<PAGE>
As filed with the Securities and Exchange Commission on February 18, 1999
Registration No. 333-67403
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
AMENDMENT NO. 2
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)
<TABLE>
<S> <C>
Maryland 95-4549193
<CAPTION>
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
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 stockholder 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 FEBRUARY 18, 1999
PROSPECTUS SUPPLEMENT
(To prospectus dated , 1999)
625,000 Shares
[LOGO OF NATIONAL GOLF PROPERTIES, INC.]
National Golf Properties, Inc.
Common Stock
-----------
This prospectus supplement relates to the offering of 625,000 shares of our
common stock by Oaks Christian High School, which is offering these shares of
common stock for resale upon the exchange of its units of limited partnership
interest in National Golf Operating Partnership, L.P. We will not receive any
of the proceeds from the sale of these shares of common stock.
Oaks Christian High School has granted an option to Merrill Lynch & Co., as
underwriter, to purchase up to 93,750 additional shares of our common stock to
cover orders by purchasers in excess of 625,000 shares of common stock.
The shares of our common stock are listed on The New York Stock Exchange
under the symbol "TEE." On , 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.
We expect that the shares of our common stock will be ready for delivery in
New York, New York on or about , 1999.
-----------
Merrill Lynch & Co.
The date of this prospectus supplement is , 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-9
The Offering............................................................... S-12
Selling Stockholder........................................................ S-12
Underwriting............................................................... S-12
Legal Matters.............................................................. S-15
Prospectus
The Company................................................................ 3
Risk Factors............................................................... 5
Description of Capital Stock............................................... 15
Partnership Agreement...................................................... 22
Material Provisions of Maryland Law and Our Charter and Bylaws............. 32
Material Federal Income Tax Considerations................................. 40
Selling Stockholders....................................................... 57
Plan of Distribution....................................................... 60
Legal Matters.............................................................. 62
Experts.................................................................... 62
Where You Can Find More Information........................................ 63
Forward-Looking Statements................................................. 65
</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 Merrill Lynch 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 Merrill Lynch 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 and the largest
publicly-traded company in the United States specializing in the acquisition
and ownership of golf course properties. As a self-administered real estate
investment trust, our own employees perform our administrative and management
functions, rather than our relying on an outside manager for these services.
As of February 1, 1999, our portfolio consists of 133 golf courses,
geographically diversified among 26 states, with:
. 22 golf courses in California;
. 21 golf courses in Texas;
. 13 golf courses in Arizona;
. six golf courses in each of Florida, Ohio and South Carolina;
. five golf courses in each of Minnesota and Pennsylvania;
. four golf courses in each of Colorado, Georgia, Illinois, Kansas,
Nevada, Oregon and Washington;
. three golf courses in each of New Jersey and Virginia;
. two golf courses in each of Maryland, Missouri, New Mexico, North
Carolina, Oklahoma and Tennessee; and
. one golf course 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 real estate investment trust, our
income must be derived from real property-related 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. 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 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. The lessees of our golf courses pay base rent on each property. In
addition, our leases contain a percentage rent feature that enables us to
participate in growth in revenues of the golf courses. The leases include
strict maintenance standards and require the lessees to pay substantially all
operating expenses.
S-3
<PAGE>
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
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. 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 February 1, 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 of 1:2
or less. Such ratio is calculated as total debt as a percentage of
the market value of issued
S-4
<PAGE>
and outstanding shares of our common stock, units of preferred
partnership interest in National Golf Operating Partnership or
"preferred units" and interests in National Golf Operating
Partnership that are exchangeable for shares of our common stock
plus total debt. At December 31, 1998, our total debt constituted
approximately 29% of our total market capitalization.
At February 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.
RECENT DEVELOPMENTS
Liquidity and Capital Resources. At December 31, 1998, we had approximately
$3.0 million in cash and investments, mortgage loans of approximately $24.8
million, mortgage indebtedness of approximately $30.2 million and unsecured
indebtedness of approximately $253.2 million. The $283.4 million principal
amount of mortgage and unsecured indebtedness bears interest at an average
rate of 7.66%. Of our $283.4 million of indebtedness, approximately $205.4
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 according to the business plan we develop for the
property. We also fund capital improvement projects that we or our operators
subsequently identify which 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 $22.3 million
for various remaining capital improvements. Of such amount, we expect to
expend approximately $21.3 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 our investment in such
improvements over the term of the leases.
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 February
1, 1999, we purchased two golf courses for an aggregate initial investment of
approximately $10.4 million, which we financed with approximately $4.4 million
of cash from operations and $6.0 million of advances under our credit
facility.
S-5
<PAGE>
On February 10, 1999, Golf Acquisitions, LLC, a new limited liability company
formed by affiliates of American Golf and a subsidiary of ClubCorp
International, entered into a definitive agreement to purchase the stock of
Meditrust Corporation subsidiaries comprising the "Cobblestone Golf Group" for
approximately $391.0 million in cash. Upon the closing of the stock purchase,
American Golf and ClubCorp intend to divide the Cobblestone portfolio of 48
golf courses with American Golf allocated 24 owned, leased and managed golf
courses. We currently are negotiating with American Golf and Golf Acquisitions
to acquire interests in 21 of the golf courses to be acquired from Meditrust.
The specific terms on which we would purchase the Cobblestone courses from
American Golf or Golf Acquisitions have not been finalized or approved by our
board of directors. Nevertheless, it is currently anticipated that we will pay
approximately $177 million in cash for such courses, less the amount of any
assumed debt. Some portion of the consideration paid by us likely would be
financed by selling additional shares of our common stock and/or other equity
securities. Any such offering and sale of our equity securities could adversely
affect the market price of shares of our common stock held by our existing
stockholders. The remainder of the consideration paid by us would be financed
with additional borrowings under our credit facility and issuances of
additional debt or preferred operating partnership units.
If we acquire the Cobblestone properties from American Golf or Golf
Acquisitions, we anticipate that we would enter into one or more lease
agreements with American Golf to operate all such courses.
Other 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. On a short-term basis, we may borrow
additional funds or increase our credit facility to finance future
acquisitions. On a long-term basis, we may use common stock or common units as
consideration for future acquisitions or borrow additional funds, increase our
credit facility or issue common stock to finance 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.
Net Income and Earnings Per Share. Net income for the year ended December 31,
1998 was $16.6 million compared to $15.6 million for the year ended December
31, 1997. Diluted earnings per share for the year ended December 31, 1998 was
$1.32 compared to $1.25 for the year ended December 31, 1997. The following
factors, among others, affect net income and earnings per share:
. increase in rent revenue resulting from acquisitions;
. increase in depreciation expense resulting from acquisitions; and
S-6
<PAGE>
. changes in interest expense resulting from changes in the
outstanding balance on the credit facility.
Funds from Operations and Distributions to Stockholders. Funds from
operations for the year ended December 31, 1998 were $31.2 million compared to
$27.9 million for the year ended December 31, 1997. In order to maintain our
qualification as a real estate investment trust for federal income tax
purposes, we are required to make 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 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.
Financing. We currently have a $100 million credit facility, which terminates
in April 2002, with Bank of America National Trust and Savings Association,
Union Bank of California, N.A., The First National Bank of Chicago and City
National Bank. 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 an 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 Bank of America National Trust and Savings Association in
order to hedge our exposure to interest rate fluctuations. The treasury lock
matures on May 3, 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 notes, if issued. If the notes are not
issued, the realized gain or loss on the transaction at the settlement date
will be recorded on the statement of operations. 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
S-7
<PAGE>
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. 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-8
<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 63 of the accompanying prospectus. The financial data
provided at and for the year ended December 31, 1998 has been derived from our
unaudited consolidated financial statements at and for such period.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Rent....................... $ 83,350 $ 74,316 $ 58,898 $ 45,931 $ 36,637
Equity in income from joint
venture................... 385 119 -- -- --
Gain on sale of
properties................ -- 158 1,199 1,893 --
-------- -------- -------- -------- --------
Total revenues.............. 83,735 74,593 60,097 47,824 36,637
-------- -------- -------- -------- --------
Expenses:
General and
administrative............ 5,156 5,336 4,734 4,258 4,709
Depreciation and
amortization.............. 27,079 24,758 19,124 14,027 10,413
-------- -------- -------- -------- --------
Total expenses.............. 32,235 30,094 23,858 18,285 15,122
-------- -------- -------- -------- --------
Other income and expenses:
Interest expense........... (20,350) (19,810) (14,067) (8,793) (2,212)
Interest income............ 1,170 364 2,110 4,144 3,459
Gain on property
condemnation.............. 1,493 -- -- -- --
Gain on insurance
proceeds.................. -- 2,231 -- -- --
Other income............... 352 521 238 114 194
-------- -------- -------- -------- --------
Income before provision for
taxes and minority
interest................... 34,165 27,805 24,520 25,004 22,956
Provision for taxes......... (231) (223) (256) (352) (368)
-------- -------- -------- -------- --------
Income before minority
interest................... 33,934 27,582 24,264 24,652 22,588
Minority interest........... (17,292) (12,003) (10,852) (11,366) (10,712)
-------- -------- -------- -------- --------
Net income.................. $ 16,642 $ 15,579 $ 13,412 $ 13,286 $ 11,876
======== ======== ======== ======== ========
Basic earnings per share.... $ 1.33 $ 1.26 $ 1.19 $ 1.25 $ 1.12
Weighted average number of
shares..................... 12,497 12,368 11,317 10,622 10,612
Diluted earnings per share.. $ 1.32 $ 1.25 $ 1.17 $ 1.25 $ 1.12
Weighted average number of
shares..................... 12,599 12,512 11,420 10,643 10,616
</TABLE>
S-9
<PAGE>
<TABLE>
<CAPTION>
December 31,
------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Real estate before accumulated
depreciation....................... $663,018 $601,882 $515,794 $362,068 $272,034
Total assets........................ 597,295 535,314 469,945 347,967 275,071
Total debt.......................... 283,405 299,032 230,590 144,983 66,441
Minority interest(1)................ 166,655 96,007 98,551 90,609 92,938
Stockholders' equity(1)............. 132,224 134,890 137,670 110,298 113,134
Cash distributions declared per
share.............................. 1.74 1.70 1.66 1.61 1.49
<CAPTION>
Year Ended December 31,
------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(in thousands, except property data)
<S> <C> <C> <C> <C> <C>
Other Data:
Company's funds from operations(2).. $ 31,203 $ 27,851 $ 23,215 $ 19,641 $ 17,209
Cash flows from (used in):
Operating activities.............. 60,333 55,576 44,217 36,383 34,241
Investing activities.............. (77,483) (94,408) (68,481) (76,019) (32,003)
Financing activities.............. 17,163 29,306 28,399 42,639 (52)
Number of courses................... 130 123 114 81 71
Number of locations................. 116 112 104 72 63
</TABLE>
- --------
(1) Minority interest and stockholders' equity have been restated for the years
ended December 31, 1997, 1996, 1995 and 1994 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, 1998, 1997, 1996, 1995 and
1994 was approximately $78.6 million, $78.1 million, $77.7 million, $67.6
million and $70.0 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
real estate investment trust 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 some 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 real estate investment trusts. The
following table summarizes our funds from operations for the years ended
December 31, 1998, 1997, 1996, 1995 and 1994.
S-10
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C>
Net income....................... $16,642 $15,579 $13,412 $13,286 $11,876
Distributions--Preferred Units... (4,797) -- -- -- --
Minority interest................ 17,292 12,003 10,852 11,366 10,712
Depreciation and amortization.... 27,472 24,883 19,124 14,027 10,413
Gain on insurance proceeds....... -- (2,231) -- -- --
Gain on condemnation of
property........................ (1,493) -- -- -- --
Gain on sale of properties....... -- (158) (1,199) (1,893) --
Excess land sales................ (342) (469) -- -- --
Write off of option payable...... -- -- -- (101) --
Discount on payoff of note
payable......................... -- -- -- -- (175)
Amortization--loan costs......... (241) (227) (147) (195) (66)
Depreciation--corporate.......... (87) (69) (47) (43) (31)
------- ------- ------- ------- -------
Funds from operations............ $54,446 $49,311 $41,995 $36,447 $32,729
Company's share of funds from
operations...................... 57.31% 56.48% 55.28% 53.89% 52.58%
------- ------- ------- ------- -------
Company's funds from operations.. $31,203 $27,851 $23,215 $19,641 $17,209
======= ======= ======= ======= =======
</TABLE>
S-11
<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 Oaks Christian
High School
New York Stock Exchange Symbol......................... TEE
</TABLE>
SELLING STOCKHOLDER
Oaks Christian High School, a non-profit organization, received 1,250,000
common units in separate contributions from David G. Price and Dallas P. Price
on July 9, 1998. Oak Christian High School 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 Oaks Christian High School.
Accordingly, we will not receive any of such proceeds. A portion of the
proceeds from the sale of the shares offered in this prospectus supplement will
be used by Oaks Christian High School to repay loans made by Mr. Price and Mrs.
Price during the last year to fund the development and construction of Oaks
Christian High School.
UNDERWRITING
Subject to the terms and conditions described in a purchase agreement among
National Golf Properties, Oaks Christian High School and Merrill Lynch, Pierce,
Fenner & Smith Incorporated, as the underwriter, Oaks Christian High School has
agreed to sell to the underwriter, and Merrill Lynch has agreed to purchase
from the selling stockholder, 625,000 shares of our common stock.
Our shares of common stock are being offered by Merrill Lynch, subject to
prior sale, when, as and if issued to and accepted by it, subject to approval
of legal matters by counsel for Merrill Lynch and other conditions. Merrill
Lynch 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 , 1999.
In the purchase agreement, Merrill Lynch has agreed, subject to the terms and
conditions described in the purchase agreement, 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 in this prospectus supplement may be
sold by Merrill Lynch 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;
S-12
<PAGE>
. in the over-the-counter market;
. in negotiated transactions; or
. in a combination of such methods or otherwise.
Such sales may be made 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 Merrill Lynch upon the sale of shares of our common stock
exceeds the price at which it buys shares of our common stock described on the
cover page of this prospectus supplement, such difference shall represent
Merrill Lynch's commission. Merrill Lynch 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
Merrill Lynch 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.
Merrill Lynch has advised Oaks Christian High School and us that it proposes
initially to offer the shares of our common stock to the public at the public
offering price described on the cover page of this prospectus supplement, and
to dealers at such price less a concession not in excess of $ per share
of our common stock. Merrill Lynch may allow, and such dealers may reallow, a
discount not in excess of $ per share of our common stock on sales to
other dealers. After the public offering, the public offering price, concession
and discount may be changed.
Oaks Christian High School has granted an option to Merrill Lynch,
exercisable for 30 days after the date of this prospectus supplement, to
purchase from Oaks Christian High School up to an aggregate of 93,750
additional shares of our common stock at the public offering price described on
the cover page of this prospectus supplement, less the underwriting discount.
Merrill Lynch may exercise this option solely to cover orders by purchasers in
excess of 625,000 shares of common stock.
We and our executive officers and directors and some of our stockholders have
agreed that, without the prior written consent of Merrill Lynch for a period of
30 days after the date of this prospectus supplement, we will not directly or
indirectly:
. dispose of or transfer, or file a registration statement under the
Securities Act with respect to, any shares of our common stock or
securities convertible into or exchangeable or exercisable for our common
stock; or
. enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of our common stock.
The shares of our common stock are listed on The New York Stock Exchange
under the symbol "TEE."
We and Oaks Christian High School have agreed to indemnify Merrill Lynch
against liabilities relating to the offer and sale of the shares offered in
this prospectus supplement, including liabilities under the Securities Act, or
to contribute to payments Merrill Lynch may be required to make for such
liabilities.
S-13
<PAGE>
The following table shows the public offering price of our common stock and
the underwriting discount Oaks Christian High School will pay Merrill Lynch.
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 Oaks Christian High School.
<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 Merrill Lynch to
bid for and purchase our common stock. As an exception to these rules, Merrill
Lynch is permitted to engage in 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 Merrill Lynch creates a short position in our common stock in connection
with the offering made in this prospectus supplement, i.e., if it sells more
shares of our common stock than are set forth on the cover page of this
prospectus supplement, Merrill Lynch may reduce that short position by
purchasing our common stock in the open market. Merrill Lynch may also elect to
reduce any short position by exercising all or part of the option granted to it
by Oaks Christian High School to purchase up to an aggregate of
93,750 additional shares of our common stock.
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 Merrill Lynch 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 Merrill
Lynch makes any representation that Merrill Lynch will engage in such
transactions or that such transactions, once commenced, will not be
discontinued without notice.
Merrill Lynch has occasionally 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.
S-14
<PAGE>
LEGAL MATTERS
The validity of our common stock and other 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 tax matters for National Golf Properties. Skadden, Arps, Slate, Meagher &
Flom LLP, Los Angeles, California will pass upon matters relating to this
offering for Merrill Lynch.
S-15
<PAGE>
SUBJECT TO COMPLETION, DATED FEBRUARY 18, 1999
PROSPECTUS
National Golf Properties, Inc.
2,800,616 Shares
Common Stock
----------------
This prospectus relates to the possible offer and sale of up to 2,800,616
shares of common stock of National Golf Properties by the selling stockholders
identified in this prospectus. The selling stockholders are offering these
shares of common stock for resale upon the exchange of the selling
stockholders' units of limited partnership interest in National Golf Operating
Partnership, L.P. We will not receive any of the proceeds from the sale of the
shares of our common stock offered by the selling stockholders.
Our shares of common stock are traded on The New York Stock Exchange under
the symbol "TEE." On , 1999, the closing sale price of our common
stock on the NYSE was $ per share.
You should consider the risks discussed in "Risk Factors" beginning on page 5,
before you invest in our common stock.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
----------------
The date of this prospectus is , 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
The Company............................................................. 3
Risk Factors............................................................ 5
Description of Capital Stock............................................ 15
Partnership Agreement................................................... 22
Material Provisions of Maryland Law and Our Charter and Bylaws.......... 32
Material Federal Income Tax Considerations.............................. 40
Selling Stockholders.................................................... 57
Plan of Distribution.................................................... 60
Legal Matters........................................................... 62
Experts................................................................. 62
Where You Can Find More Information..................................... 63
Forward-Looking Statements.............................................. 65
</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 and the largest
publicly-traded company in the United States specializing in the acquisition
and ownership of golf course properties. As a self-administered real estate
investment trust, our own employees perform our administrative and management
functions, rather than our relying on an outside manager for these services. As
of February 1, 1999, our portfolio consists of 133 golf courses geographically
diversified among 26 states.
We lease our golf courses to experienced and creditworthy operators under
long-term triple net leases. In selecting our lessees, we consider factors such
as the number of years that the company has been in operation, the experience
of the management team, the number of golf courses currently owned, leased or
managed by the lessee, the lessee's net worth or ability to provide credit
support to our satisfaction, and the lessee's ability to maximize the revenues
of the golf course and to improve the long-term value of the golf course. The
lessees of our golf courses pay base rent on each property. In addition, our
leases contain a percentage rent feature that enables us to participate in
growth in revenues of the golf courses. The leases include strict maintenance
standards and, as triple net leases, require the lessees to pay all real and
personal property taxes, utility costs, insurance costs, irrigation costs,
maintenance costs and other operating expenses.
National Golf Operating Partnership holds substantially all of our assets and
conducts all of our operations. Six of our golf course properties are owned by
partnerships in which National Golf Operating Partnership acts as managing
general partner and owns at least a 50% interest. Our 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 ownership of golf course properties
either directly or through our ownership interest in National Golf Operating
Partnership and the other partnerships which it controls. We are the sole
general partner of National Golf Operating Partnership, and we currently own
58.5% of its units of common partnership interest. The limited partners in
National Golf Operating Partnership are individuals, partnerships, corporations
and trusts who have contributed their properties in exchange for common units
or who have contributed cash in exchange for units of preferred partnership
interest.
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 February 1, 1999:
- --------
[GRAPH APPEARS HERE]
* We account for our investment in Pumpkin Ridge Joint Venture under the equity
method of accounting.
** One golf course is not owned by National Golf Operating Partnership, but
National Golf Operating Partnership has a participating mortgage loan on
such course.
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
The following discussion identifies the risks that we believe are material to
investors who purchase or own our common stock. In addition to other
information contained or incorporated by reference in this prospectus or in an
accompanying prospectus supplement, you should carefully consider the following
factors before acquiring shares of common stock offered in this prospectus.
The lessee and operator of most of our golf courses and our Chairman have
conflicts of interest that may adversely affect our business.
American Golf manages other golf courses located in the same geographic area
as our golf courses and these courses may compete with our courses.
American Golf Corporation is a golf course management company that is
responsible for operating 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.
Mr. Price beneficially owns 50% of Golf Enterprises, Inc., which is the
lessee or manager of 17 golf courses owned by various third parties. Mr. Price
acquired Golf Enterprises in connection with our purchase of 20 golf courses
from Golf Enterprises in July 1996. At that time, National Golf Properties
acquired all of the golf courses owned by Golf Enterprises and Mr. Price merged
a newly-formed acquisition entity into Golf Enterprises as a means of acquiring
all the remaining courses which were leased or managed. Golf Enterprises
entered into an agreement with American Golf for the sublease or management
5
<PAGE>
of all of the 17 golf courses that Golf Enterprises leases or manages. Golf
Enterprises has not acquired interests in any additional golf courses since
1996 and has no contractual relationship with National Golf. However, there are
no restrictions on Golf Enterprises from leasing or managing additional golf
courses in the future which could compete with golf courses owned by us.
Loss of our status as a real estate investment trust would have significant
adverse consequences to our company and the value of our stock.
We currently operate and have operated since 1993 in a manner that is
intended to allow us to qualify as a real estate investment trust for federal
income tax purposes under the Internal Revenue Code of 1986, as amended.
If we lose our status as a real estate investment trust, we will face serious
tax consequences that will substantially reduce the funds available for
distribution to you for each of the years involved because:
. we would not be allowed a deduction for distributions to stockholders in
computing our taxable income and would be required to pay federal income
tax at regular corporate rates;
. we also could be required to pay the federal alternative minimum tax and
possibly increased state and local taxes; and
. unless we are entitled to relief under statutory provisions, we could
not elect to be taxed as a real estate investment trust for four taxable
years following the year during which we were disqualified.
In addition, if we fail to qualify as a real estate investment trust, all
distributions to stockholders will be taxable as ordinary income to the extent
of our current and accumulated earnings and profits, we will not be required to
make distributions to stockholders, and corporate distributees may be eligible
for the dividends received deduction.
As a result of all these factors, our failure to qualify as a real estate
investment trust also could impair our ability to expand our business and raise
capital, and would adversely affect the value of our common stock.
Qualification as a real estate investment trust involves the application of
highly technical and complex Internal Revenue Code provisions for which there
are only limited judicial and administrative interpretations. The complexity of
these provisions and of the applicable income tax regulations that have been
promulgated under the Internal Revenue Code is greater in the case of a real
estate investment trust that holds its assets in partnership form. The
determination of various factual matters and circumstances not entirely within
our control may affect our ability to qualify as a real estate investment
trust. For example, in order to qualify as a real estate investment trust, at
least 95% of our gross income in any year must be derived from qualifying
sources. Also, we must make distributions to stockholders aggregating annually
at least 95% of our net taxable income, excluding capital gains. In addition,
legislation, new treasury regulations, administrative interpretations or
6
<PAGE>
court decisions may adversely affect our investors or our ability to qualify as
a real estate investment trust for tax purposes. Although our management
believes that National Golf Properties is organized and operates in such
manner, no assurance can be given that we will continue to be organized or be
able to operate in a manner so as to qualify or remain qualified as a real
estate investment trust for tax purposes.
To maintain our status as a real estate investment trust, we may be forced to
borrow funds on a short-term basis during unfavorable market conditions.
In order to maintain our status as a real estate investment trust, we may
need to borrow funds on a short-term basis to meet the real estate investment
trust distribution requirements even if the then prevailing market conditions
were not generally favorable for these borrowings. To qualify as a real estate
investment trust, we generally must distribute to our stockholders at least 95%
of our net taxable income each year, excluding capital gains. In addition, we
will be required to pay a 4% nondeductible excise tax on the amount, if any, by
which distributions paid by us in any calendar year are less than the sum of
85% of our ordinary income, 95% of our capital gain net income and 100% of our
undistributed income from prior years. These short-term borrowing needs could
result from differences in timing between the actual receipt of income and
inclusion of income for federal income tax purposes, or the effect of non-
deductible capital expenditures, the creation of reserves or required debt or
amortization payments.
We rely heavily on the rental payments we receive from American Golf for our
revenues and ability to make distributions.
Our revenues and ability to pay distributions are largely dependent on rental
payments we receive from American Golf under long-term leases relating to our
golf courses. We cannot be sure that American Golf will have sufficient assets
or income in the future to satisfy its lease obligations to us or that American
Golf will elect to renew any of such leases upon the expiration of their
initial terms, which range between 15 and 20 years. Our income and cash flow
consist primarily of rental income from our golf courses. American Golf is the
lessee of all but 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, and is payable only to the extent that such percentage exceeds
the base rent that lessees pay to us.
Our investors face risks applicable to real estate investments generally.
Investments in golf courses and related properties face risks typically
associated with investments in real estate. Such risks include the possibility
that golf courses and any associated properties will generate total revenue
lower than those anticipated or will yield returns lower than those available
through investment in comparable real estate or other
7
<PAGE>
investments. If our properties do not generate income sufficient to meet
operating expenses, including capital expenditures, of National Golf Properties
and National Golf Operating Partnership, our ability to pay distributions to
our stockholders, could be adversely affected.
Revenue from golf courses and yields from investments in such properties may
be affected by many factors, including:
. changes in government regulations;
. general or local economic conditions;
. the available local supply of golf courses;
. a decrease in the number of people playing golf; and
. adverse weather conditions.
The value of golf course properties to the owners of such properties or
prospective buyers can fluctuate significantly based on these factors as well
as factors relating to how such properties are operated, including an owner's
or buyer's debt structure, ability to operate and method of operating courses
and the owner's or buyer's desired rate of return on its investment in such
properties. We generally expect that our results of operations may be adversely
affected as a function of reduced payments of percentage rent in the first and
fourth quarters of each year due to adverse weather conditions and the
scheduled closure of the golf courses located in harsh winter climates.
A drought or water shortage could adversely effect the value of our golf
courses.
One factor specifically affecting real estate investments in golf courses is
the availability of water. The ability of an owner of a golf course to irrigate
such course could be adversely impacted due to a drought or other water
shortage. If the quantity of irrigation water were reduced as a result of a
drought or other water shortage, the available water would be used first on
selected areas of the affected golf course such as tees and greens and then on
remaining areas of the golf course. A severe drought of extensive duration
experienced in regard to a large number of properties could adversely affect
the operator of such properties and, accordingly, adversely affect the rental
revenue received by the owners of such properties and, consequently, the amount
of percentage rents we receive. About half of our golf courses are located in
"sun-belt" states, which, because of their warmer climates, are more likely to
experience drought and water shortages.
Our ability to vary our portfolio is limited because real estate investments
are illiquid.
Equity investments in real estate are relatively illiquid and, therefore, our
ability to vary our portfolio promptly in response to changed conditions will
be limited. Our Board of Directors may establish investment criteria or
limitations as it deems appropriate, but currently does not limit the number of
properties in which we may seek to invest or on the concentration of
investments in any one geographic region. While we are authorized to invest in
various types of income-producing real properties, our current strategy
concentrates on acquiring golf courses and related facilities. Consequently, we
will continue to be subject to the risks associated with investments in a
single industry.
8
<PAGE>
We may be exposed to costs related to environmental remediation.
We are subject to various federal, state and local laws, ordinances and
regulations that make property owners or operators liable for the costs of
removal or remediation of any hazardous substances released on its property.
These laws often impose liability without regard to whether the owner or
operator knew of, or was responsible for, the release of the hazardous
substances. The presence of hazardous substances on our properties or our
failure to properly remediate such substances may adversely affect our ability
to sell, rent or borrow against such contaminated property.
We have not been notified by any governmental authority of any material non-
compliance, liability or other claim in connection with any of our properties,
and we are not aware of any environmental condition with respect to any of our
properties that is likely to be material. All of our golf courses have been
subjected to a preliminary environmental investigation. Such investigation
generally involves an examination of public records for ownership, use and
current permitting status, site visits, visual inspections for indications of
contamination or potential contamination and interviews with the on-site
managers. Such inspection generally does not involve invasive procedures, such
as soil sampling or ground water analysis. As a result, there can be no
assurance that the environmental studies of our properties would have revealed
all environmental conditions, liabilities or compliance concerns. Also,
environmental conditions, liabilities or compliance concerns may have arisen at
a property after the related review was completed. Although all of our lease
agreements provide that the lessees will indemnify us for some potential
environmental liabilities at the golf courses, there can be no assurance that
the indemnification provided by such leases would be sufficient to satisfy all
environmental liabilities.
If an uninsured loss occurs, we could lose both our invested capital in and
projected profits from a property.
Our tenants are required to carry comprehensive liability, fire, flood (if
applicable) and extended insurance 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 within
industry standards. There are, however, losses 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 our common stock.
If we or the holders of our common stock sell a substantial number of shares
in a short period, particularly if the volume of sales are higher than usual,
then the price of our common stock may be lower in order to generate sufficient
demand for the number of shares being sold. Investors' expectations of
significant sales of this kind could depress the market price of our common
stock.
9
<PAGE>
Sales of unusually large numbers of shares could occur under several
circumstances. First, when we formed National Golf Operating Partnership, the
partnership issued 8,685,985 common units to the persons and entities that
contributed properties to the partnership. In 1996, we issued an additional
61,339 common units upon National Golf Operating Partnership's acquisition of
four golf courses held under option since 1993. Holders of all of these common
units have the right to exchange their units for our common stock, subject to
limitations in our charter on owning our capital stock which are necessary to
maintain our status as a real estate investment trust. If any holders exchange
their common units, those holders would likely elect to sell the shares they
receive. We have agreed to register with the Securities and Exchange Commission
to facilitate these sales in the public markets. Any sales which occur under
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 Securities and
Exchange Commission to facilitate those sales.
Finally, we may also issue additional shares of our common or preferred stock
to raise funds to acquire additional assets or pay operating expenses, capital
expenditures and debt service.
Limitations in our charter and bylaws and in the partnership agreement for
National Golf Operating Partnership may adversely effect your ownership of
shares and the opportunity for a change in control.
Limitations on ownership of common stock.
Actual or constructive ownership of shares of our common stock and/or Series
A Preferred Stock in excess of the stock ownership limits described below would
cause the violative transfer or ownership to be void or cause such shares to be
transferred to a charitable trust and then sold to a person or entity who can
own such shares without violating such limits. As a result, if a violative
transfer were made, the recipient of such shares would not acquire any economic
or voting rights attributable to such capital stock.
To maintain our qualification as a real estate investment trust, not more
than 50% in value of our outstanding shares of capital stock may be owned,
actually or constructively, by five or fewer individuals, as defined in the
Internal Revenue Code. For the purpose of preserving our tax status as a real
estate investment trust, our charter contains a stock ownership limit which
prohibits actual or constructive ownership of more than 9.8%, by number of
shares or value, whichever is more restrictive, of our outstanding common stock
by any person, and prohibits actual or constructive ownership of the
outstanding shares of our Series A Preferred Stock by any single stockholder so
that no such stockholder, taking
10
<PAGE>
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 capital stock, or the acquisition of
an interest in an entity which owns shares of our capital stock by an
individual or entity could cause that individual or entity, or another
individual or entity, to own constructively in excess of 9.8% of the
outstanding shares of our common stock or capital stock, and the holders of the
shares would be subject to the stock ownership limits described above. In light
of the substantial ownership of our shares by members of the Price family,
stockholders should pay special attention to these rules before investing in
other companies affiliated with such family members.
Limitations in our charter and bylaws could prevent a change in control.
Provisions of our charter and bylaws could have the effect of delaying,
deferring or preventing a change in control of National Golf Properties or the
removal of existing management. As a result, such provisions could prevent our
stockholders from being paid a premium over the then-prevailing market price
for their shares of common stock. In addition to placing a limit on the number
or value of shares which an individual or entity may own, either actually or
constructively, our charter and bylaws:
. provide for a staggered board of directors;
. authorize our board of directors to issue preferred stock without
stockholder approval;
. grant our board of directors authority to amend our bylaws; and
. require approval by a majority of our board of directors of any
transaction involving a change of control of National Golf Properties
and amendments to our charter and bylaws.
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 in a manner that materially
and adversely affects the rights, preferences and privileges of holders of our
Series A Preferred Stock.
Consent of limited partners holding common units is required for some
transactions.
The consent of the holders of a majority of common units held by limited
partners also is required for the National Golf Operating Partnership:
. to dissolve;
. to sell or transfer substantially all of its assets; or
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. 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 our
stockholders.
Subject to our fundamental investment policy to maintain our qualifications
as a real estate investment trust, our board of directors will determine our
investment and financing policies, our growth strategy and our debt,
capitalization, distribution and operating policies. Although our board of
directors has no present intention to revise or amend these strategies and
policies, it may do so at any time without a vote by stockholders. Accordingly,
stockholders' control over changes in our strategies and policies is limited to
the election of directors, and changes made by our board of directors may not
serve the interests of our stockholders and could adversely affect our
financial condition or results of operations, including our ability to
distribute cash to stockholders or qualify as a real estate investment trust.
If we issue additional equity securities, your investment will be diluted.
We may issue additional shares of our common stock or preferred stock to
raise funds to acquire additional properties or pay operational expenses.
Existing stockholders will have no preemptive rights to acquire any additional
securities issued by us and any issuance of additional equity securities could
result in dilution of an existing stockholder's investment.
We have staggered elections for members of our board of directors.
A staggered board of directors could discourage a third party from making a
tender offer or otherwise attempting to obtain control of us, even though such
an attempt might be beneficial to us and our stockholders. Our board of
directors is divided into three classes 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.
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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 our common stock, subject to the stock ownership
limitations described in our charter and restrictions on the number of common
units that can be exchanged in a twelve-month period. We have entered into a
Director Designation Agreement with Mr. Price 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 stock ownership limitations described in our charter and restrictions on
the number of common units that can be exchanged in a twelve-month period.
Accordingly, Mr. Price has substantial influence over the composition of our
board of directors and on the outcome of any matters submitted to our
stockholders for approval.
We could be adversely affected by significant Year 2000 problems.
Many of the world's computers, computer software and other equipment
currently identify years in a two digit format, instead of a four digit format.
These systems, software and equipment will be unable to properly interpret
dates beyond the year 1999, which could lead to disruptions in our operations.
This problem is commonly referred to as the Year 2000 issue.
We have identified Year 2000 risk in the following three areas:
. Our computer hardware and software might not be completely Year 2000
compliant. We have replaced all of our personal computers and 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
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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, some of our business operations. Such
failures could have a material adverse effect on our financial condition and
results of operations. However, we believe that, at worst, we might cease
receiving percentage rents on a temporary basis. This would result from our
tenants having to use a manual system to prepare their accounting records and,
as a consequence, it would take additional time for our tenants to gather
financial performance information from our golf courses and calculate the
percentage rent amounts. This temporary reduction in rent revenue could cause
price fluctuations in our common stock.
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DESCRIPTION OF CAPITAL STOCK
The following summary of the terms of our capital stock does not purport to
be complete and is qualified by the Maryland General Corporation Law and our
charter and bylaws. Copies of our charter and bylaws are attached as exhibits
to our Current Report on Form 8-K dated August 31, 1995. See "Where You Can
Find More Information" on page 63.
General
Our charter authorizes us to issue up to 40,000,000 shares of common stock,
par value $0.01 per share, and 5,000,000 shares of preferred stock, par value
$0.01 per share. As of February 1, 1999, we have 12,525,145 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 February 1, 1999, our board of
directors has designated and reserved for issuance 1,500,000 shares of Series
A Preferred Stock, none of which has been issued.
Common Stock
Holders of our common stock are entitled to one vote per share on all
matters voted on by stockholders, including the election of directors. Subject
to the stock ownership limitations in our charter and the rights and
preferences of the Series A Preferred Stock and any other outstanding series
of preferred stock, the holders of shares of common stock generally possess
all voting power. Holders of common stock have no cumulative voting rights in
the election of directors. Subject to the stock ownership limitations in our
charter and any preferential rights of the Series A Preferred Stock and any
other outstanding series of preferred stock, the holders of our common stock
are entitled to such distributions as may be declared by our board of
directors from available funds. We currently make quarterly distributions.
Under Maryland law, stockholders generally are not liable for our debts or
obligations. If National Golf Properties is liquidated, subject to the right
of any holders of preferred stock to receive preferential distributions, the
holder of each outstanding share of common stock will be entitled to
participate pro rata in the assets remaining after payment of, or adequate
provision for, our debts and liabilities, including debts and liabilities
arising out of our status as general partner of National Golf Operating
Partnership.
Subject to the stock ownership limitations in our charter, all shares of our
common stock have equal distribution, liquidation and voting rights. Holders
of our common stock have no conversion, exchange, sinking fund, preference,
redemption or appraisal rights and have no preemptive rights to subscribe for
any of our securities.
Under Maryland law, a Maryland corporation generally cannot dissolve, amend
its charter, merge, sell all or substantially all of its assets, engage in a
share exchange or engage
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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 specified
in the corporation's charter. Under the Maryland General Corporation Law, the
term "substantially all of its assets" is not defined and is, therefore,
subject to Maryland common law and to judicial interpretation and review in the
context of the unique facts and circumstances of any particular transaction.
Our charter does not provide for a lesser percentage in any such situation.
Our charter authorizes our board of directors to reclassify any unissued
shares of capital stock into other classes or series of classes of stock 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 in one or more series as authorized by our board
of directors. Prior to the issuance of shares of each series, our board of
directors is required by the Maryland General Corporation Law and our charter
to fix for each series the terms, preferences, conversion or other rights,
voting powers, restrictions, limitations as to distributions, qualifications
and terms or conditions of redemption. Because our board of directors has the
power to establish the preferences, powers and rights of each series of
preferred stock, it may afford the holders of any series of preferred stock
preferences, powers and rights, voting or otherwise, senior to the rights of
holders of shares of common stock.
8% Series A Cumulative Redeemable Preferred Stock
Our board of directors has designated 1,500,000 shares 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 equal
or superior to the Series A Preferred Stock. The cumulative preferential
distributions paid on shares of Series A Preferred Stock will include any
accrued but unpaid distributions on Series A Preferred Units at the time that
such units are exchanged for shares of Series A Preferred Stock. The right of a
holder of Series A Preferred Stock to receive cumulative preferential
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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
We may redeem shares of Series A Preferred Stock, at our option, on and after
March 4, 2003, in whole or in part, 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 shares of 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
Holders of Series A Preferred Stock generally will have no voting rights as
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 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 superior 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.
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Capital Gain Dividends
As to any holder of our capital stock, if we designate any portion of a
dividend as a "capital gain dividend," the holder's share of the capital gain
dividend will be an amount that bears the same ratio to the total amount of
dividends paid to the holder for the year as the aggregate amount designated as
a capital gain dividend bears to the aggregate amount of all dividends paid on
all classes of shares for the year. For purposes of this calculation, the
amount of dividends paid to stockholders will be as determined for United
States federal income tax purposes.
Ownership by David G. Price and Dallas P. Price
As of February 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 stock ownership limitations in our charter and restrictions on the number
of common units that can be exchanged in a twelve-month period. Similarly,
Dallas P. Price, Mr. Price's former wife, may be deemed to beneficially own
354,737 shares of common stock and 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 stock ownership
limitations and restrictions on the number of common units that can be
exchanged in a twelve-month period, each of Mr. Price and Mrs. Price might be
deemed to beneficially own approximately 24.5% of our outstanding common stock.
Under our charter, however, each of Mr. Price and Mrs. Price is prohibited
from owning more than 9.8% of the outstanding shares of our common stock in the
aggregate. In order for Mr. Price or Mrs. Price to be able to exercise his or
her right to exchange common units for shares of common stock in excess of the
stock ownership limitations in our charter, our board of directors would have
to waive such stock ownership limitations. Although our board of directors
generally is permitted under our charter to waive the stock ownership
limitations with respect to individual stockholders, given Mr. Price's and Mrs.
Price's current ownership levels, the board of directors would not be permitted
to waive the stock ownership limitations with respect to either Mr. Price or
Mrs. Price. However, upon the affirmative vote of two-thirds of the outstanding
shares of capital stock entitled to vote in the election of directors, our
stockholders could amend our charter to eliminate the stock ownership
limitations altogether.
Restrictions on Ownership and Transfer
Internal Revenue Code Requirements
To maintain our tax status as a real estate investment trust, five or fewer
individuals or, in some cases, 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 Internal Revenue Code determine if any individual or entity actually or
constructively owns our capital stock under this requirement. Additionally, at
least 100 or
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more persons must beneficially own our capital stock during at least 335 days
of a taxable year. Also, rent from related party tenants is not qualifying
income for purposes of the gross income tests of the Internal Revenue Code.
Under the Internal Revenue Code, a tenant is a "related party tenant" if we or
any of our 10% or greater stockholders actually or constructively owns a 10% or
greater interest in such tenant. To help ensure we meet these tests, our
charter restricts the acquisition and ownership of shares of our capital stock.
Transfer Restrictions in Our Charter
Our charter generally provides that no holder may actually or constructively
own more than 9.8%, by number or value, whichever is more restrictive, of the
outstanding shares of our common stock. Our charter contains a similar
limitation on ownership of Series A Preferred Stock which generally provides
that no person or entity may actually or constructively own shares of Series A
Preferred Stock which, taking into account any other shares of our capital
stock actually or constructively owned by such person or entity, would cause
such ownership to exceed 9.8%, by value, of our outstanding shares of capital
stock.
The constructive ownership rules are complex and may cause shares of our
capital stock actually or constructively owned by a group of related
individuals and/or entities to be constructively owned by one individual or
entity. As a result, 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 capital 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 stock ownership limitations in our charter. In
addition, a violation of the stock ownership limitations relating to shares of
Series A Preferred Stock may occur as a result of fluctuations in the relative
value of such stock and our common stock, even absent a transfer or other
change in actual or constructive ownership of such stock.
Our board of directors may, but is not required to, waive the stock ownership
limitations described above with respect to a particular stockholder if the
board determines that such ownership will not jeopardize our status as a real
estate investment trust and our board of directors otherwise determines that
such action would be in our best interest. As a condition of such waiver, our
board of directors may require the person requesting such waiver to deliver
opinions of counsel satisfactory to the board and/or make undertakings or
representations.
In addition to the foregoing stock ownership limitations, no holder may
actually or constructively acquire any shares of any class of our capital stock
if:
. more than 50% in value of our outstanding capital stock would be
actually or constructively owned by five or fewer individuals or, in
some cases, entities;
. our capital stock would be beneficially owned by less than 100 persons,
determined without reference to any rules of attribution; or
. we would fail to qualify as a real estate investment trust.
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Any person who acquires or attempts or intends to acquire actual or
constructive ownership of our shares of capital stock that will or may violate
any of the foregoing restrictions on transferability and ownership is required
to give notice immediately to us and provide us with such other information as
we may request in order to determine the effect of such transfer on our status
as a real estate investment trust. These restrictions on transferability and
ownership will not apply if our board of directors determines that it is no
longer in our best interest to attempt to qualify, or to continue to qualify,
as a real estate investment trust.
Effect of Violating Transfer Restrictions
Any attempted transfer of our capital stock in violation of the stock
ownership limitations on our charter, unless otherwise permitted by our board
of directors, will be void and of no force or effect with respect to the
attempted transferee as to that number of shares in excess of the applicable
stock ownership limitation and such transferee shall acquire no right or
interest in the excess shares. In the case of any event other than a purported
transfer that results in any person violating such stock ownership limitations,
the person or entity holding record title to any such excess shares shall cease
to own any right or interest in the excess shares.
Any excess shares described above will be transferred automatically, by
operation of law, to a trust, the beneficiary of which will be a qualified
charitable organization selected by us. The automatic transfer will be
effective as of the close of business on the business day prior to the date of
the violative transfer. Within 20 days of receiving notice from us of the
transfer of shares to the trust, the trustee of the trust will be required to
sell the excess shares to a person or entity who could own such shares without
violating the applicable stock ownership limitation or as otherwise permitted
by our board of directors, 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
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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 according to the desires of the trustee acting for the benefit
of the beneficiary of the trust. However, if we have already taken irreversible
corporate action, then the trustee 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
stock ownership limitation, then our charter provides that the transfer of the
excess shares will be void unless otherwise permitted by our board of
directors.
If shares of capital stock which would cause us to be beneficially owned by
fewer than 100 persons are transferred to any person, the transfer shall be
null and void in its entirety, and the intended transferee will acquire no
rights to the stock.
If our board of directors shall at any time determine in good faith that a
person intends to acquire or own, has attempted to acquire or own, or may
acquire or own our capital stock in violation of the limits described above, it
shall take actions to refuse to give effect to or to prevent the ownership or
acquisition. These actions include authorizing us to repurchase stock, refusing
to give effect to such ownership or acquisition on our books, or instituting
proceedings to enjoin such ownership or acquisition.
All certificates representing shares of our capital stock bear a legend
referring to the restrictions described above.
All persons who own at least a specified percentage of the outstanding shares
of our stock must file with us annually a completed questionnaire containing
information about their ownership of the shares. Under current treasury
regulations, the percentage will be set between 0.5% and 5.0%, depending on the
number of record holders of shares. In addition, each stockholder may be
required to disclose to us in writing information about the actual and
constructive ownership of shares as our board of directors deems necessary to
comply with the provisions of the Internal Revenue Code applicable to a real
estate investment trust or to comply with the requirements of any taxing
authority or governmental agency.
These ownership limitations could discourage a takeover or other transaction
in which holders of some, or a majority, of our shares of capital stock might
receive a premium for their shares over the then prevailing market price or
which stockholders might believe to be otherwise in their best interest.
Transfer Agent and Registrar
ChaseMellon Shareholder Services is the transfer agent and registrar for our
shares of common stock.
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PARTNERSHIP AGREEMENT
The following summary of the partnership agreement for the National Golf
Operating Partnership is qualified in its entirety by reference to the
partnership agreement. A copy of the partnership agreement is attached as
Exhibit 10.1 to the quarterly report on Form 10-Q for the quarterly period
ended March 31, 1998, filed on May 15, 1998. See "Where You Can Find More
Information" on page 63.
Management
National Golf Operating Partnership is a Delaware limited partnership. Under
the partnership agreement, as the sole general partner of National Golf
Operating Partnership, we generally have full, exclusive and complete
responsibility and discretion in the management and control of National Golf
Operating Partnership, including the ability to cause it to enter into major
transactions such as acquisitions, dispositions, refinancings and selection of
golf course operators and to cause changes in its line of business and
distribution policies. The limited partners of National Golf Operating
Partnership own both common units and preferred units. As of February 1, 1999,
National Golf Operating Partnership has 21,083,569 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 generally have no authority to transact business for
National Golf Operating Partnership or participate in its management
activities, except in limited circumstances described below.
The consent of the holders of a majority of the outstanding common units held
by limited partners is required with respect to the following extraordinary
actions involving National Golf Operating Partnership:
. the amendment, modification or termination of the partnership agreement
other than to reflect the admission, substitution, termination or
withdrawal of partners;
. a general assignment for the benefit of creditors or the appointment of
a custodian, receiver or trustee for any assets;
. the institution of any proceeding for bankruptcy of National Golf
Operating Partnership;
. the transfer of any general partnership interests in National Golf
Operating Partnership, including through any merger, consolidation or
liquidation of National Golf Properties; and
. the admission of any additional or substitute general partners in
National Golf Operating Partnership.
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Notwithstanding the foregoing approval rights, we, acting as general partner,
may amend the partnership agreement for the following purposes without
obtaining limited partner consent:
. to add to the obligations of the general partner or surrender any right
or power granted to the general partner or any of its affiliates for
the benefit of the limited partners;
. to reflect the issuance of additional partnership interests in exchange
for capital contributions of cash or property or on account of options
and restricted stock issued under stock incentive plans of the general
partner;
. 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 real estate investment trust; and
. to modify the manner in which "capital accounts" are computed.
Without the consent of each limited partner holding common units or preferred
units that is adversely affected, we, acting as general partner, may not:
. convert the holder's limited partnership interest in National Golf
Operating Partnership into a general partnership interest, unless as a
result of the general partner acquiring such interest;
. modify the limited liability of such holder;
. alter the rights of such holder to receive distributions;
. alter the redemption or exchange or put rights of such holder; or
. cause the partnership to be terminated prior to December 31, 2092 or as
otherwise permitted by the dissolution provisions of the partnership
agreement.
In addition, until such time as we own 85% or more of all partnership
interests in National Golf Operating Partnership, the consent of the holders of
a majority of the common units held by limited partners also will be required
with respect to the dissolution of National Golf Operating Partnership, the
sale or other transfer of all or substantially all of its assets and mergers
and business combinations resulting in the complete disposition of all common
units held by limited partners. The holders of Series A Preferred Units also
have limited approval rights which could affect management of National Golf
Operating Partnership. See "--8% Series A Cumulative Redeemable Preferred
Units--Limited Approval Rights."
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Transferability of Interests
The partnership agreement provides that limited partners holding common units
or preferred units may transfer their partnership interests in National Golf
Operating Partnership subject to the limitations summarized below.
Transfer Restrictions Applicable to Common Units
Other than transfers to us or affiliates of David G. Price, pledges securing
loans made by financial institutions and transfers by gift or upon death to
family, limited partners holding common units:
. must first offer their common units to us on the terms and for the
consideration specified by the limited partner;
. may only transfer their common units in any one transfer to a single
purchaser who is an accredited investor within the meaning of
Regulation D under the Securities Act;
. must transfer a minimum of the lesser of (a) the greater of 50,000
common units or one-third of the original amount of common units they
and their affiliates received or (b) all of the common units held by
the limited partners and their affiliates at the time of transfer;
. may transfer such common units only if the proposed transferee agrees,
subject to the stock ownership limitations in our charter, to exchange
the common units into shares of our common stock within six months
after the transfer or as soon thereafter as possible; and
. may transfer such common units only if the proposed transferee will
not be permitted to effect any further transfer of the common units
other than to its own affiliates, affiliates of Mr. Price or us.
Transfer Restrictions Applicable to 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
. 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.
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Transfer Restrictions Applicable to Common Units and Series A Preferred Units
The partnership agreement imposes the following additional transfer
restrictions that are applicable to both common units and Series A Preferred
Units:
. The proposed transferee must assume all of the obligations of the
transferor under the partnership agreement;
. The general partner may prohibit any transfer that would require the
filing of a registration statement under the Securities Act by
National Golf Operating Partnership or would otherwise violate any
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 Internal Revenue Code;
. No transfer may be made to a lender of National Golf Operating
Partnership or any person related to such a lender whose loan
constitutes "nonrecourse liability" within the meaning of the Internal
Revenue Code, without the consent of the general partner in its sole
and absolute discretion;
. Transfers may be made only as of the first day of a fiscal quarter of
National Golf Operating Partnership, unless the general partner
otherwise consents, which shall not be unreasonably withheld; 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 real estate investment trust; or (e) if
such transfer would cause National Golf Operating Partnership to lose
specified tax benefits or become subject to treasury 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.
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Funding of Investments
The partnership agreement provides that if National Golf Operating
Partnership requires additional funds to pursue its investment objectives in
excess of funds available to National Golf Operating Partnership from
borrowings or capital contributions, we may fund such investments by raising
additional equity capital and making a capital contribution to 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 National Golf Operating Partnership will be increased based upon
the amount of such additional capital contributions and the value of National
Golf Operating Partnership at the time of such contributions.
Tax Matters
Under the partnership agreement, National Golf Properties is the tax matters
partner of National Golf Operating Partnership. The tax matters partner of a
partnership is the partner which serves as the partnership's representative in
most tax matters. For example, as the tax matters partner, we typically have
the authority to file tax returns and make elections for the partnership,
conduct partnership audits, file refund claims on behalf of the partnership and
settle partnership adjustments. In addition, as the tax matters partner, we
will receive notices and other information from the Internal Revenue Service.
The designation of National Golf Properties as the tax matters partner of
National Golf Operating Partnership is not directly relevant to our tax status
as a real estate investment trust.
The net income of National Golf Operating Partnership generally will be
allocated as follows:
. First, to the partners to offset any net losses previously allocated
to them;
. Second, to the holders of 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 according to 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;
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. 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 Internal Revenue Code and the
treasury regulations promulgated thereunder. See "Material Federal Income Tax
Considerations--Tax Aspects of the Partnerships" on page 48.
Operations
The partnership agreement requires that National Golf Operating Partnership
be operated in a manner that will enable us to satisfy the requirements for
being classified as a real estate investment trust and to avoid any federal
income tax liability. The partnership agreement provides that the net operating
cash revenues of National Golf Operating Partnership, as well as net sales and
refinancing proceeds, will be distributed at times determined by us, but 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, net sales, refinancing
proceeds and proposed appropriate cash reserves. Our board of directors reviews
and makes the final determination of the amount of dividends we distribute to
our stockholders. Under the partnership agreement, National Golf Operating
Partnership assumes and pays when due, or reimburses us for payment of, all
costs and expenses that we incur for the benefit of or relating to its
ownership and operation.
Term
The partnership agreement provides that National Golf Operating Partnership
will continue in full force and effect until December 31, 2092 or until sooner
dissolved by us with the consent of the holders of a majority of the common
units held by limited partners. National Golf Operating Partnership also will
dissolve if:
. it sells substantially all of its assets and properties;
. 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
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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 equal or
superior to the Series A Preferred Units. No current class or series of
partnership interests of National Golf Operating Partnership ranks equal or
superior 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
All of the Series A Preferred Units are exchangeable 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, all of the Series A Preferred Units are exchangeable 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 for six prior quarterly
distribution periods; or
. we or one of our subsidiaries, or any successor general partner to us,
takes the position,that National Golf Operating Partnership likely is
or upon the happening of a certain event likely will be a publicly
traded partnership within the meaning of Section 7704 of the Internal
Revenue Code.
A partnership will be classified as a "publicly traded partnership" if
interests in such partnership are traded on an established securities market or
are readily tradable on a secondary market or its substantial equivalent.
National Golf Operating Partnership does not currently and does not intend to
list its partnership interests on an exchange. In addition, there are safe
harbors which, if met, would prevent a partnership from being classified as a
publicly traded partnership. We believe that National Golf Operating
Partnership is currently within these safe harbor provisions and will continue
to be so in the future. As a result, we do not expect National Golf Operating
Partnership to become a publicly traded partnership.
The Series A Preferred Units also are exchangeable 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
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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
Internal Revenue Code for purposes of determining whether the holder of such
Series A Preferred Units is an "investment company" under Section 721(b) of the
Internal Revenue 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, at a
cash redemption price equal to the capital account balance of the holder of the
Series A Preferred Units being redeemed, but not 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
The holders of Series A Preferred Units generally have no voting rights with
respect to National Golf Operating Partnership. However, without the consent of
the holders of two-thirds of the Series A Preferred Units then outstanding,
National Golf Operating Partnership may not:
. designate, authorize or issue partnership interests ranking superior
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
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. 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.
Indemnification
The partnership agreement provides that National Golf Operating Partnership
will indemnify us and our officers and directors. Our liability to National
Golf Operating Partnership and its partners is limited for losses sustained,
liabilities incurred or benefits not derived as a result of good faith errors,
mistakes of fact or law, or acts or omissions. See "Material Provisions of
Maryland Law and Our Charter and Bylaws--Limitation of Liability and
Indemnification."
Exchange and Cash Option Rights
Exchange Rights
Each holder of common units desiring to exchange common units for shares of
common stock may exchange in any twelve-month period ending on August 18 up to
the greater of 75,000 common units or one-third of the common units owned by
such holder and other related persons as of August 18, 1993, less the number of
common units put to us by such holder and related persons in exchange for cash
during such twelve-month period. As of the date of this prospectus, the limited
partners collectively own 8,738,394 common units. Common units will be
exchanged for shares of common stock on a one-for-one basis. Common units that
are acquired by us in the exercise of these exchange rights will be converted
automatically into units of general partnership interest in National Golf
Operating Partnership.
To effect an exchange, a holder of common units must deliver to us a notice
of exchange. A tendering holder has the right to receive, on the day we receive
the notice of exchange, a like number of shares of common stock, which 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.
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The exercise of these exchange rights is subject to:
. the expiration or termination of the applicable waiting period, if
any, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976;
. each exchange having a value of not less than a specified amount; and
. the satisfaction of the stock ownership limitations in our charter
after giving effect to the conversion.
Cash Option Rights
Each holder of common units also may exercise once in each twelve-month
period ending on August 18 cash option rights to sell to us for cash up to one-
third of the number of common units owned by such holder and other related
persons as of August 18, 1993, less the number of common units exchanged by
such holder and related persons for shares of common stock during such twelve-
month period. Common units that are acquired by us as a result of the exercise
of these cash option rights will be converted automatically into units of
general partnership interest in National Golf Operating Partnership.
Upon the exercise of these cash option rights, we will have the option to pay
for such common units with available cash or borrowed funds or out of the
proceeds of a registered offering of newly issued shares of common stock. The
price payable will be equal to the fair market value of the common units being
put, based on the market value of a like number of common shares. However, if
we elect to pay for such common units with the proceeds of a registered
offering of newly issued shares of common stock, the purchase price for such
common units will be reduced by any decrease in the price of the common stock
that occurs between the exercise date and the pricing of common stock being
sold in the registered offering and underwriting discounts, commissions and
other costs related to the offering. The limited partners thus will bear the
risk of any such reduction, subject to their right to withdraw their request to
exercise their cash option rights. Any proceeds in excess of the purchase price
will be for our sole benefit.
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MATERIAL PROVISIONS OF MARYLAND
LAW AND OUR CHARTER AND BYLAWS
The following discussion summarizes provisions of Maryland law and our
charter and bylaws that we believe are material to our stockholders. The
summary does not purport to be complete and is qualified in its entirety by
reference to Maryland law and to our charter and bylaws. Copies of our charter
and bylaws are attached as exhibits to our Current Report on Form 8-K dated
August 31, 1995. See "Where You Can Find More Information" on page 63.
Size and Classification of our Board Of Directors
Our bylaws provide that the number of our directors may be established by our
board of directors. However, this number may not be more than eleven nor fewer
than the minimum number required under Maryland law, which generally is three.
Our board currently has seven directors. A majority vote of the remaining
directors will fill most vacancies at any regular meeting or at any special
meeting called for that purpose. A majority vote of the entire board of
directors will fill a vacancy resulting from an increase in the number of
directors.
Our charter provides for a staggered board of directors comprised of three
classes as nearly equal in size as possible. Each class holds office until the
third annual meeting for selection of directors following the election of such
class. We believe that classification of our board of directors will help to
assure the continuity and stability of our business strategies and policies.
The classified director provision may make the replacement of incumbent
directors more time consuming and difficult. This provision also could
discourage a third party from making a tender offer for our capital stock or
otherwise attempting to obtain control of us, even though such an attempt might
benefit us and our stockholders. A change in a majority of our board of
directors will generally require at least two, instead of one, annual meetings
of stockholders. Thus, the classified board provision could increase the
likelihood that incumbent directors will retain their positions. Holders of our
common stock have no right to cumulative voting for the election of directors.
Consequently, at each annual meeting of our stockholders, the holders of a
majority of shares of our common stock will be able to elect all of the
successors of the class of directors whose term expires at that meeting and the
holders of the remaining shares of our common stock will not be able to elect
any directors.
David G. Price contractually has the right to designate one less than a
majority of our board of directors, subject to conditions which currently are
satisfied. These director designation rights also will make it more difficult
for a third party to effect a change of control of National Golf Properties.
See "Risk Factors--David G. Price is a significant stockholder and has the
ability to designate one less than a majority of our board of directors."
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Removal of Directors
Under Maryland law, the stockholders generally have the right to remove any
director with or without cause by a majority vote of all outstanding shares
entitled to be cast for the election of directors. There is a statutory
exception to the right of stockholders to remove directors without cause if the
directors of the corporation are divided into classes, in which case a director
may not be removed without cause. Our charter provides for three classes of
directors and, accordingly, our directors may not be removed without cause.
Maryland law does not define the term "cause" and thus the term "cause" will be
subject to judicial interpretation and review in the context of the facts and
circumstances of each situation in which stockholders may attempt to remove any
director.
Corporate Governance
Transactions involving us and affiliates of David G. Price, 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 limited partners of National Golf
Operating Partnership, 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.
Other significant actions of our board of directors will require the
approval of a minimum of five directors, including:
. a transaction involving a "change of control" of National Golf
Properties or National Golf Operating Partnership;
. amendments to our charter or bylaws, except for such amendments as may
be necessary to maintain our status as a real estate investment trust;
. any waiver or modification of the stock ownership limitations in our
charter;
. issuance of securities or rights with special voting or other rights;
and
. acquisitions, dispositions or financings of assets by us or National
Golf Operating Partnership in excess of 25% of our total market
capitalization, which is comprised of issued and outstanding shares of
common stock and common units exchangeable for shares of common stock
without regard to the stock ownership limitations in our charter and
total debt, whether by merger, purchase, sale or otherwise.
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A change of control of National Golf Properties or National Golf Operating
Partnership will be deemed to have occurred if a person or group acquires 20%
or more of the combined voting power of National Golf Properties or the
Operating Partnership, as the case may be. A change of control of National Golf
Properties or National Golf Operating Partnership involving an interested
stockholder under Section 3-601(j) of the Maryland General Corporation Law or
any transaction requiring such approval under such law or 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 real estate
investment trust without obtaining stockholder approval. In addition, any
transfer of our general partnership interest in National Golf Operating
Partnership, including through any merger, consolidation or liquidation of
National Golf Properties would require approval of the holders of a majority of
the outstanding common units held by limited partners.
Business Combinations
Under Maryland law, some "business combinations," including a merger,
consolidation, share exchange, or, in some circumstances, an asset transfer or
issuance or reclassification of equity securities, between a Maryland
corporation and an interested stockholder or an affiliate of an interested
stockholder are prohibited for five years after the most recent date on which
the interested stockholder becomes an interested stockholder. An interested
stockholder is defined as:
. any person who beneficially owns, directly or indirectly, ten percent or
more of the voting power of the corporation's shares; or
. an affiliate of the corporation who, at any time within the two-year
period prior to the date in question, was the beneficial owner of ten
percent or more of the voting power of the then outstanding voting stock
of the corporation.
At the conclusion of the five-year prohibition, any business combination
between a Maryland corporation and an interested stockholder generally must be
recommended by the board of directors of the corporation and approved by the
affirmative vote of at least:
. 80% of the votes entitled to be cast by holders of outstanding shares of
voting stock of the corporation; and
. two-thirds of the votes entitled to be cast by holders of voting stock
of the corporation other than shares held by the interested stockholder
with whom, or with whose affiliate, the business combination is to be
effected.
These super-majority vote requirements do not apply if the corporation's common
stockholders receive a minimum price, as defined under Maryland law, for their
shares in the form of cash or other consideration in the same form as
previously paid by the interested stockholder for its shares. None of these
provisions of the Maryland law will apply, however, to business combinations
that are approved or exempted by the board of directors
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of the corporation prior to the time that the interested stockholder becomes an
interested stockholder. Our board of directors has exempted from these
provisions of Maryland law any business combination with David G. Price and his
affiliates. As a result, these persons may be able to enter into business
combinations with us without compliance with the super-majority vote
requirements and the other provisions of Maryland law.
The business combination statute may discourage others from acquiring us and
increase the difficulty of consummating any offer.
Control Share Acquisitions
Maryland law provides that "control shares" of a Maryland corporation
acquired in a "control share acquisition" have no voting rights except to the
extent approved by a stockholder vote of two-thirds of the votes entitled to be
cast on the matter. Shares of stock owned by the acquiror, by officers or by
directors who are employees of the corporation are excluded from shares
entitled to vote on the matter. "Control shares" are voting shares of stock
which, if aggregated with all other shares of stock owned by the acquiror or
shares of stock for which the acquiror is able to exercise or direct the
exercise of voting power, except solely by virtue of a revocable proxy, would
entitle the acquiror to exercise voting power in electing directors within one
of the following ranges of voting power:
. one-fifth or more, but less than one-third of all voting power;
. one-third or more, but less than a majority of all voting power; or
. a majority or more of all voting power.
Control shares do not include shares the acquiring person is then entitled to
vote as a result of having previously obtained stockholder approval. A "control
share acquisition" generally means the acquisition of control shares.
A person who has made or proposes to make a control share acquisition, 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
acquiring person does not deliver an acquiring person's statement as required
by statute. Fair value is determined without regard to the absence of voting
rights for control shares as of the date of the last control share acquisition
or of any meeting of stockholders at which the voting rights of control shares
are considered and not approved.
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If, before a control share acquisition, voting rights for the control shares
to be acquired in such control share acquisition are approved at a
stockholders' meeting and the acquiror becomes entitled to vote a majority of
the shares entitled to vote, all other stockholders of the corporation shall
have the rights of objecting stockholders under Maryland law to demand and
receive from the corporation payment of the fair value of such stockholder's
stock. The fair value of the stock of a stockholder exercising the rights of
objecting stockholders in such instance may not be less than the highest price
per share paid by the acquiring person in the control share acquisition.
Limitations and restrictions otherwise applicable to the exercise of rights of
objecting stockholders do not apply where such rights of objecting stockholders
become exercisable as a result of a control share acquisition.
The control share acquisition statute does not apply to shares acquired in a
merger, consolidation or share exchange if the corporation is a party to the
transaction or to acquisitions approved or exempted by the charter or bylaws of
the corporation.
Our bylaws contain a provision exempting from the control share acquisition
statute any and all acquisitions of shares of stock by David G. Price, his
heirs or his estate, or any trust, all the beneficiaries of which consist of
Mr. Price's heirs, and any affiliates or associates, 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 described under
Maryland law, which provides that a charter may be amended only by the
affirmative vote of the holders of not less than two-thirds of all of the votes
entitled to be cast on the matter.
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Dissolution of the Company
Under Maryland law, we may be dissolved by:
. the majority vote of the entire Board of Directors declaring such
dissolution to be advisable and directing that the proposed dissolution
be submitted for consideration at any annual or special meeting of
stockholders; and
. upon proper notice, the affirmative vote of the holders of two-thirds of
stock outstanding and entitled to vote.
Advance Notice of Director Nominations and New Business
Our bylaws provide that nominations of persons for election to our board of
directors and the proposal of business to be considered by stockholders at the
annual meeting of stockholders may be made only:
. 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 described in the bylaws.
Our bylaws also provide that only the business specified in the notice of the
meeting may be brought before a special meeting of stockholders.
In general, for notice of stockholder nominations or business to be made at
an annual meeting to be timely, such notice from a stockholder must be received
by us not less than 50 days nor more than 75 days prior to the annual meeting.
The purpose of requiring stockholders to give us advance notice of
nominations and other business is to afford our board of directors a meaningful
opportunity to consider the qualifications of the proposed nominees or the
advisability of the other proposed business 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
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money damages. However, the charter of a Maryland corporation may not include
any provision which limits the liability of its officers and directors to the
corporation or its stockholders for the amount of any improper benefit or
profit in money, property or services which may be received by an officer or
director, provided that it is proved that such officer or director actually
received such improper benefit or profit. In addition, the charter of a
Maryland corporation may not include a provision limiting the liability of its
officers and directors to the corporation and its stockholders for money
damages where a judgment is entered against an officer or director in a
proceeding based upon a finding that the action or failure to act on the part
of such officer or director was the result of active and deliberate dishonesty
and was material to the cause of action being decided in such proceeding.
Our charter contains a provision which limits liability of directors and
officers to the maximum extent permitted by Maryland law. This provision does
not limit our ability or that of our stockholders to obtain equitable relief,
such as an injunction or rescission.
Our charter authorizes us, to the maximum extent permitted by Maryland law,
to indemnify and to pay or reimburse reasonable expenses before final
disposition of a proceeding to any present or former director or officer from
and against any claim or liability incurred by reason of his status as one of
our present or former directors or officers. Our charter also provides that we
may indemnify any other persons permitted but not required to be indemnified by
Maryland law. Our bylaws obligate us, to the maximum extent permitted by
Maryland law, to indemnify and to pay or reimburse reasonable expenses before
final disposition of a proceeding to:
. any present or former director or officer who is made a party to the
proceeding by reason of his service in that capacity; or
. any individual who, while one of our directors and at our request,
serves or has served another corporation, partnership, joint venture,
trust, employee benefit plan or any other enterprise as a director,
officer, partner or trustee of such corporation, partnership, joint
venture, trust, employee benefit plan, or other enterprise and who is
made a party to the proceeding by reason of his service in that
capacity.
Our bylaws also permit us to indemnify and advance expenses to any person who
served one of our predecessors in any of the capacities described above and to
any of our, or our predecessors', employees or agents.
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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 Securities and Exchange Commission that
indemnification of directors and officers for liabilities arising under the
Securities Act is against public policy and is unenforceable under Section 14
of the Securities Act.
The partnership agreement of National Golf Operating Partnership provides for
indemnification of us and our officers and directors, as well as other persons
designated by us, generally to the same extent as permitted by Maryland law for
a corporation's officers and directors.
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MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the federal income tax considerations
anticipated to be material to purchasers of our common stock. This summary is
based on current law, is for general information only and is not tax advice.
Your tax treatment will vary depending on your particular situation and this
discussion does not purport to deal with all aspects of taxation that may be
relevant to a holder of common stock in light of his or her personal
investments or tax circumstances, or to stockholders who receive special
treatment under the federal income tax laws except to the extent discussed
under the headings "--Taxation of Tax-Exempt Stockholders" on page 54 and "--
Taxation of Non-U.S. Stockholders" on page 56. Stockholders receiving special
treatment include, without limitation, insurance companies, financial
institutions or broker-dealers, tax-exempt organizations, stockholders holding
securities as part of a conversion transaction, 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 you as
a holder of our common stock.
The information in this section is based on the Internal Revenue Code,
current, temporary and proposed treasury regulations promulgated under the
Internal Revenue Code, the legislative history of the Internal Revenue Code,
current administrative interpretations and practices of the Internal Revenue
Service, and court decisions, all as of the date of this prospectus. In
addition, the administrative interpretations and practices of the Internal
Revenue Service include its practices and policies as expressed in certain
private letter rulings which are not binding on the Internal Revenue Service,
except with respect to the particular taxpayers who requested and received such
rulings. Future legislation, treasury regulations, administrative
interpretations and practices and/or court decisions may adversely affect,
perhaps retroactively, the tax considerations contained in this discussion. Any
change could apply retroactively to transactions preceding the date of the
change. We have not requested, and do not plan to request, any rulings from the
Internal Revenue Service concerning our tax treatment and the statements in
this prospectus are not binding on the Internal Revenue Service or a court.
Thus, we can provide no assurance that the tax considerations contained in this
discussion will not be challenged by the Internal Revenue Service or sustained
by a court if challenged by the Internal Revenue Service.
YOU ARE URGED TO CONSULT YOUR TAX ADVISOR REGARDING THE SPECIFIC TAX
CONSEQUENCES TO YOU OF (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 REAL ESTATE
INVESTMENT TRUST FOR FEDERAL INCOME TAX PURPOSES AND (3) POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.
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Taxation of National Golf Properties
General
We elected to be taxed as a real estate investment trust under Sections 856
through 860 of the Internal Revenue Code, commencing with our taxable year
ended December 31, 1993. We believe we have been organized and have operated in
a manner which allows us to qualify for taxation as a real estate investment
trust under the Internal Revenue Code commencing with our taxable year ended
December 31, 1993. We intend to continue to operate in this manner. However,
our qualification and taxation as a real estate investment trust depends upon
our ability to meet, through actual annual operating results, asset
diversification, distribution levels and diversity of stock ownership, the
various qualification tests imposed under the Internal Revenue Code.
Accordingly, there is no assurance that we have operated or will continue to
operate in a manner so as to qualify or remain qualified as a real estate
investment trust. See "--Failure to Qualify" on page 51.
The sections of the Internal Revenue Code that relate to the qualification
and operation as a real estate investment trust are highly technical and
complex. The following sets forth the material aspects of the sections of the
Internal Revenue Code that govern the federal income tax treatment of a real
estate investment trust and its stockholders. This summary is qualified in its
entirety by the applicable Internal Revenue Code provisions, relevant rules and
treasury regulations promulgated under the Internal Revenue Code,
administrative and judicial interpretations of the Internal Revenue Code, and
these rules and treasury regulations.
[Latham & Watkins, Los Angeles, California has acted as our tax counsel in
connection with this offering and our election to be taxed as real estate
investment trust. In the opinion of Latham & Watkins, commencing with our
taxable year ended December 31, 1993, we have been organized and have operated
in conformity with the requirements for qualification and taxation as a real
estate investment trust under the Internal Revenue Code and our proposed method
of operation will enable us to continue to meet the requirements for
qualification and taxation as a real estate investment trust under the Internal
Revenue Code. This opinion was rendered as of , 1999, and Latham & Watkins
undertakes no obligation to update its opinion subsequent to this date.
The opinion of Latham & Watkins is based on various assumptions and
representations made by us as to factual matters, including representations
described in this prospectus, the accompanying prospectus supplement and a
factual certificate provided by our officers. Moreover, our qualification and
taxation as a real estate investment trust depends upon our ability to meet the
various qualification tests imposed under the Internal Revenue Code and
discussed below, relating to our actual annual operating results, asset
diversification, distribution levels and diversity of stock ownership, the
results of which have not been and will not be reviewed by Latham & Watkins.
Accordingly, no assurance can be given that the actual results of our operation
for any particular taxable year will satisfy such requirements. See "--Failure
to Qualify" in this prospectus. Further, the anticipated income tax treatment
described in this prospectus may be changed, perhaps retroactively, by
legislative, administrative or judicial action at any time. With respect to the
enforceability of the stock
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ownership limits in our charter, Latham & Watkins has relied on the opinion of
Ballard Spahr Andrews & Ingersoll, LLP, our Maryland counsel.]
If we qualify for taxation as a real estate investment trust, we generally
will not be 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 required to pay tax at regular corporate rates on any
undistributed real estate investment trust taxable income, including
undistributed net capital gains.
. We may be required to pay the "alternative minimum tax" on our items of
tax preference.
. 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 required to pay 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 required to pay a 100% tax on any net income from prohibited
transactions. Prohibited transactions are, in general, sales or other
taxable dispositions of property, other than foreclosure property, held
primarily for sale to customers in the ordinary course of business.
. If we fail to satisfy the 75% or 95% gross income test, as described
below, but have maintained our qualification as a real estate investment
trust, we will be required to pay a 100% tax on an amount equal to (a)
the gross income attributable to the greater of the amount by which we
fail the 75% or 95% gross income test multiplied by (b) a fraction
intended to reflect our profitability.
. We will be required to pay a 4% excise tax on the excess of the required
distribution over the amounts actually distributed if we fail to
distribute during each calendar year at least the sum of (i) 85% of our
ordinary income for the year, (ii) 95% of our real estate investment
trust capital gain net income for the year, and (iii) any undistributed
taxable income from prior periods.
. If we acquire any asset from a corporation which is or has been a
C corporation, generally a corporation required to pay full corporate-
level tax, in a transaction in which the basis of the asset in our hands
is determined by reference to the basis of the asset in the hands of the
C corporation, and we subsequently recognize gain on the disposition of
the asset during the ten-year period beginning on the date on which we
acquired the asset, then under treasury regulations not yet promulgated
we will be required to pay tax at the highest regular corporate tax rate
on this gain to the extent of the excess of (a) the fair market value of
the asset over (b) our adjusted basis in
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the asset, in each case determined as of the date on which we acquired
the asset. The results described in this paragraph with respect to the
recognition of such gain assume that we will make an election pursuant
to Internal Revenue Service Notice 88-19 and that the availability or
nature of such election is not modified as proposed in President
Clinton's Year 2000 Federal Budget Proposal.
Requirements for Qualification as a Real Estate Investment Trust
The Internal Revenue Code defines a real estate investment trust as a
corporation, trust or association:
(1) that is managed by one or more trustees or directors;
(2) that issues transferable shares or transferable certificates to
evidence beneficial ownership;
(3) that would be taxable as a domestic corporation, but for Sections 856
through 860 of the Internal Revenue Code;
(4) that is not a financial institution or an insurance company within
the meaning of the Internal Revenue Code;
(5) that is beneficially owned by 100 or more persons;
(6) not more than 50% in value of the outstanding stock of which is
owned, actually or constructively, by five or fewer individual, as defined
in the Internal Revenue Code to include certain entities, during the last
half of each taxable year; and
(7) that meets other tests, described below, regarding the nature of its
income and assets and the amount of its distributions.
The Internal Revenue Code provides that conditions (1) to (4), inclusive,
must be met during the entire taxable year and that condition (5) must be met
during at least 335 days of a taxable year of twelve months, or during a
proportionate part of a taxable year of less than twelve months. Conditions
(5) and (6) do not apply until after the first taxable year for which an
election is made to be taxed as a real estate investment trust. For purposes
of condition (6), pension funds and certain other tax-exempt entities
generally are treated as individuals, subject to a "look-through" exception
with respect to pension funds.
We believe that we have satisfied conditions (1) through (7) inclusive. In
addition, our charter provides for restrictions regarding ownership and
transfer of shares. These restrictions are intended to assist us in continuing
to satisfy the share ownership requirements described in (5) and (6) above.
These stock ownership and transfer restrictions are described in "Description
of Capital Stock--Restrictions on Ownership and Transfer" on page 15. These
restrictions, however, may not ensure that we will, in all cases, be able to
satisfy the share ownership requirements described in (5) and (6) above. If we
fail to satisfy these share ownership requirements, our status as a real
estate investment trust will terminate. If, however, we comply with the rules
contained in applicable treasury regulations that require us to ascertain the
actual ownership of our shares and we do not know, or would
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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 51.
In addition, a corporation may not elect to become a real estate investment
trust unless its taxable year is the calendar year. We have and will continue
to have a calendar taxable year.
Ownership of a Partnership Interest
Income tax regulations provide that if we are a partner in a partnership, we
will be deemed to own our proportionate share of the assets of the partnership.
Also, we will be deemed to be entitled to our proportionate share of the income
of the partnership. The character of the assets and gross income of the
partnership retains the same character in our hands for purposes of Section 856
of the Internal Revenue Code, including satisfying the gross income tests and
the asset tests. Thus, our proportionate share of the assets and items of
income of National Golf Operating Partnership are treated as our assets and
items of income for purposes of applying the requirements described in this
prospectus, including the income and asset tests described below. In addition,
for these purposes, National Golf Operating Partnership's assets and items of
income include its share of the assets and items of income of any partnership
in which it owns an interest. We have included a brief summary of the rules
governing the federal income taxation of partnerships and their partners below
in "--Tax Aspects of the Partnerships" on page 48. We have direct control of
National Golf Operating Partnership and will continue to operate it consistent
with the requirements for qualification as a real estate investment trust.
Income Tests
We must satisfy two gross income requirements annually to maintain our
qualification as a real estate investment trust. First, each taxable year we
must derive directly or indirectly at least 75% of our gross income, excluding
gross income from prohibited transactions, from investments relating to real
property or mortgages on real property, including "rents from real property"
and, in certain circumstances, interest, or from certain types of temporary
investments. Second, each taxable year we must derive at least 95% of our gross
income, 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 real estate investment trust 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 Internal Revenue Code provides that rents received from a tenant
will not qualify as "rents from real property" in satisfying the gross
income tests if the real estate investment trust, or an actual or
constructive owner of 10% or more of the real estate investment trust,
actually or constructively owns 10% or more of the interests in such
tenant;
. if rent attributable to personal property, leased in connection with a
lease of real property, is greater than 15% of the total rent received
under the lease, then the portion of rent attributable to personal
property will not qualify as "rents from real property"; and
. for rents received to qualify as "rents from real property," the real
estate investment trust generally must not operate or manage the
property or furnish or render services to the tenants of the property,
subject to a 1% de minimis exception, other than through an independent
contractor from whom the real estate investment trust derives no
revenue. The real estate investment trust may, however, directly perform
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, 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 tenant in which we, or an actual or
constructive owner of 10% or more of our stock, actually or
constructively own a 10% or greater interest;
. derive rental income attributable to personal property, other than
personal property leased in connection with the lease of real
property, the amount of which is less than 15% of the total rent
received under the lease; or
. perform services considered to be rendered to the occupant of the
property, other than such services within the 1% de minimis exception
or through an independent contractor from whom we derive no revenue.
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Notwithstanding the foregoing, we may have taken and may continue to take
certain of the actions set forth above to the extent these actions will not,
based on the advice of our tax counsel, jeopardize our status as a real estate
investment trust.
If we fail to satisfy one or both of the 75% or 95% gross income tests for
any taxable year, we may nevertheless qualify as a real estate investment trust
for the year if we are entitled to relief under the Internal Revenue Code.
Generally, we may avail ourselves of the relief provisions if:
. our failure to meet these tests was due to reasonable cause and not
due to willful neglect;
. we attach a schedule of the sources of our income to our federal
income tax return; and
. any incorrect information on the schedule was not due to fraud with
intent to evade tax.
It is not possible, however, to state whether in all circumstances we would be
entitled to the benefit of these relief provisions. For example, if we fail to
satisfy the gross income tests because nonqualifying income that we
intentionally accrue or receive exceeds the limits on nonqualifying income, the
Internal Revenue Service could conclude that our failure to satisfy the tests
was not due to reasonable cause. If these relief provisions do not apply to a
particular set of circumstances, we will not qualify as a real estate
investment trust. As discussed above in "--Taxation of National Golf
Properties--General" on page 41, even if these relief provisions apply, and we
retain our status as a real estate investment trust, a 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 real estate investment
trust qualification despite our periodic monitoring of our income.
Prohibited Transaction Income
Any gain realized by us on the sale of any property held as inventory or
other property held primarily for sale to customers in the ordinary course of
business, 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 real estate investment trust. Under existing law, whether property is held
as inventory or primarily for sale to customers in the ordinary course of a
trade or business depends on all the facts and circumstances surrounding the
particular transaction. National Golf Operating Partnership intends to hold the
properties for investment with a view to long-term appreciation, to engage in
the business of acquiring, developing and owning its properties and to make
occasional sales of the properties as are consistent with National Golf
Operating Partnership's investment objectives. The Internal Revenue Service may
contend, however, that one or more of these sales is subject to the 100%
penalty tax.
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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 real estate investment trust for failure to satisfy
the asset tests at the end of a later quarter solely by reason of changes in
asset values. If we fail to satisfy the asset tests because we acquire
securities or other property during a quarter, 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 real estate investment trust.
Annual Distribution Requirements
To maintain our qualification as a real estate investment trust, we are
required to distribute dividends, other than capital gain dividends, to our
stockholders in an amount at least equal to the sum of (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 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
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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 will 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 ordinary
income for such year, 95% of our capital gain income for the year and any
undistributed taxable income from prior periods. In the case of distributions
with declaration and record dates falling in the last three months of the
calendar year, the distributions described in the preceding sentence must be
made by the end of January immediately following such year. Any taxable income
and net capital gain on which this excise tax is imposed for any year is
treated as an amount distributed during that year for purposes of calculating
such tax.
Tax Aspects of the Partnerships
General
Substantially all of our investments are held indirectly through National
Golf Operating Partnership, Royal Golf, L.P. II, a limited partnership in which
National Golf Operating Partnership owns an 89% interest as general partner,
and Pumpkin Ridge Joint Venture, a general partnership in which National Golf
Operating Partnership owns a 50% interest. In
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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 income tests and in the computation of our taxable income. Moreover,
for purposes of the asset tests, we will include our proportionate share of
assets held by National Golf Operating Partnership, Royal Golf, L.P. II and
Pumpkin Ridge Joint Venture. See "--Taxation of National Golf Properties" on
page 41.
Entity Classification
Our interests in National Golf Operating Partnership, Royal Golf, L.P. II and
Pumpkin Ridge Joint Venture involve special tax considerations, including the
possibility of a challenge by the Internal Revenue Service of the status of any
of these partnerships as a partnership, as opposed to an association taxable as
a corporation, for federal income tax purposes. If National Golf Operating
Partnership, Royal Golf, L.P. II or Pumpkin Ridge Joint Venture were treated as
an association, it would be taxable as a corporation and therefore be required
to pay an entity-level tax on its income. In such a situation, the character of
our assets and items of gross income would change and preclude us from
satisfying the asset tests and possibly the income tests (see "--Taxation of
National Golf Properties--Asset Tests" on page 47 and "--Income Tests" on page
44). This, in turn, would prevent us from qualifying as a real estate
investment trust. See "--Failure to Qualify" on page 51 for a discussion of the
effect of our failure to meet these tests for a taxable year. In addition, a
change in National Golf Operating Partnership's, Royal Golf, L.P. II's or
Pumpkin Ridge Joint Venture's status for tax purposes might be treated as a
taxable event. If so, we might incur a tax liability without any related cash
distributions.
United States Treasury regulations that apply for tax periods beginning on or
after January 1, 1997 provide that a domestic business entity not otherwise
organized as a corporation and which has at least two members is eligible to
elect to be treated as a partnership for federal income tax purposes. Unless it
elects otherwise, an eligible entity in existence prior to January 1, 1997 will
have the same classification for federal income tax purposes that it claimed
under the entity classification regulations in effect prior to this date. In
addition, an eligible entity which did not exist, or did not claim a
classification, prior to January 1, 1997, will be classified as a partnership
for federal income tax purposes unless it elects otherwise. National Golf
Operating Partnership and each of Royal Golf, L.P. II and Pumpkin Ridge Joint
Venture intend to claim classification as a partnership under the final
regulations, 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
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not comply with the provisions of Section 704(b) of the Internal Revenue Code
and the treasury regulations promulgated thereunder. Generally, Section 704(b)
of the Internal Revenue Code and the related treasury regulations require that
partnership allocations respect the economic arrangement of the partners.
If an allocation is not recognized for federal income tax purposes, the 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 Internal Revenue Code and the
related treasury regulations.
Tax Allocations with Respect to the Properties
Under Section 704(c) of the Internal Revenue Code, income, gain, loss and
deduction attributable to appreciated or depreciated property that is
contributed to a partnership in exchange for an interest in the partnership,
must be allocated in a manner so that the contributing partner is charged with
the unrealized gain or benefits from the unrealized loss associated with the
property at the time of the contribution. The amount of the unrealized gain or
unrealized loss is generally equal to the difference between the fair market or
book value and the adjusted tax basis of the property at the time of
contribution. These allocations are solely for federal income tax purposes 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
Internal Revenue Code.
In general, limited partners of National Golf Operating Partnership who
acquired their limited partnership interests through a contribution of
appreciated property will be allocated depreciation deductions for tax purposes
which are lower than these deductions would be if determined on a pro rata
basis. In addition, in the event of the disposition of any of the contributed
assets which have an unrealized gain or loss attributable to a difference
between the fair market or book value and the adjusted tax basis of the asset
at the time of contribution, all income attributable to this book-tax
difference will generally be allocated to the limited partners who contributed
the property, and we will generally be allocated only our share of income
attributable to appreciation or depreciation deductions, if any, occurring
after the time of contribution to National Golf Operating Partnership. This
will tend to eliminate the book-tax difference over the life of National Golf
Operating Partnership. However, the special allocation rules of Section 704(c)
of the Internal Revenue Code do not always entirely eliminate this book-tax
difference on an annual basis or with respect to a specific taxable transaction
such as a sale. Thus, the carryover basis of the contributed assets in the
hands of National Golf Operating Partnership may cause us to be allocated lower
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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 47.
Treasury regulations issued under Section 704(c) of the Internal Revenue Code
provide partnerships with a choice of several methods of accounting for these
book-tax differences, including retention of the "traditional method" or the
election of 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 these 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 Internal Revenue Code will not apply.
Failure to Qualify
If we fail to qualify for taxation as a real estate investment trust in any
taxable year, and the relief provisions of the Internal Revenue Code applicable
to real estate investment trusts 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 real
estate investment trust will not be deductible by us and we will not be
required to distribute any amounts to our stockholders. As a result, we
anticipate that our failure to qualify as a real estate investment trust would
reduce the cash available for distribution by us to our stockholders. In
addition, if we fail to qualify as a real estate investment trust, all
distributions to stockholders will be subject to tax as ordinary income to the
extent of our current and accumulated earnings and profits, and subject to
certain limitations of the Internal Revenue 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
real estate investment trust for the four taxable years following the year
during which we lost our qualification. It is not possible to state whether in
all circumstances we would be entitled to this statutory relief. In addition,
President Clinton's Year 2000 Federal Budget Proposal contains a provision
which, if enacted in its present form, would result in the immediate taxation
of all gain inherent in a C corporation's assets upon an election by the
corporation to become a real estate investment trust in taxable years beginning
after January 1, 2000. If enacted, this provision could effectively preclude us
from re-electing to be taxed as a real estate investment trust following a loss
of our status as a real estate investment trust.
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Taxation of Taxable U.S. Stockholders
When we use the term "U.S. stockholder," we mean a holder of shares of common
stock who is, for United States federal income tax purposes:
. a citizen or resident of the United States;
. a corporation, partnership, or other entity created or organized in or
under the laws of the United States or of any state thereof or in the
District of Columbia, unless, in the case of a partnership, treasury
regulations provide otherwise;
. 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 the 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
real estate investment trust, these distributions will not be eligible for the
dividends-received deduction in the case of U.S. stockholders that are
corporations. For purposes of determining whether distributions to holders of
common stock are out of current or accumulated earnings and profits, our
earnings and profits will be allocated first to the outstanding preferred
stock, if any, and then to the common stock.
To the extent that we make distributions, other than capital gain dividends
discussed below, in excess of our current and accumulated earnings and profits,
these distributions will be treated first as a tax-free return of capital to
each U.S. stockholder. This treatment will reduce the adjusted tax basis which
each U.S. stockholder has in his shares of stock by the amount of the
distribution, but not below zero. Distributions in excess of a U.S.
stockholder's adjusted tax basis in his shares will be taxable as capital gain,
provided that the shares have been held as capital assets, 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.
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Capital Gain Distributions
Distributions that we properly designate as capital gain dividends will be
taxable to our taxable U.S. stockholders as gain, to the extent that such gain
does not exceed our actual net capital gain for the taxable year, from the sale
or disposition of a capital asset. Depending on the characteristics of the
assets which produced these gains, and 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 15.
Passive Activity Losses and Investment Interest Limitations
Distributions we make and gain arising from the sale or exchange by a U.S.
stockholder of our shares will not be treated as passive activity income. As a
result, U.S. stockholders generally will not be able to apply any "passive
losses" against this income or gain. Distributions we make, to the extent they
do not constitute a return of capital, generally will be treated as investment
income for purposes of computing the investment interest limitation. Gain
arising from the sale or other disposition of our shares, however, will not be
treated as investment income under certain circumstances.
Retention of Net Long-Term Capital Gains
We may elect to retain, rather than distribute as a capital gain dividend,
our net long-term capital gains. If we make this election, we would pay tax on
our retained net long-term capital gains. In addition, to the extent we
designate, a U.S. stockholder generally would:
. include its proportionate share of our undistributed long-term capital
gains in computing its long-term capital gains in its return for its
taxable year in which the last day of our taxable year falls;
. 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 Internal
Revenue Service.
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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 Internal Revenue Service the
amount of dividends paid during each calendar year, and the amount of any tax
withheld. Under the backup withholding rules, a stockholder may be subject to
backup withholding at the rate of 31% with respect to dividends paid unless the
holder is a corporation or 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 Internal
Revenue Service. Backup withholding is not an additional tax. Any amount paid
as backup withholding will be creditable against the stockholder's income tax
liability. In addition, we may be required to withhold a portion of capital
gain distributions to any stockholders who fail to certify their non-foreign
status. See "--Taxation of Non-U.S. Stockholders" on page 56.
Taxation of Tax-Exempt Stockholders
The Internal Revenue Service has ruled that amounts distributed as dividends
by a qualified real estate investment trust do not constitute unrelated
business taxable income when received by a tax-exempt entity. Based on that
ruling, 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 Internal Revenue Code and the shares are
not otherwise used in a trade or business, dividend income from us will not be
unrelated business taxable income to a tax-exempt stockholder. Similarly,
income from the sale of shares will not constitute unrelated business taxable
income unless a tax-exempt stockholder has held its shares as "debt financed
property" within the meaning of the Internal Revenue Code or has used the
shares in its trade or business. Generally, debt financed property is property,
the acquisition or holding of which was financed through a borrowing by the
tax-exempt stockholder.
For tax-exempt stockholders which are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and qualified
group legal services
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plans exempt from federal income taxation under Sections 501(c)(7), (c)(9),
(c)(17) and (c)(20) of the Internal Revenue Code, respectively, income from an
investment in our shares will constitute unrelated business taxable income
unless the organization is able to properly claim a deduction for amounts set
aside or placed in reserve 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 real estate investment trust" shall be treated as unrelated
business taxable income as to any trust which:
. is described in Section 401(a) of the Internal Revenue Code;
. is tax-exempt under Section 501(a) of the Internal Revenue Code; and
. holds more than 10%, by value, of the interests in the real estate
investment trust.
Tax-exempt pension funds that are described in Section 401(a) of the Internal
Revenue Code are referred to below as "qualified trusts."
A real estate investment trust is a "pension held real estate investment
trust" if:
. it would not have qualified as a real estate investment trust but for
the fact that Section 856(h)(3) of the Internal Revenue Code provides
that stock owned by qualified trusts shall be treated, for purposes of
the "not closely held" requirement, as owned by the beneficiaries of
the trust, rather than by the trust itself; and
. either at least one such qualified trust holds more than 25%, by
value, of the interests in the real estate investment trust, or one or
more such qualified trusts, each of which owns more than 10%, by
value, of the interests in the real estate investment trust, holds in
the aggregate more than 50%, by value, of the interests in the real
estate investment trust.
The percentage of any real estate investment trust dividend treated as
unrelated business taxable income is equal to the ratio of:
. the unrelated business taxable income earned by the real estate
investment trust, treating the real estate investment trust as if it
were a qualified trust and therefore subject to tax on unrelated
business taxable income, to
. the total gross income of the real estate investment trust.
A de minimis exception applies where the percentage is less than 5% for any
year. The provisions requiring qualified trusts to treat a portion of real
estate investment trust distributions as unrelated business taxable income will
not apply if the real estate investment trust is able to satisfy the "not
closely held" requirement without relying upon the "look-through" exception
with respect to qualified trusts. As a result of the limitations on the
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transfer and ownership of stock contained in the charter, we are not and do not
expect to be classified as a "pension-held real estate investment trust."
Taxation of Non-U.S. Stockholders
The preceding discussion does not address the rules governing United States
federal income taxation of the ownership and disposition of common stock by
persons that are non-U.S. stockholders. When we use the term "non-U.S.
stockholder" we mean stockholders who are not U.S. stockholders. In general,
non-U.S. stockholders may be subject to special tax withholding requirements on
distributions from National Golf Properties and with respect to their sale or
other disposition of our common stock, except to the extent reduced or
eliminated by an income tax treaty between the United States and the non-U.S.
stockholder's country. A non-U.S. stockholder who is a stockholder of record
and is eligible for reduction or elimination of withholding must file an
appropriate form with us in order to claim such treatment. Non-U.S.
stockholders should consult their own tax advisors concerning the federal
income tax consequences to them of an acquisition of shares of our common
stock, including the federal income tax treatment of dispositions of interests
in and the receipt of distributions from us.
Other Tax Consequences
We may be required to pay state or local taxes in various state or local
jurisdictions, including those in which we transact business and our
stockholders may be required to pay state or local taxes in various state or
local jurisdictions, including those in which they reside. Our state and local
tax treatment may not conform to the federal income tax consequences summarized
above. In addition, your state and local tax treatment may not conform to the
federal income tax consequences summarized above. Consequently, you should
consult your tax advisor regarding the effect of state and local tax laws on an
investment in our shares.
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SELLING STOCKHOLDERS
The selling stockholders currently own units of common partnership interest
in National Golf Operating Partnership, L.P. 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 in 1996 of golf course
properties held under option since 1993.
Under the partnership agreement for National Golf Operating Partnership, each
selling stockholder has the right to require us to acquire some or all of the
units that 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.
The following table lists the selling stockholders who may sell common stock
with this prospectus. All of the shares of common stock offered by this
prospectus are being offered by the selling stockholders for their own account
and we will not receive any proceeds from the resales of such shares. The table
identifies:
. the number of shares of common stock and the number of common units
owned by each selling stockholder as of February 1, 1999;
. the maximum number of shares of common stock represented by common
units or "exchange shares" that may be sold by each selling
stockholder with this prospectus;
. the number of shares of common stock and the number of common units
that would be owned by each selling stockholder after selling all the
exchange shares offered by such selling stockholder in this
prospectus; and
. the resulting percentage of the outstanding shares of common stock
that would be beneficially owned by each selling stockholder
immediately after the offering.
The selling stockholders may exchange all, some or none of their common units
for shares of common stock, 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 February 1, 1999.
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<TABLE>
<CAPTION>
Percentage of
Maximum Number Outstanding Shares
of Exchange Shares of Common of Common Stock
Shares of Shares Common Stock Units After Beneficially Owned
Name Common Stock(1) Common Units(2) Offered(3) After Offering(4) Offering(4) After Offering(5)
---- --------------- --------------- -------------- ----------------- ----------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Dallas P. Price
Trust(6)............... 354,737 3,244,627 551,475 354,737 2,693,152 2.7%
Oaks Christian High
School................. 0 1,250,000(7) 1,250,000(7) 0 0 *
Joan P. Anawalt 1995
Revocable Trust(8)..... 0 248,517 248,517 0 0 *
Supermarine Aviation,
Ltd.(6)................ 0 152,498 152,498 0 0 *
Myreshan, Inc.(6)....... 0 149,273 149,273 0 0 *
Richard C. and Sheri L.
Price(9)............... 44,000(10) 83,701 83,701 44,000(10) 0 *
Robert H. Williams...... 0 75,003 75,003 0 0
Joan P. Anawalt 1993
Annuity Income
Trust(8)............... 0 71,731 71,731 0 0 *
BlackLake/Penasquitos, a
California general
partnership(6)......... 0 24,844 24,844 0 0 *
Joan P. Stewart Income
Trust(8)............... 0 60,146 60,146 0 0 *
Edward R. Sause(11)..... 106,000(12) 55,550 55,550 106,000(12) 0 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(13) 8,930(13) 0 0 *
American Golf
Corporation(6)......... 0 6,854 6,854 0 0 *
RSJ Golf, Inc.(6)....... 0 6,732 6,732 0 0 *
------- --------- --------- ------- ---------
Total................. 504,737 5,493,768 2,800,616 504,737 2,693,152
======= ========= ========= ======= =========
</TABLE>
- -------
* Represents less than 1%.
(1) Represents the total shares of common stock owned by each selling
stockholder as of February 1, 1999, excluding shares of common stock
issuable upon exchange of common units owned by such selling stockholder.
(2) Represent the total common units owned by each selling stockholder as of
February 1, 1999, excluding common units held by other entities in which
such selling stockholder has a controlling interest.
(3) Represents the maximum number of shares of common stock issuable to each
selling stockholder, other than the Dallas P. Price Trust, upon exchange
of such holder's common units without regard to restrictions on the number
of common units that may be exchanged in a 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 stock ownership
limitations in our charter which prohibit the actual or constructive
ownership of more than 9.8% of the outstanding shares of our common stock
by any person.
(4) Represents the total shares of common stock and common units owned by the
selling stockholders immediately after completion of the offering. These
numbers assume that each selling stockholder exchanges a number of common
units equal to the number of exchange shares offered by such selling
stockholder in this prospectus, without regard to limitations on the
number of common units that can be exchanged in a twelve month period, and
that the selling stockholder sells all such exchange shares.
(5) Represents the percentage of the outstanding shares of common stock
beneficially owned by each selling stockholder after giving effect to the
sale of all the exchange shares offered by such selling stockholder in
this prospectus. The
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percentage for each selling stockholder is calculated assuming that none
of the other selling stockholders or other holders of common units convert
their common units into exchange shares and that none of the other
exchange shares offered by this prospectus are sold. For purposes of this
prospectus, each selling stockholder is deemed to beneficially own all
shares of common stock issuable to such selling stockholder within 60
days, including shares issued upon conversion of stock options and shares
issued upon exchange of common units, without regard to the stock
ownership limitations in our charter.
(6) Dallas P. Price is the sole trustee of the Dallas P. Price Trust, a
revocable trust. Dallas P. Price is the former wife of David G. Price,
Chairman of our Board of Directors. Supermarine Aviation, Ltd., Myreshan,
Inc., Blacklake/Penasquitos, a California general partnership, AGC and
RSJ Golf, Inc. may be deemed to be controlled by Mrs. Price and/or Mr.
Price.
(7) Oaks Christian High School, a non-profit organization, received all of
its common units in separate contributions from David G. Price and Dallas
P. Price on July 9, 1998. Under 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.
(8) Joan P. Anawalt is the sister of David G. Price, and is the sole trustee
of the Joan P. Anawalt 1995 Revocable Trust, the Joan P. Anawalt 1993
Annuity Income Trust and the Joan P. Stewart Income Trust.
(9) Richard C. Price is the former President of National Golf Properties.
Sheri L. Price, his spouse, is the daughter of David G. Price and Dallas
P. Price.
(10) Excludes 24,844 common units owned by BlackLake/Penasquitos, a California
general partnership, in which Richard C. Price owns a 10% interest.
(11) Edward R. Sause is a Director of National Golf Properties and the
Executive Vice President--Finance & Corporate Services of American Golf.
Mr. Sause previously served as Executive Vice President, Chief Financial
Officer and Secretary of National Golf Properties until April 30, 1997.
(12) Includes 70,000 shares of common stock issuable upon exercise of options
that presently are exercisable. Does not include 10,000 shares of common
stock subject to options that are not exercisable within 60 days.
(13) 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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PLAN OF DISTRIBUTION
This prospectus relates to the possible offer and sale of up to 2,800,616
shares of common stock that may be issued to the selling stockholders upon
exchange of their common units. We have registered the shares of common stock
covered by this prospectus for sale to provide the selling stockholders with
freely tradable securities, but registration of such shares of common stock
does not necessarily mean that any of such shares will be offered or sold by
the selling stockholders. We will not receive any proceeds from the offer and
sale of shares of common stock by the selling stockholders.
Selling stockholders that desire to sell shares covered by this prospectus
will first have to exchange their common units for shares of common stock.
Under the partnership agreement of National Golf Operating Partnership, limited
partners may effect an exchange of their common units for common stock at any
time at the option of the holder of such common units, subject to the holder's
satisfaction of conditions specified in the partnership agreement. These
conditions are described under "Partnership Agreement--Exchange and Cash Option
Rights--Exchange Rights" on page 30.
Sales of the shares of our common stock may be made by the selling
stockholders in one or more transactions:
. on the NYSE or any other national securities exchange or automated
quotation system on which our common stock is traded, which may involve
transactions solely between a broker-dealer and its customers which are
not traded across an open market and block trades;
. in the over-the-counter market; and
. in privately negotiated transactions or otherwise or in any combination
of such transactions.
Such sales may be at market prices then prevailing, at prices related to the
then current market price, at negotiated prices or at fixed prices. In
addition, any shares of our common stock covered by this prospectus that
qualify for sale under Section 4(1) of the Securities Act or Rule 144
promulgated thereunder may be sold under such provisions rather than under this
prospectus. The shares of our common stock covered by this prospectus may be
offered in any manner permitted by law, including through underwriters,
brokers, dealers or agents, and directly to one or more purchasers. Without
limiting the generality of the foregoing, such shares of our common stock may
be sold in one or more of the following types of transactions:
. sales to underwriters who will acquire the shares of our common stock
for their own account and resell them in one or more transactions at
fixed prices or at varying prices determined at the time of sale;
. block trades in which the broker-dealer so engaged will attempt to sell
the shares of our common stock as agent but may position and resell a
portion of the block as principal to facilitate the transaction;
60
<PAGE>
. purchases by a broker or dealer as principal and resale by such broker
or dealer for its account;
. ordinary brokerage transactions and transactions in which the broker
solicits purchasers;
. exchange distributions according to the rules of such exchanges; and
. transactions between sellers and purchasers without a broker-dealer.
In effecting sales, brokers or dealers engaged by a selling stockholder may
arrange for other brokers or dealers to participate in the resales.
The selling stockholders and any dealers or agents that participate in the
distribution of such shares may be deemed to be underwriters within the meaning
of the Securities Act and any profit on the sale of such shares by them and any
commissions received by any such dealers or agents might be deemed to be
underwriting commissions under the Securities Act.
In order to comply with state securities laws, if applicable, the shares of
common stock covered by this prospectus will not be sold in a particular state
unless such shares have been registered or qualified for sale in such state or
an exemption from registration or qualification is available and is complied
with.
In the event a selling stockholder engages an underwriter to sell the shares
of our common stock, to the extent required, a prospectus supplement will be
distributed, which will set forth the number of shares being offered and the
terms of the offering, including the names of the underwriters, any discounts,
commissions and other items constituting compensation to underwriters, dealers
or agents, the public offering price and any discounts, commissions or
concessions allowed or reallowed or paid by underwriters to dealers.
Some persons participating in the distribution of the shares of our common
stock offered in this prospectus may engage in transactions that stabilize the
price of our common stock covered by this prospectus.
The anti-manipulation rules of Regulation M under the Securities Exchange Act
of 1934, as amended, may apply to sales of common stock in the market and to
the activities of the selling stockholders.
61
<PAGE>
LEGAL MATTERS
The legality of the issuance of the shares of common stock issuable upon
exchange of common units will be passed upon for us by Ballard Spahr Andrews &
Ingersoll, LLP, Baltimore, Maryland. Tax matters described under "Material
Federal Income Tax Considerations" will be passed upon for us by Latham &
Watkins, Los Angeles, California.
EXPERTS
The consolidated balance sheet as of December 31, 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 in this prospectus and in the registration
statement of which this prospectus is a part in reliance upon the report by
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm as experts in accounting and auditing.
62
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any materials that we have filed with the Securities and Exchange Commission at
the Securities and Exchange Commission's Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20549. You may obtain information on the
operation of the Public Reference Room by calling the Securities and Exchange
Commission at 1-800-SEC-0330. We file information electronically with the
Securities and Exchange Commission. The Securities and Exchange Commission
maintains an Internet site that contains reports, proxy and information
statements and other information regarding issuers that file electronically
with the Securities and Exchange Commission. The address of the Securities and
Exchange Commission's Internet site is http://www.sec.gov. You also may inspect
copies of these materials and other information about us at The New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005.
The Securities and Exchange Commission allows us to "incorporate by
reference" the information we file with them, which means that we can disclose
important information to you by referring you to those documents. The
information incorporated by reference is considered to be part of this
prospectus, and information that we file later with the Securities and Exchange
Commission will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings we
will make with the Securities and Exchange Commission under Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act, before the termination of the offering
of the shares made under this prospectus:
. Report on Form 10-K for the fiscal year ended December 31, 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,
January 22, 1999 and February , 1999 (File Number 1-12246).
. Reports on Form 10-Q for the quarterly periods ended March 31, 1998,
June 30, 1998 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
quarterly periods ended March 31, 1998 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
63
<PAGE>
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
Securities and Exchange Commission. The prospectus and any accompanying
prospectus supplement do not contain all of the information included in the
registration statement. We have omitted a few parts of the registration
statement according to the rules and regulations of the Securities and Exchange
Commission. For further information, we refer you to the registration
statement, including its exhibits and schedules. Statements contained in this
prospectus and any accompanying prospectus supplement about the provisions or
contents of any contract, agreement or any other document referred to are not
necessarily complete. For each of these contracts, agreements or documents
filed as an exhibit to the registration statement, we refer you to the actual
exhibit for a more complete description of the matters involved. You should not
assume that the information in this prospectus or any supplement is accurate as
of any date other than the date on the front of those documents.
64
<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 described or contemplated in the
forward-looking statements:
. defaults or non-renewal of leases,
. increased interest rates and operating costs,
. failure to obtain necessary outside financing,
. difficulties in identifying properties to acquire and in effecting
acquisitions,
. failure to successfully integrate acquired properties and operations,
. failure to qualify as a real estate investment trust under the Internal
Revenue Code,
. environmental uncertainties,
. risks related to natural disasters and financial market fluctuations.
Our success also depends upon economic trends generally, including interest
rates, income tax laws, governmental regulation, legislation, population
changes and those risk factors discussed in this prospectus under the heading
"Risk Factors" beginning on page 5. Readers are cautioned not to rely too
heavily on forward-looking statements, which reflect management's analysis
only. The forward-looking statements by their nature are not intended to be
definitive predictions of future events. There is no general duty for us to
update forward-looking statements. There is, however, a duty for us to correct
information contained in this prospectus when a disclosure is misleading when
made or when a statement that was accurate when made becomes misleading due to
subsequent events.
65
<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 --Form of 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
material federal income tax matters.
23.1 --Consent of Ballard Spahr Andrews & Ingersoll, LLP (included as
part of Exhibit 5.1).
23.2 --Consent of Latham & Watkins, Los Angeles, California (included as
part of Exhibit 8.1).
23.3 --Consent of PricewaterhouseCoopers LLP.
**24.1 --Power of Attorney (included on signature page).
</TABLE>
- --------
**Previously filed.
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
.To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act;
II-2
<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.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Santa Monica, State of California, on the 18th
day of February, 1999.
NATIONAL GOLF PROPERTIES, INC.
By: /s/ James M. Stanich
_________________________________
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 February 18, 1999
____________________________________ Directors
David G. Price
/s/ James M. Stanich President and Director February 18, 1999
____________________________________
James M. Stanich
* Vice President -- Finance February 18, 1999
____________________________________ (Principal Financial
Neil M. Miller Officer)
/s/ William C. Regan Vice President -- Controller February 18, 1999
____________________________________ and Treasurer
William C. Regan
* Director February 18, 1999
____________________________________
Richard A. Archer
* Director February 18, 1999
____________________________________
John C. Cushman, III
* Director February 18, 1999
____________________________________
Bruce Karatz
* Director February 18, 1999
____________________________________
Charles S. Paul
* Director February 18, 1999
____________________________________
Edward R. Sause
*By: /s/ William C. Regan
_______________________________
William C. Regan
Attorney-in-Fact
</TABLE>
II-4
<PAGE>
EXHIBIT 1.1
NATIONAL GOLF PROPERTIES, INC.
(a Maryland corporation)
625,000 Shares of Common Stock
PURCHASE AGREEMENT
Dated: February [__], 1999
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. Representations and Warranties.............................................. 2
(a) Representations and Warranties by the Company.......................... 2
(i) Compliance with Registration Requirements.................. 2
(ii) Incorporated Documents..................................... 3
(iii) Independent Accountants.................................... 3
(iv) Financial Statements....................................... 3
(v) No Material Adverse Change in Business..................... 4
(vi) Good Standing of the Company and
the Operating Partnership.................................. 4
(vii) Good Standing of Subsidiaries.............................. 5
(viii) Capitalization............................................. 5
(ix) Authorization, Execution and Enforceability
of this Agreement.......................................... 6
(xi) Absence of Defaults and Conflicts.......................... 6
(xii) Absence of Labor Dispute................................... 7
(xiii) Absence of Proceedings..................................... 7
(xiv) Accuracy of Exhibits....................................... 7
(xv) Possession of Intellectual Property........................ 7
(xvi) Absence of Further Requirements............................ 8
(xvii) Possession of Licenses and Permits......................... 8
(xviii) Title to Property.......................................... 8
(xix) Investment Company Act..................................... 8
(xx) Environmental Laws......................................... 9
(xxi) No Stabilization or Manipulation of the
Price of Securities........................................ 9
(xxii) Insurance Coverage......................................... 10
(xxiii) No Restrictions on Payments by Subsidiaries................ 10
(xxiv) Filing of Tax Returns...................................... 10
(xxv) No Ownership of Equity Securities of Others................ 10
(xxvi) Internal Accounting Controls............................... 10
(xxvii) No Bankruptcy Proceedings.................................. 11
(xxviii) No Relationships with Certain Individuals.................. 11
(xxix) No Violation of Regulation M............................... 11
(xxx) REIT Status................................................ 11
(xxxi) Property Compliance with Applicable
Laws and Regulations....................................... 11
(xxxii) Year 2000 Compliance....................................... 12
(b) Representations and Warranties by the Selling Stockholder.............. 12
(i) Accurate Disclosure........................................ 13
(ii) Authorization of Agreements................................ 13
(iii) Good and Valid Title....................................... 13
(iv) Absence of Manipulation.................................... 13
(v) No Violation of Regulation M............................... 14
(vi) Absence of Further Requirements............................ 14
(vii) Restriction on Sale of Securities.......................... 14
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
(viii) Certificates Suitable for Transfer......................... 14
(ix) No Association with NASD................................... 14
(x) Form W-9................................................... 14
(c) Officer's Certificates................................................. 14
SECTION 2. Sale and Delivery to Underwriter; Closing................................... 15
(a) Initial Securities.................................................. 15
(b) Option Securities................................................... 15
(c) Payment............................................................. 15
(d) Denominations; Registration......................................... 15
SECTION 3. Covenants of the Company.................................................... 16
(a) Compliance with Securities Regulations and Commission Requests...... 16
(b) Filing of Amendments................................................ 16
(c) Delivery of Registration Statements................................. 16
(d) Delivery of Prospectuses............................................ 16
(e) Continued Compliance with Securities Laws........................... 17
(f) Blue Sky Qualifications............................................. 17
(g) Rule 158............................................................ 17
(h) Listing............................................................. 17
(i) Restriction on Sale of Securities................................... 17
(j) Reporting Requirements.............................................. 18
(k) Qualification as a REIT............................................. 18
SECTION 4. Payment of Expenses......................................................... 18
(a) Expenses............................................................ 18
(b) Expenses of the Selling Stockholder................................. 18
(c) Termination of Agreement............................................ 18
(d) Allocation of Expenses.............................................. 18
SECTION 5. Conditions of Underwriter's Obligations..................................... 19
(a) Effectiveness of Registration Statement............................. 19
(b) Opinions of Counsel for Company..................................... 19
(c) Opinion of Counsel for the Selling Stockholder...................... 19
(d) Opinion of Counsel for Underwriter.................................. 19
(e) Officers' Certificate............................................... 20
(f) Certificate of Selling Stockholder.................................. 20
(g) Accountant's Comfort Letter......................................... 20
(h) Bring-down Comfort Letter........................................... 20
(i) Approval of Listing................................................. 21
(j) Lock-up Agreements.................................................. 21
(k) Conditions to Purchase of Option Securities......................... 21
(i) Officers' Certificate.................................... 21
(ii) Certificate of Selling Stockholder....................... 21
(iii) Opinion of Counsel for Company........................... 21
(iv) Opinion of Counsel for the Selling Stockholder........... 21
(v) Opinion of Counsel for Underwriter....................... 21
(vi) Bring-down Comfort Letter................................ 21
(l) Additional Documents................................................ 21
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
(m) Termination of Agreement............................................ 22
SECTION 6. Indemnification............................................................. 22
(a) Indemnification of the Underwriter.................................. 22
(b) Indemnification of the Company, Directors and
Officers and Selling Stockholder.................................... 23
(c) Actions against Parties; Notification............................... 23
(d) Settlement without Consent if Failure to Reimburse.................. 24
(e) Other Agreements with Respect to Indemnification.................... 24
SECTION 7. Contribution................................................................ 24
SECTION 8. Representations, Warranties and Agreements to Survive Delivery.............. 25
SECTION 9. Termination of Agreement.................................................... 25
(a) Termination; General................................................ 25
(b) Liabilities......................................................... 26
SECTION 10. Notices..................................................................... 26
SECTION 11. Parties..................................................................... 26
Section 12. Governing Law and Time...................................................... 26
SECTION 13. Effect of Headings.......................................................... 26
</TABLE>
<TABLE>
<CAPTION>
Schedules and Exhibits:
- -----------------------
<S> <C>
Schedule A - Pricing Information Sch A-1
Schedule B - List of Persons and Entities Subject to Lock-Up Sch B-1
Exhibit A-1 - Form of Opinion of Latham & Watkins A-1-1
Exhibit A-2 - Form of Opinion of Ballard Spahr Andrews & Ingersoll A-2-1
Exhibit B - Form of Opinion of Counsel for the Selling Stockholder B-1
Exhibit C - Form of lock-up letter C-1
</TABLE>
iii
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
(a Maryland corporation)
625,000 Shares of Common Stock
(Par Value $.01 Per Share)
PURCHASE AGREEMENT
------------------
February [__], 1999
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
National Golf Properties, Inc., a Maryland corporation (the "Company"),
-------
National Golf Operating Partnership, L.P., a Delaware limited partnership (the
"Operating Partnership"), and Oaks Christian High School, a California nonprofit
- ----------------------
public benefit corporation (the "Selling Stockholder"), confirm their respective
-------------------
agreements with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch" or the "Underwriter"), with respect to (i) the
------------- -----------
sale by the Selling Stockholder and the purchase by the Underwriter of 625,000
shares of Common Stock, par value $.01 per share ("Common Stock"), of the
------------
Company and (ii) the grant by the Selling Stockholder to the Underwriter of the
option described in Section 2(b) hereof to purchase all or any part of 93,750
additional shares of Common Stock to cover over-allotments, if any. The
aforesaid 625,000 shares of Common Stock (the "Initial Securities") to be
------------------
purchased by the Underwriter and all or any part of the 93,750 shares of Common
Stock subject to the option described in Section 2(b) hereof (the "Option
------
Securities") are hereinafter called, collectively, the "Securities."
- ---------- ----------
The Company and the Selling Stockholder understand that the Underwriter
proposes to make a public offering of the Securities as soon as the Underwriter
deems advisable after this Agreement has been executed and delivered.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (No. 333-67403) covering the
- -----------
registration of the Securities under the Securities Act of 1933, as amended (the
"1933 Act"), and the offering thereof from time to time in accordance with Rule
--------
415 of the rules and regulations of the Commission under the 1933 Act (the "1933
----
Act Regulations"), including the related preliminary prospectus or prospectuses.
- ---------------
The Company shall file such additional amendments thereto and such amended and
supplemental prospectuses as may be hereafter be required prior to the execution
of this Agreement. Promptly after execution and delivery of this Agreement, the
Company shall either (i) prepare and file a prospectus in accordance with the
provisions of Rule 430A ("Rule 430A") of the 1933 Act Regulations and paragraph
---------
(b) of Rule 424 ("Rule 424(b)") of the 1933 Act Regulations or (ii) if the
-----------
Company has elected to rely upon Rule 434 ("Rule 434") of the 1933 Act
--------
Regulations, prepare and file a term sheet (a "Term Sheet") in accordance with
----------
the provisions of Rule 434 and Rule 424(b). The information included in any
such prospectus or in any such Term Sheet, as the case may be, that was omitted
from such registration statement at the time it became effective but that is
deemed to be part of such registration statement at the time it became effective
(a) pursuant to paragraph (b) of Rule 430A is referred to as "Rule 430A
---------
Information" or (b) pursuant to paragraph (d) of Rule 434 is referred to as
- -----------
"Rule 434 Information." Each prospectus used before such registration statement
- ---------------------
became effective, and
<PAGE>
any prospectus that omitted, as applicable, the Rule 430A Information or the
Rule 434 Information, that was used after such effectiveness and prior to the
execution and delivery of this Agreement, is herein called a "preliminary
-----------
prospectus." Such registration statement, including the exhibits thereto,
- ----------
schedules thereto, if any, and the documents incorporated by reference therein
pursuant to Item 12 of Form S-3 under the 1933 Act, at the time it became
effective and including the Rule 430A Information and the Rule 434 Information,
as applicable, is herein called the "Registration Statement." Any registration
----------------------
statement filed pursuant to Rule 462(b) of the 1933 Act Regulations is herein
referred to as the "Rule 462(b) Registration Statement," and after such filing
----------------------------------
the term "Registration Statement" shall include the Rule 462(b) Registration
----------------------
Statement. The final prospectus, including the prospectus supplement relating to
the offering of the Securities contemplated hereby and the documents
incorporated by reference therein pursuant to Item 12 of Form S-3 under the 1933
Act, in the form first furnished to the Underwriter for use in connection with
such offering of the Securities is herein called the "Prospectus." If Rule 434
----------
is relied on, the term "Prospectus" shall refer to the preliminary prospectus
----------
dated February [__], 1999 together with the Term Sheet and all references in
this Agreement to the date of the Prospectus shall mean the date of the Term
Sheet. For purposes of this Agreement, all references to the Registration
Statement, any preliminary prospectus, the Prospectus or any Term Sheet or any
amendment or supplement to any of the foregoing shall be deemed to include the
copy filed with the Commission pursuant to its Electronic Data Gathering,
Analysis and Retrieval system ("EDGAR").
-----
All references in this Agreement to financial statements and schedules and
other information which is "contained," "included" or "stated" in the
Registration Statement, any preliminary prospectus or the Prospectus (or other
references of like import) shall be deemed to mean and include all such
financial statements and schedules and other information which is incorporated
by reference in the Registration Statement, any preliminary prospectus or the
Prospectus, as the case may be; and all references in this Agreement to
amendments or supplements to the Registration Statement, any preliminary
prospectus or the Prospectus shall be deemed to mean and include the filing of
any document under the Securities Exchange Act of 1934 (the "1934 Act") which is
--------
incorporated by reference in the Registration Statement, such preliminary
prospectus or the Prospectus, as the case may be.
SECTION 1. Representations and Warranties.
------------------------------
(a) Representations and Warranties by the Company. The Company and
---------------------------------------------
the Operating Partnership, jointly and severally, represent and warrant to
the Underwriter as of the date hereof, as of the Closing Time referred to
in Section 2(c) hereof, and as of each Date of Delivery (if any) referred
to in Section 2(b) hereof, and agrees with the Underwriter, as follows:
(i) Compliance with Registration Requirements. The Company
-----------------------------------------
meets the requirements for use of Form S-3 under the 1933 Act. The
Registration Statement has been filed with the Commission and, one or
more amendments to such Registration Statement may have been so filed.
Each of the Registration Statement and any Rule 462(b) Registration
Statement has become effective under the 1933 Act and no stop order
suspending the effectiveness of the Registration Statement or any Rule
462(b) Registration Statement has been issued under the 1933 Act and
no proceedings for that purpose have been instituted or are pending
or, to the knowledge of the Company, are contemplated by the
Commission, and any request on the part of the Commission for
additional information has been complied with.
At the respective times the Registration Statement, any Rule
462(b) Registration Statement and any post-effective amendments
thereto became effective and at the Closing Time (and, if any Option
Securities are purchased, at the Date of Delivery), the Registration
Statement, the Rule 462(b) Registration Statement and any amendments
and supplements thereto complied and will comply in all material
respects with the requirements of the 1933
<PAGE>
Act and the 1933 Act Regulations and did not and will not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading. Neither the Prospectus nor any amendments or
supplements thereto, at the time the Prospectus or any such amendment
or supplement was issued and at the Closing Time (and, if any Option
Securities are purchased, at the Date of Delivery), included or will
include an untrue statement of a material fact or omitted or will omit
to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading. If Rule 434 is used, the Company shall comply with the
requirements of Rule 434. The representations and warranties in this
subsection shall not apply to statements in or omissions from the
Registration Statement or Prospectus made in reliance upon and in
conformity with information furnished to the Company in writing by
Merrill Lynch expressly for use in the Registration Statement or
Prospectus.
Each preliminary prospectus and the prospectus filed as part of
the Registration Statement as originally filed or as part of any
amendment thereto, or filed pursuant to Rule 424 under the 1933 Act,
complied when so filed in all material respects with the 1933 Act
Regulations and each preliminary prospectus and the Prospectus
delivered to the Underwriter for use in connection with the offering
contemplated hereby was identical to the electronically transmitted
copies thereof filed with the Commission pursuant to EDGAR, except to
the extent permitted by Regulation S-T.
The Company has not distributed and, prior to the later of (i)
the Closing Date and (ii) the completion of the distribution of the
Securities, will not distribute any offering material in connection
with the offering and sale of the Securities other than the
Registration Statement or any amendment thereto or any Prospectus or
any amendment or supplement thereto, or other materials, if any,
permitted by the 1933 Act.
(ii) Incorporated Documents. The documents incorporated or
----------------------
deemed to be incorporated by reference in the Registration Statement
and the Prospectus, when they became effective or at the time they
were or hereafter are filed with the Commission, complied and will
comply in all material respects with the requirements of the 1933 Act
and the 1933 Act Regulations or the 1934 Act and the rules and
regulations of the Commission under the 1934 Act (the "1934 Act
--------
Regulations"), as applicable, and, when read together with the other
-----------
information in the Prospectus, at the time the Registration Statement
became effective, at the time the Prospectus was issued and at the
Closing Time (and, if any Option Securities are purchased, at the Date
of Delivery), did not and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading.
(iii) Independent Accountants. The accountants who
-----------------------
certified the financial statements and supporting schedules included
in the Registration Statement are independent public accountants as
required by the 1933 Act and the 1933 Act Regulations.
(iv) Financial Statements. The financial statements
--------------------
included in the Registration Statement and the Prospectus, together
with the related schedules and notes, present fairly the financial
position of the Company and its consolidated subsidiaries at the dates
indicated and the statement of operations, stockholders' equity and
cash flows and changes in financial condition of the Company and its
consolidated subsidiaries for the periods specified; said financial
statements have been prepared in conformity with generally accepted
accounting principles ("GAAP") applied on a consistent basis
throughout the periods involved, except
<PAGE>
as otherwise stated therein. The supporting schedules, if any,
included in the Registration Statement present fairly in accordance
with GAAP the information required to be stated therein. The selected
financial data and the summary financial information included in the
Prospectus present fairly the information shown therein and have been
compiled on a basis consistent with that of the audited financial
statements included in the Registration Statement. The financial data
and the statistical information and data set forth or incorporated by
reference in the Prospectus fairly present, as of the date of such
data or information, on the basis stated in the Registration Statement
and the Prospectus, the information included therein. [The pro forma
financial statements and the related notes thereto included in the
Registration Statement and the Prospectus present fairly the
information shown therein, have been prepared in accordance with the
Commission's rules and guidelines with respect to pro forma financial
statements and have been properly compiled on the bases described
therein, and the assumptions used in the preparation thereof are
reasonable and the adjustments used therein are appropriate to give
effect to the transactions and circumstances referred to therein.]
Other than the historical financial statements (or schedules) included
therein, no other historical financial statements (or schedules) are
required to be included in the Registration Statement or Prospectus.
(v) No Material Adverse Change in Business. Since the
--------------------------------------
respective dates as of which information is given in the Registration
Statement and the Prospectus, except as otherwise stated therein, (A)
there has been no material adverse change, or any development
involving a prospective material adverse change, in the condition,
financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and its subsidiaries considered as
one enterprise, regardless of whether arising in the ordinary course
of business (a "Material Adverse Effect"), (B) neither the Company nor
-----------------------
any of its subsidiaries has sustained any material loss or
interference with their respective businesses or properties from fire,
flood, hurricane, accident or other calamity, regardless of whether
covered by insurance, or from any labor dispute or any legal or
governmental proceeding, (C) there have been no transactions entered
into by the Company or any of its subsidiaries, other than those in
the ordinary course of business, which are material with respect to
the Company and its subsidiaries considered as one enterprise, (D)
except for regular dividends on the Common Stock in amounts per share
that are consistent with past practice, there has been no dividend or
distribution of any kind declared, paid or made by the Company on any
class of its capital stock, (E) the Company and its subsidiaries have
not incurred any material liability or obligation, direct or
contingent, nor entered into any material transaction not in the
ordinary course of business, (F) the Company has not purchased any of
its outstanding capital stock (other than as contemplated by Section
1(viii) hereof) and (G) there has not been any material change in the
capital stock or partnership interests (as the case may be), short-
term debt or long-term debt of the Company and its subsidiaries.
(vi) Good Standing of the Company and the Operating
----------------------------------------------
Partnership. The Company has been duly organized and is validly
-----------
existing as a corporation in good standing under the laws of the State
of Maryland and has corporate power and authority to own and lease its
properties and to conduct its business as described in the Prospectus
and to enter into and perform its obligations under this Agreement;
and the Company is duly qualified as a foreign corporation to transact
business and is in good standing in each other jurisdiction in which
such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the
failure so to qualify or to be in good standing would not result in a
Material Adverse Effect. The Operating Partnership has been duly
organized and is validly existing as a limited partnership in good
standing under the laws of the State of Delaware and has full power
and authority to own and lease its
<PAGE>
properties and to conduct its business as described in the Prospectus
and to enter into and perform its obligations under this Agreement;
and the Operating Partnership is duly qualified as a foreign limited
partnership to transact business and is in good standing in each other
jurisdictions in which such qualification is required, whether by
reason of the ownership or leasing of property or the conduct of
business, except where the failure so to qualify or to be in good
standing would not result in a Material Adverse Effect.
(vii) Good Standing of Subsidiaries. Each of the Company's
-----------------------------
subsidiaries that is a corporation has been duly organized and is
validly existing as a corporation in good standing under the laws of
the jurisdiction of its incorporation, has corporate power and
authority to own and lease its properties and to conduct its business
as described in the Prospectus and is duly qualified as a foreign
corporation to transact business and is in good standing in each
jurisdiction in which such qualification is required, whether by
reason of the ownership or leasing of property or the conduct of
business, except where the failure so to qualify or to be in good
standing would not result in a Material Adverse Effect; except as
otherwise disclosed in the Registration Statement, all of the issued
and outstanding capital stock of each such subsidiary has been duly
authorized and validly issued, is fully paid and non-assessable and is
owned by the Company, directly or through subsidiaries, free and clear
of any security interest, mortgage, pledge, lien, encumbrance, claim
or equity; none of the outstanding shares of capital stock of any
subsidiary of the Company was issued in violation of the preemptive or
similar rights of any securityholder of such subsidiary. Each of the
subsidiaries of the Company that is a partnership has been duly
organized and is validly existing as a partnership in good standing
under the laws of the jurisdiction of its organization, has full power
and authority to own and lease its properties and to conduct its
business as described in the Prospectus and is duly qualified as a
foreign partnership to transact business and is in good standing in
each jurisdiction in which such qualification is required, whether by
reason of the ownership or leasing of property or the conduct of
business, except where the failure so to qualify or to be in good
standing would not result in a Material Adverse Effect. The
partnership agreements of the subsidiaries of the Company that are
partnerships have been duly authorized, executed and delivered by the
general partners thereof and constitute the valid and binding
obligation of the general partners thereof. Such partnership
agreements reflect the Company and/or one or more its subsidiaries as
the sole beneficial owners of the partnership interests in such
partnerships, except as otherwise described in the Registration
Statement. The only subsidiaries of the Company are the Operating
Partnership and Royal Golf, L.P. II.
(viii) Capitalization. The authorized, issued and
--------------
outstanding capital stock of the Company is as set forth or
incorporated by reference in the Registration Statement (except for
subsequent issuances, if any, pursuant to reservations, agreements or
employee benefit plans referred to in the Prospectus or pursuant to
the exercise of convertible securities or options referred to in the
Prospectus). The shares of issued and outstanding capital stock of the
Company have been duly authorized and validly issued and are fully
paid and non-assessable; none of the outstanding shares of capital
stock of the Company was issued in violation of the preemptive or
other similar rights of any securityholder of the Company, and no
securityholder of the Company or the Operating Partnership has any
right that has not been fully exercised or waived to require the
Company to register the offer or sale of any securities owned by such
securityholder under the 1933 Act in a public offering contemplated by
this Agreement. All of the issued and outstanding shares of capital
stock of the Company have been offered and sold in compliance with all
applicable laws (including, without limitation, federal and state
securities laws). Except for shares of Common Stock issued in exchange
for Units (as defined below), shares of restricted
<PAGE>
Common Stock issued pursuant to the Company's employee benefit plans,
shares of Common Stock issued upon exercise of stock options by
directors and employees of the Company, and as described in the
Prospectus, the Company has not issued or sold any shares of its
capital stock during the six-month period preceding the initial filing
date of the Registration Statement including any sales pursuant to
Rule 144A under, or Regulation D or S of, the Act. Except as disclosed
in the Prospectus, there are no outstanding (i) securities, equity
interests or obligations of the Company or any of its subsidiaries
convertible into or exchangeable for any capital stock or equity
interests (as the case may be) of the Company or any such subsidiary,
(ii) warrants, rights or options to subscribe for or purchase from the
Company or any such subsidiary any such capital stock or equity
interests or any such convertible or exchangeable securities, equity
interests or obligations, or (iii) obligations of the Company or any
such subsidiary to issue any shares of capital stock, equity
interests, any such convertible or exchangeable securities, equity
interests or obligations, or any such warrants, rights or options. All
of the outstanding partnership interests in the Operating Partnership
(the "Units") have been duly authorized and validly issued and are
-----
owned as set forth in the Prospectus and, in the case of Units issued
to the Company, are owned free and clear of any security interests,
liens, encumbrances, equities or claims, except as otherwise disclosed
in the Prospectus. The Units conform in all material respects to the
description thereof contained in the Prospectus. The Company is, and
immediately after the Closing Date will be, the sole general partner
of the Operating Partnership.
(ix) Authorization, Execution and Enforceability of this
---------------------------------------------------
Agreement. This Agreement has been duly authorized, executed and
---------
delivered by each of the Company and the Operating Partnership. This
Agreement is the valid and binding agreements of each of the Company
and the Operating Partnership, enforceable against the Company and the
Operating Partnership in accordance with it terms, subject to the
effect of bankruptcy, insolvency, moratorium, fraudulent conveyance,
reorganization and similar laws relating to creditors' rights
generally, to the application of equitable principles in any
proceeding, whether at law or in equity, as limited by the
unenforceability under certain circumstances under law or court
decisions of provisions providing for the indemnification of or
contribution to a party with respect to a liability where such
indemnification or contribution is contrary to public policy and to
the extent that enforceability of such provisions may be limited due
to the existence of an untrue statement of a material fact in the
Registration Statement and the Prospectus or omission to state a
material fact therein necessary to make the statements in the
Registration Statement and the Prospectus, respectively, not
misleading.
(x) Authorization and Description of Securities. The
-------------------------------------------
Securities to be purchased by the Underwriter from the Selling
Stockholder pursuant to this Agreement have been duly authorized and,
when issued and delivered to the Selling Stockholder upon exchange of
its Units in accordance with the terms of the Agreement of Limited
Partnership of the Operating Partnership, will be validly issued,
fully paid and non-assessable. The Common Stock conforms in all
material respects to the statements relating thereto contained in the
Prospectus and such description conforms to the rights set forth in
the instruments defining the same; no holder of the Securities will be
subject to personal liability by reason of being such a holder; and
the issuance of the Securities is not subject to the preemptive or
other similar rights of any securityholder of the Company.
(xi) Absence of Defaults and Conflicts. Neither the Company
---------------------------------
nor any of its subsidiaries is in violation of its charter or by-laws
or partnership agreement or in default in the performance or
observance of any obligation, agreement, covenant or condition
<PAGE>
contained in any contract, indenture, mortgage, deed of trust, loan or
credit agreement, note, lease or other agreement or instrument to
which the Company or any of its subsidiaries is a party or by which it
or any of them may be bound, or to which any of the property or assets
of the Company or any of its subsidiaries is subject (collectively,
"Agreements and Instruments") except for such defaults that would not
--------------------------
result in a Material Adverse Effect. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated herein and in the Registration Statement and compliance
by each of the Company and the Operating Partnership with its
obligations hereunder have been duly authorized by all necessary
corporate and partnership action and do not and will not, whether with
or without the giving of notice or passage of time or both, conflict
with or constitute a breach of, or default or Repayment Event (as
defined below) under, or result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the Company
or any of its subsidiaries pursuant to, the Agreements and Instruments
(except for such conflicts, breaches or defaults or liens, charges or
encumbrances that would not result in a Material Adverse Effect), nor
will such action result in any violation of the provisions of the
charter or by-laws of the Company or the charter or bylaws or
partnership agreement of any subsidiary of the Company or any
applicable law, statute, rule, regulation, judgment, order, writ or
decree of any government, government instrumentality or court,
domestic or foreign, having jurisdiction over the Company or any of
its subsidiaries or any of their assets, properties or operations. As
used herein, a "Repayment Event" means any event or condition which
---------------
gives the holder of any note, debenture or other evidence of
indebtedness (or any person acting on such holder's behalf) the right
to require the repurchase, redemption or repayment of all or a portion
of such indebtedness by the Company or any of its subsidiaries.
(xi) Absence of Labor Dispute. No labor dispute with the
------------------------
employees of the Company or any of its subsidiaries exists or, to the
knowledge of the Company, is imminent, and the Company is not aware of
any existing or imminent labor disturbance by the employees of any of
its or any subsidiary's principal suppliers, manufacturers, customers
or contractors, which, in either case, may reasonably be expected to
result in a Material Adverse Effect.
(xii) Absence of Proceedings. There is no action, suit,
----------------------
proceeding, inquiry or investigation before or brought by any court or
governmental agency or body, domestic or foreign, now pending, or, to
the knowledge of the Company, threatened, against or affecting the
Company or any of its subsidiaries or any of their respective
properties, which is required to be disclosed in the Registration
Statement (other than as disclosed therein), or which might reasonably
be expected to result in a Material Adverse Effect, or which might
reasonably be expected to materially and adversely affect the
properties or assets thereof or the consummation of the transactions
contemplated in this Agreement or the performance by the Company or
the Operating Partnership of their respective obligations hereunder;
the aggregate of all pending legal or governmental proceedings to
which the Company or any of its subsidiaries is a party or of which
any of their respective property or assets is the subject which are
not described in the Registration Statement, including ordinary
routine litigation incidental to the business, could not reasonably be
expected to result in a Material Adverse Effect.
(xiv) Accuracy of Exhibits. There are no contracts or
--------------------
documents that are required to be described in the Registration
Statement, the Prospectus or the documents incorporated by reference
therein or to be filed as exhibits thereto which have not been so
described and filed as required.
<PAGE>
(xv) Possession of Intellectual Property. The Company
-----------------------------------
and its subsidiaries own or possess, or can acquire on reasonable
terms, adequate patents, patent rights, licenses, inventions,
copyrights, know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, systems
or procedures), trademarks, service marks, trade names or other
intellectual property (collectively, "Intellectual Property")
---------------------
necessary to carry on the business now conducted by them, and neither
the Company nor any of its subsidiaries has received any notice or is
otherwise aware of any infringement of or conflict with asserted
rights of others with respect to any Intellectual Property or of any
facts or circumstances which would render any Intellectual Property
invalid or inadequate to protect the interest of the Company or any of
its subsidiaries therein, and which infringement or conflict (if the
subject of any unfavorable decision, ruling or finding) or invalidity
or inadequacy, singly or in the aggregate, would result in a Material
Adverse Effect.
(xvi) Absence of Further Requirements. No filing with, or
-------------------------------
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or
agency is necessary or required for the performance by each of the
Company and the Operating Partnership of its obligations hereunder, in
connection with the offering or sale of the Securities hereunder or
the consummation of the transactions contemplated by this Agreement,
except such as have been already obtained or as may be required under
the 1933 Act or the 1933 Act Regulations or state securities laws.
(xvii) Possession of Licenses and Permits. The Company and
----------------------------------
its subsidiaries possess such permits, licenses, approvals, consents
and other authorizations (collectively, "Governmental Licenses")
---------------------
issued by the appropriate federal, state, local or foreign regulatory
agencies or bodies necessary to conduct the business now operated by
them; the Company and its subsidiaries are in compliance with the
terms and conditions of all such Governmental Licenses, except where
the failure so to comply would not, singly or in the aggregate, have a
Material Adverse Effect; all of the Governmental Licenses are valid
and in full force and effect, except when the invalidity of such
Governmental Licenses or the failure of such Governmental Licenses to
be in full force and effect would not have a Material Adverse Effect;
and neither the Company nor any of its subsidiaries has received any
notice of proceedings relating to the revocation or modification of
any such Governmental Licenses which, singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, would
result in a Material Adverse Effect.
(xviii) Title to Property. The Company and its subsidiaries
-----------------
have good and marketable title to all real property owned by the
Company and its subsidiaries (the "Properties"), including, without
----------
limitation, all of the real property described in the Registration
Statement or the Prospectus as being owned by the Company or any of
its subsidiaries, and good title to all other properties owned by
them, in each case, free and clear of all mortgages, pledges, liens,
security interests, claims, restrictions or encumbrances of any kind
except such as (a) are described in the Prospectus or (b) do not,
singly or in the aggregate, materially affect the value of such
property and do not interfere with the use made and proposed to be
made of such property by the Company or any of its subsidiaries; and
all of the leases and subleases that are material to the business of
the Company and its subsidiaries, considered as one enterprise, and
under which the Company or any of its subsidiaries holds properties
described in the Prospectus, are in full force and effect, and neither
the Company nor any subsidiary has any notice of any material claim of
any sort that has been asserted by anyone adverse to the rights of the
Company or any of its subsidiaries
<PAGE>
under any of the leases or subleases mentioned above, or affecting or
questioning the rights of the Company or such subsidiary to the
continued possession of the leased or subleased premises under any
such lease or sublease.
(xix) Investment Company Act. The Company is not, and upon
----------------------
the issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the
Prospectus will not be, an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in
the Investment Company Act of 1940, as amended.
(xx) Environmental Laws. Except as otherwise disclosed in
------------------
the Prospectus and except as would not, singly or in the aggregate
result in a Material Adverse Effect, (i) none of the Company or any of
its subsidiaries is in violation of any federal, state or local laws
and regulations relating to pollution or protection of human health or
the environment, including, without limitation, laws and regulations
relating to emissions, discharges, releases or threatened releases of
toxic or hazardous substances, materials or wastes, or petroleum and
petroleum products ("Materials of Environmental Concern"), or
----------------------------------
otherwise relating to the protection of human health and safety, or
the use, treatment, storage, disposal, transport or handling of
Materials of Environmental Concern (collectively, "Environmental
-------------
Laws"), which violation includes, but is not limited to, noncompliance
----
with, or lack of, any permits or other environmental authorizations,
and (ii) (A) none of the Company or any of its subsidiaries has
received any communication (written or oral), whether from a
governmental authority or otherwise, alleging any such violation or
noncompliance, and there are no circumstances, either past, present or
that are reasonably foreseeable, that may lead to any such violation
in the future, (B) there is no pending or threatened claim, action,
investigation or notice (written or oral) by any person or entity
alleging potential liability for investigatory, cleanup, or
governmental response costs, or natural resources or property damages,
or personal injuries, attorney's fees or penalties relating to (x) the
presence, or release into the environment, of any Materials of
Environmental Concern at any location owned or operated by the Company
or any of its subsidiaries now or in the past, or (y) circumstances
forming the basis of any violation or potential violation, of any
Environmental Law (collectively, "Environmental Claims"), and (C)
--------------------
there are no past or present actions, activities, circumstances,
conditions, events or incidents that could form the basis of any
Environmental Claim against the Company or any of its subsidiaries or
against any person or entity for whose acts or omissions the Company
or any of its subsidiaries is or may reasonably be expected to be
liable, either contractually or by operation of law. In the ordinary
course of business, the Company, and each of its subsidiaries or
tenants of its properties, as appropriate, (i) review and respond as
appropriate, regarding the effect of Environmental Laws on the
business, operations and properties of the Company and each of its
subsidiaries, in the course of which, or as a result of which, the
Company has identified and evaluated associated costs and liabilities
(including, without limitation, any capital or operating expenditures
required for cleanup, closure of properties or compliance with
Environmental Laws or any permit, license or approval, any related
constraints on operating activities, and any potential liabilities to
third parties), and (ii) have conducted environmental investigations
of, and have reviewed reasonably available information regarding, the
business, properties and operations of the Company and each of its
subsidiaries, and of other properties impacting the Company's and its
subsidiaries' business, properties and operations, as appropriate for
the circumstances of each such property and operation; on the basis of
such reviews, investigations and inquiries, the Company has reasonably
concluded that, except as disclosed in the Registration Statement, any
costs and liabilities associated with such matters would not have,
singularly or in the aggregate, a Material Adverse Effect or
<PAGE>
otherwise require disclosure in the Registration Statement. All
Environmental Claims that are required to be disclosed in the
Prospectus have been disclosed.
(xxi) No Stabilization or Manipulation of the Price of
------------------------------------------------
Securities. The Company has not, directly or indirectly, (i) taken any
----------
action designed to cause or to result in, or that has constituted or
that might reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company to facilitate
the sale or resale of the Securities or (ii) since the filing of the
Registration Statement (A) sold, bid for, purchased, or paid anyone
any compensation for soliciting purchases of, the Securities or (B)
paid or agreed to pay to any person any compensation for soliciting
another to purchase any other securities of the Company.
(xxii) Insurance Coverage. The Company and each of its
------------------
subsidiaries (or tenants of the Properties, as appropriate) are
insured by insurers of recognized financial responsibility against
such losses and risks and in such amounts as are prudent and customary
in the businesses in which they are engaged as described in the
Prospectus; and neither the Company nor any such subsidiary has any
reason to believe that it will not be able to renew such insurance
coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its
business at a cost that would not result in a Material Adverse Effect,
except as described in or contemplated by the Prospectus.
(xxiii) No Restrictions on Payments by Subsidiaries. No
-------------------------------------------
subsidiary of the Company is currently prohibited, directly or
indirectly, from paying any dividends to the Company, from making any
other distribution on such subsidiary's capital stock or partnership
interests, from repaying to the Company any loans or advances to such
subsidiary from the Company or from transferring any of such
subsidiary's property or assets to the Company or any other subsidiary
of the Company, except as described in or contemplated by the
Prospectus and except pursuant to (i) applicable law and (ii) with
respect to prohibitions only against transferring any of such
subsidiary's property or assets to the Company or any other subsidiary
of the Company, (A) customary non-assignment provisions contained in
leases to which the Company or any of its subsidiaries is a party and
(B) security interests, including purchase money obligations,
applicable to any property of the Company or any of its subsidiaries
as of the date hereof.
(xxiv) Filing of Tax Returns. Each of the Company and its
---------------------
subsidiaries has timely filed all material foreign, federal, state and
local tax returns that are required to be filed or has requested
extensions thereof and has paid all material taxes (including any
interest, penalty or addition thereto) required to be paid by it and
any other material assessment, fine or penalty levied against it, to
the extent that any of the foregoing is due and payable, except for
any such assessment, fine or penalty that is currently being contested
in good faith by appropriate proceedings promptly instituted and
diligently pursued and for which an adequate reserve in accordance
with GAAP has been established. No audit, inquiry, investigation or
similar proceeding is currently pending or, to the knowledge of the
Company, threatened against the Company or any of its assets with
respect to which it may be liable for the payment of material taxes.
(xxv) No Ownership of Equity Securities of Others. Except
-------------------------------------------
as described in or contemplated by the Prospectus and except for
shares of stock of water companies, the sole purpose of which
investment is to obtain water for irrigation of the Company's golf
courses, neither the Company nor any of its subsidiaries owns any
shares of stock or any other equity
<PAGE>
securities of any corporation or has any equity interest in any firm,
partnership, company, association or other entity.
(xxvi) Internal Accounting Controls. The Company and each
----------------------------
of its subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability;
(iii) access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to
any differences.
(xxvii) No Bankruptcy Proceedings. (i) To the knowledge of
-------------------------
the Company or any of its subsidiaries, no proceeding or filing of a
petition seeking relief under Title 11 of the United States Code or
any other federal, state or foreign bankruptcy, insolvency,
liquidation or similar law has been commenced or instituted (whether
voluntary or involuntary) by or with respect to the Company or any of
its subsidiaries or affiliates, (ii) none of the Company and its
subsidiaries and affiliates has applied for or consented to the
appointment of a receiver, trustee, custodian, sequestrator or similar
official for any such persons or for a substantial part of any such
persons' property or assets and (iii)none of the Company and its
subsidiaries and affiliates has made a general assignment for the
benefit of its creditors.
(xxviii) No Relationships with Certain Individuals. No
-----------------------------------------
relationship, direct or indirect, exists between or among the Company
or the Operating Partnership on the one hand, and the directors,
officers, stockholders (in the case of the Company), limited partners
(in the case of the Operating Partnership), tenants, customers or
suppliers of the Company or the Operating Partnership on the other
hand, which is required to be described in the Prospectus and is not
so described.
(xxix) No Violation of Regulation M. The Company has not
----------------------------
taken any action that would violate Rule 102 of Regulation M of the
1934 Act.
(xxx) REIT Status. The Company has at all times been
-----------
organized and operated in conformity with the requirements for
qualification and taxation as a "real estate investment trust" (a
"REIT") under the Internal Revenue Code of 1986, as amended (the
----
"Code") for each of its taxable years ended December 31, 1993 through
----
December 31, 1998, and the Company is and will be as of Closing
organized and operated in conformity with the requirements for
qualification and taxation as a REIT under the Code.
(xxxi) Property Compliance with Applicable Laws and
--------------------------------------------
Regulations.
-----------
(1) Each of the Properties complies with all
applicable codes, laws, ordinances and regulations (including,
without limitation, building and zoning codes and laws and
regulations relating to access to the Properties) and deed
restrictions or other covenants, except for such failures to
comply that would not result in a Material Adverse Effect; and
(2) neither the Company, any of its subsidiaries nor
any tenant of any portion of any of the Properties is in
default under any of the ground leases or air space leases (as
lessee), space leases (as lessor or lessee, as the case may be)
or
<PAGE>
other occupancy, license or operating agreement relating to, or
under any of the mortgages or other security documents or other
agreements encumbering or otherwise recorded against, the
Properties and there is no event which, but for the passage of
time or the giving of notice or both, would constitute a
default under any of such documents or agreements, except such
defaults that would not result in a Material Adverse Effect.
(xxxii) Year 2000 Compliance. The Prospectus includes all
--------------------
required disclosure relating to the Company's Year 2000 disclosure
obligations, including without limitation the disclosure described in
the Commission's interpretive releases entitled (i) "Statement of the
Commission Regarding Disclosure of Year 2000 Issues and Consequence by
Public Companies, Investment Advisers, Investment Companies, and
Municipal Securities Issuers" (SEC Release No. 33-7558, July 29, 1998)
and (ii) "Frequently Asked Questions About the Statement of the
Commission Regarding Disclosure of Year 2000 Issues and Consequences
by Public Companies" (SEC Release 33-7609, November 9, 1998). The
Company has no reason to believe, and does not believe, that the Year
2000 Problem will result in a Material Adverse Effect or result in any
material loss or interference with the business or operations of the
Company and its subsidiaries, taken as a whole. "Year 2000 Problem"
means any significant risk that the Company's computer hardware or
software applications and those of its subsidiaries will not, in the
case of dates or time periods occurring after December 31, 1999,
function at least as effectively as in the case of dates or time
periods occurring prior to January 1, 2000.
(b) Representations and Warranties by the Selling Stockholder. The
---------------------------------------------------------
Selling Stockholder represents and warrants to the Underwriter as of the date
hereof, as of the Closing Time, and as of each Date of Delivery (if any)
referred to in Section 2(b) hereof, and agrees with the Underwriter, as follows:
(i) Accurate Disclosure. Such parts of the Registration
-------------------
Statement and the Prospectus comprising information under the captions
"Selling Stockholders" and "Selling Stockholder" which specifically
relates to the Selling Stockholder, will not, at the date the
Registration Statement becomes effective, contain any untrue statement
of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading, and, at the date of the Prospectus, at the Closing Time
and at each Date of Delivery (if any), will not contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Selling Stockholder has no knowledge of any material
fact or condition that is not set forth in the Registration Statement
or the Prospectus and has adversely affected, or may adversely affect,
the business, properties, business prospects, condition (financial or
otherwise) or results of operations of the Company, and the sale of
the Securities proposed to be sold by the Selling Stockholder is not
prompted by any such knowledge.
(ii) Authorization of Agreements. The Selling Stockholder
---------------------------
has the full right, power and authority to enter into this Agreement
and to sell, transfer and deliver the Securities to be sold by the
Selling Stockholder hereunder. The execution and delivery of this
Agreement and the sale and delivery of the Securities to be sold by
the Selling Stockholder and the consummation of the transactions
contemplated herein and compliance by the Selling Stockholder with its
obligations hereunder have been duly authorized by the Selling
Stockholder and do not and will not, whether with or without the
giving of notice or passage of time or both, conflict with or
constitute a breach of, or default under, or result in
<PAGE>
the creation or imposition of any tax, lien, charge or encumbrance
upon the Securities to be sold by the Selling Stockholder or any
property or assets of the Selling Stockholder pursuant to any
contract, indenture, mortgage, deed of trust, loan or credit
agreement, note, license, lease or other agreement or instrument to
which the Selling Stockholder is a party or by which the Selling
Stockholder may be bound, or to which any of the property or assets of
the Selling Stockholder is subject, nor will such action result in any
violation of the provisions of the charter or by-laws or other
organizational instrument of the Selling Stockholder, if applicable,
or any applicable treaty, law, statute, rule, regulation, judgment,
order, writ or decree of any government, government instrumentality or
court, domestic or foreign, having jurisdiction over the Selling
Stockholder or any of its properties.
(iii) Good and Valid Title. The Selling Stockholder will at
--------------------
the Closing Time and, if any Option Securities are purchased, on the
Date of Delivery, have good and valid title to the Securities to be
sold by the Selling Stockholder hereunder, free and clear of any
security interest, mortgage, pledge, lien, charge, claim, equity or
encumbrance of any kind, other than pursuant to this Agreement; and
provided that the Underwriter does not have notice of any "adverse
claim" (within the meaning given to such term in Article 8 of the
Uniform Commercial Code of the State of New York), the Underwriter
will be a "protected purchaser" (within the meaning given to such term
in Article 8 of the Uniform Commercial Code of the State of New York)
with respect to the Securities and will acquire the Securities free of
any "adverse claim" (within the meaning given to such term in Article
8 of the Uniform Commercial Code of the State of New York).
(iv) Absence of Manipulation. The Selling Stockholder has
-----------------------
not taken and will not take, directly or indirectly, any action
designed to or which has constituted or which might reasonably be
expected to cause or result under the 1934 Act or otherwise, in
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Securities.
(v) No Violation of Regulation M. The Selling Stockholder
----------------------------
has not taken any action that would violate Rule 102 of Regulation M
of the 1934 Act.
(vi) Absence of Further Requirements. No filing with, or
-------------------------------
consent, approval, authorization, order, registration, qualification
or decree of, any court or governmental authority or agency, domestic
or foreign, is necessary or required for the performance by the
Selling Stockholder of its obligations hereunder or in connection with
the sale and delivery of the Securities hereunder or the consummation
of the transactions contemplated by this Agreement, except such as may
have previously been made or obtained or as may be required under the
1933 Act or the 1933 Act Regulations or state securities laws.
(vii) Certificates Suitable for Transfer. At the Closing
----------------------------------
Time (and, if any Option Securities are purchased, at the Date of
Delivery), the certificates representing all of the Securities to be
sold by the Selling Stockholder pursuant to this Agreement at such
time will be in suitable form for transfer by delivery or are
accompanied by duly executed instruments of transfer or assignment in
blank with signatures guaranteed.
(viii) No Association with NASD. Neither the Selling
------------------------
Stockholder nor any of its affiliates directly, or indirectly through
one or more intermediaries, controls, or is controlled by, or is under
common control with a member, or is a "person associated with a
member" (within the meaning given to such phrase in Article I, Section
1(ee) of the By-laws of the
<PAGE>
National Association of Securities Dealers, Inc.), of the National
Association of Securities Dealers, Inc.
(ix) Form W-9. The Selling Stockholder shall deliver to
--------
the Underwriter prior to or at the Closing Time a properly completed
and executed United States Treasury Department Form W-9 (or other
applicable form or statement specified by Treasury Department
regulations in lieu thereof).
(c) Officer's Certificates. Any certificate signed by any officer of
----------------------
the Company or any of its subsidiaries delivered to the Underwriter or to
counsel for the Underwriter shall be deemed a representation and warranty by the
Company to the Underwriter as to the matters covered thereby; and any
certificate signed by or on behalf of the Selling Stockholder as such and
delivered to the Underwriter or to counsel for the Underwriter pursuant to the
terms of this Agreement shall be deemed a representation and warranty by the
Selling Stockholder as to the matters covered thereby.
SECTION 2. Sale and Delivery to Underwriter; Closing.
-----------------------------------------
(a) Initial Securities. On the basis of the representations and
------------------
warranties herein contained and subject to the terms and conditions herein set
forth, the Selling Stockholder agrees to sell to the Underwriter, and the
Underwriter agrees to purchase from the Selling Stockholder, at the price per
share set forth in Schedule A, the Initial Securities.
(b) Option Securities. In addition, on the basis of the
-----------------
representations and warranties herein contained and subject to the terms and
conditions herein set forth, the Selling Stockholder hereby grants an option to
the Underwriter to purchase up to an additional 93,750 shares of Common Stock,
at the price per share set forth in Schedule A, less an amount per share equal
to any dividends or distributions declared by the Company and payable on the
Initial Securities but not payable on the Option Securities. The option hereby
granted will expire 30 days after the date hereof and may be exercised in whole
or in part from time to time only for the purpose of covering over-allotments
which may be made in connection with the offering and distribution of the
Initial Securities upon notice by the Underwriter to the Selling Stockholder
setting forth the number of Option Securities as to which the Underwriter is
then exercising the option and the time and date of payment and delivery for
such Option Securities. Any such time and date of delivery (a "Date of
-------
Delivery") shall be determined by the Underwriter, but shall not be later than
seven full business days after the exercise of said option, nor in any event
prior to the Closing Time (as hereinafter defined).
(c) Payment. Payment of the purchase price for, and delivery of
-------
certificates for, the Initial Securities shall be made at the offices of
Skadden, Arps, Slate, Meagher & Flom LLP, 300 South Grand Avenue, Suite 3400,
Los Angeles, California 90071 or at such other place as shall be agreed upon by
the Underwriter and the Company and the Selling Stockholder, at 6:30 A.M.
(California time) on the third (fourth, if the pricing occurs after 4:30 P.M.
(Eastern time) on any given day) business day after the date hereof (unless
postponed in accordance with the provisions of Section 10 hereof), or such other
time not later than ten business days after such date as shall be agreed upon by
the Underwriter and the Company and the Selling Stockholder (such time and date
of payment and delivery being herein called "Closing Time").
------------
In addition, in the event that any or all of the Option Securities are
purchased by the Underwriter, payment of the purchase price for, and
delivery of certificates for, such Option Securities shall be made at the
above-mentioned offices, or at such other place as shall be agreed upon by
the Underwriter and the Company and the Selling Stockholder, on each Date
of Delivery as specified in the notice from the Underwriter to the Selling
Stockholder.
<PAGE>
Payment shall be made to the Selling Stockholder by wire transfer of
immediately available funds to a bank account designated by the Selling
Stockholder against delivery to the Underwriter for its account of
certificates for the Securities to be purchased by it.
(d) Denominations; Registration. Certificates for the Initial
---------------------------
Securities and the Option Securities, if any, shall be in such
denominations and registered in such names as the Underwriter may request
in writing at least one full business day before the Closing Time or the
relevant Date of Delivery, as the case may be. The certificates for the
Initial Securities and the Option Securities, if any, will be made
available for examination and packaging by the Underwriter in The City of
New York not later than 10:00 A.M. (Eastern time) on the business day prior
to the Closing Time or the relevant Date of Delivery, as the case may be.
SECTION 3. Covenants of the Company. Each of the Company and the
------------------------
Operating Partnership, jointly and severally, covenants with the Underwriter as
follows:
(a) Compliance with Securities Regulations and Commission Requests.
--------------------------------------------------------------
Subject to the provisions of Section 3(b) hereof, the Company shall comply
with the requirements of Rule 430A or Rule 434, as applicable, and shall
notify the Underwriter immediately, and confirm the notice in writing, (i)
when any post-effective amendment to the Registration Statement shall
become effective, or any supplement to the Prospectus or any amended
Prospectus shall have been filed, (ii) of the receipt of any comments from
the Commission, (iii) of any request by the Commission for any amendment to
the Registration Statement or any amendment or supplement to the Prospectus
or for additional information, and (iv) of the issuance by the Commission
of any stop order suspending the effectiveness of the Registration
Statement or of any order preventing or suspending the use of any
preliminary prospectus, or of the suspension of the qualification of the
Securities for offering or sale in any jurisdiction, or of the initiation
or threatening of any proceedings for any of such purposes. The Company
shall effect promptly the filings necessary pursuant to Rule 424(b) and
shall take such steps as it deems necessary to ascertain promptly whether
the form of prospectus transmitted for filing under Rule 424(b) was
received for filing by the Commission and, in the event that it was not, it
shall file promptly such prospectus. The Company shall make every
reasonable effort to prevent the issuance of any stop order and, if any
stop order is issued, to obtain the lifting thereof at the earliest
possible moment.
(b) Filing of Amendments. The Company shall give the Underwriter
--------------------
notice of its intention to file or prepare any amendment to the
Registration Statement (including any filing under Rule 462(b)), any Term
Sheet or any amendment, supplement or revision to either the prospectus
included in the Registration Statement at the time it became effective or
to the Prospectus, whether pursuant to the 1933 Act, the 1934 Act or
otherwise, shall furnish the Underwriter with copies of any such documents
a reasonable amount of time prior to such proposed filing or use, as the
case may be, and shall not file or use any such document to which the
Underwriter or counsel for the Underwriter shall object.
(c) Delivery of Registration Statements. The Company has furnished or
-----------------------------------
shall deliver to the Underwriter and counsel for the Underwriter, without
charge, signed copies of the Registration Statement as originally filed and
of each amendment thereto (including exhibits filed therewith or
incorporated by reference therein and documents incorporated or deemed to
be incorporated by reference therein) and signed copies of all consents and
certificates of experts, and shall also deliver to the Underwriter, without
charge, a conformed copy of the Registration Statement as originally filed
and of each amendment thereto (without exhibits) for the Underwriter. The
copies of the Registration Statement and each amendment thereto furnished
to the Underwriter shall be identical
15
<PAGE>
to the electronically transmitted copies thereof filed with the Commission
pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(d) Delivery of Prospectuses. The Company has delivered to the
------------------------
Underwriter, without charge, as many copies of each preliminary prospectus
as the Underwriter reasonably requested, and the Company hereby consents to
the use of such copies for purposes permitted by the 1933 Act. The Company
shall furnish to the Underwriter, without charge, during the period when
the Prospectus is required to be delivered under the 1933 Act or the 1934
Act, such number of copies of the Prospectus (as amended or supplemented)
as the Underwriter may reasonably request. The Prospectus and any
amendments or supplements thereto furnished to the Underwriter shall be
identical to the electronically transmitted copies thereof filed with the
Commission pursuant to EDGAR, except to the extent permitted by Regulation
S-T.
(e) Continued Compliance with Securities Laws. The Company shall
-----------------------------------------
comply with the 1933 Act and the 1933 Act Regulations and the 1934 Act and
the 1934 Act Regulations so as to permit the completion of the distribution
of the Securities as contemplated in this Agreement and in the Prospectus.
If at any time when a prospectus is required by the 1933 Act to be
delivered in connection with sales of the Securities, any event shall occur
or condition shall exist as a result of which it is necessary, in the
opinion of counsel for the Underwriter or for the Company, to amend the
Registration Statement or amend or supplement the Prospectus in order that
the Prospectus will not include any untrue statements of a material fact or
omit to state a material fact necessary in order to make the statements
therein not misleading in the light of the circumstances existing at the
time it is delivered to a purchaser, or if it shall be necessary, in the
opinion of such counsel, at any such time to amend the Registration
Statement or amend or supplement the Prospectus in order to comply with the
requirements of the 1933 Act or the 1933 Act Regulations, the Company shall
promptly prepare and file with the Commission, subject to Section 3(b),
such amendment or supplement as may be necessary to correct such statement
or omission or to make the Registration Statement or the Prospectus comply
with such requirements, and the Company shall furnish to the Underwriter
such number of copies of such amendment or supplement as the Underwriter
may reasonably request.
(f) Blue Sky Qualifications. The Company shall use its best efforts,
-----------------------
in cooperation with the Underwriter, to qualify the Securities for offering
and sale under the applicable securities laws of such states and other
jurisdictions (domestic or foreign) as the Underwriter may designate and to
maintain such qualifications in effect for a period of not less than one
year from the later of the effective date of the Registration Statement and
any Rule 462(b) Registration Statement; provided, however, that the Company
shall not be obligated to file any general consent to service of process or
to qualify as a foreign corporation or as a dealer in securities in any
jurisdiction in which it is not so qualified or to subject itself to
taxation in respect of doing business in any jurisdiction in which it is
not otherwise so subject. In each jurisdiction in which the Securities have
been so qualified, the Company shall file such statements and reports as
may be required by the laws of such jurisdiction to continue such
qualification in effect for a period of not less than one year from the
effective date of the Registration Statement and any Rule 462(b)
Registration Statement.
(g) Rule 158. The Company shall timely file such reports pursuant to
--------
the 1934 Act as are necessary in order to make generally available to its
securityholders as soon as practicable an earnings statement for the
purposes of, and to provide the benefits contemplated by, the last
paragraph of Section 11(a) of the 1933 Act.
(h) Listing. The Company shall use its best efforts to effect the
-------
listing of the Securities on the New York Stock Exchange.
16
<PAGE>
(i) Restriction on Sale of Securities. During a period of 30 days
---------------------------------
from the date of the Prospectus, each of the Company and the Operating
Partnership shall not, without the prior written consent of Merrill Lynch,
(i) directly or indirectly, 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 to purchase or otherwise transfer or
dispose of any share of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or file any registration
statement under the 1933 Act with respect to any of the foregoing or (ii)
enter into any swap or any other agreement or any transaction that
transfers, in whole or in part, directly or indirectly, the economic
consequence of ownership of the Common Stock, whether any such swap or
transaction described in clause (i) or (ii) above is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise.
The foregoing sentence shall not apply to (A) any shares of Common Stock
issued by the Company upon the exercise of an option or warrant or the
conversion of a security outstanding on the date hereof and referred to in
the Prospectus, (B) any shares of Common Stock issued or options to
purchase Common Stock granted pursuant to existing employee benefit plans
of the Company referred to in the Prospectus, or (C) any shares of Common
Stock issued pursuant to any non-employee director stock plan or dividend
reinvestment plan, (D) Units issued in exchange for contributions of
property to the Operating Partnership or (E) issuances of preferred Units
in exchange for cash contributed to the Operating Partnership.
(j) Reporting Requirements. The Company, during the period when the
----------------------
Prospectus is required to be delivered under the 1933 Act or the 1934 Act,
shall file all documents required to be filed with the Commission pursuant
to the 1934 Act within the time periods required by the 1934 Act and the
1934 Act Regulations.
(k) Qualification as a REIT. The Company will meet the requirements
-----------------------
necessary to qualify as a REIT under the Code for its 1999 taxable year.
SECTION 4. Payment of Expenses.
-------------------
(a) Expenses. The Company and the Selling Stockholder shall pay or
--------
cause to be paid all expenses incident to the performance of their
obligations under this Agreement, including (i) the preparation, printing
and filing of the Registration Statement (including financial statements
and exhibits) as originally filed and of each amendment thereto, (ii) the
preparation, printing and delivery to the Underwriter of this Agreement and
such other documents as may be required in connection with the offering,
purchase, sale, issuance or delivery of the Securities, (iii) the
preparation, issuance and delivery of the certificates for the Securities
to the Underwriter, including any stock or other transfer taxes and any
stamp or other duties payable upon the sale, issuance or delivery of the
Securities to the Underwriter, (iv) the fees and disbursements of the
Company's counsel, accountants and other advisors, (v) the qualification of
the Securities under securities laws in accordance with the provisions of
Section 3(f) hereof, including filing fees and the reasonable fees and
disbursements of counsel for the Underwriter in connection therewith and in
connection with the preparation of the blue sky survey, if any, and any
supplement thereto, (vi) the printing and delivery to the Underwriter of
copies of each preliminary prospectus, any Term Sheets and of the
Prospectus and any amendments or supplements thereto, (vii) the
preparation, printing and delivery to the Underwriter of copies of the blue
sky survey, if any, and any supplement thereto, (viii) the fees and
expenses of any transfer agent or registrar for the Securities and (ix) the
fees and expenses incurred in connection with the listing of the Securities
on the New York Stock Exchange.
(b) Expenses of the Selling Stockholder. The Selling Stockholder
-----------------------------------
shall pay all expenses incident to the performance of their respective
obligations under, and the consummation of the transactions contemplated by
this Agreement, including (i) any stamp duties, capital duties and stock
17
<PAGE>
transfer taxes, if any, payable upon the sale of the Securities to the
Underwriter and (ii) the fees and disbursements of its counsel and
accountants.
(c) Termination of Agreement. If this Agreement is terminated by the
------------------------
Underwriter in accordance with the provisions of Section 5 or Section
9(a)(i) hereof, the Company and the Selling Stockholder shall reimburse the
Underwriter for all of their out-of-pocket expenses, including the
reasonable fees and disbursements of counsel for the Underwriter.
(d) Allocation of Expenses. The provisions of this Section 4 shall
----------------------
not affect any agreement that the Company and the Selling Stockholder may
make for the sharing of such costs and expenses.
SECTION 5. Conditions of Underwriter's Obligations. The obligations of
---------------------------------------
the Underwriter hereunder are subject to the accuracy of the representations and
warranties of the Company, the Operating Partnership and the Selling Stockholder
contained in Section 1 hereof or in certificates of any officer of the Company
or any of its subsidiaries or on behalf of the Selling Stockholder delivered
pursuant to the provisions hereof, to the performance by each of the Company and
the Operating Partnership of its covenants and other obligations hereunder, and
to the following further conditions:
(a) Effectiveness of Registration Statement. The Registration
---------------------------------------
Statement, including any Rule 462(b) Registration Statement, has become
effective and at Closing Time no stop order suspending the effectiveness of
the Registration Statement shall have been issued under the 1933 Act or
proceedings therefor initiated or threatened by the Commission, and any
request on the part of the Commission for additional information shall have
been complied with to the reasonable satisfaction of counsel to the
Underwriter. A prospectus containing the Rule 430A Information shall have
been filed with the Commission in accordance with Rule 424(b) (or a post-
effective amendment providing such information shall have been filed and
declared effective in accordance with the requirements of Rule 430A) or, if
the Company has elected to rely upon Rule 434, a Term Sheet shall have been
filed with the Commission in accordance with Rule 424(b).
(b) Opinions of Counsel for Company. At the Closing Time, the
-------------------------------
Underwriter shall have received:
(i) the favorable opinion, dated as of Closing Time, of Latham &
Watkins, counsel for the Company and its subsidiaries, in form and
substance satisfactory to counsel for the Underwriter, to the effect
set forth in Exhibit A-1 hereto and to such further effect as counsel
to the Underwriter may reasonably request.
(ii) the favorable opinion, dated as of Closing Time, of Ballard
Spahr Andrews & Ingersoll, special Maryland counsel for the Company
and its subsidiaries, in form and substance satisfactory to counsel
for the Underwriter, to the effect set forth in Exhibit A-2 hereto and
to such further effect as counsel to the Underwriter may reasonably
request.
(c) Opinion of Counsel for the Selling Stockholder. At Closing Time,
----------------------------------------------
the Underwriter shall have received the favorable opinion, dated as of
Closing Time, of Greenberg Gluster Fields Claman & Machtinger LLP, counsel
for the Selling Stockholder, in form and substance satisfactory to counsel
for the Underwriter, to the effect set forth in Exhibit B hereto and to
such further effect as counsel to the Underwriter may reasonably request.
(d) Opinion of Counsel for Underwriter. At the Closing Time, the
----------------------------------
Underwriter shall have received the favorable opinion, dated as of Closing
Time, of Skadden, Arps, Slate, Meagher
18
<PAGE>
& Flom LLP, counsel for the Underwriter to the effect that, subject to the
limitations, qualification, exceptions and assumptions set forth therein,
the Registration Statement, as of its effective date, and the Prospectus,
as supplemented, as of the date of such supplements, appeared on their face
to be appropriately responsive in all material respects to the requirements
of the 1933 Act and the 1933 Act Regulations, except that no opinion need
be given as to documents incorporated by reference in the Registration
Statement, the financial statements and notes thereto, schedules and other
financial data included therein or excluded therefrom or the exhibits to
the Registration Statement, and such counsel need not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement, the Prospectus or any supplements
thereto. In giving such opinion such counsel may rely, insofar as such
opinion involves factual matters, to the extent they deem proper, upon oral
or written statements and representation of officers and other
representatives of the Company and others.
In addition, such counsel shall also state that they have participated
in conferences with officers and other representatives of the Company,
counsel for the Company, representatives of the independent public
accountants of the Company and the Underwriter at which the contents of the
Registration Statement and Prospectus and related matters were discussed
and, although such counsel is not passing upon, and does not assume any
responsibility for, the accuracy, completeness or fairness of the
statements contained in the Registration Statement and the Prospectus and
have made no independent check or verification thereof, on the basis of the
foregoing, no facts have come to the attention of such counsel that have
led such counsel to believe that the Registration Statement, at the time it
became effective, contained an untrue statement of a material fact or
omitted to state any material fact required to be stated therein or
necessary to make the statements therein not misleading or that the
Prospectus as supplemented by the prospectus supplements, as of the date of
the prospectus supplements and as of the date hereof, contained an untrue
statement of a material fact or omitted to state a material fact necessary
in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, except that in each case such
counsel need express no opinion as to the documents incorporated by
reference therein, the financial statements and the notes thereto,
schedules and other financial data included therein or excluded therefrom
or the exhibits to the Registration Statement.
(e) Officers' Certificate. At Closing Time, there shall not have
---------------------
been, since the date hereof or since the respective dates as of which
information is given in the Prospectus, any material adverse change in the
condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and its subsidiaries considered as one
enterprise, regardless of whether arising in the ordinary course of
business, and the Underwriter shall have received a certificate of the
President or a Vice President of the Company and of the chief financial or
chief accounting officer of the Company, dated as of Closing Time, to the
effect that (i) there has been no such material adverse change, (ii) the
representations and warranties in Section 1(a) hereof are true and correct
with the same force and effect as though expressly made at and as of
Closing Time, (iii) each of the Company and the Operating Partnership has
complied in all material respects with all agreements and satisfied all
conditions on its part to be performed or satisfied at or prior to Closing
Time, and (iv) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose
have been instituted or are pending or are contemplated by the Commission.
(f) Certificate of Selling Stockholder. At Closing Time, the
----------------------------------
Underwriter shall have received a certificate of the Selling Stockholder,
dated as of Closing Time, to the effect that (i) the representations and
warranties of the Selling Stockholder contained in Section 1(b) hereof are
true and correct in all respects with the same force and effect as though
expressly made at and as of Closing Time and (ii) the Selling Stockholder
has complied in all material respects with all
19
<PAGE>
agreements and all conditions on its part to be performed under this
Agreement at or prior to Closing Time.
(g) Accountant's Comfort Letter. At the time of the execution of this
---------------------------
Agreement, the Underwriter shall have received from PricewaterhouseCoopers
LLP a letter dated such date, in form and substance satisfactory to the
Underwriter, containing statements and information of the type ordinarily
included in accountants' "comfort letters" to underwriters with respect to
the financial statements and certain financial information contained in the
Registration Statement and the Prospectus.
(h) Bring-down Comfort Letter. At Closing Time, the Underwriter shall
-------------------------
have received from PricewaterhouseCoopers LLP a letter, dated as of Closing
Time, to the effect that they reaffirm the statements made in the letter
furnished pursuant to subsection (g) of this Section 5, except that the
specified date referred to shall be a date not more than three business
days prior to Closing Time.
(i) Approval of Listing. At Closing Time, the Securities shall have
-------------------
been approved for listing on the New York Stock Exchange, subject only to
official notice of issuance.
(j) Lock-up Agreements. At the date of this Agreement, the
------------------
Underwriter shall have received an agreement substantially in the form of
Exhibit C hereto signed by the persons listed on Schedule B hereto.
(k) Conditions to Purchase of Option Securities. In the event that
-------------------------------------------
the Underwriter exercise its option provided in Section 2(b) hereof to
purchase all or any portion of the Option Securities, the representations
and warranties of the Company and the Selling Stockholder contained herein
and the statements in any certificates furnished by the Company, any
subsidiary of the Company and the Selling Stockholder hereunder shall be
true and correct as of each Date of Delivery and, at the relevant Date of
Delivery, the Underwriter shall have received:
(i) Officers' Certificate. A certificate, dated such Date of
---------------------
Delivery, of the President or a Vice President of the Company and of
the chief financial or chief accounting officer of the Company
confirming that the certificate delivered at the Closing Time pursuant
to Section 5(e) hereof remains true and correct as of such Date of
Delivery.
(ii) Certificate of Selling Stockholder. A certificate, dated
----------------------------------
such Date of Delivery, of the Selling Stockholder confirming that the
certificate delivered at Closing Time pursuant to Section 5(f) hereof
remains true and correct as of such Date of Delivery.
(iii) Opinion of Counsel for Company. The favorable opinion of
------------------------------
Latham & Watkins, counsel for the Company, together with the favorable
opinion of Ballard Spahr Andrews & Ingersoll, special Maryland counsel
for the Company, each in form and substance satisfactory to counsel
for the Underwriter, dated such Date of Delivery, relating to the
Option Securities to be purchased on such Date of Delivery and
otherwise to the same effect as the respective opinions required by
Section 5(b) hereof.
(iv) Opinion of Counsel for the Selling Stockholder. The
----------------------------------------------
favorable opinion of Greenberg Gluster Fields Claman & Machtinger LLP,
counsel for the Selling Stockholder, in form and substance
satisfactory to counsel for the Underwriter, dated such Date of
Delivery, relating to the Option Securities to be purchased on such
Date of Delivery and otherwise to the same effect as the opinion
required by Section 5(c) hereof.
20
<PAGE>
(v) Opinion of Counsel for Underwriter. The favorable opinion of
----------------------------------
Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the Underwriter,
dated such Date of Delivery, relating to the Option Securities to be
purchased on such Date of Delivery and otherwise to the same effect as
the opinion required by Section 5(d) hereof.
(vi) Bring-down Comfort Letter. A letter from
-------------------------
PricewaterhouseCoopers LLP, in form and substance satisfactory to the
Underwriter and dated such Date of Delivery, substantially in the same
form and substance as the letter furnished to the Underwriter pursuant
to Section 5(g) hereof, except that the "specified date" in the letter
furnished pursuant to this paragraph shall be a date not more than
five days prior to such Date of Delivery.
(l) Additional Documents. At Closing Time and at each Date of
--------------------
Delivery counsel for the Underwriter shall have been furnished with such
documents and opinions as they may require for the purpose of enabling them
to pass upon the issuance and sale of the Securities as herein
contemplated, or in order to evidence the accuracy of any of the
representations or warranties, or the fulfillment of any of the conditions,
herein contained; and all proceedings taken by the Company and the Selling
Stockholder in connection with the issuance and sale of the Securities as
herein contemplated shall be satisfactory in form and substance to the
Underwriter and counsel for the Underwriter.
(m) Termination of Agreement. If any condition specified in this
------------------------
Section 5 shall not have been fulfilled when and as required to be
fulfilled, this Agreement, or, in the case of any condition to the purchase
of Option Securities on a Date of Delivery which is after the Closing Time,
the obligations of the Underwriter to purchase the relevant Option
Securities, may be terminated by the Underwriter by notice to the Company
at any time at or prior to Closing Time or such Date of Delivery, as the
case may be, and such termination shall be without liability of any party
to any other party except as provided in Section 4 hereof and except that
Sections 1, 6, 7 and 8 hereof shall survive any such termination and remain
in full force and effect.
SECTION 6. Indemnification.
---------------
(a) Indemnification of the Underwriter. The Company and the Operating
----------------------------------
Partnership, jointly and severally agree to indemnify and hold harmless the
Underwriter and each person, if any, who controls the Underwriter within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act
against:
(i) any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), including the Rule
430A Information and the Rule 434 Information, if applicable, or the
omission or alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact included in any preliminary prospectus or
the Prospectus (or any amendment or supplement thereto), or the
omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(ii) any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened,
21
<PAGE>
or of any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission; provided
that (subject to Section 6(d) below) any such settlement is effected
with the written consent of the Company; and
(iii) any and all expense whatsoever, as incurred (including the
fees and disbursements of counsel chosen by Merrill Lynch), reasonably
incurred in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental
agency or body, commenced or threatened, or any claim whatsoever based
upon any such untrue statement or omission, or any such alleged untrue
statement or omission, to the extent that any such expense is not paid
under (i) or (ii) above;
provided, however, that this indemnity agreement shall not apply to any
loss, liability, claim, damage or expense to the extent arising out of any
untrue statement or omission or alleged untrue statement or omission made
in reliance upon and in conformity with written information furnished to
the Company by the Underwriter expressly for use in the Registration
Statement (or any amendment thereto), including the Rule 430A Information
and the Rule 434 Information, if applicable, or any preliminary prospectus
or the Prospectus (or any amendment or supplement thereto).
The Selling Stockholder agrees to indemnify and hold harmless the
Underwriter and each person, if any, who controls the Underwriter within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act
against any and all loss, liability, claim, damage and expense described in
the indemnity contained above in this subsection (a), as incurred, but only
with respect to untrue statements or omissions or alleged untrue statements
or omissions, made in the Registration Statement (or any amendment
thereto), including the Rule 430A Information and the Rule 434 Information,
if applicable, or any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto) in reliance upon, and in conformity with,
written information relating specifically to the Selling Stockholder
furnished to the Company by or on behalf of the Selling Stockholder
expressly for use in the Registration Statement (or any amendment thereto),
including the Rule 430A Information and the Rule 434 Information, if
applicable, or any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto).
(b) Indemnification of the Company, Directors and Officers and Selling
------------------------------------------------------------------
Stockholder. The Underwriter agrees to indemnify and hold harmless the
-----------
Company, its directors, each of its officers who signed the Registration
Statement, and each person, if any, who controls the Company within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, the
Operating Partnership and the Selling Stockholder and each person, if any,
who controls the Selling Stockholder within the meaning of Section 15 of
the 1933 Act or Section 20 of the 1934 Act against any and all loss,
liability, claim, damage and expense described in the indemnity contained
in clause (i) of subsection (a) of this Section 6, as incurred, but only
with respect to untrue statements or omissions, or alleged untrue
statements or omissions, made in the Registration Statement (or any
amendment thereto), including the Rule 430A Information and the Rule 434
Information, if applicable, or any preliminary prospectus or the Prospectus
(or any amendment or supplement thereto) in reliance upon and in conformity
with written information furnished to the Company by the Underwriter
expressly for use in the Registration Statement (or any amendment thereto)
or such preliminary prospectus or the Prospectus (or any amendment or
supplement thereto).
(c) Actions against Parties; Notification. Each indemnified party
-------------------------------------
shall give notice as promptly as reasonably practicable to each
indemnifying party of any action commenced against it in respect of which
indemnity may be sought hereunder, but failure to so notify an indemnifying
party shall not relieve such indemnifying party from any liability
hereunder to the extent it is not materially prejudiced as a result thereof
and in any event shall not relieve it from any liability which
22
<PAGE>
it may have otherwise than on account of this indemnity agreement. In the
case of parties indemnified pursuant to Section 6(a) above, counsel to the
indemnified parties shall be selected by Merrill Lynch, and, in the case of
parties indemnified pursuant to Section 6(b) above, counsel to the
indemnified parties shall be selected by the Company. An indemnifying party
may participate at its own expense in the defense of any such action;
provided, however, that counsel to the indemnifying party shall not (except
with the consent of the indemnified party) also be counsel to the
indemnified party. In no event shall the indemnifying parties be liable for
fees and expenses of more than one counsel (in addition to any local
counsel) separate from their own counsel for all indemnified parties in
connection with any one action or separate but similar or related actions
in the same jurisdiction arising out of the same general allegations or
circumstances. No indemnifying party shall, without the prior written
consent of the indemnified parties, settle or compromise or consent to the
entry of any judgment with respect to any litigation, or any investigation
or proceeding by any governmental agency or body, commenced or threatened,
or any claim whatsoever in respect of which indemnification or contribution
could be sought under this Section 6 or Section 7 hereof (regardless of
whether the indemnified parties are actual or potential parties thereto),
unless such settlement, compromise or consent (i) includes an unconditional
release of each indemnified party from all liability arising out of such
litigation, investigation, proceeding or claim and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to act
by or on behalf of any indemnified party.
(d) Settlement without Consent if Failure to Reimburse. If at any
--------------------------------------------------
time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel, such
indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 6(a)(ii) hereof effected without its written
consent if (i) such settlement is entered into more than 45 days after
receipt by such indemnifying party of the aforesaid request, (ii) such
indemnifying party shall have received notice of the terms of such
settlement at least 30 days prior to such settlement being entered into and
(iii) such indemnifying party shall not have reimbursed such indemnified
party in accordance with such request prior to the date of such settlement.
(e) Other Agreements with Respect to Indemnification. The provisions
------------------------------------------------
of this Section 6 shall not affect any agreement between the Company and
the Selling Stockholder with respect to indemnification.
SECTION 7. Contribution. If the indemnification provided for in Section 6
------------
hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company, the
Operating Partnership and the Selling Stockholder on the one hand and the
Underwriter on the other hand from the offering of the Securities pursuant to
this Agreement or (ii) if the allocation provided by clause (i) is not permitted
by applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company, the Operating Partnership and the Selling Stockholder on the one
hand and of the Underwriter on the other hand in connection with the statements
or omissions which resulted in such losses, liabilities, claims, damages or
expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company, the Operating Partnership
and the Selling Stockholder on the one hand and the Underwriter on the other
hand in connection with the offering of the Securities pursuant to this
Agreement shall be deemed to be in the same respective proportions as the total
net proceeds from the offering of the Securities pursuant to this Agreement
(before deducting expenses) received by the
23
<PAGE>
Company and the Selling Stockholder and the total underwriting discount received
by the Underwriter, in each case as set forth on the cover of the Prospectus,
or, if Rule 434 is used, the corresponding location on the Term Sheet bear to
the aggregate initial public offering price of the Securities as set forth on
such cover.
The relative fault of the Company, the Operating Partnership and the
Selling Stockholder on the one hand and the Underwriter on the other hand shall
be determined by reference to, among other things, whether any such untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact relates to information supplied by the Company or the
Selling Stockholder or by the Underwriter and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company, the Operating Partnership, the Selling Stockholder and the
Underwriter agree that it would not be just and equitable if contribution
pursuant to this Section 7 were determined by pro rata allocation or by any
other method of allocation which does not take account of the equitable
considerations referred to above in this Section 7. The aggregate amount of
losses, liabilities, claims, damages and expenses incurred by an indemnified
party and referred to above in this Section 7 shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, the Underwriter shall not
be required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which the
Underwriter has otherwise been required to pay by reason of any such untrue or
alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls the
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as the Underwriter, and
each director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company or the
Selling Stockholder within the meaning of Section 15 of the 1933 Act or Section
20 of the 1934 Act shall have the same rights to contribution as the Company or
the Selling Stockholder, as the case may be.
The provisions of this Section 7 shall not affect any agreement between the
Company and the Selling Stockholder with respect to contribution.
SECTION 8. Representations, Warranties and Agreements to Survive Delivery.
--------------------------------------------------------------
All representations, warranties and agreements contained in this Agreement or in
certificates of officers of the Company or any of its subsidiaries or the
Selling Stockholder submitted pursuant hereto, shall remain operative and in
full force and effect, regardless of any investigation made by or on behalf of
the Underwriter or controlling person, or by or on behalf of the Company or the
Selling Stockholder, and shall survive delivery of the Securities to the
Underwriter.
SECTION 9. Termination of Agreement.
------------------------
24
<PAGE>
(a) Termination; General. The Underwriter may terminate this
--------------------
Agreement, by notice to the Company and the Selling Stockholder, at any
time at or prior to Closing Time (i) if there has been, since the time of
execution of this Agreement or since the respective dates as of which
information is given in the Prospectus, any material adverse change in the
condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and its subsidiaries considered as one
enterprise, regardless of whether arising in the ordinary course of
business, or (ii) if there has occurred any material adverse change in the
financial markets in the United States, any outbreak of hostilities or
escalation thereof or other calamity or crisis or any change or development
involving a prospective change in national or international political,
financial or economic conditions, in each case the effect of which is such
as to make it, in the judgment of the Underwriter, impracticable to market
the Securities or to enforce contracts for the sale of the Securities, or
(iii) if trading in any securities of the Company has been suspended or
materially limited by the Commission or the New York Stock Exchange, or if
trading generally on the American Stock Exchange or the New York Stock
Exchange or in the Nasdaq National Market has been suspended or materially
limited, or minimum or maximum prices for trading have been fixed, or
maximum ranges for prices have been required, by any of said exchanges or
by such system or by order of the Commission, the National Association of
Securities Dealers, Inc. or any other governmental authority, or (iv) if a
banking moratorium has been declared by either Federal or New York
authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this
-----------
Section 9, such termination shall be without liability of any party to any
other party except as provided in Section 4 hereof, and provided further
that Sections 1, 6, 7 and 8 hereof shall survive such termination and
remain in full force and effect.
SECTION 10. Notices. All notices and other communications hereunder shall
-------
be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriter shall be directed to the Underwriter at 10877 Wilshire Boulevard,
Suite 1900, Los Angeles, California 90024, Facsimile (310) 209-3952, attention
of David Knowles; notices to the Company or the Operating Partnership shall be
directed to them at 2951 28/th/ Street, Suite 3001, Santa Monica, California
90405, Facsimile (310) 664-6170, attention of William C. Regan; and notices to
the Selling Stockholder shall be directed to [____________], attention of
[____________________].
SECTION 11. Parties. This Agreement shall each inure to the benefit of
-------
and be binding upon the Underwriter, the Company, the Operating Partnership and
the Selling Stockholder and their respective successors. Nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any
person, firm or corporation, other than the Underwriter, the Company, the
Operating Partnership and the Selling Stockholder and their respective
successors and the controlling persons and officers and directors referred to in
Sections 6 and 7 hereof and their heirs and legal representatives, any legal or
equitable right, remedy or claim under or in respect of this Agreement or any
provision herein contained. This Agreement and all conditions and provisions
hereof are intended to be for the sole and exclusive benefit of the Underwriter,
the Company, the Operating Partnership and the Selling Stockholder and their
respective successors, and said controlling persons and officers and directors
and their heirs and legal representatives, and for the benefit of no other
person, firm or corporation. No purchaser of Securities from the Underwriter
shall be deemed to be a successor by reason merely of such purchase.
Section 12. Governing Law and Time. THIS AGREEMENT SHALL BE GOVERNED BY
----------------------
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EXCEPT AS
OTHERWISE SET FORTH HEREIN, SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.
25
<PAGE>
SECTION 13. Effect of Headings. The Article and Section headings herein
------------------
and the Table of Contents are for convenience only and shall not affect the
construction hereof.
26
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company, the Operating Partnership and the Selling
Stockholder a counterpart hereof, whereupon this instrument, along with all
counterparts, will become a binding agreement among the Underwriter, the
Company, the Operating Partnership and the Selling Stockholder in accordance
with its terms.
Very truly yours,
NATIONAL GOLF PROPERTIES, INC.
By:________________________________________
Name:______________________________________
Title:_____________________________________
NATIONAL GOLF OPERATING PARTNERSHIP
By: NATIONAL GOLF PROPERTIES, INC.
By:________________________________________
Name:______________________________________
Title:_____________________________________
OAKS CHRISTIAN HIGH SCHOOL
By:________________________________________
Name:______________________________________
Title:_____________________________________
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:___________________________________
Authorized Signatory
27
<PAGE>
Schedule A
NATIONAL GOLF PROPERTIES, INC.
625,000 Shares of Common Stock
(Par Value $.01 Per Share)
(i) The public offering price per share for the Securities, determined as
provided in said Section 2, shall be $[________].
(ii) The purchase price per share for the Securities to be paid by the
Underwriter shall be $[________], being an amount equal to the public offering
price set forth above less $[________] per share; provided that the purchase
price per share for any Option Securities purchased upon the exercise of the
over-allotment option described in Section 2(b) shall be reduced by an amount
per share equal to any dividends or distributions declared by the Company and
payable on the Initial Securities but not payable on the Option Securities.
Schedule A - Page Sch A-1
<PAGE>
Schedule B
List of Persons and Entities Subject to Lock-Up
Richard A. Archer
John C. Cushman III
Bruce Karatz
Paul W. Major
Neil M. Miller
Charles S. Paul
David G. Price Trust
Richard C. Price
William C. Regan
Edward R. Sause
James M. Stanich
Scott S. Thompson
Dallas P. Price Trust
Joan P. Anawalt 1995 Revocable Trust
Joan P. Anawalt 1993 Annuity Income Trust
Schedule B - Page Sch B-1
<PAGE>
Exhibit A-1
-----------
Form of Opinion of Latham & Watkins
to Be Delivered Pursuant to Section 5(b)(i)
Reference is made hereby to the Purchase Agreement dated as of
February [__], 1999 (the "Purchase Agreement") by and among National Golf
------------------
Properties, Inc., a Maryland corporation (the "Company"), National Golf
-------
Operating Partnership, L.P., a Delaware limited partnership (the "Operating
---------
Partnership"), Oaks Christian High School, a California nonprofit public benefit
- -----------
corporation (the "Selling Stockholder"), and Merrill Lynch, Pierce, Fenner &
-------------------
Smith Incorporated. Capitalized terms used but not defined in this Exhibit have
the respective meaning given to such terms in the Purchase Agreement.
(i) The Company is duly qualified to transact business as a foreign
corporation and is in good standing under the laws of the States of California.
The Operating Partnership has been duly organized and is validly existing as a
limited partnership in good standing under the laws of the State of Delaware and
is duly qualified to transact business as a foreign limited partnership and is
in good standing under the laws of the State of California.
(ii) The Operating Partnership has partnership power to own or lease
its properties and conduct its businesses as described in the Registration
Statement and the Prospectus, and the Operating Partnership has partnership
power to enter into the Purchase Agreement and to carry out all the terms and
provisions thereof to be carried out by it.
(iii) All outstanding shares of Common Stock (including the Securities)
have been issued in compliance with the registration requirements of federal
securities laws (or pursuant to an exemption therefrom), were not, to the
knowledge of such counsel, issued in violation of or subject to any agreement to
which the Company is a party and which is known to such counsel based solely on
a certificate of the Company's Chairman of the Board of Directors and its
President and Chief Executive Officer, or any preemptive rights or other rights
to subscribe for or purchase any securities; no holders of outstanding shares of
capital stock of the Company are entitled under any agreement to which the
Company is a party and which is known to such counsel based solely on a
certificate of the Company's Chairman of the Board of Directors and its
President and Chief Executive Officer, as such, to any preemptive or other
rights to subscribe for any of the Securities; and to the knowledge of such
counsel no holders of securities of the Company are entitled to have such
securities registered under the Registration Statement.
(iv) The outstanding Units, including, without limitation, the Units
issued to the Company, have been duly authorized and validly issued. The terms
of the Units conform in all material respects to the description thereof and all
statements related thereto contained in the Registration Statement and the
Prospectus.
(v) Except as disclosed in the Registration Statement and the
Prospectus, to the knowledge of such counsel, based solely on a certificate of
the Company's Chairman of the Board of Directors and its President and Chief
Executive Officer, there are no outstanding (A) securities, equity interests or
obligations of the Company or any of its subsidiaries convertible into or
exchangeable for any capital stock or equity interests (as the case may be) of
the Company or any such subsidiary, (B) warrants, rights or options to subscribe
for or purchase from the Company or any such subsidiary any such capital stock
or equity interests or any such convertible or exchangeable securities, equity
interests or obligations, or (C) obligations of the Company or any such
subsidiary to issue any shares of capital stock, equity interests, any such
convertible or exchangeable securities, equity interests or obligations, or any
such warrants, rights or options.
Exhibit A-1 - Page A-1-1
<PAGE>
(vi) The statements set forth under the headings "Partnership
Agreement," "Material Federal Income Tax Consequences" in the Prospectus,
insofar as such statements describe statutes, rules or regulations, legal
conclusions with respect to their application or provisions of the
organizational documents of the Company or the Operating Partnership, as
applicable, have been reviewed by such counsel, are correct in all material
respects and present fairly the information required to be disclosed therein.
(vii) The execution and delivery of the Purchase Agreement have been
duly authorized by all necessary partnership action of the Operating
Partnership, and the Purchase Agreement has been duly executed and delivered by
the Operating Partnership.
(viii) To the knowledge of such counsel based on the representations of
the Company contained herein, review of the letters of attorneys delivered to
the Company's auditors with respect to the existence of contingent liabilities
of the Company and a certificate of the General Counsel of the Company, (A) no
legal or governmental proceedings are pending to which the Company or any of its
subsidiaries is a party or to which the property of the Company or any of its
subsidiaries is subject that are required to be described in the Registration
Statement or the Prospectus and are not described therein, and no such
proceedings have been threatened against the Company or any of its subsidiaries
or with respect to any of their respective properties and (B) no contract or
other document is required to be disclosed in the Registration Statement or the
Prospectus or to be filed as an exhibit to the Registration Statement or any of
the documents incorporated by reference therein, that is not disclosed therein
or filed as required.
(ix) The execution and delivery of the Purchase Agreement by the
Company and the Operating Partnership and the compliance by the Company and the
Operating Partnership with the provisions of the Purchase Agreement as of the
Closing Date do not (A) require the consent, approval, authorization,
registration or qualification of or with any federal, or California or New York
governmental authority, except such as have been obtained under the Act and such
as may be required under state securities or blue sky laws, or (B) conflict with
or result in a breach or violation of any of the terms and provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, lease or
other agreement or instrument to which the Company or any of its subsidiaries is
a party or by which the Company or any of its subsidiaries or any of their
respective properties are bound identified by an officer of the Company as
material to the Company or any of its subsidiaries, or the certificate of
limited partnership or partnership agreement of the Operating Partnership, or
any provision of any California or New York statute, rule or regulation (other
than federal or state securities laws, which are addressed elsewhere herein), or
court orders specifically directed to the Company and identified by an officer
of the Company as material to the Company or any of its subsidiaries.
(x) The Company is not, and after giving effect to the transactions
contemplated by the Purchase Agreement will not be, subject to registration as
an investment company under the Investment Company Act of 1940, as amended.
(xi) The Registration Statement is effective under the Act; any
required filing of the Prospectus, or any Term Sheet that constitutes a part
thereof, and any Prospectus pursuant to Rules 424(b) and 434 has been made in
the manner and within the time period required thereby; and based upon such
counsel's due inquiry made to the Office of the Secretary of the Commission, no
stop order suspending the effectiveness of the Registration Statement or any
post-effective amendment thereto and no order directed at any document
incorporated by reference in the Registration Statement and the Prospectus or
any amendment or supplement thereto has been issued, and no proceedings for that
purpose have been instituted or threatened or, to the knowledge of such counsel,
are contemplated by the Commission.
(xii) The Registration Statement originally filed with respect to the
Securities and each amendment thereto and any Rule 462 Registration Statement,
and the Prospectus (in each case, including the documents incorporated by
reference therein but not including the financial statements, schedules and
other
Exhibit A-1 - Page A-1-2
<PAGE>
financial data contained therein, as to which such counsel need express no
opinion) comply as to form (at the time filed) in all material respects with the
applicable requirements of the Act, the Exchange Act and the respective rules
and regulations of the Commission thereunder. The Company meets the requirements
for the use of Form S-3 under the Act.
(xiii) If the Company elects to rely on Rule 434, the Prospectus are not
"materially different," as such term is used in Rule 434, from the prospectus
included in the Registration Statement at the time of its effectiveness or any
post-effective amendment thereto (including such information that is permitted
to be omitted pursuant to Rule 430A).
(xiv) The Company has at all times since its taxable year ended
December 31, 1993 been organized and operated in conformity with the
requirements for qualification as a "real estate investment trust" under the
Code, and its proposed method of operation, as described in the Registration
Statement, the Prospectus and the representations of the Company made to such
counsel in an officer's certificate, will enable the Company to continue to meet
the requirements for qualification and taxation as a "real estate investment
trust" under the Code.
(xv) Assuming that the Underwriter does not have notice of any
"adverse claim" (within the meaning given to such term in Article 8 of the
Uniform Commercial Code of the State of New York), upon delivery of a
certificate or certificates representing the Securities, the Underwriter will be
a "protected purchaser" (within the meaning given to such term in Article 8 of
the Uniform Commercial Code of the State of New York) with respect to the
Securities and will acquire the Securities free of any "adverse claim" (within
the meaning given to such term in Article 8 of the Uniform Commercial Code of
the State of New York).
Such counsel shall also state that they have participated in conferences
with officers and other representatives of the Company, representatives of the
independent public accountants for the Company, and representatives of the
Underwriter, at which the contents of the Registration Statement and the
Prospectus and related matters were discussed and, although such counsel is not
passing upon, and does not assume any responsibility for, the accuracy,
completeness or fairness of the statements contained in the Registration
Statement and the Prospectus and has not made any independent check or
verification thereof, during the course of such participation no facts came to
the attention of such counsel that caused such counsel to believe that the
Registration Statement, at the time it became effective, contained or contains
an untrue statement of a material fact or omitted or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, or that the Prospectus, as of its date or as of the Closing
Date, contained an untrue statement of a material fact or omitted to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; it being understood
that such counsel need express no belief with respect to the financial
statements, schedules and other financial data included or incorporated by
reference in the Registration Statement or the Prospectus.
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems proper, on certificates of responsible
officers of the Company and public officials and, as to matters involving the
application of laws of any jurisdiction other than the State of California, the
State of New York, the Delaware General Corporation Law and the Delaware Revised
Limited Partnership Act or the United States of America on opinions of local
counsel, to the extent satisfactory in form and scope to counsel for the
Underwriter.
References to the Registration Statement and the Prospectus in such opinion
shall include any amendment or supplement thereto at the date of such opinion.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of the laws of Maryland, upon the opinion of Ballard
Spahr Andrews & Ingersoll, special counsel to the Company
Exhibit A-1 - Page A-1-3
<PAGE>
(which opinion shall be dated and furnished to the Underwriter at the Closing
Time, shall be satisfactory in form and substance to counsel for the Underwriter
and shall expressly state that the Underwriter may rely on such opinion as if it
were addressed to it) and (B), as to matters of fact (but not as to legal
conclusions), to the extent they deem proper, on certificates of responsible
officers of the Company and public officials. Such opinion shall not state that
it is to be governed or qualified by, or that it is otherwise subject to, any
treatise, written policy or other document relating to legal opinions,
including, without limitation, the Legal Opinion Accord of the ABA Section of
Business Law (1991).
We are furnishing this opinion to you solely for your benefit and the
benefit of investors purchasing the Common Stock pursuant to the Prospectus.
Exhibit A-1 - Page A-1-4
<PAGE>
Exhibit A-2
-----------
Form of Opinion of Ballard Spahr Andrews & Ingersoll
to Be Delivered Pursuant to Section 5(b)(ii)
Reference is made hereby to the Purchase Agreement dated as of
February [__], 1999 (the "Purchase Agreement") by and among National Golf
------------------
Properties, Inc., a Maryland corporation (the "Company"), National Golf
-------
Operating Partnership, L.P., a Delaware limited partnership (the "Operating
---------
Partnership"), Oaks Christian High School, a California nonprofit public benefit
- -----------
corporation (the "Selling Stockholder"), and Merrill Lynch, Pierce, Fenner &
-------------------
Smith Incorporated. Capitalized terms used but not defined in this Exhibit have
the respective meaning given to such terms in the Purchase Agreement.
(i) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Maryland.
(ii) The Company has the requisite corporate power and corporate
authority to own or lease its properties and to conduct its business as
described in the Registration Statement and the Prospectus, to enter into the
Purchase Agreement and to carry out all terms and provisions thereof to be
carried out by it.
(iii) The authorized, issued and outstanding capital stock of the
Company is as set forth or incorporated by reference in the Registration
Statement and the Prospectus; all necessary and proper corporate action required
under the articles of incorporation and bylaws of the Company and the Maryland
General Corporation Law (the "MGCL") was taken in order to duly authorize all
----
outstanding shares of Common Stock (including the Securities); all outstanding
shares of Common Stock (including the Securities) have been (or in the case of
the Securities will be) duly and validly issued and fully paid and non-
assessable, were not, to the best knowledge of such counsel, issued in violation
of or subject to, under the articles of incorporation or the MGCL, any pre-
emptive rights or other rights to subscribe for or purchase any securities of
the Company, and conform, in all material respects, to the description thereof
contained in the Registration Statement and the Prospectus; and to the best
knowledge of such counsel, no holders of outstanding shares of capital stock of
the Company are entitled, under the articles of incorporation or bylaws of the
Company or the MGCL, to any pre-emptive or other rights to subscribe for any of
the Securities.
(iv) The execution and delivery by the Company of the Purchase
Agreement in its individual capacity and in its capacity as general partner of
the Operating Partnership have been duly authorized by all necessary corporate
action required under the articles of incorporation and bylaws of the Company
and the MGCL. This Agreement has been duly executed and delivered by the Company
in its individual capacity and in its capacity as general partner of the
Operating Partnership.
(v) The statements set forth in the Registration Statement and the
Prospectus under the headings "Description of Capital Stock" and "Certain
Provisions of Maryland Law and the Company's Charter and Bylaws," insofar as
such statements constitute matters of Maryland corporate law, summaries of
Maryland corporate legal matters, documents, proceedings or legal conclusions
under Maryland corporate law, have been reviewed by us and are correct in all
material respects and present fairly the information contained therein.
(vi) The offering and sale of the Securities to the Underwriter by the
Selling Stockholder pursuant to the Purchase Agreement, the compliance by the
Company with the other provisions of the Purchase Agreement and the consummation
of the other transactions contemplated herein do not: (a) require the consent,
approval, authorization, registration or qualification of or with any Maryland
governmental authority; or (b) conflict with, or result in a breach or violation
of, any of the terms and provisions of the articles of incorporation or the
bylaws of the Company or any provisions of Maryland law.
Exhibit A-2 - Page A-2-1
<PAGE>
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems proper, on certificates of responsible
officers of the Company and public officials and, as to matters involving the
application of laws of any jurisdiction other than the State of Maryland on
opinions of local, to the extent satisfactory in form and scope to counsel for
the Underwriter.
References to the Registration Statement and the Prospectus in this opinion
shall include any amendment or supplement thereto at the date of such opinion.
Exhibit A-2 - Page A-2-2
<PAGE>
Exhibit B
Form of Opinion of Greenberg Gluster Fields Claman & Machtinger LLP
to Be Delivered Pursuant to Section 5(c)
Reference is made hereby to the Purchase Agreement dated as of
February [__], 1999 (the "Purchase Agreement") by and among National Golf
------------------
Properties, Inc., a Maryland corporation (the "Company"), National Golf
-------
Operating Partnership, L.P., a Delaware limited partnership (the "Operating
---------
Partnership"), Oaks Christian High School, a California nonprofit public benefit
- -----------
corporation (the "Selling Stockholder"), and Merrill Lynch, Pierce, Fenner &
-------------------
Smith Incorporated. Capitalized terms used but not defined in this Exhibit have
the respective meaning given to such terms in the Purchase Agreement.
(i) No filing with, or consent, approval, authorization, license,
order, registration, qualification or decree of, any court or governmental
authority or agency, domestic or foreign, (other than the issuance of the order
of the Commission declaring the Registration Statement effective and such
authorizations, approvals or consents as may be necessary under state securities
laws, as to which such counsel need express no opinion) is necessary or required
to be obtained by the Selling Stockholder for the performance by the Selling
Stockholder of its obligations under the Purchase Agreement or in connection
with the offer, sale or delivery of the Securities.
(ii) The Selling Stockholder has full right, power and authority to
sell, transfer and deliver the Securities pursuant to the Purchase Agreement.
(iii) The Purchase Agreement has been duly authorized, executed and
delivered by or on behalf of the Selling Stockholder.
(iv) The execution, delivery and performance of the Purchase Agreement
and the sale and delivery of the Securities and the consummation of the
transactions contemplated in the Purchase Agreement and in the Registration
Statement and compliance by the Selling Stockholder with its obligations under
the Purchase Agreement have been duly authorized by all necessary action on the
part of the Selling Stockholder and do not and will not, whether with or without
the giving of notice or passage of time or both, conflict with or constitute a
breach of, or default under or result in the creation or imposition of any tax,
lien, charge or encumbrance upon the Securities or any property or assets of the
Selling Stockholder pursuant to, any contract, indenture, mortgage, deed of
trust, loan or credit agreement, note, license, lease or other instrument or
agreement to which the Selling Stockholder is a party or by which it may be
bound, or to which any of the property or assets of the Selling Stockholder may
be subject nor will such action result in any violation of the provisions of the
charter or by-laws of the Selling Stockholder, if applicable, or any law,
administrative regulation, judgment or order of any governmental agency or body
or any administrative or court decree having jurisdiction over the Selling
Stockholder or any of its properties.
(v) To the best knowledge of such counsel, the Securities to be sold
by the Selling Stockholder pursuant to the Purchase Agreement are free and clear
of any pledge, lien, security interest, charge, claim, equity or encumbrance of
any kind.
Exhibit B - Page B-1
<PAGE>
Exhibit C
Form of lock-up letter from directors, officers or other stockholders pursuant
to Section 5(k)
February [__], 1999
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Re: Proposed Secondary Public Offering of Common Stock of National Golf
-------------------------------------------------------------------
Properties, Inc.
- ----------------
Dear Sirs:
The undersigned, a stockholder [and an officer and/or director]/1/ of
National Golf Properties, Inc., a Maryland corporation (the "Company"),
-------
understands that Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") proposes to enter into a Purchase Agreement (the
-------------
"Purchase Agreement") with the Company, National Golf Operating Partnership, a
------------------
Delaware limited partnership, and Oaks Christian High School, a California
nonprofit public benefit corporation, providing for the public offering of
shares (the "Securities") of the Company's common stock, par value $.01 per
----------
share (the "Common Stock"). In recognition of the benefit that such an offering
------------
will confer upon the undersigned as a stockholder [and an officer and/or
director] of the Company, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the undersigned agrees
with Merrill Lynch that, during a period of 30 days from the date of the
Purchase Agreement, the undersigned will not, without the prior written consent
of Merrill Lynch, directly or indirectly, (i) 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 the Company's Common Stock or any
securities convertible into or exchangeable or exercisable for Common Stock,
whether now owned or hereafter acquired by the undersigned or with respect to
which the undersigned has or hereafter acquires the power of disposition, or
file any registration statement under the Securities Act of 1933, as amended,
with respect to any of the foregoing or (ii) enter into any swap or any other
agreement or any transaction that transfers, in whole or in part, directly or
indirectly, the economic consequence of ownership of the Common Stock, whether
any such swap or transaction is to be settled by delivery of Common Stock or
other securities, in cash or otherwise.
Very truly yours,
Signature:
---------------------------------
Print Name:
--------------------------------
- -------------------------
/1/ Delete or revise bracketed language as appropriate.
Exhibit C - Page C-1
<PAGE>
EXHIBIT 5.1
DRAFT
February , 1999
National Golf Properties, Inc.
29651 28th Street
Suite 3001
Santa Monica, California 90405
Re: National Golf Properties, Inc., a Maryland corporation (the
"Company")--Registration Statement on Form S-3 (Registration No. 333-
67403), pertaining to up to Two Million Eight Hundred Thousand Six
Hundred Sixteen (2,800,616) shares (the "Shares") of common stock, par
value one cent ($0.01) per share ("Common Stock"), to be issued to
certain holders (the "Selling Stockholders") of units of limited
partnership interest (the "Units") in National Golf Operating
Partnership, L.P., a Delaware limited partnership (the "Partnership")
upon exchange of such Units
-------------------------------------------------------------------------
Ladies and Gentlemen:
In connection with the registration of the Shares under the Securities Act
of 1933, as amended (the "Act"), by the Company on Form S-3 filed with the
Securities and Exchange Commission (the "Commission") on or about November 17,
1998, as amended (the "Registration Statement"), you have requested our
opinion with respect to the matters set forth below.
We have acted as special Maryland corporate counsel for the Company in its
individual capacity and as the sole general partner of the Partnership, in
connection with the matters described herein. In our capacity as special
Maryland corporate counsel to the Company, we have reviewed and are familiar
with proceedings taken and proposed to be taken by the Company in connection
with the issuance and delivery of the Shares, and for purposes of this opinion
have assumed such proceedings will be timely completed in the manner presently
proposed. In addition, we have relied upon certificates and advice from the
officers of the Company upon which we believe we are justified in relying and
on various certificates from, and documents record with, the State Department
of Assessments and Taxation of Maryland (the "SDAT"), including the charter of
the Corporation (the "Charter"), consisting of Articles of Incorporation filed
with the SDAT on March 28, 1995; the Amended Articles of Incorporation filed
with the SDAT on March 30, 1995; Amended Articles of Incorporation filed with
the SDAT on November 9, 1994; Articles of Merger filed with the SDAT on August
31, 1995; Articles Supplementary filed with the SDAT on March 4, 1998;
Certificate of Correction filed with the SDAT on March 25, 1998 and Articles
Supplementary filed with the SDAT on April 20, 1998. We have also examined the
Bylaws of the Company, the Second Amended and Restated Agreement of Limited
Partnership of the Partnership dated as of April 20, 1998 (the "Partnership
Agreement") and Resolutions of the Board of Directors of the Company adopted
on or before the date hereof and in full force and effect on the date hereof;
and such laws, records, documents, certificates, opinions and instruments as
we deem necessary to render this opinion.
We have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals and the conformity to the originals of
all documents submitted to us as certified, photostatic or conformed copies.
In addition, we have assumed that each person executing any instrument,
document or certificate referred to herein on behalf of any party is duly
authorized to do so. We have also assumed that none of the Shares will be
issued or transferred to an interested Stockholder of the Company or an
Affiliate thereof, all as defined in Subtitle 6 of Title 3 of Maryland General
Corporation Law, or in violation of the provisions of Subparagraph C(3) of
Article IV of the Charter entitled "Restrictions on Ownership and Transfer to
Preserve Tax Benefit".
Based on the foregoing, and subject to the assumptions and qualifications
set forth herein, it is our opinion that the Shares have been duly reserved
and authorized for issuance by all necessary corporate action on the part of
the Company and when such Shares to be issued and delivered by the Company to
the Selling Stockholders are issued and delivered in exchange of Units of the
Partnership, upon and subject to the terms and conditions set forth in to the
Partnership Agreement, such Shares will be duly authorized, validly issued,
fully paid and non-assessable.
<PAGE>
National Golf Properties, Inc.
February , 1999
Page 2
We consent to your filing this opinion as an exhibit to the Registration
Statement, and further consent to the filing of this opinion as an exhibit to
the applications to securities commissioners for the various states of the
United States for registration of the Shares. We also consent to the
identification of our firm as Maryland counsel to the Company in the section
of the Prospectus (which is part of the Registration Statement) entitled
"Legal Matters."
The opinions expressed herein are limited to the laws of the State of
Maryland and we express no opinion concerning any laws other than the laws of
the State of Maryland. Furthermore, the opinions presented in this letter are
limited to the matters specifically set forth herein and no other opinion
shall be inferred beyond the matters expressly stated.
Very truly yours,
<PAGE>
EXHIBIT 8.1
DRAFT
February , 1999
National Golf Properties, Inc.
29561 28th Street
Suite 3001
Santa Monica, California 90405
Re: National Golf Properties, Inc.
Federal Income Tax Consequences
-------------------------
Ladies and Gentlemen:
We have acted as tax counsel to National Golf Properties, Inc., a Maryland
corporation (the "Company"), in connection with the issuance of up to Two
Million Eight Hundred Six Hundred Sixteen (2,800,616) shares of common stock,
par value $0.01 per share, pursuant to a registration statement (the
"Registration Statement") on Form S-3 under the Securities Act of 1933, as
amended (the "1933 Act"), filed with the Securities and Exchange Commission
(the "Commission") on November 17, 1998 (file number 333-67403), as amended as
of the date hereof (including each document incorporated by reference therein,
the "Registration Statement").
You have requested our opinion concerning certain of the federal income tax
consequences to the Company and the purchasers of the securities described
above in connection with the issuance described above. This opinion is based
on various facts and assumptions, including the facts set forth in the
Registration Statement concerning the business, properties and governing
documents of the Company and National Golf Operating Properties Limited
Partnership (the "Operating Partnership"). We have also been furnished with,
and with your consent have relied upon, certain representations made by the
Company and the Operating Partnership with respect to certain factual matters
through a certificate of an officer of the Company (the "Officer's
Certificate"). With respect to matters of Maryland law, we have relied upon
the opinion of Ballard Spahr Andrews & Ingersoll, LLP, counsel for the
Company, dated February , 1999.
In our capacity as tax counsel to the Company, we have made such legal and
factual examinations and inquiries, including an examination of originals or
copies certified or otherwise identified to our satisfaction of such
documents, corporate records and other instruments as we have deemed necessary
or appropriate for purposes of this opinion. For the purposes of our opinion,
we have not made an independent investigation, or audit of the facts set forth
in the above referenced documents or in the Officer's Certificate. In our
examination, we have assumed the authenticity of all documents submitted to us
as originals, the genuineness of all signatures thereon, the legal capacity of
natural persons executing such documents and the conformity to authentic
original documents of all documents submitted to us as copies.
We are opining herein as to the effect on the subject transaction only of
the federal income tax laws of the United States and we express no opinion
with respect to the applicability thereto, or the effect thereon, of other
federal laws, the laws of any state or other jurisdiction or as to any matters
of municipal law or the laws of any other local agencies within any state.
Based on such facts, assumptions and representations, it is our opinion
that:
1. The statements in the Registration Statement set forth under the caption
"Material Federal Income Tax Considerations" are, subject to the limitations
set forth therein, the material federal income tax considerations relevant to
purchasers of the Company's common stock pursuant to the Registration
Statement; and
<PAGE>
National Golf Properties, Inc.
February , 1999
Page 2
2. Commencing with the Company's taxable year ending December 31, 1993, the
Company has been organized and has operated in conformity with the
requirements for qualification as a "real estate investment trust" under the
Internal Revenue Code of 1986, as amended (the "Code"), and its proposed
method of operation will enable the Company to continue to meet the
requirements for qualification and taxation as a real estate investment trust
under the Code.
No opinion is expressed as to any matter not discussed herein.
This opinion is rendered to you as of the date of this letter, and we
undertake no obligation to update this opinion subsequent to the date hereof.
This opinion is based on various statutory provisions, regulations promulgated
thereunder and interpretations thereof by the Internal Revenue Service and the
courts having jurisdiction over such matters, all of which are subject to
change either prospectively or retroactively. Also, any variation or
difference in the facts from those set forth in the Registration Statement or
the Officer's Certificate may affect the conclusions stated herein. Moreover,
the Company's qualification and taxation as a real estate investment trust
depends upon the Company's ability to meet, through actual annual operating
results, asset diversification, distribution levels and diversity of stock
ownership, the various qualification tests imposed under the Code, the results
of which have not been and will not be reviewed by Latham & Watkins.
Accordingly, no assurance can be given that the actual results of the
Company's operation for any one taxable year will satisfy such requirements.
Except as provided below, this opinion is rendered only to you, and is for
your use in connection with the issuance of common stock by the Company
pursuant to the Registration Statement. This opinion may not be relied upon by
you for any other purpose, or furnished to, quoted to, or relied upon by any
other person, firm or corporation, for any purpose, without our prior written
consent, except that this opinion may be relied upon by the investors who
purchase common stock of the Company pursuant to the Registration Statement.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the captions "Material
Federal Income Tax Considerations" and "Legal Matters" in the Registration
Statement.
Very truly yours,
<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
February 18, 1999
