<PAGE>
As filed with the Securities and Exchange Commission on January 22, 1999
Registration No. 333-67403
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
--------------
NATIONAL GOLF PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
Maryland 95-4549193
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2951 28th Street, Suite 3001
Santa Monica, California 90405
(310) 664-4100
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
William C. Regan
Vice President--Controller and Treasurer
National Golf Properties, Inc.
2951 28th Street, Suite 3001
Santa Monica, California 90405
(310) 664-4100
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
David M. Hernand, Esq.
Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, California 90071
(213) 485-1234
Approximate date of commencement of proposed sale to the public: From time to
time after this Registration Statement becomes effective. If the only
securities being registered on this Form are being offered pursuant to dividend
or interest reinvestment plans, please check the following box. [_]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------
<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)
- ---------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus supplement and the accompanying prospectus +
+is not complete and may be changed. The selling stockholders may not sell +
+these securities until the registration statement filed with the Securities +
+and Exchange Commission is effective. The information in this prospectus +
+supplement and the accompanying prospectus is not an offer to sell these +
+securities and it is not soliciting an offer to buy these securities in any +
+state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JANUARY 22, 1999
PROSPECTUS SUPPLEMENT
(To prospectus dated January , 1999)
625,000 Shares
[LOGO OF THE COMPANY]
National Golf Properties, Inc.
Common Stock
-----------
This prospectus supplement relates to the offering of 625,000 shares of our
common stock by the selling stockholder identified in this prospectus
supplement. We will not receive any of the proceeds from the sale of the shares
of our common stock offered hereby.
The shares of our common stock are listed on The New York Stock Exchange
under the symbol "TEE." On January , 1999, the closing sale price for the
shares of our common stock on the NYSE was $ per share.
-----------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public Offering Price............................ $ $
Underwriting Discount............................ $ $
Proceeds, Before Expenses, to the Selling
Stockholder..................................... $ $
</TABLE>
You should consider the risks discussed in "Risk Factors" beginning on page 5
of the accompanying prospectus 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 on the
adequacy or accuracy of this prospectus supplement or the accompanying
prospectus. Any representation to the contrary is a criminal offense.
This offering will be underwritten on a firm commitment basis. The selling
stockholder has granted an option for an additional 93,750 shares of our common
stock to the underwriter to fulfill over-allotments that may occur during the
offering process.
We expect that the shares of our common stock will be ready for delivery in
New York, New York on or about January , 1999.
-----------
Merrill Lynch & Co.
The date of this prospectus supplement is January , 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
Prospectus Supplement
<S> <C>
The Company............................................................... S-3
Recent Developments....................................................... S-5
Summary Historical Financial Data......................................... S-7
The Offering.............................................................. S-9
Selling Stockholder....................................................... S-9
Federal Income Tax Considerations......................................... S-9
Underwriting.............................................................. S-10
Legal Matters............................................................. S-11
Prospectus
The Company............................................................... 3
Risk Factors.............................................................. 5
Description of Capital Stock.............................................. 13
Partnership Agreement..................................................... 19
Certain Provisions of Maryland Law and the Company's Charter and Bylaws... 26
Federal Income Tax Considerations......................................... 32
Selling Stockholders...................................................... 44
Plan of Distribution...................................................... 46
Legal Matters............................................................. 47
Experts................................................................... 47
Where You Can Find More Information....................................... 48
Forward-Looking Statements................................................ 49
</TABLE>
You should rely only on the information contained or incorporated by
reference in this prospectus supplement or the accompanying prospectus. We have
not, and the Underwriter has 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, and the
Underwriter is 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 supplement or the accompanying
prospectus, 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.
S-2
<PAGE>
THE COMPANY
We are a self-administered real estate investment trust ("REIT") and the
largest publicly-traded company in the United States specializing in the
acquisition and ownership of golf course properties. As a self-administered
REIT, our own employees perform our administrative and management functions,
rather than our relying on an outside manager for these services.
As of January 6, 1999, our portfolio consisted of 133 golf courses,
geographically diversified among 26 states, with:
. 22 golf courses in California;
. 21 in Texas;
. 13 in Arizona;
. six in each of Florida, Ohio and South Carolina;
. five in each of Minnesota and Pennsylvania;
. four in each of Colorado, Georgia, Illinois, Kansas, Nevada, Oregon
and Washington;
. three in each of New Jersey and Virginia;
. two in each of Maryland, Missouri, New Mexico, North Carolina,
Oklahoma and Tennessee; and
. one in each of Idaho, Indiana and Louisiana.
The distribution of our golf courses reflects our belief that geographic
diversification provides stability of income and helps insulate our portfolio
of properties from regional economic and climatic influences. Substantially all
of our golf courses are located in areas with populations in excess of
250,000 people.
Our golf courses include facilities such as clubhouses with restaurants,
banquet space, locker rooms and retail pro shops, driving ranges, pools, tennis
courts and fitness facilities. Services provided at such properties include
golf cart rentals, golf and tennis lessons, banquets and tournaments. In order
to maintain qualification as a REIT, our income must be derived from certain
sources, including rents from real property and generally excluding income from
the operation of golf courses. Accordingly, we are generally precluded from
operating golf courses and, as a consequence, lease our golf courses to
experienced and creditworthy golf course operators. The lessees of such 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 require the
lessees to pay substantially all operating expenses.
All but five of our golf courses are currently leased to American Golf
Corporation, one of the largest and most experienced operators of golf courses
and related facilities in the world. In addition to managing our properties,
American Golf currently manages and operates approximately 157 golf courses and
related facilities located in 31 states in the United States and the United
Kingdom. David G. Price, the Chairman of our Board of Directors, is a
significant stockholder and Chairman of the Board of Directors of American
Golf, which subjects him to conflicts of interest. See "Risk Factors--The
Lessee and Operator of Most of Our Golf Courses and Our Chairman Have Conflicts
of Interest that May Adversely Affect Our Business" in the accompanying
prospectus.
Our primary business objective is to maximize stockholder return by acquiring
quality golf courses which we then lease to experienced and creditworthy
operators. We focus on owning and acquiring golf course properties that have
strong cash flow growth potential and expect to hold such properties for long-
term investment and capital appreciation. In selecting our operators, we
consider factors such as the number of years that the operator has been in
operation, the experience of the management team, the number of golf courses
S-3
<PAGE>
currently owned, leased, or managed by the operator, the operator's net worth
or ability to provide credit support to our satisfaction, and the operator's
ability to maximize the revenues of the golf course and to improve the long-
term value of the golf course. Our business and operating strategies include:
. Increasing income and portfolio value by continuing the strategic
expansion of our golf course portfolio through the selective
acquisition of golf course properties in urban areas or resort
locations that demonstrate potential for significant revenue and
cash flow increases. Our expansion activities during the past
several years are summarized below:
. For the period August 18, 1993 to December 31, 1997, we
purchased 81 golf courses for an aggregate initial investment
of approximately $444.1 million;
. For the period January 1, 1998 through December 31, 1998, we
purchased seven golf courses for an aggregate initial
investment of approximately $42.8 million and made one
participating mortgage loan of approximately $22.6 million;
. For the period January 1, 1999 to January 6, 1999, we purchased
two golf courses for an aggregate initial investment of
approximately $10.4 million;
. Structuring favorable leases for our properties with golf course
operators, under which such operators pay base rent, percentage
rent based on revenues and substantially all expenses in connection
with the operation of such properties, including real estate taxes,
insurance, utilities and services, maintenance and other operating
expenses;
. Working with golf course operators on strategies to increase
revenues, which in turn would increase our percentage rents;
. Working with golf course operators on strategies to improve and
enhance golf course holdings through proper maintenance and capital
improvements;
. Monitoring on an ongoing basis the operating performance of our
golf courses, compliance by our operators with their lease
obligations and other market factors that could affect the
financial performance of our courses; and
. Maintaining a ratio of debt-to-total market capitalization (i.e.,
total debt as a percentage of the market value of issued and
outstanding shares of our common stock, units of preferred
partnership interest in National Golf Operating Partnership, L.P.
or "preferred units" and interests in National Golf Operating
Partnership that are exchangeable for shares of our common stock
plus total debt) of 1:2 or less. At September 30, 1998, our total
debt constituted approximately 30% of our total market
capitalization.
At January 1, 1999, we had 14 full-time employees, including two regional
vice presidents and two directors of business development who are dedicated on
a full-time basis to identifying golf courses to be acquired or financed.
National Golf Properties, Inc. is a Maryland corporation incorporated in
1993. Our executive offices are located at 2951 28th Street, Suite 3001, Santa
Monica, California 90405, and our telephone number is (310) 664-4100.
S-4
<PAGE>
RECENT DEVELOPMENTS
Liquidity and Capital Resources. At September 30, 1998, we had approximately
$5.9 million in cash and investments, mortgage loans of approximately $24.8
million, mortgage indebtedness of approximately $30.2 million and unsecured
indebtedness of approximately $253.1 million. The $283.3 million principal
amount of mortgage and unsecured indebtedness bears interest at a weighted
average rate of 7.77%. Of our $283.3 million of indebtedness, approximately
$206.8 million is fixed rate indebtedness and is payable either quarterly or
semi-annually and matures between 1999 and 2008.
Capital Improvements. We are responsible for capital improvements that we
agreed to fund at the time a property is acquired to properly position the
property in its market in accordance with the business plan we develop for the
property. In addition, we fund certain capital improvement projects
subsequently identified by us or our operators that enhance the revenue
potential and long-term value of a property. For golf courses acquired through
December 31, 1998, we are required under the leases or have committed to pay
approximately $21.9 million for various remaining capital improvements. Of such
amount, we expect to expend approximately $15.7 million by the end of the year
2000. We believe these improvements will add value to the golf courses and
bring the quality of the golf courses up to our expected standards. Any
subsequent capital improvements will be the responsibility of the lessees. Upon
our funding of the capital improvements, the base rent payable under the leases
with respect to these golf courses will be adjusted to reflect, over the term
of the leases, our investment in such improvements.
Acquisitions. For the period January 1, 1998 through December 31, 1998, we
purchased seven golf courses for an aggregate initial investment of
approximately $42.8 million and made one participating mortgage loan of
approximately $22.6 million. We financed these investments with approximately
$7.4 million of cash from operations and approximately $58.0 million of
advances under our credit facility. For the period January 1, 1999 to January
6, 1999, we purchased two golf courses for an aggregate initial investment of
approximately $10.4 million.
Future acquisitions will be made subject to our investment objectives and
policies established to maximize both current income and long-term growth in
income. Our liquidity requirements with respect to future acquisitions may be
reduced to the extent we issue shares of our common stock or units of common
partnership interest in National Golf Operating Partnership or "common units"
as consideration for such purchases.
Proposed Dispositions. We continually monitor the operating performance of
our golf courses and other market factors that could affect the value of our
golf courses. Since August 1993, we have sold five golf courses. Currently, we
have no golf courses under contract to be sold.
Funds from Operations and Distributions to Stockholders. Funds from
operations for the nine months ended September 30, 1998 were $20.92 million
compared to $20.93 million for the nine months ended September 30, 1997. In
order to maintain our qualification as a REIT for federal income tax purposes,
we are required to make certain minimum distributions to our stockholders. The
following factors, among others, will affect funds from operations and will
influence the decisions of our board of directors regarding distributions to
stockholders:
. increase in debt service resulting from additional indebtedness;
. scheduled increases in base rent under our golf course leases;
. any payment to us of percentage rent under our golf course leases;
and
. increase in preferred distributions resulting from the issuance of
preferred units of limited partnership interest of National Golf
Operating Partnership.
Although we receive most of our rental payments on a monthly basis, we have
and intend to continue to pay distributions quarterly. Our distributions to
stockholders have been less than the total funds from operations because we are
obligated to make certain payments with respect to principal debt and capital
improvements. We believe that to continue our growth, funds in excess of
distributions, principal reductions and capital improvement expenditures should
be invested in assets expected to generate returns on investment to us
commensurate with our investment objectives and policies.
S-5
<PAGE>
Financing. We currently have a $100 million credit facility, which terminates
in April 2002, with a group of four commercial banks. Advances under our credit
facility that are outstanding for less than a month bear interest at the prime
rate of interest, which was 7.75% at December 31, 1998. Advances under our
credit facility that are outstanding for one month or more bear interest at a
floating rate equal to LIBOR plus a spread of 1.125%, which will be reduced
upon our obtaining specified credit ratings. As of December 31, 1998, we had
$78.0 million outstanding under our credit facility, bearing interest at a
weighted average rate of 6.48%.
On June 15, 1998, in anticipation of National Golf Operating Partnership
issuing $100 million of fixed-rate, ten-year notes, we caused National Golf
Operating Partnership to enter into a $100 million treasury lock swap
transaction with a financial institution in order to hedge its exposure to
interest rate fluctuations. The treasury lock matures on February 1, 1999.
Under this arrangement, National Golf Operating Partnership pays or receives an
amount equal to the difference between the treasury lock rate and the market
rate on the date of settlement, based on the principal of $100 million. The
realized gain or loss on the transaction at the settlement date will be
recorded on the balance sheet and amortized to interest expense over the period
of the related note. At December 31, 1998, the treasury lock rate was higher
than the market rate. Therefore, National Golf Operating Partnership has an
unrealized loss of approximately $6.9 million.
On March 4, 1998, National Golf Operating Partnership completed a private
placement of 1,200,000 preferred units to an institutional investor in exchange
for a contribution to National Golf Operating Partnership of $60 million.
National Golf Operating Partnership used $58 million of the approximately $58.5
million of net proceeds from such private placement to reduce outstanding
indebtedness under our credit facility. Also, on April 20, 1998, National Golf
Operating Partnership completed a private placement of an additional 300,000
preferred units to the same institutional investor in exchange for a
contribution to National Golf Operating Partnership of $15 million. National
Golf Operating Partnership used $14.5 million of the approximately
$14.6 million of net proceeds from such private placement to reduce outstanding
indebtedness under our credit facility.
S-6
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA
We are providing the following financial information to aid you in your
analysis of whether to make an investment in our common stock offered by this
prospectus supplement. This information is only a summary and you should read
it in conjunction with the historical financial statements and related notes
contained in the annual and quarterly reports and other information that we
have filed with the Securities and Exchange Commission. See "Where You Can Find
More Information" on page 48 of the accompanying prospectus.
We have derived the financial information included in this table from our
consolidated financial statements and our predecessor's (Golf Properties Group)
combined financial statements. Historical operating results of Golf Properties
Group may not be comparable to our subsequent operating results because (1) our
leases with American Golf have materially different terms from the terms of the
leases with Golf Properties Group, (2) historical operating revenues and
operating expenses include revenues and expenses relating to five courses that
were operated by American Golf pursuant to management agreements (under which
Golf Properties Group received revenues, bore expenses and paid the operator a
fee) rather than leases, and (3) management fee expense reflects consulting
services provided by American Golf to Golf Properties Group.
<TABLE>
<CAPTION>
Golf Properties
National Golf Properties, Inc. Group
------------------------------------------------------------------------- ---------------
Nine Months Ended
September 30, Year Ended December 31, Aug. 18, 1993 Jan. 1, 1993
------------------ -------------------------------------- through through
1998 1997 1997 1996 1995 1994 Dec. 31, 1993 Aug. 17, 1993
-------- -------- -------- -------- -------- -------- ------------- ---------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Rent................... $ 58,079 $ 55,309 $ 74,316 $ 58,898 $ 45,931 $ 36,637 $10,787 $10,678
Equity in income from
joint venture......... 287 48 119 -- -- -- -- --
Gain on sale of
properties............ -- 158 158 1,199 1,893 -- -- --
Operating.............. -- -- -- -- -- -- -- 4,708
Other income........... -- -- -- -- -- -- 17 499
-------- -------- -------- -------- -------- -------- ------- -------
Total revenues......... 58,366 55,515 74,593 60,097 47,824 36,637 10,804 15,885
-------- -------- -------- -------- -------- -------- ------- -------
Expenses:
Operating.............. -- -- -- -- -- -- -- 3,950
Management fee......... -- -- -- -- -- -- -- 2,193
General and
administrative........ 3,760 4,034 5,336 4,734 4,258 4,709 1,374 --
Depreciation and
amortization.......... 19,861 18,191 24,758 19,124 14,027 10,413 3,384 4,661
-------- -------- -------- -------- -------- -------- ------- -------
Total expenses......... 23,621 22,225 30,094 23,858 18,285 15,122 4,758 10,804
-------- -------- -------- -------- -------- -------- ------- -------
Other income and
expenses:
Interest expense....... (14,922) (14,241) (19,810) (14,067) (8,793) (2,212) (335) (4,627)
Interest income........ 549 268 364 2,110 4,144 3,459 1,584 24
Gain on insurance
proceeds.............. 993 -- 2,231 -- -- -- -- --
Other income........... 348 519 521 238 114 194 -- --
-------- -------- -------- -------- -------- -------- ------- -------
Income before provision
for taxes and minority
interest.............. 21,713 19,836 27,805 24,520 25,004 22,956 7,295 478
Provision for taxes.... (176) (165) (223) (256) (352) (368) (158) --
-------- -------- -------- -------- -------- -------- ------- -------
Income before minority
interest.............. 21,537 19,671 27,582 24,264 24,652 22,588 7,137 478
Minority interest...... (11,228) (8,554) (12,003) (10,852) (11,366) (10,712) (3,317) --
-------- -------- -------- -------- -------- -------- ------- -------
Net income............. $ 10,309 $ 11,117 $ 15,579 $ 13,412 $ 13,286 $ 11,876 $ 3,820 $ 478
======== ======== ======== ======== ======== ======== ======= =======
Basic earnings per
share................. $ 0.83 $ 0.90 $ 1.26 $ 1.19 $ 1.25 $ 1.12 $ 0.36 --
Weighted average number
of shares............. 12,491 12,359 12,368 11,317 10,622 10,612 10,603 --
Diluted earnings per
share................. $ 0.82 $ 0.89 $ 1.25 $ 1.17 $ 1.25 $ 1.12 $ 0.36 --
Weighted average number
of shares............. 12,598 12,505 12,512 11,420 10,643 10,616 10,603 --
</TABLE>
<TABLE>
<CAPTION>
National Golf Properties, Inc.
--------------------------------------------------------------
September 30, December 31,
----------------- --------------------------------------------
1998 1997 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- -------- --------
Balance Sheet Data: (in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Real estate before
accumulated
depreciation.......... $658,655 $563,484 $601,882 $515,794 $362,068 $272,034 $166,410
Total assets........... 602,594 498,980 535,314 469,945 347,967 275,071 222,739
Total debt............. 283,330 260,238 299,032 230,590 144,983 66,441 12,666
Minority interest(1)... 165,950 96,340 96,007 98,551 90,609 92,938 91,091
Stockholders'
equity(1)............. 131,011 135,136 134,890 137,670 110,298 113,134 110,885
Cash distributions
declared per share.... 1.30 1.27 1.70 1.66 1.61 1.49 0.51
</TABLE>
S-7
<PAGE>
<TABLE>
<CAPTION>
Golf Properties
National Golf Properties Inc. Group
------------------------------------------------------------------------- ---------------
Nine Months Ended
September 30, Year Ended December 31, Aug. 18, 1993 Jan. 1, 1993
------------------ -------------------------------------- through through
1998 1997 1997 1996 1995 1994 Dec. 31, 1993 Aug. 17, 1993
-------- -------- -------- -------- -------- -------- ------------- ---------------
(in thousands, except property data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Other Data:
Company's funds from operations(2).. $ 20,920 $ 20,932 $ 27,851 $ 23,215 $ 19,641 $ 17,209 $ 5,587 $ 5,129
Cash flows from (used in):
Operating activities........ 46,717 44,272 55,576 44,217 36,383 34,241 9,282 6,649
Investing activities........ (72,461) (55,670) (94,408) (68,481) (76,019) (32,003) (106,728) (8,763)
Financing activities........ 28,648 3,178 29,306 28,399 42,639 (52) 99,346 1,188
Number of courses............. 130 120 123 114 81 71 51 47
Number of locations........... 116 109 112 104 72 63 46 42
</TABLE>
- -------
(1) Minority interest and stockholders' equity have been restated to reflect an
accounting allocation for reporting purposes from additional paid in
capital to minority interest for National Golf Operating Partnership
limited partners' interest in the net assets of National Golf Properties
after giving effect to their exchange rights of common units into shares of
our common stock. Generally accepted accounting principles require the
reporting of such exchange rights "as if converted." This reallocation had
no effect on earnings per share or results of operations or allocations of
net income to the general partner and limited partners of National Golf
Operating Partnership. The reallocation at December 31, 1997, 1996, 1995,
1994 and 1993 was approximately $78.1 million, $77.7 million, $67.6
million, $70.0 million, and $71.1 million, respectively.
(2) We believe that to facilitate a clear understanding of the historical
consolidated and combined operating results, funds from operations should
be examined in conjunction with net income. Funds from operations is
considered by us as an appropriate measure of the performance of an equity
REIT because it is predicated on cash flow analyses, which we believe is
more reflective of the value of real estate companies such as us rather
than a measure predicated on generally accepted accounting principles which
gives effect to non-cash expenditures such as depreciation. Funds from
operations is generally defined as net income (loss) plus certain non-cash
items, primarily depreciation and amortization. Funds from operations
should not be considered as an alternative to net income as an indication
of our performance or as an alternative to cash flow, as defined by
generally accepted accounting principles, as a measure of liquidity. The
funds from operations presented may not be comparable to funds from
operations for other REITs. The following table summarizes our funds from
operations for the nine months ended September 30, 1998 and 1997, the years
ended December 31, 1997, 1996, 1995 and 1994, and the period August 18,
1993 through December 31, 1993, and Golf Properties Group's funds from
operations for the period January 1, 1993 through August 17, 1993.
<TABLE>
<CAPTION>
Golf Properties
National Golf Properties, Inc. Group
----------------------------------------------------------------------- ---------------
Nine Months Ended
September 30, Year Ended December 31, Aug. 18, 1993 Jan. 1, 1993
-------------------- ---------------------------------- through through
1998 1997 1997 1996 1995 1994 Dec. 31, 1993 Aug. 17, 1993
--------- --------- ------- ------- ------- ------- ------------- ---------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net income.............. $ 10,309 $ 11,117 $15,579 $13,412 $13,286 $11,876 $ 3,820 $ 478
Distributions--Preferred
Units.................. (3,297) -- -- -- -- -- -- --
Minority interest....... 11,228 8,554 12,003 10,852 11,366 10,712 3,317 --
Depreciation and
amortization........... 20,156 18,194 24,883 19,124 14,027 10,413 3,384 4,661
Gain on insurance
proceeds............... -- -- (2,231) -- -- -- -- --
Gain on condemnation of
property............... (993) -- -- -- -- -- -- --
Gain on sale of
properties............. -- (158) (158) (1,199) (1,893) -- -- --
Excess land sales....... (342) (448) (469) -- -- -- -- --
Write off of option
payable................ -- -- -- -- (101) -- -- --
Discount on payoff of
note payable........... -- -- -- -- -- (175) -- --
Amortization--loan
costs.................. (178) (165) (227) (147) (195) (66) (78) (10)
Depreciation--
corporate.............. (52) (53) (69) (47) (43) (31) (3) --
--------- --------- ------- ------- ------- ------- ------- ------
Funds from operations... 36,831 37,041 $49,311 $41,995 $36,447 $32,729 $10,440 $5,129
Company's share of funds
from operations........ 56.8% 56.51% 56.48% 55.28% 53.89% 52.58% 53.52% 100%
--------- --------- ------- ------- ------- ------- ------- ------
Company's funds from
operations............. $ 20,920 $ 20,932 $27,851 $23,215 $19,641 $17,209 $ 5,587 $5,129
========= ========= ======= ======= ======= ======= ======= ======
</TABLE>
S-8
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Selling
Stockholder.............................. 625,000 shares
Common Stock to be Outstanding after the
Offering................................. 13,149,745 shares
Use of Proceeds........................... For the account of the selling
stockholder
New York Stock Exchange Symbol............ TEE
</TABLE>
SELLING STOCKHOLDER
Oaks Christian High School, a non-profit organization and the "selling
stockholder," received 1,250,000 common units in separate contributions from
David G. Price and Dallas P. Price on July 9, 1998. The selling stockholder
intends to effect an exchange of common units for common stock prior to
consummating the sale of shares of our common stock offered in this prospectus
supplement.
The proceeds from the sale of the shares of our common stock offered in this
prospectus supplement are solely for the account of the selling stockholder.
Accordingly, we will not receive any of such proceeds.
FEDERAL INCOME TAX CONSIDERATIONS
For a discussion of material federal income tax consequences applicable to
distributions to shareholders, our election to be taxed as a REIT and the
acquisition, ownership and sale or other disposition of shares of our common
stock, see "Federal Income Tax Considerations" in the accompanying prospectus.
As a condition to the closing of the offering of our common stock in this
prospectus supplement, Latham & Watkins, Los Angeles, California will render an
opinion to us to the effect that 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 REIT under the Internal
Revenue Code of 1986, as amended (the "Code"), and our proposed method of
operation will enable us to continue to meet the requirements for qualification
and taxation as a REIT under the Code. It must be emphasized that the opinion
of Latham & Watkins will be based on various assumptions and representations to
be made by us as to factual matters, including representations set forth in
this prospectus supplement, the accompanying prospectus and certificates
provided by our officers, and that Latham & Watkins undertakes no obligation to
update its opinion subsequent to its date. Moreover, our qualification and
taxation as a REIT depends upon our ability to meet the various qualification
tests related to actual annual operating results, asset diversification,
distribution levels and diversity of stock ownership imposed under the Code,
the results of which have not been and will not be reviewed by Latham &
Watkins. Accordingly, we can give no assurance that the actual results of our
operation for any particular taxable year will satisfy such requirements. See
"Federal Income Tax Considerations--Failure to Qualify" in the accompanying
prospectus. Further, the anticipated income tax treatment described in the
accompanying prospectus may be changed, perhaps retroactively, by legislative,
administrative or judicial action at any time.
S-9
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement among
National Golf Properties, the selling stockholder and Merrill Lynch, Pierce,
Fenner & Smith Incorporated (the "Underwriter"), the selling stockholder has
agreed to sell to the Underwriter, and the Underwriter has agreed to purchase
from the selling stockholder, 625,000 shares of our common stock.
Our shares of common stock are being offered by the Underwriter, subject to
prior sale, when, as and if issued to and accepted by it, subject to approval
of certain legal matters by counsel for the Underwriter and certain other
conditions. The Underwriter reserves the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the shares of our common stock will be made in New York, New York,
on or about January , 1999.
In the purchase agreement the Underwriter has agreed, subject to the terms
and conditions set forth therein, to purchase all of the shares of our common
stock being sold pursuant to such agreement if any of the shares of our common
stock being sold pursuant to such agreement are purchased.
The shares of our common stock offered hereby may be sold by the Underwriter
from time to time to purchasers in one or more transactions (which may involve
block transactions) on The New York Stock Exchange or on other national
securities exchanges on which our common stock is traded, in the over-the-
counter market, in negotiated transactions, in a combination of such methods or
otherwise, at market prices prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices. If the price received
by the Underwriter upon the sale of shares of our common stock exceeds the
price at which it buys shares of our common stock (set forth on the cover page
of this prospectus supplement), such difference shall represent the
Underwriter's commission. The Underwriter may effect such transactions by
selling shares of our common stock to or through dealers, and such dealers may
receive compensation in the form of discounts, concessions or commissions from
the Underwriter and/or the purchasers of such shares of our common stock for
whom they may act as agents or to whom they may sell as principal.
The Underwriter has advised the selling stockholder and us that it proposes
initially to offer the shares of our common stock to the public at the public
offering price set forth on the cover page of this prospectus supplement, and
to certain dealers at such price less a concession not in excess of $
per share of our common stock. The Underwriter may allow, and such dealers may
reallow, a discount not in excess of $ per share of our common stock on
sales to certain other dealers. After the public offering, the public offering
price, concession and discount may be changed.
The selling stockholder has granted an option to the Underwriter, exercisable
for 30 days after the date of this prospectus supplement, to purchase from the
selling stockholder up to an aggregate of 93,750 additional shares of our
common stock at the public offering price set forth on the cover page of this
prospectus supplement, less the underwriting discount. The Underwriter may
exercise this option solely to cover over-allotments, if any, made on the sale
of shares of our common stock offered hereby.
We and our executive officers and directors and certain of our stockholders
have agreed, subject to certain exceptions, not to directly or indirectly (1)
offer, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant for
the sale of or otherwise dispose of or transfer any shares of our common stock
or securities convertible into or exchangeable or exercisable for our common
stock, whether now owned or thereafter acquired by the person executing the
agreement or with respect to which the person executing the agreement
thereafter acquires the power of disposition, or file a registration statement
under the Securities Act with respect to the foregoing or (2) enter into any
swap or other agreement that transfers, in whole or in part, the economic
consequence of ownership of our common stock whether any such swap or
transaction is to be settled by delivery of our common stock or other
securities, in cash or otherwise, without the prior written consent of the
Underwriter for a period of 30 days after the date of this prospectus
supplement.
The shares of our common stock are listed on The New York Stock Exchange
under the symbol "TEE."
S-10
<PAGE>
We and the selling stockholder have agreed to indemnify the Underwriter
against certain liabilities, including certain liabilities under the Securities
Act, or to contribute to payments the Underwriter may be required to make in
respect thereof.
The following table shows the public offering price of our common stock and
the underwriting discount the selling stockholder will pay the Underwriter. The
amounts are shown assuming both no exercise and full exercise of the
underwriter's option to purchase 93,750 additional shares of our common stock
from the selling stockholder.
<TABLE>
<CAPTION>
Per Total Total
Share Without Option With Option
----- -------------- -----------
<S> <C> <C> <C>
Public Offering Price.................... $ $ $
Underwriting Discount.................... $ $ $
</TABLE>
We expect to incur expenses of approximately $ in connection with this
offering. We estimate these expenses to include printing costs of $ ,
legal fees of $ , accounting fees of $ , and miscellaneous
expenses of $ .
Until the distribution of our common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriter to
bid for and purchase our common stock. As an exception to these rules, the
Underwriter is permitted to engage in certain transactions that stabilize the
price of our common stock. Such transactions consist of bids or purchases for
the purpose of pegging, fixing or maintaining the price of our common stock.
If the Underwriter creates a short position in our common stock in connection
with the Offering, i.e., if it sells more shares of our common stock than are
set forth on the cover page of this prospectus supplement, the Underwriter may
reduce that short position by purchasing our common stock in the open market.
The Underwriter may also elect to reduce any short position by exercising all
or part of the over-allotment option described above.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of our common stock to the extent that
it discourages resales of our common stock.
Neither we nor the Underwriter makes any representation or prediction as to
the direction or magnitude of any effect that the transactions described above
may have on the price of our common stock. In addition, neither we nor the
Underwriter makes any representation that the Underwriter will engage in such
transactions or that such transactions, once commenced, will not be
discontinued without notice.
The Underwriter has from time to time provided investment banking financial
advisory services to us and our affiliates, for which it has received customary
compensation, and may continue to do so in the future.
LEGAL MATTERS
The validity of our common stock and certain matters of Maryland law will be
passed upon for National Golf Properties by Ballard Spahr Andrews & Ingersoll,
LLP, Baltimore, Maryland. Latham & Watkins, Los Angeles, California will pass
upon certain other matters for National Golf Properties. Skadden, Arps, Slate,
Meagher & Flom LLP, Los Angeles, California will pass upon certain matters
relating to this offering for the Underwriter. Certain tax matters described
under "Federal Income Tax Considerations" will be passed upon for National Golf
Properties by Latham & Watkins, Los Angeles, California.
S-11
<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY 22, 1999
PROSPECTUS
National Golf Properties, Inc.
2,800,616 Shares
Common Stock
----------------
This prospectus relates to the possible offer and sale from time to time of
up to 2,800,616 shares of common stock of National Golf Properties by the
selling stockholders identified in this prospectus. We will not receive any of
the proceeds from the sale of the shares of our common stock offered by the
selling stockholders.
The selling stockholders currently own units of common partnership interest
in National Golf Operating Partnership, L.P. Such units were issued in
connection with the formation of our company in August 1993 and in connection
with National Golf Operating Partnership's acquisition of certain golf course
properties held under option since 1993.
Pursuant to 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 such selling stockholder owns in exchange for
shares of our common stock or, at the option of the selling stockholder, cash.
The selling stockholders are subject to limitations on the number of units that
can be exchanged for shares of common stock in a twelve-month period as well as
other ownership limits imposed by our charter in order to maintain our status
as a real estate investment trust. The 2,800,616 shares of common stock
referred to in this prospectus 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 pursuant to our
contractual obligations in order to provide the selling stockholders with
freely tradable securities, but the registration of such shares does not
necessarily mean that all of the shares will be issued in satisfaction of the
selling stockholders' exchange rights or that any of the shares will be offered
or sold by the selling stockholders.
Our shares of common stock are traded on The New York Stock Exchange under
the symbol "TEE." On January , 1999, the closing sale price of our common
stock on the NYSE was $ .
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 the securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
----------------
The date of this prospectus is January , 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
The Company........................................................... 3
Risk Factors.......................................................... 5
Description of Capital Stock.......................................... 13
Partnership Agreement................................................. 19
Certain Provisions of Maryland Law and the Company's Charter and
Bylaws............................................................... 26
Federal Income Tax Considerations..................................... 32
Selling Stockholders.................................................. 44
Plan of Distribution.................................................. 46
Legal Matters......................................................... 47
Experts............................................................... 47
Where You Can Find More Information................................... 48
Forward-Looking Statements............................................ 49
</TABLE>
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.
2
<PAGE>
THE COMPANY
We are a self-administered real estate investment trust ("REIT") and the
largest publicly-traded company in the United States specializing in the
acquisition and ownership of golf course properties. As of January 6, 1999, our
portfolio consists of 133 golf courses, which courses are geographically
diversified among 26 states. As a self-administered REIT, our own employees
perform our administrative and management functions, rather than our relying on
an outside manager for these services.
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 such 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 interest in one of our
golf courses consists of a participating mortgage loan held by National Golf
Operating Partnership, which is collateralized by a mortgage on the golf
course. With the exception of this participating mortgage loan, all of our
investments in golf courses consist of direct or indirect ownership of golf
course properties. We are the sole general partner of National Golf Operating
Partnership, and we currently own 58.5% of its units of common partnership
interest. The limited partners in National Golf Operating Partnership are
individuals, partnerships and others who have contributed their properties in
exchange for common units or who have contributed cash in exchange for units of
preferred partnership interest.
3
<PAGE>
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 January 6, 1999:
<TABLE>
<S> <C> <C>
National Golf Properties, Inc.
. 91.7% owned by public stockholders
. 2.8% owned by David G. Price
. 5.5% owned by employees of
National Golf Properties and
American Golf Corporation
| 4 Golf Courses
|____________________________________________________ . 100% owned by
| National Golf
| Properties
National Golf Operating Partnership, L.P. |
. 58.5% owned by National Golf |
Properties, the managing general |
partner of National Golf Operating |
Partnership |
. 17% owned by David G. Price |
. 24.5% owned by limited partners |
| |
_____________________________________________ |___________________________________________ |
| | | |
| Royal Golf, L.P. II Pumpkin Ridge Joint Venture* |
| |
| . 89% owned by National Golf Operating . 50% owned by National Golf |
| Partnership, the managing Operating Partnership |
| general partner of Royal Golf . 50% owned by two other general |
| . 11% owned by a limited partner partners |
________________________________________________________ | | |
| | | | | | |
3 Golf Courses 1 Golf Course 1 Golf Course 118 Golf Courses** 4 Golf Courses 2 Golf Courses |
. 100% owned by . 100% owned by . 100% owned by . 100% owned by . 100% owned by . 100% owned by |
National Golf National Golf National Golf National Golf Royal Golf Pumpkin |
Operating Operating Operating Operating Ridge |
Partnership Partnership Partnership Partnership |
| | | | | | |
| | | | | | |
| | | _________________________________________________________ |
| | | | |
| | | | |
Cobblestone The Links Evergreen Alliance American Golf ____________________|
Golf Group, Inc. Group, Inc. Golf Limited Corporation
(Lessee) (Lessee) (Lessee) (Lessee)
</TABLE>
- --------
* We account for our investment in Pumpkin Ridge under the equity method of
accounting.
** One golf course not owned by National Golf Operating Partnership. National
Golf Operating Partnership has a participating mortgage.
National Golf Properties, Inc. is a Maryland corporation founded in 1993 by
David G. Price, our Chairman of the Board of Directors. Our executive offices
are located at 2951 28th Street, Suite 3001, Santa Monica, California 90405,
and our telephone number is (310) 664-4100.
4
<PAGE>
RISK FACTORS
Set forth below are the risks that we believe are material to investors who
purchase or own our common stock. In addition to other information contained or
incorporated by reference in this prospectus or in an accompanying prospectus
supplement, you should carefully consider the following factors before
acquiring shares of common stock offered hereby.
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 128 of our golf course properties, including one golf
course securing a participating mortgage loan. American Golf and its
subsidiaries also currently manage and operate more than 157 other golf courses
and related facilities located in 31 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 35.6% 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 22.3% 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.
Other transactions involving National Golf Properties and Mr. Price also may
give rise to conflicts of interest, including conflicts relating to selection
of operators for golf courses acquired in the future. Mr. Price currently owns
50% of Golf Enterprises, Inc., which is the lessee of 21 golf courses owned by
various third parties. All of the courses leased by Golf Enterprises are
managed by American Golf. Mr. Price acquired Golf Enterprises in connection
with our purchase of 20 golf courses from Golf Enterprises in July 1996. There
are no restrictions on Mr. Price or his affiliates, including Golf Enterprises,
from leasing additional golf courses in the future.
Loss of Our REIT Status Would Have Significant Adverse Consequences to Us 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 REIT for federal income tax purposes under
the Internal Revenue Code of 1986, as amended (the "Code").
5
<PAGE>
If we lose our REIT status, 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 subject to federal income tax
at regular corporate rates;
^^. we also could be subject to 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 subject to tax as a REIT for four taxable years
following the year during which we were disqualified.
All distributions to stockholders will be subject to tax as ordinary income
to the extent of our current and accumulated earnings and profits, In addition,
if we fail to qualify as a REIT, we will not be required to make distributions
to stockholders, and subject to limitations described in the Code, corporate
distributees may be eligible for the dividends received deduction.
As a result of all these factors, our failure to qualify as a REIT 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 REIT involves the application of highly technical and
complex Code provisions for which there are only limited judicial and
administrative interpretations. The complexity of these provisions and of the
applicable income tax regulations that have been promulgated under the Code
(the "Treasury Regulations") is greater in the case of a REIT that holds its
assets in partnership form. The determination of various factual matters and
circumstances not entirely within our control may affect our ability to qualify
as a REIT. For example, in order to qualify as a REIT, at least 95% of our
gross income in any year must be derived from qualifying sources. Also, we must
make distributions to stockholders aggregating annually at least 95% of our net
taxable income, excluding capital gains. In addition, legislation, new
regulations, administrative interpretations or court decisions may adversely
affect our investors or our ability to qualify as a REIT 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 REIT for tax purposes.
To Maintain Our REIT Status, We May be Forced to Borrow Funds on a Short-Term
Basis During Unfavorable Market Conditions.
In order to maintain our REIT status, we may need to borrow funds on a short-
term basis to meet the REIT distribution requirements even if the then
prevailing market conditions were not generally favorable for these borrowings.
To qualify as a REIT, 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 subject to a 4% nondeductible excise tax on the amount, if any, by
which certain distributions paid by us in any calendar year are less than the
sum of 85% of our ordinary income, 95% of our capital gain net income and 100%
of our undistributed income from prior years. 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
6
<PAGE>
20 years. Our income and cash flow consist primarily of rental income from our
golf courses. American Golf is the lessee of all but five 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 be dependent, 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, payable to the extent
that such percentage exceeds the base rent that lessees pay to us.
Investors in Our Company Are Subject to the Risks Applicable to Real Estate
Investments Generally.
Investments in golf courses and related properties are subject to risks
typically associated with investments in real estate. Such risks include the
possibility that golf courses and any associated properties will generate total
revenue lower than those anticipated or will yield returns lower than those
available through investment in comparable real estate or other investments. 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 received by us. 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.
Any golf course is subject to water shortages depending upon weather patterns
and drought conditions in the particular area. Other factors include the source
of irrigation water and any limitations, restrictions or regulations imposed on
or affecting such water rights. We work closely with the operators of our
courses to obtain acceptable water rights for each golf course depending upon
the available rights and costs for such water
7
<PAGE>
rights. In addition, each operator has in place a water rationing or allocation
program in order to address water shortage or drought situations. We believe
that each of our courses has access to adequate water rights to keep the
property operating during drought conditions.
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 limitations as it deems
appropriate from time to time, 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 certain hazardous substances released on in its
property. These laws often impose liability without regard to whether the owner
or operator knew of, or was responsible for, the release of the hazardous
substances. The presence of hazardous substances on our properties or our
failure to properly remediate such substances may adversely affect our ability
to sell, rent or borrow against such contaminated property.
We have not been notified by any governmental authority of any material non-
compliance, liability or other claim in connection with any of our properties,
and we are not aware of any 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 certain potential
environmental liabilities at the golf courses, there can be no assurance that
the indemnification provided by such leases would be sufficient to satisfy all
environmental liabilities.
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 (for
certain courses) and extended coverage on all of our properties. We believe
that the policy specifications and insured limits are customary for similar
properties and all of our existing golf courses are insured in accordance with
industry standards. There are, however, certain types of losses (generally of a
catastrophic nature, such as those caused by wars or earthquakes) which may be
either uninsurable or not economically insurable. Should an uninsured loss
occur, we could lose both our invested capital in and anticipated profits from
a property.
Shares Available For Future Sale Could Have Adverse Effects on the Market Price
of 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.
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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 the units for our common stock, subject to
limitations in our charter on owning our capital stock which are necessary to
maintain our REIT status. If that occurs, those holders would likely elect to
sell the shares they receive. We have agreed to register with the SEC to
facilitate these sales in the public markets. Any sales which occur pursuant to
this prospectus would be within this category.
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 to raise
that cash. These issuances would likely be made in the public markets.
Third, if holders of the Series A Preferred Units exchange the Series A
Preferred Units for Series A Preferred Stock, those shares may be sold in high
volume on the open market. We have agreed to register with the SEC 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/or Series
A Preferred Stock in excess of the 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 to a person or entity who can
own such shares without violating such limits. As a result, if a violative
transfer were made, the stockholder would not acquire any economic or voting
rights attributable to such capital stock.
To maintain our qualification as a REIT, not more than 50% in value of our
outstanding shares of capital stock may be owned, actually or constructively,
by five or fewer individuals (as defined in the Code). For the purpose of
preserving our tax status as a REIT, our charter prohibits actual or
constructive ownership of more than 9.8%, by number or value, whichever is more
restrictive, of the outstanding common stock by any person (the "Ownership
Limit"), and prohibits actual or constructive ownership of the outstanding
shares of Series A Preferred Stock (as defined below) by any single stockholder
so that no such stockholder, taking into account their ownership of any other
capital stock of National Golf Properties, may own in excess of 9.8%, by value,
of the outstanding shares of our capital stock.
The constructive ownership rules are complex and may cause shares of our
capital stock owned, actually or constructively, by a group of related
individuals and/or entities to be deemed to be constructively owned by one
individual or entity. As a result, the acquisition of less than 9.8% of the
outstanding shares of our common stock, or the acquisition of less than 9.8%,
by value, of the outstanding shares of our common stock and Series A Preferred
Stock (or the acquisition of an interest in an entity which owns shares of
common stock or Series A Preferred Stock), by an individual or entity could
cause that individual or entity (or another individual or entity) to own
constructively in excess of 9.8% of the outstanding shares of common stock or
our capital stock, and thus subject such shares of common stock to the
Ownership Limit or such shares of Series A Preferred Stock to the ownership
limit relating to the Series A Preferred Stock. 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.
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Limitations in Our Charter and Bylaws Could Prevent a Change in Control.
Certain provisions of our charter and bylaws and Sections 3-602 and 3-702 of
the Maryland General Corporation Law, to which we are subject, could have the
effect of delaying, deferring or preventing a change in control of 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
the Ownership Limit, 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.
The consent of the holders of two-thirds of the outstanding shares of our
Series A Preferred stock, if any, also would be required if we merge,
consolidate or sell substantially all of our assets and the rights, preferences
and privileges of the Series A Preferred Stock would be materially and
adversely affected by that transaction.
Consent of Limited Partners Holding Common Units is Required for Certain
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 41% 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
Stockholders.
Subject to our fundamental investment policy to maintain our qualifications
as a REIT, 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 REIT.
If We Issue Additional Equity Securities, Your Investment Will be Diluted.
We may issue additional shares of our common stock or preferred stock from
time to time to raise funds to acquire additional properties or pay operational
expenses. 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.
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We Have Staggered Elections for Members of our Board of Directors.
A staggered board 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 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.
Certain Directors and Significant Stockholders Have Great Influence Over the
Company.
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 22.3% of the
outstanding shares of common stock, subject to the Ownership Limit and
restrictions on the number of common units that can be exchanged in a twelve-
month period. We have entered into a Director Designation Agreement with Mr.
Price pursuant to which Mr. Price and his family have the right to designate
for nomination or to fill any vacancies on our board of directors one less than
a majority of our board of directors. 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 including for these purposes
shares issuable upon exchange of Mr. Price's common units for shares of common
stock without regard to the Ownership Limit and other limitations on the number
of common units that can be exchanged in a twelve-month period. Accordingly,
Mr. Price has substantial influence over the composition of our board of
directors and on the outcome of any matters submitted to our stockholders for
approval.
Transactions Involving National Golf Properties and Affiliates of Mr. Price
Require the Approval of the Independent Committee.
Transactions involving National Golf Properties and affiliates of Mr. Price,
such as negotiation and enforcement of leases, the selection of operators for
acquired golf courses and consideration of our right of first refusal to
acquire common units upon transfer by limited partners, require the approval of
the Independent Committee of our board of directors. 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.
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We Could be Adversely Affected if Our Year 2000 Problems are Significant.
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 most of
our software with computers and software that are Year 2000 compliant.
We plan to install the remaining software by the end of the second
quarter of 1999. We also have replaced our computer servers and plan to
upgrade our computer software by the end of the second quarter of 1999.
We have spent approximately $63,000 to replace such computer equipment
through January 1, 1999 and anticipate spending an additional $37,000
before the end of 1999 on additional replacement equipment and 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 computers, 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 identified key tenants that we believe could
have a material impact on our operations if those tenants are not Year
2000 compliant. We are monitoring our largest tenant, American Golf, and
have had preliminary discussions with the other tenants about their Year
2000 compliance. American Golf has informed us that its Year 2000
compliance project is progressing as planned and is expected to be
completed by September 1999. We will send written requests to our
tenants to determine their Year 2000 compliance during 1999.
. Third-Party Service Providers Might Not Be Completely Year 2000
Compliant. We have had preliminary discussions with some of our service
providers. We will send written requests to our key service providers to
determine their Year 2000 compliance during 1999.
We do not currently have a comprehensive contingency plan for the Year 2000
problem. However, we intend to establish such a plan during 1999 as part of our
ongoing Year 2000 compliance effort.
Despite our efforts to identify and resolve Year 2000 compliance problems, we
cannot guarantee that all of our systems will be Year 2000 compliant or that
other companies on which we rely will be timely converted. As a result, our
operations could be interrupted or otherwise adversely affected. The failure to
correct a material Year 2000 problem could result in an interruption in, or a
failure of, certain 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 which 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 48.
General
Our charter authorizes us to issue up to 40,000,000 shares of common stock,
par value $.01 per share, and 5,000,000 shares of preferred stock, par value
$.01 per share. As of January 1, 1999, we have 12,519,745 shares of common
stock issued and outstanding. Our board of directors is authorized to provide
for the issuance of shares of preferred stock in one or more series, to
establish the number of shares in each series and to fix the designation,
powers, preferences and rights of each such series and the qualifications,
limitations or restrictions thereof. As of January 1, 1999, our board of
directors has designated and reserved for issuance 1,500,000 shares of Series A
Preferred Stock, none of which have been issued.
Common Stock
Holders of our common stock are entitled to one vote per share on all matters
voted on by stockholders, including the election of directors. Except as
otherwise required by law or provided in the provisions of our charter
regarding the ownership of shares of common stock in excess of the Ownership
Limit and similar limitations imposed with respect to preferred stock and in
resolutions adopted by our board of directors designating the rights and
preferences of the Series A Preferred Stock and any other series of preferred
stock, the holders of shares of common stock exclusively possess all voting
power. Holders of common stock have no cumulative voting rights in the election
of directors. Subject to any preferential rights of the Series A Preferred
Stock and any other outstanding series of preferred stock and to the provisions
of the charter regarding the ownership of shares of common stock in excess of
the Ownership Limit and similar limitations imposed with respect to our
preferred stock, the holders of our common stock are entitled to such
distributions as may be declared from time to time by our board of directors
from funds available therefor. 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, including debts and liabilities
arising out of our status as general partner of National Golf Operating
Partnership.
Subject to the provisions of our charter regarding the ownership of shares of
common stock in excess of the Ownership Limit and similar limitations imposed
with respect to preferred stock, all shares of 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 affirmative vote of stockholders holding at
least two-thirds of the shares entitled to vote on the matter, unless a lesser
percentage is set forth in the corporation's charter. Under the Maryland
General Corporation Law, the term "substantially all of its assets" is not
defined and is, therefore, subject to Maryland common law and to judicial
interpretation and review in the context of the unique facts and circumstances
of any particular transaction. Our charter does not provide for a lesser
percentage in any such situation.
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Our charter authorizes our board of directors to reclassify any unissued
shares of capital stock into other classes or series of classes of stock and to
establish the number of shares in each class or series and to set the
preferences, conversion and other rights, voting powers, restrictions,
limitations and restrictions on ownership, limitations as to dividends or other
distributions, qualifications and terms or conditions of redemption for each
such class or series.
Preferred Stock
We may issue preferred stock from time to time, in one or more series, as
authorized by 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, as permitted by Maryland
law. 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.
8% Series A Cumulative Redeemable Preferred Stock
Our board of directors has designated 1,500,000 of our preferred stock as
Series A Preferred Stock. No shares of Series A Preferred Stock are currently
outstanding, but upon issuance, the holders of such shares will have the rights
and preferences described below.
General
Holders of Series A Preferred Stock will be entitled to receive cumulative
preferential distributions from the date of issue, payable on or before the
15th of February, May, August, and November of each year, in cash, at the rate
per annum of 8% of the $50.00 liquidation preference per share. These
distributions will be paid when due in preference to any payment 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 on a
parity with or senior to the Series A Preferred Stock. The cumulative
preferential distributions paid in respect of Series A Preferred Stock will
include any accrued but unpaid distributions in respect of Series A Preferred
Units at the time that such units are exchanged for shares of Series A
Preferred Stock. The right of a holder of Series A 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 the
currently required distribution and all previously missed distributions.
Redemption
The Series A Preferred Stock may be redeemed, at our option, on and after
March 4, 2003, in whole or in part from time to time, at a redemption price
payable in cash equal to $50.00 per share, plus any accrued but unpaid
dividends to the date of redemption. The redemption price of the Series A
Preferred Stock, other than the portion thereof consisting of accumulated but
unpaid dividends, will be payable solely out of the sale proceeds of our
capital stock and from no other source.
Limited Voting Rights
Except as described below or as otherwise required by applicable law, holders
of Series A Preferred Stock will have no voting rights as our stockholders.
However, if we fail to make full distributions on any Series A Preferred Stock
on a timely basis with respect to any six quarterly distribution periods,
regardless of whether consecutive, the holders of such stock and any other
class or series of parity preferred stock will have the right to elect two
additional directors to our board of directors until all distributions in
arrears and distributions for
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the then current quarter have been paid in full. In addition, without the
consent of two-thirds of the holders of the Series A Preferred Stock then
outstanding, we may not:
. designate, authorize or issue shares of any class of equity securities
ranking prior to the Series A Preferred Stock with respect to
distributions or rights upon liquidation, dissolution, or winding-up;
. designate, authorize or issue shares of any class of equity securities
ranking equal to the Series A Preferred Stock with respect to
distributions or rights upon liquidation, dissolution, or winding-up, if
such securities are issued to our affiliates;
. consolidate or merge with or into, or sell substantially all of our
assets to, any corporation or other entity, unless the Series A
Preferred Stock remains outstanding on the same terms or is otherwise
substituted for by other preferred stock with substantially similar
terms; or
. amend or repeal the provisions of our charter or bylaws, whether by
consolidation, merger or otherwise, in a manner that adversely affects
the powers, special rights, preferences, privileges or voting power of
the Series A Preferred Stock, unless the Series A 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, plus any accrued but unpaid distributions, 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
amounts 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 January 1, 1999, David G. Price may be deemed to beneficially own
354,938 shares of our common stock and 3,589,292 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, subject to
the Ownership Limit and restrictions on the number of common units that can be
exchanged in a twelve-month period. Similarly, Dallas P. Price, Mr. Price's
former wife, may be deemed to beneficially own 354,737 shares of common stock
and 3,589,293 common units (with similar exchange rights). Assuming Mr. Price
and Mrs. Price could immediately exchange all such common units for shares of
common stock without regard to the Ownership Limit and the limit on the number
of common units that can be exchanged in a twelve-month period, each of Mr.
Price and Mrs. Price might be deemed to beneficially own approximately 24.5% of
our outstanding common stock.
Under our charter, however, each of Mr. Price and Mrs. Price is prohibited
from owning, in the aggregate, more than 9.8% of the outstanding shares of our
common stock. In order for Mr. Price or Mrs. Price to be able to exercise his
or her right to exchange common units for shares of common stock in excess of
the Ownership Limit, our board of directors would have to waive the Ownership
Limit. Although our board of directors generally is permitted under our charter
to waive the Ownership Limit 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 Ownership Limit with respect to either Mr. Price
or Mrs. Price. However, upon the affirmative vote of two-thirds of the
outstanding shares of capital stock entitled to vote in the election of
directors, our stockholders could amend our charter to eliminate the Ownership
Limit.
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Restrictions on Ownership and Transfer
Internal Revenue Code Requirements
To maintain our tax status as a REIT, five or fewer individuals (as defined
in the Code to include certain entities) may not own, actually or
constructively, more than 50% in value of our issued and outstanding capital
stock at any time during the last half of a taxable year. Attribution rules in
the Code determine if any individual or entity actually or constructively owns
our capital stock under this requirement. Additionally, at least 100 or more
persons must beneficially own our capital stock during at least 335 days of a
taxable year. Also, rent from Related Party Tenants (as defined below under
"Federal Income Tax Considerations--Taxation of National Golf Properties--
Income Tests" on page 34) is not qualifying income for purposes of the gross
income tests of the Code. To help ensure we meet these tests, our charter
restricts the acquisition and ownership of shares of our capital stock.
Transfer Restrictions in Charter
Subject to exceptions specified in our charter, no holder may own, either
actually or constructively under the applicable attribution rules of the Code,
more than 9.8%, by number or value, whichever is more restrictive, of the
outstanding shares of common stock. Also, the ownership limit relating to
Series A Preferred Stock provides that, in general, no person or entity may
own, or be deemed to own by virtue of the constructive ownership provisions of
the Code, Series A Preferred Stock which, taking into account any other capital
stock of National Golf Properties actually or constructively owned by such
person or entity, would cause such ownership to exceed 9.8%, by value, of our
outstanding shares of capital stock.
The constructive ownership rules are complex, and may cause shares of our
capital stock owned actually or constructively by a group of related
individuals and/or entities to be constructively owned by one individual or
entity. As a result, the acquisition of less than 9.8% of the shares of our
common stock, or the acquisition of shares of Series A Preferred Stock which,
taking into account any other shares of our capital stock, results in an
acquisition of less than 9.8% of our outstanding shares of capital stock, or
the acquisition of an interest in an entity that actually or constructively
owns our common stock or Series A Preferred Stock, by an individual or entity,
could, nevertheless cause that individual or entity, or another individual or
entity, to own constructively in excess of 9.8% of our outstanding common stock
or capital stock and thus violate the ownership limits described above or as
otherwise permitted by our board of directors. In addition, a violation of the
ownership limit relating to the Series A Preferred Stock may occur as a result
of a fluctuation in the relative value of such stock and the common stock, even
absent a transfer or other change in actual or constructive ownership of such
stock.
Our board of directors may, but in no event will be required to, waive the
ownership limits described above with respect to a particular stockholder if it
determines that such ownership will not jeopardize our status as a REIT and our
board of directors otherwise decides such action would be in the best interest
of the Company. As a condition of such waiver, our board of directors may
require opinions of counsel satisfactory to it and/or undertakings or
representations from the applicant with respect to preserving our REIT status.
In addition to the foregoing ownership limits, no holder may own, either
actually or constructively under the applicable attribution rules of the Code,
any shares of any class of our capital stock if:
. more than 50% in value of our outstanding capital stock would be owned,
either actually or constructively under the applicable attribution rules
of the Code, by five or fewer individuals, as defined in the Code to
include certain entities,
. our capital stock would be beneficially owned by less than 100 persons,
determined without reference to any rules of attribution, or
. we would fail to qualify as a REIT.
Any person who acquires or attempts or intends to acquire actual or
constructive ownership of our shares of capital stock that will or may violate
any of the foregoing restrictions on transferability and ownership is
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required to give notice immediately to us and provide us with such other
information as we may request in order to determine the effect of such transfer
on our status as a REIT. The foregoing restrictions on transferability and
ownership will not apply if 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 REIT.
Effect of Violation of Transfer Restrictions
If any attempted transfer of our capital stock or any other event would
otherwise result in any person violating the ownership limits described above,
unless otherwise permitted by our board of directors, then any such purported
transfer 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 ownership
limit and such transferee shall acquire no right or interest in the excess
shares. In the case of any event other than a purported transfer, 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 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 ownership limit or as otherwise permitted by our board
of directors, and 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 and
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, and also will be entitled to
exercise all voting rights with respect to the excess shares.
Subject to Maryland law, effective as of the date that such shares have been
transferred to the trust, the trustee shall have the authority, at the
trustee's sole discretion, (i) to rescind as void any vote cast by a prohibited
transferee or owner, as applicable, prior to our discovery that our shares have
been transferred to the trust and (ii) to recast such vote in accordance with
the desires of the trustee acting for the benefit of the beneficiary of the
trust. However, if we have already taken irreversible corporate action, then
the trustee shall not have the authority to rescind and recast such vote. Any
dividend or other distribution paid to the prohibited transferee or 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 ownership limit or as
otherwise permitted by the Board of Directors, then our charter provides that
the transfer of the excess shares will be void.
If shares of capital stock which would cause us to be beneficially owned by
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 prevent the ownership or
acquisition. These actions
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include but are not limited to authorizing us to repurchase stock, refusing to
give effect to such ownership or acquisition on our books, or instituting
proceedings to enjoin such ownership or acquisition.
All certificates representing shares of our capital stock bear a legend
referring to the restrictions described above.
All persons who own at least a specified percentage of the outstanding shares
of our stock must file with us a completed questionnaire annually containing
information about their ownership of the shares, as set forth in the Treasury
Regulations. Under current Treasury Regulations, the percentage will be set
between 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 Code
applicable to a REIT or to comply with the requirements of any taxing authority
or governmental agency.
These ownership limitations could discourage a takeover or other transaction
in which holders of some, or a majority, of 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, including the descriptions of certain provisions set
forth elsewhere in this prospectus, is qualified in its entirety by reference
to the partnership agreement.
Management
National Golf Operating Partnership is a Delaware limited partnership.
Generally, pursuant to the partnership agreement, we, as the sole general
partner of National Golf Operating Partnership, have full, exclusive and
complete responsibility and discretion in the management and control of
National Golf Operating Partnership, including the ability to cause it to enter
into certain 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 partnership interests and preferred
partnership interests. As of January 1, 1999, National Golf Operating
Partnership has 21,078,569 common units issued and outstanding, of which
8,738,394 common units are held by limited partners, and 1,500,000 preferred
units issued and outstanding, all of which are designated as Series A Preferred
Units. The limited partners holding common units and Series A Preferred Units
have no authority to transact business for National Golf Operating Partnership
or participate in its management activities, except in limited circumstances
described below and as required by applicable law.
The consent of the holders of a majority of the outstanding common units held
by limited partners is required with respect to 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, subject to certain exceptions;
and
. the admission of any additional or substitute general partners in
National Golf Operating Partnership.
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;
. to reflect the issuance of additional partnership interests in exchange
for capital contributions of cash or property or in respect of options
and restricted stock issued under stock incentive plans of the general
partner;
. to reflect inconsequential changes, cure ambiguities and make other
changes not inconsistent with law or the provisions of the partnership
agreement;
. to satisfy any requirements, conditions or guidelines contained in any
governmental order or required by law;
. to reflect changes that are reasonably necessary for us to maintain our
status as a REIT; and
. to modify the manner in which "capital accounts" are computed.
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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 certain
mergers and business combinations resulting in the complete disposition of all
common partnership interests in National Golf Operating Partnership held by
limited partners. The holders of Series A Preferred Units also have certain
limited approval rights which could affect management of National Golf
Operating Partnership. See "--8% Series A Cumulative Redeemable Preferred
Units--Limited Approval Rights."
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 limitations which are 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 or transfers by gift or upon death to
family, limited partners holding common units:
. must first offer their common units to us on the terms and for the
consideration specified by the limited partner;
. may only transfer their common units in any one transfer to a single
purchaser who is an accredited investor within the meaning of Regulation
D under the Securities Act;
. 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 Ownership Limit with respect to shares of common stock,
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 subject to the limitation that the
transferee of common units will not be permitted to effect any further
transfer of the common units, other than to its own affiliates,
affiliates of Mr. Price or to us.
Transfer Restrictions Applicable to Series A Preferred Units
Transfers of Series A 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
Series A Preferred Units being held by more than four limited partners;
and
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. No transfer may be made to any person if such transfer would require the
exchange of Series A Preferred Units for Series A Preferred Stock to be
registered under the Securities Act or any state securities laws.
Transfer Restrictions Applicable to Common Units and Series A Preferred Units
The partnership agreement imposes the following additional transfer
restrictions which are applicable to both common units and Series A Preferred
Units:
. The transferee of any transfer of common units or Series A Preferred
Units must assume all of the obligations of the transferor under the
partnership agreement;
. The general partner may prohibit any transfer otherwise permitted under
the partnership agreement if such transfer would require the filing of a
registration statement under the Securities Act by National Golf
Operating Partnership or would otherwise violate any applicable 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 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 Code,
without the consent of the general partner, for 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; and
. No transfer may be made (a) to any person or entity who lacks the legal
right, power or capacity to own a partnership interest; (b) in violation
of applicable law; (c) of any component portion of a unit of partnership
interest; (d) in the event such transfer would cause us to cease to be
qualified as a REIT; or (e) if such transfer would cause National Golf
Operating Partnership to lose certain tax benefits or become subject to
certain tax regulations which are not currently applicable.
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.
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 the National
Golf Operating Partnership or by borrowing such funds and lending the net
proceeds thereof 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 the National Golf Operating Partnership will be increased based
upon the
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amount of such additional capital contributions and the value of National Golf
Operating Partnership at the time of such contributions.
Tax Matters
Pursuant to 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 REIT.
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 Series A Preferred Units in an amount equal to
an 8% per annum cumulative return on the stated value of $50 per Series
A Preferred Unit; and
. Thereafter, to National Golf Properties and the holders of common units
in accordance with their respective percentage interests in the common
units.
The net loss of National Golf Operating Partnership will generally be
allocated as follows:
. First, to National Golf Properties and the holders of common units in
accordance with their respective percentage interests in the common
units until their adjusted capital accounts are equal to zero;
. Second, to the holders of Series A Preferred Units until their adjusted
capital accounts are equal to zero; 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 Code and the Treasury
Regulations promulgated thereunder. See "Federal Income Tax Considerations--Tax
Aspects of the Partnerships" on page 37.
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 REIT and to avoid any federal income tax liability. The
partnership agreement provides that the net operating cash revenues of National
Golf Operating Partnership, as well as net sales and refinancing proceeds, will
be distributed from time to time, and at least quarterly, pro rata in
accordance with the partners' respective percentage interests, subject to the
distribution preferences with respect to the Series A 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, and 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.
Pursuant to 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.
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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;
. 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.
8% Series A Cumulative Redeemable Preferred Units
National Golf Operating Partnership has 1,500,000 units of preferred limited
partnership interests designated as Series A Preferred Units, all of which have
been issued and are outstanding. The holders of the Series A Preferred Units
have the rights and preferences described below.
General
Holders of Series A Preferred Units are entitled to receive cumulative
preferential distributions from the date of issue, payable on or before the
15th of February, May, August and November of each year, in cash, at the rate
per annum of 8% of the original capital contribution per Series A Preferred
Unit. 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 on a parity
with or senior to the Series A Preferred Units. No current class or series of
partnership interests of National Golf Operating Partnership ranks in parity
with, or is senior to, the Series A Preferred Units. The right of holders of
Series A Preferred Units to receive cumulative preferential distributions means
that, unless each of those quarterly distributions is paid in full, National
Golf Operating Partnership cannot make any distributions on common units until
it pays to the holders of Series A Preferred Units the currently required
distribution and all previously missed distributions.
Exchange Rights
The Series A Preferred Units are exchangeable in whole at any time on or
after March 4, 2008, at the option of the majority of the holders of the Series
A Preferred Units, on a one for one basis for our shares of Series A Preferred
Stock. In addition, the Series A Preferred Units are exchangeable in whole at
the option of the majority of the holders of the Series A Preferred Units if:
. National Golf Operating Partnership has failed to make full
distributions on any Series A Preferred Unit with respect to six prior
quarterly distribution periods; or
. we or one of our subsidiaries, or any successor general partner to us,
takes the position, and the holder or holders receive an opinion of
independent counsel, that National Golf Operating Partnership likely is
or upon the happening of a certain event likely will be a publicly
traded partnership within the meaning of Section 7704 of the Code.
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 presently does not
intend to, list its 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.
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The Series A Preferred Units also are exchangeable on or after March 4, 2001,
if the holders deliver to us either a private letter ruling or an opinion of
counsel stating than an exchange at such time would not cause the Series A
Preferred Units to be considered "stock and securities" within the meaning of
Section 351(e) of the Code for purposes of determining whether the holder of
such Series A Preferred Units is an "investment company" under Section 721(b)
of the Code. However, in lieu of an exchange for Series A Preferred Stock, we
may elect to cause National Golf Operating Partnership to redeem such Series A
Preferred Units for cash in an amount equal to the original capital account
balance of such Series A Preferred Units plus all accrued and unpaid
distributions to the date of redemption.
Redemption
The Series A Preferred Units may be redeemed, at National Golf Operating
Partnership's option, on and after March 4, 2003, in whole or in part or from
time to time, at a redemption price payable in cash equal to the capital
account balance of the holder of the Series A Preferred Units being redeemed,
provided that such amount shall not be less than $50.00 per Series A Preferred
Unit, plus any accrued but unpaid distributions to the date of redemption. The
redemption price of the Series A Preferred Units, other than the portion
thereof consisting of accumulated but unpaid distributions, will be payable
solely out of the sale proceeds of capital stock of the Company or interests in
National Golf Operating Partnership and from no other source. National Golf
Operating Partnership may not redeem fewer than all of the Series A Preferred
Units unless all accumulated and unpaid distributions have been paid on all
Series A Preferred Units for all quarterly distribution periods terminating on
or prior to the date of redemption.
Limited Approval Rights
Except as described below or as otherwise required by applicable law, the
holders of Series A Preferred Units have no voting rights with respect to
National Golf Operating Partnership. Without the consent of two-thirds of the
holders of the Series A Preferred Units then outstanding, National Golf
Operating Partnership may not:
. designate, authorize or issue partnership interests ranking senior to
the Series A Preferred Units with respect to distributions or rights
upon liquidation, dissolution, or winding-up;
. designate, authorize or issue partnership interests ranking equal to the
Series A Preferred Units with respect to distributions or rights upon
liquidation, dissolution, or winding-up, if such securities are issued
to an affiliate of 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 the Series A
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 the Series A Preferred Units, unless the Series A 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
with a liquidation preference equal to such holder's capital contributions
(provided that such amount is not less than $50.00 per Series A Preferred
Unit), plus any accrued but unpaid distributions, in preference to any other
existing class or series of partnership interest of National Golf Operating
Partnership.
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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 "Certain Provisions of
Maryland Law and the Company's 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 certain 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 pursuant to 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 shall have the right to receive, on the day we
receive the notice of exchange, a like number of shares of common stock, which
shall be delivered as duly authorized, validly issued, fully paid and
nonassessable shares. Such shares shall be free of any pledge, lien,
encumbrance or restriction, other than those provided in our charter and
bylaws, the Securities Act, relevant state securities or blue sky laws and any
applicable registration rights agreement with respect to such shares of common
stock entered into by the tendering holder.
The exercise of 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 Ownership Limit after giving effect to the
conversion.
Cash Option Rights
Each holder of common units also may exercise once in each twelve-month
period ending on August 18 cash option rights to sell to us for cash up to one-
third of the number of common units owned by such holder and certain related
persons as of August 18, 1993, less the number of common units exchanged by
such holder and related persons for shares of 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 pursuant to the registered offering and certain costs of the offering
(including underwriting discounts and commissions). The limited partners thus
will bear the risk of any such reduction, subject to certain withdrawal rights.
Any proceeds in excess of the purchase price will be for our sole benefit.
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CERTAIN PROVISIONS OF MARYLAND
LAW AND THE COMPANY'S CHARTER AND BYLAWS
The following paragraphs summarize certain provisions of Maryland law and our
charter and bylaws. The summary does not purport to be complete and is subject
to and qualified in its entirety by reference to Maryland law and to our
charter and bylaws (copies of which are attached as exhibits to our Current
Report on Form 8-K dated August 31, 1995). See "Where You Can Find More
Information" on page 48.
Size and Classification of the Board Of Directors
Under our bylaws, the number of our directors may be established by the Board
of Directors. However, this number may not be fewer than the minimum number
required under Maryland law (which under most circumstances is three directors)
nor more than eleven. Our board of directors currently has seven directors.
Most vacancies will be filled, at any regular meeting or at any special meeting
called for that purpose, by a majority vote of the remaining directors. A
vacancy resulting from an increase in the number of directors will be filled by
a majority vote of the entire board of directors. Our charter provides for a
staggered Board of Directors comprised of three classes as nearly equal in size
as possible. Each class holds office until the third annual meeting for
selection of directors following the election of such class. We believe that
classification of our board of directors will help to assure the continuity and
stability of our business strategies and policies.
The classified director provision may make the replacement of incumbent
directors more time consuming and difficult. This could discourage a third
party from making a tender offer or otherwise attempting to obtain control of
us, even though such an attempt might be beneficial to us and our stockholders.
A change in a majority of our board of directors will generally require at
least two annual meetings of stockholders, instead of one. Thus, the classified
board provision could increase the likelihood that incumbent directors will
retain their positions. Holders of common stock will have no right to
cumulative voting for the election of directors. Consequently, at each annual
meeting of stockholders, the holders of a majority of shares of common stock
will be able to elect all of the successors of the class of directors whose
term expires at that meeting and the holders of the remaining shares of common
stock will not be able to elect any directors.
David G. Price contractually has the right to designate one less than a
majority of our board of directors, subject to certain conditions which
currently are satisfied. These director designation rights will make it further
difficult for a third party to effect a change of control of National Golf
Properties. See "Risk Factors--Certain Directors and Significant Stockholders
Have Great Influence Over the Company."
Removal of Directors
Under Maryland law, the stockholders may remove any director with or without
cause by a majority vote of all outstanding shares entitled to be cast for the
election of directors. There are three statutory exceptions to the right of
stockholders to remove directors without cause:
. Unless the charter provides otherwise, if the stockholders of any class
of outstanding shares are entitled separately to elect one or more
directors, a director elected by such class may not be removed without
cause except by a majority vote of all of the votes of such class.
. Unless the charter provides otherwise, if a corporation has cumulative
voting for the election of directors and less than the entire board is
to be removed, a director may not be removed without cause if the votes
cast against his removal would be sufficient to elect him if then
cumulatively voted at an election of the entire board of directors, or
if there is more than one class of directors, at an election of the
class of directors of which he is a member. We do not have cumulative
voting for the election of directors and thus this exception is not
currently applicable to our directors.
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. If the directors have been divided into classes, a director may not be
removed without cause. Our charter provides for three classes of
directors, and accordingly, 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 endeavor to remove
any director.
Corporate Governance
Transactions involving us and affiliates of David G. Price, such as the
negotiation, enforcement and renegotiation of leases, the selection of
operators for acquired golf courses and consideration of our right of first
refusal to purchase common units from the holders thereof pursuant to the
partnership agreement, will require the approval of the Independent Committee
of our Board of Directors. Certain other significant actions of 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 REIT);
. any waiver or modification of the Ownership Limit;
. issuance of securities or rights with certain special voting or other
rights; and
. acquisitions, dispositions or financings of assets by 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 Ownership Limit and total debt, whether by merger,
purchase, sale or otherwise.
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 the Company 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 applicable 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 REIT 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, certain "business combinations" (including a merger,
consolidation, share exchange, or, in certain circumstances, an asset transfer
or issuance or reclassification of equity securities) between a Maryland
corporation and an interested stockholder or an affiliate of an interested
stockholder are prohibited for five years after the most recent date on which
the interested stockholder becomes an interested stockholder. An interested
stockholder is defined as:
. any person who beneficially owns, directly or indirectly, ten percent or
more of the voting power of the corporation's shares; or
. an affiliate of the corporation who, at any time within the two-year
period prior to the date in question, was the beneficial owner of ten
percent or more of the voting power of the then outstanding voting stock
of the corporation.
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At the conclusion of the five-year prohibition, any business combination
between the Maryland corporation and an interested stockholder generally must
be recommended by the board of directors of the corporation and approved by the
affirmative vote of at least:
. 80% of the votes entitled to be cast by holders of outstanding shares of
voting stock of the corporation; and
. two-thirds of the votes entitled to be cast by holders of voting stock
of the corporation other than shares held by the interested stockholder
with whom (or with whose affiliate) the business combination is to be
effected.
These super-majority vote requirements do not apply if the corporation's common
stockholders receive a minimum price (as defined under Maryland law) for their
shares in the form of cash or other consideration in the same form as
previously paid by the interested stockholder for its shares. None of these
provisions of the Maryland law will apply, however, to business combinations
that are approved or exempted by the board of directors of the corporation
prior to the time that the interested stockholder becomes an interested
stockholder. Our board of directors has exempted from these provisions of
Maryland law any business combination with David G. Price and his affiliates.
As a result, these persons may be able to enter into business combinations with
us that may not be in the best interest of our stockholders, without compliance
with the super-majority vote requirements and the other provisions of Maryland
law.
The business combination statute may discourage others from acquiring us and
increase the difficulty of consummating any offer.
Control Share Acquisitions
Maryland law provides that "control shares" of a Maryland corporation
acquired in a "control share acquisition" have no voting rights except to the
extent approved by a stockholder vote of two-thirds of the votes entitled to be
cast on the matter. Shares of stock owned by the acquiror, by officers or by
directors who are employees of the corporation are excluded from shares
entitled to vote on the matter. "Control shares" are voting shares of stock
which, if aggregated with all other shares of stock owned by the acquiror or
shares of stock for which the acquiror is able to exercise or direct the
exercise of voting power (except solely by virtue of a revocable proxy), would
entitle the acquiror to exercise voting power in electing directors within one
of the following ranges of voting power:
. one-fifth or more, but less than one-third of all voting power;
. 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, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
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
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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.
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, both as defined under
Maryland law, of Mr. Price, his heirs, his estate or any trust, all the
beneficiaries of which are the heirs 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. The phrase "acting or intends to act jointly
or in concert" is not defined under Maryland law and is, therefore,
subject to judicial interpretation and review in the context of the
facts and circumstances of each situation involving a control share
acquisition.
Our board of directors may amend or eliminate this provision of our bylaws at
any time in the future.
Amendment to the Charter
Our charter states that it may be amended in the manner set forth under
Maryland law, which provides that a charter may be amended only by the
affirmative vote of the holders of not less than two-thirds of all of the votes
entitled to be cast on the matter.
Dissolution of the Company
Under Maryland law, we may be dissolved by:
. 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
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. 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:
. pursuant to the 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 set forth in the bylaws.
Our bylaws also provide that only the business specified in the notice of the
meeting may be brought before a special meeting of stockholders.
In general, for notice of stockholder nominations or business to be made at
an annual meeting to be timely, such notice from a stockholder must be received
by us not less than 50 days nor more than 75 days prior to the annual meeting,
subject to certain exceptions.
The purpose of requiring stockholders to give us advance notice of
nominations and other business is to afford our board of directors a meaningful
opportunity to consider the qualifications of the proposed nominees or the
advisability of the other proposed business and, to the extent deemed necessary
or desirable by our board of directors, to inform stockholders and make
recommendations about such qualifications or business, as well as to provide a
more orderly procedure for conducting meetings of stockholders. Although our
bylaws do not give 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, and of discouraging or deterring a third party
from conducting a solicitation of proxies to elect its own slate of directors
or to approve its own proposal, without regard to whether consideration of such
nominees or proposals might be harmful or beneficial to us and our
stockholders.
Limitation of Liability and Indemnification
Maryland law permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for 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
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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;
. 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 is against public policy and
is unenforceable pursuant to 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 certain 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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FEDERAL INCOME TAX CONSIDERATIONS
The following summary of material federal income tax considerations regarding
National Golf Properties, National Golf Operating Partnership and the common
stock we are registering is based on current law, is for general information
only and is not tax advice. The information set forth below, to the extent that
it constitutes matters of law, summaries of legal matters or legal conclusions,
is the opinion of Latham & Watkins, our tax counsel, as to the material federal
income tax considerations relevant to purchasers of our common stock. The tax
treatment to holders of common stock will vary depending on a holder's
particular situation and this discussion does not purport to deal with all
aspects of taxation that may be relevant to a holder of common stock in light
of his or her personal investments or tax circumstances, or to certain types of
stockholders, subject to special treatment under the federal income tax laws
except to the extent discussed under the headings "--Taxation of Tax-Exempt
Stockholders" on page 41 and "--Taxation of Non-U.S. Stockholders" on page 42.
Stockholders subject to special treatment include, without limitation,
insurance companies, financial institutions or broker-dealers, tax-exempt
organizations, stockholders holding securities as part of a conversion
transaction, or a hedge or hedging transaction or as a position in a straddle
for tax purposes, foreign corporations or partnerships and persons who are not
citizens or residents of the United States. In addition, the summary below does
not consider the effect of any foreign, state, local or other tax laws that may
be applicable to holders of our common stock.
The information in this section is based on the Code, current, temporary and
proposed Treasury Regulations promulgated under the Code, the legislative
history of the Code, current administrative interpretations and practices of
the Internal Revenue Service (the "IRS") (including its practices and policies
as expressed in certain private letter rulings which are not binding on the IRS
except with respect to the particular taxpayers who requested and received such
rulings), and court decisions, all as of the date of this prospectus. Future
legislation, Treasury Regulations, administrative interpretations and practices
and/or court decisions may adversely affect, perhaps retroactively, the tax
considerations described herein. Any change could apply retroactively to
transactions preceding the date of the change. We have not requested, and do
not plan to request, any rulings from the IRS concerning our tax treatment and
the statements in this prospectus are not binding on the IRS or a court. Thus,
we can provide no assurance that the tax considerations described herein will
not be challenged by the IRS or sustained by a court if challenged by the IRS.
YOU ARE URGED TO CONSULT YOUR TAX ADVISOR REGARDING THE SPECIFIC TAX
CONSEQUENCES TO YOU OF (1) THE ACQUISITION, OWNERSHIP AND SALE OR OTHER
DISPOSITION OF OUR COMMON STOCK, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN
AND OTHER TAX CONSEQUENCES, (2) OUR ELECTION TO BE TAXED AS A REIT FOR FEDERAL
INCOME TAX PURPOSES AND (3) POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
Taxation of National Golf Properties
General
We elected to be taxed as a REIT under Sections 856 through 860 of the Code,
commencing with our taxable year ended December 31, 1993. We believe we have
been organized and have operated in a manner which allows us to qualify for
taxation as a REIT under the Code commencing with our taxable year ended
December 31, 1993. We intend to continue to operate in this manner. However,
our qualification and taxation as a REIT depends upon our ability to meet,
through actual annual operating results, asset diversification, distribution
levels and diversity of stock ownership, the various qualification tests
imposed under the Code. Accordingly, there is no assurance that we have
operated or will continue to operate in a manner so as to qualify or remain
qualified as a REIT. See "--Failure to Qualify" on page 39.
The sections of the Code that relate to the qualification and operation as a
REIT are highly technical and complex. The following sets forth the material
aspects of the sections of the Code that govern the federal income tax
treatment of a REIT and its stockholders. This summary is qualified in its
entirety by the applicable Code provisions, relevant rules and regulations
promulgated under the Code, and administrative and judicial interpretations of
the Code, and these rules and these regulations.
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If we qualify for taxation as a REIT, we generally will not be subject to
federal corporate income taxes on our net income that is currently distributed
to our stockholders. This treatment substantially eliminates the "double
taxation" 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
subject to federal income taxation, however, as follows:
. We will be subject to tax at regular corporate rates on any undistributed
REIT taxable income, including undistributed net capital gains.
. We may be subject to the "alternative minimum tax" on our items of tax
preference.
. If we have (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, we will be subject to tax at the highest corporate rate on this
income. 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 subject to a 100% tax on any net income from prohibited
transactions. Prohibited transactions are, in general, sales or other taxable
dispositions of property held primarily for sale to customers in the ordinary
course of business other than foreclosure property.
. If we fail to satisfy the 75% or 95% gross income test, as described below,
but have maintained our qualification as a REIT, we will be subject to a 100%
tax on an amount equal to (a) the gross income attributable to the greater of
the amount by which we fail the 75% or 95% gross income test multiplied by (b)
a fraction intended to reflect our profitability.
. We would be subject to a 4% excise tax on the excess of the required
distribution over the amounts actually distributed if we fail to distribute
during each calendar year at least the sum of (i) 85% of our REIT ordinary
income for the year, (ii) 95% of our REIT capital gain net income for the year,
and (iii) any undistributed taxable income from prior periods.
. If we acquire any asset (a "Built-In Gain Asset") from a corporation which
is or has been a C corporation (i.e., generally a corporation subject to full
corporate-level tax) in a transaction in which the basis of the Built-In Gain
Asset in our hands is determined by reference to the basis of the asset in the
hands of the C corporation, and we subsequently recognize gain on the
disposition of the asset during the ten-year period (the "Recognition Period")
beginning on the date on which we acquired the asset, then under Treasury
Regulations not yet promulgated we will be subject to tax at the highest
regular corporate tax rate on this gain to the extent of the Built-In Gain. For
this purpose, the term "Built-In Gain" means the excess of (a) the fair market
value of the asset over (b) our adjusted basis in the asset, in each case
determined as of the beginning of the Recognition Period. The results described
in this paragraph with respect to the recognition of Built-In Gain assume that
we will make an election pursuant to IRS Notice 88-19.
Requirements for Qualification as a REIT
The Code defines a REIT as a corporation, trust or association:
(1) that is managed by one or more trustees or directors;
(2) that issues transferable shares or transferable certificates to
evidence beneficial ownership;
(3) that would be taxable as a domestic corporation, but for Sections 856
through 860 of the Code;
(4) that is not a financial institution or an insurance company within
the meaning of certain provisions of the Code;
(5) that is beneficially owned by 100 or more persons;
(6) not more than 50% in value of the outstanding stock of which is
owned, actually or constructively, by five or fewer individual, as defined
in the Code to include certain entities, during the last half of each
taxable year; and
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(7) that meets certain other tests, described below, regarding the nature
of its income and assets and the amount of its distributions.
The Code provides that conditions (1) to (4), inclusive, must be met during
the entire taxable year and that condition (5) must be met during at least 335
days of a taxable year of twelve months, or during a proportionate part of a
taxable year of less than twelve months. Conditions (5) and (6) do not apply
until after the first taxable year for which an election is made to be taxed as
a REIT. For purposes of condition (6), pension funds and certain other tax-
exempt entities generally are treated as individuals, subject to a "look-
through" exception.
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 ownership and transfer restrictions are described in "Description of
Capital Stock--Restrictions on Ownership and Transfer" on page 16. These
restrictions, however, may not ensure that we will, in all cases, be able to
satisfy the share ownership requirements described in (5) and (6) above. If we
fail to satisfy these share ownership requirements, our status as a REIT will
terminate. If, however, we comply with the rules contained in applicable
Treasury Regulations that require us to ascertain the actual ownership of our
shares and we do not know, or would not have known through the exercise of
reasonable diligence, that we failed to meet the requirement described in
condition (6) above, we will be treated as having met this requirement. See "--
Failure to Qualify" on page 39.
In addition, a corporation may not elect to become a REIT unless its taxable
year is the calendar year. We have and will continue to have a calendar taxable
year.
Ownership of a Partnership Interest
In the case of a REIT which is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership. Also, the REIT will be deemed to be entitled
to its proportionate share of the income of the partnership. The character of
the assets and gross income of the partnership retains the same character in
the hands of the REIT for purposes of Section 856 of the Code, including
satisfying the gross income tests and the asset tests. Thus, our proportionate
share of the assets and items of income of National Golf Operating Partnership
(including National Golf Operating Partnership's share of these items for any
partnership in which it owns an interest) are treated as our assets and items
of income for purposes of applying the requirements described in this
prospectus, including the income and asset tests described below. We have
included a brief summary of the rules governing the Federal income taxation of
partnerships and their partners below in "--Tax Aspects of the Partnerships" on
page 37. We have direct control of National Golf Operating Partnership and will
continue to operate it consistent with the requirements for qualification as a
REIT.
Income Tests
We must satisfy two gross income requirements annually to maintain our
qualification as a REIT. First, each taxable year we must derive directly or
indirectly at least 75% of our gross income, excluding gross income from
prohibited transactions, from investments relating to real property or
mortgages on real property, including "rents from real property" and, in
certain circumstances, interest, or from certain types of temporary
investments. Prohibited transactions are sales of property held primarily for
sale to customers in the ordinary course of business. Second, each taxable year
we must derive at least 95% of our gross income, excluding gross income from
prohibited transactions, from the real property investments described above, or
from dividends, interest and gain from the sale or disposition of stock or
securities, or from 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 whole or
in part 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.
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Rents we receive will qualify as "rents from real property" in satisfying the
gross income requirements for a REIT described above only if the following
conditions are met:
. the amount of rent must not be based in whole or in part on the income
or profits of any person. 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 Code provides that rents received from a tenant will not qualify as
"rents from real property" in satisfying the gross income tests if the
REIT, or an actual or constructive owner of 10% or more of the REIT,
actually or constructively owns 10% or more of such tenant (a "Related
Party Tenant");
. if rent attributable to personal property, leased in connection with a
lease of real property, is greater than 15% of the total rent received
under the lease, then the portion of rent attributable to personal
property will not qualify as "rents from real property"; and
. for rents received to qualify as "rents from real property," the REIT
generally must not operate or manage the property or furnish or render
services to the tenants of the property, subject to a 1% de minimis
exception, other than through an independent contractor from whom the
REIT derives no revenue. The REIT may, however, directly perform certain
services that are "usually or customarily rendered" in connection with
the rental of space for occupancy only and are not otherwise considered
"rendered to the occupant" of the property. 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 will 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 in whole or in part on the
income or profits of any person, except by reason of being based on a
percentage of receipts or sales, as described above;
. rent any property to a Related Party Tenant;
. derive rental income attributable to personal property, other than
personal property leased in connection with the lease of real property,
the amount of which is less than 15% of the total rent received under
the lease; or
. perform services considered to be rendered to the occupant of the
property, other than 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
certain of the actions set forth above to the extent these actions will not,
based on the advice of our tax counsel, jeopardize our status as a REIT.
If we fail to satisfy one or both of the 75% or 95% gross income tests for
any taxable year, we may nevertheless qualify as a REIT for the year if we are
entitled to relief under certain provisions of the Code. Generally, we may
avail ourselves of the relief provisions if:
. our failure to meet these tests was due to reasonable cause and not due
to willful neglect;
. we attach a schedule of the sources of our income to our federal income
tax return; and
. any incorrect information on the schedule was not due to fraud with
intent to evade tax.
It is not possible, however, to state whether in all circumstances we would be
entitled to the benefit of these relief provisions. For example, if we fail to
satisfy the gross income tests because nonqualifying income that we
intentionally accrue or receive exceeds the limits on nonqualifying income, the
IRS could conclude that our failure to satisfy the tests was not due to
reasonable cause. If these relief provisions do not apply to a particular set
of circumstances, we will not qualify as a REIT. As discussed above in "--
Taxation of National Golf Properties--General" on page 32, even if these relief
provisions apply, and we retain our status as a REIT, a
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tax 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 REIT
qualification despite our periodic monitoring of our income.
Prohibited Transaction Income
Any gain realized by us on the sale of any property held as inventory or
other property held primarily for sale to customers in the ordinary course of
business, including our share of any such gain realized by National Golf
Operating Partnership, will be treated as income from a prohibited transaction
that is subject to a 100% penalty tax. This prohibited transaction income may
also adversely affect our ability to satisfy the income tests for qualification
as a REIT. Under existing law, whether property is held as inventory or
primarily for sale to customers in the ordinary course of a trade or business
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 and to make occasional sales
of the properties as are consistent with National Golf Operating Partnership's
investment objectives. The IRS 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 (at least
five years) public debt offering. Second, not more than 25% of our total assets
may be represented by securities, other than those securities includable in the
75% asset test. Third, of the investments included in the 25% asset class, the
value of any one issuer's securities may not exceed 5% of the value of our
total assets and we may not own more than 10% of any one issuer's outstanding
voting securities.
After initially meeting the asset tests at the close of any quarter, we will
not lose our status as a REIT for failure to satisfy the asset tests at the end
of a later quarter solely by reason of changes in asset values. If we fail to
satisfy the asset tests because we acquire securities or other property during
a quarter, including as a result of an increase in our interests in National
Golf Operating Partnership, we can cure this failure by disposing of sufficient
nonqualifying assets within 30 days after the close of that quarter. We believe
we have maintained and intend to continue to maintain adequate records of the
value of our assets to ensure compliance with the asset tests and to take such
other actions within the 30 days after the close of any quarter as may be
required to cure any noncompliance. If we fail to cure noncompliance with the
asset tests within this time period, we would cease to qualify as a REIT.
Annual Distribution Requirements
To maintain our qualification as a REIT, we are required to distribute
dividends, other than capital gain dividends, to our stockholders in an amount
at least equal to the sum of (i) 95% of our "REIT taxable income" and (ii) 95%
of our after tax net income, if any, from foreclosure property, minus (iii) the
excess of the sum of certain items of noncash income over 5% of "REIT taxable
income" as described above. Our "REIT 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
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<PAGE>
prior year for purposes of our 95% distribution requirement. The amount
distributed must not be preferential--e.g., every shareholder of the class of
stock to which a distribution is made must be treated the same as every other
shareholder of that class, and no class of stock may be treated otherwise than
in accordance with its dividend rights as a class. To the extent that we do not
distribute all of our net capital gain or distribute at least 95%, but less
than 100%, of our "REIT taxable income," as adjusted, we will be subject to tax
thereon at regular ordinary and capital gain corporate tax rates. We believe we
have made and intend to continue to make timely distributions sufficient to
satisfy these annual distribution requirements. In this regard, the partnership
agreement 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 REIT taxable income will be less than our cash flow due to
the allowance of depreciation and other non-cash charges in computing REIT
taxable income. Accordingly, we anticipate that we will generally have
sufficient cash or liquid assets to enable us to satisfy the distribution
requirements described above. From time to time, however, we may not have
sufficient cash or other liquid assets to meet these distribution requirements
due to timing differences between the actual receipt of income and actual
payment of deductible expenses, and the inclusion of income and deduction of
expenses in arriving at our taxable income. If these timing differences occur,
in order to meet the distribution requirements, we may need to arrange for
short-term, or possibly long-term, borrowings or need to pay dividends in the
form of taxable stock dividends.
Under certain circumstances, we may be able to rectify a failure to meet the
distribution requirement for a year by paying "deficiency dividends" to
stockholders in a later year, which may be included in our deduction for
dividends paid for the earlier year. Thus, we may be able to avoid being
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 would be subject to a 4% excise tax on the excess of the
required distribution over the amounts actually distributed if we should fail
to distribute during each calendar year at least the sum of 85% of our REIT
ordinary income for such year, 95% of our REIT capital gain income for the year
and any undistributed taxable income from prior periods. 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 REIT taxable income and net capital gain on which this excise tax is
imposed for any year is treated as an amount distributed during that year for
purposes of calculating such tax.
Tax Aspects of the Partnerships
General
Substantially all of our investments will be held indirectly through National
Golf Operating Partnership, Royal Golf, L.P. II ("Royal Golf"), a general
partnership in which National Golf Operating Partnership owns an 89% interest
as general partner, and Pumpkin Ridge Joint Venture ("Pumpkin Ridge," and,
together with Royal Golf, the "Lower-Tier Partnerships"), a limited partnership
in which National Golf Operating Partnership owns a 50% interest. In general,
partnerships are "pass-through" entities which are not subject to federal
income tax. Rather, partners are allocated their proportionate shares of the
items of income, gain, loss, deduction and credit of a partnership, and are
potentially subject to tax thereon, without regard to whether the partners
receive a distribution from the partnership. We will include in our income our
proportionate share of the foregoing partnership items for purposes of the
various REIT income tests and in the computation of our REIT taxable income.
Moreover, for purposes of the REIT asset tests, we will include our
proportionate share of assets held by National Golf Operating Partnership and
the Lower-Tier Partnerships. See "--Taxation of National Golf Properties" on
page 32.
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Entity Classification
Our interests in National Golf Operating Partnership and the Lower-Tier
Partnerships involve special tax considerations, including the possibility of a
challenge by the IRS of the status of National Golf Operating Partnership or a
Lower-Tier Partnership as a partnership, as opposed to an association taxable
as a corporation, for federal income tax purposes. If National Golf Operating
Partnership or a Lower-Tier Partnership were treated as an association, it
would be taxable as a corporation and therefore be subject to an entity-level
tax on its income. In such a situation, the character of our assets and items
of gross income would change and preclude us from satisfying the asset tests
and possibly the income tests (see "--Taxation of National Golf Properties--
Asset Tests" on page 36 and "--Income Tests" on page 34). This, in turn, would
prevent us from qualifying as a REIT. See "--Failure to Qualify" on page 39 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 or a
Lower-Tier Partnership's status for tax purposes might be treated as a taxable
event. If so, we might incur a tax liability without any related cash
distributions.
Treasury Regulations that apply for tax periods beginning on or after January
1, 1997 provide that a domestic business entity not otherwise organized as a
corporation and which has at least two members (an "Eligible Entity") may 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 Treasury Regulations in effect prior to this
date. In addition, an Eligible Entity which did not exist, or did not claim a
classification, prior to January 1, 1997, will be classified as a partnership
for federal income tax purposes unless it elects otherwise. National Golf
Operating Partnership and each of the Lower-Tier Partnerships intend to claim
classification as a partnership under the Final Regulations, and, as a result,
we believe such partnerships will be classified as partnerships for federal
income tax purposes.
Partnership Allocations
A partnership agreement will generally determine the allocation of income and
losses among partners. These allocations, however, will be disregarded for tax
purposes if they do not comply with the provisions of Section 704(b) of the
Code and the Treasury Regulations promulgated thereunder. Generally, Section
704(b) and the Treasury Regulations require that partnership allocations
respect the economic arrangement of the partners.
If an allocation is not recognized for federal income tax purposes, the item
subject to the allocation will be reallocated in accordance with the partners'
interests in the partnership. This reallocation will be determined by taking
into account all of the facts and circumstances relating to the economic
arrangement of the partners with respect to such item. National Golf Operating
Partnership's allocations of taxable income and loss are intended to comply
with the requirements of Section 704(b) of the Code and the Treasury
Regulations.
Tax Allocations with Respect to the Properties
Under Section 704(c) of the Code, income, gain, loss and deduction
attributable to appreciated or depreciated property that is contributed to a
partnership in exchange for an interest in the partnership, must be allocated
in a manner so that the contributing partner is charged with the unrealized
gain or benefits from the unrealized loss associated with the property at the
time of the contribution. The amount of the unrealized gain or unrealized loss
is generally equal to the difference between the fair market value and the
adjusted tax basis of the property at the time of contribution (a "Book-Tax
Difference"). These allocations are solely for federal income tax purposes and
do not affect the book capital accounts or other economic or legal arrangements
among the partners. 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
Code.
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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 a Book-Tax Difference, all income attributable to the Book-
Tax Difference will generally be allocated to the limited partners who
contributed the property, and we will generally be allocated only our share of
capital gains attributable to appreciation, if any, occurring after the time of
contribution to 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) do not
always entirely eliminate the Book-Tax Difference on an annual basis or with
respect to a specific taxable transaction such as a sale. Thus, the carryover
basis of the contributed assets in the hands of 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 REIT distribution requirements. See "--Taxation of
National Golf Properties--Annual Distribution Requirements" on page 36.
Treasury Regulations issued under Section 704(c) of the Code provide
partnerships with a choice of several methods of accounting for Book-Tax
Differences, including retention of the "traditional method" or the election of
certain methods which would permit any distortions caused by a Book-Tax
Difference to be entirely rectified on an annual basis or with respect to a
specific taxable transaction such as a sale. We and National Golf Operating
Partnership have determined to use the "traditional method" for accounting for
Book-Tax Differences for the properties initially contributed to National Golf
Operating Partnership and for certain 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.
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 Code will not apply.
Failure to Qualify
If we fail to qualify for taxation as a REIT in any taxable year, and the
relief provisions of the Code applicable to REITs do not apply, we will be
subject to tax, including any applicable 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 REIT 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 REIT would reduce the cash available for distribution by us to our
stockholders. In addition, if we fail to qualify as a REIT, all distributions
to stockholders will be subject to tax as ordinary income to the extent of our
current and accumulated earnings and profits, and subject to certain
limitations of the Code, corporate distributees may be eligible for the
dividends received deduction. Unless entitled to relief under specific
statutory provisions, we will also be disqualified from taxation as a REIT for
the four taxable years following the year during which we lost our
qualification. It is not possible to state whether in all circumstances we
would be entitled to this statutory relief.
Taxation of Taxable U.S. Stockholders
As used below, the term "U.S. Stockholder" means a holder of shares of common
stock who 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 thereof or in the
District of Columbia, unless, in the case of a partnership, Treasury
Regulations provide otherwise;
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. an estate the income of which is subject to United States federal income
taxation regardless of its source; or
. a trust whose administration is subject to the primary supervision of a
United States court and which has one or more United States persons who
have the authority to control all substantial decisions of the trust.
Notwithstanding the preceding sentence, to the extent provided in Treasury
Regulations, certain trusts in existence on August 20, 1996, and treated as
United States persons prior to this date that elect to continue to be treated
as United States persons, shall also be considered U.S. Stockholders.
Distributions Generally
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
REIT, 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 subject to tax as
capital gain, provided that the shares have been held as capital assets, and
will be taxable as long-term capital gain if the shares have been held for more
than one year. Dividends we declare in October, November, or December of any
year and payable to a stockholder of record on a specified date in any of these
months 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
subject to tax 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 period of
time we have held the assets which produced these gains, and on certain
designations, if any, which we may make, these gains may be taxable to non-
corporate U.S. stockholders at a 20% or 25% rate. U.S. Stockholders that are
corporations may, however, be required to treat up to 20% of certain capital
gain dividends as ordinary income. For a discussion of the manner in which that
portion of any dividends designated as capital gain dividends will be allocated
among the holders of our preferred stock, if any, and common stock, see
"Description of Capital Stock" on page 13.
Passive Activity Losses and Investment Interest Limitations
Distributions we make and gain arising from the sale or exchange by a U.S.
Stockholder of our shares will not be treated as passive activity income. As a
result, U.S. Stockholders generally will not be able to apply any "passive
losses" against this income or gain. Distributions we make, to the extent they
do not constitute a return of capital, generally will be treated as investment
income for purposes of computing the investment interest limitation. Gain
arising from the sale or other disposition of our shares, however, will not be
treated as investment income under certain circumstances.
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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 in
accordance with Treasury Regulations to be prescribed by the IRS.
Dispositions of Common Stock
If you are a U.S. Stockholder and you sell or dispose of your shares of
common stock, you will recognize gain or loss for federal income tax purposes
in an amount equal to the difference between the amount of cash and the fair
market value of any property you receive on the sale or other disposition and
your adjusted basis in the shares for tax purposes. This gain or loss will be
capital if you have held the common stock as a capital asset and will be long-
term capital gain or loss if you have held the common stock for more than one
year. In general, if you are a U.S. Stockholder and you recognize loss upon the
sale or other disposition of common stock that you have held for six months or
less, the loss you recognize will be treated as a long-term capital loss, to
the extent you received distributions from us which were required to be treated
as long-term capital gains.
Backup Withholding
We report to our U.S. Stockholders and the IRS the amount of dividends paid
during each calendar year, and the amount of any tax withheld. Under the backup
withholding rules, a stockholder may be subject to backup withholding at the
rate of 31% with respect to dividends paid unless the holder is a corporation
or comes within certain other exempt categories and, when required,
demonstrates this fact, or provides a taxpayer identification number, certifies
as to no loss of exemption from backup withholding, and otherwise complies with
applicable requirements of the backup withholding rules. A U.S. Stockholder
that does not provide us with his correct taxpayer identification number may
also be subject to penalties imposed by the IRS. Backup withholding is not an
additional tax. Any amount paid as backup withholding will be creditable
against the stockholder's income tax liability. In addition, we may be required
to withhold a portion of capital gain distributions to any stockholders who
fail to certify their non-foreign status. See "--Taxation of Non-U.S.
Stockholders" on page 42.
Taxation of Tax-Exempt Stockholders
The IRS has ruled that amounts distributed as dividends by a qualified REIT
do not constitute unrelated business taxable income ("UBTI") when received by a
tax-exempt entity. Based on that ruling, provided that a tax-exempt
shareholder, except certain tax-exempt stockholders described below, has not
held its shares as "debt financed property" within the meaning of the Code and
the shares are not otherwise used in a trade or business, dividend income from
us will not be UBTI to a tax-exempt stockholder. Similarly, income from the
sale of shares will not constitute UBTI unless a tax-exempt stockholder has
held its shares as "debt financed property" within the meaning of the Code or
has used the shares in its trade or business. Generally, debt
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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 Code, respectively, income from
an investment in our shares will constitute UBTI unless the organization is
able to properly claim a deduction for amounts set aside or placed in reserve
for certain purposes so as to offset the income generated by its investment in
our shares. These prospective investors should consult their tax advisors
concerning these "set aside" and reserve requirements.
Notwithstanding the above, however, a portion of the dividends paid by a
"pension-held REIT" shall be treated as UBTI as to any trust which:
. is described in Section 401(a) of the Code;
. is tax-exempt under Section 501(a) of the Code; and
. holds more than 10%, by value, of the interests in the REIT.
Tax-exempt pension funds that are described in Section 401(a) of the Code are
referred to below as "qualified trusts."
A REIT is a "pension held REIT" if:
. it would not have qualified as a REIT but for the fact that Section
856(h)(3) of the Code provides that stock owned by qualified trusts
shall be treated, for purposes of the "not closely held" requirement, as
owned by the beneficiaries of the trust, rather than by the trust
itself; and
. either at least one such qualified trust holds more than 25%, by value,
of the interests in the REIT, or one or more such qualified trusts, each
of which owns more than 10%, by value, of the interests in the REIT,
holds in the aggregate more than 50%, by value, of the interests in the
REIT.
The percentage of any REIT dividend treated as UBTI is equal to the ratio of:
. the UBTI earned by the REIT, treating the REIT as if it were a qualified
trust and therefore subject to tax on UBTI, to
. the total gross income of the REIT.
A de minimis exception applies where the percentage is less than 5% for any
year. The provisions requiring qualified trusts to treat a portion of REIT
distributions as UBTI will not apply if the REIT is able to satisfy the "not
closely held" requirement without relying upon the "look-through" exception
with respect to qualified trusts. As a result of 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 REIT."
Taxation of Non-U.S. Stockholders
The preceding discussion does not address the rules governing United States
federal income taxation of the ownership and disposition of common stock by
persons that are not U.S. Stockholders ("Non-U.S. Stockholders"). In general,
Non-U.S. Stockholders may be subject to special tax withholding requirements on
distributions from 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 National Golf Properties in order to claim such
treatment. Non-U.S. Stockholders should consult their own tax advisors
concerning the federal
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income tax consequences to them of an acquisition of shares of common stock,
including the federal income tax treatment of dispositions of interests in, and
the receipt of distributions from, National Golf Properties.
Other Tax Consequences
We may be subject to state or local taxation in various state or local
jurisdictions, including those in which we transact business and our
stockholders may be subject to state or local taxation in various state or
local jurisdictions, including those in which they reside. Our state and local
tax treatment may not conform to the federal income tax consequences 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 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 sales of such shares. The table
identifies (a) the number of shares of common stock and the number of common
units owned by each selling stockholder as of January 1, 1999, (b) the maximum
number of shares of common stock represented by common units ("Exchange
Shares") that may be sold by each selling stockholder with this prospectus, (c)
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 pursuant to this prospectus, and (d) 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, subject to restrictions on the number of common
units that may be exchanged in a twelve-month period, and then may sell all,
some or none of such shares. 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 22.4% of the total
shares of common stock outstanding as of January 1, 1999.
<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(1) Offered(2) After Offering(3) Offering(3) After Offering(4)
---- --------------- --------------- -------------- ----------------- ----------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Dallas P. Price
Trust(5)............... 354,737 3,244,627 551,475 354,737 2,693,152 2.7%
Oaks Christian High
School................. 0 1,250,000(6) 1,250,000(6) 0 0 *
Joan P. Anawalt 1995
Revocable Trust(7)..... 0 248,517 248,517 0 0 *
Supermarine Aviation,
Ltd.(5)................ 0 152,498 152,498 0 0 *
Myreshan, Inc.(5)....... 0 149,273 149,273 0 0 *
Richard C. and Sheri L.
Price(8)............... 44,000(9) 83,701 83,701 44,000(9) 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(5)......... 0 24,844 24,844 0 0 *
Joan P. Stewart Income
Trust(7)............... 0 60,146 60,146 0 0 *
Edward R. Sause(8)...... 106,000(11) 55,550 55,550 106,000(11) 0 1.0%
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(12) 8,930(12) 0 0 *
American Golf
Corporation(5)......... 0 6,854 6,854 0 0 *
RSJ Golf, Inc.(5)....... 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 and common units owned by the
selling stockholders as of January 1, 1999.
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(2) Represents the maximum number of shares of common stock issuable to each
selling stockholder (other than the Dallas P. Price Trust) upon exchange
of such holder's common units without regard to restrictions on the number
of common units that may be exchanged in a one-year period. The shares of
common stock issuable to the Dallas P. Price Trust under this prospectus
represent less than the maximum number of shares that could be issued to
such holder upon exchange of common units in a twelve-month period. The
exchange of any common units also is subject to the Ownership Limit
contained in our articles of incorporation, which prohibits the actual or
constructive ownership of more than 9.8% of the outstanding shares of our
common stock by any person.
(3) 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 pursuant to 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.
(4) 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
pursuant to this prospectus. The 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 Ownership Limit.
(5) 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.
(6) 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. Pursuant to the terms of the partnership agreement
for National Golf Operating Partnership, Oaks Christian High School agreed
at the time of such transfers to exchange all such common units for shares
of common stock within six months after the date of such transfers. It is
expected that our board of directors will extend the date for such
exchange.
(7) 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.
(8) 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.
(9) Excludes 24,844 common units owned by BlackLake/Penasquitos, a California
general partnership, in which Richard C. Price owns a 10% interest.
(10) 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.
(11) 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.
(12) One-half of Barbara M. Colton's common units currently are pledged to
David G. Price and one-half of Mrs. Colton's common units are pledged to
Dallas P. Price, in each case as security for separate loans made to Mrs.
Colton by Mr. Price and Mrs. Price in their individual capacities. Each of
Mr. Price and Mrs. Price has the right to exercise the exchange rights
under the partnership agreement with respect to such common units.
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<PAGE>
PLAN OF DISTRIBUTION
This prospectus relates to the possible offer and sale from time to time of
up to 2,800,616 shares of common stock that may be issued to the selling
stockholders upon exchange of their common units. We have registered the
shares of common stock covered by this prospectus for sale to provide the
selling stockholders with freely tradable securities, but registration of such
shares of common stock does not necessarily mean that any of such shares will
be offered or sold by the selling stockholders. We will not receive any
proceeds from the offer and sale of shares of common stock by the selling
stockholders.
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 set forth in the partnership agreement.
These conditions are described under "Partnership Agreement--Exchange and Cash
Option Rights--Exchange Rights" on page 25.
Sales of the shares of our common stock may be made from time to time 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, subject to applicable law, 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, in privately
negotiated transactions or otherwise or in any combination of such
transactions 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 pursuant to Section 4(1) of the Securities Act or Rule 144 promulgated
thereunder may be sold under such provisions rather than pursuant to 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;
. 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 in accordance with 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 certain 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 in connection with
the sale of the shares of our common stock, to the extent required, a
prospectus supplement will be distributed, which will set forth the
46
<PAGE>
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.
Certain persons participating in the distribution of the shares of our common
stock offered hereby 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.
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. Certain tax matters described under
"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, 1997 and 1996 and the
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1997 of National Golf
Properties, Inc. appearing in the Company's Annual Report on Form 10-K/A have
been incorporated by reference herein 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.
47
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any materials that we have
filed with the SEC at the SEC's Public Reference Room at 450 Fifth Street,
N.W., Washington, D.C. 20549. You may obtain information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. We file
information electronically with the SEC. The SEC maintains an Internet site
that contains reports, proxy and information statements and other information
regarding issuers that file electronically with the SEC. The address of the
SEC's Internet site is http://www.sec.gov. You also may inspect copies of these
materials and other information about us at The New York Stock Exchange, Inc.,
20 Broad Street, New York, New York 10005.
The SEC allows us to "incorporate by reference" the information we file with
them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and information that we file later
with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings we
will make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange
Act, before the termination of the offering of the shares made under this
prospectus:
. Report on Form 10-K for the fiscal year ended December 31, 1997, filed
on February 10, 1998 (File Number 1-12246); and Report on Form 10-K/A
for the fiscal year ended December 31, 1997, filed on September 2, 1998
and January 22, 1999 (File Number 1-12246).
. Reports on Form 10-Q for the fiscal quarters ended March 31, June 30 and
September 30, 1998, filed on May 15, 1998 (File Number 1-12246), August
13, 1998 (File Number 1-12246) and November 12, 1998 (File Number 1-
12246), respectively, and Report on Form 10-Q/A for the fiscal quarters
ended March 31 and September 30, 1998, filed on September 2, 1998 (File
Number 1-12246) and January 22, 1999 (File Number 1-12246),
respectively.
. Proxy Statement for Annual Meeting of Stockholders held on May 5, 1998,
filed on March 31, 1998 (File Number 1-12246).
. Current Report on Form 8-K dated March 4, 1998, filed on March 26, 1998
(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.
This prospectus is part of a registration statement we filed with the SEC.
The prospectus and any accompanying prospectus supplement do not contain all of
the information included in the registration statement. We have omitted certain
parts of the registration statement in accordance with the rules and
regulations of the SEC. For further information, we refer you to the
registration statement, including its exhibits and schedules. Statements
contained in this prospectus and any accompanying prospectus supplement about
the provisions or contents of any contract, agreement or any other document
referred to are not necessarily complete. For each of these contracts,
agreements or documents filed as an exhibit to the registration statement, we
refer you to the actual exhibit for a more complete description of the matters
involved. You should not assume that the information in this prospectus or any
supplement is accurate as of any date other than the date on the front of those
documents.
48
<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 thereof or other variations thereof or comparable
terminology, or by discussions of strategy, plans or intentions. Such forward-
looking statements are necessarily dependent on assumptions, data or methods
that may be incorrect or imprecise and they may be incapable of being realized.
The following factors, among others, could cause actual results and future
events to differ materially from those set forth or contemplated in the
forward-looking statements:
. defaults or non-renewal of leases,
. increased interest rates and operating costs,
. failure to obtain necessary outside financing,
. difficulties in identifying properties to acquire and in effecting
acquisitions,
. failure to successfully integrate acquired properties and operations,
. failure to qualify as a real estate investment trust under the Code,
. environmental uncertainties,
. risks related to natural disasters and financial market fluctuations.
Our success also depends upon economic trends generally, including interest
rates, income tax laws, governmental regulation, legislation, population
changes and those risk factors discussed in this prospectus under the heading
"Risk Factors" beginning on page 5. Readers are cautioned not to place undue
reliance on forward-looking statements, which reflect management's analysis
only. We assume no obligation to update forward-looking statements.
49
<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>
*1.1 --Purchase Agreement.
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).
4.1 --Specimen of certificate representing shares of Common Stock
(incorporated by reference to Exhibit 3.3 to the Company's Report
on Form 8-B dated December 29, 1995).
*5.1 --Opinion of Ballard Spahr Andrews & Ingersoll, LLP, regarding the
validity of the Common Stock being registered.
*8.1 --Opinion of Latham & Watkins, Los Angeles, California, regarding
certain federal income tax matters.
*23.1 --Consent of Ballard Spahr Andrews & Ingersoll, LLP (included as
part of Exhibit 5.1).
*23.2 --Consent of Latham & Watkins, Los Angeles, California (included as
part of Exhibit 8.1).
23.3 --Consent of PricewaterhouseCoopers LLP.
**24.1 --Power of Attorney (included on signature page).
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
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;
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<PAGE>
(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.
The undersigned Registrant hereby further undertakes to deliver or cause to
be delivered with the prospectus, to each person to whom the prospectus is sent
or given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Exchange Act; and, where
interim financial information required to be presented by Article 3 of
Regulation S-X are not set forth in the prospectus, to deliver, or cause to be
delivered to each person to whom the prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
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.
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<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 22nd
day of January, 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 January 22,
____________________________________ Directors 1999
David G. Price
/s/ James M. Stanich President and Director January 22,
____________________________________ 1999
James M. Stanich
* Vice President -- Finance January 22,
____________________________________ (Principal Financial 1999
Neil M. Miller Officer)
/s/ William C. Regan Vice President -- Controller January 22,
____________________________________ and Treasurer 1999
William C. Regan
* Director January 22,
____________________________________ 1999
Richard A. Archer
* Director January 22,
____________________________________ 1999
John C. Cushman, III
* Director January 22,
____________________________________ 1999
Bruce Karatz
* Director January 22,
____________________________________ 1999
Charles S. Paul
* Director January 22,
____________________________________ 1999
Edward R. Sause
*By: /s/ William C. Regan
_______________________________
William C. Regan
Attorney-in-Fact
</TABLE>
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<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement
of National Golf Properties, Inc. on Form S-3 (File No. 333-67403) of our
report dated February 4, 1998, except for Note 14, as to which the date is
December 4, 1998, on our audits of the consolidated financial statements and
financial statement schedule of National Golf Properties, Inc. as of December
31, 1997 and 1996 and for the years ended December 31, 1997, 1996 and 1995. We
also consent to the reference to us under the heading "Experts" in such
Prospectus.
PricewaterhouseCoopers LLP
Los Angeles, California
January 22, 1999
