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SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549





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FORM 10-K





ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE


SECURITIES EXCHANGE ACT OF 1934





For the fiscal year ended December 31, 2001





Commission file number 1-12246





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NATIONAL GOLF PROPERTIES, INC.


(Exact name of registrant as specified in its charter)





Maryland

95-4549193(State of incorporation)

(I.R.S. Employer Identification No.)





2951 28th Street, Suite 3001 Santa Monica, CA

90405(Address of principal executive offices)

(Zip Code)





(310) 664-4100


(Registrants telephone number, including area code)





Securities registered pursuant to Section 12(b) of the Act:





Title of each class

Name of each exchange on which registeredCommon Stock $.01 par value

New York Stock Exchange





Securities registered pursuant to Section 12(g) of the Act: None





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x  No  ̈





Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x





As of March 19, 2002, the aggregate market value of the voting stock held by nonaffiliates of the registrant was approximately $87.1 million, based upon the closing price ($7.26) on the
New York Stock Exchange on that date. (For this computation, the registrant has excluded the market value of all shares of its common stock reported as owned by executive officers and directors of the registrant and certain other stockholders; such
exclusion shall not be deemed to constitute an admission that any such person is an affiliate of the registrant.)





Indicate the number of shares outstanding of each of the registrants classes of common stock, as of the latest practicable date:





13,121,148 shares of common stock, $.01 par value, as of March 19, 2002





Documents Incorporated By Reference





Portions of the registrants Proxy Statement in connection with its 2002 Annual Meeting of Stockholders are
incorporated by reference in Part III.





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PART I





The following discussion of the business of National Golf Properties, Inc. (the Company) relates to the fiscal year ended December 31, 2001. While the Companys business objectives and operating
strategy continue to include owning quality golf courses and leasing such properties to experienced operators, due to liquidity constraints, which were caused primarily by the financial condition of the Companys primary tenant, American Golf
Corporation (AGC), the Company has had to alter its strategy in some respects in 2002. For example, the Company has accelerated its sales of non-strategic golf courses and entered into a merger and reorganization agreement with AGC and
certain affiliates of AGC pursuant to which the Company and AGC will become subsidiaries of a newly formed corporation and the Company will cease to be a Real Estate Investment Trust (REIT). AGC, which suffered significant financial
losses in 2001 and has experienced difficulty with its liquidity, is not in compliance with the terms of its leases with the Company due to its failure to be current in its rental payments to the Company. As of March 19, 2002, AGC had paid
approximately $8.9 million and owed approximately $17.5 million of rent to the Company for the period January 1, 2002 through March 31, 2002. These and other developments are described in the Recent Developments section of this Form
10-K. The following discussion inserts where appropriate a cross reference to the Recent Developments section and should be read in the context of those recent developments.





Item 1.    BUSINESS





a)General Development of
Business





The Company commenced operations effective with the completion of its initial public stock offering (the
Offering) of common stock, par value $.01 per share (the Common Stock), on August 18, 1993. The Company qualifies as a REIT under the Internal Revenue Code of 1986, as amended (the Code).





The Company became the general partner in National Golf Operating Partnership, L.P. (the Operating Partnership) when the Operating
Partnership was formed as a Delaware limited partnership in June 1993. On July 8, 1994, the Operating Partnership acquired an 89% general partner interest in Royal Golf, L.P. II (Royal Golf). Royal Golf owned four golf courses on Hilton
Head Island, South Carolina. In August 2000, the Company acquired the remaining 11% interest in Royal Golf from the limited partner. Unless the context otherwise requires, all references to the Companys business and properties include the
business and properties of the Operating Partnership and Royal Golf.





In 1997, the Company acquired a 50% general partnership
interest in Pumpkin Ridge Joint Venture (Pumpkin Ridge). Pumpkin Ridge owns two golf courses in Cornelius, Oregon. The Company accounts for its investment in Pumpkin Ridge under the equity method of accounting.





The Company is the sole general partner in the Operating Partnership and currently owns 63.9% of the common partnership interest in the Operating
Partnership. The limited partners are individuals, partnerships, corporations and trusts who have contributed their properties in exchange for units of common partnership interest (Common Units) or who have contributed cash in exchange
for units of preferred partnership interest (Preferred Units).





In 2001, the Company purchased one golf course for
an aggregate initial investment of approximately $12.1 million. This investment was financed by approximately $266,000 of cash from operations, $8.7 million of advances under the Companys credit facility and $3.1 million of proceeds from
sale of properties in Code section 1031 exchange transactions. The Company sold ten golf courses in 2001 for approximately $34.7 million and recognized a loss of approximately $3 million from these transactions. Between December 31, 2001 and
March 19, 2002, the Company sold six golf courses for approximately $18.7 million and expects to recognize a gain of approximately $1.6 million from these transactions. As of March 19, 2002 the Company had two golf courses under contract
for sale for approximately $16.1 million. The Company expects to recognize a gain from these transactions.




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The following diagram depicts the beneficial ownership of the Company, the Operating
Partnership and Pumpkin Ridge as of March 19, 2002:





LOGO


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|* |  | The Company accounts for its investment in Pumpkin Ridge under the equity method of accounting.
|- |  | -----------------------------------------------------------------------------------------------

|** |  | The Company has a participating mortgage loan on one golf course which it does not own; one golf course is managed by AGC pursuant to a management agreement.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------




b)Narrative Description of Business





As of March 19, 2002, the Companys portfolio of 131 golf courses consists of one participating mortgage loan, which is collateralized by a mortgage on the golf course, and
ownership interests in 130 golf courses, including the two golf courses owned by Pumpkin Ridge, in 118 separate locations in 22 states (collectively, the Golf Courses). As a self-administered REIT, the Companys own employees
perform its administrative and management functions, rather than the Company relying on an outside manager for these services.




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The Golf Courses may 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 may include golf cart rentals, golf and tennis lessons, banquets and tournaments. In order to maintain qualification
as a REIT, the Companys income must be derived from real-property related sources, including rents from real property and generally excluding income from the operation of a golf course. Accordingly, the Company is generally precluded from
operating golf courses and, as a consequence, leases the Golf Courses to experienced golf course operators. In selecting operators, the Company considers factors such as the number of years that the operator has been in operation, the experience of
the management team, the operators net worth or ability to provide credit support to the Company, the number of golf courses currently owned, leased or managed by the operator, and the operators ability to maximize the revenues of the
golf course and to improve the long-term value of the golf course (for a more complete description of the Companys primary tenant, AGC, and its financial condition and difficulty with liquidity, see Tenant and Leases, Recent
Developments and Liquidity and Capital Resources sections).





Business Objectives and Operating Strategies





The Companys primary business objective is to maximize stockholder return through the ownership and acquisition of quality golf courses
and the subsequent lease of such properties to experienced operators. The Company focuses on the ownership and acquisition of golf course properties that have strong revenue and cash flow growth potential and generally expects to hold such
properties for long-term investment and capital appreciation. The Companys business and operating strategies include:





| |  |  | Increasing income and portfolio value by continuing the selective acquisition of golf course properties in major metropolitan areas or resort locations having strong golf
characteristics, which properties demonstrate potential for significant revenue and cash flow increases. For the period August 18, 1993 to December 31, 2001, the Company purchased 117 Golf Courses, including the two Golf Courses owned by Pumpkin
Ridge and the three leasehold interests in the Golf Courses at Carmel Mountain Ranch Country Club and Sweetwater Country Club, in which the Company already owned the fee interest, for an aggregate initial investment of approximately
$723.3 million;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Disposing of slower-growth and non-strategic properties and reinvesting proceeds in higher-yielding assets or reducing outstanding indebtedness. During the year ended December
31, 2001, the Company sold ten golf course properties for aggregate consideration of approximately $34.7 million. The Company received net cash proceeds of approximately $33.8 million. The Company recognized a net loss of approximately $3 million
from these transactions. Between December 31, 2001 and March 19, 2002, the Company sold six golf courses for approximately $18.7 million and expects to recognize a gain of approximately $1.6 million from these transactions. As of March 19, 2002
the Company had two golf courses under contract for sale for approximately $16.1 million. The Company expects to recognize a gain from these transactions;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Structuring favorable leases for the Company with experienced golf course operators under which the operators pay base rent and percentage rent based on revenues and pay
substantially all expenses in connection with the operation of such properties, including all real and personal property taxes, utility costs, insurance costs, irrigation costs, maintenance costs and other operating expenses;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Working with golf course operators on strategies to increase revenues, which in turn would increase percentage rent to the Company;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------




| |  |  | 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 the Golf Courses, compliance by its operators with their lease obligations and other market factors that could
affect the financial performance of its courses; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Maintaining a ratio of debt-to-total market capitalization of 50% or less. Such ratio is calculated as total debt of the Company as a percentage of the market value of issued
and outstanding shares of Common Stock, Preferred Units and Common Units that are exchangeable for shares of Common Stock plus total
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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debt. While the maintenance of a debt-to-total market capitalization ratio of 50% or less continues to be part of the Companys operating strategy, such ratio increased to 62% at December
31, 2001 due to declines in the price of the Companys Common Stock.





Seasonality





Although the results of operations of the Company and its predecessors have not been significantly impacted by seasonality, the Company generally expects that its 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.





Tenant and Leases





All
but three of the Golf Courses in the Companys portfolio are currently operated by AGC. One Golf Course is operated by AGC pursuant to a short-term management agreement while the remaining Golf Courses are leased to AGC pursuant to long-term
triple net leases (collectively, the Leases). AGC is one of the largest and most experienced operators of golf course properties and related facilities in the world and, as of March 19, 2002, manages and operates 230 golf course
properties and related facilities in 29 states. AGC operates one golf course property in Japan. In addition, AGC, through its subsidiaries, American Golf (U.K.) Limited and American Golf Australia Pty Limited, manages 25 golf course properties
and related facilities in the United Kingdom and two properties in Australia. AGC operates a diverse portfolio of golf courses for a variety of golf course owners including municipalities, counties and others. AGC was founded in 1973 by David G.
Price, the Chairman of the Companys Board of Directors and AGCs Chairman and principal shareholder. AGC oversees the management and operations of private country clubs and championship golf courses throughout the United States and
manages municipal golf courses for such cities as Atlanta, New York and San Diego and for the County of Los Angeles.





AGC
does not own any golf courses, but rather manages and operates golf courses either as a lessee under leases, generally triple net, or pursuant to management agreements. AGC derives revenues from the operation of golf courses principally through the
receipt of green fees, membership initiation fees, membership dues, golf cart rentals, driving range charges and sales of food, beverages and merchandise.





In connection with our Golf Courses, each Lease has an initial term ranging between 15 and 20 years. The Leases are triple net leases which require AGC to pay substantially all expenses associated with the operation
of the Golf Courses, such as all real and personal property taxes, utility costs, insurance costs, irrigation costs, maintenance costs and other operating expenses. In addition, AGC has options to extend the term of each Lease for one to three
five-year terms. Each Lease permits AGC to operate the leased property as a golf course, along with a clubhouse and other activities customarily associated with or incidental to the operation of a golf course.





The base rent for the first year for each Golf Course under the Leases is initially set at a fixed amount. Generally for the Leases entered into by the
Company with respect to its remaining portfolio of 37 initial golf courses at the time of the Offering (the Initial Golf Courses), base rent is increased each year by 4% or, if lower, 150% of the annual percentage increase in the
Consumer Price Index (CPI) (the Base Rent Escalation). In addition, generally percentage rent is paid each year in the amount, if any, by which the sum of 35% of Course Revenue in excess of a baseline amount and 5% of Other
Revenue in excess of a baseline amount exceeds the cumulative Base Rent Escalation since the commencement date of such Leases. Course Revenue is generally defined in the Leases to include all revenue received from the operation of the
applicable Golf Course, including revenues from memberships, initiation fees, dues, green fees, guest fees, driving range charges and golf cart rentals, but excluding those revenues described as Other Revenue. Other Revenue is generally
defined in the Leases to include all revenue received from food and beverage and merchandise sales and other revenue not directly related to golf activities. Generally, the baseline amounts for the Initial Golf Courses were established based on
revenues for each such Initial Golf Course for the twelve months ended February 28, 1993. Payment of percentage rent based upon the revenues of the Golf Courses allows the Company to participate in growth in revenues at the Golf Courses.







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For the Leases entered into subsequent to the Offering, the rent generally is based upon the greater of (a) the base rent or (b) a
specified percentage of Course Revenue and Other Revenue. The base rent under these Leases is increased for specified years during the Lease term based upon increases in the CPI, provided that each such annual CPI increase shall not exceed five
percent. The Leases for the acquired cobblestone courses specify that the base rent for such properties will increase by a fixed 0.5% each year for specified years during the term of each Lease.





The obligations of AGC under each Lease are cross-defaulted to each of the other Leases with respect to monetary defaults and all other defaults except those not within the
reasonable control of AGC. The Company has general recourse to AGC under the Leases, but such Leases are not collateralized by any assets of AGC. AGC, which suffered significant financial losses in 2001 and has experienced difficulty with its
liquidity, is not in compliance with the terms of the Leases due to its failure to be fully current in its rental payments to the Company. As of March 19, 2002, AGC had paid approximately $8.9 million and owed approximately $17.5 million of
rent to the Company for the period January 1, 2002 through March 31, 2002 (for a more complete description of the Companys primary tenant, AGC, and its financial condition and the effect on the Company, see Liquidity and Capital
Resources and Recent Developments sections).





The Independent Committee of the Board of Directors oversees the
selection of operators and approves transactions between the Company and David G. Price and his affiliates, including AGC.





On
January 10, 2002, the Company entered into an agreement with AGC whereby AGC is obligated to pay to the Company a fee of $8.5 million as consideration for terminating leases associated with ten golf courses sold in 2001. During 2001, the Company had
engaged an independent professional real estate advisor to assist the Company to develop an appropriate methodology to be used to determine lease termination fees associated with asset sales. As of March 19, 2002, AGC is obligated to pay to the
Company an additional $7.4 million in termination fees associated with six golf courses sold in 2002.





In addition to AGC, the
Company leases three of its Golf Courses to two other operators: Golf Enterprises, Inc. (GE) and Evergreen Alliance Golf Limited (EAGL). Unless the context otherwise requires, all references to the Leases include the leases
with GE and EAGL.





GE operates Sweetwater Country Club (two courses) near Houston, Texas. GE, which is owned by David G. Price
and Dallas P. Price, is a golf course operating company with 16 golf course properties under management in seven states. As of March 19, 2002, GE had paid approximately $421,000 and owed approximately $770,000 of rent to the Company for the
period January 1, 2002 through March 31, 2002.





EAGL operates San Geronimo Golf Course near San Francisco, California. EAGL is a
golf course acquisition and operating company with 39 golf courses under ownership or management in 11 states.





Competitive Conditions





According to its published data (2001 editions), the National Golf Foundation (NGF), an independent industry
organization, estimates the number of golfers and golf courses in the United States is approximately 27 million and 17,000, respectively. NGF also reports that construction of new golf courses has increased significantly in the last several
years. According to NGF, golf course supply has increased at an annual growth rate of 2.1% from 1995 to 2000 while the number of golfers increased at an annual rate of 1.3% during this period.





The Golf Courses are, and any additional golf courses and related facilities acquired by the Company will be, subject to competition for players and members from other golf courses
located in the same geographical areas, including golf courses owned by municipalities or other third parties that are operated by the Companys lessees. The number and quality of courses in a particular area could have a material effect on the
operating results of the Golf Courses. In addition, the demand for golf and the operating performance of the Golf Courses may be affected by a number of other factors including, but not limited to, weather, general economic conditions




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and the availability of other forms of recreation. The Companys experience indicates that well-managed and properly located facilities should generate stable operating results over the
long-term, although such facilities may experience short-term adverse fluctuations. To the extent the Company identifies properties that may be adversely impacted by supply or other conditions or exhibit limited growth potential, the Company may
dispose of such properties. In 2001, the Company sold ten golf courses for approximately $34.7 million and recognized a loss of approximately $3 million from these transactions. As of December 31, 2001, 31 properties were classified as held for
sale. Between December 31, 2001 and March 19, 2002, the Company sold six golf courses for approximately $18.7 million in cash and expects to recognize a gain of approximately $1.6 million from these transactions. As of March 19, 2002 the
Company had two golf courses under contract for sale for approximately $16.1 million. The Company expects to recognize a gain from these transactions.





The Company is also subject to competition for the acquisition and disposition of golf courses and related facilities with other purchasers and sellers of golf course properties, including other golf course companies.
The Company believes there exists an opportunity for selective acquisition and disposition of golf course properties, however, the market for golf course acquisitions and dispositions remains competitive.





Employees, Officers and Directors





As of March
19, 2002, the Company and the Operating Partnership had 13 full-time employees.





The President of the Company is employed and
compensated by both the Operating Partnership and the Company. The Company believes that the allocation of his compensation between the Company and the Operating Partnership reflects the services provided by him with respect to each entity. The
remainder of the employees are employed solely by the Operating Partnership.





The Company and the Operating Partnership have
entered into a services agreement pursuant to which the Operating Partnership provides the Company with administrative, accounting and other services relating to the operations and administration of the Company at a rate equal to the cost (including
allocable overhead) to the Operating Partnership of providing such services plus 15% of such costs.





Officers

DirectorsCharles S. Paul1,3,4

David G. Price2Interim Chief Executive Officer and Director

Chairman of the BoardNational Golf Properties, Inc.James M. Stanich2,5President and Director

John C. Cushman, III1,3,4Chairman of the BoardPaul W. Major

Cushman & Wakefield Inc.Executive Vice PresidentBruce Karatz1,3,4,5Neil M. Miller

Chairman and Chief Executive OfficerChief Financial Officer, Secretary

KB Homeand Acting General Counsel


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|(1) |  | Member of the Independent Committee
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|(2) |  | Member of the Executive Committee
|--- |  | ---------------------------------

|(3) |  | Member of the Audit Committee
|--- |  | -----------------------------

|(4) |  | Member of the Compensation Committee
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|(5) |  | Member of the Financial Committee
|--- |  | ---------------------------------




Government Regulation





Environmental Matters.Under various federal, state and local laws, ordinances and
regulations, an owner or operator of real property may become liable for the costs of removal or remediation of 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 hazardous substances. The presence of such substances,




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or the failure to remediate such substances properly when released, may adversely affect the owners ability to sell or rent such real estate or to borrow using such real estate as
collateral.





The Company has not been notified by any governmental authority of any material non-compliance, liability or other
claim in connection with any of the Golf Courses. The Company is not aware of any other environmental condition with respect to any of the Golf Courses that is likely to be material to the Company. All of the 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 investigation generally does not involve invasive procedures, such as soil sampling or ground water analysis. No assurance can be given that such investigation would reveal all potential
environmental liabilities, that no prior owner or adjacent landowner created any material environmental condition not known to the Company or that future uses or conditions (including, without limitation, changes in applicable environmental laws and
regulations) will not result in imposition of environmental liability. Also, environmental conditions, liabilities or compliance concerns may have arisen at a Golf Course after the related review was completed. Although the Leases provide that the
lessees will indemnify the Company for certain potential environmental liabilities at the Golf Courses, there can be no assurance that the indemnification provided by such Leases would be sufficient to satisfy all environmental liabilities.





Americans with Disabilities Act.    The Golf Courses are subject to the Americans with Disabilities
Act of 1990 (the ADA). The ADA has separate compliance requirements for public accommodations and commercial facilities but generally requires that public facilities such as clubhouses and recreation areas be made
accessible to people with disabilities. Noncompliance could result in imposition of fines or an award of damages to private litigants. Under the Leases, the lessees are required to make any necessary modifications or improvements to comply with the
ADA. The lessees and the Company have undertaken, where necessary, a capital improvement program to cause the public facilities at the Golf Courses to comply with the ADA. The expenditures for the modifications and improvements have not been
material to the lessees.





Recent Developments





On February 8, 2002, the Company entered into a forbearance agreement with certain of its lenders (the Lenders) on account of the defaults under its $300 million uncollateralized revolving credit facility
(the Credit Facility). Under the forbearance agreement, the Lenders agreed to forbear from exercising certain of their remedies under the Credit Facility in connection with these defaults for a period ending March 29, 2002, and the
Company repaid $20 million of the principal balance outstanding under the Credit Facility. The forbearance agreement is filed as an exhibit to the Company's 8-K filed February 14, 2002.





On March 29, 2002, the Company entered into an amendment and extension of the forbearance agreement with the Lenders pursuant to which, subject to certain conditions, the Lenders agreed
to (i) continue to forbear exercising certain of their remedies under the Credit Facility for a period ending April 30, 2002 and (ii) extend the maturity of the revolver portion of the Credit Facility until April 30, 2002. The amendment and
extension of the forbearance agreement is filed as an exhibit to the Companys 8-K filed April 1, 2002. Under the terms of the forbearance agreements, the revolver portion of the Credit Facility was permanently reduced from $180.3 million
at March 19, 2002 to $176.8 million at March 29, 2002. The Company is in discussions with the Lenders regarding a future extension. There can be no assurance as to the outcome of these discussions.





On March 28, 2002, AGC paid approximately $4.1 million of rent to the Company. As of March 29, 2002, AGC had paid approximately $13.0 million and owed
approximately $13.4 million of rent to the Company for the period January 1, 2002 through March 31, 2002.





On March 28, 2002, GE
paid approximately $435,000 of rent to the Company. As of March 29, 2002, GE had paid approximately $855,000 and owed approximately $335,000 of rent to the Company for the period January 1, 2002 through March 31, 2002.




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On February 13, 2002, the Company executed a letter of intent to enter into a business
combination with AGC and certain of AGCs affiliates, including Golf Enterprises, Inc. and European Golf, L.L.C. On March 29, 2002, the Company entered into a definitive merger and reorganization agreement with AGC and these affiliates.
Under the agreement, the Company and AGC will become subsidiaries of a newly-formed holding company. All issued and outstanding shares of the Companys Common Stock will be converted on a one-to-one basis into an equal number of shares of
common stock of the new company and all Common Units of the Operating Partnership (other than those held by certain affiliates that will be owned by the Company) will be converted on a one-to-one basis into an equal number of shares of common stock
of the new company. Shareholders of AGC and its affiliates will receive consideration of 156,005 shares of common stock of the new company (which is equivalent to the 165,005 Common Units of the Operating Partnership held by entities controlled by
David G. Price that will be contributed to the new company), up to 100,000 shares of Class C preferred stock of the new company and $10,000 in cash. Upon consummation of the transactions, the Company will no longer qualify as a REIT and the new
company will both own and operate golf courses. The transaction is subject to approval of the Companys stockholders, lenders to the Company and AGC and common and preferred unit holders of the Operating Partnership, as well as regulatory
approvals and certain other conditions described in the merger and reorganization agreement. While there can be no assurances as to whether or when the conditions set forth in the preceding sentence will be satisfied, the Company anticipates that
the transaction will close by the end of the third quarter of 2002. The merger and reorganization agreement is filed as an exhibit to the Companys Form 8-K dated April 1, 2002. In the event the transaction is not completed (or is materially
delayed), there may be serious adverse consequences on the financial condition and operations of both the Company and AGC.





Item
2.    PROPERTIES





As of March 19, 2002, the Golf Courses consisted of 131 golf courses that are
geographically diversified and located in 22 states, with 26 Golf Courses in California, 23 in Texas, 18 in Arizona, seven in each of Ohio and South Carolina, five in Minnesota, four in each of Georgia, Illinois, Kansas, Nevada, Pennsylvania and
Virginia, three in each of Oregon, Washington and New Jersey, two in each of Colorado, Florida, New Mexico, Oklahoma and Tennessee and one in each of Idaho and Maryland. The distribution of the Golf Courses reflects the Companys belief that
geographic diversification provides stability of our income and helps insulate the portfolio from regional economic and climatic influences. Substantially all of the Golf Courses are located in areas with populations in excess of 250,000 people.





As of March 19, 2002, the Golf Courses consist of 76 daily fee courses and 55 private club courses. All of the Golf Courses are
owned 100% in fee by either the Operating Partnership or Pumpkin Ridge except for the three Golf Courses at Bear Creek Golf World, which are leased by the Operating Partnership under a ground lease expiring in 2022; Mesquite Golf & Country Club,
of which a portion of the Golf Course is leased under various ground leases expiring between 2041 and 2043; Ridgeview Ranch Golf Course which is leased by the Operating Partnership under a ground lease expiring 2025; The Vineyard at Escondido Golf
Club which is leased by the Operating Partnership under a ground lease expiring 2025; and The Badlands Golf Club upon which the Company holds a participating mortgage loan which matures in 2013.





Daily Fee Courses.Daily fee courses are open to the public. Related amenities at these courses generally include practice facilities, small clubhouses
with pro shops offering limited merchandise and a moderate food and beverage operation. Daily fee courses generate revenues principally through green fees, golf cart rentals and food, beverage and merchandise sales. Daily fee courses generated $63.0
million of rent revenues to the Company in 2001 compared to $63.8 million in 2000.





Private Club
Courses.Private club courses are generally closed to the public. Related amenities at these courses typically include practice facilities, large clubhouses with pro shops offering a selection of merchandise, locker room
facilities and multiple food and beverage outlets, including grills, restaurants and banquet facilities. Private club courses generate revenues principally through initiation fees, membership dues, guest fees, and food, beverage and merchandise
sales. As of December 31, 2001, the Companys private club courses had




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approximately 45,000 members. Private club courses generated $54.8 million of rent revenues to the Company in 2001 compared to $54.1 million in 2000.





The Companys portfolio provides golfers with an enjoyable experience regardless of skill levels or price sensitivities. The Companys
facilities cover the full spectrum: entry-level to premium private clubs; nine-hole executive courses to extremely challenging championship courses; affordable community-based courses to upscale golf facilities in resort destinations such as Las
Vegas, Scottsdale and Hilton Head Island.





The following table sets forth certain information regarding the Golf Courses as of
March 19, 2002. The number of locations (118) differs from the number of Golf Courses because in some cases there is more than one Golf Course at a specific location. The number of golf courses at each location is indicated for locations with more
than one course.





The Golf CoursesDaily Fee Courses





Course Name

Location (City, State)

No. of Holes

2001 Rent Revenues(In thousands)1

Canoa Hills Golf Course

Green Valley, Arizona

18

$
4382

Continental Golf Course

Scottsdale, Arizona

18


4143

Coyote Lakes Golf Club

Surprise, Arizona

18


4264

Desert Lakes Golf Club

Fort Mojave, Arizona

18


3625

El Caro Golf Club

Phoenix, Arizona

18


2706

Foothills Golf Club, The

Phoenix, Arizona

18


1,1817

Kokopelli Golf Resort

Gilbert, Arizona

18


6288

Lakes at Ahwatukee Golf Club, The

Phoenix, Arizona

18


5709

Legend at Arrowhead, The

Glendale, Arizona

18


61110

London Bridge Golf Club (2 Courses)

Lake Havasu City, Arizona

36


53211

Stonecreek Golf Course

Phoenix, Arizona

18


1,13912

Superstition Springs Golf Club

Mesa, Arizona

18


66113

Villa De Paz Golf Course

Phoenix, Arizona

18


34114

BlackLake Golf Course

Nipomo, California

27


977
(1)15

Camarillo Springs Golf Course

Camarillo, California

18


1,25316

Carmel Mountain Ranch Country Club

San Diego, California

18


1,74917

Casta del Sol Golf Course

Mission Viejo, California

18


1,03518

Eagle Crest Golf Club

Escondido, California

18


1,11419

Lomas Santa Fe Executive Golf Course

Solana Beach, California

18


59720

Mesquite Golf & Country Club

Palm Springs, California

18


69121

Rancho San Joaquin Golf Course

Irvine, California

18


2,81722

San Geronimo Golf Course

San Geronimo, California

18


77423

Seascape Golf Course

Aptos, California

18


1,80224

Summitpointe Golf Club

Milpitas, California

18


1,21225

Upland Hills Country Club

Upland, California

18


89926

Vineyard at Escondido Golf Club, The

Escondido, California

18


1,41727

Vista Valencia Golf Course (2 Courses)

Valencia, California

27


93328

Arrowhead Golf Club

Littleton, Colorado

18


1,39129

Eagle Golf Club

Broomfield, Colorado

18


128
(1)30

Arrowhead Golf & Sports Club

Davie, Florida

18


40431

Baymeadows Golf Club

Jacksonville, Florida

18


320
(1)32

Sabal Palm Golf Course

Tamarac, Florida

18


369
(1)33

Summerfield Crossing Golf Club

Tampa, Florida

18


312


---

|(1) |  | Sold in 2001
|--- |  | ------------



9




---

Course Name

Location (City, State)

No. of Holes

2001 Rent Revenues(In thousands)34

Bradshaw Farm, The Golf Club at

Woodstock, Georgia

27

$
90735

Goshen Plantation Country Club

Augusta, Georgia

18


245
(1)36

Rivers Edge Golf Club

Fayetteville, Georgia

18


350
(1)37

Trophy Club of Appalachee, The

Dacula, Georgia

18


88538

Trophy Club of Atlanta, The

Alpharetta, Georgia

18


1,18039

Ruffled Feathers Golf Course

Lemont, Illinois

18


1,10140

Tamarack Golf Club

Naperville, Illinois

18


59341

Deer Creek Golf Club

Overland Park, Kansas

18


90542

Dubs Dread Golf Course

Kansas City, Kansas

18


36543

Majestic Oaks Golf Club (3 Courses)

Ham Lake, Minnesota

45


1,38544

Links at Northfork, The

Ramsey, Minnesota

18


41945

Woodland Creek Golf Course

Andover, Minnesota

9


6246

Las Vegas National Golf Club

Las Vegas, Nevada

18


2,54347

Painted Desert Golf Course

Las Vegas, Nevada

18


95648

Wildhorse Country Club

Henderson, Nevada

18


1,35349

Beaver Brook Country Club

Clinton, New Jersey

18


85450

Brigantine Golf Links

Brigantine, New Jersey

18


48351

Rancocas Golf Club

Willingboro, New Jersey

18


52552

Paradise Hills Golf Course

Albuquerque, New Mexico

18


60853

Carolina Shores Golf & Country Club

Calabash, North Carolina

18


764
(2)54

Paw Creek, The Golf Club at

Charlotte, North Carolina

18


254
(2)55

Bent Tree Golf Club

Columbus, Ohio

18


50756

Fowlers Mill Golf Course

Chesterland, Ohio

27


69457

Royal American Golf Links

Township of Harlem, Ohio

18


45458

Country Club of Hershey, South Course

Hershey, Pennsylvania

18


26159

Golden Oaks Country Club

Fleetwood, Pennsylvania

18


64560

Colonial Charters Golf Course

Longs, South Carolina

18


20761

Shipyard Golf Club

Hilton Head Island, South Carolina

27


1,32062

Stono Ferry, The Links at

Charleston, South Carolina

18


21063

Forrest Crossing Golf Course

Nashville, Tennessee

18


39164

Bear Creek Golf World (3 Courses)

Houston, Texas

54


1,65765

Longwood Golf Club

Houston, Texas

27


1,09666

Pecan Valley Golf Club

San Antonio, Texas

18


1,07167

Ridgeview Ranch Golf Course

Plano, Texas

18


1,49568

Riverchase Golf Club

Coppell, Texas

18


1,27769

Riverside Golf Club

Grand Prairie, Texas

18


74470

Southwyck Golf Club

Pearland, Texas

18


45271

Trails of Frisco, The

Frisco, Texas

18


1,17472

Chesapeake Golf Club

Chesapeake, Virginia

18


251
(1)73

Honey Bee Golf Club

Virginia Beach, Virginia

18


280
(1)74

Kiskiack Golf Club

Williamsburg, Virginia

18


87575

Reston National Golf Course

Reston, Virginia

18


1,19176

Virginia Oaks Golf Club

Gainesville, Virginia

18


1,31277

Capitol City Golf Club

Olympia, Washington

18


34978

Classic Golf Club, The

Spanaway, Washington

18


272
(1)79

Lake Wilderness Golf Course

Maple Valley, Washington

18


311Total Daily Fee Courses

$
63,000


---

(1) Sold in 2001


(2) Sold in 2002




10




---




The Golf CoursesPrivate Club Courses





Course Name

Location (City, State)

No. of Holes

2001 Rent Revenues(In thousands)1

Ahwatukee Country Club

Phoenix, Arizona

18

$
1,2672

Ancala Country Club

Scottsdale, Arizona

18


9283

Arrowhead Country Club

Glendale, Arizona

18


7944

Red Mountain Ranch Country Club

Mesa, Arizona

18


1,232
(2)5

Tatum Ranch Golf Club

Cave Creek, Arizona

18


1,3216

Canyon Oaks Country Club

Chico, California

18


4787

El Camino Country Club

Oceanside, California

18


6818

Escondido Country Club

Escondido, California

18


7939

Marbella Country Club

San Juan Capistrano,   California

18


757
(3)10

Monterey Country Club

Palm Desert, California

27


94211

Oakhurst Country Club

Clayton, California

18


1,21912

Palm Valley Country Club (2 Courses)

Palm Desert, California

36


1,66913

SeaCliff Country Club

Huntington Beach, California

18


1,55614

Spanish Hills Country Club

Camarillo, California

18


1,86715

Sunset Hills Country Club

Thousand Oaks, California

18


1,48916

Wood Ranch Golf Club

Simi Valley, California

18


1,27217

Heather Ridge Country Club

Aurora, Colorado

18


375
(2)18

Pinery Country Club

Denver, Colorado

27


69619

Brookstone Golf & Country Club

Acworth, Georgia

18


79420

The Plantation Golf Club

Boise, Idaho

18


31521

Eagle Brook Country Club

Geneva, Illinois

18


1,13022

Mission Hills Country Club

Northbrook, Illinois

18


93323

Highlands Golf & Supper Club

Hutchinson, Kansas

18


10824

Tallgrass Country Club

Wichita, Kansas

18


37025

Hunt Valley Golf Club

Phoenix, Maryland

27


1,93026

Tanoan Country Club

Albuquerque, New Mexico

27


1,48227

Brandywine Country Club

Maumee, Ohio

27


72328

Ivy Hills Country Club

Cincinnati, Ohio

18


22129

Oakhurst Country Club

Grove City, Ohio

18


49830

Royal Oak Country Club

Cincinnati, Ohio

18


75931

Meadowbrook Country Club

Tulsa, Oklahoma

18


49532

The Trails

Norman, Oklahoma

18


29333

Creekside Golf Club

Salem, Oregon

18


669
(2)34

Oregon Golf Club, The

West Linn, Oregon

18


1,24535

Country Club of Hershey (2 Courses)

Hershey, Pennsylvania

36


1,11936

Oyster Reef Golf Club

Hilton Head Island, South   Carolina

18


88737

Port Royal Golf & Racquet Club (3 Courses)

Hilton Head Island, South   Carolina

54


2,64338

Gettysvue Polo, Golf & Country Club

Knoxville, Tennessee

18


56339

Berry Creek Country Club

Georgetown, Texas

18


67940

Diamond Oaks Country Club

Fort Worth, Texas

18


64741

Eldorado Country Club

McKinney, Texas

18


99742

Great Southwest Golf Club

Grand Prairie, Texas

18


97643

Los Rios Country Club

Plano, Texas

18


635
(1)44

Oakridge Country Club

Garland, Texas

18


498
(2)


---

|(1) |  | Sold in 2001
|--- |  | ------------

|(2) |  | Sold in 2002
|--- |  | ------------

(3) Purchased in 2001




11




---

Course Name

Location (City, State)

No. of Holes

2001 Rent Revenues(In thousands)45

Pecan Grove Country Club

Richmond, Texas

27

$
1,50246

Sonterra, The Club at (2 Courses)

San Antonio, Texas

36


3,16047

Sweetwater Country Club (2 Courses)

Sugarland, Texas

36


4,97348

Thorntree Country Club

DeSoto, Texas

18


1,25249

Walden on Lake Houston Country Club

Humble, Texas

18


45650

Willow Fork Country Club

Katy, Texas

18


41051

Woodhaven Country Club

Forth Worth, Texas

18


32852

Brandermill Country Club

Midlothian, Virginia

18


1,07653

Bear Creek Country Club

Woodinville, Washington

18


749Total Private Club Courses

$
54,851Total All Courses

$
117,851





The Golf CoursesParticipating Mortgage Loan





Course Name

Location (City, State)

No. of Holes

Type of Course1

Badlands Golf Club, The

Las Vegas, Nevada

18

Daily FeeThe Golf CoursesOwned by Joint VentureCourse Name

Location (City, State)

No. of Holes

Type of Course1

Pumpkin Ridge Golf Club (Ghost Creek)

Cornelius, Oregon

18

Daily Fee2

Pumpkin Ridge Golf Club (Witch Hollow)

Cornelius, Oregon

18

Private Club


---

(1) Sold in 2001


(2) Sold in 2002





Capital Improvements





Under the Leases, the lessees are required to maintain each Golf Course in good order, repair and appearance. Capital improvements for which the Company is responsible would be limited to projects that the Company agreed to fund at the time
a property was acquired or projects subsequently identified by the Company or its operators that enhance the revenue potential and long-term value of a property. As of March 19, 2002, the Company may be required under the Leases to pay for various
remaining capital improvements totaling approximately $15 million, all of which will be paid by the end of 2003. The Company believes these improvements will add value to the Golf Courses and bring the quality of the Golf Courses up to our expected
standards. Upon the Companys funding of such capital improvements, the base rent payable under the Leases with respect to these Golf Courses will be adjusted to reflect, over the term of the Leases, the Companys investment in such
improvements.




12




---




Item 3.    LEGAL PROCEEDINGS





Owners and operators of golf courses are subject to a variety of legal proceedings arising in the ordinary course of operating a golf course, including proceedings relating to personal
injury and property damage. Such proceedings are generally brought against the operator of a golf course, but may also be brought against the owner. Although neither the Company nor the predecessor owners of the Golf Courses are currently parties to
any legal proceedings relating to the Golf Courses that would have a material adverse effect upon the Companys business or financial position, it is possible that in the future the Company could become a party to such proceedings. The lessees
are a party to certain litigation relating to the Golf Courses arising in the ordinary course of operations. The lessees have advised the Company that they do not believe that such litigation, if resolved against the lessees, would have a material
adverse effect upon their business or financial position. The Leases provide that the lessees are responsible for claims based on personal injury and property damage at the Golf Courses and require the lessees to maintain insurance for such
purposes.





During the last two weeks of February and the first week of March, 2002, ten related lawsuits were filed in
California state and federal courts against the Company, its directors, and certain of its officers. Seven of these lawsuits were filed in the California Superior Court for the County of Los Angeles (the State Lawsuits); the remaining
three were filed in the U.S. District Court for the Central District of California (the Federal Lawsuits).





Of the
seven State Lawsuits, four were brought as derivative actions, purportedly on behalf of the Company. These derivative lawsuits allege violations of fiduciary duties, waste of corporate assets, and violations of state securities laws against the
Companys directors in connection with the Companys relationship with AGC, including the Companys proposed business combination with AGC and the Companys publicly disclosed financial condition at the time of the May, 2001
secondary public offering of the Companys Common Stock. The derivative State Lawsuits seek damages, injunctive relief against the proposed business combination, and court costs and attorneys fees. See Recent Developments for
a discussion of the Companys proposed business combination with AGC.





The three remaining State Lawsuits were brought as
class actions. These purported class actions allege violations of fiduciary duties against the Companys directors in connection with the Companys proposed business combination with AGC. The class action State Lawsuits seek injunctive
relief against the proposed business combination, as well as court costs and attorneys fees.





The Federal Lawsuits, also
brought as purported class actions, allege violations of the federal securities laws against the Company and certain of its officers and directors in connection with the Companys publicly disclosed financial condition at the time of the May,
2001 secondary public offering of the Companys Common Stock. The Federal Lawsuits seek damages, as well as court costs and attorneys fees.





These actions have just been commenced, and no trial dates have been set. Management believes that the Company has meritorious defenses to these actions, and the defendants intend to defend themselves vigorously. See
Recent Developments for a discussion of the Companys proposed business combination with AGC.





Item
4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS





None.




13




---




PART II





Item 5.    MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS





a)Market Information





The
following table sets forth for periods shown the high and low sales price for the Companys Common Stock on the New York Stock Exchange under the symbol TEE and distributions declared.





High

Low

Distributions Declared2001Fourth quarter

$
16.9600

$
8.2400

$0.00Third quarter


26.8900


15.9500

0.46Second quarter


27.7000


23.6000

0.46First quarter


24.7600


20.3750

0.462000Fourth quarter

$
21.0000

$
19.2500

$0.46Third quarter


22.6250


20.2500

0.46Second quarter


22.2500


18.8750

0.45First quarter


23.1875


19.3125

0.45





b)Holders





The number of record holders of the Companys Common Stock was 606 as of March 19, 2002. The number of street name stockholders is estimated at
11,500.





c)Distributions





The Company paid distributions to stockholders of $1.84 per share in 2001, of which $1.77 represents ordinary income, $0.01 represents capital gains and $0.06 represents return of
capital on a tax basis. In 2000, the Company paid distributions to stockholders of $1.81 per share, of which $1.50 represents ordinary income, $0.11 represents capital gains, $0.09 represents unrecaptured section 1250 gains and $0.11 represents
return of capital on a tax basis. In order to maintain its qualification in 2001 and 2000 as a REIT for federal income tax purposes, the Company was required to make distributions to its stockholders of at least $1.50 and $1.60 per share,
respectively. On February 8, 2002, the Company announced that it was suspending dividend payments on it Common Stock. The Company intends to review future dividend and distribution decisions on a quarterly basis.





d)Transfer Agent





Mellon Investor Services


85 Challenger Road


Overpark
Center


Ridgefield, New Jersey 07660


(800) 522-6645


Website: www.melloninvestor.com




14




---




Item 6.    SELECTED FINANCIAL DATA





The following sets forth selected financial data for the Company on a historical basis. The following data should be read in conjunction with the financial statements (and the notes
thereto) of the Company and Managements Discussion and Analysis of Financial Condition and Results of Operations, each included elsewhere in this Form 10-K.





Year ended December 31,2001


2000


1999


1998


1997(In thousands, except per share data)Statement of Operations Data:RevenuesRent

$
117,851


$
117,981


$
106,682


$
83,350


$
74,316Equity in income from joint venture


509



471



428



385



119Total revenues


118,360



118,452



107,110



83,735



74,435ExpensesGeneral & administrative


6,065



5,642



4,933



5,156



5,336Depreciation & amortization


39,015



40,118



36,398



27,079



24,758Impairment loss


27,955















Total


73,035



45,760



41,331



32,235



30,094Interest expense


(35,368
)


(40,060
)


(34,030
)


(20,350
)


(19,810
)Interest income


1,676



2,453



2,640



1,170



364(Loss) gain on sale of properties


(2,980
)


5,564



3,216







158Gain on property condemnation














1,493



Gain on insurance proceeds


670



378



2,002







2,231Treasury lock settlement










(2,016
)






Other income


398



358



286



121



298Income before minority interest


9,721



41,385



37,877



33,934



27,582Income applicable to minority interest


(10,084
)


(21,955
)


(20,617
)


(17,292
)


(12,003
)Net (loss) income

$
(363
)

$
19,430


$
17,260


$
16,642


$
15,579Basic (loss) earnings per share

$
(0.03
)

$
1.52


$
1.41


$
1.33


$
1.26Weighted average number of shares


12,907



12,778



12,245



12,497



12,368Diluted (loss) earnings per share

$
(0.03
)

$
1.48


$
1.37


$
1.32


$
1.25Weighted average number of shares


13,047



13,092



12,598



12,599



12,512





December 31,2001

2000

1999

1998

1997(In thousands, except per share data)Balance Sheet Data:Real estate before accumulated depreciation

$
704,209

$
906,474

$
878,070

$
663,018

$
601,882Property held for sale


110,781











Total assets


766,224


766,106


781,905


597,295


535,314Total debt


484,452


456,813


450,331


283,405


299,032Minority interest


163,864


177,356


194,071


166,655


96,007Stockholders equity


100,512


121,834


121,501


132,224


134,890Total liabilities and stockholders equity


766,224


766,106


781,905


597,295


535,314Cash distributions declared per share

$
1.38

$
1.82

$
1.78

$
1.74

$
1.70




15




---




Year ended December 31,2001


2000


1999


1998


1997(In thousands, except property data)Other Data:Companys funds from operations(1)

$
41,883


$
38,149


$
34,087


$
31,203


$
27,851Cash flows provided by (used in):Operating activities


76,524



80,577



68,228



60,333



55,576Investing activities


5,310



(30,156
)


(204,343
)


(77,483
)


(94,408
)Financing activities


(19,917
)


(51,384
)


136,895



17,163



29,306Number of owned courses


136



145



149



130



123Number of owned locations


123



132



135



116



112


---

|(1) |  | The Company believes that to facilitate a clear understanding of the historical consolidated operating results, funds from operations should be examined in conjunction with net
income. Funds from operations is considered by the Companys management as an appropriate measure of the performance of an equity REIT because it is predicated on cash flow analyses, which the Companys management believes is more
reflective of the value of real estate companies such as the Company rather than a measure predicated on generally accepted accounting principles which gives effect to non-cash expenditures such as depreciation. Funds from operations is generally
defined as net income (loss) plus certain non-cash items, primarily depreciation and amortization. Funds from operations should not be considered as an alternative to net income as an indication of the Companys performance or as an alternative
to cash flow, as defined by generally accepted accounting principles, as a measure of liquidity. The funds from operations presented may not be comparable to funds from operations for other REITs. The following table summarizes the Companys
funds from operations for the years ended December 31, 2001, 2000, 1999, 1998, and 1997.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




For the year ended December 31,2001


2000


1999


1998


1997(In thousands)Net (loss) income

$
(363
)

$
19,430


$
17,260


$
16,642


$
15,579DistributionsPreferred Units


(9,255
)


(9,255
)


(7,392
)


(4,797
)


Minority interest


10,084



21,955



20,617



17,292



12,003Depreciation and amortization


39,344



40,466



36,758



27,472



24,883Gain on property condemnation














(1,493
)


Gain on insurance proceeds


(670
)


(378
)


(2,002
)






(2,231
)Loss (gain) on sale of properties


2,980



(5,564
)


(3,216
)






(158
)Impairment loss


27,955















Treasury lock










2,016







Straight-lined rent and interest


(2,887
)


(3,643
)


(3,391
)






Deferred compensation plan adjustment






(58
)


(589
)






Excess land sales


(147
)


(363
)


(259
)


(342
)


(469
)Amortizationloan costs














(241
)


(227
)Depreciationcorporate


(7
)


(50
)


(74
)


(87
)


(69
)Funds from operations

$
67,034


$
62,540


$
59,728


$
54,446


$
49,311Companys share of funds from operations


62.48
%


61.00
%


57.07
%


57.31
%


56.48
%Companys funds from operations

$
41,883


$
38,149


$
34,087


$
31,203


$
27,851





In order to maintain its qualification as a REIT for federal income tax purposes,
the Company is required to make distributions to its stockholders. The Companys distributions to stockholders have been less than the total funds from operations because the Company is obligated to make certain payments with respect to
principal debt and capital improvements. Management believes that funds from operations in excess of distributions, principal reductions and capital improvement expenditures should be used to pay down debt, to repurchase the Companys Common
Stock if authorized by the Board of Directors, or to invest in assets expected to generate returns on investment to the Company commensurate with the Companys investment objectives and policies. The Company will no longer be a REIT if its
business combination with AGC and certain of AGCs affiliates is consummated. See Recent Developments.




16




---




Item 7.  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.





Overview





The following discussion should be read in conjunction with the accompanying Consolidated Financial Statements and Notes thereto.





This Form 10-K, including the footnotes to the Companys consolidated financial statements, contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements include, without limitation:





| |  |  | statements regarding possible or assumed future results of the Companys operations;
| | - |  | ------------------------------------------------------------------------------------




| |  |  | statements that include any forecasts, projections or descriptions of anticipated cost savings or of anticipated funds available for distribution, and statements incorporated
by reference from documents filed by us with the Securities and Exchange Commission (SEC) and any statements made in this Form 10-K or in our other documents filed with the SEC regarding future cash flows, business prospects,
revenues, working capital, liquidity, financing sources and availability, capital needs, interest costs and income;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | any statements preceded by, followed by or that include the words believes, expects, plans, estimates, anticipates,
assumes, intends, could, may, will or similar expressions;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | any other statements contained or incorporated by reference herein regarding matters that are not historical facts; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------




| |  |  | the Company may not be able to successfully complete the terms of the merger and reorganization agreement with AGC and certain of its affiliates.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------




The Company cannot assure the future results, performance or outcomes of the matters described in these forward-looking
statements. Rather, these statements merely reflect the Companys current expectations of the approximate result, performance or outcome of the matter and speak only as of the date of this Form 10-K or as of such other date specifically
referenced. You should therefore exercise caution in interpreting and relying on the forward-looking statements because they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond the control of the
Company. These risks, uncertainties and other factors may cause actual results, performance or outcomes to differ materially from the anticipated future results, performance or outcomes expressed or implied by such forward-looking statements.





The Companys future results of operations may be impacted as a result of one or more of the following factors which
impact the results of operations of the Company and AGC, the principal lessee of its golf courses:





| |  |  | the Companys lenders may not agree to waive its non-compliance with financial or other covenants under its credit facility or any cross-default occurring as a result
thereof;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | the Company and/or AGC may be unable to refinance, replace, extend or repay its outstanding indebtedness on favorable terms or at all prior to the maturity of such
indebtedness;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | the Company may be unable to restructure the leases with its primary tenant, American Golf Corporation, on favorable terms or at all;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------




| |  |  | AGCs lenders may not agree to waive its default or non-compliance with financial or other covenants under its debt instruments;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------




| |  |  | attractive consolidation opportunities in the golf industry may not present themselves or the Company may not be able to take advantage of such opportunities;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | the Company may be unable to dispose of its slower-growth and non­strategic properties on favorable terms in order to either reinvest the proceeds in higher-yielding
properties or reduce outstanding indebtedness;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



17




---




| |  |  | the Companys properties may continue to experience a decline in course-level revenue and reduced tourism in our destination travel markets as a result of the effects of
the general economic recession, the September 11, 2001 terrorist attacks or subsequent similar events;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | the Companys properties may experience increased competition for golfers, primarily through the continued construction of new golf courses and facilities;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | the Companys core markets may experience poor weather conditions that have an adverse effect on green fee and other revenue;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------




| |  |  | AGC may continue to be unable to be current in its rental obligations to the Company under the Leases; and
| | - |  | ----------------------------------------------------------------------------------------------------------




| |  |  | the multiple lawsuits filed against the Company by stockholders (see Legal Proceedings) may not be favorably resolved.
| | - |  | ------------------------------------------------------------------------------------------------------------------------




The Company cannot predict with any certainty whether any of the above factors will continue in future periods. However, if these factors continue in
future periods, or if inclement weather in the regions where the Companys golf courses are located results in significant decreases in play, AGC would experience decreases in course level revenue which, as a result, may adversely impact its
ability to make lease payments to the Company.





If the default or cross-default provisions are enforced by AGCs lenders,
AGC could experience a material adverse effect on its financial condition. Such enforcement against AGC, the Companys primary lessee, could have a material adverse effect on the Companys financial condition.





In addition, some of the factors that could cause actual results, performance or outcomes to differ materially from those expressed or implied by the
forward-looking statements contained in this Form 10-K have been disclosed in reports and other documents that the Company has previously filed with the SEC. The reader should be aware that the risk factors contained in those reports and documents
may not be exhaustive. Therefore, the Company recommends that the information in those reports and documents be read together with other reports and documents that it files with the SEC from time to time, including its Forms 10-K, 10-Q and 8-K and
Proxy Statements, which may supplement, modify, supersede or update those risk factors.





The following discussion should be read
in conjunction with the accompanying Consolidated Financial Statements and Notes thereto. The forward-looking statements included in Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A)
relating to certain matters involve risks and uncertainties, including anticipated financial performance, business prospects, anticipated capital expenditures and other similar matters, which reflect managements best judgement based on factors
currently known. Actual results and experience could differ materially from the anticipated results or other expectations expressed in the Companys forward-looking statements as a result of a number of factors, including but not limited to
those discussed in MD&A.





The discussion of the results of operations compares the year ended December 31, 2001 with the
year ended December 31, 2000 and the year ended December 31, 2000 with the year ended December 31, 1999.





Results of Operations





Comparison of year ended December 31, 2001 to year ended December 31, 2000





Net income decreased by approximately $19,793,000 to a net loss of approximately $363,000 for the year ended December 31, 2001 compared to net income of $19,430,000 for the year ended
December 31, 2000. The decrease was primarily attributable to: (i) an impairment loss of approximately $28 million; (ii) a decrease in gain on sale of properties of approximately $8,544,000 to a loss of approximately $2,980,000; and (iii) a decrease
in rent revenues of approximately $130,000. These were offset by an increase in gain on insurance proceeds of




18




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approximately $292,000 and decreases in depreciation and amortization expense of approximately $1,103,000 and interest expense of approximately $4,692,000.





The decrease in rent revenues was due to a decrease in percentage rents of approximately $4.6 million which was offset by an increase in minimum rents
of approximately $4.4 million. The decrease in percentage rents was primarily due to decreases in green fee revenue and initiation fee revenue from membership sales, which were adversely impacted by weather, general economic conditions and increased
competition for golfers. Poor weather conditions in California, Las Vegas and Phoenix during the first quarter and in the midwest during the second quarter accounted for much of the decline in green fee revenue. The decline in green fee revenue and
much of the decline in membership sales are also attributable to the general economic conditions in the United States. As businesses forego their outings or decrease their discretionary spending, tournament revenues have declined. The Golf Courses
have also experienced a decline in fee-paying guest play at private clubs as business-related spending slows. In addition, the development of new golf courses in certain markets has had a negative impact on membership sales and rounds played at Golf
Courses in those markets.





The terrorist attacks on the U.S. and related military actions have created additional uncertainty in
the state of the overall U.S. economy. As a result of the uncertainty caused by these events, AGCs financial condition and the Companys percentage rents have been negatively impacted as revenues have decreased.





The increase in minimum rent revenues of approximately $4.4 million was primarily due to: (i) an increase in minimum rents on Golf Courses owned at
December 31, 1999 of approximately $5.3 million; (ii) a full year of rents in 2001 on three Golf Courses acquired in 2000, which accounted for approximately $1 million of the increase; (iii) the acquisition of one Golf Course during 2001, which
accounted for approximately $757,000 of the increase. These increases were partially offset by decreases of approximately $788,000 due to the sale of six golf courses in 2000 and $1.8 million due to the sale of ten golf courses in 2001.





The increase in minimum rents on Golf Courses owned at December 31, 1999 of approximately $5.3 million was due to the combined
effect of: (i) increases due to the increase in the consumer price index for the Initial Golf Courses and golf courses acquired within the last five years and (ii) rent from payments made by the Company for capital improvements at the Golf
Courses.





The decrease in depreciation and amortization expense was due to a decrease in depreciation expense of approximately
$1.2 million and an increase in amortization expense of approximately $53,000. The decrease in depreciation expense was primarily due to the sale of ten golf courses in 2001, which accounted for approximately $1.1 million of the decrease and the
sale of six golf courses in 2001, which accounted for approximately $343,000 of the decrease. These decreases were partially offset by increases of approximately $396,000 due to a full year of depreciation expense in 2001 on three golf courses
acquired in 2000 and $265,000 due to the acquisition of one Golf Course in 2001.





The increase in gain on insurance proceeds was
due to various claims made at four of the Golf Courses in 2001 and four of the Golf Courses in 2000. The Company intends to apply the insurance proceeds to repairs and improvements at such Golf Courses.





The decrease in interest expense was primarily due to the decrease in LIBOR and base rate margins under the Companys credit facility.





Comparison of year ended December 31, 2000 to year ended December 31, 1999





Net income increased by approximately $2,170,000 to $19,430,000 for the year ended December 31, 2000 compared to $17,260,000 for the year ended December
31, 1999. The increase was primarily attributable to an increase in (i) rent revenues of approximately $11,299,000; (ii) gain on sale of properties of approximately $2,348,000; and (iii) a decrease in gain on insurance proceeds of approximately
$1,624,000, which was offset by




19




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(i) an increase in depreciation and amortization expense of approximately $3,720,000 (ii) an increase in interest expense of approximately $6,030,000; and (iv) a decrease in treasury lock
settlement expense of approximately $2,016,000.





The increase in rent revenues was due to (i) the acquisition of two golf course
properties during 2000, which accounted for approximately $1,001,000 of the increase; (ii) a full year of rent in 2000 on 22 golf course properties and three leasehold rights acquired in 1999, which accounted for approximately $7,835,000 of the
increase; (iii) an increase in base rent of approximately $2,552,000 for the Golf Courses owned as of December 31, 1998; and (iv) a decrease in percentage rent of approximately $90,000 for the Golf Courses owned as of December 31, 1998. The
increase in depreciation and amortization expense was due to an increase in depreciation expense of approximately $3,159,000 and an increase in amortization expense of approximately $561,000. The increase in depreciation expense was primarily due to
(i) the acquisition of two golf course properties during 2000, which accounted for approximately $452,000 of the increase and (ii) a full year of depreciation expense in 2000 on 21 golf course properties acquired in 1999, which accounted for
approximately $2,638,000 of the increase, which was offset by a decrease in depreciation expense due to the sale of seven Golf Courses at six properties, which accounted for approximately $348,000 of the decrease. The increase in amortization
expense was primarily due to a full year of amortization on three leasehold rights acquired in 1999, which accounted for approximately $565,000 of the increase.





The decrease in gain on insurance proceeds was due to various claims made at four of the Golf Courses in 2000 compared to seven of the Golf Courses in 1999. The Company intends to apply
the insurance proceeds to repairs and improvements at such Golf Courses.





The increase in interest expense was primarily due to
the increase in outstanding advances and LIBOR and base rate margins under the Companys credit facility. At April 30, 1999, the Operating Partnership settled its treasury lock swap transaction, resulting in a loss of approximately $2,345,000.
Such loss was netted with a gain of approximately $329,000 from two other treasury lock swap transactions, resulting in a net loss of approximately $2,016,000 which was recorded in the consolidated statement of operations for the year ended December
31, 1999.





Liquidity and Capital Resources





The following discussion of the liquidity and capital resources of the Company relates to the fiscal year ended December 31, 2001. AGC, which suffered significant financial losses in 2001 and has experienced
difficulty with its liquidity, is not currently in compliance with the terms of the Leases due to its failure to be current in its rental payments to the Company. The Companys properties that are operated by AGC reported a ratio of operating
income to rent of 0.83 for the year ended December 31, 2001. As of March 19, 2002, AGC had paid approximately $8.9 million and owed approximately $17.5 million of rent to the Company for the period January 1, 2002 through March 31, 2002. As of March
19, 2002, GE had paid approximately $421,000 and owed approximately $770,000 of rent to the Company for the period January 1, 2002 through March 31, 2002. These and other developments are described in the Tenant and Leases and
Recent Developments sections of this Form 10-K. The following discussion of the liquidity and capital resources of the Company inserts where appropriate a cross reference to these sections and should be read in the context of those
recent developments.





At December 31, 2001 the Company had approximately $63.4 million in cash and cash equivalents,
investments, mortgage notes receivable of approximately $15.4 million, mortgage indebtedness of approximately $28.6 million and uncollateralized indebtedness of approximately $455.8 million. The $484.4 million aggregate principal amount of mortgage
and uncollateralized indebtedness bears interest at a weighted average rate of 7.42%. Of the $484.4 million of debt, $162.9 million is fixed-rate debt and is payable either monthly, quarterly, semi-annually or annually and matures between 2002
and 2008.




20




---




In order to maintain its qualification as a REIT for federal income tax purposes, the Company
has had to make substantial distributions to its stockholders. The following factors, among others, affect cash flow from operations and influence the decisions of the Companys Board of Directors regarding distributions: (i) increase in
debt service resulting from additional indebtedness; (ii) scheduled increases in base rent under the Leases with respect to the Golf Courses; (iii) any payment to the Company of percentage rent under the Leases with respect to the Golf Courses; and
(iv) increase in preferred distributions resulting from the issuance of Preferred Units. The Company will no longer be a REIT if its business combination with AGC and certain of AGCs affiliates is consummated, and thus would no longer be
required by law to make distributions. See Recent Developments. On February 8, 2002, the Company announced that it was suspending dividend payments on it Common Stock and that the Operating Partnership was suspending distributions to its
common and preferred unit holders. The Company and the Operating Partnership intend to review future dividend and distribution decisions on a quarterly basis.





In 2001, the Company extended the maturity of a 7.86% fixed rate collateralized note payable with an original maturity date of July 6, 2001. The note, which was assumed in connection with the acquisition of Royal Golf
in 1994, accrues interest at LIBOR plus 350 basis points, and matures April 8, 2002 and, subject to the satisfaction of certain conditions, will extend to August 8, 2002. The balance at December 31, 2001 was $18.5 million.





The Company anticipates that its cash from operations and proceeds from assets sales will provide adequate liquidity to conduct its
operations, fund administrative and operating costs, interest payments, capital improvements and acquisitions. Capital improvements for which the Company is responsible are limited to projects that the Company agreed to fund at the time a property
was acquired or projects subsequently identified by the Company or its operators that enhance the revenue potential and long-term value of a property. As of March 19, 2002, the Company may be required under the Leases to pay for various remaining
capital improvements totaling approximately $15 million, all of which will be paid by the end of 2003. The Company believes these improvements will add value to the Golf Courses and bring the quality of the Golf Courses up to the Companys
expected standards in order to enhance revenue growth. Upon the Companys funding of the capital improvements, the base rent payable under the Leases with respect to these Golf Courses will be adjusted to reflect, over the term of the Leases,
the Companys investment in such improvements. Any subsequent capital improvements are the responsibility of the lessees (see also Tenant and Leases).





Future acquisitions will be made subject to the Companys investment objectives and policies established to maximize both current income and long-term growth in income. The
Companys liquidity requirements with respect to future acquisitions may be reduced to the extent the Company uses Common Stock or Common Units as consideration for such purchases.





In September 1999, the Board of Directors authorized, subject to certain business and market conditions, the purchase of up to $20 million of the Companys Common Stock. The stock
repurchase plan was completed in 2000. The number of shares purchased under this authorization was 967,200 for a total cost of approximately $19.9 million. The shares repurchased are considered authorized but unissued.





On July 30, 1999, the Company amended its Credit Facility with the Lenders led by The First National Bank of Chicago, as Administrative Agent
(now known as Bank One). The amended credit facility divided the $300 million revolving credit facility into (i) a $200 million revolver (the Revolver) and (ii) a $100 million term note (the Term Note). As described
below, the Company has entered into forbearance agreements with the Lenders relating to the Companys failure to be in compliance with the Credit Facility. See also Recent Developments. Advances under the Credit Facility bear
interest at the Administrative Agents alternate base rate plus the then-applicable base rate margin or, at the option of the Company, LIBOR plus the then-applicable LIBOR rate margin. The Administrative Agents alternate base rate for any
day means the greater of (i) a rate per annum equal to the corporate base rate of interest announced by the Administrative Agent from time to time, and (ii) the federal funds rate as published by the Federal Reserve Bank plus one-half percent
(0.50%) per annum. With respect to advances under the Revolver, the amount of the base rate margin and LIBOR rate margin vary depending upon




21




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the amount of the Companys outstanding indebtedness compared to its capitalization. The initial rate of interest for borrowings under the Revolver was equal to LIBOR plus a margin of 2.25%
or the alternate base rate plus 1.00%. The Revolver initially was scheduled to terminate March 29, 2002, but its term was extended until April 30, 2002 pursuant to an amendment and extension of the forbearance agreement as described below. See
also Recent Developments. The rate of interest for the Term Note will be equal to LIBOR plus a margin of 3.00% or the alternate base rate plus 1.75%. The Term Note terminates on March 29, 2004.





The Companys Credit Facility requires AGC, the Companys primary lessee, to maintain a certain fixed charge coverage ratio and to be in
compliance with AGCs debt instruments. For the quarters ended June 30, 2001, September 30, 2001 and December 31, 2001, AGC had not achieved such ratio and also was not in compliance with certain provisions of AGCs debt instruments and,
accordingly, the Company was not in compliance with the Credit Facility for the same periods. On August 14, 2001, the Company obtained a waiver of such non-compliance for the quarter ended June 30, 2001, which remained in effect through October 1,
2001. For the year ended December 31, 2001, AGC had not achieved such fixed charge coverage ratio and also is not in compliance with certain provisions of AGCs debt instruments and, accordingly, the Company will not be in compliance with the
Credit Facility. On February 8, 2002, the Company entered into a forbearance agreement with certain of Lenders on account of the defaults under the Credit Facility. Under the forbearance agreement, the Lenders agreed, subject to certain conditions,
to forbear from exercising certain of their remedies under the Credit Facility in connection with these defaults for a period ending March 29, 2002, and the Company repaid $20 million of the principal balance outstanding under the agreement. Under
the terms of the forbearance agreement, the Revolver was permanently reduced from $200 million at December 31, 2001 to $180.3 million at March 19, 2002. On March 29, 2002, the Company entered into an amendment and extension of the forbearance
agreement with the Lenders pursuant to which, subject to certain conditions, the Lenders agreed to (i) continue to forbear exercising certain of their remedies under the Credit Facility for a period ending April 30, 2002 and (ii) extend the
maturity of the Revolver until April 30, 2002. The Company is in discussions with its Lenders to extend the maturity of the Credit Facility. There can be no assurance as to the outcome of these discussions. The forbearance agreement is filed as an
exhibit to the Companys 8-K filed April 1, 2002. Under the terms of the forbearance agreements, the Revolver was permanently reduced from $180.3 million at March 19, 2002 to $176.8 million at March 29, 2002. At December 31, 2001 and March
19, 2002 there were outstanding advances under the Credit Facility of $298 million and $268.7 million, respectively.





Some of the Companys debt instruments contain cross-default provisions pursuant to which a default under one instrument may cause a default under one or more other instruments. As of December 31, 2001, the outstanding balances of such
instruments for the Company was $154.3 million.





If the default or cross-default provisions are enforced by the Lenders, the
Company could experience a material adverse effect on its financial condition.





Two of AGCs debt instruments require AGC
to maintain certain fixed charge coverage ratios and to comply with certain other financial tests. For the quarters ended June 30, 2001, September 30, 2001, and December 31, 2001, AGC had not achieved such fixed charge coverage ratios and also was
not in compliance with certain provisions of AGCs debt instruments. On March 8, 2002, AGC entered into a forbearance agreement with one lender under its credit facility, which remained in effect through March 29, 2002. Under the terms of the
forbearance agreement, AGC repaid $1,862,000 of the principal balance. Additionally, the revolving credit facility was permanently reduced from $50,000,000 to $48,134,000. AGC is in discussions with the lenders under each of the debt instruments
regarding the aforementioned default and non-compliance. There can be no assurance as to the outcome of these discussions.





In
addition to the two debt instruments referred to above, certain equipment operating leases of AGC and debt instruments on an AGC subsidiary contain cross-default provisions pursuant to which a default under one instrument may cause a default under
one or more other instruments. As of December 31, 2001, the outstanding balances of such debt instruments for AGC were $13,833,000.




22




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If the default or cross-default provisions are enforced by AGCs lenders, AGC could
experience a material adverse effect on its financial condition. Such enforcement against AGC, the Company's primary lessee, could have a material adverse effect on the Companys financial condition. There can be no assurance that AGC will be
able to meet the financial tests or fixed charge coverage ratio provisions as of the end of future quarters or that AGCs lenders will grant waivers of any inability of AGC to meet these provisions or any cross-default occurring as a result of
such provisions.





On July 28, 1999, the Operating Partnership completed the private placement of 1,400,000 9.3% Series B
Cumulative Redeemable Preferred Units (Series B Preferred Units), representing limited partnership interests in the Operating Partnership, to institutional investors in exchange for a contribution to the Operating Partnership of $35
million. The Series B Preferred Units, which may be called by the Operating Partnership at par on or after July 28, 2004, have no stated maturity or mandatory redemption and pay a cumulative, quarterly dividend at an annualized rate of 9.3%. The
Series B Preferred Units are not convertible into Common Stock, but are convertible into preferred stock of the Company under certain circumstances. The Operating Partnership used the proceeds from such private placement to reduce outstanding
indebtedness under the Operating Partnerships revolving credit facility. On February 8, 2002, the Operating Partnership announced that it was suspending distributions to its common and preferred unit holders. The Operating Partnership intends
to review future distribution decisions on a quarterly basis.





The Company may finance future acquisitions of golf course
properties with proceeds from property sales in Code section 1031 transactions or with issuances of the Companys or the Operating Partnerships equity or debt securities. The Company also may reduce or refinance a portion of the Credit
Facility with issuances of such debt or equity securities. Any such offering which involves the sale of the equity securities of the Company could adversely affect the market price of shares of the Companys Common Stock held by the
Companys existing stockholders.





In 2001, the Company purchased one golf course property for an initial investment of
approximately $12.1 million, which investment was financed by approximately $266,000 of cash from operations, approximately $8.7 million of advances under the Companys Credit Facility, and $3.1 million of proceeds from sale of properties
in Code section 1031 exchange transactions. During the year ended December 31, 2001, the Company sold ten golf course properties for aggregate consideration of approximately $34.7 million. The Company received net cash proceeds of approximately
$33.8 million. The Company recognized a net loss of approximately $3 million from these transactions. Between December 31, 2001 and March 19, 2002, the Company sold six golf courses for approximately $18.7 million and expects to recognize a gain of
approximately $1.6 million from these transactions. As of March 19, 2002 the Company had two golf courses under contract for sale for approximately $16.1 million. The Company expects to recognize a gain from these transactions.





The limited partners of the Operating Partnership have the right, in each twelve-month period ending August 18, to sell up to one-third of
their Common Units to the Company or exchange for shares of Common Stock up to the greater of 75,000 Common Units or one-third of their Common Units. If the Common Units are sold for cash, the Company will have the option to pay for such Common
Units with available cash, borrowed funds or from the proceeds of an offering of Common Stock. If the Common Units are exchanged for shares of Common Stock, the limited partners will receive one share of Common Stock for each Common Unit exchanged.





Comparison of cash flow statement for year ended December 31, 2001 to year ended December 31, 2000





Net cash provided by operating activities decreased by approximately $4,053,000 to $76,524,000 for the year ended December 31, 2001 compared
to $80,577,000 for the year ended December 31, 2000. The decrease was primarily attributable to an increase in escrow receivables of approximately $10,449,000 from properties sold in Code section 1031 exchange transactions which was partially offset
by a decrease in interest payments of approximately $6,894,000 due to lower interest rates on the Companys variable rate debt.







23




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Net cash provided by investing activities increased by approximately $35,466,000 to $5,310,000 for the year ended December 31, 2001
compared to net cash used of approximately $30,156,000 for the year ended December 31, 2000. The increase is primarily attributable to (i) an increase in proceeds from the sale of properties and related assets of approximately $18,851,000 and
(ii) a decrease in cash payments related to the acquisition and capital improvements of property of approximately $15,949,000.


Net cash used in financing activities
decreased by approximately $31,467,000 to $19,917,000 for the year ended December 31, 2001 compared to $51,384,000 for the year ended December 31, 2000. The change was attributable primarily to (i) a decrease in principal payments related to the
Credit Facility of approximately $19,500,000, and (ii) a decrease in payments to acquire treasury stock of approximately $10,757,000.





Comparison of cash flow statement for year ended December 31, 2000 to year ended December 31, 1999





Net cash
provided by operating activities increased by $12,349,000 to $80,577,000 for the year ended December 31, 2000 compared to $68,228,000 for the year ended December 31, 1999. The increase was primarily attributable to (i) an increase in rent revenues
of approximately $11,299,000 and (ii) an increase in depreciation and amortization of $3,720,000, which was offset by an increase in interest expense of approximately $6,030,000.





Net cash used in investing activities decreased by approximately $174,187,000 to $30,156,000 for the year ended December 31, 2000 compared to $204,343,000 for the year ended December 31,
1999. The decrease in cash payments was primarily attributable to decreases in (i) the issuance of mortgage notes receivable of approximately $12,189,000; (ii) the purchase of properties and related assets of approximately $165,356,000; and (iii)
payments for treasury lock settlements of approximately $2,345,000. The decrease in cash payments was offset by (i) a net decrease in cash receipts from purchases and sales of available-for-sale securities of approximately $1,095,000; (ii) a
decrease in principal payments received on mortgage notes receivable of approximately $9,649,000; and (iii) an increase in proceeds from the sale properties and related assets of approximately $4,974,000.





Net cash used in financing activities increased by approximately $188,279,000 to $51,384,000 for the year ended December 31, 2000 compared to net cash
provided by financing activities of $136,895,000 for the year ended December 31, 1999. The change was primarily attributable to a decrease in (i) proceeds from notes payable of approximately $482,350,000 and (ii) a decrease in net proceeds from
Preferred Units of approximately $34,067,000, which was offset by a decrease in principal payments on notes payable of approximately $327,664,000.





Other Data





The Company believes that to facilitate a clear understanding of the historical consolidated
operating results, funds from operations should be examined in conjunction with net income as presented in the audited Consolidated Financial Statements. Funds from operations is considered by management as an appropriate measure of the performance
of an equity REIT because it is predicated on cash flow analyses, which management believes is more reflective of the value of real estate companies such as the Company rather than a measure predicated on generally accepted accounting principles
which gives effect to non-cash expenditures such as depreciation. Funds from operations is generally defined as net income (loss) plus certain non-cash items, primarily depreciation and amortization. Funds from operations should not be considered as
an alternative to net income as an indication of the Companys performance or as an alternative to cash flow, as defined by generally accepted accounting principles, as a measure of liquidity.




24




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The funds from operations presented may not be comparable to funds from operations for other
REITs. The following table summarizes the Companys funds from operations for the years ended December 31, 2001, 2000 and 1999.





For the year ended December 31,2001


2000


1999(In thousands)Net (loss) income

$
(363
)

$
19,430


$
17,260DistributionsPreferred Units


(9,255
)


(9,255
)


(7,392
)Minority interest


10,084



21,955



20,617Depreciation and amortization


39,344



40,466



36,758Gain on insurance proceeds


(670
)


(378
)


(2,002
)Loss (gain) on sale of properties


2,980



(5,564
)


(3,216
)Impairment loss


27,955







Treasury lock










2,016Straight-line rent and interest


(2,887
)


(3,643
)


(3,391
)Deferred compensation plan adjustment






(58
)


(589
)Excess land sales


(147
)


(363
)


(259
)Depreciationcorporate


(7
)


(50
)


(74
)Funds from operations

$
67,034


$
62,540


$
59,728Companys share of funds from operations


62.48
%


61.00
%


57.07
%Companys funds from operations

$
41,883


$
38,149


$
34,087





In order to maintain its qualification as a REIT for federal income tax purposes,
the Company is required to make distributions to its stockholders. On February 8, 2002, the Company announced that it was suspending dividend payments on its Common Stock. The Company intends to review future dividend and distribution decisions on a
quarterly basis. The Companys distributions to stockholders have been less than the total funds from operations because the Company is obligated to make certain payments with respect to principal debt and capital improvements. Management
believes that funds from operations in excess of distributions, principal reductions and capital improvement expenditures should be used to pay down debt, to repurchase the Companys Common Stock if authorized by the Board of Directors, or to
invest in assets expected to generate returns on investment to the Company commensurate with the Companys investment objectives and policies.





Comparison of funds from operations for year ended December 31, 2001 to year ended December 31, 2000





Funds from operations increased by $4,494,000 to $67,034,000 for the year ended December 31, 2001 compared to $62,540,000 for the year ended December 31, 2000. The increase was primarily attributable to a decrease in
interest expense of approximately $4,692,000.





Comparison of funds from operations for year ended December 31, 2000 to year
ended December 31, 1999





Funds from operations increased by $2,812,000 to $62,540,000 for the year ended December 31, 2000
compared to $59,728,000 for the year ended December 31, 1999. The increase was primarily attributable to an increase in rent revenues of approximately $11,299,000, which was offset by increases in (i) interest expense of approximately $6,030,000 and
(ii) distributions on Preferred Units of approximately $1,863,000.





Inflation





All the Leases of the Golf Courses provide for base and participating rent features. All of such Leases are triple net leases requiring the lessees to pay for all maintenance and repair,
insurance, utilities and services, and, subject to certain limited exceptions, all real and personal property taxes, thereby minimizing the Companys exposure to increases in costs and operating expenses resulting from inflation.




25




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Critical Accounting Policies





The Companys significant accounting policies are described in Note 1 to Notes to Consolidated Financial Statements in Item 8. The Companys Consolidated Financial Statements
are prepared in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP), which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. Actual results could differ from those estimates. The Company considers the following
policies to be most critical in understanding the judgments that are involved in preparing our financial statements and the uncertainties that could impact our results of operations, financial condition and cash flows.





Revenue Recognition





The
Company recognizes rental revenue on an accrual basis over the terms of the Leases. In addition, for Leases with fixed increases in rent, the total rent revenue over the lease period is recognized on a straight-line basis.





Accounting for Contingent Rent





In May 1998, the Emerging Issues Task Force (the EITF) of the Financial Accounting Standards Board (FASB) issued Issue No. 98-9, Accounting for Contingent Rent in Interim Financial Periods. This statement
provides that recognition of contingent rental income should be deferred until specified targets that trigger the contingent rent are achieved. This statement applies to all contingent rental income effective with the second quarter of 1998, at
which time the Company adopted the policy. On a quarterly basis, there was a material impact to the Companys earnings per share, financial condition, and results of operations. Contingent rent not recorded in the second or third quarters was
recognized in the fourth quarter. Therefore, on an annual basis, there was no impact to the Companys earnings per share, financial condition, or results of operations. In November 1998, Issue No. 98-9 was withdrawn by the EITF. However, the
Company continued to account for contingent rent in accordance with Issue No. 98-9. In December 1999, the Securities and Exchange Commission (the SEC) issued Staff Accounting Bulletin Number 101 which reaffirms Issue No. 98-9.





Property





Property is carried at cost. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets as follows:





Buildings

30 yearsGround improvements

20 yearsFurniture, fixtures & equipment

3 to 10 years





Leasehold rights are carried at cost and amortized on a straight-line basis over
the lease term.





The Leases presently provide that at the end or termination of the existing Leases, all improvements and
fixtures placed on the rental property become the property of the Company.





The Company assesses whether there has been an
impairment in the value of rental property held for use by considering factors such as expected future operating income, trends and prospects, as well as the effects of demand, competition and other economic factors. Such factors include a
lessees ability to perform its duties and pay rent under the terms of the lease. If the property was leased at a significantly lower rent, the Company may recognize an impairment loss if the income stream were not sufficient to recover its
investment. Such a loss would be determined as the difference between the carrying value, including any allocated goodwill, and the fair value of the property, with the carrying value of the intangible asset reduced first. The Company determines
whether there has been impairment by comparing the expected undiscounted future cash flows from each golf course with the net carrying value for such golf course, including any related intangible asset.




26




---




Property Held for Sale





Properties actively marketed for sale are classified as held for sale. Property held for sale is carried at the lower of cost or estimated fair market value less estimated costs to sell,
or net realizable value. The net realizable value of rental property held for sale is determined by considering factors such as expected future operating income, trends and prospects, as well as the effects of demand, competition and other economic
factors. The Company may recognize an impairment loss if the net realizable value is less than the current carrying value of the property at the time it is classified as held for sale. Such a loss would be determined as the difference between the
carrying value, including any allocated goodwill, but excluding straight-line rent, and the net realizable value of the property, with the carrying value of the intangible asset reduced first. Depreciation is not recognized on properties classified
as held for sale. Properties classified as held for sale are subsequently reviewed by management to assess the current valuation estimates and may be subject to additional impairment charges. Additionally, such review may, under certain
circumstances, cause a property to be re-classified as held for use. Properties re-classified from held for sale, to held for use, are transferred at the then current carrying value and depreciation is resumed. As of December 31, 2001, 31 properties
were classified as held for sale. The carrying value of straight-lined rent is recognized at the time of sale.





When assets are
sold or retired, the asset and related depreciation allowance is eliminated from the records and any gain or loss on disposal is included in operations.





The above listing is not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by generally accepted
accounting principles, with no need for managements judgement in their application. There are also areas in which managements judgement in selecting any available alternative would not produce a materially different result. See the
Companys audited consolidated financial statements and notes thereto which begin in Item 8 of this Annual Report on Form 10-K which contain significant accounting policies and other disclosures required by generally accepted accounting
principles.





New Pronouncements Issued But Not Yet Effective





In July 2001, the Financial Accounting Standards Board (the FASB) issued Statement of Financial Accounting Standards No. (SFAS) 141, Business
Combinations, and SFAS 142, Goodwill and Other Intangible Assets. These statements will change the accounting for business combinations and goodwill in two significant ways. SFAS 141 requires that the purchase method of accounting
be used for all business combinations initiated after June 30, 2001. Use of the pooling-of-interests method will be prohibited. SFAS 142 changes the accounting for goodwill from an amortization method to an impairment-only approach. This standard
will be effective for the Companys fiscal year 2002. The Company has determined that these standards will not have a material impact on its consolidated financial statements.





In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations, which addresses financial accounting and reporting for obligations associated with
the retirement of tangible long-lived assets and the associated asset retirement costs. This statement is effective for fiscal years beginning after June 15, 2002. The Company has determined that SFAS No. 143 will have no material effect on its
consolidated financial statements.





In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. This Statement supersedes SFAS No. 121 and requires that long-lived assets that are to be disposed of by sale be measured at the lower of book value or fair value less costs to sell. SFAS No. 144 retains the
fundamental provisions of SFAS 121 for (a) recognition and measurement of the impairment of long-lived assets to be held and used and (b) measurement of long-lived assets to be disposed of by sale, but broadens the definition of what constitutes a
discontinued operation and how the results of a discontinued operation are to be measured and presented. This Statement will be effective at the beginning of 2002. The Company has determined that SFAS No. 144 will not have a material effect on its
consolidated financial statements.




27




---




Item 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





The Companys primary market risk exposure is interest rate risk. The Company has and will continue to manage interest rate risk by (1)
maintaining a conservative ratio of fixed-rate, long-term debt to total debt such that variable-rate exposure is kept at an acceptable level, (2) using interest rate fixing strategies where appropriate to fix rates on anticipated debt transactions,
and (3) taking advantage of favorable market conditions for long-term debt and/or equity.





The following table sets forth the
Companys long-term debt obligations, principal cash flows by scheduled maturity and weighted average interest rates at December 31, 2001 (dollars in thousands):





For the year ended December 31,


Thereafter


Total2002


2003


2004


2005


2006Long-term debt:Fixed-rate

$
7,346


$
7,915


$
48,146


$
41,670


$
3,568


$
54,264


$
162,909Average interest rate


8.39
%


8.39
%


8.58
%


8.66
%


7.95
%


7.95
%


8.42
%Variable-rate


219,747



1,227



96,252



279



279



3,759



321,543Average interest rate


6.07
%


9.12
%


8.88
%


10.22
%


10.22
%


10.22
%


6.98
%Total debt

$
227,093


$
9,142


$
144,398


$
41,949


$
3,847


$
58,023


$
484,452





The above schedule is based on contractual payments and does not reflect the
potential acceleration of the Term Note of approximately $98 million at December 31, 2001, described in Liquidity and Capital Resources in Item 7 and Recent Developments in Item 1.





In addition, the Company has assessed the market risk for its variable-rate debt and believes that a 1% change in interest rates will increase or
decrease interest expense by approximately $3.2 million annually based on $321.5 million outstanding at December 31, 2001.







28




---




Item 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA





REPORT OF INDEPENDENT ACCOUNTANTS





To the Board of
Directors and Stockholders of National Golf Properties, Inc.





In our opinion, the consolidated financial statements listed in
the index appearing under Item 14(a)(1) on page 60 present fairly, in all material respects, the financial position of National Golf Properties, Inc. (the Company) at December 31, 2001 and 2000, and the results of its operations and
its cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the
index appearing under Item 14(a)(2) on page 60 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial
statement schedule are the responsibility of the Companys management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements
in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.





The accompanying consolidated
financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 19 to the consolidated financial statements, the Company has a significant lessee, American Golf Corporation (AGC),
that has suffered losses from operations which have severely limited AGCs ability to make its rent payments to the Company in accordance with its lease provisions. Additionally, AGC has incurred debt covenant violations. Such debt covenant
violations by AGC have resulted in debt covenant violations for the Company due to certain cross-default provisions. These matters raise substantial doubt about the Companys ability to continue as a going concern. Managements plans in
regard to these matters are also described in Note 19. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.





As discussed in Note 8 to the consolidated financial statements, ten lawsuits have been filed against the Company, its directors and certain of its officers.





As discussed in Note 21 to the consolidated financial statements, the Company has entered into an agreement to enter into a business combination with
its affiliate, AGC, and other affiliates of AGC. Such business combination is expected to result in the Company ceasing to qualify as a real estate investment trust.





PRICEWATERHOUSECOOPERS LLP





Los Angeles, California


March 29, 2002







29




---




NATIONAL GOLF PROPERTIES, INC.





CONSOLIDATED BALANCE SHEETS


(In thousands, except share data)





December 31,2001


2000ASSETSPropertyLand

$
71,699


$
91,414Buildings


202,387



246,158Ground improvements


347,586



457,607Furniture, fixtures and equipment


38,650



49,740Leasehold rights


23,643



32,081Construction in progress


20,244



29,474704,209



906,474Less: accumulated depreciation


(163,617
)


(185,453
)Net property


540,592



721,021Property held for sale, net


110,781



Cash and cash equivalents


63,445



1,528Investments






200Mortgage notes receivable


15,442



15,442Investment in joint venture


6,606



6,949Due from affiliate






1,895Other assets, net


29,358



19,071Total assets

$
766,224


$
766,106LIABILITIES AND STOCKHOLDERS EQUITYNotes payable

$
484,452


$
456,813Accounts payable and other liabilities


14,099



10,103Due to affiliate


3,297



Total liabilities


501,848



466,916Minority interest


163,864



177,356Commitments and contingencies (Notes 7 and 8)Stockholders Equity:Preferred stock, $.01 par value, 5,000,000 shares authorizednone issued






Common stock, $.01 par value, 40,000,000 shares authorized, 13,121,148 and 12,963,845 shares issued and outstanding at December 31,
2001 and 2000, respectively


131



130Additional paid in capital


102,763



124,741Unamortized restricted stock compensation


(2,382
)


(3,037
)Total stockholders equity


100,512



121,834Total liabilities and stockholders equity

$
766,224


$
766,106





The accompanying notes are an integral part of these financial statements.




30




---




NATIONAL GOLF PROPERTIES, INC.





CONSOLIDATED STATEMENTS OF OPERATIONS


(In thousands, except per share amounts)





For the year ended December 31,2001


2000


1999Revenues:Rent from affiliate

$
116,871


$
116,763


$
104,817Rent


980



1,218



1,865Equity in income from joint venture


509



471



428Total revenues


118,360



118,452



107,110Expenses:General and administrative


6,065



5,642



4,933Depreciation and amortization


39,015



40,118



36,398Impairment loss


27,955







Total expenses


73,035



45,760



41,331Operating income


45,325



72,692



65,779Other income (expense):Interest income from affiliates






649



833Interest income


1,676



1,804



1,807(Loss) gain on sale of properties


(2,980
)


5,564



3,216Gain on insurance proceeds


670



378



2,002Other income


398



358



286Treasury lock settlement










(2,016
)Interest expense


(35,368
)


(40,060
)


(34,030
)Income before minority interest


9,721



41,385



37,877Income applicable to minority interest


(10,084
)


(21,955
)


(20,617
)Net (loss) income

$
(363
)

$
19,430


$
17,260Basic (loss) earnings per share

$
(0.03
)

$
1.52


$
1.41Weighted average number of shares


12,907



12,778



12,245Diluted (loss) earnings per share

$
(0.03
)

$
1.48


$
1.37Weighted average number of shares


13,047



13,092



12,598








The accompanying notes are an integral part of
these financial statements.




31




---




NATIONAL GOLF PROPERTIES, INC.





CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY


(In thousands, except share and per share amounts)





Number of Shares


Common Stock


Additional Paid in Capital


Accumulated Deficit


Unamortized Restricted Stock


TotalBalance at December 31, 1998

12,519,745


$
125


$
135,205


$



$
(3,106
)

$
132,224Amortization of restricted stock

















1,533



1,533Issuance of restricted stock

97,000



1



2,645







(2,645
)


1Exercise of stock options

32,300







658











658Repurchase of stock

(444,800
)


(4
)


(9,097
)










(9,101
)Distributions paid ($1.77 per share)









(5,002
)


(17,260
)






(22,262
)Deferred compensation plan adjustment









(2,974
)










(2,974
)Allocation for minority interest in the Operating Partnership









4,162











4,162Net income













17,260







17,260Balance at December 31, 1999

12,204,245



122



125,597







(4,218
)


121,501Amortization of restricted stock

















1,536



1,536Issuance of stock in exchange for OP units

1,260,000



13



1,439











1,452Issuance of restricted stock

42,000



1



908







(909
)


Repurchase of restricted stock

(20,000
)






(554
)






554



Repurchase of stock

(522,400
)


(6
)


(10,751
)










(10,757
)Distributions paid ($1.81 per share)









(3,854
)


(19,430
)






(23,284
)Contribution to deferred compensation plan









(790
)










(790
)Distribution from deferred compensation plan









335











335Allocation for minority interest in the Operating Partnership









12,411











12,411Net income













19,430







19,430Balance at December 31, 2000

12,963,845



130



124,741







(3,037
)


121,834Amortization of restricted stock

















1,508



1,508Issuance of stock in exchange for OP units

65,003







37











37Issuance of restricted stock

2,000







1,072







(1,072
)


Repurchase of restricted stock

(8,000
)






(219
)






219



Exercise of stock options

98,300



1



1,179











1,180Distributions paid ($1.84 per share)









(23,730
)










(23,730
)Contribution to deferred compensation plan









(1,097
)










(1,097
)Distribution from deferred compensation plan









590











590Allocation for minority interest in the Operating Partnership









553











553Net loss









(363
)










(363
)Balance at December 31, 2001

13,121,148


$
131


$
102,763


$



$
(2,382
)

$
100,512





The accompanying notes are an integral part of these financial statements.




32




---




NATIONAL GOLF PROPERTIES, INC.





CONSOLIDATED STATEMENTS OF CASH FLOWS


(In thousands)





For the year ended December 31,2001


2000


1999Cash flows from operating activities:Net (loss) income

$
(363
)

$
19,430


$
17,260Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization


39,015



40,118



36,398Amortization of loan costs


1,874



1,402



1,082Amortization of restricted stock


1,508



1,536



1,533Minority interest in earnings


10,084



21,955



20,617Distributions from joint venture, net of equity in income


343



338



344Gain on insurance proceeds


(670
)


(378
)


(2,002
)Loss (gain) on sale of properties


2,980



(5,564
)


(3,216
)Impairment loss


27,955







Straight-line rent and interest


(2,887
)


(3,643
)


(3,391
)Other adjustments






(10
)


1,746Changes in assets and liabilities:Other assets


(10,365
)


2,247



(1,684
)Accounts payable and other liabilities


2,923



(274
)


767Due from/to affiliate


4,127



3,420



(1,226
)Net cash provided by operating activities


76,524



80,577



68,228Cash flows from investing activities:Purchase of available-for-sale securities










(1,954
)Proceeds from sale of available-for-sale securities


200







3,049Issuance of mortgage note receivable






(466
)


(12,655
)Proceeds from mortgage notes receivable










9,649Loan costs on mortgage note issued










(67
)Treasury lock settlement










(2,345
)Purchase of property and related assets


(29,156
)


(45,105
)


(210,461
)Proceeds from sale of properties and related assets


34,266



15,415



10,441Net cash provided by (used in) investing activities


5,310



(30,156
)


(204,343
)Cash flows from financing activities:Principal payments on notes payable


(80,352
)


(100,718
)


(428,382
)Proceeds from notes payable


106,500



107,000



589,350Purchase of stock under repurchase plan






(10,757
)


(9,101
)Loan costs


(556
)


(60
)


(4,737
)Proceeds from Preferred Units, net of offering expenses










34,067Proceeds from stock options exercised


1,179







658Cash distributions


(23,730
)


(23,284
)


(22,262
)Limited partners cash distributions


(22,958
)


(23,565
)


(22,698
)Net cash (used in) provided by financing activities


(19,917
)


(51,384
)


136,895Net increase (decrease) in cash and cash equivalents


61,917



(963
)


780Cash and cash equivalents at beginning of period


1,528



2,491



1,711Cash and cash equivalents at end of period

$
63,445


$
1,528


$
2,491Supplemental cash flow information:Interest paid

$
32,306


$
39,200


$
32,007Taxes paid


138



44



117





The accompanying notes are an integral part of these financial statements.




33




---




NATIONAL GOLF PROPERTIES, INC.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





(1)    Organization and
Summary of Significant Accounting Policies





a)Organization





National Golf Properties, Inc. (the Company) commenced operations effective with the completion of its initial public stock offering (the
Offering) of common stock (the Common Stock), on August 18, 1993. The Company owns and acquires golf courses located throughout the United States. At December 31, 2001, the Company leased all but four of its golf courses to
American Golf Corporation (AGC) pursuant to long-term triple net leases (the Leases). David G. Price, the Chairman of the Board of Directors of the Company, owns approximately 2.7% of the Companys outstanding Common
Stock and approximately 16.6% of National Golf Operating Partnership, L.P. (the Operating Partnership) and a controlling interest in AGC. The Company owns substantially all of the golf courses through its 63.9% general partner interest
in the Operating Partnership. On July 8, 1994, the Operating Partnership acquired an 89% general partner interest in Royal Golf, L.P. II (Royal Golf). Royal Golf owned four golf courses on Hilton Head Island, South Carolina. On August 8,
2000, the Operating Partnership acquired the remaining 11% of Royal Golf from the limited partner. Unless the context otherwise requires, all references to the Companys business and properties include the business and properties of the
Operating Partnership and Royal Golf.





In conjunction with the formation of the Company and the Operating Partnership, the
partners of the entities transferring their interest in the initial portfolio of golf courses (the Initial Golf Courses) to the Operating Partnership became limited partners in the Operating Partnership and received units of common
limited partnership interest in the Operating Partnership (the Common Units). Their interests in the Initial Golf Courses were carried over to the Operating Partnership on a historical cost basis similar to pooling of interest accounting
and became part of the beginning balance of minority interest. Minority interest is primarily adjusted for the limited partners proportionate share of net income or loss of the Company and any additional contributions or distributions to the
limited partners.





A Common Unit and a share of Common Stock of the Company have the same economic characteristics inasmuch as
they effectively share equally in the net income or loss and any distributions of the Operating Partnership. The limited partners of the Operating Partnership have the right, in each twelve-month period ending August 18, to sell up to one-third of
their Common Units to the Company or exchange into shares of Common Stock up to the greater of 75,000 Common Units or one-third of their Common Units.





In order for the Company to maintain its qualification as a real estate investment trust (REIT), not more than 50% in value of its Common Stock may be owned, directly or constructively, by five or fewer
individuals. For the purpose of preserving the Companys REIT qualification, the Certificate of Incorporation prohibits direct or constructive ownership of more than 9.8% of the Common Stock by any person. Thus, although a Common Unit is
convertible into a share of Common Stock, the conversion of the majority of the Common Units owned by David G. Price is restricted by the Company and the ownership limitations in order to preserve its REIT status.





The consolidated financial statements include the accounts of the Company, the Operating Partnership and Royal Golf. All significant intercompany
transactions and balances have been eliminated. Certain prior year amounts have been reclassified to conform to the current years presentation.





b)Cash Equivalents





The Company considers all money market funds with
an original maturity of three months or less at the date of purchase to be cash equivalents with cost approximating fair value.




34




---



NATIONAL GOLF PROPERTIES, INC.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)







c)Investments





Debt securities that the Company expects to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. Debt
securities not classified as either held-to-maturity securities or bought and held principally for the purpose of selling them in the near term are classified as available-for-sale securities and reported at fair value with unrealized gains and
losses excluded from earnings and reported as a separate component of stockholders equity. Cost of investments sold is determined on the average cost method.





d)Concentration of Credit Risk





The
Companys portfolio of 137 golf courses consists of one participating mortgage loan, which is collateralized by a mortgage on the golf course, and ownership interests in 136 golf courses, including the two golf courses owned by Pumpkin Ridge,
in 124 separate locations in 23 states (collectively, the Golf Courses).





Concentration of credit risk with respect
to the Golf Courses is limited due to the geographic diversification among 23 states. The distribution of the golf courses reflects the Companys belief that geographic diversification helps insulate the portfolio from regional economic and
climatic influences.





Rent revenues from one major lessee, AGC, amounted to approximately 99%, 99% and 98% of total rent
revenues for the years ended December 31, 2001, 2000 and 1999, respectively. See Note 17, Other Data for a description of AGC.





The Company has cash in financial institutions which is insured by the Federal Deposit Insurance Corporation (FDIC) up to $100,000 per institution. At December 31, 2001 and 2000, the Company had cash accounts in excess of FDIC
insured limits.





e)Segment Reporting





During 1998, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 131, Disclosures about Segments of an Enterprise and Related Information.
SFAS No. 131 established standards for disclosure about operating segments and related disclosures about products and services, geographic areas, and major customers. The Company currently operates in one geographic area, the United States.





f)Property





Property is carried at cost. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets as follows:





Buildings

30 yearsGround improvements

20 yearsFurniture, fixtures & equipment

3 to 10 years





Leasehold rights are carried at cost and amortized on a straight-line basis over
the lease term.





The Leases presently provide that at the end or termination of the existing Leases, all improvements and
fixtures placed on the rental property become the property of the Company.





The Company assesses whether there has been an
impairment in the value of rental property held for use by considering factors such as expected future operating income, trends and prospects, as well as the effects of demand, competition and other economic factors. Such factors include a
lessees ability to perform its duties and




35




---



NATIONAL GOLF PROPERTIES, INC.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)




pay rent under the terms of the lease. If the property was leased at a significantly lower rent, the Company may recognize an impairment loss if the income stream were not sufficient to recover
its investment. Such a loss would be determined as the difference between the carrying value, including any allocated goodwill, and the fair value of the property, with the carrying value of the intangible asset reduced first. The Company determines
whether there has been impairment by comparing the expected undiscounted future cash flows from each golf course with the net carrying value for such golf course, including any related intangible asset. The Company recognized no impairment losses in
the net carrying values of property held for use in the years ended December 31, 2001, 2000 and 1999.





g)  Property Held for Sale





As a result of liquidity constraints, the Company has accelerated the
marketing and sales of its non-strategic golf courses. These difficulties were caused primarily by the Companys primary tenant, AGC, which suffered significant financial losses in 2001 and has experienced difficulty with its liquidity.
Properties actively marketed for sale are classified as held for sale. Property held for sale is carried at the lower of cost or estimated fair market value less estimated costs to sell, or net realizable value. The net realizable value of rental
property held for sale is determined by considering factors such as expected future operating income, trends and prospects, as well as the effects of demand, competition and other economic factors. The Company may recognize an impairment loss if the
net realizable value is less than the current carrying value of the property at the time it is classified as held for sale. Such a loss would be determined as the difference between the carrying value, including any allocated goodwill, but excluding
straight-line rent, and the net realizable value of the property, with the carrying value of the intangible asset reduced first. Depreciation is not recognized on properties classified as held for sale. Properties classified as held for sale are
subsequently reviewed by management to assess the current valuation estimates and may be subject to additional impairment charges. Additionally, such review may, under certain circumstances, cause a property to be re-classified as held for use.
Properties re-classified from held for sale, to held for use, are transferred at the then current carrying value and depreciation is resumed. As of December 31, 2001, 31 properties were classified as held for sale. The Company recognized
impairment losses of approximately $28 million in the net carrying values of twelve properties held for sale in the year ended December 31, 2001. Rental income recognized on property held for sale was approximately $21.9 million in the
year ended December 31, 2001. The carrying value of straight-lined rent is recognized at the time of sale.





The carrying
value of property held for sale at December 31, 2001 was as follows:





December 31, 2001Property held for saleLand

$
15,932Buildings


43,032Ground improvements


78,713Furniture, fixtures and equipment


9,155Leasehold rights


1,959Construction in progress


4,960153,751Less: accumulated depreciation


(43,208
)Subtotal


110,543Goodwill


238Net property held for sale

$
110,781Straight-lined rent

$
2,580




36




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NATIONAL GOLF PROPERTIES, INC.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)







When assets are sold or retired, the asset and related depreciation allowance is
eliminated from the records and any gain or loss on disposal is included in operations.





h)Income Taxes





The Company qualifies as a REIT under the Internal Revenue Code of 1986, as amended (the Code). A REIT will
generally not be subject to federal income taxation to the extent that it distributes at least 90% of its taxable income to its stockholders (95% prior to 2001) and complies with other requirements. The Company paid distributions to stockholders of
$1.84 per share in 2001, of which $1.77 represents ordinary income, $0.01 represents capital gains, and $0.06 represents return of capital on a tax basis. The Company is subject to state income and franchise taxes in certain states in which it
operates. Therefore, a tax provision has been recognized for these income and franchise taxes.





The Company paid distributions
to stockholders of $1.81 per share in 2000, of which $1.50 represents ordinary income, $0.11 represents capital gains, $0.09 represents unrecaptured section 1250 gains and $0.11 represents return of capital on a tax basis. In addition, on
January 12, 2001, the Company declared a quarterly distribution for the fourth quarter of 2000 of $0.46 per share to stockholders of record on January 31, 2001, payable on February 15, 2001.





The Company paid distributions to stockholders of $1.77 per share in 1999, of which $1.56 represents ordinary income and $0.21 represents return of capital on a tax basis. On a book
basis, calculated using basic earnings per share, $0.36 per share represents return of capital. In addition, on January 18, 2000, the Company declared a quarterly distribution for the fourth quarter of 1999 of $0.45 per share to stockholders of
record on January 31, 2000, which was paid on February 15, 2000.





i)Revenue Recognition





The Company recognizes rental revenue on an accrual basis over the terms of the Leases. In addition, for Leases with fixed increases in rent,
the total rent revenue over the lease period is recognized on a straight-line basis.





j)Accounting for
Contingent Rent





In May 1998, the Emerging Issues Task Force (the EITF) of the Financial Accounting Standards
Board (FASB) issued Issue No. 98-9, Accounting for Contingent Rent in Interim Financial Periods. This statement provides that recognition of contingent rental income should be deferred until specified targets that trigger the
contingent rent are achieved. This statement applies to all contingent rental income effective with the second quarter of 1998, at which time the Company adopted the policy. On a quarterly basis, there was a material impact to the Companys
earnings per share, financial condition, and results of operations. Contingent rent not recorded in the second or third quarters was recognized in the fourth quarter. Therefore, on an annual basis, there was no impact to the Companys earnings
per share, financial condition, or results of operations. In November 1998, Issue No. 98-9 was withdrawn by the EITF. However, the Company continued to account for contingent rent in accordance with Issue No. 98-9. In December 1999, the Securities
and Exchange Commission (the SEC) issued Staff Accounting Bulletin Number 101 which reaffirms Issue No. 98-9.





k)Intangible Assets





Included in other assets are intangible assets which consist of
covenants not to compete, goodwill, and other intangibles. Intangible assets are carried at cost less accumulated amortization and are amortized on a straight- line basis. Goodwill, arising from golf course acquisitions, is amortized over the life
of the Leases (15 to




37




---



NATIONAL GOLF PROPERTIES, INC.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)




20 years). Straight-line rent is recognized over the life of the Leases. Other intangibles are amortized over periods from one to ten years. The Company assesses whether there has been an
impairment in the value of intangible assets by considering factors such as expected future operating income, trends and prospects, as well as the effects of demand, competition and other economic factors. Such factors include a lessees
ability to perform its duties and pay rent under the terms of the lease. If the property was leased at a significantly lower rent, the Company may recognize an impairment loss if the income stream is not sufficient to recover its investment. Such a
loss would be determined as the difference between the carrying value, including any allocated goodwill, and the fair value of the property, with the carrying value of the intangible asset reduced first. The Company determines whether there has been
impairment by comparing the expected undiscounted future cash flow from each golf course with the net carrying value for such golf course, including any related intangible asset. The Company recognized no impairment losses in the net carrying values
of intangible assets in the years ended December 31, 2001, 2000 and 1999. Accumulated amortization at December 31, 2001 and 2000, was approximately $7,014,000 and $6,483,000, respectively.





l)Use of Estimates





The preparation of
financial statements in conformity with generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.





m)Fair Value of Financial Instruments





To meet the reporting requirements of SFAS No. 107, Disclosures about Fair Value of Financial Instruments, the Company calculates the fair value of financial instruments and includes this additional information in the notes to
the consolidated financial statements when the fair value is different than the carrying value of those financial instruments. When the fair value reasonably approximates the carrying value, no additional disclosure is made. The estimated fair value
amounts have been determined by the Company, using available market information and appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the
estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated
fair value amounts.





n)Earnings Per Share





The Company utilizes SFAS No. 128, Earnings Per Share. Basic net income per share is computed based on the weighted average number of outstanding common shares during the
period. The computation of diluted earnings per share is based on the weighted average number of outstanding common shares during the period and the incremental shares, using the treasury stock method, from stock options and unvested restricted
stock. The incremental shares for the years ended December 31, 2001, 2000 and 1999 were 140,667, 313,887 and 353,244, respectively.





o)Accounting for StockBased Compensation





The Company measures compensation cost for
their plans using the accounting principles prescribed by Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees. The pro forma disclosures of net income, basic earnings per share and
diluted earnings per share as if the fair value based method of accounting defined in SFAS No. 123, Accounting for Stock-Based Compensation had been applied, have been disclosed.




38




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NATIONAL GOLF PROPERTIES, INC.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)







p)Accounting for Derivative Instruments and Hedging
Activities





On January 1, 2001, the Company adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, as amended by SFAS No. 138, Accounting for Derivative Instruments and Hedging ActivitiesAn Amendment of SFAS No. 133. SFAS No. 133, as amended, requires the Company to recognize all derivatives on the balance
sheet at fair value. The accounting for the changes in the fair values of such derivatives depends on the use of the derivative and whether it qualifies for hedge accounting. As of December 31, 2001 and 2000, the Company was not participating
in any such activities and does not have any such instruments recorded on the balance sheet.





q)  New
Pronouncements Not Yet Effective





In July 2001, the Financial Accounting Standards Board (the FASB) issued
Statement of Financial Accounting Standards No. (SFAS) 141, Business Combinations, and SFAS 142, Goodwill and Other Intangible Assets. These statements will change the accounting for business combinations and
goodwill in two significant ways. SFAS 141 requires that the purchase method of accounting be used for all business combinations indicated after June 30, 2001. Use of the pooling-of-interests method will be prohibited. SFAS 142 changes the
accounting for goodwill from an amortization method to an impairment-only approach. This standard will be effective for the Companys fiscal year 2002. The Company has determined that these standards will not have a material effect on its
consolidated financial statements.





In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations, which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This statement is effective for fiscal years beginning
after June 15, 2002. The Company has determined that SFAS No. 143 will have no material effect on its consolidated financial statements.





In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. This Statement supersedes SFAS No. 121 and requires that long-lived assets that are to be
disposed of by sale be measured at the lower of book value or fair value less costs to sell. SFAS No. 144 retains the fundamental provisions of SFAS 121 for (a) recognition and measurement of the impairment of long-lived assets to be held and used
and (b) measurement of long-lived assets to be disposed of by sale, but broadens the definition of what constitutes a discontinued operation and how the results of a discontinued operation are to be measured and presented. This Statement will be
effective at the beginning of 2002. The Company has determined that SFAS No. 144 will not have a material effect on its consolidated financial statements.





(2)    Property Acquisitions and Sales





In 2001, the Company purchased one Golf Course for
an aggregate initial investment of approximately $12.1 million. The acquisitions have been accounted for utilizing the purchase method of accounting and, accordingly, the acquired assets are included in the statement of operations from the date of
acquisition. The initial investment amount includes purchase price, closing costs and other direct costs associated with the purchase. The aforementioned golf course was leased to AGC pursuant to a long-term triple net lease.




39




---



NATIONAL GOLF PROPERTIES, INC.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)







Acquisitions





Acquisition Date

Course Name

Location

Initial Investment(In thousands)6/4/01

Marbella Country Club

San Juan Capistrano, California

$
12,084Total Initial Investment



$
12,084





The Company also acquired nine additional holes of golf at the Golf Club at
Bradshaw Farm in 2001 for approximately $1.8 million.





During the year ended December 31, 2001, the Company sold ten golf course
properties, described below, for aggregate consideration of approximately $34.7 million. The Company received net cash proceeds of approximately $33.8 million. As of December 31, 2001, $10.4 million of such proceeds were held in escrow accounts for
Code section 1031 exchange transactions. The Company recognized a net loss of approximately $3 million from these transactions.





Sales





Sale Date

Course Name

Location

Gain/(Loss)(In thousands)4/17/01

Eagle Golf Club

Broomfield, Colorado

$
2,1386/21/01

Honey Bee Golf Club

Virginia Beach, Virginia


(509
)6/21/01

Chesapeake Golf Club

Chesapeake, Virginia


(528
)8/15/01

Baymeadows Golf Club

Jacksonville, Florida


(241
)8/17/01

Sabal Palm Golf Course

Tamarac, Florida


4539/21/01

Goshen Plantation Country Club

Augusta, Georgia


(613
)9/28/01

Rivers Edge Golf Club

Fayetteville, Georgia


(552
)9/30/01

Los Rios Country Club

Plano, Texas


(4,019
)10/24/01

Blacklake Golf Resort

Nipomo, California


22911/14/01

Classic Golf Course

Spanaway, Washington


662Net loss



$
(2,980
)





In 2001, the Company recognized a gain on insurance proceeds of approximately
$670,000 due to various claims made at four of the Golf Courses. The Company is applying the insurance proceeds to repairs and improvements at such Golf Courses.





On October 12, 2000, the Company sold Royal Meadows Golf Course for approximately $3 million. The Company recognized a gain of approximately $2.1 million. On September 21, 2000, the
Company sold Shenandoah Country Club for approximately $1.9 million. The Company recognized a gain of approximately $661,000. On July 21, 2000, the Company sold Hickory Heights Golf Club and Westwinds Country Club for a total amount of approximately
$8.1 million. The Company recognized a gain of approximately $2.2 million. On February 4, 2000, the Company sold Lake Houston Golf Club and Woodlake Country Club for a total amount of approximately $3.2 million. The Company recognized a gain of
approximately $564,000.





In 2000, the Company recognized a gain on insurance proceeds of approximately $378,000 due to various
claims made at four of the Golf Courses. The Company is applying the insurance proceeds to repairs and improvements at such Golf Courses.




40




---



NATIONAL GOLF PROPERTIES, INC.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)







On March 31, 1999, the Company purchased fee interests in 15 golf courses,
long-term leasehold interests in two golf courses and leasehold rights in three golf courses and made a mortgage loan collateralized by an additional golf course, El Camino Country Club (the El Camino Mortgage) (collectively, the
Acquired Cobblestone Courses). During the three months ended March 31, 2000, the Company finalized the fair value allocation of purchase price among the Acquired Cobblestone Courses. In addition, there were reclassifications among the
components of property.





On November 12, 1999, the Company sold Binks Forest Country Club in Wellington, Florida for
approximately $6 million. The Company recognized a gain of approximately $2 million. On September 7, 1999, the Company sold Crescent Oaks Country Club in Clearwater, Florida for approximately $1.5 million. The Company recognized a gain of
approximately $583,000. On May 25, 1999, the Company sold Sugar Ridge Golf Course in Lawrenceburg, Indiana for approximately $3 million. The Company recognized a gain of approximately $357,000.





In 1999, the Company recognized a gain on insurance proceeds of approximately $2 million due to various claims made at seven of the Golf Courses. The Company is applying the
insurance proceeds to repairs and improvements at such Golf Courses.





(3)    Investments





December 31,2001

2000Cost

Market

Cost

Market

Maturity(In thousands)Available-for-sale securities:Corporate Note

$


$


$
200

$
200

3/2001Total

$


$


$
200

$
200





In 2001, available-for-sale securities were sold resulting in proceeds of
$200,000. No available-for-sale securities were sold in 2000. There were no gross realized gains or losses in the years ended December 31, 2001, 2000 and 1999.





(4)    Mortgage Notes Receivable





At December 31, 2001 and 2000, the Company held
collateralized mortgage notes receivable of approximately $15,442,000. The range of interest rates for mortgage notes receivable was 9.2% to 12% in 2001, 9.25% to 12% in 2000 and 8.75% to 12% in 1999. Payments on mortgage notes receivable are
interest only. Interest recognized for the years ended December 31, 2001, 2000 and 1999 totaled approximately $1,219,000, $2,047,000 and $2,410,000, respectively.





The fair value of mortgage notes receivable at December 31, 2001 and 2000 is estimated to be approximately $13,830,000 and $15,381,000, respectively, based on current interest rates for
comparable loans.





(5)    Investment in Joint Venture





On September 8, 1997, the Operating Partnership acquired a 50% general partner interest in Pumpkin Ridge Joint Venture (Pumpkin Ridge) for approximately $8.1 million. Pumpkin
Ridge owns two golf courses in Cornelius, Oregon. The Company accounts for its investment in Pumpkin Ridge under the equity method of accounting. The aforementioned golf courses are leased to AGC pursuant to a long-term triple net lease.




41




---



NATIONAL GOLF PROPERTIES, INC.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)







(6)    Treasury Lock Swap Transactions





On June 15, 1998, in anticipation of the Operating Partnership placing $100 million of fixed-rate, ten-year notes or some similar security, the
Operating Partnership entered into a $100 million treasury lock swap transaction with a financial institution in order to hedge its exposure to interest rate fluctuations. Under this agreement, the 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. At April 30, 1999, the Operating Partnership settled its treasury lock swap transaction, resulting in a
loss of approximately $2,345,000. Such loss was netted with a gain of approximately $329,000 from two other treasury lock swap transactions, resulting in a net loss of approximately $2,016,000 which was recorded in the consolidated statement of
operations for the year ended December 31, 1999.





(7)    Notes Payable





Notes payable consist of the following:





Interest Rate


Interest Payment

December 31,

MaturityType of Collateral



2001

2000(In thousands)Mortgage note

5.50
%

Quarterly

$


$
100

5/2001Uncollateralized noterevolver

Various


Various


200,000


165,000

3/2002Mortgage note

3.68
%

Quarterly


18,543


19,301

4/2002Uncollateralized noteterm note

8.88
%

Various


98,000


99,000

3/2004Mortgage note

6.00
%

Annually


3,750


3,750

10/2004Uncollateralized note







79


73

11/2004Uncollateralized notes

8.68
%

Semi-annually


42,269


44,088

12/2004Uncollateralized notes

8.73
%

Semi-annually


43,226


44,964

6/2005Mortgage note




Annually


1,312




11/2005Uncollateralized notes

7.90
%

Semi-annually


36,366


37,672

6/2006Uncollateralized notes







2,077


2,404

7/2006Uncollateralized notes

8.00
%

Semi-annually


32,426


33,517

12/2006Uncollateralized notes

8.00
%

Monthly





189

8/2007Uncollateralized notes

8.00
%

Quarterly


1,404


1,571

1/2008Mortgage notes

10.22
%

Monthly


5,000


5,184

8/2014$
484,452

$
456,813





The following is a schedule of maturities on notes payable for the next five
years ending December 31 and in total thereafter:





Amount(In thousands)2002

$
227,0932003


9,1422004


144,3982005


41,9492006


3,847Thereafter


58,023$
484,452





The above schedule is based on contractual payments and does not reflect the
potential acceleration of the term note of approximately $98 million at December 31, 2001, discussed below.




42




---



NATIONAL GOLF PROPERTIES, INC.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)







The note agreements contain, among other things, covenants restricting the sale of
property and certain financial ratios and reporting requirements.





In connection with the acquisition of an additional nine
holes of golf at the Golf Club at Bradshaw Farm during 2001, the Company entered into a four-year, non-interest bearing, collateralized note for $1,700,000. The interest rate used to discount the note was 8.75%. The discount is being amortized over
the life of the loan using the effective interest method. The note requires fixed payments of $200,000 annually beginning in 2002 and ending in 2005. The unamortized discount balance at December 31, 2001 was approximately $388,000.





In 2001, the Company extended the maturity of a 7.86% fixed rate collateralized note payable with an original maturity date of July 6, 2001.
The note, which was assumed in connection with the acquisition of Royal Golf in 1994, accrues interest at LIBOR plus 350 basis points, and matures April 8, 2002 and, subject to the satisfaction of certain conditions, will extend to August 8,
2002. The balance at December 31, 2001 was $18.5 million.





On July 30, 1999, the Company amended its $300 million
uncollateralized revolving credit facility with a group of lenders (the Lenders) led by The First National Bank of Chicago, as Administrative Agent (now known as Bank One). The amended credit facility divided the $300 million revolving
credit facility into (i) a $200 million revolver (the Revolver) and (ii) a $100 million term note (the Term Note) (collectively, the Credit Facility). As described below, the Company has entered into a forbearance
agreement with the Lenders relating to the Companys failure to be in compliance with the Credit Facility. Advances under the Credit Facility bear interest at the Administrative Agents alternate base rate plus the then-applicable base
rate margin or, at the option of the Company, LIBOR plus the then-applicable LIBOR rate margin. The Administrative Agents alternate base rate for any day means the greater of (i) a rate per annum equal to the corporate base rate of interest
announced by the Administrative Agent from time to time, and (ii) the federal funds rate as published by the Federal Reserve Bank plus one-half percent (0.50%) per annum. With respect to advances under the Revolver, the amount of the base rate
margin and LIBOR rate margin vary depending upon the amount of the Companys outstanding indebtedness compared to its capitalization. The initial rate of interest for borrowings made under the Revolver was equal to LIBOR plus a margin of 2.25%
or the alternate base rate plus 1.00%. The Revolver initially was scheduled to terminate March 29, 2002, but its term was extended until April 30, 2002 pursuant to an amendment and extension of the forbearance agreement as described below. The rate
of interest for the Term Note will be equal to LIBOR plus a margin of 3.00% or the alternate base rate plus 1.75%. The Term Note terminates on March 29, 2004.





The Companys Credit Facility requires AGC, the Companys primary lessee, to maintain a certain fixed charge coverage ratio and to be in compliance with AGCs debt instruments. For the quarters ended
June 30, 2001, September 30, 2001 and December 31, 2001, AGC had not achieved such ratio and also was not in compliance with certain provisions of AGCs debt instruments and, accordingly, the Company was not in compliance with the Credit
Facility. On August 14, 2001, the Company obtained a waiver of such non-compliance for the quarter ended June 30, 2001, which remained in effect through October 1, 2001. On February 8, 2002, the Company entered into a forbearance agreement
with certain of its Lenders on account of the defaults under the Credit Facility. Under the forbearance agreement, the Lenders agreed to forbear from exercising certain of their remedies under the Credit Facility in connection with these defaults
for a period ending March 29, 2002, and the Company repaid $20 million of the principal balance outstanding under the Credit Facility. Under the terms of the forbearance agreement, the Revolver was permanently reduced from
$200 million at December 31, 2001 to $180.3 million at March 19, 2002. On March 29, 2002, the Company entered into an amendment and extension of the forbearance agreement with the Lenders pursuant to which, subject to certain
conditions, the Lenders agreed to (i) continue to forbear exercising certain of their remedies




43




---



NATIONAL GOLF PROPERTIES, INC.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)




under the Credit Facility for a period ending April 30, 2002 and (ii) extend the maturity of the Revolver until April 30, 2002. Under the terms of the forbearance agreement, the Revolver was
permanently reduced from $180.3 million at March 19, 2002 to $176.8 at March 29, 2002. The Company is in discussions with the lenders to extend the maturity of its borrowings under the Credit Facility. There can be no assurance as to the outcome of
these discussions. There were outstanding advances of $298 million and $264 million under the Credit Facility as of December 31, 2001 and 2000, respectively.





Some of the Companys debt instruments contain cross-default provisions pursuant to which a default under one instrument may cause a default under one or more other instruments. As
of December 31, 2001, the outstanding balances of such instruments for the Company was $154.3 million.





If the default or
cross-default provisions are enforced by the Lenders, the Company could experience a material adverse effect on its financial condition.





Two of AGCs debt instruments require AGC to maintain certain fixed charge coverage ratios and to comply with certain other financial tests. For the quarters ended June 30, 2001, September 30, 2001, and December 31, 2001, AGC had not
achieved such fixed charge coverage ratios and also was not in compliance with certain provisions of AGCs debt instruments. On August 8, 2001, AGC obtained a waiver of such non-compliance with respect to one of its debt instruments for the
quarter ended June 30, 2001, which remained in effect through October 1, 2001, the expiration of which resulted in a default under this instrument. On March 8, 2002, AGC entered into a forbearance agreement with one lender under its credit facility,
which remained in effect through March 29, 2002. Under the terms of the forbearance agreement, AGC repaid $1,862,000 of the principal balance. Additionally, the revolving credit facility was permanently reduced from $50,000,000 to $48,134,000. AGC
is in discussions with the lenders under each of the debt instruments regarding the aforementioned default and non-compliance. There can be no assurance as to the outcome of these discussions.





In addition to the two debt instruments referred to above, certain equipment operating leases of AGC and debt instruments on an AGC subsidiary contain cross-default provisions
pursuant to which a default under one instrument may cause a default under one or more other instruments. As of December 31, 2001, the outstanding balances of such debt instruments for AGC and its subsidiary were $13,833,000.





If the default or cross-default provisions are enforced by AGCs and its subsidiarys lenders, AGC could experience a material
adverse effect on its financial condition. Such enforcement against AGC, the Company's primary lessee, could have a material adverse effect on the Companys financial condition. There can be no assurance that AGC will be able to meet the
financial tests or fixed charge coverage ratio provisions as of the end of future quarters or that AGCs lenders will grant waivers of any inability of AGC to meet these provisions or any cross-default occurring as a result of such provisions.





In connection with the purchase of Eagle Brook Country Club during 1997, the Company entered into a three-year collateralized
note for $1.5 million with the seller of the property. During the first year of the note, no interest was paid or accrued on the outstanding principal balance. Thereafter, interest accrues on the outstanding principal balance at the rate of 6% per
annum. The interest rate used to discount the note was 6%. The discount was amortized over the first year of the note using the effective interest method. The note was paid at maturity in August, 2000.





In connection with the purchase of Gettysvue Polo, Golf & Country Club during 1997, the Company entered into a seven-year, interest bearing,
collateralized note for $3,750,000 with the seller of the property. During the first year of the note, no interest was paid or accrued on the outstanding principal balance. For years two through




44




---



NATIONAL GOLF PROPERTIES, INC.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)




four, the interest rate is 6% per annum. For years five through seven, the interest rate is 8% per annum. The interest rate used to discount the note was 6%. The discount was amortized over the
first year of the note using the effective interest method.





In 1996, the Operating Partnership placed $75 million of
fixed-rate, uncollateralized notes due 2006 with a group of institutional investors. The notes were issued in two series. The first note series in the amount of $40 million was issued in July 1996 with a fixed interest rate of 7.9%, and the
second note series in the amount of $35 million was issued in December 1996 with a fixed interest rate of 8%.





In connection
with the combined purchase of Monterey Country Club and Palm Valley Country Club during 1995, the Company entered into an eleven-year, non-interest bearing, uncollateralized note for $4,000,000 with the seller of the properties. The interest rate
used to discount the note was 7.75%. The discount is being amortized over the life of the loan using the effective interest method. The note requires fixed payments of $500,000 annually beginning in 1999 and ending in 2006. The discounted note
balance at December 31, 2001 and 2000 was approximately $2,077,000 and $2,404,000, respectively. The unamortized discount balance at December 31, 2001 and 2000 was approximately $423,000 and $596,000, respectively.





In 1994, the Operating Partnership placed $100 million of fixed-rate, uncollateralized notes due 2004 and 2005 with a group of institutional investors.
The notes were issued in two series of $50 million. The first note series was issued with a fixed interest rate of 8.68%, and the second note series was issued with a fixed interest rate of 8.73%.





A former limited partner is the holder of a promissory note for approximately $1.4 million that the Company assumed at the time of the Offering in
connection with the Companys acquisition of four golf courses from a corporation that previously had been 50% owned by such limited partner. The interest rate is 8% per annum with a maturity date in January 2008. The Company made interest
payments in 2001 and 2000 of approximately $121,000 and $133,000, respectively.





The fair value of notes payable at December 31,
2001 and 2000 is estimated to be approximately  $492.2 million and $459 million, respectively, based on current interest rates for comparable loans. The net book value at December 31, 2001 and 2000 of the assets collateralizing the notes
payable is $52.4 million and $43.1 million, respectively.





(8)    Commitments and Contingencies





The Company may be required under the Leases to pay for various remaining capital improvements totaling approximately $15 million, all of which will be
paid by the end of 2003. Any subsequent capital improvements to these golf courses are the responsibility of the Lessees.





In
addition, the Company leases the land associated with Bear Creek Golf World from a local municipality pursuant to a ground lease. At December 31, 2001, there was a net book value of approximately $1.8 million of improvements at this property
included in buildings, ground improvements and furniture, fixtures and equipment on the consolidated balance sheet. At the termination of the lease in June 2022, all fixed improvements are surrendered to the local municipality. Under the terms of
the ground lease, the Company remits a percentage of the green fees and net profits from the sale of food and beverages to the local municipality. For the years ended December 31, 2001, 2000 and 1999, the ground lease expense was approximately
$357,000, $387,000 and $447,000, respectively.




45




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NATIONAL GOLF PROPERTIES, INC.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)







Also, the Company leases a portion of land associated with Mesquite Golf &
Country Club from various landowners. The leases for this property expire between 2041 and 2043. AGC, as the lessee under the Lease, is required to make all ground lease payments. In addition, the Company leases the land associated with Ridgeview
Ranch Golf Course and The Vineyard at Escondido Golf Club pursuant to long-term ground leases which expire in 2025.





Owners and
operators of golf courses are subject to a variety of legal proceedings arising in the ordinary course of operating a golf course, including proceedings relating to personal injury and property damage. Such proceedings are generally brought against
the operator of a golf course, but may also be brought against the owner. Although neither the Company nor the predecessor owners of the Golf Courses are currently parties to any legal proceedings relating to the Golf Courses that would have a
material adverse effect upon the Companys business or financial position, it is possible that in the future the Company could become a party to such proceedings.





During the last two weeks of February and the first week of March, 2002, ten related lawsuits were filed in California state and federal courts against the Company, its directors, and
certain of its officers. Seven of these lawsuits were filed in the California Superior Court for the County of Los Angeles (the State Lawsuits); the remaining three were filed in the U.S. District Court for the Central District of
California (the Federal Lawsuits).





Of the seven State Lawsuits, four were brought as derivative actions,
purportedly on behalf of the Company. These derivative lawsuits allege violations of fiduciary duties, waste of corporate assets, and violations of state securities laws against the Companys directors in connection with the Companys
relationship with AGC, including the Companys proposed business combination with AGC and the Companys publicly disclosed financial condition at the time of the May, 2001 secondary public offering of the Companys Common Stock. The
derivative State Lawsuits seek damages, injunctive relief against the proposed business combination, and court costs and attorneys fees.





The three remaining State Lawsuits were brought as class actions. These purported class actions allege violations of fiduciary duties against the Companys directors in connection with the Companys proposed
business combination with AGC. The class action State Lawsuits seek injunctive relief against the proposed business combination, as well as court costs and attorneys fees.





The Federal Lawsuits, also brought as purported class actions, allege violations of the federal securities laws against the Company and certain of its officers and directors in
connection with the Companys publicly disclosed financial condition at the time of the May, 2001 secondary public offering of the Companys Common Stock. The Federal Lawsuits seek damages, as well as court costs and attorneys fees.





These actions have just been commenced, and no trial dates have been set. Management believes that the Company has meritorious
defenses to these actions, and the defendants intend to defend themselves vigorously. See Note 21 for a discussion of the Companys proposed business combination with AGC.





(9)    Stock Repurchase Plan





In September 1999, the Board of
Directors authorized, subject to certain business and market conditions, the purchase of up to $20 million of the Companys Common Stock. The stock repurchase plan was completed during 2000. At December 31, 2000, the number of shares purchased
under this authorization was 967,200 for a total cost of approximately $19.9 million. The shares repurchased are considered authorized but unissued.







46




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NATIONAL GOLF PROPERTIES, INC.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)




(10)    Preferred Units





On July 28, 1999, the Operating Partnership completed the private placement of 1,400,000 9.3% Series B Cumulative Redeemable Preferred Units (Series B Preferred Units), representing limited partnership
interests in the Operating Partnership, to institutional investors in exchange for a contribution to the Operating Partnership of $35 million. The Series B Preferred Units, which may be called by the Operating Partnership at par on or after July 28,
2004, have no stated maturity or mandatory redemption and pay a cumulative, quarterly dividend at an annualized rate of 9.3%. The Operating Partnership used the proceeds from such private placement to reduce outstanding indebtedness under the
Operating Partnerships revolving credit facility.





On March 4, 1998, the Operating Partnership completed the private
placement of 1,200,000 8% Series A Cumulative Redeemable Preferred Units (Series A Preferred Units) (collectively, with Series B Preferred Units, Preferred Units), representing a limited partnership interest in the Operating
Partnership, to an institutional investor in exchange for a contribution to the Operating Partnership of $60 million. The Series A Preferred Units, which may be called by the Operating Partnership at par on or after March 4, 2003, have no stated
maturity or mandatory redemption and pay a cumulative, quarterly dividend at an annualized rate of 8%. The Operating Partnership used $58 million of the approximately $58.5 million of net proceeds from such private placement to reduce outstanding
indebtedness under the Operating Partnerships revolving credit facility.





Also, on April 20, 1998, the Operating
Partnership completed on the same terms as above the private placement of an additional 300,000 Series A Preferred Units to the same institutional investor in exchange for a contribution to the Operating Partnership of $15 million. The Operating
Partnership used $14.5 million of the approximately $14.6 million of net proceeds from such private placement to reduce outstanding indebtedness under the Operating Partnerships revolving credit facility.





The Preferred Units and the dividends attributable to such Preferred Units have been reported as a component of minority interest in the related
consolidated financial statements. The Preferred Units are not convertible into Common Stock, but are convertible into preferred stock of the Company.





(11)    Lease Rental Agreements





Future base rents to be received by the Company under the
Leases for the next five years ending December 31 and in total thereafter are as follows:





Amount(In thousands)2002

$
111,3382003


112,3442004


113,3492005


114,3542006


114,443Thereafter


614,130$
1,179,958





The base rent for the first year for each golf course under the Leases is
initially set at a fixed amount. Thereafter, generally with respect to the Leases for the Initial Golf Courses, minimum rent is increased each year by 4% or, if lower, 150% of the annual percentage increase in the Consumer Price Index
(CPI) (the Base Rent Escalation). For these Leases, generally percentage rent is paid to the Company each year in the amount, if any,




47




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NATIONAL GOLF PROPERTIES, INC.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)




by which the sum of 35% of Course Revenue in excess of a baseline amount plus 5% of Other Revenue in excess of a baseline amount exceeds the cumulative Base Rent Escalation since the commencement
date of such Leases. Course Revenue is generally defined in the Leases to include all revenue received from the operation of the applicable golf course, including revenues from memberships, initiation fees, dues, green fees, guest fees,
driving range charges and golf cart rentals, but excluding those revenues described as Other Revenue. Other Revenue is generally defined in the Leases to include all revenue received from food and beverage and merchandise sales and other
revenue not directly related to golf activities. AGC has options to extend the term of each lease for one to three five-year terms. Generally, for the Leases entered into subsequent to the Offering, the rent is based upon the greater of (a) the
minimum base rent or (b) a specified percentage of Course Revenue and Other Revenue. The minimum base rent under these Leases is increased for specified years during the Lease term based upon increases in the CPI, provided that each such annual CPI
increase shall not exceed five percent. Percentage rent income for the years ended December 31, 2001, 2000 and 1999 was approximately $3,774,000, $8,340,000 and $8,453,000, respectively.





For the leases of the Acquired Cobblestone Courses, the base rent generates an initial return on the Operating Partnerships investment of 8.75% and will step-up on a sequential
basis each year to 9.25%, 9.75%, 10.25%, 10.75%, 11.25%, and finally to 11.75% in 2005. GAAP requires, for leases with fixed increases in rent, the total rent revenue over the lease period be straight-lined. For the years ended December 31, 2001 and
2000, the straight-lining of rent resulted in additional rent revenue of approximately $2,887,000 and $3,530,000, respectively.





(12)    Stock Options and Awards





The Company has established the 1993 Stock Incentive Plan
(the 1993 Plan) and the 1997 Equity Participation Plan (the 1997 Plan), under which executive officers and other key employees of the Company and AGC may be granted stock options or restricted stock. Restricted stock is
subject to restrictions determined by the Companys Compensation Committee. The Compensation Committee, comprised of Directors who are not officers of the Company, determines compensation, including awards under the 1993 Plan and 1997 Plan, for
the Companys executive officers. The shares of restricted stock will be sold at a purchase price equal to $.01 and will vest 20% per year over a five year period. Restricted stock has the same dividend and voting rights as other common stock
and is considered to be currently issued and outstanding. Compensation expense is determined by reference to the market value on the date of grant and is being amortized on a straight-line basis over the five year vesting period. Such expense
amounted to approximately $1,508,000, $1,536,000 and $1,533,000 for the years ended December 31, 2001, 2000 and 1999, respectively.




48




---



NATIONAL GOLF PROPERTIES, INC.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)







Stock options vest at 25% per year over four years and are exercisable at the
market value on the date of grant. The options maximum term is ten years. The following table summarizes the restricted stock and stock option transactions pursuant to the 1993 Plan for the years ended December 31, 2001, 2000 and 1999:





Number of Shares Restricted Stock


Number of Shares Options


Weighted Average Option Exercise PriceOutstanding at December 31, 1998

73,500


333,975


$
20.61Vested

(23,500
)





Exercised




(32,300
)


20.38Outstanding at December 31, 1999

50,000


301,675


$
20.63Vested

(20,000
)





Cancelled




(24,350
)


20.38Forfeited

(4,000
)





Outstanding at December 31, 2000

26,000


277,325


$
20.66Vested

(19,500
)





Cancelled








Forfeited








Exercised




(55,300
)


20.19Outstanding at December 31, 2001

6,500


222,025


$
20.77





Number of Shares

Weighted Average Option Exercise PriceOptions exercisable at:December 31, 2001

222,025

$
20.77December 31, 2000

277,325

$
20.66December 31, 1999

296,675

$
20.11





The range of exercise prices for the options outstanding and exercisable at
December 31, 2001 under the 1993 Plan is $18.50 through $25.875 with a weighted average remaining contractual life of 1.87 years.





As of December 31, 2001, a total of 807,925 additional shares remain unissued under the 1993 Plan. There were 1,600,000 shares originally reserved for issuance under the 1993 Plan. When the 1997 Plan was established, the 1993 Plan was
terminated regarding future grants of restricted stock and stock options.




49




---



NATIONAL GOLF PROPERTIES, INC.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)







The following table summarizes the restricted stock and stock option transactions
pursuant to the 1997 Plan for the years ended December 31, 2001, 2000 and 1999:





Number of Shares Restricted Stock


Number of Shares Options


Weighted Average Option Exercise PriceOutstanding at December 31, 1998

50,000


72,500


$
30.23Granted

95,000


80,000



27.42Vested

(10,000
)





Outstanding at December 31, 1999

135,000


152,500


$
28.76Granted

40,000


55,000



21.00Vested

(29,000
)





Cancelled




(20,000
)


27.42Forfeited

(16,000
)





Outstanding at December 31, 2000

130,000


187,500


$
26.62Granted

40,000


70,000



18.55Vested

(37,000
)





Cancelled

(8,000
)

(10,000
)


27.42Forfeited








Exercised




(3,000
)


21.00Outstanding at December 31, 2001

125,000


244,500


$
24.35





Number of Shares

Weighted Average Option Exercise PriceOptions exercisable at:December 31, 2001

130,750

$
24.00December 31, 2000

56,875

$
29.47December 31, 1999

23,750

$
30.19





The range of exercise prices for the options outstanding at December 31, 2001
under the 1997 Plan is $9.24 through $30.31 with a weighted average remaining contractual life of 7.32 years. The range of exercise prices for options exercisable at December 31, 2000 is $9.24 through $30.31 with a remaining contractual life of
6.75 years.





As of December 31, 2001, a total of 351,500 additional shares remain reserved for issuance under the 1997 Plan.
There were 800,000 shares originally reserved for issuance under the 1997 Plan.




50




---



NATIONAL GOLF PROPERTIES, INC.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)







The Company also has adopted the 1995 Independent Director Equity Participation
Plan, pursuant to which directors of the Company may be granted stock options and restricted stock. The shares of restricted stock will be sold at a purchase price equal to $.01 and will vest at the earlier of (i) the fifth anniversary of the date
of grant or (ii) the directors normal retirement at or after age 65. Restricted stock has the same dividend and voting rights as other common stock and is considered to be currently issued and outstanding. Stock options vest on the first
anniversary of the date on which the option was granted and are exercisable at the market value on the date of grant. The options maximum term is ten years. The following table summarizes the restricted stock and stock option transactions
pursuant to the 1995 Independent Director Equity Participation Plan for the years ended December 31, 2001, 2000 and 1999:





Number of Shares Restricted Stock


Number of Share Options


Weighted Average Option Exercise PriceOutstanding at December 31, 1998

16,000


40,000


$
25.80Granted

2,000


8,000



21.25Outstanding at December 31, 1999

18,000


48,000


$
25.04Granted

2,000


8,000



19.63Vested

(10,000
)





Outstanding at December 31, 2000

10,000


56,000


$
24.27Granted

2,000


8,000



10.94Vested

(4,500
)





Cancelled




(2,000
)


10.94Outstanding at December 31, 2001

7,500


62,000


$
22.98





Number Of Shares

Weighted Average Option Exercise PriceOptions exercisable at:December 31, 2001

56,000

$
24.27December 31, 2000

48,000

$
25.04December 31, 1999

40,000

$
25.80





The range of exercise prices for the options outstanding at December 31, 2001
under the 1995 Independent Director Equity Participation Plan is $10.94 through $31.50 with a weighted average remaining contractual life of 5.03 years. The range of exercise prices for options exercisable at December 31, 2001 is $19.63 through
$31.50 with a weighted average remaining contractual life of 4.51 years.





As of December 31, 2001, a total of 64,000 shares
remain reserved for issuance under the 1995 Independent Director Equity Participation Plan. There were 148,000 shares originally reserved for issuance under the 1995 Independent Director Equity Participation Plan.





The Company has adopted the disclosure-only provisions of SFAS No. 123, Accounting for Stock-Based Compensation and will continue to use the
intrinsic value based method of accounting prescribed by APB Opinion No. 25, Accounting for Stock Issued to Employees. Accordingly, no compensation cost has been recognized for the stock option plans. Had compensation cost for the
Companys stock option plans been




51




---



NATIONAL GOLF PROPERTIES, INC.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)




determined based on the fair value at the grant date for awards in 2001, 2000 and 1999 consistent with the provisions of SFAS No. 123, the Companys net income, basic earnings per share and
diluted earnings per share would have been reduced to the pro forma amounts indicated below:





For the year ended December 31,2001


2000

1999(In thousands, except per share data)Net (loss) income, as reported

$
(363
)

$
19,430

$
17,260Net (loss) income, pro forma

$
(561
)

$
19,313

$
16,953Basic earnings per share, as reported

$
(0.03
)

$
1.52

$
1.41Basic earnings per share, pro forma

$
(0.04
)

$
1.51

$
1.38Diluted earnings per share, as reported

$
(0.03
)

$
1.48

$
1.37Diluted earnings per share, pro forma

$
(0.04
)

$
1.48

$
1.35





The weighted average fair value of options granted during 2001, 2000 and 1999 are
$6.68, $1.79 and $2.59, respectively. The fair value of each option grant issued in 2001, 2000 and 1999 is estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions: (a) dividend
yield of 0.0% in 2001, 8.24% in 2000, and 8.52% in 1999, (b) expected volatility of the Companys stock of 25.08% in 2001, 22.12% in 2000, 21.2% in 1999, (c) a risk free interest rate based on U.S. Zero Coupon Bonds with time of maturity
approximately equal to the options expected time to exercise, and (d) expected option lives of six years for options granted in 2001 and four years for options granted in 2000, and 1999, respectively.





(13)    401(k) Plan





The
Company established a qualified retirement plan designed to qualify under Section 401(k) of the Code (the 401(k) Plan). The 401(k) Plan allows participants to defer up to 20% of their eligible compensation on a pre-tax basis subject to
certain maximum amounts. Matching cash contributions may be made in amounts and at times determined by the Company. The 401(k) Plan provides for matching contributions by the Company in an amount equal to fifty-cents for each one dollar of
participant contributions up to a maximum of three percent of the participants salary per year. Participants received credit for employment with the predecessors of the Company and affiliates. Amounts contributed by the Company for a
participant will vest over five years. Employees of the Company will be eligible to participate in the 401(k) Plan if they meet certain requirements concerning minimum age and period of credited service.





For the years ended December 31, 2001, 2000 and 1999 the Companys contributions to the 401(k) Plan were approximately $18,000, $19,000 and
$20,000, respectively.





(14)    Deferred Compensation Plan





The Company has a deferred compensation arrangement whereby vested restricted shares of the Companys stock are placed in a Rabbi Trust. The executive will not be taxed
on the stock until taking possession at the end of the deferred period. At the end of the deferral period, the deferred compensation liability will be settled in stock or cash by having the trust sell the stock in the open market. Prior to January
1, 2001 the Company consolidated the net assets of the trust into its financial statements in accordance with EITF 97-14 Accounting for Deferred Compensation Arrangements Where Amounts Earned Are Held in a Rabbi Trust and Invested. In
accordance with EITF 97-14, changes in the share price of the Companys stock falling outside of the transition differential were recognized as either an increase or decrease in expense. The Plan was amended effective January 1, 2001. The
Companys accounting continues in accordance with EITF 97-14 which requires that




52




---



NATIONAL GOLF PROPERTIES, INC.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)




changes in the share price of the Companys stock not be recognized as income or expense under the current plan structure.During the years ended December 31, 2000 and 1999,
respectively, the Company recognized a decrease in expense of approximately $58,000 and $549,000, before minority interest adjustment of approximately $22,000 and $242,000, due to a decrease in the Companys stock price. Additionally, the
Company recognized a reduction in additional paid in capital of approximately $3 million before minority interest adjustment of approximately $1.1 million related to the transition adjustment in 1999. In addition, key executives of the Company may
elect to defer receiving up to 100% of their compensation in any one year until a later year.





(15)    Related Party Transactions





The Company has in the past and will continue to identify golf courses it seeks to acquire and will lease such acquired
golf courses to AGC and other golf course operators. The Company evaluates potential golf course acquisitions based on a golf courses ability to generate cash flows sufficient to enable an operator to operate the course profitably and provide
the Company its desired rate of return on its capital investment. Such evaluation is integral to the Companys determination of the price it is willing to pay for a particular course. The Companys acquisition of a course is recorded in
the Companys financial statements at cost and the value of such course then is evaluated periodically to determine its carrying value based on the cash flow from the lease of such property. Because AGC may be deemed to be an affiliate of the
Company, the Companys leases with AGC may not reflect arms-length transactions. As a result, there is a risk that the terms of such leases are not as favorable to the Company as the terms would have been if the Company leased its golf courses
to unaffiliated operators and, if the Company could have obtained more favorable terms, that the Companys financial statements understate the returns that the Company could obtain on leases of such properties. It is managements belief,
however, that the terms and conditions of its leases with AGC are no less favorable to the Company than the terms and conditions that the Company could obtain if it leased its golf courses to operators other than AGC.





Amounts due from affiliate include rent receivables, rent prepayments, cost reimbursements due to each party for capital improvements and certain other
expenses that are accrued in the period in which the related expenses are incurred. The balance of straight-line deferred rent at December 31, 2001 and 2000 was approximately $9 million and $7 million respectively, and is included in Other
Assets. See Note 17 for a discussion regarding AGC.





(16)    Statement of Cash FlowsSupplemental Disclosures





Non-cash transactions for the year ended December 31, 2001 include approximately $1.3 million of golf course acquisitions
which were financed by a note payable, and $2.3 million in capital improvements accrued but not paid.





Non-cash transactions for
the year ended December 31, 2000 include a limited partners exchange on March 14, 2000, of all of its 1,250,000 Common Units for 1,250,000 shares of Common Stock. Additionally, on December 28, 2000, the fee interest in El Camino Country
Club was transferred to the Company in satisfaction of the El Camino Mortgage entered into in March 1999 as part of the acquisition of the Acquired Cobblestone Courses.





Non-cash transactions for the year ended December 31, 1999 include approximately $13.3 million in capital improvements accrued but not paid and approximately $5.7 million of golf course
acquisitions which were financed by notes payable.





(17)    Other Data





AGC is the lessee of all but four of the golf courses in the Companys portfolio at December 31, 2001. David G. Price, the Chairman of the Board of Directors of the company,
owns approximately 2.7% of the




53




---



NATIONAL GOLF PROPERTIES, INC.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)




Companys outstanding Common Stock, approximately 16.6% of the Common Units of the Operating Partnership and a controlling interest in AGC. AGC is a golf course management company that
operates a diverse portfolio of golf courses for a variety of golf course owners including municipalities, counties and others. AGC does not own any golf courses, but rather manages and operates golf courses either as a lessee under leases,
generally triple net, or pursuant to management agreements. AGC derives revenues from the operation of golf courses principally through receipt of green fees, membership initiation fees, membership dues, golf cart rentals, driving range charges and
sales of food, beverages and merchandise.





The following table sets forth certain condensed financial information concerning
AGC:





December 31,2001


2000Restated(in thousands)Current assets

$
79,184


$
96,411Non-current assets


190,970



179,140Total assets

$
270,154


$
275,551Total current liabilities

$
228,698


$
122,298Total long-term liabilities


99,885



153,297Minority interest


211



158Total shareholders deficit


(58,640
)


(202
)Total liabilities and shareholders deficit

$
270,154


$
275,551





For the year ended December 31,2001


2000


1999Restated (in thousands)


RestatedTotal revenues

$
730,828


$
746,348


$
697,575Net (loss) income

$
(60,428
)

$
(278
)

$
5,686





The net loss of $60.4 million for the year ended December 31, 2001 represents a
$60.2 million increase from a net loss of $0.2 million for the corresponding twelve months of 2000. AGCs net income and gross revenues in the year ended December 31, 2001, particularly green fee revenue and initiation fee revenue from
membership sales, were adversely impacted by inclement weather, weakening economic conditions, and increased supply of golf courses and lagging demand. Poor weather conditions in California, Las Vegas and Phoenix during the first quarter and in the
Midwest during the second quarter contributed to the decline in green fee revenue. The softening economy adversely impacted greens fees at high-end daily fee courses, membership sales at private country clubs, and tournament revenues. In addition,
the development and opening of 1,300 new golf courses from 1999 through 2001 also resulted in a reduction in rounds played at AGCs courses.





The terrorist attacks on September 11 and related military actions created additional uncertainty in the state of the overall U.S. economy. As a result, AGCs operating performance continued to decline through
the fourth quarter of 2001, particularly in membership and group sales. There can be no assurance that the economic and political climate will fully recover in the near future, and the longer-term consequences from these events are not yet fully
known.





AGC, which suffered significant financial losses in 2001 and has experienced difficulty with its liquidity, is not in
compliance with the terms of the Leases due to its failure to be fully current in its rental payments to the




54




---



NATIONAL GOLF PROPERTIES, INC.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)




Company. As of March 19, 2002, AGC had paid approximately $8.9 million and owed approximately $17.5 million of rent to the Company for the period January 1, 2002 through March 31, 2002.





Two of AGCs debt instruments require AGC to maintain certain fixed charge coverage ratios and to comply with certain
other financial tests. For the quarters ended June 30, 2001, September 30, 2001 and December 31, 2001, AGC had not achieved such fixed charge coverage ratios and also was not in compliance with certain provisions of AGCs debt instruments. On
August 8, 2001, AGC obtained a waiver of such non-compliance with respect to one of its debt instruments for the quarter ended June 30, 2001, which remained in effect through October 1, 2001, the expiration of which resulted in a default under this
debt instrument. On March 8, AGC entered into a forbearance agreement with its commercial bank due to defaults under its $50,000,000 credit facility. Under the forbearance agreement, the lenders agreed to forbear from exercising any of their
remedies under the credit agreement in connection with these defaults for the period ending March 29, 2002, and AGC repaid $1,862,000 of the principal balance outstanding under the revolving credit facility. In addition, the revolving credit
facility was permanently reduced from $50,000,000 to $48,134,000 and the interest rate was increased to prime plus 4%. AGC is in discussions with its commercial bank to extend the maturities of its borrowings under the credit agreement, which came
due on March 29, 2002. AGC is in discussions with the lenders under each of the debt instruments regarding the aforementioned defaults and non-compliance. There can be no assurance as to the outcome of these discussions.





In addition to the two debt instruments referred to above, certain equipment operating leases of AGC and debt instruments on an AGC subsidiary contain
cross-default provisions pursuant to which a default under one instrument may cause a default under one or more other instruments. As of December 31, 2001, the outstanding balances of such debt instruments for AGC were $13,833,000.





If the default or cross-default provisions are enforced by AGCs lenders, AGC could experience a material adverse effect on its
financial condition.





There can be no assurance that AGC will be able to meet the financial tests or fixed charge coverage ratio
provisions as of the end of future quarters or that AGCs lenders will grant waivers of the default and non-compliance with such provisions with respect to future quarters.





(18)    Quarterly Financial Information (Unaudited)





Summarized
quarterly financial data for the Company for the years ended December 31, 2001 and 2000 is as follows (in thousands, except per share amounts):





Quarter endedFiscal 2001

March 31

June 30

September 30

December 31Revenues

$
28,818

$
28,914

$
29,547

$
31,081Operating income

$
17,681

$
17,432

$
18,389

$
(8,177
)Net income

$
3,526

$
4,838

$
1,556

$
(10,283
)Basic earnings per share

$
0.28

$
0.37

$
0.12

$
(0.79
)Diluted earnings per share

$
0.27

$
0.37

$
0.12

$
(0.79
)Quarter endedFiscal 2000

March 31

June 30

September 30

December 31Revenues

$
27,275

$
27,542

$
28,489

$
35,146Operating income

$
14,971

$
16,406

$
17,445

$
23,870Net income

$
2,192

$
2,618

$
5,265

$
9,355Basic earnings per share

$
0.18

$
0.20

$
0.40

$
0.74Diluted earnings per share

$
0.18

$
0.19

$
0.39

$
0.72




55




---



NATIONAL GOLF PROPERTIES, INC.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)







During the fourth quarter of 2001, the Company recognized impairment losses of
approximately $28 million.





(19)    Going Concern:





The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the
normal course of business. As discussed in Note 7, the Company has significant borrowings that require, among other things, AGCs compliance with certain financial ratios and restrictions on indebtedness to others. During 2001, increased
competition, contraction in the economy, unfavorable weather patterns and the national events of September 11 that impacted most consumer businesses had an adverse impact on AGCs results. For the year ended December 31, 2001, AGC
experienced a net loss of $60,428,000 and had negative cash flows from operations of $18,048,000. As a result, AGC was not in compliance with certain covenants under its revolving credit facility and private placement notes which in turn, caused the
Company to cease to be in compliance with its debt covenant provisions with respect to AGC. In addition, certain of the Companys and AGCs debt instruments include cross-default provisions pursuant to which a default under one instrument
may cause a default under one or more other instruments. As of December 31, 2001, the outstanding balances of such instruments for the Company was approximately $154.3 million. As of December 31, 2001, the outstanding balances of such instruments
for AGC was approximately $13,833,000. If the default or cross-default provisions are enforced by the Companys Lenders or by AGCs lenders, the Company could experience a material adverse effect on its financial condition. There can be no
assurances that the Company or AGC will be able to satisfy the financial and other covenants in its debt instruments in the future or that the Companys Lenders will grant waivers of the non-compliance with these provisions or any cross-default
occurring as a result of such non-compliance. The covenant breaches put the Company into default on approximately $298 million of outstanding debt and $3.1 million of related accrued interest as of December 31, 2001. On March 29, 2002, the
Company entered into an amendment and extension of the forbearance agreement with the Lenders pursuant to which, subject to certain conditions, the Lenders agreed to (i) continue to forbear exercising certain of their remedies under the Credit
Facility for a period ending April 30, 2002 and (ii) extend the maturity of the Revolver until April 30, 2002. Under the terms of the forbearance agreement, the Revolver was permanently reduced from $180.3 million at March 19, 2002 to $176.8 at
March 29, 2002.





These matters raise substantial doubt about the Companys ability to continue as a going concern.
Accordingly, the consolidated financial statements included herein are subject to material uncertainties. Management of the Company believes that the profitability of operations, positive cash flow and its ability to continue as a going concern may
be dependent upon several factors, including the completion of the pending business combination with AGC discussed in Note 21, obtaining additional financing or equity and restructuring of the existing outstanding debt with its Lenders, disposing of
assets and the ability of AGC to fulfill its lease payment obligations. Although no assurances can be given, management believes that if the above actions result in AGCs return to profitability and positive cash flow, together with a
restructuring of the Companys and AGCs outstanding debt and additional financing or equity, it will enable the Company to continue operating as a going concern. The consolidated financial statements do not include any adjustments that
might result from the outcome of these uncertainties.





(20)    Pro Forma Financial Information (Unaudited)





The pro forma financial information set forth below is presented as if the 2001 acquisitions and sales (Note 2) had been consummated as
of January 1, 2000.




56




---



NATIONAL GOLF PROPERTIES, INC.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)







The pro forma financial information is not necessarily indicative of what actual
results of operations of the Company would have been assuming the acquisitions and sales had been consummated as of January 1, 2000, nor does it purport to represent the results of operations for future periods (in thousands, except per share
amounts).





For the year ended December 31,2001

2000Revenues from rental property

$
114,925

$
113,641Net income

$
1,566

$
17,454Basic earnings per share

$
0.12

$
1.37Diluted earnings per share

$
0.12

$
1.33





The pro forma financial information includes the following adjustments: (i) a
decrease in rent from affiliates; (ii) a decrease in depreciation expense; (iii) a decrease in loss on sale of properties in 2001; (iv) a decrease in gain on sale of properties in 2000; and (v) a decrease in interest expense.





(21)    Subsequent Events





Between December 31, 2001 and March 19, 2002, the Company sold six golf courses, listed below, for approximately $18.7 million and expects to recognize a gain of approximately $1.6 million from these transactions. As of March 19, 2002 the
Company had two golf courses under contract for sale for approximately $16.1 million. The Company expects to recognize a gain from these transactions.





Sale Date

Course Name

Location1/11/02

The Golf Club at Paw Creek

Charlotte, North Carolina2/13/02

Carolina Shores Golf & Country Club

Calabash, North Carolina2/13/02

Oakridge Country Club

Garland, Texas2/25/02

Creekside Golf Club

Salem, Oregon2/26/02

Heather Ridge Country Club

Aurora, Colorado2/28/02

Red Mountain Ranch Country Club

Mesa, Arizona





AGC, which suffered significant financial losses in 2001 and has experienced
difficulty with its liquidity, is not in compliance with the terms of the Leases due to its failure to be current in its rental payments to the Company. As of March 29, 2002, AGC had paid approximately $13.0 million and owed approximately
$13.4 million of rent to the Company for the period January 1, 2002 through March 31, 2002.





On February 8, 2002, the
Company entered into a forbearance agreement with certain of its lenders on account of the defaults under the Credit Facility. Under the forbearance agreement, the Lenders agreed to forbear from exercising certain of their remedies under the Credit
Facility in connection with these defaults for a period ending March 29, 2002, and the Company repaid $20 million of the principal balance outstanding under the credit agreement. Under the terms of the forbearance agreement, the Revolver was
permanently reduced from $200 million at December 31, 2001 to $180.3 million at March 19, 2002. On March 29, 2002, the Company entered into an amendment and extension of the forbearance agreement with the Lenders pursuant to which, subject to
certain conditions, the Lenders agreed to (i) continue to forbear exercising certain of their remedies under the Credit Facility for a period ending April 30, 2002 and (ii) extend the maturity of the Revolver until April 30, 2002. Under the terms of
the forbearance agreement, the Revolver was permanently reduced from $180.3 million at March 19, 2002 to $176.8 at March 29, 2002. The Company is in discussions with the lenders to extend the forbearance agreement and the maturity of its borrowings
under the Credit Facility. There can be no assurance as to the outcome of these discussions.




57




---



NATIONAL GOLF PROPERTIES, INC.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)







On February 13, 2002, the Company executed a letter of intent to enter into a
business combination with AGC and certain of AGCs affiliates, including Golf Enterprises, Inc. and European Golf, L.L.C. On March 29, 2002, the Company entered into a definitive merger and reorganization agreement with AGC and these
affiliates. Under the agreement, the Company and AGC will become subsidiaries of a newly-formed holding company. All issued and outstanding shares of the Companys Common Stock will be converted on a one-to-one basis into an equal number of
shares of common stock of the new company, and all Common Units of the Operating Partnership (other than those held by certain affiliates that will be owned by the new company) will be converted on a one-to-one basis into an equal number of shares
of common stock of the new company. Shareholders of AGC and its affiliates will receive consideration of 156,005 shares of common stock of the new company, (which is equivalent to the 156,005 Common Units of the Operating Partnership held by
entities controlled by David G. Price that will be contributed to the new company), up to 100,000 shares of Class C preferred stock of the new company and $10,000 in cash. Upon consummation of the transactions, the Company will no longer
qualify as a REIT and the new company will both own and operate golf courses. The transaction is subject to approval of the Companys stockholders, lenders to the Company and AGC and common and preferred unit holders of the Operating
Partnership, as well as regulatory approvals and certain other conditions described in the merger and reorganization agreement. While there can be no assurances as to whether or when the conditions set forth in the preceding sentence will be
satisfied, the Company anticipates that the transaction will close by the end of the third quarter of 2002. In the event the transaction is not completed (or is materially delayed), there may be serious adverse consequences on the financial
condition and operations of both the Company and AGC.





On January 10, 2002, the Company entered into an agreement with AGC
whereby AGC is obligated to pay to the Company a fee of $8.5 million as consideration for terminating leases associated with ten golf courses sold in 2001. During 2001, the Company had engaged an independent professional real estate advisor to
assist the Company to develop an appropriate methodology to be used to determine lease termination fees associated with asset sales. As of March 19, 2002, AGC is obligated to pay to the Company an additional $7.4 million in termination fees
associated with six golf courses sold in 2002.




58




---




Item 9.    CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE





None.





PART III





Item 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT





Incorporated by reference to the sections entitled (i) Nominees for Election as Director; (ii)
Directors Continuing in Office; and (iii) Executive Officers contained in the Companys Proxy Statement to be filed pursuant to Regulation 14A.





Item 11.    EXECUTIVE COMPENSATION





Incorporated by reference to the
section entitled Executive Compensation contained in the Companys Proxy Statement to be filed pursuant to Regulation 14A.





Item
12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT





Incorporated by reference to the
section entitled Security Ownership of Certain Beneficial Owners and Management contained in the Companys Proxy Statement to be filed pursuant to Regulation 14A.





Item 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS





Incorporated by reference to the section entitled Certain Relationships and Related Transactions contained in the Companys Proxy Statement to be filed pursuant to Regulation 14A.




59




---




PART IV





Item 14.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K





Page No.(a)  1.

Financial StatementsReport of Independent Accountants

29Consolidated Balance Sheets of National Golf Properties, Inc. as of December 31, 2001 and 2000

30Consolidated Statements of Operations of National Golf Properties, Inc. for the years ended December 31, 2001, 2000 and
1999

31Consolidated Statements of Stockholders Equity of National Golf Properties, Inc. for the Years ended December 31, 2001,
2000 and 1999

32Consolidated Statements of Cash Flows of National Golf Properties, Inc. for the years ended December 31, 2001, 2000 and
1999

33Notes to Consolidated Financial Statements

342.

Financial Statement SchedulesSchedule IIIReal Estate and Accumulated Depreciation

61




60




---




SCHEDULE III





NATIONAL GOLF PROPERTIES, INC.





REAL ESTATE AND ACCUMULATED DEPRECIATION(1)





December 31, 2001


(In thousands)





Encumbrances

Initial Cost to Company

Cost Capitalized Subsequent to
Acquisition


Gross Amount at Which Carried at Close of Period

Accumulated Depreciation

Date Constructed

Date AcquiredDescription


Land

Buildings & Improvements


Land

Total Cost Buildings & Improvements

TotalDAILY FEE COURSES:Canoa Hills, Green Valley, AZ

$


$
126

$
3,727

$
95


$
126

$
3,822

$
3,948

$
301

1984

2000Continental, Scottsdale, AZ





64


881


52



66


931


997


607

1974

1986Los Coyote Lakes, Surprise, AZ





215


3,766


30



215


3,796


4,011


470

1993

1999Desert Lakes, Fort Mojave, AZ





163


3,102


53



163


3,155


3,318


1,196

1990

1993El Caro, Phoenix, AZ





61


553


12



63


563


626


563

1975

1983The Foothills, Phoenix, AZ





648


9,318


964



648


10,282


10,930


1,527

1988

1999Kokopelli, Gilbert, AZ





1,177


4,261


191



1,177


4,452


5,629


1,801

1993

1994The Lakes at Ahwatukee, Phoenix, AZ





296


4,468


95



297


4,562


4,859


681

1970s

1999Legend at Arrowhead, Glendale, AZ





502


3,408


1,533



503


4,940


5,443


1,738

1986

1992London Bridge, Lake Havasu City, AZ





301


1,699


199



305


1,894


2,199


975

1968

1986Stonecreek, Phoenix, AZ





1,197


8,250


531



1,197


8,781


9,978


2,332

1983

1997Superstition Springs, Mesa, AZ





698


3,771


(118
)


702


3,649


4,351


1,839

1986

1992Villa De Paz, Phoenix, AZ





186


397


18



188


413


601


378

1974

1981Camarillo Springs, Camarillo, CA





141


2,880


1,047



143


3,925


4,068


2,215

1972

1984Carmel Mountain, San Diego, CA





1,669


5,865


762



1,669


6,627


8,296


2,033

1986

1995Casta del Sol, Mission Viejo, CA





3,488


4,666


1,365



3,493


6,026


9,519


558

1972

1999Lomas Santa Fe Exec., Solana Beach, CA





175


575


34



177


607


784


553

1974

1982Eagle Crest, Escondido, CA





1,418


8,526


21



1,419


8,546


9,965


1,406

1993

1999Mesquite, Palm Springs, CA





1,057


5,140


(191
)


988


5,018


6,006


1,934

1985

1993Rancho San Joaquin, Irvine, CA





871


8,375


2,544



873


10,917


11,790


4,466

1962

1992San Geronimo, San Geronimo, CA





846


5,426


454



847


5,879


6,726


1,503

1964

1996Seascape, Aptos, CA





901


3,491


1,704



903


5,193


6,096


1,675

1926

1986Summitpointe, Milpitas, CA





2,315


4,813


1,058



2,315


5,871


8,186


2,125

1977

1994Upland Hills, Upland, CA





1,835


6,312


110



1,796


6,461


8,257


2,012

1982

1995Vineyard at Escondido, Escondido, CA


5,000





9,530









9,530


9,530


1,530

1993

1999Vista Valencia, Valencia, CA





652


5,369


683



657


6,047


6,704


3,658

1963

1987Arrowhead, Littleton, CO





302


3,245


2,524



304


5,767


6,071


1,827

1972

1988Arrowhead, Davie, FL





601


2,190


116



604


2,303


2,907


1,061

1967

1993Summerfield Crossing, Tampa, FL





105


2,508


312



105


2,820


2,925


741

1987

1996Bradshaw Farm, Woodstock, GA


1,312


238


6,365


2,111



348


8,366


8,714


1,574

1995

1997Trophy Club of Appalachee, Dacula, GA





300


7,687


177



300


7,864


8,164


1,186

1994

1999Trophy Club of Atlanta, Alpharetta, GA





499


10,203


136



500


10,338


10,838


1,511

1991

1999Ruffled Feathers, Lemont, IL





293


9,316


(7
)


293


9,309


9,602


2,898

1992

1995Tamarack, Naperville, IL





326


5,067


257



326


5,324


5,650


1,414

1989

1997Deer Creek, Overland Park, KS





695


7,147


474



696


7,620


8,316


2,447

1989

1996Dubs Dread, Kansas City, KS





135


2,997


355



135


3,352


3,487


1,245

1963

1994Majestic Oaks, Ham Lake, MN





1,713


10,194


1,510



1,713


11,704


13,417


2,312

1972

1998




61




---




SCHEDULE III


(Continued)





NATIONAL GOLF PROPERTIES, INC.





REAL ESTATE AND ACCUMULATED DEPRECIATION(1)





December 31, 2001


(In thousands)





Encumbrances


Initial Cost to Company

Cost Capitalized Subsequent to
Acquisition


Gross Amount at Which Carried at Close of
Period

Accumulated Depreciation

Date Constructed

Date AcquiredDescription


Land

Buildings & Improvements


Land

Total Cost Buildings & Improvements

TotalDAILY FEE COURSES:Links at Northfork, Ramsey, MN






280


3,770


75



280


3,845


4,125


1,356

1992

1994Woodland Creek, Andover, MN






86


473


44



86


517


603


93

1989

1998Las Vegas National, Las Vegas, NV






261


3,727


1,286



263


5,011


5,274


3,547

1961

1982Painted Desert, Las Vegas, NV






1,355


4,741






1,355


4,741


6,096


1,267

1987

1996Wildhorse, Henderson, NV






4,677


6,557


2,578



4,679


9,133


13,812


2,842

1959

1994Beaver Brook, Clinton, NJ






1,184


6,999


395



1,184


7,394


8,578


1,109

1964

1999Brigantine, Brigantine, NJ






194


1,768


2,092



196


3,858


4,054


1,683

1926

1989Rancocas, Willingboro, NJ






239


1,816


1,053



241


2,867


3,108


1,456

1963

1989Paradise Hills, Albuquerque, NM






350


5,181


329



363


5,497


5,860


1,525

1963

1996Carolina Shores, Calabash, NC(3)






588


5,903


(1,341
)


456


4,694


5,150


3,239

1974

1986Paw Creek, Charlotte, NC(3)






63


1,563


499



343


1,782


2,125


552

1971

1996Bent Tree, Columbus, OH






123


4,207


333



123


4,540


4,663


1,210

1988

1996Fowlers Mill, Chesterland, OH






346


1,760


1,474



349


3,231


3,580


1,468

1972

1986Royal American Links, Harlem, OH






146


3,981


273



146


4,254


4,400


474

1992

1999Hershey South, Hershey, PA






150


1,995


424



150


2,419


2,569


880

1927

1994Golden Oaks, Fleetwood, PA






989


4,677


331



1,008


4,989


5,997


1,548

1994

1996Colonial Charters, Longs, SC(3)






213


4,579


(1,114
)


163


3,515


3,678


1,205

1989

1996Shipyard, Hilton Head Island, SC



(2)


4,773


9,756


1,925



4,773


11,681


16,454


3,871

1969

1994Stono Ferry, Charleston, SC






44


1,582


159



98


1,687


1,785


457

1989

1996Forrest Crossing, Nashville, TN






140


2,829


612



140


3,441


3,581


869

1988

1996Bear Creek, Houston, TX









6,163


773






6,936


6,936


5,117

1966

1985Trails, Frisco, TX






1,498


1,156


8,981



1,498


10,137


11,635


330

2000

1999Longwood, Houston, TX






1,558


8,148


555



1,556


8,705


10,261


2,248

1995

1997Pecan Valley, San Antonio, TX






389


3,989


5,196



391


9,183


9,574


2,525

1962

1990Ridgeview Ranch, Plano, TX









11,394









11,394


11,394


1,754

1996

1999Riverchase, Coppell, TX






250


1,658


1,469



254


3,123


3,377


1,593

1987

1988Riverside, Grand Prairie, TX






574


4,445


105



576


4,548


5,124


2,004

1986

1990Southwyck, Pearland, TX






672


3,492


275



673


3,766


4,439


1,451

1988

1993Kiskiack, Williamsburg, VA(3)






70


5,999


(82
)


39


5,948


5,987


1,015

1997

1999Reston National, Reston, VA






996


4,584


1,223



999


5,804


6,803


2,164

1968

1993Virginia Oaks, Gainesville, VA






1,400


9,291


1,504



1,400


10,795


12,195


1,519

1994

1999Capitol City, Olympia, WA






437


2,572


163



437


2,735


3,172


994

1961

1994Lake Wilderness, Maple Valley, WA






110


1,665


332



110


1,997


2,107


704

1974

1994$
6,312


$
50,364

$
327,908

$
53,132


$
50,583

$
380,821

$
431,404

$
112,361




62




---




SCHEDULE III


(Continued)





NATIONAL GOLF PROPERTIES, INC.





REAL ESTATE AND ACCUMULATED DEPRECIATION(1)





December 31, 2001


(In thousands)





Encumbrances

Initial Cost to Company

Cost Capitalized Subsequent to
Acquisition


Gross Amount at Which Carried at Close of Period

Accumulated Depreciation

Date Constructed

Date AcquiredDescription


Land

Buildings & Improvements


Land

Total Cost Buildings & Improvements

TotalPRIVATE COUNTRY CLUBS:Ahwatukee, Phoenix, AZ(3)

$


$
605

$
9,940

$
(4,594
)

$
313

$
5,638

$
5,951

$
1,478

1973

1999Ancala, Scottsdale, AZ





207


8,319


51



207


8,370


8,577


1,871

1990

1996Arrowhead, Glendale, AZ





185


5,816


2,147



185


7,963


8,148


1,385

1986

1996Red Mountain Ranch, Mesa, AZ(3)





650


9,581


(4,728
)


317


5,186


5,503


1,381

1986

1999Tatum Ranch, Cave Creek, AZ





1,000


3,972


4,251



1,002


8,221


9,223


2,126

1986

1992Canyon Oaks, Chico, CA





309


2,172


2,362



297


4,546


4,843


1,227

1987

1994El Camino, Oceanside, CA





800


5,430


151



817


5,564


6,381


313

1959

2000Escondido, Escondido, CA





114


2,382


736



116


3,116


3,232


1,810

1962

1983Marbella, San Juan Capistrano, CA





2,018


10,066


543



2,018


10,609


12,627


265

1990

2001Monterey, Palm Desert, CA





1,294


6,584


417



1,294


7,001


8,295


2,356

1978

1995Oakhurst, Clayton, CA





1,596


8,069


4,720



1,644


12,741


14,385


2,017

1997

1997Palm Valley, Palm Desert, CA





1,750


13,769


701



1,749


14,471


16,220


4,185

1985

1995SeaCliff, Huntington Beach, CA





2,430


7,602


870



2,451


8,451


10,902


1,988

1975

1996Spanish Hills, Camarillo, CA





2,975


14,076


2,391



3,024


16,418


19,442


3,199

1993

1997Sunset Hills, Thousand Oaks, CA





302


1,378


95



304


1,471


1,775


1,285

1966

1975Wood Ranch, Simi Valley, CA





481


9,111


1,838



481


10,949


11,430


3,218

1984

1995Heather Ridge, Aurora, CO





992


1,500


715



995


2,212


3,207


1,345

1970

1990Pinery, Denver, CO





174


5,380


600



174


5,980


6,154


1,629

1972

1996Brookstone, Acworth, GA





557


2,608


455



559


3,061


3,620


1,353

1987

1993The Plantation, Boise, ID





87


2,562


235



87


2,797


2,884


740

1920

1996Eagle Brook, Geneva, IL





701


9,739


300



701


10,039


10,740


2,404

1992

1997Mission Hills, Northbrook, IL





400


3,600


850



402


4,448


4,850


2,737

1980

1988Highlands Golf, Hutchinson, KS





40


576


268



40


844


884


225

1972

1996Tallgrass, Wichita, KS





43


2,409


267



43


2,676


2,719


728

1980

1996Hunt Valley, Phoenix, MD





515


1,662


1,293



517


2,953


3,470


1,619

1972

1983Tanoan, Albuquerque, NM





12


3,241


45



14


3,284


3,298


2,762

1978

1982Brandywine, Maumee, OH





814


2,861


204



816


3,063


3,879


1,480

1967

1991Ivy Hills, Cincinnati, OH





30


1,776


312



30


2,088


2,118


389

1992

1998Oakhurst, Grove City, OH





344


1,776


1,253



346


3,027


3,373


1,340

1959

1980




63




---




SCHEDULE III


(Continued)





NATIONAL GOLF PROPERTIES, INC.





REAL ESTATE AND ACCUMULATED DEPRECIATION(1)





December 31, 2001


(In thousands)





Encumbrances


Initial Cost to Company

Cost Capitalized Subsequent to
Acquisition


Gross Amount at Which Carried at Close of
Period

Accumulated Depreciation

Date Constructed

Date AcquiredDescription


Land

Buildings & Improvements


Land

Total Cost Buildings & Improvements

TotalPRIVATE COUNTRY CLUBS:Royal Oak, Cincinnati, OH






175


822


1,872



178


2,691


2,869


583

1963

1985Meadowbrook, Tulsa, OK






89


3,236


1,543



89


4,779


4,868


1,125

mid 1950s

1996The Trails, Norman, OK






42


2,361


303



163


2,543


2,706


772

1982

1996Creekside, Salem, OR(3)






128


3,456


2,486



127


5,943


6,070


1,797

1993

1995Oregon Golf, West Linn, OR






433


10,230


557



435


10,785


11,220


3,086

1992

1995Hershey, Hershey, PA






1,624


6,400


1,432



1,624


7,832


9,456


2,883

1915

1994Oyster Reef, Hilton Head Island, SC






668


7,048


48



668


7,096


7,764


711

1983

2000Port Royal, Hilton Head Island, SC


18,542
(2)


6,289


15,190


4,540



6,289


19,730


26,019


6,302

1985

1994Gettysvue, Knoxville, TN(3)


3,750



753


5,550


(71
)


681


5,551


6,232


1,260

1995

1997Berry Creek, Georgetown, TX






204


4,876


439



204


5,315


5,519


1,442

1986

1995Diamond Oaks, Fort Worth, TX






132


3,577


2,204



139


5,774


5,913


1,265

1959

1996Eldorado, McKinney, TX






221


6,247


4,481



246


10,703


10,949


1,766

1981

1996Great Southwest, Grand Prairie, TX






442


7,825


608



449


8,426


8,875


2,194

1964

1996Oakridge, Garland, TX






87


3,439


1,059



94


4,491


4,585


1,091

1982

1996Pecan Grove Plantation, Richmond, TX






380


11,725


907



380


12,632


13,012


1,768

1980

1999Sweetwater, Sugarland, TX






207


11,783


3,412



207


15,195


15,402


4,474

1983

1996Sonterra, San Antonio, TX






2,686


25,867


2,025



2,686


27,892


30,578


5,005

1978

1998Thorntree, DeSoto, TX(3)






300


9,822


(2,552
)


199


7,371


7,570


1,597

1983

1999Walden, Humble, TX






178


3,425


800



180


4,223


4,403


1,030

1984

1996Willow Fork, Katy, TX






44


2,742


374



44


3,116


3,160


744

1990

1996Woodhaven, Fort Worth, TX






43


2,022


670



43


2,692


2,735


715

1972

1996Brandermill, Midlothian, VA(3)






450


8,329


(2,596
)


269


5,914


6,183


1,211

1978

1999Bear Creek, Woodinville, WA






705


4,823


695



711


5,512


6,223


2,440

1983

1993$
22,292


$
37,705

$
318,752

$
43,984


$
37,048

$
363,393

$
400,441

$
94,116Total Courses

$
28,604


$
88,069

$
646,660

$
97,116


$
87,631

$
744,214

$
831,845

$
206,477


---

|(1) |  | Corporate assets are not included within the amounts.
|--- |  | -----------------------------------------------------

|(2) |  | Combined encumbrance for Port Royal and Shipyard golf courses.
|--- |  | --------------------------------------------------------------

|(3) |  | During the year ended December 31, 2001, the Company recognized an impairment loss related to this property.
|--- |  | ------------------------------------------------------------------------------------------------------------



64




---

SCHEDULE III


NATIONAL GOLF PROPERTIES, INC.





REAL ESTATE AND ACCUMULATED DEPRECIATION(Continued)


December
31, 2001


(In thousands)





Depreciation of the
Companys investment in Buildings and Improvements reflected in the statements of operations are calculated over the estimated useful lives of the assets as follows:





Buildings

30 yearsGround improvements

20 yearsFurniture, fixtures and equipment

3 to 10 years





The changes in total real estate assets and accumulated depreciation (excluding
corporate assets and related accumulated depreciation) for the years ended December 31, 2001, 2000 and 1999 are as follows:





Total Real Estate Assets2001


2000


1999Balance, beginning of year

$
873,890


$
845,981


$
662,387Acquisitions


12,084



17,185



167,449Improvements


21,803



26,290



25,842Impairments


(23,260
)






Dispositions


(52,672
)


(15,566
)


(9,697
)Balance, end of year

$
831,845


$
873,890


$
845,981Accumulated Depreciation2001


2000


1999Balance, beginning of year

$
185,112


$
152,647


$
120,841Depreciation for year


36,147



37,259



34,077Dispositions


(14,782
)


(4,794
)


(2,271
)Balance, end of year

$
206,477


$
185,112


$
152,647




65




---




3.    Exhibits





2.1


Agreement and Plan of Merger and Reorganization, dated as of March 29, 2002, by and among National Golf Properties, Inc.,
National Golf Operating Partnership, L.P., American Golf Corporation, Golf Enterprises Inc., David G. Price and Dallas P. Price, the David G. Price Trust and Dallas P. Price Trust, the AGC Contributors (as defined therein) and the Transferred Entity
Contributors (as defined therein) (incorporated by reference to Exhibit 99.2 to the Companys Current Report on Form 8-K dated April 1, 2002).3.1


Articles of Incorporation of National Golf Properties, Inc. (incorporated by reference to Exhibit 3.1 to the Companys
Current Report on Form 8-K dated September 26, 1995)3.2
(1)

Amended and Restated By-Laws of National Golf Properties, Inc.3.3


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)3.4


Articles Supplementary of National Golf Properties, Inc. (incorporated by reference to Exhibit 3.1 to the Companys Current
Report on Form 8-K dated March 4, 1998)3.5


Articles Supplementary of National Golf Properties, Inc. (incorporated by reference to Exhibit 3.1 to the Companys
Quarterly Report on Form 10-Q for the period ended March 31, 1998)3.6


Articles Supplementary of National Golf Properties, Inc. (incorporated by reference to Exhibit 3.1 to the Companys
Quarterly Report on Form 10-Q for the period ended June 30, 1999)4.1


The 1995 Independent Director Equity Participation Plan of National Golf Properties, Inc. (incorporated by reference to Exhibit
4.1 to the Companys Registration Statement on Form S-8 dated August 15, 1997)4.2


The 1997 Equity Participation Plan of National Golf Properties, Inc., National Golf Operating Partnership, L.P. and American Golf
Corporation (incorporated by reference to Exhibit 4.2 to the Companys Registration Statement on Form S-8 dated August 15, 1997)10.1


Third Amended and Restated Agreement of Limited Partnership of National Golf Operating Partnership, L.P., dated as of July 28,
1999, (incorporated by reference to Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q for the period ended June 30, 1999)10.2


Form of Lease Agreement between the Company and AGC with respect to the Initial Golf Courses and the Mesquite and Desert Lakes
golf courses (incorporated by reference to Exhibit 10.2 to the Companys Registration Statement on Form S-11 No. 33-63110)10.3


Form of Lease Agreement between the Company and AGC with respect to the following golf courses: Southwyck, Dubs Dread,
Kokopelli, Summitpointe, Lake Wilderness, Links at Northfork, Hershey, Hershey South, Canyon Oaks, Capitol City, Port Royal, Shipyard, Wildhorse, Berry Creek, Carmel Mountain, Creekside, Wood Ranch, Monterey, Palm Valley, Ruffled Feathers, Upland
Hills, Oregon Golf, Golden Oaks, Paradise Hills, SeaCliff, Ancala, Arrowhead (AZ), Painted Desert, Pinery, Summerfield Crossing, The Plantation, Highlands, Tallgrass, Paw Creek, Bent Tree, Meadowbrook, The Trails (OK), The Links, Forrest Crossing,
Diamond Oaks, Eldorado, Great Southwest, Oakridge, Willow Fork, Woodhaven, Walden, Deer Creek, Stonecreek, Tamarack, Bradshaw Farm, Longwood, Eagle Brook, Gettysvue, Oakhurst, Ivy Hills, Majestic Oaks, Woodland Creek, Sonterra, Beaver Brook, Coyote
Lakes, Casta del Sol, Royal American, Canoa Hills Golf Course, Oyster Reef Golf Club and Marbella Country Club (incorporated by reference to Exhibit 10.3 to the Companys Annual Report on Form 10-K dated February 29, 1996)10.4


Registration Rights Agreement, made and entered into as of August 18, 1993, by and among National Golf Properties, Inc. and the
persons named therein (incorporated by reference to Exhibit 10.4 to the Companys Annual Report on Form 10-K dated February 29, 1996)10.5


Shelf Registration Rights Agreement, made and entered into as of August 18, 1993, by and among National Golf Properties, Inc. and
the persons named therein (incorporated by reference to Exhibit 10.5 to the Companys Annual Report on Form 10-K dated February 29, 1996)




66




---

*10.6


National Golf Properties, Inc. Stock Incentive Plan for Key Employees of National Golf Properties, Inc., National Golf Operating
Partnership, L.P. and American Golf Corporation, effective August 18, 1993 (incorporated by reference to Exhibit 10.6 to the Companys Annual Report on Form 10-K dated February 29, 1996)*10.7
(1)

Indemnification Agreements, made as of December 14, 2001, by and between National Golf Properties, Inc. and each of its directors
and officers10.8


Director Designation Agreement, dated as of March 29, 1999 by and among David G. Price, National Golf Properties, Inc. and
National Golf Operating Partnership, L.P. (incorporated by reference to Exhibit 10.8 to the Companys Annual Report on Form 10-K dated February 28, 2000)10.9


Services Agreement, entered into as of August 18, 1993, by and between National Golf Properties, Inc. and National Golf Operating
Partnership, L.P. (incorporated by reference to Exhibit 10.10 to the Companys Annual Report on Form 10-K dated February 29, 1996)10.10


Partnership Interests Exchange Agreement, dated as of August 18, 1993, by and among National Golf Operating Partnership, L.P. and
Partners of Partnerships Controlling 21 Courses (incorporated by reference to Exhibit 10.13 to the Companys Annual Report on Form 10-K dated February 29, 1996)10.11


Agreement for Transfer of Realty and Assets, dated as of August 18, 1993, by and among The Price Revocable Trust, Myershan, Inc.
and National Golf Operating Partnership, L.P. (incorporated by reference to Exhibit 10.14 to the Companys Annual Report on Form 10-K dated February 29, 1996)10.12


Plan and Agreement of Merger, dated as of August 18, 1993, by and among Bear Creek Enterprises, Inc., National Golf Properties,
Inc., The Price Revocable Trust and David G. Price (incorporated by reference to Exhibit 10.15 to the Companys Annual Report on Form 10-K dated February 29, 1996)10.13


Partnership Interests Acquisition Agreement, dated as of August 18, 1993, by and among The Price Revocable Trust, American Golf
Investment, Inc., Supermarine Aviation, Limited, David G. Price and National Golf Properties, Inc. (incorporated by reference to Exhibit 10.16 to the Companys Annual Report on Form 10-K dated February 29, 1996)10.14


Contribution Agreement, dated as of August 18, 1993, by and between National Golf Operating Partnership, L.P. and National Golf
Properties, Inc. (incorporated by reference to Exhibit 10.17 to the Companys Annual Report on Form 10-K dated February 29, 1996)10.15


Option Courses Agreement, dated as of August 18, 1993, by and among David G. Price, The Price Revocable Trust, Black
Lake/Penasquitos, American Golf Corporation and National Golf Operating Partnership, L.P. (incorporated by reference to Exhibit 10.18 to the Companys Annual Report on Form 10-K dated February 29, 1996)10.16


Agreement relating to prohibition on acquisitions of golf courses by David G. Price and his affiliates, made and entered into as
of August 18, 1993, by and among National Golf Properties, Inc., National Golf Operating Partnership, L.P., American Golf Corporation, David G. Price, Dallas P. Price and The Price Revocable Trust (incorporated by reference to Exhibit 10.19 to the
Companys Annual Report on Form 10-K dated February 29, 1996)10.17


Amendment to agreement relating to prohibition on acquisitions of golf courses by David G. Price and his affiliates among
National Golf Properties, Inc., National Golf Operating Partnership, L.P., American Golf Corporation, David G. Price, Dallas P. Price and The Price Revocable Trust (incorporated by reference to Exhibit 10 to the Companys Quarterly Report on
Form 10-Q/A for the period ended September 30, 1995)10.18


Note Purchase Agreement (Note Purchase Agreement), dated as of December 15, 1994, with respect to National Golf
Operating Partnership, L.P.s Series A 8.68% Guarantied Senior Promissory Notes due December 15, 2004 and Series B 8.73% Guarantied Senior Promissory Notes due June 15, 2005 (incorporated by reference to Exhibit 10.21 to the Companys
Annual Report on Form 10-K dated February 29, 1996)




67




---

10.19

Series A 8.68% Guarantied Senior Promissory Notes and Series B 8.73% Guarantied Senior Promissory Notes (incorporated by
reference to Exhibit 10.22 to the Companys Annual Report on Form 10-K dated February 29, 1996)10.20

General Continuing Guaranty of National Golf Properties, Inc. (General Continuing Guaranty), dated as of December 15,
1994, with respect to National Golf Operating Partnership, L.P.s Series A 8.68% Guarantied Senior Promissory Notes due December 15, 2004 and Series B 8.73% Guarantied Senior Promissory Notes due June 15, 2005 (incorporated by reference to
Exhibit 10.15 to the Companys Report on Form 8-B dated December 29, 1995)10.21

First Amendment to Note Purchase Agreements, dated as of August 31, 1995 (incorporated by reference to Exhibit 10.17 to the
Companys Report on Form 8-B dated December 29, 1995)10.22

First Amendment to General Continuing Guaranty, dated as of August 31, 1995 (incorporated by reference to Exhibit 10.18 to the
Companys Report on Form 8-B dated December 29, 1995)10.23

Agreement of Limited Partnership of Royal Golf, L.P., II, dated as of July 7, 1994 (incorporated by reference to Exhibit 10.19 to
the Companys Report on Form 8-B dated December 29, 1995)10.24

Amended and Restated Loan Agreement, dated as of July 7, 1994, by and between Royal Golf, L.P., II and NationsBank of South
Carolina, N.A. (incorporated by reference to Exhibit 10.19 to the Companys Report on Form 8-B dated December 29, 1995)10.25

Restated Note Agreement, dated as of July 1, 1996, with respect to National Golf Operating Partnership, L.P.s Series A-1,
Series A-2 and Series A-3 7.9% Guarantied Senior Promissory Notes due June 15, 2006 and Series B 8% Guarantied Senior Promissory Notes due December 12, 2006 (incorporated by reference to Exhibit 10.30 to the Companys Annual Report on Form 10-K
dated March 14, 1997)10.26

Form of Series A 7.9% Guarantied Senior Promissory Notes and Series B 8% Guarantied Senior Promissory Notes (incorporated by
reference to Exhibit 10.31 to the Companys Annual Report on Form 10-K dated March 14, 1997)10.27

Amended and Restated General Continuing Guaranty of National Golf Properties, Inc., dated as of July 1, 1996, with respect to
National Golf Operating Partnership, L.P.s Series A-1, Series A-2 and Series A-3 7.9% Guarantied Senior Promissory Notes due June 15, 2006 and Series B 8% Guarantied Senior Promissory Notes due December 12, 2006 (incorporated by reference to
Exhibit 10.32 to the Companys Annual Report on Form 10-K dated March 14, 1997)10.28

Assumption Agreement, dated as of July 1, 1996, by National Golf Operating Partnership, L.P. and the Purchasers named therein
(incorporated by reference to Exhibit 10.33 to the Companys Annual Report on Form 10-K dated March 14, 1997)10.29

Assumption Agreement, dated as of July 1, 1996, by National Golf Operating Partnership, L.P. and the Purchasers named therein
(incorporated by reference to Exhibit 10.34 to the Companys Annual Report on Form 10-K dated March 14, 1997)10.30

Lease Agreement, dated as of July 11, 1996, between the Company and The Links Group, Inc. with respect to Colonial Charters Golf
Course (incorporated by reference to Exhibit 10.35 to the Companys Annual Report on Form 10-K dated March 14, 1997)10.31

Lease Agreement, dated as of December 17, 1996, between the Company and Evergreen Alliance Golf Limited with respect to San
Geronimo Golf Course (incorporated by reference to Exhibit 10.36 to the Companys Annual Report on Form 10-K dated March 14, 1997)10.32

Lease Agreement, dated as of October 22, 1997, between the Company and Camarillo Golf, LLC with respect to Spanish Hills Country
Club (incorporated by reference to Exhibit 10.33 to the Companys Annual Report on Form 10-K dated February 6, 1998)10.33

Assignment Agreement, dated as of July 30, 1996, between National Golf Properties, Inc. and National Golf Operating Partnership,
L.P. (incorporated by reference to Exhibit 2.3 to the Companys Current Report on Form 8-K dated August 13, 1996)




68




---

10.34

Lease Agreement, dated as of July 30, 1996, between National Golf Operating Partnership, L.P. and American Golf Corporation
(incorporated by reference to Exhibit 2.4 to the Companys Current Report on Form 8-K dated August 13, 1996)10.35

Amended and Restated Credit Agreement, dated as of July 30, 1999 among National Golf Operating Partnership, L.P., National Golf
Properties, Inc., The First National Bank of Chicago, Merrill Lynch Capital Corporation, ING (U.S.) Capital LLC, Union Bank of California, N.A., Banc One Capital Markets, Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, and the several
other lenders from time to time parties hereto (incorporated by reference to Exhibit 10.4 to the companys Quarterly Report on Form 10-Q for the period ended June 30, 1999)10.36

Amended and Restated Guaranty, dated as of July 30, 1999 between National Golf Properties, Inc., and The First National Bank of
Chicago and the lenders under the Amended and Restated Credit Agreement (incorporated by reference to Exhibit 10.5 to the Companys Quarterly Report on Form 10-Q for the period ended June 30, 1999)*10.37

National Golf Properties, Inc. Deferred Compensation Plan, effective June 1, 1997 (incorporated by reference to Exhibit 10.2 to
the Companys Quarterly Report on Form 10-Q dated July 29, 1997)*10.38

National Golf Properties, Inc. Deferred Compensation Plan Trust Agreement, dated as of June 1, 1997, by and between National Golf
Properties, Inc. and Imperial Trust Company (incorporated by reference to Exhibit 10.3 to the Companys Quarterly Report on Form 10-Q dated July 29, 1997)*10.39

Consulting Agreement, entered into as of the 30th day of April, 1997, between National Golf Properties, Inc. and Edward R. Sause
(incorporated by reference to Exhibit 10.4 to the Companys Quarterly Report on Form 10-Q dated July 29, 1997)10.40

Pumpkin Ridge Joint Venture Agreement, dated as of September 8, 1997, by and among National Golf Operating Partnership, L.P. and
Pumpkin Ridge Partners (incorporated by reference to Exhibit 10.2 to the Companys Quarterly Report on Form 10-Q dated October 30, 1997)10.41

Lease Agreement, dated as of September 8, 1997, between Pumpkin Ridge Joint Venture and American Golf Corporation (incorporated
by reference to Exhibit 10.3 to the Companys Quarterly Report on Form 10-Q dated October 30, 1997)10.42

USGA Agreement, made and entered into as of September 8, 1997, by and between Pumpkin Ridge Joint Venture and American Golf
Corporation (incorporated by reference to Exhibit 10.4 to the Companys Quarterly Report on Form 10-Q dated October 30, 1997)10.43

Amended and Restated Registration Rights Agreement, dated as of April 20, 1998, by and among National Golf Properties, Inc.,
National Golf Operating Partnership, L.P. and the unit holders named therein (incorporated by reference to Exhibit 10.2 to the Companys Quarterly Report on Form 10-Q for the period ended March 31, 1998)10.44

Amended and Restated Registration Rights Agreement, dated as of July 28, 1999, by and among National Golf Properties, Inc.,
National Golf Operating Partnership, L.P. and the unit holders named therein (incorporated by reference to Exhibit 10.2 to the Companys Quarterly Report on Form 10-Q for the period ended June 30, 1999)10.45

Contribution Agreement, dated as of March 4, 1998, between Belair Capital Fund LLC, National Golf Operating Partnership, L.P. and
National Golf Properties, Inc. (incorporated by reference to Exhibit 10.3 to the Companys Current Report on Form 8-K dated March 4, 1998)10.46

Contribution Agreement, dated as of April 20, 1998, between Belair Capital Fund LLC, National Golf Operating Partnership, L.P.
and National Golf Properties, Inc. (incorporated by reference to Exhibit 10.3 to the Companys Quarterly Report on Form 10-Q for the period ended March 31, 1998)




69




---

10.47

Contribution Agreement, dated as of July 28, 1999, between Belcrest Realty Corporation, Belair Real Estate Corporation, National
Golf Operating Partnership, L.P. and National Golf Properties, Inc. (incorporated by reference to Exhibit 10.3 to the Companys Quarterly Report on Form 10-Q for the period ended June 30, 1999)10.48

Loan Agreement between The Badlands Golf Club, Inc. and National Golf Operating Partnership, L.P. dated as of August 18, 1998
(incorporated by reference to Exhibit 10.45 to the Companys Annual Report on Form 10-K dated March 31, 1999)10.49

Senior Secured Participating Promissory Note made and entered into as of August 18, 1998, between National Golf Operating
Partnership, L.P. and The Badlands Golf Club, Inc. (incorporated by reference to Exhibit 10.46 to the Companys Annual Report on Form 10-K dated March 31, 1999)10.50

First Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing relating to the Senior Secured Participating
Promissory Note made and entered into as of August 18, 1998, by and among The Badlands Golf Club, Inc. and National Golf Operating Partnership, L.P. (incorporated by reference to Exhibit 10.47 to the Companys Annual Report on Form 10-K dated
March 31, 1999)10.51

Asset Purchase Agreement dated as of March 30, 1999 by and among National Golf Properties, Inc., National Golf Operating
Partnership, L.P., American Golf Corporation and Golf Acquisitions, L.L.C. (incorporated by reference to Exhibit 2.1 to the Companys Current Report on Form 8-K filed on April 15, 1999)10.52

Forbearance Agreement dated as of February 8, 2002, among the registrant, National Golf Operating Partnership, L.P., Bank One, NA
and certain lenders identified therein (incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K dated February 14, 2002)10.53

Amendment and Extension of Forbearance Agreement dated as of March 29, 2002, among the registrant, National Golf Operating
Partnership, L.P., Bank One, NA and the lenders identified therein (incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K dated April 1, 2002)21.1

List of Subsidiaries of National Golf Properties, Inc. (incorporated by reference to Exhibit 22.1 to the Companys Report on
Form 8-B dated December 29, 1995)23.1(1)

Consent of Independent Accountants


---

|* |  | Management contract or compensatory plan or arrangement.
|- |  | --------------------------------------------------------




|(1) |  | Filed herewith.
|--- |  | ---------------



70




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Page No(b)

Reports on Form 8-K filed during the Last QuarterOn November 15, 2001, the Company filed a report on Form 8-K, which reported under Item 5 the issuance of a press release containing financial
information for the third quarter and guidance for fiscal year 2001. The press release was filed as an exhibit to the Form 8-K.  On December 14, 2001, the Company filed a report on Form 8-K, which reported under Item 5 the issuance of a press release announcing that its Board of Directors appointed Charles S. Paul to serve as Chairman of its Independent
Committee, replacing Richard A. Archer in the role. The Board of Directors also elected Mr. Paul to serve on interim basis as the Chief Executive Officer of the Company. Mr. Paul will be responsible for all activities of the Company related to its
previously announced intention to evaluate restructuring alternatives. The Company also announced certain changes in its Board of Directors. The press release was filed as an exhibit to the Form 8-K.  On December 20, 2001, the Company filed a report on Form 8-K, which reported under Item 5 the issuance of a press release announcing that the
Independent Committee of its Board of Directors has engaged Lazard Freres & Co. to act as its financial advisor and Watchell, Lipton, Rosen & Katz to act as its legal advisor in connection with the Companys previous announced intention
to evaluate restructuring alternatives. The press release was filed as an exhibit to the Form 8-K.  On February 8, 2002, the
Company filed a report on Form 8-K, which reported under Item 5 the issuance of a press release containing information on the Companys restructuring efforts, the announcement of a forbearance agreement with certain of its lenders on account of
defaults under its $300 million unsecured credit facility. Additionally, the Company announced that it was suspending dividend payments on its Common Stock and National Golf Operating Partnership, L.P. announced that it was suspending distributions
to its common and preferred equity holders. The press release was filed as an exhibit to the Form 8-K.  On February 14, 2002, the
Company filed a report on Form 8-K, which reported under Item 5 the issuance of press releases on February 13, 2002 and February 8, 2002. The February 13, 2002 press release announced that the Company had executed a letter of intent to enter into a
business combination with its primary tenant, American Golf Corporation (AGC) and certain of AGCs affiliates, including, among others, Golf Enterprises, Inc. and European Golf, LLC. The February 8, 2002 press release announced
that the Company had reached a forbearance agreement with certain of its lenders on account of defaults under its $300,000,000 unsecured credit facility. The February 13, 2002 press release, Letter of Intent, and Forbearance Agreement were filed as
exhibits to the Form 8-K.  On April 1, 2002, the Company filed a report on Form 8-K, which reported under item 5 the issuance of
a press release announcing that the Company had entered into a definitive merger and reorganization agreement with AGC and certain of its affiliates, including Golf Enterprises, Inc. and European Golf, LLC. In addition, the press release announced
that the Company had on March 29, 2002 entered into an agreement with certain of its lenders on account of defaults under its $300,000,000 unsecured credit facility, extending the term of the existing forbearance agreement with these lenders
until April 30, 2002 and extending the maturity of the revolver portion of the facility from March 29, 2002 until April 30, 2002. The press release, merger and reorganization agreement and forbearance extension agreement were filed as exhibits to
the Form 8-K.




71




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Page No(c)

Additional Information Regarding American Golf Corporation and SubsidiariesAnalysis of American Golf Corporations Financial Information

73American Golf Corporations Consolidated Financial StatementsReport of Independent Accountants

76Consolidated Balance Sheets as of December 31, 2001 and 2000

77Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended December 31, 2001, 2000 and
1999

78Consolidated Statements of Shareholders Equity (Deficit) for the years ended December 31, 2001, 2000 and 1999

79Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999

80Notes to Consolidated Financial Statements

81




72




---




ANALYSIS OF AMERICAN GOLF CORPORATIONS FINANCIAL INFORMATION





Overview





The following Analysis of American Golf
Corporations Financial Information should be read in conjunction with the accompanying Consolidated Financial Statements and Notes thereto of American Golf Corporation and Subsidiaries (the Company). The forward-looking statements
included in this Analysis of American Golf Corporations Financial Information relating to certain matters involve risks and uncertainties, including anticipated financial performance, business prospects, anticipated capital expenditures and
other similar matters, which reflect managements best judgement based on factors currently known. Actual results and experience could differ materially from the anticipated results or other expectations expressed in the Companys
forward-looking statements as a result of a number of factors, including but not limited to those discussed in the Analysis of American Golf Corporations Financial Information.





The discussion of the results of operations compares the year ended December 31, 2001 with the year ended December 31, 2000 and the year ended December 31, 2000 with the year ended
December 31, 1999.





Results of Operations





Comparison of the year ended December 31, 2001 to the year ended December 31, 2000.





The
following table compares the Companys operating income for the years ended December 31, 2001 and 2000.





Revenues

2001


2000

Variance


%(In thousands)Green fees

$
235,508


$
252,750

$
(17,242
)

6.8
%Cart rentals


77,296



78,152


(856
)

1.1
%Member dues and initiation fees


148,941



140,419


8,522


6.1
%Food & beverage sales


146,749



150,026


(3,277
)

2.2
%Merchandise sales


61,110



63,066


(1,956
)

3.1
%Other revenue


52,889



54,813


(1,924
)

3.5
%Management fees


8,335



7,122


1,213


17.0
%Total revenues


730,828



746,348


(15,520
)

2.1
%Costs and expensesPayroll and related expenses

$
263,327


$
256,888

$
6,439


2.5
%Cost of food and beverage sold


45,977



46,192


(215
)

0.5
%Cost of merchandise sold


36,145



36,536


(391
)

1.1
%General and administrative


62,510



60,611


1,899


3.1
%Repairs and maintenance


22,373



19,644


2,729


13.9
%Other operating expenses


135,526



126,333


9,193


7.3
%Rents


187,103



182,114


4,989


2.7
%Depreciation and amortization


15,567



14,818


749


5.1
%Loss on disposal and impairment of property and equipment


21,085






21,085Total costs and expenses


789,613



743,136


46,477


6.3
%Operating income (loss)

$
(58,785
)

$
3,212

$
(61,997
)





Total revenues from golf course operations and management agreements for the
Company decreased by $15.5 million, or 2.1%, to $730.8 million during the year ended December 31, 2001 as compared to $746.3 million for the year ended December 31, 2000. Course level revenues declined due to poor weather in certain
regions, softening in the economy and increased competition in certain markets. The portfolio was also adversely affected by the terrorist attacks on September 11, 2001, particularly courses in destination travel markets such as Las Vegas and
Phoenix. Additionally, the Company sold or terminated 21 golf course leases and management agreements and acquired 6 new leases and one management agreement. The revenue decreases were mitigated by a $8.5 million, or 6.1%, increase in member dues
and initiation fees, resulting from scheduled dues increases and the acquisition of two private country clubs.




73




---




Total operating expenses increased by $46.5 million, or 6.3%, to $789.6 million for the year
ended December 31, 2001 as compared to $743.1 million for the year ended December 31, 2000. This increase includes $21.1 million attributable to non-cash charges for the loss on disposal or termination of golf course leases and the impairment of
property and equipment. Other operating expenses increased by $9.2 million, or 7.3%, primarily due to increases in utilities, equipment leases and use taxes (increases of $2.5 million, $2.2 million and $1.7 million, respectively). Payroll and
related expenses increased by $6.4 million, or 2.5%, as a result of normal increases in payroll and related expenses offset in part by workforce reductions during 2001. Rents increased by $5.0 million or 2.7% primarily due to contractual escalations
that were partially offset by decreased revenue-dependent percentage rent and leases terminated during 2001.





The operating loss
of $58.8 million for the year ended December 31, 2001 represents a $62.0 million decrease from operating income of $3.2 million for the corresponding twelve months of 2000. The Companys operating loss and gross revenues in the year ended
December 31, 2001, particularly green fee revenue and initiation fee revenue from membership sales, were adversely impacted by inclement weather, weakening economic conditions, and increased supply of golf courses and lagging demand. Poor weather
conditions in California, Las Vegas and Phoenix during the first quarter and in the Midwest during the second quarter contributed to the decline in green fee revenue. The softening economy adversely impacted greens fees at high-end daily fee
courses, membership sales at private country clubs, and tournament revenues. In addition, the development and opening of 1,300 new golf courses from 1999 through 2001 also resulted in a reduction in rounds played at the Companys courses.





The terrorist attacks on September 11, and related military actions created additional uncertainty in the state of the overall
U.S. economy. As a result, the Companys operating performance continued to decline through the 4th quarter of 2001, particularly in membership and group sales in destination and resort markets. There can be no assurance that the economic
and political climate will fully recover in the near future, and the longer-term consequences from these events are not yet fully known.





Comparison of the year ended December 31, 2000 to the year ended December 31, 1999.





The following table
compares the Companys operating income for the years ended December 31, 2000 and 1999.





Revenues

2000

1999

Variance


%(In thousands)Green fees

$
252,750

$
242,998

$
9,752


4.0
%Cart rentals


78,152


75,711


2,441


3.2
%Member dues and initiation fees


140,419


126,312


14,107


11.2
%Food & beverage sales


150,026


134,092


15,934


11.9
%Merchandise sales


63,066


58,281


4,785


8.2
%Other revenue


54,813


52,473


2,340


4.5
%Management fees


7,122


7,708


(586
)

7.6
%Total revenues


746,348


697,575


48,773


7.0
%Costs and expensesPayroll and related expenses

$
256,888

$
240,179

$
16,709


7.0
%Cost of food and beverage sold


46,192


41,573


4,619


11.1
%Cost of merchandise sold


36,536


34,652


1,884


5.4
%General and administrative


60,611


52,232


8,379


16.0
%Repairs and maintenance


19,644


21,888


(2,244
)

10.3
%Other operating expenses


126,333


115,843


10,490


9.1
%Rents


182,114


164,406


17,708


10.8
%Depreciation and amortization


14,818


14,858


(40
)

0.3
%Total costs and expenses


743,136


685,631


57,505


8.4
%Operating income (loss)

$
3,212

$
11,944

$
(8,732
)

73.1
%




74




---

Total revenues from golf course operations and management agreements for the Company increased by $48.8 million, or 7.0%, to
$746.3 million for the year ended December 31, 2000 as compared to $697.6 million for the prior year. The increase in revenues is primarily attributable to a full twelve months of revenues in 2000 related to the acquisition of 23 leased courses on
March 31, 1999, plus additional revenues related to a net increase of 16 other courses acquired throughout 1999 and 2000.





Total
operating expenses increased by $57.5 million, or 8.4%, to $743.1 million for the year ended December 31, 2000 as compared to $685.6 million for the year ended December 31, 1999. These expenses increased primarily due to the addition of the new
courses noted above.





Operating income decreased by $8.7 million to $3.2 million for the year ended December 31, 2000, from
$11.9 million for the year ended December 31, 1999. This decrease is principally a result of unfavorable weather conditions during 2000 as compared to 1999 in the northeastern portion of the United States, Texas and the United Kingdom.





Liquidity and Capital Resources





Two of American Golf Corporations (AGC) debt instruments require AGC to maintain certain fixed charge coverage ratios and to comply with certain other financial tests. For the quarters ended June 30, 2001, September 30,
2001 and December 31, 2001, AGC had not achieved such fixed charge coverage ratios and also was not in compliance with certain provisions of AGCs debt instruments. On March 8, 2002, AGC entered into a forbearance agreement with one lender
under its credit facility, which remained in effect through March 29, 2002. Under the terms of the forbearance agreement, AGC repaid $1,862,000 of the principal balance. Additionally, the revolving credit facility was permanently reduced from
$50,000,000 to $48,134,000 and the interest rate was increased to prime plus one percent plus a three percent default rate. AGC is in discussions with the lenders under each of the debt instruments regarding the aforementioned defaults and
non-compliance. There can be no assurance as to the outcome of these discussions.





In addition to the two debt instruments
referred to above, certain equipment operating leases of AGC and debt instruments of an AGC subsidiary contain cross-default provisions pursuant to which a default under one instrument may cause a default under one or more other instruments. As of
December 31, 2001, the outstanding balances of such debt instruments for the Company was $13,833,000.





If the default or
cross-default provisions are enforced by the Companys lenders, the Company could experience a material adverse effect on its financial condition. Such enforcement against the Company, could have a material adverse effect on the Companys
financial condition. There can be no assurance that the Company will be able to meet the financial tests or fixed charge coverage ratio provisions as of the end of future quarters or that the Companys lenders will grant waivers of any
inability of the Company to meet these provisions or any cross-default occurring as a result of such provisions.





The Company is
required to maintain performance bonds under certain third-party agreements, as requested by certain utility providers, and under the rules and regulations of licensing authorities and other governmental agencies. The Company has received
cancellation notices with respect to performance bonds affecting third-party contracts, agreements with utility providers and licenses at certain of its managed facilities and has been notified that cancellation notices with respect to other
performance bonds will be issued unless the Company posts collateral securing the obligations covered by the performance bonds. The Companys failure to replace or maintain required performance bonds may result in the Companys
noncompliance under such agreements.





The Company experienced declining course-level revenues during the year ended December 31,
2001 due to poor weather, general economic conditions and increased competition. The portfolio was also adversely affected by the terrorist attacks on September 11, 2001, particularly courses in destination travel markets such as Las Vegas and
Phoenix. These events along with the lack of borrowing available under its credit facility have resulted in AGCs inability to fully satisfy its rental obligations to National Golf Operating Partnership, L.P. since January 2002. As of March 19,
2002, the Company has paid approximately $8,900,000 and owes approximately $17,500,000 of rent to National Golf Operating Partnership, L.P. for the period January 1, 2002 through March 31, 2002.




75




---




REPORT OF INDEPENDENT ACCOUNTANTS





To the Board of Directors of


American Golf Corporation and Subsidiaries





In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations and comprehensive income (loss), shareholders equity (deficit)
and cash flows present fairly, in all material respects, the financial position of American Golf Corporation and Subsidiaries (the Company) at December 31, 2001 and 2000, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Companys management; our
responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we
plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.





As discussed in Note 1 to the accompanying consolidated financial statements, the Company has restated its financial statements for the years
ended December 31, 2000 and 1999.





As discussed in Note 16 to the accompanying consolidated financial statements, the Company
and certain of its affiliates have signed an agreement to enter into a business combination with National Golf Properties, Inc.





The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company is having difficulty with its
liquidity, has defaulted on its revolving credit facility and private placement notes as a result of not meeting certain financial covenants, and has defaulted on certain lease payments due to National Golf Operating Partnership, L.P. At December
31, 2001, the Companys current liabilities exceeded its current assets by $149,514,000. For the year ended December 31, 2001, the Company incurred a net loss of $60,428,000 and had negative cash flow from operations of $18,048,000. The
Companys losses from operations and inadequate cash flow to meet its debt and lease obligations raise substantial doubt about its ability to continue as a going concern. Managements plans in regard to these matters are also described in
Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.





PRICEWATERHOUSECOOPERS LLP





Los Angeles, California


March
29, 2002




76




---

AMERICAN GOLF CORPORATION AND SUBSIDIARIES





CONSOLIDATED BALANCE SHEETS


(In thousands, except share data)





December 31,2001


2000RestatedASSETSCurrent assets:Cash and cash equivalents

$
12,390


$
341Accounts receivablemembers (less allowance for doubtful accounts of $1,965 and $1,757 in 2001 and 2000,
respectively)


24,526



27,138Other receivables


11,051



13,183Receivables from affiliates, net






27,146Inventories


18,166



19,122Prepaid expenses


13,051



9,481Total current assets


79,184



96,411Property, equipment and capital leases, net


100,485



123,395Leasehold rights


18,182



18,460Deposits, licenses and other assets


9,994



10,965Notes receivable from shareholders and affiliates


62,309



26,320Total assets

$
270,154


$
275,551LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)Current liabilities:Accounts payable

$
15,882


$
17,479Notes payablecurrent portion:Shareholders


43



39Capital leases


864



1,545Other


98,089



7,848Accrued expenses


47,668



39,891Other liabilities


20,297



17,064Payables to affiliates, net


151



Other deferred revenue


25,660



19,469Deferred initiation fee revenue


20,044



18,963Total current liabilities


228,698



122,298Notes payablelong-term portion:Shareholders


270



313Capital leases


258



1,141Other






53,359Accrued expenses


50,063



48,568Deferred initiation fee revenue


49,294



49,916Total liabilities


328,583



275,595Minority interest


211



158Commitments and contingencies (Notes 9 and 12)Shareholders equity (deficit):Common stockno par value; 10,000,000 shares authorized; 6,629,585 and 6,280,917 shares outstanding at December 31, 2001 and
2000, respectively






Retained earnings (deficit)


(57,652
)


2,776Notes receivable from shareholders


(680
)


(2,564
)Cumulative foreign currency translation adjustment


(308
)


(414
)Total shareholders equity (deficit)


(58,640
)


(202
)Total liabilities and shareholders equity (deficit)

$
270,154


$
275,551


The accompanying notes are an integral part of these consolidated financial statements.




77




---




AMERICAN GOLF CORPORATION AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)


(In thousands)





For The Years Ended December 31,2001


2000


1999Restated


RestatedRevenues:Green fees

$
235,508


$
252,750


$
242,998Cart rentals


77,296



78,152



75,711Member dues and initiation fees


148,941



140,419



126,312Food and beverage sales


146,749



150,026



134,092Merchandise sales


61,110



63,066



58,281Other revenue


52,889



54,813



52,473Management fees


8,335



7,122



7,708Total revenues


730,828



746,348



697,575Costs & expenses:Payroll and related expenses


263,327



256,888



240,179Cost of food and beverage sold


45,977



46,192



41,573Cost of merchandise sold


36,145



36,536



34,652General and administrative


62,510



60,611



52,232Repairs and maintenance


22,373



19,644



21,888Other operating expenses


135,526



126,333



115,843Rents


187,103



182,114



164,406Depreciation and amortization


15,567



14,818



14,858Loss on disposal and impairment of property and equipment


21,085







Total costs & expenses


789,613



743,136



685,631Operating income (loss)


(58,785
)


3,212



11,944Other income (expense):Interest income


6,164



6,155



4,765Interest expense


(8,503
)


(9,835
)


(9,103
)Income (loss) before state income taxes and minority interest


(61,124
)


(468
)


7,606State income tax benefit (provision)


844



(41
)


(1,245
)Income (loss) before minority interest


(60,280
)


(509
)


6,361Minority interest


(148
)


231



(675
)Net income (loss)


(60,428
)


(278
)


5,686Other comprehensive income (loss):Foreign currency translation adjustment


106



(142
)


(228
)Comprehensive income (loss)

$
(60,322
)

$
(420
)

$
5,458





The accompanying notes are an integral part of these consolidated financial statements.




78




---

AMERICAN GOLF CORPORATION AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (DEFICIT)


(In thousands)





Common Stock


Retained Earnings (Deficit)


Notes Receivable From Officers/Directors


Cumulative Foreign Currency Translation Adjustment


Total Shareholders Equity (Deficit)Shares


AmountBalances, December 31, 1998 (restated)

6,295


$



$
7,990


$
(5,576
)

$
(44
)

$
2,370Net income









5,686











5,686Dividends









(8,000
)










(8,000
)Exercise of stock options

18



390















390Foreign currency translation adjustment

















(228
)


(228
)Balances, December 31, 1999 (restated)

6,313



390



5,676



(5,576
)


(272
)


218Net loss









(278
)










(278
)Purchase of shares from shareholders

(32
)


(390
)


(2,622
)


3,012







Foreign currency translation adjustment

















(142
)


(142
)Balances, December 31, 2000 (restated)

6,281







2,776



(2,564
)


(414
)


(202
)Net loss









(60,428
)










(60,428
)Issuance of shares

349



















Reduction of shareholder notes













1,884







1,884Foreign currency translation adjustment

















106



106Balances, December 31, 2001

6,630






$
(57,652
)

$
(680
)

$
(308
)

$
(58,640
)








The accompanying notes are an integral part of
these consolidated financial statements.




79




---




AMERICAN GOLF CORPORATION AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF CASH FLOWS


(In thousands)





For The Years Ended December 31,2001


2000


1999Restated


RestatedCash flows from operating activities:Net income (loss)

$
(60,428
)

$
(278
)

$
5,686Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:Depreciation and amortization


15,567



14,818



14,858Minority interest


148



(231
)


675Loss on disposal and impairment of property and equipment


21,085







Loss from writedown of receivables from affiliates


2,107







Loss on reduction of shareholder notes


1,884







Increase (decrease) from changes in:Accounts receivablemembers


2,584



(2,243
)


(2,326
)Other receivables


2,127



23,510



(10,153
)Receivables/payables from/to affiliates, net


(19,232
)


(13,082
)


(1,679
)Inventories


915



(1,956
)


(2,622
)Prepaid expenses


(3,720
)


(3,684
)


2,523Licenses, deposits and other assets


959



1,551



(2,395
)Accounts payable


(1,542
)


4,529



2,304Accrued expenses


9,478



2,573



11,180Other liabilities


3,324



4,613



2,689Other deferred revenue


6,243



8,326



(316
)Deferred initiation fee revenue


453



10,490



8,442Net cash provided by (used in) operating activities


(18,048
)


48,936



28,866Cash flows from investing activities:Acquisition of property and equipment


(13,273
)


(19,549
)


(24,130
)Acquisition of leasehold rights


(1,081
)


(1,129
)


(2,764
)Proceeds from notes receivable from shareholders and affiliates


8,689



2,219



461Net cash used in investing activities


(5,665
)


(18,459
)


(26,433
)Cash flows from financing activities:Proceeds from notes payable:Capital leases






27



2,213Other


131,450



109,657



78,386Payments on notes payable:Shareholders


(39
)


(36
)


(34
)Capital leases


(1,513
)


(2,991
)


(3,547
)Other


(94,033
)


(139,774
)


(69,287
)Exercise of stock options










390Dividends paid










(8,000
)Limited partner cash distributions


(95
)


(371
)


(418
)Net cash provided by (used in) financing activities


35,770



(33,488
)


(297
)Effect of exchange rate changes on cash and cash equivalents


(8
)


(184
)


(53
)Net increase (decrease) in cash and cash equivalents


12,049



(3,195
)


2,083Cash and cash equivalents, beginning of year


341



3,536



1,453Cash and cash equivalents, end of year

$
12,390


$
341


$
3,536





The accompanying notes are an integral part of these consolidated financial
statements.




80




---




AMERICAN GOLF CORPORATION AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





(1)    Organization
and Summary of Significant Accounting Policies:





Organization





The consolidated financial statements include the accounts of American Golf Corporation (AGC), a California subchapter S Corporation, and its majority-owned
subsidiaries, American Golf of Atlanta (Atlanta), a Georgia general partnership, American Golf of Detroit (Detroit), a Michigan general partnership, American Golf (UK) Limited (AG(UK)), a United Kingdom limited
liability company, CW Golf Partners (CWP), a California limited partnership, AGC-Park Hill Joint Venture (Park Hill), a Colorado general partnership, American Golf Australia Pty Limited (AG(AUS)), an Australia
limited liability company, American Golf Los Coyotes LLC (AGLC), a California limited liability company and AM Golf Corporation (AM Golf), a Texas Corporation. AGC was formed in 1973 for the purpose of operating public and
private golf and tennis facilities on leased premises. At December 31, 2001 and 2000, 73% and 71%, respectively, of AGC was owned by David G. Price and Dallas P. Price (The Prices). The following table lists AGCs
majority-owned subsidiaries and selected information:





Entity

Formation Date

AGC Ownership

PurposeAtlanta

June 1986

65%

To operate four courses in Atlanta, Georgia.Detroit

December 1990

80%

To operate four courses in Detroit, Michigan.AG(UK)

August 1993

75%

To operate courses in the United Kingdom.CWP

September 1993

75%

To operate one course in Los Angeles, California.Park Hill

December 1998

75%

To operate one course in Denver, Colorado.AG(AUS)

July 2000

100%

To operate courses in Australia.AGLC

June 2001

100%

To operate one course in Buena Park, California.AM Golf

October 1984

100%

To hold Texas liquor licenses





The remaining 25% interest in AG(UK) is owned by European Golf Corporation, which
in turn is wholly owned by The Prices.





The term affiliate, as used in these financial statements, refers to any
entity in which The Prices have a controlling interest.





At December 31, 2001, the Company leases 133 golf courses in which
National Golf Properties, Inc. and National Golf Operating Partnership, L.P. (collectively NGP) have an ownership or mortgage interest. David G. Price, Chairman of the Board of Directors of National Golf Properties, Inc. owns 2.7%
of National Golf Properties, Inc.s outstanding stock and 16.6% of the common units of National Golf Operating Partnership, L.P. (NGOP). Dallas P. Price owns 2.7% of National Golf Properties, Inc.s outstanding stock and 14.2%
of the common units of NGOP.





On March 31, 1999, Golf Acquisitions, LLC (Golf Acquisitions), a limited liability
company formed by a subsidiary of AGC and a subsidiary of ClubCorp International (ClubCorp), purchased the Meditrust Corporation (Meditrust) subsidiaries comprising the Cobblestone Golf Group for approximately
$391.3 million in cash and assumed debt. Upon the closing of the stock purchase, AGC and ClubCorp divided the Cobblestone portfolio of 48 golf courses with AGC allocated 24 owned, leased and managed golf courses. Concurrently with closing its
purchase, the Company and Golf Acquisitions sold to NGP its interest in 20 of the golf courses. The Company entered into agreements to lease or sublease 18 of the Cobblestone courses from NGP.




81




---



AMERICAN GOLF CORPORATION AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)







On February 14, 2000, AGC entered into a letter of intent with Book4golf.com
Corporation (Book4golf) to become the Companys exclusive internet tee-time provider. The letter of intent provided for the immediate payment of $400,000 and delivery of 150,000 common shares of Book4golf to AGC. On December 22,
2000, AGC and an affiliate entered into a stock agreement and a five-year license and service agreement with Book4golf. The stock agreement provided for the immediate payment of $575,000 with an additional $1,250,000 paid to AGC during 2001. In
addition, 2,500,000 shares of Book4golf were delivered with the signing of the stock agreement. The 2,500,000 shares received and any additional contingent shares that AGC may receive pursuant to the stock agreement are subject to certain
restrictions that limit AGCs ability to sell or otherwise dispose of the shares. The restrictions on the shares expire at various dates through 2005. The stock agreement represents consideration for AGC entering into the license and service
agreement and makes Book4golf the Companys exclusive internet tee-time provider. The revenue from the stock agreement is being recognized on a straight-line basis over the life of the license and service agreement.





Principles of Consolidation





All material intercompany transactions and balances have been eliminated in consolidation.





Use of Estimates





The preparation of financial statements in conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those estimates.





Inventories





Inventories are stated at the lower of cost (using the first-in, first-out method) or market. Inventories consist primarily of food,
beverage, golf and tennis equipment, and clothing and accessories.





Revenue Recognition





Revenue from green fees, cart rentals, food and beverage sales, merchandise sales and range income are generally recognized at the time of sale.





Revenue from membership dues are generally billed monthly and recognized in the month earned. The monthly dues are structured
to cover the club operating costs and membership services. Initiation fees are generally refundable in 30 years. Accordingly, the difference between the amount of the fees and the net present value of the future obligation is recognized as revenue
on a straight-line basis over the estimated average life of active membership (currently 6 years), unless uncertainty surrounding collectibility exists for initiation fees paid either on terms or on an installment basis. In addition, related
incremental direct costs (primarily commissions and percentage rent) are recorded in the same manner as the revenues are recognized.





The initiation fee deposit liability accretes over 30 years using the interest method. The accretion is recorded to interest expense in the accompanying consolidated statements of operations and comprehensive income (loss). At December 31,
2001, there are no initiation fee deposits that are contractually due and payable during the next five years.





Property,
Equipment, Capital Leases and Leasehold Rights





Property, equipment and leasehold rights are carried at the lower of cost or
net realizable value. Property and equipment under capital leases are stated at the lower of the present value of the future minimum lease payments at the beginning of the lease term or the fair value at the inception of the lease.




82




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AMERICAN GOLF CORPORATION AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)







Depreciation of property and equipment is computed using the straight-line method
over the lesser of the estimated useful life of the asset (3 to 30 years) or the remaining term of the lease. Property and equipment held under capital leases and leasehold rights are amortized using the straight-line method over the lesser of the
lease term or the estimated useful life of the asset.





When property and equipment are sold or otherwise disposed of, the asset
account and related accumulated depreciation and amortization account are relieved, and any gain or loss is included in operations. Expenditures for maintenance and repairs are charged to operations. Significant expenditures which extend the useful
life of existing assets are capitalized.





Capitalized Interest





The company capitalizes interest expense during the period of new construction or upgrade of qualifying assets. The Company capitalized interest of approximately $677,000 and $566,000
for the years ended December 31, 2001 and 2000, respectively. No interest was capitalized for the year ended December 31, 1999.





Operating Leases and Restatement





The Company leases substantially all of its golf courses and related
facilities under long-term operating leases. In addition to minimum payments, certain leases require payment of the excess of various percentages of gross revenue or net operating income over the minimum rental payments. The leases generally require
the Company to pay taxes assessed against the leased property and the cost of insurance and maintenance. The majority of lease terms range from 10 to 20 years. Substantially all of the leases contain renewal options. Certain leases include minimum
scheduled increases in rental payments at various times during the term of the lease. These scheduled rent increases are required to be recognized on a straight-line basis over the term of the lease.





In March 2002, the Company determined that it had not consistently recognized the minimum scheduled rent increases on certain operating leases on a
straight-line basis over the term of the respective leases. Accordingly, the financial statements for the years ended December 31, 2000 and 1999 in addition to the ending balance in retained earnings at December 31, 1998 have been restated to
recognize the minimum scheduled rent increases on a straight-line basis for those leases which had not previously been accounted for on such basis.





The following is a summary of the impact of the restatement:





For the Years Ended December 31,2000

1999(In thousands)Total rentsas reported

$
179,703

$
161,436Total rentsas restated

$
182,114

$
164,406Net income (loss)as reported

$
2,133

$
8,656Net income (loss)as restated

$
(278)

$
5,686





In addition, the above restatement resulted in a decrease in retained earnings of
$16,386,000, $13,975,000 and $11,005,000 at December 31, 2000, 1999 and 1998, respectively.




83




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AMERICAN GOLF CORPORATION AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)







Impairment of Long-Lived and Intangible Assets





The Company follows the provisions of Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. SFAS No. 121 requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. Certain long-lived assets and certain identifiable intangibles to be disposed of must be reported at the lower of carrying amount or fair value less cost to sell.
The Company periodically assesses whether there has been an impairment in the value of long-lived assets and certain identifiable intangibles by considering factors such as expected future operating income, trends and prospects, as well as the
effects of demand, competition and other economic factors. The Company determines whether there has been impairment by comparing the expected undiscounted future cash flow from each golf course with the net carrying value for such golf course,
including any related intangible asset.





As a result of operating losses and negative cash flows at certain golf courses and the
planned sale of golf courses by NGP, the Company recognized an impairment loss of $16,141,000 during the year ended December 31, 2001. The following is a summary of the Loss on disposal and impairment of property and equipment
recorded during the year ended December 31, 2001:





Amount(In thousands)Write-down to net realizable value of long-lived assets at 29 golf courses held for sale by NGP

$
6,056Write-down of long-lived assets at 30 golf courses held for use


10,085Loss on disposal of 17 golf course leases and related property and equipment


4,944Total loss on disposal and impairment of property and equipment

$
21,085





The impaired long-lived assets include buildings, maintenance equipment, and golf
course improvements.





In October 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets. This statement supercedes SFAS No. 121 and requires that long-lived assets that are to be disposed of by sale be measured at the lower of book value or fair value
less costs to sell. SFAS No. 144 retains the fundamental provisions of SFAS No. 121 for (a) recognition and measurement of the impairment of long-lived assets to be held and used and (b) measurement of long-lived assets to be disposed of by
sale, but broadens the definition of what constitutes a discontinued operation and how the results of a discontinued operation are to be measured and presented. This statement will be effective at the beginning of 2002. The Company is currently
assessing, but has not yet determined, the impact that adoption of this statement will have on its financial statements.





Stock-Based Employee Compensation Awards





The Company has adopted the disclosure requirements of SFAS No. 123,
Accounting for Stock-Based Compensation, that involves proforma disclosure of net income (loss) under SFAS No. 123 and detailed descriptions of plan terms and assumptions used in valuing stock option grants. The Company has chosen to
continue to account for stock-based employee compensation awards in accordance with Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees.





Concentration of Credit Risk





Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of cash and cash equivalents, trade receivables and receivables from shareholders and affiliates.




84




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AMERICAN GOLF CORPORATION AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)







The Company has cash in financial institutions which is insured by the Federal
Deposit Insurance Corporation (FDIC) up to $100,000 per account. At various times throughout the year and as of December 31, 2001, the Company had cash in financial institutions which was in excess of the FDIC insurance limit.





Concentration of credit risk with respect to trade receivables, which consists primarily of membership dues and charges, is
limited due to the large number of club members comprising the Companys customer base, and their dispersion across many different geographic areas. The trade receivables are billed and due monthly, and all probable bad debt losses have been
appropriately considered in establishing an allowance for doubtful accounts.





The receivables from shareholders and affiliates
are concentrated with The Prices and from an affiliated company which is wholly owned by The Prices. The collectibility of such amounts is dependent upon the outcome of the matters discussed in Note 2.





Fair Value of Financial Instruments





To meet the reporting requirements of SFAS No. 107, Disclosures about Fair Value of Financial Instruments, the Company calculates the fair value of financial instruments and includes this additional
information in the notes to the consolidated financial statements when the fair value is materially different than the carrying value of those financial instruments. When the fair value reasonably approximates the carrying value, no additional
disclosure is made. The Company uses quoted market prices, when available, or discounted cash flows to calculate these fair values.





Cash and Cash Equivalents





The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.





Advertising





The Company expenses advertising costs as incurred. Advertising costs were approximately $8,004,000, $8,551,000 and $7,667,000 for the years ended
December 31, 2001, 2000 and 1999, respectively.





Foreign Currency Translation





The Company translates foreign currency financial statements by translating balance sheet accounts at the year-end exchange rate and income statement
accounts at the average exchange rate for the year. Translation gains and losses are recorded in shareholders equity and comprehensive income (loss). Realized gains and losses are included in operations. Net foreign currency transaction losses
of approximately $733,000, $1,192,000 and $195,000 were recorded in other operating expenses during the years ended December 31, 2001, 2000 and 1999, respectively.





Accounting for Derivative Instruments and Hedging Activities





SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, establishes accounting and reporting standards for derivatives and hedging activities. SFAS No. 133 requires that all derivatives be
recognized as assets or liabilities in the balance sheet and that these instruments be measured at fair value through adjustments to either other comprehensive income (loss) or to current earnings, depending on the purpose for which the derivative
is held. The Company has not engaged in hedging activities or purchased




85




---



AMERICAN GOLF CORPORATION AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)




derivative instruments; accordingly, the adoption on January 1, 2001 of SFAS No. 133 did not have an impact on either the financial position or results of operations of the Company.





Reclassifications





Certain amounts in the December 31, 2000 and 1999 consolidated financial statements have been reclassified to conform to the current year presentation.





New Accounting Pronouncements





In July 2001, the
FASB issued SFAS No. 141, BusinessCombinations, which supercedes APB Opinion No. 16, BusinessCombinations. This statement requires that all business combinations be accounted for by the purchase
method and establishes specific criteria for the recognition of intangible assets separately from goodwill. The statement also requires unallocated negative goodwill to be written off immediately as an extraordinary gain. The provisions of the
statement apply to business combinations initiated after June 30, 2001. For business combinations accounted for using the purchase method before July 1, 2001, the provisions of this statement will be effective in the first quarter of 2002. The
adoption of this statement is not expected to have a significant impact on the Companys financial results.





In July 2001,
the FASB issued SFAS No. 142, Goodwill and Other Intangible Assets, which supercedes APB Opinion No. 17, Intangible Assets. This statement addresses the accounting and reporting of goodwill and other intangible
assets subsequent to their acquisition. The statement also provides specific guidance in testing goodwill and intangible assets for impairment. SFAS No. 142 provides that (i) goodwill and indefinite-lived intangible assets will no longer be
amortized, (ii) impairment will be measured using various valuation techniques based on discounted cash flow, (iii) goodwill will be tested for impairment at least annually at the reporting unit level, (iv) intangible assets deemed to have an
indefinite life will be tested for impairment at least annually and (v) intangible assets with finite lives will be amortized over their useful lives. Goodwill and intangible assets acquired after June 30, 2001 will be subject to the provisions of
this statement, which will be effective in the first quarter of 2002. The Company is currently assessing, but has not yet determined, the impact that adoption of this statement will have on its financial statements.





In August 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations, which addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This statement requires that the fair value of a liability for an asset retirement obligation be recognized in the
period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. All provisions of this statement will be effective at
the beginning of fiscal 2003. The Company is currently assessing, but has not yet determined, the impact that adoption of this statement will have on its financial statements.





(2)    Going Concern:





The accompanying consolidated financial
statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As discussed in Note 9, the Company has significant borrowings that require,
among other things, compliance with certain financial ratios and restrictions on indebtedness to others. During 2001, increased competition, contraction in the economy, unfavorable weather patterns and the national events of September 11 that
impacted most consumer businesses had an adverse impact on the Companys results. For the year ended December 31,




86




---



AMERICAN GOLF CORPORATION AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)




2001, the Company experienced a net loss of $60,428,000 and had negative cash flows from operations of $18,048,000. As a result, the Company was not in compliance with certain covenants under its
revolving credit facility and private placement notes. In addition, certain of the Companys equipment operating leases and debt instruments include cross-default provisions pursuant to which a default under one instrument may cause a default
under one or more other instruments. As of December 31, 2001, the outstanding balances of such debt instruments for the Company was approximately $13,833,000. If the default or cross-default provisions are enforced by the Companys lenders, the
Company could experience a material adverse effect on its financial condition and operations. There can be no assurances that the Company will be able to satisfy the financial and other covenants in its debt instruments in the future or that the
Companys lenders will grant waivers of the non-compliance with these provisions or any cross-default occurring as a result of such non-compliance. The covenant breaches put the Company into default on approximately $95,606,000 of outstanding
debt. Accordingly, the outstanding debt has been classified in current liabilities in the consolidated balance sheet at December 31, 2001.





These matters raise substantial doubt about the Companys ability to continue as a going concern. Accordingly, the consolidated financial statements included herein are subject to material uncertainties.
Management of the Company believes that the profitability of operations, positive cash flow and its continued existence is dependent upon several factors, including the completion of the pending business combination discussed in Note 16, obtaining
additional financing or equity, restructuring of the existing outstanding debt with its lenders, renegotiation of certain unprofitable leases including those with NGP if the business combination is not consummated, and a reduction in administrative
expenses. Although no assurances can be given, management believes that if the above actions result in a return to profitability and positive cash flow, together with a restructuring of the Companys outstanding debt and raising additional
equity, it will enable the Company to continue operating as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.





(3)    Receivables from Affiliates, net:





At December 31, 2000, the receivables from affiliates were noncollateralized and due within one year. During 2001, receivables from affiliates totaling approximately $44,678,000 were converted to interest bearing
notes receivable due in November 2010 (See Note 5). In addition, approximately $2,107,000 of receivables from affiliates were written off during 2001.





(4)    Property, Equipment, Capital Leases and Leasehold Rights:





Property, equipment and
capital leases consist of the following components:





Estimated Useful Lives (Years)

December 31,2001


2000(In thousands)Golf course improvements

1020

$
86,166


$
90,762Buildings

1530


47,442



48,374Furniture, fixtures, machinery and equipment

37


39,216



39,987Equipment under capital leases

37


14,056



12,149186,880



191,272Less: accumulated depreciation




(88,918
)


(77,576
)97,962



113,696Construction-in-progress




2,523



9,699$
100,485


$
123,395




87




---



AMERICAN GOLF CORPORATION AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)







Equipment under capital leases includes golf carts, turf and maintenance equipment,
computers, and other office equipment. At December 31, 2001 and 2000, accumulated depreciation on equipment under capital leases was $12,254,000 and $11,103,000, respectively.





At December 31, 2001 and 2000, accumulated amortization on leasehold rights was $6,533,000 and $5,618,000, respectively.





(5)    Notes Receivable from Shareholders and Affiliates:





Notes
receivable from shareholders and affiliates consist of the following components:





December 31,Type of Collateral

Interest Rate


Interest Payments

2001

2000

Maturity(In thousands)Noncollateralized promissory note

9.35
%

Semi-annually

$
22,587

$
26,320

7/2004Promissory note

4.13
%

Maturity


1,314




11/2010Promissory note

4.13
%

Maturity


4,181




11/2010Promissory note

4.13
%

Maturity


34,227




11/2010$
62,309

$
26,320





During 1996, the Company loaned $29,000,000 to The Prices. The note is
noncollateralized and is due in July 2004. The note bears interest at 9.35% that is payable semi-annually.





During 2001, the
Company converted approximately $10,451,000 of receivables from The Prices and approximately $34,227,000 in receivables from Golf Enterprises, Inc. (GEI), which is wholly owned by The Prices, into notes receivable. The notes are
noncollateralized and due in November 2010. The notes bear interest at 4.13% per annum. Any unpaid interest is added to the principal of the notes and becomes due at maturity. The Prices repaid $4,956,000 of the notes receivable balance and $44,000
of interest in December 2001.





(6)    State Income Taxes:





The Company has elected to be taxed as an S corporation under the Internal Revenue Code of 1986, as amended. Accordingly, corporate income is taxed directly to the shareholders for
federal income tax reporting purposes. The Company therefore has no provision in its consolidated financial statements for federal income taxes. The following are the components of the state income tax benefit (provision):





For the Years Ended December 31,2001


2000


1999(In thousands)Current

$
(100
)

$



$
Deferred


944



(41
)


(1,245
)State income tax benefit (provision)

$
844


$
(41
)

$
(1,245
)




88




---



AMERICAN GOLF CORPORATION AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)







(7)Accrued Expenses and Other Liabilities:





Accrued expenses and other liabilities consist of the following components:





December 31,2001

2000(In thousands)Accrued expenses:Current:Compensation and related costs

$
18,939

$
18,424Property taxes


6,090


6,343Rent


4,748


5,295Other


17,891


9,829$
47,668

$
39,891Long-Term:Member deposits

$
15,098

$
9,474Deferred rent


27,219


22,572Compensation and related costs


917


6,685Other


6,829


9,837$
50,063

$
48,568Other liabilities:Current:Merchandise certificates

$
7,146

$
3,369Deposits


6,148


5,679Sales and use taxes


4,078


3,865Other


2,925


4,151$
20,297

$
17,064





(8)    Notes PayableShareholders:





The notes are due in 2007 and bear interest at 8%. Interest expense to the shareholders was approximately $27,000, $30,000 and $33,000 for the years
ended December 31, 2001, 2000 and 1999, respectively.





The following are annual maturities on notes payable to shareholders:





Years Ending December 31,

Amount(In thousands)2002

$
432003


462004


502005


542006


58Thereafter


62$
313




89




---



AMERICAN GOLF CORPORATION AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)







(9)    Notes PayableOthers:





Notes payable to others consist of the following components:





December 31, 2001

December 31, 2000Type of Collateral

Interest Rate

Interest Payments

Current Portion

Long- Term Portion

Current Portion

Long- Term Portion

Maturity(In thousands)Collateralized revolving credit facility

Prime+4.0%

Monthly

$
49,450

$


$


$
5,000

3/2002Noncollateralized note

6.1%

Annually








817




1/2002Noncollateralized note

8.3%

Quarterly


29





54


29

6/2002Collateralized note

4.8%

Monthly


2,454










4/2002Collateralized note

7.4%

Monthly








2,560




6/2001Collateralized note

9.6%

Semi-Annually


32,323





3,479


34,185

7/2004Collateralized note

8.0%

Quarterly


3,014





290


3,106

7/2009Collateralized note

9.5%

Quarterly


3,444





281


3,508

12/2009Collateralized note

8.8%

Quarterly


2,826





154


2,875

10/2012Collateralized note

8.8%

Quarterly


608








635

10/2012Collateralized note

9.2%

Quarterly


1,793





114


1,835

11/2012Collateralized note

7.6%

Quarterly


2,148





99


2,186

1/2014$
98,089

$


$
7,848

$
53,359





At December 31, 2001 and 2000, the bank prime and reference rate was 4.75% and
9.5%, respectively.





As discussed in Note 2, as of December 31, 2001 AGC was not in compliance with certain of its financial
covenants related to its revolving credit facility and private placement notes. In addition, certain of the Companys debt instruments include cross-default provisions pursuant to which a default under one instrument may cause a default under
one or more other instruments. As of December 31, 2001, the outstanding balances of instruments of AGCs subsidiaries containing cross default provisions were $13,833,000. The covenant breaches put the Company into default on approximately
$95,606,000 of outstanding debt. Accordingly, the outstanding debt has been classified in current liabilities in the consolidated balance sheet at December 31, 2001.





On December 31, 1997, the Company entered into a $40,000,000 revolving credit facility and a $13,500,000 standby letter of credit facility with a commercial bank that bears interest at
prime or a LIBOR based rate. Letters of credit issued under these credit facilities are charged a 1.0% to 1.5% annual letter of credit fee. On April 1, 2000, AGC amended its revolving credit facility to increase the amount available under the line
of credit to $60,000,000, of which $10,000,000 expired on July 31, 2000 and $50,000,000 was to expire on March 29, 2002. The revolving credit facility is used to finance working capital requirements. At December 31, 2001 there was $49,450,000
outstanding and $546,000 in standby letters of credit issued against the revolving credit facility. The $13,500,000 standby letter of credit facility supported letters of credit issued in favor of NGP, pursuant to the terms of the leases between NGP
and AGC. As of March 31, 2000, NGP waived the Companys obligation to maintain the letter of credit.





On March 8, 2002, AGC
entered into a forbearance agreement with its commercial bank due to the defaults under its $50,000,000 credit facility. Under the forbearance agreement, the lenders agreed to forbear, subject to certain conditions, from exercising any of their
remedies under the credit agreement in connection with these defaults for the period ending March 29, 2002, and AGC repaid $1,862,000 of the principal balance outstanding




90




---



AMERICAN GOLF CORPORATION AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)




under the revolving credit facility. In addition, the revolving credit facility was permanently reduced from $50,000,000 to $48,134,000 and the interest rate was increased to prime plus
one percent plus a three percent default rate. AGC is in discussions with its commercial bank to extend the maturities of its borrowings under the credit agreement, which came due on March 29, 2002.





In December 1996, AGC placed $41,500,000 of fixed rate senior collateralized notes due 2004 with a group of institutional investors. The net proceeds
from the private placement were used to repay bank debt and provide a $29,000,000 loan to The Prices.





The revolving credit
facility and the private placement loan are collateralized by the issued and outstanding stock of GEI.





The note agreements and
credit facilities contain, among other covenants, fixed charge and debt to EBITDA coverage ratios, minimum tangible net worth amounts, and certain restrictions regarding indebtedness to others.





The following are the scheduled annual maturities on notes payable to others:





Years Ending December 31,

Amount(In thousands)2002

$
54,9732003


5,3102004


27,4092005


1,3242006


1,446Thereafter


7,627$
98,089





(10)    Notes PayableCapital Leases:





Future minimum payments, by year and in the aggregate, under capital leases with initial remaining terms of one year or more consist of the following at
December 31, 2001:





Years Ending December 31,

Amount(In thousands)2002

$
9422003


2682004


1Total minimum lease payments


1,211Amount representing interest


89Present value of net minimum lease payments


1,122Current portion


864Long-term portion

$
258




91




---



AMERICAN GOLF CORPORATION AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)







(11)    Employee Benefit Plans:





1994 Equity Participation Plan





In 1994, the Company established the 1994 Equity Participation Plan, as amended (the 1994 Plan). Under the 1994 Plan, 1,200,000 shares may be awarded to key employees as either nonqualified stock options, performance awards, or
the right to purchase common stock. There were 436,314 and 101,806 shares available under the 1994 Plan as of December 31, 2001 and 2000, respectively. In addition, there were 123,218 shares of common stock outstanding under the 1994 Plan as of
December 31, 2001 and 2000. These outstanding shares of common stock were initially issued at a price of $22.05 per share for which the Company received notes receivable totaling $2,564,000. As discussed in Note 15, during 2001 the Company entered
into Note Modification Agreements with the holders of the notes whereby the outstanding balances were reduced to $680,000. In 2000, the Company repurchased 31,700 shares of common stock at $95.00 per share. These shares were issued in 1998
at the same price. As part of the repurchase, notes receivable totaling $3,012,000 were paid off.





Stock options granted vest
over a three to five year period and are subject to continued employment and the Company achieving certain financial performance targets. Options granted generally expire within four to six years of the date of grant. The fair value of stock options
granted is estimated using the minimum value pricing method with the following assumptions: (i) risk-free interest rate of 7.0%, (ii) expected option life of seven years, (iii) forfeiture rate of zero, (iv) no expected volatility and (v)
dividend yield of 5%.





The summary of the status of the Companys stock options as of December 31, 2001, 2000 and 1999, and
the activity with executives, key employees and members of the AGC Board of Directors during the years then ended is presented below:





2001

2000

1999Number of Shares


Weighted Average Option Exercise Price

Number of Shares


Weighted Average Option Exercise Price

Number of Shares


Weighted Average Option Exercise PriceOutstanding at beginning of year

436,589


$
50.95

626,102


$
53.61

642,835


$
50.56Grantedprice equals fair value







38,040



75.68

76,080



75.68Exercised













(17,699
)


22.05Canceled

(68,915
)


55.10

(227,553
)


62.41

(75,114
)


57.30Options outstanding at year end

367,674


$
50.17

436,589


$
50.95

626,102


$
53.61Options exercisable at year end

209,174





235,307





366,206





The following table summarizes information about stock options outstanding at
December 31, 2001:





Options Outstanding

Options ExercisableExercise price

Number Outstanding At December 31, 2001

Weighted Average Remaining Contractual Life

Weighted Average Exercise Price

Number Outstanding At December 31, 2001

Weighted Average Exercise Price22.05

209,174

4.0

22.05

209,174

22.0575.68

63,400

2.0

75.68



95.00

95,100

3.0

95.00



367,674





209,174




92




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AMERICAN GOLF CORPORATION AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)







The Company adopted the disclosure only provisions of SFAS No. 123 and accordingly,
no compensation expense has been recognized for stock option grants to executives, key employees and members of the AGC Board of Directors. Had compensation expense for such grants been determined based on the fair value of the award, at the
grant date, consistent with the provisions of SFAS No. 123, the Companys net income (loss) would have been reduced to the pro forma amounts indicated below:





For the Years Ended December 31,2001


2000


1999(In thousands)Restated


RestatedNet income (loss)as reported

$
(60,428
)

$
(278
)

$
5,686Net income (loss)pro forma

$
(60,447
)

$
(408
)

$
5,686





In 1995, performance awards were granted to key members of management who were
not awarded the right to purchase common stock or nonqualified stock options. The 1994 Plan provides that holders of performance awards have the right to receive an amount equal to the appreciation in share value (as measured by a predetermined
formula based on the Companys earnings). All performance awards were scheduled to mature on December 31, 1998. In 1998, the Company granted the holders of performance awards the right to receive, as a prepayment, a portion of their
appreciation in share value based on the 1997 share price, payable in 1999, and extended the maturity date of the performance shares to December 31, 1999. The appreciation in share value, less the prepayment, is payable in three equal annual
installments, beginning in early 2000. In 1999, the Company issued 66,496 performance awards with a maturity date of December 31, 2001 payable in annual installments beginning in early 2002. Performance awards vest based on achieving certain
earnings targets of the Company and are subject to continued employment. No performance awards were outstanding as of December 31, 2001. Performance awards outstanding totaled 235,057 as of December 31, 2000. No compensation expense was recorded
during 2001 related to these awards. For the year ended December 31, 2000, compensation expense of $1,981,000 was reversed related to compensation expense recorded in 1999 as earnings estimates were revised.





401(k) Employee Savings Plan





The Company has a 401(k) Employee Savings Plan available to all domestic employees who have earned one year of vesting service and are at least 21 years of age. Participants may contribute from 1% to 20% of their earnings, in whole
percentages, on a before-tax basis. The Company contributes to participants accounts based on the amount the participant elects to defer and a matching contribution equal to $0.50 on each dollar contributed by a participant up to 3% of the
participants gross pay. The Companys expense for the plan was approximately $1,163,000, $1,273,000 and $1,046,000 for the years ended December 31, 2001, 2000 and 1999, respectively. On January 1, 2002, the Company suspended Company
matching contributions to participants in the 401(k) Employee Savings Plan.




93




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AMERICAN GOLF CORPORATION AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)







(12)    Commitments and Contingencies:





The Company is the lessee under long-term operating leases for golf courses and equipment. At December 31, 2001, the following are future minimum
rental payments required pursuant to the terms of all lease obligations:





Years Ending December 31,

Related Parties

Unrelated Parties

Total(In thousands)2002

$
103,399

$
69,074

$
172,4732003


104,002


65,749


169,7512004


104,914


56,716


161,6302005


105,801


51,409


157,2102006


106,004


46,236


152,240Thereafter


555,867


407,963


963,830$
1,079,987

$
697,147

$
1,777,134





In addition to minimum rental payments, certain leases require payment of the
excess of various percentages of gross revenue or net operating income over the minimum rental payments. Percentage rentals paid to unrelated parties were approximately $11,944,000, $13,664,000 and $11,963,000 for the years ended December 31, 2001,
2000 and 1999, respectively.





Under the terms of certain leases, the Company is committed to make improvements at golf courses.
At December 31, 2001, approximately $3,584,000 of such improvements are required to be made.





The Company is required to
maintain performance bonds under certain third-party agreements, as requested by certain utility providers, and under the rules and regulations of licensing authorities and other governmental agencies. The Company has received cancellation notices
with respect to performance bonds affecting third-party contracts, agreements with utility providers and licenses at certain of its managed facilities and has been notified that cancellation notices with respect to other performance bonds will be
issued unless the Company posts collateral securing the obligations covered by the performance bonds. The Companys failure to replace or maintain required performance bonds may result in the Companys noncompliance under such agreements.





During the fourth quarter of 2001, the Company signed an agreement with The Coca-Cola Company to purchase a minimum quantity of
fountain sodas and bottled/canned beverages over the next five years commencing January 1, 2002. Based on the quantities and prices stipulated in the purchase contract, the minimum purchase commitment is approximately $15,700,000.





At December 31, 2001, the Company was contingently liable for outstanding letters of credit in the amount of approximately $796,000.





The Company has continuing litigation matters and other contingencies incurred in the ordinary course of business and has
recorded allowances for the payment of these contingencies when such amounts can be estimated and are considered material to the results of operations. Where no allowance has been recorded, the Company does not consider the contingencies material to
its consolidated financial position, results of operations or cash flows.





During February and March 2002, three
lawsuits were filed in federal court against NGP, its directors, and certain of its officers. The three lawsuits also named AGC as a defendant in connection with the proposed




94




---



AMERICAN GOLF CORPORATION AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)




business combination with NGP. Each of these cases is a class action claim brought by the plaintiff on behalf of the public stockholders of NGP, alleging, among other things, breaches of
fiduciary duties. The plaintiff in one of the cases served a first request for production of documents on AGC on March 13, 2002. The plaintiff in each case seeks, among other things, compensatory damages, an accounting of profits, constructive
trust, costs and disbursements of this action, including allowance for plaintiffs attorneys and experts fees, injunctive and declaratory relief, or, if such transaction is consummated, the plaintiff seeks to rescind such
transaction. These actions have just been commenced, and no trial dates have been set. Management believes that the Company has meritorious defenses to these actions and intends to vigorously defend itself.





(13)    Related Party Transactions:





The Company rents golf and tennis facilities from NGP and related entities in which The Prices have a controlling interest. Rent expense paid to NGP was approximately $108,719,000, $107,680,000 and $98,705,000 for the years ended December
31, 2001, 2000 and 1999, respectively. Rent expense paid to related entities in which The Prices have a controlling interest was approximately $8,344,000, $8,082,000 and $3,612,000 for the years ended December 31, 2001, 2000 and 1999 respectively.





The Company recorded management fees from related entities in the amount of approximately $3,880,000, $3,813,000 and $2,128,000
for the years ended December 31, 2001, 2000 and 1999, respectively.





The Company earns interest on receivables from affiliates
at a prime based rate. Interest income from affiliates was approximately $1,475,000, $1,591,000 and $222,000 for the years ended December 31, 2001, 2000 and 1999, respectively. During 2001, interest income earned on notes receivable from
shareholders and affiliates was approximately $2,584,000.





The Company has accumulated costs on its balance sheet relating to
construction in progress at certain golf and tennis facilities owned by NGP. Periodically, substantially all of these costs are reimbursed by NGP and related entities. These accumulated costs amounted to approximately $1,101,000 and $773,000 at
December 31, 2001 and 2000, respectively.





Included in other receivables are receivables from employees of $576,000 and $422,000
at December 31, 2001 and 2000, respectively.





(14)    Statement of Cash FlowsSupplemental Disclosures:





Interest paid was approximately $8,874,000, $7,534,000 and $7,524,000 for the years ended December 31, 2001, 2000 and 1999, respectively.





State income taxes paid were approximately $89,000, $120,000 and $50,000 for the years ended December 31, 2001, 2000 and
1999, respectively.





During 1999, the Company assumed capital leases for equipment of approximately $2,850,000.





(15)    Shareholders Equity (Deficit):





During the year ended December 31, 2001 AGC issued 348,668 shares of stock for the assumption of $7,853,000 of member deposits by The Prices and a shareholder of AGC. Since these member deposits are still recorded as
a liability in the consolidated balance sheet at December 31, 2001, there were no adjustments made to the consolidated financial statements relating to this transaction.




95




---



AMERICAN GOLF CORPORATION AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)







As discussed in Note 11 to the consolidated financial statements, the Company had
notes receivable from key current and former employees with a balance of $2,564,000 as of December 31, 2000 resulting from the purchase of 123,218 shares of common stock. The notes are collateralized by the common stock issued and are shown on
the consolidated balance sheets as a reduction in shareholders equity (deficit). During 2001, the Company entered into Note Modification Agreements with these current and former employees whereby the outstanding notes receivable balance was
reduced to $680,000. As a result of this agreement, the Company recorded a charge of $1,884,000 in general and administrative expenses. The Note Modification Agreements also reduced the interest rate on the notes from 6% to 3.97% and the principal
due date was extended from 2004 to 2010. Interest income on the notes was approximately $153,000, $195,000 and $425,000 for the years ended December 31, 2001, 2000 and 1999, respectively.





Interest is paid with proceeds from shareholder distributions and, if necessary, a portion of their annual bonus. To the extent these amounts are insufficient to cover the current year
interest, the unpaid interest may be added to the principal of the note. No amounts were added to principal for the years ended December 31, 2001, 2000 and 1999. Accrued interest outstanding on shareholder notes as of December 31, 2001 and 2000 was
approximately $430,000 and $277,000, respectively.





(16)    Subsequent Events:





On January 10, 2002, the Company entered into an agreement with NGP to pay a fee to NGP of approximately $8,514,000 as consideration for terminating the
leases at 10 courses sold by NGP in 2001. The payment terms of the lease termination fee to NGP have not been determined. During 2002, the Company entered into agreements to pay a lease termination fee of approximately $7,435,000 related to 6 lease
terminations. The Company also plans to enter into similar lease termination agreements with NGP on up to 25 leases on golf courses that NGP intends to sell.





On February 13, 2002, the Company executed a letter of intent to enter into a business combination with NGP and certain of the Companys affiliates, including GEI and European Golf,
L.L.C. On March 29, 2002 the Company entered into a definitive merger and reorganization agreement with NGP and these affiliates. Under the agreement, the Company and NGP will become wholly owned subsidiaries of a newly-formed holding company. All
issued and outstanding shares of common stock of NGP will be converted on a one-to-one basis into an equal number of shares of common stock of the new company, and all common limited partnership units of NGOP (other than preferred units held by the
Company, NGP, GEI and certain affiliates) will be converted on a one-to-one basis into an equal number of shares of common stock in the new company. Shareholders of the Company and its affiliates will receive consideration of 156,005 shares of
common stock of the new company, up to 100,000 shares of Class C preferred stock of the new company and $10,000 in cash. Upon consummation of the transactions, NGP will no longer qualify as a REIT and the new company will both own and operate
golf courses. The transaction is subject to the approval of NGPs stockholders, lenders to the Company, NGP and common and preferred unit holders of NGOP, as well as regulatory approvals and certain other conditions described in the merger and
reorganization agreement. While there can be no assurances as to whether or when the conditions set forth in the preceding sentence will be satisfied, the Company anticipates that the transaction will close by the end of the third quarter of 2002.
In the event the transaction is not completed (or is materially delayed), there may be serious adverse consequences on the financial condition and operations of the Company.





As of March 29, 2002, AGC had paid approximately $13.0 million and owed approximately $13.4 million of rent to NGP for the period January 1, 2002 through March 31, 2002.




96




---




SIGNATURES





Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.





NATIONALGOLF PROPERTIES, INC.By:

/s/    CHARLES S. PAULCharles S. Paul Interim Chief Executive Officer





Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.





Signatures

Title

Date/s/    DAVID G.
PRICE David G. Price

Chairman of the Board

March 29, 2002/s/    CHARLES S.
PAUL Charles S. Paul

Interim Chief Executive Officer and Director

March 29, 2002/s/    JAMES M.
STANICH James M.
Stanich

President and Director

March 29, 2002/s/     NEIL M.
MILLER Neil M. Miller

Chief Financial Officer, Secretary and Acting General Counsel

March 29, 2002/s/    JOHN C. CUSHMAN,
III John C. Cushman, III

Director

March 29, 2002/s/    BRUCE
KARATZ Bruce Karatz

Director

March 29, 2002




97