10/13/18

ELECTION OF NEW BOARD MEMBERS / ANNUAL MEETING

With everybody's focus concentrated on the recent balloting on the sale of the club's assets, the forthcoming annual meeting (Thursday, November 8 at 7:00 PM) and election of new Board members has received scant attention. We need now to turn our consideration to that, and we need members who are interested in doing so to declare their candidacy for the 2 open Board seats.

Once the sale is complete, the Board will take on a new role, but it will remain a vitally important functioning part of the club's operations. It has been agreed that there must be an entity that confirms the terms of the contract are being adhered to, and the Board will fill that role. It has been further agreed that the non-profit corporation, "the Corvallis Country Club", should continue to exist for at least 3 years, and the Board will, of course, represent its interests and propose changes to its by-laws. Furthermore, there will be a member advisory committee to represent the members to the new ownership structure, and the Board will be charged with that as well. So next year's Board will have much of substance to wrap its arms around and will set the tone for member / management relations for years to come. While it will (hopefully) be a much less dramatic year than 2018 has proven to be, it will require dedicated people with a strong commitment.

Golf members in good standing are eligible to run, and the term is for 3 years. If you would be willing to put your name forward, please get a written statement to that effect to our General Manager, Randy Folk, by Friday, October 26 at 5:00 PM. Include a relatively brief biographical statement, which can also include, at your discretion, reasons for why you're running, what you hope to accomplish, etc. Those will be disseminated to the membership in an issue of the Chip & Chatter on Tuesday, October 30.

I think I would be remiss if I didn't include herein a word or two about the two members whose Board terms come to an end on December 31. Randy Camp took over a vacated position for this year and has been an extremely productive director. In my opinion, his strong position and leadership in the exit negotiations with Touchstone are particularly noteworthy. Mike Sheets, as past president, is finishing his fourth year on the Board, and what he has done for our club over that time is surpassed by none. It is not hyperbole to state that we would never have made it to October, 2018 without Mike. We all owe a debt of thanks to both these men.

We have some big shoes to fill. I look forward to seeing who among us will step up to do so.

John Brenan, President

 

10/8 Latest update on the Acquisition: Approval from membership was obtained for the Acquisition with an overwhelming 92.4% yes vote.  Since the motion required a two-thirds majority vote, the motion is carried and the result of this vote is binding on the Club and membership.  We will keep updating this page with further changes and announcements.

9/15/18  

The buyer has agreed that he will hold the club for at least 3 years, unless aggregate losses during that time period total $375,000 or more. In that instance, he reserves the right to sell it sooner. By no means, however, is he saying he'll definitely sell in 3 years. Quite the contrary, he's a buy and hold guy, and, if things go as expected, he intends to own this for a long, long time.
Nothing is forever, though, and eventually he, or his estate, will want to sell. He is willing to put in the agreement that the members of the club, organized as an Oregon nonprofit corporation, will be guaranteed an opportunity to buy it back at that time, and that the maximum price would be 12 X EBITDA (earnings before interest, taxes, depreciation, and amortization). So, if somewhere down the road that number is $400,000, just as an example, the price at which he would be willing to sell it back to us would be $4,800,000. That would be much less than the price of the land if it were to be developed.
If the membership at that time wanted to take him up on that, they could take out a mortgage for the lion's share of the $4.8 million, and pay that off with the club's profits (which would be $400,000 per year in order to trigger that sales price). If they did not, then he could seek other buyers with no restrictions on the ultimate use of the property.
The important things to bear in mind, however, are that, number 1, we remain a private club for as long as he owns it, and, number 2, we have the guaranteed opportunity to buy it back when he wants to sell, and we don't have to pay land development prices to do so. That's more than fair, and is really about all you can ask for.

9/12/18 Our CCC Board has okayed the release of both proposals that were presented (Sanders & Mayo).  Listed below are both proposals in full detail.

Sanders Proposal:

Letter of Intent to Purchase

Buyer –TC2 Investments LLC (Scott Sanders)
Seller – Corvallis Country Club INC.
Property – 1850 SW Whiteside Drive

TC2 Investments LLC (herein called the “buyer”) is offering up this memorandum of sale to the Corvallis Country Club LLC (herein called the “seller”).

Buyer wishes to make an offer on the sale in the amount of $800,000 for all real estate, personal property, accounts receivable and inventory.

1 – Buyer is to relieve all debt that is owed to several parties including private notes, bank notes and any other notes that are not of knowledge to the buyer at this time. Approximate amount for said notes is believed to be around $800,000.00.
Sellers to work with the buyer on the Corvallis Country Club Condo Association note - either by way of transfer note in lieu of the debt repayment or transfer monthly payments to buyer each month for the remainder of the note. As understood by buyer, note cannot at this time be sold or transferred. However, there is a deal with a current member that has loaned the seller based on that amount of the note. Details can be worked out at a later date to ensure that the seller does not have a taxable event on such sale or transfer. Buyer also has the right to negotiate each note that is not secured to the property itself. In the event that this is allowed the amount above may be lowered and any reduction in the notes will be put back into the remodel of the property.

2 – Sellers to provide to buyer an actual count of how many golf members and social members are currently in the club

3 – Sellers to provide a current year to date profit and loss statement for 2018 and 2017. Profit and loss statement to include – payroll, any and all expenses related to member fees, food and beverage, pro shop sales, and outside events.

4 - All account balances, and reserves shall transfer to buyer upon the close of escrow, including the sand bunker project monies currently being held. In the event that the sand bunker project is complete by the close of escrow, this point will be mute. In the event that the project is not complete, buyer agrees to complete bunker project with the funds being held.

5- Buyer has no intention of developing the current golf course as it currently is laid out; provisions are to be made to the membership that this will always remain a private golf
course. Layout, or revamping or remodel of the course is allowed at the discretion of
buyer, i.e.: sand bunker projects, tee box remodel, new greens etc.…

6- Buyer reserves the right to remodel or develop any part of the tax lots that are not on
currently on the golf course – including but not limited to the pro shop, locker rooms,
clubhouse, tennis courts pool area and parking lot. Buyer is aware that these areas need
attention and will contribute a minimum of $1,000,000.00 to such remodel in the first
year of ownership. As far as what is to be remodeled first, clubhouse or pro shop/locker
rooms, that is to be decided by the buyer. It is the intention of the buyer to put an
additional $750,000 to $1,000,000 into the entire remodel of the club, again that will be
at the discretion of the buyer as well.

7 – Buyer also agrees to put up $100,000.00 for interest payments to all loans during the
escrow period and for the general operations of the Corvallis Country Club. These funds
are only being given as a loan to the seller. In the event that buyer is not selected as the
new owner or escrow does not close by date set by both buyer and seller all monies are
due back within 30 days of notice that buyer is not selected or escrow fails. An accurate
accounting is to be given to buyer as to where this money will be spent.

Timing is of the essence –

Scott Sanders
President
Tc2Investments LLC

Mayo's Proposal:

Corvallis Country Club
(an Oregon Nonprofit Corporation)
Proposal for Transaction

CONFIDENTIAL

BRIEF OVERVIEW AND FACTUAL BACKGROUND

The management of the Corvallis Country Club (hereafter “Club”) has represented to Mr. Mayo (hereafter “Mayo”) that the Club is in a dire financial position and needs both an infusion of capital in the immediate near term and to effectuate a sale of the club to create long-term viability.

The Club is losing money and is experiencing negative cash flows. Barring completing a transaction, whether with Mayo or others, Mayo believes the Club will be forced into bankruptcy or receivership.

Club management has represented that full golf memberships have declined about 50% in the last twelve (12) or so years, with similar declines in social memberships. Management has also indicated that it believes that substantial capital expenditures for facility upgrades will enhance both the image of the Club and the membership experience at the Club and will be required to drive membership back towards historic levels. Without substantial membership gains, the Club is not economically viable.

This proposal has two important central concepts: 1) To continue operation of the property as a private golf and social facility for the benefit of members; and 2) To provide an opportunity for a profitable business venture for Mayo.

SALE PROPOSAL

Presented below are the main provisions to be included in a transaction. Necessarily, other terms normally associated with a transaction of this nature will be negotiated, but these are the overall, guiding concepts that must be included.

1. In exchange for the Club transferring all of its property, real or personal, tangible or intangible, Mayo will agree to relieve (via assumption or liquidation) the Club of all liabilities (other than undisclosed or contingent liabilities). This is subject to the Club’s decision regarding its handling of loans made for operational cash which is subject to another proposal included with this proposal.

2. Mayo will commit to efforts to operate the club in a manner that provides a first-class golf and social experience for members. Mayo has no intention of building additional structures on the property or selling off any property so that others may do so. Mayo will also commit to certain capital expenditures, as detailed below. Subject to Item 12 below, Mayo will continue to own and operate the Club as a private golf and social club.
Additionally, Mayo will not develop any of the Club real property for any purpose other than purposes related to operating the club as a private golf and social club.

3. Mayo will agree to renovate the clubhouse. This renovation will entail approximately one million two hundred thousand dollars ($1,200,000) of upgrades and improvements. In consulting with an interior designer, Mayo has determined that this investment commitment will be within the range necessary to create the intended look and feel. The range of cost has been calculated using $150 per square foot and renovation of about 8,000 square feet of building (the designer has indicated that this is an appropriate, ball park figure). The renovation will likely include reworking the floor plan to facilitate an upgraded entry and reception area, an upgraded bar and grille area, an upgraded fine dining area, an upgraded banquet and event area, and upgraded bathrooms. The renovation will not include expanding the footprint of the building or adding additional floors to the building. Working with architects and designers, the goal will be to create a facility that has a high-end feel appropriate for a first-class club. Mayo envisions a facility that has a feel similar to the lobby and bar and restaurant areas of the Benson Hotel in Portland or the Davenport Hotel in Spokane.

4. If the clubhouse renovation costs less than the committed $1,200,000, the remaining funds will be dedicated to other capital projects.

5. Mayo understands that a project to renovate the bunkers is scheduled for this fall, but that the funds set aside for this project may complete only about 75% of the project. Mayo will commit to finishing the bunker renovation project in 2019.

6. Contingent on achieving certain membership levels (for example only, 275 golf memberships and 150 social memberships), Mayo will commit to renovating the locker room building. This renovation will likely include reducing the size of the locker rooms while remodeling them to be qualitatively consistent with the clubhouse renovation and utilizing the remaining building area to install a fitness facility.

7. Contingent on achieving certain additional membership levels (for example only, 325 golf memberships and 175 social memberships), Mayo will commit to renovating and upgrading the pool area. This would not include expanding the size of the pool, but rather upgrading the pool and area around the pool consistent with the quality of upgrades and renovations done to the clubhouse and locker room.

8. Mayo will commit to providing best efforts to bring the club back to economic viability. That commitment will be limited to three years or aggregate operating losses of $375,000, whichever occurs first.

9. When Mayo decides to liquidate his interest in the Club, consistent with item 8 above at the earliest or at some other time well into the future, Mayo will offer the club assets to then current membership. That offer will be to an Oregon nonprofit corporation (substantially similar to the current corporate structure) established by the members to purchase the club assets.

10. Mayo’s offer to sell the club assets back to the members will be subject to both a minimum and maximum price. Valuation of the assets shall be done based on a going concern golf and social club. The minimum price will be book value of the non-current assets, without regard to accumulated depreciation or accumulated amortization. The maximum price will be twelve times adjusted EBITDA (essentially, the price is not to exceed valuation based on an 8.5% capitalization rate). In either case, an adjustment to the sale price will be made to account for positive or negative working capital. The sale will be an all cash transaction and any non-current liabilities will be satisfied with the sale proceeds.

11. When Mayo makes an offer to sell the club assets back to the members, the members will have ninety (90) days to accept the offer and an additional one hundred twenty days (120) days to complete the transaction.

12. If the members, through their Oregon nonprofit corporation, do not accept the offer to sell the club assets or are unable to complete the transaction, Mayo will then be free to sell the assets without restriction.

OTHER ITEMS TO BE NEGOTIATED (in no particular order)

1. Member Committees. I intend to establish a few member committees in order to get feedback from the members. One of these should be a Member Liaison Committee tasked with monitoring performance of contractual obligations. I will provide information regarding various items, including operations and some selected financial information. Another would be a Golf Course Committee to provide input and suggestions regarding the physical facilities, most importantly the golf course. I’d also like to establish a Food and Beverage Committee to provide input on bar and restaurant issues. Finally, I’d like to establish a Social Committee to provide input and suggestions regarding social amenities and member events.

2. Maintenance Standards. As part of the Definitive Agreement, we should include language that addresses golf course and facility maintenance standards. I think we can refer to this in the Agreement, and include it as an Exhibit.

3. Membership Levels Triggering Further Renovation Obligations. Items 6 and 7 above refer to target membership levels that would trigger additional renovation obligations. This needs to be negotiated once I have an understanding of current member levels, projected operating revenues and costs, and other information I don’t currently have.

4. Time Tables for Clubhouse Renovation. As an exhibit to the Agreement, we can set forth time tables for the clubhouse renovation. I anticipate the process will require engaging architects, engineers, designers in order to get the plans prepared. Then I’ll have to get bids from construction companies. At this point, I don’t know how long that will take, particularly since the construction market is booming and everyone is busy. We’ll need to
come up with some language that provides a reasonable way for the members to know that we’re making progress on the project.

5. Procedural Framework on Mayo’s Exit. Pursuant to Items 9-12 above, we should include an Exhibit with the Agreement that outlines the procedure to be followed when the time comes for my exit.

CONTINGENCIES

1. According to, and in compliance with, its Bylaws, the Club membership must authorize the Board to move forward on the transaction in substantially the form outlined in this document.

2. At least seventy-five percent (75%) of the golf members must agree to a two (2) year membership agreement. At this point, I intend to use the current membership agreement and modify it to reflect the new dues rate and the two year commitment. In exchange for this commitment, Mayo will agree to not increase monthly dues during that time for those agreeing to the two-year commitment. There will be no other assessments or fees, other than the dues commitment. If a member making this commitment is not able to fulfill the obligation due to death, disability, relocation, or the like, I will not pursue any action against them to recover the remainder of the obligation.

3. At least seventy-five percent (75%) of the social members must agree to a two (2) year membership agreement. At this point, I intend to use the current membership agreement and modify it to reflect the new dues rate and the two year commitment. In exchange for this commitment, Mayo will agree to not increase monthly dues during that time for those agreeing to the two-year commitment. There will be no other assessments or fees, other than the dues commitment. If a member making this commitment is not able to fulfill the obligation due to death, disability, relocation, or the like, I will not pursue any action against them to recover the remainder of the obligation.

4. Upon appropriate authorization of the membership, the Board agrees to retain counsel to guide them through the transaction.

5. Mayo’s obligation to complete the transaction is contingent on completion of due diligence to Mayo’s satisfaction in his sole and absolute discretion.


Corvallis Country Club
(an Oregon Nonprofit Corporation)
Cash Infusion

CONFIDENTIAL

BRIEF OVERVIEW AND FACTUAL BACKGROUND

The management of the Corvallis Country Club (hereafter “Club”) has represented to Mr. Mayo (hereafter “Mayo”) that the Club is in a dire financial position and needs an infusion of working capital.

In October of 2017, the Club sold real property that was previously subject to a long term lease. In exchange for the real property the Club received a promissory note (hereafter “Condo Note”) for $495,000 payable monthly for twelve (12) years and bearing an annual interest rate of 3.50%. The Condo Note has a remaining balance due of approximately $465,000.

Sometime shortly thereafter the Club determined that it needed operating cash. Instead of liquidating the Condo Note the Club borrowed $300,000 from Mike Sheets (hereafter “Sheets”). The remaining balance on the Sheets loan is approximately $285,000. The payments on the Condo Note are being used to make the payments on the Sheets loan. The Club now seeks an additional $100,000 in operating cash.

Mayo’s position is that any cash infusions for operating cash, the Sheets loan and any other new loans, be secured and serviced by the Condo Note.

TWO OPTIONS REGARDING A CASH INFUSION

If the Club desires to maintain ownership of the Condo Note, then the Sheets loan and any other new loans will also remain with the Club and be serviced from the proceeds of the Condo
Note. The Sheets loan will not be part of the sale transaction. If this is what the Club desires to do, Mayo will not make a loan for working capital and the Club should locate others that are willing to do so.

Alternatively, if, as part of the sale transaction, the Club desires to be relieved of the Sheets loan and any other new loans for operating cash (not to exceed $100,000), the Condo Note will be transferred as part of the sale transaction. If the Club desires to do this, Mayo will make a loan for operating cash, subject to normal security protections commonly part of such a loan with this type of collateral. As part of the sale transaction, Mayo will take possession of the Condo Note and Mayo will relieve the Club of both the Sheets loan and the Mayo loan.

 

9/8/18   Joe Mayo has provided some information about himself to give to our membership prior to the Town Hall Meeting.  Below is the bio he wanted to share with you:

I grew up in Portland. My parents bought the house where I grew up in 1967, and they still live there. I have lived in Spokane, WA for almost twenty years. I have two younger brothers. One is a high school English teacher in New York and the other was an ER physician in Florida. I have some longstanding family ties to Corvallis. My English teacher brother is an OSU graduate (1986) and my first wife grew up in Corvallis (she was CHS class of 1984 and her siblings were CHS classes of 1980, 1976 and 1972). I have an undergraduate degree (B.A.) in economics from Pacific Lutheran University in Tacoma, WA. I have a law degree (J.D.) from Willamette University College of Law in Salem, OR. I also have an advanced law degree in Taxation (LL.M) from New York University School of Law in New York, NY. I am an attorney licensed in both Washington and California. I held an Oregon CPA license (which I let lapse because I later had no need for it). I have been an adjunct professor of law at both Gonzaga School of Law in Spokane, WA and at McGeorge School of Law in Sacramento, CA.

For the past 12 years I have been involved in numerous businesses, either as an owner or as a member of the executive management team. Prior to that, I had various corporate accounting jobs, and worked both in public accounting and law. From 2004 until 2007 I was the Chief Financial Officer of a company that had facilities in Northern California and Spokane. That company generated $120,000,000 in annual revenue and had over 400 employees. From 2006 to 2009, I was one of two owners in a business that had nearly 1,000 employees and generated over $23,000,000 in annual revenue. I currently own several operating companies, in different industries, that combined generate more than $10,000,000 in annual revenue.

I generally acquire businesses that are distressed to some degree for one reason or another (financial issues, management issues, no exit strategy for aging owners, etc.). I then work to “fix” them and get them profitable. For lack of a better description, I am a “long term buy and hold” investor. I don’t look to buy companies and then part them out and get the best price by selling parts that may be worth more than the whole. I have been successful in taking a long-term view that the whole will be worth more than the parts and bringing businesses back to profitability. Once I achieve that, I generally hold long-term.

As an investor/manager, I consider three standard sets of stakeholders – Customers, employees, and owners. I generally view them in this order: 1) Employees; 2) Customers; and 3) Owners. I believe that if I take great care of my employees they will take great care of my customers and profit will then flow to the owners. For this reason, my businesses have low employee turnover rates, particularly among my core employees. In each of my businesses I provide employer paid health insurance, health savings accounts (with employer match), 401(k) plans (with employer match), paid vacation, and long-term disability coverage (at employer expense). I generally pay annual bonuses to my employees based on the results of the operation. I intend to continue these practices.

 

 

 

How we got here:

 

·         Until the early 1990s, the Club was managed by the board of directors elected by the members.

·         At that point, the Club hired a small company, Golf Enterprises, Inc. (GEI) to manage the Club on a “lease” model.  GEI collected all revenues and paid all bills, paying the Club a percentage of the gross revenue for a fund set aside for capital improvements.  GEI paid for $1 million + of improvements including a modern irrigation system in exchange for a 20 year management contract.

·         A few years later GEI was acquired by American Golf (AG), a much larger company.  When the golf course was expanded, AG paid for some of the cost of improvements in exchange for an extension of their contract.

·         In 2015, AG gave notice of their intent to terminate the management contract in early 2016.  At that point the Club membership had declined significantly and the Club was operating at a loss.

·         In early 2016, the Club hired Touchstone (TS) to manage the Club on a “fee” model, with the Club paying a fixed fee plus incentives for the management services.  The bottom line income or loss was the Club’s responsibility.

·         TS was unable to control costs or increase the membership to allow the Club to be financially successful.  In 2017, in order to provide funds to cover losses, the Club sold the land on which the Country Club Condos were built and which had been leased to the condo association ($1,000 per month).  The sale was for $500,000, and payments on the sale were spread over time to minimize the capital gain tax on the sale.  The Club then borrowed $300,000 against the condo sale proceeds to fund past losses.

·         The board of directors negotiated an early termination of the TS contract effective in early 2018.  The board has been managing the Club since.

 

Where we are now:

·         The Club hired Randy Folk as general manager just before the TS contract was terminated.  He has brought the Club operations to about break even, including food and beverage being at about break even.

·         However, we have debt service on about $500,000 of long term debt and an additional $350,000 in current liabilities.  In order to complete the bunker project, the Club has committed to about $150,000 of additional lease contracts which will be paid for the first year by the bunker assessment funds, but will have to be paid from Club revenues after that.  So, total long-term debt will be about $650,000.

·         So even though we are breaking even on operations, our cash is being depleted by the debt service.

·         We currently have about 250 golf members.  As recently as 2006, we had 475 golf members.  Each golf member is worth about $4-5,000 of revenue to the Club per year with almost no additional expense.

·         Despite our best efforts, we have been unable to significantly increase the number of members.

·         Dues increases have led to members leaving the Club.

·         So the Club had two problems.  First is the debt which we cannot afford to pay.  Second is membership.  Even if we could get rid of the debt, we would still be at break even without any funds for adequately maintaining and improving the Club.

What alternatives have been considered:

·         In early 2018, the board at Randy’s suggestion formed a finance committee to look at all aspects of the Club’s finances and make recommendations to the board.

·         The committee prepared a budget showing the Club running out of cash in September.  Recent financial statements show we are roughly on target with the budget.

·         The committee has met regularly and considered many alternatives.

·         First, with Randy’s help and with the board, the budget has been cut as deeply as possible without adversely affecting services to members.  Some of these cuts, such as skipping aerification and sanding of the fairways, are not sustainable.  Also, the budget does not fund anything but bare minimum maintenance and nothing for improvements.

·         The committee met with a Benton County Tax appraiser to find out if there could be any savings.  Adjustments were made to our valuation and buildings, and small savings were achieved.

·         The report by Jim West, Dick Moon and Doug Tindal on potential savings on water and energy from 2017 has been revived and an ad hoc group formed to work on implementation.

·         Additional members would obviously be the ideal solution.  Randy has advised us that we need a significant improvement in our facilities and the product delivered to members to be able to add to our membership total.

·         The committee considered the sale or development of portions of the Club’s land including the tennis court area and the cart barn area.  Consultations with a developer indicated that the gain would be less than enough to pay off the debt and take more time than we have, require capital we don’t have, and be uncertain based on the requirements of the City of Corvallis.

·         Additional funding from members was considered including loans, contributions, or equity ownership.  A formal survey of members showed a response at a very low level.  Less formal communication with members was consistent with that result.

·         A stock offering to members (and possibly non-members also) was considered.  The committee found a couple of clubs who had successfully done this but it had taken 18 months.  Research also indicated that compliance with securities laws would be cumbersome and expensive.

·         A proposal was brought to the committee to sell the clubhouse, pool and tennis courts to a restaurant operator for enough to pay off the debt.  The Club would then operate as a golf only club.  The committee contacted a real estate broker for an estimate of the value.  Members of the board involved in the food and beverage industry indicated the value would not be sufficient to pay off the debt and the condition of the kitchen and clubhouse would not be attractive to a buyer.  The committee did budget projections for a golf only club using optimistic assumptions (eliminate all debt, lose all social members, keep all golf members at current dues rates, eliminate all expenses associated with the portion of the property sold) that showed the Club to still be at just break even for operations leaving no income to cover deferred maintenance and improvements.

·         The committee and the board each considered a proposal for the Club to go semi-private, i.e., allow public play for green fees.  It was decided that any public play would have to be severely limited to avoid cannibalizing member dues to public play.  Also it was decided that this might be more of a member marketing tool than a revenue raiser.  In any case, this was not seen as a solution to Club problems.

·         Since none of these options would solve the problems on a timely basis, the committee considered the sale of the Club to an investor.  An ad hoc committee of the board developed specifications for a possible sale to present to potential investors.  The specifications attempted to protect Club members by keeping the Club private, requiring capital improvements, keeping dues affordable, etc.

·         Club members were apprised by email of the opportunity to purchase the Club.  Informal contacts were also made to certain members by management.  Some members requested additional information but no offers surfaced.

 

Current proposal:

·         The Club received two outline proposals to purchase the Club more or less consistent with the specifications outlined above.  One proposal was from an outside investor recruited by Randy Folk, named Joe Mayo.  The other proposal was from a member.

·         The board and finance committee reviewed and analyzed both proposals and the board selected Joe Mayo with whom to negotiate further.

·         The Club would sell all of its assets to the buyer in exchange for being relieved of all liabilities.

·         The Club would remain private.

·         The buyer has no intention to develop any of the property.

·         The buyer will make certain improvements to the property starting with a renovation of the clubhouse at an estimated cost of $1.2 million.  Later improvements contingent on membership increases would include a renovation of the golf building to include an athletic club and new locker rooms.  A third round, again contingent on membership increases, would be an upgrade to the pool area.

·         The buyer has outlined an exit strategy for himself that would include offering the Club property back to the Club members at a price based on formulas as a golf club and not development prices.

 

FAQ's

 

Q.  Everything you said about the improvements overall sounds great, but you hardly mentioned the golf course. That's the main reason I'm a member. What are the plans there?

 

A.   Whoops. Guilty as charged; I should have said more. You already know that Joe Mayo has stated that he'll finish the bunker project if the funds we have ($85,500 thus far, safely tucked away in the Board Account) are not sufficient for the entire job. Let me share with you some of Joe's own words in correspondence with the Board on this question of the golf course. "...it is in my best interest to make sure the course is as good as it can be and I plan on making the efforts to achieve that." "I've seen a copy of the project list assembled by the prior course superintendent, and much of what is on that list are projects I would want to do." "As part of my annual budgeting process I create a capital expenditures budget, so this (golf course work) would play right into that planning." Joe has also stated that he is agreeable to basic general standards being in writing in the agreement. We need have no concerns about the golf course; it's going to be well taken care of.

 

Q.   We've heard an idea that we could solve all our woes by pretty much shutting down everything but the golf course, that this would save enough money for us to carry on. Did the Board consider this option? Why aren't we pursuing it?

 

A.   Yes, we did, and so did the Finance Committee. Two different studies of that proposal came to the same conclusion - it doesn't pencil out, and it won't work. In addition to direct golf course upkeep expenses, you still have to pay for utilities, property taxes, insurance, accounting, carts, the pro shop, some form of management, a bartender, and so forth. You would lose all outside F&B revenue, all outside events like the Corvallis Women's Best Ball, the vast majority of your member F&B revenue, all dues revenue from current social members, and some percentage of dues revenue from golf members who didn't sign up for just what would be offered under this plan. Both studies determined that dues would still need to be in excess of 90% of current levels just to cover the expenses outlined above - and you still have the debt service to contend with! You haven't improved your financial position at all, and you have decidedly less to offer to appeal to new members.

 

Q.   What are the consequences for the club if the forthcoming vote does not produce the required 2/3 majority, or if the current members don't agree in sufficient numbers to the call for 75% signing up for 2 years?

 

A. The operative word in that question is 'consequences.' Neither the Board nor the Finance Committee can envision a happy ending if this deal doesn't go through. We will run out of cash in the very near future, and, in all likelihood, be forced into bankruptcy. Whether we would ever be in a position to come out of bankruptcy is a matter for conjecture, and I simply don't know. We could perhaps stave it off for a few additional months by making further cuts in budgeted items, but, basically, we are in the process of dying the death of a thousand paper cuts. With each passing week, we progress a little further in that direction. Should this vote fail, we will be several weeks further along with absolutely no viable fallback plan.

 

Q. I've heard that there were 2 offers on the table to buy the club. Why are we being asked to vote on just one?

 

A.  Yes, there were. In addition to Joe Mayo's proposal, we also received a viable offer from one of our long time members, Scott Sanders. And let me take a moment here to state that the entire club owes Scott a great debt of gratitude for coming to the fore when we needed help. I can't thank him enough.

So why are you seeing and voting on only one? The Board debated this at great length at our special meeting on Tuesday, August 28. We determined that we had 2 primary obligations to the membership in the event we voted to present to you for approval a plan to sell the club: to put before you what we considered the best plan for the future well being of the club, and to put before you the plan with the greatest likelihood of meeting the 2/3 majority vote threshold.

As noted in the above answer, time is not our friend. A vote including 2 separate proposals would be much less likely to reach 2/3, as the 2 options would steal votes from each other as is seen in the political arena (think Ross Perot in 1992). While Scott's proposal was a good one, we felt Joe's to be the better choice on both counts. Scott's proposal would specifically allow the eventual development of the tennis court and tent area, while Joe has no plans for development of that area (or any other) except for possible club related things. We felt the land development question would make Scott's proposal much more vulnerable to falling short of 2/3, and we felt Joe's offer was better on the merits.

 Article IV, Section 4 of the By-laws grants wide powers to the Board, including the sale of property. Other than in the case of selling all of the property and assets (as in the present case), the Board can take this action on its own - as was done most recently with the sale of the condo land last year. Naturally, the Board should be expected to seek multiple offers where appropriate, and we did. It is up to the Board, though, to choose which offer to accept, and then submit that offer to the membership for approval. That is precisely what has been done in this instance, and that is why you're only being asked to consider for approval the one offer.

 

Q.   What happens if I sign the 2 year commitment agreement, and then a life changing event prevents me from fulfilling it?

 

A.   We currently have approximately 350 total memberships, which includes well over 600 individuals. In a population of that size, it is a given that such things will happen - a job transfer to the east coast, an unfortunate medical circumstance, that type of thing. No such reasonable cause for not fulfilling the entire 2 year commitment is going to result in a claim being made against you. There need be no cause for concern in that regard.

 

Q.   Can you describe, in sequence, what the procedure will be from this point forward?

 

A.   Sure. Over the next several days, we will continue to provide you with information. That process will culminate with the Town Hall meeting on Thursday, September 13, where you will have an opportunity to ask any questions of the Board, club management, and the buyer, Joe Mayo.

Shortly after that meeting, you will receive 2 documents in the mail from the Anderson Group, the CPA firm we have engaged to conduct the voting. One will be the actual 2 year commitment form, and the other will be the ballot asking for your approval. There will also be a Memorandum of Understanding included, which will outline the conditions of sale to be included in the actual contact. Your yes vote will authorize the Board and our attorney (Steve Adkins of Evashevski & Elliott) to negotiate and sign the final contract. 

 

Q.   Can you elaborate on the actual vote itself?

 

A.   I will, but we have sought our attorney's opinion on whether our interpretation of the by-laws is absolutely correct. We want to be 100% sure this is done properly, so that question will be answered in a few days.

 

Q.   I'm still not sure I completely understand how our nonprofit can sell everything. I thought it all had to go the school district. Can you explain that?

 

A.   Think of it this way: There are 2 different things called the Corvallis Country Club. One is the nonprofit corporation that exists on paper and is registered with the Secretary of State. It is a legal entity that owns assets. If it goes out of business, the law requires that any remaining assets be transferred to another nonprofit, presumably the school district.

Then there is the vast piece of property and improvements on Whiteside Drive which also goes by the name of the Corvallis Country Club. It is an asset of the corporation, but it could be called anything else. It could, for example, be called the Augusta National Golf Club (don't we wish), or South Hills, or Whispering Pines, or Fred, for that matter. It's just an asset of the corporation, like our mowers or the big TV in the grille room.

Just as the corporation can sell the TV rather than turn it over to the school district, so too can we sell the property and improvements. The corporation does not cease to exist as a result of the sale of its currently owned assets, so there is no problem triggered by the sale.

 

Q.   Can you provide further information now on the actual voting process? 

 

A.   Yes. The vote will be conducted by mail by the Anderson Group, an independent accounting firm here in town with no affiliation with the club.There will be a return envelope enclosed with your ballot, which will be addressed to the club (required by the by-laws) to the attention of the Anderson Group. Specific instructions will be included. The Ballots will be held, unopened, in a secure location until they are counted. (You will be advised of the date and time of that, if you would like to attend.) The by-laws require that the vote be tallied by the secretary (Ann Asbell) and 2 representatives appointed by the president. Those 2 representatives will include at least one partner from the Anderson Group.

 The by-laws state that, for a vote by mail to be valid, at least 20% of all eligible members must cast a vote. That means that, if there were 300 eligible voters (example figure only, not accurate), only 60 votes are required for the results to be binding on the entire membership. If only 60 voted, a mere 21 no votes would cause the proposal to fail. I mention this to illustrate and emphasize how important each vote is for our club's future, how important your personal vote is.

 

Q  What information will I receive with the ballot? Will I see the actual contract?

 

A.   What you will see is a Memorandum of Understanding agreed to by the Board and the buyer which will spell out all the major points. The final contract will be worked out by the lawyers for both parties after your approval, but there will be no deviation from the terms outlined in the memorandum. You will know what is going to be in that final agreement.

 

Q.   How will we know the terms of the contract are being adhered to?

 

A.   That's a good example of the type of detail that needs to (and will) be addressed in the final contract. The club's financial performance will, of course, be proprietary information, but we will need to verify that all liabilities have, indeed, been properly paid in full or transferred and that the initial capital improvements do actually total at least $1.2 million. Furthermore, we will require a methodology for tracking club membership so that we are aware when the appropriate thresholds have been reached to trigger the other capital improvements. There are i's to dot and t's to cross; that's why we have retained an attorney. 

 

Q.   I'm more than a little concerned about what happens to us in 3 years. Can you speak to that?

 

A.   Certainly. My best guess is that absolutely nothing happens in 3 years. Assuming the club doesn't lose money hand over fist, that is the minimum length of time Joe has agreed to maintain ownership, but he follows a Warren Buffet type of philosophy - buy it, put in strong management to make it successful and profitable, and continue to own it indefinitely. If his investment is performing as anticipated 3 years from now, he would have no intentions of selling. When he's asked that question at the Town Hall, I'm sure that's what he's going to tell you.
Let's assume the club is making a profit and membership and revenues are up and profits are $300,000 per year, but something has changed in Joe's personal life, and he needs to exit. The membership then has the opportunity to buy out his interest at 12 X EBITDA, which, in this example, would be $3,600,000. With a strong profit history, and a vastly improved property to offer as collateral, one would expect that a mortgage could be secured in that amount and paid off with the $300,000 per year profit.
Hypnotically lets assume that the club continues to struggle financially, turning a very small profit because member levels do not rise as expected in spite of all the money that has been spent on improvements, and Joe desires to exit.  then membership then has the option to buy it back, this time at the minimum price of book value, which would probably be about $2 million. 
In either instance, we have the guaranteed opportunity to buy back the club, which will have undergone a fantastic face lift that we could never do in our current situation. In actuality, the real 3 year question is, where will we be in 3 years if we don't do this deal?

 

Q.   Some members are concerned about how bids were solicited. Could you review and explain that?

 

A.   After the Board and the Finance Committee explored numerous options (see bullet point history at the beginning of of this section), we determined that selling the club was the most viable one to pursue. At that time, a quick internet search revealed that there were 6 golf clubs in Oregon alone for sale, and 2 or 3 dozen in California. At about that same time, American Golf was trying to sell all 28 golf clubs that they still owned. It wasn't going to be like selling your NBA team when there are 20 rich guys who want to own one for each franchise in existence. There are boatloads of golf clubs you can buy.
Our situation was also unique in that we wanted to ensure that we remained a private club, and that the necessary improvements were made to make the member experience what is required to attract new, long term members. We pretty much wanted to have our cake and eat it too. It was decided that our best initial avenue of approach was to make this opportunity available to members and to other private parties. If that failed, we could then list it and hope for the best. The request for interested members to start a dialogue went out to you in a communication on June 22nd.
As it turned out, we had 2 members and 1 private party come forward, and this ultimately led to the 2 proposals which the Board considered. The Mayo proposal met all of our requirements, and the Board voted to accept it on August 28th, just over 2 months after commencing our search. The Board is well satisfied that the membership was well served throughout, and that our original approach was the correct one.

 

 

Hope you have found this information helpful and thank you again for your support of this most important undertaking.

Our members enjoy the complete country club life. The golf course is beautiful, challenging, and playable year-round.