great wolf resorts, inc.

WOLF 10-K 12/31/2012
Section 1: 10-K (FORM10-K)
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal period ended December 31, 2012
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from
to
Commission File Number 000-51064
GREAT WOLF RESORTS, INC.
(Exact name of registrant as specified in its charter)
Delaware
51-0510250
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
525 Junction Rd. Suite 6000 South
Madison, Wisconsin
53717
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code
(608) 662-4700
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.
Yes x No ¨
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site; if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Annual
Report on Form 10-K or any amendment to this Annual Report on Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer
¨
Accelerated filer
¨
Non-accelerated filer
x (Do not check if a smaller reporting company)
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of June 30, 2012, the aggregate market value of the voting and non-voting common equity held by non-affiliates was zero.
The number of shares outstanding of the issuer’s common stock was 200 as of March 29, 2013.
DOCUMENTS INCORPORATED BY REFERENCE: None.
Table of Contents
Great Wolf Resorts, Inc.
Annual Report on Form 10-K
For the Year Ended December 31, 2012
INDEX
Page
No.
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
2
18
35
35
36
36
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
38
39
43
62
64
124
124
126
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Directors, Executive Officer and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
126
129
155
157
157
PART IV
Item 15.
Exhibits and Financial Statement Schedules
159
Signatures
160
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Table of Contents
PART I
ITEM 1.
BUSINESS
OVERVIEW
The terms “Great Wolf Resorts,” “us,” “we,” “our” and “Company” are used in this report to refer to Great Wolf Resorts, Inc. and its
consolidated subsidiaries. All dollar amounts used in this Annual Report on Form 10-K are in thousands, except per share amounts and operating
statistics.
We are a family entertainment resort company that provides our guests with a high quality vacation at an affordable price. We are the largest
owner, licensor, operator and developer in North America of drive-to destination family resorts featuring indoor waterparks and other familyoriented entertainment activities. Each of our resorts features approximately 300 to 600 family suites, each of which sleeps from six to ten people and
includes a wet bar, microwave oven, refrigerator and dining and sitting area. We provide a full-service entertainment resort experience to our
primary target customer base: families with children ranging in ages from 2 to 12 years old that live within a convenient driving distance of our
resorts. Several of our resorts have significant meeting space or conference centers, allowing us to also attract groups in addition to our leisure
guests. Our resorts are open year-round and provide a consistent, comfortable environment where our guests can enjoy our various amenities and
activities. We operate and license resorts under our Great Wolf Lodge® brand name. We have entered into licensing and management arrangements
with third parties relating to the operation of resorts under the Great Wolf Lodge brand name.
We provide our guests with a self-contained vacation experience and focus on capturing a significant portion of their total vacation
spending. We earn revenues through the sale of rooms (which includes admission to our indoor waterpark), and other revenue-generating resort
amenities. Each of our resorts features a combination of the following revenue-generating amenities: themed restaurants, ice cream shop and
confectionery, full-service adult spa, kid spa, game arcade, gift shop, miniature golf, interactive game attraction, family tech center and meeting
space. We also generate revenues from licensing fees, management fees and other fees with respect to our operation or development of properties
owned in whole or in part by third parties.
Each of our Great Wolf Lodge resorts has a Northwoods lodge theme, designed in a Northwoods cabin motif with exposed timber beams,
massive stone fireplaces, Northwoods creatures including mounted wolves and an animated two-story Clock Tower that provides theatrical
entertainment for younger guests. All of our guest suites are themed luxury suites, ranging in size from approximately 385 square feet to 925 square
feet.
The indoor waterparks in our Great Wolf Lodge resorts range in size from approximately 34,000 to 84,000 square feet and include decorative
rockwork and plantings. The focus of each Great Wolf Lodge waterpark is our signature 12-level treehouse water fort, an interactive water
experience for the entire family that features over 60 water effects and is capped by an oversized bucket that dumps between 700 and 1,000 gallons
of water every five minutes. Our waterparks also feature a combination of high-speed body slides and inner tube waterslides, smaller and lower
speed slides for younger children, zero-depth water activity pools with geysers, a water curtain, fountains and tumble buckets, a lazy river,
additional activity pools for basketball, open swimming and other water activities and large free-form hot tubs, including hot tubs for adults only.
We also own 100% of Creative Kingdoms, LLC (CK). CK is a developer of experiential gaming products including MagiQuest®, an interactive
game attraction available at all of our resorts. CK also owns or has sold to other parties several stand-alone MagiQuest facilities or similar
attractions.
Transactions
On May 4, 2012, the Company merged (the Merger) with K-9 Acquisition, Inc., a Delaware corporation (Merger Sub) and subsidiary of a fund
managed by an affiliate of Apollo Global Management, LLC (together with its subsidiaries, Apollo), in the Merger (as discussed in Note 3 to the
Consolidated Financial Statements). Although the Company continued as the same legal entity after the Merger, the Company’s capital structure
changed significantly as a result of the Merger and our financial statement presentations distinguish between a “Predecessor” for periods prior to
the Merger and a “Successor” for periods subsequent to the Merger. The Merger was accounted for as a business combination using the
acquisition method of accounting and the Successor financial statements reflect a new basis of accounting that is based on the fair value of assets
acquired and liabilities assumed as of the effective time of the Merger. We obtained the assistance of independent third parties in determining the
fair value of certain tangible assets, identifiable intangible assets, and liabilities. As a result of the application of the acquisition method of
accounting as of the effective time of the Merger, the financial statements for the Predecessor period and for the Successor period are presented on
different bases and are, therefore, not comparable.
Our Equity Sponsor
Apollo is a leading global alternative investment manager with offices in New York, Los Angeles, London, Frankfurt, Luxembourg, Singapore,
Hong Kong and Mumbai. As of December 31, 2012, Apollo and its subsidiaries had assets under management of approximately $113 billion
invested in its private equity, credit and real estate businesses.
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Properties – Overview
As innovators in our industry segment, we constantly seek to improve the facilities, amenities, attractions and features at our resorts to
enhance our guests’ vacation experience, generate additional on-site revenue and increase repeat and referral business. We refer to our original
resort properties as Generation I resorts. The Generation I properties were opened in 2003 or earlier and are relatively smaller properties with 300
rooms or less. Since 2004, we have successfully developed seven Great Wolf Lodge properties, which we refer to as Generation II resorts. Our
Generation II resorts have approximately 400 rooms or more and a generally wider range of amenities than our Generation I resorts.
The following table summarizes our Generation I and Generation II Great Wolf Lodge properties as of December 31, 2012:
Same Store 2012 Operating Statistics
Type
Locations
Generation I
Generation II
Description
Wisconsin Dells, WI
Sandusky , OH
Traverse City, MI
Kansas City , KS
Williamsburg, VA
Pocono Mountains, PA
Niagara Falls, ONT
Mason, OH
Grapevine, TX
Grand Mound, WA
Concord, NC
ADR
RevPAR
Total
RevPOR
58.9%
$200.31
$118.05
$302.81
69.2%
$281.24
$194.71
$430.33
Occupancy
Approximately 300 or
fewer rooms, smaller
waterparks and fewer
and smaller other
amenities
Approximately 400
rooms or more and a
wider range of
amenities
On March 24, 2011, we sold our Blue Harbor Resort in Sheboygan, WI. We continue to license the Blue Harbor Resort and related trade
names to the buyer at no fee. As of March 24, 2011, we no longer operate this resort or manage the condominium units there and the related trade
name has no carrying value.
The following table presents an overview of our portfolio of resorts. As of December 31, 2012, we operated, managed and/or were party to
licensing arrangements relating to the operation of 11 Great Wolf Lodge resorts. We anticipate that most of our future resorts will be licensed
and/or developed under our Great Wolf Lodge brand, but we may operate and/or enter into licensing arrangements with other resorts using
different brands in appropriate markets.
Ownership
Percentage
Wisconsin Dells, WI(3)
Sandusky, OH(3)
Traverse City, MI
Kansas City, KS
Williamsburg, VA(4)
Pocono Mountains, PA(4)
Niagara Falls, ONT(5)
Mason, OH(4)
Grapevine, TX(4)
Grand Mound, WA(6)
Concord, NC(4)
(1)
(2)
—
—
100%
100%
100%
100%
—
100%
100%
49%
100%
Opened
1997
2001
2003
2003
2005
2005
2006
2006
2007
2008
2009
Number
of
Guest
Suites
385 (2)
271
280
281
405
401
406
401
605
398
402
Indoor
Entertainment
Area(1)
(Approx. sq. ft)
102,000
41,000
57,000
57,000
87,000
101,000
104,000
105,000
110,000
74,000
97,000
Our indoor entertainment areas generally include our indoor waterpark, game arcade, children’s activity room, family tech center, MagiQuest®
(an interactive game attraction) and fitness room, as well as our spa in the resorts that have such amenities.
Total number of guest suites includes 77 condominium units that are individually owned and managed by us.
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(3)
(4)
(5)
(6)
These properties are owned by CNL Lifestyle Properties, Inc. (CNL), a real estate investment trust focused on leisure and lifestyle properties.
We currently manage both properties and license the Great Wolf Lodge brand to these resorts.
Five of our properties (Great Wolf Lodge resorts in Williamsburg, VA; Pocono Mountains, PA; Mason, OH; Grapevine, TX and Concord, NC)
each had a book value of fixed assets equal to ten percent or more of our total assets as of December 31, 2012, and each of those five
properties had total revenues equal to ten percent or more of our total revenues for the period January 1 – May 4, 2012, and the period May 5
– December 31, 2012.
An affiliate of Ripley Entertainment, Inc. (Ripley), our licensee, owns this resort. We have granted Ripley a license to use the Great Wolf
Lodge name for this resort through April 2016 for a licensing fee and we also provide other services to this resort for a fee.
This property is owned by a joint venture. The Confederated Tribes of the Chehalis Reservation (Chehalis) owns a 51% interest in the joint
venture, and we own a 49% interest. We manage the property and license the Great Wolf Lodge brand to the joint venture under long-term
agreements through April 2057, subject to earlier termination in certain situations. The joint venture leases the land for the resort from the
United States Department of the Interior, which is trustee for Chehalis.
Northwoods Lodge Theme. Each of our Great Wolf Lodge resorts has a Northwoods lodge theme. Our approximately 5,000 to 9,000 squarefoot atrium lobbies, which are between three and five stories high, are designed in a log cabin motif with exposed timber beams, massive stone
fireplaces, mounted wolves and other Northwoods creatures and an animated two-story Clock Tower that provides theatrical entertainment for our
younger guests. Throughout the common areas and in each guest suite, we use sturdy, rustic furniture that complements the Northwoods theme.
We believe that this consistent theme throughout our resorts creates a comfortable and relaxing environment and provides a sense of adventure
and exploration that the entire family can enjoy.
Guest Suites. All of our guest suites are themed luxury suites, ranging in size from approximately 385 square feet to 925 square feet.
Substantially all of the rooms in our resorts also include a private deck or patio. Our resorts offer up to 11 room styles to meet the needs and
preferences of our guests, including a selection of rooms with lofts, Jacuzzis and fireplaces. Our standard rooms include two queen beds and a third
queen bed in the sleeper sofa, a wet bar, microwave oven, refrigerator and dining and sitting area, and can accommodate up to six people. Our
specialty rooms can accommodate up to seven people and provide a separate area for children, including our KidCabin® suites that feature a log
cabin bunk bed room, our Wolf Den Suitestm that feature a themed den enclosure with bunk beds and our KidKamptm suites that feature bunk beds
in a themed tent enclosure. We also offer larger rooms, such as our Majestic Bear Suitetm and Grizzly Bear Suitetm, which have separate bedrooms
with a king bed, a large dining and living area and can accommodate up to eight people. For business travelers we also offer Luxury King Suites
that have a king bed and other luxury amenities. Our guest suites have wallpaper, artwork and linens that continue the Northwoods theme, and
some of our resorts provide pay-per-view movies and pay-per-play video games. Some of our resorts also provide room service dining.
Indoor Waterparks. Our Great Wolf Lodge indoor waterparks are maintained at a warm and comfortable temperature, range in size from
approximately 34,000 to 84,000 square feet, have a Northwoods theme and include decorative rockwork and plantings. The focus of each Great Wolf
Lodge waterpark is our signature 12-level treehouse water fort. The water fort is an interactive water experience for the entire family that features
over 60 water effects, including spray guns, fountains, valves and hoses, has cargo netting and suspension bridges and is capped by an oversized
bucket that dumps between 700 and 1,000 gallons of water approximately every five minutes.
Our waterparks also feature high-speed body slides and inner tube waterslides that wind in and out of the building into a splash-down pool,
smaller and lower-speed slides for younger children, zero-depth water activity pools with geysers for young children, a water curtain, fountains and
tumble buckets, a lazy river, additional activity pools for basketball, open swimming and other water activities and two large free-form hot tubs, one
of which is for adults only. Each waterpark is constructed with a special nonslip floor surface to minimize slipping and has ample deck space and
good sight lines to facilitate parental oversight.
On average, approximately one to two million gallons of water cycle through each of our waterparks every hour as part of our water filtration
procedures. Our primary operating equipment includes water pumps, tanks and filters located in separate spaces to allow for quick repairs or
replacement. Computerized water and air treatment systems and highly trained technicians monitor the water and air quality of our waterparks in
order to promote a clean and safe environment. We seek to minimize the use of chlorine. Most of the water purification is performed by one or more
non-chlorinated water treatment systems, which ensures the highest water quality and a substantial reduction in the typical chlorine odor found in
indoor pools. In addition, the water within each area circulates at least every hour to maximize hygiene. Each waterpark area has its own water
system so that a problem with any one area can be quickly contained and does not affect the operations of the rest of the waterpark.
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We expect recurring annual maintenance capital expenditures for each resort that we own to be approximately 2- 4% of the resort’s revenues,
depending on the age of the resort. Much of the equipment used in our waterparks is designed for outdoor application and capable of withstanding
intense physical use and the elements year-round, therefore, wear and tear is minimal. We believe our equipment has a long useful life. In addition,
our water purification system minimizes airborne chemicals and their potentially corrosive effects on materials and equipment, and is designed to
help extend the life of our equipment.
The safety of our guests is a primary focus in our waterparks. Our lifeguards receive one of the highest levels of training and certification in
the industry, provided by Jeff Ellis & Associates, Inc. (Ellis & Associates), an international aquatic safety consulting company. Ellis & Associates
conducts quarterly unannounced safety inspections at each of our resorts to ensure that proper safety measures and procedures are maintained.
All of our on-duty lifeguards perform daily training exercises under the supervision of a certified instructor. We also encourage our lifeguards to
obtain EMT certification, and we reimburse them for the costs of the training. In 2012, five of our resorts achieved Platinum status (the highest
rating from Ellis) with one of these achieving the highest score in Ellis’ worldwide client-base. All others resorts achieved Gold and Silver status.
Our indoor waterparks are generally open from 9:00 a.m. until 9:00 p.m., seven days a week, and admission is generally only available to resort
guests. Our general guests-only policy, which is in effect at all of our resorts, allows our guests to avoid the long lines and other inconveniences of
daily admission-based waterparks.
Amenities. Each of our resorts features a combination of the following amenities. Some of the amenities described below have different names
at certain of our Great Wolf Lodge resorts.
•
Themed Restaurants. Our resorts feature one or more full-service, themed restaurants and a themed bar and grille that serves alcoholic
beverages and sandwiches. Our themed restaurants include the Gitchigoomie Grill™, with a life-sized sea plane suspended over the
dining area; Lumber Jack’s Cook Shanty™; the Loose Moose Bar & Grill™; and the Camp Critter Bar & Grille™, which features a twostory realistic tree with a canopy of leaves and canvas-topped booths with hanging lanterns, giving guests the impression that they are
dining in a Northwoods forest campsite.
•
Ice Cream Shop and Confectionery. Each of our Great Wolf Lodge resorts has a Bear Paw Sweets & Eatstm ice cream shop and
confectionery that provides sandwiches, coffee, pastries, ice cream, candies, home-made fudge and other snacks that families can share
together.
•
Coffee Shop. Some of our resorts have a separate coffee shop that offers Starbucks® or Dunkin Donuts® coffee, as well as other pastry
items provided by those brands.
•
Snack Bar. Each of our waterparks has a snack bar that offers a variety of sandwiches, pizzas and similar foods with ample seating so
that our guests do not have to leave the warmth and comfort of the waterpark.
•
Gift Shop. Each of our resorts has a Buckhorn Exchange™ gift shop that provides distinctive themed gifts, including Great Wolf Lodge
logo merchandise, souvenirs, collectibles and stuffed animals. The gift shop also offers resort toys, swimwear and personal necessities.
Our resorts also have a Bear Essentials™ gift shop located in the waterpark.
•
Full-Service Spa. Each of our resorts, with the exception the Sandusky resort, has an Elements™ Spa and Salon that provides a relaxing
get-a-way with a full complement of massages, facials, manicures, pedicures and other spa treatments and a wide selection of Aveda®
products. Each of our spas, including the Sandusky resort, also includes our Scooops® Kid Spa. The furnishings for the kid-friendly
spa have the look of a modern ice cream parlor, with chocolate-colored walls, retro swivel stools and a pedicure sofa that looks like an
oversized ice cream sundae. While enjoying their treatments, kids can listen to music with a provided CD player and speakers or with
their own digital music player.
•
Game Arcade. Our Northern Lights Arcades™ range in size from approximately 5,000 to 8,000 square feet, generally feature over 70
games and are divided into distinct areas with video and skill games that appeal to children of different ages. Tickets won from the skill
games may be exchanged for a wide selection of merchandise that appeals to our younger guests.
•
Cub Club ®. Our Cub Club rooms are professionally staffed children’s activity rooms with programmed activities, including arts and
crafts, games and nature hikes.
•
Animated Clock Tower. Each of our Great Wolf Lodge resorts has a two-story animated Clock Tower located in the resort’s main atrium
lobby. The Clock Tower provides daily theatrical entertainment through talking and singing trees, animals and Northwoods figures.
•
Outdoor Water Amenities. Outdoor water amenities complement our indoor waterpark facilities and allow our guests to take advantage
of favorable weather conditions. Our outdoor water amenities include activity pools and a large deck or patio area and are generally
open from May until September, longer if the weather is favorable. Our Wisconsin Dells and Grapevine resorts also have outdoor
waterslides.
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•
Fitness Room. Our fitness rooms contain aerobic exercise equipment, weight-lifting machines and numerous televisions for active
viewing.
•
Meeting Space. Our resorts offer meeting space ranging from approximately 3,000 to over 7,000 square feet that are available for guest
meetings, including a 99-seat, state-of-the-art, symposium-style room at Traverse City and Niagara Falls resorts.
•
Conference Facility. Many of our resorts feature conference facility space. Traverse City, Williamsburg, Mason, Grapevine, Concord
and Grand Mound resorts feature conference facilities that range in size from 10,000 to 40,000 square feet. Each of these conference
facilities also feature some, if not all, of the following additional facilities: Grand Ballroom, flexible meeting spaces, executive boardroom,
audio visual systems and multiple pre-function concourses including an outdoor patio.
•
MagiQuest®. Each of the resorts features a MagiQuest attraction. MagiQuest is an interactive, live-action, fantasy adventure game that
guests can play throughout the resort.
•
Miniature Golf. Five of the resorts feature a custom-designed, outdoor 18-hole miniature golf course.
Our Competitive Strengths
We are the market leader for family entertainment resorts that feature indoor waterparks and other family-oriented amenities in North America.
Our competitive strengths include:
Strong brand name awareness. Our Great Wolf Lodge brand name is well recognized in our industry. We are the largest owner, licensor
and operator of family entertainment resorts with indoor waterparks in North America based on the number of resorts in operation. Our Great
Wolf Lodge brand is symbolized by our distinctive and easily identifiable theming, from our signature treehouse water fort, to our mascots
and recognizable logos and merchandise. We believe that our strong brand awareness has helped foster strong guest and brand loyalty,
which is evidenced by high levels of repeat and referral guests. We will continue to focus on ensuring that each of our guests associates the
Great Wolf Lodge brand with a memorable and consistent family vacation experience.
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Resilient business model. Our business model generally targets customers within a three-hour driving radius of our resorts. We believe
recent vacation trends favor our business model as families increasingly choose to take shorter, more frequent vacations within driving
distance of their homes. We are well positioned to continue to take advantage of these trends. We also believe that our resorts offer a highquality vacation at an affordable price, which appeals to families during all stages of the economic cycle. We believe our resorts are less
affected by changes in the economic cycle than are other vacation destinations, as drive-to destinations are generally less expensive and
more convenient than destinations that require air travel.
Significant barriers to entry with an established first mover advantage. We strive to be the first operators of family entertainment
resorts featuring indoor waterparks in our selected target markets, and our resorts have typically been the first resorts to open in their
respective markets. Our experience in establishing 11 family-focused resorts and the economies of scale resulting from our current operation
of multiple resorts provide us with the ability to move into a selected target market quickly. We believe there are significant barriers to entry in
our industry segment that discourage others from developing similar resorts, including operational complexity, substantial capital
requirements, availability of suitable sites in desirable markets and a challenging, multi-year permitting process. A new Great Wolf Lodge
resort built through ground-up construction requires substantial costs and takes from one to three years to develop and permit, and an
additional 18 months or more to build. We believe that the combination of our first mover advantage, existing economies of scale and the
significant barriers to entry in our target markets provide us with a competitive advantage.
Significant portfolio of product offerings that increase ancillary on-site revenues. Our resorts feature a number of proprietary and
branded products and entertainment options that increase ancillary on-site revenues and distinguish our resorts’ self-contained vacation
experience. These products include Buckhorn Exchange gift shop, Elements Spa and Salon, Northern Lights Arcade, Cub Club, Scooops Kid
Spa and miniature golf. All of our resorts feature a MagiQuest attraction, an interactive, live-action, fantasy adventure game that guests can
play throughout the resort. We believe that these ancillary products will continue to drive additional revenues and enhance the guest
experience and brand loyalty. We believe that the RevPOR performance of our Generation II resorts is due to a significant extent to the
superior amenities provided at those resorts.
Extensive customer database through a centralized service center drives repeat and referral business. Since 1997, we have
accumulated an extensive customer database, which allows us to market directly to our guests and drive repeat and referral business. Despite
the recent economic downturn, our repeat and referral business has continued to grow, which we believe is a testament to the quality of our
business methods. For the year ended December 31, 2012, 57% of our room nights were derived from repeat and referral guests.
In addition, by centralizing certain of our services, we focus on decreasing our per-unit costs. Centralized services provide operational
efficiency, increasing our control over those services and positioning ourselves to deliver a higher quality of service to our guests. For
example, our central reservations call center operates every day of the year and accepts reservations for our resorts. The call center also has
the capacity to efficiently handle high call volumes and should require limited incremental costs over the next several years as we grow our
portfolio. We have also increased the efficiency and functionality of our web-based online reservations system, which we expect to allow us
to further efficiently handle an increasing volume of guest reservations with limited incremental costs.
Strong growth prospects. We believe recent vacation trends favor drive-to family entertainment options, as the number of families
choosing to take shorter, more convenient vacations has increased in recent years. We believe these trends will continue, and can provide
impetus to our future growth prospects. We expect to expand our base of resorts by further leveraging our Great Wolf Lodge brand, proven
business model and operating expertise. We are actively involved in advanced discussions for several potential new development and
conversion projects in the United States. Additionally, we believe that our Great Wolf Lodge brand could be successfully leveraged in certain
international markets, further extending our growth prospects.
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Strong management team with skilled resort level staff. Our executive management team is responsible for our strategic direction and
has an average of ten years of experience with Great Wolf Resorts and twenty-one years of industry experience. Our executive management
has significant experience in the hospitality, family entertainment and real estate development industries and has significant expertise in
operating complex, themed family entertainment resorts featuring indoor waterparks. In addition, we have a team of skilled, loyal and
committed employees at each of our resorts. We offer our resort employees a number of benefits, including what we believe is a positive and
rewarding work environment, career-oriented training, the ability to obtain consistent year-round work, which is uncommon in the resort
industry, and career growth opportunities. As a result, we believe our employees are committed to delivering a superb guest experience and
helping to assure that our guests fully enjoy their family vacations.
Focus on Safety. We invest heavily in safety measures in the design, construction and operation of our resorts. For example, we
specifically design our waterparks with attention to sightlines and safety precautions and use one of the most respected training methods in
the water safety industry to train each of our lifeguards. We design and construct our indoor waterparks with state-of-the-art air quality and
water treatment systems. We also maintain and periodically upgrade our facilities to ensure that we provide our guests with best-in-class
safety measures and systems.
Business and Growth Strategies
Our primary business objective is to increase long-term value by executing our business and growth strategies, which include:
•
Expanding Our Brand Footprint in Target Markets. We are seeking to grow our business and diversify our domestic resort
geographic brand footprint. This growth plan is designed to further exploit our competitive advantages of being the first-mover in the
indoor waterpark resort business, our strong brand equity and our waterpark resort management expertise by seeking opportunities to
develop new resorts through ground-up construction or conversion of existing properties. In addition, we also expect seek to use our
brand, business model and operating expertise to expand our business internationally. We believe this strategy will allow us to further
extend the impact of our brand and our position as the leading provider of drive-to, family destination resorts featuring indoor
waterparks, and provide the additional benefit of reducing our sensitivity to economic conditions affecting any single region.
•
Continuing Innovative Expansions of and Enhancements to Our Existing Resorts. We will seek to continue to focus on growth
opportunities at our existing resorts by adding revenue-enhancing features that drive ancillary vacation spending and meet our target
returns, including non-water based attractions and food and beverage outlets. We intend to leverage our in-house expertise, in
conjunction with the knowledge and experience of our third-party suppliers and designers, to develop and implement the latest
innovations in family entertainment activities and amenities, including waterpark attractions. We have received numerous industry
awards for our guests’ experiences, our operations, innovative development, sales and marketing initiatives and materials, and
employee retention.
•
Maximizing Total Resort Revenues While Minimizing Total Resort Costs We will continue to employ aggressive yield management
techniques and sales and marketing efforts designed to maximize occupancy and room rates at our resorts. During off-peak times
(generally in May and September, and during the middle of weeks when schools are in session), we will seek to maintain higher
occupancy by approaches such as holding special events and targeting group sales and conferences. We will also seek to maximize
other on-site revenue, such as food and beverage, entertainment and merchandise revenue through themed restaurants, ice cream
shops, snack shops, adult and kid spas, gift shops, game arcades, MagiQuest, mini-golf and teen-themed areas. At the same time, we
will also seek to reduce operating costs by leveraging our purchasing power with respect to operating supplies, food and beverage,
insurance and employee benefits. By centralizing certain of our services, we also seek to reduce our per-unit costs, increasing our
control over those services in order to deliver a greater quality of service to our guests and employees. Our centralized reservations
system is scalable and, together with
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our web-based reservations system, enables us to efficiently handle high reservation volumes, and we expect it to require only limited
additional incremental costs over the next several years as we increase our portfolio of resorts.
•
Building Upon Our Existing Brand Awareness and Loyalty. Our Great Wolf Lodge brand is recognizable by our guests because of our
distinctive and easily identifiable theming, from our signature treehouse water fort to our mascots and distinctive logos and
merchandise. We believe we have fostered strong guest and brand loyalty, which is evidenced by our high levels of repeat and referral
guests. We will continue to focus on ensuring that each of our guests associates the Great Wolf Lodge brand with a memorable and
consistent family vacation experience.
•
Expanding Operations of Creative Kingdoms. We will continue to seek opportunities to expand CK’s operations and capitalize on
significant experience in developing experiential, family-based entertainment products. We believe that CK’s current and potential
future products have potential uses in venues other than our indoor waterpark resorts, and we expect to explore their sales and
marketing efforts as they look to expand the number of locations using their MagiQuest and other experiential gaming products.
Property Descriptions
We currently operate, manage and/or have entered into licensing arrangements relating to the operation of 11 resorts, located in Wisconsin
Dells, Wisconsin; Sandusky, Ohio; Traverse City, Michigan; Kansas City, Kansas; Williamsburg, Virginia; Pocono Mountains, Pennsylvania;
Niagara Falls, Ontario; Mason, Ohio; Grapevine, Texas; Grand Mound, Washington and Concord, North Carolina.
Great Wolf Lodge – Wisconsin Dells, Wisconsin
Our Great Wolf Lodge, located on 16 acres in Wisconsin Dells, Wisconsin, was originally constructed in 1997 and acquired by our
predecessor company in 1999. In 2005, we transferred this resort to a joint venture with CNL and sold 70% of our ownership interest in the property
to CNL. In 2009, we sold the remainder of our ownership interest in the joint venture to CNL. We continue to manage and license this resort under
long-term arrangements.
Wisconsin Dells is a renowned family vacation destination that features a number of entertainment options, including amusement parks,
museums, live entertainment and other indoor waterparks. According to the 2011-2012 Travel & Tourism Market Research Handbook, the
Wisconsin Dells area attracts over 2.9 million visitors each year. Wisconsin Dells is within a one-hour drive from Madison, Wisconsin; a two-hour
drive from Milwaukee, Wisconsin; a three-hour drive from Chicago, Illinois; a three and one-half-hour drive from Minneapolis/St. Paul, Minnesota;
and a five-hour drive from Des Moines, Iowa. According to Applied Geographic Solutions, Inc., there are approximately 16.4 million people who live
within 180 miles of the resort.
Great Wolf Lodge of Wisconsin Dells has 308 guest suites, with an additional 77 third-party owned, one to four bedroom condominium units
located adjacent to the resort, on a six-acre land parcel, and an approximately 76,000 square-foot indoor waterpark that includes our signature
treehouse water fort. The resort offers a number of revenue-enhancing amenities, including themed restaurants and snack bars, confectionery and
ice cream shop, Cub Club, full-service spa, kid spa, game arcade, gift shops, MagiQuest, an outdoor recreation area and meeting rooms. The resort
also includes non-revenue generating amenities, such as an animated two-story Clock Tower and fitness center.
Great Wolf Lodge – Sandusky, Ohio
In March 2001, we opened our Great Wolf Lodge in Sandusky, Ohio. In 2005, we transferred this resort to a joint venture with CNL and sold
70% of our ownership interest in the property to CNL. In 2009, we sold the remainder of our ownership interest in that joint venture to CNL. We
continue to manage and license this resort under long-term arrangements.
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Sandusky is a family destination near Cleveland, Ohio, that is well known for its amusement parks. According to the Sandusky/FIB Erie
County Visitors and Convention Bureau, Sandusky attracts approximately 10 million visitors each year. Sandusky is within a one-hour drive from
Cleveland and Toledo, Ohio; a two-hour drive from Detroit, Michigan; a two and one-half-hour drive from Columbus, Ohio; and a three-hour drive
from Pittsburgh, Pennsylvania. According to Applied Geographic Solutions, Inc., there are approximately 22.9 million people who live within
180 miles of the resort.
Great Wolf Lodge of Sandusky is located on approximately 15 acres and has 271 guest suites and an approximately 34,000 square-foot indoor
waterpark that includes our signature treehouse water fort, tube slides, body slides, hot tubs and a lazy river. The resort offers a number of
revenue-enhancing amenities, including our themed restaurants and snack bars, confectionary and ice cream shop, Cub Club, kid spa, game arcade,
gift shops, MagiQuest an outdoor recreation area and meeting rooms. The resort also includes non-revenue generating amenities such as our
animated two-story Clock Tower and fitness center.
Great Wolf Lodge – Traverse City, Michigan
In 2003, we opened our Great Wolf Lodge in Traverse City, Michigan. Traverse City is a traditional family vacation destination with skiing and
lake activities. According to the Traverse City Convention and Visitors Bureau, Traverse City attracts approximately 2 million visitors each year.
Traverse City is within a two-hour drive from Grand Rapids, Michigan; a three-hour drive from Sault St. Marie, Michigan; and a four-hour drive from
Detroit and Ann Arbor, Michigan, as well as Windsor, Ontario. According to Applied Geographic Solutions, Inc., there are approximately 7.1 million
people who live within 180 miles of the resort.
Great Wolf Lodge of Traverse City is located on approximately 48 acres and has 280 guest suites and an approximately 40,000 square-foot
indoor waterpark that includes our signature treehouse water fort. It also includes a 10,000 square-foot conference center. The resort offers a
number of revenue-enhancing amenities, including our themed restaurants and snack bars, confectionery and ice cream shop, Cub Club, full-service
spa, kid spa, game arcade, gift shops, MagiQuest, miniature golf, an outdoor recreation area and approximately 7,000 square feet of meeting space.
The resort also includes non-revenue generating amenities such as our animated two-story Clock Tower and fitness center.
Great Wolf Lodge – Kansas City, Kansas
In 2003, we opened our Great Wolf Lodge in Kansas City, Kansas, as part of the Village West tourism district that includes a Cabela’s
superstore, Nebraska Furniture Mart and the Kansas NASCAR Speedway. According to the 2011-2012 Travel & Tourism Market Research
Handbook, Kansas City attracts approximately 8 million visitors each year. Kansas City is within a one-hour drive from Topeka, Kansas; a threehour drive from Wichita, Kansas, Des Moines, Iowa and Omaha, Nebraska; and a four-hour drive from St. Louis, Missouri. According to Applied
Geographic Solutions, Inc., there are approximately 6.8 million people who live within 180 miles of the resort.
Great Wolf Lodge of Kansas City is located on approximately 17 acres and has 281 guest suites and an approximately 40,000 square-foot
indoor waterpark that includes our signature treehouse water fort. The resort offers a number of revenue-enhancing amenities, including our
themed restaurants and snack bars, confectionery and ice cream shop, Cub Club, full-service spa, kid spa, game arcade, gift shops, MagiQuest,
miniature golf, an outdoor recreation area and meeting rooms. The resort also includes non-revenue generating amenities such as our animated twostory Clock Tower and fitness center.
Great Wolf Lodge – Williamsburg, Virginia
In 2005, we opened our Great Wolf Lodge in Williamsburg, Virginia, on an 83-acre site. Williamsburg is a popular family vacation destination
with amusement parks, waterparks and other entertainment attractions. According to the 2011-2012 Travel & Tourism Market Research Handbook,
the Williamsburg area attracts 4 million visitors each year. Williamsburg is a one-hour drive from Richmond, Virginia; a two and one-half-hour drive
from Washington, D.C.; a three-hour drive from Baltimore, Maryland; a three and one-half-hour drive from Raleigh, North Carolina; a four and onehalf-hour drive from Wilmington, Delaware; and a five-hour drive from Philadelphia, Pennsylvania. According to Applied Geographic Solutions,
Inc., there are approximately 17.4 million people who live within 180 miles of the resort.
The resort occupies approximately 36 acres of the site. We have leased a portion of the excess land to an entity who has opened a restaurant
on this site. We may sell or lease a portion of the remaining excess land as out-lots and retain the remaining acreage to support future expansion of
the resort.
Great Wolf Lodge of Williamsburg has 405 guest suites and an approximately 67,000 square-foot indoor waterpark that includes our signature
treehouse water fort. It also includes a 10,000 square-foot conference center. The resort offers a number of revenue-enhancing amenities, including
themed restaurants and snack bars, confectionery and ice cream shop, Cub Club, full-service spa, kid spa, game arcade, gift shops, MagiQuest,
miniature golf, an outdoor recreation area and
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approximately 11,000 square feet of meeting rooms. The resort offers non-revenue generating amenities such as a two-story animated Clock Tower
and fitness center.
Great Wolf Lodge – Pocono Mountains, Pennsylvania
In 2005, we opened our Great Wolf Lodge in the Pocono Mountains on a 95-acre site near Stroudsburg, Pennsylvania. The Pocono
Mountains area is a popular family vacation destination featuring family-oriented attractions and recreational activities. According to the 2011-2012
Travel & Tourism Market Research Handbook, the Pocono Mountains region attracts approximately 6 million visitors each year. The resort is less
than a one-hour drive from Scranton, Pennsylvania; a two-hour drive from Manhattan, New York and Philadelphia, Pennsylvania; a two and onehalf-hour drive from Bridgeport, Connecticut; a three hour drive from Baltimore, Maryland; and a five-hour drive from Pittsburgh, Pennsylvania.
According to Applied Geographic Solutions, Inc., there are approximately 45.2 million people who live within 180 miles of the resort.
Our Great Wolf Lodge of the Pocono Mountains has 401 guest suites and an approximately 80,000 square-foot indoor waterpark that includes
our signature treehouse water fort. The resort offers a number of revenue-enhancing amenities, including themed restaurants and snack shops,
confectionery and ice cream shop, Cub Club, full-service spa, kid spa, game arcade, gift shops, MagiQuest, an outdoor recreation area and
approximately 5,800 square feet of meeting rooms. The resort also includes non-revenue generating amenities such as a two-story animated Clock
Tower and fitness center.
Great Wolf Lodge – Niagara Falls, Ontario
In 2004, we entered into a license agreement with Ripley’s that authorized Ripley’s to develop and operate a Great Wolf Lodge resort in
Niagara Falls, Ontario. In addition, the agreement allows Ripley’s to use certain licensed trademarks, such as “Cub Club,” “KidCabin,” and “Great
Wolf Lodge.” The term of the license agreement is ten years from the opening of the resort, with the possibility of up to four successive five-year
renewals. Under the license agreement, Ripley’s is required to pay a monthly license fee and a brand marketing fee, the latter of which we are
obligated to contribute to a marketing program. We may terminate the license agreement at any time, upon notice, if Ripley’s fails to meet its
material obligations under the agreement. These obligations require Ripley’s to meet payment obligations in a timely manner, maintain and operate
the resort in a manner consistent with our operating standards and obtain our approval prior to the use of any of our licensed trademarks. In
addition, these material obligations restrict Ripley’s to selling only products, goods and services that we approve and from developing or managing
a hotel with an indoor waterpark within the United States until, at the earliest, January 2016.
In 2006, the Great Wolf Lodge in Niagara Falls, Ontario, Canada opened. Niagara Falls is a popular family vacation destination. According to
the 2011-2012 Travel & Tourism Market Research Handbook, Niagara Falls attracts nearly 12 million visitors each year. Niagara Falls is less than a
one hour drive from Buffalo, New York; a one and one-half-hour drive from Toronto, Ontario; a one and three-quarter-hour drive from Kitchener,
Ontario; a two and one-half-hour drive from London, Ontario; and a four and one-quarter-hour drive from Windsor, Ontario. According to Applied
Geographic Solutions, Inc., there are approximately 8 million people in the United States and 9.6 million people in Canada who live within 180 miles
of the resort.
Great Wolf Lodge of Niagara Falls has 406 guest suites with an approximately 82,000 square-foot indoor waterpark. The resort offers a number
of revenue-enhancing amenities, including themed restaurants and snack bars, confectionery and ice cream shop, Cub Club, full-service spa, game
arcade, gift shops, MagiQuest, miniature golf, an outdoor recreation area and meeting space. The resort also includes non-revenue generating
amenities such as a two-story animated Clock Tower and fitness center.
Great Wolf Lodge – Mason, Ohio
In 2006, we opened our Great Wolf Lodge in Mason, Ohio, on a 39-acre land parcel adjacent to Kings Island theme park. Mason is a popular
family destination featuring family-oriented attractions and recreational activities. According to the 2011-2012 Travel & Tourism Market Research
Handbook, the Mason/Cincinnati metro areas attract 5 million visitors per year. The resort is located less than a one-hour drive from Cincinnati and
Dayton, Ohio; a one and one-half hour drive from Columbus, Ohio; and a two-hour drive from Louisville, Kentucky, Indianapolis, Indiana and
Lexington, Kentucky. According to Applied Geographic Solutions, Inc., there are approximately 16.6 million people who live within 180 miles of the
resort.
Our Great Wolf Lodge of Mason, Ohio, has 401 guest suites and an approximately 84,000 square-foot indoor waterpark. The resort offers a
number of revenue-enhancing amenities, including themed restaurants and snack bars, confectionery and ice cream shop, Cub Club, full-service
spa, kid spa, game arcade, gift shops, MagiQuest and an outdoor recreation area. The resort also includes non-revenue generating amenities such
as a two-story animated Clock Tower and fitness center. The resort also includes a state-of-the-art 40,000 square-foot conference center, including
an expansive Grand
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Ballroom, flexible meeting spaces, an executive boardroom, audio and visual systems, and multiple pre-function concourses including an outdoor
patio.
Great Wolf Lodge – Grapevine, Texas
In 2007, we opened our Great Wolf Lodge in Grapevine, Texas, on a 51-acre site. Grapevine is a popular family destination featuring familyoriented attractions and recreational activities. The resort is less than a one-hour drive from both Dallas and Fort Worth, Texas. The Dallas and
Fort Worth region is the 5th largest market area in the United States according to Nielsen Media Research Inc., and the resort has a higher
population within a 60-mile radius than any other Great Wolf Lodge resort. The resort is also a three-hour drive from Oklahoma City, Oklahoma; a
three and one-half-hour drive from Shreveport, Louisiana and Austin, Texas; and a four and one-half-hour drive from Houston and San Antonio,
Texas. According to Applied Geographic Solutions, Inc., there are approximately 10.7 million people who live within 180 miles of the resort. The
resort occupies approximately 30 acres of this site. We may sell a portion of the excess land as one or more out-lots.
Our Great Wolf Lodge of Grapevine, Texas, has 605 guest suites and an approximately 78,000 square-foot indoor waterpark. The resort offers
a number of revenue-enhancing amenities, including themed restaurants and snack bars, confectionery and ice cream shop, Cub Club, full-service
spa, kid spa, game arcade, gift shops, MagiQuest and an outdoor recreation area. The resort also includes non-revenue generating amenities such
as a two-story animated Clock Tower and fitness center. In December 2008, we opened an expansion of this resort which includes 27,000 square feet
of additional meeting space.
Great Wolf Lodge – Grand Mound, Washington
In 2005, we entered into a joint venture with The Confederated Tribes of the Chehalis Reservation to develop a Great Wolf Lodge resort and
conference center on a 39-acre land parcel in Grand Mound, Washington. We operate the resort under the Great Wolf Lodge brand. Both parties
maintain equity positions in the joint venture. The Confederated Tribes of the Chehalis Reservation has leased the land needed for the resort to the
joint venture on favorable terms. The resort opened in 2008. The resort is the first family destination vacation resort with an indoor waterpark in the
Pacific Northwest. The resort is a less than one-hour drive from Olympia, Washington; an hour and half drive from Seattle, Washington and
Portland, Oregon; a three-hour drive from Yakima, Washington; a four-hour drive from Vancouver, British Columbia; and a five-hour drive from
Spokane, Washington. According to Applied Geographic Solutions, Inc., there are approximately 7.8 million people who live within 180 miles of the
resort.
Our Great Wolf Lodge of Chehalis, Washington, has 398 guest suites and an approximately 60,000 square-foot indoor waterpark. The resort
offers a number of revenue-enhancing amenities, including themed restaurants and snack bars, confectionery and ice cream shop, Cub Club, a fullservice spa, game arcade, gift shops, MagiQuest, miniature golf, an outdoor recreation area and an approximately 30,000 square-foot conference
center. The resort also includes non-revenue generating amenities such as a two-story animated Clock Tower and fitness center.
Great Wolf Lodge – Concord, North Carolina
In 2009, we opened our Great Wolf Lodge in Concord, North Carolina on a 37-acre site. Concord is a popular family destination featuring
family-oriented attractions and recreational activities. The Concord site is located 15 miles from downtown Charlotte at Exit 49 on Interstate 85. This
freeway interchange is well known throughout the Carolinas mostly due to its main attraction draws, Lowe’s Motor Speedway and the Concord
Mills shopping center. The resort is a less than one-hour drive from Charlotte, North Carolina; a one and one-half hour drive from
Greensboro/Winston-Salem, North Carolina; a two-hour drive from Columbia, South Carolina; and a two and one-half-hour drive from Raleigh and
Asheville, North Carolina. According to Applied Geographic Solutions, Inc., there are approximately 14.7 million people who live within 180 miles of
the resort.
Great Wolf Lodge of Concord, North Carolina has 402 guest suites and approximately 97,000 square feet of indoor entertainment, including an
84,000 square foot indoor waterpark. The resort offers a number of revenue-enhancing amenities, including themed restaurants and snack bars,
confectionery and ice cream shop, Cub Club, full-service spa, game arcade, gift shops, MagiQuest, miniature golf an outdoor recreation area and an
approximately 20,000 square-foot conference center. The resort also includes non-revenue generating amenities such as a two-story animated Clock
Tower and fitness center.
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Industry Overview
We operate in the family entertainment resort segment of the travel and leisure industry. The concept of a family entertainment resort with an
indoor waterpark was first introduced to the United States in Wisconsin Dells, Wisconsin, and has evolved there since the late 1980s. In an effort
to boost occupancy and daily rates, as well as capture off-season demand, hotel operators in the Wisconsin Dells market began expanding indoor
pools and adding waterslides and other water-based attractions to existing hotels and resorts. The success of these efforts prompted several local
operators to build new, larger destination resorts based primarily on this concept.
We believe that these resorts have proven popular because of several factors, including the ability to provide a year-round vacation
destination without weather-related risks, the wide appeal of water-based recreation and the favorable trends in leisure travel discussed below. We
believe that no operator or developer other than us has established a national portfolio of destination family entertainment resorts featuring indoor
waterparks.
While no standard industry definition for a family entertainment resort featuring an indoor waterpark has developed, we generally consider
resorts with at least 200 rooms featuring indoor waterparks larger than 25,000 square feet, as well as a variety of water slides and other water-based
attractions, to be competitive with our resorts. A Hotel & Leisure Advisors, LLC (H&LA) survey as of January 2013 indicates that there are 131
open indoor waterpark resort properties in the United States and Canada. Of the total, 47 are considered “indoor waterpark destination resorts”
offering more than 30,000 square feet of indoor waterpark space. Of these 47 properties, 11 are our properties.
Resort Operations
Each of our resorts employs a general manager who is responsible for the operations of the particular resort and who typically has extensive
experience in the hospitality or family entertainment industry. Our general managers on average oversee a staff of 400 or more resort employees and
are assisted by a management team, including directors of aquatics, finance, food and beverage, front office, housekeeping, human resources,
maintenance, retail and sales and marketing. A corporate-level liaison for most departments ensures consistency throughout our resorts while
allowing a particular resort to tailor its operations to best meet the needs of its guests and marketplace.
Prior to assuming responsibility for a resort, general managers and assistant general managers undergo a proprietary management training
program designed to familiarize each trainee with various facets of our management, operations and development programs. The program also
emphasizes our company culture and guest service policies and provides hands-on operating experience at a resort. Our management training
program is intended to train assistant general managers to become future general managers.
We strive to provide our guests with a fun and convenient experience in a warm and family-friendly environment from the first day a new
resort opens. To achieve this, a team of experienced management members from our existing resorts, along with corporate liaisons, begins training
personnel at our new resorts approximately one month prior to a resort’s opening and remains on site at the new resort for up to a month after
opening. We believe that this process ensures that the opening of a new resort is efficient and that our culture of high quality and friendly guest
service is carried over to our new resorts, including our guests’ interactions with our front desk, housekeeping, waterpark, restaurant and other
staff members. In addition, we train our maintenance personnel to minimize any operational problems that occur during the opening of a new resort,
including the operation of our waterparks. We believe that these efforts help to minimize any problems associated with opening a new resort and
give our first guests a favorable, memorable experience that will build brand loyalty.
Training and Development
We believe that our ability to provide a friendly family-oriented atmosphere where families can relax, play and reconnect begins with our
employees and their ability to deliver quality guest service. We seek to recruit, train and retain employees who will make sure that our guests enjoy
their stays at our resorts. We seek to promote from within our company. Each new resort employee undergoes an extensive orientation program and
is paired with a more veteran employee for an initial period so that the new employee can learn more about our resorts, our culture and how we
strive to provide the best possible guest service. Our employees are committed to our success and focused on ensuring a memorable experience for
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each of our guests. We believe that our high level of guest service is a competitive advantage and promotes valuable referrals and repeat visits.
Sales and Marketing
We place a significant emphasis on the sales and marketing of our family-focused resorts. We work together with a third-party consulting firm
to analyze the demographics of our markets and to identify potential guests for targeted marketing, both within our primary market areas and
beyond those areas to attract occasional or seasonal travelers. We market to these potential guests through a combination of television, radio,
newspaper, electronic mail, internet and direct mail advertising, including advertising through local chambers of commerce and convention and
visitors bureaus. We also rely upon repeat guests and guest referrals, as well as brand recognition and the visibility of the resorts themselves,
which are typically located along major highways in high traffic areas. In addition, our Web site offers detailed information about our resorts,
including virtual tours and room layouts.
For new resorts, our marketing efforts generally begin before construction commences. We establish sales offices to generate advance
bookings. Reservations may be made at our resorts, through our Web site or through our central reservations call center. Our call center and highly
trained staff allow us to offer consistent specials throughout our resorts, better track room occupancy levels and room rates and handle the high
volume of calls that are usually associated with the opening of a resort.
We maintain an in-house sales force and graphic arts department. Our experienced staff develops products and promotions for use in
merchandising and marketing promotions. We also engage in cross-marketing, promotions and co-marketing arrangements with major vendors. We
have received numerous awards for our general advertising, Web site, print media, radio commercials and sales presentations.
Maintenance and Inspections
Each of our resorts has an experienced aquatics director who is extensively trained and experienced in water quality and safety. Furthermore,
we use Ellis & Associates as water safety consultants at our resorts in order to train lifeguards and audit safety procedures. On-site maintenance
personnel frequently inspect our waterparks. These inspections include safety checks of the equipment in the waterpark, as well as analyses of
water and air quality. Our water quality levels are regularly monitored and tested by computers and by a full-time aquatics maintenance engineer,
who works with an additional assistant during our busiest months. Our air quality system is designed to minimize humidity and moisture build-up,
which materially reduces maintenance costs.
Our senior management and the individual resort personnel evaluate the risk aspects of each resort’s operation, including potential risks to
the public and employees and staff. Each resort has full-time maintenance employees on staff who ensure building environmental quality and fulltime aquatics maintenance employees who ensure the ride safety and air and water quality inside the resort’s indoor waterpark. We use a state-ofthe-art filtration system and ozonators to balance the water and air quality within the waterpark in order to accommodate fluctuating quantities of
visitors.
Development Criteria
We choose or suggest sites for the development of new resorts by considering a number of factors. Those factors can include:
•
Large target customer base. We select or suggest development sites that generally have a minimum of five million target customers
within a convenient driving distance. Because we offer an affordable vacation experience, we appeal to families in a variety of income
ranges.
•
Recognized tourist destination. We may focus on drive-to destinations that attract a large number of tourists, including both emerging
and traditional family vacation markets. We believe we can charge premium rates in these markets due to the high quality of our resorts
and our family-oriented amenities and activities. In addition, the indoor nature of many of our amenities and activities allows us to
reduce the impact of seasonality that may negatively affect other attractions in these areas. These areas also often have active and
effective local visitors and convention bureaus that complement our marketing and advertising efforts at little or no cost to us.
•
Highly visible and large sites. We generally develop or suggest developing resorts in highly visible locations along major roadways.
Visibility from highways enhances easy drive-to access, provides marketing benefits due to high volumes of traffic and often produces
synergies from adjacent land uses or complementary developments. We generally choose or suggest sites that have enough acreage to
allow for potential expansions and future sales of out-lots.
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Once we have identified a market that meets our development criteria, we search for potential sites to recommend to a potential licensee or
joint venture partner. We perform initial analyses of the permitting process and access to utilities before acquiring a sufficient amount of land from
one or more landowners. Based upon the target customer base of the market, we develop initial specifications for the resort, such as the number of
guest suites and size of the indoor waterpark and other amenities. We also formally begin or assist with obtaining the necessary approvals and
permits from the appropriate local governmental bodies, including the necessary water rights and environmental permits. Once the permitting
process is complete, we or the joint venture that owns the resort secures financing for the project and begin construction on the resort. This overall
development process generally takes from two to four years, or longer, from identification of a market to completion of a resort.
Competition
Our resorts compete with other forms of family vacation travel, including theme parks, waterparks, amusement parks and other recreational
activities, including other hotels and resorts located near these types of attractions. Our business is also subject to factors that affect the recreation
and leisure and resort industries generally, such as general economic conditions and changes in consumer spending habits, although we believe
our business to be generally less susceptible to these conditions than other leisure and resort businesses. We believe that the principal
competitive factors of a family entertainment resort include location, room rates, name recognition, reputation, the uniqueness and perceived
quality of the attractions and amenities, the atmosphere and cleanliness of the attractions and amenities, the quality of the lodging
accommodations, the quality of the food and beverage service, convenience, service levels and reservation systems.
A Hotel & Leisure Advisors, LLC (H&LA) survey as of January 2013 indicates that there are 131 open indoor waterpark resort properties in
the United States and Canada. Of the total, 47 are considered “indoor waterpark destination resorts” offering more than 30,000 square feet of indoor
waterpark space. Of these 47 properties, 11 are Great Wolf Lodge resorts.
As a result of our market presence and our management team’s substantial experience, we believe we have an opportunity to capitalize on our
first-mover advantage in this industry segment and to expand our already significant brand recognition. While we believe that our first-mover
advantage is very beneficial to us, it does provide our competitors with an opportunity to monitor our success in our chosen markets. As a result, a
competitor may choose not to enter one of our markets based on our performance, or may subsequently develop a resort in our markets that is
newer, has additional amenities, is strategically located or offers more and/or larger waterpark attractions than our resorts.
In several of our markets, there are few, if any, other family entertainment resorts featuring indoor waterparks. In certain markets, however, we
compete directly with other resorts and hotels with some type of water-related activity or amenity, or indirectly with other available family
entertainment options. We believe the convenience, quality and overall affordability of a stay at one of our resorts will be an attractive alternative
to other potential family vacation options. Further, we believe our ability to compete effectively against other family vacation options is enhanced
by our national footprint of operating resorts and the recognition of our Great Wolf Lodge brand.
We anticipate that competition within some of our markets may increase in the foreseeable future. We believe that a number of other resort
operators are developing or considering the development of family entertainment resorts with indoor waterparks, which may, if and when
developed, compete with our resorts.
Governmental Regulation
The ownership and management of our resorts, as well as our development and construction of new resorts, subjects us to federal, state and
local laws regulating zoning, land development, land use, building design and construction, and other real estate-related laws and regulations. In
addition, a number of states regulate the permitting and licensing of resorts, and some of the individual components of our resorts such as our
spas, waterparks, and others, by requiring registration, disclosure statements and compliance with specific standards of conduct. Our failure to
maintain or acquire the requisite licenses, permits and authorizations required by such laws and regulations, as well as any failure on our part to
comply with registration, disclosure and standards of conduct required by such laws and regulations could impact the operation, profitability and
success of our current resorts or the development, completion and success of any resorts we may develop in the future. We believe that each of
our resorts has the necessary permits and approvals to operate its business and is in material compliance with all applicable registration, disclosure
and conduct requirements. We intend to continue to obtain such permits and approvals for any resorts we may develop in the future or additions
or renovations to current resorts and to
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ensure that such resorts and additions or renovations comply with applicable registration, disclosure and conduct requirements.
We are also subject to laws and regulations governing our relationship with employees, including minimum wage requirements, overtime,
working conditions and work permit requirements. An increase in the minimum wage rate, employee benefit costs or other costs associated with
employees could increase our overall labor costs.
The operation of our waterparks subjects us to state and local regulations governing the quality of the water we use in our waterparks, which
may include bacteriological, chemical, physical and radiological standards. In addition to inspections we conduct on our own, state and local
authorities may also conduct inspections of our waterparks to determine our compliance with applicable standards. If we are found to be in
violation of such regulations we could be subject to various penalties, including, but not limited to, monetary fines and the temporary closure of
our waterparks. Changes in state or local regulations could impose more stringent standards with which we would have to comply.
We are subject to both federal and state environmental laws and regulations, including laws and regulations governing the discharge of water
from our waterparks. Specifically, under the requirements of the Federal Clean Water Act, we must obtain National Pollutant Discharge Elimination
System permits from the Environmental Protection Agency or from the state environmental agency to which the permit program has been delegated
if and to the extent any of our resorts discharge into waterways and comply with the permit terms regarding wastewater quality and discharge limits.
Such permits must be renewed from time-to-time, as required by regulation, and additional capital expenditures for wastewater treatment systems
associated with the renewal of our water discharge permits may be required. Importantly, changes in federal or state legislation or regulations could
impose more stringent release standards with which we would have to comply. Currently, our resort in the Pocono Mountains is our only property
subject to such laws and regulations governing the discharge of water and we intend to comply with these laws and regulations as we operate that
property.
As a place of public accommodation, our resorts are subject to the requirements of the Americans with Disabilities Act of 1990, as amended
by the 2010 ADA Standards for Accessible Design (ADA) and other applicable federal rules and regulations, as well as state and local laws. Thus,
our resorts are required to meet certain federal, state and local requirements related to access and use by disabled persons. We believe that our
resorts are in compliance with the requirements currently in effect. We have evaluated the requirements of the 2010 ADA Standards for Accessible
Design that became effective on March 15, 2012, and made modifications to our resorts to be in what we believe is full compliance. In the event
further amendments to federal, state or local laws are made imposing more stringent requirements, we would have to comply with those
amendments as well.
Environmental Matters
Our operations and properties are subject to federal, state and local laws and regulations relating to the protection of the environment, natural
resources and worker health and safety, including laws and regulations governing and creating liability relating to the management, storage and
disposal of hazardous substances and other regulated materials. Our properties are also subject to various environmental laws and regulations that
govern certain aspects of our on-going operations. These laws and regulations control such things as the nature and volume of our wastewater
discharges, quality of our water supply and our waste management practices. The costs of complying with these requirements, as they now exist or
may be altered in the future, could adversely affect our financial condition and results of operations.
Because we own and operate real property, various federal, state and local laws may impose liability on us for the costs of removing or
remediating various hazardous substances, including substances that may be currently unknown to us, that may have been released on or in our
property or disposed by us at third-party locations. The principal federal laws relating to environmental contamination and associated liabilities that
could affect us are the Resource Conservation and Recovery Act and the Comprehensive Environmental Response, Compensation and Liability
Act; state and local governments have also adopted separate but similar environmental laws and regulations that vary from state to state and
locality to locality. These laws may impose liability jointly and severally, without regard to fault and whether or not we knew of or caused the
release. The presence of hazardous substances on a property or the failure to meet environmental regulatory requirements may materially adversely
affect our ability to use or sell the property, or to use the property as collateral for borrowing, and may cause us to incur substantial remediation or
compliance costs. In addition, if hazardous substances are located on or released from one of our properties, we could incur substantial liabilities
through a private party personal injury claim, a claim by an adjacent property owner for property damage or a claim by a governmental entity for
other damages, such as natural resource damages. This liability may be imposed on us under environmental laws or common-law principles.
We obtain environmental assessment reports on the properties we own or operate as we deem appropriate. These reports have not revealed
any environmental liability or compliance concerns that we believe would materially adversely affect our financial condition or results of operations.
However, the environmental assessments that we have undertaken might not have revealed all potential environmental liabilities or claims for such
liabilities. It is also possible that future laws,
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ordinances or regulations or changed interpretations of existing laws and regulations will impose material environmental liability or compliance
costs on us, that the current environmental conditions of properties we own or operate will be affected by other properties in the vicinity or by the
actions of third parties unrelated to us or that our guests could introduce hazardous or toxic substances into the resorts we own or manage without
our knowledge and expose us to liability under federal or state environmental laws. The costs of defending these claims, complying with as yet
unidentified requirements, conducting this environmental remediation or responding to such changed conditions could adversely affect our
financial condition and results of operations.
Some of our resort properties may have contained, or are adjacent to or near other properties that have contained or currently contain
underground storage tanks for the storage of petroleum products or other hazardous or toxic substances. If hazardous or toxic substances were
released from these tanks, we could incur significant costs or, with respect to tanks on our property, be liable to third parties with respect to the
releases.
On occasion, we may elect to develop or assist in the development of properties that have had a history of industrial activities and/or
historical environmental contamination. Where such opportunities arise, we engage third-party experts to evaluate the extent of contamination, the
scope of any needed environmental clean-up work, and available measures (such as creation of barriers over residual contamination and deed
restrictions prohibiting groundwater use or disturbance of the soil) for ensuring that planned development and future property uses will not
present unacceptable human health or environmental risks or exposure to liabilities. If those environmental assessments indicate that the
development opportunities are acceptable, we also work with appropriate governmental agencies and obtain their approvals of planned site cleanup, development activities, and the proposed future property uses. We followed that process in connection with the development of our Blue
Harbor Resort in Sheboygan, Wisconsin (which we sold in March 2011), where the City of Sheboygan arranged for environmental clean-up work
and ongoing groundwater monitoring and we agreed to the use of a barrier preventing contact with residual contamination and implementation of a
deed restriction limiting site activities. To our knowledge, all work at our Sheboygan resort was conducted in accordance with requirements
imposed by the Wisconsin Department of Natural Resources. Based on these efforts, we are not aware of any environmental liability or compliance
concerns at our Sheboygan resort that we believe would materially adversely affect our financial condition or results of operations. It is possible,
however, that our efforts did not identify all environmental conditions at the property or that environmental condition and liabilities associated with
the property could change in the future.
Future acquisitions of properties subject to environmental requirements or affected by environmental contamination could require us to incur
substantial costs relating to such matters. In addition, environmental laws, regulations, wetlands, endangered species and other land use and
natural resource issues affecting either currently owned properties or sites identified as possible future acquisitions may increase costs associated
with future site development and construction activities or business or expansion opportunities, prevent, delay, alter or interfere with such plans or
otherwise adversely affect such plans.
Insurance
We believe that our properties are covered by adequate fire, flood and property insurance, as well as commercial liability insurance with what
we believe are commercially reasonable deductibles and limits for our industry. Changes in the insurance market over the past few years may have
increased the risk that affordable insurance may not be available to us in the future.
While our management believes that our insurance coverage is adequate, if we were held liable for amounts and claims exceeding the limits of
our insurance coverage or outside the scope of our insurance coverage, our business, results of operations and financial condition could be
materially and adversely affected.
Intellectual Property
Great Lakes Services, LLC (GLS), our subsidiary, has a licensing agreement with the original developer of the Wisconsin Dells resort under
which GLS has an irrevocable, exclusive, perpetual, world-wide license to use all the intellectual property embodied in the Wisconsin Dells resort as
of the date of execution of the agreement. GLS pays or causes to be paid a royalty to the licensor based upon certain revenues generated at most of
the resorts that it owns or licenses.
We have registered, applied for the registration of or claim ownership of a variety of service marks, copyrights and trademarks for use in our
business, including Great Wolf Lodge, Great Wolf Resorts, Blue Harbor Resort, gr8_space, KidCabin, Scooops Kid Spa and MagiQuest in the
United States and, where appropriate, in foreign countries. There can be no assurance that we can obtain the registration for the marks where
registration has been sought. We are not aware of any facts that would negatively impact our continuing use of any of the above trade names,
service marks or trademarks. We consider our intellectual property rights to be important to our business and actively defend and enforce them.
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Employees
As of December 31, 2012, we had approximately 300 corporate employees, including our central reservations center and CK employees, and
approximately 4,600 resort-level employees, approximately 2,300 of whom were part-time employees. Unlike more seasonal resorts and attractions,
we are open year-round and are able to attract and retain high quality employees throughout the year. However, we do have fewer part-time
employees during the winter months. None of our employees are covered by a collective bargaining agreement. We believe that our relationship
with our employees is good.
Offices
We lease the following space:
•
Approximately 23,000 square feet of office space for our corporate headquarters office in Madison, Wisconsin;
•
Approximately 9,800 square feet of office space for our central reservations call center operations in Madison, Wisconsin;
•
Approximately 1,400 square feet of office space in Woodbridge, Virginia (this lease was terminated in January 2013);
•
Approximately 2,700 square feet of office space in Lorain, Ohio;
•
Approximately 20,000 square feet of office and warehouse space in Tillamook, Oregon (this lease was terminated in January 2013); and
•
Approximately 19,000 square feet of retail space in Myrtle Beach, South Carolina.
We believe these facilities are adequate for our current needs.
Domestic and Foreign Operations
We have derived a portion of our revenues from licensing fees, management fees, marketing fees and central reservations fees paid by the
Great Wolf Lodge resort located in Niagara Falls, Ontario, Canada. During 2012, 2011 and 2010, total revenue from our U.S. operations was $313,159,
$295,308 and $274,676, respectively, and total revenue from our Canadian operations was $1,919, $1,400 and $1,284, respectively. We receive no
revenue from any foreign country other than Canada. We have no long-lived assets located outside of the United States.
Code of Business Conduct and Ethics
We have adopted a Code of Business Conduct and Ethics that applies to all our employees, including our principal executive officer and
senior financial officers. It is available in the investor relations section of our Web site, which is located at greatwolf.com. In the event that we make
changes to or provide waivers from the provisions of our Code of Business Conduct and Ethics that the United States Securities Exchange
Commission (SEC) or any other regulatory agency or NASDAQ requires us to disclose, we intend to disclose these events in the investor relations
section of our Web site.
Our Corporate History
We were formed in 2004 under the laws of the State of Delaware to succeed the family entertainment resort business of our predecessor
companies, The Great Lakes Companies, Inc. and a number of its related entities, which we refer to collectively as Great Lakes. On May 4, 2012 we
merged with K-9 Acquisition, Inc., as previously discussed.
Legal Proceedings
We are involved in litigation from time to time in the ordinary course of our business. We do not believe that the outcome of any such
pending or threatened litigation will have a material adverse effect on our financial condition or results of operations. However, as is inherent in
legal proceedings where issues may be decided by finders of fact, there is a risk that unpredictable decisions adverse to us could be reached.
ITEM 1A.
RISK FACTORS
Risks Related to Our Business Activities
The risk factors set forth below are applicable to Great Wolf Resorts. You should carefully consider the following factors in evaluating our
company, our properties and our business. The occurrence of any of the following risks could materially adversely affect, among other things, our
business, financial condition and results of operations.
Current economic conditions may adversely affect our industry, business and results of operations.
The United States economy has undergone a major recession, and the future economic environment may continue to be less favorable than
that of recent years. This recession has and could further lead to reduced consumer and commercial
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spending in the foreseeable future. The hospitality industry has experienced significant downturns in connection with declines in general economic
conditions. A continued softening in the economy may adversely and materially affect our industry, business and results of operations and we
cannot accurately predict how severe and prolonged any downturn might be. Moreover, reduced revenues as a result of a softening of the
economy may also reduce our working capital and interfere with our long-term business strategy.
Our business model is highly dependent on consumer spending, and a vacation experience at one of our resorts is a discretionary expenditure
for a family. Over the past five years, the slowing U.S. economy has led to a decrease in credit for consumers and a related decrease in consumer
discretionary spending. This trend continued through 2012 as consumers continued to deal with several negative economic conditions that have
developed over the past five years including:
•
severe turbulence in the banking and lending sectors, which has led to a general lessening of the availability of credit to consumers;
•
relatively high unemployment rates and limited job creation;
•
a continuing decline in the national average of home prices and an increase in national foreclosure rates; and
•
high volatility in the stock market that led to substantial declines in stock values and aggregate household savings from 2007 to 2012.
These and other factors impact the amount of discretionary income for consumers and consumer sentiment toward discretionary purchases.
As a result, these types of items could negatively impact consumer spending in future periods. A sustained decrease in overall consumer
discretionary spending could have a material, adverse effect on our business, financial condition and results of operations.
We may not be able, by ourselves or with others, to develop new resorts or further develop existing resorts on a timely or cost efficient basis,
which would adversely affect our growth strategy.
As part of our growth strategy, we currently intend to develop, or license others to develop, additional resorts or possibly further expand
certain of our existing resorts. Development involves substantial risks, including the following risks:
•
development costs may exceed budgeted or contracted amounts or may exceed available capital;
•
increases in the costs of materials or supplies used in construction of our resorts;
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•
changes in applicable building codes, construction materials, labor costs or construction methodologies may increase development
costs;
•
delays in architectural or other design-related services, or in the commencement or completion of construction;
•
failure to obtain all necessary zoning, land use, occupancy, construction, operating and other required governmental permits and
authorizations;
•
changes in real estate, zoning, land use, environmental and tax laws;
•
unavailability to us and other investors and/or developers of financing on favorable or any terms;
•
failure of developed properties to achieve desired revenue or profitability levels once opened;
•
negative changes in the local markets, the local competitive environment or in local economic conditions that occur between the
commencement of development and the completion of the resort;
•
scarcity of suitable development sites, due to existing development, physical limitation or competition for sites from competitors that
may have greater financial resources or risk tolerance than we do or other factors; and
•
incurrence of substantial costs in the event a development project is abandoned or modified prior to completion.
In particular, resort construction projects entail significant risks, including shortages of design and construction expertise, materials or skilled
labor, unforeseen engineering, environmental or geological problems, work stoppages, weather interference, floods and unanticipated cost
increases. There are also a limited number of suppliers and manufacturers of the equipment we use in our indoor waterparks. We may not be able to
successfully manage any future development to minimize these risks, and present or future developments may not perform in accordance with our
previous developments or our expectations. The failure to successfully develop our new resorts could have a material, adverse effect on our growth
strategies and our business, financial condition and results of operations.
We compete with other family vacation travel destinations and resorts.
Our resorts compete with other forms of family vacation travel and leisure activities, including theme, water and amusement parks and other
recreational activities. Our business is also subject to factors that affect the recreation and leisure and resort industries generally, such as general
economic conditions and changes in consumer spending habits. We believe the principal competitive factors of a family entertainment resort
include:
•
location,
•
room rates,
•
name recognition,
•
reputation,
•
the uniqueness and perceived quality of the attractions and amenities,
•
the atmosphere and cleanliness of the attractions and amenities,
•
the quality and perceived value of the lodging accommodations,
•
the quality and perceived value of the food and beverage service,
•
convenience,
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•
service levels and
•
reservation systems.
Many of our markets have become more competitive in the past seven years, including in particular our Wisconsin Dells, Sandusky, Traverse
City, Kansas City, Williamsburg, Pocono Mountains and Mason markets. We anticipate that competition within some of our markets will increase
further in the foreseeable future. A number of other resort operators have announced plans to develop family entertainment resorts with indoor
waterparks that may compete with some or all of our resorts. We compete for guests and for new development sites with certain of these entities
that may have greater financial resources than we do and better relationships with lenders and sellers of real estate. These entities may be able to
accept more risk than we can prudently manage and may have greater marketing and financial resources. Further, new or existing competitors may
significantly reduce their rates, as they have in the past, or offer greater convenience, services or amenities, significantly expand or improve resorts,
including the addition of “thrill rides,” in markets in which we operate. Such events could materially adversely affect our business and results of
operations.
We have a history of losses and we may not be able to achieve or sustain profitability.
We incurred net losses for the previous eight fiscal years. We cannot guarantee that we will become profitable. Even if we do become
profitable, given the increasing competition in our industry, current economic conditions and capital-intensive nature of our business, we may not
be able to sustain or increase any profitability we may achieve in the future on a quarterly or annual basis, and our failure to do so could adversely
affect our business and financial condition.
We may not be able to achieve or manage our expected growth, which could adversely affect our operating results.
Since 1999, we have experienced substantial growth as we have grown from one resort to our current portfolio of 11 resorts at December 31,
2012. We intend to continue to develop additional resorts and manage additional licensed resorts owned either by joint ventures in which we have
an equity interest or by third parties. Our anticipated growth could place a strain on our management, employees and operations. Our growth has
increased our operating complexity and the level of responsibility for new and existing management. Our ability to compete effectively and to
achieve and/or manage our recent and future growth effectively will depend on our ability to implement and improve financial and management
information systems on a timely basis and to effect changes in our business, such as implementing internal controls to handle the increased size of
our operations and hiring, training, developing and managing an increasing number of experienced management-level and other employees.
Unexpected difficulties during expansion, the loss of or failure to attract and retain qualified employees or our inability to respond effectively to
recent growth or plan for future expansion, could adversely affect our results of operations.
We provide periodic reports as a “voluntary filer” pursuant to our contractual obligations in the indenture governing the first mortgage
notes, which contractual obligations may be amended without your consent.
We currently anticipate that our reporting obligations pursuant to Section 15(d) of the Exchange Act will terminate after we file this Annual
Report on Form 10-K because our first mortgage notes were held by fewer than 300 persons on January 1, 2013. Notwithstanding the anticipated
automatic suspension of our reporting obligations pursuant to Section 15(d) of the Exchange Act, we intend to continue filing periodic reports with
the SEC and to provide holders of our first mortgage notes with copies of any filed reports as a “voluntary filer” in compliance with the indenture
governing the first mortgage notes. We expect that such periodic reports filed by us as a voluntary filer will comply fully with all applicable rules
and regulations of the SEC. However, we could eliminate the periodic reporting covenant in the indenture governing the first mortgage notes with
the consent of the holders of at least a majority of the first mortgage notes, in which case we would no longer be obligated to file periodic reports
with the SEC and may cease doing so.
We currently have one resort located outside of the United States, and international expansion may cause the proportion of our
international business to expand. Many factors affecting business activities outside the United States could adversely impact this business.
We currently have a licensing arrangement with a resort in Canada, and our international expansion plan is to license and/or manage
additional resorts that are located in foreign countries and are wholly-owned or principally owned by third parties.
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Factors that could affect our international business will vary by region and market and generally include:
•
instability or changes in social, political and/or economic conditions that could disrupt the trade activity in the countries where our
resorts are located;
•
the imposition of additional duties, taxes and other charges on imports and exports;
•
changes in foreign laws and regulations;
•
any inability to enforce contracts or intellectual property protections under the laws of the relevant jurisdiction;
•
the availability of qualified labor and other resources in the relevant region;
•
potential and actual international terrorism and hostilities;
•
the adoption or expansion of trade sanctions or other similar restrictions;
•
tax laws and other regulations that may impede our ability to receive revenues from international resorts;
•
recessions in foreign economies or changes in local economic conditions; and
•
changes in currency valuations in specific countries or markets.
The occurrence or consequences of any of these risks could affect our ability to operate in the affected regions, which could have a material,
adverse effect on our growth strategies and our financial results.
Accidents or injuries at our resorts, particularly in our waterparks, may subject us to liability, and accidents or injuries at our resorts or at
competing resorts with waterparks could adversely affect our brand and/or our safety reputation and ability to attract customers, which
would harm our business, financial condition and results of operations.
We are subject to the potential risks associated with concentration of our resorts under the Great Wolf Lodge brand and the brand image
associated with each geographic location. A negative public image or other adverse event which becomes associated with our Great Wolf Lodge
brand could adversely affect our business and revenues.
There are inherent risks of accidents or injuries at family entertainment resorts, including accidents or injuries at waterparks, particularly for
young children. The lifeguards in our indoor waterparks and our other resort staff cannot prevent every accident or injury. Potential waterpark
accidents and injuries include falls, cuts or other abrasions, concussions and other head injuries, sickness from contaminated water, chlorinerelated irritation, injuries resulting from equipment malfunctions and drownings. One or more accidents or injuries at any of our waterparks or at
other waterparks could adversely affect our safety reputation among our potential customers, decrease our overall occupancy rates, increase the
cost of or make unavailable to us the appropriate liability insurance policies and increase our operating costs by requiring us to take additional
measures to make our safety precautions even more visible and effective.
If accidents or injuries occur at any of our resorts, we may be held liable for costs related to the injuries. We maintain insurance of the types
and in the amounts that we believe are commercially reasonable and that are available to businesses in our industry, but we cannot be certain that
our liability insurance will be adequate or available at all times and in all circumstances to cover any liability for these costs. The liability insurance
carried by Great Lakes prior to our initial public offering (IPO) in 2004 may not be adequate or available to cover any liability related to incidents
occurring prior to our IPO. Our business, financial condition and results of operations would be adversely affected to the extent claims and
associated expenses resulting from accidents or injuries exceed our insurance recoveries.
Our business is seasonal and largely dependent upon family vacation patterns, which may cause fluctuations in our revenues.
Since most families with young children choose to take vacations during school breaks and on weekends, our occupancy is highest on the
weekends and during months with prolonged school breaks, such as the summer months and spring break weeks in March and April. Our
occupancy is generally lowest during May and September as children return to school following these prolonged breaks. As a result of these family
vacation patterns, our revenues may fluctuate. In addition, adverse events occurring during our peak occupancy periods would have an increased
impact on our results of operations. We may not be able to secure short-term borrowing on favorable terms, or at all. Failure
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to compensate adequately for seasonality could have a material, adverse effect on our financial condition and business operations and could
severely limit our expansion plans.
We may not be able to attract a significant number of customers from our key target markets, which would adversely affect our business,
financial condition and results of operations.
Our strategy emphasizes attracting and retaining customers from the local, or drive-to, markets within a convenient driving distance from each
of our resorts. Any resorts we develop or manage in the future are similarly likely to be dependent primarily on the markets in the immediate vicinity
of such resorts. Regional economic difficulties, such as the issues affecting domestic automotive manufacturers and the related impact in Michigan
and surrounding areas, may have a disproportionately negative impact on our resorts in the affected markets. In addition, because we are
dependent to a large extent on customers who drive to our locations, a significant increase in the price of gasoline in our local markets or nationally
may also increase the real or perceived cost of a vacation at our resorts and therefore have a negative effect on our ability to attract customers to
our resorts. We may not be able to continue to attract a sufficient number of customers in our local markets to make our resort operations profitable.
If we fail to do so, our business, financial condition and results of operations would be adversely affected.
Because we concentrate in a single industry segment, we may be adversely affected by a downturn in that industry segment.
Our assets and operations are concentrated in a single industry segment – family entertainment resorts. Our primary current strategy is to
expand the number of our resorts and improve our existing resorts. Therefore, a downturn in the entertainment, travel or vacation industries, in
general, and the family entertainment resort segment, in particular, could have an adverse effect on our business and financial condition.
Increases in operating costs and other expense items could reduce our operating margins and adversely affect our growth, financial
condition and results of operations.
Increases in operating costs due to inflation and other factors may not be directly offset by increased room rates and other revenue.
Increases in operating costs may also negatively affect the profitability of our licensed and managed resorts, which may therefore have a material,
adverse effect on our license fee and management fee revenues as well as the value of our minority investments in such resorts. Our most
significant operating costs are our labor, energy, insurance and property taxes. Many, and in some cases all, of the factors affecting these costs are
beyond our control.
Labor is our largest resort-level operating expense. As of December 31, 2012, we employed approximately 4,600 hourly-wage and salaried
employees in our resorts. If we face labor shortages or increased labor costs because of increased competition for employees, higher employee
turnover rates or increases in the applicable minimum wage or other employee benefits costs (including costs associated with health insurance
coverage), our operating expenses could increase and our growth could be adversely affected. Our success depends in part upon our ability to
attract, motivate and retain a sufficient number of qualified employees, including resort managers, lifeguards, waterpark maintenance professionals
and resort staff. The number of qualified individuals needed to fill these positions is in short supply in some areas. Any future inability to recruit
and retain sufficient individuals may delay the planned openings of new resorts. Competition for qualified employees could also require us to pay
higher wages to attract a sufficient number of employees.
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Energy costs also account for a significant portion of our total resort-level operating expenses. The price of energy is volatile, and shortages
sometimes occur. Significant increases in the cost of energy, or shortages of energy, could interrupt or curtail our operations, lower our operating
margins, or both.
The costs for maintaining adequate insurance coverage fluctuate and are generally beyond our control. If insurance rates increase and we are
not able to pass along those increased costs to our guests through higher room rates and amenity costs, our operating margins could suffer.
Most of our resorts are subject to real and personal property taxes. The real and personal property taxes on our resorts may increase or
decrease as tax rates change and as our resorts are assessed or reassessed by taxing authorities. If property taxes increase and we are unable to
pass these increased costs along to our guests through higher room rates and amenity costs, our financial condition and results of operations may
be adversely affected.
Uninsured losses or losses in excess of our insurance coverage could adversely affect our financial condition and our cash flow, and there
are a limited number of insurers that will underwrite coverage for resorts with indoor waterparks.
We maintain comprehensive liability, fire, flood (where appropriate) and extended coverage insurance with respect to our resorts with policy
specifications, limits and deductibles that we believe are commercially reasonable for our operations and are available to businesses in our industry.
Certain types of losses, however, may be either uninsurable or not economically insurable, such as losses due to earthquakes, riots, acts of war or
terrorism, or losses related to the award of punitive damages in a legal action. Should an uninsured loss occur, we could lose both our investment
in, and anticipated cash flow from, a resort (including cash flows from our license or management agreements). If any such loss is insured, we may
be required to pay a significant deductible on any claim for recovery of such a loss prior to our insurer being obligated to reimburse us for the loss
or the amount of the loss may exceed our coverage for the loss. In addition, we may not be able to obtain insurance in the future at acceptable rates,
or at all, and insurance may not be available to us on favorable terms or at all, including insurance for the construction and development of our
resorts, especially since there are a limited number of insurance companies that underwrite insurance for indoor waterparks.
We or the principal owners of our licensed and managed resorts will be required to make certain capital expenditures to maintain the
quality of our resorts, and the failure to make such expenditures could materially and adversely affect our brand equity as well as our
business, our financial condition and results of operations.
Our resorts have an ongoing need for renovations and other capital improvements, including periodic replacement of furniture, fixtures and
equipment. The cost of such capital improvements could have an adverse effect on our financial condition and results of operations. Such
renovations involve certain risks, including the possibility of environmental problems, construction cost overruns and delays, the possibility that
we will not have available cash to fund renovations or that financing for renovations will not be available on favorable terms, if at all, uncertainties
as to market demand or deterioration in market demand after commencement of renovation and the emergence of unanticipated competition from
other entities. The owners of our licensed and managed resorts will face similar risks and capital expenditure requirements, and third-party owners
or licensees may be unable to access capital or unwilling to spend available capital when necessary, even if required by the terms of our
management or license agreements. If we or the owners of our licensed and managed resorts do not meet those capital expenditure needs, we may
not be able to maintain the quality of our resorts. If we are unable to maintain the quality of our resorts, our brand equity and guest satisfaction will
be negatively affected, thereby reducing our ability to grow our business, attract new customers and drive repeat and referral business, which
could have a material and adverse effect on our business, financial condition and results of operations.
We may not be able to adequately protect our intellectual property, which could harm the value of our brands and adversely affect our
business.
The success of our resorts depends in part on our brands, logos and branded merchandise. We rely on registration and enforcement of a
combination of service marks, copyrights, trademarks and similar intellectual property rights to protect our brands, logos, branded merchandise and
other intellectual property. The success of our growth strategy depends on our continued ability to use our existing trademarks and service marks
in order to increase brand awareness and further develop our brand in both domestic and international markets. We also use our trademarks and
other intellectual property on the Internet. If our efforts to protect our intellectual property are not adequate, or if any third party misappropriates or
infringes on our intellectual property, either in print or on the Internet, the value of our brands may be harmed, which could have a material adverse
effect on our business, including the failure of our brands, logos and branded merchandise to achieve and maintain market acceptance.
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We have licensed our Great Wolf Lodge brand and intend to further license the brand in domestic and international markets. While we try to
ensure that the quality of our brand is maintained by our current licensees, and will be maintained by any future licensees, we cannot assure that
these licensees will not take actions that adversely affect the value of our intellectual property or reputation.
We have registered certain trademarks and have other trademark registrations pending in the United States and foreign jurisdictions. There is
no guarantee that our trademark registration applications will be granted. In addition, the trademarks that we currently use have not been registered
in all of the countries in which we do, or intend to do, business and may never be registered in all of these countries. We may not be able to
adequately protect our trademarks, and our use of these trademarks may result in liability for trademark infringement, trademark dilution or unfair
competition.
We may not have taken all the steps necessary to protect our intellectual property in the United States and foreign countries. In addition, the
laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States, and the risks related to
foreign laws will increase as we expand internationally.
Our operations may be adversely affected by extreme weather conditions and the impact of disasters.
We currently operate, and in the future intend to operate, our resorts in a number of different markets, each of which is subject to local
weather patterns and their effects on our resorts, especially our guests’ ability to travel to our resorts. Extreme weather conditions can from time to
time have a material adverse impact upon individual resorts or particular regions. Our resorts are also vulnerable to the effects of destructive forces,
such as fire, storms, high winds and flooding and any other occurrence that could affect the supply of water, gas, telephone or electricity to our
resorts. Although our resorts are insured against property damage, damages resulting from acts of God or otherwise may exceed the limits of our
insurance coverage or be outside the scope of that coverage.
A significant decline in real estate values may have an adverse impact on our financial condition.
We own significant amounts of real estate throughout the United States. A significant decline in real estate values may require us to use a
significant amount of cash to reduce our debt.
If we fail to maintain effective internal control over financial reporting or remediate any future material weakness in our internal control
over financial reporting, we may be unable to accurately report our financial results or prevent fraud, which could have a material adverse
effect on our financial results.
Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Effective internal control
over financial reporting is necessary for us to provide reliable reports and prevent fraud.
We believe that any control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that
the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. In addition, this Annual Report on
Form 10-K does not include an attestation of our registered public accounting firm regarding our internal controls over financial reporting.
Sustained increases in costs of medical and other employee health and welfare benefits may reduce our profitability.
With approximately 4,900 employees, as of December 31, 2012, our profitability is substantially affected by costs of current medical benefits.
In some recent years, we experienced significant increases in these costs as a result of factors beyond our control, including increases in health
care costs. At least some of these factors continue to put upward pressure on the cost of providing medical benefits. Although we have actively
sought to control increases in these costs, we cannot be certain that we will succeed in limiting cost increases, and continued upward pressure
could reduce the profitability of our businesses.
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A failure to maintain good relationships with third-party property owners and licensees could have a material, adverse effect on our growth
strategies and our business, financial condition and results of operations.
We manage and/or license four of our resort properties in which we have limited or no ownership interest, and under our license-based
growth strategy, we plan to increase the number of such properties as we seek to expand our operations both domestically and internationally. The
viability of our management and licensing business depends, in part, on our ability to establish and maintain good relationships with third-party
property owners and licensees. Third-party developers, property owners and licensees are focused on maximizing the value of their investment and
working with a management company or licensor that can help them be successful. The effectiveness of our management, the value of our brand
and the rapport that we maintain with our third-party property owners and licensees impact our revenue streams from our management and license
agreements. If we are unable to maintain good relationships with our third-party property owners and licensees, we may be unable to renew existing
agreements or expand our relationships with these owners. Additionally, our opportunities for developing new relationships with additional third
parties may be adversely impacted.
The nature of our responsibilities under our management agreements to manage each resort and enforce the standards required for our
brands under both management and license agreements may be subject to interpretation and may give rise to disagreements in some instances.
Additionally, some courts have applied principles of agency law and related fiduciary standards to managers of third-party hotel properties such as
us, which means, among other things, that property owners may assert the right to terminate management agreements even where the agreements
do not expressly provide for termination. In the event of any such termination, we may need to negotiate or enforce our right to a termination
payment that may not equal expected profitability over the term of the agreement. These types of disagreements are more likely during an economic
downturn. We seek to resolve any disagreements in order to develop and maintain positive relations with current and potential joint venture
partners but may not always be able to do so. Failure to resolve such disagreements may result in litigation. In addition, the terms of our
management agreements and license agreements for some of our facilities are influenced by contract terms offered by our competitors, among other
things. Our current arrangements may not continue, and we may not be able to enter into future collaborations, renew agreements, or enter into new
agreements in the future on terms that are as favorable to us as those that exist today. Finally, we are dependent on the cooperation of the owners
or principal owners of our licensed and managed resorts in the development of new resorts and in the renovation of existing resorts. The failure to
retain or renew management and licensing agreements or the failure of owners to develop resorts as agreed or on schedule or to make necessary
capital expenditures may cause disruptions to our business plan and growth strategies and have a material, adverse effect on our business,
financial condition and results of operations.
We are dependent on the owners of the resorts we manage and license for third-party owners to fund certain operational expenditures
related to those resorts, and if such funds are untimely or not paid, we are required to bear the cost.
We incur significant expenditures related to the management of our managed resorts, including salary and other benefit related costs and
business and employee related insurance costs for which we are reimbursed by third-party resort owners. In the normal course of business, we
make every effort to pay these costs only after receiving payment from an owner for such costs. However, to the extent an owner would not be able
to reimburse these costs, due to a sudden and unexpected insolvency situation or otherwise, we would be legally obligated to pay these costs
directly until such time as we could make other arrangements. Although we would make every effort to reduce or minimize these costs prior to the
point at which an owner could not reimburse us and we would continue to pursue payment through all available legal means, our results of
operations and financial condition could be adversely affected if we were forced to bear those costs.
Investing through partnerships or joint ventures may decrease our ability to manage risk. Additionally, our license fee and management fee
revenue streams, as well as any joint venture equity investments, are subject to property-level indebtedness and other risks.
In addition to acquiring or developing resorts, we have from time to time invested, and expect to continue to invest, as a co-venturer. Joint
venturers often have shared control over the operation of the joint venture assets. Therefore, joint venture investments may involve risks such as
the possibility that the co-venturer in an investment might become bankrupt or not have the financial resources to meet its obligations, or have
economic or business interests or goals that are inconsistent with our business interests or goals, or be in a position to take action contrary to our
instructions or requests or contrary to our policies or objectives. Consequently, actions by a co-venturer might subject any resorts owned by the
joint venture to additional risk. Further, we may be unable to take action without the approval of our joint venture partners. Alternatively, our joint
venture partners could take actions binding on the joint venture without our consent. Additionally, should a joint venture partner become
bankrupt, we could become liable for our partner’s share of joint venture liabilities.
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Furthermore, our current managed resorts that are subject to mortgage or construction indebtedness must be serviced by the entities owning
those resorts. Future licensed or managed resorts will also likely be subject to such indebtedness. The principal owner of a licensed or managed
resort may cause the entity owning the resort to incur indebtedness that may exceed the amount of debt the resort can service. In the event of a
failure to service property-level indebtedness that results in a sale or foreclosure, our license and management agreements may be terminated, and
any joint venture equity investment we have made in the owner will likely be lost. The loss of these agreements or investments could have a
material and adverse effect on our business, financial condition and results of operations.
Under certain circumstances, our license and management agreements may be terminated by the property owners due to the sale of the
property or other reasons. The termination of our current or future license or management agreements would reduce our revenues and have a
material adverse effect on our business, financial condition and results of operations.
Because the land used by one of the resorts we operate is subject to a ground lease, termination of this lease by the lessor could cause us to
lose the ability to operate this resort altogether and incur substantial costs in restoring the premises.
The rights to use the land at the Grand Mound, WA resort, which is owned by a joint venture in which we have a 49% ownership interest, are
based upon the joint venture’s interest under a long-term ground lease. Pursuant to the terms of the ground lease for this resort, the joint venture is
required to pay all rent due and comply with all other lessee obligations. As of December 31, 2012, the terms of this ground lease (including renewal
options) is 45 years. Any pledge of the joint venture’s interest in this ground lease may also require the consent of the lessor and its lenders. As a
result, the joint venture may not be able to sell, assign, transfer or convey its lessee’s interest in the resort subject to the ground lease in the future
absent consent of such third parties even if such transactions may be in the best interest of the joint venture’s owners.
The lessor may require the lessee, at the expiration or termination of the ground lease, to surrender or remove any improvements, alterations
or additions to the land at its own expense. The ground lease also generally requires the lessee to restore the premises following a casualty and to
apply in a specified manner any proceeds received in connection therewith. The lessee may have to restore the premises if a material casualty, such
as a fire or an act of God, occurs and the cost thereof exceeds available insurance proceeds.
A failure to keep pace with developments in technology could impair our operations or competitive position.
The hospitality industry continues to demand the use of sophisticated technology and systems, including those used for our reservation,
revenue management and property management systems and technologies we make available to our guests. These technologies and systems must
be refined, updated, and/or replaced with more advanced systems on a regular basis. If we are unable to do so as quickly as our competitors or
within budgeted costs and time frames, our business could suffer. We also may not achieve the benefits that we anticipate from any new
technology or system, and a failure to do so could result in higher than anticipated costs or could impair our operating results.
An increase in the use of third-party Internet reservation services could adversely impact our revenues.
Some of our resort rooms are booked through Internet travel intermediaries, such as Expedia.com®, Travelocity.com®, and Priceline.com®,
serving both the leisure and, increasingly, the corporate travel and group meeting sectors. These intermediaries attempt to commoditize hotel rooms
by aggressively marketing to price-sensitive travelers and corporate accounts and increasing the importance of general indicators of quality (such
as “three-star downtown hotel”) at the expense of brand identification. These agencies apparently anticipate that consumers will eventually
develop brand loyalties to their travel services rather than to our lodging brands. Although we plan to continue to maintain and even increase the
strength of our brands in the online marketplace, if the amount of sales made through Internet intermediaries increases significantly, our business
and profitability may be harmed.
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The illiquidity of real estate may make it difficult for us to dispose of one or more of our resorts.
We may from time to time decide to dispose of one or more of our real estate assets. Because real estate holdings generally, and family
entertainment resorts like ours in particular, are relatively illiquid, we may not be able to dispose of one or more real estate assets on a timely basis
or at a favorable price. The illiquidity of our real estate assets could mean that we continue to operate a facility that management has identified for
disposition. Failure to dispose of a real estate asset in a timely fashion, or at all, could adversely affect our business, financial condition and results
of operations.
We depend on a seasonal workforce.
Our resort operations are dependent in part on a seasonal workforce. In some cases, we hire documented foreign workers to fill certain
staffing needs each season and utilize visas to enable the use of foreign workers. In addition, we manage seasonal wages and the timing of the
hiring process to ensure the appropriate workforce is in place. We cannot guarantee that material increases in the cost of securing our seasonal
workforce will not be necessary in the future. In addition, we cannot guarantee that visas necessary to hire foreign workers who are a source for
some of the seasonal workforce will be available. Increased seasonal wages or an inadequate workforce could have an adverse impact on our
results of operations.
A regional, national or global outbreak of influenza or other disease, such as the past international outbreak of influenza A (H1N1), could
adversely affect our business and results of operations.
An outbreak of influenza or other communicable disease can impact places of public accommodation, such as our resorts. In many areas,
localized public-health measures were implemented as a result of outbreaks of influenza A(H1N1), including travel bans, the closings of schools and
businesses, and cancellations of events. These measures, whether implemented in connection with this or another outbreak of infectious disease,
especially if they become more geographically widespread or sustained over significant time periods, or if public perception of the safety or
desirability of visiting our resorts is adversely impacted by these measures or by media coverage of the outbreak, could materially reduce demand
for our rooms and meeting spaces and, correspondingly, reduce our revenue, negatively affecting our business and results of operations.
Our future financial results could be adversely impacted by asset impairments or other charges.
We are required to test our goodwill and other intangible assets at least yearly for impairment or when circumstances indicate that the
carrying value of those assets may be impaired. We are also required to test our long-lived assets (such as resorts) when circumstances indicate
that the carrying value of those assets may not be recoverable.
During the quarter ended December 31, 2010, we recorded $18,741 of impairment charges related to our Traverse City and Kansas City resorts.
We determined the carrying values of these resorts were impaired in light of the reduced estimated hold periods for the resorts. Because of the
reduced estimated hold periods, we performed recoverability tests of these resorts to determine if further assessment for potential impairment was
required. Based on this analysis of undiscounted cash flows, we determined the carrying value of these resorts were not recoverable. As a result,
we recorded an $18,741 impairment charge to decrease the resorts’ carrying value to their estimated fair value (net of estimated disposal costs) as of
December 31, 2010.
During the three months ending December 31, 2012, we determined that the carrying value of our MagiQuest brand name was impaired in light
of the reduced estimated revenue for CK. Because of the reduced revenue, we performed a recoverability test of our MagiQuest brand name to
determine if further assessment for potential impairment was required. Based on this analysis of undiscounted cash flows, we determined the
carrying value of our MagiQuest brand name intangible asset was not recoverable. As a result, we recorded a $1,200 impairment charge for the
period May 5, 2012 through December 31, 2012.
The amount of any future annual or interim asset impairment charges could be significant and could have a material adverse effect on our
reported financial results for the period in which the charge is taken. See “Management’s Discussion and Analysis of Financial Condition and
Results of Operations – Critical Accounting Policies and Estimates – Investments in Property and Equipment.” Any operating losses resulting from
impairment charges could have an adverse effect on the market price of our securities.
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Risks Related to Regulation
Compliance with the Americans with Disabilities Act and other governmental regulations and changes in governmental rules and
regulations may adversely affect our financial condition and results of operations.
Under the Americans with Disabilities Act of 1990 and the regulations promulgated thereunder, or the ADA, all public accommodations are
required to meet certain federal requirements related to access and use by disabled persons. While we believe that our resorts are in compliance
with the requirements currently in effect, we have not conducted an audit or investigation of all of our resorts to determine our compliance. A
determination that we are not in compliance with the ADA could result in the imposition of fines or an award of damages to private litigants. We
cannot predict the ultimate cost of compliance with the ADA.
The resort industry is also subject to numerous federal, state and local governmental regulations including those related to building and
zoning requirements, and we are subject to laws governing our relationship with our employees, including minimum wage requirements, overtime,
working conditions and work permit requirements. In addition, changes in governmental rules and regulations or enforcement policies affecting the
use and operation of our resorts, including changes to building codes and fire and life safety codes, may occur. If we were required to make
substantial modifications at our resorts to comply with the ADA, other governmental regulations or changes in governmental rules and regulations,
our financial condition and results of operations could be adversely affected.
We face possible liability for environmental cleanup costs and damages for contamination related to our properties, which could adversely
affect our business, financial condition and results of operations.
Our operations and properties are subject to federal, state and local laws and regulations relating to the protection of the environment, natural
resources and worker health and safety, including laws and regulations governing and creating liability relating to the management, storage and
disposal of hazardous substances and other regulated materials. Our properties are also subject to various environmental laws and regulations that
govern certain aspects of our ongoing operations. These laws and regulations control such things as the nature and volume of our wastewater
discharges, quality of our water supply and our waste management practices. The costs of complying with these requirements, and of paying
penalties, fines, assessments and the like related to non-compliance, as they now exist or may be altered in the future, could adversely affect our
financial condition and results of operations. Specifically, the wastewater treatment plant at our Pocono Mountains resort is subject to numerous
state, federal and other regulations. The cost of compliance with such regulations for penalties, remediation and other costs arising out of non
compliance, can be large, as occurred in 2006 when we agreed to pay an assessment of approximately $800 and incurred other costs in excess of
$1,000 to remediate wastewater discharges that were out of compliance with applicable permits and to prevent further out-of-compliance discharges.
In 2010 we incurred other costs of $458 to remediate wastewater discharges that were out of compliance with applicable permits and to prevent
further out-of-compliance discharges. We had no costs as it relates to remediating the wastewater discharges in 2011. In 2012, our Poconos
Mountains resort paid a $27 fine for a deficiency in our wastewater management reporting.
Because we own and operate real property, various federal, state and local laws may impose liability on us for the costs of removing or
remediating various hazardous substances, including substances that may be currently unknown to us, that may have been released on or in our
property or disposed by us at third-party locations. The principal federal laws relating to environmental contamination and associated liabilities that
could affect us are the Resource Conservation and Recovery Act and the Comprehensive Environmental Response, Compensation and Liability
Act; state and local governments have also adopted separate but similar environmental laws and regulations that vary from state to state and
locality to locality. These laws may impose liability jointly and severally, without regard to fault and whether or not we knew of or caused the
release. The presence of hazardous substances on a property or the failure to meet environmental regulatory requirements may materially adversely
affect our ability to use or sell the property, or to use the property as collateral for borrowing, and may cause us to incur substantial remediation or
compliance costs. In addition, if hazardous substances are located on or released from one of our properties, we could incur substantial liabilities
through a private party personal injury claim, a claim by an adjacent property owner for property damage or a claim by a governmental entity for
other damages, such as natural resource damages. This liability may be imposed on us under environmental laws or common-law principles.
We obtain environmental assessment reports on the properties we own or operate as we deem appropriate. However, the environmental
assessments that we have undertaken might not have revealed all potential environmental liabilities or claims for such liabilities. It is also possible
that future laws, ordinances or regulations or changed interpretations of existing laws and regulations will impose material environmental liability or
compliance costs on us, that the current environmental
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conditions of properties we own or operate will be affected by other properties in the vicinity or by the actions of third parties unrelated to us or
that our guests could introduce hazardous or toxic substances into the resorts we own or manage without our knowledge and expose us to liability
under federal or state environmental laws. The costs of defending these claims, complying with as yet unidentified requirements, conducting this
environmental remediation or responding to such changed conditions could adversely affect our financial condition and results of operations.
Some of our resort properties may have contained, or are adjacent to or near other properties that have contained or currently contain
underground storage tanks for the storage of petroleum products or other hazardous or toxic substances. If hazardous or toxic substances were
released from these tanks, we could incur significant costs or, with respect to tanks on our property, be liable to third parties with respect to the
releases.
On occasion, we may elect to participate in the development of properties that have had a history of industrial activities and/or historical
environmental contamination. Where such opportunities arise, we engage third-party experts to evaluate the extent of contamination, the scope of
any needed environmental clean-up work, and available measures (such as creation of barriers over residual contamination and deed restrictions
prohibiting groundwater use or disturbance of the soil) for ensuring that planned development and future property uses will not present
unacceptable human health or environmental risks or exposure to liabilities. If those environmental assessments indicate that the development
opportunities are acceptable, we also work with appropriate governmental agencies and obtain their approvals of planned site clean-up,
development activities and the proposed future property uses. We followed that process in connection with the development of our Blue Harbor
Resort in Sheboygan, Wisconsin (which we sold in March 2011), where the City of Sheboygan arranged for environmental clean-up work and
ongoing groundwater monitoring and we agreed to the use of a barrier preventing contact with residual contamination and implementation of a
deed restriction limiting site activities. We are not aware of any environmental liability or compliance concerns at our Sheboygan resort that we
believe would materially adversely affect our financial condition or results of operations. It is possible; however, that our efforts have not identified
all environmental conditions at the property or that environmental condition and liabilities associated with the property could change in the future.
Future acquisitions of properties subject to environmental requirements or affected by environmental contamination could require us to incur
substantial costs relating to such matters. In addition, environmental laws, regulations, wetlands, endangered species and other land use and
natural resource issues affecting either currently owned properties or sites identified as possible future acquisitions may increase costs associated
with future site development and construction activities or business or expansion opportunities, prevent, delay, alter or interfere with such plans or
otherwise adversely affect such plans.
Regulation of the marketing and sale of condominiums could adversely affect our business.
We cannot be certain that prior or future sales of our condominium units will not be considered offers or sales of “securities” under federal
law or the state law in the states where we desire to, or do, conduct sales or in which our properties are located. If such interests were considered to
be securities, we would be required to comply with applicable state and federal securities laws, including laws pertaining to registration or
qualification of securities, licensing of salespeople and other matters. We cannot be certain that we will be able to comply with the applicable state
and federal securities requirements, and if the offers or sales of our condominium units are deemed to be (or have been) offers or sales of securities,
such a determination may create liabilities or contingencies that could have an adverse effect on our operations and financial results, including
possible rescission rights relating to the units that have been sold, which, if exercised, could result in losses and would adversely affect our
business, financial condition and results of operations.
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Failure to maintain the integrity of internal or customer data could result in faulty business decisions, damage of reputation and/or subject
us to costs, fines or lawsuits.
Our business requires collection and retention of large volumes of internal and customer data, including credit card numbers and other
personally identifiable information of our guests as they are entered into, processed by, summarized by, and reported by our various information
systems. We also maintain personally identifiable information about our employees. The integrity and protection of that guest, employee, and
company data is critical to us. If that data is not accurate or complete we could make faulty decisions. Our guests and employees also have a high
expectation that we will adequately protect their personal information, and the regulatory environment surrounding information security and
privacy is increasingly demanding, both in the U.S. and other international jurisdictions in which we operate. A significant theft, loss or fraudulent
use of guest, employee or company data could adversely impact our reputation and could result in remedial and other expenses, fines and litigation.
Changes in privacy law could adversely affect our ability to market our products effectively.
Our resorts rely on a variety of direct marketing techniques, including email marketing, and postal mailings. Any further restrictions in laws
such as the Telemarketing Sales Rule, CANSPAM Act, and various U.S. state laws, or new federal or state laws, regarding marketing and
solicitation or international data protection laws that govern these activities could adversely affect the continuing effectiveness of email and postal
mailing techniques and could force further changes in our marketing strategy. If this occurs, we may not be able to develop adequate alternative
marketing strategies, which could adversely impact the amount and timing of our sales.
Risks Related to Our Capital Structure
We and the owners and developers of our licensed and managed resorts may not be able to obtain additional financing, including
extensions or refinancing of existing indebtedness, on favorable terms, if at all.
We expect that we will require additional financing or have to extend or refinance our existing indebtedness over time, the amount of which
will depend on a number of factors, including the number of resorts we construct or improve, the maturity dates of our existing financings, the
amounts of our investments in joint ventures, additions to our current resorts and the cash flow generated by our resorts and management and
licensing agreements. The terms of any additional financing we may be able to procure are unknown at this time. Our access to third-party sources
of capital depends, in part, on some or all of the following:
•
general capital market conditions;
•
capital providers’ perception of our growth potential and growth potential in the real estate sector in general;
•
our then-current debt levels;
•
our then-current and expected future earnings;
•
our cash flow; and
•
the market price per share of our common stock.
The owners and developers of our licensed and managed resorts face similar risks, since they will require financing to construct and improve
those resorts and to extend or refinance existing indebtedness. Failure to obtain sufficient financing could have a material adverse effect on our
growth strategies and on our business, financial condition and results of operations.
Any future debt financing or issuances of preferred stock that we may make will be senior to the rights of holders of our common stock, and
any future issuances of common stock will result in the dilution of the then-existing stockholders’ proportionate equity interest.
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The covenants under the indenture governing our first mortgage notes and our mortgage loan agreements include restrictive covenants that
may limit our operating and financial flexibility.
The indenture governing our first mortgage notes contains, and future financing agreements may contain, covenants that, among other
things, restrict our ability to take specific actions, even if we believe them to be in our best interest. These include restrictions on our ability and the
ability of our restricted subsidiaries to:
•
incur additional indebtedness;
•
make any restricted payments, such as dividends or distributions on, or redeem or repurchase, capital stock;
•
prepay, redeem or repurchase specified indebtedness;
•
merge, consolidate or sell assets or enter into other business combination transactions;
•
make acquisitions, capital expenditure investments or other investments;
•
enter into transactions with affiliates;
•
incur certain liens;
•
use proceeds from sale of assets;
•
permit limitations on the ability of our subsidiaries to make payments to us and our restricted subsidiaries;
•
impair the collateral; and
•
change our business.
In addition, the terms of our mortgage loan agreements impose significant operating and financial restrictions on us and our subsidiaries and
require us to meet certain financial tests. These restrictions could also have a negative impact on our business, financial condition and results of
operations by significantly limiting or prohibiting us and/or our subsidiaries from engaging in certain actions, including:
•
the distribution of cash or the payment of dividends by our subsidiaries to us;
•
incurring or guaranteeing additional indebtedness;
•
transferring or selling assets currently held by us;
•
transferring ownership interests in certain of our subsidiaries; and
•
reducing our tangible net worth below specified levels.
In addition, the agreements governing the mortgage loan secured by our Concord resort require Great Wolf Resorts to maintain a minimum
consolidated tangible net worth.
Various risks, uncertainties and events beyond our control could affect our ability to comply with these covenants and financial tests. Failure
to comply with any of the covenants in our existing or future financing agreements could result in a default under those agreements and under
other agreements which may contain cross-default provisions. A default would permit lenders to accelerate the maturity of the debt under these
agreements and to foreclose upon any collateral securing such debt. Under these circumstances, we might not have sufficient funds or other
resources to satisfy all of our obligations,
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including our obligations under the notes. In addition, the limitations imposed by financing agreements on our ability to incur additional debt and
to take other actions might significantly impair our ability to obtain other financing. We may not be granted waivers or amendments to these
agreements if for any reason we are unable to comply with these agreements and we cannot guarantee that we will be able to refinance our debt on
terms acceptable to us or at all.
Our Traverse City and Kansas City mortgage loan requires us to maintain a minimum debt service coverage ratio (DSCR) of 1.35, calculated on
a quarterly basis. This ratio is defined as the two collateral properties’ combined trailing twelve-month net operating income divided by the greater
of (i) the loan’s twelve-month debt service requirements and (ii) 8.5% of the amount of the outstanding principal indebtedness under the loan.
Failure to meet the minimum DSCR is not an event of default and does not accelerate the due date of the loan. Not meeting the minimum DSCR,
however, subjects the two properties to a lock-box cash management arrangement, at the discretion of the loan’s servicer. The loan also contains a
similar lock-box requirement if we open any Great Wolf Lodge or Blue Harbor Resort within 100 miles of either resort, and the two collateral
properties’ combined trailing twelve-month net operating income is not at least equal to 1.8 times 8.5% of the amount of the outstanding principal
indebtedness under the loan.
For the year ended December 31, 2012, the DSCR for this loan was 0.93. In September 2010 the loan’s master servicer implemented the lockbox cash management arrangement. That lock-box cash management arrangement currently requires substantially all cash receipts for the two
resorts to be moved each day to a lender-controlled bank account, which the loan servicer then uses monthly to fund debt service and operating
expenses for the two resorts on a monthly basis, with excess cash flow being deposited in a reserve account and held as additional collateral for the
loan. We believe that this arrangement constitutes a traditional lock-box arrangement as discussed in authoritative accounting guidance. Based on
that guidance, we have classified the entire outstanding principal balance of the loan as a current liability at December 31, 2012, since the lock-box
arrangement requires us to use the properties’ working capital to service the loan, and we do not presently have the ability to refinance this loan to
a new, long-term loan. Although the entire principal balance of the loan is classified as a current liability as of December 31, 2012, the loan is not in
default, and the principal balance is not due currently.
At our request, in October 2010 the loan was transferred to its special servicer.
Given operating trends and performance at the properties during 2012, we currently expect the properties to generate sufficient cash flow so
that our subsidization of debt service, if any, for 2013 will be insignificant to our overall operations.
Issues affecting financial institutions could adversely affect financial markets generally as well as our ability to raise capital or access
liquidity.
Factors that we cannot control, such as disruption of the financial markets or negative views about the financial services industry generally,
could impair our ability to raise necessary funding. The creditworthiness of many financial institutions may be closely interrelated as a result of
credit, derivative, trading, clearing or other relationships among the institutions. As a result, concerns about, or a default or threatened default by,
one institution could lead to significant market-wide liquidity and credit problems, losses or defaults by other institutions. This may adversely
affect the financial institutions, such as banks and insurance providers, with which we interact on a daily basis, and therefore could adversely
affect our ability to raise needed funds or access liquidity.
Because we have guaranteed certain mortgage-related obligations of our subsidiaries, if one or more of our subsidiaries fail to meet its
obligations under the mortgage, we may be required to satisfy such obligations and such an undertaking could have an adverse affect on
our financial condition.
Great Wolf Resorts, Inc. has provided a $14,500 payment guarantee of the mortgage loan and related interest secured by our Concord resort.
This loan requires quarterly principal payments of $125 in the first year of the loan term and $375
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thereafter. The underlying cash flows from the Concord resort may not be able to satisfy the debt service obligations under the mortgage loan. In
addition, the loan agreement contains various customary financial and operating debt compliance covenants, and the entity owning the Concord
resort and Great Wolf Resorts, Inc. may not be able to comply with those covenants. If the borrower defaults under the loan agreement, Great Wolf
Resorts, Inc. would be required to assume certain obligations under the loan, including the payment of up to $14,500 of outstanding debt amounts.
While the property itself is subject to a mortgage to secure the mortgage loan, even in the event the property could be sold in a foreclosure to
satisfy all or a portion of the outstanding debt, to the extent the proceeds of such sale are insufficient to satisfy the outstanding debt, we would be
liable for the remaining outstanding amount.
Any default as described above could therefore have a material, adverse effect on our financial condition and could materially reduce the
amount of cash we have available to fund capital expenditures and growth initiatives, which could have a material, adverse effect on our business
and results of operations.
We may be unable to generate sufficient cash, and may not have access to the cash flow and other assets of our subsidiaries to service all of
our indebtedness, including our first mortgage notes, and we may be forced to take other actions to satisfy its obligations under such
indebtedness, which actions may not be successful.
Our ability to make scheduled payments on or to refinance our debt obligations depends on the financial condition and operating
performance of us and our subsidiaries, which are subject to prevailing economic and competitive conditions and to financial, business and other
factors beyond our control. We and our subsidiaries may not be able to maintain a level of cash flows from operating activities sufficient to permit
us to pay or refinance our indebtedness, including our first mortgage notes and our indebtedness under mortgage loan agreements. If the cash
flows and capital resources of us and our subsidiaries are insufficient to fund our debt service obligations, we and our subsidiaries could face
substantial liquidity problems and may be forced to reduce or delay capital expenditures or growth strategies, sell assets, seek additional capital or
restructure or refinance our indebtedness, including our first mortgage notes and our mortgage debt. These alternative measures may not be
successful and may not permit us to meet our scheduled debt service obligations.
We are a holding company, and its operations are conducted through its subsidiaries, but none of the subsidiaries is obligated to make funds
available to us for payment of our first mortgage notes. Accordingly, our ability to make payments on our first notes is dependent on the earnings
and distributions of funds from its subsidiaries. Furthermore, the agreements governing our mortgage debt that is outstanding contain restrictions
on the applicable borrower subsidiary to pay dividends or otherwise transfer assets to us unless certain financial tests are met. In particular:
•
the mortgage loans secured by our Kansas City, Traverse City, Poconos and Concord resorts require us to meet certain debt service
covenants in order to make distributions, which in the case of the Kansas City/Traverse City loan we do not currently meet.
•
because of that non-compliance, on September 13, 2010 the lenders of our Kansas City/Traverse City loan have elected to exercise their
right to implement a lock-box cash management arrangement, which requires substantially all cash receipts for the two resorts to be
moved each day to a reserve bank account and all excess cash to be deposited in a lender-controlled account. As a result our ability to
distribute cash from the resorts to us will be significantly limited for the period during which the lock-box arrangement is in effect.
•
the Concord loan documents require a partial payment of that loan in certain instances, all of which may reduce the amount of funds
available to pay the notes.
We are indirectly controlled by Apollo who will be able to make important decisions about our business and capital structure.
Approximately 99.0% of the common stock of our parent is beneficially owned by investment funds affiliated with Apollo. As a result, Apollo
controls our parent, which controls us, and Apollo therefore has the power to control all matters requiring approval by stockholders, including any
determination with respect to a merger, a sale of all or substantially all assets, amendments to our charter, and the election of our directors.
Additionally, Apollo is in the business of investing in companies and may, from time to time, acquire and hold interests in businesses that compete
directly or indirectly with us. Apollo may also pursue acquisition opportunities that may be complementary to our business and, as a result, those
acquisition opportunities may not be available to us.
34
Table of Contents
Forward-Looking Statements
Some of the statements contained in this Annual Report on Form 10-K, and other information we file with the Securities and Exchange
Commission, or the SEC, are or may be deemed to be forward-looking statements within the meaning of Section 27A of the Securities Act and
Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created by the Private Securities Litigation
Reform Act of 1995. All statements, other than statements of historical facts, including, among others, statements regarding our future financial
results or position, business strategy, projected levels of growth, projected costs and projected performance and financing needs, are forwardlooking statements. Those statements include statements regarding the intent, belief or current expectations of Great Wolf Resorts, Inc. and
members of our management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words
such as “may,” “might,” “will,” “could,” “plan,” “objective,” “predict,” “project,” “potential,” “continue,” “ongoing,” “seeks,” “anticipates,”
“believes,” “estimates,” “expects,” “plans,” “intends,” “should” or similar expressions. Forward-looking statements are not guarantees of future
performance and involve risks and uncertainties that actual results may differ materially from those contemplated by such forward-looking
statements. Many of these factors are beyond our ability to control or predict. Such factors include, but are not limited to, competition in our
markets, changes in family vacation patterns and consumer spending habits, regional or national economic downturns, our ability to attract a
significant number of guests from our target markets, economic conditions in our target markets, the impact of fuel costs and other operating costs,
our ability to develop new resorts in desirable markets or further develop and improve existing resorts on a timely and cost efficient basis, our
ability to manage growth, including the expansion of our infrastructure and systems necessary to support growth, our ability to manage cash and
obtain additional cash required for growth, the general tightening in the U.S. lending markets, potential accidents or injuries at our resorts,
decreases in travel due to pandemic or other widespread illness, our ability to achieve or sustain profitability, downturns in our industry segment
and extreme weather conditions, reductions in the availability of credit to indoor waterpark resorts generally or to us or our subsidiaries, increases
in operating costs and other expense items and costs, uninsured losses or losses in excess of our insurance coverage, our ability to protect our
intellectual property, trade secrets and the value of our brands, and current and possible future legal restrictions and requirements. Important
factors currently known to our management that could cause actual results to differ materially from those in forward-looking statements include
those set forth above under the section entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and results of
Operations.”
We believe these forward-looking statements are reasonable; however, undue reliance should not be placed on any forward-looking
statements, which are based on current expectations. All written and oral forward-looking statements attributable to us or persons acting on our
behalf are qualified in their entirety by these cautionary statements. Further, forward-looking statements speak only as of the date they are made,
and we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated
events or changes to future operating results over time unless required by law. Past financial or operating performance is not necessarily a reliable
indicator of future performance and you should not use our historical performance to anticipate results or future period trends.
You should read this Annual Report on Form 10-K and the documents that we reference in this report completely and with the understanding
that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by each of these
cautionary statements.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
We own an equity interest in eight family entertainment resorts that are currently operating. Unless otherwise indicated, we own a 100% fee
interest in these properties. We are organized into a single operating division. Within that operating division, we had two reportable segments in
2012:
•
resort ownership/operation, and
•
resort third-party management/licensing.
Information on our properties in which we own an equity interest included in our Resort Ownership/Operation segment is as follows:
•
Great Wolf Lodge of Traverse City is located on 48 acres in Traverse City, Michigan, of which 27 acres have been developed and
21 acres remain undeveloped.
•
Great Wolf Lodge of Kansas City is located on 17 acres in Kansas City, Kansas, all of which have been developed.
35
Table of Contents
•
Great Wolf Lodge of Williamsburg is located on 84 acres in Williamsburg, Virginia, of which 48 acres have been developed (2 of which
are leased to another entity) and 36 acres remain undeveloped and may be subdivided and developed separately.
•
Great Wolf Lodge of the Pocono Mountains is located on 95 acres in Pocono Township, near Stroudsburg, Pennsylvania, of which
45 acres are developed and 50 acres remain undeveloped, 28 of which may be subdivided and developed separately.
•
Great Wolf Lodge of Mason is located on 39 acres in Mason, Ohio. All 39 acres of this property are developed.
•
Great Wolf Lodge of Grapevine is located on 51 acres in Grapevine, Texas, of which 30 acres are developed and 21 acres remain
undeveloped, 14 of which may be subdivided and developed separately.
•
Great Wolf Lodge of Concord is located on 37 acres in Concord, North Carolina, of which 34 acres are developed and 3 acres may be
subdivided and developed separately.
Information on our property included in our Resort Third-Party Management/Licensing segment in which we own an equity interest is as
follows:
•
Great Wolf Lodge of Grand Mound is located on 39 leased acres in Grand Mound, Washington, of which 22 acres are developed and 17
acres remain undeveloped. This property is owned by a joint venture of which we have a 49% minority interest and The Confederated
Tribes of the Chehalis Reservation has a 51% majority interest.
For additional information regarding our resort properties see “Item 1. Business – Property Descriptions” above.
We lease the following space at December 31, 2012:
•
Approximately 23,000 square feet of office space for our corporate headquarters office in Madison, Wisconsin;
•
Approximately 9,800 square feet of office space for our central reservations call center operations in Madison, Wisconsin;
•
Approximately 1,400 square feet of office space in Woodbridge, Virginia (this lease was terminated in January 2013);
•
Approximately 2,700 square feet of office space in Lorain, Ohio;
•
Approximately 20,000 square feet of office and warehouse space in Tillamook, Oregon (this lease was terminated in January 2013); and
•
Approximately 19,000 square feet of retail space in Myrtle Beach, South Carolina.
We believe these facilities are adequate for our current needs.
ITEM 3.
LEGAL PROCEEDINGS
We are involved in litigation from time to time in the ordinary course of our business. We do not believe that the outcome of any such
pending or threatened litigation will have a material adverse effect on our financial condition or results of operations. However, as is inherent in
legal proceedings where issues may be decided by finders of fact, there is a risk that unpredictable decisions adverse to us could be reached.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
Disclosure pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act
On February 12, 2013, certain investment funds affiliated with Apollo Global Management, LLC beneficially owned approximately 19.6% of the
ordinary shares of LyondellBasell Industries N.V. (“LyondellBasell”) and have certain director nomination rights. LyondellBasell may be deemed to
be under common control with us, but this statement is not meant to be an admission that common control exists. As a result, it appears that we are
required to provide disclosures as set forth herein pursuant to Section 219 of the new Iran Threat Reduction and Syria Human Rights Act of 2012
and Section 13(r) of the Securities Exchange Act of 1934, as amended (the Exchange Act). The Annual Report on Form 10-K for the year ended
December 31, 2012 filed by LyondellBasell with the SEC on February 12, 2013 contained the disclosure set forth below
36
Table of Contents
(with all references contained therein to “the Company” being references to LyondellBasell and its consolidated subsidiaries). The disclosure
below does not relate to any activities conducted by us and does not involve us or our management. The disclosure relates solely to activities
conducted by LyondellBasell and its consolidated subsidiaries.
Disclosure pursuant to Section 219 of the Iran Threat Reduction & Syria Human Rights Act
Certain non-U.S. subsidiaries of our predecessor, LyondellBasell AF, licensed processes to construct and operate manufacturing
plants in Iran that produce polyolefin plastic material, which is used in the packaging of household and consumer goods. The
subsidiaries also provided engineering support and supplied catalyst products to be used in these manufacturing operations. In 2009,
the Company made the decision to suspend the pursuit of any new business dealings in Iran.
As previously disclosed by the Company, in 2010, our management made the further decision to terminate all business by the
Company and its direct and indirect subsidiaries with the government, entities and individuals in Iran. The termination was made in
accordance with all applicable laws and with the knowledge of U.S. Government authorities. As part of the termination, we entered into
negotiations with Iranian counterparties in order to exit our contractual obligations. As described below, two transactions occurred
under settlement agreements in early 2012, although the agreements to cease our activities with these counterparties were entered into
in 2011. In January 2012, one of our non-U.S. subsidiaries received a final payment of approximately €3.5 million for a shipment of
catalyst from an entity that is 50% owned by the National Petrochemical Company of Iran.
Our shipment of the catalyst was in February 2012 as part of the agreement related to our termination and cessation of all
business under agreements with the counterparty. In 2012, the gross revenue from this limited activity was approximately, €4.2 million
and profit attributable to it was approximately, €2.4 million.
In January and February of 2012, one of the Company’s non-U.S. subsidiaries provided certain engineering documents relating to
a polyolefin plastic process to a licensee comprising three Iranian companies, one of which is 20% owned by the National Oil Company
of Iran. The provision of documents was the Company’s final act with respect to the termination and cessation of all business under
agreements with the counterparties. No gross revenue or profit was attributable to this activity in 2012. The transactions disclosed in
this report do not constitute violations of applicable anti-money laundering laws or sanctions laws administered by the U.S. Department
of the Treasury, Office of Foreign Assets Control (OFAC), and are not the subject of any enforcement actions under the Iran sanction
laws.
We have not conducted, and do not intend to conduct, any further business activities in Iran or with Iranian counterparties.”
37
Table of Contents
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
There is no established public trading market for our common stock. As of March 29, 2013, we had 1 shareholder of record.
Dividend Policy
We have never declared or paid any cash dividends on our capital stock, and we do not anticipate paying cash dividends in the foreseeable
future. Future dividends on our common stock, if any, will be at the discretion of our board of directors and will depend on, among other things, our
operations, capital requirements and surplus, general financial condition, contractual restrictions and such other factors as our board of directors
may deem relevant.
38
Table of Contents
ITEM 6.
SELECTED FINANCIAL DATA
The following summary consolidated financial data should be read in conjunction with, and are qualified by reference to, our consolidated
financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing
elsewhere in this annual report on Form 10-K. The condensed consolidated statements of operations data for the periods January 1, 2012 – May 4,
2012 and May 5, 2012 – December 31, 2012 and for the years ended December 31, 2011, 2010, 2009 and 2008, are derived from our audited condensed
consolidated financial statements. The financial statements for the years ended prior to 2012 have been revised as described in Note 18 to the
consolidated financial statements.
Our consolidated financial information includes:
•
our subsidiary that provides resort development and management/licensing services;
•
our wholly-owned resorts;
•
beginning in June 2010, our CK subsidiary, which is a developer of experiential gaming products, less our noncontrolling interest
through December 28, 2012, at which time CK became our wholly-owned subsidiary; and
•
our equity interests in the Wisconsin Dells and Sandusky resorts through August 2009, when we sold our minority ownership interests
in those resorts, and our equity interest in the Grand Mound resort in which we have a minority ownership interest but which we do not
consolidate.
Revenues:
Rooms
Food, beverage and other
Management and other fees
Management and other fees – affiliates
Other revenue from managed properties(1)
Other revenue from managed properties – affiliates(1)
Total revenues
Operating expenses by department:
Rooms
Food, beverage and other
Other operating expenses:
Selling, general and administrative
Selling, general and administrative – affiliates
Property operating costs
Depreciation and amortization
Impairment loss on investment in affiliates
Goodwill impairment
Asset impairment loss
Loss on disposition of property
Other expenses from managed properties(1)
Other expenses from managed properties – affiliates(1)
Total operating expenses
Net operating income (loss)
Gain on sale of unconsolidated affiliates
Successor
Period May 5,
2012 through
December 31,
2012
Period January 1,
2012 through
May 4,
2012
Predecessor
$
$
Year ended December 31,
2011
2010
(as revised)
(as revised)
(Dollars in thousands)
2009
(as revised)
2008
(as revised)
63,793
33,193
1,398
1,414
4,193
3,901
107,892
$ 174,325
92,417
2,812
4,981
11,315
10,858
296,708
$ 158,985
87,663
2,646
4,594
11,083
10,989
275,960
$ 150,565
77,413
1,990
4,973
4,166
17,132
256,239
$ 138,173
69,698
2,798
5,346
0
19,826
235,841
18,039
51,260
9,458
26,396
25,069
72,955
23,106
67,106
21,405
62,457
18,953
56,576
51,930
193
23,365
31,422
0
0
1,200
182
7,887
7,712
193,190
13,996
0
42,205
0
11,347
16,469
0
0
0
47
4,193
3,901
114,016
(6,124)
0
64,332
0
35,373
53,723
0
0
0
1,513
11,315
10,858
275,138
21,570
0
65,075
0
33,004
58,318
0
0
18,741
19
11,083
10,989
287,441
(11,481)
0
58,731
0
36,212
53,369
0
0
0
255
4,166
17,132
253,727
2,512
(962)
49,100
0
35,199
42,286
18,777
17,430
0
19
0
19,826
258,166
(22,325)
0
120,963
64,624
2,418
3,582
7,887
7,712
207,186
39
Table of Contents
Investment income – affiliates
Interest income
Interest expense
Loss before income taxes and equity in unconsolidated affiliates
Income tax expense (benefit)
Equity in unconsolidated affiliates, net of tax
Net loss from continuing operations
Discontinued operations, net of tax
Net loss
Net income attributable to noncontrolling interest, net of tax
Net loss attributable to Great Wolf Resorts, Inc.
(577)
(128)
26,126
(11,425)
1,062
607
(13,094)
(9)
(13,085)
(83)
$ (13,002)
(303)
(902)
(1,088)
(1,330)
(82)
(210)
(543)
(637)
16,016
47,902
45,540
33,304
(21,755) (25,220) (55,390) (27,863)
269
1,132
785
180
(551)
13
648
2,432
(21,473) (26,365) (56,823) (30,475)
23
(6,634)
509
27,917
(21,496) (19,731) (57,332) (58,392)
(15)
(18)
(9)
0
$(21,481) $ (19,713) $ (57,323) $ (58,392) $
Other comprehensive loss, net of tax:
Net loss
Unrealized (gain) loss on interest rate swaps
Comprehensive loss
Comprehensive loss attributable to noncontrolling interest
Comprehensive loss attributable to Great Wolf Resorts, Inc.
$ (13,085)
0
$ (13,085)
(83)
$ (13,002)
$(21,496) $ (19,731) $ (57,332) $ (58,392) $ (54,731)
0
0
0
0
(382)
$(21,496) $ (19,731) $ (57,332) $ (58,392) $ (54,349)
(15)
(18)
(9)
0
0
$(21,481) $ (19,713) $ (57,323) $ (58,392) $ (54,349)
$ 17,678
(12,503)
(4,826)
$ 1,678 $ 28,868 $ 29,112 $ 12,215 $ 33,534
(5,773)
(5,013)
(4,478) (36,659) (144,612)
(1,897) (27,076)
(8,559)
31,126
106,712
Cash Flows:
Cash flows provided by (used in):
Operating activities
Investing activities
Financing activities
Balance Sheet Data (end of period):
Total assets
Total debt
Non-GAAP financial Measures:
EBITDA(2)
Adjusted EBITDA(3)
(1)
(2)
(3)
$881,594
523,764
$ 45,432
$ 57,412
$ 11,198
$ 31,321
$711,322
515,174
$758,623
552,298
$800,446
550,071
$ 834,462
507,051
$ 83,012
$ 80,488
$ 47,666
$ 68,978
$ 31,791
$ 66,009
$ 18,181
$ 67,567
Reflects reimbursement of payroll, benefits and costs related to the operations of properties managed by us.
EBITDA is a non-GAAP performance measure. We define EBITDA as net income (loss) attributable to Great Wolf Resorts, Inc. on a
consolidated basis, adjusted to exclude the following items:
•
interest expense, net of interest income,
•
income tax expense or benefit, and
•
depreciation and amortization.
Adjusted EBITDA is a non-GAAP performance measure. We define Adjusted EBITDA as EBITDA plus:
•
non-cash employee and director compensation,
•
costs associated with early extinguishment of debt or potential capital markets transactions,
•
opening costs of projects under development,
•
equity in earnings (loss) of unconsolidated related parties,
•
gain or loss on disposition of property or investments,
•
separation payments to senior executives,
40
(2,187)
(1,405)
26,645
(45,378)
825
4,501
(50,704)
4,027
(54,731)
0
(54,731)
Table of Contents
•
environmental liability costs,
•
asset impairment charges,
•
non-controlling interests,
•
acquisition-related expenses, and
•
other unusual or non-recurring items.
Our management uses EBITDA and Adjusted EBITDA: (i) as measurements of operating performance because they assist us in comparing
our operating performance on a consistent basis as they remove the impact of items directly resulting from our asset base (primarily depreciation
and amortization) from our operating results; (ii) for planning purposes, including the preparation of our annual operating budget; (iii) as a
valuation measure for evaluating our operating performance and our capacity to incur and service debt, fund capital expenditures and expand our
business; and (iv) as measures in determining the value of other acquisitions and dispositions.
We believe that EBITDA and Adjusted EBITDA are operating performance measures, and not liquidity measures, that provide investors and
analysts with measures of operating results unaffected by differences in capital structures, capital investment cycles and ages of related assets
among otherwise comparable companies. We also present EBITDA and Adjusted EBITDA because they are used by some investors as a way to
measure our ability to incur and service debt, make capital expenditures and meet working capital requirements. We believe EBITDA and Adjusted
EBITDA are useful to an investor in evaluating our operating performance because: (i) a significant portion of our assets consists of property and
equipment that are depreciated over their remaining useful lives in accordance with generally accepted accounting principles (GAAP); (ii) they are
widely used in the hospitality and entertainment industries to measure operating performance without regard to items such as depreciation and
amortization; and (iii) we believe they help investors meaningfully evaluate and compare the results of our operations from period to period by
removing the impact of items directly resulting from our asset base (primarily depreciation and amortization) from our operating results. EBITDA
and Adjusted EBITDA are measures commonly used in our industry, and we present EBITDA and Adjusted EBITDA to enhance your
understanding of our operating performance. We use EBITDA and Adjusted EBITDA as criterion for evaluating our performance relative to that of
our peers.
The following table reconciles net loss attributable to Great Wolf Resorts, Inc. to EBITDA and Adjusted EBITDA for the periods presented
(prior to the reclassification for discontinued operations):
Year Ended December 31,
Net income (loss) attributable to Great Wolf
Resorts, Inc.
Adjustments:
Interest expense, net of interest income
Income tax expense
Depreciation and amortization
EBITDA
Costs of resorts under development
Non-cash employee and director
compensation
Loss on disposition of assets
Equity in loss (income) of unconsolidated
affiliates
Net (income) loss attributable to
noncontrolling interest
Separation payments
Gain on disposition of property included in
discontinued operations
Environmental liability costs
Period May 5,
2012 through
December, 31,
2012
Period January 1,
2012 through
May 4,
2012
Successor
Predecessor
$
(13,002)
$
(21,481)
2011
(as revised)
2010
(as revised)
2009
(as revised)
2008
(as revised)
Predecessor
Predecessor
Predecessor
Predecessor
$ (19,713)
$ (57,323)
$ (58,392)
$ (54,731)
25,998
1,014
31,422
45,432
4,789
15,934
276
16,469
11,198
0
47,768
1,134
53,823
83,012
0
45,721
801
58,467
47,666
156
33,430
375
56,378
31,791
6,877
25,853
978
46,081
18,181
6,685
1,517
182
3,348
47
2,252
1,513
2,665
19
1,139
255
222
317
(663)
557
12
636
2,416
4,421
90
70
14
191
(19)
385
(9)
0
0
467
0
1,258
0
0
0
0
(6,667)
0
0
(1,292)
0
26
0
276
41
Table of Contents
Year Ended December 31,
Acquisition – related costs
Impairment loss on investment in affiliates
Goodwill impairment
Gain on sale of investment
Merger-related costs
Professional fees
Reimbursement agreement
Creative Kingdoms acquisition costs
Asset impairment loss
Adjusted EBITDA
Period May 5,
2012 through
December, 31,
2012
Period January 1,
2012 through
May 4,
2012
0
0
0
0
3,022
875
193
775
1,200
57,482
0
0
0
0
15,966
0
0
0
0
31,321
$
42
$
2011
2010
2009
2008
0
0
0
0
663
0
0
0
0
$81,151
396
0
0
0
0
0
0
0
18,741
$68,978
0
0
0
(962)
0
0
0
0
24,000
$66,009
0
18,777
17,430
0
0
0
0
0
0
$67,567
Table of Contents
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” is a discussion and analysis of the
financial condition, results of operations and liquidity and capital resources. The following discussion should be read in conjunction with the
financial statements and notes thereto appearing elsewhere in this report. We make statements in this section that are forward-looking
statements” under the Private Securities Litigation Reform Act of 1995. See “Forward-Looking Statements” included elsewhere in this report.
You should consider our forward-looking statements in light of the risks discussed under the heading “Risk Factors” above as well as our
consolidated financial statements, related notes, and other financial information appearing elsewhere in this report.
As described in Note 18 to the condensed consolidated financial statements, in connection with the preparation of the condensed
consolidated financial statements for the second quarter of 2012, we identified an error in the manner in which deferred tax balances were
calculated. In accordance with accounting guidance found in ASC 250-10 (SEC Staff Accounting Bulletin No. 99, Materiality), we assessed the
materiality of the error and concluded that the error was not material to any of our previously issued financial statements. In accordance with
accounting guidance found in ASC 250-10 (SEC Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements), we will revise our previously issued financial statements to correct the effect
of this error. This non-cash revision does not impact our operating income or cash flows for any prior period.
As a result of the May 4, 2012 merger with K-9 Acquisition, Inc., we have a Predecessor period from January 1, 2012 to May 4, 2012 and a
Successor period from May 5, 2012 to December 31, 2012. In order to present Management’s Discussion and Analysis in a way that offers
investors a meaningful period to period comparison, we have combined Predecessor and Successor periods to arrive at the year ended
December 31, 2012 amounts and compared to the Predecessor year ended December 31, 2011; however, these combined results for 2012 are
considered non-GAAP financial measures. The combined results for 2012 have not been prepared on a pro forma basis adjusting for mergerrelated items, including changes in basis that resulted from the merger. As noted below, in the combined results for 2012 those changes
primarily affected selling, general and administrative expenses; depreciation and amortization of property, plant and equipment and intangible
assets; and interest expense.
All dollar amounts in this discussion, except for per share data and operating statistics, are in thousands.
Overview
The terms “Great Wolf Resorts,” “us,” “we” and “our” are used in this report to refer to Great Wolf Resorts, Inc. and its consolidated
subsidiaries.
Business. We are a family entertainment resort company that provides our guests with a high-quality vacation at an affordable price. We are
the largest owner, operator and developer in North America of drive-to, destination family resorts featuring indoor waterparks and other familyoriented entertainment activities. Each of our resorts features approximately 300 to 600 family suites, each of which sleeps from six to ten people and
includes a wet bar, microwave oven, refrigerator and dining and sitting area. We provide a full-service entertainment resort experience to our target
customer base: families with children ranging in ages from 2 to 12 years old that live within a convenient driving distance of our resorts. Our resorts
are open year-round and provide a consistent, comfortable environment where our guests can enjoy our various amenities and activities. We
operate and license resorts under our Great Wolf Lodge brand name. We have entered into licensing and management arrangements with third
parties relating to the operation of resorts under the Great Wolf Lodge brand name.
We provide our guests with a self-contained vacation experience and focus on capturing a significant portion of their total vacation
spending. We earn revenues through the sale of rooms (which includes admission to our indoor waterpark), and other revenue-generating resort
amenities. Each of our resorts features a combination of the following revenue-generating amenities: themed restaurants and snack bars, ice cream
shop and confectionery, full-service adult spa, kid spa, game arcade, gift shop, miniature golf, interactive game attraction, family tech center and
meeting space. We also generate revenues from licensing arrangements, management fees and other fees with respect to our operation or
development of properties owned in whole or in part by third parties.
Each of our Great Wolf Lodge resorts has a Northwoods lodge theme, designed in a Northwoods cabin motif with exposed timber beams,
massive stone fireplaces, Northwoods creatures including mounted wolves and an animated two-story Clock Tower that provides theatrical
entertainment for younger guests. All of our guest suites are themed luxury suites, ranging in size from approximately 385 square feet to 925 square
feet.
The indoor waterparks in our Great Wolf Lodge resorts range in size from approximately 34,000 to 84,000 square feet and include decorative
rockwork and plantings. The focus of each Great Wolf Lodge waterpark is our signature 12-level treehouse water fort, an interactive water
experience for the entire family that features over 60 water effects and is capped by an oversized bucket that dumps between 700 and 1,000 gallons
of water every five minutes. Our waterparks also feature a
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combination of high-speed body slides and inner tube waterslides, smaller and lower speed slides for younger children, zero-depth water activity
pools with geysers, a water curtain, fountains and tumble buckets, a lazy river, additional activity pools for basketball, open swimming and other
water activities and large free-form hot tubs, including hot tubs for adults only.
Transactions
On May 4, 2012, the Company merged (the Merger) with K-9 Acquisition, Inc., a Delaware corporation (Merger Sub) and subsidiary of a fund
managed by an affiliate of Apollo Global Management, LLC (together with its subsidiaries, Apollo), in the Merger (as discussed in Note 3 to the
Consolidated Financial Statements). Although the Company continued as the same legal entity after the Merger, the Company’s capital structure
changed significantly as a result of the Merger and our financial statement presentations distinguish between a “Predecessor” for periods prior to
the Merger and a “Successor” for periods subsequent to the Merger. The Merger was accounted for as a business combination using the
acquisition method of accounting, and the Successor financial statements reflect a new basis of accounting that is based on the fair value of assets
acquired and liabilities assumed as of the effective time of the Merger. We obtained the assistance of independent third parties in determining the
fair value of certain tangible assets, identifiable intangible assets, and liabilities. As a result of the application of the acquisition method of
accounting as of the effective time of the Merger, the financial statements for the Predecessor period and for the Successor period are presented on
different bases and are, therefore, not comparable.
In 2010, we acquired a 62.4% equity interest in Creative Kingdoms (CK). On December 28, 2012 we acquired the remaining 37.6% equity
interest in CK. The acquisition of the noncontrolling interest was accounted for as an equity transaction, therefore no gain or loss as a result of the
acquisition was recognized. Noncontrolling interest in the accumulated deficit of CK in the amount of $1,866 was reclassified to additional paid in
capital. CK is a developer of experiential gaming products including MagiQuest®, an interactive game attraction available at all of our resorts. CK
also owns or has sold to other parties several stand-alone MagiQuest facilities or similar attractions.
On March 24, 2011, we sold our Blue Harbor Resort in Sheboygan, Wisconsin to Claremont New Frontier Resort LLC (Claremont) for a
purchase price of $4,200, less a $540 credit for purposes of real estate property tax payments to be made by Claremont for periods after the closing.
We paid $2,000 to the City of Sheboygan with respect to real estate taxes relating to the Sheboygan property and contributed $300 toward a lease
termination fee payable to a tenant at the property. We continue to license the Blue Harbor Resort and related trade names to Claremont at no fee.
As of March 24, 2011, we no longer operate this resort or managed the condominium units there and the related trade name has no carrying value.
Our Equity Sponsor
Apollo is a leading global alternative investment manager with offices in New York, Los Angeles, London, Frankfurt, Luxembourg, Singapore,
Hong Kong and Mumbai. As of December 31, 2012, Apollo and its subsidiaries had assets under management of approximately $113 billion
invested in its private equity, credit and real estate businesses.
Properties. The following table presents an overview of our portfolio of resorts. As of December 31, 2012, we operated, managed and/or had
licensing arrangements relating to the operation of 11 Great Wolf Lodge resorts. We anticipate that most of our future resorts will be licensed
and/or developed under our Great Wolf Lodge brand.
Ownership
Percentage
Wisconsin Dells, WI(3)
Sandusky, OH(3)
Traverse City, MI
Kansas City, KS
Williamsburg, VA(4)
Pocono Mountains, PA(4)
Niagara Falls, ONT(5)
Mason, OH(4)
Grapevine, TX(4)
Grand Mound, WA(6)
Concord, NC(4)
(1)
(2)
(3)
(4)
—
—
100%
100%
100%
100%
—
100%
100%
49%
100%
Opened
1997
2001
2003
2003
2005
2005
2006
2006
2007
2008
2009
Number of
Guest Suites
385(2)
271
280
281
405
401
406
401
605
398
402
Indoor
Entertainment
Area(1)
(Approx. sq. ft.)
102,000
41,000
57,000
57,000
87,000
101,000
104,000
105,000
110,000
74,000
97,000
Our indoor entertainment areas generally include our indoor waterpark, game arcade, children’s activity room, family tech center, MagiQuest®
(an interactive game attraction) and fitness room, as well as our spa in the resorts that have such amenities.
Total number of guest suites included 77 condominium units that are individually owned by third parties and managed by us.
These properties are owned by CNL Lifestyle Properties, Inc. (CNL), a real estate investment trust focused on leisure and lifestyle properties.
We currently manage both properties and license the Great Wolf Lodge brand to these resorts.
Five of our properties (Great Wolf Lodge resorts in Williamsburg, VA; Pocono Mountains, PA; Mason, OH; Grapevine, TX and Concord, NC)
each had a book value of fixed assets equal to ten percent or more of our total assets
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(5)
(6)
as of December 31, 2012, and each of those five properties had total revenues equal to ten percent or more of our total revenues for the period
January 1 – May 4, 2012, and the period May 5 – December 31, 2012.
An affiliate of Ripley Entertainment, Inc. (Ripley), our licensee, owns this resort. We have granted Ripley a license to use the Great Wolf
Lodge name for this resort through April 2016 for a licensing fee.
This property is owned by a joint venture. The Confederated Tribes of the Chehalis Reservation (Chehalis) owns a 51% interest in the joint
venture, and we own a 49% interest. We manage the property and license the Great Wolf Lodge brand to the joint venture under long-term
agreements through April 2057, subject to earlier termination in certain situations. The joint venture leases the land for the resort from the
United States Department of the Interior, which is trustee for Chehalis.
Industry Trends. We operate in the family entertainment resort segment of the travel and leisure industry. The concept of a family
entertainment resort with an indoor waterpark was first introduced to the United States in Wisconsin Dells, Wisconsin, and has evolved since 1987.
In an effort to boost occupancy and daily rates, as well as capture off-season demand, hotel operators in the Wisconsin Dells market began
expanding indoor pools and adding waterslides and other water-based attractions to existing hotels and resorts. The success of these efforts
prompted several local operators to build new, larger destination resorts based primarily on that concept.
We believe that these resorts have proven popular because of several factors, including the ability to provide a year-round vacation
destination without weather-related risks, the wide appeal of water-based recreation and the favorable trends in leisure travel discussed below. No
operator or developer other than Great Wolf Resorts has established a national portfolio of destination family entertainment resorts featuring
indoor waterparks.
While no standard industry definition for a family entertainment resort featuring an indoor waterpark has developed, we generally consider
resorts with at least 200 rooms featuring indoor waterparks larger than 25,000 square feet, as well as a variety of water slides and other water-based
attractions, to be competitive with our resorts. A Hotel & Leisure Advisors, LLC (H&LA) survey as of January 2013 indicates that there are 131
open indoor waterpark resort properties in the United States and Canada. Of the total, 47 are considered “indoor waterpark destination resorts”
offering more than 30,000 square feet of indoor waterpark space. Of these 47 properties, 11 are our properties.
We believe recent vacation trends favor drive-to family entertainment resorts featuring indoor waterparks, as the number of families choosing
to take shorter, more frequent vacations that they can drive to have increased in recent years. We believe these trends will continue. We believe
indoor waterpark resorts are generally less affected by changes in economic cycles, as drive-to destinations are generally less expensive and more
convenient than destinations that require air travel.
Outlook. We believe that no other operator or developer other than us has established a national portfolio of destination family entertainment
resorts that feature indoor waterparks. Our resorts do, however, compete directly with other family entertainment resorts in several of our markets.
We intend to continue to expand our portfolio of resorts throughout the United States and to seek out opportunities to leverage our brand and
operating expertise internationally as well. The resorts we plan to develop in the future require significant industry knowledge and substantial
capital resources.
Our primary business objective is to increase long-term value. We believe we can increase long-term value by executing our business and
growth strategies, including:
•
expanding our brand footprint in target markets,
•
continuing innovative expansions of and enhancement to our existing resorts,
•
maximizing total resort revenues while minimizing total resort costs,
•
building upon our existing brand awareness and loyalty, and
•
expanding operations of our subsidiary Creative Kingdoms.
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In attempting to execute our internal and external growth strategies, we are subject to a variety of business challenges and risks. These risks
include those described under “Risk Factors – Risks Related to Our Business Activities” and “Risk Factors – Risks Related to Regulation.” We
seek to meet these challenges by providing sufficient management oversight to site selection, development and resort operations; concentrating on
growing and strengthening awareness of our brand and demand for our resorts; and maintaining our focus on safety.
Revenue and Key Performance Indicators. We seek to generate positive cash flows and maximize our return on invested capital from each of
our owned resorts. Our rooms revenue represents sales to guests of room nights at our resorts and is the largest contributor to our cash flows and
earnings before interest, taxes, depreciation and amortization, (EBITDA). Rooms revenue accounted for approximately 67% of our total
consolidated resort revenue for the year ended December 31, 2012. We employ sales and marketing efforts to increase overall demand for rooms at
our resorts. We seek to optimize the relationship between room rates and occupancies through the use of yield management techniques that
attempt to project demand in order to selectively increase room rates during peak demand. These techniques are designed to assist us in managing
our higher occupancy nights to achieve maximum rooms revenue and include such practices as:
•
monitoring our historical trends for occupancy and estimating our high occupancy nights,
•
offering the highest discounts to previous guests in off-peak periods to build guest loyalty and enhance our ability to charge higher
rates in peak periods,
•
structuring rates to allow us to offer our previous guests the best rate while simultaneously working with a promotional partner or
offering internet specials,
•
monitoring sales of room types daily to evaluate the effectiveness of offered discounts, and
•
offering specials on standard suites and yielding better rates on larger suites when standard suites sell out.
In addition, we seek to maximize the amount of time and money spent on-site by our guests by providing a variety of revenue-generating
amenities.
We have several key indicators that we use to evaluate the performance of our business. These indicators include the following:
•
occupancy;
•
average daily room rate, or ADR;
•
revenue per available room, or RevPAR;
•
total revenue per occupied room, or Total RevPOR;
•
total revenue per available room, or Total RevPAR;
•
non-rooms revenue per occupied room;
•
earnings before interest, taxes, depreciation and amortization, or EBITDA; and
•
EBITDA adjusted for certain items, or Adjusted EBITDA.
Occupancy, ADR and RevPAR are commonly used measures within the hospitality industry to evaluate hotel operations and are calculated
as follows:
•
Occupancy is calculated by dividing total occupied rooms by total available rooms.
•
ADR is calculated by dividing total rooms revenue by total occupied rooms.
•
RevPAR is the product of occupancy and ADR.
Total RevPOR, Total RevPAR and non-rooms revenue per occupied room are calculated as follows:
•
Total RevPOR is calculated by dividing total revenue by total occupied rooms.
•
Total RevPAR is calculated by dividing total revenue by total available rooms.
•
Non-rooms revenue per occupied room is calculated by taking the difference between Total RevPOR and ADR.
Occupancy allows us to measure the general overall demand for rooms at our resorts and the effectiveness of our sales and marketing
strategies. ADR allows us to measure the effectiveness of our yield management strategies. While ADR and RevPAR only include rooms revenue,
Total RevPOR and Total RevPAR include both rooms revenue and other revenue derived from food and beverage and other amenities at our
resorts. We consider Total RevPOR and Total RevPAR to be key
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performance indicators for our business because we derive a significant portion of our revenue from food and beverage and other amenities. For
the year ended December 31, 2012, approximately 33% of our total consolidated resort revenues consisted of non-rooms revenue.
We use RevPAR and Total RevPAR to evaluate the blended effect that changes in occupancy, ADR and Total RevPOR have on our results.
We focus on increasing ADR and Total RevPOR because we believe those increases can have the greatest positive impact on our results. In
addition, we seek to maximize occupancy, as increases in occupancy generally lead to greater total revenues at our resorts, and we believe
maintaining certain occupancy levels is key to covering our fixed costs. Increases in total revenues as a result of higher occupancy are, however,
typically accompanied by additional incremental costs (including housekeeping services, utilities and room amenity costs). In contrast, increases in
total revenues from higher ADR and Total RevPOR are typically accompanied by lower incremental costs and generally result in a greater increase
in operating cash flow.
We also use EBITDA and Adjusted EBITDA as measures of the operating performance of each of our resorts. EBITDA and Adjusted
EBITDA are supplemental financial measures and are not defined by accounting principles generally accepted in the United States (GAAP). See
“Non-GAAP Financial Measures” below for further discussion of our use of EBITDA and Adjusted EBITDA and a reconciliation of net loss to
EBITDA and Adjusted EBITDA.
Critical Accounting Policies and Estimates
This discussion and analysis of our financial condition and results of operating is based on our consolidated financial statements, which are
prepared in accordance with GAAP. As discussed in Note 18 to the consolidated financial statements, the consolidated financial statements as of
December 31, 2011, and 2010 have been revised. The preparation of our consolidated financial statements requires management to make estimates
and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the
unconsolidated financial statements, as well as revenue and expenses during reporting periods. We evaluate our estimates and judgments on an
ongoing basis. We base our estimates on historical experience and on various other factors we believe are reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other
sources. Actual results could therefore differ materially from those estimates under different assumptions or conditions.
Goodwill – The excess of the purchase price of entities that are considered to be purchases of businesses over the estimated fair value of
tangible and identifiable intangible assets acquired is recorded as goodwill. We are required to assess goodwill for impairment annually, or more
frequently if circumstances indicate impairment may have occurred. We perform a qualitative assessment to determine if it is more likely than not
that the fair value of a reporting unit is less than its carrying amount. If we believe, as a result of our qualitative assessment, that it is more likely
than not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further
impairment testing is required. The first step of the quantitative impairment test compares the carrying amount of the reporting unit to its estimated
fair value. If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired and the second
step of the impairment test is not necessary. To the extent that the carrying value of the reporting unit exceeds its estimated fair value, a second
step is performed, wherein the reporting unit’s carrying value of goodwill is compared to the implied fair value of goodwill. To the extent that the
carrying value exceeds the implied fair value, impairment exists and must be recognized. We determine our reporting units’ fair values using a
discounted cash flow model.
We base our fair value estimates on projected financial information which we believe to be reasonable. There are inherent assumptions and
estimates used in developing future cash flows requiring management’s judgment. In applying these judgments and estimates to the analysis of the
carrying value of our intangible assets we consider projected revenues, EBITDA, the cost of capital, and royalty rates. Many of the factors used in
assessing fair value are outside the control of management and it is reasonably likely that assumptions and estimates will change in future periods.
Actual future results may differ from those projections, and those differences may be material. These changes can result in future impairments.
As part of our annual impairment analysis, we concluded that certain reporting units may become impaired in future periods. The amount of
any impairment is dependent on the performance of the resort which is dependent upon a number of variables which cannot be predicted with
certainty.
In connection with the acquisition of the majority interest in Creative Kingdoms, LLC (CK) in 2010, we recorded $1,365 of goodwill. In 2012 in
connection with the Merger, we recorded $124,435 of goodwill as part of purchase accounting.
Balance as of January 1, 2011 (Predecessor)
Goodwill recorded related to the acquisition of the majority interest in CK
Balance as of December 31, 2011 and May 4, 2012 (Predecessor)
Goodwill removed as a result of the Merger
Goodwill recorded related to the Merger
Balance as of December 31, 2012 (Successor)
$ 1,365
$ 1,365
(1,365)
124,435
$124,435
Noncontrolling Interests – We record the non-owned equity interests of our consolidated subsidiaries as a separate component of our
consolidated equity on our consolidated balance sheet. The net earnings attributable to the controlling and noncontrolling interests are included
on the face of our statement of operations. CK was a consolidated subsidiary with a noncontrolling interest through December 28, 2012, at which
time we purchased the noncontrolling interest.
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Acquisition Accounting – We follow acquisition accounting for all acquisitions that meet the business combination definition. Acquisition
accounting requires us to measure the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest at the acquisition-date
fair value. While we use our best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired
and liabilities assumed at the acquisition date, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement
period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed, with the
corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or
liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements of operations.
Investments in Property and Equipment – We record investments in property and equipment at cost. Improvements and replacements are
capitalized when they extend the useful life, increase capacity or improve the efficiency of the asset. Repairs and maintenance are charged to
expense as incurred.
Depreciation and amortization are recorded on a straight-line basis over the estimated useful lives of the assets as follows:
Buildings and improvements
Fixtures and equipment, including waterpark equipment
20-45 years
3-15 years
We are required to make subjective assessments as to these useful lives for purposes of determining the amount of depreciation and
amortization to record annually with respect to our investments in property and equipment. These assessments have a direct impact on our net loss
because if we were to shorten the expected useful lives of our investments in property and equipment we would depreciate and amortize such
investments over fewer years, resulting in more depreciation and amortization expense and a larger net loss on an annual basis. We periodically
review the estimated useful lives we have assigned to our depreciable assets to determine whether those useful lives are reasonable and
appropriate.
When circumstances, such as adverse market conditions, indicate the carrying values of a long-lived asset may be impaired, we perform an
analysis to review the recoverability of the asset’s carrying value. We make estimates of the undiscounted cash flows (excluding interest charges)
from the expected future operations of the asset. These estimates consider factors such as expected future operating income, operating trends and
prospects, as well as the effects of demand, competition and other factors. If the analysis indicates that the carrying value is not recoverable from
future cash flows, an impairment loss is recognized to the extent that the carrying value exceeds the estimated fair value. Any impairment losses are
recorded as operating expenses, which reduce net income.
During the year ended December 31, 2010, we recorded $18,741 of impairment charges related to our Traverse City and Kansas City resorts.
We determined the carrying values of these resorts were impaired in light of the reduced estimated hold periods for the resorts. Because of the
reduced estimated hold periods, we performed recoverability tests of these resorts to determine if further assessment for potential impairment was
required. Based on this analysis of undiscounted cash flows, we determined the carrying value of these resorts were not recoverable. As a result,
we recorded an $18,741 impairment charge to decrease the resorts’ carrying value to their estimated fair value (net of estimated disposal costs) as of
December 31, 2010. We estimated the properties’ fair values by using available market information for similar assets, as well as considering
estimated future cash flows, terminal values based on the projected cash flows and capitalization rates in the range of what is reported in industry
publications for operationally similar assets and other available market information. The cash flows considered in estimating the fair values were
discounted using market-based discounts generally used for operationally and geographically similar assets. Although we believe our estimated
fair value for the resorts are reasonable, the actual fair value we ultimately realize from these resorts could differ materially from these estimates.
Intangibles – Our intangible assets consist of the value of our brand name, management contracts and patented and unpatented
technologies. A summary of our intangibles is as follows:
Brand name
Management contracts, net of amortization
Patented and unpatented technologies
Successor
December 31,
2012
Predecessor
December 31,
2011
$
$
$
48
39,600
7,844
0
47,444
$
23,829
0
1,481
25,310
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The brand name intangible asset has an indefinite useful life. We do not amortize the brand name intangible, but instead test for possible
impairment at least annually or when circumstances warrant. We perform a qualitative assessment to determine if it is more likely than not that the
fair value of the asset is less than its carrying amount. If we believe, as a result of our qualitative assessment, that it is more likely than not that the
fair value of the asset is less than its carrying amount, the quantitative impairment test is required.
Investments in Affiliates – When circumstances, such as adverse market conditions, indicate that the carrying value of our investments in
affiliates may be impaired, we perform an analysis to review the recoverability of the asset’s carrying value. To test investment in affiliates for
impairment, we compare the fair value of the investment in affiliates with its carrying amount. If the fair value of the investment in affiliates is less
than its carrying value, an impairment loss is recognized. Any impairment losses are recorded as operating expenses, which reduce net income.
Future adverse changes in the hospitality and lodging industry, market conditions or poor operating results of the underlying investments could
result in future losses or the inability to recover the carrying value of these assets.
We do not believe current circumstances indicate that the carrying value of our minority investment in the joint venture that owns our Grand
Mound resort may be impaired. The carrying value of our 49% interest in our joint venture that owns the Great Wolf Lodge in Grand Mound was
$24,425 as of December 31, 2012.
Accounting for Income Taxes – We account for income taxes under the asset and liability method, which requires the recognition of deferred
tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method,
deferred tax assets and liabilities are determined based on the differences between the financial statement and tax basis of assets and liabilities
using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax
assets and liabilities is recognized in income in the period that includes the enactment date.
Significant management judgment is required in determining our provision or benefit for income taxes, our deferred tax assets and liabilities,
and any valuation allowance recorded against our net deferred tax assets. We record net deferred tax assets (primarily resulting from net operating
loss carryforwards) to the extent we believe these assets will more likely than not be realized. In making such determination, we consider all
available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income (that could result
from a sale of one or more of our resorts where there’s a sales price in excess of tax basis), tax planning strategies and recent financial operations. In
the event we were to determine that we would not be able to realize our deferred tax assets, we would establish a valuation allowance which would
increase the provision for income taxes. Conversely, in the event we were to determine that we would be able to realize our deferred income tax
assets in the future in excess of their net recorded amount, we would make an adjustment to the valuation allowance which would reduce the
provision for income taxes.
As of December 31, 2012 and 2011, we recorded valuation allowances of $72,979 and $67,321, respectively, due to uncertainties related to our
ability to utilize some of our deferred tax assets, primarily consisting of certain net operating loss carryforwards, before they expire. The valuation
allowance we recorded is based on our estimates of taxable income solely from the reversal of existing deferred tax liabilities and the period over
which deferred tax assets reverse. In the event that actual results differ from these estimates or we adjust these estimates in a future period, we may
need to increase or decrease our valuation allowance, which could materially impact our consolidated statement of operations.
New Accounting Pronouncements
In July 2012, the FASB issued guidance on testing indefinite-lived intangible assets, other than goodwill, for impairment. An entity testing an
indefinite-lived intangible asset for impairment has the option of performing a qualitative assessment before calculating the fair value of the asset. If
an entity believes, as a result of its qualitative assessment, that it is more likely than not that the fair value of a the asset is less than its carrying
amount, the quantitative impairment test is
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required. Otherwise, no further impairment testing is required. The guidance is effective for annual and interim indefinite-lived intangible assets
impairment tests performed for fiscal years beginning after September 15, 2012. The adoption of this guidance did not have a material impact on our
consolidated financial statements.
Non-GAAP Financial Measures
We use EBITDA and Adjusted EBITDA as measures of our operating performance. EBITDA and Adjusted EBITDA are supplemental nonGAAP financial measures.
EBITDA is commonly defined as net income plus (a) net interest expense from continuing operations and discontinued operations, (b) income
taxes from continuing operations and discontinued operations, and (c) depreciation and amortization from continuing operations and discontinued
operations.
We define Adjusted EBITDA as net income (loss) plus (a) interest expense, net, (b) income taxes, (c) depreciation and amortization, (d) noncash employee and director compensation, (e) costs associated with early extinguishment of debt or potential capital markets transactions,
(f) opening costs of projects under development, (g) equity in earnings (loss) of unconsolidated related parties, (h) gain or loss on disposition of
property or investments, (i) separation payments to senior executives, (j) environmental liability costs, (k) asset impairment charges, (l) noncontrolling interests, (m) acquisition-related expenses, and (n) other unusual or non-recurring items.
EBITDA and Adjusted EBITDA as calculated by us are not necessarily comparable to similarly titled measures presented by other
companies. In addition, EBITDA and Adjusted EBITDA (a) do not represent net income or cash flows from operations as defined by GAAP; (b) are
not necessarily indicative of cash available to fund our cash flow needs; and (c) should not be considered as alternatives to net income, operating
income, cash flows from operating activities or our other financial information as determined under GAAP.
We believe EBITDA and Adjusted EBITDA are useful to an investor in evaluating our operating performance because:
•
a significant portion of our assets consists of property and equipment that are depreciated over their remaining useful lives in
accordance with GAAP. Because depreciation and amortization are non-cash items, we believe that presentation of EBITDA and
Adjusted EBITDA are useful measures of our operating performance;
•
they are widely used in the hospitality and entertainment industries to measure operating performance without regard to items
such as depreciation and amortization; and
•
we believe they help investors meaningfully evaluate and compare the results of our operations from period to period by
removing the impact of items directly resulting from our asset base, primarily depreciation and amortization, from our operating
results.
Our management uses EBITDA and Adjusted EBITDA:
•
as measurements of operating performance because they assist us in comparing our operating performance on a consistent
basis as they remove the impact of items directly resulting from our asset base, primarily depreciation and amortization, from our
operating results;
•
for planning purposes, including the preparation of our annual operating budget;
•
as valuation measures for evaluating our operating performance and our capacity to incur and service debt, fund capital
expenditures and expand our business; and
•
as measures in determining the value of other acquisitions and dispositions.
Using measures such as EBITDA and Adjusted EBITDA have material limitations, including the following:
•
they do not reflect every cash expenditure, future requirements for capital expenditures or contractual commitments;
•
they do not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments
on our debt;
•
although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be
replaced or require improvements in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for
such replacements or improvements;
•
they are not adjusted for all non-cash income or expense items that are reflected in our statements of cash flows;
•
they do not reflect limitations on our costs related to transferring earnings from our subsidiaries to us; and
50
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•
other companies in our industry may calculate EBITDA and Adjusted EBITDA differently than we do, limiting their usefulness
as comparative measures.
Because of these limitations, our EBITDA and Adjusted EBITDA measures should not be considered as measures of discretionary cash
available to us to invest in the growth of our business or as measures of cash that will be available to us to meet our obligations. We compensate
for these limitations by using EBITDA and Adjusted EBITDA, along with other comparative tools, together with GAAP measurements, to assist in
the evaluation of operating performance. Such GAAP measurements include operating income (loss), net income (loss), cash flows from operations
and cash flow data. We have significant uses of cash flows, including capital expenditures, interest payments, debt principal repayments, taxes and
other non-recurring charges, which are not reflected in our EBITDA- and Adjusted EBITDA-based measures.
EBITDA and Adjusted EBITDA are not intended as alternatives to net income (loss), as indicators of our operating performance, as
alternatives to any other measure of performance in conformity with GAAP or as alternatives to cash flow provided by operating activities as a
measure of liquidity. You should therefore not place undue reliance on our EBITDA- and Adjusted EBITDA-based measures or ratios calculated
using those measures. Our GAAP-based measures can be found in our consolidated financial statements and the related notes, included elsewhere
in this report.
Adjusted EBITDA is an operating performance measure, and not a liquidity measure, that provides investors and analysts with a measure of
operating results unaffected by differences in capital structures, capital investment cycles and ages of related assets among otherwise comparable
companies. We also present Adjusted EBITDA because it is used by some investors as a way to measure our ability to incur and service debt,
make capital expenditures and meet working capital requirements.
Adjusted EBITDA is a measure commonly used in our industry, and we present Adjusted EBITDA to enhance investors’ understanding of
our operating performance. We use Adjusted EBITDA as one criterion for evaluating our performance relative to that of our peers. The
compensation committee of our board of directors determines the annual variable compensation for certain members of our management based in
part on Adjusted EBITDA.
The following table reconciles net loss attributable to Great Wolf Resorts, Inc. to EBITDA and Adjusted EBITDA for the periods presented
(prior to the reclassification for discontinued operations).
Year Ended December 31,
Net income (loss) attributable to Great Wolf Resorts, Inc.
Adjustments:
Interest expense, net of interest income
Income tax expense
Depreciation and amortization
EBITDA
Costs of resorts under development
Non-cash employee and director compensation
Loss on disposition of assets
Equity in loss (income) of unconsolidated affiliates
Net (income) loss attributable to noncontrolling interest
Separation payments
Gain on disposition of property included in discontinued
operations
Environmental liability costs
Acquisition – related costs
Merger-related costs
Professional fees
Reimbursement agreement
Creative Kingdoms acquisition costs
51
2012
Successor/
Predecessor
2011
(As revised)
Predecessor
2010
(As revised)
Predecessor
$ (34,483)
$ (19,713)
$ (57,323)
41,932
1,290
47,891
56,630
4,789
4,865
229
(106)
104
261
47,768
1,134
53,823
83,012
0
2,252
1,513
12
(19)
385
45,721
801
58,467
47,666
156
2,665
19
636
(9)
0
0
0
0
18,988
875
193
775
(6,667)
0
0
663
0
0
0
0
(1,292)
396
0
0
0
0
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Year Ended December 31,
Asset impairment loss
Adjusted EBITDA
52
2012
2011
2010
1,200
$88,803
0
$81,151
18,741
$68,978
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Results of Operations
General
Our financial information includes:
•
our subsidiary entity that provides resort development and management/licensing services;
•
our wholly-owned resorts;
•
beginning in June 2010, our CK subsidiary which is a developer of experiential gaming products; and
•
our equity interest in Grand Mound resort in which we have a minority ownership interest but which we do not consolidate.
Revenues. Our revenues consist of:
•
lodging revenue, which includes rooms, food and beverage, and other department revenues from our resorts;
•
revenue from our CK subsidiary, which includes product sales, admission fees and retail revenues;
•
management fee and other revenue from resorts, which includes fees received under our management, license, development and
construction management agreements; and
•
other revenue from managed properties. We employ the staff at our managed properties. Under our management agreements, the resort
owners reimburse us for payroll, benefits and certain other costs related to the operations of the managed properties. We include the
reimbursement of payroll, benefits and costs is recorded as revenue on our statements of operations, with a corresponding expense
recorded as “other expenses from managed properties.”
Operating Expenses. Our departmental operating expenses consist of rooms, food and beverage and other department expenses.
Our other operating expenses include the following items:
•
selling, general and administrative expenses, which are associated with the operations and management of resorts and our CK
subsidiary (beginning in June 2010) and which consist primarily of expenses such as corporate payroll and related benefits, operations
management, sales and marketing, finance, legal, information technology support, human resources and other support services, as well
as general corporate expenses;
•
property operation and maintenance expenses, such as utility costs and property taxes;
•
depreciation and amortization; and
•
other expenses from managed properties.
Year Ended December 31, 2012 compared with Year Ended December 31, 2011
The following table shows key operating statistics for our resorts for the years ended December 31, 2012 and 2011:
Same Store Comparison(a)
Increase
Successor/
Predecessor
2012
Occupancy
ADR
RevPAR
Total RevPOR
Total RevPAR
Non-rooms revenue per occupied room
(a)
$
$
$
$
$
66.4%
261.55
173.69
399.30
265.17
137.75
Predecessor
2011
$
$
$
$
$
63.3%
260.10
164.58
395.18
250.05
135.08
$
N/A
$ 1.45
$ 9.11
$ 4.12
$15.12
$ 2.67
%
4.9%
0.6%
5.5%
1.0%
6.0%
2.0%
Same store comparison includes properties that were open for the full periods and with comparable number of rooms in 2012 and 2011.
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The positive changes in key operating statistics for the year ended December 31, 2012, compared to the year ended December 31, 2011, are
due to an increase in overall consumer demand for our properties.
Presented below are selected amounts from our consolidated statements of operations for the years ended December 31, 2012 and 2011:
Successor/
Predecessor
Revenues
Operating expenses:
Departmental operating expenses
Selling, general and administrative
Depreciation and amortization
Asset impairment loss
Loss on disposition of assets
Net operating income (loss)
Interest expense, net of interest income
Discontinued operations, net of tax
Net loss attributable to Great Wolf Resorts, Inc.
2012
Predecessor
(As revised)
2011
Increase
(Decrease)
$ 315,078
$ 296,708
$ 18,370
105,153
94,135
47,891
1,200
229
7,872
41,932
14
(34,483)
98,024
64,332
53,723
—
1,513
21,570
47,692
(6,634)
(19,713)
7,129
29,803
(5,832)
1,200
(1,284)
(13,698)
(5,760)
6,648
(14,770)
Revenues. Total revenues increased due to an increase in consumer demand for our properties.
Operating expenses.
•
Departmental operating expenses increased by $7,129 during the year ended December 31, 2012, as compared to the year ended
December 31, 2011, related primarily to our increase in revenues.
•
Selling, general and administrative expenses increased by $29,803 during the year ended December 31, 2012, as compared to the
year ended December 31, 2011, due primarily due to non-recurring expenses related to the Merger transaction.
•
Total depreciation and amortization decreased for the year ended December 31, 2012 as compared to the year ended
December 31, 2011, primarily due to changes in depreciation and amortization as a result of fair value adjustments from the
Merger transaction.
•
Asset impairment loss is due to an impairment loss incurred by one of our entities during the year ended December 31, 2012.
There is no similar loss during the year ended December 31, 2011.
•
Loss on disposition of assets decreased primarily due to a loss incurred by one of our entities during the year ended
December 31, 2011. There was no similar loss during the year ended December 31, 2012.
Net operating income. During the year ended December 31, 2012, we had net operating income of $7,872 as compared to net operating
income, of $21,570 for the year ended December 31, 2011.
Net loss attributable to Great Wolf Resorts, Inc. Net loss attributable to Great Wolf Resorts, Inc. increased primarily due to a decrease in net
operating income of $13,698 and there being no gain recorded in discontinued operations in the year ended December 31, 2012 as there was in the
year ended December 31, 2011. These changes were partially offset by a decrease in interest expense, net of interest income, of $5,760, which was
primarily due to effects of recording purchase accounting adjustments related to the Merger transaction.
Year Ended December 31, 2011 compared with Year Ended December 31, 2010
The following table shows key operating statistics for our resorts for the years ended December 31, 2011 and 2010:
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Table of Contents
All Properties
Predecessor
2011
Occupancy
ADR
RevPAR
Total RevPOR
Total RevPAR
Non-rooms revenue per occupied room
(a)
$
$
$
$
$
63.0%
259.52
163.51
394.64
248.65
135.12
Predecessor
2011
$
$
$
$
$
63.3%
260.10
164.58
395.18
250.05
135.08
Same Store Comparison(a)
Increase (Decrease)
Predecessor
2010
$
%
$
$
$
$
$
59.7%
252.30
150.60
387.83
231.50
135.53
N/A
$ 7.80
$ 13.98
$ 7.35
$ 18.55
$ (0.45)
6.0%
3.1%
9.3%
1.9%
8.0%
(0.3)%
Same store comparison includes properties that were open for the full periods and with comparable number of rooms in 2011 and 2010 (that is,
all properties other than our Blue Harbor Resort in Sheboygan, WI).
The positive changes in key operating statistics for the year ended December 31, 2011, compared to the year ended December 31, 2010, appear
to be the result of an increase in overall consumer demand for our properties.
Presented below are selected amounts from our consolidated statements of operations for the years ended December 31, 2011 and 2010:
Revenues
Operating expenses:
Departmental operating expenses
Property operating costs
Depreciation and amortization
Asset impairment loss
Loss on disposition of assets
Net operating income (loss)
Interest expense, net of interest income
Discontinued operations, net of tax
Net loss attributable to Great Wolf Resorts, Inc.
Predecessor
(As revised)
2011
Predecessor
(As revised)
2010
Increase
(Decrease)
$ 296,708
$ 275,960
$ 20,748
98,024
35,373
53,723
—
1,513
21,570
47,692
(6,634)
(19,713)
90,212
33,004
58,318
18,741
19
(11,481)
44,997
509
(57,323)
7,812
2,369
(4,595)
(18,741)
1,494
33,051
2,695
(7,143)
37,610
Revenues. Total revenues increased due to the following:
•
An increase in consumer demand for our properties; and
•
The inclusion of CK as a consolidated subsidiary for a full twelve months in 2011 following our acquisition of a 62.4% equity interest in
June 2010.
Operating expenses.
•
Departmental operating expenses increased by $7,812 for the year ended December 31, 2011, as compared to the year ended
December 31, 2010, due primarily to an increase in revenues and the acquisition of CK.
•
Property operating costs increased by $2,369 for the year ended December 31, 2011, as compared to the year ended December 31, 2010,
due primarily to an increase in property tax expenses at certain of our properties.
•
Total depreciation and amortization decreased, primarily due to a smaller write-off of unamortized debt issuance costs during the year
ended December 31, 2011 as compared to the year ended December 31, 2010. During the year ended December 31, 2012, we wrote off
$1,850 of unamortized debt issuance costs related to our Concord loan that we refinanced. During the year ended December 31, 2010 we
wrote off $3,500 related to our then55
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existing Williamsburg, Mason and Grapevine loans that were repaid with the net proceeds of the first mortgage notes.
•
Loss on disposition of assets increased primarily due to a loss related to CK as well as the closing of our Scooops Kid Spa in the Mall
of America during the year ended December 31, 2011. There were no similar losses during the year ended December 31, 2010.
•
For the year ended December 31, 2010 we recorded a $18,741 impairment loss related to our Traverse City and Kansas City resorts.
There was no similar impairment loss during the year ended December 31, 2011.
Net operating income. During the year ended December 31, 2011, we had net operating income of $21,570 as compared to a net operating loss
of $11,481 for the year ended December 31, 2010.
Net loss attributable to Great Wolf Resorts, Inc. Net loss attributable to Great Wolf Resorts, Inc. decreased due to:
•
An increase in net operating income of $33,051; and
•
During the year ended December 31, 2011 we disposed of our Blue Harbor Resort in Sheboygan, WI and have included the property’s
operations in discontinued operations for the year ended December 31, 2011 and 2010. Included in discontinued operations for the year
ended December 31, 2011 is a gain on sale of $6,667.
These increases were partially offset by an increase in net interest expense of $2,695, mainly due to interest expense related to our first mortgage
notes issued in April 2010.
Segments
We have two reportable segments:
•
resort ownership/operation – aggregated operating results derived from our consolidated owned resorts; and
•
resort third-party management/licensing – aggregated operating results derived from management, license and other related fees from
unconsolidated managed resorts;
See our Segments section in our Summary of Significant Accounting Policies, in Note 16 to our consolidated financial statements.
Year Ended December 31,
Successor/
Predecessor
Predecessor
Predecessor
2012
2011
2010
Resort Ownership/Operation
Revenues
EBITDA
Resort Third-Party Management/Licensing
Revenues
EBITDA
Other
Revenues
EBITDA
Increase (Decrease)
2012 –
2011
2011 –
2010
$ 278,077
76,027
$ 260,585
75,371
$ 240,346
40,561
$ 17,492
656
$20,239
34,810
32,505
8,812
29,966
7,793
29,312
7,240
2,539
1,019
654
553
(1,661)
(28,057)
(145)
(17)
4,496
(28,209)
6,157
(152)
6,302
(135)
The Other items in the table above includes items that do not constitute a reportable segment and represent corporate-level activities and the
activities of other operations not included in Resort Ownership/Operation or Resort Third-Party Management/License segments. For the period
May 5, 2012 through December 31, 2012 Other EBITDA includes $1,200 for an asset impairment loss. In 2010 Resort Ownership/Operation EBITDA
includes $18,741 for an asset impairment loss.
For a reconciliation of consolidated EBITDA for each of the periods presented, see the table included in the “Non-GAAP Financial
Measures” section.
Liquidity and Capital Resources
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As of December 31, 2012, we had total indebtedness of $515,059, summarized as follows:
Mortgage Debt:
Traverse City/Kansas City mortgage loan
Pocono Mountains mortgage loan
Concord mortgage loan
First mortgage notes (net of discount of $8,046 as of
December 31, 2011)
Other Long-Term Debt:
Junior subordinated debentures
Other
Carrying Value
Successor
Predecessor
December 31,
December 31,
2012
2011
Principal
Amounts
Successor
December 31,
2012
$
$
62,215
93,114
49,158
258,293
60,984
0
523,764
(66,768)
$ 456,996
Less current portion of long-term debt
Total long-term debt
$
65,591
93,015
54,055
221,954
80,545
14
515,174
(67,678)
$ 447,496
63,845
91,692
48,977
230,000
80,545
0
515,059
(66,768)
$ 448,291
The carrying value amounts as of December 31, 2012, include net fair value adjustments recorded as part of purchase accounting that
increased the aggregate carrying value of debt as of the Merger date (see Note 3 to the Consolidated Financial Statements). We are amortizing
these adjustments as offsets to interest expense over the life of each loan, using the effective interest rate method. The unamortized fair value
adjustment as of December 31, 2012 was $8,705.
Traverse City/Kansas City Mortgage Loan – This non-recourse loan is secured by our Traverse City and Kansas City resorts. The loan
bears interest at a fixed rate of 6.96%, is subject to a 25-year principal amortization schedule, and matures in January 2015. The loan has customary
financial and operating debt compliance covenants. The loan also has customary restrictions on our ability to prepay the loan prior to maturity. We
were in compliance with all covenants under this loan at December 31, 2012.
While recourse under the loan is limited to the property owner’s interest in the mortgaged property, we have provided limited guarantees with
respect to certain customary non-recourse provisions and environmental indemnities relating to the loan.
The loan also contains limitations on our ability, without lender’s consent, to (i) make payments to our affiliates if a default exists; (ii) enter
into transactions with our affiliates; (iii) make loans or advances; or (iv) assume, guarantee or become liable in connection with any other
obligations.
The loan requires us to maintain a minimum debt service coverage ratio (DSCR) of 1.35, calculated on a quarterly basis. This ratio is defined as
the two collateral properties’ combined trailing twelve-month net operating income divided by the greater of (i) the loan’s twelve-month debt
service requirements and (ii) 8.5% of the amount of the outstanding principal indebtedness under the loan. Failure to meet the minimum DSCR is not
an event of default and does not accelerate the due date of the loan. Not meeting the minimum DSCR, however, subjects the two properties to a
lock-box cash management arrangement, at the discretion of the loan’s servicer. The loan also contains a similar lock-box requirement if we open
any Great Wolf Lodge or Blue Harbor Resort within 100 miles of either resort, and the two collateral properties’ combined trailing twelve-month net
operating income is not at least equal to 1.8 times 8.5% of the amount of the outstanding principal indebtedness under the loan. For the year ended
December 31, 2012, the DSCR was below 1.35.
In September 2010, the loan’s master servicer implemented a lock-box cash management arrangement. The lock-box cash management
arrangement requires substantially all cash receipts for the two resorts to be moved each day to a lender-controlled bank account, which the loan
servicer then uses to fund debt service and operating expenses for the two resorts on a monthly basis, with excess cash flow being deposited in a
reserve account and held as additional collateral for the loan. We believe that this arrangement constitutes a traditional lock-box arrangement as
discussed in authoritative accounting guidance. Based on that guidance, we have classified the entire outstanding principal balance of the loan as
a current liability as of December 31, 2012, since the lock-box arrangement requires us to use the properties’ working capital to service the
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loan, and we do not presently have the ability to refinance this loan to a new, long-term loan. Although the entire principal balance of the loan is
classified as a current liability as of December 31, 2012, the loan is not in default, and the principal balance is not due currently.
Given operating trends and performance at the properties during 2011 and 2012, we currently expect the properties to generate sufficient cash
flow so that our subsidization of debt service, if any, for 2013 will be insignificant to our overall operations. As a result, we currently believe the
most likely course of action for 2013 is to continue to operate these properties, assuming these trends continue.
Pocono Mountains Mortgage Loan – This loan is secured by a mortgage on our Pocono Mountains resort. The loan bears interest at a fixed
rate of 6.10% and matures in January 2017. The loan is currently subject to a 30-year principal amortization schedule. The loan has customary
covenants associated with an individual mortgaged property. The loan also has customary restrictions on our ability to prepay the loan prior to
maturity. We were in compliance with all covenants under this loan at December 31, 2012.
The loan requires us to maintain a minimum DSCR of 1.25, calculated on a quarterly basis. Subject to certain exceptions, the DSCR is
increased to 1.35 if we open up a waterpark resort within 75 miles of the property or incur mezzanine debt secured by the resort. This ratio is defined
as the property’s combined trailing twelve-month net operating income divided by the greater of (i) the loan’s twelve-month debt service
requirements and (ii) 7.25% of the amount of the outstanding principal indebtedness under the loan. Failure to meet the minimum DSCR is not an
event of default and does not accelerate the due date of the loan. Not meeting the minimum DSCR, however, subjects the property to a lock-box
cash management arrangement, at the discretion of the loan’s servicer. We believe that lock-box arrangement would require substantially all cash
receipts for the resort to be moved each day to a lender-controlled bank account, which the loan servicer would then use to fund debt service and
operating expenses for the resort, with excess cash flow being deposited in a reserve account and held as additional collateral for the loan. While
recourse under the loan is limited to the property owner’s interest in the mortgage property, we have provided limited guarantees with respect to
certain customary non-recourse provisions and environmental indemnities relating to the loan.
The loan also contains limitations on our ability, without lender’s consent, to (i) make payments to our affiliates if a default exists; (ii) enter
into transactions with our affiliates; (iii) make loans or advances; or (iv) assume, guarantee or become liable in connection with any other
obligations.
Concord Mortgage Loan – This loan is secured by a mortgage on our Concord resort. This loan bears interest at a floating rate of 30-day
LIBOR plus a spread of 500 basis points with a minimum rate of 6.00% per annum (effective rate of 6.00% at December 31, 2012). This loan requires
four quarterly principal payments of $125 each beginning October 1, 2011, and quarterly principal payments of $375 thereafter. The loan was
amended in March 2012 to extend the maturity to December 31, 2016.
As part of the loan agreement, if the Concord resort does not achieve certain financial performance thresholds the lender requires excess cash
from the Concord resort to be swept to the lender on a monthly basis. The lender will hold the excess cash until the end of each quarter and then
will either fund the cash back to us to cover any projected cash shortfalls at the property or if there are no shortfalls projected, use the excess cash
to repay the loan principal balance. The lender has a $14,500 loan principal guarantee from Great Wolf Resorts. This loan has customary financial
and operating debt compliance covenants associated with an individual mortgaged property. We were in compliance with all covenants under this
loan at December 31, 2012.
In connection with the refinancing of this loan in 2011 and the amendment of this loan in 2012, we were required to provide interest rate
protection on a portion of the loan amount through the loan’s maturity date. Therefore, we executed interest rate caps that cap the loan at an 8.00%
interest rate through December 2016. The interest rate caps were designated as ineffective cash flow hedges. We mark the interest rate caps to
market and record the change to interest expense.
First Mortgage Notes – In April 2010, we completed, in a private placement followed by a registered exchange offer, an offering of $230,000 in
aggregate principal amount of our 10.875% first mortgage notes (the Notes) due April 2017. The Notes were sold at a discount that provides an
effective yield of 11.875% before transaction costs. The proceeds of the Notes were used to retire the outstanding mortgage debt on our Mason,
Williamsburg, and Grapevine properties and for general
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corporate purposes. Prior to the Merger, we were amortizing the discount over the life of the Notes using the straight-line method, which
approximated the effective interest method. As part of the acquisition method of accounting done in conjunction with the Merger, the Notes were
recorded at fair value.
The Notes are senior obligations of GWR Operating Partnership, L.L.L.P. and Great Wolf Finance Corp (Issuers). The Notes are guaranteed
by Great Wolf Resorts and by our subsidiaries that own three of our resorts and those guarantees are secured by first priority mortgages on those
three resorts. The Notes are also guaranteed by certain of our other subsidiaries on a senior unsecured basis.
The Notes require that we satisfy certain tests in order to, among other things: (i) incur additional indebtedness; (ii) make distributions from
GWR Operating Partnership, L.L.L.P. to Great Wolf Resorts, Inc.; (iii) repurchase the equity interests in GWR Operating Partnership, L.L.L.P. or to
prepay the subordinated debt of GWR Operating Partnership, L.L.L.P. or its subsidiaries; (iv) make investments, (v) enter into affiliate transactions,
(vi) sell assets other than in the ordinary course of business or (vii) merge. We are currently restricted from these activities with certain carve-outs,
as provided in the indenture.
Junior Subordinated Debentures – In March 2005 we completed a private offering of $50,000 of trust preferred securities (TPS) through Great
Wolf Capital Trust I (Trust I), a Delaware statutory trust which is our subsidiary. The securities pay holders cumulative cash distributions at an
annual rate which is fixed at 7.80% through March 2015 and then floats at LIBOR plus a spread of 310 basis points thereafter. The securities mature
in March 2035 and are callable at no premium after March 2010. In addition, we invested $1,550 in Trust I’s common securities, representing 3% of
the total capitalization of Trust I.
Trust I used the proceeds of the offering and our investment to purchase from us $51,550 of junior subordinated debentures with payment
terms that mirror the distribution terms of the TPS. The indenture governing the debentures contains limitations on our ability, without the consent
of the holders of the debentures, to make payments to our affiliates or for our affiliates to make payments to us if a default exists. The costs of the
TPS offering totaled $1,600, including $1,500 of underwriting commissions and expenses and $100 of costs incurred directly by Trust I. Trust I paid
these costs utilizing an investment from us. These costs are being amortized over a 30-year period. The proceeds from our debentures sale, net of
the costs of the TPS offering and our investment in Trust I, were $48,400. We used the net proceeds to retire a construction loan.
In June 2007 we completed a private offering of $28,125 of TPS through Great Wolf Capital Trust III (Trust III), a Delaware statutory trust that
is our subsidiary. The securities pay holders cumulative cash distributions at an annual rate which is fixed at 7.90% through July 2012 and then
floats at LIBOR plus a spread of 300 basis points thereafter. The securities mature in July 2017 and are callable at no premium after June 2012. In
addition, we invested $870 in the Trust’s common securities, representing 3% of the total capitalization of Trust III.
Trust III used the proceeds of the offering and our investment to purchase from us $28,995 of junior subordinated debentures with payment
terms that mirror the distribution terms of the TPS of Trust III securities. The costs of the TPS offering totaled $932, including $870 of underwriting
commissions and expenses and $62 of costs incurred directly by Trust III. Trust III paid these costs utilizing an investment from us. The proceeds
from these debentures sales, net of the costs of the TPS offering and our investment in Trust III, were $27,193. We used the net proceeds for
development costs.
On March 12, 2012, in a privately-negotiated exchange with the holder of the TPS of Trust III, Great Wolf Capital Trust IV (Trust IV), a newlyformed Delaware statutory trust that is our subsidiary, issued $28,125 of new TPS in exchange for all $28,125 of TPS of Trust III. The new TPS pay
holders cumulative cash distributions at an annual rate fixed at 7.90% through July 31, 2012 and at a floating annual rate equal to LIBOR plus 550
basis points thereafter (effective rate of 5.81% at December 31, 2012). The new TPS mature on July 31, 2017 and are callable by the issuer at par after
July 31, 2012. In conjunction with this transaction, Trust IV issued to us 870 common securities, which are all of the issued and outstanding
common securities of Trust IV, with a liquidation amount of $870. In addition, in conjunction with this transaction, we issued to Trust IV $28,995 of
junior subordinated debentures with payment terms that mirror the distribution terms of the TPS of Trust IV. Following the exchange transaction,
the TPS of Trust III and the related junior subordinated debentures were cancelled.
Our consolidated financial statements present the debentures issued to the Trusts as other long-term debt. Our investments in the Trusts are
accounted as cost investments and are included in other assets on our consolidated balance sheets. For financial reporting purposes, we record
interest expense on the corresponding notes in our condensed consolidated statements of operations.
Future Maturities – Future principal maturities on long-term debt are as follows:
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Through
December 31,
2013
2014
2015
2016
2017
Thereafter
Total
$ 4,806
5,029
63,058
46,173
344,443
51,550
$515,059
As discussed above, the Traverse City/Kansas City mortgage loan is classified as a current liability as of December 31, 2012, due to the
implementation of a traditional lock-box arrangement, although the loan is not in default and the full principal balance of the loan is not due
currently. The future maturities table above reflects future cash principal repayments currently required under the provisions of that loan of $1,882
in 2013, $2,015 in 2014, and $59,948 in 2015.
Short-Term Liquidity Requirements
Our short-term liquidity requirements generally consist primarily of funds necessary to pay operating expenses for the next 12 months,
including:
•
recurring maintenance, repairs and other operating expenses necessary to properly maintain and operate our resorts;
•
recurring capital expenditures we make at our resorts;
•
debt maturities within the next year, potentially including a portion of debt maturities of our unconsolidated subsidiary;
•
property taxes and insurance expenses;
•
interest expense and scheduled principal payments on outstanding indebtedness;
•
general and administrative expenses; and
•
income taxes.
Historically, we have satisfied our short-term liquidity requirements through a combination of operating cash flows and cash on hand. We
believe that cash provided by our operations, together with cash on hand, will be sufficient to fund our short-term liquidity requirements for
working capital, capital expenditures and debt service for the next 12 months.
Long-Term Liquidity Requirements
Our long-term liquidity requirements generally consist primarily of funds necessary to pay for the following items for periods beyond the next
12 months:
•
scheduled debt maturities, potentially including a portion of debt maturities of our unconsolidated subsidiary;
•
costs associated with the development of new resorts;
•
renovations, expansions and other non-recurring capital expenditures that need to be made periodically to our resorts; and
•
capital contributions and loans to unconsolidated joint ventures.
We expect to meet these needs through a combination of:
•
existing working capital,
•
cash provided by operations,
•
proceeds from investing activities, and
•
proceeds from financing activities, including mortgage financing on properties being developed, additional or replacement borrowings
under future credit facilities, contributions from joint venture partners, and the issuance of equity instruments, including common stock,
or additional or replacement debt, including debt securities, as market conditions permit.
60
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We believe these sources of capital will be sufficient to provide for our long-term capital needs. We cannot be certain, however, that we will
have access to financing sufficient to meet our long-term liquidity requirements on terms that are favorable to us, or at all.
Other than debt maturities, our largest long-term liquidity requirements are expected to be for capital expenditures for our existing resorts,
capital expenditures for development of future resorts, and capital contribution or loans to existing joint ventures or joint ventures owning resorts
under construction or development. Expenditures related to capital expenditures for our existing resorts were $10,571 for the year ended
December 31, 2012.
Off Balance Sheet Arrangements
As of December 31, 2012, we have one unconsolidated joint venture arrangement with The Confederated Tribes of the Chehalis Reservation
with respect to the Great Wolf Lodge resort and conference center on a 39-acre land parcel in Grand Mound, Washington. This joint venture is a
limited liability company. We are a member of that limited liability company with a 49% ownership interest. We account for the joint venture using
the equity method of accounting. See Note 4 to the consolidated financial statements of the Company.
Contractual Obligations
The following table summarizes our contractual obligations as of December 31, 2012:
Payment Terms
Total
Less Than
1 Year
1-3 Years
3-5 Years
More Than
5 Years
Debt obligations(1)
Operating lease obligations
Reserve on unrecognized tax benefits(2)
$659,227
3,956
1,298
$ 39,931
1,013
—
$133,807
1,732
—
$433,939
1,211
—
$ 51,550
0
1,298
Total
$664,481
$ 40,944
$135,539
$435,150
$ 52,848
(1)
(2)
Amounts include interest (for fixed rate debt) and principal.
We have not identified the corresponding payment terms on the unrecognized tax benefits as we are unable to do so at this time.
If we develop future resorts where we are the majority owner, we expect to incur significant additional debt and construction contract
obligations.
Working Capital
We had $28,124 of available cash and cash equivalents and a working capital deficit of $61,054 (current assets less current liabilities) at
December 31, 2012, compared to the $33,767 of available cash and cash equivalents and a working capital deficit of $63,403 at December 31, 2011.
The primary reasons for the working capital deficit as of December 31, 2012 and December 31, 2011 is the classification of our Traverse City/Kansas
City mortgage loan (principal balance of $63,845 as of December 31, 2012) as a current liability due to the lender’s implementation of the traditional
lock-box arrangement for the two properties. Although the entire principal balance of the loan is classified as a current liability as of December 31,
2012, the loan is not in default, and the principal balance is not currently due.
Cash Flows
Comparison of Year Ended December 31, 2012 to Year Ended December 31, 2011
Year Ended December 31,
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
61
2012
2011
Increase/
(Decrease)
$ 19,356
(18,276)
(6,723)
$ 28,868
(5,013)
(27,076)
$ (9,512)
(13,263)
20,353
Table of Contents
Operating Activities. The decrease in net cash provided by operating activities resulted primarily from an increase in net loss and accounts
receivable and other assets, which is partially offset by an increase in accounts payable, accrued expenses and other liabilities during the year
ended December 31, 2012 as compared to the year ended December 31, 2011.
Investing Activities. The increase in net cash used in investing activities for the year ended December 31, 2012, as compared to the year
ended December 31, 2011, resulted primarily from the proceeds received from our sale of our Sheboygan resort during the year ended December 31,
2011 and an increase in restricted cash related to escrow activity, in the year ended December 31, 2012 as compared to the year ended December 31,
2011.
Financing Activities. The decrease in net cash used in financing activities resulted primarily from a decrease in principal payments on long
term debt as it relates to our Concord loan during the year ended December 31, 2012 as compared to the year ended December 31, 2011. This
decrease is also due to us receiving a capital contribution in connection with the Merger during the year ended December 31, 2012. No similar
capital contribution was received during the year ended December 31, 2011. These decreases are partially offset by an increase due to distributions
made to the noncontrolling investors relating to the CK acquisition. There was no similar distributions for the year ended December 31, 2011.
Comparison of Year Ended December 31, 2011 to Year Ended December 31, 2010
Year Ended December 31,
2011
2010
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
$
28,868
(5,013)
(27,076)
$ 29,112
(4,478)
(8,559)
Decrease
$
(244)
(535)
(18,517)
Operating Activities. The decrease in net cash provided by operating activities resulted primarily from an increase in accounts receivable and
other assets and a decrease in accounts payable, accrued expenses and other liabilities during the year ended December 31, 2011 as compared to
the year ended December 31, 2010.
Investing Activities. The increase in net cash used in investing activities for the year ended December 31, 2011, as compared to the year
ended December 31, 2010, resulted primarily from an increase in restricted cash, and partially offset by the proceeds received from our sale of our
Sheboygan resort.
Financing Activities. The increase in net cash used in financing activities resulted primarily from an increase in principal payments on longterm debt as it relates to our Concord loan during the year ended December 31, 2011 as compared to the year ended December 31, 2010.
Inflation
Our resort properties are able to change room and amenity rates on a daily basis, so the impact of higher inflation can often be passed along
to guests. However, a weak economic environment that decreases overall demand for our products and services could restrict our ability to raise
room and amenity rates to offset rising costs.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our future income, cash flows and fair values relevant to financial instruments are dependent, in part, upon prevailing market interest rates.
Market risk refers to the risk of loss from adverse changes in market prices and interest rates. Our earnings are also affected by the changes in
interest rates due to the impact those changes have on our interest income from cash and our interest expense from variable-rate debt instruments.
We may use derivative financial instruments to manage or hedge interest rate risks related to our borrowings. We do not intend to use derivatives
for trading or speculative purposes. All dollar amounts are in thousands.
As of December 31, 2012, the total carrying value of our indebtedness was $523,764, of which $515,059 is the principal amount due to third
parties. The carrying amounts as of December 31, 2012, include net fair value adjustments recorded as part of purchase accounting that increased
the aggregate carrying value of debt as of the Merger date. We are amortizing these adjustments as offsets to interest expense over the life of each
loan, using the effective interest rate method. Our indebtedness consisted of:
•
$62,215 of fixed rate debt secured by two of our resorts, of which $63,845 is the principal amount due to a third party. This debt bears
interest at a face rate of 6.96%. This loan matures in January 2015.
•
$93,114 of fixed rate debt secured by one of our resorts, of which $91,692 is the principal amount due to a third party. This debt bears
interest at a face rate of 6.10%. This loan matures in January 2017.
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•
$49,158 of variable rate debt secured by one of our resorts, of which $48,977 is the principal amount due to a third party. This debt bears
interest at a floating annual rate of LIBOR plus a spread of 500 basis points, with a minimum face rate of 6.00% per annum. The effective
face rate was 6.00% at December 31, 2012. This loan matures in December 2016.
•
$258,293 of Notes that are secured by first priority liens on three of our resorts, of which $230,000 is the principal amount due to third
parties. The Notes bear interest at a face rate of 10.875%. The Notes are due April 2017.
•
$35,393 of subordinated notes, of which $51,550 is the principal amount due to third parties. The notes bear interest at a fixed face rate
of 7.80% through March 2015 and then at a floating rate of LIBOR plus 310 basis points thereafter. The securities mature in March 2035.
•
$25,591 of subordinated notes, of which $28,995 is the principal amount due to third parties. The notes bear interest at a fixed face rate
of 7.90% through July 2012 and then at a floating rate of LIBOR plus 550 basis points thereafter. The effective rate was 5.81% at
December 31, 2012. The securities mature in July 2017.
As of December 31, 2012, we estimate the total fair value of the indebtedness described above to be approximately equal to their total carrying
values.
If LIBOR were to increase by 1% or 100 basis points, the increase in interest expense on our variable rate debt would decrease future earnings
and cash flows by approximately $290 annually, based on our debt balances outstanding and current interest rates in effect as of December 31,
2012. If LIBOR were to decrease by 1% or 100 basis points, the decrease in interest expense on our variable rate debt would be approximately $290
annually, based on our debt balances outstanding as of December 31, 2012.
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ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements are filed as part of this Annual Report on Form 10-K:
Page
No.
Consolidated Financial Statements of Great Wolf Resorts, Inc. and Subsidiaries:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2012 and 2011
Consolidated Statements of Operations for the periods January 1, 2012 through May 4, 2012 and May 5, 2012 through December 31, 2012
and the years ended December 31, 2011 and 2010
Consolidated Statements of Equity for the years ended December 31, 2012, 2011 and 2010
Consolidated Statements of Cash Flows for the periods January 1, 2012 through May 4, 2012 and May 5, 2012 through December 31, 2012
and the years ended December 31, 2011 and 2010
Notes to Consolidated Financial Statements
64
65
68
70
71
73
74
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Shareholder and Board of Directors of
Great Wolf Resorts, Inc.:
In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, equity, and cash flows
present fairly, in all material respects, the financial position of Great Wolf Resorts, Inc. and its subsidiaries (the Successor) at December 31, 2012,
and the results of its operations and its cash flows in the period beginning May 5, 2012 through December 31, 2012 in conformity with accounting
principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on our audits. We conducted our audit of these statements in
accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
March 28, 2013
65
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Shareholder and Board of Directors of
Great Wolf Resorts, Inc.:
In our opinion, the accompanying consolidated statements of operations, equity, and cash flows present fairly, in all material respects, the
results of operations and cash flows of Great Wolf Resorts, Inc. and its subsidiaries’ (the Predecessor) in the period beginning January 1, 2012
through May 4, 2012 in conformity with accounting principles generally accepted in the United States of America. These financial statements are
the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We
conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.
We also have audited the adjustments to revise the 2011 and 2010 consolidated financial statements to correct an error, as described in Note
18. In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit, review, or apply any
procedures to the 2011 and 2010consolidated financial statements of the Company other than with respect to the adjustments and, accordingly, we
do not express an opinion or any other form of assurance on the 2011 and 2010 consolidated financial statements taken as a whole.
/s/ PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
March 28, 2013
66
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Great Wolf Resorts, Inc.
We have audited, before the effects of the adjustments for the correction of the immaterial error described in Note 18, the consolidated balance
sheet of Great Wolf Resorts, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2011, and the related consolidated
statements of operations, changes in shareholders’ equity, and cash flows for each of the two years in the period ended December 31, 2011 (the
2011 consolidated financial statements before the effects of the adjustments discussed in Note 18 are not presented herein). These 2011
consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 2011 consolidated financial statements referred to above, which are before the effects of the adjustments for the correction of
the immaterial error described in Note 18, present fairly, in all material respects, the financial position of Great Wolf Resorts, Inc. and subsidiaries as
of December 31, 2011, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2011 in
conformity with accounting principles generally accepted in the United States of America.
We were not engaged to audit, review, or apply any procedures to the adjustments for the correction of the immaterial error described in Note 18,
and accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been
properly applied. Those adjustments were audited by other auditors.
/s/ GRANT THORNTON LLP
Milwaukee, Wisconsin
February 23, 2012
67
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GREAT WOLF RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
December 31,
2012
Successor
2011
(as revised)
Predecessor
$ 28,124
4,159
7,022
7,620
5,145
7,203
4,284
63,557
615,055
25,697
5,406
124,435
47,444
$881,594
$ 33,767
2,973
2,618
3,660
3,243
7,570
3,239
57,070
576,262
24,311
20,556
1,365
25,310
$ 704,874
$ 66,768
7,459
1,741
7,858
23,888
8,360
6,882
1,655
124,611
396,012
60,984
43,713
2,164
627,484
$ 67,678
5,301
27
8,012
24,211
7,715
7,051
478
120,473
366,951
80,545
11,907
1,502
581,378
ASSETS
Current assets:
Cash and cash equivalents
Restricted cash
Escrows
Accounts receivable, net of allowance for doubtful accounts of $0 and $5
Accounts receivable – affiliates
Inventory
Other current assets
Total current assets
Property and equipment, net
Investment in and advances to affiliates
Other assets
Goodwill
Intangible assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt
Accounts payable
Accounts payable – affiliates
Accrued interest payable
Accrued expenses
Advance deposits
Gift certificates payable
Other current liabilities
Total current liabilities
Mortgage debt
Other long-term debt
Deferred tax liability
Deferred compensation liability
Total liabilities
Commitments and contingencies
Great Wolf Resorts stockholders’ equity:
Common stock, $0.01 par value, 1,000 and 250,000,000 shares authorized at December 31, 2012 and
2011; 200 and 32,470,524 shares issued and outstanding at December 31, 2012 and 2011
Preferred stock, $0.01 par value, 0 and 10,000,000 shares authorized at December 31, 2012 and
2011; no shares issued or outstanding at December 31, 2011
Additional paid-in capital
Accumulated deficit
Deferred compensation
Total Great Wolf Resorts stockholders’ equity
Noncontrolling interest
68
—
—
267,112
(13,002)
—
254,110
—
325
—
404,714
(281,314)
(200)
123,525
(29)
Table of Contents
December 31,
Total equity
Total liabilities and stockholders’ equity
See accompanying notes to consolidated financial statements.
69
2012
2011
254,110
$881,594
123,496
$704,874
Table of Contents
GREAT WOLF RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands)
Revenues:
Rooms
Food and beverage
Other
Management and other fees
Management and other fees – affiliates
Successor
Period May 5, 2012
through December 31,
2012
Predecessor
Period January 1,
2012 through May 4,
2012
$
$
Other revenue from managed properties
Other revenue from managed properties – affiliates
Total revenues
Operating expenses by department:
Rooms
Food and beverage
Other
Other operating expenses:
Selling, general and administrative
Selling, general and administrative – affiliates
Property operating costs
Depreciation and amortization
Asset impairment loss
Loss on disposition of assets
Other expenses from managed properties
Other expenses from managed properties – affiliates
Total operating expenses
Net operating income (loss)
Investment income – affiliates
Interest income
Interest expense
Loss from continuing operations before income taxes and equity in
unconsolidated affiliates
Income tax expense
Equity in unconsolidated affiliates, net of tax
Net loss from continuing operations
Discontinued operations, net of tax
Net loss
Net income attributable to noncontrolling interest, net of tax
Net loss attributable to Great Wolf Resorts, Inc.
$
120,963
33,471
31,153
2,418
3,582
191,587
7,887
7,712
207,186
Year ended December 31,
2011
2010
(as revised)
(as revised)
63,793
17,273
15,920
1,398
1,414
99,798
4,193
3,901
107,892
$ 174,325
46,507
45,910
2,812
4,981
274,535
11,315
10,858
296,708
$ 158,985
44,434
43,229
2,646
4,594
253,888
11,083
10,989
275,960
18,039
24,931
26,329
9,458
12,946
13,450
25,069
35,492
37,463
23,106
33,172
33,934
51,930
193
23,365
31,422
1,200
182
177,591
7,887
7,712
193,190
13,996
(577)
(128)
26,126
42,205
0
11,347
16,469
0
47
105,922
4,193
3,901
114,016
(6,124)
(303)
(82)
16,016
64,332
0
35,373
53,723
0
1,513
252,965
11,315
10,858
275,138
21,570
(902)
(210)
47,902
65,075
0
33,004
58,318
18,741
19
265,369
11,083
10,989
287,441
(11,481)
(1,088)
(543)
45,540
(11,425)
(21,755)
(25,220)
(55,390)
1,062
607
(13,094)
(9)
(13,085)
(83)
(13,002)
269
(551)
(21,473)
23
(21,496)
(15)
(21,481)
1,132
13
(26,365)
(6,634)
(19,731)
(18)
$ (19,713)
785
648
(56,823)
509
(57,332)
(9)
$ (57,323)
$
See accompanying notes to consolidated financial statements.
70
Predecessor
Table of Contents
GREAT WOLF RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(dollars in thousands, except per share data)
Predecessor:
Balance, January 1, 2010, as revised
Issuance of equity shares under the stockbased compensation plan
Stock-based compensation
Net loss attributable to Great Wolf
Resorts, Inc., as revised
Balance, December 31, 2010, as revised
Issuance of equity shares under the stockbased compensation plan
Stock-based compensation
Other
Net loss, as revised
Balance, December 31, 2011, as revised
Issuance of equity shares under the stockbased compensation plan
Issuance of Top-Up shares
Stock-based compensation
Sale of common stock – deferred
compensation plan
Net loss
Balance, May 4, 2012
Successor:
Purchase accounting adjustments
Issuance of stock related to Merger
Stock-based compensation
Capital contributions
Purchase of noncontrolling interest
Net loss
Balance, December 31, 2012
Common
Shares
Common
Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Deferred
Compensation
Noncontrolling
Interest
31,278,889
$
313
$ 400,930
$ (204,278)
$
$
1,060,236
0
10
0
0
2,022
0
32,339,125
0
323
0
402,952
(57,323)
(261,601)
0
(200)
(9)
(9)
(57,332)
141,465
131,399
0
0
0
32,470,524
2
0
0
0
325
0
1,762
0
0
404,714
0
0
0
(19,713)
(281,314)
0
0
0
0
(200)
0
0
(2)
(18)
(29)
2
1,762
(2)
(19,731)
123,496
915,766
66,751,948
0
9
667
0
0
0
2,696
0
0
100,138,238
0
0
1,001
(100,138,238)
200
0
0
0
0
200
(1,001)
0
0
0
0
0
$
0
71
0
0
(200)
0
0
0
0
0
—
$ 196,765
0
0
0
0
0
Total
Equity
0
0
0
10
2,022
9
667
2,696
(200)
0
407,210
0
(21,481)
(302,795)
200
0
0
0
(15)
(44)
0
(21,496)
105,372
(407,210)
262,773
1,465
1,091
1,783
0
$ 267,112
302,795
0
0
0
0
(13,002)
$ (13,002)
0
0
0
0
0
0
0
44
0
0
0
83
(83)
0
(105,372)
262,773
1,465
1,091
1,866
(13,085)
$ 254,110
$
$
Table of Contents
See accompanying notes to consolidated financial statements.
72
Table of Contents
GREAT WOLF RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Successor
Operating activities:
Net loss
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization
Bad debt expense
Amortization of debt fair value
Asset impairment loss
Write off of development costs
Non-cash employee compensation and professional fees
expense
Loss on disposition of assets
Gain on disposition of property included in discontinued
operations
Equity in income (losses) of unconsolidated affiliates
Deferred tax expense (benefit)
Changes in operating assets and liabilities:
Accounts receivable and other assets
Accounts payable, accrued expenses and other liabilities
Net cash provided by operating activities
Investing activities:
Capital expenditures for property and equipment
Loan repayment from unconsolidated affiliate
Investment in unconsolidated affiliates
Investment in development
Proceeds from the sale of a discontinued operation
Proceeds from sale of assets
Cash acquired in acquisition of Creative Kingdoms, LLC
Purchase of minority interest
(Increase) decrease in restricted cash and escrows
Net cash used in investing activities
Financing activities:
Principal payments on long-term debt
Proceeds from issuance of long-term debt
Payment of loan costs
Capital contributions
Net cash used in financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental cash flow information:
Cash paid for interest, net of capitalized interest
Cash paid for income taxes, net of refunds
Non-cash items:
Construction in process accruals
Loan cost accruals
Conversion of note receivable and accrued interest to equity
investment
Transfer of fixed assets to inventory
Conversion of intangible assets to investment in affiliate
Investment in unconsolidated affiliate
Predecessor
Period May 5,
2012 through
December 31,
2012
Period
January 1,
2012 through
May 4,
2012
$
$
(13,085)
(21,496)
Year ended December 31,
2011
2010
(as revised)
(as revised)
$ (19,731)
$ (57,332)
31,422
132
(3,279)
1,200
4,749
16,469
26
0
0
0
53,823
29
0
0
0
58,467
226
0
18,741
0
1,518
182
3,348
47
2,252
1,513
2,664
18
0
663
462
0
(559)
73
(6,667)
13
208
0
639
(94)
(7,286)
1,000
17,678
103
3,667
1,678
(1,520)
(1,052)
28,868
(1,138)
6,921
29,112
(8,334)
0
(460)
(58)
0
0
0
(1,525)
(2,126)
(12,503)
(2,237)
0
0
(75)
0
3
0
0
(3,464)
(5,773)
(9,323)
807
0
(422)
4,200
2
0
0
(277)
(5,013)
(8,683)
1,715
0
(517)
0
19
324
0
2,664
(4,478)
$
(5,857)
0
(60)
1,091
(4,826)
349
27,775
28,124
$
(1,777)
0
(120)
0
(1,897)
(5,992)
33,767
27,775
(81,561)
56,000
(1,515)
0
(27,076)
(3,221)
36,988
$ 33,767
(217,110)
219,337
(10,786)
0
(8,559)
16,075
20,913
$ 36,988
$
$
24,549
488
$
$
20,499
211
$ 48,502
$
702
$
$
40,904
549
$
$
41
0
$
$
0
0
$
$
0
0
$
$
0
679
$
$
$
$
0
0
1,379
460
$
$
$
$
0
0
0
0
$
$
$
$
0
1,883
0
0
$
$
$
$
9,963
0
0
0
See accompanying notes to consolidated financial statements.
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GREAT WOLF RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
1. ORGANIZATION
The terms “Great Wolf Resorts,” “us,” “we” and “our” are used in this report to refer to Great Wolf Resorts, Inc.® and its consolidated
subsidiaries.
Business Summary
We are a family entertainment resort company that provides our guests with a high quality vacation at an affordable price. We are the largest
owner, licensor, operator and developer in North America of drive-to destination family resorts featuring indoor waterparks and other familyoriented entertainment activities. Each of our resorts features approximately 300 to 600 family suites, each of which sleeps from six to ten people and
includes a wet bar, microwave oven, refrigerator and dining and sitting area. We provide a full-service entertainment resort experience to our
primary target customer base: families with children ranging in ages from 2 to 12 years old that live within a convenient driving distance of our
resorts. Several of our resorts have significant meeting space or conference centers, allowing us to also attract groups in addition to our leisure
guests. Our resorts are open year-round and provide a consistent, comfortable environment where our guests can enjoy our various amenities and
activities. We operate and license resorts under our Great Wolf Lodge® brand name. We own and operate several of the resorts in our portfolio; we
have also entered into licensing and management arrangements with third parties relating to the operation of resorts under the Great Wolf Lodge
brand name.
We provide our guests with a self-contained vacation experience and focus on capturing a significant portion of their total vacation
spending. We earn revenues through the sale of rooms (which includes admission to our indoor waterpark), and other revenue-generating resort
amenities. Each of our resorts features a combination of the following revenue-generating amenities: themed restaurants, ice cream shop and
confectionery, full-service adult spa, kid spa, game arcade, gift shop, miniature golf, interactive game attraction, family tech center and meeting
space. We also generate revenues from licensing fees, management fees and other fees with respect to our operation or development of properties
owned in whole or in part by third parties.
On May 4, 2012, the Company merged (the Merger) with K-9 Acquisition, Inc., a Delaware corporation (Merger Sub) and subsidiary of a fund
managed by an affiliate of Apollo Global Management, LLC (together with its subsidiaries, Apollo), in the Merger (as discussed in Note 3 below).
Although the Company continued as the same legal entity after the Merger, the Company’s capital structure changed significantly as a result of the
Merger and our financial statement presentations distinguish between a “Predecessor” for periods prior to the Merger and a “Successor” for
periods subsequent to the Merger. The Merger was accounted for as a business combination using the acquisition method of accounting, and the
Successor financial statements reflect a new basis of accounting that is based on the fair value of assets acquired and liabilities assumed as of the
effective time of the Merger. We obtained the assistance of independent third parties in determining the fair value of certain tangible assets,
identifiable intangible assets, and liabilities. As a result of the application of the acquisition method of accounting as of the effective time of the
Merger, the financial statements for the Predecessor period and for the Successor period are presented on different bases and are, therefore, not
comparable.
In 2010, we acquired a 62.4% equity interest in Creative Kingdoms (CK). On December 28, 2012 we acquired the remaining 37.6% equity
interest in CK. The acquisition of the noncontrolling interest was accounted for as an equity transaction, therefore no gain or loss as a result of the
acquisition was recognized. Noncontrolling interest in the accumulated deficit of CK in the amount of $1,866 was reclassified to additional paid in
capital. CK is a developer of experiential gaming products including MagiQuest®, an interactive game attraction available at all of our resorts. CK
also owns or has sold to other parties several stand-alone MagiQuest facilities or similar attractions. The following table presents an overview of
our portfolio of resorts. As of December 31, 2012, we operated, managed and/or were party to licensing arrangements relating to the operation of 11
Great Wolf Lodge resorts (our signature Northwoods-themed resorts). We anticipate that most of our future resorts will be licensed and/or
developed under our Great Wolf Lodge brand, but we may operate and/or enter into licensing arrangements with other resorts using different
brands in appropriate markets.
On March 24, 2011, we sold our Blue Harbor Resort in Sheboygan, WI. We continue to license the Blue Harbor Resort and related trade
names to the buyer at no fee. As of March 24, 2011, we no longer operate this resort or manage the condominium units there.
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation – The accompanying consolidated financial statements include all of the accounts of Great Wolf Resorts and our
consolidated subsidiaries. All significant intercompany balances and transactions have been eliminated in the consolidated financial statements.
Reclassifications – Certain 2011 amounts have been reclassified to conform to the 2012 presentation.
•
On our consolidated balance sheets we have classified restricted cash on a separate line, it was previously included in other
current assets; and
•
On our consolidated balance sheets we have classified gift certificates payable on a separate line, it was previously included in
other current liabilities.
Cash and Cash Equivalents – Cash and cash equivalents consist of highly liquid investments with an original maturity of three months or
less when acquired. Cash is invested with federally insured institutions that are members of the FDIC. Cash balances with institutions may be in
excess of federally insured limits or may be invested in time deposits that are not insured by the institution, the FDIC or any other government
agency. Cash and cash equivalents does not include cash escrowed under loan agreements, cash that is held by a loan servicer under a lock-box
arrangement, or cash restricted in connection with deferred compensation payable.
Accounts Receivable – Accounts receivable primarily represents receivables from resort guests who occupy rooms and utilize resort
amenities. We provide an allowance for doubtful accounts when we determine that it is more likely than not a specific account will not be collected.
Bad debt expense for the period January 1, 2012 through May 4, 2012, the period May 5, 2012 through December 31, 2012, and the years ended
December 31, 2011, and 2010 was $26, $132, $29, and $226,
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respectively. Writeoffs of accounts receivable for the period January 1, 2012 through May 4, 2012, the period May 5, 2012 through December 31,
2012, and for the years ended December 31, 2011, and 2010 were $26, $127, $21, and $138, respectively.
Inventory – Inventories are comprised primarily of retail and food and beverage inventories and are recorded at the lower of cost or an
average cost basis or market.
Property and Equipment – Investments in property and equipment are recorded at cost. These assets are depreciated using the straight-line
method over their estimated useful lives as follows:
Buildings and improvements
Fixtures and equipment, including waterpark equipment
20-45 years
3-15 years
We periodically review the estimated useful lives we have assigned to our depreciable assets to determine whether those useful lives are
reasonable and appropriate.
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Improvements and replacements are capitalized when they extend the useful life, increase capacity or improve the efficiency of the asset.
Repairs and maintenance expenditures are expensed as incurred. Construction in process includes costs such as site work, permitting and
construction related to resorts under development. Interest is capitalized on construction in process balances during the construction period. We
had no capitalized interest for the years ended December 31, 2012 and 2011.
Loan Fees – Loan fees are capitalized and amortized over the term of the loan using a method that approximates the effective interest method.
Loan fees, net of accumulated amortization, were $31 and $10,305 as of December 31, 2012 and 2011, respectively. Amortization of loan fees was
$754, $29, $5,193, and $8,443 for the period January 1, 2012 through May 4, 2012, the period May 5, 2012 through December 31, 2012 and the years
ended December 31, 2011, and 2010, respectively. Included in loan fee amortization for the years ended December 31, 2011 and 2010 were
approximately $1,850, and $3,500, respectively, of loan fees that were written off due to repayments of related debt.
Acquisition Accounting – We follow acquisition accounting for all acquisitions that meet the business combination definition. Acquisition
accounting requires us to measure the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest at the acquisition-date
fair value. While we use our best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired
and liabilities assumed at the acquisition date, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement
period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed, with the
corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or
liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements of operation.
Partially-Owned Entities – In determining whether we had controlling interest in a partially-owned entity and the requirement to consolidate
the accounts of that entity, we consider factors such as ownership interest, board representation, management representation, authority to make
decisions, and contractual and substantive participating rights of the partners/members as well as whether the entity is a variable interest entity in
which we will absorb the majority of the entity’s expected losses, if they occur, or receive the majority of the expected residual returns, if they
occur, or both. We record profits and losses from our partially-owned entities according to the terms of the operating agreements.
Investments In and Advances to Unconsolidated Affiliates – We use the equity method to account for our investments in unconsolidated
joint ventures, as we do not have a controlling interest. Net income or loss is allocated between the partners in the joint ventures based on the
hypothetical liquidation at book value method (HLBV). Under the HLBV method, net income or loss is allocated between the partners based on the
difference between each partner’s claim on the net assets of the partnership at the end and beginning of the period, after taking into account
contributions and distributions. Each partner’s share of the net assets of the partnership is calculated as the amount that the partner would receive
if the partnership were to liquidate all of its assets at net book value and distribute the resulting cash to creditors and partners in accordance with
their respective priorities. Periodically we may make advances to our affiliates.
Intangibles – Our intangible assets consist of the value of our brand name, management contracts and patented and unpatented
technologies. A summary of our intangibles is as follows:
Brand name
Management contracts, net of amortization
Patented and unpatented technologies
Successor
December 31,
2012
Predecessor
December 31,
2011
$
$
$
39,600
7,844
0
47,444
$
23,829
0
1,481
25,310
The brand name intangible asset has an indefinite useful life. We do not amortize the brand name intangible, but instead test for possible
impairment at least annually or when circumstances warrant. We perform a qualitative assessment to determine if it is more likely than not that the
fair value of the asset is less than its carrying amount. If we believe, as a result of our qualitative assessment, that it is more likely than not that the
fair value of the asset is less than its carrying amount, the quantitative impairment test is required.
As a result of the Merger we recognized a $1,200 intangible asset for the MagiQuest brand name held by CK. During the three months ending
December 31, 2012, we determined that the carrying value of our MagiQuest brand name was impaired in light of the reduced estimated revenue for
CK. Because of the reduced revenue, we performed an impairment analysis of our MagiQuest brand name to determine if further assessment for
potential impairment
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was required. Based on this analysis, we determined the carrying value of our MagiQuest brand name intangible asset was not recoverable. As a
result, we recorded a $1,200 impairment charge for the period May 5, 2012 through December 31, 2012. The impairment charge is included in our
Other segment.
We amortize our management contract intangibles over the remaining life of the contracts, ranging from 4 years to 45 years.
Amortization expense of our intangibles was $67, $593, $194 and $281 for the periods January 1, 2012 through May 4, 2012 and May 5, 2012
through December 31, 2012 and the years ended December 31, 2011 and 2010, respectively.
The estimated amortization expense of other intangible assets for the next five years:
2013
2014
2015
2016
2017
$ 684
684
684
434
309
$2,793
In connection with our acquisition of the entire equity interests of CK in December 2012, CK contributed certain patented technologies to a
separate company in which it owns 25%.
Goodwill – The excess of the purchase price of entities that are considered to be purchases of businesses over the estimated fair value of
tangible and identifiable intangible assets acquired is recorded as goodwill. We are required to assess goodwill for impairment annually, or more
frequently if circumstances indicate impairment may have occurred. We perform a qualitative assessment to determine if it is more likely than not
that the fair value of a reporting unit is less than its carrying amount. If we believe, as a result of our qualitative assessment, that it is more likely
than not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further
impairment testing is required. The first step of the quantitative impairment test compares the carrying amount of the reporting unit to its estimated
fair value. If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired and the second
step of the impairment test is not necessary. To the extent that the carrying value of the reporting unit exceeds its estimated fair value, a second
step is performed, wherein the reporting unit’s carrying value of goodwill is compared to the implied fair value of goodwill. To the extent that the
carrying value exceeds the implied fair value, impairment exists and must be recognized. We determine our reporting units’ fair values using a
discounted cash flow model.
In connection with the acquisition of the majority interest CK in 2010, we recorded $1,365 of goodwill. In 2012 in connection with the Merger,
we recorded $124,435 of goodwill as part of purchase accounting.
Balance as of January 1, 2011 (Predecessor)
Goodwill recorded related to the acquisition of the majority interest in CK
Balance as of December 31, 2011 and May 4, 2012 (Predecessor)
Goodwill removed as a result of the Merger
Goodwill recorded related to the Merger
Balance as of December 31, 2012 (Successor)
$ 1,365
$ 1,365
(1,365)
124,435
$124,435
Impairment of Long-Lived Assets – When circumstances, such as adverse market conditions, indicate that the carrying value of a long-lived
asset may be impaired, we perform an analysis to review the recoverability of the asset’s carrying value. We make estimates of the undiscounted
cash flows (excluding interest charges) from the expected future operations of the asset. These estimates consider factors such as expected future
operating income, operating trends and prospects, as well as the effects of demand, competition and other factors. If the analysis indicates that the
carrying value is not recoverable from future cash flows, an impairment loss is recognized to the extent that the carrying value exceeds the
estimated fair value. Any impairment losses are recorded as operating expenses, which reduce net income.
During the year ended December 31, 2010, we recorded $18,741 of impairment charges related to our Traverse City and Kansas City resorts.
We determined the carrying values of these resorts were impaired in light of the reduced estimated hold periods for the resorts. Because of the
reduced estimated hold periods, we performed recoverability tests of these resorts to determine if further assessment for potential impairment was
required. Based on this analysis of undiscounted cash flows, we determined the carrying value of these resorts were not recoverable. As a result,
we recorded an $18,741 impairment charge to decrease the resorts’ carrying value to their estimated fair value (net of estimated disposal costs) as of
December 31, 2010. We estimated the properties’ fair values by using available market information for similar assets, as well as considering
estimated future cash flows, terminal values based on the projected cash flows and capitalization rates in the range of what is reported in industry
publications for operationally similar assets and other available market information. The cash flows considered in estimating the fair values were
discounted using market-based discounts generally used for operationally and geographically similar assets. The impairment charge is included in
our Resort Ownership/Operation segment.
Revenue Recognition – We earn revenues from our resort operations and management of resorts and other related services. We recognize
revenue from rooms, food and beverage, and other operating departments at the resorts and from
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product sales, admission fees and retail revenues from our subsidiary that is the developer of experiential gaming products, as earned at the time of
sale or rendering of service. Cash received in advance of the sale or rendering of services is recorded as advance deposits on the consolidated
balance sheets. We recognize resort management, license and other related fees as they are contractually earned. We recognize development and
construction management fees as earned under the completed contract method for projects with a short duration, and the percentage of completion
method (based on contract-to-date services performed or costs incurred compared to services performed or total expected costs) for longer-term
projects.
Other Revenue and Other Expenses From Managed Properties – We employ the staff at our managed properties. Under our management
agreements, the resort owners reimburse us for payroll, benefits and certain other costs related to the staff we employ at the managed properties.
The reimbursement of payroll, benefits and costs is recorded as “other revenue from managed properties” on our statements of operations, with a
corresponding expense recorded as “other expenses from managed properties.”
Noncontrolling Interests – We record the non-owned equity interests of our consolidated subsidiaries as a separate component of our
consolidated equity on our consolidated balance sheet. The net earnings attributable to the controlling and noncontrolling interests are included
on the face of our statement of operations. CK was a consolidated subsidiary with a noncontrolling interest through December 28, 2012, at which
time we purchased the noncontrolling interest.
Income Taxes – We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax
assets and liabilities are determined based on the differences between the financial statement and tax basis of assets and liabilities using enacted
tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and
liabilities is recognized in income in the period that includes the enactment date.
Significant management judgment is required in determining our provision or benefit for income taxes, our deferred tax assets and liabilities,
and any valuation allowance recorded against our net deferred tax assets. We record net deferred tax assets (primarily resulting from net operating
loss carryforwards) to the extent we believe these assets will more likely than not be realized. In making such determination, we consider all
available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income (that could result
from a sale of one or more of our resorts where there is a sales price in excess of tax basis), tax planning strategies and recent financial operations.
In the event we were to determine that we would not be able to realize our deferred tax assets, we would establish a valuation allowance, which
would increase the provision for income taxes. Conversely, in the event we were to determine that we would be able to realize our deferred income
tax assets in the future in excess of their net recorded amount, we would make an adjustment to the valuation allowance which would reduce the
provision for income taxes.
As of December 31, 2012 and 2011, we recorded valuation allowances of $72,979 and $67,321, respectively, due to uncertainties related to our
ability to utilize some of our deferred tax assets, primarily consisting of certain net operating loss carryforwards, before they expire. The valuation
allowance we recorded is based on our estimates of taxable income solely from the reversal of existing deferred tax liabilities and the period over
which deferred tax assets reverse. In the event that actual results differ from these estimates or we adjust these estimates in a future period, we may
need to increase or decrease our valuation allowance, which could materially impact our consolidated statement of operations.
A tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon
examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Income tax positions must meet a
more-likely-than-not recognition.
We and our subsidiaries file income tax returns in the U.S. federal jurisdiction, and various states and Canada. All of the tax years since the
date of our initial public offering (IPO) in 2004 are open in all jurisdictions. Our policy is to recognize interest related to unrecognized tax benefits as
interest expense and penalties as income tax expense. We believe that we have appropriate support for the income tax positions taken and to be
taken on our tax returns and that our accruals for tax liabilities are adequate for all open years based on an assessment of many factors including
interpretations of tax law applied to the facts of each matter.
Derivatives – Derivative instruments are recorded on the balance sheet as either an asset or liability measured at fair value. If the derivative is
designated as a fair value hedge, the changes in the fair value of the derivative are recognized in earnings. To the extent the hedge is effective;
there is an offsetting adjustment to the basis of the item hedged. If the derivative is designated as a cash flow hedge, the effective portions of the
changes in fair value or the derivative are recorded as a component of accumulated other comprehensive loss and recognized in the consolidated
statements of operations when the hedged item affects earnings. Ineffective portions of changes in the fair value of hedges are recognized in
earnings. Our policy is to execute derivative financial instruments with creditworthy banks and not to enter into such instruments for speculative
purposes.
Share-based compensation – We account for share-based compensation based on the fair value of the award at the date of grant over the
requisite service period. Grant price of restricted stock is authorized by our board of directors based on the calculated fair value as determined via a
third party valuation.
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Advertising – Advertising costs are expensed as incurred. Advertising expense for the period January 1, 2012 through May 4, 2012, the
period May 5, 2012 through December 31, 2012 and the years ended December 31, 2011, and 2010 was $5,081, $11,587, $16,885, and $17,982,
respectively.
Use of Estimates – To prepare financial statements in conformity with accounting principles generally accepted in the United States of
America, we must make estimates and assumptions. These estimates and assumptions affect the reported amounts in the financial statements, and
the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
New Accounting Pronouncements – In July 2012, the FASB issued guidance on testing indefinite-lived intangible assets, other than
goodwill, for impairment. An entity testing an indefinite-lived intangible asset for impairment has the option of performing a qualitative assessment
before calculating the fair value of the asset. If an entity believes, as a result of its qualitative assessment, that it is more likely than not that the fair
value of a the asset is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further impairment testing is
required. The guidance is effective for annual and interim indefinite-lived intangible assets impairment tests performed for fiscal years beginning
after September 15, 2012. The adoption of this guidance did not have a material impact on our consolidated financial statements.
3. PURCHASE ACCOUNTING IN CONNECTION WITH THE MERGER
On March 12, 2012, we entered into an Agreement and Plan of Merger (as amended, the Merger Agreement) with K-9 Holdings, Inc., a
Delaware corporation (K-9), and Merger Sub, a direct wholly-owned subsidiary of K-9. Pursuant to the terms of the Merger Agreement, among
other things, K9 and Merger Sub agreed to make a tender offer (the Offer) for all of the outstanding shares (each, a Share) of common stock
(including restricted shares), par value $0.01 per share, of the Company (the Common Stock) at a price of $7.85 per share, net to the seller in cash,
without interest (the Offer Price). Approximately 76% of the outstanding Shares were tendered in the Offer and the Company accepted all such
tendered Shares for payment.
Following the expiration of the Offer, on May 4, 2012, Merger Sub exercised its option under the Merger Agreement to purchase a number of
shares of Common Stock necessary for Merger Sub to own one share more than 90% of the outstanding Shares of Common Stock (the Top-Up
Shares) at the Offer Price.
On May 4, 2012, following Merger Sub’s purchase of the Top-Up Shares, K-9 completed its acquisition of the Company through the merger of
Merger Sub with and into the Company, with the Company continuing as the surviving corporation in the merger and becoming a direct whollyowned subsidiary of K-9 (the Merger).
At the effective time of the Merger, each share of Common Stock issued and outstanding immediately prior thereto (other than Common Stock
owned or held (i) in treasury by the Company or any wholly-owned subsidiary of the Company, (ii) by K-9 or any of its subsidiaries (including the
Top-Up Shares), or (iii) by stockholders who have validly exercised their appraisal rights), was canceled and converted into the right to receive the
Offer Price in cash, without interest and subject to applicable withholding tax. At the Merger date, the authorized shares of common stock were
reduced from 250,000,000 to 1,000 and the authorized preferred stock was eliminated.
The total cost to acquire all outstanding Shares pursuant to the Offer and the Merger was approximately $263,000. The source of the funds for
the acquisition of the Company was provided by committed equity capital contributed by certain equity funds managed by Apollo Management
VII, L.P.
The Merger was accounted for as a business combination using the acquisition method of accounting, whereby the purchase price was
allocated to tangible and intangible assets acquired and liabilities assumed, based on their estimated fair market values. Fair value measurements
have been applied based on assumptions that market participants would use in the pricing of the assets or liabilities. The purchase price allocation
could change in subsequent periods, up to one year from the Merger date. Any subsequent changes to the purchase price allocation that result in
material changes to our consolidated financial statements will be adjusted retroactively.
We applied the acquisition method of accounting in connection with the Merger. In conjunction with purchase accounting we:
•
Recorded property and equipment, other assets, debt and non-controlling interest at their preliminarily estimated fair values;
•
Recorded a deferred tax liability resulting from the difference between the preliminarily estimated fair values and the tax bases of assets. We
recorded this liability at our anticipated effective tax rate of 40%; and
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•
Recorded as goodwill the excess of consideration in the purchase transaction over the estimated fair value of net tangible and intangible
assets.
Purchase of Great Wolf Resorts, Inc. common equity
Less: Historical book value of Great Wolf Resorts, Inc. net assets acquired
Excess of purchase price over historical book value of net assets acquired
Allocated to:
Goodwill
Property, plant and equipment
Intangible assets
Investments in and advances to affiliates
Other assets
Debt
Non-controlling interest
Net deferred tax liabilities
Total Adjustments
$262,773
105,414
$157,359
$124,435
74,776
24,231
219
(9,801)
(19,502)
(4,932)
(32,067)
$157,359
As a result of the Merger, we had $124,435 of goodwill at May 4, 2012, all of which related to the application of purchase accounting in
conjunction with the Merger. Some of the values and amounts used in the initial application of purchase accounting for our consolidated balance
sheet were based on estimates and assumptions. We do not expect any of the goodwill amounts recorded in conjunction with the Merger to be
deductible for tax purposes.
During the fourth quarter of fiscal 2012, we finalized our purchase accounting for the Merger. As part of this finalization we completed our
detailed analysis of the valuation of the acquired deferred tax assets and determined that because the useful lives of some of the property and
equipment we acquired will extend beyond the carryforward period for the net operating losses we acquired, we required an additional valuation
allowance to reduce the net value of our deferred tax assets. As such, we made a measurement period adjustment to the fair value of the acquired
assets and assumed liabilities during the fourth quarter of 2012. The fair values presented above reflect these changes, which are primarily
comprised of a reduction in the value of the net assets acquired due to the recognition of additional valuation allowance on our deferred tax assets
(included within the Net Deferred Tax Liabilities line item above) and an increase in the goodwill acquired in the merger of $26,938.
The following table presents the unaudited pro forma results as if the Merger had occurred as of January 1, 2011:
Year ended
ended December 31,
2012
2011
Revenues
Net income (loss) from continuing operations
Net income (loss) attributable to Great Wolf Resorts, Inc.
$315,078
(12,352)
(13,655)
$296,708
(11,860)
(6,353)
4. INVESTMENT IN AFFILIATES
Our unconsolidated joint venture with The Confederated Tribes of the Chehalis Reservation owns the Great Wolf Lodge resort and
conference center on a 39-acre land parcel in Grand Mound, Washington. This joint venture is a limited liability company. We are a member of that
limited liability company with a 49% ownership interest. The joint venture does not currently meet the significant subsidiary test threshold of SEC
Regulation S-X Rule 3-09, Separate financial statements of subsidiaries not consolidated and 50 percent or less owned persons. Accordingly,
Summarized financial information for the joint venture is not required to be presented.
At December 31, 2012, the joint venture had aggregate outstanding indebtedness to third parties of $93,768. Neither joint venture partner
guarantees the third party debt in the years presented. As of December 31, 2012, we have made combined loan and equity contributions, net of loan
repayments, of $27,179 to the joint venture to fund a portion of construction costs of the resort. There were no capital contributions made to the
joint venture for the years ended December 31, 2012 and 2011. The loan we had extended to the joint venture was fully repaid in 2011.
We had receivables from the joint venture of $5,145 and $3,243 as of December 31, 2012 and 2011, respectively, that relates primarily to
accrued preferred equity returns and management fees. We had payables to the joint venture of $1,741 and $27 as of December 31, 2012 and 2011,
respectively. The amount of investment income and management fee income recorded by us is included in the Investment income – affiliates and
Management and other fees – affiliates line items, respectively, on our consolidated statements of operations.
5. VARIABLE INTEREST ENTITIES
A legal entity is referred to as a variable interest entity if, by design (1) the total equity investment at risk is not sufficient to permit the legal
entity to finance its activities without additional subordinated financial support from other parties, or (2) the entity has equity investors that cannot
make significant decisions about the entity’s operations through voting rights, or do not have the obligation to absorb the expected losses, or do
not have the right to receive the residual returns of the entity. A variable interest entity must be consolidated if it is determined that we have both
the (1) power to
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direct the activities of the variable interest entity that most significantly impact the entity’s economic performance and (2) obligation to absorb
losses or the right to receive benefits of the variable interest entity that could potentially be significant to the variable interest entity.
In accordance with the guidance for the consolidation of variable interest entities, we analyze our variable interests, including equity
investments and management agreements, to determine if an entity in which we have a variable interest is a variable interest entity and whether we
must consolidate that variable interest entity. Our analysis includes both quantitative and qualitative reviews. We base our quantitative analysis on
the forecasted cash flows of the entity, and our qualitative analysis on a consideration of all facts and circumstances including, but not limited to,
our role in establishing the variable interest entity, our ongoing rights and responsibilities, the organization structure, and relevant financial and
other agreements.
We have equity investments in the joint venture that owns the Great Wolf Lodge resort in Grand Mound, Washington as described in Note 4.
We manage that resort and we have concluded that the joint venture is a variable interest entity due to the management contract that provides us
with certain rights. However, we have concluded that we are not the primary beneficiary because the majority equity owner has substantive
participating rights over the activities that most significantly impact the economic performance of the joint venture. As a result, we have concluded
that power is shared between us and the other equity investor. As we share power with the majority equity owner, we are not the primary
beneficiary of the joint venture and, therefore, we do not consolidate this entity. We have not provided any support to this entity that we were not
contractually obligated to provide as of December 31, 2012 and 2011. Our maximum exposure to loss related to our involvement with this entity as of
December 31, 2012 and 2011 is limited to the carrying value of our equity investments in the joint venture and receivables as of that date. Our
exposure is limited because of the non-recourse nature of the borrowings of the joint venture. The total carrying values of those items on our
balance sheet as of December 31, 2012 and 2011 is $29,570 and $27,554, respectively, and are included in the Accounts receivable – affiliates and
Investments in and advances to affiliates line items on our consolidated balance sheet.
6. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
December 31,
2012
2011
Successor
Predecessor
Land and improvements
Building and improvements
Furniture, fixtures and equipment
Construction in process
$ 54,720
383,435
207,203
434
645,792
(30,737)
$615,055
Less accumulated depreciation
Property and equipment, net
$ 57,665
417,385
344,825
142
820,017
(243,755)
$ 576,262
The above amounts as of December 31, 2012, include net fair value adjustments recorded as part of purchase accounting that increased the
aggregate carrying value of property and equipment as of the Merger date (see Note 3).
Depreciation expense from continuing operations was $15,623, $30,753, $48,254, and $49,449 for the periods January 1, 2012 through May 4,
2012 and May 5, 2012 through December 31, 2012 and the years ended December 31, 2011 and 2010, respectively.
7. LONG-TERM DEBT
Long-term debt consists of the following:
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Mortgage Debt:
Traverse City/Kansas City mortgage loan
Pocono Mountains mortgage loan
Concord mortgage loan
First mortgage notes (net of discount of $8,046 as of
December 31, 2011)
Other Long-Term Debt:
Junior subordinated debentures
Other
Carrying Value
Successor
Predecessor
December 31,
December 31,
2012
2011
Principal
Amounts
Successor
December 31,
2012
$
$
62,215
93,114
49,158
258,293
60,984
0
523,764
(66,768)
$ 456,996
Less current portion of long-term debt
Total long-term debt
$
65,591
93,015
54,055
221,954
80,545
14
515,174
(67,678)
$ 447,496
63,845
91,692
48,977
230,000
80,545
0
515,059
(66,768)
$ 448,291
The carrying value amounts as of December 31, 2012, include net fair value adjustments recorded as part of purchase accounting that
increased the aggregate carrying value of debt as of the Merger date (see Note 3). We are amortizing these adjustments as offsets to interest
expense over the life of each loan, using the effective interest rate method. The unamortized fair value adjustment as of December 31, 2012 was
$8,705.
Traverse City/Kansas City Mortgage Loan – This non-recourse loan is secured by our Traverse City and Kansas City resorts. The loan
bears interest at a fixed rate of 6.96%, is subject to a 25-year principal amortization schedule, and matures in January 2015. The loan has customary
financial and operating debt compliance covenants. The loan also has customary restrictions on our ability to prepay the loan prior to maturity. We
were in compliance with all covenants under this loan at December 31, 2012. While recourse under the loan is limited to the property owner’s
interest in the mortgaged property, we have provided limited guarantees with respect to certain customary non-recourse provisions and
environmental indemnities relating to the loan.
The loan also contains limitations on our ability, without lender’s consent, to (i) make payments to our affiliates if a default exists; (ii) enter
into transactions with our affiliates; (iii) make loans or advances; or (iv) assume, guarantee or become liable in connection with any other
obligations.
The loan requires us to maintain a minimum debt service coverage ratio (DSCR) of 1.35, calculated on a quarterly basis. This ratio is defined as
the two collateral properties’ combined trailing twelve-month net operating income divided by the greater of (i) the loan’s twelve-month debt
service requirements and (ii) 8.5% of the amount of the outstanding principal indebtedness under the loan. Failure to meet the minimum DSCR is not
an event of default and does not accelerate the due date of the loan. Not meeting the minimum DSCR, however, subjects the two properties to a
lock-box cash management arrangement, at the discretion of the loan’s servicer. The loan also contains a similar lock-box requirement if we open
any Great Wolf Lodge or Blue Harbor Resort within 100 miles of either resort, and the two collateral properties’ combined trailing twelve-month net
operating income is not at least equal to 1.8 times 8.5% of the amount of the outstanding principal indebtedness under the loan. For the year ended
December 31, 2012, the DSCR was below 1.35.
In September 2010, the loan’s master servicer implemented a lock-box cash management arrangement. The lock-box cash management
arrangement requires substantially all cash receipts for the two resorts to be moved each day to a lender-controlled bank account, which the loan
servicer then uses to fund debt service and operating expenses for the two resorts on a monthly basis, with excess cash flow being deposited in a
reserve account and held as additional collateral for the loan. We believe that this arrangement constitutes a traditional lock-box arrangement as
discussed in authoritative accounting guidance. Based on that guidance, we have classified the entire outstanding principal balance of the loan as
a current liability as of December 31, 2012, since the lock-box arrangement requires us to use the properties’ working capital to service the loan, and
we do not presently have the ability to refinance this loan to a new, long-term loan. Although the entire principal balance of the loan is classified as
a current liability as of December 31, 2012, the loan is not in default, and the principal balance is not due currently.
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Given operating trends and performance at the properties during 2011 and 2012, we currently expect the properties to generate sufficient cash
flow so that our subsidization of debt service, if any, for 2013 will be insignificant to our overall operations. As a result, we currently believe the
most likely course of action for 2013 is to continue to operate these properties, assuming these trends continue.
Pocono Mountains Mortgage Loan – This loan is secured by a mortgage on our Pocono Mountains resort. The loan bears interest at a fixed
rate of 6.10% and matures in January 2017. The loan is currently subject to a 30-year principal amortization schedule. The loan has customary
covenants associated with an individual mortgaged property. The loan also has customary restrictions on our ability to prepay the loan prior to
maturity. We were in compliance with all covenants under this loan at December 31, 2012.
The loan requires us to maintain a minimum DSCR of 1.25, calculated on a quarterly basis. Subject to certain exceptions, the DSCR is
increased to 1.35 if we open up a waterpark resort within 75 miles of the property or incur mezzanine debt secured by the resort. This ratio is defined
as the property’s combined trailing twelve-month net operating income divided by the greater of (i) the loan’s twelve-month debt service
requirements and (ii) 7.25% of the amount of the outstanding principal indebtedness under the loan. Failure to meet the minimum DSCR is not an
event of default and does not accelerate the due date of the loan. Not meeting the minimum DSCR, however, subjects the property to a lock-box
cash management arrangement, at the discretion of the loan’s servicer. We believe that lock-box arrangement would require substantially all cash
receipts for the resort to be moved each day to a lender-controlled bank account, which the loan servicer would then use to fund debt service and
operating expenses for the resort, with excess cash flow being deposited in a reserve account and held as additional collateral for the loan. While
recourse under the loan is limited to the property owner’s interest in the mortgage property, we have provided limited guarantees with respect to
certain customary non-recourse provisions and environmental indemnities relating to the loan.
The loan also contains limitations on our ability, without lender’s consent, to (i) make payments to our affiliates if a default exists; (ii) enter
into transactions with our affiliates; (iii) make loans or advances; or (iv) assume, guarantee or become liable in connection with any other
obligations.
Concord Mortgage Loan – This loan is secured by a mortgage on our Concord resort. This loan bears interest at a floating rate of 30-day
LIBOR plus a spread of 500 basis points with a minimum rate of 6.00% per annum (effective rate of 6.00% at December 31, 2012). This loan requires
four quarterly principal payments of $125 each beginning October 1, 2011, and quarterly principal payments of $375 thereafter. The loan was
amended in March 2012 to extend the maturity to December 31, 2016.
As part of the loan agreement, if the Concord resort does not achieve certain financial performance thresholds the lender requires excess cash
from the Concord resort to be swept to the lender on a monthly basis. The lender will hold the excess cash until the end of each quarter and then
will either fund the cash back to us to cover any projected cash shortfalls at the property or if there are no shortfalls projected, use the excess cash
to repay the loan principal balance. The lender has a $14,500 loan principal guarantee from Great Wolf Resorts. This loan has customary financial
and operating debt compliance covenants associated with an individual mortgaged property. We were in compliance with all covenants under this
loan at December 31, 2012.
In connection with the refinancing of this loan in 2011 and the amendment of this loan in 2012, we were required to provide interest rate
protection on a portion of the loan amount through the loan’s maturity date. Therefore, we executed interest rate caps that cap the loan at an 8.00%
interest rate through December 2016. The interest rate caps were designated as ineffective cash flow hedges. We mark the interest rate caps to
market and record the change to interest expense.
First Mortgage Notes – In April 2010, we completed, in a private placement followed by a registered exchange offer, an offering of $230,000 in
aggregate principal amount of our 10.875% first mortgage notes (the Notes) due April 2017. The Notes were sold at a discount that provides an
effective yield of 11.875% before transaction costs. The proceeds of the Notes were used to retire the outstanding mortgage debt on our Mason,
Williamsburg, and Grapevine properties and for general corporate purposes. Prior to the Merger, we were amortizing the discount over the life of
the Notes using the straight-line method, which approximated the effective interest method. As part of the acquisition method of accounting done
in conjunction with the Merger, the Notes were recorded at fair value.
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The Notes are senior obligations of GWR Operating Partnership, L.L.L.P. and Great Wolf Finance Corp (Issuers). The Notes are guaranteed
by Great Wolf Resorts and by our subsidiaries that own three of our resorts and those guarantees are secured by first priority mortgages on those
three resorts. The Notes are also guaranteed by certain of our other subsidiaries on a senior unsecured basis.
The Notes require that we satisfy certain tests in order to, among other things: (i) incur additional indebtedness; (ii) make distributions from
GWR Operating Partnership, L.L.L.P. to Great Wolf Resorts, Inc.; (iii) repurchase the equity interests in GWR Operating Partnership, L.L.L.P. or to
prepay the subordinated debt of GWR Operating Partnership, L.L.L.P. or its subsidiaries; (iv) make investments, (v) enter into affiliate transactions,
(vi) sell assets other than in the ordinary course of business or (vii) merge. We are currently restricted from these activities with certain carve-outs,
as provided in the indenture.
Junior Subordinated Debentures – In March 2005 we completed a private offering of $50,000 of trust preferred securities (TPS) through Great
Wolf Capital Trust I (Trust I), a Delaware statutory trust which is our subsidiary. The securities pay holders cumulative cash distributions at an
annual rate which is fixed at 7.80% through March 2015 and then floats at LIBOR plus a spread of 310 basis points thereafter. The securities mature
in March 2035 and are callable at no premium after March 2010. In addition, we invested $1,550 in Trust I’s common securities, representing 3% of
the total capitalization of Trust I.
Trust I used the proceeds of the offering and our investment to purchase from us $51,550 of junior subordinated debentures with payment
terms that mirror the distribution terms of the TPS. The indenture governing the debentures contains limitations on our ability, without the consent
of the holders of the debentures, to make payments to our affiliates or for our affiliates to make payments to us if a default exists. The costs of the
TPS offering totaled $1,600, including $1,500 of underwriting commissions and expenses and $100 of costs incurred directly by Trust I. Trust I paid
these costs utilizing an investment from us. These costs are being amortized over a 30-year period. The proceeds from our debentures sale, net of
the costs of the TPS offering and our investment in Trust I, were $48,400. We used the net proceeds to retire a construction loan.
In June 2007 we completed a private offering of $28,125 of TPS through Great Wolf Capital Trust III (Trust III), a Delaware statutory trust that
is our subsidiary. The securities pay holders cumulative cash distributions at an annual rate which is fixed at 7.90% through July 2012 and then
floats at LIBOR plus a spread of 300 basis points thereafter. The securities mature in July 2017 and are callable at no premium after June 2012. In
addition, we invested $870 in the Trust’s common securities, representing 3% of the total capitalization of Trust III.
Trust III used the proceeds of the offering and our investment to purchase from us $28,995 of junior subordinated debentures with payment
terms that mirror the distribution terms of the TPS of Trust III securities. The costs of the TPS offering totaled $932, including $870 of underwriting
commissions and expenses and $62 of costs incurred directly by Trust III. Trust III paid these costs utilizing an investment from us. The proceeds
from these debentures sales, net of the costs of the TPS offering and our investment in Trust III, were $27,193. We used the net proceeds for
development costs.
On March 12, 2012, in a privately-negotiated exchange with the holder of the TPS of Trust III, Great Wolf Capital Trust IV (Trust IV), a newlyformed Delaware statutory trust that is our subsidiary, issued $28,125 of new TPS in exchange for all $28,125 of TPS of Trust III. The new TPS pay
holders cumulative cash distributions at an annual rate fixed at 7.90% through July 31, 2012 and at a floating annual rate equal to LIBOR plus 550
basis points thereafter (effective rate of 5.81% at December 31, 2012). The new TPS mature on July 31, 2017 and are callable by the issuer at par after
July 31, 2012. In conjunction with this transaction, Trust IV issued to us 870 common securities, which are all of the issued and outstanding
common securities of Trust IV, with a liquidation amount of $870. In addition, in conjunction with this transaction, we issued to Trust IV $28,995 of
junior subordinated debentures with payment terms that mirror the distribution terms of the TPS of Trust IV. Following the exchange transaction,
the TPS of Trust III and the related junior subordinated debentures were cancelled.
Our consolidated financial statements present the debentures issued to the Trusts as other long-term debt. Our investments in the Trusts are
accounted as cost investments and are included in other assets on our consolidated balance sheets. For financial reporting purposes, we record
interest expense on the corresponding notes in our condensed consolidated statements of operations.
Future Maturities – Future principal maturities on long-term debt are as follows:
Through
December 31,
2013
2014
2015
$ 4,806
5,029
63,058
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Through
December 31,
2016
2017
Thereafter
Total
46,173
344,443
51,550
$515,059
As discussed above, the Traverse City/Kansas City mortgage loan is classified as a current liability as of December 31, 2012, due to the
implementation of a traditional lock-box arrangement, although the loan is not in default and the full principal balance of the loan is not due
currently. The future maturities table above reflects future cash principal repayments currently required under the provisions of that loan of $1,882
in 2013, $2,015 in 2014, and $59,948 in 2015.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date (an exit price). United States Generally Accepted Accounting Principles (GAAP) outlines a valuation
framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related
disclosures. Certain assets and liabilities must be measured at fair value, and disclosures are required for items measured at fair value.
We measure our financial instruments using inputs from the following three levels of the fair value hierarchy. The three levels are as follows:
•
Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access at the
measurement date.
•
Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or
liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (that is, interest
rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other
means (market corroborated inputs).
•
Level 3 includes unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing
the asset or liability. We develop these inputs based on the best information available, including our own data.
The following table summarizes our financial assets using the fair value hierarchy on a recurring basis:
December 31, 2012
Interest rate caps
Level 1
Level 2
Level 3
Total
$ —
$ 115
$ —
$115
December 31, 2011
Interest rate caps
Level 1
Level 2
Level 3
Total
$ —
$
$ —
$ 77
77
Level 2 assets consist of our interest rate caps. To determine the estimated fair value of our interest rate caps we use market information
provided by the banks from whom the interest rate caps were purchased from.
As of December 31, 2012, we estimate the total fair value of the indebtedness described above to be approximately equal to their total carrying
values.
The carrying amounts for cash and cash equivalents, escrows, other current assets, accounts payable, accrued expenses, advance deposits
and other current liabilities approximate fair value because of the short-term nature of these instruments.
9. INCOME TAXES
Income Tax Expense – Income tax expense (benefit) consists of:
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Period May 5, 2012 through December 31, 2012 (Successor)
Federal
State and local
Foreign
Period January 1, 2012 through May 4, 2012 (Predecessor)
Federal
State and local
Foreign
Year ended December 31, 2011, as revised (Predecessor)
Federal
State and local
Foreign
Year ended December 31, 2010, as revised (Predecessor)
Federal
State and local
Foreign
Current
Deferred
$ —
484
68
$ 552
$
657
(195)
—
$ 462
$ 657
289
68
$1,014
Current
Deferred
Total
$ —
163
40
$ 203
$
427
(354)
—
$ 73
$ 427
(191)
40
$ 276
$ —
826
100
$ 926
$
200
8
—
$ 208
$ 200
834
100
$1,134
$ —
813
82
$ 895
$
$ (85)
804
82
$ 801
(85)
(9)
—
$ (94)
Total
Total tax expense is included in the following line items in our statements of operations:
Income tax expense
Equity in unconsolidated affiliates, net of tax
Discontinued operations, net of tax
Net income attributable to noncontrolling interest,
net of tax
Total income tax expense
Successor
Period May 5,
2012
through
December 31,
2012
Predecessor
Period
January 1,
2012
through
May 4, 2012
$
$
$
1,062
(56)
7
1
1,014
$
269
7
0
0
276
Predecessor
Year ended December 31,
2011
(as revised)
2010
(as revised)
$
$
$
1,132
2
0
0
1,134
$
785
9
7
0
801
The differences between the statutory federal income tax rate and the effective income tax rate reflected in our consolidated statements of
operations are as follows:
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Successor
Period May 5,
2012
through
December 31,
2012
Federal statutory income tax benefit
Predecessor
Period
January 1,
2012
through
May 4, 2012
Predecessor
Year ended December 31,
2011
(as revised)
2010
(as revised)
(35.0)%
(35.0)%
(35.0)%
(35.0)%
(0.5)%
(3.5)%
(1.7)%
(3.7)%
Nondeductible compensation expense
2.9%
(16.5)%
0
3.0%
Investment in affiliates
1.9%
0.4%
1.9%
2.2%
Change in valuation allowance
30.0%
53.7%
40.0%
33.3%
Nondeductible transaction costs
10.0%
0
0
0
Other
(0.8)%
2.2%
0.9%
1.6%
8.5%
1.3%
6.1%
1.4%
State income taxes, net of federal income taxes
Deferred Tax Assets and Liabilities – The tax effects of temporary differences that give rise to significant portions of the deferred tax assets
and liabilities at December 31, 2012 and 2011 are presented below:
Deferred tax assets:
Net operating loss carryforwards
Intangibles
Investment in affiliates
Salaries and wages
Other
Total deferred tax assets
Deferred tax liabilities:
Property and equipment
Intangibles
Goodwill
Prepaid expenses
Total deferred tax liabilities
Valuation allowance
Net deferred tax liability
2012
2011
(as revised)
$ 64,289
7,277
1,435
2,718
11,995
87,714
$ 53,962
9,557
1,429
1,933
4,335
71,216
(39,358)
(18,069)
(889)
(927)
(59,243)
(72,979)
$(44,508)
(15,082)
0
0
(720)
(15,802)
(67,321)
$ (11,907)
Our 2012 net deferred tax liability is comprised of a current deferred tax liability of $795 included in other current liabilities and a long-term
deferred tax liability of $43,713. Our current deferred tax liability includes a valuation allowance of $656. Our long-term deferred tax liability includes
a valuation allowance of $72,323.
Our 2011 net deferred tax liability is comprised of a current deferred tax liability of $484 included in other current liabilities and a long-term
deferred tax liability of $11,423. Our current deferred tax liability includes a valuation allowance of $1,439. Our long-term deferred tax liability
includes a valuation allowance of $65,882.
The change in our valuation allowance for the fiscal years ended December 31, 2012 and 2011 is as follows:
December 31,
2012
2011
Successor
Predecessor
(as revised)
Beginning deferred tax assets valuation allowance
Allowance established for Net Operating and Other Loss Carryforwards
Ending deferred tax assets valuation allowance
$ 67,321
5,658
$ 72,979
$ 59,870
7,451
$ 67,321
Net Operating Loss Carryforwards – As of December 31, 2012, we had net operating loss carryforwards of approximately $170,025 and $134,298 for
federal and state income tax purposes, respectively. These federal and state carryforwards begin expiring in 2024 and 2014, respectively. In May
2012, in connection with our Merger, we experienced a significant change to our capital structure which resulted in an ownership change, as
defined under Section 382 of the IRC. Consequently, the amount of net operating loss carryforwards available to be used in future years is limited
under IRC Section 382.
We consider whether it is more likely than not that some portion or all of our deferred tax assets, including those related to net operating
losses, will not be realized. Based on our analysis, we have recorded a valuation allowance of
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$72,979 at December 31, 2012, due to uncertainties related to our ability to utilize some of our deferred tax assets, primarily consisting of certain net
operating loss carryforwards, before they expire. The valuation allowance is based on our estimates of taxable income solely from the reversal of
existing deferred tax liabilities and the period over which deferred tax assets reverse. In the event that actual results differ from these estimates or
we adjust these estimates in a future period, we may need to increase or decrease our valuation allowance, which could materially impact our
consolidated statement of operations.
As of December 31, 2011, we had net operating loss carryforwards of approximately $143,079 and $112,313 for federal and state income tax
purposes, respectively. These federal and state carryforwards begin expiring in 2024 and 2014, respectively. We consider whether it is more likely
than not that some portion or all of the deferred tax assets will not be realized. Based on our analysis, we recorded a valuation allowance of $67,321
at December 31, 2011, due to uncertainties related to our ability to utilize some of our deferred tax assets, primarily consisting of certain net
operating loss carryforwards, before they expire.
Other – In connection with the application of the acquisition method of accounting as part of the Merger, we recorded a deferred tax liability
related to purchase accounting of $32,067 as of May 5, 2012. The offset to this deferred tax liability was to goodwill.
At December 31, 2012, we had unrecognized tax benefits of $1,272, which primarily related to uncertainty regarding the sustainability of
certain deductions taken on our 2005 and 2006 U.S. Federal income tax return related to transaction costs from our IPO and certain deductions taken
on our 2006 U.S. Federal income tax return related to a tax assessment. To the extent these unrecognized tax benefits are ultimately recognized, they
will impact the effective tax rate in a future period. We do not expect the total amount of unrecognized tax benefits to change significantly in the
next year. The unrecognized tax benefits are classified as a reduction of the net operating loss carryforwards. The following is a reconciliation of the
total amounts of unrecognized tax benefits for the year:
Unrecognized tax benefit – December 31, 2011
Gross increases – tax positions in current period
Unrecognized tax benefit – December 31, 2012
$ 1,298
(26)
$ 1,272
10. RELATED-PARTY TRANSACTIONS
We rented office space for our headquarters through September 2010 from a company that is an affiliate of an individual who was a member of
our board of directors through May 2009. Our total payments for rent and related expenses for this office space were $193 for the year ended
December 31, 2010, and are included in selling, general and administrative expenses on our consolidated statements of operations and
comprehensive loss.
We regularly transact business with our unconsolidated affiliates. The following summarizes our transactions with these unconsolidated
affiliates for the years indicated:
Management and other fees
Other revenue from managed properties
Selling, general and administrative
Other expenses from managed properties
Investment income
Accounts receivable
Accounts payable
11. COMMITMENTS AND CONTINGENCIES
89
Successor
Period
May 5,
2012
through
December 31,
2012
Predecessor
Predecessor
January 1,
2012
through
May 4, 2012
Year ended
December 31,
$
$
3,582
7,712
193
7,712
577
5,145
1,741
1,414
3,901
0
3,901
303
2011
2010
$ 4,981
10,858
0
10,858
902
3,243
27
$ 4,594
10,989
0
10,989
1,088
3,764
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Legal Matters – We are involved in litigation from time to time in the ordinary course of our business. We do not believe that the outcome of
any such pending or threatened litigation will have a material adverse effect on our financial condition or results of operations. However, as is
inherent in legal proceedings where issues may be decided by finders of fact, there is a risk that an unpredictable decision adverse to the company
could be reached. See Note 14 Litigation.
Guarantees – We recognize guarantees when the guarantor is required to recognize, at the inception of a guarantee, a liability for the fair
value of the obligation undertaken in issuing the guarantee. Great Wolf Resorts, Inc. has provided a $14,500 payment guaranty of the mortgage
loan and related interest secured by our Concord, North Carolina resort. If our subsidiary defaults on its obligations under this loan we would be
required to assume certain of its obligations, including the payment of up to $14,500 of outstanding debt amounts, which are already recorded in
our consolidated financial statements.
Commitments – We lease office space, storage space and office equipment under various operating leases that expire between 2013 and 2017.
Most of the leases include renewal options. Future minimum payments on these operating leases are as follows:
2013
2014
2015
2016
2017
Total
$1,013
1,025
707
620
591
$3,956
Rent expense was $450, $816, $1,358, and $1,244 for the periods January 1, 2012 through May 4, 2012 and May 5, 2012 through December 31,
2012 and the years ended December 31, 2011, and 2010, respectively.
12. EMPLOYEE BENEFIT PLANS
401K Plan – We maintain a 401(k) profit sharing plan for our employees. Eligibility for participation in the plan is based on an employee
meeting certain minimum age and service requirements. Participants may make voluntary, pre-tax contributions through salary deferrals to the plan.
Employer matching contributions are discretionary and are based on a percentage of employee contributions. Our contributions to the plan were
$360, $391, and $349 for the period January 1, 2012 through May 4, 2012 and the years ended December 31, 2011, and 2010, respectively. There were
no contributions to the plan during the period May 5, 2012 through December 31, 2012.
Deferred Compensation Plan – We have a deferred compensation plan for certain of our employees. The plan allows for contributions by
both the participants and us. Our employer contributions for the plan were $329, $236, and $250 for the period January 1, 2012 through May 4, 2012
and the years ended December 31, 2011, and 2010, respectively. There were no contributions to the plan during the period May 5, 2012 through
December 31, 2012.
13. SHARE-BASED COMPENSATION
Overview
Prior to the Merger on May 4, 2012, the Great Wolf Resorts 2004 Incentive Stock Plan (the Old Plan) authorized us to grant up to 3,380,740
options, stock appreciation rights or shares of our common stock to employees and directors. Upon consummation of the Merger, the Old Plan was
terminated. We have not issued any stock options or made any stock grants from Old Plan since the Merger.
Under the Old Plan, we recognized share-based compensation expense of $3,348, and $868, net of estimated forfeitures, for the periods
January 1, 2012 – May 4, 2012, and May 5, 2012 – December 31, 2012, respectively. The total income tax (benefit) expense recognized related to
share-based compensation was $43, and $49, for the periods January 1, 2012 – May 4, 2012, and May 5, 2012 – December 31, 2012, respectively.
Under the Old Plan, we recognized share-based compensation expense of $2,252 and $2,664, net of estimated forfeitures, for the years ended
December 31, 2011 and 2010, respectively. The total income tax expense (benefit) recognized related to share-based compensation was $858 and
$(261) for the years ended December 31, 2011 and 2010, respectively.
On August 13, 2012, the board of directors of K-9 adopted the K-9 Holdings, Inc. 2012 Equity Incentive Plan (the K-9 Plan). The purpose of
the K-9 Plan is to provide a means for K-9 and K-9’s subsidiaries, including the Company, to attract and retain key personnel and for K-9 and its
subsidiaries’ directors, officers, employees, consultants and advisors to acquire and maintain an equity interest in K-9. The K-9 Plan will terminate
automatically on August 13, 2022. No awards will be granted under the K-9 Plan after that date, but awards granted prior to that date may extend
beyond that date.
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Under the K-9 Plan, K-9 may grant awards of stock options, including both incentive stock options and nonqualified stock options, stock
appreciation rights, restricted stock and restricted stock units, stock bonus awards and performance compensation awards. Subject to adjustment
for certain corporate events, K-9 has authorized and reserved for issuance a maximum of 2,436,182 shares of Common Stock under the K-9 Plan.
Under the K-9 Plan, we recognized share-based compensation of $650, net of estimated forfeitures, for the period May 5, 2012 through
December 31, 2012. The total income tax expense recognized related to share-based compensation under the K-9 Plan was $55 for the period May 5,
2012 through December 31, 2012.
We recognize compensation expense on grants of share-based compensation awards on a straight-line basis over the requisite service period
of each award recipient. As of December 31, 2012, total unrecognized compensation cost related to share-based compensation awards was $9,911,
which we expect to recognize over a weighted average period of approximately 5.0 years.
We anticipate that K-9 would have to issue new shares of its common stock for stock option exercises.
Stock Options
Prior to the Merger, we had granted non-qualified stock options to purchase our common stock under the Old Plan at prices equal to the fair
market value of the common stock on the grant dates. The exercise price for options granted under the Old Plan could be paid in cash, shares of
common stock or a combination of cash and shares. Stock options expired ten years from the grant date and vested ratably over three years.
We recorded no stock option expense related to the Old Plan for the periods January 1, 2012 – May 4, 2012; May 5, 2012 – December 31, 2012;
and the years ended December 31, 2011 and 2010. There were no stock options granted during the periods January 1, 2012 – May 4, 2012; May 5,
2012 – December 31, 2012; and the years ended December 31, 2011 and 2010. Upon the consummation of the Merger, all of our outstanding stock
options under the Old Plan were cancelled for no consideration.
A summary of stock option activity under the Old Plan during the period January 1, 2012 – May 4, 2012:
Predecessor
Shares
Number of shares under option:
Outstanding at beginning of period
Exercised
Cancelled
Outstanding at end of period
Exercisable at end of period
15,500
0
(15,500)
0
0
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life
$ 17.44
3.02 years
$ 17.44
Under the K-9 Plan, K-9 has granted non-qualified stock options to purchase K-9’s common stock. These stock options have been issued in
three Tranches:
•
Tranche A options will vest and become exercisable in equal installments on each of the first five anniversaries of May 4, 2012.
•
Tranche B options will vest and become exercisable at such time as K-9 Investors, L.P., (K-9’s Principal Stockholder), realizes an
internal rate of return that equals or exceeds 20% and a return on invested capital that equals or exceeds two, in each case,
based on cash proceeds received by K-9’s Principal Stockholder.
•
Tranche C options will vest and become exercisable at such time as K-9’s Principal Stockholder realizes an internal rate of return
that equals or exceeds 25% and a return on invested capital that equals or exceeds three, in each case, based on cash proceeds
received by K-9’s Principal Stockholder.
The exercise price for the stock options granted under the K-9 Plan may be paid in cash or shares of common stock. Stock options under the
K-9 Plan expire ten years after the date of grant.
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Stock options were granted as follows:
•
Tranche A options – 598,771 stock options, with a per share fair market value of $6.27 per share. The fair market value was estimated
using the Black-Scholes pricing model and the following assumptions:
Dividend yield
Risk free interest rate
Expected life of option
Expected equity volatility
•
0%
0.71%
5 years
78.5%
Tranche B options – 598,748 stock options, with a per share fair market value of $5.64 per share. The fair market value was estimated
using the Monte Carlo pricing model and the following assumptions:
Dividend yield
Risk free interest rate
Expected life of option
Expected equity volatility
•
0%
0.82%
5.5 years
75.2%
Tranche C options – 598,748 stock options, with a per share fair market value of $5.30 per share. The fair market value was estimated
using the Monte Carlo pricing model and the following assumptions:
Dividend yield
Risk free interest rate
Expected life of option
Expected equity volatility
0%
0.82%
5.5 years
75.2%
We recorded stock option expense related to the K-9 Plan of $349 for the year ended December 31, 2012.
A summary of stock option activity under the K-9 Plan during the period May 5, 2012 – December 31, 2012:
Successor
Shares
Number of shares under option:
Outstanding at beginning of period
Granted
Exercised
Cancelled
Outstanding at end of period
Exercisable at end of period
0
1,796,267
0
0
1,796,267
0
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life
$ 10.000
5.02 years
$ 10.000
$ 10.000
5.02 years
5.02 years
Market Condition Share Awards
Prior to the Merger, under the Old Plan, certain employees were eligible to receive shares of our common stock in payment of market condition
share awards granted to them in accordance with the terms thereof.
We granted 407,593, 444,002 and 515,986 market condition share awards during the period January 1, 2012 – May 4, 2012 and the years ended
December 31, 2011 and 2010, respectively. We recorded share-based compensation expense of $1,493 and $868 for the periods January 1, 2012 –
May 4, 2012, and May 5, 2012 – December 31, 2012, respectively. We recorded share-based compensation expense of $864 and $1,245 for the years
ended December 31, 2011 and 2010, respectively.
Of the 2012 market condition shares granted:
•
255,107 were based on our common stock’s performance in 2012 relative to a stock index, as designated by the Compensation
Committee of the Board of Directors. For shares that are earned, 1/3 of the shares were to vest on December 31, 2012, 1/3 vest on
December 31, 2013, and 1/3 vest on December 31, 2014. The per share fair value of these market condition shares was $2.12 as of the
grant date.
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The fair value of these market condition shares was determined using a Monte Carlo simulation and the following assumptions:
Dividend yield
Weighted average, risk free interest rate
Expected stock price volatility
Expected stock price volatility (small-cap stock index)
0
0.14%
49.92%
29.14%
We used an expected dividend yield of 0%, as we did not pay a dividend and did not contemplate paying a dividend in the foreseeable
future. The weighted average, risk free interest rate was based on the .89-year treasury constant maturity. Our expected stock price volatility
and the expected stock price volatility for the small cap stock index was estimated using daily returns data of our stock and the index for the
period February 10, 2010 through February 9, 2012.
Upon the consummation of the Merger, all of the 2012 market condition shares granted were cancelled for no consideration.
Unrecognized expense of $542 was recorded during the period May 5, 2012 – December 31, 2012.
•
76,243 were based on our common stock’s absolute performance during the three-year period 2010-2012. For shares that are earned, half
of the shares were to vest on December 31, 2012, and the other half vest on December 31, 2013. The per share fair value of these market
condition shares was $2.05 as of the grant date.
The fair value of these market condition shares was determined using a Monte Carlo simulation and the following assumptions:
Dividend yield
Weighted average, risk free interest rate
Expected stock price volatility
0
0.14%
49.92%
We used an expected dividend yield of 0%, as we did not pay a dividend and did not contemplate paying a dividend in the foreseeable
future. The weighted average, risk free interest rate was based on the .89-year treasury constant maturity. Our expected stock price volatility
was estimated using daily returns data of our stock for the period February 10, 2010 through February 9, 2012.
Upon the consummation of the Merger, all of the 2012 market condition shares granted were cancelled for no consideration.
Unrecognized expense of $156 was recorded during the period May 5, 2012 – December 31, 2012.
•
76,243 were based on our common stock’s performance in 2010-2012 relative to a stock index, as designated by the Compensation
Committee of the Board of Directors. For shares that are earned, half of the shares were to vest on December 31, 2012, and the other half
vest on December 31, 2013. The per share fair value of these market condition shares was $2.22 as of the grant date.
The fair value of these market condition shares was determined using a Monte Carlo simulation and the following assumptions:
Dividend yield
Weighted average, risk free interest rate
Expected stock price volatility
Expected stock price volatility (small-cap stock index)
0
0.14%
49.92%
29.14%
We used an expected dividend yield of 0%, as we did not pay a dividend and did not contemplate paying a dividend in the foreseeable
future. The weighted average, risk free interest rate was based on the .89-year treasury constant maturity. Our expected stock price volatility
and the expected stock price volatility for the small cap stock index was estimated using daily returns data of our stock and the index for the
period February 10, 2010 through February 9, 2012.
Upon the consummation of the Merger, all of the 2012 market condition shares granted were cancelled for no consideration.
Unrecognized expense of $170 was recorded during the period May 5, 2012 – December 31, 2012.
Of the 2011 market condition shares granted:
•
277,894 were based on our common stock’s performance in 2011 relative to a stock index, as designated by the Compensation
Committee of the Board of Directors. For shares that were earned, 1/3 of the shares vest on
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December 31, 2011, 1/3 vest on December 31, 2012, and 1/3 vest on December 31, 2013. The per share fair value of these market
condition shares was $2.35 as of the grant date.
The fair value of these market condition shares was determined using a Monte Carlo simulation and the following assumptions:
Dividend yield
Weighted average, risk free interest rate
Expected stock price volatility
Expected stock price volatility (small-cap stock index)
0
0.25%
64.73%
29.39%
We used an expected dividend yield of 0%, as we did not pay a dividend and did not contemplate paying a dividend in the foreseeable
future. The weighted average, risk free interest rate was based on the 10.6-month treasury constant maturity. Our expected stock price
volatility and the expected stock price volatility for the small cap stock index was estimated using daily returns data of our stock and the index
for the period February 11, 2009 through February 10, 2011.
We originally granted 277,894 market condition shares for 2011 and recorded expense during 2011 associated with that estimated
number of shares to be issued for these market condition awards. The original share grant amount represented the number of shares that
would be earned at a target level of performance. Based on our common stock’s performance in 2011, however, the maximum performance
condition for these market condition share awards was met. As a result, we issued 416,841 shares related to these market condition
awards. Accordingly, we recorded $109 of additional compensation expense in the fourth quarter of 2011 related to our employees earning the
maximum level of shares rather than the target level of shares for these awards.
These shares vested upon consummation of the Merger, and the remaining unrecognized expense of $544 was recorded in the period
ended May 4, 2012.
•
83,054 were based on our common stock’s absolute performance during the three-year period 2010-2012. For shares that are earned, half
of the shares vest on December 31, 2012, and the other half vest on December 31, 2013. The per share fair value of these market
condition shares was $2.15 as of the grant date.
The fair value of these market condition shares was determined using a Monte Carlo simulation and the following assumptions:
Dividend yield
Weighted average, risk free interest rate
Expected stock price volatility
0
0.58%
64.73%
We used an expected dividend yield of 0%, as we did not pay a dividend and did not contemplate paying a dividend in the foreseeable
future. The weighted average, risk free interest rate was based on the 1.89-year treasury constant maturity. Our expected stock price volatility
was estimated using daily returns data of our stock for the period February 11, 2009 through February 10, 2011.
The original share grant amount represented the number of shares that would be earned at a target level of performance. In conjunction
with the signing of the Merger Agreement on March 12, 2012, these shares were deemed granted at the maximum level of performance. As a
result, we issued 124,581 shares related to these market condition awards. Accordingly, we recorded $37 of additional compensation expense
in the first quarter of 2012 related to our employees being granted the maximum level of shares rather than the target level of shares for these
awards.
These shares vested upon consummation of the Merger, and the remaining unrecognized expense of $119 was recorded in the period
ended May 4, 2012.
•
83,054 were based on our common stock’s performance in 2010-2012 relative to a stock index, as designated by the Compensation
Committee of the Board of Directors. For shares that are earned, half of the shares vest on December 31, 2012, and the other half vest on
December 31, 2013. The per share fair value of these market condition shares was $2.19 as of the grant date.
The fair value of these market condition shares was determined using a Monte Carlo simulation and the following assumptions:
Dividend yield
0
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Weighted average, risk free interest rate
Expected stock price volatility
Expected stock price volatility (small-cap stock index)
0.58%
64.73%
29.39%
We used an expected dividend yield of 0%, as we did not pay a dividend and did not contemplate paying a dividend in the foreseeable
future. The weighted average, risk free interest rate was based on the 1.89-year treasury constant maturity. Our expected stock price volatility
and the expected stock price volatility for the small cap stock index was estimated using daily returns data of our stock and the index for the
period February 11, 2009 through February 10, 2011.
The original share grant amount represented the number of shares that would be earned at a target level of performance. In conjunction
with the signing of the Merger Agreement on March 12, 2012, these shares were deemed granted at the maximum level of performance. As a
result, we issued 124,581 shares related to these market condition awards. Accordingly, we recorded $38 of additional compensation expense
in the first quarter of 2012 related to our employees being granted the maximum level of shares rather than the target level of shares for these
awards.
These shares vested upon consummation of the Merger, and the remaining unrecognized expense of $121 was recorded in the period
ended May 4, 2012.
Of the 2010 market condition shares granted:
•
333,060 were based on our common stock’s performance in 2010 relative to a stock index, as designated by the Compensation
Committee of the Board of Directors. These shares vest ratably over a three-year period, 2010-2012. The per share fair value of these
market condition shares was $2.43 as of the grant date.
The fair value of these market condition shares was determined using a Monte Carlo simulation and the following assumptions:
Dividend yield
Weighted average, risk free interest rate
Expected stock price volatility
Expected stock price volatility (small-cap stock index)
—
0.26%
108.06%
40.92%
We used an expected dividend yield of 0%, as we do not currently pay a dividend and do not contemplate paying a dividend in the
foreseeable future. The weighted average, risk free interest rate was based on the 9-month treasury constant maturity. Our expected stock
price volatility was estimated using daily returns data of our stock for a two-year period ending on the grant date. The expected stock price
volatility for the small cap stock index was estimated using daily returns data for a two-year period ending on the grant date.
The market condition for these shares was not met and therefore no shares related to this grant were issued. As a result, we recorded
the entire fair value of the grant as expense in 2010 of $810.
•
91,463 were based on our common stock’s absolute performance during the three-year period 2010-2012. For shares that were earned,
half of the shares vest on December 31, 2012, and the other half vest on December 31, 2013. The per share fair value of these market
condition shares was $2.53 as of the grant date.
The fair value of these market condition shares was determined using a Monte Carlo simulation and the following assumptions:
Dividend yield
Weighted average, risk free interest rate
Expected stock price volatility
0
1.27%
95.21%
We used an expected dividend yield of 0%, as we did not pay a dividend and did not contemplate paying a dividend in the foreseeable
future. The weighted average, risk free interest rate was based on the 2.75-year treasury constant maturity. Our expected stock price volatility
was estimated using daily returns data of our stock for the period June 29, 2007 through March 30, 2010.
The original share grant amount represented the number of shares that would be earned at a target level of performance. In conjunction
with the signing of the Merger Agreement on March 12, 2012, these shares were deemed granted at the maximum level of performance. As a
result, we issued 137,195 shares related to these market condition awards. Accordingly, we recorded $68 of additional compensation expense
in the first quarter of 2012 related to our employees being granted the maximum level of shares rather than the target level of shares for these
awards.
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These shares vested upon consummation of the Merger, and the remaining unrecognized expense of $111 was recorded in the period
ended May 4, 2012.
•
91,463 were based on our common stock’s performance in 2010-2012 relative to a stock index, as designated by the Compensation
Committee of the Board of Directors. For shares that are earned, half of the shares vest on December 31, 2012, and the other half vest on
December 31, 2013. The per share fair value of these market condition shares was $2.61 as of the grant date.
The fair value of these market condition shares was determined using a Monte Carlo simulation and the following assumptions:
Dividend yield
Weighted average, risk free interest rate
Expected stock price volatility
Expected stock price volatility (small-cap stock index)
0
1.27%
95.21%
37.51%
We used an expected dividend yield of 0%, as we did not pay a dividend and did not contemplate paying a dividend in the foreseeable
future. The weighted average, risk free interest rate was based on the 2.75-year treasury constant maturity. Our expected stock price volatility
and the expected stock price volatility for the small cap stock index was estimated using daily returns data of our stock for the period June 29,
2007 through March 30, 2010.
The original share grant amount represented the number of shares that would be earned at a target level of performance. In conjunction
with the signing of the Merger Agreement on March 12, 2012, these shares were deemed granted at the maximum level of performance. As a
result, we issued 137,195 shares related to these market condition awards. Accordingly, we recorded $70 of additional compensation expense
in the first quarter of 2012 related to our employees being granted the maximum level of shares rather than the target level of shares for these
awards.
These shares vested upon consummation of the Merger, and the remaining unrecognized expense of $114 was recorded in the period
ended May 4, 2012.
Performance Share Awards
Prior to the Merger, under the Old Plan, certain employees were eligible to receive shares of our common stock in payment of performance
share awards granted to them. Grantees of performance shares were eligible to receive shares of our common stock based on the achievement of
certain individual and departmental performance criteria during the calendar year in which the shares were granted. We granted 85,036, 92,633 and
111,020 performance shares during the period January 1, 2012 – May 4, 2012 and the years ended December 31, 2011 and 2010, respectively. Shares
granted in 2012 were to vest over a three year period, 2012-2014; shares granted in 2011 were to vest over a three year period, 2011-2013; and shares
granted in 2010 were to vest over a three year period, 2010-2012.
The per share fair value of performance shares granted during the period January 1, 2012 – May 4, 2012 and years ended December 31, 2011
and 2010 was $3.35, $3.23 and $3.18, respectively, which represents the fair value of our common stock on the grant date. We recorded share-based
compensation expense of $264 for the period January 1, 2012 – May 4, 2012. There was no share-based compensation expense for the period May 5,
2012 – December 31, 2012. We recorded share-based compensation expense of $285 and $244 for the years ended December 31, 2011 and 2010,
respectively. Since all shares originally granted were not earned, we recorded a reduction in expense of $19, $16 and $9 during the period January 1,
2012 – May 4, 2012 and the years ended December 31, 2011 and 2010, respectively, related to the shares not issued.
Based on their achievement of certain individual and departmental performance goals:
•
Employees earned and were issued 75,152 performance shares in February 2012 related to the 2011 grants and
•
Employees earned and were issued 96,305 performance shares in February 2011 related to the 2010 grants.
•
Employees earned and were issued 162,559 performance shares in March 2010 related to the 2009 grants.
Upon the consummation of the Merger, all of the 2012 performance share awards granted were cancelled for no consideration. Performance
shares awards granted in 2010 and 2011 vested upon consummation of the Merger, and the remaining unrecognized expense of $68 and $135,
respectively, was recorded in the period ending May 4, 2012.
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On August 13, 2012, under the K-9 Plan, certain employees received shares of K-9’s common stock, which will vest on the date that those
employees receive a bonus in respect of 2012 from the Company. To the extent the bonus payable to the employees for fiscal year 2012 is less than
a certain threshold, the employees will forfeit a number of shares with a value equal to the shortfall. We granted 37,500 performance shares during
the period August 13, 2012 – December 31, 2012. The per share fair value of the performance shares was $10.00, which represents the fair value of
K-9’s common stock on the grant date as determined by the board of directors. We recorded share-based compensation expense of $301 for the
period May 5, 2012 through December 31, 2012.
Deferred Compensation Awards
Pursuant to their employment arrangements, two executives received bonuses upon completion of our initial public offering. Executives
receiving bonus payments totaling $2,200 elected to defer those payments pursuant to our deferred compensation plan. To satisfy this obligation,
we contributed 129,412 shares of our common stock to the trust that holds the assets to pay obligations under our deferred compensation plan. The
fair value of that stock at the date of contribution was $2,200. We have recorded the fair value of the shares of common stock, at the date the shares
were contributed to the trust, as a reduction of our stockholders’ equity. In 2008, one of the executives who had deferred a bonus payment resigned
from our company and our deferred compensation plan sold the shares held in that plan related to the deferred bonus payment. In 2012, the other
executive who had deferred a bonus payment sold the shares in the deferred compensation plan. As a result, we have reclassified $2,200 previously
recorded as deferred compensation to additional paid-in-capital.
We account for the change in fair value of the shares held in the trust as a charge to compensation cost. We recorded share-based
compensation income of $34 for the period January 1, 2012 – May 4, 2012. There was no share-based compensation expense for the period May 5,
2012 – December 31, 2012. We recorded share-based compensation expense of $3 and $3, for the years ended December 31, 2011 and 2010,
respectively.
Non-vested Shares
Prior to the Merger, we had granted non-vested shares as follows:
•
We had granted non-vested shares to certain employees and our directors. These shares vested over time periods between
three and five years. We valued these non-vested shares at the closing market value of our common stock on the date of grant.
•
We had granted non-vested shares to certain employees for shares earned under the Market Condition Share Awards as
described above. These shares vested ratably over a three-year period. We valued the non-vested shares related to Market
Condition Shares using a Monte Carlo simulation as described above.
•
We had granted non-vested shares to certain employees for shares earned under the Performance Share Awards as described
above. These shares vested ratably over a three-year period. We valued the non-vested shares related to Performance Share
Awards at the closing market value of our common stock on the date of grant of the Performance Share Awards.
Upon the consummation of the Merger, each non-vested share outstanding vested, was cancelled and converted into the right to receive the
Offer Price and the remaining unrecognized expense of $1,323 was recorded in the period ended May 4, 2012.
A summary of non-vested shares activity for the period January 1, 2012 – May 4, 2012 is as follows:
Predecessor
Shares
Non-vested shares balance at beginning of period
Granted
Forfeited
Vested
Non-vested shares balance at end of period
910,678
1,015,545
(2,500)
(1,923,723)
0
Weighted
Average
Grant Date
Fair Value
$
$
$
$
$
3.13
2.43
3.00
2.76
0
We recorded share-based compensation expense related to non-vested shares of $1,644 for the period January 1, 2012 – May 4, 2012. There
was no share-based compensation expense related to non-vested shares for the period May 5, 2012 – December 31, 2012. We recorded share-based
compensation expense related to non-vested shares of $1,094 and $1,123 for the years ended December 31, 2011 and 2010, respectively.
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Subsequent to the Merger, under the K-9 Plan, we granted non-vested shares to certain employees for shares earned under the Performance
Share Awards as described above.
A summary of non-vested shares activity for the period May 5, 2012 – December 31, 2012 is as follows:
Successor
Weighted
Average
Grant Date
Shares
Fair Value
Non-vested shares balance at beginning of period
Granted
Forfeited
Vested
Non-vested shares balance at end of period
0
37,500
0
0
37,500
$
10.00
$
10.00
Vested Shares
We have an annual short-term incentive plan for certain employees that provides them the potential to earn cash bonus payments. In 2010
certain of these employees had the option to elect to have some or all of their annual bonus compensation paid in the form of shares of our common
stock rather than cash. Employees making this election received shares having a market value equal to 125% of the cash they would otherwise
receive. Shares issued in lieu of cash bonus payments are fully vested upon issuance.
•
In connection with the elections related to 2010 bonus amounts, we issued 33,545 shares in February 2011. We valued these shares at
$96 based on the closing market value of our common stock on the date of the grant.
•
There were no shares issued during the year ended December 31, 2010 related to 2009 bonus amounts.
During the years ended December 31, 2011 and 2010, our directors had the option to elect to have some or the entire cash portion of their
annual fees paid in the form of shares of our common stock rather than cash. Directors making this election received shares having a market value
equal to 125% of the cash they would otherwise receive. Shares issued in lieu of cash fee payments are fully vested upon issuance.
We recorded non-cash professional fees expense of $22 and $58 for the years ended December 31, 2011 and 2010, respectively, related to
these elections to received shares in lieu of cash. We issued 10,188 and 26,693 shares in the years ended December 31, 2011 and 2010, respectively,
related to these elections.
14. LITIGATION
On March 12, 2012, we entered into an Agreement and Plan of Merger (as amended, the Merger Agreement) with K-9 Holdings, Inc., a
Delaware corporation (K-9), and K-9 Acquisition, Inc., a Delaware corporation (Merger Sub), a direct wholly-owned subsidiary of K-9. Pursuant to
the terms of the Merger Agreement, among other things, K-9 and Merger Sub agreed to make a tender offer (the Offer) for all of the outstanding
shares (each, a Share) of common stock (including restricted shares), par value $0.01 per share, of the Company (the Common Stock) at a price of
$7.85 per share, net to the seller in cash, without interest (the Offer Price). Approximately 76% of the outstanding Shares were tendered in the Offer
and the Company accepted all such tendered Shares for payment.
Following the expiration of the Offer, on May 4, 2012, Merger Sub exercised its option under the Merger Agreement to purchase a number of
shares of Common Stock necessary for Merger Sub to own one share more than 90% of the outstanding Shares of Common Stock (the Top-Up
Shares) at the Offer Price.
On May 4, 2012, following Merger Sub’s purchase of the Top-Up Shares, K-9 completed its acquisition of the Company through the merger of
Merger Sub with and into the Company, with the Company continuing as the surviving corporation in the merger and becoming a direct whollyowned subsidiary of K-9 (the Merger).
On and after March 14, 2012, the Company and certain of its current and former officers and directors and, in some cases, some or all of K-9
Investors, L.P., Apollo Management VII, L.P., Apollo Global Management, LLC and K-9 and Merger Sub were named as defendants in five class
action lawsuits filed in the Delaware Court of Chancery which were ultimately consolidated into a single class action (the Delaware Action). In the
Delaware Action, the plaintiffs, on behalf of a putative class of stockholders, sought to enjoin the proposed transaction that was the subject of the
Merger Agreement. Other lawsuits were filed in Wisconsin state and federal court – two in the Circuit Court, Civil Division for Dane County, one of
which was dismissed by the plaintiff prior to settlement (the surviving action, Wisconsin State Court Action), and one in the United States District
Court for the Western District of Wisconsin (the Wisconsin Federal Court Action).
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On April 25, 2012, the parties to the Delaware Action and the Wisconsin State Court Action reached an agreement in principle to settle those
cases. The proposed settlement, which is subject to court approval, provides for, among other things, the dismissal with prejudice of plaintiffs’
complaints and of all claims asserted therein, that all parties would grant all applicable releases of claims against all other parties, and that the
parties to the Delaware Action and the Wisconsin State Court Action have acknowledged that the plaintiffs and their counsel in those cases would
petition the appropriate court or courts for an award of attorneys’ fees and expenses in connection with the cases. Any award of fees and expenses
to plaintiffs’ counsel is subject to approval by the appropriate court or courts. Pursuant to an order from the Delaware Court of Chancery, notice to
the class was mailed on October 19, 2012.
On April 30, 2012, the parties to the Wisconsin Federal Court Action agreed to settle that case, subject to court approval of the proposed
class-wide settlement in the Delaware Action and entry of a final order dismissing the Delaware Action in its entirety. Pursuant to their agreement,
the parties to the Wisconsin Federal Court Action filed with the court, on April 30, 2012, a stipulation providing that the Wisconsin Federal Court
Action be voluntarily dismissed with respect to all defendants and that such dismissal will be with prejudice as to the plaintiff upon the
consummation of the settlement of the Delaware Action.
On September 27, 2012, the parties to the Delaware Action agreed to settle that case. Pursuant to their agreement, the parties to the Delaware
Action filed with the Delaware Court of Chancery on September 27, 2012, a stipulation providing that the Delaware Action be voluntarily dismissed
with respect to all defendants and that such dismissal will be with prejudice as to the plaintiff.
On December 18, 2012, the Delaware Court of Chancery approved the class-wide settlement in the Delaware Action and entered a final order
dismissing the Delaware Action in its entirety. It awarded counsel for the plaintiffs in the Delaware Action fees and expenses in the amount of
$1,940,000.
The Company, the members of the Board of Directors, Apollo Management VII, L.P., Apollo Global Management, LLC, K-9 and Merger Sub
each have denied, and continue to deny, that they committed or attempted to commit any violation of law or breach of fiduciary duty owed to the
Company and/or its stockholders, aided or abetted any breach of fiduciary duty, or otherwise engaged in any of the wrongful acts alleged in all of
these cases. All of the defendants expressly maintain that they complied with their fiduciary and other legal duties. However, in order to avoid the
costs, disruption and distraction of further litigation, and without admitting the validity of any allegation made in the actions or any liability with
respect thereto, the defendants concluded that it was desirable to settle the claims against them on the terms reflected in the settlements.
We are involved in litigation from time to time in the ordinary course of our business. We do not believe that the outcome of any pending or
threatened litigation will have a material adverse effect on our financial condition or results of operations. However, as is inherent in legal
proceedings where issues may be decided by finders of fact, there is a risk that unpredictable decisions, materially adverse to the Company, could
occur.
15. DISCONTINUED OPERATIONS
On March 24, 2011, we sold our Blue Harbor Resort in Sheboygan, Wisconsin to Claremont New Frontier Resort LLC (Claremont) for a
purchase price of $4,200, less a $540 credit for purposes of real estate property tax payments to be made by Claremont for periods after the closing.
We paid $2,000 to the City of Sheboygan with respect to real estate taxes relating to the Sheboygan property and contributed $300 toward a lease
termination fee payable to a tenant at the property.
In connection with the construction of the Blue Harbor Resort, we had entered into agreements with the City of Sheboygan and the
Redevelopment Authority of the City of Sheboygan whereby the City funded certain costs of construction. In exchange, we guaranteed certain
levels of real and personal property tax payments, as well as room tax payments, from Blue Harbor Resort.
In connection with the closing, the existing agreements with the City of Sheboygan and the Redevelopment Authority were terminated, and
we were released from all of our obligations under these agreements.
As a result of the sale, we have included the operations of the Blue Harbor Resort in discontinued operations for all periods presented. The
operation of the Blue Harbor Resort was included in our Resort ownership/operation segment.
A summary of balance sheet data and operating activity related to this discontinued operation as of the date of the transaction is as follows:
Balance sheet data:
Total assets
Total liabilities
$ 6,463
$13,587
As part of the sale transaction on March 23, 2011, we wrote off $5,699 of property and equipment and $11,563 of other long-term debt.
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Table of Contents
Revenues
Operating expenses
Gain on sale
Interest expense, net of interest income
Income tax expense
(Loss) income from discontinued operations, net of tax
2012
2011
2010
$ 0
(14)
0
0
0
$(14)
$ 1,578
(1,535)
6,667
(76)
0
$ 6,634
$ 8,246
(8,026)
0
(724)
(5)
$ (509)
16. SEGMENTS
We have two reportable segments:
•
Resort ownership/operation – aggregated operating results derived from our consolidated owned resorts; and
•
Resort third-party management/licensing – aggregated operating results derived from management, license and other related fees from
unconsolidated managed resorts.
The following summarizes significant financial information regarding our segments:
Period May 5, 2012 through December 31, 2012 (Successor)
Revenues
Resort
Ownership/
Operation
Resort
Third-Party
Management
/License
$ 182,201
$
21,599
Depreciation and amortization
Asset impairment loss
Net operating income (loss)
Investment income – affiliates
Interest income
Interest expense
Loss from continuing operations before income taxes and equity in income of
unconsolidated affiliates
Additions to long-lived assets
(28,088)
—
21,408
—
—
—
—
—
6,000
—
—
—
—
7,526
—
—
Total assets
766,643
6,323
Resort
Ownership/
Operation
Resort
Third-Party
Management
/License
$ 95,876
$
Period January 1, 2012 through May 4, 2012 (Predecessor)
Revenues
Depreciation and amortization
Net operating income (loss)
Investment income – affiliates
Interest income
Interest expense
Loss from continuing operations before income taxes and equity in income of
unconsolidated affiliates
Additions to long-lived assets
100
(15,476)
11,070
—
—
—
10,906
—
2,813
—
—
—
—
—
2,173
—
Other
Totals per
Financial
Statements
$ 3,386
$207,186
(3,334)
(1,200)
(13,412)
—
—
—
—
808
(31,422)
(1,200)
13,996
(577)
(128)
26,126
$ (11,425)
$ 8,334
108,628
$881,594
Other
Totals per
Financial
Statements
$ 1,110
$107,892
(993)
(20,007)
—
—
—
—
64
(16,469)
(6,124)
(303)
(82)
16,016
$ (21,755)
$
2,237
Table of Contents
Year Ended December 31, 2011 (Predecessor)
Revenues
Depreciation and amortization
Net operating income (loss)
Investment income – affiliates
Interest income
Interest expense
Loss from continuing operations before income taxes and equity in income of
unconsolidated affiliates
Additions to long-lived assets
Resort
Third-Party
Resort
Ownership/
Operation
Management/
Licensing
$ 260,585
$
(50,561)
18,300
—
—
—
—
8,919
Total assets, as revised
Year Ended December 31, 2010 (Predecessor)
Revenues
Depreciation and amortization
Asset impairment loss
Net operating (loss) income
Investment income – affiliates
Interest income
Interest expense
Loss from continuing operations before income taxes and equity in income of
unconsolidated affiliates
Additions to long-lived assets
$ (53,723)
$ 21,570
(902)
(210)
47,902
—
—
$ (25,220)
404
$
—
Resort
Ownership/
Operation
Resort
Third-Party
Management/
Licensing
$ 240,346
$
—
646,578
$296,708
(3,162)
(4,523)
—
—
—
1,725
(55,440)
(18,741)
(14,819)
—
—
—
$ 6,157
—
7,793
—
—
—
599,463
7,463
Total assets, as revised
29,966
Other
Totals per
Financial
Statements
29,312
9,323
103,686
$704,874
Other
Totals per
Financial
Statements
$ 6,302
$275,960
—
—
7,240
—
—
—
(2,878)
—
(3,902)
—
—
—
$ (58,318)
$ (18,741)
$ (11,481)
(1,088)
(543)
45,540
—
—
$ (55,390)
—
1,778
1,220
110,267
$
8,683
$758,623
The Other items in the table above includes items that do not constitute a reportable segment and represent corporate-level activities and the
activities of other operations not included in Resort Ownership/Operation or Resort Third-Party Management/License segments. Total assets at the
corporate level primarily consist of cash, our investment in affiliates, and intangibles. Total assets for all segments are within the United States.
17. SUPPLEMENTAL GUARANTOR CONSOLIDATING FINANCIAL STATEMENTS
On April 7, 2010, our subsidiaries, GWR Operating Partnership, L.L.L.P. and Great Wolf Finance Corp. were co-issuers (the “Issuers”) with
respect to $230,000 in principal amount of 10.875% first mortgage notes. In connection with the issuance, certain of our subsidiaries (the
“Subsidiary Guarantors”) have guaranteed the first mortgage notes. Certain of our other subsidiaries (the “Non-Guarantor Subsidiaries”) have not
guaranteed the first mortgage notes.
The following tables present the consolidating balances sheets of the Company (“Parent”), the Issuers, the Subsidiary Guarantors and the
Non-Guarantor Subsidiaries as of December 31, 2012 and December 31, 2011, the consolidating statements of operations for the periods January 1,
2012 through May 4, 2012, May 5, 2012 through December 31, 2012, the years ended December 31, 2011 and 2010, and the consolidating statements
of cash flows for the periods January 1, 2012 through May 4, 2012, May 5, 2012 through December 31, 2012 and for the years ended 2011 and 2010.
The Subsidiary Guarantors have guaranteed the first mortgage notes on a joint and several basis, and such guarantees are full and unconditional.
The accompanying condensed consolidating financial information has been prepared and presented pursuant to SEC Regulation S-X Rule 310, Financial statements of guarantors and issuers of guaranteed securities registered or being
101
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registered. Each of the Subsidiary Guarantors is 100% owned, directly or indirectly, by Great Wolf Resorts, Inc. There are significant restrictions on
the Subsidiary Guarantors’ ability to pay dividends or obtain loans or advances. The Company’s and the Issuers’ investments in their consolidated
subsidiaries are presented under the equity method of accounting.
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CONSOLIDATING BALANCE SHEET
December 31, 2012
Successor
(Dollars in thousands)
Parent
Issuers
Subsidiary
Guarantors
Non Guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
$
1,260
0
0
3,593
3,475
532,841
2,809
2,249
546,227
327,346
0
1,476
2,789
55,468
47,444
$ 980,750
$
9,152
3,133
7,022
2,517
1,669
72,650
4,394
1,886
102,423
287,709
0
24,221
144
68,967
0
483,464
$
0
0
0
0
0
(1,408,515)
0
0
(1,408,515)
0
(534,003)
0
0
0
0
$ (1,942,518)
$
$
$
66,768
2,633
0
210,327
980
7,027
5,140
1,235
1,311
295,421
137,719
0
0
0
433,140
$
$
ASSETS
Current assets:
Cash and cash equivalents
Restricted cash
Escrows
Accounts receivable
Accounts receivable – affiliate
Accounts receivable – consolidating entities
Inventory
Other current assets
Total current assets
Property and equipment, net
Investment in consolidating entities
Investment in and advances to affiliate
Other assets
Goodwill
Intangible assets
Total assets
$ 10,188
1,026
0
1,510
1
286,950
0
149
299,824
0
260,465
0
2,472
0
0
$562,761
$ 7,524
0
0
0
0
516,074
0
0
523,598
0
273,538
0
1
0
0
$797,137
$
28,124
4,159
7,022
7,620
5,145
0
7,203
4,284
63,557
615,055
0
25,697
5,406
124,435
47,444
$ 881,594
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt
Accounts payable
Accounts payable – affiliate
Accounts payable – consolidating entities
Accrued interest payable
Accrued expenses
Advance deposits
Gift certificates payable
Other current liabilities
Total current liabilities
Mortgage debt
Other long-term debt
Deferred tax liability
Deferred compensation liability
Total liabilities
Commitments and contingencies
Great Wolf Resorts stockholders’ equity:
Common stock
Preferred stock
Additional paid-in-capital
$
0
0
0
194,546
625
3,301
0
4,687
795
203,954
0
60,984
43,713
0
308,651
0
0
267,112
103
$
0
1,773
1,739
268,601
6,253
13
0
0
0
278,379
258,293
0
0
0
536,672
0
0
262,773
0
3,146
2
734,219
0
13,547
3,220
960
278
755,372
0
0
0
2,164
757,536
0
0
207,615
0
0
55,158
0
(93)
0
(1,407,693)
0
0
0
0
(729)
(1,408,515)
0
0
0
0
(1,408,515)
0
0
(525,546)
66,768
7,459
1,741
0
7,858
23,888
8,360
6,882
1,655
124,611
396,012
60,984
43,713
2,164
627,484
0
0
267,112
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Accumulated deficit
Deferred compensation
Total Great Wolf Resorts stockholders’ equity
Noncontrolling interest
Total equity
Total liabilities and equity
Parent
Issuers
Subsidiary
Guarantors
(13,002)
0
254,110
0
254,110
$562,761
(2,308)
0
260,465
0
260,465
$797,137
15,599
0
223,214
0
223,214
$ 980,750
104
Non Guarantor
Subsidiaries
$
(4,834)
0
50,324
0
50,324
483,464
Consolidating
Adjustments
Consolidated
(8,457)
0
(534,003)
0
(534,003)
$ (1,942,518)
(13,002)
0
254,110
0
254,110
$ 881,594
Table of Contents
CONSOLIDATING BALANCE SHEET
December 31, 2011
Predecessor
(As revised, dollars in thousands)
Parent
Issuers
Subsidiary
Guarantors
Non Guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
$
6,934
1,947
2,618
1,998
1,782
206,399
4,688
1,454
227,820
245,766
0
24,311
1,618
0
$
$
20,642
520,157
0
$ (1,746,565)
25,310
$ 704,874
67,664
3,393
17
177,079
1,036
9,631
5,030
1,706
307
265,863
144,997
0
0
0
410,860
$
$
ASSETS
Current assets:
Cash and cash equivalents
Restricted cash
Escrows
Accounts receivable
Accounts receivable – affiliate
Accounts receivable – consolidating entities
Inventory
Other current assets
Total current assets
Property and equipment, net
Investment in consolidating entities
Investment in and advances to affiliate
Other assets
Goodwill
$ 10,039
1,026
0
327
0
10,417
0
112
21,921
0
200,123
0
4,272
1,365
$ 15,980
0
0
0
0
472,289
0
0
488,269
0
274,959
0
6,702
0
$
Intangible assets
Total assets
0
$ 227,681
0
$ 769,930
4,668
$ 933,671
$
$
$
814
0
0
1,335
1,461
582,378
2,882
1,673
590,543
330,496
0
0
7,964
0
0
0
0
0
0
(1,271,483)
0
0
(1,271,483)
0
(475,082)
0
0
0
33,767
2,973
2,618
3,660
3,243
0
7,570
3,239
57,070
576,262
0
24,311
20,556
1,365
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt
Accounts payable
Accounts payable – affiliate
Accounts payable – consolidating entities
Accrued interest payable
Accrued expenses
Advance deposits
Gift certificates payable
Other current liabilities
Total current liabilities
Mortgage debt
Other long-term debt
Deferred tax liability
Deferred compensation liability
Total liabilities
Commitments and contingencies
Great Wolf Resorts stockholders’ equity:
Common stock
Preferred stock
Additional paid-in-capital
Accumulated deficit
Deferred compensation
Total Great Wolf Resorts stockholders’ equity
Noncontrolling interest
Total equity
Total liabilities and equity
$
0
1
0
5,730
723
866
0
4,384
0
11,704
0
80,545
11,907
0
104,156
325
0
404,714
(281,314)
(200)
123,525
0
123,525
$ 227,681
105
$
0
0
0
341,588
6,253
12
0
0
0
347,853
221,954
0
0
0
569,807
0
0
456,693
(256,570)
0
200,123
0
200,123
$ 769,930
14
1,907
10
747,086
0
13,702
2,685
961
171
766,536
0
0
0
1,502
768,038
0
0
163,514
2,119
0
165,633
0
165,633
$ 933,671
$
0
0
293,179
(183,853)
0
109,326
(29)
109,297
520,157
0
0
0
(1,271,483)
0
0
0
0
0
(1,271,483)
0
0
0
0
(1,271,483)
0
0
(913,386)
438,304
0
(475,082)
0
(475,082)
$ (1,746,565)
67,678
5,301
27
0
8,012
24,211
7,715
7,051
478
120,473
366,951
80,545
11,907
1,502
581,378
325
0
404,714
(281,314)
(200)
123,525
(29)
123,496
$ 704,874
Table of Contents
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Period May 5, 2012 through December 31, 2012
Successor
(Dollars in thousands)
Parent
Revenues:
Rooms
Food and beverage
Other
Management and other fees
Management and other fees – affiliates
Other revenue from managed properties
Other revenue from managed properties –
affiliates
Total revenues
Operating expenses by department:
Rooms
Food and beverage
Other
Other operating expenses:
Selling, general and administrative
Selling, general and administrative – affiliates
Property operating costs
Depreciation and amortization
Asset impairment loss
Loss on disposition of assets
Other expenses from managed properties
Other expenses from managed properties –
affiliates
Total operating expenses
Net operating (loss) income
Investment income – affiliates
Interest income
Interest expense
(Loss) income from continuing operations before
income taxes and equity in unconsolidated affiliates
Income tax (benefit) expense
Equity in unconsolidated affiliates, net of tax
$
Subsidiary
Guarantors
Issuers
0
0
0
333
0
$
Non
Guarantor
Subsidiaries
Consolidating
Adjustments
$
$
57,970
16,196
17,290
13
0
Consolidated
0
0
0
0
0
$ 62,993
17,275
14,553
5,400
3,582
0
0
(690)
(3,328)
0
120,963
33,471
31,153
2,418
3,582
333
0
0
0
103,803
7,887
91,469
0
(4,018)
0
191,587
7,887
0
0
7,712
0
333
0
119,402
91,469
(4,018)
207,186
0
0
0
0
0
0
8,715
13,190
11,993
9,881
11,741
15,007
(557)
0
(671)
18,039
24,931
26,329
6,638
0
0
2
0
0
84
193
0
2
0
0
27,054
0
11,473
15,458
0
0
20,927
0
11,910
15,960
1,200
182
(2,773)
0
(18)
0
0
0
51,930
193
23,365
31,422
1,200
182
6,640
0
279
0
87,883
7,887
86,808
0
(4,019)
0
177,591
7,887
0
0
7,712
0
6,640
279
103,482
86,808
0
0
(4,019)
7,712
7,712
193,190
(6,307)
0
(117)
3,998
(279)
0
(3)
12,797
15,920
0
0
0
4,661
(577)
(8)
9,331
1
0
0
0
13,996
(577)
(128)
26,126
(10,188)
506
2,308
(13,073)
0
(10,765)
15,920
321
0
(4,085)
235
606
1
0
8,458
(11,425)
1,062
607
106
Table of Contents
Subsidiary
Guarantors
Non
Guarantor
Subsidiaries
Consolidating
Adjustments
Parent
Issuers
Net (loss) income from continuing operations
Discontinued operations, net of tax
(13,002)
0
(2,308)
0
15,599
0
(4,926)
(9)
(8,457)
0
(13,094)
(9)
Net (loss) income
Net income attributable to noncontrolling interest, net of tax
(13,002)
0
(2,308)
0
15,599
0
(4,917)
(83)
(8,457)
0
(13,085)
(83)
$(13,002)
$(2,308)
$ 15,599
Net (loss) income attributable to Great Wolf Resorts, Inc.
107
$
(4,834)
$
(8,457)
Consolidated
$
(13,002)
Table of Contents
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Period January 1, 2012 through May 4, 2012
Predecessor
(Dollars in thousands)
Parent
Revenues:
Rooms
Food and beverage
Other
Management and other fees
Management and other fees – affiliates
Other revenue from managed properties
Other revenue from managed properties – affiliates
Total revenues
Operating expenses by department:
Rooms
Food and beverage
Other
Other operating expenses:
Selling, general and administrative
Property operating costs
Depreciation and amortization
Loss on disposition of assets
Other expenses from managed properties
Other expenses from managed properties – affiliates
Total operating expenses
Net operating (loss) income
Investment income – affiliates
Interest income
Interest expense
(Loss) income from continuing operations before income
taxes and equity in income of unconsolidated affiliates
Income tax expense
Equity in loss (income) of unconsolidated affiliates, net of
tax
Net (loss) income from continuing operations
Discontinued operations, net of tax
Net (loss) income
Net income attributable to noncontrolling interest, net of
tax
Net (loss) income attributable to Great Wolf Resorts, Inc.
$
Subsidiary
Guarantors
Non Guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
0
0
0
0
0
0
0
0
0
$ 30,243
8,399
7,206
8,872
1,414
56,134
4,193
3,901
64,228
$
$
$
0
0
0
5,325
6,466
5,908
5,412
6,480
7,542
(1,279)
0
0
9,458
12,946
13,450
(6,393)
0
0
0
(7,672)
0
0
(7,672)
0
0
0
0
42,205
11,347
16,469
47
105,922
4,193
3,901
114,016
(6,124)
(303)
(82)
16,016
Issuers
0
0
0
191
0
191
0
0
191
$
0
0
0
33,550
8,874
8,714
7
0
51,145
0
0
51,145
15,470
0
53
0
15,523
0
0
15,523
(15,332)
0
(74)
2,179
59
0
480
0
539
0
0
539
(539)
0
(7)
9,136
20,803
5,266
8,391
47
52,206
4,193
3,901
60,300
3,928
0
0
0
12,266
6,081
7,545
0
45,326
0
0
45,326
5,819
(303)
(1)
4,701
(17,437)
66
(9,668)
0
3,928
141
1,422
62
3,978
(21,481)
0
(21,481)
(5,690)
(3,978)
0
(3,978)
0
3,787
0
3,787
(551)
1,911
23
1,888
0
$(21,481)
0
$(3,978)
108
$
0
3,787
$
(15)
1,903
0
0
0
(7,672)
0
(7,672)
0
0
(7,672)
0
0
(21,755)
269
1,712
(1,712)
0
(1,712)
$
0
(1,712)
63,793
17,273
15,920
1,398
1,414
99,798
4,193
3,901
107,892
(551)
(21,473)
23
(21,496)
$
(15)
(21,481)
Table of Contents
CONSOLIDATING STATEMENT OF OPERATIONS
Year ended December 31, 2011
Predecessor
(As revised, dollars in thousands)
Parent
Revenues:
Rooms
Food and beverage
Other
Management and other fees
Management and other fees – affiliates
Issuers
$
$
0
0
161,421
11,315
133,607
0
0
0
10,858
0
586
0
183,594
133,607
(21,079)
296,708
0
0
0
0
0
0
14,573
18,899
16,758
13,993
16,593
20,705
(3,497)
0
0
25,069
35,492
37,463
3,397
0
303
0
132
0
1,370
0
46,727
16,480
25,486
135
31,572
18,893
26,564
1,378
(17,496)
0
0
0
64,332
35,373
53,723
1,513
3,700
0
1,502
0
139,058
11,315
129,698
0
(20,993)
0
252,965
11,315
0
0
10,858
0
3,700
1,502
161,231
129,698
Net operating (loss) income
Investment income – affiliates
Interest income
Interest expense
(3,114)
0
(196)
6,343
(1,502)
0
(5)
26,544
22,363
0
0
1
3,909
(902)
(9)
15,014
(86)
0
0
0
21,570
(902)
(210)
47,902
(Loss) income from continuing operations before
income taxes and equity in unconsolidated affiliates
Income tax (benefit) expense
Equity in unconsolidated affiliates, net of tax
(9,261)
216
10,236
(28,041)
0
(17,805)
22,362
488
0
(10,194)
428
15
(86)
0
7,567
(25,220)
1,132
13
(19,713)
0
(10,236)
—
21,874
—
(10,637)
(6,550)
(7,653)
(84)
(26,365)
(6,634)
Other expenses from managed properties
Other expenses from managed properties –
affiliates
Total operating expenses
Net (loss) income from continuing operations
Discontinued operations, net of tax
109
86,164
22,076
25,333
34
0
Consolidated
586
0
Operating expenses by department:
Rooms
Food and beverage
Other
Other operating expenses:
Selling, general and administrative
Property operating costs
Depreciation and amortization
Loss on disposition of assets
$
Consolidating
Adjustments
$ 88,161
24,431
20,577
23,271
4,981
Total revenues
0
0
0
586
0
Non
Guarantor
Subsidiaries
0
0
0
0
0
Other revenue from managed properties
Other revenue from managed properties –
affiliates
$
Subsidiary
Guarantors
0
0
0
(21,079)
0
174,325
46,507
45,910
2,812
4,981
(21,079)
0
274,535
11,315
0
0
(20,993)
10,858
10,858
275,138
Table of Contents
Net (loss) income
Net income attributable to noncontrolling interest, net of tax
Net (loss) income attributable to Great Wolf Resorts, Inc.
Subsidiary
Guarantors
Parent
Issuers
(19,713)
0
(10,236)
0
21,874
0
$(19,713)
$(10,236)
$ 21,874
110
Non
Guarantor
Subsidiaries
Consolidating
Adjustments
(4,087)
(18)
$
(4,069)
Consolidated
(7,569)
0
$
(7,569)
(19,731)
(18)
$
(19,713)
Table of Contents
CONSOLIDATING STATEMENT OF OPERATIONS
Year ended December 31, 2010
Predecessor
(As revised, dollars in thousands)
Parent
Revenues:
Rooms
Food and beverage
Other
Management and other fees
Management and other fees – affiliates
Issuers
$
$
0
0
148,927
11,083
124,158
0
0
0
10,989
0
451
0
170,999
124,158
(19,648)
275,960
0
0
0
0
0
0
13,574
17,603
15,865
12,722
15,569
18,069
(3,190)
0
0
23,106
33,172
33,934
2,850
0
153
0
0
144
0
940
0
0
46,538
16,208
30,356
0
9
31,570
16,796
26,869
18,741
10
(16,027)
0
0
0
0
65,075
33,004
58,318
18,741
19
3,003
0
1,084
0
140,153
11,083
140,346
0
(19,217)
0
265,369
11,083
0
0
10,989
0
3,003
1,084
162,225
140,346
Net operating (loss) income
Investment income – affiliates
Interest income
Interest expense
(2,552)
0
(531)
6,343
(1,084)
0
(13)
19,466
8,774
0
(2)
3,860
(16,188)
(1,088)
3
15,871
(431)
0
0
0
(11,481)
(1,088)
(543)
45,540
(Loss) income from continuing operations before
income taxes and equity in affiliates
Income tax expense (benefit)
Equity in unconsolidated affiliates, net of tax
(8,364)
(159)
49,118
(20,537)
0
28,581
4,916
557
0
(30,974)
429
648
(431)
(42)
(77,699)
(55,390)
785
648
(57,323)
(49,118)
4,359
(32,051)
77,310
(56,823)
Other expenses from managed properties
Other expenses from managed properties –
affiliates
Total operating expenses
Net (loss) income from continuing operations
111
78,964
20,950
24,178
66
0
Consolidated
451
0
Operating expenses by department:
Rooms
Food and beverage
Other
Other operating expenses:
Selling, general and administrative
Property operating costs
Depreciation and amortization
Asset impairment loss
Loss on disposition of assets
$
Consolidating
Adjustments
$ 80,021
23,484
19,051
21,777
4,594
Total revenues
0
0
0
451
0
Non
Guarantor
Subsidiaries
0
0
0
0
0
Other revenue from managed properties
Other revenue from managed properties –
affiliates
$
Subsidiary
Guarantors
0
0
0
(19,648)
0
158,985
44,434
43,229
2,646
4,594
(19,648)
0
253,888
11,083
0
0
(19,217)
10,989
10,989
287,441
Table of Contents
Parent
Discontinued operations, net of tax
Net (loss) income
Net income attributable to noncontrolling interest, net of tax
Net (loss) income attributable to Great Wolf Resorts, Inc.
Issuers
0
Non
Guarantor
Subsidiaries
0
898
0
(57,323)
0
(49,118)
0
$(57,323)
$(49,118)
112
Subsidiary
Guarantors
$
4,359
0
(32,949)
(9)
4,359
$ (32,940)
Consolidating
Adjustments
Consolidated
(389)
509
77,699
0
$
77,699
(57,332)
(9)
$
(57,323)
Table of Contents
CONSOLIDATING STATEMENT OF CASH FLOWS
Period May 5, 2012through December 31, 2012
Successor
(Dollars in thousands)
Operating activities:
Net (loss) income
Adjustment to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Depreciation and amortization
Bad debt expense
Amortization of debt fair value
Asset impairment loss
Write off of development costs
Non-cash employee compensation and professional
fee expense
Loss on disposition of assets
Equity in unconsolidated affiliates
Deferred tax expense
Changes in operating assets and liabilities
Net cash provided by (used in) operating
activities
Investing activities:
Capital expenditures for property and equipment
Investment in unconsolidated affiliates
Investment in development
Purchase of minority interest
(Increase) decrease in restricted cash
Net cash used in investing activities
Financing activities:
Principal payments on long-term debt
Payment of loan costs
Capital contributions
Advances from consolidating entities, net
Net cash (used in) provided by financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents, beginning of period
Non
Guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
$
$
$
Parent
Issuers
Subsidiary
Guarantors
$ (13,002)
$ (2,308)
$ 15,599
2
0
84
0
0
2
0
(3,607)
0
0
15,458
19
0
0
4,749
15,960
113
244
1,200
0
0
0
2,308
462
99,967
0
0
(10,765)
0
137,526
1,518
0
0
0
(80,488)
0
182
662
0
(162,468)
0
0
8,458
0
(823)
1,518
182
663
462
(6,286)
89,821
120,848
(43,145)
(149,024)
(822)
17,678
4
0
0
0
0
4
0
0
0
0
0
0
(4,043)
0
(58)
0
0
(4,101)
(4,295)
(460)
0
(1,525)
(2,126)
(8,406)
0
0
0
0
0
0
(8,334)
(460)
(58)
(1,525)
(2,126)
(12,503)
0
0
0
52,447
52,447
5,201
(3,941)
(5,857)
(53)
0
168,025
162,115
4,685
4,467
0
0
0
822
822
0
0
(5,857)
(60)
1,091
0
(4,826)
349
27,775
0
(4)
1,091
(104,064)
(102,977)
(13,152)
23,340
0
(3)
0
(117,230)
(117,233)
3,615
3,909
113
(4,917)
(8,457)
0
0
0
0
0
(13,085)
31,422
132
(3,279)
1,200
4,749
Table of Contents
Cash and cash equivalents, end of period
Parent
Issuers
Subsidiary
Guarantors
$10,188
$7,524
$
114
1,260
Non
Guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
$
$
$
9,152
0
28,124
Table of Contents
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Period January 1, 2012 through May 4, 2012
Predecessor
(Dollars in thousands)
Operating activities:
Net (loss) income
Adjustment to reconcile net (loss) income to net cash (used
in) provided by operating activities:
Depreciation and amortization
Bad debt expense
Non-cash employee compensation and professional
fees expense
Loss on disposition of assets
Equity in loss (income) of affiliates
Deferred tax benefit
Changes in operating assets and liabilities
Net cash (used in) provided by operating
activities
Investing activities:
Capital expenditures for property and equipment
Investment in development
Proceeds from sale of assets
Increase in restricted cash
Net cash used in investing activities
Financing activities:
Principal payments on debt
Payment of loan costs
Advances from consolidating entities, net
Net cash provided by (used in) financing
activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Parent
Issuers
$(21,481)
$ (3,978)
53
0
480
0
Subsidiary
Guarantors
Non
Guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
$
$
$
$
3,787
1,888
8,391
1
7,545
25
(1,712)
0
0
(21,496)
16,469
26
0
0
3,978
73
14,315
0
0
(5,690)
0
(3,747)
3,348
47
0
0
(3,218)
0
0
(559)
0
(3,580)
(3,062)
(12,935)
12,356
5,319
0
1,678
(1,248)
(75)
3
0
(1,320)
(989)
0
0
(3,464)
(4,453)
0
0
0
0
0
(2,237)
(75)
3
(3,464)
(5,773)
0
0
0
0
0
0
0
0
0
0
0
0
1,712
0
0
3,348
47
(559)
73
3,770
0
3
16,360
527
(121)
458
(14)
0
(15,777)
(2,290)
(2)
(1,041)
0
0
0
(1,777)
(120)
0
16,363
13,301
10,039
$ 23,340
864
(12,071)
15,980
$ 3,909
(15,791)
(4,755)
814
$ (3,941)
(3,333)
(2,467)
6,934
4,467
0
0
0
0
(1,897)
(5,992)
33,767
27,775
115
$
$
$
Table of Contents
CONSOLIDATING STATEMENT OF CASH FLOWS
Year ended December 31, 2011
Predecessor
(As revised, dollars in thousands)
Operating activities:
Net (loss) income
Adjustment to reconcile net (loss) income to net cash (used)
provided by operating activities:
Depreciation and amortization
Bad debt expense
Non-cash employee compensation and professional fee
expense
Loss on disposition of assets
Gain on disposition of property included in discontinued
operations
Equity in unconsolidated affiliates
Deferred tax expense
Changes in operating assets and liabilities
Net cash (used in) provided by operating activities
Investing activities:
Capital expenditures for property and equipment
Loan repayment from unconsolidated affiliate
Investment in development
Proceeds from sale of a discontinued operation
Proceeds from sale of assets
(Increase) decrease in restricted cash
Net cash used in investing activities
Financing activities:
Principal payments on long-term debt
Proceeds from issuance of long-term debt
Payment of loan costs
Advances from consolidating entities, net
Net cash provided by (used in) financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Parent
Issuers
Subsidiary
Guarantors
$(19,713)
$(10,236)
$ 21,874
303
0
1,371
0
0
0
0
0
0
10,236
208
2,433
(6,533)
0
0
0
0
0
(1,001)
(1,001)
0
0
(111)
7,637
7,526
(8)
10,047
$ 10,039
116
0
(17,805)
0
(679)
(27,349)
0
0
0
0
0
0
0
1,532
0
(123)
17,752
19,161
(8,188)
24,168
$ 15,980
Non
Guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
$
$
$
(4,087)
(7,569)
(19,731)
25,486
(13)
26,663
42
0
0
53,823
29
2,252
137
0
1,376
0
0
2,252
1,513
0
0
0
(3,921)
45,815
(6,667)
13
0
(405)
16,935
0
7,569
0
0
0
(6,667)
13
208
(2,572)
28,868
(3,515)
0
(422)
0
0
0
(3,937)
(5,808)
807
0
4,200
2
724
(75)
0
0
0
0
0
0
0
(9,323)
807
(422)
4,200
2
(277)
(5,013)
(33)
0
0
(40,703)
(40,736)
1,142
(328)
$
814
(83,060)
56,000
(1,281)
15,314
(13,027)
3,833
3,101
$
6,934
0
0
0
0
0
0
0
0
(81,561)
56,000
(1,515)
0
(27,076)
(3,221)
36,988
33,767
$
$
Table of Contents
CONSOLIDATING STATEMENT OF CASH FLOWS
Year ended December 31, 2010
Predecessor
(As revised, dollars in thousands)
Operating activities:
Net (loss) income
Adjustment to reconcile net (loss) income to net cash (used in)
provided by operating activities:
Depreciation and amortization
Bad debt expense
Asset impairment loss
Non-cash employee compensation and professional fees
expense
Loss on disposition of assets
Equity in unconsolidated affiliates
Deferred tax benefit
Changes in operating assets and liabilities
Net cash (used in) provided by operating activities
Investing activities:
Capital expenditures for property and equipment
Loan repayment from unconsolidated affiliate
Investment in development
Proceeds from sale of assets
Cash acquired in acquisition of Creative Kingdoms, LLC
Decrease (increase) in restricted cash
Net cash (used in) provided by investing activities
Financing activities:
Principal payments on long-term debt
Proceeds from issuance of long-term debt
Payment of loan costs
Advances from consolidating entities, net
Net cash provided by (used in) financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Parent
Issuers
$(57,323)
$ (49,118)
153
0
0
0
0
49,118
(94)
1,645
(6,501)
0
0
0
0
0
0
0
0
0
49
11,476
11,525
5,024
5,023
$ 10,047
117
940
0
0
0
0
28, 581
0
6,930
(12,667)
0
0
0
0
0
0
0
1,124
219,298
(8,887)
(189,238)
22,297
9,630
14,538
$ 24,168
Subsidiary
Guarantors
Non
Guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
$
$ (32,949)
$
$
4,359
77,699
30,356
145
0
27,018
81
18,741
2,664
9
0
0
(2,446)
35,087
0
9
639
0
(346)
13,193
(4,142)
0
(517)
0
0
4,430
(229)
(4,541)
1,715
0
19
324
(1,766)
(4,249)
0
0
0
0
0
0
0
(8,683)
1,715
(517)
19
324
2,664
(4,478)
(214,865)
0
(1,836)
183,105
(33,596)
1,262
(1,590)
$
(328)
(3,369)
39
(112)
(5,343)
(8,785)
159
2,942
3,101
0
0
0
0
0
0
0
0
(217,110)
219,337
(10,786)
0
(8,559)
16,075
20,913
$ 36,988
$
0
0
0
(57,332)
0
0
(77,699)
0
0
0
$
58,467
226
18,741
2,664
18
639
(94)
5,783
29,112
Table of Contents
18. REVISION OF PRIOR PERIOD FINANCIAL STATEMENTS
In connection with the preparation of our condensed consolidated financial statements for the second quarter of 2012, we identified an error
in the manner in which deferred tax balances were calculated. In accordance with accounting guidance found in ASC 250-10 (SEC Staff Accounting
Bulletin No. 99, Materiality), we assessed the materiality of the error and concluded that the error was not material to any of our previously issued
financial statements. In accordance with accounting guidance found in ASC 250-10 (SEC Staff Accounting Bulletin No. 108, Considering the Effects
of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements), we revised our previously issued financial
statements to correct the effect of this error. This non-cash revision does not impact our operating income or cash flows for any prior period.
The following tables present the effect of this correction on the Company’s Consolidated Balance Sheets, Statements of Operations, Statements of
Equity and Statements of Cash Flows for all Predecessor periods affected:
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December 31, 2011
Consolidated Balance Sheet
Other current assets
Total current assets
Other assets
Total assets
Deferred tax liability
Total liabilities
Accumulated deficit
Total Great Wolf Resorts, Inc. stockholders’ equity
Total equity
Total liabilities and equity
As
Previously
Reported
Adjustment
As Revised
$
$
$
4,194*
58,025
26,049
711,322
0
569,471
(262,959)
141,880
141,851
711,322
(955)
(955)
(5,493)
(6,448)
11,907
11,907
(18,355)
(18,355)
(18,355)
(6,448)
3,239*
57,070
20,556
704,874
11,907
581,378
(281,314)
123,525
123,496
704,874
* Restricted cash was presented separately in the current year and the prior year presentation was conformed to the
current year presentation.
Year Ended December 31, 2011
Consolidated Statement of Operations
Income tax expense
Equity in loss of unconsolidated affiliates, net of tax
Net loss from continuing operations
Net loss
Net income attributable to noncontrolling interest, net of tax
119
$
7,086
18
(32,324)
(25,690)
(27)
$
(5,954)
(5)
5,959
5,959
9
$
1,132
13
(26,365)
(19,731)
(18)
Table of Contents
As
Previously
Reported
Net loss attributable to Great Wolf Resorts, Inc.
Loss per share of common stock basic and diluted:
Loss from continuing operations, net of net income attributable
to noncontrolling interest, net of tax
Income from discontinued operations, net of tax
Basic and diluted loss per common share
Consolidated Statement of Equity
Net loss attributable to Great Wolf Resorts, Inc.
Accumulated deficit
Consolidated Statement of Cash Flow
Net loss
Deferred tax expense
120
Adjustment
(25,663)
$
As Revised
5,950
(1.03)
0.21
(0.82)
$
$ (25,663)
(262,959)
$
5,950
(18,355)
$ (19,713)
(281,314)
$ (25,690)
6,167
$
5,959
(5,959)
$ (19,731)
208
$
$
0.19
0.00
0.19
(19,713)
$
$
(0.84)
0.21
(0.63)
Table of Contents
As
Previously
Reported
Year Ended December 31, 2010
Consolidated Statement of Operations
Income tax expense (benefit)
Equity in loss of unconsolidated affiliates, net of tax
Net loss from continuing operations
Discontinued operations, net of tax
Net loss
Net loss attributable to Great Wolf Resorts, Inc.
Loss per share of common stock basic and diluted:
Loss from continuing operations, net of net income attributable to
noncontrolling interest, net of tax
Loss from discontinued operations, net of tax
Basic and diluted loss per common share
Consolidated Statement of Equity
Net loss attributable to Great Wolf Resorts, Inc.
Accumulated deficit
Consolidated Statement of Cash Flow
Net loss
Deferred tax expense
121
Adjustment
As Revised
$ (5,403)
576
(50,563)
455
(51,018)
(51,009)
$
6,188
72
(6,260)
54
(6,314)
(6,314)
$
785
648
(56,823)
509
(57,332)
(57,323)
$
(1.63)
(0.02)
(1.65)
$
(0.20)
0.00
(0.20)
$
(1.83)
(0.02)
(1.85)
$ (51,009)
(237,296)
$
(6,314)
(24,305)
$ (57,323)
(261,601)
$ (51,018)
(6,408)
$
(6,314)
6,314
$ (57,332)
(94)
$
$
$
Table of Contents
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to provide reasonable assurance that information in our reports under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods
specified pursuant to the SEC’s rules and forms. Disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act, include controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit
under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures,
management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, and not
absolute, assurance that the objectives of the system are met.
We carried out an evaluation, under the supervision and with the participation of our management including our Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the fourth
quarter of 2012. In making this evaluation, we necessarily applied our judgment in assessing the costs and benefits of such controls and
procedures, which, by their nature, can provide only reasonable assurance about management’s control objectives. You should note that the
design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and we cannot assure you that
any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. Based upon the foregoing
evaluation, our Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures were effective and
operating to provide at the reasonable assurance level that information we are required to disclose in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC, and to provide
reasonable assurance that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions about required disclosure.
Changes in Internal Control
There have been no changes in our internal controls over financial reporting during the quarter ended December 31, 2012 that have materially
affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate and effective internal control over financial reporting. Internal
control over financial reporting refers to the process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial
Officer, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting
principles, and includes those policies and procedures that:
•
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the
assets of the Company;
•
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with U.S. generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in
accordance with authorizations of our management and directors; and
•
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets
that could have a material effect on the financial statements.
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Internal control over financial reporting cannot provide absolute assurance for the prevention or detection of misstatements within our
financial reporting because of its inherent limitations. Internal control over financial reporting is a process that involves human judgment and
requires diligence and compliance to prevent errors. Internal control over financial reporting can also be circumvented by collusion or improper
management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis.
However, these inherent limitations are known features of the financial reporting process and it is possible to design safeguards to reduce, though
not eliminate, this risk. Our management has used the framework set forth in the report entitled “Internal Control-Integrated Framework” published
by the Committee of Sponsoring Organizations of the Treadway Commission to evaluate the effectiveness of our internal control over financial
reporting.
Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal
Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and concluded that our
internal control over financial reporting was effective as of December 31, 2012.
Conclusion
Management has concluded that, as of December 31, 2012, our internal control over financial reporting was effective.
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ITEM 9B.
OTHER INFORMATION
None.
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
THE BOARD OF DIRECTORS
The following table sets forth the names, ages, positions held and business experience of the Company’s directors as of March 1, 2013.
AARON J. STONE, age 40
Mr. Stone has been a member of our board of directors since the consummation of
the merger in May 2012. Mr. Stone is a senior partner of Apollo, where he has worked
since 1997. Mr. Stone has significant experience making and managing private equity
investments on behalf of Apollo and has over 16 years of experience financing,
analyzing and investing in public and private companies, which in addition to his
experience with communications businesses, was instrumental in his selection as a
member of our board of directors. Mr. Stone also serves on the board of directors of
CORE Entertainment Holdings, Inc. Mr. Stone was on the board of directors of AMC
Entertainment Inc., from December 2004 to August 2012; Connections Academy,
LLC, from September 2004 to November 2011; Hughes Communications, Inc., from
December 2005 to June 2011; Hughes Telematics, Inc., from March 2009 to July 2012;
Mobile Satellite Ventures, L.P., from June 2005 to November 2008; Parallel Petroleum,
LLC, from October 2009 to December 2011and SkyTerra Communications, from June
2005 to November 2008.
Committees: Audit; Compensation
JAMES P. CHAMBERS, age 27
Mr. Chambers has been a member of our board of directors since the consummation
of the merger in May 2012. Mr. Chambers is a principal at Apollo. Mr. Chambers
joined Apollo in 2009 and has focused on private equity investments across a wide
range of industries. Prior to that time, Mr. Chambers was a member of the Consumer
and Retail Group in the Investment Banking Division of Goldman, Sachs & Co where
he advised a number of companies on a variety of strategic transactions and capital
raising activities. Mr. Chambers also serves on the board of directors of Veritable
Maritime Holdings, LLC and Principal Maritime Holdings, LLC. Mr. Chambers
graduated from Duke University with an AB in Political Science and a certificate in
Markets and Management studies.
Committees: Audit; Compensation
SCOTT I. ROSS, age 33
Mr. Ross has been a member of our board of directors since the consummation of the
merger in May 2012. Mr. Ross is a partner of Apollo. Mr. Ross joined Apollo and has
been employed by Apollo since 2004 (except for the period from August 2008 until
September 2009 when he was employed by Shumway Capital Partners). Prior to 2004,
Mr. Ross was a member of the Fixed Income, Currencies and Commodities Division
and then a member of the Merchant Banking Division of Goldman, Sachs & Co. Mr.
Ross also serves on the Board of Directors of EVERTEC, Inc. and EVERTEC Group,
LLC. Mr. Ross has significant experience in making and managing private equity
investments on behalf of Apollo and over ten years of experience in financing,
analyzing and investing in public and private companies.
Committees: Audit (Chair); Compensation (Chair)
KIMBERLY K. SCHAEFER, age 47
Ms. Schaefer has served as our Chief Executive Officer since January 2009, and was
elected to our Board of Directors in February 2009. She previously served as our
Chief Operating Officer since 2005, and also our Chief Brand Officer since we
commenced operations in 2004. From 1997 until completion of the our initial public
offering in 2004, Ms. Schaefer served as Senior Vice President of Operations of The
Great
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Lakes Companies, Inc., our predecessor company, and its predecessor companies. At
Great Lakes, Ms. Schaefer was involved in site selection and brand development and
oversaw all resort operations. Ms. Schaefer has over 20 years of hospitality
experience and holds a Bachelor of Science degree in Accounting from Edgewood
College in Madison, Wisconsin. Ms. Schaefer sits on the advisory board for
Edgewood College Business School. Ms. Schaefer is a certified public accountant.
Committees: None
ALLEN R. WEISS, age 58
Mr. Weiss has been a member of the Company’s Board of Directors since August
2012. Mr. Weiss served as President of Worldwide Operations for the Walt Disney
Parks and Resorts business of The Walt Disney Company from 2005 until his
retirement in 2011. Prior to that, Mr. Weiss served in a number of roles for The Walt
Disney Company since 1972, including most recently as President of Walt Disney
World Resort, Executive Vice President of Walt Disney World Resort and Vice
President of Resort Operations Support. Mr. Weiss also serves on the board or
council of a number of community and civic organizations.
Committees: None
THE NAMED EXECUTIVE OFFICERS
Ms. Schaefer is an executive officer and director and her biographical information is set forth under “The Board of Directors.” The names,
positions, business experience, terms of office and ages of our other executive officers are as follows:
TIMOTHY D. BLACK, age 47
Mr. Black has served as Executive Vice President and Chief Operating Officer of the Company
since October 2012. Mr. Black previously served as our Executive Vice President of Operations
since January 2009, as our Senior Vice President of Operations since June 2008, and as our
Regional Vice President of Operations from December 2005 through June 2008. From October 2004
through December 2005, Mr. Black served as the General Manager of our Great Wolf Lodge resort
located in Lake Delton, Wisconsin. Prior to that, Mr. Black spent eighteen years at Six Flags Theme
Park in various senior management positions, serving most recently as Vice President and General
Manager of Six Flags Great America from August 2003 through October 2004.
JAMES A. CALDER, age 50
Mr. Calder has served as our Chief Financial Officer since we commenced operations in May 2004.
From 1997 to 2004, Mr. Calder served in a number of management positions with Interstate
Hotels & Resorts, Inc., a public company, and its predecessor company, serving most recently as
chief financial officer. Additionally, from 2001 to 2002, Mr. Calder served as chief accounting
officer of MeriStar Hospitality Corporation, a public company. Mr. Calder holds a B.S. degree in
Accounting from The Pennsylvania State University. Mr. Calder is a certified public accountant, is
president and treasurer of the Thomas W. Hetrick Memorial Scholarship Fund, a private, non-profit
organization, and is treasurer of Harvest Resources Associates, LLC, a private organization.
ALEXANDER P. LOMBARDO, age 44
Mr. Lombardo has served as our Treasurer since 2004. From 1998 to 2004, Mr. Lombardo served in
a number of positions with Interstate Hotels & Resorts, Inc., a public company, and its
predecessor company, serving most recently as vice president of finance. Additionally, from 1998
to 2002, Mr. Lombardo served in a number of positions with MeriStar Hospitality Corporation, a
public company, serving most recently as assistant treasurer. From 1996 to 1998, Mr. Lombardo
served as cash manager of ICF Kaiser International, Inc., a public company.
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Mr. Lombardo holds a B.B.A. degree from James Madison University.
J. SCOTT MAUPIN, age 41
Mr. Maupin has served as our Senior Vice President of Operations since January 2012. Mr.
Maupin previously served as our Regional Vice President of Operations since 2008. From 2007 to
2008, Mr. Maupin served as General Manager of our Great Wolf Lodge resort located in Lake
Delton, Wisconsin. Prior to that, Mr. Maupin served 16 years at Six Flags Theme Parks, Inc. and
Premier Parks, Inc., both public companies, in various senior and operational management
positions, serving most recently as President of The Six Flags Great Escape Lodge and Indoor
Waterpark as well as The Great Escape theme park from 2004-2007.
CORPORATE GOVERNANCE
Section 16(a) Beneficial Ownership Reporting Compliance
Under federal securities laws, our directors, executive officers and any persons beneficially owning more than 10% of a registered class of our
equity securities are required to report their ownership and any changes in that ownership to the SEC. These persons are also required by SEC
rules and regulations to furnish us with copies of these reports. The SEC has established due dates for these reports, and we are required to report
in this information statement any failure to timely file these reports by those due dates by our directors and executive officers during 2012.
Based solely upon our review of the reports and amendments to those reports furnished to us or written representations from our directors
and executive officers that these reports were not required from those persons, we believe that all of these filing requirements were satisfied by our
directors and executive officers and all persons beneficially owning more than 10% of a registered class of our equity securities during 2012.
Audit Committee
Our Board of Directors has established an Audit Committee, which as of December 31, 2012 consisted of Messrs. Chambers, Ross, and Stone,
with Mr. Ross serving as its chairman.
Our Audit Committee operates under a written charter adopted by our Board of Directors. A copy of this charter is available on our Web site
under “Investor Relations” at greatwolf.com. Among other duties, this committee:
•
Reviews and discusses with management and our independent auditor our financial reports, financial statements and other financial
information;
•
If we become subject to the SEC filing requirement with respect to management’s report on internal control over financial reporting and
the independent auditor’s attestation thereof, reviews and discusses with management and our independent auditor such report and
attestation prior to the filing of our Form 10-K;
•
Is directly responsible for the appointment, retention, compensation and oversight of our independent registered public accounting
firm;
•
Reviews and discusses with our independent auditor their reports regarding critical accounting policies and practices to be used; all
alternative treatments of financial information within generally accepted accounting principles that have been discussed with
management, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the independent
auditor; and other material written communications between the independent auditor and management;
•
Approves all professional services provided by our independent auditor;
•
Evaluates the qualifications, performance and independence of our independent auditor;
•
Obtains and reviews a statement from our independent auditor regarding their fees billed for audit and non-audit services; and
•
Reviews and discusses with management and the our independent auditor any major issues as the scope of the annual audit, the
adequacy of our internal controls, any special audit steps adopted in light of material control deficiencies and the adequacy of
disclosures about changes in internal control over financial reporting.
Our Audit Committee met four times in 2012.
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Availability of Corporate Governance Materials.
The Company has adopted a Code of Business Conduct and Ethics that applies to the Company’s principal executive officer and the
Company’s principal financial officer (who is also the Company’s principal accounting officer). Parties may view our corporate governance
materials, including the charters of our Audit Committee and our Compensation Committee, and our Code of Business Conduct and Ethics, on our
Web site under “Investor Relations” at greatwolf.com.
ITEM 11.
EXECUTIVE COMPENSATION
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EXECUTIVE AND DIRECTOR COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
The Compensation Committee oversees our compensation program for our senior executives, including our Named Executive Officers (NEOs).
The Compensation Committee’s responsibilities include:
•
Recommending to the Board for approval our general compensation philosophy and objectives,
•
Reviewing and approving our goals and objectives relevant to the compensation of our CEO, and evaluating the CEO’s performance in
light of those goals and objectives, determining the CEO’s compensation level, and making recommendations with respect to the CEO’s
equity compensation,
•
Approving all non-equity compensation for non-CEO executive officers and making recommendations with respect to all equity-based
compensation for non-CEO executive officers,
•
Approving all employment agreement, severance agreements, consulting agreements, change in control provisions and agreements and
similar arrangements providing for payments to executive officers,
•
Reviewing and making recommendations to the Board with respect to non-equity incentive compensation plans, policies and benefit
programs for employees generally, and overseeing the activities of the individuals and committees responsible for administering these
plans,
•
Reviewing and making recommendations to the compensation committee of K-9 Holdings, Inc., our parent company, with respect to
equity-based compensation and equity-based plans,
•
Reviewing and discussing with management the disclosures made in Compensation Discussion and Analysis prior to the filing of our
annual report on Form 10-K,
•
Reviewing and assessing the adequacy of the Compensation Committee’s charter and recommending any proposed changes to the
Board for approval,
•
Reviewing and making recommendations to the Board with respect to stock ownership guidelines for the CEO and other executive
officers and monitoring compliance with such guidelines,
•
Overseeing the risk assessment of our compensation arrangements applicable to our executive officers and other employees,
•
Reviewing and making recommendations to the Board with respect to the non-equity components of compensation for members of the
Board,
•
Developing a succession plan for senior management and the CEO, and
•
Reviewing and approving any additional services to be performed for us by a compensation consultant retained to provide advice or
recommendations on the form or amount of compensation for executives and/or members of the Board.
From time to time, the Compensation Committee may retain compensation consultants to assist with, among other things:
•
Structuring our various compensation programs;
•
Determining appropriate levels of salary, bonus and other awards payable to our NEOs consistent with our competitive strategy,
corporate governance principles and stockholder interests; and
•
Guiding us in the development of near-term individual performance objectives necessary to achieve long-term performance goals.
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We expect to use these compensation consultants only in circumstances where the consultants have no other business dealings with us.
Each member of the Compensation Committee is a non-employee director as defined in the Compensation Committee’s charter.
General Compensation Policy/Philosophy
Our general compensation philosophy is to:
•
Design and implement a compensation program to attract, retain and motivate talented executives;
•
Provide incentives for the attainment of short-term operating objectives and strategic long-term performance goals; and
•
Place emphasis on, and reward achievement of, long-term objectives that are consistent with the nature of our Company as an
enterprise focused on revenue and cash flow growth, resort operations and brand expansion/development over the next several years.
Our overall executive compensation philosophy is based on a pay-for-performance model. In general, our executive compensation is
structured to reward performance through a combination of competitive base salaries coupled with cash-based and equity-based incentives. The
“at risk” components of our executive compensation (cash annual incentives and equity-based long-term incentives) are designed to provide
incentives that are predicated on us and/or the NEO meeting or exceeding predefined goals.
We believe that the performance goals and incentive plan structures generally established under our annual and long-term incentive
programs would not contribute to excessive risk by our senior executives or employees. The approved goals under our incentive programs are
consistent with our financial operating plans and strategies, and these programs are discussed and reviewed by the Compensation Committee. Our
compensation systems are balanced, rewarding both short-term and long-term performance. Our results are largely team oriented rather than
individually focused, and tied to measurable factors that are both transparent to the Board and drivers of their returns. The Compensation
Committee is actively engaged in setting compensation systems, monitoring these systems during the year and using discretion in making rewards,
as necessary. As a result of the procedures and practices described above, the Compensation Committee believes that our compensation policies
and practices for our employees do not encourage risk taking that is reasonably likely to have a material adverse effect on us.
The Compensation Committee occasionally requests that our CEO be present at Compensation Committee meetings where executive
compensation and Company, business unit, departmental and individual performances are discussed and evaluated. Our CEO is free to provide
insight, suggestions or recommendations regarding executive compensation if present during these meetings or at other times. Only Compensation
Committee members, however, vote on decisions made regarding executive compensation.
Named Executive Officers
At December 31, 2012, our NEOs were:
•
Kimberly K. Schaefer, Chief Executive Officer (Principal Executive Officer)
•
Timothy D. Black, Executive Vice President of Operations
•
James A. Calder, Chief Financial Officer (Principal Financial Officer)
•
Alexander P. Lombardo, Treasurer
•
J. Scott Maupin, Senior Vice President of Operations
2012 Executive Officer Compensation
For 2012, the Compensation Committee in place prior to the Merger used as a reference tool the overall compensation structure
recommendations for our NEOs (other than for Mr. Maupin) developed for 2010-2012 by FPL Associates Compensation (FPL), an independent
compensation consultant. In 2009, the Compensation Committee engaged FPL to
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assist the Compensation Committee in determining appropriate fiscal year 2010 compensation for certain of our NEOs, as well as an appropriate
structure for long-term incentive compensation for the period 2010-2012. FPL conducted for the Compensation Committee an executive
benchmarking analysis of a competitive peer group of 11 public companies that competed with us for talent, investment dollars and/or business.
Based on that analysis and discussions with the Compensation Committee, FPL made executive compensation recommendations for certain of our
NEOs in a report to the Compensation Committee, of appropriate levels of:
•
Base salary,
•
Annual cash incentives, and
•
Long-term incentive compensation.
The structure and amounts of the base salary, annual incentives and long-term incentives compensation components for all NEOs other than
Mr. Maupin for 2012 as detailed in this Compensation Discussion and Analysis were initially based on the final recommendations of FPL in its
report. Following the Merger in May 2012, however, we modified certain components of the long-term incentives structure for our NEOs, as
described further below.
Competitive Peer Group
The competitive peer group FPL used in its report included primarily companies that were focused on operating within the public hospitality /
leisure sectors as the foundation for our compensation practices. Those peer group companies included ones that:
•
Owned and operated local / regional / national family entertainment facilities dependent on discretionary consumer spending,
•
Owned and/or operated branded hotels or resorts, and/or
•
Licensed branded hospitality locations.
These companies owned and/or operated facilities such as theme parks, meeting and convention resorts, nationally-branded hotels, cruise
lines, timeshare resorts, spas and movie theaters. The peer group consisted of the following companies:
Cedar Fair, L.P.
Gaylord Entertainment Company, Inc.
LaSalle Hotel Properties, Inc.
The Marcus Corporation
Red Lion Hotels Corporation
Royal Caribbean Cruises, Ltd.
Silverleaf Resorts, Inc.
Six Flags, Inc.
Steiner Leisure Limited
Strategic Hotels & Resorts, Inc.
Vail Resorts, Inc.
Executive Compensation Structure
Utilizing the information in FPL’s report and other benchmarking data, the Compensation Committee in place prior to the Merger approved
total remuneration for executive compensation for NEOs other than Mr. Maupin for 2012 structured as follows:
•
Base salaries at a level commensurate with each executive’s role / responsibilities, tenure and other factors, referenced to median market
practices.
•
Short-term incentive compensation consisting of annual cash incentive bonuses based on specified threshold, target and high earnings
levels, defined as follows:
•
Threshold performance – solid achievement but falls short of expectations. Would be considered less than meeting a budget
plan. This represents the minimum level of performance that must be achieved before any bonus will be earned.
•
Target performance – achievement that normally signifies meeting business objectives. In many situations, represents budget
level performance, and
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•
•
High performance – significant achievement that would be considered upper-tier or exceptional performance by industry
standards.
Long-term incentive compensation in the form of restricted stock grants based on specified threshold, target and high earnings levels,
consisting of:
•
Annual equity grants with performance metrics and/or
•
Multi-year program equity grants with performance metrics and/or time-based vesting.
Following the Merger in May 2012, the Compensation Committee modified the long-term incentive compensation structure to consist of:
•
Time-based restricted stock grants for certain NEOs and
•
Stock options that included both time-based and performance-based vesting features for certain NEOs.
For 2012, the Compensation Committee designed annual cash incentives and long-term incentives for NEOs other than Mr. Maupin that
created an overall compensation program that can provide for superior compensation when primary Company-wide financial goals and individual
performance goals are met or exceeded, and, conversely, total compensation below competitive levels when such goals are not met. For
Mr. Maupin, the Compensation Committee felt a total compensation structure that was less likely to provide total compensation significantly above
or below competitive levels was appropriate, due to other executive officers having broader responsibilities for overseeing our overall performance.
For a further discussion on the details of these annual cash incentives and long-term incentives, see Elements of Compensation below.
Elements of Compensation
The compensation for each of our NEOs consists of three components:
•
Base salary,
•
Annual cash incentive and
•
Long-term incentive compensation.
These components provide elements of fixed income and variable compensation that are linked to the achievement of individual and
corporate goals and the enhancement of value to our stockholders.
Base Salary
Base salary represents the fixed annual component of our executive compensation. Executives receive salaries that are within a range
established by the Compensation Committee for their respective positions, based on the comparative analysis described above. Where each
executive’s salary falls within the salary range is based on a determination of the level of experience that the executive brings to the position and
how successful the executive has been in achieving set goals. Salary adjustments are based on a similar evaluation and may include a comparison
of adjustments made by competitors and any necessary inflationary adjustments.
When reviewing the competitive market data described above, the Compensation Committee considers that the competitive market is
comprised of professionals with varying backgrounds, experience and education who may be more junior or senior within the role. As such, the
compensation, particularly as it relates to base salaries, provided to these incumbents may, appropriately, vary. In establishing base salary amounts
for our NEOs, the Compensation Committee considers the level of responsibility, experience, performance and tenure of our Company’s incumbents
relative to those commonly found in the market and/or summarized by FPL in its report.
We generally review the base salaries of our NEOs each fiscal year. In the event of an NEO’s promotion and/or increased scope of
responsibility, we consider base salary adjustments at other points during the year as well.
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The Compensation Committee reviewed the salaries for our NEOs other than Mr. Maupin in December 2011; Mr. Maupin’s base salary was
reviewed in February 2012. As part of those reviews, the Compensation Committee considered, among other items, base salary benchmarking data
in FPL’s report for individuals with similar levels of responsibility at the Company’s peer group companies, and FPL’s recommendation that the
Company focus relative salary comparisons against the 25th percentile and median values of the peer group information. As a result of these
reviews, base salaries established for 2012 and the percentage increase from prior base salaries are shown below:
Name
2012 Base
Salary
($)
Increase From
Prior Base
Salary
(%)
561,000
319,770
392,700
204,000
275,000
2.0
2.0
2.0
2.0
7.8
Ms. Schaefer
Mr. Black
Mr. Calder
Mr. Lombardo
Mr. Maupin
Annual Cash Incentive
For NEOs other than Mr. Maupin
For these NEOs, annual cash incentives exist in the form of bonuses as a means of linking compensation to objective performance criteria that
are within the control of the NEOs. Consistent with the guidelines in FPL’s report, at the beginning of each year, the Compensation Committee
establishes a potential bonus amount range for each executive and identifies performance targets for each NEO to meet in order to receive the full
bonus. The range incorporates the threshold, target and high (maximum) performance concepts as described above in “2012 Executive Officer
Compensation.”
Our annual incentive program utilizes multiple aspects or dimensions of performance to establish a “line-of-sight” between the individual and
the reward. The emphasis on one dimension versus another depends on the level and type of position. Three dimensions we consider in the annual
incentive program for these NEOs are:
Corporate – overall corporate performance is the primary dimension for executive and senior management.
Department / Business Unit – refers to key functional areas. This dimension is utilized to link individuals to the performance of their collective
work group and is intended to foster cooperation, and
Individual – refers to specific goals and objectives developed for each individual participant.
The Compensation Committee reviews each executive’s position to determine the proportion or percentage of incentive opportunity that will
be attributed to each of the three dimensions, based on the position’s ability to impact performance at each dimension. The benefit to using this
three-tier construct is in balancing the required level of objectivity with the desired level of subjectivity. While corporate and team/unit goals
include specific, quantifiable targets, the individual component can often be based on a more subjective assessment of performance or on
management discretion.
For the NEOs, the Compensation Committee establishes financial targets at the beginning of each year that are tied to our annual business
plan. The NEOs generally begin to earn a threshold annual cash incentive award amount once a financial target is at least 95% attained. The
threshold award amount is generally one-third of the maximum potential award amount for a particular financial target. The maximum annual cash
incentive award is earned when a financial target is at least 105% attained. Any potential amount of the annual cash incentive award in excess of
the threshold amount, up to the maximum potential award amount, is earned ratably from 95% up to 105% of the financial target attained.
The Compensation Committee employs clearly defined, objective measures of performance to support the annual cash incentive awards for
our NEOs. Within the annual incentive award component of the compensation program, performance measures are often based on
operational / financial initiatives as well as individual /subjective performance, providing a balance with long-term incentive award components,
which are generally primarily tied to value creation.
The Compensation Committee, in consultation with our CEO, establishes and approves specific, written performance objectives for annual
cash incentives. For each such objective, actual performance is reviewed by the Compensation Committee (generally in the first quarter of the fiscal
year following the performance year) in order to determine the actual
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payment to occur following release of the performance year fiscal year financial results. The Compensation Committee has the ability to apply
discretion to increase or decrease the actual payout resulting from the relative achievement of performance objectives. Discretion may be applied in
the case of significant business disruption, unusual business events or conditions, or other factors the Compensation Committee deems relevant.
As part of its report for the Compensation Committee, FPL recommended a structure for annual cash incentives for our NEOs that provided
for threshold, target and maximum levels of opportunity, as discussed above. The Compensation Committee considered annual cash incentive
benchmarking data in FPL’s report for individuals with similar levels of responsibility at the Company’s peer group companies, including
recommended amounts (expressed as a percentage of each NEO’s base salary) for threshold, target and maximum levels of performance, and FPL’s
recommendations for each NEO’s annual cash incentive structure. Based primarily on the recommendations of FPL in its report, the Compensation
Committee established overall threshold, target and maximum annual incentive opportunities for our NEOs for 2012, expressed as a percentage of
each executive’s 2012 base salary, as follows:
Name
2012 Annual Incentive Opportunity
Threshold
Target
Maximum
(%)
($)
(%)
($)
(%)
($)
Ms. Schaefer
Mr. Black
Mr. Calder
Mr. Lombardo
50.0
33.3
40.0
16.7
280,500
106,590
157,080
34,000
100.0
66.7
80.0
33.3
561,000
213,180
314,160
68,000
150.0
100.0
120.0
50.0
841,500
319,770
471,240
102,000
For 2012, the annual cash incentive amounts awarded to our NEOs were subject to a number of performance objectives, including:
•
Our Company achieving certain levels of Adjusted EBITDA for 2012, and
•
The individual achieving certain individual, business unit and/or departmental performance goals in 2012, as determined by the
Compensation Committee. Examples of the types of management performance goals established for 2012 included:
•
•
Achieving target levels of RevPAR growth for our resorts.
•
Accessing capital markets to refinance near-term debt maturities.
•
Securing financing for the Company’s future development projects.
•
Signing letters of intent for future management and/or licensing opportunities.
•
Identifying and working with potential equity partners to create a joint venture structure to acquire and convert an existing fullservice hospitality property to a Great Wolf Lodge resort.
•
Improving the operating results of our subsidiary Creative Kingdoms, LLC, a developer of experiential gaming products.
Performance by our NEOs in connection with the acquisition of our Company by K-9 Holdings in 2012 and efforts by the NEOs to
integrate the Company’s operations, policies, procedures and reporting to requirements of the Company’s parent company following
that acquisition.
The threshold, target and maximum amounts for the financial measure performance objective (Adjusted EBITDA) for 2012 were as follows:
Threshold
($)
Financial Measure Performance Objective
Adjusted EBITDA
82.7 million
Target
($)
87.0 million
Maximum
($)
91.4 million
The relative weightings for the performance objectives were primarily based on the recommendations of FPL in its report. For 2012, the
Compensation Committee, in consultation with our CEO, reviewed and approved the performance criteria and
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weighting of those criteria for each NEO. The weightings of the performance criteria may vary among the NEOs by position due to functional
accountability, responsibility and other factors the Compensation Committee deems relevant. For 2012, weightings for our NEOs and corresponding
maximum bonus amounts available for each bonus measure were as follows:
Cash Bonus Performance Objectives
Individual,
Business Unit and/or
Departmental
Adjusted EBITDA
Performance Goals
Maximum
Maximum
Bonus
Bonus
Amount
Amount
Weighting
Available
Weighting
Available
(%)
($)
(%)
($)
Name
Ms. Schaefer
Mr. Black
Mr. Calder
Mr. Lombardo
50.0
75.0
50.0
25.0
420,750
239,828
235,620
25,500
50.0
25.0
50.0
75.0
420,750
79,942
235,620
76,500
For our NEOs, the Compensation Committee reviewed in February 2013 the level of Adjusted EBITDA we had achieved for 2012 and the
success of each of those NEOs in achieving their specified individual, business unit and/or departmental performance goals in 2012 as discussed
above. Based on that review:
•
We achieved Adjusted EBITDA of $89.2 million.
•
The Compensation Committee determined the individual/departmental goal achievements as follows: Ms. Schaefer – 100%; Mr. Black –
100%; Mr. Calder – 72%; and Mr. Lombardo – 100%.
•
The Compensation Committee awarded additional discretionary cash bonus amounts, as follows: Ms. Schaefer – $25,000; Mr. Black –
$75,000; and Mr. Lombardo – $14,060.
Also, the cash bonus amounts calculated for Ms. Schafer and Mr. Black were reduced by $250,000 and $125,000, respectively, in accordance
with the terms of their employment agreements.
Based on the level of achievement of the various financial and other factors for 2012 as described above, the NEOs earned the following
amounts for the various performance objectives:
Cash Bonus Performance Objective
Adjusted EBITDA:
• Maximum Bonus Amount
• % earned
• Bonus Amount Earned
Individual, Business Unit and/or
Departmental Goals:
• Maximum Bonus Amount
• % earned
• Bonus Amount Earned
Total Bonus Amount Earned
• % of Base Salary
(1)
Ms. Schaefer
Mr. Black
Mr. Calder
Mr. Lombardo
$ 420,750
83.1%
$ 349,780
$239,828
83.1%
$199,375
$ 235,620
83.1%
$ 195,876
$
$ 420,750
100.0%
$ 195,749(1)
$ 545,529
97.2%
$ 79,942
100.0%
$ 29,942
$229,317
71.7%
$ 235,620
72.0%
$ 170,594(1)
$ 366,470
93.3%
$
$
$
$
25,500
83.1%
21,190
76,500
100.0%
76,500(1)
111,750
54.8%
Amount includes additional discretionary cash bonus award amounts and reductions in accordance with the terms of employment
agreements as described above.
For Mr. Maupin
For 2012, the maximum annual incentive opportunity established for Mr. Maupin was 40.0% of base salary. For Mr. Maupin, annual cash
incentives for 2012 existed in the form of a bonus available based on achieving individual and/or departmental performance goals in 2012, as
determined by the Compensation Committee. Based on the Compensation Committee’s determination, Mr. Maupin was awarded a total bonus
amount of $80,000 for 2012.
Long-Term Incentive Compensation
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Prior to the Merger, for our NEOs other than Mr. Maupin, the long-term incentive component of executive compensation was targeted toward
providing rewards for long-term performance. The Compensation Committee believes that long-term incentives are important to motivate and
reward these executives for maximizing stockholder value. Prior to the Merger in May 2012, long-term incentives were provided primarily by grants
of stock under our 2004 Incentive Stock Plan, which was administered by the Compensation Committee. The purpose of our 2004 Incentive Stock
Plan was to assist us in recruiting and retaining key employees, by enabling such persons to participate in the future success of our Company, and
to align their interests with those of our stockholders.
The Compensation Committee, in consultation with our CEO, annually establishes and approves specific, written performance objectives for
long-term incentives. For these objectives, the Compensation Committee reviews actual performance (generally in the first quarter of the fiscal year
following the performance year) in order to determine the actual amount of the long-term incentive grant that has been earned. The Compensation
Committee has the ability to apply discretion to increase or decrease the actual amount calculated as earned resulting from the relative achievement
of performance objectives. Discretion may be applied in the case of significant business disruption, unusual business events or conditions, or
other factors the Compensation Committee deems relevant.
For 2012, the Compensation Committee approved maximum long-term, stock-based incentive compensation amounts for the NEOs other than
Mr. Maupin. The stock-based compensation amounts consisted of shares of our Common Stock subject to time-based vesting over three / four
years.
Establishing 2012 Award Amounts – Prior to the Merger
Stock-based compensation for 2012 for our NEOs other than Mr. Maupin consisted of annual equity grant (AEG) amounts and/or multi-year
program equity grant (MYPEG) amounts. The process in establishing the number of shares awarded as stock-based compensation to the NEOs as
AEGs and MYPEGs for 2012 involved five steps, as follows:
•
First, as part of its report for the Compensation Committee, FPL recommended a structure for long-term incentives for our NEOs that
provided for maximum levels of annual opportunity from stock-based compensation. The Compensation Committee considered stockbased compensation benchmarking data in FPL’s report for individuals with similar levels of responsibility at the Company’s peer group
companies, including recommended amounts (expressed as a percentage of each NEO’s base salary) for maximum levels of performance,
and FPL’s recommendations for each NEO’s stock-based compensation structure. Based on the benchmarking data and
recommendations by FPL in its reports, we computed the maximum annual dollar value of stock-based compensation (that is, the sum of
an NEO’s AEG amount and one year of MYPEG amount) as a percentage of each NEO’s January 1, 2012 base salary. Applicable
percentages and the resulting maximum annual dollar value amounts were as follows:
Name
January 1, 2012
Base Salary
($)
Percentage of Base
Salary Used to
Compute Maximum
Annual Dollar Value
(%)
Maximum Annual
Dollar Value
($)
561,000
319,770
392,700
204,000
225.0
112.5
150.0
75.0
1,262,250
359,741
589,050
153,000
Ms. Schaefer
Mr. Black
Mr. Calder
Mr. Lombardo
•
Second, based on recommendations from FPL, for each NEO the total maximum annual dollar value was split between (a) AEG amounts
and (b) MYPEG amounts. As part of its recommendations, FPL recommended that, for Ms. Schaefer, Mr. Black and Mr. Calder, a portion
of each NEO’s long-term incentive compensation potential be applied to MYPEGs to directly tie those NEOs’ long-term incentive
compensation to multiple-year performance measures. The Compensation Committee believed this was an appropriate structure for
these three NEOs due to their broad responsibilities for overseeing our overall performance in financial, development and operating
areas. The applicable split for each NEO was as follows:
Name
Ms. Schaefer
Mr. Black
AEG Award Maximum Amount
(%)
($)
60.0
60.0
757,350
215,845
135
One Year of MYPEG Award Maximum Amount
(%)
($)
40.0
40.0
504,900
143,896
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Mr. Calder
Mr. Lombardo
•
60.0
100.0
40.0
—
235,620
—
Third, for each NEO, the total maximum dollar value of stock-based compensation awards amount listed above was then converted to a
maximum number of shares to be awarded by dividing (a) the maximum dollar value amount by (b) $2.90, the closing price of our
Common Stock on NASDAQ on December 31, 2011. Based on this conversion, the maximum number of shares to be awarded to each
NEO was as follows:
Name
Ms. Schaefer
Mr. Black
Mr. Calder
Mr. Lombardo
•
353,430
153,000
AEG Award
(#)
MYPEG Award
(#)
261,155
74,429
121,872
52,759
174,103
49,619
81,248
—
Total
(#)
435,258
124,048
203,120
52,759
Fourth, for each NEO to be awarded AEGs for 2012, we determined the performance factors that would determine the amount of AEG
shares ultimately earned by each NEO. Those factors were:
•
•
A portion of the AEG award amount was earned based on our Common Stock performance in calendar year 2012 relative to the
Russell 2000 stock index total return in calendar year 2012. Under this performance criterion, an individual earned:
•
No award under this performance criterion if our stock performance for 2012 was less than 80% of the Russell 2000 stock
index’s performance.
•
A portion of his or her total potential award amount if our stock performance for 2012 was 80% or greater than the
performance of the Russell 2000 stock index but less than 120% of the performance of the Russell 2000 stock index; and
•
The full portion amount of his or her award amount if our stock performance for 2012 was greater than 120% of the Russell
2000 stock index’s performance.
A portion of the award amount was earned based on the individual achieving certain individual, business unit and/or
departmental performance goals in 2012, as determined by the Compensation Committee. These performance goals were similar
to those described above under “Annual Cash Incentive.”
The relative weightings for the performance factors were determined by the Compensation Committee primarily based on the
recommendations of FPL in its report. Weightings for the performance factors for our NEOs for the 2012 AEG awards were as follows:
AEG Award Factor
Relative Common
Stock Performance
Maximum
Share
Weighting
Award
(%)
(#)
Name
Ms. Schaefer
Mr. Black
Mr. Calder
Mr. Lombardo
•
75.0
75.0
75.0
75.0
195,866
55,822
91,404
39,569
Individual,
Business Unit and/or
Departmental
Performance Goals
Maximum
Share
Weighting
Award
(%)
(#)
25.0
25.0
25.0
25.0
65,289
18,607
30,468
13,190
Fifth, for each NEO to be awarded MYPEGs in 2012, we determined the performance factors that would determine the amount of MYPEG
ultimately earned by each NEO. Those factors were:
•
A portion of the award amount may be earned based on our Common Stock’s performance in the three-year period 2010-2012
relative to the total return of a relevant stock index, as designated by the Compensation Committee, for the three-year period
2010-2012. Under this performance criterion, an individual earns no award if our stock performance for the three-year period
2010-2012 is 80% or less of the designated index’s performance. The individual will earn less than the full portion amount of his
or her award amount if our stock performance for the three-year period 2010-2012 is less than 120% of the designated index’s
performance. For stock performance between 80% and 120% of the designated index’s performance, an NEO earns shares based
on a linear
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interpolation between the threshold amount (earned at 80% relative stock performance) and maximum amount (earned at 120%
relative stock performance).
•
A portion of the award amount may be earned based on our Common Stock’s absolute performance in the three-year period
2010-2012. Under this performance criterion, an individual may earn a portion of his or her total potential award amount if our
stock performance for the three-year period 2010-2012 exceeds a threshold compounded annual return for the three-year period
2010-2012. The individual will earn less than the full portion amount of his or her award amount if our stock performance for the
three-year period 2010-2012 is less than a maximum compounded annual return, and will earn no award under this performance
criterion if our stock performance for the three-year period 2010-2012 is less than the threshold compounded annual return. For
stock performance between the threshold compounded annual return and the maximum compounded annual return, an NEO
earns shares based on a linear interpolation between the threshold amount and maximum amount.
•
A portion of the award amount is time-based (that is, award amounts may be earned based on continuous employment with us
over the vesting period).
The relative weightings for the performance factors were determined by the Compensation Committee primarily based on the
recommendations of FPL in its report. Weightings for the performance factors for our NEOs for the 2012 MYPEG awards were as follows:
Relative Common
Stock Performance
Maximum
Share
Weighting
Award
(%)
(#)
Name
Ms. Schaefer
Mr. Black
Mr. Calder
37.5
37.5
37.5
65,289
18,607
30,468
MYPEG Award Factor
Absolute Common
Stock Performance
Maximum
Share
Weighting
Award
(%)
(#)
37.5
37.5
37.5
65,289
18,607
30,468
Time-Based
Maximum
Share
Weighting
Award
(%)
(#)
25.0
25.0
25.0
43,526
12,405
20,312
Also, since the Compensation Committee had previously elected to issue all time-based number MYPEG shares for the entire 2010-2012
performance period in 2010, none of the time-based shares listed in the immediately preceding table were issued in 2012.
Note that the number of shares NEOs eventually earn under MYPEG awards made in 2012 would only be determined at the end of the 20102012 performance period. Any shares earned under the MYPEG awards would vest 50% on December 31, 2012 and 50% on December 31, 2013.
The vesting of awards under the 2012 AEGs and MYPEGs are affected by certain termination events (namely, termination without cause (by
the Company), termination for good reason (by the NEO), death or disability) as summarized in the charts below:
Termination Scenario
Type of 2012 AEG
Absent a Change in Control
Award related to relative GWR Common Stock
performance
Participant would be entitled to a pro-rated
amount of award, based upon the performance
up until the time of the triggering termination
event.
Award related to individual / departmental
objectives
All shares are forfeited.
Type of 2012 MYPEG
Absent a Change in Control
Following a Change in Control
Participant would be entitled to the greater of
(a) shares at a Target level of performance or
(b) shares based upon the performance up
until the time of the termination triggering
event.
Termination Scenario
Following a Change in Control
Award related to relative GWR Common Stock
performance
From the program start (1/01/10) until 24 months (12/31/11), participants would be entitled to a
pro-rated amount of awards, based upon the performance up until the time of the triggering
termination event.
Award related to absolute GWR Common Stock
performance
If more than 24 months of the program has elapsed (that is, if event occurs after 12/31/11), the
performance achievements would be assessed, projected out for the balance of the plan, and
the corresponding number of awards would be awarded (deemed “earned”) had the program
lasted the full 36 months.
All shares granted vest immediately
Time-based shares
Establishing 2012 Award Amounts – Subsequent to the Merger
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In August 2012, we granted 25,000 and 12,500 shares of common stock of K-9 Holdings to Ms. Schaefer and Mr. Black, respectively. Terms of
those grants are as follows:
•
Grant date – August 13, 2012.
•
Vesting – shares vest on the date the executive is paid their cash bonus for fiscal year 2012, provided that the executive is employed by the
Company or an affiliate on that vesting date.
•
Minimum bonus threshold – if the amount of cash bonus payable to the executive does not meet a threshold amount ($250,000 and $125,000
in the case of Ms. Schaefer and Mr. Black, respectively), then the executive will forfeit a number of shares with a fair market value equal to the
amount of the shortfall below the threshold amount.
In August 2012, we also issued stock options of K-9 Holdings to certain of our NEOs. Terms of those options are summarized as follows:
•
Grant date – August 13, 2012.
•
Expiration date – August 13, 2022.
•
Option price – $10.00 per share.
•
Vesting – options consist of Tranche A, Tranche B and Tranche C Options, with vesting as follows:
•
Tranche A – vest and become exercisable in equal installment on each of the first five anniversaries of May 4, 2012.
•
Tranche B – vest and become exercisable at such time as K-9 Holdings realizes an investor IRR that equals or exceeds 20% and a
multiple of invested capital (MOIC) that equals or exceeds two, in each case, based on cash proceeds received by K-9 Holdings.
•
Tranche C – vest and become exercisable at such time as K-9 Holdings realizes an investor IRR that equals or exceeds 25% and a MOIC
that equals or exceeds three, in each case, based on cash proceeds received by K-9 Holdings.
•
Employment – an executive must be employed by the Company or an affiliate when a vesting parameter is achieved in order for options to be
exercisable.
•
Post-termination exercisability – to the extent option are vested and exercisable at the time of an executive’s termination of employment,
options remain exercisable following the termination of employment (a) for 1 year if the termination is due to death or disability or (b) for 90
days if the termination is due to any reason other than death or disability.
The number of options issued to the NEOs was as follows:
Option Tranche
Tranche A
Tranche B
Tranche C
Ms. Schaefer
Mr. Black
Mr. Lombardo
Mr. Maupin
189,481
189,481
189,481
71,462
71,461
71,461
5,414
5,413
5,413
13,535
13,534
13,534
Determining Amounts of 2012 AEG and MYPEG Awards Earned
In connection with the Merger in May 2012, all of the 2012 AEGs and MYPEGs were cancelled for no consideration.
Other Compensation
We offer certain other perquisites and personal benefits to our NEOs. These perquisites and personal benefits are reflected in the relevant
tables and narratives that follow. In addition, the executives may participate in Company-wide plans and programs such as our 401(k) plan
(including a Company match); group health and welfare plans; group accidental death and dismemberment insurance and life insurance; and health
care and dependent care spending accounts, in accordance with the terms of those programs.
We do not provide our NEOs defined benefit or supplemental executive retirement plans.
Clawback Provision
In line with corporate governance best practices, in 2011 the Compensation Committee adopted a “clawback” policy that allows us to seek
repayment of incentive compensation that was erroneously paid. The policy provides that if the Board determines that there has been a material
restatement of publicly issued financial results from those previously issued to the public, the Board will review all bonus payments made to
executive officers during the three-year period prior to the restatement on the basis of having met or exceeded specific performance targets. If such
payments would have been lower
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had they been calculated based on such restated results, the Board will (to the extent permitted by governing law) seek to recoup the payments in
excess of the amount that would have been paid based on the restated results. The clawback provision applied to bonus payments earned
commencing fiscal 2011.
Nonqualified Deferred Compensation Plan
In addition to a qualified 401(k) plan, we maintain a deferred compensation plan for certain executives (including our NEOs) by depositing
amounts into a grantor trust for the benefit of the participating employees. The amounts held in the trust remain subject to the claims of our general
creditors until the amounts are paid to participants. The deferred compensation plan offers these participants the opportunity to defer payment and
income taxation of a portion of their base salary and/or annual cash incentives in addition to the amounts deposited in our 401(k) plan. The
Compensation Committee believes that offering this plan to executives is helpful to achieve our objectives of attracting and retaining talent,
particularly because we do not offer a defined benefit pension plan.
A participant may elect to defer up to 100% of annual base salary and/or annual cash incentives. Participants must make deferral elections
before the beginning of the plan year in which the related compensation is earned. Such elections are irrevocable for the entire plan year, and the
participants may only change the elections for compensation earned in subsequent plan years during later annual election periods.
We make the following employer contributions to our deferred compensation plan:
•
Mandatory annual matching contributions to the plan for each participant equal to the lesser of (a) 4% of the participant’s annual base
salary or (b) the participant’s annual deferrals to the plan. Matching contributions are reduced by the maximum amount of matching
contributions the executive was eligible to receive in our 401(k) plan for the fiscal year.
•
Discretionary annual profit-sharing contributions equal to up to 6% of the participant’s annual base salary.
Matching and profit-sharing contributions vest based on a participant’s years of service with us, with pro-rata vesting over a period of five
years of service.
Amounts in the deferred compensation plan’s trust earn investment income, which serves to increase our corresponding deferred
compensation obligation. Investments, which are recorded at market value, are directed by the participants, and consist of our Common Stock and
mutual funds. The plan provides participants the opportunity for long-term capital appreciation by crediting their accounts with notional earnings
(or losses) based on the performance of benchmark investment funds from which participants may select or our Common Stock. Currently, the plan
offers a choice of ten benchmark investment funds that are identified in the narrative following the Nonqualified Deferred Compensation table
below.
The market value of an NEO’s deferred compensation account is not considered when setting their other current compensation. The
compensation earned and deferred into the deferred compensation plan was already reviewed and analyzed based on the above-described
compensation philosophy and policies at the time the compensation was awarded. Had the executive officer instead elected to receive a payout of
the compensation earned (rather than deferring it into the plan), and then invested those amounts externally, we would not have considered
external investment experience when considering the amount by which we should compensate the NEO. Also, we do not guarantee any minimum
rate of return for any compensation amounts that executives elect to defer into the deferred compensation plan. Thus, in setting current
compensation amounts for our NEOs, we do not believe it is either proper or necessary to consider the value of the NEO’s deferred compensation
account just because it is held in a plan we sponsor. See the Nonqualified Deferred Compensation table and accompanying narrative below for
additional information on our deferred compensation plan.
Employment Agreements
We have entered into employment agreements with Ms. Schaefer and Messrs. Black, Calder and Maupin. The following provisions apply to all
NEO employment contracts:
•
Base salary – Subject to annual review and periodic increases, if any, as determined by the board of directors.
•
Annual bonus – Eligibility based on criteria determined by the board of directors.
•
Benefits – Eligible to participate in our benefit plans at identical participation costs offered to all of our other employees.
•
Business expenses – Eligible to have business expenses reimbursed, subject to reimbursement policies for all other employees.
•
Severance payments – Due under various termination scenarios.
•
Restrictive covenants – NEO subject to non-solicitation, non-competition non-disclosure and non-use of confidential
information covenants subsequent to employment with the Company.
See “Potential Payment Upon Termination or Change of Control” below for a discussion of certain severance payments applicable under
these agreements.
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Change of Control and Severance Payments
Change of control provisions applicable to our NEOs are either “single trigger,” meaning that the change of control event alone triggers either
a payment or an acceleration of certain rights, or “double trigger,” meaning that the change of control coupled with either (a) the officer’s
termination from service other than for “cause” (as that term is defined in the applicable NEO’s agreement) or (b) for some NEOs, the officer’s
resignation for “good reason” (as that term is defined in the applicable NEO’s agreement) within a certain period of the time before or after the
change of control, triggers the payment or accelerated right.
The change of control provision in each NEO’s agreement for the payment of severance is a double trigger. A double trigger for severance
payments was selected because, generally unless the NEO’s employment is terminated after the change of control, his or her cash compensation in
the form of salary and annual bonus would continue from the acquiring entity and a severance payment would be based upon and intended to
replace such salary and annual bonus amounts. See the “Potential Payment Upon Termination or Change of Control” discussion below for
additional information on these severance payments. The payment amounts reflect our belief that it is difficult for senior managers to find
comparable employment opportunities in a short period of time, particularly after experiencing a termination that was beyond their control.
The change of control provisions with regard to stock options subject to time-based vesting in our stock option agreements are single
trigger, reflecting our intent that the NEOs have the ability to use those shares to vote upon any proposed transaction.
Under Mr. Calder’s employment agreement, we have agreed to make an additional tax gross-up payment to the executive if any amounts paid
or payable to the executive would be subject to the excise tax imposed on certain so-called “excess parachute payments” under Section 4999 of the
Internal Revenue Code. However, if a reduction in the payments and benefits of $25,000 or less would render the excise tax inapplicable, then the
payments and benefits will be reduced by such amount, and we will not be required to make the gross-up payment.
EXECUTIVE COMPENSATION TABLES AND DISCUSSION
Summary Compensation Table for 2012
The following Summary Compensation Table shows the compensation in 2012, 2011 and 2010 for our Chief Executive Officer (Principal
Executive Officer), our Chief Financial Officer (Principal Financial Officer), and our other three most highly compensated named executive officers as
of December 31, 2012.
Stock Awards
(1)(2)
($)
Name and Principal Position
Year
Salary
($)
Kimberly K. Schaefer
Chief Executive Officer
2012
2011
2010
561,000
550,000
550,000
250,000
822,243
1,309,658
James A. Calder
Chief Financial Officer
2012
2011
2010
392,700
385,000
385,000
—
369,779
593,735
Timothy D. Black
Chief Operating Officer
2012
2011
2010
319,770
313,500
313,500
125,000
267,076
376,798
Alexander P. Lombardo
Treasurer
2012
204,000
140
—
Non-Equity
Incentive
Plan
Compensation
(3)
($)
All Other
Compensation
(4)
($)
545,529
768,750
577,088
58,383
58,383
52,856
4,675,880
2,199,376
2,489,602
366,470
366,470
311,619
38,500
38,500
38,942
797,670
1,159,749
1,329,296
1,229,850
—
—
229,317
332,310
242,727
32,444
30,476
32,258
1,936,381
943,361
965,283
93,164
111,750
21,746
430,660
Option
Awards
(1)(2)
($)
3,260,968
—
—
—
—
—
Total
($)
Table of Contents
Name and Principal Position
J. Scott Maupin(5)
Senior Vice President of Operations
(1)
Stock Awards
(1)(2)
($)
Option
Awards
(1)(2)
($)
Non-Equity
Incentive
Plan
Compensation
(3)
($)
—
—
111,750
94,098
21,742
22,015
457,562
414,012
80,000
90,000
25,419
25,392
612,576
397,267
Year
Salary
($)
2011
2010
200,000
188,700
124,070
109,199
2012
2011
274,231
255,000
—
26,875
232,926
—
All Other
Compensation
(4)
($)
Total
($)
Stock and Option Award amounts reported in the table above for 2012 consist of the following items:
Stock and Option Award Component
Ms. Schaefer
Restricted shares:
Fair value on grant date ($)
Shares granted (#)
Stock options – Tranche A:
Fair value on grant date ($)
Options granted (#)
Stock options – Tranche B:
Fair value on grant date ($)
Options granted (#)
Stock options – Tranche C:
Fair value on grant date ($)
Options granted (#)
Stock options – Totals:
Fair value on grant date ($)
Options granted (#)
Mr. Black
Mr. Lombardo
Mr. Maupin
250,000
25,000
125,000
12,500
—
—
—
—
1,188,046
189,481
448,067
71,462
33,946
5,414
84,864
13,535
1,068,673
189,481
403,040
71,461
30,529
5,413
76,332
13,534
1,004,249
189,481
378,743
71,461
28,689
5,413
71,730
13,534
3,260,968
568,443
1,229,850
214,384
93,164
16,240
232,926
40,603
Under generally accepted accounting principles, the fair value amounts of our grants of option awards are determined at their grant dates in
accordance with FASB ASC Topic 718. That fair value amount as of the grant date is then expensed ratably over the vesting period of the
stock awards. The amounts reflected in the table above, however, represent the full value of each entire grant as of the grant date, even
though the expense for financial reporting purposes will be recorded ratably over the vesting period.
NOTE: In connection with the Merger in May 2012, all of the 2012 AEGs and MYPEGs that had been issued were cancelled for no
consideration.
(2)
(3)
(4)
The value reported for Stock Awards and Option Awards for each executive is the aggregate grant date fair value for such awards in
accordance with FASB ASC Topic 718. The assumptions for making the valuation determinations are set forth in the footnote or footnote
sections to our financial statements captioned “Stock Based Compensation” or “Share-Based Compensation” in our consolidated financial
statements. For additional information on these awards, see the Grants of Plan-Based Awards table, below.
This column includes amounts earned under our annual cash incentives bonus plan for 2012, 2011 and 2010, as discussed in the
Compensation Discussion and Analysis above.
All Other Compensation consists of our contributions to executives’ accounts in our qualified 401(k) plan and our non-tax qualified deferred
compensation plan, contributions to long-term care and disability insurance premiums, and separation payments to certain executives.
Pursuant to SEC rules, perquisites and personal benefits are not reported for any executive officer for whom such amounts were less than
$10,000 in aggregate for the fiscal year. Our contributions to the deferred compensation plan are also reported in the Nonqualified Deferred
Compensation table below.
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Table of Contents
The following table details the components of each executive’s All Other Compensation for 2012:
Name
Year
Ms. Schaefer
Mr. Calder
Mr. Black
Mr. Lombardo
Mr. Maupin
2012
2012
2012
2012
2012
(5)
Company
Contributions to
401(k) Plan
($)
Company
Contributions to
Deferred
Compensation Plan
($)
Company
Contributions to
Long-Term Care
and
Disability Plans
($)
2,450
4,900
2,450
4,900
1,668
50,100
33,600
26,450
15,100
20,465
5,833
—
3,544
1,746
3,286
Total
($)
58,383
38,500
32,444
21,746
25,419
Mr. Maupin became an executive officer of the company in 2011.
Deferred Compensation
Elective deferrals under our deferred compensation plan are reported in the Summary Compensation Table above in the columns that are
associated with the type of compensation (that is, Salary or Non-Equity Incentive Plan Compensation) that is deferred. Company matching and
profit-sharing contributions are included in the values reported in the All Other Compensation column, and are specifically identified in the
Nonqualified Deferred Compensation table below and related text.
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Table of Contents
2012 GRANTS OF PLAN-BASED AWARDS FOR 2012
Name
Ms. Schaefer
Mr. Calder
Mr. Black
Mr. Lombardo
Mr. Maupin
(1)
(2)
(3)
(4)
Grant
Date
Type of Grant(1)
N/A
8/13/12
8/13/12
8/13/12
8/13/12
N/A
N/A
8/13/12
8/13/12
8/13/12
8/13/12
N/A
8/13/12
8/13/12
8/13/12
N/A
8/13/12
8/13/12
8/13/12
Annual Cash Incentive
Restricted Shares
Stock Options – Tranche A
Stock Options – Tranche B
Stock Options – Tranche C
Annual Cash Incentive
Annual Cash Incentive
Restricted Shares
Stock Options – Tranche A
Stock Options – Tranche B
Stock Options – Tranche C
Annual Cash Incentive
Stock Options – Tranche A
Stock Options – Tranche B
Stock Options – Tranche C
Annual Cash Incentive
Stock Options – Tranche A
Stock Options – Tranche B
Stock Options – Tranche C
Estimated Future Payouts
Under
Non-Equity Incentive Plan
Awards (2)
Threshold
Target
Maximum
($)
($)
($)
280,500
—
—
—
—
157,080
106,590
—
—
—
—
34,000
—
—
—
—
—
561,000
—
—
—
—
314,160
213,180
—
—
—
—
68,000
—
841,500
—
—
—
—
471,240
319,770
—
—
—
—
102,000
—
—
55,000
—
—
110,000
—
—
—
Estimated Future Payouts
Under Equity
Incentive Plan Awards (3)
Threshold
Target
Maximum
(#)
(#)
(#)
—
25,000
189,481
189,481
189,481
—
—
12,500
71,462
71,461
71,461
—
5,414
5,413
5,413
—
13,535
13,534
13,534
—
25,000
189,481
189,481
189,481
—
—
12,500
71,462
71,461
71,461
—
5,414
5,413
5,413
—
13,535
13,534
13,534
—
25,000
189,481
189,481
189,481
—
—
12,500
71,462
71,461
71,461
—
5,414
5,413
5,413
—
13,535
13,534
13,534
Grant Date Fair
Value of Stock
and
Option Awards
(4)
($)
—
250,000
1,188,046
1,068,673
1,044,249
—
—
125,000
448,067
403,040
378,743
—
33,946
30,529
28,689
—
84,864
76,332
71,730
All equity grants listed were made under K-9 Holdings, Inc. 2012 Equity Incentive Plan.
The amounts reported in the columns include potential payouts corresponding to the achievement of the threshold, target, and maximum
performance objectives under our annual cash incentive plan, as discussed in the Compensation Discussion and Analysis above. The actual
payments for performance under this plan for 2012 are discussed in the Compensation Discussion and Analysis above and are reported in the
Summary Compensation Table above.
The amounts reported in the columns include potential payouts corresponding to the achievement of the threshold, target, and maximum
performance objectives for awards under our long-term incentive plan, as discussed in the Compensation Discussion and Analysis above.
The actual award amounts earned for 2012 are discussed in the Compensation Discussion and Analysis above.
The amount represents the grant date fair value of Stock Awards and Stock Options granted in 2012, disregarding that we recognize the value
of the awards for financial reporting purposes over the service period of the awards. The grant date fair value shown is calculated based on
the maximum potential future payout number of shares or options.
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Table of Contents
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END FOR 2012
The following table shows information about outstanding equity awards that had been granted to our NEOs at December 31, 2012.
Option Awards
Number of
Securities
Underlying
Unexercised
Options
(# Exer)
Name
Ms. Schaefer
Mr. Calder
Mr. Black
Mr. Lombardo
Mr. Maupin
(1)
—
—
—
—
—
Vesting
Date
Restricted Stock Award
Stock Options Tranche A
Stock Options Tranche A
Stock Options Tranche A
Stock Options Tranche A
Stock Options Tranche A
Stock Options Tranche B
Stock Options Tranche C
(3)
Option
Exercise
Price
($)
Option
Expiration
Date
568,443
—
214,384
16,240
40,603
10
—
10
10
10
8/13/22
—
8/13/22
8/13/22
8/13/22
25,000
—
12,500
—
—
250,000
—
125,000
—
—
The following table shows the vesting dates of the outstanding Option Awards that were unvested as of December 31, 2012:
Award Type
(2)
Number of
Securities
Underlying
Unexercised
Options(1)
(# Unexer)
Stock Awards
Market
Number of
Value of
Shares or
Shares or
Units of
Units of
Stock
Stock
That Have
That Have
Not Vested
Not Vested
(#)
($)
Ms. Schaefer
3/1/13
5/4/13
5/4/14
5/4/15
5/4/16
5/4/17
(2)
(3)
Amounts Vesting (#)
Mr. Black
Mr. Lombardo
25,000
37,896
37,896
37,896
37,896
37,897
189,481
189,481
12,500
14,292
14,292
14,292
14,293
14,293
71,461
71,461
—
1,083
1,083
1,083
1,083
1,082
5,413
5,413
Mr. Maupin
—
2,707
2,707
2,707
2,707
2,707
13,534
13,534
Tranche B stock options vest and become exercisable at such time as K-9 Holdings realizes an investor IRR that equals or exceeds 20% and a
multiple of invested capital (MOIC) that equals or exceeds two, in each case, based on cash proceeds received by K-9 Holdings.
Tranche C stock options vest and become exercisable at such time as K-9 Holdings realizes an investor IRR that equals or exceeds 25% and a
MOIC that equals or exceeds three, in each case, based on cash proceeds received by K-9 Holdings.
STOCK VESTED FOR 2012
The following table provides information for the NEOs on stock awards that vested during 2012 including the number of shares acquired
upon the vesting of restricted stock awards and the value realized. The value realized on vesting is based upon the closing stock price of our
Common Stock on the vesting date.
Stock Awards
Number of Shares
Acquired on
Value Realized
Vesting
on Vesting
(#)
($)
Name
Ms. Schaefer
Mr. Calder
Mr. Black
Mr. Lombardo
Mr. Maupin
721,426
330,526
223,610
59,476
9,500
144
5,309,725
2,435,804
1,624,233
383,966
54,340
Table of Contents
The number of shares acquired on vesting for each NEO presented in the table above includes shares that had vesting accelerated as a result
of the Merger, as follows: Ms. Schaefer – 638,452 shares; Mr. Calder – 293,243 shares; Mr. Black – 189,084 shares; and Mr. Lombardo – 37,261
shares.
PENSION BENEFITS FOR 2012
We do not maintain a defined benefit pension plan or supplemental pension plan for our NEOs.
NONQUALIFIED DEFERRED COMPENSATION FOR 2012
The following table discloses contributions, earnings, balances and distributions for our NEOs under our nonqualified deferred compensation
plan for 2012.
Name
Ms. Schaefer
Mr. Calder
Mr. Black
Mr. Lombardo
Mr. Maupin
(1)
(2)
Executive
Contributions
in Last FY ($)
Registrant
Contributions
in Last FY ($)
Aggregate
Earnings
in Last FY
(1) ($)
22,435
15,708
19,189
8,158
11,745
50,100
33,600
26,450
15,100
20,465
50,935
63,273
27,022
14,300
8,682
Aggregate
Withdrawals/
Distributions ($)
—
—
—
—
—
Aggregate
Balance
at Last FYE
(2) ($)
488,176
444,685
223,170
176,653
80,324
The values in this column include aggregate notional earnings during 2012 of each NEO’s account in the deferred compensation plan.
Aggregate notional earnings in this table are not reported in the Summary Compensation Table because they are based on market rates that
are determined by reference to available benchmark investment alternatives offered under the deferred compensation plan.
This column includes amounts of each NEO’s total deferred compensation plan account as of December 31, 2012. The following table reports
the portion of the Aggregate Balance that was reported as base salary and bonus compensation in the Summary Compensation Tables in our
prior year proxies.
Amounts that were
Reported as
Compensation in
Prior Year
Proxies ($)
Name
Ms. Schaefer
Mr. Calder
Mr. Black
Mr. Lombardo
Mr. Maupin
131,061
301,686
48,465
22,910
10,138
Narrative to the Nonqualified Deferred Compensation Table
Accounts in the deferred compensation plan are credited with notional earnings based on the market rate of return of the available benchmark
investment alternatives offered under the plan. The benchmark investment alternatives are indexed to traded mutual funds or our Common Stock,
and each NEO may elect among the investment alternatives in increments of 1% of his or her account. The executive may make daily changes in his
or her investment election for future deferrals, and may make monthly transfers of balances between the available investment alternatives. In 2012,
the benchmark investments and their respective notional annual rates of return in the deferred compensation plan were as follows:
2012 Annual
Rate of Return (%)
Benchmark Investment (Ticker Symbol)
American Funds EuroPacific R4 (RGAEX)
American Funds Growth Fund of America (REREX)
Columbia Small Cap Value I Z (CSCZX)
Dodge & Cox Stock Fund (DODGX)
Fidelity Retirement Money Market Fund (FRTXX)
PIMCO All Asset (PASAX)
PIMCO Total Return Fund (PTTRX)
Vanguard Mid-Cap Index (VIMSX)
145
19.2
20.6
11.4
22.0
0.0
14.9
10.4
15.8
Table of Contents
2012 Annual
Rate of Return (%)
Benchmark Investment (Ticker Symbol)
Vanguard S&P 500 Index (VFINX)
Vanguard Wellington (VWELX)
Wasatch Small Cap Growth Fund (WAAEX)
15.8
12.6
16.9
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Table of Contents
Earnings on deferred amounts solely represent appreciation (depreciation) of the market value of the available benchmark investment
alternatives offered in the plan. We do not provide for a minimum return or guarantee a minimum payout amount for deferred amounts. Amounts
held in the deferred compensation plan are “at risk” investments.
Executives may receive a distribution of the vested portion of their deferred compensation plan accounts upon termination of employment
(including retirement or disability) or, in the case of deferrals by the executive (and related notional earnings), upon a specified future date while still
employed, as elected by the executive (an “in-service distribution”). Each year’s deferrals may have a separate distribution election. Distributions
payable upon termination of employment may be elected as a (i) a lump sum cash payment or (ii) a series of annual cash installments payable over
five years. In-service distributions may be elected by the executive as a single lump sum cash payment beginning not earlier than the third calendar
year following the calendar year of the deferral.
POTENTIAL PAYMENT UPON TERMINATION OR CHANGE OF CONTROL FOR 2012
Our NEOs are eligible to receive certain termination and/or change in control payments and acceleration rights under certain of the
compensation arrangements that they hold with us. These payments and acceleration rights are contained within the executive officers’
employment agreements, employee stock option and stock grant agreements, and deferred compensation plan agreement.
Employment and Severance Agreements
As noted previously, we have entered into employment agreements with certain of our NEOs. The agreements cover the additional payments
that would be due to these individuals in the following scenarios:
•
•
Termination of employment by us:
•
In the event of death,
•
In the event of disability,
•
For cause,
•
Without cause, or
•
Due to non-renewal of an employment contract.
Termination of employment by the executive:
•
As a voluntary termination or
•
For good reason.
We do not believe that we should pay our applicable NEOs any incremental compensation upon termination when the termination is by either
choice or due to conduct that is potentially detrimental to our Company. Thus, we do not provide any of our NEOs any incremental severance
benefits other than any amounts already earned and accrued at the date of termination if the termination is voluntary (unless for good reason, for
certain NEOs) or for cause.
In the event of a termination by us without cause or by the executive for good reason (for certain NEOs), we provide severance benefits
under certain NEOs’ agreements, as described more fully below. These amounts reflect our belief that it is difficult for senior managers to find
comparable employment opportunities in a short period of time, particularly after experiencing a termination that was beyond their control.
Termination Events
Severance payments under the above termination event scenarios for Ms. Schaefer and Messrs. Black, Calder and Maupin are summarized
below.
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Table of Contents
Termination Event
Ms. Schaefer
Mr. Black
Mr. Calder
Mr. Maupin
Death or Disability
Base salary and annual bonus, if any, which were due and payable on the date the executive’s employment
terminated
By Company For Cause
Base salary and annual bonus, if any, which were due and payable on the date the executive’s employment
was terminated for cause.
By Company Without Cause
100% of then-current
annual base salary and
most recently paid annual
bonus and 36 times our
monthly contribution on
behalf of the executive
under health and welfare
plans in which the
executive participates
Non-renewal of employment
agreement by Company
Base salary and annual bonus, if any, which were due
and payable on the date the executive’s employment
terminated
Voluntary Termination by
Executive (Without Good Reason)
Base salary and annual bonus, if any, which were due and payable on the date the executive’s employment
terminated
Voluntary Termination by
Executive (For Good Reason)
100% of then-current
annual base salary and
most recently paid annual
bonus and 36 times our
monthly contribution on
behalf of the executive
under health and welfare
plans in which the
executive participates
100% of then-current
annual base salary
Base salary and annual
bonus, if any, which were
due and payable on the
date the executive’s
employment terminated
100% of then-current
100% of then-current
annual base salary and
annual base salary
most recently paid annual
bonus and 36 times our
monthly contribution on
behalf of the executive
under health and welfare
plans in which the
executive participates
100% of then-current
annual base salary and
most recently paid annual
bonus and 36 times our
monthly contribution on
behalf of the executive
under health and welfare
plans in which the
executive participates
100% of then-current
annual base salary and
most recently paid annual
bonus and 36 times our
monthly contribution on
behalf of the executive
under health and welfare
plans in which the
executive participates
Base salary and annual
bonus, if any, which
were due and payable on
the date the executive’s
employment terminated
Base salary and annual
bonus, if any, which
were due and payable on
the date the executive’s
employment terminated
In the event of a termination by us without cause within 180 days prior to (for Mr. Calder), or (a) 18 months following (for Ms. Schaefer and
Messrs. Black and Calder) or (b) 12 months following (for Mr. Maupin), a change of control, then certain of the severance benefits described above
are modified, as follows:
•
Ms. Schaefer and Mr. Calder – for a termination by the Company without cause or voluntary termination by the executive for good
reason, the multiplier for the annual base salary and most recently paid annual bonus is increased to 200%.
•
Mr. Black – for a termination by the Company without cause or voluntary termination by the executive for good reason, the executive
receives (a) 200% of then-current annual base salary and most recently paid annual bonus and (b) 36 times our monthly contribution on
behalf of the executive under health and welfare plans in which the executive participates.
•
Mr. Maupin – for a termination by the Company without cause, the executive also receives 12 times our monthly contribution on behalf
of the executive under health and welfare plans in which the executive participates.
Severance payments for Mr. Lombardo are summarized below:
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Table of Contents
•
Without cause. In the event of a termination by the Company without cause within 12 months following a change of control,
Mr. Lombardo would be entitled to receive in a lump sum payment an amount equal to 100% of his then-current annual base salary.
•
All Other Termination Scenarios: Mr. Lombardo would be entitled to receive base salary and annual bonus, if any, which were due and
payable on the date his employment terminated.
Conditions to Receive Payment
The covenants within the employment agreements include various non-compete and non-solicitation provisions following a termination
event, including the prohibition for a period from:
•
Competing with us,
•
Soliciting or attempting to solicit any customers or potential customers competition with us, or
•
Hiring or attempting to hire our employees.
In addition, the employment agreements prohibit the executive from using confidential information (meaning any secret, confidential or
proprietary information possessed by the Company relating to its businesses) that has not become generally available to the public.
Summary of Payments Due Under Different Termination Events
Assuming a December 31, 2012 termination event by the executive or the Company, including before or after a change in control as described
above, payments would be as follows:
Salary Due
($)
Name/Termination Event
Ms. Schaefer
- Death, disability, termination for cause, voluntary termination (absent good reason),
non-renewal by Company
- Termination without cause, voluntary termination for good reason (all assuming no
change of control)
- Termination without cause, voluntary termination for good reason or non-renewal by
Company (all assuming a change of control)
Mr. Calder
- Death, disability, termination for cause, voluntary termination (absent good reason)
- Termination without cause, voluntary termination for good reason, non-renewal by
Company (all assuming no change of control)
- Termination without cause, for good reason or non-renewal by Company (all
assuming a change of control)
Mr. Black
- Death, disability, termination for cause, voluntary termination, non-renewal by
Company
- Termination without cause (assuming no change of control)
- Termination without cause, voluntary termination for good reason (all assuming a
change of control)
Mr. Lombardo
- Death, disability, termination for cause, voluntary termination
- Termination without cause, for good reason or non-renewal by Company (all
assuming no change of control)
- Termination without cause, for good reason or non-renewal by Company (all
assuming a change of control)
Mr. Maupin
- Death, disability, termination for cause, voluntary termination, non-renewal by
Company
- Termination without cause (assuming no change of control)
149
—
Bonus Due
($)
—
Health and
Welfare
Payment
($)
—
Excise Tax
Gross-Up
Payment
($)
—
Total Due
($)
—
561,000
768,750
33,235
—
1,362,985
1,122,000
1,537,500
33,235
—
2,692,735
—
—
—
392,700
366,470
21,945
785,400
732,940
21,945
—
319,770
639,540
—
—
664,620
—
—
33,235
—
—
1,127,809
—
781,115
2,668,094
—
—
—
319,770
—
1,337,395
—
—
—
—
—
—
—
—
—
—
204,000
—
—
—
204,000
—
275,000
—
—
—
—
—
—
—
275,000
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- Termination without cause (assuming a change of control)
275,000
—
11,078
—
286,078
Awards Under Stock Option Agreements
We have granted certain of the NEOs stock options to purchase shares of K-9 Holdings pursuant to individual option agreements. These
options consist of Tranche A, Tranche B and Tranche C Options, with vesting as follows:
•
Tranche A – vest and become exercisable in equal installment on each of the first five anniversaries of May 4, 2012.
•
Tranche B – vest and become exercisable at such time as K-9 Holdings realizes an investor IRR that equals or exceeds 20% and a
multiple of invested capital (MOIC) that equals or exceeds two, in each case, based on cash proceeds received by K-9 Holdings.
•
Tranche C – vest and become exercisable at such time as K-9 Holdings realizes an investor IRR that equals or exceeds 25% and a MOIC
that equals or exceeds three, in each case, based on cash proceeds received by K-9 Holdings.
In the event of a change in control:
•
Any Tranche A options that have not vested at the time of such change in control will become vested and exercisable on the first
anniversary of such change in control.
•
Any Tranche B options and Tranche C options that have not vested at the time of such change in control will continue to be subject to
vesting in accordance with the terms of the original options agreement.
Additionally, for Ms. Schaefer, in the event of a termination by the Company without cause or a termination by the executive for good reason
within 18 months following a change in control, any equity awards granted to the executive outstanding as of the date of termination accelerate
in full and the value of those equity awards is payable as a lump sum.
All stock options held by our NEOs had an exercise price of $10.00 per share, which we estimate approximates the per share fair value of K-9
Holdings as of December 31, 2012. As a result, assuming we experienced one of the termination event scenarios described above on December 31,
2012, the NEOs would not realize any additional market value related to stock options.
Deferred Compensation Plan
Under the deferred compensation plan (see the Compensation Discussion and Analysis – Non-Qualified Deferred Compensation Plan above
for more information on this plan), all of an NEO’s matching and profit-sharing contributions from the Company are subject to accelerated vesting
upon the following termination events:
•
A change of control of the Company or
•
The NEO’s death or disability.
The “change of control” provisions within the deferred compensation plan are equally applicable to all participants within the plan.
Assuming a change in control or an executive’s death or disability under the deferred compensation plan at December 31, 2012, the market
value to the applicable executive would be equal to the aggregate balances at fiscal yearend as presented in the Non-Qualified Deferred
Compensation table on page 36.
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DIRECTOR COMPENSATION
The following table shows the compensation for services in fiscal 2012 for our non-employee directors. Our officers who serve as directors do
not receive additional compensation for their service as directors.
Name
Allen Weiss (4)
Scott Ross (4)
James Chambers (4)
Aaron Stone (4)
Joseph Vittoria (4)
Elan Blutinger (4)
Randy Churchey (4)
Edward Rensi (4)
Howard Silver (4)
(1)
(2)
Fees
Earned or
Paid in
Cash ($)
Option
Awards
(1)(2)(3)($)
Total
($)
125,000
0
0
0
67,750
48,250
37,000
30,500
53,250
2,795,111
0
0
0
0
0
0
0
0
2,920,111
0
0
0
67,750
48,250
37,000
30,500
53,250
The value reported for Option Awards for each individual is the fair value of the full grant received as of the grant date. The assumptions for
making the valuation determinations are set forth in the footnote or footnote sections to our financial statements captioned “Stock Based
Compensation” or “Share-Based Compensation” in our consolidated financial statements.
The following table shows the number of outstanding Option Awards held by each non-employee director as of December 31, 2012:
Option Awards
Vested (#)
Unvested (#)
Name
Mr. Weiss
0
487,236
The following table shows the vesting dates of the outstanding Option Awards that were unvested as of December 31, 2012:
Award Type
Stock Options – Tranche A
Stock Options – Tranche A
Stock Options – Tranche A
Stock Options – Tranche A
Stock Options – Tranche A
Stock Options – Tranche B
Stock Options – Tranche B
(a)
(b)
(3)
Vesting
Date
Mr.
Weiss
5/4/13
5/4/14
5/4/15
5/4/16
5/4/17
32,482
32,482
32,482
32,483
32,483
162,412
162,412
(a)
(b)
Tranche B stock options vest and become exercisable at such time as K-9 Holdings realizes an investor IRR that equals or exceeds 20% and a
multiple of invested capital (MOIC) that equals or exceeds two, in each case, based on cash proceeds received by K-9 Holdings.
Tranche C stock options vest and become exercisable at such time as K-9 Holdings realizes an investor IRR that equals or exceeds 25% and a
MOIC that equals or exceeds three, in each case, based on cash proceeds received by K-9 Holdings.
The following table details the grants of Option Awards to directors during 2012:
Grant
Type
Name
Mr. Weiss
(A)
(B)
(C)
151
Grant
Date
8/13/12
8/13/12
8/13/12
Stock
Awards (#)
Grant Date
Fair Value of
Stock and
Option
Awards ($)
162,412
162,412
162,412
1,018,323
916,004
860,784
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(A) Tranche A – vest and become exercisable in equal installment on each of the first five anniversaries of May 4, 2012.
(B) Tranche B – vest and become exercisable at such time as K-9 Holdings realizes an investor IRR that equals or exceeds 20% and a multiple of
invested capital (MOIC) that equals or exceeds two, in each case, based on cash proceeds received by K-9 Holdings.
(C) Tranche C – vest and become exercisable at such time as K-9 Holdings realizes an investor IRR that equals or exceeds 25% and a MOIC that
equals or exceeds three, in each case, based on cash proceeds received by K-9 Holdings.
(4)
Messrs. Weiss, Chambers, Ross and Stone served as members of our Board of Directors since May 5, 2012. Messrs. Vittoria, Blutinger,
Churchey, Rensi and Silver served as members of our Board of Directors through May 4, 2012.
The grant date fair value is the value of Option Awards granted in 2012, disregarding that we recognize the value of the awards for financial
reporting purposes over the service period of the awards.
Narrative to the Director Compensation Table
For 2012 (pre-Merger), the Compensation Committee used as a reference tool the compensation recommendations for directors that had been
developed for 2010 by FPL. For 2010, the Compensation Committee had engaged FPL to assist the Compensation Committee in determining
appropriate fiscal year 2010 compensation for our directors. FPL made recommendations to the Compensation Committee of appropriate levels and
components of compensation for our directors, based upon a study of a competitive peer group of 11 public companies that compete with us for
talent, investment dollars and/or business. That peer group included primarily companies that are focused on operating within the public
consumer/leisure sector as the foundation for our compensation practices. Those peer group companies are ones considered to appeal to familybased, consumer leisure activities, including resorts/timeshares, gaming/entertainment and amusement parks. The peer group consisted of the
following companies:
Cedar Fair, L.P.
Gaylord Entertainment Company, Inc.
LaSalle Hotel Properties, Inc.
The Marcus Corporation
Red Lion Hotels Corporation
Royal Caribbean Cruises, Ltd.
Silverleaf Resorts, Inc.
Six Flags, Inc.
Steiner Leisure Limited
Strategic Hotels & Resorts, Inc.
Vail Resorts, Inc.
Utilizing this process and benchmarking data supplied by FPL, the Compensation Committee approved director compensation for 2012
(through the date of the Merger) as follows:
•
Each of our non-employee directors received an annual retainer fee of $53,000 for services as a director. Also, our chairman received an
additional annual fee of $25,000.
•
The chair of the Audit Committee received an additional annual fee of $17,500 and the chairs of the Compensation Committee and the
Nominating and Corporate Governance Committee each received an additional annual fee of $7,500.
•
Each member of the Audit Committee other than the chair received an additional annual fee of $13,500 and each member of the
Compensation Committee and the Nominating and Corporate Governance Committee other than the chairs received an additional annual
fee of $4,000.
•
Directors who are employees of our company or our subsidiaries did not receive compensation for their services as directors.
•
Each independent director who is initially elected to our Board of Directors received 2,500 nonvested shares of our Common Stock. The
shares granted to new independent directors vest in thirds over a three-year period, beginning on the first anniversary of the date of
the grant of the shares, subject to accelerated vesting only upon a change of control or if the director is removed from or is not
nominated to stand for reelection to the Board of Directors.
Subsequent to the Merger, we compensate Mr. Weiss for services as follows:
•
An annual retainer fee of $250,000.
•
We awarded Mr. Weiss 487,236 stock options of K-9 Holdings, as described in the table above.
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Table of Contents
All other members of our board of directors subsequent to the Merger receive no consideration.
We reimburse directors for travel expenses to our board meetings and other out-of-pocket expenses they incur when attending meetings or
conducting their duties as directors of our company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION ON
COMPENSATION DECISIONS
From January 2012 through May 4, 2012, the Compensation Committee consisted of Messrs. Churchey, Rensi and Vittoria, with Mr. Churchey
serving as its chairman. From May 5, 2012 through December 31, 2012, the Compensation Committee consisted of Messrs. Ross, Stone and
Chambers, with Mr. Ross serving as its chairman. No member of the Compensation Committee was at any time during fiscal 2012 or at any other
time an officer or employee of the company, while serving on the Committee. No member had any relationship with the company requiring
disclosure as a related-party transaction in the section “Certain Relationships and Related Transactions.” In addition, no executive officer of the
company has served on the Board of Directors or Compensation Committee of another entity that has or has had one or more executive officers
who served as a member of the Board of Directors or the Compensation Committee during fiscal 2012.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
OWNERSHIP OF K-9 HOLDINGS, INC. COMMON STOCK
K-9 Holdings, Inc. (K-9 Holdings) owns 100% of our common stock.
The table below sets forth certain information regarding the number of K-9 Holdings common shares beneficially owned on March 1, 2013,
except where noted, by:
•
Each person or group known by us to beneficially own more than five percent (5%) of K-9 Holdings’ common stock,
•
Each of our directors and named executive officers, and
•
All of our directors and our named executive officers as a group.
A person generally “beneficially owns” shares if he or she, directly or indirectly, has or shares either the right to vote those shares or dispose
of them. Except as indicated in the footnotes to this table, to our knowledge the persons named in the table below have sole voting and investment
power with respect to all shares of common stock beneficially owned.
The number of shares beneficially owned by each person or group includes shares of Common Stock that such person or group had the right
to acquire on or within 60 days after March 1, 2013, including, but not limited to, upon the exercise of options or the vesting of restricted stock.
References to options in the footnotes of the table below include only options to purchase shares that were exercisable on or within 60 days after
March 1, 2013.
For each individual and group included in the table below, percentage ownership is calculated by dividing (a) the number of shares
beneficially owned by such person or group by (b) the sum of the shares of common stock outstanding on March 1, 2013 plus the number of shares
of common stock that such person or group had the right to acquire on or within 60 days after March 1, 2013. Unless otherwise indicated in the
accompanying footnotes, all of the shares of our common stock listed below are owned directly, and the indicated person has sole voting and
investment power. The address for each individual listed below is: c/o Great Wolf Resorts, Inc., 525 Junction Road, Suite 6000 South, Madison,
Wisconsin 53717.
Shares Beneficially Owned
Number
Percentage
Name of Beneficial Owner Officers and Directors
Allen R. Weiss
Aaron J. Stone
Scott I. Ross
James P. Chambers
Kimberly K. Schaefer
Timothy D. Black
James A. Calder
Alexander P. Lombardo
J. Scott Maupin
100,000
0
0
0
141,475
45,738
0
1,500
5,000
153
0.3
*
*
*
0.5
0.2
*
*
*
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All directors and executive officers as a group (9 persons)
Beneficial Holders in Excess of 5%
K-9 Investors, L.P. (a)
*
(a)
306,500
1.0
29,735,900(6)
98.8
Less than one percent of the outstanding shares of Common Stock.
Represents 29,735,900 shares of K-9 Holdings’ common stock owned of record by K-9 Investors, L.P. (K-9 Investors). Apollo Management
VII, L.P. (Management VII) is the manager of K-9 Investors. AIF VII Management LLC (AIF VII Management) is the general partner of
Management VII. Apollo Management, L.P. (Apollo Management) is the sole member and manager of AIF VII Management. Apollo
Management GP, LLC (Management GP) is the general partner of Apollo Management. Apollo Management Holdings, L.P. (Management
Holdings) is the sole member and manager of Management GP, and Apollo Management Holdings GP, LLC (Holdings GP) is the general
partner of Management Holdings. The principal address of K-9 Investors is One Manhattanville Road, Suite 201, Purchase, New York 10577.
The principal address of each of Management VII, AIF VII Management, Apollo Management, Management GP, Management Holdings and
Holdings GP is 9 W. 57th Street, 43rd Floor, New York, New York 10019.
The number of shares reflected in the table above as beneficially owned by Apollo does not include shares held by executive officers and
non-Apollo directors that are subject to the terms of the Investor Rights Agreement, dated August 13, 2012, pursuant to which, among other
things, each holder party thereto has agreed to grant to Apollo the right to vote his or her shares of K-9 Holdings as a proxy until the
consummation of an initial public offering of the Company (or, with respect to each holder, the earlier failure of such holder to own any shares
of K-9 Holdings).
Equity Compensation Plan Information
This table provides certain information as of December 31, 2012 with respect to K-9 Holdings’ equity compensation plan approved and not
approved by stockholders:
Plan Category
Equity compensation plans
approved by security holders
Equity compensation plans not
approved by security holders
Total
(1)
(a)
Number of Securities
to be Issued upon Exercise
of Outstanding Options,
Warrants and Rights
(b)
Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights
(c)
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column (a))
1,833,767(1)
$
10.00
602,415
—
1,833,767
$
N/A
10.00
—
602,415
This amount consists of:
•
1,796,267 shares of K-9 Holdings shares of our Common Stock issuable upon the exercise of outstanding stock options.
•
37,500 restricted shares of K-9 Holdings. Common Stock that have been granted but not yet earned as of December 31, 2012. The
number of shares, if any, to be issued pursuant to these grants will be determined by the grant recipient providing future services to us
over the vesting period of the grant. Since these awards have no exercise price, they are not included in the weighted average exercise
price calculation in column (b).
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K-9 Holdings, Inc. 2012 Equity Incentive Plan authorizes us to grant up to 2,436,182 incentive and/or nonqualified stock options, stock
appreciation rights or shares of K-9 Holdings’ Common Stock to our employees and directors.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Related Person Transactions
In accordance with our Code of Business Conduct and Ethics, all related party transactions known to us are subject to review and approval of
our Audit Committee.
We and GWR Operating Partnership, L.L.L.P., a Delaware limited liability partnership (GWROP), have entered into a Consulting Agreement,
dated as of August 13, 2012 (the Consulting Agreement), with Apollo Management VII, L.P. (Management VII) pursuant to which GWROP and its
subsidiaries (and at its request its affiliates) will receive certain advisory services from Management VII (and its affiliates). The Consulting
Agreement was entered into on August 13, 2012 but commences effective as of May 4, 2012, and will terminate on the earlier of (i) the twelfth
anniversary of August 13, 2012, (ii) such time as Management VII and its affiliates then owning, directly or indirectly, beneficial economic interests
in GWROP own in the aggregate, directly or indirectly, less than 5% of the beneficial economic interest of GWROP and (iii) such earlier date as is
mutually agreed upon by GWROP, the Company and Management VII. As consideration for agreeing to render the services set forth in the
Consulting Agreement, GWROP will pay to Management VII or its designee an annual fee (beginning in April 2013) equal to the greater of $2
million and 2% of EBITDA (as defined in the Consulting Agreement) and, if the Company, GWROP or Parent or any of Parent’s direct or indirect
parents consummates a transaction involving a change of control or an initial public offering before the termination of the Consulting Agreement,
then, in lieu of the annual consulting fee and subject to certain qualifications, Management VII may elect to receive a lump sum payment equal to
the present value of all consulting fees payable through the end of the term of the Consulting Agreement. In addition, GWROP may be required to
engage Management VII to provide certain advisory, investment banking or similar services if the Company, GWROP or Parent or any of Parent’s
direct or indirect parents engages in any merger, acquisition, disposition, recapitalization, issuance of securities, financing or similar transaction. In
the event that Management VII provides such services, GWROP will pay to Management VII or its designee additional fees to be determined in
connection with the provision of such services. The Company guarantees GWROP’s payment obligations under the Consulting Agreement.
GWROP and the Company’s payment obligations under the Consulting Agreement may be limited or subject to deferral, as appropriate, to the
extent such obligations would otherwise violate any prohibitions or limitations under any of their applicable debt agreements.
In addition, GWROP and the Company have entered into an Expense Reimbursement and Indemnity Agreement, dated as of August 13, 2012
(the Reimbursement Agreement), with Management VII, pursuant to which (i) upon presentation of documentation as reasonably requested by
GWROP, GWROP has agreed to pay all out-of-pocket expenses of Management VII or its affiliates in connection with their provision of services
under the Consulting Agreement whether incurred on, prior or after the date of the Reimbursement Agreement, including any expenses incurred in
connection with the transactions contemplated by the Merger Agreement to the extent that such expenses related to the Merger Agreement were
not paid or reimbursed by Parent prior to or in connection with the closing of the transactions contemplated by the Merger Agreement and
(ii) GWROP has also agreed to indemnify Management VII and its affiliates and certain other parties against all liabilities arising out of or in
connection with services contemplated by and/or Management VII’s engagement under the Reimbursement Agreement, subject, in each case, to
deferral of such payment obligations to the extent such payments are prohibited by GWROP and the Company’s applicable debt agreements. Such
reimbursement obligations are effective with respect to periods commencing on or after May 4, 2012. The Reimbursement Agreement is coterminous
with the Consulting Agreement. The Company guarantees GWROP’s payment obligations under the Reimbursement Agreement. In the fiscal year
ending December 31, 2013, we paid a total of $193 to Apollo under the Reimbursement Agreement.
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
PwC served as our registered independent public accountants and auditors in 2012 and will continue to serve as our auditors for our fiscal
year ending December 31, 2013, unless this is changed by action of our Audit Committee.
Grant Thornton, LLP served as our registered independent public accountants and auditors in 2011.
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Fees
During the years ended 2012 and 2011, PwC and Grant Thornton provided services in the following categories and amounts:
Fees Billed
PwC
2012
Audit fees
Audit-related fees
Tax fees
All other fees
Total Fees
2011
$658,361(1)
$
—
$
—
$
—
$658,361
$
$
$
$
$
—
—
—
—
—
Fees Billed
Grant Thornton
2012
Audit fees
Audit-related fees
Tax fees
All other fees
Total Fees
(1)
(2)
(3)
$ 24,000(2)
$
—
$
—
$111,030(3)
$135,030
2011
$464,653(2)
$
—
$
—
$ 26,000(3)
$490,653
Amount consists of (a) $580,361 for the audit of our financial statements for the year ended December 31, 2012 and (b) $78,000 for quarterly
reviews of our financial statements for the year ended December 31, 2012.
Amount consists of (a) $0 and $399,653 for the audit of our financial statements for the year ended December 31, 2012 and 2011, respectively
and (b) $24,000 and $65,000 for quarterly reviews of our financial statements for the years ended December 31, 2012 and 2011.
Amount relates to review of 8-Ks, actual and proposed SEC filings and SEC comment letters.
Our Audit Committee has adopted procedures for pre-approving all audit and non-audit services provided by the independent auditors.
Unless a type of service to be provided by the independent auditors has received general pre-approval, it will require specific pre-approval by our
Audit Committee. Any proposed services exceeding pre-approved cost levels also will require specific pre-approval by our Audit Committee.
Our Audit Committee’s pre-approval procedures include reviewing a budget for audit and permitted non-audit services. The budget includes
a description of, and a budgeted amount for, particular categories of audit and non-audit services that are recurring in nature and therefore
anticipated at the time the budget is submitted. For pre-approval, our Audit Committee considers whether these services are consistent with the
SEC’s rules on auditor independence. Our Audit Committee may delegate pre-approval authority to the chairman of our Audit Committee. All audit
fees, audit-related fees, tax fees and other fees listed above were approved by the Audit Committee.
Our Audit Committee has designated the Chief Financial Officer to monitor the performance of the services provided by the independent
auditors and to determine whether these services are in compliance with the pre-approval policy.
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PART IV
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements
The financial statements included in this Annual Report on Form 10-K are provided under Item 8.
(a)(2) Financial Statement Schedules
All schedules are omitted since the required information is not present in amounts sufficient to require submission to the schedule or because
the information required is included in the financial statements and notes thereto.
(a)(3) Exhibits
See Index to Exhibits.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
GREAT WOLF RESORTS, INC.
/S / KIMBERLY K. SCHAEFER
Kimberly K. Schaefer
Chief Executive Officer
Dated: March 29, 2013
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.
Signature
/S / KIMBERLY K. SCHAEFER
Title
Date
Chief Executive Officer (Principal Executive Officer) and Director
March 29, 2013
Chief Financial Officer (Principal Financial and Accounting
Officer)
March 29, 2013
Chairman of the Board and Director
March 29, 2013
Director
March 29, 2013
Director
March 29, 2013
Director
March 29, 2013
Kimberly K. Schaefer
/S / JAMES A. CALDER
James A. Calder
/s/ ALLEN R. WEISS
Allen R. Weiss
/s/ SCOTT I. ROSS
Scott I. Ross
/s/ JAMES P. CHAMBERS
James P. Chambers
/s/ AARON J. STONE
Aaron J. Stone
INDEX TO EXHIBITS
The exhibits listed below are incorporated herein by reference to prior SEC filings by Registrant or are included as exhibits in this Annual
Report on Form 10-K.
Exhibit
Number
2.1**
Description
Agreement and Plan of Merger, dated as of March 12, 2012, by and among K-9 Acquisition, Inc., K-9 Holdings, Inc. and Great Wolf
Resorts, Inc. (incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K filed with the Securities and
Exchange Commission on March 13, 2012), as amended by the First Amendment to Agreement and Plan of Merger, dated as of
April 6, 2012, by and among K-9 Acquisition, Inc., K-9 Holdings, Inc. and Great Wolf Resorts, Inc. (incorporated by reference to
Exhibit 2.1 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 9, 2012), as
further amended by the Second Amendment to Agreement and Plan of Merger, dated as of April 18, 2012, by and among K-9
Acquisition, Inc., K-9 Holdings, Inc. and Great Wolf Resorts, Inc. (incorporated by reference to Exhibit 2.1 of the Company’s
Current Report on Form 8-K filed with the Securities and Exchange Commission on April 18, 2012), and as further amended by the
Third Amendment to Agreement and Plan of Merger, dated as of April 20, 2012, by and among K-9 Acquisition, Inc., K-9 Holdings,
Inc. and Great Wolf Resorts, Inc. (incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K filed with
the Securities and Exchange Commission on April 20, 2012) (incorporated by reference to Exhibit 2.1 of the Company’s Current
Report on Form 8-K filed with the Securities and Exchange Commission on May 4, 2012)
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Table of Contents
3.1**
Amended and Restated Certificate of Incorporation of Great Wolf Resorts, Inc. (incorporated herein by reference to Exhibit 3.1 to
the Company’s Current Report on Form 8-K filed May 4, 2012)
3.2**
Amended and Restated Bylaws of Great Wolf Resorts, Inc., dated as of May 4, 2012 (incorporated herein by reference to Exhibit 3.2
to the Company’s Current Report on Form 8-K filed May 4, 2012)
4.1**
[Form of the Common Stock Certificate of Great Wolf Resorts, Inc. (incorporated herein by reference to Exhibit 4.1 to the
Company’s Registration Statement on Form S-1 filed October 21, 2004)]
4.2**
Junior Subordinated Indenture, dated as of March 15, 2005, between Great Wolf Resorts, Inc. and JPMorgan Chase Bank, National
Association, as trustee (incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed
March 18, 2005)
4.3**
Amended and Restated Trust Agreement, dated as of March 15, 2005, by and among Chase Manhattan Bank USA, National
Association, as Delaware trustee; JPMorgan Chase Bank, National Association, as property trustee; Great Wolf Resorts, Inc., as
depositor; and James A. Calder, Alex G. Lombardo and J. Michael Schroeder, as administrative trustees (incorporated herein by
reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed March 18, 2005)
4.4**
Junior Subordinated Indenture, dated as of June 15, 2007, between Great Wolf Resorts, Inc. and Wells Fargo Bank, N.A., as trustee
(incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed June 19, 2007)
4.5**
Amended and Restated Trust Agreement, dated as of June 15, 2007, by and among Great Wolf Resorts, Inc., as depositor, Wells
Fargo Bank, N.A., as property trustee, Wells Fargo Delaware Trust Company, as Delaware trustee, and James A. Calder, Alex P.
Lombardo and J. Michael Schroeder, as administrative trustees (incorporated herein by reference to Exhibit 4.2 to the Company’s
Current Report on Form 8-K filed June 19, 2007)
4.6**
Note Purchase Agreement dated as of March 30, 2010, by and among (i) GWR Operating Partnership, L.L.L.P., a Delaware limited
liability limited partnership (“GWR OP”), and Great Wolf Finance Corp., a Delaware corporation, (ii) Mason Family Resorts, LLC,
Great Wolf Lodge of Grapevine, LLC and Great Wolf Williamsburg SPE, LLC, (iii) Great Wolf Resorts, Inc. and GWR OP General
Partner, LLC, a Delaware limited liability company and certain other direct and indirect subsidiaries of GWR OP; and (iv) Deutsche
Bank Securities, Inc., Banc of America Securities, LLC, Wells Fargo Securities, LLC and Credit Agricole Securities (USA) Inc.
(incorporated herein by reference to Exhibit 10.27 to the Company’s Quarterly Report on Form 10-Q filed May 5, 2010)
4.7**
Indenture governing the 10.875% First Mortgage Notes due 2017, dated as of April 7, 2010, by and among the Company and Great
Wolf Finance as co-obligors, the guarantors named therein, and U.S. Bank National Association, as trustee (incorporated herein by
reference to Exhibit 10.28 to the Company’s Quarterly Report on Form 10-Q filed May 5, 2010)
4.8**
Security Agreement, dated as of April 7, 2010, by and among the loan parties from time to time party thereto and U.S. Bank National
Association, as collateral agent (incorporated herein by reference to Exhibit 4.4 to the Company’s Registration Statement on
Form S-4 filed September 16, 2010)
4.9**
Open-End Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated as of April 7, 2010, from
Mason Family Resorts, LLC, as Mortgagor to U.S. Bank National Association, in its capacity as Collateral Agent (incorporated
herein by reference to Exhibit 4.5 to the Company’s Registration Statement on Form S-4 filed September 16, 2010)
4.10**
Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated as of April 7, 2010, from Great Wolf
Lodge of Grapevine, LLC, as Trustor to Peter S. Graf, as Mortgaged Property Trustee for the benefit of, U.S. Bank National
Association, in its capacity as Collateral Agent, as Beneficiary (incorporated herein by reference to Exhibit 4.6 to the Company’s
Registration Statement on Form S-4 filed September 16, 2010)
4.11**
Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated as of April 7, 2010, from Great Wolf
Williamsburg SPE, LLC, as Trustor to Craig A. Johnson, as Mortgaged Property Trustee for the benefit of, U.S. Bank National
Association, in its capacity as Collateral Agent, as Beneficiary (incorporated herein by reference to Exhibit 4.7 to the Company’s
Registration Statement on Form S-4 filed September 16, 2010)
159
Table of Contents
4.12**
Amended and Restated Trust Agreement, dated as of March 12, 2012, by and among Great Wolf Resorts, Inc. as depositor; Wells
Fargo Delaware Trust Company, National Association, as property trustee; Wells Fargo Delaware Trust Company, National
Association, as Delaware trustee; and Kimberly K. Schaefer, Alexander P. Lombardo, and James A. Calder as administrative
trustees (incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed May 8, 2012)
4.13**
Junior Subordinated Indenture, dated as of March 12, 2012, between Great Wolf Resorts, Inc. and Wells Fargo Delaware Trust
Company, National Association, as trustee (incorporated herein by reference to Exhibit 10.2 to the Company’s Quarterly Report on
Form 10-Q filed May 8, 2012)
4.14**
Exchange Agreement, dated as of March 12, 2012, by and among, Great Wolf Resorts, Inc., GW Capital Trust IV and Kodiak CDO II,
Ltd. (incorporated herein by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed May 8, 2012)
4.15**
First Amendment to Loan Agreement, dated as of March 12, 2012, by and among Great Wolf Lodge of the Carolinas, LLC, as
borrower; Credit Agricole Corporate and Investment Bank and Deutsche Bank Trust Company Americas, as lenders; and Credit
Agricole Corporate and Investment Bank, as agent (incorporated herein by reference to Exhibit 4.2 to the Company’s Current
Report on Form 8-K filed March 13, 2012)
4.16**
Second Supplemental Indenture, dated as of April 30, 2012 by and among, the Issuers, the guarantors named therein and U.S. Bank
National Association, as trustee (incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed
April 30, 2012)
4.17**
Rights Agreement, dated as of March 12, 2012, between Great Wolf Resorts, Inc. and Registrar and Transfer Company, as rights
agent (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed March 13, 2012)
10.1**
License Agreement, dated January 30, 2004, by and between The Great Lakes Companies, Inc. and Jim Pattison Entertainment Ltd.
(incorporated herein by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-1 filed September 23, 2004)
10.2**
Tall Pines Exclusive License and Royalty Agreement, dated July 25, 2004, between Tall Pines Development Corporation and The
Great Lakes Companies, Inc. (incorporated herein by reference to Exhibit 10.4 to the Company’s Registration Statement on Form S-1
filed December 7, 2004)
10.3*
Employment Agreement between Great Wolf Resorts, Inc. and Kimberly Schaefer, dated August 13, 2012
10.4**
Employment Agreement between Great Wolf Resorts, Inc. and James Calder, dated December 13, 2004
10.4a**
Separation and Release Agreement, dated November 9, 2012 between Great Wolf Resorts, Inc. and James A. Calder (incorporated
herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed November 15, 2012)
10.5*
Amended and Restated Employment Agreement between Great Wolf Resorts, Inc. and Timothy Black, dated as of October 16, 2012
10.6*
Employment Agreement between Great Wolf Resorts, Inc. and Jeffrey Scott Maupin, dated August 13, 2012
10.7*
Employment Agreement between Great Wolf Resorts, Inc. and Gary W. Ferrera, dated as of February 5, 2013
10.8**
Form of Noncompete Agreement, Trade Secret and Confidentiality Agreement (incorporated herein by reference to Exhibit 10.6 to
the Company’s Registration Statement on Form S-1 filed January 21, 2005)
10.9**
Form of Officers and Directors Indemnification Agreement (incorporated herein by reference to Exhibit 10.7
160
Table of Contents
to the Company’s Registration Statement on Form S-1 filed August 12, 2004)
10.10**
Form of Indemnity Agreement (incorporated herein by reference to Exhibit 10.8 to the Company’s Registration Statement on
Form S-1 filed September 23, 2004)
10.11**
Form of Great Wolf Resorts, Inc. Deferred Compensation Plan (incorporated herein by reference to Exhibit 10.11 to the Company’s
Registration Statement on Form S-1 filed August 12, 2004)
10.12**
Form of Officers Change of Control Severance Agreement (incorporated herein by reference to Exhibit 10.13 to the Company’s 10K filed February 23, 2012)
10.13**
Loan Agreement by and among Great Wolf Resorts, Inc., Citigroup Global Markets Realty Corp. and The Travelers Insurance
Company (incorporated herein by reference to Exhibit 10.16 to Company’s Registration Statement on Form S-1 filed January 21,
2005)
10.14**
Purchase Agreement, dated as of March 15, 2005, among Great Wolf Resorts, Inc., Great Wolf Capital Trust I, Taberna Preferred
Funding I, Ltd and Merrill Lynch International (incorporated herein by reference to Exhibit 1.1 to the Company’s Current Report
on Form 8-K filed March 18, 2005)
10.15**
Loan Agreement dated December 6, 2007, between Great Wolf Lodge of the Poconos, LLC, as borrower, and Citigroup Global
Markets Realty Corp., as lender (incorporated herein by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K
filed December 13, 2007)
10.16**
Fifth Amendment to Lease, dated January 22, 2009, between the registrant and Hovde Building, LLC, (incorporated herein by
reference to the Company’s Current Report on Form 8-K filed January 28, 2009)
10.17**
Loan Agreement by and among Great Wolf Lodge of the Carolinas, LLC (as borrower), Crédit Agricole Corporate and Investment
Bank (as a lender), Deutsche Bank Trust Company Americas (as a lender), Deutsche Bank Securities Inc. (as syndication agent),
and Crédit Agricole Corporate and Investment Bank (as agent), dated as of July 15, 2011 (incorporated herein by reference to
Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed November 4, 2011)
10.18*
Consulting Agreement among Great Wolf Resorts, Inc., GWR Operating Partnership, L.L.L.P. and Apollo Management VII, L.P.,
dated as of August 13, 2012
10.19*
Expense Reimbursement and Indemnity Agreement among Great Wolf Resorts, Inc., GWR Operating Partnership, L.L.L.P. and
Apollo Management VII, L.P., dated as of August 13, 2012
10.20*
K-9 Holdings, Inc. 2012 Equity Incentive Plan
10.21*
Stock Option Agreement between K-9 Holdings, Inc. and Alexander P. Lombardo, dated as of August 13, 2012
10.22*
Stock Option Agreement between K-9 Holdings, Inc. and Jeffrey S. Maupin, dated as of August 13, 2012
10.23*
Stock Option Agreement between K-9 Holdings, Inc. and Timothy Black, dated as of August 13, 2012
10.24*
Stock Option Agreement between K-9 Holdings, Inc. and Kimberly Schaefer, dated as of August 13, 2012
12.1*
Statement of Computation of Ratios of Earnings of Fixed Charges
21.1*
List of Subsidiaries
31.1*
Certification of Chief Executive Officer of Periodic Report Pursuant to Rule 13a—14(a) and Rule 15d—14(a)
31.2*
Certification of Chief Financial Officer of Periodic Report Pursuant to Rule 13a—14(a) and Rule 15d—14(a)
32.1*
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350
32.2*
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
101.INS**
XBRL Instance Document
161
Table of Contents
101.SCH**
XBRL Taxonomy Extension Schema Document
101.CAL**
XBRL Taxonomy Calculation Linkbase Document
101.LAB**
XBRL Taxonomy Label Linkbase Document
101.PRE**
XBRL Taxonomy Presentation Linkbase Document
*
**
Filed herewith.
Previously filed
162
(Back To Top)
Section 2: EX-10.3 (EX-10.3)
Exhibit 10.3
EXECUTION COPY
This EMPLOYMENT AGREEMENT by and between Great Wolf Resorts, Inc., a Delaware corporation (the “Company”), and Kimberly K.
Schaefer (“Executive”) (collectively the “Parties”) is made as of the 13th day of August, 2012 (the “Effective Date”).
WHEREAS, the Company and Executive have previously entered into an employment agreement, dated as of December 13, 2004 (the “Prior
Agreement”); and
WHEREAS, the Parties desire to supersede the Prior Agreement and enter into this employment agreement (the “Agreement”) pursuant to
the terms, provisions and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants, understandings, representations, warranties,
undertakings and promises hereinafter set forth, intending to be legally bound thereby, the Parties agree as follows:
1.
Employment Period.
Subject to earlier termination in accordance with Section 3 of this Agreement, Executive shall be employed by the Company for a period
commencing on the Effective Date and ending on the fifth anniversary of the Effective Date (the “Employment Period”) unless the parties mutually
agree to extend the term at least ninety (90) days prior to the end of the Employment Period. Upon Executive’s termination of employment with the
Company for any reason, Executive shall immediately resign all positions with the Company or any of its subsidiaries or affiliates, including any
position as a member of the Company’s Board of Directors (the “Board”).
2.
Terms of Employment.
(a) Position. During the Employment Period, Executive shall serve as President and Chief Executive Officer of the Company and will perform
such duties and exercise such supervision with regard to the business of the Company as are associated with such position, including such duties
as may be prescribed from time to time by the Board. Executive shall report directly to the Board and if reasonably requested by the Board,
Executive hereby agrees to serve (without additional compensation) as an officer and director of the Company or any affiliate or subsidiary thereof.
(b) Duties. During the Employment Period, Executive shall have such responsibilities, duties, and authority that are customary for Executive’s
position, subject at all times to the control of the Board, and shall perform such services as customarily are provided by an executive of a
corporation with Executive’s position and such other services consistent with Executive’s position, as shall be assigned to Executive from time to
time by the Board. During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote all of Executive’s business time to the business and affairs of the Company and to use Executive’s commercially
reasonable efforts to perform faithfully, effectively and efficiently Executive’s responsibilities and obligations hereunder. Executive shall be entitled
to engage in charitable and educational activities and to manage Executive’s personal and family investments, to the extent such activities are not
competitive with the business of the Company, do not interfere with the performance of Executive’s duties for the Company and are otherwise
consistent with the Company’s governance policies.
(c) Compensation.
(i) Base Salary. During the Employment Period, Executive shall receive an initial annual base salary in an amount equal to Five Hundred
Sixty One Thousand dollars ($561,000), less all applicable withholdings, which shall be paid in accordance with the customary payroll practices of
the Company and prorated for partial calendar years of employment (as in effect from time to time, the “Annual Base Salary”). The Annual Base
Salary shall be subject to annual review by the Board, in its sole discretion, for possible increase and any such increased Annual Base Salary shall
constitute “Annual Base Salary” for purposes of this Agreement.
(ii) Annual Bonus. During the Employment Period, with respect to each completed fiscal year of the Company, Executive shall be
eligible to receive a bonus (the “Bonus”) of up to 150% of Annual Base Salary contingent upon the achievement of qualitative and quantitative
performance goals approved by the Board. The Bonus, if any, shall be paid in the year following the fiscal year to which the Bonus relates.
Notwithstanding the foregoing, the Bonus for fiscal year 2012 shall be based on the Company’s bonus plan as in effect on the Effective Date;
provided, however, that with respect to fiscal year 2012, the amount of any bonus payable to Executive shall be reduced by $250,000.
(iii) Equity.
(1) Investment Equity. Executive shall invest $1,250,000 in K-9 Holdings, Inc. (“Holdings”). Such investment (x) shall be in
common stock of Holdings (“Common Stock”) that is economically equivalent to the securities acquired by K-9 Investors, L.P. (“Apollo”) in
connection with the transactions contemplated by that certain Agreement and Plan of Merger, dated March 13, 2012, among Holdings, K-9
Acquisition, Inc., and the Company (the “Transaction”) and (y) shall be made at a valuation equal to Apollo’s investment (the “Investment Price”).
(2) Options. As soon as practicable following the Effective Date, Executive shall be granted options to purchase 568,443 shares
of Common Stock with an exercise price equal to fair market value on the date of grant based on the Investment Price, subject to the terms of the
applicable award agreement and the K-9 Holdings, Inc. 2012 Equity Incentive Plan (the “Plan”).
(3) Restricted Stock. As soon as practicable following the Effective Date, Executive shall be granted restricted shares of
Common Stock with a value equal to approximately $250,000 (the “Restricted Stock”), based on the fair market value of the Common Stock as of the
grant date. The terms and conditions relating to the Restricted Stock will be set forth in a written award agreement and the related shareholders
agreement. Subject to Executive’s continuous employment, the Restricted Stock will vest on the date the Bonus is paid in respect of fiscal year
2012; provided, however, that in the event that the amount of the Bonus, if any, payable in respect of 2012 is less than $250,000, then Executive
shall forfeit all or a
2
portion of the Restricted Stock with aggregate value equal to such shortfall. The withholding taxes due upon the vesting of the Restricted Stock
shall be satisfied by reducing the number of shares of Common Stock deliverable to Executive upon vesting of the Restricted Stock by a number
sufficient to satisfy the minimum withholding obligation.
(iv) Benefits. During the Employment Period, Executive shall be eligible to participate in all retirement, compensation and employee
benefit plans, practices, policies and programs provided by the Company to the extent applicable generally to other executives of the Company
(except severance plans, policies, practices, or programs) subject to the eligibility criteria set forth therein, as such may be amended or terminated
from time to time. The benefits and perquisites provided to Executive will be substantially comparable in the aggregate to the benefits and
perquisites that Executive enjoyed as of the closing of the Transaction. In addition, the Company shall provide Executive with directors and officers
insurance coverage at least equal to that provided to other Company directors and officers.
(v) Expenses. During the Employment Period, Executive shall be entitled to receive reimbursement for all reasonable business expenses
incurred by Executive in performance of Executive’s duties hereunder provided that Executive provides all necessary documentation in accordance
with the Company’s policies.
3.
Termination of Employment.
(a) Death or Disability. Executive’s employment shall terminate automatically upon Executive’s death. If Executive becomes subject to a
“Disability” (as defined below) during the Employment Period, the Company may give Executive written notice in accordance with Sections 3(g)
and 9(g) of its intention to terminate Executive’s employment. For purposes of this Agreement, “Disability” means Executive’s inability to perform
Executive’s duties hereunder by reason of any medically determinable physical or mental impairment for a period of six (6) months or more in any
twelve (12) month period.
(b) Cause. Executive’s employment may be terminated at any time by the Company for “Cause” (as defined below). For purposes of this
Agreement, “Cause” shall mean Executive’s (i) commission of, conviction for, plea of guilty or nolo contendere to a felony or a crime involving
moral turpitude, or other material act or omission involving dishonesty or fraud, (ii) engaging in conduct that constitutes fraud or embezzlement,
(iii) engaging in conduct that constitutes gross negligence or willful gross misconduct that results or could reasonably be expected to result in
harm to the Company’s business or reputation, (iv) breach of any material terms of Executive’s employment, including this Agreement, which
results or could reasonably be expected to result in harm to the Company’s business or reputation or (v) continued willful failure to substantially
perform Executive’s duties. Executive’s employment shall not be terminated for “Cause” within the meaning of clauses (iv) and (v) above unless
Executive has been given written notice by the Company stating the basis for such termination and Executive is given fifteen (15) days to cure, to
the extent curable, the neglect or conduct that is the basis of any such claim.
(c) Termination Without Cause. The Company may terminate Executive’s employment hereunder without Cause at any time.
3
(d) Good Reason. Executive’s employment may be terminated at any time by Executive for Good Reason upon sixty (60) days’ prior written
notice following the occurrence of the event giving rise to the termination for Good Reason. For purposes of this Agreement, “Good Reason”
means voluntary resignation after any of the following actions taken by the Company without Executive’s written consent: (i) any material failure of
the Company to fulfill its obligations under this Agreement, (ii) a material and adverse change to, or a material reduction of, Executive’s duties and
responsibilities to the Company, (iii) a material reduction in Executive’s then current Annual Base Salary (not including any diminution related to a
broader compensation reduction that is not limited to Executive specifically and that is not more than 10% in the aggregate), (iv) the relocation of
Executive’s primary office to a location more than fifty (50) miles from the current location in Madison, WI, or (v) the failure of any successor to all
or substantially all of the Company’s assets to assume this Agreement, whether in writing or by operation of law; provided, that any such event
shall not constitute Good Reason unless and until Executive shall have provided the Company with written notice thereof no later than thirty
(30) days following Executive’s knowledge of the initial occurrence of such event and the Company shall have failed to remedy such event within
thirty (30) days of receipt of such notice.
(e) Voluntary Termination. Executive’s employment may be terminated at any time by Executive without Good Reason upon thirty (30) days’
prior written notice.
(f) Termination as a Result of Expiration of the Employment Period. Unless otherwise agreed between the parties, Executive’s employment
shall automatically terminate upon the expiration of the Employment Period.
(g) Notice of Termination. Any termination by the Company for Cause or without Cause, or by Executive for Good Reason or without Good
Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 9(g). For purposes of this
Agreement, a “Notice of Termination” means a written notice that (i) indicates the specific termination provision in this Agreement relied upon,
(ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive’s
employment under the provision so indicated and (iii) if the “Date of Termination” (as defined below) is other than the date of receipt of such
notice, specifies the termination date. The failure by Executive or the Company to set forth in the Notice of Termination any fact or circumstance
that contributes to a showing of Good Reason or Cause shall not waive any right of Executive or the Company hereunder or preclude Executive or
the Company from asserting such fact or circumstance in enforcing Executive’s or the Company’s rights hereunder.
(h) Date of Termination. “Date of Termination” means (i) if Executive’s employment is terminated by the Company for Cause, without Cause
or by reason of Disability, or by Executive for Good Reason or without Good Reason, the date of receipt of the Notice of Termination (in the case of
a termination with or without Good Reason, provided such Date of Termination is in accordance with Section 3(d) or Section 3(e)) or any later date
specified therein pursuant to Section 3(g), as the case may be, (ii) if Executive’s employment is terminated by reason of death, the date of death, and
(iii) the expiration of the Employment Period, and the termination of Executive’s employment upon the date of such expiration.
4
4.
Obligations of the Company upon Termination.
(a) With Good Reason; Without Cause. If during the Employment Period, the Company shall terminate Executive’s employment without
Cause or Executive shall terminate Executive’s employment for Good Reason, then the Company will provide Executive with the following payments
and/or benefits:
(i) The Company shall pay to Executive as soon as reasonably practicable but no later than the 15th day of the third month following the
end of the calendar year that contains the Date of Termination in a lump sum to the extent not previously paid, (A) the Annual Base Salary through
the Date of Termination, (B) the Bonus earned for any fiscal year ended prior to the year in which the Date of Termination occurs, provided that
Executive was employed on the last day of such fiscal year, (C) the amount of any unpaid expense reimbursements to which Executive may be
entitled pursuant to Section 2(c)(v) hereof, and (D) any other vested payments or benefits to which Executive or Executive’s estate may be entitled
to receive under any of the Company’s benefit plans or applicable law, in accordance with the terms of such plans or law (clauses (A)-(D), the
“Accrued Obligations”); and
(ii) subject to Section 4(f) below, after the Date of Termination:
(1) the Company will pay Executive a lump sum amount equal to one times (1x) the sum of (x) Executive’s Annual Base Salary as
in effect as of the Date of Termination and (y) the amount of any bonus paid or payable to Executive in respect of the year prior to the year of
termination; and
(2) the Company will pay Executive a lump sum amount equal to thirty-six times (36x) the Company’s monthly contribution on
behalf of Executive to the Company’s healthcare, life insurance and accidental death and dismemberment plans or policies (grossed up for
applicable taxes) (the amounts described in Sections 4(a)(ii)(1) and (2) collectively, the “Severance Payment”). The Severance Payment shall be
made in a lump sum on the date that is sixty (60) days following the Date of Termination, subject to the terms and conditions in Section 4(f) below.
(b) With Good Reason; Without Cause following a Change in Control. If during the Employment Period, a Change in Control (as defined in
the Plan) occurs and within eighteen (18) months following the occurrence of such Change in Control, the Company shall terminate Executive’s
employment without Cause or Executive shall terminate Executive’s employment for Good Reason, then, in lieu of the payments and benefits
described in Section 4(a) above, the Company will provide Executive with the following payments and/or benefits:
(i) the Accrued Obligations; and
(ii) subject to Section 4(f) below, after the Date of Termination:
(1) the Company will pay Executive a lump sum amount equal to two times (2x) the sum of (x) Executive’s Annual Base Salary as
in effect as of the Date of Termination and (y) the amount of any bonus paid or payable to Executive in respect of the year prior to the year of
termination; and
5
(2) the Company will pay Executive a lump sum amount equal to thirty-six times (36x) the Company’s monthly contribution on
behalf of Executive to the Company’s healthcare, life insurance and accidental death and dismemberment plans or policies (grossed up for
applicable taxes); and
(3) any equity awards granted to Executive pursuant to the Plan and outstanding as of the Date of Termination shall accelerate
in full (the payments and benefits described in Sections 4(b)(ii)(1) - (3) collectively, the “Enhanced Severance Payment”). The Enhanced Severance
Payment shall be made in a lump sum on the date that is sixty (60) days following the Date of Termination, subject to the terms and conditions in
Section 4(f) below.
(c) Death or Disability. If Executive’s employment shall be terminated by reason of the Executive’s death or Disability, then the Company will
provide Executive with the Accrued Obligations. Thereafter, the Company shall have no further obligation to Executive or Executive’s legal
representatives.
(d) Cause; Other than for Good Reason. If Executive’s employment shall be terminated by the Company for Cause or by Executive without
Good Reason, then the Company shall have no further obligations to Executive other than for payment of the Accrued Obligations.
(e) Expiration of the Employment Period. If Executive’s employment shall be terminated by reason of the expiration of the Employment Period
as result of the Company’s or Executive’s non-extension, then the Company will provide Executive with the Accrued Obligations. Thereafter, the
Company shall have no further obligation to Executive or Executive’s legal representatives.
(f) Separation Agreement and General Release. The Company’s obligation to make the Severance Payment or the Enhanced Severance
Payment is conditioned on Executive’s or Executive’s legal representative’s executing a separation agreement and general release of claims related
to or arising from Executive’s employment with the Company or the termination of employment, against the Company and its affiliates (and their
respective officers and directors) in a form reasonably determined by the Company, which shall be provided by the Company to Executive within
five (5) days following the Date of Termination; provided, that, if Executive should fail to execute (or revokes) such release within sixty (60) days
following the Date of Termination, the Company shall not have any obligation to provide the Severance Payment or the Enhanced Severance
Payment. If Executive executes the release within such sixty (60) day period and does not revoke the release within seven (7) days following the
execution of the release, the Severance Payment or the Enhanced Severance Payment will be made in accordance with Section 4(a)(ii) or Section 4(b)
(ii), as applicable.
5.
Restrictive Covenants.
(a) Non-Solicitation. In consideration of Executive’s employment and receipt of payments hereunder, including, without limitation, the grant
of options under Section 2(c), during the period commencing on the Effective Date and ending twelve (12) months after the Date of Termination
(the “Restricted Period”), Executive shall not directly, or indirectly through another person, (x) induce or attempt to induce any employee,
representative, agent or consultant
6
of the Company or any of its affiliates or subsidiaries to leave the employ or services of the Company or any of its affiliates or subsidiaries, or in
any way interfere with the relationship between the Company or any of its affiliates or subsidiaries and any employee, representative, agent or
consultant thereof, (y) hire any person who was an employee, representative, agent or consultant of the Company or any of its affiliates or
subsidiaries at any time during the twelve-month period immediately prior to the date on which such hiring would take place or (z) directly or
indirectly call on, solicit or service any customer, supplier, licensee, licensor, representative, agent or other business relation of the Company or any
of its affiliates or subsidiaries in order to induce or attempt to induce such person to cease doing business with, or reduce the amount of business
conducted with, the Company or any of its affiliates or subsidiaries, or in any way interfere with the relationship between any such customer,
supplier, licensee, licensor, representative, agent or business relation of the Company or any of its affiliates or subsidiaries. No action by another
person or entity shall be deemed to be a breach of this provision unless the Executive directly or indirectly assisted, encouraged or otherwise
counseled such person or entity to engage in such activity.
(b) Non-Competition. Executive hereby acknowledges that it is familiar with the Confidential Information (as defined below) of the Company
and its subsidiaries. Executive acknowledges and agrees that the Company would be irreparably damaged if Executive were to provide services to
any person competing with the Company or any of its affiliates or subsidiaries or engaged in a similar business and that such competition by
Executive would result in a significant loss of goodwill by the Company. Therefore, Executive agrees that during the Restricted Period, Executive
shall not (and shall cause each of Executive’s or its affiliates not to) directly or indirectly own any interest in, manage, control, participate in
(whether as an officer, director, manager, employee, partner, equity holder, member, agent, representative or otherwise), consult with, render
services for, or in any other manner engage in any business engaged directly or indirectly, in the Geographic Area (as defined below), in the
business of the Company and its subsidiaries as currently conducted or proposed to be conducted as of the Date of Termination; provided, that
nothing herein shall prohibit Executive from being a passive owner of not more than 5% of the outstanding stock of any class of a corporation
which is publicly traded so long as none of such persons has any active participation in the business of such corporation. For purposes of this
Agreement, the “Geographic Area” shall mean North America.
(c) Non-Disclosure; Non-Use of Confidential Information. Executive shall not disclose or use at any time, either during Executive’s
employment with the Company or at any time thereafter, any Confidential Information of which Executive is or becomes aware, whether or not such
information is developed by Executive, except to the extent that such disclosure or use is directly related to and required by Executive’s
performance in good faith of duties assigned to Executive by the Company. Executive will take all appropriate steps to safeguard Confidential
Information in Executive’s possession and to protect it against disclosure, misuse, espionage, loss and theft. Executive shall deliver to the
Company at the termination of Executive’s employment with the Company, or at any time the Company may request, all memoranda, notes, plans,
records, reports, computer tapes and software and other documents and data (and copies thereof) relating to the Confidential Information or the
“Work Product” (as defined in Section 5(e)(ii)) of the business of the Company and its affiliates (the “Company Group”) that Executive may then
possess or have under Executive’s control.
7
(d) Proprietary Rights. Executive recognizes that the Company Group possesses a proprietary interest in all Confidential Information and
Work Product and has the exclusive right and privilege to use, protect by copyright, patent or trademark, or otherwise exploit the processes, ideas
and concepts described therein to the exclusion of Executive, except as otherwise agreed between the Company Group and Executive in writing.
Executive expressly agrees that any Work Product made or developed by Executive or Executive’s agents during the course of Executive’s
employment, including any Work Product which is based on or arises out of Work Product, shall be the property of and inure to the exclusive
benefit of the Company Group. Executive further agrees that all Work Product developed by Executive (whether or not able to be protected by
copyright, patent or trademark) during the course of Executive’s employment with the Company, or involving the use of the time, materials or other
resources of the Company Group, shall be promptly disclosed to the Company Group and shall become the exclusive property of the Company
Group, and Executive shall execute and deliver any and all documents necessary or appropriate to implement the foregoing.
(e) Certain Definitions.
(i) As used herein, the term “Confidential Information” means information that is not generally known to the public (but for purposes of
clarity, Confidential Information shall never exclude any such information that becomes known to the public because of Executive’s unauthorized
disclosure) and that is used, developed or obtained by the Company Group in connection with its business, including, but not limited to,
information, observations and data obtained by Executive while employed by the Company Group concerning (A) the business or affairs of the
Company Group, (B) products or services, (C) fees, costs and pricing structures, (D) designs, (E) analyses, (F) drawings, photographs and reports,
(G) computer software, including operating systems, applications and program listings, (H) flow charts, manuals and documentation, (I) databases,
(J) accounting and business methods, (K) inventions, devices, new developments, methods and processes, whether patentable or unpatentable
and whether or not reduced to practice, (L) customers and clients and customer or client lists, (M) other copyrightable works, (N) all production
methods, processes, technology and trade secrets, and (O) all similar and related information in whatever form. Confidential Information will not
include any information that has been published in a form generally available to the public (except as a result of Executive’s unauthorized
disclosure) prior to the date Executive proposes to disclose or use such information. Confidential Information will not be deemed to have been
published or otherwise disclosed merely because individual portions of the information have been separately published, but only if all material
features comprising such information have been published in combination.
(ii) As used herein, the term “Work Product” means all inventions, innovations, improvements, technical information, systems, software
developments, methods, designs, analyses, drawings, reports, service marks, trademarks, trade names, logos and all similar or related information
(whether patentable or unpatentable) that relates to the Company Group’s actual or anticipated business, research and development or existing or
future products or services and that are conceived, developed or made by Executive (whether or not during usual business hours and whether or
not alone or in conjunction with any other person) while employed by the Company together with all patent applications, letters patent, trademark,
trade name and service mark applications or registrations, copyrights and reissues thereof that may be granted for or upon any of the foregoing.
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6.
Non-Disparagement.
During the Employment Period and at all times thereafter, neither Executive nor Executive’s agents, on the one hand, nor the Company
formally, or its executives or board of directors, on the other hand, shall directly or indirectly issue or communicate any public statement, or
statement likely to become public, that maligns, denigrates or disparages the other (including, in the case of communications by Executive or
Executive’s agents, Company Group, any of Company Group’s officers, directors or employees, Apollo or any affiliate thereof). The foregoing shall
not be violated by truthful responses to (i) legal process or governmental inquiry or (ii) by private statements to Company Group or any of
Company Group’s officers, directors or employees; provided, that in the case of Executive, with respect to clause (ii), such statements are made in
the course of carrying out Executive’s duties pursuant to this Agreement.
7.
Confidentiality of Agreement.
The Parties agree that the consideration furnished under this Agreement, the discussions and correspondence that led to this Agreement,
and the terms and conditions of this Agreement are private and confidential. Except as may be required by applicable law, regulation, or stock
exchange requirement, neither Party may disclose the above information to any other person or entity without the prior written approval of the
other.
8.
Executive’s Representations, Warranties and Covenants.
(a) Executive hereby represents and warrants to the Company that:
(i) Executive has all requisite power and authority to execute and deliver this Agreement and to consummate the transactions
contemplated hereby, and this Agreement has been duly executed by Executive;
(ii) the execution, delivery and performance of this Agreement by Executive does not and will not, with or without notice or the passage
of time, conflict with, breach, violate or cause a default under any agreement, contract or instrument to which Executive is a party or any judgment,
order or decree to which Executive is subject;
(iii) Executive is not a party to or bound by any employment agreement, consulting agreement, non-compete agreement, fee for services
agreement, confidentiality agreement or similar agreement with any other person;
(iv) upon the execution and delivery of this Agreement by the Company and Executive, this Agreement will be a legal, valid and binding
obligation of Executive, enforceable in accordance with its terms;
(v) Executive understands that the Company will rely upon the accuracy and truth of the representations and warranties of Executive
set forth herein and Executive consents to such reliance; and
(vi) as of the date of execution of this Agreement, Executive is not in breach of any of its terms, including having committed any acts
that would form the basis for a Cause termination if such act had occurred after the Effective Date.
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(b) The Company hereby represents and warrants to Executive that:
(i) the Company has all requisite power and authority to execute and deliver this Agreement and to consummate the transactions
contemplated hereby, and this Agreement has been duly executed by the Company;
(ii) the execution, delivery and performance of this Agreement by the Company does not and will not, with or without notice or the
passage of time, conflict with, breach, violate or cause a default under any agreement, contract or instrument to which the Company is a party or
any judgment, order or decree to which the Company is subject;
(iii) upon the execution and delivery of this Agreement by the Company and Executive, this Agreement will be a legal, valid and binding
obligation of the Company, enforceable in accordance with its terms; and
(iv) the Company understands that Executive will rely upon the accuracy and truth of the representations and warranties of the
Company set forth herein and the Company consents to such reliance.
9.
General Provisions.
(a) Severability. It is the desire and intent of the Parties hereto that the provisions of this Agreement be enforced to the fullest extent
permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, if any particular provision
of this Agreement shall be adjudicated by a court of competent jurisdiction to be invalid, prohibited or unenforceable under any present or future
law, and if the rights and obligations of any party under this Agreement will not be materially and adversely affected thereby, such provision, as to
such jurisdiction, shall be ineffective, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of
such provision in any other jurisdiction; furthermore, in lieu of such invalid or unenforceable provision there will be added automatically as a part
of this Agreement, a legal, valid and enforceable provision as similar in terms to such invalid or unenforceable provision as may be possible.
Notwithstanding the foregoing, if such provision could be more narrowly drawn so as not to be invalid, prohibited or unenforceable in such
jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.
(b) Entire Agreement and Effectiveness. Effective as of the Effective Date, this Agreement embodies the complete agreement and
understanding among the Parties hereto with respect to the subject matter hereof and supersedes and preempts any prior understandings,
agreements or representations by or among the Parties, written or oral, which may have related to the subject matter hereof in any way, including,
without limitation, the Prior Agreement.
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(c) Successors and Assigns.
(i) This Agreement is personal to Executive and without the prior written consent of the Company shall not be assignable by Executive
otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by Executive’s legal
representatives.
(ii) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. The Company will
require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or
assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company
would be required to perform it if no such succession had taken place. As used in this Agreement, “Company” shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as aforesaid that assumes and agrees to perform this Agreement by operation
of law, or otherwise.
(d) Governing Law. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF DELAWARE, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICTING PROVISION OR RULE THAT WOULD
CAUSE THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF DELAWARE TO BE APPLIED. IN FURTHERANCE OF THE
FOREGOING, THE INTERNAL LAW OF THE STATE OF DELAWARE WILL CONTROL THE INTERPRETATION AND CONSTRUCTION OF
THIS AGREEMENT, EVEN IF UNDER SUCH JURISDICTION’S CHOICE OF LAW OR CONFLICT OF LAW ANALYSIS, THE SUBSTANTIVE
LAW OF SOME OTHER JURISDICTION WOULD ORDINARILY APPLY.
(e) Enforcement.
(i) Arbitration. Except for disputes arising under Sections 5 and 6 of this Agreement (including, without limitation, any claim for
injunctive relief), any controversy, dispute or claim arising out of or relating to this Agreement, or its interpretation, application, implementation,
breach or enforcement which the Parties are unable to resolve by mutual agreement, shall be settled by submission by either Executive or the
Company of the controversy, claim or dispute to binding arbitration in New York (unless the Parties agree in writing to a different location), before a
single arbitrator in accordance with the Employment Dispute Resolution Rules of the American Arbitration Association then in effect. In any such
arbitration proceeding the Parties agree to provide all discovery deemed necessary by the arbitrator. The decision and award made by the arbitrator
shall be accompanied by a reasoned opinion, and shall be final, binding and conclusive on all Parties hereto for all purposes, and judgment may be
entered thereon in any court having jurisdiction thereof. The Company will bear the totality of the arbitrator’s and administrative fees and costs.
Each party shall bear its or Executive’s litigation costs and expenses; provided, however, that the arbitrator shall have the discretion to award the
prevailing party reimbursement of its or his or her reasonable attorney’s fees and costs. Upon the request of any of the parties, at any time prior to
the beginning of the arbitration hearing the parties may attempt in good faith to settle the dispute by mediation administered by the American
Arbitration Association. The Company will bear the totality of the mediator’s and administrative fees and costs.
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(ii) Remedies. All remedies hereunder are cumulative, are in addition to any other remedies provided for by law and may, to the extent
permitted by law, be exercised concurrently or separately, and the exercise of any one remedy shall not be deemed to be an election of such remedy
or to preclude the exercise of any other remedy.
(iii) Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT.
(f) Amendment and Waiver. The provisions of this Agreement may be amended and waived only with the prior written consent of the
Company and Executive and no course of conduct or failure or delay in enforcing the provisions of this Agreement shall be construed as a waiver
of such provisions or affect the validity, binding effect or enforceability of this Agreement or any provision hereof.
(g) Notices. Any notice provided for in this Agreement must be in writing and must be either personally delivered, transmitted via telecopier,
mailed by first class mail (postage prepaid and return receipt requested) or sent by reputable overnight courier service (charges prepaid) to the
recipient at the address below indicated or at such other address or to the attention of such other person as the recipient party has specified by
prior written notice to the sending party. Notices will be deemed to have been given hereunder and received when delivered personally, when
received if transmitted via telecopier, five (5) days after deposit in the U.S. mail and one day after deposit for overnight delivery with a reputable
overnight courier service.
If to the Company, to:
Great Wolf Resorts, Inc.
525 Junction Road, Suite 6000 South
Madison, WI 53717
Attention: General Counsel
with a copy (which shall not constitute notice) to:
Apollo Management VII, L.P.
9 West 57th Street
New York, NY 10019
Attention: Scott Ross
Telephone: 212-515-3200
Facsimile: 212-515-3263
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with a copy (which shall not constitute notice) to:
Akin Gump Strauss Hauer & Feld LLP
One Bryant Park
New York, NY 10036
Facsimile: (212) 872-1002
Attention: Adam Weinstein, Esq.
If to Executive, to:
Executive’s home address most recently on file with the Company.
(h) Withholdings Taxes. The Company may withhold from any amounts payable under this Agreement such federal, state and local taxes as
may be required to be withheld pursuant to any applicable law or regulation.
(i) Survival of Representations, Warranties and Agreements. All representations, warranties and agreements contained herein shall survive
the consummation of the transactions contemplated hereby indefinitely.
(j) Descriptive Headings. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this
Agreement. All references to a “Section” in this Agreement are to a section of this Agreement unless otherwise noted.
(k) Construction. Where specific language is used to clarify by example a general statement contained herein, such specific language shall not
be deemed to modify, limit or restrict in any manner the construction of the general statement to which it relates. The language used in this
Agreement shall be deemed to be the language chosen by the Parties to express their mutual intent, and no rule of strict construction shall be
applied against any Party.
(l) Counterparts. This Agreement may be executed in separate counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
(m) Section 409A. Notwithstanding anything herein to the contrary, this Agreement is intended to be interpreted and applied so that the
payment of the benefits set forth herein either shall either be exempt from the requirements of Section 409A of the Internal Revenue Code of 1986,
as amended (the “Code”), or shall comply with the requirements of such provision. Notwithstanding anything in this Agreement or elsewhere to
the contrary, distributions upon termination of Executive’s employment may only be made upon a “separation from service” as determined under
Section 409A of the Code. Each payment under this Agreement or otherwise shall be treated as a separate payment for purposes of Section 409A of
the Code. In no event may Executive, directly or indirectly, designate the calendar year of any payment to be made under this Agreement or
otherwise which constitutes a “deferral of compensation” within the meaning of Section 409A of the Code. All reimbursements and in-kind benefits
provided under this Agreement shall be made or provided in accordance with the requirements of Section 409A of the Code. To the extent that any
reimbursements pursuant to this Agreement or otherwise are taxable to Executive, any reimbursement payment due to Executive shall be paid to
Executive on
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or before the last day of Executive’s taxable year following the taxable year in which the related expense was incurred; provided, that, Executive has
provided the Company written documentation of such expenses in a timely fashion and such expenses otherwise satisfy the Company’ expense
reimbursement policies. Reimbursements pursuant to this Agreement or otherwise are not subject to liquidation or exchange for another benefit and
the amount of such reimbursements that Executive receives in one taxable year shall not affect the amount of such reimbursements that Executive
receives in any other taxable year. Notwithstanding any provision in this Agreement to the contrary, if on the date of his termination from
employment with the Company Executive is deemed to be a “specified employee” within the meaning of Code Section 409A and the Final Treasury
Regulations using the identification methodology selected by the Company from time to time, or if none, the default methodology under Code
Section 409A, any payments or benefits due upon a termination of Executive’s employment under any arrangement that constitutes a “deferral of
compensation” within the meaning of Code Section 409A shall be delayed and paid or provided (or commence, in the case of installments) on the
first payroll date on or following the earlier of (i) the date which is six (6) months and one (1) day after Executive’s termination of employment for
any reason other than death, and (ii) the date of Executive’s death, and any remaining payments and benefits shall be paid or provided in
accordance with the normal payment dates specified for such payment or benefit. Notwithstanding any of the foregoing to the contrary, the
Company and its respective officers, directors, employees, or agents make no guarantee that the terms of this Agreement as written comply with, or
are exempt from, the provisions of Code Section 409A, and none of the foregoing shall have any liability for the failure of the terms of this
Agreement as written to comply with, or be exempt from, the provisions of Code Section 409A.
[SIGNATURE PAGE FOLLOWS]
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EXECUTION COPY
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first written above.
GREAT WOLF RESORTS, INC.
By:
/s/ James A. Calder
Name: James A. Calder
Title: CFO
EXECUTIVE
/s/ Kimberly K. Schaefer
Kimberly K. Schaefer
(Back To Top)
Section 3: EX-10.5 (EX-10.5)
Exhibit 10.5
EXECUTION COPY
This AMENDED AND RESTATED EMPLOYMENT AGREEMENT by and between Great Wolf Resorts, Inc., a Delaware corporation (the
“Company”), and Timothy Black (“Executive”) (collectively the “Parties”) is made as of the 16th day of October, 2012.
WHEREAS, the Company and Executive have previously entered into an employment agreement, dated as of August 13, 2012 (as amended,
the “Prior Agreement”); and
WHEREAS, the Parties desire to supersede the Prior Agreement and enter into this amended and restated employment agreement (the
“Agreement”) pursuant to the terms, provisions and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants, understandings, representations, warranties,
undertakings and promises hereinafter set forth, intending to be legally bound thereby, the Parties agree as follows:
1. Employment Period.
Subject to earlier termination in accordance with Section 3 of this Agreement, Executive shall be employed by the Company for a period
commencing on August 13, 2012 (the “Effective Date”) and ending on the fifth (5th) anniversary of the Effective Date (the “Employment Period”)
unless the parties mutually agree to extend the term at least ninety (90) days prior to the end of the Employment Period. Upon Executive’s
termination of employment with the Company for any reason, Executive shall immediately resign all positions with the Company or any of its
subsidiaries or affiliates, including any position as a member of the Company’s Board of Directors (the “Board”).
2. Terms of Employment.
(a) Position. During the Employment Period, Executive shall serve as Executive Vice President and Chief Operating Officer of the Company
and will perform such duties and exercise such supervision with regard to the business of the Company as are associated with such position,
including such duties as may be prescribed from time to time by the Board. Executive shall report directly to the Chief Executive Officer of the
Company and if reasonably requested by the Board, Executive hereby agrees to serve (without additional compensation) as an officer and director
of the Company or any affiliate or subsidiary thereof.
(b) Duties. During the Employment Period, Executive shall have such responsibilities, duties, and authority that are customary for Executive’s
position, and shall perform such services as customarily are provided by an executive of a corporation with Executive’s position and such other
services consistent with Executive’s position, as shall be assigned to Executive from time to time by the Chief Executive Officer or his or her
designee. During the Employment Period, and excluding any periods of vacation and sick leave to which Executive is entitled, Executive agrees to
devote all of Executive’s business time to the business and affairs of the Company and to use Executive’s commercially reasonable efforts to
perform faithfully, effectively and efficiently Executive’s responsibilities and obligations hereunder. Executive shall be entitled to engage in
charitable and educational activities and to manage Executive’s personal and family investments, to the extent such activities are not competitive
with the business of the Company, do not interfere with the performance of Executive’s duties for the Company and are otherwise consistent with
the Company’s governance policies.
(c) Compensation.
(i) Base Salary. During the Employment Period, Executive shall receive an initial annual base salary in an amount equal to Three
Hundred Nineteen Thousand Seven Hundred Seventy dollars ($319,770), provided that commencing as of January 1, 2013, Executive shall receive
an annual base salary in an amount equal to Three Hundred Forty Thousand dollars ($340,000), in each case, less all applicable withholdings, and
each of which shall be paid in accordance with the customary payroll practices of the Company and prorated for partial calendar years of
employment, (as in effect from time to time, the “Annual Base Salary”). The Annual Base Salary shall be subject to annual review by the Board, in
its sole discretion, for possible increase and any such increased Annual Base Salary shall constitute “Annual Base Salary” for purposes of this
Agreement.
(ii) Annual Bonus. During the Employment Period, with respect to each completed fiscal year of the Company, Executive shall be
eligible to receive a bonus (the “Bonus”) of up to one hundred percent (100%) of Annual Base Salary contingent upon the achievement of
qualitative and quantitative performance goals approved by the Board. The Bonus, if any, shall be paid in the year following the fiscal year to
which the Bonus relates in accordance with the terms of the Company bonus plan as in effect from time to time; provided, that with respect to fiscal
year 2012, the amount of any Bonus payable to Executive shall be reduced by $125,000.
(iii) Equity.
(1) Investment Equity. On August 13, 2012, Executive invested $75,000 in K-9 Holdings, Inc. (“Holdings”) in exchange for 7,500
shares of common stock of Holdings, par value $0.0001 (“Common Stock”). In addition, after January 1, 2013 but prior to January 15, 2013, Executive
shall purchase an additional number of shares of Common Stock with an aggregate value equal to $300,000 based on the then current per share
value of the Common Stock as determined by the Company in good faith; provided, that, upon request by Executive, Holdings shall provide
Executive with a full recourse loan in order to effect such purchase with a term of three (3) years, bearing interest at the then current applicable
federal rate, and subject to other customary terms and conditions.
(2) Options. On August 13, 2012, Holdings granted Executive, under the K-9 Holdings, Inc. 2012 Equity Incentive Plan (the
“Plan”), 214,383 options to purchase shares of Common Stock with an exercise price of $10.00 per share of Common Stock (the “Options”). The
terms and conditions of the Options are governed by the Plan and that certain Stock Option Agreement, by and between Executive and Holdings,
dated as of August 13, 2012 (the “Option Agreement”).
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(3) Restricted Stock. On August 13, 2012, Holdings granted to Executive 12,500 restricted shares of Common Stock (the
“Restricted Stock”). The terms and conditions of the Restricted Stock are governed by that certain Restricted Stock Agreement, by and between
Executive and Holdings, dated as of August 13, 2012 (the “Restricted Stock Agreement”), and by that certain Investor Rights Agreement, by and
among Holdings and the holders party thereto from time to time, dated as of August 13, 2012 (the “Investor Rights Agreement”).
(iv) Benefits. During the Employment Period, Executive shall be eligible to participate in all retirement, compensation and employee
benefit plans, practices, policies and programs provided by the Company to the extent applicable generally to other executives of the Company
(except severance plans, policies, practices, or programs) subject to the eligibility criteria set forth therein, as such may be amended or terminated
from time to time. The benefits and perquisites provided to Executive will be substantially comparable in the aggregate to the benefits and
perquisites that Executive enjoyed as of the closing of the Transaction. In addition, the Company shall provide Executive with directors and officers
insurance coverage at least equal to that provided to other Company directors and officers.
(v) Expenses. During the Employment Period, Executive shall be entitled to receive reimbursement for all reasonable business expenses
incurred by Executive in performance of Executive’s duties hereunder provided that Executive provides all necessary documentation in accordance
with the Company’s policies.
3. Termination of Employment.
(a) Death or Disability. Executive’s employment shall terminate automatically upon Executive’s death. If Executive becomes subject to a
“Disability” (as defined below) during the Employment Period, the Company may give Executive written notice in accordance with Sections 3(g)
and 9(g) of its intention to terminate Executive’s employment. For purposes of this Agreement, “Disability” means Executive’s inability to perform
Executive’s duties hereunder by reason of any medically determinable physical or mental impairment for a period of six (6) months or more in any
twelve (12) month period.
(b) Cause. Executive’s employment may be terminated at any time by the Company for “Cause” (as defined below). For purposes of this
Agreement, “Cause” shall mean Executive’s (i) commission of, conviction for, plea of guilty or nolo contendere to a felony or a crime involving
moral turpitude, or other material act or omission involving dishonesty or fraud, (ii) engaging in conduct that constitutes fraud or embezzlement,
(iii) engaging in conduct that constitutes gross negligence or willful gross misconduct that results or could reasonably be expected to result in
harm to the Company’s business or reputation, (iv) breach of any material terms of Executive’s employment, including this Agreement, which
results or could reasonably be expected to result in harm to the Company’s business or reputation or (v) continued willful failure to substantially
perform Executive’s duties. Executive’s employment shall not be terminated for “Cause” within the meaning of clauses (iv) and (v) above unless
Executive has been given written notice by the Company stating the basis for such termination and Executive is given fifteen (15) days to cure, to
the extent curable, the neglect or conduct that is the basis of any such claim.
(c) Termination Without Cause. The Company may terminate Executive’s employment hereunder without Cause at any time.
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(d) Good Reason. Executive’s employment may be terminated at any time by Executive for “Good Reason” (as defined below) following a
“Change in Control” (as defined in the Plan) upon sixty (60) days’ prior written notice following the occurrence of the event giving rise to the
termination for Good Reason. For purposes of this Agreement, “Good Reason” means Executive’s voluntary resignation after any of the following
actions taken by the Company following a Change in Control without Executive’s written consent: (i) any material failure of the Company to fulfill
its obligations under this Agreement, (ii) a material and adverse change to, or a material reduction of, Executive’s duties and responsibilities to the
Company, (iii) a material reduction in Executive’s then current Annual Base Salary (not including any diminution related to a broader compensation
reduction that is not limited to Executive specifically and that is not more than 10% in the aggregate), (iv) the relocation of Executive’s primary
office to a location more than fifty (50) miles from the prior location, or (v) the failure of any successor to all or substantially all of the Company’s
assets to assume this Agreement, whether in writing or by operation of law; provided, that any such event shall not constitute Good Reason unless
and until Executive shall have provided the Company with written notice thereof no later than thirty (30) days following Executive’s knowledge of
the initial occurrence of such event and the Company shall have failed to remedy such event within thirty (30) days of receipt of such notice.
(e) Voluntary Termination. Executive’s employment may be terminated at any time by Executive without Good Reason upon thirty (30) days’
prior written notice.
(f) Termination as a Result of Expiration of the Employment Period. Unless otherwise agreed between the parties, Executive’s employment
shall automatically terminate upon the expiration of the Employment Period.
(g) Notice of Termination. Any termination by the Company for Cause or without Cause, or by Executive for Good Reason or without Good
Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 9(g). For purposes of this
Agreement, a “Notice of Termination” means a written notice that (i) indicates the specific termination provision in this Agreement relied upon,
(ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive’s
employment under the provision so indicated and (iii) if the “Date of Termination” (as defined below) is other than the date of receipt of such
notice, specifies the termination date. The failure by Executive or the Company to set forth in the Notice of Termination any fact or circumstance
that contributes to a showing of Good Reason or Cause shall not waive any right of Executive or the Company hereunder or preclude Executive or
the Company from asserting such fact or circumstance in enforcing Executive’s or the Company’s rights hereunder.
(h) Date of Termination. “Date of Termination” means (i) if Executive’s employment is terminated by the Company for Cause, without Cause
or by reason of Disability, or by Executive for Good Reason or without Good Reason, the date of receipt of the Notice of Termination (in the case of
a termination with or without Good Reason, provided such Date of Termination is in accordance with Section 3(d) or Section 3(e)) or any later date
specified therein pursuant to Section 3(g), as the case may be, (ii) if Executive’s employment is terminated by reason of death, the date of death, and
(iii) the expiration of the Employment Period, and the termination of Executive’s employment upon the date of such expiration.
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4. Obligations of the Company upon Termination.
(a) Without Cause. If during the Employment Period, the Company shall terminate Executive’s employment without Cause, then the Company
will provide Executive with the following payments and/or benefits:
(i) the Company shall pay to Executive as soon as reasonably practicable but no later than the 15th day of the third month following the
end of the calendar year that contains the Date of Termination in a lump sum to the extent not previously paid, (A) the Annual Base Salary through
the Date of Termination, (B) the Bonus earned for any fiscal year ended prior to the year in which the Date of Termination occurs, provided that
Executive was employed on the last day of such fiscal year, (C) the amount of any unpaid expense reimbursements to which Executive may be
entitled pursuant to Section 2(c)(v) hereof, and (D) any other vested payments or benefits to which Executive or Executive’s estate may be entitled
to receive under any of the Company’s benefit plans or applicable law, in accordance with the terms of such plans or law (clauses (A)-(D), the
“Accrued Obligations”); and
(ii) subject to Section 4(f) below, after the Date of Termination, the Company will pay Executive a lump sum amount equal to one times
(1x) Executive’s Annual Base Salary as in effect as of the Date of Termination (the “Severance Payment”). The Severance Payment shall be made in
a lump sum on the date that is sixty (60) days following the Date of Termination, subject to the terms and conditions in Section 4(f) below.
(b) With Good Reason or Without Cause following a Change in Control. If during the Employment Period, a Change in Control occurs and
within eighteen (18) months following the occurrence of such Change in Control, the Company shall terminate Executive’s employment without
Cause or Executive shall terminate Executive’s employment for Good Reason, then, in lieu of the payments and benefits described in Section 4(a)
above, the Company will provide Executive with the following payments and/or benefits:
(i) the Accrued Obligations; and
(ii) subject to Section 4(f) below, after the Date of Termination:
(1) the Company will pay Executive a lump sum amount equal to two times (2x) the sum of (x) Executive’s Annual Base Salary as
in effect as of the Date of Termination and (y) the amount of any bonus paid or payable to Executive in respect of the year prior to the year of
termination; and
(2) the Company will pay Executive a lump sum amount equal to thirty-six times (36x) the Company’s monthly contribution on
behalf of Executive to the Company’s healthcare, life insurance and accidental death and dismemberment plans or policies (grossed up for
applicable taxes); and
(3) any equity awards granted to Executive pursuant to the Plan and outstanding as of the Date of Termination shall accelerate
in full (the payments and benefits described in Sections 4(b)(ii)(1)—(3) collectively, the “Enhanced Severance Payment”). The Enhanced Severance
Payment shall be made in a lump sum on the date that is sixty (60) days following the Date of Termination, subject to the terms and conditions in
Section 4(f) below.
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(c) Death or Disability. If Executive’s employment shall be terminated by reason of Executive’s death or Disability, then the Company will
provide Executive with the Accrued Obligations. Thereafter, the Company shall have no further obligation to Executive or Executive’s legal
representatives.
(d) For Cause; Other than for Good Reason. If Executive’s employment shall be terminated by the Company for Cause or by Executive for any
reason other than as provided in Section 4(b), then the Company shall have no further obligations to Executive other than for payment of the
Accrued Obligations.
(e) Expiration of the Employment Period. If Executive’s employment shall be terminated by reason of the expiration of the Employment Period
as result of the Company’s or Executive’s non-extension, then the Company will provide Executive with the Accrued Obligations. Thereafter, the
Company shall have no further obligation to Executive or Executive’s legal representatives.
(f) Separation Agreement and General Release. The Company’s obligation to make the Severance Payment or the Enhanced Severance
Payment is conditioned on Executive’s or Executive’s legal representative’s executing a separation agreement and general release of claims related
to or arising from Executive’s employment with the Company or the termination of employment, against the Company and its affiliates (and their
respective officers and directors) in a form reasonably determined by the Company, which shall be provided by the Company to Executive within
five (5) days following the Date of Termination; provided, that if Executive should fail to execute (or revokes) such release within sixty (60) days
following the Date of Termination, the Company shall not have any obligation to provide the Severance Payment or the Enhanced Severance
Payment. If Executive executes the release within such sixty (60) day period and does not revoke the release within seven (7) days following the
execution of the release, the Severance Payment or the Enhanced Severance Payment will be made in accordance with Section 4(a)(ii) or Section 4(b)
(ii), as applicable.
5. Restrictive Covenants.
(a) Non-Solicitation. In consideration of Executive’s employment and receipt of payments hereunder, including, without limitation, the grant
of options under Section 2(c), during the period commencing on the Effective Date and ending twelve (12) months after the Date of Termination
(the “Restricted Period”), Executive shall not directly, or indirectly through another person, (x) induce or attempt to induce any employee,
representative, agent or consultant of the Company or any of its affiliates or subsidiaries to leave the employ or services of the Company or any of
its affiliates or subsidiaries, or in any way interfere with the relationship between the Company or any of its affiliates or subsidiaries and any
employee, representative, agent or consultant thereof, (y) hire any person who was an employee, representative, agent or consultant of the
Company or any of its affiliates or subsidiaries at any time during the twelve-month period immediately prior to the date on which such hiring would
take place or (z) directly or indirectly call on, solicit or service any customer, supplier, licensee, licensor, representative,
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agent or other business relation of the Company or any of its affiliates or subsidiaries in order to induce or attempt to induce such person to cease
doing business with, or reduce the amount of business conducted with, the Company or any of its affiliates or subsidiaries, or in any way interfere
with the relationship between any such customer, supplier, licensee, licensor, representative, agent or business relation of the Company or any of
its affiliates or subsidiaries. No action by another person or entity shall be deemed to be a breach of this provision unless Executive directly or
indirectly assisted, encouraged or otherwise counseled such person or entity to engage in such activity.
(b) Non-Competition. Executive hereby acknowledges that it is familiar with the Confidential Information (as defined below) of the Company
and its subsidiaries. Executive acknowledges and agrees that the Company would be irreparably damaged if Executive were to provide services to
any person competing with the Company or any of its affiliates or subsidiaries or engaged in a similar business and that such competition by
Executive would result in a significant loss of goodwill by the Company. Therefore, Executive agrees that during the Restricted Period, Executive
shall not (and shall cause each of Executive’s or its affiliates not to) directly or indirectly own any interest in, manage, control, participate in
(whether as an officer, director, manager, employee, partner, equity holder, member, agent, representative or otherwise), consult with, render
services for, or in any other manner engage in any business engaged directly or indirectly, in the Geographic Area (as defined below), in the
business of the Company and its subsidiaries as currently conducted or proposed to be conducted as of the Date of Termination; provided, that
nothing herein shall prohibit Executive from being a passive owner of not more than 5% of the outstanding stock of any class of a corporation
which is publicly traded so long as none of such persons has any active participation in the business of such corporation. For purposes of this
Agreement, the “Geographic Area” shall mean any market in North America in which the Company or its subsidiaries is conducting or proposes
conducting business as of the Date of Termination.
(c) Non-Disclosure; Non-Use of Confidential Information. Executive shall not disclose or use at any time, either during Executive’s
employment with the Company or at any time thereafter, any Confidential Information of which Executive is or becomes aware, whether or not such
information is developed by Executive, except to the extent that such disclosure or use is directly related to and required by Executive’s
performance in good faith of duties assigned to Executive by the Company. Executive will take all appropriate steps to safeguard Confidential
Information in Executive’s possession and to protect it against disclosure, misuse, espionage, loss and theft. Executive shall deliver to the
Company at the termination of Executive’s employment with the Company, or at any time the Company may request, all memoranda, notes, plans,
records, reports, computer tapes and software and other documents and data (and copies thereof) relating to the Confidential Information or the
“Work Product” (as defined in Section 5(e)(ii)) of the business of the Company and its affiliates (the “Company Group”) that Executive may then
possess or have under Executive’s control.
(d) Proprietary Rights. Executive recognizes that the Company Group possesses a proprietary interest in all Confidential Information and
Work Product and has the exclusive right and privilege to use, protect by copyright, patent or trademark, or otherwise exploit the processes, ideas
and concepts described therein to the exclusion of Executive, except as otherwise agreed between the Company Group and Executive in writing.
Executive expressly
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agrees that any Work Product made or developed by Executive or Executive’s agents during the course of Executive’s employment, including any
Work Product which is based on or arises out of Work Product, shall be the property of and inure to the exclusive benefit of the Company Group.
Executive further agrees that all Work Product developed by Executive (whether or not able to be protected by copyright, patent or trademark)
during the course of Executive’s employment with the Company, or involving the use of the time, materials or other resources of the Company
Group, shall be promptly disclosed to the Company Group and shall become the exclusive property of the Company Group, and Executive shall
execute and deliver any and all documents necessary or appropriate to implement the foregoing.
(e) Certain Definitions.
(i) As used herein, the term “Confidential Information” means information that is not generally known to the public (but for purposes of
clarity, Confidential Information shall never exclude any such information that becomes known to the public because of Executive’s unauthorized
disclosure) and that is used, developed or obtained by the Company Group in connection with its business, including, but not limited to,
information, observations and data obtained by Executive while employed by the Company Group concerning (A) the business or affairs of the
Company Group, (B) products or services, (C) fees, costs and pricing structures, (D) designs, (E) analyses, (F) drawings, photographs and reports,
(G) computer software, including operating systems, applications and program listings, (H) flow charts, manuals and documentation, (I) databases,
(J) accounting and business methods, (K) inventions, devices, new developments, methods and processes, whether patentable or unpatentable
and whether or not reduced to practice, (L) customers and clients and customer or client lists, (M) other copyrightable works, (N) all production
methods, processes, technology and trade secrets, and (O) all similar and related information in whatever form. Confidential Information will not
include any information that has been published in a form generally available to the public (except as a result of Executive’s unauthorized
disclosure) prior to the date Executive proposes to disclose or use such information. Confidential Information will not be deemed to have been
published or otherwise disclosed merely because individual portions of the information have been separately published, but only if all material
features comprising such information have been published in combination.
(ii) As used herein, the term “Work Product” means all inventions, innovations, improvements, technical information, systems, software
developments, methods, designs, analyses, drawings, reports, service marks, trademarks, trade names, logos and all similar or related information
(whether patentable or unpatentable) that relates to the Company Group’s actual or anticipated business, research and development or existing or
future products or services and that are conceived, developed or made by Executive (whether or not during usual business hours and whether or
not alone or in conjunction with any other person) while employed by the Company together with all patent applications, letters patent, trademark,
trade name and service mark applications or registrations, copyrights and reissues thereof that may be granted for or upon any of the foregoing.
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6. Non-Disparagement.
During the Employment Period and at all times thereafter, neither Executive nor Executive’s agents, on the one hand, nor the Company
formally, or its executives or board of directors, on the other hand, shall directly or indirectly issue or communicate any public statement, or
statement likely to become public, that maligns, denigrates or disparages the other (including, in the case of communications by Executive or
Executive’s agents, Company Group, any of Company Group’s officers, directors or employees, Apollo or any affiliate thereof). The foregoing shall
not be violated by truthful responses to (i) legal process or governmental inquiry or (ii) by private statements to Company Group or any of
Company Group’s officers, directors or employees; provided, that in the case of Executive, with respect to clause (ii), such statements are made in
the course of carrying out Executive’s duties pursuant to this Agreement.
7. Confidentiality of Agreement.
The Parties agree that the consideration furnished under this Agreement, the discussions and correspondence that led to this Agreement,
and the terms and conditions of this Agreement are private and confidential. Except as may be required by applicable law, regulation, or stock
exchange requirement, neither Party may disclose the above information to any other person or entity without the prior written approval of the
other.
8. Executive’s Representations, Warranties and Covenants.
(a) Executive hereby represents and warrants to the Company that:
(i) Executive has all requisite power and authority to execute and deliver this Agreement and to consummate the transactions
contemplated hereby, and this Agreement has been duly executed by Executive;
(ii) the execution, delivery and performance of this Agreement by Executive does not and will not, with or without notice or the passage
of time, conflict with, breach, violate or cause a default under any agreement, contract or instrument to which Executive is a party or any judgment,
order or decree to which Executive is subject;
(iii) Executive is not a party to or bound by any employment agreement, consulting agreement, non-compete agreement, fee for services
agreement, confidentiality agreement or similar agreement with any other person;
(iv) upon the execution and delivery of this Agreement by the Company and Executive, this Agreement will be a legal, valid and binding
obligation of Executive, enforceable in accordance with its terms;
(v) Executive understands that the Company will rely upon the accuracy and truth of the representations and warranties of Executive
set forth herein and Executive consents to such reliance; and
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(vi) as of the date of execution of this Agreement, Executive is not in breach of any of its terms, including having committed any acts
that would form the basis for a Cause termination if such act had occurred after the Effective Date.
(b) The Company hereby represents and warrants to Executive that:
(i) the Company has all requisite power and authority to execute and deliver this Agreement and to consummate the transactions
contemplated hereby, and this Agreement has been duly executed by the Company;
(ii) the execution, delivery and performance of this Agreement by the Company does not and will not, with or without notice or the
passage of time, conflict with, breach, violate or cause a default under any agreement, contract or instrument to which the Company is a party or
any judgment, order or decree to which the Company is subject;
(iii) upon the execution and delivery of this Agreement by the Company and Executive, this Agreement will be a legal, valid and binding
obligation of the Company, enforceable in accordance with its terms; and
(iv) the Company understands that Executive will rely upon the accuracy and truth of the representations and warranties of the
Company set forth herein and the Company consents to such reliance.
9. General Provisions.
(a) Severability. It is the desire and intent of the Parties hereto that the provisions of this Agreement be enforced to the fullest extent
permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, if any particular provision
of this Agreement shall be adjudicated by a court of competent jurisdiction to be invalid, prohibited or unenforceable under any present or future
law, and if the rights and obligations of any party under this Agreement will not be materially and adversely affected thereby, such provision, as to
such jurisdiction, shall be ineffective, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of
such provision in any other jurisdiction; furthermore, in lieu of such invalid or unenforceable provision there will be added automatically as a part
of this Agreement, a legal, valid and enforceable provision as similar in terms to such invalid or unenforceable provision as may be possible.
Notwithstanding the foregoing, if such provision could be more narrowly drawn so as not to be invalid, prohibited or unenforceable in such
jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.
(b) Entire Agreement and Effectiveness. Effective as of the Effective Date, this Agreement, the Option Agreement, the Restricted Stock
Agreement, the Investor Rights Agreement and the Plan embody the complete agreement and understanding among the Parties hereto with respect
to the subject matter hereof and supersedes and preempts any prior understandings, agreements or representations by or among the Parties,
written or oral, which may have related to the subject matter hereof in any way, including, without limitation, the Prior Agreement.
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(c) Successors and Assigns.
(i) This Agreement is personal to Executive and without the prior written consent of the Company shall not be assignable by Executive
otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by Executive’s legal
representatives.
(ii) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. The Company will
require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or
assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company
would be required to perform it if no such succession had taken place. As used in this Agreement, “Company” shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as aforesaid that assumes and agrees to perform this Agreement by operation
of law, or otherwise.
(d) Governing Law. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF DELAWARE, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICTING PROVISION OR RULE THAT WOULD
CAUSE THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF DELAWARE TO BE APPLIED. IN FURTHERANCE OF THE
FOREGOING, THE INTERNAL LAW OF THE STATE OF DELAWARE WILL CONTROL THE INTERPRETATION AND CONSTRUCTION OF
THIS AGREEMENT, EVEN IF UNDER SUCH JURISDICTION’S CHOICE OF LAW OR CONFLICT OF LAW ANALYSIS, THE SUBSTANTIVE
LAW OF SOME OTHER JURISDICTION WOULD ORDINARILY APPLY.
(e) Enforcement.
(i) Arbitration. Except for disputes arising under Sections 5 and 6 of this Agreement (including, without limitation, any claim for
injunctive relief), any controversy, dispute or claim arising out of or relating to this Agreement, or its interpretation, application, implementation,
breach or enforcement which the Parties are unable to resolve by mutual agreement, shall be settled by submission by either Executive or the
Company of the controversy, claim or dispute to binding arbitration in New York (unless the Parties agree in writing to a different location), before a
single arbitrator in accordance with the Employment Dispute Resolution Rules of the American Arbitration Association then in effect. In any such
arbitration proceeding the Parties agree to provide all discovery deemed necessary by the arbitrator. The decision and award made by the arbitrator
shall be accompanied by a reasoned opinion, and shall be final, binding and conclusive on all Parties hereto for all purposes, and judgment may be
entered thereon in any court having jurisdiction thereof. The Company will bear the totality of the arbitrator’s and administrative fees and costs.
Each party shall bear its or Executive’s litigation costs and expenses; provided, however, that the arbitrator shall have the discretion to award the
prevailing party reimbursement of its or his or her reasonable attorney’s
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fees and costs. Upon the request of any of the parties, at any time prior to the beginning of the arbitration hearing the parties may attempt in good
faith to settle the dispute by mediation administered by the American Arbitration Association. The Company will bear the totality of the mediator’s
and administrative fees and costs.
(ii) Remedies. All remedies hereunder are cumulative, are in addition to any other remedies provided for by law and may, to the extent
permitted by law, be exercised concurrently or separately, and the exercise of any one remedy shall not be deemed to be an election of such remedy
or to preclude the exercise of any other remedy.
(iii) Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT.
(f) Amendment and Waiver. The provisions of this Agreement may be amended and waived only with the prior written consent of the
Company and Executive and no course of conduct or failure or delay in enforcing the provisions of this Agreement shall be construed as a waiver
of such provisions or affect the validity, binding effect or enforceability of this Agreement or any provision hereof.
(g) Notices. Any notice provided for in this Agreement must be in writing and must be either personally delivered, transmitted via telecopier,
mailed by first class mail (postage prepaid and return receipt requested) or sent by reputable overnight courier service (charges prepaid) to the
recipient at the address below indicated or at such other address or to the attention of such other person as the recipient party has specified by
prior written notice to the sending party. Notices will be deemed to have been given hereunder and received when delivered personally, when
received if transmitted via telecopier, five (5) days after deposit in the U.S. mail and one day after deposit for overnight delivery with a reputable
overnight courier service.
If to the Company, to:
Great Wolf Resorts, Inc.
525 Junction Road, Suite 6000 South
Madison, WI 53717
Attention: General Counsel
with a copy (which shall not constitute notice) to:
Apollo Management VII, L.P.
9 West 57th Street
New York, NY 10019
Attention: Scott Ross
Telephone: 212-515-3200
Facsimile: 212-515-3263
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with a copy (which shall not constitute notice) to:
Akin Gump Strauss Hauer & Feld LLP
One Bryant Park
New York, NY 10036
Facsimile: (212) 872-1002
Attention: Adam Weinstein, Esq.
If to Executive, to:
Executive’s home address most recently on file with the Company.
(h) Withholdings Taxes. The Company may withhold from any amounts payable under this Agreement such federal, state and local taxes as
may be required to be withheld pursuant to any applicable law or regulation.
(i) Survival of Representations, Warranties and Agreements. All representations, warranties and agreements contained herein shall survive
the consummation of the transactions contemplated hereby indefinitely.
(j) Descriptive Headings. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this
Agreement. All references to a “Section” in this Agreement are to a section of this Agreement unless otherwise noted.
(k) Construction. Where specific language is used to clarify by example a general statement contained herein, such specific language shall not
be deemed to modify, limit or restrict in any manner the construction of the general statement to which it relates. The language used in this
Agreement shall be deemed to be the language chosen by the Parties to express their mutual intent, and no rule of strict construction shall be
applied against any Party.
(l) Counterparts. This Agreement may be executed in separate counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
(m) Section 409A. Notwithstanding anything herein to the contrary, this Agreement is intended to be interpreted and applied so that the
payment of the benefits set forth herein either shall either be exempt from the requirements of Section 409A of the Internal Revenue Code of 1986,
as amended (the “Code”), or shall comply with the requirements of such provision. Notwithstanding anything in this Agreement or elsewhere to
the contrary, distributions upon termination of Executive’s employment may only be made upon a “separation from service” as determined under
Section 409A of the Code. Each payment under this Agreement or otherwise shall be treated as a separate payment for purposes of Section 409A of
the Code. In no event may Executive, directly or indirectly, designate the calendar year of any payment to be made under this Agreement or
otherwise which constitutes a “deferral of compensation” within the meaning of Section 409A of the Code. All reimbursements and in-kind benefits
provided under this Agreement shall be made or provided in accordance with the requirements of Section 409A of the Code. To the extent that any
reimbursements pursuant to this Agreement or otherwise are
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taxable to Executive, any reimbursement payment due to Executive shall be paid to Executive on or before the last day of Executive’s taxable year
following the taxable year in which the related expense was incurred; provided, that, Executive has provided the Company written documentation of
such expenses in a timely fashion and such expenses otherwise satisfy the Company’ expense reimbursement policies. Reimbursements pursuant to
this Agreement or otherwise are not subject to liquidation or exchange for another benefit and the amount of such reimbursements that Executive
receives in one taxable year shall not affect the amount of such reimbursements that Executive receives in any other taxable year. Notwithstanding
any provision in this Agreement to the contrary, if on the date of his termination from employment with the Company Executive is deemed to be a
“specified employee” within the meaning of Code Section 409A and the Final Treasury Regulations using the identification methodology selected
by the Company from time to time, or if none, the default methodology under Code Section 409A, any payments or benefits due upon a termination
of Executive’s employment under any arrangement that constitutes a “deferral of compensation” within the meaning of Code Section 409A shall be
delayed and paid or provided (or commence, in the case of installments) on the first payroll date on or following the earlier of (i) the date which is
six (6) months and one (1) day after Executive’s termination of employment for any reason other than death, and (ii) the date of Executive’s death,
and any remaining payments and benefits shall be paid or provided in accordance with the normal payment dates specified for such payment or
benefit. Notwithstanding any of the foregoing to the contrary, the Company and its respective officers, directors, employees, or agents make no
guarantee that the terms of this Agreement as written comply with, or are exempt from, the provisions of Code Section 409A, and none of the
foregoing shall have any liability for the failure of the terms of this Agreement as written to comply with, or be exempt from, the provisions of Code
Section 409A.
[SIGNATURE PAGE FOLLOWS]
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EXECUTION COPY
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first written above.
GREAT WOLF RESORTS, INC.
By: /s/ Kimberly K. Schaefer
Name: Kimberly K. Schaefer
Title: President and Chief Executive Officer
EXECUTIVE
/s/ Timothy Black
Timothy Black
(Back To Top)
Section 4: EX-10.6 (EX-10.6)
Exhibit 10.6
EXECUTION COPY
This EMPLOYMENT AGREEMENT by and between Great Wolf Resorts, Inc., a Delaware corporation (the “Company”), and Jeffrey Scott
Maupin (“Executive”) (collectively the “Parties”) is made as of the 13th day of August, 2012 (the “Effective Date”).
WHEREAS, the Company and Executive have previously entered into a change in control severance agreement, dated as of January 23, 2009
(the “Prior Agreement”); and
WHEREAS, the Parties desire to supersede the Prior Agreement and enter into this employment agreement (the “Agreement”) pursuant to
the terms, provisions and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants, understandings, representations, warranties,
undertakings and promises hereinafter set forth, intending to be legally bound thereby, the Parties agree as follows:
1.
Employment Period.
Subject to earlier termination in accordance with Section 3 of this Agreement, Executive shall be employed by the Company for a period
commencing on the Effective Date and ending on the fifth (5th) anniversary of the Effective Date (the “Employment Period”) unless the parties
mutually agree to extend the term at least ninety (90) days prior to the end of the Employment Period. Upon Executive’s termination of employment
with the Company for any reason, Executive shall immediately resign all positions with the Company or any of its subsidiaries or affiliates, including
any position as a member of the Company’s Board of Directors (the “Board”).
2.
Terms of Employment.
(a) Position. During the Employment Period, Executive shall serve as Senior Vice President of Operations of the Company and will perform
such duties and exercise such supervision with regard to the business of the Company as are associated with such position, including such duties
as may be prescribed from time to time by the Board. Executive shall report directly to the Chief Executive Officer of the Company and if reasonably
requested by the Board, Executive hereby agrees to serve (without additional compensation) as an officer and director of the Company or any
affiliate or subsidiary thereof.
(b) Duties. During the Employment Period, Executive shall have such responsibilities, duties, and authority that are customary for Executive’s
position, and shall perform such services as customarily are provided by an executive of a corporation with Executive’s position and such other
services consistent with Executive’s position, as shall be assigned to Executive from time to time by the Chief Executive Officer or his or her
designee. During the Employment Period, and excluding any periods of vacation and sick leave to which Executive is entitled, Executive agrees to
devote all of Executive’s business time to the business and affairs of the Company and to use Executive’s commercially reasonable efforts to
perform faithfully, effectively and efficiently Executive’s responsibilities and obligations hereunder. Executive shall be entitled to engage in
charitable and educational activities and to manage Executive’s personal and family investments, to the extent such activities are not competitive
with the business of the Company, do not interfere with the performance of Executive’s duties for the Company and are otherwise consistent with
the Company’s governance policies.
(c) Compensation.
(i) Base Salary. During the Employment Period, Executive shall receive an initial annual base salary in an amount equal to Two Hundred
Seventy Five Thousand dollars ($275,000), less all applicable withholdings, which shall be paid in accordance with the customary payroll practices
of the Company and prorated for partial calendar years of employment (as in effect from time to time, the “Annual Base Salary”). The Annual Base
Salary shall be subject to annual review by the Board, in its sole discretion, for possible increase and any such increased Annual Base Salary shall
constitute “Annual Base Salary” for purposes of this Agreement.
(ii) Annual Bonus. During the Employment Period, with respect to each completed fiscal year of the Company, Executive shall be
eligible to receive a bonus (the “Bonus”) of up to twenty five percent (25%) of Annual Base Salary contingent upon the achievement of qualitative
and quantitative performance goals approved by the Board. The Bonus, if any, shall be paid in the year following the fiscal year to which the Bonus
relates in accordance with the terms of the Company bonus plan as in effect from time to time.
(iii) Equity.
(1) Investment Equity. Executive shall invest $50,000 in K-9 Holdings, Inc. (“Holdings”). Such investment (x) shall be in common
stock of Holdings (“Common Stock”) that is economically equivalent to the securities acquired by K-9 Investors, L.P. (“Apollo”) in connection with
the transactions contemplated by that certain Agreement and Plan of Merger, dated March 13, 2012, among Holdings, K-9 Acquisition, Inc., and the
Company (the “Transaction”) and (y) shall be made at a valuation based on Apollo’s investment (the “Investment Price”).
(2) Options. As soon as practicable following the Effective Date, Executive shall be granted options to purchase 0.125% of the
outstanding shares of Common Stock on a fully diluted basis with an exercise price equal to fair market value on the date of grant based on the
Investment Price, subject to the terms of the applicable award agreement and the K-9 Holdings, Inc. 2012 Equity Incentive Plan.
(iv) Benefits. During the Employment Period, Executive shall be eligible to participate in all retirement, compensation and employee
benefit plans, practices, policies and programs provided by the Company to the extent applicable generally to other executives of the Company
(except severance plans, policies, practices, or programs) subject to the eligibility criteria set forth therein, as such may be amended or terminated
from time to time. The benefits and perquisites provided to Executive will be substantially comparable in the aggregate to the benefits and
perquisites that Executive enjoyed as of the closing of the Transaction. In addition, the Company shall provide Executive with directors and officers
insurance coverage at least equal to that provided to other Company directors and officers.
(v) Expenses. During the Employment Period, Executive shall be entitled to receive reimbursement for all reasonable business expenses
incurred by Executive in performance of Executive’s duties hereunder provided that Executive provides all necessary documentation in accordance
with the Company’s policies.
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3.
Termination of Employment.
(a) Death or Disability. Executive’s employment shall terminate automatically upon Executive’s death. If Executive becomes subject to a
“Disability” (as defined below) during the Employment Period, the Company may give Executive written notice in accordance with Sections 3(f) and
9(g) of its intention to terminate Executive’s employment. For purposes of this Agreement, “Disability” means Executive’s inability to perform
Executive’s duties hereunder by reason of any medically determinable physical or mental impairment for a period of six (6) months or more in any
twelve (12) month period.
(b) Cause. Executive’s employment may be terminated at any time by the Company for “Cause” (as defined below). For purposes of this
Agreement, “Cause” shall mean Executive’s (i) commission of, conviction for, plea of guilty or nolo contendere to a felony or a crime involving
moral turpitude, or other material act or omission involving dishonesty or fraud, (ii) engaging in conduct that constitutes fraud or embezzlement,
(iii) engaging in conduct that constitutes gross negligence or willful gross misconduct that results or could reasonably be expected to result in
harm to the Company’s business or reputation, (iv) breach of any material terms of Executive’s employment, including this Agreement, which
results or could reasonably be expected to result in harm to the Company’s business or reputation or (v) continued willful failure to substantially
perform Executive’s duties. Executive’s employment shall not be terminated for “Cause” within the meaning of clauses (iv) and (v) above unless
Executive has been given written notice by the Company stating the basis for such termination and Executive is given fifteen (15) days to cure, to
the extent curable, the neglect or conduct that is the basis of any such claim.
(c) Termination Without Cause. The Company may terminate Executive’s employment hereunder without Cause at any time.
(d) Voluntary Termination. Executive’s employment may be terminated at any time by Executive for any reason (or no reason) upon thirty
(30) days’ prior written notice.
(e) Termination as a Result of Expiration of the Employment Period. Unless otherwise agreed between the parties, Executive’s employment
shall automatically terminate upon the expiration of the Employment Period.
(f) Notice of Termination. Any termination by the Company for Cause or without Cause, or by Executive for any reason (or no reason), shall
be communicated by Notice of Termination to the other party hereto given in accordance with Section 9(g). For purposes of this Agreement, a
“Notice of Termination” means a written notice that (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive’s employment under
the provision so indicated and (iii) if the “Date of Termination”
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(as defined below) is other than the date of receipt of such notice, specifies the termination date. The failure by the Company to set forth in the
Notice of Termination any fact or circumstance that contributes to a showing of Cause shall not waive any right of the Company hereunder or
preclude the Company from asserting such fact or circumstance in enforcing the Company’s rights hereunder.
(g) Date of Termination. “Date of Termination” means (i) if Executive’s employment is terminated by the Company for Cause, without Cause
or by reason of Disability, or by Executive for any reason (or no reason), the date of receipt of the Notice of Termination (in the case of a
termination by Executive, provided such Date of Termination is in accordance with Section 3(d)) or any later date specified therein pursuant to
Section 3(f), as the case may be, (ii) if Executive’s employment is terminated by reason of death, the date of death, and (iii) the expiration of the
Employment Period, and the termination of Executive’s employment upon the date of such expiration.
4.
Obligations of the Company upon Termination.
(a) Without Cause. If during the Employment Period, the Company shall terminate Executive’s employment without Cause, then the Company
will provide Executive with the following payments and/or benefits:
(i) The Company shall pay to Executive as soon as reasonably practicable but no later than the 15th day of the third month following the
end of the calendar year that contains the Date of Termination in a lump sum to the extent not previously paid, (A) the Annual Base Salary through
the Date of Termination, (B) the Bonus earned for any fiscal year ended prior to the year in which the Date of Termination occurs, provided that
Executive was employed on the last day of such fiscal year, (C) the amount of any unpaid expense reimbursements to which Executive may be
entitled pursuant to Section 2(c)(v) hereof, and (D) any other vested payments or benefits to which Executive or Executive’s estate may be entitled
to receive under any of the Company’s benefit plans or applicable law, in accordance with the terms of such plans or law (clauses (A)-(D), the
“Accrued Obligations”);
(ii) Subject to Section 4(e) below, after the Date of Termination, the Company will pay Executive a lump sum amount equal to one times
(1x) Executive’s Annual Base Salary as in effect as of the Date of Termination (the “Severance Payment”). The Severance Payment shall be made in
a lump sum on the date that is sixty (60) days following the Date of Termination, subject to the terms and conditions in Section 4(e) below; and
(iii) In the event of Executive’s termination without Cause within twelve (12) months following a Change in Control (as such term is
defined in the K-9 Holdings, Inc. Equity Incentive Plan) and subject to Section 4(e) below, the Company will pay Executive a lump sum amount
equal to twelve (12) times the Company’s monthly contribution on behalf of Executive to the Company’s healthcare, life insurance and accidental
death and dismemberment plans or policies (grossed up for applicable taxes) (the “Insurance Payment”). The Insurance Payment shall be made in a
lump sum on the date that is sixty (60) days following the Date of Termination, subject to the terms and conditions in Section 4(e) below.
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(b) Death or Disability. If Executive’s employment shall be terminated by reason of Executive’s death or Disability, then the Company will
provide Executive with the Accrued Obligations. Thereafter, the Company shall have no further obligation to Executive or Executive’s legal
representatives.
(c) For Cause; By Executive for any Reason. If Executive’s employment shall be terminated by the Company for Cause or by Executive for any
reason (or no reason), then the Company shall have no further obligations to Executive other than for payment of the Accrued Obligations.
(d) Expiration of the Employment Period. If Executive’s employment shall be terminated by reason of the expiration of the Employment Period
as result of the Company’s or Executive’s non-extension, then the Company will provide Executive with the Accrued Obligations. Thereafter, the
Company shall have no further obligation to Executive or Executive’s legal representatives.
(e) Separation Agreement and General Release. The Company’s obligation to make the Severance Payment and the Insurance Payment is
conditioned on Executive’s or Executive’s legal representative’s executing a separation agreement and general release of claims related to or arising
from Executive’s employment with the Company or the termination of employment, against the Company and its affiliates (and their respective
officers and directors) in a form reasonably determined by the Company, which shall be provided by the Company to Executive within five (5) days
following the Date of Termination; provided, that if Executive should fail to execute (or revokes) such release within sixty (60) days following the
Date of Termination, the Company shall not have any obligation to provide the Severance Payment or the Insurance Payment. If Executive executes
the release within such sixty (60) day period and does not revoke the release within seven (7) days following the execution of the release, the
Severance Payment and Insurance Payment will be made in accordance with Section 4(a)(ii) or Section 4(a)(iii), as applicable.
5.
Restrictive Covenants.
(a) Non-Solicitation. In consideration of Executive’s employment and receipt of payments hereunder, including, without limitation, the grant
of options under Section 2(c), during the period commencing on the Effective Date and ending twelve (12) months after the Date of Termination,
Executive shall not directly, or indirectly through another person, (x) induce or attempt to induce any employee, representative, agent or consultant
of the Company or any of its affiliates or subsidiaries to leave the employ or services of the Company or any of its affiliates or subsidiaries, or in
any way interfere with the relationship between the Company or any of its affiliates or subsidiaries and any employee, representative, agent or
consultant thereof, (y) hire any person who was an employee, representative, agent or consultant of the Company or any of its affiliates or
subsidiaries at any time during the twelve-month period immediately prior to the date on which such hiring would take place or (z) directly or
indirectly call on, solicit or service any customer, supplier, licensee, licensor, representative, agent or other business relation of the Company or any
of its affiliates or subsidiaries in order to induce or attempt to induce such person to cease doing business with, or reduce the amount of business
conducted with, the Company or any of its affiliates or subsidiaries, or in any way interfere with the relationship
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between any such customer, supplier, licensee, licensor, representative, agent or business relation of the Company or any of its affiliates or
subsidiaries. No action by another person or entity shall be deemed to be a breach of this provision unless Executive directly or indirectly assisted,
encouraged or otherwise counseled such person or entity to engage in such activity.
(b) Non-Competition. Executive hereby acknowledges that it is familiar with the Confidential Information (as defined below) of the Company
and its subsidiaries. Executive acknowledges and agrees that the Company would be irreparably damaged if Executive were to provide services to
any person competing with the Company or any of its affiliates or subsidiaries or engaged in a similar business and that such competition by
Executive would result in a significant loss of goodwill by the Company. Therefore, Executive agrees that during the period commencing on the
Effective Date and ending nine (9) months after the Date of Termination, Executive shall not (and shall cause each of Executive’s or its affiliates not
to) directly or indirectly own any interest in, manage, control, participate in (whether as an officer, director, manager, employee, partner, equity
holder, member, agent, representative or otherwise), consult with, render services for, or in any other manner engage in any business engaged
directly or indirectly, in the Geographic Area (as defined below), in the business of the Company and its subsidiaries as currently conducted or
proposed to be conducted as of the Date of Termination; provided, that nothing herein shall prohibit Executive from being a passive owner of not
more than 5% of the outstanding stock of any class of a corporation which is publicly traded so long as none of such persons has any active
participation in the business of such corporation. For purposes of this Agreement, the “Geographic Area” shall mean any market in North America
in which the Company or its subsidiaries is conducting or proposes conducting business as of the Date of Termination.
(c) Non-Disclosure; Non-Use of Confidential Information. Executive shall not disclose or use at any time, either during Executive’s
employment with the Company or at any time thereafter, any Confidential Information of which Executive is or becomes aware, whether or not such
information is developed by Executive, except to the extent that such disclosure or use is directly related to and required by Executive’s
performance in good faith of duties assigned to Executive by the Company. Executive will take all appropriate steps to safeguard Confidential
Information in Executive’s possession and to protect it against disclosure, misuse, espionage, loss and theft. Executive shall deliver to the
Company at the termination of Executive’s employment with the Company, or at any time the Company may request, all memoranda, notes, plans,
records, reports, computer tapes and software and other documents and data (and copies thereof) relating to the Confidential Information or the
“Work Product” (as defined in Section 5(e)(ii)) of the business of the Company and its affiliates (the “Company Group”) that Executive may then
possess or have under Executive’s control.
(d) Proprietary Rights. Executive recognizes that the Company Group possesses a proprietary interest in all Confidential Information and
Work Product and has the exclusive right and privilege to use, protect by copyright, patent or trademark, or otherwise exploit the processes, ideas
and concepts described therein to the exclusion of Executive, except as otherwise agreed between the Company Group and Executive in writing.
Executive expressly agrees that any Work Product made or developed by Executive or Executive’s agents during the course of Executive’s
employment, including any Work Product which is based on or arises out of Work Product, shall be the property of and inure to the exclusive
benefit of the Company
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Group. Executive further agrees that all Work Product developed by Executive (whether or not able to be protected by copyright, patent or
trademark) during the course of Executive’s employment with the Company, or involving the use of the time, materials or other resources of the
Company Group, shall be promptly disclosed to the Company Group and shall become the exclusive property of the Company Group, and Executive
shall execute and deliver any and all documents necessary or appropriate to implement the foregoing.
(e) Certain Definitions.
(i) As used herein, the term “Confidential Information” means information that is not generally known to the public (but for purposes of
clarity, Confidential Information shall never exclude any such information that becomes known to the public because of Executive’s unauthorized
disclosure) and that is used, developed or obtained by the Company Group in connection with its business, including, but not limited to,
information, observations and data obtained by Executive while employed by the Company Group concerning (A) the business or affairs of the
Company Group, (B) products or services, (C) fees, costs and pricing structures, (D) designs, (E) analyses, (F) drawings, photographs and reports,
(G) computer software, including operating systems, applications and program listings, (H) flow charts, manuals and documentation, (I) databases,
(J) accounting and business methods, (K) inventions, devices, new developments, methods and processes, whether patentable or unpatentable
and whether or not reduced to practice, (L) customers and clients and customer or client lists, (M) other copyrightable works, (N) all production
methods, processes, technology and trade secrets, and (O) all similar and related information in whatever form. Confidential Information will not
include any information that has been published in a form generally available to the public (except as a result of Executive’s unauthorized
disclosure) prior to the date Executive proposes to disclose or use such information. Confidential Information will not be deemed to have been
published or otherwise disclosed merely because individual portions of the information have been separately published, but only if all material
features comprising such information have been published in combination.
(ii) As used herein, the term “Work Product” means all inventions, innovations, improvements, technical information, systems, software
developments, methods, designs, analyses, drawings, reports, service marks, trademarks, trade names, logos and all similar or related information
(whether patentable or unpatentable) that relates to the Company Group’s actual or anticipated business, research and development or existing or
future products or services and that are conceived, developed or made by Executive (whether or not during usual business hours and whether or
not alone or in conjunction with any other person) while employed by the Company together with all patent applications, letters patent, trademark,
trade name and service mark applications or registrations, copyrights and reissues thereof that may be granted for or upon any of the foregoing.
6.
Non-Disparagement.
During the Employment Period and at all times thereafter, neither Executive nor Executive’s agents, on the one hand, nor the Company
formally, or its executives or board of directors, on the other hand, shall directly or indirectly issue or communicate any public statement, or
statement likely to become public, that maligns, denigrates or disparages the other
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(including, in the case of communications by Executive or Executive’s agents, Company Group, any of Company Group’s officers, directors or
employees, Apollo or any affiliate thereof). The foregoing shall not be violated by truthful responses to (i) legal process or governmental inquiry or
(ii) by private statements to Company Group or any of Company Group’s officers, directors or employees; provided, that in the case of Executive,
with respect to clause (ii), such statements are made in the course of carrying out Executive’s duties pursuant to this Agreement.
7.
Confidentiality of Agreement.
The Parties agree that the consideration furnished under this Agreement, the discussions and correspondence that led to this Agreement,
and the terms and conditions of this Agreement are private and confidential. Except as may be required by applicable law, regulation, or stock
exchange requirement, neither Party may disclose the above information to any other person or entity without the prior written approval of the
other.
8.
Executive’s Representations, Warranties and Covenants.
(a) Executive hereby represents and warrants to the Company that:
(i) Executive has all requisite power and authority to execute and deliver this Agreement and to consummate the transactions
contemplated hereby, and this Agreement has been duly executed by Executive;
(ii) the execution, delivery and performance of this Agreement by Executive does not and will not, with or without notice or the passage
of time, conflict with, breach, violate or cause a default under any agreement, contract or instrument to which Executive is a party or any judgment,
order or decree to which Executive is subject;
(iii) Executive is not a party to or bound by any employment agreement, consulting agreement, non-compete agreement, fee for services
agreement, confidentiality agreement or similar agreement with any other person;
(iv) upon the execution and delivery of this Agreement by the Company and Executive, this Agreement will be a legal, valid and binding
obligation of Executive, enforceable in accordance with its terms;
(v) Executive understands that the Company will rely upon the accuracy and truth of the representations and warranties of Executive
set forth herein and Executive consents to such reliance; and
(vi) as of the date of execution of this Agreement, Executive is not in breach of any of its terms, including having committed any acts
that would form the basis for a Cause termination if such act had occurred after the Effective Date.
(b) The Company hereby represents and warrants to Executive that:
(i) the Company has all requisite power and authority to execute and deliver this Agreement and to consummate the transactions
contemplated hereby, and this Agreement has been duly executed by the Company;
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(ii) the execution, delivery and performance of this Agreement by the Company does not and will not, with or without notice or the
passage of time, conflict with, breach, violate or cause a default under any agreement, contract or instrument to which the Company is a party or
any judgment, order or decree to which the Company is subject;
(iii) upon the execution and delivery of this Agreement by the Company and Executive, this Agreement will be a legal, valid and binding
obligation of the Company, enforceable in accordance with its terms; and
(iv) the Company understands that Executive will rely upon the accuracy and truth of the representations and warranties of the
Company set forth herein and the Company consents to such reliance.
9.
General Provisions.
(a) Severability. It is the desire and intent of the Parties hereto that the provisions of this Agreement be enforced to the fullest extent
permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, if any particular provision
of this Agreement shall be adjudicated by a court of competent jurisdiction to be invalid, prohibited or unenforceable under any present or future
law, and if the rights and obligations of any party under this Agreement will not be materially and adversely affected thereby, such provision, as to
such jurisdiction, shall be ineffective, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of
such provision in any other jurisdiction; furthermore, in lieu of such invalid or unenforceable provision there will be added automatically as a part
of this Agreement, a legal, valid and enforceable provision as similar in terms to such invalid or unenforceable provision as may be possible.
Notwithstanding the foregoing, if such provision could be more narrowly drawn so as not to be invalid, prohibited or unenforceable in such
jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.
(b) Entire Agreement and Effectiveness. Effective as of the Effective Date, this Agreement embodies the complete agreement and
understanding among the Parties hereto with respect to the subject matter hereof and supersedes and preempts any prior understandings,
agreements or representations by or among the Parties, written or oral, which may have related to the subject matter hereof in any way, including,
without limitation, the Prior Agreement.
(c) Successors and Assigns.
(i) This Agreement is personal to Executive and without the prior written consent of the Company shall not be assignable by Executive
otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by Executive’s legal
representatives.
(ii) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. The Company will
require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or
assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company
would be required to perform it if no such succession had taken place. As used in this Agreement, “Company” shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as aforesaid that assumes and agrees to perform this Agreement by operation
of law, or otherwise.
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(d) Governing Law. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF DELAWARE, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICTING PROVISION OR RULE THAT WOULD
CAUSE THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF DELAWARE TO BE APPLIED. IN FURTHERANCE OF THE
FOREGOING, THE INTERNAL LAW OF THE STATE OF DELAWARE WILL CONTROL THE INTERPRETATION AND CONSTRUCTION OF
THIS AGREEMENT, EVEN IF UNDER SUCH JURISDICTION’S CHOICE OF LAW OR CONFLICT OF LAW ANALYSIS, THE SUBSTANTIVE
LAW OF SOME OTHER JURISDICTION WOULD ORDINARILY APPLY.
(e) Enforcement.
(i) Arbitration. Except for disputes arising under Sections 5 and 6 of this Agreement (including, without limitation, any claim for
injunctive relief), any controversy, dispute or claim arising out of or relating to this Agreement, or its interpretation, application, implementation,
breach or enforcement which the Parties are unable to resolve by mutual agreement, shall be settled by submission by either Executive or the
Company of the controversy, claim or dispute to binding arbitration in New York (unless the Parties agree in writing to a different location), before a
single arbitrator in accordance with the Employment Dispute Resolution Rules of the American Arbitration Association then in effect. In any such
arbitration proceeding the Parties agree to provide all discovery deemed necessary by the arbitrator. The decision and award made by the arbitrator
shall be accompanied by a reasoned opinion, and shall be final, binding and conclusive on all Parties hereto for all purposes, and judgment may be
entered thereon in any court having jurisdiction thereof. The Company will bear the totality of the arbitrator’s and administrative fees and costs.
Each party shall bear its or Executive’s litigation costs and expenses; provided, however, that the arbitrator shall have the discretion to award the
prevailing party reimbursement of its or his or her reasonable attorney’s fees and costs. Upon the request of any of the parties, at any time prior to
the beginning of the arbitration hearing the parties may attempt in good faith to settle the dispute by mediation administered by the American
Arbitration Association. The Company will bear the totality of the mediator’s and administrative fees and costs.
(ii) Remedies. All remedies hereunder are cumulative, are in addition to any other remedies provided for by law and may, to the extent
permitted by law, be exercised concurrently or separately, and the exercise of any one remedy shall not be deemed to be an election of such remedy
or to preclude the exercise of any other remedy.
(iii) Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT.
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(f) Amendment and Waiver. The provisions of this Agreement may be amended and waived only with the prior written consent of the
Company and Executive and no course of conduct or failure or delay in enforcing the provisions of this Agreement shall be construed as a waiver
of such provisions or affect the validity, binding effect or enforceability of this Agreement or any provision hereof.
(g) Notices. Any notice provided for in this Agreement must be in writing and must be either personally delivered, transmitted via telecopier,
mailed by first class mail (postage prepaid and return receipt requested) or sent by reputable overnight courier service (charges prepaid) to the
recipient at the address below indicated or at such other address or to the attention of such other person as the recipient party has specified by
prior written notice to the sending party. Notices will be deemed to have been given hereunder and received when delivered personally, when
received if transmitted via telecopier, five (5) days after deposit in the U.S. mail and one day after deposit for overnight delivery with a reputable
overnight courier service.
If to the Company, to:
Great Wolf Resorts, Inc.
525 Junction Road, Suite 6000 South
Madison, WI 53717
Attention: General Counsel
with a copy (which shall not constitute notice) to:
Apollo Management VII, L.P.
9 West 57th Street
New York, NY 10019
Attention: Scott Ross
Telephone: 212-515-3200
Facsimile: 212-515-3263
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with a copy (which shall not constitute notice) to:
Akin Gump Strauss Hauer & Feld LLP
One Bryant Park
New York, NY 10036
Facsimile: (212) 872-1002
Attention: Adam Weinstein, Esq.
If to Executive, to:
Executive’s home address most recently on file with the Company.
(h) Withholdings Taxes. The Company may withhold from any amounts payable under this Agreement such federal, state and local taxes as
may be required to be withheld pursuant to any applicable law or regulation.
(i) Survival of Representations, Warranties and Agreements. All representations, warranties and agreements contained herein shall survive
the consummation of the transactions contemplated hereby indefinitely.
(j) Descriptive Headings. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this
Agreement. All references to a “Section” in this Agreement are to a section of this Agreement unless otherwise noted.
(k) Construction. Where specific language is used to clarify by example a general statement contained herein, such specific language shall not
be deemed to modify, limit or restrict in any manner the construction of the general statement to which it relates. The language used in this
Agreement shall be deemed to be the language chosen by the Parties to express their mutual intent, and no rule of strict construction shall be
applied against any Party.
(l) Counterparts. This Agreement may be executed in separate counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
(m) Section 409A. Notwithstanding anything herein to the contrary, this Agreement is intended to be interpreted and applied so that the
payment of the benefits set forth herein either shall either be exempt from the requirements of Section 409A of the Internal Revenue Code of 1986,
as amended (the “Code”), or shall comply with the requirements of such provision. Notwithstanding anything in this Agreement or elsewhere to
the contrary, distributions upon termination of Executive’s employment may only be made upon a “separation from service” as determined under
Section 409A of the Code. Each payment under this Agreement or otherwise shall be treated as a separate payment for purposes of Section 409A of
the Code. In no event may Executive, directly or indirectly, designate the calendar year of any payment to be made under this Agreement or
otherwise which constitutes a “deferral of compensation” within the meaning of Section 409A of the Code. All reimbursements and in-kind benefits
provided under this Agreement shall be made or provided in accordance with the requirements of Section 409A of the Code. To the extent that any
reimbursements pursuant to this Agreement or otherwise are taxable to Executive, any reimbursement payment due to Executive shall be paid to
Executive on
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or before the last day of Executive’s taxable year following the taxable year in which the related expense was incurred; provided, that, Executive has
provided the Company written documentation of such expenses in a timely fashion and such expenses otherwise satisfy the Company’ expense
reimbursement policies. Reimbursements pursuant to this Agreement or otherwise are not subject to liquidation or exchange for another benefit and
the amount of such reimbursements that Executive receives in one taxable year shall not affect the amount of such reimbursements that Executive
receives in any other taxable year. Notwithstanding any provision in this Agreement to the contrary, if on the date of his termination from
employment with the Company Executive is deemed to be a “specified employee” within the meaning of Code Section 409A and the Final Treasury
Regulations using the identification methodology selected by the Company from time to time, or if none, the default methodology under Code
Section 409A, any payments or benefits due upon a termination of Executive’s employment under any arrangement that constitutes a “deferral of
compensation” within the meaning of Code Section 409A shall be delayed and paid or provided (or commence, in the case of installments) on the
first payroll date on or following the earlier of (i) the date which is six (6) months and one (1) day after Executive’s termination of employment for
any reason other than death, and (ii) the date of Executive’s death, and any remaining payments and benefits shall be paid or provided in
accordance with the normal payment dates specified for such payment or benefit. Notwithstanding any of the foregoing to the contrary, the
Company and its respective officers, directors, employees, or agents make no guarantee that the terms of this Agreement as written comply with, or
are exempt from, the provisions of Code Section 409A, and none of the foregoing shall have any liability for the failure of the terms of this
Agreement as written to comply with, or be exempt from, the provisions of Code Section 409A.
[SIGNATURE PAGE FOLLOWS]
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EXECUTION COPY
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first written above.
GREAT WOLF RESORTS, INC.
By: /s/ Kimberly K. Schaefer
Name: Kimberly K. Schaefer
Title: CEO
EXECUTIVE
/s/ Jeffrey S. Maupin
Jeffrey Scott Maupin
(Back To Top)
Section 5: EX-10.7 (EX-10.7)
Exhibit 10.7
EXECUTION COPY
This EMPLOYMENT AGREEMENT (“Agreement”) by and between Great Wolf Resorts, Inc., a Delaware corporation (the “Company”), and
Gary W. Ferrera (“Executive”) (collectively the “Parties”) is made as of February 5, 2013.
WHEREAS, the Company desires to employ Executive on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants, understandings, representations, warranties,
undertakings and promises hereinafter set forth, intending to be legally bound thereby, the Parties agree as follows:
1. Employment Period.
Subject to earlier termination in accordance with Section 3 of this Agreement, Executive shall be employed by the Company for a period
commencing on March 6, 2013 (the “Effective Date”) and ending on the fifth (5th) anniversary of the Effective Date (the “Employment Period”)
unless the parties mutually agree to extend the term at least ninety (90) days prior to the end of the Employment Period. Upon Executive’s
termination of employment with the Company for any reason, Executive shall immediately resign all positions with the Company or any of its
subsidiaries or affiliates, including any position as a member of the Board of Directors of the Company (the “Board”) or any of its subsidiaries or
affiliates.
2. Terms of Employment.
(a) Position. From and after April 1, 2013 during the Employment Period, Executive shall serve as Executive Vice President and Chief Financial
Officer of the Company and will perform such duties and exercise such supervision with regard to the business of the Company as are associated
with such position, including such duties as may be prescribed from time to time by the Board. Executive shall report directly to the Chief Executive
Officer of the Company and if reasonably requested by the Board, Executive hereby agrees to serve (without additional compensation) as an officer
and/or director of the Company or any affiliate or subsidiary thereof.
(b) Duties. During the Employment Period, Executive shall have such responsibilities, duties, and authority that are customary for Executive’s
position, and shall perform such services as customarily are provided by an executive of a corporation with Executive’s position and such other
services consistent with Executive’s position, as shall be assigned to Executive from time to time by the Chief Executive Officer of the Company or
his or her designee. During the Employment Period, and excluding any periods of vacation and sick leave to which Executive is entitled, Executive
agrees to devote all of Executive’s business time to the business and affairs of the Company and to use Executive’s commercially reasonable efforts
to perform faithfully, effectively and efficiently Executive’s responsibilities and obligations hereunder. Executive shall be entitled to engage in
charitable and educational activities and to manage Executive’s personal and family investments, to the extent such activities are not competitive
with the business of the Company, do not interfere with the performance of Executive’s duties for the Company and are otherwise consistent with
the Company’s governance policies.
(c) Compensation.
(i) Base Salary. During the Employment Period, Executive shall receive an initial annual base salary in an amount equal to Three
Hundred Eighty Five Thousand dollars ($385,000), less all applicable withholdings, which shall be paid in accordance with the customary payroll
practices of the Company and prorated for partial calendar years of employment (as in effect from time to time, the “Annual Base Salary”). The
Annual Base Salary shall be subject to annual review by the Board, in its sole discretion, for possible increase and any such increased Annual Base
Salary shall constitute “Annual Base Salary” for purposes of this Agreement.
(ii) Annual Bonus. During the Employment Period, with respect to each completed fiscal year of the Company, Executive shall be
eligible to receive a bonus (the “Bonus”) of up to one hundred percent (100%) of Annual Base Salary contingent upon the achievement of
qualitative and quantitative performance goals approved by the Board. The Bonus, if any, shall be paid in the year following the fiscal year to
which the Bonus relates in accordance with the terms of the Company bonus plan as in effect from time to time. With respect to fiscal year 2013, the
amount of any Bonus payable to Executive (i) shall be reduced by the amount of the Commuting Allowance (as defined below) and (ii) shall be
determined as if Executive was employed with the Company as of January 1, 2013.
(iii) Equity.
(1) Investment Equity. As soon as practicable following the Effective Date, K-9 Holdings, Inc. (“Holdings”) and Executive shall
enter into a Subscription Agreement, substantially in the form attached hereto as Exhibit A, pursuant to which Executive shall invest at least
$350,000 in Holdings. Such investment (x) shall be in common stock of Holdings (“Common Stock”) that is economically equivalent to the securities
acquired by K-9 Investors, L.P. (“Apollo”) in connection with the transactions contemplated by that certain Agreement and Plan of Merger, dated
March 13, 2012, among Holdings, K-9 Acquisition, Inc., and the Company and (y) shall be made at a valuation based on Apollo’s investment.
(2) Options. As soon as practicable following the Effective Date, Holdings and Executive shall enter into a Stock Option
Agreement, substantially in the form attached hereto as Exhibit B (the “Stock Option Agreement”), pursuant to which Executive shall be granted
options to purchase 0.660% of the outstanding shares of Common Stock on a fully diluted basis (214,384 shares) with an exercise price equal to fair
market value on the date of grant, subject to the terms of the Stock Option Agreement and the K-9 Holdings, Inc. 2012 Equity Incentive Plan (the
“Plan”).
(iv) Commuting Allowance. During the first twelve (12) months of the Employment Period, the Company shall provide to Executive a
commuting allowance at the annual rate of $15,000 (the “Commuting Allowance”), which shall be paid in cash in accordance with the customary
payroll practices of the Company.
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(v) Relocation. The Company shall reimburse Executive for reasonable costs incurred in connection with his relocation to Madison,
Wisconsin, including (A) reasonable travel in connection with finding a residence in Madison, Wisconsin, (B) temporary lodging to the extent
reasonably necessary, (C) broker fees in connection with renting a residence in Madison, Wisconsin, (D) shipment of personal effects and
(E) reasonable incidental expenses. The Company’s obligation to reimburse Executive’s relocation costs is subject to appropriate documentation by
Executive and, upon request, presentment to the Board for approval.
(vi) Benefits. During the Employment Period, Executive shall be eligible to participate in all retirement, compensation and employee
benefit plans, practices, policies and programs provided by the Company to the extent applicable generally to other executives of the Company
(except severance plans, policies, practices, or programs) subject to the eligibility criteria set forth therein, as such may be amended or terminated
from time to time. In addition, the Company shall provide Executive with directors and officers insurance coverage at least equal to that provided to
other Company directors and officers.
(vii) Expenses. During the Employment Period, Executive shall be entitled to receive reimbursement for all reasonable business expenses
incurred by Executive in performance of Executive’s duties hereunder provided that Executive provides all necessary documentation in accordance
with the Company’s policies.
3. Termination of Employment.
(a) Death or Disability. Executive’s employment shall terminate automatically upon Executive’s death. If Executive becomes subject to a
“Disability” (as defined below) during the Employment Period, the Company may give Executive written notice in accordance with Sections 3(g)
and 9(g) of its intention to terminate Executive’s employment. For purposes of this Agreement, “Disability” means Executive’s inability to perform
Executive’s duties hereunder by reason of any medically determinable physical or mental impairment for a period of six (6) months or more in any
twelve (12) month period.
(b) Cause. Executive’s employment may be terminated at any time by the Company for “Cause” (as defined below). For purposes of this
Agreement, “Cause” shall mean Executive’s (i) commission of, conviction for, plea of guilty or nolo contendere to a felony or a crime involving
moral turpitude, or other material act or omission involving dishonesty or fraud, (ii) engaging in conduct that constitutes fraud or embezzlement,
(iii) engaging in conduct that constitutes gross negligence or willful gross misconduct that results or could reasonably be expected to result in
harm to the Company’s business or reputation, (iv) breach of any material terms of Executive’s employment, including this Agreement, which
results or could reasonably be expected to result in harm to the Company’s business or reputation or (v) continued willful failure to substantially
perform Executive’s duties. Executive’s employment shall not be terminated for “Cause” within the meaning of clauses (iv) and (v) above unless
Executive has been given written notice by the Company stating the basis for such termination and Executive is given fifteen (15) days to cure, to
the extent curable, the neglect or conduct that is the basis of any such claim.
(c) Termination Without Cause. The Company may terminate Executive’s employment hereunder without Cause at any time.
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(d) Good Reason. Executive’s employment may be terminated at any time by Executive for “Good Reason” (as defined below) following a
“Change in Control” (as defined in the Plan) upon sixty (60) days’ prior written notice following the occurrence of the event giving rise to the
termination for Good Reason. For purposes of this Agreement, “Good Reason” means Executive’s voluntary resignation after any of the following
actions taken by the Company following a Change in Control without Executive’s written consent: (i) any material failure of the Company to fulfill
its obligations under this Agreement, (ii) a material and adverse change to, or a material reduction of, Executive’s duties and responsibilities to the
Company, (iii) a material reduction in Executive’s then current Annual Base Salary (not including any diminution related to a broader compensation
reduction that is not limited to Executive specifically and that is not more than 10% in the aggregate), (iv) the relocation of Executive’s primary
office to a location more than fifty (50) miles from the prior location, or (v) the failure of any successor to all or substantially all of the Company’s
assets to assume this Agreement, whether in writing or by operation of law; provided, that any such event shall not constitute Good Reason unless
and until Executive shall have provided the Company with written notice thereof no later than thirty (30) days following Executive’s knowledge of
the initial occurrence of such event and the Company shall have failed to remedy such event within thirty (30) days of receipt of such notice.
(e) Voluntary Termination. Executive’s employment may be terminated at any time by Executive without Good Reason upon thirty (30) days’
prior written notice.
(f) Termination as a Result of Expiration of the Employment Period. Unless otherwise agreed between the parties, Executive’s employment
shall automatically terminate upon the expiration of the Employment Period.
(g) Notice of Termination. Any termination by the Company for Cause or without Cause, or by Executive for Good Reason or without Good
Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 9(g). For purposes of this
Agreement, a “Notice of Termination” means a written notice that (i) indicates the specific termination provision in this Agreement relied upon,
(ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive’s
employment under the provision so indicated and (iii) if the “Date of Termination” (as defined below) is other than the date of receipt of such
notice, specifies the termination date. The failure by Executive or the Company to set forth in the Notice of Termination any fact or circumstance
that contributes to a showing of Good Reason or Cause shall not waive any right of Executive or the Company hereunder or preclude Executive or
the Company from asserting such fact or circumstance in enforcing Executive’s or the Company’s rights hereunder.
(h) Date of Termination. “Date of Termination” means (i) if Executive’s employment is terminated by the Company for Cause, without Cause
or by reason of Disability, or by Executive for Good Reason or without Good Reason, the date of receipt of the Notice of Termination (in the case of
a termination with or without Good Reason, provided such Date of Termination is in accordance with Section 3(d) or Section 3(e)) or any later date
specified therein pursuant to Section 3(g), as the case may be, (ii) if Executive’s employment is terminated by reason of death, the date of death, and
(iii) the expiration of the Employment Period, to the extent that Executive’s employment is terminated upon the date of such expiration.
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4. Obligations of the Company upon Termination.
(a) Without Cause. If during the Employment Period, the Company shall terminate Executive’s employment without Cause, then the Company
will provide Executive with the following payments and/or benefits:
(i) the Company shall pay to Executive as soon as reasonably practicable but no later than the 15th day of the third month following the
end of the calendar year that contains the Date of Termination in a lump sum to the extent not previously paid, (A) the portion of Annual Base
Salary earned but not yet paid through the Date of Termination, (B) the Bonus earned for any fiscal year ended prior to the year in which the Date
of Termination occurs, provided that Executive was employed on the last day of such fiscal year, (C) the amount of any unpaid expense
reimbursements to which Executive may be entitled pursuant to Section 2(c)(vii) hereof, and (D) any other vested payments or benefits to which
Executive or Executive’s estate may be entitled to receive under any of the Company’s benefit plans or applicable law, in accordance with the terms
of such plans or law (clauses (A)-(D), the “Accrued Obligations”); and
(ii) subject to Section 4(f) below, after the Date of Termination, the Company will pay Executive a lump sum amount equal to one times
(1x) Executive’s Annual Base Salary as in effect as of the Date of Termination (the “Severance Payment”). The Severance Payment shall be made in
a lump sum on the date that is sixty (60) days following the Date of Termination, subject to the terms and conditions in Section 4(f) below.
(b) With Good Reason or Without Cause following a Change in Control. If during the Employment Period, a Change in Control occurs and
within eighteen (18) months following the occurrence of such Change in Control, the Company shall terminate Executive’s employment without
Cause or Executive shall terminate Executive’s employment for Good Reason, then, in lieu of the payments and benefits described in Section 4(a)
above, the Company will provide Executive with the following payments and/or benefits:
(i) the Accrued Obligations; and
(ii) subject to Section 4(f) below, after the Date of Termination:
(1) the Company will pay Executive a lump sum amount equal to one times (1x) Executive’s Annual Base Salary as in effect as of
the Date of Termination; and
(2) the Company will pay Executive a lump sum amount equal to twelve times (12x) the Company’s monthly contribution on
behalf of Executive to the Company’s healthcare, life insurance and accidental death and dismemberment plans or policies (grossed up for
applicable taxes) (the payments and benefits described in Sections 4(b)(ii)(1)—(2) collectively, the “Enhanced Severance Payment”). The Enhanced
Severance Payment shall be made in a lump sum on the date that is sixty (60) days following the Date of Termination, subject to the terms and
conditions in Section 4(f) below.
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(c) Death or Disability. If Executive’s employment shall be terminated by reason of Executive’s death or Disability, then the Company will
provide Executive with the Accrued Obligations. Thereafter, the Company shall have no further obligation to Executive or Executive’s legal
representatives.
(d) For Cause; Other than for Good Reason. If Executive’s employment shall be terminated by the Company for Cause or by Executive for any
reason other than as provided in Section 4(b), then the Company shall have no further obligations to Executive or Executive’s legal representatives
other than for payment of the Accrued Obligations.
(e) Expiration of the Employment Period. If Executive’s employment shall be terminated by reason of the expiration of the Employment Period
as result of the Company’s or Executive’s non-extension, then the Company will provide Executive with the Accrued Obligations. Thereafter, the
Company shall have no further obligation to Executive or Executive’s legal representatives.
(f) Separation Agreement and General Release. The Company’s obligation to make the Severance Payment or the Enhanced Severance
Payment is conditioned on Executive’s or Executive’s legal representative’s executing a separation agreement and general release of claims related
to or arising from Executive’s employment with the Company or the termination of employment, against the Company and its affiliates (and their
respective officers and directors) in a form reasonably determined by the Company, which shall be provided by the Company to Executive within
five (5) days following the Date of Termination; provided, that if Executive should fail to execute (or revokes) such release within sixty (60) days
following the Date of Termination, the Company shall not have any obligation to provide the Severance Payment or the Enhanced Severance
Payment. If Executive executes the release within such sixty (60) day period and does not revoke the release within seven (7) days following the
execution of the release, the Severance Payment or the Enhanced Severance Payment will be made in accordance with Section 4(a)(ii) or Section 4(b)
(ii), as applicable.
5. Restrictive Covenants.
(a) Non-Solicitation. In consideration of Executive’s employment and receipt of payments hereunder, including, without limitation, the grant
of options under Section 2(c), during the period commencing on the Effective Date and ending twelve (12) months after the Date of Termination
(the “Restricted Period”), Executive shall not directly, or indirectly through another person, (x) induce or attempt to induce any employee,
representative, agent or consultant of the Company or any of its affiliates or subsidiaries to leave the employ or services of the Company or any of
its affiliates or subsidiaries, or in any way interfere with the relationship between the Company or any of its affiliates or subsidiaries and any
employee, representative, agent or consultant thereof, (y) hire any person who was an employee, representative, agent or consultant of the
Company or any of its affiliates or subsidiaries at any time during the twelve-month period immediately prior to the date on which such hiring would
take place or (z) directly or indirectly call on, solicit or service any customer, supplier, licensee, licensor, representative, agent or other business
relation of the Company or any of its affiliates or subsidiaries in order to induce or attempt to induce such person to cease doing business with, or
reduce the amount of business conducted with, the Company or any of its affiliates or subsidiaries, or in any way
6
interfere with the relationship between any such customer, supplier, licensee, licensor, representative, agent or business relation of the Company or
any of its affiliates or subsidiaries. No action by another person or entity shall be deemed to be a breach of this provision unless Executive directly
or indirectly assisted, encouraged or otherwise counseled such person or entity to engage in such activity.
(b) Non-Competition. Executive hereby acknowledges that it is familiar with the Confidential Information (as defined below) of the
Company and its subsidiaries. Executive acknowledges and agrees that the Company would be irreparably damaged if Executive were to provide
services to any person competing with the Company or any of its affiliates or subsidiaries or engaged in a similar business and that such
competition by Executive would result in a significant loss of goodwill by the Company. Therefore, Executive agrees that during the Restricted
Period, Executive shall not (and shall cause each of Executive’s affiliates not to) directly or indirectly own any interest in, manage, control,
participate in (whether as an officer, director, manager, employee, partner, equity holder, member, agent, representative or otherwise), consult with,
render services for, or in any other manner engage in any business engaged directly or indirectly, in the Geographic Area (as defined below), in the
business of the Company and its subsidiaries as currently conducted or proposed to be conducted as of the Date of Termination; provided, that
nothing herein shall prohibit Executive from being a passive owner of not more than 5% of the outstanding stock of any class of a corporation
which is publicly traded so long as none of such persons has any active participation in the business of such corporation. For purposes of this
Agreement, the “Geographic Area” shall mean any market in North America in which the Company or its subsidiaries is conducting or proposes
conducting business as of the Date of Termination.
(c) Non-Disclosure; Non-Use of Confidential Information. Executive shall not disclose or use at any time, either during Executive’s
employment with the Company or at any time thereafter, any Confidential Information of which Executive is or becomes aware, whether or not such
information is developed by Executive, except to the extent that such disclosure or use is directly related to and required by Executive’s
performance in good faith of duties assigned to Executive by the Company. Executive will take all appropriate steps to safeguard Confidential
Information in Executive’s possession and to protect it against disclosure, misuse, espionage, loss and theft. Executive shall deliver to the
Company at the termination of Executive’s employment with the Company, or at any time the Company may request, all memoranda, notes, plans,
records, reports, computer tapes and software and other documents and data (and copies thereof) relating to the Confidential Information or the
“Work Product” (as defined in Section 5(e)(ii)) of the business of the Company and its affiliates (the “Company Group”) that Executive may then
possess or have under Executive’s control.
(d) Proprietary Rights. Executive recognizes that the Company Group possesses a proprietary interest in all Confidential Information
and Work Product and has the exclusive right and privilege to use, protect by copyright, patent or trademark, or otherwise exploit the processes,
ideas and concepts described therein to the exclusion of Executive, except as otherwise agreed between the Company Group and Executive in
writing. Executive expressly agrees that any Work Product made or developed by Executive or Executive’s agents during the course of Executive’s
employment, including any Work Product which is based on or arises out of Work Product, shall be the property of and inure to the exclusive
benefit of the Company
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Group. Executive further agrees that all Work Product developed by Executive (whether or not able to be protected by copyright, patent or
trademark) during the course of Executive’s employment with the Company, or involving the use of the time, materials or other resources of the
Company Group, shall be promptly disclosed to the Company Group and shall become the exclusive property of the Company Group, and Executive
shall execute and deliver any and all documents necessary or appropriate to implement the foregoing.
(e) Certain Definitions.
(i) As used herein, the term “Confidential Information” means information that is not generally known to the public (but for purposes of
clarity, Confidential Information shall never exclude any such information that becomes known to the public because of Executive’s unauthorized
disclosure) and that is used, developed or obtained by the Company Group in connection with its business, including, but not limited to,
information, observations and data obtained by Executive while employed by the Company Group concerning (A) the business or affairs of the
Company Group, (B) products or services, (C) fees, costs and pricing structures, (D) designs, (E) analyses, (F) drawings, photographs and reports,
(G) computer software, including operating systems, applications and program listings, (H) flow charts, manuals and documentation, (I) databases,
(J) accounting and business methods, (K) inventions, devices, new developments, methods and processes, whether patentable or unpatentable
and whether or not reduced to practice, (L) customers and clients and customer or client lists, (M) other copyrightable works, (N) all production
methods, processes, technology and trade secrets, and (O) all similar and related information in whatever form. Confidential Information will not
include any information that has been published in a form generally available to the public (except as a result of Executive’s unauthorized
disclosure) prior to the date Executive proposes to disclose or use such information. Confidential Information will not be deemed to have been
published or otherwise disclosed merely because individual portions of the information have been separately published, but only if all material
features comprising such information have been published in combination.
(ii) As used herein, the term “Work Product” means all inventions, innovations, improvements, technical information, systems, software
developments, methods, designs, analyses, drawings, reports, service marks, trademarks, trade names, logos and all similar or related information
(whether patentable or unpatentable) that relates to the Company Group’s actual or anticipated business, research and development or existing or
future products or services and that are conceived, developed or made by Executive (whether or not during usual business hours and whether or
not alone or in conjunction with any other person) while employed by the Company together with all patent applications, letters patent, trademark,
trade name and service mark applications or registrations, copyrights and reissues thereof that may be granted for or upon any of the foregoing.
6. Non-Disparagement.
During the Employment Period and at all times thereafter, neither Executive nor Executive’s agents, on the one hand, nor the Company
formally, or its executives or board of directors, on the other hand, shall directly or indirectly issue or communicate any public statement, or
statement likely to become public, that maligns, denigrates or disparages the other
8
(including, in the case of communications by Executive or Executive’s agents, Company Group, any of Company Group’s officers, directors or
employees, Apollo or any affiliate thereof). The foregoing shall not be violated by truthful responses to (i) legal process or governmental inquiry or
(ii) by private statements to Company Group or any of Company Group’s officers, directors or employees; provided, that in the case of Executive,
with respect to clause (ii), such statements are made in the course of carrying out Executive’s duties pursuant to this Agreement.
7. Confidentiality of Agreement.
The Parties agree that the consideration furnished under this Agreement, the discussions and correspondence that led to this Agreement,
and the terms and conditions of this Agreement are private and confidential. Except as may be required by applicable law, regulation, or stock
exchange requirement, neither Party may disclose the above information to any other person or entity without the prior written approval of the
other.
8. Executive’s Representations, Warranties and Covenants.
(a) Executive hereby represents and warrants to the Company that:
(i) Executive has all requisite power and authority to execute and deliver this Agreement and to consummate the transactions
contemplated hereby, and this Agreement has been duly executed by Executive;
(ii) the execution, delivery and performance of this Agreement by Executive does not and will not, with or without notice or the passage
of time, conflict with, breach, violate or cause a default under any agreement, contract or instrument to which Executive is a party or any judgment,
order or decree to which Executive is subject;
(iii) Executive is not a party to or bound by any employment agreement, consulting agreement, non-compete agreement, fee for services
agreement, confidentiality agreement or similar agreement with any other person;
(iv) upon the execution and delivery of this Agreement by the Company and Executive, this Agreement will be a legal, valid and binding
obligation of Executive, enforceable in accordance with its terms;
(v) Executive understands that the Company will rely upon the accuracy and truth of the representations and warranties of Executive
set forth herein and Executive consents to such reliance; and
(vi) as of the date of execution of this Agreement, Executive is not in breach of any of its terms, including having committed any acts
that would form the basis for a Cause termination if such act had occurred after the Effective Date.
9
(b) The Company hereby represents and warrants to Executive that:
(i) the Company has all requisite power and authority to execute and deliver this Agreement and to consummate the transactions
contemplated hereby, and this Agreement has been duly executed by the Company;
(ii) the execution, delivery and performance of this Agreement by the Company does not and will not, with or without notice or the
passage of time, conflict with, breach, violate or cause a default under any agreement, contract or instrument to which the Company is a party or
any judgment, order or decree to which the Company is subject;
(iii) upon the execution and delivery of this Agreement by the Company and Executive, this Agreement will be a legal, valid and binding
obligation of the Company, enforceable in accordance with its terms; and
(iv) the Company understands that Executive will rely upon the accuracy and truth of the representations and warranties of the
Company set forth herein and the Company consents to such reliance.
9. General Provisions.
(a) Severability. It is the desire and intent of the Parties hereto that the provisions of this Agreement be enforced to the fullest extent
permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, if any particular provision
of this Agreement shall be adjudicated by a court of competent jurisdiction to be invalid, prohibited or unenforceable under any present or future
law, and if the rights and obligations of any party under this Agreement will not be materially and adversely affected thereby, such provision, as to
such jurisdiction, shall be ineffective, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of
such provision in any other jurisdiction; furthermore, in lieu of such invalid or unenforceable provision there will be added automatically as a part
of this Agreement, a legal, valid and enforceable provision as similar in terms to such invalid or unenforceable provision as may be possible.
Notwithstanding the foregoing, if such provision could be more narrowly drawn so as not to be invalid, prohibited or unenforceable in such
jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.
(b) Entire Agreement and Effectiveness. This Agreement embodies the complete agreement and understanding among the Parties hereto with
respect to the subject matter hereof and supersedes and preempts any prior understandings, agreements or representations by or among the
Parties, written or oral, which may have related to the subject matter hereof in any way.
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(c) Successors and Assigns.
(i) This Agreement is personal to Executive and without the prior written consent of the Company shall not be assignable by Executive
otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by Executive’s legal
representatives.
(ii) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. The Company will
require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or
assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company
would be required to perform it if no such succession had taken place. As used in this Agreement, “Company” shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as aforesaid that assumes and agrees to perform this Agreement by operation
of law, or otherwise. The Company shall assign all of its payment obligations herein to its wholly-owned, operating subsidiary, Great Lakes
Services, LLC.
(d) Governing Law. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF DELAWARE, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICTING PROVISION OR RULE THAT WOULD
CAUSE THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF DELAWARE TO BE APPLIED. IN FURTHERANCE OF THE
FOREGOING, THE INTERNAL LAW OF THE STATE OF DELAWARE WILL CONTROL THE INTERPRETATION AND CONSTRUCTION OF
THIS AGREEMENT, EVEN IF UNDER SUCH JURISDICTION’S CHOICE OF LAW OR CONFLICT OF LAW ANALYSIS, THE SUBSTANTIVE
LAW OF SOME OTHER JURISDICTION WOULD ORDINARILY APPLY.
(e) Enforcement.
(i) Arbitration. Except for disputes arising under Sections 5 and 6 of this Agreement (including, without limitation, any claim for
injunctive relief), any controversy, dispute or claim arising out of or relating to this Agreement, or its interpretation, application, implementation,
breach or enforcement which the Parties are unable to resolve by mutual agreement, shall be settled by submission by either Executive or the
Company of the controversy, claim or dispute to binding arbitration in New York (unless the Parties agree in writing to a different location), before a
single arbitrator in accordance with the Employment Dispute Resolution Rules of the American Arbitration Association then in effect. In any such
arbitration proceeding the Parties agree to provide all discovery deemed necessary by the arbitrator. The decision and award made by the arbitrator
shall be accompanied by a reasoned opinion, and shall be final, binding and conclusive on all Parties hereto for all purposes, and judgment may be
entered thereon in any court having jurisdiction thereof. The Company will bear the totality of the arbitrator’s and administrative fees and costs.
Each party shall bear its or Executive’s litigation costs and expenses; provided, however, that the arbitrator shall have the discretion to award the
prevailing party reimbursement of its or his or her reasonable attorney’s fees and costs. Upon the request of any of the parties, at any time prior to
the beginning of the arbitration hearing the parties may attempt in good faith to settle the dispute by mediation administered by the American
Arbitration Association. The Company will bear the totality of the mediator’s and administrative fees and costs.
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(ii) Remedies. All remedies hereunder are cumulative, are in addition to any other remedies provided for by law and may, to the extent
permitted by law, be exercised concurrently or separately, and the exercise of any one remedy shall not be deemed to be an election of such remedy
or to preclude the exercise of any other remedy.
(iii) Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT.
(f) Amendment and Waiver. The provisions of this Agreement may be amended and waived only with the prior written consent of the
Company and Executive and no course of conduct or failure or delay in enforcing the provisions of this Agreement shall be construed as a waiver
of such provisions or affect the validity, binding effect or enforceability of this Agreement or any provision hereof.
(g) Notices. Any notice provided for in this Agreement must be in writing and must be either personally delivered, transmitted via telecopier,
mailed by first class mail (postage prepaid and return receipt requested) or sent by reputable overnight courier service (charges prepaid) to the
recipient at the address below indicated or at such other address or to the attention of such other person as the recipient party has specified by
prior written notice to the sending party. Notices will be deemed to have been given hereunder and received when delivered personally, when
received if transmitted via telecopier, five (5) days after deposit in the U.S. mail and one day after deposit for overnight delivery with a reputable
overnight courier service.
If to the Company, to:
Great Wolf Resorts, Inc.
525 Junction Road, Suite 6000 South
Madison, WI 53717
Attention: General Counsel
with a copy (which shall not constitute notice) to:
Apollo Management VII, L.P.
9 West 57th Street
New York, NY 10019
Attention: Scott Ross
Telephone: 212-515-3200
Facsimile: 212-515-3263
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with a copy (which shall not constitute notice) to:
Akin Gump Strauss Hauer & Feld LLP
One Bryant Park
New York, NY 10036
Facsimile: (212) 872-1002
Attention: Adam Weinstein, Esq.
If to Executive, to:
Executive’s home address most recently on file with the Company.
(h) Withholdings Taxes. The Company may withhold from any amounts payable under this Agreement such federal, state and local taxes as
may be required to be withheld pursuant to any applicable law or regulation.
(i) Survival of Representations, Warranties and Agreements. All representations, warranties and agreements contained herein shall survive
the consummation of the transactions contemplated hereby indefinitely.
(j) Descriptive Headings. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this
Agreement. All references to a “Section” in this Agreement are to a section of this Agreement unless otherwise noted.
(k) Construction. Where specific language is used to clarify by example a general statement contained herein, such specific language shall not
be deemed to modify, limit or restrict in any manner the construction of the general statement to which it relates. The language used in this
Agreement shall be deemed to be the language chosen by the Parties to express their mutual intent, and no rule of strict construction shall be
applied against any Party.
(l) Counterparts. This Agreement may be executed in separate counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
(m) Section 409A. Notwithstanding anything herein to the contrary, this Agreement is intended to be interpreted and applied so that the
payment of the benefits set forth herein either shall either be exempt from the requirements of Section 409A of the Internal Revenue Code of 1986,
as amended (the “Code”), or shall comply with the requirements of such provision. Notwithstanding anything in this Agreement or elsewhere to
the contrary, distributions upon termination of Executive’s employment may only be made upon a “separation from service” as determined under
Section 409A of the Code. Each payment under this Agreement or otherwise shall be treated as a separate payment for purposes of Section 409A of
the Code. In no event may Executive, directly or indirectly, designate the calendar year of any payment to be made under this Agreement or
otherwise which constitutes a “deferral of compensation” within the meaning of Section 409A of the Code. All reimbursements and in-kind benefits
provided under this Agreement shall be made or provided in accordance with the requirements of Section 409A of the Code. To the extent that any
reimbursements pursuant to this Agreement or otherwise are
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taxable to Executive, any reimbursement payment due to Executive shall be paid to Executive on or before the last day of Executive’s taxable year
following the taxable year in which the related expense was incurred; provided, that, Executive has provided the Company written documentation of
such expenses in a timely fashion and such expenses otherwise satisfy the Company’ expense reimbursement policies. Reimbursements pursuant to
this Agreement or otherwise are not subject to liquidation or exchange for another benefit and the amount of such reimbursements that Executive
receives in one taxable year shall not affect the amount of such reimbursements that Executive receives in any other taxable year. Notwithstanding
any provision in this Agreement to the contrary, if on the date of his termination from employment with the Company Executive is deemed to be a
“specified employee” within the meaning of Code Section 409A and the Final Treasury Regulations using the identification methodology selected
by the Company from time to time, or if none, the default methodology under Code Section 409A, any payments or benefits due upon a termination
of Executive’s employment under any arrangement that constitutes a “deferral of compensation” within the meaning of Code Section 409A shall be
delayed and paid or provided (or commence, in the case of installments) on the first payroll date on or following the earlier of (i) the date which is
six (6) months and one (1) day after Executive’s termination of employment for any reason other than death, and (ii) the date of Executive’s death,
and any remaining payments and benefits shall be paid or provided in accordance with the normal payment dates specified for such payment or
benefit. Notwithstanding any of the foregoing to the contrary, the Company and its respective officers, directors, employees, or agents make no
guarantee that the terms of this Agreement as written comply with, or are exempt from, the provisions of Code Section 409A, and none of the
foregoing shall have any liability for the failure of the terms of this Agreement as written to comply with, or be exempt from, the provisions of Code
Section 409A.
[SIGNATURE PAGE FOLLOWS]
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EXECUTION COPY
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first written above.
GREAT WOLF RESORTS, INC.
By: /s/ Kimberly K. Schaefer
Name: Kimberly K. Schaefer
Title: President and Chief Executive Officer
EXECUTIVE
/s/ Gary W. Ferrera
Gary W. Ferrera
EXHIBIT A
[ATTACH SUBSCRIPTION AGREEMENT]
EXHIBIT B
[ATTACH STOCK OPTION AGREEMENT]
(Back To Top)
Section 6: EX-10.18 (EX-10.18)
Exhibit 10.18
EXECUTION VERSION
Consulting Agreement
CONSULTING AGREEMENT dated as of August 13, 2012 (this “Agreement”), between GWR OPERATING PARTNERSHIP, L.L.L.P., a
Delaware Limited Liability Limited Partnership (“GWROP”), GREAT WOLF RESORTS, INC., a Delaware Corporation (“GWRI”) and APOLLO
MANAGEMENT VII, L.P., a Delaware limited partnership (“Apollo”).
GWROP desires to avail itself of Apollo’s and/or its Affiliates expertise and consequently has requested that Apollo make such expertise
available from time to time in rendering certain consulting and investment advisory services related to the business and affairs of GWROP and its
Affiliates. Apollo, GWROP and GWRI agree that it is in their respective best interests to enter into this Agreement. It is the intention of the parties
that this Agreement is not for services in connection with the day-to-day business affairs of GWROP or its Affiliates.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth, GWROP, GWRI and Apollo agree as follows:
Section 1. Retention of Apollo.
GWROP hereby retains Apollo, and Apollo accepts such retention, upon the terms and conditions set forth in this Agreement.
Section 2. Term.
This Agreement shall commence effective as of May 4, 2012 and shall remain in effect until the earliest of (i) the twelfth anniversary of the
date hereof, (ii) such time as Apollo and its Affiliates then owning, directly or indirectly, beneficial economic interests in GWROP own in the
aggregate, directly or indirectly, less than 5% of the beneficial economic interest of GWROP and (iii) such earlier date as is mutually agreed upon by
GWROP, GWRI and Apollo (the “Term”). In the event of termination or expiration of this Agreement in accordance with this Section 2, this
Agreement shall immediately become void and have no effect without any further liability or obligation on the part of any party hereto; provided,
however, the following Sections shall survive the termination of this Agreement: Sections 7 through 15 and any accrued but unpaid obligations of
GWROP or GWRI to pay fees and/or expenses hereunder.
Section 3. Services.
(a) Apollo shall, or shall at its option cause one or more Affiliates to, advise GWROP and its Subsidiaries (and at GWROP’s request, its
Affiliates) concerning such matters that relate to GWROP’s business strategies, proposed financial transactions, acquisitions, divestitures,
investments and other financial related matters of GWROP and its Affiliates, in each case as GWROP shall reasonably and specifically
request by way of notice to Apollo, which notice shall specify the services required of Apollo and shall include all background material
necessary for Apollo to complete (or cause to be completed) such services. If requested to provide such services, Apollo shall, or shall cause
at its option one or more Affiliates to, devote such time to any such written request as Apollo shall deem, in its discretion, necessary. Such
consulting services, in Apollo’s
discretion, shall be rendered in person or by telephone or other communication. Apollo shall have no obligation to GWROP as to the manner
and time of rendering its or its Affiliates services hereunder, and GWROP shall not have any right to dictate or direct the details of the
services rendered hereunder.
(b) Apollo shall, or shall cause an Affiliate to, perform all services to be provided hereunder as an independent contractor to the
GWROP and not as an employee, agent or representative of GWROP. Apollo shall have no authority to act for or to bind GWROP without its
prior written consent.
(c) This Agreement shall in no way prohibit Apollo or any of its partners or Affiliates or any director, officer, partner or employee of
Apollo or any of its partners or Affiliates from engaging in other activities, whether or not competitive with any business of GWROP or any
of its respective subsidiaries or Affiliates.
Section 4. Compensation.
(a) Management Fee. As consideration for Apollo’s agreement to render (or cause to be rendered) the services set forth in Section 3(a)
and as compensation for any such services rendered by Apollo or any of its Affiliates and subject to the limitations set forth in Section 4(c),
GWROP agrees to pay to Apollo or its designee an annual fee equal to the greater of $2 million and 2% of EBITDA for the immediately prior
calendar year (the “Management Fee”). The Management Fee for each calendar year shall be payable on April 1st of that year, with the first
such payment being made on April 1, 2013 and a pro rated fee will be paid in the twelfth year based on the number of days remaining in the
Term. For the avoidance of doubt, no fee shall be payable with respect to calendar year 2012, but the fee with respect to calendar year 2013
will be based on EBITDA during calendar year 2012.
(b) Change of Control or Initial Public Offering. The parties acknowledge and agree that an objective of GWROP is to maximize value for
its direct and indirect shareholders which may include consummating (or participating in the consummation of) a Change of Control or a
Qualified IPO. The services provided to GWROP by Apollo or any of its Affiliates will help to facilitate the consummation of a Change of
Control or Qualified IPO, should GWROP, GWRI or K-9 Holdings, Inc. (“Parent”) or any direct or indirect parent of Parent decide to pursue
such a transaction. Following the provision of notice to Apollo by GWROP of GWROP’s, GWRI’s, Parent’s or any direct or indirect parent of
Parent’s intent to enter into a Change of Control or Qualified IPO, Apollo may elect at any time in connection with or in anticipation of such
Change of Control or Qualified IPO (or at any time thereafter) by the delivery of notice to GWROP (such notice, the “Notice” and the date on
which such Notice is delivered to GWROP, the “Notice Date”) to receive, subject to the limitations set forth in Section 4(c), the Lump Sum
Payment, in lieu of annual payments of the Management Fee, such amount to be paid on the date on which the Change of Control or Qualified
IPO is consummated, or, if the Notice occurs subsequent to such date, as soon as practicable, but in no event later than 30 days subsequent
to the Notice Date.
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(c) Non-Payment. Notwithstanding anything in this Agreement to the contrary, neither GWROP nor GWRI has any obligation to pay
any portion of the fees, expenses or other amounts payable to Apollo to the extent that (i) the Notes remain outstanding, (ii) aggregate
payments under the Agreement would otherwise equal or exceed $5 million and (iii) such payments in excess of $5 million is determined by
GWROP would be prohibited under Section 4.13 of the indenture governing the Notes (the “Affiliate Transaction Prohibition”). From and
after the time when the Notes are no longer outstanding or the Affiliate Transaction Prohibition is determined by GWROP not to be applicable
(the “Applicable Date”), any portion of fees, expenses or other amounts payable to Apollo (or its designees) under this Agreement arising on
or after the Applicable Date which GWROP or GWRI is prohibited from paying to Apollo under any other agreement or debt instrument shall
be deferred, shall accrue and shall be payable at the earliest time permitted under the applicable agreement or debt instrument, or upon the
payment in full of all obligations under any applicable debt instrument. GWROP shall notify Apollo of any payment prohibition on each date
on which GWROP would otherwise make a payment of fees under this Agreement.
(d) Non-Exclusive. Nothing in this Agreement (other than the limitations in Section 4(c)) shall have the effect of prohibiting Apollo or
any of its Affiliates from receiving from GWROP or any of its subsidiaries or Affiliates any other fees, including, subject to the limitations in
Section 4(c), any fee payable pursuant to Section 5.
(e) Definitions. As used in this Section 4 the following terms have the following meanings:
(1) “Notes” means the 10.875% First Mortgage Notes due in 2017 issued pursuant to the Indenture dated April 7, 2010, by and
among GWRI, the issuers party thereto, the guarantors named therein, and U.S. Bank National Association, as trustee, as amended.
(2) The “Lump Sum Payment” shall be a single lump sum cash payment equal to the present value of all Management Fees
payable under this Agreement through the end of the Term (using a discount rate equal to the yield to maturity on the Notice Date of
the class of outstanding U.S. government bonds having a final maturity closest to the end of the Term).
(3) A “Qualified IPO” means a public offering and sale of equity securities of GWROP, GWRI, or Parent (or any successor entity)
or any direct or indirect parent of Parent in any transaction or series of related transactions, pursuant to an effective registration
statement (other than on Form S-4, S-8 or their equivalents) filed under the United States Securities Act of 1933, as amended which yield
net proceeds to GWROP, GWRI, Parent or Apollo and its Affiliates in excess of $50 million or which results in least 10% of the total
outstanding shares of common stock being sold to the public in a primary offering.
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(4) A “Change of Control” means any transaction or series of related transactions, after which Apollo and its Affiliates
collectively cease to own, directly or indirectly, at least 50% of the equity interest in GWROP.
(5) “EBITDA” means “Adjusted EBITDA” as publicly reported by GWRI (or if such number is no longer publicly reported,
“Adjusted EBITDA” calculated in a manner consistent with the methodology used in the last period in which GWRI publicly reported
“Adjusted EBITDA”).
Section 5. Other Services.
If GWROP shall determine that it is advisable for GWROP to hire a financial advisor, consultant, investment banker or any similar agent in
connection with any merger, acquisition, disposition, recapitalization, issuance of securities, financing or any similar transaction, it shall notify
Apollo of such determination. Promptly thereafter, upon the request of Apollo, the parties shall negotiate in good faith to agree upon appropriate
services, compensation and indemnification for GWROP to hire Apollo or its Affiliates for such services. GWROP may not hire any person, other
than Apollo or its Affiliates, for any services, unless (a) the parties are unable to agree after 30 days following receipt by Apollo of such notice,
(b) such other person has a reputation that is at least equal to the reputation of Apollo in respect of such services, (c) ten business days shall have
elapsed after GWROP provides a written notice to Apollo of its intention to hire such other person, which notice shall identify such other person
and shall describe in reasonable detail the nature of the services to be provided, the compensation to be paid and the indemnification to be
provided, (d) the compensation to be paid is not more than Apollo was willing to accept in the negotiations described above, and (e) the
indemnification to be provided is not more favorable to GWROP than the indemnification that Apollo was willing to accept in the negotiations
described above. In the absence of an express agreement to the contrary, subject to the limitations set forth in Section 4(c), at the closing of any
merger, acquisition or similar transaction, Apollo or its designee shall receive a fee equal to 1% of the aggregate enterprise value paid or provided
by GWROP, GWRI or Parent or any direct or indirect parent of Parent, as the case maybe or paid or provided to GWROP, GWRI or Parent or any
direct or indirect parent of Parent (including the aggregate value of (x) equity securities, warrants, rights and options acquired or retained,
(y) indebtedness acquired, assumed or refinanced and (z) any other consideration or compensation paid in connection with such transaction).
Section 6. Accuracy of Information.
GWROP shall furnish or cause to be furnished to Apollo and or its Affiliates such information as Apollo believes reasonably appropriate in
connection with providing the services contemplated by this Agreement and to comply with Securities and Exchange Commission or other legal
requirements relating to the beneficial ownership of equity securities of GWROP (all such information so furnished, the “Information”). GWROP
recognizes and confirms that Apollo and its Affiliates (a) will use and rely primarily on the Information and on information available from generally
recognized public sources in performing the services contemplated by this Agreement without independent verification, (b) do not assume
responsibility for the accuracy or completeness of the Information and such other information and (c) are entitled to rely upon the Information
without independent verification.
4
Section 7. GWRI Guarantee.
(a) GWRI hereby guarantees to Apollo and its Affiliates, subject to the limitations in Section 4(c), the payment and performance of GWROP’s
payment obligations hereunder (the “Guaranteed Obligations”). GWRI shall not have any obligation or liability under this Agreement except as
expressly set forth in this Section 7. The liability of GWRI under this Section 7 shall, to the fullest extent permitted under applicable Law, be
absolute and unconditional irrespective of:
(i) any change in the corporate existence, structure or ownership of GWROP or any insolvency, bankruptcy, reorganization, liquidation or
other similar proceeding of GWROP or affecting any of its assets;
(ii) any change in the manner, place or terms of payment or performance, or any change or extension of the time of payment or performance of,
renewal or alteration of, any Guaranteed Obligation, any liability incurred directly or indirectly in respect thereof, or any amendment or waiver of or
any consent to any departure from the terms hereof or the documents entered into in connection herewith or therewith, in each case, made in
accordance with the terms hereof or thereof;
(iii) the existence of any claim, set-off or other right that GWRI may have at any time against GWROP, whether in connection with any
Guaranteed Obligation or otherwise; or
(iv) any action or inaction on the part of Apollo and/or its Affiliates that is not in violation of the terms of this Agreement, including, without
limitation, the absence of any attempt to assert any claim or demand against GWROP or collect the Guaranteed Obligations from GWROP or GWRI.
(c) In the event that any payment to Apollo and/or its Affiliates in respect of any Guaranteed Obligation is rescinded or otherwise must be
and is returned to GWRI for any reason whatsoever, GWRI shall remain liable hereunder with respect to the Guaranteed Obligation on the terms
and subject to the conditions hereof as if such payment had not been made.
(d) GWRI hereby expressly waives any and all rights or defenses arising by reason of any law which would otherwise require any election of
remedies by Apollo and/or its Affiliates. GWRI waives promptness, diligence, notice of acceptance of this Agreement and of the Guaranteed
Obligations, presentment, demand for payment, notice of non-performance, default, dishonor and protest, notice of the incurrence of any
Guaranteed Obligations and all other notices of any kind (except for notices to be provided to Parent and in accordance with Section 8 hereof), all
defenses which may be available by virtue of any stay, moratorium law or other similar law now or hereafter in effect, any right to require the
marshalling of assets of GWROP or any other person interested in the transactions contemplated hereby, and all suretyship defenses generally
(other than fraud by Apollo or any of its Subsidiaries, defenses to the payment of the Guaranteed Obligations that are available to GWRI hereunder
or breach by Apollo of this Agreement). GWRI acknowledges that it will receive substantial direct and indirect benefits from consummation of the
transactions contemplated hereby and that the waivers set forth in this Section 7 are knowingly made in contemplation of such benefit.
5
Section 8. Notices.
All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed sufficient if personally delivered,
sent by nationally-recognized overnight courier, by telecopy, or by registered or certified mail, return receipt requested and postage prepaid,
addressed as follows:
if to Apollo, to:
Apollo Management VII, L.P.
9 West 57th Street, 43rd Floor
New York, New York
Telephone: (212) 515-3200
Telecopy: (212) 515-3267
Email: [email protected] and [email protected]
Attention: Scott I. Ross and John J. Suydam
With copy to (which shall not constitute notice)
Akin Gump Strauss Hauer & Feld LLP
One Bryant Park
New York, New York 10036
Telephone: (212) 872-8112
Telecopy: (212) 872-1002
Email: [email protected]
Attention: Adam Weinstein, Esq.
if to GWRI or GWROP, to it at:
Great Wolf Resorts, Inc.
525 Junction Road, Suite 6000 South
Madison, Wisconsin 53717
Telephone: (608) 251-6400
Telecopy: (608) 662-4281
Email: [email protected]
Attention: William J. Robinson, Esq.
or to such other address as the party to whom notice is to be given may have furnished to each other party in writing in accordance herewith. Any
such notice or communication shall be deemed to have been received (a) in the case of personal delivery, on the date of such delivery, (b) in the
case of nationally-recognized overnight courier, on the next business day after the date when sent, (c) in the case of telecopy transmission, when
received, and (d) in the case of mailing, on the third business day following that on which the piece of mail containing such communication is
posted.
6
Section 9. Benefits of Agreement.
This Agreement shall bind and inure to the benefit of Apollo, GWROP, GWRI, the Indemnified Persons and any successors to or assigns of
Apollo, GWRI and GWROP and; provided, however, that this Agreement may not be assigned by either party hereto without the prior written
consent of the other party, which consent will not be unreasonably withheld in the case of any assignment by Apollo.
Section 10. Governing Law.
This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York (without giving
effect to principles of conflicts of laws).
Section 11. Headings.
Section headings are used for convenience only and shall in no way affect the construction of this Agreement.
Section 12. Entire Agreement; Amendments.
This Agreement, along with the Expense Reimbursement and Indemnity Agreement dated as of or after the date hereof among GWROP,
GWRI and Apollo, contains the entire understanding of the parties with respect to its subject matter and supersede any and all prior agreements,
and neither it nor any part of it may in any way be altered, amended, extended, waived, discharged or terminated except by a written agreement
signed by each of the parties hereto.
Section 13. Counterparts.
This Agreement may be executed in counterparts, and each such counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement.
Section 14. Waivers.
Any party to this Agreement may, by written notice to the other party, waive any provision of this Agreement. The waiver by any party of a
breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach.
Section 15. Affiliates.
For purposes of this Agreement, the term “Affiliate,” means, with respect to any Person, any other Person that directly or indirectly controls,
is controlled by or is under common control with, such first Person; provided further that, with respect to Apollo, the term “Affiliate” shall include,
without limitation, Apollo Investment Fund VII, L.P., Apollo Overseas Partners VII, L.P.,
7
Apollo Overseas Partners (Delaware) VII, L.P., Apollo Overseas Partners (Delaware 892) VII, L.P., Apollo Investment Fund (PB) VII, L.P., AOP VII
(AIV III FC), L.P., AOP VII (AIV IV FC), L.P., AOP VII (AIV V FC), L.P., AOP VII (AIV VI FC), L.P., AOP VII (AIV VII FC), L.P., AOP (DE) VII (AIV
FC), L.P., and AOP (DE) VII (AIV II FC), L.P. (collectively, the “Funds”), Parent, K-9 Investors, L.P., the general partner of Apollo, the general
partner of each of the Funds and each person controlling, controlled by or under common control with any of the foregoing persons. For the
purposes of this definition, “control” (including, with correlative meanings, the terms “controlling,” “controlled by” and “under common control
with”), when used with respect to any Person, means the power to direct or cause the direction of the management or policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by contract or otherwise. For purposes of this Agreement, the term
“Person” means any natural person, corporation, company, partnership, association, limited liability company, limited partnership, limited liability
partnership, trust or other legal entity or organization, including a governmental authority.
[Signature Page Follows]
8
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written.
GWR OPERATING PARTNERSHIP, L.L.L.P.
By:
GWR OP General Partner, LLC
its General Partner
By:
Great Wolf Resorts, Inc.
its Sole Member
By:
/s/ Kimberly K. Schaefer
Name: Kimberly K. Schaefer
Title: Chief Executive Officer and President
GREAT WOLF RESORTS, INC.
By:
/s/ Kimberly K. Schaefer
Name: Kimberly K. Schaefer
Title: Chief Executive Officer and President
APOLLO MANAGEMENT VII, L.P.
By:
AIF Management, LLC,
its General partner
By:
/s/ Scott I. Ross
Name: Scott I. Ross
Title: Vice President
[Signature Page to Consulting Agreement]
(Back To Top)
Section 7: EX-10.19 (EX-10.19)
Exhibit 10.19
EXECUTION VERSION
Expense Reimbursement and Indemnity Agreement
EXPENSE REIMBURSEMENT AND INDEMNITY AGREEMENT dated as of August 13, 2012 (this “Agreement”), between GWR
OPERATING PARTNERSHIP, L.L.L.P., a Delaware Limited Liability Limited Partnership (“GWROP”), GREAT WOLF RESORTS, INC., a Delaware
Corporation (“GWRI”) and APOLLO MANAGEMENT VII, L.P., a Delaware limited partnership (“Apollo”).
GWROP, GWRI and Apollo have concurrently herewith entered into that certain Consulting Agreement dated as of the date hereof (the
“Consulting Agreement”). GWROP, GWRI and Apollo agree that it is in their respective best interests to enter into this Agreement. The board of
directors of GWRI, acting on GWRI’s behalf and in its capacity as the sole member of GWR OP General Partner, LLC, the general partner of
GWROP, has determined that this Agreement and the transactions contemplated hereby are customary and reasonable.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth, GWROP, GWRI and Apollo agree as follows:
Section 1. Term.
This Agreement shall commence effective as of May 4, 2012 and shall remain in effect until the termination of the Consulting Agreement (the
“Term”). In the event of termination or expiration of this Agreement in accordance with this Section 1, this Agreement shall immediately become
void and have no effect without any further liability or obligation on the part of any party hereto; provided, however, the following Sections shall
survive the termination of this Agreement: Sections 3 through 12 and any accrued but unpaid obligations of GWROP or GWRI to pay fees and or
expenses hereunder.
Section 2. Compensation.
(a) Expenses. Upon presentation by Apollo to GWROP of such documentation as may be reasonably requested by GWROP, GWROP
shall, subject to the limitations set forth in Section 2(b), reimburse Apollo (or its designee) for all out-of-pocket expenses, including, without
limitation, legal fees and expenses, and other disbursements incurred by Apollo, its Affiliates or any of Apollo’s or its Affiliates’ directors,
officers, employees or agents in the performance of Apollo’s obligations under the Consulting Agreement, whether incurred prior to, on, or
after the date hereof, including, without limitation, out-of-pocket expenses incurred in connection with the transactions contemplated by the
Merger Agreement dated March 12, 2012 by and among the GWRI, K-9 Acquisition Holdings, Inc., and K-9 Acquisition, Inc. (as amended,
restated, modified or supplemented from time to time, the “Merger Agreement”) and each of the documents referred to therein, to the extent
that such expenses related to the Merger Agreement were not paid or reimbursed by Parent prior to or in connection with the closing of the
transactions contemplated by the Merger Agreement (the “Expense Reimbursement”).
(b) Non-Payment. Notwithstanding anything in this Agreement to the contrary, any portion of fees, expenses or other amounts payable
to Apollo under this Agreement which GWROP is prohibited from paying to Apollo under any agreement or debt instrument shall be
deferred, shall accrue and shall be payable at the earliest time permitted under the applicable agreement or debt instrument, or upon the
payment in full of all obligations under such applicable debt instrument. GWROP shall notify Apollo of any payment prohibition on each date
on which GWROP would otherwise make a payment of fees under this Agreement.
(c) Non-Exclusive. Nothing in this Agreement (other than the limitations in Section 2(b) shall have the effect of prohibiting Apollo or
any of its Affiliates from receiving from GWROP or any of its subsidiaries or Affiliates any other fees.
Section 3. Indemnification.
(a) Indemnification by GWROP. GWROP will, subject to the limitations in Section 2(b), indemnify and hold harmless Apollo and its
Affiliates and each of their respective partners (both general and limited), members (both managing and otherwise), officers, directors,
employees, agents and representatives (each such person an “Indemnified Party”) from and against any and all losses, claims, damages and
liabilities, including in connection with seeking indemnification, whether joint or several (the “Liabilities”), related to, arising out of or in
connection with the services contemplated by this Agreement or the engagement of Apollo pursuant to, and the performance Apollo of the
services contemplated by, this Agreement, whether or not pending or threatened, whether or not an Indemnified Party is a party, whether or
not resulting in any liability and whether or not such action, claim, suit, investigation or proceeding is initiated or brought by GWROP.
GWROP will reimburse any Indemnified Party for all reasonable costs and expenses (including reasonable attorneys’ fees and expenses) as
they are incurred in connection with investigating, preparing, pursuing, defending or assisting in the defense of any action, claim, suit,
investigation or proceeding for which the Indemnified Party would be entitled to indemnification under the terms of the previous sentence, or
any action or proceeding arising therefrom, whether or not such Indemnified Party is a party thereto. GWROP will not be liable under the
foregoing indemnification provision with respect to any particular loss, claim, damage, liability, cost or expense of an Indemnified Party to the
extent that such is determined by a court, in a final judgment from which no further appeal may be taken, to have resulted primarily from the
willful misconduct of such Indemnified Party. The attorneys’ fees and other expenses of an Indemnified Party shall be paid by GWROP as
they are incurred upon receipt, in each case, of an undertaking by or on behalf of the Indemnified Party to repay such amounts if it is finally
judicially determined that the Liabilities in question resulted primarily from the willful misconduct of such Indemnified Party.
(b) Indemnitor of First Resort. GWROP hereby acknowledges that certain Indemnified Parties may have certain rights to indemnification,
advancement of expenses and/or insurance provided by certain of their Affiliates (collectively, the “Fund Indemnitors”), or otherwise.
GWROP hereby agrees (i) that it is the indemnitor of first resort (i.e., its obligations to an Indemnified Party are primary and any third party’s
2
obligation to provide indemnification for the Losses incurred by such Indemnified Party are secondary), (ii) that, subject to the limitations in
Section 2(b), it shall be required to advance the full amount of expenses incurred by an Indemnified Party and shall be liable for the full
amount of all Losses to the extent legally permitted and as required by the terms of this Agreement, and GWROP’s certificate of limited
partnership and agreement of limited partnership, without regard to any rights an Indemnified Party may have against third parties, and
(iii) that it irrevocably waives, relinquishes and releases the Fund Indemnitors from any and all claims against the Fund Indemnitors for
contribution, subrogation or any other recovery of any kind in respect thereof. GWROP further agrees that no advancement or payment by
the Fund Indemnitors on behalf of an Indemnified Party with respect to any claim for which such Indemnified Party has sought
indemnification from GWROP shall affect the foregoing, and the Fund Indemnitors shall have a right of contribution and/or be subrogated to
the extent of such advancement or payment to all of the rights of recovery of such Indemnified Party against GWROP. GWROP and each
Indemnified Party agree that the Fund Indemnitors are express third party beneficiaries of this Section 3.
Section 4. GWRI Guarantee
(a) GWRI hereby guarantees to Apollo, subject to the limitations in Section 2(b), the payment and performance of GWROP’s payment
obligations hereunder (the “Guaranteed Obligations”). GWRI shall not have any obligation or liability under this Agreement except as expressly set
forth in this Section 4. The liability of GWRI under this Section 4 shall, to the fullest extent permitted under applicable Law, be absolute and
unconditional irrespective of:
(i) any change in the corporate existence, structure or ownership of GWROP or any insolvency, bankruptcy, reorganization, liquidation or
other similar proceeding of GWROP or affecting any of its assets;
(ii) any change in the manner, place or terms of payment or performance, or any change or extension of the time of payment or performance of,
renewal or alteration of, any Guaranteed Obligation, any liability incurred directly or indirectly in respect thereof, or any amendment or waiver of or
any consent to any departure from the terms hereof or the documents entered into in connection herewith or therewith, in each case, made in
accordance with the terms hereof or thereof;
(iii) the existence of any claim, set-off or other right that GWRI may have at any time against GWROP, whether in connection with any
Guaranteed Obligation or otherwise; or
(iv) any action or inaction on the part of Apollo that is not in violation of the terms of this Agreement, including, without limitation, the
absence of any attempt to assert any claim or demand against GWROP or collect the Guaranteed Obligations from GWROP or GWRI.
(c) In the event that any payment to Apollo in respect of any Guaranteed Obligation is rescinded or otherwise must be and is returned to
GWRI for any reason whatsoever, GWRI shall remain liable hereunder with respect to the Guaranteed Obligation on the terms and subject to the
conditions hereof as if such payment had not been made.
3
(d) GWRI hereby expressly waives any and all rights or defenses arising by reason of any law which would otherwise require any election of
remedies by Apollo. GWRI waives promptness, diligence, notice of acceptance of this Agreement and of the Guaranteed Obligations, presentment,
demand for payment, notice of non-performance, default, dishonor and protest, notice of the incurrence of any Guaranteed Obligations and all other
notices of any kind (except for notices to be provided to K-9 Holdings, Inc. (“Parent”) and in accordance with Section 4 hereof), all defenses which
may be available by virtue of any stay, moratorium law or other similar law now or hereafter in effect, any right to require the marshalling of assets
of GWROP or any other person interested in the transactions contemplated hereby, and all suretyship defenses generally (other than fraud by
Apollo or any of its Subsidiaries, defenses to the payment of the Guaranteed Obligations that are available to GWRI hereunder or breach by Apollo
of this Agreement). GWRI acknowledges that it will receive substantial direct and indirect benefits from consummation of the transactions
contemplated hereby and that the waivers set forth in this Section 4 are knowingly made in contemplation of such benefit.
Section 5. Notices.
All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed sufficient if personally delivered,
sent by nationally-recognized overnight courier, by telecopy, or by registered or certified mail, return receipt requested and postage prepaid,
addressed as follows:
if to Apollo, to:
Apollo Management VII, L.P.
9 West 57th Street, 43rd Floor
New York, New York
Telephone: (212) 515-3200
Telecopy: (212) 515-3267
Email: [email protected] and [email protected]
Attention: Scott I. Ross and John J. Suydam
With copy to (which shall not constitute notice)
Akin Gump Strauss Hauer & Feld LLP
One Bryant Park
New York, New York 10036
Telephone: (212) 872-8112
Telecopy: (212) 872-1002
Email: [email protected]
Attention: Adam Weinstein, Esq.
4
if to GWRI or GWROP, to it at:
Great Wolf Resorts, Inc.
525 Junction Road, Suite 6000 South
Madison, Wisconsin 53717
Telephone: (608) 251-6400
Telecopy: (608) 662-4281
Email: [email protected]
Attention: William J. Robinson, Esq.
or to such other address as the party to whom notice is to be given may have furnished to each other party in writing in accordance herewith. Any
such notice or communication shall be deemed to have been received (a) in the case of personal delivery, on the date of such delivery, (b) in the
case of nationally-recognized overnight courier, on the next business day after the date when sent, (c) in the case of telecopy transmission, when
received, and (d) in the case of mailing, on the third business day following that on which the piece of mail containing such communication is
posted.
Section6. Benefits of Agreement.
This Agreement shall bind and inure to the benefit of Apollo, GWROP, GWRI, the Indemnified Persons and any successors to or assigns of
Apollo, GWRI and GWROP and, with respect to Section 3(b), the Fund Indemnitors; provided, however, that this Agreement may not be assigned
by either party hereto without the prior written consent of the other party, which consent will not be unreasonably withheld in the case of any
assignment by Apollo.
Section7. Governing Law.
This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York (without giving
effect to principles of conflicts of laws).
Section8. Headings.
Section headings are used for convenience only and shall in no way affect the construction of this Agreement.
Section9. Entire Agreement; Amendments.
This Agreement, along with the Consulting Agreement, contains the entire understanding of the parties with respect to its subject matter and
supersedes any and all prior agreements, and neither it nor any part of it may in any way be altered, amended, extended, waived, discharged or
terminated except by a written agreement signed by each of the parties hereto.
Section10. Counterparts.
This Agreement may be executed in counterparts, and each such counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement.
5
Section 11. Waivers.
Any party to this Agreement may, by written notice to the other party, waive any provision of this Agreement. The waiver by any party of a
breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach.
Section 12. Affiliates.
For purposes of this Agreement, the term “Affiliate,” means, with respect to any Person, any other Person that directly or indirectly controls,
is controlled by or is under common control with, such first Person; provided further that with respect to Apollo, the term “Affiliate,” shall include,
without limitation, Apollo Investment Fund VII, L.P., Apollo Overseas Partners VII, L.P., Apollo Overseas Partners (Delaware) VII, L.P., Apollo
Overseas Partners (Delaware 892) VII, L.P., Apollo Investment Fund (PB) VII, L.P., AOP VII (AIV III FC), L.P., AOP VII (AIV IV FC), L.P., AOP VII
(AIV V FC), L.P., AOP VII (AIV VI FC), L.P., AOP VII (AIV VII FC), L.P., AOP (DE) VII (AIV FC), L.P., and AOP (DE) VII (AIV II FC), L.P.
(collectively, the “Funds”), Parent, K-9 Investors, L.P., the general partner of Apollo, the general partner of each of the Funds and each person
controlling, controlled by or under common control with any of the foregoing persons. For the purposes of this definition, “control” (including,
with correlative meanings, the terms “controlling,” “controlled by” and “under common control with”), when used with respect to any Person,
means the power to direct or cause the direction of the management or policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise. For purposes of this Agreement, the term “Person” means any natural person,
corporation, company, partnership, association, limited liability company, limited partnership, limited liability partnership, trust or other legal entity
or organization, including a governmental authority.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written.
GWR OPERATING PARTNERSHIP, L.L.L.P.
By:
GWR OP General Partner, LLC
its General Partner
By:
Great Wolf Resorts, Inc.
its Sole Member
By:
Name:
Title:
/s/ Kimberly K. Schaefer
Kimberly K. Schaefer
Chief Executive Officer and President
GREAT WOLF RESORTS, INC.
By:
Name:
Title:
/s/ Kimberly K. Schaefer
Kimberly K. Schaefer
Chief Executive Officer and President
APOLLO MANAGEMENT VII, L.P.
By:
AIF Management, LLC,
its General partner
By:
Name:
Title:
/s/ Scott I. Ross
Scott I. Ross
Vice President
[Signature Page to Expense Reimbursement and Indemnity Agreement]
(Back To Top)
Section 8: EX-10.20 (EX-10.20)
Exhibit 10.20
EXECUTION COPY
K-9 HOLDINGS, INC.
2012 EQUITY INCENTIVE PLAN
1. Purpose. The purpose of the K-9 Holdings, Inc. 2012 Equity Incentive Plan is to provide a means through which the Company and its
Affiliates may attract and retain key personnel and to provide a means whereby directors, officers, employees, consultants and advisors (and
prospective directors, officers, employees, consultants and advisors) of the Company and its Affiliates can acquire and maintain an equity interest
in the Company, or be paid incentive compensation, which may (but need not) be measured by reference to the value of Common Stock, thereby
strengthening their commitment to the welfare of the Company and its Affiliates and aligning their interests with those of the Company’s
stockholders.
2. Definitions. The following definitions shall be applicable throughout the Plan:
(a) “Affiliate” means (i) with respect to any person or entity (including, without limitation, the Company), any person or entity that
directly or indirectly controls, is controlled by or is under common control with such person or entity and/or (ii) with respect to the Company, to the
extent provided by the Committee, any person or entity in which the Company has a significant interest. The term “control” (including, with
correlative meaning, the terms “controlled by” and “under common control with”), as applied to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting or
other securities, by contract or otherwise.
(b) “Award” means, individually or collectively, any Incentive Stock Option, Nonqualified Stock Option, Stock Appreciation Right,
Restricted Stock, Restricted Stock Unit, Stock Bonus Award, and Performance Compensation Award granted under the Plan.
(c) “Board” means the Board of Directors of the Company.
(d) “Cause” means, in the case of a particular Award, unless the applicable Award agreement states otherwise, (i) the Company or any
of its Affiliates having “cause” to terminate a Participant’s employment or service, as defined in any employment or consultingor similar agreement
between the Participant and the Company or any of its Affiliates in effect at the time of such termination or (ii) in the absence of any such
employment or consulting or similar agreement (or the absence of any definition of “Cause” contained therein), (A) the Participant’s commission of,
conviction for, plea of guilty or nolo contendere to a felony or a crime involving moral turpitude, or other material act or omission involving
dishonesty or fraud, (B) the Participant’s conduct that results in or is reasonably likely to result in harm to the reputation or business of the
Company or any of its Affiliates in any material way, (C) the Participant’s failure to perform duties as reasonably directed by the Company or the
Participant’s material violation of any rule, regulation, policy or plan for the conduct of any service provider to the Company or its Affiliates or its
or their business (which, if curable, is not cured within ten (10) days after notice thereof is provided to the Participant) or (D) the Participant’s gross
negligence, willful malfeasance or material act of disloyalty with respect to the Company or its Affiliates (which, if curable, is not cured within 10
days after notice thereof is provided to the Participant). Any determination of whether Cause exists shall be made by the Committee in its sole
discretion.
(e) “Capital Stock” means any and all shares of, interests and participations in, and other equivalents (however designated) of stock,
including, without limitation, all Common Stock and preferred stock.
(f) “Change in Control” shall, in the case of a particular Award, unless the applicable Award agreement states otherwise or contains a
different definition of “Change in Control,” be deemed to occur upon:
(i) the consummation of a Sale of the Company; or
(ii) any transaction or series of related transactions in which the Investor sells at least 50% of the Common Stock directly or
indirectly acquired by it (from the Company or otherwise) and at least 50% of the aggregate of all Investor Investments; provided, that, any
acquisition by an Excluded Entity shall not be deemed to result in a Change in Control.
(g) “Code” means the Internal Revenue Code of 1986, as amended, and any successor thereto. Reference in the Plan to any section of
the Code shall be deemed to include any regulations or other interpretative guidance under such section, and any amendments or successor
provisions to such section, regulations or guidance.
(h) “Committee” means a committee of at least two people as the Board may appoint to administer the Plan or, if no such committee has
been appointed by the Board, the Board.
(i) “Common Stock” means the voting and non-voting shares of common stock, par value $0.0001 per share, of the Company (and any
stock or other securities into which such shares of common stock may be converted or into which they may be exchanged).
(j) “Company” means K-9 Holdings, Inc.
(k) “Date of Grant” means the date on which the granting of an Award is authorized, or such other date as may be specified in such
authorization.
(l) “Effective Date” means the date as of which this Plan is adopted by the Board.
(m) “Eligible Director” means a person who is a “non-employee director” within the meaning of Rule 16b-3 under the Exchange Act.
(n) “Eligible Person” means any (i) individual employed by the Company or any of its Affiliates; provided, however, that no such
employee covered by a collective bargaining agreement shall be an Eligible Person unless and to the extent that such eligibility is set forth in such
collective bargaining agreement or in an agreement or instrument relating thereto; (ii) director of the Company or any of its Affiliates; (iii) consultant
or advisor to the Company or any of its Affiliates, provided that if the Securities Act applies such persons must be
2
eligible to be offered securities registrable on Form S-8 under the Securities Act; or (iv) prospective employees, directors, officers, consultants or
advisors who have accepted offers of employment or consultancy from the Company or any of its Affiliates (and would satisfy the provisions of
clauses (i) through (iii) above once he or she begins employment with or begins providing services to the Company or any of its Affiliates).
(o) “Exchange Act” means the Securities Exchange Act of 1934, as amended. Any reference in the Plan to any section of (or rule
promulgated under) the Exchange Act shall be deemed to include any rules, regulations or other interpretative guidance under such section or rule,
and any amendments or successor provisions to such section, rules, regulations or guidance.
(p) “Excluded Entity” means the Investor, the Company and any Affiliate of any of the foregoing.
(q) “Exercise Price” has the meaning given such term in Section 7(b) of the Plan.
(r) “Fair Market Value” means, as of any date, the value of Common Stock determined as follows:
(i) If the shares of Common Stock are listed on any established stock exchange or a national market system will be the closing
sales price for such shares (or the closing bid, if no sales were reported) as quoted on such exchange or system on the day of determination, as
reported in The Wall Street Journal or such other source as the Committee deems reliable;
(ii) If the shares of Common Stock are regularly quoted by a recognized securities dealer but selling prices are not reported, the
Fair Market Value of a share of Common Stock will be the mean between the high bid and low asked prices for the shares of Common Stock on the
day of determination, as reported in The Wall Street Journal or such other source as the Committee deems reliable; or
(iii) In the absence of an established market for the Common Stock, the Fair Market Value will be determined in good faith by the
Committee in accordance with Section 409A of the Code.
(s) “Immediate Family Members” shall have the meaning set forth in Section 15(b).
(t) “Incentive Stock Option” means an Option that is designated by the Committee as an incentive stock option as described in
Section 422 of the Code and otherwise meets the requirements set forth in the Plan.
(u) “Indemnifiable Person” shall have the meaning set forth in Section 4(e) of the Plan.
(v) “Independent Third Party” means any Person other than the Investor, the Company and any Affiliate of any of the foregoing.
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(w) “Investor” means Apollo Investment Fund VII, L.P., each of its Affiliates and any other investment fund or vehicle managed by
Apollo Management VII, L.P. or any of its Affiliates (including any successors or assigns of any such manager).
(x) “Investor Investment” means direct or indirect investments in shares of Common Stock or other Capital Stock of the Company made
by the Investor on or after May 4, 2012, but excluding any purchases or repurchases of shares of Common Stock on any securities exchange or any
national market system after an initial Public Offering. The term “Investor Investment” excludes any investment originally made by the Investor in a
Person other than the Company or any of its Subsidiaries.
(y) “Investor IRR” means the pretax compounded annual internal rate of return calculated on a quarterly basis realized by the Investor
on the Investor Investment, based on the aggregate amount invested by the Investor for all Investor Investments and the aggregate amount of
cash received by, and any securities received by the Investor as a return on the Investor Investment that have been distributed to investors in
investment funds managed by Apollo Management VII, L.P. or any of its Affiliates (“Distributed Securities”) that were distributed to, the Investor
in respect of all Investor Investments, assuming all Investor Investments were purchased by one Person and were held continuously by such
Person. The Investor IRR shall be determined based on the actual time of each Investor Investment and actual cash received by, and Distributed
Securities distributed to, the Investor in respect of all Investor Investments and including, as a return on each Investor Investment, any cash
dividends, cash distributions, cash sales or cash interest made by the Company or any of its Subsidiaries in respect of such Investor Investment
during such period, but excluding any other amounts payable that are not directly attributable to an Investor Investment and excluding any
management fees. For purposes of determining Investor IRR in respect of Distributed Securities, the fair market value of those securities on the date
on which the Distributed Securities are distributed shall be used for purposes of calculating the annual internal rate of return, and such date shall
be deemed the date on which the return on the Investor Investment was received by the Investor.
(z) “Investor Rights Agreement” mean that certain Investor Rights Agreement, dated August 13, 2012, by and among the Company and
the stockholders of the Company, as may be amended from time to time.
(aa) “Mature Shares” means shares of Common Stock owned by a Participant that are not subject to any pledge or security interest and
that have been either previously acquired by the Participant on the open market or meet such other requirements, if any, as the Committee may
determine are necessary in order to avoid an accounting earnings charge on account of the use of such shares to pay the Exercise Price or satisfy a
withholding obligation of the Participant.
(bb) “MOIC” shall mean the return to the Investor on the Investor Investment of a multiple of the Investor Investment at any date for
determination thereof determined by dividing (i) the aggregate amount of cash received by, and any securities received by the Investor as a return
on the Investor Investment that have been distributed to investors in investment funds managed by Apollo Management VII, L.P. or any of its
Affiliates that were distributed to, the Investor in respect of all Investor Investments, assuming all Investor Investments were purchased by one
Person and were held continuously by such Person, on or prior to the date of such determination by (ii) the aggregate amount invested by the
Investor for all Investor Investments.
4
(cc) “Negative Discretion” shall mean the discretion authorized by the Plan to be applied by the Committee to eliminate or reduce the
size of a Performance Compensation Award.
(dd) “Nonqualified Stock Option” means an Option that is not designated by the Committee as an Incentive Stock Option.
(ee) “Option” means an Award granted under Section 7 of the Plan.
(ff) “Option Period” has the meaning given such term in Section 7(c) of the Plan.
(gg) “Participant” means an Eligible Person who has been selected by the Committee to participate in the Plan and to receive an Award
pursuant to Section 6 of the Plan.
(hh) “Performance Compensation Award” shall mean any Award designated by the Committee as a Performance Compensation Award
pursuant to Section 11 of the Plan.
(ii) “Performance Criteria” shall mean the criterion or criteria that the Committee shall select for purposes of establishing the
Performance Goal(s) for a Performance Period with respect to any Performance Compensation Award under the Plan.
(jj) “Performance Formula” shall mean, for a Performance Period, the one or more objective formulae applied against the relevant
Performance Goal to determine, with regard to the Performance Compensation Award of a particular Participant, whether all, some portion but less
than all, or none of the Performance Compensation Award has been earned for the Performance Period.
(kk) “Performance Goals” shall mean, for a Performance Period, the one or more goals established by the Committee for the
Performance Period based upon the Performance Criteria.
(ll) “Performance Period” shall mean the one or more periods of time, as the Committee may select, over which the attainment of one or
more Performance Goals will be measured for the purpose of determining a Participant’s right to, and the payment of, a Performance Compensation
Award.
(mm) “Permitted Transferee” shall have the meaning set forth in Section 15(b) of the Plan.
(nn) “Person” means “person” as such term is used in Section 13(d) or 14(d) of the Exchange Act.
(oo) “Plan” means this K-9 Holdings, Inc. 2012 Equity Incentive Plan.
5
(pp) “Public Offering” means the closing of a public offering of shares of Common Stock pursuant to a registration statement declared
effective under the Securities Act, except that a Public Offering shall not include (i) an offering made primarily pursuant to a registration statement
on Form S-4 in connection with a business combination or on Form S-8 in connection with an employee benefit plan of the Company or made
primarily to employees or consultants of the Company; or (ii) an offering of 10% or less of the then outstanding shares of Common Stock.
(qq) “Restricted Period” means the period of time determined by the Committee during which an Award is subject to restrictions or, as
applicable, the period of time within which performance is measured for purposes of determining whether an Award has been earned.
(rr) “Restricted Stock Unit” means an unfunded and unsecured promise to deliver shares of Common Stock, cash, other securities or
other property, subject to certain restrictions (including, without limitation, a requirement that the Participant remain continuously employed or
provide continuous services for a specified period of time), granted under Section 9 of the Plan.
(ss) “Restricted Stock” means shares of Common Stock, subject to certain specified restrictions (including, without limitation, a
requirement that the Participant remain continuously employed or provide continuous services for a specified period of time), granted under
Section 9 of the Plan.
(tt) “Sale of the Company” means the sale of the Company to one or more Independent Third Parties, pursuant to which such party or
parties acquire (i) Capital Stock of the Company possessing the voting power to elect a majority of the Board (whether by merger, consolidation,
recapitalization or sale or transfer of the Company’s Capital Stock or otherwise); or (ii) all or substantially all of the Company’s assets determined
on a consolidated basis; provided, that, any acquisition by an Excluded Entity shall not be deemed to result in a Sale of the Company.
(uu) “SAR Period” has the meaning given such term in Section 8(c) of the Plan.
(vv) “Securities Act” means the Securities Act of 1933, as amended, and any successor thereto. Reference in the Plan to any section of
the Securities Act shall be deemed to include any rules, regulations or other interpretative guidance under such section, and any amendments or
successor provisions to such section, rules, regulations or guidance.
(ww) “Stock Appreciation Right” or “SAR” means an Award granted under Section 8 of the Plan.
(xx) “Stock Bonus Award” means an Award granted under Section 10 of the Plan.
(yy) “Strike Price” means, except as otherwise provided by the Committee in the case of Substitute Awards, (i) in the case of a SAR
granted in tandem with an Option, the Exercise Price of the related Option, or (ii) in the case of a SAR granted independent of an Option, the Fair
Market Value on the Date of Grant.
6
(zz) “Subsidiary” means, with respect to the Company:
(1) any corporation, association or other business entity of which more than 50% of the total voting power of shares of capital
stock (without regard to the occurrence of any contingency and after giving effect to any voting agreement or stockholders’ agreement that
effectively transfers voting power) to vote in the election of directors, managers, respresentatives or trustees thereof is at the time owned or
controlled, directly or indirectly, by the Company or one or more of the Company’s other Subsidiaries (or a combination thereof); and
(2) any partnership (or any comparable foreign entity) (a) the sole general partner (or functional equivalent thereof) or the
managing general partner of which is the Company or one of the Company’s other Subsidiaries or (b) the only general partners (or functional
equivalents thereof) of which are the Company or one or more Subsidiaries of that Person (or any combination thereof).
(aaa) “Substitute Award” has the meaning given such term in Section 5(e).
3. Effective Date; Duration. The Plan shall be effective as of the Effective Date. The expiration date of the Plan, on and after which date no
Awards may be granted hereunder, shall be the tenth anniversary of the Effective Date; provided, however, that such expiration shall not affect
Awards then outstanding, and the terms and conditions of the Plan shall continue to apply to such Awards.
4. Administration. (a) The Committee shall administer the Plan. To the extent required to comply with the provisions of Rule 16b-3
promulgated under the Exchange Act (if the Board is not acting as the Committee under the Plan), it is intended that each member of the Committee
shall, at the time he takes any action with respect to an Award under the Plan, be an Eligible Director. However, the fact that a Committee member
shall fail to qualify as an Eligible Director shall not invalidate any Award granted by the Committee that is otherwise validly granted under the Plan.
The acts of a majority of the members present at any meeting at which a quorum is present or acts approved in writing by a majority of the
Committee shall be deemed the acts of the Committee. Whether a quorum is present shall be determined based on the Committee’s charter as
approved by the Board.
(b) Subject to the provisions of the Plan and applicable law, the Committee shall have the sole and plenary authority, in addition to
other express powers and authorizations conferred on the Committee by the Plan, to: (i) designate Participants; (ii) determine the type or types of
Awards to be granted to a Participant; (iii) determine the number of shares of Common Stock to be covered by, or with respect to which payments,
rights, or other matters are to be calculated in connection with, Awards; (iv) determine the terms and conditions of any Award; (v) determine
whether, to what extent, and under what circumstances Awards may be settled or exercised in cash, shares of Common Stock, other securities, other
Awards or other property, or canceled, forfeited, or suspended and the method or methods by which Awards may be settled,
7
exercised, canceled, forfeited, or suspended; (vi) determine whether, to what extent, and under what circumstances the delivery of cash, shares of
Common Stock, other securities, other Awards or other property and other amounts payable with respect to an Award shall be deferred either
automatically or at the election of the Participant or of the Committee; (vii) interpret, administer, reconcile any inconsistency in, correct any defect in
and/or supply any omission in the Plan and any instrument or agreement relating to, or Award granted under, the Plan; (viii) establish, amend,
suspend, or waive any rules and regulations and appoint such agents as the Committee shall deem appropriate for the proper administration of the
Plan; (ix) accelerate the vesting or exercisability of, payment for or lapse of restrictions on, Awards; and (x) make any other determination and take
any other action that the Committee deems necessary or desirable for the administration of the Plan.
(c) The Committee may delegate to one or more officers of the Company or any of its Affiliates the authority to act on behalf of the
Committee with respect to any matter, right, obligation, or election that is the responsibility of or that is allocated to the Committee herein, and that
may be so delegated as a matter of law, except for grants of Awards to persons subject to Section 16 of the Exchange Act.
(d) Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations, and other decisions under or with
respect to the Plan or any Award or any documents evidencing Awards granted pursuant to the Plan shall be within the sole discretion of the
Committee, may be made at any time and shall be final, conclusive and binding upon all persons or entities, including, without limitation, the
Company, any Affiliate of the Company, any Participant, any holder or beneficiary of any Award, and any stockholder of the Company.
(e) No member of the Board, member of the Committee, delegate of the Committee or any employee or agent of the Company (each such
person, an “Indemnifiable Person”) shall be liable for any action taken or omitted to be taken or any determination made in good faith with respect
to the Plan or any Award hereunder. Each Indemnifiable Person shall be indemnified and held harmless by the Company against and from any loss,
cost, liability, or expense (including attorneys’ fees) that may be imposed upon or incurred by such Indemnifiable Person in connection with or
resulting from any action, suit or proceeding to which such Indemnifiable Person may be a party or in which such Indemnifiable Person may be
involved by reason of any action taken or omitted to be taken under the Plan or any Award agreement and against and from any and all amounts
paid by such Indemnifiable Person with the Company’s approval, in settlement thereof, or paid by such Indemnifiable Person in satisfaction of any
judgment in any such action, suit or proceeding against such Indemnifiable Person, provided, that the Company shall have the right, at its own
expense, to assume and defend any such action, suit or proceeding and once the Company gives notice of its intent to assume the defense, the
Company shall have sole control over such defense with counsel of the Company’s choice. The foregoing right of indemnification shall not be
available to an Indemnifiable Person to the extent that a final judgment or other final adjudication (in either case not subject to further appeal)
binding upon such Indemnifiable Person determines that the acts or omissions of such Indemnifiable Person giving rise to the indemnification claim
resulted from such Indemnifiable Person’s bad faith, fraud or willful criminal act or omission or that such right of indemnification is otherwise
prohibited by law or by the Company’s Certificate of Incorporation or Bylaws. The
8
foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such Indemnifiable Persons may be entitled
under the Company’s Certificate of Incorporation or Bylaws, as a matter of law, or otherwise, or any other power that the Company may have to
indemnify such Indemnifiable Persons or hold them harmless.
(f) Notwithstanding anything to the contrary contained in the Plan, the Board may, in its sole discretion, at any time and from time to
time, grant Awards and administer the Plan with respect to such Awards. In any such case, the Board shall have all the authority granted to the
Committee under the Plan.
5. Grant of Awards; Shares Subject to the Plan; Limitations. (a) The Committee may, from time to time, grant Options, Stock
Appreciation Rights, Restricted Stock, Restricted Stock Units, Stock Bonus Awards and/or Performance Compensation Awards to one or more
Eligible Persons.
(b) Awards granted under the Plan shall be subject to the following limitations: (i) subject to Section 12 of the Plan, the Committee is
authorized to deliver under the Plan 2,436,182 shares of Common Stock and (ii) with respect to Incentive Stock Options, no more than 2,436,182
shares of Common Stock may be awarded to any single Participant during any single calendar year.
(c) Use of shares of Common Stock to pay the required Exercise Price or tax obligations, or that are used or withheld to satisfy tax
obligations of the Participant shall, notwithstanding anything herein to the contrary, not be available again for other Awards under the Plan. Shares
underlying Awards under this Plan that are forfeited, cancelled, expire unexercised, or are settled in cash are available again for Awards under the
Plan.
(d) Shares of Common Stock delivered by the Company in settlement of Awards may be authorized and unissued shares, shares held in
the treasury of the Company, shares purchased on the open market or by private purchase, or a combination of the foregoing.
(e) Awards may, in the sole discretion of the Committee, be granted under the Plan in assumption of, or in substitution for, outstanding
awards previously granted by an entity acquired by the Company or with which the Company combines (“Substitute Awards”) to a person would
otherwise be an Eligible Person following the closing of such acquisition or combination. The number of shares of Common Stock underlying any
Substitute Awards shall be counted against the aggregate number of shares of Common Stock available for Awards under the Plan.
6. Eligibility. Participation shall be limited to Eligible Persons who have entered into an Award agreement or who have received written
notification from the Committee, or from a person designated by the Committee, that they have been selected to participate in the Plan.
7. Options. (a) Generally. Each Option granted under the Plan shall be evidenced by an Award agreement (whether in paper or electronic
medium (including email or the posting on a web site maintained by the Company or a third party under contract with the Company)). Each Option
so granted shall be subject to the conditions set forth in this Section 7, and to such other conditions not inconsistent with the Plan as may be
reflected in the applicable Award
9
agreement. All Options granted under the Plan shall be Nonqualified Stock Options unless the applicable Award agreement expressly states that
the Option is intended to be an Incentive Stock Option. Incentive Stock Options shall be granted only to Eligible Persons who are employees of the
Company and its Affiliates, and no Incentive Stock Option shall be granted to any Eligible Person who is ineligible to receive an Incentive Stock
Option under the Code. No Option shall be treated as an Incentive Stock Option unless the Plan has been approved by the stockholders of the
Company in a manner intended to comply with the stockholder approval requirements of Section 422(b)(1) of the Code, provided that any Option
intended to be an Incentive Stock Option shall not fail to be effective solely on account of a failure to obtain such approval, but rather such Option
shall be treated as a Nonqualified Stock Option unless and until such approval is obtained. In the case of an Incentive Stock Option, the terms and
conditions of such grant shall be subject to and comply with such rules as may be prescribed by Section 422 of the Code. If for any reason an
Option intended to be an Incentive Stock Option (or any portion thereof) shall not qualify as an Incentive Stock Option, then, to the extent of such
nonqualification, such Option or portion thereof shall be regarded as a Nonqualified Stock Option appropriately granted under the Plan.
(b) Exercise Price. The exercise price (“Exercise Price”) per share of Common Stock for each Option shall not be less than 100% of the
Fair Market Value of such share determined as of the Date of Grant; provided, however, that in the case of an Incentive Stock Option granted to an
employee who, at the time of the grant of such Option, owns shares representing more than 10% of the voting power of all classes of shares of the
Company or any of its Affiliates, the Exercise Price per share shall not be less than 110% of the Fair Market Value per share on the Date of Grant
and provided further that, notwithstanding any provision herein to the contrary, the Exercise Price shall not be less than the par value per share of
Common Stock.
(c) Vesting and Expiration. Options shall vest and become exercisable in such manner and on such date or dates determined by the
Committee and shall expire after such period, not to exceed ten years, as may be determined by the Committee (the “Option Period”); provided,
however, that the Option Period shall not exceed five years from the Date of Grant in the case of an Incentive Stock Option granted to a Participant
who on the Date of Grant owns shares representing more than 10% of the voting power of all classes of shares of the Company or any of its
Affiliates; provided, further, that notwithstanding any vesting dates set by the Committee, the Committee may, in its sole discretion, accelerate the
exercisability of any Option, which acceleration shall not affect the terms and conditions of such Option other than with respect to exercisability.
Unless otherwise provided by the Committee in an Award agreement: (i) an Option shall vest and become exercisable with respect to 100% of the
shares of Common Stock subject to such Option on the third anniversary of the Date of Grant; (ii) the unvested portion of an Option shall expire
upon termination of employment or service of the Participant granted the Option, and the vested portion of such Option shall remain exercisable for
(A) one year following termination of employment or service by reason of such Participant’s death or disability (as determined by the Committee),
but not later than the expiration of the Option Period or (B) 90 days following termination of employment or service for any reason other than such
Participant’s death or disability, and other than such Participant’s termination of employment or service for Cause, but not later than the expiration
of the Option Period; and (iii) both the unvested and the vested portion of an Option shall expire upon the termination of the Participant’s
employment or service by the Company or any of its Affiliates for Cause.
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(d) Method of Exercise and Form of Payment. No shares of Common Stock shall be delivered pursuant to any exercise of an Option
until payment in full of the Exercise Price therefor is received by the Company and the Participant has paid to the Company an amount equal to any
federal, state, local and non-U.S. income and employment taxes required to be withheld. Options that have become exercisable may be exercised by
delivery of written or electronic notice of exercise to the Company in accordance with the terms of the Option accompanied by payment of the
Exercise Price. The Exercise Price shall be payable (i) in cash, check, cash equivalent and/or shares of Common Stock valued at the fair market value
at the time the Option is exercised (including, pursuant to procedures approved by the Committee, by means of attestation of ownership of a
sufficient number of shares of Common Stock in lieu of actual delivery of such shares to the Company); provided, that such shares are Mature
Shares and; (ii) by such other method as the Committee may permit in accordance with applicable law, in its sole discretion, including without
limitation: (A) in other property having a fair market value on the date of exercise equal to the Exercise Price or (B) if there is a public market for the
Common Stock at such time, by means of a broker-assisted “cashless exercise” pursuant to which the Company is delivered a copy of irrevocable
instructions to a stockbroker to sell the shares of Common Stock otherwise deliverable upon the exercise of the Option and to deliver promptly to
the Company an amount equal to the Exercise Price or (C) by a “net exercise” method whereby the Company withholds from the delivery of the
shares of Common Stock for which the Option was exercised that number of shares of Common Stock having a fair market value equal to the
aggregate Exercise Price for the shares of Common Stock for which the Option was exercised. Any fractional shares of Common Stock shall be
settled in cash.
(e) Notification upon Disqualifying Disposition of an Incentive Stock Option. Each Participant awarded an Incentive Stock Option
under the Plan shall notify the Company in writing immediately after the date he makes a disqualifying disposition of any shares of Common Stock
acquired pursuant to the exercise of such Incentive Stock Option. A disqualifying disposition is any disposition (including, without limitation, any
sale) of such shares of Common Stock before the later of (A) two years after the Date of Grant of the Incentive Stock Option or (B) one year after
the date of exercise of the Incentive Stock Option. The Company may, if determined by the Committee and in accordance with procedures
established by the Committee, retain possession of any shares of Common Stock acquired pursuant to the exercise of an Incentive Stock Option as
agent for the applicable Participant until the end of the period described in the preceding sentence.
(f) Compliance With Laws, etc. Notwithstanding the foregoing, in no event shall a Participant be permitted to exercise an Option in a
manner that the Committee determines would violate the Sarbanes-Oxley Act of 2002, if applicable, or any other applicable law or the applicable
rules and regulations of the Securities and Exchange Commission or the applicable rules and regulations of any securities exchange or inter-dealer
quotation system on which the securities of the Company are listed or traded.
8. Stock Appreciation Rights. (a) Generally. Each SAR granted under the Plan shall be evidenced by an Award agreement (whether in paper
or electronic medium (including email or the posting on a web site maintained by the Company or a third party under contract with the Company)).
Each SAR so granted shall be subject to the conditions set forth in this Section 8, and to such other conditions not inconsistent with the Plan as
may be reflected in the applicable Award agreement. Any Option granted under the Plan may include tandem SARs. The Committee also may award
SARs to Eligible Persons independent of any Option.
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(b) Strike Price. The Strike Price per share of Common Stock for each SAR shall not be less than 100% of the Fair Market Value of such
share determined as of the Date of Grant
(c) Vesting and Expiration. A SAR granted in connection with an Option shall become exercisable and shall expire according to the
same vesting schedule and expiration provisions as the corresponding Option. A SAR granted independent of an Option shall vest and become
exercisable and shall expire in such manner and on such date or dates determined by the Committee and shall expire after such period, not to exceed
ten years, as may be determined by the Committee (the “SAR Period”); provided, however, that notwithstanding any vesting dates set by the
Committee, the Committee may, in its sole discretion, accelerate the exercisability of any SAR, which acceleration shall not affect the terms and
conditions of such SAR other than with respect to exercisability. Unless otherwise provided by the Committee in an Award agreement: (i) a SAR
shall vest and become exercisable with respect to 100% of the shares of Common Stock subject to such SAR on the third anniversary of the Date of
Grant; (ii) the unvested portion of a SAR shall expire upon termination of employment or service of the Participant granted the SAR, and the vested
portion of such SAR shall remain exercisable for (A) one year following termination of employment or service by reason of such Participant’s death
or disability (as determined by the Committee), but not later than the expiration of the SAR Period or (B) 90 days following termination of
employment or service for any reason other than such Participant’s death or disability, and other than such Participant’s termination of employment
or service for Cause, but not later than the expiration of the SAR Period; and (iii) both the unvested and the vested portion of a SAR shall expire
upon the termination of the Participant’s employment or service by the Company or any of its Affiliates for Cause.
(d) Method of Exercise. SARs that have become exercisable may be exercised by delivery of written or electronic notice of exercise to
the Company in accordance with the terms of the Award, specifying the number of SARs to be exercised and the date on which such SARs were
awarded. Notwithstanding the foregoing, if on the last day of the Option Period (or in the case of a SAR independent of an option, the SAR Period),
the fair market value exceeds the Strike Price, the Participant has not exercised the SAR or the corresponding Option (if applicable), and neither the
SAR nor the corresponding Option (if applicable) has expired, such SAR shall be deemed to have been exercised by the Participant on such last
day and the Company shall make the appropriate payment therefor.
(e) Payment. Upon the exercise of a SAR, the Company shall pay to the Participant an amount equal to the number of shares subject to
the SAR that are being exercised multiplied by the excess, if any, of the fair market value of one share of Common Stock on the exercise date over
the Strike Price, less an amount equal to any federal, state, local and non-U.S. income and employment taxes required to be withheld. The Company
shall pay such amount in cash, in shares of Common Stock valued at fair market value, or any combination thereof, as determined by the Committee.
Any fractional share of Common Stock shall be settled in cash.
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9. Restricted Stock and Restricted Stock Units. (a) Generally. Each grant of Restricted Stock and Restricted Stock Units shall be evidenced by
an Award agreement (whether in paper or electronic medium (including email or the posting on a web site maintained by the Company or a third
party under contract with the Company)). Each such grant shall be subject to the conditions set forth in this Section 9, and to such other
conditions not inconsistent with the Plan as may be reflected in the applicable Award agreement.
(b) Restricted Accounts; Escrow or Similar Arrangement. Upon the grant of Restricted Stock, a book entry in a restricted account shall
be established in the Participant’s name at the Company’s transfer agent and, if the Committee determines that the Restricted Stock shall be held by
the Company or in escrow rather than held in such restricted account pending the release of the applicable restrictions, the Committee may require
the Participant to additionally execute and deliver to the Company (i) an escrow agreement satisfactory to the Committee, if applicable, and (ii) the
appropriate stock power (endorsed in blank) with respect to the Restricted Stock covered by such agreement. If a Participant shall fail to execute an
agreement evidencing an Award of Restricted Stock and, if applicable, an escrow agreement and blank stock power within the amount of time
specified by the Committee, the Award shall be null and void. Subject to the restrictions set forth in this Section 9 and the applicable Award
agreement, the Participant generally shall have the rights and privileges of a stockholder as to such Restricted Stock, including without limitation
the right to vote such Restricted Stock and the right to receive dividends, if applicable. To the extent shares of Restricted Stock are forfeited, any
stock certificates issued to the Participant evidencing such shares shall be returned to the Company, and all rights of the Participant to such shares
and as a stockholder with respect thereto shall terminate without further obligation on the part of the Company.
(c) Vesting; Acceleration of Lapse of Restrictions. Unless otherwise provided by the Committee in an Award agreement: (i) the
Restricted Period shall lapse with respect to 100% of the Restricted Stock and Restricted Stock Units on the third anniversary of the Date of Grant;
and (ii) the unvested portion of Restricted Stock and Restricted Stock Units shall terminate and be forfeited upon termination of employment or
service of the Participant granted the applicable Award.
(d) Delivery of Restricted Stock and Settlement of Restricted Stock Units. (i) Upon the expiration of the Restricted Period with respect
to any shares of Restricted Stock, the restrictions set forth in the applicable Award agreement shall be of no further force or effect with respect to
such shares, except as set forth in the applicable Award agreement. If an escrow arrangement is used, upon such expiration, the Company shall
deliver to the Participant, or his beneficiary, without charge, the stock certificate evidencing the shares of Restricted Stock that have not then been
forfeited and with respect to which the Restricted Period has expired (rounded down to the nearest full share). Dividends, if any, that may have
been withheld by the Committee and attributable to any particular share of Restricted Stock shall be distributed to the Participant in cash or, at the
sole discretion of the Committee, in shares of Common Stock having a fair market value equal to the amount of such dividends, upon the release of
restrictions on such share and, if such share is forfeited, the Participant shall have no right to such dividends (except as otherwise set forth by the
Committee in the applicable Award agreement).
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(ii) Unless otherwise provided by the Committee in an Award agreement, upon the expiration of the Restricted Period with respect to
any outstanding Restricted Stock Units, the Company shall deliver to the Participant, or his beneficiary, without charge, one share of Common
Stock for each such outstanding Restricted Stock Unit; provided, however, that the Committee may, in its sole discretion, elect to (i) pay cash or
part cash and part Common Stock in lieu of delivering only shares of Common Stock in respect of such Restricted Stock Units or (ii) defer the
delivery of shares of Common Stock (or cash or part shares of Common Stock and part cash, as the case may be) beyond the expiration of the
Restricted Period if such delivery would result in a violation of applicable law until such time as is no longer the case. If a cash payment is made in
lieu of delivering shares of Common Stock, the amount of such payment shall be equal to the fair market value of the shares of Common Stock as of
the date on which the Restricted Period lapsed with respect to such Restricted Stock Units, less an amount equal to any federal, state, local and
non-U.S. income and employment taxes required to be withheld.
10. Stock Bonus Awards. The Committee may issue unrestricted shares of Common Stock, or other Awards denominated in shares of
Common Stock, under the Plan to Eligible Persons, either alone or in tandem with other awards, in such amounts as the Committee shall from time to
time in its sole discretion determine. Each Stock Bonus Award granted under the Plan shall be evidenced by an Award agreement (whether in paper
or electronic medium (including email or the posting on a web site maintained by the Company or a third party under contract with the Company)).
Each Stock Bonus Award so granted shall be subject to such conditions not inconsistent with the Plan as may be reflected in the applicable Award
agreement.
11. Performance Compensation Awards. (a) Generally. The Committee shall have the authority, at the time of grant of any Award described in
Sections 7 through 10 of the Plan, to designate such Award as a Performance Compensation Award. The Committee shall have the authority to
make an award of a cash bonus to any Participant.
(b) Discretion of Committee with Respect to Performance Compensation Awards. With regard to a particular Performance Period, the
Committee shall have sole discretion to select the length of such Performance Period, the type(s) of Performance Compensation Awards to be
issued, the Performance Criteria that will be used to establish the Performance Goal(s), the kind(s) and/or level(s) of the Performance Goals(s) that is
(are) to apply and the Performance Formula. Within the first 90 days of a Performance Period, if applicable, the Committee shall, with regard to the
Performance Compensation Awards to be issued for such Performance Period, exercise its discretion with respect to each of the matters enumerated
in the immediately preceding sentence and record the same in writing.
(c) Performance Criteria. The Performance Criteria that will be used to establish the Performance Goal(s) shall be based on the
attainment of specific levels of performance of the Company (and/or one or more of its Affiliates, divisions or operational units, or any combination
of the foregoing) and may include the following or any such other Performance Criteria as determined by the Committee in its discretion: (i) net
earnings or net income (before or after taxes); (ii) basic or diluted earnings per share (before or after taxes); (iii) net revenue or revenue growth;
(iv) gross profit or gross profit growth; (v) operating profit (before or after taxes); (vi) return measures (including, but not limited to, return on
assets,
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capital, invested capital, equity, or sales); (vii) cash flow (including, but not limited to, operating cash flow, free cash flow, and cash flow return on
capital); (viii) earnings before or after taxes, interest, depreciation and/or amortization; (ix) gross or operating margins; (x) productivity ratios;
(xi) stock price (including, but not limited to, growth measures and total stockholder return); (xii) expense targets; (xiii) margins; (xiv) operating
efficiency; (xv) objective measures of customer satisfaction; (xvi) working capital targets; (xvii) measures of economic value added; (xviii) inventory
control; (xix) enterprise value; (xx) sales; (xxi) debt levels and net debt; (xxii) combined ratio; (xxiii) timely launch of new facilities; (xxiv) client
retention; (xxv) employee retention; (xxvi) timely completion of new product rollouts; and (xxvii) objective measures of personal targets, goals or
completion of projects. Any one or more of the Performance Criteria may be used on an absolute or relative basis to measure the performance of the
Company and/or one or more of its Affiliates as a whole or any business unit(s) of the Company and/or one or more of its Affiliates or any
combination thereof, as the Committee may deem appropriate, or any of the above Performance Criteria may be compared to the performance of a
selected group of comparison companies, or a published or special index that the Committee, in its sole discretion, deems appropriate, or as
compared to various stock market indices. The Committee also has the authority to provide for accelerated vesting of any Award based on the
achievement of Performance Goals pursuant to the Performance Criteria specified in this paragraph.
(d) Modification of Performance Goal(s). In the event that applicable tax and/or securities laws change to permit Committee discretion
to alter the governing Performance Criteria without obtaining stockholder approval of such alterations, the Committee shall have sole discretion to
make such alterations without obtaining stockholder approval. The Committee is authorized at any time, in its sole discretion, to adjust or modify
the calculation of a Performance Goal for such Performance Period, based on and in order to appropriately reflect the following events: (i) asset
write-downs; (ii) litigation or claim judgments or settlements; (iii) the effect of changes in tax laws, accounting principles, or other laws or regulatory
rules affecting reported results; (iv) any reorganization and restructuring programs; (v) extraordinary nonrecurring items as described in
Accounting Principles Board Opinion No. 30 (or any successor pronouncement thereto) and/or in management’s discussion and analysis of
financial condition and results of operations appearing in the Company’s annual report to stockholders for the applicable year; (vi) acquisitions or
divestitures; (vii) any other specific unusual or nonrecurring events, or objectively determinable category thereof; (viii) foreign exchange gains and
losses; (ix) a change in the Company’s fiscal year and (x) any other extraordinary event that, in the reasonable determination of the Committee,
impacts the applicable Performance Criteria.
(e) Payment of Performance Compensation Awards. (i) Condition to Receipt of Payment. Unless otherwise provided in the applicable
Award agreement, a Participant must be employed by the Company or one of its Affiliates on the last day of a Performance Period to be eligible for
payment in respect of a Performance Compensation Award for such Performance Period.
(ii) Limitation. A Participant shall be eligible to receive payment in respect of a Performance Compensation Award only to the
extent that: (A) the Performance Goals for such period are achieved; and (B) all or some of the portion of such Participant’s Performance
Compensation Award has been earned for the Performance Period based on the application of the Performance Formula to such achieved
Performance Goals.
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(iii) Certification. Following the completion of a Performance Period, the Committee shall review and certify in writing whether,
and to what extent, the Performance Goals for the Performance Period have been achieved and, if so, calculate and certify in writing that amount of
the Performance Compensation Awards earned for the period based upon the Performance Formula. The Committee shall then determine the
amount of each Participant’s Performance Compensation Award actually payable for the Performance Period and, in so doing, may apply Negative
Discretion.
(iv) Use of Negative Discretion. In determining the actual amount of an individual Participant’s Performance Compensation
Award for a Performance Period, the Committee may reduce or eliminate the amount of the Performance Compensation Award earned under the
Performance Formula in the Performance Period through the use of Negative Discretion if, in its sole judgment, such reduction or elimination is
appropriate.
(f) Timing of Award Payments. Performance Compensation Awards granted for a Performance Period shall be paid to Participants as
soon as administratively practicable following completion of the certifications required by this Section 11, but in no event later than two-and-onehalf months following the end of the fiscal year during which the Performance Period is completed.
12. Changes in Capital Structure and Similar Events. In the event of (a) any dividend or other distribution (whether in the form of cash,
shares of Common Stock, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, amalgamation,
consolidation, split-up, split-off, combination, repurchase or exchange of shares of Common Stock or other securities of the Company, issuance of
warrants or other rights to acquire shares of Common Stock or other securities of the Company, or other similar corporate transaction or event
(including, without limitation, a Change in Control) that affects the Common Stock, or (b) unusual or nonrecurring events (including, without
limitation, a Change in Control) affecting the Company, any of its Affiliates, or the financial statements of the Company or any of its Affiliates, or
changes in applicable rules, rulings, regulations or other requirements of any governmental body or securities exchange or inter-dealer quotation
system, accounting principles or law, such that in either case an adjustment is determined by the Committee in its sole discretion to be necessary or
appropriate, then the Committee shall make any such adjustments in such manner as it may deem equitable, including without limitation any or all of
the following:
(i) adjusting any or all of (A) the number of shares of Common Stock or other securities of the Company (or number and kind of
other securities or other property) that may be delivered in respect of Awards or with respect to which Awards may be granted under the Plan
(including, without limitation, adjusting any or all of the limitations under Section 5 of the Plan) and (B) the terms of any outstanding Award,
including, without limitation, (1) the number of shares of Common Stock or other securities of the Company (or number and kind of other securities
or other property) subject to outstanding Awards or to which outstanding Awards relate, (2) the Exercise Price or Strike Price with respect to any
Award or (3) any applicable performance measures (including, without limitation, Performance Criteria and Performance Goals);
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(ii) providing for a substitution or assumption of Awards, accelerating the exercisability of, lapse of restrictions on, or
termination of, Awards or providing for a period of time for exercise prior to the occurrence of such event; and
(iii) canceling any one or more outstanding Awards and causing to be paid to the holders thereof, in cash, shares of Common
Stock, other securities or other property, or any combination thereof, the value of such Awards, if any, as determined by the Committee (which if
applicable may be based upon the price per share of Common Stock received or to be received by other stockholders of the Company in such
event), including without limitation, in the case of an outstanding Option or SAR, a cash payment in an amount equal to the excess, if any, of the
fair market value (as of a date specified by the Committee) of the shares of Common Stock subject to such Option or SAR over the aggregate
Exercise Price or Strike Price of such Option or SAR, respectively (it being understood that, in such event, any Option or SAR having a per share
Exercise Price or Strike Price equal to, or in excess of, the fair market value of a share of Common Stock subject thereto may be canceled and
terminated without any payment or consideration therefor);
provided, however, that in the case of any “equity restructuring” (within the meaning of the Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 123 (revised 2004)), the Committee shall make an equitable or proportionate adjustment to outstanding Awards
to reflect such equity restructuring. Any adjustment in Incentive Stock Options under this Section 12 (other than any cancellation of Incentive
Stock Options) shall be made only to the extent not constituting a “modification” within the meaning of Section 424(h)(3) of the Code, and any
adjustments under this Section 12 shall be made in a manner that does not adversely affect the exemption provided pursuant to Rule 16b-3 under
the Exchange Act. The Company shall give each Participant notice of an adjustment hereunder and, upon notice, such adjustment shall be
conclusive and binding for all purposes.
13. Effect of Change in Control. Except to the extent otherwise provided in an Award agreement, in the event of a Change in Control,
notwithstanding any provision of the Plan to the contrary, the Committee may provide that, with respect to all or any portion of a particular
outstanding Award or Awards:
(a) the then outstanding Options and SARs shall become immediately exercisable as of a time prior to the Change in Control;
(b) the Restricted Period shall expire as of a time prior to the Change in Control (including without limitation a waiver of any applicable
Performance Goals);
(c) Performance Periods in effect on the date the Change in Control occurs shall end on such date, and the Committee shall (i) determine
the extent to which Performance Goals with respect to each such Performance Period have been met based upon such audited or unaudited
financial information or other information then available as it deems relevant and (ii) cause the Participant to receive partial or full payment of
Awards for each such Performance Period based upon the Committee’s determination of the degree of attainment of the Performance Goals, or
assuming that the applicable “target” levels of performance have been attained or on such other basis determined by the Committee.
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To the extent practicable, any actions taken by the Committee under the immediately preceding clauses (a) through (c) shall occur in a manner and
at a time which allows affected Participants the ability to participate in the Change in Control transactions with respect to the shares of Common
Stock subject to their Awards.
14. Amendments and Termination. (a) Amendment and Termination of the Plan. The Board may amend, alter, suspend, discontinue, or
terminate the Plan or any portion thereof at any time; provided, that (i) no amendment to Section 14(b) (to the extent required by the proviso in such
Section 14(b)) shall be made without stockholder approval and (ii) no such amendment, alteration, suspension, discontinuation or termination shall
be made without stockholder approval if such approval is necessary to comply with any tax or regulatory requirement applicable to the Plan
(including, without limitation, as necessary to comply with any rules or requirements of any securities exchange or inter-dealer quotation system on
which the Common Stock may be listed or quoted); provided, further, that any such amendment, alteration, suspension, discontinuance or
termination that would materially and adversely affect the rights of any Participant or any holder or beneficiary of any Award theretofore granted
shall not to that extent be effective without the consent of the affected Participant, holder or beneficiary.
(b) Amendment of Award Agreements. The Committee may, to the extent consistent with the terms of any applicable Award agreement,
waive any conditions or rights under, amend any terms of, or alter, suspend, discontinue, cancel or terminate, any Award theretofore granted or the
associated Award agreement, prospectively or retroactively; provided that any such waiver, amendment, alteration, suspension, discontinuance,
cancellation or termination that would materially and adversely affect the rights of any Participant with respect to any Award theretofore granted
shall not to that extent be effective without the consent of the affected Participant; provided, further, that any such waiver, amendment, alteration,
suspension, discontinuance, cancellation or termination shall comply with applicable law and the rules of the applicable securities exchange or
inter-dealer quotation system on which the Common Stock may be listed or quoted.
15. General. (a) Award Agreements. Each Award under the Plan shall be evidenced by an Award agreement, which shall be delivered to the
Participant (whether in paper or electronic medium (including email or the posting on a web site maintained by the Company or a third party under
contract with the Company)) and shall specify the terms and conditions of the Award and any rules applicable thereto, including without limitation,
the effect on such Award of the death, disability or termination of employment or service of a Participant, or of such other events as may be
determined by the Committee.
(b) Nontransferability. (i) Each Award shall be exercisable only by a Participant during the Participant’s lifetime, or, if permissible under
applicable law, by the Participant’s legal guardian or representative. No Award may be assigned, alienated, pledged, attached, sold or otherwise
transferred or encumbered by a Participant other than by will or by the laws of descent and distribution and any such purported assignment,
alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable against the Company or any of its Affiliates;
provided, that the designation of a beneficiary shall not constitute an assignment, alienation, pledge, attachment, sale, transfer or encumbrance.
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(ii) Notwithstanding the foregoing, the Committee may, in its sole discretion, permit Awards (other than Incentive Stock
Options) to be transferred by a Participant, without consideration, subject to such rules as the Committee may adopt consistent with any applicable
Award agreement to preserve the purposes of the Plan, to: (A) any person who is a “family member” of the Participant, as such term is used in the
instructions to Form S-8 under the Securities Act (collectively, the “Immediate Family Members”); (B) a trust solely for the benefit of the
Participant and his or her Immediate Family Members; or (C) a partnership or limited liability company whose only partners or stockholders are the
Participant and his or her Immediate Family Members; or (D) any other transferee as may be approved either (I) by the Board or the Committee in its
sole discretion, or (II) as provided in the applicable Award agreement. (each transferee described in clauses (A), (B) (C) and (D) above is hereinafter
referred to as a “Permitted Transferee”); provided, that the Participant gives the Committee advance written notice describing the terms and
conditions of the proposed transfer and the Committee notifies the Participant in writing that such a transfer would comply with the requirements of
the Plan.
(iii) The terms of any Award transferred in accordance with the immediately preceding sentence shall apply to the Permitted
Transferee and any reference in the Plan, or in any applicable Award agreement, to a Participant shall be deemed to refer to the Permitted
Transferee, except that (A) Permitted Transferees shall not be entitled to transfer any Award, other than by will or the laws of descent and
distribution; (B) Permitted Transferees shall not be entitled to exercise any transferred Option unless there shall be in effect a registration statement
on an appropriate form covering the shares of Common Stock to be acquired pursuant to the exercise of such Option if the Committee determines,
consistent with any applicable Award agreement, that such a registration statement is necessary or appropriate; (C) the Committee or the Company
shall not be required to provide any notice to a Permitted Transferee, whether or not such notice is or would otherwise have been required to be
given to the Participant under the Plan or otherwise; and (D) the consequences of the termination of the Participant’s employment by, or services
to, the Company or any of its Affiliates under the terms of the Plan and the applicable Award agreement shall continue to be applied with respect to
the Participant, including, without limitation, that an Option shall be exercisable by the Permitted Transferee only to the extent, and for the periods,
specified in the Plan and the applicable Award agreement.
(c) Tax Withholding. (i) A Participant shall be required to pay to the Company or any of its Affiliates, and the Company or any of its
Affiliates shall have the right and is hereby authorized to withhold, from any cash, shares of Common Stock, other securities or other property
deliverable under any Award or from any compensation or other amounts owing to a Participant, the amount (in cash, shares of Common Stock,
other securities or other property) of any required withholding taxes in respect of an Award, its exercise, or any payment or transfer under an
Award or under the Plan and to take such other action as may be necessary in the opinion of the Committee or the Company to satisfy all
obligations for the payment of such withholding and taxes.
(ii) Without limiting the generality of clause (i) above, the Committee may, in its sole discretion, permit a Participant to satisfy, in
whole or in part, the foregoing withholding liability by (A) the delivery of shares of Common Stock (which are Mature Shares)
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owned by the Participant having a fair market value equal to such withholding liability or (B) having the Company withhold from the number of
shares of Common Stock otherwise issuable or deliverable pursuant to the exercise or settlement of the Award a number of shares with a fair market
value equal to such withholding liability (but no more than the minimum required statutory withholding liability).
(d) No Claim to Awards; No Rights to Continued Employment; Waiver. No employee of the Company or any of its Affiliates, or other
person, shall have any claim or right to be granted an Award under the Plan or, having been selected for the grant of an Award, to be selected for a
grant of any other Award. There is no obligation for uniformity of treatment of Participants or holders or beneficiaries of Awards. The terms and
conditions of Awards and the Committee’s determinations and interpretations with respect thereto need not be the same with respect to each
Participant and may be made selectively among Participants, whether or not such Participants are similarly situated. Neither the Plan nor any action
taken hereunder shall be construed as giving any Participant any right to be retained in the employ or service of the Company or any of its
Affiliates, nor shall it be construed as giving any Participant any rights to continued service on the Board. The Company or any of its Affiliates
may at any time dismiss a Participant from employment or discontinue any consulting relationship, free from any liability or any claim under the
Plan, unless otherwise expressly provided in the Plan or any Award agreement. By accepting an Award under the Plan, a Participant shall thereby
be deemed to have waived any claim to continued exercise or vesting of an Award or to damages or severance entitlement related to noncontinuation of the Award beyond the period provided under the Plan or any Award agreement, notwithstanding any provision to the contrary in
any written employment contract or other agreement between the Company and its Affiliates and the Participant, whether any such agreement is
executed before, on or after the Date of Grant.
(e) International Participants. With respect to Participants who reside or work outside of the United States of America, the Committee
may in its sole discretion amend the terms of the Plan or outstanding Awards with respect to such Participants in order to conform such terms with
the requirements of local law or to obtain more favorable tax or other treatment for a Participant, the Company or its Affiliates.
(f) Designation and Change of Beneficiary. Each Participant may file with the Committee a written designation of one or more persons
as the beneficiary(ies) who shall be entitled to receive the amounts payable with respect to an Award, if any, due under the Plan upon his death. A
Participant may, from time to time, revoke or change his beneficiary designation without the consent of any prior beneficiary by filing a new
designation with the Committee. The last such designation received by the Committee shall be controlling; provided, however, that no designation,
or change or revocation thereof, shall be effective unless received by the Committee prior to the Participant’s death, and in no event shall it be
effective as of a date prior to such receipt. If no beneficiary designation is filed by a Participant, the beneficiary shall be deemed to be his or her
spouse or, if the Participant is unmarried at the time of death, his or her estate.
(g) Termination of Employment/Service. Unless determined otherwise by the Committee at any point following such event: (i) neither a
temporary absence from employment or service due to illness, vacation or leave of absence nor a transfer from employment or service
20
with the Company to employment or service with an Affiliate of the Company (or vice versa) shall be considered a termination of employment or
service with the Company or an Affiliate of the Company; and (ii) if a Participant’s employment with the Company and its Affiliates terminates, but
such Participant continues to provide services to the Company and its Affiliates in a non-employee capacity (or vice-versa), such change in status
shall not be considered a termination of employment with the Company or an Affiliateof the Company.
(h) No Rights as a Stockholder. Except as otherwise specifically provided in the Plan or any Award agreement, no person shall be
entitled to the privileges of ownership in respect of shares of Common Stock that are subject to Awards hereunder until such shares have been
issued or delivered to that person.
(i) Government and Other Regulations. (i) The obligation of the Company to settle Awards in shares of Common Stock or other
consideration shall be subject to all applicable laws, rules, and regulations, and to such approvals by governmental agencies as may be required.
Notwithstanding any terms or conditions of any Award to the contrary, the Company shall be under no obligation to offer to sell or to sell, and
shall be prohibited from offering to sell or selling, any shares of Common Stock pursuant to an Award unless such shares have been properly
registered for sale pursuant to the Securities Act with the Securities and Exchange Commission or unless the Company has received an opinion of
counsel, satisfactory to the Company, that such shares may be offered or sold without such registration pursuant to an available exemption
therefrom and the terms and conditions of such exemption have been fully complied with. The Company shall be under no obligation to register for
sale under the Securities Act any of the shares of Common Stock to be offered or sold under the Plan. The Committee shall have the authority to
provide that all certificates for shares of Common Stock or other securities of the Company or any of its Affiliates delivered under the Plan shall be
subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan, the applicable Award agreement,
the federal securities laws, or the rules, regulations and other requirements of the Securities and Exchange Commission, any securities exchange or
inter-dealer quotation system upon which such shares or other securities are then listed or quoted and any other applicable federal, state, local or
non-U.S. laws, and, without limiting the generality of Section 9 of the Plan, the Committee may cause a legend or legends to be put on any such
certificates to make appropriate reference to such restrictions. Notwithstanding any provision in the Plan to the contrary, the Committee reserves
the right to add any additional terms or provisions to any Award granted under the Plan that it in its sole discretion deems necessary or advisable
in order that such Award complies with the legal requirements of any governmental entity to whose jurisdiction the Award is subject.
(ii) The Committee may cancel an Award or any portion thereof if it determines, in its sole discretion, that legal or contractual
restrictions and/or blockage and/or other market considerations would make the Company’s acquisition of shares of Common Stock from the public
markets, the Company’s issuance of shares of Common Stock to the Participant, the Participant’s acquisition of shares of Common Stock from the
Company and/or the Participant’s sale of shares of Common Stock to the public markets, illegal, impracticable or inadvisable. If the Committee
determines to cancel all or any portion of an Award in accordance with the foregoing, the Company shall pay to the Participant an amount equal to
the excess of (A) the aggregate fair market value of the shares of Common Stock subject to such Award or
21
portion thereof canceled (determined as of the applicable exercise date, or the date that the shares would have been vested or delivered, as
applicable), over (B) the aggregate Exercise Price or Strike Price (in the case of an Option or SAR, respectively) or any amount payable as a
condition of delivery of shares of Common Stock (in the case of any other Award). Such amount shall be delivered to the Participant as soon as
practicable following the cancellation of such Award or portion thereof.
(j) Payments to Persons Other Than Participants. If the Committee shall find that any person to whom any amount is payable under the
Plan is unable to care for his affairs because of illness or accident, or is a minor, or has died, then any payment due to such person or his estate
(unless a prior claim therefor has been made by a duly appointed legal representative) may, if the Committee so directs the Company, be paid to his
spouse, child, relative, an institution maintaining or having custody of such person, or any other person deemed by the Committee to be a proper
recipient on behalf of such person otherwise entitled to payment. Any such payment shall be a complete discharge of the liability of the Committee
and the Company therefor.
(k) Nonexclusivity of the Plan. Neither the adoption of this Plan by the Board nor the submission of this Plan to the stockholders of the
Company for approval, as applicable, shall be construed as creating any limitations on the power of the Board to adopt such other incentive
arrangements as it may deem desirable, including, without limitation, the granting of stock options or other equity-based awards otherwise than
under this Plan, and such arrangements may be either applicable generally or only in specific cases.
(l) No Trust or Fund Created. Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind
or a fiduciary relationship between the Company or any of its Affiliates, on the one hand, and a Participant or other person or entity, on the other
hand. No provision of the Plan or any Award shall require the Company, for the purpose of satisfying any obligations under the Plan, to purchase
assets or place any assets in a trust or other entity to which contributions are made or otherwise to segregate any assets, nor shall the Company
maintain separate bank accounts, books, records or other evidence of the existence of a segregated or separately maintained or administered fund
for such purposes. Participants shall have no rights under the Plan other than as unsecured general creditors of the Company, except that insofar
as they may have become entitled to payment of additional compensation by performance of services, they shall have the same rights as other
employees under general law.
(m) Reliance on Reports. Each member of the Committee and each member of the Board shall be fully justified in acting or failing to act,
as the case may be, and shall not be liable for having so acted or failed to act in good faith, in reliance upon any report made by the independent
public accountant of the Company and its Affiliates and/or any other information furnished in connection with the Plan by any agent of the
Company or the Committee or the Board, other than himself.
(n) Relationship to Other Benefits. No payment under the Plan shall be taken into account in determining any benefits under any
pension, retirement, profit sharing, group insurance or other benefit plan of the Company except as otherwise specifically provided in such other
plan.
22
(o) Governing Law. The Plan shall be governed by and construed in accordance with the internal laws of the State of Delaware
applicable to contracts made and performed wholly within the State of Delaware, without giving effect to the conflict of laws provisions thereof.
(p) Severability. If any provision of the Plan or any Award or Award agreement is or becomes or is deemed to be invalid, illegal, or
unenforceable in any jurisdiction or as to any person or entity or Award, or would disqualify the Plan or any Award under any law deemed
applicable by the Committee, such provision shall be construed or deemed amended to conform to the applicable laws, or if it cannot be construed
or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Award, such provision shall be
construed or deemed stricken as to such jurisdiction, person or entity or Award and the remainder of the Plan and any such Award shall remain in
full force and effect.
(q) Obligations Binding on Successors. The obligations of the Company under the Plan shall be binding upon any successor
corporation or organization resulting from the merger, amalgamation, consolidation or other reorganization of the Company, or upon any successor
corporation or organization succeeding to substantially all of the assets and business of the Company.
(r) Expenses; Gender; Titles and Headings. The expenses of administering the Plan shall be borne by the Company and its Affiliates.
Masculine pronouns and other words of masculine gender shall refer to both men and women. The titles and headings of the sections in the Plan
are for convenience of reference only, and in the event of any conflict, the text of the Plan, rather than such titles or headings shall control.
(s) Stockholder/Other Agreements. Notwithstanding anything herein to the contrary, in no event shall shares of Common Stock be
delivered pursuant to any Award under this Plan unless and until the Participant executes a stockholder agreement, which in all events shall be
within thirty (30) days following the vesting and exercise of the Award, as applicable. In addition, the Committee may require, as a condition to the
grant of and/or the receipt of shares of Common Stock under an Award, that the Participant execute lock-up or other agreements, as it may
determine in its sole and absolute discretion.
(t) Payments. Participants shall be required to pay, to the extent required by applicable law, any amounts required to receive shares of
Common Stock under any Award made under the Plan.
***
As adopted by the Board of Directors of K-9 Holdings, Inc. on August 13, 2012.
23
(Back To Top)
Section 9: EX-10.21 (EX-10.21)
Exhibit 10.21
EXECUTION COPY
K-9 HOLDINGS, INC.
2012 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (“Agreement”), made as of this 13th day of August, 2012 (the “Date of Grant”), by and between
K-9 Holdings, Inc. (the “Company”) and the grantee whose name appears on the signature page hereto (the “Participant”).
W I T N E S S E T H:
WHEREAS, pursuant to the K-9 Holdings, Inc. 2012 Equity Incentive Plan (the “Plan”), the Company desires to afford the Participant
the opportunity to acquire ownership of shares of the Company’s Common Stock, so that the Participant may have a direct proprietary interest in
the Company’s success.
NOW, THEREFORE, in consideration of the covenants and agreements herein contained, the parties hereto hereby agree as follows:
1. Grant of Option. Subject to the terms and conditions set forth herein and in the Plan, the Company hereby grants to the Participant the right and
option (the right to purchase any one share of Common Stock hereunder being an “Option”) to purchase from the Company, shares of Common
Stock pursuant to the Tranche A Options (“Tranche A Options”), Tranche B Options (“Tranche B Options”) and Tranche C Options (“Tranche C
Options”) at a price per share (the “Option Price”) and in the amounts set forth on the signature page hereto (the “Option Shares”). The Options
granted hereunder shall expire ten (10) years following the Date of Grant.
2. Vesting and Exercisability.
(a) General. Subject to the terms and conditions set forth herein and the Plan, the Options granted to the Participant shall become vested and
exercisable as follows: (i) Tranche A Options will vest and become exercisable in equal installments on each of the first five (5) anniversaries of
May 4, 2012, (ii) Tranche B Options will vest and become exercisable at such time as the Investor realizes an Investor IRR that equals or exceeds
20% and a MOIC that equals or exceeds two (2), in each case, based on cash proceeds received by the Investor, and (iii) Tranche C Options will
vest and become exercisable at such time as the Investor realizes an Investor IRR that equals or exceeds 25% and a MOIC that equals or exceeds
three (3), in each case, based on cash proceeds received by the Investor; provided, that, the Participant is then employed by the Company or an
Affiliate.
(b) Change in Control. In the event of a Change in Control, any Tranche A Options that have not become vested at the time of such Change
in Control shall become vested and exercisable on the first anniversary of such Change in Control (or, if earlier, in accordance with their original
vesting terms as set forth in Section 2(a) above); provided, that in the event the Participant’s employment with the Company is terminated by the
Company without Cause prior to such first anniversary date, such Tranche A Options shall automatically become vested and exercisable as of the
date of such termination. Except to the extent Section 2(d) below shall apply, any Tranche B Options and Tranche C Options that have not vested
prior to, or become vested at the time of, a Change in Control shall continue to be subject to vesting in accordance with the terms of this
Agreement.
(c) Initial Public Offering. In the event of an initial Public Offering, all Options shall remain outstanding and continue to vest in accordance
with their original vesting terms as set forth in Section 2(a) above.
(d) Complete Disposition of Investor Investment. Any Tranche B Options and Tranche C Options that have not vested prior to, or become
vested at the time that, the Investor Investment has been fully disposed of by all Investors shall be cancelled for no consideration.
3. Post-Termination Exercisability.
(a) Any Termination. Except as provided with respect to Tranche A Options in connection with a termination without Cause within one year
following a Change in Control, unvested Options shall be cancelled for no consideration upon a termination for any reason.
(b) For Cause. Upon a termination for Cause, all Options shall immediately terminate, including vested Options.
(c) Vested and Exercisable. To the extent the Options were vested and exercisable at the time of the Participant’s termination of employment,
the Options shall remain exercisable during the following post-termination periods:
(i) Death/Disability: Earlier of (A) one (1) year following such termination and (B) the expiration of the Option Term.
(ii) All Other Terminations: Earlier of (A) ninety (90) days following such termination and (B) the expiration of the Option Term.
4. Method of Exercising Option.
(a) Payment of Option Price. Options, to the extent vested, may be exercised, in whole or in part, by giving written notice of exercise to the
Company specifying the number of shares of Common Stock to be purchased. Such notice shall be accompanied by the payment in full of the
aggregate Option Price. Such payment shall be made: (i) in cash or by check, bank draft or money order payable to the order of the Company,
(ii) through a cashless exercise whereby the Company reduces the number of shares of Common Stock issuable upon exercise with a value equal to
the aggregate Option Price and withholding obligation, (iii) solely to the extent permitted by applicable law, if the Common Stock is then traded on
an established securities exchange or system in the United States, through a procedure whereby the Participant delivers irrevocable instructions to
a broker reasonably acceptable to the Committee to deliver promptly to the Company an amount equal to the aggregate Option Price or (iv) on such
other terms and conditions as the Committee may permit, in its sole discretion.
2
(b) Tax Withholding. At the time of exercise, the Participant shall pay to the Company such amount as the Company deems necessary to
satisfy its obligation, if any, to withhold federal, state or local income or other taxes incurred by reason of the exercise of Options granted
hereunder. Such payment shall be made: (i) in cash, (ii) by having the Company withhold from the delivery of shares of Common Stock for which
the Option was exercised that number of shares of Common Stock having a Fair Market Value equal to the minimum withholding obligation, (iii) by
delivering shares of Common Stock owned by the holder of the Option that are Mature Shares, or (iv) by a combination of any such methods. For
purposes hereof, shares of Common Stock shall be valued at Fair Market Value.
5. Issuance of Shares. Except as otherwise provided in the Plan, as promptly as practical after receipt of such written notification of exercise and full
payment of the Option Price and any required income tax withholding, the Company shall issue or transfer to the Participant the number of Option
Shares with respect to which Options have been so exercised (less shares withheld for payment of the Option Price and/or in satisfaction of tax
withholding obligations, if any), and shall deliver to the Participant a certificate or certificates therefor, registered in the Participant’s name.
6. Repurchase.
(a) In the event of the termination of the Participant’s employment by the Company for Cause, the Company shall have the right, but not the
obligation, to repurchase any or all shares of Common Stock acquired by the Participant upon exercise of the Options at a price per share of
Common Stock equal to the lesser of (i) the Option Price or (ii) the per share Fair Market Value as of the time of such repurchase.
(b) In the event of the termination for any other reason prior to an initial Public Offering, the Company shall have the right, but not the
obligation, to repurchase any or all shares of Common Stock acquired by the Participant upon exercise of the Options that have been held by the
Participant for at least six months at the time of such repurchase at a price per share of Common Stock equal to the per share Fair Market Value.
7. Investor Rights Agreement. Notwithstanding anything herein to the contrary, in no event will shares of Common Stock be delivered upon
exercise of the Options unless and until the Participant executes an Adoption Agreement pursuant to which Participant will become bound by the
terms and conditions set forth in the Investor Rights Agreement, including those terms and conditions applicable to Management Holders (as
defined therein), which in all events shall be within thirty (30) days following exercise of the Options.
8. Non-Transferability. Except as otherwise permitted in accordance with Section 15(b) of the Plan, the Options are not transferable by the
Participant otherwise than to a designated beneficiary upon death or by will or the laws of descent and distribution, and are exercisable during the
Participant’s lifetime only by him/her (or his or her legal representative in the event of incapacity). No assignment or transfer of the Options, or of
the rights represented thereby, whether voluntary or involuntary, by operation of law or otherwise (except to a designated beneficiary, upon death,
by will or the laws of descent and distribution), shall vest in the assignee or transferee any interest or right herein whatsoever, but immediately
upon such assignment or transfer the Options shall terminate and become of no further effect.
3
9. Rights as Stockholder. The Participant or a transferee of the Options shall have no rights as stockholder with respect to any Option Shares until
he shall have become the holder of record of such shares, and no adjustment shall be made for dividends or distributions or other rights in respect
of such Option Shares for which the date on which stockholders of record are determined for purposes of paying dividends on shares of Common
Stock is prior to the date upon which he/she shall become the holder of record thereof.
10. Adjustments. In the event of any adjustment pursuant to Section 12 of the Plan that would adversely affect the value of the Options granted
hereunder or cause such Options to become subject to Section 409A of the Code, such adjustment may only be made with the Participant’s written
consent, which consent shall not be unreasonably withheld.
11. Compliance with Law. Notwithstanding any of the provisions hereof, the Participant hereby agrees that he/she will not exercise the Options,
and that the Company will not be obligated to issue or transfer any shares to the Participant hereunder, if the exercise hereof or the issuance or
transfer of such shares shall constitute a violation by the Participant or the Company of any provisions of any law or regulation of any
governmental authority. Any determination in this connection by the Committee shall be final, binding and conclusive.
12. Notice. Every notice or other communication relating to this Agreement shall be in writing, and shall be mailed to or delivered to the party for
whom it is intended at such address as may from time to time be designated by it in a notice mailed or delivered to the other party as herein
provided; provided, that, unless and until some other address be so designated, all notices or communications by the Participant to the Company
shall be mailed or delivered to the Company at its principal executive office, and all notices or communications by the Company to the Participant
may be given to the Participant personally or may be mailed to him at his address as recorded in the records of the Company.
13. Non-Qualified Stock Options. The Options granted hereunder are not intended to be Incentive Stock Options or Qualified Stock Options.
14. Binding Effect. Subject to Section 8 hereof, this Agreement shall be binding upon the heirs, executors, administrators and successors of the
parties hereto.
15. Governing Law. This Agreement shall be construed and interpreted in accordance with the laws of the State of Delaware without regard to its
conflict of law principles.
16. Plan. The terms and provisions of the Plan are incorporated herein by reference, and the Participant hereby acknowledges receiving a copy of
the Plan. In the event of a conflict or inconsistency between the terms and provisions of the Plan and the provisions of this Agreement, this
Agreement shall govern and control. All capitalized terms not defined herein shall have the meaning ascribed to them as set forth in the Plan.
17. Interpretation. Any dispute regarding the interpretation of this Agreement shall be submitted by the Participant or the Company to the
Committee for review. The resolution of such a dispute by the Committee shall be binding on the Company and the Participant.
4
18. No Right to Continued Employment. Nothing in this Agreement shall be deemed by implication or otherwise to impose any limitation on any
right of the Company to terminate the Participant’s employment.
19. Severability. Every provision of this Agreement is intended to be severable and any illegal or invalid term shall not affect the validity or legality
of the remaining terms.
20. Headings. The headings of the Sections hereof are provided for convenience only and are not to serve as a basis for interpretation of
construction, and shall not constitute a part of this Agreement.
21. Signature in Counterparts. This Agreement may be signed in counterparts, each of which shall be deemed an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
[signature page follows]
5
EXECUTION COPY
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first set forth above.
K-9 HOLDINGS, INC.
By:
/s/ Kimberly K. Schaefer
Name: Kimberly K. Schaefer
Title: Chief Executive Officer and President
PARTICIPANT
By:
/s/ Alexander P. Lombardo
Name: Alexander P. Lombardo
Number of Options
Tranche A Options
Tranche B Options
Tranche C Options
5,414
5,413
5,413
Option Price
$
$
$
10.00
10.00
10.00
(Back To Top)
Section 10: EX-10.22 (EX-10.22)
Exhibit 10.22
EXECUTION COPY
K-9 HOLDINGS, INC.
2012 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (“Agreement”), made as of this 13th day of August, 2012 (the “Date of Grant”), by and between
K-9 Holdings, Inc. (the “Company”) and the grantee whose name appears on the signature page hereto (the “Participant”).
W I T N E S S E T H:
WHEREAS, pursuant to the K-9 Holdings, Inc. 2012 Equity Incentive Plan (the “Plan”), the Company desires to afford the Participant
the opportunity to acquire ownership of shares of the Company’s Common Stock, so that the Participant may have a direct proprietary interest in
the Company’s success.
NOW, THEREFORE, in consideration of the covenants and agreements herein contained, the parties hereto hereby agree as follows:
1. Grant of Option. Subject to the terms and conditions set forth herein and in the Plan, the Company hereby grants to the Participant the right and
option (the right to purchase any one share of Common Stock hereunder being an “Option”) to purchase from the Company, shares of Common
Stock pursuant to the Tranche A Options (“Tranche A Options”), Tranche B Options (“Tranche B Options”) and Tranche C Options (“Tranche C
Options”) at a price per share (the “Option Price”) and in the amounts set forth on the signature page hereto (the “Option Shares”). The Options
granted hereunder shall expire ten (10) years following the Date of Grant.
2. Vesting and Exercisability.
(a) General. Subject to the terms and conditions set forth herein and the Plan, the Options granted to the Participant shall become vested and
exercisable as follows: (i) Tranche A Options will vest and become exercisable in equal installments on each of the first five (5) anniversaries of
May 4, 2012, (ii) Tranche B Options will vest and become exercisable at such time as the Investor realizes an Investor IRR that equals or exceeds
20% and a MOIC that equals or exceeds two (2), in each case, based on cash proceeds received by the Investor, and (iii) Tranche C Options will
vest and become exercisable at such time as the Investor realizes an Investor IRR that equals or exceeds 25% and a MOIC that equals or exceeds
three (3), in each case, based on cash proceeds received by the Investor; provided, that, the Participant is then employed by the Company or an
Affiliate.
(b) Change in Control. In the event of a Change in Control, any Tranche A Options that have not become vested at the time of such Change
in Control shall become vested and exercisable on the first anniversary of such Change in Control (or, if earlier, in accordance with their original
vesting terms as set forth in Section 2(a) above); provided, that in the event the Participant’s employment with the Company is terminated by the
Company without Cause prior to such first anniversary date, such Tranche A Options shall automatically become vested and exercisable as of the
date of such termination. Except to the extent Section 2(d) below shall apply, any Tranche B Options and Tranche C Options that have not vested
prior to, or become vested at the time of, a Change in Control shall continue to be subject to vesting in accordance with the terms of this
Agreement.
(c) Initial Public Offering. In the event of an initial Public Offering, all Options shall remain outstanding and continue to vest in accordance
with their original vesting terms as set forth in Section 2(a) above.
(d) Complete Disposition of Investor Investment. Any Tranche B Options and Tranche C Options that have not vested prior to, or become
vested at the time that, the Investor Investment has been fully disposed of by all Investors shall be cancelled for no consideration.
3. Post-Termination Exercisability.
(a) Any Termination. Except as provided with respect to Tranche A Options in connection with a termination without Cause within one year
following a Change in Control, unvested Options shall be cancelled for no consideration upon a termination for any reason.
(b) For Cause. Upon a termination for Cause, all Options shall immediately terminate, including vested Options.
(c) Vested and Exercisable. To the extent the Options were vested and exercisable at the time of the Participant’s termination of employment,
the Options shall remain exercisable during the following post-termination periods:
(i) Death/Disability: Earlier of (A) one (1) year following such termination and (B) the expiration of the Option Term.
(ii) All Other Terminations: Earlier of (A) ninety (90) days following such termination and (B) the expiration of the Option Term.
4. Method of Exercising Option.
(a) Payment of Option Price. Options, to the extent vested, may be exercised, in whole or in part, by giving written notice of exercise to the
Company specifying the number of shares of Common Stock to be purchased. Such notice shall be accompanied by the payment in full of the
aggregate Option Price. Such payment shall be made: (i) in cash or by check, bank draft or money order payable to the order of the Company,
(ii) through a cashless exercise whereby the Company reduces the number of shares of Common Stock issuable upon exercise with a value equal to
the aggregate Option Price and withholding obligation, (iii) solely to the extent permitted by applicable law, if the Common Stock is then traded on
an established securities exchange or system in the United States, through a procedure whereby the Participant delivers irrevocable instructions to
a broker reasonably acceptable to the Committee to deliver promptly to the Company an amount equal to the aggregate Option Price or (iv) on such
other terms and conditions as the Committee may permit, in its sole discretion.
2
(b) Tax Withholding. At the time of exercise, the Participant shall pay to the Company such amount as the Company deems necessary to
satisfy its obligation, if any, to withhold federal, state or local income or other taxes incurred by reason of the exercise of Options granted
hereunder. Such payment shall be made: (i) in cash, (ii) by having the Company withhold from the delivery of shares of Common Stock for which
the Option was exercised that number of shares of Common Stock having a Fair Market Value equal to the minimum withholding obligation, (iii) by
delivering shares of Common Stock owned by the holder of the Option that are Mature Shares, or (iv) by a combination of any such methods. For
purposes hereof, shares of Common Stock shall be valued at Fair Market Value.
5. Issuance of Shares. Except as otherwise provided in the Plan, as promptly as practical after receipt of such written notification of exercise and full
payment of the Option Price and any required income tax withholding, the Company shall issue or transfer to the Participant the number of Option
Shares with respect to which Options have been so exercised (less shares withheld for payment of the Option Price and/or in satisfaction of tax
withholding obligations, if any), and shall deliver to the Participant a certificate or certificates therefor, registered in the Participant’s name.
6. Repurchase.
(a) In the event of the termination of the Participant’s employment by the Company for Cause, the Company shall have the right, but not the
obligation, to repurchase any or all shares of Common Stock acquired by the Participant upon exercise of the Options at a price per share of
Common Stock equal to the lesser of (i) the Option Price or (ii) the per share Fair Market Value as of the time of such repurchase.
(b) In the event of the termination for any other reason prior to an initial Public Offering, the Company shall have the right, but not the
obligation, to repurchase any or all shares of Common Stock acquired by the Participant upon exercise of the Options that have been held by the
Participant for at least six months at the time of such repurchase at a price per share of Common Stock equal to the per share Fair Market Value.
7. Investor Rights Agreement. Notwithstanding anything herein to the contrary, in no event will shares of Common Stock be delivered upon
exercise of the Options unless and until the Participant executes an Adoption Agreement pursuant to which Participant will become bound by the
terms and conditions set forth in the Investor Rights Agreement, including those terms and conditions applicable to Management Holders (as
defined therein), which in all events shall be within thirty (30) days following exercise of the Options.
8. Non-Transferability. Except as otherwise permitted in accordance with Section 15(b) of the Plan, the Options are not transferable by the
Participant otherwise than to a designated beneficiary upon death or by will or the laws of descent and distribution, and are exercisable during the
Participant’s lifetime only by him/her (or his or her legal representative in the event of incapacity). No assignment or transfer of the Options, or of
the rights represented thereby, whether voluntary or involuntary, by operation of law or otherwise (except to a designated beneficiary, upon death,
by will or the laws of descent and distribution), shall vest in the assignee or transferee any interest or right herein whatsoever, but immediately
upon such assignment or transfer the Options shall terminate and become of no further effect.
3
9. Rights as Stockholder. The Participant or a transferee of the Options shall have no rights as stockholder with respect to any Option Shares until
he shall have become the holder of record of such shares, and no adjustment shall be made for dividends or distributions or other rights in respect
of such Option Shares for which the date on which stockholders of record are determined for purposes of paying dividends on shares of Common
Stock is prior to the date upon which he/she shall become the holder of record thereof.
10. Adjustments. In the event of any adjustment pursuant to Section 12 of the Plan that would adversely affect the value of the Options granted
hereunder or cause such Options to become subject to Section 409A of the Code, such adjustment may only be made with the Participant’s written
consent, which consent shall not be unreasonably withheld.
11. Compliance with Law. Notwithstanding any of the provisions hereof, the Participant hereby agrees that he/she will not exercise the Options,
and that the Company will not be obligated to issue or transfer any shares to the Participant hereunder, if the exercise hereof or the issuance or
transfer of such shares shall constitute a violation by the Participant or the Company of any provisions of any law or regulation of any
governmental authority. Any determination in this connection by the Committee shall be final, binding and conclusive.
12. Notice. Every notice or other communication relating to this Agreement shall be in writing, and shall be mailed to or delivered to the party for
whom it is intended at such address as may from time to time be designated by it in a notice mailed or delivered to the other party as herein
provided; provided, that, unless and until some other address be so designated, all notices or communications by the Participant to the Company
shall be mailed or delivered to the Company at its principal executive office, and all notices or communications by the Company to the Participant
may be given to the Participant personally or may be mailed to him at his address as recorded in the records of the Company.
13. Non-Qualified Stock Options. The Options granted hereunder are not intended to be Incentive Stock Options or Qualified Stock Options.
14. Binding Effect. Subject to Section 8 hereof, this Agreement shall be binding upon the heirs, executors, administrators and successors of the
parties hereto.
15. Governing Law. This Agreement shall be construed and interpreted in accordance with the laws of the State of Delaware without regard to its
conflict of law principles.
16. Plan. The terms and provisions of the Plan are incorporated herein by reference, and the Participant hereby acknowledges receiving a copy of
the Plan. In the event of a conflict or inconsistency between the terms and provisions of the Plan and the provisions of this Agreement, this
Agreement shall govern and control. All capitalized terms not defined herein shall have the meaning ascribed to them as set forth in the Plan.
17. Interpretation. Any dispute regarding the interpretation of this Agreement shall be submitted by the Participant or the Company to the
Committee for review. The resolution of such a dispute by the Committee shall be binding on the Company and the Participant.
4
18. No Right to Continued Employment. Nothing in this Agreement shall be deemed by implication or otherwise to impose any limitation on any
right of the Company to terminate the Participant’s employment.
19. Severability. Every provision of this Agreement is intended to be severable and any illegal or invalid term shall not affect the validity or legality
of the remaining terms.
20. Headings. The headings of the Sections hereof are provided for convenience only and are not to serve as a basis for interpretation of
construction, and shall not constitute a part of this Agreement.
21. Signature in Counterparts. This Agreement may be signed in counterparts, each of which shall be deemed an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
[signature page follows]
5
EXECUTION COPY
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first set forth above.
K-9 HOLDINGS, INC.
By: /s/ Kimberly K. Schaefer
Name: Kimberly K. Schaefer
Title: Chief Executive Officer and President
PARTICIPANT
By: /s/ Jeffrey S. Maupin
Name: Jeffrey Scott Maupin
Number of Options
Tranche A Options
Tranche B Options
Tranche C Options
13,535
13,534
13,534
Option Price
$
$
$
10.00
10.00
10.00
(Back To Top)
Section 11: EX-10.23 (EX-10.23)
Exhibit 10.23
EXECUTION COPY
K-9 HOLDINGS, INC.
2012 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (“Agreement”), made as of this 13th day of August, 2012 (the “Date of Grant”), by and between
K-9 Holdings, Inc. (the “Company”) and the grantee whose name appears on the signature page hereto (the “Participant”).
W I T N E S S E T H:
WHEREAS, pursuant to the K-9 Holdings, Inc. 2012 Equity Incentive Plan (the “Plan”), the Company desires to afford the Participant
the opportunity to acquire ownership of shares of the Company’s Common Stock, so that the Participant may have a direct proprietary interest in
the Company’s success.
NOW, THEREFORE, in consideration of the covenants and agreements herein contained, the parties hereto hereby agree as follows:
1. Grant of Option. Subject to the terms and conditions set forth herein and in the Plan, the Company hereby grants to the Participant the right and
option (the right to purchase any one share of Common Stock hereunder being an “Option”) to purchase from the Company, shares of Common
Stock pursuant to the Tranche A Options (“Tranche A Options”), Tranche B Options (“Tranche B Options”) and Tranche C Options (“Tranche C
Options”) at a price per share (the “Option Price”) and in the amounts set forth on the signature page hereto (the “Option Shares”). The Options
granted hereunder shall expire ten (10) years following the Date of Grant.
2. Vesting and Exercisability.
(a) General. Subject to the terms and conditions set forth herein and the Plan, the Options granted to the Participant shall become vested and
exercisable as follows: (i) Tranche A Options will vest and become exercisable in equal installments on each of the first five (5) anniversaries of
May 4, 2012, (ii) Tranche B Options will vest and become exercisable at such time as the Investor realizes an Investor IRR that equals or exceeds
20% and a MOIC that equals or exceeds two (2), in each case, based on cash proceeds received by the Investor, and (iii) Tranche C Options will
vest and become exercisable at such time as the Investor realizes an Investor IRR that equals or exceeds 25% and a MOIC that equals or exceeds
three (3), in each case, based on cash proceeds received by the Investor; provided, that, the Participant is then employed by the Company or an
Affiliate.
(b) Change in Control. In the event of a Change in Control, any Tranche A Options that have not become vested at the time of such Change
in Control shall become vested and exercisable on the first anniversary of such Change in Control (or, if earlier, in accordance with their original
vesting terms as set forth in Section 2(a) above); provided, that in the event the Participant’s employment with the Company is terminated by the
Company without Cause or by the Participant for Good Reason (as defined below) prior to such first anniversary date, such Tranche A Options
shall automatically become vested and exercisable as of the date of such termination. Except to the extent Section 2(d) below shall apply, any
Tranche B Options and Tranche C Options that have not vested prior to, or become vested at the time of, a Change in Control shall continue to be
subject to vesting in accordance with the terms of this Agreement.
(c) Initial Public Offering. In the event of an initial Public Offering, all Options shall remain outstanding and continue to vest in accordance
with their original vesting terms as set forth in Section 2(a) above.
(d) Complete Disposition of Investor Investment. Any Tranche B Options and Tranche C Options that have not vested prior to, or become
vested at the time that, the Investor Investment has been fully disposed of by all Investors shall be cancelled for no consideration.
3. Post-Termination Exercisability.
(a) Any Termination. Except as provided with respect to Tranche A Options in connection with a termination without Cause or for Good
Reason within one year following a Change in Control, unvested Options shall be cancelled for no consideration upon a termination for any reason.
(b) For Cause. Upon a termination for Cause, all Options shall immediately terminate, including vested Options.
(c) Vested and Exercisable. To the extent the Options were vested and exercisable at the time of the Participant’s termination of employment,
the Options shall remain exercisable during the following post-termination periods:
(i) Death/Disability: Earlier of (A) one (1) year following such termination and (B) the expiration of the Option Term.
(ii) All Other Terminations: Earlier of (A) ninety (90) days following such termination and (B) the expiration of the Option Term.
4. Method of Exercising Option.
(a) Payment of Option Price. Options, to the extent vested, may be exercised, in whole or in part, by giving written notice of exercise to the
Company specifying the number of shares of Common Stock to be purchased. Such notice shall be accompanied by the payment in full of the
aggregate Option Price. Such payment shall be made: (i) in cash or by check, bank draft or money order payable to the order of the Company,
(ii) through a cashless exercise whereby the Company reduces the number of shares of Common Stock issuable upon exercise with a value equal to
the aggregate Option Price and withholding obligation, (iii) solely to the extent permitted by applicable law, if the Common Stock is then traded on
an established securities exchange or system in the United States, through a procedure whereby the Participant delivers irrevocable instructions to
a broker reasonably acceptable to the Committee to deliver promptly to the Company an amount equal to the aggregate Option Price or (iv) on such
other terms and conditions as the Committee may permit, in its sole discretion.
2
(b) Tax Withholding. At the time of exercise, the Participant shall pay to the Company such amount as the Company deems necessary to
satisfy its obligation, if any, to withhold federal, state or local income or other taxes incurred by reason of the exercise of Options granted
hereunder. Such payment shall be made: (i) in cash, (ii) by having the Company withhold from the delivery of shares of Common Stock for which
the Option was exercised that number of shares of Common Stock having a Fair Market Value equal to the minimum withholding obligation, (iii) by
delivering shares of Common Stock owned by the holder of the Option that are Mature Shares, or (iv) by a combination of any such methods. For
purposes hereof, shares of Common Stock shall be valued at Fair Market Value.
5. Issuance of Shares. Except as otherwise provided in the Plan, as promptly as practical after receipt of such written notification of exercise and full
payment of the Option Price and any required income tax withholding, the Company shall issue or transfer to the Participant the number of Option
Shares with respect to which Options have been so exercised (less shares withheld for payment of the Option Price and/or in satisfaction of tax
withholding obligations, if any), and shall deliver to the Participant a certificate or certificates therefor, registered in the Participant’s name.
6. Repurchase.
(a) In the event of the termination of the Participant’s employment by the Company for Cause, the Company shall have the right, but not the
obligation, to repurchase any or all shares of Common Stock acquired by the Participant upon exercise of the Options at a price per share of
Common Stock equal to the lesser of (i) the Option Price or (ii) the per share Fair Market Value as of the time of such repurchase.
(b) In the event of the termination for any other reason prior to an initial Public Offering, the Company shall have the right, but not the
obligation, to repurchase any or all shares of Common Stock acquired by the Participant upon exercise of the Options that have been held by the
Participant for at least six months at the time of such repurchase at a price per share of Common Stock equal to the per share Fair Market Value.
7. Investor Rights Agreement. Notwithstanding anything herein to the contrary, in no event will shares of Common Stock be delivered upon
exercise of the Options unless and until the Participant executes an Adoption Agreement pursuant to which Participant will become bound by the
terms and conditions set forth in the Investor Rights Agreement, including those terms and conditions applicable to Management Holders (as
defined therein), which in all events shall be within thirty (30) days following exercise of the Options.
8. Non-Transferability. Except as otherwise permitted in accordance with Section 15(b) of the Plan, the Options are not transferable by the
Participant otherwise than to a designated beneficiary upon death or by will or the laws of descent and distribution, and are exercisable during the
Participant’s lifetime only by him/her (or his or her legal representative in the event of incapacity). No assignment or transfer of the Options, or of
the rights represented thereby, whether voluntary or involuntary, by operation of law or otherwise (except to a designated beneficiary, upon death,
by will or the laws of descent and distribution), shall vest in the assignee or transferee any interest or right herein whatsoever, but immediately
upon such assignment or transfer the Options shall terminate and become of no further effect.
3
9. Rights as Stockholder. The Participant or a transferee of the Options shall have no rights as stockholder with respect to any Option Shares until
he shall have become the holder of record of such shares, and no adjustment shall be made for dividends or distributions or other rights in respect
of such Option Shares for which the date on which stockholders of record are determined for purposes of paying dividends on shares of Common
Stock is prior to the date upon which he/she shall become the holder of record thereof.
10. Adjustments. In the event of any adjustment pursuant to Section 12 of the Plan that would adversely affect the value of the Options granted
hereunder or cause such Options to become subject to Section 409A of the Code, such adjustment may only be made with the Participant’s written
consent, which consent shall not be unreasonably withheld.
11. Compliance with Law. Notwithstanding any of the provisions hereof, the Participant hereby agrees that he/she will not exercise the Options,
and that the Company will not be obligated to issue or transfer any shares to the Participant hereunder, if the exercise hereof or the issuance or
transfer of such shares shall constitute a violation by the Participant or the Company of any provisions of any law or regulation of any
governmental authority. Any determination in this connection by the Committee shall be final, binding and conclusive.
12. Notice. Every notice or other communication relating to this Agreement shall be in writing, and shall be mailed to or delivered to the party for
whom it is intended at such address as may from time to time be designated by it in a notice mailed or delivered to the other party as herein
provided; provided, that, unless and until some other address be so designated, all notices or communications by the Participant to the Company
shall be mailed or delivered to the Company at its principal executive office, and all notices or communications by the Company to the Participant
may be given to the Participant personally or may be mailed to him at his address as recorded in the records of the Company.
13. Non-Qualified Stock Options. The Options granted hereunder are not intended to be Incentive Stock Options or Qualified Stock Options.
14. Binding Effect. Subject to Section 8 hereof, this Agreement shall be binding upon the heirs, executors, administrators and successors of the
parties hereto.
15. Governing Law. This Agreement shall be construed and interpreted in accordance with the laws of the State of Delaware without regard to its
conflict of law principles.
16. Plan. The terms and provisions of the Plan are incorporated herein by reference, and the Participant hereby acknowledges receiving a copy of
the Plan. In the event of a conflict or inconsistency between the terms and provisions of the Plan and the provisions of this Agreement, this
Agreement shall govern and control. All capitalized terms not defined herein shall have the meaning ascribed to them as set forth in the Plan.
4
17. Interpretation. Any dispute regarding the interpretation of this Agreement shall be submitted by the Participant or the Company to the
Committee for review. The resolution of such a dispute by the Committee shall be binding on the Company and the Participant.
18. No Right to Continued Employment. Nothing in this Agreement shall be deemed by implication or otherwise to impose any limitation on any
right of the Company to terminate the Participant’s employment.
19. Severability. Every provision of this Agreement is intended to be severable and any illegal or invalid term shall not affect the validity or legality
of the remaining terms.
20. Headings. The headings of the Sections hereof are provided for convenience only and are not to serve as a basis for interpretation of
construction, and shall not constitute a part of this Agreement.
21. Signature in Counterparts. This Agreement may be signed in counterparts, each of which shall be deemed an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
[signature page follows]
5
EXECUTION COPY
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first set forth above.
K-9 HOLDINGS, INC.
By:
/s/ Kimberly K. Schaefer
Name: Kimberly K. Schaefer
Title: Chief Executive Officer and President
PARTICIPANT
By:
/s/ Timothy Black
Name: Timothy Black
Number of Options
Tranche A Options
Tranche B Options
Tranche C Options
71,462
71,461
71,461
Option Price
$
$
$
10.00
10.00
10.00
(Back To Top)
Section 12: EX-10.24 (EX-10.24)
Exhibit 10.24
EXECUTION COPY
K-9 HOLDINGS, INC.
2012 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (“Agreement”), made as of this 13th day of August, 2012 (the “Date of Grant”), by and between K-9
Holdings, Inc. (the “Company”) and the grantee whose name appears on the signature page hereto (the “Participant”).
W I T N E S S E T H:
WHEREAS, pursuant to the K-9 Holdings, Inc. 2012 Equity Incentive Plan (the “Plan”), the Company desires to afford the Participant the
opportunity to acquire ownership of shares of the Company’s Common Stock, so that the Participant may have a direct proprietary interest in the
Company’s success.
NOW, THEREFORE, in consideration of the covenants and agreements herein contained, the parties hereto hereby agree as follows:
1. Grant of Option. Subject to the terms and conditions set forth herein and in the Plan, the Company hereby grants to the Participant the right and
option (the right to purchase any one share of Common Stock hereunder being an “Option”) to purchase from the Company, shares of Common
Stock pursuant to the Tranche A Options (“Tranche A Options”), Tranche B Options (“Tranche B Options”) and Tranche C Options (“Tranche C
Options”) at a price per share (the “Option Price”) and in the amounts set forth on the signature page hereto (the “Option Shares”). The Options
granted hereunder shall expire ten (10) years following the Date of Grant.
2. Vesting and Exercisability.
(a) General. Subject to the terms and conditions set forth herein and the Plan, the Options granted to the Participant shall become vested and
exercisable as follows: (i) Tranche A Options will vest and become exercisable in equal installments on each of the first five (5) anniversaries of
May 4, 2012, (ii) Tranche B Options will vest and become exercisable at such time as the Investor realizes an Investor IRR that equals or exceeds
20% and a MOIC that equals or exceeds two (2), in each case, based on cash proceeds received by the Investor, and (iii) Tranche C Options will
vest and become exercisable at such time as the Investor realizes an Investor IRR that equals or exceeds 25% and a MOIC that equals or exceeds
three (3), in each case, based on cash proceeds received by the Investor; provided, that, the Participant is then employed by the Company or an
Affiliate.
(b) Change in Control. In the event of a Change in Control, any Tranche A Options that have not become vested at the time of such Change
in Control shall become vested and exercisable on the first anniversary of such Change in Control (or, if earlier, in accordance with their original
vesting terms as set forth in Section 2(a) above); provided, that in the event the Participant’s employment with the Company is terminated by the
Company without Cause or by the Participant for Good Reason (as defined below) prior to such first anniversary date, such Tranche A Options
shall automatically become vested and exercisable as of the date of such termination. Except to the extent Section 2(d) below shall apply, any
Tranche B Options and Tranche C Options that have not vested prior to, or become vested at the time of, a Change in Control shall continue to be
subject to vesting in accordance with the terms of this Agreement.
For purposes of this Agreement, “Good Reason” shall have the meaning given to such term in the Employment Agreement between Great Wolf
Resorts, Inc. and the Participant dated as of a similar date herewith.
(c) Initial Public Offering. In the event of an initial Public Offering, all Options shall remain outstanding and continue to vest in accordance
with their original vesting terms as set forth in Section 2(a) above.
(d) Complete Disposition of Investor Investment. Any Tranche B Options and Tranche C Options that have not vested prior to, or become
vested at the time that, the Investor Investment has been fully disposed of by all Investors shall be cancelled for no consideration.
3. Post-Termination Exercisability.
(a) Any Termination. Except as provided with respect to Tranche A Options in connection with a termination without Cause or for Good
Reason within one year following a Change in Control, unvested Options shall be cancelled for no consideration upon a termination for any reason.
(b) For Cause. Upon a termination for Cause, all Options shall immediately terminate, including vested Options.
(c) Vested and Exercisable. To the extent the Options were vested and exercisable at the time of the Participant’s termination of employment,
the Options shall remain exercisable during the following post-termination periods:
(i) Death/Disability: Earlier of (A) one (1) year following such termination and (B) the expiration of the Option Term.
(ii) All Other Terminations: Earlier of (A) ninety (90) days following such termination and (B) the expiration of the Option Term.
4. Method of Exercising Option.
(a) Payment of Option Price. Options, to the extent vested, may be exercised, in whole or in part, by giving written notice of exercise to the
Company specifying the number of shares of Common Stock to be purchased. Such notice shall be accompanied by the payment in full of the
aggregate Option Price. Such payment shall be made: (i) in cash or by check, bank draft or money order payable to the order of the Company,
(ii) through a cashless exercise whereby the Company reduces the number of shares of Common Stock issuable upon exercise with a value equal to
the aggregate Option Price and withholding obligation, (iii) solely to the extent permitted by applicable law, if the Common Stock is then traded on
an established securities exchange or system in the United States, through a procedure whereby the Participant delivers irrevocable instructions to
a broker reasonably acceptable to the Committee to deliver promptly to the Company an amount equal to the aggregate Option Price or (iv) on such
other terms and conditions as the Committee may permit, in its sole discretion.
2
(b) Tax Withholding. At the time of exercise, the Participant shall pay to the Company such amount as the Company deems necessary to
satisfy its obligation, if any, to withhold federal, state or local income or other taxes incurred by reason of the exercise of Options granted
hereunder. Such payment shall be made: (i) in cash, (ii) by having the Company withhold from the delivery of shares of Common Stock for which
the Option was exercised that number of shares of Common Stock having a Fair Market Value equal to the minimum withholding obligation, (iii) by
delivering shares of Common Stock owned by the holder of the Option that are Mature Shares, or (iv) by a combination of any such methods. For
purposes hereof, shares of Common Stock shall be valued at Fair Market Value.
5. Issuance of Shares. Except as otherwise provided in the Plan, as promptly as practical after receipt of such written notification of exercise and full
payment of the Option Price and any required income tax withholding, the Company shall issue or transfer to the Participant the number of Option
Shares with respect to which Options have been so exercised (less shares withheld for payment of the Option Price and/or in satisfaction of tax
withholding obligations, if any), and shall deliver to the Participant a certificate or certificates therefor, registered in the Participant’s name.
6. Repurchase.
(a) In the event of the termination of the Participant’s employment by the Company for Cause, the Company shall have the right, but not the
obligation, to repurchase any or all shares of Common Stock acquired by the Participant upon exercise of the Options at a price per share of
Common Stock equal to the lesser of (i) the Option Price or (ii) the per share Fair Market Value as of the time of such repurchase.
(b) In the event of the termination for any other reason prior to an initial Public Offering, the Company shall have the right, but not the
obligation, to repurchase any or all shares of Common Stock acquired by the Participant upon exercise of the Options that have been held by the
Participant for at least six months at the time of such repurchase at a price per share of Common Stock equal to the per share Fair Market Value.
7. Investor Rights Agreement. Notwithstanding anything herein to the contrary, in no event will shares of Common Stock be delivered upon
exercise of the Options unless and until the Participant executes an Adoption Agreement pursuant to which Participant will become bound by the
terms and conditions set forth in the Investor Rights Agreement, including those terms and conditions applicable to Management Holders (as
defined therein), which in all events shall be within thirty (30) days following exercise of the Options.
8. Non-Transferability. Except as otherwise permitted in accordance with Section 15(b) of the Plan, the Options are not transferable by the
Participant otherwise than to a designated beneficiary upon death or by will or the laws of descent and distribution, and are exercisable during the
Participant’s lifetime only by him/her (or his or her legal representative in the event of incapacity). No assignment or transfer of the Options, or of
the rights represented thereby,
3
whether voluntary or involuntary, by operation of law or otherwise (except to a designated beneficiary, upon death, by will or the laws of descent
and distribution), shall vest in the assignee or transferee any interest or right herein whatsoever, but immediately upon such assignment or transfer
the Options shall terminate and become of no further effect.
9. Rights as Stockholder. The Participant or a transferee of the Options shall have no rights as stockholder with respect to any Option Shares until
he shall have become the holder of record of such shares, and no adjustment shall be made for dividends or distributions or other rights in respect
of such Option Shares for which the date on which stockholders of record are determined for purposes of paying dividends on shares of Common
Stock is prior to the date upon which he/she shall become the holder of record thereof.
10. Adjustments. In the event of any adjustment pursuant to Section 12 of the Plan that would adversely affect the value of the Options granted
hereunder or cause such Options to become subject to Section 409A of the Code, such adjustment may only be made with the Participant’s written
consent, which consent shall not be unreasonably withheld.
11. Compliance with Law. Notwithstanding any of the provisions hereof, the Participant hereby agrees that he/she will not exercise the Options,
and that the Company will not be obligated to issue or transfer any shares to the Participant hereunder, if the exercise hereof or the issuance or
transfer of such shares shall constitute a violation by the Participant or the Company of any provisions of any law or regulation of any
governmental authority. Any determination in this connection by the Committee shall be final, binding and conclusive.
12. Notice. Every notice or other communication relating to this Agreement shall be in writing, and shall be mailed to or delivered to the party for
whom it is intended at such address as may from time to time be designated by it in a notice mailed or delivered to the other party as herein
provided; provided, that, unless and until some other address be so designated, all notices or communications by the Participant to the Company
shall be mailed or delivered to the Company at its principal executive office, and all notices or communications by the Company to the Participant
may be given to the Participant personally or may be mailed to him at his address as recorded in the records of the Company.
13. Non-Qualified Stock Options. The Options granted hereunder are not intended to be Incentive Stock Options or Qualified Stock Options.
14. Binding Effect. Subject to Section 8 hereof, this Agreement shall be binding upon the heirs, executors, administrators and successors of the
parties hereto.
15. Governing Law. This Agreement shall be construed and interpreted in accordance with the laws of the State of Delaware without regard to its
conflict of law principles.
16. Plan. The terms and provisions of the Plan are incorporated herein by reference, and the Participant hereby acknowledges receiving a copy of
the Plan. In the event of a conflict or inconsistency between the terms and provisions of the Plan and the provisions of this Agreement, this
Agreement shall govern and control. All capitalized terms not defined herein shall have the meaning ascribed to them as set forth in the Plan.
4
17. Interpretation. Any dispute regarding the interpretation of this Agreement shall be submitted by the Participant or the Company to the
Committee for review. The resolution of such a dispute by the Committee shall be binding on the Company and the Participant.
18. No Right to Continued Employment. Nothing in this Agreement shall be deemed by implication or otherwise to impose any limitation on any
right of the Company to terminate the Participant’s employment.
19. Severability. Every provision of this Agreement is intended to be severable and any illegal or invalid term shall not affect the validity or legality
of the remaining terms.
20. Headings. The headings of the Sections hereof are provided for convenience only and are not to serve as a basis for interpretation of
construction, and shall not constitute a part of this Agreement.
21. Signature in Counterparts. This Agreement may be signed in counterparts, each of which shall be deemed an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
[signature page follows]
5
EXECUTION COPY
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first set forth above.
K-9 HOLDINGS, INC.
By:
/s/ James A. Calder
Name: James A. Calder
Title: Chief Financial Officer and Corporate Secretary
PARTICIPANT
By:
/s/ Kimberly K. Schaefer
Name: Kimberly K. Schaefer
Number of Options
Tranche A Options
Tranche B Options
Tranche C Options
Option Price
189,481
189,481
189,481
$
$
$
10.00
10.00
10.00
(Back To Top)
Section 13: EX-12.1 (EX-12.1)
Great Wolf Resorts, Inc.
Exhibit 12.1 Computation of Ratio of Earnings to Fixed Charges and Ratio of Fixed Charges and Preferred Stock Dividends to Earnings
Amounts in thousands
Computation of Ratio of Earnings to Fixed Charges and Ratio of Fixed
Charges and Preferred Stock Dividends to Earnings
Earnings:
Add: Pre-tax income/loss from continuing operations before adjustment
for noncontrolling interest or income/loss from equity investees
Fixed charges
Amortization of capitalized interest
distributed income of equity investees
your share of pre-tax losses of equity investees for which charges
arising from guarantees are included in fixed charges
Less:
Interest capitalized
preference security dividend requirements of consolidated subs
Noncontrolling interest in pre-tax loss of subsidiaries that have not
incurred fixed charges
$(11,425)
26,155
2,565
—
—
17,295
$(21,755)
16,770
1,336
—
—
(3,649)
$(25,220)
53,095
4,081
—
—
31,956
—
—
—
—
—
—
(90)
(90)
(15)
(15)
(19)
(19)
$(55,390)
53,983
4,095
—
$(27,863)
41,749
4,355
—
$(45,378)
33,861
3,336
—
—
2,688
—
18,241
—
(8,181)
—
—
1,761
—
4,714
—
—
1,761
—
4,714
(9)
(9)
Total Earnings
$ 17,385
$ (3,634)
$ 31,975
$ 2,697
$ 16,480
$(12,895)
Fixed Charges:
Interest expensed
Interest capitalized
Amortized premiums/discounts
Amortized capitalized expense related to indebtedness
Estimate of the interest within rental expense
Preference security dividend requirements of consolidated subs
Total Fixed Charges
$ 26,126
—
—
29
—
—
$ 26,155
$ 16,016
—
—
754
—
—
$ 16,770
$ 47,902
—
—
5,193
—
—
$ 53,095
$ 45,540
—
—
8,443
—
—
$ 53,983
$ 33,304
1,761
—
6,684
—
—
$ 41,749
$ 26,645
4,714
—
2,502
—
—
$ 33,861
Preferred Stock Dividends
—
—
—
—
—
—
Ratio of earnings to fixed charges (1)
0.66
(0.22)
0.60
0.05
0.39
(0.38)
Ratio of fixed charges and preferred stock dividends to earnings (1)
1.50
(4.61)
1.66
20.01
2.53
(2.63)
$ 21,120
$ 51,286
$ 25,269
(1)
Fixed charges in excess of earnings
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Section 14: EX-21.1 (EX-21.1)
$ 8,770
$ 20,404
$ 46,756
Exhibit 21.1
SUBSIDIARIES OF GREAT WOLF RESORTS, INC.
1.
BHMH, LLC
2.
Blue Harbor Resort Sheboygan, LLC
3.
CTGW, LLC
4.
Creative Kingdoms, LLC
5.
GLGB Manager III, LLC
6.
Grapevine Beverage, Inc.
7.
Great Bear Lodge of Wisconsin Dells, LLC
8.
Great Lakes Services, LLC
9.
Great Wolf Capital Trust I
10.
Great Wolf Connecticut, LLC
11.
Great Wolf Finance Corp.
12.
Great Wolf Kansas SPE, LLC
13.
Great Wolf Lodge of Chehalis, LLC
14.
Great Wolf Lodge of Georgia, LLC
15.
Great Wolf Lodge of Grapevine, LLC
16.
Great Wolf Lodge of Kansas City, LLC
17.
Great Wolf Lodge of PKI, LLC
18.
Great Wolf Lodge of the Carolinas, LLC
19.
Great Wolf Lodge of the Poconos, LLC
20.
Great Wolf Lodge of Traverse City, LLC
21.
Great Wolf Lodge of Williamsburg, LLC
22.
Great Wolf TC Development, LLC
23.
Great Wolf Traverse SPE, LLC
24.
Great Wolf Williamsburg SPE, LLC
25.
GW Capital Trust II
26.
GW Capital Trust III
27.
GW Capital Trust IV
28.
GWF Connecticut, LLC
29.
GWGG, LLC
30.
GWL KC Beverage, Inc.
31.
GWR Development Connecticut, LLC
32.
GWR Garden Grove, LLC
33.
GWR Michigan, LLC
34.
GWR OP General Partner, LLC
35.
GWR Operating Partnership, LLLP
36.
GWR Scholarships, Inc.
37.
Mason Family Resorts, LLC
38.
MQ Gaming, LLC
39.
New Kingdoms, LLC
40.
Niagara Glenview Tent & Trailer Park Company (Nova Scotia)
41.
Pine Brook Properties, LLC
42.
Scooops Tenant, LLC
43.
Williamsburg Landlord Parcel C, LLC
44.
Williamsburg Landlord Parcel D, LLC
45.
Williamsburg Meadows, LLC
(Back To Top)
Section 15: EX-31.1 (EX-31.1)
Exhibit 31.1
Certification of Principal Executive Officer
Pursuant to Section 302 Of The Sarbanes-Oxley Act of 2002
I, Kimberly K. Schaefer, certify that:
1. I have reviewed this Annual Report on Form 10-K of Great Wolf Resorts, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-(15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15
(f)) for the registrant and have:
a.
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is being prepared;
b.
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
c.
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
d.
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an Annual Report) that has materially affected, or is reasonable
likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Dated: March 29, 2013
By: /s/ KIMBERLY K. SCHAEFER
Kimberly K. Schaefer
Chief Executive Officer
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Section 16: EX-31.2 (EX-31.2)
Exhibit 31.2
Certification of Principal Financial and Accounting Officer
Pursuant to Section 302 Of The Sarbanes-Oxley Act of 2002
I, James A. Calder, certify that:
1. I have reviewed this Annual Report on Form 10-K of Great Wolf Resorts, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-(15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15
(f)) for the registrant and have:
a.
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is being prepared;
b.
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
c.
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
d.
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an Annual Report) that has materially affected, or is reasonable
likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Dated: March 29, 2013
By: /s/ JAMES A. CALDER
James A. Calder
Chief Financial Officer
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Section 17: EX-32.1 (EX-32.1)
Exhibit 32.1
Certification of Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Great Wolf Resorts, Inc. (the
“Company”) hereby certifies, to such officer’s knowledge, that:
(i)
the accompanying Annual Report on Form 10-K of the Company for the year ended December 31, 2012 (the “Report”) fully complies
with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(ii)
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Dated: March 29, 2013
By: /s/ KIMBERLY K. SCHAEFER
Kimberly K. Schaefer
Chief Executive Officer
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Section 18: EX-32.2 (EX-32.2)
Exhibit 32.2
Certification of Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Great Wolf Resorts, Inc. (the
“Company”) hereby certifies, to such officer’s knowledge, that:
(i)
the accompanying Annual Report on Form 10-K of the Company for the year ended December 31, 2012 (the “Report”) fully complies
with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(ii)
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Dated: March 29, 2013
By: /s/ JAMES A. CALDER
James A. Calder
Chief Financial Officer
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