April 24, 2015 1. PURPOSE This letter is being written to inform each member of the McCullar Golf, Inc of the status of the McCullar Golf, Inc s offer to sell the the golf course to the members; to inform members of appropriate preliminary actions by a Temporary Committee consisting of some current club members; to establish a new Lakeview Golf & Country Club Not-for-Profit Corporation (LVGCC) to assess the viability of purchasing the golf course from McCullar Golf, Inc.; and to gain a commitment from each current member to proceed towards a purchase of the Lakeview Golf Course. 2. McCULLAR GOLF INC. OFFERS The original sale of the LVG&CC resulted from the Purchase Agreement of 5/16/2013. The provision that required the members to be given the first option to buy-back the golf course is provided in the Membership Agreement that we were all required to sign to be members of the new entity now operated by McCullar Golf, Inc. On March 1, 2015 the McCullar Golf, Inc. polled its members to determine if they were interested in purchasing the LVG&CC for its assessed value of $2.1 million. 179 of the 367 members responded with 178 members voting NO and 1 member voting YES. On 21 March 2015 McCullar Golf, Inc. made to the members a one time only offer, with no further negotiations to buy the golf course, and required a YES or NO response in two weeks (a copy of this offer is posted on the clubhouse bulletin board and on the LVG&CC web site http://www.lvgcc.com). This offer contained conditions impossible to meet, ignored the failure of McCullar Golf, Inc. to meet promised and contractually required improvements to the golf course and club, and required an indemnification of the implied transfer of the golf course to the members. The unrealistic short time to respond, considering there was no identified group among the members authorized to officially respond, rendered it impossible to respond in the time required by the offer. Further, McCullar Golf, Inc. s failure to meet all improvement promises (made to induce the then-members to sell the LVG&CC), the remaining contract requirements that have not been met, and the indemnification of its failure to perform was considered unacceptable. Included in those promises and contract requirements are a new Club House, a new Pro Shop, an Exercise Facility, a New Swimming Pool, and upgraded Golf Course Ponds. (a copy of the Purchase Agreement Exhibit D is posted on the clubhouse bulletin board and on the LVG&CC web site http://www.lvgcc.com). Subsequently, the McCullar Golf, Inc. verbally revised its offer to eliminate the assessed value as the transfer price by offering a no-interest loan of $750,000 to be paid at $15 per member per month. With 350 members that is a payment of $63,000 per year for 11.9 years. If the new LVGCC defaulted on the remaining $750,000 balance at anytime during the payback period, the golf course would be returned to McCullar Golf, Inc. No responsible corporation would initiate operations with a start-up deficit of such magnitude. The asset deficit of $750,000 after the purchase would foreclose the opportunity to borrow money, if required to meet unexpected needs. 1 of 5
3. THE TEMPORARY COMMITTEE After notice that McCullar Golf, Inc. offered to sell to the members, a group of members took the initiative to begin certain efforts to assess the viability of purchasing the golf course and to seek concurrence of the members by forming a Temporary Committee. Efforts accomplished and anticipated include: a. Held a meeting of interested members to brief the status and proposed actions, seeking concurrence to form a Temporary Committee to proceed. b. Formed the Temporary Committee which is evaluating and considering the McCullar Golf, Inc. offers. c. Selected a Temporary Board of Directors to implement certain actions. d. An UBI (Unified Business Identification) number has been obtained. The new LVG&CC is thereby recognized by the State of Washington as a non-profit corporation. e. The new LVG&CC IRS 501(C)7 social nonprofit organization designation has been obtained. f. Prepared to submit Articles of Incorporation and By Laws for a non-profit Washington corporation that, once approved, will obtain members and formally elect a Board of Directors to conduct negotiations for purchase of a new Lakeview Golf & Country Club Not-for-Profit Corporation (LVG&CC). g. Prepared a request for a Washington nonprofit business license pending successful negotiations to purchase the LVG&CC by the new Lakeview Golf & Country Club Not-for-Profit Corporation (LVG&CC). h. Evaluate from the financial info provided (the McCullar Golf, Inc 2014 Profit and Loss statement, and other available financial information) the reasonableness of members owning and operating the Golf Club. i. Obtain and further assess the expenses and income from McCullar Golf, Inc s financial accounting records. j. Discuss and consider reasonable offers to buy and negotiating strategies. k. Keep the members informed via periodic updates through meetings of the Temporary Committee Tuesdays at 6:30 pm in the Club House, and postings in the Club House and on the LVG&CC web site http://www.lvgcc.com. 4. TEMPORARY COMMITTEE S CONSIDERATIONS The Temporary Committee recognizes that McCullar Golf, Inc. paid each member $5000 for the LVG&CC (the later additional payment to members of about $380 was the equitable distribution of remaining assets of the original LVG&CC paid at the dissolution of the corporation). McCullar Golf, Inc. also paid for a new computer-controlled irrigation system installation and most, but incomplete, improvements to the irrigation ponds at #12 green. In 2014, McCullar Golf, Inc. operated the Golf Course at a significant loss of about $1,301,000 on sales of about $868,000. The Temporary Committee is seeking clarification of these numbers and other financial records. Note, however, that a significant, but unknown at this time, amount paid for the new irrigation system was part of the above loss. 2 of 5
To determine the viability of purchasing the Golf Course, the voluntary Temporary Committee set about assessing the income and expenses of a 350 member/owner LVGCC Corporation, the capitalization fees and dues required, and reasonable ways to reduce expenses. Some progress has been made, but much information is still needed from McCullar Golf, Inc., i.e. personnel hours and pay scales to better estimate future personnel costs, possible operating efficiencies, and operating hours of the Pro Shop and Club House. Actions are ongoing to gain these cost insights and identify reasonable expense reductions. Given the short time given to respond, the $750,000 start-up deficit proposed, the unfulfilled contractual improvements, and the free memberships for lineal McCullar descendants, the Temporary Committee concluded it could not accept the offer, even as modified. After discussing with legal counsel the situation and the proposed letter rejecting the March 21, 2015 offer, the Temporary Committee s approved the letter and the Temporary Board sent a detailed letter to McCullar Golf, Inc., identifying the basis for rejecting the offer, but suggesting further discussions to arrive at a mutually satisfactory agreement in an attempt to move forward (a copy of this letter is posted on the clubhouse bulletin board and on the LVG&CC web site http://www.lvgcc.com). 5. PRELIMINARY ANALYSIS SUMMARY Our preliminary analysis indicates that operating the new LVGCC without loss may be possible with reasonable changes to reduce expenses and with 350 member/owners each paying monthly dues of not more than $150. However, it is becoming increasingly clearer that any significant money from the members to McCullar Golf, Inc., or a failure to obtain 350 committed members may become a deal killer. 6. NEGOTIATION STRATEGIES The Temporary Committee is continuing to define reasonable negotiation strategy options that can lead to an affordable purchase and operation of the new LVG&CC. Strategy options include the costs and timing of: 1. Repairing the cart paths and eliminating adjacent destructive tree roots. 2. Replacing the failed septic system of the toilets between the #11 green and the #14 T-box. 3. Completing the rock work around the large irrigation pond and installing the lining of the small pond adjacent to the #12 green. 4. Removing and replacing dead trees. 5. Seeding all bare areas of the grass resulting from the irrigation system installation. 6. Establishing and funding Reserve Accounts for the manageable replacement of major assets. Among the many factors considered in arriving at a reasonable negotiating position is the capital needed to fund early operations. Significant capital is needed at start up to pay salaries and purchase the goods and materials before money from sales and dues start. Failing an outside investment, the only source is the owners of the corporation, i.e., the members. If 350 members purchased one share of stock in the corporation, whereby becoming owners, the new LVG&CC would be capitalized at $175,000 at start-up. 3 of 5
So, this is the time for all interested golfers and homeowners to recognize reality, and to move forward toward an investment in a realistic, new LVG&CC. 7. POTENTIAL IMPACTS OF NOT PURCHASING The membership agreement that we all signed after the sale to what is now McCullar Golf, Inc. requires that the members be given the first right of refusal to buy the Golf Course. Informal discussions with McCullar Inc. representatives indicate that if the members do not buy the Golf Course, it will be put on the open market for sale. It is apparent that Jim McCullar wants to get out of the money-losing operation of the Golf Course. Possible outcomes of the members not buying the LVG&CC include: a. If the McCullar Golf Inc. is sold to someone else, who knows what the new owner will do and what the dues will be, or if the golf course will continue to operate. b. If it does not sell quickly, McCullar Golf Inc. may, to reduce expenses, curtail operations in any number of ways that may affect what members have been accustomed to over the years. c. If it does not sell for an extended period, McCullar Golf, Inc may decide to dissolve the corporation. d. In any of the negative cases, home values will be at risk. 8. MEMBER COMMITMENT This letter seeks the commitment of each member of the McCullar Golf, Inc., to becoming a member/ owner of the new not-for-profit LVGCC. We have attached a copy of this Commitment Statement for you to commit to be a member/owner of the new not-for-profit LVGCC. Please sign and return to the LVGCC at PO, Soap Lake, WA 98851 not later than May 11, 2015. Included in the commitment is a fee of $100, to be returned if negotiations with McCullar Inc. are unsuccessful. Disclaimer: To the best of our knowledge, the information in this letter is accurate. JERRY COULTER President Lake View Golf & Country Club Temporary Board of Directors Attachment: Statement of Commitment 4 of 5
STATEMENT OF COMMITMENT to the New LVG&CC Nonprofit Corporation #I, the undersigned, commit to becoming one of the owners of the new LVG&CC Nonprofit Corporation if the negotiations for the purchase of the LVG&CC are successful. #I further agree to provide a commitment check of $100 not later than May 11, 2015 to the new LVG&CC, to be held by the Temporary Committee s Temporary Board of Directors until the new LVG&CC Non-Profit Corporation Articles of Incorporation are approved by the State of Washington, at which time the check will be deposited in the Corporation s checking account. Considering the timing of the money commitment may be difficult for some, an initial payment of $25, with a promise to pay $25 each month for 3 months, is acceptable. #I understand that if the Corporation does not buy the LVG&CC from McCullar Golf, Inc., that my commitment amount paid will be returned to me. Checks should be payable to LVG&CC and mailed to LVG&CC, PO, Soap Lake, WA 98851 printed name signed name & date mailing address email address 5 of 5