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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 17, 1998
REGISTRATION NO. 333-_________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
NATIONAL GOLF PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
MARYLAND 95-4549193
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2951 28TH STREET, SUITE 3001
SANTA MONICA, CALIFORNIA 90405
(310) 664-4100
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
WILLIAM C. REGAN
VICE PRESIDENT - CONTROLLER AND TREASURER
NATIONAL GOLF PROPERTIES, INC.
2951 28TH STREET, SUITE 3001
SANTA MONICA, CALIFORNIA 90405
(310) 664-4100
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
DAVID M. HERNAND, ESQ.
LATHAM & WATKINS
633 WEST FIFTH STREET, SUITE 4000
LOS ANGELES, CALIFORNIA 90071
(213) 485-1234
Approximate date of commencement of proposed sale to the public: From time to
time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [_]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act of 1933, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act of 1933, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
AMOUNT TO BE PRICE PER AGGREGATE OFFERING AMOUNT OF
TITLE OF SHARES TO BE REGISTERED REGISTERED SHARE (2) PRICE (3) REGISTRATION FEE
===================================================================================================================================
<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share........................ 2,800,616(1) $27.31 $76,484,823 $21,263
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(1) Including an indeterminate number of shares which may be issued by the
Company with respect to such shares of Common Stock by way of a stock
dividend or stock split or in connection with a stock combination,
recapitalization, merger, consolidation or otherwise.
(2) Based upon the average of the high and low prices of the shares of Common
Stock reported on the New York Stock Exchange on November 12, 1998,
pursuant to Rule 457(c) of the Securities Act of 1933.
(3) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 of the Securities Act of 1933.
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 OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
===============================================================================
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
The information in this prospectus is not complete and may be changed. The
securities covered by this prospectus may not be sold until the registration
statement filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offe or sale is not
permitted.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS
- ----------
SUBJECT TO COMPLETION, DATED NOVEMBER 17, 1998
NATIONAL GOLF PROPERTIES, INC.
2,800,616 Shares
COMMON STOCK
_____________
This prospectus relates to the possible offer and sale from time to time of
up to 2,800,616 shares of our common stock, par value $0.01 per share, by the
"Selling Stockholders" identified in this prospectus. We will not receive any
of the proceeds from the sale of the shares of common stock offered by the
Selling Stockholders. See "Plan of Distribution."
The Selling Stockholders currently own units of common limited partnership
interest in National Golf Operating Partnership, L.P. (the "Operating
Partnership") which were issued to the Selling Stockholders in connection with
the formation of our company in August 1993 and in connection with the Operating
Partnership's acquisition of certain golf course properties held under option
since 1993.
Pursuant to the partnership agreement for the Operating Partnership, each
Selling Stockholder has the right to require us to acquire some or all of the
units which the Selling Stockholder owns in exchange for shares of our common
stock or, at the option of the Selling Stockholder, cash. The Selling
Stockholders are subject to limitations on the number of units that can be
exchanged for shares of common stock in a twelve-month period as well as other
ownership limits imposed by our charter in order to maintain our status as a
real estate investment trust. The 2,800,616 shares of common stock referred to
in this prospectus represent shares which we may issue to the Selling
Stockholders in exchange for their units.
We are registering the offer and sale of these shares pursuant to our
contractual obligations in order to provide the Selling Stockholders with freely
tradable securities, but the registration of such shares does not necessarily
mean that all of the shares will be issued in satisfaction of the Selling
Stockholders' exchange rights or that any of the shares will be offered or sold
by the Selling Stockholders.
Our shares of common stock are traded on the New York Stock Exchange (the
"NYSE") under the symbol "TEE." On November 16, 1998, the closing sale price of
our common stock was $27.63.
SEE "RISK FACTORS" BEGINNING ON PAGE 4 FOR CERTAIN INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS IN SHARES OF OUR COMMON STOCK.
_________________
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES OR PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
_________________
THE DATE OF THIS PROSPECTUS IS NOVEMBER _____, 1998
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TABLE OF CONTENTS
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PAGE
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Where You Can Find More Information 2
Forward Looking Statements 3
The Company 4
Risk Factors 4
Description of Capital Stock 11
Partnership Agreement 16
Certain provisions of Maryland Law and the Company's Charter and Bylaws 21
Federal Income Tax Considerations 26
Selling Stockholders 39
Plan of Distribution 40
Legal Matters 41
Experts 41
</TABLE>
WHERE YOU CAN FIND MORE INFORMATION
National Golf Properties, Inc. (the "Company", "we" or "us") files annual,
quarterly and special reports, proxy statements and other information with the
Securities and Exchange Commission (the "SEC"). You may read and copy any
materials that we have filed with the SEC at the SEC's Public Reference Room at
450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on
the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
We file information electronically with the SEC. The SEC maintains an Internet
site that contains reports, proxy and information statements and other
information regarding issuers that file electronically with the SEC. The
address of the SEC's Internet site is http://www.sec.gov. You also may inspect
copies of these materials and other information about us at The New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005.
The SEC allows us to "incorporate by reference" the information we file with
them, which means that we can disclose important information to you by referring
you to those documents. The information incorporated by reference is considered
to be part of this prospectus, and information that we file later with the SEC
will automatically update and supersede this information. We incorporate by
reference the documents listed below and any future filings we will make with
the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), before the termination of the offering
of the shares made under this prospectus:
. Report on Form 10-K for the fiscal year ended December 31, 1997, filed
on February 10, 1998; and Report on Form 10-K/A for the fiscal year
ended December 31, 1997, filed on September 2, 1998.
. Reports on Form 10-Q for the fiscal quarters ended March 31, June 30
and September 30, filed on May 15, 1998, August 13, 1998 and November
12, 1998, respectively, and Report on Form 10-Q/A for the fiscal
quarter ended March 31, 1998 filed on September 2, 1998.
. Proxy Statement for Annual Meeting of Stockholders held on May 5, 1998.
. Current Report on Form 8-K filed on March 26, 1998.
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We will provide without charge to each person who requests it in writing a
copy of any or all of the documents incorporated by reference in this
prospectus, except the exhibits to those documents (unless the exhibits are
specifically incorporated by reference in the documents). You should direct
requests for these copies to National Golf Properties, Inc., 2951 28th Street,
Suite 3001, Santa Monica, California 90405, Attention: Investor Relations;
telephone number (310) 664-4100.
This prospectus is part of a registration statement we filed with the SEC.
The prospectus and any accompanying prospectus supplement do not contain all of
the information included in the registration statement. We have omitted certain
parts of the registration statement in accordance with the rules and regulations
of the SEC. For further information, we refer you to the registration
statement, including its exhibits and schedules. Statements contained in this
prospectus and any accompanying prospectus supplement about the provisions or
contents of any contract, agreement or any other document referred to are not
necessarily complete. For each of these contracts, agreements or documents
filed as an exhibit to the registration statement, we refer you to the actual
exhibit for a more complete description of the matters involved. You should not
assume that the information in this prospectus or any supplement is accurate as
of any date other than the date on the front of those documents.
FORWARD-LOOKING STATEMENTS
In addition to historical information, we have made forward-looking
statements in this prospectus and in the documents incorporated by reference in
this prospectus, such as those pertaining to our capital resources, performance
of our golf course properties and result of operations. "Forward-looking
statements" are projections, plans, objectives or assumptions about the Company.
Forward-looking statements involve numerous risks and uncertainties and you
should not place undue reliance on such statements since there can be no
assurance that the events or circumstances reflected in these statements will
actually occur. Certain such forward-looking statements can be identified by
the use of forward-looking terminology such as "believes," "expects," "may,"
"will," "should," "seeks," "approximately," "intends," "plans," "pro forma,"
"estimates," or "anticipates" or the negative thereof or other variations
thereof or comparable terminology, or by discussions of strategy, plans or
intentions. Such forward-looking statements are necessarily dependent on
assumptions, data or methods that may be incorrect or imprecise and they may be
incapable of being realized. The following factors, among others, could cause
actual results and future events to differ materially from those set forth or
contemplated in the forward-looking statements: defaults or non-renewal of
leases, increased interest rates and operating costs, failure to obtain
necessary outside financing, difficulties in identifying properties to acquire
and in effecting acquisitions, failure to successfully integrate acquired
properties and operations, failure to qualify as a real estate investment trust
under the Internal Revenue Code of 1986, as amended (the "Code"), environmental
uncertainties, risks related to natural disasters and financial market
fluctuations. Our success also depends upon economic trends generally,
including interest rates, income tax laws, governmental regulation, legislation,
population changes and those risk factors discussed in this prospectus under the
heading "Risk Factors." Readers are cautioned not to place undue reliance on
forward-looking statements, which reflect management's analysis only. We assume
no obligation to update forward-looking statements.
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THE COMPANY
Although National Golf Properties, Inc. and National Golf Operating
Partnership, L.P. are separate entities, for ease of reference, the terms "the
Company," "we," "us," and "our" refer to the business and properties of both of
these entities and our subsidiaries, unless the context indicates otherwise.
We are 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. As of November 1, 1998,
our portfolio consists of 131 golf courses, which courses are geographically
diversified among 26 states.
We lease our golf courses to experienced and creditworthy operators under
long-term triple net leases. The lessees of such courses pay minimum base rent
on each property. In addition, our leases contain a percentage rent feature
that enables us to participate in growth in revenues of the golf courses. The
leases include strict maintenance standards and require the lessees to pay
substantially all operating expenses.
The Operating Partnership holds all of our assets and conducts all of our
operations. Some of our golf course properties are owned by partnerships in
which the Operating Partnership acts as managing general partner and owns at
least a 50% interest. We are the sole general partner of the Operating
Partnership and we currently own 58.5% of the common partnership interests in
the Operating Partnership. The limited partners are individuals, partnerships
and others who have contributed their properties in exchange for units of common
limited partnership interest ("Common Units") or cash in exchange for units of
preferred limited partnership interest ("Preferred Units").
National Golf Properties, Inc. is a Maryland corporation founded in 1993 by
David G. Price, our Chairman of the Board of Directors. Our executive offices
are located at 2951 28th Street, Suite 3001, Santa Monica, California 90405,
and our telephone number is (310) 664-4100.
RISK FACTORS
Set forth below are the risks that we believe are material to investors who
purchase or own our common stock. In addition to other information contained or
incorporated by reference in this prospectus or in an accompanying prospectus
supplement, you should carefully consider the following factors before acquiring
shares of common stock offered hereby.
CONFLICTS OF INTEREST
Competition from Other Golf Courses Operated by AGC. American Golf
Corporation ("AGC") is a golf course management company that is responsible for
managing 126 of our golf course properties (including one golf course securing a
participating mortgage loan). Excluding our properties, AGC and its
subsidiaries also currently manage and operate more than 157 golf courses and
related facilities located in 31 states and the United Kingdom. Some of these
golf courses and related facilities are located in the same geographic areas as
our golf properties and may compete with them. AGC's operation of its other
golf courses may subject David G. Price, as the Chairman of the Board of
Directors of the Company and a significant stockholder and Chairman of the Board
of Directors of AGC, to certain conflicts of interest. No limitations exist on
the operation of any competitive golf courses and related facilities by AGC or
other affiliates of Mr. Price. Substantial restrictions, however, exist on the
ownership of golf courses by AGC or other affiliates of Mr. Price.
Other Conflicts. Other transactions involving us and affiliates of David G.
Price also may give rise to conflicts of interest, including conflicts relating
to selection of operators for golf courses acquired in the future
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and consideration of our right of first refusal to acquire Common Units upon any
proposed transfer of Common Units as provided in the partnership agreement for
the Operating Partnership. To mitigate such conflicts, however, the Independent
Committee of our Board of Directors is required to approve any such
transactions. See "Certain Provisions of Maryland Law and the Company's Charter
and Bylaws--Corporate Governance" on page 22.
ADVERSE IMPACT ON THE COMPANY'S DISTRIBUTIONS OF FAILURE OF THE COMPANY TO
REMAIN QUALIFIED AS A REIT
We currently operate and have operated since 1993 in a manner that is
intended to allow us to qualify as a REIT for federal income tax purposes under
the Internal Revenue Code of 1986, as amended (the "Code").
Qualification as a REIT involves the application of highly technical and
complex Code provisions for which there are only limited judicial and
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 our control may affect our ability to qualify
as a REIT. For example, in order to qualify as a REIT, at least 95% of our
gross income in any year must be derived from qualifying sources. Also, we must
make distributions to stockholders aggregating annually at least 95% of our net
taxable income (excluding capital gains). In addition, legislation, new
regulations, administrative interpretations or court decisions may significantly
change the tax laws with respect to qualification as a REIT or the federal
income tax consequences of such qualification.
If we fail to qualify as a REIT, we would not be allowed a deduction for
distributions to stockholders in computing our taxable income and would be
subject to federal income tax at regular corporate rates. We also could be
subject to the federal alternative minimum tax. Unless we are entitled to
relief under specific statutory provisions, we could not elect to be taxed as a
REIT for four taxable years following the year during which we were
disqualified. Therefore, if we lose our REIT status, the funds available for
distribution to you would be reduced substantially for each of the years
involved. "See Federal Income Tax Considerations--Failure to Qualify," on page
34.
OWNERSHIP LIMIT
To maintain our qualification as a REIT, not more than 50% in value of our
outstanding shares of capital stock may be owned, actually or constructively, by
five or fewer individuals (as defined in the Code). In addition, the Code
imposes certain other limitations on the ownership of the stock of a REIT. See
"Federal Income Tax Considerations" on page 26. For the purpose of preserving
our tax status as a REIT, our charter prohibits actual or constructive ownership
of more than 9.8% (by number or value, whichever is more restrictive) of the
outstanding common stock by any person (the "Ownership Limit"), and prohibits
actual or constructive ownership of the outstanding shares of Series A Preferred
Stock (as defined below) by any single stockholder so that no such stockholder,
taking into account their ownership of any other capital stock of the Company,
may own in excess of 9.8% (by value) of the outstanding shares of our capital
stock. The constructive ownership rules are complex and may cause shares of our
capital 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 shares of our common stock, or the acquisition of less than 9.8% (by
value) of the outstanding shares of our common stock and Series A Preferred
Stock (or the acquisition of an interest in an entity which owns shares of
common stock or Series A Preferred 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 shares of common stock or
our capital stock, and thus subject such shares of common stock to the Ownership
Limit or such shares of Series A Preferred Stock to the ownership limit relating
to the Series A Preferred Stock. Actual or constructive
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ownership of shares of our common stock and/or Series A Preferred Stock in
excess of such limits 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 such limits. See
"Description of Capital Stock--Restrictions on Ownership and Transfer" on page
13.
DEPENDENCE OF THE COMPANY'S REVENUES AND ABILITY TO MAKE DISTRIBUTIONS ON AGC AS
THE PRIMARY LESSEE OF THE COMPANY'S GOLF COURSES
AGC is the lessee of all but five of the golf courses and related facilities
currently owned by us. Our revenues and ability to pay distributions are
largely dependent on rental payments by AGC under long-term leases relating to
its golf courses. The terms of the leases for our existing golf courses require
AGC to make monthly minimum rental payments for each of our golf courses and
additional quarterly payments calculated as a percentage of the revenues of each
such golf course. Our ability to increase distributions in the future will be
dependent, in part, on the growth of percentage rent payments under the leases,
which in turn will depend on the success of AGC in increasing the revenues of
our golf courses. AGC currently has sufficient assets and income to satisfy its
immediate obligations under its existing leases with us. However, we cannot be
sure that AGC will have such assets or income in the future or that AGC will
elect to renew any of such leases upon the expiration of their initial terms,
which range between 15 and 20 years.
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 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.
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, 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, our
ability to vary our portfolio promptly in response to changed conditions will be
limited. Our Board of Directors may establish limitations as it deems
appropriate from time to time, but currently does not limit the number of
properties in which we will seek to invest or on the concentration of
investments in any one geographic region. While we are authorized to invest in
various types of income-producing real properties, our current strategy
concentrates on acquiring golf courses and related facilities. Consequently,
the Company will be subject to the risks associated with investments in a single
industry.
Environmental Matters. We are subject to various federal, state and local
laws, ordinances and regulations that make property owners or operators liable
for the costs of removal or remediation of certain
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hazardous substances released on in its property. These laws often impose
liability without regard to whether the owner or operator knew of, or was
responsible for, the release of the hazardous substances. The presence of
hazardous substances on our properties or our failure to properly remediate such
substances may adversely affect our ability to sell, rent or borrow against such
contaminated property.
We have not been notified by any governmental authority of any material non-
compliance, liability or other claim in connection with any of our properties,
and we are not aware of any other environmental condition with respect to any of
our properties that is likely to be material. All of our golf courses have been
subjected to a preliminary environmental investigation. Such investigation
generally involves 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. However, such inspection generally has not involved invasive
procedures, such as soil sampling or ground water analysis. As a result, there
can be no assurance that the environmental studies of our properties would have
revealed all environmental conditions, liabilities or compliance concerns.
Also, environmental conditions, liabilities or compliance concerns may have
arisen at a property after the related review was completed. Although all of
our lease agreements provide that the lessees will indemnify us for certain
potential environmental liabilities at the golf courses, there can be no
assurance that the indemnification provided by such leases would be sufficient
to satisfy all environmental liabilities.
Uninsured Loss. Our tenants are required to carry comprehensive liability,
fire, flood (for certain courses) and extended coverage on all of our
properties. We believe that the policy specifications and insured limits are
customary for similar properties and all of our existing golf courses are
insured in accordance with industry standards. There are, however, certain
types of losses (generally of a catastrophic nature, such as those caused by
wars or earthquakes) which may be either uninsurable or not economically
insurable. Should an uninsured loss occur, we could lose both our invested
capital in and anticipated profits from a property.
POSSIBLE ADVERSE EFFECTS ON MARKET PRICE OF COMMON STOCK ARISING FROM SHARES
AVAILABLE FOR FUTURE SALE
Prevailing market prices for shares of our common stock could be adversely
affected by sales of a substantial number of shares of our common stock
(including shares issued in connection with the exchange or sale of Common
Units) or the perception that this could occur.
We may be required to issue to the holders of Common Units up to 8,738,394
shares of common stock if and when such holders exchange their Common Units for
shares of common stock, subject to the Ownership Limit and other restrictions
described below. We also may need to sell a similar number of shares of common
stock to raise funds to acquire Common Units if such holders elect to put their
Common Units to us for cash instead of exercising their exchange rights.
Holders of Common Units may not effect an exchange or put in a twelve-month
period ending on August 18 for more than one-third (or up to 75,000 Common
Units, if greater, in connection with any exchange) of the Common Units held by
such holder and certain related persons as of the date of the Company's initial
public offering, less the number of Common Units exchanged or put by such holder
and related persons during such twelve-month period.
We also may issue additional shares of our common stock or preferred stock
from time to time to raise funds to acquire additional properties or pay
operational expenses. In addition, under certain limited circumstances, we may
be required to issue shares of Series A Cumulative Redeemable Preferred Stock,
par value $0.01 per share (the "Series A Preferred Stock"), to existing holders
of Preferred Units designated as "Series A Cumulative Redeemable Preferred
Units" (the "Series A Preferred Units") upon exchange of such Series A Preferred
Units. See "Partnership Agreement--8% Series A Cumulative Redeemable Preferred
Units" on page 18.
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Existing holders of Common Units, including David G. Price and Dallas P.
Price, are not restricted under the partnership agreement from transferring
their Common Units to third parties or other holders of Common Units, subject to
the Operating Partnership's right of first refusal to purchase such Common Units
and certain other conditions of sale prior to any such disposition. However,
some of our debt instruments restrict the ability of David G. Price to dispose
of his Common Units under certain circumstances.
We have agreed to register the shares of common stock issuable upon exchange
of all Common Units held by the Selling Stockholders, and have filed a
registration statement (of which this prospectus is a part) pursuant to such
agreement. We also have granted certain registration rights with respect to
1,500,000 shares of Series A Preferred Stock issuable upon the exchange of
1,500,000 Series A Preferred Units issued by the Operating Partnership in a
private placement to an institutional investor in March and April of 1998.
EFFECT OF DEFAULTS UNDER THE COMPANY LEASES ON DISTRIBUTIONS TO STOCKHOLDERS
Our distributions to stockholders are dependent principally on rental
payments under the existing leases of our 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 our revenue and may increase
the amount available to make distributions to our stockholders. However, in the
event a lessee defaults on a lease, the rental payments we receive may decrease
or stop. The amounts available to make distributions also may decrease if the
golf courses that we acquire in the future yield lower than expected revenues.
Our distributions also are dependent on a number of other factors, such as:
. the amount of funds from operations available for distribution;
. our financial condition;
. any decision to reinvest funds rather than to distribute such funds;
. capital expenditures; and
. the annual distribution requirements under the REIT provisions of the
Code
(see "Federal Income Tax Considerations" on page 26).
To qualify as a REIT, we generally must distribute to our stockholders at
least 95% of our net taxable income each year. In addition, we will be subject
to a 4% nondeductible excise tax on the amount, if any, by which certain
distributions paid by us in any calendar year are less than the sum of 85% of
our ordinary income, 95% of our capital gain net income and 100% of our
undistributed income from prior years.
We intend to continue to make distributions to our stockholders to comply
with the 95% distribution requirements of the Code and to avoid the
nondeductible excise tax. Our income and cash flow consist primarily of rental
income from our golf courses. We might need to borrow funds on a short-term
basis to meet distribution requirements necessary to qualify as a REIT. These
short-term borrowing needs could result from differences in timing between the
actual receipt of income and inclusion of income for tax purposes, or the effect
of non-deductible capital expenditures, the creation of reserves or required
debt or amortization payments. In this instance, we might need to borrow funds
to avoid adverse tax consequences even if the then prevailing market conditions
were not generally favorable for these borrowings.
For federal income tax purposes, distributions paid to our stockholders may
consist of ordinary income, capital gains, nontaxable return of capital or a
combination of those monies. We provide our stockholders with an annual
statement of our designation of the taxability of the distributions.
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LIMITS ON CHANGES IN CONTROL
Certain provisions of our charter and bylaws and Sections 3-602 and 3-702 of
the Maryland General Corporation Law, to which we are subject, could have the
effect of delaying, deferring or preventing a change in control of the Company
or the removal of existing management. As a result, such provisions could
prevent our stockholders from being paid a premium for their shares of common
stock. See "Certain Provisions of Maryland Law and the Company's Charter and
Bylaws--Business Combinations" on page 22, "--Control Share Acquisitions" on
page 23 and "--Corporate Governance" on page 22. In addition to the Ownership
Limit, our charter and bylaws:
. provide for a staggered Board of Directors;
. authorize the Board of Directors to issue preferred stock without
stockholder approval;
. grant the Board of Directors authority to amend our Bylaws; and
. require approval by one more than a majority of the Board of Directors
of any transaction involving a change of control of the Company and
amendments to our charter and bylaws.
The consent of the holders of a majority of the Common Units held by limited
partners also is required with respect to certain transactions involving the
disposition of all Common Units. Each of David G. Price and Dallas P. Price
(Mr. Price's former wife) may be deemed to control 41.1% of the outstanding
Common Units held by limited partners and, therefore, has the ability to
significantly influence any decision to effect such a disposition. The consent
of the holders of two-thirds of the outstanding shares of Series A Preferred
Stock, if any, also would be required with respect to certain transactions
involving a merger of the Company or a sale of substantially all of its assets.
INFLUENCE OF CERTAIN DIRECTORS AND SIGNIFICANT STOCKHOLDERS
Ability of David G. Price to Designate One Less than a Majority of our Board
of Directors. In addition to serving as Chairman of our Board of Directors,
David G. Price may be deemed to beneficially own approximately 2.8% of the
outstanding shares of common stock (and Common Units exchangeable for an
additional 22.3% of the outstanding shares of common stock, subject to the
Ownership Limit and restrictions on the number of Common Units that can be
exchanged in a twelve-month period). We have entered into a Director
Designation Agreement with Mr. Price pursuant to which Mr. Price and his family
have the right to designate for nomination or to fill any vacancies on our Board
of Directors one less than a majority of our Board of Directors so long as Mr.
Price or members of his family (a) continue to serve as directors or executive
officers of the Company and (b) together beneficially own at least 20% of the
outstanding shares of our common stock (including for these purposes shares
issuable upon exchange of Mr. Price's Common Units for shares of common stock
without regard to the Ownership Limit and other limitations on the number of
Common Units that can be exchanged in a twelve-month period). Accordingly, Mr.
Price has substantial influence over our Board of Directors and on the outcome
of any matters submitted to our stockholders for approval.
Independent Committee Actions. Our Board of Directors consists of seven
directors, three of which directors include David G. Price, the Chairman of our
Board of Directors, James M. Stanich, the President of the Company, and Edward
R. Sause, the Executive Vice President - Finance & Corporate Services of AGC.
The remaining four directors are unaffiliated with Mr. Price (the "Independent
Directors") and constitute the Independent Committee of the Board of Directors
(the "Independent Committee"). Transactions involving the Company and
affiliates of Mr. Price, such as negotiation and enforcement of leases, the
selection of operators
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for acquired golf courses and consideration of our right of first refusal to
acquire Common Units upon transfer by limited partners, requires the approval of
the Independent Committee. Certain other significant actions of our 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 the
holders of a majority of the Common Units held by limited partners. See "Certain
Provisions of Maryland Law and the Company's Charter and Bylaws--Corporate
Governance" on page 22. Each of Mr. Price and Dallas P. Price may be deemed to
control 41.1% of the outstanding Common Units held by limited partners and,
therefore, has the ability to significantly influence whether approval of such
limited partners is obtained.
YEAR 2000
Many of the world's computer systems currently identify years in a two digit
format, instead of a four digit format. These computer systems will be unable
to properly interpret dates beyond the year 1999, which could lead to
disruptions in our operations. This problem is commonly referred to as the Year
2000 issue.
We have identified Year 2000 risk in the following three areas:
. Our Computer Hardware and Software. We have replaced all of our
personal computers and most of our software with computers and
software that are Year 2000 compliant. We plan to install the
remaining software by the end of the second quarter of 1999. We also
have purchased new computer servers for installation by the end of
1998, with upgrades by the end of the second quarter of 1999. We
anticipate spending approximately $100,000 for such replacement
equipment and software. We will continue to conduct ongoing testing to
ensure Year 2000 compliance.
. Tenants' Computer Hardware and Software. We have identified key
tenants that we believe could have a material impact on our operations
if those tenants are not Year 2000 compliant. We are monitoring our
largest tenant, AGC, and have had preliminary discussions with other
tenants about their Year 2000 compliance. AGC has informed us that its
Year 2000 compliance project is progressing as planned and is expected
to be completed by September 1999. We will send written requests to
our other tenants to determine their Year 2000 compliance during 1999.
. Third-Party Service Providers. We have had preliminary discussions
with some of our service providers. We will send written requests to
our key service providers to determine their Year 2000 compliance
during 1999.
We do not currently have a comprehensive contingency plan for the Year 2000
problem. However, we intend to establish such a plan during 1999 as part of our
ongoing Year 2000 compliance effort.
Despite our efforts to identify and resolve Year 2000 compliance problems, we
cannot guarantee that all of our systems will be Year 2000 compliant or that
other companies on which we rely will be timely converted. As a result, our
operations could be interrupted or otherwise adversely affected.
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DESCRIPTION OF CAPITAL STOCK
The following summary of the terms of our capital stock does not purport to
be complete and is qualified by the Maryland General Corporation Law and our
charter and bylaws (copies of which are attached as exhibits to our Current
Report on Form 8-K dated September 26, 1995). See "Where You Can Find More
Information" on page 2.
GENERAL
Our charter authorizes us to issue up to 40,000,000 shares of common stock,
par value $.01 per share, and 5,000,000 shares of preferred stock, par value
$.01 per share. As of November 1, 1998, we have 12,509,895 shares of common
stock issued and outstanding. Our 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. As of November 1, 1998, our Board of
Directors has designated and reserved for issuance 1,500,000 shares of Series A
Preferred Stock, none of which have been issued.
COMMON STOCK
Holders of common stock are entitled to one vote per share on all matters
voted on by stockholders, including the election of directors. Except as
otherwise required by law or provided in the provisions of our charter regarding
the ownership of shares of common stock in excess of the Ownership Limit and
similar limitations imposed with respect to preferred stock and in resolutions
adopted by our Board of Directors designating the rights and preferences of the
Series A Preferred Stock and any other series of preferred stock, the holders of
shares of common stock exclusively possess all voting power. Our charter does
not provide for cumulative voting in the election of directors. Subject to any
preferential rights of the Series A Preferred Stock and any other outstanding
series of preferred stock and to the provisions of the charter regarding the
ownership of shares of common stock in excess of the Ownership Limit and similar
limitations imposed with respect to preferred stock, the holders of common stock
are entitled to such distributions as may be declared from time to time by the
Board of Directors from funds available therefor. We currently make quarterly
distributions.
Under Maryland law, stockholders generally are not liable for the Company's
debts or obligations. If the Company is liquidated, subject to the right of any
holders of preferred stock to receive preferential distributions, the holder of
each outstanding share of common stock will be entitled to participate pro rata
in the assets remaining after payment of, or adequate provision for, debts and
liabilities of the Company, including debts and liabilities arising out of our
status as general partner of the Operating Partnership.
Subject to the provisions of our charter regarding the ownership of shares
of common stock in excess of the Ownership Limit and similar limitations imposed
with respect to preferred stock, all shares of common stock have equal
distribution, liquidation and voting rights, and have no preference or exchange
rights. See "--Restrictions on Ownership and Transfer" on page 13.
Under Maryland law, a Maryland corporation generally cannot dissolve, amend
its charter, merge, sell all or substantially all of its assets, engage in a
share exchange or engage in similar transactions outside the ordinary course of
business unless approved by the affirmative vote of stockholders holding at
least two-thirds of the shares entitled to vote on the matter unless a lesser
percentage (but not less than a majority of all of the votes entitled to be cast
on the matter) is set forth in the corporation's charter. Under the Maryland
General Corporation Law, the term "substantially all of its assets" is not
defined and is, therefore, subject to Maryland common law and to judicial
interpretation and review in the context of the unique facts and circumstances
of any particular transaction. Our charter does not provide for a lesser
percentage in any such situation.
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Our charter authorizes the Board of Directors to reclassify any unissued
shares of capital stock into other classes or series of classes of stock and to
establish the number of shares in each class or series and to set the
preferences, conversion and other rights, voting powers, restrictions,
limitations and restrictions on ownership, limitations as to dividends or other
distributions, qualifications and terms or conditions of redemption for each
such class or series.
PREFERRED STOCK
We may issue preferred stock from time to time, in one or more series, as
authorized by the Board of Directors. Prior to the issuance of shares of each
series, the Board of Directors is required by the Maryland General Corporation
Law and our charter to fix for each series the terms, preferences, conversion or
other rights, voting powers, restrictions, limitations as to distributions,
qualifications and terms or conditions of redemption, as permitted by Maryland
law. Because the Board of Directors has the power to establish the preferences,
powers and rights of each series of preferred stock, it may afford the holders
of any series of preferred stock preferences, powers and rights, voting or
otherwise, senior to the rights of holders of shares of common stock.
8% SERIES A CUMULATIVE REDEEMABLE PREFERRED STOCK
The Board of Directors has designated 1,500,000 of our preferred stock as 8%
Series A Cumulative Redeemable Preferred Stock. No shares of Series A Preferred
Stock are currently outstanding, but upon issuance the holders of such shares
will have the rights and preferences described below.
General. Holders of Series A Preferred Stock will be entitled to receive
cumulative preferential distributions from the date of issue (including any
accrued but unpaid distributions in respect of Series A Preferred Units at the
time that such units are exchanged for shares of Series A Preferred Stock),
payable on or before the 15th of February, May, August, and November of each
year, in cash, at the rate per annum of 8% of the $50.00 liquidation preference
per share in preference to any payment made on any other classes of capital
stock or other equity securities of the Company, other than any class or series
of equity securities of the Company expressly designated as ranking on a parity
with or senior to the Series A Preferred Stock.
Redemption. The Series A Preferred Stock may be redeemed, at our option, on
and after March 4, 2003, in whole or in part from time to time, at a redemption
price payable in cash equal to $50.00 per share of Series A Preferred Stock,
plus any accrued but unpaid dividends to the date of redemption. The redemption
price of the Series A Preferred Stock (other than the portions thereof
consisting of accumulated but unpaid dividends) will be payable solely out of
the sale proceeds of capital stock of the Company.
Limited Voting Rights. If we fail to make full distributions on any Series A
Preferred Stock on a timely basis with respect to any six quarterly distribution
periods, whether or not consecutive, the holders of such Series A Preferred
Stock and any other class or series of parity preferred stock will have the
right to elect two additional directors to the Board of Directors until all
distributions in arrears and distributions for the then current quarter have
been paid in full. In addition, for so long as any shares of Series A Preferred
Stock are outstanding, without the consent of two-thirds of the holders of the
Series A Preferred Stock then outstanding, we may not:
. designate, authorize or create, or increase the authorized or issued
amount of, reclassify any authorized class of shares or issue
obligations or securities convertible into, shares of any class of
equity securities ranking prior to the Series A Preferred Stock with
respect to distributions or rights upon liquidation, dissolution, or
winding-up;
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. designate, authorize or create, or increase the authorized or issued
amount of, reclassify any authorized class of shares or issue
obligations or securities convertible into, shares of any class of
equity securities ranking equal to the Series A Preferred Stock with
respect to distributions or rights upon liquidation, dissolution, or
winding-up, if such securities are issued to an affiliate of the
Company; or
. either (i) consolidate with, merge into, or transfer or lease
substantially all of the assets to, any corporation or other entity,
or (ii) amend, alter or repeal the provisions of our charter or
bylaws, whether by merger, consolidation or otherwise, in a manner
that adversely affects the powers, special rights, preferences,
privileges or voting power of the Series A Preferred Stock; unless in
either case the Series A Preferred Stock remains outstanding on the
same terms or is otherwise substituted for by other preferred stock
with substantially similar terms.
The Series A Preferred Stock will have no voting rights other than as
described above and as otherwise provided by applicable law.
Liquidation Preference. Each share of Series A Preferred Stock is entitled
to a liquidation preference of $50.00 per share, plus any accrued but unpaid
distributions, in preference to any other class or series of capital stock of
the Company.
OWNERSHIP BY DAVID G. PRICE AND DALLAS P. PRICE
As of November 1, 1998, David G. Price may be deemed to beneficially own
354,938 shares of common stock and 3,589,292 Common Units that are exchangeable
for shares of common stock at an exchange ratio of one Common Unit for each
share of common stock, subject to the Ownership Limit and restrictions on the
number of Common Units that can be exchanged in a twelve-month period.
Similarly, Dallas P. Price, Mr. Price's former wife, may be deemed to
beneficially own 354,737 shares of common stock and 3,589,293 Common Units (with
similar exchange rights). Assuming Mr. Price and Mrs. Price could immediately
exchange all such Common Units for shares of common stock without regard to the
Ownership Limit and the limit on the number of Common Units that can be
exchanged in a twelve-month period, each of Mr. Price and Mrs. Price might be
deemed to beneficially own approximately 24.5% of the outstanding common stock.
Under our charter, however, each of Mr. Price and Mrs. Price is prohibited
from owning, in the aggregate, more than 9.8% of the outstanding shares of
common stock. In order for Mr. Price or Mrs. Price to be able to exercise his
or her right to exchange Common Units for shares of common stock in excess of
the Ownership Limit, our Board of Directors would have to waive the Ownership
Limit as permitted under our charter. Our Board of Directors does not currently
intend to waive the Ownership Limit with respect to either Mr. Price or Mrs.
Price. However, upon the affirmative vote of two-thirds of the outstanding
shares of capital stock entitled to vote in the election of directors, our
stockholders could amend our charter to eliminate the Ownership Limit.
RESTRICTIONS ON OWNERSHIP AND TRANSFER
Internal Revenue Code Requirements. To maintain our tax status as a REIT, no
less than six individuals (as defined in the Code to include certain entities)
can own, actually or constructively, more than 50% in value of our issued and
outstanding capital stock at any time during the last half of a taxable year.
Attribution rules in the Code determine if any individual or entity actually or
constructively owns our capital stock under this requirement. Additionally, at
least 100 or more persons must beneficially own our capital stock during at
least 335 days of a taxable year. Also, rent from Related Party Tenants (as
defined below under "Federal Income Tax Considerations--Taxation of the REIT--
Income Tests") is not qualifying income for purposes of the
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gross income tests of the Code. See "Federal Income Tax Considerations--Taxation
of National Golf Properties, Inc.--Requirements for Qualification as a REIT" on
page 26. To help ensure we meet these tests, our charter restricts the
acquisition and ownership of shares of our capital stock.
Transfer Restrictions in Charter. Subject to certain exceptions specified in
our charter, no holder may own, either actually or constructively under the
applicable attribution rules of the Code, more than 9.8% (by number or value,
whichever is more restrictive) of the outstanding shares of common stock. Also,
the ownership limit relating to Series A Preferred Stock provides that, subject
to certain specified exceptions, no person or entity may own, or be deemed to
own by virtue of the constructive ownership provisions of the Code, Series A
Preferred Stock which, taking into account any other capital stock of the
Company actually or constructively owned by such person or entity, would cause
such ownership to exceed 9.8% (by value) of our outstanding shares of capital
stock. The constructive ownership rules are complex, and may cause shares of
our capital 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 our
common stock, or the acquisition of shares of Series A Preferred Stock which,
taking into account any other shares of our capital stock, results in an
acquisition of less than 9.8% (by value) of our outstanding shares of capital
stock (or the acquisition of an interest in an entity that owns, actually or
constructively, our common stock or Series A Preferred 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 our outstanding
common stock or capital stock and thus violate the ownership limits described
above or as otherwise permitted by the Board of Directors. In addition, a
violation of the ownership limit relating to the Series A Preferred Stock may
occur as a result of a fluctuation in the relative value of such stock and the
common stock, even absent a transfer or other change in actual or constructive
ownership of such stock. The Board of Directors may, but in no event will be
required to, waive the ownership limits described above with respect to a
particular stockholder if it determines that such ownership will not jeopardize
the Company's status as a REIT and the Board of Directors otherwise decides such
action would be in the best interest of the Company. As a condition of such
waiver, the 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 the Company.
In addition to the foregoing ownership limits, no holder may own, either
actually or constructively under the applicable attribution rules of the Code,
any shares of any class of our capital stock if:
. more than 50% in value of our outstanding capital stock would be
owned, either actually or constructively under the applicable
attribution rules of the Code, by five or fewer individuals (as
defined in the Code to include certain entities),
. our capital stock would be beneficially owned by less than 100
persons (determined without reference to any rules of attribution),
or
. we would fail to qualify as a REIT.
Any person who acquires or attempts or intends to acquire actual or
constructive ownership of our shares of capital stock that will or may violate
any of the foregoing restrictions on transferability and ownership is required
to give notice immediately to us and provide us with such other information as
we may request in order to determine the effect of such transfer on our status
as a REIT. The foregoing restrictions on transferability and ownership will not
apply if the Board of Directors determines that it is no longer in our best
interest to attempt to qualify, or to continue to qualify, as a REIT.
Effect of Violation of Transfer Restrictions. If any attempted transfer of
our capital stock or any other event would otherwise result in any person
violating the ownership limits described above, or as otherwise permitted by the
Board of Directors, then any such purported transfer will be void and of no
force or effect
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with respect to the attempted transferee (the "Prohibited Transferee") as to
that number of shares in excess of the applicable 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 excess shares (the "Prohibited Owner") shall cease to own any right
or interest) in the excess shares. Any 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 us (the
"Beneficiary"). The automatic transfer will be effective as of the close of
business on the business day prior to the date of the violative transfer. Within
20 days of receiving notice from us of the transfer of shares to the trust, the
trustee of the trust (who shall be designated by us and be unaffiliated with us
and any Prohibited Transferee or Prohibited Owner) will be required to sell the
excess shares to a person or entity who could own such shares without violating
the applicable ownership limit or as otherwise permitted by the Board of
Directors, and distribute to the Prohibited Owner or Prohibited Transferee, as
applicable, an amount equal to the lesser of the price paid by the Prohibited
Transferee or Prohibited Owner for the excess shares or the sales proceeds
received by the trust for the 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 the excess
shares to a qualified person or entity and distribute to the Prohibited Owner or
Prohibited Transferee, as applicable, an amount equal to the lesser of the
Market Price (as defined in our charter) of the excess shares as of the date of
such event or the sales proceeds received by the trust for the 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 excess shares by the trust, the trustee
will be entitled to receive, in trust for the Beneficiary, all dividends and
other distributions paid by us with respect to the excess shares, and also will
be entitled to exercise all voting rights with respect to the excess shares.
Subject to Maryland law, effective as of the date that such shares have been
transferred to the trust, the trustee shall have the authority (at the trustee's
sole discretion) (i) to rescind as void any vote cast by a Prohibited Transferee
or Prohibited Owner, as applicable, prior to our discovery that our shares have
been transferred to the trust and (ii) to recast such vote in accordance with
the desires of the trustee acting for the benefit of the Beneficiary. However,
if we have already taken irreversible corporate action, then the trustee shall
not have the authority to rescind and recast such vote. Any dividend or other
distribution paid to the Prohibited Transferee or Prohibited Owner (prior to our
discovery 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 applicable ownership limit or as otherwise permitted by the
Board of Directors, then our charter provides that the transfer of the excess
shares will be void.
If shares of capital stock which would cause us to be beneficially owned by
less than 100 persons are transferred to any person, the transfer shall be null
and void in its entirety, and the intended transferee will acquire no rights to
the stock.
If the Board of Directors shall at any time determine in good faith that a
person intends to acquire or own, has attempted to acquire or own, or may
acquire or own our capital stock in violation of the limits described above, the
Board of Directors shall take actions to refuse to give effect to or to prevent
the ownership or acquisition. These actions include but are not limited to
authorizing us to repurchase stock, refusing to give effect to such ownership or
acquisition on our books, or instituting proceedings to enjoin such ownership or
acquisition.
All certificates representing shares of our capital stock bear a legend
referring to the restrictions described above.
All persons who own a specified percentage (or more) of the outstanding
shares of our stock must file with us a completed questionnaire annually
containing information about their ownership of the shares, as set forth in the
Treasury Regulations. Under current Treasury Regulations, the percentage will
be set between
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0.5% and 5.0%, depending on the number of record holders of shares. In addition,
each stockholder may be required to disclose to us in writing information about
the actual and constructive ownership of shares as the Board of Directors deems
necessary to comply with the provisions of the Code applicable to a REIT or to
comply with the requirements of any taxing authority or governmental agency.
These ownership limitations could discourage a takeover or other transaction
in which holders of some, or a majority, of shares of common stock or
convertible preferred stock might receive a premium for their shares over the
then prevailing market price or which stockholders might believe to be otherwise
in their best interest.
TRANSFER AGENT AND REGISTRAR
ChaseMellon Shareholder Services is the transfer agent and registrar for our
shares of common stock.
PARTNERSHIP AGREEMENT
The following summary of the partnership agreement for the Operating
Partnership, including the descriptions of certain provisions set forth
elsewhere in this prospectus, is qualified in its entirety by reference to the
partnership agreement.
MANAGEMENT
The Operating Partnership is a Delaware limited partnership. Generally,
pursuant to the partnership agreement, the Company, as the sole general partner
of the Operating Partnership, has full, exclusive and complete responsibility
and discretion in the management and control of the Operating Partnership,
including the ability to cause the Operating Partnership to enter into certain
major transactions such as acquisitions, dispositions, refinancings and
selection of golf course operators and to cause changes in the Operating
Partnership's line of business and distribution policies. The Operating
Partnership has both common limited partnership interests and preferred limited
partnership interests. As of November 1, 1998, the Operating Partnership has
8,738,394 Common Units held by limited partners and 1,500,000 Series A Preferred
Units issued and outstanding. The limited partners holding Common Units and
Series A Preferred Units have no authority to transact business for, or
participate in the management activities or decisions of, the Operating
Partnership, except in limited circumstances set forth in the partnership
agreement and as required by applicable law.
The consent of the holders of a majority of the outstanding Common Units held
by limited partners is required with respect to certain extraordinary actions
involving the Operating Partnership, including:
. the amendment, modification or termination of the partnership
agreement;
. a general assignment for the benefit of creditors or the appointment
of a custodian, receiver or trustee for any of the assets of the
Operating Partnership;
. the institution of any proceeding for bankruptcy of the Operating
Partnership
. the transfer of any general partnership interests in the Operating
Partnership, including through any merger, consolidation or
liquidation of the Company, subject to certain exceptions; and
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. the admission of any additional or substitute general partner in the
Operating Partnership.
In addition, until such time as the Company owns 85% or more of the total
percentage interest in the Operating Partnership, the consent of the holders of
a majority of the Common Units held by limited partners also will be required
with respect to the dissolution of the Operating Partnership, the sale or other
transfer of all or substantially all of the assets of the Operating Partnership
and certain mergers and business combinations resulting in the complete
disposition of all partnership interests in the Operating Partnership held by
limited partners. The holders of Series A Preferred Units also have certain
limited approval rights which could affect management of the Operating
Partnership. See "--8% Series A Cumulative Redeemable Preferred Units --
Limited Approval Rights."
TRANSFERABILITY OF INTERESTS
The partnership agreement provides that limited partners may transfer their
partnership interests in the Operating Partnership subject to certain
limitations. Other than transfers to affiliates of David G. Price or the
Company or pledges securing loans made by financial institutions or transfers by
gift or upon death to family, limited partners holding Common Units:
. must first offer their Common Units to us on the terms and for the
consideration specified by the limited partner;
. may only transfer their Common Units in any one transfer to a single
purchaser who is an accredited investor within the meaning of
Regulation D under the Securities Act of 1933, as amended (the
"Securities Act");
. must transfer a minimum of the lesser of (a) one-third of the
original amount of Common Units they received or (b) all of their
remaining Common Units at the time of transfer; and
. may transfer such Common Units only if the proposed transferee
agrees, subject to the Ownership Limit with respect to shares of
common stock, to exchange the Common Units into shares of common
stock within six months after the transfer or as soon thereafter as
possible.
The holders of Common Units and Series A Preferred Units each are subject to
additional regulatory and other restrictions on their ability to transfer their
partnership interests in the Operating Partnership. Any other transfers may be
made only with our prior written consent as sole general partner of the
Operating Partnership.
ISSUANCE OF ADDITIONAL PARTNERSHIP INTERESTS
As general partner of the Operating Partnership, we have the ability to cause
the Operating Partnership to issue additional units of general and limited
partnership interests, including preferred limited partnership interests. In
the event that the Operating Partnership issues new partnership interests for
cash (as opposed to property), such issuances are subject to approval by the
limited partners holding Common Units (with unanimous approval required for
issuance of Preferred Units). The limited partners holding Common Units also
have certain preemptive rights to participate in such issuances of new
partnerships interests for cash to the extent necessary to maintain their
respective percentage interests in the Operating Partnership.
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FUNDING OF INVESTMENTS
The partnership agreement provides that if the Operating Partnership requires
additional funds to pursue its investment objectives in excess of funds
available to the Operating Partnership from borrowings or capital contributions,
we may fund such investments by raising additional equity capital and making a
capital contribution to the Operating Partnership or by borrowing such funds and
lending the net proceeds thereof to the Operating Partnership on the same terms
and conditions as are applicable to our borrowing of such funds. If we fund an
investment as a capital contribution in exchange for units of general
partnership interest, the limited partners holding Common Units will have the
right to participate in such funding on a pro rata basis. In the event that
such limited partners do not participate in such funding, our partnership
interest in the Operating Partnership will be increased based upon the amount of
such additional capital contributions and the value of the Operating Partnership
at the time of such contributions.
TAX MATTERS
Pursuant to the partnership agreement, the Company is the tax matters partner
of the Operating Partnership and, as such, has authority to make tax elections
under the Code on behalf of the Operating Partnership.
The net income of the Operating Partnership generally will be allocated first
to the holders of Series A Preferred Units in an amount equal to an 8% per annum
cumulative return on the stated value of $50 per Series A Preferred Unit.
Thereafter, remaining net income will be allocated to the Company and the
holders of Common Units in accordance with their respective percentage interests
in the Operating Partnership. In general, net loss of the Operating Partnership
will be allocated first to the Company and the holders of Common Units in
accordance with their respective percentage interests and thereafter to the
holders of Series A Preferred Units, in each case only to the extent such
allocation does not cause a partner to have a negative adjusted capital account.
Any remaining net loss will be allocated to the Company. Each of the allocation
provisions described above are subject to certain special allocations relating
to depreciation deductions and to compliance with the provisions of Sections
704(b) and 704(c) of the Code and the Treasury Regulations promulgated
thereunder. See "Federal Income Tax ConsiderationsTax Aspects of the
Partnerships" on page 32.
OPERATIONS
The partnership agreement requires that the Operating Partnership be operated
in a manner that will enable the Company to satisfy the requirements for being
classified as a REIT and to avoid any federal income tax liability. The
partnership agreement provides that the net operating cash revenues of the
Operating Partnership, as well as net sales and refinancing proceeds, will be
distributed from time to time as determined by the Company (but not less
frequently than quarterly) pro rata in accordance with the partners' respective
percentage interests, subject to the distribution preferences with respect to
the Series A Preferred Units. Pursuant to the partnership agreement, the
Operating Partnership assumes and pays when due, or reimburses the Company for
payment of, all expenses the Company incurs relating to the ownership and
operation of, or for the benefit of, the Operating Partnership and all costs and
expenses relating to the operations of the Company.
TERM
The Operating Partnership will continue in full force and effect until
December 31, 2092, or until sooner dissolved upon the occurrence of certain
events.
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8% SERIES A CUMULATIVE REDEEMABLE PREFERRED UNITS
The Operating Partnership has 1,500,000 units of preferred limited
partnership interests designated as 8% Series A Cumulative Redeemable Preferred
Units, all of which have been issued and are outstanding. The holders of the
Series A Preferred Units have the rights and preferences described below.
General. Holders of Series A Preferred Units are entitled to receive
cumulative preferential distributions from the date of issue, payable on or
before the 15th of February, May, August and November of each year, in cash, at
the rate per annum of 8% of the original capital contribution per Series A
Preferred Unit in preference to any payment made on any other classes of
partnership interests of the Operating Partnership, other than any class or
series of partnership interests of the Operating Partnership expressly
designated as ranking on a parity with or senior to the Series A Preferred
Units.
Exchange Rights. The Series A Preferred Units are exchangeable in whole at
any time on or after March 4, 2008, at the option of the majority of the holders
of the Series A Preferred Units, on a one for one basis for shares of the
Company's Series A Preferred Stock. In addition, the Series A Preferred Units
are exchangeable in whole at any time at the option of the majority of the
holders of the Series A Preferred Units if:
. at any time that the Operating Partnership has failed to make
full distributions on any Series A Preferred Unit with respect
to six prior quarterly distribution periods; or
. if the Company or one of its subsidiaries, or any successor
general partner to the Company, takes the position, and the
holder or holders receive an opinion of independent counsel,
that the Operating Partnership likely is or upon the happening
of a certain event likely will be a publicly traded partnership
within the meaning of Section 7704 of the Code.
The Series A Preferred Units also are exchangeable on or after March 4, 2001
if the holders deliver to the Company either a private letter ruling or an
opinion of counsel stating than an exchange at such time would not cause the
Series A Preferred Units to be considered "stock and securities" within the
meaning of Section 351(e) of the Code for purposes of determining whether the
holder of such Series A Preferred Units is an "investment company" under Section
721(b) of the Code. However, in lieu of an exchange for Series A Preferred
Stock, the Company may elect to cause the Operating Partnership to redeem such
Series A Preferred Units for cash in an amount equal to the original capital
account balance of such Series A Preferred Units plus all accrued and unpaid
distributions to the date of redemption.
Redemption. The Series A Preferred Units may be redeemed, at the Operating
Partnership's option, on and after March 4, 2003, in whole or in part or from
time to time, at a redemption price payable in cash equal to the capital account
balance of the holder of the Series A Preferred Units being redeemed, provided
that such amount shall not be less than $50.00 per Series A Preferred Unit, plus
any accrued but unpaid distributions to the date of redemption. The redemption
price of the Series A Preferred Units (other than the portions thereof
consisting of accumulated but unpaid distributions) will be payable solely out
of the sale proceeds of capital stock of the Company or interests in the
Operating Partnership and from no other source. The Operating Partnership may
not redeem fewer than all of the Series A Preferred Units unless all accumulated
and unpaid distributions have been paid on all Series A Preferred Units for all
quarterly distribution periods terminating on or prior to the date of
redemption. In addition, the Company may, at its option, acquire the Series A
Preferred Units presented to it for exchange for shares of the Company's Series
A Preferred Stock. See "Exchange Rights."
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Limited Approval Rights. For so long as any Series A Preferred Units are
outstanding, without the consent of two-thirds of the holders of the Series A
Preferred Units then outstanding, the Operating Partnership may not:
. authorize or create, or increase the authorized or issued amount
of, or reclassify, any class or series of partnership interests, or
issue any obligations or security convertible into or evidencing a
right to purchase any partnership interests of any class, ranking
prior to the Series A Preferred Units with respect to distributions
or rights upon liquidation, dissolution, or winding-up;
. authorize or create, or increase the authorized or issued amount
of, or reclassify, any class or series of partnership interests, or
issue any obligations or security convertible into or evidencing a
right to purchase any partnership interests of any class, ranking
equal to the Series A Preferred Units with respect to distributions
or rights upon liquidation, dissolution, or winding-up, if such
securities are issued to an affiliate of the Operating Partnership,
other than the Company to the extent that the issuance of such
interests was to allow the Company to issue corresponding shares of
Series A Preferred Stock to persons who are not affiliates of the
Operating Partnership; or
. either consolidate, merge into or with, or convey, transfer or
lease substantially all of the assets to, any corporation or other
entity, or amend or repeal the provisions of the partnership
agreement that adversely affect the powers, special rights,
preferences, privileges or voting power of the Series A Preferred
Units; unless in either case the Series A Preferred Units remains
outstanding on the same terms or is otherwise substituted for other
interests with substantially similar terms.
Other than as discussed above or elsewhere in this Prospectus, the Series A
Preferred Units have no voting rights other than as otherwise provided by
applicable law.
Liquidation Preference. The distribution and income allocation provisions of
the partnership agreement have the effect of providing each Series A Preferred
Unit with a liquidation preference to each holder of such unit equal to such
holder's capital contributions, plus any accrued but unpaid distributions, in
preference to any other class or series of partnership interest of the Operating
Partnership.
INDEMNIFICATION
The partnership agreement provides that the Operating Partnership will
indemnify us and our officers and directors. Our liability to the Operating
Partnership and its partners for losses sustained, liabilities incurred or
benefits not derived as a result of good faith errors, mistakes of fact or law,
or acts or omissions is limited. See "Limitation of Liability and
Indemnification."
EXCHANGE AND CASH OPTION RIGHTS
Exchange Rights. Each holder of Common Units desiring to exchange Common
Units for shares of common stock may in any twelve-month period ending on August
18 exchange up to the greater of 75,000 Common Units or one-third of the Common
Units owned by such holder and certain related persons as of the date of the
Company's initial public offering, less the number of Common Units put to the
Company by such holder and related persons in exchange for cash during such
twelve-month period ("Exchange Rights"). As of the date of this prospectus, the
limited partners collectively own 8,738,394 Common Units. Common Units
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will be exchanged for shares of common stock on a one-for-one basis. Common
Units that are acquired by the Company pursuant to the exercise of Exchange
Rights will be converted automatically into units of general partnership
interest in the Operating Partnership.
To effect an exchange, a holder of Common Units must deliver to us a notice
of exchange. A tendering holder shall have the right to receive, on the day we
receive the notice of exchange, a like number of shares of common stock, which
shall be delivered as duly authorized, validly issued, fully paid and
nonassessable shares. Such shares shall be free of any pledge, lien,
encumbrance or restriction, other than those provided in our charter and bylaws,
the Securities Act, relevant state securities or blue sky laws and any
applicable registration rights agreement with respect to such shares of common
stock entered into by the tendering holder.
The exercise of Exchange Rights is subject to (i) the expiration or
termination of the applicable waiting period, if any, under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, (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 holder of Common Units also may exercise once in
each twelve-month period ending on August 18 the right to sell to us for cash up
to one-third of the number of Common Units owned by such holder and certain
related persons as of the date of the Company's initial public offering, less
the number of Common Units exchanged by such holder and related persons for
shares of common stock during such twelve-month period ("Cash Option Rights").
Common Units that are acquired by us as a result of the exercise of Cash Option
Rights will be converted automatically into units of general partnership
interest in the Operating Partnership.
Upon the exercise of Cash Option Rights, we will have the option to pay for
such Common Units (i) with available cash or borrowed funds or (ii) out of the
proceeds of a registered offering of newly issued shares of common stock. The
price payable will be equal to the fair market value of the Common Units being
put, based on the market value of a like number of common shares. However, if
we elect to pay for such Common Units with the proceeds of a registered offering
of newly issued shares of common stock, the purchase price for such Common Units
will be reduced by any decrease in the price of the common stock that occurs
between the exercise date and the pricing of common stock being sold pursuant to
the registered offering and certain costs of the offering (including
underwriting discounts and commissions). The limited partners thus will bear the
risk of any such reduction, subject to certain withdrawal rights. Any proceeds
in excess of the purchase price will be for our sole benefit.
CERTAIN PROVISIONS OF MARYLAND
LAW AND THE COMPANY'S CHARTER AND BYLAWS
The following paragraphs summarize certain provisions of Maryland law and our
charter and bylaws. The summary does not purport to be complete and is subject
to and qualified in its entirety by reference to Maryland law and to our charter
and bylaws (copies of which are attached as exhibits to our Current Report on
Form 8-K dated September 26, 1995). See "Where You Can Find More Information"
on page 2.
SIZE AND CLASSIFICATION OF THE BOARD OF DIRECTORS
Under our bylaws, the number of our directors may be established by the Board
of Directors. However, this number may not be fewer than the minimum number
required under Maryland law (which under most circumstances is three directors)
nor more than eleven. Our Board of Directors currently has seven directors.
Most vacancies will be filled, at any regular meeting or at any special meeting
called for that purpose, by a majority vote of the remaining directors. A
vacancy resulting from an increase in the number of directors will be filled by
a majority vote of the entire Board of Directors. Our charter provides for a
staggered Board of
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Directors comprised of three classes as nearly equal in size as possible. Each
class holds office until the third annual meeting for selection of directors
following the election of such class. We believe that classification of our
Board of Directors will help to assure the continuity and stability of our
business strategies and policies.
The classified director provision may make the replacement of incumbent
directors more time consuming and difficult. This could discourage a third
party from making a tender offer or otherwise attempting to obtain control of
us, even though such an attempt might be beneficial to us and our stockholders.
A change in a majority of our Board of Directors will generally require at least
two annual meetings of stockholders, instead of one. Thus, the classified board
provision could increase the likelihood that incumbent directors will retain
their positions. Holders of common stock will have no right to cumulative
voting for the election of directors. Consequently, at each annual meeting of
stockholders, the holders of a majority of shares of common stock will be able
to elect all of the successors of the class of directors whose term expires at
that meeting and the holders of the remaining shares of common stock will not be
able to elect any directors.
David G. Price contractually has the right to designate one less than a
majority of the Board of Directors, subject to certain conditions which
currently are satisfied. These director designation rights will make it further
difficult for a third party to effect a change of control of the Company. See
"Risk Factors--Influence of Certain Directors and Significant Shareholders."
REMOVAL OF DIRECTORS
Under Maryland law, unless the charter provides otherwise, the stockholders
may remove any director with or without cause, by a majority vote of all
outstanding shares entitled to be cast for the election of directors. There are
certain exceptions to this rule. For instance, if the directors have been
divided into classes, a director may not be removed without cause. Our charter
provides for three classes of directors, and accordingly such directors may not
be removed without cause.
CORPORATE GOVERNANCE
Transactions involving the Company and affiliates of David G. Price, such as
the negotiation, enforcement and renegotiation of leases, the selection of
operators for acquired golf courses and consideration of the Company's right of
first refusal to purchase Common Units from the holders thereof pursuant to the
partnership agreement, will require the approval of the Independent Committee of
our Board of Directors. Certain other significant actions of the Board of
Directors will require the approval of a minimum of five Directors, including a
transaction involving a "change of control" of the Company or the Operating
Partnership, amendments to our charter or bylaws (except for such amendments as
may be necessary to maintain our 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 the Company or the Operating Partnership in excess of 25% of the total market
capitalization of the Company (including issued and outstanding shares of common
stock and Common Units exchangeable for shares of common stock without regard to
the Ownership Limit plus total debt) whether by merger, purchase, sale or
otherwise. A change of control of the Company 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 the Company or the Operating Partnership, as the case
may be. A change of control of the Company or the Operating Partnership
involving an interested stockholder under Section 3-601(j) of the Maryland
General Corporation Law or any transaction requiring such approval under such
law or applicable rules of the NYSE would require stockholder approval. Any
amendments to our charter requires the approval of our stockholders. Our Board
of Directors has the authority to terminate our status as a REIT without
obtaining stockholder approval. In addition, certain actions by us relating to
the Operating Partnership and our interest therein require approval of the
limited partners in the Operating Partnership.
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BUSINESS COMBINATIONS
Under Maryland law, 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 an interested stockholder or an affiliate of an interested
stockholder are prohibited for five years after the most recent date on which
the interested stockholder becomes an interested stockholder. An interested
stockholder is defined as:
. any person who beneficially owns, directly or indirectly, ten
percent 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 or more of the voting power of the then outstanding
voting stock of the corporation.
At the conclusion of the five-year prohibition, any business combination between
the Maryland corporation and an interested stockholder generally must be
recommended by the board of directors of the corporation and approved by the
affirmative vote of at least:
. 80% of the votes entitled to be cast by holders of outstanding
shares of voting stock of the corporation; and
. two-thirds of the votes entitled to be cast by holders of voting
stock of the corporation other than shares held by the interested
stockholder with whom (or with whose affiliate) the business
combination is to be effected.
These super-majority vote requirements do not apply if the corporation's common
stockholders receive a minimum price (as defined under Maryland law) for their
shares in the form of cash or other consideration in the same form as previously
paid by the interested stockholder for its shares. None of these provisions of
the Maryland law will 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 stockholder becomes an interested stockholder. Our Board of
Directors has exempted from these provisions of Maryland law any business
combination with David G. Price and his affiliates. As a result, these persons
may be able to enter into business combinations with us that may not be in the
best interest of our stockholders, without compliance with the super-majority
vote requirements and the other provisions of Maryland law.
The business combination statute may discourage others from acquiring us and
increase the difficulty of consummating any offer.
CONTROL SHARE ACQUISITIONS
Maryland law 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 stockholder vote of two-thirds of the votes entitled to be
cast on the matter. Shares of stock owned by the acquiror, by officers or by
directors who are employees of the corporation are excluded from shares entitled
to vote on the matter. "Control Shares" are voting shares of stock which, if
aggregated with all other shares of stock owned by the acquiror or shares of
stock for which the acquiror is able to exercise or direct the exercise of
voting power (except solely by virtue of a revocable proxy), would entitle the
acquiror to exercise voting power in electing directors within one of the
following ranges of voting power:
. one-fifth or more, but less than one-third of all voting power;
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. one-third or more, but less than a majority of all voting power; or
. 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 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 previously have
been approved) for fair value. Fair value is determined without regard to the
absence of voting rights for control shares, as of the date of the last control
share acquisition or of any meeting of stockholders at which the voting rights
of control shares 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 these appraisal rights may not be less than the highest price per
share paid in the control share acquisition. 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.
Our bylaws contain a provision exempting from the control share acquisition
statute any and all acquisitions of shares of common stock by David G. Price,
his heirs, affiliates and associates (as well as any person acting in concert or
as a group with any of the foregoing). Our Board of Directors may amend or
eliminate this provision at any time in the future.
AMENDMENT TO THE CHARTER
Our charter states that it may be amended in the manner set forth under
Maryland law, which provides that a charter may be amended only by the
affirmative vote of the holders of not less than two-thirds of all of the votes
entitled to be cast on the matter.
DISSOLUTION OF THE COMPANY
Under Maryland law, we may be dissolved by (i) the majority vote of the
entire Board of Directors declaring such dissolution to be advisable and
directing that the proposed dissolution be submitted for consideration at any
annual or special meeting of stockholders, and (ii) upon proper notice, the
affirmative vote of the holders of two-thirds of stock outstanding and entitled
to vote.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
Our bylaws provide that nominations of persons for election to the Board of
Directors and the proposal of business to be considered by stockholders at the
annual meeting of stockholders may be made only:
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. pursuant to the notice of the meeting;
. by or at the direction of the Board of Directors; or
. by a stockholder who is entitled to vote at the meeting and has
complied with the advance notice procedures set forth in the
bylaws.
Our bylaws also provide that only the business specified in the notice of the
meeting may be brought before a special meeting of stockholders.
In general, for notice of stockholder nominations or business to be made at
an annual meeting to be timely, such notice from a stockholder must be received
by us not less than 50 days nor more than 75 days prior to the annual meeting,
subject to certain exceptions.
The purpose of requiring stockholders to give us advance notice of
nominations and other business is to afford our 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 our 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 our
bylaws do not give the Board of Directors any power to disapprove stockholder
nominations for the election of directors or proposals for action, this advance
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 us and our stockholders.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Maryland law permits a Maryland corporation to include in its charter a
provision eliminating the liability of its directors and officers to the
corporation and its stockholders for money damages. However, liability
resulting from actual receipt of an improper benefit or profit in money,
property or services or active and deliberate dishonesty established by a final
judgment as being material to the cause of action may not be eliminated. Our
charter contains a provision which eliminates liability of directors and
officers to the maximum extent permitted by Maryland law. This provision does
not limit our ability or that of our stockholders to obtain equitable relief,
such as an injunction or rescission.
Our charter authorizes us, to the maximum extent permitted by Maryland law,
to indemnify and to pay or reimburse reasonable expenses before final
disposition of a proceeding to any present or former director or officer from
and against any claim or liability incurred by reason of his status as one of
our present or former directors or officers. Our charter also provides that we
may indemnify any other persons permitted but not required to be indemnified by
Maryland law. Our bylaws obligate us, to the maximum extent permitted by
Maryland law, to indemnify and to pay or reimburse reasonable expenses before
final disposition of a proceeding to:
. any present or former director or officer who is made a party to
the proceeding by reason of his service in that capacity; or
. any individual who, while one of our directors and at our request,
serves or has served another corporation, partnership, joint
venture, trust, employee benefit plan or any other enterprise as a
director, officer, partner or trustee of such corporation,
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partnership, joint venture, trust, employee benefit plan, or other
enterprise and who is made a party to the proceeding by reason of
his service in that capacity.
Our bylaws also permit us to indemnify and advance expenses to any person who
served one of our predecessors in any of the capacities described above and to
any of our (or our predecessors') employees or agents.
Maryland law requires a corporation (unless its charter provides otherwise,
which our charter does not) to indemnify a director or officer who has been
successful, on the merits or otherwise, in the defense of any proceeding to
which he is made a party by reason of his service in that capacity. Maryland
law 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:
. 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;
. the director or officer actually received an improper personal
benefit in money, property or services; or
. in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful.
However, under Maryland law, a Maryland corporation generally may not indemnify
for an adverse judgment in a suit by or in the right of the corporation. Also,
a Maryland corporation generally may not indemnify for a judgment of liability
on the basis that personal benefit was improperly received. In either of these
cases, a Maryland corporation may indemnify for expenses only if a court orders
indemnification. In addition, Maryland law permits a corporation to advance
reasonable expenses to a director or officer. First, however, the corporation
must receive a written affirmation by the director or officer of his good faith
belief that he has met the standard of conduct necessary for indemnification by
the corporation and a written undertaking by him or on his behalf to repay the
amount paid or reimbursed by the corporation if it shall ultimately be
determined that the standard of conduct was not met. The termination of any
proceeding by conviction, or upon a plea of nolo contendere or its equivalent,
or an entry of any order of probation prior to judgment, creates a rebuttable
presumption that the director or officer did not meet the requisite standard of
conduct required for indemnification to be permitted.
It is the position of the Commission that indemnification of directors and
officers for liabilities arising under the Securities Act is against public
policy and is unenforceable pursuant to Section 14 of the Securities Act.
The partnership agreement of the Operating Partnership provides for
indemnification of us and our officers and directors (as well as certain other
persons designated by us) generally to the same extent as permitted by Maryland
law for a corporation's officers and directors.
FEDERAL INCOME TAX CONSIDERATIONS
The following summary of material federal income tax considerations regarding
the Company and the common stock we are registering is based on current law, is
for general information only and is not tax advice. The information set forth
below, to the extent that it constitutes matters of law, summaries of legal
matters or
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legal conclusions, is the opinion of Latham & Watkins, our tax counsel, as to
the material federal income tax considerations relevant to purchasers of our
common stock. The tax treatment to holders of common stock will vary depending
on a holder's particular situation and this discussion does not purport to deal
with all aspects of taxation that may be relevant to a holder of common stock in
light of his or her personal investments or tax circumstances, or to certain
types of stockholders, subject to special treatment under the federal income tax
laws except to the extent discussed under the headings "-- Taxation of Tax-
Exempt Stockholders" on page 37 and "-- Taxation of Non-U.S. Stockholders" on
page 38. Stockholders subject to special treatment include, without limitation,
insurance companies, financial institutions or broker-dealers, tax-exempt
organizations, stockholders holding securities as part of a conversion
transaction, or a hedge or hedging transaction or as a position in a straddle
for tax purposes, foreign corporations or partnerships and persons who are not
citizens or residents of the United States. In addition, the summary below does
not consider the effect of any foreign, state, local or other tax laws that may
be applicable to holders of our common stock.
The information in this section is based on the Code, current, temporary and
proposed Treasury Regulations promulgated under the Code, the legislative
history of the Code, current administrative interpretations and practices of the
Internal Revenue Service (the "IRS") (including its practices and policies as
expressed in certain private letter rulings which are not binding on the IRS
except with respect to the particular taxpayers who requested and received such
rulings), and court decisions, all as of the date of this prospectus. Future
legislation, Treasury Regulations, administrative interpretations and practices
and/or court decisions may adversely affect, perhaps retroactively, the tax
considerations described herein. Any change could apply retroactively to
transactions preceding the date of the change. We have not requested, and do
not plan to request, any rulings from the IRS concerning our tax treatment and
the statements in this prospectus are not binding on the IRS or a court. Thus,
we can provide no assurance that these statements will not be challenged by the
IRS or sustained by a court if challenged by the IRS.
YOU ARE ADVISED TO CONSULT YOUR TAX ADVISOR REGARDING THE SPECIFIC TAX
CONSEQUENCES TO YOU OF THE ACQUISITION, OWNERSHIP AND SALE OF OUR 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.
Taxation of National Golf Properties, Inc.
General. We elected to be taxed as a REIT under Sections 856 through 860 of
the Code, commencing with our taxable year ended December 31, 1993. We believe
we have been organized and have operated in a manner which allows us to qualify
for taxation as a REIT under the Code commencing with our taxable year ended
December 31, 1993. We intend to continue to operate in this manner. However,
our qualification and taxation as a REIT depends upon our ability to meet
(through actual annual operating results, asset diversification, distribution
levels and diversity of stock ownership) the various qualification tests imposed
under the Code. Accordingly, there is no assurance that we have operated or
will continue to operate in a manner so as to qualify or remain qualified as a
REIT. See "--Failure to Qualify" on page 34.
The sections of the Code that relate to the qualification and operation as a
REIT are highly technical and complex. The following sets forth the material
aspects of the sections of the Code 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, relevant rules and regulations promulgated under
the Code, and administrative and judicial interpretations of the Code, and these
rules and these regulations.
If we qualify for taxation as a REIT, we generally will not be subject to
federal corporate income taxes on our net income that is currently distributed
to our stockholders. This treatment substantially eliminates the "double
taxation" (once at the corporate level when earned and once again at the
stockholder level when
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distributed) that generally results from investment in a corporation. However,
the Company will be subject to federal income tax as follows:
First, we will be taxed at regular corporate rates on any undistributed REIT
taxable income, including undistributed net capital gains.
Second, we may be subject to the "alternative minimum tax" on our items of
tax preference under certain circumstances.
Third, if we have (a) net income from the sale or other disposition of
"foreclosure property" (defined generally as property we acquired through
foreclosure or after a default on a loan secured by the property or a lease of
the property) which is held primarily for sale to customers in the ordinary
course of business or (b) other nonqualifying income from foreclosure property,
we will be subject to tax at the highest corporate rate on this income.
Fourth, we will be subject to a 100% tax on any 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).
Fifth, we 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 we fail the 75% or 95%
test multiplied by (b) a fraction intended to reflect our profitability, if we
fail to satisfy the 75% gross income test or the 95% gross income test (as
discussed below), but have maintained our qualification as a REIT because we
satisfied certain other requirements.
Sixth, we would be subject to a 4% excise tax on the excess of the required
distribution over the amounts actually distributed if we fail to distribute
during each calendar year at least the sum of (i) 85% of our REIT ordinary
income for the year, (ii) 95% of our REIT capital gain net income for the year,
and (iii) any undistributed taxable income from prior periods.
Seventh, if we acquire any asset (a "Built-In Gain Asset") from a corporation
which is or has been a C corporation (i.e., generally a corporation subject to
full corporate-level tax) in certain transactions in which the basis of the
Built-In Gain Asset in our hands is determined by reference to the basis of the
asset in the hands of the C corporation, and we subsequently recognize gain on
the disposition of the asset during the ten-year period (the "Recognition
Period") beginning on the date on which we acquired the asset, then we will be
subject to tax at the highest regular corporate tax rate on this gain to the
extent of the Built-In Gain (i.e., the excess of (a) the fair market value of
the asset over (b) our adjusted basis in the asset, in each case determined as
of the beginning of the Recognition Period). The results described in this
paragraph with respect to the recognition of Built-In Gain assume that we will
make an election pursuant to IRS Notice 88-19.
Requirements for Qualification as a REIT. The Code defines a REIT as a
corporation, trust or association:
(1) that is managed by one or more trustees or directors;
(2) that issues transferable shares or transferable certificates to
evidence beneficial ownership;
(3) that would be taxable as a domestic corporation, but for Sections
856 through 859 of the Code;
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(4) that is not a financial institution or an insurance company within
the meaning of certain provisions of the Code;
(5) that is beneficially owned by 100 or more persons;
(6) 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) during the
last half of each taxable year; and
(7) that meets certain other tests, described below, regarding the
nature of its income and assets and the amount of its
distributions.
The Code provides that conditions (1) to (4), inclusive, must be met during
the entire taxable year and that condition (5) 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 (5) and (6) do not apply
until after the first taxable year for which an election is made to be taxed as
a REIT. For purposes of condition (6), pension funds and certain other tax-
exempt entities are treated as individuals, subject to a "look-through"
exception.
We believe that we have satisfied conditions (5) and (6). In addition, our
charter provides for restrictions regarding ownership and transfer of shares.
These restrictions are intended to assist us in continuing to satisfy the share
ownership requirements described in (5) and (6) above. These ownership and
transfer restrictions are described in "Description of Capital Stock--
Restrictions on Ownership and Transfer." These restrictions, however, may not
ensure that we will, in all cases, be able to satisfy the share ownership
requirements described in (5) and (6) above. If we fail to satisfy these share
ownership requirements, our status as a REIT will terminate. However, if we
comply with the rules contained in applicable Treasury Regulations that require
us to ascertain the actual ownership of our shares and we do not know, or would
not have known through the exercise of reasonable diligence, that we failed to
meet the requirement described in condition (6) above, we will be treated as
having met this requirement. See "--Failure to Qualify" on page 34.
In addition, a corporation may not elect to become a REIT unless its taxable
year is the calendar year. We have and will continue to have a calendar taxable
year.
Ownership of a Partnership Interest. In the case of a REIT which is a
partner in a partnership, IRS regulations provide that the REIT will be deemed
to own its proportionate share of the assets of the partnership. Also, the REIT
will be deemed to be entitled to the income of the partnership attributable to
its proportionate share. The character of the assets and gross income of the
partnership retains 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, our proportionate share of the assets and items of income of
the Operating Partnership (including the Operating Partnership's share of these
items for any partnership in which it owns an interest) are treated as our
assets and items of income for purposes of applying the requirements described
in this prospectus (including the income and asset tests described below). We
have included a brief summary of the rules governing the Federal income taxation
of partnerships and their partners below in "--Tax Aspects of the Partnerships"
on page 32. We have direct control of the Operating Partnership and will
continue to operate it consistent with the requirements for qualification as a
REIT.
Income Tests. We must satisfy two gross income requirements annually to
maintain our qualification as a REIT. First, each taxable year we must derive
directly or indirectly at least 75% of our gross income (excluding gross income
from prohibited transactions) 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, each taxable year we must derive at least 95% of our gross income
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(excluding gross income from prohibited transactions) from these real property
investments, dividends, interest and gain from the sale or disposition of stock
or securities (or from any combination of the foregoing). The term "interest"
generally does not include any amount received or accrued (directly or
indirectly) if the determination of the 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.
Rents we receive will qualify as "rents from real property" in satisfying the
gross income requirements for a REIT described above only if the following
conditions are met:
. 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;
. 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 actual or
constructive owner of 10% or more of the REIT, actually or
constructively owns 10% or more of such tenant (a "Related
Party Tenant");
. 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 personal property will not
qualify as "rents from real property"; and
. 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 the property (subject to a 1% de minimis exception),
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.
We do not and will not, and as general partner of the Operating Partnership,
will not permit the Operating Partnership to:
. 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);
. rent any property to a Related Party Tenant;
. 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
. perform services considered to be rendered to the occupant
of the property, other than through an independent
contractor from whom we derive no revenue.
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Notwithstanding the foregoing, we may have taken and may continue to take
certain of the actions set forth above to the extent these actions will not,
based on the advice of our tax counsel, jeopardize our status as a REIT.
If we fail to satisfy one or both of the 75% or 95% gross income tests for
any taxable year, we may nevertheless qualify as a REIT for the year if we are
entitled to relief under certain provisions of the Code. Generally, we may
avail ourselves of the relief provisions if:
. our failure to meet these tests was due to reasonable cause
and not due to willful neglect;
. we attach a schedule of the sources of our income to our
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 we would be
entitled to the benefit of these relief provisions. For example, if we fail to
satisfy the gross income tests because nonqualifying income that we
intentionally incur exceeds the limits on nonqualifying income, the IRS could
conclude that our failure to satisfy the tests was not due to reasonable cause.
If these relief provisions do not apply to a particular set of circumstances, we
will not qualify as a REIT. As discussed above in "--Taxation of National Golf
Properties, Inc.--General" on page 27, even if these relief provisions apply,
and we retain our status as a REIT, a tax would be imposed with respect to our
excess net income. We may not always be able to maintain compliance with the
gross income tests for REIT qualification despite our periodic monitoring of our
income.
Prohibited Transaction Income. Any gain realized by us 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 our 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. This prohibited
transaction income may also adversely affect our 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 surrounding the particular transaction. The Operating Partnership
intends to hold the properties for investment with a view to long-term
appreciation, to engage in the business of acquiring, developing and owning its
properties and to make occasional sales of the properties as are consistent with
the Operating Partnership's investment objectives. However, the IRS may contend
that that one or more of these sales is subject to the 100% penalty tax.
Asset Tests. At the close of each quarter of our taxable year, we also must
satisfy three tests relating to the nature and diversification of our assets.
First, at least 75% of the value of our total assets must be represented by real
estate assets, cash, cash items and government securities. For purposes of this
test, real estate assets include stock or debt instruments held for one year or
less that are purchased with the proceeds of a stock offering or a long-term (at
least five years) public debt offering. Second, not more than 25% of our total
assets may be represented by securities, other than those securities includable
in the 75% asset test. Third, of the investments included in the 25% asset
class, the value of any one issuer's securities may not exceed 5% of the value
of our total assets and we may not own more than 10% of any one issuer's
outstanding voting securities.
After initially meeting the asset tests at the close of any quarter, we will
not lose our 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 we fail to
satisfy the asset tests because we acquire securities or other property during a
quarter (including an increase in our interests in the Operating Partnership),
we can cure this failure by disposing of sufficient nonqualifying assets within
30 days after the close of that quarter. We believe we have maintained and
intend to continue to maintain adequate records of the value of our assets to
ensure compliance with the asset tests
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and to take such other actions within the 30 days after the close of any quarter
as may be required to cure any noncompliance. If we fail to cure noncompliance
with the asset tests within this time period, we would cease to qualify as a
REIT.
Annual Distribution Requirements. To maintain our qualification as a REIT,
we are required to distribute dividends (other than capital gain dividends) to
our stockholders in an amount at least equal to the sum of 95% of our "REIT
taxable income" (computed without regard to the dividends paid deduction and our
net capital gain) and 95% of our net income (after tax), if any, from
foreclosure property, minus the excess of the sum of certain items of noncash
income (i.e., income attributable to leveled stepped rents, original issue
discount on purchase money debt, or a like-kind exchange that is later
determined to be taxable) over 5% of "REIT taxable income" as described above.
These distributions must be paid in the taxable year to which they relate, or
in the following taxable year if they are declared before we timely file our tax
return for such year and if paid on or before the first regular dividend payment
after such declaration. These distributions are taxable to holders of Common
Stock (other than tax-exempt entities, as discussed below) in the year in which
paid. This is so even though these distributions relate to the prior year for
purposes of our 95% distribution requirement. The amount distributed must not
be preferential - e.g., every shareholder of the class of stock to which a
distribution is made must be treated the same as every other shareholder of that
class, and no class of stock may be treated otherwise than in accordance with
its dividend rights as a class. To the extent that we do not distribute all of
our net capital gain or distribute at least 95%, but less than 100%, of our
"REIT taxable income," as adjusted, we will be subject to tax thereon at regular
ordinary and capital gain corporate tax rates. We believe we have made and
intend to continue to make timely distributions sufficient to satisfy these
annual distribution requirements. In this regard, the Partnership Agreement
authorizes us, as general partner of the Operating Partnership, to take such
steps as may be necessary to cause the Operating Partnership to distribute to
its partners an amount sufficient to permit us to meet these distribution
requirements.
We expect that our REIT taxable income will be less than our cash flow due to
the allowance of depreciation and other non-cash charges in computing REIT
taxable income. Accordingly, we anticipate that we will generally have
sufficient cash or liquid assets to enable us to satisfy the distribution
requirements described above. However, from time to time, we may not have
sufficient cash or other liquid assets to meet these distribution requirements
due to timing differences between the actual receipt of income and actual
payment of deductible expenses, and the inclusion of income and deduction of
expenses in arriving at our taxable income. If these timing differences occur,
in order to meet the distribution requirements, we may need to arrange for
short-term, or possibly long-term, borrowings or need to pay dividends in the
form of taxable stock dividends.
Under certain circumstances, we 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 our deduction for
dividends paid for the earlier year. Thus, we may be able to avoid being taxed
on amounts distributed as deficiency dividends. However, we will be required to
pay interest based upon the amount of any deduction taken for deficiency
dividends.
Furthermore, we would be subject to a 4% excise tax on the excess of the
required distribution over the amounts actually distributed if we should fail to
distribute during each calendar year (or in the case of distributions with
declaration and record dates falling in the last three months of the calendar
year, by the end of January immediately following such year) at least the sum of
85% of our REIT ordinary income for such year, 95% of our REIT capital gain
income for the year and any undistributed taxable income from prior periods.
Any REIT taxable income and net capital gain on which this excise tax is imposed
for any year is treated as an amount distributed during that year for purposes
of calculating such tax.
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TAX ASPECTS OF THE PARTNERSHIPS
General. Substantially all of our investments will be held indirectly
through the Operating Partnership, Royal Golf, L.P. II ("Royal Golf"), a limited
partnership in which the Operating Partnership owns an 89% interest as general
partner, and Pumpkin Ridge Joint Venture ("Pumpkin Ridge," and, together with
Royal Golf, the "Lower-Tier Partnerships"), a limited partnership in which the
Operating Partnership owns a 50% interest. 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. We will include in our income our proportionate share of the
foregoing partnership items for purposes of the various REIT income tests and in
the computation of our REIT taxable income. Moreover, for purposes of the REIT
asset tests, we will include our proportionate share of assets held by the
Operating Partnership and the Lower-Tier Partnerships. See "--Taxation of
National Golf Properties, Inc." on page 27.
Entity Classification. Our interests in the Operating Partnership and the
Lower-Tier Partnerships involve special tax considerations, including the
possibility of a challenge by the IRS of the status of the Operating Partnership
or a Lower-Tier Partnership as a partnership (as opposed to an association
taxable as a corporation) for federal income tax purposes. If the Operating
Partnership or a Lower-Tier Partnership were treated as an association, it 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 our assets and items of gross
income would change and preclude us from satisfying the asset tests and possibly
the income tests (see "--Taxation of National Golf Properties, Inc.--Asset
Tests" on page 31 and "--Income Tests" on page 29). This, in turn, would
prevent us from qualifying as a REIT. See "--Failure to Qualify" on page 34 for
a discussion of the effect of our failure to meet these tests for a taxable
year. In addition, a change in the Operating Partnership's or a Lower-Tier
Partnership's status for tax purposes might be treated as a taxable event. If
so, we might incur a tax liability without any related cash distributions.
Treasury Regulations that apply for tax periods beginning on or after January
1, 1997 provide that a domestic business entity not otherwise classified as a
corporation and which has at least two members (an "Eligible Entity") may elect
to be taxed as a partnership for federal income tax purposes. Unless it elects
otherwise, an Eligible Entity in existence prior to January 1, 1997 will have
the same classification for federal income tax purposes that it claimed under
the entity classification Treasury Regulations in effect prior to this date. In
addition, an Eligible Entity which did not exist, or did not claim a
classification, prior to January 1, 1997, will be classified as a partnership
for federal income tax purposes unless it elects otherwise. The Operating
Partnership and each of the Lower-Tier Partnerships intend to claim
classification as a partnership under the Final Regulations, and, as a result,
we believe such partnerships will be classified as partnerships for federal
income tax purposes.
Partnership Allocations. A partnership agreement will generally determine
the allocation of income and losses among partners. However, these 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 under
this section of the Code. Generally, Section 704(b) and the Treasury
Regulations promulgated under this section of the Code 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. This reallocation 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 Operating
Partnership's 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 under this section of the Code.
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Tax Allocations with Respect to the Properties. Under Section 704(c) of the
Code, income, gain, loss and deduction attributable to appreciated or
depreciated property that is contributed to a partnership in exchange for an
interest in the partnership, must be allocated in a manner so that the
contributing partner is charged with the unrealized gain or benefits from the
unrealized loss associated with the property at the time of the contribution.
The amount of the unrealized gain or unrealized loss is generally equal to the
difference between the fair market value of contributed property at the time of
contribution and the adjusted tax basis of the property at the time of
contribution (a "Book-Tax Difference"). These allocations are solely for
federal income tax purposes and do not affect the book capital accounts or other
economic or legal arrangements among the partners. The Operating Partnership
was formed by way of contributions of appreciated property. Moreover,
subsequent to the formation of the Operating Partnership, additional appreciated
property has been contributed to the Operating Partnership in exchange for
interests in the Operating Partnership. The partnership agreement requires that
these allocations be made in a manner consistent with Section 704(c) of the
Code.
In general, limited partners of the Operating Partnership who acquired their
limited partnership interests through a contribution of appreciated property
will be allocated depreciation deductions for tax purposes which are lower than
these deductions would be if determined on a pro rata basis. In addition, in
the event of the disposition of any of the contributed assets which have a Book-
Tax Difference, all income attributable to the Book-Tax Difference will
generally be allocated to the limited partners who contributed the property, and
we will generally be allocated only our share of capital gains attributable to
appreciation, if any, occurring after the time of contribution to the Operating
Partnership. This will tend to eliminate the Book-Tax Difference over the life
of the Operating Partnership. However, the special allocation rules of Section
704(c) do not always entirely eliminate the Book-Tax Difference on an annual
basis or with respect to a specific taxable transaction such as a sale. Thus,
the carryover basis of the contributed assets in the hands of the Operating
Partnership may cause us to be allocated lower depreciation and other
deductions. We could possibly be allocated an amount of taxable income in the
event of a sale of these contributed assets in excess of the economic or book
income allocated to us as a result of the sale. This may cause us to recognize
taxable income in excess of cash proceeds, which might adversely affect our
ability to comply with the REIT distribution requirements. See "--Taxation of
National Golf Properties, Inc.--Annual Distribution Requirements" on page 31.
Treasury Regulations issued under Section 704(c) of the Code provide
partnerships with a choice of several methods of accounting for Book-Tax
Differences, including retention of the "traditional method" or the election of
certain methods which would permit any distortions caused by a Book-Tax
Difference to be entirely rectified on an annual basis or with respect to a
specific taxable transaction such as a sale. We and the Operating Partnership
have determined to use the "traditional method" for accounting for Book-Tax
Differences for the properties initially contributed to the Operating
Partnership and for certain assets acquired subsequently. We and the Operating
Partnership have not yet decided what method will be used to account for Book-
Tax Differences for properties acquired by the Operating Partnership in the
future.
Any property acquired by the Operating Partnership in a taxable transaction
will initially have a tax basis equal to its fair market value, and Section
704(c) of the Code will not apply.
FAILURE TO QUALIFY
If we fail to qualify for taxation as a REIT in any taxable year, and the
relief provisions do not apply, we will be subject to tax (including any
applicable alternative minimum tax) on our taxable income at regular corporate
rates. Distributions to stockholders in any year in which we fail to qualify
will not be deductible by us and we will not be required to distribute any
amounts to our stockholders. As a result, our failure to qualify as a REIT
would reduce the cash available for distribution by us to our stockholders. In
addition, if we fail to qualify as a REIT, all distributions to stockholders
will be taxable as ordinary income to the extent of our
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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, we
will also be disqualified from taxation as a REIT for the four taxable years
following the year during which we lost our qualification. It is not possible to
state whether in all circumstances we would be entitled to this statutory
relief.
TAXATION OF TAXABLE U.S. STOCKHOLDERS
As used below, the term "U.S. Stockholder" means a holder of shares of Common
Stock who (for United States federal income tax purposes):
. is a citizen or resident of the United States;
. is a corporation, partnership, or other entity created
or organized in or under the laws of the United States or
of any state thereof or in the District of Columbia,
unless, in the case of a partnership, Treasury
Regulations provide otherwise;
. is an estate the income of which is subject to United
States federal income taxation regardless of its source;
or
. is a trust whose administration is subject to the
primary supervision of a United States court and which
has one or more United States persons who have the
authority to control all substantial decisions of the
trust.
Notwithstanding the preceding sentence, to the extent provided in Treasury
Regulations, certain trusts in existence on August 20, 1996, and treated as
United States persons prior to this date that elect to continue to be treated as
United States persons, shall also be considered U.S. Stockholders.
Distributions Generally. As long as we qualify as a REIT, distributions out
of our current or accumulated earnings and profits, other than capital gain
dividends discussed below, will constitute dividends taxable to our taxable U.S.
Stockholders as ordinary income. These distributions will not be eligible for
the dividends-received deduction in the case of U.S. Stockholders that are
corporations. For purposes of determining whether distributions to holders of
Common Stock are out of current or accumulated earnings and profits, our
earnings and profits will be allocated first to the outstanding Preferred Stock
(if any) and then to the Common Stock.
To the extent that we make distributions, other than capital gain dividends
discussed below, in excess of our current and accumulated earnings and profits,
these distributions will be treated first as a tax-free return of capital to
each U.S. Stockholder. This treatment will reduce the adjusted basis which each
U.S. Stockholder has in his shares of stock for tax purposes by the amount of
the distribution (but not below zero). Distributions in excess of a U.S.
Stockholder's adjusted basis in his shares will be taxable as capital gains
(provided that the shares have been held as a capital asset) and will be taxable
as long-term capital gain if the shares have been held for more than one year.
Dividends we declare in October, November, or December of any year and payable
to a stockholder of record on a specified date in any of these months shall be
treated as both paid by us and received by the stockholder on December 31 of
that year, provided we actually pay the dividend on or before January 31 of the
following calendar year. Stockholders may not include in their own income tax
returns any of our net operating losses or capital losses.
Capital Gain Distributions. Distributions that we properly designate as
capital gain dividends will be taxable to taxable U.S. Stockholders as gains (to
the extent that they do not exceed our actual net capital gain for the taxable
year) from the sale or disposition of a capital asset. Depending on the period
of time we have
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held the assets which produced these gains, and on certain designations, if any,
which we may make, these gains may be taxable to non-corporate U.S. stockholders
at a 20% or 25% rate. U.S. Stockholders that are corporations may, however, be
required to treat up to 20% of certain capital gain dividends as ordinary
income. For a discussion of the manner in which that portion of any dividends
designated as capital gain dividends will be allocated among the holders of our
preferred stock (if any) and common stock, see "--Description of Capital Stock"
on page 11.
Passive Activity Losses and Investment Interest Limitations. Distributions
we make and gain arising from the sale or exchange by a U.S. Stockholder of our
shares will not be treated as passive activity income. As a result, U.S.
Stockholders generally will not be able to apply any "passive losses" against
this income or gain. Distributions we make (to the extent they do not
constitute a return of capital) generally will be treated as investment income
for purposes of computing the investment interest limitation. Gain arising from
the sale or other disposition of our shares, however, will not be treated as
investment income under certain circumstances.
Retention of Net Long-Term Capital Gains. We may elect to retain, rather
than distribute as a capital gain dividend, our net long-term capital gains. If
we make this election, we would pay tax on our retained net long-term capital
gains. In addition, to the extent we designate, a U.S. Stockholder generally
would:
. include its proportionate share of our undistributed
long-term capital gains in computing its long-term
capital gains in its return for its taxable year in which
the last day of our taxable year falls (subject to
certain limitations as to the amount that is includable);
. be deemed to have paid the capital gains tax imposed on
us on the designated amounts included in the U.S.
Stockholder's long-term capital gains;
. receive a credit or refund for the amount of tax deemed
paid by it;
. increase the adjusted basis of its common stock by the
difference between the amount of includable gains and the
tax deemed to have been paid by it; and
. in the case of a U.S. Stockholder that is a corporation,
appropriately adjusts its earnings and profits for the
retained capital gains in accordance with Treasury
Regulations to be prescribed by the IRS.
DISPOSITIONS OF COMMON STOCK
If you are a U.S. Stockholder and you sell or dispose of your shares of
common stock, you will recognize gain or loss for federal income tax purposes in
an amount equal to the difference between the amount of cash and the fair market
value of any property you receive on the sale or other disposition and your
adjusted basis in the shares for tax purposes. This gain or loss will be
capital if you have held the common stock as a capital asset and will be long-
term capital gain or loss if you have held the common stock for more than one
year. In general, if you are a U.S. Stockholder and you recognize loss upon the
sale or other disposition of common stock that you have held for six months or
less (after applying certain holding period rules), the loss you recognize will
be treated as a long-term capital loss, to the extent you received distributions
from us which were required to be treated as long-term capital gains.
BACKUP WITHHOLDING
We report to our U.S. Stockholders and the IRS the amount of dividends paid
during each calendar year, and the amount of any tax withheld. Under the backup
withholding rules, a stockholder may be subject to backup withholding at the
rate of 31% with respect to dividends paid unless the holder is a corporation or
36
<PAGE>
comes within certain other exempt categories and, when required, demonstrates
this fact, or 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 us with his correct taxpayer identification number may also be subject
to penalties imposed by the IRS. Backup withholding is not an additional tax.
Any amount paid as backup withholding will be creditable against the
stockholder's income tax liability. In addition, we may be required to withhold
a portion of capital gain distributions to any stockholders who fail to certify
their non-foreign status. See "--Taxation of Non-U.S. Stockholders" on page 38.
TAXATION OF 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
as "debt financed property" within the meaning of the Code (generally, shares of
common stock, the acquisition of which was financed through a borrowing by the
tax exempt stockholder) and the shares are not otherwise used in a trade or
business, dividend income from us will not be UBTI to a tax-exempt shareholder.
Similarly, income from the sale of shares will not constitute UBTI unless a tax-
exempt shareholder has held its shares as "debt financed property" within the
meaning of the Code or has used the shares in its 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
Section 501(c)(7), (c)(9), (c)(17) and (c)(20), respectively, income from an
investment in our shares 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 our shares. These
prospective investors should consult their own tax advisors concerning these
"set aside" and reserve requirements.
Notwithstanding the above, however, a portion of the dividends paid by a
"pension held REIT" shall be treated as UBTI as to any trust which
. is described in Section 401(a) of the Code;
. is tax-exempt under Section 501(a) of the Code; and
. 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
. it would not have qualified as a REIT but for the fact
that Section 856(h)(3) of the Code 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
. either at least one such qualified trust holds more than
25% (by value) of the interests in the REIT, or one or
more such qualified trusts, each of which owns more than
10% (by value) of the interests in the REIT, holds in the
aggregate more than 50% (by value) of the interests in
the REIT.
37
<PAGE>
The percentage of any REIT dividend treated as UBTI is equal to the ratio of:
. the UBTI earned by the REIT (treating the REIT as if it
were a qualified trust and therefore subject to tax on
UBTI) to
. 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. As a result of certain limitations on the transfer
and ownership of stock contained in the charter, we are not and do not expect to
be classified as a "pension held REIT."
TAXATION OF NON-U.S. STOCKHOLDERS
The preceding discussion does not address the rules governing United States
federal income taxation of the ownership and disposition of common stock by
persons that are not U.S. Stockholders ("Non-U.S. Stockholders"). In general,
Non-U.S. Stockholders may be subject to special tax withholding requirements on
distributions from the Company and with respect to their sale or other
disposition of common stock of the Company, except to the extent reduced or
eliminated by an income tax treaty between the United States and the Non-U.S.
Stockholder's country. A Non-U.S. Stockholder who is a stockholder of record
and is eligible for reduction or elimination of withholding must file an
appropriate form with the Company in order to claim such treatment. Non-U.S.
Stockholders should consult their own tax advisors concerning the federal income
tax consequences to them of an acquisition of shares of Common Stock, including
the federal income tax treatment of dispositions of interests in, and the
receipt of distributions from, the Company.
OTHER TAX CONSEQUENCES
We may be subject to state or local taxation in various state or local
jurisdictions, including those in which we transact business and our
stockholders may be subject to state or local taxation in various state or local
jurisdictions, including those in which they reside. Our state and local tax
treatment may not conform to the federal income tax consequences discussed
above. In addition, your state and local tax treatment may not conform to the
federal income tax consequences discussed above. Consequently, you should
consult your own tax advisors regarding the effect of state and local tax laws
on an investment in our shares.
38
<PAGE>
SELLING STOCKHOLDERS
The following table lists the Selling Stockholders who may sell common stock
with this prospectus. The table identifies the number of shares of common stock
beneficially owned, and the number of Common Units owned of record, by each
Selling Stockholder as of November 1, 1998 and the maximum number of shares of
common stock represented by Common Units ("Exchange Shares") that may be sold by
each Selling Stockholder with this prospectus. Because the Selling Stockholders
may exchange all, some or none of their Common Units for shares of common stock
(subject to restrictions on the number of Common Units that may be exchanged in
a twelve-month period), and then may sell all, some or none of such shares, no
estimate can be made of the aggregate number of such shares that will be sold by
the Selling Stockholders or that will be owned by the Selling Stockholders upon
completion of the offering. The total number of Exchange Shares covered by this
prospectus represents approximately 22.4% of the total shares of common stock
outstanding as of November 1, 1998.
<TABLE>
<CAPTION>
MAXIMUM NUMBER OF
SHARES OF EXCHANGE SHARES
NAME COMMON STOCK (1) COMMON UNITS (1) OFFERED (2)
- ---------------------------------------- ---------------- --------------- -----------------
<S> <C> <C> <C>
Dallas P. Price Trust (3) 354,737 3,244,627 551,475
Calvary Christian High School 0 1,250,000 (4) 1,250,000
Joan P. Anawalt 1995 Revocable Trust(5) 0 248,517 248,517
Supermarine Aviation, Ltd. (3) 0 152,498 152,498
Myreshan, Inc. (3) 0 149,273 149,273
Richard C. and Sheri L. Price (6) 44,000 (7) 83,701 83,701
Robert H. Williams 0 75,003 75,003
Joan P. Anawalt 1993 Annuity Income
Trust (5) 0 71,731 71,731
BlackLake/Penasquitos, a California 0 24,844 24,844
general partnership (3)
Joan P. Stewart Income Trust (5) 0 60,146 60,146
Edward R. Sause (8) 106,000 (9) 55,550 55,550
Richard Bermudez 0 30,361 30,361
Ernest C. Burns 0 25,001 25,001
Barbara M. Colton 0 8,930 (10) 8,930
American Golf Corporation (3) 0 6,854 6,854
RSJ Golf, Inc. (3) 0 6,732 6,732
--------- ---------- ---------
Total 504,737 5,493,768 2,800,616
</TABLE>
___________________
(1) Represents the total shares of common stock beneficially owned and Common
Units owned of record by the Selling Stockholders as of November 1, 1998.
(2) Represents the maximum number of shares of common stock issuable to each
Selling Stockholder (other than the Dallas P. Price Trust) upon exchange of
such holder's Common Units without regard to restrictions on the number of
Common Units that may be exchanged in a one-year period. The shares of
common stock issuable to the Dallas P. Price Trust under this prospectus
represent less than the maximum number of shares that could be issued to
such holder upon exchange of Common Units in a twelve-month period. The
exchange of any Common Units also is subject to the Ownership Limit
contained in the Company's charter, which prohibits the actual or
constructive ownership of more than 9.8% of the outstanding shares of
common stock by any person.
39
<PAGE>
(3) Dallas P. Price is the sole trustee of the Dallas P. Price Trust, a
revocable trust. Dallas P. Price is the former wife of David G. Price,
Chairman of the Company's Board of Directors. Supermarine Aviation, Ltd.,
Myreshan, Inc., Blacklake/Penasquitos, a California general partnership,
AGC and RSJ Golf, Inc., all may be deemed to be controlled by Mrs. Price.
(4) Calvary Christian High School, a non-profit organization, received all of
its Common Units in separate contributions from David G. Price and Dallas
P. Price on July 9, 1998. Pursuant to the terms of the partnership
agreement for the Operating Partnership, Calvary Christian High School
agreed at the time of such transfers to exchange all such Common Units for
shares of common stock within six months after the date of such transfers.
(5) Joan P. Anawalt is the sister of David G. Price, and is the sole trustee of
the Joan P. Anawalt 1995 Revocable Trust, the Joan P. Anawalt 1993 Annuity
Income Trust and the Joan P. Stewart Income Trust.
(6) Richard C. Price is the former President of the Company. Sheri L. Price,
his spouse, is the daughter of David G. Price and Dallas P. Price.
(7) Excludes 24,844 Common Units owned by BlackLake/Penasquitos, a California
general partnership, in which Richard C. Price owns a 10% interest.
(8) Edward R. Sause is a Director of the Company and the Executive Vice
President - Finance & Corporate Services of AGC.
(9) Includes 70,000 shares of common stock issuable upon exercise of options
that presently are exercisable. Does not include 10,000 shares of common
stock subject to options that are not exercisable within 60 days.
(10) One-half of Barbara M. Colton's Common Units currently are pledged to David
G. Price and one-half of Mrs. Colton's Common Units are pledged to Dallas
P. Price, in each case as security for separate loans made to Mrs. Colton
by Mr. Price and Mrs. Price in their individual capacities. Each of Mr.
Price and Mrs. Price has the right to exercise the exchange rights under
the partnership agreement with respect to such Common Units.
PLAN OF DISTRIBUTION
This prospectus relates to the possible offer and sale from time to time of
up to 2,800,616 shares of common stock that may be issued to the Selling
Stockholders upon exchange of their Common Units. We have registered the shares
of common stock covered by this prospectus for sale to provide the Selling
Stockholders with freely tradable securities, but registration of such shares of
common stock does not necessarily mean that any of such shares will be offered
or sold by the Selling Stockholders.
We will not receive any proceeds from the offer and sale of shares of common
stock by the Selling Stockholders. The shares of common stock covered by this
prospectus may be sold from time to time to purchasers directly by any of the
Selling Stockholders. Alternatively, the Selling Stockholders may from time to
time offer such shares through dealers or agents, who may receive compensation
in the form of commissions from the Selling Stockholders and/or the purchasers
of such shares for whom they may act as agent. The sale of such shares by
Selling Stockholders may be effected from time to time in one or more negotiated
transactions at negotiated prices or in transactions on any exchange or
automated quotation system on which the securities may be listed or quoted. The
Selling Stockholders and any dealers or agents that participate in the
distribution of such shares may be deemed to be underwriters within the meaning
of the Securities Act and any profit on the sale of such shares by them and any
commissions received by any such dealers or agents might be deemed to be
underwriting commissions under the Securities Act.
In order to comply with certain states securities laws, if applicable, the
shares of common stock covered by this prospectus will not be sold in a
particular state unless such shares have been registered or qualified for sale
in such state or an exemption from registration or qualification is available
and is complied with.
One or more supplemental prospectuses will be filed pursuant to Rule 424
under the Securities Act to describe any material arrangements for the
distribution of the shares covered by this prospectus when such arrangements are
entered into by the Selling Stockholders and any broker-dealers that participate
in the distribution of such shares.
The anti-manipulation rules of Registration M under the Exchange Act may
apply to sales of common stock in the market and to the activities of the
Selling Stockholders.
40
<PAGE>
LEGAL MATTERS
The legality of the issuance of the shares of common stock issuable upon
exchange of Common Units will be passed upon for the Company by Ballard Spahr
Andrews & Ingersoll LLP. Certain tax matters described under "Federal Income
Tax Considerations" will be passed upon for the Company by Latham & Watkins, Los
Angeles, California.
EXPERTS
The consolidated balance sheet as of December 31, 1997 and 1996 and the
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1997 of National Golf
Properties, Inc. appearing in the Company's Annual Report on Form 10-K and Form
10-K/A have been incorporated by reference herein and in this registration
statement in reliance upon the report by PricewaterhouseCoopers LLP, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
41
<PAGE>
WE HAVE NOT AUTHORIZED ANY PERSON TO MAKE A STATEMENT THAT DIFFERS FROM WHAT IS
IN THIS PROSPECTUS. IF ANY PERSON DOES MAKE A STATEMENT THAT DIFFERS FROM WHAT
IS IN THIS PROSPECTUS, YOU SHOULD NOT RELY ON IT. THIS PROSPECTUS IS NOT AN
OFFER TO SELL, NOR IS IT SEEKING AN OFFER TO BUY, THESE SECURITIES IN ANY STATE
WHERE THE OFFER OR SALE IS NOT PERMITTED. THE INFORMATION IN THIS PROSPECTUS IS
COMPLETE AND ACCURATE AS OF ITS DATE, BUT THE INFORMATION MAY CHANGE AFTER THAT
DATE.
NATIONAL GOLF PROPERTIES, INC.
2,800,616 Shares
Common Stock
PROSPECTUS
November ___, 1998
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is an estimate of the amount of fees and expenses to be
incurred by National Golf Properties, Inc. (the "Registrant") in connection with
the issuance and registration of the shares of common stock, par value $0.01 per
share ("Common Stock") of the Registrant, under this Registration Statement.
All amounts shown are estimates except the Securities and Exchange Commission
(the "SEC") registration fee.
<TABLE>
<S> <C>
SEC Registration Fee................... $21,263
Printing Expenses...................... 1,000
Legal Fees and Expenses................ 50,000
Accounting Fees and Expenses........... 5,000
Miscellaneous.......................... 1,000
-------
*Total............................ $80,500
=======
</TABLE>
_____________
* All of the costs identified above will be paid by the Registrant.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Maryland law permits a Maryland corporation to include in its charter a
provision eliminating the liability of its directors and officers to the
corporation and its stockholders for money damages. However, liability
resulting from actual receipt of an improper benefit or profit in money,
property or services or active and deliberate dishonesty established by a final
judgment as being material to the cause of action may not be eliminated. Our
charter contains a provision which eliminates liability of directors and
officers to the maximum extent permitted by Maryland law. This provision does
not limit our ability or that of our stockholders to obtain equitable relief,
such as an injunction or rescission.
Our charter authorizes us, to the maximum extent permitted by Maryland law,
to indemnify and to pay or reimburse reasonable expenses before final
disposition of a proceeding to any present or former director or officer from
and against any claim or liability incurred by reason of his status as one of
our present or former directors or officers. Our charter also provides that we
may indemnify any other persons permitted but not required to be indemnified by
Maryland law. Our bylaws obligate us, to the maximum extent permitted by
Maryland law, to indemnify and to pay or reimburse reasonable expenses before
final disposition of a proceeding to:
. any present or former director or officer who is made a party to
the proceeding by reason of his service in that capacity; or
. any individual who, while one of our directors and at our request,
serves or has served another corporation, partnership, joint
venture, trust, employee benefit plan or any other enterprise as a
director, officer, partner or trustee of such corporation,
partnership, joint venture, trust, employee benefit plan, or other
enterprise and who is made a party to the proceeding by reason of
his service in that capacity.
Our bylaws also permit us to indemnify and advance expenses to any person who
served one of our predecessors in any of the capacities described above and to
any of our (or our predecessors') employees or agents.
II-1
<PAGE>
Maryland law requires a corporation (unless its charter provides otherwise,
which our charter does not) to indemnify a director or officer who has been
successful, on the merits or otherwise, in the defense of any proceeding to
which he is made a party by reason of his service in that capacity. Maryland
law 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:
. 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;
. the director or officer actually received an improper personal
benefit in money, property or services; or
. in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful.
However, under Maryland law, a Maryland corporation generally may not indemnify
for an adverse judgment in a suit by or in the right of the corporation. Also,
a Maryland corporation generally may not indemnify for a judgment of liability
on the basis that personal benefit was improperly received. In either of these
cases, a Maryland corporation may indemnify for expenses only if a court orders
indemnification. In addition, Maryland law permits a corporation to advance
reasonable expenses to a director or officer. First, however, the corporation
must receive a written affirmation by the director or officer of his good faith
belief that he has met the standard of conduct necessary for indemnification by
the corporation and a written undertaking by him or on his behalf to repay the
amount paid or reimbursed by the corporation if it shall ultimately be
determined that the standard of conduct was not met. The termination of any
proceeding by conviction, or upon a plea of nolo contendere or its equivalent,
or an entry of any order of probation prior to judgment, creates a rebuttable
presumption that the director or officer did not meet the requisite standard of
conduct required for indemnification to be permitted. It is the position of the
SEC that indemnification of directors and officers for liabilities arising under
the Securities Act of 1933, as amended (the "Securities Act"), is against public
policy and is unenforceable pursuant to Section 14 of the Securities Act.
The partnership agreement of the Operating Partnership also provides for
indemnification of us, as general partner, and our directors and officers (as
well as certain other persons designated by us) generally to the same extent as
permitted by Maryland law for a corporation's officers and directors.
II-2
<PAGE>
ITEM 16. EXHIBITS
<TABLE>
<S> <C>
3.1 -- Articles of Incorporation of National Golf Properties, Inc. (incorporated by reference to
Exhibit 3.1 to the Company'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
Company's Current Report on Form 8-K dated September 26, 1995)
4.1 -- Specimen of certificate representing shares of Common Stock (incorporated by reference to
Exhibit 3.3 to the Company's Report on Form 8-B dated December 29, 1995)
5.1 -- Opinion of Ballard Spahr Andrews & Ingersoll, LLP, regarding the validity of the Common
Stock being registered.*
8.1 -- Opinion of Latham & Watkins, Los Angeles, California, regarding certain federal income tax
matters.*
23.1 -- Consent of Ballard Spahr Andrews & Ingersoll, LLP (included as part of Exhibit 5.1).*
23.2 -- Consent of Latham & Watkins, Los Angeles, California (included as part of Exhibit 8.1).*
23.3 -- Consent of PricewaterhouseCoopers LLP
24.1 -- Power of Attorney (included on signature page).
</TABLE>
* To be filed by amendment.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
. To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement. However, any
increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end
of the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information about the plan of
distribution not previously disclosed in this registration
statement or any material change to this information in this
registration statement.
However, subparagraphs (i) and (ii) do not apply if the information
required to be included in a post-effective amendment by those
paragraphs is contained in the periodic reports filed by the Registrant
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), that are incorporated by reference in
this registration statement.
II-3
<PAGE>
. That, for the purpose 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 herein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
. To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby further undertakes that, for the purposes
of determining any liability under the Securities Act each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 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.
The undersigned Registrant hereby further undertakes to deliver or cause to
be delivered with the prospectus, to each person to whom the prospectus is sent
or given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Exchange Act; and, where
interim financial information required to be presented by Article 3 of
Regulation S-X are not set forth in the prospectus, to deliver, or cause to be
delivered to each person to whom the prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
As far as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant under the provisions of this registration statement, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Exchange Act and 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 Exchange Act
and will be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and 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 the 12th day of
November, 1998.
National Golf Properties, Inc.
By: /s/ JAMES M. STANICH
-------------------------------
James M. Stanich
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below, hereby constitutes and appoints James M. Stanich and William C. Regan and
each acting alone, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any or all amendments or supplements
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, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing necessary or
appropriate to be done with respect to this registration statement or any
amendments or supplements hereto 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, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below 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 November 12, 1998
- ---------------------------------------- Directors
David G. Price
/s/ JAMES M. STANICH President and Director November 12, 1998
- ----------------------------------------
James M. Stanich
/s/ NEIL M. MILLER Vice President - Finance November 12, 1998
- ----------------------------------------
Neil M. Miller
/s/ WILLIAM C. REGAN Vice President - November 12, 1998
- ---------------------------------------- Controller and Treasurer
William C. Regan
/s/ RICHARD A. ARCHER Director November 12, 1998
- ----------------------------------------
Richard A. Archer
/s/ JOHN C. CUSHMAN, III Director November 12, 1998
- ----------------------------------------
John C. Cushman, III
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ BRUCE KARATZ Director November 12, 1998
- ----------------------------------------
Bruce Karatz
/s/ CHARLES S. PAUL Director November 12, 1998
- ----------------------------------------
Charles S. Paul
/s/ EDWARD R. SAUSE Director November 12, 1998
- ----------------------------------------
Edward R. Sause
</TABLE>
II-6
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement of
National Golf Properties, Inc. on Form S-3 (File No. 333-___) of our report
dated February 4, 1998, on our audits of the consolidated financial statements
and financial statement schedule of National Golf Properties, Inc. as of
December 31, 1997 and 1996 and for the years ended December 31, 1997, 1996 and
1995. We also consent to the reference to us under the heading "Experts" in the
prospectus included in this registration statement.
PRICEWATERHOUSECOOPERS LLP
Los Angeles, California
November 17, 1998
