending machines, mobile stands, or catering sales. Rents from the Callaway Golf Center[TM] will be paid to the Company. Sportservice invested approximately $3.85 million into the concessions and operations which includes all food service leasehold improvements. Sportservice is a wholly-owned subsidiary of Delaware North Company. Other Delaware North Companies include the Boston Garden, the Fleet Center in Boston, and food service clients which include the Ballpark in Arlington, Texas, California Speedway, Miller Park in Milwaukee, Space Port USA at Kennedy Space Center and Yosemite National Park. The agreement also provides Sportservice with a right of first refusal for future parks to be built by the Company in consideration for a $100,000 payment. An additional payment of up to $100,000 is due depending on whether Sportservice's development costs for its leasehold improvements and food service assets exceed the estimate of $3.85 million. The Company has not yet audited the Delaware North investment to determine monies due, if any. The agreement has a number of other terms and conditions including a requirement that the Company must operate the SportPark on a year-round, seven days a week basis throughout the term of the agreement. LIABILITY INSURANCE The Company purchased a comprehensive general liability insurance policy to cover possible claims for injury and damages from accidents and similar activities. There is no assurance it will be sufficient to cover all future claims. 8 MARKETING The primary marketing program for the Company in 1999 is to attract customers and build revenues at the Las Vegas All-American SportPark. Numerous programs to generate revenue from the local tourist and convention markets are in place. A group of marketing individuals have been hired and trained to call upon specific market segments. Considerable sales and marketing brochures and other sales support items have been prepared and distributed. Management expects considerable increases in traffic and revenues beginning in this years peak season which is the second and third quarters of 1999. Major League Baseball Slugger Stadium is the "Official Batting Stadium of Major League Baseball". The unique baseball stadium concept is expected to be expanded to other locations in the United States and overseas using the prototype installation at the All-American SportPark as a demonstration facility. Considerable market research by management has indicated a large potential market for Slugger Stadium. Possible locations include new gated sites inside major theme parks, attachments to regional and value oriented shopping malls, inside new sports stadium and Major League Ballpark complexes which are either in the planning and design phase or currently under construction and other All-American SportParks or as stand alone sites. Target consumers include the family, adults, softball players and all youth baseball organizations. The Callaway Golf Center[TM] which includes the nine-hole par 3 golf course, driving range, and clubhouse is designed as a country club atmosphere for the general public. This concept may be expanded into various hotel and resort areas throughout the United States and overseas and can also be included in the SportPark opportunities described above or as a stand alone business. NASCAR SpeedPark is "The Official Go-Kart Racing Facility Licensed by NASCAR". Management plans to develop the concept to include installations alongside Super speedways, NASCAR Team Race/Shops Racing Retail & Entertainment Centers, stand alone facilities and as a separate gated attraction inside major theme parks throughout the United States. The All-American SportPark Pavilion area of the project can be recreated as a stand alone development in a downtown urban setting alongside new arenas, shopping malls, and football/baseball stadiums. The Company's marketing efforts are directed towards a number of large existing and potential markets for which there can be no assurance of financial success. Further, to expand the concepts beyond the first location in Las Vegas could require considerably more financial resources than the Company presently has and more management and human resources than presently exist at the Company. COMPETITION Any SportParks built by the Company will compete with any other family/sports attractions in the city where the SportPark is located. Such attractions could include amusement parks, driving ranges, water parks, and any other type of family or sports entertainment. The Company will be relying on the combination of active user participation in the sports activities and uniqueness of the Park features, attractive designs, and competitive pricing to encourage visitors and patrons. 9 TRADE NAMES AND TRADEMARKS The Company has filed an "intent to use" trademark application for "All-American SportPark" and a related design and "Slugger Stadium". The Company intends to maintain the integrity of the trademarks, other proprietary names and marks against unauthorized use. LVDG has filed an "intent to use" trademark application with regard to the "St. Andrews" name and related designs with respect to men's and women's clothing and certain golf equipment and accessories. LVDG then licensed the rights to use the St. Andrews name to the Company. The trademarks "Las Vegas Discount Golf & Tennis" and "St. Andrews" on golf clubs and golf bags, are registered on the principal register of the United States Patent and Trademark Office as well as in Canada and in the State of Nevada. Management of the Company also believes that it and/or the Company have developed proprietary rights to the name "Birdie Golf". In February 1997, the rights to the trademarks "Las Vegas Discount Golf & Tennis" and "Birdie Golf" were assigned to the purchaser in the sale of assets transaction. The purchaser of the assets granted back to Boreta Enterprises, Ltd. a perpetual license to use the name Las Vegas Discount Golf & Tennis for retail equipment stores in the State of Nevada, south of a line between Pahrump, Nevada and Mesquite, Nevada, except for, the Summerlin area of Las Vegas, Nevada. During September 1997, the Company agreed to sell its rights to the St. Andrews name to Boreta Enterprises, Ltd. for a $20,000, two year promissory note since the Company has committed all of its efforts to the development and management of the All- American SportPark and no longer intends to engage in the business of selling golf equipment or apparel. EMPLOYEES As of January 28, 1999, there were 9 full time employees at the Company's executive offices and 69 at SportPark Las Vegas, Inc. There were also 72 part time employees at the SportPark. In peak season which begins in the spring of 1999, as many as 80 additional full and part time employees could be hired. ITEM 2. DESCRIPTION OF PROPERTY. Through March 31, 1999, the Company occupied approximately 5,340 square feet of office and warehouse space at 5325 South Valley View Boulevard, Suite 4, Las Vegas, Nevada, and pays monthly rent of $1,827. The space was leased from Vaso Boreta, the Company's Chairman of the Board. The rent was adjustable annually based on increases in the consumer price index and the lease was to expire January 31, 2005. The Company's Board of Directors believed that the rent paid is comparable to that which it would pay to an unaffiliated party. In the second quarter of 1999, the Company plans to move its management, sales and marketing staff to the facilities of the Company owned Callaway Golf Center[TM]. Rental payments will cease to Vaso Boreta and no penalties will be incurred in termination of the existing lease. Full and part time operating and management personnel of the SportPark Las Vegas are also located in the SportPark Pavilion and throughout the SportPark at the various attractions. On June 20, 1997, the Company entered into a lease for approximately 65 acres of land in Las Vegas, Nevada, on which the Company built the All- 10 American SportPark and the Callaway Golf Center. The terms of both leases are described above under the heading "ITEM 1. DESCRIPTION OF BUSINESS." ITEM 3. LEGAL PROCEEDINGS. Except for the complaints described in the following paragraph, the Company is not presently a party to any legal proceedings, except for routine litigation that is incidental to the Company's business. On December 28, 1998 Sorensen Construction, Inc. filed a complaint in the District Court of Clark County, Nevada against All-American SportPark LLC seeking damages in the amount of $104,514. Sorensen claims that it provided steel and labor to the All-American SportPark pursuant to a contract but was not paid. The complaint alleged breach of contract, unjust enrichment, declaratory relief, interest and attorneys fees. No discovery has been conducted and a trial has not been set. Management intends to vigorously defend the case. On December 11, 1998 Frankel & Company filed a complaint in the District Court of Clark County, Nevada against the Company seeking damages estimated to be approximately $180,000. Frankel claims that it provided marketing services for the All-American SportPark pursuant to a contract but was not paid. The complaint alleged breach of contract and unjust enrichment. Minimal discovery has been conducted and a trial date has not been set. Management intends to vigorously defend the case. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. 11 PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. MARKET INFORMATION. The Company's Common Stock is traded in the over-the-counter market and is quoted on the NASDAQ Small-Cap Market under the symbol "AASP." The following table sets forth the closing high and low sales prices of the Common Stock for the periods indicated. HIGH LOW ------- ------- Year Ended December 31, 1998: First Quarter $5.438 $1.250 Second Quarter $5.375 $2.750 Third Quarter $4.375 $1.500 Fourth Quarter $3.625 $1.125 Year Ended December 31, 1997: First Quarter $4.375 $2.75 Second Quarter $4.625 $2.375 Third Quarter $4.75 $2.75 Fourth Quarter $3.625 $1.4375 HOLDERS. The number of holders of record of the Company's $.001 par value common stock at March 29, 1999, was 59. This does not include approximately 700 shareholders who hold stock in their accounts at broker/dealers. DIVIDENDS. Holders of common stock are entitled to receive such dividends as may be declared by the Company's Board of Directors. No dividends have been paid with respect to the Company's common stock and no dividends are anticipated to be paid in the foreseeable future. It is the present policy of the Board of Directors to retain all earnings to provide for the growth of the Company. Payment of cash dividends in the future will depend, among other things, upon the Company's future earnings, requirements for capital improvements and financial condition. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION. The following information should be read in conjunction with the Company's Consolidated Financial Statements and the Notes thereto included in this report. OVERVIEW The Company's current operations consist of the development and operation of sport-oriented theme parks under the name "All-American SportPark". DISCONTINUED OPERATIONS. On February 26, 1997, the Company and Las Vegas Discount Golf & Tennis, Inc., the majority shareholder of the Company, sold certain assets and transferred certain liabilities to an unrelated buyer. The total consideration received was approximately $5.3 million of which approximately $2,750,000 was allocated to the Company. Specifically, the Company sold all of its interest in its franchise business, including its rights under agreements with franchisees, the right to franchise such stores and the rights to related trademarks. The buyer assumed certain trade payables of the Company and Las Vegas Discount Golf & Tennis, Inc. The Company recognized a gain of approximately $2.1 million (net of tax) from this sale. 12 During 1997 the Company and Callaway Golf formed All-American Golf, LLC (the "LLC") to construct, manage and operate the "Callaway Golf Center[TM]", a premier golf facility at the site of the All-American SportPark. The Company contributed equity capital of $3,000,000 for 80% of the membership units and Callaway Golf contributed $750,000 equity capital and loaned the LLC $5.25 million at a rate of ten percent per annum. On May 5, 1998 the Company sold its 80% equity interest in All-American Golf to Callaway Golf in exchange for $1.5 million in cash and the forgiveness of a $3 million collateralized note evidencing amounts loaned to the Company in March and April 1998, and related accrued interest. Callaway Golf retained $500,000 of the consideration until it secured all rights to operate the Callaway Golf Center[TM] which was completed on September 30, 1998. The Company resigned as manager of the LLC and received a buy back option to repurchase its 80% equity ownership for a period of 2 years on essentially the same financial terms that it sold its interest. On December 31, 1998 the Company purchased substantially all the assets subject to certain liabilities of the Callaway Golf Center. The Company as consideration paid Active Media $1,000,000 in the form of a promissory note payable in quarterly installments of $25,000 over a 10 year period without interest. In turn, Active Media delivered a trade credit of $4,000,000 to Callaway Golf. CONTINUING OPERATIONS YEAR ENDED DECEMBER 31, 1998 VERSUS YEAR ENDED DECEMBER 31, 1997 REVENUES. Revenue increased to $1,583,800 in 1998 compared to $386,200 in 1997. Revenues from the Callaway Golf Center[TM] were $724,900 through May 5, 1998 compared to $321,700 in the three months of initial operations in the final quarter of 1997. SportPark revenues were $811,400 from its October 9, 1998 initial opening through December 31, 1998. OTHER INCOME. Other income in 1998 remained consistent with 1997 and relates primarily to credit card royalty income. COST OF REVENUES. Cost of revenues increased by $372,500 in 1998 compared to 1997 due to an additional month of Callaway operations, in 1998 compared to 1997, and the opening of SportPark Las Vegas in October 1998. SELLING, GENERAL AND ADMINISTRATIVE ("SG&A"). Selling, general and administrative expenses consist principally of payroll, rent and other corporate costs. The increase to $1,829,400 in 1998 from $878,000 in 1997 reflects higher payroll and other costs associated with the operation of the Callaway Golf Center[TM] through May 5, 1998 and the SportPark in Las Vegas. Also in 1998 the Company experienced larger professional costs, mostly accounting and legal, associated with the multiple financing transactions which occurred during the year. DEPRECIATION AND AMORTIZATION. Depreciation and amortization was $464,400 in 1998 compared to $138,700 in 1997 due mainly to the opening of the SportPark Las Vegas. SPORTPARK DEVELOPMENT COST. Development costs expensed for 1997 were $255,100. In 1998 all development costs were capitalized. PREOPENING EXPENSES. These costs were $603,000 in 1997. In 1998 preopening expenses were $1,179,300, which consists of payroll and operating expenses incurred before opening the SportPark Las Vegas. 13 OPERATING LOSS. Operating loss was $2,831,100 in 1998 compared to $2,057,900 in 1997. Losses in both periods reflect preopening and start-up expenses and other fixed corporate costs during the period when the SportPark Las Vegas was not opened. While the SportPark was opened, losses occurred from the combination of fixed corporate and SportPark cost, including depreciation, land lease fees and limited revenues due to the start-up phase of the business with limited marketing exposure. INTEREST INCOME (EXPENSE). Net interest expense was $552,000 in 1998 compared to income of $94,500 in 1997. In 1997 the Company had interest earning cash balances early in the year. Leasehold improvements, net increased to $24,513,600 in 1998 from $9,981,400 in 1997 and were financed principally from Company cash and borrowed funds resulting in the recorded interest expenses in 1998 after the opening of the SportPark Las Vegas. Interest costs incurred prior to the opening of the SportPark Las Vegas were capitalized as part of leasehold improvements. MINORITY INTEREST. This item reflects the Callaway Golf Company portion of losses in the Callaway Golf Center[TM] of $100,000 for 3 months of 1997 and $76,300 for approximately 4 months in 1998. NET INCOME (LOSS). The Company generated a net loss of $1,487,200 in 1998 compared to net income of $220,700 in 1997. Net income for 1997 includes income from discontinued operations of $2,084,000. The net loss for 1998 includes a gain of $1,638,900 resulting from the Company's sale of its interest in All-American Golf, LLC. Excluding these non-recurring transactions, the Company had net losses of $3,126,100 and $1,863,300 in 1998 and 1997, respectively. The larger net loss in 1998 is due primarily to reasons discussed previously in this section. LIQUIDITY AND CAPITAL RESOURCES At December 31, 1998, the Company had working capital of approximately $419,500 as compared to a working capital deficit of approximately $3,139,300 at December 31, 1997. Cash increased by $2,363,800 to $2,494,300. Various infusions of capital in 1998 enabled the Company to increase its expenditures on the SportPark to substantial completion and operation. The principal sources of capital in 1998 were: an increase in notes payable from $5,750,000 to $13,967,400, an increase in borrowing from a shareholder and affiliated parties from $600,000 to $1,705,300, an increase in borrowing from related parties to $914,400 from $371,100 in 1997; a $1,638,900 gain on the sale of the Callaway Golf Center[TM] which also included the elimination of $3 million of borrowings in 1998 and a $2,500,000 sale of Series B Preferred Stock to the Company's parent. There are no planned major capital expenditures in 1999. The Company in the normal course of its business receives sponsorship fees and various advance payments of different kinds, which are recorded as deferred income until earned. These monies totaled $877,100 at December 31, 1998 compared to $516,700 at December 31, 1997. Deferred income of $130,000 from 1997 was recorded as revenues in 1998. It is anticipated but cannot be guaranteed that sponsorship fees and advances will be a source of cash flow in 1999. On September 15, 1998 the Company entered into a $13,500,000 loan agreement with Nevada State Bank in conjunction with a $2,500,000 equity infusion by the Company's parent, Las Vegas Discount Golf & Tennis. The loan is for 15 years with interest measured at a fixed rate of 4% above the 14 lender's five-year LIBOR rate measured September 1, 1998, 2003 and 2008. For 1998 through August 31, 2003 the loan bears interest of 9.38%. The loan is secured by substantially all the assets that existed at the Company at the time the financing was completed. To facilitate this financing transaction, the owner of the leasehold interest in the land underlying the Sportpark executed a trust deed granting a security interest in the leased property to the Lender to secure repayment of the loan. As consideration for the Landlord's willingness to provide collateral for the loan, the Company's President, CEO and its Chairman and a related entity pledged their stock in the Company as collateral to protect the leased property from foreclosure. On October 19, 1998 the Company sold 250,000 shares of the Series B Convertible Preferred Stock to Las Vegas Discount Golf & Tennis, Inc. (LVDG) for $2,500,000. LVDG had earlier issued 2,303,290 shares of its Common Stock for $2,500,000 in a private transaction to ASI Group, L.L.C. ("ASI"). ASI also received 347,975 stock options for Common Stock at an exercise price of $1.8392 per share through October 19, 2008. ASI is a Nevada limited liability investment company whose members include Andre Agassi, a professional tennis player and Sunbelt Communications Company which is engaged in the broadcasting business including the NBC affiliate in Las Vegas. On December 31, 1998 the Company purchased substantially all the assets and assumed certain liabilities of the Callaway Golf Center[TM] for $1,000,000 payable in $25,000 quarterly installments for a 10 year period with no interest. The Golf Center generated positive cash flow in the first quarter of 1999. If required to fund corporate operations, additional borrowings against the facility could probably be arranged. The Company's Chairman increased lendings to the Company to $1,705,300 from $600,000 in 1997. The loans are due in the year 2001 and bear interest at ten percent per annum. Interest payments of $137,600 and $5,000 for 1998 and 1997, respectively have been deferred, a practice which could continue in 1999 if necessary. The Company paid back $225,000 of these amounts in late March 1999. The Company's accounts payable and accrued expenses declined in 1998 to $1,419,900 from $1,973,600 in 1997. During 1998, the Company's net cash used in operating activities was $3,067,500 compared to $309,800 provided by operating activities in 1997. The increase in cash used in operations activities relates primarily to increased SG&A costs, increased receivables due to SportPark operations, and significantly lower balances of trade payables and accrued expenses. During 1998, net cash used in investing activities totaled $14,285,600 compared to $14,467,200 in 1997. The primary uses of cash for investing activities relate to the development of the SportPark. Cash provided by financing activities during 1998 totaled $19,671,400 compared to $8,515,300 in 1997. The sources of borrowings in 1998 related to notes payable to shareholder, Nevada State Bank financing of $13,500,000, and to proceeds of $2,500,000 from issuance of Series B preferred stock to LVDG. The Company's current and expected sources of working capital are its cash balances which were $2,494,300 at December 31, 1998 and cash flow from operations including sponsorship fees and advance deposits of various kinds. The Company has raised considerable capital in the past two years for development projects. The SportPark is now operational. The Company believes that any working capital deficiency that may occur could be funded from a combination of existing cash balances and, if necessary, 15 additional borrowings from lenders or other sources. If necessary, additional borrowings against the Callaway Golf Center could likely be arranged to fund corporate operations. There are no planned major capital expenditures in 1999. Expansion programs in other locations are expected to be minimal and when they occur, are expected to be mostly funded by third parties. YEAR 2000 COMPLIANCE The Company's accounting system was updated during the first quarter of 1998 and is year 2000 compliant. The Company's All-American SportPark has a number of computerized systems including a point of sale system. Management has been advised by the vendors of the various systems that they are all year 2000 compliant. During the first quarter of 1998, the Company hired a consultant to upgrade all of the Company's other computers and work stations so that they were all year 2000 compliant. The Company will likely incur additional costs in 1999 which are not expected to be material. The Company may be vulnerable to the failure of other companies to be year 2000 compliant. During the fourth quarter of 1998, the Company commenced its assessment of whether third parties with whom the Company has material relationships are year 2000 compliant. The Company is evaluating its vendors and suppliers to determine if there would be a material effect on the Company's business if they do not timely become year 2000 compliant. The Company does not have any significant year 2000 issues related to its customers. The Company intends to initiate formal communications with all of its significant vendors and suppliers with respect to their year 2000 compliance programs and status during the second quarter of 1999. Although the Company expects its internal systems to be year 2000 compliant, the failure of any of its significant vendors or suppliers to correct a material year 2000 problem could result in an interruption in certain normal business activities and operations. A reasonably likely worst case scenario would be for a segment of the Company's SportPark to shut down, and depending on which segment(s) was shut down and for how long, the Company's results of operations could be adversely affected. Daytime operations of the Callaway Golf Center[TM] should not be affected at all. The Company has not yet initiated formal contingency planning processes to mitigate the risk to the Company if any vendors or suppliers are not prepared for the year 2000, but the Company intends to complete this process by June 30, 1999. SAFE HARBOR PROVISION The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Certain information included in this Annual Report contains statements that are forward-looking, such as statements relating to plans for future expansion and other business development activities, as well as other capital spending, financing sources, the effects of regulations and competition. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ from those expressed in any forward-looking statements by or on behalf of the Company. These risks and uncertainties include, but are not limited to, those relating to development and construction activities, dependence on existing management, leverage and debt service (including sensitivity to fluctuations in interest 16 rates), domestic or global economic conditions (including sensitivity to fluctuations in foreign currencies), changes in federal or state tax laws or the administration of such laws, changes in regulations and application for licenses and approvals under applicable jurisdictional laws and regulations. ITEM 7. FINANCIAL STATEMENTS. The financial statements are set forth on pages F-1 through F-23 hereto. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING FINANCIAL DISCLOSURE. No response required. 17 PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS. The Directors and Executive Officers of the Company are as follows: NAME AGE POSITIONS AND OFFICES HELD - ------------------ --- ---------------------------------------------- Vaso Boreta 66 Chairman of the Board Ronald S. Boreta 36 President, Chief Executive Officer, Treasurer, Secretary and Director Robert R. Rosburg 72 Director William Kilmer 59 Director Motoharu Iue 61 Director Except for the fact that Vaso Boreta and Ronald Boreta are father and son, respectively, there is no family relationship between any Director or Officer of the Company. In February 1998, a majority of the Board of Directors of the Company established an audit committee whose members are William Kilmer and Robert Rosburg, both of whom are independent Directors of the Company. The Company presently has no compensation or nominating committee, but has agreed to establish a compensation committee. All Directors hold office until the next Annual Meeting of Shareholders. Officers of the Company are elected annually by, and serve at the discretion of, the Board of Directors. The following sets forth biographical information as to the business experience of each officer and director of the Company for at least the past five years. RONALD S. BORETA has served as President of the Company since 1992, Chief Executive Officer since August 1994, and a Director since its inception in 1984. He also served as an officer and director of the Company's Parent, Las Vegas Discount Golf & Tennis, Inc., from 1988 until July 1994, and he continues to serve as a director. He has been employed by the Company since its inception in March 1984, with the exception of a 6-month period in 1985 when he was employed by a franchisee of the Company located in San Francisco, California. Prior to his employment by the Company, Mr. Boreta was an assistant golf professional at San Jose Municipal Golf Course in San Jose, California, and had worked for two years in the areas of sales and warehousing activities with a golf discount store in South San Francisco, California. Mr. Boreta devotes 100% of his time to the business of the Company. VASO BORETA has served as Chairman of the Board of Directors since August 1994, and has been an Officer and Director of the Company since its formation in 1984. He has also been an officer and director of the Company's Parent, Las Vegas Discount Golf & Tennis, Inc., since 1988. In 1974, Mr. Boreta first opened a specialty business named "Las Vegas Discount Golf & Tennis," which retailed golf and tennis equipment and accessories. He was one of the first retailers to offer pro-line golf merchandise at a discount. He also developed a major mail order catalog sales program from his original store. Mr. Boreta 18 continues to operate his original store, which has been moved to a new location near the corner of Flamingo and Paradise roads in Las Vegas. Mr. Boreta devotes approximately ten percent of his time to the business of the Company, and the balance to the Company's Parent and to operating his store. ROBERT R. ROSBURG has served as a Director of the Company since August 1994, and has been a director of the Company's Parent, Las Vegas Discount Golf & Tennis, Inc., since November 1989. Mr. Rosburg has been a professional golfer since 1953. From 1953 to 1974 he was active on the Professional Golf Association tours, and since 1974 he has played professionally on a limited basis. Since 1975 he has been a sportscaster on ABC Sports golf tournament telecasts. Since 1985 he has also been the Director of Golf for Rams Hill Country Club in Borrego Springs, California. Mr. Rosburg received a Bachelor's Degree in Humanities from Stanford University in 1948. WILLIAM KILMER has served as a Director of the Company since August 1994, and has been a director of the Company's Parent, Las Vegas Discount Golf & Tennis, Inc., since July 1990. Mr. Kilmer is a retired professional football player, having played from 1961 to 1978 for the San Francisco Forty-Niners, the New Orleans Saints and the Washington Redskins. Since 1978, he has toured as a public speaker and also has served as a television analyst. Mr. Kilmer received a Bachelor's Degree in Physical Education from the University of California at Los Angeles. MOTOHARU IUE has served as a Director of the Company since April 1997. Mr. Iue has served as Chairman of the Board of Sanyo North America Corporation ("Sanyo") and President of Three Oceans Inc. ("Three Oceans") since October 1996. Mr. Iue previously served as President of Sanyo and as Chairman of the Board of Three Oceans from 1992 to 1996 and still serves as Chief Executive Officer of Sanyo and Three Oceans. From 1989 to 1992, he was Executive Vice President of Tottori Sanyo Electric Co., Ltd. All three companies are affiliates of Sanyo Electric Co., Ltd. ("Sanyo Electric"), and Three Oceans Inc. is a shareholder of the Company. Mr. Iue has bee a director of Sanyo Electric since 1977. SECTION 16(A) BENEFICIAL REPORTING COMPLIANCE Based solely on a review of Forms 3 and 4 and amendments thereto furnished to the Company during its most recent fiscal year, and Forms 5 and amendments thereto furnished to the Company with respect to its most recent fiscal year and certain written representations, no persons who were either a director, officer, beneficial owner of more than ten percent of the Company's common stock, failed to file on a timely basis reports required by Section 16(a) of the Exchange Act during the most recent fiscal year. ITEM 10. EXECUTIVE COMPENSATION. The following table sets forth information regarding the executive compensation for the Company's President and each other executive officer who received compensation in excess of $100,000 for the years ended December 31, 1998, 1997 and 1996 from the Company: 19
SUMMARY COMPENSATION TABLE LONG-TERM COMPENSATION ANNUAL COMPENSATION AWARDS PAYOUTS ------------------------ ----------------- --------------- SECURI- TIES UNDERLY- OTHER RE- ING ALL ANNUAL STRICTED OPTIONS/ OTHER NAME AND PRINCIPAL COMPEN- STOCK SARs LTIP COMPEN- POSITION YEAR SALARY BONUS SATION AWARD(S) (NUMBER) PAYOUTS SATION - ------------------ ---- -------- -------- ------- -------- ------- ------- ------ Ronald S. Boreta, 1998 $100,000 -- $39,348 -- 435,000 -- -- President and CEO 1997 $101,000 $100,000 $58,183 -- 435,000 -- $4,231 1996 $120,000 $ 5,500 $39,160 -- 325,000 -- $8,265 Charles Hohl, 1996 $100,000 $ 22,000 $10,000 -- -- -- -- Executive Vice President Kevin B. Donovan, 1998 $100,000 -- $ 6,410 -- -- -- -- Vice President of New Business 1997 $117,166 $ 25,000 $ 6,212 -- 10,000 -- -- Development ________________ Represents amounts paid for country club memberships for Ronald S. Boreta, an automobile for his personal use, and contributions made by the Company to retirement plans on his behalf. For 1998, these amounts were $11,148 for club memberships, $7,200 for an automobile and $21,000 to the Company's Supplemental Retirement Plan. Ronald Boreta received $68,202 of this bonus in 1998. Represents premiums paid on a life insurance policy for Ronald S. Boreta's benefit. Represents amount contributed to the Company's retirement plan on behalf of Mr. Hohl. Mr. Hohl's employment as Executive Vice- President ended on February 26, 1997. Represents $6,410 paid for an automobile provided for Mr. Donovan's personal use. Mr. Donovan's employment as Vice President of New Business Development ended in 1998.
OPTION/SAR GRANTS IN LAST FISCAL YEAR - INDIVIDUAL GRANTS PERCENT NUMBER OF OF TOTAL SECURITIES OPTIONS/SARs UNDERLYING GRANTED TO EXERCISE OPTIONS/SARs EMPLOYEES IN OR BASE EXPIRATION NAME GRANTED(#) FISCAL YEAR PRICE($/SH) DATE - --------------- ------------ ------------ ---------- ---------- Ronald S. Boreta -0- -0- -0- -0- 20 AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES SECURITIES UNDERLYING VALUE OF UNEXER- SHARES UNEXERCISED CISED IN-THE ACQUIRED OPTIONS MONEY OPTIONS/ ON SARs AT FY-END SARs AT FY-END EXERCISE VALUE EXERCISABLE/ EXERCISABLE/ NAME (NUMBER) REALIZED UNEXERCISABLE UNEXERCISABLE - ---------------- -------- -------- -------------- --------------- Ronald S. Boreta -0- -0- 435,000 / 0 $0 / $0 EMPLOYMENT AGREEMENTS Effective August 1, 1994, the Company entered into an employment agreement with Ronald S. Boreta, the Company's President and Chief Executive Officer, pursuant to which he receives a base salary of $100,000 per year plus annual increases as determined by the Board of Directors. His salary was increased to $120,000 for the year ended December 31, 1996 and returned to $100,000 for the year ended December 31, 1997. The employment agreement is automatically extended for additional one year periods unless 60 days' notice of the intention not to extend is given by either party. In addition to his base salary, Ronald S. Boreta also will receive a royalty equal to 2% of all gross revenues directly related to the All-American SportPark and Slugger Stadium concepts. However, such royalty is only payable to the extent that the Company's annual consolidated income before taxes after the payment of the royalty exceeds $1,000,000. Ronald S. Boreta also receives the use of an automobile, for which the Company pays all expenses, and full medical and dental coverage. The Company also pays all dues and expenses for membership at two local country clubs at which Ronald S. Boreta entertains business contacts for the Company. Ronald S. Boreta has agreed that for a period of three years from the termination of his employment agreement that he will not engage in a trade or business similar to that of the Company. In June 1997, a majority of the Company's Board of Directors awarded a $100,000 bonus to Ronald S. Boreta for his extraordinary services related to the raising of capital and development of the Company's Las Vegas SportPark. $68,202 of this bonus was paid in October 1998. Effective October 1, 1996, the Company entered into a one-year employment agreement with Kevin B. Donovan, pursuant to which he received a base salary of $100,000 per year. In addition to his base salary, Mr. Donovan received a $25,000 bonus upon the opening of a portion of the All-American SportPark, and received a commission of 5% of all sponsorship sales related to the All-American SportPark. Mr. Donovan also received the use of an automobile provided by the Company. Mr. Donovan's employment agreement ended on September 30, 1997, but his employment has continued on the same terms through November 10, 1998 when Mr. Donovan's employment terminated. COMPENSATION OF DIRECTORS Directors who are not employees of the Company do not receive any fees for Board meetings they attend but are entitled to be reimbursed for reasonable expenses incurred in attending such meetings. 21 STOCK OPTION PLAN During July 1994, the Board of Directors adopted a Stock Option Plan (the "Plan"). The Plan originally authorized the issuance of options to purchase up to 300,000 shares of the Company's Common Stock. The Plan allows the Board to grant stock options from time to time to employees, officers, directors and consultants of the Company. The Board has the power to determine at the time the option is granted whether the option will be an Incentive Stock Option (an option which qualifies under Section 422 of the Internal Revenue Code of 1986) or an option which is not an Incentive Stock Option. Vesting provisions are determined by the Board at the time options are granted. The option price for any option will be no less than the fair market value of the Common Stock on the date the option is granted. Since all options granted under the Plan must have an exercise price no less than the fair market value on the date of grant, the Company will not record any expense upon the grant of options, regardless of whether or not they are incentive stock options. Generally, there will be no federal income tax consequences to the Company in connection with Incentive Stock Options granted under the Plan. With regard to options that are not Incentive Stock Options, the Company will ordinarily be entitled to deductions for income tax purposes of the amount that option holders report as ordinary income upon the exercise of such options, in the year such income is reported. In August 1994, the Board of Directors granted stock options to the following persons who were then Officers and Directors of the Company, to purchase shares of the Company's Common Stock at $5.00 per share. These options expire on August 8, 1999. On June 9, 1997, each of these options (except Charles Hohl's) were reissued at an exercise price of $3.0625. NAME SHARES SUBJECT TO OPTION ----------------- ------------------------ Vaso Boreta 110,000 Ronald Boreta 110,000 Charles Hohl 60,000 (1) Glenn Raynes 10,000 Robert R. Rosburg 5,000 William Kilmer 5,000 ------- Total 300,000 ======= __________________ (1) Mr. Hohl's options vested in increments of 20,000 each year beginning on August 8, 1995. Upon Mr. Hohl's termination of employment, 20,000 of these options expired unvested. In April 1996, the Company's Board of Directors approved increases in the number of shares of Common Stock which may be issued under the Plan from 500,000 to 700,000, subject to approval by the Company's shareholders within one year. Shareholder approval was obtained in April 1997. Also in April 1996, the Company's Board of Directors granted stock options as indicated below that were still outstanding as of March 24, 1999. 22 RELATIONSHIP SHARES SUBJECT EXERCISE NAME TO THE COMPANY TO OPTION PRICE (3) - ---------------- -------------------- -------------- --------- Joel Rubenstein Consultant 10,000 $5.00 Ronald S. Boreta Officer and Director 125,000 $4.75 Ronald S. Boreta Officer and Director 200,000 (1) $4.625 Ted Abbruzzese Consultant 10,000 $4.75 Jeff Gordon Consultant 10,000 (2) $4.75 Hal Price Consultant 1,000 $4.75 ___________________ (1) This option was not to vest until the Company completed a transaction with a major business or investor that made it probable that the Company will be able to pursue its plan of building and operating Sportparks. This condition was met in September 1996 as a result of the investment by Three Oceans, Inc. of $5,000,000 in the Company. (2) This option is currently vested as to 5,000 shares and will vest as to an additional 2,500 on April 24, 1998, and April 24, 1999. (3) On June 9, 1997, each of these options were reissued for the same number of shares at a new exercise price of $3.0625 per share. 401(k) PLAN The Company's Parent maintains a 401(k) employee retirement and savings program (the "401(k) Plan") which covers the Company's employees. Under the 401(k) Plan, an employee may contribute up to 15% of his or her gross annual earnings, subject to a statutory maximum, for investment in one or more funds identified under the plan. The Company's Parent makes matching contributions equal to 50% of participants' contributions up to six percent of the participants salary. SUPPLEMENTAL RETIREMENT PLAN In November 1996, the Company and its majority shareholder established a Supplemental Retirement Plan, pursuant to which certain employees selected by the Company's Chief Executive Officer receive benefits based on the amount of compensation elected to be deferred by the employee and the amount of contributions made on behalf of the employee by the Company. Company contributions to the Supplemental Retirement Plan are immediately vested for Category I employees, and vest 20% per year of employment for Category II employees. Vested amounts under the Supplemental Retirement Plan are paid out over 5 to 20 years upon retirement, disability, death or termination of employment. For 1998 and 1997, Ronald S. Boreta (the President of the Company) was designated as a Category I employee. The Company made contributions in both years to the Supplemental Retirement Plan on behalf of Ronald S. Boreta in the amount of $25,000. The Company's Board of Directors has not yet determined the amounts, if any, which will be contributed to the Supplemental Retirement Plan for 1999. 1998 STOCK INCENTIVE PLAN During October 1998, the Board of Directors approved, subject to stockholder approval, the 1998 Stock Incentive Plan (the "Plan"), and the Company's shareholders approved the Plan during December 1998. 23 The purpose of the Plan is to advance the interests of the Company and its subsidiaries by enhancing their ability to attract and retain employees and other persons or entities who are in a position to make significant contributions to the success of the Company and its subsidiaries, through ownership of shares of Stock of the Company and cash incentives. The Plan is intended to accomplish these goals by enabling the Company to grant awards in the form of options, stock appreciation rights, restricted stock or unrestricted stock awards, deferred stock awards, or performance awards (in cash or stock), other stock-based awards, or combinations thereof, all as more fully described below. GENERAL The Plan will be administered and awards granted by the Company's Board of Directors (the "Board"). Key employees of the Company and its subsidiaries and other persons or entities, not employees of the Company and its subsidiaries, who are in a position to make a significant contribution to the success of the Company or its subsidiaries are eligible to receive awards under the Plan. In addition, individuals who have accepted offers of employment from the Company and who the Company reasonably believes will be key employees upon commencing employment with the Company ("New Hires") are eligible to receive awards under the Plan. STOCK OPTIONS. The exercise price of an incentive stock option ("ISO") granted under the Plan or an option intended to qualify for the performance- based compensation exception under Section 162(m) of the Code may not be less than 100% of the fair market value of the Stock at the time of grant. The exercise price of a non-ISO granted under the Plan is determined by the Board. Options granted under the Plan will expire and terminate not later than 10 years from the date of grant. The exercise price may be paid in cash or by check, bank draft or money order, payable to the order of the Company. Subject to certain additional limitations, the Board may also permit the exercise price to be paid with Stock, a promissory note, an undertaking by a broker to deliver promptly to the Company sufficient funds to pay the exercise price, or a combination of the foregoing. STOCK APPRECIATION RIGHTS (SARs). Stock appreciation rights ("SARs") may be granted either alone or in tandem with stock option grants. Each SAR entitles the holder on exercise to receive an amount in cash or Stock or a combination thereof (such form to be determined by the Board) determined in whole or in part by reference to appreciation in the fair market value of a share of Stock. SARs may be based solely on appreciation in the fair market value of Stock or on a comparison of such appreciation with some other measure of market growth. The data at which such appreciation or other measure is determined shall be the exercise date unless another date is specified by the Board. If an SAR is granted in tandem with an option, the SAR will be exercisable only to the extent the option is exercisable. To the extent the option is exercised, the accompanying SAR will cease to be exercisable, and vice versa. An SAR not granted in tandem with an option will become exercisable at such time or times, and on such conditions, as the Board may specify. RESTRICTED AND UNRESTRICTED STOCK AWARDS: DEFERRED STOCK. The Plan provides for awards of nontransferable shares of restricted Stock subject to forfeiture ("Restricted Stock"), as well as awards of unrestricted shares of Stock. Except as otherwise determined by the Board, shares of Restricted Stock may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until the end of the applicable restriction period and the satisfaction of any other conditions or restrictions established by the Board. 24 Other awards under the Plan may also be settled with Restricted Stock. The Plan also provides for deferred grants entitling the recipient to receive shares of Stock in the future at such times and on such conditions as the Board may specify. OTHER STOCK-BASED AWARDS. The Board may grant other types of awards under which stock is or may in the future be acquired. Such awards may include debt securities convertible into or exchangeable for shares of Stock upon such conditions, including attainment of performance goals, as the Board may determine. PERFORMANCE AWARDS. The Plan provides that at the time any stock options, SARs, stock awards (including restricted stock, unrestricted stock or deferred stock) or other stock-based awards are granted, the Board may impose the additional condition that performance goals must be met prior to the participant's realization of any vesting, payment or benefit under the award. In addition, the Board may make awards entitling the participant to receive an amount in cash upon attainment of specified performance goals. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following table sets forth, as of April 5, 1998, the stock ownership of each person known by the Company to be the beneficial owner of five percent or more of the Company's Common Stock, each Officer and Director individually, and all Directors and Officers of the Company as a group. Except as noted, each person has sole voting and investment power with respect to the shares shown. AMOUNT AND NAME AND ADDRESS NATURE OF BENE- PERCENT OF BENEFICIAL OWNERS FICIAL OWNERSHIP OF CLASS - ------------------------- --------------- -------- Las Vegas Discount Golf & Tennis, Inc. 2,250,000 (1) 66.7% Suite 4 5325 S. Valley View Blvd Las Vegas, Nevada 89118 Vaso Boreta 110,000 (2) 3.5% Suite 4 5325 S. Valley View Blvd. Las Vegas, Nevada 89118 Ronald S. Boreta 435,000 (2) 14.5% Suite 4 5325 S. Valley View Blvd. Las Vegas, Nevada 89118 Robert R. Rosburg 5,000 (2) 0.2% 49-425 Avenida Club La Quinta La Quinta, California 92253 William Kilmer 5,000 (2) 0.2% 1500 Sea Breeze Boulevard Ft. Lauderdale, Florida 33316 25 Motoharu Iue 0 (3) 0% 666 - 5th Avenue New York, New York 10103 Three Oceans Inc. 750,000 (4) 20.0% 2001 Sanyo Avenue San Diego, California 92173 All Directors and Officers 575,000 (5) 16.1% as a Group (7 persons) ___________________ (1) Las Vegas Discount Golf & Tennis, Inc. is a publicly-held corporation of which Vaso Boreta is President, Director and a principal shareholder; Ronald S. Boreta is a Director and a principal shareholder; and Robert R. Rosburg and William Kilmer are Directors. In addition, John Boreta, a son of Vaso Boreta and Boreta Enterprises Ltd., a limited liability company owned by Vaso, Ronald and John Boreta, are principal share- holders of Las Vegas Discount Golf & Tennis, Inc. The following sets forth the percentage ownership beneficially held by such persons in Las Vegas Discount Golf & Tennis, Inc.: Vaso Boreta 16.0% Ronald S. Boreta 6.7% Robert Rosburg 0.1% William Kilmer 0.1% John Boreta 6.6% Boreta Enterprises Ltd. 16.0% Boreta Enterprises Ltd percentage ownership is as follows: Ronald S. Boreta 68.81% John Boreta 30.13% Vaso Boreta 1.06% Also includes 250,000 shares of Common Stock issuable upon the conver- sion of Series B Convertible Preferred Stock held by Las Vegas Discount Golf & Tennis. (2) Represents shares underlying options exercisable within 60 days held by the named person. Does not include shares held by Las Vegas Discount Golf & Tennis, Inc. of which such person is an Officer, Director and/or principal shareholder. (3) Mr. Iue is President of Three Oceans, Inc. and the shares held by Three Oceans, Inc. are not being treated as beneficially owned by Mr. Iue. (4) Represents 500,000 shares of Common Stock issuable upon the conversion of Series A Convertible Preferred Stock held by Three Oceans Inc. and 250,000 shares underlying stock options held by Three Oceans, Inc. (5) Includes shares beneficially held by the five named Directors. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. CERTAIN TRANSACTIONS Las Vegas Discount Golf & Tennis, Inc. ("LVDG"), a publicly-held corporation, owns 66.7% of the Company's outstanding Common Stock and 250,000 26 shares of Series B Convertible Preferred Stock. Vaso Boreta, the Company's Chairman of the Board, is an Officer, Director and principal shareholder of LVDG. Ronald S. Boreta, President and a Director of the Company, is a Director and principal shareholder of LVDG. Robert S. Rosburg and William Kilmer, Directors of the Company, are also Directors of LVDG. In addition, John Boreta, the son of Vaso Boreta and the brother of Ronald S. Boreta, is a principal shareholder of LVDG. Until August 1, 1994, the Company and LVDG shared the expenses of jointly-used facilities and administrative and accounting personnel on a 50-50 basis under a verbal agreement. Since August 1, 1994, the Company and LVDG have allocated these costs on a pro rata basis based on which entity receives the benefit of the particular expense. With respect to the lease for the office and warehouse facilities, starting July 1, 1996 LVDG paid 33% of the monthly lease payments and the Company paid 67%. The Company is terminating the lease in the second quarter of 1999 and moving to Company owned facilities at the Callaway Golf Center[TM]. Effective August 1, 1994, LVDG also agreed to purchase, warehouse and make available to the Company and its franchisees certain merchandise. In exchange, the Company agreed to pay $350,000 from the proceeds of its December 1994 initial public offering to retire certain bank indebtedness described below. Through February 1997, certain facilities used by the Company and LVDG were leased by the Company from Vaso Boreta, the Company's Chairman of the Board. LVDG leased approximately 15,500 square feet of warehouse space and 6,000 square feet of office space from Mr. Boreta at a base monthly rent of $13,000. The Board of Directors of the Company believes that the terms of this lease were at least as favorable as those which could have been obtained from an unaffiliated entity. When the golf distribution business was sold in February 1997, the rent decreased to $4,230 and was reduced further to $1,830 beginning in October 1998. Vaso Boreta, the Company's Chairman of the Board, loaned the Company a total of $1,780,000 and $600,000 in 1998 and 1997, respectively. These loans are evidenced by a demand note bearing interest at ten percent per annum. Approximately $220,000 of these amounts were paid back in late March 1999. During September 1997, a majority of the Board of Directors of the Company agreed to sell the Company's rights to the St. Andrews name to Boreta Enterprises, Ltd. for a $20,000 two-year promissory note since the Company has committed all of its efforts to the development and management of the All-American SportPark and no longer intends to engage in the business of selling golf equipment or apparel. On September 15, 1998 the Company completed a $13,500,000 secured loan with Nevada State Bank. This loan was secured by all of the assets of the Company that existed at that time and by the personal guarantees of Vaso Boreta and Ron Boreta. In addition, the landlord of the property where the Company's Las Vegas SportPark is located was required to subordinate its claims against the Company to the Nevada State Bank. In consideration, Vaso Boreta, Ron Boreta and Boreta Enterprises pledged all of their shares of LVDG to the landlord and the landlord was issued 75,000 stock options exercisable at $4.00 per share through the year 2005. A majority of the Company's Board of Directors believes that the terms of the above transactions were on terms no less favorable to the Company than if the transactions were with unaffiliated third parties. 27 ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K. (a) 3. EXHIBITS. EXHIBIT NUMBER DESCRIPTION LOCATION - ------- -------------------------- ------------------------------ 2 Agreement for the Purchase Incorporated by reference to and Sale of Assets, as Exhibit 10 to the Registrant's amended Current Report on Form 8-K dated February 26, 1997 3.1 Restated Articles of Incorporated by reference to Incorporation Exhibit 3.1 to the Registrant's Form SB-2 Registration Statement (No. 33-84024) 3.2 Certificate of Amendment Incorporated by reference to to Articles of Incorporation Exhibit 3.2 to the Registrant's Form SB-2 Registration Statement (No. 33-84024) 3.3 Revised Bylaws Incorporated by reference to Exhibit 3.3 to the Registrant's Form SB-2 Registration Statement (No. 33-84024) 3.4 Certificate of Amendment Filed electronically herewith Articles of Incorporation Series A Convertible Preferred 3.5 Certificate of Designation Filed electronically herewith Series B Convertible Preferred 3.6 Certificate of Amendment to Filed electronically herewith Articles of Incorporation - Name change 10.1 Employment Agreement with Incorporated by reference to Ronald S. Boreta Exhibit 10.1 to the Registrant's Form SB-2 Registration Statement (No. 33-84024) 10.2 Stock Option Plan Incorporated by reference to Exhibit 10.2 to the Registrant's Form SB-2 Registration Statement (No. 33-84024) 10.3 Ground Lease with Summa Incorporated by reference to Corporation Exhibit 10.3 to the Registrant's Form SB-2 Registration Statement (No. 33-84024) 28 10.4 Agreement between the Incorporated by reference to Company and Las Vegas Exhibit 10.4 to the Registrant's Discount Golf & Tennis, Form SB-2 Registration Statement Inc. (No. 33-84024) 10.5 License Agreement between Incorporated by reference to The Company and Las Vegas Exhibit 10.5 to the Registrant's Discount Golf & Tennis, Form SB-2 Registration Statement Inc. (No. 33-84024) 10.6 Employment Agreement with Incorporated by reference to Kevin Donovan Exhibit 10.6 to the Registrant's Form SB-2 Registration Statement (No. 33-84024) 10.7 Employment Agreement with Incorporated by reference to Charles Hohl Exhibit 10.7 to the Registrant's Form SB-2 Registration Statement (No. 33-84024) 10.8 Lease Agreement with A&R Incorporated by reference to Management and Development Exhibit 10.8 to the Registrant's Co., et al., and Sublease Form SB-2 Registration Statement to Las Vegas Discount Golf (No. 33-84024) & Tennis, Inc. 10.9 Lease Agreement with Vaso Incorporated by reference to Boreta, as amended, and Exhibit 10.9 to the Registrant's Assignment to Las Vegas Form SB-2 Registration Statement Discount Golf & Tennis, Inc. (No. 33-84024) 10.10 Letter Agreement with Oracle Incorporated by reference to One Partners, Inc. Exhibit 10.10 to the Registrant's Form SB-2 Registration Statement (No. 33-84024) 10.11 Promissory Note to Vaso Incorporated by reference to Boreta Exhibit 10.11 to the Registrant's Form SB-2 Registration Statement (No. 33-84024) 10.12 Agreement with Major League Incorporated by reference to Baseball Properties, Inc. Exhibit 10.12 to the Registrant's Form 10-KSB for the year ended December 31, 1995 10.13 License Agreement with Incorporated by reference to National Association for Exhibit 10.13 to the Registrant's Stock Car Auto Racing, Inc. Form 10-KSB for the year ended dated August 1, 1995 December 31, 1995 10.14 Concept Development and Incorporated by reference to Trademark License Agreement Exhibit 10.14 to the Registrant's with Callaway Golf Company Form 10-KSB for the year ended Dated May 23, 1995 December 31, 1995 10.15 Investment Agreement with Incorporated by reference to Three Oceans, Inc. Exhibit 10.1 to Registrant's Form 8-K dated July 29, 1996 29 10.16 Lease Agreement between Incorporated by reference to Urban Land of Nevada and Exhibit 10.16 to the Registrant's All-American SportPark, Form SB-2 Registration Statement Inc. (No. 33-84024) 10.17 Lease Agreement between Incorporated by reference to Urban Land of Nevada and Exhibit 10.17 to the Registrant's All-American Golf Center, Form SB-2 Registration Statement LLC (No. 33-84024) 10.18 Operating Agreement for Incorporated by reference to All-American Golf, LLC, Exhibit 10.18 to the Registrant's a limited liability Form SB-2 Registration Statement Company (No. 33-84024) 10.19 Employment Agreement with Incorporated by reference to Kevin Donovan dated Exhibit 10.19 to the Registrant's October 8, 1996 Form SB-2 Registration Statement (No. 33-84024) 10.20 Lease and Concession Agree- Incorporated by reference to ment with Sportservice Exhibit 10.20 to the Registrant's Corporation Form SB-2 Registration Statement (No. 33-84024) 10.21 Sponsorship Agreement Incorporated by reference to with Pepsi-Cola Company Exhibit 10.21 to the Registrant's Form SB-2 Registration Statement (No. 33-84024) 10.22 Agreement and Plan of Incorporated by reference to Merger dated January 20, Exhibit 10.22 to the Registrant's 1998 between the Company Form SB-2 Registration Statement and Las Vegas Discount (No. 33-84024) Golf & Tennis, Inc. 10.23 Promissory Note of All- Filed electronically herewith American SportPark, Inc. for $3 million payable to Callaway Golf Company 10.24 Guaranty of Note to Filed electronically herewith Callaway Golf Company 10.25 Forbearance Agreement dated Filed electronically herewith March 18, 1998 with Callaway Golf Company 10.26 Amendment No. 2 to License Filed electronically herewith Agreement with National Assoc. for Stock Car Auto Racing, Inc. 30 21 Subsidiaries of the Incorporated by reference to Registrant Exhibit 21 to the Registrant's Form SB-2 Registration Statement (No. 33-84024) 27 Financial Data Schedule Filed electronically herewith (b) REPORTS ON FORM 8-K. The Company filed reports on Form 8-K dated: (1) May 5, 1998, reporting on Items 2 and 7; (2) October 19, 1998, reporting on Items 5 and 7; and (3) December 31, 1998, reporting on Items 2 and 7. 31 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of All-American SportPark, Inc.: We have audited the accompanying consolidated balance sheets of ALL-AMERICAN SPORTPARK, INC. (formerly Saint Andrews Golf Corporation (a Nevada Corporation)) and subsidiaries (the "Company") as of December 31, 1998 and 1997, and the related consolidated statements of operations, shareholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of All-American SportPark, Inc. and subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1e to the consolidated financial statements, the Company has had recurring operating losses from continuing operations and generated negative cash flow from continuing operations for the year ended December 31, 1998, which raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1e. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ Arthur Andersen LLP ARTHUR ANDERSEN LLP Las Vegas, Nevada March 24, 1999 F-1 ALL-AMERICAN SPORTPARK, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS DECEMBER 31, 1998 1997 ---------- ---------- CURRENT ASSETS: Cash and cash equivalents $ 2,494,300 $ 176,000 Accounts receivable - trade 799,200 67,100 Inventory 99,500 - Due from affiliated store 14,900 102,700 Due from officer - 3,000 Prepaid expenses and other 50,100 30,600 Preopening expenses, net - 99,800 ----------- ----------- Total current assets 3,458,000 479,200 Leasehold improvements and equipment, net 24,513,600 9,981,400 Note receivable - related party 20,000 20,000 Deposit for land lease 225,600 433,700 Project development costs - 7,850,100 Debt issuance costs, net 393,300 - Other assets 82,900 29,300 ----------- ----------- Total assets $28,693,400 $18,793,700 =========== =========== The accompanying notes are an integral part of these consolidated financial statements. F-2 ALL-AMERICAN SPORTPARK, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Continued) LIABILITIES AND SHAREHOLDERS' EQUITY DECEMBER 31, 1998 1997 ---------- ---------- CURRENT LIABILITIES: Bank line of credit $ - $ 668,400 Current portion of Long-term debt 559,300 500,000 Current portion of obligations under capital leases 118,400 72,200 Accounts payable and accrued expenses 1,419,900 1,973,600 Due to Affiliated Store 26,500 33,200 Due to Related Entities 914,400 371,100 ----------- ---------- Total current liabilities 3,038,500 3,618,500 Note payable to shareholder 1,705,300 600,000 Long-term debt, net of current portion 13,408,100 5,250,000 Obligation under capital leases, net of current portion 530,300 211,200 Deferred income 877,100 516,700 Minority interest - 650,000 SHAREHOLDERS' EQUITY: Series A Convertible Preferred stock, $.001 par value, 500,000 shares authorized and outstanding at December 31, 1998 and 1997 4,740,000 4,740,000 Series B Convertible Preferred Stock, $.001 2,500,000 - par value, 250,000 shares authorized and outstanding at December 31, 1998 Options issued in connection with Series A Convertible Preferred Stock to purchase 250,000 shares of Common stock 260,000 260,000 Options issued in connection with financing 174,000 -- Common stock, $.001 par value, 10,000,000 shares authorized, 3,000,000 shares issued and outstanding at December 31, 1998 and 1997 3,000 3,000 Additional paid-in-capital 3,333,300 3,333,300 Common stock purchase warrants, class A, authorized and outstanding-1,000,000 warrants at December 31, 1998 and 1997 187,500 187,500 Accumulated deficit (2,063,700) (576,500) ----------- ----------- Total shareholders' equity 9,134,100 7,947,300 ----------- ----------- Total liabilities and shareholders' equity $28,693,400 $18,793,700 =========== =========== The accompanying notes are an integral part of these consolidated financial statements. F-3 ALL-AMERICAN SPORTPARK, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1998 1997 REVENUES: ---------- ---------- Callaway Golf Center[TM] $ 724,900 $ 321,700 SportPark Las Vegas 811,400 - Management Fee - 16,100 Other 47,500 48,400 ---------- ---------- Total Revenues 1,583,800 386,200 COST OF REVENUES: Callaway Golf Center[TM] 716,400 569,300 SportPark Las Vegas 225,400 - ---------- ---------- Total Cost of Revenues 941,800 569,300 Gross Profit (Loss) 642,000 (183,100) OPERATING EXPENSES: Selling, general and administrative 1,829,400 878,000 Depreciation and amortization 464,400 138,700 SportPark development costs - 255,100 Preopening expenses 1,179,300 603,000 ---------- --------- Total Operating Expenses 3,473,100 1,874,800 OPERATING LOSS (2,831,100) (2,057,900) OTHER INCOME(EXPENSE): Interest income (expense), net (552,000) 94,500 Gain on sale of interest in All-American Golf, LLC 1,638,900 - ----------- ----------- Loss from continuing operations before income taxes and minority interest (1,744,200) (1,963,400) Provision (benefit) for income taxes - - ---------- ----------- Loss from continuing operations before minority interest (1,744,200) (1,963,400) Minority interest 76,300 100,000 The accompanying notes are an integral part of these consolidated financial statements. F-4 ALL-AMERICAN SPORTPARK, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED) YEARS ENDED DECEMBER 31, 1998 1997 ---------- ---------- DISCONTINUED OPERATIONS: Loss from operations of franchise business disposed of (no income taxes were recorded in 1997) - (39,300) Gain on disposal of franchise operations (net of applicable income taxes) 180,700 2,123,400 ----------- ----------- Income from discontinued operations 180,700 2,084,000 ----------- ----------- NET INCOME (LOSS) $(1,487,200) $ 220,700 =========== =========== NET INCOME (LOSS) PER SHARE: Basic and Diluted: Loss from continuing operations before income taxes and minority interest $ (.58) $(.65) Income from discontinued operations and minority interest .08 .69 ------ ----- Net Income (Loss) per share $ (.50) $ .04 ======= ====== The accompanying notes are an integral part of these consolidated financial statements. F-5 ALL-AMERICAN SPORTPARK, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECFEMBER 31, 1998 AND 1997
COMMON COMMON STOCK ADDITIONAL STOCK (ACCUMU- PREFERRED PURCHASE COMMON PAID-IN PURCHASE LATED STOCK OPTIONS STOCK CAPITAL WARRANTS DEFICIT) TOTAL ---------- -------- ------ ---------- -------- --------- ---------- Balance, December 31, 1996 $4,740,000 $260,000 $3,000 $3,333,300 $187,500 $ (797,200) $7,726,600 Net income - - - - - 220,700 220,700 ---------- -------- ------ ---------- -------- ----------- ---------- Balance, December 31, 4,740,000 260,000 3,000 3,333,300 187,500 (576,500) 7,947,300 ---------- -------- ------ ---------- -------- ----------- ---------- Series B Preferred Stock 2,500,000 - - - - - 2,500,000 Options issued - 174,000 - - - - 174,000 Net Loss - - - - - (1,487,200) (1,487,200) ---------- -------- ------ ---------- -------- ----------- ---------- Balance December 31, $7,240,000 $434,000 $3,000 $3,333,300 $187,500 $(2,063,700) $9,134,100 ========== ======== ====== ========== ======== =========== ==========
The accompanying notes are an integral part of these consolidated financial statements. F-6 ALL-AMERICAN SPORTPARK, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1998 1997 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $(1,487,200) $ 220,700 Adjustment to reconcile net income (loss) to net cash provided by (used in) operating activities: Minority interest - (100,000) Depreciation and amortization 470,400 205,000 Preopening expenses - 603,000 Gain on disposition of trademark rights - (20,000) Gain on sale of investment in Callaway Golf Center[TM] (1,638,900) - Gain on disposal of franchise operations - (2,123,400) Changes in assets and liabilities: Increase in accounts receivable (789,900) (67,100) Increase in inventories (99,500) - Decrease in due from officer 3,000 10,000 Increase in prepaid expenses and other (100,800) (13,600) Increase in accounts payable and accrued expenses 215,100 1,232,000 Decrease in deferred franchise fees - (62,500) Increase in deferred income 360,300 425,700 ---------- ---------- Net cash provided by (used in) operating activities (3,067,500) 309,800 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Net proceeds from sale of All-American Golf, LLC 1,204,500 - Proceeds received from sale of franchise business and other fixed assets - 2,242,900 Project development costs - (6,246,700) Increase in other assets - (29,300) Leasehold improvements expenditures (15,490,100) (9,731,300) Preopening expenses - (702,800) ----------- ------------ Net cash used in investing activities (14,285,600) (14,467,200) ----------- ----------- The accompanying notes are an integral part of these consolidated financial statements. F-7 ALL-AMERICAN SPORTPARK, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) YEARS ENDED DECEMBER 31, 1998 1997 ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase in due to Affiliate Store and Related Entities 1,176,800 768,500 Payments on notes payable and notes payable to shareholder and related entity (1,362,100) - Loan fees paid (226,200) - Proceeds from issuance of Series B Preferred Stock 2,500,000 - Proceeds (payments)on bank line of credit (668,400) 668,400 Proceeds from notes payable and note payable to shareholder and related entity 18,335,300 6,350,000 Principal payments on capital leases (84,000) (21,600) Contribution from minority interest - 750,000 ---------- ---------- Net cash provided by financing activities 19,671,400 8,515,300 ---------- ---------- NET INCREASE(DECREASE)IN CASH AND CASH EQUIVALENTS 2,318,300 (5,642,100) CASH AND CASH EQUIVALENTS, Beginning of year 176,000 5,818,100 ---------- ---------- CASH AND CASH EQUIVALENTS, End of year $2,494,300 $ 176,000 ========== ========== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for: Interest, net of amounts capitalized $ 321,900 $ 122,100 ========== ========== Income taxes $ - $ 338,000 ========== ========== NON-CASH INVESTING AND FINANCING ACTIVITIES: Equipment financed through capital leases $ 699,600 $ 305,000 ========== ========== Issuance of stock options in connection with financing $ 174,000 $ - ========== ========== The accompanying notes are an integral part of these consolidated financial statements. F-8 ALL-AMERICAN SPORTPARK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATIONAL STRUCTURE AND BASIS OF PRESENTATION a. PRINCIPLES OF CONSOLIDATION The consolidated financial statements of All-American SportPark, Inc. ("AASP") (formerly Saint Andrews Golf Corporation), a Nevada corporation, include the accounts of AASP and its subsidiaries, SportPark Las Vegas, Inc. ("SPLV") and All-American Golf Center, Inc. ("AAGC"), both Nevada corporations, collectively the "Company". All significant intercompany accounts and transactions have been eliminated. b. COMPANY BACKGROUND AND PRIMARY BUSINESS ACTIVITIES Until December 13, 1994, AASP was a wholly-owned subsidiary of Las Vegas Discount Golf & Tennis, Inc. ("LVDG"). On December 13, 1994, the Company completed an initial public offering of 1,000,000 Units (representing one- third of the post offering shares outstanding) at a price of $4.50 per Unit, each Unit consisting of one share of common stock and one Class A Warrant. The net proceeds of this offering were $3,683,800. Two Class A Common Stock Purchase Warrants entitled the holders to purchase one share of the Company's common stock for $6.50 per share. The Warrants expired in March 1999. LVDG currently owns 66-2/3% of the Company's outstanding common stock and 33% of the Company's Convertible Preferred Stock. AASP operates the Company's All- American SportPark. The Company's Chairman owns 100 percent of the original Las Vegas Discount Golf & Tennis location on Paradise Road, which opened in Las Vegas, Nevada in 1974. This store is referred to herein as the "Affiliated Store" and operated under an agreement with LVDG prior to the sale of certain assets as more fully described in Note 1(c). On June 13, 1997 the Company and Callaway Golf Company ("Callaway") formed All-American Golf, LLC (the "LLC") to construct, manage and operate the "Callaway Golf Center[TM]", a premier golf facility at the site of the SPLV. The Company contributed $3.0 million for 80 percent of the members' units of the LLC while Callaway purchased the remaining 20 percent for $750,000. The minority interest presented in the accompanying financial statements for 1997 represents Callaway's interest in the LLC. Through May 5, 1998 the Company managed the driving range, golf course and tenant facilities in the clubhouse for a fee of five percent of gross revenues pursuant to the LLC Operating Agreement. On May 5, 1998, pursuant to the terms of a Purchase and Sale Agreement between the Company and Callaway Golf, the Company sold its 80% membership interest in the LLC to Callaway Golf for $1,500,000 in cash and the forgiveness of $3,000,000 of debt, including the interest thereon, owed to Callaway Golf by the Company. This transaction resulted in a gain to the Company of $1,638,900. In connection with the sale of the membership interest, the Company resigned as the manager of the LLC, and agreed not to compete with the Callaway Golf Center[TM] in Clark County, Nevada for a period of two years. As a result of the sale of its interest in the LLC, the Callaway Golf Center[TM] was operated separately from the SportPark Las Vegas. However, the Company retained the option to repurchase the 80% membership interest for a period of two years. F-9 On December 31, 1998 the Company acquired substantially all the assets subject to certain liabilities of All-American Golf, Inc. which managed and operated the Callaway Golf Center[TM]. The Company has developed a concept for family-oriented sports theme parks named "All-American SportPark". The first SportPark was completed on October 9, 1998. Included in this 65 acre SportPark located on the south end of the Las Vegas "Strip" are major attractions which are: the Callaway Golf Center[TM] including a 110 tee driving range, Divine Nine[R] golf course and 20,000 square foot club house; All-American SportPark Pavilion, Major League Baseball Slugger Stadium, NASCAR SpeedPark and All-Sport Arena. c. DISCONTINUED OPERATIONS On February 26, 1997, LVDG and the Company completed the sale of certain of their assets and transferred certain liabilities to an unrelated buyer who has incorporated under the name Las Vegas Golf & Tennis, Inc. in a transaction whose terms were substantially in accordance with the "Agreement for the Purchase and Sale of Assets". The total consideration received was $5.3 million ($1.4 million of which was attributed to net assets held for sale) of which $4.6 million was paid in cash, $264,000 was received in the form of a short-term receivable, $200,000 was placed in escrow pending the accounting for inventory and trade payables, and $200,000 was placed in escrow for two years to cover potential indemnification obligations. Of the total consideration received, approximately $2,750,000 in cash was allocated to AASP. LVDG expects to collect the $200,000 remaining in escrow in 1999. This transaction resulted in the disposal of the Company's franchise business. The agreement also provides for the assignment of all franchisor rights under existing franchise agreements. Furthermore, the Company assigned all trade names and trademarks associated with the business. The agreement also included a covenant not to compete with the Buyer in the golf equipment business except that the Company is permitted to sell golf equipment at SPLV and driving range facilities which it operates. In addition, the Buyer granted Boreta Enterprises, Ltd., a limited partnership owned by Vaso Boreta, the president of LVDG, Ron Boreta, the President of the Company, and John Boreta, a principal shareholder of LVDG, the right to operate "Las Vegas Discount Golf & Tennis" stores in southern Nevada, except for the Summerlin area of Las Vegas, Nevada. The sale of all assets, liabilities and rights related to the franchise business have been presented as "Discontinued Operations" in the accompanying consolidated financial statements for the year ended December 31, 1997. Revenues related to discontinued operations totaled $156,000 for the year ended December 31, 1997. d. CONCENTRATIONS OF RISK The Company operates one All-American Sportpark and the Callway Golf Center in Las Vegas, Nevada. The level of customer demand for these types of recreational facilities is undetermined. The Company is implementing various strategies to market the facilities to both tourists and local residents. Should attendance levels at the Sportpark and Golf Center not meet expectations in the short-term, management believes existing cash balances will be sufficient to fund operating expenses and debt service requirements for at least the next twelve months. The inability to build attendance to profitable levels beyond a twelve month period may require the Company to seek additional debt or equity financing to meet its obligations as they come due. F-10 There is no assurance that the Company would be successful in securing such debt or equity financing in amounts or with terms acceptable to the Company. e. GOING CONCERN MATTERS The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying consolidated financial statements, during the year ended December 31, 1998, the Company had incurred operating losses from continuing operations of $1,744,200 and negative cash flow from operations of $3,067,500. Additionally, as of December 31, 1998 the Company had working capital of approximately $419,500 and cash and cash equivalents of $2,494,300. In September 1998, the Company successfully secured a $13.5 million loan in order to complete the construction of the SportPark. To facilitate this financing transaction, the owner of the leasehold interest in the land underlying the Sportpark executed a trust deed granting a security interest in the leased property to the Lender to secure repayment of the loan. As consideration for the Landlord's willingness to provide collateral for the loan, the Company's President, CEO and its Chairman and a related entity pledged their stock in the Company as collateral to protect the leased property from foreclosure. Additionally, the Company's parent obtained an additional $2.5 million in equity financing from ASI, L.L.C. an investment group headed by Andre Agassi and Sunbelt Communications, the proceeds of which were used to purchase 250,000 shares of Series B Convertible Preferred Stock of the Company. In addition, the Company will implement various marketing strategies in 1999 to stimulate visitor volume at both the SportPark and Callaway Golf Center. Management believes that existing cash balances will generated from the financing activities described above will be sufficient to fund operating cash needs and debt service requirements over at least the next twelve months. Should additional financing to fund operations be required, the Company will turn to the lending sources described above or other sources, as necessary. There can be no assurance such lending sources would be willing, on terms acceptable to the Company, to provide additional financing. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. f. ESTIMATES USED IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. CASH AND CASH EQUIVALENTS The Company considers all highly liquid debt instruments with an original maturity of three months or less to be cash equivalents. b. ACCOUNTS RECEIVABLE-TRADE Accounts receivable trade consists of amounts due from tenants at the Callaway Golf Center[TM] and the SportPark. F-11 c. INVENTORIES Inventories, which consist primarily of sporting goods merchandise are stated at the lower of cost or market. Cost is determined using the specific identification method. d. PREOPENING EXPENSES Preopening expenses primarily represent direct personnel and other operating costs incurred before the opening of the facility. In 1997, these costs were capitalized when incurred and amortized to expense on a straight-line basis over a period not to exceed twelve months from the date operations commenced. Preopening costs totaling approximately $139,300 were capitalized in connection with the Callaway Golf Center[TM], which commenced operations on October 1, 1997. Pursuant to Statement of Position No. 98-5 "Reporting the Costs of Start Up Activities," in 1998 the Company began expensing preopening costs as incurred. e. LEASEHOLD IMPROVEMENTS AND EQUIPMENT Leasehold improvements and equipment are stated at cost. Depreciation and amortization is provided for on a straight-line basis over the lesser of the lease term or the following estimated useful lives of the assets: Furniture and equipment 5-10 years Leasehold improvements 15 years Normal repairs and maintenance are charged to expense when incurred. Expenditures that materially extend the useful life of assets are capitalized. f. INTEREST COST The Company capitalizes interest cost as a component of the cost of construction in progress until the asset is placed in service and ready for its intended use. g. DEFERRED INCOME Deferred income consists primarily of sponsorship fees received from tenants and corporate sponsors of SPLV. Deferred income is amortized to income over the life of the agreement. Additionally, deferred income also includes approximately $41,700 remaining from an agreement with MBNA to use the Company's trademark on its credit cards over a five-year period, which expires August 31, 2000. h. ADVERTISING The Company expenses advertising costs as incurred. Advertising costs amounted to $ 171,570 and $94,169 in 1998 and 1997, respectively. i. INCOME TAXES The Company accounts for income taxes under the provisions of the Statement of Financial Accounting Standards ("SFAS No. 109"), "Accounting for Income Taxes". F-12 j. RECLASSIFICATIONS Certain items previously reported in specific financial statement captions have been reclassified to conform with the 1998 presentation. k. RECOVERABILITY OF LONG-LIVED ASSETS In 1996 the Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of" ("SFAS 121"). Pursuant to SFAS 121, the Company reviews its long-lived assets for impairment whenever events or changes in the circumstances indicate that the carrying amount on an asset or a group of assets may not be recoverable. The Company deems an asset to be impaired if a forecast or undiscounted future operating cash flows directly related to the asset, including disposal value if any, is less than its carrying amount. If an asset is determined to be impaired, the loss is measured as the amount by which the carrying amount of the asset exceeds fair value. The Company generally measures value by discounting estimated cash flows. Considerable management judgement is necessary to estimate discounted cash flows. Accordingly, actual results could vary significantly from such estimates. Based upon the short duration of operations at SportPark Las Vegas, the Company does not believe that a triggering event has occurred. 3. EARNINGS PER SHARE In 1997, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). SFAS 128 replaces previously reported earnings per share with "basic" and "diluted" earnings per share. Basic earnings per share is computed by dividing reported earnings by the weighted- average number of common shares outstanding during the period. Diluted earnings per share reflects the additional dilution for all potentially dilutive securities such as stock options. In accordance with SFAS 128, when an entity has a loss from continuing operations, no potential common shares shall be included in the computation of any diluted per share amounts. As such, potential dilution has not been considered in the calculations for the periods presented. The weighted-average number of common and common equivalent shares used in the calculation of basic and diluted earnings per share were 3,000,000 for both 1998 and 1997. 4. RELATED PARTY TRANSACTIONS The Company has extensive transactions and relationships with LVDG and subsidiaries ("Related Entities"), the chairman and principal shareholder of LVDG, and the retail store owned by the Chairman of LVDG (the "Affiliated Store"). The Affiliated Store operates in Las Vegas, Nevada but was not a franchise of the Company. As a result, the store paid no royalties to the Company but purchased merchandise for the Affiliated Store at the same cost as the Company. These activities ceased upon sale of the Company franchises in February 1997. The Affiliated Store also benefited from the Company's activities, including any local and national advertising conducted by the Company. The Company had a $20,000 receivable from Related Entities and a $14,900 and a $102,700 receivable due from the Affiliated Stores as of December 31, 1998 and 1997, respectively. The Company also had a $914,400 and $371,100 payable to Related Entities and a $26,500 and a $33,200 payable to the Affiliated Store in 1998 and 1997, respectively. F-13 5. LEASEHOLD IMPROVEMENTS AND EQUIPMENT Leasehold improvements and equipment included the following as of December 31: 1998 1997 ----------- ----------- Building $17,592,200 $ 4,546,100 Roller Skates 20,000 - Land Improvements 3,127,150 4,573,000 Signs 600,900 57,000 Furniture and equipment 1,639,900 384,400 Leasehold improvements 194,600 259,400 Go-Karts 479,500 - Equipment under Capital leases 1,041,300 - Other 108,750 325,900 ----------- ----------- 24,804,300 10,145,800 Less - Accumulated depreciation and amortization (290,700) (164,400) ----------- ----------- $24,513,600 $ 9,981,400 =========== =========== 6. PROJECT DEVELOPMENT COSTS Total project development costs totaled $7,850,100 as of December 31, 1997 relating to the continuing construction of the SportPark Las Vegas. These costs consisted primarily of $6,740,200 in buildings, $352,500 in land improvements, and $572,200 in furniture, fixtures and signs. The remaining $185,200 consists of various items such as fencing. The SPLV was completed and began operations in October 1998, at which time all project development costs were reclassified into leasehold improvements and equipment. 7. BANK LINE OF CREDIT As of December 31, 1997, the Company had a $800,000 bank line of credit, which was canceled in 1998. Interest was payable monthly at one and one half (1.5%) percent over the bank's prime rate which was 9 percent at December 31, 1997. As of December 31, 1997, $668,400 was outstanding. This line of credit was paid in full during February 1998 with a portion of the proceeds collected from the $4.0 million short-term loan received on February 13, 1998. 8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses consist of the following at December 31: 1998 1997 ---------- ---------- Accounts payable - trade $ 868,000 $1,466,200 Accrued compensation 59,100 125,000 Payroll and other taxes 170,050 93,700 Income taxes payable 112,500 112,500 Interest payable 191,350 176,200 Other 18,900 - ---------- ---------- $1,419,900 $1,973,600 ========== ========== F-14 9. LONG-TERM DEBT On September 15, 1998 the Company completed a $13,500,000 secured loan with Nevada State Bank(the "Lender"). The loan is for 15 years with the interest measured at a fixed rate of 4% above the Lender's five-year LIBOR rate measured September 1, 1998, 2003 and 2008. For 1998 through August 31, 2003, the loan bears interest of 9.38%. The loan is secured by substantially all the assets of the Company that existed at the time of the financing. In addition, the landlord of the property where the Company's Las Vegas SportPark is located was required to subordinate its claims against the Company to the Nevada State Bank. In consideration, Vaso Boreta, Ron Boreta and Boreta Enterprises pledged all of their shares of LVDG to the landlord and the landlord was issued 75,000 stock options exercisable at $4.00 per share through the year 2005. The loan has covenants related to debt service coverage and debt to equity that go into effect June 30, 1999. On December 31, 1998, the Company reacquired substantially all of the assets subject to certain liabilities of All-American Golf, Inc. which managed and operated the Callaway Golf Center. Under terms of the asset purchase agreement, the consideration paid by the Company consisted of payment to Active Media Services of $1,000,000 in the form of a promissory note payable due in quarterly installments of $25,000 over 10 years without interest. This promissory note has been discounted by $345,000 to reflect the notes' present value. The Company has unsecured, ten percent notes payable of $1,705,300 and $600,000 for December 31, 1998 and 1997, respectively, with the Company's chairman and principal shareholder. The principal amount, interest rate, and payment terms are substantially similar to borrowings which the Company's chairman and principal shareholder obtained from a bank to fund these loans to the Company. Interest payments of $137,600 and $5,000 have been deferred in 1998 and 1997, respectively, a practice which could continue in 1999 if necessary. Aggregate maturities of long-term debt for the five years subsequent to December 31, 1998, are as follows: Year ending: 1999 $ 500,400 2000 545,600 2001 2,304,300 2002 657,800 2003 722,200 Thereafter 10,942,400 ----------- $15,672,700 =========== 10. LEASES The Company and LVDG share office and warehouse facilities leased from the Chairman of the Board under a non-cancelable operating lease agreement, which expires on January 31, 2005. The lease provides for initial monthly lease payments, which may be increased based on increases in the consumer price index. The monthly rent expense from January to November 1998 was $4,230. Effective December 1998 the monthly rent reduced to $1,830 and is allocated fifty percent to the Company and fifty percent to LVDG. Rent expense for the Company's allocated share of this lease was $33,970 and $50,400 for 1998 and 1997, respectively. In July 1996, AASP entered into a lease for 65 acres of undeveloped land in Las Vegas, Nevada for the development of its first SPLV. Effective June 20, 1997, AASP canceled the original lease and replaced it with two separate leases, one for the Callaway Golf Center[TM] and the other for SPLV. The annual base amount of $625,000 is due in monthly installments of $52,083 (Callaway Golf Center[TM] $33,173 and SPLV $18,910). The lease term remains as stated above, the Callaway Golf Center[TM] lease commenced on October 1, 1997. The SPLV lease commenced on February 1, 1998. Additionally, the Leases F-15 contain contingent rent based upon gross sales at the park, ranging from three to ten percent of the different sources of gross revenues if such percentage revenues exceed $625,000 annually. The minimum rent shall be increased at the end of the fifth year of the term and every five years thereafter by an amount equal to ten percent of the minimum monthly installment immediately preceding the adjustment date. As a condition to the lease, AASP also entered into a Deposit Agreement, which required the Company to post a refundable deposit to the lessor of $500,000. The deposit has been applied as follows: $66,346 was used to pay the first two months rent for the Callaway Golf Center[TM] prior to May 1998, $104,166 as security deposit and the remainder as prepaid rent to be amortized until exhausted. At December 31, 1998 the remaining balance is $225,600. When the Company reacquired the Callaway Golf Center[TM] on December 31, 1998, it also took responsibility for both leases. The Company is obligated under various other capital and non-cancelable operating leases for equipment that expire at various dates over the next five years. Total rent expense for operating leases was $488,980 and $168,510 for 1998 and 1997, respectively. At December 31, 1998, minimum future lease payments are as follows: Capital Operating Year ending Leases Leases Total ----------- ----------- --------- ----------- 1999 $188,044 $ 761,374 $ 949,418 2000 194,617 742,058 936,675 2001 179,190 727,017 906,207 2002 128,870 687,775 816,645 2003 108,600 697,599 806,199 Thereafter 9,051 6,531,250 6,540,301 -------- ----------- ----------- Total $808,372 $10,147,073 $10,955,445 ======== =========== =========== Less amount representing interest 159,672 -------- Present value of net minimum Capital leases payments 648,700 Less current installments of Obligations under capital leases 118,400 -------- Obligations under capital leases excluding current installments $530,300 ======== F-16 11. INCOME TAXES The federal income tax provision (benefit) consisted of the following for the years ended December 31: 1998 1997 --------- --------- Current $(347,812) $ - Deferred (134,911) (46,000) Less: Valuation allowance 482,723 46,000 --------- --------- Total $ - $ - ========= ========= The benefits from the net operating loss carry forwards from continuing operations generated in 1997 of $621,556 was realized through an offset against the taxable gain from discontinued operations. The Company received a tax refund of approximately $180,000 in 1998 related to a gain on disposal of its franchised operations which is reflected in the accompanying statement of operations under discontinued operations. The components of the deferred tax liability consisted of the following at December 31: 1998 1997 Deferred Tax Liabilities: --------- --------- Temporary differences related to Property and Equipment $( 49,782) $ (56,000) Deferred Tax Assets: Deferred Income 298,500 176,000 Other 17,000 11,000 Net Operating Loss Carryforward 348,005 - --------- --------- Net Deferred Tax Asset Before Valuation Allowance 613,723 131,000 Valuation Allowance (613,723) (131,000) --------- --------- Net Deferred Tax Asset $ - $ - ========= ========= A valuation allowance has been established to reserve the net deferred tax asset since management does not believe it is more likely than not that they will be realized. As of December 31, 1998, the Company has available for income tax purposes approximately $348,000 in federal net operating loss carryforwards, which may offset future taxable income. These loss carryforwards begin to expire in fiscal year 2003. The provision (benefit) for income taxes attributable to income (loss) from continuing operations does not differ materially from the amount computed at the federal income tax statutory rate. F-17 12. CAPITAL STOCK, STOCK OPTIONS, AND INCENTIVES a. STOCK OPTION PLANS The Company's Board of Directors adopted an incentive stock option plan (the "1994 Plan") on August 8, 1994 authorizing the issuance of up to 300,000 shares of the Company's common stock. On April 16, 1996, the Board of Directors voted to increase the number of authorized shares to 500,000 and on April 24, 1996 voted to increase total shares eligible for grant to 700,000. Three hundred thousand options to purchase shares of common stock of AASP at an exercise price of $5.00 per share were granted in 1994. Twenty thousand of these options expired unvested. Of the remaining 280,000 options, 240,000 were canceled and replaced on June 9, 1997 with a new exercise price of $3.06, the fair market value on the date of reissuance. The expiration date remained August 7, 1999. In April 1996, a total of 377,000 options were granted in connection with the increase in shares available. These grants increased the total shares issued under the plan to 657,000. All of the options issued in April 1996 were cancelled and replaced on June 9, 1997. The original options had an exercise price ranging between $4.625 and $4.75 through April 2001. The replacement options are exercisable at an exercise price of $3.06 through April 2001. Six hundred and twenty-six thousand (626,000) of the options are exercisable anytime while 10,000 shares vest ratably over a four year period. Shareholder approval occurred on April 16, 1997 as required for approval of these additional shares. The exercise price was equal to or exceeded the fair market value of the common stock at the date of grant. At December 31, 1998, 64,000 additional shares are reserved for future options. During October 1998, the Board of Directors approved, subject to stockholder approval, the 1998 Stock Incentive Plan (the "Plan"), and the Company's shareholders approved the Plan during December 1998. The purpose of the Plan is to advance the interests of the Company and its subsidiaries by enhancing their ability to attract and retain employees and other persons or entities who are in a position to make significant contributions to the success of the Company and its subsidiaries, through ownership of shares of Stock of the Company and cash incentives. The Plan is intended to accomplish these goals by enabling the Company to grant awards in the form of options, stock appreciation rights, restricted stock or unrestricted stock awards, deferred stock awards, or performance awards (in cash or stock), other stock-based awards, or combinations thereof, all as more fully described below. No options have been granted under the 1998 plan as of December 31, 1998. The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related Interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under SFAS 123 requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because 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 expense is recognized. Pro forma information regarding net income (loss) and earnings (loss) per share is required by SFAS 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted- average assumptions for 1998: risk-free interest rates of 4.20; dividend yields of 0.0%; volatility factors of the expected market price of the F-18 Company's common stock of 1.36; and a weighted-average expected life of 4.5 years. The Black-Scholes option pricing model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows: YEARS ENDED DECEMBER 31, 1998 1997 ---------- ---------- Net Income (Loss) As reported $(1,487,200) $ 220,700 Pro forma (1,487,200) (211,300) Basic and diluted net income (loss) per share As reported (.50) .07 Pro forma (.50) (.07) A summary of the status of the Company's stock options for the year ended December 31, 1998 and 1997 is presented below: 1998 1997 ------------------- ------------------- Weighted Weighted Average Average Exercise Exercise Shares Price Shares Price ------------------- ------------------- Outstanding at beginning of year 907,000 $3.15 907,000 $3.15 Granted 75,000 4.00 - - Exercised - - - - Forfeited (21,000) 3.06 - - Expired - - - - ------- ----- ------- ----- Outstanding at end of year 961,000 $3.21 907,000 $3.15 ======= ===== ======= ===== Exercisable at end of year 951,000 $3.22 902,000 $3.15 ======= ===== ======= ===== Weighted average fair value of options granted $2.32 $3.15 ===== ===== F-19 The following table summarizes information about stock options outstanding at December 31, 1998: Options Outstanding Options Exercisable ----------------------- --------------------------- Weighted Average Weighted Weighted Number Remaining Average Number Average Out- Contractual Exercise Exer- Exercise standing Life (Years) Price cisable Price -------- ------------ -------- ------- -------- Range of exercise prices $3.06-$5.00 961,000 2.22 $3.21 951,000 $3.22 ======= ==== ===== ======= ===== b. PREFERRED STOCK The Company is authorized to issue 5,000,000 shares of preferred stock. As of December 31, 1998 and 1997, there were 500,000 Series A Convertible Preferred shares and 250,000 Series B Convertible Preferred Shares issued and outstanding. c. SERIES A CONVERTIBLE PREFERRED STOCK On July 11, 1996 the Company's Board of Directors authorized the creation of 500,000 shares of Series A Convertible Preferred Stock with a $.001 par value. On July 29, 1996, the Company entered into an agreement which resulted in the sale, on an installment basis, of the 500,000 shares of the Series A Convertible Preferred Stock to Three Oceans Inc. ("TOI"), an affiliate of Sanyo North America Corporation, at $10.00 per share for a total of $5,000,000. The agreement also resulted in the assignment of certain rights to TOI. All proceeds related to the agreement were received in accordance with the stated terms to this agreement on October 7, 1996. Issuance costs totaling $162,000 were incurred related to the preferred stock and have been netted against retained earnings. Each share of the Series A Convertible Preferred Stock issued to TOI is convertible at the option of TOI into one share of the Company's common stock. In the event of liquidation or dissolution of the Company, each share of Series A Convertible Preferred Stock will have a $10.00 liquidation preference over all other shareholders. In addition, holders of the Series A Convertible Preferred Stock shall be entitled to receive dividends at a rate equal to the rate per share payable to common stock holders, assuming conversion of the Preferred shares. The Preferred shares can be redeemed by the Company upon a registration statement being declared effective by the Securities and Exchange Commission covering the issuance of the common stock upon conversion of the Preferred Stock and the following two conditions being satisfied: (1) the Company earns $1,000,000 of pre-tax income for a fiscal year according to the year-end audited financial statements; and (2) the closing bid price for the Company's common stock is at least $15.00 for 20 consecutive trading days. If the Company notifies TOI of its intent to redeem the Preferred Stock, TOI will have at least 30 days to elect to convert its Preferred Stock or accept the redemption price of $12.50. Each share of Series A Convertible Preferred Stock is entitled to vote along with the holders of the Company's common stock. The rights granted to TOI in accordance with the agreement include the following: (1) right of first refusal with respect to debt and or equity F-20 financing arrangements for SportParks developed by the Company for a period of five years commencing July 29, 1996 and for a period of 3 years for Anaheim, California and Las Vegas, Nevada, (2) an obligation to obtain electrical and electronic equipment for such SportParks for a period of 5 years, (3) certain signage rights for TOI or its designees at the first two SportParks and (4) other miscellaneous rights as defined. Pursuant to the agreement, the Company also granted TOI an option to purchase up to 250,000 shares of the Company's common stock at $5.00 per share for a period of 5 years from the date of the agreement. The agreement also provides for certain demand and piggyback registration rights with respect to the shares of common stock issuable upon the conversion of the Series A Convertible Preferred Stock and the exercise of the option. Pursuant to the agreement, the Company expanded the number of Directors of the Company from four to five, and elected Motoharu Iue as a Director of the Company. Mr. Iue is President of Three Oceans Inc. d. SERIES B CONVERTIBLE PREFERRED STOCK On September 22, 1998, the Company Board of Directors authorized the creation of 250,000 shares of Series B Convertible Preferred Stock with a $.001 par value. On October 19, 1998, the Company issued 250,000 shares of Series B Convertible Preferred Stock to its majority shareholder, LVDG for $2,500,000 in cash. Each share of the Series B Convertible Preferred Stock issued to LVDG is convertible at the option of LVDG into one share of the Company's common stock. In the event of liquidation or dissolution of the Company, each share of Series B Convertible Preferred Stock will have a $10.00 liquidation preference over all other shareholders. In addition, holders of the Series B Convertible Preferred Stock shall be entitled to receive dividends at a rate equal to the rate per share payable to common stock holders, assuming conversion of the Preferred shares. The Preferred shares can be redeemed by the Company upon a registration statement being declared effective by the Securities and Exchange Commission covering the issuance of the common stock upon conversion of the Preferred Stock and the following two conditions being satisfied: (1) the Company earns $1,000,000 of pre-tax income for a fiscal year according to the year-end audited financial statements; and (2) the closing bid price for the Company's common stock is at least $15.00 for 20 consecutive trading days. If the Company notifies LVDG of its intent to redeem the Preferred Stock, LVDG will have at least 30 days to elect to convert its Preferred Stock or accept the redemption price of $12.50. Each share of Series B Convertible Preferred Stock is entitled to vote along with the holders of the Company's common stock. e. COMMON STOCK AND COMMON STOCK PURCHASE WARRANTS On December 13, 1994, the Company completed a public offering of 1,000,000 Units, each Unit consisting of one share of Common Stock and one Class A Common Stock Purchase Warrant. As a result, 1,000,000 shares of Common Stock and 1,000,000 Class A Warrants were issued. Net proceeds from the offering were $3,684,000. Two Class A Warrants entitle the holder to purchase one share of AASP common stock for $6.50, $2 above the initial public offering price. The Class A Warrants have been assigned a value of $.1875 for financial reporting purposes. The expiration date of the class A Warrants had been extended to March 15, 1999 when they expired. F-21 In connection with the initial public offering, the Company issued to the Representative of the Underwriters, Representative's Warrants to purchase 100,000 shares (10 percent of the units purchased by the underwriters), with an exercise price of $5.40 for a four-year period beginning on December 13, 1995. These Representative's Warrants contain certain demand and piggyback registration rights. The Company also issued to the Representative 100,000 Class A Warrants which entitle the Underwriter to purchase 50,000 shares of Common Stock (5 percent of the units purchased by the underwriters), with an exercise price of $7.80 per share exercisable beginning on December 13, 1995. As of December 31, 1998 and 1997, no warrants have been exercised. 13. EMPLOYEES 401(k) PROFIT SHARING PLAN The Company offers all its eligible employees participation in the Employees 401(k) LVDG Profit Sharing Plan ("Plan"). The Plan provides for purchases of certain investment vehicles by eligible employees through annual payroll deductions of up to 15% of base compensation. For 1998 and 1997, the Company matched 50% of employees contributions up to a maximum of 6% of an employee's base compensation. 14. SUPPLEMENTAL NON-QUALIFIED RETIREMENT PLAN In 1995, the Company entered into a Supplemental Retirement Plan for certain key employees of which the President of AASP is included. This plan became effective on January 1, 1996. 15. COMMITMENTS AND CONTINGENCIES The Company has employment agreements with its President, as well as other key employees which require the payment of fixed and incentive based compensation. In December 1994, the Company entered into an agreement with Major League Baseball ("MLB") concerning a license for the use of MLB logos, trade marks and mascots in the decor, advertising and promotions of the Company's Slugger Stadium concept. This agreement was amended during 1997. Pursuant to the amended agreement, the Company holds the exclusive right to identify its indoor and outdoor baseball batting stadiums as Major League Baseball Slugger Stadiums. The license covers the United States. The Company has made the required license payments for 1995, 1996, and 1997. In addition to and as an offset against the minimum payments set out above, the Company is required to pay to MLB a royalty based on the revenue from the batting cages. The Company's right to exclusively use MLB logos and other marks at its baseball-batting stadiums is dependent upon certain conditions set forth in the agreement. In May 1996, AASP entered into an agreement with Jeff Gordon, the 1997 NASCAR Winston Cup Champion, 1997 Daytona 500 Champion, 1997 Coca-Cola 600 Champion, 1995 Winston Cup Champion and former NASCAR Winston Cup Rookie of the year, to serve as spokesperson of the NASCAR SpeedPark through April 30, 2000. Mr. Gordon was also granted options under the Company's stock option plan. On November 20, 1997, the agreement with Mr. Gordon was amended to, among other things, provide for an annual fee of $25,000 per year. AASP has a license agreement with The National Association of Stock Car Auto Racing, Inc. ("NASCAR") for the operation of SpeedParks as a part of SPLV. The agreement, as amended, provides that the Company has an exclusive license to use certain trademarks and service marks in the development, design and operation of go-kart racing facilities having a NASCAR racing theme in the territories of Las Vegas, Nevada and Southern California. F-22 In January 1997, AASP entered into an agreement with the Pepsi-Cola Company ("Pepsi") concerning an exclusive sponsorship agreement. Under the agreement, Pepsi receives certain exclusive rights related to soft drinks, tea products, juice products, bottled water and similar products in exchange for a series of payments beginning when the SportPark opened. AASP received $250,000 as the first payment on this contract on December 31, 1997. The remaining amounts are due annually over a four-year period starting with the commencement of operations of the SPLV. The rights granted to Pepsi include that Pepsi's products will be exclusively sold for the categories listed, that only Pepsi identified cups will be used in SPLV, and that Pepsi would have the right to name the multipurpose arena the AllSport Arena. In addition, Pepsi will provide the equipment needed to dispense its products at the SportPark. The agreement with Pepsi provides that AASP and Pepsi will participate in joint marketing programs such as promotions on Pepsi's products and local radio advertising. In September 1997, the Company entered into a lease and concession agreement with Sportservice Corporation ("Sportservice") which provides SportService with the exclusive right to prepare and sell all food, beverages (alcoholic and non-alcoholic), candy and other refreshments throughout SPLV, including the Callaway Golf Center[TM], during the ten year term of the agreement. Sportservice has agreed to pay rent based on a percentage of gross sales depending upon the level of sales, whether the receipts are from concession sales, the Arena restaurant, the Clubhouse, vending machines, mobile stands, or catering sales. The agreement also provides Sportservice with a right of first refusal for future parks to be built by AASP in consideration for a $100,000 payment. The agreement has a number of other terms and conditions including a requirement that the Company must operate SPLV on a year-round, seven days a week basis throughout the term of the agreement. In September 1998, the Company entered into a revenue sharing tenant agreement with NAMCO Cybertainment Inc. to provide arcade, video games and multi-sport simulation attractions. NAMCO is the world's largest operator of video arcades. The lease term is for 6 years commencing on the date of opening of the amusement center. The Company is involved in certain litigation as both plaintiff and defendant related to its business activities. Management, based upon consultation with legal counsel, does not believe that the resolution of these matters will have a materially adverse effect upon the Company. 16. SUBSEQUENT EVENT On February 16, 1999, the Board of Directors of AASP approved the award to Ron Boreta, President of AASP, Stock Appreciation Rights (SAR's) as to 125,000 shares independent of any stock option under AASP's 1998 Stock Incentive Plan. The base value of the SAR's shall be equal to $6 per share, however, no SAR may be exercised unless and until the market price of AASP's Common Stock equals or exceeds $10 per share. The maximum amount to be paid on the exercise of all 125,000 SARs is $500,000. The SARs expire October 26, 2008. F-23 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunder duly authorized. ALL-AMERICAN SPORTPARK, INC Dated: April 27, 1999 By/s/ Ronald S. Boreta Ronald S. Boreta, President Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: SIGNATURE TITLE DATE /s/ Vaso Boreta Chairman of the Board April 27, 1999 Vaso Boreta and Director /s/ Ronald S. Boreta President (Chief April 27, 1999 Ronald S. Boreta Executive Officer), Treasurer and Director /s/ Robert S. Rosburg Director April 27, 1999 Robert S. Rosburg _________________________ Director William Kilmer _________________________ Director Motoharu Iue EX-3.4 2 CERTIFICATE OF AMENDMENT ARTICLES OF INCORPORATION OF SAINT ANDREWS GOLF CORPORATION SAINT ANDREWS GOLF CORPORATION, a Nevada corporation (the "Corporation"), hereby certifies to the Nevada Department of State, as follows: FIRST: That the Board of Directors of the Corporation, by unanimous written consent dated July 11, 1996, with respect to Article IV, in lieu of meetings of such Board, adopted resolutions approving, proposing and declaring advisable, in the form of this Amendment to the Articles of Incorporation, the following amendment to the Articles of Incorporation of the Corporation. The resolutions setting forth the proposed amendment are as follows: RESOLVED: That the Articles of Incorporation be amended as follows: "ARTICLE IV shall be and hereby is amended to provide: (d) There is hereby established a series of Preferred Stock of the Corporation designated "Series A Convertible Preferred Stock," par value $.001 per share. The number of shares of this series of Convertible Preferred Stock shall be 500,000 shares. The powers, designations, preferences and relative, participating, optional or other special rights of the shares of this series of Convertible Preferred Stock and the qualifications, limitations and restrictions of such preferences and rights shall be as follows: 1. Dividend Provisions. No dividends shall be paid on any share of Common Stock or any other series of Preferred Stock unless a dividend is paid with respect to all outstanding shares of Series A Convertible Preferred Stock in an amount for each such shares of Series A Convertible Preferred Stock equal to the aggregate amount of such dividends for all shares of Common Stock into which each such share of Series A Convertible Preferred Stock could then be converted. Such dividends shall be payable only when, as, and if declared payable to holders of Common Stock by the Board of Directors and shall be noncumulative. In the event the Corporation shall declare a distribution (other than any distributions described above) payable in securities of other persons, evidences or indebtedness issued by the Corporation or other persons, assets (excluding cash dividends) or options or rights to purchase any such securities or evidences of indebtedness, then, in each such case the holders of the Series A Convertible Preferred Stock shall be entitled to a proportionate equitable share of any such distribution in accordance with provisions set forth above as though the holders of the Series A Convertible Preferred Stock were the holders of the number of shares of Common Stock of the corporation into which their respective shares of Series A Convertible Preferred Stock are convertible or holders of the Preferred Stock as of the record date fixed for the determination of the holders of the Common Stock of the Corporation entitled to receive such distribution. 2. Liquidation Preference. (a) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, the holder of each share of Series A Convertible Preferred Stock shall be entitled to receive, out of the assets of the Corporation available for distribution to its stockholders, before any payment or distribution shall be made on the Common Stock, an amount per share equal to $10.00. If the assets and funds to be distributed among the holders of the Series A Convertible Preferred Stock shall be insufficient to permit the payment of the full aforesaid preferential amount to such holders, then the entire assets and funds of the Corporation legally available for the distribution shall be distributed among the holders of the Series A Convertible Preferred Stock in proportion to the aggregate preferential amount of all shares of Series A Convertible Preferred Stock held by them. After payment has been made to the holders of the Series A Convertible Preferred Stock, the remaining assets of the Corporation available for distribution to the holders of the Common Stock shall be distributed, among the holders of the Series A Convertible Preferred Stock and Common Stock pro rata based on the number of shares of Common Stock held by each at the time of such liquidation (assuming conversion of all such Series A Convertible Preferred Stock). (b) For purposes of this Section 2, a merger or consolidation of the Corporation with or into any other corporation or corporations, or the merger of any other corporation or corporations into the Corporation, or the sale or any other corporate reorganization, in which shareholders of the Corporation receive distributions as a result of such consolidation, merger, sale of assets or reorganization, shall be treated as a liquidation, dissolution or winding up of the Corporation, unless the stockholders of the Corporation hold more than fifty percent (50%) of the voting equity securities of the successor or surviving corporation immediately following such consolidation, merger, sale of assets or reorganization in which event such consolidation, merger, sale of assets, or reorganization shall not be treated as a liquidation, dissolution or winding up. 3. Conversion. The Series A Convertible Preferred Stock may be converted into shares of the Corporation's Common Stock on the following terms and conditions (the "Conversion Rights"): (a) Option to Convert. Commencing immediately, holders of the Series A Convertible Preferred Stock shall have the right to convert all or a portion of their shares into shares of Common Stock at any time or from time to time upon notice to the Corporation on the terms and conditions set forth herein prior to the date fixed for redemption of such shares. (b) Mechanics of Conversion. Upon the election of a holder of the Series A Convertible Preferred Stock to convert shares of such Preferred Stock, the holder of the shares of Series A Convertible Preferred Stock which are converted shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or any authorized transfer agent for such stock together with a written statement that he elects to convert his preferred stock to common stock. The Corporation or the transfer agent shall promptly issue and deliver at such office to such holder of Series A Convertible Preferred Stock a certificate or certificates for the number of shares of Common Stock to which such holder is thereby entitled. The effective date of such conversion shall be a date not later than 30 days after the date upon which the holder provides written notice of his election to convert to the Corporation or transfer agent. 2 (c) Conversion Ratio. Each share of Series A Convertible Preferred Stock may be converted into one (1) fully paid and nonassessable share of Common Stock (except as adjusted pursuant to paragraph 3(d) below). In the event that upon conversion of shares of Series A Convertible Preferred Stock a holder shall be entitled to a fraction of a share of Common Stock, no fractional share shall be issued and in lieu thereof the Corporation shall pay to the holder cash equal to the fair value of such fraction of a share. (d) Adjustment of Conversion Rate. If the Corporation shall at any time, or from time to time, after the effective date hereof effect a subdivision of the outstanding Common Stock and not effect a corresponding subdivision of the Series A Convertible Preferred Stock, or if the Corporation at any time or from time to time after the effective date hereof shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in additional shares of Common Stock, then and in each such event the number of shares of Common Stock issuable upon conversion of the Series A Convertible Preferred Stock shall be proportionately increased as of the time of such issuance or, in the event such a record date shall have been fixed, as of the close of business on such record date. (e) No Impairment. The Corporation will not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all of the provisions of this Section 3 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Series A Convertible Preferred Stock against impairment. (f) Reservation of Stock Issuable Upon Conversion. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of Series A Convertible Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Series A Convertible Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all outstanding shares of Series A Convertible Preferred Stock, the Corporation will take such corporate action as is necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. 4. Status of Converted or Reacquired Stock. In case any shares of Series A Convertible Preferred Stock shall be converted pursuant to Section 3 hereof, the shares so converted shall cease to be a part of the authorized capital stock of the Corporation. 5. Voting Rights. (a) Each share of Series A Convertible Preferred Stock entitle the holder to one (1) vote and with respect to each such vote, a holder of shares of Series A Convertible Preferred Stock shall have full voting rights and powers equal to the voting rights and powers of a holder of 3 shares of Common Stock, share for share, and shall be entitled to notice of any shareholders' meeting in accordance with the Bylaws of the Corporation, and shall be entitled to vote with holders of Common Stock together as a single class. (b) The Board of Directors shall consist of five (5) members. Holders of Series A Convertible Preferred stock, voting together as a class, shall be entitled to elect one (1) member of the Board of Directors at each meeting or pursuant to each consent of the Corporation's shareholders for the election of directors. 6. Redemption Provisions. To the extent permitted under the Nevada Business Corporation Act, shares of the Series A Convertible Preferred Stock are redeemable as follows: (a) Redemption at Option of Corporation. If there is a registration statement covering the issuance of the Common Stock upon the conversion of the Series A Convertible Preferred Stock which has been declared effective by the Securities and Exchange Commission, and both of the following two conditions have been satisfied: (i) The Corporation has $1,000,000 of pre-tax income for a fiscal year according to the audited year-end financial statements; and (ii) If the closing bid price of the Corporation's Common Stock for twenty consecutive trading days equals or exceeds $15.00, the Corporation may redeem shares of Series A Convertible Preferred Stock. If fewer than all of the outstanding shares of Series A Convertible Preferred Stock are to be redeemed, the Company will select those to be redeemed pro rata or by lot or in such other manner as the Board of Directors may determine. (b) Redemption Price. The redemption price per share under this Section 6 shall be Twelve Dollars and Fifty Cents ($12.50) per share. (c) Notice of Redemption. Notice to the holders of shares of Series A Convertible Preferred Stock to be redeemed shall be given not earlier than 60 days nor later than 30 days before the date fixed for redemption. The notice of redemption to each stockholder whose shares of Series A Convertible Preferred Stock are to be redeemed shall specify the number of Series A Convertible Preferred Stock of such stockholder to be redeemed, the date fixed for redemption and the redemption price at which shares of Series A Convertible Preferred Stock are to be redeemed, and shall specify where payment of the redemption price is to be made upon surrender of such shares, shall state the conversion rate then in effect, and that the Conversion Rights of such shares shall cease and terminate at the close of business on the date fixed for redemption. 7. Notices. Any notice required to be given to holders of shares of Series A Convertible Preferred Stock shall be deemed given upon deposit in the United States mail, postage prepaid, addressed to such holder of record at his address appearing on the books of the Corporation, or upon personal delivery of the aforementioned address. 4 SECOND: This Amendment to the Articles of Incorporation effected herein is authorized by the vote of the Board of Directors on July 11, 1996. THIRD: The amendments effected herein were duly adopted in accordance with the applicable provisions of NRS 78.385. IN WITNESS WHEREOF, Saint Andrews Golf Corporation has caused this Certificate of Amendment to be signed and acknowledged by its President and Secretary this 26th day of July 1996. SAINT ANDREWS GOLF CORPORATION ATTEST: /s/ Ron Boreta By /s/ Ron Boreta Ron Boreta, Secretary Ron Boreta, President STATE OF NEVADA ) ) ss. COUNTY OF CLARK ) I, John Curtis, a Notary Public, hereby certify that on the 26th day of July, 1996, personally appeared before me Ron Boreta, who being by me first duly sworn, declared that he signed the foregoing document as President and Secretary of the corporation named therein and that he was above the age of eighteen years and that the statements contained therein are true and correct to the best of his knowledge and belief. IN WITNESS WHEREOF, I have hereunto set my hand and official seal. /s/ John Curtis Notary Public My commission expires: June 4, 2000 5 EX-3.5 3 CERTIFICATE OF DESIGNATION FOR SERIES B CONVERTIBLE PREFERRED STOCK SAINT ANDREWS GOLF CORPORATION SAINT ANDREWS GOLF CORPORATION, a Nevada corporation (the "Corporation"), hereby certifies to the Secretary of State of the State of Nevada as follows: RESOLVED: That the Board of Directors of the Corporation, by unanimous written consent dated September 22, 1998, in lieu of meetings of such Board, pursuant to Article IV of the Articles of Incorporation, adopted resolutions approving, proposing and declaring advisable, the establishment of a series or series of preferred stock of the Corporation in the form of this Certificate of Designation and the Board of Directors hereby establishes and states the designation and number of such shares, and fixes the relative rights and preferences, designations, voting powers, qualification and limitation thereof as follows: There is hereby established a series of Preferred Stock of the corporation designated "Series B Convertible Preferred Stock," par value $.001 per share. The number of shares of this series of Convertible Preferred Stock shall be 250,000 shares. The powers, designations, preferences and relative, participating, optional or other special rights of the shares of this series of Convertible Preferred Stock and the qualifications, limitations and restrictions of such preferences and rights shall be as follows: 1. Dividend Provisions. No dividends shall be paid on any share of Common Stock or any other series of Preferred Stock unless a dividend is paid with respect to all outstanding shares of Series B Convertible Preferred Stock in an amount for each such share of Series B Convertible Preferred Stock equal to (a) in the case of a dividend with respect to the Common Stock, the aggregate amount of such dividends for all shares of Common Stock into which each such share of Series B Convertible Preferred Stock could then be converted and (b) in the case of a dividend with respect to the Preferred Stock, (i) if such Preferred Stock is convertible into Common Stock, the aggregate amount of such dividends (calculated on the basis per share of Common Stock into which such Preferred Stock is convertible) for all shares of Common Stock into which each such share of Series B Convertible Preferred Stock could then be converted or (ii) if such Preferred Stock is not convertible into Common Stock, an aggregate amount of such dividends calculated in accordance with the following formula: aggregate dividends = [then current liquidation value of Preferred divided by then current liquida- tion value of Series B Convertible Preferred Stock] x dividend per share of Preferred Stock x number of shares of Series B Convertible Preferred Stock then outstanding. Such dividends shall be payable only when, as, and if declared payable to holders of Common Stock or Preferred Stock, as the case may be, by the Board of Directors and shall be noncumulative. In the event the Corporation shall declare a distribution (other than any distributions described above) payable in securities of other persons, evidences or indebtedness issued by the Corporation or other persons, assets (excluding cash dividends) or options or rights to purchase any such securities or evidences of indebtedness, then, in each such case the holders of the Series B Convertible Preferred Stock shall be entitled to a proportionate equitable share of any such distribution in accordance with provisions set forth above as though the holders of the Series B Convertible Preferred Stock were the holders of the number of shares of Common Stock of the corporation into which their respective shares of Series B Convertible Preferred Stock are convertible or holders of the Preferred Stock as of the record date fixed for the determination of the holders of Common Stock of the Corporation entitled to receive such distribution. 2. Liquidation Preference. (a) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, the holder of each share of Series B Convertible Preferred Stock shall be entitled to receive, out of the assets of the Corporation available for distribution to its stock holders, pro rata with the holders of the Series A Convertible Preferred Stock with respect to their preference amount before any payment or distribution shall be made on the Common Stock or any other series of Preferred Stock as the case may be, an amount per share equal to $10.00. If the assets and funds to be distributed among the holders of the Series A Convertible Preferred Stock and the Series B Convertible Preferred Stock shall be insufficient to permit the payment of the full aforesaid preferential amount to such holders, then the entire assets and funds of the corporation legally available for the distribution shall be distributed among the holders of the Series A Convertible Preferred Stock and the Series B Convertible Preferred Stock in proportion to the aggregate preferential amount of all shares of Series A Convertible Preferred Stock and the Series B convertible Preferred Stock held by them. After payment has been made to the holders of the Series A Convertible Preferred Stock and the Series B Convertible Preferred Stock, the remaining assets of the Corporation available for distribution to the holders of the Common Stock shall be distributed, among the holders of the Series A Convertible Preferred Stock, the Series B Convertible Preferred Stock and Common Stock pro rata based on the number of Shares of Common Stock held by each at the time of such liquidation (assuming conversion of all such Series A Convertible Preferred Stock and Series B Convertible Preferred Stock). (b) For purposes of this Section 2, a merger or consolidation of the Corporation with or into any other corporation or corporations, or the merger of any other corporation or corporations into the Corporation, or the sale or any other corporate reorganization, in which shareholders of the corporation receive distributions as a result of such consolidation, merger, sale of assets or reorganization, shall be treated as a liquidation, dissolution or winding up of the Corporation, unless the stockholders of the Corporation hold more than fifty percent (50%) of the voting equity securities of the successor or surviving corporation immediately following such consolidation, merger, sale of assets or reorganization in which event such consolidation, merger, sale of assets, or reorganization shall not be treated as a liquidation, dissolution or winding up. 3. Conversion. The Series B Convertible Preferred Stock may be converted into shares of the Corporation's Common Stock on the following terms and conditions (the "Conversion Rights"): (a) Option to Convert. Commencing immediately, holders of the Series B Convertible Preferred Stock shall have the right to convert all or a portion of their shares into shares of Common Stock at any time or from time to time upon notice to the Corporation on the terms and conditions set forth herein prior to the date fixed for redemption of such shares. 2 (b) Mechanics of Conversion. Upon the election of a holder of the Series B Convertible Preferred Stock to convert shares of such Preferred Stock, the holder of the shares of Series B Convertible Preferred Stock which are converted shall surrender the certificate or certificates therefor, duly endorsed, at the office of the corporation or any authorized transfer agent for such stock together with a written statement that he elects to convert his preferred stock to common stock. The Corporation or the transfer agent shall promptly issue and deliver at such office to such holder of Series B Convertible Preferred Stock a certificate or certificate for the number of shares of Common Stock to which such holder is thereby entitled. The effective date of such conversion shall be a date not later than 30 days after the date upon which the holder provides written notice of his election to convert to the Corporation or transfer agent. (c) Conversion Ratio. Each share of Series B Convertible Preferred Stock may be converted into one (1) fully paid and nonassessable share of Common Stock (subject to adjustment pursuant to Section 3(d) below). In the event that upon conversion of shares of Series B Convertible Preferred Stock a holder shall be entitled to a fraction of a share of Common Stock, no fractional share shall be issued and in lieu thereof the Corporation shall pay to the holder cash equal to the fair value of such fraction of a share. (d) Adjustment of Conversion Rate. If the Corporation shall at any time, or from time to time, after the effective date hereof effect a subdivision of the outstanding Common Stock and not effect a corresponding subdivision of the Series B Convertible Preferred Stock, or if the Corporation at any time or from time to time after the effective date hereof shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in additional shares of Common Stock, then and in each such event the number of shares of Common Stock issuable upon conversion of the Series B Convertible Preferred Stock shall be proportionately increased as of the time of such issuance or, in the event such a record date shall have been fixed, as of the close of business on such record date. (e) No Impairment. The Corporation will not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all of the provisions of this Section 3 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Series B Convertible Preferred Stock against impairment. (f) Reservations of Stock Issuable Upon Conversion. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of Series B Convertible Preferred Stock, such number of its shares of Common Stock as shall time to time be sufficient to effect the conversion of all outstanding shares of Series B Convertible Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all outstanding shares of Series B Convertible Preferred Stock, the Corporation will take such corporate action as is necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. 3 4. Status of Converted or Reacquired Stock. In case any shares of Series B Convertible Preferred Stock shall be converted pursuant to Section 3 hereof, the shares so converted shall cease to be a part of the authorized capital stock of the Corporation. 5. Voting Rights. Each share of Series B Convertible Preferred Stock entitles the holder to one (1) vote and with respect to each such vote, a holder of shares of Series B Convertible Preferred Stock shall have full voting rights and powers equal to the voting rights and powers of a holder of shares of Common Stock, share for share, and shall be entitled to notice of any shareholders' meeting in accordance with the Bylaws of the Corporation, and shall be entitled to vote with holders of Common Stock and Series A Convertible Preferred Stock together as a single class. 6. Redemption Provisions. To the extent permitted under the Nevada Business Corporation Act, shares of the Series B Convertible Preferred Stock are redeemable as follows: (a) Redemption at Option of Corporation. If there is a registration statement covering the issuance of the Common Stock upon the conversion of the Series B Convertible Preferred Stock which has been declared effective by the Securities and Exchange Commission, and both of the following two conditions have been satisfied: (i) The Corporation has $1,000,000 of pre-tax income for a fiscal year according to the audited year-end financial statements; and (ii) If the closing bid price of the Corporation's common stock for twenty consecutive trading days equals or exceeds $15.00, the Corporation may redeem shares of Series B Convertible Preferred Stock. If fewer than all of the outstanding shares of Series B Convertible Preferred Stock are to be redeemed, the Company will select those to be redeemed pro rata or by lot or in such other manner as the Board of Directors may determine. (b) Redemption Price. The redemption price per share under this Section 6 shall be $12.50 per share. (c) Notice of Redemption. Notice to the holders of shares of Series B Convertible Preferred Stock to be redeemed shall be given not earlier than 60 days nor later than 30 days before the date fixed for redemption. The notice of redemption to each stockholder whose shares of Series B Convertible Preferred Stock are to be redeemed shall specify the number of Series B Convertible Preferred Stock of such stockholder to be redeemed, the date fixed for redemption and the redemption price at which shares of Series B Convertible Preferred Stock are to be redeemed, and shall specify where payment of the redemption price is to be made upon surrender of such shares, shall state the conversion rate then in effect, and that the Conversion Rights of such shares shall cease and terminate at the close of business on the date fixed for redemption. 7. Preferences Generally. Except as otherwise set forth in this Section 7, the Series B Convertible Preferred Stock shall be pari passu with the Series A Convertible Preferred Stock. The Corporation shall not authorize or issue any securities having any rights or preferences senior or preferential to or pari passu with those of the Series B Convertible Preferred Stock 4 without the vote of the holders of a majority of the Series B Convertible Preferred Stock, voting separately as a class, in addition to any other vote required by law. 8. Notices. Any notice required to be given to holders of shares of Series B Convertible Preferred Stock shall be deemed given upon deposit in the United States mail, postage prepaid, addressed to such holder of record at his address appearing on the books of the corporation, or upon personal delivery of the aforementioned address. RESOLVED: This Certificate of Designation effected herein is authorized by the vote of the Board of Directors on September 22, 1998. RESOLVED: The resolutions effected herein were duly adopted in accordance with the applicable provisions of NRS 78.1955. IN WITNESS WHEREOF, Saint Andrews Golf Corporation has caused this Certificate of Designation to be signed and acknowledged by its President and Secretary this 30th day of September 1998. ATTEST: SAINT ANDREWS GOLF CORPORATION By: /s/ Ron Boreta By: /s/ Ron Boreta Ron Boreta, Secretary Ron Boreta, President STATE OF COLORADO ) ) ss. COUNTY OF DENVER ) I, Virginia M. Anglada, a Notary Public, hereby certify that on the 30th day of September 1998, personally appeared before me Ron Boreta, who being by me first duly sworn, declared that he signed the foregoing document as both President and Secretary of the corporation named therein and that he is above the age of eighteen years and that the statements contained therein are true and correct to the best of his knowledge and belief. IN WITNESS WHEREOF, I have hereunto set my hand and official seal. /s/ Virginia M. Anglada Notary Public [ S E A L ] My commission expires: April 21, 2002 5 EX-3.6 4 CERTIFICATE OF AMENDMENT TO ARTICLES OF INCORPORATION OF SAINT ANDREWS GOLF CORPORATION CHANGING ITS NAME TO ALL-AMERICAN SPORTPARK, INC. Saint Andrews Golf Corporation, a corporation organized and existing under the Nevada General Corporation Law, does hereby certify as follows: FIRST: ARTICLE I of the Articles of Incorporation is hereby amended to read as follows: "ARTICLE I NAME: The name of the Corporation is All-American SportPark, Inc. " SECOND: The foregoing Amendment was adopted by written unanimous consent of the Board of Directors of the Corporation on October 26, 1998, in accordance with the provisions of Section 78.315 of the Nevada General Corporation Law. THIRD: The foregoing Amendment was adopted by Stockholders holding at least a majority of the voting power of the Corporation on December 7, 1998, in accordance with the provisions of Section 78.390 of the Nevada General Corporation Law. IN WITNESS WHEREOF, Saint Andrews Golf Corporation has caused this Certificate of Amendment to be signed and acknowledged by its President and Secretary this 7th day of December 1998. SAINT ANDREWS GOLF CORPORATION (Changing its name to All-American SportPark, Inc) By: /s/ Ronald S. Boreta ATTEST: Ronald S. Boreta, President /s/ Ronald S. Boreta Ronald S. Boreta, Secretary STATE OF COLORADO ) ) ss. COUNTY OF DENVER ) I, Virginia M. Anglada, a Notary Public, hereby certify that on the 7th day of December 1998, personally appeared before me Ronald S. Boreta, who being by me first duly sworn, declared that he signed the foregoing document as both President and Secretary of the corporation named therein and that he is above the age of eighteen years and that the statements contained therein are true and correct to the best of his knowledge and belief. IN WITNESS WHEREOF, I have hereunto set my hand and official seal. /s/ Virginia M. Anglada Notary Public [ S E A L ] My commission expires: 4/21/2002 EX-10.23 5 PROMISSORY NOTE $3,000,000.00 March 18, 1998 San Diego, California FOR VALUE RECEIVED, All-American SportPark, Inc., a Nevada corporation ("Maker"), promises to pay to Callaway Golf Company, a California corporation ("Holder"), or order, at its place of business in San Diego, California, or such other place as Holder may designate, the principal amount of Three Million Dollars ($3,000,000.00), or so much thereof as may be advanced, with interest on such amounts advanced until paid, at the rate set forth below and payable as follows: INTEREST RATE. The amount of outstanding principal shall bear interest at a rate of ten percent (10%) per annum. Interest shall accrue on the principal balance from the date of and on the amount of each advance made under this Note, as advances are made pursuant to the paragraph of this Note titled Disbursement Instruction and Authorization and shall be calculated on the basis of a 365-day year. MAXIMUM INTEREST. In no event whatsoever shall the amount paid, or agreed to be paid, to Holder for the use, forbearance or detention of money to be loaned hereunder or otherwise, for the performance or payment of any covenant or obligation contained herein, exceed the maximum amount permissible under applicable law. If from any circumstance whatsoever fulfillment of any provision hereof exceeds the limit of validity prescribed by law, then, ipso facto, the obligation to be fulfilled shall be reduced to the limit of such validity, and if from any such circumstance Holder shall ever receive as interest under this Note or otherwise an amount that would exceed the highest lawful rate, such amount that would be excessive interest shall be applied to the reduction of the principal amount owing hereunder and not to the payment of interest, or if such excessive interest exceeds the unpaid balance of principal, such excess shall be refunded to Maker. TERM. The term of this Note shall be for a period beginning on the date hereof and ending on the earlier of the following dates (the "Maturity Date"): (i) June 18, 1998; or (ii) the date upon which Summit Financial Group, Inc., or any affiliate thereof, or any other lender or investor shall make any loan to or equity investment in Maker, Saint Andrews Golf Corporation ("Saint Andrews") or any affiliate of either of such entities. All unpaid principal, together with any and all accrued and unpaid interest, shall be due on the Maturity Date. PAYMENT. All principal and interest due hereunder shall be payable on or before the Maturity Date. Any payment hereunder shall be applied first to the payment of costs and charges of collection, if any, then to accrued interest, and the balance, if any, shall be then applied to reduction of principal. Principal and interest are payable in lawful money of the United States of America. PREPAYMENT. Maker may prepay this Note in full or in part at any time without prepayment charge. No partial prepayment shall release Maker from thereafter tendering all regular scheduled payments required herein until this Note is paid in full. No amount prepaid shall be available for re-borrowing. GUARANTY AGREEMENT. This Note is guarantied pursuant to a Guaranty executed contemporaneously herewith by Saint Andrews in favor of Holder (the "Guaranty"). The Guaranty is secured by a Membership Interest Security Agreement dated June 13, 1997 by and between Holder and Saint Andrews. DEFAULT/ACCELERATION. If any one or more of the following events shall occur (hereinafter called an "Event of Default"), namely: (i) Maker shall fail to timely make payment of any installment hereunder and such failure is not cured within ten (10) days of written notice by Holder to Maker; (ii) default or an event of default shall occur under the Guaranty or the Membership Interest Security Agreement; (iii) Maker shall have failed to comply with or otherwise perform any other term, provision, covenant or condition under this Note; (iv) any failure of this Note to be valid, binding and the enforceable obligation of Maker; (v) the levying of any attachment, execution or other process against Maker or against any material portion of its property; (vi) if Maker (or any successor thereto) shall make a general assignment for the benefit of creditors; or shall file or have filed against it a petition for relief under the bankruptcy law of the United States; or in the event that a receiver, trustee or other court officer is appointed for the purpose of taking possession of any part of Maker's property; or (vii) any revocation or purported revocation of the Guaranty; THEN, upon the occurrence of any such Event of Default, or upon the expiration of the term of this Note, Holder at its election, and without presentment demand, notice of any kind all of which are expressly waived by Maker, may declare the entire outstanding balance of principal and interest thereon immediately due and payable, together with all costs of collection, including attorneys' fees, or may exercise any of its rights other rights and remedies, all of which rights and remedies are cumulative. NO WAIVER BY HOLDER. The acceptance by Holder of any payment under this Note after the date such payment is due, or the failure to declare an Event of Default as herein provided, shall not constitute a waiver of any of the terms of this Note or the right to require the prompt payment when due of future or succeeding payments or to declare an Event of Default for any failure to so pay or for any other default. The acceptance by Holder of a payment of a portion of any installment at any time that such installment is due in full shall not cure or excuse the default caused by the failure to pay such installment in full and shall not constitute a waiver of the right to require full payment when due of all future or succeeding installments. All remedies and rights of Holder are cumulative. ATTORNEYS' FEES AND COSTS. In the event Holder takes any action to enforce any provision of this Note, either through legal proceedings or otherwise, Maker promises to immediately reimburse Holder for reasonable attorneys' fees and all other costs and expenses so incurred as awarded by a court of law. Maker shall also reimburse Holder for all attorneys' fees and costs reasonably incurred in the representation of Holder in any bankruptcy, insolvency, reorganization or other debtor-relief proceeding of or relating to Maker, or for any action to enforce any judgment rendered hereon or relating to enforcement hereof. 2 LATE PAYMENT. Maker agrees that if for any reason it fails to make any of the monthly payments required herein, including the amount due at the Maturity Date, within five (5) days after the due date, Holder shall be entitled to damages for the detriment caused thereby, the extent of which damages are extremely difficult and impractical to ascertain. Maker therefore agrees that a sum equal to five percent (5%) of such delinquent payment is a reasonable estimate of such damages and Maker agrees to pay such sum upon demand by Holder. Acceptance of such late charge by the Holder shall in no event constitute a waiver of Maker's default with respect to such overdue amount nor prevent the Holder from exercising any of the other rights and remedies granted hereunder. DISBURSEMENT INSTRUCTION AND AUTHORIZATION. Holder is making the loan to Maker evidenced hereby to facilitate Maker's payment of construction and related costs of the "All-American SportPark" located in Las Vegas, Nevada (the "SportPark"). Maker agrees that no portion of any advance made hereunder shall be used to pay or otherwise be disbursed to Saint Andrews or any insider or affiliate of Saint Andrews or Maker. Holder shall make advances from time to time hereunder, in its sole and absolute discretion, directly to Maker within two (2) business days after receipt of Maker's written request submitted to Holder in the form as attached hereto as Exhibit "A" (each a "Borrowing Request"), subject to all terms of this Note; and further provided that Maker shall not request an advance under this Note more frequently than once every thirty (30) days and no advances shall be made or available under this Note after April 30, 1998. Maker represents, warrants, and agrees that all advances made hereunder shall be utilized to pay the creditors of Maker as set forth and in the amounts provided in each Borrowing Request. Such advances shall be subject to the terms of this Note. Holder shall note all advances, their amounts and the disbursement date, and principal amounts paid, on the schedule attached hereto, and shall provide a copy of the updated schedule to Maker after each advance and such notations shall constitute prima facie evidence of the outstanding principal amount hereof; provided, however, that Holder's failure to record any such advance or payment shall not alter Maker's obligation to repay all amounts actually advanced hereunder. Notwithstanding any other provision of this Note, or any other agreement executed in connection herewith, Holder shall have no obligation to advance any amounts to Maker, before, upon or after the occurrence of any Event of Default hereunder, or upon an event occurring with which the giving of notice or the passage of time would be an Event of Default. WAIVERS. The Maker, endorsers, guarantors and sureties of this Note hereby waive diligence, demand, presentment, notice of nonpayment, protest and notice of protest, and expressly agree that this Note and any payment hereunder, may be renewed, modified or extended from time to time and at any time and consent to the acceptance or release of the security for this Note or a release of any party or guarantor, all without in any way effecting their liability and waive the right to plead any and all statutes of limitations as a defense to any demand on this Note, or on any guaranty thereof, or to any agreement to pay the same to the full extent permissible by law. MISCELLANEOUS. The terms of this Note shall inure to the benefit of and bind the parties hereto and their successors and assigns. Maker represents and warrants to Holder that the obligations hereunder arise out of or in connection with business purposes and do not relate to any personal, family or household purpose. As used herein the term "Maker" shall include the undersigned Maker and any other person or entity who may subsequently become eligible for the payment hereof. The term "Holder" shall include the named 3 Holder as well as any other person or entity to whom this Note or any interest in this Note is conveyed, transferred or assigned. This Note or any interest in this Note, and all rights and security therefore, may be conveyed, transferred or assigned by the Holder to any other person or entity without the consent of Maker. Each person signing this Note on behalf of Maker represents and warrants that he has full authority to do so and that this Note binds Maker. The terms of this Note may only be modified by a writing signed by Maker and Holder. NOTICE. All notices and other communications provided for hereunder shall be in writing (including telegraphic, telecopied or telex communication) and mailed or telegraphed or telecopied or delivered to the parties at their respective addresses as set forth below, or, as to each party, at such other address as shall be designated by such party in a written notice to the other parties complying as to delivery with the terms of this Section. All such notices and communications, if mailed, shall be effective upon deposit in the United States mail, first-class (or certified) postage prepaid; if telegraphed or telecopied, shall be effective when transmitted, if sent by telex, shall be effective when the telex is sent and the appropriate answer back is received, and if delivered in another way, shall be effective upon receipt. To All-American SportPark, Inc. at its business office: 5235 South Valley View Boulevard, Suite 4 Las Vegas, Nevada 89118 Attention: Ron Boreta, President Telephone No.: (702) 798-7777 Facsimile No.: (702) 739-9509 To Callaway Golf at its business office: Callaway Golf Company 2285 Rutherford Road Carlsbad, California 92008-8815 Attn: Donald H. Dye, President and Chief Executive Officer Telephone: (760) 930-5738 Facsimile: (760) 930-5022 GOVERNING LAW. This Note shall be governed by and construed and enforced in accordance with the internal laws of the State of California without giving any effect to principles of conflict of laws. This Note shall be deemed made and entered into in San Diego County, California. ALL-AMERICAN SPORTPARK, INC., a Nevada corporation By: /s/ Ronald S. Boreta Its: President and Chief Executive Officer By: /s/ Chuck Martin Its: Chief Financial Officer 4 EXHIBIT A [FORM OF NOTICE OF BORROWING REQUEST] Pursuant to that Promissory Note (said Promissory Note, as so amended, supplemented or otherwise modified, being the "Note") dated as of March 18, 1998 between All-American SportPark, Inc. (the "Maker") and Callaway Golf Company (the "Holder"), this represents the Maker's request to borrow from Holder, $_________________, to be utilized for the payment of the following: Creditor Name, Address and Telephone Number Contract or Account Number Amount to be Paid Brief Description of Nature of Services Rendered or Goods Supplied or Sold The undersigned officers certify that: A. The representations and warranties contained in the Note are true and correct in all material respects on and as of the date hereof; B. No event has occurred and is continuing or would result from the consummation of the borrowing contemplated hereby that would constitute an Event of Default under the Note or would be such an event of default with the passage of time, the giving of notice or both; C. No portion of the amount requested above shall be paid to any insider or affiliate of Maker or Saint Andrews Golf Corporation; and D. The Note is in full force and effect, and is not subject to offset, defense or counterclaim. ALL-AMERICAN SPORTPARK, INC. a Nevada corporation By: /s/ Ronald S. Boreta Its: President and Chief Executive Officer By: /s/ Chuck Martin Its: Chief Financial Officer SCHEDULE OF ADVANCES Unpaid Amount of Principal Amount of Amount of Principal Balance Interest Notation Date Advance Paid of Note Paid Made by EX-10.24 6 GUARANTY THIS GUARANTY ("Guaranty") is executed as of the 18th day of March, 1998, by Saint Andrews Golf Corporation, a Nevada corporation (the "Guarantor"), in favor of Callaway Golf Company, a California corporation ("Callaway Golf"), and its successors and assigns, with reference to the facts set forth below. RECITALS A. Callaway Golf has agreed to make a loan, or provide other financial accommodations to All-American SportPark, Inc. (the "Borrower"). The Borrower's obligations to Callaway Golf in respect of such loan or other financial accommodations are evidenced by a Promissory Note, in the original principal amount of Three Million Dollars ($3,000,000.00), dated March 18, 1998, executed by Borrower (as at any time amended, modified, or supplemented, and including any replacement notes issued in exchange or substitution therefor or for any such replacement note, the "Note"). B. The Guarantor owns all of the outstanding capital stock of the Borrower, or otherwise expects to benefit from the grant by Callaway Golf to the Borrower of the loan or other financial accommodations. C. As an essential inducement to Callaway Golf's agreement to make such loan or to provide such other financial accommodations to the Borrower and in consideration therefor and at the request of the Borrower, the Guarantor has agreed to guaranty the payment of all obligations of the Borrower under the Note, as provided herein. NOW, THEREFORE, in consideration of the premises, and to induce and in consideration for the loan or other financial accommodations, the Guarantor agrees for the benefit of Callaway Golf, its successors and assigns, as set forth below. 1. Guaranty. (a) The Guarantor hereby unconditionally and irrevocably guaranties to Callaway Golf the payment of, and promises to pay to Callaway Golf, or order, all indebtedness and obligations, of any nature whatsoever, of the Borrower under the Note and any and all extensions, renewals, substitutions, replacements, and modifications thereof, whether now in existence or hereafter created, including, without limitation, (i) all principal of and interest on the Note and (ii) all fees, charges, costs, and other amounts payable by the Borrower under the Note (all of the foregoing obligations, the "Guarantied Obligations"). (b) This is a continuing guaranty relating to the Guarantied Obligations, including, without limitation, obligations and liabilities arising under successive and future transactions that either increase, decrease, or continue the Guarantied Obligations, or, from time to time, renew Guarantied Obligations that have been satisfied, independent of and in addition to any guaranty, endorsement, or collateral now or hereafter held by Callaway Golf, whether or not furnished by the Guarantor. This Guaranty shall apply and be irrevocable with respect to any indebtedness created or incurred even after actual receipt by Callaway Golf of any written notice of revocation by Guarantor which indebtedness arises out of any extension, renewal, advance, additional advance, refunding, replacement or modification of any indebtedness originally created prior to the actual receipt of such written notice regardless of whether such extension, renewal, advance, additional advance, refunding replacement or modification occurs prior to such revocation, and Guarantor waives any right to revoke this Guaranty and the benefits of California Civil Code Section 2815. 2. Rights of Callaway Golf. The Guarantor consents that Callaway Golf may, and authorizes Callaway Golf at any time in its discretion without notice or demand and without affecting the indebtedness and liabilities of the Guarantor hereunder to: (i) enter into agreements with the Borrower and renew, extend, amend, waive, restructure, refinance, release, accelerate, or otherwise change the time for payment of, or otherwise change the terms of, the indebtedness evidenced thereby (including, without limitation, the Guarantied Obligations), including, without limitation, (A) increase or decrease in the Guarantied Obligations or the rate of interest on the Guarantied Obligations and (B) any amendment of the Guarantied Obligations to permit Callaway Golf to extend further or additional accommodations to the Borrower in any form, including credit by way of loan, lease, sale or purchase of assets, guarantee, or otherwise, which shall thereupon be Guarantied Obligations; (ii) accept new or additional documents, instruments, or agreements relative to the Guarantied Obligations; (iii) consent to the change, restructure or termination of the individual, partnership, or corporate structure or existence of the Borrower, the Guarantor or any affiliate of the Borrower or the Guarantor and correspondingly restructure the Guarantied Obligations; (iv) accept partial payments on the Guarantied Obligations; (v) take and hold collateral or additional guaranties for the Guarantied Obligations and amend, alter, exchange, substitute, transfer, enforce, perfect or fail to perfect, waive, subordinate, terminate, or release any such collateral or guaranties; (vi) apply any collateral, and direct the order and manner of sale thereof as Callaway Golf in its sole discretion may determine; (vii) settle, release on terms satisfactory to Callaway Golf or by operation of law or otherwise, compound, compromise, collect, or otherwise liquidate the Guarantied Obligations and/or the collateral or any guaranty therefor in any manner, whether in liquidation, reorganization, receivership, bankruptcy, or otherwise; (viii) release the Borrower or any other party for all or any part of the Guarantied Obligations; or (ix) assign the Guarantied Obligations or any rights related thereto in whole or in part. 3. Independent Obligations. This Guaranty is a guaranty of payment and not of collection. The Guarantor's obligations under this Guaranty are independent of those of the Borrower and of the obligations of any other guarantor, and are not conditioned or contingent upon the genuineness, validity, regularity, or enforceability of the Note or other Guarantied Obligations or of the obligations of any other guarantor. Callaway Golf may bring a separate action against the Guarantor without first proceeding against the Borrower, any other guarantor, or any other person or entity, or any security held by Callaway Golf, and without pursuing any other remedy. Callaway Golf's rights under this Guaranty in respect of the Guarantied Obligations shall not be exhausted by any action of Callaway Golf until all of the Guarantied Obligations have been fully and indefeasibly paid. 2 4. Waiver of Defenses. The Guarantor waives and agrees not to assert or take advantage of (i) any right to require Callaway Golf to proceed against the Borrower, any other guarantor, or any other person or entity, or against any security now or hereafter held by Callaway Golf, or to pursue any other remedy whatsoever; (ii) any defense based upon any legal disability of the Borrower or of any other guarantor or any discharge or limitation of the liability of the Borrower or of any other guarantor to Callaway Golf, or any restraint or stay applicable to actions against the Borrower or against any other guarantor, whether such disability, discharge, limitation, restraint, or stay is consensual, arises by order of a court or other governmental authority, or arises by operation of law or any liquidation, reorganization, receivership, bankruptcy, insolvency or debtor-relief proceeding, or from any other cause, including, without limitation, any defense to the payment of interest, attorneys' fees and costs, and other charges that otherwise would accrue or become payable in respect of the Guarantied Obligations after the commencement of any such proceeding, it being the intent of the parties that the Guarantied Obligations shall be determined without regard to any rule of law or order that may relieve the Borrower of any portion of such obligations; (iii) setoffs, counterclaims, presentment, demand, protest, notice of protest, notice of non-payment, or other notice of any kind; (iv) any defense based upon the modification, renewal, extension, or other alteration of the Guarantied Obligations; (v) any defense based upon the negligence of Callaway Golf, including, without limitation, the failure to record an interest under a deed of trust, the failure to perfect any security interest, or the failure to file a claim in any bankruptcy of the Borrower or of any other guarantor; (vi) any defense based upon a statute of limitations (to the fullest extent permitted by law), and any defense based upon Callaway Golf's delay in enforcing this Guaranty or any other agreement; (vii) any defense based upon or arising out of any defense that the Borrower may have to the performance of any part of the Guarantied Obligations; (viii) any defense to recovery by Callaway Golf of a deficiency after non-judicial sale of real or personal property; any defense based upon the unavailability to Callaway Golf of recovery of a deficiency judgment after non-judicial sale of real or personal property; and any defense based upon or arising out of any of Sections 580a (which would otherwise limit Guarantor's liability after a nonjudicial foreclosure sale to the difference between the obligations guarantied hereby and the fair market value of the property or interest sold at such nonjudicial foreclosure sale), 580b and 580d (which would otherwise limit Callaway Golf's right to recover a deficiency judgment with respect to purchase money obligations and after a nonjudicial foreclosure sale, respectively), or 726 (which, among other things, would otherwise require Callaway Golf to exhaust all of its security before a personal judgment may be obtained for a deficiency) of the California Code of Civil Procedure (including but not limited to any fair value limitations under Section 580a or 726 of such Code) or based upon or arising out of Division 9 of the California Uniform Commercial Code; (ix) any defense based upon the death, incapacity, lack of authority, or termination of existence of, or revocation hereof by, any person or entity or persons or entities, or the substitution of any party hereto; (x) any defense based upon or related to the Guarantor's lack of knowledge as to the Borrower's financial condition; (xi) any defense based upon the impairment of any subrogation or reimbursement rights that the Guarantor might have, including any defense or right based upon the acceptance by Callaway Golf or an affiliate of Callaway Golf of a deed in lieu of foreclosure without extinguishing the Guarantied Obligations, even if such acceptance destroys, 3 alters, or otherwise impairs subrogation rights of the Guarantor, the right of the Guarantor to proceed against the Borrower for reimbursement, or both; (xii) any right to designate the application of any sums or property received by Callaway Golf; and (xiii) any right or defense that is or may become available to the Guarantor by reason of California Civil Code Sections 2787 to 2855. 5. Borrower's Financial Condition. The Guarantor acknowledges that the Guarantor is relying upon the Guarantor's own knowledge and is fully informed with respect to the Borrower's financial condition. The Guarantor assumes full responsibility for keeping fully informed of the financial condition of the Borrower and all other circumstances affecting the Borrower's ability to perform its obligations to Callaway Golf, and agrees that Callaway Golf will have no duty to report to the Guarantor any information that Callaway Golf receives about the Borrower's financial condition or any circumstances bearing on the Borrower's ability to perform all or any portion of the Guarantied Obligations, regardless of whether Callaway Golf has reason to believe that any such facts materially increase the risk beyond that which the Guarantor intends to assume or has reason to believe that such facts are unknown to the Guarantor or has a reasonable opportunity to communicate such facts to the Guarantor. 6. Exercise of Subrogation Rights; Subordination. (a) The Guarantor agrees that (i) the Guarantor shall have no right of subrogation, reimbursement or indemnity against the Borrower or against any collateral provided for in the Note unless and until all Guarantied Obligations have been paid in full; (ii) the Guarantor shall have no right of contribution against any other guarantor unless and until all Guarantied Obligations have been paid in full; and (iii) until the Guarantor is permitted by the terms of this paragraph to exercise any such right of subrogation, reimbursement, indemnity or contribution, the Guarantor hereby waives any right to enforce any remedy that the Guarantor might have against the Borrower or any other guarantor, or to participate in any security held by Callaway Golf for the Guarantied Obligations, by reason of any one or more payments by the Guarantor under this Guaranty, including, without limitation, any such right or any other right set forth in Sections 2845, 2848 or 2849 of the California Civil Code. (b) Whether or not any or all of the foregoing waivers of rights in respect of subrogation, reimbursement, indemnity and contribution are held to be unenforceable: (i) all existing and future indebtedness of the Borrower to the Guarantor (including, without limitation, any indebtedness arising by reason of any payment by the Guarantor hereunder) is hereby subordinated to all Guarantied Obligations, and, without the prior written consent of Callaway Golf, such indebtedness shall not be paid, in whole or in part, nor will the Guarantor accept any payment of or on account of any such indebtedness; provided, however, that, if Callaway Golf so requests, the Guarantor shall enforce and/or collect such indebtedness, subject to the following clause (ii); (ii) each payment by the Borrower, whether received in violation of this Guaranty or pursuant to the request of Callaway Golf, shall be received by the Guarantor in trust for Callaway Golf, and the Guarantor shall cause the same to be paid to Callaway Golf, immediately upon demand by Callaway Golf, on account of the Guarantied Obligations; and (iii) no such payment shall reduce or affect in any manner the liability of the Guarantor under this Guaranty. The Guarantor hereby grants to Callaway Golf a security interest in all existing and future indebtedness of the Borrower to the Guarantor as security 4 for the obligations of the Guarantor hereunder, and upon request of Callaway Golf shall (1) endorse over, and deliver to, Callaway Golf each promissory note or other writing, if any, evidencing any such indebtedness; and/or (2) cause each such promissory note or other writing to be marked with a legend giving notice of the subordination and security interest in favor of Callaway Golf provided for herein; and/or (3) execute such further documents, and take such further acts, as Callaway Golf may request for the purpose of further perfecting, preserving or protecting its rights hereunder. 7. Impairment of Subrogation and Other Rights/Other Waivers. (a) Upon the occurrence of any default under the Note or by the Guarantor hereunder (but without limiting Callaway Golf's right to resort to any other remedy it may have in respect thereof, under the Note or this Guaranty or otherwise), Callaway Golf may elect to foreclose non-judicially or judicially against any real or personal property security it holds for the Guarantied Obligations or any part thereof, or exercise any other remedy against the Borrower or against any security. No such action by Callaway Golf shall release or limit the liability of the Guarantor, even if the effect of that action is to deprive the Guarantor, or any other guarantor, of the right or ability to collect reimbursement from or to assert subrogation, indemnity, or contribution rights against the Borrower or against any other guarantor for any sums paid to Callaway Golf, or to obtain reimbursement by means of any security held by Callaway Golf for the Guarantied Obligations. (b) Guarantor acknowledges that if Callaway Golf selects to foreclose nonjudicially against any real property security it holds for the Guarantied Obligations or any part thereof, Guarantor may have subrogation rights that might be destroyed by virtue of application of Section 580d of the California Code of Civil Procedure and will or may have a defense to its liability under this Guaranty. Without in any way limiting any other waiver, consent or acknowledgment contained in this Guaranty and in addition thereto, Guarantor hereby waives and agrees not to assert or take advantage of any defense based upon such Section 580d of the California Code of Civil Procedure or any loss or impairment of subrogation or other rights against the Borrower or any other person or entity, and no such nonjudicial foreclosure by Callaway Golf shall release or limit the liability of Guarantor under this Guaranty. (c) Guarantor waives all rights and defenses arising out of an election of remedies by Callaway Golf, even though that election of remedies, such as nonjudicial foreclosure with respect to security for the Guarantied Obligations, has destroyed Guarantor's rights of subrogation and/or reimbursement against the Borrower by the operation of Section 580d of the California Code of Civil Procedure or otherwise. In addition, Guarantor waives all rights and defenses arising out of the operation of Section 580a of the California Code of Civil Procedure, and further waives its right to a fair value hearing under such Section 580a to determine the size of a deficiency judgment following any foreclosure sale on encumbered real property. (d) Guarantor waives all rights and defenses that the Guarantor may have because the Guarantied Obligations are secured by real property. This means, among other things: (1) Callaway Golf may collect from the Guarantor without first foreclosing on any real or personal property collateral pledged by Borrower or otherwise; and (2) if Callaway Golf forecloses on any real property collateral (a) the amount of the Guarantied Obligations may be reduced only by the price for which that collateral was sold at the foreclosure sale, even if the collateral is worth more than the sale price; 5 and (b) Callaway Golf may collect from Guarantor even if Callaway Golf, by foreclosing on the real property collateral, has destroyed any right the Guarantor may have to collect from the Borrower. This is an unconditional and irrevocable waiver of any rights and defenses the Guarantor may have because the Guarantied Obligations or portions thereof are secured by real property. These rights and defenses include, but are not limited to, any rights or defenses based upon Section 580a, 580b, 580d, or 726 of the California Code of Civil Procedure. 8. Bankruptcy. So long as any Guarantied Obligation shall be owing to Callaway Golf, the Guarantor shall not, without the prior written consent of Callaway Golf, commence, or join with any other person or entity in commencing, any bankruptcy, reorganization, or insolvency proceeding against the Borrower or Guarantor. The obligations of the Guarantor under this Guaranty shall not be altered, limited, or affected by any proceeding, voluntary or involuntary, involving the bankruptcy, insolvency, receivership, reorganization, liquidation, or arrangement of the Borrower, or by any defense the Borrower may have by reason of any order, decree, or decision of any court or administrative body resulting from any such proceeding. In furtherance of the foregoing, the Guarantor agrees that if acceleration of the time for payment of any amount payable by the Borrower under the Note or in respect of the other Guarantied Obligations is stayed for any reason, all such amounts otherwise subject to acceleration shall nonetheless be payable by the Guarantor hereunder forthwith upon demand. 9. Claims in Bankruptcy. The Guarantor shall file in any bankruptcy or other proceeding in which the filing of claims is required or permitted by law all claims that the Guarantor may have against the Borrower relating to any indebtedness of the Borrower to the Guarantor, and will assign to Callaway Golf all rights of the Guarantor thereunder. If the Guarantor does not file any such claim within twenty (20) days of any deadline to do so, Callaway Golf, as attorney-in-fact for the Guarantor, is hereby authorized to do so in the name of the Guarantor or, in Callaway Golf's discretion, and to cause a proof of claim to be filed in the name of Callaway Golf or its nominee. The foregoing power of attorney is coupled with an interest and cannot be revoked. Callaway Golf, or its nominee, shall have the sole right to accept or reject any plan proposed in such proceedings and to take any other action that a party filing a claim is entitled to do. In all such cases, whether in administration, bankruptcy, or otherwise, the person or persons authorized to pay such claim shall pay to Callaway Golf the amount payable on such claim. The Guarantor hereby assigns to Callaway Golf all of the Guarantor's rights to any such payments or distributions to which the Guarantor would otherwise be entitled; provided, however, that the Guarantor's obligations hereunder shall not be satisfied except to the extent that Callaway Golf receives cash by reason of any such payment or distribution. If Callaway Golf receives anything hereunder other than cash, the same shall be held as collateral for amounts due under this Guaranty. 10. Reinstatement. The liability of the Guarantor hereunder shall be reinstated and continued, and the rights of Callaway Golf shall continue, with respect to any amount at any time paid on account of the Guarantied Obligations that Callaway Golf shall thereafter be required to restore or return in connection with the 6 bankruptcy, insolvency, or reorganization of the Borrower or the Guarantor, or otherwise, all as though such amount had not been paid. The determination as to whether any such payment must be restored or returned shall be made by Callaway Golf in its sole discretion; provided, however, that if Callaway Golf chooses to contest any such matter, the Guarantor agrees to indemnify and hold harmless Callaway Golf from all costs and expenses (including, without limitation, reasonable legal fees and disbursements) of such litigation. Callaway Golf shall be under no obligation to return or deliver this Guaranty to the Guarantor, notwithstanding the payment of the Guarantied Obligations. If this Guaranty is nevertheless returned to the Guarantor or is otherwise released, then the provisions of this Section 10 shall survive such return or release, and the liability of the Guarantor under this Guaranty shall be reinstated and continued under the circumstances provided in this Section 10 notwithstanding such return or release. 11. Authority, Etc. The Guarantor represents and warrants that: (a) it is a corporation duly incorporated, validly existing, and in good standing under the laws of the jurisdiction of its incorporation; (b) it has all requisite corporate power and authority to execute, deliver, and be legally bound by this Guaranty on the terms and conditions herein stated and to transact any other business with Callaway Golf as necessary to fulfill the terms of this Guaranty; (c) the execution and performance by the Guarantor of this Guaranty have been duly authorized by all necessary corporate or other organizational action and do not and will not (i) contravene the Guarantor's charter or bylaws; (ii) violate any provision of any law, rule, or regulation; or (iii) result in a breach of or constitute a default under any agreement, lease, or other instrument to which the Guarantor is a party or by which it or its properties may be bound or affected; (d) this Guaranty is the legal, valid, and binding obligation of the Guarantor, enforceable in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, and other similar laws affecting creditors' rights generally; and (e) the Guarantor is not insolvent, and will not be rendered insolvent by the incurring of its obligations hereunder; the Guarantor is not engaged, and is not about to engage, in a business or transaction for which the Guarantor's assets are unreasonably small in relation thereto; and the Guarantor does not intend to incur, and does not believe that the Guarantor has incurred or will incur, debts beyond the Guarantor's ability to pay as they mature. 12. Costs and Expenses. The Guarantor agrees to pay, upon demand, Callaway Golf's reasonable out-of-pocket costs and expenses, including (but not limited to) reasonable legal fees and disbursements and expert witness's fees and disbursements, incurred in connection with (i) the administration of this Guaranty, (ii) any effort to collect or enforce any of the Guarantied Obligations or this Guaranty (including the defense of any claims or counterclaims asserted against Callaway Golf arising out of this Guaranty or the transactions contemplated hereby), or (iii) the Guarantor's failure to perform or observe 7 any of the provisions hereof, as well as in the representation of Callaway Golf in any insolvency, bankruptcy, reorganization or similar proceeding relating to the Borrower, the Guarantor, or any security for the Note or this Guaranty. Until paid to Callaway Golf, such sums shall bear interest from the date of demand at the rate of interest set forth in the Note. The obligations of the Guarantor under this Section 12 shall include payment of Callaway Golf's costs and expenses of enforcing any judgments, which obligation shall be severable from the remaining provisions of this Guaranty and shall survive the entry of judgment. 13. Miscellaneous. (a) Notice, Etc. All notices and other communications provided for hereunder shall be in writing (including telegraphic, telecopied, or telex communication) and mailed or telegraphed, telecopied or delivered to the parties at their respective addresses as set forth on the signature page hereto, or, as to each party, at such other address as shall be designated by such party in a written notice to the other parties complying as to delivery with the terms of this Section 13(a). All such notices and communications, if mailed, shall be effective upon deposit in the United States mail, first-class (or certified) postage prepaid; if telegraphed or telecopied, shall be effective when transmitted; if sent by telex, shall be effective when the telex is sent and the appropriate answer back is received; and if delivered in another way, shall be effective upon receipt. (b) Agreement Binding. This Guaranty shall be binding upon the Guarantor and the Guarantor's heirs, executors, personal representatives, successors, and assigns, and shall inure to the benefit of, and be enforceable by, Callaway Golf and Callaway Golf's successors and assigns. (c) Severability. If any provision of this Guaranty shall be deemed or held to be invalid or unenforceable for any reason, such provision shall be adjusted, if possible, rather than voided, so as to achieve the intent of the parties to the fullest extent possible. In any event such provision shall be severable from, and shall not be construed to have any effect on, the remaining provisions of this Guaranty, which shall continue in full force and effect. (d) Security. This Guaranty and the obligations hereunder are secured by the Membership Interest Security Agreement made and entered into as of June 13, 1997 by Guarantor and Callaway Golf ("Membership Interest Security Agreement") and the property described therein. All recoveries under such Membership Interest Security Agreement may be applied to the obligations secured thereby in such order and in such amounts as may be determined by Callaway Golf in its sole and absolute discretion. (e) Governing Law; Jurisdiction. This Guaranty shall be governed by and construed in accordance with the laws of the State of California applicable to contracts, between residents thereof, to be wholly performed within the State of California. (f) Rights Cumulative; No Waiver. Callaway Golf's options, powers, rights, privileges, and immunities specified herein or arising hereunder are in addition to, and not exclusive of, those otherwise created or existing now or at any time, whether by contract, by statute, or by rule of law. Callaway Golf shall not, by any act, delay, omission or otherwise, be deemed to have modified, discharged, or waived any of Callaway Golf's options, powers, or 8 rights in respect of this Guaranty, and no modification, discharge, or waiver of any such option, power, or right shall be valid unless set forth in writing signed by Callaway Golf or Callaway Golf's authorized agent, and then only to the extent therein set forth. A waiver by Callaway Golf of any right or remedy hereunder on any one occasion shall be effective only in the specific instance and for the specific purpose for which given, and shall not be construed as a bar to any right or remedy that Callaway Golf would otherwise have on any other occasion. (g) Default. The occurrence of any one of the following events shall, at the election of Callaway Golf, be deemed an event of default by Guarantor under this Guaranty: (a) Guarantor shall fail or neglect to perform, keep or observe any term, provision, condition or covenant, contained in this Guaranty, and any monetary failure is not cured within ten (10) days of written notice by Callaway Golf to Guarantor, and any non-monetary failure is not cured within thirty (30) days of written notice by Callaway Golf to Guarantor; (b) if any representation or warranty made in this Guaranty shall be false in any material respect; (c) if any material portion of Guarantor's assets are seized, attached, subjected to a writ, or are levied upon, or come within the possession of any receiver, trustee, custodian or assignee for the benefit of creditors; or (d) occurrence of a default or event of default under the Note or Membership Interest Security Agreement. Upon the occurrence of an event of default, Guarantor's obligations hereunder shall be, at the option of Callaway Golf, accelerated and shall all be due and payable and enforceable against Guarantor, whether or not the Guarantied Obligations are then due and payable and Callaway Golf may, in its sole discretion, in addition to any other right or remedy provided by law, all of which are cumulative and non-exclusive, proceed to suit against Guarantor, whether suit has been commenced against Borrower. (h) Entire Agreement. This Guaranty and the written agreements referred to herein contain the entire agreement between the Guarantor and Callaway Golf with respect to its subject matter, and supersede all prior communications relating thereto, including, without limitation, all oral statements or representations. No supplement to or modification of this Guaranty shall be binding unless executed in writing by the Guarantor and Callaway Golf. 9 IN WITNESS WHEREOF, the Guarantor has executed this Guaranty as of the date first written above. GUARANTOR: SAINT ANDREWS GOLF CORPORATION By:/s/ Ron Boreta Ron Boreta Its: President By:/s/ Chuck Martin Chuck Martin Its: Chief Finanacial Officer GUARANTOR'S ADDRESS FOR NOTICE: 5235 South Valley View Boulevard, Suite 4 Las Vegas, Nevada 89118 Attention: Ron Boreta, President Telephone No.: (702) 798-7777 Facsimile No.: (702) 739-9509 CALLAWAY GOLF COMPANY'S ADDRESS FOR NOTICE: Callaway Golf Company 2285 Rutherford Road Carlsbad, California 92008-8815 Attention: Donald H. Dye, President and Chief Executive Officer Telephone No.: (760) 930-5738 Facsimile No.: (760) 930-5022 10 EX-10.25 7 FORBEARANCE AGREEMENT This Forbearance Agreement (the "Agreement") is made and entered into on March 18, 1998, by and between All-American Golf LLC, a California limited liability company ("All-American"), Saint Andrews Golf Corporation, a Nevada corporation ("Saint Andrews"), and Callaway Golf Company, a California corporation ("Callaway Golf"), and is made with reference to the following facts: RECITALS A. On or about June 13, 1997, All-American executed and delivered to Callaway Golf a Secured Promissory Note in the original amount of Five Million Two-Hundred Fifty Thousand Dollars ($5,250,000.00) (the "Note"). B. The Note is secured pursuant to a Continuing Security Agreement dated June 13, 1997 by and between All-American and Callaway Golf (the "Security Agreement"), a Membership Interest Security Agreement dated June 13, 1997, by and between Callaway Golf and Saint Andrews (the "Membership Interest Security Agreement"), and a Deed of Trust dated June 13, 1997 executed by All-American in favor of Callaway Golf securing the Indenture of Lease dated June 13, 1997 by and between Urban Land of Nevada, a Nevada corporation, and Callaway Golf (the "Deed of Trust") (the Note, Security Agreement, Membership Interest Security Agreement and Deed of Trust are collectively referred to as the "Loan Documents"). C. Callaway Golf and Saint Andrews are also parties to that certain Operating Agreement for All-American Golf LLC dated June 13, 1997 (the "Operating Agreement"). D. Under the terms of the Note, All-American was obligated to commence making payments of interest accrued on the principal outstanding thereunder on December 21, 1997, and to make monthly installments of interest accrued on the principal outstanding on the same day of each month thereafter until the Maturity Date (as defined in the Note). All-American has failed to make the monthly interest installments due on December 21, 1997, January 21, 1998 and February 21, 1998, and has advised Callaway Golf that it will be unable to make the payments due on March 21 and April 21, 1998. There is past due and owing on account of accrued and unpaid interest on the Note $243,921.23 as of February 21, 1998, and including the payment due on March 21, 1998 of $43,750.00 and the payment due on April 21, 1998 of $43,750.00, as of April 21, 1998 there will be due and owing under the Note at least $331,421.23 (the "Arrears"). E. As a result of the failure by All-American to make the payments referred to herein, the Note is presently in default. Callaway Golf has the immediate and unconditional right to proceed against All-American under the Note to collect amounts due under the Note and to exercise upon or enforce its rights to its collateral as set forth in the Loan Documents. F. All-American and Saint Andrews have requested Callaway Golf to forbear from proceeding against All-American and Saint Andrews under the Note and other Loan Documents and in connection therewith, have agreed to certain terms and conditions to provide the inducement for such forbearance. G. In addition, Saint Andrews has requested that Callaway Golf extend certain financial accommodations to All-American SportPark, Inc. ("SportPark"), a wholly-owned subsidiary of Saint Andrews. ACCORDINGLY, in consideration of Callaway Golf's forbearing from immediately proceeding against All-American and Saint Andrews under the Note and other Loan Documents, in consideration of the mutual covenants and agreements contained herein, and for other good and valuable consideration, receipt of which is hereby acknowledged, the parties hereby agree as follows: 1. Forbearance. Callaway Golf hereby agrees it will forbear from proceeding against All-American and Saint Andrews under the Note and other Loan Documents, subject to the terms and conditions herein below contained: 1.1 Callaway Golf's agreement to forbear is expressly conditioned upon the following: (a) All-American shall timely make each payment due under the Note, commencing with the payment due on May 21, 1998. (b) In addition to the regularly scheduled Note payments, simultaneously with the making of each regularly scheduled payment under the Note, commencing with the payment due on May 21, 1998, All-American shall make additional monthly payments under the Note of $36,824.81, or more, to cure the Arrears, and shall continue to make such payments on the same day of each month thereafter until January 21, 1999, at which time All-American shall make a payment to Callaway Golf in an amount sufficient to pay in full the remaining unpaid Arrears. (c) In addition to the foregoing payments, on the tenth (10th) day of each month, commencing on June 10, 1998, and on the same day of each month thereafter until the Arrears shall be paid in full, All-American shall make an additional payment (each an "Excess Payment") to be applied to the Arrears in an amount equal to that amount that Cash from Operations (as defined in the Operating Agreement) for the previous calendar month shall exceed $300,000.00. The payment of any Excess Payment shall not release All-American from thereafter tendering all regularly scheduled monthly payments required as a condition to the forbearance hereunder. (d) All-American's and Saint Andrews' continued compliance with the terms of the Loan Documents, subject, however, to the provisions of paragraphs 1.1(a), (b) and (c) above. 1.2 Callaway Golf's agreement of forbearance shall expire on January 21, 1999 unless sooner terminated as provided herein or unless extended by written agreement between the parties. 1.3 Notwithstanding Callaway Golf's agreement to forbear, Callaway Golf may (but shall not be obligated to) at any time take any action for the following purposes: (a) To protect or preserve any of the security for the Note; (b) To appear in and defend any action affecting any of such security; (c) To take any action to effect the purposes and intent of this Agreement. 2 2. Further Covenants. All-American and Saint Andrews further agree as follows: 2.1 All-American and Saint Andrews shall execute any and all documents and take any action reasonably requested by Callaway Golf to effectuate the terms of this Agreement. 2.2 That although Callaway Golf by this document agrees on certain conditions to forbear from exercising remedies under the Note and other Loan Documents, Callaway Golf has not waived any default or defaults or claims or rights that may exist now or may occur in the future except as otherwise provided herein; Callaway Golf does not waive or acquiesce, and this Agreement shall not be construed as a waiver or acquiesce in, any default or event of default under any agreement entered into between Callaway Golf and All-American or Saint Andrews; no failure to exercise and no delay in exercising, on the part of Callaway Golf, any right, remedy, power or privilege hereunder or under any other Loan Documents shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege hereunder or thereunder preclude any other right, remedy, power or privilege or constitute an election of remedy; and the rights, remedies, powers and privileges hereunder and therein are cumulative and not exclusive of any rights, remedies, powers or privileges provided by law. 2.3 During the time period in which the forbearance under paragraph 1 above shall remain in effect, All-American and Saint Andrews agree that any applicable statute of limitations to any cause or causes of action which Callaway Golf may have or hereafter acquire against All-American or Saint Andrews under or in connection with the Note or other Loan Documents shall be tolled. 2.4 That each of the terms of the Note and other Loan Documents are hereby ratified and reaffirmed unconditionally, and shall remain in full force and effect. 3. Miscellaneous. 3.1 This Agreement is entered into without any party having relied on any statement or representation of any adverse party. Each party represents and warrants that the party has been represented by legal counsel of that party's own free choice and that counsel has explained to that party the full legal effect of this Agreement and the arrangements referred to herein. 3.2 The parties hereto confirm the accuracy of the Recitals set forth above, each of which are incorporated herein by reference. 3.3 All representations, warranties, agreements and covenants made in this Agreement shall survive the closing and termination of this Agreement notwithstanding any investigation at the time made by or on behalf of either party. 3.4 This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof. Except as otherwise specifically provided herein, no change, modification, addition or termination of this Agreement or any part hereof shall be valid unless it is in writing and signed by or on behalf of the party to be charged therewith. 3 3.5 No waiver of any provision of this Agreement shall be effective unless in writing and signed by the parties to be charged with such waiver, and no waiver shall be deemed a continuing waiver or a waiver in respect to any subsequent breach or default either of a similar or of a different nature, unless expressly stated in writing. 3.6 This Agreement shall be binding upon and shall inure to the benefit of the respective administrators, representatives, partners, partnerships, subsidiary organizations, successors, assignees of each of the parties hereto, and all other persons, firms, corporations, associations, partnerships or other entities wherever the context requires or admits. 3.7 The parties hereto acknowledge that simultaneously herewith the Membership Interest Security Agreement is being modified to include as an additional "Secured Obligation" as defined thereunder Saint Andrews' obligations under a Guaranty dated March 18, 1998, pursuant to which Saint Andrews is guarantying all obligations of SportPark to Callaway Golf under a Promissory Note dated March 18, 1998 in the original stated principal amount of Three Million Dollars ($3,000,000.00) executed by SportPark in favor of Callaway Golf. The parties hereto consent to the modification of the Membership Interest Security Agreement and acknowledge and agree that (a) references to the Membership Interest Security Agreement in the Loan Documents shall include such agreement as it may be modified or amended from time to time, (b) an event of default under the Guaranty is a default under the Membership Interest Security Agreement (as amended) and that an event of default under the Membership Interest Security Agreement is a default under all of the Loan Documents, and (c) Callaway Golf may apply all recoveries under the Membership Interest Security Agreement to the Secured Obligations (as defined thereunder) in such order and in such amounts as Callaway Golf may determine in its sole and absolute discretion. 3.8 This Agreement shall not be construed nor is it intended as an amendment or modification of the Note or other Loan Documents, but rather it simply memorializes the terms and conditions under which Callaway Golf is willing to temporarily forbear from exercising certain of its rights and remedies under the Note and other Loan Documents. 3.9 Callaway Golf's agreement to forbear shall terminate immediately on the earlier to occur of (a) January 21, 1999, or (b) All-American's or Saint Andrews' default in the performance of or failure to comply with any of the terms or conditions hereof, or (c) the filing of a petition for relief under Title 11 of the United States Code or any successor provision by or against All-American or Saint Andrews. Upon such termination, and at all times thereafter, Callaway Golf may proceed to enforce any and all of its rights and remedies provided by the Note, this Agreement and the other Loan Documents or as otherwise provided by law. 3.10 The obligations of each of the parties hereto are joint and several. 3.11 In the event any litigation or contested proceeding arises between or among any party or parties to this Agreement relating to this Agreement, the prevailing party shall be entitled to recover, in addition to the cost provided by law, all actual costs, expenses and attorney's fees incurred, including any costs or attorney's fees incurred in connection with any bankruptcy, liquidation, reorganization or other debtor-relief proceeding of any party hereto. 4 3.12 This Agreement shall be construed and enforced in accordance with California law. 3.13 This Agreement may be executed by one or more of the parties in any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. This Agreement shall not be effective until executed by all parties hereto. Executed at San Diego, California on the date first above written. ALL-AMERICAN GOLF LLC, a California limited liability company By: SAINT ANDREWS GOLF CORPORATION, a Nevada corporation, Managing Member By:/s/ Ron Boreta Ron Boreta, President SAINT ANDREWS GOLF CORPORATION, a Nevada corporation By:/s/ Ron Boreta Ron Boreta, President CALLAWAY GOLF COMPANY, a California corporation By:/s/ Donald H. Dye Donald H. Dye, President and Chief Executive Officer 5 EX-10.26 8 AMENDMENT NO. 2 TO LICENSE AGREEMENT This Amendment No. 2 to that certain License Agreement (the "Agreement") dated as of August 1, 1995, (the "Agreement Date") by and between the National Association for Stock Car Auto Racing, Inc., a Florida Corporation ("Licensor") and Saint Andrews Golf Corporation, a Nevada corporation ("Licensee"), is entered into as of May 6, 1997. All references herein to capitalized terms not otherwise defined herein shall refer to the definitions of such terms in the Agreement. BACKGROUND A. Pursuant to the Agreement, Licensee acquired certain licenses from Licensor to use certain trademarks and service marks in the development, design, operation, and promotion of indoor and outdoor go-cart racing facilities having a NASCAR racing theme, and Licensor granted Licensee such licenses, on the terms and conditions as set forth in the Agreement and subsequent Amendment No. 1 entered into by Licensor and Licensee as of August 1, 1995, (the "Amendment"); and B. Licensor and Licensee desire to amend the Agreement and the Amendment to provide for certain further terms and conditions but to otherwise maintain all other terms and conditions of the Agreement and the Amendment; NOW THEREFORE, for and in consideration of Ten Dollars ($10.00) in hand and paid and other good and valuable consideration, the receipt in sufficiency of which is hereby acknowledged, and the terms and conditions set forth herein, the parties hereby agree as follows: TERMS AND CONDITIONS 1. Section 1 of the Agreement is hereby amended to provide that (i) the scope of the license granted by Licensor to Licensee shall be exclusive to the Territory as amended herein, provided that Licensee meets the terms and conditions as set forth herein, and (ii) Licensor shall have the right to license third parties in connection with the operation and promotion of SpeedParks outside Las Vegas, Nevada. 2. The definition of Territory is hereby amended to be only Las Vegas, Nevada, and Southern California under the terms and conditions specifically set forth herein. 3. Sections 1, 15, 16, and 17 of the Agreement are hereby amended to provide that Licensee shall have the exclusive right to utilize the NASCAR Mark only in Las Vegas, Nevada, provided that Licensee opens said SpeedPark no later than March 1, 1998. If Licensee fails to have the Las Vegas SpeedPark opened and fully operational by said date, it will be considered an Event of Default under the Agreement and Licensor shall have the right to terminate the Agreement immediately upon notice to Licensee without any right to cure. If Licensee opens said Las Vegas SpeedPark no later than March 1, 1998, Licensee shall have the right to continue operating said SpeedPark pursuant to this Agreement and subsequent Amendments through December 31, 2003. 4. Subject to the conditions herein, Licensee shall have the right to choose one site in Southern California ("Site") where Licensee intends to open a second SpeedPark pursuant to the Agreement. Upon Licensee notification, Licensee shall have the exclusive right to utilize the NASCAR Mark pursuant to the Agreement within a One Hundred (100) Mile radius of the Site provided that Licensee has the Las Vegas SpeedPark opened and fully operational by March 1, 1998. If the SpeedPark at the California Site is not opened and fully operational by March 1, 1999, Licensee's license shall be revoked with respect to the California Site and its corresponding One Hundred (100) Mile radius and Licensor shall have the right to license a third party to utilize the NASCAR Mark in connection with a SpeedPark in the Southern California market. If Licensee has the SpeedPark at the Southern California Site opened and fully operational by March l, 1999, Licensee shall have the right to continue operating said SpeedPark pursuant to this Agreement and subsequent Amendments through December 31, 2003. 5. Commencing on July 1, 2002, through August 30, 2002, Licensor and Licensee agree to enter into good faith negotiations regarding the renewal of this Agreement. 6. Licensor owns the "NASCAR SpeedPark" trademark and design as seen in Exhibit 1 and any variations thereof. Licensor shall have the right to license the said NASCAR SpeedPark trademark and design to third parties at NASCAR's discretion. Licensee shall have the right to continue using the NASCAR SpeedPark trademark and design and any variations thereof in any of the SpeedParks Licensee operates pursuant to this license during the term of this Agreement. 7. Licensee agrees to allow Jeff Gordon to participate in SpeedPark facilities developed by third parties outside Las Vegas, Nevada, and the Site in Southern California if such an opportunity is available. 8. Section l 6(c)(vi) of the Agreement shall be canceled in its entirety to accommodate the terms and conditions as provided herein. 9. Licensor agrees to continue supporting Licensee's development, sponsorship, and marketing programs pursuant to the Agreement. 10. Licensor and Licensee hereby agree to negotiate in good faith to establish minimum performance guidelines. If Licensor and Licensee cannot mutually agree on such performance guidelines after a reasonable period of negotiations, Licensor will have the right to establish performance guidelines in its sole discretion. Licensor hereby reserves its right to exit the Agreement effective August 1, 1998 (the "Exit Date"), if Licensee does not meet such performance guidelines provided that Licensor gives at least sixty (60) days written notice. 11. All other terms of the Agreement not amended herein shall remain in full force and effect. To the extent that the terms and conditions herein are not inconsistent with the prior Agreement and Amendment, such terms shall remain in full force and effect. 2 IN WITNESS WHEREOF, the parties have executed this Amendment No. 2 to the Agreement effective as of May 6, 1997. LICENSOR: LICENSEE: NATIONAL ASSOCIATION FOR SAINT ANDREWS GOLF CORPORATION STOCK CAR AUTO RACING. INC. By: /s/ George Pyre /s/ Ron Boreta Print Name: George Pyre Print Name: Ron Boreta Date: 5/12/97 Date: 5/7/97 3 EX-27 9
5 This schedule contains summary financial information extracted from the balance sheets and statements of operations found on pages F-2 through F-5 of the Company's Form 10-KSB for the fiscal year ended December 31, 1998, and is qualified in its entirety by reference to such financial statements. YEAR DEC-31-1998 DEC-31-1998 2,494,300 0 799,200 0 99,500 3,458,000 24,804,300 (290,700) 28,693,400 3,038,500 0 0 7,240,000 3,000 1,891,100 28,693,400 0 1,583,800 0 941,800 3,473,100 0 (552,000) (1,744,200) 0 (1,744,200) 0 0 0 (1,487,200) (.50) 0
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