Cordillera Club Advisory Committee Report to the Cordillera

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Cordillera Club Advisory Committee Report to the Cordillera Powered By Docstoc
					 Cordillera Club Advisory Committee

             Report to the

Cordillera Property Owners Association

          Board of Directors

            September 30, 2010

         Respectfully Submitted By:

         Denise Delaney, Vice Chair

         Gary Edwards, Vice Chair

              Trudo Letschert

                Ed O’Brien

              Ray Oglethorpe

                Dave Temin

            Bob Vanourek, Chair
                                    Table of Contents

Section I:      Committee Charter & Processes Followed .........................................1

Section II:     Current Club at Cordillera Situation..................................................... 4

Section III:    State of Golf Industry & Lessons Learned
                From Other Clubs – Executive Summary.............................................7

Section IV:     Impact on Property Values ......................................................................9

Section V:      Assessment of Strategic Options
                   A. Introduction ..................................................................................... 14
                   B. Wilhelm-Members Joint Venture .............................................15
                   C. Member Buyout ..............................................................................17
                   D. CPOA/3rd Party Note/Asset Buyout .........................................22
                   E. White Knight Buyout.....................................................................27
                   F. 3rd Party Benevolent Dictator ....................................................28
                   G. Joint Venture with a Professional Firm ..................................30
                   H. 3rd Party Buyout – Profit Oriented Buyout ............................ 32
                   I. CMD Public Option .........................................................................33
                   J. Escrow for 2011 Club Dues ......................................................... 39

Section VI:     Formation of a Cordillera Independent Entity .................................41

Section VII:    Summary Conclusions ...............................................................................47

Section VIII:   Recommended Next Steps for the CPOA .............................................48

Section IX:     Appendices
                  A. State of Golf Industry & Lessons Learned
                     From Other Clubs – Detail ........................................................... 49
                  B. Bankruptcy Issues .........................................................................73

           Glossary of Terms and Abbreviations Used

Bank:     Alpine Bank, Avon, CO

Club:     The Club at Cordillera

CCAC:     Cordillera Club Advisory Committee

CMD:      Cordillera Metropolitan District

CPOA:     Cordillera Property Owners Association

CVCMD:    Cordillera Valley Club Metropolitan District

CVCPOA:   Cordillera Valley Club Property Owners Association

JV:       Joint Venture

LLC:      Limited Liability Corporation

NPE:      Non-Profit Entity
          (the independent entity being recommended)

TSPOA:    Timber Springs Property Owners Association

WFP:      Wilhelm Family Partnership

                              Executive Summary

After studying the issues facing the Cordillera community and analyzing the various
issues, the CCAC’s primary recommendation to the CPOA is that an independent,
NPE be created with the power and funding necessary to help resolve Club issues
and protect the property values of the community. The CPOA is the appropriate
body to lead the formation and funding of that entity.

        *      *       *      *      *      *      *     *      *       *
In the summer of 2010, WFP surprised the community by announcing significant
financial losses at the Club, which caused great consternation within the community.

The CPOA appointed an advisory committee, the CCAC, to explore this situation with
respect to protecting community property values. The committee enlisted the aid of
many volunteers, pro bono, and industry experts.

The golf industry is going through challenging times with the numbers of golfers
declining and many private clubs experiencing reduced service levels, foreclosures,
and/or restructurings. In turn, golf-related communities are experiencing an
adverse impact on property values.

Many of these communities have faced similar challenges to those confronting
Cordillera and have emerged stronger and more vibrant after a unified, well-
financed, and intelligently structured approach to their difficulties, utilizing the
many talents and resources available to them in the community and from outside

The CCAC examined many, but certainly not all, possible scenarios to protect
property values including:
      Cooperation with WFP, owners of the Club, involving watchful waiting
      and/or a temporary joint venture with WFP to find a mutually acceptable
      solution and gain deeper understanding of the facts involved.
      A member buyout of the Club on mutually agreeable terms.
      The possible acquisition of the Club assets and/or Club debt by the CPOA.
      The acquisition of the Club by a “White Knight” who would then sell the Club
      to the members on a mutually agreeable basis.

       The acquisition of the Club by a well-funded, benevolent dictator who would
       own and operate the Club in a manner satisfactory to the members and the
       The acquisition of the Club by a joint venture between Club members and a
       3rd party, professional, golf industry firm.
       The acquisition and operation of the Club by a third party, for-profit firm or
       The passage of the CMD bond initiative as a “last resort” to buy the assets of
       the Club for the community.
       Additionally, there is concern among many Club members about the usage of
       their 2011 dues for purposes only within Cordillera.

Each of these options or issues has numerous sub-elements. Some involve potential
elimination of Club liabilities via voluntary or involuntary bankruptcy, purchase of
Club debt, and/or bifurcation of assets among golfers and the general community.
Most require extensive due diligence, which must be performed and financial
assumptions, which must be confirmed. Each has pros and cons, which must,
ultimately, be decided by the appropriate stakeholders. All the alternatives present
difficult decisions for the community, balancing costs, service and amenity levels,
numbers of members, etc.

Appendices in the report present extensive information of the state of the golf
industry, the experiences and lessons learned from other clubs, and the issues
involved in any potential bankruptcy.

In the absence of any other group to help the community with these issues, the CCAC
recommends a seven-member board of an NPE be appointed for a term of one year.
The nominating committee that selected and recruited the CCAC would make the
appointments to the CPOA Board. Criteria for board service are suggested.

The CCAC recommends the CPOA fund the NPE with a line-of-credit loan up to
$1,000,000 with monthly draws for expenses prudently made by the NPE. Hopefully,
this level of funding will not be needed, but is recommended to ensure adequate
resources. The loan could be provided on a basis to be repaid by all beneficiaries if
and when a change of control of the Club occurs on a mutually agreeable basis. The
NPE would communicate extensively and regularly with the community

The NPE would be the focal point for pursuing the strategic and tactical alternatives
with a minimum of red tape while ultimate authority for final solutions would remain
with Club members and WFP for Club related actions and the CPOA or CMD for
community related actions.

In summary, the CCAC recommends the CPOA Board:
      Lead the creation of an independent NPE.
      Lead the funding of the NPE.
      Lead the staffing of the board of the NPE.

The CCAC further recommends the NPE vigorously pursue the strategic alternatives
identified here, and others as appropriate, to help address the current situation and
restore Cordillera to the preeminent status it deserves.

            I. Committee Charter and Processes Followed

1.   CPOA and Committee Charter
     The CPOA Mission is:
     “To be a premier residential mountain community.”

     The opening sentences of the CPOA Vision are:
     “Cordillera offers top-tier amenities, outstanding infrastructure, and
     exceptional community services in a financially prudent manner consistent
     with resident and property owner expectations. Cordillera provides the year-
     round amenities desired by our residents and property owners, and we do so
     in harmony with The Club at Cordillera as it is key to the sports, recreational,
     and social activities for our community… ”

     The CPOA values are:
           Fiscal Prudence

     Per the Cordillera Governance Guidelines, some of the roles of the CPOA
           To make financial, operational and strategic plans and take
           appropriate decisions on actions which are in the best interest of
           property owners.
           To provide a forum for property owners to express their interests
           regarding the Association’s activities and decisions.
           To protect the Association’s assets and prevent asset losses beyond
           those required for the normal course of business.

     Due to critical events that unfolded in the summer of 2010 at the Club, owned
     by WFP, the CCAC was formed by the CPOA Board on 8-16-10.

     The initial mission was:
     “To develop plans for a private solution, to evaluate plans that may be
     proposed by others with respect to private solutions for the Club, and to
     advise the CPOA, CVCPOA (Cordillera Valley Club Property Owners
     Association), and TSPOA (Timber Springs Property Owners Association) as
     to the viability of such plans so as to protect and enhance property values for
     all Cordillera property owners.”

     The charter was revised on September 14, 2010:
     “To develop plans for a private solution, to engage in discussions with
     persons or entities having an interest in the Club, to evaluate all plans that
     may be proposed with respect to solutions for the Club and to advise CPOA,
     CVPOA, and TSPOA as to the viability of all plans and proposals so as to
     protect and enhance property values for all Cordillera property owners, all as
     directed by the CPOA Board.”

     The committee reports to the CPOA Board, consists of volunteers, and is
     advisory only, as established by the Governance Guidelines of the CPOA. The
     committee has no budget except as specifically authorized by the CPOA
     board, which granted the committee’s request on September 8, 2010 for
     $50,000 to engage legal counsel proficient in the issues involved to represent
     the CPOA and to perform the preliminary legal work needed.

     The committee was not authorized to engage in negotiations with any party, or
     to provide advice to community members besides the CPOA board.

2.   Committee Processes
     Mindful of the values of the CPOA, the committee established its own norms,
     which were reviewed at every meeting, of:
           Mutual Support
           1 Voice

     The committee met weekly as a group, formed itself into various sub-
     committees, accepted specific individual assignments, and solicited/received
     expert help from numerous community members and outsiders on a pro
     bono basis.

     Special thanks for valuable inputs and assistance go to Barry Beracha, Erin
     Buckley, Bob Howell, Dennis Meir, Alan Pogue, Roger Ward, Joe Wilson, Ron
     Yordi, and numerous others who gave of their time and expertise, as well as
     several members of the various CPOA and CMD boards.

     The committee requested certain information from WFP about the status of
     the club and met with executives from WFP on several occasions. The
     committee was presented with a Confidentiality and Non-Disclosure
     Agreement by WFP in order to receive certain financial documents. The
     committee and counsel deemed the terms of the Agreement unacceptable, so

the Agreement was not executed. The committee did not receive or utilize
any confidential data from any party in preparing this report.

The committee received several proposals (both verbal and written) from
outside industry experts on ways to assist the community in dealing with the
issues. These proposals have been maintained for possible future use. The
only firm engaged by the CPOA to represent it was Addison Law, a Dallas-
based firm with over 25 years of relevant experience in golf, hospitality, and
land issues, including experience with over 600 similar projects to the issues
facing Cordillera. Addison had previous experience with Cordillera and is
familiar with our community. WFP waived any potential conflict of CPOA’s
use of Addison Law for assistance in obtaining liquor licenses for the
Wilhelm entities. Randy Addison has been the principal partner working
with the CPOA and CCAC.

The CCAC has used information available to prepare this report but has not
made independent investigation to determine its accuracy. Any errors in this
report are unintentional resulting from a collaborative effort in a short time

                 II. Current Club at Cordillera Situation

In mid-2009, the members of the Club were advised that a transaction had closed
between WFP and the Posen Family giving direct control of the Club to WFP.
Apparently, after a lengthy legal battle, a settlement agreement gave WFP 100%
control. Several town hall meetings took place in which WFP explained their plans
for the future, the Cordillera 20/20 plan was revealed; and the introduction of the
Premier/Legacy program was announced.

Subsequently, 161 members joined the Premier Program at a cost of $30,000 each,
giving them access rights to Mayacama Golf Club in California and the Roaring Fork
Golf Club in Basalt, Colorado, as well as other benefits. The Legacy Program allowed
direct family members to join the Club and play with no additional dues or an
initiation fee. Upon the original members’ death, the membership would transfer to
the children without a fee. Surveys were done by WFP to see what desires the
membership had for future expansions, including sites such as Arizona, Hawaii, or

During 2010, the buy-sell agreement between David Wilhelm and some members of
the Roaring Fork Club in Basalt was exercised with those members buying out David
Wilhelm after many years of partnership jointly building a fine club. Some Roaring
Fork members expressed discontent at the Cordillera Premier Program giving
Premiers access to Roaring Fork. Mr. Wilhelm has also revealed that he was
discussing the future ownership of Mayacama with other possible owners. Patrick
Wilhelm has stated the rights of original Premier Members, however, remain intact.

In the early summer 2010, the Club appeared to be operating satisfactorily. In early
June David Wilhelm sent a letter to all members announcing the proposed addition
of the Golf Club of Scottsdale to the Premier Program. At the end of the letter, Mr.
Wilhelm, reiterated the bright future of Cordillera and its affiliated clubs.

The Club membership appeared satisfied with the changes that were made by WFP.
They had “privatized” the restaurants and club operations at considerable costs to
enhance exclusivity. The quality of the food/beverage services and the golf courses
were comparable to what they had been in the past, or even improved.

On July 30, 2010, David Wilhelm wrote a letter to the Club members stating the club
was in severe financial trouble, possibly encountering financial losses up to 5
million dollars for 2010. He requested possible member loans to keep the Club alive.
In this letter the club members were blamed for not generating new membership
sales. WFP had budgeted 50 membership sales for 2010, rather remarkable in these
economic times. Town Hall meetings were announced to try to come to a resolution
to this crisis.

These meetings were acrimonious, and the membership expressed their discontent.
During these meetings, it was explained courses might be closed and services cut.
The membership was shocked by the situation, and rumors continue to abound.
David Wilhelm raised the possibly of bankruptcy proceedings as an option with a
negative impact on real estate values in the 30% range if the golf club operations
would cease. A suggestion was made by WFP to have CMD purchase the Club, which
would then result in the Club becoming a CMD-owned facility. In further meetings
between representatives of WFP, CCAC, and/or Cordillera members, additional
proposals were made to sell all or portions of the Club to the members. Further
details are in the Member Buyout Section.

During discussions with Patrick Wilhelm, the Club’s new CEO, it was clear there are
several major components that are losing money in the club operations, including
the short course and food and beverage operations. The golf professionals were all
changed from a 12-month contract to an 8-month contract, while keeping their
annual benefits, resulting in a 33% savings for WFP. Additionally, staff hours were
reduced and staff reductions implemented, primarily in “back of the house”
operations where members would be nominally impacted.

WFP professes a desire to maintain the quality of Club amenities that has been at
Cordillera in the past. Patrick acknowledged privatizing the food and beverage
operation was a mistake, which they intend to change, reopening the Timber Hearth
to the public for weddings and parties. After a test period of mid-December to mid-
January, WFP will decide whether to reopen the 9 Iron Grill for the winter season.

According to Patrick, the 5 million dollars collected by WFP for the Premier/Legacy
Program went completely to fund the operating deficits.

In recent discussions with Patrick, he understands member concerns about usage of
their 2011 dues only for Cordillera current operations. However, to date no
satisfactory solution has been found to this concern. (See Section V. H., Dues Escrow

 WFP has established a seven-member Finance Committee formed from volunteer
members of the Club. Patrick prefers a “joint effort” to come up with a dues
structure based on breakeven or profitable financials for 2011 and which may
include a management fee and debt service. WFP has stated it plans to keep the
three 18-hole courses open in 2011.

To put the community in better perspective, the following figures are derived from
August 2010 real estate and Club statistics:
       Cordillera lot density                                  1087 (100%)
       Current built homes                                      645 (59%)
       Undeveloped lots                                         442 (41%)
       Golf memberships allowed                                 1085 (100%)

       Total current golf memberships                            632 (58%, 406 within
                                                                 Cordillera, 162 in Eagle
                                                                 Valley, (22 unknown)
       Current Premier Memberships (included in 632)             161 (25%)
       Current Legacy members (children)                         332
       Current resigned wait list                                315
       Current Social members                                    81 (70 within Cordillera,
                                                                 11 in Eagle Valley)
       Cordillera property owners who are Club members           448 (48% of Cordillera
                                                                 property owners)*

*Golf industry experts indicate it is not unusual for a mature golf community to have
less than 50% of its property owners as golf club members since golf has reached a
plateau in recent years. (See Section IX, State of the Golf Industry, in Appendix.)

  III. State of Golf Industry & Lessons Learned From Other Clubs-
                         Executive Summary

The current state of the golf industry is dismal, and the long-term outlook is not
encouraging. Every measurement—number of golfers, rounds played, merchandise,
food and beverage sales, course openings—are all on a downward trend since golf’s
peak in 2005. The decline is felt across both public and private courses and is
projected to continue to decline due to the recession and loss of wealth, lifestyle
changes, the expense of golf compared to other recreational opportunities, time
constraints and business demands, and the decline in the real estate market.

Private clubs are not immune, and membership is down by nearly one-third from its
peak in the early 90s. Twenty Five percent of the private clubs are operating at a
loss and 15% are in serious financial condition. Private clubs are also facing
competition from daily use and resort courses where costs can run as low as $20-
$25/round, without any commitments. With these conditions, private courses are
fighting back with practices unheard of years ago; such as, allowing public play and
cutting initiation fees by two-thirds.

Real estate sales drove 65% of all golf course developments due to the premiums
developers could get for the lots and homes in golfing communities. As a result,
courses were used as loss leaders to sell real estate, and the number of courses
proliferated regardless of competitive and economic realities. The U.S. is overbuilt
with courses, and in some metropolitan areas it will take 10-15 years to fill them.
Due to the oversupply, sales prices for golf courses have fallen in some cases to 10%
on the original price and the course’s value is judged solely on cash flow regardless
of the investment in infrastructure.

Three firms who had provided the majority of golf course financing—GE Capital,
Textron Financial, and Capmark Financial—have all stopped lending. Some other
lenders have placed golf courses on their “toxic asset” list, which means they won’t
consider lending money for a golf property under any circumstances. Getting
financing for new developments or refinancing old loans has become extremely

According to the Arizona Republic newspaper, the developers’ rule-of-thumb was
developments with a golf course allowed them to get $50,000-$150,000 more per
home site (depending on location) than those without a golf course. This fact is the
reason golf courses were overbuilt. Developers were not concerned about the fact
there may be too many golf courses—the golf course was only used as a sales
method to generate a higher sales price on a lot.

In summary, golf courses have added a significant premium to real estate values
ranging from 3% to 57% based on numerous studies with averages in the range of
23%-27%. Given the realities of today’s economic environment and the changing
lifestyles of potential buyers, golf communities will have to offer many amenities
besides golf to retain their value plus face major changes in their membership
structures to remain economically viable.

Discussions with local clubs and others which have gone through similar
circumstance to those Cordillera is experiencing lead us to the following lessons

   1.  Know your contractual rights and the owner’s obligations.
   2.  Developers have run clubs poorly and inefficiently to sell real estate. Golf
       clubs have been loss leaders.
   3. What is happening at Cordillera is a common situation at many private
       clubs; especially real estate-based golfing communities. Don’t panic or get
       discouraged. The resolution may take nearly a year or more.
   4. For communities to be successful in a difficult conversion, they must act in
       a strong, unified, empowered way under nimble, dedicated, and good
   5. Raise money quickly and hire the best legal team to show you are serious
       and have the resources to represent the community well.
   6. Set-up a good communications system to keep the members informed. The
       Bonita Bay turnover committee sent out 44 reports to its members in a 10
       months period about their activities and what other members were doing
       so there was never a surprise.
   7. Given the declining value of golf courses and their economic realities,
       member-owned clubs are probably one of the few viable options.
   8. After closing, be prepared to spend money on capital projects the developer
       has delayed maintaining or improving.
   9. Make sure you keep a critical mass of members to make the financial
       numbers work. Do a deal before too many people resign or lose interest.
   10. Do an analysis of the average age of the club members. Bonita Bay’s
       average was 68 years old, which meant they had to practically replace most
       of the 2000 members in 10-12 years. This was a key factor in settling on the
       purchase price and convincing the developer to take the deal.

The detailed report of this executive summary is in Appendix A.

                       IV. Impact on Property Values

Historically, there are three (3) reasons why developers include golf courses and
other amenities in their projects: (1) to increase the land values in their
development; (2) to respond to physical planning or ecological conditions, such as
accommodating storm water run-off; and (3) to sell their lots more quickly. It has
been estimated the broadening of market appeal and the enhanced image and
ambiance a golf course creates speeds up sales by 20–30%, which translates into
higher profitability for the developer.

In the past, the enhanced land value derives from two sources. The first is image:
‘Golf is a way to dress up the real estate . . . The golf course tends to elevate the
image of the community and people are attracted to image’ according to a study by
Dugas in 1997. Golf has connotations of affluence and prestige, and some people
may seek to enhance their self-esteem or social standing by buying into a
development with this type of image.

The second source of enhanced value is the visual and physical access to attractive
open space that causes individuals to pay a premium price for their homes. The
developers’ strategy mirrors that which has been advocated by supporters of public
parks and open space for over a century, i.e. parks and selected recreation features
are an investment, not a cost, because they generate more property taxes for a city
than it costs to service the annual debt charges incurred in creating the amenities. A
consistent stream of studies reporting this value-enhancing effect of parks has
emerged since Frederick Law Olmsted pioneered this approach with his
documentation of the impact of Central Park on surrounding real estate values in
New York from 1856 to 1873.

Historically, lots and homes within a golf community bring higher prices than those
not in a golf community; otherwise, why would a developer take on such a financial
risk to construct a golf course community? If a golf course costs $8 million to build
and uses 150 acres for the layout that could have otherwise been sold as one acre
lots at $50,000 each, the developer would have to be reasonably comfortable he
could recoup his investment of $15.5 million through higher premiums for lots and
homes in a golf development. To justify this investment, there has to be substantial
enhanced value of a development’s real estate.

How much value, historically, does a golf course add? Generalizations or averages
obscure substantial variations among courses, but results from a study of master-
planned golf communities across the United States yielded the following averages:

                              Golf Real Estate Premiums

                      Lot Value                 House Value              Total Premium

Base Home Non-        $50,000                   $180,000                 N/A
Golf Interior Home     52,000                     185,000                 3%
Golf View Home         60,000                     200,000                13%
Golf Fairway           75,000                     225,000                30%
Golf Prime            100,000                     260,000                57%

Note 1: Base home non-golf is an interior lot in a master planned community without

Note 2: Prime is housing fronting on greens, lakes and other particularly desirable
features of a golf course.

             Source: Economics Research Associates cited in McElyea et al. (1991)

According to the Arizona Republic newspaper, the developers’ rule-of-thumb was
developments with a golf course allowed them to get $50,000-$150,000 more per
home site (depending on location) than those without a golf course. This fact is the
reason golf courses were overbuilt. Developers were not concerned about the fact
there may be too many golf courses—the golf course was only used as a sales
method to generate a higher sales price on a lot.

In another study by The Journal of Real Estate Finance and Economics, it concluded
homes in a golf course location commanded a 7.6% premium to the sales price.
Another study found properties within a golf community might carry premiums of
35-40% higher than similar properties not in a golf community. In a study by Texas
A&M of College Station, Texas, found premiums were on average 25.8% and in a
study by Clemson University of Greenville, S.C., Clemson found homes abutting the
golf course sold for 27% more than those beyond 1100 feet (those within 300-1100
feet sold for 15% more). A University of Florida study in June 2002 showed a 23%
positive impact on properties near a golf course versus those not near a golf course.

In summary, golf courses have historically added a significant premium to real
estate values ranging from 3% to 57% based on numerous studies, but going
forward, and given the realities of today’s economic environment and the changing
lifestyles of potential buyers, golf communities will have to offer many amenities
besides golf to retain their value plus face major changes in their membership
structures to remain economically viable.

Many lifestyle communities created over the past 20 years made the golf course
their primary amenity. But given the state of the golf industry, the decline of golf as
an active pastime will continue. The new generation of retirement and second home
buyers has not spent time on the golf course the way previous retirement
generations have. Therefore, it is necessary for communities to highlight other
amenities to attract today’s buyers and retain the long-term interest of residents
living in the community. Amenities such as fitness centers, spas, walking trails,
pools, tennis, equestrian facilities, clubhouses and restaurants are important for
communities to have.

Developments such as Reynolds Plantation in Lake Oconee, GA, Ocean Ridge
Plantation in Brunswick County, NC and Tellico Village on Lake Tellico, TN offer
excellent golf experiences for the most avid golfer. Yet, these communities, like
Cordillera, also provide an array of additional amenities to attract the non-golfing
buyer as well. In the future, golf communities successfully attracting buyers and
holding their real estate values will need to have these amenities in addition to golf
for residents to enjoy. Walking trails and fitness centers have replaced golf courses
as the number one requested amenity by today’s buyers!

Cordillera has an approximate total of nearly $2 billion in collective aggregate home
values. Starting in July with the Wilhelm e-mail and town hall meetings and
subsequent press and rumors, sales and interest in Cordillera have slowed
considerably according to agents at Slifer, Smith and Frampton. Home values are
going down because of the uncertainty. “Who is going to buy the club with a $107
million member contingent liability unless the club goes bankrupt?” asked one
agent. One office manager stated she would not recommend anyone buying in
Cordillera until the club situation is settled. “I’m not going to put any of my clients
into a situation where there could be six-foot weeds growing outside their back
door.” The Club uncertainty may have a major negative impact on homeowner
values whether the owner is a golf club member or not, especially any homeowner
needing to sell in the short-term.

This effect can be seen in studying communities where the club is in financial
distress. One of the most prominent examples has to do with the Sea Island
Company in Brunswick, GA. The resort and surrounding communities are among
the most prestigious communities in the United States. When it became apparent in
2008 and 2009 the Sea Island Company was in financial difficulty (employee layoffs,
loan restructuring, etc.), houses for sale with Sea Island memberships slowed and
have now sat unsold for over one year due to doubt if the memberships will be
honored and transferred to the new members. As for the club, no new members
have been accepted into it until the bankruptcy sale is completed. Current residents
are anxious and uncertain about how the bankruptcy will impact their membership
and access to the resort’s exclusive amenities, which continues to depress the

Elsewhere across the country, a homeowner, Joseph Leggett, used to look out from
his backyard over the green, manicured fairways of the Palm Desert Country Club
golf course in Southern California. Lately, what he sees looks more like weed-filled
vacant lots. Swaths of the championship course, deemed one of the best designed in
the lower desert, turned brown as its owners searched for hundreds of thousands of
dollars to reseed, reopen, and rebound from Chapter 11 bankruptcy protection.
"The course is an eyesore," Leggett said recently. He estimated that his home of 30
years had lost half its value because of the ruined view. "My wife is beside herself,"
Leggett said.

The club at Ford’s Colony, which was one of the earliest golf communities in the
historic Williamsburg, Virginia area, has gone bankrupt. Residents, while not
directly affected by the club’s problems, are likely to feel the negative effects in
home values if the club does not successfully reorganize or gains a reputation for
poor playing conditions. “We’re concerned about the perception in the greater
community and the impact on the values of the houses in Ford’s Colony,” Ford’s
Colony HOA president, Jim Taverna said “Our concern would be how this would be
presented by a real estate agent to a prospective buyer.”

The owners of Amelia Island Plantation in Florida went into bankruptcy in 2009,
which gave the community pause. Prices on the Plantation started at over $500,000
and went to almost $5 million; but, financial troubles brought those down sharply
according to

The current real estate market in Cordillera is a difficult one. An analysis of
Cordillera property sold in the last six months and currently under contract to sell
shows only 29 properties were sold in that period. These properties were on the
market an average of 334 days (ranging from a low of one day to a high of 1,197
days) and sold for about 80% of their original asking price. These figures, though,
need to be looked at with a grain of salt and probably reflect the best case. Brokers
know how to game the MLS system to increase visibility of their properties. If a
broker removes a listing for 90 days, the days on the market reset to zero and the
list price becomes the original price. An example of the difference between reported
data and real data concerns a property on the Ranch of Cordillera. The reported data
showed 205 days on the market where in reality it had been on the market for over
1000 days excluding the 90 day withdrawal from 11/2009-2/2010. The original
price showed $1,950,000 but the real listing price was $2,985,000 with a sale price
expected (under contract—not yet closed) to be around $1,650,000—a 45%
discount from the original price!

Due to the uncertainty created by the Club, real estate conditions in Cordillera may
get worse. As a high-end community, the impact of a Club in disarray, or continued
major uncertainty, could have a negative impact on property values in a range from
10 to 50%, based on the experience of comparable communities.


Impact of Real Estate on Home Values

      “Golf courses and residential house prices: An empirical examination,” A.
      Quang Do and Gary Grudnitski, The Journal of Real Estate Finance and
      Economics, Volume 10, Number 3, 1995
      “Negative and positive impacts of golf course proximity on home prices,” Paul
      Asabere and Forest Huffman, Appraisal Journal, October 1, 1996
      “Does proximity to a golf course matter, “ K. Owusu-Edusei and Molly Espey,
      Clemson University, January, 2003
      “The impact of a golf course on residential property values,” Sarah Nicholls
      and John Crompton, Journal of Sports Management, Volume 21, Issue 4,
      October, 2007
      “Benton Harbor, Mich., bets on golf course by Jack Nicklaus, Steve DiMeglio,
      USA Today, May 20, 2010
      “Too many places to tee off, too few players,” j. Craig Anderson, The Arizona
      Republic, January 4, 2010
      Interviews with Barney Dill and Patty Brave, brokers Slifer, Smith and
      Frampton Real Estate, August 19, 2010
      MLS data for Cordillera, September 22, 2010
      Economic Impacts of the Florida Golf Industry, University of Florida, June,
      “Golf course development and real estate development,” Murihead and Rand,
      Urban land Institute, 1994
      “Adjusting the value of houses located on a golf course,” Gary Grudnitski and
      A. Quang Do, The Appraisal Journal, July, 1997
      “Designing golf course to optimize proximate property values,” John
      Compton, Texas A&M University, Managing Leisure, 2002
      “Code Blue” for U.S. Golf Course Real Estate Development: “Code Green” for
      Sustainable Golf Course Development.” David Hueber, Richard H. Pennel
      Center for Real Estate Development, Clemson University, May, 2010
      “Recession puts golf course in the hole,” Standard-Examiner, November 27,
      “Ford’s Colony Country Club Williamsburg Files for Bankruptcy,”, April 3, 2010
      “Fernadina Beach: Florida,”

                     V. Assessment of Strategic Options

                                    A. Introduction

In the following sections of this portion of the report, the CCAC examines various
strategic options, which have surfaced over the course of our work. We provide
some analysis of these options as a starting point for assessing these alternatives.
Each option has numerous sub-elements, which may be included or excluded. The
list of options is intended to be comprehensive but not exhaustive. Other options
may emerge over time, and combinations of options and sub-elements are possible.

The Cordillera Club facilities and amenities were designed to accommodate up to
1085 golf members and up to 100 social members. With the current level of
approximately 600 golf members, the Club has substantially fewer dues paying
members than anticipated. In all of the options examined, the owners, be they the
current WFP, the Members, CPOA, CMD, or various 3rd Parties, will face difficult
trade-offs involving level of outside play and access, separation of golf and non-golf
amenities, levels of service and dues, and a significant bank debt.

In addition, the current Seller’s Wait List and 30-year deposit refund provision
present a significant financial liability for any owner. In all of the options presented,
the assumption has been made that this liability can be eliminated. The Bonita Bay
buyout process, which is described in detail in the Appendix, eliminated this liability
in a voluntary manner without going through a bankruptcy procedure. It also
provided for a potential recapture of the deposit refund depending on the financial
success of the Club following the buyout. Elimination of this liability would be a
financial sacrifice to members who believe they will eventually get their 80%
refund. However, any member who sells their membership as part of a real estate
transaction would receive their entitled refund in the transfer process, and not be
impacted by the elimination of this liability.

Each option will require extensive financial analysis, due diligence, and
consideration of legal implications before any final decisions.

The pros and cons of the options speak for themselves, so the options are not
ranked. A dynamic situation, such as the one in which we find this community,
requires flexibility in approach depending on the circumstances at the time.

                      B. Wilhelm-Members Joint Venture

In the event no other party takes control of the Club, WFP will remain, of course, as
the owners and decision-makers. Club members can anticipate difficult decisions
will need to be made by WFP to regain financial viability of the Club in areas such as
dues, services, food and beverage minimums, etc.

1.     Club Member/WFP Partnership
       For members to play a stronger role in influencing these decisions, a
       partnership with WFP and Club members for a transition period of 2-3 years
       might be arranged. Club members could negotiate over time a certain price
       range for the Club, subject to certain provisos important to the membership
       such as due diligence, adequate membership levels, and the financial health
       of the Club. This arrangement might anticipate any of the various scenarios
       to change control of the Club either by membership buyouts, metro district
       purchase, a third party, or other options.

       A joint board might control and direct the Club for this 2-3 year period,
       comprised 50% of WFP and 50% of elected Club members. Deficit sharing
       between the parties up to a certain level might be agreed upon, above which
       WFP would absorb the remaining deficit since they would be the managing
       entity. In the meantime, with the use of professional industry consultants
       and legal counsel, the members could explore their options.

       During this time, members would learn from being involved as to what they
       can afford if and when the members own the Club. The joint establishment of
       annual budgets, dues, use of amenities, restaurant operations, etc. would give
       the members the input and insights they seek with some control over critical

2.     Pros of a WFP-Member JV
             Gives members time to find a potential buyout of WFP with less
             WFP could benefit from the insights of members on operations in a
             stronger fashion than through an advisory Finance Committee
             Opportunities might be found for collaboration with WFP Windrose
             Collection, subject to proper use guidelines being worked out.
             During this period, a proper business plan could be jointly developed
             for the Club dealing with issues like the resigned membership list,
             membership deposit refunds, etc through creative means such as
             shown at Bonita Bay, Estancia, or through a prepackaged bankruptcy
             in cooperation with Alpine Bank.

3.   Cons of a WFP-Member JV
           WFP did not demonstrate managerial acumen in 2010, as evidenced
           by their surprise losses.
           WFP has lost the trust of many community members who may not
           wish to partner with them.
           The Wilhelm history of litigation is concerning given the close nature
           of a joint venture and the information shared.
           How members would fund their independent legal and financial
           expenses, or any interim operating deficits, would need to be
           The community could be factionalized if those who participate on the
           JV board do not appear to be impartial.

                             C. Member Buyout

1.   Executive Summary
     This member-owned scenario is intended to evaluate how the Club members
     could acquire the Club if WFP decided to sell. It assumes the golf assets,
     facilities and programs to be owned, governed, and operated by the Club
     members and the non-golf recreational assets and facilities are then
     transferred to, governed, and operated by the CPOA. Clearly, many other
     assumptions are possible as variations of this base case, but we chose this
     one to be able to do some financial modeling.

     The members of the Club may have an opportunity to purchase the Club on
     reasonable terms and conditions and to keep it as a private club. A financial
     model of this case, which we prefer to keep private, demonstrates that by
     assuming the current bank debt on some reasonable basis, making some
     agreements with the CPOA to transfer the non-golf recreation amenities, and
     contracting with the CPOA/CMD to share administrative and other functions,
     the Club can be operated in a financially viable manner at the current
     membership level of 600 members and dues of $12,500. Clearly, these
     financial projections are based on a number of highly sensitive assumptions,
     which need to be verified after proper due diligence is done on the Club
     assets, financial reports audited, and industry experts consulted.

2.   Summary of Scenario Being Analyzed
     The Club members represent the most likely buyers and owners of the Club
     facilities. With the non-golf recreation amenities transferred to the CPOA, all
     of the amenities within the Cordillera community would be owned governed
     and operated by their respective appropriate owners.

     By utilizing a combination of the Bonita Bay and Estancia approaches, a
     member-owned acquisition could be viably achieved, but it would require
     the elimination of the liabilities of the current Membership Plan including the
     return of membership deposits and the resigned membership list.

3.   Summary of Facts Surrounding Scenario
         WFP claims they have incurred a significant operating and cash loss
         since acquiring the Club in July 2009, which they are hopeful to turn
         around with cost reductions and likely dues increases.
         The future financial viability of the Club under current ownership may
         be in doubt and presents a cloud of uncertainty for current and
         prospective members as well as current and prospective property

            The current Membership Plan has significant financial liabilities for
            the current owner, and any future owner, unless these onerous
            provisions can be eliminated.
            WFP has a debt of approximately $12.7 million with Alpine Bank.
            Members and property owners may favor a privately owned Club
            versus CMD owned assets.
            WFP has described two scenarios in recent months to various groups
            to sell the Club. One scenario was an outright sale of the whole Club,
            while the other had WFP retaining the Valley Club and some fractional
            memberships. In both cases the buyer would pay a sum to WFP and
            assume the $12.7 bank loan. To date, no group of Club members have
            pursued these overtures.

4.   Key Issues
     Issues to be resolved for a viable member-owned Club are:
            A successful negotiation with current owner of a reasonable value of
            the Club.
            A process that removes the 30-year deposit obligation to the new
            member-owned Club. The Bonita Bay acquisition provides an example
            of how one club with a similar liability was able to conduct a
            transaction process that successfully eliminated the 30-year deposit
            obligation without bankruptcy. (The Bonita Bay buyout process is
            described in detail in the Appendix A under The State of the Golf
            Industry and Lessons Learned from Other Clubs.)
            Eliminating or avoiding the liability on the transfer of memberships
            when the initiation fee may be less than the “selling/transferring”
            member’s original price. The Estancia Market Based Program
            provides an excellent model of a program that was successful in
            eliminating their sellers’ waiting list without incurring Club losses on
            the transaction. (See Appendix A.)
            Discussion with Alpine Bank to reach a mutually fair assumption of
            the debt at the bank.
            In this scenario, mutual agreement between the member-owned Club
            and the CPOA to transfer the non-golf amenities that may be better
            aligned with all property owners. These include the Trailhead,
            Summit Athletic Club, Nordic Center, CVC swimming pool, and tennis

5.   Assumptions
     The assumptions in our financial analysis include what are believed to be the
     current membership numbers by category anticipated for January 1, 2011
     (approximately 600). The projected membership assumptions anticipate no
     new membership sales by the Club. All sales are from an Estancia like
     market-based program, where members on the sellers wait list determine
     the price at which they are willing to sell, match up with a willing buyer, and

     the Club collects a transfer fee for the transaction. Transfers of memberships
     as part of a real estate transaction are assumed to occur in the same manner
     with a transfer fee to the Club. This model assumes a reasonable number of
     such transactions over time as well as the sale of some fractional-equivalent
     memberships to lodges in the Valley.

     Offsetting these transfers and fractional equivalents is the assumptions of
     some reasonable level of resignations per year. Dues are assumed to be
     $12,500 in 2011 growing at a modest rate per year.

     The revenues and expenses are based on these new membership, dues, and
     transfer fee assumptions, as well the actual expenses from the previous
     owner’s year-end 2008 statements (unfortunately, the latest data we have
     available). (Most experts to whom we have spoken believe that the level of
     expenses being incurred by the Club through mid-2010 was not sustainable
     in this economy.) From those numbers, it has been assumed that the non-golf
     amenities such as the Summit Athletic Club, Trailhead, Nordic Center, and
     CVC tennis courts and swimming pool are transferred to the respective
     POA’s. All property owners would then pay for these expenses, and all
     property owners would have access to these amenities.

     Another key assumption is the member-owned Club would work with the
     CMD/CPOA General Manager and the CPOA & CMD Boards to contract many
     administrative functions, such as HR, IT, Admin, some clubhouse operations,
     and maintenance to create significant cost savings.

     Even with these costs savings, there is no doubt Club members would face
     difficult decisions regarding levels of service desired, dues levels, and
     methods to attract/retain members in a difficult economy.

     These assumptions result in a projection for the Club that is cash flow
     positive with sufficient cash to service the interest on the current Alpine
     Bank note with provision for principal payments and moderate capital needs.

     We can share this financial model and our detailed assumptions with the
     appropriate parties and compare our estimates with what a detailed audit of
     the Club books and proper due diligence would reveal. We recommend well-
     qualified industry consultants, who are familiar with golf club operations and
     creative marketing programs, be engaged to verify our assumptions and
     enhance the plans for running a successful club at Cordillera if the acquisition
     opportunity is reasonably available.

6.   Model Sensitivities
     The model demonstrates that, after difficult trade-offs, the Club can operate
     in a financially viable manner with 600 active members, provided the non-
     golf activities are transferred to the POA’s, and some savings of G&A

     expenses are achieved through cooperation and support of the CPOA and
     CMD management.

     The model and these conclusions are extremely sensitive to the membership
     assumptions. The number of dues paying members has a significant effect on
     the revenue projections. Some general comments on sensitivities:

     With 600 members and $12,500 dues:
           Every $600,000 assumption that varies either revenues or expenses
           equates to a $1000 dues change.
           If the community or Club decided against the transfer of non-golf
           amenities, the dues might exceed $13,000.
           If the consolidation of some of the G&A and clubhouse activities with
           the CPOA and CMD were not effected, then the dues might exceed
           If both 2 above were not possible, the dues would need to exceed
           The number of dues paying members is extremely important to the
           cash flow projections. At $12,500 dues, a loss of 50 members
           represents a reduction of dues of $625,000 or $1,000 dues impact.
           Likewise, 50 new or additional members would represent a dues
           reduction of $1,000.
           The downside impact of #2, 3, & 4 would require a dues level of over
           $15,000 to generate the base case cash flow and provide a strong,
           financially viable Club.

7.   Pros of Member Owned Club
           Best alignment of owners and members.
           Governance rules determined by the members.
           Board elected by members.
           Management, operations directed by Board.
           Tough decisions that will be required between level of services,
           privacy, exclusivity, access to restaurants, and level of dues will be
           made by Board/members.
           A strong, healthy, active and financially viable Club will enhance
           Cordillera property values.

8.   Cons of Member Owned Club
           Without cooperation of Club, CPOA, CMD, and potential savings, the
           dues would need to be $14,000.
           In the current financial climate, loss of 50 members would result in a
           dues increase of $1,000.
           Tough decisions that will be required between level of services,
           privacy, exclusivity, outside play, access to restaurants, and level of

dues can result in wide differences of opinion among members, which
could be divisive for the community.
Current membership deposit refunds and potential money from the
resigned membership list could be substantially reduced or

                  D. CPOA/3rd Party Note/Asset Buyout

Executive Summary
The purchase of the Alpine Bank Note and/or the assets of the Club are viable
options available to the CPOA or to a third party. Part I of this option explores the
ability of the CPOA to purchase the note, and potentially the assets of the Club. Part
II discusses a possible third party purchaser of the note.

Part I. CPOA Buys the Bank Note
It is within its charter of protecting and preserving the community property values
to consider and exercise these options. The CPOA has the legal authority and the
resources necessary to pursue an expeditious conclusion to the economic threat
currently facing the community.

       1.     Background
              Alpine Bank (Bank) is the 1st lien holder of all of the assets of the Club
              as evidenced by a Deed of Trust and Promissory Note. It has the legal
              right to assign this indebtedness to any party it chooses independent
              of the occurrence of a default. Although the Bank might be subject to
              legal challenge, it is believed it would prevail and would be within its
              rights to assign the obligation.

              The Bank holds the primary indebtedness ($12.7 million) of the Club
              and related entities. Virtually all of the assets of the Club secure this
              indebtedness. Although it appears, based on a review of the Deed of
              Trust dated 6/26/09, that a number of technical defaults may have
              occurred, a payment default has not yet occurred and the Bank has
              not exercised any rights with respect to accelerating the repayment of
              the obligation. This scenario analysis will deal with the potential of
              purchasing the Bank’s position with respect to the debt obligation.

       2.     Summary of Facts/Context Surrounding Scenario
              A recorded Deed of Trust dated June 26, 2009 with a lien amount not
              to exceed $13.7 million was entered into among Cordillera Golf Club,
              LLC, and Cordillera F&B, LLC, both Delaware Limited Liability
              Companies (“Borrower”) and the Bank. This Deed of Trust is secured
              by Club owned real property and water rights within the Cordillera
              property boundaries.

              According to the Deed of Trust, a variable rate promissory note
              (“Note”) maturing June 26, 2012 was also executed by same parties.

              The Bank holds the entire loan indebtedness on its books, has not
              participated any of the credit to other financial institutions, and has

     the legal right to “sell the Note” to any party of its choosing without
     permission of the Borrower. A reference in the Deed of Trust indicates
     that David A. Wilhelm is the Guarantor of this obligation.

     A UCC Collateral Financing statement was filed January 19, 2010
     evidencing a security interest in the personal property of Cordillera
     Golf Club, LLC and Cordillera F&B, LLC in favor of the Bank.

     A recorded Deed of Trust, Security Agreement, Assignment of Leases
     and Rents, and Fixture Filing dated June 23, 2010 was entered into in
     consideration for a revolving loan in the maximum principal amount
     of $6.5 million. The grantor of the agreement was Cordillera Golf
     Club, LLC, Cordillera Golf Holdings, LLC, WFP Cordillera, LLC, (all
     Delaware Limited Liability Companies) and an unnamed Delaware
     limited liability company (“Grantor”). David A. Wilhelm is named as
     “Lender” and the Public Trustee of the County of Eagle is named as

     This Deed is believed to represent a second lien position on the Club
     assets behind the Bank security interest although the Grantor in this
     filing differs from the Borrower in the Bank filing.

3.   CPOA Strategic Option
     The CPOA has the legal authority to purchase the Bank Note.
     Purchasing the Note could be viewed as both an investment and a
     means of protecting the community and its assets in the event of
     default under the current loan agreements between the Bank and the
     Wilhelm entities.

     The CPOA has the legal authority to purchase the assets of the Club
     and could separate the facilities/assets into ownership positions that
     correspond with their use by the community. The CPOA may choose
     to keep certain assets, i.e. athletic workout facilities or the Trailhead,
     and open them up to all property owners. It may choose to spin-off
     the golf course assets to a Golf Membership group, or perhaps a joint
     venture with a third party.

4.   CPOA Resources
     Under the assumption that the Bank will “sell” the obligation, there is
     the issue of price and ability to pay for it. The price will be a function
     of whether the Bank believes it is fully collateralized and whether
     anyone of the potential buyers of the obligation is willing and capable
     of paying face value. There may also be a consideration of Bank
     regulatory agencies dictating what the Bank can or cannot do. It is
     difficult to assign a probability of acquiring the obligation at a
     discount at this time. However, discounting could take the form of

restructuring the obligation with a reduced interest rate, a modified
principal amortization and/or an extended repayment term.
Regulators and lending institutions provide for a “Troubled Debt
Restructuring” program that establishes precedence for such an

Pursuant to Section 3.21 of the CPOA By-Laws, the power to borrow
money to finance the purchase is vested in the Board of Directors.
Effectively, the CPOA Board can enter into a loan agreement without
the prior vote of a majority of all CPOA members. It may, however,
choose not to do so without a vote or extensive community feedback.

Under the scenario of purchasing the Note, the expectation would be
the CPOA would borrow the funds necessary to purchase the Bank’s
position. As holder of the Note, the CPOA would then be the recipient
of all principal and interest payments made by the Borrower and
would have first lien against the assets of the Club to secure payment
of those amounts. If defaults occur, the CPOA could accelerate the full
principal payment on the Note.

However, a material default under the Note that could potentially lead
to a foreclosure on the Borrower could result in the CPOA being
required to pay the debt service under its borrowing agreement. This
could be dealt with in two specific ways:

     A.   The CPOA could deem the annual debt service obligation a
          “Common Expense” item and collect it as part of each
          owner’s annual base assessment. The interest component
          in today’s rate environment on a $12.7 million obligation
          would be about $1,000/year/property owner. In addition
          to benefitting from a stabilized community economic
          environment, all property owners could be deemed the
          equivalent of a “social” member and be provided unlimited
          access to all of the non-golf course amenities and perhaps
          limited access, i.e. specific number of rounds and/or
          accompanied guest status to the golf courses. Rancho Sante
          Fe Golf Club has a successful history of just such a program.
          “Social” members at Rancho Santa Fe have unlimited access
          to the non-golf amenities and can play six rounds of golf a
          year for $600 and can invite one guest per year for $100.

     B.   Funds to buy the Note or the assets could come in the form
          of a Special Assessment. A Special Assessment for this type
          of acquisition could be levied on all CPOA members, but
          would first require the affirmative vote of CPOA members
          (approximately 425 yes votes to pass). Special Assessments

                        could be paid in one lump sum or the CPOA could permit
                        installment payments to spread the obligation over a longer
                        period of time.

       5A.    Pros/Benefits of CPOA Note Purchase
                 The CPOA could accelerate full payment in the event of default by
                 the Club.
                 CPOA can take this action without relying on outside parties.

       5B.    Pros/Benefits of CPOA Asset Purchase
                 The community would have the opportunity to control is own
                 destiny without the uncertainties brought about by a for-profit
                 Stability of ownership and certainty of ongoing operations should
                 result in increased property values and community desirability.
                 Attractive lifestyle amenities that other mature, upscale
                 communities like Cordillera are creating would be immediately
                 accessible and open to all property owners.
                 Golf club operation and costs would be borne by golf members
                 with the community as a whole benefiting from the prestige of the
                 Club’s proximity and accessibility to world-class courses.
                 CPOA can take this action without relying on outside parties if the
                 opportunity becomes available.

       6A.    Cons/Drawbacks of CPOA Note Purchase
                 Though the CPOA may own the Note, it does not control the assets
                 prior to foreclosure.
                 Legal and other transaction costs would be incurred upon
                 acceleration and foreclosure.

       6B.    Cons of the CPOA Asset Purchase
                 The possibility the amenities cannot be owned and run more
                 efficiently by property owners and/or golf members than the
                 current owners.
                 This requires the entire community, made up of numerous
                 interests and opinions, to conclude our possible long-term
                 interests outweigh short-term legal and financial concerns with
                 higher assessment levels.

Part II. Third Party Note Buyer
A third party buyer could be a member(s) group or an unrelated investor. It is not
possible to fully speculate on the motivation that a third party buyer would have in
negotiating the purchase of the Bank Note obligation. It could be a step in a process
to eventually purchase the Club, or purely a transaction-oriented, profit-motivated
investment. Although it is believed the Bank has the legal right to sell the Note to

any party it chooses, it may decide not to do so for a number of reasons. In the event
a third party does purchase the Note from the Bank, it is not clear the uncertainty
the community is currently experiencing would be eliminated.

       1.     Pros/Benefits of Third Party Action
                 A regulated financial institution would no longer hold the primary
                 obligation of the owners and the Club.
                 A non-Bank investor/lender may have more flexibility in dealing
                 with the owners and the Club.

       2.     Cons/Drawbacks of Third Party Action
                 Unknown motivation of a third party investor/lender.
                 Does not necessarily remove the uncertainty of the relationship of
                 the owners and the Club.

                         E. White Knight Buyout

1.   Summary of Scenario Being Analyzed
     The members of the Club could purchase the Club through a two-step
     process with a friendly White Knight. The core analysis of the member
     buyout is assumed to be the same in this scenario and is not repeated here.

     A White Knight group could purchase the Club, operate it for a period of time,
     and then sell the Club to the members in a friendly, negotiated process.

     This would be a two-step process with Step 1 being a buyout by a group
     friendly to the members, followed by a Step 2 sale to the members. There are
     believed to be several groups considering such a transaction and several
     more could potentially be identified.

2.   Key Issues
     Issue to be resolved for a viable White Knight/Turnover owned Club:
            Identification and involvement of a trusted White Knight, perhaps at
            the invitation of the members, or any successor to the CCAC.
            A negotiated sale by WFP to the White Knight on reasonable terms.
            A friendly, negotiated sale of the Club by the White Knight to the
            members on reasonable terms.

3.   Assumptions
     The assumptions can be the same as in the member-owned scenario.

4.   Pros of White Knight/Turnover to Member-Owned Club
           Same as under the member buyout.
           White Knight may be more capable of negotiating a sale with WFP due
           to ability to move without member vote, more financial flexibility,
           more staff resources for due diligence, etc.
           White Knight may have easier access to funds than a member group.

5.   Cons of White Knight/Turnover to Member Owned Club
           May cost the members more money if the White Knight needs a return
           on investment. Even if the White Knight passed the Club onto the
           members at his/her purchase price, there could be double transaction
           May cost the members more money if market conditions or Club
           operating conditions change the value of the Club while it is in the
           possession of the White Knight.
           Delays certainty about the real future of the Club.
           White Knight might prove to be unfriendly.

              F. 3rd Party Buyout – Benevolent Dictator

1.   Summary of Scenario Being Analyzed
     This 3rd party buyout by a Benevolent Dictator scenario evaluates how the
     Club could be acquired and operated in a manner similar to the member-
     owned scenario but with a friendly, strong owner in control. This scenario
     differs from the White Knight scenario in that the Benevolent Dictator does
     not sell the Club to the members but continues to own and operate it in a
     fashion satisfactory to the members

     A wealthy individual or group, willing to financially support the Club by
     subsidizing the operations shortfall, might purchase the Club. There are
     many successful Clubs in the county owned and operated by benevolent
     dictators whose motive is emotional rather than financial. They simply love
     the game and the community, and they have the financial means to benefit
     the Club and the community.

     While the Club members may represent the natural buyers and owners of the
     Club, a friendly, club-loving, and financially capable individual or group could
     provide all the benefits of the member owned Club, subsidizing the
     operations to provide the members the same services and dues level as the
     member-owned Club.

2.   Key Issues
     Issues to be resolved for a viable Benevolent Dictator buyout:
            Identification and involvement of a trusted Benevolent Dictator,
            perhaps at the invitation of the members or the successor to the CCAC.
            A negotiated sale by WFP to the Benevolent Dictator on reasonable

3.   Assumptions
     The assumptions are the same as in the Member-owned scenario,
     supplemented by the assumption the Benevolent Dictator subsidizes any
     shortfall in operations while maintaining an acceptable level of services and

4.   Pros of Benevolent Dictator Owned Club
           Financial security more assured.
           As trust is restored, the cloud of uncertainty is removed.
           New membership sales may increase.
           Members enjoy the Club, and anger goes away.
           The tough decisions that will be required on levels of services,
           privacy, exclusivity, access to restaurants, and level of dues will be
           made by a strong, friendly leader.

5.   Cons of Benevolent Dictator Owned Club
           Members are still not in control of their own destiny.
           In current financial climates, loss of members could result in waning
           of benevolence.
           When the Benevolent Dictator dies or decides to sell the Club, the
           successor may not be friendly.
           There may not be a Benevolent Dictator willing to subsidize the Club.
           The presumed Benevolent Dictator may not be friendly or a good Club

              G. Joint Venture with a Professional Firm

1.   Summary of Scenario Being Analyzed
     This JV scenario evaluates how the Club could be acquired and separated into
     Club assets, facilities and programs to be owned, governed, and operated by
     the JV.

     The members of the Club may have an opportunity to purchase the Club
     through a joint venture with a professional Club management firm such as
     Club Corp, Troon, or others.

     A JV with a professional Club management firm would represent another
     viable option for the community.

2.   Key Issues
     Issues to be resolved for a viable JV owned Club:
            The issues are the same as in the member buyout option.
            Additionally, a viable, acceptable 3rd party, professional firm would
            need to be identified and attracted to this option.
            Terms of the JV between the professional firm and the members
            would need to be negotiated including buyout equity stakes, levels of
            performance of the 3rd party firm, levels of service, cost structure and
            responsibilities, levels of transparency, governance guidelines, buyout
            provisions for both parties, terms of contract termination, etc. These
            are complex issues to negotiate.

3.   Assumptions
     The assumptions are the same as the Member-owned scenario.

     Additionally, the terms between the parties must be satisfactorily negotiated.

4.   Pros of JV Owned Club
           Good alignment of owners and members.
           Governance and operational decisions made by members and
           professional industry managers.
           Board elected by members and JV partner.
           The tough decisions that will be required between levels of services,
           privacy, exclusivity, access to restaurants, and level of dues will be
           made by members and professional managers.

5.   Cons of Member Owned Club
           If the “friendly” atmosphere between the partners turns sour, the JV
           partner could be at odds with the members.

A professional firm with the expertise to operate in this fashion and
who is also willing to be an equity partner may not be found.

            H. 3rd Party Buyout – Profit-Oriented Buyout

1.   Summary of Scenario Being Analyzed
     This 3rd Party buyout scenario by a profit-motivated buyer evaluates how the
     Club could be acquired and operated like many Clubs around the country.
     The current owners, WFP, fit this definition, but there are other highly
     recognized names that own and operate clubs.

     A professionally managed, profit-motivated, 3rd party may well have an
     opportunity to purchase the Club. There are many successful Clubs in the
     county owned and operated by 3rd Party Professionals whose motive is
     financial. However, they may or may not operate for the benefit of the
     community. They often operate, understandably, for their own financial
     benefit. However, since the Club is not operationally profitable, and there is
     no undeveloped real estate attached to the Club (historically the greatest
     motivation for a Club owner) this scenario of a profit-motivated buyer
     buying the Club is less likely than other scenarios.
     The new 3rd party owner would also need to find a way to eliminate the
     liabilities of the current Membership Plan and provide a platform for a
     financially viable Club.

2.   Key Issues
     The issues to be resolved for a viable 3rd Party, Profit Oriented Club Owner
     are the same as those in the member buyout.

3.   Assumptions
     The assumptions and financial analysis for this scenario are the same as
     those in the member buyout.

4.   Pros of 3rd Party Profit-Oriented Owned Club
           Management likely to be professionally competent.
           Stability in the community through removal of the cloud of

5.   Cons of 3rd Party Profit-Oriented Owned Club
           Control of the Club is in the hands of another owner whose interests
           and financial motivations may not coincide with the members thereby
           affecting dues, services, levels of play, etc.
           Such an owner is unlikely given the Club is not profitable and there is
           no undeveloped real estate associated with the Club.

                            I. CMD Public Option

1.   Executive Summary
     As a last resort option, CMD is considering issuing tax-free bonds to finance
     the purchase of the assets of the Club, exclusive of liabilities. This option
     would result in CMD ownership of the Club assets and could result in
     expanded public golf play. Taxes would increase for all property owners,
     which, although deductible, would not be popular. The financial assumptions
     underlying the option are preliminary and would have to be reevaluated if
     and when CMD considers exercising this option. This option may provide the
     leverage to pursue other more favorable options. The CCAC recommends
     adoption of this ballot initiative in November 2010, by the community.

2.   Summary of CMD Scenario
     As stated in its Governance Guidelines, two of the roles of the CMD are:
            To make financial, operational and strategic plans and take
            appropriate decisions on actions which are in the best interests of
            property owners.
            To protect the District’s assets and prevent asset losses beyond those
            required for the normal course of business.

     CMD is considering the restructuring of the Club assets into a Cordillera
     amenity as a “last resort.” As proposed, all Club amenities would be owned
     by CMD. The non-golf amenities would be used and paid for by all property
     owners. Although the golf courses would be owned by the CMD, the
     operating costs of the golf facilities would be fully supported by those who
     participate in CMD’s golf offerings.

     The CMD vote process, terms of borrowing, and the ultimate operations of
     the assets purchased are the responsibility of CMD under this option. This
     report examines the CMD Public Option in the context of other community
     options and offers comments on how the CMD Public Option may impact the
     Cordillera community and property values.

     A ballot proposition describing this scenario has been placed on the
     November 2, 2010 ballot for consideration by eligible CMD voters. Such a
     proposition is necessary due to Colorado law requiring all tax increases and
     authorizations to issue debt to be approved by eligible voters.

     The ballot issues authorize the sale of bonds for CMD to purchase the assets
     of the Club at any time during the following four years under certain
     circumstances if the current owner or a future owner defaults on its loans or
     abandons operations. (Presumably, the assets alone could also be purchased
     if the liabilities were to be avoided by other means.) CMD would not be
     obligated to issue such bonds. The funds could not be used for any purpose

     except to purchase the assets, exclusive of Club liabilities, nor could
     operating revenue from the assets be used for other purposes except those
     related to the assets.

     Any registered Colorado voter who is a Colorado Resident and lives in CMD
     or who owns property in CMD or whose resident spouse owns property in
     CMD can vote on these ballot issues. Non-Colorado residents cannot vote.
     There were 318 registered voters on the last list provided by Eagle County
     dated September 2010. There may be 190+ additional persons eligible to
     vote if they request a ballot.

     The CVCMD board of directors has authorized a similar ballot issue for its
     voters and has indicated a willingness to cooperate with the CMD through an
     intergovernmental agreement.

     Due diligence would have to be completed by CMD before it would agree to
     purchase the assets of Club.

3.   Key Issues
     The key issues to consider in assessing this option include:
            The impact on property values.
            Property tax or fee increases for property owners if and when the
            bonds are issued.
            Only eligible CMD voters would be able to legally approve this option.
            Will CMD-owned courses be attractive to Cordillera property owners?
            Will the financial projections to be verified by CMD prove realistic?
            The percent of debt on CMD’s balance sheet after the bond offering
            would rise from 33% to 39%.

4.   Assumptions Used By CMD for This Option
     The following information is taken from the materials provided to the CMD
     Board by its staff and Treasurer (the “CMD Bond Election Financial
     Materials”) prior to the Board’s adoption, on August 16, 2010, of a Resolution
     calling the November election, describing this option:

     “Ballot Issue B would authorize CMD to sell up [to] $15,000,000 in bonds. If
     $15,000,000 were borrowed for 25 years at 4.8% interest to purchase the Club
     Assets, the annual debt service cost of $1,043,053 would be paid by property
     taxes. The average income tax deductible property tax increase for each CMD
     property owner to cover debt service and recoup the property taxes lost to CMD
     due to [Club] no longer paying property taxes would be about $1,600 per year.
     If the [Club] can be purchased for less, the property taxes would be less.

     “Ballot Issue A would authorize CMD to collect up [to] $1,500,000 in additional
     property taxes per year to operate the Summit Athletic Club, Trailhead, Nordic

Center, Lodge access, and Valley Swim and Tennis Club. The cost of $1,500,000
per year is based on financial information provided to the members by the New
Club Board in 2008 and to provide funds for capital improvements to the

“The average tax deductible property tax increase to fund the operational
expenses would be about $1,765 per property per year. The total average
property tax increase per property owner would be approximately $3,365 per

“The fees for golf privileges would be about $8,500 for CMD property owners
and approximately $11,865 for non CMD property owners. With 450 CMD
property owner golf members and 200 non-resident golf members, the CMD
golf operations should be financially viable.

“A $2,000 refundable initiation fee per CMD golf member and a $5,000
refundable initiation fee per non-CMD property owner golf member would
generate $1,900,000 for working capital for golf operations.

“The [Club] assets would be purchased only in the event of a bankruptcy or
foreclosure in order to eliminate the outstanding financial and legal
obligations that exist for the current owners. The return of membership
deposits and all membership plans and agreements would not be assumed by
CMD and would remain the responsibility of the currents club owners or
discharged in bankruptcy.

“All information provided above is based on CMD alone buying all assets owned
by [the Club]. The Cordillera Valley Metro District (CVMD) is putting forth
Ballot Issues as described above in the amount of approximately $2,000,000 in
bonds and $195,000 in operational funds. While it is anticipated that both
Metro Districts will pass the Ballot Issues, CMD must assume only the CMD
Ballot Issues will pass. All of the tax increases above are based on CVMD not
participating. If CVMD passes their Ballot Issues the property tax increases
would be approximately 13% less for CMD property owners. CMD could
purchase the Valley Golf Course even if the CVMD Ballot Issues fail.

“Further investigation and validation of the items above is required.
[Emphasis added.]


       Must be an asset purchase or foreclosure asset purchase in order to
       eliminate the outstanding financial and legal obligations that exist for
       the current owners. This means that all outstanding membership
       liabilities are negated including the return of membership deposits and
       all membership plans and agreements are voided.

            CMD to own the club assets with all property owners having Athletic
            (Social) privileges.
            CMD property taxes to pay for the acquisition of all club assets.
            Golf Member fees to pay for all golf operations and golf related capital
            CMD must hold an election and the majority of the eligible voters must
            approve the debt and new property taxes.”

5.   Financial Analysis and Commentary
     According to the CMD Bond Election Financial Materials, the projections for
     this option are:

     Total Revenue                               $10,548,000
     Total Expenses                                8, 540,000
     Net Income                                    2,008,000

     Expenses were estimated from prior work of the New Club Board with
     certain economies of scale assumed and the retention of all existing
     members. It was assumed all Cordillera property owners would be charged
     social fees and that food and beverage operations would be outsourced and
     become more casual.

     Furthermore the effect of this proposal would be to increase property taxes
     for Cordillera property owners by approximately 10%. Cordillera tax rates
     are already relatively high.

     We believe the Club currently pays approximately $882,000 in property
     taxes. These taxes would not be paid if CMD owns the assets. However,
     approximately $332,000 of those taxes would have been collected by CMD if
     the assets remained owned by a tax-paying, non-governmental entity. The
     difference is approximately $550,000.

     As with all financial estimates, there is considerable uncertainty to any
     projections. CMD will verify all the estimates before any bonds would be

     If the estimates underlying this case turn negative, the community has the
     future option to restructure this initiative in ways to avoid some of the
     negatives, e.g., exploring a CMD purchase of the non-golf assets in connection
     with a private entity (member group or other parties) acquiring the golf
     amenities to maintain a private golf Club presence. Such a changed initiative,
     depending upon the structure, could require a new set of ballot propositions
     to be submitted to voters.

6.   Issuing Taxable Bonds
     An additional option considered by the CCAC was the potential issue of
     taxable, as opposed to tax-exempt, bonds by CMD and the acquisition of the
     Club assets with the proceeds of those bonds. The option was explored to
     determine whether use of taxable bond proceeds to acquire the assets would
     allow CMD to lease the assets to a private entity for operation, or to
     otherwise operate the assets in a more “private” manner.

     The CMD may issue taxable bonds, and the bond market is currently good for
     taxable, government-issued bonds, provided those bonds are investment
     grade rated. The interest rate on an investment grade rated taxable issue is
     anticipated to be approximately 100 to 225 basis points higher than the
     interest rate on a tax-exempt issue.

     Under federal tax law analysis, the CMD likely would have more flexibility
     with regard to restricting public access to the Club assets if those assets were
     purchased with the proceeds of a taxable CMD bond issue. However, under
     state law, the CMD, as a unit of government and political subdivision of the
     State, would still be required to make its facilities available to the public at
     large, regardless of whether the assets are purchased with taxable or tax-
     exempt bond proceeds.

     The CMD Board is analyzing what use/access policies it might consider
     should it acquire the Club assets, including preference for tee times, pricing,
     etc., for residents vs. non-residents. At this time, based on the advice of legal
     counsel and bond underwriters, the CCAC believes a taxable CMD bond issue
     to acquire the Club assets does not provide benefit beyond that of a tax-
     exempt bond issue to justify the higher interest rate, but ultimately the
     structure of any CMD bond issue is the decision of the CMD Board.

7.   Pros and Cons of the CMD Public Option
           A. Pros/Benefits
                     There is little risk to this option as CMD has no obligation to
                     issue these bonds if Club bankruptcy or foreclosure does
                     not occur, if due diligence shows that such a purchase is not
                     advisable, or if further analysis of the financial projections
                     does not seem promising.
                     If the bonds are issued, it puts control of Club
                     amenities/assets in the hands of the community members.
                     Having non-golf amenities owned, supported financially by,
                     and more utilized by property owners could enhance the
                     sense of community at Cordillera.
                     Provides incentive for other parties to deal with the Club
                     situation in more favorable ways since this option is a back-
                     up “last resort.”

                      For Club members, a portion of what is currently paid as
                      dues will be paid as tax deductible property taxes.

            B. Cons/Risks
                    Higher taxes or assessments for Cordillera property
                    owners, which are already at a high level in the Eagle
                    As structured, Cordillera property taxes would go up based
                    on assessed valuation of property. Therefore, more
                    valuable properties would be paying more in taxes than
                    less valuable properties for the same usage opportunities.
                    CMD ownership and more public play may be viewed by
                    some Club members as inconsistent with the type of Club
                    they joined.
                    Every Cordillera property owner would not be able to vote
                    on these issues.

8.   Summary Assessment
     This “last resort” option seems wise to have available to the community.

     There is little downside since bond issuance does not have to be executed.

     There is good upside as this option puts pressure on all parties to find a more
     attractive scenario and would likely enhance property values versus a Club in

     We recommend the CPOA and other influential groups help the CMD
     persuade voters for its passage.

                     J. Escrow for 2011 Club Dues

1.   Summary of Dues Escrow Issue
     Club members are concerned about paying their 2011 dues to the Club. Many are
     questioning where all the Club revenue has gone and worry their 2011 dues may be
     used for purposes outside of Cordillera.

     Club members are also worried that by not paying their dues their Club membership
     will be revoked. Many are raising the issue of an escrow account to collect the dues
     and for an outside party to oversee that the expenditures from this escrow are for
     legitimate Cordillera purposes.

2.   Summary of the Facts/Context Surrounding the Dues Escrow Issue
         Without other notification from WFP, 2011 Club dues are to be paid for the
         full year on January 1, 2011. The aggregate amount of dues would be in the
         range of $7.2 -$7.6 million, more or less depending on both the number of
         members at that time, as well as any dues increase.
         There has been no transparent financial accounting by the Club given to the
         general membership. The exact nature of the financial information given to
         the owner-sponsored Finance Committee is not known.
         Many Club members do not want to pay dues to the Club since they do not
         know where past revenue has gone, and they are uncertain as to the Club’s
         viability under the current ownership.
         According to counsel, if a Club member did not pay their dues in 2011 in a
         satisfactory manner, or was delinquent for more than 90 days, then, pursuant
         to the November 30, 2007 Club Plan (which may have been or may be
         amended), the membership could be revoked. If revoked, the member would
         lose all rights and privileges under the membership plan, including the right
         to be on the Sellers Waiting List. Nevertheless, the revocation should in no
         way affect the repayment of the Membership Deposit after 30 years.
         Alpine Bank could require an escrow account for the dues. Though we
         believe that the Bank is within its rights to require an escrow if it deems itself
         to be insecure through its UCC filing, the Bank may not take that action.
         Furthermore, the Bank may not be viewed as an independent agent for this
         type of action.
         Members of the CCAC have discussed with Patrick Wilhelm and counsel the
         matter of the Club escrowing dues voluntarily. As of this writing, some
         discussions are underway on how such a dues escrow could be set-up, which
         might be satisfactory to the parties. We do not know whether that voluntary
         escrow would be set-up in a manner satisfactory to the Club members.
         The CCAC is aware of possible member-initiated litigation to be filed in Eagle
         County Court requesting the escrowing of member dues based on certain
         claims. This action has not yet been filed, and we do not know if it will be
         successful if it were filed.

3.   Conclusion
     The CCAC cannot take a position as to whether the membership should or should
     not pay their dues, as we are an advisory committee to the CPOA. Members will have
     to make their own independent decisions as to how they wish to proceed depending
     on resolution of the escrow issue.

         VI. Formation of a Cordillera Independent Entity

1.   Executive Summary
     To be successful in these challenging Club circumstances, a community must
     be united with an empowered, well funded, entity that has the authority and
     latitude to pursue the various strategic alternatives in the best interests of all
     stakeholders. Our community is not yet so organized.

     We recommend the formation of an independent, non-profit entity with a
     seven-member board, utilizing numerous committees, with a line-of-credit
     funding level from the CPOA of $1,000,000. The board would conduct its
     work in accordance with written Governance Guidelines and the common
     community values.

2.   The Need for a Unified Approach
     Based on the experiences of other Clubs going through similar circumstances,
     and the counsel of Addison Law, Cordillera can emerge from these
     challenging times stronger and better than before. To prosper, the
     community must be unified, acting in concert with an appropriate structure
     of trusted and skilled volunteers who are well funded and empowered to act
     with a minimum of red tape.

     In spite of the good community efforts to date to deal with the Club situation,
     we are not yet operating in this fashion.
             CCAC is an advisory committee with no authority to pursue options or
             negotiate with any parties.
             No group has emerged from the Club members to negotiate an
             arrangement with WFP.
             The non-resident Club members are not represented by CCAC or
             The Club members consist of divergent groups such as Premier,
             Signature, Social, National, and other membership categories with
             varying priorities and rights.
             While operating in concert, the CPOA, CVCPOA, CMD, CVCMD, and the
             TSPOA are not one body and may have divergent views at times.
             Some community groups are considering legal action against WFP and
             are spending money, or attempting to raise money for this purpose.
             The community has a desire for constant communication, and the
             experience of other Clubs demonstrates that a constant flow of
             information is essential. There are a range of feelings among people
             from anger to fear and confusion. There is not a clear sense of who is
             doing what to get us out of the situation.

     While CCAC has provided in this report a list of various strategic options with
     their merits and drawbacks, the situation is dynamic and will undoubtedly

     evolve in coming months with new alternatives and variables emerging. To
     avoid this lack of unity and prevent the emergence of divisive factions that
     could weaken the community, a new approach is essential.

3.   Form an Independent Entity
     The CCAC recommends an independent, non-profit entity (NPE) be formed,
     which we suggest be termed the Cordillera Transition Corporation. This NPE
     would be independent, empowered to negotiate and act, legally protected
     through D&O insurance purchased separately, well staffed, well funded, and
     able to work in the best interests of the community.

     The independence of this NPE from any Club or community elected body will
     give it the flexibility and authority to act promptly and decisively in the best
     interests of the community if it consists of trusted, competent members,
     communicates effectively, and operates transparently.

     We suggest its mission be:
                        “To represent all Cordillera stakeholders
         in finding an acceptable solution to The Club at Cordillera challenges,
               preserving and enhancing our property values and lifestyle”

     The NPE would use the information and assessments gathered by the CCAC
     to pursue this mission, building on and improving our work.

4.   Authority of the NPE
     The NPE needs to operate with maximum flexibility, be empowered to act,
     and be unconstrained by public meeting constraints for sensitive topics like
     change of control negotiations. However, the appropriate community groups
     will retain ultimate control and authority over their respective areas of
     interest. Controls will come from several sources:
                 By funding on a monthly line-of-credit draw, CPOA can stop
                 Any negotiated proposal between the NPE and WFP regarding a
                 change in control of the Club will be subject to approval and/or
                 funding by Club members.
                 Any negotiated proposal between the NPE and WFP regarding
                 asset transfer to CPOA or CMD will be subject to agreement by
                 CPOA or CMD

5.   NPE Structure
     The NPE would be constituted as follows:
              Board. We recommend a seven-member board of qualified,
              representative community leaders. (Five members are too little for
              the workload involved; nine or more members become too
              unwieldy for nimble action.) This board would select its own

               Chairperson and other officers as appropriate, e.g., Vice Chair(s),
               CFO, Legal Officer, etc. The initial term of the board members
               would be one year followed by an election as provided in the
               Bylaws. If desired CPOA and/or CMD liaisons could work with the
               Committees. The board would appoint various committees to
               pursue critical topics, reaching outside its own ranks to utilize the
               skills and expertise of those interested in serving, ensuring wide
               stakeholder representation. Committees might include:
                   - Legal
                   - Long-Range Strategic and Financial Planning (for the
                       operation of a successful Club).
                   - Negotiations (with any appropriate party)
                   - Communications (with all stakeholders)
                   - Finance/Audit/Governance (accounting, due diligence, etc.)

               The committees would each have a liaison from the board to work
               with them. The committees would operate with written charters
               created by the board and counsel
               Governance. The NPE board and committees would operate with
               a set of Governance Guidelines scripted from the appropriate
               Cordillera documents and customized under the advice of counsel.
               Topics would cover subjects like written roles and responsibilities,
               Code of Conduct, Conflicts of Interest, periodic board and
               committee evaluations, terms of office, removal from office, etc.
               Values. The board would be constituted to conduct its work in
               accordance with CPOA and CMD community values of:
                   - Integrity
                   - Respect
                   - Communication
                   - Creativity
                   - Community
                   - Excellence
                   - Transparency
                   - Fiscal Prudence
               Effort. All board and committee members would be expected to
               work on a pro bono basis and be expected to devote a substantial
               amount of time (perhaps averaging up to 20 hours/week) to this

6.   Forming the NPE
     The NPE would be formed with the assistance of legal counsel, who would
     prepare Articles of Organization/Incorporation, By-Laws, an Operating
     Agreement, and such instruments necessary. The Articles of
     Incorporation/Organization would establish the initial board of directors for

     the NPE, and future boards would be elected or appointed as provided in the
     By-Laws. The NPE would be authorized to conduct business within the State
     of Colorado and be registered with the Office of the Colorado Secretary of

7.   NPE Issues
     The NPE would be expected to deal with a host of strategic, tactical, technical,
     legal, marketing, and operational issues such as:
                Negotiating an acceptable resolution to the current situation with
                appropriate parties.
                Developing a marketing and operational plan for the successful
                operation of the Club in concert with the community if a change in
                control of the Club occurs.
                Defending or initiating appropriate legal action in liaison with
                separate groups who may be operating independently.
                Constant communication to all relevant stakeholder groups.

8.   Budget and Funding the NPE
     Based on the experience of other communities (such as Bonita Bay, Amelia
     Island, Ocean Reef, and others) going through these circumstances and the
     advice of counsel, we recommend a funding level of $1,000,000 be targeted
     for this NPE to effectively accomplish its work and to demonstrate the
     seriousness with which the community takes this work. As an early,
     preliminary estimate, the $1,000,000 might be spent as follows over time if
                    Legal                              $500,000
                    Industry consultants/experts        150,000
                    Marketing/communication             100,000
                    Financial, audit, due diligence     100,000
                    Administrative support                50,000
                    Contingency                         100,000

     Operating under the community value of Fiscal Prudence, these funds would
     be spent as necessary over time, e.g., if a change in control of the Club with
     WFP or a third party is not possible, spending might be curtailed; if litigation
     is not needed, spending might be curtailed, etc. The board would use pro
     bono community volunteers wherever possible, as our community is rich
     with talented people willing to help.

     Other communities who have been through these challenges have indicated
     spending from a low of $250,000, to a median of $500,000, up to $1,000,000.
     We have chosen to recommend the $1,000,000 level.

     There are several potential sources of this funding:
               A line-of-credit loan from the CPOA/CVCPOA/TSPOA drawn on as
               necessary monthly. This loan might be structured to be repaid in
               whole or in part, as appropriate, following a successful change in
               control of the Club by mutual agreement of the Club members and
               the CPOA.
               CPOA special assessments of all property owners supplemented by
               requests for comparable sums from non-resident Club members.
               (Not recommended.)
               Requested voluntary contribution from Club members. (Not
               recommended. This approach was utilized by the New Club Board
               in the past with limited success as only a few hundred members
               contributed amounts ranging from $250-1,000.)
               Request for funding from selected potential partners, joint venture
               participants, and/or industry service providers.

     We recommend the line-of-credit loan as the funding source.

     The board Chairperson or a Vice Chair would be asked to report to the
     CPOA’s of the community in public or executive session if appropriate.
     Periodic town hall meetings, web site postings, etc. would also be included as
     part of the comprehensive community communication program.

9.   Staffing
     The CCAC is prepared to work in a Transition Team role with and alongside
     this NPE board for 30-60 days to bring them quickly up to speed.

     The nominating group who selected the CCAC members under the direction
     of the CPOA and CMD boards should be reconstituted to select appropriate
     community members for service on the board using such criteria as:
               Expertise and skill level
               Community credibility
               Willingness to serve and work
               Representative of various stakeholder groups
               Conflicts of interest.

10.   Pros and Cons of the NPE Recommendation
            A. Pros
                  Provides an independent, empowered, funded entity to unite
                  Cordillera and pursue the best alternative for all stakeholders
                  as quickly or as slowly as appropriate.
                  Sends a clear message to all parties of our serious intent.
                  Based on experiences of other Clubs and counsel, gives
                  Cordillera the best chance to prosper.
                  Offers the best chance for the community to protect its
                  property values.

            B. Cons
                 The CCAC is recommending another group take up this work.
                 However, as chartered, our mission does not allow us to
                 operate with this authority.
                 Requires substantial funding to pursue.
                 Is independent of any elected body, so fears of improper
                 spending or actions may arise.

11.   Recommendation
      The CCAC recommends the formation of this NPE as soon as possible,
      hopefully in early October.

                  VII.   CCAC Summary Conclusions

1.    An independent, non-profit entity, initiated by the CPOA, should be formed
      and funded to address the issues facing the Cordillera community.
2.    The community should approach the issues in a unified, well-organized,
      well-funded, and intelligently structured fashion, drawing on the many
      talented resources available.
3.    A resolution must be found to the dues escrow concerns currently facing
      Club members.
4.    The community has numerous strategic and tactical options to explore with
      numerous sub-elements in each. Undoubtedly, more options will emerge as
      some of the current alternatives prove unfeasible or undesirable.
5.    WFP remains in control of the Club with difficult dues and service levels
      decisions pending. Their future plans for selling the Club or remaining to
      operate it are uncertain. Club members could attempt to provide input on
      these decisions through approaches like a joint venture with WFP, but trust
      and management issues may make this option unpalatable.
6.    A member buyout of the Club to keep it as a private entity is desirable but
      would require excessive liabilities to be dealt with, may require a request
      to the community for the divesting of non-golf assets, and is predicated on
      reasonable price and terms being negotiated with WFP.
7.    The CPOA could purchase the Club assets and/or bank note, but this action
      might generate concern among property owners about costs, fees, and
8.    A White Knight buyer for the Club could be solicited who could act
      promptly with a minimum of constraints. The White Knight would then
      negotiate an acquisition of the Club by the members in some reasonable
      fashion. However, such a party may not be found.
9.    An friendly party who was not profit motivated might be found who could
      buy the Club for non-financial reasons and operate it in a fashion
      satisfactory to the members and the community. Such a party may be
      difficult to find, or such party may not always remain friendly.
10.   A joint venture between Club members and a professional, for-profit firm in
      the industry could be pursued, but in this golf environment such a firm may
      not be available.
11.   A 3rd party, for-profit owner could be sought to buy and operate the Club,
      but future actions by such a party are difficult to predict.
12.   The CMD public option can be exercised if and when other options are
      exhausted or prove less desirable and if it seems financially prudent.
13.   With this range of possible alternatives and the talent available within and
      to the community, it is likely that an attractive result can ultimately be
      obtained, albeit with many challenges in the meantime.

              VIII. Recommended Next Steps for the CPOA

The Committee thanks the CPOA for this opportunity to serve our wonderful
community during these challenging times, as well as the support, input, and
assistance from so many concerned friends and colleagues.

We trust you will accept this report in the constructive spirit with which we
formulated and submit it.

We recommend the CPOA:
  1. After reviewing these contents, open a dialogue with the Cordillera
      community and relevant parties to discuss these issues, sharing all or
      portions of this report as you see fit. Note that nothing herein is considered
      to be confidential.
  2. Lead the formation of an independent non-profit entity as suggested.
  3. Lead the funding of that non-profit entity.
  4. Form a nominating committee to recruit and staff the board of the non-profit
  5. Continue to assist the non-profit entity board in their mission for the

The members of the Committee stand ready to work in a transition team role with
the non-profit entity board to assist them in their task.

Respectfully submitted,

Denise Delaney, Vice Chair
Gary Edwards, Vice Chair
Trudo Letschert
Ed O’Brien,
Ray Oglethorpe
Dave Temin
Bob Vanourek, Chair

September 30, 2010

                                 IX. Appendices

                              Appendix A
                      State of the Golf Industry &
                Lessons Learned from Other Clubs-Detail

The number of golfers in the United States reached a peak of 30 million in 2005 after
nearly two decades of growth driven primarily by the building boom in real estate
developments with golf courses. The number of players has since fallen to 27.1
million golfers and golf rounds to date are down 3% as are food and merchandise
sales. Core golfers (those who play more than 8 rounds per year) fell 4.5%. Last
year, 140 courses closed (versus 40 the previous decade) and 50 opened. Initially,
the decline first hit resorts, daily play, and low-end private clubs. Exclusive private
clubs are now under the most pressure because even their members are not
immune from the current economic conditions. The decline is projected to continue
due to the recession and loss of wealth, life style changes, the expense of golf
compared to other recreational opportunities, time constraints and business
demands, and the decline in the real estate market (65% of all new golf course
development was tied to real estate).

Private club memberships are at 2.1 million—down 900,000 from the peak of 3
million in the early 90s. 15% of the 4400 private clubs reported serious financial
challenges. 500 are scrambling to raise cash flow. Nearly 25% of private clubs say
they are operating at a loss. Private clubs lost an estimated 5-15% of their members
this year. Gaining net new members has almost been non-existent. The forecast is
that at least 400-1000 private clubs will have to close, convert to public play or be
absorbed into healthier clubs. Private clubs are also facing competition from daily
use and resort courses where green fees can run as low as $20-25/round. High-end
resorts like the Arizona Biltmore in Phoenix offer rounds for $39 in the summer and
$55 in the winter—all without yearly dues and initiation fees.

Common responses by private clubs to the current situation are: wiping-out equity
members and going to non-equity memberships (such prestigious clubs as Robert
Trent Jones and Caves Valley have both gone non-equity), lowering or freezing
yearly dues and initiation fees (for most clubs, new members are joining for a third
of what the original members paid), extended financing periods to pay initiation
fees (as have Eagle Springs, Red Sky, and Sonnenalp offered), opening courses to
public play, postponing capital projects, running the club solely on dues, food and
merchandise sales, offering members significant incentives to bring in new
members, offering preview memberships that allow prospective members a chance
to try it before joining, streamlining maintenance to trim operating costs (e.g.,
instead of mowing fairways and edging bunkers everyday, now do it two to three
times per week), laying off staff, improving the member experience, offering new

programs and special promotions, and acquiring multiple courses and allowing
members the right to play all of them. Some of these strategies have worked and
others necessarily haven’t.

Wilson Gee, a California based golf-course owner and developer, has purchased
multiple courses in the Phoenix area to allow members the right to play all of them.
Shortly after these acquisitions, he told members of the Lakes in 2009 that he was
considering the possibility of shutting down the golf course and building condos on
the property.

Another developer, Dave Caven, who built Sedona, Arizona’s posh Club at Seven
Canyons is in bankruptcy despite selling all 12 one-month fractional shares in 230 of
the community’s 300 casitas because of the inconsistency of timeshare-based
membership that makes it difficult to support a full-time service staff.

In cases of private golf courses linked to housing developments, residents have
bought and managed struggling courses themselves. An example is Sun City
Summerlin, Nevada where the residents own the golf courses and split the profits or
losses among the community’s 8000 homes. Another alternative is for the residents
to lease the course from a troubled developer as was done by a community in Maine.

Due primarily to building real estate developments with golf courses, the US is
overbuilt with courses. In Phoenix, it is estimated that there are 60 courses too
many and it would take another 10-15 years to fill them. As a result, golf course
developers (e.g., SunCor, Pinnacle West) are getting out of the business and flooding
the market with low priced properties.

Sales prices for golf courses have fallen as low as 10% of the original developer’s
dollar. The course’s value is judged solely on its ability to turn a profit. The land and
infrastructure are inconsequential—it is cash flow. Courses are being acquired for
$1-1.5 million for something that cost $15 million to build. Some have sold for even
less (Club West Golf Course in Phoenix was purchased for $500,000).

These trends and experiences are not just linked to the United States. Except for
China, Singapore, and Korea, it is a worldwide phenomenon.

Three firms who provided the majority of golf course financing—GE Capital, Textron
Financial, and Capmark Financial—have all stopped lending. Some other lenders
have placed golf courses on their “toxic asset” lists, which mean they won’t consider
lending money for a golf property under any circumstances. Getting financing for
new developments or refinancing old loans has become extremely difficult.

Given the current economic realities, the concept of “equity” membership is a myth.
Members’ equity is in most cases worth more than the club. Lenders will have to
take significant “haircuts” and equity members may be wiped out. Equity
memberships may be unsustainable.

The current state of golf is a lawyer’s dream. Litigation is flying as residents sue
developers for broken promises, conversion from private to public, closing of
courses, courses going bankrupt, etc. People who bought into high-end exclusive
clubs now have to play with the general public and that is hard to swallow without a

Local Club Comparisons
Country Club of the Rockies
In the early 1990s, the initiation fee was $150,000 and in 1994, with a waiting list of
63 people, it was raised to $300,000 just as Cordillera and Red Sky were under
development. The club was fully subscribed with 300 members but the waiting list
went away. In 2003, Vail Associates sold the club to the members and 50 non-
property owners were allowed to join the club. However, by this time many of the
original members were in their 80s and were departing the club due to health and
altitude issues. The resignation list expanded dramatically, and there was a near
hysteria of people putting their names on the list just to cover their options. The
club instituted a penalty if a member did not resign if their name came up on the
resignation list.

With the competition for golf members from the other new clubs coming on line, the
initiation fee was reduced to $150,000 (70% equity) near that time. As the
resignation list again started to grow and the golf industry started to slow down in
2007, the club was advised by outside consultants to hold out making any changes
and ride out the storm. Finally, with a resignation list at 52 and few net new
members, the club succumbed to competition and lowered its initiation fee to
$90,000 (50% equity) at the start of 2010. The club has now picked up 14 new
members with 3 in the pipeline and the resignation list has dropped to 39.

The club believes that remaining an equity club is the right thing to do since
members have something of value and won’t walk away. (Note: Other industry
experts believe that equity memberships actually decrease retention since the
member feels that they can get something back if they resign. In their opinion, non-
equity members usually stay longer until they feel they’ve sufficiently amortized
their initiation fee).

The club’s course maintenance budget is $1.1 million and golf operation (pros,
assistants, bag boys, valets, golf shop, etc) runs $850,000/year. There is an
administrative budget of $800,000/year for the general manager, administration,
bookkeeping, restaurant subsidy, etc. The total budget is $2.75 million and employs
75 full time and seasonal workers. There are currently 350 dues paying units at
$8750/year giving an income stream of $3 million. The club has no debt. They are
currently running well under budget. Capital improvements come from initiation
fees. The club outsources its food operations to the Vista Restaurant (which allows
outsiders to use it) and provides the restaurant with a $200,000/year subsidy.

New innovations have been a junior program for applicants under 50 years old.
They pay the same yearly dues but can pay the $90,000 initiation fee over 5 years.
This has brought in only one new member. The Legacy program allows members
over 70 to transfer without a fee the membership to another family member. The 70
plus member can elect to stay active by paying a second set of dues. This has
brought in seven new members. For members recruiting a new member, they get a
year’s free dues.

Eagle Springs Golf Club
At its height, Eagle Springs’ initiation fee was $250,000 (equity). Three years ago it
was dropped to a non-equity $60,000 and the equity members wiped out. Currently,
they are offering prospective members the ability to pay $10,000 down and the
balance at the end of three years with no interest and the first year’s dues free.

The club is now run on a cash flow basis. The focus is to keep the membership
stable. The new financing program has brought in 14 net new members and the club
is near its 280-member capacity. Dues are $12,500/year and have held steady for
the last three years. Everything is included in the dues—cart fees, drinks and snacks
on the course, and lockers. Caddies are available for an extra fee.

Red Sky Ranch
Red Sky is making a major point in their sales presentation to prospects from
Cordillera that they are part of Vail Associates with the stability of its financial
resources and that the members are protected against any special or capital
improvement assessments.

The club was opened in 2001 with an initiation fee of $150,000 that rose to a high of
$175,000. It has recently been reduced to $140,000 (80% equity). Upon resignation,
the member goes on a list and is retired on the basis of 4 new members to one
resigned member. They have reduced their resigned list by 20 members over the
last two years with a program for members over 75 years old who are retired at the
rate of 1:1.

This summer Red Sky introduced a new program that has brought in 12 new
members. Basically, a new member can now pay the $140,000 initiation fee with
$70,000 down and $35,000/year over the next two years interest free. Children
under 29 can have full use of the club. Dues are $8600/year (no increase since
2006) and there is a $1000 food and beverage minimum/year. The cart fee is $22
and everything else (locker/practice facility/etc) is included in the dues.

Adam’s Mountain Country Club
To join, there are two programs. The first is a $150,000 “membership deposit”
which is completely refundable at the end of 5 years. If a member leaves after the
first year there is a $25,000 penalty, which decreases $5000/year until the end of 5
years (e.g., if one left at year 4 they would pay a $10,000 penalty and only receive
$140,000 back). This program is only available to the first 50 members (there are

presently in total only 14 members). The second option is a $50,000 membership
deposit with a 10-year commitment. After 10 years, the member can resign if
desired and goes on a resale list that is retired at the rate of 4:1. This option can be
financed for $10,000 down and the remainder paid off in 5 years at 9% interest.

Dues are $8750/year and for those joining now there are no dues payable until
2011. Until the club gets to 50 members, a member can bring two foursomes at any
time for no guest fees (just cart fees).

Sonnenalp Golf Club
The club was purchased in 1987 from Singletree by Sonnenalp Properties, who have
significantly improved the facilities along with the Bob Cupp/Jay Moorish designed
course. The course consistently ranks as one of the state’s top three courses and is
ranked by Golf Digest in their “Top 100 Resort Courses.”

The initiation fee is $75,000 (50% equity) and refunded upon written notification of
resignation. There is a new non-equity option: $45,000 but no equity or refund.
There are also 10 social memberships for $25,000 (non-equity). Two-thirds of the
$75,000 initiation fee may be financed (1/3 at time of application, 2/3s over a three
to five year term at 6% interest.) For the non-equity $45,000 option, $25,000 down
is still required with the remaining $20,000 due after five years at 6% interest.

Annual dues are $4950 and there is a $600 food and beverage minimum. Cart fees
are $20/rider.

Gypsum Creek Golf Course
Formerly called the Cotton Ranch Golf Club, the course was developed and opened
eight years ago by Tim Garton as the primary amenity to his residential
development — Cotton Ranch. In 2008, it was taken over by his financial partner,
Vince Cook without a bankruptcy filing. Mr. Cook subsequently lost the
development, including the golf club, to a foreclosure by a Texas bank. The bank
appointed a receiver to deal with the disgruntled members and threatened to close
the entire operation. Ultimately, the bank brought in The Edge Group of Castle Rock,
CO, a golf course management group, to operate the club, and after lengthy
negotiations worked out a $2.5 million purchase agreement with the Town of
Gypsum. The club members lost their membership deposits, but, through some
complicated lease arrangements, they continued with their nominal “membership
dues” and maintained quasi-private rights to the clubhouse, locker room, pool, and
non-golf recreation facilities.

The Gypsum Creek Golf Course continues to be operated under contract with the
Town of Gypsum by The Edge Group as a public municipal facility. Golf play is open
to anyone within a four county area for $49/round including cart and reservations
are on a first come, first served basis. This year’s operating costs will total about
$500,000 (not including the debt service equivalent) and be offset with revenue of
$400,000. The town believes the $100,000 deficit will be reduced over the years as

word spreads that Gypsum Creek is the “best golf deal around.” The town’s council
and senior staff are happy with The Edge Group’s operation and most residents are
generally satisfied.

Non-Local Club Comparisons
Hawk’s Nest Golf Club, Vero Beach, FL
Hawk’s Nest is an example of how to run a high quality golf course inexpensively.

In the 1990s, the course was ranked in the top 15 in the state of Florida and was the
site of the regional US Open qualifier rounds each year. In 2004 and 2005 it was
ravaged by 6 back-to-back hurricanes and shut down for two years as the clubhouse
and course were reconstructed. Members abandoned the club and new members
were non-existent. Currently, 100 members are on the resignation list. Most have
resigned themselves to never getting their equity back.

There are currently 180 dues paying members. Dues are $10,700/family and $9,700
for an individual. Initiation was as high as $75,000 (44% equity) but has dropped to
$50,000 (50% equity) for those who still want to vote and have an equity
membership. All types of membership plans have been introduced. Non-equity
initiation is $25,000 with 8 years to pay ($1250 for years 1-2, $2500 for years 3-5
and $5000 for years 6-8) and no obligation to pay off the balance if the member
resigns before the end of the 8-year period. There is also a renter program for
$1300/month for one season that allows prospective members to try the club and
hopefully join the following year.

Costs have been cut to the bone everywhere. However, the emphasis is on keeping
the course in top condition—everything else is secondary. The club is run on the
dues, food, and beverage cash flow. Course maintenance for 12 months is $1.0
million. The total operation is $2.1 million, which includes $200,000 of debt service
on a loan of $2.5 million (recently renegotiated down from $400,000/year). There is
no GM (the head pro and greens keeper share those responsibilities) and the club
has instituted salary freezes and pay cuts. There are a total of 16 non-restaurant
employees. The restaurant only serves lunch and has a limited salad, soup and
sandwich menu. The restaurant staff consists of a dining room manager, line cook,
part time chef for menu development and special events and a waitress. The budget
is based on a low of only 170 members.

Rancho Santa Fe Golf Club, Rancho Santa Fe, CA
Rancho Santa Fe offers some potential insights for Cordillera as a club owned by the
homeowner’s association.

In the early 1900's Atchison, Topeka and Santa Fe Railway Company purchased
8,796 acres on which to cultivate more than one million Australian eucalyptus
seedlings for the manufacture of railroad ties. Severe drought in 1912, followed by
the worst freeze in 40 years killed approximately 70% of the trees. The railway
company abandoned the project after new chemicals were produced to protect

railway ties from decay.

The railway company then secured rights to a water supply and through its
subsidiary, the Santa Fe Land Improvement Company, financed the development of
a master planned community, which would be named Rancho Santa Fe.

In August of 1927, the Santa Fe Land Improvement Company donated 219.1 acres
suitable for a golf course. The Rancho Santa Fe Country Club was incorporated
September 26, 1927. Golf course architect Max Behr was hired to design and
implement the construction of the golf course. Behr molded the natural contours
and beauty of the terrain into a 6,700 - yard, par-72 golf course. The golf course
opened June 5, 1929.

Entertainer Bing Crosby began hosting the pro-am "clambake" in 1937. The golf
event paired celebrities and businessmen with professionals for a 36-hole weekend
event. The "clambake" was held annually through 1942.

The Rancho Santa Fe Association took over operation of the golf course in 1934 and
operated it for 25 years as a public facility. In 1960 the golf membership asked the
Association to restrict the use of the golf course to Association members only and to
lease the golf course operations from the Association. The Association agreed to
restrict the golf club to Association members and in 1978 added the ownership of
covenant property as a condition of membership, but it was not until 1987, that the
Rancho Santa Fe Golf Club was established as a division of the Rancho Santa Fe
Association with managerial, operational and financial responsibility for all golf

For homeowners who want to become golf club members, the initiation fee is
$50,000 (non equity). Annual dues are $6,800 without a locker or club storage (an
additional $500). Family members can use the course and facilities while on
property for no additional charges. If a member leaves the club and comes back in
two years, the $50,000 initiation fee is waived. 60% of the 585 homeowners are club
members. Of those, only 200-220 play more than 10 rounds a year. Non-members
who are homeowners have all rights to use the facilities such as the clubhouse,
restaurant, and golf course. However, they can only play golf 6 times per year
without having to join the club by purchasing a package of 6 rounds for $600 and
can only invite one guest per year for a $100 guest fee.

Ocean Reef Club, Key Largo, FL
From the modest fishing camp and 26-room lodge established by Morris Baker in
1945, the interests and expertise of the members have guided the growth of the ORC
facilities. The original 9-hole course, laid out in the 1950s, evolved into three 18-
hole championship courses, a clubhouse and a pro shop. A tidal swimming lagoon
was created during the fifties along with a swimming pool. Shops began to appear
and moorings became a marina.

Ocean Reef became a private club in 1993 following the member buy-out from the
former developer, Carl Lindner. Then as now, the board of directors, the club staff
and committees have overseen daily operation of the Club. Close to four thousand
members of ORC remain determined to preserve the club’s rich traditions and
gracious lifestyle for future generations. The “clubs within the Club” – many with
their own long histories - have proliferated to accommodate an unusually broad
spectrum of interests. There is a fire station, a medical center staffed with full-time
doctors, and an impressive array of visiting specialists. A corps of public safety
officers trained as first responders, with ambulance and airlift on call. A landing
strip, flying club, restaurants, shops, and a 150-room lodge are an integral part of
the community.

When the club went private in 1993, the initiation fee was $35,000 (all equity with
up-side market appreciation). It is currently $200,000 and they have sold forty
through July. In 1993, there was also a patron membership for $100,000 that was
offered that gave an additional 10% discount on purchases and no dues in
perpetuity. Given the isolated location of the club, practically all homeowners are
members in order to use the restaurants and other amenities that are not readily
available outside the community. Dues are $9200/year. In addition, there is also a
social member program for members who live outside the three county areas.
Initiation is $10,000 and dues are $4,500/year. Social members within the three
counties pay an initiation fee of $25,000 and slightly higher dues. In total, there are
2000 social members who primarily use the inn and other facilities for about six big
weeks of the year (e.g., Christmas, spring break, etc.). At other times, the facilities
are open to non-members, which is a key reason for the relatively low dues
considering the large infrastructure. The resident members, social members, and
non-members each contribute approximately one-third to the total income stream
of $75 million (with the current economic conditions it has dropped to $55 million
primarily due to the drop in corporate convention business that used the inn, golf
courses, shops, restaurants, and even the landing strip). When members complain
about the “outsiders,” they are reminded in three town hall meetings/year what
their dues and assessments would be if the public were not allowed to use the

In addition there is a totally private club, Card Sound Golf Club, within Ocean Reef.
Initiation is $260,000 (on top of the $200,000 for Ocean Reef) and dues of
$12,000/year. There are 230 members and a 50-person waiting list trying to get in.

Lessons Learned in Club Conversions
After studying the narratives of club conversions such as Bonita Bay, The Country
Club at Castle Pines, the following are lessons that should be considered in any
conversion if that becomes a course of action.

   1.    Know your contractual rights and the owner’s obligations.
   2.    Developers have run clubs poorly and inefficiently to sell real estate. Golf
         clubs have been loss leaders.

   3.  What is happening at Cordillera is a common situation at many private
       clubs; especially real estate based golfing communities. Don’t panic or get
       discouraged. The resolution may take nearly a year or more.
   4. For communities to be successful in a difficult conversion, they must act in
       a strong, unified, empowered way under nimble, dedicated and good
   5. Raise money quickly and hire the best legal team to show you are serious
       and have the resources to represent the community well.
   6. Set up a good communications system to keep the members informed. The
       Bonita Bay turnover committee sent out 44 reports to its members in a 10
       months period about their activities and what other members were doing
       so there was never a surprise.
   7. Given the declining value of golf courses and their economic realities,
       member-owned clubs are probably one of the few viable options.
   8. After closing, be prepared to spend money on capital projects that the
       developer has delayed maintaining or improving.
   9. Make sure you keep a critical mass of members to make the financial
       numbers work. Do a deal before too many people resign or lose interest.
   10. Do an analysis of the average age of the club members. Bonita Bay’s
       average was 68 years old, which meant that they had to practically replace
       most of the 2000 members in 10-12 years. This was a key factor in settling
       on the purchase price and convincing the developer to take the deal.

To better understand the derivation of these lessons learned; see the following
details regarding the club conversion experiences of Bonita Bay and the Country
Club of Castle Pines.

Club Conversion Experiences
Two club conversion experiences are instructive for Cordillera: Bonita Bay in
Naples, Florida and The Country Club at Castle Pines in Colorado. The first is the
Bonita Bay conversion, which drew national attention with a front-page article in
The Wall Street Journal and another article from The Bank Implode-O-Meter. Those
articles follow with a further analysis at the end.

Bonita Bay Membership Conversion
From The Wall Street Journal, September 24, 2009
NAPLES, Fla. -- It's not easy living on a golf course.
Bonita Bay Group, once a premier developer of upper-crust golf communities in this
upper-crust town, is on the verge of collapse. The company says it will be forced to
file for bankruptcy if it has to refund $245 million in golf-club membership fees
some homeowners are demanding, in a battle that's pitting residents against each
other and against the company that sold them lavish dream homes during the height
of the boom.

Through the 1990s and the earlier part of this decade, Bonita Bay was regarded as
one of the leading developers in the Naples area, which has the highest per capita

income of any locale in the country except Stamford-Greenwich, Conn. Bonita Bay
launched seven Naples-area communities where houses sold for up to $12 million
and came with access to exclusive golf clubs with restaurants, tennis courts and
pools. Its homeowners have included Richard Schulze, the billionaire chairman of
Best Buy Corp., opera diva Kiri Te Kanawa and New Jersey Nets President Rod

Clouds Over Bonita Bay
Today, like many other Sunbelt developers, Bonita Bay is being squeezed by debt
and plunging sales. But its biggest problem is a dispute over the deposits
homeowners plunked down for memberships in the golf clubs, a marina and other
clubs. Many members want to quit the clubs and get their money back for reasons
ranging from cheaper golf elsewhere to the desire for ready cash. Their membership
agreements say the deposits -- up to $185,000 per member -- are refundable on
demand, a relatively unusual stipulation homeowners say was a big part of the
appeal of joining.

Yet Bonita Bay says the agreements also stipulate that the rules "may be amended
from time to time," thus allowing it to cancel the refund policy at its discretion -- and
that at any rate, it can't pay the money.

Angry residents have filed at least 15 lawsuits against Bonita Bay seeking the return
of their deposits and accusing the company of civil fraud. They say the right to
amend the rules doesn't apply to the refund policy. The Florida attorney general,
responding to a citizen complaint, is investigating Bonita Bay to see whether the
way it sold and refunded membership deposits was a Ponzi scheme. One Bonita Bay
resident and former Wall Street executive, Michael Lissack, has filed a whistle-
blower's complaint against the company with the Internal Revenue Service, saying it
owes back taxes on profits it made by holding the deposits.

Bonita Bay's bind is one of the strongest signs yet that putting up houses around
fairways -- a hallmark of the real-estate boom -- has lost its cachet. Several other
developers of golf communities have already entered bankruptcy proceedings,
including the high-end Winchester Country Club in Auburn, Calif., and Promontory
in Park City, Utah.

In an interview, Bonita Bay Chairman David Lucas scoffed at the idea that the
company is running a Ponzi scheme -- in which investors are paid returns from
money that comes from later investors -- or doing anything else that is wrong. Mr.
Lucas says the deposits were used to meet operating costs, and aren't taxable. He
says the developer is simply in a financial bind as a result of bad land purchases
combined with the real-estate downturn, and that members of his wife's family,
which owns the closely held company, have poured in funds to keep Bonita Bay
going. He says losses in the past three years have "completely wiped out" prior

Bonita Bay has already closed the golf club at Twin Eagles, its latest development,
where most of the lots are unsold and weeds are sprouting from the bunkers. In
addition to threatening a bankruptcy filing if it has to refund deposits at the other
clubs, the developer says it might have to shut down the clubs entirely unless
residents come up with millions of dollars to buy them -- a prospect that has
homeowners doubly steamed.

Golf-community developers typically sell golf clubs -- courses and all -- to members
once the developments are completed, and convert membership deposits into
equity stakes. But Bonita Bay is trying to do so at a time when many members want

Living amid the swaying palms and bougainvillea, many well-heeled residents of
Bonita Bay's developments say they feel burned and trapped. Few are eager to pour
fresh money into the golf clubs -- but many believe that allowing them to close
would take away the central attraction of the communities and further erode house
values on the Bonita Bay sites. Local real-estate agents say prices are off by more
than the 36% average decline that Naples-area housing has suffered since 2006.

Morris Shepard, a former Northeastern University professor who sold an Internet
company he started in the 1990s and moved to a Bonita Bay community, says he
stopped paying dues to his fitness and beach clubs this year "because I don't deal
with crooks," referring to the fact that company has refused to give people their
money back. Mr. Shepard says he is opposed to giving any more money to Bonita
Bay -- to buy the golf clubs or for anything else.

"There have been severe cutbacks in services and in the condition of the facilities,"
says Mr. Schulze, the Best Buy chairman, who hasn't asked for his deposit back but
also doesn't want to pony up more money to buy the club at Bonita Bay, the
developer's oldest community. "Mold is growing in the bag rooms" where players
store golf clubs, he says. Bonita Bay acknowledges it has cut maintenance to hold
down costs but it says the clubs "will be in excellent shape for the [winter] season,"
when most members hit the links.

Some residents say the issue of buying the clubs has created bitterness between the
wealthiest homeowners, who often have golf memberships, and less wealthy
residents who enjoy the landscaping but resent pressure to contribute to the
purchase of the clubs. At Bonita Bay's Mediterra community, a committee of golf-
club members initially proposed pushing nonmembers to join the club on a social
basis and pay $2,500 or more to help fund the purchase. They were told if they
didn't join, no future buyers of their homes would be allowed to become golf
members. A number of residents called the plan extortion, and the committee
eventually dropped its demand.

Richard Schmidt, who lives in Mediterra, where many homes have colonnaded
porticos, four-car garages and wine cellars, is part of a group of residents trying to

buy the golf club. Bonita Bay, he says, was once "the platinum standard" among
developers, and he'd like to preserve the community he lives in. The former chief of
water utility Aquarion Co. says not buying the club opens it to the uncertainty of
bankruptcy and a sale to others or opening it to the public.

The family-owned company was started by David Shakarian, who founded vitamin
retailer GNC Corp. In 1985, it broke ground on the first of its developments, the
Bonita Bay Club, which sported a marina on the Gulf of Mexico, three golf courses,
homes that went for $3 million and condominium towers. Over the years, the
company added six more developments. Its communities now cover 16 square miles
of southwest Florida with 12,096 dwellings. Mr. Shakarian died in 1984, just before
the first development went up, and the company has been run ever since by his son-
in-law, Mr. Lucas, now 62.

Mr. Lucas says that the first sign of trouble for Bonita Bay started with Hurricane
Wilma, which hit Naples hard in 2005 and scared away potential land buyers --
many of them contractors who build homes for buyers. Then Florida real estate
began to crater, and the mortgage crisis hit. Bonita Bay's land sales are expected to
fall to $1.9 million this year from $343 million in 2005.

The company appeared to be getting by with revenue from the clubs and property
management and maintenance fees, until a surge of requests for membership
refunds began last fall. "It was like a run on the bank," Mr. Lucas says.

In November 2008, the company told homeowners who had paid $245 million in
club deposits that it would no longer redeem the fees on demand. The company says
it had returned $77 million in such fees over the prior three years.

The first resident suit against Bonita was filed in December. Mr. Lucas acknowledges
that Bonita Bay had promised refunds on demand in its membership agreements,
but says that members also signed documents that disclosed that terms could be
changed at any time. Plaintiffs in the lawsuit say that the terms that could be
changed were limited and didn't cover refunds.

Bonita Bay now says that in the future it will refund a deposit to one member for
every three new members who join.

As the membership furor was unfolding, Bonita Bay was being forced to renegotiate
its loans from Cleveland-based KeyCorp bank. With new lending from the Shakarian
family, it cut KeyCorp debt to $74 million from $105 million, but the bank is tightly
limiting further loans. Mr. Lucas says Bonita Bay also has $41 million in liabilities in
community-development bonds. KeyCorp declined to comment, except to say it
hasn't tried to seize Bonita Bay.

Mr. Lucas says he tried to negotiate deals with residents to partially repay the golf
deposits -- but KeyCorp refused to lend funds for that. In April, Bonita Bay hired Tim

Boates, of Alabama-based RAS Management Advisors, as "chief restructuring
officer." Mr. Boates set about cutting cash-draining operations and reducing staff.
"Frankly, we needed help," says Mr. Lucas. "We cut headquarters staff 60%."

Bonita Bay began closing beach clubs, slashing hours at restaurants and cutting back
on maintenance. Earlier this summer it closed the courses at its Twin Eagles
development, which were designed by golf legends Jack Nicklaus and Gary Player.

On Aug. 12, Mr. Boates, the new restructuring officer, sent a letter to the remaining
five clubs' 3,000 members saying the clubs would close unless members agreed to
buy them by Sep. 30.

But with only one tentative agreement in place so far, the company recently
dropped its Sept. 30 deadline. It said, as long as members continue to pay their dues
and to negotiate a purchase of the clubs in good faith, it will keep them open.
However, a spokeswoman for Bonita Bay Group says, the company still needs the
members to agree to buy the clubs at most of its communities, and it could close
them otherwise.

The battle at Bonita Bay has already had a ripple effect on house values, local real-
estate agents say. One of them, Mr. Lissack, who filed the whistle-blower's
complaint, says that one of his clients has been trying to sell his Bonita Bay Club
residence and guesthouse since early this year. Mr. Lissack says that in another
Naples development a comparable property would sell for $4 million. His client's
property is priced at $2.5 million and hasn't had any takers.

Although property sales in the Naples area have increased this year, they are down
at the Bonita Bay communities, according to Mr. Lissack's tally. He says that only 15
residences have sold at Mediterra since last November, down from 38 in the same
time period a year earlier; and in the larger Bonita Bay Club area, 67 homes have
sold, down from 148. A Bonita spokeswoman says sales of low-end properties in
Naples are up, and that sales declines in Bonita Bay communities are in line with
sales in Naples's comparably high-end communities.

Some residents say they'd rather see Bonita Bay Group file for bankruptcy, because
they think they could buy the clubs more cheaply then. Tom Melancon, a former
Burberry Co. executive who was one of the first residents of Mediterra, says Mr.
Boates "is trying to bully people and that's not going to work."

From The Bank Implode-O-Meter, September 29, 2009

Local news reports tracking the saga in Naples, Florida say BBG is now nearly
insolvent. BBG collected over $100 million when it was formed in “refundable
deposits,” which constituted members’ entry fees, and issued promissory notes in
return. The notes were essentially a non-interest loan to be paid back in 30 years or
within 30 days of a member’s death or resignation. This arrangement worked well

until there was a rush of withdrawals in the fall of 2007 and BBG said it didn’t have
the money to pay them back. Where that money went has turned into a complicated
legal mess that has forced members to turn to the courts for relief.
A few months ago, Bonita Bay Club residents started receiving letters from Lucas
saying that unless they buy the club from his firm, he’ll have to shut it down, which
could result in a bankruptcy. Lucas wanted the members to come up with another
$20 million, on top of the interest free membership notes and the dues they’d been
paying, to take over the club. However, their commitments would not end there.
Members would still owe money to KeyBank and have to pay back the members
who had resigned. It would be a good deal for Lucas, who after being forgiven from
the membership note liability, could book a gain on his income statement. It would
also be a pick-up to his capital account, clearing the way for him to become a
credible borrower again and start all over on another deal.

The members, who’ve entrusted a Turnover committee to speak for them, said in a
letter to Lucas last week, “The Club cannot possibly sustain the economic burden
you propose without a significant dues increase or a significant reduction in services
(or both) in addition to the lack of funding for capital replacement or improvements.
We would have no assurance that by the time the $20 million of debt was repaid the
facilities would be in acceptable condition.”

David Lucas responded to club members last week that negotiations to buy the club
were halted and threatened members that if they did not pay their dues this winter
season, they would not have a club to play at. According to the letter obtained by
BankImplode, “If you support the current course of the Turnover committee, you
commit yourselves to years of litigation, continue or worsen the negative effect on
the value of your home and completely halt all real estate activity in Bonita Bay.
Your community will stand still and your club experience will suffer as the result of
diminished dues payments.”

Should members choose to stop funneling money into a management company they
believe won’t be used for its intended purpose, then the specter of bankruptcy
looms. Should conditions worsen and the situation get to that point, the focus of the
battle would then shift to who is senior as a creditor and has control of the club’s
assets. Is it the bankers or the members? Are there victims in this case that would
trump any creditors’ claims? Many club members BankImplode interviewed for this
story didn’t have a clear understanding of the distinction.

One of Lucas’ strategies was to scare members into the possible threat of KeyBank
foreclosing on the loan and taking over their beloved club’s assets. Such a move has
led members to believe that their private access could soon become public. Lucas, in
his own defense, claims he could not refund members’ money because he had to pay
off the looming loan so they don’t lose the club. Indeed, nearly $30 million has been
paid back to KeyBank. Unfortunately, members are only hearing Lucas’ side of the

loan terms as they can obtain no information from Key. As a result, they feel Lucas
cannot be trusted to run their club or control the golf course.

In a letter sent to club members last week by their Turnover Committee, the
Committee reminds members that “KeyBank has told the TOC that they cannot talk
to the TOC without [BBG’s] consent. BBG has refused to grant our request.”
When Roger Brunswick, a Bonita Bay resident, was asked if Lucas was using
foreclosure as a scare tactic to get members to pony up more money and actually
buy the club from Lucas to pay off his debts to Key he said, “That’s definitely a

But BankImplode has learned that foreclosure is not a plan KeyBank has in mind,
since the bank does not want to be in the business of running the club. A person
familiar with KeyBank’s thinking said there are other ways for the lending group to
get their money back. How legal or ethical those ‘ways’ are is at the heart of this
argument, which could take a while to resolve. Meanwhile, the club isn’t being
maintained to the standards members have been paying millions for.

KeyBank spokeswoman, Laura Mimura, told BankImplode, “There is no current plan
for KeyBank or the lender group to ‘take over’ the business of Bonita Bay Group.”
Additionally, KeyBank claims that they are only the lead agent on a credit facility
provided by seven lending intuitions to Bonita Bay Group. Mimura also points out
“Key is legally obligated to adhere to the terms of the loan documents when making
any decisions regarding the Bonita Bay Group loan.“ For Key that’s a way of saying
they are at the mercy of the lending group. But club members who are familiar with
the original loan terms say Key has the majority interest in the loan and thus
controls the decision making for the group – which would make Mimura’s argument
something of a cop-out.

There is another legal issue here. According to page 19, sections E, of the original
mortgage agreement, club members are senior to the lender in regard to the rights
of use of club assets. Even if KeyBank did foreclose on the loan, all it gets is the land
and buildings, but the members still control the way the facilities are used. So if the
majority of members don’t want the club to be public or increase membership, it
won’t happen. The language of the contract actually obviates concerns of members
losing their coveted exclusive security.

But Michael Lissack, a Bonita Bay Group resident, points out “KeyBank loses a lot of
the value in selling the club to an outside party if the new party can’t control their
assets. Who would want to buy it?” Lissack believes KeyBank knows this and it’s just
another reason they will not foreclose on the loan. Instead, as reported at
Dealbreaker, he says KeyBank is directing BBG to defraud the senior creditor, i.e. the
membership tied to club assets. Lissack believes KeyBank is just easing up on loan
terms and taking what cash members are paying this year for dues as repayment on
their loan.

Meanwhile the club is barely being maintained. Members have told BankImplode
that, for example, the heat in the men’s locker room isn’t working and the restaurant
is only open a few nights a week.

Whether the courts consider KeyBank’s drive to get money paid back before
returning member’s entry fees or maintaining the club is yet to be decided. BBG
does have other income streams from real estate sales in its portfolio and even a
profitable water facility business. That’s one of the reason members are so outraged
that Lucas expects them to pay for his perceived poor debt management.

A Bonita Bay Club resident comment after the Dealbreaker story reads, “We want to
see BBG bite the dust in a blazing fire ball on the steps of the Federal Courthouse in
Ft. Myers followed by a fire sale to the homeowners of the BBG assets at 10 cents on
the dollar. It can and in all likelihood will happen.” We found this sentiment to hold
for most residents we spoke with who wished to keep their names out of the press.
There’s one last catch in this complicated showdown that could save members from
having to shell out more money for legal fees or to buy the club.

There is currently a separate civil suit pending put forth by Frederick Feldkamp – a
Bonita Bay Group member at another club called Shadow Wood – against BBG for
not honoring his promissory note when he resigned. The case is currently waiting
for a decision by the judge as BBG just turned in its legal response. If these
promissory notes are considered an illusory contract and thus turned into a
constructive trust, club members could be considered victims instead of creditors.
And luckily for club members, victims trump creditors in a bankruptcy. Given that
the promissory notes have not been paid back, that becomes a violation of the
constructive trust. At that point the court could assume BBG can’t be trusted to run
the club or handle members’ money and out they go. The court would then appoint
an independent receiver to run the club who can then rule that good ‘ol KeyBank has
to return some of the $30 million used from club monies to pay off its loan.

If that scenario plays out, besides KeyBank having to book a loss on its $120 million
loan, there will also be questions about the banks’ aiding in the violation of the
constructive trust. To say the least, this is a public relations mess for a TARP bank
that has thus far managed to stay out of the limelight.

The lesson here simply might be only member-owned clubs prevail as a safe
investment, because the current environment is pitting leverage-happy developers
and their banks against them. Ironically, in BBG marketing material Lucas credits
the values set forth by his father-in-law David Shakarian as the foundation of
principles he’s built the development company’s reputation on. Lucas writes, “We
have created places where people want to live by striving to do the right thing in
every aspect of community planning and development, from caring for the land to
caring about our residents’ quality of life through community involvement.”

It looks like it will be up to the courts to rule on how well those family values are
holding up now.

UPDATE, 2009-09-30: According to an internal letter seen by BankImplode from
Paul DiVito of KeyBank Real Estate Capital, it states the KeyBank lending group
never prohibited BBG from refunding golf club member deposits. The Wall Street
Journal quoted David Lucas saying KeyBank would not allow him to use money from
the credit facility to even refund partial members deposits. DiVito writes, “Also,
regardless of what you may have heard or read, KeyBank and the other Lenders
have never prohibited BBG from refunding membership deposits. KeyBank did not
authorize BBG or any other party to make that statement…. The fact is that any issue
regarding the refund of deposits is between BBG and the club members…” With
contradictions like these, it is no wonder members don’t trust David Lucas to run
their club. But why didn’t KeyBank simply make a public statement denying BBG’s
claim instead of hiding behind client privilege? Stay tuned as we continue to follow
this story.

End of article.

An interview with David Barry, a member of the Turnover Committee, elicited the
following details.

In April 2009, the club elected nine members (three lawyers, two investment
bankers, a former board member of Key Bank, and three former CEOs) to the
Turnover Committee (TOC). The deal closed March 10, 2010. In the interim there
were four lawsuits, lots of bitterness and animosity, and people resigning or
downgrading their memberships. However, in the end, the club planned on 85% of
the members converting and got nearly 99% to convert. As of July, the club has no
debt, the members own the club, and the club has $6 million in cash in the bank.
Things turned out very well indeed.

As you can read in the previous articles, the developer, David Lucas, made many of
the same threats that WFP has made: loss of the club, reduced property values,
litigation, sale to a third-party, etc. The thing that made the deal go and brought
Lucas to the bargaining table was the steadfast belief by the members that they
were the only viable option to buy the club. No one was going to buy the club with
the massive liability of the membership deposits and the big bank loan. The
members overcame the threats and hardball tactics of the consultant and chief
restructuring officer, Ron Boates, which Lucas had hired. He cut maintenance, fired
60% of the staff, and threatened to close the courses by September 2009 if the club
was not sold to the members by then. He came across as a dishonest bully who only
further antagonized the membership and stiffened their resolve to fight. Members
started to withhold their annual dues and downgraded their memberships from golf
to social. David Lucas saw the revenues decline and knew that he was on his way to
World War III—a war he couldn’t win. In the depositions for lawsuits, Lucas

performed so poorly that he approached the TOC to see if a deal could be made. He
initially offered to sell for $20 million (which matched the lien Key Bank had on the
property) for the members to acquire the five golf courses and significant facilities.
The TOC countered with $3 million but got heat from the members that this was not
a serious response and eventually settled on an $11.5 million offer from which they
never budged. In early December 2009, the TOC and Lucas signed a letter of intent
but he then tried to back out since the bank would only drop the lien from $20
million to $15 million. Lucas came back to the table and in early February 2010 the
deal was signed. For the $11.5 million the members got the following:

   1. 90 holes of championship golf including the three West courses, the two East
      courses and three practice facilities;
   2. The East and West Clubhouses, the Tennis Facility, the Fitness Facility,
      swimming pool and all maintenance facilities;
   3. All associated land and parking facilities;
   4. All furniture, fixtures, equipment, transferable permits, licenses and
      contracts necessary for the operation of the facilities;
   5. All accounts receivable;
   6. All trademarks, trade names and related intellectual property related to
      Bonita Bay Club that are owned by Bonita Bay Properties, Inc. and/or the
      Bonita Bay Group.; and
   7. All supplies, inventory, prepaid expenses and tangible and intangible
      property including logos, websites, phone numbers, membership lists and
      data used or useful at or in connection with the Bonita Bay Club operation.
In a 3 week period from the closing, the TOC enlisted members to join the new club
and 2000 members (nearly 99%) signed up at prices ranging from $1000 (social) to
$10,000 (golf).

When asked why the club didn’t go the bankruptcy route given the massive
liabilities, David Barry said that they considered that option hard but in the end
rejected it because in bankruptcy funny things happen, especially with the debt. The
only consideration in bankruptcy is maximizing the value of the debt holders not the
preservation of the value of the members or the community. Thus the TOC
ultimately said “no” to bankruptcy although they took steps to do it (such as filing
triggering lawsuits and hiring a bankruptcy attorney from Tampa) and at times
threatened to use it.

The membership deposit liabilities were handled very creatively. For members that
joined the new club, they had to sign a waiver releasing BBG from paying back their
membership deposit. The new club stated that they could not honor the obligation
to pay but said that if conditions improved in the future that they would use “good

faith efforts” but nothing legally binding. The membership “liability” would be
reduced by ½ of the original deposit or to a maximum of $45,000 (e.g., someone
who paid $135,000 would have the deposit reduced by $45,000 and have the
potential, if feasible, to collect the remaining $90,000 at resignation). The new club
also stated that they would not pay back anything for three years. As a result, the
liability dropped from $100 million to $40 million. The reason the club didn’t
completely wipe out the membership liability was that there was a culture of
members getting a refund on their deposit at resignation. Although the TOC felt it
was best to wipe out the liabilities from a financial viewpoint, keeping the potential
for a refund was a key selling point to get members to convert.

Another unique thing the club did was how they handled the resignation list. There
is no first or last on the list. Whoever is on the list at the time of a payout would get
the same pro-rata share (if there are 100 members on the list and the club could
afford $100,000, each member would receive a $1000 share for that payment) and
could remain on the list until they received their maximum payout under the new

People who did not join the club were offered two options. If they resigned they
could get 30% of their deposit or if they downgraded to a lower membership level
(such as social) they could get 30%of the difference between the two memberships.
If they took one of these options, they had to release BBG from any further claims.
Bonita Bay set up a $7 million fund for these liabilities and had a deal to get out of
the purchase if this limit was exceeded. The members had an incentive (in addition
to owning the club) to get 25% of any amount under the $7 million limit. In the end,
BBG paid out $6 million and the new club got $250,000. The approximately 20
members who did not join the new club or take any of the options ended up suing

The amazing thing about this is that BBG only netted $5.5 million for all those assets
after everything was done.

The Country Club at Castle Pines Membership Conversion
Jack Vickers, III opened the Country Club at Castle Pines in 1986. He is the son of
Jack Vickers who founded the nearby Castle Pines Golf Club (no relation between
the two) where the PGA International golf tournament was held for 21 years. The
Country Club at Castle Pines was solely owned by Jack Vickers, III and developed as
a golf community with a Jack Nicklaus designed golf course and 1800 home sites.
Membership in the golf club was essentially structured as a lease agreement
between the members and the club. Members had the right to lease until 2012 (so
that if an outside party bought the club, a member couldn’t be thrown out till then)
and had first rights to buy the club

In 1989, with only 200 homes built, Jack Vickers, III went bankrupt and liens were
placed on the unsold land. The creditor, USF&G at the time, took over the land and
bought the golf course from Vickers for $5.5 million. USF&G formed a subsidiary,

Fidelity (no relation to the Boston investment firm), to be a realtor, build homes,
and run the golf club. From 1989-2002, most residents thought Fidelity was doing a
great job. The number of homes went from 200 to 1000, a 20,000 square foot
clubhouse with spectacular views was built, the club had 450 members, and the
initiation fee went from $30,000 to $36,000 (50% refundable at the then market
price upon resignation). Dues were $395/month.

In early 2002, St Paul Insurance Company who wanted no part of the golf business
acquired USF&G, the parent of Fidelity. Without disclosing it to the members, St.
Paul signed a letter of intent in December 2002 (with a closing in April, 2003) to sell
the golf club and real estate to another developer, Greg Moscher. When the deal
became public in February 2003 the community got together to fight it, especially
when Mosher announced that he was going to increase everyone’s initiation fee to
$60,000 (members had to pay the difference between their original initiation fee
and the new one). The basis for their fight was the original membership agreement
that said the members could lease until 2012 or had first rights to buy the club.

Right away St. Paul knew they had made a big mistake but felt it was easier to sell to
Moscher versus trying to do a deal with the members. A day prior to the closing on
April 15, 2003, Compass Bank, who was providing the financing to Mosher, called
the club to finish their due diligence. When they found out that the members had the
right to buy the club, Compass Bank didn’t show for the closing the next day and
Mosher couldn’t complete the transaction. However, according to the purchase
agreement, he had another 30 days to secure alternative financing. St. Paul, though,
was relieved that the closing fell through and started negotiating in earnest with a
committee the members had appointed. During this period, it became known that
Moscher was buying the golf course and real estate for a total of $16 million and
then was going to sell just the golf course to Heritage Golf Corp. (a golf course
operator and management company ala CCA, etc.) for $14 million—a very sweet
deal for Moscher.

On May 15, Moscher got alternative financing but now St. Paul refused to close and
Moscher sued St. Paul. The suit went to binding arbitration in December 2003 and in
March 2004 the arbitrator to everyone’s surprise ruled in Moscher’s favor and set a
close date of April 8, 2004. Mosher closed on that date but Heritage who was
supposed to buy the golf course got cold feet and backed away from their original
deal and revised their offer downward to $12 million. Moscher decided not to sell
and kept ownership of both the real estate and golf course, but due to the public
turmoil no new members joined the golf club for 1½ years.

Mosher then offered to sell the golf club to the members for $12.5 million. The
member’s committee recommended a “no” vote and 98% of the members agreed
when the vote was tallied. Heritage who was running the golf course in a
management capacity for Moscher realized that it wasn’t going to work if they
acquired the golf club.

Through a lawsuit, it became public that Moscher had actually been fronting for Jack
Vickers, III but in order to keep the assets for himself, Moscher had forged a
document he showed Vickers that said the price was $20 million and that he could
not deal with any previous owner which excluded Vickers. Vickers who suspected
fraud went to arbitration and when the forgery was discovered, he was awarded the
golf club and real estate and immediately put liens on the properties. Heritage Golf
backed out of anything further to do with The Country Club at Castle Pines.

The member’s committee then made a deal in September 2004 with Mosher to buy
the golf club in November 2004 for $8.5 million plus $1 million in working capital.
The deal was unable to close due to the liens on the property so the member’s
committee invited Jack Vickers, III to join the new board of the country club. On
November 15, 2004 a nine-member board including Vickers was formed and the by-
laws were written. Vickers removed the lien and the deal closed. Moscher settled
with Vickers two years later for $3 ½ million in real estate.

The story doesn’t end here. Even though the members bought the golf club from
Moscher, they felt they had a right to sue St. Paul for violating the original member
agreement. During discovery, the members found that St. Paul had been improperly
accounting for the member’s dues and in 2006 an arbitrator awarded the members
$3.9 million net of legal and other expenses.

Although the end turned out well, it consumed a lot of time and effort for the five
individuals on the core committee. In addition to them, there were another 25
members who did work under them.

As part of the conversion, all of the membership were required to pay an additional
$13,000 (fully refundable) to pay off the remaining $4.5 million debt. The St. Paul
lawsuit showed that the club actually had 500 members versus the membership cap
of 450. Of the 500, only 350 were willing to pay the additional $13,000.

Currently, the initiation fee is $52,000 ($36,000 plus $13,000). A member can’t get
out of the club until they are replaced. At one point the resign list got over 100
members so the club instituted market based pricing for those who were willing to
let the market decide what their membership was worth (similar to Estancia in
Phoenix). From 2005-2008, the club added 150 new members at initiation fees
ranging between $49,000-$52,000, but since the recession, all new members have
come from buying a resigned membership at market price. This market based
pricing program has been highly successful with just 6-10 members remaining on
the resigned list. Memberships were sold at prices as high as $30,000 and as low as
$18,000. Of these sales, the club keeps $12,500 and is looking to increase the fee to
$15,000. The club is also contemplating to shortly discontinue the market based
pricing program and return to its pre-recession $52,000 initiation fee.

Membership is now at the 450 limit, dues are $600/month (includes a $65/month
capital assessment for a new irrigation system), and there is a $150/quarter food

and beverage minimum. The club also has 200 social members who pay $1000/year
but they have no initiation fee or minimum.


State of the Golf Industry
       Interview with Ken Mesloh, GM, CCR, August 19, 2010
       Interview with Brad Quayle, golf industry consultant, August 20, 2010
       “Lonely greens, “ Ken Willis, News-Journal, August 15, 2010
       “Casino golf resort buck economic tends,” Casino City Times, August 17, 2010
       “Golf clubs suffer in recession as membership dwindles, Jon Swartz, USA
       Today, August 3, 2010
       “Recreation: Golf course operators see customers flee as economy forces
       cuts, new incentives,” Jennifer Robison, Las Vegas Review-Journal, March 22,
       “Too many places to tee off, too few players,” J. Craig Anderson, The Arizona
       Republic, January 4, 2010
       “Golf and the Economic Downturn,” KPMG Golf Benchmark Survey, 2010
       “Golf course owners in a rough situation,” Mortgage and Real Estate News,
       August 2010
       “Private golf courses still offering deals,” Zack Hall, The Bulletin, November
       25, 2009

Club Comparisons
      Interviews with Ken Mesloh, GM, CCR; Tom Apple, head pro, CCR; August 19,
      Interviews with Phil Leddy, head pro, Hawk’s Nest; Mike Steiner, head pro,
      Eagle Springs, August 20, 2010
      Memo of September 1.2010 from Ed O’Brien regarding interview with Jeff
      Shrod of Cotton Ranch
      Sonnenalp Golf Club website
      Rancho Santa Fe website and interview with Dave Pennock, member,
      September 12, 2010
      Ocean Reef website and interview with Nelson Sims, chairman, September
      13, 2010
      Adam’s Mountain membership assistant, telephone conversation, September
      2, 2010
      Conversation and email from Shawnna Sisca, membership director, Red Sky
      Golf Club, August 31, 2010

Club Conversion Experiences
      “Teed-off Residents Drive Developer to Brink of Ruin,” William Bulkeley, The
      Wall Street Journal, September 24, 2009
      “Bonita Bay Brawl: Are Club Members “Victims” of Developer Lucas and
      KeyBank?” Teri Buhl, The Bank Implode-O-Meter, September 29, 2009
      Interview with Dave Barry, member of the Bonita Bay Turnover Committee,
      September 5, 2010

Interview with Bob Tomz, member of The Country Club at Castle Pines
conversion committee, September 1, 2010

                               Appendix B
                             Bankruptcy Issues

Executive Summary
Since David Wilhelm raised the possibility of possible bankruptcy in public town
hall meetings, the CCAC felt it should examine this issue to offer a better
understanding of this possibility for the community.

In Part I of this scenario we are assuming that Alpine Bank, as the first lien holder,
for some reason calls a default on the outstanding debt agreements with the Club.
Such a call does not have to result in a bankruptcy filing. There are other events that
could cause a bankruptcy. Therefore, we have separated out the Bank default
scenario from the bankruptcy scenario. In Part II we deal with the possibility that,
with the Bank calling a default, moving to accelerate the note, and moving towards
foreclosure, these actions result in the Club filing for bankruptcy protection.

PART I: Bank Default Scenario

1.     Summary
       As a result of a “Default” in the agreements between the Cordillera Golf Club
       LLC, David Wilhelm and Alpine Bank, for this scenario we assume Alpine
       Bank moves to accelerate payment of the note (currently at $12.7 million).
       We assume Cordillera Golf Club LLC does not have the cash to pay the
       outstanding balance. We assume it has tried to sell the Club to some
       combination of the members or property owners, but cannot reach an
       agreement on price, and no agreement is reached on a prepackaged
       bankruptcy. Alpine Bank then moves to begin foreclosure proceedings in
       order to take possession of the assets.

2.     Summary of Facts/Context Surrounding Scenario
       The first lien holder on assets of the Cordillera Golf Club LLC is Alpine Bank,
       which has $12.7 million in outstanding debt to the Club. It is evidenced by a
       3-year variable rate note (6/09 – 6/12). We believe that David Wilhelm
       personally guarantees the loan due to a reference to him as Guarantor in the
       Deed of Trust, filed in Eagle County. We do not have a copy of the Note or
       Loan Agreement, as that is confidential between the Borrower and Lender.
       We know the loan was originally $13.7 million and that a $1 million principal
       payment was made in the beginning of 2010. We assume, but do not know
       for certain, that it requires an annual $1 million payment. If that were the
       case, the next payment would be due in February 2011, timed to coincide
       with the Club having collected annual dues from its members.
       We have analyzed the Deed of Trust with a view towards finding a “Default”,
       or a breach, which would give the Bank the right to accelerate the loan. We
       perceive various breaches, which we believe to be defaults. The Bank,

     however, may consider them “soft” or technical defaults as the Club has not
     yet defaulted on any payments, which would be a material or “hard” default
     on which the bank could more obviously defend itself in taking an action to
     accelerate. Since the next payment may not be due until the beginning of
     2011, what other defaults might the bank deem to be serious enough to act

     Other possible nonpayment defaults, which may be occurring or may occur
     before the end of 2010 are the following:
            Cross default, insolvency: If David Wilhelm, as guarantor, has other
            debts being accelerated by third parties, or if the bank believed its
            borrower to be insolvent, the bank could deem itself at risk and could
            call a default. If there is any proceeding under any bankruptcy or
            insolvency laws by or against its borrower, it could call a default.
        •   Failure to maintain: If the bank has evidence that the Club is not
            maintaining the property to “preserve its value” it could call a default.
        •   Bank “believes itself insecure”. This might occur should there be
            significant litigation against the borrower.

     The Bank’s remedies in case of a default are:
            The Bank can accelerate the loan, foreclose on the property, collect
            the dues or other club revenues, appoint a receiver to manage the
            property, and ultimately sell the property. The Bank can also choose
            to restructure its loan with the Club. In exchange for pushing principal
            payments out into the future or other benefits to the Club, the Bank
            could ask for one or all of the following: additional collateral, an
            interest rate increase, other guarantees, a receiver to manage the
            dues, a receiver to manage the operations of the Club.
     In this scenario we assume that the Bank calls a default based on its default
     provisions, a receiver is appointed to collect the dues, and moves to collect
     the dues through the receiver while the bank begins foreclosure proceedings.
3.   Key Issues
            While the members and/or property owners may be able to influence
            the Bank, ultimately, it is the Bank’s decision on whether or not they
            will call a default and what remedy they will use.
        • Alpine Bank, which is a community-minded bank, known for its
            community involvement and local philanthropic activity, may not
            wish to give the property owners or club members the first right of
            refusal on a note sale, or perhaps an eventual property sale as a result
            of foreclosure. However, the Bank may give Cordillera property
            owners or Club members the highest priority of consideration over a
            third party. We assume if the Bank were offered a reasonable price for

              its note, they would prefer selling it to spending lots of legal fees in
          •   Alpine Bank is aware of the Wilhelm’s litigation history. We can
              assume the Bank would prefer to exit this situation easily and not
              spend lots of time and legal fees tied up in litigation.

Part II: Bankruptcy
Here, we assume that, prior to consummation of possible foreclosure or some other
restrictive action, the Club files for bankruptcy protection under Chapter 11 of the
bankruptcy code. This buys the Club more time in the hopes of some financial
remuneration or restructuring of obligations which would not be available to them
if the bank sells the property for the value, or less than the value, of the note.
Under this scenario a Cordillera entity (which could be property owners through the
CPOA and/or through the Cordillera Metro District, or a group of Club members)
could buy the assets free of liabilities (other than mortgages) in a bankruptcy court
approved sale.

1.     Summary of Possible Bankruptcy Scenario
       A. Voluntary Bankruptcy: Assumes, the Club files for protection from its
          creditors under Chapter 11 of the U.S. bankruptcy code. It takes this
          action because the loan to Alpine Bank is accelerated, the Club cannot
          afford to pay it in full, and/or the Club does not want to face foreclosure
          and risk losing all its economic interest in the Club’s assets. By filing for
          bankruptcy protection, the Club hopes it can buy some time and derive
          some economic benefit when it comes out of bankruptcy. A consensual
          reorganization or restructuring plan may prove unworkable, and the
          Bankruptcy Court then approves a sale of the club’s assets. A buyer in
          the form of either the Club members, the Cordillera Metro District or the
          Cordillera Property Owners Association bid to buy the assets of the Club
          and are successful, subject only to satisfying existing mortgage debt.
          David Wilhelm’s second lien on the Club is negated in court since as an
          insider he is subject to a twelve month preference voidability period.
          Because the Wilhelm Family ownership (equity) is junior to the claims of
          the unsecured creditors, the Family receives no proceeds of
          the sale.

       B. Prepackaged Bankruptcy: The Cordillera Golf Club, Alpine Bank (first
          lien holder), and a potential buyer (the Club members, the CMD, or the
          CPOA or combination thereof), come to agreement on a purchase price
          for the Club and other operating issues. The Club then files a repackaged
          bankruptcy plan with the bankruptcy court. The bankruptcy
          reorganization process is quicker and costs less because the court
          approves the plan that has been submitted with all parties agreeing. We
          assume that because of the state of the golf course industry, the purchase
          price covers only the first lien holder’s debt and legal fees and certain
          administrative expenses but does not cover unsecured creditors. Buyer

          emerges with the assets of the Club, chooses a new structure of
          managing the Club, and the existing ownership or management of the
          Club is no longer in the picture.

     C.   Involuntary Bankruptcy: This possibility is mentioned but is a less
          likely scenario.

2.   Summary of Facts/Context Surrounding Scenario
     There are various reasons and methods by which the Cordillera Golf Club
     might file a petition in bankruptcy:
          A. Voluntary Bankruptcy: Any case in which the Cordillera Golf Club
             files for protection from its creditors under the bankruptcy code.
             This would most likely be under Chapter 11 of the code, which
             allows the company to continue to operate under the jurisdiction of
             the U.S. Bankruptcy Judge and subject to the restrictions and
             oversight required by
             the Bankruptcy code, as opposed to Chapter 7, which shuts down
             the operations and designates an independent trustee to liquidate
             its assets. It also allows for survivability of the legal entity in a
             reorganized form and/or allows for sale of the assets to a third party
             (i.e., other than the secured creditor or the Club), all of which must
             be approved
             by the court. Existing management is generally allowed to operate
             the business during the course of the proceeding. Typically the
             debtor has the first right to propose a restructuring plan, though, in
             certain instances, creditors are allowed to file a plan of their own
             and the court, in certain circumstances, may choose to appoint a
             trustee who
             would take control of the Club while in bankruptcy.

     What could cause the Cordillera Golf Club LLC to file for bankruptcy protection?
           • Alpine Bank calls a default as first lien holder of the Club assets
              and moves to accelerate its debt or to foreclose on the property;
           • Litigation against the Club which could or actually does result in
              the loss of management control over the Club’s funds or other
              assets or the requirement of a dollar judgment which the Club
              cannot pay; or
           • A significant debt due and payable to other creditors that the Club
              cannot pay.

     Although a company may emerge from bankruptcy as a viable entity, given
     the existing secured and unsecured debt, in this situation it may be unlikely.
     A more likely scenario is that the bankruptcy will result in an auction-type
     sale of the assets and the effective cancellation of the existing equity shares.
     This happens in bankruptcy cases because secured and unsecured creditors

     are paid from the company’s assets before the stockholders. A bankruptcy
     court approved sale would usually go to the highest bidder because it is the
     court’s first responsibility to settle the financial claims of creditors, though
     other considerations may play a role.

     Because, in bankruptcy, the secured creditors are taken care of first, the
     economic interests of unsecured creditors and equity holders are usually
     diminished or lost entirely. This means that the largest group of unsecured
     creditors of the Club, the members’ claims of $70+million in refundable
     initiation fees, would likely be negated. If the purchase price was large
     enough to satisfy the secured creditors (Bank), administrative expenses, the
     unsecured creditors, and legal fees, only then would the equity owners
     receive a payment. Thus, if the court orders a sale, it is highly unlikely that
     the equity owners would emerge from bankruptcy with any equity.

3.   Key Issues in Voluntary Bankruptcy
        • Any buyer could step in and buy the assets of the Club and not the
            liabilities (subject only to satisfying existing mortgage debt). Any
            excess over the mortgage debt would first to pay administrative
            claims and then unsecured creditors. The new buyer could begin
            operating the Club with a “cleaner slate.”
        • Because the Cordillera Metro District is putting a resolution on the
            November ballot for a potential bond issuance for the purpose of
            purchasing only the assets of the Club (not the Club as an entity),
            going through the bankruptcy process would allow the CMD to do this.
            Though it presents the risk of other buyers bidding higher to purchase
            the assets of the Club, an unrelated buyer would face obvious
            competitive disadvantages in bidding against a member-supported

4.   Prepackaged Bankruptcy
     This is a type of voluntary bankruptcy by which the Club, its creditors, both
     secured and unsecured, and a potential buyer of the Club assets would come
     to agreement on a plan for the future of the Club before the petition for
     bankruptcy is filed. They essentially file a proposed plan of reorganization at
     the time of the bankruptcy filing. The plan would restructure or negate the
     debt and equity of the Club, might propose how the Club could become a
     profitable entity or might propose a buyer and a price for the Club assets.
     The idea behind a prepackaged bankruptcy plan is to shorten and simplify
     the bankruptcy process. Because all the parties involved would agree on a
     plan before filing for bankruptcy protection, the Club, its creditors and
     potential buyer would most likely save time and money in legal and
     accounting fees. This is a preferable way to enter bankruptcy but it requires
     cooperative owners, creditors and buyers that together formulate a plan.

5.   Key Issues in Prepackaged Bankruptcy
        • A prepackaged bankruptcy would have all the advantages of voluntary
            bankruptcy listed above;
        • A prepackaged bankruptcy is a preferable way to enter bankruptcy as
            it saves time and money;
        • A prepackaged bankruptcy requires cooperation and final agreement
            between owners, creditors and buyers in formulating and submitting
            a plan to the bankruptcy court before filing.

6.   Involuntary Bankruptcy
     In this case the Cordillera Golf Club does not file for protection under the
     bankruptcy code, but a claim is filed against it by 3 or more creditors who
     would have to demonstrate that the Debtor (the Club) was generally not
     paying its debts as they come due. The Club is forced into a bankruptcy filing
     by these creditors. This scenario is less likely than voluntary bankruptcy
     because the Club would probably find a way to settle vendor or other
     creditor claims before they get to this point. However, if Premier or other
     member claims are deemed to be current obligations, this may not be the

7.   Key Issues in Involuntary Bankruptcy
        • Vendor claims are easy to file in small claims court,
        • Though probably small in dollar amount, these claims would cause
            aggravation and additional legal fees for the Club owners;
        • If these debtors were successful in bankruptcy court, it would then
            subject the assets and operation of the Club to the jurisdiction and
            supervision of the bankruptcy court.

8.   Timing of Bankruptcy
     The timing of a bankruptcy generally depends on a “precipitory” event, i.e.,
     an event which causes the Club owner to deem itself in need of relief from its
     debts by seeking an immediate stay of debt payment or other action (such as
     foreclosure) which it deems harmful. We do not have information on the
     Wilhelm family’s financial ability to put money into the Club when debts are
     due. We do not have complete information on the flow of funds into the Club
     and out of the Club since the Wilhelm family has taken ownership of the Club.
     The information we do have is from public statements made by David
     Wilhelm and assumptions we make based on the extrapolation of estimated
     revenue from members in the form of dues and Premier Memberships during
     2009 and 2010.
     As a result of not having full financial disclosure by the Club, we cannot give a
     good estimate for the timing of a possible bankruptcy filing. However, we
     suspect that the following possible events could lead to a cash flow problem,
     which could in turn cause the Club to consider filing for bankruptcy

          •   We suspect that there are now technical defaults in the debt
              agreements between the Club and Alpine Bank, which possibly could
              cause the Bank to call a default and to accelerate the $12.7 million
              debt. (However, we believe that the Bank will wait for a stronger
              stance from which to call a default.)
          •   We know that certain Club members are considering filing a suit
              asking the court to appoint a receiver for the collection and
              supervision of the payment of annual member dues.
          •   We know that annual dues are usually due in January. Many members
              have expressed that they will not pay their dues to the current Club
          •   We suspect, but do not know for certain, that a $1 million principal
              payment to Alpine Bank is due in February 2011, as the Club made a
              $1 million payment in February 2010.

      Any of these events could cause a cash flow problem for the Club. The Club
      would then determine if it had adequate resources to meet these claims in a
      timely fashion.

9.    Bankruptcy Pros/Benefits List
         • A buyer could purchase just the Club assets and not be forced to
           assume the unsecured liabilities, which liabilities include the
           refundable initiation deposits ($70+ million).
         • The Wilhelm $6.5 million lien would likely be invalidated.
         • A prepackaged bankruptcy would save time and money and would be
           preferable to a non-cooperative bankruptcy.
         • A bankruptcy that is not “prepackaged” might result in a lower
           purchase price for the Club assets because the buyer is not required to
           negotiate and come to agreement on a purchase price with the current

10.   Bankruptcy Cons/Risks List
         • A bankruptcy that is not “prepackaged” would be time consuming and
         • A bankruptcy that is not “prepackaged” could put the Club assets up
           for sale and a non-related party could offer a higher price than the
           preferred buyer group of Club members, the CMD, or the CPOA.
         • Any form of bankruptcy would put the court in total control and
           therefore adds another element of uncertainty in the community.
         • Possibly adverse publicity would be detrimental.

Part I and II Summary Assessment
A bankruptcy by the Club is a method to wipe out the liabilities so that new owners
can buy the assets of the Club without taking on the membership deposit liability or
the resigned members waiting list. A prepackaged bankruptcy would be less costly

and save time getting through bankruptcy reorganization. However, since it is
unlikely that the Club equity owners would emerge with any equity, there would
have to be an incentive for WFP to consider a prepackaged bankruptcy.


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