<PAGE>
As filed with the Securities and Exchange Commission on June 21, 1996.
REGISTRATION NO. 333 -________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
NATIONAL GOLF PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
MARYLAND 6798 95-4549193
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
1448 15TH STREET, SUITE 200
SANTA MONICA, CALIFORNIA 90404
(310) 260-5500
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
EDWARD R. SAUSE
EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL OFFICER,
SECRETARY AND DIRECTOR
NATIONAL GOLF PROPERTIES, INC.
1448 15TH STREET, SUITE 200
SANTA MONICA, CALIFORNIA 90404
(310) 260-5500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES OF ALL COMMUNICATIONS TO:
JOHN M. NEWELL, ESQ. GARY D. GILSON, ESQ.
LATHAM & WATKINS BLACKWELL SANDERS MATHENY WEARY & LOMBARDI
633 WEST FIFTH STREET 10855 WEST DODGE ROAD - SUITE 240
LOS ANGELES, CALIFORNIA 90071 OMAHA, NEBRASKA 68154
(213) 485-1234 (402) 691-5005
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective and all other
conditions under the Acquisition Agreement (described in the Joint Proxy
Statement--Prospectus herein) are satisfied or waived.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box.
_______________
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH AMOUNT TO BE MAXIMUM MAXIMUM
CLASS OF SECURITIES REGISTERED(1) AGGREGATE FEE(3) AMOUNT OF
TO BE REGISTERED OFFERING PRICE PER SHARE(2) OFFERING PRICE(2) REGISTRATION
<S> <C> <C> <C> <C>
Common Stock, $.01 par value... 2,128,000 $19.17 $40,786,649 $14,064.36
========================================================================================================
</TABLE>
(1) Represents the maximum number of shares of Common Stock, $.01 par value per
share ("NGP Common Stock"), of National Golf Properties, Inc. (the
"Registrant") issuable in connection with the transactions contemplated by
the Acquisition Agreement.
(2) The proposed maximum aggregate offering price is based on the aggregate
value of the shares of NGP Common Stock that NGP is required to issue in
connection with its purchase of certain assets from Golf Enterprises, Inc.
pursuant to the Acquisition Agreement. Such amount assumes that the average
closing price per share of NGP Common Stock on the New York Stock Exchange
(the "NYSE") for the ten days immediately preceding the second trading day
before the consummation of such asset purchase does not exceed $28.75. The
average of the high and low sales prices of a share of NGP Common Stock
reported on the NYSE on June 20, 1996 was $24.313. The proposed
maximum offering price per share is based upon the proposed maximum
aggregate offering price divided by 2,128,000, representing the maximum
number of shares of NGP Common Stock to be registered.
(3) The registration fee for the securities registered hereby has been
calculated pursuant to Section 6(b) of the Securities Act of 1933, as
amended (the "Securities Act"), as one twenty-ninth of one percent of the
proposed maximum aggregate offering price. A fee of $16,314.66 was paid on
March 19, 1996 pursuant to Rules 14a-6 and 0-11 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), in respect
of the transactions contemplated by the Acquisition Agreement upon filing by
the Registrant of a preliminary proxy statement relating thereto. Pursuant
to Rule 457(b) promulgated under the Securities Act and Section 14(g)(2) of
the Exchange Act and Rule 0-11 promulgated thereunder, the amount of such
previously paid fee has been credited against the registration fee payable
in connection with this filing. Accordingly, no additional fee is required
to be paid with this Registration Statement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION"), ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
================================================================================
____________________
CROSS-REFERENCE SHEET PURSUANT TO RULE 404(a) OF THE SECURITIES ACT AND
ITEM 501(b) OF REGULATION S-K SHOWING THE LOCATION IN THE JOINT PROXY
STATEMENT--PROSPECTUS OF THE INFORMATION REQUIRED BY PART I OF FORM S-4
ITEM LOCATION OR HEADING IN
NO. FORM S-4 CAPTION JOINT PROXY STATEMENT--PROSPECTUS
- ---- ---------------- ---------------------------------
A. INFORMATION ABOUT THE TRANSACTION.
1. Forepart of Registration Statement
and Outside Front Cover Page of
Prospectus.......................... Facing Page of the Registration
Statement; Outside Front Cover Page of
Joint Proxy Statement-Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus................. Available Information; Incorporation
of Certain Documents by Reference;
Table of Contents
3. Risk Factors, Ratio of Earnings to
Fixed Charges and Other Information. Summary; Risk Factors
4. Terms of the Transaction............ Summary; The Asset Purchase and
Merger-Recommendations of the Boards
of Directors of NGP and GEI; Reasons
for the Asset Purchase and the
Merger, -Opinion of NGP's Financial
Advisor, -Opinion of GEI's Financial
Advisor, -Accounting Treatment of the
Acquisition; Description of NGP
Capital Stock; Certain Effects of
Merger on GEI Stockholder Rights;
Material Federal Income Tax
Consequences
5. Pro Forma Financial Information..... Summary; Pro Forma Combined Condensed
Financial Data for NGP; Pro Forma
Combined Condensed Financial Data for
AGC; Pro Forma Condensed Balance Sheet
for GEI - (Sale and Merger
Adjustments)
6. Material Contacts with the Company
Being Acquired...................... Risk Factors-Conflicts of Interest;
The Asset Purchase and Merger-
Background of the Transaction, -
Possible Conflicts of Interest of
Certain Officers and Directors, -
Description of Acquisition Agreement
7. Additional Information Required for
Reoffering by Persons and Parties
Deemed to Be Underwriters........... Not Applicable
<PAGE>
ITEM LOCATION OR HEADING IN
NO. FORM S-4 CAPTION JOINT PROXY STATEMENT--PROSPECTUS
- ---- ---------------- ---------------------------------
8. Interests of Named Experts and
Counsel............................. Not Applicable
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities......................... Not Applicable
B. INFORMATION ABOUT THE REGISTRANT.
10. Information with Respect to S-3
Registrants......................... Incorporation of Certain Documents by
Reference; Summary; NGP Selected
Consolidated Financial Data; Business
of NGP
11. Incorporation of Certain Information
by Reference........................ Incorporation of Certain Documents by
Reference
12. Information with Respect to S-2 or
S-3 Registrants..................... Not Applicable
13. Incorporation of Certain Information
by Reference........................ Not Applicable
14. Information with Respect to
Registrants Other Than S-2 or S-3
Registrants......................... Not Applicable
C. INFORMATION ABOUT THE COMPANY BEING
ACQUIRED.
15. Information with Respect to S-3
Companies........................... Not Applicable
16. Information with Respect to S-2 or
S-3 Companies....................... Not Applicable
17. Information with Respect to
Companies Other Than S-2 or S-3
Companies........................... Outside Front Cover Page of Joint
Proxy Statement-Prospectus; Available
Information; Summary; GEI's Business
Related to the Purchased Assets
Summary Combined Financial Data;
Description of Purchased Assets; GEI's
Business Related to the Purchased
Assets Combined Financial Statements
<PAGE>
ITEM LOCATION OR HEADING IN
NO. FORM S-4 CAPTION JOINT PROXY STATEMENT--PROSPECTUS
- ---- ---------------- ---------------------------------
D. VOTING AND MANAGEMENT INFORMATION.
18. Information if Proxies, Consents or
Authorizations are to be Solicited.. Outside Front Cover Page of Joint
Proxy Statement-Prospectus;
Incorporation of Certain Documents by
Reference; Summary; Voting and
Proxies; Risk Factors-Conflicts of
Interest; The Asset Purchase and
Merger-Possible Conflicts of Interest
of Certain Officers and Directors, -
Dissenters' Rights; Election of NGP
Directors; Stockholder Proposals
19. Information if Proxies, Consents or
Authorizations are not to be
Solicited or in an Exchange Offer... Not Applicable
<PAGE>
EXPLANATORY NOTE
----------------
This filing includes the Joint Proxy Statement--Prospectus of National
Golf Properties, Inc. and Golf Enterprises, Inc., the letters and notices to
stockholders of both companies and the forms of proxy related thereto. The proxy
materials sent to each company's stockholders will include only the letter to
stockholders, notice of meeting and form of proxy relating to such company.
<PAGE>
GOLF ENTERPRISES, INC.
1603 LBJ FREEWAY, SUITE 810
DALLAS, TEXAS 75234
June 26, 1996
Dear Stockholder:
You are cordially invited to attend the Special Meeting of Stockholders of
Golf Enterprises, Inc. ("GEI") to be held on July 25, 1996 at the Doubletree
Hotel at Park West, 1590 LBJ Freeway, Dallas, Texas, commencing at 10:00 a.m.
(the "GEI Special Meeting").
At the GEI Special Meeting, you will be asked to vote upon a proposal to
approve and adopt an Asset Purchase Agreement and Agreement and Plan of Merger
dated as of February 2, 1996, as amended (the "Acquisition Agreement") among
National Golf Properties, Inc. ("NGP"), GEI Acquisition Corporation, a Kansas
corporation, ("Newco") and GEI pursuant to which GEI will sell its 20 owned
golf courses and related assets (the "Purchased Assets") to NGP (the "Asset
Purchase") and Newco, which is wholly-owned by an affiliate of David G. Price
(who is Chairman of NGP's Board of Directors and the principal shareholder of
American Golf Corporation), will merge with and into GEI with GEI being the
surviving corporation (the "Merger"). If the Acquisition Agreement is approved
by the stockholders and becomes effective, stockholders of GEI will be entitled
to exchange each share of GEI common stock for, depending on the form of
consideration paid by NGP, at NGP's option, in connection with the Asset
Purchase, either (i) a combination of $6.00 in cash and between approximately
0.20870 and 0.31304 of a share of NGP common stock (assuming no exercise of
options to purchase GEI common stock prior to the Merger) valued at
approximately $6.00 (subject to limitations on the maximum and minimum number
of NGP shares issuable, as discussed below), or (ii) $12.00 in cash. Subject to
certain adjustments and limitations, GEI stockholders will receive total
consideration of $79,025,784, and holders of unexpired and unexercised options
to purchase GEI common stock will be entitled to receive, in exchange for
cancellation of such options, total consideration of $2,547,514 payable in the
same proportion of cash and stock as is paid to holders of GEI common stock. Of
this total aggregate consideration of approximately $81.6 million, $58.0
million will come from NGP as consideration for the Purchased Assets and Newco
will contribute approximately $23.6 million in cash. In addition, Newco will
refinance approximately $54.9 million of GEI's existing indebtedness in
connection with the Merger.
Management of NGP currently expects that it will pay, and GEI stockholders
will receive in the Merger as consideration for their shares of GEI common
stock, the combination of cash and NGP common stock. However, NGP may decide to
exercise its option to pay all cash for the Purchased Assets depending on the
trading price of NGP common stock prior to consummation of the Merger and NGP's
ability to raise sufficient financing to pay all cash for the Purchased Assets.
NGP will issue a press release no later than July 11, 1996 indicating whether
NGP will pay the combination of cash and stock or all cash in the Asset
Purchase. GEI stockholders also will be able to call (800) 995-3499 on or after
such date to determine the form of consideration that NGP has elected to pay.
The precise amount and value of any NGP common stock which GEI stockholders
may receive for each share of GEI common stock will be calculated based on the
pre-Merger average trading price of NGP common stock. This figure will not be
known until after the GEI Special Meeting, but the aggregate number of shares
of NGP common stock that GEI stockholders will collectively receive will be not
less than 1,418,666 nor more than 2,128,000 shares. The enclosed Joint Proxy
Statement--Prospectus provides a summary of the Asset Purchase and the Merger
and includes additional material describing them in more detail. Please read
this information carefully.
<PAGE>
Your Board of Directors has carefully reviewed and considered the terms and
conditions of the Acquisition Agreement and the opinion of William Blair &
Company, L.L.C., GEI's financial advisor, stating that, as of the date of such
opinion, the consideration to be received by the stockholders of GEI in the
Merger is fair from a financial point of view to GEI's stockholders. The Board
of Directors of GEI also believes that the terms of the Acquisition Agreement
are fair to, and in the best interests of, GEI and its stockholders. AS A
RESULT, YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE ACQUISITION
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND RECOMMENDS THAT YOU
VOTE FOR APPROVAL AND ADOPTION OF THE ACQUISITION AGREEMENT. Certain members
of GEI's Board of Directors may have conflicts of interest in making this
recommendation. See the enclosed Joint Proxy Statement--Prospectus under "The
Asset Purchase and Merger--Possible Conflicts of Interest of Certain Officers
and Directors."
Holders of approximately 45% of the outstanding shares of GEI common stock
(on a fully diluted basis) have entered into an agreement to vote for approval
and adoption of the Acquisition Agreement and the transactions contemplated
thereby.
Management of GEI believes that the Asset Purchase and the Merger together
represent an opportunity for GEI's stockholders to maximize the value of their
stock. The Asset Purchase and the Merger do, however, involve certain risks,
which are discussed further in the enclosed Joint Proxy Statement--Prospectus
under "Risk Factors."
Because approval of the Acquisition Agreement requires a favorable vote of
the holders of a majority of the shares of outstanding GEI common stock, it is
important that your shares be represented at the GEI Special Meeting,
regardless of the number of shares you hold. Therefore please sign, date and
return your proxy card as soon as possible, whether or not you plan to attend.
This will not prevent you from voting your shares in person if you do attend.
The proxy is revocable in accordance with the procedures described in the
enclosed Joint Proxy Statement--Prospectus under "Voting and Proxies."
Sincerely,
/s/ ROBERT H. WILLIAMS
_____________________________________
Robert H. Williams
President and Chief Executive
Officer
<PAGE>
GOLF ENTERPRISES, INC.
1603 LBJ FREEWAY, SUITE 810
DALLAS, TEXAS 75234
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 25, 1996
To the Holders of Common Stock of
Golf Enterprises, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Golf
Enterprises, Inc. ("GEI") will be held at the Doubletree Hotel at Park West,
1590 LBJ Freeway, Dallas, Texas, at 10:00 a.m., local time, on July 25, 1996
(the "GEI Special Meeting"), for the following purposes, as more fully
described in the accompanying Joint Proxy Statement--Prospectus:
(a) To consider and vote upon a proposal to approve and adopt an Asset
Purchase Agreement and Agreement and Plan of Merger dated as of February 2,
1996, as amended (the "Acquisition Agreement") among National Golf
Properties, Inc. ("NGP"), GEI Acquisition Corporation ("Newco") and GEI
pursuant to which GEI will sell its 20 owned golf courses and related
assets to NGP (the "Asset Purchase") in exchange for, at the option of NGP,
either (i) a combination of $17,213,351 in cash and shares of NGP common
stock with an aggregate value of $40,786,649 (subject to certain
adjustments and limitations), or (ii) $58 million in cash; and Newco will
merge with and into GEI with GEI being the surviving corporation (the
"Merger"). If the Acquisition Agreement is approved by the stockholders of
GEI and becomes effective, GEI's stockholders will be entitled to exchange
each share of GEI common stock for, depending on the form of consideration
paid by NGP in connection with the Asset Purchase, either (A) a combination
of $6.00 in cash and between approximately 0.20870 and 0.31304 of a share
of NGP common stock (assuming no exercise of options to purchase GEI common
stock prior to the Merger) valued at approximately $6.00 (subject to
limitations on the maximum and minimum number of NGP shares issuable, as
discussed below), or (B) $12.00 in cash. The aggregate amount of
consideration received by GEI stockholders will be $79,025,784 (subject to
certain adjustments and limitations). Holders of unexpired and unexercised
options to purchase GEI common stock will be entitled to receive, in
exchange for cancellation of such options, total consideration of
$2,547,514 (subject to certain adjustments and limitations) in the same
proportion of cash and stock as is paid to holders of GEI common stock. Of
this total aggregate consideration of approximately $81.6 million, $58.0
million will come from NGP as consideration for the Asset Purchase, and
Newco will contribute approximately $23.6 million in cash. In addition,
Newco will refinance approximately $54.9 million of GEI's existing
indebtedness in connection with the Merger. For purposes of these
transactions, each share of NGP common stock will be valued at the average
closing price per share of NGP common stock on the New York Stock Exchange
for the ten trading days immediately preceding the second trading day prior
to the date the Asset Purchase and the Merger are consummated. The precise
number and aggregate value of any shares of NGP common stock which GEI
stockholders may receive will not be known until after the GEI Special
Meeting. However, the aggregate number of shares of NGP common stock that
GEI stockholders collectively will receive will be not less than 1,418,666
nor more than 2,128,000 shares; and
(b) To transact such other business as may properly come before the GEI
Special Meeting and any or all adjournments thereof.
The Board of Directors of GEI has unanimously approved the Acquisition
Agreement and the transactions contemplated thereby and recommends that
stockholders vote FOR approval and adoption of the Acquisition Agreement. For
a description of possible conflicts of interest of certain GEI officers and
directors in approving the Acquisition Agreement, see the enclosed Joint Proxy
Statement--Prospectus under "The Asset Purchase and Merger--Possible Conflicts
of Interest of Certain Officers and Directors."
<PAGE>
The Asset Purchase and the Merger and other important matters are explained
in the accompanying Joint Proxy Statement--Prospectus, which you are urged to
read carefully. Copies of the Acquisition Agreement and an amendment thereto
are attached as Annex I and Annex II, respectively, to the Joint Proxy
Statement--Prospectus.
The Board of Directors of GEI has fixed the close of business on June 4,
1996 as the record date for determining the stockholders entitled to receive
notice of and to vote at the GEI Special Meeting and at any and all
adjournments or postponements thereof.
Management welcomes your attendance at the GEI Special Meeting. Whether or
not you expect to attend the GEI Special Meeting in person, however, you are
requested to complete, sign, date and promptly return the enclosed proxy in
the accompanying postage-paid envelope. The prompt return of your proxy will
save expenses involved in further communication. Your proxy is revocable and
will not affect your right to vote in person in the event you attend the GEI
Special Meeting. For an explanation of the procedure for revoking your proxy,
see the enclosed Joint Proxy Statement--Prospectus under "Voting and Proxies."
/s/ STEVEN R. REYNOLDS
_____________________________________
Steven R. Reynolds
Senior Vice President of
Acquisitions
and Secretary
Dallas, Texas
June 26, 1996
YOUR VOTE IS IMPORTANT
TO VOTE YOUR SHARES, PLEASE SIGN, DATE AND COMPLETE THE ENCLOSED
PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
1448 15TH STREET, SUITE 200
SANTA MONICA, CALIFORNIA 90404
June 26, 1996
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
National Golf Properties, Inc. ("NGP") to be held on July 25, 1996 at the
Museum of Flying, 2772 Donald Douglas Loop North, Santa Monica, California,
commencing at 9:00 a.m. (the "NGP Annual Meeting").
At the NGP Annual Meeting, you will be asked to vote upon a proposal to
issue up to a maximum of 2,128,000 shares of NGP common stock as partial
consideration for NGP's purchase of 20 golf course properties and related
assets (the "Purchased Assets") owned by Golf Enterprises, Inc. ("GEI")
pursuant to an Asset Purchase Agreement and Agreement and Plan of Merger dated
as of February 2, 1996, as amended (the "Acquisition Agreement") among NGP,
GEI Acquisition Corporation ("Newco") and GEI. Pursuant to the Acquisition
Agreement, NGP has agreed to purchase the Purchased Assets (and none of GEI's
other assets), without assuming any indebtedness on such properties (the
"Asset Purchase"), in exchange for consideration consisting of, at the option
of NGP, either (i) a combination of $17,213,351 in cash and the issuance of
shares of NGP common stock with an aggregate value of $40,786,649 (subject to
certain adjustments and limitations), or (ii) $58 million in cash. Management
of NGP currently expects that it will pay the combination of cash and NGP
common stock, but reserves the right to exercise its option to pay all cash.
Immediately following the Asset Purchase, Newco, which is wholly-owned by an
affiliate of David G. Price, will merge with and into GEI with GEI being the
surviving corporation (the "Merger"), and the cash and any shares of NGP
common stock issued as consideration for the Asset Purchase, along with
approximately $23.6 million of additional cash contributed by Newco, will be
distributed to holders of existing GEI common stock and holders of options for
such stock.
The precise number and aggregate value of any shares of NGP common stock
that may be issued in connection with the Asset Purchase (the "Stock
Issuance") will be calculated according to a formula based primarily on the
average trading price of NGP common stock during the period before the Asset
Purchase is consummated. These figures will not be known until after the NGP
Annual Meeting, but in no event will the number of shares of NGP common stock
issued in connection with the Asset Purchase exceed 2,128,000 shares or be
less than 1,418,666 shares.
The election of three directors to NGP's Board of Directors also will be
voted on at the NGP Annual Meeting. The accompanying Joint Proxy Statement--
Prospectus provides a summary of the Asset Purchase and the other proposals to
be voted upon at the NGP Annual Meeting and includes additional material
describing them in more detail. Please read this information carefully.
After careful consideration, the members of your Board of Directors, as well
as the independent Directors that comprise the Independent Committee of NGP's
Board of Directors, have unanimously approved the Acquisition Agreement. Your
Board of Directors and the Independent Committee have carefully reviewed and
considered the terms and conditions of the Acquisition Agreement and the
opinion of Montgomery Securities, NGP's financial advisor, stating that, as of
the date of such opinion, the consideration to be paid by NGP in the Asset
Purchase is fair from a financial point of view to NGP. Both NGP's Board of
Directors and Independent Committee also believe that the terms of the
transaction are fair to, and in the best interests of, NGP and its
<PAGE>
stockholders. AS A RESULT, YOUR BOARD OF DIRECTORS AND INDEPENDENT COMMITTEE
HAVE UNANIMOUSLY APPROVED THE ASSET PURCHASE AND RECOMMEND THAT YOU VOTE FOR
APPROVAL OF THE STOCK ISSUANCE. YOUR BOARD OF DIRECTORS ALSO UNANIMOUSLY
RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF THREE DIRECTORS TO THE BOARD OF
DIRECTORS OF NGP. Certain members of NGP's Board of Directors may have
conflicts of interest in making this recommendation. See the enclosed Joint
Proxy Statement--Prospectus under "The Asset Purchase and Merger--Possible
Conflicts of Interest of Certain Officers and Directors."
Because implementation of the Asset Purchase requires a favorable vote of
the holders of a majority of the shares voting on the Stock Issuance proposal,
provided the total votes cast represent a majority of the outstanding shares
of NGP common stock, it is important that your shares be represented at the
NGP Annual Meeting, regardless of the number of shares you hold. Please sign,
date and return your proxy card as soon as possible, whether or not you plan
to attend. This will not prevent you from voting your shares in person if you
do attend. The proxy is revocable in accordance with the procedures described
in the enclosed Joint Proxy Statement--Prospectus under "Voting and Proxies."
Sincerely,
/s/ EDWARD R. SAUSE
_____________________________________
Edward R. Sause
Executive Vice President and
Secretary
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
1448 15TH STREET, SUITE 200
SANTA MONICA, CALIFORNIA 90404
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 25, 1996
To the Holders of Common Stock of
National Golf Properties, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of National
Golf Properties, Inc. ("NGP") will be held at the Museum of Flying, 2772
Donald Douglas Loop North, Santa Monica, California, at 9:00 a.m., local time,
on July 25, 1996 (the "NGP Annual Meeting") for the following purposes, as
more fully described in the accompanying Joint Proxy Statement--Prospectus:
(a) To consider and vote upon a proposal to issue up to a maximum of
2,128,000 shares of NGP common stock as partial consideration for NGP's
purchase of 20 golf courses and related assets (the "Purchased Assets")
owned by Golf Enterprises, Inc. ("GEI") pursuant to an Asset Purchase
Agreement and Agreement and Plan of Merger dated as of February 2, 1996, as
amended (the "Acquisition Agreement") among NGP, GEI Acquisition
Corporation ("Newco") and GEI. Under the Acquisition Agreement, NGP has
agreed to purchase the Purchased Assets (and none of GEI's other assets),
without assuming any indebtedness on such properties (the "Asset
Purchase"), in exchange for consideration consisting of, at the option of
NGP, either (i) a combination of $17,213,351 in cash and the issuance of
shares of NGP common stock (the "Stock Issuance") with an aggregate value
of $40,786,649 (subject to certain adjustments and limitations), or (ii)
$58 million in cash. For purposes of these transactions, each share of NGP
common stock will be valued at the average closing price per share of NGP
common stock on the New York Stock Exchange for the ten trading days
immediately preceding the second trading day prior to the date the Asset
Purchase is consummated (the "Average NGP Common Stock Price"). The precise
number and aggregate value of any shares of NGP common stock that may be
issued will not be known until after the NGP Annual Meeting. However, in no
event will the number of shares of NGP common stock issued in connection
with the Asset Purchase exceed 2,128,000 shares or be less than 1,418,666
shares;
(b) To elect three directors to serve until the 1999 annual meeting of
stockholders and until their successors are elected and have qualified; and
(c) To transact such other business as may properly come before the
meeting.
The Board of Directors of NGP, as well as the independent Directors who
comprise the Independent Committee of NGP's Board of Directors, unanimously
recommend that stockholders approve the Stock Issuance contemplated by the
Acquisition Agreement by voting FOR approval of the Stock Issuance. For a
description of possible conflicts of interest of certain NGP officers and
directors in approving the Acquisition Agreement, see the enclosed Joint Proxy
Statement--Prospectus under "The Asset Purchase and Merger--Possible Conflicts
of Interest of Certain Officers and Directors." NGP's Board of Directors also
unanimously recommends that stockholders vote FOR the election of three
directors to the Board of Directors of NGP.
The Asset Purchase and other important matters are explained in the
accompanying Joint Proxy Statement--Prospectus, which you are urged to read
carefully. Copies of the Acquisition Agreement and an amendment thereto are
attached as Annexes I and II, respectively to the Joint Proxy Statement--
Prospectus.
The Board of Directors of NGP has fixed the close of business on April 30,
1996 as the record date for determining the stockholders entitled to receive
notice of and to vote at the NGP Annual Meeting and at any and all
adjournments or postponements thereof.
<PAGE>
Management welcomes your attendance at the NGP Annual Meeting. Whether or
not you expect to attend the NGP Annual Meeting in person, however, you are
requested to complete, sign, date and promptly return the enclosed proxy in
the accompanying postage-paid envelope. The prompt return of your proxy will
save expenses involved in further communication. Your proxy is revocable and
will not affect your right to vote in person in the event you attend the NGP
Annual Meeting. For an explanation of the procedure for revoking your proxy,
see the enclosed Joint Proxy Statement--Prospectus under "Voting and Proxies."
/s/ EDWARD R. SAUSE
___________________________________
Edward R. Sause
Executive Vice President and
Secretary
Santa Monica, California
June 26, 1996
YOUR VOTE IS IMPORTANT
TO VOTE YOUR SHARES, PLEASE SIGN, DATE AND COMPLETE THE ENCLOSED
PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
AND
GOLF ENTERPRISES, INC.
JOINT PROXY STATEMENT FOR
ANNUAL MEETING OF STOCKHOLDERS OF
NATIONAL GOLF PROPERTIES, INC. AND
SPECIAL MEETING OF STOCKHOLDERS OF
GOLF ENTERPRISES, INC.
EACH TO BE HELD ON JULY 25, 1996
---------------------------------------
NATIONAL GOLF PROPERTIES, INC.
PROSPECTUS
---------------------------------------
This Joint Proxy Statement--Prospectus is being furnished to the
stockholders of National Golf Properties, Inc., a Maryland corporation
("NGP"), in connection with the solicitation of proxies by the Board of
Directors of NGP from holders of outstanding shares of NGP common stock, par
value $.01 per share ("NGP Common Stock"), for use at the Annual Meeting of
Stockholders of NGP to be held on July 25, 1996, and at any and all
adjournments or postponements thereof (the "NGP Annual Meeting"), and to the
stockholders of Golf Enterprises, Inc., a Kansas corporation ("GEI"), in
connection with the solicitation of proxies by the Board of Directors of GEI
from holders of outstanding shares of GEI common stock, par value $.01 per
share ("GEI Common Stock"), for use at the Special Meeting of Stockholders of
GEI to be held on July 25, 1996, and at any and all adjournments or
postponements thereof (the "GEI Special Meeting").
At the NGP Annual Meeting, the holders of NGP Common Stock will be asked to
act upon (i) a proposal (the "Stock Issuance Proposal") to approve the
issuance of up to a maximum of 2,128,000 shares of NGP Common Stock as partial
consideration for NGP's purchase (the "Asset Purchase") of 20 golf course
properties and assets related to such properties (the "Purchased Assets")
owned by GEI (and none of GEI's other assets, including 21 leased golf course
properties and three golf course management contracts) pursuant to an Asset
Purchase Agreement and Agreement and Plan of Merger dated as of February 2,
1996, as amended (the "Acquisition Agreement") among NGP, GEI and GEI
Acquisition Corporation, a Kansas corporation ("Newco"); and (ii) a proposal
to approve the election of three members of the Board of Directors of NGP (the
"Election Proposal").
At the GEI Special Meeting, the holders of GEI Common Stock will be asked to
act upon a proposal to adopt and approve the Acquisition Agreement pursuant to
which the Asset Purchase will occur, Newco will be merged with and into GEI
(the "Merger"), and each share of issued and outstanding GEI Common Stock will
be converted into, depending on the form of consideration paid by NGP in
connection with the Asset Purchase, either a combination of cash and NGP
Common Stock or all cash, with a portion of such cash consideration being
contributed by Newco in connection with the Merger.
NGP has filed a Registration Statement on Form S-4 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), with the Securities and Exchange Commission (the "SEC") covering a
maximum of 2,128,000 shares of NGP Common Stock that may be issued in
connection with the Asset Purchase. This Joint Proxy Statement--Prospectus
constitutes the Proxy Statement of NGP and GEI relating to the solicitation of
proxies for use at the NGP Annual Meeting and the GEI Special Meeting and the
Prospectus of NGP filed as part of the Registration Statement. See "Available
Information."
SEE "RISK FACTORS" BEGINNING ON PAGE 1 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH HOLDERS OF NGP COMMON STOCK AND GEI COMMON STOCK SHOULD CONSIDER
CAREFULLY IN EVALUATING THE TRANSACTIONS CONTEMPLATED BY THE ACQUISITION
AGREEMENT AND THE OTHER MATTERS RELATED THERETO.
This Joint Proxy Statement--Prospectus and accompanying proxy were first
mailed or given to stockholders of NGP and GEI on or about June 26, 1996. On
April 25, 1996, there were approximately 564 stockholders of record of NGP
Common Stock and approximately 74 stockholders of record of GEI Common Stock.
---------------
THE SECURITIES THAT MAY BE ISSUED IN CONNECTION WITH THE ASSET PURCHASE AND
THE MERGER HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT--
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
---------------
THE DATE OF THIS JOINT PROXY STATEMENT--PROSPECTUS IS JUNE 21, 1996.
<PAGE>
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS JOINT PROXY STATEMENT--PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED. THIS JOINT PROXY STATEMENT--PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, THE
SECURITIES OFFERED BY THIS JOINT PROXY STATEMENT--PROSPECTUS, OR THE
SOLICITATION OF A PROXY, BY ANY PERSON IN ANY JURISDICTION IN WHICH SUCH AN
OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH AN
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH AN OFFER, OR SOLICITATION OF AN OFFER, OR PROXY
SOLICITATION. NEITHER DELIVERY OF THIS JOINT PROXY STATEMENT--PROSPECTUS NOR
ANY DISTRIBUTION OF THE SECURITIES BEING OFFERED PURSUANT TO THIS JOINT PROXY
STATEMENT--PROSPECTUS SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN SINCE THE
DATE OF THIS JOINT PROXY STATEMENT--PROSPECTUS.
AVAILABLE INFORMATION
NGP has filed with the SEC a Registration Statement on Form S-4 under the
Securities Act (No. 333- ) covering the shares of NGP Common Stock that may
be issued in connection with the Asset Purchase and the Merger. As permitted
by the rules and regulations of the SEC, this Joint Proxy Statement--
Prospectus omits certain information contained in the Registration Statement.
For further information pertaining to the securities offered hereby, reference
is made to the Registration Statement, including the exhibits filed as a part
thereof.
Statements contained in this Joint Proxy Statement--Prospectus relating to
the contents of any contract or other documents referred to herein are not
necessarily complete (although material terms are summarized herein), and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference.
NGP and GEI are subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith file periodic reports, proxy statements and other information with
the SEC relating to their respective businesses, financial statements and
other matters. The Registration Statement as well as such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the SEC at Room 1024, 450 Fifth Street,
N.W., Judiciary Plaza, Washington, D.C. 20549 and should be available for
inspection and copying at the regional offices of the SEC located at 7 World
Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison
Street, Suite 1450, Chicago, Illinois 60661. Copies of such materials may also
be obtained by mail, upon payment of the SEC's customary fees, by writing to
the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington,
D.C. 20549. NGP Common Stock is quoted on the New York Stock Exchange and GEI
Common Stock is quoted on the Nasdaq Stock Market. The Registration Statement
as well as such reports, proxy statements and other information with respect
to NGP are available for inspection at the library of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005. Such reports, proxy
statements and other information with respect to GEI are available for
inspection at the library of the Nasdaq Stock Market, 1735 K Street, N.W.,
Washington, D.C. 20006.
The information contained in this Joint Proxy Statement--Prospectus with
respect to NGP has been supplied by NGP, the information contained herein with
respect to GEI has been supplied by GEI, and the information contained herein
with respect to Newco has been supplied by Newco.
ii
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by NGP with the SEC (SEC file number 1-12246)
are incorporated by reference in this Joint Proxy Statement--Prospectus and
are deemed to be a part hereof:
1. Annual Report on Form 10-K for the fiscal year ended December 31, 1995,
filed with the SEC on March 8, 1996.
2. Quarterly Report on Form 10-Q for the quarterly period ended March 31,
1996, filed with the SEC on April 26, 1996.
3. Amendment No. 1 to Annual Report on Form 10-K/A for the fiscal year
ended December 31, 1995, filed with the SEC on April 29, 1996.
4. Amendment No. 2 to Annual Report on Form 10-K/A for the fiscal year
ended December 31, 1995, filed with the SEC on June 21, 1996.
5. Amendment No. 1 to Quarterly Report on Form 10-Q/A for the quarterly
period ended March 31, 1996, filed with the SEC on June 21, 1996.
All documents filed by NGP pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act after the date of this Joint Proxy Statement--Prospectus and
prior to the date of the NGP Annual Meeting shall be deemed to be incorporated
by reference into this Joint Proxy Statement--Prospectus and to be made a part
hereof from the date of the filing of such documents.
Any statement contained in a document incorporated by reference herein shall
be deemed to be modified or superseded for the purpose hereof to the extent
that a statement contained herein (or in any other subsequently filed document
which also is incorporated by reference herein) modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed to
constitute a part hereof except as so modified or superseded.
THIS JOINT PROXY STATEMENT--PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF SUCH
DOCUMENTS, AND OTHER EXHIBITS TO SUCH DOCUMENTS, ARE AVAILABLE WITHOUT CHARGE,
UPON WRITTEN OR ORAL REQUEST, FROM THE SECRETARY OF NATIONAL GOLF PROPERTIES,
INC., 1448 15TH STREET, SUITE 200, SANTA MONICA, CALIFORNIA 90404 (TELEPHONE
310-260-5500). IN ORDER TO INSURE TIMELY DELIVERY OF SUCH DOCUMENTS PRIOR TO
THE NGP ANNUAL MEETING, ANY REQUEST SHOULD BE MADE BY JULY 15 , 1996.
iii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
AVAILABLE INFORMATION.................................................... ii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.......................... iii
SUMMARY OF JOINT PROXY STATEMENT--PROSPECTUS............................. viii
The Companies.......................................................... viii
The Meetings........................................................... ix
Principal Steps of Transactions........................................ xii
Vote Required.......................................................... xiii
Dissenters' Rights..................................................... xiii
The Acquisition Agreement.............................................. xiv
Conditions to the Asset Purchase and the Merger........................ xiv
Recommendations of the Boards of Directors of NGP and GEI; Reasons for
the Asset Purchase and the Merger..................................... xiv
Possible Conflicts of Interest of Certain Officers and Directors....... xiv
Opinions of Financial Advisors......................................... xv
Risk Factors........................................................... xvi
Management and Operations of NGP and Surviving Corporation After the
Effective Time........................................................ xvii
Financing of the Acquisition........................................... xvii
Accounting Treatment of the Asset Purchase and the Merger.............. xviii
Certain Federal Regulatory Matters..................................... xviii
Listing of GEI Common Stock and NGP Common Stock....................... xviii
Comparative Market Prices; NGP Distributions and GEI Dividends......... xviii
Exchange of Certificates............................................... xix
Material Federal Income Tax Consequences............................... xix
Summary Selected Historical and Pro Forma Financial Data............... xx
RISK FACTORS............................................................. 1
Conflicts of Interest.................................................. 1
Adverse Impact on NGP's Distributions of Failure of NGP to Remain Qual-
ified as a REIT or of Failure of the Operating Partnership to Continue
to be Treated as a Partnership........................................ 3
No Assurance that Financing Necessary to Consummate the Asset Purchase
and the Merger Will be Obtained ...................................... 3
Ownership Limit........................................................ 4
Dependence of NGP's Revenues and Ability to Make Distributions on AGC
as the Primary
Lessee of NGP's Golf Courses.......................................... 4
Possible Fluctuation of Value of Stock Consideration................... 5
Real Estate Investment Considerations.................................. 5
Possible Adverse Effects on Market Price of NGP Common Stock Arising
from Shares Available for Future Sale................................. 7
Dependence on Key Personnel............................................ 7
Effect of Defaults Under the NGP Leases, Participating Mortgage Loans
and Additional Indebtedness on Distributions to Stockholders; Possible
Return on Capital..................................................... 7
Limits on Changes in Control........................................... 8
Influence of Certain Directors and Significant Stockholders............ 8
VOTING AND PROXIES....................................................... 10
NGP.................................................................... 10
GEI.................................................................... 10
Other Matters.......................................................... 11
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE ASSET PURCHASE AND MERGER............................................. 12
General................................................................. 12
Background of the Transaction........................................... 12
Recommendations of the Boards of Directors of NGP and GEI; Reasons for
the Asset Purchase and the Merger...................................... 16
Possible Conflicts of Interest of Certain Officers and Directors........ 20
Opinion of NGP's Financial Advisor...................................... 22
Opinion of GEI's Financial Advisor...................................... 25
Description of Acquisition Agreement.................................... 28
Management and Operations after Asset Purchase and Merger; Lease Terms.. 41
Indemnification of GEI Directors and Officers........................... 42
Financing of the Acquisition............................................ 43
Accounting Treatment of the Acquisition................................. 44
Certain Federal Regulatory Matters...................................... 44
NGP Distributions and GEI Dividends..................................... 44
Delisting and Deregistration of GEI Common Stock........................ 44
Resales of NGP Common Stock Issued in Connection with the Merger; Affil-
iate Agreements........................................................ 44
Dissenters' Rights...................................................... 45
COMPARATIVE MARKET PRICES; NGP DISTRIBUTIONS AND GEI DIVIDENDS............ 47
PRO FORMA COMBINED CONDENSED FINANCIAL DATA FOR NGP....................... 48
PRO FORMA COMBINED CONDENSED FINANCIAL DATA FOR AGC....................... 51
NGP SELECTED CONSOLIDATED FINANCIAL DATA.................................. 53
BUSINESS OF NGP........................................................... 55
GEI'S BUSINESS RELATED TO THE PURCHASED ASSETS SUMMARY COMBINED
FINANCIAL DATA........................................................... 56
DESCRIPTION OF PURCHASED ASSETS........................................... 57
GEI SELECTED CONSOLIDATED FINANCIAL DATA.................................. 61
PRO FORMA CONDENSED BALANCE SHEET FOR GEI -- (SALE AND MERGER
ADJUSTMENTS)............................................................. 63
GEI MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.................................................... 64
General................................................................. 64
Subsequent Event........................................................ 65
Liquidity and Capital Resources......................................... 65
Newly Issued Accounting Standards....................................... 66
Results of Operations................................................... 67
BUSINESS OF GEI........................................................... 70
General................................................................. 70
History................................................................. 70
Industry Overview....................................................... 70
Competition............................................................. 71
Acquisitions............................................................ 72
Course Operations....................................................... 72
Seasonality............................................................. 73
Governmental Regulation................................................. 73
Employees............................................................... 74
Legal Proceedings....................................................... 74
SECURITY OWNERSHIP OF CERTAIN GEI BENEFICIAL OWNERS AND MANAGEMENT........ 75
</TABLE>
v
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ELECTION OF NGP DIRECTORS................................................. 77
Nominees for Election as Director....................................... 77
Directors Continuing in Office.......................................... 78
Board Meetings; Committees and Compensation............................. 78
Executive Officers...................................................... 79
Executive Compensation.................................................. 80
Section 16(a) Reporting................................................. 82
Compensation Committee Interlocks and Insider Participation............. 82
Report of the Compensation Committee on Executive Compensation.......... 83
Stock Performance Graph................................................. 85
Certain Relationships and Related Transactions.......................... 86
SECURITY OWNERSHIP OF CERTAIN NGP BENEFICIAL OWNERS AND MANAGEMENT........ 88
DESCRIPTION OF NGP CAPITAL STOCK.......................................... 90
General................................................................. 90
Corporate Governance.................................................... 90
Ownership by David G. Price............................................. 91
Restrictions on Ownership............................................... 91
Section 3-602 of the Maryland General Corporation Law................... 92
Control Shares Acquisition.............................................. 93
Advance Notice Provisions for Stockholder Nominations and Stockholder
Proposals.............................................................. 94
Action by Written Consent; Stockholder Meetings......................... 94
Limitations on Changes in Control....................................... 95
Limitation of Liability of Directors and Officers....................... 95
Indemnification of Directors and Officers............................... 95
Transfer Agent and Registrar............................................ 95
SHARES AVAILABLE FOR FUTURE SALE.......................................... 96
Exchange Rights......................................................... 96
Cash Option Rights...................................................... 97
Registration Rights..................................................... 97
CERTAIN EFFECTS OF MERGER ON GEI STOCKHOLDER RIGHTS....................... 99
Limitation of Liability................................................. 99
Indemnification of Directors and Officers............................... 99
Actions by Written Consent of Stockholders.............................. 100
Inspection of Books and Records......................................... 100
Amendments to Bylaws.................................................... 100
Dividends and Other Distributions....................................... 100
Law Regulating Business Combinations.................................... 101
Control Share Acquisitions.............................................. 101
Dissenters' Rights...................................................... 102
Dissolution of GEI and NGP.............................................. 103
Restrictions on Ownership and Transfer of Common Stock.................. 103
MATERIAL FEDERAL INCOME TAX CONSEQUENCES.................................. 103
Opinions of Counsel..................................................... 103
Certain Tax Consequences to GEI......................................... 104
Certain Tax Consequences to GEI Stockholders............................ 104
Certain Tax Consequences to NGP and the Operating Partnership From the
Asset Purchase......................................................... 106
Taxation of NGP as a REIT............................................... 106
Taxation of an Investment in NGP by Taxable U.S. Stockholders........... 111
Taxation of an Investment in NGP by Tax-Exempt Stockholders............. 112
Tax Aspects of the Operating Partnership and Royal Golf................. 112
</TABLE>
vi
<PAGE>
<TABLE>
<CAPTION>
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<S> <C>
Taxation of Non-U.S. Stockholders........................................ 114
Other Tax Consequences................................................... 118
APPOINTMENT OF AUDITORS.................................................... 119
STOCKHOLDER PROPOSALS ..................................................... 119
OTHER MATTERS.............................................................. 119
LEGAL OPINIONS............................................................. 120
EXPERTS.................................................................... 120
INDEX OF DEFINED TERMS..................................................... 121
INDEX TO FINANCIAL STATEMENTS.............................................. F-1
ANNEXES
I. ACQUISITION AGREEMENT
II. FIRST AMENDMENT TO ACQUISITION AGREEMENT
III. OPINION OF MONTGOMERY SECURITIES
IV. OPINION OF WILLIAM BLAIR & COMPANY, L.C.C.
V. SECTION 17-6712 OF THE KANSAS GENERAL CORPORATION CODE
</TABLE>
vii
<PAGE>
SUMMARY OF JOINT PROXY STATEMENT--PROSPECTUS
The following is a summary of certain information contained elsewhere in this
Joint Proxy Statement--Prospectus. Certain capitalized terms used in this
summary are defined elsewhere in this Joint Proxy Statement--Prospectus.
Reference is made to, and this summary is qualified in its entirety by, the
more detailed information contained in this Joint Proxy Statement--Prospectus
and in the Annexes hereto. Stockholders are urged to read carefully this Joint
Proxy Statement--Prospectus, including the Annexes hereto, in its entirety. All
share amounts and other data in this Joint Proxy Statement--Prospectus assume
no exercise of dissenters' rights. For a list of cross-references to defined
terms, see "Index of Defined Terms."
THE COMPANIES
NGP. National Golf Properties, Inc. ("NGP"), a Maryland corporation formed in
1993, is a self-administered real estate investment trust ("REIT") and the
largest publicly-traded company in the United States specializing in the
acquisition and ownership of golf course properties. NGP owns a 54.9% general
partnership interest in National Golf Operating Partnership, L.P., a Delaware
limited partnership (the "Operating Partnership"), an operating partnership
which includes several limited partners. The Operating Partnership owns an 89%
general partnership interest in Royal Golf, L.P. II ("Royal Golf"), a limited
partnership that owns four golf courses on Hilton Head Island, South Carolina.
As of June 20, 1996, NGP owned 84 golf courses, either directly or through the
Operating Partnership and Royal Golf, which courses are geographically
diversified among 23 states. Either directly or through the Operating
Partnership and Royal Golf, NGP leases the golf courses to experienced and
credit-worthy operators under long-term leases providing for minimum base rent
and a percentage rent feature which enables NGP to participate in growth in
revenues of the courses. The principal executive offices of NGP are located at
1448 15th Street, Suite 200, Santa Monica, California 90404 (telephone 310-260-
5500). Unless the context otherwise requires, "NGP" as used in this Joint Proxy
Statement--Prospectus means NGP, the Operating Partnership and Royal Golf.
GEI. Golf Enterprises, Inc., a Kansas corporation ("GEI") formed in 1991,
owns, leases or contracts to manage 44 public and private golf courses in 18
states, primarily in the southern and western United States. Of these 44 golf
courses, GEI owns 20 courses that will be purchased by NGP in connection with
the Asset Purchase, 21 courses are leased by GEI and three courses are operated
by GEI pursuant to management contracts. GEI has expanded through acquisitions
of well-located courses that have the potential for significant improvement
under professional management. GEI derives revenues from green fees, golf cart
rentals, practice facility fees, retail sales of golf merchandise, food and
beverage and initiation fees and dues of private golf course members. The
principal executive offices of GEI are located at 1603 LBJ Freeway, Suite 810,
Dallas, Texas 75234 (telephone 214-247-1199). Unless the context otherwise
requires, "GEI" as used in this Joint Proxy Statement--Prospectus means GEI and
its wholly-owned subsidiaries.
Newco. GEI Acquisition Corporation ("Newco") was formed as a Kansas
corporation in 1996 by David G. Price in order to effect the Merger. Mr. Price
assigned his interest in Newco to The Price Revocable Trust of which David G.
Price is the sole trustee, and David G. Price, his wife Dallas P. Price and
their children are beneficiaries (the "Price Trust"). The Price Trust currently
owns all of the outstanding capital stock of Newco. Mr. Price is the Chairman
of the Board of Directors of NGP, and entities affiliated with him own a 41.5%
limited partnership interest in the Operating Partnership. Following
consummation of the Asset Purchase and the Merger, this interest will decrease
to 38.3%. Mr. Price also is the Chairman of the Board of Directors and
principal stockholder of American Golf Corporation ("AGC"), one of the largest
operators of golf course properties in the world. All but two of the golf
courses in NGP's existing portfolio currently are leased to AGC pursuant to
long-term triple-net leases. Prior to the time the Merger is effected, Newco
will not have conducted any business other than transactions in connection with
the Merger. The principal executive offices of Newco are located at 1633 26th
Street, Santa Monica, California 90404-4024 (telephone 310-315-4200).
viii
<PAGE>
THE MEETINGS
Date, Time and Place. The annual meeting of stockholders of NGP (the "NGP
Annual Meeting") will be held on July 25, 1996 at 9:00 a.m., local time, at the
Museum of Flying, 2772 Donald Douglas Loop North, Santa Monica, California.
The special meeting of the stockholders of GEI (the "GEI Special Meeting")
will be held on July 25, 1996, at 10:00 a.m., local time, at the Doubletree
Hotel at Park West, 1590 LBJ Freeway, Dallas, Texas.
Record Dates, Shares Entitled to Vote. Holders of record of shares of common
stock, par value $.01 per share, of NGP ("NGP Common Stock") at the close of
business on April 30, 1996 will be entitled to notice of and to vote at the NGP
Annual Meeting. At the close of business on April 30, 1996, 10,651,975 shares
of NGP Common Stock were issued and outstanding. See "Voting and Proxies--NGP."
Holders of record of shares of common stock, par value $.01 per share, of GEI
("GEI Common Stock") at the close of business on June 4, 1996 will be entitled
to notice of and to vote at the GEI Special Meeting. At the close of business
on June 4, 1996, 6,585,482 shares of GEI Common Stock were issued and
outstanding. See "Voting and Proxies--GEI."
Purpose of the Meetings. At the NGP Annual Meeting, the stockholders of NGP
will be asked to act upon the following proposals (collectively, the "NGP
Proposals"); (i) to approve the issuance of up to 2,128,000 shares of NGP
Common Stock (the "Stock Issuance") as partial consideration for NGP's purchase
(the "Asset Purchase") of 20 golf course properties and assets related to such
properties owned by GEI (not including GEI's other assets, the "Purchased
Assets") pursuant to an Asset Purchase Agreement and Agreement and Plan of
Merger, dated as of February 2, 1996, as amended (the "Acquisition Agreement"),
among NGP, GEI and Newco (the "Stock Issuance Proposal"); and (ii) to approve
the election of three members of the Board of Directors of NGP (the "NGP Board
of Directors") (the "Election Proposal"). THE NGP BOARD OF DIRECTORS AND THE
INDEPENDENT COMMITTEE OF THE NGP BOARD OF DIRECTORS UNANIMOUSLY RECOMMEND THAT
STOCKHOLDERS VOTE FOR THE NGP PROPOSALS.
At the GEI Special Meeting, the holders of GEI Common Stock will be asked to
act upon a proposal (the "GEI Proposal") to approve and adopt the Acquisition
Agreement selling the Purchased Assets to NGP, merging Newco with and into GEI,
with GEI as the surviving corporation (the "Merger"), and converting each share
of issued and outstanding GEI Common Stock into the right to receive, depending
on the form of consideration paid by NGP in connection with the Asset Purchase,
either a combination of cash and NGP Common Stock or all cash. THE BOARD OF
DIRECTORS OF GEI (THE "GEI BOARD OF DIRECTORS") UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE FOR THE GEI PROPOSAL.
Principal Terms of the Transaction. Pursuant to the Acquisition Agreement,
(i) NGP will, at its option, either (a) issue new shares of NGP Common Stock
with an aggregate value of $40,786,649 based on the average closing price per
share of NGP Common Stock on the New York Stock Exchange ("NYSE") for the ten
trading days immediately preceding the second trading day before the
consummation of the Asset Purchase (provided that the total number of such
shares will be not less than 1,418,666 and not more than 2,128,000), and pay
$17,213,351 in cash; or (b) pay $58.0 million in cash, to GEI as consideration
for acquiring the Purchased Assets; and (ii) GEI will merge with and into Newco
with GEI being the surviving corporation (the "Surviving Corporation"), and
each share of GEI Common Stock will be cancelled and converted into the right
to receive, depending on the form of consideration paid by NGP in connection
with the Asset Purchase, either (a) $6.00 in cash and approximately $6.00 of
NGP Common Stock (subject to the limitations on the maximum and minimum number
of NGP shares issuable, as discussed above), or (b) $12.00 in cash. Based upon
the 6,585,482 shares of GEI Common Stock issued and outstanding on April 25,
1996, the aggregate consideration payable to holders of GEI Common Stock in the
Merger will be $79,025,784 (subject to certain adjustments and limitations, the
"Merger Consideration"). In addition, holders of options to purchase GEI Common
Stock will receive the excess of the value of the consideration payable on
account of each share of GEI Common Stock outstanding
ix
<PAGE>
immediately prior to the Merger over the exercise price of the option,
multiplied by the number of shares of GEI Common Stock subject to such option,
which shall be paid in the same proportion of cash and NGP Common Stock as
holders of GEI Common Stock receive in the Merger. The aggregate value of the
payments made to holders of such options will be $2,547,514 (subject to certain
adjustments and limitations). The total amount of $81,573,298 payable to
holders of shares of GEI Common Stock and options for such stock will include
the $58.0 million in cash and shares of NGP Common Stock, if any, received by
GEI from NGP as consideration for the Asset Purchase and approximately $23.6
million in additional cash that Newco will contribute. Pursuant to the terms of
the Acquisition Agreement, Newco also will be required to refinance
approximately $54.9 million of GEI's existing indebtedness and pay transaction
costs associated with the Merger.
The following table summarizes the estimated sources and uses of funds in
connection with the Merger (in millions), assuming 6,585,482 shares of GEI
Common Stock are outstanding at the Effective Time:
<TABLE>
<CAPTION>
SOURCES
-------
<S> <C>
Consideration provided by
NGP to GEI for the
Purchased Assets(1)........ $58.0
Funds provided by Newco in
connection with the
Merger(2).................. 87.0
------
$145.0
======
</TABLE>
<TABLE>
<CAPTION>
USES
----
<S> <C>
Merger Consideration payable
to GEI stockholders(3)...... $79.0
Option Settlement Amount(4).. 2.5
Refinancing of GEI's existing
indebtedness(5)............. 54.9
Fees and expenses(6)......... 2.1
Working capital for the
Surviving Corporation(7).... 6.5
------
$145.0
======
</TABLE>
- --------
(1) The consideration payable to GEI by NGP for the Purchased Assets will
consist of, at NGP's option, either (a) shares of NGP Common Stock with an
aggregate value of $40,786,649 (subject to certain exceptions and
limitations) and $17,213,351 in cash, or (b) $58 million in cash. NGP
currently expects to pay the combination of cash and stock as consideration
for the Asset Purchase, and intends to obtain the $17,213,351 in cash from
the Operating Partnership's revolving credit facility. See "The Asset
Purchase and Merger--Financing of the Acquisition."
(2) Of the approximately $87 million that Newco requires to consummate the
Merger, refinance existing GEI indebtedness, and pay certain fees and
expenses, approximately $67 million will be contributed by David G. Price
as a capital contribution and $20 million will be borrowed against a
$30 million credit facility that Newco is seeking to obtain from one or
more commercial lenders. Mr. Price is seeking to finance his capital
contribution with the net proceeds of approximately $38 million from a loan
Mr. Price seeks to obtain directly from one or more commercial lenders and
approximately $29 million in proceeds from a loan to Mr. Price from AGC
(the principal amount of which AGC is seeking to finance, along with
approximately $12.5 million of additional funds that AGC will use to
refinance its existing indebtedness, by placing new debt securities with
investors). See "The Asset Purchase and Merger--Financing of the
Acquisition."
(3) GEI stockholders will become entitled to receive total consideration of
$79,025,784 (subject to certain adjustments and limitations) in connection
with the Merger that is payable, depending on the form of consideration
paid by NGP in the Asset Purchase, either in a combination of cash and
shares of NGP Common Stock or all cash.
(4) Holders of options to acquire GEI Common Stock will become entitled to
receive, in exchange for cancellation of such options, total consideration
of $2,547,514 (subject to certain adjustments and limitations) payable in
the same proportion of cash and NGP Common Stock as holders of GEI Common
Stock will receive in the Merger.
(5) Pursuant to the terms of the Acquisition Agreement, Newco is required to
refinance approximately $54.9 million of GEI's existing indebtedness, which
includes approximately $52.0 million outstanding under GEI's revolving
credit facility, approximately $2.5 million in a note payable secured by
one of the golf courses comprising the Purchased Assets and approximately
$0.4 in other notes payable.
(6) Includes fees and expenses estimated to be approximately $2.1 million
incurred in connection with negotiating and consummating the Merger, which
will be paid by Newco. Does not include any of NGP's estimated fees or
expenses of approximately $1.7 million incurred in connection with
negotiating and consummating the Asset Purchase. NGP intends to finance its
fees and expenses with borrowings under the Operating Partnership's
existing revolving credit facility.
(7) In addition to the funds the Surviving Corporation anticipates having on
hand following the Merger, Newco is seeking to obtain an additional $10
million of revolving credit availability.
x
<PAGE>
Management of NGP currently expects that it will pay, and GEI stockholders
will receive in the Merger as consideration for their shares of GEI Common
Stock, the combination of cash and NGP common stock. However, NGP may decide to
exercise its option to pay all cash for the Purchased Assets depending on the
trading price of NGP Common Stock prior to consummation of the Merger and NGP's
ability to raise sufficient financing to pay all cash for the Purchased Assets.
NGP will issue a press release no later than July 11, 1996 indicating whether
NGP will pay the combination of cash and stock or all cash in the Asset
Purchase. GEI stockholders also will be able to call (800) 995-3499 on or after
such date to determine the form of consideration that NGP has elected to pay.
The Acquisition Agreement provides that, at NGP's election, the Operating
Partnership may be substituted for NGP as the purchaser of any or all of the
Purchased Assets. Currently, NGP anticipates that it will substitute the
Operating Partnership with respect to the purchase of the portion of the
Purchased Assets equal to the cash portion of consideration payable to GEI in
connection with the Asset Purchase. Immediately after the Effective Time (as
defined hereinafter), NGP intends to contribute the Purchased Assets that NGP
purchases in the Asset Purchase to the Operating Partnership in exchange for
additional partnership units of the Operating Partnership ("OP Units") equal in
number to the number of shares of NGP Common Stock issued in connection with
the Asset Purchase. Following such contribution, NGP will own 12,290,329 OP
Units representing 58.6% of all of the OP Units then outstanding. The Operating
Partnership will thereafter lease all of the golf courses comprising the
Purchased Assets to AGC. See "The Asset Purchase and Merger--Management and
Operations after Asset Purchase and Merger; Lease Terms--New Lease."
The Asset Purchase and the Merger will be effected as soon as practicable
following approval by the stockholders of NGP and GEI. See "The Asset Purchase
and Merger--Description of Acquisition Agreement--Effective Time."
xi
<PAGE>
PRINCIPAL STEPS OF TRANSACTION
The following diagrams summarize the principal steps in the Asset Purchase
and the Merger:
[DIAGRAM OF THE ASSET PURCHASE]
STEP 1: GEI sells its 20 owned golf course properties and assets related to
such properties to NGP in exchange for, at the option of NGP, either (a) a
combination of $17,213,351 in cash and shares of NGP Common Stock with an
aggregate value of $40,786,649 (subject to certain adjustments and
limitations), or (b) $58 million in cash.
STEP 2: NGP contributes the Purchased Assets to the Operating Partnership in
exchange for additional OP Units equal to the number of shares of NGP Common
Stock issued in the Asset Purchase.
STEP 3: The Operating Partnership leases all of the golf courses comprising the
Purchased Assets to AGC pursuant to the New Lease. This step will occur after
consummation of the Merger diagrammed below.
[DIAGRAM OF THE MERGER]
STEP 1: Newco merges with and into GEI, with GEI being the Surviving
Corporation, which will then be wholly-owned by The Price Trust. As a result of
the Merger, each share of GEI Common Stock will be cancelled and converted into
the right to receive, depending on the form of consideration paid by NGP in
connection with the Asset Purchase, either (a) $6.00 in cash and approximately
$6.00 of NGP Common Stock (subject to the maximum and minimum number of NGP
shares issuable, as discussed above) or (b) $12.00 in cash. Holders of
unexpired and unexercised options to acquire shares of GEI Common Stock will
become entitled to receive an aggregate of $2,547,514 payable in cash and
shares of NGP Common Stock in the same proportion as holders of GEI Common
Stock receive in the Merger. Newco will contribute approximately $23.6 million
of the cash consideration payable in connection with the Merger and will
refinance approximately $54.9 million of GEI's existing indebtedness.
xii
<PAGE>
VOTE REQUIRED
NGP. The affirmative vote of holders of a majority of the shares of NGP
Common Stock voting on the Stock Issuance Proposal is required to adopt and
approve the Stock Issuance Proposal, provided the total number of votes cast is
a majority of the outstanding shares of NGP Common Stock. The affirmative vote
of holders of a plurality of the shares of NGP Common Stock voting on the
Election Proposal is required to adopt and approve the Election Proposal. See
"Voting and Proxies--NGP."
As of June 20, 1996, NGP's directors and executive officers as a group
beneficially owned 854,575 shares of NGP Common Stock, or approximately 8.0% of
those shares outstanding as of such date.
GEI. The affirmative vote of holders of a majority of the outstanding shares
of GEI Common Stock is required to adopt and approve the GEI Proposal. See
"Voting and Proxies--GEI." Holders of an aggregate of 3,425,344 shares of GEI
Common Stock, representing approximately 45% of the outstanding shares of GEI
Common Stock (on a fully diluted basis), have entered into a Stockholder
Agreement pursuant to which such holders have agreed, among other things, to
vote their shares of GEI Common Stock in favor of the GEI Proposal. See "The
Asset Purchase and Merger--Description of Acquisition Agreement--Stockholder
Agreement."
As of June 20, 1996, GEI's directors and executive officers as a group
beneficially owned 3,858,501 shares of GEI Common Stock, or approximately
52.40% of those shares outstanding or subject to exercisable options as of such
date.
STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES
WITH THEIR PROXIES.
DISSENTERS' RIGHTS
If the Merger is consummated, holders of GEI Common Stock who comply with the
procedures required by Section 17-6712 of the Kansas General Corporation Code
(the "KGCC") will, under certain circumstances, have the right to dissent and
demand appraisal of the fair market value of their shares.
Under Section 17-6712 of the KGCC, holders of GEI Common Stock seeking to
exercise dissenters' rights must file a written objection to the Merger with
GEI prior to the taking of the vote at the GEI Special Meeting, and must not
consent to or vote in favor of the Merger. Within 10 days after the Merger
becomes effective, GEI will so notify stockholders who have followed the filing
and voting requirements. Within 20 days from the mailing of such notice, such
stockholders must demand in writing from the Surviving Corporation payment of
the value of their GEI Common Stock. If the Surviving Corporation and a
dissenting stockholder agree on such value within 30 days of the expiration of
the 20-day period, the Surviving Corporation will pay the stockholder such
amount.
Any dissenting stockholder who does not reach such an agreement during the
30-day period may demand an appraisal of the GEI Common Stock held by all
stockholders failing to agree, by filing a petition with a Kansas state
district court within four months of the expiration of the 30-day period. The
court will appoint an appraiser who will conduct an investigation and offer a
reasonable opportunity to the parties interested to submit pertinent evidence
on the value of the shares. At the time of appointment, dissenting stockholders
who hold certificated shares of GEI Common Stock will be required by the court
to submit their certificates to the clerk of the court for holding pending the
appraisal proceedings. After the appraiser reaches a determination, the Court
may hear arguments on the appraisals and will decree the value of the stock and
direct the Surviving Corporation to make payment to all dissenters.
A more detailed description of the procedures required to be followed in
order to properly exercise dissenters' rights, including certain actions that
must be taken prior to the GEI Special Meeting, is set forth under "The Asset
Purchase and Merger--Dissenters' Rights" and Annex V attached hereto, which
sets forth the text of Section 17-6712 of the KGCC. FAILURE TO FOLLOW SUCH
PROCEDURES WILL RESULT IN A LOSS OF ALL DISSENTERS' RIGHTS.
xiii
<PAGE>
Holders of NGP Common Stock are not entitled under Maryland law to
dissenters' rights of appraisal in connection with the Asset Purchase.
THE ACQUISITION AGREEMENT
On February 2, 1996, NGP, GEI and Newco executed and delivered the
Acquisition Agreement, which was subsequently amended on February 16, 1996 by
the First Amendment to the Asset Purchase Agreement and Agreement and Plan of
Merger (the "First Amendment"). Copies of the Acquisition Agreement and the
First Amendment are attached as Annex I and Annex II, respectively, to this
Joint Proxy Statement--Prospectus and are incorporated herein by reference. All
references herein to the "Acquisition Agreement" shall mean the Acquisition
Agreement as amended by the First Amendment.
CONDITIONS TO THE ASSET PURCHASE AND THE MERGER
The obligations of NGP and GEI to consummate the Asset Purchase and the
Merger are subject to the satisfaction of certain conditions, including, among
other things, approval by the stockholders of NGP of the Stock Issuance
Proposal; approval by the stockholders of GEI of the GEI Proposal; the truth
and correctness in all material respects, as of the Effective Time, of the
respective representations and warranties of NGP and GEI set forth in the
Acquisition Agreement; and the absence of a material adverse change in the
business of NGP or GEI. See "The Asset Purchase and Merger--Description of the
Acquisition Agreement--Conditions to the Asset Purchase and Merger."
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS OF NGP AND GEI;
REASONS FOR THE ASSET PURCHASE AND THE MERGER
NGP. The NGP Board of Directors, based in part on the recommendation of the
Independent Committee of the NGP Board of Directors (the "Independent
Committee"), has determined that the terms of the Asset Purchase are fair to,
and in the best interests of, NGP. Accordingly, the NGP Board of Directors has
unanimously approved the Acquisition Agreement and recommends that holders of
NGP Common Stock vote FOR approval of the Stock Issuance Proposal. For a
description of possible conflicts of interest of certain NGP directors in
recommending the Stock Issuance Proposal, see "The Asset Purchase and Merger--
Possible Conflicts of Interest of Certain Officers and Directors." The NGP
Board of Directors further recommends that holders of NGP Common Stock vote FOR
the election of the three nominees to serve as NGP Directors.
GEI. The GEI Board of Directors has determined that the terms of the Asset
Purchase and the Merger are fair to, and in the best interests of, GEI and its
stockholders. Accordingly, the GEI Board of Directors has unanimously approved
the GEI Proposal and recommends that holders of GEI Common Stock vote FOR
approval and adoption of the GEI Proposal. For a description of possible
conflicts of interest of certain Directors of GEI in recommending the Asset
Purchase and the Merger, see "The Asset Purchase and Merger--Possible Conflicts
of Interest of Certain Officers and Directors."
For a description of certain other factors considered by the NGP and GEI
Boards of Directors in analyzing the Asset Purchase and the Merger, and
possible alternatives thereto, see "The Asset Purchase and Merger--Background
of the Transaction," and "--Recommendations of the Boards of Directors of NGP
and GEI; Reasons for the Asset Purchase and the Merger."
POSSIBLE CONFLICTS OF INTEREST OF CERTAIN OFFICERS AND DIRECTORS
Certain members of NGP's and GEI's management may be deemed to have had
certain conflicts of interest when negotiating and recommending approval of the
Acquisition Agreement and the transactions contemplated thereby.
xiv
<PAGE>
NGP. Because of the significant management and beneficial ownership positions
of David G. Price in each of Newco, AGC, NGP, the Operating Partnership and,
following the Merger, the Surviving Corporation, Mr. Price had several
conflicts of interest in connection with negotiating and approving the Asset
Purchase and the Merger, including (i) the allocation between NGP and Newco of
the consideration to be paid to GEI by NGP and Newco, (ii) the division of the
assets of GEI between NGP and the Surviving Corporation, such that NGP acquires
the Purchased Assets and the Surviving Corporation retains all of GEI's other
assets, and (iii) the negotiation of the New Lease (as defined below) (with
respect to the golf properties to be acquired from GEI in connection with the
Asset Purchase) between the Operating Partnership and AGC. The terms of these
transactions, however, were approved by the Independent Committee.
GEI. As provided in the Acquisition Agreement, at the Effective Time, the
officers of GEI immediately prior to the Effective Time shall be the initial
officers of the corporation surviving the Merger (the "Surviving Corporation").
Certain officers and directors of GEI hold unexpired and unexercised options
to purchase a total of 946,473 shares of GEI Common Stock (the "GEI Options").
The GEI Options will be cancelled pursuant to the Acquisition Agreement in
exchange for payment in an amount equal to the excess, if any, of the per share
value of the consideration payable on account of each share of GEI Common Stock
outstanding immediately prior to the Merger (up to $12.00) over the per share
exercise price of the GEI Options, multiplied by the number of shares subject
to the GEI Options. The aggregate value of the payments made to all holders
(including officers and directors of GEI) of GEI Options will be $2,547,514
(subject to certain adjustments and limitations) payable in cash and shares of
NGP Common Stock in the same proportion as holders of GEI Common Stock receive
in the Merger. Exercisability of certain of these GEI Options will be
accelerated as a result of the Acquisition Agreement. For a detailed summary of
the number and average exercise price of options held by directors and officers
of GEI entitled to receive such consideration, see "Risk Factors--Conflicts of
Interest--GEI Conflicts."
GEI officers and directors also will benefit from continued indemnification
protection and directors' and officers' liability insurance after the Merger.
Pursuant to the Acquisition Agreement, the indemnification provisions of GEI's
existing Articles of Incorporation and Bylaws will be kept in effect by the
Surviving Corporation. The policies of directors' and officers' liability
insurance currently maintained by GEI also will be continued for not less than
three years by the Surviving Corporation.
Several significant holders of GEI Common Stock will have certain
registration rights relating to any shares of NGP Common Stock received by them
in connection with the Merger.
Robert H. Williams, President and Chief Executive Officer of GEI, owns or
controls 75,003 OP Units as a limited partner in the Operating Partnership,
which currently constitute less than 1% of the OP Units in the Operating
Partnership.
For additional description of possible conflicts of interest, see "Risk
Factors--Conflicts of Interest" and "The Asset Purchase and Merger--Possible
Conflicts of Interest of Certain Officers and Directors."
OPINIONS OF FINANCIAL ADVISORS
Opinion of NGP's Financial Advisor. On February 1, 1996, Montgomery
Securities ("Montgomery") delivered its oral opinion to the NGP Board of
Directors and the Independent Committee, which was subsequently confirmed in
writing on and as of February 2, 1996, to the effect that the consideration to
be paid by NGP in connection with the Asset Purchase is fair to NGP from a
financial point of view as of such date. The full text of the Montgomery
opinion, which sets forth a description of the assumptions made, matters
considered and limitations on the review undertaken, is attached hereto as
Annex III. See "The Asset Purchase and Merger--Opinion of NGP's Financial
Advisor."
xv
<PAGE>
Opinion of GEI's Financial Advisor. On February 1, 1996, William Blair &
Company, L.L.C. ("William Blair") delivered its oral opinion to GEI's Board of
Directors, which opinion was subsequently confirmed in writing on February 2,
1996, that the consideration to be received by the stockholders of GEI in the
Merger pursuant to the Acquisition Agreement is fair, from a financial point of
view, to such stockholders. The full text of the William Blair opinion, which
sets forth a description of the assumptions made, matters considered and
limitations on the review undertaken, is attached hereto as Annex IV. See "The
Asset Purchase and Merger--Opinion of GEI's Financial Advisor."
RISK FACTORS
In evaluating whether to approve the transactions comprising the Asset
Purchase and the Merger, the stockholders of both GEI and NGP should consider
the matters discussed under "Risk Factors." Such risks include:
. Several of the parties involved in the negotiation and approval of the
terms and conditions of the Acquisition Agreement may have had significant
conflicts of interest concerning allocation of the consideration for the
Asset Purchase and the Merger, allocation of GEI's assets between the
Surviving Corporation and NGP and the terms of the New Lease between NGP
and AGC. David G. Price may be subject to certain conflicts of interest
with respect to the operation of the golf courses comprising the Purchased
Assets vis-a-vis the operation of other golf courses managed and operated
by AGC, and certain conflicts of interest may exist with respect to
certain officers and directors of GEI in negotiating and recommending
approval of the Acquisition Agreement;
. No assurance can be given that Newco will be able to obtain the financing
it requires to pay the Merger Consideration and refinance GEI's existing
debt;
. If NGP fails to qualify or continue to be qualified as a REIT, NGP would
be taxed as a regular corporation, which would cause a reduction in the
funds available for distribution to NGP stockholders;
. Limitations exist on the actual or constructive ownership of more than
9.8% of the outstanding shares of NGP Common Stock which cause any shares
owned or transferred in excess of the Ownership Limit to be transferred to
a charitable organization, which limitations may make a change of control
of NGP more difficult or may impact trading of the NGP Common Stock;
. NGP's revenues and its ability to pay dividends are largely dependent on
rental payments by AGC under leases relating to almost all of NGP's
existing golf properties, and such dependence will be increased by the
addition of the 20 golf course properties comprising the Purchased Assets
that NGP intends to lease to AGC;
. The value of the Asset Purchase Consideration payable by NGP in shares of
NGP Common Stock is subject to variation if the market price of NGP Common
Stock falls below or rises above certain prices;
. Real estate investment considerations, including the possibility that
NGP's golf course properties and any additional properties will generate
income at rates lower than anticipated and the possibility that a property
could sustain an uninsured loss;
. The potential liability of NGP for environmental matters and the costs of
compliance with certain governmental regulations;
. The effect on the market price of the NGP Common Stock of the possible
issuance of additional shares of NGP Common Stock as a result of the
exchange of OP Units;
. NGP's dependence on its key management personnel;
. Distributions by NGP to its stockholders are dependent principally on
rental payments under NGP's existing leases on its golf course properties
and interest payments on four participating mortgage loans collateralized
by first mortgage liens on four golf courses that NGP currently has an
option to purchase. These revenues could be adversely affected by a
default by a lessee under any of NGP's existing leases or a default in the
payment of interest by a borrower under any of such loans;
xvi
<PAGE>
. Provisions of NGP's Articles of Incorporation and Bylaws and Maryland law
which could restrict changes in control of NGP; and
. The ability of David G. Price to designate one less than a majority of
NGP's Board of Directors.
MANAGEMENT AND OPERATIONS OF NGP AND SURVIVING CORPORATION AFTER THE EFFECTIVE
TIME
NGP. The officers of NGP prior to the Effective Time will continue in their
respective positions after the Effective Time. The NGP Board of Directors after
the Effective Time will be composed of those Directors serving before the
Effective Time whose seats are not the subject of the Election Proposal and
those Directors duly elected at the NGP Annual Meeting. Immediately after the
Effective Time, NGP intends to contribute the Purchased Assets purchased by NGP
to the Operating Partnership in exchange for additional OP Units in an amount
equal to the number of shares NGP Common Stock issued in connection with the
Asset Purchase. The Operating Partnership will then lease all of the golf
courses comprising the Purchased Assets to AGC pursuant to a master lease (the
"New Lease"). The New Lease will be a triple net lease for an initial term of
fifteen years. The New Lease will provide for a minimum base rent and a
percentage rent feature enabling NGP to participate in revenue growth of such
golf courses.
Surviving Corporation. The officers and directors of the Surviving
Corporation immediately after the Effective Time will be, respectively, the
officers of GEI and the directors of Newco immediately prior to the Effective
Time. GEI currently leases the Paradise Hills Golf Course in Albuquerque, New
Mexico pursuant to a long-term triple net lease with the Operating Partnership,
and following the Effective Time, the Surviving Corporation will continue as
lessee under such lease. Other than this lease, neither NGP nor the Operating
Partnership currently has with respect to GEI, or expects to have following the
Effective Time with respect to the Surviving Corporation, any business
relationship or other obligation.
FINANCING OF THE ACQUISITION
NGP currently anticipates that it will elect to pay for the Purchased Assets
with a combination of $17,213,351 in cash and $40,786,649 in shares of NGP
Common Stock and, in any event, that the Operating Partnership will pay the
cash portion of the purchase price for the Purchased Assets. The Operating
Partnership intends to finance its payment of $17,213,351 by borrowing such
amount under the Operating Partnership's existing credit facility. In the event
that NGP elects to pay all cash as the consideration for the Asset Purchase, in
which case the Operating Partnership would be substituted for NGP with respect
to the entire Asset Purchase, the Operating Partnership would be required to
pay $58 million in cash and certain related transaction costs of consummating
the Asset Purchase. The Operating Partnership seeks to sell $75 million in
senior unsecured notes, the proceeds of which will be used to reduce the
outstanding balance on the Operating Partnership's existing credit facility and
provide funds for future acquisitions. The Operating Partnership currently
expects to close such financing by the end of June 1996 and, in the event such
closing occurs, would have sufficient financing to pay the all-cash purchase
price for the Purchased Assets.
In connection with the Merger, Newco will be required to pay approximately
$23.6 million of the cash consideration payable to holders of GEI Common Stock
and options for such stock in the Merger, refinance approximately $54.9 million
of GEI's existing debt and pay approximately $2.1 million in transaction costs
related to negotiating and consummating the Merger. To pay such amounts and
provide for additional working capital and a line of credit, Newco is seeking
to obtain a capital contribution of approximately $67 million from David G.
Price and a loan from one or more commercial lenders for approximately $30
million. David G. Price is seeking to obtain approximately $38 million of his
capital contribution from the net proceeds of a loan to Mr. Price directly from
one or more commercial lenders and obtain the remaining approximately $29
million of his capital contribution from the net proceeds of a loan from AGC.
AGC is seeking to raise the funds that it will loan to Mr. Price, along with an
additional $15 million that AGC will use to refinance its existing
indebtedness, and AGC expects to close such financing prior to the Effective
Time. Newco currently expects that it will be able to obtain all of the
financing it requires to consummate the Merger prior to the Effective Time.
Receipt of sufficient financing to consummate the Merger is not a condition to
the closing of the Acquisition Agreement,
xvii
<PAGE>
and accordingly, Newco (the obligations of which are guaranteed by AGC) may be
in breach of the Acquisition Agreement if it fails to obtain such financing.
See "Risk Factors--No Assurance that Financing Necessary to Consummate the
Asset Purchase and the Merger Will be Obtained" and "The Asset Purchase and
Merger--Financing of the Acquisition."
ACCOUNTING TREATMENT OF THE ASSET PURCHASE AND THE MERGER
Both the Asset Purchase and the Merger will be accounted for by NGP under the
"purchase" method of accounting in accordance with generally accepted
accounting principles ("GAAP").
CERTAIN FEDERAL REGULATORY MATTERS
The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the
rules and regulations thereunder (the "HSR Act"), provide that certain
acquisition transactions may not be consummated until certain information has
been furnished to the Antitrust Division of the Department of Justice and the
Federal Trade Commission and certain waiting period requirements have been
satisfied. NGP and GEI provided certain information and observed the required
waiting period under the HSR Act, which terminated on March 27, 1996. For
further information with respect to such filings, see "The Asset Purchase and
Merger--Certain Federal Regulatory Matters."
LISTING OF GEI COMMON STOCK AND NGP COMMON STOCK
GEI Common Stock currently is listed on the Nasdaq Stock Market ("Nasdaq")
under the symbol "GLFE." Upon consummation of the Merger, GEI Common Stock will
be delisted from Nasdaq and deregistered under the Exchange Act. NGP Common
Stock currently is, and is expected to continue to be, listed on the NYSE under
the symbol "TEE." See "The Asset Purchase and Merger--Delisting and
Deregistration of GEI Common Stock."
COMPARATIVE MARKET PRICES; NGP DISTRIBUTIONS AND GEI DIVIDENDS
The following table sets forth, for the fiscal quarters indicated, the range
of high and low sale prices of NGP Common Stock on the NYSE and GEI Common
Stock on Nasdaq, and distributions declared on NGP Common Stock.
<TABLE>
<CAPTION>
GEI
NGP COMMON STOCK COMMON STOCK
------------------------------ ---------------
HIGH LOW DISTRIBUTION HIGH LOW
-------- -------- ------------ ------- -------
<S> <C> <C> <C> <C> <C>
YEAR ENDING DECEMBER 31, 1996
2nd Quarter (through June 20,
1996)........................ $25.375 $23.00 $ -- $11.75 $11.125
1st Quarter................... 26.50 22.25 0.41 12.00 7.25
YEAR ENDED DECEMBER 31, 1995
4th Quarter................... $24.00 $21.50 $0.41 $13.75 $ 6.75
3rd Quarter................... 22.25 20.00 0.41 14.25 12.25
2nd Quarter................... 22.50 19.375 0.39375 14.00 10.25
1st Quarter................... 22.125 19.50 0.39375 12.25 7.75
YEAR ENDED DECEMBER 31, 1994
4th Quarter................... $22.125 $17.25 $0.39375 $13.50 $10.25
3rd Quarter................... 23.00 20.00 0.39375 15.00 12.50
2nd Quarter(1)................ 21.75 19.625 0.35 -- --
1st Quarter(1)................ 21.375 19.25 0.35 -- --
</TABLE>
- --------
(1) GEI Common Stock has been listed and traded on Nasdaq since July 13, 1994.
xviii
<PAGE>
On January 10, 1996, the last trading date prior to the announcement that GEI
was in discussions with a potential acquiror involving an acquisition of GEI
for cash and securities valued at approximately $12 per share, the high and low
sales prices on Nasdaq were $8.75 and $8.125 per share, respectively, for GEI
Common Stock, and on the NYSE were $23.125 and $22.75 per share, respectively,
for NGP Common Stock. On February 2, 1996, the last trading date prior to the
date on which GEI and NGP publicly announced the signing of the Acquisition
Agreement, the high and low sales prices on Nasdaq were $10.25 and $9.75 per
share, respectively, for GEI Common Stock, and on the NYSE were $23.125 and
$23.00 per share, respectively, for NGP Common Stock. On June 20, 1996, the
high and low sales prices and last reported sales price on Nasdaq were $11.75,
$11.50 and $11.75 per share for GEI Common Stock, and on the NYSE were $24.50,
$24.125 and $24.25 per share, respectively, for NGP Common Stock. See
"Comparative Market Prices; NGP Distributions and GEI Dividends." STOCKHOLDERS
OF BOTH GEI AND NGP ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR GEI
COMMON STOCK AND NGP COMMON STOCK.
GEI has not declared or paid any dividends with respect to GEI Common Stock.
NGP has regularly declared and paid quarterly distributions with respect to NGP
Common Stock. It is anticipated that NGP will continue to pay regular
distributions in the foreseeable future following the Asset Purchase and the
Merger. See "Comparative Market Prices; NGP Distributions and GEI Dividends."
NGP paid distributions to stockholders of $1.59 per share in 1995, of which
$1.34 represents ordinary income and $0.25 represents return of capital on a
tax basis. On a book basis, $0.34 per share represents return of capital. In
1994, NGP paid distributions to stockholders of $1.44 per share, of which $1.21
represents ordinary income and $0.23 represents return of capital on a tax
basis. On a book basis, $0.32 per share represents return of capital. In order
to maintain its qualification in 1995 and 1994 as a REIT for federal income tax
purposes, NGP was required to make distributions to its stockholders of at
least $1.18 and $1.10 per share, respectively.
EXCHANGE OF CERTIFICATES
Promptly after the Merger, holders of certificates that formerly represented
shares of GEI Common Stock will receive a letter of transmittal containing
instructions for the surrender of such certificates in exchange for either cash
and certificates representing shares of NGP Common Stock, or all cash,
depending on the form of the consideration paid by NGP in connection with the
Asset Purchase. See "The Asset Purchase and Merger--Description of Acquisition
Agreement--Exchange of GEI Certificates."
STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXIES. GEI
COMMON STOCK CERTIFICATES WILL BE EXCHANGED FOR NGP COMMON STOCK CERTIFICATES
AND/OR CASH FOLLOWING CONSUMMATION OF THE MERGER IN ACCORDANCE WITH
INSTRUCTIONS WHICH THE SURVIVING CORPORATION WILL SEND TO HOLDERS OF GEI COMMON
STOCK AFTER THE MERGER.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
In the Asset Purchase, GEI will recognize taxable gain in an amount equal to
the excess of the amount of cash and the fair market value of NGP Common Stock
received by GEI, plus the amount of any liabilities transferred to NGP, over
GEI's tax basis in the Purchased Assets. In general, it is expected that a GEI
stockholder's disposition of his or her GEI Common Stock in the Merger will
result in taxable gain or loss in an amount equal to the excess of the amount
of cash plus the fair market value of the NGP Common Stock received by the GEI
stockholder, over such stockholder's adjusted tax basis in his or her GEI
Common Stock. Neither NGP nor the Operating Partnership will recognize any gain
or loss upon the Asset Purchase or the Merger. For a detailed discussion of
certain material federal income tax consequences of the transactions
contemplated by the Acquisition Agreement, see "Material Federal Income Tax
Consequences."
xix
<PAGE>
SUMMARY SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
NGP SUMMARY HISTORICAL FINANCIAL DATA
The following table sets forth summary financial data for NGP that is derived
from NGP's consolidated financial statements and NGP's predecessors' (Golf
Properties Group ("GPG")) combined financial statements for those years, which
have been audited by Coopers & Lybrand L.L.P., and NGP's unaudited consolidated
financial statements for the three months ended March 31, 1996 and 1995.
Historical operating results of GPG may not be comparable to future operating
results of NGP because: (i) NGP's golf course leases with AGC have materially
different terms from the terms of the leases with GPG; (ii) historical
operating revenues and operating expenses include revenues and expenses
relating to five golf courses that were operated by AGC pursuant to management
agreements (under which GPG received revenues and bore expenses and paid the
operator a fee) rather than leases; and (iii) management fee expense reflects
consulting services provided by AGC to GPG, which were not continued following
NGP's initial public offering in August 1993. The data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" as well as the consolidated financial statements of
NGP and notes thereto incorporated herein by reference.
<TABLE>
<CAPTION>
NATIONAL GOLF PROPERTIES, INC. GOLF PROPERTIES GROUP
--------------------------------------------------- ------------------------------
THREE
MONTHS ENDED YEAR ENDED YEAR ENDED
MARCH 31, DECEMBER 31, AUG. 18, 1993 JAN. 1, 1993 DECEMBER 31,
---------------- ------------------ THROUGH THROUGH ----------------
1996 1995 1995 1994 DEC. 31, 1993 AUG. 17, 1993 1992 1991
------- ------- -------- -------- ------------- ------------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues
Rent................... $13,089 $10,583 $ 45,931 $ 36,637 $10,787 $10,678 $13,200 $13,071
Gain on sale of
property.............. 25 2,000 1,893 -- -- -- -- --
Operating.............. -- -- -- -- -- 4,708 5,938 6,581
Other income........... -- -- -- -- 17 499 1,013 582
------- ------- -------- -------- ------- ------- ------- -------
Total revenues.......... 13,114 12,583 47,824 36,637 10,804 15,885 20,151 20,234
------- ------- -------- -------- ------- ------- ------- -------
Expenses
Operating.............. -- -- -- -- -- 3,950 5,151 5,433
Management fee......... -- -- -- -- -- 2,193 2,485 2,286
General &
administrative........ 1,239 1,056 4,258 4,709 1,374 -- -- --
Depreciation &
amortization.......... 4,108 3,150 14,027 10,413 3,384 4,661 4,937 4,792
------- ------- -------- -------- ------- ------- ------- -------
Total expenses.......... 5,347 4,206 18,285 15,122 4,758 10,804 12,573 12,511
------- ------- -------- -------- ------- ------- ------- -------
Interest expense....... (2,925) (1,616) (8,793) (2,212) (335) (4,627) (5,424) (5,311)
Interest income........ 841 964 4,144 3,459 1,584 24 95 678
Other income........... 7 101 114 194 -- -- -- --
------- ------- -------- -------- ------- ------- ------- -------
Income before provision
for taxes and
minority interest...... 5,690 7,826 25,004 22,956 7,295 478 2,249 3,090
Provision for taxes..... (56) (67) (352) (368) (158) -- -- --
------- ------- -------- -------- ------- ------- ------- -------
Income before minority
interest............... 5,634 7,759 24,652 22,588 7,137 478 2,249 3,090
Minority interest....... (2,600) (3,593) (11,366) (10,712) (3,317) -- -- --
------- ------- -------- -------- ------- ------- ------- -------
Net income.............. $ 3,034 $ 4,166 $ 13,286 $ 11,876 $ 3,820 $ 478 $ 2,249 $ 3,090
======= ======= ======== ======== ======= ======= ======= =======
Net income per common
share.................. $0.29 $0.39 $1.25 $1.12 $0.36 -- -- --
Weighted average number
of common
shares outstanding..... 10,622 10,622 10,622 10,612 10,603 -- -- --
</TABLE>
<TABLE>
<CAPTION>
GOLF
NATIONAL GOLF PROPERTIES, INC. PROPERTIES GROUP
-------------------------------------------- -----------------
MARCH 31, DECEMBER 31,
----------------- --------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Real estate before
accumulated
depreciation........... $365,910 $291,874 $362,068 $272,034 $166,410 $130,327 $103,600
Total assets............ 355,716 295,124 347,967 275,071 222,739 102,779 78,947
Total debt.............. 152,906 86,317 144,983 66,441 12,666 70,044 49,375
Minority interest....... 22,024 23,076 23,000 22,936 19,979 -- --
Stockholders' equity.... 176,821 183,355 177,907 183,136 181,997 -- --
Cash distributions
declared per common
share.................. 0.41 0.39 1.61 1.49 0.51 -- --
</TABLE>
xx
<PAGE>
<TABLE>
<CAPTION>
NATIONAL GOLF PROPERTIES, INC. GOLF PROPERTIES GROUP
---------------------------------------------------- --------------------------------
THREE
MONTHS ENDED YEAR ENDED YEAR ENDED
MARCH 31, DECEMBER 31, AUG. 18, 1993 JAN. 1, 1993 DECEMBER 31,
----------------- ------------------ THROUGH THROUGH ------------------
1996 1995 1995 1994 DEC. 31, 1993 AUG. 17, 1993 1992 1991
------- -------- -------- -------- ------------- ------------- -------- --------
(IN THOUSANDS, EXCEPT PROPERTY DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
NGP's funds from
operations(1).......... $ 5,210 $ 4,699 $ 19,641 $ 17,209 $ 5,587 $ 5,129 $ 7,176 $ 7,872
Cash flows from (used
in):
Operating activities... 10,868 8,847 36,383 34,241 9,282 6,649 18,520 34,729
Investing activities... (8,225) (21,017) (76,019) (32,003) (106,728) (8,763) (16,961) (6,082)
Financing activities... 1,638 11,774 42,639 (52) 99,346 1,188 (1,069) (28,422)
Number of courses....... 81 74 81 71 51 47 43 39
Number of locations..... 72 66 72 63 46 42 38 34
</TABLE>
- -------
(1) NGP believes that to facilitate a clear understanding of the historical
consolidated and combined operating results, funds from operations should
be examined in conjunction with net income. Funds from operations is
considered by management as an appropriate measure of the performance of an
equity REIT because it is predicated on cash flow analyses, which
management believes is more reflective of the value of real estate
companies such as NGP rather than a measure predicated on generally
accepted accounting principles which gives effect to non-cash expenditures
such as depreciation. Funds from operations is generally defined as net
income (loss) plus certain non-cash items, primarily depreciation and
amortization. Funds from operations should not be considered as an
alternative to net income as an indication of the NGP's performance or as
an alternative to cash flow, as defined by generally accepted accounting
principles, as a measure of liquidity. The National Association of Real
Estate Investment Trusts, Inc. ("NAREIT") adopted revisions to the
definition of funds from operations as set forth in the NAREIT "White Paper
on Funds From Operations" dated March 1995. NGP has adopted the new
definition of funds from operations and it intends to present both the old
and new definitions of funds from operations to assist in comparisons with
prior periods of NGP. The funds from operations presented may not be
comparable to funds from operations for other REITs. The following table
summarizes NGP's funds from operations, based on the old and new
definitions, for the three months ended March 31, 1996 and 1995, the years
ended December 31, 1995 and 1994, and the period August 18, 1993 through
December 31, 1993, and Golf Properties Group's funds from operations for
the period January 1, 1993 through August 17, 1993 and the years ended
December 31, 1992 and 1991.
<TABLE>
<CAPTION>
NATIONAL GOLF PROPERTIES, INC. GOLF PROPERTIES GROUP
----------------------------------------------- ----------------------------
THREE
MONTHS ENDED YEAR ENDED YEAR ENDED
MARCH 31, DECEMBER 31, AUG. 18, 1993 JAN. 1, 1993 DECEMBER 31,
-------------- ---------------- TO TO --------------
1996 1995 1995 1994 DEC. 31, 1993 AUG. 17, 1993 1992 1991
------ ------ ------- ------- ------------- ------------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net income.............. $3,034 $4,166 $13,286 $11,876 $ 3,820 $ 478 $2,249 $3,090
Minority interest....... 2,600 3,582 11,366 10,712 3,317 -- -- --
Depreciation and
amortization........... 4,108 3,150 14,027 10,413 3,384 4,661 4,937 4,792
Amortization--restricted
stock.................. 236 236 943 893 311 -- -- --
Amortization--investment
premiums............... -- -- -- 540 -- -- -- --
Gain on sale of
property............... (25) (2,000) (1,893) -- -- -- -- --
Write off of option
payable................ -- (101) (101) -- -- -- -- --
Discount on payoff of
note payable........... -- -- -- (175) -- -- -- --
------ ------ ------- ------- ------- ------ ------ ------
Funds from operations--
old definition......... 9,953 9,033 37,628 34,259 10,832 5,139 7,186 7,882
Amortization--restricted
stock.................. (236) (236) (943) (893) (311) -- -- --
Amortization--investment
premiums............... -- -- -- (540) -- -- -- --
Amortization--loan
costs.................. (30) (35) (195) (66) (78) (10) (10) (10)
Depreciation--
corporate.............. (12) (9) (43) (31) (3) -- -- --
------ ------ ------- ------- ------- ------ ------ ------
Funds from operations--
new definition......... $9,675 $8,753 $36,447 $32,729 $10,440 $5,129 $7,176 $7,872
NGP's share of funds
from operations........ 53.85% 53.69% 53.89% 52.58% 53.52% 100% 100% 100%
------ ------ ------- ------- ------- ------ ------ ------
NGP's funds from
operations............. $5,210 $4,699 $19,641 $17,209 $ 5,587 $5,129 $7,176 $7,872
====== ====== ======= ======= ======= ====== ====== ======
</TABLE>
In order to maintain its qualification as a REIT for federal income
purposes, NGP is required to make distributions to its stockholders. NGP's
distributions to stockholders have been less than the total funds from
operations because NGP is obligated to make certain payments with respect to
principal debt and capital improvements. Management believes that to
continue NGP's growth, funds from operations in excess of distributions,
principal reductions and capital improvement expenditures should be invested
in assets expected to generate returns on investment to NGP commensurate
with NGP's investment objectives and policies.
xxi
<PAGE>
GEI'S BUSINESS RELATED TO THE PURCHASED ASSETSSUMMARY COMBINED FINANCIAL DATA
The following table sets forth summary financial data that is derived from
and should be read in connection with the combined financial statements of
GEI's Business Related to the Purchased Assets, included elsewhere herein. The
statement of operations and balance sheet data as of and for the year ended
December 31, 1995 have been audited by Coopers & Lybrand L.L.P. The statement
of operations data for the three months ended March 31, 1996 and 1995 and the
balance sheet data as of March 31, 1996 have been derived from the unaudited
financial statements of GEI's Business Related to the Purchased Assets, but
include all adjustments (consisting only of normal recurring accruals) which
are, in the opinion of GEI's management, necessary for a fair presentation of
the results of operations for such periods and financial position at such
dates. Operating results for the three months ended March 31, 1996 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1996. The Purchased Assets are comprised of 20 golf course
properties and assets related to such properties currently owned by GEI. See
"Description of Purchased Assets." The Purchased Assets do not include any
cash, accounts receivable, prepaid expenses or liabilities attributable to
GEI's operation of the 20 golf course properties comprising the Purchased
Assets or any of GEI's other assets that are unrelated to the Purchased Assets
(consisting of 21 leased golf course properties, three golf course management
contracts and certain other assets related to such leased and managed courses).
The following table sets forth financial data relating to GEI's operations of
the 20 golf course properties comprising the Purchased Assets, including assets
and liabilities that do not constitute Purchased Assets. As a result, the
following table and the related financial statements of GEI's Business Related
to the Purchased Assets are not representative of the financial performance of
the Purchased Assets alone.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH
31,
--------------
YEAR ENDED
1996 1995 DECEMBER 31, 1995
------- ------ -----------------
(IN THOUSANDS,
EXCEPT PROPERTY DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues................................ $ 8,583 $7,331 $40,678
------- ------ -------
Expenses
Operating.................................... 6,192 5,287 28,344
General & administrative..................... 877 775 4,630
Depreciation & amortization.................. 1,151 843 3,239
------- ------ -------
Total expenses................................ 8,220 6,905 36,213
------- ------ -------
Interest expense, net........................ 976 258 3,506
------- ------ -------
Income (loss) before income taxes ............ (613) 168 959
Income taxes................................ (245) 67 384
------- ------ -------
Net income (loss)............................. $ (368) $ 101 $ 575
======= ====== =======
BALANCE SHEET DATA (AT PERIOD-END):
Real estate before accumulated depreciation... $91,860 $87,254
Total assets.................................. 86,711 85,848
Total debt.................................... 48,553 47,003
OTHER DATA (AT PERIOD-END):
Number of courses............................. 20 19 20
Number of locations........................... 20 19 20
</TABLE>
xxii
<PAGE>
PRO FORMA COMBINED SUMMARY FINANCIAL DATA FOR NGP
The following unaudited pro forma combined summary financial information
reflects the acquisition of the Purchased Assets by NGP and assumes that NGP
pays a combination of approximately $17.2 million in cash and approximately
$40.8 million in shares of NGP Common Stock as consideration for the Asset
Purchase. (For a discussion of the pro forma impact of NGP's exercise of its
option to pay all cash for the Purchased Assets, see note 8.) The following
financial information does not, however, reflect the Merger transactions
between Newco and GEI. The pro forma balance sheet data at March 31, 1996
assumes the Asset Purchase occurred on March 31, 1996. The pro forma statement
of operations for the three months ended March 31, 1996 and the year ended
December 31, 1995 assumes the Asset Purchase occurred on January 1, 1995.
The historical financial information of NGP as of and for the three months
ended March 31, 1996 and the year ended December 31, 1995 have been derived
from the NGP consolidated financial statements incorporated by reference
herein. The pro forma financial information should be read in conjunction with
the accompanying notes thereto and with the financial statements of NGP
incorporated by reference. The pro forma financial information does not purport
to be indicative of the financial position or operating results which would
have been achieved had the acquisitions of golf course properties during the
period and the Asset Purchase been consummated as of the dates indicated and
should not be construed as representative of future financial position or
operating results. In the opinion of NGP's management, all adjustments
necessary to reflect the effects of the acquisitions to be consummated have
been made.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA ADJUSTMENTS PRO FORMA HISTORICAL PRO FORMA ADJUSTMENTS PRO FORMA
------------ ------------------------- ------------ ------------ ------------------------- ------------
THREE THREE
YEAR ENDED YEAR ENDED MONTHS ENDED MONTHS ENDED
DECEMBER 31, 1995 PURCHASED DECEMBER 31, MARCH 31, 1996 PURCHASED MARCH 31,
1995 ACQUISITIONS(1) ASSETS 1995(2) 1996 ACQUISITIONS(1) ASSETS 1996(2)
------------ --------------- --------- ------------ ------------ --------------- --------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenues
Rent............ $ 45,931 $4,504 $ 5,965 (3) $ 56,400 $ 13,089 $16 $ 1,491 (3) $ 14,596
Gain on sale of
property....... 1,893 -- -- 1,893 25 -- -- 25
-------- ------ ------- -------- -------- --- ------- --------
Total revenues... 47,824 4,504 5,965 58,293 13,114 16 1,491 14,621
-------- ------ ------- -------- -------- --- ------- --------
Expenses
General &
administrative.. 4,258 -- -- 4,258 1,239 -- -- 1,239
Depreciation &
amortization... 14,027 2,263 2,645 (4) 18,935 4,108 11 661 (4) 4,780
-------- ------ ------- -------- -------- --- ------- --------
Total expenses... 18,285 2,263 2,645 23,193 5,347 11 661 6,019
-------- ------ ------- -------- -------- --- ------- --------
Interest
expense........ (8,793) (2,346) (1,555)(5) (12,694) (2,925) (4) (389)(5) (3,318)
Interest
income......... 4,144 (936) -- 3,208 841 (4) -- 837
Other income.... 114 -- -- 114 7 -- -- 7
-------- ------ ------- -------- -------- --- ------- --------
Income before
provision for
taxes and
minority
interest........ 25,004 (1,041) 1,765 25,728 5,690 (3) 441 6,128
Provision for
taxes........... (352) -- -- (352)(6) (56) -- -- (56)(6)
Minority
interest........ (11,366) 469 165 (10,732)(7) (2,600) 1 25 (2,574)(7)
-------- ------ ------- -------- -------- --- ------- --------
Net income....... $ 13,286 $ (572) $ 1,930 $ 14,644 (8) $ 3,034 $(2) $ 466 $ 3,498 (8)
======== ====== ======= ======== ======== === ======= ========
Net income per
common share.... $ 1.25 $ 1.19 (8) $ 0.29 $ 0.28 (8)
Weighted average
number of common
shares
outstanding..... 10,622 1,682 (9) 12,304 10,622 1,682 (9) 12,304
BALANCE SHEET
DATA (AT PERIOD-
END):
Real estate
before
accumulated
depreciation.... $365,910 $57,732 $423,642
Total assets..... 355,716 59,652 415,368
Total debt....... 152,906 18,852 171,758
Minority
interest........ 22,024 -- (10) 22,024
Stockholders'
equity.......... 176,821 40,800 217,621
</TABLE>
(Footnotes on next page)
xxiii
<PAGE>
- --------
(1) During the year ended December 31, 1995, NGP acquired 11 golf courses, of
which seven were private club courses and four were daily fee courses.
During the three months ended March 31, 1996, NGP acquired one daily fee
course.
(2) Pro forma amounts do not include any adjustments to reflect NGP's
anticipated exercise of options to acquire four golf courses, the exercise
of which options has been authorized by the NGP Board of Directors and is
expected to occur in the second quarter of 1996. See footnote (15)
"Subsequent Events" of NGP's consolidated financial statements for the
year ended December 31, 1995 incorporated by reference herein. The pro
forma net income and net income per share for the three months ended March
31, 1996 and the year ended December 31, 1995 had the exercise of the
options been consummated on January 1, 1996 and 1995, respectively, would
have been $3,357,000 and $0.27 per share and $14,082,000 and $1.15 per
share, respectively. If NGP elects to pay $58 million in cash for the
Purchased Assets instead of the combination of cash and stock that NGP
currently expects to pay, the pro forma net income and net income per
share for the three months ended March 31, 1996 and the year ended
December 31, 1995 had the exercise of the options been consummated on
January 1, 1996 and 1995, respectively, would be $2,865,000 and $0.27 per
share and $12,110,000 and $1.14 per share, respectively.
(3) Assumes 10% of NGP's initial investment of approximately $59.7 million on
the 20 golf courses and related assets comprising the Purchased Assets.
See "The Asset Purchase and Merger--Management and Operations after Asset
Purchase and Merger; Lease Terms--New Lease."
(4) Reflects an increase in depreciation expense due to the acquisition of the
Purchased Assets for a total investment of approximately $59.7 million.
The Purchased Assets are recorded at cost and depreciation is computed on
a straight-line basis over the estimated useful lives of the assets as
follows: (i) buildings--30 years; (ii) ground improvements--20 years; and
(iii) furniture, fixtures and equipment--5 years.
(5) Reflects additional debt of approximately $18.9 million at an assumed
interest rate of 8.25% that will be incurred by NGP to cover NGP's cash
payment of approximately $17.2 million and estimated transaction costs of
approximately $1.7 million. The current prime rate of interest is 8.25%.
However, NGP expects a lower rate of interest charged on the additional
debt. For every 1/8 percentage point fluctuation in the interest rate, net
income will change by approximately $24,000.
(6) No adjustment is made to provision for taxes because NGP believes that the
tax expense will not materially increase as a result of its purchase of
the Purchased Assets and resulting increased income due to the fact that a
majority of the states where the golf courses comprising the Purchased
Assets are located recognize the dividends paid deduction.
(7) Reflects the Operating Partnership's limited partners' interest of 41.4%
in the earnings of the Operating Partnership. The limited partners'
interest percentage decreased due to 1,681,924 additional OP Units being
issued to NGP in exchange for the Purchased Assets being contributed by
NGP to the Operating Partnership.
(8) If NGP elects to pay $58 million in cash for the Purchased Assets instead
of the combination of cash and stock that NGP currently expects to pay,
the pro forma information listed below would apply. Paying all cash for
the Purchased Assets would result in additional debt of $40.8 million and
additional interest expense of approximately $3.4 million for the year
ended December 31, 1995 and $40.8 and $0.8 million for the three months
ended March 31, 1996. The pro forma information (a) assumes that all of
the golf courses acquired by NGP through March 31, 1996 had been acquired
at the beginning of the period or as of the date for which such
information is provided and (b) does not account for NGP's anticipated
exercise of options to acquire four additional golf course properties.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1995 MARCH 31, 1996
----------------- ------------------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net income............................ $12,659 $ 3,002
Net income per common share........... $ 1.19 $ 0.28
Weighted average number of common
shares outstanding................... 10,622 10,622
BALANCE SHEET DATA (AT PERIOD END):
Real estate before accumulated
depreciation......................... $423,642
Total assets.......................... 415,368
Total debt............................ 212,558
Minority interest..................... 22,024
Stockholders' equity.................. 176,821
</TABLE>
(9) Reflects the issuance of 1,681,924 shares of NGP Common Stock as partial
consideration for the Purchased Assets based on the closing price of NGP
Common Stock on the NYSE ($24.25) on June 20, 1996.
(10) The pro forma balance sheet data at March 31, 1996 assumes the Asset
Purchase occurred on March 31, 1996 . Therefore, even though NGP's
ownership interest in the Operating Partnership would have increased at
March 31, 1996 due to the Asset Purchase occurring on such date, there
would be no increase or decrease in the minority interest balance as of
such date.
xxiv
<PAGE>
PRO FORMA COMBINED SUMMARY FINANCIAL DATA FOR AGC
The pro forma combined financial information presented below are based on
adjustments made to the historical consolidated financial statements of AGC and
give effect to AGC entering into 20 leases with NGP as a result of NGP's
acquisition of the Purchased Assets, and AGC's other new lease and management
agreements acquired. The pro forma balance sheet data at March 31, 1996 assumes
the 20 leases entered into with NGP and AGC's other new lease and management
agreements began on March 31, 1996. The pro forma statement of operations for
the three months ended March 31, 1996 and the twelve months ended December 31,
1995 assumes the leases and management agreements began on January 1, 1995.
The pro forma financial information should be read in conjunction with the
accompanying notes thereto and with the financial statements of AGC
incorporated herein by reference. The pro forma financial information does not
purport to be indicative of the financial position or operating results which
would have been achieved had the leases been consummated as of the dates
indicated and should not be construed as representative of future financial
position or operating results. In the opinion of AGC's management, all
adjustments necessary to reflect the effects of the leases to be consummated
have been made.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA ADJUSTMENTS PRO FORMA HISTORICAL PRO FORMA ADJUSTMENTS
------------ -------------------------- ------------ ------------ -------------------------------
THREE MONTHS
YEAR ENDED 1995 YEAR ENDED ENDED 1996
DECEMBER 31, ACQUISI- PURCHASED ADJUST- DECEMBER 31, MARCH 31, ACQUISI- PURCHASED ADJUST-
1995 TIONS(1) ASSETS(2) MENTS 1995(3) 1996 TIONS(4) ASSETS(2) MENTS
------------ -------- --------- ------- ------------ ------------ -------- --------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Green fees....... $134,100 $ 6,652 $ 4,791 $ -- $145,543 $ 29,305 $ -- $ 743 $ --
Cart rentals..... 51,801 2,339 5,275 -- 59,415 11,251 -- 975 --
Member dues and
initiation
fees............ 50,134 5,050 16,638 -- 71,822 15,202 -- 4,374 --
Food and beverage
sales........... 54,956 3,737 8,223 -- 66,916 11,068 -- 1,523 --
Merchandise
sales........... 30,888 2,613 4,558 -- 38,059 6,551 -- 825 --
Other revenue.... 32,755 1,835 1,193 -- 35,783 7,988 -- 143 --
Management fees.. 4,432 294 -- -- 4,726 677 6 -- --
-------- ------- ------- ------- -------- -------- ----- -------- -----
Total revenues.... 359,066 22,520 40,678 -- 422,264 82,042 6 8,583 --
-------- ------- ------- ------- -------- -------- ----- -------- -----
Costs & expenses:
Payroll and
related
expenses........ 118,440 7,739 11,687 -- 137,866 29,941 57 2,792 --
Cost of
merchandise
sold............ 20,142 1,678 3,447 -- 25,267 4,050 -- 652 --
Cost of food and
beverage sold... 17,514 1,145 2,952 -- 21,611 3,428 -- 634 --
General and
administrative.. 35,204 3,203 6,099 -- 44,506 8,393 23 1,270 --
Repairs and
maintenance..... 11,435 545 3,870 -- 15,850 2,134 4 819 --
Other operating
expenses........ 60,983 3,004 4,919 -- 68,906 12,694 62 1,130 --
Rents............ 77,767 4,471 -- 5,965 (5) 88,203 18,690 -- -- 1,491 (5)
Depreciation and
amortization.... 6,970 -- 3,239 (3,239)(6) 6,970 2,082 -- 965 (965)(6)
-------- ------- ------- ------- -------- -------- ----- -------- -----
Total costs &
expenses......... 348,455 21,785 36,213 2,726 409,179 81,412 146 8,262 526
-------- ------- ------- ------- -------- -------- ----- -------- -----
Operating income
(loss)........... 10,611 735 4,465 (2,726) 13,085 630 (140) 321 (526)
Other income
(expense):
Interest income.. 1,583 -- -- 2,712 (7) 4,295 321 -- -- 678 (7)
Interest
expense......... (2,830) -- (3,506) 621 (8) (5,715) (561) -- (934) 208 (9)
-------- ------- ------- ------- -------- -------- ----- -------- -----
Income (loss)
before provision
for income taxes
and minority
interest in
earnings......... 9,364 735 959 607 11,665 390 (140) (613) 360
Provision for
income taxes..... (201) -- (384) 343 (11) (242) (12) -- 245 (245)(11)
-------- ------- ------- ------- -------- -------- ----- -------- -----
Income (loss)
before minority
interest in
loss............. 9,163 735 575 950 11,423 378 (140) (368) 115
Minority interest
in loss.......... 519 -- -- -- 519 129 -- -- --
-------- ------- ------- ------- -------- -------- ----- -------- -----
Net income
(loss)........... $ 9,682 $ 735 $ 575 $ 950 $ 11,942 $ 507 $(140) $ (368) $ 115
======== ======= ======= ======= ======== ======== ===== ======== =====
BALANCE SHEET DATA
(AT PERIOD END):
Current assets.. $ 49,039 $ (3,100)(10)
Total assets.... 148,280 26,500 (10)
Total
liabilities.... 82,795 26,500 (10)
Stockholders'
equity......... 64,935 --
<CAPTION>
PRO FORMA
------------
THREE MONTHS
ENDED
MARCH 31,
1996(3)
------------
<S> <C>
Revenues:
Green fees....... $ 30,048
Cart rentals..... 12,226
Member dues and
initiation
fees............ 19,576
Food and beverage
sales........... 12,591
Merchandise
sales........... 7,376
Other revenue.... 8,131
Management fees.. 683
------------
Total revenues.... 90,631
------------
Costs & expenses:
Payroll and
related
expenses........ 32,790
Cost of
merchandise
sold............ 4,702
Cost of food and
beverage sold... 4,062
General and
administrative.. 9,686
Repairs and
maintenance..... 2,957
Other operating
expenses........ 13,886
Rents............ 20,181
Depreciation and
amortization.... 2,082
------------
Total costs &
expenses......... 90,346
------------
Operating income
(loss)........... 285
Other income
(expense):
Interest income.. 999
Interest
expense......... (1,287)
------------
Income (loss)
before provision
for income taxes
and minority
interest in
earnings......... (3)
Provision for
income taxes..... (12)
------------
Income (loss)
before minority
interest in
loss............. (15)
Minority interest
in loss.......... 129
------------
Net income
(loss)........... $ 114
============
BALANCE SHEET DATA
(AT PERIOD END):
Current assets.. $ 45,939
Total assets.... 174,780
Total
liabilities.... 109,295
Stockholders'
equity......... 64,935
</TABLE>
xxv
<PAGE>
- -------
(1) During the year ended December 31, 1995 AGC entered into 14 lease
agreements and 6 management agreements (10 daily fee courses and 10
private country clubs).
(2) Reflects AGC operating the 20 golf courses purchased by NGP under triple
net leases.
(3) Pro forma amounts do not include any adjustments to reflect NGP's
anticipated exercise of options to acquire four golf courses, the exercise
of which has been authorized by the NGP Board of Directors and is expected
to occur in the second quarter of 1996. See footnote (15) "Subsequent
Events" in NGP's consolidated financial statements incorporated by
reference herein. Assuming the exercise took place on January 1, 1995,
AGC's net income would have decreased $556,000 and $116,000 for the year
ended December 31, 1995 and for the three months ended March 31, 1996,
respectively, due to an increase in rent expense.
(4) During the three months ended March 31, 1996 AGC entered into 4 lease and
management agreements for daily fee courses.
(5) Assumes 10% of NGP's initial investment of approximately $59.7 million on
the 20 golf courses and related assets comprising the Purchased Assets.
See "The Asset Purchase and Merger--Management and Operations after Asset
Purchase and Merger; Lease Terms--New Leases."
(6) Reflects the adjustment to eliminate depreciation and amortization since,
as lessee, AGC will not acquire depreciable assets. Accordingly, AGC will
not incur any depreciation and amortization expense related to the
Purchased Assets.
(7) Reflects the interest income related to the $29 million AGC will loan to
David G. Price which will be used to capitalize Newco. The interest rate
is 9.35%. See "The Asset Purchase and Merger; Financing of the
Acquisition."
(8) Adjustment reflects the following for the year ended December 31, 1995:
(i) eliminating interest expense incurred by GEI of $3,506,000 as AGC will
not assume GEI's debt; (ii) additional interest expense of $3,860,000
related to the issuance of $41.5 million of secured notes at an interest
rate of 9.35%, which is based on discussions with lenders; (iii)
eliminating interest expense of $1,050,000 incurred on the $15 million of
bank indebtedness to be retired with proceeds from the $41.5 million of
secured notes; and, (iv) amortization of $75,000 related to the $600,000
placement fee for the issuance of the $41.5 million of secured notes.
(9) Adjustment reflects the following for the three months ended March 31,
1996: (i) eliminating interest expense incurred by GEI of $934,000 as AGC
will not assume GEI's debt; (ii) additional interest expense of $970,000
related to the issuance of $41.5 million of secured notes at an interest
rate of 9.35%, which is based on discussions with lenders; (iii)
eliminating interest expense of $263,000 incurred on the $15 million of
bank indebtedness to be retired with proceeds from the $41.5 million of
secured notes; and, (iv) amortization of $19,000 related to the $600,000
placement fee for the issuance of the $41.5 million of secured notes.
(10) Reflects the issuance of $41.5 million of secured notes which along with
$3.1 million of cash on hand will be used as follows: $29 million will be
loaned to David G. Price to capitalize Newco, $15 million will be used to
retire existing bank indebtedness and $600,000 will be used to pay the
placement fee related to the issuance of the $41.5 million secured notes.
(11) Reflects a reduction of the provision for federal income tax since AGC has
elected to be taxed as an S corporation under the Internal Revenue Code of
1986, as amended.
xxvi
<PAGE>
COMPARATIVE HISTORICAL AND PRO FORMA PER SHARE DATA
The following table sets forth (i) the historical net income per share, the
historical book value per share and the cash dividends declared per share of
GEI Common Stock; (ii) the historical net income per share, the historical book
value per share and the cash distributions declared per share of NGP Common
Stock; (iii) the unaudited pro forma net income per share, the unaudited pro
forma book value per share and the unaudited pro forma cash distributions
declared per share of NGP Common Stock after giving effect to NGP's acquisition
of the Purchased Assets; and (iv) the unaudited pro forma net income per share,
the unaudited pro forma book value per share and the unaudited pro forma cash
distributions declared per share of an equivalent share of GEI Common Stock
assuming an exchange ratio for each share of GEI Common Stock of 0.247 of a
share of NGP Common Stock based on the fractional share of NGP Common Stock
valued at approximately $6.00 to be received by GEI shareholders over the
closing price of NGP Common Stock on the NYSE ($24.25) on June 20, 1996. The
historical and pro forma net income per share is derived from the historical
and pro forma information presented elsewhere herein. The pro forma financial
information should be read in conjunction with the financial statements of NGP
incorporated by reference herein and for GEI's Business Related to the
Purchased Assets included elsewhere herein. The pro forma information (a)
assumes that all of the golf courses acquired by NGP through March 31, 1996 had
been acquired at the beginning of the period or as of the date for which such
information is provided and (b) does not account for NGP's anticipated exercise
of options to acquire four additional golf course properties. The pro forma
information assumes that NGP pays a combination of approximately $17.2 million
in cash and approximately $40.8 million in shares of NGP Common Stock as
consideration for the Asset Purchase. The pro forma information does not
purport to be indicative of the financial position or operating results which
would have been achieved had the Asset Purchase been consummated as of January
1, 1996 (in the case of the data for the three months ended March 31, 1996) and
January 1, 1995 (in the case of the data for the year ended December 31, 1995)
and should not be construed as representative of future financial position,
operating results or distributions.
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL NGP AND EQUIVALENT
-------------- PURCHASED FOR ONE
NATIONAL ASSETS SHARE OF GEI
GEI GOLF COMBINED COMMON STOCK
----- -------- --------- ------------
<S> <C> <C> <C> <C>
Net income per share:
Year ended December 31, 1995............ $0.51 $ 1.25 $ 1.19 $0.29
Three months ended March 31, 1996....... 0.26 0.29 0.28 0.07
Book value per share:
December 31, 1995....................... 6.49 16.75 17.77 4.39
March 31, 1996.......................... 6.79 16.65 17.69 4.37
Cash distributions declared:
Year ended December 31, 1995............ -- 1.59 1.59 0.39
Three months ended March 31, 1996....... -- 0.41 0.41 0.10
</TABLE>
xxvii
<PAGE>
GEI SUMMARY HISTORICAL FINANCIAL DATA
NGP is acquiring from GEI only the 20 golf courses and related assets
comprising the Purchased Assets. Immediately following the Asset Purchase,
Newco will acquire GEI's remaining assets (consisting of 21 leased golf course
properties, three golf course management contracts and certain other assets
related to such leased and managed courses) and assume GEI's liabilities by
merging with and into GEI with GEI being the surviving corporation.
Set forth below are the summary historical financial and operating data of
GEI for each of the years in the five-year period ended December 31, 1995 and
the three-month periods ended March 31, 1996 and 1995. The statement of
operations data for the year ended December 31, 1991 represent the combined
results of operations of Jim Colbert Golf, Inc., a wholly-owned subsidiary of
GEI ("JCG"), for the period from January 1, 1991 to March 24, 1991 and GEI for
the period from March 25, 1991 to December 31, 1991. The statement of
operations data for the period from January 1, 1991 to March 24, 1991 have been
derived from the unaudited historical financial statements of JCG. The
statement of operations and balance sheet data as of and for the period from
March 25, 1991 to December 31, 1991 and as of and for the years ended
December 31, 1992, 1993, 1994 and 1995 have been derived from the audited
financial statements of GEI. The statement of operations data for the three
months ended March 31, 1996 and 1995 and the balance sheet data as of March 31,
1996 have been derived from the unaudited financial statements of GEI, but
include all adjustments (consisting only of normal recurring accruals) which
are, in the opinion of management, necessary for a fair presentation of the
results of operations for such periods and financial position at such dates.
Operating results for the three months ended March 31, 1996 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1996. The data should be read in conjunction with "GEI Management's Discussion
and Analysis of Financial Condition and Results of Operations," as well as the
Consolidated Financial Statements of GEI and notes thereto included elsewhere
herein.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
-------------------- ------------------------------------------------
1996 1995 1995 1994 1993 1992 1991 (1)
--------- --------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Operating revenue...... $ 22,891 $ 16,344 $ 80,190 $ 48,682 $ 38,404 $ 34,716 $ 30,137
Operating expenses..... 17,710 13,070 64,733 38,288 29,772 26,316 24,285
Depreciation and
amortization(2)....... 2,094 1,722 6,871 4,802 4,089 3,995 4,398
Other expense(3)....... -- -- -- -- 334 88 2,226
--------- -------- -------- -------- -------- -------- --------
Total costs and
expenses............. 19,804 14,792 71,604 43,090 34,195 30,399 30,909
--------- -------- -------- -------- -------- -------- --------
Operating income
(loss)(4)............ 3,087 1,552 8,586 5,592 4,209 4,317 (772)
Interest expense, net.. 1,288 1,225 5,090 3,996 4,801 5,177 5,184
--------- -------- -------- -------- -------- -------- --------
Income (loss) before
income taxes and
extraordinary item... 1,799 327 3,496 1,596 (592) (860) (5,956)
Income taxes(5)........ 57 22 109 50 52 42 22
--------- -------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary item... 1,742 305 3,387 1,546 (644) (902) (5,978)
Extraordinary item(6).. -- -- -- 2,638 -- -- --
--------- -------- -------- -------- -------- -------- --------
Net income (loss)..... $ 1,742 $ 305 $ 3,387 $ (1,092) $ (644) $ (902) $ (5,978)
========= ======== ======== ======== ======== ======== ========
Income (loss) per
common share before
extraordinary
item(7).............. $ 0.26 $ 0.05 $ 0.51 $ 0.33 $ (0.09)
========= ======== ======== ======== ========
BALANCE SHEET DATA (AT
PERIOD-END):
Working capital
(deficit)............. $ 3,155 $ 956 $ 5,366 $ (1,573) $ (118) $ (1,285)
Total assets........... 123,375 121,862 102,894 58,087 49,438 48,225
Long-term debt, net of
current portion....... 59,082 59,375 50,653 45,156 40,105 39,750
Redeemable convertible
preferred stock....... -- -- -- 22,212 17,258 13,863
Stockholders' equity
(deficit)............. 44,711 42,134 38,591 (18,095) (15,706) (13,410)
SUPPLEMENTAL DATA:
Net cash provided by
operating activities.. 2,384 2,228 9,635 4,617 4,353 3,761 2,216
Net cash used by
investing activities.. (1,181) (7,669) (19,811) (35,959) (7,035) (2,683) (3,011)
Net cash provided
(used) by financing
activities............ 174 4,253 6,739 35,030 1,698 (256) 1,315
Number of golf
facilities at period-
end................... 43 39 43 36 27 22 19
Number of rounds played
(in thousands)........ 436 349 1,793 1,388 1,238 1,124 933
</TABLE>
(Footnotes on next page)
xxviii
<PAGE>
- --------
(1) Represents the combined results of operations of JCG, the predecessor and a
wholly-owned subsidiary of GEI, from January 1, 1991 to March 24, 1991
(unaudited) and the results of operations of GEI for the period from March
25, 1991, the date of the recapitalization of GEI (the "1991
Recapitalization"), to December 31, 1991.
(2) Includes amortization of consulting, confidentiality and noncompete
agreements recorded in connection with the 1991 Recapitalization of
$211,000, $845,000 and $887,000 in 1993, 1992 and 1991, respectively.
(3) Consists of non-recurring, non-cash charges associated with the early
termination of leases and in 1991 includes a one-time charge to
compensation expense recorded by JCG in connection with the 1991
Recapitalization in the amount of $1,011,000, primarily associated with
payments made to cancel certain stock options.
(4) Includes effects of (i) corporate relocation expenses of $347,000 and
$173,000 in 1993 and 1991, respectively, and (ii) operating income (loss)
associated with terminated leased facilities of ($347,000), ($33,000) and
$82,000 in 1993, 1992 and 1991, respectively.
(5) Consists solely of state income taxes.
(6) In 1994, in connection with GEI's initial public offering, GEI paid
prepayment penalties of $1,971,000 associated with the early retirement of
debt and wrote off $667,000 of deferred debt issuance costs related to the
debt retired.
(7) The weighted average number of common shares outstanding during the three
months ended March 31, 1996 and 1995 includes the effect of stock options,
using the treasury stock method and the market price per share at the end
of the respective periods, as the inclusion of these options has a dilutive
effect on net income per common share. The use of the ending market price
per share in these periods results in full dilution, as such price exceeds
the average market price per share during the respective periods. Primary
net income per common share is not materially different from fully diluted
net income per common share for the periods. The weighted average number of
common shares outstanding during 1995 and 1994 includes the effect of stock
options, using the treasury stock method and the average market price per
share, as the inclusion of these options has a dilutive effect on income
per common share before extraordinary item. The use of the average market
price per share in 1995 and 1994 results in full dilution, as such price
exceeds the market price at the end of the respective periods. The weighted
average number of common shares outstanding during 1994 and 1993 have been
adjusted for (i) the retroactive effect of the conversion of redeemable
convertible preferred stock and convertible notes to common stock, (ii) the
issuance of common stock in payment of dividends on the redeemable
convertible preferred stock and interest notes and additional accrued
interest related to the convertible notes and (iii) the common stock split,
as if these events occurred at the beginning of the respective year. The
weighted average number of common shares outstanding during 1993 includes
the effect of stock options issued in 1994 at prices below the initial
public offering price without regard for the antidilutive effect of such
options. Net loss attributable to common stockholders used to calculate
income (loss) per common share before extraordinary item excludes
$1,234,000 and $1,745,000 of preferred stock dividends and accretion to
mandatory redemption value for all classes of redeemable convertible
preferred stock during 1994 and 1993, respectively, and $186,000 and
$308,000 of interest expense associated with the convertible notes during
1994 and 1993, respectively.
xxix
<PAGE>
RISK FACTORS
In evaluating whether to approve the transactions comprising the Asset
Purchase and the Merger, the stockholders of both GEI and NGP should consider
the following risks:
CONFLICTS OF INTEREST
Several of the parties involved in the negotiation and approval of the Asset
Purchase and the Merger may have had significant conflicts of interests,
including the following:
Allocation of Consideration for the Asset Purchase and the Merger and
Allocation of GEI's Assets. The Price Revocable Trust, of which David G. Price
is the sole trustee, and Mr. Price, his wife Dallas P. Price and their
children are beneficiaries (the "Price Trust"), is the sole stockholder of
Newco, and will be the sole stockholder of the Surviving Corporation. David G.
Price is the principal shareholder and Chairman of the Board of Directors of
AGC and Chairman of the Board of Directors of NGP, and currently owns, and
following consummation of the Asset Purchase and the Merger will own, 6.3% and
5.5%, respectively, of the outstanding NGP Common Stock, and, along with his
affiliates, 41.5% and 38.3%, respectively, of the OP Units in the Operating
Partnership. Because of his involvement with each of these entities, Mr. Price
had certain conflicts of interest with respect to the allocation of the
consideration for the Asset Purchase and the Merger among the Purchased Assets
to be acquired by NGP and the other assets of GEI that will remain with the
Surviving Corporation. Under the Acquisition Agreement, NGP will acquire all
assets of GEI allowable under the REIT rules, while the Surviving Corporation
will retain the remaining GEI assets, which will include non-golf assets and
contracts to lease or manage various golf course properties. As a result of
Mr. Price's conflicts of interest, there is a risk that the terms of the
Acquisition Agreement are not as favorable to NGP as they might have been if
such conflicts of interest did not exist. See "Description of Purchased
Assets." The specific terms of the Asset Purchase were approved by the
Independent Committee of the NGP Board of Directors, with the assistance of
NGP's General Counsel and Chief Leasing Officer.
Terms of New Lease between NGP and AGC. Following consummation of the Asset
Purchase, the Operating Partnership will enter into the New Lease with AGC
with respect to the golf properties comprising the Purchased Assets. Although
the terms and conditions of the New Lease are similar in all material respects
with NGP's prior leases and generally are not more favorable to AGC than the
terms and conditions of AGC's existing leases of golf course properties owned
by parties unaffiliated with NGP, there is a risk that the terms and
conditions of the New Lease may not be as favorable to NGP as they could have
been if NGP had chosen to lease the Purchased Assets to a management company
that is unrelated to NGP instead of AGC, or if the terms and conditions of the
New Lease had not been negotiated in part by or on behalf of David G. Price.
The terms and conditions of the New Lease were separately approved by the
Independent Committee of the NGP Board of Directors with the assistance of
NGP's General Counsel and Chief Leasing Officer. See "The Asset Purchase and
Merger--Possible Conflicts of Interest of Certain Officers and Directors" and
"--Management and Operations after Asset Purchase and Merger; Lease Terms--New
Lease."
Competition from Other Golf Courses Operated by AGC and the Surviving
Corporation. Excluding NGP's existing golf properties, AGC and its
subsidiaries currently manage and operate more than 125 golf courses and
related facilities located in 20 states and the United Kingdom. Some of these
golf courses and related facilities are located in the same geographic areas
as NGP's existing golf properties and the golf properties being purchased from
GEI and may compete with such golf courses. David G. Price, as the Chairman of
the Board of Directors of NGP, the principal shareholder and Chairman of the
Board of Directors of AGC, and the President of Newco, may be subject to
certain conflicts of interest with respect to the operation of such golf
courses. There will be no limitation on the ability of AGC, the Surviving
Corporation or other affiliates of Mr. Price to operate any such competitive
golf courses and related facilities or to enter into agreements to operate
additional competitive golf courses and related facilities in the future.
There are, however, substantial restrictions on the ownership of golf courses
by AGC or other affiliates of Mr. Price.
Other NGP Conflicts. Other transactions involving NGP and affiliates of
David G. Price also may give rise to conflicts of interest, including
selection of operators for golf courses acquired in the future and
1
<PAGE>
consideration of NGP's right of first refusal to acquire OP Units upon
transfer by a limited partner of the Operating Partnership as provided in its
Partnership Agreement. However, the Independent Committee of the NGP Board of
Directors will be required to approve any such transactions. See "Description
of NGP Capital Stock--Corporate Governance" and "The Asset Purchase and
Merger--Possible Conflicts of Interest of Certain Officers and Directors."
GEI Conflicts. Certain officers and directors of GEI had certain possible
conflicts of interest in negotiating and recommending approval of the
Acquisition Agreement, including (i) the benefit that certain officers and
directors will obtain in the Merger on account of their ownership of options
to acquire shares of GEI Common Stock (see table below), (ii) the inclusion of
provisions contained in the Acquisition Agreement relating to indemnification
and directors' and officers' liability insurance that will benefit GEI's
officers and directors, and (iii) certain registration rights afforded in the
Acquisition Agreement to certain holders of GEI Common Stock. In addition,
Robert H. Williams, President and Chief Executive Officer of GEI, owns 75,003
OP Units as a limited partner of the Operating Partnership. See "The Asset
Purchase and Merger--Possible Conflicts of Interest of Certain Officers and
Directors."
The table below sets forth information with respect to options to acquire
GEI Common Stock that are fully exercisable prior to the Effective Time
("Vested Options") and all other options to acquire GEI Common Stock that will
accelerate upon consummation of the Merger (the "Accelerated Options"), held
by the officers and directors of GEI as of June 20, 1996. All of such officers
and directors together currently own unexpired and unexercised options to
acquire 946,473 shares of GEI Common Stock. Upon consummation of the Merger,
holders of all such options will become entitled to receive the Option
Settlement Amount (as defined hereinafter), which will be paid in cash and
shares of NGP Common Stock in the same proportion as paid to holders of GEI
Common Stock outstanding immediately prior to the Merger.
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF NUMBER OF AVERAGE TOTAL OPTION
SHARES OF SHARES EXERCISE PRICE SETTLEMENT
GEI COMMON OF GEI COMMON PER SHARE OF AMOUNT FOR
STOCK STOCK SUBJECT TO VESTED AND VESTED AND
NAME & POSITION WITH SUBJECT TO ACCELERATED ACCELERATED ACCELERATED
GEI VESTED OPTIONS(1) OPTIONS OPTIONS OPTIONS
-------------------- ----------------- ---------------- -------------- ------------
<S> <C> <C> <C> <C>
Bryan C. Cressey....... -- -- -- --
Chairman of the Board
of Directors
Robert H. Williams..... 525,285 -- $ 8.62 $1,775,463
Director, President,
and Chief Executive
Officer
James D. Bertelsmeyer.. 6,000 4,000 $12.00 --
Director
Thomas R. Devlin....... 8,916 -- $ 5.17 $ 60,896
Director
John H. Berndsen....... 40,000 60,000 $12.23 --
Vice President,
Treasurer and Chief
Financial Officer
Joe R. Munsch.......... 40,000 60,000 $11.25 $ 75,000
Senior Vice President
of Operations
Stephen D. Lambert..... 89,872 16,000 $ 8.32 $ 389,142
Executive Vice
President of
Acquisitions
Michael D. Mitzner..... -- -- -- --
Vice President of
Acquisitions
Steven R. Reynolds..... 67,727 28,673 $10.37 $ 156,832
Senior Vice President
of Acquisitions and
Secretary
</TABLE>
- --------
(1) Represents options exercisable within 60 days of June 20, 1996.
2
<PAGE>
Except with respect to the options to purchase GEI Common Stock held by
certain officers and directors of GEI, it is not practicable to quantify the
benefits that may accrue to officers, directors or affiliates of NGP and GEI
as a result of the transactions contemplated by the Acquisition Agreement.
ADVERSE IMPACT ON NGP'S DISTRIBUTIONS OF FAILURE OF NGP TO REMAIN QUALIFIED AS
A REIT OR OF FAILURE OF THE OPERATING PARTNERSHIP TO CONTINUE TO BE TREATED AS
A PARTNERSHIP
NGP currently operates and has operated in a manner which is intended to
allow it to qualify as a REIT under the Internal Revenue Code of 1986, as
amended (the "Code"). Although NGP believes that it will continue to operate
in such a manner following the Asset Purchase and the Merger, no assurance can
be given that NGP will remain qualified as a REIT. Qualification as a REIT
involves the application of highly technical and complex Code provisions for
which there are only limited judicial or administrative interpretations. The
complexity of these provisions and of the applicable income tax regulations
that have been promulgated under the Code (the "Treasury Regulations") is
greater in the case of a REIT that holds its assets in partnership form. The
determination of various factual matters and circumstances not entirely within
NGP's control may affect its ability to remain qualified as a REIT. In
addition, no assurance can be given that legislation, new regulations,
administrative interpretations or court decisions will not significantly
change the tax laws with respect to qualification as a REIT or the federal
income tax consequences of such qualification. If NGP were to fail to qualify
as a REIT in any taxable year, NGP would not be allowed a deduction for
distributions to stockholders in computing taxable income and would be subject
to federal income tax on its taxable income at regular corporate rates. Unless
entitled to relief under certain statutory provisions, NGP would also be
disqualified from treatment as a REIT for the four taxable years following the
year during which qualification was lost. As a result, the funds available for
distribution to NGP's stockholders would be reduced for each of the years
involved. Although NGP currently intends to operate in a manner designed to
continue to qualify as a REIT, it is possible that future economic, market,
legal or tax considerations may cause NGP to fail to qualify as a REIT or may
cause the NGP Board of Directors to revoke the REIT election if the Board
determines that such factors make it no longer beneficial to qualify as a
REIT.
The Operating Partnership was organized and has operated in a manner which
is intended to allow it to be treated as a partnership for federal income tax
purposes. If the Internal Revenue Service (the "IRS") were to challenge
successfully the tax status of the Operating Partnership as a partnership for
federal income tax purposes, the Operating Partnership would be treated as an
association taxable as a corporation. In such event, the characterization of
NGP's assets and items of gross income would change and preclude NGP from
satisfying certain asset and income tests imposed by the Code and, in turn,
would prevent NGP from qualifying as a REIT. In addition, the imposition of a
corporate tax on the Operating Partnership would reduce the amount of funds
from operations available for distribution to NGP and its stockholders. See
"Material Federal Income Tax Consequences."
NO ASSURANCE THAT FINANCING NECESSARY TO CONSUMMATE THE ASSET PURCHASE AND THE
MERGER WILL BE OBTAINED
NGP will require at least approximately $18.9 million in cash to consummate
the Asset Purchase, including approximately $17.2 million in cash as a portion
of the consideration for the Purchased Assets and approximately $1.7 million
in anticipated transaction costs related to the Asset Purchase. NGP intends to
borrow such amount under its existing bank credit facility, which will require
NGP to satisfy certain financial and other conditions customarily contained in
such facilities. Although NGP currently has availability under its bank credit
facility to pay approximately $18.9 million in cash, there can be no assurance
that NGP will be able to draw against such facility at or prior to the
Effective Time (as defined hereinafter). Moreover, if NGP elects to pay all
cash in the Asset Purchase, NGP will require additional new financing to pay
the $58 million all cash purchase price. NGP currently is seeking to issue $75
million in new debt securities, the proceeds of which could be used in part to
make such $58 million payment, but there can be no assurance that NGP will be
successful in raising such additional financing prior to the Effective Time.
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Newco will require at least $80.6 million in order to consummate the Merger
and the transactions contemplated thereby, which funds will be used to pay
approximately $23.6 million of the cash consideration to be received by
holders of GEI Common Stock and options for such stock in the Merger,
refinance approximately $54.9 million of existing GEI debt, and pay the
additional transaction costs related to negotiating and closing the Merger.
Newco will be capitalized with an approximately $67 million capital
contribution by David Price of which he is seeking to obtain approximately $38
million in net proceeds from a loan from one or more commercial lenders and
approximately $29 million in net proceeds from a loan to Mr. Price from AGC.
AGC is seeking to raise the funds it will loan to Mr. Price and an additional
approximately $12.5 million it will use to refinance AGC's existing
indebtedness by issuing senior unsecured debt securities. Newco also is
seeking to incur $30 million in new debt that will be borrowed by Newco from
one or more commercial lenders. Although David G. Price, AGC and Newco all
have commenced negotiations with commercial lenders or private investors, as
the case may be, to provide such financing, there can be no assurance that
each of such parties will be able to obtain sufficient funding on terms and
prices acceptable to them. Receipt of sufficient financing on acceptable terms
is not a condition to the closing of the Acquisition Agreement and,
accordingly, Newco (the obligations of which are guaranteed by AGC) may be in
breach of the Acquisition Agreement if it fails to obtain sufficient financing
to pay the Merger Consideration, refinance GEI's existing indebtedness and pay
related fees and expenses.
OWNERSHIP LIMIT
In order for NGP to maintain its qualification as a REIT, not more than 50%
in value of its outstanding stock may be owned, actually or constructively, by
five or fewer individuals (as defined in the Code). See "Material Federal
Income Tax Consequences." For the purpose of preserving NGP's REIT
qualification, NGP's Articles of Incorporation prohibit actual or constructive
ownership of more than 9.8% of the outstanding NGP Common Stock by any person
(the "Ownership Limit"). The constructive ownership rules are complex and may
cause NGP Common Stock owned, actually or constructively, by a group of
related individuals and/or entities to be deemed to be constructively owned by
one individual or entity. As a result, the acquisition of less than 9.8% of
the outstanding NGP Common Stock (or the acquisition of an interest in an
entity which owns NGP Common Stock) by an individual or entity could cause
that individual or entity (or another individual or entity) to own
constructively in excess of 9.8% of the outstanding NGP Common Stock, and thus
subject such NGP Common Stock to the Ownership Limit. Actual or constructive
ownership of shares of NGP Common Stock in excess of the Ownership Limit would
cause the violative transfer or ownership to be void or cause such shares to
be transferred to a charitable trust and then sold to a person or entity who
can own such shares without violating the Ownership Limit. See "Description of
NGP Capital Stock--Restrictions on Ownership."
DEPENDENCE OF NGP'S REVENUES AND ABILITY TO MAKE DISTRIBUTIONS ON AGC AS THE
PRIMARY LESSEE OF NGP'S GOLF COURSES
AGC is the sole lessee of all but two of the golf courses and related
facilities currently owned by NGP and, following consummation of the Asset
Purchase, will be the sole lessee of the golf courses and related facilities
comprising the Purchased Assets. NGP's revenues and its ability to pay
distributions are largely dependent on rental payments by AGC under long-term
triple net leases relating to its existing golf properties and, following the
Asset Purchase, will continue to be dependent on rental payments by AGC under
both existing leases and the New Lease for the golf course properties and
related assets collectively comprising the Purchased Assets that will be
entered into between the Operating Partnership and AGC immediately following
the Effective Time. The terms of the leases for NGP's existing golf properties
require AGC to make monthly minimum rental payments for each of NGP's golf
properties and additional quarterly payments calculated as a percentage of the
revenues of each such golf course. Similarly, the terms of the New Lease will
require AGC to make monthly minimum rental payments and additional quarterly
payments calculated as a percentage of the pooled revenues of all of the golf
properties comprising the Purchased Assets. See "The Asset Purchase and
Merger--Management and Operations After Asset Purchase and Merger; Lease
Terms." NGP's ability to increase distributions in the future will be
dependent, in part, on the growth of percentage rent payments under both the
existing leases and the New Lease, which in turn will depend on the success of
AGC in increasing the revenues of NGP's existing golf properties
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and the golf properties comprising the Purchased Assets. AGC currently has
sufficient assets and income to enable it to satisfy its immediate obligations
under its existing leases with NGP and the New Lease. However, there can be no
assurance that AGC will have such assets or income in the future and there can
be no assurance that AGC will elect to renew any of such leases upon the
expiration of their initial terms, which range between 15 and 20 years.
POSSIBLE FLUCTUATION OF VALUE OF STOCK CONSIDERATION
The portion of the purchase price for the Purchased Assets that may be paid
by NGP in shares of NGP Common Stock is subject to limitations on the maximum
and minimum number of shares that may be issued. The Acquisition Agreement
provides that NGP may, at its option, pay $17,213,351 in cash and issue new
shares of NGP Common Stock with an aggregate value of $40,786,649 based on the
average closing price per share of NGP Common Stock on the NYSE for the ten
trading days immediately preceding the second trading day before the
consummation of the Asset Purchase; provided that the total number of such
shares will be not less than 1,418,666 and not more than 2,128,000. Because of
the limitations of the maximum and minimum number of shares that NGP would be
required to issue, it is possible that the aggregate value of the shares
issued in connection with the Asset Purchase would be less than or greater
than $40,786,649 if the per share price of NGP Common Stock were to fall below
approximately $19.17 or rise above approximately $28.75, respectively, and, in
either case, resulted in an average closing price used to calculate the number
of new shares to be issued lower than $19.17 or greater than $28.75.
Accordingly, if the aggregate value of the shares of NGP Common Stock issuable
as consideration for the Asset Purchase is less than or greater than
$40,786,649, the value of the NGP Common Stock received by GEI stockholders in
the Merger in exchange for their shares of GEI Common Stock will be worth less
than or more than $6.00 per share. On June 20, 1996, the per share closing
price for NGP Common Stock was $24.25. See "The Asset Purchase and Merger--
Description of Acquisition Agreement--The Asset Purchase" and "Comparative
Market Prices; NGP Distributions and GEI Dividends."
In addition, there can be no assurance that the aggregate value of the NGP
Common Stock that may be issued by NGP as partial consideration for the Asset
Purchase will not change between the calculation date for the number of shares
that NGP would be required to issue and the date such shares actually are
issued. Because the number of shares of NGP Common Stock issuable by NGP will
be calculated using an average trading price for a period that ends on the
second trading date immediately preceding the consummation of the Asset
Purchase, the value of the fixed number of such shares will increase or
decrease depending on conditions of the market for NGP Common Stock from such
date until such shares are issued.
REAL ESTATE INVESTMENT CONSIDERATIONS
General. Investments in golf courses and related properties are subject to
risks typically associated with investments in real estate. Such risks include
the possibility that golf courses and any associated properties will generate
total revenue rates lower than those anticipated or will yield returns lower
than those available through investment in comparable real estate or other
investments. Revenue from golf courses and yields from investments in such
properties may be affected by many factors, including changes in government
regulations, general or local economic conditions, the available local supply
of golf courses, a decrease in the number of people playing golf, a reduction
in rental income or adverse weather conditions. The value of golf course
properties to the owners of such properties or prospective buyers can
fluctuate significantly based on these factors as well as other factors
relating to how such properties are operated, including an owner's or buyer's
debt structure, ability to operate and method of operating courses and the
owner's or buyer's desired rate of return on its investment in such
properties. For example, although GEI's recorded net book value of the golf
course properties comprising the Purchased Assets was approximately $76
million at March 31, 1996, NGP valued the same properties at $58 million for
purposes of determining what NGP would pay as consideration in the Asset
Purchase.
One factor specifically affecting real estate investments in golf facilities
is the availability of water. The ability of an owner of a golf course to
irrigate such course could be adversely impacted due to a drought or other
water shortage. If the quantity of irrigation water was reduced as a result of
a drought or other water shortage,
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the available water would be used first on selected areas of the affected golf
course such as tees and greens and then on remaining areas of the golf course.
A severe drought of extensive duration experienced in regard to a large number
of properties could adversely affect the operator of such properties and,
accordingly, adversely affect the rental revenue received by the owners of
such properties.
Equity investments in real estate are relatively illiquid and, therefore,
the ability of companies such as NGP to vary its portfolio promptly in
response to changed conditions will be limited. There are no limitations on
the percentage of NGP's assets that may be invested in any one property or
venture. The NGP Board of Directors may establish limitations as it deems
appropriate from time to time. No limitations have been set on the number of
properties in which NGP will seek to invest or on the concentration of
investments in any one geographic region. While NGP is authorized to invest in
various types of income-producing real properties, its current strategy is to
concentrate on acquiring fee interests in golf courses and related facilities.
Consequently, NGP will be subject to the risks associated with investments in
a single industry. Equity investments may be subject to existing mortgage
financing and other indebtedness which have priority over the equity interest
of NGP.
Environmental Matters. Under various federal, state and local laws,
ordinances and regulations, an owner or operator of real property may become
liable for the costs of removal or remediation of certain hazardous substances
released on or in its property. Such laws often impose such liability without
regard to whether the owner or operator knew of, or was responsible for, the
release of such hazardous substances. The presence of such substances, or the
failure to remediate such substances properly when released, may adversely
affect the owner's ability to sell such real estate or to borrow using such
real estate as collateral. None of NGP, GEI or their respective affiliates has
been notified by any governmental authority of any material non-compliance,
liability or other claim in connection with any of the properties owned by NGP
or the properties owned by GEI that constitute Purchased Assets, and none of
NGP, GEI or their respective affiliates is aware of any other environmental
condition with respect to any of such properties that is likely to be material
to the party currently owning or acquiring such properties. All golf courses
owned by NGP and the GEI golf courses constituting Purchased Assets have been
subjected to a preliminary environmental investigation. Such investigation
involved an examination of public records for ownership, use and current
permitting status, site visits, visual inspections for indications of
contamination or potential contamination and interviews with the on-site
managers. Such inspection did not involve invasive procedures, such as soil
sampling or ground water analysis. No assurance can be given that such
investigations would reveal all potential environmental liabilities, that no
prior or adjacent owner created any material environmental condition not known
to such parties or that future uses or conditions (including, without
limitation, changes in applicable environmental laws and regulations) will not
result in imposition of environmental liability. Neither NGP nor GEI intends
to conduct any further environmental investigation in connection with the
Asset Purchase or the Merger. The New Lease provides that AGC will indemnify
NGP for certain potential environmental liabilities at the golf properties
acquired by NGP from GEI.
Uninsured Loss. AGC currently carries comprehensive liability, fire, flood
(for certain courses) and extended coverage insurance with respect to all of
the golf courses leased by it with policy specifications and insured limits
customarily carried for similar properties. There are, however, certain types
of losses (such as from earthquakes) which may be either uninsurable or not
economically insurable. Subject to the terms of the leases to which AGC is or
will be a party, should an uninsured loss occur, NGP could lose both its
capital invested in and anticipated profits from one or more of NGP's golf
courses. All of NGP's existing golf courses are insured in accordance with
industry standards, and NGP intends to similarly insure the golf properties
acquired from GEI.
NGP will obtain new title insurance policies for each of the golf properties
acquired by it in the Asset Purchase. There is no assurance, however, that the
amount of title insurance coverage for any of such golf properties accurately
reflects the current value of such golf courses or that title losses would be
completely covered by such insurance.
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POSSIBLE ADVERSE EFFECTS ON MARKET PRICE OF NGP COMMON STOCK ARISING FROM
SHARES AVAILABLE FOR FUTURE SALE
No prediction can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the market
price of the NGP Common Stock. Sales of substantial amounts of NGP Common
Stock (including shares issued in connection with the exchange or sale of OP
Units) or the perception that such sales could occur, could adversely affect
prevailing market prices for the NGP Common Stock. An aggregate of 8,677,055
shares of NGP Common Stock may be issued to the limited partners of the
Operating Partnership (subject to the Ownership Limit) if they exchange all of
their OP Units for shares of NGP Common Stock pursuant to certain exchange
rights granted to such limited partners in the Partnership Agreement for the
Operating Partnership, or may be sold by NGP to raise funds to acquire OP
Units if such limited partners elect to put all of their OP Units to NGP
pursuant to certain cash option rights also granted in such Partnership
Agreement based on the initial exchange ratio of one OP Unit for each share of
NGP Common Stock. Such exchange rights and cash option rights, however, are
limited to exchange or sale once in any twelve-month period of up to one-third
of the applicable limited partner's OP Units. In addition, beginning in August
1996, David G. Price and the other limited partners of the Operating
Partnership will no longer be restricted from disposing of their OP Units,
subject to the Operating Partnership's right of first refusal to purchase such
OP Units prior to any such disposition. See "Shares Available for Future
Sale."
NGP has granted certain registration rights with respect to the 753,475
shares of NGP Common Stock owned, and the 8,157,366 shares that may be
acquired, by affiliates of NGP upon exchange of their OP Units. NGP has also
agreed to register shares of NGP Common Stock issuable to all limited partners
of the Operating Partnership who are not affiliates of NGP upon exchange of
their OP Units. Such limited partners currently own OP Units, which, subject
to the restrictions under the Partnership Agreement for the Operating
Partnership and NGP's Articles of Incorporation, are exchangeable for an
aggregate of 519,689 shares of NGP Common Stock.
NGP also has agreed to grant certain registration rights with respect to the
shares of NGP Common Stock that may be issued to several significant
stockholders of GEI in connection with the Acquisition Agreement. The
significant stockholders entitled to such registration rights are Robert H.
Williams, President and Chief Executive Officer of GEI, Golder, Thoma, Cressey
Fund II ("GTC II") and Golder, Thoma, Cressey Fund III Limited Partnership
("GTC III"), all of which together currently beneficially own 3,425,344 shares
of GEI Common Stock. See "The Asset Purchase and Merger--Description of
Acquisition Agreement--Registration Rights Agreement."
DEPENDENCE ON KEY PERSONNEL
NGP's management team includes a number of individuals with substantial
experience in owning, operating and acquiring interests in golf courses and
related facilities. NGP believes that its success is dependent in significant
part upon the efforts of such persons and that it will have only limited
ability to replace such persons with individuals having comparable experience.
Richard C. Price and Edward R. Sause have employment agreements with NGP and
the Operating Partnership providing for their continued employment for one
year from August 18, 1995 (with automatic one year extensions) and preventing
them from competing, directly or indirectly, with NGP and the Operating
Partnership during such time and for one year after termination of employment.
NGP has not obtained key man life insurance with respect to Richard C. Price
and Edward R. Sause. See "Election of NGP Directors--Executive Compensation--
Employment Agreements."
EFFECT OF DEFAULTS UNDER THE NGP LEASES, PARTICIPATING MORTGAGE LOANS AND
ADDITIONAL INDEBTEDNESS ON DISTRIBUTIONS TO STOCKHOLDERS; POSSIBLE RETURN ON
CAPITAL
Distributions by NGP to its stockholders are dependent principally on rental
payments under NGP's existing leases on its golf course properties. Increases
in base rent and percentage rent under such leases or the payment of rent in
connection with future acquisitions will increase NGP's revenue and may
increase the amount available to make distributions to stockholders. However,
in the event of a default by a lessee, there could be a decrease
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or cessation of rental payments. In addition, the amount available to make
distributions may decrease if the golf properties acquired by NGP from GEI or
other golf courses acquired in the future yield lower than expected revenues.
Distributions by NGP to its stockholders currently also are dependent in part
on interest payments received by NGP under four participating mortgage loans
collateralized by first mortgage liens on four golf courses that NGP currently
has an option to purchase (the "Option Golf Courses"). In the event of a
default by a borrower under any such loans, the amount available to make
distributions may decrease. The NGP Board of Directors has approved and
authorized NGP to exercise its options with respect to the Option Golf
Courses, provided that the existing participating mortgage loans
collateralized by the Option Golf Courses are refinanced with a loan from a
third-party and guaranteed by the owners of such Option Golf Courses. However,
if NGP incurs additional indebtedness in the future, it will require
additional funds to service such indebtedness and amounts available to make
distributions may decrease. Distributions by NGP also are dependent on a
number of other factors, including the amount of funds from operations
available for distribution, NGP's financial condition, any decision to
reinvest funds rather than to distribute such funds, capital expenditures, the
annual distribution requirements under the REIT provisions of the Code (see
"Material Federal Income Tax Consequences") and such other factors as NGP
deems relevant.
To obtain the favorable tax treatment associated with REITs, NGP generally
will be required to distribute to its stockholders at least 95% of its net
taxable income each year. In addition, NGP will be subject to a 4%
nondeductible excise tax on the amount, if any, by which certain distributions
paid by it with respect to any calendar year are less than the sum of 85% of
its ordinary income and 95% of its capital gain net income and undistributed
income from prior years.
NGP intends to make distributions to its stockholders to comply with the 95%
distribution requirements of the Code and to avoid the nondeductible excise
tax. NGP's income and cash flow consist primarily of rental income from the
golf properties NGP owns and leases to AGC. Differences in timing between the
receipt of income and the payment of expenses in arriving at taxable income
and the effect of required debt amortization payments could require NGP to
borrow funds on a short-term basis to meet the distribution requirements that
are necessary to achieve the tax benefits associated with qualifying as a
REIT. For federal income tax purposes, distributions paid to stockholders may
consist of ordinary income, capital gains, nontaxable return of capital or a
combination thereof. NGP provides its stockholders with an annual statement as
to its designation of the taxability of the distributions.
LIMITS ON CHANGES IN CONTROL
Certain provisions of NGP's Articles of Incorporation and Bylaws and
Sections 3-602 and 3-702 of the Maryland General Corporation Law, to which NGP
is subject, could have the effect of delaying, deferring or preventing a
change in control of NGP or the removal of existing management and, as a
result, could prevent the stockholders of NGP from being paid a premium for
their shares of NGP Common Stock. See "Description of NGP Capital Stock--
Section 3-602 of the Maryland General Corporation Law" and "--Control Shares
Acquisition." In addition to the Ownership Limit, NGP's Articles of
Incorporation and Bylaws provide for a staggered Board of Directors, authorize
the Board of Directors to issue Preferred Stock without stockholder approval
(as described in "Description of NGP Capital Stock--General") and grant the
Board of Directors authority to amend NGP's Bylaws. The consent of the limited
partners of the Operating Partnership holding a majority interest of the OP
Units also is required with respect to certain transactions involving the
disposition of all OP Units.
INFLUENCE OF CERTAIN DIRECTORS AND SIGNIFICANT STOCKHOLDERS
Ability of David G. Price to Designate One Less than a Majority of NGP's
Board of Directors. In addition to serving as Chairman of NGP's Board of
Directors, David G. Price currently owns and, following consummation of the
Asset Purchase and the Merger will own, approximately 6.3% and 5.5 %,
respectively, of NGP Common Stock (and, along with his affiliates, OP Units
exchangeable for an additional 41.5% and 38.3%, respectively, of the
outstanding NGP Common Stock, subject to the Ownership Limit). NGP and the
Operating
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Partnership have entered into a Director Designation Agreement with David G.
Price pursuant to which David G. Price and his family have the right to
designate for nomination or to fill any vacancies on NGP's Board of Directors
one less than a majority of NGP's Board of Directors so long as David G. Price
or members of his family (a) continue to serve as directors or executive
officers of NGP and (b) together beneficially own at least 20% of the
outstanding shares of NGP Common Stock (including for these purposes shares
issuable upon exercise of Mr. Price's existing right to exchange OP Units for
shares of NGP Common Stock, without regard to the Ownership Limit).
Accordingly, Mr. Price has substantial influence on NGP and on the outcome of
any matters submitted to NGP's stockholders for approval, including approval
of the Stock Issuance Proposal.
Independent Committee Actions. NGP's Board of Directors consists of seven
directors, three of which directors include David G. Price, the Chairman of
NGP's Board of Directors, Richard C. Price, the President of NGP, and Edward
R. Sause, the Executive Vice President, Chief Financial Officer and Secretary
of NGP, and four of which directors are unaffiliated with David G. Price (the
"Independent Directors"). The Independent Directors constitute the Independent
Committee of the Board of Directors. Transactions involving NGP and affiliates
of David G. Price, such as negotiation, enforcement and renegotiation of
leases, the selection of operators for acquired golf courses and consideration
of NGP's right of first refusal to acquire OP Units upon transfer by limited
partners of the Operating Partnership as provided in the Partnership Agreement
for the Operating Partnership, will require the approval of the Independent
Committee. Certain other significant actions of NGP's Board of Directors will
require the approval of a minimum of five directors and certain matters
relating to the Operating Partnership will require the approval of holders of
a majority of the OP Units. After the Merger, David G. Price and affiliates
will own more than 38.3% of the OP Units then outstanding. See "Description of
NGP Capital Stock--Corporate Governance."
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VOTING AND PROXIES
NGP
Holders of record of shares of NGP Common Stock at the close of business on
April 30, 1996 will be entitled to notice of and to vote at the NGP Annual
Meeting. At the close of business on April 30, 1996, 10,651,975 shares of NGP
Common Stock were issued and outstanding.
A majority of the outstanding shares of NGP Common Stock must be present, in
person or by proxy, at the NGP Annual Meeting to constitute a quorum for the
transaction of business. The adoption and approval of the Stock Issuance
Proposal requires the affirmative vote of holders of a majority of the shares
of NGP Common Stock voting on the Stock Issuance Proposal, provided the total
votes cast represent a majority of the outstanding shares of NGP Common Stock.
The adoption and approval of the Election Proposal requires the affirmative
vote of holders of a plurality of shares of NGP Common Stock voting on the
Election Proposal. Each share of NGP Common Stock will be entitled to one vote
per share in connection with the approval of such matters as well as any other
matter which may properly come before the NGP Annual Meeting. Shares
represented by proxies that reflect abstentions or "broker non-votes" (i.e.,
shares held by a broker or nominee which are represented at the NGP Annual
Meeting, but with respect to which such broker or nominee is not empowered to
vote on a particular proposal or proposals) will be counted as shares that are
present and entitled to vote for purposes of determining the presence of a
quorum. For purposes of determining the outcome of the Stock Issuance
Proposal, abstentions and broker non-votes will not be counted as a share
voting. Accordingly, abstentions and broker non-votes may have the effect of a
vote against the Stock Issuance Proposal if they result in a failure of the
total votes cast to represent a majority of the outstanding shares of NGP
Common Stock. Shares represented by proxies that reflect abstentions will have
no effect on the outcome of the Election Proposal.
Shares of NGP Common Stock, the holders of which are entitled to vote at the
NGP Annual Meeting and which are represented by properly executed proxies,
will, unless such proxies have been revoked, be voted and they will be voted
in accordance with the instructions indicated on such proxies. If no
instructions are indicated, shares of NGP Common Stock will be voted and they
will be voted FOR adoption and approval of the NGP Proposals and in the
discretion of the proxy holder as to any other matter which may properly come
before the NGP Annual Meeting and as to which such shares are entitled to
vote. A stockholder who has given a proxy may revoke it at any time prior to
its exercise at such meeting by delivering an instrument of revocation or a
duly executed proxy bearing a later date to the Secretary of NGP or by
attending such meeting and voting in person. Attendance at the NGP Annual
Meeting, by itself, will not constitute revocation of a proxy.
NGP will bear the cost of soliciting proxies from its stockholders. In
addition to the use of the mails, proxies may be solicited by the directors,
officers and certain employees of NGP by personal interview, telephone or
telegram. Such directors, officers and employees will not be additionally
compensated for such solicitation but may be reimbursed for reasonable out-of-
pocket expenses incurred in connection therewith. In addition, NGP has
retained D.F. King & Company to assist in soliciting proxies for the NGP
Annual Meeting at a fee of $4,500 plus out-of-pocket expenses. Arrangements
will also be made with brokerage houses and other custodians, nominees and
fiduciaries for the forwarding of solicitation material to the beneficial
owners of NGP Common Stock. NGP may reimburse such custodians, nominees and
fiduciaries for reasonable out-of-pocket expenses incurred in connection
therewith.
GEI
Holders of record of shares of GEI Common Stock at the close of business on
June 4, 1996 will be entitled to notice of and to vote at the GEI Special
Meeting. At the close of business on June 4, 1996, 6,585,482 shares of GEI
Common Stock were issued and outstanding.
A majority of the outstanding shares of GEI Common Stock must be present, in
person or by proxy, at the GEI Special Meeting to constitute a quorum for the
transaction of business. The affirmative vote of holders of a majority of the
outstanding shares of GEI Common Stock is required to adopt and approve the
GEI Proposal.
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Each share of GEI Common Stock will be entitled to one vote per share in
connection with the approval of such proposal, as well as any other matter
which properly comes before the GEI Special Meeting. Shares represented by
proxies that reflect abstentions or "broker non-votes" (i.e., shares held by a
broker or nominee which are represented at the GEI Special Meeting, but with
respect to which such broker or nominee is not empowered to vote on a
particular proposal or proposals) will be counted as shares that are present
and entitled to vote for purposes of determining the presence of a quorum. For
purposes of determining the outcome of the GEI Proposal, shares represented by
such proxies, although they are not votes against the GEI Proposal, will be
treated as if they were negative votes.
Shares of GEI Common Stock, the holders of which are entitled to vote at the
GEI Special Meeting and which are represented by properly executed proxies,
will, unless such proxies have been revoked, be voted and they will be voted
in accordance with the instructions indicated on such proxies. If no
instructions are indicated, shares of GEI Common Stock will be voted and they
will be voted FOR adoption and approval of the GEI Proposal, and in the
discretion of the proxy holder as to any other matter which may properly come
before the GEI Special Meeting and as to which such shares are entitled to
vote. A stockholder who has given a proxy may revoke it at any time prior to
its exercise at such meeting by delivering an instrument of revocation or a
duly executed proxy bearing a later date to the Secretary of GEI or by
attending such meeting and voting in person. Attendance at the GEI Special
Meeting, by itself, will not constitute revocation of a proxy.
GEI will bear the cost of soliciting proxies from its stockholders. In
addition to the use of the mails, proxies may be solicited by the directors,
officers and certain employees of GEI, and by certain officers of NGP, by
personal interview, telephone or telegram. Such directors, officers and
employees will not be additionally compensated for such solicitation but may
be reimbursed for reasonable out-of-pocket expenses incurred in connection
therewith. In addition, GEI has retained D.F. King & Company to assist in
soliciting proxies for the GEI Special Meeting at a fee of $4,000 plus out-of-
pocket expenses. Arrangements will also be made with brokerage houses and
other custodians, nominees and fiduciaries for the forwarding of solicitation
material to the beneficial owners of GEI Common Stock. GEI may reimburse such
custodians, nominees and fiduciaries for reasonable out-of-pocket expenses
incurred in connection therewith.
OTHER MATTERS
In the event a quorum is not obtained at either the NGP Annual Meeting or
the GEI Special Meeting, the NGP or GEI proxy holders, as the case may be,
intend to vote the shares subject to such proxies to adjourn the respective
annual or special meeting to a later date until such time as a quorum is
obtained.
The Boards of Directors of NGP and GEI know of no business that will be
presented for consideration at the NGP Annual Meeting and the GEI Special
Meeting, respectively, other than the matters described in this Joint Proxy
Statement--Prospectus.
STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXIES. GEI
COMMON STOCK CERTIFICATES WILL BE EXCHANGED FOR CASH AND/OR NGP COMMON STOCK
CERTIFICATES FOLLOWING CONSUMMATION OF THE MERGER IN ACCORDANCE WITH
INSTRUCTIONS WHICH THE SURVIVING CORPORATION WILL SEND TO HOLDERS OF GEI
COMMON STOCK AFTER THE MERGER.
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THE ASSET PURCHASE AND MERGER
GENERAL
All actions (other than the approval of NGP and GEI stockholders) necessary
to authorize the Asset Purchase and the Merger have been taken by the
respective Boards of Directors of NGP and GEI.
The information contained in this Joint Proxy Statement--Prospectus with
respect to the Asset Purchase and the Merger is qualified in its entirety by
reference to the Acquisition Agreement and the exhibits to the Acquisition
Agreement and the other Annexes to this Joint Proxy Statement--Prospectus.
Such agreements and other documents should be read carefully in their
entirety.
BACKGROUND OF THE TRANSACTION
In the second quarter of 1995, in an effort to explore other strategies for
enhancing long-term stockholder value and maintaining GEI's growth,
representatives of GEI contacted various parties, including David G. Price, to
ascertain interest in discussions regarding a possible strategic combination
or acquisition transaction involving GEI. Other than as set forth herein, no
significant discussions resulted from these initial conversations.
In June 1995, Robert H. Williams, GEI's President and Chief Executive
Officer, and David G. Price held further discussions regarding a possible
transaction involving the acquisition of GEI.
GEI entered into Confidentiality Agreements with NGP and AGC on July 10,
1995 providing for the exchange of confidential information by such parties.
From time to time thereafter, GEI provided NGP with financial and other
relevant market information concerning GEI. During July and August of 1995,
representatives of NGP held discussions with members of the senior management
of GEI relating to information regarding GEI and various structures for a
possible strategic business combination or acquisition transaction. Also
during this period, GEI received inquiries from other potential parties to a
transaction with GEI and exchanged information regarding GEI with such
potential purchasers.
On August 23, 1995, at a regularly scheduled meeting, the GEI Board of
Directors discussed, among other things, financial information and results of
operations for the six months and quarter ended June 30, 1995; projected 1995
results of operations; forecasted 1996 results of operations; and the long-
term prospects and possible strategic alternatives available to GEI. At this
meeting, as a result of the discussion of the GEI Board of Directors and the
inquiries received by GEI from other potential purchasers, Bryan C. Cressey,
Chairman of the GEI Board of Directors, and Joseph P. Nolan, a member of the
GEI Board of Directors, were authorized by the GEI Board of Directors to
contact William Blair concerning the engagement of William Blair as financial
advisor to assist and advise GEI in further analysis of its strategic
alternatives. Each member of the GEI Board of Directors was present at the
meeting.
On or about August 25, 1995, Mr. Cressey met with representatives of William
Blair for the purpose of identifying other potential purchasers of GEI and
determining whether any such alternative potential purchasers would be
interested in submitting a proposal to acquire GEI. During the period of
August 1995 through February 1996, various third parties contacted William
Blair or GEI regarding a possible interest in GEI. Certain of those parties
entered into confidentiality agreements and received confidential information
thereunder. Prior to January 31, 1996, none of the third parties contacted by
William Blair or GEI proposed a transaction involving GEI. Several parties
which did express an interest in further investigating a transaction indicated
that any proposal which might be made would provide GEI stockholders with a
price per share below that provided by the Asset Purchase and the Merger.
During October, November and December 1995, Edward R. Sause, NGP's Executive
Vice President and Chief Financial Officer, and David G. Price met with
representatives of GEI to discuss alternative transaction structures. The
discussion focused in part upon identifying an acquisition structure that
would minimize the effect of federal and state taxes and determining an
appropriate valuation of GEI Common Stock.
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On several occasions in September 1995, representatives of GEI, Edward R.
Sause, acting on behalf of NGP, and David G. Price discussed GEI's lower than
anticipated operating results for the third quarter ended September 30, 1995
and its prospects for the remainder of the year. Thereafter, Mr. Sause and Mr.
Price informed Mr. Williams that they remained interested in a potential
acquisition and indicated that they required additional information with
respect to GEI, its properties and its subsidiaries. In addition, Mr. Sause
and Mr. Price stated that their interest in pursuing the acquisition was
dependent on certain significant stockholders of GEI contractually committing
to any negotiated transaction. Mr. Sause, Mr. Price and GEI agreed to continue
to explore various alternative transactions and to continue the due diligence
process. From time to time thereafter, representatives of GEI, NGP and Mr.
Price discussed GEI's business and the business of NGP. Over the next few
weeks, Mr. Price informed members of the NGP Board of Directors of the status
of the discussions and proposed transaction with GEI.
On October 12, 1995, the GEI Board of Directors again discussed forecasted
results of operations for 1996, the cost and number of attractive possible
golf course acquisitions, and GEI's access to debt and equity capital.
Management observed that fewer golf courses capable of enhancing earnings
within one or two years after acquisition were available, and that the lease
or acquisition costs of such courses were increasing. The Board observed that,
without additional equity capital, available debt financing would probably be
insufficient to complete the number of golf course acquisitions necessary to
maintain a desired level of earnings growth. The historical and projected
market price of GEI common stock was considered, and it was believed that the
issuance of sufficient GEI common stock, if possible, would result in an
unacceptable level of dilution to existing stockholders. The GEI Board of
Directors reviewed and discussed the status of discussions, levels of interest
and likely price ranges indicated by potential purchasers. Mr. Cressey
reviewed the progression of discussions with representatives of NGP and David
G. Price. The GEI Board of Directors discussed and considered the strategic
alternatives available to GEI, the markets served by GEI, the near and long-
term prospects for those markets, and GEI's competitive position in those
markets, in addition to other matters. The GEI Board of Directors requested
that Mr. Cressey and Mr. Williams continue discussions with NGP and David G.
Price. Each member of the GEI Board of Directors was present at the meeting
except for Mr. Devlin.
On October 18, October 25, December 7, December 20 and December 26, 1995,
the Board of Directors of GEI held teleconferences during which, among other
matters, the status of discussions with senior management of NGP and David G.
Price and the levels of interest expressed by other potential purchasers of
GEI were reviewed and discussed. The GEI Board of Directors also reviewed
alternative financing transactions which might be available to GEI. The
possibility of reorganizing GEI operations so as to qualify for taxation as a
real estate investment trust under the Code was considered. This alternative
was rejected due to the difficulties of establishing an entity to operate the
golf courses owned and leased by GEI, conversion expenses and a resulting lack
of liquidity for existing stockholders. The issuance of high yield debt was
also considered and rejected due to interest costs. Each member of the GEI
Board of Directors was present at each of these meetings except Mr. Williams,
who was absent from the October 18 and October 25 meetings; Mr. Bertelsmeyer,
who was absent from the December 26 meeting; and Mr. Devlin, who was absent
from the October 25, December 7 and December 20 meetings. Mr. Busching was
absent from the October 25 meeting and passed away prior to the December 7
meeting.
David G. Price and Edward R. Sause presented a report to a meeting of the
NGP Board of Directors held on November 7, 1995 regarding the status of
discussions with GEI. A general discussion was conducted on the overall
structure of the transaction, the method of valuation of GEI Common Stock, the
financing for the transaction and other financial and market aspects of the
proposed transaction with GEI.
On December 28, 1995, David G. Price and Edward R. Sause met with NGP's
outside legal counsel to discuss the legal and tax ramifications of
alternative transaction structures for NGP, AGC and David G. Price to acquire
GEI and its assets. The various alternatives discussed and considered included
(i) NGP acquiring GEI's owned golf properties by purchasing such properties
directly, merging GEI into NGP or making a participating mortgage loan on each
such property and (ii) AGC or another entity controlled by David G. Price
acquiring GEI's remaining assets (including primarily leased or managed golf
course properties) by merging
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AGC into GEI, transferring GEI's leasehold interests in such leased properties
to AGC, or leasing all of GEI's properties to AGC. Most of these alternatives
were rejected for tax and legal reasons.
In late December 1995 and early January 1996, David G. Price contacted
members of the NGP Board of Directors individually by telephone and in person
to inform them of the status of negotiations of the proposed transaction.
Following further discussions among NGP management and David G. Price
regarding the alternative structures described above and the review of
additional information, on January 10, 1996, counsel to NGP and Newco, a newly
formed entity, delivered to GEI and its counsel a draft Acquisition Agreement.
The draft Acquisition Agreement provided for NGP to acquire the Purchased
Assets and then merge Newco with and into GEI. Substantially concurrent with
the delivery of the Acquisition Agreement, Mr. Price proposed to Mr. Williams
the consideration to be received by GEI's stockholders in the Merger be
approximately $12.00 per share and be payable part in cash and part in shares
of NGP Common Stock. Attached to the Acquisition Agreement was (i) a proposed
agreement pursuant to which GTC II, GTC III and Robert H. Williams
(collectively, the "Principal Stockholders") would agree to vote in favor of
the Asset Purchase and the Merger and (ii) a stock option agreement in favor
of Newco pertaining to certain significant GEI stockholders. GTC II and GTC
III are the first and second largest beneficial owners of GEI Common Stock,
respectively. See "Security Ownership of Certain GEI Beneficial Owners and
Management." Bryan C. Cressey is the Chairman of the Board of Directors of GEI
and is also a General Partner of Golder, Thoma, Cressey & Rauner, L.P. ("GTCR
L.P."). GTCR L.P. is the general partner of GTC II and GTC III. Joseph P.
Nolan is a Director of GEI and also is an associate of GTCR L.P. The draft
Acquisition Agreement contained provisions that would have permitted NGP and
Newco to terminate the Acquisition Agreement if (i) Newco were unable to
obtain financing on acceptable terms sufficient to satisfy Newco's payment
obligations in connection with the Merger or (ii) NGP and Newco were not
reasonably satisfied with their due diligence investigation of GEI between
execution of the Acquisition Agreement and closing of the transactions
contemplated thereby. The draft Acquisition Agreement also provided for GEI to
pay a break-up fee under certain circumstances if the transactions
contemplated by such agreement were not consummated. Finally, the draft
Acquisition Agreement imposed a three-year restriction on the ability of the
Principal Stockholders to transfer any shares of NGP Common Stock received by
them in connection with the Merger.
On January 11, 1996, GEI announced publicly that it was engaged in
negotiations concerning a possible sale of GEI for cash and securities
totaling approximately $12.00 per share of GEI Common Stock. After the
announcement, GEI and its representatives received inquiries from other
parties interested in a possible transaction with GEI. GEI and its
representatives provided information and responded to those parties possessing
sufficient business experience, golf course management experience and
financial strength and resources to warrant a response. Except for the
proposal received on January 31, 1996, which is discussed below, none of the
inquiring parties indicated an interest in further exploring an acquisition of
GEI on terms that would have provided a price per share for GEI's stockholders
equal to or above that proposed in the Asset Purchase and the Merger.
On January 12, and January 16, 1996, the GEI Board of Directors held
teleconferences with their management and advisors to discuss the proposed
Acquisition Agreement and the status thereof. Each member of the GEI Board of
Directors was present at both meetings, except for Mr. Bertelsmeyer, who was
absent from both meetings and Mr. Devlin, who was absent from the January 12
meeting.
From January 11 through February 2, representatives of GEI, NGP, and,
following its formation, Newco, together with their legal advisors, negotiated
the terms of the Acquisition Agreement. During this time, the parties also
exchanged financial and legal due diligence materials and conducted additional
due diligence. During this period, representatives of GTC II and GTC III and
representatives of NGP and Newco negotiated the terms of the Principal
Stockholder Agreement and Termination Fee Agreement (as described below)
pursuant to which, among other things, Robert H. Williams and GTCR, L.P., the
general partner of each of GTC II and GTC III, agreed to cause each of such
entities to vote their shares of GEI Common Stock in favor of the Asset
Purchase
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and the Merger. In exchange for an agreement by the Principal Stockholders to
pay Newco 50% of any premium received by them over the total consideration
payable by NGP and Newco in connection with the Asset Purchase and the Merger
if GEI is sold to a third party willing to pay a higher price than such
consideration, Newco agreed to drop its previous requests for (a) an option to
acquire GEI Common Stock held by the Principal Stockholders and (b) an
agreement by the Principal Stockholders to vote against any competing bid made
by a third party to acquire GEI. In addition, AGC agreed to provide a
guarantee of Newco's obligations under the Acquisition Agreement. The final
Acquisition Agreement (i) did not contain a due diligence condition other than
with respect to breaches of representations and warranties, (ii) had a
financing condition for Newco's benefit that was limited to a two-week period
following execution of the Acquisition Agreement, (iii) contained a lock-up
period of the Principal Stockholders which was reduced from three years to
several months, and (iv) attached an agreement providing certain registration
rights to the Principal Stockholders with respect to any shares of NGP Common
Stock received by them in connection with the Merger. The parties to the
Acquisition Agreement negotiated terms pursuant to which NGP has the option of
paying a mix of cash and shares of NGP Common Stock as
consideration for the Purchased Assets, with the issuance of such stock
subject to certain limitations on the minimum and maximum number of shares
that may be issued.
On January 26, 1996, the NGP Board of Directors met to consider the proposed
terms of the Acquisition Agreement. Based on presentations by NGP's senior
management, the NGP Board of Directors authorized NGP's management to proceed
with negotiating and finalizing definitive agreements for the Asset Purchase.
The NGP Board of Directors also authorized NGP's retention of Montgomery to
serve as financial advisor for the proposed transaction and the retention of
Gibson, Dunn & Crutcher as special outside legal counsel to the Independent
Committee of the NGP Board of Directors. NGP's Independent Committee was
formed following NGP's initial public offering in 1993 to, among other things,
approve future transactions between NGP and David G. Price and his affiliates.
The Independent Committee currently is comprised of Richard A. Archer, John C.
Cushman III, Bruce Karatz and Charles S. Paul. See "Election of NGP
Directors--Board Meetings; Committees and Compensation."
On January 31, 1996, GEI received a letter from a golf course management
company proposing a merger pursuant to which GEI stockholders would receive
between $11.50 and $12.50 per share. This proposal was conditioned upon
satisfactory completion of due diligence, the ability to obtain equity and
debt financing, and negotiation and execution of a definitive merger
agreement. In light of the proposed price range and the conditional nature of
the proposal, the GEI Board rejected this proposal at its February 1, 1996
meeting.
On February 1, 1996, the GEI Board of Directors met to consider the
Acquisition Agreement and the transactions contemplated thereby, including the
proposed consideration to be paid to GEI's stockholders. Mr. Williams, Mr.
Cressey, and John H. Berndsen, Vice President, Chief Financial Officer and
Treasurer of GEI, and representatives of William Blair and Blackwell Sanders
Matheny Weary & Lombardi L.C., GEI's legal advisor, made presentations to the
GEI Board of Directors regarding their views and analyses of various aspects
of the proposed transactions. The GEI Board of Directors reviewed and
considered, among other things, the background of the proposed transaction,
GEI's strategic alternatives, financial and valuation analyses of the
transaction, the terms of the Acquisition Agreement, the Principal Stockholder
Agreement, and the Termination Fee Agreement, and other matters described
below under "Recommendations of the Boards of Directors of NGP and GEI;
Reasons for the Asset Purchase and the Merger." At this meeting, William Blair
delivered its oral opinion (which was subsequently confirmed in writing on
February 2, 1996) that, based upon the matters presented to the GEI Board of
Directors and as set forth in its opinion, as of the date of the opinion, the
consideration to be received by the stockholders of GEI in the Merger pursuant
to the Acquisition Agreement was fair, from a financial point of view, to such
stockholders. After extensive discussion and consideration, the GEI Board of
Directors unanimously approved the Acquisition Agreement and the transactions
contemplated thereby, including the Merger, and authorized the execution and
delivery of the Acquisition Agreement. Each member of the GEI Board of
Directors was present at the meeting.
On February 1, 1996, the Independent Committee of the NGP Board of Directors
held a Special Meeting, which also was attended by the Independent Committee's
outside legal counsel and NGP's Chief Leasing Officer,
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to consider and vote upon various matters regarding the proposed transaction
with GEI. At this Special Meeting, Montgomery delivered its oral opinion
(which opinion was subsequently confirmed in writing on and as of February 2,
1996) to the Independent Committee to the effect that, as of such date, the
consideration to be paid by NGP in connection with the Asset Purchase is fair
to NGP from a financial point of view. Also at this Special Meeting, the
Independent Committee (i) approved the definitive Acquisition Agreement and
related documents and authorized and directed the management of NGP to
finalize, execute and deliver such documents; and (ii) approved the terms by
which the golf courses to be acquired by NGP would be leased to AGC. The NGP
Board of Directors also held a Special Meeting on February 1, 1996 to consider
and vote upon various matters regarding the proposed transaction with GEI. At
this Special Meeting, the NGP Board of Directors adopted various resolutions
whereby the definitive Acquisition Agreement and related documents were
approved and management of NGP was authorized and directed to finalize,
execute and deliver such documents.
The Acquisition Agreement was executed on Friday, February 2, 1996 and
publicly announced on Monday, February 5, 1996.
On February 16, 1996, the Acquisition Agreement was amended to remove the
condition to Newco's obligation to consummate the Merger that Newco be able to
obtain financing, on terms acceptable to it, to enable Newco to pay certain
costs required to be paid by Newco in connection with the Merger. The other
conditions to the closing of the transaction set forth in the Acquisition
Agreement remain.
Following execution and delivery of the Acquisition Agreement, pursuant to
which GEI has agreed not to solicit acquisition proposals and not to engage in
negotiations or discussions with a party proposing an acquisition unless the
failure to engage in such negotiations would result in a breach of the Board
of Directors' fiduciary duties, GEI received a proposal to purchase the assets
of GEI at a price equivalent to $13.50 per share. This proposal was
conditioned upon satisfactory completion of due diligence, negotiation and
execution of a purchase agreement, and arrangement of financing. At this time,
the GEI Board of Directors has not determined that the failure to engage in
negotiations regarding this proposal would constitute a breach of its
fiduciary duties because of the speculative and highly conditional nature of
the proposal.
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS OF NGP AND GEI; REASONS FOR THE
ASSET PURCHASE AND THE MERGER
NGP. The NGP Board of Directors has determined and believes that the terms
of the Asset Purchase are fair to, and in the best interests of, NGP and its
stockholders. Accordingly, the NGP Board of Directors, by a unanimous vote,
has approved the Asset Purchase and recommends approval of the Stock Issuance
Proposal by the stockholders of NGP.
In reaching its conclusion, the NGP Board of Directors relied to a great
extent on the unanimous recommendation of the Independent Committee to approve
the Asset Purchase and the Independent Committee's determination that the
terms of the Asset Purchase are fair to, and in the best interests of, NGP and
its stockholders. In addition, however, the NGP Board of Directors also
independently considered information provided at the November 7, 1995 and
January 26 and February 1, 1996 board meetings, including, among other things,
(i) information concerning the historical financing performance and condition,
business operations, quality of the golf courses comprising the Purchased
Assets and the prospects for such courses; (ii) the structure of the
transaction that will permit NGP to acquire the Purchased Assets free and
clear of any indebtedness for consideration consisting of 50% cash and 50%
stock; (iii) the terms of the Acquisition Agreement and the other ancillary
agreements executed or to be executed in connection with the Asset Purchase;
(iv) the terms of the New Lease pursuant to which NGP will lease the golf
course properties comprising the Purchased Assets to AGC; (v) the presentation
and recommendation made by NGP's management; (vi) the oral opinion of
Montgomery that the consideration to be paid by NGP in connection with the
Asset Purchase is fair to NGP, from a financial point of view, as of February
2, 1996; and (vii) the terms of other recent golf course acquisitions.
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NGP pursues a strategy of acquiring new golf course properties that NGP's
management identifies as capable of providing a return on investment
commensurate with NGP's historical performance. To decide whether the golf
courses comprising the Purchased Assets satisfied this criteria, the NGP Board
of Directors considered certain historical and projected financial information
for each of such golf courses, which was based on information supplied by GEI
in the course of diligence investigations and, in the case of financial
projections, had been previously prepared by GEI for financial planning
purposes. The NGP Board of Directors also received a presentation by
Montgomery regarding, among other matters, a comparison of the total
consideration payable by NGP (in stock and cash) for the Purchased Assets to
the consideration paid by both the NGP and GEI in a total of 29 previous golf
course acquisition transactions (which involved a total of 38 separate golf
courses), in each case as a multiple of revenues and earnings before interest,
taxes, depreciation and amortization generated by the acquired courses in the
twelve months following the acquisition. In reviewing these comparisons, the
NGP Board of Directors sought to confirm that the price being paid by NGP in
the Asset Purchase (as a multiple of earnings) was within or below the range
of prevailing multiples for comparable golf course acquisitions. As a result
of this review, the NGP Board of Directors concluded that the price (as a
multiple of earnings) being paid by NGP in the Asset Purchase was well below
the average purchase prices (as a multiple of earnings) paid by both NGP and
GEI in their prior golf course acquisitions.
The NGP Board of Directors next considered the likely internal rate of
return and the accretion in funds from operations that the terms of the New
Lease would provide to NGP. The NGP's Board of Directors' conclusion that the
lease payments on the Purchased Assets pursuant to the New Lease would satisfy
NGP's investment criteria was based largely upon the analysis provided by
Montgomery. Montgomery concluded that the New Lease would provide the
Operating Partnership with an internal rate of return of between 9.2% and
13.1% on NGP's investment of $58 million and would be accretive to the
Operating Partnership's funds from operations. Scott Thompson, NGP's Chief
Leasing Officer, also confirmed, along with Montgomery, that the financial
terms of the New Lease are similar in all material respects with NGP's prior
leases. NGP's management believes that the terms and conditions of the New
Lease generally are not more favorable to AGC than the terms and conditions of
AGC's existing leases of golf course properties owned by parties unaffiliated
with NGP.
The comparative analysis of the purchase price for the Purchased Assets and
the expected rate of return on investment and accretion to funds from
operations, along with the oral opinion of Montgomery that the consideration
to be paid by NGP in connection with the Asset Purchase is fair to NGP, from a
financial point of view, as of February 2, 1996, and the unanimous
recommendation of the Independent Committee to approve the Asset Purchase,
were the most significant factors in the conclusion of the NGP Board of
Directors that the terms of the Asset Purchase are fair to, and in the best
interests of, NGP and its stockholders. A copy of the Montgomery opinion,
which sets forth the assumptions made, the matters considered and the
limitations of the review undertaken by Montgomery, is attached hereto as
Annex III. See "The Asset Purchase and Merger--Opinion of NGP's Financial
Advisor." Less significant reasons supporting the conclusion reached by the
NGP Board of Directors also include their view that NGP's acquisition of the
20 additional golf courses comprising the Purchased Assets would significantly
advance NGP's strategy of building a larger portfolio of golf course
properties that would provide NGP greater geographic diversity and improve
NGP's competitive position in the golf course industry.
In making its determination, the NGP Board of Directors took into account
the results of NGP's due diligence review of GEI's business in general and the
Purchased Assets in particular. In its presentation to the NGP Board of
Directors on January 26 and February 1, 1996, NGP's management reported on the
results of its due diligence investigation. NGP's management noted in its
presentation certain issues it had identified with both GEI and the Purchased
Assets, all of which did not, in the aggregate, amount to a material liability
that should impact the NGP Board of Directors's analysis of whether to approve
the Asset Purchase. The NGP Board of Directors understood that GEI was
unwilling to agree to an open-ended right to terminate the transaction as a
result of post-signing due diligence. In light of the level of due diligence
that had been completed, the potential benefits of the transaction and the
protections of the representations and warranties and other provisions of the
Acquisition Agreement, the NGP Board of Directors concurred with NGP's
management's view that the due
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diligence that had been completed was sufficient to permit it to approve of
the transaction without a due diligence condition. Since the signing of the
Acquisition Agreement, NGP has continued its due diligence review of the
Purchased Assets.
In addition to the factors enumerated above, the Independent Committee also
considered that certain members of GEI's management and the NGP Board of
Directors have certain interests that are in addition to, or different from,
the interests of the holders of NGP Common Stock generally and that may
present them with actual or potential conflicts of interest in connection with
the Asset Purchase and the Merger. The Independent Committee determined that
such actual or potential conflicts of interest neither supported nor detracted
from the fairness of the Asset Purchase to NGP or its stockholders. See "The
Asset Purchase and Merger--Possible Conflicts of Interest of Certain Officers
and Directors."
The involvement of the Independent Committee in reviewing and approving the
transaction was deemed by the NGP Board of Directors to be an important factor
in its conclusion that the terms of the Asset Purchase are financially fair to
NGP's stockholders. The purchase price ultimately negotiated for the Purchased
Assets and the analyses performed by Montgomery (with respect to both the
price paid for the Purchased Assets as a multiple of historical earnings and
the projected rate of return on the New Lease) were factors that the NGP Board
of Directors deemed to be significant in reaching its conclusion that the
terms of the Asset Purchase also are in the best interest of NGP's
stockholders.
THE NGP BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE ASSET PURCHASE AND
BELIEVES THAT THE TERMS OF THE ASSET PURCHASE ARE FAIR TO, AND IN THE BEST
INTERESTS OF, NGP AND ITS STOCKHOLDERS. THE NGP BOARD OF DIRECTORS RECOMMENDS
A VOTE FOR APPROVAL OF THE STOCK ISSUANCE PROPOSAL.
GEI. The GEI Board of Directors believes that the terms of the Asset
Purchase and the Merger are fair to, and in the best interests of, GEI and its
stockholders. Accordingly, the Board of Directors, by an unanimous vote, has
approved and adopted the Acquisition Agreement and the transactions
contemplated thereby and recommends its approval by the stockholders of GEI.
In reaching this conclusion, the GEI Board of Directors considered
information provided at the October 12, October 18, October 25, December 7,
December 20, and December 26, 1995 and February 1, 1996 board meetings. As
discussed more fully in the immediately succeeding paragraphs, the Board
considered, among other things, (i) the market supply of golf courses
available for purchase, lease and management; (ii) potential sources and costs
of additional acquisition capital; (iii) the possibility and merits of a
strategic business combination involving GEI; (iv) alternative financing
transactions which might be available to GEI; (v) the historical and projected
performance of GEI's Common Stock; and (vi) the historical and projected
results of operations in relation to how they impact the long-term value to be
realized by the GEI stockholders.
GEI's management reviewed the market supply of golf courses available for
purchase, lease, and management, the near and long-term prospects for that
market supply, and GEI's current and potential position in that market. More
specifically, the GEI Board of Directors reviewed the growth potential of GEI
through acquisitions and the related value such acquisitions would bring to
GEI's stockholders. Management was uncertain that sufficient golf courses
capable of enhancing earnings within one or two years after acquisition were
available, and generally thought that the lease or acquisition costs of such
courses were increasing.
The GEI Board of Directors also considered potential sources and costs of
additional acquisition capital. In the context of this discussion, the GEI
Board of Directors evaluated the historical performance of GEI's Common Stock.
The Board reviewed how GEI stock had performed since its initial public
offering, how that historic performance projected into the future based upon
its growth potential and, whether those factors combined to allow GEI to
continue as an independent entity in a manner which would increase value to
GEI's stockholders. The Board of Directors observed that without additional
equity capital, available debt financing would probably be insufficient to
complete the number of golf course acquisitions necessary to maintain a
desired level of
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earnings growth. However, based on the historical and projected market price
of GEI Common Stock, the Board determined that the issuance of sufficient GEI
Common Stock, if possible, would result in an unacceptable level dilution to
existing stockholders. The issuance of high yield debt was also considered and
rejected.
The Board of Directors also reviewed the possibility of a strategic business
combination and whether the benefits derived from any such combination would
provide greater value to the stockholders. The Board reviewed and considered
the status of discussions, levels of interests and likely price ranges
indicated by potential purchasers. The Board of Directors determined that no
strategic business combination alternative was available which would likely
provide sufficient growth to bring greater value to the stockholders than the
value derived from the transactions contemplated by the Acquisition Agreement.
In addition to considering strategic business combinations, the GEI Board of
Directors also reviewed alternative financing transactions which might be
available to GEI. The possibility of reorganizing GEI's operations so as to
qualify for taxation as a real estate investment trust under the Code was
considered. This alternative was rejected due to the difficulties in
establishing an entity to operate the golf courses owned and leased by GEI,
conversion expenses and a resulting lack of liquidity for existing
stockholders. As noted above, the issuance of high yield debt was also
considered and rejected.
In conducting its review, the GEI Board of Directors considered historical
and projected results of operations to determine how such results affected the
value to be realized by GEI stockholders and how such value compared to the
value derived from the transactions contemplated by the Acquisition Agreement.
The GEI Board of Directors reviewed the trading price of GEI's Common Stock
since its initial public offering on July 20, 1994, including recent trends
and the effect of GEI's announcement of financial results for the quarter
ending September 30, 1995. The Board noted that on January 10, 1996, the last
trading date prior to the announcement that GEI was in discussions with a
potential acquirer involving an acquisition of GEI for cash and securities
valued at approximately $12.00 per share, the high and low sales prices for
GEI Common Stock on the Nasdaq Market were $8.75 and $8.125 per share,
respectively. The Board considered that the value derived from the Acquisition
Agreement represented a premium over the recent historical trading price of
GEI's Common Stock.
The consideration of the transactions being contemplated by the Acquisition
Agreement also took into account the results of the process undertaken by GEI
to identify and solicit indications of interest with respect to a purchase of
GEI. The Board of Directors noted that, prior to January 31, 1996, while
certain of the third parties contacted by William Blair or GEI demonstrated
varied levels of interest in further discussions, none formally proposed a
transaction involving GEI. In addition, prior to this same date, several
parties which did express an interest in investigating a transaction indicated
that any proposal which might be made would provide GEI stockholders with a
price per share below that provided by the Asset Purchase and the Merger. In
this regard, the Board reviewed the proposal GEI received on January 31, 1996
from a golf course management company proposing a merger pursuant to which GEI
stockholders would receive between $11.50 and $12.50 per share but, in light
of the proposed price range, the conditional nature of the proposal, and the
risk of non-consummation the GEI Board of Directors rejected the proposal.
The Board of Directors considered the oral opinion given by William Blair at
the February 1, 1996 meeting of the GEI Board of Directors and the
corresponding written opinion of William Blair dated February 2, 1996 to the
effect that, as of such date, the consideration to be received by the
stockholders of GEI in the Merger pursuant to the Acquisition Agreement is
fair, from a financial point of view, to GEI's stockholders. A copy of the
opinion of William Blair, which sets forth the assumptions made, the matters
considered and the limitations of the review undertaken by William Blair, is
attached here to as Annex IV. See "The Asset Purchase and Merger--Opinion of
GEI's Financial Advisor."
The GEI Board of Directors also reviewed the terms of the Acquisition
Agreement, the other agreements to be executed in connection therewith and the
transactions contemplated thereby including the proposed
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consideration to be paid to GEI's stockholders. The Board of Directors heard
presentations from GEI's management, legal counsel, and financial advisor
regarding their respective views and analysis of various aspects of the
transactions. The presentations provided by senior management of GEI to GEI's
Board of Directors included a review of the historical financial performance
of GEI and its prospects if it were to remain independent. The presentations
included a discussion of GEI's competitive position, as well as current trends
in the golf course management industry. The Board considered the fact that
stockholders beneficially owning approximately 45% of GEI's Common Stock (on a
fully diluted basis) were prepared to endorse the Acquisition Agreement,
related agreements and the transactions contemplated thereby. GEI's Board of
Directors was also advised of, and considered, the dissenters' rights of
appraisal available to GEI's stockholders.
The GEI Board of Directors reviewed the possible conflicts of interest
discussed below and determined that such conflicts did not effect the Board of
Directors assessment of the Acquisition Agreement and the value which it
presented to the GEI Stockholders.
Based on this review, the GEI Board of Directors believes that the terms of
the Acquisition Agreement, Asset Purchase, and the Merger provide the best
available alternative to maximize stockholder value.
The GEI Board of Directors did not assign relative weights to the factors
discussed above or determined that any factor was of particular importance.
Rather, GEI's Board of Directors viewed its position and recommendation as
being based on the totality of information presented to it and considered by
it. The terms of the Acquisition Agreement, the recent historic trading price
of GEI's Common Stock, the results of the process undertaken to identify and
solicit indications of interest with respect to a purchase of GEI and the
opinion of William Blair that the consideration to be received by the
stockholders of GEI in the Merger is fair, from a financial point of view, to
such stockholders, each weighed in the Board of Directors decision that the
terms of the Acquisition Agreement are financially fair to the GEI
Stockholders. The presentations by senior management of GEI regarding the
historical financial performance of GEI and its prospects if it were to remain
independent, the fact that stockholders beneficially owning 45% of the GEI
Common Stock (on a fully diluted basis) were prepared to endorse the
Acquisition Agreement and GEI's competitive position, as well as, the current
trends in the golf course management industry, each weighed in the Board of
Directors decision that the Acquisition Agreement is in the best interest of
the stockholders. These items are not distinguished to suggest that any one
factor is more important than any other. In addition, aspects of each of the
factors weigh in both the consideration as to the financial fairness to the
transaction and whether the transaction is in the best interest of the
stockholders.
THE GEI BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE ACQUISITION
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND BELIEVES THAT THE
TERMS OF THE ASSET PURCHASE AND THE MERGER ARE FAIR TO, AND IN THE BEST
INTERESTS OF, GEI AND ITS STOCKHOLDERS. THE GEI BOARD OF DIRECTORS RECOMMENDS
A VOTE FOR APPROVAL OF THE ACQUISITION AGREEMENT.
POSSIBLE CONFLICTS OF INTEREST OF CERTAIN OFFICERS AND DIRECTORS
Certain officers and certain members of the Boards of Directors of NGP and
GEI had possible conflicts of interest in negotiating and recommending
approval of the Acquisition Agreement and the transactions contemplated
thereby, which conflicts of interest include:
David G. Price. David G. Price is the President of Newco, is the principal
shareholder and Chairman of the Board of Directors of AGC, is Chairman of the
Board of NGP, currently owns, and following consummation of the Asset Purchase
and the Merger will own, 6.3% and 5.5%, respectively, of the outstanding NGP
Common Stock, and, along with his affiliates, 41.5% and 38.3%, respectively,
of the OP Units in the Operating Partnership. The Price Trust is the sole
stockholder of Newco, and will be the sole stockholder of the Surviving
Corporation. Because of the multiple capacities in which he is involved in the
management and ownership of AGC, NGP, Newco, the Surviving Corporation and the
Operating Partnership, Mr. Price has several conflicts of interest in
connection with negotiating and approving the Asset Purchase and the Merger,
including (i) the allocation between NGP and Newco of the consideration to be
paid to GEI by NGP and Newco in connection with the Asset Purchase and the
Merger, (ii) the division of the assets of GEI between NGP and the Surviving
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Corporation, so that NGP acquires the Purchased Assets and the Surviving
Corporation retains all of GEI's other assets, and (iii) the negotiation of
the New Lease (with respect to the golf properties to be acquired from GEI in
connection with the Asset Purchase) between the Operating Partnership and AGC.
The allocation between NGP and Newco of the consideration to be paid by them
in connection with the Asset Purchase and the Merger was determined based on
NGP's independent valuation of the Purchased Assets and Mr. Price's
independent valuation of all of GEI's remaining assets. In deciding to pay
approximately $23.6 million in cash and refinance approximately $54.9 million
of GEI's existing indebtedness in connection with the Merger, Mr. Price valued
the anticipated earnings of GEI's remaining assets, consisting principally of
the golf course properties subject to the 20 leases and three management
contracts owned by GEI at the time Mr. Price valued such assets, which
valuation was determined using a multiple of projected cash flows for such
properties. Mr. Price believes that GEI after the Merger will be able to
generate greater returns on such assets than would be obtainable by other
third party purchasers because of Mr. Price's ability to quickly eliminate a
significant amount of GEI's existing overhead costs related to such properties
by contracting with AGC, which has relatively fixed overhead expense spread
among more than 200 golf course properties, to manage GEI's leased and managed
courses. NGP determined the price it is paying for the Purchased Assets based
on its own valuation of such assets. See "Description of Purchased Assets." In
addition, NGP's Independent Committee, comprised of four independent
Directors, approved the terms of the Acquisition Agreement and the New Lease.
See "Risk Factors--Conflicts of Interest."
Options to Purchase GEI Common Stock. Certain officers and directors of GEI
stand to benefit from provisions in the Acquisition Agreement pertaining to
the treatment of options to acquire shares of GEI Common Stock. Options
granted by GEI pursuant to its 1991 Stock Option Plan, 1994 Stock Option Plan,
and 1995 Stock Option Plan (collectively, "Stock Option Plans"), which by
their terms have not fully vested, will fully vest and become exercisable
simultaneously with the consummation of the transactions contemplated by the
Acquisition Agreement. GEI has agreed to take all such actions as are
necessary to cancel, immediately prior to the Effective Time, all GEI options
granted by GEI under any agreement, plan, program or arrangement of GEI.
Pursuant to the Acquisition Agreement, any holder of an unexpired and
unexercised GEI option shall be entitled to receive from GEI upon cancellation
thereof in connection with the Merger a payment in an amount equal to the
excess, if any, of the value of the consideration payable on account of each
share of GEI Common Stock outstanding immediately prior to the Merger (up to
$12.00 per share) over the per share exercise price of such option, multiplied
by the number of shares of GEI Common Stock subject to such option. Such
payment shall be made on account of all unexpired and unexercised options
without regard to whether an option is then exercisable. See "The Asset
Purchase and Merger--Description of Acquisition Agreement--Treatment of GEI
Options." As a result of the Merger, the holders of options to acquire a total
of 1,065,783 shares of GEI Common Stock will become entitled to receive an
aggregate of $2,547,514 (subject to certain adjustments and limitations)
payable in cash and shares of NGP Common Stock in the same proportion as
holders of GEI Common Stock. For a detailed summary of the number and average
exercise price of options held by directors and officers of GEI entitled to
receive such consideration, see "Risk Factors--Conflicts of Interest--GEI
Conflicts."
Indemnification. GEI's existing directors and officers will receive the
benefit of continued indemnification by the Surviving Corporation. The
Acquisition Agreement provides that Newco will cause the Surviving Corporation
and any of its subsidiaries to keep in effect the provisions of the Articles
of Incorporation and Bylaws of GEI providing for indemnification of GEI's
directors and officers to the fullest extent provided by law. For a
description of these indemnification provisions, see "The Asset Purchase and
Merger--Indemnification of GEI Directors and Officers."
Directors' and Officers' Liability Insurance. GEI's existing directors and
officers also will benefit from Newco's agreement to continue providing
insurance for liabilities arising from such directors' and officers' corporate
actions. The Acquisition Agreement provides that, for a period of not less
than three years after the Effective Time, Newco shall, and shall cause the
Surviving Corporation to, maintain in effect the policies of directors' and
officers' liability insurance maintained by GEI and its subsidiaries as of the
date of the Acquisition Agreement with respect to matters existing or
occurring at or prior to the Effective Time. However, if the aggregate annual
premiums for such insurance during such period exceed 150% of the per annum
rate of the
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aggregate premium paid by GEI and its subsidiaries for such insurance on
February 2, 1996, then Newco or the Surviving Corporation, as the case may be,
shall be obligated only to provide the maximum coverage that shall then be
available at an annual premium equal to 150% of such rate.
Registration Rights Agreement. Several significant holders of GEI Common
Stock will receive certain registration rights relating to the shares of NGP
Common Stock received by them in connection with the Merger. Specifically,
pursuant to a Registration Rights Agreement that NGP has agreed to enter into
with the Principal Stockholders, the Principal Stockholders will have, subject
to certain conditions, both "demand" and "piggyback" registration rights to
require NGP to register all or any portion of the NGP Common Stock issued to
them in the Merger. For a detailed description, see "The Asset Purchase and
Merger--Description of Acquisition Agreement--Registration Rights Agreement."
Robert H. Williams. Robert H. Williams, President and Chief Executive
Officer of GEI, owns or controls 75,003 OP Units as a limited partner in the
Operating Partnership. Mr. Williams' OP Units constitute less than 1% of the
OP Units in the Operating Partnership. Mr. Williams also is the holder of a
promissory note for approximately $2.2 million that NGP assumed at the time of
NGP's initial public offering in 1993 in connection with NGP's acquisition of
four golf courses from a corporation that previously had been 50% owned by Mr.
Williams.
OPINION OF NGP'S FINANCIAL ADVISOR
NGP retained Montgomery Securities ("Montgomery") to render a fairness
opinion regarding the consideration to be paid by NGP in connection with the
Asset Purchase and to perform certain analyses regarding the financial
provisions of the New Lease pursuant to which the Operating Partnership will
lease the golf courses comprising the Purchased Assets to AGC. Montgomery is a
nationally recognized firm and, as part of its investment banking activities,
is regularly engaged in the valuation of businesses and their securities in
connection with merger transactions and other types of acquisitions,
negotiated underwritings, secondary distributions of listed and unlisted
securities, private placements and valuations for corporate and other
purposes. The Independent Committee of the NGP Board of Directors selected
Montgomery to perform the above noted services on the basis of Montgomery's
experience and expertise in transactions similar to the Asset Purchase and its
reputation in the real estate and investment communities..
On February 1, 1996, Montgomery delivered to the NGP Board of Directors and
its Independent Committee Montgomery's oral report, which was subsequently
confirmed in writing on February 2, 1996, containing (a) its opinion that the
consideration to be paid by NGP in connection with the Asset Purchase is fair
to NGP, from a financial point of view, as of that date (the "Opinion"), and
(b) the results of the analyses it performed on the New Lease (the
"Analyses"). The amount of the Asset Purchase Consideration (as described in
"The Asset Purchase and Merger--Description of Acquisition Agreement--the
Asset Purchase") was determined pursuant to negotiations between NGP and GEI,
and the financial provisions of the New Lease were determined pursuant to
negotiations between NGP, as the general partner of the Operating Partnership,
and AGC, and neither such amount nor such terms were determined pursuant to
recommendations of Montgomery. No limitations were imposed by NGP on
Montgomery with respect to the investigations made or procedures followed in
rendering the Opinion or performing the Analyses.
Montgomery was not requested to, and did not, express any opinion regarding
the fairness of the Merger or the contribution of the Purchased Assets to the
Operating Partnership. In addition, Montgomery's work with respect to the New
Lease was limited to performing the Analyses, and Montgomery was not requested
to, and did not, express any opinion regarding the fairness of the New Lease
or the transactions contemplated thereby.
THE FULL TEXT OF MONTGOMERY'S WRITTEN REPORT TO NGP, DATED FEBRUARY 2, 1996,
IS ATTACHED HERETO AS ANNEX III AND IS INCORPORATED HEREIN BY REFERENCE. THE
FOLLOWING SUMMARY OF MONTGOMERY'S REPORT IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF THE REPORT. MONTGOMERY'S REPORT IS DIRECTED TO
THE NGP BOARD OF DIRECTORS AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
STOCKHOLDER OF NGP OR GEI AS
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TO HOW SUCH STOCKHOLDER SHOULD VOTE WITH RESPECT TO THE ACQUISITION AGREEMENT
OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREBY. IN FURNISHING ITS REPORT,
MONTGOMERY DID NOT ADMIT THAT IT IS AN EXPERT WITHIN THE MEANING OF THE TERM
"EXPERT" AS USED IN THE SECURITIES ACT, OR THAT ITS REPORT CONSTITUTES A
REPORT OR VALUATION WITHIN THE MEANING OF SECTION 11 OF THE SECURITIES ACT,
AND STATEMENTS TO SUCH EFFECT ARE INCLUDED IN THE TEXT OF MONTGOMERY'S WRITTEN
REPORT.
In connection with the Opinion and the Analyses, Montgomery, among other
things: (i) reviewed certain publicly available financial and other data with
respect to NGP, including the consolidated financial statements of NGP for
recent years and interim periods to September 30, 1995, and certain other
relevant financial and operating data relating to NGP made available to
Montgomery from published sources and from the internal records of NGP; (ii)
reviewed certain publicly available financial and other data with respect to
GEI and the Purchased Assets, including the consolidated financial statements
of GEI for recent years and interim periods to September 30, 1995, and certain
other relevant financial and operating data relating to GEI and the Purchased
Assets made available to Montgomery from published sources and from the
internal records of GEI; (iii) reviewed drafts of the Acquisition Agreement
(including the Exhibits thereto), the New Lease and the Prior Leases (as
defined below) provided to Montgomery by NGP; (iv) reviewed certain historical
market prices and trading volumes of NGP Common Stock on the NYSE; (v)
considered the financial terms, to the extent publicly available, of selected
recent golf course acquisitions that Montgomery deemed to be comparable, in
whole or in part, to the Asset Purchase; (vi) reviewed and discussed with
representatives of the management of NGP and GEI certain information of a
business and financial nature regarding NGP and the Purchased Assets furnished
to Montgomery by them, including financial forecasts and related assumptions
for NGP and the Purchased Assets furnished to Montgomery by NGP and GEI; (vii)
made inquiries regarding and discussed the Asset Purchase, the Acquisition
Agreement and the New Lease and other matters related thereto with NGP's
counsel and counsel to the Independent Committee; and (viii) performed such
other analyses and examinations as Montgomery deemed appropriate.
In connection with its review, Montgomery assumed and relied upon the
accuracy and completeness of the foregoing information and did not assume any
responsibility for independent verification of such information. With respect
to the financial forecasts for NGP and the Purchased Assets provided to
Montgomery by NGP's management, Montgomery assumed for purposes of the Opinion
and the Analyses that all such forecasts had been reasonably prepared on bases
reflecting the best available estimates and judgments of NGP's management at
the time of preparation as to the future financial performance of NGP and the
Purchased Assets, and that they provided a reasonable basis upon which
Montgomery could form the Opinion and conduct the Analyses. NGP and GEI do not
disclose internal management forecasts of the type provided to Montgomery by
their management in connection with Montgomery's review of the Asset Purchase
and the New Lease. Such forecasts were not prepared with a view toward public
disclosure. In addition, such forecasts were based upon numerous variables and
assumptions that are inherently uncertain, including, without limitation,
factors related to general economic and competitive conditions. Accordingly,
actual results could vary significantly from those set forth in such
forecasts. Montgomery has assumed no liability for such forecasts. Montgomery
also assumed that there have been no material changes in NGP's assets, or in
the financial condition, results of operations, business or prospects of NGP,
since the date of the last financial statements of NGP made available to
Montgomery by NGP, and that there have been no material changes in the
condition, results of operations, business or prospects of the Purchased
Assets since the date of the last financial statements of GEI made available
to Montgomery by GEI. Montgomery relied on advice of counsel and independent
accountants to NGP as to all legal and financial reporting matters with
respect to NGP, the Asset Purchase, the Acquisition Agreement, the New Lease
and the Prior Leases. Montgomery did not assume responsibility for making an
independent evaluation, appraisal or physical inspection of the assets or
individual properties of NGP or GEI, including without limitation the
Purchased Assets, nor was Montgomery furnished with any such appraisals.
Finally, the Opinion and the Analyses are based on economic, monetary and
market and other conditions as in effect on, and the information made
available to Montgomery as of, February 2, 1996.
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Montgomery also assumed, with the consent of NGP's management, that the
Asset Purchase will be consummated in accordance with the terms described in
the Acquisition Agreement, without any further amendments thereto and without
waiver by NGP of any of the conditions to its obligations thereunder.
Set forth below is a brief summary of the written report delivered by
Montgomery to the NGP Board of Directors and its Independent Committee on
February 2, 1996 in connection with the Opinion and the Analyses.
The Opinion. Montgomery reviewed the consideration paid in the 23 previous
golf course acquisition transactions by NGP, comprising a total of 28 separate
golf courses (the "NGP Acquisitions"), and in the six most recent golf course
acquisition transactions by GEI, comprising a total of ten separate golf
courses (the "GEI Acquisitions"). Montgomery analyzed the consideration paid
in such transactions as a multiple of revenues and earnings before interest,
taxes, depreciation and amortization ("EBITDA") generated by the acquired
courses in the twelve months following the acquisition, and calculated the
means and medians thereof. The mean and median multiples for the NGP
Acquisitions and the GEI Acquisitions (collectively, the "Prior Acquisitions")
were 2.3x and 2.2x revenues and 10.6x and 10.7x EBITDA, respectively. By
contrast, assuming that the Asset Purchase Consideration is valued at $58
million (whether paid in a combination of cash and NGP Common Stock or all in
cash), such consideration, as a multiple of both forecasted 1996 revenues and
forecasted 1996 EBITDA of the Purchased Assets, represents approximately one-
half of the corresponding multiples in the Prior Acquisitions.
Montgomery also analyzed the consideration paid in the Prior Acquisitions on
a per course basis. Such analysis indicated mean and median per course
purchase prices of $5.1 million and $4.6 million, respectively. By contrast,
making the same assumption regarding the value of NGP Common Stock set forth
in the preceding paragraph, the Asset Purchase Consideration represents a
purchase price of $2.9 million per course.
In forming the Opinion, Montgomery also considered the results of the
internal rate of return analysis and the funds from operations accretion
analysis conducted by it as part of the Analyses, as described below.
The Analyses. Montgomery performed the following Analyses on the financial
provisions of the New Lease: (a) Montgomery calculated the internal rate of
return and the accretion in funds from operations that the New Lease would
provide to the Operating Partnership, in each case assuming that the Purchased
Assets performed in accordance with the forecasts prepared by management of
NGP and provided to Montgomery; and (b) Montgomery compared the financial
provisions of the New Lease to the corresponding provisions contained in (i)
the form of lease agreement filed by NGP as Exhibit 10.2 to the registration
statement filed with the Securities and Exchange Commission pursuant to the
Securities Act in connection with NGP's initial public offering and (ii) 20
golf course leases between the Operating Partnership and AGC entered into
since NGP's initial public offering (the agreements referred to in (i) and
(ii) above, collectively, the "Prior Leases").
Based on the results of the Analyses, Montgomery concluded that (a) the New
Lease would provide the Operating Partnership with an internal rate of return
of between 9.2% and 13.1% on an investment of $58 million; (b) the New Lease
would provide the Operating Partnership with accretion in funds from
operations for calendar years 1996 and 1997, on a pro-forma basis; and (c) the
financial provisions of the New Lease are consistent in all material respects
with the corresponding provisions of the Prior Leases.
While the foregoing summary describes all analyses and examinations that
Montgomery deems material to the Opinion, it is not a comprehensive
description of all analyses and examinations actually conducted by Montgomery
in connection with the Opinion. As is the case generally with fairness
opinions, the preparation of the Opinion necessarily is not susceptible to
partial analysis or summary description. Montgomery believes that its analyses
and the summary set forth above must be considered as a whole and that
selecting portions of its analyses and of the factors considered, without
considering all analyses and factors, would create an incomplete view of the
process underlying the analyses set forth in its presentation to NGP in
connection with the Opinion. Accordingly, the ranges of valuations resulting
from any particular analysis described above should not be taken to be
Montgomery's view of the actual value of the Purchased Assets, either
individually or in the aggregate. However, although Montgomery did not
consider any of the foregoing analyses in isolation for purposes of rendering
the Opinion, Montgomery does not believe that any such analysis is
inconsistent with the Opinion.
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In performing its analyses with respect to the Opinion, Montgomery made
numerous assumptions with respect to industry performance, general business
and economic conditions and other matters, many of which are beyond the
control of NGP or GEI. The analyses performed by Montgomery are not
necessarily indicative of actual values or actual future results, which may be
significantly more or less favorable than those suggested by such analyses.
Such analyses were prepared solely as part of Montgomery's analysis of the
fairness of the Asset Purchase Consideration (as defined below) to NGP and
were provided to NGP in connection with the delivery of the Opinion. The
analyses do not purport to be appraisals or to reflect the prices at which any
one or more of the Purchased Assets might actually be sold at any time in the
future.
In performing its work with respect to the Opinion and the Analyses,
Montgomery used and relied upon various projections of future performance
prepared by NGP's management. The projections are based on numerous variables
and assumptions which are inherently unpredictable and must be considered not
certain of occurrence as projected. Accordingly, actual results could vary
significantly from those set forth in such projections.
As described above, the Opinion and the Analyses, and Montgomery's
presentation to NGP in connection therewith, were among the many factors taken
into consideration by NGP in making its determination to approve the Asset
Purchase, and to recommend that its stockholders approve the Stock Issuance in
connection with such Asset Purchase.
Pursuant to a letter agreement dated February 1, 1996 (the "Engagement
Letter"), NGP engaged Montgomery to render the Opinion and perform the
Analyses. The Engagement Letter provides for NGP to pay Montgomery a fee of
$175,000 for that work. The fee is not conditioned on the outcome of the
Opinion or the Analyses or whether or not the Opinion or the Analyses were
deemed to be favorable for any party's purposes. NGP became obligated to pay
the fee upon delivery of the Opinion. The Engagement Letter also calls for NGP
to reimburse Montgomery for its reasonable out-of-pocket expenses. Pursuant to
a separate letter agreement, NGP has agreed to indemnify Montgomery, its
affiliates, and their respective partners, directors, officers, agents,
consultants, employees and controlling persons against certain liabilities,
including liabilities under the federal securities laws.
In the ordinary course of its business, Montgomery actively trades the
equity securities of NGP for its own account and for the accounts of customers
and, accordingly, may at any time hold a long or short position in such
securities.
OPINION OF GEI'S FINANCIAL ADVISOR
William Blair delivered an oral report to the GEI Board of Directors on
February 1, 1996, which was subsequently confirmed in its written opinion
dated February 2, 1996 that the consideration to be received by the
stockholders of GEI in the Merger pursuant to the Acquisition Agreement is
fair, from a financial point of view, to such stockholders. The amount of such
consideration was determined pursuant to negotiations between GEI and NGP. No
limitations were imposed by GEI with respect to the investigations made or the
procedures followed by William Blair in rendering its opinion.
THE FULL TEXT OF THE WRITTEN OPINION OF WILLIAM BLAIR, DATED FEBRUARY 2,
1996, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND THE REVIEW
UNDERTAKEN WITH REGARD TO SUCH OPINION, IS ATTACHED HERETO AS ANNEX IV.
WILLIAM BLAIR'S OPINION IS DIRECTED ONLY TO THE FAIRNESS OF THE CONSIDERATION
TO BE RECEIVED BY THE STOCKHOLDERS OF GEI AND DOES NOT ADDRESS GEI'S
UNDERLYING BUSINESS DECISION TO EFFECT THE MERGER. WILLIAM BLAIR'S OPINION WAS
DELIVERED FOR THE INFORMATION OF THE GEI BOARD OF DIRECTORS AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER OF GEI AS TO HOW SUCH
STOCKHOLDER SHOULD VOTE AT THE GEI SPECIAL MEETING. THE SUMMARY OF THE OPINION
OF WILLIAM BLAIR SET FORTH BELOW IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE FULL TEXT OF THE OPINION. GEI'S STOCKHOLDERS ARE URGED TO READ THE OPINION
IN ITS ENTIRETY.
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In arriving at its fairness opinion, William Blair: (a) reviewed the terms
and conditions of the Acquisition Agreement and the financial terms of the
Merger as set forth in the Acquisition Agreement; (b) analyzed certain
publicly available financial statements of GEI; (c) analyzed certain financial
and other information relating to the prospects of GEI provided to William
Blair by GEI's management, including financial projections; (d) discussed the
past and current operations and financial condition and the prospects of GEI
with management of GEI; (e) analyzed certain publicly available financial
statements and other data concerning NGP, including financial projections; (f)
discussed the past and current operations and financial condition and
prospects of NGP and AGC with senior executives of NGP; (g) reviewed the
historical prices and trading activity for GEI's common stock and that of NGP,
respectively; (h) reviewed the financial terms, to the extent publicly
available, of selected actual business combinations William Blair believed to
be relevant; and (i) performed such other analyses as William Blair deemed
appropriate.
In connection with its opinion, William Blair assumed the accuracy and
completeness of all such information and did not attempt to verify
independently any of such information. In addition, William Blair did not make
or obtain an independent valuation or appraisal of any of the assets or
liabilities of GEI or NGP. With respect to financial forecasts, William Blair
assumed that they had been reasonably prepared on bases reflecting the best
currently available estimates and judgments of GEI's and NGP's management, as
the case may be, as to the future financial performance of GEI, NGP and AGC.
William Blair assumed no responsibility for, and expressed no view as to, such
forecasts or the assumptions on which they were based. William Blair's opinion
was necessarily based solely upon information available to William Blair and
business, market, economic and other conditions as they existed on, and could
be evaluated as of, February 2, 1996.
In rendering its opinion, William Blair assumed that the Merger would be
consummated on the terms described in the Acquisition Agreement, without any
waiver of any material terms or conditions by GEI and that obtaining the
necessary regulatory approvals for the Merger would not have an adverse effect
on GEI or NGP.
In connection with its fairness opinion, William Blair performed a variety
of financial and comparative analyses, the material portions of which are
summarized below. The preparation of a fairness opinion is a complex analytic
process involving various determinations as to the most appropriate and
relevant methods of financial analysis and the application of those methods to
the particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. While each of the analyses summarized
below is consistent with the opinion of William Blair, William Blair did not,
in arriving at its fairness opinion, consider any analysis in isolation or
attribute any particular weight to any analysis or factor considered by it,
but rather made qualitative judgments as to the significance and relevance of
each analysis and factor. Accordingly, William Blair believes that its
analysis must be considered as a whole and that selecting portions of its
analyses and factors, without considering all analyses and factors, could
create a misleading or incomplete view of the processes underlying such
analyses and its opinion.
Set forth below is a summary of the material portions of the analyses used
by William Blair in connection with rendering its opinion as to the fairness,
from a financial point of view, of the consideration to be received by the
stockholders of GEI in the Merger pursuant to the Acquisition Agreement. For
purposes of its opinion, William Blair arrived at a reference range of values
for GEI on a per share basis using four principal valuation methodologies: a
publicly traded comparable company analysis, a comparable transaction
analysis, a discounted cash flow analysis, and an analysis of the theoretical
implied future share prices of GEI based on earnings multiples. Certain
valuation methodologies utilized two sets of projections, which were prepared
by GEI. One set of projections assumes that GEI will have access to financing
to enable growth through acquisitions of golf courses during the projected
years (the "Growth Scenario"). The analysis performed under the Growth
Scenario for the 5-year period from fiscal 1996 through fiscal 2000 utilized
growth rates which were provided by management, were based upon internally-
generated revenue and acquired revenue, fluctuated from year-to-year and
varied from a low of 16.1% to a high of 27.2%. Alternatively, GEI prepared
projections assuming an inability to obtain additional financing for
acquisitions of golf courses (the "No-Growth Scenario"). As of the date of
William Blair's opinion, GEI was limited by the terms of its lending
agreements in the amount of additional debt that GEI could incur without
obtaining its lenders' consent.
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Publicly Traded Comparable Company Analysis. William Blair reviewed and
compared certain financial and market information for GEI with the
corresponding data and statistics of eight high-growth consolidators (the
"High-Growth Consolidators") and six low-growth companies (the "Low-Growth
Companies") (together, the "Comparable Group"). While no company is identical
to GEI, the High-Growth Consolidators were selected based on their stated
objective of achieving growth through acquisition of similar businesses (i.e.,
consolidation within an industry). The Low-Growth Companies were selected
based on their respective long-term growth rates and were intended to
demonstrate the impact on valuation of generally lower expectations for growth
in earnings.
William Blair examined certain publicly available financial data for
historical periods, as well as publicly available financial data estimates,
for the companies in the Comparable Group and data that could be derived
therefrom, including price/earnings ratios, ratios of market price/book value
per share, total value/sales, total value/operating income, total
value/earnings before interest, taxes, depreciation and amortization
("EBITDA"), estimated earnings per share growth rates and the relationship
between price/earnings ratios and estimated earnings per share growth rates.
Total value was defined as the sum of market capitalization and debt, less
cash and cash equivalents. William Blair also considered certain operating
information for the companies in the Comparable Group. The foregoing analyses
allowed William Blair to compare multiples and other statistics for the
companies in the Comparable Group with those of GEI. These statistics included
a median price/latest twelve months earnings, price/calendar 1995 estimated
earnings, and price/calendar 1996 estimated earnings of 26.4x, 25.3x and
20.8x, respectively, for the High-Growth Consolidators and 9.5x, 10.7x and
9.1x, respectively, for the Low-Growth Companies. After application of an
effective tax rate of 40%, GEI's estimated earnings per share for the years
ended December 31, 1995 and 1996 were $0.28 and $0.50, respectively. The
comparable statistics for GEI, based on $12.00 per share, were 42.9x, 42.9x
and 24.0x, respectively. The High-Growth Consolidators included the following
companies: Airgas Inc., Cintas Corp., Insurance Auto Auctions, Inc., Loewen
Group, Inc., Omnicare Inc., Rural/Metro Corp., Service Corp. International and
Unitog Company. The Low-Growth Companies included the following companies:
Cascade Corp., Dover Corp., Excel Industries, Inc., Standard Motor Products,
Inc., Union Carbide Corp. and Vigoro Corp.
Comparable Transaction Analysis. William Blair reviewed 73 mergers and
acquisitions involving companies and businesses in service industries
(excluding transactions which involved technology companies) during the period
from January 15, 1993 to December 11, 1995 (the "Comparable Transactions").
William Blair determined, to the extent practicable for each Comparable
Transaction, the relationships between total value (defined as the sum of
market capitalization and debt less cash and cash equivalents) and latest
twelve months operating income ("LTM Operating Income"), total value and
latest twelve months operating cash flow ("LTM Cash Flow"), equity value and
latest twelve months net income ("LTM Net Income"), price paid in transaction
and trading price four weeks prior to transaction announcement, and certain
other relationships. The foregoing analysis allowed William Blair to compare
statistics for the Comparable Transactions with those of GEI assuming a
transaction value of $12.00 per share. The median statistics for the
Comparable Transactions for the ratios of total value/LTM Operating Income,
total value/LTM Cash Flow, and equity value/LTM Net Income were 11.3x, 7.9x
and 19.4x, respectively. The comparable statistics for GEI, based on an
assumed transaction value of $12.00 per share, were 17.0x, 9.3x and 43.7x,
respectively. The premium for the price paid in the Comparable Transactions
relative to trading price prior to announcement was 26.3%. The comparable
statistic for GEI, based on an assumed transaction value of $12.00 per share
and the closing price of GEI Common Stock on January 10, 1996 of $8.75 per
share, was 37.1%.
Discounted Cash Flow Analysis. Using an unleveraged discounted cash flow
analysis, William Blair estimated the present value of the future cash flows
that GEI could be expected to produce over a five-year period from fiscal 1996
through fiscal 2000 under various assumptions based on GEI's projections
assuming (i) the Growth Scenario and (ii) the No-Growth Scenario. William
Blair determined a range of total values for GEI by adding (a) the present
value (using discount rates ranging from 12.5% to 14.5%) of the five-year
unleveraged free cash flows of GEI and (b) the present value of GEI's
projected terminal value at December 31, 2000, and subtracting (c) the net
debt. A range of terminal values was determined by multiplying fiscal 2000
projected EBITDA by a range of multiples (8.5, 9.0 and 9.5 under the Growth
Scenario and 7.5, 8.0 and 8.5 under the
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No-Growth Scenario). This analysis resulted in a range of values per share of
(i) $9.09 to $14.41 under the Growth Scenario and (ii) $6.60 to $10.16 under
the No-Growth Scenario.
Analysis of Theoretical Implied Share Prices Based on Earnings
Multiples. William Blair analyzed the theoretical implied prices per share
suggested by the projected earnings contained in (i) the Growth Scenario, (ii)
a shortfall scenario which discounts the Growth Scenario by 20% (the
"Shortfall Scenario") and (iii) the No-Growth Scenario, applying current
earnings per share multiples for GEI (assuming the closing price on January
10, 1996 of $8.75), the Low-Growth Companies and the High-Growth
Consolidators, and discounting the results by 13.5%. Based on earnings
estimates for fiscal 1997 and 1998, this analysis resulted in present values
of theoretical share prices of between $8.03 and $10.86 for the Growth
Scenario, $6.42 and $8.69 for the Shortfall Scenario and $4.08 and $7.46 for
the No-Growth Scenario.
In arriving at its written opinion dated February 2, 1996, and in discussing
that opinion with the GEI Board of Directors, William Blair performed various
financial analyses, portions of which are summarized above. The summary set
forth above does not purport to be a complete description of the analyses of
William Blair. William Blair believes that its analyses must be considered as
a whole and that selecting portions of its analyses could create an incomplete
view of the process underlying its opinion. In addition, William Blair may
have given various analyses more or less weight than other analyses, and may
have deemed various assumptions more or less probable than other assumptions,
so that the ranges of valuations resulting from any particular analysis
described above should not be taken to be William Blair's view of the actual
value of GEI or the consideration to be received by stockholders, as the case
may be. In performing its analyses, William Blair made numerous assumptions
with respect to industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control
of GEI and all of which are beyond the control of William Blair. The results
of the analyses performed by William Blair are not necessarily indicative of
actual values, which may be significantly more or less favorable than
suggested by such analyses. Additionally, analyses relating to the values of
businesses or consideration to be paid do not purport to be appraisals or to
reflect actual market valuations or trading ranges, which may vary
significantly from amounts set forth above.
Pursuant to the terms of the engagement by GEI as its financial advisor in
connection with the Merger, GEI agreed to pay William Blair a retainer fee of
$35,000, an opinion fee of $215,000 and, upon consummation of the Merger, a
transaction fee of 0.5% of the total consideration paid for GEI, less the
aggregate of the retainer fee and the opinion fee. The total fees to be paid
to William Blair are expected to aggregate approximately $700,000. William
Blair will be reimbursed for out-of-pocket expenses in connection with the
engagement. GEI has also agreed to indemnify and hold harmless William Blair
and certain related parties from and against certain liabilities, including
liabilities under the federal securities laws, in connection with its
engagement.
William Blair has from time to time provided various financial advisory and
investment banking services to GEI for which it has received customary
compensation. William Blair was manager of GEI's initial public offering
during 1994. William Blair is a market maker for GEI Common Stock and provides
investment research on GEI. William Blair is a nationally recognized firm and,
as part of its investment banking business, is regularly engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, underwritings, private offerings of securities and valuations
for corporate reorganizations and other purposes. The GEI Board of Directors
selected William Blair to act as financial advisor on the basis of William
Blair's experience and expertise in transactions similar to the Asset Purchase
and the Merger and its prior relationship with GEI.
DESCRIPTION OF ACQUISITION AGREEMENT
The Asset Purchase. Pursuant to the Acquisition Agreement, as amended, GEI
will sell to NGP the Purchased Assets. At the election of NGP, the Operating
Partnership or AGC may be substituted for NGP with respect to the purchase of
any or all of the Purchased Assets. Because the Operating Partnership is able
to access financing more readily than NGP due to its ownership of assets and,
in particular, can borrow against the Operating Partnership's existing
revolving credit facility, NGP currently anticipates that it will substitute
the
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Operating Partnership with respect to the purchase of a portion of the
Purchased Assets equal to the cash portion of the Asset Purchase Consideration
(as described below). Likewise, if NGP elects its option to pay all cash
consideration for the Asset Purchase, NGP expects that it would substitute the
Operating Partnership with respect to the purchase of all of the Purchased
Assets. Any election by NGP to substitute the Operating Partnership for NGP
should have no effect on GEI stockholders or NGP stockholders in that, in any
event, NGP intends to contribute whatever Purchased Assets it purchases to the
Operating Partnership in exchange for additional OP Units. NGP does not intend
to exercise its option under the Acquisition Agreement to substitute AGC for
NGP in the purchase of any of the Purchased Assets.
As consideration for the sale of the Purchased Assets, on the closing date
of the Asset Purchase (the "Closing Date"), NGP shall, at its option by notice
to GEI prior to the Closing Date, either: (i) issue and deliver to GEI (a) the
number of fully paid and non-assessable shares of NGP Common Stock the
aggregate value of which equals $40,786,649 based on a per share price equal
to the Average NGP Common Stock Price (as defined below), provided that the
aggregate number of shares of NGP Common Stock issuable pursuant to this
provision shall not exceed 2,128,000 and shall not be less than 1,418,666; and
(b) $17,213,351 in cash; provided that in the event that any unexpired and
unexercised outstanding options (whether or not then exercisable) to purchase
shares of GEI Common Stock ("GEI Options") are exercised after the date of the
Acquisition Agreement but prior to the Effective Time, then the aggregate
value of NGP Common Stock to be issued shall be increased (subject to the
proviso above), and the aggregate amount of cash to be paid shall be reduced,
by an amount equal to (x) the number of shares of GEI Common Stock issued upon
such exercise, multiplied by (y) the difference between (1) $6.00 and (2) 50%
of the Option Settlement Amount (as defined below) that would have been paid
had such GEI Options not been exercised; or (ii) pay to GEI $58.0 million in
cash (in either case, the "Asset Purchase Consideration").
The "Average NGP Common Stock Price" shall mean the average closing price
per share of NGP Common Stock on the NYSE as reported on the NYSE Composite
Tape for each of the ten consecutive NYSE trading days immediately preceding
the second trading day prior to the Closing Date. NGP shall be entitled to
deduct and withhold from the consideration otherwise payable pursuant to the
Acquisition Agreement to GEI such amounts as NGP is required to deduct and
withhold with respect to the making of such payment under the Code or any
provision of state, local or foreign tax law. To the extent that amounts are
so withheld by NGP, such withheld amounts shall be treated for all purposes of
the Acquisition Agreement as having been paid to GEI. All shares of NGP Common
Stock issued by NGP as Asset Purchase Consideration shall be validly issued,
fully paid and non-assessable.
Management of NGP currently expects that it will pay, and GEI stockholders
will receive in the Merger as consideration for their shares of GEI Common
Stock, the combination of cash and NGP Common Stock. However, NGP may decide
to exercise its option to pay all cash for the Purchased Assets depending on
the trading price of NGP Common Stock prior to consummation of the Merger and
NGP's ability to raise sufficient financing to pay all cash for the Purchased
Assets. NGP will issue a press release no later than July 11, 1996 indicating
whether NGP will pay the combination of cash and stock or all cash in the
Asset Purchase. GEI stockholders also will be able to call (800) 995-3499 on
or after such date to determine the form of consideration that NGP has elected
to pay.
The Merger. Pursuant to the Acquisition Agreement, Newco will be merged with
and into GEI, with GEI as the Surviving Corporation.
At the Effective Time, each share of GEI Common Stock issued and outstanding
immediately prior to the Effective Time (other than those shares for which the
holders have exercised dissenters' rights under KGCC 17-6712 ("Dissenting
Shares") and other than as set forth below) shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into the
right to receive, without interest, the "Merger Consideration," consisting of
(1) $6.00 in cash (the "Cash Consideration") and (2) a number of shares of NGP
Common Stock equal to the quotient of (A) the aggregate number of shares of
NGP Common Stock issued by NGP to GEI as Asset Purchase Consideration minus
the aggregate number of shares of NGP Common Stock
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issued in the Option Settlement Amount (as defined below), divided by (B) the
aggregate number of shares of GEI Common Stock outstanding immediately prior
to the Effective Time (the "Stock Consideration"). If NGP elects to pay the
Asset Purchase Consideration all in cash in lieu of issuing stock and cash,
then instead of the Stock Consideration, the Merger Consideration shall
consist solely of Cash Consideration in an aggregate amount per share
(including the $6.00 in Cash Consideration referred to above) equal to $12.00
in cash. All shares of GEI Common Stock issued and outstanding immediately
prior to the Effective Time (other than Dissenting Shares) shall, by virtue of
the Merger and without any action on the part of the holders thereof, cease to
be outstanding, be cancelled and retired and cease to exist, and each holder
of a certificate representing any such shares shall thereafter cease to have
any rights with respect to such shares, except a right to receive the Merger
Consideration for such shares upon the surrender of such certificate.
At the Effective Time, each share of GEI Common Stock issued and owned by
GEI as treasury stock, owned by any direct or indirect Subsidiary of GEI or
owned by Newco immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the holder thereof, cease to be
outstanding, be cancelled and retired without payment of any consideration
therefor and cease to exist.
At the Effective Time, each share of Common Stock, par value $.01 per share,
of Newco ("Newco Common Stock") issued and outstanding immediately prior to
the Effective Time shall, by virtue of the Merger and without any action on
the part of Newco or the stockholders thereof, be converted into one share of
Common Stock, par value $.01 per share, of the Surviving Corporation.
Treatment of GEI Options. Pursuant to the Acquisition Agreement, GEI shall
take all such actions as are necessary to cancel, immediately prior to the
Effective Time, all GEI Options heretofore granted by GEI or its subsidiaries
under any agreement, plan, program or arrangement of GEI or its subsidiaries.
GEI shall use its best efforts to obtain a written agreement from the holders
of all outstanding GEI Options not to exercise such GEI Options from date of
the Acquisition Agreement through and including the Effective Time, except as
specified in the Acquisition Agreement. Except as to the extent that Newco and
a holder of a GEI Option may otherwise agree prior to the Effective Time, each
holder of a GEI Option shall be entitled to receive from GEI in cancellation
thereof a payment (subject to applicable income tax withholding and employer
taxes) in an amount equal to the excess, if any, of the per share value of the
Merger Consideration (up to $12.00 per share) (valuing Stock Consideration at
the Average NGP Common Stock Price) over the per share exercise price of such
GEI Option, multiplied by the number of shares of GEI Common Stock subject to
such GEI Option (the "Option Settlement Amount"). The Option Settlement Amount
shall be paid 50% in cash and 50% in NGP Common Stock (valuing NGP Common
Stock at the Average NGP Common Stock Price), or 100% in cash in the event
that NGP elects to pay the Asset Purchase Consideration all in cash in lieu of
issuing stock and cash. Such payment shall be made immediately prior to the
Effective Time. Any GEI Option which as of the Effective Time has not been so
cancelled and settled shall be converted into the right to receive the Option
Settlement Amount. As a result of the Merger, the holders of unexpired and
unexercised options to acquire a total of 1,065,783 shares of GEI Common Stock
will become entitled to receive an aggregate of $2,547,514 (subject to certain
adjustments and limitations) payable in cash and shares of NGP Common Stock in
the same proportion as holders of GEI Common Stock receive in the Merger. For
a detailed summary of the number and average exercise price of options held by
directors and officers of GEI entitled to receive such consideration, see
"Risk Factors--Conflicts of Interest--GEI Conflicts." Except to the extent
determined otherwise by Newco, all agreements, plans, programs or arrangements
of GEI and its subsidiaries which provide for the issuance or grant of GEI
Options or any other interest in respect of the capital stock of GEI or any of
its subsidiaries shall terminate as of the Effective Time.
Exchange of GEI Certificates. Prior to the Effective Time, Newco shall
appoint an agent (reasonably acceptable to GEI) to act as exchange agent for
the purpose of paying the Merger Consideration (the "Exchange Agent").
Promptly after the Effective Time, the Surviving Corporation shall cause to be
mailed to each person who was, immediately prior to the Effective Time, a
holder of record of issued and outstanding shares of GEI Common Stock, a form
of letter of transmittal and instructions for use in effecting the surrender
of the certificates which, immediately prior to the Effective Time,
represented any of such shares in exchange for payment of the
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Merger Consideration. The Exchange Agent's transmittal letter shall specify
that delivery shall be effected and risk of loss and title to the certificates
shall pass only upon proper delivery of the certificates to the Exchange
Agent. Upon surrender to the Exchange Agent of such certificates, together
with such letter of transmittal, duly executed and completed in accordance
with the instructions thereto, and subject to provisions discussed below
regarding fractional shares, the Surviving Corporation shall promptly cause to
be paid to each person entitled thereto the Merger Consideration to which such
person is entitled. If the shares of NGP Common Stock constituting Stock
Consideration are to be transferred to a person other than the registered
holder of the certificate surrendered, it shall be a condition of such
transfer that the certificate so surrendered shall be properly endorsed or
otherwise in proper form for transfer and that the person requesting such
issuance shall pay any transfer or other taxes required by reason of the
issuance to a person other than the registered holder of the certificate
surrendered or established to the satisfaction of the Surviving Corporation or
the Exchange Agent that such taxes have been paid or are not applicable. Until
surrendered in accordance with the provisions of the Acquisition Agreement,
each certificate (other than certificates representing Dissenting Shares)
shall represent for all purposes only the right to receive the Merger
Consideration, without any interest thereon.
No person holding a certificate which, prior to the Effective Time,
represented shares of GEI Common Stock will be entitled after the Effective
Time to receive any dividend or distribution that may be declared or paid in
respect of, or to vote, any shares of NGP Common Stock constituting Stock
Consideration receivable by such person upon conversion of such shares of GEI
Common Stock in the Merger, until such certificate is surrendered in exchange
for the Merger Consideration as provided herein, at which time any dividends
declared and paid after the Effective Time with respect to such shares of NGP
Common Stock shall be paid without interest to such person as though he had
been a record holder of such shares at the time of such declaration.
No fractional shares of NGP Common Stock will be transferred, and any
stockholder entitled hereunder to receive a fractional share but for this
provision will be entitled hereunder to receive in lieu of such fractional
share a cash payment representing such stockholder's proportionate interest in
the net proceeds from the sale by the Exchange Agent on behalf of all such
stockholders of the aggregate fractional shares of NGP Common Stock that such
stockholders would be entitled to receive but for this provision. Such sale
shall be made by the Exchange Agent within ten business days after the
Effective Time.
The Surviving Corporation or the Exchange Agent shall be entitled to deduct
and withhold from the consideration otherwise payable pursuant to the
Acquisition Agreement to any holder of shares of GEI Common Stock such amounts
as the Surviving Corporation or the Exchange Agent is required to deduct and
withhold with respect to the making of such payment under the Code, or any
provision of state, local or foreign tax law. To the extent that amounts are
so withheld by the Surviving Corporation or the Exchange Agent, such withheld
amounts shall be treated for all purposes of the Acquisition Agreement as
having been paid to the holder of shares of GEI Common Stock in respect of
which deduction and withholding was made by the Surviving Corporation or the
Exchange Agent.
Promptly following the first anniversary of the Effective Time, the Exchange
Agent shall deliver to the Surviving Corporation all cash, certificates and
other documents in its possession relating to the transactions described in
the Acquisition Agreement, and the Exchange Agent's duties shall terminate.
Thereafter, each holder of a certificate formerly representing a share of GEI
Common Stock may surrender such certificate to the Surviving Corporation and
(subject to applicable abandoned property, escheat and similar laws) receive
in consideration therefor the aggregate Merger Consideration relating thereto,
without any interest or dividends thereon. Neither Newco nor the Surviving
Corporation shall be liable to any holder of shares of GEI Common Stock for
any cash constituting the Merger Consideration delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
STOCKHOLDERS OF GEI SHOULD NOT SEND GEI COMMON STOCK CERTIFICATES WITH THEIR
PROXIES. GEI COMMON STOCK CERTIFICATES WILL BE EXCHANGED FOR CASH AND/OR NGP
COMMON STOCK CERTIFICATES FOLLOWING THE CONSUMMATION OF THE MERGER IN
ACCORDANCE WITH INSTRUCTIONS WHICH THE SURVIVING CORPORATION WILL SEND TO
HOLDERS OF GEI COMMON STOCK AFTER THE MERGER.
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Effective Time. The Asset Purchase will close and the Merger will become
effective on the second business day after which the last to be fulfilled or
waived of the conditions set forth in Article VIII of the Acquisition
Agreement shall be fulfilled or waived in accordance with the Acquisition
Agreement (the date on which the Merger is effective in accordance with
applicable laws, the "Effective Time") or (ii) at such other place or time or
on such other date as GEI, NGP and Newco may agree.
Conduct of Business Prior to Effective Time. Except as contemplated by the
Acquisition Agreement, or with the prior written consent of NGP and Newco,
during the period from the date of the Acquisition Agreement to the Effective
Time, GEI will, and will cause each of its subsidiaries to, conduct its
operations only in the ordinary and usual course of business consistent with
past practice and will use its best efforts, and will cause each of its
subsidiaries to use its best efforts, to preserve intact the business
organization of GEI and each of its subsidiaries, to keep available the
services of their present officers and key employees, and to preserve the
goodwill of those having business relationships with it. Without limiting the
generality of the foregoing and except as otherwise contemplated by the
Acquisition Agreement, GEI will not, and will not permit any of its
subsidiaries to, prior to the Effective Time, without the prior written
consent of NGP and Newco: (i) adopt any amendment to its Articles of
Incorporation or Bylaws or comparable organizational documents (other than as
may be required to extend the date of the annual meeting of stockholders);
(ii) (A) issue, pledge or sell, or authorize the issuance, pledge or sale of
additional shares of capital stock of any class, or securities convertible
into capital stock of any class, or any rights, warrants or options to acquire
any convertible securities or capital stock, or any other securities in
respect of, in lieu of, or in substitution for, shares of GEI Common Stock
outstanding on the date of the Acquisition Agreement or (B) amend, waive or
otherwise modify any of the terms of any option, warrant or stock option plan
of GEI or any of its subsidiaries, including without limitation, the GEI
Options and Stock Option Plans; (iii) declare, set aside or pay any dividend
or other distribution (whether in cash, securities or property or any
combination thereof) in respect of any class or series of its capital stock
other than between any wholly-owned subsidiary of GEI and GEI or any other
wholly-owned subsidiary of GEI; (iv) split, combine, subdivide, reclassify or
redeem, purchase or otherwise acquire, or propose to redeem or purchase or
otherwise acquire, any shares of its capital stock, or any of its other
securities; (v) increase the compensation or fringe benefits payable or to
become payable to its directors, officers or employees (whether from GEI or
any of its subsidiaries), or pay any benefit not required by any existing plan
or arrangement (including, without limitation, the granting of stock options,
stock appreciation rights, shares of restricted stock or performance units) or
grant any severance or termination pay to (except pursuant to existing
agreements or policies), or enter into any employment or severance agreement
with, any director, officer or employee of GEI or any of its subsidiaries or
establish, adopt, enter into, or amend any collective bargaining, bonus,
profit sharing, thrift, compensation, stock option, restricted stock, pension,
retirement, savings, welfare, deferred compensation, employment, termination,
severance or other employee benefit plan, agreement, trust, fund, policy or
arrangement for the benefit or welfare of any directors, officers or current
or former employees, except in each case (A) to the extent required by
applicable law or regulation, or (B) pursuant to collective bargaining
agreements as in effect on the date of the Acquisition Agreement; (vi) (A)
sell, pledge, lease, dispose of, grant, encumber, or otherwise authorize the
sale, pledge, disposition, grant or encumbrance of (1) any of the golf
properties comprising the Purchased Assets, (2) any of GEI's other golf
properties or improvements thereon, or (3) any other assets of GEI or any of
the subsidiaries, except, in the case of clause (3), for sales which,
individually do not exceed $100,000 or which, in the aggregate, do not exceed
$250,000 or (B) acquire (including, without limitation, by merger,
consolidation, lease or acquisition of stock or assets) any corporation,
partnership, other business organization or any division thereof (or a
substantial portion of the assets thereof) or any other assets, except for
such acquisitions which, individually, do not exceed $100,000 or which, in the
aggregate, do not exceed $250,000; (vii) (A) incur, assume or pre-pay any
long-term debt or incur or assume any short-term debt, except that GEI and its
subsidiaries may incur or pre-pay debt in the ordinary course of business
consistent with past practice under existing lines of credit, (B) assume,
guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for the obligations of any other person
except in the ordinary course of business consistent with past practice, or
(C) make any loans, advances or capital contributions to, or investments in,
any other person except in the ordinary course of business consistent with
past practice and except for loans, advances, capital contributions or
investments between any wholly-owned
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subsidiary of GEI and GEI or another wholly-owned subsidiary of GEI; (viii)
authorize, recommend, propose or announce an intention to adopt a plan of
complete or partial liquidation or dissolution of GEI or any of its
subsidiaries; (ix) make any tax elections or settle or compromise any federal
or state income tax liability with tax authorities; (x) pay, discharge or
satisfy any material claims, liabilities or obligations (absolute, accrued,
asserted, unasserted, contingent or otherwise), other than the payment,
discharge or satisfaction in the ordinary course of business and consistent
with past practice of liabilities reflected or reserved against in the
consolidated financial statements of GEI; (xi) other than in the ordinary
course of business and consistent with past practice, waive any rights of
substantial value or make any payment, direct or indirect, of any material
liability of GEI or of any of the subsidiaries before the same comes due in
accordance with its terms; (xii) fail to maintain its existing insurance
coverage of all types in effect or, in the event any such coverage shall be
terminated or lapse, to the extent available at reasonable cost, procure
substantially similar substitute insurance policies which in all material
respects are in at least such amounts and against such risks as are currently
covered by such policies; (xiii) enter into any collective bargaining
agreement or any successor collective bargaining agreement; (xiv) take any
action, other than reasonable and usual actions in the ordinary course of
business and consistent with past practice, with respect to accounting
policies or procedures, unless required by GAAP or the SEC; (xv) modify, amend
or terminate any of GEI's agreements which has a term in excess of one year or
involves the payment or receipt of money in excess of $100,000 or waive,
release or assign any material rights or claims, except in the ordinary course
of business consistent with past practice; (xvi) take, or agree to commit to
take, any action that would make any representation or warranty of GEI
contained in the Acquisition Agreement inaccurate in any respect at, or as of
any time prior to, the Effective Time; (xvii) engage in any transaction with,
or enter into any agreement, arrangement, or understanding with, directly or
indirectly, any of GEI's affiliates which involves the transfer of
consideration or has a financial impact on GEI, other than pursuant to such
agreements, arrangements, or understandings existing on the date of the
Acquisition Agreement; (xviii) close, shut down, or otherwise eliminate any of
GEI's golf courses located on any of the properties owned or leased by GEI,
except for such closures, shutdowns or eliminations which are (A) required by
action, order, writ, injunction, judgment or decree or otherwise required by
law, or (B) due to acts of God or other force majeure events; or (xix) enter
into an agreement, contract, commitment or arrangement to do any of the
foregoing, or to authorize, recommend, propose or announce an intention to do
any of the foregoing.
Except as otherwise contemplated by the Acquisition Agreement, NGP will not,
and will not permit any of its subsidiaries to, prior to the Effective Time,
without the prior written consent of GEI and Newco: (i) adopt any amendment to
its Articles of Incorporation; (ii) issue any shares of its capital stock at
less than fair market value (other than pursuant to NGP's 1993 Stock Option
and Incentive Plan) or directly or indirectly effect any stock split,
combination or reclassification of its capital stock; (iii) declare, set aside
or pay any dividend or other distribution (whether in cash, securities or
property or any combination thereof) in respect of any class or series of its
capital stock other than (A) between any wholly-owned subsidiary of NGP and
NGP or any other wholly-owned subsidiary of NGP, (B) regular quarterly cash
dividends on NGP Common Stock substantially in accordance with past practice,
or (C) distributions by the Operating Partnership in accordance with its
partnership agreement; or (iv) take any action or make any change, other than
reasonable and usual actions in the ordinary course of business and consistent
with past practice, with respect to accounting policies and procedures, unless
required by GAAP or the SEC; or (v) enter into an agreement, contract,
commitment or arrangement to do any of the foregoing, or to authorize,
recommend, propose or announce any intention to do any of the foregoing.
No Solicitation of Alternative Transactions. Pursuant to the Acquisition
Agreement, GEI (and its subsidiaries and affiliates over which it exercises
control) will not, and GEI (and its subsidiaries and affiliates over which it
exercises control) will use their best efforts to ensure that their respective
officers, directors, employees, investment bankers, attorneys, accountants and
other agents do not, directly or indirectly: (i) initiate, solicit or
encourage, or take any action to facilitate the making of, any offer or
proposal which constitutes or is reasonably likely to lead to any Acquisition
Proposal (as defined below) of GEI or any subsidiary or an inquiry with
respect thereto, or (ii) in the event of an unsolicited Acquisition Proposal
for GEI or any subsidiary or affiliate of GEI, engage in negotiations or
discussions with, or provide any information or data to, any corporation,
partnership, person or other entity or group (other than Newco, NGP or any of
their respective
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affiliates or representatives) (each, a "Person") relating to any Acquisition
Proposal, except in the case of clause (ii) above to the extent that (x) the
Acquisition Proposal is a bona fide written proposal submitted to the GEI
Board of Directors and (y) the GEI Board of Directors determines, after having
received the oral or written opinion of outside legal counsel to GEI, that the
failure to engage in such negotiations or discussions or provide such
information would result in a breach of the GEI Board of Directors' fiduciary
duties under applicable law. Any information so furnished shall be provided
pursuant to a confidentiality agreement in customary form on terms not more
favorable to such Person than the terms contained in the Confidentiality
Agreement between the parties to the Acquisition Agreement existing on the
date of the Acquisition Agreement. GEI shall notify NGP and Newco orally and
in writing of any such offers, proposals, inquiries or Acquisition Proposals
(including, without limitation, the material terms and conditions thereof and
the identity of the Person making it), within 24 hours of the receipt thereof,
and shall thereafter inform NGP and Newco on a reasonable basis of the status
and content of any discussions or negotiations with such a third party,
including any material changes to the terms and conditions thereof. GEI shall
give NGP and Newco two business days' advance notice of any agreement to be
entered into or any information to be supplied to any such Person. GEI shall,
and shall cause its subsidiaries and affiliates over which it exercises
control, and will use its best efforts to ensure their respective officers,
directors, employees, investment bankers, attorneys, accountants and other
agents to, immediately cease and cause to be terminated all discussions and
negotiations that have taken place prior to the date of the Acquisition
Agreement, if any, with any parties conducted prior to the date of the
Acquisition Agreement with respect to any Acquisition Proposal relating to
GEI. Nothing contained in this provision shall prohibit GEI or its Board of
Directors from taking and disclosing to its stockholders a position with
respect to a tender offer by a third party pursuant to Rules 14d-9 and 14e-
2(a) promulgated under the Exchange Act or making such disclosure as may be
required by applicable law.
As used in the Acquisition Agreement, "Acquisition Proposal" when used in
connection with any Person shall mean any tender or exchange offer involving
the capital stock of such Person, any proposal for a merger, consolidation or
other business combination involving such Person or any subsidiary of such
Person, any proposal or offer to acquire in any manner a substantial equity
interest in, or a substantial portion of the business or assets of, such
Person or any subsidiary of such Person, any proposal or offer with respect to
any recapitalization or restructuring with respect to such Person or any
subsidiary of such Person or any proposal or offer with respect to any other
transaction similar to any of the foregoing with respect to such Person or any
subsidiary of such Person other than pursuant to the transactions to be
effected pursuant to the Acquisition Agreement.
Representations and Warranties. The Acquisition Agreement contains customary
representations and warranties of GEI, NGP, and Newco relating to, among other
things: (i) due organization and good standing; (ii) corporate authority to
enter into the Acquisition Agreement and related agreements; (iii) authorized
capital stock; (iv) ownership (or lack of ownership) of subsidiaries; (v) the
compliance of the Acquisition Agreement with charters, bylaws, and the law;
(vi) the absence of certain material defaults or violations; (vii) the filing
of certain documents with the SEC; (viii) the accuracy of financial
statements; (ix) the absence of certain litigation; (x) the absence of
material changes or events; (xi) tax matters; (xii) the absence of material
liabilities related to employee benefit plans; (xiii) the absence of material
labor disputes; and (xiv) fairness opinions; provided, however, that Newco
only made such customary representations and warranties as were noted in (i),
(ii), (iv), and (v) above.
Conditions to the Asset Purchase and Merger. The respective obligations of
GEI, NGP and Newco to consummate the Asset Purchase and the Merger are subject
to the satisfaction (or, if permissible, waiver by the party for whose benefit
such conditions exist) of the following conditions: (i) the Acquisition
Agreement and the transactions contemplated thereby shall have been approved
in the manner required by applicable law or by the applicable regulations of
any stock exchange or other regulatory body, as the case may be, of the
holders of the issued and outstanding shares of capital stock of NGP and GEI,
respectively; (ii) no governmental entity or federal or state court of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, executive order, decree, injunction or
order (whether temporary, preliminary or
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permanent) which is in effect and which materially restricts, prevents or
prohibits consummation of the Asset Purchase, the Merger or any transaction
contemplated by the Acquisition Agreement, the Stockholder Agreement, or the
Termination Fee Agreement; provided, however, that the parties shall use their
reasonable best efforts to cause any such decree, judgment, injunction or
other order to be vacated or lifted; (iii) the applicable waiting period under
the HSR Act shall have expired or been terminated; (iv) other than the filing
of merger documents in accordance with the KGCC, all authorizations, consents,
waivers, orders or approvals required to be obtained, and all filings, notices
or declarations required to be made, by GEI, NGP and Newco prior to the
consummation of the Asset Purchase and the Merger and the transactions
contemplated under the Acquisition Agreement shall have been obtained from,
and made with, all required governmental entities except for such
authorizations, consents, waivers, orders, approvals, filings, notices or
declarations, the failure to obtain or make which would not have a material
adverse effect at or after the Effective Time, on GEI, NGP or Newco; (v) the
Registration Statement shall have become effective and shall be effective at
the Effective Time, and no stop order suspending effectiveness of the
Registration Statement shall have been issued, no action, suit, proceeding or
investigation by the SEC to suspend the effectiveness thereof shall have been
initiated and be continuing, or, to the knowledge of NGP, GEI or Newco,
threatened, and all necessary approvals under state securities laws relating
to the issuance or trading of NGP Common Stock to be issued to GEI's
stockholders in connection with the Merger shall have been received; and (vi)
the NGP Common Stock to be issued to GEI stockholders in connection with the
Merger shall have been approved for listing on the NYSE, subject only to
official notice of issuance.
The obligations of NGP to effect the Asset Purchase and the transactions
contemplated in the Acquisition Agreement are also subject to the following
conditions: (i) each of the representations and warranties of GEI and Newco
contained in the Acquisition Agreement, without giving effect to any
notification to NGP delivered pursuant to the Acquisition Agreement, shall be
true and correct (in the case of Newco, in all material respects) as of the
Closing Date as though made on and as of the Closing Date, except (A) for
changes specifically permitted by the Acquisition Agreement, (B) that those
representations and warranties which address matters only as of a particular
date shall remain true and correct as of such date, and (C) in the case of
GEI, for failures of representations and warranties to be true and correct
(without giving effect to any materiality qualification or standard contained
in any such representations and warranties) which, individually or in the
aggregate, would not be reasonably likely to result in a material adverse
effect on the business, assets, financial condition, results of operations, or
prospects of the Purchased Assets taken as a whole or to materially impair the
ability of GEI to consummate the Asset Purchase, the Merger, or the other
transactions contemplated by the Acquisition Agreement or perform its
obligations thereunder, and NGP shall have received certificates of the Chief
Executive Officer and Chief Financial Officer of GEI and Newco to such effect;
(ii) GEI and Newco shall have performed or complied in all material respects
with all agreements and covenants required by the Acquisition Agreement to be
performed or complied with by them on or prior to the Closing Date, and NGP
shall have received certificates of the Chief Executive Officer and Chief
Financial Officer of GEI and Newco to that effect; and (iii) since the date of
the Acquisition Agreement, there shall have been no change, occurrence or
circumstance in the business, operations, properties, assets, condition
(financial or otherwise) or the results of operations or prospects of the
Purchased Assets having or reasonably likely to have, individually or in the
aggregate, a material adverse effect on the Purchased Assets, taken as a
whole, and NGP shall have received a certificate of the Chief Executive
Officer and Chief Financial Officer of GEI to such effect.
The obligations of Newco to effect the Asset Purchase, the Merger and the
transactions contemplated in the Acquisition Agreement are also subject to the
following conditions: (i) each of the representations and warranties of GEI
and NGP contained in the Acquisition Agreement, without giving effect to any
notification to Newco delivered pursuant to the Acquisition Agreement, shall
be true and correct (in the case of NGP, in all material respects) as of the
Effective Time, except (A) for changes specifically permitted by the
Acquisition Agreement, (B) that those representations and warranties which
address matters only as of a particular date shall remain true and correct as
of such date, and (C) in the case of GEI, for failures of representations and
warranties to be true and correct (without giving effect to any materiality
qualification or standard contained in any such representations and
warranties) which, individually or in the aggregate, would not be reasonably
likely to result
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in a material adverse effect on the business, assets, financial condition,
results of operations, or prospects of GEI and its subsidiaries (other than
the Purchased Assets) taken as a whole or to materially impair the ability of
GEI to consummate the Asset Purchase, the Merger, or the other transactions
contemplated by the Acquisition Agreement or perform its obligations
thereunder, and Newco shall have received certificates of the Chief Executive
Officer and Chief Financial Officer of GEI and NGP to such effect; (ii) GEI
and NGP shall have performed or complied in all material respects with all
agreements and covenants required by the Acquisition Agreement to be performed
or complied with by them on or prior to the Effective Time, and Newco shall
have received certificates of the Chief Executive Officer and Chief Financial
Officer of GEI and NGP to that effect; and (iii) since the date of the
Acquisition Agreement, there shall have been no change, occurrence or
circumstance in the business, operations, properties, assets, condition
(financial or otherwise) or the results of operations or prospects of GEI or
any of its subsidiaries (other than the Purchased Assets) having or reasonably
likely to have, individually or in the aggregate, a material adverse effect on
GEI and its subsidiaries (other than the Purchased Assets), taken as a whole,
and Newco shall have received a certificate of the Chief Executive Officer and
Chief Financial Officer of GEI to such effect.
The obligation of GEI to effect the Asset Purchase, the Merger and the other
transactions contemplated in the Acquisition Agreement are also subject to the
following conditions: (i) each of the representations and warranties of NGP
and Newco contained in the Acquisition Agreement, without giving effect to any
notification made to GEI pursuant to the Acquisition Agreement, shall be true
and correct in all material respects as of the Effective Time, as though made
on and as of the Effective Time, except (A) for changes specifically permitted
by the Acquisition Agreement and (B) that those representations and warranties
which address matters only as of a particular date shall remain true and
correct as of such date, and GEI shall have received certificates of the Chief
Executive Officer and Chief Financial Officer of NGP and Newco to such effect;
(ii) NGP and Newco shall have performed or complied in all material respects
with all agreements and covenants required by the Acquisition Agreement to be
performed or complied with by them on or prior to the Effective Time, and GEI
shall have received certificates of the Chief Executive Officer and Chief
Financial Officer of NGP and Newco to that effect; and (iii) since the date of
the Acquisition Agreement, there shall have been no change, occurrence or
circumstance in the business, operations, properties, assets, condition
(financial or otherwise) or the results of operations or prospects of NGP or
any of its subsidiaries having or reasonably likely to have, individually or
in the aggregate, a material adverse effect on NGP and its subsidiaries, taken
as a whole, and GEI shall have received a certificate of the Chief Executive
Officer and Chief Financial Officer of NGP to such effect.
Termination of the Acquisition Agreement. Pursuant to the Acquisition
Agreement, the Acquisition Agreement may be terminated and the Asset Purchase
and the Merger contemplated therein may be abandoned at any time prior to the
Effective Time, whether before or after stockholder approval of the
Acquisition Agreement: (i) by the mutual consent of the NGP Board of
Directors, the Board of Directors of Newco and the GEI Board of Directors;
(ii) by NGP, upon a breach of any representation, warranty, covenant or
agreement on the part of GEI or Newco set forth in the Acquisition Agreement,
or if any representation or warranty of GEI or Newco shall have become untrue,
in either case such that the conditions related thereto set forth in the
Acquisition Agreement would be incapable of being satisfied by July 31, 1996
(or as otherwise extended); provided, that in any case, a wilful breach shall
be deemed to cause such conditions to be incapable of being satisfied for
purposes of this provision; (iii) by Newco, upon a breach of any
representation, warranty, covenant or agreement on the part of GEI or NGP set
forth in the Acquisition Agreement, or if any representation or warranty of
GEI or NGP shall have become untrue, in either case such that the conditions
related thereto set forth in the Acquisition Agreement would be incapable of
being satisfied by July 31, 1996 (or as otherwise extended); provided, that in
any case, a wilful breach shall be deemed to cause such conditions to be
incapable of being satisfied for purposes of this provision; (iv) by GEI, upon
a breach of any representation, warranty, covenant or agreement on the part of
NGP or Newco set forth in the Acquisition Agreement, or if any representation
or warranty of NGP or Newco shall have become untrue, in either case such that
the conditions related thereto set forth in the Acquisition Agreement would be
incapable of being satisfied by July 31, 1996 (or as otherwise extended);
provided, that in any case, a wilful breach shall be deemed to cause such
conditions to be incapable of being satisfied for purposes of this provision;
(v) by any of NGP, Newco or GEI, if any court or other governmental entity
shall have issued, enacted, entered, promulgated or enforced any order,
judgment,
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decree, injunction, or ruling or taken any other action restraining, enjoining
or otherwise prohibiting the Acquisition Agreement, the Asset Purchase or the
Merger and such order, judgment, decree, injunction, ruling or other action
shall have become final and nonappealable; (vi) by any of NGP, Newco or GEI,
if the Asset Purchase and the Merger shall not have been consummated before
July 31, 1996; (vii) by any of NGP, Newco or GEI, if the Acquisition
Agreement, the Asset Purchase and the Merger shall fail to receive the
requisite vote for approval and adoption by the stockholders of GEI at the GEI
Special Meeting and of NGP at the NGP Annual Meeting; (viii) by either NGP or
Newco, if (A) the GEI Board of Directors shall withdraw, modify or change its
recommendation of the Acquisition Agreement, the Asset Purchase or the Merger
in a manner adverse to NGP or Newco or shall have resolved to do any of the
foregoing; (B) the GEI Board of Directors shall have recommended to the
stockholders of GEI any Acquisition Proposal; or (C) a tender offer or
exchange offer for 15% or more of the outstanding shares of capital stock of
GEI is commenced, and the GEI Board of Directors recommends that the
stockholders of GEI tender their shares in such tender or exchange offer; or
(ix) by GEI, if (A) the GEI Board of Directors (1) fails to make or withdraws
or modifies (in a manner adverse to NGP or Newco) its recommendation of the
Asset Purchase and the Merger if there exists at such time an Acquisition
Proposal or (2) recommends to GEI's stockholders approval or acceptance of any
Acquisition Proposal, in each case only if the GEI Board of Directors, after
consultation with and based upon the advice of independent legal counsel,
determines in good faith that such action is necessary for the GEI Board of
Directors to comply with its fiduciary duties to stockholders under applicable
law, (B) the NGP Board of Directors shall have withdrawn, modified or changed
in a manner adverse to GEI its recommendation of the Acquisition Agreement and
the Asset Purchase, or (C) the Board of Directors or sole stockholder of Newco
shall have withdrawn, modified or changed in a manner adverse to GEI its
approval of the Acquisition Agreement and the Merger.
Termination and Commitment Fees. GEI agrees that if the Acquisition
Agreement shall be terminated (i) because the Asset Purchase and the Merger
shall not have been consummated by July 31, 1996 at any time when (a) an
Acquisition Proposal shall have been made by a third party but shall not have
been rejected by GEI and (b) GEI or any of the subsidiaries or GEI's
stockholders shall thereafter consummate or agree to consummate a transaction
which would constitute an Acquisition Proposal with any person within one year
of the date of the Acquisition Agreement, (ii) because of the failure to
obtain the requisite vote by the stockholders of GEI and there shall exist an
Acquisition Proposal, (iii) by either NGP or Newco, (a) if the GEI Board of
Directors shall withdraw, modify or change its recommendation of the
Acquisition Agreement, the Asset Purchase or the Merger in a manner adverse to
NGP or Newco or shall have resolved to do any of the foregoing, or (b) the GEI
Board of Directors shall have recommended to the stockholders of GEI any
Acquisition Proposal, or (c) a tender offer or exchange offer for 15% or more
of the outstanding share of capital stock of GEI is commenced and the GEI
Board of Directors recommends that the stockholders of GEI tender their shares
in such tender or exchange offer, (iv) by GEI, if the GEI Board of Directors
(a) fails to make or withdraws or modified (in a manner adverse to NGP or
Newco) its recommendation of the Acquisition Agreement if there exists at such
time an Acquisition Proposal or (b) recommends to GEI's stockholders approval
or acceptance of any Acquisition Proposal, in each case only if the GEI Board
of Directors, after consultation with and based upon the advice of independent
legal counsel, determines in good faith that such action is necessary for the
Board to comply with its fiduciary duties under applicable law, or (v) because
of breaches by GEI of its covenants, agreements, representations or warranties
in the Acquisition Agreement and such termination is the result of wilful
breach of any covenant, agreement, representation or warranty contained
therein and there shall exist an Acquisition Proposal, then in any such event
GEI shall pay to Newco an amount equal to $975,000 (the "Termination Fee"),
payable (x) in the case of termination under clause (i) above upon signing of
a definitive agreement relating to such Acquisition Proposal referred to in
clause (i), or, if no such agreement is executed then at the Closing (and as
condition to the Closing) of such Acquisition Proposal, and (y) within one
business day of termination of the Acquisition Agreement upon any termination
of the Acquisition Agreement under clauses (ii), (iii), (iv), or (v) above. If
GEI shall fail to pay when due any amounts which shall become due under this
provision of the Acquisition Agreement, GEI shall in addition hereto pay to
Newco all costs and expenses (including fees and disbursements of counsel)
incurred in collecting such overdue amounts, together with interest on such
overdue amounts from the date such payment was required to be made until the
date such payment is received at a rate per annum equal to the "reference
rate" as announced from time to time by Bank of America.
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Pursuant to the Acquisition Agreement, in exchange for the Operating
Partnership's commitment to purchase the Purchased Assets, GEI has agreed to
pay $1,475,000 (the "Commitment Fee") to the Operating Partnership. The
payment of the Commitment Fee is subject to the following limitations: (A) the
Commitment Fee shall only be payable if the Acquisition Agreement shall be
terminated pursuant to the circumstances described above requiring the payment
of the Termination Fee, and shall be payable at the time the Termination Fee
is payable; and (B) the amount of the fee payable by GEI shall not exceed the
REIT Limit; provided, however, GEI shall be obligated to pay any excess amount
of the fee in the following years (upon notice by the Operating Partnership)
subject to the REIT Limit for such years; provided, further, that if the full
amount of the Commitment Fee has not been paid after three years, GEI's
obligation to pay the remaining amount of such fee shall terminate. The "REIT
Limit" shall be equal to the maximum amount of Commitment Fee the Operating
Partnership can receive without causing NGP to violate the 95% or 75% income
tests under Section 856(c) of the Code, with the following limitations: (1) it
shall be assumed that the Commitment Fee is nonqualifying income under each
such test, unless NGP receives a reasoned opinion of its tax counsel or a
ruling from the Internal Revenue Service which provides to the contrary (if
such an opinion or ruling is received, the payment of the Commitment Fee shall
not be subject to the REIT Limit and shall be paid in full by GEI when due);
(2) the REIT Limit shall be determined by NGP, in consultation with its
accountants and tax counsel; and (3) in calculating NGP's nonqualifying
income, if any, under the 95% and 75% income tests, NGP will assume it has
$100,000 of nonqualifying income from unknown sources (i.e., in addition to
any known nonqualifying income of the Operating Partnership). If GEI shall
fail to pay when due any amounts which shall become due under this provision
of the Acquisition Agreement, GEI shall in addition hereto pay to the
Operating Partnership all costs and expenses (including fees and disbursements
of counsel) incurred in collecting such overdue amounts, together with
interest on such overdue amounts from the date such payment was required to be
made until the date such payment is received at a rate per annum equal to the
"reference rate" as announced from time to time by Bank of America.
Other Fees and Expenses. Except for expenses incurred in connection with
printing the Joint Proxy Statement--Prospectus and the Registration Statement
and the SEC filing fees relating thereto, which costs shall be shared equally
by NGP and Newco (on the one hand) and GEI (on the other hand), all costs and
expenses incurred in connection with the Acquisition Agreement and the
consummation of the transactions contemplated thereby shall be paid by the
party incurring such expenses.
Amendment of the Acquisition Agreement. Subject to applicable law, the
Acquisition Agreement may be amended, modified and supplemented in any and all
respects, whether before or after any vote of the stockholders of GEI and NGP
contemplated thereby, by written agreement of the parties thereto, pursuant to
action taken by their respective Boards of Directors, at any time prior to the
Closing Date with respect to any of the terms contained therein; provided,
however, that after the approval of the Acquisition Agreement by the
stockholders of GEI, no such amendment, modification or supplement shall
reduce or change the consideration to be received by GEI's stockholders in the
Merger.
Stockholder Agreement. Concurrently with the execution of the Acquisition
Agreement, NGP, Newco, Robert H. Williams, Golder, Thoma, Cressey Fund II
("GTC II") and Golder, Thoma, Cressey Fund III Limited Partnership ("GTC III,"
and, together with Mr. Williams and GTC II, the "Principal Stockholders")
entered into the Stockholder Agreement relating to 3,425,344 shares of GEI
Common Stock owned (either beneficially or of record) by the Principal
Stockholders.
Pursuant to the Stockholder Agreement, the Principal Stockholders agreed
that at any meeting (whether annual or special and whether or not an adjourned
or postponed meeting) of the holders of GEI Common Stock, however called, or
in connection with any written consent of the holders of GEI Common Stock, the
Principal Stockholders shall vote (or cause to be voted) the shares of GEI
Common Stock held of record or beneficially owned by the Principal
Stockholders (i) in favor of the Asset Purchase, the Merger, the execution and
delivery by GEI of the Acquisition Agreement and the approval and adoption of
the terms thereof and each of the other actions contemplated by the
Acquisition Agreement and the Stockholder Agreement and any actions required
in furtherance thereof; (ii) against any action or agreement that would result
in a breach in any respect of any
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covenant, representation or warranty or any other obligation or agreement of
GEI under the Acquisition Agreement or the Stockholder Agreement; and (iii)
except as otherwise agreed to in writing in advance by Newco and NGP, against
the following actions (other than the Asset Purchase, the Merger and the
transactions contemplated by the Stockholder Agreement and the Acquisition
Agreement): (A) any extraordinary corporate transaction, such as a merger,
consolidation or other business combination involving GEI or its subsidiaries;
(B) any sale, lease or transfer of a material amount of assets of GEI or its
Subsidiaries, or a reorganization, restructuring, recapitalization, special
dividend, dissolution or liquidation of GEI or its subsidiaries; or (C)(1) any
change in the present capitalization of GEI including any proposal to sell a
substantial equity interest in GEI and its subsidiaries; (2) any amendment of
GEI's Certificate of Incorporation or Bylaws; (3) any other change in GEI's
corporate structure or business; or (4) any other action which is intended, or
could reasonably be expected, to impede, interfere with, delay, postpone, or
materially adversely affect the Asset Purchase, the Merger and the
transactions contemplated by the Stockholder Agreement and the Acquisition
Agreement.
The Principal Stockholders have also agreed that they shall not, and shall
cause their affiliates (which term, for purposes of this provision, shall not
include GEI) and officers, directors, employees, partners, investment bankers,
attorneys, accountants and other agents and representatives of such Principal
Stockholder and such affiliates (such affiliates, officers, directors,
employees, partners, investment bankers, attorneys, accountants, agents and
representatives of any person are hereinafter collectively referred to as the
"Representatives" of such person) not to, directly or indirectly (i) initiate,
solicit or encourage, or take any action to facilitate the making of, any
offer or proposal which constitutes or is reasonably likely to lead to any
Acquisition Proposal of GEI or any affiliate or any inquiry with respect
thereto, or (ii) in the event of an unsolicited Acquisition Proposal for GEI
or any affiliate of GEI, engage in negotiations or discussions with, or
provide any information or data to, any person (other than NGP, Newco, any of
their affiliates or representatives) relating to any Acquisition Proposal. The
Principal Stockholders shall notify Newco orally and in writing of any such
offers, proposals, or inquiries (including, without limitation, the terms and
conditions thereof and the identity of the person making it), within 24 hours
of the receipt thereof. The Principal Stockholders shall, and shall cause its
Representatives to, immediately cease and cause to be terminated any and all
existing activities, discussions or negotiations, if any, with any parties
conducted prior to the execution of the Acquisition Agreement with respect to
any Acquisition Proposal relating to GEI, other than discussions or
negotiations with NGP, Newco and their affiliates. Notwithstanding the
restrictions set forth in this provision, any person who is an officer or
director of GEI may exercise his fiduciary duties in his capacity as a
director or officer of GEI consistent with the terms of the Acquisition
Agreement.
The Principal Stockholders shall not, directly or indirectly: (i) offer for
sale, sell, transfer, tender, pledge, encumber, assign or otherwise dispose
of, or enter into any contract, option or other arrangement or understanding
with respect to or consent to the offer for sale, sale, transfer, tender,
pledge, encumbrance, assignment or other disposition of, any or all of their
shares of GEI Common Stock or any interest therein; (ii) grant any proxies or
powers of attorney, deposit the shares into a voting trust or enter into a
voting agreement with respect to the shares; or (iii) take any action that
would make any representation or warranty of the Principal Stockholder
contained in the Stockholder Agreement untrue or incorrect or would result in
a breach by the Principal Stockholders of their obligations under the
Stockholder Agreement or a breach by GEI of its obligations under the
Acquisition Agreement.
Pursuant to the Stockholder Agreement, each of the Principal Stockholders
has represented that it does not intend to transfer all or any portion of its
shares of NGP Common Stock received as Stock Consideration in the Merger
during the 90-day period following the Effective Time, and that it does not
intend to transfer more than one-third of the Stock Consideration received in
the Merger during the period between 90 and 120 days following the Effective
Time, and that it does not intend to transfer more than two-thirds of the
Stock Consideration received in the Merger during the period between 90 and
150 days following the Effective Time. Each of the Principal Stockholders and
NGP have agreed that, while such shares of NGP Common Stock shall be freely
transferable by the Principal Stockholders (subject to the requirements of
applicable law and the limitations in NGP's Articles of Incorporation), any
transfer of such NGP Common Stock by a Principal Stockholder that is
inconsistent with such representations shall result in a downward adjustment
to the purchase price of the
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Purchased Assets. Such purchase price adjustment shall be effected as follows:
For every two shares of NGP Common Stock transferred by any Principal
Stockholder in a manner that is inconsistent with such representations, such
Principal Stockholder shall be required to return one additional share of such
stock to NGP. In the event the applicable Principal Stockholder does not have
any additional shares of NGP Common Stock, such Principal Stockholder shall
pay to NGP an amount of cash equal to the number of shares transferred in a
manner inconsistent with such representations times one-third of the Average
NGP Common Stock Price (as defined in the Acquisition Agreement).
Pursuant to the Stockholder Agreement, each of the Principal Stockholders
will execute and deliver the Affiliate Agreements.
Registration Rights Agreement. As a requirement of the Stockholder
Agreement, NGP is required to execute a Registration Rights Agreement, which
provides that the Principal Stockholders will have the right to require NGP,
beginning on the first anniversary of the date of the Registration Rights
Agreement, to register all or any portion of the NGP Common Stock issued to
them in the Merger (collectively, the "Registrable Securities"). The Principal
Stockholders holding a majority of the Registrable Securities may make not
more than one written "demand" of NGP to effect the registration of all or
part of such Registrable Securities. Such demand registration is subject to
certain restrictions including postponement by NGP for a limited period (the
"Blackout Period") if such registration would interfere with any proposed
offering of shares, pending financing, acquisition, corporate reorganization
or other significant transaction involving NGP.
If NGP seeks to register, in a proposed offering for cash, any NGP Common
Stock while the Registration Rights Agreement is in effect, the Principal
Stockholders have the right to request that NGP include any or all of their
Registrable Securities in the proposed offering (a "Piggyback Registration").
NGP must provide each Principal Stockholder with notice prior to the filing of
the registration statement. The Principal Stockholders, in a written request
given to NGP, may include its Registrable Securities in such registration
statement, subject to constraints of marketability of the proposed offering,
as determined by the managing underwriter.
The Principal Stockholders will pay all underwriting discounts, commissions
and transfer taxes related to the Registrable Securities offered for sale by
the Principal Stockholders as well as the fees and disbursements of its
counsel and all other fees and expenses in connection with the registration of
Registrable Securities.
NGP has agreed to indemnify the Principal Stockholders and the prospective
underwriters of registrations of Registrable Securities for liabilities
arising out of violations by NGP of applicable laws relating to the
registration statement and for material misstatements and omissions, not
provided by the Principal Stockholders, included in the registration
statement. Likewise, each Principal Stockholder agrees to indemnify NGP, all
other Principal Stockholders or any underwriter for liabilities arising out of
violations of applicable laws relating to its offer and sale of Registrable
Securities and for material misstatements and omissions made in the
registration statement in reliance on information provided in writing to NGP
by such Principal Stockholder. Contribution will also be available to any of
the above parties in relation to relative fault, to the extent that
indemnification from an indemnifying party to an indemnified party is
unavailable.
Stockholder Termination Fee Agreement. Concurrently with the execution of
the Acquisition Agreement, Newco and the Principal Stockholders entered into a
Termination Fee Agreement, which provides that in the event that the
Acquisition Agreement is terminated in circumstances under which the
Termination Fee is payable by GEI to Newco pursuant to the Acquisition
Agreement, and any Acquisition Proposal (as defined in the Acquisition
Agreement) is consummated, then each Principal Stockholder shall pay to Newco
one business day after consummation of the Acquisition Proposal an amount (the
"Stockholder Termination Fee") equal to one-half of the product of (x) the
number of shares of GEI Common Stock beneficially owned by such Principal
Stockholder on February 2, 1996, multiplied by (y) the excess of (i) the per
share value of consideration paid upon consummation of the Acquisition
Proposal (with the value of any non-cash consideration being determined by
agreement of Newco and such Principal Stockholder) over (ii) $12.00. In the
event that the consideration paid on consummation of the Acquisition Proposal:
(i) consists solely of cash, then the Stockholder Termination
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Fee shall be payable solely in cash, or (ii) consists of cash and other non-
cash property, or solely non-cash property, then the Stockholder Termination
Fee shall be payable in cash and such non-cash property in the same proportion
as the cash bears to the value of the non-cash property issued on consummation
of the Acquisition Proposal (as such value is determined above).
MANAGEMENT AND OPERATIONS AFTER ASSET PURCHASE AND MERGER; LEASE TERMS
NGP. The officers of NGP prior to the Effective Time will continue to serve
in their respective positions after the Effective Time. The NGP Board of
Directors after the Effective Time will be composed of those Directors serving
before the Effective Time whose seats were not the subject of the Election
Proposal, and those Directors who are duly elected at the NGP Annual Meeting.
The Acquisition Agreement provides that, at NGP's election, the Operating
Partnership may be substituted for NGP as the purchaser of any or all of the
Purchased Assets. Currently, NGP anticipates that it will substitute the
Operating Partnership for NGP with respect to the purchase of the portion of
the Purchased Assets equal in value to the cash portion of the consideration
payable to GEI in connection with the Asset Purchase. After the Effective
Time, NGP intends to contribute to the Operating Partnership, in exchange for
additional OP Units equal in number to the shares of NGP Common Stock issued
in connection with the Asset Purchase, all of the Purchased Assets acquired by
NGP in the Asset Purchase. The Operating Partnership has agreed to lease all
of the golf courses comprising the Purchased Assets to AGC as provided in the
terms of the Agreement to Enter into Leases (the "Agreement to Lease") entered
into as of February 2, 1996 by and among NGP, the Operating Partnership and
AGC. Pursuant to the Agreement to Lease, AGC will enter into a master lease
agreement with respect to all of the golf properties comprising the Purchased
Assets upon the closing of the Asset Purchase. The specific terms of the form
of lease agreement agreed to by the parties to the Agreement to Lease is
summarized below under "--New Lease."
Surviving Corporation. Pursuant to the Acquisition Agreement, the officers
of GEI immediately prior to the Effective Time shall be the initial officers
of the Surviving Corporation. The Directors of Newco immediately prior to the
Effective Time shall be the initial Directors of the Surviving Corporation.
After the Effective Time, the Price Trust will be the sole shareholder of
the Surviving Corporation and David G. Price, as the trustee of the Price
Trust, will have the ability to change all aspects of GEI's management and
operations. Mr. Price has no active plans to discontinue particular operations
or businesses after the Effective Time. However, in seeking to achieve
operating efficiencies, Mr. Price may combine, sell or close divisions,
subsidiaries, golf courses or offices. A principal short-term objective of Mr.
Price will be to achieve cost reductions and improved productivity and
profitability.
GEI currently maintains the Golf Enterprises, Inc. 401(k) Profit Sharing
Plan (the "GEI 401(k) Plan"). Following the Merger, because David G. Price and
his affiliates will own more than 80% of both the Surviving Corporation and
AGC, the Surviving Corporation may either continue maintaining the GEI 401(k)
Plan or merge the GEI 401(k) Plan with the AGC Employee Savings Plan (the "AGC
401(k) Plan"). In addition, it may be necessary to amend the GEI 401(k) Plan
or the AGC 401(k) Plan in order for such plans to satisfy Section 401(b) of
the Code or any other provisions of the Code or the Employee Retirement Income
Security Act of 1974, as amended.
New Lease. Pursuant to the Agreement to Lease, all of the golf course
properties and related assets that collectively comprise the Purchased Assets
(including the Purchased Assets purchased directly by the Operating
Partnership and the Purchased Assets purchased by NGP and then contributed to
the Operating Partnership in exchange for additional OP Units) will be leased
by the Operating Partnership to AGC pursuant to a written master lease (the
"New Lease") entered into by the Operating Partnership and AGC. The terms and
conditions of the New Lease are substantially similar to, and generally are
not more favorable to AGC than the terms and conditions of the existing leases
between the Operating Partnership and AGC with respect to other golf courses
purchased by the Operating Partnership over the last few years and leased to
AGC. In addition, the terms and
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conditions of the New Lease also are generally not more favorable to AGC than
the terms and conditions of other leases and operating contracts of golf
course properties entered into over the last few years by AGC and owners of
golf course properties that are not affiliated with NGP or the terms and
conditions of the existing lease of one of NGP's owned golf course properties
leased by NGP to Cobblestone Golf Group, Inc., a competitor of AGC that has no
affiliation with NGP, AGC, David G. Price or Newco. Based on the foregoing,
NGP's management believes that the terms and conditions of the New Lease
reflect current market conditions for the lease of properties similar to the
Purchased Assets. NGP's management does not believe that NGP could obtain more
favorable terms and conditions by leasing the Purchased Assets to a golf
course management company other than AGC that has the financial and
operational capability to operate 20 golf course properties over the term of
the New Lease. See also, however, "Risk Factors--Conflicts of Interest--
Allocation of Consideration for the Asset Purchase and the Merger and
Allocation of GEI's Assets" and "The Asset Purchase and Merger--Possible
Conflicts of Interest of Certain Officers and Directors--David G. Price."
The initial term under the New Lease is 15 years and AGC has the option to
extend the term of the New Lease for two five-year terms. The New Lease is a
triple net lease which requires AGC to pay substantially all expenses
associated with the leased properties, such as real estate taxes, insurance,
utilities and services, maintenance and other operating expenses. The New
Lease permits AGC to operate each of the leased properties as a golf course,
along with a clubhouse and other activities customarily associated with or
incidental to the operation of a golf course.
The annual base rent (the "Base Rent") for the first year under the New
Lease is initially set at 10% of the Operating Partnership's investment and
costs in acquiring and improving the properties to be leased by AGC (including
both cash and the value of all NGP Common Stock delivered pursuant to the
Acquisition Agreement). NGP currently estimates that the Base Rent for the
first year under the New Lease will be approximately $5,965,000 based on NGP's
current estimate of the total investment and closing costs relating to the
Operating Partnership's acquisition of the Purchased Assets. The Base Rent for
years two through six of the initial term under the New Lease will increase at
a rate based on the annual percentage increase in the Consumer Price Index
("CPI"), provided that each such annual CPI increase shall not exceed five
percent. Rent under the New Lease is comprised of the sum of (a) the Base Rent
and (b) Additional Rent equal to the excess of a specified percentage of
Course Revenue and Other Revenue over the Base Rent. The specific percentages
of Course Revenue and Other Revenue payable as additional rent (the
"Additional Rent") will be determined by the parties to the New Lease prior to
the Effective Time with the objective of achieving a total annual return on
the Operating Partnership's total investment in the properties subject to the
New Lease ranging from 10% in the first year to approximately 13.5% in the
fifth year. "Course Revenue" is generally defined in the New Lease to include
all revenue received from the operation of the applicable golf course
property, including revenues from memberships, initiation fees, dues, fees to
reserve tee times, golf-related guest fees, driving range charges and golf
cart rentals, but excluding those revenues described as Other Revenue. "Other
Revenue" is generally defined in the New Lease to include all revenue received
from food and beverage and merchandise sales, and other revenue not directly
related to golf activities. Other than AGC's obligations to pay Base Rent and
Additional Rent as described above, AGC has not agreed, nor is it required
under the New Lease, to pay any form of consideration to NGP in exchange for
allowing AGC to lease and operate the Purchased Assets.
INDEMNIFICATION OF GEI DIRECTORS AND OFFICERS
The Acquisition Agreement provides that Newco will cause the Surviving
Corporation to keep in effect the provisions of the Articles of Incorporation
of GEI (the "GEI Articles") and the Bylaws of GEI (the "GEI Bylaws") providing
for indemnification of GEI directors and officers. The GEI Articles obligate
GEI to indemnify each officer and director of GEI for liability arising out of
such status as officer or director to the fullest extent permitted by
applicable law, except as otherwise provided in the GEI Bylaws. The GEI Bylaws
obligate GEI to indemnify to the fullest extent allowed by the KGCC each
person made or threatened to be made a party to any action or proceeding due
to that person's status as a director or officer of GEI, except that
indemnification must be authorized by the GEI Board of Directors where the
person seeking indemnification
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initiated the proceeding. The GEI Bylaws allow the GEI Board of Directors to
provide similar indemnification to employees and agents of GEI. Under the
KGCC, GEI's directors and officers as well as other employees and individuals
may be indemnified against actual and reasonable expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement in
connection with specified actions, suits or proceedings, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation--a "derivative action") if they acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interests of GEI, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe their conduct was unlawful. A similar standard
of care is applicable in the case of derivative actions, except that
indemnification only extends to expenses (including attorneys' fees) actually
and reasonably incurred in connection with defense or settlement of such an
action, and the KGCC requires court approval before there can be any
indemnification of expenses where the person seeking indemnification has been
found liable to GEI.
Under the KGCC, rights to indemnification and expenses are non-exclusive, in
that they need not be limited to those expressly provided by statute. Thus,
the GEI Bylaws provide that amendment of the indemnification provisions of the
KGCC would affect GEI's indemnification obligations only to the extent that
such amendment permits GEI to provide broader indemnification rights. In
addition, under the GEI Bylaws rights to indemnification conferred by the GEI
Bylaws are also made a contract right.
FINANCING OF THE ACQUISITION
NGP currently anticipates that it will elect to pay for the Purchased Assets
with a combination of $17,213,351 in cash and $40,786,649 in shares of NGP
Common Stock and, in any event, that the Operating Partnership will pay the
cash portion of the purchase price for the Purchased Assets. The Operating
Partnership intends to finance its payment of $17,213,351 and an estimated
$1.7 million of additional funds that it will need to pay fees and expenses
incurred in connection with negotiating and closing the Asset Purchase by
borrowing such amount under the Operating Partnership's existing credit
facility. In the event that NGP elects to pay all cash as the consideration
for the Asset Purchase, in which case the Operating Partnership would be
substituted for NGP with respect to the entire Asset Purchase, the Operating
Partnership would be required to pay $58 million in cash and certain related
transaction costs of consummating the Asset Purchase. The primary factors that
NGP will consider in deciding whether to elect to pay all cash for the Asset
Purchase are the trading price of NGP Common Stock prior to the date on which
NGP must elect the form of consideration it will pay and the availability of
sufficient financing to pay $58 million in cash. The Operating Partnership
recently commenced efforts to issue $75 million in senior unsecured notes, the
proceeds of which will be used to reduce the outstanding balance on the
Operating Partnership's existing credit facility and provide funds for future
acquisitions. The terms of the senior unsecured notes to be issued by the
Operating Partnership will be substantially similar to the terms of the
Operating Partnership's outstanding 8.68% Senior Notes due 2004 and 8.73%
Senior Notes due 2005 that were issued in 1994 and 1995, respectively, except
that the Operating Partnership currently expects that the interest rate on the
new senior unsecured notes will be closer to 8.25%. The Operating Partnership
currently expects to close such financing by the end of June 1996 and, in the
event such closing occurs, would have sufficient financing to pay the all-cash
purchase price for the Purchased Assets.
Consummating the Merger will require Newco to pay approximately $23.6
million of the cash consideration payable to holders of GEI Common Stock and
options for such stock in the Merger, refinance approximately $54.9 million of
GEI's existing debt and pay certain additional transaction costs related to
negotiating and closing the Merger. To pay such amounts and provide for
additional working capital and a line of credit, Newco is seeking to obtain a
capital contribution of approximately $67 million from David G. Price and a
loan from one or more commercial lenders for approximately $30 million. David
G. Price is seeking to borrow approximately $38 million of his capital
contribution directly from one or more commercial lenders and borrow the
remaining approximately $29 million of his capital contribution from AGC. AGC
is seeking to raise the funds that it will loan to Mr. Price, along with an
additional $15 million that AGC is seeking to refinance its existing
indebtedness, and AGC expects to close such financing prior to the Effective
Time. Newco currently expects that it will be able to obtain all of the
financing it requires to consummate the Merger prior to the Effective Time.
Receipt of sufficient financing to consummate the Merger is not a condition to
the closing of the Acquisition Agreement,
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and accordingly, Newco (the obligations of which are guaranteed by AGC) may be
in breach of the agreement if it fails to obtain such financing. See "Risk
Factors--No Assurance that Financing Necessary to Consummate the Asset
Purchase and the Merger Will be Obtained."
ACCOUNTING TREATMENT OF THE ACQUISITION
NGP's acquisition of the 20 golf courses comprising the Purchased Assets
will be accounted for utilizing the "purchase" method of accounting in
accordance with GAAP. Following the Asset Purchase, NGP will obtain appraisals
for each of the 20 properties acquired from GEI. If the total cost of the
Asset Purchase including the aggregate purchase price, closing costs and other
direct costs associated with the Asset Purchase is in excess of the aggregate
of the appraised values of the 20 golf courses, goodwill will be recorded.
However, NGP does not anticipate any goodwill resulting from this transaction.
The recorded fair value of the Asset Purchase will be determined by the cash
paid and the closing price of the NGP Common Stock on the day before the
closing of the transaction.
The merger of Newco with and into GEI also will be accounted for utilizing
the "purchase" method of accounting in accordance with GAAP. Newco expects to
record goodwill as a result of the Merger.
CERTAIN FEDERAL REGULATORY MATTERS
The Hart-Scott-Rodino Antitrust Improvements Act of 1976, and the rules and
regulations thereunder (the "HSR Act"), require that parties of a certain size
to a proposed acquisition or business combination exceeding a certain size
file with the Antitrust Division of the Department of Justice (the "Antitrust
Division") and the Federal Trade Commission (the "FTC") Notification and
Report Forms ("Forms") with respect to such acquisition or business
combination. The parties are thereafter required to observe a waiting period
before consummating the reported transaction. In compliance with the HSR Act,
David G. Price and GEI filed Forms with the Antitrust Division and the FTC
with respect to the Merger. The applicable waiting period under the HSR Act
terminated on March 27, 1996.
NGP DISTRIBUTIONS AND GEI DIVIDENDS
NGP has regularly declared and paid quarterly distributions with respect to
the NGP Common Stock. In 1995, NGP paid distributions to stockholders of $1.59
per share. GEI has not declared or paid any dividends with respect to the GEI
Common Stock, and is prohibited from declaring or paying any dividends under
the Acquisition Agreement pending consummation of the Asset Purchase and the
Merger. It is anticipated that NGP will continue to pay regular distributions
in the foreseeable future following the Asset Purchase. See "Comparative
Market Prices; NGP Distributions and GEI Dividends."
DELISTING AND DEREGISTRATION OF GEI COMMON STOCK
GEI Common Stock currently is listed on Nasdaq under the symbol "GLFE." Upon
consummation of the Merger, GEI Common Stock will be delisted from Nasdaq and
deregistered under the Exchange Act. GEI stockholders will need to exchange
their stock certificates following the Merger. See "The Asset Purchase and
Merger--Description of Acquisition Agreement."
RESALES OF NGP COMMON STOCK ISSUED IN CONNECTION WITH THE MERGER; AFFILIATE
AGREEMENTS
NGP Common Stock issued in connection with the Merger will be freely
transferable, except that shares of NGP Common Stock received by persons who
are deemed to be "affiliates" (as such term is defined by Rule 144 under the
Securities Act) of NGP or GEI at the Effective Time may be resold by them only
in transactions permitted by the resale provisions of Rule 145 under the
Securities Act or as otherwise permitted under the Securities Act. GEI has
agreed that it will use its best efforts to cause each of its executive
officers and directors
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and persons who may be deemed to be "affiliates" to execute a written
agreement (an "Affiliate Agreement") providing, among other things, that such
person will not offer, sell, transfer or otherwise dispose of any of the
shares of NGP Common Stock obtained as a result of the Merger except in
compliance with the Securities Act and the rules and regulations of the SEC
thereunder. Pursuant to the Acquisition Agreement, certificates for GEI Common
Stock surrendered for exchange by any affiliate of GEI will not be exchanged
until an executed Affiliate Agreement has been received from such affiliate.
This summary is qualified in its entirety by reference to the specific
provisions of the Affiliate Agreements, the form of which is included as
exhibits to the Registration Statement and is incorporated herein by
reference.
Robert Williams, GTC II and GTC III, as stockholders of GEI, also have
entered into a stockholder agreement with NGP and Newco pursuant to which each
such stockholder has agreed to return to NGP a portion of the shares of NGP
Common Stock issued to them in connection with the Merger to the extent such
stockholder transfers any of the shares of NGP Common Stock acquired by it in
connection with the Merger within the first 90 days following the Effective
Time, more than one-third of such shares during the period between 90 and 120
days following the Effective Time, or more than two-thirds of such shares
during the period between 90 and 150 days following the Effective Time. See
"The Asset Purchase and Merger--Description of Acquisition Agreement--
Stockholder Agreement."
DISSENTERS' RIGHTS
Holders of NGP Common Stock are not entitled under Maryland law to
dissenters' rights of appraisal in connection with the Asset Purchase.
GEI's stockholders have dissenters' rights in connection with the Merger.
KGCC Section 17-6712 (a copy of which is attached as Annex V to this Joint
Proxy Statement--Prospectus) entitles any holder of record of shares of GEI
Common Stock who files a written objection to the Merger prior to the taking
of the vote at the GEI Special Meeting and who does not consent to or vote in
favor of the Merger, to demand in writing that the Surviving Corporation pay
to such stockholder the value of such shares on the effective date of the
Merger (exclusive of any element of value arising from the accomplishment or
expectation of the Merger). Shares represented by a signed proxy card on which
no voting direction is made will be deemed to have been voted in favor of the
Merger.
Any stockholder of record contemplating making a demand for appraisal is
urged to review carefully the provisions of KGCC Section 17-6712, particularly
the procedural steps required to perfect dissenters' rights thereunder.
Dissenters' rights will be lost if the procedural requirements of KGCC Section
17-6712 are not fully satisfied.
Set forth below is a complete summary of all material statutory provisions
relating to the exercise of dissenters' rights, which summary is qualified in
its entirety by reference to the full text of KGCC Section 17-6712 attached
hereto as Annex V.
Filing Written Demand. GEI stockholders of record who, in accordance with
KGCC Section 17-6712, file written notice of their objection to the Merger
before the vote on the Merger at the GEI Special Meeting and whose shares were
not voted in favor of the Merger have the right to receive the value of their
shares in cash. Such written objection may be sent to GEI, 1603 LBJ Freeway,
Suite 810, Dallas, Texas 75234, Attention: Secretary. Such objections will be
deemed to be timely filed if they are mailed to the above address prior to the
date on which the GEI Special Meeting is to be held. Failure to comply with
the requirements of KGCC Section 17-6712 will result in a forfeiture of those
rights. Voting against the Merger will be deemed insufficient to satisfy the
notice requirements of KGCC Section 17-6712.
Notice by GEI. Within 10 days after the Merger becomes effective, GEI will
notify each stockholder who objected thereto in writing and whose shares were
not voted in favor of the Merger, and who filed such written objection to the
Merger with GEI before the taking of the vote on the Merger at the GEI Special
Meeting, that the Merger has become effective.
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<PAGE>
Written Demand. Within 20 days after the mailing of notice by the Surviving
Corporation, any dissenting stockholder must demand in writing from the
Surviving Corporation, payment of the value of the stockholder's stock. The
Surviving Corporation shall pay to the stockholder, within 30 calendar days
after the expiration of the 20 calendar day period, the value of the
stockholder's stock on the effective date of the Merger, exclusive of any
element of value arising from the expectation or accomplishment of the Merger,
provided the Surviving Corporation and the stockholder agree on the value of
the stockholder's stock.
Settlement of Appraisal and Payment. If, during the 30-day period, the
Surviving Corporation and the dissenting stockholder fail to agree upon the
value of such stock, any such stockholder or the Surviving Corporation may
demand a determination of the value of the stock of all such stockholders by
an appraiser or appraisers to be appointed by a District Court of the State of
Kansas (the "Kansas Court"), by filing a petition with the Kansas Court within
four months after the expiration of the 30-day period. If the petition is
filed by a dissenting stockholder, within 10 days after notice of such
petition is served upon the Surviving Corporation, the Surviving Corporation
must file with the Kansas Court a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
have not reached an agreement with the Surviving Corporation with respect to
the value of such shares. If the petition is filed by the Surviving
Corporation, the petition shall be accompanied by such duly verified list. The
clerk of the Kansas Court will give notice of the time and place of the
hearing on the petition by registered or certified mail to the Surviving
Corporation and to the stockholders shown upon the list at the addresses
therein listed, and notice shall also be given by publication in a newspaper
of general circulation in the county in which the Kansas Court is located, at
least one week before the day of the hearing.
After the hearing on such petition the Kansas Court shall determine the
stockholders who have complied with the provisions of KGCC 17-6712 and become
entitled to the valuation of and payment for their shares, and shall appoint
an appraiser or appraisers to determine such value. Any such appraiser may
examine the books of GEI, and shall afford a reasonable opportunity to the
parties interested to submit to the appraiser pertinent evidence on the value
of the shares. Such appraiser shall make a determination of the value of the
shares upon such investigation as seems proper to the appraiser. At the time
of appointing the appraiser or appraisers, the Kansas Court shall require the
dissenting stockholders who hold certificated shares to submit their stock to
the clerk of the Kansas Court, to be held by the clerk pending the appraisal
proceedings. If any dissenting stockholder fails to comply with such
direction, the Kansas Court shall dismiss the proceedings as to such
stockholder.
After the appraiser or appraisers determine the value of the shares of
stock, such appraisals will be filed with the clerk of the Kansas Court.
Notice of the filing of such report shall be given by the clerk to the parties
in interest. The Kansas Court may hear arguments on the appraisals, if any,
and then will by its decree determine the value of the stock of the
stockholders entitled to payment therefor and shall direct the payment of such
value, together with interest, if any, as determined by the Kansas Court on
the application of any party in interest, to the stockholders entitled thereto
by the Surviving Corporation. Upon payment of the judgment by the Surviving
Corporation, the clerk of the Kansas Court shall surrender to the Surviving
Corporation the certificates of shares of stock held by the clerk.
Costs. Costs of the appraisal proceeding (exclusive of attorneys' and
experts' fees) shall be determined by the Kansas Court and taxed upon the
parties as the Kansas Court deems equitable in the circumstances. However,
costs of giving notice by publication and by registered or certified mail
shall be borne by the Surviving Corporation.
THE BOARD OF DIRECTORS OF GEI RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL
OF THE ACQUISITION AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY. SEE
"THE ASSET PURCHASE AND MERGER-- RECOMMENDATIONS OF THE BOARDS OF DIRECTORS OF
NGP AND GEI; REASONS FOR THE ASSET PURCHASE AND MERGER" ABOVE.
46
<PAGE>
COMPARATIVE MARKET PRICES; NGP DISTRIBUTIONS AND GEI DIVIDENDS
The following table sets forth, for the fiscal quarters indicated, the range
of high and low sale prices of NGP Common Stock on the NYSE and GEI Common
Stock on Nasdaq, and distributions declared on the NGP Common Stock.
<TABLE>
<CAPTION>
NGP COMMON STOCK GEI COMMON STOCK
---------------------------- ----------------
HIGH LOW DISTRIBUTION HIGH LOW
------- ------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
YEAR ENDING DECEMBER 31, 1996
2nd Quarter (through June 20,
1996)......................... $25.375 $23.00 -- $11.75 $11.125
1st Quarter.................... 26.50 22.25 $0.41 12.00 7.25
YEAR ENDED DECEMBER 31, 1995
4th Quarter.................... $24.00 $21.50 $0.41 $13.75 $ 6.75
3rd Quarter.................... 22.25 20.00 0.41 14.25 12.25
2nd Quarter.................... 22.50 19.375 0.39375 14.00 10.25
1st Quarter.................... 22.125 19.50 0.39375 12.25 7.75
YEAR ENDED DECEMBER 31, 1994
4th Quarter.................... $22.125 $17.25 $0.39375 $13.50 $10.25
3rd Quarter.................... 23.00 20.00 0.39375 15.00 12.50
2nd Quarter(/1/)............... 21.75 19.625 0.35 -- --
1st Quarter(/1/)............... 21.375 19.25 0.35 -- --
</TABLE>
- --------
(/1/) GEI Common Stock has been listed and traded on Nasdaq since July 13, 1994.
On January 10, 1996, the last trading date prior to the announcement that
GEI was in discussions with a potential acquiror involving an acquisition of
GEI for cash and securities valued at approximately $12 per share, the high
and low sales prices on Nasdaq were $8.75 and $8.125 per share, respectively,
for GEI Common Stock, and on the NYSE were $23.125 and $22.75 per share,
respectively, for NGP Common Stock. On February 2, 1996, the last trading date
prior to the date on which GEI and NGP publicly announced the signing of the
Acquisition Agreement, the high and low sales prices on Nasdaq were $10.25 and
$9.75 per share, respectively, for GEI Common Stock, and on the NYSE were
$23.125 and $23.00 per share, respectively, for NGP Common Stock. On June 20,
1996, the high and low sales prices and last reported sales price on Nasdaq
were $11.75, $11.50 and $11.75 per share for GEI Common Stock, and on the NYSE
were $24.50, $24.125, and $24.25 per share, respectively, for NGP Common
Stock. STOCKHOLDERS OF BOTH GEI AND NGP ARE URGED TO OBTAIN CURRENT MARKET
QUOTATIONS FOR GEI COMMON STOCK AND NGP COMMON STOCK.
GEI has not paid any dividends on the GEI Common Stock.
NGP has regularly paid distributions on the NGP Common Stock. In order to
qualify as a REIT, NGP is required to make distributions (other than capital
gain distributions) to its stockholders in an amount equal to 95% of its "REIT
taxable income" and net income (after tax) from foreclosure property (minus
certain noncash income). See "Material Federal Income Tax Consequences--
Taxation of NGP as a REIT--Annual Distribution Requirements." Accordingly, it
is anticipated that NGP will continue to pay regular distributions following
the Asset Purchase and Merger. See "The Asset Purchase and the Merger--NGP and
GEI Distributions and Dividends."
NGP paid distributions to stockholders of $1.59 per share in 1995, of which
$1.34 represents ordinary income and $0.25 represents return of capital on a
tax basis. On a book basis, $0.34 per share represents return of capital. In
1994, NGP paid distributions to stockholders of $1.44 per share, of which
$1.21 represents ordinary income and $0.23 represents return of capital on a
tax basis. On a book basis, $0.32 per share represents return of capital. In
order to maintain its qualification in 1995 and 1994 as a REIT for federal
income tax purposes, NGP was required to make distributions to its
stockholders of at least $1.18 and $1.10 per share, respectively.
47
<PAGE>
PRO FORMA COMBINED CONDENSED FINANCIAL DATA FOR NGP
The following unaudited pro forma combined condensed financial information
reflects the acquisition of the Purchased Assets by NGP and assumes that NGP
pays a combination of approximately $17.2 million in cash and approximately
$40.8 million in shares of NGP Common Stock as consideration for the Asset
Purchase. (For a discussion of the pro forma impact of NGP's exercise of its
option to pay all cash for the Purchased Assets, see note 8.) The following
financial information does not, however, reflect the Merger transactions
between Newco and GEI. The pro forma balance sheet data at March 31, 1996
assumes the Asset Purchase occurred on March 31, 1996. The pro forma statement
of operations for the three months ended March 31, 1996 and the year ended
December 31, 1995 assumes the Asset Purchase occurred on January 1, 1995.
The historical financial information of NGP as of and for the three months
ended March 31, 1996 and the year ended December 31, 1995 have been derived
from NGP's consolidated financial statements incorporated by reference herein.
The pro forma financial information should be read in conjunction with the
accompanying notes thereto and with the financial statements of NGP
incorporated by reference. The pro forma combined condensed financial
information does not purport to be indicative of the financial position or
operating results which would have been achieved had the acquisitions of golf
course properties during the period and the Asset Purchase been consummated as
of the dates indicated and should not be construed as representative of future
financial position or operating results. In the opinion of NGP's management,
all adjustments necessary to reflect the effects of the acquisitions to be
consummated have been made.
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA
------------ ------------------------- ------------ ------------ ------------------------- ------------
THREE THREE
YEAR ENDED YEAR ENDED MONTHS ENDED MONTHS ENDED
DECEMBER 31, 1995 PURCHASED DECEMBER 31, MARCH 31, 1996 PURCHASED MARCH 31,
1995 ACQUISITIONS(1) ASSETS 1995(2) 1996 ACQUISITIONS(1) ASSETS 1996(2)
------------ --------------- --------- ------------ ------------ --------------- --------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenues
Rent............ $ 45,931 $ 4,504 $ 5,965 (3) $ 56,400 $13,089 $16 $1,491 (3) $14,596
Gain on sale of
property....... 1,893 -- -- 1,893 25 -- -- 25
-------- ------- ------- -------- ------- --- ------ -------
Total revenues... 47,824 4,504 5,965 58,293 13,114 16 1,491 14,621
-------- ------- ------- -------- ------- --- ------ -------
Expenses
General &
administrative.. 4,258 -- -- 4,258 1,239 -- -- 1,239
Depreciation &
amortization... 14,027 2,263 2,645 (4) 18,935 4,108 11 661 (4) 4,780
-------- ------- ------- -------- ------- --- ------ -------
Total expenses... 18,285 2,263 2,645 23,193 5,347 11 661 6,019
-------- ------- ------- -------- ------- --- ------ -------
Interest
expense........ (8,793) (2,346) (1,555)(5) (12,694) (2,925) (4) (389)(5) (3,318)
Interest
income......... 4,144 (936) -- 3,208 841 (4) -- 837
Other income.... 114 -- -- 114 7 -- -- 7
-------- ------- ------- -------- ------- --- ------ -------
Income before
provision for
taxes and
minority
interest........ 25,004 (1,041) 1,765 25,728 5,690 (3) 441 6,128
Provision for
taxes........... (352) -- -- (352)(6) (56) -- -- (56)(6)
Minority
interest........ (11,366) 469 165 (10,732)(7) (2,600) 1 25 (2,574)(7)
-------- ------- ------- -------- ------- --- ------ -------
Net income....... $ 13,286 $ (572) $ 1,930 $ 14,644 (8) $ 3,034 $(2) $ 466 $ 3,498 (8)
======== ======= ======= ======== ======= === ====== =======
Net income per
common share.... $ 1.25 $ 1.19 (8) $ 0.29 $ 0.28 (8)
Weighted average
number of common
shares
outstanding..... 10,622 1,682 (9) 12,304 10,622 1,682 (9) 12,304
</TABLE>
48
<PAGE>
PRO FORMA COMBINED CONDENSED FINANCIAL DATA FOR NGP--(CONTINUED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------- ---------
PURCHASED
MARCH 31, ASSETS MARCH 31,
1996 ADJUSTMENTS 1996
---------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Assets
Net property.............................. $303,483 $57,732(10) $361,215
Cash and cash equivalents................. 11,370 -- 11,370
Investments............................... 385 -- 385
Mortgage notes receivable................. 28,360 -- 28,360
Due from affiliates....................... 1,832 -- 1,832
Other assets.............................. 10,286 1,920(10) 12,206
-------- ------- --------
Total assets............................. 355,716 59,652 415,368
======== ======= ========
Liabilities and Stockholders' Equity
Notes payable and due to affiliates....... 152,906 18,852 (5) 171,758
Accounts payable and other liabilities.... 3,965 -- 3,965
-------- ------- --------
Total liabilities........................ 156,871 18,852 175,723
-------- ------- --------
Minority interest......................... 22,024 -- (11) 22,024
-------- ------- --------
Common stock.............................. 106 17 (9) 123
Additional paid in capital................ 180,408 40,783 (9) 221,191
Accumulated deficit....................... (1,360) -- (1,360)
Unamortized restricted stock
compensation............................. (2,333) -- (2,333)
-------- ------- --------
Total stockholders' equity............... 176,821 40,800 217,621
-------- ------- --------
Total liabilities and stockholders'
equity.................................. $355,716 $59,652 $415,368
======== ======= ========
</TABLE>
- -------
(1) During the year ended December 31, 1995, NGP acquired 11 golf courses, of
which seven were private club courses and four were daily fee courses.
During the three months ended March 31, 1996, NGP acquired one daily fee
course.
(2) Pro forma amounts do not include any adjustments to reflect NGP's
anticipated exercise of options to acquire four golf courses, the
exercise of which options has been authorized by the NGP Board of
Directors and is expected to occur in the second quarter of 1996. See
footnote (15) "Subsequent Events" of NGP's consolidated financial
statements for the year ended December 31, 1995 incorporated by reference
herein. The pro forma net income and net income per share for the three
months ended March 31, 1996 and the year ended December 31, 1995 had the
exercise of the options been consummated on January 1, 1996 and 1995,
respectively, would have been $3,357,000 and $0.27 per share and
$14,082,000 and $1.15 per share, respectively. If NGP elects to pay $58
million in cash for the Purchased Assets instead of the combination of
cash and stock that NGP currently expects to pay, the pro forma net
income and net income per share for the three months ended March 31, 1996
and the year ended December 31, 1995 had the exercise of the options been
consummated on January 1, 1996 and 1995, respectively, would be
$2,865,000 and $0.27 per share and $12,110,000 and $1.14 per share,
respectively.
(3) Assumes 10% of NGP's initial investment of approximately $59.7 million on
the 20 golf courses and related assets comprising the Purchased Assets.
See "The Asset Purchase and Merger--Management and Operations after Asset
Purchase and Merger; Lease Terms--New Lease."
(4) Reflects an increase in depreciation expense due to the acquisition of
the Purchased Assets for a total investment of approximately $59.7
million. The Purchased Assets are recorded at cost and depreciation is
computed on a straight-line basis over the estimated useful lives of the
assets as follows: (i) buildings--30 years; (ii) ground improvements--20
years; and (iii) furniture, fixtures and equipment--5 years.
(5) Reflects additional debt of approximately $18.9 million at an assumed
interest rate of 8.25% that will be incurred by NGP to cover NGP's cash
payment of approximately $17.2 million and estimated transaction costs of
approximately $1.7 million. The current prime rate of interest is 8.25%.
However, NGP expects a lower rate of interest charged on the additional
debt. For every 1/8 percentage point fluctuation in the interest rate,
net income will change by approximately $24,000.
(6) No adjustment is made to provision for taxes because NGP believes that
the tax expense will not materially increase as a result of its purchase
of the Purchased Assets and resulting increased income due to the fact
that a majority of the states where the golf courses comprising the
Purchased Assets are located recognize the dividends paid deduction.
(7) Reflects the Operating Partnership's limited partners' interest of 41.4%
in the earnings of the Operating Partnership. The limited partners'
interest percentage decreased due to 1,681,924 additional OP Units being
issued to NGP in exchange for the Purchased Assets being contributed by
NGP to the Operating Partnership.
49
<PAGE>
(8) If NGP elects to pay $58 million in cash for the Purchased Assets instead
of the combination of cash and stock that NGP currently expects to pay,
the pro forma information listed below would apply. Paying all cash for
the Purchased Assets would result in additional debt of $40.8 million and
additional interest expense of approximately $3.4 million for the year
ended December 31, 1995 and $40.8 million and $0.8 million for the three
months ended March 31, 1996. The pro forma information (a) assumes that
all of the golf courses acquired by NGP through March 31, 1996 had been
acquired at the beginning of the period or as of the date for which such
information is provided and (b) does not account for NGP's anticipated
exercise of options to acquire four additional golf course properties.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1995 MARCH 31, 1996
----------------- ------------------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net income............................ $12,659 $ 3,002
Net income per common share........... $ 1.19 $ 0.28
Weighted average number of common
shares outstanding................... 10,622 10,622
BALANCE SHEET DATA (AT PERIOD-END):
Real estate before accumulated
depreciation......................... $423,642
Total assets.......................... 415,368
Total debt............................ 212,558
Minority interest..................... 22,024
Stockholders' equity.................. 176,821
</TABLE>
(9) Reflects the issuance of 1,681,924 shares of NGP Common Stock as partial
consideration for the Purchased Assets based on the closing price of NGP
Common Stock on the NYSE ($24.25) on June 20, 1996.
(10) NGP's initial investment of approximately $59.7 million on the 20 golf
courses and related assets comprising the Purchased Assets.
(11) The pro forma balance sheet data at March 31, 1996 assumes the Asset
Purchase occurred on March 31, 1996. Therefore, even though NGP's
ownership interest in the Operating Partnership would have increased at
March 31, 1996 due to the Asset Purchase occurring on such date, there
would be no increase or decrease in the minority interest balance as of
such date.
50
<PAGE>
PRO FORMA COMBINED CONDENSED FINANCIAL DATA FOR AGC
The proforma combined financial information presented below are based on
adjustments made to the historical consolidated financial statements of AGC
and give effect to AGC entering into 20 leases with NGP as a result of NGP's
acquisition of the Purchased Assets, and AGC's other new lease and management
agreements acquired. The pro forma balance sheet data at March 31, 1996
assumes the 20 leases entered into with NGP and AGC's other new lease and
management agreements began on March 31, 1996. The pro forma statement of
operations for the three months ended March 31, 1996 and the twelve months
ended December 31, 1995 assumes the leases and management agreements began on
January 1, 1995.
The pro forma financial information should be read in conjunction with the
accompanying notes thereto and with the financial statements of AGC
incorporated herein by reference. The pro forma financial information does not
purport to be indicative of the financial position or operating results which
would have been achieved had the leases been consummated as of the dates
indicated and should not be construed as representative of future financial
position or operating results. In the opinion of AGC's management, all
adjustments necessary to reflect the effects of the leases to be consummated
have been made.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA ADJUSTMENTS PRO FORMA HISTORICAL PRO FORMA ADJUSTMENTS PRO FORMA
---------- ------------------------------ ----------- ---------- ------------------------------ ---------
THREE THREE
YEAR 1995 YEAR MONTHS 1996 MONTHS
ENDED ACQUISI- ENDED ENDED ACQUISI- ENDED
DECEMBER TIONS PURCHASED DECEMBER MARCH 31, TIONS PURCHASED MARCH 31,
31, 1995 (1) ASSETS(2) ADJUSTMENTS 31, 1995(3) 1996 (4) ASSETS(2) ADJUSTMENTS 1996(3)
---------- -------- --------- ----------- ----------- ---------- -------- --------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Green fees...... $134,100 $ 6,652 $ 4,791 $ -- $145,543 $29,305 $ -- $ 743 $ -- $30,048
Cart rentals.... 51,801 2,339 5,275 -- 59,415 11,251 -- 975 -- 12,226
Member dues and
initiation
fees........... 50,134 5,050 16,638 -- 71,822 15,202 -- 4,374 -- 19,576
Food and
beverage
sales.......... 54,956 3,737 8,223 -- 66,916 11,068 -- 1,523 -- 12,591
Merchandise
sales.......... 30,888 2,613 4,558 -- 38,059 6,551 -- 825 -- 7,376
Other revenue... 32,755 1,835 1,193 -- 35,783 7,988 -- 143 -- 8,131
Management
fees........... 4,432 294 -- -- 4,726 677 6 -- -- 683
-------- ------- ------- ------- -------- ------- ----- ------ ----- -------
Total revenues... 359,066 22,520 40,678 -- 422,264 82,042 6 8,583 -- 90,631
-------- ------- ------- ------- -------- ------- ----- ------ ----- -------
Costs & expenses:
Payroll and
related
expenses....... 118,440 7,739 11,687 -- 137,866 29,941 57 2,792 -- 32,790
Cost of
merchandise
sold........... 20,142 1,678 3,447 -- 25,267 4,050 -- 652 -- 4,702
Cost of food and
beverage sold.. 17,514 1,145 2,952 -- 21,611 3,428 -- 634 -- 4,062
General and
administrative.. 35,204 3,203 6,099 -- 44,506 8,393 23 1,270 -- 9,686
Repairs and
maintenance.... 11,435 545 3,870 -- 15,850 2,134 4 819 -- 2,957
Other operating
expenses....... 60,983 3,004 4,919 -- 68,906 12,694 62 1,130 -- 13,886
Rents........... 77,767 4,471 -- 5,965 (5) 88,203 18,690 -- -- 1,491 (5) 20,181
Depreciation and
amortization... 6,970 -- 3,239 (3,239)(6) 6,970 2,082 -- 965 (965)(6) 2,082
-------- ------- ------- ------- -------- ------- ----- ------ ----- -------
Total costs &
expenses........ 348,455 21,785 36,213 2,726 409,179 81,412 146 8,262 526 90,346
-------- ------- ------- ------- -------- ------- ----- ------ ----- -------
Operating income
(loss).......... 10,611 735 4,465 (2,726) 13,085 630 (140) 321 (526) 285
Other income
(expense):
Interest
income......... 1,583 -- -- 2,712 (7) 4,295 321 -- -- 678 (7) 999
Interest
expense........ (2,830) -- (3,506) 621 (8) (5,715) (561) -- (934) 208 (9) (1,287)
-------- ------- ------- ------- -------- ------- ----- ------ ----- -------
Income (loss)
before provision
for income taxes
and minority
interest in
earnings........ 9,364 735 959 607 11,665 390 (140) (613) 360 (3)
Provision for
income taxes.... (201) -- (384) 343 (11) (242) (12) -- 245 (245)(11) (12)
-------- ------- ------- ------- -------- ------- ----- ------ ----- -------
Income (loss)
before minority
interest in loss
................ 9,163 735 575 950 11,423 378 (140) (368) 115 (15)
Minority interest
in loss ........ 519 -- -- -- 519 129 -- -- -- 129
-------- ------- ------- ------- -------- ------- ----- ------ ----- -------
Net income
(loss).......... $ 9,682 $ 735 $ 575 $ 950 $ 11,942 $ 507 $(140) $ (368) $ 115 $ 114
======== ======= ======= ======= ======== ======= ===== ====== ===== =======
</TABLE>
51
<PAGE>
PRO FORMA COMBINED CONDENSED FINANCIAL DATA FOR AGC (CONTINUED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------- ---------
PURCHASED
MARCH 31, ASSETS MARCH 31,
1996 ADJUSTMENTS 1996(3)
---------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA (AT PERIOD-END):
ASSETS:
Current assets:
Cash...................................... $ 8,405 $(3,100)(10) $ 5,305
Accounts receivable-members, net of
allowance for doubtful accounts.......... 11,306 -- 11,306
Other receivables......................... 9,769 -- 9,769
Receivable from affiliates................ 6,976 -- 6,976
Inventories............................... 11,312 -- 11,312
Prepaid expenses.......................... 1,271 -- 1,271
-------- ------- --------
Total current assets.................... 49,039 (3,100) 45,939
Property and equipment, net............... 78,249 -- 78,249
Receivable from affiliates................ -- 29,000(10) 29,000
Liquor license............................ 698 -- 698
Leasehold rights.......................... 10,291 -- 10,291
Prepaid rents............................. 180 -- 180
Deposits and other assets................. 9,823 600(10) 10,423
-------- ------- --------
Total assets............................ $148,280 $26,500 $174,780
======== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable.......................... $ 8,742 $ -- $ 8,742
Accrued expenses.......................... 16,447 -- 16,447
Notes payable............................. 3,315 -- 3,315
Other liabilities......................... 8,953 -- 8,953
-------- ------- --------
Total current liabilities............... 37,457 -- 37,457
Notes payable............................. 39,672 26,500(10) 66,172
Accrued expenses.......................... 5,666 -- 5,666
-------- ------- --------
Total liabilities....................... 82,795 26,500 109,295
-------- ------- --------
Minority interest.......................... 550 -- 550
-------- ------- --------
Stockholders' equity:
Common stock.............................. 8,682 -- 8,682
Retained earnings......................... 61,272 -- 61,272
Notes receivable from officers and
directors................................ (4,901) -- (4,901)
Foreign currency translation adjustment... (118) -- (118)
-------- ------- --------
Total stockholders' equity................ 64,935 -- 64,935
-------- ------- --------
Total liabilities and stockholders'
equity................................... $148,280 $26,500 $174,780
======== ======= ========
</TABLE>
- -------
(1) During the year ended December 31, 1995 AGC entered into 14 lease
agreements and 6 management agreements (10 daily fee courses and 10
private country clubs).
(2) Reflects AGC operating the 20 golf courses purchased by NGP under triple
net leases.
(3) Pro forma amounts do not include any adjustments to reflect NGP's
anticipated exercise of options to acquire four golf courses, the
exercise of which has been authorized by the NGP Board of Directors and
is expected to occur in the second quarter of 1996. See footnote (15)
"Subsequent Events" in NGP's consolidated financial statements
incorporated by reference herein. Assuming the exercise took place on
January 1, 1995, AGC's net income would have decreased $556,000 and
$116,000 for the year ended December 31, 1995 and for the three months
ended March 31, 1996, respectively, due to an increase in rent expense.
(4) During the three months ended March 31, 1996 AGC entered into 4 lease and
management agreements for daily fee courses.
(5) Assumes 10% of NGP's initial investment of approximately $59.7 million on
the 20 golf courses and related assets comprising the Purchased Assets.
See "The Asset Purchase and Merger--Management and Operations after Asset
Purchase and Merger; Lease Terms--New Leases."
(6) Reflects the adjustment to eliminate depreciation and amortization since,
as lessee, AGC will not acquire depreciable assets. Accordingly, AGC will
not incur any depreciation and amortization expense related to the
Purchased Assets.
(7) Reflects the interest income related to the $29 million AGC will loan to
David G. Price which will be used to capitalize Newco. The interest rate
is 9.35%. See "The Asset Purchase and Merger; Financing of the
Acquisition."
(8) Adjustment reflects the following for the year ended December 31, 1995:
(i) eliminating interest expense incurred by GEI of $3,506,000 as AGC
will not assume GEI's debt; (ii) additional interest expense of
$3,860,000 related to the issuance of $41.5 million of secured notes at
an interest rate of 9.35%, which is based on discussions with lenders;
(iii) eliminating interest expense of $1,050,000 incurred on the $15
million of bank indebtedness to be retired with proceeds from the $41.5
million of secured notes; and, (iv) amortization of $75,000 related to
the $600,000 placement fee for the issuance of the $41.5 million of
secured notes.
(9) Adjustment reflects the following for the three months ended March 31,
1996: (i) eliminating interest expense incurred by GEI of $934,000 as AGC
will not assume GEI's debt; (ii) additional interest expense of $970,000
related to the issuance of $41.5 million of secured notes at an interest
rate of 9.35%, which is based on discussions with lenders; (iii)
eliminating interest expense of $263,000 incurred on the $15 million of
bank indebtedness to be retired with proceeds from the $41.5 million of
secured notes; and, (iv) amortization of $19,000 related to the $600,000
placement fee for the issuance of the $41.5 million of secured notes.
(10) Reflects the issuance of $41.5 million of secured notes which along with
$3.1 million of cash on hand will be used as follows: $29 million will be
loaned to David G. Price to capitalize Newco, $15 million will be used to
retire existing bank indebtedness and $600,000 will be used to pay the
placement fee related to the issuance of the $41.5 million secured notes.
(11) Reflects a reduction of the provision for federal income tax since AGC
has elected to be taxed as an S corporation under the Code.
52
<PAGE>
NGP SELECTED CONSOLIDATED FINANCIAL DATA
The selected financial data included in this table by NGP is derived from
NGP's consolidated financial statements and NGP's predecessors' (Golf
Properties Group ("GPG")) combined financial statements for those years, which
have been audited by Coopers & Lybrand L.L.P. and NGP's unaudited consolidated
financial statements for the three months ended March 31, 1996 and 1995.
Historical operating results of GPG may not be comparable to future operating
results of NGP because: (i) NGP's golf course leases with AGC have materially
different terms from the terms of the leases with GPG; (ii) historical
operating revenues and operating expenses include revenues and expenses
relating to five courses that were operated by AGC pursuant to management
agreements (under which GPG received revenues and bore expenses and paid the
operator a fee) rather than leases; and (iii) management fee expense reflects
consulting services provided by AGC to GPG, which were not continued following
NGP's initial public offering in August 1993. The data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements of NGP
and notes thereto incorporated herein by reference.
<TABLE>
<CAPTION>
NATIONAL GOLF PROPERTIES, INC. GOLF PROPERTIES GROUP
--------------------------------------------------- ------------------------------
THREE
MONTHS ENDED YEAR ENDED YEAR ENDED
MARCH 31, DECEMBER 31, AUG. 18, 1993 JAN. 1, 1993 DECEMBER 31,
---------------- ------------------ THROUGH THROUGH ----------------
1996 1995 1995 1994 DEC. 31, 1993 AUG. 17, 1993 1992 1991
------- ------- -------- -------- ------------- ------------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues
Rent................... $13,089 $10,583 $ 45,931 $ 36,637 $10,787 $10,678 $13,200 $13,071
Gain on sale of
property.............. 25 2,000 1,893 -- -- -- -- --
Operating.............. -- -- -- -- -- 4,708 5,938 6,581
Other income........... -- -- -- -- 17 499 1,013 582
------- ------- -------- -------- ------- ------- ------- -------
Total revenues.......... 13,114 12,583 47,824 36,637 10,804 15,885 20,151 20,234
------- ------- -------- -------- ------- ------- ------- -------
Expenses
Operating.............. -- -- -- -- -- 3,950 5,151 5,433
Management fee......... -- -- -- -- -- 2,193 2,485 2,286
General &
administrative........ 1,239 1,056 4,258 4,709 1,374 -- -- --
Depreciation &
amortization.......... 4,108 3,150 14,027 10,413 3,384 4,661 4,937 4,792
------- ------- -------- -------- ------- ------- ------- -------
Total expenses.......... 5,347 4,206 18,285 15,122 4,758 10,804 12,573 12,511
------- ------- -------- -------- ------- ------- ------- -------
Interest expense....... (2,925) (1,616) (8,793) (2,212) (335) (4,627) (5,424) (5,311)
Interest income........ 841 964 4,144 3,459 1,584 24 95 678
Other income........... 7 101 114 194 -- -- -- --
------- ------- -------- -------- ------- ------- ------- -------
Income before provision
for taxes and minority
interest............... 5,690 7,826 25,004 22,956 7,295 478 2,249 3,090
Provision for taxes..... (56) (67) (352) (368) (158) -- -- --
------- ------- -------- -------- ------- ------- ------- -------
Income before minority
interest............... 5,634 7,759 24,652 22,588 7,137 478 2,249 3,090
Minority interest....... (2,600) (3,593) (11,366) (10,712) (3,317) -- -- --
------- ------- -------- -------- ------- ------- ------- -------
Net income.............. $ 3,034 $ 4,166 $ 13,286 $ 11,876 $ 3,820 $ 478 $ 2,249 $ 3,090
======= ======= ======== ======== ======= ======= ======= =======
Net income per common
share.................. $0.29 $0.39 $1.25 $1.12 $0.36 -- -- --
Weighted average number
of common shares
outstanding............ 10,622 10,622 10,622 10,612 10,603 -- -- --
</TABLE>
<TABLE>
<CAPTION>
GOLF
NATIONAL GOLF PROPERTIES, INC. PROPERTIES GROUP
-------------------------------------------- -----------------
MARCH 31, DECEMBER 31,
----------------- --------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Real estate before
accumulated
depreciation........... $365,910 $291,874 $362,068 $272,034 $166,410 $130,327 $103,600
Total assets............ 355,716 295,124 347,967 275,071 222,739 102,779 78,947
Total debt.............. 152,906 86,317 144,983 66,441 12,666 70,044 49,375
Minority interest....... 22,024 23,076 23,000 22,936 19,979 -- --
Stockholders' equity.... 176,821 183,355 177,907 183,136 181,997 -- --
Cash distributions
declared per common
share.................. 0.41 0.39 1.61 1.49 0.51 -- --
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
NATIONAL GOLF PROPERTIES, INC. GOLF PROPERTIES GROUP
------------------------------------------------ -------------------------------
THREE
MONTHS ENDED YEAR ENDED YEAR ENDED
MARCH 31, DECEMBER 31, AUG. 18, 1993 JAN. 1, 1993 DECEMBER 31,
--------------- ---------------- THROUGH THROUGH -----------------
1996 1995 1995 1994 DEC. 31, 1993 AUG. 17, 1993 1992 1991
------ ------- ------- ------- ------------- ------------- ------- --------
(IN THOUSANDS, EXCEPT PROPERTY DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
NGP's funds from
operations(1).......... $5,210 $ 4,699 $19,641 $17,209 $ 5,587 $5,129 $ 7,176 $ 7,872
Cash flows from:
Operating activities... 10,868 8,847 36,383 34,241 9,282 6,649 18,520 34,729
Investing activities... (8,225) (21,017) (76,019) (32,003) (106,728) (8,763) (16,961) (6,082)
Financing activities... 1,638 11,774 42,639 (52) 99,346 1,188 (1,069) (28,422)
Number of courses....... 81 74 81 71 51 47 43 39
Number of locations..... 72 66 72 63 46 42 38 34
</TABLE>
- --------
(1) NGP believes that to facilitate a clear understanding of the historical
consolidated and combined operating results, funds from operations should
be examined in conjunction with net income. Funds from operations is
considered by management as an appropriate measure of the performance of
an equity REIT because it is predicted on cash flow analyses, which
management believes is more reflective of the value of real estate
companies such as NGP rather than a measure predicated on generally
accepted accounting principles which gives effect to non-cash expenditures
such as depreciation. Funds from operations is generally defined as net
income (loss) plus certain non-cash items, primarily depreciation and
amortization. Funds from operations should not be considered as an
alternative to net income as an indication of the NGP's performance or as
an alternative to cash flow, as defined by generally accepted accounting
principles, as measure of liquidity. NAREIT adopted revisions to the
definition of funds from operations as set forth in the NAREIT "White
Paper on Funds From Operations" dated March 1995. NGP has adopted the new
definition of funds from operations and intends to present both the old
and new definitions of funds from operations to assist in comparisons with
prior periods of NGP. The funds from operations presented may not be
comparable to funds from operations for other REITs. The following table
summarizes NGP's funds from operations, based on the old and new
definitions, for the years ended December 31, 1995 and 1994 and the period
August 18, 1993 through December 31, 1993, and Golf Properties Group's
funds from operations for the period January 1, 1993 through August 17,
1993 and the years ended December 31, 1992 and 1991.
<TABLE>
<CAPTION>
NATIONAL GOLF PROPERTIES, INC. GOLF PROPERTIES GROUP
----------------------------------------------- ----------------------------
THREE
MONTHS ENDED YEAR ENDED YEAR ENDED
MARCH 31, DECEMBER 31, AUG. 18, 1993 JAN. 1, 1993 DECEMBER 31,
-------------- ---------------- TO TO --------------
1996 1995 1995 1994 DEC. 31, 1993 AUG. 17, 1993 1992 1991
------ ------ ------- ------- ------------- ------------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net income.............. $3,034 $4,166 $13,286 $11,876 $ 3,820 $ 478 $2,249 $3,090
Minority interest....... 2,600 3,582 11,366 10,712 3,317 -- -- --
Depreciation and
amortization........... 4,108 3,150 14,027 10,413 3,384 4,661 4,937 4,792
Amortization--restricted
stock.................. 236 236 943 893 311 -- -- --
Amortization--investment
premiums............... -- -- -- 540 -- -- -- --
Gain on sale of
property............... (25) (2,000) (1,893) -- -- -- -- --
Write off of option
payable................ -- (101) (101) -- -- -- -- --
Discount on payoff of
note payable........... -- -- -- (175) -- -- -- --
------ ------ ------- ------- ------- ------ ------ ------
Funds from operations--
old definition......... 9,953 9,033 37,628 34,259 10,832 5,139 7,186 7,882
Amortization--restricted
stock.................. (236) (236) (943) (893) (311) -- -- --
Amortization--investment
premiums............... -- -- -- (540) -- -- -- --
Amortization--loan
costs.................. (30) (35) (195) (66) (78) (10) (10) (10)
Depreciation--
corporate.............. (12) (9) (43) (31) (3) -- -- --
------ ------ ------- ------- ------- ------ ------ ------
Funds from operations--
new definition......... $9,675 $8,753 $36,447 $32,729 $10,440 $5,129 $7,176 $7,872
NGP's share of funds
from operations........ 53.85% 53.69% 53.89% 52.58% 53.52% 100% 100% 100%
------ ------ ------- ------- ------- ------ ------ ------
NGP's funds from
operations............. $5,210 $4,699 $19,641 $17,209 $ 5,587 $5,129 $7,176 $7,872
====== ====== ======= ======= ======= ====== ====== ======
</TABLE>
In order to maintain its qualification as a REIT for federal income
purposes, NGP is required to make distributions to its stockholders. NGP's
distributions to stockholders have been less than the total funds from
operations because NGP is obligated to make certain payments with respect to
principal debt and capital improvements. Management believes that to continue
NGP's growth, funds from operations in excess of distributions, principal
reductions and capital improvement expenditures should be invested in assets
expected to generate returns on investment to NGP commensurate with NGP's
investment objectives and policies.
54
<PAGE>
BUSINESS OF NGP
NGP specializes in the acquisition and ownership of golf course properties.
Since August of 1993, NGP has acquired 39 golf courses representing an
aggregate initial investment of approximately $227 million. As of June 20,
1996, NGP owned 84 golf courses geographically diversified among 23 states.
NGP leases the golf courses to experienced and creditworthy operators under
long-term triple net leases. The operators pay minimum base rent on each
property. In addition, a percentage rent feature enables NGP to participate in
growth in revenues of the golf courses. The leases include strict maintenance
standards and require the operators to pay substantially all operating
expenses. For additional information regarding NGP, see "Available
Information" and "Incorporation of Certain Documents by Reference."
55
<PAGE>
GEI'S BUSINESS RELATED TO THE PURCHASED ASSETS
SUMMARY COMBINED FINANCIAL DATA
The following table sets forth summary financial data that is derived from
and should be read in connection with the combined financial statements of
GEI's Business Related to the Purchased Assets, included elsewhere herein. The
statement of operations and balance sheet data as of and for the year ended
December 31, 1995 have been audited by Coopers & Lybrand L.L.P. The statement
of operations data for the three months ended March 31, 1996 and 1995 and the
balance sheet data as of March 31, 1996 have been derived from the unaudited
financial statements of GEI's Business Related to the Purchased Assets, but
include all adjustments (consisting only of normal recurring accruals) which
are, in the opinion of GEI's management, necessary for a fair presentation of
the results of operations for such periods and financial position at such
dates. Operating results for the three months ended March 31, 1996 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1996. The Purchased Assets are comprised of 20 golf course
properties and assets related to such properties currently owned by GEI. See
"Description of Purchased Assets." The Purchased Assets do not include any
cash, accounts receivable, prepaid expenses or liabilities attributable to
GEI's operation of the 20 golf course properties comprising the Purchased
Assets or any of GEI's other assets that are unrelated to the Purchased Assets
(consisting of 21 leased golf course properties, three golf course management
contracts and certain other assets related to such leased and managed
courses). The following table sets forth financial data relating to GEI's
operations of the 20 golf course properties comprising the Purchased Assets,
including assets and liabilities that do not constitute Purchased Assets. As a
result, the following table and the related financial statements of GEI's
Business Related to the Purchased Assets are not representative of the
financial performance of the Purchase Assets alone.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
---------------
YEAR ENDED
1996 1995 DECEMBER 31, 1995
-------- ------ -----------------
(IN THOUSANDS,
EXCEPT PROPERTY DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Total revenues........... $ 8,583 $7,331 $40,678
-------- ------ -------
Expenses
Operating............... 6,192 5,287 28,344
General &
administrative......... 877 775 4,630
Depreciation &
amortization........... 1,151 843 3,239
-------- ------ -------
Total expenses........... 8,220 6,905 36,213
-------- ------ -------
Interest expense, net... 976 258 3,506
-------- ------ -------
Income (loss) before
income taxes ........... (613) 168 959
Income taxes ........... (245) 67 384
-------- ------ -------
Net income (loss) ....... $ (368) $ 101 $ 575
======== ====== =======
BALANCE SHEET DATA (AT
PERIOD-END):
Real estate before
accumulated
depreciation............ $ 91,860 -- $87,254
Total assets............. 86,711 -- 85,848
Total debt............... 48,553 -- 47,003
OTHER DATA (AT PERIOD-
END):
Number of courses........ 20 19 20
Number of locations...... 20 19 20
</TABLE>
56
<PAGE>
DESCRIPTION OF PURCHASED ASSETS
The "Purchased Assets" include the 20 golf course properties owned by GEI at
June 20, 1996 and certain assets related to such properties. The 20 golf
course properties are located in 11 states, with six courses in Texas, two
courses in each of Florida, Kansas, Louisiana and Oklahoma, and one course in
each of Colorado, Idaho, North Carolina, Ohio, South Carolina and Tennessee.
Of the 20 owned golf courses, five are daily fee courses and 15 are private
club courses.
Daily Fee Courses. Daily fee courses are open to the public and generate
revenue principally through green fees, golf cart rentals and driving range
charges. Average revenue per round at GEI's five daily fee courses included in
the Purchased Assets was $32.31 in 1995 compared to $25.81 in 1994.
Private Club Courses. Private club courses are generally closed to the
public and generate revenue principally through initiation fees, membership
dues, golf cart rentals and guest green fees. Initiation fees and membership
dues are determined according to the particular market segment in which the
club operates. At December 31, 1995, GEI's 15 private club courses included in
the Purchased Assets had over 9,000 members.
The other related assets comprising the Purchased Assets include, with
respect to each of the 20 golf course properties, all fixtures, furniture,
furnishings, equipment, machinery, tools, supplies, golf carts, motor
vehicles, fertilizer, seed, sand, food and beverage items and inventory and
professional shop merchandise, goods and inventory owned by GEI at or on such
course. Also included in the Purchased Assets are, among other things, all
other tangible personal property, all books and records and licenses and
permits with respect to each golf course. The Purchased Assets do not include
any cash, accounts receivables, prepaid expenses or liabilities attributable
to GEI's operation of the 20 golf courses comprising the Purchased Assets or
any of GEI's other assets (consisting of 21 leased golf course properties,
three golf course management contracts and certain other assets related to
such leased and managed courses).
The following table sets forth certain information regarding the 20 golf
courses owned by GEI as of June 20, 1996:
DAILY FEE COURSES
<TABLE>
<CAPTION>
LOCATION NO. OF
COURSE NAME (CITY, STATE) HOLES
----------- ------------- ------
<C> <C> <S> <C>
1. Bent Tree Golf Club Columbus, Ohio 18
2. Forrest Crossing Golf Course Nashville, Tennessee 18
3. The Links at Stono Ferry Charleston, South Carolina 18
4. Pawtuckett Golf Club Charlotte, North Carolina 18
5. Summerfield Crossing Golf Club Tampa, Florida 18
PRIVATE CLUB COURSES
<CAPTION>
LOCATION NO. OF
COURSE NAME (CITY, STATE) HOLES
----------- ------------- ------
<C> <C> <S> <C>
1. Crescent Oaks Country Club Clearwater, Florida 18
2. Diamonds Oaks Country Club Fort Worth, Texas 18
3. Eldorado Country Club McKinney, Texas 18
4. Great Southwest Golf Club Grand Prairie, Texas 18
5. Highlands Golf & Supper Club Hutchinson, Kansas 18
6. Meadowbrook Country Club Tulsa, Oklahoma 18
7. Oakridge Country Club Garland, Texas 18
8. Pinery Country Club Denver, Colorado 27
9. The Plantation Golf Club Boise, Idaho 18
10. Shenandoah Country Club Baton Rouge, Louisiana 18
11. Stonebridge Country Club New Orleans, Louisiana 27
12. Tallgrass Country Club Wichita, Kansas 18
13. The Trails Norman, Oklahoma 18
14. Willow Fork Country Club Katy, Texas 18
15. Woodhaven Country Club Fort Worth, Texas 18
</TABLE>
57
<PAGE>
GEI acquired the 20 golf course properties comprising the Purchased Assets
over a span of eight years from 1987 to 1995 for total purchase consideration
of approximately $69.9 million. At December 31, 1995, GEI's recorded aggregate
net book value for such properties was approximately $76.1 million, which
amount reflects GEI's depreciation of the value of such properties and the
cost of certain capital improvements to such properties made by GEI, in each
case since the date each such property was acquired. GEI's management does not
know what amount of proceeds would be generated by a current sale of the
Purchased Assets to a party other than NGP, and therefore cannot speculate
whether such proceeds would exceed or not exceed GEI's original purchase price
for the Purchased Assets.
Pursuant to the terms of the Acquisition Agreement, NGP will pay $58 million
in a combination of cash and shares of NGP Common Stock or all cash for the
Purchased Assets. Such $58 million purchase price reflects NGP's valuation of
the golf course properties comprising the Purchased Assets as real estate
assets capable of generating cash flows from rental payments sufficient to
cover NGP's capital investment and provide a return on such investment
commensurate with NGP's historical rate of return on investment. Consistent
with NGP's past practice, NGP valued the golf course properties comprising the
Purchased Assets using a multiple of the cash flows from such properties after
providing an allowance for an operator's overhead, repair and capital
expenditure expense and a reasonable operator profit.
Based on NGP's valuation of the Purchased Assets, NGP's management does not
believe that GEI's original aggregate purchase price or current net book value
for such golf course properties represents their fair market value today in a
sale to any purchaser capable of acquiring such properties. NGP's management
believes that the historical performance (as measured in EBITDA) of certain of
the golf course properties comprising the Purchased Assets does not justify a
current value for such properties equal to or near GEI's original purchase
price or current net book value for such assets. NGP's management believes
that GEI paid more for certain of these properties than NGP and certain other
qualified purchasers would have paid at that time. In other cases, NGP's
management believes that certain properties acquired by GEI have not performed
as well as GEI expected when it acquired such properties. The result in both
instances is reflected in relatively low historical cash flows for such golf
courses, which results in a lower valuation of such properties by NGP or other
possible purchasers.
58
<PAGE>
The following table sets forth for each golf course property included in the
Purchased Assets the date such course was acquired by GEI, the purchase price
originally paid by GEI for such course, GEI's net book value for such course
at December 31, 1995, and NGP's initial allocation of its total consideration
for the Purchased Assets to such property. The footnotes to such table
indicate the factors which NGP believes have affected the valuation of certain
properties in recent periods.
<TABLE>
<CAPTION>
GEI'S NGP'S ALLOCATION
DATE PURCHASE NET BOOK VALUE OF ASSET
ACQUIRED PRICE PAID AT DECEMBER 31, PURCHASE
GOLF COURSE BY GEI BY GEI 1995(1) CONSIDERATION(2)
----------- -------- ---------- --------------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Highlands Golf and
Supper Club............ Sep 1987 $ 575 $ 673 $ 1,640
Shenandoah Country
Club................... Jun 1988 1,250 1,627 1,544(3)
The Links of Stono
Ferry.................. Nov 1988 3,773 3,334 1,626(4)
Forrest Crossing Golf
Course................. Jan 1989 3,625 2,861 3,004(5)
Pawtuckett Golf Club.... Jan 1989 1,900 1,821 1,516(6)
Tallgrass Country Club.. Jan 1989 900 1,351 2,253
Meadowbrook Country
Club................... May 1989 3,000 4,198 5,184
Stonebridge Country
Club................... May 1989 2,100 2,008 898(7)
Summerfield Crossing
Golf Club.............. Jul 1989 2,736 2,305 2,778
Crescent Oaks Country
Club................... Jan 1990 2,673 3,034 1,226(8)
The Trails.............. Jun 1993 1,640 2,599 2,451
The Plantation Golf
Club................... Sep 1993 4,200 4,824 2,677(9)
Bent Tree Golf Club..... Oct 1994 6,275 6,349 3,686(10)
Diamond Oaks Country
Club................... Dec 1994 4,750 5,397 3,801(11)
Great Southwest Golf
Club................... Dec 1994 9,500 9,602 5,243(12)
Oakridge Country Club... Dec 1994 4,000 4,420 3,820(13)
Pinery Country Club..... Dec 1994 4,750 6,094 5,147(14)
Woodhaven Country Club.. Dec 1994 3,090 3,610 2,742(15)
Eldorado Country Club... Feb 1995 5,300 5,490 4,004(16)
Willow Fork Country
Club................... Jun 1995 3,818 4,523 2,760(17)
------- ------- -------
$69,855 $76,120 $58,000
======= ======= =======
</TABLE>
- --------
(1) GEI's current net book value reflects depreciation and capital
improvements made by GEI after acquiring such property.
(2) Pursuant to the Acquisition Agreement, NGP and GEI agreed to this initial
allocation of NGP's total purchase price for the Purchased Assets. NGP
will finalize its allocation of acquisition consideration following
consummation of the Asset Purchase based on appraisals of the Purchased
Assets. NGP's management believes that there will not be any significant
changes to its initial allocation of consideration for the Asset
Purchase.
(3) Shenandoah Country Club is an older facility with limited banquet space
and locker rooms, as well as a driving range that is small given the size
of the membership. NGP believes that significant capital improvements
will be necessary at this club. The club has also recently experienced
significant work-force turnover, as well as competitive pressure from a
local country club.
(4) The Links at Stono Ferry is in an area with a large supply of golf
courses, which has created a very competitive sales environment. The
demographics of the area, with respect to both population and income, are
not optimal for a golf course. The club has limited seating for
tournaments, and the condition of the golf course itself has historically
been negatively affected by adverse weather conditions.
(5) Forrest Crossing has experienced severe weather conditions, including
flooding and severe winter weather, which has impacted course quality in
recent years. NGP believes that significant capital improvements will be
needed to correct the course conditions. The course has also experienced
significant competitive pressures recently.
59
<PAGE>
(6) Pawtucket Golf Club is an older club which NGP believes will require
substantial capital improvements. The greens are a combination of bermuda
grass and bent grass, which is difficult to maintain, especially during
periods of high temperatures. Operating income at this course has been
negligible in recent periods.
(7) Stonebridge Country Club has a very challenging golf course design, in
that 16 of 18 holes have water features in front of greens, which tends
to be frustrating to golfers. The driving range is only able to
accommodate limited flight balls. As a result, NGP believes that the
course will require significant investment to improve design and
playability. In addition, the club has experienced aggressive competition
from several other clubs in the area. Operating income at this course has
been negligible in recent periods.
(8) NGP believes that Crescent Oaks will require significant capital
investment to the golf course in order to retain its competitive
position. The local private club market is highly competitive and other
clubs are aggressively recruiting new members. Operating income at this
course has been negligible in recent periods.
(9) The Plantation Golf Club is an older facility, with minimal banquet
space, and NGP believes the club is in need of significant capital
investment. The golf course also requires a modernized irrigation system.
Recent competitive openings and a general economic softening in the area
have also impacted performance.
(10) Bent Tree Golf Club is in a very competitive market with a significant
supply of golf courses in the area.
(11) Diamond Oaks Country Club is in a competitive market with a number of
good public courses available. NGP believes that areas of the clubhouse
require major capital repairs, and the golf course irrigation and
reservoir system require capital improvements to maintain consistent
course quality.
(12) Great Southwest Golf Club is located in an industrial area, which has
affected the public perception of the facility. The clubhouse is an older
facility which NGP believes is in need of capital investments to enhance
the appearance and provide greater banquet space. The golf course
requires improvements to the driving range and other capital investments.
(13) NGP believes that Oakridge Country Club has experienced significant
deferred maintenance, which will hinder efforts to recruit new members.
The golf course has also been disrupted due to damage caused by erosion
following storms. Performance has also been impacted by the on-going
effects of the acts of management prior to GEI, including an IRS seizure
of the property.
(14) Pinery Country Club is an older facility which NGP believes will require
significant capital improvements to remain competitive. In addition, the
financial performance of the club has suffered because of high turnover
in the general manager position, with three general managers in three
years.
(15) Woodhaven Golf Club has an outdated clubhouse which has not been
renovated in over 10 years. The area surrounding the facility has a
questionable reputation, which will hamper efforts to recruit new
members.
(16) NGP believes that Eldorado Country Club is in need of significant general
repairs and improvements to the appearance of the facility, which has
affected membership levels.
(17) Willow Fork Country Club was designed by a residential developer and was
not originally intended to be used as a full service country club. NGP
believes that significant capital improvements are needed to expand the
facilities to accommodate banquets and tournaments.
60
<PAGE>
GEI SELECTED CONSOLIDATED FINANCIAL DATA
NGP is acquiring from GEI only the 20 golf courses and related assets
comprising the Purchased Assets. Immediately following the Asset Purchase,
Newco will acquire GEI's remaining assets (consisting of 21 leased golf course
properties, three golf course management contracts and certain other assets
related to such leased and managed courses) and assume GEI's liabilities by
merging with and into GEI with GEI being the surviving corporation.
Set forth below are the selected consolidated financial and operating data
of GEI for each of the years in the five-year period ended December 31, 1995
and the three-month periods ended March 31, 1996 and 1995. The statement of
operations data for the year ended December 31, 1991 represent the combined
results of operations of Jim Colbert Golf, Inc., a wholly-owned subsidiary of
GEI ("JCG"), for the period from January 1, 1991 to March 24, 1991 and GEI for
the period from March 25, 1991 to December 31, 1991. The statement of
operations data for the period from January 1, 1991 to March 24, 1991 have
been derived from the unaudited historical financial statements of JCG. The
statement of operations and balance sheet data as of and for the period from
March 25, 1991 to December 31, 1991 and as of and for the years ended December
31, 1992, 1993, 1994 and 1995 have been derived from the audited financial
statements of GEI. The statement of operations data for the three months ended
March 31, 1996 and 1995 and the balance sheet data as of March 31, 1996 have
been derived from the unaudited financial statements of GEI, but include all
adjustments (consisting only of normal recurring accruals) which are, in the
opinion of management, necessary for a fair presentation of the results of
operations for such periods and financial position at such dates. Operating
results for the three months ended March 31, 1996 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1996. The data should be read in conjunction with "GEI Management's Discussion
and Analysis of Financial Condition and Results of Operations," as well as the
Consolidated Financial Statements of GEI and notes thereto included elsewhere
herein.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
-------------------- ------------------------------------------------
1996 1995 1995 1994 1993 1992 1991 (1)
--------- --------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Operating revenue...... $ 22,891 $ 16,344 $ 80,190 $ 48,682 $ 38,404 $ 34,716 $ 30,137
Operating expenses..... 17,710 13,070 64,733 38,288 29,772 26,316 24,285
Depreciation and
amortization(2)....... 2,094 1,722 6,871 4,802 4,089 3,995 4,398
Other expense(3)....... -- -- -- -- 334 88 2,226
--------- -------- -------- -------- -------- -------- --------
Total costs and
expenses............. 19,804 14,792 71,604 43,090 34,195 30,399 30,909
--------- -------- -------- -------- -------- -------- --------
Operating income
(loss)(4)............ 3,087 1,552 8,586 5,592 4,209 4,317 (772)
Interest expense, net.. 1,288 1,225 5,090 3,996 4,801 5,177 5,184
--------- -------- -------- -------- -------- -------- --------
Income (loss) before
income taxes and
extraordinary item... 1,799 327 3,496 1,596 (592) (860) (5,956)
Income taxes(5)........ 57 22 109 50 52 42 22
--------- -------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary item... 1,742 305 3,387 1,546 (644) (902) (5,978)
Extraordinary item(6).. -- -- -- 2,638 -- -- --
--------- -------- -------- -------- -------- -------- --------
Net income (loss)..... $ 1,742 $ 305 $ 3,387 $ (1,092) $ (644) $ (902) $ (5,978)
========= ======== ======== ======== ======== ======== ========
Income (loss) per
common share before
extraordinary
item(7).............. $ 0.26 $ 0.05 $ 0.51 $ 0.33 $ (0.09)
========= ======== ======== ======== ========
BALANCE SHEET DATA (AT
PERIOD-END):
Working capital
(deficit)............. $ 3,155 $ 956 $ 5,366 $ (1,573) $ (118) $ (1,285)
Total assets........... 123,375 121,862 102,894 58,087 49,438 48,225
Long-term debt, net of
current portion....... 59,082 59,375 50,653 45,156 40,105 39,750
Redeemable convertible
preferred stock....... -- -- -- 22,212 17,258 13,863
Stockholders' equity
(deficit)............. 44,711 42,134 38,591 (18,095) (15,706) (13,410)
SUPPLEMENTAL DATA:
Net cash provided by
operating activities.. 2,384 2,228 9,635 4,617 4,353 3,761 2,216
Net cash used by
investing activities.. (1,181) (7,669) (19,811) (35,959) (7,035) (2,683) (3,011)
Net cash provided
(used) by financing
activities............ 174 4,253 6,739 35,030 1,698 (256) 1,315
Number of golf
facilities at period-
end................... 43 39 43 36 27 22 19
Number of rounds played
(in thousands)........ 436 349 1,793 1,388 1,238 1,124 933
</TABLE>
61
<PAGE>
- --------
(1) Represents the combined results of operations of Jim Colbert Golf, Inc.
("JCG"), the predecessor and a wholly owned subsidiary of GEI, from
January 1, 1991 to March 24, 1991 (unaudited) and the results of
operations of GEI for the period from March 25, 1991 (the date of the
recapitalization of GEI, the "1991 Recapitalization," see "Business of
GEI--History") to December 31, 1991.
(2) Includes amortization of consulting, confidentiality and noncompete
agreements recorded in connection with the 1991 Recapitalization of
$211,000, $845,000 and $887,000 in 1993, 1992 and 1991, respectively.
(3) Consists of non-recurring, non-cash charges associated with the early
termination of leases and in 1991 includes a one-time charge to
compensation expense recorded by JCG in connection with the 1991
Recapitalization in the amount of $1,011,000, primarily associated with
payments made to cancel certain stock options.
(4) Includes effects of (i) corporate relocation expenses of $347,000 and
$173,000 in 1993 and 1991, respectively, and (ii) operating income (loss)
associated with terminated leased facilities of ($347,000), ($33,000) and
$82,000 in 1993, 1992 and 1991, respectively.
(5) Consists solely of state income taxes.
(6) In 1994, in connection with the initial public offering, GEI paid
prepayment penalties of $1,971,000 associated with the early retirement of
debt and wrote off $667,000 of deferred debt issuance costs related to the
debt retired.
(7) The weighted average number of common shares outstanding during the three
months ended March 31, 1996 and 1995 includes the effect of stock options,
using the treasury stock method and the market price per share at the end
of the respective periods, as the inclusion of these options has a
dilutive effect on net income per common share. The use of the ending
market price per share in these periods results in full dilution, as such
price exceeds the average market price per share during the respective
periods. Primary net income per common share is not materially different
from fully diluted net income per common share for the periods. The
weighted average number of common shares outstanding during 1995 and 1994
includes the effect of stock options, using the treasury stock method and
the average market price per share, as the inclusion of these options has
a dilutive effect on income per common share before extraordinary item.
The use of the average market price per share in 1995 and 1994 results in
full dilution, as such price exceeds the market price at the end of the
respective periods. The weighted average number of common shares
outstanding during 1994 and 1993 have been adjusted for (i) the
retroactive effect of the conversion of redeemable convertible preferred
stock and convertible notes to common stock, (ii) the issuance of common
stock in payment of dividends on the redeemable convertible preferred
stock and interest notes and additional accrued interest related to the
convertible notes and (iii) the common stock split, as if these events
occurred at the beginning of the respective year. The weighted average
number of common shares outstanding during 1993 includes the effect of
stock options issued in 1994 at prices below the initial public offering
price without regard for the antidilutive effect of such options. Net loss
attributable to common stockholders used to calculate income (loss) per
common share before extraordinary item excludes $1,234,000 and $1,745,000
of preferred stock dividends and accretion to mandatory redemption value
for all classes of redeemable convertible preferred stock during 1994 and
1993, respectively, and $186,000 and $308,000 of interest expense
associated with the convertible notes during 1994 and 1993, respectively.
62
<PAGE>
PRO FORMA CONDENSED BALANCE SHEET FOR GEI -- (SALE AND MERGER ADJUSTMENTS)
The unaudited pro forma condensed balance sheet (column 3) reflects the
financial position of GEI immediately after the acquisition of the Purchased
Assets by NGP as if the Asset Purchase occurred on March 31, 1996. The last
two columns (columns 4 and 5) represent cash contributed by Newco, elimination
of GEI's net assets which will be retained by the Surviving Corporation
following the Merger, and amounts distributed to GEI stockholders and holders
of options to purchase GEI Common Stock in connection with the Merger.
The historical financial information of GEI as of March 31, 1996 has been
derived from GEI's consolidated financial statements included herein. The pro
forma financial information should be read in conjunction with the
accompanying notes thereto and with the financial statements of GEI included
herein. The pro forma condensed balance sheet does not purport to be
indicative of the financial position which would have been achieved had the
Asset Purchase been consummated on March 31, 1996 and should not be construed
as representative of future financial position. In the opinion of GEI's
management, all adjustments necessary to reflect the effect of the Asset
Purchase have been made.
<TABLE>
<CAPTION>
AMOUNTS TO
HISTORICAL ADJUSTMENTS FOR PRO FORMA DISTRIBUTE TO
GEI SALE OF PURCHASED GEI AFTER MERGER SHAREHOLDERS AND
MARCH 31, 1996 ASSETS TO NGP ASSET PURCHASE ADJUSTMENTS OPTION HOLDERS(1)
-------------- ----------------- -------------- ----------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.......... $ 2,663 $ 17,213 (2) $ 19,876 $ 23,600 (3) $40,786
(2,690)(4)
Temporary
investments.......... -- 40,787 (2) 40,787 -- 40,787
Accounts and notes
receivable, net...... 8,308 -- 8,308 (8,308)(4) --
Inventories........... 3,347 -- 3,347 (3,347)(4) --
Prepaid expenses...... 2,230 -- 2,230 (2,230)(4) --
-------- -------- -------- -------- -------
Total current
assets............. 16,548 58,000 74,548 7,025 81,573
Property and equipment,
net.................... 95,332 (77,405)(5) 17,927 (17,927)(4) --
Goodwill, net........... 3,849 (3,466)(5) 383 (383)(4) --
Debt issuance costs,
net.................... 1,086 -- 1,086 (1,086)(4) --
Other assets, net....... 6,560 -- 6,560 (6,560)(4) --
-------- -------- -------- -------- -------
$123,375 $(22,871) $100,504 $(18,931) $81,573
======== ======== ======== ======== =======
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...... $ 5,671 $ -- $ 5,671 $ (5,671)(4) $ --
Accrued liabilities... 1,328 -- 1,328 (1,328)(4) --
Current portion of
long-term debt....... 2,329 -- 2,329 (2,329)(4) --
Current portion of
deferred income...... 4,065 -- 4,065 (4,065)(4) --
-------- -------- -------- -------- -------
Total current
liabilities........ 13,393 -- 13,393 (13,393) --
Long-term debt, less
current portion........ 59,082 -- 59,082 (59,082)(4) --
Deferred income, less
current portion........ 1,556 -- 1,556 (1,556)(4) --
Other long-term
liabilities............ 1,055 -- 1,055 (1,055)(4) --
Deferred income taxes... 3,578 (3,578)(5) -- -- --
Stockholders' equity:
Common stock.......... 66 -- 66 (66)(4) --
Additional paid-in
capital.............. 61,322 -- 61,322 20,251 (4) 81,573
Accumulated deficit... (16,257) (19,293)(5) (35,550) 35,550 (4) --
-------- -------- -------- -------- -------
45,131 (19,293) 25,838 55,735 81,573
Notes receivable from
stockholders......... (420) -- (420) 420 (4) --
-------- -------- -------- -------- -------
Total stockholders'
equity............. 44,711 (19,293) 25,418 56,155 81,573
-------- -------- -------- -------- -------
$123,375 $(22,871) $100,504 $(18,931) $81,573
======== ======== ======== ======== =======
</TABLE>
- -------
(1) In connection with the Merger, GEI stockholders will become entitled to
exchange each share of GEI Common Stock for consideration consisting of
either (a) a combination of $6.00 in cash and approximately $6.00 of NGP
Common Stock (subject to certain adjustments and limitations) or (b)
$12.00 in cash, depending on the form of consideration paid by NGP in
connection with the Asset Purchase. The total amounts payable to holders
of GEI Common Stock in the Merger will be $79,025,784. Holders of options
to acquire GEI Common Stock will become entitled to receive, in exchange
for cancellation of such options, total consideration of $2,547,514
(subject to certain adjustments and limitations) payable in the same
proportion of cash and NGP Common Stock as holders of GEI Common Stock
receive in the Merger.
(2) The consideration payable to GEI by NGP for the Purchased Assets will
consist of, at NGP's option, either (a) shares of NGP Common Stock with an
aggregate value of $40,786,649 (subject to certain exceptions and
limitations) and $17,213,351 in cash, or (b) $58 million in cash. NGP
currently expects to pay the combination of cash and stock as
consideration for the Asset Purchase, and intends to obtain the
$17,213,351 in cash from the Operating Partnership's revolving credit
facility. See "The Asset Purchase and Merger--Financing of the
Acquisition."
(3) Represents cash which will be contributed by Newco and distributed, along
with NGP's $58 million of cash and stock, to GEI stockholders as the
Merger Consideration.
(4) Reflects the elimination of GEI's net assets remaining after the Asset
Purchase which will be retained by Surviving Corporation following the
Merger.
(5)Reflects the elimination of the Purchased Assets attributable to GEI's sale
of such assets to NGP.
63
<PAGE>
GEI MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NGP is acquiring from GEI only the 20 golf courses and related assets
comprising the Purchased Assets. Immediately following the Asset Purchase,
Newco will acquire GEI's remaining assets (consisting of 21 leased golf course
properties, three golf course management contracts and certain other assets
related to such leased and managed courses) and assume GEI's liabilities by
merging with and into GEI with GEI being the surviving corporation.
The following discussion and analysis should be read in conjunction with
"GEI Selected Consolidated Financial Data" as well as the Consolidated
Financial Statements of GEI and Notes thereto included elsewhere herein.
GENERAL
GEI seeks to achieve continued growth in revenue and operating cash flow by
acquiring, either through purchase, lease or contract to manage,
underperforming daily fee, resort and private country club golf courses and by
implementing operating improvements to enhance financial performance.
Operating revenue includes green fees and practice facility fees, dues and
initiation fees of private members, golf cart rentals, retail sales of food,
beverages and pro shop merchandise, and management fees. Historically, the
percentage of GEI's total operating revenue represented by each of these
revenue categories has not fluctuated significantly.
GEI acquires golf courses through purchase, lease or a contract to manage.
GEI currently owns fee title to 20 of its courses, the purchase prices of
which have been financed with unsecured indebtedness, equity contributions
and/or seller financing. GEI currently operates 21 leased golf courses, all of
which are classified as operating leases for financial reporting purposes. As
a result, leased courses result in lower depreciation and interest expense
than do purchased courses. Management fees received under GEI's three
management agreements are classified as operating revenue and any associated
expenses are classified as operating expenses.
GEI operated 43 golf courses at March 31, 1996 and December 31, 1995. The
following table sets forth, for the periods indicated, the change in the
number of golf courses owned, leased or managed by GEI.
<TABLE>
<CAPTION>
OWNED LEASED MANAGED TOTAL
----- ------ ------- -----
<S> <C> <C> <C> <C>
At December 31, 1992................................ 10 11 1 22
Increases......................................... 1 5 -- 6
Decreases......................................... -- (1) -- (1)
Transfers*........................................ 1 (1) -- --
--- --- --- ---
At December 31, 1993................................ 12 14 1 27
Increases......................................... 6 3 -- 9
--- --- --- ---
At December 31, 1994................................ 18 17 1 36
Increases......................................... 2 3 2 7
--- --- --- ---
At December 31, 1995 and March 31, 1996............. 20 20** 3 43**
=== === === ===
</TABLE>
- --------
*GEI leased The Plantation Golf Club from September 1991 until it purchased
the course in September 1993.
**GEI has leased one additional golf course property subsequent to March 31,
1996.
Courses are leased or purchased at varying times throughout the year.
Depending on the length of the partial year for which a course is operated,
the seasonality of operations and the unique operating improvements of a
course, results of operations of a course for a portion of a year may not be
indicative of the results of operations at the course for an entire year.
64
<PAGE>
SUBSEQUENT EVENT
On February 2, 1996, GEI entered into the Acquisition Agreement pursuant to
which it has agreed to sell its 20 owned golf course properties and related
assets comprising the Purchased Assets to NGP and merge immediately thereafter
with Newco. If the Acquisition Agreement is approved by the stockholders and
becomes effective, stockholders of GEI will be entitled to exchange each share
of GEI common stock for, depending on the form of consideration paid by NGP,
at NGP's option, in connection with the Asset Purchase, either (i) a
combination of $6.00 in cash and between approximately 0.20870 and 0.31304 of
a share of NGP common stock (assuming no exercise of options to purchase GEI
common stock prior to the Merger) valued at approximately $6.00 (subject to
limitations on the maximum and minimum number of NGP shares issuable), or (ii)
$12.00 in cash. Subject to certain adjustments and limitations, GEI
stockholders will receive total consideration of $79,025,784, and holders of
unexpired and unexercised options to purchase GEI common stock will be
entitled to receive, in exchange for cancellation of such options, total
consideration of $2,547,514 payable in the same proportion of cash and stock
as is paid to holders of GEI common stock. Of this total aggregate
consideration of approximately $81.6 million, $58.0 million will come from NGP
as consideration for the Purchased Assets and Newco will contribute
approximately $23.6 million in cash. In addition, Newco will refinance
approximately $54.9 million of GEI's existing indebtedness in connection with
the Merger.
The Asset Purchase and the Merger are subject to certain conditions,
including approval of the stockholders of GEI and NGP. Stockholders of GEI
holding approximately 45% of its outstanding common stock (on a fully diluted
basis) have agreed to vote their shares in favor of the Asset Purchase and the
Merger. The closing of these transactions currently is expected to occur in
the second quarter of 1996. GEI anticipates that a loss of approximately $19.3
million, net of income tax effect, will be recognized on the sale of the
Purchased Assets to NGP. Although GEI will recognize the loss on the sale of
the Purchased Assets upon consummation of the Asset Purchase transaction, such
transaction is only a component of the entire transaction and will occur
simultaneously with the Merger. The proceeds of the Asset Purchase together
with the proceeds of the Merger will significantly exceed the historical net
book value of GEI. Accordingly, no impairment of GEI's property and equipment
has occurred.
LIQUIDITY AND CAPITAL RESOURCES
GEI's $70,000,000 revolving credit facility (the "Revolving Credit
Facility") is for use in financing the acquisition, lease or improvement of
golf courses and the acquisition of golf course management companies,
refinancing indebtedness, and for general working capital purposes. A portion
is to be treated as a reducing revolver, with equal installments of $2,083,000
due quarterly beginning on March 31, 1997, and the balance is due on December
31, 1999. Loans under the Revolving Credit Facility are unsecured and bear
interest at either a Eurodollar rate or a customary base rate, plus in each
case a marginal percentage of up to 2.0% depending on GEI's ratio of total
debt to EBITDA. Interest is payable either quarterly with respect to base rate
loans or on the last day of selected interest periods ranging from one to six
months with respect to Eurodollar loans. The Revolving Credit Facility is
subject to customary conditions and covenants, including dividend payment
limitations, capital expenditure limitations, negative pledge covenants and
financial ratio covenants.
As of March 31, 1996 and December 31, 1995, GEI had borrowed $52,000,000
under the Revolving Credit Facility to finance the repayment of debt in
connection with GEI's initial public offering, to finance the purchase of a
public golf course and seven private golf clubs, and for general working
capital purposes. These loans are currently Eurodollar loans, bearing interest
at rates ranging from 7.125% to 7.5625% (each including a marginal percentage
of 2.0%). GEI was in compliance with all restrictive covenants and conditions
as of March 31, 1996 and December 31, 1995.
GEI believes that cash generated by operations will be sufficient to meet
its capital expenditure and debt service needs through 1998, while amounts
available under the Revolving Credit Facility will provide GEI with additional
flexibility to take advantage of acquisition opportunities that may arise. As
a result of GEI's aggressive growth strategy, GEI will require alternate
financing arrangements in order to repay the amounts outstanding under its
Revolving Credit Facility upon maturity.
65
<PAGE>
GEI analyzes cash flows from operations to evaluate its ability to service
its debt and finance its operations and capital expenditures. GEI generated
cash flows from operating activities in the amounts of $2,384,000, $2,228,000,
$9,635,000, $4,617,000 and $4,353,000 in the three months ended March 31, 1996
and 1995 and the years ended December 31, 1995, 1994 and 1993, respectively.
GEI's capital expenditures totalled $1,181,000, $1,533,000, $8,331,000,
$3,117,000 and $4,090,000 in the three months ended March 31, 1996 and 1995
and the years ended December 31, 1995, 1994 and 1993, respectively (excluding
acquisitions of golf courses). In 1993, GEI sold approximately $2,200,000 of
redeemable convertible preferred stock to fund repayments of debt and used
excess cash, seller financing and loans from a stockholder to finance
acquisitions.
At December 31, 1995, GEI had net operating loss carryforwards of
$12,350,000, which expire during the period from 2003 to 2009, available to
offset future taxable income. Accordingly, GEI does not anticipate paying any
federal income taxes in the next several years. Income tax expense incurred in
1995 consists solely of state income taxes.
It has been GEI's practice to lease golf carts and certain turf maintenance
equipment under leases which are capitalized for financial reporting purposes.
GEI typically invests in new golf carts upon the purchase or lease of a golf
course. As of December 31, 1995, GEI had financed $7,431,000 of assets under
capital leases.
NEWLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
("Statement No. 123"), which establishes a fair value based method of
accounting for stock-based compensation plans. Entities are encouraged to
adopt all provisions of Statement No. 123 and are required to comply with the
disclosure requirements of Statement No. 123. Statement No. 123 is effective
for financial statements for fiscal years beginning after December 15, 1995.
The adoption of Statement No. 123 as of January 1, 1996 did not have a
material effect on the consolidated financial condition or operating results
of GEI, as GEI did not adopt the value-based measurement concept.
The Financial Accounting Standards Board has also issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("Statement No.
121"). Statement No. 121 requires that long-lived assets and certain
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. GEI periodically reevaluates the carrying amounts of its long-
lived assets and the related depreciation and amortization periods as
discussed in the notes to GEI's Consolidated Financial Statements. The
adoption of Statement No. 121 as of January 1, 1996 did not have a material
effect on GEI's consolidated financial condition or operating results.
66
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items
from "GEI Selected Consolidated Financial Data" expressed as a percentage of
operating revenue and the percentage change in the dollar amounts of such
items compared to the prior period.
<TABLE>
<CAPTION>
PERCENTAGE OF OPERATING REVENUE PERCENTAGE INCREASE (DECREASE)
-------------------------------------------- -----------------------------------------
THREE MONTHS THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31, ENDED MARCH 31, YEAR ENDED DECEMBER 31,
---------------- -------------------------- --------------- -----------------------------
1996 1995 1995 1994 1993 1995 TO 1996 1994 TO 1995 1993 TO 1994
------- ------- ------- ------- ------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenue....... 100.0% 100.0% 100.0% 100.0 % 100.0 % 40.1 % 64.7% 26.8%
Costs and expenses:
Operating expenses..... 77.4 80.0 80.7 78.6 77.5 35.5 69.1 28.6
Depreciation and
amortization.......... 9.1 10.5 8.6 9.9 10.6 21.6 43.1 17.5
Other expense.......... 0.0 0.0 0.0 0.0 0.9 * * *
------- ------- ------- ------- -------
Total costs and
expenses............ 86.5 90.5 89.3 88.5 89.0 33.9 66.2 26.0
------- ------- ------- ------- -------
Operating income..... 13.5 9.5 10.7 11.5 11.0 98.9 53.5 32.9
Interest expense, net... 5.6 7.5 6.4 8.2 12.6 5.1 27.4 (16.8)
------- ------- ------- ------- -------
Income (loss) before
income taxes and
extraordinary item.... 7.9 2.0 4.3 3.3 (1.6) * * *
Income taxes............ 0.3 0.1 0.1 0.1 0.1 * * (3.8)
------- ------- ------- ------- -------
Income (loss) before
extraordinary item.... 7.6 1.9 4.2 3.2 (1.7) * * *
Extraordinary item...... 0.0 0.0 0.0 5.4 0.0 * * *
------- ------- ------- ------- -------
Net income (loss)...... 7.6% 1.9% 4.2% (2.2)% (1.7)% * * (69.6)
======= ======= ======= ======= =======
</TABLE>
- --------
* Percentages exceed 100%.
Quarter Ended March 31, 1996 Compared to the Quarter Ended March 31, 1995
Operating revenue from each of the five major operating revenue categories
(green fees and practice facility fees, dues and initiation fees, golf cart
rentals, food and beverage sales and pro shop sales) increased, primarily due
to the seven golf courses which were added to the Company's management
portfolio in 1995 and through March 31, 1996. These seven new courses
contributed $4,734,000 more revenue than in the first quarter of 1995, and
revenue at the existing clubs increased $1,813,000, or 11.5%. As a percentage
of total operating revenue, dues and initiation fees increased to 27.7% from
24.6% and green fees and practice facility fees decreased to 33.3% from 35.8%,
as six of the seven new courses are private country clubs. Golf cart rentals,
food and beverage, pro shop and other revenue remained relatively constant as
a percentage of total operating revenue.
Operating expenses include payroll; cost of food and beverage and pro shop
merchandise sold; supplies, maintenance and repairs; rent; utilities;
insurance; property and other taxes; advertising and promotion and other
general and administrative expenses. Operating expenses increased by 35.5%,
primarily as a result of the seven new courses, as operating expenses at the
existing courses increased by only 3.8%. Operating expenses decreased as a
percentage of operating revenue as a result of economies of scale that exist
upon the acquisition of quality courses.
Depreciation and amortization expense decreased as a percentage of operating
revenue in the quarter ended March 31, 1996, as only two of the seven new
courses were purchased. Accordingly, rent expense increased as a percentage of
operating revenue during the quarter ended March 31, 1996.
Net interest expense consists of interest on acquisition debt, notes to
related parties and capital lease obligations as well as the amortization of
deferred debt issuance costs. Net interest expense increased by 5.1% during
the quarter ended March 31, 1996 as a result of borrowings used to fund the
Company's purchase of two courses in 1995. Net interest expense decreased as a
percentage of operating revenue.
67
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Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Operating revenue increased by 64.7%, to $80,190,000 in 1995 from
$48,682,000 in 1994. Revenue from each of the five major operating revenue
categories (green fees and practice facility fees, dues and initiation fees,
golf cart rentals, food and beverage sales and pro shop sales) increased,
primarily due to the golf courses acquired in 1995 and 1994. As GEI's 1994
acquisitions were not purchased or leased until the fourth quarter of 1994,
these courses did not contribute significantly to GEI's total operating
revenue in 1994. Excluding the courses acquired in 1995 and 1994, GEI's
operating revenue increased by $1,790,000 in 1995 from 1994, primarily as a
result of a $1,287,000, or 7.3%, increase in green fees and practice facility
fees due to an increase in rates charged at certain of GEI's public courses.
Additionally, food and beverage and pro shop sales at the existing courses
increased by 2.3% and 6.5%, respectively as a result of increased banquet
activities and marketing efforts. Dues and initiation fees at the existing
courses increased 2.1%. These increases occurred despite (i) generally adverse
weather conditions in several of GEI's markets during 1995 and (ii) negative
effects of decreased participation rates in the industry. According to the
NGF, the overall golf participation rate has decreased in recent years, from
12.0% in 1989 to 11.4% in 1994. However, over the next several years, GEI
expects to see a rebound in the overall participation rates for golfing due to
continued growth in the number of golf courses as well as supporting
demographic trends, such as aging baby boomers. Over the next five years, the
population of the 40-49 and 50-59 age groups are expected to grow by 14% and
21%, respectively.
Operating expenses include payroll; cost of food and beverage and pro shop
merchandise sold; supplies, maintenance and repairs; rent; utilities;
insurance; property and other taxes; advertising and promotion and other
general and administrative expenses. Operating expenses increased by 69.1% to
$64,733,000 in 1995 from $38,288,000 in 1994. This increase was primarily
attributable to the golf courses purchased or leased during 1995 and 1994.
Operating expenses as a percentage of operating revenue increased to 80.7% in
1995 from 78.6% in 1994. Excluding the courses purchased or leased during 1995
and 1994, GEI's operating expenses increased by 10.4%. These increases were
primarily a result of increased acquisition activity, advertising and
promotion, and costs associated with being publicly held. Additionally, cost
of food and beverage and pro shop merchandise sold at the existing courses
increased by 2.4% and 2.1%, respectively, consistent with the related
increases in revenues.
Depreciation and amortization expense increased by 43.1%, to $6,871,000 in
1995 from $4,802,000 in 1994 due to GEI's newly purchased courses and initial
capital expenditures required at a few of its newly leased courses.
Depreciation and amortization expense as a percentage of operating revenue
decreased to 8.6% in 1995 from 9.9% in 1994.
Operating income increased by 53.5%, to $8,586,000 in 1995 from $5,592,000
in 1994 as a result of the golf courses acquired in 1995 and 1994.
Net interest expense increased by 27.4%, to $5,090,000 in 1995 from
$3,996,000 in 1994, as a result of additional borrowings made to fund GEI's
purchases of golf courses in 1995 and 1994.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Operating revenue increased by 26.8%, to $48,682,000 in 1994 from
$38,404,000 in 1993. Revenue from each of the five major operating revenue
categories (green fees and practice facility fees, dues and initiation fees,
golf cart rentals, food and beverage sales and pro shop sales) increased,
primarily due to the six golf courses that were purchased and leased in 1993.
As GEI's 1994 acquisitions were not purchased or leased until the fourth
quarter of 1994, these courses did not contribute significantly to GEI's total
operating revenue in 1994. Excluding the courses acquired in 1994 and 1993 and
the practice facility whose lease was terminated during 1993, GEI's operating
revenue increased by $405,000 in 1994 from 1993.
Operating expenses includes payroll; cost of food and beverage and pro shop
merchandise sold; supplies, maintenance and repairs; rent; utilities;
insurance; property and other taxes; advertising and promotion and other
general and administrative expenses. Operating expenses increased by 28.6% to
$38,288,000 in 1994 from $29,772,000 in 1993. This increase was attributable
to the golf courses purchased or leased during 1994 and
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1993 and was offset by $684,000 of operating expenses associated with a
terminated practice facility lease in 1993 and the $347,000 cost of relocating
GEI's corporate office from Los Angeles to Dallas in 1993. Excluding the
courses purchased or leased during 1994 and 1993, the terminated practice
facility and the cost of relocating GEI's corporate office, GEI's operating
expenses remained flat. Operating expenses as a percentage of operating
revenue increased to 78.6% in 1994 from 77.5% in 1993, reflecting an increase
in rent expense as a result of a higher percentage of leased courses
contributing to GEI's operations in 1994 and higher rent expense generally
associated with newer leases.
Depreciation and amortization expense increased by 17.5%, to $4,802,000 in
1994 from $4,089,000 in 1993. During 1994, GEI changed its depreciable life
for certain golf carts from six to four years. The effect of this change
increased depreciation and amortization expense by approximately $338,000 in
1994. Additionally, depreciation and amortization expense in 1993 includes
$211,000 of amortization of consulting, confidentiality and noncompete
agreements recorded in connection with the 1991 Recapitalization. Excluding
these amounts in 1994 and 1993, depreciation and amortization expense as a
percentage of operating revenue decreased to 9.2% in 1994 from 10.1% in 1993,
reflecting a lower proportion of owned courses, which resulted in a relatively
lower depreciable asset base.
Other expense of $334,000 in 1993 represents a non-recurring charge in
connection with the early termination of a practice facility lease with an
affiliated party.
Operating income increased by 32.9%, to $5,592,000 in 1994 from $4,209,000
in 1993. Operating income in 1993 includes $347,000 of corporate relocation
expenses, $211,000 of amortization expense associated with the 1991
Recapitalization, a $334,000 non-cash charge associated with the early
termination of the leased facility and a $347,000 operating loss on the
terminated leased facility.
Net interest expense decreased by 16.8%, to $3,996,000 in 1994 from
$4,801,000 in 1993. This decrease is a result of the reduction of interest
expense associated with the debt retired in connection with GEI's initial
public offering, offset by interest expense of $474,000 attributable to
additional borrowings in 1994 and an increase in the adjustment to the
carrying value of certain secured debt retired in connection with GEI's
initial public offering to $286,000 in 1994 from $50,000 in 1993.
The extraordinary item in 1994 consists of prepayment penalties of
$1,971,000 associated with the early retirement of debt in connection with the
initial public offering and the write off of $667,000 of deferred debt
issuance costs related to the debt retired.
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BUSINESS OF GEI
NGP is acquiring from GEI only the 20 golf courses and related assets
comprising the Purchased Assets. Immediately following the Asset Purchase,
Newco will acquire GEI's remaining assets (consisting of 21 leased golf course
properties, three golf course management contracts and certain other assets
related to such leased and managed courses) and assume GEI's liabilities by
merging with and into GEI with GEI being the surviving corporation.
GENERAL
GEI is a golf course operator that owns, leases or contracts to manage 44
golf courses in 18 states, primarily in the southern and western United
States. GEI operates daily fee (public) and resort courses and private country
clubs and derives revenue from green fees, golf cart rentals, practice
facility fees, retail sales of golf merchandise, food and beverages and
initiation fees and dues of private members.
GEI's strategy is to grow revenue and operating cash flow by (i) identifying
and acquiring well-located courses that have the potential for significant
improvement under professional management, (ii) installing trained management
personnel and standardized operating systems, (iii) creating a value image by
making visible, cost-effective capital improvements and upgrading the quality
of the golf course turf grass under the supervision of GEI's director of
agronomy, (iv) enhancing the golf experience by emphasizing customer service
and the projection of a professional image, (v) implementing marketing
programs to increase the number of rounds of golf played at daily fee and
resort courses and the number of members at private clubs and (vi) improving
merchandising and pro shop, food and beverage and practice facility
operations.
HISTORY
GEI is a Kansas corporation and was formed in connection with the 1991
Recapitalization to acquire substantially all of the equity interest in JCG,
which began operations in 1981. Unless the context indicates otherwise, all
references herein to "GEI" include JCG (GEI's wholly-owned subsidiary) and the
operations of JCG prior to the 1991 Recapitalization.
On July 13, 1994, GEI completed an initial public offering of 2,350,000
shares of GEI Common Stock, and on August 22, 1994, the underwriter of the
initial public offering exercised its over-allotment option, purchasing an
additional 352,500 shares of GEI Common Stock. Upon closing of the offering, a
credit agreement (the"Credit Agreement") was executed setting forth the final
terms and conditions of the Revolving Credit Facility. The proceeds of the
offering, together with borrowings under the Revolving Credit Facility, were
used to retire debt, pay related accrued interest and prepayment penalties and
pay fees and expenses associated with the offering and the Revolving Credit
Facility.
Upon consummation of the initial public offering, the holders of all classes
of redeemable convertible preferred stock and convertible notes of GEI
converted such redeemable convertible preferred stock and notes into shares of
GEI Common Stock. In addition, pursuant to agreements between GEI and the
holders, accrued but unpaid dividends on the redeemable convertible preferred
stock and the interest notes and additional accrued interest related to the
convertible notes were paid by delivery of additional shares of GEI Common
Stock. Also in connection with the offering, GEI effected a stock split in the
form of a 1.32-for-1 GEI Common Stock dividend.
As discussed in "GEI Management's Discussion and Analysis of Financial
Condition and Results of Operations," on February 2, 1996, GEI entered into
the Acquisition Agreement pursuant to which it agreed to sell its 20 owned
golf course properties to NGP and to merge immediately thereafter with Newco.
INDUSTRY OVERVIEW
According to the National Golf Foundation (the "NGF"), at December 31, 1994,
there were 24.3 million golfers in the United States, which represented a net
gain of only 147,000 golfers, or 0.6% growth, over the last
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five years. The general population growth rate exceeded the golfer growth rate
as indicated by the decreasing golf participation rate, which fell from 12.0%
in 1989 to 11.4% in 1994. Golfers in the United States played 464.8 million
rounds in 1994, a decrease of 0.9% from the 469 million played in 1989. Core
golfers, those playing eight or more rounds, comprised 45.9% of all golfers in
1994 and accounted for 87.6% of all rounds played.
Over the next several years, GEI expects to see a rebound in the overall
participation rates for golfing due to continued growth in the number of golf
courses as well as supporting demographic trends, such as aging baby boomers.
Over the next five years, the population of the 40-49 and 50-59 age groups are
expected to grow by 14% and 21%, respectively.
Growth in golf course supply was evident in golf course construction. Since
1989 the industry added 1,201 golf courses, bringing December 31, 1994 course
supply to 14,939. This represented an 8.7% increase over the last five years.
Additionally, the NGF estimated that a total of 634 golf courses were
scheduled to open in 1995. However, management believes that after 1995 the
rate at which new golf courses will be constructed will decrease as a result
of the lack of available development capital, increasing restrictions on
development and increasing requirements of environmental and water regulation.
GEI believes existing, well-located courses will become more valuable over
time as increased demand may enable these courses to increase throughput (i.e.
rounds per year) and fees.
The golf industry is comprised of three general course types: daily fee
courses, resort courses and private country clubs. According to NGF estimates,
of the 14,939 courses in the United States today, 68% are daily fee, including
public, municipal and resort courses, and 32% are private country clubs. Daily
fee courses are open to the public and generate revenue principally from green
fees, golf cart rentals and practice facility charges. Facilities at daily fee
courses generally include golf courses, practice facilities, clubhouses with
pro shops carrying a limited inventory of golf merchandise, limited locker
facilities and a snack bar food and beverage operation. The operation of a
daily fee course focuses on maximization of the number of rounds played given
the limitations of the particular course. Certain daily fee courses draw a
high percentage of players from outside the immediate area in which the course
is located. Such courses are referred to as resort courses and typically
include the more extensive facilities found at private country clubs,
including championship courses.
Private country clubs are typically closed to the public and generate
revenue principally through member initiation fees, monthly membership dues,
golf cart rentals and guest green fees. Facilities at private country clubs
generally include championship-quality golf courses, practice facilities,
clubhouses with pro shops carrying an extensive inventory of golf merchandise,
locker and card room facilities and multiple food and beverage operations,
including grills, evening dining and banquet facilities. Members of private
country clubs are either equity owners of the club or have non-equity
membership privileges. The operation of a private country club focuses
primarily on maximization of the membership base.
GEI believes that the ownership and operation of golf courses in the United
States is highly fragmented, with less than 5% of golf courses owned and
operated by multi-course management companies. Most golf courses are owned by
individuals, municipalities or other government entities. GEI believes that
the industry will experience consolidation as existing owners and operators
continue to experience financial and operating difficulties and sell or lease
courses to professional management companies such as GEI.
COMPETITION
GEI is a golf course management company which competes for the purchase of
golf courses with NGP and Club Corporation International and for the lease
and/or management of golf courses with AGC and Club Corporation International.
In addition, GEI also competes for the purchase and lease of golf courses with
regional golf course companies that each operate several golf courses and,
less frequently, with individuals and small ventures that typically operate
one or more golf courses. In the acquisition of golf courses, companies
compete primarily on the basis of price and their reputation for operating
golf courses.
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In the operation of golf courses, GEI competes on the basis of price, the
quality of a golf course and customer service. Golf courses are subject to
competition for players and members from other golf courses located in the
same geographic areas. The number and quality of golf courses in a particular
area can have a material effect on the revenue of a golf course. In addition,
revenue is affected by a number of factors, including the demand for golf and
the availability of other forms of recreation.
ACQUISITIONS
Sources. Because of its experienced management, national operations and
financial strength, GEI believes it can actively participate in the
consolidation of the golf industry. Information about acquisition
opportunities is obtained through contacts at every level of GEI, including
golf course general managers, regional managers and senior management.
Industry association contacts, golf course brokers, and golf industry vendors
also provide information about potential acquisitions. Management's knowledge
of existing golf courses throughout the United States and personal
relationships with numerous golf course owners and operators provide GEI with
extensive information regarding acquisition opportunities.
Acquisition Criteria. GEI targets well-located, underperforming daily fee
and resort courses and private country clubs that meet certain general
criteria. The principal criteria for evaluating acquisition opportunities
include course location and visibility, size and demographics of the
surrounding population base, course condition and current operating costs, and
the location, quality and price of local competition.
When evaluating a course location, GEI considers access to the course,
visibility, proximity to competition and the seasonal conditions which will
affect the play and maintenance of the course. The population base near a golf
course should be large enough to support that course and local competition. In
addition, GEI obtains a detailed demographic study of the local population, to
assist it in determining the likelihood that golf will be a sport of
preference for that population. When evaluating the condition of a course, GEI
looks for operating inefficiencies which can be corrected, potential capital
improvements which will enhance course quality and increase revenue, and other
operational problems which can be improved by GEI's professional management.
GEI analyzes the local competition by focusing on the condition of a
competitor's golf course, its level of service and the total price at which
the golf product is provided. GEI then determines whether it will be able to
provide a better product at a more competitive price, while achieving desired
operating margins at the target location.
In addition to these general criteria, GEI evaluates other specific factors
which vary depending upon whether the golf course is a daily fee, private
country club or resort course. At a daily fee course, GEI reviews potential
marketing options and considers how the number of rounds played might be
increased, what fees can be charged and how increases might be restricted, the
length of any proposed lease and the potential relationship with a landlord,
particularly where a municipality is involved. At a private country club, GEI
analyzes the membership profile, how membership and dues might be increased,
whether the members currently have equity ownership, what past liabilities or
promises to members exist and the extent of any deferred maintenance costs. If
GEI has targeted a resort course, GEI also assesses other risks associated
with the particular playing population at that course, such as access to the
resort area and dependence upon affiliated resort facilities.
COURSE OPERATIONS
Management and Employees. GEI has 6 regional managers (as of December 31,
1995) who report to the Senior Vice President of Operations. Each course has a
general manager who reports to a regional manager, at least one assistant
manager, a superintendent and between 20 and 125 part time and full time staff
members. Course staff levels fluctuate significantly on a seasonal basis.
General managers have overall responsibility for golf course operations,
including the practice facilities, pro shops, food and beverage operations and
banquet facilities. In addition, general managers work with regional managers
to prepare monthly and annual budgets and marketing plans. Superintendents
report to the general manager and have responsibility for the quality of turf
conditions, maintenance of the course and execution of the comprehensive
agronomic plan prepared for each course by GEI's agronomy personnel.
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GEI places great importance on recruiting and training skilled personnel.
Newly acquired golf courses are staffed either with a general manager who was
trained as an assistant manager at another GEI course, or with the existing
course manager who will learn GEI's systems and expectations from an
experienced GEI manager. GEI recruits assistant managers directly from
college, focusing on business and marketing majors. Assistant managers
displaying high levels of motivation and business and managerial talent are
promoted to general managers as GEI acquires more courses. Management seeks to
hire superintendents with college degrees in agronomy and prior experience in
the golf industry. Regional managers, general managers and superintendents are
provided bonus incentives to achieve revenue and operating goals.
Operating Improvements. GEI employs specific operating strategies to
increase revenue and improve operating cash flow at each of its golf courses.
In addition to the professional general manager and superintendent staffed
immediately upon acquisition of a golf course, GEI also implements uniform
cash control and accounting and management information systems. GEI makes
visible, cost-effective capital improvements to enhance the quality of the
golf course, including general golf course manicure, improvement of turf grass
quality through implementation of a turf seeding/landscaping plan designed by
GEI's agronomy personnel, repairs of cart paths and other structures and
refurbishment of clubhouses.
While initial improvements are being made, GEI focuses on developing
marketing plans to increase revenue and developing budgets to control costs.
Marketing plans for daily fee courses focus on increasing rounds played and
include increasing seniors' play during weekday mornings, increasing league
and tournament play, extending special fee offers to fill weekday afternoons
and promotions to increase cart rentals. Potential customers are contacted
through direct mail advertising and promotions through newspapers, radio and
other local publications. Marketing plans for private country clubs focus on
achieving full membership potential, increasing cart rentals and use of other
services, and setting initiation fees and monthly dues at competitive rates.
Potential members are contacted through general advertising and promotion and
by membership directors who are hired to recruit new members and promote
continuing member participation in club activities.
Newly acquired courses have historically generated relatively large revenue
increases during each of the first two to three years under GEI's management,
with lesser increases in following years. As the operations of a golf course
mature through the initial stage, GEI must look for creative ways to continue
increasing revenue and operating cash flow. These include further refinement
of marketing plans and budgets, additional capital improvements and greater
focus on other aspects of the operations, such as practice facilities, pro
shops, food and beverage operations and banquet facilities. Course quality,
playability and customer service are continually reviewed to ensure high
quality at an efficient cost. Additional cost-cutting measures are evaluated
in light of their impact on course quality.
SEASONALITY
Seasonal weather conditions limit the playing season at certain of GEI's
golf courses. As a result, the second and third quarters of the year tend to
account for a greater portion of GEI's operating revenue and operating income
than do the first and fourth quarters of the year. This seasonal pattern, as
well as the timing of new course purchases or leases, may cause GEI's results
of operations to vary significantly from quarter to quarter.
GOVERNMENTAL REGULATION
Environmental Matters. Operations at GEI's golf courses involve the use and
storage of various hazardous materials such as herbicides, pesticides,
fertilizers, motor oil and gasoline. Under various federal, state and local
laws, ordinances and regulations, an owner or operator of real property may
become liable for the costs of removing such hazardous substances that are
released on or in its property and for remediation of its property. Such laws
often impose liability regardless of whether a property owner or operator knew
of, or was responsible for, the release of hazardous materials. In addition,
the presence of such hazardous substances, or the failure to remediate the
surrounding soil when such substances are released, may adversely affect the
ability of a property owner to sell such real estate or to pledge such
property as collateral for a loan. GEI has not been informed by
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the United States Environmental Protection Agency (the federal agency which
regulates environmental matters related to GEI's operations) or any state or
local governmental authority of any non-compliance or violation of any
environmental laws, ordinances or regulations likely to be material to GEI,
and GEI believes that it is in substantial compliance with all such laws,
ordinances and regulations applicable to its properties and operations. GEI
has not performed invasive procedures such as soil sampling or ground water
analysis on all of the golf courses it owns or operates, and there may be
potential environmental liabilities or conditions of which GEI is not aware.
In addition, there are a number of underground storage tanks located on
various of GEI's golf courses. Although these storage tanks are in substantial
compliance with current federal or state requirements, GEI is in the process
of removing these storage tanks and does not believe, based on its prior
experience, that the cost of removing or replacing these tanks or, if
necessary, remediating the surrounding soil will be material to its financial
condition or results of operations. However, there can be no assurance that
the removal or replacement of such tanks and/or the remediation of surrounding
soil will not materially and adversely affect GEI.
General. GEI is subject to the Fair Labor Standards Act and various state
laws governing such matters as minimum wage requirements, overtime and other
working conditions and citizenship requirements. A significant number of GEI's
golf course personnel receive the federal minimum wage, and increases in the
minimum wage would increase GEI's labor costs. In addition, GEI is subject to
certain state "dram-shop" laws, which provide a person injured by an
intoxicated individual the right to recover damages from an establishment that
wrongfully served alcoholic beverages to the intoxicated individual. GEI is
also subject to the Americans with Disabilities Act of 1990, which, among
other things, may require certain minor renovations to various clubhouses at
GEI's properties to meet federally mandated access and use requirements. The
cost of these renovations is not expected to be material to GEI. GEI believes
it is operating in substantial compliance with applicable laws and regulations
governing its operations.
EMPLOYEES
At December 31, 1995, GEI had a total of 2,007 part-time and full-time
employees, including 42 located at corporate headquarters, 6 regional managers
and 82 course managers and superintendents. The majority of GEI's golf course
employees receive the minimum wage. The maintenance and groundskeeping
employees at GEI's Mission Hills golf courses are represented by a labor
union.
LEGAL PROCEEDINGS
GEI is involved in legal proceedings arising in the ordinary course of its
business. GEI is not involved in any legal proceedings which it believes could
have a material adverse effect upon its consolidated financial condition or
results of operations.
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SECURITY OWNERSHIP OF CERTAIN GEI
BENEFICIAL OWNERS AND MANAGEMENT
As of the close of business on June 20, 1996, GEI had outstanding 6,585,482
shares of GEI Common Stock. The following table sets forth certain information
as to the number of shares of GEI Common Stock beneficially owned as of June
20, 1996 by (i) each person known by GEI to be the beneficial owner of more
than 5% of any of GEI's voting securities, (ii) each director of GEI, (iii)
the Chief Executive Officer and the four other most highly compensated
executive officers of GEI and (iv) GEI's executive officers and directors as a
group. Except as indicated by the notes to the following table, the holders
listed below have sole voting power and investment power over the shares
beneficially held by them and the beneficial ownership is direct.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(2)
AS OF
JUNE 20, 1996
--------------------------
SHARES PERCENT
NAME OF BENEFICIAL OWNER(1) ------------- ------------
<S> <C> <C>
Golder, Thoma, Cressey Fund II...................... 1,557,710 23.66%
6100 Sears Tower
Chicago, IL 60606
Golder, Thoma, Cressey Fund III Limited
Partnership........................................ 1,266,557 19.23%
6100 Sears Tower
Chicago, IL 60606
Wellington Management Company(3).................... 641,500 9.74%
75 State Street
Boston, MA 02109
Williams Family Trust(4)............................ 601,077 8.45%
c/o Robert H. Williams
1603 LBJ Freeway, Suite 810
Dallas, TX 75234
Leeway & Co.(5)..................................... 445,931 6.77%
State Street Bank as Trustee
1 Enterprise Dr.
North Quincy, MA 02171
Bryan C. Cressey(6)................................. 2,824,267 42.89%
6100 Sears Tower
Chicago, IL 60606
Robert H. Williams(7)............................... 601,077 8.45%
1603 LBJ Freeway, Suite 810
Dallas, TX 75234
Thomas R. Devlin(8)................................. 133,833 2.03%
Stephen D. Lambert(9)............................... 135,252 2.03%
Steven R. Reynolds(10).............................. 70,072 1.05%
John H. Berndsen(11)................................ 40,000 *
Joe R. Munsch(12)................................... 40,000 *
James E. Bertelsmeyer(13)........................... 12,000 *
Joseph P. Nolan..................................... 300 *
All directors and executive officers as a group (10
persons)(14)....................................... 3,858,501 52.40%
</TABLE>
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- --------
* Less than 1%
(1) Unless otherwise indicated, the address for each named person is c/o Golf
Enterprises, Inc., 1603 LBJ Freeway, Suite 810, Dallas, Texas 75234.
(2) The information as to beneficial ownership is based on statements
furnished to GEI by the beneficial owners.
(3) These shares are owned by various investment advisory clients of
Wellington Management Company, which is deemed a beneficial owner of such
shares by virtue of its capacity as investment advisor to such clients.
(4) Includes 525,285 shares subject to presently exercisable options.
(5) Leeway & Co. is a nominee partnership for the AT&T Master Pension Trust,
which is the beneficial owner of, and has sole voting and investment
power with respect to, such shares.
(6) All such shares are held by Golder, Thoma, Cressey Fund II and Golder,
Thoma, Cressey Fund III Limited Partnership, of which Golder, Thoma,
Cressey & Rauner, L.P. ("GTCR L.P.") is the general partner. Mr. Cressey
is a general partner of GTCR L.P., but disclaims beneficial ownership of
such shares of GEI Common Stock.
(7) All shares are held of record by the Williams Family Trust, of which Mr.
Williams is a trustee and may be deemed to share voting and investment
power.
(8) Includes 8,916 shares subject to presently exercisable options. All
shares are held of record by Devlin Golf, Inc. Mr. Devlin, a director of
GEI, is a director and majority stockholder of Devlin Golf, Inc., and may
be deemed to share voting and investment power as to all shares owned by
Devlin Golf, Inc.
(9) Includes 89,872 shares subject to options exercisable within 60 days of
June 20, 1996.
(10) Includes 67,727 shares subject to options exercisable within 60 days of
June 20, 1996.
(11) Includes 40,000 shares subject to options exercisable within 60 days of
June 20, 1996.
(12) Includes 40,000 shares subject to options exercisable within 60 days of
June 20, 1996.
(13) Includes 6,000 shares subject to options exercisable within 60 days of
June 20, 1996.
(14) Includes 777,800 shares subject to options exercisable within 60 days of
June 20, 1996.
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ELECTION OF NGP DIRECTORS
The Board of Directors of NGP currently is comprised of seven members
divided into three classes serving staggered terms of three years each.
Pursuant to NGP's Articles of Incorporation and Bylaws, the term of office of
one class of directors expires each year and at each annual meeting the
successors of the class whose term is expiring in that year are elected to
hold office for a term of three years and until their successors are elected
and have qualified. The current terms of three directors expire in this year,
two expire in 1997 and two expire in 1998.
In the absence of instructions to the contrary, the persons named as proxy
holders in the accompanying proxy intend to vote in favor of the election of
the three nominees designated below, each of whom is currently a director of
NGP, to serve until the 1999 annual meeting of stockholders and until their
respective successors shall have been elected and qualified. NGP expects that
each of the nominees will be available to serve as a director, but if any such
nominee should become unavailable for election, the shares of NGP Common Stock
represented by the proxy may (unless such proxy contains instructions to the
contrary) be voted for such other person or persons as may be determined by
the holders of such proxies. In no event will the proxy be voted for more than
three nominees.
Under NGP's Bylaws, nominations of persons for election to NGP's Board of
Directors, other than those made by or at the direction of the Board, may be
made at the Annual Meeting only if pursuant to a timely notice delivered or
mailed to the Secretary of NGP. To be timely, a stockholder's notice must be
delivered to or mailed and received at NGP's principal executive offices not
more than 75 nor less than 50 days prior to the Annual Meeting or, if less
than 65 days' notice or prior public disclosure of the date of the meeting is
given to stockholders, on the fifteenth day following the day on which such
notice of the date of the Annual Meeting was mailed or such public disclosure
was made, whichever is later. A notice of nomination must set forth certain
information as required under NGP's Bylaws.
NOMINEES FOR ELECTION AS DIRECTOR
<TABLE>
<CAPTION>
NAME AGE PRESENT POSITION WITH NGP DIRECTOR SINCE
- ---- --- ------------------------- --------------
<S> <C> <C> <C>
John C. Cushman III..... 55 Director 1994
Charles S. Paul......... 46 Director 1993
Edward R. Sause......... 41 Executive Vice President, Chief 1993
Financial Officer, Secretary and
Director
</TABLE>
John C. Cushman, III has served as a director of NGP since July 20, 1994.
Mr. Cushman has been President and CEO of Cushman Realty Corporation since
1978. Mr. Cushman also serves as director of the Boy Scouts of America, the
Los Angeles Museum of Contemporary Art, and Junior Achievement, Inc.
Charles S. Paul has served as a director of NGP since August 31, 1993. Mr.
Paul is Chairman and Chief Executive Officer of Sega GameWorks L.L.C. Prior to
joining Sega GameWorks L.L.C., Mr. Paul was an Executive Vice President and
director of MCA, Inc. from 1989 until March of 1996 and served as President of
MCA Enterprises, Inc. from 1986 until March of 1996. Mr. Paul is also a
director of The 3DO Company and Interplay Productions.
Edward R. Sause has served as Executive Vice President, Chief Financial
Officer and Secretary and as a director of NGP since April 1993. Prior to
NGP's initial public offering in 1993, Mr. Sause was a director and the Senior
Vice President and Chief Financial Officer of AGC. Mr. Sause is also a Trustee
and Treasurer of the Museum of Flying. Prior to joining AGC in September 1990,
Mr. Sause was employed at Columbia Pictures Entertainment from June 1986 to
September 1990 as Senior Vice President and Controller of Columbia Pictures
Television and Columbia International and prior to that time served as Vice
President and Controller for the Entertainment Business Sector of The Coca-
Cola Company and Columbia Pictures Motion Picture Division.
77
<PAGE>
DIRECTORS CONTINUING IN OFFICE
<TABLE>
<CAPTION>
DIRECTOR TERM
NAME AGE SINCE EXPIRES
- ---- --- -------- -------
<S> <C> <C> <C>
Richard A. Archer.......................................... 68 1993 1997
Bruce Karatz............................................... 50 1993 1998
David G. Price............................................. 63 1993 1997
Richard C. Price........................................... 41 1993 1998
</TABLE>
Richard A. Archer has served as a director of NGP since August 31, 1993. Mr.
Archer served as the Chairman of the board of directors of Jardine Insurance
Brokers, Inc. from 1986 to 1993, and served as Deputy Chairman until December
31, 1995. Mr. Archer is now an independent consultant. Mr. Archer is also a
director of the Hydril Company.
Bruce Karatz has served as a director of NGP since August 31, 1993. Mr.
Karatz has been the President, Chief Executive Officer and a director of
Kaufman and Broad Home Corporation ("Kaufman") since 1986 and Chairman of the
board of directors of Kaufman since July 1993. Mr. Karatz is also a director
of Honeywell, Inc. and a Trustee of the National Park Foundation and RAND
Corporation.
David G. Price has served as Chairman of the Board of Directors of NGP since
its formation in April 1993. Mr. Price also serves as the Chairman of the
board of directors of AGC and has served in such capacity since he founded AGC
in 1973. Mr. Price is also a Trustee and the President of the Museum of Flying
in Santa Monica, California.
Richard C. Price has served as President and as a director of NGP since
April 1993. Prior to the initial public offering of NGP's Common Stock in
August 1993, Mr. Price served as Executive Vice President in charge of golf
course acquisitions for AGC. In such capacity, he oversaw the evaluation and
due diligence processes for all acquisitions and managed acquisition personnel
in AGC's eastern, central and western regions. Mr. Price was also responsible
for the expansion of new business opportunities for AGC and was a member of
AGC's executive committee. Mr. Price previously served as manager of golf
course construction for AGC. Mr. Price is a son-in-law of David G. Price.
BOARD MEETINGS; COMMITTEES AND COMPENSATION
The Board of Directors of NGP is currently comprised of seven members
divided into three classes serving staggered terms of three years each. NGP's
Bylaws provide that the majority of its Board of Directors must consist of
directors who are unaffiliated with David G. Price (the "Independent
Directors"). Messrs. Archer, Karatz, and Paul were elected as Independent
Directors by NGP's Board of Directors on August 31, 1993. Mr. Cushman was
elected as an Independent Director on July 20, 1994.
In accordance with NGP's Bylaws, transactions involving NGP and affiliates
of David G. Price require the approval of a committee of the Board of
Directors consisting solely of Independent Directors (the "Independent
Committee"). Such transactions with affiliates of David G. Price include,
without limitation, (i) the acquisition of certain golf courses currently
under option, (ii) lease negotiation with respect to owned golf courses and
the enforcement and renegotiation of such leases, (iii) the selection of
operators for acquired golf courses, and (iv) consideration of NGP's right of
first refusal to acquire limited partnership units ("OP Units") in National
Golf Operating Partnership, L.P. (the "Operating Partnership"), through which
NGP owns substantially all of the golf courses and conducts its operations,
upon transfer of OP Units as provided in the Operating Partnership's Agreement
of Limited Partnership. Certain other significant actions of NGP's Board of
Directors will require the approval of a minimum of five directors and certain
matters relating to the Operating Partnership require the approval of holders
of a majority of the OP Units. David G. Price and his affiliates own more than
90% of the OP Units.
NGP's Board of Directors held three meetings during the year ended December
31, 1995. During that period, no director attended fewer than 75% of the total
number of meetings of the Board and of committees of the Board on which he
served.
78
<PAGE>
NGP currently pays each of its Independent Directors a fee of $12,000 per
year for services as a director plus $1,000 for attendance at each meeting of
NGP's Board of Directors. In addition, NGP reimburses the directors for travel
expenses incurred in connection with their duties as directors of NGP. In
1995, NGP's stockholders approved the adoption of the 1995 Independent
Director Equity Participation Plan pursuant to which each Independent Director
is entitled to receive 2,000 shares of restricted stock and an option to
purchase 2,000 shares of NGP Common Stock on the date an Independent Director
is initially elected to NGP's Board of Directors (or, with respect to
Independent Directors currently serving on NGP's Board of Directors, on the
date of the Annual Meeting) and thereafter to receive an additional 500 shares
of restricted stock and an option to purchase 2,000 shares of NGP Common Stock
on November 15 of each year.
The Board of Directors has (i) an Independent Committee, (ii) an Executive
Committee, (iii) an Audit Committee and (iv) a Compensation Committee, each
established on August 10, 1993 under NGP's Bylaws.
Independent Committee. As provided in NGP's Bylaws, the Independent
Committee includes only Independent Directors. The Independent Committee was
established to oversee the selection of operators for golf courses acquired in
the future and to approve transactions between NGP and affiliates of David G.
Price that it considers from time to time. Messrs. Archer, Cushman, Karatz and
Paul are the current Independent Committee members.
Executive Committee. The Executive Committee has such authority as may be
granted by NGP's Board of Directors, including the power to acquire and
dispose of real property and the power to authorize, on behalf of the full
Board of Directors, the execution of certain contracts and agreements. The
Executive Committee consists of the Chairman of the Board of Directors, the
Chairman of the Independent Committee and an executive officer of NGP. Messrs.
David G. Price, Archer, and Richard C. Price are the current members of the
Executive Committee.
Audit Committee. The Audit Committee was established to make recommendations
concerning the engagement of independent public accountants, review with the
independent public accountants the plans and results of the audit engagement,
approve professional services provided by the independent public accountants,
review the independence of the independent public accountants, consider the
range of audit and non-audit fees and review the adequacy of NGP's internal
accounting controls. Messrs. Cushman, Karatz and Paul are the current members
of the Audit Committee. The Audit Committee held one meeting during 1995.
Compensation Committee. The Compensation Committee is responsible for the
administration of NGP's employee benefit plans. The Compensation Committee is
authorized to determine the persons eligible to participate in any of the
plans, the extent of such participation and the terms and conditions under
which benefits may be vested, received or exercised. The Compensation
Committee also reviews and approves the compensation of NGP's executive
officers and determines the general compensation policy for NGP. Messrs. David
G. Price, Cushman and Paul are the current members of the Compensation
Committee. The Compensation Committee held no meetings during 1995, but took
action with respect to certain matters by unanimous written consent.
EXECUTIVE OFFICERS
The following table sets forth the names, ages and positions of each of
NGP's executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Richard C. Price.................. 41 President and Director
Edward R. Sause................... 41 Executive Vice President, Chief Financial
Officer, Secretary and Director
Scott S. Thompson................. 39 General Counsel and Chief Leasing Officer
</TABLE>
79
<PAGE>
In addition to Messrs. Richard C. Price and Edward R. Sause, whose
biographies appear above, the following person is an executive officer of NGP:
Scott S. Thompson has served as NGP's General Counsel and Chief Leasing
Officer since July 1993. Prior to joining NGP in July 1993, Mr. Thompson was a
partner with the Los Angeles law firm of Gilchrist & Rutter where he
specialized in real estate transactions and commercial, industrial and retail
leasing. Mr. Thompson joined Gilchrist & Rutter in June 1987.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information concerning the compensation
awarded to, earned by or paid during the fiscal years ended December 31, 1995,
1994 and 1993 to NGP's Chief Executive Officer and the two other executive
officers of NGP (the "Named Executive Officers"):
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------- ---------------------------------------------
RESTRICTED
NAME AND OPTIONS STOCK LTIP ALL OTHER
PRINCIPAL POSITION YEAR(1) SALARY BONUS (#) AWARDS(3) PAYOUTS(4) COMPENSATION(5)
------------------ ------- -------- ------- ------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard C. Price........ 1995 $210,535 $84,214 -- -- $170,920 $2,250
President 1994 $205,000 $82,000 -- -- $171,920 $2,250
1993(2) $200,000 $80,000 60,000 -- -- --
Edward R. Sause......... 1995 $210,535 $84,214 -- -- $170,920 $2,250
Executive Vice
President, Chief 1994 $205,000 $82,000 -- -- $171,920 $2,250
Financial Officer and
Secretary 1993(2) $200,000 $80,000 60,000 -- -- $ 425
Scott S. Thompson....... 1995 $131,584 $25,000 -- -- $ 85,460 $2,250
General Counsel and
Chief Leasing 1994 $128,125 $25,000 -- -- $ 85,960 $1,041
Officer 1993(2) $125,000 $25,000 30,000 -- -- --
</TABLE>
- --------
(1) NGP was formed in April 1993.
(2) Salary and bonus for 1993 are presented on an annualized basis.
(3) The aggregate number and value of shares of restricted stock, all of which
shares are designated as long term incentive awards, held by each Named
Executive Officer as of December 31, 1995, were as follows: Mr. Richard C.
Price, 24,000 shares valued at $548,760; Mr. Sause, 24,000 shares valued
at $548,760; and Mr. Thompson, 12,000 shares valued at $274,380. Such
shares represent the unvested portion of the 40,000, 40,000, and 20,000
shares of restricted stock awarded to Messrs. Price, Sause and Thompson,
respectively, in 1993. All such shares vest on a pro-rata basis over a
five year period and are subject to continued employment and certain
additional conditions such as financial performance of NGP. During the
period in which any restrictions apply, holders of restricted stock are
entitled to receive all dividends or other distributions paid with respect
to such stock.
(4) Represents the market value of the shares of restricted stock that vested
in 1995 and 1994 as of the vesting date.
(5) Represents contributions to NGP's 401(k) Retirement Plan.
80
<PAGE>
Aggregated Option Exercises and Fiscal Year-End Option Value Table
The following table provides information related to the exercise of stock
options during the year ended December 31, 1995 by each of the Named Executive
Officers and the 1995 fiscal year-end value of unexercised options.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
UNEXERCISED UNEXERCISED
OPTIONS IN-THE-MONEY
SHARES AT FY-END OPTIONS AT FY-
ACQUIRED VALUE EXERCISABLE/ END EXERCISABLE/
NAME ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE (1)
- ---- ----------- -------- ------------- -----------------
<S> <C> <C> <C> <C>
Richard C. Price........... -- N/A 30,000/30,000 $75,000/75,000
Edward R. Sause............ -- N/A 30,000/30,000 $75,000/75,000
Scott S. Thompson.......... -- N/A 15,000/15,000 $37,500/37,500
</TABLE>
- --------
(1) Market value of underlying NGP Common Stock on the date of the fiscal
year-end minus the exercise price. The share price as of December 29, 1995
was $22.875.
Employment Agreements
On August 18, 1993, NGP entered into employment agreements with Richard C.
Price and Edward R. Sause. Each agreement is for a term of two years and will
automatically be extended for an additional year on the expiration of the
initial term and each anniversary thereafter unless earlier terminated
pursuant to the terms of the agreements. Each agreement provides for a base
salary for the twelve calendar months beginning August 18, 1993 at the annual
rate of $200,000 to be adjusted annually at the discretion of NGP's Board of
Directors, but at a minimum to reflect increases in the Consumer Price Index.
The agreements provide for bonus compensation on the terms set forth below.
Each agreement includes provisions restricting the officers from competing,
directly or indirectly, with NGP or the Operating Partnership during
employment and, except in certain circumstances, for one year after
termination of employment. Each of the employment agreements provide for
certain severance payments in the event of disability or termination by NGP
without cause or by the employee with good reason.
NGP will generally have cause to terminate Mr. Price's and Mr. Sause's
employment if they (1) engage in acts or omissions with respect to NGP which
constitute intentional misconduct or a knowing violation of law; (2)
personally receive a benefit in money, property or services from NGP or from
another person dealing with NGP in violation of law; (3) breach their non-
competition covenant with NGP; (4) breach their duty of loyalty to NGP; (5)
engage in gross negligence in the performance of their duties; or (6)
frequently and repeatedly fail to perform services that have been reasonably
requested of them by NGP's Board of Directors and which are consistent with
the terms of the employment agreements.
Mr. Price and Mr. Sause will generally have good reason to terminate their
employment with NGP in the event of any reduction in their compensation
without their consent, any material breach or default by NGP under the
employment agreements or any substantial diminution in their respective
duties.
The Compensation Committee established incentive compensation arrangements
for its executive officers and certain key employees beginning in 1993. These
arrangements provide that each executive officer and covered key employee will
earn a cash bonus if certain targets specified for each participant are met.
The amount of cash bonus to NGP employees is based on a formula determined for
each employee by the Compensation Committee but will not exceed 50% of base
salary. Pursuant to his employment agreement, Mr. Sause's bonus with respect
to each fiscal year of his employment will, if NGP satisfies the performance
targets specified by the Compensation Committee, be equal to 40% of his base
salary for such fiscal year.
81
<PAGE>
SECTION 16(A) REPORTING
Based solely upon a review of Securities and Exchange Commission Forms 3, 4
and 5 furnished to NGP and certain written representations, NGP believes that
all reports required by Section 16(a) of the Exchange Act with respect to
NGP's fiscal year ended December 31, 1995 have been timely filed by its
officers and directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is comprised of Messrs. David G. Price
(Chairman), Cushman and Paul, none of whom is or has been an officer or
employee of NGP. For a description of the background of each of these
individuals, see "Election of Directors--Nominees for Election as Director"
and "--Directors Continuing in Office." David G. Price is the Chairman and
principal shareholder of AGC, and also held a controlling interest in NGP's
predecessors.
NGP has been party to certain transactions with AGC and David G. Price. On
February 28, 1996, the NGP Board of Directors approved NGP's exercise of
certain options to acquire two golf course properties currently owned by the
Price Trust and two golf course properties owned by a partnership that is
beneficially owned 90% by David G. Price and 10% by Richard C. Price (such
four golf course properties collectively, the "Option Golf Courses"). The
Option Golf Courses currently collateralize certain Participating Mortgage
Loans made by NGP to the current owners of the Option Golf Courses in an
aggregate principal amount of approximately $25.2 million, which Participating
Mortgage Loans also are guaranteed by AGC. The options on the Option Golf
Courses provide that, upon exercise of such options, (i) the Participating
Mortgage Loans will be refinanced with a loan from a third-party lender that
is guaranteed by David G. Price and Richard C. Price and (ii) the Option Golf
Courses would be leased to AGC on terms specified in such options. The NGP
Board of Directors' recent action approved the exercise of such options on
terms that are different from the terms of the options originally granted to
NGP. The changes to the terms include, among others, (i) reducing the option
prices for the Option Golf Courses by approximately $11.3 million in the
aggregate for all four golf courses, to approximately $29.7 million (including
the approximately $25.2 million refinancing, the value of approximately 61,000
OP Units, and a $3 million reimbursement payment to AGC described under (iii)
below), (ii) reducing the base rent payable by AGC and modifying the
percentage rents payable by AGC so as to comport generally with leases
currently entered into with AGC, and (iii) providing that a portion of the
purchase price for such Option Golf Courses include approximately $3 million
in cash that will be paid to AGC as reimbursement for its cost of constructing
a clubhouse on one of the Option Golf Courses. Such cash payment is in
addition to NGP's assumption of the approximately $25.2 million in debt and
the approximately 61,000 OP Units that will be issued to David G. Price and
Richard C. Price. NGP also has agreed to reduce the base rent payable by AGC
on NGP's Carolina Shores golf course, which was originally acquired by NGP at
the time of its initial public offering, by $250,000 per year, beginning on
January 1, 1996, for the remaining term of approximately 17 years. All of the
changes to the options for these courses have been approved by the Independent
Committee of the NGP Board of Directors. NGP's management currently expects to
exercise the options on the Option Golf Courses in the second quarter of 1996.
On February 28, 1996, the Independent Committee of the NGP Board of
Directors approved a proposal to allow NGP personnel responsible for
negotiating golf course acquisitions on behalf of NGP to also negotiate golf
course leases and management contracts on behalf and for the benefit of AGC.
NGP's management recommended giving NGP personnel authority to negotiate
leases and management contracts for AGC in order to give such NGP personnel
the ability to exercise greater control over discussions with owners of golf
courses that NGP ultimately desires to acquire. NGP's management expects that
this change will increase NGP's opportunity to acquire or obtain the rights to
acquire new golf course properties and, in addition, reduce costs at NGP and
AGC by eliminating duplication of efforts.
During 1994, the Operating Partnership entered into 16 leases with AGC with
respect to 20 golf courses acquired in such year, and during 1995, the
Operating Partnership entered into eight leases with AGC with respect to 10
golf courses acquired in such year. The aggregate initial annual base rent
payable under such leases
82
<PAGE>
is approximately $8.8 million for the leases entered into in 1994 and $7.3
million for the leases entered into in 1995. Pursuant to NGP's Bylaws, the
terms of all such leases were approved by the Independent Committee. NGP's
General Counsel and Chief Leasing Officer, who has no prior affiliation with
David G. Price or his affiliates (including AGC), assists the Independent
Committee with respect to certain potential conflicts of interest between NGP
and affiliates of David G. Price, including the negotiation, enforcement and
renegotiation of all leases. See "Election of Directors--Board Meetings;
Committees and Compensation."
In 1993, concurrently with the completion of the Offering, NGP engaged in a
series of transactions with David G. Price and his affiliates designed to
consolidate ownership of certain golf properties in NGP and to enable NGP to
qualify as a real estate investment trust. Such transactions included the
acquisition by NGP of the 47 golf courses in its original portfolio, the grant
to NGP of options exercisable at various times during 1995 to acquire four
golf courses in exchange for OP Units on fixed terms, the use by the Operating
Partnership of approximately $25.2 million of the net proceeds of the Offering
to make the participating mortgage loans secured by the four golf courses
under option, and the lease of the original 47 golf courses to AGC.
On March 16, 1994, the Resolution Trust Corporation (the "RTC") notified
NGP, AGC, and David G. Price that the RTC was proposing to exclude them from
future contracting with the RTC contracting program for a period of three
years. The RTC's basis for the proposed exclusion pertained to the Resort
Properties Advisory Services Agreement between AGC and the RTC relating to
certain golf course properties and purported violations by AGC of certain RTC
regulations in connection with the RTC sale in July 1993 of such golf course
properties. NGP, AGC and David G. Price entered into a Settlement and Release
Agreement with the RTC on April 10, 1995 wherein all claims relating to the
Resort Properties Advisory Services Agreement and the RTC sale of such golf
course properties were released. As part of the Settlement and Release
Agreement, the RTC terminated its notice of proposed exclusion, and AGC agreed
that it, and any entity which AGC or David G. Price controls, would not pursue
further contracts to provide goods or services to the RTC during the remaining
statutory life of the RTC or for three years from the March 16, 1994 notice of
proposed exclusion, whichever occurs first. The RTC's statutory life was
terminated as of December 31, 1995, and thus, the term of AGC's agreement not
to contract to provide goods or services to the RTC has expired.
The following report and the Stock Performance Graph shall be deemed (i) not
to be included in the portions of this Joint Proxy Statement--Prospectus
constituting a Prospectus pertaining to the shares of NGP Common Stock to be
issued in connection with the Asset Purchase and (ii) not to be incorporated
by reference by any general statement incorporating by reference this proxy
statement into any filings under the Securities Act or the Exchange Act,
except to the extent that NGP specifically incorporates this information by
reference and shall not otherwise be deemed filed under such Acts.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
Compensation and benefit practices of NGP are established and governed by
the Compensation Committee, which is made up of David G. Price and two
Independent Directors. The Compensation Committee is chartered to establish
the general compensation policy of NGP, to review and approve compensation of
the executive officers of NGP and to administer all of NGP's employee benefit
plans. The Compensation Committee reviews NGP's overall compensation program
to assure that it (i) is reasonable and consistent with competitive practices,
(ii) adequately recognizes performance, and (iii) meets NGP's overall
compensation and business objectives.
Compensation Philosophy. The primary focus of NGP's compensation program is
to create value for stockholders. The Committee attempts to promote desired
financial and operational results by attracting, motivating and assisting in
the retention of key employees with outstanding ability. In addition, the
compensation program is designed to promote teamwork, initiative and
resourcefulness on the part of key employees whose performance and
responsibilities directly affect NGP profits. In this regard, the compensation
program is designed to balance short and long-term incentive compensation to
achieve desired results and above all to pay for performance. The Compensation
Committee intends to establish policies regarding qualification of
compensation under Section 162(m) of the Code to the extent it considers such
policies appropriate.
83
<PAGE>
Compensation Mix. NGP's executive compensation is based on three components
designed in each case to accomplish NGP's compensation philosophy.
Base Salary. Salaries for executives are reviewed by the Compensation
Committee on an annual basis and may be increased based upon an assessment of
the individual's contributions to the asset and financial growth of NGP as
well as competitive pay levels. The Compensation Committee generally targets
base salary levels within the range of the 50th to 75th percentile of salaries
paid by other publicly-traded REITS, with a desire to reward excellent results
with incentive compensation consistent with NGP's pay-for-performance
philosophy.
Base salary levels for NGP's executive officers for 1995 fell in the middle
part of the targeted range. The Compensation Committee has reviewed the base
salary for each of the officers for 1995 and believes that such compensation
is reasonable in view of NGP's performance and the contribution of those
officers to that performance. The increases in base salary experienced by such
officers in 1995 represented cost-of-living increases provided for in their
employment agreements.
Annual Cash Incentive Awards. Annual cash bonus incentive awards generally
are designed to protect stockholder interests by establishing a cash available
for distribution or reinvestment performance target (the "Performance Target")
which must be satisfied before any awards are paid to executive officers. The
Performance Target is based on increases in FFO and, in the case of NGP's
President (the "President"), the acquisitions made by NGP. To establish the
Performance Target, the Compensation Committee sets goals for such criteria at
the beginning of each year at a level considered to provide stockholders with
an acceptable rate of return. For the 1996 Performance Target, these goals
were adjusted upward to reflect expected performance of NGP's golf course
portfolio. In addition to satisfying the Performance Target, bonus awards also
are based on personal performance measured by the extent of which personal
goals are achieved.
A target award is established for each officer based on the level of his or
her position and on competitive practices. The Compensation Committee approves
each officer's target award. The target award is expressed as a percentage of
salary and as a corresponding dollar amount. No award can exceed 50% of an
officer's base salary. The Performance Target approved by the Compensation
Committee was achieved in 1995. See "Executive Compensation--Summary
Compensation Table."
Stock Options and Restricted Stock. The Compensation Committee may grant
stock options and restricted stock to executives and other key employees of
NGP pursuant to the 1993 Plan. In determining the grants of stock options and
restricted stock the Compensation Committee takes into account, among other
things, the respective scope of responsibility and the anticipated performance
requirements and contributions to NGP of each proposed award recipient. Stock
options and restricted stock are designed to align the interest of executives
with those of the stockholders. The Compensation Committee believes that
significant equity interests in NGP held by NGP's management serve to retain
and motivate management.
President. Mr. Richard C. Price, the President, is employed pursuant to a
two-year employment agreement which became effective August 18, 1993. The
terms of the employment agreement were determined when the terms of NGP's
initial public offering were negotiated in August 1993, and not by the
Compensation Committee. Pursuant to the employment agreement, the President
receives base compensation of $200,000 per year with an annual CPI increase
and is entitled to participate in NGP's bonus programs. Payment of the
President's target award, which is set at 40% of base salary, depends on NGP's
achievement of certain goals based on increases in FFO, total number of golf
course acquisitions and aggregate total amount of investment in such
acquisitions. These goals are established by the Compensation Committee based
in part on NGP's annual business plan, which the President assists in
formulating. The target awards for NGP's other executive officers are based
solely upon NGP's achievement of increases in FFO. The Compensation Committee,
of which the President is not a member, has sole discretion to determine
whether the President's target award is paid. The President's 1995 base salary
was paid in accordance with this employment agreement, and the target award
was also paid after the FFO goal was exceeded, and the other performance goals
were achieved for the year.
David G. Price (Chairman)
John C. Cushman, III
Charles S. Paul
84
<PAGE>
STOCK PERFORMANCE GRAPH
The graph below compares cumulative total return of NGP, the S&P 500 Index
and the NAREIT Equity REIT Total Return Index from August 12, 1993, the first
day of trading of the Common Stock on the New York Stock Exchange, to December
31, 1995. The S&P 500 Index and the NAREIT Equity REIT Total Return Index for
the month of August, 1993 have been prorated to arrive at the beginning index
used in this graph. The comparison assumes $100 was invested on August 12,
1993 in NGP's Common Stock and each of the foregoing indices and assumes
reinvestment of dividends before consideration of income taxes.
COMPARISON TOTAL RETURN AMONG
NATIONAL GOLF PROPERTIES, INC., THE S&P INDEX AND
THE NAREIT EQUITY REIT TOTAL RETURN INDEX
PERFORMANCE GRAPH APPEARS HERE
<TABLE>
<CAPTION>
NATIONAL
Measurement Period GOLF S&P NAREITY
(Fiscal Year Covered) PROPERTIES 500 INDEX EQUITY
- --------------------- --------------- --------- ----------
<S> <C> <C> <C>
Measurement Pt-08/12/1993 $100.00 $100.00 $100.00
FYE 09/30/1993 $103.07 $102.99 $107.47
FYE 12/31/1993 $110.07 $105.39 $ 99.53
FYE 03/31/1994 $ 98.79 $101.39 $102.92
FYE 06/30/1994 $108.82 $101.82 $104.82
FYE 09/30/1994 $105.35 $106.79 $102.67
FYE 12/31/1994 $117.42 $106.78 $102.69
FYE 03/31/1995 $106.93 $117.17 $102.52
FYE 06/30/1995 $115.98 $128.36 $108.55
FYE 09/30/1995 $123.13 $138.56 $113.66
FYE 12/31/1995 $131.22 $146.91 $118.91
</TABLE>
The stock performance depicted in the above graph is not necessarily
indicative of future performance. The Stock Performance Graph shall not be
deemed to be "soliciting material" or to be "filed" with the SEC or subject to
Regulations 14A or 14C or to the liabilities of Section 18 of the Exchange
Act, except to the extent that NGP specifically requests that such information
be treated as soliciting material or specifically incorporates them by
reference into a filing under the Securities Act or Exchange Act.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On February 28, 1996, the NGP Board of Directors approved NGP's exercise of
certain options to acquire two golf course properties currently owned by the
Price Trust and two golf course properties owned by a partnership that is
beneficially owned 90% by David G. Price and 10% by Richard C. Price (such
four golf course properties collectively, the "Option Golf Courses"). The
Option Golf Courses currently collateralize certain Participating Mortgage
Loans made by NGP to the current owners of the Option Golf Courses in an
aggregate principal amount of approximately $25.2 million, which Participating
Mortgage Loans also are guaranteed by AGC. The options on the Option Golf
Courses provide that, upon exercise of such options, (i) the Participating
Mortgage Loans will be refinanced with a loan from a third-party lender that
is guaranteed by David G. Price and Richard C. Price and (ii) the Option Golf
Courses would be leased to AGC on terms specified in such options. The NGP
Board of Directors' recent action approved the exercise of such options on
terms that are different from the terms of the options originally granted to
NGP. The changes to the terms include, among others, (i) reducing the option
prices for the Option Golf Courses by approximately $11.3 million in the
aggregate for all four golf courses, to approximately $29.7 million (including
the approximately $25.2 million refinancing, the value of approximately 61,000
OP Units, and a $3 million reimbursement payment to AGC described under (iii)
below), (ii) reducing the base rent payable by AGC and modifying the
percentage rents payable by AGC so as to comport generally with leases
currently entered into with AGC, and (iii) providing that a portion of the
purchase price for such Option Golf Courses include approximately $3 million
in cash that will be paid to AGC as reimbursement for its cost of constructing
a clubhouse on one of the Option Golf Courses. Such cash payment is in
addition to NGP's assumption of the approximately $25.2 million in debt and
the approximately 61,000 OP Units that will be issued to David G. Price and
Richard C. Price. NGP also has agreed to reduce the base rent payable by AGC
on NGP's Carolina Shores golf course, which was originally acquired by NGP at
the time of its initial public offering, by $250,000 per year, beginning on
January 1, 1996, for the remaining term of approximately 17 years. All of the
changes to the options for these courses have been approved by the Independent
Committee of the NGP Board of Directors. NGP's management currently expects to
exercise the options on the Option Golf Courses in the second quarter of 1996.
On February 28, 1996, the Independent Committee of the NGP Board of
Directors approved a proposal to allow NGP personnel responsible for
negotiating golf course acquisitions on behalf of NGP to also negotiate golf
course leases and management contracts on behalf and for the benefit of AGC.
NGP's management recommended giving NGP personnel authority to negotiate
leases and management contracts for AGC in order to give such NGP personnel
the ability to exercise greater control over discussions with owners of golf
courses that NGP ultimately desires to acquire. NGP's management expects that
this change will increase NGP's opportunity to acquire or obtain the rights to
acquire new golf course properties and, in addition, reduce costs at NGP and
AGC by eliminating duplication of efforts.
NGP's management negotiated the terms of NGP's acquisition of the Purchased
Assets with GEI's management, including Robert A. Williams, GEI's President
and Chief Executive Officer. Mr. Williams, who was a former employee of AGC,
also owns 75,003 OP Units as a limited partner in the Operating Partnership,
which ownership interest represents less than 1% of the OP Units outstanding
as of February 20, 1996.
During 1994, the Operating Partnership entered into 16 leases with AGC with
respect to 20 golf courses acquired in such year, and during 1995, the
Operating Partnership entered into eight leases with AGC with respect to 10
golf courses acquired in such year. The aggregate initial annual base rent
payable under such leases is approximately $8.8 million for the leases entered
into in 1994 and $7.3 million for the leases entered into in 1995. Pursuant to
NGP's Bylaws, the terms of all such leases were approved by the Independent
Committee. NGP's General Counsel and Chief Leasing Officer, who has no prior
affiliation with David G. Price or his affiliates (including AGC), assists the
Independent Committee with respect to certain potential conflicts of interest
between NGP and affiliates of David G. Price, including the negotiation,
enforcement and renegotiation of all leases. See "Election of Directors--Board
Meetings; Committees and Compensation."
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In 1993, concurrently with the completion of the Offering, NGP engaged in a
series of transactions with David G. Price and his affiliates designed to
consolidate ownership of certain golf properties in NGP and to enable NGP to
qualify as a real estate investment trust. Such transactions included the
acquisition by NGP of the 47 golf courses in its original portfolio, the grant
to NGP of options exercisable at various times during 1995 to acquire four
golf courses in exchange for OP Units on fixed terms, the use by the Operating
Partnership of approximately $25.2 million of the net proceeds of the Offering
to make the participating mortgage loans secured by the four golf courses
under option, and the lease of the original 47 golf courses to AGC.
On March 16, 1994, the RTC notified NGP, AGC, and David G. Price that the
RTC was proposing to exclude them from future contracting with the RTC
contracting program for a period of three years. The RTC's basis for the
proposed exclusion pertained to the Resort Properties Advisory Services
Agreement between AGC and the RTC relating to certain golf course properties
and purported violations by AGC of certain RTC regulations in connection with
the RTC sale in July 1993 of such golf course properties. NGP, AGC and David
G. Price entered into a Settlement and Release Agreement with the RTC on April
10, 1995 wherein all claims relating to the Resort Properties Advisory
Services Agreement and the RTC sale of such golf course properties were
released. As part of the Settlement and Release Agreement, the RTC terminated
its notice of proposed exclusion, and AGC agreed that it, and any entity which
AGC or David G. Price controls, would not pursue further contracts to provide
goods or services to the RTC during the remaining statutory life of the RTC or
for three years from the March 16, 1994 notice of proposed exclusion,
whichever occurs first. The RTC's statutory life was terminated as of December
31, 1995, and thus, the term of AGC's agreement not to contract to provide
goods or services to the RTC has expired.
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SECURITY OWNERSHIP OF CERTAIN NGP
BENEFICIAL OWNERS AND MANAGEMENT
As of the close of business on June 20, 1996, NGP had outstanding 10,651,975
shares of NGP Common Stock. The following table sets forth information as to
the number of shares of NGP Common Stock beneficially owned as of June 20,
1996 by (i) each person known by NGP to be the beneficial owner of more than
5% of any class of NGP's voting securities, (ii) each director of NGP, (iii)
the Chief Executive Officer and other named executive officers, and (iv) NGP's
directors and executive officers as a group. Except as indicated by the notes
to the following table, the holders listed below have sole voting power and
investment power over the shares beneficially held by them and the beneficial
ownership is direct.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(2) BENEFICIAL OWNERSHIP
AS OF UPON CONSUMMATION
JUNE 20, 1996 OF ASSET PURCHASE(3)
------------------------------ --------------------
NAME OF BENEFICIAL SHARES PERCENT PERCENT
OWNER(1) -------------- ------------ --------------------
<S> <C> <C> <C>
FMR Corp. ................ 1,380,500(4) 13.0% 11.2%
82 Devonshire Street
Boston, MA 02109
McGlinn Capital
Management, Inc. ........ 603,900(4) 5.7% 4.9%
850 N. Wyomissing Blvd.
Wyomissing, PA 19610
Delaware Management
Holdings, Inc............ 549,400(4) 5.2% 4.5%
1818 Market Street
Philadelphia, PA 19103
Schwerin Boyle Capital
Management, Inc. ........ 544,300(4) 5.1% 4.4%
1391 Main Street
Springfield, MA 01103
David G. Price............ 3,346,176(5) 25.2% 22.3%
Richard A. Archer......... 500 * *
John C. Cushman, III...... 10,000 * *
Bruce Karatz.............. 600 * *
Charles S. Paul........... 3,000 * *
Richard C. Price.......... 145,000(6) 1.4% 1.2%
Edward R. Sause........... 125,550(7) 1.2% 1.0%
Scott S. Thompson......... 32,000(8) * *
All directors and
executive officers as a
group (8 persons)........ 3,662,826 27.1% 24.1%
</TABLE>
- --------
* Less than 1%
(1) Unless otherwise indicated, the address for each named person is c/o
National Golf Properties, Inc., 1448 15th Street, Suite 200, Santa Monica,
California 90404.
(2) For purposes of this Joint Proxy Statement--Prospectus, beneficial
ownership of securities is defined in accordance with the rules of the
Securities and Exchange Commission and means generally the power to vote
or exercise investment discretion with respect to securities, regardless
of any economic interests therein. Except as otherwise indicated, NGP
believes that the beneficial owners of shares of NGP Common Stock listed
below have sole investment and voting power with respect to such shares,
subject to community property laws where applicable.
(3) Assumes the issuance of 1,681,924 shares of NGP Common Stock issued in
connection with NGP's payment of a combination of cash and stock as
consideration for the Purchased Assets (based upon the June 20, 1996
closing price ($24.25) on the New York Stock Exchange).
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(4) Reflects beneficial ownership as of December 31, 1995, as reported on
Schedule 13G.
(5) Includes 673,475 shares of NGP Common Stock owned of record by the Price
Trust of which David G. Price is the sole trustee, and David G. Price, his
wife Dallas P. Price and their children are the beneficiaries, and
2,672,702 shares of NGP Common Stock issuable upon exchange of 2,672,702
OP Units owned by Mr. Price. Does not include 5,345,413 shares of NGP
Common Stock issuable upon exchange of an additional 5,345,413 OP Units
beneficially owned by Mr. Price which presently are not entitled to be
exchanged pursuant to the terms of the OP Partnership Agreement. Exchange
of any of the OP Units beneficially owned by Mr. Price is subject to the
Ownership Limit contained in NGP's Articles of Incorporation, which
prohibits the actual or constructive ownership of more than 9.8% of the
outstanding shares of NGP Common Stock by any person. Without regard to
the Ownership Limit and the limitation on the exchange of OP Units
contained in the OP Partnership Agreement, all 8,018,115 OP units
beneficially owned by Mr. Price would be presently exchangeable into
8,018,115 shares of NGP Common Stock and the total amount and percentage
of shares of NGP Common Stock beneficially owned by Mr. Price as of June
20, 1996 would have been 8,691,590 and 46.6%, respectively.
(6) Includes 24,000 shares of NGP Common Stock that Richard C. Price is
entitled to vote but that are subject to forfeiture upon termination of
his employment and various other restrictions, 75,000 shares of NGP Common
Stock that are presently issuable upon exchange of 75,000 OP Units owned
by Mr. Price, and 30,000 shares of NGP Common Stock issuable upon exercise
of options that are presently exercisable. Does not include 30,000 shares
of NGP Common Stock subject to options that are not exercisable within 60
days and shares of NGP Common Stock issuable upon exchange of 8,701 OP
Units that are not presently exchangeable. Richard C. Price currently is
the beneficial owner of 83,701 OP Units which, upon consummation of the
Asset Purchase, will constitute less than 1% of all OP Units then
outstanding.
(7) Includes 24,000 shares of NGP Common Stock that Mr. Sause is entitled to
vote but that are subject to forfeiture upon termination of his employment
and various other restrictions, 55,550 shares of NGP Common Stock that are
presently issuable upon exchange of all of the 55,550 OP Units owned by
Mr. Sause, and 30,000 shares of NGP Common Stock issuable upon exercise of
options that are presently exercisable. Does not include 30,000 shares of
NGP Common Stock subject to options that are not exercisable within 60
days.
(8) Includes 17,000 shares of NGP Common Stock that Mr. Thompson is entitled
to vote but that are subject to forfeiture upon termination of employment
and various other restrictions and 15,000 shares of NGP Common Stock
subject to options that are presently exercisable. Does not include 15,000
shares of NGP Common Stock subject to options that are not exercisable
within 60 days.
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DESCRIPTION OF NGP CAPITAL STOCK
The following summary description of the capital stock of NGP is qualified
in its entirety by the complete text of NGP's Articles of Incorporation and
Bylaws which are incorporated herein by reference.
GENERAL
Under NGP's Articles of Incorporation, the total number of shares of all
classes of stock that NGP has authority to issue is 45,000,000, consisting of
40,000,000 shares of NGP Common Stock and 5,000,000 shares of preferred stock,
par value $.01 per share (the "Preferred Stock"). No shares of Preferred Stock
are outstanding or will be outstanding immediately after consummation of the
Asset Purchase.
The holders of NGP Common Stock are entitled to one vote per share on all
matters voted on by stockholders, including elections of Directors, and,
except as otherwise required by law or provided in any resolution adopted by
the NGP Board of Directors with respect to any series of Preferred Stock
establishing the powers, designations, preferences and relative,
participating, option or other special rights of such series, the holders of
such shares of NGP Common Stock exclusively possess all voting power. NGP's
Articles of Incorporation do not provide for cumulative voting in the election
of Directors. Subject to any preferential rights of any outstanding series of
Preferred Stock, the holders of NGP Common Stock are entitled to such
distributions as may be declared from time to time by the NGP Board of
Directors from funds available therefor, and upon liquidation are entitled to
receive pro rata all assets of NGP available for distribution to such holders.
All shares of NGP Common Stock issued in connection with the Asset Purchase
will be fully paid and nonassessable and the holders thereof will not have
preemptive rights.
NGP's Articles of Incorporation provide for a staggered Board of Directors
consisting of seven Directors (which number is subject to adjustment)
comprised of three classes as nearly equal in size as practicable. Each class
holds office until the third annual meeting for selection of Directors
following the election of such class.
NGP's Board of Directors is authorized to provide for the issuance of shares
of Preferred Stock in one or more series, to establish the number of shares in
each series and to fix the designation, powers, preferences and rights of each
such series and the qualifications, limitations or restrictions thereof. NGP
has no present intention to issue shares of Preferred Stock.
CORPORATE GOVERNANCE
Transactions involving NGP and affiliates of David G. Price, such as the
Asset Purchase, the negotiation, enforcement and renegotiation of leases, the
selection of operators for acquired golf courses and consideration of NGP's
right of first refusal to purchase OP Units from the limited partners of the
Operating Partnership (the "OP Limited Partners") as provided in the
Partnership Agreement for the Operating Partnership (the "OP Partnership
Agreement"), will require the approval of the Independent Committee of the NGP
Board of Directors. Certain other significant actions of the NGP Board of
Directors will require the approval of a minimum of five Directors, including
a transaction involving a Change of Control of NGP or the Operating
Partnership, amendments to NGP's Articles of Incorporation or Bylaws (except
for such amendments as may be necessary to maintain NGP's status as a REIT),
any waiver or modification of the Ownership Limit, issuance of securities or
rights with certain special voting or other rights, and acquisitions,
dispositions or financings of assets by NGP or the Operating Partnership in
excess of 25% of the total market capitalization of NGP (including issued and
outstanding shares of NGP Common Stock and OP Units exchangeable for shares of
NGP Common Stock without regard to the Ownership Limit plus total debt)
whether by merger, purchase, sale or otherwise. A "Change of Control" of NGP
or the Operating Partnership will be deemed to have occurred if a person or
group acquires 20% or more of the combined voting power of NGP or the
Operating Partnership, as the case may be. A Change of Control of NGP or the
Operating Partnership involving an interested stockholder under Section 3-
601(j) of the Maryland General Corporation Law ("MGCL") or any transaction
requiring such approval under the MGCL or applicable rules of the NYSE would
require stockholder approval. Any amendments to NGP's Articles of
Incorporation require the approval of stockholders. NGP's Board of Directors
has the authority to
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terminate NGP's status as a REIT without the approval of stockholders. In
addition, certain actions by NGP relating to the Operating Partnership and
NGP's interest therein require approval of the OP Limited Partners.
OWNERSHIP BY DAVID G. PRICE
After the issuance of NGP Common Stock in connection with the Asset Purchase
and NGP's contribution of the Purchased Assets to the Operating Partnership,
David G. Price and his family will own 673,475 shares of NGP Common Stock and
8,018,115 OP Units that are exchangeable (subject to the Ownership Limit) for
shares of NGP Common Stock at a current exchange ratio of one OP Unit for each
share of NGP Common Stock. Assuming David G. Price and his family could
immediately exchange such OP Units for shares of NGP Common Stock without
regard to the Ownership Limit, Mr. Price and his family would own 8,691,590
shares of NGP Common Stock representing approximately 42.7% of the NGP Common
Stock on a fully diluted basis.
Under NGP's Articles of Incorporation, however, David G. Price and his
family are prohibited from owning, in the aggregate, more than 9.8% of the
outstanding NGP Common Stock. In order for David G. Price and his family to be
able to exercise their right to exchange OP Units for shares of NGP Common
Stock in excess of the Ownership Limit, NGP's Board of Directors would have to
waive the Ownership Limit as permitted under NGP's Articles of Incorporation.
NGP's Board of Directors does not currently intend to waive the Ownership
Limit with respect to David G. Price and his family. In addition, the
stockholders, upon the affirmative vote of a majority of the outstanding
shares of capital stock entitled to vote in the election of Directors, could
amend NGP's Articles of Incorporation to eliminate the Ownership Limit.
RESTRICTIONS ON OWNERSHIP
For NGP to qualify as a REIT under the Code, not more than 50% in value of
the NGP Common Stock outstanding may be owned, actually or constructively, by
five or fewer individuals (as defined in the Code to include certain entities)
during the last half of a taxable year (other than the first year). In
addition, if NGP, or an owner of 10% or more of NGP, actually or
constructively owns 10% or more of a tenant of NGP (or a tenant of any
partnership in which NGP is a partner), the rent received by NGP (either
directly or through any such partnership) from such tenant will not be
qualifying income for purposes of the REIT gross income test of the Code. NGP
Common Stock also must be beneficially owned by 100 or more persons during at
least 335 days of a taxable year of twelve months or during a proportionate
part of a shorter taxable year. Because NGP's Board of Directors believes it
is essential for NGP to continue to qualify as a REIT, NGP's Articles of
Incorporation contain restrictions on the ownership and transfer of NGP Common
Stock intended to assist NGP in complying with these requirements.
The ownership limit provision in NGP's Articles of Incorporation provides
that, subject to certain specified exceptions, no person or entity may own, or
be deemed to own by virtue of the applicable constructive ownership provisions
of the Code, more than 9.8% (by number or value, whichever is more
restrictive) of the outstanding shares of NGP Common Stock (the "Ownership
Limit"). The constructive ownership rules are complex, and may cause shares of
NGP Common Stock owned actually or constructively by a group of related
individuals and/or entities to be constructively owned by one individual or
entity. As a result, the acquisition of less than 9.8% of the shares of NGP
Common Stock (or the acquisition of an interest in an entity that owns,
actually or constructively, NGP Common Stock) by an individual or entity,
could, nevertheless cause that individual or entity, or another individual or
entity, to own constructively in excess of 9.8% of the outstanding NGP Common
Stock and thus subject such shares to the Ownership Limit in NGP's Articles of
Incorporation. NGP's Board of Directors may, but in no event will be required
to, waive the Ownership Limit with respect to a particular stockholder if it
determines that such ownership will not jeopardize NGP's status as a REIT. As
a condition of such waiver, NGP's Board of Directors may require opinions of
counsel satisfactory to it and/or undertakings or representations from the
applicant with respect to preserving the REIT status of NGP. Based on
representations made by GEI and certain of its stockholders, NGP's Board of
Directors intends to waive the Ownership Limit with respect to GEI to permit
GEI to acquire NGP Common Stock as set forth in the Acquisition Agreement.
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If any purported transfer of NGP Common Stock or any other event would
otherwise result in any person violating the Ownership Limit, then any such
purported transfer will be void and of no force or effect with respect to the
purported transferee (the "Prohibited Transferee") as to that number of shares
in excess of the Ownership Limit and the Prohibited Transferee shall acquire
no right or interest (or, in the case of any event other than a purported
transfer, the person or entity holding record title to any such shares in
excess of the Ownership Limit (the "Prohibited Owner") shall cease to own any
right or interest) in such excess shares. Any such excess shares described
above will be transferred automatically, by operation of law, to a trust, the
beneficiary of which will be a qualified charitable organization selected by
NGP (the "Beneficiary"). Within 20 days of receiving notice from NGP of the
transfer of shares to the trust, the trustee of the trust (who shall be
designated by NGP and be unaffiliated with NGP and any Prohibited Transferee
or Prohibited Owner) will be required to sell such excess shares to a person
or entity who could own such shares without violating the Ownership Limit, and
distribute to the Prohibited Transferee an amount equal to the lesser of the
price paid by the Prohibited Transferee for such excess shares or the sales
proceeds received by the trust for such excess shares. In the case of any
excess shares resulting from any event other than a transfer, or from a
transfer for no consideration (such as a gift), the trustee will be required
to sell such excess shares to a qualified person or entity and distribute to
the Prohibited Owner an amount equal to the lesser of the fair market value of
such excess shares as of the date of such event or the sales proceeds received
by the trust for such excess shares. In either case, any proceeds in excess of
the amount distributable to the Prohibited Transferee or Prohibited Owner, as
applicable, will be distributed to the Beneficiary. Prior to a sale of any
such excess shares by the trust, the trustee will be entitled to receive, in
trust for the Beneficiary, all dividends and other distributions paid by NGP
with respect to such excess shares, and also will be entitled to exercise all
voting rights with respect to such excess shares. Any dividend or other
distribution paid to the Prohibited Transferee or Prohibited Owner (prior to
the discovery by NGP that such shares had been automatically transferred to a
trust as described above) will be required to be repaid to the trustee upon
demand for distribution to the Beneficiary. In the event that the transfer to
the trust as described above is not automatically effective (for any reason)
to prevent violation of the Ownership Limit, then NGP's Articles of
Incorporation provide that the transfer of the excess shares will be void.
If any purported transfer of NGP Common Stock would cause NGP to be
beneficially owned by fewer than 100 persons, such transfer will be null and
void in its entirety and the intended transferee will acquire no rights to the
stock.
All certificates representing shares of NGP Common Stock will bear a legend
referring to the restrictions set forth in NGP's Articles of Incorporation
which are described above.
All persons who own a specified percentage (or more) of the outstanding
shares of NGP Common Stock must file a completed questionnaire with NGP
containing information regarding their ownership of such shares, as set forth
in the Treasury Regulations. Under current Treasury Regulations, the
percentage will be set between 0.5% and 5.0%, depending upon the number of
record holders of NGP's shares. In addition, each stockholder shall upon
demand be required to disclose to NGP in writing such information as NGP may
request in order to determine the effect, if any, of such stockholder's actual
and constructive ownership of NGP Common Stock on NGP's status as a REIT and
to ensure compliance with the Ownership Limit.
The foregoing ownership limitations may have the effect of precluding
acquisition of control of NGP without the consent of the NGP Board of
Directors.
SECTION 3-602 OF THE MARYLAND GENERAL CORPORATION LAW
Generally, Section 3-602 of the MGCL, to which NGP is subject, prohibits a
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of five years after the date of the transaction in
which the person became an interested stockholder, unless (i) (A) the business
combination involving such interested stockholder is approved or exempted from
Section 3-602(a) of the MGCL by the corporation's Board of Directors prior to
the most recent date on which such stockholder became an "interested
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stockholder" or (B) the corporation's articles of incorporation expressly
elects not to be governed by Section 3-602 of the MGCL with respect to
business combinations generally or as to specific types of business
combinations with interested stockholders and (ii) in either case, such
business combination is approved by at least 80% of the votes entitled to be
cast by the outstanding shares of the voting stock of the corporation and two-
thirds of the votes entitled to be cast by holders of shares of voting stock
not held by the interested stockholder, or its affiliates, that will be a
party to the business combination. A "business combination" includes a merger,
consolidation, share exchanges, or, in certain circumstances, an asset
transfer or issuance of equity securities. An "interested stockholder" is a
person who owns (or within two years, did own) 10% or more of the voting power
of a corporation's shares or an affiliate of the corporation who, at any time
within the two-year period prior to the date in question, was the beneficial
owner of 10% or more of the voting power of the then-outstanding voting stock
of the corporation. The NGP Board of Directors has exempted from these
provisions of the MGCL any business combination with David G. Price and his
affiliates.
CONTROL SHARES ACQUISITION
The MGCL provides that "control shares" of a Maryland corporation acquired
in a "control share acquisition" have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the
matter, excluding shares of stock owned by the acquiror or by officers or
directors who are employees of the corporation. "Control shares" are voting
shares of stock which, if aggregated with all other shares of stock previously
acquired by such person, would entitle the acquiror to exercise voting power
in electing directors within one of the following ranges of voting power: (i)
one-fifth or more but less than one-third, (ii) one-third or more but less
than a majority, or (iii) a majority or more of all voting power. Control
shares do not include shares the acquiring person is then entitled to vote as
a result of having previously obtained stockholder approval. A "control share
acquisition" means the acquisition of control shares, subject to certain
exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of directors to call a special meeting of stockholders to
be held within fifty (50) days of demand to consider the voting rights of the
shares. If no request for a meeting is made, the corporation may itself
present the question at any stockholders meeting. If voting rights are not
approved at the meeting or if the acquiring person does not deliver an
acquiring person statement as required by the statute, then, subject to
certain conditions and limitations, the corporation may redeem any or all of
the control shares (except those for which voting rights have previously been
approved) for fair value determined, without regard to voting rights, as of
the date of the last control share acquisition or of any meeting of
stockholders at which the voting rights of such are considered and not
approved. If voting rights for control shares are approved at a stockholders
meeting and the acquiror becomes entitled to vote a majority of the shares
entitled to vote, all other stockholders may exercise appraisal rights. The
fair value of the shares as determined for purposes of such appraisal rights
may not be less than the highest price per share paid in the control share
acquisition, and certain limitations and restrictions otherwise applicable to
the exercise of dissenters' rights do not apply in the context of a control
share acquisition.
The control share acquisition statute does not apply to shares acquired in a
merger, consolidation or share exchange if the corporation is a party to the
transaction, or to acquisitions approved or exempted by the charter or bylaws
of the corporation. NGP's Bylaws contain a provision exempting from the
control share acquisition statute any and all acquisitions of shares of NGP
Common Stock by David G. Price, his heirs, his estate or any trust, all the
beneficiaries of which consist of his heirs, and/or all present or future
affiliates or associates of, or any other person acting in concert or as a
group with, any of the foregoing. There can be no assurance that such
provisions will not be amended or eliminated at any point in the future.
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ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND STOCKHOLDER
PROPOSALS
NGP's Bylaws establish an advance notice procedure for stockholders to make
nominations of candidates for election as directors or bring other business
before an annual meeting of stockholders of NGP (the "Stockholder Notice
Procedure").
The Stockholder Notice Procedure provides that (i) only persons who are
nominated by, or at the direction of, NGP's Board of Directors, pursuant to
the Director Designation Agreement, or by a stockholder who has given timely
written notice containing specified information to the Secretary of NGP prior
to the meeting at which directors are to be elected, will be eligible for
election as Directors of NGP and (ii) at an annual meeting only such business
may be conducted as has been properly brought before the meeting by, or at the
direction of, NGP's Board of Directors or by a stockholder who has given
timely written notice to the Secretary of NGP of such stockholder's intention
to bring such business before such meeting. In general, for notice of
stockholder nominations or business to be made at an annual meeting to be
timely, such notice must be received by NGP not less than 50 days nor more
than 75 days prior to the annual meeting.
The purpose of requiring stockholders to give NGP advance notice of
nominations and other business is to afford NGP's Board of Directors a
meaningful opportunity to consider the qualifications of the proposed nominees
or the advisability of the other proposed business and, to the extent deemed
necessary or desirable by NGP's Board of Directors, to inform stockholders and
make recommendations about such qualifications or business, as well as to
provide a more orderly procedure for conducting meetings of stockholders.
Although the Bylaws do not give NGP's Board of Directors any power to
disapprove stockholder nominations for the election of directors or proposals
for action, the Stockholder Notice Procedure may have the effect of precluding
a contest for the election of directors or the consideration of stockholder
proposals if the proper procedures are not followed, and of discouraging or
deterring a third party from conducting a solicitation of proxies to elect its
own slate of directors or to approve its own proposal, without regard to
whether consideration of such nominees or proposals might be harmful or
beneficial to NGP and its stockholders.
ACTION BY WRITTEN CONSENT; STOCKHOLDER MEETINGS
Although NGP's Articles of Incorporation and Bylaws do not expressly provide
for stockholders of NGP to act by written consent without a meeting, the MGCL
generally provides that any action that may be taken at a stockholder meeting
may be taken without a meeting only if (i) a unanimous written consent setting
forth the matter is signed by each stockholder entitled to vote on the matter
and (ii) a written waiver of any right to dissent is signed by each
stockholder entitled to notice of the meeting but not entitled to vote at it.
Because the MGCL requires the unanimous written consent of all stockholders
entitled to vote for actions by written consent, it will be very unlikely that
NGP's stockholders will be able to take action by written consent under the
MGCL. Moreover, the rules of the NYSE prohibit listed companies from using
written consents in lieu of meetings. Both the MGCL and the NYSE rules thus
may deter hostile takeovers, as a holder or group of holders controlling a
majority interest of NGP's stock will not be able to amend NGP's Bylaws or
remove Directors pursuant to the stockholders' written consent unless they
obtain the unanimous written consent of all stockholders or call a special
meeting of the stockholders.
NGP's Bylaws allow stockholders entitled to cast at least 25% of all votes
entitled to be cast at a stockholder meeting to call a special meetings of
NGP's stockholders by making a written request to NGP's secretary; provided
that the written request of stockholders entitled to vote at least a majority
of all votes entitled to be cast shall be required to call a special meeting
to consider any matter substantially similar to a matter voted on at any
special meeting of the stockholders held during the preceding twelve (12)
months. NGP's Articles of Incorporation and Bylaws also permit stockholders to
submit a proposal to the vote of all stockholders of NGP in accordance with
the Bylaws, which provide for the additional notice requirements for
stockholder nominations and proposals at annual meetings of stockholders as
described above. See "Description of NGP Capital Stock--Advance Notice
Provisions for Stockholder Nominations and Stockholder Proposals."
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LIMITATIONS ON CHANGES IN CONTROL
The provisions of NGP's Articles of Incorporation and Bylaws providing for
ownership limitations, a staggered Board of Directors and authorizing NGP's
Board of Directors to issue Preferred Stock without stockholder approval, and
the provisions of Sections 3-602 and 3-702 of the MGCL could have the effect
of delaying, deferring or preventing a change in control of NGP or the removal
of existing management, and as a result could prevent the stockholders of NGP
from being paid a premium for their shares of NGP Common Stock.
LIMITATION OF LIABILITY OF DIRECTORS AND OFFICERS
NGP's Articles of Incorporation provides that NGP directors and officers
will not be personally liable for monetary damages to NGP or its stockholders
for breach of fiduciary duty as a director or officer, except for (i) actual
receipt of an improper personal benefit in money, property or services and
(ii) active and deliberate dishonesty established by a final judgment as being
material to the cause of action.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
NGP's Articles of Incorporation authorize NGP to indemnify its present and
former directors and officers and to pay or reimburse expenses in advance of
the final disposition of a proceeding to the maximum extent permitted from
time to time by the laws of the State of Maryland. NGP's Bylaws obligate NGP
to indemnify present and former directors and officers to the maximum extent
permitted by Maryland law. NGP's Bylaws also permit NGP to provide
indemnification to a present or former director or officer who served a
predecessor of NGP in such capacity, and to any employee or agent of NGP or a
predecessor of NGP. The MGCL permits a corporation to indemnify its present
and former directors and officers, among others, against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by them in
connection with any proceeding to which they may be made a party by reason of
their service in those or other capacities unless it is established that (a)
the act or omission of the director or officer was material to the matter
giving rise to the proceeding and was committed in bad faith or was the result
of active and deliberate dishonesty, (b) the director or officer actually
received an improper personal benefit in money, property or services, or (c)
in the case of any criminal proceeding, the director or officer had reasonable
cause to believe that the act or omission was unlawful. In addition, the MGCL
requires NGP, as conditions to advancing expenses, to obtain (i) a written
affirmation by the director or officer of his or her good faith belief that he
or she has met the standard of conduct necessary for indemnification by NGP as
authorized by NGP Bylaws and (ii) a written statement by or on his or her
behalf to repay the amount paid or reimbursed by NGP if it shall ultimately be
determined that the standard of conduct was not met. Under the MGCL, rights to
indemnification and expenses are non-exclusive, in that they need not be
limited to those expressly provided by statute. As a result, under the MGCL
and NGP's Bylaws, NGP is permitted to indemnify its directors, officers,
employees and other agents, within the limits established by law and public
policy, pursuant to an express contract, bylaw provision, stockholder vote or
otherwise.
Because the indemnification provisions of NGP's Articles and Bylaws are tied
to applicable Maryland law, they may be modified by future changes in such law
without further stockholder action. NGP's Bylaws provide that amendment or
repeal of the indemnification provisions of NGP's Bylaws would be effective on
a prospective basis only and neither repeal nor modification of such
provisions would adversely affect rights to indemnification in effect at the
time of any act or omission which is the subject of a proceeding against an
indemnified person.
The MGCL and NGP's Bylaws may permit indemnification for liabilities arising
under the Securities Act or the Exchange Act. The Board of Directors of NGP
has been advised that, in the opinion of the SEC, indemnification for
liabilities arising under the Securities Act or the Exchange Act is contrary
to public policy and is therefore unenforceable, absent a decision to the
contrary by a court of appropriate jurisdiction.
TRANSFER AGENT AND REGISTRAR
NGP has appointed Wells Fargo Bank & Company, N.A. as its transfer agent and
registrar.
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SHARES AVAILABLE FOR FUTURE SALE
Upon the completion of the Asset Purchase, NGP will have outstanding between
10,651,975 and 12,779,975 shares of NGP Common Stock, depending on the number
of shares issued in connection with the Asset Purchase. Any shares of NGP
Common Stock issued pursuant to the Asset Purchase will be freely tradeable by
persons other than "affiliates" (as defined by the Securities Act) of NGP or
GEI without restriction under the Securities Act, subject to the limitations
on ownership set forth in NGP's Articles of Incorporation. See "Description of
NGP Capital Stock--Restrictions on Ownership." Shares of NGP Common Stock
received by persons who are deemed to be affiliates of GEI may be resold by
them in transactions permitted by the resale provisions of Rule 145 under the
Securities Act or as otherwise permitted under the Securities Act. In addition
to any shares of NGP Common Stock issued in connection with the Asset
Purchase, an aggregate of 8,677,055 shares of NGP Common Stock may be issued
to the OP Limited Partners (subject to the Ownership Limit) if they exchange
all of their OP Units for shares of NGP Common Stock pursuant to certain
exchange rights granted to such limited partners in the OP Partnership
Agreement, or may be sold by NGP to raise funds to acquire OP Units if such
limited partners elect to put all of their OP Units to NGP pursuant to certain
cash option rights also granted in the OP Partnership Agreement, in either
case based on the initial exchange ratio of one OP Unit for each share of NGP
Common Stock. See "--Exchange Rights" and "--Cash Option Rights" below. In
addition, beginning in August 1996, David G. Price and the other limited
partners of the Operating Partnership will no longer be restricted from
disposing of their OP Units, subject to the Operating Partnership's right of
first refusal to purchase such OP Units prior to any such disposition.
The shares of NGP Common Stock currently owned by David G. Price, shares of
restricted stock issued pursuant to certain stock incentive plans of NGP and
any shares of NGP Common Stock issuable in connection with the exercise by OP
Limited Partners of their right to exchange OP Units for such stock are
"restricted" securities within the meaning of Rule 144 and may not be sold in
the absence of registration under the Securities Act unless an exemption from
registration is available, including exemptions contained in Rule 144. In
general, under Rule 144 as currently in effect, if two years have elapsed
since the later of the date of acquisition of restricted shares from NGP or
any affiliate of NGP, the acquiror or subsequent holder thereof is entitled to
sell within any three-month period a number of shares that does not exceed the
greater of 1% of the then-outstanding NGP Common Stock or the average weekly
trading volume of NGP Common Stock during the four calendar weeks preceding
the date on which notice of the sale is filed with the SEC. Sales under Rule
144 also are subject to certain manner of sale provisions, notice requirements
and the availability of current public information about NGP. If three years
have elapsed since the date of acquisition of restricted shares from NGP or
from any affiliate of NGP, and the acquiror or subsequent holder thereof is
deemed not to have been an affiliate of NGP at any time during the 90 days
preceding a sale, such person would be entitled to sell such shares in the
public market under Rule 144(k) without regard to the volume limitations,
manner of sale provisions, public information requirements or notice
requirements.
NGP Common Stock is traded on the NYSE and is expected to continue to be
traded on the NYSE following the Asset Purchase. No prediction can be made as
to the effect, if any, that future sales of shares, or the availability of
shares for future sale, will have on the market price prevailing from time to
time. Sales of substantial amounts of NGP Common Stock or the perception that
such sales could occur, could adversely affect prevailing market prices of NGP
Common Stock. See "Risk Factors--Possible Adverse Effects on Market Price of
NGP Common Stock Arising from Shares Available for Future Sale."
EXCHANGE RIGHTS
Each OP Limited Partner possesses the right (subject to the Ownership
Limit), exercisable once in each twelve-month period, to exchange up to the
greater of (a) one-third of the number of OP Units originally issued to such
limited partner or (b) 75,000 OP Units for shares of NGP Common Stock. As of
the date of this Joint Proxy Statement-Prospectus, the OP Limited Partners own
8,677,055 OP Units. Upon exchange, an OP Limited
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Partner will receive the number of shares of NGP Common Stock having a market
value at the time of exercise equal to fair market value of the OP Units being
exchanged. Such fair market value will be based on a valuation of all OP Units
calculated as (i) the current trading value for all shares of NGP Common
Stock, minus the net fair market value of the golf course properties owned
directly by NGP, determined in good faith by the NGP Board of Directors, divided
by (ii) the then-percentage interest in the Operating Partnership held by NGP.
The golf course properties owned directly by NGP will be assumed to appreciate
or depreciate in value at the same rate as the deemed value of the Operating
Partnership until the fifth anniversary of NGP's initial public offering in
1993, at which time (and on each subsequent fifth anniversary), the NGP Board of
Directors will determine the relationship between such values for the succeeding
five-year period. Pursuant to this formula, each OP Unit is exchangeable for one
share of NGP Common Stock. OP Units that are acquired by NGP pursuant to the
exercise of such exchange rights by a limited partner will be converted
automatically into units of general partnership interest in the Operating
Partnership.
The exercise of such exchange rights by an OP Limited Partner is subject to
(i) the expiration or termination of the applicable waiting period, if any,
under the HSR Act, (ii) each exchange having a value of not less than a
specified amount and (iii) the satisfaction of the Ownership Limit after
giving effect to the conversion.
CASH OPTION RIGHTS
Each OP Limited Partner has the right, exercisable once in any twelve-month
period, to sell to NGP for cash up to one-third of the number of OP Units
originally issued to such limited partner. As of the date of this Joint Proxy
Statement-Prospectus, the OP Limited Partners own 8,677,055 OP Units. OP Units
that are acquired by NGP as a result of the exercise of such right will be
converted automatically into units of general partnership interest in the
Operating Partnership.
NGP will have the option to pay for such OP Units (i) with available cash or
borrowed funds or (ii) out of the proceeds of a registered offering of newly
issued shares of NGP Common Stock. The price payable will be equal to the fair
market value of the OP Units being put, determined by the NGP Board of
Directors and subject to adjustment every five years as described above.
However, if NGP elects to pay for such OP Units with the proceeds of a
registered offering of newly issued shares of NGP Common Stock, the purchase
price for such OP Units will be reduced by any decrease in the price of the
NGP Common Stock that occurs between the exercise date and the pricing of NGP
Common Stock being sold pursuant to the registered offering and certain costs
of the offering (including underwriting discounts and commissions). The OP
Limited Partners will thus bear the risk of any such reduction, subject to
certain withdrawal rights. Any proceeds in excess of the purchase price will
be for the sole benefit of NGP.
After any exercise of such right, OP Limited Partners may not again exercise
such rights until 90 days after the completion of the registered offering of
shares of NGP Common Stock, if applicable.
REGISTRATION RIGHTS
NGP has granted to certain of its affiliates (including David G. Price)
registration rights with respect to the 753,475 shares of NGP Common Stock
owned by them and the 8,157,366 shares of NGP Common Stock that may be issued
to them (subject to the Ownership Limit) upon exchange of their OP Units. With
certain limitations, these registration rights grant such affiliates the
opportunity to demand registration of all or any portion of their shares of
NGP Common Stock once each calendar year, and the right to have such shares
registered incidentally to any registration being conducted by NGP of NGP
Common Stock, securities convertible or exchangeable for NGP Common Stock or
securities substantially similar to NGP Common Stock. NGP will bear expenses
incident to its registration requirements under such registration rights,
except that such expenses will not include any underwriting discounts or
commissions.
In addition, NGP has agreed to register all of the shares of NGP Common
Stock issuable to OP Limited Partners who are not affiliates of NGP upon
exercise of their right to exchange their OP Units for such stock.
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Such OP Limited Partners currently own OP Units which, subject to the
restrictions under the OP Partnership Agreement and NGP's Articles of
Incorporation, are exchangeable for an aggregate of 519,689 shares of NGP
Common Stock. Such shares will be freely transferable without restriction by
such persons.
NGP also has agreed to grant certain registration rights with respect to the
shares of NGP Common Stock that may be issued to several significant
stockholders of GEI in connection with the Acquisition Agreement. The
significant stockholders entitled to such registration rights are Robert H.
Williams, President and Chief Executive Officer of GEI, GTC II and GTC III,
all of which together currently own 3,425,344 shares of GEI Common Stock. See
"The Asset Purchase and Merger--Description of Acquisition Agreement--
Registration Rights Agreement."
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CERTAIN EFFECTS OF MERGER ON GEI STOCKHOLDER RIGHTS
GEI is organized as a corporation under the laws of the State of Kansas and
NGP is organized as a corporation under the laws of the State of Maryland. As
a Kansas corporation, GEI is subject to the KGCC, a general corporation
statute dealing with a wide variety of matters, including election, tenure,
duties and liabilities of directors and officers; dividends and other
distributions; meetings of stockholders; and extraordinary actions, such as
amendments to the certificate of incorporation, mergers, sales of all or
substantially all of the assets and dissolution. GEI also is governed by its
Articles of Incorporation (the "GEI Articles") and Bylaws (the "GEI Bylaws"),
which have been adopted pursuant to the KGCC. As a Maryland corporation, NGP
is governed by the MGCL, a general corporation statute covering substantially
the same matters as is covered by the KGCC, and by its Articles of
Incorporation (the "NGP Articles") and Bylaws (the "NGP Bylaws"). A number of
differences between the KGCC and the MGCL and among these various documents
are summarized below.
The discussion of the comparative rights of the stockholders of GEI and the
stockholders of NGP set forth below does not purport to be complete and is
subject to and qualified in its entirety by reference to the KGCC and the MGCL
and also to the NGP Articles, NGP Bylaws, GEI Articles and GEI Bylaws. The NGP
Articles and Bylaws may be obtained from NGP, without charge, by contacting
the Secretary of National Golf Properties, Inc., 1448 15th Street, Suite 200,
Santa Monica, California 90404; telephone (310) 260-5500. The GEI Articles and
GEI Bylaws may be obtained from GEI by contacting the Secretary of GEI, 1603
LBJ Freeway, Suite 810, Dallas, Texas 75234.
LIMITATION OF LIABILITY
Pursuant to the KGCC and the GEI Articles, the liability of any director of
GEI to GEI or to any stockholder of GEI for money damages for breach of
fiduciary duty has been eliminated, except for (i) breach of the director's
duty of loyalty to GEI or its stockholders, (ii) acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) unlawful dividends or redemptions or purchases of stock or (iv) any
transaction from which the director derived an improper personal benefit. In
general, the liability of officers may not be eliminated or limited under
Kansas law.
Pursuant to the MGCL and the NGP Articles, the liability of directors and
officers of NGP to NGP or to any stockholder of NGP for money damages has been
eliminated except for (i) actual receipt of an improper personal benefit in
money, property or services and (ii) active and deliberate dishonesty
established by a final judgment as being material to the cause of action. As a
result, directors and officers of NGP may not be liable for certain actions
for which GEI directors and officers would have been liable.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The GEI Articles and GEI Bylaws, and the NGP Articles and NGP Bylaws
obligate each company to indemnify its officers and directors to the fullest
extent allowed under respectively, the KGCC and the MGCL. For a description of
the indemnification provisions contained in the GEI Articles and Bylaws and
the KGCC, see "The Asset Purchase and Merger--Indemnification of GEI Directors
and Officers." For a detailed description of the indemnification provisions
contained in the NGP Articles and Bylaws and the MGCL, see "Description of NGP
Capital Stock--Indemnification of Officers and Directors."
The KGCC, the GEI Articles and Bylaws, the MGCL and the NGP Articles and
Bylaws contain substantially similar indemnification provisions. However,
under the KGCC, the termination of any proceeding by conviction or upon a plea
of nolo contendere or its equivalent, does not, of itself, create a
presumption that such person is prohibited from being indemnified. Under the
MGCL, such a termination creates a rebuttable presumption that such person is
not entitled to indemnification. In addition, the KGCC requires court approval
before there may be any indemnification where the person seeking
indemnification has been found liable to the corporation. However,
indemnification is prohibited under the MGCL if the person seeking
indemnification has been found liable to the corporation in a proceeding
brought by or in the right of the corporation. In addition, the
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MGCL provides that a person adjudged liable on the basis that personal benefit
was improperly received may not be indemnified by the corporation. Thus, under
these circumstances, Maryland law provides indemnification rights that are
narrower than under Kansas law.
ACTIONS BY WRITTEN CONSENT OF STOCKHOLDERS
Under both the KGCC and the MGCL, stockholders may act by written consent in
lieu of a stockholder meeting. The KGCC provides that, unless otherwise
provided in the certificate of incorporation of a Kansas corporation, any
action that is required to be taken or may be taken at a stockholder meeting
may be taken without a meeting, without prior notice and without a vote, if a
consent in writing, setting for the action so taken, is signed by the holders
of all the outstanding stock entitled to vote on the action. The MGCL provides
that any action that may be taken at a stockholder meeting may be taken
without a meeting only if (i) a unanimous written consent setting forth the
matter is signed by each stockholder entitled to vote on the matter and (ii) a
written waiver of any right to dissent is signed by each stockholder entitled
to notice of the meeting but not entitled to vote at it.
Because the MGCL requires the unanimous written consent of all stockholders
entitled to vote for actions by written consent, it will be very unlikely that
stockholders of NGP will be able to take action by written consent under the
MGCL. This provision of the MGCL may deter hostile takeovers, as a holder or
group of holders controlling a majority in interest of NGP's stock will not be
able to amend the NGP Bylaws or remove directors pursuant to a stockholders'
written consent unless they obtain a unanimous written consent of all
stockholders or call a special meeting of the stockholders. However, NGP does
not believe that this provision will have any material effect on the operation
of NGP because the rules of the NYSE prohibit listed companies from using
written consents in lieu of meetings.
INSPECTION OF BOOKS AND RECORDS
Under the KGCC, any stockholder of GEI may make a judicially-enforceable
written demand to inspect the list of stockholders and any other corporate
books and records for any purpose reasonably related to the stockholder's
interest as a stockholder. The MGCL provides an absolute right to inspect the
list of stockholders and books of account of NGP, for any purpose, to
individuals who have been stockholders for more than six months and,
individually or as a group, own at least five percent or more of NGP's
outstanding voting shares. In addition, any stockholder of NGP has the right
to request the corporation to provide a sworn statement showing all stock and
securities issued and all consideration received by the corporation within the
preceding 12 months. Thus, holders of less than five percent of the
outstanding shares of NGP Common Stock will not have the right to make a
written demand to inspect the stockholder list and books of NGP if the
Acquisition Agreement is approved.
AMENDMENTS TO BYLAWS
Under the KGCC, the stockholders of a corporation which has received payment
for any of its stock may never be divested of the power to adopt, amend or
repeal the bylaws. Such power may also be conferred upon the board of
directors. Under the MGCL, the exclusive power to adopt, amend or repeal the
bylaws may be conferred upon the stockholders, vested exclusively with the
board of directors, or shared by both groups.
Under the GEI Articles, the GEI Bylaws may be altered, amended or repealed,
or new bylaws may be adopted by the GEI Board of Directors, subject always to
the power of the stockholders of GEI to do the same. The NGP Bylaws provide
that the NGP Board of Directors has the exclusive power to adopt, alter or
repeal the bylaws of NGP and to make new bylaws.
DIVIDENDS AND OTHER DISTRIBUTIONS
Under the KGCC, dividends may be paid out of the surplus of the corporation
or, if there is no surplus, out of net profits for the year in which the
dividend is declared or the preceding fiscal year. The MGCL allows the payment
of dividends and redemption of stock unless (i) the corporation would not be
able to pay indebtedness
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that became due in the ordinary course of business or (ii) the corporation's
total assets would be less than the sum of the corporation's liabilities plus,
unless the charter provides otherwise, the amount that would be needed upon
dissolution to satisfy the preferential rights of those stockholders whose
preferential rights upon dissolution are superior to those receiving the
distribution. NGP has historically paid quarterly cash distributions since its
initial public offering in August of 1993 and plans to continue to do so.
LAW REGULATING BUSINESS COMBINATIONS
The KGCC provides that certain "business combinations" between a Kansas
corporation and a beneficial owner of fifteen percent (15%) or more of the
outstanding voting stock of the corporation, or an affiliate of the
corporation who, at any time within the three-year period prior to the date in
question, beneficially owned fifteen percent (15%) or more of the outstanding
voting stock of the corporation (an "Interested Kansas Stockholder"), may not
occur for three years following the date such person became an Interested
Kansas Stockholder unless (i) approved by the board of directors and holders
of at least two-thirds of the outstanding voting stock (other than shares
controlled by the Interested Kansas Stockholder), (ii) the board of directors
approved the acquisition of voting stock pursuant to which such person became
an Interested Kansas Stockholder, (iii) at the time the person became an
Interested Kansas Stockholder, the Interested Kansas Stockholder owned at
least 85% of the voting stock outstanding (other than shares owned by persons
who are directors and officers and by certain types of employee stock plans),
or (iv) an exemption is available. "Business combinations" include mergers,
consolidations, transfers of 10% or more of corporate assets, and, in certain
situations, share issuances or transfers, loans, advances, guarantees and
pledges.
Under the MGCL, certain "business combinations" (including a merger,
consolidation, share exchange, or, in certain circumstances, an asset transfer
or issuance or reclassification of equity securities) between a Maryland
corporation and any person who beneficially owns ten percent (10%) or more of
the voting power of the corporation's shares or an affiliate of the
corporation who, at any time within the two-year period prior to the date in
question, was the beneficial owner of ten percent (10%) or more of the voting
power of the then-outstanding voting stock of the corporation (an "Interested
Maryland Stockholder") are prohibited for five years after the most recent
date on which the Interested Maryland Stockholder becomes an Interested
Maryland Stockholder. Thereafter, the MGCL provides that any such business
combination must be recommended by the board of directors of such corporation
and approved by the affirmative vote of at least (a) eighty percent (80%) of
the votes entitled to be cast by holders of outstanding voting shares of the
corporation and (b) two-thirds of the votes entitled to be cast by holders of
outstanding voting shares of the corporation other than shares held by the
Interested Maryland Stockholder with whom the business combination is to be
effected, unless, among other things, the corporation's stockholders receive a
minimum price (as defined in the MGCL) for their shares and the consideration
is received in cash or in the same form as previously paid by the Interested
Maryland Stockholder for its shares or the business combination is approved or
exempted by the board of directors of the corporation prior to the time that
the Interested Maryland Stockholder becomes an Interested Maryland
Stockholder. These provisions of Maryland law do not apply, however, to
business combinations that are approved or exempted by the board of directors
of the corporation prior to the time that the Interested Maryland Stockholder
becomes an Interested Maryland Stockholder. The NGP Board of Directors has
exempted from these provisions of the MGCL any business combination with David
G. Price, his heirs, his estate, or any trust, all of the beneficiaries of
which consist of his heirs, and/or all present or future affiliates or
associates of, or any other person acting in concert or as a group with, any
of the foregoing. The business combination statute could have the effect of
discouraging offers to acquire NGP and of increasing the difficulty of
consummating any such offer.
CONTROL SHARE ACQUISITIONS
The KGCC provides that "control shares" of a Kansas corporation acquired in
a "control share acquisition" have the same voting rights as were accorded the
shares before the "control share acquisition" only to the extent approved by
the affirmative vote of a majority of all outstanding shares entitled to vote
in the election of directors voting by class if required by the terms of the
shares, excluding all interested shares.
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The MGCL contains provisions substantially similar to the Kansas control
share acquisition statute. However, under the MGCL approval of the voting
rights of "control shares" acquired in a "control share acquisition" requires
the affirmative vote of two-thirds of the votes entitled to be cast on the
matter, excluding shares of stock owned by the acquiror or by officers or
directors who are employees of the corporation. See "Description of NGP
Capital Stock--Control Shares Acquisition" for a detailed description of the
Maryland control share statute.
DISSENTERS' RIGHTS
The KGCC generally provides rights of appraisal to dissenting stockholders
of a merging or consolidating corporation. However, if at the record date for
the meeting where stockholders are to vote on the agreement of merger or
consolidation, any class or series of a class of stock of the corporation is
either registered on a national securities exchange, or held of record by not
less than 2,000 stockholders, no dissenters' rights apply to such class or
series of a class of stock, unless provided otherwise in the corporation's
articles of incorporation. In addition, no rights of appraisal apply to any of
the shares of stock of a constituent corporation surviving a merger if, under
the KGCC, the merger does not require for its approval the vote of the
stockholders of the surviving corporation.
The foregoing exceptions to the availability of dissenters' rights do not
apply to a class or series of a class of stock if holders of such stock are
required to accept in a merger or consolidation anything except (i) stock or
stock and cash in lieu of fractional shares of the corporation surviving or
resulting from such merger or consolidation, or (ii) stock or stock and cash
in lieu of fractional shares of any other corporation, which at the record
date for the meeting where stockholders are to vote on the agreement of merger
or consolidation, is either registered on a national securities exchange or
held of record by not less than 2,000 stockholders, or (iii) a combination of
stock or stock and cash in lieu of fractional shares as set forth in (i) and
(ii) above.
For a detailed description of the procedures required to exercise
dissenters' rights under the KGCC, see "The Asset Purchase and Merger--
Dissenters' Rights."
The MGCL also provides dissenters' rights to stockholders of a corporation
which merges or consolidates with another corporation. In addition, rights of
appraisal are available to stockholders of a corporation which engages in
certain extraordinary transfers of assets or "business combinations" with an
Interested Maryland Stockholder as defined by the MGCL, or which substantially
and adversely affects the stockholders' rights by amending its charter to
alter the contract rights, as expressly set forth in the charter, of any
outstanding stock (unless the right to do so is reserved in such charter).
Holders of stock which is to be acquired pursuant to certain types of share
exchanges are also provided dissenters' rights under the MGCL.
However, unless the transaction undertaken by the corporation is such a
"business combination," no appraisal rights are available to the stockholders
of a corporation if their stock (i) is listed on a national securities
exchange or on Nasdaq on the record date for determining stockholders entitled
to vote on the transaction objected to (or on the date notice is given
pursuant to the MGCL in the case of a merger of a controlled subsidiary with
the parent), (ii) is that of an open-end investment company registered under
the Investment Company Act of 1940 and the value placed on the stock in the
transaction is its net asset value, or (iii) is that of the surviving
corporation in a merger, unless the merger alters the contract rights of the
stock, as expressly set forth in the charter, when the charter does not
reserve the right to do so, or unless pursuant to the merger the stock is to
be converted into something other than either stock in the surviving
corporation or cash or other rights in lieu of fractional shares.
The procedural requirements for exercising dissenters' rights under the MGCL
are substantially similar to the rules of the KGCC.
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DISSOLUTION OF GEI AND NGP
Under the KGCC, a corporation may be dissolved if (i) the board of directors
of the corporation, by resolution adopted by a majority of the whole board of
directors at any meeting called for that purpose, deems such dissolution
advisable and (ii) a majority of the outstanding stock of the corporation
votes for the proposed dissolution at a stockholders meeting called for the
purpose of acting upon such resolution. Dissolution of a corporation may also
be authorized without action by the board of directors if all stockholders
entitled to vote thereon shall consent thereto in writing.
The MGCL permits the dissolution of NGP if (i) the board of directors adopts
by a majority vote of the entire board a resolution advising dissolution and
(ii) the dissolution is approved by the affirmative vote of not less than two-
thirds of all votes entitled to be cast on the matter.
RESTRICTIONS ON OWNERSHIP AND TRANSFER OF COMMON STOCK
In order to facilitate NGP's qualification as a REIT under the Code, the NGP
Articles contain various restrictions on the ownership and transfer of NGP
Common Stock. See "Description of NGP Capital Stock--Restrictions on
Ownership" for a detailed description of these restrictions.
The GEI Articles have no provisions comparable to the restrictions on
ownership and transfer of stock contained in the NGP Articles.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax consequences
of the Asset Purchase and the Merger, including the material federal income
tax consequences to GEI stockholders from the disposition of their GEI Common
Stock pursuant to the Merger. This summary does not address all aspects of
federal income taxation that may be relevant to an NGP or GEI stockholder in
light of such stockholder's particular circumstances or to certain types of
NGP or GEI stockholders subject to special treatment under the federal income
tax laws (such as certain financial institutions, tax-exempt organizations,
life insurance companies, dealers in securities or currencies, stockholders
holding stock as part of a conversion transaction, as part of a hedge or
hedging transaction, or as a position in a straddle for tax purposes, or
stockholders who acquired GEI Common Stock or will acquire NGP capital stock
in connection with the exercise or other satisfaction of compensatory
options). In addition, the summary below does not consider the effect of any
foreign, state, local or other tax laws that may be applicable to the proposed
transaction. The discussion assumes that GEI stockholders hold their GEI
Common Stock as "capital assets" (e.g., not as inventory or primarily for sale
to customers in the ordinary course of the holders' trade or business) within
the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended
(the "Code"). This summary is based upon the provisions of the Code, Treasury
Regulations, IRS rulings and judicial decisions, all in effect as of the date
hereof and all of which are subject to change (possibly with retroactive
effect) by subsequent legislative, judicial or administrative action. This
summary is for general information only and is not tax advice.
EACH GEI STOCKHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE
PARTICULAR FEDERAL INCOME TAX CONSEQUENCES TO THAT STOCKHOLDER OF DISPOSING OF
GEI COMMON STOCK PURSUANT TO THE MERGER AND THE APPLICABILITY AND EFFECT OF
ANY STATE, LOCAL OR FOREIGN TAX LAWS AND OF POTENTIAL CHANGES IN APPLICABLE
TAX LAWS.
OPINIONS OF COUNSEL
Latham & Watkins, counsel to NGP, will render its opinion to NGP, GEI and
the GEI stockholders concerning the likely outcome on the merits of the
material federal income tax consequences of the Asset Purchase and Merger.
Subject to the limitations and qualifications described below and in such
opinion, and
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assuming the Asset Purchase and Merger are each conducted as described in this
Joint Proxy Statement--Prospectus, Latham & Watkins will opine that the
information set forth in this discussion (under the caption "Material Federal
Income Tax Consequences"), to the extent that it constitutes matters of law,
summaries of legal matters, or legal conclusions, has been reviewed by Latham
& Watkins and is correct in all material respects. The statements as to which
Latham & Watkins is rendering its opinion include, but are not limited to, the
following:
(1) Commencing with NGP's taxable year ending December 31, 1993, NGP was
organized in conformity with the requirements for qualification as a
REIT, and its proposed method of operation has enabled and will enable
it to meet the requirements for qualification and taxation as a REIT
under the Code;
(2) The Asset Purchase will be a taxable transaction to GEI, in which GEI
will recognize taxable gain in an amount equal to the excess of the
amount of cash and the fair market value of NGP Common Stock received
by GEI, plus the amount of any liabilities transferred to NGP, over its
tax basis in the Purchased Assets;
(3) The Merger will be a taxable transaction to GEI stockholders, in which
each GEI stockholder who will not constructively own any of the GEI
Common Stock to be owned by Mr. Price after the Merger, will recognize
gain or loss on the disposition of his or her GEI Common Stock in an
amount equal to the excess of the amount of cash plus the fair market
value of the NGP Common Stock received by the GEI stockholder, over
such stockholder's adjusted tax basis in his or her GEI Common Stock;
(4) Neither NGP nor the Operating Partnership will recognize any gain or
loss upon the Asset Acquisition or the Merger; and
(5) Each of the Operating Partnership and Royal Golf will be treated as a
partnership for federal income tax purposes (and not as an association
or a publicly traded partnership taxable as a corporation).
CERTAIN TAX CONSEQUENCES TO GEI
The Asset Purchase will be a taxable transaction to GEI. GEI will recognize
taxable gain equal to the difference between the amount realized by GEI and
GEI's tax basis in the Purchased Assets. The amount realized by GEI in the
Asset Purchase will be equal to the amount of cash and the fair market value
of NGP Common Stock received by GEI, plus the amount of any liabilities
assumed or taken subject to by NGP in the Asset Purchase. It is expected that
GEI will be able to reduce substantially, but not entirely, the tax liability
resulting from the taxable gain recognized from the Asset Purchase by
utilizing net operating loss carryforwards.
CERTAIN TAX CONSEQUENCES TO GEI STOCKHOLDERS
In General. A GEI stockholder's disposition of his or her GEI Common Stock
in exchange for, at NGP's option, cash or a combination of NGP Common Stock
and cash in connection with the Merger will be a taxable transaction. The
income tax consequences to a GEI stockholder may vary depending upon such
stockholder's particular facts and circumstances. In general, if the Asset
Purchase and the Merger are treated for income tax purposes as a single
integrated transaction, which is believed likely, and if NGP elects to cause
NGP Common Stock and cash to be received by GEI stockholders in the Merger,
the disposition by a GEI stockholder of his or her GEI Common Stock pursuant
to the Merger should be treated as a transaction in which each GEI stockholder
is considered to have disposed of his or her GEI Common Stock (i) in part for
a distribution by GEI of NGP Common Stock and cash in redemption (the
"Redemption") of a portion of such GEI Common Stock and (ii) in part as a
taxable sale (the "Sale") of the balance of such stock for cash.
Treatment as a Sale or Exchange. Under Section 302 of the Code, the
Redemption by GEI of its GEI Common Stock pursuant to the Merger will be
treated as a "sale or exchange" of such stock by the GEI stockholders (rather
than as a distribution by GEI with respect to the GEI Common Stock), if the
receipt of NGP Common Stock and cash upon the Redemption and Sale (i) is
"substantially disproportionate" with respect to the stockholder, (ii) results
in a "complete redemption" of the stockholder's interest in GEI, or (iii) is
"not essentially equivalent to a dividend" with respect to the stockholder.
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If one or more of such tests are satisfied, each GEI stockholder will
recognize gain or loss upon the Redemption and Sale of his or her GEI Common
Stock equal to the difference between (i) the amount of cash plus the fair
market value of the NGP Common Stock received by the stockholder in the Merger
and (ii) such stockholder's tax basis in his or her GEI Common Stock disposed
of pursuant to the Merger. Any such gain or loss will be long term capital
gain or loss if, as of the date of the Merger, the GEI Common Stock was held
for more than one year; and will be short term capital gain or loss if, as of
the date of the Merger, the GEI Common Stock was held for one year or less.
Constructive Ownership. In determining whether any of the three tests under
Section 302 of the Code is satisfied, each GEI stockholder must take into
account not only the GEI Common Stock actually owned by such stockholder but
also GEI Common Stock constructively owned by such stockholder within the
meaning of Section 318 of the Code. Under Section 318 of the Code, a GEI
stockholder may constructively own GEI Common Stock actually owned, and in
some cases constructively owned, by certain related individuals and entities
in which the stockholder has an interest, or, in the case of GEI stockholders
that are entities, by certain individuals or entities that have an interest in
the stockholder, as well as any GEI Common Stock that the stockholder has a
right to acquire by exercise of an option or by the conversion or exchange of
a security. Assuming GEI stockholders do not constructively own any of the GEI
Common Stock to be owned by Mr. Price after the Merger, it is expected that
the Redemption and Sale of such stockholder's GEI Common Stock will satisfy
one or more of the tests under Section 302 of the Code. Any GEI stockholders
who constructively own any of the GEI Common Stock to be owned by Mr. Price
after the Merger should consult with their tax advisors regarding the tax
consequences of the Merger to them. It is likely that a portion of the cash
and NGP Common Stock received by any such stockholders would be treated as a
dividend which, among other things, would be taxable as ordinary income and
would not be reduced by such stockholders' tax basis in their GEI Common
Stock.
Additional Tax Considerations. The distinction between (i) long-term capital
gains and (ii) short-term capital gains and ordinary income is relevant
because, in general, individuals currently are subject to taxation at a
reduced rate on their "net capital gain" (i.e., the excess of net long-term
capital gains over net short-term capital losses) for the year. Legislation is
currently pending in Congress that, if enacted, would substantially reduce the
tax rate applicable to net capital gains of individuals and corporations. It
is impossible to predict whether such legislation will be enacted.
GEI stockholders are urged to consult their own tax advisors regarding the
possible impact on their obligation to make estimated tax payments as a result
of the recognition of any capital gain (or the receipt of any ordinary income)
caused by the disposition of any GEI Common Stock pursuant to the Merger.
Withholding. Unless an exemption applies under the applicable law and
Treasury Regulations, the Exchange Agent will be required to withhold under
the backup withholding rules, and will withhold, 31% of the gross proceeds to
which a holder of GEI Common Stock or other payee is entitled pursuant to the
Merger unless such holder or other payee provides his or her tax
identification number (social security number, in the case of an individual)
and certifies under penalties of perjury that such number is correct and that
such stockholder is not subject to backup withholding. In general, backup
withholding does not apply to corporations. The letter of transmittal which
will be mailed to holders of GEI Common Stock will contain a Substitute Form
W-9 which should be completed by each holder of GEI Common Stock and, if
applicable, each payee, so as to provide the information and certification
necessary to avoid backup withholding unless an applicable exemption exists
and is proved in a manner satisfactory to the Exchange Agent and GEI. In
addition, GEI stockholders who fail to certify their nonforeign status to GEI
may be subject to withholding pursuant to rules applicable to foreign
stockholders. See "Taxation of Non-U.S. Stockholders--Withholding" below. Each
GEI Stockholder is urged to consult with his or her own tax advisor regarding
qualification for exemption from backup withholding and the procedure for
obtaining any applicable exemption.
Backup withholding is not an additional tax. Rather, the amount of backup
withholding will be allowed as a credit against the tax liability of persons
subject to backup withholding. If withholding results in an overpayment of
taxes, a refund may be obtained, provided that the required information is
furnished to the IRS.
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For a discussion of certain of the material federal income tax consequences
to foreign GEI stockholders from the disposition of GEI Common Stock pursuant
to the Merger, see "Taxation of Non-U.S. Stockholders--Gain on Disposition of
GEI Common Stock" below.
CERTAIN TAX CONSEQUENCES TO NGP AND THE OPERATING PARTNERSHIP FROM THE ASSET
PURCHASE
NGP will not recognize gain or loss upon the exchange of NGP Common Stock or
its payment of cash for the Purchased Assets. NGP will have a tax basis in the
Purchased Assets equal to the amount of cash plus the fair market value of the
NGP Common Stock transferred by NGP to GEI in exchange for the Purchased
Assets.
NGP may assign to the Operating Partnership NGP's right to acquire from GEI
all or a portion of the Purchased Assets. In such event, the Operating
Partnership may acquire the Purchased Assets directly from GEI in exchange for
cash. Neither NGP nor the Operating Partnership will recognize gain or loss as
a result of such assignment. The Operating Partnership will not recognize gain
or loss upon its payment of cash for all or a portion of the Purchased Assets
and will have a tax basis in any Purchased Assets so acquired equal to the
amount of cash transferred by the Operating Partnership to GEI in exchange for
such assets.
As described above, NGP will contribute the Purchased Assets (to the extent
acquired by NGP) to the Operating Partnership in exchange for OP Units.
Section 721 of the Code provides that no gain or loss is recognized by a
partnership or by any of its partners in the case of a contribution of
property to the partnership in exchange for an interest in the partnership.
Therefore, the contribution of the Purchased Assets by NGP to the Operating
Partnership will be tax-free to both the Operating Partnership and NGP. The
Operating Partnership will have a tax basis in the Purchased Assets equal to
their tax basis in the hands of NGP.
TAXATION OF NGP AS A REIT
In General. NGP made an election to be taxed as a REIT under Sections 856
through 860 of the Code, commencing with its taxable year ended December 31,
1993. NGP believes that, commencing with its taxable year ended December 31,
1993, it has been organized and has operated in such a manner as to qualify
for taxation as a REIT under the Code, and NGP intends to continue to operate
in such a manner, but no assurance can be given that it has operated or will
continue to operate in such a manner so as to qualify or remain qualified.
These sections of the Code are highly technical and complex. The following
sets forth the material aspects of the sections that govern the federal income
tax treatment of a REIT and its stockholders. This summary is qualified in its
entirety by the applicable Code provisions, rules and regulations promulgated
thereunder, and administrative and judicial interpretations thereof.
In the opinion of Latham & Watkins, commencing with NGP's taxable year
ending December 31, 1993, NGP was organized in conformity with the
requirements for qualification as a REIT, and its proposed method of operation
has enabled and will enable it to meet the requirements for qualification and
taxation as a REIT under the Code. This opinion is based upon the factual
representations of NGP concerning its business and properties as set forth in
this Joint Proxy Statement--Prospectus. This opinion also is based upon
certain representations made by NGP in an officer's certificate as to factual
matters relating to NGP's ability to meet (through its organization, actual
annual operating results, distribution levels and diversity of stock
ownership) the various tests necessary to qualify as a REIT under the Code,
which tests are generally summarized below. Because Latham & Watkins has not
and will not review NGP's satisfaction of such tests, no assurance can be
given that the actual results of NGP's operation for any particular taxable
year will satisfy such requirements. Further, the anticipated income tax
treatment described in this Joint Proxy Statement--Prospectus may be changed,
perhaps retroactively, by legislative, administrative or judicial action at
any time. See "Risk Factors--Adverse Impact on NGP's Distributions of Failure
of NGP to Remain Qualified as a REIT or of Failure of the Operating
Partnership to Continue to be Treated as a Partnership" and "Taxation of NGP
as a REIT--Failure of NGP to Remain Qualified as a REIT" below.
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EACH GEI STOCKHOLDER WHO WILL RECEIVE NGP COMMON STOCK PURSUANT TO THE
MERGER IS ADVISED TO CONSULT HIS OR HER OWN TAX ADVISOR REGARDING THE SPECIFIC
TAX CONSEQUENCES TO HIM OR HER OF THE ACQUISITION, OWNERSHIP AND SALE OF NGP
COMMON STOCK, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES OF SUCH ACQUISITION, OWNERSHIP AND SALE AND OF POTENTIAL CHANGES
IN APPLICABLE TAX LAWS.
If NGP qualifies for taxation as a REIT, it generally will not be subject to
federal corporate income taxes on its net income that is currently distributed
to stockholders. Thus, while taxation at the stockholder level continues, this
treatment substantially eliminates the additional taxation at the corporate
level that generally results from investment in a regular corporation.
However, NGP will be subject to federal income tax as follows: First, NGP will
be taxed at regular corporate rates on any undistributed REIT taxable income,
including undistributed net capital gains. Second, under certain
circumstances, NGP may be subject to the "alternative minimum tax" on its
items of tax preference. Third, if NGP has (i) net income from the sale or
other disposition of "foreclosure property" which is held primarily for sale
to customers in the ordinary course of business or (ii) other nonqualifying
income from foreclosure property, it will be subject to tax at the highest
corporate rate on such income. Fourth, if NGP has net income from prohibited
transactions (which are, in general, certain sales or other dispositions of
property held primarily for sale to customers in the ordinary course of
business other than foreclosure property), such income will be subject to a
100% tax. Fifth, if NGP should fail to satisfy the 75% gross income test or
the 95% gross income test (as discussed below), but has nonetheless maintained
its qualification as a REIT because certain other requirements have been met,
it will be subject to a 100% tax on an amount equal to (a) the gross income
attributable to the greater of the amount by which NGP fails the 75% or 95%
test multiplied by (b) a fraction intended to reflect NGP's profitability.
Sixth, if NGP should fail to distribute during each calendar year at least the
sum of (i) 85% of its REIT ordinary income for such year, (ii) 95% of its REIT
capital gain net income for such year, and (iii) any undistributed taxable
income from prior periods, NGP would be subject to a 4% excise tax on the
excess of such required distribution over the amounts actually distributed.
Seventh, with respect to any asset (a "Built-In Gain Asset") acquired by NGP
from a corporation which is or has been a C corporation (i.e., generally a
corporation subject to full corporate-level tax) in a transaction in which the
basis of the Built-In Gain Asset in the hands of NGP is determined by
reference to the basis of the asset in the hands of the C corporation, if NGP
recognizes gain on the disposition of such asset during the ten-year period
(the "Recognition Period") beginning on the date on which such asset was
acquired by NGP, then, to the extent of the Built-In Gain (i.e., the excess of
(a) the fair market value of such asset over (b) NGP's adjusted basis in such
asset, determined as of the beginning of the Recognition Period), such gain
will be subject to tax at the highest regular corporate rate pursuant to IRS
regulations that have not yet been promulgated. The results described above
with respect to the recognition of Built-In Gain assume that NGP will make an
election pursuant to IRS Notice 88-19.
Requirements for Qualification. The Code defines a REIT as a corporation,
trust or association (i) which is managed by one or more trustees or
directors; (ii) the beneficial ownership of which is evidenced by transferable
shares, or by transferable certificates of beneficial interest; (iii) which
would be taxable as a domestic corporation, but for Sections 856 through 859
of the Code; (iv) which is neither a financial institution nor an insurance
company subject to certain provisions of the Code; (v) the beneficial
ownership of which is held by 100 or more persons; (vi) during the last half
of each taxable year not more than 50% in value of the outstanding stock of
which is owned, actually or constructively, by five or fewer individuals (as
defined in the Code to include certain entities); and (vii) which meets
certain other tests, described below, regarding the nature of its income and
assets. The Code provides that conditions (i) to (iv), inclusive, must be met
during the entire taxable year and that condition (v) must be met during at
least 335 days of a taxable year of twelve months, or during a proportionate
part of a taxable year of less than twelve months. Conditions (v) and (vi) do
not apply until after the first taxable year for which an election is made to
be taxed as a REIT. For purposes of conditions (v) and (vi), pension funds and
certain other tax-exempt entities are treated as individuals, subject to a
"look-through" exception in the case of condition (vi).
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NGP believes that it has issued sufficient shares of NGP Common Stock with
sufficient diversity of ownership to allow it to satisfy conditions (v) and
(vi). In addition, the NGP Articles provide for restrictions regarding the
transfer and ownership of NGP Common Stock, which restrictions are intended to
assist NGP in continuing to satisfy the share ownership requirements described
in (v) and (vi) above. Such ownership and transfer restrictions are described
in "Description of NGP Capital Stock-Restrictions on Ownership." These
restrictions may not ensure that NGP will, in all cases, be able to satisfy
the share ownership requirements described above. If NGP fails to satisfy such
share ownership requirements, NGP's status as a REIT will terminate. See
"Taxation of NGP as a REIT--Failure of NGP to Remain Qualified as a REIT."
In addition, a corporation may not elect to become a REIT unless its taxable
year is the calendar year. NGP has a calendar taxable year.
Ownership of a Partnership Interest. In the case of a REIT which is a
partner in a partnership, Treasury Regulations provide that the REIT will be
deemed to own its proportionate share of the assets of the partnership and
will be deemed to be entitled to the income of the partnership attributable to
such share. In addition, the character of the assets and gross income of the
partnership shall retain the same character in the hands of the REIT for
purposes of Section 856 of the Code, including satisfying the gross income
tests and the asset tests. Thus, NGP's proportionate share of the assets and
items of income of the Operating Partnership will be treated as assets and
items of income of NGP for purposes of applying the requirements described
herein. A summary of the rules governing the federal income taxation of
partnerships and their partners is provided below in "Tax Aspects of the
Operating Partnership." NGP has direct control of the Operating Partnership
and intends to operate it consistent with the requirements for qualification
as a REIT.
Income Tests. In order to maintain its qualification as a REIT, NGP annually
must satisfy three gross income requirements. First, at least 75% of NGP's
gross income (excluding gross income from prohibited transactions) for each
taxable year must be derived directly or indirectly from investments relating
to real property or mortgages on real property (including "rents from real
property" and, in certain circumstances, interest) or from certain types of
temporary investments. Second, at least 95% of NGP's gross income (excluding
gross income from prohibited transactions) for each taxable year must be
derived from such real property investments, dividends, interest and gain from
the sale or disposition of stock or securities (or from any combination of the
foregoing). Third, short-term gain from the sale or other disposition of stock
or securities, gain from prohibited transactions and gain on the sale or other
disposition of real property held for less than four years (apart from
involuntary conversions and sales of foreclosure property) must represent less
than 30% of NGP's gross income (including gross income from prohibited
transactions) for each taxable year.
Rents received by NGP will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in
whole or in part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term "rents from
real property" solely by reason of being based on a fixed percentage or
percentages of receipts or sales. Second, the Code provides that rents
received from a tenant will not qualify as "rents from real property" in
satisfying the gross income tests if the REIT, or an owner of 10% or more of
the REIT, actually or constructively owns 10% or more of such tenant (a
"Related Party Tenant"). Third, if rent attributable to personal property,
leased in connection with a lease of real property, is greater than 15% of the
total rent received under the lease, then the portion of rent attributable to
such personal property will not qualify as "rents from real property."
Finally, for rents received to qualify as "rents from real property," the REIT
generally must not operate or manage the property or furnish or render
services to the tenants of such property, other than through an independent
contractor from whom the REIT derives no revenue. The REIT may, however,
directly perform certain services that are "usually or customarily rendered"
in connection with the rental of space for occupancy only and are not
otherwise considered "rendered to the occupant" of the property. NGP does not
and will not (i) charge rent for any property that is based in whole or in
part on the income or profits of any person (except by reason of being based
on a percentage of receipts or sales, as described above), (ii) rent any
property to a Related Party Tenant (unless the NGP Board of Directors
determines in its discretion that the rent received from such Related Party
Tenant is not material and will not
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jeopardize NGP's status as a REIT), (iii) derive rental income attributable to
personal property (other than personal property leased in connection with the
lease of real property, the amount of which is less than 15% of the total rent
received under the lease), or (iv) perform services considered to be rendered
to the occupant of the property, other than through an independent contractor
from whom NGP derives no revenue.
The term "interest" generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount depends
in whole or in part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term "interest"
solely by reason of being based on a fixed percentage or percentages of
receipts or sales.
If NGP fails to satisfy one or both of the 75% or 95% gross income tests for
any taxable year, it may nevertheless qualify as a REIT for such year if it is
entitled to relief under certain provisions of the Code. These relief
provisions will be generally available if NGP's failure to meet such tests was
due to reasonable cause and not due to willful neglect, NGP attaches a
schedule of the sources of its income to its federal income tax return, and
any incorrect information on the schedule was not due to fraud with intent to
evade tax. It is not possible, however, to state whether in all circumstances
NGP would be entitled to the benefit of these relief provisions. For example,
if NGP fails to satisfy the gross income tests because nonqualifying income
that NGP intentionally incurs exceeds the limits on such income, the IRS could
conclude that NGP's failure to satisfy the tests was not due to reasonable
cause. If these relief provisions are inapplicable to a particular set of
circumstances involving NGP, NGP will not qualify as a REIT. As discussed
above in "Taxation of NGP as a REIT--In General," even if these relief
provisions apply, a tax would be imposed with respect to the excess net
income. No similar mitigation provision provides relief if NGP fails the 30%
income test. In such case, NGP would cease to qualify as a REIT.
Any gain realized by NGP on the sale of any property held as inventory or
other property held primarily for sale to customers in the ordinary course of
business (including NGP's share of any such gain realized by the Operating
Partnership) will be treated as income from a prohibited transaction that is
subject to a 100% penalty tax. Such prohibited transaction income may also
have an adverse effect upon NGP's ability to satisfy the income tests for
qualification as a REIT. Under existing law, whether property is held as
inventory or primarily for sale to customers in the ordinary course of a trade
or business is a question of fact that depends on all the facts and
circumstances with respect to the particular transaction. The Operating
Partnership intends to hold the Purchased Assets for investment with a view to
long-term appreciation, to engage in the business of acquiring, developing,
owning, and operating the Purchased Assets (and other properties) and to make
such occasional sales of the Purchased Assets as are consistent with the
Operating Partnership's investment objectives.
Asset Tests. NGP, at the close of each quarter of its taxable year, must
also satisfy three tests relating to the nature of its assets. First, at least
75% of the value of NGP's total assets (including its allocable share of the
assets held by the Operating Partnership) must be represented by real estate
assets including (i) its allocable share of real estate assets held by
partnerships in which NGP owns an interest and (ii) stock or debt instruments
held for not more than one year purchased with the proceeds of a stock
offering or long-term (at least five years) debt offering of NGP, cash, cash
items and government securities. Second, not more than 25% of NGP's total
assets may be represented by securities other than those in the 75% asset
class. Third, of the investments included in the 25% asset class, the value of
any one issuer's securities owned by NGP may not exceed 5% of the value of
NGP's total assets and NGP may not own more than 10% of any one issuer's
outstanding voting securities.
After meeting the asset tests at the close of any quarter, NGP will not lose
its status as a REIT for failure to satisfy the asset tests at the end of a
later quarter solely by reason of changes in asset values. If the failure to
satisfy the asset tests results from an acquisition of securities or other
property during a quarter (including as a result of NGP increasing its
interest in the Operating Partnership), the failure can be cured by
disposition of sufficient nonqualifying assets within 30 days after the close
of that quarter. NGP intends to maintain adequate records of the value of its
assets to ensure compliance with the asset tests and to take such other
actions within 30 days after the close of any quarter as may be required to
cure any noncompliance. If NGP fails to cure noncompliance with the asset
tests within such time period, NGP would cease to qualify as a REIT.
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Annual Distribution Requirements. NGP, in order to qualify as a REIT, is
required to distribute dividends (other than capital gain dividends) to its
stockholders in an amount at least equal to (i) the sum of (a) 95% of NGP's
"REIT taxable income" (computed without regard to the dividends paid deduction
and NGP's net capital gain) and (b) 95% of the net income (after tax), if any,
from foreclosure property, minus (ii) the sum of certain items of noncash
income. In addition, if NGP disposes of any Built-In Gain Asset during its
Recognition Period, NGP will be required, pursuant to Treasury Regulations
which have not yet been promulgated, to distribute at least 95% of the Built-
in Gain (after tax), if any, recognized on the disposition of such asset. Such
distributions must be paid in the taxable year to which they relate, or in the
following taxable year if declared before NGP timely files its tax return for
such year and if paid on or before the first regular dividend payment after
such declaration. To the extent that NGP does not distribute all of its net
capital gain or distributes at least 95%, but less than 100%, of its "REIT
taxable income," as adjusted, it will be subject to tax thereon at regular
ordinary and capital gain corporate tax rates. NGP intends to make timely
distributions sufficient to satisfy these annual distribution requirements. In
this regard, the OP Partnership Agreement authorizes NGP, as general partner,
to take such steps as may be necessary to cause the Operating Partnership to
distribute to its partners an amount sufficient to permit NGP to meet these
distribution requirements.
It is expected that NGP's REIT taxable income will be less than its cash
flow due to the allowance of depreciation and other non-cash charges in
computing REIT taxable income. Accordingly, NGP anticipates that it will
generally have sufficient cash or liquid assets to enable it to satisfy the
distribution requirements described above. It is possible, however, that NGP,
from time to time, may not have sufficient cash or other liquid assets to meet
these distribution requirements due to timing differences between (i) the
actual receipt of income and actual payment of deductible expenses and (ii)
the inclusion of such income and deduction of such expenses in arriving at
taxable income of NGP. In the event that such timing differences occur, in
order to meet the distribution requirements, NGP may find it necessary to
arrange for short-term, or possibly long-term, borrowings or to pay dividends
in the form of taxable stock dividends.
Under certain circumstances, NGP may be able to rectify a failure to meet
the distribution requirement for a year by paying "deficiency dividends" to
stockholders in a later year, which may be included in NGP's deduction for
dividends paid for the earlier year. Thus, NGP may be able to avoid being
taxed on amounts distributed as deficiency dividends; however, NGP will be
required to pay interest based upon the amount of any deduction taken for
deficiency dividends.
Furthermore, if NGP should fail to distribute during each calendar year at
least the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95%
of its REIT capital gain income for such year, and (iii) any undistributed
taxable income from prior periods, NGP would be subject to a 4% excise tax on
the excess of such required distribution over the amounts actually
distributed.
Failure of NGP to Remain Qualified as a REIT. If NGP fails to remain
qualified for taxation as a REIT in any taxable year, and the relief
provisions do not apply, NGP will be subject to tax (including any applicable
alternative minimum tax) on its taxable income at regular corporate rates.
Distributions to stockholders in any year in which NGP fails to qualify will
not be deductible by NGP nor will they be required to be made. As a result,
NGP's failure to qualify as a REIT would substantially reduce the cash
available for distribution by NGP to its stockholders. In addition, if NGP
fails to qualify as a REIT, all distributions to stockholders will be taxable
as ordinary income, to the extent of NGP's current and accumulated earnings
and profits, and, subject to certain limitations of the Code, corporate
distributees may be eligible for the dividends received deduction. Unless
entitled to relief under specific statutory provisions, NGP will also be
disqualified from taxation as a REIT for the four taxable years following the
year during which qualification was lost. It is not possible to state whether
in all circumstances NGP would be entitled to such statutory relief.
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TAXATION OF AN INVESTMENT IN NGP BY TAXABLE U.S. STOCKHOLDERS
In General. As used herein, the term "U.S. Stockholder" means a holder of
shares of NGP Common Stock who (for United States federal income tax purposes)
(i) is a citizen or resident of the United States, (ii) is a corporation,
partnership, or other entity created or organized in or under the laws of the
United States or of any political subdivision thereof, or (iii) is an estate
or trust the income of which is subject to United States federal income
taxation regardless of its source.
As long as NGP qualifies as a REIT, distributions made by NGP out of its
current or accumulated earnings and profits (and not designated as capital
gain dividends) will constitute dividends taxable to its taxable U.S.
Stockholders as ordinary income. Such distributions will not be eligible for
the dividends received deduction in the case of U.S. Stockholders that are
corporations. Distributions made by NGP that are properly designated by NGP as
capital gain dividends will be taxable to taxable U.S. Stockholders as long-
term capital gains (to the extent that they do not exceed NGP's actual net
capital gain for the taxable year) without regard to the period for which a
U.S. Stockholder has held his shares of NGP Common Stock. U.S. Stockholders
that are corporations may, however, be required to treat up to 20% of certain
capital gain dividends as ordinary income. To the extent that NGP makes
distributions (not designated as capital gain dividends) in excess of its
current and accumulated earnings and profits, such distributions will be
treated first as a tax-free return of capital to each U.S. Stockholder,
reducing the adjusted basis which such U.S. Stockholder has in his shares of
NGP Common Stock for tax purposes by the amount of such distribution (but not
below zero), with distributions in excess of a U.S. Stockholder's adjusted
basis in his shares taxable as capital gains (provided that the shares have
been held as a capital asset). Dividends declared by NGP in October, November,
or December of any year and payable to a stockholder of record on a specified
date in any such month shall be treated as both paid by NGP and received by
the stockholder on December 31 of such year, provided that the dividend is
actually paid by NGP on or before January 31 of the following calendar year.
U.S. Stockholders may not include in their own income tax returns any net
operating losses or capital losses of NGP.
Distributions made by NGP and gain arising from the sale or exchange by a
U.S. Stockholder of shares of NGP Common Stock will not be treated as passive
activity income, and, as a result, U.S. Stockholders generally will not be
able to apply any "passive losses" against such income or gain. Distributions
made by NGP (to the extent they do not constitute a return of capital)
generally will be treated as investment income for purposes of computing the
investment income limitation. Gain arising from the sale or other disposition
of NGP Common Stock, however, will not be treated as investment income unless
the U.S. Stockholder elects to reduce the amount of such U.S. Stockholder's
total net capital gain eligible for the 28% maximum capital gains rate by the
amount of such gain with respect to such NGP Common Stock.
Upon any sale or other disposition of NGP Common Stock, a U.S. Stockholder
will recognize gain or loss for federal income tax purposes in an amount equal
to the difference between (i) the amount of cash and the fair market value of
any property received on such sale or other disposition and (ii) the holder's
adjusted basis in such shares of NGP Common Stock for tax purposes. Such gain
or loss will be capital gain or loss if the shares have been held by the U.S.
Stockholder as a capital asset, and will be long-term gain or loss if such
shares have been held for more than one year. In general, any loss recognized
by a U.S. Stockholder upon the sale or other disposition of shares of NGP
Common Stock that have been held for six months or less (after applying
certain holding period rules) will be treated as a long-term capital loss, to
the extent of distributions received by such U.S. Stockholder from NGP which
were required to be treated as long-term capital gains.
Backup Withholding. NGP will report to its U.S. Stockholders and the IRS the
amount of dividends paid during each calendar year, and the amount of tax
withheld, if any. Under the backup withholding rules, a stockholder may be
subject to backup withholding at the rate of 31% with respect to dividends
paid unless such holder (a) is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact, or (b) provides
a taxpayer identification number, certifies as to no loss of exemption from
backup withholding, and otherwise complies with applicable requirements of the
backup withholding rules. A U.S. Stockholder that does not provide NGP with
his correct taxpayer identification number may also be subject to
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penalties imposed by the IRS. Any amount paid as backup withholding will be
creditable against the stockholder's income tax liability. In addition, NGP
may be required to withhold a portion of capital gain distributions to any
stockholders who fail to certify their non-foreign status to NGP. See
"Taxation of Non-U.S. Stockholders--Withholding."
For a discussion of certain of the material federal income tax consequences
to foreign holders from acquiring, holding and disposing of NGP Common Stock,
see "Taxation of Non-U.S. Stockholders".
TAXATION OF AN INVESTMENT IN NGP BY TAX-EXEMPT STOCKHOLDERS
The IRS has ruled that amounts distributed as dividends by a qualified REIT
do not constitute unrelated business taxable income ("UBTI") when received by
a tax-exempt entity. Based on that ruling, provided that a tax-exempt
shareholder (except certain tax-exempt shareholders described below) has not
held its shares of NGP Common Stock as "debt financed property" within the
meaning of the Code and such shares are not otherwise used in a trade or
business, the dividend income from NGP will not be UBTI to a tax-exempt
shareholder. Similarly, income from the sale of NGP Common Stock will not
constitute UBTI unless such tax-exempt shareholder has held such shares as
"debt financed property" within the meaning of the Code or has used the shares
in a trade or business.
For tax-exempt shareholders which are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and qualified
group legal services plans exempt from federal income taxation under Code
Sections 501(c)(7), (c)(9), (c)(17) and (c)(20), respectively, income from an
investment in NGP will constitute UBTI unless the organization is able to
properly deduct amounts set aside or placed in reserve for certain purposes so
as to offset the income generated by its investment in NGP. Such prospective
investors should consult their own tax advisors concerning these "set aside"
and reserve requirements.
Notwithstanding the above, however, the Omnibus Budget Reconciliation Act of
1993 (the "1993 Act") provides that, effective for taxable years beginning in
1994, a portion of the dividends paid by a "pension held REIT" shall be
treated as UBTI as to any trust which (i) is described in Section 401(a) of
the Code, (ii) is tax-exempt under Section 501(a) of the Code, and (iii) holds
more than 10% (by value) of the interests in the REIT. Tax-exempt pension
funds that are described in Section 401(a) of the Code are referred to below
as "qualified trusts."
A REIT is a "pension held REIT" if (i) it would not have qualified as a REIT
but for the fact that Section 856(h)(3) of the Code (added by the 1993 Act)
provides that stock owned by qualified trusts shall be treated, for purposes
of the "not closely held" requirement, as owned by the beneficiaries of the
trust (rather than by the trust itself), and (ii) either (a) at least one such
qualified trust holds more than 25% (by value) of the interests in the REIT,
or (b) one or more such qualified trusts, each of which owns more than 10% (by
value) of the interests in the REIT, hold in the aggregate more than 50% (by
value) of the interests in the REIT. The percentage of any REIT dividend
treated as UBTI is equal to the ratio of (i) the UBTI earned by the REIT
(treating the REIT as if it were a qualified trust and therefore subject to
tax on UBTI) to (ii) the total gross income of the REIT. A de minimis
exception applies where the percentage is less than 5% for any year. The
provisions requiring qualified trusts to treat a portion of REIT distributions
as UBTI will not apply if the REIT is able to satisfy the "not closely held"
requirement without relying upon the "look-through" exception with respect to
qualified trusts.
TAX ASPECTS OF THE OPERATING PARTNERSHIP AND ROYAL GOLF
In General. Substantially all of NGP's investments are held indirectly
through the Operating Partnership, and a portion of the Operating
Partnership's investments are held indirectly through Royal Golf
(collectively, with the Operating Partnership, the "Partnerships"). In
general, partnerships are "pass-through" entities which are not subject to
federal income tax. Rather, partners are allocated their proportionate shares
of the items of income, gain, loss, deduction and credit of a partnership, and
are potentially subject to tax thereon, without regard to whether the partners
receive a distribution from the partnership. NGP includes and will continue to
include in
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its income its proportionate share of the foregoing partnership items for
purposes of the various REIT income tests and in the computation of its REIT
taxable income. Moreover, for purposes of the REIT asset tests, NGP will
include its proportionate share of assets held by the Operating Partnership,
including the Operating Partnership's proportionate share of the assets held
by Royal Golf. See "Taxation of NGP as a REIT."
Entity Classification. NGP's interest in the Partnerships involves special
tax considerations, including the possibility of a challenge by the IRS of the
status of either of the Partnerships as a partnership (as opposed to an
association taxable as a corporation) for federal income tax purposes. If
either of the Partnerships was treated as an association, such partnership
would be taxable as a corporation and therefore be subject to an entity-level
tax on its income. In such a situation, the character of NGP's assets and
items of gross income would change and preclude NGP from satisfying the asset
tests and possibly the income tests (see "Taxation of NGP as a REIT--Asset
Tests" and "--Income Tests"), and in turn would prevent NGP from qualifying as
a REIT. See "Taxation of NGP as a REIT--Failure of NGP to Remain Qualified as
a REIT" above for a discussion of the effect of NGP's failure to meet such
tests for a taxable year. In addition, a change in either of the Partnerships'
status for tax purposes might be treated as a taxable event in which case NGP
might incur a tax liability without any related cash distributions.
An organization formed as a partnership will be treated as a partnership for
federal income tax purposes, rather than as a corporation, only if it has no
more than two of the four corporate characteristics that the Treasury
Regulations use to distinguish a partnership from a corporation for tax
purposes. These four characteristics are (i) continuity of life, (ii)
centralization of management, (iii) limited liability and (iv) free
transferability of interests. NGP has not requested, and does not intend to
request, a ruling from the IRS that either of the Partnerships will be treated
as a partnership for federal income tax purposes. However, in connection with
the closing of the Asset Purchase and Merger, Latham & Watkins is opining
that, based on the provisions of the applicable partnership agreements and
certain factual assumptions and representations contained in the Officer's
Certificate, each of the Operating Partnership and Royal Golf will be treated
as a partnership for federal income tax purposes (and not as an association or
a publicly traded partnership taxable as a corporation). Unlike a private
letter ruling, an opinion of counsel is not binding on the IRS, and no
assurance can be given that the IRS will not challenge the status of the
Operating Partnership or Royal Golf as a partnership for federal income tax
purposes. If such challenge were sustained by a court, the Operating
Partnership or Royal Golf could be treated as a corporation for federal income
tax purposes.
Partnership Allocations. Although a partnership agreement will generally
determine the allocation of income and loss among partners, such allocations
will be disregarded for tax purposes if they do not comply with the provisions
of Section 704(b) of the Code and the Treasury Regulations promulgated
thereunder. Generally, Section 704(b) and the Treasury Regulations promulgated
thereunder require that partnership allocations respect the economic
arrangement of the partners.
If an allocation is not recognized for federal income tax purposes, the item
subject to the allocation will be reallocated in accordance with the partners'
interests in the partnership, which will be determined by taking into account
all of the facts and circumstances relating to the economic arrangement of the
partners with respect to such item. The Partnerships' allocations of taxable
income and loss are intended to comply with the requirements of Section 704(b)
of the Code and the Treasury Regulations promulgated thereunder.
Basis in Operating Partnership Interest. NGP's adjusted tax basis in its
interest in the Operating Partnership generally (i) will be equal to the
amount of cash and the basis of any other property (including the Purchased
Assets) contributed to the Operating Partnership by NGP, (ii) will be
increased by (a) its allocable share of the Operating Partnership's income and
(b) its allocable share of indebtedness of the Operating Partnership and (iii)
will be reduced, but not below zero, by NGP's allocable share of (a) losses
suffered by the Operating Partnership, (b) the amount of cash distributed to
NGP and (c) by constructive distributions resulting from a reduction in NGP's
share of indebtedness of the Operating Partnership.
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If the allocation of NGP's distributive share of the Operating Partnership's
loss exceeds the adjusted tax basis of NGP's partnership interest in the
Operating Partnership, the recognition of such excess loss will be deferred
until such time and to the extent that NGP has adjusted tax basis in its
interest in the Operating Partnership. To the extent that the Operating
Partnership's distributions, or any decrease in NGP's share of the
indebtedness of the Operating Partnership (such decreases being considered a
constructive cash distribution to the partners), exceeds NGP's adjusted tax
basis, such excess distributions (including such constructive distributions)
constitute taxable income to NGP. Such taxable income will normally be
characterized as a capital gain, and if NGP's interest in the Operating
Partnership has been held for longer than the long-term capital gain holding
period (currently one year), such distributions and constructive distributions
will constitute long-term capital gain.
The Operating Partnership's adjusted tax basis in Royal Golf and the
allocations of income and loss, and the treatment of distributions by, Royal
Golf will be subject to rules similar to those described above with respect to
NGP's interest in the Operating Partnership.
TAXATION OF NON-U.S. STOCKHOLDERS
In General. The rules governing United States income, gift and estate
taxation of foreign entities and individuals who are neither citizens nor
residents of the United States are complex. They depend not only upon United
States federal and state income, gift and estate tax principles, but also upon
the treaties, if any, between the United States and the country of the
nonresident investor. Accordingly, no attempt will be made in this Joint Proxy
Statement-Prospectus to provide more than a brief summary of certain of the
material United States federal income tax consequences to foreign holders of
GEI Common Stock resulting from the Merger and the ownership and disposition
of NGP Common Stock. This discussion assumes that NGP qualifies for taxation
as a REIT. In addition, this discussion is based on current law, which is
subject to change. EACH FOREIGN HOLDER OF GEI COMMON STOCK SHOULD CONSULT WITH
HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES RESULTING
FROM THE MERGER, THE OWNERSHIP OF NGP COMMON STOCK AND THE OPERATION OF NGP
UNDER THE FEDERAL, STATE, LOCAL AND FOREIGN INCOME TAX LAWS APPLICABLE TO SUCH
HOLDERS, INCLUDING ANY REPORTING REQUIREMENTS. As used herein, the term "Non-
U.S. Stockholder" means a stockholder that is not a U.S. Stockholder, as
defined in "Taxation of an Investment in NGP by Taxable U.S. Stockholders--In
General" above.
Gain on Disposition of GEI Common Stock. For United States federal income
tax purposes, the characterization of the consideration received upon a Non-
U.S. Stockholder's disposition of his or her GEI Common Stock pursuant to the
Merger will be determined under the same principles that would apply if such
holder were a U.S. Stockholder. Accordingly, depending on whether the
Redemption of the GEI Common Stock meets one or more of the three tests under
Section 302 of the Code, the Redemption would be treated as a sale or exchange
of such stock, resulting in capital gain or loss to the Non-U.S. Stockholder,
or alternatively, would be treated as a distribution with respect to such
stock. For a discussion of the tax consequences if the Redemption meets none
of the three tests under Section 302 of the Code, see "Taxation of Non-U.S.
Stockholders--Distributions" below. In addition, proceeds paid pursuant to the
Merger may be subject to withholding. See "Taxation of Non-U.S. Stockholders--
Withholding" below. Assuming Non-U.S. Stockholders do not constructively own
any of the GEI Common Stock owned by Mr. Price after the Merger, it is
expected that each Non-U.S. Stockholder will recognize gain or loss upon the
Redemption and Sale of his or her GEI Common Stock equal to the difference
between the amount of cash plus the fair market value of the NGP Common Stock
received by the Non-U.S. Stockholder in the Merger and such stockholder's tax
basis in the GEI Common Stock disposed of pursuant to the Merger. See "Certain
Tax Consequences to GEI Stockholders."
A Non-U.S. Stockholder generally will not be subject to U.S. federal income
tax on gain recognized on a disposition of GEI Common Stock pursuant to the
Merger unless (i) subject to the exception discussed below, GEI is or has been
(which is believed to be the case), a "United States real property holding
corporation" (a "USRPHC") within the meaning of Section 897(c)(2) of the Code
at any time within the shorter of the five-year
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period preceding such disposition or such Non-U.S. Stockholder's holding
period (the "Required Holding Period"), (ii) the gain is effectively connected
with the conduct of a trade or business within the United States of the Non-
U.S. Stockholder and, if a tax treaty applies, attributable to a permanent
establishment maintained by the Non-U.S. Stockholder, (iii) the Non-U.S.
Stockholder is an individual who holds GEI Common Stock as a capital asset and
is present in the United States for 183 days or more in the taxable year of
the disposition and either (a) such individual has a "tax home" (as defined
for U.S. federal income tax purposes) in the United States or (b) the gain is
attributable to an office or other fixed place of business maintained in the
United States by such individual or (iv) the Non-U.S. Stockholder is subject
to tax pursuant to the Code provisions applicable to certain U.S. expatriates.
If an individual Non-U.S. Stockholder falls under clauses (ii) or (iv) above,
he or she will be taxed on his or her net gain derived from the disposition of
GEI Common Stock under regular U.S. federal income tax rates. If the
individual Non-U.S. Stockholder falls under clause (iii) above, he or she will
be subject to a flat 30% tax on the gain derived from the disposition of GEI
Common Stock which may be offset by U.S. capital losses (notwithstanding the
fact that he or she is not considered a resident of the United States). If a
Non-U.S. Stockholder that is a foreign corporation falls under clause (ii)
above, it will be taxed on its gain under regular graduated U.S. federal
income tax rates and, in addition, will under certain circumstances be subject
to the branch profits tax equal to 30% of its "effectively connected earnings
and profits" within the meaning of the Code for the taxable year, as adjusted
for certain items, unless it qualifies for a lower rate under an applicable
income tax treaty.
A corporation is generally a USRPHC if the fair market value of its United
States real property interests ("USRPIs") equals or exceeds 50% of the sum of
the fair market value of its worldwide real property interests plus its other
assets used or held for use in a trade or business. GEI believes that it is
currently a USRPHC; however, a Non-U.S. Stockholder would generally not be
subject to tax, or withholding in respect of such tax, on gain from a sale or
other disposition of GEI Common Stock by reason of GEI's USRPHC status if the
GEI Common Stock is "regularly traded" (as defined by applicable Treasury
Regulations) on an established securities market (e.g., the NYSE) during the
calendar year in which such sale or disposition occurs provided that such Non-
U.S. Stockholder does not own, actually or constructively, GEI Common Stock
with a fair market value in excess of 5% of the fair market value of all GEI
Common Stock outstanding at any time during the Required Holding Period. While
not free from doubt, GEI believes that the GEI Common Stock will be treated as
regularly traded.
If GEI is or has been a USRPHC within the Required Holding Period, and if a
Non-U.S. Stockholder owns in excess of 5% of the fair market value of GEI
Common Stock (as described in the preceding paragraph), such Non-U.S.
Stockholder will be subject to U.S. federal income tax at regular graduated
rates under certain rules ("FIRPTA tax") on gain recognized on a sale or other
disposition of such GEI Common Stock (subject to any applicable alternative
minimum tax, a special alternative minimum tax in the case of nonresident
alien individuals and the possible application of the 30% branch profits tax
in the case of foreign corporations). In addition, if GEI is or has been a
USRPHC within the Required Holding Period and if the GEI Common Stock were not
treated as regularly traded, a Non-U.S. Stockholder (without regard to its
ownership percentage) is subject to withholding in respect of FIRPTA tax at a
rate of 10% of the amount realized on a sale or other disposition of GEI
Common Stock and will be further subject to FIRPTA tax to the extent such tax
is in excess of the amounts withheld. Any amounts withheld pursuant to such
withholding tax will be creditable against such Non-U.S. Stockholder's U.S.
federal income tax liability. Each Non-U.S. Stockholder is urged to consult
his or her own tax advisor concerning the potential applicability of these
provisions.
Sale of NGP Common Stock. Gain recognized by a Non-U.S. Stockholder upon the
sale or exchange of shares of NGP Common Stock generally will not be subject
to United States taxation unless such shares constitute a USRPI within the
meaning of FIRPTA. The NGP Common Stock will not constitute a USRPI so long as
NGP is a "domestically-controlled REIT." A "domestically-controlled REIT" is a
REIT in which at all times during a specified testing period less than 50% in
value of its stock is held directly or indirectly by Non-U.S. Stockholders.
NGP believes that at the closing of the Asset Purchase and the Merger it will
be a "domestically-controlled REIT." However, because the shares of NGP Common
Stock are and will continue to be publicly traded, no assurance can be given
that NGP is or will continue to be a "domestically-controlled
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REIT." If NGP does not qualify as or ceases to be a "domestically-controlled
REIT," whether gain arising from the sale or exchange by a Non-U.S.
Stockholder of shares of NGP Common Stock would be subject to United States
taxation under FIRPTA as a sale of a USRPI will depend on whether the shares
are regularly traded on an established securities market and on the size of
the selling Non-U.S. Stockholder's interest in NGP. See "Taxation of Non-U.S.
Stockholders--Gain on Disposition of GEI Common Stock," above. A Non-U.S.
Stockholder's gain on the sale or exchange of shares of NGP Common Stock will
be subject to taxation under FIRPTA or other provisions of the U.S. federal
income tax under the conditions and in the same manner described above under
"--Gain on Disposition of GEI Common Stock."
Distributions. If the Redemption of the GEI Common Stock pursuant to the
Merger does not meet any of the tests under Section 302 of the Code, it will
be treated as a distribution. Similarly, distributions by NGP to a Non-U.S.
Stockholder that are neither attributable to gain from sales or exchanges by
NGP of USRPIs nor designated by NGP as capital gains dividends will be treated
as distributions. Such distributions will be treated as dividends of ordinary
income to the extent that they are made out of current or accumulated earnings
and profits of GEI or NGP, respectively. Dividends that are effectively
connected with the conduct by the Non-U.S. Stockholder of a United States
trade or business will be subject to tax on a net basis (that is, after
allowance of deductions) at graduated rates, in the same manner as domestic
stockholders are taxed with respect to such dividends and are generally not
subject to withholding. Otherwise, such distributions ordinarily will be
subject to withholding, as discussed in "Taxation of Non-U.S. Stockholders--
Withholding" below. Any such dividends received by a Non-U.S. Stockholder that
is a corporation may also be subject to an additional branch profits tax at a
30% rate or such lower rate as may be specified by an applicable income tax
treaty.
Pursuant to current Treasury Regulations, dividends paid to an address in a
country outside the United States are generally presumed to be paid to a
resident of such country for purposes of determining the applicability of
withholding discussed above and the applicability of a tax treaty rate. Under
proposed Treasury Regulations, not currently in effect, however, a Non-U.S.
Stockholder who wished to claim the benefit of an applicable treaty rate would
be required to satisfy certain certification and other requirements. Under
certain treaties, lower withholding rates generally applicable to dividends do
not apply to dividends from a REIT, such as NGP. Certain certification and
disclosure requirements must be satisfied to be exempt from withholding under
the effectively connected income exemption discussed above.
Distributions in excess of current or accumulated earnings and profits of
GEI or NGP, as the case may be, will not be taxable to a Non-U.S. Stockholder
to the extent that they do not exceed the adjusted basis of the stockholder's
GEI Common Stock or NGP Common Stock, but rather will reduce the adjusted
basis of such stock. To the extent that such distributions exceed the adjusted
basis of a Non-U.S. Stockholder's GEI Common Stock or NGP Common Stock, they
will give rise to gain from the sale or exchange of his stock, the tax
treatment of which is described below. If it cannot be determined at the time
a distribution is made whether or not such distribution will be in excess of
current or accumulated earnings and profits, the distribution will generally
be treated as a dividend for withholding purposes. However, amounts thus
withheld are generally refundable if it is subsequently determined that such
distribution was, in fact, in excess of current or accumulated earnings and
profits.
Distributions to a Non-U.S. Stockholder that are designated by NGP at the
time of distribution as capital gains dividends (other than those arising from
the disposition of a USRPI) generally will not be subject to United States
federal income taxation, unless (i) investment in the NGP Common Stock is
effectively connected with the Non-U.S. Stockholder's United States trade or
business, in which case the Non-U.S. Stockholder will be subject to the same
treatment as domestic stockholders with respect to such distribution (except
that a stockholder that is a foreign corporation may also be subject to the
30% branch profits tax, as discussed above), or (ii) the Non-U.S. Stockholder
is a nonresident alien individual who is present in the United States for 183
days or more during the taxable year and has a "tax home" in the United
States, in which case the nonresident alien individual will be subject to a
30% tax on the individual's capital gains.
116
<PAGE>
Distributions to a Non-U.S. Stockholder that are attributable to gain from
sales or exchanges by NGP of USRPIs will cause the Non-U.S. Stockholder to be
treated as recognizing such gain as income effectively connected with a United
States trade or business. Non-U.S. Stockholders would thus generally be taxed
at the same rates applicable to domestic stockholders (subject to a special
alternative minimum tax in the case of nonresident alien individuals). NGP is
required to withhold 35% of any such distribution. That amount is creditable
against the Non-U.S. Stockholder's United States federal income tax liability.
Also, such gain may be subject to a 30% branch profits tax in the hands of a
Non-U.S. Stockholder that is a corporation, as discussed above.
Partnerships, Trusts and Estates. A partner in a foreign partnership or a
beneficiary of a foreign trust or estate may be subject to U.S. federal income
tax on gain realized or dividends received with respect to GEI Common Stock
and NGP Common Stock by such partnership, trust or estate (even though that
entity may not be subject to tax) if (i) the partner or beneficiary is subject
to U.S. federal income tax because of its own status, such as a United States
resident or a foreign person engaged in a trade or business in the United
States whose gain (or dividend) is effectively connected with that trade or
business, or (ii) the partner or beneficiary is a nonresident alien individual
or foreign corporation and the gain (or dividend) of the partnership, estate
or trust is effectively connected with the conduct of a trade or business
within the United States by such partnership, estate or trust.
Federal Estate Tax. Shares of GEI Common Stock or NGP Common Stock owned or
treated as owned by an individual Non-U.S. Stockholder at the time of his or
her death will be includible in his or her estate for U.S. estate tax purposes
unless an applicable estate tax treaty provides otherwise.
Withholding. Under the withholding rules that apply with respect to FIRPTA
tax discussed above, GEI will deduct and withhold federal income tax at a rate
of 10% from gross proceeds paid pursuant to the Merger to a holder of GEI
Common Stock unless at the Effective Time (i) such stockholder provides GEI
with an affidavit stating, under penalties of perjury, the stockholder's
taxpayer identification number and that the stockholder is not a foreign
person as defined in the Code (a "Nonforeign Affidavit"), or (ii) GEI
determines, in its sole and absolute discretion, that GEI Common Stock is
regularly traded on an established securities market as defined in Section
1445(b)(6) of the Code and that the stockholder does not own (actually or
constructively) more than 5% of the GEI Common Stock, or (iii) the Non-U.S.
Stockholder proves to the satisfaction of GEI or GEI otherwise reasonably
determines that gross proceeds paid to a Non-U.S. Stockholder represent a
dividend distribution with respect to the Non-U.S. Stockholder. However, GEI
will not refrain from withholding the amount and in the manner described above
if GEI at the Effective Time (i) has actual knowledge that the Nonforeign
Affidavit of a holder of GEI Common Stock is false or (ii) receives a notice
from an agent of a holder of GEI Common Stock that such Nonforeign Affidavit
is false, unless another exception is met.
If it is determined that gross proceeds paid to a Non-U.S. Stockholder
pursuant to the Redemption portion of the Merger represent a dividend
distribution, GEI will withhold federal income tax at a rate of 30% from gross
proceeds paid pursuant to the Redemption portion of the Merger to a Non-U.S.
Stockholder or his agent, unless GEI determines that a reduced rate of
withholding is applicable pursuant to a tax treaty or that an exemption from
withholding is applicable because such gross proceeds are effectively
connected with the conduct of a trade or business by the Non-U.S. Stockholder
within the United States. Without definite knowledge to the contrary, GEI will
determine whether a holder of GEI Common Stock is a Non-U.S. Stockholder by
reference to the stockholder's address. A Non-U.S. Stockholder may be eligible
to file for a refund of such tax or a portion of such tax if such stockholder
(i) can prove that the gross proceeds received were not a dividend, (ii) is
entitled to a reduced rate of withholding pursuant to a treaty and GEI
withheld at a higher rate, or (iii) is otherwise able to establish that no tax
or a reduced amount of tax was due. In order to claim an exemption from
withholding on the ground that gross proceeds paid pursuant to the Merger are
effectively connected with the conduct of a trade or business by a Non-U.S.
Stockholder within the United States or that the Non-U.S. Stockholder is
entitled to the benefits of a tax treaty, the Non-U.S. Stockholder must
deliver to GEI (or other person who is otherwise required to withhold United
States tax) a properly executed statement claiming such
117
<PAGE>
exemption or benefits. Non-U.S. Stockholders are urged to consult their own
tax advisors regarding the application of United States federal income tax
withholding, including eligibility for a withholding tax reduction or
exemption and the refund procedures.
Backup Withholding and Information Reporting. Backup withholding tax and
information reporting will apply to the proceeds of a sale of NGP Common Stock
and the disposition of GEI Common Stock pursuant to the Merger paid to or
through a U.S. office of a broker unless the disposing holder certifies under
penalties of perjury that the stockholder is a Non-U.S. Stockholder or
otherwise establishes an exemption. Generally, U.S. information reporting and
backup withholding will not apply to a payment of the proceeds of a sale of
NGP Common Stock or GEI Common Stock if the payment is made outside the United
States through a foreign office of a foreign broker. However, U.S. information
reporting requirements (but not backup withholding) will apply to a payment of
the proceeds of a sale of NGP Common Stock or GEI Common Stock outside the
United States if (A) the payment is made through an office outside the United
States of a broker that is either (i) a U.S. person, (ii) a foreign person
which derives 50% or more of its gross income for certain periods from the
conduct of a trade or business in the United States or (iii) a "controlled
foreign corporation" (generally, a foreign corporation controlled by United
States stockholders) for U.S. federal income tax purposes and (B) the broker
fails to maintain documentary evidence that the holder is a Non-U.S.
Stockholder and that certain other conditions are met, or that the holder
otherwise is entitled to an exemption. A Non-U.S. Stockholder may obtain a
refund of any amounts withheld under the backup withholding rules by filing
the appropriate claim for refund with the IRS.
NGP and GEI must report annually to the IRS and to each Non-U.S. Stockholder
the amount of dividends paid to and the tax withheld, if any, with respect to
such stockholder. These information reporting requirements apply regardless of
whether withholding was reduced by an applicable tax treaty. Copies of these
information returns may also be available under the provisions of a specific
treaty or agreement with the tax authorities in the country in which the Non-
U.S. Stockholder resides.
Dividends that are subject to U.S. withholding tax at the 30% statutory rate
or at a reduced tax treaty rate and dividends that are effectively connected
with the conduct of a trade or business in the United States (if certain
certification and disclosure requirements are met) are exempt from backup
withholding of U.S. federal income tax. Backup withholding will therefore
generally not apply to gross payments received by GEI stockholders pursuant to
the Merger or dividends paid on shares of NGP or GEI Common Stock to a Non-
U.S. Stockholder at an address outside the United States. In addition, backup
withholding tax and information reporting will generally not apply to
distributions paid to Non-U.S. Stockholders outside the United States that are
treated as (i) capital gains dividends or (ii) distributions attributable to
gain from the sale or exchange by NGP or GEI of USRPIs.
To prevent United States federal income tax backup withholding equal to 31%
of the gross payments made pursuant to the Merger, each Non-U.S. Stockholder
tendering GEI Common Stock must submit a properly completed form W-8 (which
may be obtained from the Exchange Agent) in order to prevent backup
withholding.
The backup withholding and information reporting rules are under review by
the United States Treasury, and their application to the NGP Common Stock
could be changed prospectively by future Treasury Regulations.
Each Non-U.S. Stockholder is urged to consult with his or her own tax
advisor regarding his, her or its qualification for exemption from backup
withholding and the procedure for obtaining any applicable exemption.
OTHER TAX CONSEQUENCES
NGP and its stockholders may be subject to state or local taxation in
various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of NGP and its
stockholders may not conform to the federal income tax consequences discussed
above. Consequently, prospective stockholders should consult their own tax
advisors regarding the effect of state and local tax laws on an investment in
NGP.
118
<PAGE>
APPOINTMENT OF AUDITORS
Coopers & Lybrand L.L.P. audited NGP's financial statements for the year
ended December 31, 1995 and has been NGP's auditors since NGP's formation in
1993. The NGP Board of Directors have selected the firm of Coopers & Lybrand
L.L.P. as independent accountants for NGP for the fiscal year ending December
31, 1996. A representative of Coopers & Lybrand L.L.P. is expected to be
present at the NGP Annual Meeting with an opportunity to make a statement if
he desires to do so, and such representative is expected to be available to
respond to appropriate questions.
KPMG Peat Marwick LLP audited GEI's financial statements for the year ended
December 31, 1995. It is expected that a representative of KPMG Peat Marwick
LLP will be present at the GEI Special Meeting to respond to appropriate
questions of stockholders and to make a statement if such representative
desires.
STOCKHOLDER PROPOSALS
The proxy rules adopted by the SEC provide that certain proposals by NGP
stockholders must be included in the proxy statement for NGP's Annual Meeting.
For a proposal to be considered for inclusion in next year's proxy statement,
it must be received by NGP no later than February 26, 1997.
NGP stockholders may also bring business for consideration at next year's
NGP Annual Meeting (the "1997 Meeting"). In addition to any other applicable
requirements, the NGP Bylaws provide that in order for business to be properly
brought before the 1997 Meeting by a stockholder, the stockholder must give
notice of such business in writing to the secretary of NGP. The notice must be
delivered to or mailed and received at the principal executive offices of NGP,
not less than fifty days nor more than seventy-five days prior to the 1997
Meeting; provided, however that in the event that less than sixty-five days'
notice or prior public disclosure of the date of the 1997 Meeting is given or
made to stockholders, notice by the stockholder must be received not later
than the close of business on the fifteenth day following the day on which
such notice of the date of the 1997 Meeting was mailed or such public
disclosure was made, whichever first occurs. A stockholder's notice to the
secretary shall set forth (a) as to each matter the stockholder proposes to
bring before the 1997 Meeting (i) their reasons for conducting such business
at the 1997 Meeting, (ii) the name and record address of the stockholder
proposing such business, (iii) the class, series and number of shares of NGP
which are beneficially owned by the stockholder, and (iv) any material
interest of the stockholder in such business and (b) as to the stockholder
giving the notice (i) the name and record address of the stockholder and (ii)
the class and number of shares of capital stock of NGP which are beneficially
owned by the stockholder. Any stockholder business not meeting these
requirements will not be brought before next year's Annual Meeting.
If the Merger is not consummated, GEI will hold its 1996 Annual Meeting as
soon as practicable following termination of the Acquisition Agreement. In
order for a stockholder proposal to be included in GEI's proxy statement and
the form of proxy on matters appropriate for stockholder action consistent
with the Regulations of the SEC, stockholder proposals must have been received
by GEI a reasonable time before GEI's 1996 Annual Meeting.
119
<PAGE>
OTHER MATTERS
The Board of Directors of NGP knows of no matters to be presented at the NGP
Annual Meeting other than those described in this Joint Proxy Statement--
Prospectus. The Board of Directors of GEI knows of no matters to be presented
at the GEI Special Meeting other than those described in the Joint Proxy
Statement--Prospectus. Other business may properly come before the NGP Annual
Meeting or GEI Special Meeting, and in that event it is the intention of the
persons named in the accompanying proxy to vote in accordance with their
judgment on such matters.
NGP's Annual Report to Stockholders, including NGP's audited financial
statements for the year ended December 31, 1995, is being mailed herewith to
all NGP stockholders of record. Included with NGP's Annual Report is a copy of
NGP's annual report on Form 10-K, including financial statements of AGC, for
the year ended December 31, 1995, as amended, as filed with the Securities and
Exchange Commission.
LEGAL OPINIONS
The validity of the shares of NGP Common Stock to be issued in connection
with the Asset Purchase and Merger will be passed upon by Latham & Watkins,
Washington, D.C. Certain tax consequences of the Asset Purchase and Merger
also will be passed upon by Latham & Watkins, Los Angeles, California.
EXPERTS
The consolidated financial statements of Golf Enterprises, Inc. and
subsidiaries as of December 31, 1995 and 1994, and for each of the years in
the three-year period ended December 31, 1995, have been included herein and
in the Registration Statement in reliance upon the report of KPMG Peat Marwick
LLP, independent certified public accountants, appearing elsewhere herein, and
upon the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of National Golf Properties, Inc. as
of December 31, 1995 and 1994 and for the years then ended and the period
August 18, 1993 to December 31, 1993 and the combined financial statements of
Golf Properties Group (predecessor affiliates) for the period January 1, 1993
to August 17, 1993, have been incorporated by reference herein and in the
Registration Statement in reliance upon the report by Coopers & Lybrand
L.L.P., independent accountants, incorporated by reference herein, and upon
the authority of said firm as experts in accounting and auditing.
The combined financial statements of GEI's Business Related to the Purchased
Assets as of and for the year ended December 31, 1995 have been included
herein and in the Registration Statement in reliance upon the report of
Coopers & Lybrand L.L.P., independent accountants, included elsewhere herein,
and upon the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of American Golf Corporation and
Subsidiaries as of December 31, 1995 and 1994 and for the years then ended and
the ten month period ended December 31, 1993 have been incorporated by
reference herein and in the Registration Statement in reliance upon the report
of Coopers & Lybrand L.L.P., independent accountants, incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing.
The financial statements of Willow Fork Country Club (a division of
Wheatstone Development Company) as of December 31, 1994 and 1993 and for the
years then ended, have been included herein and in the Registration Statement
in reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.
120
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM DEFINITION
---- ----------
<S> <C>
Accelerated Options.................................................. 2
Acquisition Agreement................................................ i
Acquisition Proposal................................................. 34
Additional Rent...................................................... 42
Affiliate Agreement.................................................. 45
affiliates........................................................... 44
AGC.................................................................. viii
AGC 401(k) Plan...................................................... 41
Agreement to Lease................................................... 41
Analyses............................................................. 22
Antitrust Division................................................... 44
Asset Purchase....................................................... i
Asset Purchase Consideration......................................... 29
Average NGP Common Stock Price....................................... 29
Base Rent............................................................ 42
Beneficiary.......................................................... 92
Blackout Period...................................................... 40
broker non-votes..................................................... 10
Built-In Gain........................................................ 107
Built-In Gain Asset.................................................. 107
business combination................................................. 93
capital assets....................................................... 103
Cash Consideration................................................... 29
Change of Control.................................................... 90
Closing Date......................................................... 29
Code................................................................. 3
Commitment Fee....................................................... 38
Comparable Group..................................................... 27
Comparable Transactions.............................................. 27
Compensation Committee............................................... 79
control shares....................................................... 93
control share acquisition............................................ 93
Course Revenue....................................................... 42
CPI.................................................................. 42
Credit Agreement..................................................... 70
derivative action.................................................... 43
Dissenting Shares.................................................... 29
domestically-controlled REIT......................................... 115
EBITDA............................................................... 24
Effective Time....................................................... 32
Election Proposal.................................................... i
Engagement Letter.................................................... 25
Exchange Act......................................................... ii
Exchange Agent....................................................... 30
FIRPTA tax........................................................... 115
First Amendment...................................................... xiv
Forms................................................................ 44
FTC.................................................................. 44
</TABLE>
<TABLE>
<CAPTION>
TERM DEFINITION
---- ----------
<S> <C>
GAAP................................................................. xviii
GEI.................................................................. i
GEI Acquisitions..................................................... 24
GEI Articles......................................................... 42
GEI Board of Directors............................................... ix
GEI Bylaws........................................................... 42
GEI Common Stock..................................................... i
GEI Options.......................................................... xv
GEI Proposal......................................................... ix
GEI Special Meeting.................................................. i
GEI 401(k) Plan...................................................... 41
GPG.................................................................. xx
Growth Scenario...................................................... 26
GTC II............................................................... 7
GTC III.............................................................. 7
GTCR L.P............................................................. 14
High-Growth Consolidators............................................ 27
HSR Act.............................................................. xviii
Independent Committee................................................ xiv
Independent Directors................................................ 9
Interested Kansas Stockholder........................................ 101
Interested Maryland Stockholder...................................... 101
interested stockholder............................................... 93
IRS.................................................................. 3
JCG.................................................................. xxviii
Kansas Court......................................................... 46
Kaufman.............................................................. 78
KGCC................................................................. xiii
Low-Growth Companies................................................. 27
LTM Cash Flow........................................................ 27
LTM Net Income....................................................... 27
LTM Operating Income................................................. 27
Merger............................................................... i
Merger Consideration................................................. ix
MGCL................................................................. 90
Montgomery........................................................... xv
Named Executive Officers............................................. 80
NAREIT............................................................... xxi
Nasdaq............................................................... xviii
net capital gain..................................................... 105
New Lease............................................................ xvii
Newco................................................................ i
Newco Common Stock................................................... 30
NGF.................................................................. 70
NGP.................................................................. i
NGP Acquisitions..................................................... 24
NGP Annual Meeting................................................... i
NGP Articles......................................................... 99
</TABLE>
121
<PAGE>
INDEX OF DEFINED TERMS--(CONTINUED)
<TABLE>
<CAPTION>
TERM DEFINITION
---- ----------
<S> <C>
NGP Board of Directors............................................... ix
NGP Bylaws........................................................... 99
NGP Common Stock..................................................... i
NGP Proposals........................................................ ix
1991 Recapitalization................................................ xxix
1993 Act............................................................. 112
1997 Meeting......................................................... 119
No-Growth Scenario................................................... 26
Nonforeign Affidavit................................................. 117
Non-U.S. Stockholder................................................. 114
NYSE................................................................. ix
OP Limited Partners.................................................. 90
OP Partnership Agreement............................................. 90
OP Units............................................................. xi
Operating Partnership................................................ viii
Opinion.............................................................. 22
Option Golf Courses.................................................. 8
Option Settlement Amount............................................. 30
Other Revenue........................................................ 42
Ownership Limit...................................................... 4
Partnerships......................................................... 112
pension held REIT.................................................... 112
Performance Target................................................... 84
Person............................................................... 34
Piggyback Registration............................................... 40
Preferred Stock...................................................... 90
President............................................................ 84
Price Trust.......................................................... viii
Principal Stockholders............................................... 14
Prior Acquisitions................................................... 24
Prior Leases......................................................... 24
Prohibited Owner..................................................... 92
Prohibited Transferee................................................ 92
Purchased Assets..................................................... i
Recognition Period................................................... 107
Redemption........................................................... 104
</TABLE>
<TABLE>
<CAPTION>
TERM DEFINITION
---- ----------
<S> <C>
reference rate....................................................... 38
Registrable Securities............................................... 40
Registration Rights Agreement........................................ 40
Registration Statement............................................... i
REIT................................................................. viii
REIT Limit........................................................... 38
Related Party Tenant................................................. 108
Representatives...................................................... 39
Required Holding Period.............................................. 115
Revolving Credit Facility............................................ 65
Royal Golf........................................................... viii
RTC.................................................................. 83
Sale................................................................. 104
SEC.................................................................. i
Securities Act....................................................... i
Shortfall Scenario................................................... 28
Statement No. 121.................................................... 66
Statement No. 123.................................................... 66
Stock Consideration.................................................. 30
Stock Issuance....................................................... ix
Stock Issuance Proposal.............................................. i
Stock Option Plans................................................... 21
Stockholder Agreement................................................ 38
Stockholder Notice Procedure......................................... 94
Stockholder Termination Fee.......................................... 40
Surviving Corporation................................................ ix
Termination Fee...................................................... 37
Termination Fee Agreement............................................ 40
Treasury Regulations................................................. 3
UBTI................................................................. 112
USRPHC............................................................... 114
USRPIs............................................................... 115
U.S. Stockholder..................................................... 111
Vested Options....................................................... 2
William Blair........................................................ xvi
</TABLE>
122
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GEI CONSOLIDATED FINANCIAL STATEMENTS:
Independent Auditors' Report............................................ F-2
Consolidated Balance Sheets as of March 31, 1996 (unaudited), December
31, 1995 and 1994...................................................... F-3
Consolidated Statements of Operations for the Three Months Ended March
31, 1996 and 1995 (unaudited) and the Years Ended December 31, 1995,
1994 and 1993.......................................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the Three
Months Ended
March 31, 1996 (unaudited) and the Years Ended December 31, 1995, 1994
and 1993............................................................... F-5
Consolidated Statements of Cash Flows for the Three Months Ended March
31, 1996 and 1995 (unaudited) and the Years Ended December 31, 1995,
1994 and 1993.......................................................... F-6
Notes to Consolidated Financial Statements.............................. F-7
GEI'S BUSINESS RELATED TO THE PURCHASED ASSETS COMBINED FINANCIAL
STATEMENTS:
Report of Independent Accountants....................................... F-21
Combined Balance Sheets as of March 31, 1996 (unaudited) and December
31, 1995............................................................... F-22
Combined Statements of Operations for the Three Months Ended March 31,
1996 and 1995 (unaudited) and the Year Ended December 31, 1995......... F-23
Combined Statements of Equity for the Three Months Ended March 31, 1996
(unaudited) and the Year Ended December 31, 1995....................... F-24
Combined Statements of Cash Flows for the Three Months Ended March 31,
1996 and 1995 (unaudited) and the Year Ended December 31, 1995......... F-25
Notes to Combined Financial Statements.................................. F-26
WILLOW FORK COUNTRY CLUB FINANCIAL STATEMENTS:
Independent Auditors' Report............................................ F-33
Balance Sheets as of June 28, 1995 (unaudited) and December 31, 1994 and
1993................................................................... F-34
Statements of Operations for the six months ended June 28, 1995 (unau-
dited) and June 30, 1994 (unaudited) and the years ended December 31,
1994 and 1993.......................................................... F-35
Statements of Division Equity for the six months ended June 28, 1995
(unaudited) and the years ended December 31, 1994 and 1993............. F-36
Statements of Cash Flows for the six months ended June 28, 1995 (unau-
dited) and June 30, 1994 (unaudited) and the years ended December 31,
1994 and 1993.......................................................... F-37
Notes to Financial Statements........................................... F-38
NEWCO:
Description of Newco.................................................... F-40
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Golf Enterprises, Inc.:
We have audited the accompanying consolidated balance sheets of Golf
Enterprises, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of operations, stockholders' equity (deficit),
and cash flows for each of the years in the three-year period ended December
31, 1995. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Golf
Enterprises, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1995, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Dallas, Texas
February 23, 1996
F-2
<PAGE>
GOLF ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............. $ 2,663 $ 1,286 $ 4,723
Accounts and notes receivable, net
(note 2(i))........................... 8,308 8,777 4,161
Inventories............................ 3,347 3,092 2,273
Prepaid expenses....................... 2,230 1,765 1,264
-------- -------- --------
Total current assets................. 16,548 14,920 12,421
Property and equipment, net (note 4)..... 95,332 95,733 79,660
Debt issuance costs, net................. 1,086 1,149 979
Goodwill, net (notes 2(e) and 3(b))...... 3,849 3,881 4,007
Other assets, net (note 5)............... 6,560 6,179 5,827
-------- -------- --------
$123,375 $121,862 $102,894
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................... $ 5,671 $ 4,000 $ 1,965
Accrued liabilities.................... 1,328 3,375 1,721
Current portion of long-term debt (note
6).................................... 2,329 2,297 1,739
Current portion of deferred income..... 4,065 4,292 1,630
-------- -------- --------
Total current liabilities............ 13,393 13,964 7,055
Long-term debt, less current portion
(note 6)................................ 59,082 59,375 50,653
Deferred income, less current portion.... 1,556 1,782 2,110
Other long-term liabilities.............. 1,055 1,029 907
Deferred income taxes (notes 3(b) and
7)...................................... 3,578 3,578 3,578
Stockholders' equity (notes 1(b), 8, 9,
10 and 11):
Preferred stock, $1.00 par value;
5,000,000 shares authorized, none
issued and outstanding................ -- -- --
Common stock, $.01 par value;
20,000,000 shares authorized,
6,585,482, 6,489,412 and 6,475,932
shares issued and outstanding at March
31, 1996,
December 31, 1995 and 1994,
respectively.......................... 66 65 65
Additional paid-in capital............. 61,322 60,488 60,332
Accumulated deficit.................... (16,257) (17,999) (21,386)
-------- -------- --------
45,131 42,554 39,011
Notes receivable from stockholders..... (420) (420) (420)
-------- -------- --------
Total stockholders' equity........... 44,711 42,134 38,591
Commitments and contingencies (notes 6,
10, 12, 15 and 16)
-------- -------- --------
$123,375 $121,862 $102,894
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
GOLF ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------- ------------------------
1996 1995 1995 1994 1993
--------- --------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating revenue:
Green fees and practice
facility fees ................ $ 7,616 $ 5,858 $23,603 $17,835 $12,465
Dues and initiation fees....... 6,339 4,022 20,259 7,640 6,238
Golf cart rentals.............. 3,194 2,395 12,321 9,139 7,923
Food and beverage sales........ 3,066 2,203 13,501 7,696 7,140
Pro shop sales................. 2,201 1,609 8,522 5,340 3,679
Other, including management
fees.......................... 475 257 1,984 1,032 959
--------- --------- ------- ------- -------
Total operating revenue....... 22,891 16,344 80,190 48,682 38,404
--------- --------- ------- ------- -------
Costs and expenses:
Payroll and benefits:
Services provided and
rentals...................... 2,591 1,908 9,735 5,890 4,174
Food, beverage and pro shop... 1,954 1,279 6,891 3,682 2,765
Other......................... 1,975 1,713 7,107 4,242 3,784
Cost of merchandise sold:
Food and beverage............. 1,194 766 4,733 2,621 2,504
Pro shop...................... 1,448 956 5,833 3,745 2,460
Depreciation and amortization.. 2,094 1,722 6,871 4,802 4,089
Rent (note 12)................. 2,962 1,798 6,759 4,822 3,048
Other (note 13)................ 5,586 4,650 23,675 13,286 11,371
--------- --------- ------- ------- -------
19,804 14,792 71,604 43,090 34,195
--------- --------- ------- ------- -------
Operating income.............. 3,087 1,552 8,586 5,592 4,209
Interest expense, net............ 1,288 1,225 5,090 3,996 4,801
--------- --------- ------- ------- -------
Income (loss) before income
taxes and extraordinary
item......................... 1,799 327 3,496 1,596 (592)
Income taxes (note 7)............ 57 22 109 50 52
--------- --------- ------- ------- -------
Income (loss) before
extraordinary item........... 1,742 305 3,387 1,546 (644)
Extraordinary item--loss on early
extinguishment of debt (notes
1(b) and 2(d)).................. -- -- -- (2,638) --
--------- --------- ------- ------- -------
Net income (loss)............. 1,742 305 3,387 (1,092) (644)
Preferred stock dividends and
accretion to mandatory
redemption value (note 1(b)).... -- -- -- 1,234 1,745
--------- --------- ------- ------- -------
Net income (loss) attributable
to common stockholders....... $ 1,742 $ 305 $ 3,387 $(2,326) $(2,389)
========= ========= ======= ======= =======
Per share data (note 2(m)):
Income (loss) per common share
before extraordinary item..... $ 0.26 $ 0.05 $ 0.51 $ 0.33 $ (0.09)
Extraordinary item............. -- -- -- (0.50) --
--------- --------- ------- ------- -------
Net income (loss) per common
share......................... $ 0.26 $ 0.05 $ 0.51 $ (0.17) $ (0.09)
========= ========= ======= ======= =======
Weighted average number of
common shares outstanding..... 6,712 6,673 6,688 5,283 3,690
========= ========= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
GOLF ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED) AND YEARS ENDED DECEMBER 31,
1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
---------------- ADDITIONAL NOTES RECEIVABLE TOTAL
NUMBER PAID-IN ACCUMULATED FROM STOCKHOLDERS'
OF SHARES AMOUNT CAPITAL DEFICIT STOCKHOLDERS EQUITY (DEFICIT)
--------- ------ ---------- ----------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31,
1992................... 429 $ 4 $ 961 $(16,671) $ -- $(15,706)
Preferred stock
dividends and accretion
to mandatory redemption
value.................. -- -- -- (1,745) -- (1,745)
Net loss................ -- -- -- (644) -- (644)
----- --- ------- -------- ----- --------
Balances at December 31,
1993................... 429 4 961 (19,060) -- (18,095)
Preferred stock
dividends and accretion
to mandatory redemption
value.................. -- -- -- (1,234) -- (1,234)
Net loss................ -- -- -- (1,092) -- (1,092)
Proceeds from issuance
of common stock, net of
offering costs of
$1,243,000 (note
1(b)).................. 2,702 27 32,646 -- -- 32,673
Conversion of debt to
common stock (note
1(b)).................. 375 4 3,467 -- -- 3,471
Conversion of redeemable
convertible preferred
stock to common stock
(note 1(b))............ 2,970 30 23,212 -- (420) 22,822
Compensation expense--
stock options.......... -- -- 46 -- -- 46
----- --- ------- -------- ----- --------
Balances at December 31,
1994................... 6,476 65 60,332 (21,386) (420) 38,591
Net income.............. -- -- -- 3,387 -- 3,387
Proceeds from exercise
of stock options (note
11(c))................. 13 -- 130 -- -- 130
Compensation expense--
stock options.......... -- -- 26 -- -- 26
----- --- ------- -------- ----- --------
Balances at December 31,
1995................... 6,489 65 60,488 (17,999) (420) 42,134
Net income.............. -- -- -- 1,742 -- 1,742
Proceeds from exercise
of stock options (note
11(c))................. 96 1 827 -- -- 828
Compensation expense--
stock options.......... -- -- 7 -- -- 7
----- --- ------- -------- ----- --------
Balances at March 31,
1996 (unaudited)....... 6,585 $66 $61,322 $(16,257) $(420) $ 44,711
===== === ======= ======== ===== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
GOLF ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- ---------------------------
1996 1995 1995 1994 1993
--------- --------- -------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities--net cash
provided by operating
activities (note 14)....... $ 2,384 $ 2,228 $ 9,635 $ 4,617 $ 4,353
--------- --------- -------- -------- -------
Cash flows from investing
activities:
Capital expenditures...... (1,181) (1,533) (8,331) (3,117) (4,090)
Proceeds from disposal of
assets................... -- -- 3 231 --
Acquisitions of golf
courses, net of cash
acquired (note 3)........ -- (6,136) (11,483) (33,073) (2,945)
--------- --------- -------- -------- -------
Net cash used by
investing activities... (1,181) (7,669) (19,811) (35,959) (7,035)
--------- --------- -------- -------- -------
Cash flows from financing
activities:
Issuance of common stock,
net...................... 828 -- 130 32,673 --
Issuance of redeemable
convertible preferred
stock.................... -- -- -- -- 2,209
Proceeds from long-term
debt..................... -- 7,000 11,000 43,000 2,066
Repayments of long-term
debt..................... (641) (2,453) (3,931) (37,570) (2,544)
Payment of prepayment
penalty on long-term debt
(note 1(b)).............. -- -- -- (1,971) --
Debt issuance costs....... (10) (297) (453) (1,099) (181)
Other, net................ (3) 3 (7) (3) 148
--------- --------- -------- -------- -------
Net cash provided by
financing activities... 174 4,253 6,739 35,030 1,698
--------- --------- -------- -------- -------
Increase (decrease) in cash
and cash equivalents....... 1,377 (1,188) (3,437) 3,688 (984)
Cash and cash equivalents at
beginning of period........ 1,286 4,723 4,723 1,035 2,019
--------- --------- -------- -------- -------
Cash and cash equivalents at
end of period.............. $ 2,663 $ 3,535 $ 1,286 $ 4,723 $ 1,035
========= ========= ======== ======== =======
Cash paid during the period
for:
Interest.................. $ 1,306 $ 945 $ 4,915 $ 3,418 $ 3,889
========= ========= ======== ======== =======
Income taxes.............. $ 26 $ 9 $ 112 $ 3 $ 53
========= ========= ======== ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
GOLF ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) GENERAL
(a) Operations
Golf Enterprises, Inc. (the "Company") owns, leases or contracts to manage
daily fee (public) golf courses, resort courses and private country clubs and
derives revenue from green fees, golf cart rentals, practice facility fees,
retail sale of golf merchandise, food and beverages and initiation fees and
dues of private members.The Company operated 43 courses at March 31, 1996 and
December 31, 1995, and 36 and 27 courses atDecember 31, 1994 and 1993,
respectively.
(b) 1994 Financing Transaction
During the third quarter of 1994, the Company completed an initial public
offering of 2,702,500 shares of its common stock (including the exercise of
the underwriter's over-allotment option) and executed a credit agreement (the
"Credit Agreement") setting forth the terms and conditions of a new revolving
credit facility (as amended, the "Revolving Credit Facility") (see note 6(a)).
The proceeds realized by the Company totaled $33,916,000 before offering
costs. These proceeds, together with $11,000,000 of borrowings under the
Revolving Credit Facility, were used to (i) pay all outstanding obligations
due to GATX Leasing Corporation, including the outstanding debt balance and
accrued interest thereon, an additional liability resulting from the
fluctuating value of the underlying property, and a $1,971,000 prepayment
penalty associated with the early retirement of the debt (a component of the
extraordinary loss in 1994), (ii) retire the senior subordinated notes and the
related interest notes and accrued interest thereon, (iii) retire certain
notes to stockholders and accrued interest thereon, (iv) retire certain other
notes and accrued interest thereon and (v) pay fees and expenses associated
with the offering and the Revolving Credit Facility.
As part of this transaction, the holders of all classes of redeemable
convertible preferred stock and the convertible notes of the Company converted
such shares and notes into shares of common stock of the Company. In addition,
pursuant to agreements between the Company and the holders, accrued but unpaid
dividends on the redeemable convertible preferred stock and the interest notes
and additional accrued interest related to the convertible notes were paid by
delivery of additional shares of common stock.
On July 13, 1994, the Company effected a common stock split in the form of a
1.32-for-1 common stock dividend. All references to the number of shares of
common stock and per share amounts reflect the common stock split.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
The unaudited interim consolidated financial statements as of March 31, 1996
and for the three months ended March 31, 1996 and 1995 have been prepared in
accordance with generally accepted accounting principles and include all
adjustments (consisting only of normal recurring accruals) which are, in the
opinion of management, necessary for a fair presentation of the results of
operations for such periods and financial position at such date. Operating
results for the three months ended March 31, 1996 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1996.
F-7
<PAGE>
GOLF ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
(b) Inventories
Inventories are stated at the lower of cost (weighted average cost basis) or
market, and consist primarily of food, beverages, golf equipment and clothing.
(c) Property and Equipment
Property and equipment to be held and used are stated at cost less
impairment losses, if any. Property and equipment under capital leases are
stated at the lower of the present value of the future minimum lease payments
at the beginning of the lease term or the fair value at the inception of the
lease.
Depreciation of property and equipment is computed using the straight-line
method over the estimated useful lives of the assets. Property and equipment
held under capital leases and leasehold improvements are amortized using the
straight-line method over the shorter of the lease term or the estimated
useful life of the asset.
When property and equipment are sold or otherwise disposed of, the asset
account and related accumulated depreciation and amortization account are
relieved, and any gain or loss is included in operations. Expenditures for
maintenance and repairs are charged against operations. Renewals and
betterments that materially extend the life of an asset are capitalized.
The Company periodically reevaluates the propriety of the carrying amounts
of its golf course properties to be held and used as well as the amortization
period to determine whether current events and circumstances warrant
adjustments to the carrying amounts or a revised estimate of the useful life.
The Company compares the undiscounted future net cash flows expected to result
from the use of each of its properties to the carrying amount of that property
to determine whether the Company shall recognize an impairment loss. The
Company believes that no impairment has occurred and that no reduction of the
estimated useful lives is warranted.
Property and equipment to be disposed of are stated at the lower of carrying
amount or fair value, less costs to sell. See footnote 16 for further
discussion.
All interest cost incurred has been expensed in the accompanying
consolidated financial statements.
(d) Debt Issuance Costs
Debt issuance costs represent the costs associated with obtaining the
Revolving Credit Facility, net of accumulated amortization, and are amortized
over its five-year term.
In connection with the initial public offering, the Company wrote off
$667,000 of debt issuance costs related to the debt retired. Such amount is a
component of the extraordinary loss in 1994.
(e) Goodwill
In connection with the 1994 acquisition of Great American Clubs, Inc. and
Affiliate Clubs (see note 3(b)) and the 1989 acquisition of a golf course
facility, the Company recorded aggregate goodwill of $4,244,000, representing
the excess of the purchase prices over the fair values of the net assets
acquired. This amount is being amortized over periods of 18 to 40 years.
Goodwill is presented net of accumulated amortization of $395,000, $363,000
and $237,000 as of March 31, 1996 and December 31, 1995 and 1994,
respectively.
The Company assesses the recoverability of goodwill by determining whether
the amortization of the asset balance over its remaining life can be recovered
through the undiscounted future operating cash flows of the
F-8
<PAGE>
GOLF ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
acquired operation. The amount of impairment, if any, is measured based on
projected discounted future operating cash flows. The Company believes that no
impairment has occurred and that no reduction of the estimated useful lives is
warranted.
(f) Revenue Recognition
Revenue from green fees, practice facility fees, golf cart rentals and food,
beverage and pro shop sales is recognized at the time the facility is used or
the date of purchase.
Membership at certain of the Company's private country clubs requires
payment of an up-front, non-refundable initiation fee and subsequent payments
of monthly dues. Revenue from initiation fees is recognized at the time of
sale, unless uncertainty surrounding collectability exists, and revenue from
monthly dues is recognized as earned.
Revenue from term memberships reflects the advance payment of dues and is
deferred and recognized over the term of the membership (ranging from two to
twelve years). Revenue from lifetime memberships reflects the advance payment
of dues and is deferred and recognized over the expected term of the
membership based on historical experience (approximately ten years).
(g) Lease Arrangements
The Company generally leases golf courses under terms that provide for a
lease payment equal to the greater of a percentage of gross revenues or a
minimum annual amount. The aggregate of the minimum annual payments over the
term of the lease is expensed on a straight-line basis.
Certain leases provide for reimbursement of rental payments upon completion
of lessor-approved capital improvements. These reimbursements are accounted
for as a reduction of rent expense. The related asset is depreciated in
accordance with the foregoing policy on property and equipment.
(h) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss carryforwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rate is recognized in income in the period that includes the enactment date.
(i) Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of accounts and notes
receivable for initiation fees and monthly membership dues and expenses
incurred by club members. The Company provides an allowance for accounts and
notes receivable when factors surrounding the credit risk of a member indicate
an impairment in value.
A summary of allowance activity follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
THREE MONTHS ENDED -------------------------
MARCH 31, 1996 1995 1994 1993
------------------ ------- ------- -------
<S> <C> <C> <C> <C>
Balance at beginning of period.. $194 $ 216 $ 267 $ 399
Provision for doubtful ac-
counts......................... 16 315 72 55
Write-off of uncollectable ac-
counts......................... (28) (337) (123) (187)
---- ------- ------- -------
Balance at end of period........ $182 $ 194 $ 216 $ 267
==== ======= ======= =======
</TABLE>
F-9
<PAGE>
GOLF ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
(j) Fair Value of Financial Instruments
In accordance with the reporting requirements of Statement of Financial
Accounting Standards No. 107, "Disclosures about Fair Value of Financial
Instruments," the Company calculates the fair value of its financial
instruments and includes this additional information in the notes to the
consolidated financial statements when the fair value is different than the
carrying value of those financial instruments. When the fair value reasonably
approximates the carrying value, no additional disclosure is made.
(k) Cash and Cash Equivalents
The Company considers temporary cash investments purchased with original
maturities of three months or less and which are available for use in
operations to be cash equivalents.
(l) Reclassifications
Certain 1994 and 1993 balances have been reclassified to conform to the
current year's presentation.
(m) Per Share Data
The weighted average number of common shares outstanding during the three
months ended March 31, 1996 and 1995 includes the effect of stock options,
using the treasury stock method and the market price per share at the end of
the respective periods, as the inclusion of these options has a dilutive
effect on net income per common share. The use of the ending market price per
share in these periods results in full dilution, as such price exceeds the
average market price per share during the respective periods. Primary net
income per common share is not materially different from fully diluted net
income per common share for the periods.
The weighted average number of common shares outstanding during the years
ended December 31, 1995 and 1994 includes the effect of stock options, using
the treasury stock method and the average market price per share, as the
inclusion of these options has a dilutive effect on income per common share
before extraordinary item. The use of the average market price per share in
these periods results in full dilution, as such price exceeds the market price
at the end of the respective years.
The weighted average number of common shares outstanding during 1993
includes the effect of stock options issued in 1994 at prices below the
initial public offering price without regard for the antidilutive effect of
such options.
The weighted average number of common shares outstanding in 1994 and 1993
has been adjusted for (i) the retroactive effect of the conversion of the
redeemable convertible preferred stock and convertible notes to common stock,
(ii) the issuance of common stock in payment of dividends on the redeemable
convertible preferred stock and interest notes and additional accrued interest
related to the convertible notes and (iii) the common stock split, as if these
events occurred at the beginning of the respective year.
Net loss attributable to common stockholders used to calculate net loss per
common share of $0.17 and income per common share before extraordinary item of
$0.33 in 1994 excludes $1,234,000 of preferred stock dividends and accretion
to mandatory redemption value for all classes of redeemable convertible
preferred stock and $186,000 of interest expense associated with the
convertible notes. Net loss attributable to common stockholders used to
calculate net loss per common share of $0.09 in 1993 excludes $1,745,000 of
preferred stock dividends and accretion to mandatory redemption value for all
classes of redeemable convertible preferred stock and $308,000 of interest
expense associated with the convertible notes.
F-10
<PAGE>
GOLF ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
(n) Use of Estimates
Management of the Company has made certain estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare the accompanying consolidated
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(o) Newly Issued Accounting Standards
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
("Statement No. 123"), which establishes a fair value based method of
accounting for stock-based compensation plans. Entities are encouraged to
adopt all provisions of Statement No. 123 and are required to comply with the
disclosure requirements of Statement No. 123. Statement No. 123 is effective
for financial statements for fiscal years beginning after December 15, 1995.
The adoption of Statement No. 123 as of January 1, 1996 did not have a
material effect on the consolidated financial condition or operating results
of the Company as the Company did not adopt the value-based measurement
concept.
The Financial Accounting Standards Board has also issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("Statement No.
121"). Statement No. 121 requires that long-lived assets and certain
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company periodically reevaluates the carrying amounts of its
long-lived assets and the related depreciation and amortization periods as
discussed in notes 2(c) and 2(e). The adoption of Statement No. 121 as of
January 1, 1996 did not have a material effect on the Company's consolidated
financial condition or operating results.
(p) Advertising Costs
The Company expenses advertising costs as incurred.
(3) ACQUISITIONS
(a) 1995 Acquisitions
On February 10, 1995, the Company acquired substantially all of the assets
which comprise the Eldorado Country Club ("Eldorado") in McKinney, Texas.
On June 29, 1995, the Company acquired substantially all of the assets which
comprise the Willow Fork Country Club ("Willow Fork") in Katy, Texas.
The aggregate consideration for these acquisitions was $9,878,000. Funds
used for these acquisitions were obtained primarily by loans totalling
$7,000,000 under the Revolving Credit Facility.
A summary of the combined assets acquired and liabilities assumed related to
Eldorado and Willow Fork follows (in thousands):
<TABLE>
<S> <C>
Current assets.................................................... $ 446
Property and equipment and other assets........................... 9,723
Current liabilities............................................... (134)
Deferred income................................................... (157)
------
$9,878
======
</TABLE>
F-11
<PAGE>
GOLF ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(3) ACQUISITIONS--(CONTINUED)
(b) 1994 Acquisitions
On October 11, 1994, the Company acquired substantially all of the assets
which comprise the Bent Tree Golf Club ("Bent Tree") near Columbus, Ohio.
On December 30, 1994, the Company purchased all the common stock of three
corporations and substantially all the assets of a limited partnership,
together comprising the five private golf clubs owned by Great American Clubs,
Inc. and Affiliate Clubs ("GAC").
The aggregate consideration for these acquisitions was $33,323,000. Funds
used for these acquisitions were obtained primarily by loans totaling
$32,000,000 under the Revolving Credit Facility.
A summary of the combined assets acquired and liabilities assumed related to
Bent Tree and GAC follows (in thousands):
<TABLE>
<S> <C>
Current assets................................................... $ 1,767
Property and equipment and other assets.......................... 35,126
Goodwill......................................................... 3,578
Current liabilities.............................................. (1,296)
Long-term debt................................................... (493)
Deferred income.................................................. (1,781)
Deferred income taxes............................................ (3,578)
-------
$33,323
=======
</TABLE>
(c) 1993 Acquisitions
On June 23, 1993, the Company acquired substantially all of the assets and
assumed certain liabilities of The Trails ("Trails") golf course in Norman,
Oklahoma.
On September 16, 1993, the Company exercised its purchase option and
acquired substantially all of the assets and assumed certain liabilities of
The Plantation Golf Club ("Plantation") in Boise, Idaho. The Company operated
Plantation under an operating lease agreement from September 9, 1991 until the
purchase date.
The aggregate consideration for these acquisitions was $5,679,000.
A summary of the combined assets acquired and liabilities assumed related to
Trails and Plantation follows (in thousands):
<TABLE>
<S> <C>
Current assets.................................................... $ 36
Property and equipment and other assets........................... 6,666
Current liabilities............................................... (20)
Long-term debt.................................................... (466)
Other long-term liabilities....................................... (537)
------
$5,679
======
</TABLE>
Consideration for these acquisitions was provided from (i) the proceeds of a
note payable to a stockholder of $1,850,000 (ii) cash of $1,295,000 (including
$200,000 paid in 1991 as a purchase option) and (iii) a $2,534,000 note
payable to the seller (see note 6).
F-12
<PAGE>
GOLF ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(3) ACQUISITIONS--(CONTINUED)
(d) Pro forma Results of Operations
The aforementioned acquisitions have been accounted for as purchases.
Accordingly, results of operations of the acquirees have been included in the
consolidated statements of operations of the Company since the acquisition
dates. However, the consolidated statements of operations of the Company
include the results of operations of Plantation, as lessee, for periods prior
to the acquisition. Consolidated condensed pro forma results of operations for
the year ended December 31, 1993, as if the acquisitions of Trails and
Plantation occurred on January 1, 1993, do not differ significantly from the
historical consolidated results of operations presented herein.
The following unaudited pro forma financial information presents the
combined results of operations of the Company and the acquirees as if the 1995
and 1994 acquisitions had occurred on January 1, 1994 and 1993, respectively,
after giving effect to certain adjustments, including additional depreciation
and amortization expense, increased interest expense on debt related to the
acquisitions, the elimination of certain management fees and salaries paid by
GAC that will not be incurred by the Company, and for the events discussed in
note 2(m). The pro forma financial information does not necessarily reflect
the results of operations that would have occurred had the Company and the
acquirees constituted a single entity during such periods.
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Operating revenue.................................. $81,365 $68,236 $52,514
======= ======= =======
Operating income................................... $ 8,434 $ 8,327 $ 6,556
======= ======= =======
Income (loss) before extraordinary item............ $ 3,054 $ 1,096 $ (929)
======= ======= =======
Income (loss) per common share before extraordinary
item
(see note 2(m))................................... $ 0.46 $ 0.24 $ (0.17)
======= ======= =======
</TABLE>
(4) PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
MARCH 31, ------------------ ESTIMATED
1996 1995 1994 USEFUL LIVES
--------- -------- -------- ------------
<S> <C> <C> <C> <C>
Land........................... $ 15,731 $ 15,718 $ 8,733 --
Land improvements.............. 42,929 42,884 36,464 20-40 years
Buildings...................... 19,038 19,033 16,960 40 years
Leasehold improvements......... 13,716 13,677 10,086 8-20 years
Golf carts and equipment....... 26,419 26,030 23,081 3-10 years
Construction in progress....... 1,467 567 260 --
-------- -------- --------
119,300 117,909 95,584
Less accumulated depreciation
and amortization.............. (23,968) (22,176) (15,924)
-------- -------- --------
$ 95,332 $ 95,733 $ 79,660
======== ======== ========
</TABLE>
Golf carts and equipment include assets under capital leases with a gross
book value of $7,650,000, $7,431,000 and $5,430,000 as of March 31, 1996 and
December 31, 1995 and 1994, respectively. Accumulated amortization of these
assets is $3,358,000, $2,910,000 and $1,731,000 as of March 31, 1996 and
December 31, 1995 and 1994, respectively. Amortization of assets recorded
under capital leases is included in depreciation and amortization expense.
F-13
<PAGE>
GOLF ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(4) PROPERTY AND EQUIPMENT--(CONTINUED)
During 1994, the Company changed its depreciable life for certain golf carts
from six to four years. The effect of this change in estimate increased
depreciation and amortization expense and reduced income before extraordinary
item by approximately $338,000, or $0.06 per share in 1994.
(5) OTHER ASSETS
Other assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
MARCH 31, -------------
1996 1995 1994
--------- ------ ------
<S> <C> <C> <C>
Leasehold interests and origination costs, net of
accumulated amortization of $2,307,000, $2,210,000
and $1,883,000 as of March 31, 1996 and December
31, 1995 and 1994, respectively.................... $4,919 $4,692 $4,704
Refundable deposits................................. 1,047 1,037 531
Other............................................... 594 450 592
------ ------ ------
$6,560 $6,179 $5,827
====== ====== ======
</TABLE>
(6) LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
MARCH 31, ----------------
1996 1995 1994
--------- ------- -------
<S> <C> <C> <C>
Loans under the Revolving Credit Facility (see
(a))........................................... $52,000 $52,000 $43,000
Capital lease obligations for golf carts, turf
and office equipment, principal and interest
payments of $199,000 due monthly with fixed
rates of interest ranging from 7% to 18% per
annum, secured by the equipment under lease
(see note 4)................................... 4,211 4,310 3,497
Note payable to seller of Plantation (see note
3(c)), due in 2007, with variable interest only
payments for the first seven years not to
exceed a rate of 8% per annum, secured by
property and equipment of the acquired course
(aggregate net book value of $4,200,000 at
December 31, 1995)............................. 2,534 2,534 2,534
Notes payable to former principal stockholders,
principal and interest payments of $27,000 due
monthly, with interest at 8% per annum, and
balloon payments due in 1998
(see (b))...................................... 1,422 1,473 1,668
Other notes payable with interest ranging from
8% to 20% per annum............................ 1,244 1,355 1,693
------- ------- -------
61,411 61,672 52,392
Less current portion............................ (2,329) (2,297) (1,739)
------- ------- -------
$59,082 $59,375 $50,653
======= ======= =======
</TABLE>
F-14
<PAGE>
GOLF ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(6) LONG-TERM DEBT--(CONTINUED)
(a) Revolving Credit Facility
The Revolving Credit Facility is a five-year agreement providing up to
$70,000,000 for use in refinancing certain indebtedness, financing the
acquisition or lease of golf courses and golf course management companies, and
for general working capital purposes. Loans under the Revolving Credit
Facility are unsecured and bear interest at either a Eurodollar rate or a
customary base rate, plus in each case a marginal percentage of up to 2.0%,
depending upon the Company's ratio of total debt to earnings before interest,
income taxes, depreciation, amortization and income or expense related to
terminated leased facilities ("EBITDA"). Interest is payable either quarterly
with respect to base rate loans or on the last day of selected interest
periods ranging from one to six months with respect to Eurodollar loans. The
Credit Agreement contains customary conditions and covenants, including
dividend payment limitations, capital expenditure limitations, negative pledge
covenants and financial ratio covenants. The Company was in compliance with
all restrictive covenants and conditions as of March 31, 1996 and December 31,
1995.
At December 31, 1995, the loans outstanding are Eurodollar loans, bearing
interest at 7.56% to 8.0% (including a marginal percentage of 2.0% determined
by the Company's ratio of total debt to EBITDA). A portion is to be treated as
a reducing revolver, with equal installments of $2,083,000 due quarterly
beginning on March 31, 1997, and the balance is due on December 31, 1999.
(b) Notes Payable to Former Principal Stockholders
Notes payable to former principal stockholders are secured by the capital
stock of a subsidiary of the Company and an assignment of lease rents.
Interest expense to former principal stockholders during the three months
ended March 31, 1996 and 1995 and the years ended December 31, 1995, 1994 and
1993 was $29,000, $33,000, $126,000, $263,000 and $244,000, respectively.
(c) Other
A summary of future maturities of long-term debt as of December 31, 1995
follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL
NOTES LEASES TOTAL
------- ------- -------
<S> <C> <C> <C>
1996............................................... $ 523 $2,090 $ 2,613
1997............................................... 503 1,460 1,963
1998............................................... 1,230 706 1,936
1999............................................... 52,095 522 52,617
2000............................................... 76 122 198
Thereafter......................................... 2,935 -- 2,935
------- ------ -------
57,362 4,900 62,262
Less interest component of capital leases.......... -- (590) (590)
------- ------ -------
$57,362 $4,310 $61,672
======= ====== =======
</TABLE>
F-15
<PAGE>
GOLF ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(7) INCOME TAXES
The components of income tax expense consist of the following (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
--------------- -----------------------
1996 1995 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Current--federal..................... $ -- $ -- $ -- $ -- $ --
Current--state....................... 57 22 109 50 52
Deferred--federal.................... -- -- -- -- --
Deferred--state...................... -- -- -- -- --
------- ------- ------- ------- -------
$ 57 $ 22 $ 109 $ 50 $ 52
======= ======= ======= ======= =======
</TABLE>
Income tax expense (benefit) differed from the amounts computed by applying
the U.S. federal income tax rate of 34% to income (loss) before income taxes
and extraordinary item as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
---------------- ---------------------------
1996 1995 1995 1994 1993
------- ------- --------- ------- -------
<S> <C> <C> <C> <C> <C>
Expected income tax expense
(benefit) at
federal statutory rate...... $ 612 $ 111 $ 1,189 $ 543 $ (201)
State income taxes........... 57 22 109 50 52
Goodwill amortization........ 11 11 43 12 13
Change in beginning of the
period balance of the valua-
tion allowance for deferred
tax assets allocated to in-
come taxes.................. (623) (122) (1,232) (571) 203
Other........................ -- -- -- 16 (15)
------- ------- --------- ------- -------
$ 57 $ 22 $ 109 $ 50 $ 52
======= ======= ========= ======= =======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities as of December 31, 1995
and 1994 are presented below (in thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards....................... $ 4,200 $ 5,079
Deferred income........................................ 376 454
Allowance for doubtful accounts........................ 66 73
Other.................................................. 74 52
------- -------
Total gross deferred tax assets...................... 4,716 5,658
Less valuation allowance............................... (2,312) (3,544)
------- -------
Net deferred tax assets.............................. 2,404 2,114
------- -------
Deferred tax liabilities--property and equipment,
primarily due to differences in depreciation............ 5,982 5,692
------- -------
Net deferred tax liabilities......................... $(3,578) $(3,578)
======= =======
</TABLE>
Management believes that it is more likely than not that the net deferred
tax assets at December 31, 1995 will be realized as a result of the generation
of future taxable income during the net operating loss carryforward period and
the reversal of existing taxable temporary differences giving rise to deferred
tax liabilities.
At December 31, 1995, the Company has net operating loss carryforwards for
federal income tax purposes of $12,350,000 which expire from 2003 to 2009.
F-16
<PAGE>
GOLF ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(8) NOTES RECEIVABLE FROM STOCKHOLDERS
Notes receivable from stockholders represent advances to two stockholders to
acquire common stock of the Company. These notes bear interest at 9% per
annum, mature in 2001 and 2002 and are secured by the common stock of the
Company held by the two stockholders.
(9) PREFERRED STOCK
As of March 31, 1996 and December 31, 1995 and 1994, 5,000,000 shares of
preferred stock have been authorized, the designation and terms of which may
be set by the Board of Directors of the Company.
(10) COMMON STOCK
Holders of common stock are entitled to one vote per share on all matters to
be voted upon by stockholders. In the event of a liquidation, dissolution or
winding up of the Company, the holders of common stock are entitled to share
ratably in all assets remaining after payment of liabilities, subject to prior
liquidation rights of holders of preferred stock then outstanding, if any.
Holders of shares of common stock are entitled to receive such dividends as
the Board of Directors may declare in its discretion out of funds legally
available, subject to the prior rights of holders of preferred stock then
outstanding, if any.
The rights, preferences and privileges of holders of common stock will be
subject to and may be adversely affected by the rights of the holders of
shares of any series of preferred stock that the Company may designate and
issue in the future.
Certain holders of common stock are also entitled to certain rights with
respect to the registration of such shares under federal securities laws.
(11) STOCK OPTIONS
(a) 1991, 1994 and 1995 Stock Option Plans
The Company's 1991, 1994 and 1995 Stock Option Plans were adopted by the
Board of Directors and stockholders of the Company, as an incentive for
directors, officers and other key employees. These plans are administered by a
committee of two or more directors appointed by the Board of Directors. The
committee has sole discretion to determine employees eligible for grants of
options and all terms of the options. Generally, the exercise price of an
option must be at least 100% of the fair market value of the common stock on
the date of the grant and the term of the option may not exceed ten years. The
1991, 1994 and 1995 Stock Option Plans provide for an aggregate of 731,278,
330,000 and 300,000 shares, respectively, which may be subject to options.
Stock options under the 1994 and 1995 Stock Option Plans vest and become
exercisable over a four-year period, 20% at the date of grant and 20% for each
year from the date of grant, and will remain exercisable for as long as an
employee remains employed by the Company. Stock options under the 1991 Stock
Option Plan vest and become exercisable over a four-year period, 20% at the
date of grant and on a daily prorated basis thereafter at the rate of 20% per
year. Vesting of stock options may be accelerated under certain circumstances,
including the sale of the Company. The stock options (including the vested and
exercisable portion) generally expire and are forfeited on termination of
employment.
(b) Other Stock Options
On March 25, 1991, the Company granted stock options for 50,643 common
shares, at an average exercise price of $4.72 per share, to two option holders
of a predecessor company in exchange for the surrender of their predecessor
company options. These options are fully vested.
F-17
<PAGE>
GOLF ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(11) STOCK OPTIONS--(CONTINUED)
(c) Stock Option Activity
A summary of stock option activity follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
(IN THOUSANDS) EXERCISE PRICE
---------------- --------------
<S> <C> <C>
Outstanding at December 31, 1992............ 730 $ 4.63--$ 8.62
Grants..................................... 47 $ 8.62
-----
Outstanding at December 31, 1993............ 777 $ 4.63--$ 8.62
Grants..................................... 356 $ 8.62--$12.23
Forfeitures................................ (33) $ 8.62
-----
Outstanding at December 31, 1994............ 1,100 $ 4.63--$12.23
Grants..................................... 100 $11.25
Forfeitures................................ (15) $11.40--$12.00
Exercises.................................. (13) $ 8.62--$12.00
-----
Outstanding at December 31, 1995............ 1,172 $ 4.63--$12.23
Exercises.................................. (96) $ 8.62
-----
Outstanding at March 31, 1996............... 1,076 $ 4.63--$12.23
=====
Options exercisable at December 31, 1995.... 885 $ 4.63--$12.23
=====
</TABLE>
(12) OPERATING LEASES
The Company leases certain golf courses under operating leases. Rent expense
includes rent under these leases of $2,771,000, $1,654,000, $5,981,000,
$4,259,000 and $2,491,000, including contingent rent of $746,000, $506,000,
$999,000, $550,000 and $477,000 in the three months ended March 31, 1996 and
1995 and the years ended December 31, 1995, 1994 and 1993, respectively.
The minimum future rental payments, net of noncancellable subleases, for all
operating leases as of December 31, 1995 are as follows (in thousands):
<TABLE>
<S> <C>
1996.............................................................. $ 7,648
1997.............................................................. 5,423
1998.............................................................. 5,311
1999.............................................................. 4,977
2000.............................................................. 4,235
Thereafter........................................................ 91,286
=======
</TABLE>
Certain golf course leases contain renewal options. The expiration dates of
the leases (or option periods, if applicable) range from 1996 to 2036. The
leases generally contain provisions for rental payments based on a minimum
amount or a percentage of revenues, whichever is greater. Certain leases
provide that a portion or all of current or future lease payments may be
reduced upon completion of lessor approved capital improvements. Additionally,
certain leases are terminable by the lessor without cause or upon the sale of
the underlying property.
On October 1, 1993 the Company terminated its Los Angeles driving range
lease and recorded a loss of $334,000 primarily related to the write-off of
the net book value of property and equipment.
F-18
<PAGE>
GOLF ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(13) CONSOLIDATED STATEMENTS OF OPERATIONS
Other costs and expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH
31, YEAR ENDED DECEMBER 31,
------------- -----------------------
1996 1995 1995 1994 1993
------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
Supplies, maintenance and repairs........ $1,724 $1,171 $ 6,853 $ 3,779 $ 3,037
Utilities................................ 873 639 4,058 2,745 1,956
Insurance................................ 805 800 3,217 2,028 1,731
Property and other taxes................. 761 605 2,498 1,373 1,059
Advertising and promotion................ 197 251 1,186 654 577
Other general and administrative......... 1,226 1,184 5,863 2,707 2,677
Loss on lease terminations (note 12)..... -- -- -- -- 334
------ ------ ------- ------- -------
$5,586 $4,650 $23,675 $13,286 $11,371
====== ====== ======= ======= =======
</TABLE>
Other general and administrative consists primarily of outside professional
fees, postage and freight, printing, contract labor, bad debt expense, data
processing and bank charges.
(14) CONSOLIDATED STATEMENTS OF CASH FLOWS
(a) Cash Flows from Operating Activities
Cash flows from operating activities consist of the following (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH YEAR ENDED DECEMBER
31, 31,
-------------- ------------------------
1996 1995 1995 1994 1993
------ ------ ------- ------- ------
<S> <C> <C> <C> <C> <C>
Net income (loss)................... $1,742 $ 305 $ 3,387 $(1,092) $ (644)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization...... 2,094 1,722 6,871 4,802 4,089
Amortization of debt issuance
costs............................. 72 65 283 220 246
Loss on early extinguishment of
debt.............................. -- -- -- 2,638 --
Compensation expense--stock op-
tions............................. 7 7 26 46 --
Accretion and gain on conversion of
members' deposits................. 10 7 41 (43) (248)
Gain on sale of assets............. -- -- -- (30) --
Loss on lease terminations......... -- -- -- -- 334
Deferred minimum rent.............. 22 21 86 (34) (25)
Interest added to principal of
long-term debt.................... -- -- -- 820 926
Interest added to principal of
notes receivable.................. -- -- -- (19) (38)
Provision for doubtful accounts.... 16 87 315 72 55
Changes in assets and liabilities:
Accounts and notes receivable..... 453 (523) (1,576) (666) (763)
Inventories....................... (255) (417) (388) (91) (681)
Prepaid expenses.................. (465) 236 166 (640) (195)
Other assets...................... (483) 6 100 (390) (306)
Accounts payable and accrued lia-
bilities......................... (376) 358 1,362 (1,300) 1,361
Deferred income................... (453) 354 (1,038) 324 242
------ ------ ------- ------- ------
Net cash provided by operating
activities..................... $2,384 $2,228 $ 9,635 $ 4,617 $4,353
====== ====== ======= ======= ======
</TABLE>
F-19
<PAGE>
GOLF ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(14) CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
(b) Other Noncash Financing and Investing Activities
During the three months ended March 31, 1996 and the years ended December
31, 1995, 1994 and 1993 the Company acquired new carts and equipment under
capital leases recorded at $382,000, $2,211,000, $1,460,000 and $1,600,000,
respectively, which represents the net present values of the future minimum
lease payments.
During 1995, the Company acquired a building and improvements from a
developer at a golf course facility (recorded at $1,487,000) in exchange for
certain membership privileges at the facility.
(15) CONTINGENCIES
The Company is involved in various lawsuits; however, management believes
that the lawsuits, individually or in the aggregate, will not have a material
effect on the Company's consolidated financial position or results of
operations.
(16) SUBSEQUENT EVENT
On February 2, 1996, the Company entered into a definitive agreement to sell
its 20 owned golf course properties and related assets ("the Purchased
Assets") to National Golf Properties, Inc. ("NGP"), a real estate investment
trust, and to merge immediately thereafter with a newly formed corporation
("Newco") affiliated with David G. Price (who is the Chairman of NGP's Board
of Directors and the principal shareholder of American Golf Corporation
("AGC")). Substantially all of NGP's properties are leased to AGC.
If the purchase (the "Asset Purchase") and the merger (the "Merger") are
approved by the stockholders and become effective, stockholders of the Company
will be entitled to exchange each share of their common stock for, depending
on the form of consideration paid by NGP, at NGP's option, in connection with
the Asset Purchase, either (i) a combination of $6.00 in cash and between
approximately 0.20870 and 0.31304 of a share of NGP common stock (assuming no
exercise of options to purchase the Company's common stock prior to the
Merger) valued at approximately $6.00 (subject to limitations on the maximum
and minimum number of NGP shares issuable, as discussed below), or (ii) $12.00
in cash. Subject to certain adjustments and limitations, the Company's
stockholders will receive total consideration of approximately $79,026,000,
and holders of unexpired and unexercised options to purchase the Company's
common stock will be entitled to receive, in exchange for cancellation of such
options, total consideration of approximately $2,548,000 payable in the same
proportion of cash and stock as is paid to holders of the Company's common
stock. Of this total aggregate consideration of approximately $81,600,000,
$58,000,000 will come from NGP as consideration for the Purchased Assets and
Newco will contribute approximately $23,600,000 in cash. In addition, Newco
will refinance approximately $54,900,000 of the Company's existing
indebtedness in connection with the Merger.
The Asset Purchase and the Merger are subject to certain conditions,
including approval of the stockholders of the Company and NGP. Stockholders of
the Company holding approximately 45% of its outstanding common stock (on a
fully diluted basis) have agreed to vote their shares in favor of the Asset
Purchase and the Merger. The closing of these transactions is expected to
occur in the second quarter of 1996. The Company anticipates that a loss of
approximately $19,300,000, net of income tax effect, will be recognized on the
sale of its 20 owned golf course properties and related assets to NGP.
Although the Company will recognize the loss on the sale of the Purchased
Assets upon consummation of the Asset Purchase transaction, such transaction
is only a component of the entire transaction and will occur simultaneously
with the Merger. The proceeds of the Asset Purchase together with the proceeds
of the Merger will significantly exceed the historical net book value of the
Company. Accordingly, no impairment of the Company's property and equipment
has occurred.
F-20
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
Golf Enterprises, Inc. and Subsidiaries:
We have audited the accompanying combined balance sheet of Golf Enterprises,
Inc. and Subsidiaries' ("GEI's") Business Related to the Purchased Assets as
of December 31, 1995, and the related combined statements of operations,
equity and cash flows for the year then ended. These combined financial
statements are the responsibility of the management of GEI. Our responsibility
is to express an opinion on these combined financial statements based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. 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 audit provides a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of GEI's Business
Related to the Purchased Assets as of December 31, 1995, and the results of
their operations and their cash flows for the year then ended, in conformity
with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Dallas, Texas
March 1, 1996
F-21
<PAGE>
GEI'S BUSINESS RELATED TO THE PURCHASED ASSETS
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 817 $ 1,108
Accounts receivable, net............................. 2,938 3,307
Inventories.......................................... 1,920 1,692
Prepaid expenses..................................... 96 68
------- -------
Total current assets............................... 5,771 6,175
Property and equipment, net............................ 77,405 76,120
Goodwill, net.......................................... 3,466 3,489
Other assets........................................... 69 64
------- -------
Total assets....................................... $86,711 $85,848
======= =======
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable..................................... $ 1,590 $ 810
Accrued liabilities.................................. 347 1,393
Current portion of long-term debt.................... 929 266
Current portion of deferred income................... 2,240 2,033
------- -------
Total current liabilities.......................... 5,106 4,502
Long-term debt, less current portion................... 47,624 46,737
Deferred income, less current portion.................. 1,117 1,184
Other long-term liabilities............................ 628 624
------- -------
Total liabilities.................................. 54,475 53,047
Commitments and contingencies (note 8)
Equity................................................. 32,236 32,801
------- -------
Total liabilities and equity....................... $86,711 $85,848
======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-22
<PAGE>
GEI'S BUSINESS RELATED TO THE PURCHASED ASSETS
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED
-------------- DECEMBER 31,
1996 1995 1995
------ ------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Revenues:
Green fees and practice facility fees............. $ 743 $ 793 $ 5,477
Dues and initiation fees.......................... 4,374 3,640 16,638
Golf cart rentals................................. 975 892 5,275
Food and beverage sales........................... 1,523 1,305 8,223
Pro shop sales.................................... 825 611 4,558
Other............................................. 143 90 507
------ ------ -------
Total revenues.................................. 8,583 7,331 40,678
------ ------ -------
Costs and expenses:
Payroll and benefits:
Services provided and rentals.................... 1,161 976 5,051
Food, beverage and pro shop...................... 1,019 763 4,110
Other............................................ 612 575 2,526
Cost of merchandise sold:
Food and beverage................................ 634 470 2,952
Pro shop......................................... 652 421 3,447
Depreciation and amortization..................... 965 843 3,239
Rent.............................................. 311 270 1,183
Overhead allocation from GEI...................... 429 367 2,034
Other............................................. 2,479 2,220 11,671
------ ------ -------
8,262 6,905 36,213
------ ------ -------
Operating income................................ 321 426 4,465
Interest expense, net............................... 934 258 3,506
------ ------ -------
Income (loss) before income taxes............... (613) 168 959
Income tax provision (benefit)...................... (245) 67 384
------ ------ -------
Net income (loss)............................... $ (368) $ 101 $ 575
====== ====== =======
</TABLE>
See accompanying notes to combined financial statements.
F-23
<PAGE>
GEI'S BUSINESS RELATED TO THE PURCHASED ASSETS
COMBINED STATEMENTS OF EQUITY
THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED) AND YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
EQUITY
--------
<S> <C>
Balances at December 31, 1994......................................... $ 30,807
Net income ........................................................... 575
Contributions from GEI................................................ 42,097
Distributions to GEI.................................................. (40,678)
--------
Balances at December 31, 1995......................................... 32,801
Net loss ............................................................. (368)
Contributions from GEI ............................................... 8,386
Distributions to GEI ................................................. (8,583)
--------
Balances at March 31, 1996 (unaudited)................................ $ 32,236
========
</TABLE>
See accompanying notes to combined financial statements.
F-24
<PAGE>
GEI'S BUSINESS RELATED TO THE PURCHASED ASSETS
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-----------------
YEAR
ENDED
DECEMBER
1996 1995 31, 1995
-------- ------- --------
(UNAUDITED)
<S> <C> <C> <C>
Net income (loss)................................ $ (368) $ 101 $ 575
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization.................. 1,151 843 3,239
Conversion of members' deposits................ 7 7 41
Provision for doubtful accounts................ 23 29 192
Changes in assets and liabilities:
Accounts receivable........................... 346 (1,252) 428
Inventories................................... (228) (735) (19)
Prepaid expenses.............................. (28) (5) 66
Other assets.................................. (5) 35 8
Accounts payable and accrued liabilities...... (266) 617 (547)
Deferred income............................... 140 1,353 (983)
-------- ------- --------
Net cash provided by operating activities.... 772 993 3,000
-------- ------- --------
Cash flows from investing activities:
Capital expenditures............................ (719) (1,567) (3,258)
Acquisitions of golf courses.................... -- (5,434) (10,030)
-------- ------- --------
Net cash used by investing activities........ (719) (7,001) (13,288)
-------- ------- --------
Cash flows from financing activities:
Proceeds from long-term debt.................... 95 6,095 9,394
Repayments of long-term debt.................... (239) (64) (257)
Contributions from GEI ......................... 8,386 7,834 42,097
Distributions to GEI ........................... (8,583) (7,331) (40,678)
Other........................................... (3) 2 87
-------- ------- --------
Net cash provided by (used by) financing
activities.................................. (344) 6,536 10,643
-------- ------- --------
Increase (decrease) in cash and cash
equivalents..................................... (291) 528 355
Cash and cash equivalents at beginning of
period.......................................... 1,108 716 753
-------- ------- --------
Cash and cash equivalents at end of period....... $ 817 $ 1,244 $ 1,108
======== ======= ========
Cash paid during the period for:
Interest........................................ $ -- $ -- $ --
======== ======= ========
Income taxes.................................... $ -- $ -- $ --
======== ======= ========
</TABLE>
See accompanying notes to combined financial statements.
F-25
<PAGE>
GEI'S BUSINESS RELATED TO THE PURCHASED ASSETS
NOTES TO COMBINED FINANCIAL STATEMENTS
(1) GENERAL
The owned golf course properties of Golf Enterprises, Inc. and Subsidiaries
consist of twenty daily fee (public) golf courses and private country clubs.
Golf Enterprises Inc. (the "Company" or "GEI") owns and operates these and
other leased and managed facilities. Revenues are derived from green fees,
golf cart rentals, practice facility fees, retail sale of golf merchandise,
food and beverages and initiation fees and dues of private members. The
Company's twenty owned golf course properties as of March 31, 1996 and
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
NAME LOCATION TYPE
---- ----------------- -------
<S> <C> <C>
Bent Tree Golf Club............................. Columbus, OH Public
Crescent Oaks Country Club...................... Clearwater, FL Private
Diamond Oaks Country Club....................... Fort Worth, TX Private
Eldorado Country Club........................... McKinney, TX Private
Forrest Crossing Golf Course.................... Nashville, TN Public
Great Southwest Golf Club....................... Grand Prairie, TX Private
Highlands Golf & Supper Club.................... Hutchinson, KS Private
The Links at Stono Ferry........................ Charleston, SC Public
Meadowbrook Country Club........................ Tulsa, OK Private
Oakridge Country Club........................... Garland, TX Private
Pawtuckett Golf Club............................ Charlotte, NC Public
Pinery Country Club............................. Denver, CO Private
The Plantation Golf Club........................ Boise, ID Private
Shenandoah Country Club......................... Baton Rouge, LA Private
Stonebridge Country Club........................ New Orleans, LA Private
Summerfield Crossing Golf Club.................. Tampa, FL Public
Tallgrass Country Club.......................... Wichita, KS Private
The Trails...................................... Norman, OK Private
Willow Fork Country Club........................ Katy, TX Private
Woodhaven Country Club.......................... Fort Worth, TX Private
</TABLE>
On February 2, 1996, the Company entered into a definitive agreement to sell
its twenty owned golf course properties and certain related assets (the
"Purchased Assets") to National Golf Properties, Inc. ("NGP"), a real estate
investment trust, and to merge immediately thereafter with a newly formed
corporation ("Newco") affiliated with David G. Price (who is Chairman of NGP's
Board of Directors and the principal shareholder of American Golf Corporation
("AGC")). Substantially all of NGP's properties are leased to AGC.
The purchase (the "Asset Purchase") and the merger (the "Merger") are
subject to certain conditions, including approval of the stockholders of the
Company and NGP. Stockholders of the Company beneficially owning approximately
45% of its outstanding common stock (on a fully diluted basis) have agreed to
vote their shares in favor of the Asset Purchase and the Merger. The closing
of these transactions is expected to occur in the second quarter of 1996. The
Company anticipates that a loss of approximately $19,300,000, net of income
tax effect, will be recognized on the sale of the Purchased Assets to NGP.
Although the Company will recognize the loss on the sale of the Purchased
Assets upon consummation of the Asset Purchase transaction, such transaction
is only a component of the entire transaction and will occur simultaneously
with the Merger. The proceeds of the Asset Purchase together with the proceeds
of the Merger will significantly exceed the historical net book value of the
Company. Accordingly, no impairment of the Company's property and equipment
has occurred.
F-26
<PAGE>
GEI'S BUSINESS RELATED TO THE PURCHASED ASSETS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The accompanying combined financial statements include the accounts of GEI's
Business Related to the Purchased Assets, including allocations of overhead
from GEI, for accounting, legal, information processing, administrative,
financing and marketing services. Such allocation is computed based on 5% of
the total operating revenue of GEI's Business Related to the Purchased Assets.
Management believes such allocation is reasonable, as total overhead of GEI
approximates 5% of the consolidated operating revenues of GEI. GEI's Business
Related to the Purchased Assets, as a combined entity, has no separate legal
status. All significant intercompany transactions and balances have been
eliminated in combination.
The unaudited interim combined financial statements as of March 31, 1996 and
for the three months ended March 31, 1996 and 1995 have been prepared in
accordance with generally accepted accounting principles and include all
adjustments (consisting only of normal recurring accruals) which are, in the
opinion of management, necessary for a fair presentation of the results of
operations for such periods and financial position at such date. Operating
results for the three months ended March 31, 1996 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1996.
(b) Inventories
Inventories are stated at the lower of cost (weighted average cost basis) or
market, and consist primarily of food, beverages, golf equipment and clothing.
(c) Property and Equipment
Property and equipment to be held and used are stated at cost less
impairment losses, if any. Property and equipment under capital leases are
stated at the lower of the present value of the future minimum lease payments
at the beginning of the lease term or the fair value at the inception of the
lease.
Depreciation of property and equipment is computed using the straight-line
method over the estimated useful lives of the assets. Property and equipment
held under capital leases and leasehold improvements are amortized using the
straight-line method over the shorter of the lease term or the estimated
useful life of the asset.
When property and equipment are sold or otherwise disposed of, the asset
account and related accumulated depreciation and amortization account are
relieved, and any gain or loss is included in operations. Expenditures for
maintenance and repairs are charged against operations. Renewals and
betterments that materially extend the life of an asset are capitalized.
The Company periodically reevaluates the propriety of the carrying amounts
of its golf course properties to be held and used as well as the amortization
period to determine whether current events and circumstances warrant
adjustments to the carrying amounts or a revised estimate of the useful life.
The Company compares the undiscounted future net cash flows expected to result
from the use of each of its properties to the carrying amount of that property
to determine whether the Company shall recognize an impairment loss. The
Company believes that no impairment of GEI's Business Related to the Purchased
Assets has occurred and that no reduction of the estimated useful lives is
warranted.
Property and equipment to be disposed of are stated at the lower of carrying
amount or fair value, less costs to sell. See footnote 1 for further
discussion.
All interest costs incurred have been expensed in the accompanying combined
financial statements.
F-27
<PAGE>
GEI'S BUSINESS RELATED TO THE PURCHASED ASSETS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
(d) Revenue Recognition
Revenue from green fees, practice facility fees, golf cart rentals and food,
beverage and pro shop sales is recognized at the time the facility is used or
the date of purchase.
Membership at certain of the Company's private country clubs requires
payment of an up front, non-refundable initiation fee and subsequent payments
of monthly dues. Revenue from initiation fees is recognized at the time of
sale, unless uncertainty surrounding collectability exists, and revenue from
monthly dues is recognized as earned.
Revenue from term memberships reflects the advance payment of dues and is
deferred and recognized over the term of the membership (ranging from two to
twelve years). Revenue from lifetime memberships reflects the advance payment
of dues and is deferred and recognized over the expected term of the
membership based on historical experience (approximately ten years).
(e) Concentration of Credit Risk
Financial instruments which potentially subject certain assets and
liabilities of GEI's Business Related to the Purchased Assets to
concentrations of credit risk consist principally of accounts and notes
receivable for initiation fees and monthly membership dues and expenses
incurred by club members. An allowance for doubtful accounts is provided when
factors surrounding the credit risk of a member indicate an impairment in
value.
A summary of allowance activity follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
1996 1995
--------------- ------------
<S> <C> <C>
Balance at beginning of period............... $133 $131
Provision for doubtful accounts.............. 23 192
Write-off of uncollectible accounts.......... (29) (190)
---- ----
Balance at end of period..................... $127 $133
==== ====
</TABLE>
(f) Fair Value of Financial Instruments
In accordance with the reporting requirements of Statement of Financial
Accounting Standards No. 107, "Disclosures about Fair Value of Financial
Instruments," the Company calculates the fair value of its financial
instruments and includes this additional information in the notes to the
combined financial statements when the fair value is different than the
carrying value of those financial instruments. When the fair value reasonably
approximates the carrying value, no additional disclosure is made.
(g) Cash and Cash Equivalents
The Company considers temporary cash investments purchased with original
maturities of three months or less and which are available for use in
operations to be cash equivalents.
(h) Use of Estimates
Management of the Company has made certain estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare the accompanying combined
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
F-28
<PAGE>
GEI'S BUSINESS RELATED TO THE PURCHASED ASSETS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
(i) Income Taxes
The results of operations of GEI's Business Related to the Purchased Assets
are included in the consolidated federal and state income tax returns of the
Company.
Income taxes have been computed in the accompanying financial statements at
a rate of 40% as if GEI's Business Related to the Purchased Assets filed
separate federal and state income tax returns.
(j) Capital Transactions
Distributions to GEI represent daily transfers of cash to GEI for cash
management purposes. Contributions from GEI represent costs and expenses and
capital expenditures made by GEI on behalf of GEI's Business Related to the
Purchased Assets.
(k) Newly Issued Accounting Standards
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" ("Statement No. 121").
Statement No. 121 requires that long-lived assets and certain intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The Company
periodically reevaluates the carrying amounts of its long-lived assets and the
related depreciation and amortization periods as discussed in note 2(c). The
adoption of Statement No. 121 as of January 1, 1996 did not have a material
effect on the accompanying financial statements.
(l) Advertising Costs
The Company expenses advertising costs as incurred.
(m) Goodwill
In connection with the 1994 acquisition of five golf courses, the Company
recorded aggregate goodwill of $3,578,000, representing the excess of the
purchase prices over the fair values of the net assets acquired. This amount
is being amortized over a period of 40 years. Goodwill is presented net of
accumulated amortization of $112,000 and $89,000 as of March 31, 1996 and
December 31, 1995, respectively.
The Company assesses the recoverability of goodwill by determining whether
the amortization of the asset balance over its remaining life can be recovered
through the undiscounted future operating cash flows of the acquired
operation. The amount of impairment, if any, is measured based on projected
discounted future operating cash flows. The Company believes that no
impairment has occurred and that no reduction of the estimated useful lives is
warranted.
(3) ACQUISITIONS
On February 10, 1995, the Company acquired substantially all of the assets
which comprise the Eldorado Country Club ("Eldorado") in McKinney, Texas.
On June 29, 1995, the Company acquired substantially all of the assets which
comprise the Willow Fork Country Club ("Willow Fork") in Katy, Texas.
F-29
<PAGE>
GEI'S BUSINESS RELATED TO THE PURCHASED ASSETS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(3) ACQUISITIONS--(CONTINUED)
The consideration for Eldorado and Willow Fork was $5,434,000 and
$4,444,000, respectively, and funds used for the acquisitions were obtained
primarily by loans totalling $7,000,000 under the Company's revolving credit
facility (the "Revolving Credit Facility").
A summary of the combined assets acquired and liabilities assumed related to
Eldorado and Willow Fork follows (in thousands):
<TABLE>
<S> <C>
Current assets....................................................... $ 446
Property and equipment and other assets.............................. 9,723
Current liabilities.................................................. (134)
Deferred income...................................................... (157)
------
$9,878
======
</TABLE>
The aforementioned acquisitions have been accounted for under the purchase
method of accounting. Accordingly, results of operations of Eldorado and
Willow Fork have been included in the accompanying combined statement of
operations since the acquisition dates.
The following unaudited pro forma financial information presents the
combined results of operations of GEI's Business Related to the Purchased
Assets and Eldorado and Willow Fork as if the acquisitions had occurred on
January 1, 1995, after giving effect to certain adjustments, including
additional depreciation and amortization expense and increased interest
expense on debt related to the acquisitions. The pro forma financial
information does not necessarily reflect the results of operations that would
have occurred had GEI's Business Related to the Purchased Assets and the
acquirees constituted a single entity during such periods.
<TABLE>
<S> <C>
Operating revenue.................................................... $41,852
=======
Operating income..................................................... $ 4,402
=======
Net income........................................................... $ 715
=======
</TABLE>
(4) PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
<S> <C> <C> <C>
Land...................................... $ 15,731 $ 15,718 --
Land improvements......................... 42,929 42,884 20-40 years
Buildings................................. 19,038 19,033 40 years
Equipment................................. 13,685 9,495 3-10 years
Construction in progress.................. 477 124 --
-------- --------
91,860 87,254
Less accumulated depreciation and
amortization............................. (14,455) (11,134)
-------- --------
$ 77,405 $ 76,120
======== ========
</TABLE>
F-30
<PAGE>
GEI'S BUSINESS RELATED TO THE PURCHASED ASSETS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(5) LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
<S> <C> <C>
Intercompany debt....................................... $43,312 $43,312
Note payable to seller of The Plantation Golf Club, due
in 2007, with variable interest only payments for the
first seven years not to exceed a rate of 8% per annum,
collateralized by property and equipment of the
acquired course (aggregate net book value of $4,200,000
at December 31, 1995).................................. 2,534 2,534
Other notes payable, including capital lease
obligations, with interest ranging from 7% to 20% per
annum.................................................. 2,707 1,157
------- -------
48,553 47,003
Less current portion.................................... (929) (266)
------- -------
$47,624 $46,737
======= =======
</TABLE>
(a) Intercompany Debt
The Company has financed the acquisition of certain of the Purchased Assets
substantially through borrowings from the Revolving Credit Facility. These
borrowings are an obligation of the Company. For purposes of the accompanying
combined financial statements, these borrowings are considered intercompany
debt of the Purchased Assets to the Company. GEI's Business Related to the
Purchased Assets records interest expense on all intercompany debt based on
interest rates that approximate the actual interest rates the Company is
charged on its borrowings under the Revolving Credit Facility. Intercompany
interest expense totalled $866,000, $723,000 and $3,231,000 during the three
months ended March 31, 1996 and 1995 and the year ended December 31, 1995,
respectively.
The Revolving Credit Facility is a five-year agreement providing up to
$70,000,000 for use by the Company in refinancing certain indebtedness,
financing the acquisition or lease of golf courses and golf course management
companies, and for general working capital purposes. Loans under the Revolving
Credit Facility are uncollateralized and bear interest at either a Eurodollar
rate or a customary base rate, plus in each case a marginal percentage of up
to 2.0%, depending upon the Company's ratio of total debt to earnings before
interest, income taxes, depreciation, amortization and income or expense
related to terminated leased facilities ("EBITDA"). Interest is payable either
quarterly with respect to base rate loans or on the last day of selected
interest periods ranging from one to six months with respect to Eurodollar
loans. The Credit Agreement contains customary conditions and covenants,
including dividend payment limitations, capital expenditure limitations,
negative pledge covenants and financial ratio covenants.
As of December 31, 1995, the loans outstanding under the Revolving Credit
Facility are Eurodollar loans, bearing interest at 7.56% to 8.0% (including a
marginal percentage of 2.0% determined by the Company's ratio of total debt to
EBITDA). A portion is to be treated as a reducing revolver, with equal
installments of $2,083,000 due quarterly beginning on March 31, 1997, and the
balance is due on December 31, 1999.
F-31
<PAGE>
GEI'S BUSINESS RELATED TO THE PURCHASED ASSETS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(5) LONG-TERM DEBT--(CONTINUED)
(b) Other
A summary of future maturities of long-term debt as of December 31, 1995
follows (in thousands). Future maturities of the intercompany debt reflect the
Company's obligations under the Revolving Credit Facility.
<TABLE>
<S> <C>
1996............................................................... $ 269
1997............................................................... 269
1998............................................................... 187
1999............................................................... 43,384
2000............................................................... 22
Thereafter......................................................... 2,877
--------
47,008
Less interest component of capital leases.......................... (5)
--------
$ 47,003
========
</TABLE>
(6) OPERATING LEASES
GEI's Business Related to the Purchased Assets leases certain golf equipment
under operating leases with the Company and other third parties. The minimum
future rental payments for all operating leases as of December 31, 1995 are as
follows (in thousands):
<TABLE>
<CAPTION>
COMPANY OTHER TOTAL
------- ----- ------
<S> <C> <C> <C>
1996.................................................... $ 748 $170 $ 918
1997.................................................... 568 148 716
1998.................................................... 336 75 411
1999.................................................... 242 32 274
2000 and thereafter..................................... 42 6 48
------ ---- ------
$1,936 $431 $2,367
====== ==== ======
</TABLE>
(7) OTHER COSTS AND EXPENSES
Other costs and expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH
31 YEAR ENDED
------------- DECEMBER 31,
1996 1995 1995
------ ------ ------------
<S> <C> <C> <C>
Supplies, maintenance and repairs................. $ 819 $ 644 $ 3,870
Utilities......................................... 390 295 1,701
Insurance......................................... 372 373 1,583
Property and other taxes.......................... 386 384 1,430
Advertising and promotion......................... 64 116 491
Other general and administrative.................. 448 408 2,596
------ ------ -------
$2,479 $2,220 $11,671
====== ====== =======
</TABLE>
Other general and administrative consists primarily of outside professional
fees, postage and freight, printing, contract labor, bad debt expense, data
processing and bank charges.
(8) CONTINGENCIES
GEI's Business Related to the Purchased Assets are involved in various
lawsuits; however, management of the Company believes that the lawsuits,
individually or in the aggregate, will not have a material effect on the
combined financial position or results of operations of GEI's Business Related
to the Purchased Assets.
F-32
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Wheatstone Development Company:
We have audited the accompanying balance sheets of Willow Fork Country Club
(a division of Wheatstone Development Company) as of December 31, 1994 and
1993, and the related statements of operations, division equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the Club's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 financial statements referred to above present fairly,
in all material respects, the financial position of Willow Fork Country Club
as of December 31, 1994 and 1993, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Dallas, Texas
August 30, 1995
F-33
<PAGE>
WILLOW FORK COUNTRY CLUB
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 28, DECEMBER 31, DECEMBER 31,
1995 1994 1993
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash................................... $ 48 $ 1 $ --
Accounts receivable.................... 383 388 287
Inventories............................ 99 38 31
Prepaid expenses....................... 11 16 42
------ ------- ------
Total current assets................. 541 443 360
Property and equipment, less accumulated
depreciation of $1,192,000, $1,059,000
and $818,000, respectively.............. 2,341 2,401 2,524
Other assets, net........................ -- 41 81
------ ------- ------
$2,882 $ 2,885 $2,965
====== ======= ======
LIABILITIES AND DIVISION EQUITY
Current liabilities:
Accounts payable....................... $ 31 $ 55 $ 34
Accrued liabilities.................... 1 18 7
------ ------- ------
Total current liabilities............ 32 73 41
Division equity.......................... 2,850 2,812 2,924
------ ------- ------
$2,882 $ 2,885 $2,965
====== ======= ======
</TABLE>
See accompanying notes to financial statements.
F-34
<PAGE>
WILLOW FORK COUNTRY CLUB
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED
----------------- -------------------------
JUNE 28, JUNE 30, DECEMBER 31, DECEMBER 31,
1995 1994 1994 1993
-------- -------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Operating revenue:
Green fees, practice facility
fees, dues and initiation fees.. $ 616 $ 603 $1,202 $1,092
Golf cart rentals................ 112 89 183 169
Food, beverage and pro shop
sales........................... 226 226 484 454
Other............................ 65 44 78 80
------ ----- ------ ------
Total operating revenue......... 1,019 962 1,947 1,795
------ ----- ------ ------
Costs and expenses:
Payroll and benefits............. 512 483 1,098 1,006
Cost of merchandise sold......... 111 98 213 218
Depreciation and amortization.... 147 143 269 276
General and administrative....... 204 172 382 398
Other............................ 233 232 489 505
------ ----- ------ ------
Total costs and expenses........ 1,207 1,128 2,451 2,403
------ ----- ------ ------
Net loss........................ $ (188) $(166) $ (504) $ (608)
====== ===== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-35
<PAGE>
WILLOW FORK COUNTRY CLUB
STATEMENTS OF DIVISION EQUITY
(IN THOUSANDS)
SIX MONTHS ENDED JUNE 28, 1995 (UNAUDITED) AND YEARS ENDED DECEMBER 31, 1994
AND 1993
<TABLE>
<S> <C>
Division equity at December 31, 1992.................................... $3,034
Net loss.............................................................. (608)
Advances from Parent.................................................. 498
------
Division equity at December 31, 1993.................................... 2,924
Net loss.............................................................. (504)
Advances from Parent.................................................. 392
------
Division equity at December 31, 1994.................................... 2,812
Net loss.............................................................. (188)
Advances from Parent.................................................. 226
------
Division equity at June 28, 1995 (unaudited)............................ $2,850
======
</TABLE>
See accompanying notes to financial statements.
F-36
<PAGE>
WILLOW FORK COUNTRY CLUB
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED
----------------- -------------------------
JUNE 28, JUNE 30, DECEMBER 31, DECEMBER 31,
1995 1994 1994 1993
-------- -------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activi-
ties:
Net loss.......................... $(188) $(166) $(504) $(608)
Adjustments to reconcile net loss
to net cash used by operating ac-
tivities:
Depreciation and amortization.... 147 143 269 276
Changes in assets and liabili-
ties:
Accounts receivable............. 5 (77) (101) (46)
Inventories..................... (61) (6) (7) (5)
Prepaid expenses................ 5 14 26 (19)
Accounts payable................ (24) 29 21 (34)
Accrued liabilities............. (17) 8 11 (2)
----- ----- ----- -----
Net cash used by operating activ-
ities........................... (133) (55) (285) (438)
----- ----- ----- -----
Cash flows from investing activi-
ties:
Capital expenditures.............. (73) (56) (118) (112)
Repayment of note receivable...... 27 6 12 13
----- ----- ----- -----
Net cash used by investing activ-
ities........................... (46) (50) (106) (99)
----- ----- ----- -----
Cash flows from financing activi-
ties:
Advances from Parent.............. 226 164 392 498
----- ----- ----- -----
Increase (decrease) in cash........ 47 59 1 (39)
Cash at beginning of period........ 1 -- -- 39
----- ----- ----- -----
Cash at end of period.............. $ 48 $ 59 $ 1 $ --
===== ===== ===== =====
</TABLE>
See accompanying notes to financial statements.
F-37
<PAGE>
WILLOW FORK COUNTRY CLUB
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) General
Willow Fork Country Club ("Willow Fork") has been a division of Wheatstone
Development Company ("Wheatstone" or "Parent"). Wheatstone is principally a
real estate development company. Willow Fork, located in Katy, Texas,
represented Wheatstone's sole country club operation (see note 4).
(b) Unaudited Interim Financial Statements
The accompanying interim financial statements as of June 28, 1995 and for
the six-month periods ended June 28, 1995 and June 30, 1994 have been prepared
from the unaudited records of Willow Fork. In the opinion of management, all
adjustments (consisting only of normal recurring accruals) considered
necessary for a fair presentation have been included. The results of
operations for the six months ended June 28, 1995 are not necessarily
indicative of the results to be expected for the full fiscal year.
(c) Inventories
Inventories are stated at the lower of cost (weighted average cost basis) or
market, and consist of food, beverages, athletic equipment and clothing.
(d) Property, Equipment and Depreciation
Property and equipment are recorded at the lower of cost or net realizable
value. Maintenance and repairs are charged to expense as incurred; major
renewals and betterments are capitalized. Depreciation expense is computed on
both the straight-line and accelerated methods over estimated useful lives of
five to thirty-nine years.
(e) Concentration of Credit Risk
Financial instruments which potentially subject Willow Fork to
concentrations of credit risk consist principally of accounts receivable for
monthly membership dues and expenses incurred by club members. Willow Fork
provides an allowance for accounts receivable when factors surrounding the
credit risk of a member indicate an impairment in value. No allowance was
necessary as of June 28, 1995 and December 31, 1994 and 1993.
(f) Division Equity
Division equity represents the cumulative noninterest bearing advances made
by Wheatstone and an affiliate to fund the initial development and the ongoing
operations of Willow Fork, net of accumulated losses of Willow Fork since its
inception. As a result of these continued losses, Willow Fork has been
economically dependent on Wheatstone. Because Wheatstone did not incur any
specific debt associated with Willow Fork, no interest expense of Wheatstone
has been allocated to Willow Fork.
(g) Revenue Recognition
Revenue from green fees, practice facility fees, golf cart rentals and food,
beverage and pro shop sales is recognized at the time the facility is used or
the date of purchase.
Revenue from membership dues and tournament fees is recognized as earned.
Revenue from term memberships is deferred and recognized over the term of the
membership (ranging from two to twelve years). Revenue from lifetime
membership dues is deferred and recognized over the expected term of the
membership based on historical experience (approximately ten years).
Initiation fees are nonrefundable and, accordingly, are recognized as revenue
at the time of sale, unless uncertainty surrounding collectability exists.
F-38
<PAGE>
WILLOW FORK COUNTRY CLUB
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 28, ---------------
1995 1994 1993
-------- ------- ------
<S> <C> <C> <C>
Land................................................. $ 61 $ 61 $ 61
Land improvements.................................... 1,910 1,893 1,842
Buildings............................................ 935 931 909
Golf carts and equipment............................. 627 575 530
------- ------- ------
3,533 3,460 3,342
Less accumulated depreciation........................ (1,192) (1,059) (818)
------- ------- ------
$ 2,341 $ 2,401 $2,524
======= ======= ======
</TABLE>
3. INCOME TAXES
Willow Fork has been included in the income tax return of Wheatstone.
Wheatstone has elected to be treated as a Small Business Corporation under
Subchapter S of the Internal Revenue Code, whereby profits and losses are
passed directly to the shareholders for inclusion in their personal tax
returns. Therefore, the statements of operations for the periods presented do
not include the effects of income taxes. Pro forma income taxes calculated on
a separate return basis have not been provided, as an income tax asset would
be offset by a valuation allowance.
4. SUBSEQUENT EVENT
On June 29, 1995, substantially all of the assets of Willow Fork were
acquired by Golf Enterprises, Inc., a Dallas, Texas based national operator of
public, private and resort golf courses, for cash consideration of
approximately $4,444,000.
F-39
<PAGE>
DESCRIPTION OF NEWCO
Financial statements of Newco have not been included because such entity has
no operations, only $1,000 of cash and capital, and no commitments (other than
pursuant to the Acquisition Agreement). Newco was incorporated in January 1996
and will start operations upon the merger of Newco with GEI.
Consummating the Merger will require Newco to pay approximately $23.6
million of the cash consideration payable to holders of GEI Common Stock and
options for such stock in the Merger, refinance approximately $54.9 million of
GEI's existing debt and pay certain additional transaction costs related to
negotiating and closing the Merger. To pay such amounts and provide for
additional working capital and a line of credit, Newco is seeking to obtain a
capital contribution of approximately $67 million from David G. Price and a
loan from one or more commercial lenders for approximately $30 million. David
G. Price is seeking to borrow approximately $38 million of his capital
contribution directly from one or more commercial lenders and borrow the
remaining approximately $29 million of his capital contribution from AGC. AGC
is seeking to raise the the funds that it will loan to Mr. Price, along with
an additional $15 million that AGC is seeking to refinance its existing
indebtedness, and AGC expects to close such financing prior to the Effective
Time.
F-40
<PAGE>
INDEX TO ANNEXES
<TABLE>
<CAPTION>
ANNEX PAGE
----- ----
<C> <S> <C>
I. Asset Purchase Agreement and Agreement and Plan of Merger by and
among National Golf Properties, Inc., Golf Enterprises, Inc. and
GEI Acquisition Corporation...................................... I-1
II. First Amendment to Asset Purchase Agreement and Agreement and Plan
of Merger by and among National Golf Properties, Inc., Golf
Enterprises, Inc. and GEI Acquisition Corporation................ II-1
III. Opinion of Montgomery Securities.................................. III-1
IV. Opinion of William Blair & Company................................ IV-1
V. Section 17-6712 of the Kansas General Corporation Code............ V-1
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ANNEX I
ASSET PURCHASE AGREEMENT
AND
AGREEMENT AND PLAN OF MERGER
AMONG
----------------
GOLF ENTERPRISES, INC.
NATIONAL GOLF PROPERTIES, INC.
AND
GEI ACQUISITION CORPORATION
----------------
DATED AS OF FEBRUARY 2, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
I-1
<PAGE>
TABLE OF CONTENTS
RECITALS
<TABLE>
<CAPTION>
PAGE
----
ARTICLE I
THE ACQUISITION
<C> <S> <C>
Section 1.1 Sale of Purchased Assets................................. I-8
Section 1.2 Owned Properties......................................... I-8
(a) Land................................................. I-8
(b) Buildings and Other Improvements..................... I-8
(c) Water Rights and Mineral Rights...................... I-8
(d) Appurtenances........................................ I-8
Section 1.3 Additional Assets........................................ I-8
Section 1.4 Title Reports, UCC Searches and Surveys.................. I-9
Section 1.5 Acquisition Consideration................................ I-9
ARTICLE II
THE MERGER
Section 2.1 The Merger............................................... I-9
Section 2.2 Effective Time........................................... I-10
Section 2.3 Effects of the Merger.................................... I-10
Section 2.4 Articles of Incorporation and Bylaws of the Surviving
Corporation.............................................. I-10
Section 2.5 Directors................................................ I-10
Section 2.6 Officers................................................. I-10
Section 2.7 Merger Consideration; Conversion or Cancellation of
Shares................................................... I-10
Section 2.8 Payment for Shares of Company Common Stock............... I-11
Section 2.9 Company Option Plans..................................... I-12
Section 2.10 Dissenters' Rights....................................... I-12
Section 2.11 Transfer of Shares After the Effective Time; Affiliate
Agreements............................................... I-12
ARTICLE III
CLOSING
Section 3.1 Closing.................................................. I-13
Section 3.2 Conveyances at Closing of the Acquisition................ I-13
(a) Actions by the Company............................... I-13
(b) Actions by Purchaser................................. I-13
(c) Form of Instruments.................................. I-13
(d) Certificates; Other Matters.......................... I-14
(e) Consents............................................. I-14
</TABLE>
I-2
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
<C> <S> <C>
Section 4.1 Organization..............................................
Section 4.2 Capitalization............................................ I-14
Section 4.3 Corporate Authorization; Validity of Agreement; Company
Action.................................................... I-15
Section 4.4 Consents and Approvals; No Violations..................... I-15
Section 4.5 SEC Reports and Financial Statements; Projections......... I-16
Section 4.6 Absence of Certain Changes................................ I-17
Section 4.7 No Undisclosed Liabilities................................ I-17
Section 4.8 Information............................................... I-17
Section 4.9 Employee Benefit Plans.................................... I-17
Section 4.10 Litigation................................................ I-21
Section 4.11 No Default................................................ I-21
Section 4.12 Taxes..................................................... I-21
Section 4.13 Contracts................................................. I-23
Section 4.14 Assets; Properties........................................ I-23
(a) Assets Needed to Conduct Business..................... I-23
(b) Marketable Title...................................... I-23
(c) Improvements in Good Condition........................ I-23
(d) No Conditions Affecting Insurability.................. I-24
(e) Utilities; Access..................................... I-24
(f) Licenses and Easements................................ I-24
(g) Absence of Condemnation Proceedings................... I-24
(h) Public Improvement Obligations........................ I-24
(i) Use of Golf Courses and Properties.................... I-24
(j) Water Rights.......................................... I-25
Section 4.15 The Company Not a "Foreign Person"........................ I-25
Section 4.16 Environmental Matters..................................... I-25
Section 4.17 Labor Matters............................................. I-26
Section 4.18 Insurance................................................. I-26
Section 4.19 Compliance with Law....................................... I-26
Section 4.20 Brokers................................................... I-27
Section 4.21 Opinion of Financial Advisor.............................. I-27
Section 4.22 Vote Required............................................. I-27
Section 4.23 Kansas Takeover Statute................................... I-27
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Section 5.1 Organization............................................. I-27
Section 5.2 Capitalization........................................... I-28
Section 5.3 Corporate Authorization; Validity of Agreement; Necessary
Action................................................... I-28
Section 5.4 Consents and Approvals; No Violations.................... I-29
Section 5.5 SEC Reports and Financial Statements..................... I-29
Section 5.6 Absence of Certain Changes............................... I-29
Section 5.7 No Undisclosed Liabilities............................... I-30
Section 5.8 Information.............................................. I-30
Section 5.9 Employee Benefit Plan.................................... I-30
</TABLE>
I-3
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
REPRESENTATIONS AND WARRANTIES OF PURCHASER (continued)
<C> <S> <C>
Section 5.10 Litigation............................................... I-31
Section 5.11 Compliance with Law...................................... I-31
Section 5.12 Taxes.................................................... I-31
Section 5.13 Environmental............................................ I-31
Section 5.14 Insurance................................................ I-31
Section 5.15 Financing................................................ I-32
Section 5.16 Brokers.................................................. I-32
Section 5.17 Opinion of Financial Advisor............................. I-32
Section 5.18 Vote Required............................................ I-32
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF NEWCO
Section 6.1 Organization............................................. I-32
Section 6.2 Corporate Authorization; Validity of Agreement; Necessary
Action................................................... I-32
Section 6.3 Consents and Approvals; No Violations.................... I-33
Section 6.4 Brokers.................................................. I-33
Section 6.5 Information.............................................. I-33
Section 6.6 No Operations............................................ I-33
Section 6.7 Financing................................................ I-33
ARTICLE VII
COVENANTS
Section 7.1 Interim Operations of the Company and Purchaser.......... I-33
Section 7.2 Access to Information.................................... I-36
Section 7.3 Consents................................................. I-36
Section 7.4 Stock Exchange Listing................................... I-37
Section 7.5 No Solicitation.......................................... I-37
Section 7.6 Additional Agreements.................................... I-38
Section 7.7 Publicity................................................ I-38
Section 7.8 Notification of Certain Matters.......................... I-38
Section 7.9 Directors' and Officers' Insurance and Indemnification... I-38
Section 7.10 Rule 145 Affiliates...................................... I-38
Section 7.11 State Takeover Laws...................................... I-39
Section 7.12 Meetings of Stockholders................................. I-39
Section 7.13 Registration Statement and Proxy Statement/Prospectus.... I-39
Section 7.14 Renewal of Certain Agreements............................ I-40
Section 7.15 Registration Rights...................................... I-40
Section 7.16 401(k) Plan.............................................. I-40
Section 7.17 Further Action........................................... I-40
</TABLE>
I-4
<PAGE>
<TABLE>
<CAPTION>
ARTICLE VIII
CONDITIONS
PAGE
----
<C> <S> <C>
Section 8.1 Conditions to the Obligations of Each Party............... I-40
(a) Stockholder Approval.................................. I-40
(b) No Order.............................................. I-40
(c) HSR Act............................................... I-40
(d) Other Approvals....................................... I-41
(e) Registration Statement................................ I-41
(f) NYSE Listing.......................................... I-41
Section 8.2 Additional Conditions to Obligations of Purchaser......... I-41
(a) Representations and Warranties........................ I-41
(b) Agreement and Covenants............................... I-41
(c) Material Adverse Change............................... I-41
Section 8.3 Additional Conditions to Obligations of Newco............. I-41
(a) Representations and Warranties........................ I-41
(b) Agreement and Covenants............................... I-42
(c) Material Adverse Change............................... I-42
(d) Financing............................................. I-42
Section 8.4 Additional Conditions to Obligations of the Company....... I-42
(a) Representations and Warranties........................ I-42
(b) Agreement and Covenants............................... I-42
(c) Material Adverse Change............................... I-42
ARTICLE IX
TERMINATION
Section 9.1 Termination.............................................. I-42
Section 9.2 Effect of Termination.................................... I-44
Section 9.3 Termination and Commitment Fees.......................... I-44
ARTICLE X
MISCELLANEOUS
Section 10.1 Fees and Expenses........................................ I-45
Section 10.2 Amendment and Modification............................... I-45
Section 10.3 Nonsurvival of Representations and Warranties............ I-45
Section 10.4 Notices.................................................. I-45
Section 10.5 Interpretation........................................... I-46
Section 10.6 Counterparts............................................. I-46
Section 10.7 Entire Agreement; No Third Party Beneficiaries; Rights of
Ownership................................................ I-46
Section 10.8 Severability............................................. I-46
Section 10.9 Specific Performance..................................... I-46
Section 10.10 Governing Law............................................ I-46
Section 10.11 Assignment............................................... I-46
Section 10.12 Independent Obligations.................................. I-47
</TABLE>
I-5
<PAGE>
<TABLE>
<CAPTION>
PAGE
-------
EXHIBITS
<C> <S> <C>
Exhibit A Principal Stockholder Agreement......................... I-A-1
Exhibit B Termination Fee Agreement............................... I-B-1
Exhibit C-1 to
Exhibit C-20 Land Descriptions....................................... *
Exhibit D Allocation of Purchase Price............................ *
Exhibit E Closing Agenda.......................................... *
Exhibit F Additional Representations.............................. *
Exhibit G Leased Properties....................................... *
Exhibit H Affiliate Letter........................................ I-H-1
Exhibit I Additional Assets....................................... *
Exhibit J NOLs.................................................... *
Exhibit K Basis of Purchased Assets............................... *
Exhibit L Guaranty................................................ I-L-1-1
</TABLE>
- --------
*Intentionally omitted
I-6
<PAGE>
ASSET PURCHASE AGREEMENT
AND
AGREEMENT AND PLAN OF MERGER
AGREEMENT, dated as of February 2, 1996, by and among NATIONAL GOLF
PROPERTIES, INC., a Maryland corporation ("Purchaser"), GEI ACQUISITION
CORPORATION, a Kansas corporation ("Newco"), and GOLF ENTERPRISES, INC., a
Kansas corporation (the "Company").
RECITALS
WHEREAS, the Boards of Directors of Purchaser, Newco and the Company each
have determined that it is in the best interests of their respective
stockholders for (a) the Company to sell to the Purchaser all of the Owned
Properties (as defined in Section 1.2) and the Additional Assets (as defined
in Section 1.3) (the "Acquisition") and (b) following such Acquisition, Newco
to merge with and into the Company (the "Merger"), in each case upon the terms
and subject to the conditions set forth herein; and
WHEREAS, following the Acquisition, Purchaser intends to contribute the
Owned Properties and the Additional Assets (collectively, the "Purchased
Assets") to National Golf Operating Partnership, L.P., a Delaware limited
partnership ("Partnership"), and, following the Merger, Partnership will lease
the Owned Properties to American Golf Corporation, a California corporation
("Lessee Co."); and
WHEREAS, in consideration of such lease, and as a condition and inducement
to the Company and Purchaser to enter into this Agreement and incur the
obligations set forth herein, concurrently with the execution and delivery of
this Agreement, Lessee Co. is entering into a guaranty of Newco's obligations
under this Agreement (the "Guaranty"), in the form of Exhibit L hereto; and
WHEREAS, as a condition and inducement to Purchaser and Newco to enter into
this Agreement and incur the obligations set forth herein, concurrently with
the execution and delivery of this Agreement, Purchaser and Newco are entering
into a stockholders agreement with certain holders (the "Principal
Stockholders") of Common Stock, par value $.01 per share, of the Company
("Company Common Stock"), and the Company, in the form of Exhibit A hereto
(the "Principal Stockholder Agreement"), pursuant to which, among other
things, the Principal Stockholders have agreed to vote the shares of Company
Common Stock then owned by such stockholders in favor of the Acquisition and
Merger provided for herein; and
WHEREAS, as a condition and inducement to Purchaser and Newco to enter into
this Agreement and incur the obligations set forth herein, concurrently with
the execution and delivery of this Agreement, Newco is entering into a
termination fee agreement with the Principal Stockholders in the form of
Exhibit B hereto (the "Termination Fee Agreement"); and
WHEREAS, the Board of Directors of the Company has approved the transactions
contemplated by this Agreement in accordance with the provisions of Sections
17-6701 and 17-6801 of the Kansas General Corporations Code ("KGCC") and has
resolved to recommend the approval of the Acquisition and Merger by the
stockholders of the Company; and
WHEREAS, the Board of Directors of Purchaser has approved the Acquisition
and the other transactions contemplated by this Agreement (including the
issuance of Purchaser Common Stock (as defined in Section 1.5) as Acquisition
Consideration (as defined in Section 1.5)) and has resolved to recommend the
approval of the Acquisition by the stockholders of Purchaser;
WHEREAS, the Board of Directors and sole stockholder of Newco have approved
the Merger and the other transactions contemplated by this Agreement in
accordance with Section 17-6701 of the KGCC; and
I-7
<PAGE>
WHEREAS, Purchaser, Newco and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Acquisition and the Merger and also to prescribe various conditions to the
Acquisition and the Merger.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein,
Purchaser, Newco and the Company agree as follows:
ARTICLE I
THE ACQUISITION
Section 1.1 Sale of Purchased Assets. Upon the terms and subject to the
satisfaction or waiver of the conditions of this Agreement, and in accordance
with the applicable provisions of this Agreement, on the Closing Date (as
defined in Section 3.1), the Company will (or will cause its Subsidiaries (as
defined in Section 4.1), as the case may be, to) sell, convey, transfer,
assign and deliver to Purchaser marketable and insurable title to the Owned
Properties and the Additional Assets, each free and clear of all liens,
assessments, taxes, impositions, indebtedness, mortgages, encumbrances,
obligations and all other interests, except the Permitted Encumbrances (as
defined in Section 4.14(b)). Notwithstanding the foregoing, at the election of
Purchaser, the Partnership or Lessee Co. may be substituted for the Purchaser
with respect to the purchase of any or all of the Purchased Assets.
Section 1.2 Owned Properties. The "Owned Properties" to be sold pursuant to
this Agreement include the following:
(a) Land. Each of the parcels of real property as more particularly
described in Exhibit C-1 to C-20 attached hereto and incorporated herein by
this reference (collectively, the "Land").
(b) Buildings and Other Improvements. All existing buildings, structures and
other improvements located upon the Land, including without limitation all
clubhouse buildings, maintenance facilities, golf courses, driving ranges,
practice areas, landscaping improvements, man-made lakes, irrigation systems
(including sprinklers, pipes and fittings), lakeliners, pumps, flood control
works, paving, walkways, road improvements, parking facilities, and all other
improvements of whatever kind which have previously been made, installed or
erected and are now located on the Land (collectively, the "Improvements").
(c) Water Rights and Mineral Rights. All of the Company's right, title and
interest (as they relate to the Owned Properties) to (i) all water rights,
riparian rights, appropriative rights, water allocations and water stock,
including without limitation all of the Company's rights and interests under
the Water Documents (as defined in Section 4.14(j)), and (ii) all minerals,
oil, gas and other hydrocarbons located in or beneath the Land, along with all
rights to surface and subsurface entry (collectively, the "Water and Mineral
Rights"); provided, however, that none of the Water and Mineral Rights owned
by the Company or its Subsidiaries are held through stock or other voting
interests in any corporation, coop or other entity, except as set forth in
Section 1.2(c) of the Company Disclosure Schedule.
(d) Appurtenances. All appurtenances, hereditaments, easements, reversionary
rights, and all other rights, privileges, and entitlements belonging to or
running with the Land, including all of the Company's right, title and
interest in and to any and all land laying in the bed of any street, road,
cul-de-sac, alley or access way, open or closed, existing, vacated or
proposed, adjoining, adjacent to or contiguous to the Land, all awards for
damage to the Land or taking by eminent domain or the change in grade of any
street adjoining any parcel of real property constituting the Land, and all
zoning and land use entitlements and development rights pertaining to the Land
(collectively, the "Appurtenances").
Section 1.3 Additional Assets. The "Additional Assets" to be sold pursuant
to this Agreement include the assets described in Exhibit I hereto and
incorporated herein by this reference.
I-8
<PAGE>
Section 1.4 Title Reports, UCC Searches and Surveys. By the later of
February 15, 1996 or five (5) business days after the date hereof, the Company
shall furnish to Purchaser and Newco the results of a search of the Uniform
Commercial Code financing statement indices of the Secretary of State and
County Clerk for the State and County, respectively, in which each of the
Owned Properties is located, under the name of the Company or its
Subsidiaries, each as the case may be, and any tradename used by the Company
or its Subsidiaries, each as the case may be, in connection with the operation
of the golf courses located on the Owned Properties, together with copies of
any financing statements or fixture filings referenced in the search report.
The Company has made available to Purchaser and Newco (a) legal descriptions
of the Owned Properties and the Leased Properties from which Purchaser and
Newco may order a current preliminary title report ("PTR") for each of such
properties, (b) copies, to the extent the Company currently has them
available, of surveys of each of the Owned Properties and Leased Properties,
and (c) copies, to the extent that the Company currently has them available,
of all title insurance policies with respect to the Owned Properties and the
Leased Properties.
Section 1.5 Acquisition Consideration. As consideration for the sale,
transfer, assignment, conveyance and delivery of the Purchased Assets, on the
Closing Date, Purchaser shall, at its option by notice to the Company prior to
the Closing Date, either:
(a) issue and deliver to the Company (i) the number of fully paid and non-
assessable shares of Common Stock, par value $.01 per share, of Purchaser
("Purchaser Common Stock") the aggregate value of which equals $40,786,649
based on a per share price equal to the Average Purchaser Common Stock Price,
provided that the aggregate number of shares of Purchaser Common Stock
issuable pursuant to this Section 1.5 shall not exceed 2,128,000 and shall not
be less than 1,418,666; and (ii) $17,213,351 in cash; provided that in the
event that any Company Options (as defined in Section 2.9) are exercised after
the date hereof but prior to the Effective Time, then the aggregate value of
Purchaser Common Stock to be issued shall be increased (subject to the proviso
above), and the aggregate amount of cash to be paid shall be reduced, by an
amount equal to (A) the number of shares of Company Common Stock issued upon
such exercise, multiplied by (B) the difference between (1) $6.00 and (2) 50%
of the Option Settlement Amount that would have been paid pursuant to Section
2.9 hereof had such Options not been exercised; or
(b) pay to the Company $58.0 million in cash (in either case, the
"Acquisition Consideration").
For purposes hereof, the "Average Purchaser Common Stock Price" shall mean
the average closing price per share of Purchaser Common Stock on the New York
Stock Exchange (the "NYSE") as reported on the NYSE Composite Tape for each of
the ten consecutive NYSE trading days immediately preceding the second trading
day prior to the Closing Date. The Purchaser shall be entitled to deduct and
withhold from the consideration otherwise payable pursuant to this Agreement
to the Company such amounts as the Purchaser is required to deduct and
withhold with respect to the making of such payment under the Code (as defined
in Section 4.9(a)(ii)), or any provision of state, local or foreign tax law.
To the extent that amounts are so withheld by the Purchaser, such withheld
amounts shall be treated for all purposes of this Agreement as having been
paid to the Company. All shares of Purchaser Common Stock issued by Purchaser
as Acquisition Consideration shall be validly issued, fully paid and non-
assessable. Each of the Company and the Purchaser agrees that the Acquisition
Consideration shall be allocated among the Purchased Assets in the amounts set
forth in Exhibit D attached hereto.
ARTICLE II
THE MERGER
Section 2.1 The Merger. Upon the terms and subject to the satisfaction or
waiver of the conditions of this Agreement and in accordance with the
applicable provisions of this Agreement and the KGCC, at the Effective Time
(as defined in Section 2.2) Newco shall be merged with and into the Company.
Following the Merger, the separate corporate existence of Newco shall cease
and the Company shall continue as the surviving corporation (the "Surviving
Corporation").
I-9
<PAGE>
Section 2.2 Effective Time. Immediately following the Acquisition, the
Company and Newco will cause a Certificate of Merger (the "Certificate of
Merger") to be executed and filed with the Secretary of State of Kansas as
provided in Section 17-6003 of the KGCC. The time the Merger becomes effective
in accordance with applicable laws is referred to as the "Effective Time."
Section 2.3 Effects of the Merger. The Merger shall have the effects set
forth in Section 17-6709 of the KGCC.
Section 2.4 Articles of Incorporation and Bylaws of the Surviving
Corporation.
(a) The Articles of Incorporation of Newco as in effect immediately prior to
the Effective Time shall be the Articles of Incorporation of the Surviving
Corporation until thereafter amended in accordance with the provisions thereof
and hereof and applicable law.
(b) The By-Laws of Newco as in effect immediately prior to the Effective
Time shall be the By-Laws of the Surviving Corporation until thereafter
amended in accordance with the provisions thereof and hereof and applicable
law.
Section 2.5 Directors The directors of Newco immediately prior to the
Effective Time shall be the initial directors of the Surviving Corporation and
shall hold office until the respective successors are duly elected and
qualified, or their earlier death, resignation or removal.
Section 2.6 Officers. The officers of the Company immediately prior to the
Effective Time shall be the initial officers of the Surviving Corporation and
shall hold office until the respective successors are duly elected and
qualified, or their earlier death, resignation or removal.
Section 2.7 Merger Consideration; Conversion or Cancellation of Shares. The
manner of converting or cancelling shares of the Company and Newco in the
Merger shall be as follows:
(a) At the Effective Time, each share of Company Common Stock issued and
outstanding immediately prior to the Effective Time (other than Dissenting
Shares (as defined in Section 2.10) and other than as set forth in Section
2.7(b)) shall, by virtue of the Merger and without any action on the part of
the holder thereof, be converted into the right to receive, without interest,
the "Merger Consideration," consisting of (1) $6.00 in cash (the "Cash
Consideration") and (2) a number of shares of Purchaser Common Stock equal to
the quotient of (A) the aggregate number of shares of Purchaser Common Stock
issued by Purchaser to the Company as Acquisition Consideration minus the
aggregate number of shares of Purchaser Common Stock issued in the Option
Settlement Amount under Section 2.9, divided by (B) the aggregate number of
shares of Company Common Stock outstanding immediately prior to the Effective
Time (the "Stock Consideration"). If Purchaser elects to pay the Acquisition
Consideration all in cash in lieu of issuing stock and cash, then instead of
the Stock Consideration, the Merger Consideration shall consist solely of Cash
Consideration in an aggregate amount per share (including the $6.00 in Cash
Consideration referred to above) equal to $12.00 in cash. Payment of the
Merger Consideration is subject to and shall be made in the manner provided in
Section 2.8. All shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time (other than Dissenting Shares) shall,
by virtue of the Merger and without any action on the part of the holders
thereof, cease to be outstanding, be cancelled and retired and cease to exist,
and each holder of a certificate representing any such shares shall thereafter
cease to have any rights with respect to such shares, except a right to
receive the Merger Consideration for such shares upon the surrender of such
certificate in accordance with Section 2.8.
(b) At the Effective Time, each share of Company Common Stock issued and
owned by the Company as treasury stock, owned by any direct or indirect
Subsidiary of the Company or owned by Newco immediately prior to the Effective
Time shall, by virtue of the Merger and without any action on the part of the
holder thereof, cease to be outstanding, be cancelled and retired without
payment of any consideration therefor and cease to exist.
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(c) At the Effective Time, each share of Common Stock, par value $.01 per
share, of Newco ("Newco Common Stock") issued and outstanding immediately
prior to the Effective Time shall, by virtue of the Merger and without any
action on the part of Newco or the stockholders thereof, be converted into one
share of Common Stock, par value $.01 per share, of the Surviving Corporation.
Section 2.8 Payment for Shares of Company Common Stock. (a) Prior to the
Effective Time, Newco shall appoint an agent (reasonably acceptable to the
Company) to act as exchange agent for the purpose of paying the Merger
Consideration (the "Exchange Agent"). Promptly after the Effective Time, the
Surviving Corporation shall cause to be mailed to each person who was,
immediately prior to the Effective Time, a holder of record of issued and
outstanding shares of Company Common Stock, a form of letter of transmittal
and instructions for use in effecting the surrender of the certificates which,
immediately prior to the Effective Time, represented any of such shares in
exchange for payment of the Merger Consideration. The Exchange Agent's
transmittal letter shall specify that delivery shall be effected and risk of
loss and title to the certificates shall pass only upon proper delivery of the
certificates to the Exchange Agent. Upon surrender to the Exchange Agent of
such certificates, together with such letter of transmittal, duly executed and
completed in accordance with the instructions thereto, and subject to Section
2.8(c), the Surviving Corporation shall promptly cause to be paid to each
person entitled thereto the Merger Consideration to which such person is
entitled. If the shares of Purchaser Common Stock constituting Stock
Consideration are to be transferred to a person other than the registered
holder of the certificate surrendered, it shall be a condition of such
transfer that the certificate so surrendered shall be properly endorsed or
otherwise in proper form for transfer and that the person requesting such
issuance shall pay any transfer or other taxes required by reason of the
issuance to a person other than the registered holder of the certificate
surrendered or established to the satisfaction of the Surviving Corporation or
the Exchange Agent that such taxes have been paid or are not applicable. Until
surrendered in accordance with the provisions of this Section 2.8, each
certificate (other than certificates representing Dissenting Shares (as
defined in Section 2.10)) shall represent for all purposes only the right to
receive the Merger Consideration, without any interest thereon.
(b) No person holding a certificate which, prior to the Effective Time,
represented shares of Company Common Stock will be entitled after the
Effective Time to receive any dividend or distribution that may be declared or
paid in respect of, or to vote, any shares of Purchaser Common Stock
constituting Stock Consideration receivable by such person upon conversion of
such shares of Company Common Stock in the Merger, until such certificate is
surrendered in exchange for the Merger Consideration as provided herein, at
which time any dividends declared and paid after the Effective Time with
respect to such shares of Purchaser Common Stock shall be paid without
interest to such person as though he had been a record holder of such Shares
at the time of such declaration.
(c) Notwithstanding Section 2.7(a) and 2.8(a), no fractional shares of
Purchaser Common Stock will be transferred, and any stockholder entitled
hereunder to receive a fractional share but for this Section 2.8(c) will be
entitled hereunder to receive in lieu of such fractional share a cash payment
representing such stockholder's proportionate interest in the net proceeds
from the sale by the Exchange Agent on behalf of all such stockholders of the
aggregate fractional shares of Purchaser Common Stock that such stockholders
would be entitled to receive but for this Section 2.8(c). Such sale shall be
made by the Exchange Agent within ten business days after the Effective Time.
(d) The Surviving Corporation or the Exchange Agent shall be entitled to
deduct and withhold from the consideration otherwise payable pursuant to this
Agreement to any holder of shares of Company Common Stock such amounts as the
Surviving Corporation or the Exchange Agent is required to deduct and withhold
with respect to the making of such payment under the Code (as defined in
Section 4.9(a)(ii)), or any provision of state, local or foreign tax law. To
the extent that amounts are so withheld by the Surviving Corporation or the
Exchange Agent, such withheld amounts shall be treated for all purposes of
this Agreement as having been paid to the holder of shares of Company Common
Stock in respect of which deduction and withholding was made by the Surviving
Corporation or the Exchange Agent.
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(e) Promptly following the first anniversary of the Effective Time, the
Exchange Agent shall deliver to the Surviving Corporation all cash,
certificates and other documents in its possession relating to the
transactions described in this Agreement, and the Exchange Agent's duties
shall terminate. Thereafter, each holder of a certificate formerly
representing a share of Company Common Stock may surrender such certificate to
the Surviving Corporation and (subject to applicable abandoned property,
escheat and similar laws) receive in consideration therefor the aggregate
Merger Consideration relating thereto, without any interest or dividends
thereon. Neither Newco nor the Surviving Corporation shall be liable to any
holder of shares of Company Common Stock for any cash constituting the Merger
Consideration delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
Section 2.9 Company Option Plans. The Company shall take all such actions as
are necessary to cancel, immediately prior to the Effective Time, all
unexpired and unexercised outstanding options (whether or not then
exercisable) ("Options") to purchase shares of Company Common Stock heretofore
granted by the Company or its Subsidiaries under any agreement, plan, program
or arrangement of the Company or its Subsidiaries. The Company shall use its
best efforts to obtain a written agreement from the holders of all outstanding
Options not to exercise such Options from date of this Agreement through and
including the Effective Time, except as set forth on Section 2.9 of the
Company Disclosure Schedule. Except as to the extent that Newco and a holder
of an Option may otherwise agree prior to the Effective Time, each holder of
an Option shall be entitled to receive from the Company in cancellation
thereof a payment (subject to applicable income tax withholding and employer
taxes) in an amount equal to the excess, if any, of the per share value of the
Merger Consideration (up to $12.00 per share) (valuing Stock Consideration at
the Average Purchaser Common Stock Price) over the per share exercise price of
such Option, multiplied by the number of shares of Company Common Stock
subject to such Option (the "Option Settlement Amount"). The Option Settlement
Amount shall be paid 50% in cash and 50% in Purchaser Common Stock (valuing
the Purchaser Common Stock at the Average Purchaser Common Stock Price), or
100% in cash in the event that Purchaser elects to pay the Acquisition
Consideration all in cash in lieu of issuing stock and cash. Such payment
shall be made immediately prior to the Effective Time. Any Option which as of
the Effective Time has not been so cancelled and settled shall be converted
into the right to receive the Option Settlement Amount. Except to the extent
determined otherwise by Newco, all agreements, plans, programs or arrangements
of the Company and its subsidiaries which provide for the issuance or grant of
Options or any other interest in respect of the capital stock of the Company
or any of its subsidiaries shall terminate as of the Effective Time.
Section 2.10 Dissenters' Rights. Notwithstanding anything in this Agreement
to the contrary, shares of Company Common Stock outstanding immediately prior
to the Effective Time and held by a holder who has not voted in favor of the
Merger and who has properly in writing exercised its rights of appraisal for
such shares of Company Common Stock in accordance with Section 17-6712 of the
KGCC, if such Section 17-6712 provides for appraisal rights for such shares in
the Merger ("Dissenting Shares"), shall not be converted into the right to
receive the Merger Consideration as provided in Section 2.7 and Section 2.8,
unless and until such holder fails to perfect or withdraws or otherwise loses
its right to appraisal and payment under the KGCC. If, after the Effective
Time, any such holder fails to perfect or withdraws or loses his right to
appraisal, such Dissenting Shares shall thereupon be treated as if they had
been converted as of the Effective Time into the right to receive the Merger
Consideration, if any, to which such holder is entitled, without interest or
dividends thereon, upon surrendering, in the manner provided in Section 2.8,
of the certificate or certificates that formerly evidenced such shares of
Company Common Stock. The Company shall give Newco prompt notice of any
demands received by the Company for appraisal of shares of Company Common
Stock and, prior to the Effective Time, Newco shall have the right to direct
all negotiations and proceedings with respect to such demands. Prior to the
Effective Time, the Company shall not, except with the prior written consent
of Newco, make any payment with respect to, or settle or offer to settle, any
such demands.
Section 2.11 Transfer of Shares After the Effective Time; Affiliate
Agreements. No transfers of Shares shall be made on the stock transfer books
of the Company after the close of business on the day prior to the date of the
Effective Time. If, after the Effective Time, certificates formerly
representing shares of Company Common
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Stock are presented to the Surviving Corporation or the Exchange Agent, they
shall be surrendered and cancelled in return for the payment of the aggregate
Merger Consideration relating thereto, as provided in this Article II, subject
to applicable law in the case of Dissenting Shares. Certificates for Company
Common Stock surrendered for exchange by any person constituting an
"affiliate" of the Company for purposes of Rule 145(c) of the Securities Act
of 1933, as amended (the "Securities Act") shall not be exchanged until Newco
has received a written agreement from such person as provided in Section 7.10.
ARTICLE III
CLOSING
Section 3.1 Closing. The Closing of the Acquisition and the Merger (the
"Closing") shall take place (i) at the offices of Latham & Watkins, 633 West
Fifth Street, Suite 4000, Los Angeles, California at 9:00 a.m. on the second
business day after which the last to be fulfilled or waived of the conditions
set forth in Article VIII hereof shall be fulfilled or waived in accordance
with this Agreement (the date on which the Closing occurs, the "Closing Date")
or (ii) at such other place and/or time and/or on such other date as the
Company, Purchaser and Newco may agree. For all purposes, all transactions
contemplated by this Agreement that are to be consummated on the day of the
Closing shall be those set forth in, and shall occur at the time and in the
sequence provided in, the closing agenda to be agreed upon by the parties
hereto consistent with Exhibit E, subject to such changes and revisions to
such closing agenda as the parties hereto may reasonably agree.
Section 3.2 Conveyances at Closing of the Acquisition.
(a) Actions by the Company. To effect the Acquisition, at the Closing, the
Company shall:
(i) Cause a general warranty grant deed to each of the Owned
Properties, duly executed and acknowledged by the Company and in
recordable form (collectively, the "Deeds"), to be recorded in the real
estate records in the county in which each such Owned Property is
located;
(ii) Deliver to Purchaser two original counterparts of an assignment
of the Water Documents (as defined in Section 4.14(k)) duly executed by
the Company;
(iii) Deliver to Purchaser such other documents, certificates or
instruments as shall be reasonably requested by Purchaser to convey
marketable title in and to the Owned Properties and the Additional
Assets to Purchaser;
(iv) urnish to Purchaser an affidavit stating, under penalty of
perjury, the Company's United States taxpayer identification number and
that the Company is not a foreign person, pursuant to Section
1445(b)(2) of the Code; and
(v) Furnish to Purchaser such other documents, certificates and
instruments as Purchaser shall reasonably request.
In order to facilitate the Closing of the Acquisition, the Company
and Purchaser shall enter into customary escrow arrangements regarding
the foregoing documents.
(b) Actions by Purchaser. To effect the Acquisition at the Closing,
Purchaser shall deliver to the Company the Acquisition Consideration, one
complete original counterpart of the Assignment of Water Documents and a file-
stamped conformed copy of the Deeds showing the recording information thereon.
Purchaser shall pay the cash portion of the Acquisition Consideration at
Closing in federal (same day) funds by wire transfer to an account previously
designated to Purchaser by the Company.
(c) Form of Instruments. To the extent that a form of any document to be
delivered hereunder is not attached as an exhibit hereto, such document shall
be in form and substance, and shall be executed and delivered in any manner,
reasonably satisfactory to Purchaser and the Company.
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(d) Certificates; Other Matters. The parties hereto shall deliver the
certificates and other matters described in Article VIII.
(e) Consents. The Company shall deliver all permits and any other third
party consents required for the valid transfer of the Owned Properties and the
Additional Assets as contemplated by this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Purchaser and Newco as follows:
Section 4.1 Organization. Each of the Company and its Subsidiaries is a
corporation, partnership or other entity duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation or
organization, and has all requisite corporate or other power and authority and
all necessary governmental approvals to own, lease and operate its properties
and to carry on its business as now being conducted. Each of the Company and
its Subsidiaries is duly qualified or licensed to do business and is in good
standing in each jurisdiction in which the property owned, leased or operated
by it or the nature of the business conducted by it makes such qualification
or licensing necessary. As used in this Agreement, the word "Subsidiary"
means, with respect to any party, any corporation or other organization,
whether incorporated or unincorporated, of which(i) such party or any other
Subsidiary of such party is a general partner (excluding such partnerships
where such party or any Subsidiary of such party do not have a majority of the
voting interest in such partnership) or (ii) at least a majority of the
securities or other interests having by their terms ordinary voting power to
elect a majority of the Board of Directors or others performing similar
functions with respect to such corporation or other organization is directly
or indirectly owned or controlled by such party or by any one or more of its
Subsidiaries, or by such party and one or more of its Subsidiaries. Section
4.1 of the Company Disclosure Schedule delivered by the Company to Purchaser
on or prior to the date hereof (the "Company Disclosure Schedule") sets forth
a complete list of the Company's Subsidiaries.
Section 4.2 Capitalization.
(a) The authorized capital stock of the Company consists of 20,000,000
shares of Company Common Stock and 5,000,000 shares of preferred stock, par
value $1.00 per share (the "Company Preferred Stock"). As of the date hereof,
(i) 6,585,482 shares of Company Common Stock are issued and outstanding, and
no shares of Company Common Stock are held in the Company's treasury, (ii)
1,075,783 shares of Company Common Stock are reserved for issuance pursuant to
Options previously granted pursuant to the Company's 1991 Stock Option Plan,
the Company's 1994 Stock Option Plan and the Company's 1995 Stock Option Plan
(collectively, the "Company Stock Option Plans") and Options previously
granted pursuant to that certain Stock Option Agreement dated March 25, 1991
between the Company and Devlin Golf, Inc. and that certain Stock Option
Agreement dated March 25, 1991 between the Company and Stephen L. Lambert
(collectively, the "Company Stock Option Grants"), which Options shall be
exercisable by the payment solely of cash, and, assuming a $12.00 per share
value of Merger Consideration, have an aggregate Option Settlement Amount of
$2,547,514; and (iii) no shares of Company Preferred Stock are issued and
outstanding. All the outstanding shares of the Company's capital stock are,
and all shares which may be issued upon exercise of outstanding options, will
be, when issued in accordance with the respective terms thereof, duly
authorized, validly issued, fully paid and nonassessable. Except as disclosed
in Section 4.2(a) of the Company Disclosure Schedule, there are no bonds,
debentures, notes or other indebtedness having voting rights (or convertible
into securities having such rights) ("Voting Debt") of the Company or any of
its Subsidiaries issued and outstanding. Except as set forth above or in
Section 4.2(a) of the Company Disclosure Schedule and except for the
transactions contemplated by this Agreement, as of the date hereof, (i) there
are no shares of capital stock of the Company authorized, issued or
outstanding and (ii) there are no existing options, Options, warrants, calls,
pre-emptive rights, subscriptions or other rights, convertible securities,
agreements, arrangements or commitments of any character, relating to the
issued or unissued capital stock of the Company or any of its Subsidiaries,
obligating the Company or any of its
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Subsidiaries to issue, transfer or sell or cause to be issued, transferred or
sold any shares of capital stock or Voting Debt of, or other equity interest
in, the Company or any of its Subsidiaries or securities convertible into or
exchangeable for such shares or equity interests or obligations of the Company
or any of its Subsidiaries to grant, extend or enter into any such option,
warrant, call, subscription or other right, convertible security, agreement,
arrangement or commitment. Except as disclosed in Section 4.2(a) of the
Company Disclosure Schedule, there are no outstanding contractual obligations
of the Company or any of its Subsidiaries to repurchase, redeem or otherwise
acquire any Shares or the capital stock of the Company or any Subsidiary or
affiliate of the Company or to provide funds to make any investment (in the
form of a loan, capital contribution or otherwise) in any Subsidiary or any
other entity. Except as permitted by this Agreement, following the Merger,
neither the Company nor any of its Subsidiaries will have any obligation to
issue, transfer or sell any shares of its capital stock pursuant to any Stock
Option Plan, employee benefit plan or otherwise.
(b) Except as disclosed in Section 4.2(b) of the Company Disclosure
Schedule, all of the outstanding shares of capital stock of each of the
Subsidiaries of the Company are beneficially owned by the Company, directly or
indirectly, and all such shares have been validly issued and are fully paid
and nonassessable and are owned by either the Company or one of its
Subsidiaries free and clear of all liens, charges, security interests,
options, claims or encumbrances of any nature whatsoever.
(c) Except for the Principal Stockholder Agreement, there are no voting
trusts or other agreements or understandings to which the Company or any of
its Subsidiaries is a party with respect to the voting of the capital stock of
the Company or any of the Subsidiaries. Except as disclosed in Section 4.2(c)
of the Company Disclosure Schedule, none of the Company or its Subsidiaries is
required to redeem, repurchase or otherwise acquire shares of capital stock of
the Company, or any of its Subsidiaries, respectively, as a result of the
transactions contemplated by this Agreement. No person has any rights to cause
the Company or its Subsidiaries to register with the SEC any securities of the
Company, other than solely with respect to Company Common Stock as set forth
in Section 4.2(c) of the Company Disclosure Schedule (the "Existing
Registration Rights Agreements").
(d) At the Effective Time, the number of shares of Company Common Stock
outstanding, excluding shares held in the Company's treasury, shall not exceed
7,661,265.
Section 4.3 Corporate Authorization; Validity of Agreement; Company
Action. The Company has full corporate power and authority to execute and
deliver this Agreement and, subject to obtaining any necessary approval of its
stockholders as contemplated by Section 7.12 hereof with respect to the
Acquisition and the Merger, to consummate the transactions contemplated hereby
and perform its obligations hereunder. The execution, delivery and performance
by the Company of this Agreement and the consummation by it of the
transactions contemplated hereby, have been duly and validly authorized by its
Board of Directors and, except for obtaining the approval of its stockholders
as contemplated by Section 7.12 hereof with respect to the Acquisition and the
Merger and the filing and recordation of appropriate merger documents as
required by the KGCC, no other corporate action or proceedings on the part of
the Company is necessary to authorize the execution and delivery by the
Company of this Agreement and the consummation by it of the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
the Company and, assuming this Agreement constitutes a valid and binding
obligation of Purchaser and Newco, constitutes a valid and binding obligation
of the Company enforceable against the Company in accordance with its terms.
Section 4.4 Consents and Approvals; No Violations. Except as disclosed in
Section 4.4 of the Company Disclosure Schedule, and except for all filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements and rules of, the Securities Exchange Act of
1934, as amended (the "Exchange Act"), the KGCC, the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and the liquor
license laws, rules, regulations and requirements of any state or other
Governmental Entity (as defined below), and except for the approval of this
Agreement by the Company's stockholders and the filing and recordation of the
Certificate of Merger as required by the KGCC, none of the execution, delivery
or performance of this Agreement by the Company, the consummation by the
Company of the transactions
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contemplated hereby or compliance by the Company with any of the provisions
hereof will (i) conflict with or result in any breach of any provision of the
Articles of Incorporation or By-Laws or similar organizational documents of
the Company or of any of its Subsidiaries, (ii) require any filing with, or
permit, authorization, consent or approval of, any court, arbitral tribunal,
administrative agency or commission or other governmental or other regulatory
authority or agency (a "Governmental Entity"), (iii) result in a violation or
breach of, or constitute (with or without due notice or lapse of time or both)
a default (or give rise to any right of termination, amendment, cancellation
or acceleration) under, any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, guarantee, other evidence of indebtedness
(collectively, the "Debt Instruments"), lease, license, contract, agreement or
other instrument or obligation to which the Company or any of its Subsidiaries
is a party or by which any of them or any of their properties or assets may be
bound and which either has a term of more than one year or involves the
payment or receipt of money in excess of $100,000 (a "Company Agreement") or
(iv) violate any order, writ, injunction, decree, statute, rule or regulation
applicable to the Company, any of its Subsidiaries or any of their properties
or assets. Section 4.4 of the Company Disclosure Schedule sets forth each
instrument evidencing indebtedness of the Company and its Subsidiaries which
will accelerate or become due or payable, or result in a right of redemption
or repurchase on the part of the holder of such indebtedness, or with respect
to which any other payment or amount will become due or payable, in any such
case with or without due notice or lapse of time, as a result of this
Agreement, the Acquisition, the Merger or the other transactions contemplated
hereby.
Section 4.5 SEC Reports and Financial Statements; Projections.
(a) The Company has filed with the Securities and Exchange Commission (the
"SEC"), and has heretofore made available to Purchaser and Newco true and
complete copies of, all forms, reports, schedules, statements and other
documents required to be filed by it and its Subsidiaries since January 1,
1994 under the Exchange Act or the Securities Act (as such documents have been
amended since the time of their filing, collectively, the "Company SEC
Documents"). As of their respective dates or, if amended, as of the date of
the last such amendment, the Company SEC Documents, including, without
limitation, any financial statements or schedules included therein and any
forms, reports and other documents filed by the Company with the SEC after the
date of this Agreement (a) did not and will not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading and (b) complied or
will comply in all material respects with the applicable requirements of the
Exchange Act and the Securities Act, as the case may be, and the applicable
rules and regulations of the SEC thereunder. No Subsidiary of the Company is
required to file any form, report or other document with the SEC.
(b) Each of the consolidated financial statements included in the Company
SEC Documents have been prepared from, and are in accordance with, the books
and records of the Company and/or its consolidated Subsidiaries, comply in all
material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with United States generally accepted accounting
principles ("GAAP") applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto) and fairly present in all
material respects the consolidated financial position and the consolidated
results of operations and cash flows (and changes in financial position, if
any) of the Company and its consolidated Subsidiaries as at the dates thereof
or for the periods presented therein.
(c) The projected financial statements, which include projected capital
expenditures, provided to the Purchaser and Newco on the date of this
Agreement (the "Projections") have been made by the Company with a reasonable
basis and in good faith and have been compiled on the bases described therein.
The assumptions used in the preparation of the Projections (i) are all those
the Company believes are significant in forecasting the financial results of
the Company and (ii) reflect, for the relevant periods, the Company's
reasonable estimate of the events, contingencies and circumstances described
therein. Such Projections, taken as a whole, present the Company's reasonable
estimate of the expected consolidated results of operations of the Company for
the forecasted periods.
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Section 4.6 Absence of Certain Changes. Except to the extent disclosed in
the Company SEC Documents filed prior to the date of this Agreement or as
otherwise disclosed in Section 4.6 of the Company Disclosure Schedule, since
December 31, 1994, the Company and its Subsidiaries have conducted their
respective businesses and operations in the ordinary course of business
consistent with past practice, and there has not occurred (i) any events,
changes, or effects (including the incurrence of any liabilities of any
nature, whether or not accrued, contingent or otherwise) having or, which
would be reasonably likely to have, individually or in the aggregate, a
material adverse effect on the Company and its Subsidiaries, taken as a whole;
(ii) any declaration, setting aside or payment of any dividend or other
distribution (whether in cash, stock or property) with respect to the equity
interests of the Company or of any of its Subsidiaries, other than dividends
paid by wholly owned Subsidiaries, or any redemption, purchase or other
acquisition by the Company or any of its Subsidiaries of any securities of the
Company or any of its Subsidiaries; (iii) any split, combination or
reclassification of any of the Company's capital stock or any issuance or the
authorization of any issuance of any other securities in respect of, in lieu
of or in substitution for, shares of the Company's capital stock; (iv) any
increase in or establishment of any bonus, insurance, severance, deferred
compensation, pension, retirement, profit sharing, stock option (including,
without limitation, the granting of stock options, stock appreciation rights,
performance awards or restricted stock awards), stock purchase or other
employee benefit plan, or any other increase in the compensation payable or to
become payable to any officers or key employees of the Company or any
Subsidiary; (v) any change by the Company or any of its Subsidiaries in
accounting principles or methods, except insofar as may be required by a
change in GAAP or the SEC; (vi) any damage, destruction or loss (whether or
not covered by insurance) with respect to any property or asset of the Company
or any Subsidiary, or (vii) any entering into, renewal, modification or
extension of, any material contract, arrangement or agreement with any other
party except for contracts, arrangements or agreements in the ordinary course
of business or as contemplated by this Agreement. As of the date of this
Agreement and at the Effective Time, (i) the aggregate short-term and long-
term debt of the Company and its Subsidiaries (excluding capital leases) does
not and will not exceed $57.365 million, and (ii) the consolidated current
ratio of the Company and its Subsidiaries (the ratio of current assets to
current liabilities) is not and will not be less than 1.0 to 1.0.
Section 4.7 No Undisclosed Liabilities. Except (a) to the extent disclosed
in the Company SEC Documents filed prior to the date of this Agreement, (b) as
set forth on Section 4.7 of the Company Disclosure Schedule, and (c) for
liabilities and obligations incurred in the ordinary course of business
consistent with past practice, since December 31, 1994, neither the Company
nor any of its Subsidiaries have incurred any liabilities or obligations of
any nature, whether or not accrued, contingent or otherwise.
Section 4.8 Information. The Proxy Statement/Prospectus (as defined in
Section 7.13), or any amendment thereof or supplement thereto, at the date
mailed to the Company's stockholders and at the time of the Special Meetings,
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made,
not misleading, provided, however, that no representation is made by the
Company with respect to statements made therein based on information supplied
by Purchaser or Newco for inclusion in the Proxy Statement/Prospectus. None of
the information supplied by the Company for inclusion or incorporation by
reference in the Registration Statement (as defined in Section 7.13) will, at
the date mailed to stockholders and at the time of the Special Meetings,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made,
not misleading. Subject to the proviso set forth in the second preceding
sentence, the Proxy Statement/Prospectus will comply in all material respects
with the provisions of the Exchange Act and the rules and regulations
thereunder.
Section 4.9 Employee Benefit Plans.
(a) Definitions. The following terms, when used in this Section 4.9, shall
have the following meanings. Any of these terms may, unless the context
otherwise requires, be used in the singular or the plural depending on the
reference.
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(i) Benefit Arrangement. "Benefit Arrangement" shall mean any employment,
consulting, severance or other similar contract, arrangement or policy and
each plan, arrangement (written or oral), program, agreement or commitment
providing for insurance coverage (including without limitation any self-
insured arrangements), workers' compensation, disability benefits,
supplemental unemployment benefits, vacation benefits, retirement benefits,
life, health, disability or accident benefits (including without limitation
any "voluntary employees' beneficiary association" as defined in Section
501(c)(9) of the Code providing for the same or other benefits) or for
deferred compensation, profit-sharing bonuses, stock options, stock
appreciation rights, stock purchases or other forms of incentive
compensation or post-retirement insurance, compensation or benefits which
(A) is not a Welfare Plan, Pension Plan or Multiemployer Plan, (B) is
entered into, maintained, contributed to or required to be contributed to,
as the case may be, by the Company or an ERISA Affiliate or under which the
Company or any ERISA Affiliate may incur any liability, and (C) covers any
employee or former employee of the Company or any ERISA Affiliate (with
respect to their relationship with such entities).
(ii) Code. "Code"shall mean the Internal Revenue Code of 1986, as
amended.
(iii) Employee Plans. "Employee Plans" shall mean all Benefit
Arrangements, Multiemployer Plans, Pension Plans and Welfare Plans.
(iv) ERISA. "ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended.
(v) ERISA Affiliate. "ERISA Affiliate" shall mean any entity which is (or
at any relevant time was) a member of a "controlled group of corporations"
with, under "common control" with, or a member of an "affiliated service
group" with, the Company as defined in Section 414(b), (c), (m) or (o) of
the Code, or under "common control" with the Company, within the meaning of
Section 4001(b)(1) of ERISA.
(vi) Multiemployer Plan. "Multiemployer Plan" shall mean any
"multiemployer plan," as defined in Section 4001(a)(3) of ERISA, (A) which
the Company or any ERISA Affiliate maintains, administers, contributes to
or is required to contribute to, or, after September 25, 1980, maintained,
administered, contributed to or was required to contribute to, or under
which the Company or any ERISA Affiliate may incur any liability and (B)
which covers any employee or former employee of the Company or any ERISA
Affiliate (with respect to their relationship with such entities).
(vii) PBGC. "PBGC" shall mean the Pension Benefit Guaranty Corporation.
(viii) Pension Plan. "Pension Plan" shall mean any "employee pension
benefit plan" as defined in Section 3(2) of ERISA (other than a
Multiemployer Plan) (A) which the Company or any ERISA Affiliate maintains,
administers, contributes to or is required to contribute to, or, within the
five years prior to the Closing Date, maintained, administered, contributed
to or was required to contribute to, or under which the Company or any
ERISA Affiliate may incur any liability and (B) which covers any employee
or former employee of the Company or any ERISA Affiliate (with respect to
their relationship with such entities).
(ix) Welfare Plan. "Welfare Plan" shall mean any "employee welfare
benefit plan" as defined in Section 3(1) of ERISA, (A) which the Company or
any ERISA Affiliate maintains, administers, contributes to or is required
to contribute to, or, in the case of an "employee welfare benefit plan"
that is or was a "multiemployer plan" as defined in Section 3(37) of ERISA,
within the five years prior to the Closing Date, maintained, administered,
contributed to or was required to contribute to, or under which the Company
or any ERISA Affiliate may incur any liability and (B) which covers any
employee or former employee of the Company or any ERISA Affiliate (with
respect to their relationship with such entities).
(b) Disclosure; Delivery of Copies of Relevant Documents and Other
Information. Schedule 4.9(b) of the Company Disclosure Schedule contains a
complete list of Employee Plans which cover, and Welfare Plans that are or
were "multiemployer plans," as defined in Section 3(37) of ERISA, Pension
Plans and Multiemployers Plans which have covered, employees of the Company or
its Subsidiaries (with respect to their relationship with such entities). True
and complete copies of each of the following documents have been delivered or
made
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available by the Company to Purchaser and Newco: (i) each Welfare Plan,
Pension Plan and Multiemployer Plan (and, if applicable, related trust
agreements) which covers, and Welfare Plans that are or were "multiemployer
plans," as defined in Section 3(37) of ERISA, Pension Plans and Multiemployers
Plans which have covered, employees of the Company or its Subsidiaries (with
respect to their relationship with such entities) and all amendments thereto,
all summary plan descriptions and summaries of material modifications and all
annuity contracts or other funding instruments, (ii) each Benefit Arrangement
which covers employees of the Company or its Subsidiaries (with respect to
their relationship with such entities) including written descriptions thereof
which have been distributed to the Company's employees and a complete
description of any Benefit Arrangement which is not in writing, (iii) the most
recent determination or opinion letter issued by the Internal Revenue Service
with respect to each Pension Plan and each Welfare Plan (other than a
"multiemployer plan", as defined in Section 3(37) of ERISA) which covers or
has covered employees of the Company or its Subsidiaries (with respect to
their relationship with such entities), (iv) for the three most recent plan
years, Annual Reports on Form 5500 Series required to be filed with any
governmental agency for each Pension Plan and each Welfare Plan (other than a
"multiemployer plan", as defined in Section 3(37) of ERISA) which covers or
has covered employees of the Company or its Subsidiaries (with respect to
their relationship with such entities), (v) all actuarial reports prepared for
the last three plan years for each Pension Plan which covers or has covered
employees of the Company or its Subsidiaries (with respect to its relationship
with such entities), (vi) a description of complete age, salary, service and
related data as of the last day of the last plan year for employees of the
Company and its Subsidiaries, and (vii) a description setting forth the amount
of any liability of the Company or its Subsidiaries as of the Closing Date for
payments more than thirty (30) calendar days past due with respect to each
Welfare Plan which covers or has covered employees or former employees of the
Company or its Subsidiaries.
(c) Representations. Except as set forth in Section 4.9(c) of the Company
Disclosure Schedule:
(i) Pension Plans. Neither the Company nor any of its ERISA Affiliates
has at any time maintained, administered, contributed to or been required
to contribute to any Pension Plan subject to Title IV of ERISA, Section 412
of the Code or the minimum funding requirements of ERISA or the Code. Each
Pension Plan and each related trust agreement, annuity contract or other
funding instrument which covers or has covered employees or former
employees of Company or its Subsidiaries (with respect to their
relationship with such entities) is qualified and tax-exempt under the
provisions of Code Sections 401(a) (or 403(a), as appropriate) and 501(a)
and has been so qualified during the period from its adoption to date. Each
Pension Plan, each related trust agreement, annuity contract or other
funding instrument which covers or has covered employees or former
employees of Company or its Subsidiaries (with respect to their
relationship with such entities) presently complies and has been maintained
in compliance with its terms and, both as to form and in operation, with
the requirements prescribed by any and all statutes, orders, rules and
regulations which are applicable to such plans, including without
limitation ERISA and the Code.
(ii) Multiemployer Plans. Neither the Company nor any of its ERISA
Affiliates has at any time maintained, administered, contributed to or been
required to contribute to any Multiemployer Plan.
(iii) Welfare Plans.
(A) Each Welfare Plan which covers or has covered employees or former
employees of the Company or its Subsidiaries (with respect to their
relationship with such entities) has been maintained in compliance with
its terms and, both as to form and operation, with the requirements
prescribed by any and all statutes, orders, rules and regulations which
are applicable to such Welfare Plan, including without limitation ERISA
and the Code.
(B) Other than such benefits as are required to be provided under the
health care continuation provisions of Section 601 of ERISA or under
any state insurance law providing for a conversion option under a group
insurance policy, none of the Company, any ERISA Affiliate or any
Welfare Plan has any present or future obligation to make any payment
to, or with respect to any present or former employee of the Company or
any ERISA Affiliate pursuant to, any retiree medical benefit plan, or
other retiree Welfare Plan.
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(C) Each Welfare Plan which covers or has covered employees or former
employees of the Company or an ERISA Affiliate and which is a "group
health plan," as defined in Section 607(1) of ERISA, has been operated
in compliance with provisions of Part 6 of Title I, Subtitle B of ERISA
and Section 4980B of the Code at all times.
(D) Neither the Company nor any ERISA Affiliate has incurred any
liability with respect to any Welfare Plan that is a "multiemployer
plan", as defined in Section 3(37) of ERISA, under the terms of such
Welfare Plan, any collective bargaining agreement or otherwise
resulting from any cessation of contributions, cessation of obligation
to make contributions or other form of withdrawal from such Welfare
Plan.
(E) If, as of the Closing Date, the Company (and all ERISA
Affiliates) were to have a cessation of contributions, cessation of
obligations to make contribution or other form of withdrawal from all
Welfare Plans that are "multiemployer plans", as defined in Section
3(37) of ERISA, it (and they) would incur no liabilities with respect
to any such Welfare Plans under the terms of such Welfare Plans, any
collective bargaining agreement or otherwise.
(iv) Benefit Arrangements. Each Benefit Arrangement which covers or has
covered employees or former employees of the Company or its Subsidiaries
(with respect to their relationship with such entities) has been maintained
in compliance with its terms and with the requirements prescribed by any
and all statutes, orders, rules and regulations which are applicable to
such Benefit Arrangement, including without limitation the Code. Except as
set forth in the Company Disclosure Schedule, and except as provided by
law, the employment of all persons presently employed or retained by the
Company or its Subsidiaries is terminable at will.
(v) Unrelated Business Taxable Income. No Employee Plan (other than a
"multiemployer plan," as defined in Section 3(37) of ERISA) (or trust or
other funding vehicle pursuant thereto) is subject to any tax under Code
Section 511.
(vi) Deductibility of Payments. There is no contract, agreement, plan or
arrangement covering any employee or former employee of the Company or its
Subsidiaries (with respect to his or her relationship with such entities)
that, individually or collectively, provides for the payment by the Company
of any amount (i) that is not deductible by the Company under Section
162(a)(1) or 404 of the Code, whichever is applicable, (ii) for which the
deduction by the Company would be disallowed under Section 162(m) of the
Code, or (iii) that is an "excess parachute payment" pursuant to Section
280G of the Code.
(vii) Fiduciary Duties and Prohibited Transactions. Neither the Company
nor any plan fiduciary of any Welfare Plan or Pension Plan which covers or
has covered employees or former employees of the Company or any ERISA
Affiliate, has engaged in any transaction in violation of Sections 404 or
406 of ERISA or any "prohibited transaction," as defined in Section
4975(c)(1) of the Code, for which no exemption exists under Section 408 of
ERISA or Section 4975(c)(2) or (d) of the Code, or has otherwise violated
the provisions of Part 4 of Title I, Subtitle B of ERISA. The Company has
not knowingly participated in a violation of Part 4 of Title I, Subtitle B
of ERISA by any plan fiduciary of any Welfare Plan or Pension Plan (or
other employee benefit plan subject to ERISA) and has not been assessed any
civil penalty under Section 502(l) of ERISA.
(viii) Validity and Enforceability. Each Welfare Plan, Pension Plan,
related trust agreement, annuity contract or other funding instrument and
Benefit Arrangement which covers employees or former employees of the
Company or its Subsidiaries (with respect to their relationship with such
entities) is legally valid and binding and in full force and effect.
(ix) Litigation. There is no action, order, writ, injunction, judgment or
decree outstanding or claim, suit, litigation, proceeding, arbitral action,
governmental audit or investigation relating to or seeking benefits under
any Employee Plan that is pending, or, to the best knowledge of the
Company, threatened or anticipated against the Company, any ERISA Affiliate
or any Employee Plan.
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(x) No Amendments. Neither the Company nor any ERISA Affiliate has any
announced plan or legally binding commitment to create any additional
Employee Plans which are intended to cover employees or former employees of
the Company or its Subsidiaries (with respect to their relationship with
such entities) or to amend or modify any existing Employee Plan which
covers or has covered employees or former employees of the Company or its
Subsidiaries (with respect to their relationship with such entities).
(xi) No Other Material Liability. No event has occurred in connection
with which the Company or any ERISA Affiliate or any Employee Plan,
directly or indirectly, could be subject to any material liability (A)
under any statute, regulation or governmental order relating to any
Employee Plans or (B) pursuant to any obligation of the Company to
indemnify any person against liability incurred under any such statute,
regulation or order as they relate to the Employee Plans.
(xii) Unpaid Contributions. Neither the Company nor any ERISA Affiliate
has any liability for unpaid contributions under Section 515 of ERISA with
respect to any Pension Plan, Multiemployer Plan or Welfare Plan.
(xiii) Insurance Contracts. Neither the Company nor any Employee Plan
(other than a "multiemployer plan", as defined in Section 3(37) of ERISA)
holds as an asset of any Employee Plan any interest in any annuity
contract, guaranteed investment contract or any other investment or
insurance contract issued by an insurance company that is the subject of
bankruptcy, conservatorship or rehabilitation proceedings.
(xiv) No Acceleration or Creation of Rights. Except as set forth in
Section 4.9(c)(xiv) of the Company Disclosure Schedule, neither the
execution and delivery of this Agreement or other related agreements by the
Company nor the consummation of the transactions contemplated hereby or the
related transactions will result in the acceleration or creation of any
rights of any person to benefits under any Employee Plan (including,
without limitation, the acceleration of the vesting or exercisability of
any stock options, the acceleration of the vesting of any restricted stock,
the acceleration of the accrual or vesting of any benefits under any
Pension Plan or the acceleration or creation of any rights under any
severance, parachute or change in control agreement).
Section 4.10 Litigation. Except to the extent disclosed in the Company SEC
Documents filed prior to the date of this Agreement or on Section 4.10 of the
Company Disclosure Schedule, there is no suit, claim, action, proceeding or
investigation pending or, to the best knowledge of the Company, threatened
against or affecting, the Company or any of its Subsidiaries or any property
or asset of the Company or any of its Subsidiaries, before any court,
arbitrator, or administrative, governmental or regulatory authority or body,
domestic or foreign.
Section 4.11 No Default. The business of the Company and each of its
Subsidiaries is not being conducted in default or violation of any term,
condition or provision of its respective Articles of Incorporation or By-Laws
or similar organizational documents.
Section 4.12 Taxes.
(a) Except as set forth in Section 4.12(a) of the Company Disclosure
Schedule:
(i) The Company and its Subsidiaries (and any affiliated group of which
the Company and its Subsidiaries is now or has been a member) have timely
filed with the appropriate taxing authorities all Tax Returns (as defined
in Section 4.12(c)) required to be filed through the date hereof and will
timely file any such returns required to be filed on or prior to the
Closing Date. The Tax Returns and other information filed are (and, to the
extent not yet filed, will be) complete and accurate in all material
respects. None of the Company, its Subsidiaries, nor any consolidated group
of which the Company or its Subsidiaries is now or was a member, has
pending any request for an extension of time within which to file Tax
Returns. The Company has made available to Purchaser and Newco complete and
accurate copies of the Company's federal, state and local Tax Returns for
the years 1991, 1992, 1993 and 1994.
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(ii) All Taxes (as defined in Section 4.12(c)), in respect of periods
beginning before the Closing Date, have been paid (and, to the extent any
such Taxes have not been timely paid, any penalties or interest
attributable to such late payment has been paid), or will be timely paid,
or an adequate reserve has been established therefor, and neither the
Company nor any of its Subsidiaries has material liability for Taxes in
excess of the amounts so paid or reserves so established. As of December
31, 1995, a reserve of approximately $2.4 million had been established for
Taxes.
(iii) The Company and its Subsidiaries have complied in all material
respects with all applicable laws, rules and regulations relating to the
payment and withholding of Taxes and have, within the time and the manner
prescribed by law, withheld and paid over to the proper governmental
authorities all amounts required to be so withheld and paid over under
applicable laws;
(iv) No federal, state, local or foreign audits or other administrative
proceedings or court proceedings are presently pending with regard to any
Taxes or Tax Returns of any of the Company or its Subsidiaries and none of
the Company or its Subsidiaries has received a written notice of any
pending audits or proceedings;
(v) Neither the Service nor any other taxing authority (whether domestic
or foreign) has asserted, or to the best knowledge of the Company, is
threatening to assert, against the Company or any of its Subsidiaries any
deficiency or claim for Taxes; and
(vi) The transactions contemplated herein are not subject to the tax
withholding provisions of Section 3406 of the Code, or of Subchapter A of
Chapter 3 of the Code or of any other provisions of federal, state or local
law.
(b) Except as set forth in Section 4.12(b) of the Company Disclosure
Schedule:
(i) There are no material liens for Taxes upon any property or assets of
the Company or any Subsidiary thereof, except for liens for Taxes not yet
due and payable and liens for Taxes that are being contested in good faith
by appropriate proceedings as set forth in Section 4.12(a) of the Company
Disclosure Schedule;
(ii) Neither the Company nor any of its Subsidiaries has agreed to or is
required to make any adjustment under Section 481(a) of the Code;
(iii) The federal income Tax Returns of the Company and its Subsidiaries
have not been examined by the Service;
(iv) Neither the Company nor any of its Subsidiaries is a party to any
material agreement providing for the allocation or sharing of Taxes;
(v) Neither the Company nor any of its Subsidiaries has, with regard to
any assets or property held or acquired by any of them, filed a consent to
the application of Section 341(f) of the Code, or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset
(as such term is defined in Section 341(f)(4) of the Code) owned by the
Company or any of its Subsidiaries;
(vi) The Company and the Principal Company Stockholders (as defined in
Exhibit F-1) shall, concurrently with the execution of this Agreement, make
representations, in the form set forth in Exhibit F-1 with respect to the
Company and Exhibit F-2 with respect to the Principal Company Stockholders,
requested by Purchaser to determine that this transaction will not result
in any person owning capital stock of Purchaser in violation of the
Purchaser's Articles of Incorporation or By-Laws or otherwise impair the
Purchaser's tax status as a real estate investment trust ("REIT") under the
Code; to the actual knowledge of the Company, no other stockholders of the
Company would be unable to make such representations to Purchaser; and
(vii) The net operating losses (the "NOLs") of the Company and its
Subsidiaries which are available and may be utilized to offset the gain
arising for federal and state income tax purposes from the sale of the
Purchased Assets to the Purchaser pursuant to this Agreement on the Closing
Date are set forth on Exhibit J. The basis of each of the Purchased Assets,
as of the Closing Date, for federal and state income
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tax purposes is set forth on Exhibit K. Based on the amount of Acquisition
Consideration set forth in Section 1.5 and the allocation thereof set forth
in Exhibit D, no more than $500,000 of tax will arise for federal and state
income tax purposes from the Company's and its Subsidiaries' sale of the
Purchased Assets to the Purchaser pursuant to this Agreement on the Closing
Date, after utilization of available NOLs.
(c) "Taxes" shall mean any and all taxes, charges, fees, levies or other
assessments, including, without limitation, income, gross receipts, excise,
real or personal property, sales, withholding, social security, retirement,
unemployment, occupation, use, service, use, license, net worth, payroll,
franchise, transfer and recording taxes, fees and charges, imposed by the
Service or any taxing authority (whether domestic or foreign including,
without limitation, any state, county, local or foreign government or any
subdivision or taxing agency thereof (including a United States possession)),
whether computed on a separate, consolidated, unitary, combined or any other
basis; and such term shall include any interest whether paid or received,
fines, penalties or additional amounts attributable to, or imposed upon, or
with respect to, any such taxes, charges, fees, levies or other assessments.
"Tax Return" shall mean any report, return, document, declaration or other
information or filing required to be supplied to any taxing authority or
jurisdiction (foreign or domestic) with respect to Taxes, including, without
limitation, information returns, any documents with respect to or accompanying
payments of estimated Taxes, or with respect to or accompanying requests for
the extension of time in which to file any such report, return, document,
declaration or other information.
Section 4.13 Contracts. All of the Company Agreements are listed in Section
4.13 of the Company Disclosure Schedule and the Company has made available to
Purchaser true, complete and correct copies of all of the Company Agreements.
Except as set forth on Section 4.13 of the Company Disclosure Schedule, each
Company Agreement is valid, binding and enforceable and in full force and
effect and there are no defaults thereunder by the Company or its Subsidiaries
or, to the best knowledge of the Company, by any other party thereto. Except
as disclosed in Section 4.13 of the Company Disclosure Schedule, neither the
Company nor any Subsidiary is a party to any agreement of any kind (other than
the Company Agreements) pursuant to which any person or entity (other than the
Company or any of its Subsidiaries) has the right to occupy, possess, or use
any of the Properties (as defined in Section 4.14(c)) or any portion thereof,
or imposing upon the Company or its successors in interest to the Properties
any obligation to contribute property, to pay money for the construction of or
to construct, install or maintain any improvements on or off any of the
Properties.
Section 4.14 Assets; Properties.
(a) Assets Needed to Conduct Business. Except as set forth in Section
4.14(a) of the Company Disclosure Schedule, the assets, properties, rights and
contracts, including, without limitation (as applicable), title or leaseholds
thereto, of the Company and its Subsidiaries, taken as a whole, are sufficient
to permit the Company and its Subsidiaries to conduct their business as
currently being conducted.
(b) Marketable Title. The Company will convey to Purchaser at Closing, and
Purchaser will acquire at Closing, marketable title in fee simple to all of
the Owned Properties and the Additional Assets to be purchased and sold in
connection with the Acquisition under this Agreement, free and clear of all
liens, assessments, taxes, impositions, indebtedness, mortgages, encumbrances,
obligations and all other interests except the "Permitted Encumbrances"
described and/or listed in Section 4.14(b) of the Company Disclosure Schedule.
(c) Improvements in Good Condition. Except as set forth in Section 4.14(c)
of the Company Disclosure Schedule, (i) all Improvements and Leased
Improvements were constructed or installed in conformity with all applicable
local, state, and federal laws, ordinances, regulations, orders, permits,
rules, and requirements existing at the time of construction (with such
changes to such construction or installation as were required to be made
subsequent to such time) in a good and workmanlike manner with materials of
good quality; (ii) all Improvements and Leased Improvements are free of any
design or construction defects; and (iii) all Improvements and Leased
Improvements are in good and operable condition and will remain so through the
Closing Date. "Leased Improvements" includes all existing buildings,
structures and other improvements located upon each of the parcels of real
property listed in Exhibit G attached hereto and leased by the Company (the
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"Leased Properties") pursuant to a lease listed on Schedule 4.13 of the
Company Disclosure Schedule, which buildings, structures and other
improvements include without limitation all clubhouse buildings, maintenance
facilities, golf courses, driving ranges, practice areas, landscaping
improvements, man-made lakes, irrigation systems (including sprinklers, pipes
and fittings), lakeliners, pumps, flood control works, paving, walkways, road
improvements, parking facilities, and all other improvements of whatever kind
which have previously been made, installed or erected and are now located on
such Leased Properties (collectively, the "Leased Improvements," and together
with the Improvements, the Owned Properties and the Leased Properties, the
"Properties").
(d) No Conditions Affecting Insurability. The Company has not received any
notice from any insurance carrier of (or is otherwise not aware of) any
defects or inadequacies in any of the Properties which would adversely affect
the insurability of such Property or the cost of such insurance.
(e) Utilities; Access. Except as disclosed in Section 4.14(e) of the Company
Disclosure Schedule, (i) all water, sewer, gas, electric, telephone, and
drainage facilities and all other utilities required by law for the present
use and operation of each of the Properties are installed across public
property or valid easements to the boundary lines of the Property, and are
connected pursuant to valid permits, and such facilities are adequate to
service the Property and are in good operating condition; (ii) there are no
conditions which will result in the termination of the present availability to
any of the Properties of such utility services or the termination of access to
such Property; and (iii) the Company has not received any notice from any
governmental agency or any other third party regarding the termination of such
utility services or the termination of access to any of the Properties.
(f) Licenses and Easements. The Company has obtained or, with respect to
Leased Properties, the Lessor has, and has conferred upon the Company the
benefit of, all licenses, permits, easements, and rights-of-way, including
proof of dedication, required from all governmental authorities having
jurisdiction over each of the Properties or from private parties for the
present use and operation of each of the Properties and to assure vehicular
and pedestrian ingress to and egress from each of the Properties at all access
points currently being used. The Company has obtained or, with respect to
Leased Properties, the Lessor has, and has conferred upon the Company the
benefit of, adequate easements benefiting each of the Properties to
accommodate water run-off and drainage from such Properties, including without
limitation easements for the use of water lines, pipes, ditches, drainage
channels, or other drainage facilities which are located outside of such
Properties and are connected to any storm drain or other water run-off
facility located within such Properties.
(g) Absence of Condemnation Proceedings. Except as set forth in Section
4.14(g) of the Company Disclosure Schedule, there is presently no pending or,
to the Company's knowledge, threatened eminent domain or condemnation
proceeding affecting all or any portion of any of the Properties.
(h) Public Improvement Obligations. Except as set forth in Section 4.14(h)
of the Company Disclosure Schedule, there are no pending or, to the Company's
knowledge, threatened governmental proceedings, lawsuits, investigations, bond
issuances, or proposals for public improvement assessments, pay-back
agreements, road extension or improvement agreements, utility moratoriums, use
moratoriums, or improvement moratoriums affecting all or any portion of any of
the Properties for the use and operation thereof.
(i) Use of Golf Courses and Properties. Except for the memberships (none of
which are equity memberships) listed in Section 4.14(i) of the Company
Disclosure Schedule, the Company and its officers and employees have made no
representations, statements, promises, or agreements (either verbally or in
writing) to any person or entity, including without limitation home builders,
prospective home buyers, owners, or occupants of the land surrounding any golf
course on any of the Properties, regarding any of the following: (a) the right
to membership in such golf course or the intent to operate such golf course as
a private or semi-private country club, (b) the right to play golf on such
golf course or any other use of any of the Properties, except on the same
terms and conditions as offered to the public, (c) the right to participate in
the operation, management, or maintenance of any of the Properties, (d) the
manner in which such golf course will be operated, managed, maintained, or
improved, (e) memberships in the golf course are equity memberships, (f)
members have a right to share in any profits from the refinancing or sale of
the golf course, (g) memberships in the golf course are perpetual or non-
terminable, or (h) members enjoy contractual rights other than the right to
use the golf course in accordance with the by-laws and the rules and
regulations.
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(j) Water Rights. The Company has made available to Purchaser true, correct,
and complete copies of all documents, agreements, instruments, certifications,
registrations, and permits evidencing the Company's entitlement to a water
supply adequate for the continued operation and maintenance of the golf
courses located on the Properties in the same manner as such golf courses are
being operated and maintained as of the date of this Agreement (collectively
the "Water Documents"). Except as set forth in Section 4.14(j) of the Company
Disclosure Schedule: there are no other agreements or documents concerning the
supply of water to irrigate such golf courses; there are no amendments,
modifications, or supplements to the Water Documents, except such amendments,
modifications or supplements delivered to Purchaser and Newco; the Company is
not in default under or in breach of any of the Water Documents; the Company
is current in any payments that it is obligated to make under any of the Water
Documents; and the Company has not previously assigned or transferred any of
its rights or interests under the Water Documents.
Section 4.15 The Company Not a "Foreign Person". The Company is not a
"foreign person" within the meaning of Section 1445(f)(3) of the Code.
Section 4.16 Environmental Matters. Except as disclosed in Section 4.16 of
the Company Disclosure Schedule, (a) the Company is in compliance with all
applicable Environmental Laws, (b) there are no Environmental Liabilities and
Costs of the Company and its Subsidiaries, (c) there are no Environmental
Conditions on or related to the Owned Properties, the Leased Properties, or
the other assets of the Company and its Subsidiaries, (d) none of the Company
and its Subsidiaries has received any notices from any governmental agency or
other third party regarding the existence of any hazardous or toxic substance,
material, or waste on any of the Properties or in the Improvements or the
Leased Improvements, alleging any violation of or noncompliance with any
Environmental Law, or requiring the removal, clean-up, or remediation of any
Environmental Condition whether or not on any of the Properties relating to
the Company or its Subsidiaries, (e) the Company is not subject to any
enforcement or investigatory action by any governmental agency regarding an
Environmental Condition with respect to any Property, or any other property
related in any way to the Company or its Subsidiaries, (f) no asbestos
containing materials or polychlorinated biphenyls (i.e., PCBs) are contained
in or stored on any of the Properties and, with respect to any underground or
above-ground storage tanks located on any of the Properties, the Company has
obtained all necessary permits and licenses and renewals thereof for such
tanks, and (g) the Company has no knowledge of any leaks, releases, spills or
discharge of fluids from any underground or above-ground storage tanks, and
each underground storage tank meets 1998 monitoring standards. As used herein,
the terms "toxic" or "hazardous" wastes, substances or materials shall
include, without limitation, all those so designated and all those in any way
regulated by any present or future Environmental Laws.
For purposes of this Section 4.16, the following definitions shall apply:
"Environmental Laws" means all applicable foreign, federal, state and local
statutes or laws, common law, judgments, orders, notice requirements,
regulations, agency guidelines, policies, licenses, permits, rules and
ordinances relating to pollution or protection of health, safety or the
environment, including, but not limited to the Federal Water Pollution Control
Act (33 U.S.C. (S)1251 et seq.), Resource Conservation and Recovery Act (42
U.S.C. (S)6901 et seq.), Safe Drinking Water Act (42 U.S.C. (S)3000(f) et
seq.), Toxic Substances Control Act (15 U.S.C. (S)2601 et seq.), Clean Air Act
(42 U.S.C. (S)7401 et seq.), Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C. (S)9601 et seq.) and other similar
state and local statutes.
"Environmental Condition" means the introduction into the environment of any
pollution, including without limitation any contaminant, pollutant, hazardous
or toxic waste, substance or material (whether or not upon the Owned
Properties or the Leased Properties and whether or not such pollution
constituted at the time thereof a violation of any Environmental Law as a
result of any release of any kind of any toxic or hazardous waste, substance
or material) as a result of which the Company (1) has or may become liable to
any person, (2) is or was in violation of any Environmental Law, or (3) by
reason of which any of the Properties or other assets of the Company, may
suffer or be subject to any lien.
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"Environmental Liabilities and Costs" means all liabilities, obligations,
responsibilities, obligations to conduct cleanup, losses, damages,
deficiencies, punitive damages, consequential damages, treble damages, costs
and expenses (including, without limitation, all reasonable fees,
disbursements and expenses of counsel, expert and consulting fees and costs of
investigations and feasibility studies and responding to government requests
for information or documents), fines, penalties, restitution and monetary
sanctions, interest, direct or indirect, known or unknown, absolute or
contingent, past, present or future, resulting from any claim or demand, by
any person or entity, whether based in contract, tort, implied or express
warranty, strict liability, joint and several liability, criminal or civil
statute, under any Environmental Law, or arising from environmental, health or
safety conditions, as a result of past or present ownership, leasing or
operation of any properties, owned, leased or operated by the Company or any
of its Subsidiaries.
Section 4.17 Labor Matters. Except as disclosed in Section 4.17 of the
Company Disclosure Schedule, (i) there are no controversies pending or, to the
best knowledge of the Company, threatened between the Company or any of its
Subsidiaries and any of their respective employees; (ii) to the best knowledge
of the Company, there are no activities or proceedings of any labor union to
organize any non-unionized employees; (iii) neither the Company nor any of its
Subsidiaries has breached or otherwise failed to comply with any provision of
any collective bargaining agreement or contract and there are no grievances
outstanding against the Company or any of its Subsidiaries under any such
agreement or contract; (iv) there are no unfair labor practice complaints
pending against the Company or any of its Subsidiaries before the National
Labor Relations Board or any current union representation questions involving
employees of the Company or any of its Subsidiaries; and (v) there is no
strike, slowdown, work stoppage or lockout, or, to the best knowledge of the
Company, threat thereof, by or with respect to any employees of the Company or
any of its Subsidiaries. The Company and its Subsidiaries are not parties to
any collective bargaining agreements, except for the collective bargaining
agreement between the Company and Laborers' International Union of North
America, Local No. 1184.
Section 4.18 Insurance. As of the date hereof, the Company and each of its
Subsidiaries are insured by insurers, reasonably believed by the Company to be
of recognized financial responsibility and solvency, against such losses and
risks and in such amounts as are customary in the businesses in which they are
engaged. All policies of insurance and fidelity or surety bonds are in full
force and effect. Descriptions of these plans and related liability coverage
have been made available to Purchaser and Newco. Section 4.18 of the Company
Disclosure Schedule contains a listing of all open workers compensation and
general liability claims as of a recent date. These claims, individually or in
the aggregate, are not reasonably likely to have an adverse effect on the
Company or its Subsidiaries. All necessary notifications of claims have been
made to insurance carriers.
Section 4.19 Compliance with Law. Except for Employee Benefit Plan and ERISA
matters (which are covered in Section 4.9), Tax matters (which are covered in
Section 4.12), and Environmental matters (which are covered in Section 4.16),
and except as disclosed in Section 4.19 of the Company Disclosure Schedule,
the Company and its Subsidiaries are in compliance in all material respects
with all federal, state, local or foreign laws, statutes, regulations, rules,
ordinances, and judgments, decrees, orders, writs and injunctions, of any
court or Governmental Entity applicable to the Company or any of its
Subsidiaries, relating to any of the property owned, leased or used by them,
or applicable to their business, including, but not limited to, equal
employment opportunity, discrimination, occupational safety and health,
interstate commerce, and antitrust laws. No investigation or review by any
Governmental Entity with respect to the Company or any of its Subsidiaries is
pending or, to the best knowledge of the Company, threatened, nor to the best
knowledge of the Company, has any Governmental Entity indicated an intention
to conduct the same.
Without limiting the foregoing, but subject to the foregoing exceptions, (i)
each of the Owned Properties and Leased Properties is properly zoned for its
present and intended use as a golf course and for all existing associated
uses, and (ii) the Company has received no notices from any governmental
authority or any other third party advising the Company of a violation of any
zoning laws, ordinances, general or specific plans or other governmental
requirements. There are no pending or to the Company's knowledge threatened
requests, applications, or proceedings by any governmental agency or any other
third party to alter or restrict the zoning or the permitted uses applicable
to each of the Owned Properties and Leased Properties in such a manner so as
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to affect the present manner in which such property is used, operated, or
maintained. Each of the Owned Properties and Leased Properties and the present
use and operation thereof by the Company are in compliance with all applicable
building codes, all subdivision and land use laws, and all other local, state
and federal laws, ordinances, general or specific plans, regulations, orders,
permits, rules, and requirements. Each of the Owned Properties and Leased
Properties and its present use and operation conform to all covenants and
restrictions affecting such property. The Company has received no notice from
any governmental authority or any other third party advising the Company of a
violation of any such codes, laws, regulations, covenants or restrictions.
Section 4.20 Brokers. None of the Company, any of its Subsidiaries, or any
of their respective officers, directors or employees have employed any broker,
financial advisor or finder or incurred any liability for any brokerage fees,
commissions or finder's fees in connection with the transactions contemplated
by this Agreement, except that the Company has retained William Blair &
Company, L.L.C. as its financial advisor, the arrangements with which have
been disclosed in writing to Purchaser and Newco prior to the date hereof.
Section 4.21 Opinion of Financial Advisor. The Company has received the
opinion of William Blair & Company, L.L.C., dated the date hereof, to the
effect that, as of such date, the consideration to be received in the
Acquisition by the Company and in the Merger by the holders of shares of
Company Common Stock is fair from a financial point of view to such holders,
respectively (the "Company Fairness Opinion"), a copy of which opinion has
been delivered to Purchaser and Newco and will be included in the Proxy
Statement/Prospectus.
Section 4.22 Vote Required. The affirmative vote of the holders of a
majority of the outstanding shares of Company Common Stock are the only votes
of the holders of any class or series of the Company's capital stock necessary
to approve the Acquisition and the Merger.
Section 4.23 Kansas Takeover Statute. The Company's Board of Directors has
taken appropriate action such that the provisions of Section 17-12101 of the
KGCC will not apply to any of the transactions contemplated by this Agreement,
including, without limitation, the execution and delivery of this Agreement,
the Principal Stockholder Agreement or the Termination Fee Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to the Company and Newco as follows:
Section 5.1 Organization. Each of Purchaser and its Subsidiaries is a
corporation, partnership or other entity duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation or
organization, and has all requisite corporate or other power and authority and
all necessary governmental approvals to own, lease and operate its properties
and to carry on its business as now being conducted. Each of Purchaser and its
Subsidiaries is duly qualified or licensed to do business and in good standing
in each jurisdiction in which the property owned, leased or operated by it or
the nature of the business conducted by it makes such qualification or
licensing necessary. As used in this Agreement, any reference to any event,
change or effect having a "material adverse effect" on or with respect to
Purchaser means such event, change or effect, individually or in the aggregate
with such other events, changes, or effects, which is materially adverse to
the financial condition, business, results of operations, assets, liabilities,
properties or prospects of the Purchaser. If "material adverse effect" is used
with respect to Purchaser and its Subsidiaries, it shall mean such events,
changes or effects with respect to all such entities taken as a whole. Section
5.1 of the Disclosure Schedule delivered by Purchaser to the Company and Newco
on or prior to the date hereof (the "Purchaser Disclosure Schedule") sets
forth a complete list of Purchaser's Subsidiaries.
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Section 5.2 Capitalization.
(a) The authorized capital stock of Purchaser consists of 40,000,000 shares
of Purchaser Common Stock, and 5,000,000 shares of preferred stock, par value
$.01 per share (the "Purchaser Preferred Stock"). As of the date hereof, (i)
10,621,975 shares of Purchaser Common Stock are issued and outstanding, and
there are no shares of Purchaser Common Stock held in the treasury of
Purchaser, (ii) no shares of Purchaser Preferred Stock are issued and
outstanding; and (iii) 503,700 shares of Purchaser Common Stock are reserved
for issuance pursuant to options previously granted pursuant to the
Purchaser's 1993 Stock Option and Incentive Plan (the "Purchaser Stock Option
Plan"). All of the outstanding shares of Purchaser's capital stock are, and
all shares which may be issued upon exercise of outstanding options will be,
when issued in accordance with the respective terms thereof, duly authorized,
validly issued, fully paid and non-assessable. There are no bonds, debentures,
notes or other indebtedness having voting rights (or convertible into
securities having such rights) ("Purchaser Voting Debt") of Purchaser or any
of its Subsidiaries issued and outstanding. Except as set forth above, and
except as set forth in Section 5.2 of the Purchaser Disclosure Schedule and
for transactions contemplated by this Agreement, as of the date hereof, (i)
there are no shares of capital stock or equity interests of Purchaser
authorized, issued or outstanding and (ii) there are no existing options,
warrants, calls, preemptive rights, subscriptions or other rights, convertible
securities, agreements, arrangements or commitments of any character, relating
to the issued or unissued capital stock or equity interests of Purchaser or
any of its Subsidiaries, obligating Purchaser or any of its Subsidiaries to
issue, transfer or sell or cause to be issued, transferred or sold any shares
of capital stock or Purchaser Voting Debt of, or other equity interest in,
Purchaser or any of its Subsidiaries or securities convertible into or
exchangeable for such shares or equity interests or obligations of Purchaser
or any of its Subsidiaries to grant, extend or enter into any such option,
warrant, call, subscription or other right, convertible security, agreement,
arrangement or commitment. There are no outstanding contractual obligations of
Purchaser or any of its Subsidiaries to repurchase, redeem or otherwise
acquire any shares of Purchaser Common Stock or the capital stock or equity
interests of Purchaser or any Subsidiary or affiliate of Purchaser or to
provide funds to make any investment (in the form of a loan, capital
contribution or otherwise) in any Subsidiary or any other entity.
(b) Except as disclosed in Section 5.2(b) of the Purchaser Disclosure
Schedule, all of the outstanding shares of capital stock or equity interests
of each of the Subsidiaries of Purchaser are beneficially owned by Purchaser,
directly or indirectly, and all such shares or interests have been validly
issued and are fully paid and nonassessable and are owned by either Purchaser
or one of its Subsidiaries free and clear of all liens, charges, security
interests, options, claims or encumbrances of any nature whatsoever.
(c) There are no voting trusts or other agreements or understandings to
which Purchaser or any of its Subsidiaries is a party with respect to the
voting of the capital stock or equity interests of Purchaser or its
Subsidiaries, other than the Director Designation Agreement, dated as of
August 18, 1993, among the Purchaser, the Partnership, and David G. Price.
None of Purchaser or its Subsidiaries is required to redeem, repurchase or
otherwise acquire shares of capital stock or equity interests of Purchaser, or
any of its Subsidiaries, respectively, as a result of the transactions
contemplated by this Agreement.
Section 5.3 Corporate Authorization; Validity of Agreement; Necessary
Action. Purchaser has full corporate power and authority to execute and
deliver this Agreement and, subject to obtaining any necessary approval of
Purchaser's stockholders as contemplated by Section 7.12 hereof with respect
to the Acquisition and the issuance of Purchaser Common Stock as Acquisition
Consideration, to consummate the transactions contemplated hereby and thereby
and perform its obligations hereunder. The execution, delivery and performance
by Purchaser of this Agreement and the consummation by Purchaser of the
transactions contemplated hereby have been duly and validly authorized by
Purchaser's Board of Directors and except in the case of obtaining any
necessary approval of Purchaser's stockholders as contemplated by Section 7.12
hereof, no other corporate action or proceedings on the part of Purchaser are
necessary to authorize the execution and delivery by Purchaser of this
Agreement and the consummation by Purchaser of the transactions contemplated
hereby. This Agreement has been duly executed and delivered by Purchaser and,
assuming this Agreement constitutes valid and binding obligations of the
Company and Newco, constitutes valid and binding obligations of Purchaser,
enforceable
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against it in accordance with its terms. The shares of Purchaser Common Stock
issued as Acquisition Consideration, if any, will be duly authorized, validly
issued, fully paid and nonassessable and not subject to preemptive rights.
Section 5.4 Consents and Approvals; No Violations. Except for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Exchange Act, the Securities Act, the
KGCC, the HSR Act and state blue sky laws and the approval by Purchaser's
stockholders of the issuance of Purchaser Common Stock as Acquisition
Consideration, none of the execution, delivery or performance of this
Agreement by Purchaser, the consummation by Purchaser of the transactions
contemplated hereby or compliance by Purchaser with any of the provisions
hereof will (i) conflict with or result in any breach of any provision of the
Articles of Incorporation or By-Laws or similar organizational documents of
Purchaser or any of its Subsidiaries, (ii) require any filing with, or permit,
authorization, consent or approval of, any Governmental Entity (except where
the failure to obtain such permits, authorizations, consents or approvals or
to make such filings would not have a material adverse effect on Purchaser and
its Subsidiaries or would not, or would not be reasonably likely to,
materially impair the ability of Purchaser to consummate the Acquisition, or
to consummate the transactions contemplated hereby and perform its obligations
hereunder), (iii) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, amendment, cancellation or acceleration) under, any of
the terms, conditions or provisions of any note, bond, mortgage, indenture,
guarantee, other evidence of indebtedness, lease, license, contract, agreement
or other instrument or obligation to which Purchaser or any of its
Subsidiaries is a party or by which any of them or any of their properties or
assets may be bound or (iv) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to Purchaser, any of its Subsidiaries
or any of their properties or assets, except in the case of clauses (iii) and
(iv) for violations, breaches or defaults which would not have a material
adverse effect on Purchaser and its Subsidiaries, taken as a whole, or would
not, or would not be reasonably likely to, materially impair the ability of
Purchaser to consummate the Acquisition, or to consummate the other
transactions contemplated hereby and perform its obligations hereunder.
Section 5.5 SEC Reports and Financial Statements.
(a) Purchaser has filed with the SEC, and has heretofore made available to
the Company, true and complete copies of, all forms, reports, schedules,
statements and other documents required to be filed by it and its Subsidiaries
since January 1, 1993 under the Exchange Act or the Securities Act (as such
documents have been amended since the time of their filing, collectively, the
"Purchaser SEC Documents"). As of their respective dates or, if amended, as of
the date of the last such amendment, the Purchaser SEC Documents, including,
without limitation, any financial statements or schedules included therein and
any forms and other documents filed by the Purchaser with the SEC after the
date of this Agreement (a) did not and will not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading and (b) complied or
will comply in all material respects with the applicable requirements of the
Exchange Act and the Securities Act, as the case may be, and the applicable
rules and regulations of the SEC thereunder. No Subsidiary of Purchaser is
required to file any form, report or other document with the SEC.
(b) Each of the consolidated financial statements included in the Purchaser
SEC Documents have been prepared from, and are in accordance with, the books
and records of Purchaser and/or its consolidated Subsidiaries, comply in all
material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with GAAP applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and fairly
present in all material respects the consolidated financial position and the
consolidated results of operations and cash flows (and changes in financial
position, if any) of Purchaser and its consolidated Subsidiaries as at the
dates thereof or for the periods presented therein.
Section 5.6 Absence of Certain Changes. Except to the extent disclosed in
the Purchaser SEC Documents filed prior to the date of this Agreement, since
December 31, 1994, Purchaser and its Subsidiaries have conducted their
respective businesses in the ordinary course of business consistent with past
practice. Except to the extent
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disclosed in the Purchaser SEC Documents filed prior to the date of this
Agreement, since December 31, 1994, there has not occurred (i) any events,
changes, or effects (including the incurrence of any liabilities of any
nature, whether or not accrued, contingent or otherwise) having or, which
would be reasonably likely to have, individually or in the aggregate, a
material adverse effect on Purchaser and its Subsidiaries, taken as a whole;
(ii) any declaration, setting aside or payment of any dividend or other
distribution (whether in cash, stock or property) with respect to the equity
interests of Purchaser or of any of its Subsidiaries (other than regular
quarterly cash dividends, dividends paid by wholly owned Subsidiaries, or
distributions by the Partnership in accordance with its partnership
agreement), or any redemption, purchase or other acquisition of any securities
of Purchaser or any of its Subsidiaries; (iii) any split, combination or
reclassification of any of Purchaser's capital stock or any issuance or the
authorization of any issuance of any other securities in respect of, in lieu
of or in substitution for, shares of Purchaser's capital stock; (iv) any
increase in or establishment of any bonus, insurance, severance, deferred
compensation, pension, retirement, profit sharing, stock option (including,
without limitation, the granting of stock options, stock appreciation rights,
performance awards or restricted stock awards), stock purchase or other
employee benefit plan, or any other increase in the compensation payable or to
become payable to any officers or key employees of Purchaser or any
Subsidiary, except in the ordinary course of business consistent with past
practice; (v) any material change by the Purchaser or any of its Subsidiaries
in accounting principles or methods, except insofar as may be required by a
change in GAAP; (vi) any damage, destruction or loss (whether or not covered
by insurance) with respect to any property or asset of Purchaser or any
Subsidiary having, individually or in the aggregate, a material adverse effect
on Purchaser and its Subsidiaries, taken as a whole; or (vii) any entering
into, renewal, modification or extension of, any material contract,
arrangement or agreement with any other party except for contracts,
arrangements or agreements in the ordinary course of business or as
contemplated by this Agreement.
Section 5.7 No Undisclosed Liabilities. Except (a) to the extent disclosed
in the Purchaser SEC Documents filed prior to the date of this Agreement and
(b) for liabilities and obligations incurred in the ordinary course of
business consistent with past practice, since December 31, 1994, neither
Purchaser nor any of its Subsidiaries have incurred any liabilities or
obligations of any nature, whether or not accrued, contingent or otherwise,
that have, or would be reasonably likely to have, a material adverse effect on
Purchaser and its Subsidiaries, taken as a whole, or would be required to be
reflected or reserved against on a consolidated balance sheet of Purchaser and
its Subsidiaries (including the notes thereto) prepared in accordance with
GAAP as applied in preparing the December 31, 1994 consolidated balance sheet
of Purchaser and its Subsidiaries.
Section 5.8 Information. The Registration Statement (or any amendment
thereof or supplement thereto) will, at the date it is filed with the SEC and
as of the date it becomes effective, and the Proxy Statement/Prospectus (or
any amendment thereof or supplement thereto) at the date mailed to Purchaser's
stockholders and at the time of the Special Meetings, will not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading, provided, however, that no representation is made by Purchaser
with respect to statements made therein based on information supplied by the
Company or Newco for inclusion in the Registration Statement. None of the
information supplied by Purchaser for inclusion or incorporation by reference
in the Proxy Statement/Prospectus will, at the date mailed to stockholders and
at the time of the Special Meetings, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. Subject to the
proviso set forth in the second preceding sentence, the Registration Statement
will comply in all material respects with the provisions of the Securities Act
and Exchange Act, respectively, and the rules and regulations thereunder.
Section 5.9 Employee Benefit Plan. Except as would not have a material
adverse effect on Purchaser and its Subsidiaries, the employee benefit plans,
arrangements, practices, contracts, and agreements (including, without
limitation, employment agreements, change of control employment agreements or
provisions, and severance agreements, incentive compensation, bonus, stock
option, stock appreciation rights, and stock purchase plan, and including, but
not limited to, plans described in Section 3(3) of ERISA) maintained by
Purchaser, any
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of its Subsidiaries or any trade or business, whether or not incorporated,
together with Purchaser would be deemed a "controlled group" within the
meaning of Section 4001(a)(14) of ERISA, or with respect to which Purchaser or
any of its Subsidiaries has or may have a liability are in compliance with all
applicable laws, including ERISA and the Code.
Section 5.10 Litigation. Except to the extent disclosed in the Purchaser SEC
Documents filed prior to the date of this Agreement and except as set forth in
Section 5.10 of the Purchaser Disclosure Schedule, there is no suit, claim,
action, proceeding or investigation pending or, to the best knowledge of
Purchaser, threatened against or affecting, the Purchaser or any of its
Subsidiaries or any property or asset of the Purchaser, or any of its
Subsidiaries, before any court, arbitrator or administrative, governmental or
regulatory authority or body, domestic or foreign, which, individually or in
the aggregate, is reasonably likely to have a material adverse effect on the
Purchaser and its Subsidiaries, or would, or would be reasonably likely to,
materially impair the consummation of the Acquisition, or the other
transactions contemplated hereby.
Section 5.11 Compliance with Law. Except for ERISA matters (which are
covered in Section 5.9), Tax matters (which are covered in Section 5.12), and
environmental matters (which are covered in Section 5.13), Purchaser and its
Subsidiaries are in compliance in all material respects with all federal,
state, local or foreign laws, statutes, regulations, rules, ordinances, and
judgments, decrees, orders, writs and injunctions, of any court or
Governmental Entity applicable to the Purchaser or any of its Subsidiaries,
relating to any of the property owned, leased or used by them, or applicable
to their business, including, but not limited to, equal employment
opportunity, discrimination, occupational safety and health, interstate
commerce or antitrust laws, except where the failure to so comply would not
have a material adverse effect on Purchaser and its Subsidiaries.
Section 5.12 Taxes. Except where the failure of any representation or
warranty made in this Section 5.13 to be true and correct would not have a
material adverse effect on the Purchaser and its Subsidiaries:
(a) Purchaser and its Subsidiaries have (i) duly filed (or there have been
filed on their behalf) with the appropriate taxing authorities all Tax Returns
required to be filed by them, and such Tax Returns are true, correct and
complete in all material respects, and (ii) duly paid in full or made
provision in accordance with GAAP (or there has been paid or provision has
been made on their behalf) for the payment of all Taxes for all periods ending
through the date hereof;
(b) Purchaser and its Subsidiaries have complied in all material respects
with all applicable laws, rules and regulations relating to the payment and
withholding of Taxes and have, within the time and in the manner prescribed by
law, withheld and paid over to the proper governmental authorities all amounts
required to be so withheld and paid over under applicable laws; and
(c) Commencing with Purchaser's taxable year ended December 31, 1993,
Purchaser has elected to be taxed as a REIT under Sections 856 through 860 of
the Code. Purchaser has no actual knowledge of any fact or circumstance which
has caused or is reasonably likely to cause its election as a REIT to be
invalid or which has resulted or is reasonably likely to result in Purchaser
failing to properly maintain its qualification as a REIT.
Section 5.13 Environmental. Except as set forth in the Purchaser SEC
Documents and except as set forth in Section 5.13 of the Purchaser Disclosure
Schedule, to the knowledge of Purchaser there are, with respect to Purchaser
or any of the Purchaser's Subsidiaries, or any real property currently or
formerly owned, leased, or otherwise used by Purchaser or any of Purchaser's
Subsidiaries, no past or present violations of Environmental Laws, releases of
any material into the environment, actions, activities, circumstances,
conditions, events, incidents, or contractual obligations which may give rise
to any common law or other legal liability, including, without limitation,
liability under the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 ("CERCLA") or similar state or local laws, which
liabilities, either individually or in the aggregate, would have a material
adverse effect on the Purchaser and its Subsidiaries taken as a whole.
Section 5.14 Insurance. The Purchaser and each of its Subsidiaries are
insured by insurers, reasonably believed by the Purchaser to be of recognized
financial responsibility and solvency, against such losses and risks,
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and in such amounts as are customary in the businesses in which they are
engaged, and all policies of insurance and fidelity or surety bonds are in
full force and effect, except as would not have a material adverse effect on
Purchaser and its Subsidiaries taken as a whole.
Section 5.15 Financing. Purchaser has, or will have, at the Closing
sufficient authorized and unissued Purchaser Common Stock available to issue
the Acquisition Consideration. In the event that Purchaser exercises its
option to pay the Acquisition Consideration in cash, Purchaser will have at
the Closing sufficient funds available to pay such cash Acquisition
Consideration.
Section 5.16 Brokers. None of Purchaser, any of its Subsidiaries, or any of
their respective officers, directors or employees have employed any broker,
financial advisor, or finder or incurred any liability for any brokerage fees,
commissions or finder's fees in connection with the transaction contemplated
by this Agreement, except that the Purchaser has retained Montgomery
Securities as the financial advisor to the Independent Committee of the Board
of Directors of Purchaser, the arrangements with which have been disclosed in
writing to the Company and Newco prior to the date hereof.
Section 5.17 Opinion of Financial Advisor. Purchaser has received an opinion
of Montgomery Securities, dated the date hereof, as of such date, that the
Acquisition Consideration to be paid for the Purchased Assets are fair to
Purchaser from a financial point of view (the "Purchaser Fairness Opinion"), a
copy of which opinion has been delivered to the Company and will be included
in the Proxy Statement/Prospectus.
Section 5.18 Vote Required. The affirmative vote of the holders of a
majority of the outstanding shares of Purchaser Common Stock are the only
votes of the holders of any class or series of Purchaser's capital stock
necessary to approve the Acquisition, including the issuance of shares of
Purchaser Common Stock as the Acquisition Consideration.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF NEWCO
Newco represents and warrants to the Company and Purchaser as follows:
Section 6.1 Organization. Newco is a corporation duly organized, validly
existing and in good standing under the laws of the State of Kansas, and has
all requisite corporate power and authority and all necessary governmental
approvals to own, lease and operate its properties and to carry on its
business as now being conducted, except where the failure to be so organized,
existing and in good standing or to have such power, authority and
governmental approvals would not have a material adverse effect on Newco.
Newco is duly qualified or licensed to do business and in good standing in
each jurisdiction in which the property owned, leased or operated by it or the
nature of the business conducted by it makes such qualification or licensing
necessary, except where the failure to be so duly qualified or licensed and in
good standing would not have a material adverse effect on Newco. Newco does
not have any Subsidiaries. As used in this Agreement, any reference to any
event, change or effect having a "material adverse effect" on or with respect
to Newco means such event, change or effect, individually or in the aggregate
with such other events, changes, or effects, which is materially adverse to
the financial condition, business, results of operations, assets, liabilities,
properties or prospects of Newco.
Section 6.2 Corporate Authorization; Validity of Agreement; Necessary
Action. Newco has full corporate power and authority to execute and deliver
this Agreement, consummate the transactions contemplated hereby and perform
its obligations hereunder. The execution, delivery and performance by Newco of
this Agreement and the consummation by Newco of the transactions contemplated
hereby have been duly and validly authorized by Newco's Board of Directors and
Newco's sole stockholder, and no other corporate action or proceedings on the
part of Newco is necessary to authorize the execution and delivery by Newco of
this Agreement and the consummation by Newco of the transactions contemplated
hereby. This Agreement has been duly executed and delivered by Newco and,
assuming this Agreement constitutes valid and binding obligations of the
Company and Purchaser, constitutes valid and binding obligations of Newco,
enforceable against it in accordance with its terms.
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Section 6.3 Consents and Approvals; No Violations. Except for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Exchange Act, the KGCC, the HSR Act, and
the liquor license laws, rules, regulations and requirements of any state or
other Governmental Entity, none of the execution, delivery or performance of
this Agreement by Newco, the consummation by Newco of the transactions
contemplated hereby or compliance by Newco with any of the provisions hereof
will (i) conflict with or result in any breach of any provision of the
Articles of Incorporation or By-Laws of Newco, (ii) require any filing with,
or permit, authorization, consent or approval of, any Governmental Entity
(except where the failure to obtain such permits, authorizations, consents or
approvals or to make such filings would not have a material adverse effect on
Newco or would not be reasonably likely to, materially impair the ability of
Newco to consummate the Merger or to consummate the other transactions
contemplated hereby and perform its obligations hereunder), (iii) result in a
violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, amendment,
cancellation or acceleration) under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, guarantee, other evidence
of indebtedness, lease, license, contract, agreement or other instrument or
obligation to which Newco is a party or by which it or any of its properties
or assets may be bound or (iv) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to Newco or any of its properties or
assets, except in the case of clauses (iii) and (iv) for violations, breaches
or defaults which would not have a material adverse effect on Newco, taken as
a whole, or would not, or would not be reasonably likely to, materially impair
the ability of Newco to consummate the Merger or to consummate the other
transactions contemplated hereby and perform its obligations hereunder.
Section 6.4 Brokers. None of Newco or any of its officers, directors or
employees have employed any broker, financial advisor, or finder or incurred
any liability for any brokerage fees, commissions or finder's fees in
connection with the transaction contemplated by this Agreement.
Section 6.5 Information. The information to be provided by Newco to be
included in the Registration Statement at the date it is filed with the SEC
and as of the date it becomes effective, or in the Proxy Statement/Prospectus
(or any amendment thereof or supplement thereto) at the date mailed to
stockholders and at the time of the Special Meetings, will not contain any
untrue statement of material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading.
Section 6.6 No Operations. Other than in connection with the transactions
contemplated by this Agreement, since its date of incorporation, Newco has not
conducted any business, has not owned, leased or operated any real property
and has not incurred any liabilities or obligations of any nature, whether or
not accrued, contingent or otherwise.
Section 6.7 Financing. Unless this Agreement is terminated pursuant to
Section 9.1(j), Newco shall use its best efforts to obtain, and at the Closing
will have obtained, sufficient financing to enable Newco to pay the Cash
Consideration, to refinance the Company's debt set forth in Section 4.4(iii)
of the Company Disclosure Schedule, and to pay related fees and expenses. At
the Effective Time, Newco will hold no shares of Purchaser Common Stock which
are not duly authorized, validly issued, fully paid and nonassessable.
ARTICLE VII
COVENANTS
Section 7.1 Interim Operations of the Company and Purchaser.
(a) Except as contemplated by this Agreement, the Company Disclosure
Schedule, or with the prior written consent of Purchaser and Newco, during the
period from the date of this Agreement to the Effective Time, the Company
will, and will cause each of its Subsidiaries to, conduct its operations only
in the ordinary and usual
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course of business consistent with past practice and will use its best
efforts, and will cause each of its Subsidiaries to use its best efforts, to
preserve intact the business organization of the Company and each of its
Subsidiaries, to keep available the services of their present officers and key
employees, and to preserve the goodwill of those having business relationships
with it. Without limiting the generality of the foregoing and except as
otherwise contemplated by this Agreement or Section 7.1(a) of the Company
Disclosure Schedule, the Company will not, and will not permit any of its
Subsidiaries to, prior to the Effective Time, without the prior written
consent of Purchaser and Newco:
(i) adopt any amendment to its Articles of Incorporation or By-Laws or
comparable organizational documents (other than as may be required to
extend the date of the annual meeting of stockholders);
(ii) (A) issue, pledge or sell, or authorize the issuance, pledge or sale
of additional shares of capital stock of any class, or securities
convertible into capital stock of any class, or any rights, warrants or
options to acquire any convertible securities or capital stock, or any
other securities in respect of, in lieu of, or in substitution for, shares
of Company Common Stock outstanding on the date hereof or (B) amend, waive
or otherwise modify any of the terms of any option, warrant or stock option
plan of the Company or any of its Subsidiaries, including without
limitation, the Options or the Company Stock Option Plan;
(iii) declare, set aside or pay any dividend or other distribution
(whether in cash, securities or property or any combination thereof) in
respect of any class or series of its capital stock other than between any
wholly-owned Subsidiary of the Company and the Company or any other wholly-
owned Subsidiary of the Company;
(iv) split, combine, subdivide, reclassify or redeem, purchase or
otherwise acquire, or propose to redeem or purchase or otherwise acquire,
any shares of its capital stock, or any of its other securities;
(v) increase the compensation or fringe benefits payable or to become
payable to its directors, officers or employees (whether from the Company
or any of its Subsidiaries), or pay any benefit not required by any
existing plan or arrangement (including, without limitation, the granting
of stock options, stock appreciation rights, shares of restricted stock or
performance units) or grant any severance or termination pay to (except
pursuant to existing agreements or policies), or enter into any employment
or severance agreement with, any director, officer or employee of the
Company or any of its Subsidiaries or establish, adopt, enter into, or
amend any collective bargaining, bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, savings,
welfare, deferred compensation, employment, termination, severance or other
employee benefit plan, agreement, trust, fund, policy or arrangement for
the benefit or welfare of any directors, officers or current or former
employees, except in each case (i) to the extent required by applicable law
or regulation, or (ii) pursuant to collective bargaining agreements as in
effect on the date of this Agreement;
(vi) (A) sell, pledge, lease, dispose of, grant, encumber, or otherwise
authorize the sale, pledge, disposition, grant or encumbrance of (1) any of
the Owned Properties or any of the Additional Assets, (2) any of the Leased
Properties or the Leased Improvements, or (3) any other assets of the
Company or any of the Subsidiaries, except, in the case of clause (3), for
sales which, individually do not exceed $100,000 or which, in the
aggregate, do not exceed $250,000 or (B) acquire (including, without
limitation, by merger, consolidation, lease or acquisition of stock or
assets) any corporation, partnership, other business organization or any
division thereof (or a substantial portion of the assets thereof) or any
other assets, except for such acquisitions which, individually, do not
exceed $100,000 or which, in the aggregate, do not exceed $250,000;
(vii) (A) incur, assume or pre-pay any long-term debt or incur or assume
any short-term debt, except that the Company and its Subsidiaries may incur
or pre-pay debt in the ordinary course of business consistent with past
practice under existing lines of credit, (B) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other person except in the ordinary
course of business consistent with past practice, or (C) make any loans,
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advances or capital contributions to, or investments in, any other person
except in the ordinary course of business consistent with past practice and
except for loans, advances, capital contributions or investments between
any wholly-owned Subsidiary of the Company and the Company or another
wholly-owned Subsidiary of the Company;
(viii) authorize, recommend, propose or announce an intention to adopt a
plan of complete or partial liquidation or dissolution of the Company or
any of its Subsidiaries;
(ix) make any tax elections or settle or compromise any federal or state
income tax liability with Tax authorities;
(x) pay, discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, asserted, unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the
ordinary course of business and consistent with past practice of
liabilities reflected or reserved against in the consolidated financial
statements of the Company;
(xi) other than in the ordinary course of business and consistent with
past practice, waive any rights of substantial value or make any payment,
direct or indirect, of any material liability of the Company or of any of
the Subsidiaries before the same comes due in accordance with its terms;
(xii) fail to maintain its existing insurance coverage of all types in
effect or, in the event any such coverage shall be terminated or lapse, to
the extent available at reasonable cost, procure substantially similar
substitute insurance policies which in all material respects are in at
least such amounts and against such risks as are currently covered by such
policies;
(xiii) enter into any collective bargaining agreement or any successor
collective bargaining agreement;
(xiv) take any action, other than reasonable and usual actions in the
ordinary course of business and consistent with past practice, with respect
to accounting policies or procedures, unless required by GAAP or the SEC;
(xv) modify, amend or terminate any of the Company Agreements or waive,
release or assign any material rights or claims, except in the ordinary
course of business consistent with past practice;
(xvi) take, or agree to commit to take, any action that would make any
representation or warranty of the Company contained herein inaccurate in
any respect at, or as of any time prior to, the Effective Time;
(xvii) engage in any transaction with, or enter into any agreement,
arrangement, or understanding with, directly or indirectly, any of the
Company's affiliates which involves the transfer of consideration or has a
financial impact on the Company, other than pursuant to such agreements,
arrangements, or understandings existing on the date of this Agreement
(which are set forth on Section 7.1(a)(xvii) of the Company Disclosure
Schedule);
(xviii) close, shut down, or otherwise eliminate any of the Company's
golf courses located on any of the Properties, except for such closures,
shutdowns or eliminations which are (i) required by action, order, writ,
injunction, judgment or decree or otherwise required by law, or (ii) due to
acts of God or other force majeure events; or
(xix) enter into an agreement, contract, commitment or arrangement to do
any of the foregoing, or to authorize, recommend, propose or announce an
intention to do any of the foregoing.
(b) Except as otherwise contemplated by this Agreement or the Purchaser
Disclosure Schedule, Purchaser will not, and will not permit any of its
Subsidiaries to, prior to the Effective Time, without the prior written
consent of the Company and Newco:
(i) adopt any amendment to its Articles of Incorporation;
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(ii) issue any shares of its capital stock at less than fair market value
(other than pursuant to the Purchaser Stock Option Plan) or directly or
indirectly effect any stock split, combination or reclassification of its
capital stock;
(iii) declare, set aside or pay any dividend or other distribution
(whether in cash, securities or property or any combination thereof) in
respect of any class or series of its capital stock other than (A) between
any wholly-owned Subsidiary of Purchaser and Purchaser or any other wholly-
owned Subsidiary of Purchaser, (B) regular quarterly cash dividends on
Purchaser Common Stock substantially in accordance with past practice, or
(C) distributions by the Partnership in accordance with its partnership
agreement; or
(iv) take any action or make any change, other than reasonable and usual
actions in the ordinary course of business and consistent with past
practice, with respect to accounting policies and procedures, unless
required by GAAP or the SEC; or
(v) enter into an agreement, contract, commitment or arrangement to do
any of the foregoing, or to authorize, recommend, propose or announce any
intention to do any of the foregoing.
Section 7.2 Access to Information. To the extent permitted by applicable
law, each of the Company, Purchaser and Newco shall (and each shall cause each
of its Subsidiaries to) afford to the officers, employees, accountants,
counsel, financing sources and other representatives of each other party,
access, at reasonable times during the period prior to the Effective Time, to
all of its and its Subsidiaries' properties, books, contracts, commitments and
records (including any Tax Returns or other Tax related information pertaining
to the party providing such information and its Subsidiaries), and the Company
shall permit Purchaser and Newco to conduct (at their own expense) prior to
the Effective Time such Surveys as they shall require. During such period,
each of the Company, Purchaser and Newco shall (and each shall cause each of
its Subsidiaries to) furnish promptly to each other party (i) a copy of each
report, schedule, registration statement and other document filed or received
by it during such period pursuant to the requirements of federal securities
laws and (ii) all other information concerning its business, properties and
personnel as such party may reasonably request (including any Tax Returns or
other Tax related information pertaining to the Company, or Purchaser and
Newco, as the case may be). Each party will hold any such information which is
nonpublic in confidence in accordance with the provisions of the existing
confidentiality agreement between the Company and Purchaser (the
"Confidentiality Agreement"). By executing this Agreement the Company,
Purchaser and Newco agree that Newco shall be bound by the terms and
conditions of the Confidentiality Agreement as if it were an original party
thereto.
Section 7.3 Consents.
(a) The Company, Purchaser and Newco will, and each such party will cause
their respective Subsidiaries to, (i) promptly make their respective filings,
and will thereafter use their best efforts promptly to make any required
submissions, under the HSR Act with respect to the Acquisition or the Merger
and the other transactions contemplated by this Agreement and (ii) cooperate
with one another (A) in promptly determining whether any filings are required
to be made or consents, approvals, permits or authorizations are required to
be obtained under any other federal, state or foreign law or regulation or
from any other person and (B) in promptly making any such filings, furnishing
information required in connection therewith and seeking timely to obtain any
such consents, approvals, permits or authorizations.
(b) Each of the Company, Purchaser and Newco will, and each such party will
cause their respective Subsidiaries to, use its reasonable best efforts to
resolve such objections, if any, which may be asserted with respect to the
Acquisition or the Merger under the antitrust laws. In the event a suit is
instituted challenging the Merger as violative of the antitrust laws, each of
the Company, Purchaser and Newco will use its best efforts to resist or
resolve such suit consistent with the terms of this Agreement. The Company,
Purchaser and Newco will use their reasonable best efforts to take such action
as may be required (i) by the Antitrust Division of the Department of Justice
or the Federal Trade Commission in order to resolve such objections as either
of them may have to the Acquisition or the Merger under the antitrust laws or
(ii) by any federal or state court of the
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United States, in any suit brought by a private party or Governmental Entity
challenging the Acquisition or the Merger as violative of the antitrust laws,
in order to avoid the entry of, or to effect the dissolution of, any
injunction, temporary restraining order or other order which has the effect of
preventing the consummation of the Acquisition or the Merger on terms
consistent with the terms of this Agreement. Notwithstanding the foregoing,
none of the Company, Purchaser or Newco shall be obligated hereby to enter
into any consent decree or settlement agreement in order to resolve any such
actions.
Section 7.4 Stock Exchange Listing. The Purchaser shall use its best efforts
as soon as practicable to list prior to the Effective Time on the NYSE,
subject to official notice of issuance, the shares of Purchaser Common Stock
to be issued as Stock Consideration.
Section 7.5 No Solicitation.
(a) The Company (and its Subsidiaries and affiliates over which it exercises
control) will not, and the Company (and its Subsidiaries and affiliates over
which it exercises control) will use their best efforts to ensure that their
respective officers, directors, employees, investment bankers, attorneys,
accountants and other agents do not, directly or indirectly: (i) initiate,
solicit or encourage, or take any action to facilitate the making of, any
offer or proposal which constitutes or is reasonably likely to lead to any
Acquisition Proposal (as defined below) of the Company or any Subsidiary or an
inquiry with respect thereto, or (ii) in the event of an unsolicited
Acquisition Proposal for the Company or any Subsidiary or affiliate of the
Company, engage in negotiations or discussions with, or provide any
information or data to, any corporation, partnership, person or other entity
or group (other than Newco, Purchaser or any of their respective affiliates or
representatives) (each, a "Person") relating to any Acquisition Proposal,
except in the case of clause (ii) above to the extent that (x) the Acquisition
Proposal is a bona fide written proposal submitted to the Company's Board of
Directors and (y) the Company's Board of Directors determines, after having
received the oral or written opinion of outside legal counsel to the Company,
that the failure to engage in such negotiations or discussions or provide such
information would result in a breach of the Board of Directors' fiduciary
duties under applicable law. Any information so furnished shall be provided
pursuant to a confidentiality agreement in customary form on terms not more
favorable to such Person than the terms contained in the Confidentiality
Agreement. The Company shall notify Purchaser and Newco orally and in writing
of any such offers, proposals, inquiries or Acquisition Proposals (including,
without limitation, the material terms and conditions thereof and the identity
of the Person making it), within 24 hours of the receipt thereof, and shall
thereafter inform Purchaser and Newco on a reasonable basis of the status and
content of any discussions or negotiations with such a third party, including
any material changes to the terms and conditions thereof. The Company shall
give Purchaser and Newco two business days' advance notice of any agreement to
be entered into or any information to be supplied to any such Person. The
Company shall, and shall cause its Subsidiaries and affiliates over which it
exercises control, and will use its best efforts to ensure their respective
officers, directors, employees, investment bankers, attorneys, accountants and
other agents to, immediately cease and cause to be terminated all discussions
and negotiations that have taken place prior to the date hereof, if any, with
any parties conducted heretofore with respect to any Acquisition Proposal
relating to the Company. Nothing contained in this Section 7.5 shall prohibit
the Company or its Board of Directors from taking and disclosing to its
stockholders a position with respect to a tender offer by a third party
pursuant to Rules 14d-9 and 14e-2(a) promulgated under the Exchange Act or
making such disclosure as may be required by applicable law.
(b) As used in this Agreement, "Acquisition Proposal" when used in
connection with any Person shall mean any tender or exchange offer involving
the capital stock of such Person, any proposal for a merger, consolidation or
other business combination involving such Person or any Subsidiary of such
Person, any proposal or offer to acquire in any manner a substantial equity
interest in, or a substantial portion of the business or assets of, such
Person or any Subsidiary of such Person, any proposal or offer with respect to
any recapitalization or restructuring with respect to such Person or any
Subsidiary of such Person or any proposal or offer with respect to any other
transaction similar to any of the foregoing with respect to such Person or any
Subsidiary of such Person other than pursuant to the transactions to be
effected pursuant to this Agreement.
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Section 7.6 Additional Agreements. Subject to the terms and conditions
herein provided (including, but not limited to, Section 7.3) each of the
parties hereto agrees to use its best efforts to take, or cause to be taken,
all action and to do, or cause to be done, all things necessary, proper or
advisable, whether under applicable laws and regulations or otherwise, or to
remove any injunctions or other impediments or delays, legal or otherwise, to
consummate and make effective the Acquisition, the Merger and the other
transactions contemplated by this Agreement as soon as possible. In case at
any time after the Effective Time any further action is necessary or desirable
to carry out the purposes of this Agreement, the proper officers and directors
of the Company, Purchaser and Newco shall use their best efforts to take, or
cause to be taken, all such necessary actions.
Section 7.7 Publicity. So long as this Agreement is in effect, none of the
Company, Purchaser or Newco, nor affiliates which any of them control, shall
issue or cause the publication of any press release or other public statement
or announcement with respect to this Agreement, the Termination Fee Agreement
or the Principal Stockholder Agreement or the transactions contemplated hereby
or thereby without the prior consultation of the other parties hereto, except
as may be required by law or by obligations pursuant to any listing agreement
with a national securities exchange (including the Nasdaq National Market),
provided that each party will use its best efforts to consult with the other
parties hereto, prior to any such issuance.
Section 7.8 Notification of Certain Matters. The Company, Purchaser and
Newco shall give prompt notice to the other parties hereto of (a) the
occurrence or non-occurrence of any event the occurrence or non-occurrence of
which would cause any representation or warranty contained in this Agreement
to be untrue or inaccurate in any material respect at or prior to the
Effective Time and (b) any material failure of the Company, Purchaser or
Newco, as the case may be, to comply with or satisfy any covenant, condition
or agreement to be complied with or satisfied by it hereunder; provided,
however, that the delivery of any notice pursuant to this Section 7.8 shall
not limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
Section 7.9 Directors' and Officers' Insurance and Indemnification.
(a) Newco agrees to cause Surviving Corporation and any of its Subsidiaries
(or their successors) to keep in effect the provisions of the Company's
Articles of Incorporation or By-Laws or similar organizational documents
providing for indemnification to the fullest extent provided by law.
(b) Newco shall, and shall cause the Surviving Corporation to, maintain in
effect for not less than three years after the Effective Time the current
policies of directors' and officers' liability insurance maintained by the
Company and its Subsidiaries on the date hereof (provided that Newco may, and,
if such insurance cannot be maintained, Newco shall, substitute therefor
policies having at least the same coverage and containing terms and conditions
which are no less advantageous to the persons currently covered by such
policies as insured) with respect to matters existing or occurring at or prior
to the Effective Time; provided, however, that if the aggregate annual
premiums for such insurance during such period shall exceed 150% of the per
annum rate of the aggregate premium currently paid by the Company and its
Subsidiaries for such insurance on the date of this Agreement, then Newco
shall cause the Surviving Corporation to, and the Surviving Corporation shall,
provide the maximum coverage that shall then be available at an annual premium
equal to 150% of such rate.
(c) In the event the Surviving Corporation or any of its successors or
assigns (i) consolidates with or merges into any other person and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger or (ii) transfers all or substantially all of its properties and assets
to any person, proper provisions shall be made so that the successors and
assigns of the Surviving Corporation shall assume the obligations set forth in
this Section 7.9.
(d) The rights under this Section 7.9 shall survive consummation of the
Merger and are expressly intended to benefit each indemnified party.
Section 7.10 Rule 145 Affiliates. At least 30 days prior to the Closing
Date, the Company shall deliver to Purchaser a letter identifying, to the best
of the Company's knowledge, all persons who the Company expects will be, at
the time of the Company Special Meeting, deemed to be "affiliates" of the
Company for purposes of
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Rule 145 under the Securities Act ("Company Affiliates"). The Company shall
use its reasonable best efforts to cause each Person who is identified as a
Company Affiliate to deliver to Purchaser on or prior to the Closing Date an
agreement substantially in the form of Exhibit H to this Agreement.
Section 7.11 State Takeover Laws. The Company shall, upon the request of
Newco or Purchaser, take all reasonable steps to assist in any challenge by
Newco to the validity or applicability of any state takeover law to the
transactions contemplated by this Agreement.
Section 7.12 Meetings of Stockholders. Each of Purchaser and the Company
will take all action necessary in accordance with applicable law and its
Articles of Incorporation and By-Laws to convene a meeting of its stockholders
(each, a "Special Meeting") as promptly as practicable to consider and vote
upon (i) in the case of Purchaser, the approval of this Agreement and the
Acquisition (including the issuance of the shares of Purchaser Common Stock as
Acquisition Consideration) and (ii) in the case of the Company, the approval
of this Agreement, the Acquisition and the Merger. The Board of Directors of
each of Purchaser and the Company shall recommend such approval and Purchaser
and the Company shall each take all lawful reasonable action to solicit such
approval, including, without limitation, timely mailing of the Proxy
Statement/Prospectus (as defined in Section 7.13); provided, however, that
such recommendation or solicitation by the Company and its Board of Directors
is subject to any action (including any withdrawal or change of its
recommendation) taken by, or upon authority of, the Board of Directors of the
Company, in the exercise of its good faith judgment based upon the advice of
outside counsel as to its fiduciary duties to its stockholders imposed by
applicable law.
Section 7.13 Registration Statement and Proxy Statement/Prospectus. The
Purchaser, Newco and the Company shall cooperate and promptly prepare, and
Purchaser shall file with the SEC as soon as practicable, a registration
statement on Form S-4 (the "Registration Statement") under the Securities Act,
with respect to the Purchaser Common Stock issuable in connection with the
Acquisition, a portion of which Registration Statement shall also serve as the
joint proxy statement with respect to the meetings of the stockholders of the
Company and of Purchaser in connection with the Acquisition and the Merger
(the "Proxy Statement/Prospectus"). The respective parties will cause the
Proxy Statement/Prospectus and the Registration Statement to comply as to form
in all material respects with the applicable provisions of the Securities Act,
the Exchange Act and the rules and regulations thereunder. Purchaser shall use
all best efforts, and the Company and Newco will cooperate with Purchaser, to
have the Registration Statement declared effective by the SEC as promptly as
practicable and to keep the Registration Statement effective as long as is
necessary to consummate the Acquisition and the Merger. Purchaser shall, as
promptly as practicable, provide copies of any written comments received from
the SEC with respect to the Registration Statement to the Company and Newco
and advise the Company and Newco of any verbal comments with respect to the
Registration Statement received from the SEC. Purchaser shall use its best
efforts to obtain, prior to the effective date of the Registration Statement,
all necessary state securities law or "blue sky" permits or approvals required
to carry out the transactions contemplated by this Agreement and will pay all
expenses incident thereto. Purchaser agrees that the Proxy
Statement/Prospectus and each amendment or supplement thereto at the time of
mailing thereof and at the time of the respective meetings of stockholders of
the Company and Purchaser, or, in the case of the Registration Statement and
each amendment or supplement thereto, at the time it is filed and becomes
effective, will not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; provided, however, that the foregoing shall not apply to the
extent that any such untrue statement of a material fact or omission to state
a material fact was made by Purchaser in reliance upon and in conformity with
written information concerning the Company or Newco furnished to Purchaser by
the Company or Newco, as the case may be, specifically for use in the Proxy
Statement/Prospectus. The Company agrees that the written information
concerning the Company provided by it for inclusion in the Proxy
Statement/Prospectus and each amendment or supplement thereto, at the time of
mailing thereof and at the time of the respective meetings of stockholders of
the Company and Purchaser, or, in the case of written information concerning
the Company provided by the Company for inclusion in the Registration
Statement or any amendment or supplement thereto, at the time it is filed and
becomes effective, will not include an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not
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misleading. Newco agrees that the written information concerning Newco
provided by it for inclusion in the Proxy Statement/Prospectus and each
amendment or supplement thereto, at the time of mailing thereof and at the
time of the respective meetings of stockholders of Newco and Purchaser, or, in
the case of written information concerning Newco provided by Newco for
inclusion in the Registration Statement or any amendment or supplement
thereto, at the time it is filed or becomes effective, will not include an
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading. No amendment or
supplement to the Proxy Statement/Prospectus will be made by the Purchaser,
Newco or the Company without the approval of the other parties hereto, which
shall not be unreasonably withheld. The Purchaser will advise the Company and
Newco, promptly after it receives notice thereof, of the time when the
Registration Statement has become effective or any supplement or amendment has
been filed, the issuance of any stop order, the suspension of the
qualification of the Purchaser Common Stock issuable in connection with the
Acquisition for offering or sale in any jurisdiction, or any request by the
SEC for amendment of the Proxy Statement/Prospectus or the Registration
Statement or comments thereon and responses thereto or requests by the SEC for
additional information.
Section 7.14 Renewal of Certain Agreements. The Company shall use its
reasonable best efforts to obtain the renewal of those leases and management
contracts identified in Section 7.14 of the Company Disclosure Schedule on
terms satisfactory to Newco in the exercise of its reasonable business
judgment based on industry standards consistent with past practice.
Section 7.15 Registration Rights. The Company shall use its reasonable best
efforts to enter into and deliver to Newco an agreement or agreements
evidencing the termination, as of the Closing Date, of any Existing
Registration Rights Agreements.
Section 7.16 401(k) Plan. As directed by Newco or the Purchaser prior to the
Closing Date, the Company shall either terminate the Company's 401(k) Profit
Sharing Plan or amend such plan to eliminate the Company Stock Investment
Fund; provided, however, unless the Company and Purchaser otherwise agree, any
such termination or amendment shall be subject to the Closing.
Section 7.17 Further Action. Each party hereto shall, subject to the
fulfillment at or before the Effective Time of each of the conditions of
performance set forth herein or the waiver thereof, perform such further acts
and execute such documents as may be reasonably required to effect the
Acquisition and the Merger.
ARTICLE VIII
CONDITIONS
Section 8.1 Conditions to the Obligations of Each Party. The respective
obligations of the Company, Purchaser and Newco to consummate the Acquisition
and the Merger are subject to the satisfaction (or, if permissible, waiver by
the party for whose benefit such conditions exist) of the following
conditions:
(a) Stockholder Approval. This Agreement and the transactions contemplated
hereby shall have been approved in the manner required by applicable law or by
the applicable regulations of any stock exchange or other regulatory body, as
the case may be, of the holders of the issued and outstanding shares of
capital stock of Purchaser and the Company, respectively;
(b) No Order. No Governmental Entity or federal or state court of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
statute, rule, regulation, executive order, decree, injunction or order
(whether temporary, preliminary or permanent) which is in effect and which
materially restricts, prevents or prohibits consummation of the Acquisition,
the Merger or any transaction contemplated by this Agreement, the Principal
Stockholder Agreement, or the Termination Fee Agreement; provided, however,
that the parties shall use their reasonable best efforts to cause any such
decree, judgment, injunction or other order to be vacated or lifted.
(c) HSR Act. The applicable waiting period under the HSR Act shall have
expired or been terminated.
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(d) Other Approvals. Other than the filing of merger documents in accordance
with the KGCC, all authorizations, consents, waivers, orders or approvals
required to be obtained, and all filings, notices or declarations required to
be made, by the Company, Purchaser and Newco prior to the consummation of the
Acquisition and the Merger and the transactions contemplated hereunder shall
have been obtained from, and made with, all required Governmental Entities
except for such authorizations, consents, waivers, orders, approvals, filings,
notices or declarations, the failure to obtain or make which would not have a
material adverse effect at or after the Effective Time, on the Company, the
Purchaser or Newco.
(e) Registration Statement. The Registration Statement shall have become
effective and shall be effective at the Effective Time, and no stop order
suspending effectiveness of the Registration Statement shall have been issued,
no action, suit, proceeding or investigation by the SEC to suspend the
effectiveness thereof shall have been initiated and be continuing, or, to the
knowledge of the Purchaser, the Company or Newco, threatened, and all
necessary approvals under state securities laws relating to the issuance or
trading of the Purchaser Common Stock to be issued to the Company's
stockholders in connection with the Merger shall have been received.
(f) NYSE Listing. The Purchaser Common Stock to be issued to the Company
stockholders in connection with the Merger shall have been approved for
listing on the NYSE, subject only to official notice of issuance.
Section 8.2 Additional Conditions to Obligations of Purchaser. The
obligations of Purchaser to effect the Acquisition and the transactions
contemplated herein are also subject to the following conditions:
(a) Representations and Warranties. Each of the representations and
warranties of the Company and Newco contained in this Agreement, without
giving effect to any notification to Purchaser delivered pursuant to Section
7.8, shall be true and correct (in the case of Newco, in all material
respects) as of the Closing Date as though made on and as of the Closing Date,
except (i) for changes specifically permitted by this Agreement, (ii) that
those representations and warranties which address matters only as of a
particular date shall remain true and correct as of such date, and (iii)
except, in the case of the Company, for failures of representations and
warranties to be true and correct (without giving effect to any materiality
qualification or standard contained in any such representations and
warranties) which, individually or in the aggregate, would not be reasonably
likely to result in a material adverse effect on the business, assets,
financial condition, results of operations, or prospects of the Purchased
Assets taken as a whole or to materially impair the ability of the Company to
consummate the Acquisition, the Merger, or the other transactions contemplated
hereby or perform its obligations hereunder. Purchaser shall have received
certificates of the Chief Executive Officer and Chief Financial Officer of the
Company and Newco to such effect.
(b) Agreement and Covenants. The Company and Newco shall have performed or
complied in all material respects with all agreements and covenants required
by this Agreement to be performed or complied with by them on or prior to the
Closing Date. Purchaser shall have received certificates of the Chief
Executive Officer and Chief Financial Officer of the Company and Newco to that
effect.
(c) Material Adverse Change. Since the date of this Agreement, there shall
have been no change, occurrence or circumstance in the business, operations,
properties, assets, condition (financial or otherwise) or the results of
operations or prospects of the Purchased Assets having or reasonably likely to
have, individually or in the aggregate, a material adverse effect on the
Purchased Assets, taken as a whole. Purchaser shall have received a
certificate of the Chief Executive Officer and Chief Financial Officer of the
Company to such effect.
Section 8.3 Additional Conditions to Obligations of Newco. The obligations
of Newco to effect the Acquisition, the Merger and the transactions
contemplated herein are also subject to the following conditions:
(a) Representations and Warranties. Each of the representations and
warranties of the Company and the Purchaser contained in this Agreement,
without giving effect to any notification to Newco delivered pursuant to
Section 7.8, shall be true and correct (in the case of Purchaser, in all
material respects) as of the Effective Time, except (i) for changes
specifically permitted by this Agreement, (ii) that those representations and
warranties which address matters only as of a particular date shall remain
true and correct as of such date, and (iii) except, in the case of the
Company, for failures of representations and warranties to be true and correct
(without giving effect to any materiality qualification or standard contained
in any such representations and warranties) which,
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individually or in the aggregate, would not be reasonably likely to result in
a material adverse effect on the business, assets, financial condition,
results of operations, or prospects of the Company and its Subsidiaries (other
than the Purchased Assets) taken as a whole or to materially impair the
ability of the Company to consummate the Acquisition, the Merger, or the other
transactions contemplated hereby or perform its obligations hereunder. Newco
shall have received certificates of the Chief Executive Officer and Chief
Financial Officer of the Company and the Purchaser to such effect.
(b) Agreement and Covenants. The Company and the Purchaser shall have
performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by them
on or prior to the Effective Time. Newco shall have received certificates of
the Chief Executive Officer and Chief Financial Officer of the Company and the
Purchaser to that effect.
(c) Material Adverse Change. Since the date of this Agreement, there shall
have been no change, occurrence or circumstance in the business, operations,
properties, assets, condition (financial or otherwise) or the results of
operations or prospects of the Company or any of its Subsidiaries (other than
the Purchased Assets) having or reasonably likely to have, individually or in
the aggregate, a material adverse effect on the Company and its Subsidiaries
(other than the Purchased Assets), taken as a whole. Newco shall have received
a certificate of the Chief Executive Officer and Chief Financial Officer of
the Company to such effect.
(d) Financing. On or prior to the close of business on February 16, 1996,
Newco shall have obtained sufficient financing on terms acceptable to it to
enable Newco to pay the Cash Consideration, to refinance the Company's debt
set forth in Section 4.4(iii) of the Company Disclosure Schedule, and to pay
related fees and expenses.
Section 8.4 Additional Conditions to Obligations of the Company. The
obligation the Company to effect the Acquisition, the Merger and the other
transactions contemplated in this Agreement are also subject to the following
conditions:
(a) Representations and Warranties. Each of the representations and
warranties of Purchaser and Newco contained in this Agreement, without giving
effect to any notification made to the Company pursuant to Section 7.8, shall
be true and correct in all material respects as of the Effective Time, as
though made on and as of the Effective Time, except (i) for changes
specifically permitted by this Agreement and (ii) that those representations
and warranties which address matters only as of a particular date shall remain
true and correct as of such date. The Company shall have received certificates
of the Chief Executive Officer and Chief Financial Officer of Purchaser and
Newco to such effect.
(b) Agreement and Covenants. Purchaser and Newco shall have performed or
complied in all material respects with all agreements and covenants required
by this Agreement to be performed or complied with by them on or prior to the
Effective Time. The Company shall have received certificates of the Chief
Executive Officer and Chief Financial Officer of Purchaser and Newco to that
effect.
(c) Material Adverse Change. Since the date of this Agreement, there shall
have been no change, occurrence or circumstance in the business, operations,
properties, assets, condition (financial or otherwise) or the results of
operations or prospects of Purchaser or any of its Subsidiaries having or
reasonably likely to have, individually or in the aggregate, a material
adverse effect on Purchaser and its Subsidiaries, taken as a whole. The
Company shall have received a certificate of the Chief Executive Officer and
Chief Financial Officer of Purchaser to such effect.
ARTICLE IX
TERMINATION
Section 9.1 Termination. Anything herein or elsewhere to the contrary
notwithstanding, this Agreement may be terminated and the Acquisition and
Merger contemplated herein may be abandoned at any time prior to the Effective
Time, whether before or after stockholder approval hereof:
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(a) By the mutual consent of the Board of Directors of Purchaser, the Board
of Directors of Newco and the Board of Directors of the Company;
(b) By Purchaser, upon a breach of any representation, warranty, covenant or
agreement on the part of the Company or Newco set forth in this Agreement, or
if any representation or warranty of the Company or Newco shall have become
untrue, in either case such that the conditions set forth in Section 8.2(a) or
Section 8.2(b), as the case may be, would be incapable of being satisfied by
July 31, 1996 (or as otherwise extended); provided, that in any case, a wilful
breach shall be deemed to cause such conditions to be incapable of being
satisfied for purposes of this Section 9.1(b);
(c) By Newco, upon a breach of any representation, warranty, covenant or
agreement on the part of the Company or Purchaser set forth in this Agreement,
or if any representation or warranty of the Company or Purchaser shall have
become untrue, in either case such that the conditions set forth in Section
8.3(a) or Section 8.3(b), as the case may be, would be incapable of being
satisfied by July 31, 1996 (or as otherwise extended); provided, that in any
case, a wilful breach shall be deemed to cause such conditions to be incapable
of being satisfied for purposes of this Section 9.1(c);
(d) By the Company, upon a breach of any representation, warranty, covenant
or agreement on the part of Purchaser or Newco set forth in this Agreement, or
if any representation or warranty of the Purchaser or Newco shall have become
untrue, in either case such that the conditions set forth in Section 8.4(a) or
Section 8.4(b), as the case may be, would be incapable of being satisfied by
July 31, 1996 (or as otherwise extended); provided, that in any case, a wilful
breach shall be deemed to cause such conditions to be incapable of being
satisfied for purposes of this Section 9.1(d);
(e) By any of Purchaser, Newco or the Company, if any court or other
Governmental Entity shall have issued, enacted, entered, promulgated or
enforced any order, judgment, decree, injunction, or ruling or taken any other
action restraining, enjoining or otherwise prohibiting this Agreement, the
Acquisition or the Merger and such order, judgment, decree, injunction, ruling
or other action shall have become final and nonappealable;
(f) By any of Purchaser, Newco or the Company, if the Acquisition and the
Merger shall not have been consummated before July 31, 1996;
(g) By any of Purchaser, Newco or the Company, if this Agreement, the
Acquisition and the Merger shall fail to receive the requisite vote for
approval and adoption by the stockholders of the Company and the Purchaser at
the Special Meetings;
(h) By either Purchaser or Newco, if (i) the Board of Directors of the
Company shall withdraw, modify or change its recommendation of this Agreement,
the Acquisition or the Merger in a manner adverse to Purchaser or Newco or
shall have resolved to do any of the foregoing; (ii) the Board of Directors of
the Company shall have recommended to the stockholders of the Company any
Acquisition Proposal; or (iii) a tender offer or exchange offer for 15% or
more of the outstanding shares of capital stock of the Company is commenced,
and the Board of Directors of the Company recommends that the stockholders of
the Company tender their shares in such tender or exchange offer;
(i) By the Company, if (1) the Board of Directors of the Company (x) fails
to make or withdraws or modifies (in a manner adverse to Purchaser or Newco)
its recommendation referred to in Section 7.12 if there exists at such time an
Acquisition Proposal or (y) recommends to the Company's stockholders approval
or acceptance of any Acquisition Proposal, in each case only if the Board of
Directors of the Company, after consultation with and based upon the advice of
independent legal counsel, determines in good faith that such action is
necessary for the Board of Directors of the Company to comply with its
fiduciary duties to stockholders under applicable law, (2) the Board of
Directors of the Purchaser shall have withdrawn, modified or changed in a
manner adverse to the Company its recommendation of this Agreement and the
Acquisition, or (3) the Board of Directors or sole stockholder of Newco shall
have withdrawn, modified or changed in a manner adverse to the Company its
approval of this Agreement and the Merger; or
(j) By Newco or the Company in the event that the condition set forth in
Section 8.3(d) is not satisfied on or prior to the close of business on
February 16, 1996.
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Section 9.2 Effect of Termination. In the event of the termination of this
Agreement as provided in Section 8.1, written notice thereof shall forthwith
be given to the other party or parties specifying the provision hereof
pursuant to which such termination is made, and this Agreement shall forthwith
become null and void, and there shall be no liability on the part of
Purchaser, Newco or the Company except that the provisions of this Section
9.2, Section 9.3, and the last two sentences of Section 7.2 shall survive any
such termination. Nothing contained in this Section 9.2 or otherwise in this
Agreement shall relieve any party from liability for any fraud or breach of
this Agreement or the Confidentiality Agreement.
Section 9.3 Termination and Commitment Fees.
(a) The Company agrees that if this Agreement shall be terminated pursuant
to (i) Section 9.1(f) hereof at any time when (I) an Acquisition Proposal
shall have been made by a third party but shall not have been rejected by the
Company and (II) the Company or any of the Subsidiaries or the Company's
stockholders shall thereafter consummate or agree to consummate a transaction
which would constitute an Acquisition Proposal with any person within one year
of the date of this Agreement, (ii) Section 9.1(g) (with respect to the
failure to obtain the requisite vote by the stockholders of the Company) and
there shall exist an Acquisition Proposal, (iii) Section 9.1(h), (iv) Section
9.1(i)(1), or (v) Section 9.1(b) or 9.1(c) (with respect to breaches by the
Company) and such termination is the result of wilful breach of any covenant,
agreement, representation or warranty contained herein and there shall exist
an Acquisition Proposal, then in any such event the Company shall pay to Newco
an amount equal to $975,000 (the "Termination Fee"), payable (x) in the case
of termination under clause (i) above upon signing of a definitive agreement
relating to such Acquisition Proposal referred to in clause (i) of this
Section 9.3, or, if no such agreement is executed then at the Closing (and as
condition to the Closing) of such Acquisition Proposal, and (y) within one
business day of termination of this Agreement upon any termination of this
Agreement under clauses (ii), (iii), (iv), or (v) above. The Company
acknowledges that the agreements contained in this Section 9.3(a) hereof are
an integral part of the transactions contemplated by this Agreement.
Accordingly, if the Company shall fail to pay when due any amounts which shall
become due under Section 9.3(a) hereof, the Company shall in addition hereto
pay to Newco all costs and expenses (including fees and disbursements of
counsel) incurred in collecting such overdue amounts, together with interest
on such overdue amounts from the date such payment was required to be made
until the date such payment is received at a rate per annum equal to the
"reference rate" as announced from time to time by Bank of America. Any
payment required to be made pursuant to Section 9.3(a) shall be made when due
by wire transfer of immediately available funds to an account designated by
Newco.
(b) As provided elsewhere in this Agreement, the Purchaser has committed to
purchase the Purchased Assets from the Company. In addition, the Purchaser has
committed to contribute such assets to the Partnership and the Partnership has
committed to acquire such assets. The Company's obligations, however, to sell
such assets to the Purchaser are subject to certain contingencies beyond the
Purchaser's and the Partnership's control. In exchange for the Partnership's
commitment to purchase the Purchased Assets, the Company agrees to pay
$1,475,000 (the "Commitment Fee") to the Partnership. The payment of the
Commitment Fee shall be subject to the following limitations: (A) the
Commitment Fee shall only be payable if this Agreement shall be terminated
pursuant to (i) Section 9.1(f) hereof at any time when (I) an Acquisition
Proposal shall have been made by a third party but shall not have been
rejected by the Company and (II) the Company or any of the Subsidiaries or the
Company's stockholders shall thereafter consummate or agree to consummate a
transaction which would constitute an Acquisition Proposal with any person
within one year of the date of this Agreement, (ii) Section 9.1(g) (with
respect to the failure to obtain the requisite vote by the stockholders of the
Company) and there shall exist an Acquisition Proposal, (iii) Section 9.1(h),
(iv) Section 9.1(i)(1), or (v) Section 9.1(b) or 9.1(c) (with respect to
breaches by the Company) and such termination is the result of wilful breach
of any covenant, agreement, representation or warranty contained herein and
there shall exist an Acquisition Proposal, such Commitment Fee to be payable
(x) in the case of termination under clause (i) above upon signing of a
definitive agreement relating to such Acquisition Proposal referred to in
clause (i) of this Section 9.3, or, if no such agreement is executed then at
the Closing (and as condition to the Closing) of such Acquisition Proposal,
and (y) within one business day of termination of this Agreement upon any
termination of this Agreement under clauses (ii), (iii), (iv), or (v) above;
and (B) the amount of the fee payable by the Company shall not exceed the REIT
Limit; provided, however, the Company shall be obligated to pay any excess
amount of the fee in the
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following years (upon notice by the Partnership) subject to the REIT Limit for
such years; provided, further, that if the full amount of the Commitment Fee
has not been paid after three years, the Company's obligation to pay the
remaining amount of such fee shall terminate.
The REIT Limit shall be equal to the maximum amount of Commitment Fee the
Partnership can receive without causing the Purchaser to violate the 95% or
75% income tests under Section 856(c) of the Code, with the following
limitations: (1) it shall be assumed that the Commitment Fee is nonqualifying
income under each such test, unless the Purchaser receives a reasoned opinion
of its tax counsel or a ruling from the Internal Revenue Service which
provides to the contrary (if such an opinion or ruling is received, the
payment of the Commitment Fee shall not be subject to the REIT Limit and shall
be paid in full by the Company when due); (2) the REIT Limit shall be
determined by the Purchaser, in consultation with its accountants and tax
counsel; and (3) in calculating the Purchaser's nonqualifying income, if any,
under the 95% and 75% income tests, the Purchaser will assume it has $100,000
of nonqualifying income from unknown sources (i.e., in addition to any known
nonqualifying income of the Partnership).
The Company acknowledges that the agreements contained in this Section
9.3(b) hereof are an integral part of the transactions contemplated by this
Agreement. Accordingly, if the Company shall fail to pay when due any amounts
which shall become due under Section 9.3(b) hereof, the Company shall in
addition hereto pay to the Partnership all costs and expenses (including fees
and disbursements of counsel) incurred in collecting such overdue amounts,
together with interest on such overdue amounts from the date such payment was
required to be made until the date such payment is received at a rate per
annum equal to the "reference rate" as announced from time to time by Bank of
America. Any payment required to be made pursuant to Section 9.3(b) shall be
made when due by wire transfer of immediately available funds to an account
designated by the Partnership.
ARTICLE X
MISCELLANEOUS
Section 10.1 Fees and Expenses. Except for expenses incurred in connection
with printing the Proxy Statement/Prospectus and the Registration Statement
and the SEC filing fees relating thereto, which costs shall be shared equally
by Purchaser and Newco (on the one hand) and the Company (on the other hand),
all costs and expenses incurred in connection with this Agreement and the
consummation of the transactions contemplated hereby shall be paid by the
party incurring such expenses.
Section 10.2 Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified and supplemented in any and all respects,
whether before or after any vote of the stockholders of the Company and the
Purchaser contemplated hereby, by written agreement of the parties hereto,
pursuant to action taken by their respective Boards of Directors, at any time
prior to the Closing Date with respect to any of the terms contained herein;
provided, however, that after the approval of this Agreement by the
stockholders of the Company, no such amendment, modification or supplement
shall reduce or change the consideration to be received by the Company's
stockholders in the Merger.
Section 10.3 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any schedule,
instrument or other document delivered pursuant to this Agreement shall
survive the Effective Time.
Section 10.4 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, telecopied
(which is confirmed) or sent by an overnight courier service, such as FedEx,
to the parties at the following addresses (or at such other address for a
party as shall be specified by like notice):
(a) if to Purchaser, to:
National Golf Properties, Inc.
1448 15th Street, Suite 200
Santa Monica, California 90404
Attention: Edward R. Sause
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(b) if to the Company, to:
Golf Enterprises, Inc.
1603 LBJ Freeway, Suite 810
Dallas, Texas 75234
Attention: Robert H. Williams
(c) if to Newco, to:
GEI Acquisition Corporation
1633 26th Street
Santa Monica, California 90404
Attention: James M. Stanich
Section 10.5 Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. Whenever the words "include", "includes" or "including"
are used in this Agreement they shall be deemed to be followed by the words
"without limitation". The phrases "the date of this Agreement", "the date
hereof", and terms of similar import, unless the context otherwise requires,
shall be deemed to refer to February 2, 1996. As used in this Agreement, the
term "affiliate(s)" shall have the meaning set forth in Rule 12b-2 of the
Exchange Act.
Section 10.6 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each
of the parties and delivered to the other parties, it being understood that
all parties need not sign the same counterpart.
Section 10.7 Entire Agreement; No Third Party Beneficiaries; Rights of
Ownership. This Agreement, the Principal Stockholder Agreement, the
Termination Fee Agreement and the Confidentiality Agreement (including the
exhibits hereto and the documents and the instruments referred to herein and
therein): (a) constitute the entire agreement and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, and (b) except as provided in Section
7.9 with respect to the obligations of the Company or the Surviving
Corporation thereunder, are not intended to confer upon any person other than
the parties hereto any rights or remedies hereunder.
Section 10.8 Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void, unenforceable or against its regulatory policy,
the remainder of the terms, provisions, covenants and restrictions of this
Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
Section 10.9 Specific Performance. The parties hereto agree that irreparable
damage would occur in the event any provision of this Agreement was not
performed in accordance with the terms hereof and that the parties shall be
entitled to the remedy of specific performance of the terms hereof, in
addition to any other remedy at law or equity.
Section 10.10 Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Kansas without giving effect to
the principles of conflicts of law thereof.
Section 10.11 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties, provided that the Purchaser may assign any or
all of its rights, interests and obligations hereunder to the Partnership or
Lessee Co., but not such assignment shall relieve the Purchaser of its
obligations hereunder. Subject to the preceding sentence, this Agreement will
be binding upon, inure to the benefit of and be enforceable by the parties and
their respective successors and assigns.
I-46
<PAGE>
Section 10.12 Independent Obligations. Each of the parties hereto agrees
that the obligations of all other parties hereto are several and not joint and
that no other party hereto is responsible for, or directly or indirectly the
guarantor of, the performance of this Agreement by any other party hereto.
IN WITNESS WHEREOF, Purchaser, Newco and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized
as of the date first written above.
NATIONAL GOLF PROPERTIES, INC.
/s/ EDWARD R. SAUSE
By:__________________________________
Edward R. Sause
Executive Vice
President
and Chief Financial
Officer
GEI ACQUISITION CORPORATION
/s/ JAMES M. STANICH
By:__________________________________
James M. Stanich
Vice President
GOLF ENTERPRISES, INC.
/s/ ROBERT H. WILLIAMS
By:__________________________________
Robert H. Williams
President and
Chief Executive Officer
I-47
<PAGE>
EXHIBIT A
STOCKHOLDER AGREEMENT
STOCKHOLDER AGREEMENT, dated as of February 2, 1996, by and among NATIONAL
GOLF PROPERTIES, INC., a Maryland corporation ("Purchaser"), GEI ACQUISITION
CORPORATION, a Kansas corporation ("Newco") and ROBERT H. WILLIAMS
("Williams"), GOLDER, THOMA, CRESSEY FUND II ("GTC II") and GOLDER, THOMA,
CRESSEY FUND III LIMITED PARTNERSHIP ("GTC III") (collectively referred to
herein as the "Stockholders").
W I T N E S S E T H:
WHEREAS, immediately prior to the execution of this Agreement, Newco,
Purchaser and Golf Enterprises, Inc., a Kansas corporation (the "Company"),
have entered into an Asset Purchase Agreement and Agreement and Plan of Merger
(as such agreement may hereafter be amended from time to time, the "Merger
Agreement"), pursuant to which Newco will be merged with and into the Company
(the "Merger");
WHEREAS, as an inducement and a condition to entering into the Merger
Agreement, Newco and Purchaser have required that the Stockholders agree, and
the Stockholders have agreed, to enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual promises,
representations, warranties, covenants and agreements contained herein, the
parties hereto, intending to be legally bound hereby, agree as follows:
1. Certain Definitions. Capitalized terms used and not defined herein have
the respective meanings ascribed to them in the Merger Agreement. For purposes
of this Agreement:
(a) "Beneficially Own" or "Beneficial Ownership" with respect to any
securities shall mean having "beneficial ownership" of such securities (as
determined pursuant to Rule 13d-3 under the Securities Exchange Act of
1934, as amended (the "Exchange Act")), including pursuant to any
agreement, arrangement or understanding, whether or not in writing. Without
duplicative counting of the same securities by the same holder, securities
Beneficially Owned by a Person shall include securities Beneficially Owned
by all other Persons with whom such Person would constitute a "group"
within the meaning of Section 13(d) of the Exchange Act.
(b) "Company Common Stock" shall mean at any time the common stock, $.01
par value, of the Company.
(c) "Person" shall mean an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity.
2. Voting of Company Common Stock. The Stockholders hereby agree that during
the period commencing on the date hereof and continuing until the first to
occur of (i) the Effective Time or (ii) termination of this Agreement in
accordance with its terms, at any meeting (whether annual or special and
whether or not an adjourned or postponed meeting) of the holders of Company
Common Stock, however called, or in connection with any written consent of the
holders of Company Common Stock, the Stockholders shall vote (or cause to be
voted) the shares of Company Common Stock (the "Shares") held of record or
Beneficially Owned by the Stockholders (i) in favor of the Acquisition, the
Merger, the execution and delivery by the Company of the Merger Agreement and
the approval and adoption of the terms thereof and each of the other actions
contemplated by the Merger Agreement and this Agreement and any actions
required in furtherance thereof and hereof; (ii) against any action or
agreement that would result in a breach in any respect of any covenant,
representation or warranty or any other obligation or agreement of the Company
under the Merger Agreement or this
I-A-1
<PAGE>
Agreement; and (iii) except as otherwise agreed to in writing in advance by
Newco and Purchaser, against the following actions (other than the
Acquisition, the Merger and the transactions contemplated by this Agreement
and the Merger Agreement): (A) any extraordinary corporate transaction, such
as a merger, consolidation or other business combination involving the Company
or its Subsidiaries; (B) any sale, lease or transfer of a material amount of
assets of the Company or its Subsidiaries, or a reorganization, restructuring,
recapitalization, special dividend, dissolution or liquidation of the Company
or its Subsidiaries; or (C)(1) any change in the present capitalization of the
Company including any proposal to sell a substantial equity interest in the
Company and its Subsidiaries; (2) any amendment of the Company's Certificate
of Incorporation or By-laws; (3) any other change in the Company's corporate
structure or business; or (4) any other action which is intended, or could
reasonably be expected, to impede, interfere with, delay, postpone, or
materially adversely affect the Acquisition, the Merger and the transactions
contemplated by this Agreement and the Merger Agreement. The Stockholders
shall not enter into any agreement or understanding with any person or entity
the effect of which would be inconsistent or violative of the provisions and
agreements contained in this Section 2.
3. Covenants, Representations and Warranties of Stockholders. Each of the
Stockholders, severally as to each of them and not jointly, hereby represents
and warrants to, and agrees with, Newco as follows:
(a) Ownership of Shares. The Stockholder is the record and Beneficial
Owner of the Shares set forth on Exhibit A hereto (the "Existing Shares").
On the date hereof, the Existing Shares constitute all of the Shares owned
of record or Beneficially Owned by the Stockholder. The Stockholder has
sole voting power and sole power to issue instructions with respect to the
matters set forth in Section 2 hereof, sole power of disposition, sole
power of conversion, sole power to demand appraisal rights and sole power
to agree to all of the matters set forth in this Agreement, in each case
with respect to all of the Existing Shares with no limitations,
qualifications or restrictions on such rights, subject to applicable
securities laws and the terms of this Agreement.
(b) Due Authorization. In the case of GTC II and GTC III, the Stockholder
is a partnership duly organized, validly existing and in good standing
under the laws of its jurisdiction of organization, and has all requisite
partnership power or other power and authority to execute and deliver this
Agreement and perform its obligations hereunder. The execution and delivery
by such Stockholders of this Agreement and the performance by such
Stockholders of their obligations hereunder have been duly and validly
authorized by such Stockholders and no other proceedings on the part of the
such Stockholders are necessary to authorize the execution, delivery or
performance of this Agreement or the consummation of the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by the Stockholder and constitutes a valid and binding agreement
enforceable against the Stockholder in accordance with its terms except to
the extent (i) such enforcement may be limited by applicable bankruptcy,
insolvency or similar laws affecting creditors rights and (ii) the remedy
of specific performance and injunctive and other forms of equitable relief
may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.
(c) No Conflicts. Except for filings, authorizations, consents and
approvals as may be required under the HSR Act, the Exchange Act and the
Securities Act (i) no filing with, and no permit, authorization, consent or
approval of, any state or federal public body or authority is necessary for
the execution of this Agreement by the Stockholder and the consummation by
the Stockholder of the transactions contemplated hereby and (ii) none of
the execution and delivery of this Agreement by the Stockholder, the
consummation by the Stockholder of the transactions contemplated hereby or
compliance by the Stockholder with any of the provisions hereof shall (A)
conflict with or result in any breach of the organizational documents of
the Stockholder, (B) result in a violation or breach of, or constitute
(with or without notice or lapse of time or both) a default (or give rise
to any third party right of termination, cancellation, material
modification or acceleration) under any of the terms, conditions or
provisions of any note, loan agreement, bond, mortgage, indenture, license,
contract, commitment, arrangement, understanding, agreement or other
instrument or obligation of any kind to which Stockholder is a party or by
which the Stockholder or any of its properties or assets may be bound, or
(C) violate any order, writ, injunction, decree, judgment, statute, rule or
regulation applicable to the Stockholder or any of its properties or
assets.
I-A-2
<PAGE>
(d) No Encumbrances. Except as applicable in connection with the
transactions contemplated by Section 2 hereof, the Existing Shares and the
certificates representing such Shares are now, and at all times during the
term hereof, will be, held by the Stockholder, or by a nominee or custodian
for the benefit of such Stockholder, free and clear of all liens, claims,
security interests, proxies, voting trusts or agreements, understandings or
arrangements or any other encumbrances whatsoever, except for any such
encumbrances or proxies arising hereunder.
(e) No Solicitation. Stockholder shall not, and shall cause its
affiliates (which term, for purposes of this Section 3(e), shall not
include the Company) and officers, directors, employees, partners,
investment bankers, attorneys, accountants and other agents and
representatives of Stockholder and such affiliates (such affiliates,
officers, directors, employees, partners, investment bankers, attorneys,
accountants, agents and representatives of any Person are hereinafter
collectively referred to as the "Representatives" of such Person) not to,
directly or indirectly (i) initiate, solicit or encourage, or take any
action to facilitate the making of, any offer or proposal which constitutes
or is reasonably likely to lead to any Acquisition Proposal (as defined in
the Merger Agreement) of the Company or any affiliate or any inquiry with
respect thereto, or (ii) in the event of an unsolicited Acquisition
Proposal for the Company or any affiliate of the Company, engage in
negotiations or discussions with, or provide any information or data to,
any Person (other than Purchaser, Newco, any of their affiliates or
representatives) relating to any Acquisition Proposal. Stockholder shall
notify Newco orally and in writing of any such offers, proposals, or
inquiries (including, without limitation, the terms and conditions thereof
and the identity of the Person making it), within 24 hours of the receipt
thereof. Stockholder shall, and shall cause its Representatives to,
immediately cease and cause to be terminated any and all existing
activities, discussions or negotiations, if any, with any parties conducted
heretofore with respect to any Acquisition Proposal relating to the
Company, other than discussions or negotiations with Purchaser, Newco and
their affiliates. Notwithstanding the restrictions set forth in this
Section 4(e), any Person who is an officer or director of the Company may
exercise his fiduciary duties in his capacity as a director or officer of
the Company consistent with the terms of the Merger Agreement.
(f) Restriction on Transfer, Proxies and Non-Interference. Except as
applicable in connection with the transactions contemplated by Section 2
hereof, the Stockholder shall not, directly or indirectly: (i) offer for
sale, sell, transfer, tender, pledge, encumber, assign or otherwise dispose
of, or enter into any contract, option or other arrangement or
understanding with respect to or consent to the offer for sale, sale,
transfer, tender, pledge, encumbrance, assignment or other disposition of,
any or all of the Shares or any interest therein; (ii) except as
contemplated by this Agreement, grant any proxies or powers of attorney,
deposit the Shares into a voting trust or enter into a voting agreement
with respect to the Shares; or (iii) take any action that would make any
representation or warranty of the Stockholder contained herein untrue or
incorrect or would result in a breach by the Stockholder of their
obligations under this Agreement or a breach by the Company of its
obligations under the Merger Agreement.
(g) Reliance by Newco. The Stockholder understands and acknowledges that
Newco and Purchaser are entering into the Merger Agreement in reliance upon
the Stockholder's execution and delivery of this Agreement.
(h) Further Assurances. From time to time, at Purchaser's or Newco's
request and without further consideration, each Stockholder shall execute
and deliver such additional documents and take all such further lawful
action as may be necessary or desirable to consummate and make effective,
in the most expeditious manner practicable, the transactions contemplated
by this Agreement.
4. Representations and Warranties of Newco. Newco hereby represents and
warrants to each Stockholder as follows:
(a) Organization. Newco is a corporation duly organized, validly existing
and in good standing under the laws of the State of Kansas, has all
requisite corporate power or other power and authority to execute and
deliver this Agreement and perform their respective obligations hereunder.
The execution and delivery by Newco of this Agreement and the performance
by Newco of its obligations hereunder have been duly
I-A-3
<PAGE>
and validly authorized by the Board of Directors of Newco and no other
corporate proceedings on the part of Newco are necessary to authorize the
execution, delivery or performance of this Agreement or the consummation of
the transactions contemplated hereby.
(b) Corporate Authorization. This Agreement has been duly and validly
executed and delivered by Newco and constitutes a valid and binding
agreement of Newco enforceable against each of Newco in accordance with its
terms except to the extent (i) such enforcement may be limited by
applicable bankruptcy, insolvency or similar laws affecting creditors
rights and (ii) the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be
brought.
(c) No Conflicts. Except for filings, authorizations, consents and
approvals as may be required under the HSR Act, the Exchange Act and the
Securities Act (i) no filing with, and no permit, authorization, consent or
approval of, any state or federal public body or authority is necessary for
the execution of this Agreement by Newco and the consummation by Newco of
the transactions contemplated hereby and (ii) none of the execution and
delivery of this Agreement by Newco, the consummation by Newco of the
transactions contemplated hereby or compliance by Newco with any of the
provisions hereof shall (A) conflict with or result in any breach of the
articles of incorporation or by-laws of Newco, (B) result in a violation or
breach of, or constitute (with or without notice or lapse of time or both)
a default (or give rise to any third party right of termination,
cancellation, material modification or acceleration) under any of the
terms, conditions or provisions of any note, loan agreement, bond,
mortgage, indenture, license, contract, commitment, arrangement,
understanding, agreement or other instrument or obligation of any kind to
which Newco is a party or by which Newco or any of their respective
properties or assets may be bound, or (C) violate any order, writ,
injunction, decree, judgment, statute, rule or regulation applicable to
Newco or any of its respective properties or assets.
5. Stop Transfer; Legend.
(a) Each Stockholder agrees with, and covenants to, Newco that the
Stockholder shall not request that the Company register the transfer (book-
entry or otherwise) of any certificate or uncertificated interest
representing any of the Shares, unless such transfer is made in compliance
with this Agreement (including the provisions of Section 2 hereof). In the
event of a stock dividend or distribution, or any change in the Company
Common Stock by reason of any stock dividend, split-up, recapitalization,
combination, exchange of shares or the like, the term "Shares" shall be
deemed to refer to and include the Shares as well as all such stock
dividends and distributions and any shares into which or for which any or
all of the Shares may be changed or exchanged and appropriate adjustments
shall be made to the terms and provisions of this Agreement.
(b) Each Stockholder shall promptly after the date hereof surrender to
the Company all certificates representing the Shares, and the Company shall
place the following legend on such certificates:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
STOCKHOLDER AGREEMENT, DATED AS OF FEBRUARY 2, 1996 BY AND AMONG
NATIONAL GOLF PROPERTIES, INC., GEI ACQUISITION CORPORATION, ROBERT H.
WILLIAMS AND GOLDER, THOMA, CRESSEY FUND II AND GOLDER, THOMA, CRESSEY
FUND III LIMITED PARTNERSHIP WHICH AMONG OTHER THINGS RESTRICTS THE
TRANSFER AND VOTING THEREOF."
6. Termination. Except as otherwise provided herein, the covenants and
agreements contained herein with respect to the Shares shall terminate upon
the earlier of (i) the consummation of the Merger and (ii) the termination of
the Merger Agreement in accordance with its terms. The provisions of Section 8
shall survive any such termination.
7. Confidentiality. Each Stockholder recognizes that successful consummation
of the transactions contemplated by this Agreement may be dependent upon
confidentiality with respect to the matters referred to herein. In this
connection, pending public disclosure thereof, each Stockholder hereby agrees
not to disclose or
I-A-4
<PAGE>
discuss such matters with anyone not a party to this Agreement (other than its
counsel and advisors, if any) without the prior written consent of Newco,
except for filings required pursuant to the Exchange Act and the rules and
regulations thereunder or disclosures its counsel advises are necessary in
order to fulfill its obligations imposed by law, in which event such
Stockholder shall give notice of such disclosure to Newco as promptly as
practicable so as to enable Newco to seek a protective order from a court of
competent jurisdiction with respect thereto.
8. Purchase Price Adjustment; Affiliate Agreements.
(a) Each of the Stockholders hereby represents that it does not intend to
transfer all or any portion of its shares of Purchaser Common Stock
received as Stock Consideration in the Merger during the 90-day period
following the Effective Time, and that it does not intend to transfer more
than one-third of the Stock Consideration received in the Merger during the
period between 90 and 120 days following the Effective Time, and that it
does not intend to transfer more than two-thirds of the Stock Consideration
received in the Merger during the period between 90 and 150 days following
the Effective Time. Each of the Stockholders understands that Purchaser has
relied on such representations in agreeing to the Acquisition Consideration
for the Purchased Assets set forth in the Merger Agreement. Each of the
Stockholders and Purchaser agree that, while such shares of Purchaser
Common Stock shall be freely transferable by the Stockholders (subject to
the requirements of applicable law and the limitations in the Purchaser's
Articles of Incorporation), any transfer of such Purchaser Common Stock by
a Stockholder that is inconsistent with such representations shall result
in a downward adjustment to the purchase price of the Purchased Assets.
Such purchase price adjustment shall be effected as follows: For every two
shares of Purchaser Common Stock transferred by any Stockholder in a manner
that is inconsistent with such representations, such Stockholder shall be
required to return one additional share of such stock to Purchaser. In the
event the applicable Stockholder does not have any additional shares of
Purchaser Common Stock, such Stockholder shall pay to Purchaser an amount
of cash equal to the number of shares transferred in a manner inconsistent
with such representations times one-third of the Average Purchaser Common
Stock Price (as defined in the Merger Agreement). Each Stockholder, the
Company and Purchaser agree to treat this payment as a purchase price
adjustment in connection with the Company's sale of the Purchased Assets to
Purchaser.
(b) Each of the Stockholders hereby agrees to execute and deliver the
agreements referred to in Section 7.10 of the Merger Agreement at least 30
days prior to the Closing Date.
(c) Purchaser and each of the Stockholders agree to execute the
Registration Rights Agreement at the Effective Time in the form attached
hereto as Exhibit B.
9. Miscellaneous.
(a) Entire Agreement. This Agreement, the Merger Agreement and the
Termination Fee Agreement constitute the entire agreement between the
parties with respect to the subject matter hereof and supersedes all other
prior agreements and understandings, both written and oral, between the
parties with respect to the subject matter hereof.
(b) Binding Agreement. Each Stockholder agrees that this Agreement and
the obligations hereunder shall attach to the Shares and the shares of
Purchaser Common Stock and shall be binding upon any person or entity to
which legal or Beneficial Ownership of such shares shall pass, whether by
operation of law or otherwise, including, without limitation, such
Stockholder's heirs, distributees, guardians, administrators, executors,
legal representatives, or successors or other transferees (for value or
otherwise) and any other successors in interest. Notwithstanding any
transfer of shares, the transferor shall remain liable for the performance
of all obligations under this Agreement of the transferor.
(c) Assignment. This Agreement shall not be assigned by operation of law
or otherwise without the prior written consent of the other party, provided
that Newco may assign, in its sole discretion, its rights and obligations
hereunder to any direct or indirect wholly owned subsidiary of Newco, but
no such assignment shall relieve Newco of its obligations hereunder if such
assignee does not perform such obligations.
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<PAGE>
(d) Amendments, Waivers, Etc. This Agreement may not be amended, changed,
supplemented, waived or otherwise modified or terminated, except upon the
execution and delivery of a written agreement executed by the parties
hereto.
(e) Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall
be deemed to have been duly received if given) by hand delivery or telecopy
(with a confirmation copy sent for next day delivery via courier service,
such as Federal Express), or by any courier service, such as Federal
Express, providing proof of delivery. All communications hereunder shall be
delivered to the respective parties at the following addresses:
<TABLE>
<S> <C>
If to GTC II
or GTC III: c/o GOLDER, THOMA, CRESSEY
6100 Sears Tower
Chicago, Illinois 60606
Attention: Bryan C. Cressey
If to Williams: ROBERT H. WILLIAMS
1603 LBJ Freeway, Suite 810
Dallas, Texas 75234
If to Newco: GEI ACQUISITION CORPORATION
1633 26th Street
Santa Monica, California 90404
Attention: James M. Stanich
If to Purchaser: NATIONAL GOLF PROPERTIES, INC.
1448 15th Street, Suite 200
Santa Monica, California 90404
Attention: Edward R. Sause
</TABLE>
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth
above.
(f) Severability. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of
any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not
affect any other provision or portion of any provision in such
jurisdiction, and this Agreement will be reformed, construed and enforced
in such jurisdiction as if such invalid, illegal or unenforceable provision
or portion of any provision had never been contained herein.
(g) Specific Performance. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained
in this Agreement will cause the other party to sustain damages for which
it would not have an adequate remedy at law for money damages, and
therefore each of the parties hereto agrees that in the event of any such
breach the aggrieved party shall be entitled to the remedy of specific
performance of such covenants and agreements and injunctive and other
equitable relief in addition to any other remedy to which it may be
entitled, at law or in equity.
(h) Remedies Cumulative. All rights, powers and remedies provided under
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise of any thereof by
any party shall not preclude the simultaneous or later exercise of any
other such right, power or remedy by such party.
(i) No Waiver. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in
respect hereof at law or in equity, or to insist upon compliance by any
other party hereto with its obligations hereunder, and any custom or
practice of the parties at variance
I-A-6
<PAGE>
with the terms hereof, shall not constitute a waiver by such party of its
right to exercise any such or other right, power or remedy or to demand
such compliance.
(j) No Third Party Beneficiaries. This Agreement is not intended to be
for the benefit of, and shall not be enforceable by, any person or entity
who or which is not a party hereto.
(k) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Kansas, without giving effect to
the principles of conflicts of law thereof.
(l) Descriptive Headings. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
(m) Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original, but all of which, taken together,
shall constitute one and the same Agreement.
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<PAGE>
IN WITNESS WHEREOF, Newco, Purchaser, and the Stockholders have caused this
Agreement to be duly executed as of the day and year first above written.
GEI ACQUISITION CORPORATION
By: /s/ JAMES M. STANICH
----------------------------
Its: Vice President
NATIONAL GOLF PROPERTIES, INC.
By: /s/ EDWARD R. SAUSE
----------------------------
Its: Sr. Vice President &
Chief Financial Officer
STOCKHOLDERS:
GOLDER, THOMA, CRESSEY FUND II
By: GOLDER, THOMA, CRESSEY & RAUNER,
L.P.
Its: General Partner
By: /s/ BRYAN C. CRESSEY
----------------------------
Its: General Partner
GOLDER, THOMA, CRESSEY FUND III
LIMITED PARTNERSHIP
By: GOLDER, THOMA, CRESSEY & RAUNER,
L.P.
Its: General Partner
By: /s/ BRYAN C. CRESSEY
---------------------------
Its: General Partner
/s/ ROBERT H. WILLIAMS
-------------------------------
ROBERT H. WILLIAMS
I-A-8
<PAGE>
EXHIBIT A TO STOCKHOLDER AGREEMENT
<TABLE>
<CAPTION>
STOCKHOLDER NAME NUMBER OF SHARES
---------------- ----------------
<S> <C>
GTC II........................................ 1,557,710
GTC III....................................... 1,266,557
Williams...................................... 601,077
</TABLE>
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<PAGE>
EXHIBIT B TO STOCKHOLDER AGREEMENT
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and entered
into as of , by and among NATIONAL GOLF PROPERTIES, INC., a
Maryland corporation (the "Company"), and the parties set forth on the
signature page hereto (the "Stockholders").
WHEREAS, the Stockholders are holders of shares of the Company's common
stock, par value $.01 per share (the "Common Stock");
WHEREAS, the Company has entered into a Stockholder Agreement with the
Stockholders, which requires the Company to enter into this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Definitions
As used in this Agreement, the following capitalized terms shall have the
following meanings:
Exchange Act: The Securities Exchange Act of 1934, as amended from time
to time.
NASD: National Association of Securities Dealers, Inc.
Person: An individual, partnership, corporation, trust or unincorporated
organization, or a government or agency or political subdivision thereof.
Prospectus: The prospectus included in any Registration Statement, as
amended or supplemented by any prospectus supplement with respect to the
terms of the offering of any portion of the Registrable Securities covered
by the Registration Statement and by all other amendments and supplements
to the prospectus, including post-effective amendments and all material
incorporated by reference in such prospectus.
Registration Expenses: See Section 7 hereof.
Registrable Securities: The shares of Common Stock (i) issued to the
Stockholders prior to or contemporaneously herewith and (ii) issued or
issuable with respect to the Common Stock referred to in clause (i) by way
of stock dividend, stock split or in connection with a combination of
stock, recapitalization, merger, consolidation or other reorganization;
provided, however, that a security shall cease to be a Registrable Security
when (a) a registration statement with respect to the sale of such
securities shall have become effective under the Securities Act and such
securities shall have been disposed of in accordance with such registration
statement, (b) such securities are permitted to be distributed pursuant to
Rule 144(k) (or any successor provision to such Rule) under the Securities
Act or are otherwise freely transferable to the public without registration
pursuant to Section 4(1) of the Securities Act (to be confirmed in a
written opinion of counsel to the Company addressed to the Stockholders) or
(c) such securities shall have been otherwise transferred pursuant to an
applicable exemption under the Securities Act, new certificates for such
securities not bearing a legend restricting further transfer shall have
been delivered by the Company and such securities shall be freely
transferrable to the public without registration under the Securities Act.
Registration Statement: Any registration statement of the Company which
covers Registrable Securities pursuant to the provisions of this Agreement,
including the Prospectus, amendments and supplements to such Registration
Statement, including post-effective amendments, and all exhibits and all
material incorporated by reference in such Registration Statement.
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Securities Act: The Securities Act of 1933, as amended from time to time.
SEC: The Securities and Exchange Commission.
2. Securities Subject to this Agreement
(a) Registrable Securities. The securities entitled to all of the benefits
of this Agreement are the Registrable Securities.
(b) Holders of Registrable Securities. A Person is deemed to be a holder of
Registrable Securities whenever such Person owns Registrable Securities or has
the right to acquire such Registrable Securities, whether or not such
acquisition has actually been effected and disregarding any legal restrictions
upon the exercise of such right.
3. Demand Registrations
(a) Number of Demand Registrations. The Company shall be obligated to
prepare, file and cause to become effective pursuant to this Section 3 no more
than one Registration Statement in connection with a Demand Registration (as
defined below) beginning on the first anniversary of the date hereof. Holders
of Registrable Securities may exercise demand registration rights in
accordance with the terms and conditions of this agreement so long as such
holders continue to hold Registrable Securities.
(b) Request for Registration by Certain Holders of Registrable
Securities. At any time following the first anniversary of the date hereof, if
the Company receives from the holder(s) of a majority of the outstanding
Registrable Securities a written request that the Company effect a
registration or qualification of such Registrable Securities (a "Demand
Registration"), the Company shall:
(1) promptly give written notice of the proposed registration or
qualification to all other holders of Registrable Securities; and
(2) as soon as practicable, use its best efforts to effect such
registration or qualification (including, without limitation, the execution
of an undertaking to file post-effective amendments, appropriate
qualification under the applicable blue sky or other state securities laws
and appropriate compliance with exemptive regulations issued under the
Securities Act and any other governmental requirements or regulations) as
may be so requested and as is reasonably necessary to permit or facilitate
the sale and distribution of all or such portion of such holder's or
holders' Registrable Securities as is specified in such request, together
with all or such portion of the Registrable Securities of any other holder
or holders joining in such registration pursuant to the "piggyback"
registration rights provided in Section 4 hereof or other registration
rights agreements; provided, however, that the Company shall not be
obligated to take any action to effect any such registration, qualification
or compliance pursuant to this Section 3:
(i) in any particular jurisdiction in which the Company would be
required to execute a general consent to service of process in
effecting such registration, qualification or compliance or be required
to qualify to do business unless the Company is already subject to
service in such jurisdiction and except as may be required by the
Securities Act or subject itself to taxation in any such jurisdiction;
(ii) within 90 days immediately following the effective date of any
registration statement pertaining to an underwritten public offering of
equity securities of the Company for its own account, or such longer
period as may be required pursuant to Section 5(a) hereof;
(iii) if, upon receipt of a request for a Demand Registration in
accordance with the provisions hereof, the Company is advised in
writing by a nationally recognized independent investment banking firm
selected by the Company to act as lead underwriter in connection with a
public offering of securities by the Company (other than an offering in
connection with employee benefit and similar plans (a "Company
Offering")) that, in such firm's opinion, a registration at that time
and on the terms requested would materially adversely affect a Company
Offering that had been contemplated by the
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Company prior to receipt of the notice requesting the Demand
Registration, the Company shall not be required to effect a Demand
Registration until the earliest of (a) 90 days after completion of the
Company Offering, (b) the termination of any applicable Blackout Period
(as hereinafter defined), (c) promptly after the abandonment of such
Company Offering or (d) 120 days after the date of notice requesting a
Demand Registration; provided, however, that the Company shall be
deemed to have abandoned a Company Offering at such time as the Company
is no longer proceeding actively or in good faith with such offering
and provided, further, that the holders so requesting the Demand
Registration may join in the Company Offering pursuant to the
"piggyback" rights set forth in Section 4 hereof;
(iv) after the Company has effected one such Demand Registration as
specified in subsection (a) of this Section 3; or
(v) if, prior to the effectiveness of a Registration Statement
relating to Registrable Securities, the Company shall furnish to the
holders of Registrable Securities a certificate stating that the
Company has determined in the good faith judgment of the board of
directors that the sale of Registrable Securities pursuant to the
Registration Statement would require disclosure of material non-public
information the disclosure of which would have a material adverse
effect on the Company (an "Information Blackout"), then the Company's
obligation to use its best efforts to register, qualify or comply under
this Section 3 shall be deferred for a period not to exceed the earlier
of (a) the date upon which such material information is disclosed to
the public or ceases to be material or (b) 90 days after the Company
makes such good faith determination (such period being the "Blackout
Period"). In the event of any such deferral, the holders of a majority
of Registrable Securities shall have the right to withdraw their
request for registration and such withdrawn request shall not be
considered a request for registration pursuant to this Section 3.
Subject to the foregoing provisions, the Company shall file a registration
statement covering the Registrable Securities so requested to be registered as
soon as practicable, but in any event within 60 days, after receipt of the
request or requests of the initiating holders.
(c) Effective Registration and Expenses. A registration of Registrable
Securities will not count as a Demand Registration pursuant to this Agreement
until it has become effective and has remained effective for 90 days or until
90% of the Registrable Securities included therein have been sold, if earlier.
The Stockholders shall pay all Registration Expenses in connection with any
registration initiated as a Demand Registration, whether or not it becomes
effective.
(d) Priority on Demand Registrations. If the holder or holders of a majority
of the Registrable Securities to be registered in a Demand Registration under
this Section 3 so elect by written notice to the Company, the offering of such
Registrable Securities pursuant to such Demand Registration shall be in the
form of an underwritten offering. In the event of an underwritten offering, if
the managing underwriter or underwriters of such offering advise the Company
and the holders in writing that in their opinion the number of Registrable
Securities requested to be included in such offering is sufficiently large so
as to adversely affect the success of the offering, the Company shall include
in such registration the maximum amount of Registrable Securities which in the
opinion of such managing underwriter or underwriters can be sold without any
such adverse effect. Further, subject to the advice of the managing
underwriter or underwriters concerning the size and composition of the
offering, the Company shall include Registrable Securities in such
registration in accordance with the following priorities: (i) first, the
Registrable Securities owned by the holder(s) of Registrable Securities from
whom the Company received a Demand Registration pursuant to Section 3(b); (ii)
second, other securities of the Company proposed to be included in such
registration for its own account; and (iii) third, pro rata (based upon the
number of shares of Registrable Securities owned by such holders) among the
other holders of Registrable Securities who have requested to be included in
such registration pursuant to the "piggyback" registration provisions of
Section 4 or other registration rights agreements, provided, however, that in
the event that the Company proposes to include newly issued securities in any
Registration Statement pursuant to this Section 3 and such securities
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<PAGE>
would be excluded from such registration by operation of the priority
provision set forth above, the Company may elect to cause such Registration
Statement to be filed under Section 4 of this Agreement; provided, further,
that in the event that the Company makes such election, all of the provisions
of Section 4 shall apply to such registration and such registration shall not
be deemed to be an exercise of a Demand Registration under this Section 3.
(e) Selection of Underwriters. If any Demand Registration is to be in the
form of an underwritten offering, the investment banker or bankers that will
administer the offering shall be selected by the holders of a majority of the
Registrable Securities to be included in such offering (provided that such
investment banker or bankers must be reasonably satisfactory to the Company).
The Company shall (together with all holders of Registrable Securities
proposing to distribute such securities through such underwriting) enter into
an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting in the manner set forth above.
(f) Withdrawal. If any holder of Registrable Securities disapproves of the
terms of any such underwriting, such holder may elect to withdraw therefrom by
written notice to the Company and the underwriter. Any Registrable Securities
excluded or withdrawn from such underwriting shall also be withdrawn from
registration and shall not be transferred in a public distribution prior to 90
days after the effective date of the registration statement relating thereto,
or such shorter period of time as the underwriter may require; provided,
however, that if by the withdrawal of such Registrable Securities a greater
number of Registrable Securities held by other holders may be included in such
registration (up to the maximum of any limitation imposed by the
underwriters), then the Company shall offer to all holders who have included
Registrable Securities in the registration the right to include additional
Registrable Securities in the priority and proportions specified in Section
3(d). Subject to the provisions of Sections 3(b)(2)(v) and 6(m), if a holder
of Registrable Securities withdraws after exercising a Demand Registration,
such holder shall nevertheless be deemed to have utilized a Demand
Registration.
4. Piggyback Registration. If at any time the Company shall determine to
file a registration statement under the Securities Act relating to a proposed
sale to the public of any of its equity securities (other than a registration
statement in connection with mergers, acquisitions, exchange offers,
subscription offers, dividend reinvestment plans or stock options or other
employee benefit plans), the Company shall:
(a) promptly give to each holder of a Registrable Security written notice
thereof (which notice shall include a list of the jurisdictions in which
the Company intends to attempt to qualify such securities under the
applicable blue sky or other state securities laws, the proposed offering
price, and the plan of distribution);
(b) include in such registration (and any related qualification or other
compliance under blue sky laws) and in any underwriting involved therein,
all the Registrable Securities specified in a written request or requests
to the Company by any holder or holders of Registrable Securities, made
within 30 days after such written notice from the Company;
(c) use its best efforts to cause the managing underwriter or
underwriters, if any, of such proposed underwritten offering to permit the
Registrable Securities requested to be included in the registration
statement for such offering to be included on the same terms and conditions
as any similar securities of the Company included therein. Notwithstanding
the foregoing, unless the registration statement is being filed pursuant to
a Demand Registration (in which case the priority of "piggyback" rights
shall be as provided in Section 3(d)), if the managing underwriter or
underwriters of such offering deliver a written opinion to the holders of
such Registrable Securities that marketing considerations require a
limitation on the number of shares of Common Stock or Registrable
Securities offered pursuant to any registration statement subject to this
Section 4, then subject to the advice of such managing underwriter or
underwriters as to the size and composition of the offering, the Company
shall include Common Stock and other Registrable Securities in such
registration in accordance with the following priorities: (i) first, Common
Stock to be sold for the account of the Company; and (ii) second, pro rata
(based on the number of Registrable Securities owned by such holders) with
respect to all holders of Registrable Securities who have requested to be
included in the
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<PAGE>
registration pursuant to this Section 4 or other registration rights
agreements. The Company shall pay all Registration Expenses in connection
with a registration initiated as a piggy-back registration, whether or not
it becomes effective.
(d) If any holder of Registrable Securities disapproves of the terms of
the underwriting of the Company's offering, such holder may elect to
withdraw therefrom by written notice to the Company and the managing
underwriter at least two days prior to the effective date of the
registration. Any Registrable Securities excluded or withdrawn from such
underwriting shall also be withdrawn from registration and shall not be
transferred in a public distribution prior to 90 days after the effective
date of the registration statement relating thereto, or such shorter period
of time as the managing underwriter may require.
(e) If, prior to the effectiveness of a Registration Statement including
Registrable Securities pursuant to this Section 4, the Company shall
determine for any bona fide reason not to register or to delay registration
of such securities, the Company may, at its election, give written notice
of such determination to the holders of the Registrable Securities and,
thereupon (i) in the case of a determination not to register, shall be
relieved of its obligation to register any Registrable Securities in
connection with such registration (but not from its obligation to pay the
Registration Expenses in connection therewith), without prejudice, however,
to the rights, if any, of any holder or holders of Registrable Securities
to request that such registration be effected as a Demand Registration
under Section 3, and (ii) in the case of a delay in registering, shall be
permitted to delay registering any Registrable Securities for the same
period as the delay in registering such other securities.
Holders of Registrable Securities may exercise "piggyback" registration
rights under this Section 4 at any time or from time to time, so long as such
holders continue to hold Registrable Securities.
5. Hold-Back Agreements
(a) Restrictions on Public Sale by Holder of Registrable Securities. Upon
the written request of the managing underwriters of an underwritten offering
in which holders of Registrable Securities are permitted to sell all of the
Registrable Securities that they have requested to be included in such
offering under paragraph 4 above, a holder of Registrable Securities shall not
effect any public sale or distribution of securities of the Company of the
same class as the securities included in such Registration Statement,
including a sale pursuant to Rule 144 under the Securities Act (except as part
of such underwritten registration), during the 7-day period prior to, and
during the 90-day period following, the effective date of the Registration
Statement for each underwritten offering made pursuant to such Registration
Statement.
(b) Restrictions on Public Sale by the Company and Others. The Company
agrees:
(1) not to effect any public sale or distribution of its equity
securities (or securities exchangeable for such securities), including a
sale pursuant to Regulation D under the Securities Act, during the 7-day
period prior to, and during the 90-day period following, the effective date
of the Registration Statement for each underwritten offering made pursuant
to a Registration Statement filed under Section 3 or 4 hereof, if requested
in writing by the managing underwriters (except as part of such
underwritten registration or pursuant to registrations in connection with
mergers, acquisitions, exchange offers, subscription offers, dividend
reinvestment plans or stock options or other employee benefit plans); and
(2) to use its best efforts to cause each holder of its privately placed
equity securities that are issued by the Company at any time on or after
the date of this Agreement to agree not to effect any public sale or
distribution, including a sale pursuant to Rule 144 under the Securities
Act, of any such securities during the period set forth in clause (1) above
(except as part of such underwritten registration, if and to the extent
permitted).
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<PAGE>
6. Registration Procedures
In connection with the Company's registration obligations pursuant to
Sections 3 and 4 hereof, the Company will use its best efforts to effect such
registration to permit the sale of such Registrable Securities in accordance
with the intended method or methods of disposition thereof, and pursuant
thereto the Company will as expeditiously as possible:
(a) before filing a Registration Statement or Prospectus or any
amendments or supplements thereto, furnish to the holders of the
Registrable Securities covered by such Registration Statement and the
underwriters, if any, copies of all such documents proposed to be filed,
which documents shall be made available for prior review by such holders
and underwriters;
(b) prepare and file with the SEC such amendments and post-effective
amendments to any Registration Statement, and such supplements to the
Prospectus, as may be reasonably requested by any holder of Registrable
Securities or underwriters, if any, or as may be required by the rules,
regulations or instructions applicable to the registration form utilized by
the Company or by the Securities Act or otherwise necessary to keep such
Registration Statement effective for the applicable period and cause the
Prospectus as so supplemented to be filed pursuant to Rule 424 under the
Securities Act; and comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such Registration
Statement during the applicable period in accordance with the intended
methods of disposition by the sellers thereof set forth in such
Registration Statement or supplement to the Prospectus; provided, that the
Company may discontinue any registration of its securities which are not
Registrable Securities at anytime prior to the effective date relating
thereto;
(c) promptly notify the selling holders of Registrable Securities and the
managing underwriters, if any, and (if requested by any such Person)
confirm such advice in writing,
(1) when the Prospectus or any Prospectus supplement or post-
effective amendment has been filed, and, with respect to the
Registration Statement or any post-effective amendment, when the same
has become effective,
(2) of any request by the SEC for amendments or supplements to the
Registration Statement or the Prospectus or for additional information,
(3) of the issuance by the SEC of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose,
(4) of the receipt by the Company of any notification with respect to
the suspension of the qualification of the Registrable Securities for
sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose, and
(5) of the existence of any fact which results in the Registration
Statement, the Prospectus or any document incorporated therein by
reference containing an untrue statement of material fact or omitting
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading;
(d) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of the Registration Statement at the earliest
possible moment;
(e) at the request of any selling holder of Registrable Securities,
furnish to such selling holder and each managing underwriter, if any,
without charge, at least one conformed copy of the Registration Statement
and any post-effective amendment thereto, including financial statements
and schedules, all documents incorporated therein by reference and all
exhibits (including those incorporated by reference);
(f) deliver to each selling holder of Registrable Securities and the
underwriters, if any, without charge, as many copies of the Prospectus
(including each preliminary prospectus) and any amendment or supplement
thereto as such Persons may reasonably request; the Company consents to the
use of the
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<PAGE>
Prospectus or any amendment or supplement thereto by each of the selling
holders of Registrable Securities and the underwriters, if any, in
connection with the offering and sale of the Registrable Securities covered
by the Prospectus or any amendment or supplement thereto;
(g) prior to any public offering of Registrable Securities, use its best
efforts to register or qualify or cooperate with the selling holders of
Registrable Securities, the underwriters, if any, and each of their
respective counsel in connection with the registration or qualification of
such Registrable Securities for offer and sale under the securities or blue
sky laws of such jurisdictions as any such seller or underwriter reasonably
requests in writing and do any and all other acts or things necessary or
advisable to enable the disposition in such jurisdictions of the
Registrable Securities covered by the Registration Statement; provided that
the Company shall not be required to qualify generally to do business in
any jurisdiction where it is not then so qualified or to take any action
which would subject it to general service of process or taxation in any
such jurisdiction where it is not then so subject;
(h) cooperate with the selling holders of Registrable Securities and the
managing underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold and
not bearing any restrictive legends and cause such Registrable Securities
to be in such denominations and registered in such names as such managing
underwriters may request at least two business days prior to any sale of
Registrable Securities to the underwriters;
(i) if any fact contemplated by paragraph (c)(5) above shall exist,
prepare a supplement or post-effective amendment to the Registration
Statement or the related Prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter
delivered to the purchasers of the Registrable Securities, the Prospectus
will not contain an untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading;
(j) cause all Registrable Securities covered by the Registration
Statement to be listed on each securities exchange on which similar
securities issued by the Company are then listed, if requested by the
holders of a majority of such Registrable Securities or by the managing
underwriters, if any;
(k) not later than the effective date of the applicable Registration
Statement, provide a CUSIP number for all Registrable Securities and
provide the applicable transfer agent or trustee with printed certificates
for the Registrable Securities which are in a form eligible for deposit
with Depositary Trust Company;
(l) enter into customary agreements (including underwriting agreements)
and take all other appropriate actions in order to expedite or facilitate
the disposition of such Registrable Securities and in such connection:
(1) make such representations and warranties to the holders of such
Registrable Securities and the underwriters, if any, in form, substance
and scope as are customarily made by issuers to underwriters in primary
underwritten offerings;
(2) obtain opinions of counsel to the Company and updates thereof
(which counsel and opinions shall be reasonably satisfactory to the
managing underwriter, if any, and the holders of a majority of the
Registrable Securities being sold) addressed to each selling holder and
the underwriter, if any, covering the matters customarily covered in
opinions delivered to underwriters in primary underwritten offerings
and such other matters as may be reasonably requested by such holders
or underwriters;
(3) obtain "cold comfort" letters and updates thereof from the
Company's independent certified public accountants addressed to the
selling holders of Registrable Securities and the underwriters, if any,
such letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters by underwriters in
connection with primary underwritten offerings;
(4) if an underwriting agreement is entered into, cause the same to
include the indemnification and contribution provisions and procedures
of Section 8 hereof with respect to all parties to be indemnified
pursuant to such Section (or, with respect to the indemnification of
such underwriters, such similar indemnification and contribution
provisions as such underwriters shall customarily require); and
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<PAGE>
(5) deliver such documents and certificates as may be requested by
the holders of a majority of the Registrable Securities being sold and
the managing underwriter, if any, to evidence compliance with clause
(1) above and with any customary conditions contained in the
underwriting agreement or other agreement entered into by the Company.
The above shall be done at each closing under such underwriting or similar
agreement or as and to the extent otherwise reasonably requested by the
holders of a majority of the Registrable Securities being sold.
(m) Blackout Periods.
(1) At any time when a Registration Statement relating to Registrable
Securities is effective, upon written notice of an Information Blackout
from the Company to holders of Registrable Securities, the selling
holders of Registrable Securities shall suspend sales of Registrable
Securities pursuant to such Registration Statement until the earlier
of:
(i) termination of the Blackout Period, or
(ii) such time as the Company notifies the selling holders of
Registrable Securities that sales pursuant to such Registration
Statement may be resumed (the number of days from such suspension of
sales by the selling holders of Registrable Securities until the day
when such sales may be resumed hereunder is hereinafter called a
"Sales Blackout Period").
(2) Any delivery by the Company of notice of an Information Blackout
during the 90 days immediately following effectiveness of any
registration statement effected pursuant to Section 3 hereof shall give
the selling holders of Registrable Securities the right, by written
notice to the Company within 10 days after the end of such period, to
cancel such registration and such registration shall not count as a
Demand Registration under Section 3 hereof.
(3) If there is an Information Blackout and the selling holders of
Registrable Securities do not exercise their cancellation right, if
any, pursuant to (2) above, or, if such cancellation right is not
available, the time period set forth in Section 3(c) shall be extended
for a number of days equal to the number of days in the Sales Blackout
Period.
The Company may require each seller of Registrable Securities as to which
any registration is being effected to furnish to the Company such information
regarding such seller and the distribution of such securities as the Company
may from time to time reasonably request in writing. Each holder of
Registrable Securities as to which any registration is being effected may
require the Company to furnish to it such information and documents as such
holders may from time to time reasonably request in writing.
Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company of
the happening of any event of the kind described in paragraph (i) above, such
holder shall forthwith discontinue disposition of Registrable Securities until
such holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by paragraph (i) above, or until it is advised in writing by the
Company that the use of the Prospectus may be resumed, and has received copies
of any additional or supplemental filings which are incorporated by reference
in the Prospectus, and, if so directed by the Company, such holder shall
deliver to the Company (at the Company's expense) all copies, other than
permanent file copies then in such holder's possession, of the Prospectus
covering such Registrable Securities at the time of receipt of such notice.
Each holder of Registrable Securities agrees that it will immediately notify
the Company at any time when a prospectus relating to the registration of such
Registrable Securities is required to be delivered under the Securities Act of
the happening of an event as a result of which information previously
furnished by such holder to the Company in writing for inclusion in such
prospectus contains an untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances in which they
were made. In the event the Company or a holder shall give any such notice,
the time periods mentioned in Section 3(c) hereof shall be extended by the
number of days during the period from and including the date of the giving of
such notice to and including the date when
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<PAGE>
each seller of Registrable Securities covered by such Registration Statement
either receives the copies of the supplemented or amended prospectus
contemplated by paragraph (i) above or is advised in writing by the Company
that the use of the Prospectus may be resumed.
7. Registration Expenses
All expenses incident to the Company's performance of or compliance with
this Agreement shall be paid by the Stockholders, regardless of whether the
Registration Statement becomes effective, including, without limitation:
(1) all registration and filing fees (including, without limitation, fees
and expenses with respect to filings required to be made with the NASD) and
stock exchange listing fees;
(2) fees and expenses of compliance with securities or blue sky laws
(including, without limitation, fees and disbursements of counsel for the
underwriters or selling holders in connection with blue sky qualifications
of the Registrable Securities);
(3) printing (including, without limitation, expenses of printing or
engraving certificates for the Registrable Securities in a form eligible
for deposit with Depositary Trust Company and of printing prospectuses),
messenger, telephone and delivery expenses;
(4) fees and disbursements of counsel for the Company and of attorneys
for the sellers of Registrable Securities;
(5) fees and disbursements of all independent certified public
accountants of the Company (including, without limitation, the expenses of
any special audit and "cold comfort" letters required by or incident to
such performance);
(6) fees and disbursements of underwriters (including discounts,
commissions or fees of underwriters, selling brokers, dealer managers or
similar securities industry professionals relating to the distribution of
the Registrable Securities, transfer taxes, if any, or legal expenses of
any Person other than the Company and the selling holders);
(all such expenses being herein called "Registration Expenses").
The Company shall pay its internal expenses (including, without limitation,
all salaries and expenses of its officers and employees performing legal or
accounting duties) and the expense of any annual audit.
8. Indemnification
(a) Indemnification by the Company. The Company agrees to indemnify and hold
harmless each holder of Registrable Securities, its officers, directors,
employees and agents and each Person who controls such holder within the
meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act (each such person being sometimes hereinafter referred to as an
"Indemnified Holder") from and against all losses, claims, damages,
liabilities and expenses (including reasonable costs of investigation and
legal expenses) arising out of or based upon any untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement or
Prospectus or in any amendment or supplement thereto or in any preliminary
prospectus, or arising out of or based upon any omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, except insofar as such losses,
claims, damages, liabilities or expenses arise out of or are based upon any
such untrue statement or omission or allegation thereof based upon information
furnished in writing to the Company by such holder expressly for use therein;
provided, however, that the Company shall not be liable in any such case to
the extent that any such loss, claim, damage, liability or expense arises out
of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in any preliminary prospectus if (i) such
holder (or an underwriter on behalf of such holder) failed to send or deliver
a copy of the Prospectus with or prior to the delivery of written confirmation
of the sale of the Registrable Securities and (ii) the Prospectus would have
corrected such untrue statement or
I-A-18
<PAGE>
omission; and provided, further, that the Company shall not be liable in any
such case to the extent that any such loss, claim, damage, liability or
expense arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission in the Prospectus, if such untrue
statement or alleged untrue statement, omission or alleged omission is
corrected in an amendment or supplement to the Prospectus and if, having
previously been furnished by or on behalf of the Company with copies of the
Prospectus as so amended or supplemented, such holder (or an underwriter on
behalf of such holder) thereafter fails to deliver such Prospectus as so
amended or supplemented prior to or concurrently with the sale of a
Registrable Security to the person asserting such loss, claim, damage,
liability or expense who purchased such Registrable Security from such holder.
This indemnity shall be in addition to any liability which the Company may
otherwise have. The Company shall also indemnify underwriters participating in
the distribution, their officers and directors and each Person who controls
such Persons (within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act) to the same extent as provided above with
respect to the indemnification of Indemnified Holders.
If any action or proceeding (including any governmental investigation or
inquiry) shall be brought or asserted against an Indemnified Holder in respect
of which indemnity may be sought from the Company, such Indemnified Holder
shall promptly notify the Company in writing, and the Company shall assume the
defense thereof (including the employment of counsel reasonably satisfactory
to such Indemnified Holder) and the payment of all expenses. Such Indemnified
Holder shall have the right to employ separate counsel in any such action and
to participate in the defense thereof, but the fees and expenses of such
counsel shall be paid by such Indemnified Holder unless (a) the Company has
agreed to pay such fees and expenses or (b) the Company shall have failed to
assume the defense of such action or proceeding or shall have failed to employ
counsel reasonably satisfactory to such Indemnified Holder in any such action
or proceeding or (c) the named parties to any such action or proceeding
(including any impleaded parties) include both such Indemnified Holder and the
Company, and such Indemnified Holder shall have been reasonably advised by
counsel that representation of both parties by the same counsel would be
inappropriate due to actual or potential material differing interests between
them (in which case, if such Indemnified Holder notifies the Company in
writing that it elects to employ separate counsel at the expense of the
Company, the Company shall not have the right to assume the defense of such
action or proceeding on behalf of such Indemnified Holder, it being
understood, however, that the Company shall not, in connection with any one
such action or proceeding or separate but substantially similar or related
actions or proceedings in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the reasonable fees and
expenses of more than one separate firm of attorneys at any time for such
Indemnified Holder and any other Indemnified Holders). The Company shall not
be liable for any settlement of any such action or proceeding effected without
its written consent, but if settled with its written consent, or if there be a
final judgment for the plaintiff in any such action or proceeding, the Company
agrees to indemnify and hold harmless such Indemnified Holders from and
against any loss or liability by reason of such settlement or judgment.
(b) Indemnification by Holder of Registrable Securities. Each holder of
Registrable Securities agrees to indemnify and hold harmless the Company, its
directors and officers and each Person, if any, who controls the Company
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act to the same extent as the foregoing indemnity from the
Company to such holder, but only with respect to information relating to such
holder furnished in writing by such holder expressly for use in any
Registration Statement or Prospectus, or any amendment or supplement thereto,
or any preliminary prospectus. In case any action or proceeding shall be
brought against the Company or its directors or officers or any such
controlling person, in respect of which indemnity may be sought against a
holder of Registrable Securities, such holder shall have the rights and duties
given to the Company and the Company or its directors or officers or such
controlling person shall have the rights and duties given to each holder by
the preceding paragraph. In no event shall the liability of any selling holder
of Registrable Securities hereunder be greater than the dollar amount of the
proceeds received by such holder upon the sale of the Registrable Securities
giving rise to such indemnification obligation.
The Company and each holder of Registrable Securities shall be entitled to
receive indemnities from underwriters to the same extent as provided above
with respect to information so furnished in writing by them
I-A-19
<PAGE>
specifically for inclusion in any Prospectus or Registration Statement or any
amendment or supplement thereto, or any preliminary prospectus.
(c) Contribution. If the indemnification provided for in this Section 8 is
unavailable to an indemnified party under Section 8(a) or Section 8(b) hereof
(other than by reason of exceptions provided in those Sections) in respect of
any losses, claims, damages, liabilities or expenses referred to therein, then
each applicable indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages, liabilities or expenses in
such proportion as is appropriate to reflect the relative fault of the
Company, on the one hand, and of the Indemnified Holder, on the other hand, in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative fault of the Company, on the one hand,
and of the Indemnified Holder, on the other hand, shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company or by the
Indemnified Holder and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to
include, subject to the limitations set forth in the second paragraph of
Section 8(a), any legal or other fees or expenses reasonably incurred by such
party in connection with investigating or defending any action or claim.
The Company and each holder of Registrable Securities agree that it would
not be just and equitable if contribution pursuant to this Section 8(c) were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to in the
immediately preceding paragraph. Notwithstanding the provisions of this
Section 8(c), an Indemnified Holder shall not be required to contribute any
amount in excess of the amount by which the total price at which the
securities sold by such Indemnified Holder or its affiliated Indemnified
Holders and distributed to the public exceeds the amount of any damages which
such Indemnified Holder or its affiliated Indemnified Holders has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled
to contribution from any person who was not guilty of such fraudulent
misrepresentation.
9. Rule 144
The Company covenants that it will file the reports required to be filed by
it under the Securities Act and the Exchange Act and the rules and regulations
adopted by the SEC thereunder and will take such further action as any holder
of Registrable Securities may reasonably request, all to the extent required
from time to time to enable such holder to sell Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by (a) Rule 144 under the Securities Act, as such Rule may be amended
from time to time, or (b) any similar rule or regulation hereafter adopted by
the SEC. Upon the request of any holder of Registrable Securities, the Company
will deliver to such holder a written statement as to whether it has complied
with such information and requirements.
10. Participation in Underwritten Registrations
No holder of Registrable Securities (or its successors or assigns) may
participate in any underwritten registration hereunder unless such Person (a)
agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the underwriters and other Persons
entitled hereunder to approve such arrangements and (b) completes and executes
all questionnaires, powers of attorney, indemnities, underwriting agreements
and other documents required under the terms of such underwriting
arrangements.
11. Miscellaneous
(a) Remedies. In addition to being entitled to exercise all rights provided
herein and granted by law, including recovery of damages, each holder of
Restricted Securities shall be entitled to specific performance of its rights
under this Agreement. The Company agrees that monetary damages would not be
adequate
I-A-20
<PAGE>
compensation for any loss incurred by reason of a breach by it of the
provisions of this Agreement and hereby agrees to waive the defense in any
action for specific performance that a remedy at law would be adequate.
(b) Adjustments Affecting Registrable Securities. The Company shall not take
any action, or permit any change to occur, with respect to the combination or
subdivision of Registrable Securities which would (i) adversely affect the
ability of the holders of Registrable Securities to include such Registrable
Securities in a registration undertaken pursuant to this Agreement or (ii)
adversely affect the marketability of such Registrable Securities in any such
registration.
(c) Amendments and Waivers. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given
unless the Company has obtained the written consent of holders of at least a
majority of the outstanding Registrable Securities. Notwithstanding the
foregoing, a waiver or consent to departure from the provisions hereof that
relates exclusively to the rights of holders of Registrable Securities whose
securities are being sold pursuant to a Registration Statement and that does
not directly or indirectly affect the rights of other holders of Registrable
Securities may be given by the holders of a majority of the Registrable
Securities being sold.
(d) Notices. All notices and other communications provided for or permitted
hereunder shall be made in writing by hand-delivery, registered first-class
mail, telex, telecopier, or air courier guaranteeing overnight delivery:
(1) if to a holder of Registrable Securities, at the most current address
given by such holder to the Company in accordance with the provisions
hereof, which address initially is the address of the Company's principal
executive offices; and
(2) if to the Company, initially at the address of the Company's
principal executive offices, with a copy to Latham & Watkins, 633 West
Fifth Street, Suite 4000, Los Angeles, California 90071, Attention: John M.
Newell, Esq.
All such notices and communications shall be deemed to have been duly given:
at the time delivered by hand, if personally delivered; when received if
deposited in the mail, postage prepaid, if mailed; when answered back, if
telexed; when receipt acknowledged, if telecopied; and on the next business
day, if timely delivered to an air courier guaranteeing overnight delivery.
(e) Transfer of Registration Rights. Holders of Registrable Securities may
not transfer the registration rights granted hereunder to any Person.
(f) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(h) Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of California without regard to
the choice of law provisions thereof.
(i) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability
of any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(j) Entire Agreement. This Agreement is intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect
of the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings,
I-A-21
<PAGE>
other than those set forth or referred to herein with respect to the
registration rights granted by the Company with respect to the Registrable
Securities. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
IN WITNESS WHEREOF, the Company and the Stockholders have caused this
Agreement to be duly executed as of the date first above written.
NATIONAL GOLF PROPERTIES, INC.
By: _________________________________
STOCKHOLDERS:
GOLDER, THOMA, CRESSEY FUND II
By: GOLDER, THOMA, CRESSEY &
RAUNER, L.P.
Its: General Partner
By: _________________________________
Its: ________________________________
GOLDER, THOMA, CRESSEY FUND III
LIMITED PARTNERSHIP
By: GOLDER, THOMA, CRESSEY &
RAUNER, L.P.
Its: General Partner
By: _________________________________
Its: ________________________________
_____________________________________
ROBERT H . WILLIAMS
I-A-22
<PAGE>
EXHIBIT B
TERMINATION FEE AGREEMENT
TERMINATION FEE AGREEMENT, dated as of February 2, 1996, by and among GEI
ACQUISITION CORPORATION, a Kansas corporation ("Newco"), and ROBERT H.
WILLIAMS ("Williams"), GOLDER, THOMA, CRESSEY FUND II ("GTC II") , and GOLDER,
THOMA, CRESSEY FUND III LIMITED PARTNERSHIP ("GTC III") (collectively referred
to herein as the "Stockholders").
WITNESSETH
WHEREAS, immediately prior to the execution of this Agreement, Newco,
National Golf Properties, Inc., a Maryland corporation ("Purchaser"), and Golf
Enterprises, Inc., a Kansas corporation (the "Company"), have entered into an
Asset Purchase Agreement and Agreement and Plan of Merger (as such agreement
may hereafter be amended from time to time, the "Merger Agreement"), pursuant
to which Newco will be merged with and into the Company (the "Merger");
WHEREAS, as an inducement and a condition to entering into the Merger
Agreement, Newco has required that the Stockholders agree, and the
Stockholders have agreed, to enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual promises,
representations, warranties, covenants and agreements contained herein, the
parties hereto, intending to be legally bound hereby, agree as follows:
1. Certain Definitions. Capitalized terms used and not defined herein have
the respective meanings ascribed to them in the Merger Agreement. For purposes
of this Agreement:
(a) "Beneficially Own" or "Beneficial Ownership" with respect to any
securities shall mean having "beneficial ownership" of such securities (as
determined pursuant to Rule 13d-3 under the Securities Exchange Act of
1934, as amended (the "Exchange Act")), including pursuant to any
agreement, arrangement or understanding, whether or not in writing. Without
duplicative counting of the same securities by the same holder, securities
Beneficially Owned by a Person shall include securities Beneficially Owned
by all other Persons with whom such Person would constitute a "group"
within the meaning of Section 13(d) of the Exchange Act.
(b) "Company Common Stock" shall mean at any time the common stock, $.01
par value, of the Company.
(c) "Person" shall mean an individual, corporation, limited liability
company, partnership, joint venture, association, trust, unincorporated
organization or other entity.
2. Stockholder Termination Fee. In the event that the Merger Agreement is
terminated in circumstances under which the Termination Fee is payable by the
Company to Newco pursuant to Section 9.3(a) of the Merger Agreement, and any
Acquisition Proposal (as defined in the Merger Agreement) is consummated, then
each Stockholder shall pay to Newco one business day after consummation of the
Acquisition Proposal an amount (the "Stockholder Termination Fee") equal to
one-half of the product of (x) the number of Shares Beneficially Owned by such
Stockholder on the date hereof (as set forth on Exhibit A hereto), multiplied
by (y) the excess of (i) the per share value of consideration paid upon
consummation of the Acquisition Proposal (with the value of any non-cash
consideration being determined by agreement of Newco and such Stockholder)
over (ii) $12.00. In the event that the consideration paid on consummation of
the Acquisition: (i) consists solely of cash, then the Stockholder Termination
Fee shall be payable solely in cash, or (ii) consists of cash and other non-
cash property, or solely non-cash property, then the Stockholder Termination
Fee shall be payable in cash and such non-cash property in the same proportion
as the cash bears to the value of the non-cash property issued on consummation
of the Acquisition Proposal (as such value is determined above).
I-B-1
<PAGE>
If Newco and such Stockholder fail to agree promptly on the value of such
non-cash consideration, then the parties shall appoint an independent
investment banking firm reasonably acceptable to Newco and such Stockholder to
act as arbitrator (the "Arbitrator"). Upon the selection of the Arbitrator,
Newco on the one hand and such Stockholder on the other shall deliver to the
Arbitrator and to each other their last and final offer concurrently in
writing (the "Certified Offers"). The Certified Offers shall list one amount
which the submitting party asserts is the appropriate valuation of such non-
cash consideration as of the date of submittal. The Arbitrator's sole role
shall be to select which one of the two Certified Offers most closely
approximates the valuation the Arbitrator would have determined for such non-
cash consideration, taking into account current market valuations of any
publicly traded securities which constitute such non-cash consideration. The
Arbitrator shall notify the parties of such determination. The determination
of the Arbitrator shall be binding on the parties. All costs and expenses of
the Arbitrator shall be borne by the parties whose Certified Offer is not
selected.
Each Stockholder acknowledges that the agreements contained in this Section
2 hereof are an integral part of the transactions contemplated by this
Agreement and the Merger Agreement. Accordingly, if the Stockholder shall fail
to pay when due any amounts which shall become due under Section 2 hereof, the
Stockholder shall in addition hereto pay to Newco all costs and expenses
(including fees and disbursements of counsel) incurred in collecting such
overdue amounts, together with interest on such overdue amounts from the date
such payment was required to be made until the date such payment is received
at a rate per annum equal to the "reference rate" as announced from time to
time by Bank of America. Any payment required to be made pursuant to Section 2
shall be made when due by wire transfer of immediately available funds to an
account designated by Newco.
3. Covenants, Representations and Warranties of each Stockholder. Each of
the Stockholders, severally as to each of them and joint jointly, hereby
represents and warrants to, and agrees with, Newco as follows:
(a) Organization. In the case of GTC II and GTC III, the Stockholder is a
partnership duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization, and has all requisite partnership
power or other power and authority to execute and deliver this Agreement
and perform its obligations hereunder. The execution and delivery by such
Stockholders of this Agreement and the performance by such Stockholders of
their obligations hereunder have been duly and validly authorized by such
Stockholders and no other proceedings on the part of the such Stockholders
are necessary to authorize the execution, delivery or performance of this
Agreement or the consummation of the transactions contemplated hereby.
(b) Enforceability. This Agreement has been duly and validly executed and
delivered by the Stockholder and constitutes a valid and binding agreement
enforceable against the Stockholder in accordance with its terms, except
that (i) such enforcement may be subject to applicable bankruptcy,
insolvency or other similar laws, now or hereafter in effect, affecting
creditors' rights generally, and (ii) the remedy of specific performance
and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
(c) No Conflicts. Except for filings, authorizations, consents and
approvals as may be required under the Exchange Act (i) no filing with, and
no permit, authorization, consent or approval of, any state or federal
public body or authority is necessary for the execution of this Agreement
by the Stockholder and the consummation by the Stockholder of the
transactions contemplated hereby and (ii) none of the execution and
delivery of this Agreement by the Stockholder, the consummation by the
Stockholder of the transactions contemplated hereby or compliance by the
Stockholder with any of the provisions hereof shall (A) in the case of GTC
II and GTC III, conflict with or result in any breach of any applicable
organizational documents applicable to the Stockholder or any of its
subsidiaries, (B) result in a violation or breach of, or constitute (with
or without notice or lapse of time or both) a default (or give rise to any
third party right of termination, cancellation, material modification or
acceleration) under any of the terms, conditions or provisions of any note,
loan agreement, pledge, bond, mortgage, indenture, license, contract,
commitment, arrangement, understanding, agreement or other instrument or
obligation of any kind to which the Stockholder or any subsidiary is a
party or by which the Stockholder or any subsidiary or any of their
respective properties or
I-B-2
<PAGE>
assets may be bound, or (C) violate any order, writ, injunction, decree,
judgment, statute, rule or regulation applicable to the Stockholder or any
of its subsidiaries or any of its properties or assets.
(d) Reliance by Newco. The Stockholder understands and acknowledges that
Newco is entering into the Merger Agreement in reliance upon the
Stockholder's execution and delivery of this Agreement.
(e) Further Assurances. From time to time, at Newco's request and without
further consideration, each Stockholder shall execute and deliver such
additional documents and take all such further lawful action as may be
necessary or desirable to consummate and make effective, in the most
expeditious manner practicable, the transactions contemplated by this
Agreement.
4. Representations and Warranties of Newco. Newco hereby represents and
warrants to the Stockholders as follows:
(a) Organization. Newco is a corporation duly organized, validly existing
and in good standing under the laws of the State of Kansas, has all
requisite corporate power or other power and authority to execute and
deliver this Agreement and perform its obligations hereunder. The execution
and delivery by Newco of this Agreement and the performance by Newco of its
obligations hereunder have been duly and validly authorized by the Board of
Directors of Newco and no other corporate proceedings on the part of Newco
are necessary to authorize the execution, delivery or performance of this
Agreement or the consummation of the transactions contemplated hereby.
(b) Enforceability. This Agreement has been duly and validly executed and
delivered by Newco and constitutes a valid and binding agreement of Newco
enforceable against Newco in accordance with its terms, except that (i)
such enforcement may be subject to applicable bankruptcy, insolvency or
other similar laws, now or hereafter in effect, affecting creditors' rights
generally, and (ii) the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable defenses and to
the discretion of the court before which any proceeding therefor may be
brought.
(c) No Conflicts. Except for filings, authorizations, consents and
approvals as may be required under the HSR Act, the Exchange Act and the
Securities Act (i) no filing with, and no permit, authorization, consent or
approval of, any state or federal public body or authority is necessary for
the execution of this Agreement by Newco and the consummation by Newco of
the transactions contemplated hereby and (ii) none of the execution and
delivery of this Agreement by Newco, the consummation by Newco of the
transactions contemplated hereby or compliance by Newco with any of the
provisions hereof shall (A) conflict with or result in any breach of any
applicable organizational documents applicable to Newco, (B) result in a
violation or breach of, or constitute (with or without notice or lapse of
time or both) a default (or give rise to any third party right of
termination, cancellation, material modification or acceleration) under any
of the terms, conditions or provisions of any note, loan agreement, bond,
mortgage, indenture, license, contract, commitment, arrangement,
understanding, agreement or other instrument or obligation of any kind to
which Newco is a party or by which Newco or any of their respective
properties or assets may be bound, or (C) violate any order, writ,
injunction, decree, judgment, statute, rule or regulation applicable to
Newco or any of its properties or assets.
5. Adjustments upon Changes in Capitalization. In the event of any change in
the number of issued and outstanding shares of Company Common Stock by reason
of any stock dividend, subdivision, merger, recapitalization, combination,
conversion or exchange of shares, or any other change in the corporate or
capital structure of the Company (including, without limitation, the
declaration or payment of an extraordinary dividend of cash or securities)
which would have the effect of diluting or otherwise adversely affecting
Newco's rights and privileges under this Agreement, the Stockholder
Termination Fee shall be appropriately adjusted to restore to Newco its rights
and privileges under this Agreement.
6. Miscellaneous.
(a) Entire Agreement. Except as otherwise expressly provided herein, this
Agreement, the Principal Stockholder Agreement, and the Merger Agreement
contains the entire agreement between the parties with
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<PAGE>
respect to the transactions contemplated hereunder and supersedes all prior
arrangements or understandings with respect thereto, written or oral.
Notwithstanding any transfer of Shares, the transferor shall remain liable
for the performance of all obligations under this Agreement of the
transferor.
(b) Assignment. This Agreement shall not be assigned by operation of law
or otherwise without the prior written consent of the other party, provided
that Newco may assign, in its sole discretion, its rights and obligations
hereunder to any direct or indirect wholly owned subsidiary of Newco, but
no such assignment shall relieve Newco of its obligations hereunder if such
assignee does not perform such obligations.
(c) Amendments, Waivers, Etc. This Agreement may not be amended, changed,
supplemented, waived or otherwise modified or terminated, except upon the
execution and delivery of a written agreement executed by the parties
hereto.
(d) Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall
be deemed to have been duly received if given) by hand delivery or telecopy
(with a confirmation copy sent for next day delivery via courier service,
such as Federal Express), or by any courier service, such as Federal
Express, providing proof of delivery. All communications hereunder shall be
delivered to the respective parties at the following addresses:
If to GTC II c/o GOLDER, THOMA, CRESSEY
or GTC III: 6100 Sears Tower
Chicago, Illinois 60606
Attention: Bryan C. Cressey
If to Williams: ROBERT H. WILLIAMS
1603 LBJ Freeway, Suite 810
Dallas, Texas 75234
If to Newco: GEI ACQUISITION CORPORATION
1633 26th Street
Santa Monica, California 90404
Attention: James M. Stanich
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth
above.
(e) Severability. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of
any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not
affect any other provision or portion of any provision in such
jurisdiction, and this Agreement will be reformed, construed and enforced
in such jurisdiction as if such invalid, illegal or unenforceable provision
or portion of any provision had never been contained herein.
(f) Specific Performance. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained
in this Agreement will cause the other party to sustain damages for which
it would not have an adequate remedy at law for money damages, and
therefore each of the parties hereto agrees that in the event of any such
breach the aggrieved party shall be entitled to the remedy of specific
performance of such covenants and agreements and injunctive and other
equitable relief in addition to any other remedy to which it may be
entitled, at law or in equity.
(g) Remedies Cumulative. All rights, powers and remedies provided under
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise of any thereof by
any party shall not preclude the simultaneous or later exercise of any
other such right, power or remedy by such party.
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<PAGE>
(h) No Waiver. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in
respect hereof at law or in equity, or to insist upon compliance by any
other party hereto with its obligations hereunder, and any custom or
practice of the parties at variance with the terms hereof, shall not
constitute a waiver by such party of its right to exercise any such or
other right, power or remedy or to demand such compliance.
(i) No Third Party Beneficiaries. This Agreement is not intended to be
for the benefit of, and shall not be enforceable by, any person or entity
who or which is not a party hereto.
(j) No Partnership. The parties hereto agree that this Agreement is
intended to provide Newco with the Stockholder Termination Fee in the
circumstances described herein, and that the parties do not intend this
Agreement to constitute a joint venture, partnership, joint tenancy or any
other type of co-ownership arrangement with respect to the Company Common
Stock.
(k) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Kansas, without giving effect to
the principles of conflicts of law thereof.
(l) Descriptive Headings. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
(m) Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original, but all of which, taken together,
shall constitute one and the same Agreement.
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<PAGE>
IN WITNESS WHEREOF, Newco and the Stockholders have caused this Agreement to
be duly executed as of the day and year first above written.
GEI ACQUISITION CORPORATION
By: /s/ JAMES M. STANICH
-------------------------
Its: Vice President
STOCKHOLDERS:
/s/ ROBERT H. WILLIAMS
----------------------------
ROBERT H. WILLIAMS
GOLDER, THOMA, CRESSEY FUND II
By: GOLDER, THOMA, CRESSEY &
RAUNER, L.P.
Its: General Partner
By: /s/ BRYAN C. CRESSEY
-------------------------
Its: General Partner
GOLDER, THOMA, CRESSEY FUND III
LIMITED PARTNERSHIP
By: GOLDER, THOMA, CRESSEY &
RAUNER, L.P.
Its: General Partner
By: /s/ BRYAN C. CRESSEY
-------------------------
Its: General Partner
I-B-6
<PAGE>
EXHIBIT A TO TERMINATION FEE AGREEMENT
<TABLE>
<CAPTION>
NUMBER OF
STOCKHOLDER NAME SHARES
---------------- ---------
<S> <C>
GTC II......................................................... 1,557,710
GTC III........................................................ 1,266,557
Williams....................................................... 601,077
</TABLE>
I-B-7
<PAGE>
EXHIBIT H
FORM OF AFFILIATE LETTER
National Golf Properties, Inc.
1448 15th Street, Suite 200
Santa Monica, CA 90404
Ladies and Gentlemen:
I have been advised that as of the date of this letter I may be deemed to be
an "affiliate" of Golf Enterprises, Inc., a Kansas corporation (the
"Company"), as the term "affiliate" is defined for purposes of paragraphs (c)
and (d) of Rule 145 of the rules and regulations (the "Rules and Regulations")
of the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended, (the "Act"). Pursuant to the terms of the
Asset Purchase Agreement and Agreement and Plan of Merger, dated as of
February 1, 1996 (the "Agreement"), between National Golf Properties, Inc., a
Maryland corporation (the "Purchaser"), GEI Acquisition Corporation, a Kansas
corporation ("Newco"), and the Company, Newco will be merged with and into the
Company (as defined in the Agreement) (the "Merger").
As a result of the Merger, I may receive shares of Common Stock, par value
$.01 per share, of Purchaser (as defined in the Agreement) (the "Purchaser
Securities") in exchange for shares owned by me of Common Stock, par value
$.01 per share, of the Company.
I represent, warrant and covenant to the Purchaser that in the event I
receive any Purchaser Securities as a result of the Merger:
A. I shall not make any sale, transfer or other disposition of the
Purchaser Securities in violation of the Act or the Rules and Regulations.
B. I have carefully read this letter and the Agreement and discussed the
requirements of such documents and other applicable limitations upon my
ability to sell, transfer or otherwise dispose of the Purchaser Securities
to the extent I felt necessary, with my counsel or counsel for the Company.
C. I have been advised that the issuance of Purchaser Securities to me
pursuant to the Merger will be registered with the Commission under the Act
on a Registration Statement on Form S-4. However, I have also been advised
that, since at the time the Merger is submitted for a vote of the
stockholders of the Company, I may be deemed to have been an affiliate of
the Company and the distribution by me of the Purchaser Securities has not
been registered under the Act, I may not sell, transfer or otherwise
dispose of the Purchaser Securities issued to me in the Merger unless (i)
such sale, transfer or other disposition has been registered under the Act,
(ii) such sale, transfer or other disposition is made in conformity with
Rule 145 promulgated by the Commission under the Act, or (iii) in the
opinion of counsel reasonably acceptable to Purchaser, or pursuant to a "no
action" letter obtained by the undersigned from the staff of the
Commission, such sale, transfer or other disposition is otherwise exempt
from registration under the Act.
D. I understand that Purchaser is under no obligation to register the
sale, transfer or other disposition of the Purchaser Securities by me or on
my behalf under the Act or to take any other action necessary in order to
make compliance with an exemption from such registration available.
E. I also understand that stop transfer instructions will be given to the
Purchaser's transfer agent with respect to the Purchaser Securities and
that there will be placed on the certificates for the Purchaser Securities
issued to me, or any substitutions therefor, a legend stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF
1933 APPLIES. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY ONLY BE
TRANSFERRED IN
I-H-1
<PAGE>
ACCORDANCE WITH THE TERMS OF AN AGREEMENT DATED , 1996
BETWEEN THE REGISTERED HOLDER HEREOF AND NATIONAL GOLF PROPERTIES,
INC., A COPY OF WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES OF
NATIONAL GOLF PROPERTIES, INC.
F. I also understand that unless the transfer by me of my Purchaser
Securities has been registered under the Act or is a sale made in
conformity with the provisions of Rule 145, Purchaser reserves the right to
put the following legend on the certificates issued to my transferee:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A PERSON WHO
RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH RULE 145 PROMULGATED
UNDER THE SECURITIES ACT OF 1933 APPLIES. THE SHARES HAVE BEEN ACQUIRED
BY THE HOLDER NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY
DISTRIBUTION THEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF 1933
AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT OR IN ACCORDANCE WITH AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF
1933."
It is understood and agreed that the legends set forth in paragraphs E and F
above shall be removed by delivery of substitute certificates without such
legend if such legend is not required for purposes of the Act or this
Agreement. It is understood and agreed that such legends and the stop orders
referred to above will be removed if (i) two years shall have elapsed from the
date the undersigned acquired the Securities received in the Merger and the
provisions of Rule 145(d)(2) are then available to the undersigned, (ii) three
years shall have elapsed from the date the undersigned acquired Purchaser
Securities received in the Merger and the provisions of Rule 145(d)(3) are
then available to the undersigned, or (iii) Purchaser has received either an
opinion of counsel, which opinion and counsel shall be reasonably satisfactory
to Purchaser, or a "no action" letter obtained by the undersigned from the
staff of the Commission, to the effect that the restrictions imposed by
Rule 145 under the Act no longer apply to the undersigned.
Execution of this letter should not be considered an admission on my part
that I am an "affiliate" of the Company as described in the first paragraph of
this letter or as a waiver of any rights I may have to object to any claim
that I am such an affiliate on or after the date of this letter.
Very truly yours,
Name: _______________________________
Accepted this day of
, 1996 by
NATIONAL GOLF PROPERTIES, INC.
By: _________________________________
Name: _______________________________
Title: ______________________________
I-H-2
<PAGE>
EXHIBIT L-1
COMPANY GUARANTY
GUARANTY, dated as of February 2, 1996, is executed by AMERICAN GOLF
CORPORATION, a California corporation ("Guarantor"), in favor of GOLF
ENTERPRISES, INC., a Kansas corporation (the "Company").
RECITALS
WHEREAS, the Company is entering into that certain Asset Purchase Agreement
and Agreement and Plan of Merger and the related stockholder agreements
(together, the "Merger Agreement"), dated as of the date hereof, by and among
National Golf Properties, Inc. ("Purchaser"), GEI Acquisition Corporation, a
Kansas corporation ("Newco"), and the Company, pursuant to which (a) Purchaser
will acquire certain real property assets that include fee simple interests in
golf courses (as more particularly described in the Merger Agreement, the
"Owned Properties") and certain other personal property, and (b) Newco will
merge with and into the Company;
WHEREAS, following Purchaser's acquisition of the Owned Properties,
Purchaser will contribute the Purchased Assets to the Partnership, which
intends to lease such Owned Properties to Guarantor pursuant to lease
agreements; and
WHEREAS, as a material inducement to the Company to enter into the Merger
Agreement and consummate the transactions contemplated thereby, Guarantor has
agreed to unconditionally guarantee payment of any damages incurred, sustained
or suffered as a result of a breach of the Merger Agreement by Newco.
NOW, THEREFORE, in consideration of the foregoing and for other valuable
consideration, the receipt and sufficiency of which Guarantor acknowledges,
Guarantor agrees as follows:
1. Guaranty. Guarantor unconditionally guarantees and agrees to reimburse
the Company for any damages incurred, sustained or suffered by the Company in
connection with, arising out of, resulting from or incident to any breach by
Newco of the Merger Agreement, subject to all of the terms and conditions of
the Merger Agreement (each an "Obligation"); provided that any payment by
Guarantor on account of this Guaranty shall not be due and payable until
thirty (30) days of Guarantor receiving written notice from the Company of any
claim for payment under this Guaranty. Guarantor expressly reserves its rights
of subrogation, reimbursement and contribution against Newco with respect to
any claim made by the Company on account of this Guaranty; provided, however
that the right of subrogation shall not arise until the amount owing to the
Company pursuant to such claim has been fully paid. Notwithstanding anything
to the contrary in this Guaranty (including, without limitation, Sections 7,
8, 9 and 10), (i) Guarantor's liability hereunder shall in no event be greater
than the liability of Newco under the Merger Agreement, and (ii) this Guaranty
shall not survive the Effective Time (as defined in the Merger Agreement).
2. Representations and Warranties. Guarantor represents and warrants that:
(a) Guarantor has derived or expects to derive a financial advantage from
the Company by entering into the Merger Agreement and consummating the
transactions contemplated thereby;
(b) Guarantor has copies of, and is fully familiar with, the Merger
Agreement and every other document executed or delivered to the Company by
Newco in connection therewith;
(c) Guarantor is a duly organized and validly existing corporation in
good standing under the laws of the State of California and has all
requisite corporate or other power and all necessary governmental approvals
to carry on its businesses as now being conducted;
I-L-1-1
<PAGE>
(d) Guarantor is duly qualified or licensed to do business and is in good
standing in each jurisdiction which the property owned, leased or operated
by it or the nature of the business conducted by it makes such
qualification or licensing necessary;
(e) Guarantor has taken all necessary corporate action necessary to
authorize Guarantor to enter into this Guaranty and the execution of this
Guaranty does not contravene (i) Guarantor's charter or by-laws, (ii) law
or (iii) any contractual or legal restriction binding on or affecting
Guarantor, except, in the case of clauses (ii) and (iii), as would not have
a material adverse effect on Guarantor; and
(f) This Guaranty has been duly executed and delivered by Guarantor and
constitutes a valid and binding obligation of Guarantor enforceable against
Guarantor in accordance with its terms.
3. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered in the manner set forth in
Section 10.4 of the Merger Agreement. Guarantor's address for such notices is
as follows:
American Golf Corporation
1633 26th Street
Santa Monica, California 90404
Attention: James M. Stanich
4. Governing Law. This Guaranty shall be governed and construed in
accordance with the laws of the State of Kansas without giving effect to the
principles of conflicts of law thereof.
5. Assignment. Neither this Guaranty nor any of the rights, interests or
obligations hereunder shall be assigned by any of Guarantor or the Company
(whether by operation of law or otherwise) without the prior written consent
of the other parties. Subject to the preceding sentence, this Guaranty will be
binding upon, inure to the benefit of and be enforceable by each of Guarantor
and the Company and their respective successors and assigns.
6. Amendment. This Guaranty may be amended, modified and supplemented only
with the prior written consent of Guarantor and the Company.
7. Guarantee of Payment. This Guarantee is a guarantee of payment and,
except as provided in paragraph 1, Guarantor expressly waives (a) presentment
for payment, (b) demand, (c) notice of demand and of dishonor and nonpayment,
(d) protest and notice of protest, (e) diligence in collecting and in the
bringing of suit against any party, (f) diligence in preserving the liability
of any person on the Obligations, or in bringing suit to enforce collection of
the Obligations, (g) all defenses given to sureties or guarantors at law or in
equity other than the actual satisfaction of the Obligations and (h) all
defenses based upon questions as to the validity, legality or enforceability
of the Obligations.
8. Dissolution, Bankruptcy and Statute of Limitations.
(a) The liability of Guarantor hereunder shall continue notwithstanding
the dissolution or termination of any entity. The failure by Company to
file or enforce a claim against the estate (whether in administration,
bankruptcy, or other proceeding) of Newco or any other person or entity
shall not affect the liability of Guarantor hereunder, nor shall Guarantor
be released from liability if recovery from Newco or any other person or
entity becomes barred by any statute of limitations or is otherwise
prevented. Guarantor waives and agrees not to assert or take advantage of
the defense of the statute of limitations in any action hereunder.
(b) In the event any payment by Newco to Company with respect to the
Obligations is held to constitute a preference under the bankruptcy laws,
or if for any other reason Company is required to refund such payment or
pay the amount thereto to any other party, such payment by Newco to Company
shall not constitute a release of Guarantor from any liability hereunder,
and Guarantor agrees to pay such amount to Company upon demand and this
Guaranty shall continue to be effective or shall be reinstated, as the case
may be, to the extent of any such payment or payments.
I-L-1-2
<PAGE>
9. Modification of Acquisition Agreement. The modification or amendment of
the Merger Agreement, the waiver of any of its conditions, or the waiver of a
breach of the obligations of any party thereunder shall not in any way affect
any of Guarantor's obligations hereunder. Company may settle or compromise
claims with Newco or any other person on such terms as it may see fit. No
exercise or nonexercise by Company of any right or remedy of Company shall in
any way affect any of Guarantor's obligations hereunder or give Guarantor any
recourse against Company.
10. Guarantee Absolute and Unconditional. Subject to paragraph 1, this
guarantee shall be construed as a continuing, absolute and unconditional
guarantee of payment without regard to the validity, regularity or
enforceability of any of the Obligations or right of offset with respect
thereto. When pursuing its rights and remedies hereunder against Guarantor,
the Company may, but shall be under no obligation to, pursue such rights and
remedies as it may have against Newco or any other person for the Obligations
or any right of offset with respect thereto, and any failure by the Company to
pursue such other rights or remedies or to collect any payments from Newco or
any other person or to exercise any such right of offset, or any release of
Newco or any other person, shall not relieve Guarantor of any liability
hereunder.
11. No Third Party Beneficiary. This Guaranty shall not confer upon any
person other than the Company any rights or remedies hereunder.
IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be signed by a
duly authorized officer of Guarantor as of the date first written above.
AMERICAN GOLF CORPORATION
By: /s/ JAMES M. STANICH
---------------------------------
Its: Executive Vice President
I-L-1-3
<PAGE>
EXHIBIT L-2
PURCHASER GUARANTY
GUARANTY, dated as of February 2, 1996, is executed by AMERICAN GOLF
CORPORATION, a California corporation ("Guarantor"), in favor of NATIONAL GOLF
PROPERTIES, INC., a Maryland corporation (the "Purchaser").
RECITALS
WHEREAS, Purchaser is entering into that certain Asset Purchase Agreement
and Agreement and Plan of Merger and the related stockholder agreements
(together, the "Merger Agreement"), dated as of the date hereof, by and among
Golf Enterprises, Inc. ("Company"), GEI Acquisition Corporation, a Kansas
corporation ("Newco"), and Purchaser, pursuant to which (a) Purchaser will
acquire certain real property assets that include fee simple interests in golf
courses (as more particularly described in the Merger Agreement, the "Owned
Properties") and certain other personal property, and (b) Newco will merge
with and into the Company;
WHEREAS, following Purchaser's acquisition of the Owned Properties,
Purchaser will contribute the Purchased Assets to the Partnership, which
intends to lease such Owned Properties to Guarantor pursuant to lease
agreements; and
WHEREAS, in consideration of the Partnership agreeing to lease the Owned
Properties to Guarantor, Guarantor has agreed to unconditionally guarantee
payment of any damages incurred, sustained or suffered as a result of a breach
of the Merger Agreement by Newco.
NOW, THEREFORE, in consideration of the foregoing and for other valuable
consideration, the receipt and sufficiency of which Guarantor acknowledges,
Guarantor agrees as follows:
1. Guaranty. Guarantor unconditionally guarantees and agrees to reimburse
Purchaser for any damages incurred, sustained or suffered by Purchaser in
connection with, arising out of, resulting from or incident to any breach by
Newco of the Merger Agreement, subject to all of the terms and conditions of
the Merger Agreement (each an "Obligation"); provided that any payment by
Guarantor on account of this Guaranty shall not be due and payable until
thirty (30) days of Guarantor receiving written notice from Purchaser of any
claim for payment under this Guaranty. Guarantor expressly reserves its rights
of subrogation, reimbursement and contribution against Newco with respect to
any claim made by Purchaser on account of this Guaranty; provided, however
that the right of subrogation shall not arise until the amount owing to
Purchaser pursuant to such claim has been fully paid. Notwithstanding anything
to the contrary in this Guaranty (including, without limitation, Sections 7,
8, 9 and 10), (i) Guarantor's liability hereunder shall in no event be greater
than the liability of Newco under the Merger Agreement, and (ii) this Guaranty
shall not survive the Effective Time (as defined in the Merger Agreement).
2. Representations and Warranties. Guarantor represents and warrants that:
(a) Guarantor has derived or expects to derive a financial advantage from
Purchaser by entering into the Merger Agreement and consummating the
transactions contemplated thereby;
(b) Guarantor has copies of, and is fully familiar with, the Merger
Agreement and every other document executed or delivered to Purchaser by
Newco in connection therewith;
(c) Guarantor is a duly organized and validly existing corporation in
good standing under the laws of the State of California and has all
requisite corporate or other power and all necessary governmental approvals
to carry on its businesses as now being conducted;
I-L-2-1
<PAGE>
(d) Guarantor is duly qualified or licensed to do business and is in good
standing in each jurisdiction which the property owned, leased or operated
by it or the nature of the business conducted by it makes such
qualification or licensing necessary;
(e) Guarantor has taken all necessary corporate action necessary to
authorize Guarantor to enter into this Guaranty and the execution of this
Guaranty does not contravene (i) Guarantor's charter or by-laws, (ii) law
or (iii) any contractual or legal restriction binding on or affecting
Guarantor, except, in the case of clauses (ii) and (iii), as would not have
a material adverse effect on Guarantor; and
(f) This Guaranty has been duly executed and delivered by Guarantor and
constitutes a valid and binding obligation of Guarantor enforceable against
Guarantor in accordance with its terms.
3. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered in the manner set forth in
Section 10.4 of the Merger Agreement. Guarantor's address for such notices is
as follows:
American Golf Corporation
1633 26th Street
Santa Monica, California 90404
Attention: James M. Stanich
4. Governing Law. This Guaranty shall be governed and construed in
accordance with the laws of the State of Kansas without giving effect to the
principles of conflicts of law thereof.
5. Assignment. Neither this Guaranty nor any of the rights, interests or
obligations hereunder shall be assigned by any of Guarantor or Purchaser
(whether by operation of law or otherwise) without the prior written consent
of the other parties. Subject to the preceding sentence, this Guaranty will be
binding upon, inure to the benefit of and be enforceable by each of Guarantor
and Purchaser and their respective successors and assigns.
6. Amendment. This Guaranty may be amended, modified and supplemented only
with the prior written consent of Guarantor and Purchaser.
7. Guarantee of Payment. This Guarantee is a guarantee of payment and,
except as provided in paragraph 1, Guarantor expressly waives (a) presentment
for payment, (b) demand, (c) notice of demand and of dishonor and nonpayment,
(d) protest and notice of protest, (e) diligence in collecting and in the
bringing of suit against any party, (f) diligence in preserving the liability
of any person on the Obligations, or in bringing suit to enforce collection of
the Obligations, (g) all defenses given to sureties or guarantors at law or in
equity other than the actual satisfaction of the Obligations and (h) all
defenses based upon questions as to the validity, legality or enforceability
of the Obligations.
8. Dissolution, Bankruptcy and Statute of Limitations.
(a) The liability of Guarantor hereunder shall continue notwithstanding
the dissolution or termination of any entity. The failure by Purchaser to
file or enforce a claim against the estate (whether in administration,
bankruptcy, or other proceeding) of Newco or any other person or entity
shall not affect the liability of Guarantor hereunder, nor shall Guarantor
be released from liability if recovery from Newco or any other person or
entity becomes barred by any statute of limitations or is otherwise
prevented. Guarantor waives and agrees not to assert or take advantage of
the defense of the statute of limitations in any action hereunder.
(b) In the event any payment by Newco to Purchaser with respect to the
Obligations is held to constitute a preference under the bankruptcy laws,
or if for any other reason Purchaser is required to refund such payment or
pay the amount thereto to any other party, such payment by Newco to
Purchaser shall not constitute a release of Guarantor from any liability
hereunder, and Guarantor agrees to pay such amount to Purchaser upon demand
and this Guaranty shall continue to be effective or shall be reinstated, as
the case may be, to the extent of any such payment or payments.
I-L-2-2
<PAGE>
9. Modification of Acquisition Agreement. The modification or amendment of
the Merger Agreement, the waiver of any of its conditions, or the waiver of a
breach of the obligations of any party thereunder shall not in any way affect
any of Guarantor's obligations hereunder. Purchaser may settle or compromise
claims with Newco or any other person on such terms as it may see fit. No
exercise or nonexercise by Purchaser of any right or remedy of Purchaser shall
in any way affect any of Guarantor's obligations hereunder or give Guarantor
any recourse against Purchaser.
10. Guarantee Absolute and Unconditional. Subject to paragraph 1, this
guarantee shall be construed as a continuing, absolute and unconditional
guarantee of payment without regard to the validity, regularity or
enforceability of any of the Obligations or right of offset with respect
thereto. When pursuing its rights and remedies hereunder against Guarantor,
Purchaser may, but shall be under no obligation to, pursue such rights and
remedies as it may have against Newco or any other person for the Obligations
or any right of offset with respect thereto, and any failure by Purchaser to
pursue such other rights or remedies or to collect any payments from Newco or
any other person or to exercise any such right of offset, or any release of
Newco or any other person, shall not relieve Guarantor of any liability
hereunder.
11. No Third Party Beneficiary. This Guaranty shall not confer upon any
person other than Purchaser any rights or remedies hereunder.
IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be signed by a
duly authorized officer of Guarantor as of the date first written above.
AMERICAN GOLF CORPORATION
By: /s/ JAMES M. STANICH
---------------------------------
Its: Executive Vice President
I-L-2-3
<PAGE>
ANNEX II
FIRST AMENDMENT TO
ASSET PURCHASE AGREEMENT AND AGREEMENT AND PLAN OF MERGER
FIRST AMENDMENT TO ASSET PURCHASE AGREEMENT AND AGREEMENT AND PLAN OF
MERGER, dated as of February 16, 1996, by and among NATIONAL GOLF PROPERTIES,
INC., a Maryland corporation ("Purchaser"), GEI ACQUISITION CORPORATION, a
Kansas corporation ("Newco"), and GOLF ENTERPRISES, INC., a Kansas corporation
(the "Company").
RECITALS
WHEREAS, Purchaser, Newco and the Company have entered into an Asset
Purchase Agreement and Agreement and Plan of Merger, dated as of February 2,
1996 (the "Agreement"). Capitalized terms used herein without definition have
the meanings given to them in the Agreement.
WHEREAS, the parties to the Agreement desire to amend certain provisions of
the Agreement in the manner set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth here,
Purchaser, Newco and the Company agree as follows:
ARTICLE I
AMENDMENT
Section 1.1. Amendment of Section 6.7 of the Agreement. Section 6.7 of the
Agreement is hereby amended to delete therefrom the words: "Unless this
Agreement is terminated pursuant to Section 9.1(j),".
Section 1.2 Amendment of Section 8.3(d) of the Agreement. Section 8.3(d) of
the Agreement is hereby amended to delete therefrom such subsection in its
entirety.
Section 1.3 Amendment of Section 9.1 of the Agreement. Section 9.1 of the
Agreement is hereby amended as follows:
(a) the word "or" shall be added at the end of Section 9.1(h);
(b) the words "; or" shall be deleted from the end of Section 9.1(i) and
replaced with a period;
(c) Section 9.1(j) shall be deleted in its entirety.
ARTICLE II
MISCELLANEOUS
Section 2.1. Ratification of Agreement. Each of the provisions of the
Agreement, as amended by this First Amendment, is hereby ratified and
confirmed in all respects, and shall not be deemed to be amended or waived in
any respect other than as expressly set forth herein.
Section 2.2 Counterparts. This First Amendment may be executed in two or
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when two or more counterparts have been signed by
each of the parties and delivered to the other parties, it being understood
that all parties need not sign the same counterpart.
II-1
<PAGE>
IN WITNESS WHEREOF, Purchaser, Newco and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized
as of the date first above written.
NATIONAL GOLF PROPERTIES, INC.
By: /s/ EDWARD R. SAUSE
----------------------------------
Edward R. Sause
Executive Vice President and Chief
Financial Officer
GEI ACQUISITION CORPORATION
By: /s/ JAMES M. STANICH
----------------------------------
James M. Stanich
Vice President
GOLF ENTERPRISES, INC.
By: /s/ ROBERT H. WILLIAMS
----------------------------------
Robert H. Williams
President and Chief Executive
Officer
II-2
<PAGE>
ANNEX III
[LETTERHEAD OF MONTGOMERY SECURITIES]
February 2, 1996
Members of the Board of Directors
National Golf Properties, Inc.
1448 15th Street, #200
Santa Monica, California 90404
Gentlemen:
We understand that National Golf Properties, Inc., a Maryland corporation
(the "Company"), GEI Acquisition Corporation, a Kansas corporation ("Newco"),
and Golf Enterprises, Inc., a Kansas corporation ("Seller"), propose to enter
into an Asset Purchase Agreement and Agreement and Plan of Merger, dated as of
February 2, 1996 (the "Agreement"), pursuant to which (a) the Company will
purchase from Seller (the "Acquisition") twenty golf courses owned by Seller
(the "Acquired Courses") for a price equal to the Acquisition Consideration, as
defined below, and (b) Newco will merge with and into Seller (the "Merger").
The "Acquisition Consideration" shall consist of, at the option of the
Company, either (i)(A) a number of shares of common stock, $.01 par value per
share, of the Company ("Company Common Stock") equal to the quotient of (x)
$40,786,649 and (y) the average of the per share closing prices of the Company
Common Stock on the New York Stock Exchange as reported on the NYSE Composite
Tape for each of the ten consecutive trading days immediately preceding the
second trading day prior to the closing date of the Acquisition, but in no event
less than 1,418,666 or more than 2,128,000 shares of Company Common Stock, and
(B) $17,213,351 in cash, or (ii) $58,000,000 in cash.
Contemporaneously with the closing of the Acquisition (the "Closing"),
(i) the Company and National Golf Operating Partnership, L.P., a Delaware
limited partnership (the "Partnership"), propose to enter into a Contribution
Agreement (the "Contribution Agreement"), pursuant to which the Company will
contribute the Acquired Courses to the Partnership in exchange for limited
partnership interests in the Partnership and the cancellation of indebtedness of
the Company to the Partnership, and (ii) the Partnership and American Golf
Corporation, a California corporation ("AGC"), propose to enter into
III-1
<PAGE>
a Lease Agreement (the "Lease Agreement"), pursuant to which the Partnership
will lease the Acquired Courses to AGC. We understand that the Company, the
Partnership and AGC have entered into an Agreement to Enter into Leases, dated
as of February 1, 1996, pursuant to which the Partnership and AGC have agreed to
enter into the Lease Agreement at the Closing.
We also understand that (i) prior to the consummation of the transactions
contemplated by the Contribution Agreement, the Company owns approximately 54.9%
of the outstanding partnership interests of the Partnership, (ii) following the
consummation of the transactions contemplated by the Contribution Agreement, the
Company will own approximately 58.6% of the outstanding partnership interests of
the Partnership (based on the January 31, 1996 closing price of the Company
Common Stock on the New York Stock Exchange of $23.38 per share), (iii) the
partners of the Partnership other than the Company include persons who are
stockholders, directors and executive officers of the Company and AGC, and
(iv) the Company, AGC and Newco have certain overlapping stockholders, directors
and/or executive officers.
You have asked for our opinion as to whether the Acquisition Consideration
to be paid by the Company for the Acquired Courses pursuant to the Agreement is
fair to the Company from a financial point of view (the "Opinion"). You also
have asked us to perform the following analyses with respect to the financial
terms of the Lease Agreement and the impact of those terms on the Partnership
(the "Analyses"): (a) to calculate the internal rate of return the Lease
Agreement would provide to the Partnership; (b) to calculate the accretion in
funds from operations that the Lease Agreement would provide to the Partnership;
and (c) to compare the financial provisions of the Lease Agreement to the
corresponding provisions contained in (i) the form of lease agreement filed by
the Company as Exhibit 10.2 to the registration statement filed with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended, in connection with the Company's initial public offering and
(ii) twenty golf course leases between the Partnership and AGC entered into
since the Company's initial public offering (the agreements referred to in (i)
and (ii) above, collectively, the "Prior Leases").
In connection with the Opinion and the Analyses, we have, among other
things: (i) reviewed certain publicly available financial and other data with
respect to the Company, including the consolidated financial statements of the
Company for recent years and interim periods to September 30, 1995, and certain
other relevant financial and operating data relating to the Company made
available to us from published sources and from the internal records of the
Company; (ii) reviewed certain publicly available financial and other data with
respect to Seller and the Acquired Courses, including the consolidated financial
statements of Seller for recent years and interim periods to September 30, 1995,
and certain other relevant financial and operating data relating to
III-2
<PAGE>
Seller and the Acquired Courses made available to us from published sources and
from the internal records of Seller; (iii) reviewed drafts of the Agreement
(including the Exhibits thereto), the Lease Agreement and the Prior Leases
provided to us by the Company; (iv) reviewed certain historical market prices
and trading volumes of the Company Common Stock on the New York Stock Exchange;
(v) considered the financial terms, to the extent publicly available, of
selected recent golf course acquisitions that we deemed to be comparable, in
whole or in part, to the Acquisition; (vi) reviewed and discussed with
representatives of the management of the Company and Seller certain information
of a business and financial nature regarding the Company and the Acquired
Courses, furnished to us by them, including financial forecasts and related
assumptions for the Company and the Acquired Courses furnished to us by the
Company; (vii) made inquiries regarding and discussed the Acquisition, the
Agreement and the Lease Agreement and other matters related thereto with the
Company's counsel; and (viii) performed such other analyses and examinations as
we have deemed appropriate.
In connection with our review, we have assumed and relied upon the accuracy
and completeness of the foregoing information and we have not assumed any
responsibility for independent verification of such information. With respect
to the financial forecasts for the Company and the Acquired Courses provided to
us by management of the Company, we have assumed for purposes of the Opinion and
the Analyses that all such forecasts have been reasonably prepared on bases
reflecting the best available estimates and judgments of the Company's
management at the time of preparation as to the future financial performance of
the Company and the Acquired Courses, and that they provide a reasonable basis
upon which we can form the Opinion and conduct the Analyses. We have also
assumed that there have been no material changes in the Company's assets, or in
the financial condition, results of operations, business or prospects of the
Company, since the date of the last financial statements of the Company made
available to us by the Company, and that there have been no material changes in
the condition, results of operations, business or prospects of the Acquired
Courses since the date of the last financial statements of Seller made available
to us by Seller. We have relied on advice of counsel and independent
accountants to the Company as to all legal and financial reporting matters with
respect to the Company, the Acquisition, the Agreement, the Lease Agreement and
the Prior Leases. We have not assumed responsibility for making an independent
evaluation, appraisal or physical inspection of the assets or individual
properties of the Company or Seller, including without limitation the Acquired
Courses, nor have we been furnished with any such appraisals. Finally, the
Opinion and the Analyses are based on economic, monetary and market and other
conditions as in effect on, and the information made available to us as of, the
date hereof.
We have further assumed, with your consent, that the Acquisition will be
consummated in accordance with the terms described in the Agreement without any
III-3
<PAGE>
further amendments thereto, and without waiver by the Company of the conditions
to any of its obligations thereunder.
We have not been requested to, and do not, express any opinion regarding
the Merger or the Contribution Agreement, or the transactions contemplated by
the Contribution Agreement. In addition, our work with respect to the Lease
Agreement has been limited to performing the Analyses, and we express no opinion
regarding the Lease Agreement or the transactions contemplated thereby.
Based upon the foregoing and in reliance thereon:
1. It is our opinion that the Acquisition Consideration to be paid by
Company for the Acquired Courses pursuant to the Agreement is fair to the
Company from a financial point of view, as of the date hereof.
2. We can advise you, based on the results of the Analyses, that (a) the
Lease Agreement would provide the Partnership with an internal rate of return of
between 9.2% and 13.1%; (b) the Lease Agreement would provide the Partnership
with accretion in funds from operations for calendar years 1996 and 1997, on a
pro-forma basis; and (c) the financial provisions of the Lease Agreement are
consistent in all material respects with the corresponding provisions of the
Prior Leases.
The Opinion and the Analyses are directed to the Board of Directors of the
Company and are not recommendations to any shareholder as to how such
shareholder should vote with respect to the Acquisition and/or the transactions
contemplated by the Lease Agreement. Neither the Opinion nor the Analyses may
be used or referred to by the Company, or quoted or disclosed to any person in
any manner, without our prior written consent, which consent is hereby given to
their inclusion in any proxy statement or prospectus filed with the Securities
and Exchange Commission in connection with the Acquisition and/or the
transactions contemplated by the Lease Agreement. In furnishing the Opinion and
the Analyses, we do not admit that we are experts within the meaning of the term
"experts" as used in the Securities Act and the rules and regulations
promulgated thereunder, nor do we admit that the Opinion and/or the Analyses
constitute a report or valuation within the meaning of Section 11 of the
Securities Act.
Very truly yours,
MONTGOMERY SECURITIES
III-4
<PAGE>
[LETTERHEAD OF WILLIAM BLAIR & COMPANY]
ANNEX IV
February 2, 1996
Board of Directors
Golf Enterprises, Inc.
1603 LBJ Freeway, Suite 810
Dallas, Texas 75234
Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the stockholders of Golf Enterprises, Inc. (the "Company") of the
consideration to be received by such stockholders pursuant to the terms of the
Asset Purchase Agreement and Agreement and Plan of Merger dated as of February
2, 1996 (the "Merger Agreement") by and among National Golf Properties, Inc.
("NGP"), GEI Acquisition Corporation, an affiliate of American Golf Corporation
("Newco"), and the Company.
Pursuant to the terms of the Merger Agreement, Newco will be merged with and
into the Company (the "Merger") and each outstanding share of common stock of
the Company will be converted into the right to receive $6.00 per share in cash
and approximately $6.00 in common stock of NGP. The number of shares of NGP
common stock to be issued in the Merger to the Company's stockholders will be
based upon the average closing price per share of NGP common stock as reported
on the New York Stock Exchange (the "NYSE") for the ten consecutive NYSE trading
days immediately preceding the second trading day prior to the closing date of
the Merger, and will not be less that 1,418,666 shares and not more that
2,128,000 shares or an approximate range of between 0.216 shares and 0.323
shares of NGP common stock per outstanding share of the Company's common stock.
If elected by NGP, in lieu of the foregoing amounts of cash and common stock of
NGP issuable in the Merger, $12.00 in cash would be paid per share of common
stock of the Company.
We have acted as financial advisor to the Company in connection with the Merger.
In connection with our review of the Merger and the preparation of our opinion
herein, we have: (a) reviewed the terms and conditions of the Merger Agreement
and the financial terms of the Merger as set forth in the Merger Agreement;
(b) analyzed certain publicly available financial statements of the Company and
NGP, respectively; (c) analyzed certain financial and other information relating
to the prospects of the Company provided to us by the Company's management,
including financial projections; (d) discussed the past and current operations
and financial condition and the prospects of the Company with management of the
Company; (e) analyzed certain publicly available financial statements and other
data concerning NGP; (f) discussed the past and current operations and financial
condition and prospects of NGP and American Golf Corporation with senior
executives of NGP; (h) reviewed the historical prices and trading activity for
the Company's common stock and that of NGP, respectively; (i) reviewed the
financial terms, to the extent publicly available, of selected actual business
combinations we believe to be relevant; and (j) performed such other analyses as
we have deemed appropriate.
IV-1
<PAGE>
We have assumed the accuracy and completeness of all such information and have
not attempted to verify independently any of such information, nor have we made
or obtained an independent valuation or appraisal of any of the assets or
liabilities of the Company or NGP. With respect to financial forecasts, we have
assumed that they have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the Company's and NGP's
managements, as the case may be, as to the future financial performance of the
Company, NGP and American Golf Corporation. We assume no responsibility for,
and express no view as to, such forecasts or the assumptions on which they are
based. Our opinion is necessarily based solely upon information available to us
and business, market, economic and other conditions as they exist on, and can be
evaluated as of, the date hereof. Our opinion does not address the Company's
underlying business decision to effect the Merger.
In rendering our opinion, we have assumed that the Merger will be consummated on
the terms described in the Agreement, without any waiver of any material terms
or conditions by the Company and that obtaining the necessary regulatory
approvals for the Merger will not have an adverse effect on the Company or NGP.
William Blair & Company, L.L.C. has been engaged in the investment banking
business since 1935. We undertake the valuation of investment securities in
connection with public offerings, private placements, business combinations,
estate and gift tax valuations and similar transactions. For our services,
including the rendering of this opinion, the Company will pay us a fee, a
significant portion of which is contingent upon consummation of the Merger, and
indemnify us against certain liabilities. William Blair & Company, L.L.C. has
provided investment banking and financial advisory services to the Company in
the past for which we have received customary compensation.
It is understood that this letter may not be disclosed or otherwise referred to
without our prior written consent, except that this opinion may be included in
filings made by the Company or NGP with the Securities and Exchange Commission
with respect to the Merger.
Based upon and subject to the foregoing, it is our opinion as investment bankers
that, as of February 2, 1996, the consideration to be received by the
stockholders of the Company in the Merger pursuant to the Agreement is fair,
from a financial point of view, to such stockholders.
Very truly yours,
WILLIAM BLAIR & COMPANY, L.L.C.
IV-2
<PAGE>
ANNEX V
SECTION 17-6712 OF THE KANSAS GENERAL CORPORATION CODE
PAYMENT FOR "STOCK" OF "STOCKHOLDER" OBJECTING TO MERGER OR CONSOLIDATION;
"STOCKHOLDER," "STOCK" AND "SHARE" DEFINED; NOTICE TO OBJECTING STOCKHOLDERS;
DEMAND FOR PAYMENT; APPRAISAL AND DETERMINATION OF VALUE BY DISTRICT COURT,
WHEN; TAXATION OF COSTS; RIGHTS OF OBJECTING STOCKHOLDERS; STATUS OF STOCK;
SECTION INAPPLICABLE TO CERTAIN SHARES OF STOCK.--(a) When used in this
section, the word "stockholder" means a holder of record of stock in a stock
corporation and also a member of record of a nonstock corporation; the words
"stock" and "share" mean and include what is ordinarily meant by those words
and also membership or membership interest of a member of a nonstock
corporation.
(b) The corporation surviving or resulting from any merger or consolidation,
within 10 days after the effective date of the merger or consolidation, shall
notify each stockholder of any corporation of this state so merging or
consolidating who objected thereto in writing and whose shares either were not
entitled to vote or were not voted in favor of the merger or consolidation,
and filed such written objection with the corporation before the taking of the
vote on the merger or consolidation, that the merger or consolidation has
become effective. If any such stockholder, within 20 days after the date of
mailing of the notice, shall demand in writing, from the corporation surviving
or resulting from the merger or consolidation, payment of the value of the
stockholder's stock, the surviving or resulting corporation shall pay to the
stockholder, within 30 days after the expiration of the period of 20 days, the
value of the stockholder's stock on the effective date of the merger or
consolidation exclusive of any element of value arising from the expectation
or accomplishment of the merger or consolidation.
(c) If during the period of 30 days following the period of 20 days provided
for in subsection (b), the corporation and any such stockholder fail to agree
upon the value of such stock, any such stockholder, or the corporation
surviving or resulting from the merger or consolidation, may demand a
determination of the value of the stock of all such stockholders by an
appraiser or appraisers to be appointed by the district court, by filing a
petition with the court within four months after the expiration of the thirty-
day period.
(d) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the corporation, which shall file with the clerk of
such court, within 10 days after such service, a duly verified list containing
the names and addresses of all stockholders who have demanded payment for
their shares and with whom agreements as to the value of their shares have not
been reached by the corporation. If the petition shall be filed by the
corporation, the petition shall be accompanied by such duly verified list. The
clerk of the court shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the corporation
and to the stockholders shown upon the list at the addresses therein stated
and notice shall also be given by publishing a notice at least once, at least
one week before the day of the hearing, in a newspaper of general circulation
in the county in which the court is located. The court may direct such
additional publication of notice as it deems advisable. The forms of the
notices by mail and by publication shall be approved by the court.
(e) After the hearing on such petition the court shall determine the
stockholders who have complied with the provisions of this section and become
entitled to the valuation of and payment for their shares, and shall appoint
an appraiser or appraisers to determine such value. Any such appraiser may
examine any of the books and records of the corporation or corporations the
stock of which such appraiser is charged with the duty of valuing, and such
appraiser shall make a determination of the value of the shares upon such
investigation as seems proper to the appraiser. The appraiser or appraisers
shall also afford a reasonable opportunity to the parties interested to submit
to the appraiser pertinent evidence on the value of the shares. The appraiser
or appraisers, also, shall have the powers and authority conferred upon
masters by K.S.A. 60-253, and amendments thereto.
V-1
<PAGE>
(f) The appraiser or appraisers shall determine the value of the stock of
the stockholders adjudged by the court to be entitled to payment therefor and
shall file a report respecting such value in the office of the clerk of the
court, and notice of the filing of such report shall be given by the clerk of
the court to the parties in interest. Such report shall be subject to
exceptions to be heard before the court both upon the law and facts. The court
by its decree shall determine the value of the stock of the stockholders
entitled to payment therefor and shall direct the payment of such value,
together with interest, if any, as hereinafter provided, to the stockholders
entitled thereto by the surviving or resulting corporation. Upon payment of
the judgment by the surviving or resulting corporation, the clerk of the
district court shall surrender to the corporation the certificates of shares
of stock held by the clerk pursuant to subsection (g). The decree may be
enforced as other judgments of the district court may be enforced, whether
such surviving or resulting corporation be a corporation of this state or of
any other state.
(g) At the time of appointing the appraiser or appraisers, the court shall
require the stockholders who hold certificated shares and who demanded payment
for their shares to submit their certificates of stock to the clerk of the
court, to be held by the clerk pending the appraisal proceedings. If any
stockholder fails to comply with such direction, the court shall dismiss the
proceedings as to such stockholder.
(h) The cost of any such appraisal, including a reasonable fee to and the
reasonable expenses of the appraiser, but exclusive of fees of counsel or of
experts retained by any party, shall be determined by the court and taxed upon
the parties to such appraisal or any of them as appears to be equitable,
except that the cost of giving the notice by publication and by registered or
certified mail hereinabove provided for shall be paid by the corporation. The
court, on application of any party in interest, shall determine the amount of
interest, if any, to be paid upon the value of the stock of the stockholders
entitled thereto.
(i) Any stockholder who has demanded payment of the stockholder's stock as
herein provided shall not thereafter be entitled to vote such stock for any
purpose or be entitled to the payment of dividends or other distribution on
the stock, except dividends or other distributions payable to stockholders of
record at a date which is prior to the effective date of the merger or
consolidation, unless the appointment of an appraiser or appraisers shall not
be applied for within the time herein provided, or the proceeding be dismissed
as to such stockholder, or unless such stockholder with the written approval
of the corporation shall deliver to the corporation a written withdrawal of
the stockholder's objections to and an acceptance of the merger or
consolidation, in any of which cases the right of such stockholder to payment
for the stockholder's stock shall cease.
(j) The shares of the surviving or resulting corporation into which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized
and unissued shares of the surviving or resulting corporation.
(k) This section shall not apply to the shares of any class or series of a
class of stock, which, at the record date fixed to determine the stockholders
entitled to receive notice of and to vote at the meeting of stockholders at
which the agreement of merger or consolidation is to be acted on, were either
(1) registered on a national securities exchange, or (2) held of record by not
less than 2,000 stockholders, unless the articles of incorporation of the
corporation issuing such stock shall otherwise provide; nor shall this section
apply to any of the shares of stock of the constituent corporation surviving a
merger, if the merger did not require for its approval the vote of the
stockholders of the surviving corporation, as provided in subsection (f) of
K.S.A. 17-6701 and amendments thereto. This subsection shall not be applicable
to the holders of a class or series of a class of stock of a constituent
corporation if under the terms of a merger of consolidation pursuant to K.S.A.
17-6701 or 17-6702, and amendments thereto, such holders are required to
accept for such stock anything except (i) stock or stock and cash in lieu of
fractional shares of the corporation surviving or resulting from such merger
or consolidation, or (ii) stock or stock and cash in lieu of fractional shares
of any other corporation, which at the record date fixed to determine the
stockholders entitled to receive notice of and to vote at the meeting of
stockholders at which the agreement of merger or consolidation is to be acted
on, where either registered on a national securities exchange or held of
record by not less than 2,000 stockholders, or (iii) a combination of stock or
stock and cash in lieu of fractional shares as set forth in (i) and (ii) of
this subsection.
V-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Articles of Incorporation of the Registrant provide that none of its
directors or officers shall be liable for monetary damages to the Registrant or
its stockholders for breach of fiduciary duty as a director or officer to the
fullest extent permitted by the laws of the state of Maryland. Maryland law
allows the Registrant to limit such liability in all cases except for those
involving (i) actual receipt of an improper personal benefit by the director or
officer in money, property or services or (ii) active and deliberate dishonesty
by the director or officer established by a final judgment as being material to
the cause of action. In addition, the Maryland General Corporation Law (the
"MGCL") and the Registrant's Articles of Incorporation and Bylaws, under certain
circumstances, provide for the indemnification of the Registrant's directors,
officers, employees and agents against liabilities which they may incur in such
capacities. A summary of the circumstances in which such indemnification is
provided for is contained herein, but that description is qualified in its
entirety by reference to the MGCL and other Maryland statutes, the Registrant's
Articles of Incorporation and its Bylaws.
The Registrant's Articles of Incorporation authorize the Registrant to
indemnify its present and former directors and officers and to pay or reimburse
expenses in advance of the final disposition of a proceeding to the maximum
extent permitted from time to time by Maryland law. The Registrant's Bylaws
obligate the Registrant to indemnify present and former directors and officers
to the maximum extent permitted by Maryland law. The Registrant's Bylaws also
permit the Registrant to provide indemnification to a present or former director
or officer who served a predecessor of the Registrant in such capacity, and to
any employee or agent of the Registrant or a predecessor of the Registrant.
The MGCL permits the Registrant to indemnify its present and former
directors and officers, among others, against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in connection with
any proceeding to which they may be made a party by reason of their service in
those or other capacities unless it is established that (a) the act or omission
of the director or officer was material to the matter giving rise to the
proceeding and was committed in bad faith or was the result of active and
deliberate dishonesty, (b) the director or officer actually received an improper
personal benefit in money, property or services, or (c) in the case of any
criminal proceeding, the director or officer had reasonable cause to believe
that the act or omission was unlawful. The termination of any proceeding by
judgment, order, or settlement does not create a presumption that the director
or officer did not meet the requisite standard of conduct, but termination by
conviction or plea of nolo contendere does create a rebuttable presumption that
such standard was not satisfied. In addition, the MGCL does not permit
indemnification in respect of any proceeding by or in the right of the
Registrant, if the director or officer is adjudged to be liable to the
Registrant.
Any indemnification pursuant to the preceding paragraph may not be made by
the Registrant unless authorized for a specific proceeding after a determination
has been made that indemnification of the director or officer is permissible in
the circumstances because such person has met the requisite standard of conduct.
The authorization and determination must be made by a majority of the
Registrant's directors not party to the proceeding (or in certain circumstances
a designated committee of directors), special legal counsel selected by the
Registrant's Board of Directors, or by the stockholders of the Registrant.
In addition, the MGCL requires the Registrant, as conditions to advancing
expenses, to obtain (i) a written affirmation by the director or officer of his
or her good faith belief that he or she has met the standard of conduct
necessary for indemnification by the Registrant as authorized by the
Registrant's Bylaws and (ii) a written statement by or on his or her behalf to
repay the amount paid or reimbursed by the Registrant if it shall ultimately be
determined that the standard of conduct was not met. Under the MGCL, rights to
indemnification and expenses are non-exclusive, in that they need not be limited
to those expressly provided by statute. As a result, under the MGCL and the
Registrant's Bylaws, the Registrant is permitted to indemnify its directors,
officers, employees and
II-1
<PAGE>
other agents, within the limits established by law and public policy, pursuant
to an express contract, bylaw provision, stockholder vote or otherwise.
Because the indemnification provisions of the Registrant's Articles and
Bylaws are tied to applicable Maryland law, they may be modified by future
changes in such law without further stockholder action. The Registrant's Bylaws
provide that amendment or repeal of the indemnification provisions of the
Registrant's Bylaws would be effective on a prospective basis only and neither
repeal nor modification of such provisions would adversely affect rights to
indemnification in effect at the time of any act or omission which is the
subject of a proceeding against an indemnified person.
Under the MGCL, the Registrant may purchase and maintain insurance on
behalf of its present and former directors and officers, among others, against
liability asserted against and incurred by such persons because of their
position, whether or not the Registrant would have the power to indemnify
against such liability under the provisions of the MGCL described above. The
Registrant has purchased and currently maintains such insurance on behalf of its
current directors and officers.
The MGCL and the Bylaws of the Registrant may permit indemnification for
liabilities arising under the Securities Act or the Exchange Act. The Board of
Directors of the Registrant has been advised that, in the opinion of the SEC,
indemnification for liabilities arising under the Securities Act or the Exchange
Act is contrary to public policy and is therefore unenforceable, absent a
decision to the contrary by a court of appropriate jurisdiction.
II-2
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Exhibit Numbered
Number Description Page
- ------ ----------- --------
<C> <S> <C>
2.1 Asset Purchase Agreement and Agreement and Plan of Merger,
dated as of February 2, 1996, among Golf Enterprises, Inc.,
National Golf Properties, Inc. and GEI Acquisition
Corporation (including as exhibits a Stockholder Agreement,
dated as of February 2, 1996, by and among National Golf
Properties, Inc., GEI Acquisition Corporation, Robert H.
Williams, Golder, Thoma, Cressey Fund II and Golder, Thoma,
Cressey Fund III Limited Partnership, and a Termination Fee
Agreement, dated as of February 2, 1996, by and among GEI
Acquisition Corporation, Robert H. Williams, Golder, Thoma,
Cressey Fund II and Golder, Thoma, Cressey Fund III Limited
Partnership) (attached as Annex I to the Joint Proxy
Statement-- Prospectus included in this Registration
Statement)..................................................
2.2 First Amendment to Asset Purchase Agreement and Agreement
and Plan of Merger, dated as of February 16, 1996 among Golf
Enterprises, Inc., National Golf Properties, Inc. and GEI
Acquisition Corporation (attached as Annex II to the Joint
Proxy Statement--Prospectus included in this Registration
Statement)..................................................
3.1 Articles of Incorporation of National Golf Properties, Inc.
(incorporated by reference to Exhibit 3.1 to the
Registrant's Current Report on Form 8-K dated September 26,
1995).......................................................
3.2 By-Laws of National Golf Properties, Inc. (incorporated by
reference to Exhibit 3.2 to the Registrant's Current Report
on Form 8-K dated September 26, 1995).......................
4.1 Form of Common Stock Certificate (incorporated by reference
to Exhibit 3.3 to the Registrant's Report on Form 8-B dated
December 29, 1995)..........................................
* 5.1 Opinion of Latham & Watkins as to the legality of the shares
being registered............................................
* 8.1 Opinion of Latham & Watkins as to certain tax matters.......
10.1 Agreement of Limited Partnership of National Golf Operating
Partnership, L.P., dated as of August 18, 1993, by and
among National Golf Properties, Inc. and the Persons named
therein as Limited Partners (incorporated by reference to
Exhibit 10.1 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995)................
10.2 Form of Lease Agreement between National Golf Properties,
Inc. and American Golf Corporation with respect to the
Initial Golf Courses and the Mesquite and Desert Lakes golf
courses (incorporated by reference to Exhibit 10.2 to the
Registrant's Registration Statement on Form S-11 No. 33-
63110)......................................................
10.3 Form of Lease Agreement between National Golf Properties,
Inc. and American Golf Corporation with respect to the
following golf courses: Southwyck, Dub's Dread, Kokopelli,
Summitpointe, Lake Wilderness, Links at Northfork, Hershey,
Hershey South, Canyon Oaks, Capitol City, Binks Forest, Port
Royal, Shipyard, Sugar Ridge, Wildhorse, Goshen Plantation,
Hickory Heights, River's Edge, Berry Creek, Carmel Mountain,
Creekside, Honey Bee, Wood Ranch, Monterey, Palm Valley,
Ruffled Feathers, Upland Hills, Oregon Golf, Golden Oaks,
Seven Springs and Sea Cliff; and Form of Lease Agreement
between National Golf Properties, Inc. and CGG with respect
to the Carmel Mountain golf course (incorporated by
reference to Exhibit 10.3 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995)..
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Exhibit Numbered
Number Description Page
- ------ ----------- --------
<C> <S> <C>
10.4 Registration Rights Agreement, made and entered into as of
August 18, 1993, by and among National Golf Properties, Inc.
and the persons named therein (incorporated by reference to
Exhibit 10.4 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995)................
10.5 Shelf Registration Rights Agreement, made and entered into
as of August 18, 1993, by and among National Golf
Properties, Inc. and the persons named therein (incorporated
by reference to Exhibit 10.5 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31,
1995).......................................................
10.6 National Golf Properties, Inc. Stock Incentive Plan Key
Employees of National Golf Properties, Inc., National Golf
Operating Partnership, L.P. and American Golf Corporation,
effective August 18, 1993 (incorporated by reference to
Exhibit 10.6 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995)................
10.7 Indemnification Agreement, made as of August 18, 1993, by
and between National Golf Properties, Inc. and its directors
and officers (incorporated by reference to Exhibit 10.7 to
the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995)...............................
10.8 Employment Agreements, dated August 18, 1993, between
National Golf Properties, Inc. and each of Richard C. Price
and Edward R. Sause (incorporated by reference to Exhibit
10.8 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995)........................
10.9 Director Designation Agreement, dated as of August 18, 1993
by and among David G. Price, National Golf Properties, Inc.
and National Golf Operating Partnership, L.P. (incorporated
by reference to Exhibit 10.9 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31,
1995).......................................................
10.10 Services Agreement, entered into as of August 18, 1993, by
and between National Golf Properties, Inc. and National Golf
Operating Partnership, L.P. (incorporated by reference to
Exhibit 10.10 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995)................
10.11 Senior Secured Promissory Notes and Guarantees related to
the Option Golf Courses, each made and entered into as of
August 18, 1993, between National Golf Properties, Inc. and
The Price Revocable Trust (incorporated by reference to
Exhibit 10.11 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995)................
10.12 First Deed of Trust, Assignment of Rents, Security Agreement
and Fixture Filing relating to each of the Senior Secured
Participating Promissory Notes, each made as of August 18,
1993, by and among The Price Revocable Trust and National
Golf Operating Partnership, L.P. (incorporated by reference
to Exhibit 10.12 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1995)...........
10.13 Partnership Interests Exchange Agreement, dated as of August
18, 1993, by and among National Golf Operating Partnership,
L.P. and Partners of Partnerships Controlling 21 Courses
(incorporated by reference to Exhibit 10.13 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995)....................................
10.14 Agreement for Transfer of Realty and Assets, dated as of
August 18, 1993, by and among The Price Revocable Trust,
Myreshan, Inc. and National Golf Operating Partnership, L.P.
(incorporated by reference to Exhibit 10.14 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995)....................................
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit Numbered
Number Description Page
- ------ ----------- --------
<C> <S> <C>
10.15 Plan and Agreement of Merger, dated as of August 18, 1993,
by and among Bear Creek Enterprises, Inc., National Golf
Properties, Inc., The Price Revocable Trust and David G.
Price (incorporated by reference to Exhibit 10.15 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995)...................................
10.16 Partnership Interests Acquisition Agreement, dated as of
August 18, 1993, by and among The Price Revocable Trust,
American Golf Investment, Inc., Supermarine Aviation,
Limited, David G. Price and National Golf Properties, Inc.
(incorporated by reference to Exhibit 10.16 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995)....................................
10.17 Contribution Agreement, dated as of August 18, 1993, by and
between National Golf Operating Partnership, L.P. and
National Golf Properties, Inc. (incorporated by reference to
Exhibit 10.17 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995)................
10.18 Option Courses Agreement, dated as of August 18, 1993, by
and among David G. Price, The Price Revocable Trust, Black
Lake/Penasquitos, David G. Price, American Golf Corporation
and National Golf Operating Partnership, L.P. (incorporated
by reference to Exhibit 10.18 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31,
1995).......................................................
10.19 Agreement relating to prohibition on acquisitions of golf
courses by David G. Price and his affiliates, made and
entered into as of August 18, 1993, by and among National
Golf Properties, Inc., National Golf Operating Partnership,
L.P., American Golf Corporation, David G. Price, Dallas P.
Price and The Price Revocable Trust (incorporated by
reference to Exhibit 10.19 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995)...
10.20 Amendment to agreement relating to prohibition on
acquisitions of golf courses by David G. Price and his
affiliates among National Golf Properties, Inc., National
Golf Operating Partnership, L.P., American Golf Corporation,
David G. Price, Dallas P. Price and The Price Revocable
Trust (incorporated by reference to Exhibit 10 to the
Registrant's Quarterly Report on Form 10-Q/A for the period
ended September 30, 1995)...................................
10.21 Note Purchase Agreement ("Note Purchase Agreement"), dated
as of December 15, 1994, with respect to National Golf
Operating Partnership, L.P.'s Series A 8.68% Guarantied
Senior Promissory Notes due December 15, 2004 and Series B
8.73% Guarantied Senior Promissory Notes due June 15, 2005
(incorporated by reference to Exhibit 10.21 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995)....................................
10.22 Series A 8.68% Guarantied Senior Promissory Notes and Series
B 8.73% Guarantied Senior Promissory Notes (incorporated by
reference to Exhibit 10.22 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995)...
10.23 General Continuing Guaranty of National Golf Properties, Inc.
("General Continuing Guaranty"), dated as of December 15,
1994, with respect to National Golf Operating Partnership,
L.P.'s Series A 8.68% Guarantied Senior Promissory Notes due
December 15, 2004 and Series B 8.73% Guarantied Senior
Promissory Notes due June 15, 2005 (incorporated by
reference to Exhibit 10.16 to the Registrant's Report on
Form 8-B dated December 29, 1995)...........................
10.24 First Amendment to Note Purchase Agreements, dated as of
August 31, 1995 (incorporated by reference to Exhibit 10.24
to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995)........................
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Exhibit Numbered
Number Description Page
- ------ ----------- --------
<C> <S> <C>
10.25 First Amendment to General Continuing Guarantee, dated as of
August 31, 1995 (incorporated by reference to Exhibit 10.18
to the Registrant's Report on Form 8-B dated December 29,
1995).......................................................
10.26 Agreement of Limited Partnership of Royal Golf, L.P., II,
dated as of July 7, 1994 (incorporated by reference to
Exhibit 10.19 to the Registrant's Report on Form 8-B dated
December 29, 1995)..........................................
10.27 Amended and Restated Loan Agreement, dated as of July 7,
1994, between Royal Golf, L.P., II and NationsBank of South
Carolina, N.A. (incorporated by reference to Exhibit 10.20
to the Registrant's Report on Form 8-B dated December 29,
1995).......................................................
10.28 Credit Agreement among Bank of America National Trust and
Savings Association, National Golf Operating Partnership,
L.P. and National Golf Properties, Inc. dated as of
September 29, 1993, as amended (incorporated by reference to
Exhibit 10.21 to the Registrant's Report on Form 8-B dated
December 29, 1995)..........................................
10.29 Agreement to Enter Into Leases, entered into as of February
1, 1996, by and among National Golf Properties, Inc.,
National Golf Operating Partnership and American Golf
Corporation (incorporated by reference to Exhibit 10.29 to
the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995)...............................
10.30 Lease Agreement between National Golf Paradise Hills Golf
Course Properties, Inc. and Golf (incorporated by reference
to Enterprises, Inc. with respect to Exhibit 10.2 to the
Registrant's Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1996)................................
10.31 Expense Allocation Agreement between National Golf
Properties, Inc. and GEI Acquisition Corporation, dated
February 2, 1996 (incorporated by reference to Exhibit 10.4
to the Registrant's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1996)......................
*10.32 Amendment No.4 to Credit Agreement dated as of April 1,
1996, among Bank of America National Trust and Savings
Association, National Golf Operating Partnership, L.P. and
National Golf Properties, Inc...............................
11.1 Statement regarding computation of per share earnings
(incorporated by reference to Exhibit 11.1 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995)....................................
21.1 List of Subsidiaries of National Golf Properties, Inc.
(incorporated by reference to Exhibit 22.1 to the
Registrant's Report on Form 8-B dated December 29, 1995)....
*23.1 Consent of KPMG Peat Marwick LLP............................
*23.2 Consent of Coopers & Lybrand L.L.P..........................
*23.3 Consent of Latham & Watkins (included in the Opinion filed
as Exhibit 5.1 to this Registration Statement)..............
*24.1 Power of Attorney (included in signature pages contained in
this Registration Statement)................................
*27.1 Financial Data Schedule
*99.1 Form of NGP Proxy Card
*99.2 Form of GEI Proxy Card
</TABLE>
- ---------------------
* - Filed herewith
II-6
<PAGE>
ITEM 22. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to section 13(a) or 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to section 15(d) of the Exchange Act) that is
incorporated by reference in this Registration Statement shall be deemed to
be a new registration statement relating to the securities offered herein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(b) The undersigned Registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
(c) The undersigned Registrant undertakes that every prospectus (i) that is
filed pursuant to paragraph (b) immediately preceding, or (ii) that
purports to meet the requirements of section 10(a)(3) of the Securities Act
and is used in connection with an offering of securities subject to Rule
415, will be filed as a part of an amendment to this Registration Statement
and will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act
as is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(e) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11, or 13 of this form, within one business day of
receipt of such request, and to send the incorporated documents by first
class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of this
Registration Statement through the date of responding to the request.
(f) The undersigned Registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in this Registration Statement when it became effective.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Santa Monica, State of California, on June 20, 1996.
National Golf Properties, Inc.
By: /s/ EDWARD R. SAUSE
------------------------------------
Edward R. Sause
Executive Vice President
Chief Financial Officer and Director
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears on the signature page to this Registration Statement constitutes and
appoints Richard C. Price, Edward R. Sause and Scott S. Thompson, and each of
them, his true and lawful attorneys-in-fact and agents, and each of them, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, and grants unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or each of them, or his substitute, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ DAVID G. PRICE Chairman of the Board of Directors June 20, 1996
- -----------------------
David G. Price
/s/ RICHARD C. PRICE President and Director June 20, 1996
- ----------------------- (Principal Executive Officer)
Richard C. Price
/s/ EDWARD R. SAUSE Executive Vice President, Chief June 20, 1996
- ----------------------- Financial Officer and Director
Edward R. Sause (Principal Financial and Accounting
Officer)
/s/ RICHARD A. ARCHER Director June 20, 1996
- -----------------------
Richard A. Archer
/s/ JOHN C. CUSHMAN, III Director June 20, 1996
- ------------------------
John C. Cushman, III
/s/ BRUCE KARATZ Director June 20, 1996
- -----------------------
Bruce Karatz
/s/ CHARLES S. PAUL Director June 20, 1996
- -----------------------
Charles S. Paul
</TABLE>
II-8
<PAGE>
[LETTERHEAD OF LATHAM & WATKINS]
EXHIBIT 5.1
June 21, 1996
National Golf Properties, Inc.
1448 15th Street, Suite 200
Santa Monica, California 90404
Re: Registration Statement No. 333- ; Maximum of
---------------------------------------------------
2,128,000 shares of Common Stock, par value $.01 per share.
-----------------------------------------------------------
Ladies and Gentlemen:
In connection with the registration by National Golf Properties, Inc.,
a Maryland corporation (the "Company"), of a maximum of 2,128,000 shares of
common stock of the Company, par value $.01 per share (the "Shares"), under the
Securities Act of 1933, as amended (the "Act"), on Form S-4 filed with the
Securities and Exchange Commission (the "Commission") on June 21, 1996 (File No.
333-_____) (the "Registration Statement"), you have requested our opinion with
respect to the matters set forth below.
In our capacity as your counsel in connection with such registration,
we are familiar with the proceedings taken and proposed to be taken by the
Company in connection with the authorization, issuance and sale of the Shares,
and for the purposes of this opinion, have assumed such proceedings will be
timely completed in the manner presently proposed. In addition, we have made
such legal and factual examinations and inquiries, including an examination of
originals or copies certified or otherwise identified to our satisfaction of
such documents, corporate records and instruments, as we have deemed necessary
or appropriate for purposes of this opinion.
In our examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, and the
conformity to authentic original documents of all documents submitted to us as
copies.
We are opining herein as to the effect on the subject transaction only
of the internal laws of the State of Maryland, and we express no opinion with
respect to the applicability thereto, or the effect thereon, of the laws of any
other jurisdiction or as to any matters of municipal law or the laws of any
other local agencies within the state.
Subject to the foregoing, it is our opinion that the Shares have been
duly authorized, and, upon issuance, delivery and payment therefor in the manner
contemplated by the Registration Statement, will be validly issued, fully paid
and nonassessable.
<PAGE>
National Golf Properties, Inc.
June 21, 1996
Page 2
We consent to your filing this opinion as an exhibit to the
Registration Statement and to the reference to our firm contained under the
heading "Legal Opinions."
Very truly yours,
LATHAM & WATKINS
<PAGE>
[LETTERHEAD OF LATHAM & WATKINS]
EXHIBIT 8.1
June 21, 1996
National Golf Properties, Inc.
1448 15th Street, Suite 200
Santa Monica, California 90404
Re: Registration Statement on Form S-4
----------------------------------
Ladies and Gentlemen:
We have acted as counsel to National Golf Properties, Inc., a Maryland
corporation (the "Company"), in connection with the registration by the Company
of up to 2,128,000 shares of common stock of the Company, par value $.01 per
share, under the Securities Act of 1933, as amended, on Form S-4 filed with the
Securities and Exchange Commission (the "Commission") on June 21, 1996 (File No.
333-_____) (in the form declared effective, the "Registration Statement"), and
in connection with the Asset Purchase and the Merger (as such terms are defined
in the Registration Statement).
In our capacity as counsel to the Company, we have made such legal and
factual examinations and inquiries, including an examination of originals or
copies certified or otherwise identified to our satisfaction of such documents,
corporate records and other instruments, as we have deemed necessary or
appropriate for purposes of this opinion. In our examination, we have assumed
the authenticity of all documents submitted to us as originals, the genuineness
of all signatures thereon, the legal capacity of natural persons executing such
documents and the conformity to authentic original documents of all documents
submitted to us as copies.
This opinion is based on various assumptions, and is conditioned upon
certain representations made by the Company as to factual matters through a
certificate of an officer of the Company (the "Officer's Certificate"). Also,
this opinion is based upon the factual representations of the Company concerning
its business and properties as set forth in the Registration Statement. In
addition, we have relied, with your permission, exclusively upon the opinion of
Ballard Spahr Andrews & Ingersoll, counsel for the Company dated June 21, 1996,
with respect to certain matters of Maryland law. Furthermore, we have assumed
that the Asset Purchase and the Merger will be consummated pursuant to
<PAGE>
the terms of the Acquisition Agreement (as such term is defined in the
Registration Statement), including the exhibits thereto.
We are opining herein as to the effect on the subject transaction only
of the federal income tax laws of the United States and we express no opinion
with respect to the applicability thereto, or the effect thereon, of other
federal laws, the laws of any other jurisdiction or as to any matters of
municipal law or the laws of any other local agencies within any state.
Based upon the facts set forth in the Registration Statement and the
Officer's Certificate, it is our opinion that the information set forth under
the caption "Material Federal Income Tax Consequences" in the Joint Proxy
Statement - Prospectus included within the Registration Statement, to the extent
that such information constitutes matters of law, summaries of legal matters, or
legal conclusions, has been reviewed by us and is correct in all material
respects. In addition, the opinions set forth under the caption "Material
Federal Tax Consequences-Opinions of Counsel" in the Joint Proxy Statement -
Prospectus are hereby confirmed as the opinions of Latham & Watkins.
No opinion is expressed as to any matter not discussed herein.
This opinion is based on various statutory provisions, regulations
promulgated thereunder and interpretations thereof by the Internal Revenue
Service and the courts having jurisdiction over such matters, all of which are
subject to change either prospectively or retroactively. Also, any variation or
difference in the facts from those set forth in the Registration Statement or
the Officer's Certificate may affect the conclusions stated herein.
This opinion is rendered only to you and is solely for your benefit
and the benefit of Golf Enterprises, Inc. and its stockholders (collectively,
the "Parties") in connection with the transactions covered hereby. This opinion
may not be relied upon by the Parties for any other purpose, or furnished to,
quoted to, or relied upon by any other person, firm or corporation for any
purpose, without our prior written consent.
Very truly yours,
LATHAM & WATKINS
<PAGE>
- --------------------------------------------------------------------------------
EXHIBIT 10.32
[LOGO OF BANK OF AMERICA] AMENDMENT TO DOCUMENTS
- --------------------------------------------------------------------------------
AMENDMENT NO. 4 TO CREDIT AGREEMENT
This Amendment No. 4 (the "Amendment") dated as of April 1, 1996, among Bank
of America National Trust and Savings Association, a national banking
association ("Bank") and National Golf Operating Partnership, L.P., a Delaware
limited partnership ("Borrower"), and National Golf Properties, Inc., a
Delaware corporation (the "REIT").
RECITALS
--------
A. The parties hereto entered into a certain Credit Agreement dated as of
September 29, 1993, as previously amended (the "Agreement").
B. The parties hereto desire to further amend the Agreement.
AGREEMENT
---------
1. Definitions. Capitalized terms used but not defined in this Amendment
-----------
shall have the meaning given to them in the Agreement.
2. Amendments. The Agreement is hereby amended as follows:
----------
2.1 In the definition of "Availability Period" in Article 1 of the
Agreement, the date "July 1, 1996" is substituted for the date "April 1, 1996".
3. Effect of Amendment. Except as provided in this Amendment, all of the
-------------------
terms and conditions of the Agreement shall remain in full force and effect.
This Amendment is executed as of the date stated at the beginning of this
Amendment.
Bank of America National Golf Operating Partnership, L.P.
National Trust and Savings Association
By: National Golf Properties, Inc.
Its General Partner
X /s/ SHERYL BOND X /s/ EDWARD R. SAUSE
--------------------------------- -----------------------------------
By: Sheryl Bond, Vice President By: Edward R. Sause
Title: Executive Vice President
and Chief Financial Officer
National Golf Properties, Inc.
X /s/ EDWARD R. SAUSE
-----------------------------------
By: Edward R. Sause
Title: Executive Vice President
and Chief Financial Officer
- --------------------------------------------------------------------------------
-1-
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Golf Enterprises, Inc.:
We consent to the use of our reports included in this registration statement on
Form S-4 of National Golf Properties, Inc., and to the references to our firm
under the heading "Experts" in the registration statement.
KPMG Peat Marwick LLP
Dallas, Texas
June 21, 1996
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
National Golf Properties, Inc. on Form S-4 of our report dated February 28,
1996, on our audits of the consolidated financial statements and financial
statement schedule of National Golf Properties, Inc. as of December 31, 1995 and
1994 and for the years then ended and the period August 18, 1993 through
December 31, 1993 and the combined financial statements of Golf Properties Group
(Predecessor Affiliates) for the period January 1, 1993 through August 17, 1993,
which report is included in Amendment No. 2 to the Annual Report on Form 10-K/A.
We also consent to the inclusion in the registration statement of National Golf
Properties, Inc. on Form S-4 of our report dated March 1, 1996, on our audit of
the combined financial statements of Golf Enterprises, Inc. and Subsidiaries'
Business Related to the Purchased Assets as of December 31, 1995 and for the
year then ended.
We also consent to the incorporation by reference in the registration statement
of National Golf Properties, Inc. on Form S-4 of our report dated February 28,
1996, on our audits of the consolidated financial statements of American Golf
Corporation and Subsidiaries as of December 31, 1995 and 1994 and for the years
then ended and the ten month period ended December 31, 1993, which report is
included in Amendment No. 2 to the Annual Report on Form 10-K/A. We also
consent to the references to our Firm under the caption "Experts."
Coopers & Lybrand L.L.P.
Los Angeles, California
June 20, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> MAR-31-1996 DEC-31-1995
<CASH> 817 1,108
<SECURITIES> 0 0
<RECEIVABLES> 3,065 3,440
<ALLOWANCES> 127 133
<INVENTORY> 1,920 1,692
<CURRENT-ASSETS> 5,771 6,175
<PP&E> 91,860 87,254
<DEPRECIATION> (14,455) (11,134)
<TOTAL-ASSETS> 86,711 85,848
<CURRENT-LIABILITIES> 5,106 4,502
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 32,236 32,801
<TOTAL-LIABILITY-AND-EQUITY> 86,711 85,848
<SALES> 2,348 12,781
<TOTAL-REVENUES> 8,583 40,678
<CGS> 1,286 6,399
<TOTAL-COSTS> 6,953 29,622
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 23 192
<INTEREST-EXPENSE> 934 3,506
<INCOME-PRETAX> (613) 959
<INCOME-TAX> (245) 384
<INCOME-CONTINUING> (368) 575
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (368) 575
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
<PAGE>
EXHIBIT 99.1
NATIONAL GOLF PROPERTIES, INC.
ANNUAL MEETING OF STOCKHOLDERS -- JULY 25, 1996
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of NATIONAL GOLF PROPERTIES, INC., a Maryland
corporation ("NGP"), revoking all prior proxies, does hereby nominate,
constitute and appoint Richard C. Price and Edward R. Sause, or either of
them, the true and lawful proxies, agents and attorneys-in-fact of the
undersigned, with full power of substitution to vote all shares of common
stock of NGP, standing in the name of the undersigned on NGP's books at the
close of business on April 30, 1996, at the Annual Meeting of Stockholders to
be held at the Museum of Flying, 2772 Donald Douglas Loop North, Santa Monica,
California on July 25, 1996 at 9:00 a.m. local time (or at any adjournments or
postponements thereof) (the "Annual Meeting"), with all the powers which would
be possessed by the undersigned if personally present, upon the following
proposals described in the accompanying Joint Proxy Statement--Prospectus
dated June 21, 1996 (the "Joint Proxy Statement--Prospectus").
(Continued and to be signed on other side)
<PAGE>
Please mark
your votes
as in this [X]
example
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE STOCK ISSUANCE CONTEMPLATED
BY PROPOSAL 1 BELOW AND "FOR" THE ELECTION OF THE NAMED NOMINEES.
1. Proposal to approve the issuance of up to 2,128,000 shares of NGP Common
Stock as partial consideration for NGP's purchase of 20 golf course
properties and related assets owned by Golf Enterprises, Inc. ("GEI")
pursuant to an Asset Purchase Agreement and Agreement and Plan of Merger
dated as of February 2, 1996, as amended ("The Acquisition Agreement")
among NGP, GEI Acquisition Corporation and GEI.
FOR AGAINST ABSTAIN
[_] [_] [_]
2. Election of Directors To vote for all of the following nominees: John C.
Cushman III, Charles S. Paul, Edward R. Sause.
For all nominees except: _______________
FOR WITHHOLD
[_] [_]
3. In their discretion, to vote on any other matter that may properly come
before the Annual Meeting and at any adjournments or postponements thereof.
PLEASE FILL IN, DATE, SIGN AND MAIL THIS PROXY
CARD IN THE ENCLOSED ENVELOPE AS SOON AS
POSSIBLE TO ENSURE RECEIPT PRIOR TO THE ANNUAL
MEETING. THE ENCLOSED ENVELOPE REQUIRES NO
POSTAGE IF MAILED IN THE UNITED STATES.
IF NO CONTRARY INSTRUCTION IS INDICATED ABOVE, THIS PROXY WILL BE VOTED FOR
APPROVAL OF THE STOCK ISSUANCE CONTEMPLATED BY THE ACQUISITION AGREEMENT AND
FOR ELECTION OF THE NAMED NOMINEES.
The undersigned hereby acknowledges receipt of the accompanying Notice of An-
nual Meeting of Stockholders dated June 26, 1996 and the Joint Proxy State-
ment--Prospectus.
I PLAN TO ATTEND THE ANNUAL MEETING. [_]
Signature(s) ____________________________ Date _______________________ , 1996
Note: Please sign name exactly as your name (or names) appears printed in the
space above. When signing as attorney, executor, administrator, trustee or
guardian, please give full title. If more than one trustee, all should
sign. All joint owners must sign.
<PAGE>
EXHIBIT 99.2
GOLF ENTERPRISES, INC.
SPECIAL MEETING OF STOCKHOLDERS -- JULY 25, 1996
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of GOLF ENTERPRISES, INC., a Kansas Corporation
("GEI"), revoking all prior proxies, does hereby nominate, constitute and
appoint Robert H. Williams and John H. Berndsen, or either of them, the true
and lawful proxies, agents and attorneys-in-fact of the undersigned, with full
power of substitution to vote all shares of common stock of GEI, standing in
the name of the undersigned on GEI's books at the close of business on June 4,
1996, at the Special Meeting of Stockholders to be held at the Doubletree
Hotel at Park West, 1590 LBJ Freeway, Dallas, Texas on July 25, 1996 at 10:00
a.m. local time (or at any adjournments or postponements thereof) (the
"Special Meeting"), with all the powers which would be possessed by the
undersigned if personally present, upon the following proposals described in
the accompanying Joint Proxy Statement--Prospectus dated June 21, 1996 (the
"Joint Proxy Statement--Prospectus").
(Continued and to be signed on other side)
<PAGE>
Please mark
your votes
as in this [X]
example
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ADOPTION AND APPROVAL OF
THE AGREEMENT DESCRIBED IN PROPOSAL 1 BELOW AND THE TRANSACTIONS CONTEMPLATED
THEREBY, INCLUDING THE ASSET PURCHASE AND THE MERGER.
1. Proposal to adopt and approve the Asset Purchase Agreement and Agreement
and Plan of Merger dated as of February 2, 1996, as amended (The
"Acquisition Agreement") among GEI, National Golf Properties, Inc. and GEI
Acquisition Corporation, and the transactions contemplated thereby,
including the Asset Purchase and the Merger.
FOR AGAINST ABSTAIN
[_] [_] [_]
2. In their discretion, to vote on any other matter that may properly come
before the Special Meeting and at any adjournments or postponements
thereof.
PLEASE FILL IN, DATE, SIGN AND MAIL THIS PROXY
CARD IN THE ENCLOSED ENVELOPE AS SOON AS
POSSIBLE TO ENSURE RECEIPT PRIOR TO THE SPECIAL
MEETING. THE ENCLOSED ENVELOPE REQUIRES NO
POSTAGE IF MAILED IN THE UNITED STATES.
IF NO CONTRARY INSTRUCTION IS INDICATED ABOVE, THIS PROXY WILL BE VOTED FOR
ADOPTION AND APPROVAL OF THE ACQUISITION AGREEMENT AND THE TRANSACTIONS CON-
TEMPLATED THEREBY, INCLUDING THE ASSET PURCHASE AND THE MERGER.
The undersigned hereby acknowledges receipt of the accompanying Notice of Spe-
cial Meeting of Stockholders dated June 26, 1996 and the Joint Proxy State-
ment--Prospectus.
I PLAN TO ATTEND THE SPECIAL MEETING. [_]
Signature(s) ____________________________ Date _______________________ , 1996
Note: Please sign name exactly as your name (or names) appears printed in the
space above. When signing as attorney, executor, administrator, trustee or
guardian, please give full title. If more than one trustee, all should
sign. All joint owners must sign.
