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Market Analysis, Operational Review and Indication of Value

Eagle Harbor Golf Club November 2003

PRIVATE & CONFIDENTIAL – This document is intended solely for the internal use of the Eagle Harbor Golf Course and The Crossings at Fleming Harbor Community District Association. This document is not to be reproduced without the expressed written consent of KPMG LLP

Eagle Harbor Golf Club Market Analysis, Operational Review and Indication of Value

Table of Contents

EXECUTIVE SUMMARY I OVERVIEW ..............................................................................................................................1 Purpose of the Engagement .......................................................................................................2 Scope of the Engagement...........................................................................................................2 II SITE REVIEW ..........................................................................................................................3 Overall Community Development .............................................................................................3 Golf Course and Related Facilities ............................................................................................4 III MARKET ANALYSIS..............................................................................................................5 Definition of Market Area .........................................................................................................5 Golf Industry Trends..................................................................................................................6 Demographics ............................................................................................................................7 Sources of Demand ....................................................................................................................8 Competitive Analysis...............................................................................................................10 Other Golf Courses and New Golf Course Proposals..............................................................19 Estimate of Supply...................................................................................................................20 Overall Analysis of Supply and Demand.................................................................................21 Strengths, Weaknesses, Opportunities and Threats (SWOT) Analysis ...................................21 IV BUDGET PROCESS & MANAGEMENT INFORMATION SYSTEMS .............................23 Budgeting Process....................................................................................................................23 Management Information Systems ..........................................................................................24 V OPERATIONAL REVIEW .....................................................................................................25 Facility and Operational Review .............................................................................................25 General.....................................................................................................................................27 Patron Program and Rounds Analysis .....................................................................................27 Rounds Played per Patron........................................................................................................28 “What is the Appropriate Amount of Time to be Blocked”?...................................................29 “What are the Actual Results to Date”?...................................................................................29 Total Rounds Played and Access to the Tee ............................................................................30 Patron Privileges ......................................................................................................................30 Pricing Structure and Quality of Golf Product ........................................................................31 Net Rate per Round..................................................................................................................32 Public Access to Facilities .......................................................................................................33 Booking of Tee Times .............................................................................................................33 Special and Tournaments, and Public Play..............................................................................33 EPIC Card ................................................................................................................................34 Marketing Program ..................................................................................................................35



Table of Contents, Continued

Targeting of Advertising..........................................................................................................35 Complementary Rounds...........................................................................................................36 Pro Shop Analysis....................................................................................................................36 Pricing Policy...........................................................................................................................36 Inventory Levels and Mix........................................................................................................36 Pro Shop Payroll Expense........................................................................................................37 Cross-Utilization of Staff .........................................................................................................37 Tee Time Reservation System .................................................................................................37 Revenue and Labor Controls ...................................................................................................37 Other Pro Shop Expenses.........................................................................................................37 Patron Trail Passes...................................................................................................................38 Greens Maintenance Analysis..................................................................................................39 Maintenance Costs versus Benchmarks ...................................................................................39 Conclusion ...............................................................................................................................39 Food and Beverage Analysis ...................................................................................................40 General and Administrative Expense Analysis........................................................................41 Administrative Payroll costs ....................................................................................................41 Capital Maintenance ................................................................................................................41 Management.............................................................................................................................42 Operational Conclusions..........................................................................................................42 Operational Summary and Estimated Impacts to Operational Cash Flow...............................44 Stakeholder Analysis ...............................................................................................................44 VI INDICATION OF VALUE .....................................................................................................48 Fair Market Value vs. Price .....................................................................................................48 Valuation Approach .................................................................................................................48 Capitalized Cash Flow Approach ............................................................................................49 Capitalized Value of the Club..................................................................................................50 Assumptions Underlying Indication of Value .........................................................................50 VII SUMMARY...........................................................................................................................51 VIII LIMITING CONDITIONS AND RESTRUCTIONS ...........................................................51 PRIVATE & CONFIDENTIAL – This document is intended solely for the internal use of the Eagle Harbor Golf Course and The Crossings at Fleming Harbor Community District Association. This document is not to be reproduced without the expressed written consent of KPMG LLP


Table of Contents, Continued

Schedules:

1 Analysis of Historic Operating Results 2 Financial Estimates – September 30, 2004 to 2008 3 Indication of Value 4 Estimated Debt Service Shortfall 5 Summary of Recommendation Impacts to Cash Flow from Operations

Appendices:

I Demographics of the Market Area II Competitive Analysis III Detailed Analysis of Annual Rounds Played IV Analysis of Potential Capacity V Schedule of Green Fee Rates and New Patron Rates VI Operational Data and Recommendations


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EAGLE HARBOR GOLF CLUB MARKET ANALYSIS, OPERATIONAL REVIEW, & INDICATION OF VALUE NOVEMBER 2003

XECUTIVE SUMMARY

KPMG was engaged to review the current operations of the Club and make ecommendations which would help improve the Club’s operating cash flow.

KPMG was to determine the potential shortfall that may arise from the Club not

eeting its debt obligations with its loan from the bondholders. In addition, KPMG was to ive an indication of value for the golf course and give a discussion on the remedies the CDD ay explore in order to meet its obligations with the bondholders.

We have now completed our review of operations for the Club and believe there are

pportunities to increase the cash flow from operations over the next five years. Schedule 5 utlines the range in expected impact to cash flow for 2004 based our recommendations. In ssence, we believe the Club has been operated very well and that costs are quite controlled; as uch, our recommendations focused on increasing revenue and profit from food and beverage perations.

The following are our key recommendations for operations: 1. The Club requires an automated tee time reservation system. The cost is

approximately $10,000 and will give the Club timely information for yield management and marketing.

2. Eagle Harbor needs to focus on capturing more patrons; as such, there is a need to: - Eliminate the initiation fee; - Increase annual dues for new members not paying an initiation fee; and, - Create a pay-for-use method that could attract individuals that play less than 50 rounds.

3. Increase the trail fee for patrons currently owning a cart. New members will not be offered an annual trail fee option, only the pay for use option would be available. On average, trail fees will increase approximately 12%.

RIVATE & CONFIDENTIAL – This document is intended solely for the internal use of he Eagle Harbor Golf Course and The Crossings at Fleming Harbor Community District ssociation. This document is not to be reproduced without the expressed written

onsent of KPMG LLP.

EAGLE HARBOR GOLF CLUB Executive Summary, Page 2 Market Analysis, Operational Review, Indication of Value

4. Increase the peak time green fee rate. The peak weekend rate would increase by

$2 in non-prime time, and in prime time (i.e., February to early May) the rate would increase from $56 to $65.

5. In previous years management had blocked off tee times on weekends for public play, equal to approximately 25% of the rounds. We believe tee times should be blocked based on the percentage of patron families compared to perceived capacity of 450 family patrons. The theory is, the more patrons the fewer blocked times, and vice versa. Patrons would still be able to book these tee times; however, only with 24 hours notice.

6. The food and beverage operation has been operated as a restaurant – not simply to cater to the golfers and for banquets. A change in operating hours and menu choices should improve margins – potentially increasing profit by $30,000 to $50,000.

Implementation of these recommendations will require time, and new information will arise that will dictate that management will have to adjust some of the specific recommendations. We believe these recommendations should improve cash flow from 2003 operations by a range of approximately $80,000 to $170,000 in 2004. Our study also concluded that the current value for the golf course is significantly less than the original purchase price (i.e., approximately $4.0 million versus $6.5 million). In addition, the operating cash flow from the Club will not service the bondholder debt, although in time (i.e., after five years) if there are no significant shifts in the competitive situation, the Club could be close to meeting its obligations (i.e., within $50,000 to $100,000). The forecasted shortfall over the next five years is approximately $1,590,000. Since this is based on a yearly estimate over five years, there is significant risk in relying on this specific dollar amount. It should be used to aid in evaluating the next steps the CDD should consider in dealing with its stakeholders. Based on our discussions with management and the CDD, although an audit is performed of the CDD as a whole, specific audit procedures are not performed for the golf course as a stand-alone entity. As a result of the golf course operations being under a management contract, we believe it is prudent for the CDD to consider a specific audit engagement related to the golf course.

PRIVATE & CONFIDENTIAL – This document is intended solely for the internal use of the Eagle Harbor Golf Course and The Crossings at Fleming Harbor Community District Association. This document is not to be reproduced without the expressed written consent of KPMG LLP.

EAGLE HARBOR GOLF CLUB Executive Summary, Page 3 Market Analysis, Operational Review, Indication of Value

PRIVATE & CONFIDENTIAL – This document is intended solely for the internal use of the Eagle Harbor Golf Course and The Crossings at Fleming Harbor Community District Association. This document is not to be reproduced without the expressed written consent of KPMG LLP.

We have given an analysis in this report on the various stakeholders, including the CDD. Our analysis would conclude that the CDD must first reach a negotiated settlement with the developer and then proceed to negotiate with the bondholder. During these negotiations, the CDD must be cognizant of the potential impact any default with the bondholder may cause to residential home values. In conclusion, Eagle Harbor is a very good golf facility that does enhance the community, and has added value to the residential development. We believe the facility is well positioned to be as profitable as it can be. Current economic times have impacted cash flows and created the above problem; however, we believe all stakeholders will ‘come to the table’ to resolve this issue.

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EAGLE HARBOR GOLF CLUB MARKET ANALYSIS, OPERATIONAL REVIEW, & INDICATION OF VALUE NOVEMBER 2003

. OVERVIEW

Eagle Harbor Golf Club (“Eagle Harbor” or the “Club”) is an 18-hole championship olf facility located in the unincorporated portion of Clay County, Florida, approximately 20 inutes to the south of Jacksonville, Florida off of Highway 17. The golf course is nestled in

nd amongst a residential community that is surrounded by wildlife and the natural countryside. he golf course facility was completed in late 1993. The clubhouse was constructed and pened in 1995/1996. The course was initially developed and operated by East-West Partners “East-West”), the developer of the residential community surrounding the golf property. owever, since then, all amenities to the community, including the golf course (purchased for

pproximately $6,500,000 from ‘East-West’), have been turned over to The Crossings at leming Island Community Development District (“CDD”), which represents the residential ommunity. As a result, the golf course is now owned by the CDD and was financed via a unicipal bond offering for 100% of the purchase price.

The golf course design was completed by golf course architect Clyde Johnston. Mr. ohnston has designed numerous courses in and around the Jacksonville area including: St. ohn’s Golf & Country Club, and OakLeaf Plantation (soon to begin construction). The golf ourse is viewed within the local area golf market as having one of the best layouts and ffering very good value for money. The Club has received accolades from Golf Digest by eing rated as four stars in its 2000 and 2001 ‘Places to Play’ edition.

Eagle Harbor is a public golf club with approximately 260 annual golfing ‘patrons’ memberships). Currently, no restrictions are in place as to when patrons can play at the acility. Patrons can book 7-days in advance for tee times, while pay-as-you-play golfers can ook a tee time up to 4 days in advance. Management of the Club is mandated by the CDD and ts bond documents to ensure that equal public access exists to the golf course from all ndividuals in the community (i.e., everyone has the same opportunity to become a patron or ave access to the facilities).

RIVATE & CONFIDENTIAL – This document is intended solely for the internal use of he Eagle Harbor Golf CouPse and The Crossings at Fleming Island Community evelopment District. This document is not to be reproduced without the expressed ritten consent of KPMG LLP.

EAGLE HARBOR GOLF CLUB, Market Analysis, Operational Review, Indication of Value 2

Eagle Harbor, as is consistent with many golf courses in Florida, is faced with many challenges, such as a deteriorating patronage base, price sensitivity among the patrons, meeting the patrons’ needs, providing services that enhance the overall residential development, as well as generating revenues, and profits. Some of these challenges create conflicting objectives and provide their own very unique challenges in running the daily operations of the Club. Purpose of the Engagement

KPMG’s Golf Practice has been engaged to perform a review of Eagle Harbor’s golf course operations. The review will include a comparison of Eagle Harbor’s financial and operational data to key industry and area benchmarks and best practices, comment on the physical condition of the facility as well as the design and functionality of the clubhouse structures, review the Club’s current processes and highlight the Club’s key performance indicators in comparison to industry ‘best practices’. In addition to the operational review, we have been asked to perform an analysis of the local market area to provide a frame of reference for the operating results in light of the market conditions the Club faces. Also, we have been asked to estimate the potential operating results for Eagle Harbor in light of their debt service requirements and determine any potential shortfalls, if any that require attention of the CDD. In order to frame the golf course in today’s golf environment, we will also provide an indication of value for the golf course for comparison against the current bondholder debt for discussion purposes. Lastly, if gaps existed in the ability to service debt, we will critically assess the situation and provide an analysis taking into account all of the stakeholders’ needs.

The CDD also has many amenities for the residents of the community such as pools,

tennis, etc., all of which are currently within the operating budgets of the CDD. Our report pertains only to the golf related amenities (i.e., the golf course and clubhouse structure) and as such, does not pertain to the many other programs and facilities offered within the CDD. Scope of the Engagement

The market analysis, operational review, and indication of value are based on information from the following sources:

1) KPMG’s internal database of golf courses; 2) the unaudited internal departmental financial statements of Eagle Harbor Golf Club

provided by East-West;

3) other documents and information provided by Eagle Harbor’s management team;

PRIVATE & CONFIDENTIAL – This document is intended solely for the internal use of the Eagle Harbor Golf Course and The Crossings at Fleming Island Community Development District. This document is not to be reproduced without the expressed written consent of KPMG LLP.

4) discussions with Rick Gross, Director of Golf; Jim Becknar, East-West; Pam Wetzel, Food and Beverage Manager; Andy Fletcher, Marketing Director; Marion


Detlefsen, Head Golf Professional; and Alan Slaughter, Greens Superintendent; and all of the members of the Board of Supervisors for The Crossings at Fleming Island Community Development District (CDD);

5) information provided by the CDD and / or its board of supervisors, committees, and

sub-committees;

6) our research and knowledge of the local market area;

7) discussions with various individuals in the market area; and,

8) other proprietary information.

In addition, we toured the property as well as visiting the Club’s immediate

competitors. This market analysis, operational review, indication of value and related recommendations contained herein are based on the economic and industry trends prevailing and information available as of October 20, 2003. No responsibility is taken for changes in the market conditions subsequent to this date. II. SITE REVIEW Overall Community Development

The Crossings at Fleming Island CDD is a multi-functional family community located in the unincorporated portion of Clay County, Florida approximately 20 minutes from downtown Jacksonville, Florida. The CDD as a whole features an 18-hole championship golf course known as Eagle Harbor Golf Club, tennis courts, swimming pools, as well as many other community amenities. The master planned community was designed for active families of all ages. Currently, the pricing of the residential homes within the community ranges from a base price of $250,000 to over $1,500,000 for the largest units. As a result, the community has a diverse resident base each with differing abilities to pay for amenities within the community, in particular golf. Overall, the CDD is primarily comprised of younger families or those that have reached retirement age. As such, the resident base overall is characterized as being slightly more price sensitive than is typically found within other golf communities. Currently, the community features approximately 2,120 homes built with approximately another 700 to be sold.


EAGLE HARBOR GOLF CLUB, Market Analysis, Operational Review, Indication of Value 4 Golf Course and Related Facilities The Eagle Harbor Golf Club is an 18-hole championship golf course design positioned within the mid-market for golf within the Jacksonville area. Based on our site visit and information provided, the following are the key attributes of the Club: Golf Course

• an 18-hole championship layout playing from 4,980 from the front tees to 6,840 from the back tees;

• 100 total maintainable acres for the golf course; • 53 bunkers throughout the golf course; • Tees, greens, and fairways are Bermuda grass (rye grass over seeding is performed in

off season); • Irrigation system is a double line system manufactured by Toro and is the original

system installed in 1992/1993; • Water sources for the golf course are considered good and come from effluent water

sources; • The pump station is 10 years old as well and has a capacity of 1,500 gallons per minute

which is adequate to service the needs of the golf course; • The golf course features a 7-acre practice facility with several target pins. Furthermore

the Club has two practice bunkers and two practice greens (11,000 square feet and 3,850 square feet);

• The practice range is 320 yards long by 90 yards wide and has a capacity for 30 total hitting stations;

• Overall the practice area is irrigated as part of the golf course; • Eagle Harbor Golf Club is well regarded within the local golf marketplace as providing

a quality golf product at a reasonable cost. The golf course is conducive to providing an adequate challenge for low-handicappers as well as a playable golf experience for high-handicappers; and,

• Areas of the golf course that have been issues from a speed of play and playability viewpoint were the tee shots on the 8th and 9th holes. The landing areas for these golf shots are very demanding for the average golfer. In the past these areas were marked as ‘yellow stakes’ and therefore speed of play was an issue. However, the Club did change the local rule to provide that the hazard on these holes are to be treated as lateral hazards or ‘red stakes’ and as such the player may take a drop at point of entry and play from that spot with a one –stroke penalty. This has helped improve speed of play through this area of the golf course.


EAGLE HARBOR GOLF CLUB, Market Analysis, Operational Review, Indication of Value 5 Maintenance Area

• The maintenance building is a total of 7,200 square feet of indoor space comprised of 6,200 square feet of cold / storage room, and 900 square feet of heated office space and locker room space. The maintenance building is situated beside the 10th fairway but is not visible to golfers;

• All of the equipment for the golf course (approximately $500,000 capital cost) is leased; and,

• The maintenance area appears adequate to service the daily maintenance needs of equipment and the golf course.

Clubhouse

• The clubhouse at Eagle Harbor is of modest proportions at 7,400 square feet and was built in 1995/1996;

• The clubhouse is on one floor with some upstairs storage space; • Of the above dimensions, the pro shop represents a total of 1,500 square feet of space.

The breakdown is as follows: 550 square feet of retail, 350 square feet of storage space, 600 square feet of offices (four total offices);

• The total seating capacity of the clubhouse is approximately 212 inclusive of the outside covered patio area; and,

• We believe the clubhouse area is adequate to service the needs of golf patrons and public play given the volumes of play at the Club.

Golf Cart Storage

• Golf carts are stored in a separate building away from the clubhouse. The building measures approximately 6,500 square feet; and,

• The Club leases approximately 62 electric powered golf carts from ClubCar. Overall the cart storage area is adequate to service the needs of the electric golf cart fleet.

Based on our review of the physical plant of the golf course and facilities, we believe that Eagle Harbor has the necessary facilities to operate a quality golf course experience for the benefit of the general public and the CDD. III. MARKET ANALYSIS Definition of Market Area

In analyzing market conditions for golf in a specific region, it is necessary to first define the relevant market area. Generally, individuals will travel up to 40 to 45 minutes to play at a preferred golf course. Their willingness to travel may increase in some instances if the golf course is of ‘signature’ quality or if there is an overall shortage of golf courses within 40 to 45


EAGLE HARBOR GOLF CLUB, Market Analysis, Operational Review, Indication of Value 6 minutes of the golfer. For the purposes of this analysis, the local market area was considered to be the towns and cities within a radius of approximately 45 minutes from Eagle Harbor Golf Club. Therefore, for the purposes of this analysis we have selected those competitors and demographic statistics that best represent the market as identified above that Eagle Harbor competes in (see Appendix I and II for demographics of the market area as well as detailed information on competing golf courses).

Golf Industry Trends: General

The past 15 years has represented an era of tremendous growth for the game of golf in the United States. The sport has witnessed a substantial increase in course construction and consumer spending, increased consolidation within the industry, and renewed interest in the sport itself. According to a study undertaken by the NGF in 1999, the number of golfers has increased from approximately 17 million since 1985 to 26 million in 1999. During the same period, the participation rate has increased from 9.5 % to 11.7%. The sport has benefited from changing demographics, and a new breed of charismatic and superior athletes.

However, despite the encouraging trends in the sport over the past 15 years, the past 7

years have not witnessed the same extent of growth in golfers. According to the NGF, the golf participation rate has remained relatively constant at 11% to 12%. Each year approximately 3 million people take up the sport, but the same number of individuals leave the game. Similarly, the number of rounds played annually by golfers has averaged 21.3 rounds, with little growth. The lack of growth in demand is in spite of a tremendous increase in supply of courses. Since 1993, approximately 2,600 golf courses have been constructed. A major contributor to the increase in supply of golf courses is related to new residential developments, where golf courses have been built as an amenity to accelerate homes sales and provide lot premiums. However, many of these residential developments were constructed in market areas where the competitive environment for golf was already intense. These factors have caused an overall decrease in the utilization rate of golf courses, and over supply in many markets. As a result of this intensified competition, the industry is currently undergoing a restructuring with many properties being bought and sold at cash flow multiples that are well below the historic multiples of the mid-to-late 1990’s.

The NGF study as well as current market conditions have caused the Industry to focus

on increasing the golf participation rate in order to ensure the sport is well positioned for the future. The study estimates that a latent demand of 41 million golfers exists in the United States. Various initiatives are underway which are aimed at making the sport more accessible, to attract these individuals.



The tourism industry in general has also seen a significant decline in activity since the events of September 11th, 2001. Many recent polls are suggesting that air travel across the U.S. is still down 50% from its levels prior to September 11th. CNN reported in 1999 that the golf travel industry was a $33 billion a year business. It is unclear how dramatically these figures have been negatively impacted by recent events and by the current economic climate.

However, despite the recent ‘doom and gloom’ in the industry, the demand for golf rounds is anticipated to increase in the years to come, due to changing demographics. Specifically, the large numbers of “baby boomers” retiring in the next decade are expected to have a significant effect on the golf industry. These individuals are expected to have more leisure time available and sufficient financial resources such that demand is anticipated to increase. However, with the aging population base nearing retirement, playability of golf courses is becoming increasingly important. Courses that offer multiple tee settings, manageable distances and carries, and those that allow the golfer the chance to roll the ball up to the green will be best positioned to attract this growing segment of the demographic. Furthermore, the industry is currently undertaking initiatives such as Golf 20/20 that take direct aim at increasing participation from juniors across the country. Studies have shown that juniors introduced to the game through structured programs are more likely to develop into golf’s ‘best customers’ into their adulthood. Therefore, programs such as Golf 20/20 are promising in terms of spurring the longer-term growth of the game.

In the immediate term, our past observations and experience in the industry suggest that

women represent a significant growth opportunity for the golf industry. The impact of focused efforts to attract and retain women golfers in the game has promising effects for the industry as a whole. For example, with increased pressure on leisure time for many families, the introduction of women to the game of golf provides for many more ‘family oriented’ golf outings as well as providing an immediate base of potential new golfers to spur revenue and diversity in the game. Local Market Area (Analysis of Demand) Demographics Population Growth and Household Incomes

The population (all ages) of the local market area is approximately 1,042,000. The historical annual population growth rate is 3.29%, which is higher than the U.S. growth rate of 1.04%. The local market area median household income level for 2003 was approximately $58,000. This compares favorably to the median household income levels for the state of Florida of $53,500 and to the U.S. median household income average of $42,148. Recent studies conducted by the NGF have demonstrated that a positive correlation exists between


EAGLE HARBOR GOLF CLUB, Market Analysis, Operational Review, Indication of Value 8 income levels and golf participation. Thus this analysis considered both high and lower income earners. For more details on the demographics, refer to Appendix I. Location of Eagle Harbor

The location of the Club is in close proximity to the larger populations of Jacksonville as well as the tourist areas near St. Augustine. Specifically, the World Golf Village is within 20-minutes of Eagle Harbor. The immediate area surrounding Eagle Harbor is made up of many ‘master-planned’ communities. We believe the overall location of Eagle Harbor is a positive of the Club as the Club is easily accessible from the major tourist and population areas within the market area.

Sources of Demand CDD Residents

While many of the areas directly surrounding Eagle Harbor feature higher household incomes than the average for the market area, the average age of the individuals in these communities is relatively young (i.e., approximately 40 to 45 on average) and as such these families have significant debt obligations with their homes and as such disposable income levels are not as significant as would be expected. Our discussions with individuals in the market area describe many of the families in these master planned communities as ‘mortgage poor’. This combined with time constraints due to family commitments, causes the demand for golf within the CDD to be lower than the expected absorption of golfers in other master planned communities. Typically, our experience suggests that approximately 30% of households within a master planned community will demand golf or take membership at the community golf course. In Eagle Harbor’s case, to date it appears that only 10% to 15% of the community have become patrons of the Club. While many others still use the golf course, the patronage figures demonstrate the time constraints and financial constraints within the community, since patronage fees at Eagle Harbor would be considered reasonable at approximately $2,250 per annum for unlimited year round family golf privileges. The issue this creates however, is that the inability to create ‘patronage’ or loyalty among the residents opens the Club to the possibility of losing its ‘captive’ audience to other golf courses in the market area. Local Market Area Residents Local market area residents represent households within the 45-minute radius of Eagle Harbor that are outside of the CDD that play golf. These individuals play a large role for the Club in attracting outside play during the peak and off-peak seasons. However, these individuals are also used to receiving large discounts within the market area during off-peak


EAGLE HARBOR GOLF CLUB, Market Analysis, Operational Review, Indication of Value 9 times and are often members of a discount card program such as the EPIC card. Therefore, care must be exercised in marketing and in pricing times to this segment of the market. Corporate Golf and Outings Play

The local market area also provides for opportunities to attract demand from corporate citizens and groups for golf outings and tournament events. Currently, corporate tournaments and golf outings represent an estimated 6,750 rounds for the Club per annum. This also includes other specials and discount programs in use at the Club. On a percentage basis, this play represents 14.5% of the total rounds played at the Club for the 2003 fiscal year. Typically, tournaments and other corporate play and outings represent strong revenue generators for golf courses as these events tend to attract higher net rates per round. However, given the recent economic downturn, coupled with increased competition from new golf courses being built in the market area, discounting of these events is occurring in order to attract play. Furthermore, our research has suggested that corporate outings and spending has declined and as such, demand from this segment of the marketplace has declined in recent years. Tourist Play

The demand for golf in the local market area is driven primarily by local residents with some tourist/second homeowner play. A reasonable estimate of the effect of tourism could be made based on the NGF’s Operating and Financial Performance Profiles of 18-Hole Golf Facilities in the U.S. – Public Facilities 2001 Edition, which indicated an average of 22% of the rounds played in Region 2 are played by visitors (The NGF’s Region includes north east Florida and all or part of neighboring states such as Georgia, Louisiana, South Carolina, etc.). Therefore, while a significant amount of play for Eagle Harbor and other area golf courses is based locally, the area does receive ‘tourist’ play primarily during the peak season months of February through April and beginning of May. As a result, when considering the overall strategy for Eagle Harbor, this segment must not be ignored. Our past experience and research has suggested that tourist golfers typically are willing to pay higher green fee rates per round, but also expect a quality golf experience. Furthermore, these golfers tend to equate the quality of the golf experience with the price. As a result, in examining this segment of the market, care must be taken to deliver an appropriate message to the tourist golfer through an appropriate green fee position. Summary of Market Area Demand

Similar to many other markets within the State of Florida currently, the local market in

which the Club competes is best characterized as being competitive. The area is still relatively seasonal with an influx of demand during the peak ‘snow bird’ months of January to May, which results in increases in tourists and seasonal residents. While the CDD specifically is not a primarily ‘seasonal’ residential base (as the majority of residents are year round residents),


EAGLE HARBOR GOLF CLUB, Market Analysis, Operational Review, Indication of Value 10 the market area does experience the above noted influx during the peak season. However, during the non-peak season, the local population primarily supports the golf courses, and as such during these months we believe the supply of golf courses exceeds the demand available. As such, the competitive situation intensifies significantly in the non-peak season and as a result many golf courses compete on price and engage in significant discounting of green fee rates.

Based on our experience in the industry and in examining other over-supplied market

areas, the key to fiscal health in such a marketplace is creating loyalty programs that ‘capture’ demand and entice individuals to play the golf course several times in order to obtain discounts. However, in creating these loyalty programs, care must be taken to ensure reasonable net rates per round are maintained as traditional annual play categories can cause significant erosion of the net rate per round when permanent residents are offered flat rate golf privileges without restrictions on play. The best programs appropriately price the patron’s offering while also providing alternative patronage options to allow individuals that play less frequently to obtain reasonable discounts and become loyal customers of the Club. Golf Courses in the Market Area (Analysis of Supply)

In order to examine the supply situation within the market area, it is important to assess similar golf courses to Eagle Harbor in the area based on overall quality and price point. This will aid in understanding the specifics of the supply and demand situation in the segment of the marketplace that Eagle Harbor competes in and will aid in understanding methods by which the Club may be able to enhance its net rates per round and hence revenue.

Competitive Analysis

Within the market area, our research and our discussions with the Board of Supervisors and management have revealed the following golf courses as identified key competitors to Eagle Harbor: Fleming Island Golf Club, Cimmarone Golf Club, The Ravines Golf Club, Windsor Parke Golf Club, Julington Creek Golf Club, South Hampton Golf Club, Baymeadows Golf Club, and St. John’s Golf Club. Within this segment of golf courses, our site visits to these facilities revealed the following golf courses which we believe are the true ‘core immediate competitors’ to Eagle Harbor: Fleming Island Golf Club, Cimmarone Golf Club, The Ravines Golf Club, and Windsor Parke Golf Club. The remainder of the golf courses listed above do compete with Eagle Harbor in some instances; however, we believe the quality level and pricing of Julington and Baymeadows are below that of Eagle Harbor. Conversely, we believe South Hampton and St. John’s represent slightly higher quality golf experiences and higher pricing. As a result, we believe these golf courses represent secondary competition. The analysis below will focus on the immediate competitors to Eagle Harbor. PRIVATE & CONFIDENTIAL – This document is intended solely for the internal use of the Eagle Harbor Golf Course and The Crossings at Fleming Island Community Development District. This document is not to be reproduced without the expressed written consent of KPMG LLP.

EAGLE HARBOR GOLF CLUB, Market Analysis, Operational Review, Indication of Value 11 Green Fee Rates

Weekend green fee rates for an 18-hole regulation round in the local market area vary from $49 to $60 among the immediate competition (see Appendix II), inclusive of cart rental fees but excluding taxes. The average rate for the immediate competitors was $52.60 per round. As a result, Eagle Harbor is priced in the upper echelon of the immediate competition at a peak rate of $56. However, we believe the conditioning and layout of the golf course are at a level that makes it appropriate for the Club to price in the upper end of this market segment. Arguably, Eagle Harbor comes close in layout and conditioning to St. John’s and South Hampton. In discussions with individuals in the market area and through examination of available green fee rate trend information, the local market area has not experienced any growth in green fee rates (in fact Cimmarone has decreased its peak rate to $48 from $68; however, its non-peak rate increased from $40 to $48). Therefore, the green fee rate trend in the local market area provides another indication that the local area golf market is price sensitive and competitive. Slow growth in green fee rates is one indicator of the condition of excess supply of golf in the local golf marketplace.

Furthermore, the overall full family membership rates at Eagle Harbor are also in the

middle of the market segment when compared against the identified immediate competitors. Again, other than the increases implemented at Eagle Harbor, our research has indicated that no significant increases have occurred in the past three year in the overall full family or full single membership categories at competing golf clubs.

The following is a brief description of Eagle Harbor’s primary competitors. The Golf Club at Fleming Island

The Golf Club at Fleming Island Plantation is located on Town Center Boulevard in Clay County, Florida. The Club is approximately five minutes south of Eagle Harbor. Based on its location, the quality of the golf course, price, and the fact that it is also a CDD, Fleming Island is the most directly comparable facility to Eagle Harbor. Currently there are 600 homes that have been constructed in the CDD, which is planned for a total of 3,200 units.

The golf course opened for play in 2000 and the current conditioning of the Club is

slightly below the standard for Eagle Harbor. In terms of layout, the golf course is comparable to Eagle Harbor. The course is relatively flat, is designed in a traditional parkland setting, and is routed through the residential development. In many instances throughout the course, residences are currently under construction. Therefore, it is somewhat difficult to assess how much the residential units will eventually encroach on the playability of the golf course. Fleming Island does have features that detract from the playability of the golf course. Namely, holes 3, 4, and 5 run parallel to one another and do pose some safety concerns, as the ‘bailout’ areas require golfers to hit towards other fairways. Additionally, there are several fairways that


EAGLE HARBOR GOLF CLUB, Market Analysis, Operational Review, Indication of Value 12 are elevated causing the potential for golf balls to roll-off into the rough or other unfavorable situations. The back nine appeared more picturesque than the front nine and appeared to offer a more enjoyable golf experience. The golf course plays to a par of 71, and the yardage and course rating for Fleming Island is as follows:

Yardage Par / Slope Black 6,801 72.7/136 Blue 6,575 71.8/134 White 6,105 69.0/129 Green 5,658 67.0/114 Yellow 4,881 68.0/116 The Club currently has 80 members and is offering a deferred initiation fee promotion.

For those joining the Club, there is no requirement to pay an initiation fee for up to two years. The payment options are as follows:

Pay $1,500 after 6 months, or Pay $1,750 after 12 months, or Pay $2,250 after 18 months, or Pay the then current rate after 24 months.

Monthly dues are $185 family and $160 for a single membership. The Club does offer specials for those over the age of 55 ($145 couple, or $125 single). Power cart fees are $16 and the annual trail fee is $1,350. However, in order to purchase the annual trail fee, the patron must be a resident of the CDD. The annual range pass is $400 for the family and $275 for a single member.

Fleming Island Golf Club does participate in a discount card program known as the

‘Players Card’. Players card members can play the golf course during weekends after 11am for $36 and during the weekday anytime for $30. Players card members may also book 4 days in advance.

Peak green fee rates are $40 weekday and $50 weekends (including cart). The first

discount of rates by the club takes place at 12:00 p.m. and goes until 3 p.m. ($32 weekday, $39 weekend), with a further discount for twilight rates ($28 weekday and weekend). However, based on discussions with market area residents, it is our understanding that Fleming Island has run ‘pay as you play’ specials as low as $20 cart included during off-season times.

Based on discussions with management, rounds played were 38,000 in the 2002 golf season. Management estimated that member play currently represents 10% of all rounds played.



Overall, our discussions with individuals in the market area and our tour of this competitor revealed that we believe Eagle Harbor is a slightly higher quality golf course with slightly better conditioning. Furthermore, Eagle Harbor offers a finished product, whereas Fleming Island is still ‘under construction’ as cart paths are not paved and residential construction is ongoing surrounding the golf course. While Fleming Island is currently below capacity for rounds played, we believe the long-term outlook for Fleming Island will allow it to eventually reach stabilized capacity as the community has another 2,600 units still to be built. Furthermore, with the location of Fleming Island being only 5-minutes from Eagle Harbor, we believe the increased residential base at Fleming Island will aid Eagle Harbor in the long term as Fleming Island will compete to a lesser extent in the future for outside rounds and in fact the increased residential base may also allow Eagle Harbor to obtain additional rounds. Furthermore, the expected increase in long-term demand from future residents should aid in reducing the extent of discounting required in generating rounds played. Cimmarone Golf Club

The Cimmarone Golf Club is located on Cimmarone Boulevard in Jacksonville, Florida, approximately 20 minutes south east of Eagle Harbor. Similar to Eagle Harbor, the golf course is a semi-private facility contained within a residential community. The residential community currently has 495 homes with up to 762 units planned. Based on its location, the quality of the golf course (layout and conditioning), and price, Cimmarone is a comparable facility to Eagle Harbor.

The golf course was designed by David Postlethwait and is a parkland style golf course that is routed through an interwoven lake system, marshland, and large pine trees. The golf course plays to a par of 72 and measures over 6,800 yards from the back tees and is characterized by the 17 lakes on the property. Based on our review of the property it appears that the conditioning is comparable to that of Eagle Harbor. The golf course does feature a good practice facility complete with driving range and short game areas. The clubhouse features nicely appointed fixtures, and is complete with a restaurant and banquet area large enough to accommodate special events and host tournaments. The golf course yardage and ratings are as follows:



Yardage Par / Slope Championship 6,891 72.7/132 Challenge 6,553 71.1/129 Members 6,103 68.9/124 Junior/Senior 5,475 66.6/120 Red tees (ladies rating) 4,704 67.8/115 The club offers various types of memberships, including full, senior, corporate, and

social. The details of all membership offerings are presented below:

Membership Offering: Full Associate Member

Initiation - $2,495 Monthly dues: $155 family, $125 single

Privileges: 7 day advance booking, handicapping, member golf and social events, available range program, pay lower cart fee than public ($16 vs. $18)

Senior Associate Member Initiation - $1,895 Monthly dues: $130 family, $100 single Restriction – weekends and holidays before noon

Privileges: 7 day advance booking, handicapping, member golf and social events, available range program, pay lower cart fee than public ($16 vs. $18)

Corporate Associate Member Initiation - $7,895 Monthly dues: $155 family, $125 single

Good for four to ten active members – each member individually billed for dues Privileges: 7 day advance booking, handicapping, member golf and social events, available range program, pay lower cart fee than public ($16 vs. $18)



Social Associate Member

Initiation - $1,895 Monthly dues: $35 family, or single

Privileges: 20% off golf guest fee rates

All categories: Range - $325 family, $275 single Carts - $16 Trail fee - $1,200

Currently the club has 230 members, most of which are residents of the Cimmarone community. The green fee rates for the Club are $48 during prime time and peak and non-peak seasons, including cart rental. Twilight rates begin at 3:30pm on weekends and are currently $28 both in peak season and non-peak season. Twilight rate for weekday play start at 2:00pm at a rate of $28 during both peak and non-peak seasons. The Club does participate in the EPIC card discount program, whereby card-holding members can play the golf course for $19.81 from November to February, and $29 from March to April (excluding taxes). The only other discounts offered other than the EPIC card are the ‘Links Club’ program which is a program targeted at residents in the counties of St. John’s, Clay, and Duval. The Links program allows residents in these counties to play the club for $43 on weekends and $33 during the week for an upfront fee of $10 per year. Essentially, the Links program appears to be trying to target and create loyalty to Cimmarone within these counties. The Ravines

The Ravines is located at 2932 Ravines Road, in Middleburg, Florida, approximately 20 minutes west of Eagle Harbor. Similar to Eagle Harbor, the golf course is a semi-private facility contained within a residential community. Based on its location, the quality of the golf course, and price, the Ravines is a directly comparable facility to Eagle Harbor.

The golf course was designed by Mark McCumber and Ron Garl and is a unique facility

among Florida golf courses to the undulating and elevated property. The heavily forested course features ravine terrain with numerous elevation changes, which is an interesting departure from the relatively flat terrain normally found throughout the state. In addition to the residential community the Club also features resort style “fairway villas” to accommodate overnight visitors to the Club. Other amenities include a small, but functional clubhouse, a double-ended practice facility, an 18-hole natural grass putting course, and swimming pool and tennis courts.



Based on our site visit to the golf course, the conditioning appeared to be comparable with that of Eagle Harbor. With respect to design, as noted above, the Ravines is able to offer a unique golfing experience in the market area due to the terrain upon which the club is built. The golf course plays to a par of 72, and the yardages and ratings for the Ravines are as follows:

Yardage Par / Slope Black 6,648 71.5/131 White 6,110 69.2/126 Gray 5,584 66.6/119 Red tees (ladies rating) 4,680 68.2/117 The Club currently has 190 members, and the fees for a full play single member are as

follows:

Eagle Membership (Unlimited Golf): $ 3,000.00 One Time Initiation Fee Family Monthly Dues $ 175.00 per month Single Monthly Dues $ 150.00 per month Personal Carts Allowed with Trail Plan Yes Advanced Tee Time Booking Privileges 14 days Privileges:

As an Eagle member one can book tee times up to 14-days in advance. In the clubhouse Eagle members save 10% on all pro shop purchases and 10% on all dining and beverages. When guests come to visit from out of town the Eagle member also saves 20% on the guest’s accommodations when they stay at the Inn. As a member in good standing members enjoy full charging privileges. Birdie Membership (Limited Golf): $ 2,000.00 One Time Initiation Fee Family Monthly Dues $ 100.00 per month Single Monthly Dues $ 80.00 per month Personal Carts Allowed with Trail Plan No Advanced Tee Time 10 days Trail Fees: Eagle Members Family: $ 1,210.00 Annual one-time / $110.00 Per Month Eagle Single: $ 1,100.00 Annual one-time / $100.00 Per Month



Cart fees are applicable for each round of golf played by a member at the rate of $20 per round. Birdie Memberships are restricted in their play to after 11:00am weekday and after noon weekend. However, if a Birdie member wishes to play before 11:00am on a weekday and before noon on the weekend they can play for the member guest fee.

Green fee rates at The Ravines are as follows for the peak and non-peak seasons. The

club switches to peak pricing in January of each year and to non-peak pricing in June of each year.

Weekday Weekend (incl. Holidays)

Peak before 11am $39 $49 Peak after 11am $35 $45 Non-peak before 11am $29 $39 Non-peak after 11am $25 $29 Non-peak after 2pm N/A $25 All of the above green fee rates include cart, but exclude taxes. The only other

discounts offered include a military and senior rate of $25 during the week. The Club does participate in the EPIC card discount program. Card-holding members can gain access to the facility for $20 to $25 from November to February, and $25 to $30 during March and April.

The Ravines currently received approximately 40,000 rounds annually and has been

steady or slightly increasing in rounds over the past three years. Our discussions with the operator of the Ravines revealed that they believe the market area is extremely competitive and price sensitive and they do not believe significant further increases in rounds played will occur at their facility in the foreseeable future. According to management at the club, the majority of the rounds played are played by the public, with member play being the minority of the play despite having an estimated 190 members. Windsor Parke

The Windsor Parke Golf Club is located at 13823 Sutton Park Dr N., in Jacksonville, Florida. The Club is approximately 25 minutes north east of Eagle Harbor. Similar to Eagle Harbor, the golf course is a public facility offering ‘pay-for-use’ privileges (semi-private facility) contained within a residential community.



However, based on its location (closer to downtown Jacksonville), the quality of the golf course (conditioning and layout), Windsor Parke is competing in a slightly higher market segment than Eagle Harbor.

The golf course was designed by renowned architect Arthur Hills and is designed in a

traditional parkland setting. The golf course is characterized by the requirement to play ‘target golf’. The golf course is relatively short from the back tees at 6,765; however, accuracy is a premium on every shot. Windsor Parke has been selected by the USGA as the site for five national qualifying events including the U.S. Open, and the club is the only nationally ranked course is Jacksonville. The golf course features a high quality practice facility and a tastefully appointed clubhouse, complete with a pro shop, restaurant, and lounge area. The golf course plays to a par of 72 and the yardage and rating for the golf course is as follows:

Yardage Par / Slope Champions 6,765 72.4/136 Blue 6,435 71.1/132 White 6,043 69.4/122 Red (ladies rating) 5,206 71.5/125

The golf course operates with only 110 members. 12% of all rounds played annually are attributed to member play. The golf course is very active in the corporate tournament market. The Club offers four types of memberships, including Full, Associate, Senior and Affiliate. Furthermore, instead of assessing an ‘initiation fee’, the club instead bills all members an ‘annual fee’ in addition to monthly dues. Currently, the club is in the process of reviewing this program in order to determine how to equitably deal with long-time members, who over time would as a result of the annual fee end up paying well in excess of ‘market’ initiation fees when compared to other competing clubs. The breakdown of the membership program is as follows (in addition to the rates shown below, a mandatory $16 cart fee is assessed per play):

Full golf: Annual Fee - $400 Monthly - $175 (single), $206 (family) Associate golf: Annual Fee - $400 Monthly - $135 (single), $165 (family) * Golf privileges are weekdays and anytime after 10:00 am on weekends and holidays.

Senior golf: Annual Fee - $300 Monthly - $96 (single), $116 (family) * Golf privileges are weekdays only.

Associate golf: Annual Fee - $200 Monthly - $75(single), family N/A * This program is designed for the infrequent golfer who enjoys the privileges of membership. In



addition to the annual and monthly dues, the affiliate pays a special rate per play of $26 weekdays and $35 weekends and holidays after 11:00 (includes cart fees).

Range memberships are available annually for $300 (single) and $375 (family).

The current green fee rates at Windsor Parke (year round rack rates) are displayed

below: Weekday Weekend (incl. Holidays) Twilight (after 3) Twilight (after 5)

$50 $60 - Peak times $70 $30 $25

The above rates include cart, but excludes taxes. The twilight rate generally not offered

in winter as there are less daylight hours and the twilight times do not change based on the daylight available. The club is also a part of the Player’s Card program. The green fee rates for Players Card members are $32 on weekdays, and $35 on weekends. The only other discounts include a coupon that can be requested from the website (unlimited use – new pass could be printed everyday). With a printed coupon rate the green fee rate is $35 weekday and $40 weekend (and $30 for local Jacksonville residents). They also occasionally run various other promotions in the summer (i.e., buy 1 get 1 free).

Based on our discussions with management at the club, Windsor Parke currently attracts 41,000 paid rounds and has been relatively steady over past couple of years. Total rounds including complimentary, employee, and member walking is 45,000 (members are able to walk after 2 pm in summer, 1 pm in winter). The high for paid rounds was 45,000 rounds three years ago. Based on discussions with management at the club, they believe the decrease in paid rounds is attributed to market conditions and specifically the decreased tourist rounds after September the 11th. Management at the club indicated that they have rebounded slightly in 2003 and expect that paid rounds will slightly exceed 41,000 this year. Other Golf Courses and New Golf Course Proposals

The remaining golf courses listed in the market area are not considered to be direct

competition as a result of their quality level, amenities, location, and type of course (i.e. elite private, executive, 9 holes, etc.). Based on our knowledge of the golf courses in the local market area, many of the other facilities are smaller scale operations with considerably lower construction and operating budgets and consequently, do not offer a golfing experience similar to the one offered at Eagle Harbor.

In addition to the existing courses in the market area, there is a proposal to construct two new golf courses which will compete with Eagle Harbor.


EAGLE HARBOR GOLF CLUB, Market Analysis, Operational Review, Indication of Value 20 OakLeaf Plantation OakLeaf Plantation is a master planned 6,400-acre residential community being developed by Hutson Land Company approximately 10 minutes from Eagle Harbor. Housing prices are expected to be in comparable ranges to Eagle Harbor between $100,000 to $400,000. OakLeaf is planning to break ground on the construction of an 18-hole championship golf course designed by Clyde Johnston in January 2004. The development of the 1,000 acre portion of the community containing the golf course has been given to East-West, the current golf course management company and previous owner and developer of Eagle Harbor. While pricing is not available at this time, the quality level of the golf course is expected to be comparable to Eagle Harbor. Panther Creek According to our analysis and telephone conversation with municipal officials, Panther Creek is scheduled to open for play with 27-hole of public golf available in April 2004. The vision for the green fee rates has not yet been fully determined however, rates are rumored to be in the $40 range. As a result, Panther Creek will likely compete on a secondary level at best with Eagle Harbor. The club is also reported considering a membership base; however, no formal description of this plan was available.

Other than the above two developments no other golf course developments have been identified as approved or proposed for construction in the market area based on our discussions with local planning departments. Estimate of Supply

Based on the playing season for the market area, the normal optimum number of rounds played in the market area is approximately 50,000 rounds (Note: Appendix IV demonstrates that there is potential for Eagle Harbor to increase optimum capacity to 55,000 rounds) for an 18-hole golf course of the quality level of Eagle Harbor. Optimum rounds are estimated at 65% of maximum, the normal percentage to allow for bad weather days and closures for course maintenance. Based on a 7-minute tee interval, this course could accommodate 60,000 plus rounds. Regulation 18-hole golf courses in the market area are averaging 42,600 rounds per year (see Appendix II). While trends in rounds played were not available for all golf courses in this market segment, the majority of the golf courses surveyed indicated that rounds played have remained stable or slightly increased in the past three seasons. However, those reliant on tourism did note a small decrease in rounds played. Based on the average rounds played in the market area, the rounds played are corroborating the findings from our examination of green



•

fee trends in that the current golf market is exhibiting signs of over supply since the actual rounds reported by clubs in the area are lower than the optimal capacity. Overall Analysis of Supply and Demand

The following corroborating market indicators further support the current supply and demand situation in the market area.

Indicated green fee trends in the market area do not show significant growth in recent years which is an indicator that the market is competitive and price sensitive.

• Rounds played in the market area are currently reported at levels that are below the estimated optimum number of rounds. This is a strong indicator that the current supply and demand is not in equilibrium and that supply is in excess of demand.

Based on the above noted corroborating market indicators, supply is estimated to exceed demand in the local market area.

Strengths, Weaknesses, Opportunities, and Threats (SWOT) Analysis

The analysis below provides the strengths, weaknesses, opportunities, and threats associated with the Eagle Harbor Golf Club. Strengths i) The property is located within close proximity to the major U.S. Highway 17 artery,

which is a main thoroughfare into the larger population of Jacksonville. The demographics of the market area also suggest that the population has a higher disposable income than is found on average in the State of Florida. With the golf course being positioned as a upper mid-market facility, the golf course appears to be well positioned for this market area in the longer term;

ii) With the Eagle Harbor community of 2,120 homes currently built around the golf

courses, the Club enjoys a loyal following of member play from within the community. However, the membership plays a large proportion of its golf during the weekends which limits the Club in its ability to take on outside play during peak public play times on the weekend;


EAGLE HARBOR GOLF CLUB, Market Analysis, Operational Review, Indication of Value 22 iii) Eagle Harbor offers a well-conditioned golf course that is of championship caliber.

This aids in positioning the facility as a strong competitor in the mid-market segment of the marketplace;

iv) The overall layout of the Club is considered a strength since the Club delivers a high-

quality golf experience and the layout is such that it can be enjoyable for golfers of all skill levels;

v) Eagle Harbor offers a high-quality practice facility to its patrons and public players.

From a marketing prospective, the practice facilities are a selling feature when trying to attract tournament and outside play; and,

vi) In addition to offering one of the finest golf experiences in the market area, Eagle

Harbor’s peak green fee rates are not significantly above the main competition and in fact are below the rates charged at Windsor Parke;

Weaknesses i) The Club is has recently received negative press in the market area due to publicized

communications in local newspapers discussing the financial difficulties of the Club. This not only hampers the ability to attract new patrons but it also limits the ability to advance book tournament outings. The negative press also creates the impression that conditioning may deteriorate. All of these factors are potential negatives that result from the recent publicity;

ii) Eagle Harbor is viewed by the public as being a ‘member course’ with very few tee

times available for public play. Eagle Harbor is thus faced with the challenge of changing this perception;

iii) The Club has recently had a noticeable decline in its patronage base due to increases in

the patron rates and the resulting fact that some patrons did not believe they were playing enough to warrant the continuing cost of the patron program; and,

iv) Patronage of the Club displays price sensitivity and is not receptive to prices increases

that are necessary in order to allow the Club to lower or eliminate net operating deficits.


EAGLE HARBOR GOLF CLUB, Market Analysis, Operational Review, Indication of Value 23 Opportunities i) The golf course currently has some excess capacity, which gives the Club the ability to

fill this excess capacity with higher yielding public green fee play. However, this potential upside is limited to an extent by the fact that the patron’s at the Club play a large majority of their rounds during peak weekend times and as such, the public times that are available would be subject to discounting in order to sell these times; and,

ii) The quality of the golf experience and product offered at Eagle Harbor is considered to

be comparable or higher than many of the market area competitors. As a result, this may represent an opportunity for the Club, if marketed appropriately, to attract further play from the residents of the market area. It may also provide an ability to premium price the golf course during peak season periods of higher demand from outside players.

Threats i) The recent market conditions have caused a slow down in economic activity and due to

recent conditions, tournament and outside play has slowed over the last couple of years. This puts a strain on the Club’s revenue streams and may lead to increased operating deficits if economic conditions do not rebound; and,

ii) Currently, there is another similar development proposed to break ground in January

2004 that is being executed by East-West as well. This provides the potential threat that once open, rounds could be lost to this new facility, especially given the intimate knowledge of Eagle Harbor that is possessed by East-West.

IV. BUDGET PROCESS & MANAGEMENT INFORMATION SYSTEMS Budgeting Process Operating Budgets

Based on our discussions with management, the Club does execute a full budgeting exercise each year with monthly reporting of budgeted results against actual results and explanations provided for significant variances. According to discussions with the management, the department heads in coordination with East-West jointly create budgets for each upcoming fiscal year. The budgets are essentially re-created each year and are prepared by the actual department heads first and then are forwarded to management for review and


EAGLE HARBOR GOLF CLUB, Market Analysis, Operational Review, Indication of Value 24 commentary. The department heads build up their budgets using any historical data that may be relevant as well as the expected level of expense and revenue they believe will occur during the year. Any potential changes which management may identify are discussed with the department heads for appropriateness. All department heads are responsible for providing explanations for variances on a timely basis. Ultimately, once the Board of Supervisors approve the budgets they are put in place for the upcoming golf operations. Therefore, it appears that an appropriate and rigorous budgeting process is in place at the Club level.

However, based on our discussions with management and the CDD, although an audit is

performed of the CDD as a whole, specific audit procedures are not performed for the golf course as a stand-alone entity. As a result of the golf course operations being under a management contract, we believe it is prudent for the CDD to consider a specific audit engagement related to the golf course.

Subsidizing Operating Deficits

Up to the end of September 2003, operating deficits were being funded by the use of a line of credit facility provided by East-West Partners Inc. to the Club. As at the end of the fiscal year, it is our understanding that the line of credit is now at its maximum level (i.e. approximately $800,000). As a result, any potential future deficits after considering debt service will need to be funded through alternative means or face default on bond payments. This issue will be discussed further in the operational review section of this report. Capital Budgets

According to the management company, the Club does not prepare a formal capital budget for the ongoing capital maintenance required for the facility. Ideally, Club management along with department heads would be involved in the process of developing a capital budget; however, at the time of this report, no capital budgets were available for review. Generally, a newly opened Club within the past 10 years will experience capital maintenance requirements of 2% to 4% of total revenues each year (assuming the majority of equipment is leased, if not the figure is 3% to 5%), and that once a club is mature (i.e., greater than 10 years since opening), capital maintenance requirements increase to 3% to 5% of total revenues. Please refer to “Capital Maintenance” section of the “Operational Review” portion of the report for further commentary of the appropriateness of the ongoing capital funding to the reserve. Management Information Systems: Our review of the Club and its systems has revealed that the base accounting and tracking system in place at the Club is adequate to capture the transactions processed daily by the Club. However, a major deficiency noted in our review was with respect to the management information systems in the pro shop operations. Currently, the club operates with


EAGLE HARBOR GOLF CLUB, Market Analysis, Operational Review, Indication of Value 25 a manual tee sheet system. Based on our experience and based on industry best practices, we believe the Club should examine the implementation of a computerized tee time reservation and tracking system that integrates with the existing general ledger package. While we recognize that the tee time software package does require a capital expenditure and that the Club is limited in its cash flow, the information and efficiency lost within the operation from not having this information in place we believe is significant. Management at the Club has to spend a significant amount of time manually examining rounds played. Furthermore, targeted databases of customer information for individuals playing the golf course are not being appropriately captured and leveraged to the extent that is possible with a computerized system. We believe that with a proper computerized tee time reservation and tracking system, the Club could more effectively make informed operating decisions, better manage the tee sheet and yield management practices, and could more effectively and efficiently market directly to those individuals playing the golf course that are not in the patronage program. Further, management could track and market to golfers not returning to the golf course. V. OPERATIONAL REVIEW

On Schedule # 1, we have summarized the reported annual statements of operations of the Club for the fiscal years ended September 30, 2001 through 2003. This section of the report will provide an analysis of the Club’s historic results and will also provide our recommendations for potential areas of improvement within the operations. Please refer to Schedule # 2 for a summary of the financial estimates for Eagle Harbor over the next five operating seasons to 2008.

Facility and Operational Overview

Based on our review of the golf course, clubhouse and maintenance compound, we believe Eagle Harbor is a facility that has all the attributes needed to compete in its market. The golf course is challenging yet very playable. This is the image needed for today’s marketplace.

The golf course is in excellent condition for the price point charged, and the playability allows for shorter tee time intervals (i.e., more golfers on the golf course) and fewer long rounds of golf (i.e., people can play in 4.5 hours or less).

The practice facility is located in close proximity to the clubhouse first and tenth tees. It is a good size that complements the overall need for the course, and allows for general practice and warm-up before playing. The clubhouse is a reasonable size (i.e., approximately 7,400 square feet) and meets current best practices to be able to cater to the golfer and not


EAGLE HARBOR GOLF CLUB, Market Analysis, Operational Review, Indication of Value 26 increase fixed costs, especially since the golf industry looks upon the clubhouse as a cost center and the golf course as the profit center. As a result, the current facilities meet the best practice facility design that a developer would build today. In a lot of facilities today, this statement cannot be made since clubhouses would be much larger (i.e., 15,000 to 30,000 square feet) and the golf course would be extremely difficult to play – discouraging return visits to the golf course and longer periods of time to complete a round of golf.

We believe Eagle Harbor is well positioned to be as profitable a golf course as it can be in the current market it is located.

As discussed earlier, the current market area is a competitive marketplace and as such, all golf courses need to market and attract golfers, possibly taking rounds from other golf courses. In addition, although the facility has not deteriorated in quality, there is a perception in the marketplace that the Club is in financial stress, as they have publicly stated that the current operations will not service the current yearly debt payment (principle and interest).

In light of the above, Eagle Harbor cannot expect ‘patrons’ to pay an initiation fee from which they potentially may not receive any future benefit (i.e., the club may be sold – run by a different operator, and either the fee eliminated or payment requested again by new owners). Based on our observation of patrons in the past year, the net impact has been a reduction in the number of patrons and a reduction in total fees from patrons (including initiation fees).

Since patrons produce a comparable net rate per round to public play, it would be in the best interest of the Club to promote patronage. We believe individuals who do not pay an initiation fee would be willing to pay something more in annual dues in order to compensate for no upfront fee. In addition, we believe an alternative pay-for-use patron fee should be implemented as well (see Appendix VI). This alternative approach to patron dues would allow greater access to the course, if you believe the current annual dues are a barrier to becoming a patron. In addition, it creates a loyalty program in a competitive market.

Golf managers have all realized that the different types of rounds (i.e., patrons round, tournament round, pay-as-you-play round) have a different net rate. The industry has realized that in a non-competitive market, the highest net rate is received from tournament rounds, then general pay-as-you-play rounds and the lowest net rate is received from members (patrons – prepaid green fees). In a competitive marketplace, more discounts are required to attract players; as such, loyalty programs are required in order to maintain appropriate rounds. The degree of competitiveness in the marketplace will dictate the amount of discounting required; however, the general ‘rule of thumb’ is that in a competitive market you would like more members in order to protect the quantity of rounds, and that normal discounts will make a member’s round equal to or greater than a pay-as-you-play round. We believe this is the current situation at Eagle Harbor.



General

The potential number of rounds that can be played significantly affects the financial results of a public or semi-private golf course. Each round of golf played generates a green fee and typically impacts other revenue streams such as golf cart rental, practice facility revenue, food and beverage and merchandise sales. Of the above noted revenue sources, the financial results of a public or semi-private golf course are impacted the most by bottom-line generators being green fees, golf cart revenue, and practice facility revenue. Food and beverage and merchandise revenue does not contribute to the bottom line to the same extent, resulting from the fact that there is a direct associated cost of the product being sold. For instance, approximately 20% to 25% of every dollar of food and beverage revenue, and 25% to 30% of merchandise revenue goes to the bottom line, in a well-run facility. Patron Program and Rounds Analysis

This is an area that is and will continue to be under constant review by all clubs with a patronage (membership) component in the next decade. With a significant "Baby Boomer" population nearing retirement age, most clubs have had to review a number of issues that will affect the accessibility of the club. For example, many clubs have seen the average age of their membership increase along with the total number of rounds played. With more Baby Boomers retiring, some clubs will face a lower attrition rate, as this generation is healthier and wealthier than previous generations. This is due to the fact that recent industry studies have concluded that retired golfers on average play more rounds of golf than non-retired golfers. From a financial point of view, this has two implications. The number of patrons that the Club could absorb without restrictions on the size of the patronage base is reduced, as rounds played per patron are higher than industry norm given a fixed capacity for golf rounds. Secondly, pricing of annual fees is an issue due to many patrons being on fixed income budgets during retirement age. Therefore, it is critical that Eagle Harbor consider these trends in preparing their long-term forecasts. In general, a larger membership may generate more annual fee revenue but may have a negative effect on the availability of tee times, which also further reduces the ability of the Club to take in outside events and play which potentially generates higher green fee rates per round. A smaller patronage, on the other hand, may help preserve the access to the tee, but may not, under price sensitive conditions, generate enough revenue to cover operating costs due to the current situation of oversupply of golf in the market area. Indeed, today's clubs are faced with a difficult challenge of meeting members’ expectations and still remaining a viable operation.



Eagle Harbor however, is in the enviable position in that the surrounding residential

community is primarily comprised of young working families. This demographic, while not having significant amounts of leisure time, do have the ability in general to play golf and will generally not play the same volumes of rounds that the retired golfer will generate. This provides for an opportunity to capture rounds from these residents at potentially higher rates per round. Over the past two to three years, the Club has witnessed a decline in its patronage base and in many cases management has noted that the decline has been due to price increases which have made the value for round played proposition under the patronage program too expensive for some of these individuals. As a result, it is imperative that alternatives exist within the patronage spectrum to allow the Club to offer these individuals an alterative that still allows the Club to retain the loyalty of these individuals. Rounds Played per Patron

The average number of rounds played per patronage category in 2001 was 75, or approximately 44 rounds per patron. These figures are reasonable given the industry benchmark of 50 to 55 rounds per member for clubs at the level of the Eagle Harbor facility and given the age demographic of the resident base. However, as noted above, the Club has lost over the past two seasons patrons who were on the ‘cusp’ of the value for money proposition under the current patronage system. This has manifested itself in the rounds played per patron figures as the 2003 average is now approximately 53 rounds per patron, which demonstrates that the patrons who were lost were those generating the higher net rates per round played. However, the implication of this trend is that as the patronage base shrinks, the net revenue per round from patrons will deteriorate. Furthermore, and perhaps a more surprising trend, is that even though patrons have declined, the overall numbers of rounds played by patrons as a whole have stayed stable (please refer to Schedule # I). Therefore, this appears to indicate that the tee times that ‘freed up’ when patrons resigned, are being utilized by the existing base of patrons due to their ability to book 7 days in advance when the non-patron can only book 4-days in advance. As a result, the Club appears to have lost patrons and realized no appreciation in the number of outside rounds played or the net rates per round realized overall. In fact, the Club has experienced a decline in the net rates per round since 2001.

In addition, we believe the above trend suggests that the Club should explore increasing

the patronage base through the offering of alternative patronage options for those individuals who may not play a significant number of rounds but who would like the advantages of the patronage booking privileges. We believe this has the potential to add significantly to the patronage revenue generated by the Club while also improving the overall net rates per round that the Club experiences.



In order to maintain some rounds for non-patron play, management have blocked every fourth tee time (i.e., 25% of rounds) on Saturday and Sunday mornings. This time can only be booked by non-patrons up to 24 hours of the time, after which the time is made available to patrons. The issue in this method is “what is the appropriate amount of time to be blocked”? and, “What are the actual results to date”? The following is our understanding and analysis.

“What is the Appropriate Amount of Time to be Blocked”?

In order to answer the question, one must examine the capacity for a golf course of this quality with regard to total patronage (i.e., no outside play). When you review other clubs that are private in nature, there are generally three levels of full membership based on quality of golf course and member expectations. If you were to review a private club with an entrance fee of over $100,000, one would expect to see capacity of 300 or less family memberships. Normally, private clubs operate with a capacity of 400 family memberships when there is an initiation fee of greater than $10,000 and upwards of 500 family memberships for more inexpensive clubs.

In light of the above, we believe Eagle Harbor would target 450 to 500 family memberships if no outside play was allowed. This analysis is for illustration purposes, since Eagle Harbor must always be accessible to the general public.

In order to ensure the appropriate rounds are made available to the general public, we believe a percentage of rounds should be blocked in correlation to the capacity of the Club. Since there is no exact formula, we would recommend that the percentage blocked be based on the 450 family patron capacity and the percentage blocked be rounded up to benefit the patrons Based on 2003 results, the current patronage is made up of 175 families and 89 singles. If you say a family represents 2.0 players and a single one player, then 89 singles equates to approximately 45 families and a total patronage of 220 families. Based on a capacity of 450 families, there is a need to block off approximately 51% of all tee times. In order to protect patrons’ expectations, we would reduce the amount blocked by 5% so that the total blocked times for outside play would be approximately 46%. The 5% cushion would be used at management’s discretion.

In addition, in order to ensure that there will be 25% of the rounds available for outside play at all times, the maximum number of family patrons (as previously defined) should be approximately 340 (i.e., approximately 75% of 450). “What are the Actual Results to Date”?

Based on discussions with management, most of the blocked tee times are used only during peak times (i.e., Saturday and Sunday mornings – February, March and April). In non-


EAGLE HARBOR GOLF CLUB, Market Analysis, Operational Review, Indication of Value 30 peak times there are always times available for non-patrons; however, Thursdays and Fridays are also quite busy and are currently not blocked. Based on the current level of patronage, we believe this observation will hold; however, as patronage levels increase, there will be greater demand for these tee times and ‘blocking’ will be required.

In light of the above analysis, we would recommend that tee times be blocked based on the above formula and that a minimum of 25% of all peak times be blocked for outside play. Also, the Club could increase its patronage to 340 families. Further, management will have discretion as to the need to block more tee times (in relation to percentage of patrons) as patron play increases and non-peak time becomes heavily booked.

Total Rounds Played and Access to the Tee

As displayed in Appendix III, the Eagle Harbor generated approximately 46,600 rounds during the fiscal 2003 year (approximately 24,000 of these were patron rounds). In further examining the timing of the rounds played by category in Appendix III, the analysis demonstrates that of the rounds played by patrons, only approximately 12% of the rounds played were played during non-peak times of day (i.e., twilight or 9-hole rounds). Furthermore, in examining the detailed spreadsheets prepared by management, the rounds played by patrons also represented the largest proportion of rounds played during peak weekend times. Therefore, not only are the majority of patron rounds occurring in peak times, but they are also occurring during the prime periods for attracting rounds from outside public play. Therefore, while rounds played by outside individuals are nearly 50% of total rounds played, the Club is not realizing the full benefit of attracting these rounds at the higher rates due to limited availability of tee times in the prime weekend times. This is especially an issue during the prime player season of February to May when demand for outside times would be at its highest. Furthermore, the above phenomenon could also be contributing to the perception in the market place that Eagle Harbor is for all intents and purposes mainly private. As a result, our previous discussion is important in order to increase green fee revenue. Patron Privileges Based on our review of the existing patronage program at Eagle Harbor, the Club currently provides the following benefits to its patrons as a result of membership:

• 7-day advance booking privileges instead of 4-days for the public; • 10% discounts off of all pro shop merchandise; • Ability to play in all organized patron events; • Ability to purchase a trail fee pass if you own a cart; and, • Guest fee rate of $35 Monday to Friday and Saturday and Sunday afternoon, and

a $10 reduction at peak times.


EAGLE HARBOR GOLF CLUB, Market Analysis, Operational Review, Indication of Value 31 Pricing Structure and Quality of Golf Product

We have reviewed the overall pricing of both the patronage program and the public pay as you play green fee rates, in the context of the market place and quality level of the golf product offered by Eagle Harbor. We believe based on our analysis, that the current annual patronage fees for both family and the single patron are appropriate given the rates in use at competing facilities.

However, as discussed above, we also believe that the Club should consider offering an

alternate patronage program for those individuals who would like to play and have the benefits of patronage at Eagle Harbor but that do not play frequently enough to warrant the cost of the full patronage program

As an alternative, our experience has noted that many operators have enjoyed success

with a ‘pay for use’ patronage program. Under such a program, the Club would offer an individual or family the ability to pay a nominal upfront fee in order to become a patron and enjoy the benefits of patronage. However, these individuals would also pay a discounted green fee rate for every round of golf played at the Club. When developing this approach, one must ensure that a patron paying the full price is not at a disadvantage with regard to price per round and as such, a new approach must produce a “perceived” higher net rate per round.

From our previous analysis, we believe current patrons are paying approximately $32 including cart fees (see Appendix VI). In order to protect the patrons paying full annual dues, one must ensure the alternate category pays an amount higher than patrons paying full annual dues. As such, we believe a base fee needs to be paid to obtain the benefits of a patron plus a fee per round.

In order to ensure families do not leave the full category, the alternative program must be perceived as a higher priced alternative; however, must give perceived benefit substantially better than the posted rate.

For example, the Club may charge a patron an upfront fee of $400 per annum and this allows the patron the ability to enjoy all of the benefits of patronage while only paying approximately 65% to 70% of the posted green fee rate each time they play. Management will have to evaluate the proposed discount green fee rate once the plan is announced and potential patrons give their commentary (see Appendix V). We believe this would allow the Club to accomplish several goals as follows:

1. Increase the overall net rate per round generated by the Club and hence its overall

revenue position.



2. Allow pay for use patrons to book and utilize tee times on an equal basis with existing patrons to potentially either lower rounds played by full annual patrons or alter the timing of when these rounds are played to either off-peak times or weekdays instead of weekends.

3. Increase the patronage at the Club thereby enhancing the revenue stream.

In examining the overall public and pay as you play green fee rates in relation to the

overall marketplace, we have noted that the overall pricing appears to be consistent with the immediate competition. However, Windsor Parke, along with some of the slightly higher quality secondary competitors, such as St. John’s and South Hampton, do offer a prime season peak rate versus an off-prime season peak rate. Windsor Parke is currently charging $70 during prime season peak times (according to their internet booking program) and other Clubs such as St. John’s are charging prime season peak rates of as high as $92 per round (based on rates in the Jacksonville Area Golfers Guide). As a result, we believe that this may represent an opportunity for the Club to increase prime season rates between the months of February and early May in order to maximize revenue from outside play when demand is strongest.

We would recommend that the Club consider a prime season peak posted rate of $65

per round. We believe the Club could achieve this rate without significantly impacting rounds played. The reason for this is threefold: 1) The Club would still be below the rates of higher quality competitors in the market area; and, 2) The Club has a limited inventory of tee times available during the prime season peak times due to the extent of patron play during peak times. Therefore, the Club is not in the position of trying to fill its entire inventory of peak times at these rates; and, 3) The demand in the marketplace is highest during the months of February to April due to the effects of tourism and the seasonal resident populations, thereby increasing the demands on golf courses for prime season peak tee times.

Net Rate Per Round

KPMG’s golf diagnostic study has demonstrated that in a well run public/semi-private facility, most golf courses experience a net green fee of approximately 70% to 80% of the peak gross rate as a result of weekday rates, twilight rates, and other discounts or promotions. When this net rate is separated between patron and public play, the benchmark net rate for patron rounds is 55% to 65% and is 75% to 80% for public play. Net rate per round is defined as total gross green fee and annual fees revenue, divided by total rounds, divided by the average peak posted green fee rate. As shown in Schedule I, the current volumes of patron play under the annual patronage program is above industry benchmarks. Furthermore, as discussed above, the timing of patron rounds is such that public and outside play is forced to more off-peak times and as a result, more of these rounds are generated during times when discounts are required to sell these rounds and as such, the net rate from public play is below industry benchmarks.



In order to address the issues with net rates per round, we suggest the Club consider

implementing the above recommendations concerning a pay for use patronage program. We believe based on our past experience and our knowledge of the market area and the resident base surrounding Eagle Harbor that this program has the ability to raise the net rate per round. We also believe that this program will decrease the average rounds played per patron down to historical levels and eventually to benchmark levels. Please refer to Schedule # 2 for the expected impact on the financial estimates for the Club in the future.

Public Access to Facilities Booking of Tee Times

Under the current patronage plan, the general public can use the entire golf course facilities at any time. However, the Club has designated some prime weekend tee times as member-only tee times. According to the Rules and Regulations, we believe this should not be the case. Furthermore, with the ability of patrons to book in advance of the public, and the revenue pressures facing the Club, we believe the opposite policy should be extended in this case. Advance booking of tee times is permitted as follows: Patrons – 7 days in Advance Public – 4 days in Advance Given that patrons have demonstrated a preference towards playing during the weekend prime times, we believe at minimum the Club should consider blocking off additional public only tee times up until 24 hours before the day of play. If the time has not been booked by a public outside individual prior to 24-hours before the time of play, then the tee time would be released into the general pool for booking by the patronage base. Special and Tournaments and Public Play

According to the rules and regulations, the Club has no set a limit on the number of special events that can be held (patron and non-patron). Non-patron tournaments are limited to days in which there is no designated patron special event play, but currently management attempts to book as much outside tournament play as possible in order to augment revenues. Generally, outside play has not been problematic due to the current financial situation and the fact that patrons have been relatively sensitive to financial concerns and the resultant need for outside play.

In 2003, the Club generated a lower net rate per round from outside play in general than

would be expected based on benchmark results. However, we believe that the rationale for this is twofold: 1) The competitive situation in the marketplace has intensified further as the


EAGLE HARBOR GOLF CLUB, Market Analysis, Operational Review, Indication of Value 34 economic downturn persists and therefore operators continue to discount even tournament events in order to generate rounds played; and, 2) the rounds played by patrons stayed consistent with the levels observed in prior years despite a decrease in the actual number of patrons and the mix of play suggests that patrons are playing a majority of rounds during peak times thereby limiting the possibility of generating outside play at the highest rates per round.

Lastly, we believe the Club should attempt to work with local hoteliers and concierges

to bolster rounds played from visitors to the area. The Club could give hoteliers the rate given to patron guests as a means of enticing hoteliers to send rounds to Eagle Harbor. This may be a low cost method of bolstering rounds played at the Club from high net rate sources such as tourists/business traveler.

We believe the above recommendations concerning blocking off additional tee times

during prime seasons for outside peak play as well as increasing the prime season peak rate will assist the Club in increasing the overall revenue and net rate per round generated from outside events back up to historical levels. Please refer to Schedule # 5 for the estimated impact of these suggestions on the overall financial situation of the Club in the future.

EPIC Card Based on the detailed analysis prepared in Appendix III concerning rounds played and net rates per round by source of the round, we have noted that the rounds generated from the EPIC card program are currently yielding net rates per round of approximately 53% overall. Interestingly, rounds played under the EPIC program are yielding lower net rates during the prime season than during the off-peak season. We believe this is due to the availability of tee times during the prime season as well as the relatively limited discounts that the EPIC card provides to cardholders under the terms of the agreement signed with Eagle Harbor (i.e., Eagle Harbor is the highest priced Club in the program). Given that EPIC rounds account for only approximately 1,500 rounds during the prime season or 7.5% of total rounds played during that timeframe, we do not believe this to represent a significant source of potential revenue if the EPIC program were discontinued in the prime season, unless all of these rounds were played at peak times. Due to the lack of an electronic tee time monitoring system, insufficient information was available and hence we were not able to determine the timing of when these rounds occurred to know whether they were during peak times or off-peak times. Therefore, no specific recommendation can be made in this regard other than the new pay-for-use program, which may convert EPIC rounds to this new category. Further, as demand increases, management should not book an EPIC round in prime time unless tee times are open within 24 hours of the reservation.


EAGLE HARBOR GOLF CLUB, Market Analysis, Operational Review, Indication of Value 35 Marketing Program

Management has expressed some concern and interest in bolstering public rounds in order to augment the revenue stream and reduce the operating deficit. Currently, Eagle Harbor has a limited marketing program that only uses forms of media such as print and website. Based on discussion with the Director of Golf, the largest promotional drive is the Florida’s First Coast program. While this program is desirable, we believe that the Club could potentially improve its position in the marketplace by implementing a more aggressive and traceable marketing program. Part of implementing a successful market program is being able to track results of various advertising efforts. Therefore, again, an electronic tee time booking system along with appropriate staff training to record the origin of the golfer and the method by which they learned of the Club is critical to understanding the effectiveness of marketing efforts.

The current marketing budget represents approximately 1.4% of gross revenues. While

this is close to the benchmark range, we believe the Club should be spending between 2.0% and 3.0% of gross revenue annually on marketing efforts. Based on the fact that the Club is only needing approximately 50% of its play from outside sources, we have estimated in Schedule #2 that the Club would only need to expend approximately 2% of gross revenue to accomplish its goals for marketing outside play and patronage opportunities and that contra’s can be used to reduce cash marketing costs. Targeting of Advertising

The key to the marketing of the Eagle Harbor facility to the public is for management to continue to track success / response rates and to track information on public golfers patronizing Eagle Harbor. In this way, more directed marketing efforts can be made (such as e-mail blasts to past patrons, e-mails to corporate citizens to book up available tee times, coupon programs sent to past outside public players to encourage them to bring friends, etc.) so that marketing dollars are maximized to those initiatives that have the most impact to volumes of rounds generated from the public. Furthermore, the Club could consider creating a frequent play program for public play whereby discounts are provided to those public patrons who play the facility most frequently. In addition, the Club could follow up on why certain players are not returning to the course. This will allow the Club to better ‘capture’ the player and develop a loyal following.

Follow up on the part of staff in the pro shop can be performed through simply asking

individuals how they heard about the facility and what attracted them to the facility. Without pinpointing and specifically targeting the advertising efforts, marketing funds may be spent with no appreciable benefit to the business of the Club.


EAGLE HARBOR GOLF CLUB, Market Analysis, Operational Review, Indication of Value 36 Complementary Rounds

Currently, the Club appears to be utilizing approximately 2,000 to 2,500 rounds per year in complementary rounds. This is consistent with industry benchmark levels. In fact, a properly utilized complementary program (i.e. otherwise known as a ‘contra’ program) can provide a short-term method to increase outside public play. Exposure in local newspapers and magazines could be generated through offering complementary rounds to local writers in order to allow them access to the facilities to assess the golf product offered as well as advertising contra rounds. Given the high quality of the Eagle Harbor golf product, this may prove to be a low cost method of increasing exposure of the golf courses to the general public. Furthermore, contra rounds can help reduce cash costs when implementing the new marshalling program.

Pro Shop Analysis Pricing Policy

The Eagle Harbor pro shop was found to be well lit and the inventories are well displayed in the space provided. The pro shop appropriately focuses on the sale of soft goods with limited hard goods such as golf balls, gloves, etc. on hand. The pro shop also offers a good mix of logo merchandise and non-logo goods. Given that golf pro shops in general are in direct competition for merchandise sales with other outside ‘big box’ golf shops, the policy of offering mainly soft goods is considered appropriate and is consistent with current industry practices.

Overall, based on the statistics listed in Schedule #1, we believe the merchandise sales

and the margins generated are achieving benchmark levels (i.e., approximately $3 per round in gross sales, with a cost of goods sold of 70%). These benchmarks are based on comparable golf courses that offer discounts to patrons within the pro shop. Inventory Levels and Mix

The pro shop at Eagle Harbor is of typical size in comparison to industry averages for pro shop operations. The current pro shop provides adequate display areas for inventory as well as offering sufficient office space. Based on discussions with the director of golf and the head pro, both felt that the Club has benefited from altering the mix of goods offered to favor more valued priced goods. Based on the discussions with management, inventory is counted on a monthly basis and the Club has not had any significant issues in the past with inventory shrinkage.


EAGLE HARBOR GOLF CLUB, Market Analysis, Operational Review, Indication of Value 37 Pro Shop Payroll Expense

Total pro shop payroll expense is comparable to the industry benchmark. The payroll costs in this department have consistently decreased in recent years reflecting the efforts to minimize costs within the operations (see Schedule #1). Furthermore, we analyzed the overall payroll costs for hourly employees and found the average hourly rate to be consistent with industry standards as were the total number of individuals in this department. We believe the Club has also been able to generate cash savings through the use of a contra service marshalling program.

Cross-Utilization of Staff

In terms of further streamlining operations in the pro shop, there may be the potential for some of the pro shop staff to be cross trained in other areas of the operation so that during less busy times, the staff could be deployed elsewhere in the operation to help lower overall labor costs. For example, during less busy times, back shop staff could assist the greens crew with simple tasks such as divot repair. This simple cross utilization could help reduce labor costs.

Tee Time Reservation System

Eagle Harbor should investigate the possibility of computerizing their tee time reservation and tracking system. Current software available would allow the Club to easily track how many of the prime tee times (i.e. 8am to 10am) the members are receiving and allow the pro shop the ability to make informed decisions on blocking off tee-times based on current information regarding play. Furthermore, for members that attempt to abuse the system or ‘no show’, a mechanized system may provide for better tracking for disciplinary action.

Revenue and Labor Controls

The tee time and starter sheets are reconciled daily to the point of sale system. This process should be accurate in reconciling revenue and providing adequate control over cash receipts.

Other Pro Shop Expenses

Other pro shop expenses represent approximately $100,000 (see Schedule #1) in fiscal 2003. These costs include golf cart lease expenses of approximately $53,000, advertising costs,


EAGLE HARBOR GOLF CLUB, Market Analysis, Operational Review, Indication of Value 38 and other operating supplies and materials. The other pro shop expenses consist of cart cleaning supplies and repair and maintenance, scorecards, tees, pencils, telephone expenses, towels, driving range supplies, uniforms, travel expenses, and other small costs. These expenses are comparable to industry benchmarks, excluding advertising expenses as previously discussed.

Patron Trail Passes

Currently, the Club charges patrons an annual trail fee if the patron wishes to utilize their own golf cart ($1,275 per annum plus $250 for a second rider). However, a modified trail pass also exists whereby a patron who plays golf less frequently but still owns their cart can pay $275 up front and pay $8.00 per round of golf for their trail fees. Currently, trail fees from members are generating only an estimate $6.77 per trail fee round (see Schedule #1). As a result, members are receiving a 58% discount off of cart fees. We believe that based on our benchmarking analysis and the current practices of some of the immediate competition that the Club should seek to raise the annual trail fee from the current weighted average overall trail fee of $1,175 per annum (for annual paying patrons and pay as you go trail fee patrons) to approximately $1,400 such that the Club is receiving closer to benchmark trail fees of 70% of the posted cart fee rate per round.

Unfortunately, the current tracking systems in place at the Club do not segregate rounds

played for annual trail fee patrons versus those that pay as they play for trail fees. As a result, we were not able to analyze the specific trail fee being generated per round from each type of patron in order to make specific recommendations regarding the pricing of each different option. However, in researching the trail fees charged by the two most immediate competitors, Fleming Island charges $1,350 for their trail fees and The Ravines does not allow an up front trail fee (members must pay $20 per round). Only Cimmarone has lower trail fees at $1,200 per annum. Windsor Parke does not offer a trail fee option. Therefore, we believe the current practices of the immediate competitors with respect to trail fees provide the Club the ability to increase these fees over time to appropriate levels.

In order to achieve the targeted increase in trail fees, we believe the yearly rate should

be increased to $1,450, the second rider fee increased to $275 (i.e., the total fee for a couple would be $1,725), and the pay-for-use be increased to $300 plus $9 per round. The current fee charged to patrons with no owned cart is $16 and this should not be changed.

In essence, the individuals that own their own golf cart receive a significant advantage

over those that do not. For example, a patron family playing 100 rounds without a cart was paying $16 for the cart per round plus $22.56 (2256 ÷ 100) or $38.56 per round at prime time. The cart owner received a significant advantage since their fee at prime time would be $2.75 (275 ÷ 100) plus $8.00 plus $22.56 (2256 ÷ 100) or $33.31. This difference increases as the


EAGLE HARBOR GOLF CLUB, Market Analysis, Operational Review, Indication of Value 39 number of rounds increase, since the seasonal rate gives a larger advantage. Using the same analysis, a family playing 200 rounds per year would only pay $6.37 per round; whereas the pay-for-use of $2.75 plus $8 would achieve a net rate of $9.75.

There are only a few patrons that meet these excess targets; however, we would

recommend that only existing patrons owning a cart be allowed to continue with annual trail fees. The annual trail fee needs to be increased at rates in excess of 10% over the next few years to bring the overall revenue for cart fees in line with industry benchmarks. For all new patrons joining the Club, we would recommend that only the pay for use trail fee should offered. Greens Maintenance Analysis Maintenance Costs versus Benchmarks

The greens budget (or golf course maintenance budget) for 2001 to 2003 is approximately $550,000 to $600,000 per annum. The greens budget is comparable to the industry benchmarks for similar golf courses in the market area (see also Schedule #1). The industry benchmark for this region is approximately $6,000 per maintainable acre (or a total maintenance budget of approximately $600,000). Both the payroll costs and the other greens costs such as fertilizers, chemicals, and operating supplies, were found to be reasonable considering the quality and conditioning of the golf course relative to its competitors as well as the fact that the Club over seeds its entire golf course (from Bermuda to Rye and back). It should be noted that the golf course maintenance department also maintains some common areas for the CDD as a whole. The Club is currently compensated for this cost, however, we believe continued examination of the time and supply costs associated with this shared maintenance should be conducted to ensure that the Club is appropriately compensated for non-golf related services if the CDD wishes the Club to operate as a stand-alone entity. Conclusion

Overall the maintenance costs per maintainable acre are comparable with the industry median. From a marketing perspective, golf course conditioning is one of the key factors with potential new patrons in choosing which club to join. In addition, a well-conditioned golf course will also serve to add to the overall beauty and therefore housing values of the residential development. Therefore, to an extent, the CDD should support the Club in ensuring high standards in golf course conditioning in an effort to use the golf courses as a value-enhancing feature to the real estate. However, higher standards are not without a cost. We believe that the golf course is an integral piece of the residential development and the associated housing values based on our past experience with similar projects and therefore, care


EAGLE HARBOR GOLF CLUB, Market Analysis, Operational Review, Indication of Value 40 must be exercised not to diminish the golf course conditioning in favor of cutting costs as this will negatively impact the revenue generating ability of the Club as well as impacting property values. Food and Beverage Analysis As noted in Schedule #1, currently the Club is exceeding the industry benchmark levels for food and beverage sales per round. However, the Club hosts several special events on a weekly basis that are non-golf related. Based on our discussions with the food and beverage manager, it was estimated that the Club currently generates 70% of its food and beverage volumes from non-golf related sources. However, further analysis also suggested that the hours of operation for the food and beverage department differ from a typical golf operation (i.e., the Club is open from 7am to 8pm everyday, excepting Mondays (Monday night football) and Fridays (open to 9pm). Based on our analysis and our discussions with the food and beverage manager, the food and beverage operations are currently only generating approximately an 8% to 9% overall contribution to the bottom line at the Club. Industry benchmarks suggest that the Club should be generating approximately 22% profitability from food and beverage operations. We believe the rationale for this variance is due to the hours of operation that require that the Club be open for service and staffed despite volumes of business not warranting the additional cost. In discussing this issue with the food and beverage manager, it was noted that there would be clear operational savings from changing the hours of operation to mirror that of the golf course (i.e., 11 am to 7 pm, and staffing and hours alter as volumes of golf patrons and public dictate from the tee sheets). As a result, we believe that the Club could achieve the profitability in the food and beverage department by keeping with a simplified menu containing the staples, ensuring that staffing and hours of operation match golf volumes, and by ensuring menus are costed out and priced appropriately to generate proper margins. Please refer to Schedule #2 for the potential impact that this policy change would have on the financial estimates for the Club in the future. Please note that the Club should continue to take bookings for specific planned special events from the community, as these are typically most profitable as they can be priced appropriately and the labor needs can be more reliably scheduled and managed. If the CDD does not wish to alter the hours of operation of the clubhouse to match the golf volumes of business, we believe the CDD should bear the additional cost and reimburse the Club for the increased costs since the community as a whole is then driving the decision


EAGLE HARBOR GOLF CLUB, Market Analysis, Operational Review, Indication of Value 41 regarding hours of operation and hence the entire community benefits at the expense of the golf operation.

Overall based on the payroll costs provided by management for the average hourly rates for food and beverage employees, we believe the rates and practices are consistent with industry standard rates of pay.

General and Administrative Expense Analysis Administrative Payroll Costs

The Eagle Harbor golf operations do not have a dedicated stand-alone general and administrative operation. The management company primarily performs the administrative duties of the Club. As a result, currently, the Club is assessed an allocated charge of approximately $54,000 for administrative related services over and above the payroll for the general manager, office staff, and market staff. Overall our benchmarking data suggests that administrative payroll costs should approximate $175,000, inclusive of maintenance personnel, general manager, and accounting staff, and benefits. While the administrative benchmarks do not contemplate a stand-alone marketing position, the current role at the Club is a part-time position (duties shared with Tennis) and typically the marketing duties are incorporated in with the General Manager’s duties, as is commonplace in the industry. Therefore, on an overall basis payroll costs are consistent with industry standards as a whole.

Property taxes are no longer a cost of the Club due to it being located within the CDD.

However, this is currently being reviewed and may become an expense. This has a significant effect to cash flow and needs to be considered in the debt servicing analysis. However, the CDD also charges costs to the Club for audit services and treasury services. Therefore, while the Club does have savings on some items due to its status as a CDD, it also must incur some CDD costs that are not typical of a golf operation. Overall, once the impacts of items such as capital maintenance and unusual items are removed, the golf operation administrative and general expenses appear to be in line with industry standards for comparable golf courses. Capital Maintenance


As a part of the standard operating procedures and practices of the Club, Eagle Harbor should be creating and funding a capital reserve account on an annual basis in order to ensure that funds are available in the future for capital repairs and replacement as the Club ages. According to discussions with management and the Board, to date, East-West Partners has funded the capital improvements required for the Club. Our research has shown that the average expense incurred for golf facilities that have been built within the past 10 years is 3% to 5%. However, with all of the carts and greens equipment being on lease arrangements,

EAGLE HARBOR GOLF CLUB, Market Analysis, Operational Review, Indication of Value 42 capital maintenance costs should be lower. For clubs that lease all equipment and carts the average expense incurred for capital typically drops to between 2% to 4% of gross revenue. As such, we believe that a funding level of 3% of gross revenue would appear to be sufficient to fund capital needs of the Club over the long-term.

No capital budget exists to suggest what capital funding will be required for the 2004 season; however, we have added the standard 3% reserve against the operational results of the Club in order to determine excess cash flow available for debt servicing.

Management:

We were very happy with the knowledge and experience of the Club’s management. We believe the Director of Golf, Rick Gross, is an integral component in implementing the new strategy since he is very close to the community and the Club’s patrons. This report contemplates a move towards attracting more patrons and at the same time, ensuring public play has its ability to play in peak time based on the number of family patron members.

The implementation of this plan will require a strong manager with excellent deportment – so as to meet the patrons’ needs and protect outside play. As such, we believe it is important for the Club to maintain Rick Gross, since he will have a very positive effect on implementing the recommendations in this report. Any loss of management could seriously effect the short-term bottom line of the Club.

Operational Conclusions:

This report has reviewed all aspects of the golf operations, including the current market and the Club’s competitors. In Appendix VI we have outlined key statistical data along with information within this report, and made specific recommendations. It is important to note that these recommendations are based on information at the date of the report. The operator (management) must always be given the authority to react to changes in the environment and make quick decisive changes in order to adjust to the competition.

As such, we believe it is important to focus on the Club’s vision and overall strategies.

This will allow the operator to change the detail to adjust to the business philosophy. In the past, Eagle Harbor had adopted a philosophy of accepting patrons; however, were

trying more to market pay-as-you-play rounds. Management believed that the higher net rate per round came from outside play. Also, 50,000 rounds was their optimum number of rounds. In addition, the food and beverage operation was operated more as a restaurant for the community. It was not strictly focused on golfers and banquets.



Based on the current competitive environment, we believe Eagle Harbor needs to focus on capturing return players. As a result, marketing efforts need to be directed at obtaining more patrons and selling blocked tee times at peak times.

In order to be able to entice golfers to become patrons, we believe two plans need to be

marketed: a monthly fee plan, and a pay-for-use plan. Both plans discount rounds and ensure repeat play. We have developed these plans based on the presence of increasing our current net rate per round. Also, most of the competition is either eliminating or deferring their initiation fees.

In light of the current economic climate and the fact that Eagle Harbor has the

perception of having financial difficulty, we believe the initiation fee should be eliminated for the time being, and replaced with a higher monthly due. Based on our review of previous net rate data, the outside player and patrons were paying similar net rates per round of golf.

We have also reviewed the calculation of the optimum number of rounds (Appendix IV)

for Eagle Harbor. Based on historical trends in the area, 50,000 rounds is a reasonable target; however, the Club could easily take 55,000 rounds of golf. The Club is currently using approximately 47,000 rounds, yet approximately 2,500 to 3,000 rounds are employee rounds (i.e., filter rounds – these rounds can be played when there is down-time).

In light of the above, we believe this course could accommodate 8,000 additional non-

employee rounds. Based on our recommendation of taking family patrons to 340 and protecting a

minimum of 25% of the tee times for outside play, we believe the Club could achieve 55,000 rounds including employee and complimentary rounds. In addition, our patron packages should ensure a higher net rate per round (say $2 to $3) than previously received. We also believe that the current patrons and golfers around Eagle Harbor are waiting to see the new rules and rates. Eagle Harbor’s competition is not increasing their member rates. We believe any increase in the current patron rates will result in a loss of patrons and it will be difficult to fill these rounds. Any loss of initiation fee income will be recovered through more patrons’ play and a higher rate per round from higher outside play net rates during blocked times (See Schedule 5 regarding financial impact). The only area where Eagle Harbor could increase rates to current patrons is possibly in trail fees where they are currently below the competition and these patrons received significant discounts on cart fees. In addition, we would recommend a $2.00 increase in the peak green fee rate during off-prime season (i.e., $56 to $58) and a prime season peak green fee increase from $56 to $65.

Finally, the food and beverage operation needs to cater to golfers and outside functions.

The current labor force is directed more towards a restaurant operation. Management needs to review their level of labor and hours of operation in order to make the operation more


EAGLE HARBOR GOLF CLUB, Market Analysis, Operational Review, Indication of Value 44 profitable. Further, with a more stable food and beverage menu, the gross margins in this area should increase.

Operational Summary and Estimated Impacts to Operational Cash Flow Based on the above noted benchmarking analysis and the recommended operational changes from both a revenue and cost perspective, we believe that the Club is capable of generating approximately $328,000 in operational cash flow in 2004 before capital maintenance and debt servicing, increasing over the next five years to $616,000, assuming the Club must pay property tax of approximately $80,000 per annum. If the Club does not have to pay the tax, then the cash flow would increase and deficit decrease.

However, as noted in Schedule # 2, once the debt servicing and capital maintenance requirements are considered, we believe that the Club will fall short of funding needs as follows over the next five years:

2004 2005 2006 2007 2008 Net cash flow deficit $478,854 $383,471 $295,225 $227,528 $204,206 Therefore, we believe that over the next five year’s the Club will incur cumulative operating deficits of approximately $1,590,000. After 2008, we believe the Club will be at or very near break even from a net cash flow perspective. As a result, the Club is going to require assistance at least over the next five years in order to avoid default on its bondholder payments. Further, this analysis is based on certain key assumptions which may or may not materialize. As a result, the above calculation could be significantly different. Stakeholder Analysis The current operations cannot service bond debt payments or meet the bond debt covenant of 110% debt payment coverage. 1. Bondholder: Currently the bondholders have little security, since they do not hold a mortgage on the

property. They have the right to bring in their own management to operate the Club and use the proceeds from operations to pay down debt; however, significant costs will be incurred for trustee/receiver and serious harm could be done to the reputation of Eagle Harbor if a default occurred.


EAGLE HARBOR GOLF CLUB, Market Analysis, Operational Review, Indication of Value 45 Issues The bondholder is not a golf operator - as such, would need to hire a management

company at a cost of $75,000 to $100,000. If the Club is operating efficiently, this approach will reduce current operating proceeds. However, the bondholder would probably not put money back into property, and capital maintenance would be lower. This could possibly lead to a poorer quality of golf course, and visual structures and green areas will begin to look tired. In addition, the Club and community would tarnish its reputation.

Opportunities

- Reduce interest rate - Lengthen debt term - Usually bondholder will not change debt agreement without some

type of CDD guarantee (i.e., if they do reduce interest rate and give a longer term debt payment structure, then CDD must agree to tax residents for any future differences)

Overall The bondholder has the most to lose since the fair market value of the golf operation is less than the bond, and their only security is to operate the Club. CDD needs to deal with East West before the bondholders in order to understand the net cash they will ultimately be obligated to pay.

2. Builder (East West):

The builder believes they have done a very good job and did not sell the golf course to the CDD at an inflated value. In fact, there were other purchasers at the time of sale to the CDD. The builder has given free management services and have paid for bondholder deficiencies to date with their line of credit (builder loan to Club). However, the builder did increase the lot values from the golf course amenity. The builder has done very well with this development and will soon be opening another development with a golf course within 15 minutes of Eagle Harbor. As such, the builder wants to protect their reputation and is willing (from previous correspondence) to help the CDD financially.



Issues: If the builder is developing another golf course, need to protect competitive advantage of Eagle Harbor (i.e., cannot have current golf operators leaving to go to new course). During the development of the new course, the CDD cannot have the Eagle Harbor Greens Superintendent being involved with new course build. Customer lists/management team cannot be given to new golf course. The current line of credit must be dealt with in the final settlement along with the termination of the management contract. East/West still have lots to sell in Eagle Harbor – CDD should settle an agreement while East/West still has something to lose in value. Opportunities The developer is willing to negotiate and has proven to be a good manager over the years. Overall CDD must protect their competitive advantage over new course. Items to be considered with East West:

1. CDD has the right to hire current operating staff at Eagle Harbor. If they are offered a job they cannot work for East/West in Jacksonville for a certain number of years.

2. No Eagle Harbor staff will be used to consult or overview the development/operations of the new golf course without the permission of CDD.

3. No current employees of Eagle Harbor will be allowed to work at the other new course without written approval of the CDD.

4. There will be no contact with current members of Eagle Harbor to become members of the new course.

5. Negotiate a settlement with East West on their current management contract so that the contract terminates at the time CDD hires the current employees of Eagle Harbor and there are no monies owing or penalties for termination.



Once the above is settled, then the CDD can continue with a financial settlement. Items to be considered:

- Line of credit to be forgiven or paid back out of future cash after bond payments with a set term (i.e., 15 years).

- Possible further cash settlement to cover protecting the amenity while the developer sells remaining lots and their reputation.

CDD At the time of purchasing the golf course, the CDD made decisions based on information at the time. The cash flows from golf operations were aggressive, however attainable. In addition, the homeowners increased the value of their lots and maintained control over their own destiny (i.e., golf course maintenance whereas another owner could allow course to deteriorate). To date CDD owners have enjoyed increases in lot values, whereas, if the course was allowed to deteriorate, the values would reduce and in a competitive market, make it more difficult to sell their homes (typically a golf course increases home values by 5% to 15%). Based on the current economy, there definitely is a possibility that the course could deteriorate and impact future home sales. Overall The CDD should first negotiate with East/West to get the best possible deal from this group. There is no doubt that time should solve some of the operational deficits or at least the CDD will be able to evaluate the effects on operations from this report’s recommendations. Once the negotiations are completed with East/West, the CDD will know their net obligation to the bondholder. They should then negotiate with the bondholder to reduce interest rates and principal payments – even if they have to guarantee the CDD to these revised payments. The CDD need to evaluate the potential guarantee compared with the potential loss in value to their real estate. To put the Club in default on the bonds will have some effect on real estate values and ability to sell residential homes; however, a tax increase to the homeowners will also impact the value of their homes and ability to sell. Therefore, any significant tax increase to homeowners (i.e., increase greater than $100/year) requires a separate analysis on real estate values.


EAGLE HARBOR GOLF CLUB, Market Analysis, Operational Review, Indication of Value 48 VI. INDICATION OF VALUE Fair Market Value vs. Price Our indication of “fair market value” in a notional marketplace must be differentiated from the concept of “price” in an actual marketplace. More specifically, we are of the view that many “prices” exist for a particular business. Numerous reasons exist for the many different prices including, among others, differing negotiating strengths, the perception of each of the parties involved as to the future prospects of the business and the purchase consideration being other than cash. In addition, a potential purchaser may enjoy certain benefits peculiar to them, whether they are cost savings or expected increases in income. As a result, the ultimate price at which a sale of a business might take place may be higher or lower than the notional fair market value. The indication of value expressed herein represents the fair market value of the Club as viewed in the context of the notional marketplace. Traditionally, our valuation approach embodies an assessment of the operations of a business and a rate of return on invested equity considered to be reasonable having regard to various factors. These factors include both internal operating conditions which affect the future profitability of the business and external industry and economic conditions, which influence the risks associated with the business. Unless a business or group of assets is exposed for sale, it is often speculative as to whether any purchaser exists who would benefit from the acquisition, and furthermore, whether a purchaser would be willing to pay for this benefit. Therefore, unless these synergistic benefits and other factors can be specifically identified and quantified by way of actively seeking a prospective purchaser, we are of the view that a notional fair market value must be based on the above approach. Valuation Approach Based on our review of the Club’s business operations, we have considered a going concern approach to valuation to be appropriate. The going concern approach assumes that the business being valued will continue to operate profitably or will operate with a potential for future profits and positive cash flow. There are several generally accepted techniques used in determining the going concern value of a golf club. Such techniques include the following:

i) Capitalized cash flow approach ii) Replacement cost approach iii) Comparable transaction approach


EAGLE HARBOR GOLF CLUB, Market Analysis, Operational Review, Indication of Value 49 Based on our experience, golf courses are commonly valued using a multiple in the range of six to ten times earnings before taxes, depreciation, and interest (“EBITDA”), after an adjustment for capital maintenance. This equates to a capitalization rate of 10% to 16%. The sales multiple depends on several factors including market conditions, interest rates, whether there is room for improvement in the financial results, whether there is historic operating information and other factors. Capitalized Cash Flow Approach The capitalized cash flow approach is based on the theory that the value of the Club is a function of its expected future income or cash flow generating capacity. Application of the capitalized cash flow approach involves estimating the future cash flow from operations and capitalizing the amount so determined by a factor (the capitalization rate) which is representative of the rate of return required by a prospective investor in consideration of, among other factors, the risk inherent in achieving the estimated cash flows and rates of return available on alternative investment opportunities. In applying this approach to indicating the value of the Club, we reviewed the reported operating results of the Club as summarized on Schedule #1. Furthermore, given that the operations of the Club are mature (i.e., course is not new to the market, and the residential development is nearly sold out), the indication of value was based on both the historical results in Schedule # 1 and the financial estimates for the upcoming four years of the operation. The financial estimates are presented in Schedule #2. We have then applied a capitalization multiple of 7.0 to 7.5 times estimated stabilized earnings as shown in Schedule #2 for 2008 (after an adjustment for capital maintenance) to provide a current indication of value for the Club (Schedule #3). The capitalization multiple was based on the following:

• The market area golf industry conditions; • The fact that the indication of value was based primarily on both historic results as well

as financial estimates;

• Current interest rates; and,

• Sales multiples evident in transactions in the United States.


EAGLE HARBOR GOLF CLUB, Market Analysis, Operational Review, Indication of Value 50 Capitalized Value of the Club Based on the scope of our review and subject to the assumptions and restrictions as noted herein, we have indicated that the capitalized value, based on industry ‘rules of thumb’ of operating assets for the Club as follows: LOW HIGH Current value (2003) $3,800,000 $4,100,000 Potential future value (2008) $4,700,000 $5,200,000 The potential future value represents an indication of value for the Club in 2008, assuming the financial estimates, as presented in Schedule #2, are actually met. Under this assumption, a higher capitalization rate would be appropriate given that the value would be based on historic results. The figures presented above represent the indicated value of the assets used in the operation of the Club (i.e., land, equipment, improvements, etc.). It is worth noting that the golf course likely creates additional value for the residential development through lot premiums and an increased absorption rate. The indication of value calculations presented herein, to not estimate any incremental value that the golf course may provide to the residential development. Assumptions Underlying Indication of Value In preparing our indication of value, we have made the following assumptions:

i) The reported earnings of the Club contain no material non-recurring or unusual items of revenue and expense, other than those noted in this report;

ii) No significant non-arm’s length transactions took place (at other than fair market

value) during the period under review;

iii) No material unrecorded, undisclosed or contingent assets, liabilities or commitments existed as of the date of this report; and,

iv) The balance sheet of the Club as at the valuation date contained no redundant assets.


EAGLE HARBOR GOLF CLUB, Market Analysis, Operational Review, Indication of Value 51 VII. SUMMARY

Eagle Harbor Golf Club is experiencing many “growing pains” and will continue to face many challenges given current industry trends and the price sensitivity of the current marketplace and patrons. Implementation of certain operational changes could benefit the facilities from a revenue and cost point of view; however, overall the Eagle Harbor golf operations are well run from a costing perspective. The major issue facing the Club will be the ability to better track operational information within the pro shop and either re-price the existing golf patronage, create a pay for use patronage category, and adjust the trail passes to benchmark yields per round, or drastically alter the quality of the golf product offered in order to lower the current cost structures to levels that would require only more modest pricing adjustments. Ultimately, an open forum of communication must occur between the management company, the CDD and its Board of Supervisors, the Developer, and the Bondholders in order to determine the course of action going forward concerning the expected and continued net cash flow deficits and resultant inability to meet bondholder debt repayment terms.

VIII. LIMITING CONDITIONS AND RESTRICTIONS

In preparing this analysis, we have reviewed and relied upon the information described in the Scope of Review section of this market analysis and operational review. Although a reasonable effort has been made to ensure the data and information contained in this market analysis and operational review reflects the most accurate and timely information available, the information has not been verified in all cases. No warranty is given to the accuracy of such information.

This market analysis, operational review, and indication of value and related recommendations are intended for the internal use only of Eagle Harbor Golf Club, The Crossings at Fleming Island Community Development District, and their Board. It may not be used for any other purpose without express written consent of KPMG LLP. We do not assume any responsibility or liability for losses occasioned to the directors, supervisors, residents, or bondholders, or to any other parties as a result of the circulation, publication, reproduction or use of this report contrary to the provisions of this paragraph.




We believe that the analyses included herein must be considered as a whole and that selecting portions of the analysis or the factors considered, without considering all factors and analyses together, could create a misleading view of the process. The preparation of a market analysis, operational review, and indication of value is a complex process and is not necessarily susceptible to partial analysis or summary description. Any attempt to do so could lead to undue emphasis on any particular factor or analysis.

KPMG LLP

November, 2003

Eagle Harbor Golf Club Schedule # 1Analysis of Historic Operating ResultsFor the years ended September 30, 2001 through 2003

KPMG September Study

Fiscal Year 2001 2002 2003 18 holes

Revenues:Green fees, including cart fees $ 767,263 32% 702,379 29% 635,806 28%

Patron cart fees 203,340 8% 131,185 5% 133,799 6%

Annual Dues - Membership 546,377 23% 568,362 23% 567,469 25%

Initiation fees - Membership 142,933 6% 116,146 5% 59,500 3%

Trail fees 2,807 0% 72,973 3% 73,140 3%

Food and Beverage Sales 508,054 21% 648,824 27% 623,732 27%

Merchandise 175,598 7% 143,841 6% 130,539 6%

Driving range 60,369 2% 53,824 2% 49,271 2%

Other income (club rental, locker, etc.) 9,160 0% 6,486 0% 34,599 1%

0% 0% 0%

Total Operating Revenue 2,415,901 100% 2,444,020 100% 2,307,855 100%

Cost of Sales:

Food and Beverage expenses 228,104 242,791 255,791

Merchandise Cost of Sales [1] 102,680 102,152 91,530

Total Cost of Sales: 330,784 344,943 347,321

Expenses:Food and beverage

Food and beverage other expenses [2] 65,706 3% 75,983 3% 65,207 3%

Food and beverage labour 268,540 11% 258,540 11% 248,678 11%

Total Food and Beverage Operating Expenses 334,246 14% 334,523 14% 313,885 13%

Greens maintenanceGreens labour 325,196 13% 313,196 13% 313,196 14%

Gas and oil 10,110 0% 8,698 0% 12,420 1%

Chemicals and fertilizer 84,355 3% 93,060 4% 95,324 4%

Seed, sod, top dressing, small tools 40,166 2% 40,557 2% 16,347 1%

Operating suppiles 18,895 1% 14,631 1% 22,046 1%

Dues, fees and licenses 285 0% 285 0% 422 0%

Other operating expenses (training, uniforms, etc.) 21,679 1% 23,012 1% 22,727 1%

Utilities 36,226 1% 35,973 1% 30,334 1%

Repairs & Maintenance (irrigation, equipment, etc.) 41,046 2% 30,909 1% 26,477 1%

Equipment rental 9,507 0% 9,986 0% 7,891 0%

Miscellaneous (soccer fields) 11,401 0% - 0% - 0%

Equipment lease 60,459 3% 63,295 3% 69,557 3%

Greens maintenance chargeback to CDD (68,048) -3% (43,052) -2% (55,044) -2%

Total Greens Maintenance 591,277 24% 590,550 24% 561,697 24% 600,000

Pro ShopPayroll and benefits 176,284 7% 155,268 6% 144,951 6%

Utilities 7,975 0% 7,084 0% 8,268 0%

Repairs and maintenance 454 0% 3,589 0% 1,835 0%

Marketing and Promo 4,203 0% 4,221 0% 6,878 0%

Cart lease 52,049 2% 50,676 2% 53,497 2%

Other operating expenses 45,577 2% 46,738 2% 33,914 1%

Total Pro Shop Expenses 286,542 12% 267,576 11% 249,343 10% 250,000


AdministrationPayroll and benefits 120,746 5% 175,919 7% 195,116 8%

Supplies (office and locker room) 15,547 1% 18,801 1% 18,710 1%

Advertising and promotion 14,197 1% 26,092 1% 28,410 1%

Insurance (liability and other) 43,684 2% 58,076 2% 54,424 2%

Equipment rentals 4,355 0% 5,091 0% 7,681 0%

Property tax 5,151 0% 7,013 0% - 0%

Credit card service fees 32,321 1% 33,258 1% 33,489 1%

Professional fees 2,980 0% - 0% - 0%

Repairs and Maintenance 14,852 1% 20,937 1% 27,479 1%

Travel and entertainment 2,718 0% 4,706 0% 2,328 0%

Telephone 10,759 0% 13,641 1% 14,683 1%

Utilities 16,125 1% 17,806 1% 18,894 1%

Other expenses 29,774 1% 36,021 1% 38,828 2%

Capital expenditures - maintenance 5,514 0% 11,514 0% 12,576 1%

Trustee, Dissemination, ARB Rebt 4,890 0% 5,135 0% 3,725 0%

Real estate taxes 47,952 2% 57,678 2% - 0%

Special assessments - 0% - 0% - 0%

CDD Fiscal manager & audit expense 29,437 1% 47,000 2% 28,721 1%

Interest on trustee account (41,656) -2% (14,849) -1% (11,756) 0%

Total Administrative expenses 359,346 15% 523,839 22% 473,308 20% 400,000

Unadjusted EBIT 513,706 21% 382,589 16% 362,301 16%

ROUNDS DATA:Patrons 23,816 21,808 23,971 Green Fees 24,893 21,191 22,622

18 hole rounds 48,709 42,999 46,593 50,000

Avg number of patronship 317 296 264 Average family equivalent patrons 254 241 220 450 Rounds per patronship 75 74 91 Rounds per family equivalent patron 94 90 109 75 Rounds with a trail fee n/a n/a 10,796

REVENUE PER ROUND:Total fees per round (incl. Annual dues) 34.14$ 37.00$ 31.54$ Patron fees per round 37.60$ 40.75$ 34.79$ Patron fees (excl. initiation fees) per round 31.60$ 35.42$ 32.31$ Pay as you play green fees per round 30.82$ 33.15$ 28.11$ Annual dues per member 1,723.59$ 1,920.14$ 2,153.58$ Trail fees per trail fee round n/a n/a 6.77$ Patron power cart fees per round n/a n/a 10.16$ Patron power cart net % fee n/a n/a 63%Cart fee rates n/a n/a 16.00$ 15.00$ Net trail fee rate per round 42%

Pro shop merchandise sales 3.61$ 3.35$ 2.80$ 3.00$ Food and beverage sales 10.43$ 15.09$ 13.39$ 9.50$ Green fee growth rate n/a 0% 0%Practice facility revenue per round 1.24$ 1.25$ 1.06$

OPERATING EXPENSES:Merchandise COGS 58% 71% 70% 70%F&B COGS (excluding labor) 58% 37% 41% 35%F&B labour as a % of gross F&B income 53% 40% 40% 35%Overall F&B expenses as % of total F&B income 111% 89% 91% 78%Expense growth rate n/a 46% -10%Capital reserve 3% - 5%

OTHER DATA:Peak posted Green fees (18-holes) - Weekday: 46.00$ 46.00$ 46.00$ Peak posted Green fees (18-holes) - Weekend: 56.00$ 56.00$ 56.00$


Average peak posted green fee 51.00$ 51.00$ 51.00$

Net rate/round % - overall 67% 73% 62% 70% to 75%

Net rate/round % - patrons 74% 80% 68% 60% to 65%Net rate/round % - patrons (excl. initiation fee) 62% 69% 63%Net rate/round % - pay as you play 60% 65% 55% 75% to 80%

Eagle Harbor Golf Club Schedule #2Financial Estimates - September 30, 2004 to 2008

2003 2004 2004 2005 2006 2007 2008Actual Budgeted Projected Projected Projected Projected Projected

RevenuePatron revenue - annual fees 567,469 520,880 505,440 505,440 515,549 525,860 536,377 Pay for use patron fees - - 149,987 227,230 305,973 397,819 404,469 Patron revenue - initiation fees 59,500 60,000 - - - - - Patron Trail fees 73,140 78,750 66,120 73,950 82,650 93,090 104,400 Patron power cart fees 133,799 - 114,250 107,871 100,889 103,856 106,823 Green fees, including cart rental 635,806 711,677 709,935 759,755 792,350 785,400 815,850 Practice facility 49,271 49,557 55,000 60,000 65,000 65,000 65,000 Merchandise 130,539 143,198 152,480 156,160 158,240 158,560 158,560 Food and Beverage 623,732 610,615 571,800 585,600 593,400 594,600 594,600 Other income 34,599 15,200 15,000 15,000 15,000 15,000 15,000

2,307,855 2,189,877 2,340,011 2,491,005 2,629,051 2,739,185 2,801,080 Cost of Goods Sold

Merchandise 91,530 88,783 106,736 109,312 110,768 110,992 110,992 Food and Beverage 255,791 232,243 200,130 204,960 207,690 208,110 208,110

347,321 321,026 306,866 314,272 318,458 319,102 319,102 Course maintenance

Payroll 313,196 326,876 330,000 339,900 350,097 360,600 371,418 Chemicals and fertilizers 95,324 83,100 85,000 86,700 88,434 90,203 92,007 Gas and Oil 12,420 12,000 12,000 12,240 12,485 12,734 12,989 Seed, sod, top dressing, small tools 16,347 47,000 45,000 45,900 46,818 47,754 48,709 Equipment leases 69,557 85,872 85,000 86,700 88,434 90,203 92,007 Utilities 30,334 36,304 35,000 35,700 36,414 37,142 37,885 Repairs and maintenance 26,477 26,800 27,500 28,050 28,611 29,183 29,767 Other operating expenses, etc. 53,086 53,808 55,000 56,100 57,222 58,366 59,534 Reimbursement from CDD (55,044) (55,044) (56,145) (57,268) (58,413) (59,581) (60,773)

561,697 616,716 618,355 634,022 650,102 666,605 683,543 Pro shop

Payroll 144,951 149,488 150,000 154,500 159,135 163,909 168,826 Advertising 6,878 6,000 11,700 12,455 13,145 13,696 14,005 Cart leases 53,497 50,592 55,000 55,000 55,000 55,000 55,000 Other 44,017 49,625 50,000 51,000 52,020 53,060 54,122

249,343 255,705 266,700 272,955 279,300 285,665 291,953 Food and Beverage

Payroll 248,678 268,815 200,130 204,960 207,690 208,110 208,110 Other 65,207 60,680 45,744 46,848 47,472 47,568 47,568

313,885 329,495 245,874 251,808 255,162 255,678 255,678 Administrative

Payroll 195,116 183,616 185,000 190,550 196,267 202,154 208,219 Management fee - - - - - - - Advertising 28,410 25,000 35,100 37,365 39,436 41,088 42,016 Credit card charges 33,489 33,600 38,025 40,479 42,722 44,512 45,518 Insurance and workman’s comp 54,424 46,284 46,284 47,210 48,154 49,117 50,099 Repairs and maintenance 27,479 20,000 20,000 20,400 20,808 21,224 21,649 Utilities 18,894 31,220 20,000 20,400 20,808 21,224 21,649 Capital expenditures 12,576 - - - - - - CDD fiscal manager & audit expense F/S 28,721 33,262 30,000 30,600 31,212 31,836 32,473 Real Estate Taxes - 76,279 76,279 77,805 79,361 80,948 82,567 Trustee, Dissemination 3,725 10,000 5,000 5,100 5,202 5,306 5,412 Special assessments (amortized debt costs) - 48,181 48,181 48,181 48,181 48,181 48,181 Interest on trustee account (11,756) - (10,000) (10,000) (10,000) (10,000) (10,000) Other 82,230 53,810 80,000 81,600 83,232 84,897 86,595

473,308 561,252 573,869 589,689 605,382 620,487 634,377

Total expenses (excluding COS) 1,598,233 1,763,168 1,704,799 1,748,474 1,789,946 1,828,435 1,865,551

Subtotal Net Operating Income 362,301 105,683 328,347 428,259 520,647 591,647 616,427 Add back: capital expenditures 12,576

Net cash flow from operations 374,877 105,683 328,347 428,259 520,647 591,647 616,427

Other deductions:Capital maintenance reserve 69,236 65,696 70,200 74,730 78,872 82,176 84,032 Estimated annual debt service charges 670,000 670,000 670,000 670,000 670,000 670,000 670,000

Net cash flow (364,359) (630,013) (411,854) (316,471) (228,225) (160,528) (137,606)

Eagle Harbor Golf Club Schedule #2Cash flow projections - September 30, 2004 to 2008 Continued

2003 2004 2004 2005 2006 2007 2008Actual Budgeted Projected Projected Projected Projected Projected

Rounds playedPatrons - Pay for use and Annual 23,971 22,890 24,150 25,300 26,450 28,550 28,550 Pay as you play and tournaments 22,622 24,610 23,500 23,500 23,000 21,000 21,000 Number of rounds 46,593 47,500 47,650 48,800 49,450 49,550 49,550

MembershipTotal number of family equivalent patrons 220 210 250 280 310 340 340 Number of family equivalent patrons 220 190 190 190 190 190 Number of new pay for use patrons - - 30 30 30 30 - Conversions from current program to pay for use - - 30 - - - - Number of cumulative pay for use patrons - - 60 90 120 150 150 Total patronages issued 264 240 234 234 234 234 234 Avg rounds per family equivalent patron 109 109 105 100 95 95 95 Avg rounds per pay for use family patron - - 70 70 70 70 70 Total pay for use rounds - - 4,200 6,300 8,400 10,500 10,500 Up front annual pay for use fee - - 450.00$ 475.00$ 500.00$ 525.00$ 550.00$ Pay for use percentage per round - - 65% 65% 65% 65% 65%

Annual membership fee 2,250$ 2,250$ 2,250$ 2,250$ 2,295$ 2,341$ 2,388$ Net annual fee (all categories) 2,154$ 2,170$ 2,160$ 2,160$ 2,203$ 2,247$ 2,292$ Net annual fee % (all categories) 96% 96% 96% 96% 96% 96% 96%

Net rate per round - all patrons 68% 45% 65% 68% 72% 71% 73%Net rate per round - pay for use 0% 0% 67% 68% 69% 69% 69%Net rate per round - pay as you play 55% 57% 57% 61% 65% 68% 70%Net rate per round - overall 62% 51% 61% 65% 69% 70% 72%

Revenues per roundPrime season green fee rate 51.00$ 51.00$ 56.00$ 56.00$ 56.00$ 58.00$ 60.00$ Off-prime season green fee rate 51.00$ 51.00$ 52.00$ 52.00$ 52.00$ 54.00$ 54.00$ Range fees 1.06$ 1.04$ 1.10$ 1.25$ 1.50$ 1.50$ 1.50$ Merchandise sales 2.80$ 3.01$ 3.20$ 3.20$ 3.20$ 3.20$ 3.20$ Food and beverage 13.39$ 12.86$ 12.00$ 12.00$ 12.00$ 12.00$ 12.00$

Power Cart fee 16.00 16.00 16.00 16.50 17.00 17.50 18.00 Patron non-trail fee net rate % on carts 63% - 63% 63% 63% 63% 63%Number of trail fee rounds 10,800 10,800 8,700 8,700 8,700 8,700 8,700 Trail fee per round 6.77 7.29 7.60 8.50 9.50 10.70 12.00 Trail fee net rate % 42% 46% 48% 52% 56% 61% 67%

Cost of sales %Food and beverage COS 41% 38% 35% 35% 35% 35% 35%Food and beverage labor 40% 44% 35% 35% 35% 35% 35%Food and beverage other 10% 10% 8% 8% 8% 8% 8%Food and beverage net income 9% 8% 22% 22% 22% 22% 22%

Merchandise cost of sales 70% 62% 70% 70% 70% 70% 70%

Costs as a % of total revenueAdvertising 1.5% 1.4% 2% 2% 2% 2% 2%Management fees 0% 0% 0% 0% 0% 0% 0%

Total payroll 901,941 928,795 865,130 889,910 913,189 934,773 956,573 Labor as a % of revenue 39% 42% 37% 36% 35% 34% 34%

Total acres 112 112 112 112 112 112 112 Maintainable acres 100 100 100 100 100 100 100 Course maintenance per acre 5,015 5,506 5,521 5,661 5,804 5,952 6,103 Course maintenance per maintainable acre 5,617 6,167 6,184 6,340 6,501 6,666 6,835

Eagle Harbor Golf Club Schedule # 3Indication of Value

2003 2004 2005 2006 2007 2008

Net Operating Income, as estimated[1] 374,877 328,347 428,259 520,647 591,647 616,427

Less: Estimated capital maintenance costs (3%) 69,236 70,200 74,730 78,872 82,176 84,032

Estimated maintainable cash flow (deficit) 305,641 258,146 353,529 441,775 509,472 532,394

Estimated maintainable cash flow rounded 306,000 258,000 354,000 442,000 509,000 532,000Add back: Special assessment levies [3] 48,181 48,181 48,181 48,181 48,181 48,181

Adjusted estimate of maintainable cash flow 354,181 306,181 402,181 490,181 557,181 580,181

rounded 354,000 306,000 402,000 490,000 557,000 580,000

Indication of value (2003)LOW HIGH

Mature net cash flow 580,000 580,000

Capitalization multiple 7.00 7.50

Subtotal 4,060,000 4,350,000

Less: Present value of special assessments for next 10 years 248,000 258,000 [3]

Indicated Value 3,812,000 4,092,000

Indication of Value in 2008, assuming financial estimates are met

Mature net cash flow 580,000 580,000

Capitalization multiple 8.50 9.50

Subtotal 4,930,000 5,510,000

Less: Present value of special assessments for next 10 years 275,000 289,000 [3]

Indicated Value 4,655,000 5,221,000

[1] Net Operating income does not include debt service or depreciation.

[2] The analysis does not take into consideration any incremental value the golf courses providesthe residential development in terms of lot premiums or increased absorption rates.

[3] The special assessments have been adjusted in the maintainable cash flow analysis based on our conversations with the CDD. It is our understanding that these payments would be requiredregardless of the owner of the Club and will continue for the next 10 years. As a result, we haveadded this amount back and provided a separate present value calculation to take account of thefact that these payments have a fixed life of 10 remaining years. Furthermore, these paymentshave been present valued using the discount rate inherent with each capitalization multiple.

Eagle Harbor Golf Club Schedule # 4Estimated Debt Service Shortfall

2003 2004 2005 2006 2007 2008

Annual Debt Service Costs (estimated) 670,000$ 670,000$ 670,000$ 670,000$ 670,000$ 670,000$

Debt service coverage covenant 1.1 : 1 1.1 : 1 1.1 : 1 1.1 : 1 1.1 : 1 1.1 : 1

Required cash flow to meet debt service bond covenants 737,000$ 737,000$ 737,000$ 737,000$ 737,000$ 737,000$

Estimated cash flow from operations after capital maintenance 305,641$ 258,146$ 353,529$ 441,775$ 509,472$ 532,394$

Shortfall in cash flow from operations 431,359$ 478,854$ 383,471$ 295,225$ 227,528$ 204,606$

Cumulative cash flow shortage over five year financialestimates from 2004 to 2008 1,589,683$

Debt Servicing Capability Analysis

In 2008 when cash flow is assumed to reach it maturity and stabilized level of operation, the figures indicate that the Club could service a maximumdebt level as follows:

Assumptions

Bond Rate = 7.375%Amortization = 20 yearsPayment = annualDebt service coverage ratio = 1.1 : 1

Based on these terms, a standard amortization schedule would suggest that the Club could service $4,900,000 in total bonds outstanding. This wouldequate to debt service costs as follows:

Bond Principal total 4,900,000$ Annual principal and interest 480,000$ Debt service coverage ratio = 1.1 : 1Covenant requirement 528,000$

This level of debt service requirement would allow the Club sufficient funds from operations in the long-run to cover debt payments as well as providefor adequate capital maintenance of facilities in order to ensure assets continue to be in proper condition to generate the cash flow from operationscontemplated.

Worst Case Analysis

If the Club were only to sell half of the pay for use memberships or market conditions were to deteriorate further, we believe the Club could then onlyservice debt as follows:

Bond Principal total 3,200,000$ Annual principal and interest 315,000$ Debt service coverage ratio = 1.1:1Covenant requirement 350,000$

Eagle Harbor Golf Club Schedule # 5Summary of Recommendation Impacts to Cash Flow from operations

Recommendations 2004 2004

Tee time reservation system (10,000)$ to (10,000)$ [1]

Eliminate initiation fees (60,000)$ to (60,000)$ [2]

Increase Trail fees 10,000$ to 10,000$ [3]

Increase peak green fee ratesOff-prime season increase from $56 to $58 12,000$ to 12,000$ [4]Prime season (Feb to Apr) increase peak rate from $56 to $65 10,000$ to 10,000$ [5]

Increase membership by net 30 family memberships under pay for use program 60,000$ to 105,000$ [6]

Decrease in cash flow due to conversion of 30 current members to pay for use program (15,000)$ to (15,000)$ [7]

Blocking off additional tee times 30,000$ to 60,000$ [8]

Food an beverage improvement 30,000$ to 60,000$ [9]

Estimated impact of recommendations for the 2004 season 67,000$ 172,000$

Details of calculated impacts

[1] The above amount represents the estimated costs associated with the purchase and implementation of an integrated tee timemanagement system for the Club. This is critical to effective yield management efforts and creation of targeted marketingdatabases.

[2] This represents the effect of the recommendation to eliminate the initiation fees from the patronage programs going forward. Thecost shown is based upon the 2003 initiation fee income earned.

[3] The increase in the trail fees of $10,000 is based upon increasing the existing full annual trail fee to $1,450 per annum from $1,275and increasing the pay as you go trail fee to $300 plus $9 per round, instead of $275 and $8 per round. This also assumes that nonew full trail fee members will be allowed after the end of the 2003 fiscal year.

[4] The rate increase of $2 per round is estimated to impact 56% of the total non-patron rounds played during the season. The 56% is based on historical experience with respect to peak time play versus off-peak time play(i.e., weekend play versus weekday play).

[5] The prime season increase in green fees of $7 per round ($9 less the $2 already taken account of in [4] above) is expected to impact results for 2004 as shown based on 25% of non-patron play occurring during Feb to Apr and of this approximately50% of the non-patron rounds are during peak times under the current historic analysis.

[6] The increases in revenue shown for the 30 net additional family memberships is based on the recommended $500 up front feeper family member plus approximately between an average of 50 to 90 rounds per family on average per annum at an average of$37 per round inclusive of cart fees. (Note: annual fee of $213/mth would produce the same or higher net rate per round).

[7] The decrease shown above represents the decrease in income we believe will occur due to the conversion of members in the full annual fee category currently moving to the pay for use program. We believe the decrease will occur as these patronsare currently on the cusp of playing sufficient rounds to cover the annual fee program but would lower their costs of annualplay by moving to a pay for use program. We estimate this to represent approximately a $5 per round decrease on an averageof 30 members playing an average of 100 rounds per annum.

[8] The increases estimated for blocking off additional tee times for public play are based on the recommendation that in 2004 thenumber of blocked times in proportion to the number of family memberships should be 46% of times blocked for non-memberplay from Thursday to Sunday during the peak hours of 8am to 10am. We have then used a conservative estimate of utilization of these times of between 25% and 50% to estimate the impact of additional times being available to the public. We also utilizedan average rate of $50 in estimating the public fees payable for these times given the mix of rounds at $46 on Thursdays andFridays and rounds at $58 for Saturday and Sunday (keeping in mind the Club was already blocking 25% of times on Saturdaysand Sundays).

[9] Food and beverage improvements were based on the Club achieving between a 7% and 14% improvement in its cost of salespercentage as a result of moving to more traditional golf hours of operation, altering staffing during golf hours, and ensuringany staffing of pre-booked events is based on pre-determined volumes of business expected for these events.

Eagle Harbor Golf ClubAppendix IDemographics of the Market Area

State/City Population Annual Average Recreation Recreation2003 Estimates Population Household Expenditures Expenditures

Growth Income as a % of TotalRate 2003 Estimates

Florida 17,037,934 2.35% 53,531$ 3,326$ 6.2%

All municipalities included in market radius 1,041,763 2.08% 55,183$ 3,455$ 6.3%(ONLY includes area within 45 Minutes, NOT entire municipalities)

Clay County 157,110 3.29% 57,906$ 3,584$ 6.2%

Market Area population:Orange Park 9,891 -0.59% 60,339$ 3,655$ 6.1%

Asbury Lake 2,654 6.69% 64,128$ 3,864$ 6.0%Atlantic Beach 13,734 1.07% 66,113$ 3,948$ 6.0%Baldwin 1,730 0.47% 41,233$ 2,844$ 6.9%Bellair-Meadowbrook Terrace 18,146 1.14% 53,983$ 3,409$ 6.3%Fruit Cove 19,397 15.84% 90,995$ 5,016$ 5.5%Green Cove Springs 5,863 0.63% 42,561$ 2,866$ 6.7%Jacksonville 21,949 1.59% 58,585$ 3,297$ 5.6%Jacksonville Beach 773,446 1.76% 51,762$ 3,615$ 7.0%Lakeside 34,102 0.57% 59,546$ 3,662$ 6.1%Lawtey 661 2.05% 46,814$ 2,962$ 6.3%Middleburg 12,015 6.40% 51,189$ 3,267$ 6.4%Neptune Beach 7,366 0.67% 66,805$ 3,967$ 5.9%Palatka 10,298 -0.82% 31,169$ 2,355$ 7.6%Palm Valley 22,010 9.92% 102,408$ 5,413$ 5.3%Penney Farms 619 0.78% 51,033$ 3,224$ 6.3%Sawgrass 5,553 6.06% 122,886$ 6,237$ 5.1%Starke 5,666 6.06% 37,470$ 2,694$ 7.2%Other 94,809

Market area population 1,059,909 Estimated % of population > 12 years 85%Accessible population (1) 900,923

Notes:(1) The accessible population for purposes of the demand calculation in Appendix I is 85% of the total population in the

market area. This is our best estimate of the population 12 years and older.

Sources:[A] Information is from Demographicsnow.com website. The 2003 estimated population figures are based on the 2000 Census.

Eagle Harbor Golf ClubAppendix II - Competitive AnalysisInformation on golf courses in the immediate area

Courses Pu/S/Pr Peak Initiation Annual # members max Waiting # roundsWeekday Weekend Season Fees Dues list

The Golf Club at Fleming Island Semi-private 40.00$ 50.00$ 50.00$ 1,500$ 2,220$ 80 no no 38,000 Cimmarone Golf Club Semi-private 48.00$ 48.00$ 48.00$ 2,495$ 1,860$ 230 no no n/aThe Ravines Golf Club Semi-private 39.00$ 49.00$ 49.00$ 3,000$ 2,100$ 190 no no 40,000 Windsor Parke Golf Club Semi-private 50.00$ 60.00$ 70.00$ 400$ 2,472$ 110 no no 46,000 [1]

Eagle Harbor Golf Club Semi-private 46.00$ 56.00$ 56.00$ 3,000$ 2,256$ 264 no no 46,500

Average 44.60$ 52.60$ 54.60$ 2,079.00$ 2,181.60$ 42,625

Optimal rounds capacity 50,000

Notes:[1] Please note that the Windsor Parke Initiation fee is an annual payment of $400 per year. Effectively, the club is charging $2,872 in annual dues with no initiation fees.

Green Fee Rates

Eagle Harbor Golf ClubAppendix IIIDetailed Analysis of Annual Rounds PlayedFor the year ended September 30, 2003

Twilight &MONTH: ROUNDS: TOTAL REVENUE: RPR: Avg Posted Net rate % 9-hole rounds % during non-peak

Property Owner Rounds:

October 2002 2 81.50$ 40.75$ 51.00$ 80% 0 0%November 2002 56 2,675.50$ 47.78$ 51.00$ 94% 7 13%December 2002 54 1,983.00$ 36.72$ 51.00$ 72% 12 22%January 2003 54 2,783.00$ 51.54$ 51.00$ 101% 4 7%February 2003 28 1,077.00$ 38.46$ 51.00$ 75% 9 32%March 2003 32 1,308.50$ 40.89$ 51.00$ 80% 5 16%April 2003 43 1,645.98$ 38.28$ 51.00$ 75% 13 30%May 2003 57 2,197.00$ 38.54$ 51.00$ 76% 13 23%June 2003 47 1,948.50$ 41.46$ 51.00$ 81% 6 13%July 2003 56 2,385.00$ 42.59$ 51.00$ 84% 4 7%August 2003 71 3,024.00$ 42.59$ 51.00$ 84% 2 3%September 2003 35 1,417.00$ 40.49$ 51.00$ 79% 3 9%

Total property owner rounds: 535 22,525.98$ 42.10$ 51.00$ 83% 78 15%# during peak months of Feb to April 103

Patron Guest Rounds:

October 2002 91 3,151.75$ 34.63$ 51.00$ 68% 18 20%November 2002 127 4,802.50$ 37.81$ 51.00$ 74% 0 0%December 2002 112 3,900.00$ 34.82$ 51.00$ 68% 9 8%January 2003 107 3,961.50$ 37.02$ 51.00$ 73% 10 9%February 2003 126 4,600.50$ 36.51$ 51.00$ 72% 7 6%March 2003 144 5,032.00$ 34.94$ 51.00$ 69% 17 12%April 2003 158 5,694.00$ 36.04$ 51.00$ 71% 46 29%May 2003 173 5,151.50$ 29.78$ 51.00$ 58% 26 15%June 2003 146 4,080.20$ 27.95$ 51.00$ 55% 13 9%July 2003 161 4,523.00$ 28.09$ 51.00$ 55% 7 4%August 2003 183 4,919.75$ 26.88$ 51.00$ 53% 16 9%September 2003 124 3,562.00$ 28.73$ 51.00$ 56% 10 8%

Total patron guest rounds: 1652 53,378.70$ 32.31$ 51.00$ 63% 179 11%# during peak months of Feb to April 428



Outside play - excluding ’specials’

October 2002 330 14,454.50$ 43.80$ 51.00$ 86% 108 33%November 2002 302 14,186.00$ 46.97$ 51.00$ 92% 58 19%December 2002 210 9,485.00$ 45.17$ 51.00$ 89% 58 28%January 2003 134 5,756.40$ 42.96$ 51.00$ 84% 44 33%February 2003 320 14,385.50$ 44.95$ 51.00$ 88% 86 27%March 2003 549 23,716.21$ 43.20$ 51.00$ 85% 167 30%April 2003 548 21,085.78$ 38.48$ 51.00$ 75% 292 53%May 2003 503 19,926.51$ 39.62$ 51.00$ 78% 269 53%June 2003 404 15,815.97$ 39.15$ 51.00$ 77% 216 53%July 2003 420 15,337.82$ 36.52$ 51.00$ 72% 243 58%August 2003 445 18,120.91$ 40.72$ 51.00$ 80% 254 57%September 2003 347 12,254.57$ 35.32$ 51.00$ 69% 223 64%

Total outside rounds excluding ’specials’: 4512 184,525.17$ 40.90$ 51.00$ 80% 2018 45%# during peak months of Feb to April 1417

Junior Rounds:

October 2002 23 436.00$ 18.96$ 51.00$ 37% 11 48%November 2002 19 299.25$ 15.75$ 51.00$ 31% 14 74%December 2002 15 230.75$ 15.38$ 51.00$ 30% 13 87%January 2003 28 428.25$ 15.29$ 51.00$ 30% 22 79%February 2003 13 210.75$ 16.21$ 51.00$ 32% 9 69%March 2003 22 448.00$ 20.36$ 51.00$ 40% 6 27%April 2003 47 738.25$ 15.71$ 51.00$ 31% 35 74%May 2003 44 774.50$ 17.60$ 51.00$ 35% 33 75%June 2003 62 994.50$ 16.04$ 51.00$ 31% 38 61%July 2003 78 1,259.50$ 16.15$ 51.00$ 32% 56 72%August 2003 72 1,056.25$ 14.67$ 51.00$ 29% 59 82%September 2003 40 643.00$ 16.08$ 51.00$ 32% 18 45%

Total junior rounds: 463 7,519.00$ 16.24$ 51.00$ 32% 314 68%# during peak months of Feb to April 82



Patron Rounds: [1] - includes annual dues from financial statements, divided by 12, plus additional member revenue generated through cart/trail fees.

October 2002 2477 101,910.68$ 41.14$ 51.00$ 81% * 343 14%November 2002 2031 63,370.95$ 31.20$ 51.00$ 61% 294 14%December 2002 1833 57,585.08$ 31.42$ 51.00$ 62% 204 11%January 2003 1911 57,860.08$ 30.28$ 51.00$ 59% 232 12%February 2003 1948 57,498.08$ 29.52$ 51.00$ 58% 146 7%March 2003 1897 58,261.08$ 30.71$ 51.00$ 60% 191 10%April 2003 2086 58,552.58$ 28.07$ 51.00$ 55% 195 9%May 2003 2192 59,945.58$ 27.35$ 51.00$ 54% 252 11%June 2003 1866 57,388.08$ 30.75$ 51.00$ 60% 265 14%July 2003 1801 57,190.08$ 31.75$ 51.00$ 62% 199 11%August 2003 2007 59,663.58$ 29.73$ 51.00$ 58% 235 12%September 2003 1922 58,185.58$ 30.27$ 51.00$ 59% 323 17%

Total patron rounds: 23971 747,411.47$ 31.18$ 51.00$ 61% ** 2879 12%# during peak months of Feb to April 5931* - annual trail fees collected this month.** - Assumes all fixed rate trail fee rounds were played during peak times. Further breakdown has not been provided.

Employee and Complimentary Rounds:

October 2002 329 -$ -$ 51.00$ 0% n/aNovember 2002 330 -$ -$ 51.00$ 0% n/aDecember 2002 391 -$ -$ 51.00$ 0% n/aJanuary 2003 319 -$ -$ 51.00$ 0% n/aFebruary 2003 285 -$ -$ 51.00$ 0% n/aMarch 2003 352 -$ -$ 51.00$ 0% n/aApril 2003 404 -$ -$ 51.00$ 0% n/aMay 2003 461 -$ -$ 51.00$ 0% n/aJune 2003 378 -$ -$ 51.00$ 0% n/aJuly 2003 427 -$ -$ 51.00$ 0% n/aAugust 2003 366 -$ -$ 51.00$ 0% n/aSeptember 2003 256 -$ -$ 51.00$ 0% n/a

Total employee & comp rounds: 4298 -$ -$ 51.00$ 0% n/a# during peak months of Feb to April 1041



Special Package Rounds: (includes tournament, reciprocals, and other special discounts).

October 2002 694 17,936.64$ 25.85$ 51.00$ 51% n/aNovember 2002 895 24,111.02$ 26.94$ 51.00$ 53% n/aDecember 2002 572 14,333.80$ 25.06$ 51.00$ 49% n/aJanuary 2003 856 18,868.32$ 22.04$ 51.00$ 43% n/aFebruary 2003 775 23,010.94$ 29.69$ 51.00$ 58% n/aMarch 2003 1078 36,516.04$ 33.87$ 51.00$ 66% n/aApril 2003 1328 35,068.57$ 26.41$ 51.00$ 52% n/aMay 2003 1233 34,447.03$ 27.94$ 51.00$ 55% n/aJune 2003 941 22,982.60$ 24.42$ 51.00$ 48% n/aJuly 2003 1066 29,634.96$ 27.80$ 51.00$ 55% n/aAugust 2003 687 15,112.48$ 22.00$ 51.00$ 43% n/aSeptember 2003 764 18,878.01$ 24.71$ 51.00$ 48% n/a

Total special package rounds: 6746 178,368.41$ 26.44$ 51.00$ 52% n/a# during peak months of Feb to April 3181

EPIC rounds included in special package category:

October 2002 447 10,397.00$ 23.26$ 51.00$ 46% n/aNovember 2002 167 3,722.00$ 22.29$ 51.00$ 44% n/aDecember 2002 150 3,000.00$ 20.00$ 51.00$ 39% n/aJanuary 2003 475 9,500.00$ 20.00$ 51.00$ 39% n/aFebruary 2003 160 3,200.00$ 20.00$ 51.00$ 39% n/aMarch 2003 182 3,600.00$ 19.78$ 51.00$ 39% n/aApril 2003 236 4,720.00$ 20.00$ 51.00$ 39% n/aMay 2003 447 11,265.00$ 25.20$ 51.00$ 49% n/aJune 2003 558 11,679.00$ 20.93$ 51.00$ 41% n/aJuly 2003 494 16,397.00$ 33.19$ 51.00$ 65% n/aAugust 2003 449 9,281.00$ 20.67$ 51.00$ 41% n/aSeptember 2003 378 7,771.00$ 20.56$ 51.00$ 40% n/a

SUB-TOTAL EPIC 4143 94,532.00$ 22.82$ 51.00$ 45% n/aUp Front fee 0 18,000.00$ -$ TOTAL EPIC 4143 112,532.00$ 27.16$ 51.00$ 53%# during peak months of Feb to April 578



Marketing and development Rounds:

October 2002 0 5,541.00$ 51.00$ n/aNovember 2002 0 5,716.00$ 51.00$ n/aDecember 2002 0 5,341.00$ 51.00$ n/aJanuary 2003 0 5,441.00$ 51.00$ n/aFebruary 2003 58 4,651.00$ 80.19$ 51.00$ 157% n/aMarch 2003 0 5,541.00$ 51.00$ n/aApril 2003 0 5,771.00$ 51.00$ n/aMay 2003 192 6,016.00$ 31.33$ 51.00$ 61% n/aJune 2003 0 5,441.00$ 51.00$ n/aJuly 2003 23 -$ -$ 51.00$ 0% n/aAugust 2003 0 5,791.00$ 51.00$ n/aSeptember 2003 0 4,941.00$ 51.00$ n/a

Total marketing and development rounds: 273 60,191.00$ 220.48$ 51.00$ 432%# during peak months of Feb to April 58

OVERALL 46,593 1,366,451.73$ 29.33$ 51.00$ 58%Total rounds during peak months 12,241 % during peak months 26%

Eagle Harbor Golf ClubAppendix IVAnalysis of potential capacity

Months Sunrise Sunset Daytime Golf Time/Day * Total Minutes * Tee Times/Day * Tee Times/Month

January 7:23 17:37 10:14 6:14 374 53 1,656February 7:18 18:03 10:45 6:45 405 58 1,678March 6:53 18:25 11:32 7:32 452 65 2,002April 6:16 18:45 12:29 8:29 509 73 2,181May 6:44 20:04 13:20 9:20 560 80 2,480June 6:25 20:24 13:59 9:59 599 86 2,567July 6:28 20:33 14:05 10:05 605 86 2,679August 6:45 20:21 13:36 9:36 576 82 2,551September 7:07 19:50 12:43 8:43 523 75 2,241October 7:20 19:12 11:52 7:52 472 67 2,090November 6:41 17:39 10:58 6:58 418 60 1,791December 7:05 17:26 10:21 6:21 381 54 1,687Yearly Averages 6:52 19:01 12:09 8:09 490 70 2,134

Temperature (Fahrenheit) Rain (Inches) Rain Days*

January 52.4 3.3 8 339 1,317February 55.2 3.9 8 371 1,307March 61.1 3.7 8 416 1,586April 67 2.8 6 350 1,831May 73.4 3.6 8 512 1,968June 79.1 5.7 12 826 1,742July 81.6 5.6 14 963 1,716August 81.2 7.9 15 984 1,567September 78.1 7.1 13 780 1,461October 69.8 2.9 8 429 1,661November 61.9 2.2 6 288 1,503December 55.1 2.7 8 346 1,342Total/Year 51.4 114 6,604 19,001Yearly Averages 67.99 4.28 9.5 550 1,583

Tee Times 19,001 Taking rain into considerationRounds * 76,004 ( Tee Times * 4 Players )

64,603 Assuming 85% of tee time are used60,803 Assuming 80% of tee times are used57,003 Assuming 75% of tee times are used53,203 Assuming 70% of tee times are used

* Golf Time/Day = ( Daytime - 4 hours )* Total Minutes = Golf Time/Day in minutes* Tee Times/Day = ( Total Minutes / 7 minutes )* Rain Day = Precipitation of .01 Inches or more* Lost Tee Times = 80% ( Tee Times/Day * # Rain Days )* Available Tee Times = ( Tee Times/Month - Lost Tee Times/Month )* Rounds = ( Tee Times * 4 )

JACKSONVILLE, FLORIDA

Monthly AveragesMonths Lost Tee Times * Available Tee Times *

Eagle Harbor Appendix V Schedule of Green Fee Rates and New Patron Rates for Pay-as-you-Play Approach All times excluding 18 holes (1) 9/Twilight (1) Twilight Walk February, March, April Non-Patron Patron Non-Patron Patron Non-Patron Patron Weekdays $ 46.50 30.00 29.00 21.00 20.00 15.00 Weekends 58.00 38.00 35.00 25.00 26.00 19.00 February, March, April rates 18 holes (1) 9/Twilight (1) Twilight Walk Weekdays $ 46.50 30.00 29.00 21.00 20.00 15.00 Weekends 65.00 42.00 42.00 32.00 29.00 22.00

(1) Includes carts

Note: Patron guest rates are $36 Monday to Friday and Twilight on weekends, $48.00 on weekend mornings except for the period February, March and April, this rate will increase to $55.

Eagle Harbor Appendix VI Operational Data and Recommendations Statistical Information 2001 2002 2003 Green fees, including carts – Non-patron play $ 770,070 $ 702,379 $ 635,806 Annual dues 546,377 568,362 567,469 Trail fees 73,000 72,973 73,140 Patron cart fees 130,340 131,185 133,799 749,717 772,520 774,408 Initiation fees 142,933 116,146 59,500 892,650 888,666 833,908 Total golf fees $ 1,662,720 $ 1,591,045 $ 1,469,714 Total patron offerings 317 296 264 Estimated patrons (ratio x 1.7) 539 503 449 Patron rounds 23,816 21,808 23,971 Green fee rounds – paid 21,520 17,691 18,324 Employee and complimentary rounds 3,373 3,500 4,298 Total rounds 48,709 42,999 46,593 Net rate per round: Patrons $ 31.48 $ 35.42 $ 32.38 Pay-as-you-play 35.78 39.70 34.69* Patrons with initiation 37.48 40.75 34.79 Rounds per patron 44 43 53 *Note – This needs to be adjusted for employee rounds and revenue which would reduce

the net rate by approximately $1.7 in each year.

Other Operational Information Appendix VI, page 2

- The Club currently blocks off tee times on Saturday and Sunday all year, from 7:00 a.m. to 9:00 a.m. during their crossover period. This means 8 foursomes are blocked each day or approximately (8 x 2 x 52) 832 rounds per year; however, management have informed us that historically only February, March and April are in fact sold to the public.

- Based on discussions with management their experience demonstrates that there has been a demand from the public only during peak times; however, rounds are also higher on Thursday and Friday of each week.

- Golf Utilization Statistics for Patrons:

o Based on full capacity of 450 families; therefore must convert all memberships to family.

o Current membership 220 families (264 – 175 = 89 ÷ 2 + 175). o Percentage of rounds utilized 220/450 = 49%. o Baseline utilization statistics every 22.5 members equals 5% increase.

- Patron guests receive a discounted round price of $35 Monday through Friday and afternoons on Saturday and Sunday.

- There is no change in green fee rates for winter month prime periods (i.e., February, March, April and part of May).

- Historical food and beverage income has been 8% - 9% - benchmark is 22% primarily due to longer hours of operation.

Analysis Demonstrates: Appendix VI, page 3 1. Increased annual dues in 2003 caused:

- increased rounds per patron; - reduced availability of tee times at peak times for non-patrons; - reduced number of overall members; and, - reduced number of new members (i.e., by 50%).

2. There is very little difference in net rates from a patron round versus a non-patron round. In fact, when you consider initiation fees, patron rounds produce higher net rates per round.

3. Based on the above, need to:

- Remove barrier for new patrons (i.e., initiation fee). Instead, charge a higher annual due for new members (say $35 per month). Once more demand, look to increasing monthly fee each year.

- Need to block tee times for non-patrons in order to protect outside fee rounds and net rate per round.

- Offer a reduced annual charge along with a fee per round. This amount must always be higher than the net rate for patron rounds from full pay.

Recommendations: Appendix VI, page 4

1. Place a cap on the maximum number of family patrons. We would recommend 340 (450 x .75) in order to ensure a 25% availability of tee times for public play.

2. Eliminate the initiation fee and replace the fee with an increase in monthly dues

for those joining without the fee (i.e., current family patrons pay $188 per month, pay $188 + $25 per month). The $25 increase is a fee to cover the lack of an initiation fee. If demand increased significantly, then an initiation fee could be re-introduced to all patrons not paying the initiation fee.

3. Allow family and single patrons the opportunity to choose between the full dues

at $188/month (with initiation fee paid) - $213/month (with no initiation fee) families; $175/month - $200/month (with no initiation fee) singles or pay for use approach – say $500 for families (with no initiation fee paid); $275 for singles (with no initiation fee paid), $400 for families, $200 for singles, with initiation fee paid plus a green fee and cart fee for each round (see schedule).

4. Currently trail fees are offered to patrons that own carts. The patrons have a

choice of $1,275 per year ($1,450 for a couple) or $275 plus $8 per round. We would recommend that the annual trail fee option be eliminated for new patrons that own carts. The existing patrons with trail fees would be grandfathered. In addition, the trail fees would be increased to $1,450 for the yearly rate (or $1,725 for a couple) and $300 plus $9 per round for pay-for-use.

5. Increase green rates from $56/$46 to $58/$46.

6. Tee times would be blocked for outside play based on the total family patrons

outstanding. The percentage blocked would be based on a 450 family patron capacity. The tee times would be blocked on Thursday, Friday, Saturday and Sunday only, unless management believed outside play was being turned away on other days. The tee times blocked in each of these days would only be peak times for those days, as defined by management. Thursdays would only be blocked up to 48 hours whereas all other days would be 24 hours.

7. For the prime season months only (i.e., February, March, April and part of May –

depends on play) increase posted rates. Currently 56/46 to 65/46.

8. Offer patrons guest fees on Saturday and Sunday mornings at $10 off peak rate.

9. Improve food and beverage operations by reducing hours in non-peak times and targeting a 22% net income instead of 8%.