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As filed with the Securities and Exchange Commission on October 18, 1999
Registration No. 333-67403
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 5
TO
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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NATIONAL GOLF PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
Maryland 95-4549193
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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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: At various
times 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
Amount to be Proposed maximum aggregate offering Amount of
Title of shares to be registered registered price per share(2) price(3) registration fee
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<S> <C> <C> <C> <C>
Common Stock, par value $0.01
per share...................... 2,800,616(1) $27.31 $76,484,823 $21,263(4)
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(1) Including an indeterminate number of shares which may be issued by the
Registrant 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.
(4) $21,263 previously paid with initial filing on November 17, 1998.
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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<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 18, 1999
PROSPECTUS
National Golf Properties, Inc.
2,800,616 Shares
Common Stock
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This prospectus relates to the possible offer and sale of up to 2,800,616
shares of common stock of National Golf Properties by the selling stockholders
identified in this prospectus. The selling stockholders are offering these
shares of common stock for resale upon the exchange of the selling
stockholders' units of limited partnership interest in National Golf Operating
Partnership, L.P. We will not receive any of the proceeds from the sale of the
shares of our common stock offered by the selling stockholders.
Our shares of common stock are traded on The New York Stock Exchange under
the symbol "TEE."
You should consider the risks discussed in "Risk Factors" beginning on page 5,
before you invest in our common stock.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
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The date of this prospectus is October , 1999
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TABLE OF CONTENTS
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Page
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The Company............................................................. 3
Risk Factors............................................................ 5
Description of Capital Stock............................................ 15
Partnership Agreement................................................... 23
Material Provisions of Maryland Law and Our Charter and Bylaws.......... 34
Material Federal Income Tax Considerations.............................. 42
Selling Stockholders.................................................... 60
Plan of Distribution.................................................... 63
Legal Matters........................................................... 65
Experts................................................................. 65
Where You Can Find More Information..................................... 66
Forward-Looking Statements.............................................. 68
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You should rely only on the information contained or incorporated by
reference in this prospectus or the accompanying prospectus supplement. We have
not authorized any other person to provide you with different information. If
anyone provides you with different or inconsistent information, you should not
rely on it. We are not making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus or the accompanying prospectus
supplement, as well as information in documents we previously filed with the
Securities and Exchange Commission and incorporated by reference, is accurate
as of the date of each such document. Our business, financial condition,
results of operations and prospects may have changed since such dates.
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THE COMPANY
We are a self-administered real estate investment trust and the largest
publicly-traded company in the United States specializing in the acquisition
and ownership of golf course properties. As a self-administered real estate
investment trust, our own employees perform our administrative and management
functions, rather than our relying on an outside manager for these services. As
of June 30, 1999, our portfolio consisted of 150 golf courses, geographically
diversified among 25 states.
We lease our golf courses to experienced and creditworthy operators under
long-term triple net leases. In selecting our lessees, we consider factors such
as the number of years that the company has been in operation, the experience
of the management team, the number of golf courses currently owned, leased or
managed by the lessee, the lessee's net worth or ability to provide credit
support to our satisfaction, and the lessee's ability to maximize the revenues
of the golf course and to improve the long-term value of the golf course. The
lessees of our golf courses pay 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, as triple net leases, require the lessees to pay all real and
personal property taxes, utility costs, insurance costs, irrigation costs,
maintenance costs and other operating expenses.
National Golf Operating Partnership holds substantially all of our assets and
conducts all of our operations. Six of our golf course properties are owned by
partnerships in which National Golf Operating Partnership acts as managing
general partner and owns at least a 50% interest. Our interests in two of our
golf courses consist of participating mortgage loans held by National Golf
Operating Partnership, which are collateralized by mortgages on the two golf
courses. With the exception of these participating mortgage loans, all of our
investments in golf courses consist of ownership of golf course properties
through our ownership interest in National Golf Operating Partnership and the
other partnerships which it controls. We are the sole general partner of
National Golf Operating Partnership, and we currently own 59.1% of its units of
common partnership interest. The limited partners in National Golf Operating
Partnership are individuals, partnerships, corporations and trusts who have
contributed their properties in exchange for common units or who have
contributed cash in exchange for units of preferred partnership interest.
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The following diagram depicts the structure of National Golf Properties,
National Golf Operating Partnership, Royal Golf, L.P. II and Pumpkin Ridge
Joint Venture as of June 30, 1999:
[CHART OF NATIONAL GOLF PROPERTIES]
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* We account for our investment in Pumpkin Ridge Joint Venture under the equity
method of accounting.
** Two golf courses are not owned by National Golf Operating Partnership, but
National Golf Operating Partnership has a participating mortgage loan on
each of such courses.
National Golf Properties, Inc. is a Maryland corporation founded in 1993 by
David G. Price, the Chairman of our 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.
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RISK FACTORS
The following discussion identifies 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 in this prospectus.
The lessee and operator of most of our golf courses and our Chairman have
conflicts of interest that may adversely affect our business.
American Golf manages other golf courses located in the same geographic area
as our golf courses and these courses may compete with our courses.
American Golf Corporation is a golf course management company that is
responsible for operating 146 of our golf course properties, including two golf
courses securing participating mortgage loans. American Golf and its
subsidiaries also currently manage and operate more than 173 other golf courses
and related facilities located in 30 states and the United Kingdom. Some of the
other golf courses and related facilities operated by American Golf are located
in the same geographic areas as our golf properties and may compete with them.
American Golf does not, however, compete with us for the acquisition of golf
courses and does not own any of the golf courses that it manages.
David G. Price's role as Chairman of the board of directors of American Golf
subjects him to conflicts of interest.
David G. Price is Chairman of the board of directors of American Golf and
owns 35.5% of its common stock. Mr. Price also is Chairman of our board of
directors and beneficially owns 2.8% of our outstanding common stock and common
units exchangeable for an additional 27.7% of our common stock. As a result of
his position and ownership in both companies, Mr. Price is subject to conflicts
of interest that could influence Mr. Price to make decisions in his capacity as
our Chairman which are more favorable to American Golf than would be the case
if Mr. Price had no interest in American Golf. No limitations exist on the
operation of any competitive golf courses and related facilities by American
Golf or other affiliates of Mr. Price.
David G. Price may have conflicts of interest with us in connection with his
ownership interest in Golf Enterprises, Inc.
Mr. Price beneficially owns 50% of Golf Enterprises, Inc., which is the
lessee or manager of 19 golf courses owned by various third parties. Mr. Price
acquired Golf Enterprises in July 1996 as part of a three-party transaction
involving Mr. Price, National Golf Properties and Golf Enterprises. In that
transaction, National Golf Properties purchased 20 golf courses owned by Golf
Enterprises and Mr. Price then merged a newly-formed acquisition entity into
Golf Enterprises as a means of acquiring all the remaining courses which were
leased or managed. Immediately following the transaction, Mr. Price
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caused Golf Enterprises to enter into an agreement with American Golf to
sublease or manage Golf Enterprises' 19 golf courses. American Golf continues
today to sublease or manage such courses. Golf Enterprises has not acquired
interests in any additional golf courses since 1996. However, there are no
restrictions on Golf Enterprises from leasing or managing additional golf
courses in the future which could compete with golf courses owned by us.
Loss of our status as a real estate investment trust would have significant
adverse consequences to our company and the value of our stock.
We currently operate and have operated since 1993 in a manner that is
intended to allow us to qualify as a real estate investment trust for federal
income tax purposes under the Internal Revenue Code of 1986, as amended.
If we lose our status as a real estate investment trust, we will face serious
tax consequences that will substantially reduce the funds available for
distribution to you for each of the years involved because:
. we would not be allowed a deduction for distributions to stockholders
in computing our taxable income and would be required to pay federal
income tax at regular corporate rates;
. we also could be required to pay the federal alternative minimum tax
and possibly increased state and local taxes; and
. unless we are entitled to relief under statutory provisions, we could
not elect to be taxed as a real estate investment trust for four
taxable years following the year during which we were disqualified.
In addition, if we fail to qualify as a real estate investment trust, all
distributions to stockholders will be taxable as ordinary income to the extent
of our current and accumulated earnings and profits, we will not be required to
make distributions to stockholders, and corporate distributees may be eligible
for the dividends received deduction.
As a result of all these factors, our failure to qualify as a real estate
investment trust also could impair our ability to expand our business and raise
capital, and would adversely affect the value of our common stock.
Qualification as a real estate investment trust involves the application of
highly technical and complex Internal Revenue Code provisions for which there
are only limited judicial and administrative interpretations. The complexity of
these provisions and of the income tax regulations that have been promulgated
under the Internal Revenue Code is greater in the case of a real estate
investment trust 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 real estate investment trust. For
example, in order to qualify as a real estate investment trust, at least 95% of
our gross income in any year must be derived from qualifying sources. Also, we
must make distributions to
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stockholders aggregating annually at least 95% of our net taxable income,
excluding capital gains. In addition, legislation, new treasury regulations,
administrative interpretations or court decisions may adversely affect our
investors or our ability to qualify as a real estate investment trust for tax
purposes. Although our management believes that National Golf Properties is
organized and operates in such manner, no assurance can be given that we will
continue to be organized or be able to operate in a manner so as to qualify or
remain qualified as a real estate investment trust for tax purposes.
To maintain our status as a real estate investment trust, we may be forced to
borrow funds on a short-term basis during unfavorable market conditions.
In order to maintain our status as a real estate investment trust, we may
need to borrow funds on a short-term basis to meet the real estate investment
trust distribution requirements even if the then prevailing market conditions
are not generally favorable for these borrowings. To qualify as a real estate
investment trust, we generally must distribute to our stockholders at least 95%
of our net taxable income each year, excluding capital gains. In addition, we
will be required to pay a 4% nondeductible excise tax on the amount, if any, by
which 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. These short-term borrowing needs could
result from differences in timing between the actual receipt of income and
inclusion of income for federal income tax purposes, or the effect of non-
deductible capital expenditures, the creation of reserves or required debt or
amortization payments.
We rely heavily on the rental payments we receive from American Golf for our
revenues and ability to make distributions.
Our revenues and ability to pay distributions are largely dependent on rental
payments we receive from American Golf under long-term leases relating to our
golf courses. We cannot be sure that American Golf will have sufficient assets
or income in the future to satisfy its lease obligations to us or that American
Golf will elect to renew any of such leases upon the expiration of their
initial terms, which range between 15 and 20 years. Our income and cash flow
consist primarily of rental income from our golf courses. American Golf is the
lessee of all but four of our golf courses and related facilities. The terms of
the leases for our existing golf courses require American Golf 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 depend, in part, on
the growth of percentage rent payments under the leases, which in turn will
depend on the success of American Golf in increasing the revenues of our golf
courses. Percentage rent payments equal a percentage of the revenues of our
golf courses, and is payable only to the extent that such percentage exceeds
the base rent that lessees pay to us.
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Our investors face risks applicable to real estate investments generally.
Investments in golf courses and related properties face 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. If our
properties do not generate income sufficient to meet operating expenses,
including capital expenditures, of National Golf Properties and National Golf
Operating Partnership, our ability to pay distributions to our stockholders,
could be adversely affected.
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; and
. 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 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. We generally expect that our results of operations may be adversely
affected as a function of reduced payments of percentage rent in the first and
fourth quarters of each year due to adverse weather conditions and the
scheduled closure of the golf courses located in harsh winter climates.
A drought or water shortage could adversely effect the value of our golf
courses.
One factor specifically affecting real estate investments in golf courses 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 were 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 and, consequently, the amount
of percentage rents we receive. About half of our golf courses are located in
"sun-belt" states, which, because of their warmer climates, are more likely to
experience drought and water shortages.
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Our ability to vary our portfolio is limited because real estate investments
are illiquid.
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 investment criteria or
limitations as it deems appropriate, but currently does not limit the number of
properties in which we may 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, we
will continue to be subject to the risks associated with investments in a
single industry.
We may be exposed to costs related to environmental remediation.
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 any hazardous substances released on 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 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. Such inspection generally does not involve 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 some 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.
If an uninsured loss occurs, we could lose both our invested capital in and
projected profits from a property.
Our tenants are required to carry comprehensive liability, fire, flood and
extended insurance coverage, as applicable, 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 within
industry standards. There are, however, losses of a catastrophic nature, such
as those caused by wars or earthquakes, which may be either
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uninsurable or not economically insurable. Should an uninsured loss occur, we
could lose both our invested capital in and anticipated profits from a
property.
Shares available for future sale could have adverse effects on the market price
of our common stock.
If we or the holders of our common stock sell a substantial number of shares
in a short period, particularly if the volume of sales are higher than usual,
then the price of our common stock may be lower in order to generate sufficient
demand for the number of shares being sold. Investors' expectations of
significant sales of this kind could depress the market price of our common
stock.
Sales of unusually large numbers of shares could occur under several
circumstances. First, when we formed National Golf Operating Partnership, the
partnership issued 8,685,985 common units to the persons and entities that
contributed properties to the partnership. In 1996, we issued an additional
61,339 common units upon National Golf Operating Partnership's acquisition of
four golf courses held under option since 1993. Holders of all of these common
units have the right to exchange their units for our common stock. These
exchange rights are limited, however, by stock ownership limitations in our
charter which are necessary to maintain our status as a real estate investment
trust. If any holders exchange their common units, those holders would likely
elect to sell the shares they receive. We have agreed to register with the
Securities and Exchange Commission to facilitate these sales in the public
markets.
Second, if any of the holders of common units exercise their rights to
receive cash in exchange for their units, we may need to issue shares of our
capital stock to raise that cash. These issuances would likely be made in the
public markets.
Third, if any holders of the Series A Preferred Units or Series B Preferred
Units of National Golf Operating Partnership exchange their Series A Preferred
Units for shares of Series A Preferred Stock or Series B Preferred Units for
shares of Series B Preferred Stock, those shares of our preferred stock may be
sold in high volume on the open market. We have agreed to register with the
Securities and Exchange Commission to facilitate those sales.
Finally, we may also issue additional shares of our common or preferred stock
to raise funds to acquire additional assets or pay operating expenses, capital
expenditures and debt service.
Limitations in our charter and bylaws and in the partnership agreement for
National Golf Operating Partnership may adversely effect your ownership of
shares and the opportunity for a change in control.
Limitations on ownership of common stock.
Actual or constructive ownership of shares of our common stock and preferred
stock in excess of the stock ownership limits described below would cause the
violative transfer or ownership to be void or cause such shares to be
transferred to a charitable trust and then sold
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to a person or entity who can own such shares without violating such limits. As
a result, if a violative transfer were made, the recipient of such shares would
not acquire any economic or voting rights attributable to such capital stock.
To maintain our qualification as a real estate investment trust, not more
than 50% in value of our outstanding shares of capital stock may be owned,
actually or constructively, by five or fewer individuals, pension funds,
supplemental unemployment benefit trusts, private foundations and trusts
entitled to a deduction for amounts paid or permanently set aside for
charitable purposes, as described in Section 542(a)(2) of the Internal Revenue
Code, generally are treated as individuals, except a "look-through" exception
applies with respect to pension funds. For the purpose of preserving our tax
status as a real estate investment trust, our charter contains a stock
ownership limit which prohibits actual or constructive ownership of more than
9.8%, by number of shares or value, whichever is more restrictive, of our
outstanding common stock by any person. Our charter also prohibits any single
stockholder from actually or constructively owning outstanding shares of our
preferred stock if the value of such preferred stock which, taken together with
the value of any other capital stock of National Golf Properties owned by such
stockholder, would exceed 9.8% of the aggregate 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 capital stock, or the acquisition of
an interest in an entity which owns shares of our capital 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 our common stock or capital stock, and the holders of the
shares would be subject to the stock ownership limits described above. In light
of the substantial ownership of our shares by members of the Price family,
stockholders should pay special attention to these rules before investing in
other companies affiliated with such family members.
Limitations in our charter and bylaws could prevent a change in control.
Provisions of our charter and bylaws could have the effect of delaying,
deferring or preventing a change in control of National Golf Properties or the
removal of existing management. As a result, such provisions could prevent our
stockholders from being paid a premium over the then-prevailing market price
for their shares of common stock. In addition to placing a limit on the number
or value of shares which an individual or entity may own, either actually or
constructively, our charter and bylaws:
. provide for a staggered board of directors;
. authorize our board of directors to issue preferred stock without
stockholder approval;
. grant our board of directors authority to amend our bylaws; and
. require approval by a majority of our board of directors of any
transaction involving a change of control of National Golf Properties
and amendments to our charter and bylaws.
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The consent of the holders of two-thirds of the outstanding shares of our
Series A Preferred Stock and Series B Preferred Stock, with each series voting
as a separate class, also would be required if we merge, consolidate or sell
substantially all of our assets in a manner that materially and adversely
affects the rights, preferences and privileges of holders of our Series A
Preferred Stock or Series B Preferred Stock.
Consent of limited partners holding common units is required for some
transactions.
The consent of the holders of a majority of common units held by limited
partners also is required for the National Golf Operating Partnership:
. to dissolve;
. to sell or transfer substantially all of its assets; or
. to effect any merger, consolidation, reorganization or business
combination which results in all outstanding partnership interests
being disposed of for cash, debt or other securities of another entity.
Each of David G. Price and Dallas P. Price, Mr. Price's former wife, may be
deemed to control 55% of the outstanding common units held by limited partners
and, therefore, has the ability to significantly influence any decision to
effect such a disposition.
We could change our investment and financing policies without a vote of our
stockholders.
Subject to our fundamental investment policy to maintain our qualifications
as a real estate investment trust, our board of directors will determine our
investment and financing policies, our growth strategy and our debt,
capitalization, distribution and operating policies. Although our board of
directors has no present intention to revise or amend these strategies and
policies, it may do so at any time without a vote by stockholders. Accordingly,
stockholders' control over changes in our strategies and policies is limited to
the election of directors, and changes made by our board of directors may not
serve the interests of our stockholders and could adversely affect our
financial condition or results of operations, including our ability to
distribute cash to stockholders or qualify as a real estate investment trust.
If we issue additional equity securities, your investment will be diluted.
We may issue additional shares of our common stock or preferred stock to
raise funds to acquire additional properties or pay operational expenses.
Existing stockholders will have no preemptive rights to acquire any additional
securities issued by us and any issuance of additional equity securities could
result in dilution of an existing stockholder's investment.
We have staggered elections for members of our board of directors.
A staggered board of directors 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. Our board of
directors is divided into three classes
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serving staggered three-year terms. Directors for each class are chosen for a
three-year term upon expiration of the then current term. The classified
director provisions may make the replacement of incumbent directors more time
consuming and difficult.
Because we have three classes of directors, a director cannot be removed by
our stockholders without cause.
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. However,
if 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. Consequently, our
stockholders may encounter difficulty in changing the composition of our board
of directors.
David G. Price is a significant stockholder and has the ability 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 27.7% of the
outstanding shares of our common stock. Mr. Price's ability to exchange such
common units is subject to the stock ownership limitations described in our
charter 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 in 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. Mr. Price will hold such rights so long
as he or members of his family (1) continue to serve as directors or executive
officers of National Golf Properties and (2) together beneficially own at least
20% of the outstanding shares of our common stock, which includes shares
issuable upon exchange of Mr. Price's common units for shares of common stock.
For purposes of item (2), the ownership percentage is not subject to the stock
ownership limitations described in our charter and restrictions on the number
of common units that can be exchanged in a twelve-month period. Accordingly,
Mr. Price has substantial influence over the composition of our board of
directors and on the outcome of any matters submitted to our stockholders for
approval.
We could be adversely affected by significant Year 2000 problems.
Many of the world's computers, computer software and other equipment
currently identify years in a two digit format, instead of a four digit format.
These systems, software and equipment 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 might not be completely Year 2000
compliant.
We have replaced all of our personal computers and software with computers
and software that are Year 2000 compliant. We also have replaced our computer
servers and
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critical software and plan to upgrade our remaining non-critical software by
the end of the third quarter of 1999. We have spent approximately $71,000 to
replace such computer equipment and software through June 30, 1999 and
anticipate spending an additional $15,000 before the end of 1999 on additional
software upgrades. We have determined that most of the other office equipment
that we use also is Year 2000 compliant. This has been confirmed in writing
with third party vendors. We will continue to conduct ongoing testing of our
software and other equipment which has not yet been tested or replaced to
ensure Year 2000 compliance.
Tenants' computer hardware and software might not be completely Year 2000
compliant.
We have sent written requests to all of our tenants to determine their Year
2000 compliance. American Golf has informed us that its Year 2000 compliance
project is progressing as planned. It has replaced or upgraded its critical
software and plans to upgrade its remaining non-critical software by the end of
the fourth quarter of 1999.
Third-party service providers might not be completely Year 2000 compliant.
We have sent written requests to our key service providers to determine their
Year 2000 compliance. We will follow up with those key service providers who
have not returned their Year 2000 questionnaires or who are still working on
their Year 2000 compliance.
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. The failure to
correct a material Year 2000 problem could result in an interruption in, or a
failure of, some of our business operations. Such failures could have a
material adverse effect on our financial condition and results of operations.
However, we believe that, at worst, we might cease receiving percentage rents
on a temporary basis. This would result from our tenants having to use a manual
system to prepare their accounting records and, as a consequence, it would take
additional time for our tenants to gather financial performance information
from our golf courses and calculate the percentage rent amounts. This temporary
reduction in rent revenue could cause price fluctuations in our common stock.
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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 our charter and bylaws are attached as exhibits
to our Current Report on Form 8-K dated August 31, 1995. See "Where You Can
Find More Information" on page 66.
General
Our charter authorizes us to issue up to 40,000,000 shares of common stock,
par value $0.01 per share, and 5,000,000 shares of preferred stock, par value
$0.01 per share. As of June 30, 1999, we had 12,636,545 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, rights, limitations and restrictions of each such series. As of
June 30, 1999, our board of directors had designated and reserved for issuance
1,500,000 shares of Series A Preferred Stock, none of which has been issued.
On July 27, 1999 our board of directors designated and reserved for issuance
1,400,000 shares of Series B Preferred Stock, none of which has been issued.
Common Stock
Holders of our common stock are entitled to one vote per share on all
matters voted on by stockholders, including the election of directors. Holders
of common stock have no cumulative voting rights in the election of directors.
Subject to the stock ownership limitations in our charter and the rights and
preferences of the Series A Preferred Stock and the Series B Preferred Stock
and any other outstanding series of preferred stock, the holders of shares of
common stock generally possess all voting power and are entitled to such
distributions as may be declared by our board of directors from available
funds. We currently make quarterly distributions.
Under Maryland law, stockholders generally are not liable for our debts or
obligations. If National Golf Properties 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, our debts and liabilities. Our debts and liabilities include
those arising out of our status as general partner of National Golf Operating
Partnership.
Subject to the stock ownership limitations in our charter, all shares of our
common stock have equal distribution, liquidation and voting rights. Holders
of our common stock have no conversion, exchange, sinking fund, preference,
redemption or appraisal rights and have no preemptive rights to subscribe for
any of our securities.
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
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affirmative vote of stockholders holding at least two-thirds of the shares
entitled to vote on the matter or a lesser percentage if specified 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.
Our charter authorizes our board of directors to reclassify any unissued
shares of capital stock into other classes or series of classes of stock. Our
charter also authorizes our board of directors 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 in one or more series as authorized by our board
of directors. Prior to the issuance of shares of each series, our 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. Because our 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.
Series A and Series B Preferred Stock
Our board of directors has designated 1,500,000 shares of our preferred stock
as 8% Series A Cumulative Redeemable Preferred Stock and 1,400,000 shares of
our preferred stock as 9.3% Series B Cumulative Redeemable Preferred Stock. The
8% Series A Cumulative Redeemable Preferred Stock is referred to in this
prospectus as "Series A Preferred Stock" and the 9.3% Series B Cumulative
Redeemable Preferred Stock is referred to in this prospectus as "Series B
Preferred Stock." No shares of Series A Preferred Stock or Series B 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 and Series B Preferred Stock will be
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. These distributions will be paid in cash, at the rate per annum of
8% of the $50.00 liquidation preference per share of Series A Preferred Stock,
and 9.3% of the $25.00 liquidation preference per share of Series B Preferred
Stock. These distributions will be paid when due in preference to any payment
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made on any other classes of our capital stock or other equity securities,
other than any class or series of our equity securities expressly designated as
ranking equal or superior to the Series A Preferred Stock and the Series B
Preferred Stock. The cumulative preferential distributions paid on shares of
Series A Preferred Stock will include any accrued but unpaid distributions on
Series A Preferred Units at the time that such units are exchanged for shares
of Series A Preferred Stock. The cumulative preferential distributions paid on
shares of Series B Preferred Stock will include any accrued but unpaid
distributions on Series B Preferred Units at the time that such units are
exchanged for shares of Series B Preferred Stock. The right of a holder of
Series A Preferred Stock or Series B Preferred Stock to receive cumulative
preferential distributions means that, unless each of those quarterly
distributions is paid in full, we cannot make any distributions on our common
stock until we pay to the holders of Series A Preferred Stock and holders of
Series B Preferred Stock the currently required distribution and all previously
missed distributions.
Redemption
Beginning on March 4, 2003, we will have the option of redeeming all or some
of the shares of Series A Preferred Stock, and beginning on July 28, 2004, we
will have the option of redeeming all or some of the shares of Series B
Preferred Stock. Such redemption will be at a redemption price payable in cash
equal to $50.00 per share for the Series A Preferred Stock and $25.00 per share
for the Series B Preferred Stock, plus in each case any accrued but unpaid
dividends on such shares to the date of redemption. The redemption price must
be paid with proceeds from sales of our capital stock and from no other source.
Limited Voting Rights
Holders of Series A Preferred Stock and Series B Preferred Stock generally
will have no voting rights as stockholders. However, if we fail to make full
distributions on any Series A Preferred Stock or Series B Preferred Stock on a
timely basis with respect to any six quarterly distribution periods, regardless
of whether consecutive, the holders of such stock and any other class or series
of parity preferred stock, voting together as a single class, will have the
right to elect two additional directors to our board of directors until all
distributions in arrears and distributions for the then current quarter have
been paid in full. In addition, without the consent of the holders of
two-thirds of the shares of Series A Preferred Stock then outstanding or the
holders of two-thirds of the shares of Series B Preferred Stock then
outstanding, as applicable, we may not:
. designate, authorize or issue shares of any class of equity securities
ranking superior to such series of preferred stock with respect to
distributions or rights upon liquidation, dissolution, or winding-up;
and
. designate, authorize or issue shares of any class of equity securities
ranking equal to such series of preferred stock with respect to
distributions or rights upon liquidation, dissolution, or winding-up,
if such securities are issued to our affiliates.
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We also may not:
. consolidate or merge with or into, or sell substantially all of our
assets to, any corporation or other entity; or
. amend or repeal the provisions of our charter or bylaws in a manner
that adversely affects the powers, special rights, preferences,
privileges or voting power of such series of preferred stock;
in each case, unless such series of preferred stock remains outstanding on the
same terms or are otherwise substituted for other interests with substantially
similar terms.
Liquidation Preference
Each share of Series A Preferred Stock is entitled to a liquidation
preference of $50.00 per share, and each share of Series B Preferred Stock is
entitled to a liquidation preference of $25.00 per share. In each case, the
liquidation preference will include any accrued but unpaid distributions on
such shares, in preference to any other class or series of our capital stock.
Capital Gain Dividends
As to any holder of our capital stock, if we designate any portion of a
dividend as a "capital gain dividend," the holder's share of the capital gain
dividend will be an amount that bears the same ratio to the total amount of
dividends paid to the holder for the year as the aggregate amount designated as
a capital gain dividend bears to the aggregate amount of all dividends paid on
all classes of shares for the year. For purposes of this calculation, the
amount of dividends paid to stockholders will be as determined for United
States federal income tax purposes.
Ownership by David G. Price and Dallas P. Price
As of June 30, 1999, David G. Price may be deemed to beneficially own
354,938 shares of our common stock and 4,834,827 common units of National Golf
Operating Partnership that are exchangeable for shares of common stock at an
exchange ratio of one common unit for each share of common stock. Mr. Price's
ability to exchange such common units is subject to the stock ownership
limitations in our charter 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 4,834,828 common units with similar exchange rights as of such
date. Assuming Mr. Price and Mrs. Price could immediately exchange all such
common units for shares of common stock without regard to the stock ownership
limitations and restrictions 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 29.7% of our outstanding common stock.
Under our charter, however, each of Mr. Price and Mrs. Price is prohibited
from owning more than 9.8% of the outstanding shares of our common stock in the
aggregate. In
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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 stock
ownership limitations in our charter, our board of directors would have to
waive such stock ownership limitations. Although our board of directors
generally is permitted under our charter to waive the stock ownership
limitations with respect to individual stockholders, given Mr. Price's and Mrs.
Price's current ownership levels, the board of directors would not be permitted
to waive the stock ownership limitations 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 stock ownership
limitations altogether.
Restrictions on Ownership and Transfer
Internal Revenue Code Requirements
To maintain our tax status as a real estate investment trust, five or fewer
individuals or pension funds, supplemental unemployment benefit trusts, private
foundations, or trusts entitled to a deduction for amounts paid or permanently
set aside for charitable purposes, as described in Section 542(a)(2) of the
Internal Revenue Code, may not actually or constructively own 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 Internal Revenue 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 is not qualifying income
for purposes of the gross income tests of the Internal Revenue Code. Under the
Internal Revenue Code, a tenant is a "related party tenant" if we or any of our
10% or greater stockholders actually or constructively owns a 10% or greater
interest in such tenant. To help ensure we meet these tests, our charter
restricts the acquisition and ownership of shares of our capital stock.
Transfer Restrictions in Our Charter
Our charter generally provides that no holder may actually or constructively
own more than 9.8%, by number or value, whichever is more restrictive, of the
outstanding shares of our common stock. Our charter contains a similar
limitation on ownership of Series A Preferred Stock and Series B Preferred
Stock which generally provides that no person or entity may actually or
constructively own shares of Series A Preferred Stock and/or shares of Series B
Preferred Stock which, taking into account any other shares of our capital
stock 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 actually or constructively owned by a group of related
individuals and/or entities to be constructively owned by one individual or
entity. As a result, an individual or entity may be deemed to own in excess of
9.8% of our outstanding shares of capital stock even though such person or
entity acquired less than 9.8% of the shares of our common stock; acquired
shares of preferred stock which, taking into account any other shares of our
capital stock,
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results in an acquisition of less than 9.8% of our outstanding shares of
capital stock; or acquired an interest in an entity that actually or
constructively owns less than 9.8% of our capital stock. In addition, a
violation of the stock ownership limitations relating to shares of preferred
stock may occur as a result of fluctuations in the relative value of such stock
and our common stock, even absent a transfer or other change in actual or
constructive ownership of such stock.
Our board of directors may, but is not required to, waive the stock ownership
limitations described above with respect to a particular stockholder if the
board determines that such ownership will not jeopardize our status as a real
estate investment trust and our board of directors otherwise determines that
such action would be in our best interest. As a condition of such waiver, our
board of directors may require the person requesting such waiver to deliver
opinions of counsel satisfactory to the board and/or make undertakings or
representations.
In addition to the foregoing stock ownership limitations, no holder may
actually or constructively acquire any shares of any class of our capital stock
if:
. more than 50% in value of our outstanding capital stock would be
actually or constructively owned by five or fewer individuals or, in
some cases, 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 real estate investment trust.
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 real estate investment trust. These restrictions on transferability and
ownership will not apply if our board of directors determines that it is no
longer in our best interest to attempt to qualify, or to continue to qualify,
as a real estate investment trust.
Effect of Violating Transfer Restrictions
Any attempted transfer of our capital stock in violation of the stock
ownership limitations on our charter will be void and of no force or effect
with respect to the attempted transferee as to that number of shares in excess
of the applicable stock ownership limitation, unless otherwise permitted by our
board of directors. In such case, the transferee will acquire no right or
interest in the excess shares. In the case of any event other than a purported
transfer that results in any person violating such stock ownership limitations,
the person or entity holding record title to any such excess shares 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 automatic transfer will be
effective as of the close of business on the business day
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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 will
be required to sell the excess shares to a person or entity who could own such
shares without violating the applicable stock ownership limitation or as
otherwise permitted by our board of directors. The trustee will be required to
distribute to the prohibited transferee or owner, as applicable, an amount
equal to the lesser of the price paid by the prohibited transferee or owner for
the excess shares or the sales proceeds received by the trust for the excess
shares. The trustee of the trust shall be designated by us and be unaffiliated
with us and any prohibited transferee or owner.
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. The
trustee will be required to distribute to the prohibited transferee or owner,
as applicable, an amount equal to the lesser of the market price 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 owner, as applicable, will be
distributed to the charitable organization selected by us as beneficiary of the
trust. Prior to a sale of any excess shares by the trust, the trustee will be
entitled to receive, in trust for such beneficiary, all dividends and other
distributions paid by us with respect to the excess shares. The trustee 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, in its
discretion, to:
. rescind as void any vote cast by a prohibited transferee or owner, as
applicable, prior to our discovery that our shares have been
transferred to the trust; and
. recast such vote according to the desires of the trustee acting for the
benefit of the beneficiary of the trust.
However, if we have already taken irreversible corporate action, then the
trustee will not have the authority to rescind and recast such vote. Any
dividend or other distribution paid to the prohibited transferee or 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 of the trust. 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 stock ownership limitation, then
our charter provides that the transfer of the excess shares will be void unless
otherwise permitted by our board of directors.
If shares of capital stock which would cause us to be beneficially owned by
fewer 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 our 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, it
shall take actions to refuse to give effect to or to
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prevent the ownership or acquisition. These actions include 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 at least a specified percentage of the outstanding shares
of our stock must file with us annually a completed questionnaire containing
information about their ownership of the shares. Under current treasury
regulations, the percentage will be set between 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 our board of directors deems necessary to
comply with the provisions of the Internal Revenue Code applicable to a real
estate investment trust 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 our shares of capital 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.
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PARTNERSHIP AGREEMENT
The following summary of the partnership agreement for the National Golf
Operating Partnership is qualified in its entirety by reference to the
partnership agreement. A copy of the partnership agreement is attached as
Exhibit 10.1 to the quarterly report on Form 10-Q for the quarterly period
ended March 31, 1998, filed on May 15, 1998. See "Where You Can Find More
Information" on page 65.
Management
National Golf Operating Partnership is a Delaware limited partnership. Under
the partnership agreement, as the sole general partner of National Golf
Operating Partnership, we generally have full, exclusive and complete
responsibility and discretion in the management and control of National Golf
Operating Partnership. We have the ability to cause National Golf Operating
Partnership to enter into major transactions such as acquisitions,
dispositions, refinancings and selection of golf course operators and to cause
changes in its line of business and distribution policies. The limited partners
of National Golf Operating Partnership own both common units and preferred
units. As of June 30, 1999, National Golf Operating Partnership had 21,374,939
common units issued and outstanding, of which 8,738,394 common units are held
by limited partners, and 1,500,000 Series A Preferred Units. In addition, on
July 28, 1999, National Golf Operating Partnership issued 1,400,000 Series B
Preferred Units. The limited partners holding common units and preferred units
generally have no authority to transact business for National Golf Operating
Partnership or participate in its management activities, except in limited
circumstances described below.
The consent of the holders of a majority of the outstanding common units held
by limited partners is required with respect to the following extraordinary
actions involving National Golf Operating Partnership:
. the amendment, modification or termination of the partnership agreement
other than to reflect the admission, substitution, termination or
withdrawal of partners;
. a general assignment for the benefit of creditors or the appointment of
a custodian, receiver or trustee for any assets;
. the institution of any proceeding for bankruptcy of National Golf
Operating Partnership;
. the transfer of any general partnership interests in National Golf
Operating Partnership, including through any merger, consolidation or
liquidation of National Golf Properties; and
. the admission of any additional or substitute general partners in
National Golf Operating Partnership.
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Notwithstanding the foregoing approval rights, we, acting as general partner,
may amend the partnership agreement for the following purposes without
obtaining limited partner consent to:
. add to the obligations of the general partner or surrender any right or
power granted to the general partner or any of its affiliates for the
benefit of the limited partners;
. reflect the issuance of additional partnership interests in exchange
for capital contributions of cash or property or on account of options
and restricted stock issued under stock incentive plans of the general
partner;
. reflect inconsequential changes, cure ambiguities and make other
changes not inconsistent with law or the provisions of the partnership
agreement;
. satisfy any requirements, conditions or guidelines contained in any
governmental order or required by law;
. reflect changes that are reasonably necessary for us to maintain our
status as a real estate investment trust; and
. modify the manner in which "capital accounts" are computed.
Without the consent of each limited partner holding common units or preferred
units that is adversely affected, we, acting as general partner, may not:
. convert the holder's limited partnership interest in National Golf
Operating Partnership into a general partnership interest, unless as a
result of the general partner acquiring such interest;
. modify the limited liability of such holder;
. alter the rights of such holder to receive distributions;
. alter the redemption or exchange or put rights of such holder; or
. cause the partnership to be terminated prior to December 31, 2092 or as
otherwise permitted by the dissolution provisions of the partnership
agreement.
In addition, until such time as we own 85% or more of all partnership
interests in National Golf 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 National Golf Operating Partnership;
. the sale or other transfer of all or substantially all of its assets;
and
. mergers and business combinations resulting in the complete disposition
of all common units held by limited partners.
The holders of Series A Preferred Units and Series B Preferred Units also
have limited approval rights which could affect management of National Golf
Operating Partnership. See "--Series A and Series B Preferred Units--Limited
Approval Rights."
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Transferability of Interests
The partnership agreement provides that limited partners holding common units
or preferred units may transfer their partnership interests in National Golf
Operating Partnership subject to the limitations summarized below.
Transfer Restrictions Applicable to Common Units
Other than transfers to us or affiliates of David G. Price, pledges securing
loans made by financial institutions and 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;
. must transfer a minimum of the lesser of (a) the greater of 50,000
common units or one-third of the original amount of common units they
and their affiliates received or (b) all of the common units held by
the limited partners and their affiliates at the time of transfer;
. may transfer such common units only if the proposed transferee agrees,
subject to the stock ownership limitations in our charter, to exchange
the common units into shares of our common stock within six months
after the transfer or as soon thereafter as possible; and
. may transfer such common units only if the proposed transferee will
not be permitted to effect any further transfer of the common units
other than to its own affiliates, affiliates of Mr. Price or us.
Transfer Restrictions Applicable to Preferred Units
Transfers of preferred units are subject to the following restrictions in the
partnership agreement, which do not apply to common units:
. No transfer is permitted without the consent of the general partner,
which consent generally may be given or withheld in its sole and
absolute discretion, if such transfer would result in all outstanding
preferred units being held by more than four limited partners; and
. No transfer may be made to any person if such transfer would require
the exchange of preferred units for preferred stock to be registered
under the Securities Act or any state securities laws.
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Transfer Restrictions Applicable to Common Units and Preferred Units
The partnership agreement imposes the following additional transfer
restrictions that are applicable to both common units and preferred units:
. The proposed transferee must assume all of the obligations of the
transferor under the partnership agreement;
. The general partner may prohibit any transfer that would require the
filing of a registration statement under the Securities Act by
National Golf Operating Partnership or would otherwise violate any
federal or state securities laws;
. No transfer may be made to any person if such transfer could result in
National Golf Operating Partnership being treated as an association
taxable as a corporation or such transfer is affected through an
"established securities market" or a "secondary market" within the
meaning of Section 7704 of the Internal Revenue Code;
. No transfer may be made to a lender of National Golf Operating
Partnership or any person related to such a lender whose loan
constitutes "nonrecourse liability" within the meaning of the Internal
Revenue Code, without the consent of the general partner in its sole
and absolute discretion;
. Transfers may be made only as of the first day of a fiscal quarter of
National Golf Operating Partnership, unless the general partner
otherwise consents, which shall not be unreasonably withheld;
. No transfer may be made to any person or entity who lacks the legal
right, power or capacity to own a partnership interest;
. No transfer may be made in violation of applicable law;
. No transfer may be made of any component portion of a unit of
partnership interest; or
. No transfer may be made in the event such transfer would cause us to
cease to qualify as a real estate investment trust.
Issuance of Additional Partnership Interests
As general partner of National Golf Operating Partnership, we have the
ability to cause National Golf Operating Partnership to issue additional units
of general and limited partnership interests, including preferred units.
However, issuances of preferred units require unanimous approval of the limited
partners holding common units. The limited partners holding common units also
have preemptive rights to participate in issuances of new partnership interests
for cash to the extent necessary to maintain their respective percentage
interests in National Golf Operating Partnership.
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Funding of Investments
The partnership agreement provides that if National Golf Operating
Partnership requires additional funds to pursue its investment objectives in
excess of funds available to National Golf Operating Partnership from
borrowings or capital contributions, we may fund such investments by:
. raising additional equity capital and making a capital contribution to
National Golf Operating Partnership; or
. borrowing such funds and lending the net proceeds to National Golf
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 National Golf Operating Partnership will increase based upon the
amount of such additional capital contributions and the value of National Golf
Operating Partnership at the time of such contributions.
Tax Matters
Under the partnership agreement, National Golf Properties is the tax matters
partner of National Golf Operating Partnership. The tax matters partner of a
partnership is the partner which serves as the partnership's representative in
most tax matters. For example, as the tax matters partner, we typically have
the authority to file tax returns and make elections for the partnership,
conduct partnership audits, file refund claims on behalf of the partnership and
settle partnership adjustments. In addition, as the tax matters partner, we
will receive notices and other information from the Internal Revenue Service.
The designation of National Golf Properties as the tax matters partner of
National Golf Operating Partnership is not directly relevant to our tax status
as a real estate investment trust.
The net income of National Golf Operating Partnership generally will be
allocated as follows:
. First, to the partners to offset any net losses previously allocated
to them;
. Second, to the holders of preferred units in an amount equal to an 8%
per annum cumulative return on the stated value of $50.00 per Series A
Preferred Unit and a 9.3% per annum cumulative return on the stated
value of $25.00 per Series B Preferred Unit; and
. Thereafter, to National Golf Properties and the holders of common
units according to their respective percentage interests in the common
units.
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The net loss of National Golf Operating Partnership will generally be
allocated as follows:
. First, to National Golf Properties and the limited partners who hold
common units based on their respective percentage interests in the
common units until their adjusted capital accounts are equal to zero,
ignoring amounts that these holders are obligated or deemed obligated
to contribute to the partnership;
. Second, to the holders of Series A Preferred Units and holders of
Series B Preferred Units on a pro rata basis until their adjusted
capital accounts are equal to zero, ignoring amounts that these holders
are obligated or deemed obligated to contribute to the partnership;
. Third, to holders of partnership interests in proportion to the
positive balances in their adjusted capital accounts; and
. Thereafter, to National Golf Properties.
Each of the allocation provisions described above is subject to special
allocations relating to depreciation deductions and to compliance with the
provisions of Sections 704(b) and 704(c) of the Internal Revenue Code and the
treasury regulations. See "Material Federal Income Tax Considerations--Tax
Aspects of the Partnerships" on page 51.
Operations
The partnership agreement requires that National Golf Operating Partnership
be operated in a manner that will enable us to satisfy the requirements for
being classified as a real estate investment trust and to avoid any federal
income tax liability. The partnership agreement provides that the net operating
cash revenues of National Golf Operating Partnership and net sales and
refinancing proceeds will be distributed at least quarterly based on the
partners' respective percentage interests and subject to the distribution
preferences with respect to the Series A Preferred Units and the Series B
Preferred Units. Our management determines the precise amount to be distributed
each quarter by National Golf Operating Partnership based on a financial
analysis of net operating cash revenues, net sales, refinancing proceeds and
proposed appropriate cash reserves. Our board of directors reviews and makes
the final determination of the amount of dividends we distribute to our
stockholders. Under the partnership agreement, National Golf Operating
Partnership assumes and pays when due, or reimburses us for payment of, all
costs and expenses that we incur for the benefit of or relating to its
ownership and operation.
Term
The partnership agreement provides that National Golf Operating Partnership
will continue in full force and effect until December 31, 2092 or until sooner
dissolved by us with the consent of the holders of a majority of the common
units held by limited partners. National Golf Operating Partnership also will
dissolve if:
. it sells substantially all of its assets and properties;
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. it is dissolved by judicial order;
. National Golf Properties becomes bankrupt; or
. all of the common units and preferred units have been exchanged for
common stock or put to National Golf Properties for cash.
Series A and Series B Preferred Units
National Golf Operating Partnership has 1,500,000 units of preferred limited
partnership interests designated as 8% Series A Cumulative Redeemable Preferred
Units and 1,400,000 units of preferred limited partnership interests designated
as 9.3% Series B Cumulative Redeemable Preferred Units, all of which have been
issued and are outstanding. The 8% Series A Cumulative Redeemable Preferred
Units are referred to in this prospectus as "Series A Preferred Units." The
9.3% Series B Cumulative Redeemable Preferred Units are referred to in this
prospectus as "Series B Preferred Units." The holders of the Series A Preferred
Units and Series B Preferred Units have the rights and preferences described
below.
General
Holders of Series A Preferred Units and Series B Preferred Units are entitled
to receive cumulative preferential distributions from the date of issue,
payable in cash on or before the 15th of February, May, August and November of
each year. Such distributions are paid at the rate per annum of 8% of the
original capital contribution per Series A Preferred Unit and 9.3% of the
original capital contribution per Series B Preferred Unit. These distributions
will be paid when due in preference to any payment made on any other classes of
partnership interests of National Golf Operating Partnership, other than any
future class or series of partnership interests of National Golf Operating
Partnership expressly designated as ranking equal or superior to the Series A
Preferred Units and the Series B Preferred Units. The Series A and Series B
Preferred Units rank equally with each other. No current class or series of
partnership interests of National Golf Operating Partnership ranks superior to
the Series A Preferred Units and Series B Preferred Units. The right of holders
of Series A Preferred Units and holders of Series B Preferred Units to receive
cumulative preferential distributions means that National Golf Operating
Partnership cannot make any distributions on common units until it pays in full
to the holders of Series A Preferred Units and the holders of Series B
Preferred Units the currently required quarterly distribution and all
previously missed quarterly distributions.
Exchange Rights
All of the Series A Preferred Units are exchangeable on a one for one basis
for our shares of Series A Preferred Stock at any time beginning on March 4,
2008 at the option of the majority of the holders of the Series A Preferred
Units. Similarly, all of the Series B Preferred Units are exchangeable on a one
for one basis for our shares of Series B Preferred Stock at any time on or
after July 28, 2009 at the option of the majority of the holders of the Series
B Preferred Units. In addition, all of the Series A Preferred Units are
exchangeable at
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the option of the majority of the holders of the Series A Preferred Units, and
all of the Series B Preferred Units are exchangeable at the option of the
majority of the holders of the Series B Preferred Units, if:
. National Golf Operating Partnership has failed to make full
distributions on any Series A Preferred Unit or Series B Preferred
Unit for six prior quarterly distribution periods; or
. we or one of our subsidiaries, or any successor general partner to us,
takes the position that National Golf Operating Partnership likely is
or upon the happening of any event likely will become a publicly
traded partnership within the meaning of Section 7704 of the Internal
Revenue Code.
A partnership will be classified as a "publicly traded partnership" if
interests in such partnership are traded on an established securities market or
are readily tradable on a secondary market or its substantial equivalent.
National Golf Operating Partnership does not currently and does not intend to
list its partnership interests on an exchange. In addition, there are safe
harbors which, if met, would prevent a partnership from being classified as a
publicly traded partnership. We believe that National Golf Operating
Partnership is currently within these safe harbor provisions and will continue
to be so in the future. As a result, we do not expect National Golf Operating
Partnership to become a publicly traded partnership.
The Series A Preferred Units also are exchangeable beginning on March 4, 2001
and the Series B Preferred Units are exchangeable beginning on July 28, 2002,
if the holders deliver to us either a private letter ruling or an opinion of
counsel stating that an exchange at such time would not cause the Series A
Preferred Units and the Series B Preferred Units to be considered "stock and
securities" within the meaning of Section 351(e) of the Internal Revenue Code
for purposes of determining whether the holder of such Series A Preferred Units
or Series B Preferred Units is an "investment company" under Section 721(b) of
the Internal Revenue Code. However, in lieu of an exchange for preferred stock,
we may elect to cause National Golf Operating Partnership to redeem such
preferred units for cash in an amount equal to the original capital account
balance of such preferred units plus all accrued and unpaid distributions to
the date of redemption.
Redemption
Beginning on March 4, 2003, National Golf Operating Partnership will have the
option of redeeming all or some of the Series A Preferred Units, and beginning
on July 28, 2004, National Golf Operating Partnership will have the option of
redeeming all or some of the Series B Preferred Units. Such redemption will be
at a cash redemption price equal to the capital account balance of the holder
of the preferred units being redeemed, but not less than $50.00 per Series A
Preferred Unit and $25.00 per Series B Preferred Unit, plus in each case any
accrued but unpaid distributions on such units to the date of redemption. The
capital account balance portion of the purchase price must be paid with
proceeds from sales of our capital stock or interests in National Golf
Operating Partnership and from no other source. National Golf Operating
Partnership may not redeem fewer than all of the Series A Preferred
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Units or Series B Preferred Units unless all accumulated and unpaid
distributions have been paid on all Series A Preferred Units and Series B
Preferred Units for all quarterly distribution periods terminating on or prior
to the date of redemption.
Limited Approval Rights
The holders of Series A Preferred Units and the holders of Series B Preferred
Units generally have no voting rights with respect to National Golf Operating
Partnership. However, without the consent of the holders of two-thirds of the
shares of the Series A Preferred Units then outstanding or the holders of two-
thirds of the Series B Preferred Units then outstanding, as applicable,
National Golf Operating Partnership may not:
. designate, authorize or issue partnership interests ranking superior
to such series of preferred units with respect to distributions or
rights upon liquidation, dissolution, or winding-up;
. designate, authorize or issue partnership interests ranking equal to
such series of preferred units with respect to distributions or rights
upon liquidation, dissolution, or winding-up, if such securities are
issued to an affiliate of National Golf Operating Partnership other
than to us in connection with issuing a corresponding number of shares
of preferred stock to persons who are not affiliates of National Golf
Operating Partnership;
. consolidate or merge with or into, or sell substantially all of its
assets to, any corporation or other entity, unless such series of
preferred units remain outstanding on the same terms or are otherwise
substituted for other interests with substantially similar terms; or
. amend or repeal the provisions of the partnership agreement to
adversely affect the powers, special rights, preferences, privileges
or voting power of such series of preferred units, unless such series
of preferred units are otherwise substituted for other interests with
substantially similar terms.
Liquidation Preference
The distribution and income allocation provisions of the partnership
agreement have the effect of providing each holder of a Series A Preferred Unit
or Series B Preferred Unit with a liquidation preference equal to such holder's
capital contribution. The liquidation preference may not be less than $50.00
per Series A Preferred Unit and $25.00 per Series B Preferred Unit. In each
case, the liquidation preference includes any accrued but unpaid distributions
on such units. This liquidation preference affords to each holder of a Series A
Preferred Unit or Series B Preferred Unit the right to receive such amount upon
a liquidation of National Golf Operating Partnership prior to the holders of
any other existing class or series of partnership interest.
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Indemnification
The partnership agreement provides that National Golf Operating Partnership
will indemnify us and our officers and directors. Our liability to National
Golf Operating Partnership and its partners is limited 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. See "Material Provisions of
Maryland Law and Our Charter and Bylaws--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 exchange in any twelve-month period ending on August 18 up to
the greater of 75,000 common units; or one-third of the common units owned by
such holder and other related persons as of August 18, 1993, less the number of
common units put to us by such holder and related persons in exchange for cash
during such twelve-month period. As of the date of this prospectus, the limited
partners collectively own 8,738,394 common units. Common units will be
exchanged for shares of common stock on a one-for-one basis. Common units that
are acquired by us in the exercise of these exchange rights will be converted
automatically into units of general partnership interest in National Golf
Operating Partnership.
To effect an exchange, a holder of common units must deliver to us a notice
of exchange. A tendering holder has the right to receive, a like number of
shares of common stock, on the day we receive the notice of exchange. The
shares issued in any such exchange will 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
registration rights agreement with respect to such shares of common stock
entered into by the tendering holder.
The exercise of these exchange rights is subject to:
. the expiration or termination of the applicable waiting period, if
any, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976;
. each exchange having a value of not less than a specified amount; and
. the satisfaction of the stock ownership limitations in our charter
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 cash option rights to sell to us for cash up to one-
third of the number of common units owned by such holder and other related
persons as of August 18, 1993, less the number of common units exchanged by
such holder and related persons for shares of
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common stock during such twelve-month period. Common units that are acquired by
us as a result of the exercise of these cash option rights will be converted
automatically into units of general partnership interest in National Golf
Operating Partnership.
Upon the exercise of these cash option rights, we will have the option to pay
for such common units with available cash or borrowed funds or 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 in the registered offering and underwriting discounts, commissions and
other costs related to the offering. The limited partners thus will bear the
risk of any such reduction, subject to their right to withdraw their request to
exercise their cash option rights. Any proceeds in excess of the purchase price
will be for our sole benefit.
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MATERIAL PROVISIONS OF MARYLAND
LAW AND OUR CHARTER AND BYLAWS
The following discussion summarizes provisions of Maryland law and our
charter and bylaws that we believe are material to our stockholders. The
summary does not purport to be complete and is qualified in its entirety by
reference to Maryland law and to our charter and bylaws. Copies of our charter
and bylaws are attached as exhibits to our Current Report on Form 8-K dated
August 31, 1995. See "Where You Can Find More Information" on page 66.
Size and Classification of our Board Of Directors
Our bylaws provide that the number of our directors may be established by our
board of directors. However, this number may not be more than eleven nor fewer
than the minimum number required under Maryland law, which generally is three.
Our board currently has seven directors. A majority vote of the remaining
directors will fill most vacancies at any regular meeting or at any special
meeting called for that purpose. A majority vote of the entire board of
directors will fill a vacancy resulting from an increase in the number of
directors.
Our charter provides for a staggered board of 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 provision also could
discourage a third party from making a tender offer for our capital stock or
otherwise attempting to obtain control of us, even though such an attempt might
benefit us and our stockholders. A change in a majority of our board of
directors will generally require at least two, instead of one, annual meetings
of stockholders. Thus, the classified board provision could increase the
likelihood that incumbent directors will retain their positions. Holders of our
common stock have no right to cumulative voting for the election of directors.
Consequently, at each annual meeting of our stockholders, the holders of a
majority of shares of our 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 our 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 our board of directors, subject to conditions which currently are
satisfied. These director designation rights also will make it more difficult
for a third party to effect a change of control of National Golf Properties.
See "Risk Factors--David G. Price is a significant stockholder and has the
ability to designate one less than a majority of our board of directors."
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Removal of Directors
Under Maryland law, the stockholders generally have the right to 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 is a statutory
exception to the right of stockholders to remove directors without cause if the
directors of the corporation are divided into classes, in which case a director
may not be removed without cause. Our charter provides for three classes of
directors and, accordingly, our directors may not be removed without cause.
Maryland law does not define the term "cause" and thus the term "cause" will be
subject to judicial interpretation and review in the context of the facts and
circumstances of each situation in which stockholders may attempt to remove any
director.
Corporate Governance
Transactions involving us and affiliates of David G. Price require the
approval of the Independent Committee of our board of directors. These
transactions might include the negotiation, enforcement and renegotiation of
leases, the selection of operators for acquired golf courses or consideration
of our right of first refusal to purchase common units from the limited
partners of National Golf Operating Partnership, . Our board of directors
consists of seven directors, three of whom are David G. Price, the Chairman of
our board of directors, James M. Stanich, the President of National Golf
Properties, and Edward R. Sause, the Executive Vice President--Finance &
Corporate Services of American Golf. The remaining four directors are
unaffiliated with Mr. Price and constitute the Independent Committee. Three of
the independent directors were nominated and approved at the time of our
initial public offering by Mr. Price and the other initial directors that
formed our company in 1993, and one of the independent directors was elected on
July 20, 1994. To our knowledge, the members of the Independent Committee have
no relationship with Mr. Price.
Other significant actions of our board of directors will require the
approval of a minimum of five directors, including:
. a transaction involving a "change of control" of National Golf
Properties or National Golf Operating Partnership;
. amendments to our charter or bylaws, except for such amendments as may
be necessary to maintain our status as a real estate investment trust;
. any waiver or modification of the stock ownership limitations in our
charter;
. issuance of securities or rights with special voting or other rights;
and
. acquisitions, dispositions or financings of assets by us or National
Golf Operating Partnership in excess of 25% of our total market
capitalization, which is comprised of issued and outstanding shares of
common stock and common units exchangeable for shares of common stock
without regard to the stock ownership limitations in our charter and
total debt, whether by merger, purchase, sale or otherwise.
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A change of control of National Golf Properties or National Golf Operating
Partnership will be deemed to have occurred if a person or group acquires 20%
or more of the combined voting power of National Golf Properties or the
Operating Partnership, as the case may be. A change of control of National Golf
Properties or National Golf 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 the rules of the NYSE
would require stockholder approval.
Any amendment to our charter requires the approval of our stockholders. Our
board of directors has the authority to terminate our status as a real estate
investment trust without obtaining stockholder approval. In addition, any
transfer of our general partnership interest in National Golf Operating
Partnership, including through any merger, consolidation or liquidation of
National Golf Properties would require approval of the holders of a majority of
the outstanding common units held by limited partners.
Business Combinations
Under Maryland law, some "business combinations," including a merger,
consolidation, share exchange, or, in some 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 a 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
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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 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;
. 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" generally means the acquisition of control shares.
A person who has made or proposes to make a control share acquisition may
compel our 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, we may 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
unless the charter or bylaws of the corporation provide otherwise, the
corporation may redeem any or all of the control shares, except those for which
voting rights previously have been approved, for fair value. Our charter and
bylaws do not limit or restrict our right to redeem control shares in instances
where voting rights are not approved at a meeting of stockholders or the
acquiring person does not deliver an acquiring person's statement as required
by statute. 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.
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If, before a control share acquisition, voting rights for the control shares
to be acquired in such control share acquisition are approved at a
stockholders' meeting and the acquiror becomes entitled to vote a majority of
the shares entitled to vote, all other stockholders of the corporation shall
have the rights of objecting stockholders under Maryland law to demand and
receive from the corporation payment of the fair value of such stockholder's
stock. The fair value of the stock of a stockholder exercising the rights of
objecting stockholders in such instance may not be less than the highest price
per share paid by the acquiring person in the control share acquisition.
Limitations and restrictions otherwise applicable to the exercise of rights of
objecting stockholders do not apply where such rights of objecting stockholders
become exercisable as a result 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 stock by David G. Price, his
heirs or his estate, or any trust, all the beneficiaries of which consist of
Mr. Price's heirs, and any affiliates or associates, of Mr. Price. For purposes
of this exemption, an "associate" of any specified person is:
. any corporation, partnership or other entity of which such person is an
officer, director or partner or is, directly or indirectly, the
beneficial owner of 10% or more of any class of equity securities of
such corporation, partnership or other entity;
. any trust or estate in which such person has a substantial beneficial
interest or as to which such person serves as a trustee or in a similar
fiduciary capacity;
. any relative or spouse of such person, or any relative of such person's
spouse, who has the same home as such person or who is one of our
officers or directors or an officer or director of any of our
affiliates; or
. a person that directly or indirectly controls, or is controlled by, the
specified person or is acting or intends to act jointly or in concert
with the specified person.
Our board of directors may amend or eliminate this provision of our bylaws at
any time in the future.
Amendments to the Charter
Our charter states that it may be amended in the manner described 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.
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Dissolution of the Company
Under Maryland law, we may be dissolved by:
. 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
. 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 our board of
directors and the proposal of business to be considered by stockholders at the
annual meeting of stockholders may be made only:
. by a notice of the meeting;
. by or at the direction of our board of directors; or
. by a stockholder who is entitled to vote at the meeting and has
complied with the advance notice procedures described 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.
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. In addition, it affords our board
of directors the opportunity 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 our 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. The advance notice procedure may also have the
effect 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 limiting the liability of its directors and officers to the
corporation and its stockholders for
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money damages. However, the charter of a Maryland corporation may not include
any provision which limits the liability of its officers and directors to the
corporation or its stockholders for the amount of any improper benefit or
profit in money, property or services which may be received by an officer or
director, provided that it is proved that such officer or director actually
received such improper benefit or profit. In addition, the charter of a
Maryland corporation may not include a provision limiting the liability of its
officers and directors to the corporation and its stockholders for money
damages where a judgment is entered against an officer or director in a
proceeding based upon a finding that the action or failure to act on the part
of such officer or director was the result of active and deliberate dishonesty
and was material to the cause of action being decided in such proceeding.
Our charter contains a provision which limits 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.
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;
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. 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 Securities and Exchange Commission that
indemnification of directors and officers for liabilities arising under the
Securities Act is against public policy and is unenforceable under Section 14
of the Securities Act.
The partnership agreement of National Golf Operating Partnership provides for
indemnification of us and our officers and directors, as well as other persons
designated by us, generally to the same extent as permitted by Maryland law for
a corporation's officers and directors.
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MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the federal income tax considerations
anticipated to be material to purchasers of our common stock. This summary is
based on current law, is for general information only and is not tax advice.
Your tax treatment will vary depending on your 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 stockholders who receive special
treatment under the federal income tax laws except to the extent discussed
under the headings "--Taxation of Tax-Exempt Stockholders" on page 57 and "--
Taxation of Non-U.S. Stockholders" on page 58. Stockholders receiving special
treatment include, without limitation:
. insurance companies;
. financial institutions or broker-dealers;
. tax-exempt organizations;
. stockholders holding securities as part of a conversion transaction, 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 you as a holder of our
common stock.
The information in this section is based on:
. the Internal Revenue Code;
. current, temporary and proposed treasury regulations promulgated under
the Internal Revenue Code;
. the legislative history of the Internal Revenue Code;
. current administrative interpretations and practices of the Internal
Revenue Service; and
. court decisions.
In addition, the administrative interpretations and practices of the Internal
Revenue Service include its practices and policies as expressed in private
letter rulings which are not binding on the Internal Revenue Service, except
with respect to the particular taxpayers who requested and received such
rulings. Future legislation, treasury regulations, administrative
interpretations and practices and/or court decisions may adversely affect,
perhaps retroactively, the tax considerations contained in this discussion. 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
Internal Revenue Service concerning our tax treatment and the statements in
this prospectus are not binding on the Internal Revenue
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Service or a court. Thus, we can provide no assurance that the tax
considerations contained in this discussion will not be challenged by the
Internal Revenue Service or sustained by a court if challenged by the Internal
Revenue Service.
YOU ARE URGED TO CONSULT YOUR TAX ADVISOR REGARDING THE SPECIFIC TAX
CONSEQUENCES TO YOU OF:
. THE ACQUISITION, OWNERSHIP AND SALE OR OTHER DISPOSITION OF OUR COMMON
STOCK, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES;
. OUR ELECTION TO BE TAXED AS A REAL ESTATE INVESTMENT TRUST FOR FEDERAL
INCOME TAX PURPOSES; AND
. POTENTIAL CHANGES IN THE TAX LAWS.
Taxation of National Golf Properties
General
We elected to be taxed as a real estate investment trust under Sections 856
through 860 of the Internal Revenue 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 real estate investment
trust under the Internal Revenue 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 real estate investment trust 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 Internal Revenue 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 real estate
investment trust. See "--Failure to Qualify" on page 54.
The sections of the Internal Revenue Code that relate to the qualification
and operation as a real estate investment trust are highly technical and
complex. The following describes the material aspects of the sections of the
Internal Revenue Code that govern the federal income tax treatment of a real
estate investment trust and its stockholders. This summary is qualified in its
entirety by the Internal Revenue Code, relevant rules and treasury regulations
promulgated under the Internal Revenue Code, administrative and judicial
interpretations of the Internal Revenue Code, and these rules and treasury
regulations.
Latham & Watkins, Los Angeles, California has acted as our tax counsel in
connection with this offering and our election to be taxed as real estate
investment trust. In the opinion of Latham & Watkins, commencing with our
taxable year ended December 31, 1993, we have been organized and have operated
in conformity with the requirements for qualification and taxation as a real
estate investment trust under the Internal Revenue Code and our proposed method
of operation will enable us to continue to meet the requirements for
qualification and taxation as a real estate investment trust under the Internal
Revenue Code.
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This opinion was rendered as of October 18, 1999, and Latham & Watkins
undertakes no obligation to update its opinion subsequent to this date.
The opinion of Latham & Watkins is based on various assumptions and
representations made by us as to factual matters, including representations
made by us in this prospectus, the accompanying prospectus supplement and a
factual certificate provided by our officers. Moreover, our qualification and
taxation as a real estate investment trust depends upon our ability to meet the
various qualification tests imposed under the Internal Revenue Code and
discussed below, relating to our actual annual operating results, asset
diversification, distribution levels and diversity of stock ownership, the
results of which have not been and will not be reviewed by Latham & Watkins.
Accordingly, no assurance can be given that the actual results of our operation
for any particular taxable year will satisfy such requirements. See "--Failure
to Qualify" in this prospectus. Further, the anticipated income tax treatment
described in this prospectus may be changed, perhaps retroactively, by
legislative, administrative or judicial action at any time. With respect to the
enforceability of the stock ownership limits in our charter, Latham & Watkins
has relied on the opinion of Ballard Spahr Andrews & Ingersoll, LLP, our
Maryland counsel.
If we qualify for taxation as a real estate investment trust, we generally
will not be required to pay federal corporate income taxes on our net income
that is currently distributed to our stockholders. This treatment substantially
eliminates the "double taxation" that generally results from investment in a
corporation. Double taxation means taxation once at the corporate level when
income is earned and once again at the stockholder level when such income is
distributed. We will be required to pay federal income taxation, however, as
follows:
. We will be required to pay tax at regular corporate rates on any
undistributed "real estate investment trust taxable income," including
undistributed net capital gains.
. We may be required to pay the "alternative minimum tax" on our items of
tax preference.
. We will be required to pay tax at the highest corporate rate on (a) net
income from the sale or other disposition of "foreclosure property,"
which is held primarily for sale to customers in the ordinary course of
business; or (b) other nonqualifying income from foreclosure property.
Foreclosure property is generally defined as property acquired through
foreclosure or after a default on a loan secured by the property or on
a lease of the property.
. We will be required to pay a 100% tax on any net income from prohibited
transactions. Prohibited transactions are, in general, sales or other
taxable dispositions of property, other than foreclosure property, held
primarily for sale to customers in the ordinary course of business.
. If we fail to satisfy the 75% or 95% gross income test, as described
below, but have maintained our qualification as a real estate
investment trust, we will be required to pay a 100% tax on an amount
equal to (a) the gross income attributable to the
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greater of the amount by which we fail the 75% or 95% gross income test
multiplied by (b) a fraction intended to reflect our profitability.
. We will be required to pay 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 (a) 85% of
our ordinary income for the year, (b) 95% of our real estate investment
trust capital gain net income for the year, and (c) any undistributed
taxable income from prior periods.
. If we acquire any asset from a corporation which is or has been a
C corporation in a transaction in which the basis of the 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 beginning on the
date on which we acquired the asset, then under treasury regulations
not yet promulgated we will be required to pay tax at the highest
regular corporate tax rate on this gain to the extent of 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 date on which we acquired
the asset.
A C corporation is generally defined as a corporation required to pay full
corporate-level tax. The results described in this paragraph with respect to
the recognition of such gain assume that we will make an election under
Internal Revenue Service Notice 88-19 and that the availability or nature of
such election is not modified as proposed in President Clinton's Year 2000
Federal Budget Proposal.
Requirements for Qualification as a Real Estate Investment Trust
The Internal Revenue Code defines a real estate investment trust 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 860 of the Internal Revenue Code;
(4) that is not a financial institution or an insurance company within
the meaning of the Internal Revenue 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, pension
funds, supplemental unemployment benefit trusts, private foundations or
trusts entitled to a deduction for amounts paid or permanently aside for
charitable purposes, as described in Section 542(a)(2) of the Internal
Revenue Code, during the last half of each taxable year; and
(7) that meets other tests, described below, regarding the nature of its
income and assets and the amount of its distributions.
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The Internal Revenue 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 real estate investment trust. For purposes of
condition (6), pension funds, supplemental unemployment benefit trusts, private
foundations and trusts entitled to a deduction for amounts paid or permanently
set aside for charitable purposes, as described in Section 542(a)(2) of the
Internal Revenue Code, generally are treated as individuals, except a "look-
through" exception applies with respect to pension funds.
We believe that we have satisfied conditions (1) through (7) inclusive. 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 stock ownership and transfer restrictions are described in "Description
of Capital Stock--Restrictions on Ownership and Transfer" on page 19. 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 real estate
investment trust will terminate. If, however, we comply with the rules
contained in the 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 54.
In addition, a corporation may not elect to become a real estate investment
trust unless its taxable year is the calendar year. We have and will continue
to have a calendar taxable year.
Ownership of a Partnership Interest
Income tax regulations provide that if we are a partner in a partnership, we
will be deemed to own our proportionate share of the assets of the partnership.
Also, we will be deemed to be entitled to our proportionate share of the income
of the partnership. The character of the assets and gross income of the
partnership retains the same character in our hands for purposes of Section 856
of the Internal Revenue Code, including satisfying the gross income tests and
the asset tests. Thus, our proportionate share of the assets and items of
income of National Golf Operating Partnership 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. In addition,
for these purposes, National Golf Operating Partnership's assets and items of
income include its share of the assets and items of income of any partnership
in which it owns an interest. 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 50. We have direct control of
National Golf Operating Partnership and will continue to operate it consistent
with the requirements for qualification as a real estate investment trust.
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Income Tests
We must satisfy two gross income requirements annually to maintain our
qualification as a real estate investment trust.
. First, each taxable year we must derive directly or indirectly at least
75% of our gross income, excluding gross income from prohibited
transactions, from (a) investments relating to real property or
mortgages on real property, which may "rents from real property" and
interest, or (b) temporary investments, which are generally income from
stock or debt instruments attributable to the temporary investment of
new capital.
. Second, each taxable year we must derive at least 95% of our gross
income, excluding gross income from prohibited transactions, from (a)
the real property investments described above, (b) dividends, interest
and gain from the sale or disposition of stock or securities, or (c) any
combination of the foregoing.
For these purposes, the term "interest" generally does not include any amount
received or accrued, directly or indirectly, if the determination of the amount
depends in any way on the income or profits of any person. An amount received
or accrued generally will not be excluded from the term "interest," however,
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 real estate investment trust described above
only if the following conditions are met:
. the amount of rent must not be based in any way on the income or
profits of any person. An amount received or accrued generally will not
be excluded from the term "rents from real property," however, solely
by reason of being based on a fixed percentage or percentages of
receipts or sales;
. the Internal Revenue Code provides that rents received from a tenant
will not qualify as "rents from real property" in satisfying the gross
income tests if the real estate investment trust, or an actual or
constructive owner of 10% or more of the real estate investment trust,
actually or constructively owns 10% or more of the interests in such
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 real
estate investment trust 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 real estate investment trust derives no
revenue. The real estate investment trust may, however, directly
perform services that are "usually or customarily rendered" in
connection with the rental of
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space for occupancy only and are not otherwise considered "rendered to
the occupant" of the property. Examples of such services include the
provision of light, heat, or other utilities, trash removal and general
maintenance of common areas.
We do not and, as general partner of National Golf Operating Partnership,
will not permit National Golf Operating Partnership to:
. charge rent for any property that is based 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 tenant in which we, or an actual or constructive
owner of 10% or more of our stock, actually or constructively own a 10%
or greater interest;
. 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 such services within the 1% de minimis exception
or through an independent contractor from whom we derive no revenue.
Notwithstanding the foregoing, we may have taken and may continue to take the
actions described above to the extent these actions will not, based on the
advice of our tax counsel, jeopardize our status as a real estate investment
trust.
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 real estate investment trust
for the year if we are entitled to relief under the Internal Revenue 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 accrue or receive exceeds the limits on nonqualifying income, the
Internal Revenue Service 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 real estate
investment trust. As discussed above in "--Taxation of National Golf
Properties--General" on page 42, even if these relief provisions apply, and we
retain our status as a real estate investment trust, a tax
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would be imposed with respect to our non-qualifying income. We may not always
be able to maintain compliance with the gross income tests for real estate
investment trust 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 will be treated as income from a prohibited transaction that is
subject to a 100% penalty tax. Our gain includes our share of any such gain
realized by National Golf Operating Partnership. This prohibited transaction
income may also adversely affect our ability to satisfy the income tests for
qualification as a real estate investment trust. Under existing law, whether
property is held as inventory or primarily for sale to customers in the
ordinary course of a trade or business depends on all the facts and
circumstances surrounding the particular transaction. National Golf 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. National Golf Operating Partnership intends to make
occasional sales of the properties as are consistent with National Golf
Operating Partnership's investment objectives. The Internal Revenue Service may
contend, however, 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 public debt offering
with a term of at least five years.
. 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 real estate investment trust 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, we can cure this failure by
disposing of sufficient nonqualifying assets within 30 days after the close of
that quarter. For this purpose, an increase in our interests in National Golf
Operating Partnership will be treated as an acquisition of a portion of the
securities or other property owned by this partnership. We believe we have
maintained and intend to continue to maintain adequate
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records of the value of our assets to ensure compliance with the asset tests.
In addition, we intend 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 real estate investment trust.
Annual Distribution Requirements
To maintain our qualification as a real estate investment trust, 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 "real estate investment trust taxable income"; and
. 95% of our after tax net income, if any, from foreclosure property;
minus
. the excess of the sum of items of noncash income over 5% of "real
estate investment trust taxable income" as described above.
Our "real estate investment trust taxable income" is computed without regard
to the dividends paid deduction and our net capital gain. In addition, for
purposes of this test, non-cash income means 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.
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. Except as provided in "--Taxation of the
Taxable U.S. Stockholders" below, 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. To avoid this treatment, every stockholder of the
class of stock to which a distribution is made must be treated the same as
every other stockholder of that class, and no class of stock may be treated
other than according to 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 "real estate investment trust taxable income," as
adjusted, we will be required to pay tax on such income 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 of
National Golf Operating Partnership authorizes us, as general partner of
National Golf Operating Partnership, to take such steps as may be necessary to
cause National Golf Operating Partnership to distribute to its partners an
amount sufficient to permit us to meet these distribution requirements.
We expect that our "real estate investment trust taxable income" will be less
than our cash flow due to the allowance of depreciation and other non-cash
charges in computing "real estate investment trust 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, we may not have sufficient cash or other liquid assets to meet
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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.
We may be able to rectify an inadvertent 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 subject to tax on amounts
distributed as deficiency dividends. We will be required, however, to pay
interest based upon the amount of any deduction claimed for deficiency
dividends.
Furthermore, we will be required to pay 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 at least the sum of 85% of our ordinary
income for such year, 95% of our capital gain income for the year and any
undistributed taxable income from prior periods. In the case of distributions
with declaration and record dates falling in the last three months of the
calendar year, the distributions described in the preceding sentence must be
made by the end of January immediately following such year. Any 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.
Tax Aspects of the Partnerships
General
Substantially all of our investments are held indirectly through National
Golf Operating Partnership, Royal Golf, L.P. II, a limited partnership in which
National Golf Operating Partnership owns an 89% interest as general partner,
and Pumpkin Ridge Joint Venture, a general partnership in which National Golf
Operating Partnership owns a 50% interest. In general, partnerships are "pass-
through" entities which are not required to pay federal income tax. Rather,
partners are allocated their proportionate shares of the items of income, gain,
loss, deduction and credit of a partnership. Partners are potentially required
to pay tax on such income, 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 income tests and in the computation of our taxable income. Moreover,
for purposes of the asset tests, we will include our proportionate share of
assets held by National Golf Operating Partnership, Royal Golf, L.P. II and
Pumpkin Ridge Joint Venture. See "--Taxation of National Golf Properties" on
page 42.
Entity Classification
Our interests in National Golf Operating Partnership, Royal Golf, L.P. II and
Pumpkin Ridge Joint Venture involve special tax considerations. These special
tax considerations include, for example, the possibility of a challenge by the
Internal Revenue Service of the
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status of any of these partnerships as a partnership, as opposed to an
association taxable as a corporation, for federal income tax purposes. If
National Golf Operating Partnership, Royal Golf, L.P. II or Pumpkin Ridge Joint
Venture were treated as an association, it would be taxable as a corporation
and therefore be required to pay 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--Asset Tests" on page 48 and "--
Income Tests" on page 46. This, in turn, would prevent us from qualifying as a
real estate investment trust. See "--Failure to Qualify" on page 53 for a
discussion of the effect of our failure to meet these tests for a taxable year.
In addition, a change in National Golf Operating Partnership's, Royal Golf,
L.P. II's or Pumpkin Ridge Joint Venture'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.
United States Treasury regulations that apply for tax periods beginning on or
after January 1, 1997 provide that a domestic business entity not otherwise
organized as a corporation and which has at least two members is eligible to
elect to be treated 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 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. National Golf Operating
Partnership and each of Royal Golf, L.P. II and Pumpkin Ridge Joint Venture
intend to claim classification as a partnership under the final regulations. As
a result, we believe that these 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. These allocations, however, will be disregarded for tax
purposes if they do not comply with the provisions of Section 704(b) of the
Internal Revenue Code and the treasury regulations. Generally, Section 704(b)
of the Internal Revenue Code and the related treasury regulations require that
partnership allocations respect the economic arrangement of the partners.
If an allocation is not recognized for federal income tax purposes, the
relevant item will be reallocated according to 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. National Golf Operating Partnership's
allocations of taxable income and loss are intended to comply with the
requirements of Section 704(b) of the Internal Revenue Code and the related
treasury regulations.
Tax Allocations with Respect to the Properties
Under Section 704(c) of the Internal Revenue Code, income, gain, loss and
deduction attributable to appreciated or depreciated property that is
contributed to a partnership in
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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 or book value and the adjusted
tax basis of the property at the time of contribution. These allocations are
solely for federal income tax purposes. These allocations do not affect the
book capital accounts or other economic or legal arrangements among the
partners. National Golf Operating Partnership was formed by way of
contributions of appreciated property. Moreover, subsequent to the formation of
National Golf Operating Partnership, additional appreciated property has been
contributed to National Golf Operating Partnership in exchange for interests in
National Golf Operating Partnership. The partnership agreement requires that
these allocations be made in a manner consistent with Section 704(c) of the
Internal Revenue Code.
In general, limited partners of National Golf 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 an unrealized gain or loss attributable to a difference
between the fair market or book value and the adjusted tax basis of the asset
at the time of contribution, all income attributable to this book-tax
difference will generally be allocated to the limited partners who contributed
the property. We will generally be allocated only our share of income
attributable to appreciation or depreciation deductions, if any, occurring
after the time of contribution to National Golf Operating Partnership. This
will tend to eliminate the book-tax difference over the life of National Golf
Operating Partnership. However, the special allocation rules of Section 704(c)
of the Internal Revenue Code do not always entirely eliminate this 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 National Golf 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 real estate investment trust
distribution requirements. See "--Taxation of National Golf Properties--Annual
Distribution Requirements" on page 49.
Treasury regulations issued under Section 704(c) of the Internal Revenue Code
provide partnerships with a choice of several methods of accounting for these
book-tax differences, including retention of the "traditional method" or the
election of other 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 National Golf Operating
Partnership have determined to use the "traditional method" for accounting for
these book-tax differences for the properties initially contributed to National
Golf Operating Partnership and for some assets acquired subsequently. We and
National Golf Operating Partnership have not yet decided what method will be
used to account for book-tax differences for properties acquired by National
Golf Operating Partnership in the future.
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Any property acquired by National Golf Operating Partnership in a taxable
transaction will initially have a tax basis equal to its fair market value, and
Section 704(c) of the Internal Revenue Code will not apply.
Failure to Qualify
If we fail to qualify for taxation as a real estate investment trust in any
taxable year, and the relief provisions of the Internal Revenue Code do not
apply, we will be required to pay tax, including any alternative minimum tax
and possibly increased state and local taxes, on our taxable income at regular
corporate rates. Distributions to stockholders in any year in which we fail to
qualify as a real estate investment trust will not be deductible by us and we
will not be required to distribute any amounts to our stockholders. As a
result, we anticipate that our failure to qualify as a real estate investment
trust would reduce the cash available for distribution by us to our
stockholders. In addition, if we fail to qualify as a real estate investment
trust, all distributions to stockholders will be required to pay tax at
ordinary income rates to the extent of our current and accumulated earnings and
profits. In this event, 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 real
estate investment trust 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. In addition,
President Clinton's Year 2000 Federal Budget Proposal contains a provision
which, if enacted in its present form, would result in the immediate taxation
of all gain inherent in a C corporation's assets upon an election by the
corporation to become a real estate investment trust in taxable years beginning
after January 1, 2000. If enacted, this provision could impose a substantial
tax upon our re-election to be taxed as a real estate investment trust
following any loss of our status as a real estate investment trust.
Taxation of Taxable U.S. Stockholders
When we use the term "U.S. stockholder," we mean a holder of shares of common
stock who is, for United States federal income tax purposes:
. a citizen or resident of the United States;
. a corporation, partnership, or other entity created or organized in or
under the laws of the United States or of any state or in the District
of Columbia, unless, in the case of a partnership, treasury regulations
provide otherwise;
. an estate which is required to pay United States federal income tax
regardless of the source of its income; or
. a trust whose administration is under 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.
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Notwithstanding the preceding sentence, to the extent provided in the treasury
regulations, some 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
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. As long as we qualify as a
real estate investment trust, 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 tax basis which
each U.S. stockholder has in his shares of stock by the amount of the
distribution, but not below zero. Distributions in excess of a U.S.
stockholder's adjusted tax basis in his shares will be taxable as capital gain,
provided that the shares have been held as capital assets. Such gain 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 will 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 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 our taxable U.S. stockholders as gain, to the extent that such gain
does not exceed our actual net capital gain for the taxable year, from the sale
or disposition of a capital asset. Depending on the characteristics of the
assets which produced these gains and whether we decide to designate
distributions as capital gain dividends, 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 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 15.
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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, may not be
treated as investment income depending upon your particular situation.
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;
. 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
adjust its earnings and profits for the retained capital gains as
required by treasury regulations to be prescribed by the Internal
Revenue Service.
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. This gain 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, 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.
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Backup Withholding
We report to our U.S. stockholders and the Internal Revenue Service 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 is otherwise exempt 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 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 Internal Revenue Service. 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 58.
Taxation of Tax-Exempt Stockholders
The Internal Revenue Service has ruled that amounts distributed as dividends
by a qualified real estate investment trust do not constitute unrelated
business taxable income when received by a tax-exempt entity. Based on that
ruling, except as described below, dividend income from us and gains arising
upon the sale of shares generally will not be unrelated business taxable income
to a tax-exempt stockholder. This income or gain will be unrelated business
taxable income, however, if the tax-exempt stockholder holds its shares as
"debt financed property" within the meaning of the Internal Revenue Code or if
the shares are used in a trade or business of the tax-exempt stockholder.
Generally, debt financed property is property, the acquisition or holding of
which was financed through a borrowing by the tax-exempt stockholder.
For tax-exempt stockholders which are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and qualified
group legal services plans exempt from federal income taxation under Sections
501(c)(7), (c)(9), (c)(17) and (c)(20) of the Internal Revenue Code,
respectively, income from an investment in our shares will constitute unrelated
business taxable income unless the organization is able to properly claim a
deduction for amounts set aside or placed in reserve so as to offset the income
generated by its investment in our shares. These prospective investors should
consult their tax advisors concerning these "set aside" and reserve
requirements.
Notwithstanding the above, however, a portion of the dividends paid by a
"pension-held real estate investment trust" shall be treated as unrelated
business taxable income as to any trust which:
. is described in Section 401(a) of the Internal Revenue Code;
. is tax-exempt under Section 501(a) of the Internal Revenue Code; and
. holds more than 10%, by value, of the interests in the real estate
investment trust.
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Tax-exempt pension funds that are described in Section 401(a) of the Internal
Revenue Code are referred to below as "qualified trusts."
A real estate investment trust is a "pension held real estate investment
trust" if:
. it would not have qualified as a real estate investment trust but for
the fact that Section 856(h)(3) of the Internal Revenue 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 real estate investment trust, or one or
more such qualified trusts, each of which owns more than 10%, by
value, of the interests in the real estate investment trust, holds in
the aggregate more than 50%, by value, of the interests in the real
estate investment trust.
The percentage of any real estate investment trust dividend treated as
unrelated business taxable income is equal to the ratio of:
. the unrelated business taxable income earned by the real estate
investment trust, treating the real estate investment trust as if it
were a qualified trust and therefore required to pay tax on unrelated
business taxable income, to
. the total gross income of the real estate investment trust.
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 real
estate investment trust distributions as unrelated business taxable income will
not apply if the real estate investment trust 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 the 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 real estate investment trust."
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 non-U.S. stockholders. When we use the term "non-U.S.
stockholder" we mean stockholders who are not U.S. stockholders. In general,
non-U.S. stockholders may be subject to special tax withholding requirements on
distributions from National Golf Properties and with respect to their sale or
other disposition of our common stock, 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 us 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 our common
stock, including the federal income tax treatment of dispositions of interests
in and the receipt of distributions from us.
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Other Tax Consequences
We may be required to pay state or local taxes in various state or local
jurisdictions, including those in which we transact business and our
stockholders may be required to pay state or local taxes 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 summarized
above. In addition, your state and local tax treatment may not conform to the
federal income tax consequences summarized above. Consequently, you should
consult your tax advisor regarding the effect of state and local tax laws on an
investment in our shares.
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SELLING STOCKHOLDERS
The selling stockholders currently own units of common partnership interest
in National Golf Operating Partnership, L.P. These units were issued in
connection with the formation of our company in August 1993 and in connection
with National Golf Operating Partnership's acquisition in 1996 of golf course
properties held under option since 1993.
Under the partnership agreement for National Golf Operating Partnership, each
selling stockholder has the right to require us to acquire some or all of the
units that the selling stockholder owns in exchange for shares of our common
stock or, at the option of the selling stockholder, cash. The number of units
that can be exchanged for shares of common stock in a twelve-month period by
any selling stockholder is limited by the partnership agreement for National
Golf Operating Partnership as well as other ownership limitations imposed by
our charter. The 2,800,616 shares of common stock referred to in this
prospectus are shares that we may issue to the selling stockholders in exchange
for their units.
We are registering the offer and sale of these shares because of our
contractual obligations in order to provide the selling stockholders with
freely tradable securities, but the registration of the 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.
The following table lists the selling stockholders who may sell common stock
with this prospectus. All of the shares of common stock offered by this
prospectus are being offered by the selling stockholders for their own account
and we will not receive any proceeds from the resales of the shares. The table
identifies:
. the number of shares of common stock and the number of common units
owned by each selling stockholder as of June 30, 1999;
. the maximum number of shares of common stock represented by common
units or "exchange shares" that may be sold by each selling stockholder
with this prospectus;
. the number of shares of common stock and the number of common units
that would be owned by each selling stockholder after selling all the
exchange shares offered by such selling stockholder in this prospectus;
and
. the resulting percentage of the outstanding shares of common stock that
would be beneficially owned by each selling stockholder immediately
after the offering.
The selling stockholders may exchange all, some or none of their common units
for shares of common stock, limited by 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 the shares. Accordingly, we cannot predict how many shares 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 22.2% of the total
shares of common stock outstanding as of June 30, 1999.
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<TABLE>
<CAPTION>
Percentage of
Maximum Number Outstanding Shares
of Exchange Shares of Common of Common Stock
Shares of Shares Common Stock Units After Beneficially Owned
Name Common Stock(1) Common Units(2) Offered(3) After Offering(4) Offering(4) After Offering(5)
---- --------------- --------------- -------------- ----------------- ----------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Dallas P. Price
Trust(6)............... 354,737 3,244,627 551,475 354,737 2,693,152 2.7%
Oaks Christian High
School(7).............. 0 1,250,000 1,250,000 0 0 *
Joan P. Anawalt 1995
Revocable Trust(8)..... 0 248,517 248,517 0 0 *
Supermarine Aviation,
Ltd.(6)................ 0 152,498 152,498 0 0 *
Myreshan, Inc.(6)....... 0 149,273 149,273 0 0 *
Richard C. and Sheri L.
Price(9)............... 44,000(10) 83,701 83,701 44,000(10) 0 *
Robert H. Williams...... 0 75,003 75,003 0 0
Joan P. Anawalt 1993
Annuity Income
Trust(8)............... 0 71,731 71,731 0 0 *
BlackLake/Penasquitos, a
California general
partnership(6)......... 0 24,844 24,844 0 0 *
Joan P. Stewart Income
Trust(8)............... 0 60,146 60,146 0 0 *
Edward R. Sause(11)..... 106,000(12) 55,550 55,550 106,000(12) 0 *
Richard Bermudez........ 0 30,361 30,361 0 0 *
Ernest C. Burns......... 0 25,001 25,001 0 0 *
Barbara M. Colton....... 0 8,930 8,930 0 0 *
American Golf
Corporation(6)......... 0 6,854 6,854 0 0 *
RSJ Golf, Inc.(6)....... 0 6,732 6,732 0 0 *
------- --------- --------- ------- ---------
Total................. 504,737 5,493,768 2,800,616 504,737 2,693,152
======= ========= ========= ======= =========
</TABLE>
- -------
* Represents less than 1%.
(1) Represents the total shares of common stock owned by each selling
stockholder as of June 30, 1999, excluding shares of common stock issuable
upon exchange of common units owned by such selling stockholder.
(2) Represent the total common units owned by each selling stockholder as of
June 30, 1999, excluding common units held by other entities in which such
selling stockholder has a controlling interest.
(3) 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 twelve-month 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 stock
ownership limitations in our charter which prohibit the actual or
constructive ownership of more than 9.8% of the outstanding shares of our
common stock by any person.
(4) Represents the total shares of common stock and common units owned by the
selling stockholders immediately after completion of the offering. These
numbers assume that each selling stockholder exchanges a number of common
units equal to the number of exchange shares offered by such selling
stockholder in this prospectus, without regard to limitations on the
number of common units that can be exchanged in a twelve-month period, and
that the selling stockholder sells all such exchange shares.
(5) Represents the percentage of the outstanding shares of common stock
beneficially owned by each selling stockholder after giving effect to the
sale of all the exchange shares offered by such selling stockholder in
this prospectus. The
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percentage for each selling stockholder is calculated assuming that none
of the other selling stockholders or other holders of common units convert
their common units into exchange shares and that none of the other
exchange shares offered by this prospectus are sold. For purposes of this
prospectus, each selling stockholder is deemed to beneficially own all
shares of common stock issuable to such selling stockholder within 60
days, including shares issued upon conversion of stock options and shares
issued upon exchange of common units, without regard to the stock
ownership limitations in our charter.
(6) 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 our Board of Directors. Supermarine Aviation, Ltd., Myreshan,
Inc., Blacklake/Penasquitos, a California general partnership, AGC and
RSJ Golf, Inc. may be deemed to be controlled by Mrs. Price and/or Mr.
Price.
(7) Oaks 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.
(8) 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.
(9) Richard C. Price is the former President of National Golf Properties.
Sheri L. Price, his spouse, is the daughter of David G. Price and Dallas
P. Price.
(10) Excludes 24,844 common units owned by BlackLake/Penasquitos, a California
general partnership, in which Richard C. Price owns a 10% interest.
(11) Edward R. Sause is a Director of National Golf Properties and the
Executive Vice President--Finance & Corporate Services of American Golf.
Mr. Sause previously served as Executive Vice President, Chief Financial
Officer and Secretary of National Golf Properties until April 30, 1997.
(12) 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.
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PLAN OF DISTRIBUTION
This prospectus relates to the possible offer and sale 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.
Selling stockholders that desire to sell shares covered by this prospectus
will first have to exchange their common units for shares of common stock.
Under the partnership agreement of National Golf Operating Partnership, limited
partners may effect an exchange of their common units for common stock at any
time at the option of the holder of such common units, subject to the holder's
satisfaction of conditions specified in the partnership agreement. These
conditions are described under "Partnership Agreement--Exchange and Cash Option
Rights--Exchange Rights" on page 31.
Sales of the shares of our common stock may be made by the selling
stockholders in one or more transactions:
. on the NYSE or any other national securities exchange or automated
quotation system on which our common stock is traded, which may involve
transactions solely between a broker-dealer and its customers which are
not traded across an open market and block trades;
. in the over-the-counter market; and
. in privately negotiated transactions or otherwise or in any combination
of such transactions.
Such sales may be at market prices then prevailing, at prices related to the
then current market price, at negotiated prices or at fixed prices. In
addition, any shares of our common stock covered by this prospectus that
qualify for sale under Section 4(1) of the Securities Act or Rule 144 may be
sold under such provisions rather than under this prospectus. The shares of our
common stock covered by this prospectus may be offered in any manner permitted
by law, including through underwriters, brokers, dealers or agents, and
directly to one or more purchasers. Without limiting the generality of the
foregoing, such shares of our common stock may be sold in one or more of the
following types of transactions:
. sales to underwriters who will acquire the shares of our common stock
for their own account and resell them in one or more transactions at
fixed prices or at varying prices determined at the time of sale;
. block trades in which the broker-dealer so engaged will attempt to sell
the shares of our common stock as agent but may position and resell a
portion of the block as principal to facilitate the transaction;
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. purchases by a broker or dealer as principal and resale by such broker
or dealer for its account;
. ordinary brokerage transactions and transactions in which the broker
solicits purchasers;
. exchange distributions according to the rules of such exchanges; and
. transactions between sellers and purchasers without a broker-dealer.
In effecting sales, brokers or dealers engaged by a selling stockholder may
arrange for other brokers or dealers to participate in the resales.
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 state 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.
In the event a selling stockholder engages an underwriter to sell the shares
of our common stock, to the extent required, a prospectus supplement will be
distributed, which will describe the number of shares being offered and the
terms of the offering, including the names of the underwriters, any discounts,
commissions and other items constituting compensation to underwriters, dealers
or agents, the public offering price and any discounts, commissions or
concessions allowed or reallowed or paid by underwriters to dealers.
Some persons participating in the distribution of the shares of our common
stock offered in this prospectus may engage in transactions that stabilize the
price of our common stock covered by this prospectus.
The anti-manipulation rules of Regulation M under the Securities Exchange Act
of 1934, as amended, may apply to sales of common stock in the market and to
the activities of the selling stockholders.
64
<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 us by Ballard Spahr Andrews &
Ingersoll, LLP, Baltimore, Maryland. Tax matters described under "Material
Federal Income Tax Considerations" will be passed upon for us by Latham &
Watkins, Los Angeles, California.
EXPERTS
The consolidated balance sheet as of December 31, 1998 and 1997 and the
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1998 of National Golf
Properties, Inc. appearing in the Company's Annual Report on Form 10-K, and the
combining consolidated balance sheets as of March 29, 1999 and the related
statement of operations, division equity and cash flows for the period
beginning May 29, 1998 and ending March 29, 1999 of Cobblestone Golf appearing
in the Company's Current Report on Form 8-K/A, have been incorporated by
reference in this prospectus and in the registration statement of which this
prospectus is a part in reliance upon the report by PricewaterhouseCoopers LLP,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
65
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any materials that we have filed with the Securities and Exchange Commission at
the Securities and Exchange Commission'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 Securities and Exchange
Commission at 1-800-SEC-0330. We file information electronically with the
Securities and Exchange Commission. The Securities and Exchange Commission
maintains an Internet site that contains reports, proxy and information
statements and other information regarding issuers that file electronically
with the Securities and Exchange Commission. The address of the Securities and
Exchange Commission'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 Securities and Exchange Commission 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 Securities and Exchange
Commission will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings we
will make with the Securities and Exchange Commission under Sections 13(a),
13(c), 14 or 15(d) of 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, 1998, filed
on April 15, 1999 (File Number 1-12246);
. Reports on Form 10-Q for the quarterly periods ended March 31, 1999 and
June 30, 1999, filed on May 17, 1999 (File Number 1-12246) and August
13, 1999 (File Number 1-12246), respectively;
. Proxy Statement for Annual Meeting of Stockholders held on June 30,
1999, filed on April 30, 1999 (File Number 1-12246); and
. Current Report on Form 8-K dated March 31, 1999, filed on April 15,
1999 (File Number 1-12246) and Current Report on Form 8-K/A dated March
31, 1999, filed on June 14, 1999 (File Number 1-12246).
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.
66
<PAGE>
This prospectus is part of a registration statement we filed with the
Securities and Exchange Commission. The prospectus and any accompanying
prospectus supplement do not contain all of the information included in the
registration statement. We have omitted a few parts of the registration
statement according to the rules and regulations of the Securities and Exchange
Commission. 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.
67
<PAGE>
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 National
Golf Properties. Forward-looking statements involve numerous risks and
uncertainties. There can be no assurance that the events or circumstances
reflected in these statements will actually occur.
Our 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 of such terminology or other variations of such
terminology 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 described 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;
. environmental uncertainties; and
. 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" beginning on page 5. Readers are cautioned not to rely too
heavily on forward-looking statements, which reflect management's analysis
only. The forward-looking statements by their nature are not intended to be
definitive predictions of future events. There is no general duty for us to
update forward-looking statements. There is, however, a duty for us to correct
information contained in this prospectus when a disclosure is misleading when
made or when a statement that was accurate when made becomes misleading due to
subsequent events.
68
<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................................................ 50,000
Legal Fees and Expenses.......................................... 150,000
Accounting Fees and Expenses..................................... 40,000
Miscellaneous.................................................... 10,000
--------
*Total....................................................... $271,263
========
</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.
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
II-1
<PAGE>
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 National Golf 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.
Item 16. Exhibits
<TABLE>
<C> <S>
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 August 31, 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 August 31, 1995).
3.3 --Articles Supplementary of National Golf Properties, Inc.
(incorporated by reference to Exhibit 3.1 to the Company's Current
Report on Form 8-K dated March, 1998)
3.4 --Articles Supplementary of National Golf Properties, Inc.
(incorporated by reference to Exhibit 3.1 to the Company's Quarterly
Report on Form 10-Q for the period ended March 31, 1998)
3.5 --Articles Supplementary of National Golf Properties, Inc.
(incorporated by reference to Exhibit 3.1 to the Company's Quarterly
Report on Form 10-Q for the period ended June 30, 1999)
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
material 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>
- --------
*Previously filed.
II-2
<PAGE>
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.
. 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.
Insofar 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 SEC 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-3
<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 18th
day of October, 1999.
NATIONAL GOLF PROPERTIES, INC.
/s/ James M. Stanich
By: _________________________________
James M. Stanich
President (Principal Executive
Officer)
Pursuant to the requirements of the Securities Act of 1933, as amended, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Chairman of the Board of October 18, 1999
____________________________________ Directors
David G. Price
/s/ James M. Stanich President and Director October 18, 1999
____________________________________
James M. Stanich
* Vice President -- Finance October 18, 1999
____________________________________ (Principal Financial
Neil M. Miller Officer)
/s/ William C. Regan Vice President -- Controller October 18, 1999
____________________________________ and Treasurer
William C. Regan
* Director October 18, 1999
____________________________________
Richard A. Archer
* Director October 18, 1999
____________________________________
John C. Cushman, III
* Director October 18, 1999
____________________________________
Bruce Karatz
* Director October 18, 1999
____________________________________
Charles S. Paul
* Director October 18, 1999
____________________________________
Edward R. Sause
/s/ William C. Regan
*By: _______________________________
William C. Regan
Attorney-in-Fact
</TABLE>
II-4
<PAGE>
EXHIBIT 5.1
October 18, 1999
National Golf Properties, Inc.
29651 28th Street
Suite 3001
Santa Monica, California 90405
Re: National Golf Properties, Inc., a Maryland corporation (the
"Company")--Registration Statement on Form S-3 (Registration No. 333-
67403), pertaining to up to Two Million Eight Hundred Thousand Six
Hundred Sixteen (2,800,616) shares (the "Shares") of common stock, par
value one cent ($0.01) per share ("Common Stock"), to be issued to
certain holders (the "Selling Stockholders") of units of limited
partnership interest (the "Units") in National Golf Operating
Partnership, L.P., a Delaware limited partnership (the "Partnership")
upon exchange of such Units
-------------------------------------------------------------------------
Ladies and Gentlemen:
In connection with the registration of the Shares under the Securities Act
of 1933, as amended (the "Act"), by the Company on Form S-3 filed with the
Securities and Exchange Commission (the "Commission") on or about November 17,
1998, Amendment No. 1 filed with the Commission on January 22, 1999, Amendment
No. 2 filed with the Commission on or about February 18, 1999, Amendment No. 3
filed with the Commission on or about August 17, 1999, Amendment No. 4 filed
with the Commission on or about September 22, 1999 and Amendment No. 5 filed
with the Commission on or about October 18, 1999 (collectively, "Registration
Statement"), you have requested our opinion with respect to the matters set
forth below.
We have acted as special Maryland corporate counsel for the Company, in its
individual capacity and as the sole general partner of the Partnership, in
connection with the matters described herein. In our capacity as special
Maryland corporate counsel to the Company, we have reviewed and are familiar
with proceedings taken and proposed to be taken by the Company in connection
with the issuance and delivery of the Shares, and for purposes of this opinion
have assumed such proceedings will be timely completed in the manner presently
proposed. In addition, we have relied upon certificates and advice from the
officers of the Company upon which we believe we are justified in relying and
on various certificates from, and documents recorded with, the State
Department of Assessments and Taxation of Maryland (the "SDAT"), including the
charter of the Corporation (the "Charter"), consisting of Articles of
Incorporation filed with the SDAT on March 28, 1995; the Amended Articles of
Incorporation filed with the SDAT on March 30, 1995; Articles of Merger filed
with the SDAT on August 31, 1995; Articles Supplementary filed with the SDAT
on March 4, 1998; Certificate of Correction filed with the SDAT on March 25,
1998; Articles Supplementary filed with the SDAT on April 20, 1998; and
Articles Supplementary filed with the SDAT on July 28, 1999. We have also
examined the Bylaws of the Company, the Third Amended and Restated Agreement
of Limited Partnership of the Partnership dated as of July 28, 1999 (the
"Partnership Agreement") and Resolutions of the Board of Directors of the
Company adopted on or before the date hereof and in full force and effect on
the date hereof; and such laws, records, documents, certificates, opinions and
instruments as we deem necessary to render this opinion.
We have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals and the conformity to the originals of
all documents submitted to us as certified, photostatic or conformed copies.
In addition, we have assumed that each person executing any instrument,
document or certificate referred to herein on behalf of any party is duly
authorized to do so. We have also assumed that none of the Shares will be
issued or transferred to an interested Stockholder of the Company or an
Affiliate thereof, all as defined in Subtitle 6 of Title 3 of Maryland General
Corporation Law, or in violation of the provisions of Subparagraph C(3) of
Article IV of the Charter entitled "Restrictions on Ownership and Transfer to
Preserve Tax Benefit".
Based on the foregoing, and subject to the assumptions and qualifications
set forth herein, it is our opinion that the Shares have been duly reserved
and authorized for issuance by all necessary corporate action on the part
<PAGE>
National Golf Properties, Inc.
October 18, 1999
Page 2
of the Company and when such Shares to be issued and delivered by the Company
to the Selling Stockholders are issued and delivered in exchange of Units of
the Partnership, upon and subject to the terms and conditions set forth in the
Partnership Agreement, such Shares will be duly authorized, validly issued,
fully paid and non-assessable.
We consent to your filing this opinion as an exhibit to the Registration
Statement, and further consent to the filing of this opinion as an exhibit to
the applications to securities commissioners for the various states of the
United States for registration of the Shares. We also consent to the
identification of our firm as Maryland counsel to the Company in the section
of the Prospectus (which is part of the Registration Statement) entitled
"Legal Matters."
The opinions expressed herein are limited to the laws of the State of
Maryland and we express no opinion concerning any laws other than the laws of
the State of Maryland. Furthermore, the opinions presented in this letter are
limited to the matters specifically set forth herein and no other opinion
shall be inferred beyond the matters expressly stated.
Very truly yours,
/s/ Ballard Spahr Andrews
& Ingersoll, LLP
<PAGE>
EXHIBIT 8.1
October 18, 1999
National Golf Properties, Inc.
29561 28th Street
Suite 3001
Santa Monica, California 90405
Re: National Golf Properties, Inc.
Federal Income Tax Consequences
Ladies and Gentlemen:
We have acted as tax counsel to National Golf Properties, Inc., a Maryland
corporation (the "Company"), in connection with the issuance of up to Two
Million Eight Hundred Six Hundred Sixteen (2,800,616) shares of common stock,
par value $0.01 per share, pursuant to a registration statement (the
"Registration Statement") on Form S-3 under the Securities Act of 1933, as
amended (the "1933 Act"), filed with the Securities and Exchange Commission
(the "Commission") on November 17, 1998 (file number 333-67403), as amended as
of the date hereof (including each document incorporated by reference therein,
the "Registration Statement").
You have requested our opinion concerning certain of the federal income tax
consequences to the Company and the purchasers of the securities described
above in connection with the issuance described above. This opinion is based
on various facts and assumptions, including the facts set forth in the
Registration Statement concerning the business, properties and governing
documents of the Company and National Golf Operating Properties Limited
Partnership (the "Operating Partnership"). We have also been furnished with,
and with your consent have relied upon, certain representations made by the
Company and the Operating Partnership with respect to certain factual matters
through a certificate of an officer of the Company (the "Officer's
Certificate"). With respect to matters of Maryland law, we have relied upon
the opinion of Ballard Spahr Andrews & Ingersoll, LLP, counsel for the
Company, dated October 18, 1999.
In our capacity as tax counsel to the Company, we have made such legal and
factual examinations and inquiries, including an examination of originals or
copies certified or otherwise identified to our satisfaction of such
documents, corporate records and other instruments as we have deemed necessary
or appropriate for purposes of this opinion. For the purposes of our opinion,
we have not made an independent investigation, or audit of the facts set forth
in the above referenced documents or in the Officer's Certificate. In our
examination, we have assumed the authenticity of all documents submitted to us
as originals, the genuineness of all signatures thereon, the legal capacity of
natural persons executing such documents and the conformity to authentic
original documents of all documents submitted to us as copies.
We are opining herein as to the effect on the subject transaction only of
the federal income tax laws of the United States and we express no opinion
with respect to the applicability thereto, or the effect thereon, of other
federal laws, the laws of any state or other jurisdiction or as to any matters
of municipal law or the laws of any other local agencies within any state.
Based on such facts, assumptions and representations, it is our opinion
that:
1. The statements in the Registration Statement set forth under the caption
"Material Federal Income Tax Considerations" are, subject to the limitations
set forth therein, the material federal income tax considerations relevant to
purchasers of the Company's common stock pursuant to the Registration
Statement; and
<PAGE>
National Golf Properties, Inc.
October 18, 1999
Page 2
2. Commencing with the Company's taxable year ending December 31, 1993, the
Company has been organized and has operated in conformity with the
requirements for qualification as a "real estate investment trust" under the
Internal Revenue Code of 1986, as amended (the "Code"), and its proposed
method of operation will enable the Company to continue to meet the
requirements for qualification and taxation as a real estate investment trust
under the Code.
No opinion is expressed as to any matter not discussed herein.
This opinion is rendered to you as of the date of this letter, and we
undertake no obligation to update this opinion subsequent to the date hereof.
This opinion is based on various statutory provisions, regulations promulgated
thereunder and interpretations thereof by the Internal Revenue Service and the
courts having jurisdiction over such matters, all of which are subject to
change either prospectively or retroactively. Also, any variation or
difference in the facts from those set forth in the Registration Statement or
the Officer's Certificate may affect the conclusions stated herein. Moreover,
the Company's qualification and taxation as a real estate investment trust
depends upon the Company's 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, the results
of which have not been and will not be reviewed by Latham & Watkins.
Accordingly, no assurance can be given that the actual results of the
Company's operation for any one taxable year will satisfy such requirements.
Except as provided below, this opinion is rendered to you, and is for your
use in connection with the issuance of common stock by the Company pursuant to
the Registration Statement. We hereby consent to the filing of this opinion as
an exhibit to the Registration Statement and to the use of our name under the
captions "Material Federal Income Tax Considerations" and "Legal Matters" in
the Registration Statement. In giving this consent, we do not hereby admit
that we are within the category of persons whose consent is required under
Section 7 of the Securities Act of 1933 or the rules or regulations of the
Commission promulgated thereunder.
Very truly yours,
/s/ Latham & Watkins
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-3 of our reports dated February 4, 1999, except for Note
19, as to which the date is March 31, 1999 and January 29, 1999, except for
Note 15, as to which the date is March 31, 1999 relating to the consolidated
financial statements and financial statement schedule of National Golf
Properties, Inc. and the consolidated financial statement of American Golf
Corporation and Subsidiaries, respectively, which appears in National Golf
Properties, Inc.'s Annual Report on Form 10-K for the year ended December 31,
1998. We also consent to the incorporation by reference of our report dated May
7, 1999 relating to the financial statements of Cobblestone Golf, which appears
in the Current Report on Form 8-K/A dated March 31, 1999. We also consent to
the reference to us under the headings "Experts" in such Registration
Statement.
PricewaterhouseCoopers LLP
Los Angeles, California
October 18, 1999
